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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended Commission File Number
December 31, 1994 1-3985
EDO CORPORATION
Exact name of Registrant as specified in its charter.
State of Incorporation: IRS Employer Identification No.:
New York 11-0707740
Address of principal executive offices:
14-04 111th Street, College Point, New York 11356-1434
Telephone No.:
(718) 321-4000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class: Name of each exchange on which registered:
Common Shares New York Stock Exchange
par value $1 per share
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure by delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this form. [X]
State the aggregate market value of the voting stock held by
non-affiliates of the Registrant as of March 7, 1995 ......... $16,433,640
Indicate the number of shares outstanding of each of the Registrant's classes
of common stock as of March 7, 1995 ................................. 5,643,937
Documents Incorporated by Reference
Portions of the Definitive Proxy Statement of the Registrant, dated March 24,
1995, are incorporated by reference into Part III.
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Table of Contents
Part I...................................................................... 1
Item 1. Business........................................................... 1
Defense and Space Systems................................................. 1
Marine and Aircraft Systems.............................................. 1
Aircraft Stores Suspension and Ejection Systems......................... 1
Airborne Mine Countermeasures Systems................................... 1
Combat Systems........................................................... 2
Antisubmarine Warfare Sonar............................................. 2
Command and Control Systems............................................. 2
Electro-Optics Systems................................................... 2
Spaceflight Systems..................................................... 2
Infrared Instrumentation................................................ 2
Industrial Products....................................................... 2
Acoustic Products........................................................ 2
Ceramics................................................................. 3
Fiber Science............................................................ 3
EDO Energy............................................................... 3
EDO Sports............................................................... 3
Research and Development.................................................. 3
Marketing and International Sales......................................... 4
Backlog................................................................... 4
Government Contracts...................................................... 4
Competition and Other Factors............................................. 5
Employees................................................................. 5
Executive Officers of the Registrant...................................... 5
Item 2. Properties......................................................... 5
Item 3. Legal Proceedings.................................................. 6
Item 4. Submission of Matters to a Vote of Security Holders................ 6
Part II..................................................................... 6
Item 5. Market for Registrant's Common
Equity and Related Stockholder Matters............................. 6
Item 6. Selected Financial Data............................................ 6
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations................................ 6
Item 8. Financial Statements and Supplementary Data........................ 6
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure................................ 6
Part III.................................................................... 6
Item 10. Directors and Executive Officers of the Registrant................ 6
Item 11. Executive Compensation............................................ 6
Item 12. Security Ownership of Certain
Beneficial Owners and Management.................................. 6
Item 13. Certain Relationships and Related Transactions.................... 6
Part IV..................................................................... 6
Item 14. Exhibits, Financial Statement
Schedules, and Reports on Form 8-K................................ 6
(a) Financial Statements and Financial
Statement Schedules and Exhibits...................................... 6
1. Financial Statements.............................................. 6
2. Financial Statement Schedules..................................... 7
3. Exhibits.......................................................... 7
(b) Reports on Form 8-K................................................... 8
Signatures.................................................................. 8
Selected Financial Data..................................................... 9
Management's Discussion and Analysis of Financial Condition and
Results of Operations...................................................... 10
Consolidated Statements of Operations....................................... 13
Consolidated Balance Sheets................................................. 14
Consolidated Statements of Shareholders' Equity............................. 15
Consolidated Statements of Cash Flows....................................... 16
Notes to Consolidated Financial Statements.................................. 17
Independent Auditors' Report................................................ 25
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PART I
ITEM 1. BUSINESS
The term "Registrant" as used in this Annual Report refers to EDO Corporation.
The term "Company" as used in this Annual Report, except where the context
otherwise requires, includes the Registrant and its subsidiaries.
EDO Corporation was incorporated in New York in 1925 by Earl Dodge Osborn, from
whose initials "EDO" is derived. In the early days of modern aviation, the
Company pioneered in the development of seaplane floats.
Principally a designer and manufacturer of advanced electronic, acoustic,
aerodynamic and hydrodynamic systems for military applications and for marine
and aviation markets, the Company has been pursuing the application of its
sophisticated and diverse defense-related technologies to civilian and
commercial markets with particular emphasis on the natural gas vehicle
equipment marketplace.
The Company organizes its business into two segments: Defense and Space
Systems; and Industrial Products. A description of the principal products of
the Company within the two industry segments is set forth below. During 1993
and 1994, the Company adopted and implemented a restructuring plan which
consisted of the discontinuance of the Company's defense business in Canada,
the relocation of some United States production from New York to less costly
locations, the related disposition of non-productive assets (principally land
and buildings), and work force reductions. Additionally, information about the
Company's restructuring plan is contained on page 10 and Note 2 on page 18 of
this Report. Certain business segment information on the Company's operations
is set forth under Note 18 on pages 24 and 25 of this Report.
DEFENSE AND SPACE SYSTEMS
The Company's defense and space operations, which accounted for 62%, 69% and
74% of sales for 1994, 1993 and 1992, respectively, are conducted by three
separate business units which comprise the division. These business units are
Marine and Aircraft Systems located in College Point, New York, Combat Systems
located in Chesapeake, Virginia, and Electro-Optics located in Shelton,
Connecticut. In 1994 all sonar related business was transferred from the Marine
and Aircraft unit to the Combat Systems unit. As a result, the Marine and
Aircraft unit in New York is now dedicated to mechanical and structural
products and the military electronics and computer software business is
conducted at the Combat Systems operation in Virginia.
Marine and Aircraft Systems
The Marine and Aircraft business unit designs, develops and manufactures
sophisticated mechanical, electromechanical, structural, hydrodynamic and
aerodynamic systems for military use. Additionally, the business unit provides
logistics support for its products following initial hardware deliveries
including spare and repair parts, training and technical services. The revenue
from these support functions are a significant portion of sales. The major
products of the Marine and Aircraft business unit are Aircraft Stores
Suspension and Ejection Systems and Airborne Mine Countermeasure Systems.
Aircraft Stores Suspension and Ejection Systems.
The Company developed and manufactured bomb release units (BRU) for the U.S.
Air Force F-15E, ejection release units (ERU) for the Tornado Multirole Combat
Aircraft and jettison release mechanisms (JRM) for the U.S. Navy F-14 aircraft.
In 1994 the Company continued production of BRUs for the F-15E under a new
order received at the end of 1993, provided spare parts support for Tornado
ERUs previously produced, completed a production order of several JRMs and
completed development of a new BRU for an international customer. In addition,
the Company continued its efforts on the development of a new modified missile
launcher for the F-14, a technology program for the U.S. Air Force for a dual
mode launcher and the development of the Advanced Medium Range Air To Air
Missile (AMRAAM) missile launcher for the F-22 Advanced Tactical Fighter.
Funded development for this missile launcher, which employs new internal
carriage technology, is expected to continue throughout 1995. For 1994, 1993
and 1992, respectively, sales of aircraft stores suspension and ejection
systems represented 18%, 12%, and 11% of consolidated net sales.
Airborne Mine Countermeasures Systems
The Company is the only manufacturer of the MK 105 helicopter towed magnetic
minesweeping system designed and developed by the Company in conjunction with
the U.S. Navy. In 1994, the Company completed development of a funded upgrade
to the MK 105. The upgraded system was delivered to the U.S. Navy for testing
and evaluation. These tests are scheduled for completion in the first half of
1995. It is anticipated that a production contract will be received sometime
after completion of the evaluation. In 1994, the Company began work on a new
U.S. Navy funded contract to develop a lightweight self contained helicopter
towed magnetic sweep for shallow water applications. This development will
continue throughout 1995.
In addition, the Company continued to provide logistic support for MK 105
systems previously provided to both the U.S. Navy and an international
customer. For 1994, 1993 and 1992, respectively, sales of airborne mine
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countermeasures systems represented 12%, 13% and 13% of consolidated net sales.
Combat Systems
The Combat Systems business unit designs, develops and produces antisubmarine
warfare (ASW) sonar systems and command, control and communications systems. In
addition, the business unit provides logistics support consisting of spare and
repair parts, training and technical services for its products.
Antisubmarine Warfare Sonar
The Company has been a supplier of ASW sonar systems for more than forty years.
In 1994 this business was transferred from the New York business unit to the
business unit in Virginia. In 1994, efforts continued on the development and
production of a surface ship sonar system for an international customer and on
a new passive/active sonar system variation of the AN/SQR -18 for the U.S.
Navy. In addition, logistics support was provided for several sonars previously
delivered. The international sonar program is scheduled for completion in 1995.
For 1994, 1993 and 1992, respectively, sales of sonar systems represented 10%,
15% and 18% of consolidated net sales.
Command and Control Systems
This business designs, develops and produces digital data links and command and
control systems primarily for military use, both domestically and
internationally. In 1994 Combat Systems successfully delivered a new data link
to an international customer, was awarded a new contract for a command and
control system for the U.S. Air Force, continued development on a tactical
display for the AN/SQR-18 passive/active sonar system and, in cooperation with
the Marine & Aircraft business unit, developed, delivered and demonstrated a
new mobile command, control and communications center for the U.S. Navy's
Airborne Mine Countermeasures squadrons. These programs are continuing efforts
and are funded into 1995.
Electro-Optics Systems
The Electro-Optics business unit designs, develops and produces products and
systems for satellites and microthermal instruments for use in the
semiconductor industry.
Spaceflight Systems
This business designs and manufactures electro-optical products for space. The
primary products are infrared earth sensors which are used to provide
satellites with information relative to stabilization and orbit position. In
1994, Electro-Optics conducted funded programs to provide earth sensor
assemblies for Hughes communication satellites, the U.S. Air Force Global
Positioning Satellite System, Orbital Science's ORBCOM digital data
transmission system and NASA's Tropical Rainfall Measurement System. In
addition, Electro-Optics continued development of an earth sensor assembly for
the Motorola/Lockheed Iridium (TM) communication satellite constellation and
was awarded an advance contract to begin work for the Loral/DASA Globalstar
(TM) communication satellite. For 1994, 1993 and 1992, respectively, sales of
spaceflight systems represented 8%, 13% and 14% of consolidated net sales.
Infrared Instrumentation
Electro-Optics manufactures a line of imaging instruments for design and
quality analysis of semiconductors. In 1994, this business brought to market
the Infrascope (TM), the only "true temperature" infrared imaging microscope
available.
INDUSTRIAL PRODUCTS
In 1994, the business units which are primarily related to non-military markets
were reorganized into one division, the Industrial Products Division. Now
included in the division are Acoustic Products, Ceramics, Fiber Science, and
the two energy related operations EDO Canada and EDO ANGI. The Acoustic
Products business unit, located in Salt Lake City, supplies all the other
Industrial Products Division business units with support services as required.
EDO Sports, a business unit dedicated to the production of composite sporting
products, was discontinued in late 1994. This division accounted for 38%, 31%
and 26% of sales for 1994, 1993 and 1992, respectively.
Acoustic Products
The Acoustic Products business unit concentrates on industrial/commercial
applications of underwater acoustic technology. Standard lines are focused on
the precision measurement of velocity of objects in water or fluid streams. The
Company has invested substantially in recent years in this technology. Most
undersea vehicles, both military and commercial, now carry the Company's
velocity measurement instruments.
The Company is currently testing a new instrument product line, a precision
Current Profiler, which will be used by the environmental sciences industry to
map ocean and river currents. It is being developed in a joint program with a
major European company and will be introduced to the market in late 1995.
Military transducer design and production also continues to be done at the
Acoustic Products business unit which provides all of the Company's commercial
transducers as well.
The Acoustic Products unit is developing products for the active noise and
vibration control marketplace. This new initiative, started in 1993, is
intended to apply the Company's expertise in piezoceramic materials and
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transducers to the problems of noise and vibration reduction emanating from
industrial machinery. The Company is currently performing on a large government
funded program for vibration reduction in precision machine tools, specifically
grinders.
Ceramics
The Division's Ceramics business unit, located in Salt Lake City, is one of
North America's largest manufacturers of piezoceramics components. Piezoceramic
elements convert acoustic to electrical energy and form the basis of many
industrial and commercial products ranging from military underwater sonars to
ink jet printers. This operation has now converted its production operations
from its military orientation of the mid 80's to its current position of a
leading supplier to the industrial market. The Company has invested
significantly over the last three years to automate and improve its production
process.
Fiber Science
In 1994, the Company decided to focus its Fiber Science business unit on the
development and production of its traditional composite water and waste tanks
for the commercial aviation market. This resulted in a concentrated technical
and marketing effort which yielded long term production contracts from Boeing
and Airbus plus the Company's first conformal water tank for a Canadair
regional aircraft. This new product line provides Fiber Science an entree into
a new and potentially larger, worldwide market for regional aircraft.
While concentration on water and waste tanks is the primary mission of Fiber
Science, the Company continues to pursue programs in new expanding commercial
markets. This has resulted in receipt of a $4.5 million contract to provide
composite blades for wind powered electrical generating turbines. The blades
will be used in a new wind farm located in Texas.
EDO Energy
The Company's thrust into energy markets relates to the use of natural gas as
an alternative vehicle fuel. EDO Energy has been formed to focus the Company's
efforts and coordinate the marketing of its two energy related operations: EDO
(Canada) Ltd. and EDO ANGI. The Company is approaching the market from several
directions: EDO Energy provides complete turnkey integrated natural gas vehicle
(NGV) conversion systems to large commercial fleets; EDO ANGI supplies complete
natural gas refueling stations and engine conversion systems; and EDO Canada
designs and manufactures the LiteRider, a composite, lightweight, all-plastic
pressure tank for natural gas.
EDO Energy continues to pursue the conversion of large taxi fleets to natural
gas. The Company anticipates a demonstration program to convert twenty-five New
York City taxis to natural gas in 1995. In addition, the Company is part of a
team that will convert taxis in the city of Dallas, TX. This team will perform
crash tests and conversion kit certification to the stringent California Air
Resources Board emissions standard, a prerequisite to large volume conversions.
EDO Canada is dedicated to the production of all composite, plastic NGV fuel
tanks. Using basic technology transferred under license from the Company's
Fiber Science business unit, EDO Canada developed and is now producing what the
Company believes to be the safest and lightest NGV fuel tank on the market, the
EDO LiteRider. The LiteRider has received significant acceptance in the
marketplace, especially in applications where weight is a premium. The natural
gas transit bus market is an application where the Company has made substantial
sales.
EDO Sports
EDO Sports was dedicated to the design and production of composite products for
the golf and bicycle marketplace. Due to excessively high development and
market introduction costs, the Company discontinued this operation in late
1994.
RESEARCH AND DEVELOPMENT
Research and development, performed both under development contracts with
customers and at Company expense, are important factors in the Company's
business. The Company's research and development efforts involve approximately
115 employees in the fields of acoustic, electronic, hydrodynamic, aerodynamic,
structural and material engineering. Research and development programs are
designed to develop technology for new products or to extend the capability of
existing products and to assess their commercial potential.
Customer-sponsored research and development programs are principally related to
military programs in the Defense and Space Systems segment. Major
customer-sponsored research and development programs include: continued
development of improvements to the AN/SQR-18A(V) TACTAS system; improvements to
the MK-105 mine countermeasures system; development of a new surface ship sonar
system; development of a combat integration system; development of new and
improved stores launchers; and development of a new earth sensor for
satellites.
Expenditures under development contracts with customers vary in amount from
year to year because of the timing of contract funding. During 1993,
expenditures for customer-sponsored research and development was down 13%
primarily as a result of less available funding consistent with the general
decline in military spending. During 1994, expenditures for customer-sponsored
re-
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search and development rose 30% over 1993 due primarily to increased funding
in aircraft stores launching systems and satellite earth sensors.
Company-sponsored research and development has contributed to a number of
advances in sonar systems, transducers, filament-wound structures, and
compressed natural gas composite fuel cylinders.
Principal current research and development involves: image and signal
processing and other improvements for sonars; improvements to minesweeping
technology; continued development of satellite-based sensors; and composite
fuel cylinders and refueling equipment for the compressed natural gas vehicle
market.
The following table sets forth research and development expenditures for the
periods presented.
Year Ended December 31,
1994 1993 1992
(in thousands)
-------------------------
Customer-sponsored $18,400 $14,100 $16,100
Company-sponsord 3,200 6,000 5,300
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Total $21,600 $20,100 $21,400
======= ======= =======
MARKETING AND INTERNATIONAL SALES
Military sales of the Company's products to both the U.S. and foreign
governments are usually made under negotiated long-term contracts or
subcontracts covering one or more years of production. The Company believes
that its long history of association with its military customers is an
important factor in the Company's overall business, and that the experience
gained through this history has enhanced the Company's ability to anticipate
its customers' needs. The Company's approach to its military business is to
anticipate specific customer needs and to develop systems to meet those needs
either at its own expense or pursuant to research and development contracts.
The Company sells products in its Defense and Space Systems segment as a prime
contractor and through subcontracts with other military prime contractors. In
addition to military sales to the U.S. Department of Defense, the Company also
sells Defense and Space Systems segment equipment to the U.S. Government for
resale to foreign governments under the Foreign Military Sales program and,
subject to approval by the U.S. Department of State, directly to foreign
governments.
Products within the Industrial Products segment are sold in industrial and
commercial markets. In foreign markets, piezoelectric and electronic products
are generally sold commercially through a network of sales representatives.
Fiber-reinforced composite products are sold, in certain product areas, on a
direct basis and, in other product areas, through sales representatives. The
Company's NGV products are generally sold through independent distributors,
dealers, and original equipment manufacturers. The Company's EDO Energy
subsidiary provides marketing for integrated NGV programs.
It is the Company's policy to denominate all foreign contracts from its U.S.
operations in U.S. dollars and generally to incur no significant costs in
connection with long-term foreign contracts until the Company has received
advance payments or letters of credit on amounts due under the contracts. The
Company's only significant asset outside the United States is its
majority-owned subsidiary, EDO (Canada) Limited, which represents approximately
4% of the Company's total consolidated assets.
BACKLOG
A significant portion of the Company's sales are made to the U.S. armed
services and foreign governments pursuant to long-term contracts. Accordingly,
the Company's backlog of unfilled orders consists in large part of orders under
these government contracts. As of December 31, 1994, the Company's total
backlog was approximately $79.6 million, as compared with $89.2 million on
December 31, 1993. Of the total backlog as of December 31, 1994, approximately
74% was scheduled for delivery in 1995. Total backlog as of December 31, 1994,
divided between the Company's two industry segments, was Defense and Space
Systems, $52.4 million, and Industrial Products, $27.2 million, as compared,
respectively, with $69.7 million and $19.5 million as of December 31, 1993.
GOVERNMENT CONTRACTS
Sales to the U.S. Government, as a prime contractor and through subcontracts
with other prime contractors, accounted for 53% of the Company's 1994 net sales
compared with 56% in 1993 and 60% in 1992, and consisted primarily of sales to
the Department of Defense. Such sales do not include sales of military
equipment to the U.S. Government for resale to foreign governments under the
Foreign Military Sales program.
The Company's military business can be and has been significantly affected by
changes in national defense policy and spending. The Company's U.S. Government
contracts and subcontracts and certain foreign government contracts contain the
usual required provisions permitting termination at any time for the
convenience of the government with payment for work completed and committed
along with associated profit at the time of termination.
The Company's contracts with the Department of Defense consist of fixed price
contracts, cost-reimbursable contracts and incentive contracts of both types.
Fixed-
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price contracts provide fixed compensation for specified work.
Cost-reimbursable contracts require the Company to perform specified work in
return for reimbursement of costs (to the extent allowable under government
regulations) and a specified fee. In general, while the risk of loss is greater
under fixed-price contracts than under cost-reimbursable contracts, the
potential for profit under such contracts is greater than under
cost-reimbursable contracts. Under both fixed-price incentive contracts and
cost-reimbursable incentive contracts, an incentive adjustment is made in the
Company's fee based on attainment of scheduling, cost, quality or other goals.
The distribution of the Company's government contracts among the categories of
contracts referred to above varies from time to time, although in recent years
only a small percentage of the Company's contracts have been on a
cost-reimbursable basis.
COMPETITION AND OTHER FACTORS
The Company's products are sold in competitive markets containing a number of
competitors substantially larger than the Company with greater financial
resources. Direct sales of military products to U.S. and foreign governments
are based principally on product performance and reliability. Such products are
generally sold in competition with products of other manufacturers which may
fulfill an equivalent function, but which are not direct substitutes.
The Company purchases certain materials and components used in its systems and
equipment from independent suppliers. These materials and components are
normally not purchased under long-term contracts unless the Company has
actually received a long-term sales contract requiring them. The Company
believes that most of the items it purchases are obtainable from a variety of
suppliers and it normally obtains alternative sources for major items, although
the Company is sometimes dependent on a single supplier or a few suppliers for
some items.
It is difficult to state precisely the Company's market position in all of its
market segments because information as to the volume of sales of similar
products by its competitors is not generally available and the relevant markets
are often not precisely defined. However, the Company believes that it is a
significant factor in the markets for stores ejectors for military aircraft,
military sonar systems, helicopter-towed mine countermeasure systems,
piezoelectric ceramics, satellite horizon sensors, and natural gas vehicle
refueling stations.
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, most of the Company's U.S. Government contracts license
it to use patents owned by others. Similar provisions in the U.S. 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 defense
work.
EMPLOYEES
As of December 31, 1994, the Company employed 843 persons.
EXECUTIVE OFFICERS OF THE REGISTRANT
Name Age Position and Term of Office
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Robert M. Hanisee 56 Chairman of the Board since December 1994 and Director
since 1992.
Frank A. Fariello 60 President since 1993 and Chief Executive Officer since
August 1994. Executive Vice President from 1989 to
1993, and Director since 1982.
William J. Frost 53 Vice President, Administration since April 1994.
Marvin D. Genzer 54 Vice President since 1990, General Counsel since 1988,
and Assistant Secretary since 1987.
Michael J. Hegarty 55 Vice President-Finance since 1981, Treasurer since
1967, Secretary since 1985 and Director since 1982.
Each executive officer is appointed by the Board of Directors (the "Board"),
and holds office until the first meeting of the Board following the next
succeeding annual meeting of shareholders, and thereafter until a successor is
appointed and qualified, unless the executive officer dies, is disqualified,
resigns or is removed in accordance with the Company's By-Laws.
ITEM 2. PROPERTIES
All operating properties are leased facilities, except for the College Point
corporate headquarters and manufacturing facility. The Company's facilities are
adequate for present purposes. Although all facilities in the following listing
are suitable for expansion by using available but unused space, leasing
additional available space, or by physical expansion of leased or owned
buildings, the Company is offering for sale a material portion of its College
Point facility. The Company's obligations under the various leases are set
forth in Note 16 on page 23 of this Report.
Set forth below is a listing of the Company's principal plants and other
materially important physical properties.
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Approximate
Floor Area
Location (in sq. ft.)
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Defense and Space Systems:
Marine and Aircraft College Point, NY 320,000
Combat Systems Chesapeake, VA 17,000
Electro-Optics Shelton, CT 72,000
Industrial Products:
Acoustic Products and Ceramics Salt Lake City, UT 117,000
Fiber Science Salt Lake City, UT 105,000
EDO (Canada) Limited Calgary, Alberta, Canada 65,000
EDO ANGI Milton, WI 31,000
ITEM 3. LEGAL PROCEEDINGS
The information responsive to this item is set forth under the heading
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" on pages 10, 11 and 12, and in Note 17 on page 24 of this Report.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information responsive to this item is set forth under the headings "Common
Share Prices" and "Dividends" on page 12, together with dividend information
contained in the "Consolidated Statements of Shareholders' Equity" table on
page 15 and Notes 9 and 10 on page 19 of this Report.
ITEM 6. SELECTED FINANCIAL DATA
The information responsive to this item is set forth under the heading
"Selected Financial Data" on page 9 of this Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information responsive to this item is set forth under the heading
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" on pages 10, 11 and 12 of this Report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the Company, together with the
Independent Auditors' Report thereon of KPMG Peat Marwick LLP and the unaudited
"Quarterly Financial Information" are set forth on pages 13 through 26 of this
Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding directors is set forth under "Election of Directors" on
pages 1 through 3 of the Company's Proxy Statement dated March 24, 1995, which
is incorporated by reference.
Information regarding executive officers is set forth in Part I of this Report
under "Executive Officers of the Registrant."
ITEM 11. EXECUTIVE COMPENSATION
Information regarding compensation of the Company's executive officers is set
forth under "Compensation of Executive Officers" on pages 5 through 8 of the
Company's Proxy Statement dated March 24, 1995, which is incorporated by
reference, except for such information required by Item 402(k) and (l) of
Regulation S-K, which shall not be deemed to be filed as part of this Report.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding security ownership of certain beneficial owners and
management is set forth on pages 4 and 9 of the Company's Proxy Statement dated
March 24, 1995, which is incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Financial Statements and Financial Statement Schedules and Exhibits
1. Financial Statements.
The consolidated financial statements as of December 31, 1994 and 1993 and for
the years ended December 31, 1994, 1993 and 1992, together with the report
thereon of
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KPMG Peat Marwick LLP, independent auditors, dated March 3, 1995,
appear on pages 13 through 26 of this Report.
2. Financial Statement Schedules.
Schedules have been omitted either because they are not applicable or the
required information is shown in the consolidated financial statements or notes
thereto.
3. Exhibits.
Exhibits which are noted with an asterisk (*) are management contracts or
compensatory plans or arrangements.
3(i) Certificate of Incorporation of the Company and amendments thereto
dated June 14, 1984, July 18, 1988 and July 22, 1988.
3(ii) By-Laws of the Company. Incorporated by reference to Exhibit 3(ii) to
the Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1993.
4(a) Indenture dated December 1, 1986 between Manufacturers Hanover Trust
Company, as Trustee, and EDO Corporation. Incorporated by reference to Exhibit
4(b) to the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1992.
4(b) Guarantee Agreement, dated as of July 22, 1988, as amended, made by the
Company in favor of NatWest Bank NA as successor in interest to Manufacturers
Hanover Trust Company. Incorporated by reference to Exhibit 4(c) to the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1992.
4(c) Term Loan Agreement, dated as of July 22, 1988, as amended, between The
Bank of New York, as trustee of the trust established under the EDO Corporation
Employee Stock Ownership Plan, and NatWest Bank NA as successor in interest to
Manufacturers Hanover Trust Company. Incorporated by reference to Exhibit 4(d)
to the Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1992.
4(d) Term Note, dated July 22, 1988, as amended, between The Bank of New
York, as trustee of the trust established under the EDO Corporation Employee
Stock Ownership Plan, and NatWest Bank NA as successor in interest to
Manufacturers Hanover Trust Company. Incorporated by reference to Exhibit 4(e)
to the Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1992.
4(e) Pledge and Security Agreement, dated as of July 22, 1988, as amended,
between The Bank of New York, as trustee of the trust established under the EDO
Corporation Employee Stock Ownership Plan, and NatWest Bank NA as successor in
interest to Manufacturers Hanover Trust Company. Incorporated by reference to
Exhibit 4(f) to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1992.
4(f) Amendment No. 6 to the Guarantee Agreement referred to in Exhibit 4(b)
above. Incorporated by reference to Exhibit 4(i) to the Company's Annual Report
on Form 10-Q for the fiscal year ended December 31, 1992.
4(g) Amendment No. 7 to the Guarantee Agreement referred to in Exhibit 4(b)
above, effective March 3, 1994. Incorporated by reference to Exhibit 4(h) to
the Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1993.
4(h) Amendment No. 8 to the Guarantee Agreement referred to in Exhibit 4(b)
above, effective February 10, 1995.
10(a)* EDO Corporation 1980 Stock Option Plan, as amended through July 22,
1988. Incorporated by reference to Exhibit 10(a) to the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1992.
10(b)* EDO Corporation 1985 Stock Option Plan, as amended through January 24,
1989.
10(c)* EDO Corporation 1988 Stock Option Plan as amended through July 22,
1988. Incorporated by reference to Exhibit 10(c) to the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1993.
10(d)* EDO Corporation 1983 Long-Term Incentive Plan as amended through July
22, 1988. Incorporated by reference to Exhibit 10(d) to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1993.
10(e)* EDO Corporation 1988 Long-Term Incentive Plan as amended through July
22, 1988. Incorporated by reference to Exhibit 10(e) to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1993.
10(f)* EDO Corporation Executive Termination Agreements, as amended through
November 24, 1989, between the Company and three employees.
10(g)* Executive Life Insurance Plan Agreements, as amended through January
23, 1990, between the Company and thirty-one employees and retirees.
10(h)* Form of Directors' and Officers' Indemnification Agreements between EDO
Corporation and fifteen current Company directors and officers. Incorporated by
reference to Exhibit 10(i) to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1991.
- 7 -
<PAGE>
10(i) Subscription Agreement, dated December 18, 1987, between EDO (Canada)
Limited and Her Majesty the Queen in right of the Province of Alberta, as
represented by the Minister of Economic Development and Trade. Incorporated by
reference to Exhibit 10(i) to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1992.
10(j) Consent Decree, entered on November 25, 1992, amongst the United
States, EDO Corporation, Plessey, Inc., Vernitron Corporation and Pitney Bowes,
Inc. Incorporated by reference to Exhibit 10(j) to the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1992.
21 List of Subsidiaries.
23 Consent of Independent Auditors to the incorporation by reference in
the Company's Registration Statements on Form S-8 of their report included in
Item 14(a)1 hereto.
24 Powers of Attorney used in connection with the execution of this Annual
Report on Form 10-K.
27 Financial Data Schedule.
(b) Reports on Form 8-K
No reports on Form 8-K were required to be filed during the three months ended
December 31, 1994.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
EDO CORPORATION (Registrant)
By: Michael J. Hegarty
-------------------
Dated: March 24, 1995 Michael J. Hegarty
Vice President-Finance
Pursuant to the requirements of Instruction D to Form 10-K under the Securities
Exchange Act of 1934, this Report has been signed below on March 24, 1995 by
the following persons on behalf of the Registrant and in the capacities
indicated.
Signature Title
Michael J. Hegarty Vice President-Finance,
(Michael J. Hegarty) Secretary, Treasurer
and Director
Robert M. Hanisee Chairman of the Board
Frank A. Fariello President, Chief Executive
Officer and Director
William J. Frost Vice President,
Administration
Marvin D. Genzer Vice President,
General Counsel and
Assistant Secretary
Kenneth A. Paladino Controller By: Michael J. Hegarty
Robert E. Allen Director -------------------
Robert Alvine Director Michael J. Hegarty
Mellon C. Baird Director Attorney-in-Fact
George M. Ball Director
Alfred Brittain III Director
Joseph F. Engelberger Director
John H. Meyn Director
Richard Rachals Director
William R. Ryan Director
- 8 -
<PAGE>
Selected Financial Data
EDO CORPORATION AND SUBSIDIARIES
(Not covered by Independent Auditors' Report)
-------------------------------------------------------------------------------
1994 1993 1992 1991 1990
(in thousands, except per share amounts)
-------------------------------------------------------------------------------
Summary of Operations
Net sales:
Defense and Space
Systems $ 56,568 71,944 92,964 109,074 110,608
Industrial Products 34,034 32,194 32,807 36,619 28,140
-------------------------------------------------------------------------------
$ 90,602 104,138 125,771 145,693 138,748
-------------------------------------------------------------------------------
Operating earnings
(loss):
Defense and Space
Systems $ (6,546)a (6,908)a 12,140 12,020 9,806
Industrial Products (14,139)b 460 2,499 (2,716) 1,524
-------------------------------------------------------------------------------
(20,685) (6,448) 14,639 9,304 11,330
Net interest expense (2,109) (2,201) (2,504) (2,404) (2,087)
General corporate
expense (4,711) (4,146) (4,281) (3,785) (4,240)
Other income
(expense), net 335 (1,390) (443) (585) (58)
-------------------------------------------------------------------------------
Earnings (loss) before
Federal and foreign
income taxes,
cumulative effect of
accounting change,
minority interest and
extraordinary gain (27,170) (14,185) 7,411 2,530 4,945
Provision (benefit) for
Federal and foreign
income taxes (3,800) (4,901) 1,684 458 947
-------------------------------------------------------------------------------
Net Earnings (loss)
before cumulative
effect of accounting
change, minority
interest and
extraordinary gain (23,370) (9,284) 5,727 2,072 3,998
-------------------------------------------------------------------------------
Net Earnings (loss) (22,556)a,b (16,348)a,c 5,677 1,809 5,400
Dividends on Preferred
Shares 1,333 1,406 1,455 1,495 1,528
-------------------------------------------------------------------------------
Net Earnings (loss)
available for common
shares $(23,889)a,b (17,754)a,c 4,222 314 3,872
-------------------------------------------------------------------------------
Per Common Share Data
-------------------------------------------------------------------------------
Primary net earnings
(loss) $ (4.30)a,b (3.28)a,c 0.78 0.05 0.44
Fully diluted
net earnings $ -- -- 0.69 -- 0.42
Average number of
shares
outstanding-primary 5,551 5,415 5,389 5,298 5,355
Cash dividends per
common share $ 0.14 0.28 0.28 0.28 0.28
Shareholders' equity $ 1.54 5.89 9.41 9.12 9.23
Other Information
Working capital $ 31,150 41,065 52,022 47,468 47,897
Depreciation $ 6,047 6,451 6,460 6,196 5,869
Plant and equipment
expenditures $ 2,411 4,517 4,566 5,609 9,489
Total assets $102,077 123,405 133,348 137,098 140,126
Long-term debt $ 29,317 29,317 30,544 30,577 30,808
ESOT loan obligation $ 14,007 15,045 16,005 16,895 17,718
Shareholders' equity $ 10,750 34,286 52,369 50,032 50,015
Backlog of unfilled
orders $ 79,569 89,203 94,200 116,279 162,926
a Includes restructuring charges of $1,127 and $9,800 in 1994 and 1993,
respectively, relating to the discontinuance, relocation and downsizing of
certain operations.
b Includes a $5,400 write off of a receivable established in anticipation
of the recovery of remediation costs related to a superfund site.
c Includes the cumulative effect of change in accounting for
postretirement benefits of $9,400 or $1.74 per share on primary net earnings.
- 9 -
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Result of Operations
Business Environment
In 1994 the Company continued to experience a decline in its defense business
base and, while never certain, this rate of decline is not expected to
continue. In addition, revenues from the Company's energy related businesses
have not developed as anticipated. The combined effect was a decrease in
Company revenues of $13.5 million, or 13%. As a result of this decline, and to
reduce operating costs and enhance the Company's ability to return to
profitability in the future, the Company consolidated its four operating
divisions into two; the Defense and Space Systems Division and the Industrial
Products Division.
In addition to consolidating organizational structure, the Company has
continued to expand its commercial business, principally in the Industrial
Products segment where revenues from energy related businesses increased to
$9.3 million from $1.2 million in 1993. While the Company had been pursuing a
strategy of increased spending on Company sponsored research and development,
it has not achieved the desired results. As a result, the Company reduced its
1994 research and development expenditures by $2.8 million from the $6.0
million in 1993, by suspending or discontinuing certain less promising
initiatives. This included the discontinuance of the sports initiative.
Results of Operations - 1994 Compared to 1993
Sales for 1994 were $90.6 million, which represents a decline of 13% when
compared with sales of $104.1 million in 1993. Sales in the Defense and Space
Systems segment decreased 21% to $56.6 million due primarily to continuing
reductions in military spending in general and decreases in space product
sales. Sales in the Industrial Products segment increased by 6% to $34.0
million where increases in energy product sales, which include revenues of EDO
ANGI which was acquired in December 1993, were partially offset by decreases in
piezo ceramic and acoustic system sales.
A loss from operations (before general corporate expense allocations) of $20.7
million was recorded in 1994 as compared to a loss of $6.4 million in 1993.
Included in 1994 results in the Industrial Products segment is the write off of
a receivable of $5.4 million established in anticipation of the recovery of
remediation costs related to a superfund site as explained in Note 17. Also
included in 1994 and 1993 operating results are restructuring charges of $1.1
and $9.8 million, respectively, which are more fully explained in Note 2 to the
Consolidated Financial Statements.
In addition to the changes mentioned above, the 1994 operating results include
$12.3 million of charges as follows: $2.9 million related principally to the
write down of non-productive assets; $2.2 million of inventory write-downs;
$4.9 million for reserves against various receivables deemed uncollectible; and
$2.3 million for the discontinuance of commercial product initiatives,
principally EDO Sports. In addition, a significant portion of the remaining
operating loss the Company incurred was due to unabsorbed overhead as a result
of lower than expected revenue combined with cost overruns on certain fixed
price development programs, principally in the satellite systems unit. These
losses should not recur since the major technical hurdles associated with these
development programs have substantially been overcome and revenue levels in
this unit are expected to improve. Start up costs in the energy business units
further contributed to the overall operating loss. Future operating results of
the energy business units will continue to be affected by the length of time it
takes for markets to further develop for the Company's products.
Excluding restructuring charges the results of operations of the Defense and
Space Systems segment are a $5.5 million loss in 1994 as compared to earnings
of $2.9 million in 1993. The 1994 loss is primarily due to lower sales volumes,
write-downs of non-productive assets, inventory write-downs and cost overruns
on fixed price development programs. Excluding the write off of the remediation
receivable, the Industrial Products segment recorded an operating loss of $8.7
million compared to an operating profit of $0.5 million in 1993. This loss was
primarily due to lower sales volumes, consolidation of facilities and
write-offs of fixed assets, as well as reserves for accounts receivable, the
discontinuance of EDO Sports and continuing start up costs in the energy
business units.
Selling, general and administrative expenses increased to $18.7 million
(excluding a $3.6 million reserve on a foreign receivable) from $17.2 million
in 1993 principally due to expenses at EDO ANGI which was acquired in December
1993. Company sponsored research and development expenditures decreased 47% to
$3.2 million primarily as a result of a more selective approach to development
programs. While reductions occurred in both segments, they were due primarily
to reductions in the Industrial Products segment in sports, fiber reinforced
composites and acoustic systems. Customer sponsored research and development
included in cost of sales, which occurs primarily in the Defense and Space
Systems segment, increased $4.3 million to $18.4 million primarily in the
satellite systems business.
Interest expense, net of interest income, decreased $0.1 million from $2.2
million in 1993. Interest expense primarily represents the interest paid on the
7% Convertible Subordinated Debentures due 2011. Included in "Other, net" is a
gain on the sale of a building.
Income tax benefits associated with the Company's loss for the year 1994 have
been provided to the extent of available refunds. Benefits relating to the
remaining
carry
- 10 -
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Result of Operations
over net operating losses will be recorded in 1995 to the extent realized. See
Note 11 for a discussion of the current year's tax benefit.
The net loss, before the cumulative effect of accounting change and minority
interest, in 1994 of $23.4 million compares to a net loss in 1993 of $9.3
million. The primary net loss per share before the cumulative effect of the
accounting change was $4.30 as compared to a net loss of $1.54 in 1993. Primary
earnings per share calculations were based on a weighted average of 5.5 million
and 5.4 million shares outstanding in 1994 and 1993 respectively.
The Company's 1994 year end backlog was $79.6 million compared to $89.2 million
at the end of 1993. The reduction reflects an overall decline in military
spending which has been partially offset by an increase in backlog orders for
energy related products. In order to offset these continuing declines in
military business, the Company continues to emphasize a strategy of preserving
liquidity and solidifying our core business while expanding into new commercial
markets at an appropriate pace.
Liquidity and Capital Resources
The Company's cash and cash equivalents increased $8.8 million to $18.1 million
at December 31, 1994. The increase was primarily attributable to reductions in
accounts receivable and inventory as a result of efforts to improve the
Company's liquidity and also as a result of funds received from a settlement
with certain parties relating to the environmental matter described below.
The Company has an ESOT loan obligation that is currently $14.0 million. The
repayment of this obligation is funded principally through dividends on the
Company's preferred shares. The Company also has outstanding $29.3 million of
7% Convertible Subordinated Debentures Due 2011. In accordance with
authorization from the Board of Directors, the Company has acquired $5.7
million of such debentures through December 31, 1994 at prevailing market
prices. These debentures will be used to satisfy approximately three years of
sinking fund requirements that commence in 1996.
In February 1995, the Company renegotiated its ESOT obligation agreement to
waive and or amend the covenants with which the Company was non-compliant at
December 31, 1994, extend the effective date of the option to cancel or
refinance the obligation to April 1, 1996, and secure the debt with its
accounts receivable inventory, machinery and equipment. In addition, the bank
will provide the Company a $5 million secured line of credit.
Capital expenditures in 1994 amounted to $2.4 million. During 1994, the Company
wrote off $1.7 million of non-productive fixed assets.
In August 1994, the Board of Directors of the Company suspended payment of cash
dividends on its common shares to preserve cash and to facilitate funding of
the Company's strategic business plan.
As explained in Note 17, the Company is involved in an environmental matter for
which management believes it should recover all remediation costs it incurs.
However, as a result of a recent, unfavorable, partial ruling regarding the
Company's claim against its insurance carrier, management has decided to write
off a previously established receivable of $5.4 million. The liability of the
Company at December 31, 1994 associated with this matter is $6.8 million. The
majority of such costs will be expended over the next two years.
As described in Note 15, the Company modified its post retirement health care
benefit plan in 1995, has an unrecognized net gain from 1994, and has adjusted
the discount rate used to calculate the obligation. The effect of these changes
will be to reduce its post retirement liability in the future by approximately
$8.0 million.
The Company believes it has adequate liquidity and sufficient capital resources
to fund its plans.
Results of Operations - 1993 Compared to 1992
The Company adopted Statement of Financial Accounting Standards (SFAS) No. 106,
"Employers' Accounting for Post-Retirement Benefits Other Than Pensions," in
the first quarter of 1993. This resulted in a onetime noncash charge of $13.4
million before income tax credits ($9.4 million after income tax credits, or
$1.74 per common share). This charge includes the expensing of the transition
obligation and is classified separately as a cumulative effect of accounting
change. See Note 15 to the 1993 Consolidated Financial Statements for more
information. The discussion that follows excludes the effect of this adoption
when comparing results of 1993 to 1992.
On December 2, 1993, the Company acquired substantially all the assets and
certain liabilities of ANGI through its newly formed wholly-owned subsidiary,
EDO Automotive Natural Gas, Inc. (EDO ANGI). The results of operations of EDO
ANGI, which had a minimal impact on the Company's consolidated operating
results, are included from the date of acquisition (mentioned above and in Note
3 to the 1993 Consolidated Financial Statements).
Sales for 1993 were $104.1 million, which represents a decline of 17% when
compared with sales of $125.8 million in 1992. Sales in the Defense and Space
Systems segment decreased 23%, to $71.9 million, due primarily to continuing
reductions in military spending in general, the slippage in U.S. Government
contract awards due to changing Administration priorities particularly in
sonar, decreases in satellite-system product sales, and the impact of the
completion of a Canadian military fuel tank contract in early 1993. Sales in
the Industrial Products segment decreased by
- 11 -
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Result of Operations
2%, to $32.2 million, where decreases in piezo ceramic sales were partially
offset by an increase in fiber-reinforced composites, acoustic instruments, and
the results of EDO ANGI from the date of purchase.
A loss from operations (before general corporate expense allocations) of $6.4
million was recorded in 1993 as compared to earnings of $14.6 million in 1992.
Included in 1993 operating results is a restructuring charge of $9.8 million
that is mentioned above and more fully explained in Note 2, and a litigation
settlement of $1.2 million explained in Note 17. Excluding these charges,
operating earnings in the Defense and Space Systems segment decreased to $4.1
million in 1993 from $12.1 million in 1992 due primarily to lower sales volume
and reduced margins partially offset by aggressive cost management. The
Industrial Products segment decreased to $0.5 million in 1993 from $2.5 million
in 1992 principally due to increased R&D efforts and startup costs in the
Company's sports and energy businesses, partially offset by a $2.2 million
contract recovery in the fiber reinforced components business.
Selling, general and administrative expenses decreased to $17.2 million from
$18.5 million in 1992 due to cost reductions made as sales continued to decline
in 1993. This reduction was partially offset by an increase in the Industrial
Products segment as a result of higher expenditures on new business
initiatives. Company-sponsored research-and-development expenditures increased
14%, to $6.0 million. The increase results from higher expenditures for new
commercial products in the Industrial Products segment, where the increase was
partially offset by a reduction in the Defense and Space Systems segment.
Customer-sponsored research and development expenditures, which occur primarily
in the Defense and Space Systems segment, declined $2.0 million, to $14.1
million consistent with the general decline in military spending.
Interest expense, net of interest income, decreased to $2.2 million from $2.5
million in 1992. Interest expense primarily represents the interest paid on the
7% Convertible Subordinated Debentures Due 2011.
The Company adopted Statement of Financial Accounting Standards No. 109
"Accounting for Income Taxes," in the first quarter of 1993, which did not
result in a cumulative effect adjustment. The effect of adoption on earnings is
that the tax benefit associated with the dividends paid on unallocated
preferred shares is now credited directly to shareholders' equity and not as a
reduction of the Federal income tax provision. In 1993 this represented
approximately $0.3 million. See Note 11 for a discussion of this tax benefit.
The net loss, before the cumulative effect of accounting change and minority
interest, in 1993 of $9.3 million compares to net earnings in 1992 of $5.7
million. The loss reflects, in addition to the items discussed above, a
restructuring charge of $9.8 million, which is more fully explained in Note 2;
a litigation settlement charge of $1.2 million, which is more fully explained
in Note 17; and a $1.0 million charge to add to a general reserve for the
Company's long-term investments, as explained in Note 1(g).
The primary net loss per share before the cumulative effect of the accounting
change and extraordinary gain from early retirement of debt, was $1.54 as
compared to net earnings of $0.78 in 1992. The pro forma combined effect of the
three 1993 charges mentioned above amounts to $2.22 per share. Primary earnings
per share calculations were based on a weighted average of 5.4 million shares
outstanding in both 1993 and 1992.
The Company's 1993 year-end backlog was $89.2 million compared to $94.2 million
in 1992. The reduction reflects the overall decline in military spending. In
order to offset these continuing declines, the Company is continuing to
emphasize its strategy of diversifying into commercial markets and at the same
time restructuring its military business to provide the cash and earnings to
continue to pursue new opportunities in its Industrial Products segment.
Common Share Prices
EDO common shares are traded on the New York Stock Exchange. As of February 9,
1995, there were 2,891 shareholders of record (brokers and nominees counted as
one each).
The price range in 1994 and 1993 was as follows:
1994 1993
HIGH LOW HIGH LOW
1st Quarter 7-1/4 5-3/4 7-5/8 6
2nd Quarter 6-1/8 4-1/4 6-7/8 5
3rd Quarter 4-7/8 2-7/8 6 4-1/2
4th Quarter 4 3 7-1/2 5-1/8
Dividends
In the third quarter of 1994, the Board of Directors suspended cash dividends
on its common shares. The Company had paid quarterly cash dividends since the
fourth quarter of 1976. Payments of future dividends rests within the
discretion of the Board of Directors and will be considered once sustained
profitability and adequate cash flow are achieved. The Company's ESOT guarantee
agreement presently limits the payment of cash dividends. See Note 10 of the
Consolidated Financial Statements.
- 12 -
<PAGE>
Consolidated Statement of Operations
EDO CORPORATION AND SUBSIDIARIES
-------------------------------------------------------------------------------
Years Ended December 31
1994 1993 1992
(in thousands, except per share amounts)
-------------------------------------------------------------------------------
Income
Net sales $ 90,602 $ 104,138 $ 125,771
Other 380 556 395
-------------------------------------------------------------------------------
90,982 104,694 126,166
-------------------------------------------------------------------------------
Costs and Expenses
Cost of sales 84,355 81,097 92,045
Selling, general and administrative 22,291 17,181 18,477
Research and development 3,205 6,044 5,286
Write off of environmental
insurance receivable 5,400 - -
Litigation settlement - 1,166 -
Restructuring charges 1,127 9,800 -
-------------------------------------------------------------------------------
116,378 115,288 115,808
-------------------------------------------------------------------------------
Operating Earnings (Loss) (25,396) (10,594) 10,358
Non-operating Income (Expense)
-------------------------------------------------------------------------------
Interest income 318 291 176
Interest expense (2,427) (2,492) (2,680)
Other, net 335 (1,390) (443)
-------------------------------------------------------------------------------
(1,774) (3,591) (2,947)
-------------------------------------------------------------------------------
Earnings (loss) before Federal and
foreign income taxes, cumulative
effect of accounting change and
minority interest (27,170) (14,185) 7,411
Provision (benefit) for Federal
and foreign income taxes (3,800) (4,901) 1,684
-------------------------------------------------------------------------------
Net Earnings (Loss) Before Cumulative
Effect of Accounting Change and
Minority Interest (23,370) (9,284) 5,727
Minority interest 814 2,336 (50)
Cumulative effect of change in
accounting for postretirement
health and other benefits
(net of taxes of $3,958) - (9,400) -
-------------------------------------------------------------------------------
Net Earnings (Loss) (22,556) (16,348) 5,677
Dividends on preferred shares 1,333 1,406 1,455
-------------------------------------------------------------------------------
Net Earnings (Loss) Available
for Common Shares $(23,889) $(17,754) $4,222
Earnings (Loss) Per Common Share:
Primary:
Net earnings (loss) before cumulative
effect of change in accounting $(4.30) $(1.54) $0.78
Cumulative effect of change
in accounting - (1.74) -
-------------------------------------------------------------------------------
$(4.30) $(3.28) $0.78
-------------------------------------------------------------------------------
See accompanying Notes to Consolidated Financial Statements.
Fully diluted net earnings per share were $0.69 for 1992 and the same amounts
as primary for 1994 and 1993.
- 13 -
<PAGE>
Consolidatede Balance Sheets
EDO CORPORATION AND SUBSIDARIES
-------------------------------------------------------------------------------
December 31
1994 1993
(in thousands, except share amounts)
-------------------------------------------------------------------------------
Assets
Current assets:
Cash and cash equivalents $ 18,076 $ 9,284
Recoverable Federal income taxes 3,649 2,322
Accounts receivable 24,175 38,283
Inventories 11,607 18,155
Prepayments 1,623 1,319
-------------------------------------------------------------------------------
Total current assets 59,130 69,363
-------------------------------------------------------------------------------
Property, plant and equipment, at cost 87,467 92,389
Less accumulated depreciation and amortization 61,622 58,512
-------------------------------------------------------------------------------
Net property, plant and equipment 25,845 33,877
Cost in excess of fair value of net assets
acquired, net 10,837 11,415
Deferred Federal and foreign income taxes - 1,011
Other assets 6,265 7,739
-------------------------------------------------------------------------------
$ 102,077 $ 123,405
-------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $ 23,502 $ 21,019
Contract advances and deposits 4,478 7,279
-------------------------------------------------------------------------------
Total current liabilities 27,980 28,298
-------------------------------------------------------------------------------
Long-term debt 29,317 29,317
ESOT loan obligation 14,007 15,045
Postretirement obligation 13,465 13,492
Environmental obligation 4,405 -
Minority interest 2,153 2,967
Shareholders' Equity
8% convertible preferred shares, par value
$1 per share, authorized 500,000 shares
(75,292 issued in 1994 and 80,056 in 1993) 75 80
Common shares, par value $1 per share,
authorized 25,000,000 shares (8,453,902
issued in both years) 8,454 8,454
Additional paid-in capital 39,330 41,784
Retained earnings 17,695 42,350
65,554 92,668
-------------------------------------------------------------------------------
Less: Treasury shares at cost (2,809,965 shares
in 1994 and 2,982,853 shares in 1993) (39,937) (42,393)
Translation adjustment (860) (749)
ESOT loan obligation (14,007) (15,045)
Deferral under Long-Term Incentive Plans - (195)
-------------------------------------------------------------------------------
Total shareholders' equity 10,750 34,286
-------------------------------------------------------------------------------
$ 102,077 $ 123,405
-------------------------------------------------------------------------------
See accompanying Notes to Consolidated Financial Statements.
- 14 -
<PAGE>
Consolidated Statements of Shareholders' Equity
EDO CORPORATION AND SUBSIDIARIES
-------------------------------------------------------------------------------
1994 1993 1992
(in thousands)
AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES
-------------------------------------------------------------------------------
Preferred Shares
Balance at beginning
of year $ 80 80 $ 84 84 $ 87 87
Par value of shares
converted (5) (5) (4) (4) (3) (3)
-------------------------------------------------------------------------------
Balance at end of
year 75 75 80 80 84 84
-------------------------------------------------------------------------------
Common Shares
-------------------------------------------------------------------------------
Par value of shares
issued 8,454 8,454 8,454 8,454 8,454 8,454
-------------------------------------------------------------------------------
Additional paid-in
capital
Balance at beginning
of year 41,784 43,366 45,056
Exercise of stock
options (5) (9) -
Shares (used)
cancelled for
Long-Term Incentive
Plans 6 11 (735)
Conversion of
preferred shares
to common shares (2,455) (1,584) (955)
-------------------------------------------------------------------------------
Balance at end of year 39,330 41,784 43,366
-------------------------------------------------------------------------------
Retained earnings
Balance at beginning
of year 42,350 61,274 58,560
Net earnings (loss) (22,556) (16,348) 5,677
Common stock dividends:
$0.14 per share in
1994 ($0.28 in 1993
and 1992) (766) (1,514) (1,508)
Dividends on
preferred shares (1,333) (1,406) (1,455)
Tax benefit associated
with dividends paid
on unallocated
preferred shares - 344 -
-------------------------------------------------------------------------------
Balance at end of year 17,695 42,350 61,274
-------------------------------------------------------------------------------
Treasury shares at cost
Balance at beginning
of year (42,393) (2,983) (43,973) (3,094) (45,715) (3,146)
Shares used for
exercise of stock
options 7 14 1 - -
Purchase of
treasury shares - - - (555) (106)
Shares used
(cancelled) for
Long-Term Incentive
Plans (11) (1) (22) (2) 1,339 92
Shares used for
conversion of
preferred shares 2,460 174 1,588 112 958 66
-------------------------------------------------------------------------------
Balance at end of year (39,937) (2,810) (42,393) (2,983) (43,973) (3,094)
-------------------------------------------------------------------------------
Translation adjustment
Balance at beginning
of year (749) (428) 485
Adjustment during
the year (111) (321) (913)
-------------------------------------------------------------------------------
Balance at end of year (860) (749) (428)
-------------------------------------------------------------------------------
ESOT Loan Obligation
Balance at beginning
of year (15,045) (16,005) (16,895)
Repayments made
during year 1,038 960 890
-------------------------------------------------------------------------------
Balance at end of year (14,007) (15,045) (16,005)
-------------------------------------------------------------------------------
Deferral under
Long-Term Incentive
Plans
Balance at beginning
of year (195) (403) -
Shares used for
Long-Term Incentive
Plans 5 12 (604)
Amortization of
Long-Term Incentive
Plan deferred expense 190 196 201
-------------------------------------------------------------------------------
Balance at end of year - (195) (403)
-------------------------------------------------------------------------------
Total Shareholders'
Equity $10,750 $34,286 $52,369
-------------------------------------------------------------------------------
See accompanying Notes to Consolidated Financial Statements
- 15 -
<PAGE>
Consolidated Statement of Cash Flows
EDO CORPORATION AND SUBSIDIARIES
-------------------------------------------------------------------------------
Years Ended December 31
1994 1993 1992
(in thousands)
-------------------------------------------------------------------------------
Operating Activities:
Net earnings (loss) $ (22,556) $ (16,348) $ 5,677
Adjustments to net earnings (loss) to
arrive at cash provided by operations:
Gain on sale of building (427) - -
Write off of environmental insurance
receivable 5,400 - -
Write off of nonproductive fixed assets 1,739 - -
Restructuring charge 1,127 9,800 -
Cumulative effect of change in
accounting for postretirement benefits - 9,400 -
Depreciation and amortization 6,625 6,836 6,827
Increase in recoverable and deferred
income taxes (316) (9,578) (13)
Investments in technology companies - 1,000 225
Common shares issued for employee
benefits 193 201 201
Minority interest (814) (2,336) 50
Changes in:
Accounts receivable 14,108 11,072 3,614
Inventories 6,548 3,840 (1,156)
Prepayments, other assets and other 36 493 (387)
Accounts payable and accrued
liabilities 1,356 79 276
Contract advances and deposits (2,801) 159 2,353
-------------------------------------------------------------------------------
Cash provided by operations 10,218 14,618 17,667
Investing Activities:
Purchase of property, plant and equipment (2,411) (4,517) (4,566)
Acquisition of ANGI, net of cash acquired - (44) -
Proceeds from sale of building 3,084 - -
-------------------------------------------------------------------------------
Cash provided (used) by investing
activities 673 (4,561) (4,566)
Financing Activities:
Payments of notes payable - (1,189) (8,000)
Reduction of long-term debt - (1,261) (30)
Purchase of treasury shares - - (555)
Payment of common share cash dividends (766) (1,514) (1,508)
Payment of preferred share cash dividends (1,333) (1,406) (1,455)
-------------------------------------------------------------------------------
Cash used by financing activities (2,099) (5,370) (11,548)
-------------------------------------------------------------------------------
Net increase in cash and cash equivalents 8,792 4,687 1,553
Cash and cash equivalents at beginning
of year 9,284 4,597 3,044
-------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 18,076 $ 9,284 $ 4,597
-------------------------------------------------------------------------------
Supplemental disclosures:
Cash paid for:
Interest $ 2,198 $ 2,243 $ 2,508
Income taxes $ 297 $ 608 $ 1,718
See accompanying Notes to Consolidated Financial Statements.
- 16 -
<PAGE>
Notes to Consolidated Financial Statements
DECEMBER 31, 1994, 1993 AND 1992
EDO CORPORATION AND SUBSIDIARIES
(1) Summary of Significant Accounting Policies
(a) Principles of Consolidation
The consolidated financial statements include the accounts of EDO Corporation
and all majority-owned subsidiaries (the "Company"). All significant
intercompany accounts and transactions have been eliminated in consolidation.
(b) Cash Equivalents
The Company considers all securities with an original maturity of three months
or less at the date of acquisition to be cash equivalents.
(c) Revenue Recognition
Sales under long-term, fixed price contracts, including pro-rata profits, are
generally recorded based on the relationship of costs incurred to date to total
projected final costs or, alternatively, as progress billings or deliveries are
made. Sales under cost reimbursement contracts are recorded as costs are
incurred. Sales on other than long-term contract orders (principally commercial
products) are recorded as shipments are made.
(d) Inventory
Inventory under long-term contracts and programs reflects all accumulated
production costs, including factory overhead, initial tooling and other related
costs (including general and administrative expenses relating to certain of the
Company's defense contracts), less the portion of such costs charged to cost of
sales. Inventory costs in excess of amounts recoverable under contracts are
charged to cost of sales when they become known. All other inventory is stated
at the lower of cost (principally first-in, first-out method) or market.
(e) Depreciation and Amortization
Depreciation and amortization of property, plant and equipment have been
provided primarily using the straight-line method over the estimated useful
lives of the assets. Leasehold improvements are being amortized over the lesser
of their estimated useful lives or their respective lease periods.
Deferred financing costs are amortized on a straight-line basis over the life
of the related financing. The unamortized balance of $1,395,000 and $1,555,000
is included in other assets at December 31, 1994 and 1993, respectively.
(f) Cost in Excess of Fair Value of Net Assets Acquired (Goodwill)
The excess of the total acquisition cost of Barnes Engineering Company over the
fair value of net assets acquired of approximately $11 million ($7.9 million,
net of accumulated amortization at December 31, 1994) is being amortized on a
straight-line basis over thirty years. The excess of the total acquisition
costs of ANGI over the fair value of net assets acquired of approximately $3
million ($2.9 million, net of accumulated amortization at December 31, 1994) is
being amortized on a straight-line basis over fifteen years. The Company
assesses the recoverability of unamortized goodwill using the undiscounted
projected future earnings from the related businesses.
(g) Long-Term Investments
The Company has minority positions in several small technology companies that
it has been holding as long-term investments. These investments are carried in
other assets at the lower of cost or net realizable value. During 1993, the
Company charged other non-operating expense approximately $1,000,000 to reduce
the carrying value of the Company's long-term investments based on the
operating results and economic conditions affecting the business of these
investments. At December 31, 1994 and 1993, the net carrying value of the
long-term investments was $436,000.
(h) Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be realized or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
(i) Earnings Per Share
Primary earnings per share amounts are determined by using the weighted average
number of common shares and dilutive common share equivalents (stock options)
outstanding during the year. Primary earnings per share amounts were based on
5,550,868, 5,415,046 and 5,388,818 shares outstanding for 1994, 1993 and 1992,
respectively.
Fully diluted earnings per share are based on the assumption that the
convertible debentures and preferred shares, in the periods in which such
securities are dilutive, are converted into common shares and their related
interest and dividends are added back to net earnings, net of applicable income
taxes. In 1992, the convertible debentures were antidilutive. In 1993 and 1994
both the convertible debentures and preferred shares were antidilutive. Fully
diluted earnings per share were based on 6,542,451 shares outstanding for 1992.
- 17 -
<PAGE>
Notes to Consolidated Financial Statements
DECEMBER 31, 1994, 1993 AND 1992
EDO CORPORATION AND SUBSIDIARIES
(2) Restructuring of Operations
During the fourth quarter of 1993, the Company adopted a restructuring plan to
address the continuing worldwide decline in the defense and aerospace business,
reduce costs and improve its competitiveness. This restructuring plan includes
the discontinuance of the defense portion of its business in Canada, the
relocation of some United States production from New York to less costly
locations, the related disposition of nonproductive assets (principally land
and buildings) and workforce reductions. The accompanying consolidated
statements of operations reflect pretax charges of $1,127,000 and $9,800,000
for 1994 and 1993, respectively, relating to this plan, including approximately
$5,200,000 in 1993 relating to a write-down of a major portion of its College
Point production facility, which is the portion that has been placed for sale,
and $3,620,000 in 1993 related to the discontinuance of the defense related
business in the Canadian operations. The increase to the restructuring charge
in 1994 principally resulted from a longer than anticipated holding period
associated with the College Point production facility held for sale and
severance costs.
As of December 31, 1994, included in accrued liabilities is approximately $2.4
million, primarily related to idle facility costs and real estate taxes
associated with the facilities held for sale and severance costs. The
restructuring expenditures to date were consistent in all material respects
with the original charges taken.
(3) Automotive Natural Gas, Inc. (ANGI) Acquisition
During December 1993, the Company acquired substantially all the assets and
certain liabilities of ANGI. ANGI manufactures and installs pumping stations
for natural gas refueling and vehicle conversion kits to allow the use of
natural gas as an alternative fuel source.
The purchase price was $68,000 plus the assumption of certain liabilities that
were in excess of the value of assets acquired by approximately $2,600,000.
Additional costs incurred as a result of the acquisition were approximately
$422,000. The operating results for ANGI are included in the consolidated
statements of operations from the purchase date. ANGI's results had a minimal
impact on consolidated operating results for the year ended December 31, 1993.
The following unaudited pro-forma consolidated results of operations assume
that the purchase occurred on January 1, 1992 and reflect the historical
operations of the Company and ANGI adjusted for reduced interest income as a
result of the use of cash to acquire ANGI and the amortization of goodwill.
---------------------------------------------------------
December 31
1993 1992
---------------------------------------------------------
Net Sales $116,662 $140,625
Net Earnings (loss) available
for common shareholders (19,076) 3,698
---------------------------------------------------------
Earnings (loss) per share
available for common shareholders $(3.52) $0.69
---------------------------------------------------------
(4) Canadian Subsidiary
EDO (Canada) Ltd. is approximately 40 percent owned by an agency of the
Government of the Province of Alberta. The Company has an agreement with the
Province of Alberta which provided for the purchase of nonconvertible,
redeemable preferred shares. In 1990 and 1989, the Province of Alberta
purchased $1,416,000 and $1,943,000 of such shares and the Company purchased
$656,000 and $867,000, respectively. The preferred shares are to be redeemed on
a pro-rata basis out of future earnings based on an agreed-upon formula.
Through December 31, 1994, no shares have been redeemed. In 1993, the Company
discontinued its defense business in Canada; however, it has continued its
commercial business.
(5) Accounts Receivable
Accounts receivable included $9,821,000 and $14,496,000 at December 31, 1994
and 1993, respectively, representing unbilled revenues. Substantially all of
the unbilled balances at December 31, 1994 will be billed and collected during
1995. Total receivables due from the United States government, either directly
or as a subcontractor to a prime contractor with the government, were
$10,629,000 at December 31, 1994, and $18,001,000 at December 31, 1993.
(6) Inventories
Inventories are summarized by major classification as follows at December 31,
1994 and 1993:
----------------------------------------------
1994 1993
(in thousands)
----------------------------------------------
Raw material and supplies $ 5,671 $ 8,343
Work-in-process 4,762 8,713
Finished goods 1,174 1,099
----------------------------------------------
$11,607 $18,155
----------------------------------------------
Work-in-process inventory includes $2,500,000 at December 31, 1993 applicable
to long-term contracts.
- 18 -
<PAGE>
Notes to Consolidated Financial Statements
DECEMBER 31, 1994, 1993 AND 1992
EDO CORPORATION AND SUBSIDIARIES
(7) Property, Plant and Equipment
The Company's property, plant and equipment at December 31, 1994 and 1993, and
their related useful lives are summarized as follows:
-------------------------------------------------------------------------------
1994 1993 Range in
(in thousands) Years
-------------------------------------------------------------------------------
Land and land improvements $ 1,814 $ 2,014 8 - 30
Buildings and building improvements 25,179 28,585 8 - 45
Machinery and equipment 50,620 51,786 3 - 10
Leasehold improvements 9,854 10,004 lease terms
-------------------------------------------------------------------------------
$ 87,467 $ 92,389
-------------------------------------------------------------------------------
(8) Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities consisted of the following at December
31, 1994 and 1993:
------------------------------------------------------------
1994 1993
(in thousands)
------------------------------------------------------------
Trade payables $6,930 $8,403
Employee compensation and benefits 2,521 2,680
Employee retirement plans 220 186
Taxes on income other than Federal
and foreign income taxes 1,954 3,274
Other 11,877 6,476
------------------------------------------------------------
$23,502 $21,019
------------------------------------------------------------
(9) Long-Term Debt and Line of Credit
Long-term debt of the Company at December 31, 1994 and 1993 consisted of the 7%
Convertible Subordinated Debentures Due 2011 that were issued in November 1986.
The debentures are convertible at the rate of 45.45 common shares for each
$1,000 principal amount, which is equivalent to $22 per share. Debentures are
redeemable at the option of the Company at par plus (until December 15, 1996) a
stated premium. Debentures are redeemable at the option of the holder under
certain circumstances involving a change in control of the Company at par plus
(until December 15, 1996) a stated premium. Annual sinking fund payments of
$1,750,000 until retirement are due commencing in 1996. Prior to 1992, the
Company purchased $5,683,000 of these debentures which may be used by the
Company to satisfy annual sinking fund requirements.
In June of 1992, the Company entered into a $30 million unsecured
revolving-credit agreement (Credit Agreement) with a bank syndicate. In March
1994, the Credit Agreement was modified to reduce the amount to $15 million and
the maturity date was extended to June 1995. In November 1994, this agreement
was terminated and cash collateral was provided for $1.1 million of letters of
credit then outstanding under the agreement.
During 1994 and at December 31, 1993, there were no borrowings under the credit
agreement. For the year ended December 31, 1993, the weighted average borrowing
approximated $88,000, at a weighted average interest rate of approximately
6.0%, and there were no borrowings outstanding at any month end.
In February of 1995, the Company entered into a $5 million line of credit
agreement with a bank for both short term borrowings and letters of credit.
This agreement expires on June 30, 1995. Borrowings under the agreement will
bear interest based on the bank's prime rate plus 0.50% and will be secured by
the Company's accounts receivable, inventory, machinery and equipment. A
condition to this agreement is compliance with the Company's Employee Stock
Ownership Trust guarantee agreement which is described in Note 10.
(10) Employee Stock Ownership Plan and Trust
The Company's Employee Stock Ownership Plan (ESOP) provides retirement benefits
to substantially all employees. During 1994, 1993 and 1992, respectively, cash
contributions of $497,000, $314,000 and $328,000 were made to the ESOP. As of
December 31, 1994, there were 403,290 common shares in the ESOP.
During 1988, the Employee Stock Ownership Trust (ESOT) purchased 89,772
convertible preferred shares from the Company for approximately $19,185,000.
The shares will be allocated to employees through 2003 on the basis of
compensation. The preferred shares provide for dividends of 8% per annum, which
are deductible by the Company for Federal and state income tax purposes. Each
unallocated preferred share is convertible at its stated conversion rate into
10 common shares. Allocated shares are convertible at the greater of the stated
conversion rate or the fair value of each preferred share ($125 at December 31,
1994) divided by the current market price of each common share. As of December
31, 1994, 36,254 shares have been allocated, 53,518 shares remained unallocated
and 14,480 shares have been converted into 400,531 common shares. Until
converted, each preferred share is entitled to 12.3 votes. The preferred shares
are entitled to vote on all matters presented to holders of common shares
voting together as a class, except that certain amendments and mergers could
entitle the holders of preferred shares to vote separately as a class. The ESOP
provides for pass-through of voting rights to the ESOP participants and
beneficiaries.
The ESOT purchased the preferred shares from the Company using the proceeds of
a borrowing guaranteed by the Company. The ESOT services this obligation with
the dividends received on the preferred shares and any additional contributions
from the Company as required. Principal and interest payments on the note of
the ESOT are to be
- 19 -
<PAGE>
Notes to Consolidated Financial Statements
DECEMBER 31, 1994, 1993 AND 1992
EDO CORPORATION AND SUBSIDIARIES
made in quarterly installments through 2003. Interest is charged at 82% of the
prime lending rate. During 1994 and 1993, respectively, the Company's cash
contributions and preferred dividends were used to repay principal of
$1,038,000 and $960,000 and pay interest of $816,000 and $780,000. Both the
Company and the lender have the option to cancel or refinance the borrowing on
or after April 1, 1996. The guarantee agreement also provides that the Company
may be obligated to prepay the ESOT loan through redemption of the preferred
shares at $213.71 per share upon the occurrence of certain prepayment events.
In addition to these prepayment events, there are certain covenants placed on
the Company that require that several predetermined ratios be maintained.
Compliance with certain of these covenants was waived and others were amended
by the lender as a result of the Company not meeting certain financial covenant
tests at December 31, 1994. In addition, payments of common dividends in 1995
and beyond will be limited to each year's net income in excess of net income
for that year required for the Company to be in compliance with its net worth
debt covenant (approximately $1.9 million in 1995) up to $0.28 per common
share. In February 1995, the Company agreed to secure this obligation with its
accounts receivable, inventory, machinery and equipment.
The ESOT's borrowing guaranteed by the Company is reflected as a liability on
the balance sheet with an equal amount as a reduction of shareholders' equity,
offsetting the increase in the capital stock accounts. As the principal portion
of the note is repaid through 2003, the liability and the ESOT loan obligation
will be reduced concurrently.
(11) Federal and Foreign Income Taxes
The 1994, 1993 and 1992 (benefit) provision for Federal and foreign income
taxes, excluding the cumulative effect of the change in accounting in 1993,
were composed of the following amounts:
-----------------------------------------------------
1994 1993 1992
(in thousands)
-----------------------------------------------------
Federal
Current $ (2,809) $ (877) $ 2,096
Deferred (991) (3,317) (530)
-----------------------------------------------------
$ (3,800) $ (4,194) $ 1,566
Foreign
Current - $ 28 -
Deferred - (735) 118
-----------------------------------------------------
- (707) 118
-----------------------------------------------------
Total $ (3,800) $ (4,901)* $ 1,684
-----------------------------------------------------
* Excludes a tax benefit of $3,958 relating to the
cumulative effect of the change to the accrual
method of accounting for postretirement benefits.
State income taxes of $192,000, $178,000 and $768,000 in 1994, 1993 and 1992,
respectively, are included in general and administrative expenses.
The sources of the deferred tax provisions and the related tax effects in each
of the years were as follows:
---------------------------------------------------------------------------
1994 1993 1992
(in thousands)
---------------------------------------------------------------------------
Long-term contract amounts $ (349) $ (50) $ 1,642
Postretirement benefit 12 (629) -
Alternative minimum tax carry forward 513 - (1,700)
Restructuring accruals (165) (2,100) -
Depreciation and amortization (1,054) (1,155) (87)
State and local income taxes 48 30 (154)
Other, net 4 (148) (113)
---------------------------------------------------------------------------
Total $ (991) $ (4,052) $ (412)
---------------------------------------------------------------------------
The effective Federal income tax rate, excluding the tax benefit relating to
the cumulative effect of the change in accounting in 1993, differed from the
statutory Federal income tax rate for the following reasons:
---------------------------------------------------------------------------
Percent of Pretax Earnings
1994 1993 1992
---------------------------------------------------------------------------
Tax at statutory rate (34.0%) (34.0%) 34.0%
Foreign Sales Corporation benefit - (0.9) (1.9)
Preferred stock dividends - (0.9) (6.7)
Earnings taxed at foreign tax rates (0.4) (2.3) 0.5
Increase in valuation allowance for
foreign net operating loss carry forwards 2.9 13.2 -
Increase in valuation allowance for U.S.
net operating loss carry forwards 21.1 - -
Adjustment of prior year accruals (3.7) (12.1) -
Other, net - 2.5 (3.2)
---------------------------------------------------------------------------
Effective Federal income tax rate (14.1%) (34.5%) 22.7%
---------------------------------------------------------------------------
The items that compose the significant portions of deferred tax assets and
liabilities as of December 31, 1994 and 1993 are as follows:
- 20 -
<PAGE>
Notes to Consolidated Financial Statements
DECEMBER 31, 1994, 1993 AND 1992
EDO CORPORATION AND SUBSIDIARIES
---------------------------------------------------------------------
December 31
Deferred Tax Assets 1994 1993
---------------------------------------------------------------------
Postretirement benefits other than pensions $4,578 $4,590
Foreign Net Operating loss carry forwards 3,374 2,573
U.S. Net Operating loss carry forwards 4,067 -
Restructuring costs 2,264 2,100
Environmental Insurance receivable 1,836 -
Alternative minimum tax credits 1,337 1,727
Deferred compensation 1,093 1,100
Capital loss carry forwards 1,059 1,081
Vacation accruals 185 311
Other 401 89
---------------------------------------------------------------------
Total deferred tax assets $20,194 $13,571
Less: Valuation allowance (10,218) (3,548)
---------------------------------------------------------------------
$9,976 $10,023
Deferred Tax Liabilities
---------------------------------------------------------------------
Depreciation and amortization 8,008 6,049
Contract tax accounting 855 1,447
Other 1,113 1,516
---------------------------------------------------------------------
Total deferred tax liabilities $9,976 $9,012
---------------------------------------------------------------------
Net deferred tax asset (liability) $0 $1,011
---------------------------------------------------------------------
Deferred income tax assets as of December 31, 1994 include U.S. net operating
loss carry forwards, Canadian net operating loss carry forwards and capital
loss carry forwards for income tax purposes of $11,962,000, $6,766,000 and
$3,115,000, respectively, primarily expiring in 2009. Realization of these
assets is dependent on future taxable earnings and capital gains. A valuation
allowance has been established at December 31, 1994 for the Company's net
deferred tax asset since, based on the Company's recent cumulative losses,
management cannot conclude that it is more likely than not that the deferred
tax assets will be realized.
(12) Shareholders' Equity
At various times beginning in 1983, the Board of Directors has authorized and
subsequently increased by amendments, a plan to purchase an aggregate amount of
4,190,000 of the Company's common shares. As of December 31, 1994, the Company
had acquired approximately 3,957,000 shares in open market transactions at
prevailing market prices. Approximately 1,147,000 of these shares have been
used for various purposes, including conversion of preferred shares;
contributions of shares to the EDO Corporation Employee Stock Ownership Plan;
grants pursuant to the Company's Long-Term Incentive Plans; partial payment of
a 50% stock dividend; and stock options exercised. As of December 31, 1994 and
1993, the Company held 2,809,965 and 2,982,853 treasury shares, respectively,
for future use.
At December 31, 1994, the Company had reserved, authorized and unissued common
shares for the following purposes:
----------------------------------------------
Shares
----------------------------------------------
Conversion of 7% Convertible
Subordinated Debentures Due 2011 1,332,458
Stock option plans 861,113
Long-Term Incentive Plans 15,140
Conversion of preferred shares 1,341,624
----------------------------------------------
3,550,335
----------------------------------------------
(13) Stock Plans
The Company has granted nonqualified stock options to officers, directors and
other key employees, under plans approved by the shareholders in 1988, 1985 and
1980, for the purchase of its common shares at the fair market value of the
shares on the date of grant. Options become exercisable in four substantially
equal annual installments beginning on the first anniversary of the date of the
grant and expiring on the tenth anniversary of the date of the grant.
Changes in options outstanding are as follows:
-------------------------------------------------------------------------------
1994 1993 1992
Shares Shares Shares
Subject Subject Subject
Price to Price to Price to
Range Option Range Option Range Option
-------------------------------------------------------------------------------
Beginning
of year $4.31-16.94 791,693 $4.31-21.79 807,413 $4.31-21.79 831,963
Options
granted 3.44- 4.63 126,000 5.69- 6.94 20,000 5.56- 7.75 32,000
Options
exercised 4.31 (500) 4.31 (1,000) - -
Options
cancelled 4.63-16.94 (127,225) 7.00-21.79 (34,450) 4.31-21.79 (56,550)
-------------------------------------------------------------------------------
End of
year $3.44-12.31 790,238 4.31-16.94 791,963 $4.31-21.79 807,413
-------------------------------------------------------------------------------
Exercisable
at year
end 623,657 596,407 440,076
-------------------------------------------------------------------------------
- 21 -
<PAGE>
Notes to Consolidated Financial Statements
DECEMBER 31, 1994, 1993 AND 1992
EDO CORPORATION AND SUBSIDIARIES
In 1983 and 1988, the shareholders of the Company approved the adoption of
Long-Term Incentive Plans (the Plans) for key executives. The Plans provide for
the awarding of up to 318,750 restricted common shares of the Company, and
performance units which are payable in cash.
As of December 31, 1994, Plan participants had been awarded 303,610 restricted
common shares and performance units. The restrictions on 173,060 shares have
lapsed previously. Restrictions on the remaining 130,550 shares will lapse in
1995. The value of the performance units is based upon the market value of the
Company's common shares at the end of the defined performance period and the
attainment of predetermined operating goals. The cost of this award charged to
operations in 1994, 1993 and 1992 was $166,000, $191,000 and $232,000,
respectively.
Additional Plan awards, if made, will be based upon the future performance of
the Company. The 1983 Plan expired in 1992 and the 1988 Plan will expire in
1997.
(14) Other Employee Benefit Plans
The Company maintains a noncontributory defined benefit pension plan covering
substantially all of its employees. The benefits are based on years of service
and the employees' highest five-year average base salary in the final ten years
of employment. The Company's funding policy is to make annual contributions to
the extent such contributions are actuarially determined and tax deductible.
The net pension expense for 1994, 1993 and 1992 was $73,000, $732,000 and
$820,000, respectively, which assumed a discount rate of 7.00%, 8.00%, and
8.25%, respectively. In addition, during 1994, the Company experienced a
curtailment gain of $1,394,000, which reduced cost of sales in the consolidated
statement of operations, as a result of its continued downsizing and reduction
in the number of employees. The expected long-term rate of return on plan
assets was 9.0% in 1994, 1993 and 1992. The actuarial computations assumed a
discount rate on benefit obligations at December 31, 1994 and 1993 of 9.00% and
7.00%, respectively. The assumed rate of compensation increase approximates the
Company's previous experience. The assets of the pension plan consist primarily
of fixed income and equity securities which are readily marketable.
A summary of the components of net periodic pension expense follows:
------------------------------------------------------------------
1994 1993 1992
(in thousands)
------------------------------------------------------------------
Service cost $ 1,784 $ 1,931 $ 1,900
Interest cost on projected
benefit obligation 5,138 5,209 5,054
Actual return on plan assets 1,180 (9,078) (6,811)
Net amortization and deferral (8,029) 2,670 677
------------------------------------------------------------------
Net pension expense $ 73 $ 732 $ 820
------------------------------------------------------------------
The funded status of the plan as of December 31 was as follows:
-------------------------------------------------------------------------------
1994 1993
(in thousands)
-------------------------------------------------------------------------------
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested
benefits of $57,466 and$67,134 for 1994 and 1993,
respectively $(59,300) $(69,348)
-------------------------------------------------------------------------------
Projected benefit obligation for service rendered
to date $(64,087) $(78,038)
Plan assets at fair value 73,840 79,554
-------------------------------------------------------------------------------
Funded status of plan 9,753 1,516
Unrecognized net gain from past experience different
from that assumed andeffects of changes in
assumptions (7,011) (369)
Unrecognized prior service cost at December 31,
being amortized over 8 yearsand 6 years,
respectively 443 725
Unrecognized net (asset) at December 31, being
amortized over 15 years (58) (67)
-------------------------------------------------------------------------------
Prepaid pension cost $3,127 $1,805
-------------------------------------------------------------------------------
In addition, the Company established in 1988 a supplemental defined benefit
plan for substantially all employees. In 1994, 1993 and 1992, the net pension
expense for this plan was approximately $104,900, $36,000 and $32,000,
respectively, and the projected benefit obligation exceeded plan assets by
approximately $440,000 at December 31, 1994 and $310,000 at December 31, 1993.
- 22 -
<PAGE>
Notes to Consolidated Financial Statements
DECEMBER 31, 1994, 1993 AND 1992
EDO CORPORATION AND SUBSIDIARIES
The Company also has a supplemental retirement plan for officers and certain
employees under which the Company has agreed to pay, at the option of the
individual, either a predetermined retirement benefit or a fully paid up life
insurance policy. In the event of preretirement death or disability, the plan
provides for similar benefits. At December 31, 1994, the projected benefit
obligation of the plan was $4,077,000. The aggregate cash surrender value of
the life insurance on the plan participants, which is intended to fund the
supplemental retirement plan benefits, was $2,335,000 at the most recent
anniversary date. Total expenses under this plan in 1994, 1993 and 1992 were
$404,000, $332,000 and $321,000, respectively.
(15) Postretirement Health Care and Life Insurance Benefits
The Company provides certain health care and life insurance benefits for
qualified retired employees and dependents at certain locations. These benefits
are funded on a pay-as-you-go basis, with the retiree paying a portion of the
cost through contributions, deductibles and coinsurance provisions. The Company
has always retained the right to modify or terminate the plans providing these
benefits.
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions." SFAS No. 106 requires recognition of these
benefit expenses on an accrual basis as the employees earn them during their
employment rather than when they are actually paid. The adoption resulted in a
onetime noncash charge of $13.4 million before income tax benefits ($9.4
million after income tax benefits, or $1.74 per common share) for the
accumulated postretirement obligation recognized as a cumulative effect of
accounting change.
Cash outlays relating to retiree health care and life insurance benefits
amounted to $1,017,000, $1,086,000 and $840,000 for 1994, 1993 and 1992,
respectively.
Postretirement health care and life insurance expense included the following
components:
-----------------------------------------------------------
1994 1993
(In thousands)
-----------------------------------------------------------
Service cost - benefits earned during
the period $ 93 $ 129
Interest cost 884 1,100
-----------------------------------------------------------
Total postretirement health care and
life insurance expense $ 977 $ 1,229
-----------------------------------------------------------
The postretirement healthcare and life insurance expense assumed a discount
rate of 7.5%.
The funded status and breakdown of the postretirement health care and life
insurance benefits are as follows as of December 31:
-----------------------------------------------------------
1994 1993
(In thousands)
-----------------------------------------------------------
Accumulated postretirement
benefit obligation:
Retirees $ 9,092 $ 11,070
Eligible active employees 783 1,674
Other ineligible active employees 893 2,027
-----------------------------------------------------------
Unfunded accumulated postretirement
benefit obligation $ 10,768 $ 14,771
Unrecognized net (loss) gain 2,697 (1,279)
-----------------------------------------------------------
Accrued postretirement benefit cost $ 13,465 $ 13,492
-----------------------------------------------------------
Actuarial assumptions used in determining the accumulated postretirement
benefit obligation include a discount rate of 9.00% and 7.5% at December 31,
1994 and 1993, respectively. Effective January 1, 1993, the Company modified
these benefit plans to significantly limit the annual increase of these costs
to the Company to a maximum of 5 percent per year through use of copayments
from the employees and retirees. As a result, the Company's exposure to
increases in the health care cost trend rate will be limited to this 5 percent
ceiling.
Effective April 1, 1995 the Company will further modify these benefit plans to
shift the cost for certain over age 65 participants to Medicare HMO type plans.
The effect of this change in benefits will be to reduce the unfunded
accumulated postretirement benefit obligation by $5,500,000 and increase the
unrecognized gain by the same amount, which gain will reduce postretirement
health care and life insurance expense in future years over the estimated life
expectancy of plan participants.
(16) Commitments and Contingencies
The Company is contingently liable under the terms of letters of credit (Note
9) aggregating approximately $1,131,000 at December 31, 1994, should it fail to
perform in accordance with the terms of its contracts with foreign customers.
At December 31, 1994, the Company and its subsidiaries were obligated under
building and equipment leases expiring between 1995 and 1999. Rental expense
under such leases for the years ended December 31, 1994, 1993 and 1992 amounted
to $2,200,000, $2,900,000 and $2,700,000, respectively. Minimum future rentals
under those obligations with noncancellable terms in excess of one year are as
follows: 1995 - $2,200,000; 1996 - $2,100,000; 1997 - $1,900,000; 1998 -
$1,700,000; and 1999 - $1,500,000.
- 23 -
<PAGE>
Notes to Consolidated Financial Statements
DECEMBER 31, 1994, 1993 AND 1992
EDO CORPORATION AND SUBSIDIARIES
(17) Legal Matters
The Company and three other companies have entered into a consent decree with
the Federal government for the remediation of a Superfund site. Management
estimates that the Company's share of the costs will be approximately $10.6
million of which $3.8 million has been expended as of December 31, 1994. This
estimate, subject to reasonable tolerances, represents amounts for capital
requirements, government past and oversight costs and the present value of the
cost of maintenance and operation of the remedy over 30 years. A large portion
of the remaining costs, however, will be expended over the next two years.
Management believes others not party to the consent decree should share in a
substantial portion of the costs and the Company is pursuing them for such
costs. The Company received $4.4 million from certain of such parties in 1994.
Management also believes it is covered by liability insurance for all of the
unreimbursed costs it incurs. Its insurance carriers have neither agreed nor
disagreed with the Company's position, but the matter is in court to determine
the insurers' defense and indemnification obligations to the Company. Although
the Company intends to continue to pursue its liability insurance carriers, as
a result of a recent, unfavorable, partial ruling from the court in this case,
the Company has written off $5.4 million of a previously recorded receivable
relating to the amount the Company believes is covered by its insurance
policies.The remaining liability of the Company at December 31, 1994 associated
with this matter is $6,805,000 of which $2,400,000 has been classified as
current.
In 1993, the Company reached an out-of-court settlement in connection with a
real estate contract dispute. As a result, the Company recorded a pre-tax
charge of approximately $1.2 million.
Additionally, the Company and its subsidiaries are subject to certain legal
actions that arise out of the normal course of business. It is management's
belief that the ultimate outcome of these actions will not have a material
effect on the Company's consolidated financial position and results of
operations.
(18) Business Segments
The nature of the Company's products are described elsewhere in this Annual
Report on Form 10-K. In 1994, the Company engaged in major consolidations,
reducing its operating divisions from four to two: the Defense and Space
Systems Division and the Industrial Products Division. The Company has modified
its segment reporting to conform with this operating structure by reclassifying
Spaceflight Systems and Infrared Instrumentation into the Defense and Space
Systems segment and by changing Acoustic Systems and all Electroceramic
Components to the Industrial Products segment. Current and historical segment
data have been modified throughout this Report to reflect this change.
Sales between industry segments approximate market price. Sales are made and
credit is granted generally to the U.S. Government or to customers in the
defense or aerospace industry. The Company considers the risks associated with
such customers to be minimal.
Domestic government sales, which include sales where the Company is a
subcontractor to a prime contractor with the government, amounted to 53%, 56%
and 60% of net sales, which were 66%, 60% and 62% of Defense and Space Systems
sales and 31%, 49% and 55% of Industrial Products sales for 1994, 1993 and
1992, respectively.
Export sales comprised 20%, 22% and 24% of net sales for 1994, 1993 and 1992,
respectively.
Principal products and systems by industry segment are as follows:
Defense and Space Systems
* Ejection Release Units
* Sonar Systems
* Spaceflight Systems
* Infrared Instrumentation
* Airborne Mine Countermeasure Systems (AMCM)
* Command, Control, Communications & Intelligence Systems (C3I)
Industrial Products
* Electroceramic Components
* Acoustic Instrument Systems
* Acoustic Systems
* Fiber-Reinforced Structures
* Composite Sports Products
* Naturel Gas Vehicle Products
The distribution of sales, operating earnings and identifiable assets of the
Company's business segments follows:
- 24 -
<PAGE>
Notes to Consolidated Financial Statements
DECEMBER 31, 1994, 1993 AND 1992
EDO CORPORATION AND SUBSIDIARIES
------------------------------------------------------------------
1994 1993 1992
(in thousands)
------------------------------------------------------------------
Sales:
Defense and Space Systems:
Unaffiliated customers $56,568 $71,944 $92,964
Industrial Products:
Unaffiliated customers 34,034 32,194 32,807
Intersegment sales 776 589 719
------------------------------------------------------------------
34,810 32,783 33,526
Less intersegment sales 776 589 719
------------------------------------------------------------------
Net sales $90,602 $104,138 $125,771
------------------------------------------------------------------
Operating (loss) earnings:
Defense and Space Systems $(6,546) $(6,908) $12,140
Industrial Products (14,139) 460 2,499
------------------------------------------------------------------
(20,685) (6,448) 14,639
Net interest (expense) (2,109) (2,201) (2,504)
General corporate expenses (4,711) (4,146) (4,281)
Other income (expense), net 335 (1,390) (443)
------------------------------------------------------------------
Earnings (loss) before Federal
and foreign income taxes,
cumulative effect of
accounting change and
minority interest $(27,170) $(14,185) $7,411
------------------------------------------------------------------
Identifiable assets:
Defense and Space Systems $43,404 $62,499 $91,634
Industrial Products 30,108 42,817 32,022
Corporate 28,565 18,089 9,692
------------------------------------------------------------------
$102,077 $123,405 $133,348
------------------------------------------------------------------
Depreciation expense:
Defense and Space Systems $3,412 $4,190 $4,925
Industrial Products 2,635 2,261 1,535
------------------------------------------------------------------
$6,047 $6,451 $6,460
------------------------------------------------------------------
Capital expenditures:
Defense and Space Systems $953 $3,121 $2,671
Industrial Products 1,458 1,396 1,895
------------------------------------------------------------------
$2,411 $4,517 $4,566
------------------------------------------------------------------
KPMG Peat Marwick LLP
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
EDO Corporation
We have audited the accompanying consolidated balance sheets of EDO Corporation
and subsidiaries as of December 31, 1994 and 1993, and the related consolidated
statements of operations, shareholders' equity and cash flows for each of the
years in the three year period ended December 31, 1994. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated 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 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 audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of EDO Corporation and
subsidiaries at December 31, 1994 and 1993, and the results of their operations
and their cash flows for each of the years in the three year period ended
December 31, 1994, in conformity with generally accepted accounting principles.
As discussed in the notes to the consolidated financial statements, the Company
adopted the provisions of the Financial Accounting Standards Board's Statements
of Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," and No. 109, "Accounting for
Income Taxes," in 1993.
KPMG Peat Marwick LLP
Jericho, New York
March 3, 1995
- 25 -
<PAGE>
Notes to Consolidated Financial Statements
DECEMBER 31, 1994, 1993 AND 1992
EDO CORPORATION AND SUBSIDIARIES
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
The following table sets forth unaudited quarterly financial information for
1994 and 1993 (in thousands, except per share amounts).
<CAPTION>
------------------------------------------------------------------------------------------------------------------------
First Quarter Second Quarter Third Quarter Fourth Quarter
1994 1993 1994 1993 1994 1993 1994 1993
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $ 21,250 $ 27,473 $ 24,205 $ 26,764 $ 22,677 $ 22,450 $ 22,470 $ 27,451
Gross profit (loss) 3,848 4,490 2,238 3,637 (4,832) 3,776 1,788 5,094
Net earnings (loss) before
cumulative effect of
accounting change 16 566 (1,937) (936) (6,744)a (387) (13,891)b (6,191)c
Cumulative effect of change in
accounting for postretirement
benefits - (9,400) - - - - - -
Net earnings (loss) $ 16 $ (8,834) $ (1,937) $ (936) $ (6,744) $ (387) $(13,891) $ (6,191)
Earnings (loss) per share:
Primary:
Net earnings (loss) before
accounting change $ (0.06) $0.04 $ (0.42) $ (0.24) $ (1.26) $ (0.14) $ (2.52) $ (1.19)
Cumulative effect of
accounting change - (1.75) - - - - - -
Net loss $ (0.06) $ (1.71) $ (0.42) $ (0.24) $ (1.26) $ (0.14) $ (2.52) $ (1.19)
Cash dividends per common
share $ 0.07 $ 0.07 $ 0.07 $ 0.07 $ - $ 0.07 $ - $ 0.07
Preferred dividends paid $ 342 $ 359 $ 342 $ 359 $ 327 $ 346 $ 322 $ 342
<FN>
a The 1994 third quarter results include a $1,400 write off of a foreign receivable, a $1,127 restructuring charge, and
a $1,100 write off of non-productive fixed assets.
b The 1994 fourth quarter results include a $5,400 write off of an environmental insurance receivable and a $3,175 write
off of foreign receivables.
c The 1993 fourth quarter results include restructuring charges of $9,800.
</FN>
</TABLE> - 26 -
<PAHE>
EXHIBIT INDEX
Exhibits which are noted with an asterisk (*) are management contracts or
compensatory plans or arrangements.
3(i) Certificate of Incorporation of the Company and amendments thereto
dated June 14, 1984, July 18, 1988 and July 22, 1988.
3(ii) By-Laws of the Company. Incorporated by reference to Exhibit 3(ii) to
the Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1993.
4(a) Indenture dated December 1, 1986 between Manufacturers Hanover Trust
Company, as Trustee, and EDO Corporation. Incorporated by reference to Exhibit
4(b) to the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1992.
4(b) Guarantee Agreement, dated as of July 22, 1988, as amended, made by the
Company in favor of NatWest Bank NA as successor in interest to Manufacturers
Hanover Trust Company. Incorporated by reference to Exhibit 4(c) to the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1992.
4(c) Term Loan Agreement, dated as of July 22, 1988, as amended, between The
Bank of New York, as trustee of the trust established under the EDO Corporation
Employee Stock Ownership Plan, and NatWest Bank NA as successor in interest to
Manufacturers Hanover Trust Company. Incorporated by reference to Exhibit 4(d)
to the Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1992.
4(d) Term Note, dated July 22, 1988, as amended, between The Bank of New
York, as trustee of the trust established under the EDO Corporation Employee
Stock Ownership Plan, and NatWest Bank NA as successor in interest to
Manufacturers Hanover Trust Company. Incorporated by reference to Exhibit 4(e)
to the Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1992.
4(e) Pledge and Security Agreement, dated as of July 22, 1988, as amended,
between The Bank of New York, as trustee of the trust established under the EDO
Corporation Employee Stock Ownership Plan, and NatWest Bank NA as successor in
interest to Manufacturers Hanover Trust Company. Incorporated by reference to
Exhibit 4(f) to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1992.
4(f) Amendment No. 6 to the Guarantee Agreement referred to in Exhibit 4(b)
above. Incorporated by reference to Exhibit 4(i) to the Company's Annual Report
on Form 10-Q for the fiscal year ended December 31, 1992.
4(g) Amendment No. 7 to the Guarantee Agreement referred to in Exhibit 4(b)
above, effective March 3, 1994. Incorporated by reference to Exhibit 4(h) to
the Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1993.
4(h) Amendment No. 8 to the Guarantee Agreement referred to in Exhibit 4(b)
above, effective February 10, 1995.
10(a)* EDO Corporation 1980 Stock Option Plan, as amended through July 22,
1988. Incorporated by reference to Exhibit 10(a) to the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1992.
10(b)* EDO Corporation 1985 Stock Option Plan, as amended through January 24,
1989.
10(c)* EDO Corporation 1988 Stock Option Plan as amended through July 22,
1988. Incorporated by reference to Exhibit 10(c) to the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1993.
10(d)* EDO Corporation 1983 Long-Term Incentive Plan as amended through July
22, 1988. Incorporated by reference to Exhibit 10(d) to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1993.
10(e)* EDO Corporation 1988 Long-Term Incentive Plan as amended through July
22, 1988. Incorporated by reference to Exhibit 10(e) to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1993.
10(f)* EDO Corporation Executive Termination Agreements, as amended through
November 24, 1989, between the Company and three employees.
10(g)* Executive Life Insurance Plan Agreements, as amended through January
23, 1990, between the Company and thirty-one employees and retirees.
10(h)* Form of Directors' and Officers' Indemnification Agreements between EDO
Corporation and fifteen current Company directors and officers. Incorporated by
reference to Exhibit 10(i) to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1991.
10(i) Subscription Agreement, dated December 18, 1987, between EDO (Canada)
Limited and Her Majesty the Queen in right of the Province of Alberta, as
represented by the Minister of Economic Development and Trade. Incorporated by
reference to Exhibit 10(i) to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1992.
10(j) Consent Decree, entered on November 25, 1992, amongst the United
States, EDO Corporation, Plessey, Inc., Vernitron Corporation and Pitney Bowes,
Inc. Incorporated by reference to Exhibit 10(j) to the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1992.
21 List of Subsidiaries.
23 Consent of Independent Auditors to the incorporation by reference in
the Company's Registration Statements on Form S-8 of their report included in
Item 14(a)1 hereto.
24 Powers of Attorney used in connection with the execution of this Annual
Report on Form 10-K.
27 Financial Data Schedule.
EDO CORPORATION
RESTATED CERTIFICATE OF INCORPORATION
[As amended through July 22,1988]
FIRST: The name of the Corporation is EDO Corporation.
SECOND: The purposes for which it is to be formed are as follows:
1. To design, develop, experiment with, produce, manufacture, buy, sell,
export, import, deal in, lease, repair and equip aircraft and aircraft
equipment of every kind or description, and motors, engines, parts,
accessories, apparatus, supplies and other property related thereto or
connected therewith;
2. To operate and use at any place or places in the United States or elsewhere
any kind of aircraft, aeroplane, hydroplane, autogyro, flying boat or other
machine capable of flying in the air or suitable for aerial operation or
navigation, and to use the same for any purpose, including transportation,
exhibition flying, racing, advertising or any other form of commercial use;
3. To design, develop, experiment with, produce, manufacture, buy, sell,
export, import, deal in, lease, repair and equip goods, wares, products,
machinery, merchandise, articles or materials of every sort, kind and
description, and in general to engage in any manufacturing, industrial or
mercantile business of any kind whatsoever;
4. To purchase, lease or otherwise acquire, hold, sell, mortgage, rent, manage
and deal in real estate, buildings or constructions of any kind, and every kind
of right or interest in real estate, and to maintain and operate or otherwise
turn to account the same;
5. To acquire by purchase, subscription or otherwise and to hold, sell,
negotiate, transfer, mortgage, pledge or otherwise dispose of any shares of
capital stock, scrip or voting trust certificates in respect of shares of
capital stock of, or any bonds, mortgages, debentures, securities or evidences
of indebtedness issued or created by any other corporation, joint stock company
or association, public or private, or by the Government of the United States or
any foreign government, or any state, territory, municipality or other
political subdivision or any governmental agency of the Government of the
United States of America or of any other government, and to exercise all the
rights and privileges as owner or holder with respect to any thereof;
6. To purchase, hold, cancel, reissue, sell, transfer and deal in its own
shares or other securities in so far as the same may be permitted by law;
provided, however, that shares of its own capital stock shall not be voted
directly or indirectly;
7. To borrow or raise monies for the business of the Corporation and any and
all of its purposes;
8. To buy, lease or otherwise acquire the whole or any part of the business,
goodwill and assets of any person, firm, association or corporation, foreign or
domestic, engaged in any business which this Corporation is authorized to carry
on;
9. To advance or lend money with or without security to, and otherwise aid, by
guarantee or otherwise, any corporation, association or firm, any of the
securities of which or interest in shall be owned by the Corporation or in
which, or in the business of which, the Corporation shall have any interest;
10. To carry on any of the foregoing businesses either as principal or as
agent, and at any place or places inside or outside the State of New York or
the United States of America, in every part of the world;
11. To have and to exercise all the powers now or hereafter conferred by all
laws of the State of New York upon corporations organized under the Business
Corporation Law.
The foregoing clauses shall be construed as purposes and powers in furtherance
and not in limitation of the general powers conferred by the State of New York,
and the enumeration herein of specific purposes and powers shall not be held to
limit or restrict in any way the general powers of the Corporation, but nothing
herein contained is to be construed as authorizing this Corporation to carry on
the business of discounting bills, notes or other evidences of debt, or
receiving deposits of money or foreign coins, of buying and selling bills of
exchange, or issuing bills, notes, or other evidences of debt for circulation
as money, or of engaging in any other form of banking or shall be deemed to
authorize or permit this Corporation to carry on any business, exercise any
power, or do any act which a corporation organized under the Business
Corporation Law of the State of New York may not at the time lawfully do.
THIRD: The aggregate number of shares which the Corporation shall have
authority to issue is 25,500,000 shares, of which 25,000,000 shares shall be
designated as Common Shares, par value $1 per share, and 500,000 shall be
designated as Preferred Shares, par value $1 per share. The designations,
relative rights, preferences and limitations of each class of shares of the
corporation shall be as follows:
A. The Preferred Shares may be issued from time to time in one or more series,
in such number, and with such distinctive serial designations and relative
rights, preferences and limitations, as may be fixed by the Board of Directors.
Subject to the limitations set forth herein and any limitations prescribed by
law, the Board of Directors is expressly authorized, prior to the issue of any
series of Preferred Shares, to fix the number of shares included in such series
and the designation, relative rights, preferences and limitations of such
series and to file a certificate of amendment pursuant to section 805 of the
Business Corporation Law or any statute amendatory thereof or supplemental
thereto, establishing or changing the number, designation and relative rights,
preferences and limitations of such series. Pursuant to the foregoing general
authority vested in the Board of Directors, but not in limitation of the powers
conferred on the Board of Directors thereby and by laws of the State of New
York, the Board of Directors is expressly authorized to determine with respect
to each series of Preferred Shares:
(a) the distinctive designation or designations of such series and the number
of shares constituting such series;
(b) the rate or amount and times at which, and the preferences and conditions
under which, dividends shall be payable on shares of such series, the status of
such dividends as cumulative or non-cumulative, the date or dates from which
dividends, if cumulative, shall accumulate, and the status of such shares as
participating or non-participating after the payment of dividends as to which
such shares are entitled to any preference;
(c) the rights and preferences, if any, of the holders of shares of such series
upon the liquidation, dissolution or winding-up of the affairs of, or upon any
distribution of the assets of, the Corporation, which amount may vary depending
upon whether such liquidation, dissolution or winding-up is voluntary or
involuntary and, if voluntary, may vary at different dates, and the status of
the shares of such series as participating or non-participating after the
satisfaction of any such rights and preferences;
(d) the full or limited voting rights, if any, to be provided for shares of
such series, in addition to the voting rights provided by law;
(e) the times, terms and conditions, if any, upon which shares of such series
shall be subject to redemption, including the amount the holders of shares of
such series shall be entitled to receive upon redemption (which amount may vary
under different conditions or at different redemption dates) and the amount,
terms, conditions and manner of operation of any purchase, retirement or
sinking fund to be provided for the shares of such series;
(f) the rights, if any, of holders of shares of such series to convert such
shares into, or to exchange such shares for, shares of any other class or
classes or of any other series of the same class, the prices or rates of
conversion or exchange, and adjustments thereto, and any other terms and
conditions applicable to such conversion or exchange;
(g) the limitations, if any, applicable while such series is outstanding on the
payment of dividends or making of distributions on, or the acquisition or
redemption of, Common Shares or any other class of shares ranking junior,
either as to dividends or upon liquidation, to the shares of such series;
(h) the conditions or restrictions, if any, upon the issue of any additional
shares (including additional shares of such series or any other series or of
any other class) ranking on a parity with or prior to the shares of such series
either as to dividends or upon liquidation; and
(i) any other preferences and relative, participating, optional or other
special rights, and the qualifications, limitations or restrictions thereof, of
shares of such series;
in each case, so far as not inconsistent with the provisions of this
Certificate of Incorporation or the laws of the state of New York as then in
effect. All Preferred Shares shall be identical and of equal rank except in
respect to the particulars that may be fixed by the Board of Directors as
provided above, and all shares of each series of Preferred Shares shall be
identical and of equal rank except as to the times from which cumulative
dividends, if any, thereon shall be cumulative. The number of authorized
Preferred Shares may be increased or decreased by the affirmative vote of the
holders of a majority of the shares of the Corporation entitled to vote
thereon, without any requirement that such increase or decrease be approved by
a class vote on the part of the holders of the Preferred Shares or any series
thereof, or on the part of any other class of shares of the Corporation, except
as may be otherwise required by the laws of the State of New York or provided
in the certificate of amendment establishing the voting rights of any series of
Preferred Shares. The Board of Directors may from time to time amend any of the
provisions of any certificate of amendment establishing any series of Preferred
Shares, subject to any class voting rights of the holders of such shares and
subject to the requirements of the laws of the State of New York or provided in
the certificate of amendment establishing the voting rights of any series of
Preferred Shares. The Board of Directors may from time to time amend any of the
provisions of any certificate of amendment establishing any series of Preferred
Shares, subject to any class voting rights of the holders of such shares and
subject to the requirements of the laws of the State of New York.
A.1 ESOP Convertible Cumulative Preferred Shares, Series A.
The number, designation, relative rights, preferences and limitations of the
ESOP Convertible Cumulative Preferred Shares, Series A, are as follows:
(1) Designation and Number of Shares. 89,772 of the Preferred Shares shall be,
and be designated as, ESOP Convertible Cumulative Preferred Shares, Series A
(hereinafter referred to as the "Series A Preferred Shares").
(2) Dividends.
A. The holders of Series A Preferred Shares shall be entitled to receive, when
and as declared by the Board of Directors, out of funds legally available for
the payment of dividends, cumulative cash dividends in the amount of $17.10 per
share per annum, and no more. Dividends shall accumulate and be payable
quarterly on the fifteenth day of March, June, September and December in each
year (each a "Dividend Payment Date" or collectively, "Dividend Payment
Dates"), commencing September 15, 1988, except that if any Dividend Payment
Date is not a business day in New York City, then such quarterly dividend shall
be payable on the next succeeding business day and such next succeeding
business day shall be the Dividend Payment Date. Dividends on the Series A
Preferred Shares shall accrue and be cumulative from the date of their original
issue. The amount of dividends payable on Series A Preferred Shares for each
full quarterly dividend period shall be computed by dividing S17.10 by four.
Dividends payable on the Series A Preferred Shares for the initial dividend
period and for any period less than a full quarter shall be computed on the
basis of a 360-day year of twelve 30-day months. Dividends paid on Series A
Preferred Shares in an amount less than the total amount of such dividends at
the time accumulated and payable on such shares shall be allocated pro rata on
a share-by-share basis among all such shares at the time outstanding.
B. If at any time the Corporation has failed to pay accrued dividends on any
Series A Preferred Shares or any Parity Shares outstanding at the times such
dividends are payable, unless the same have been or contemporaneously are paid
in full or a sum sufficient for the payment thereof set aside for payment, the
Corporation shall not
(i) declare or pay any dividend on the Common Shares or on any Junior Shares or
make any payment on account of, or set apart money for, a sinking or other
analogous fund for, the purchase, redemption or other retirement of, any Common
Shares or any Junior Shares or make any distribution in respect thereof, either
directly or indirectly and whether in cash or property or in obligations or
shares of the Corporation (other than in Common Shares or Junior Shares),
(ii) purchase any Series A Preferred Shares or Parity Shares (except for a
consideration payable in Common Shares or Junior Shares) or redeem fewer than
all of the Series A Preferred Shares and Parity Shares then outstanding, or
(iii) permit any corporation or other entity directly or indirectly controlled
by the Corporation to purchase any Common Shares, Junior Shares, Series A
Preferred Shares or Parity Shares.
Unless and until all dividends accrued and payable but unpaid on Series A
Preferred Shares and any Parity Shares at the time outstanding have been paid
in full, all dividends declared by the Corporation upon Series A Preferred
Shares or Parity Shares shall be declared pro rata with respect to all Series A
Preferred Shares and Parity Shares then outstanding, so that the amounts of any
divider. declared on Series A Preferred Shares and such Parity Shares shall in
all cases bear to each other the same ratio that, at the time of such
declaration, all accrued and payable but unpaid dividends on Series A Preferred
Shares and such other Parity Shares, respectively, bear to each other.
(3) Optional Redemptions.
A. The Corporation may, at its option, at any time and from time to time after
June 15, 1991, redeem all, or any number less than all, of the outstanding
Series A Preferred Shares. Any redemption of Series A Preferred Shares shall be
effected at the prices set forth below:
If Redeemed During the Redemption Price
Twelve Month Period Beginning Per Share
June 15, 1991 $227.39
June 15, 1992 $225.68
June 15, 1993 $223.97
June 15, 1994 $222.26
June 15, 1995 $220.55
June 15, 1996 $218.04
June 15, 1997 $217.13
June 15, 1998 $215.42
and thereafter at $213.71 per share plus, in each case, an amount equal to all
dividends (whether or not declared or due) accrued and unpaid on such Series A
Preferred Share to the date fixed for redemption.
B. In the event of a change or a proposed change in the Federal tax laws, which
has the effect of precluding the Corporation from claiming a tax deduction for
dividends paid on the Series A Preferred Shares as provided by section 404 (k)
(2) of the Internal Revenue Code of 1986, as amended, the Corporation may, at
its option, at any time and from time to time thereafter redeem all of the
outstanding Series A Preferred Shares at a price equal to S2 13 . 7 1 per share
plus, in each case, an amount equal to all dividends (whether or not declared
or due) accrued and unpaid on such Series A Preferred Shares to the date fixed
for redemption.
C. Notwithstanding the foregoing provisions of this clause (3), the Corporation
may elect to pay the redemption price for all Series A Preferred Shares in
shares of Qualifying Employer Securities of the Corporation rather than in
cash. The redemption price per share shall be equal to the number of shares of
Qualifying Employer Securities having a fair value (as determined in good faith
by the Board of Directors) equal to the cash which would have been paid
pursuant to the foregoing clause (3)(A) or (3)(B), as the case may be.
D. Notice of any proposed redemption of Series A Preferred Shares pursuant to
this clause (3) shall be given by the Corporation by mailing a copy of such
notice no less than 20 days nor more than 60 days prior to the date fixed for
such redemption to holders of record of the Series A Preferred Shares to be
redeemed at their respective addresses appearing on the books of the
Corporation. Such notice shall specify (i) the shares called for redemption,
(ii) the redemption price and (iii) the place at which and the date on which
the shares called for redemption will, upon presentation and surrender of the
certificates of stock evidencing such shares, be redeemed and the redemption
price therefor paid. In the case of the redemption of less than all the
outstanding Series A Preferred Shares, the Corporation will select the shares
to be redeemed among all then outstanding Series A Preferred Shares in such
manner as may be prescribed by the Board of Directors. From and after the date
fixed in any such notice as the date of redemption of Series A Preferred
Shares, unless the Corporation shall default in providing monies at the time
and place specified for the payment of the redemption price (including any
accrued and unpaid dividends) pursuant to such notice, all dividends on the
Series A Preferred Shares thereby called for redemption shall cease to accrue,
such Series A Preferred Shares shall no longer be deemed to be outstanding and
all rights of the holders thereof as shareholders of the Corporation, except
the right to receive the redemption price (including any accrued and unpaid
dividends), shall cease and terminate.
E. The holder of any Series A Preferred Shares redeemed pursuant to this clause
(3) upon any exercise of the Corporation's redemption right shall not be
entitled to receive payment of the redemption price for such shares until such
holder shall cause to be delivered to the place specified in the notice given
with respect to such redemption (i) the certificate or certificates
representing such Series A Preferred Shares and (ii) transfer instrument(s)
satisfactory to the Corporation and sufficient to transfer such Series A
Preferred Shares to the Corporation free of any adverse interest. No interest
shall accrue on the redemption price of any Series A Preferred Shares after the
date fixed for its redemption.
F. All Series A Preferred Shares which shall at any time have been redeemed
shall, after such redemption, have the status of authorized but unissued
Preferred Shares, without designation as to series, and the number of Preferred
Shares which the Corporation shall have authority to issue shall not be
decreased by the redemption of Series A Preferred Shares.
(4) Redemption Upon Merger or Consolidation.
A. In the event an option Event occurs, each holder of Series A Preferred
Shares, may require the Corporation to redeem all or any portion of the Series
A Preferred Shares owned by such holder at a price per share equal to S213.71
plus, in each case, an amount equal to all dividends (whether or not declared
or due) accrued and unpaid on such Series A Preferred Share to the date fixed
for redemption. The Corporation will notify each holder of Series A Preferred
Shares of a proposed Option Event at least 30 days prior to the occurrence
thereof, and each such holder will have until 10 days prior to the occurrence
of such proposed option Event to request redemption (by written notice
delivered to the Corporation) of all or any portion the Series A Preferred
Shares owned by such holder. Upon receipt of such request, the Corporation will
be obligated to redeem the number of Series A Preferred Shares specified in
such request upon the occurrence of the Option Event. An "Option Event" will be
deemed to have occurred in the event of the of the occurrence of (i) any
consolidation of the Corporation with, or merger of the Corporation into, any
other Person, (ii) any merger of another Person into the Corporation (other
than a consolidation or merger in which the Corporation is the continuing
corporation and which does not result in any reclassification or change of
outstanding Common Shares) or (iii) any sale or transfer of all or
substantially all of the assets of the Corporation, other than any such
consolidation}, merger, sale or transfer in which the kind and amount of cash,
securities and other property receivable by a holder of Common Shares pursuant
to such transaction shall either (a) include cash at least equal to the
Conversion Price in effect immediately prior to such consolidation, merger,
sale or transfer, or (b) consist solely of publicly-traded common stock of
either (Y) the Person formed by such consolidation or resulting from such
merger or which acquires such assets, as the case may be, or (Z) the Person (i
any) which owns 100% of the voting stock of the Person referred to in subclause
(Y), provided that such common stock then constitutes a Qualifying Employer
Security.
B. In the event that the holders of 85% or more of all of the outstanding
Series A Preferred Shares cause the Corporation to redeem such shares pursuant
to clause (4)(A), the Corporation may, at its option, at any time and from time
to time thereafter redeem all of the remaining outstanding shares of Series A
Preferred Shares at a price per share equal to S213.71 plus, in each case, an
amount equal to all dividends (whether or not declared or due) accrued and
unpaid on such Series A Preferred Share to the date fixed for redemption. The
Corporation shall provide notice to the holders of the Series A Preferred
Shares to be redeemed in accordance with clause (3)(C).
C. Notwithstanding the foregoing provisions of this clause (4), the Corporation
(or its successor) may elect to pay the redemption price for all Series A
Preferred Shares in shares of Qualifying Employer Securities of the Corporation
(or its successor) rather than in cash. The redemption price per share shall be
equal to the number of shares of Qualifying Employer Securities having a fair
value (as determined in good faith by the Board of Directors) equal to the cash
which would have been paid pursuant to the foregoing clause (4)(A) or (4)(B),
as the case may be.
(5) Conversion Rights.
A. Each Series A Preferred Shares shall be convertible at the option of the
holder thereof at any time (except that if any such share shall have been
called for redemption, then, as to such share, such right shall terminate at
the close of business on the date two business days prior to the date fixed for
such redemption, unless default shall be made by the Corporation in making the
payment due upon redemption) into fully paid and nonassessable Common Shares.
The number of Common Shares issued upon conversion of each Series A Preferred
Share shall be equal to $213.71 divided by the Conversion Price then in effect.
The Conversion Price initially shall be S21.371; provided that the Conversion
Price shall be subject to adjustment from time to time in certain instances as
hereinafter provided.
B. The Common Shares deliverable upon conversion of Series A Preferred Shares
shall be Common Shares of the Corporation, par value $1.00 per share, as
constituted at the date of this certificate, except as otherwise provided in
subclauses (i) and. (vii) of clause (5)(E), and in clause (5)(F).
C. In order for any holder of Series A Preferred Shares to convert the same
into Common Shares, such holder shall surrender the certificate or certificates
for such Series A Preferred Shares at the corporate office of the Corporation
for the Series A Preferred Shares during usual business hours, which
certificate or certificates, if the Corporation shall so request, shall be duly
endorsed to the Corporation or in blank, or accompanied by proper instruments
of transfer to the Corporation or in blank, and shall give written notice to
the Corporation at such office that such holder elects so to convert such
Series A Preferred Shares, and state in writing therein the name or names in
which such holder wishes the certificate or certificates for Common Shares to
be issued.
D. The Corporation will, as soon as practicable after such deposit of
certificates for Series A Preferred Shares accompanied by the written notice
and the statement above prescribed, deliver at said office, to the Person for
whose account such certificates for Series A Preferred Shares were so
surrendered, or to such Person's nominee or nominees, certificates for the
number of Common Shares to which such Person shall be entitled as aforesaid,
together with any cash adjustment of any fraction of a share as hereinafter
provided. Subject to the following provisions of this clause (5)(D), such
conversion shall be deemed to have been made immediately prior to the close of
business on the date of such surrender of the Series A Preferred Shares to be
converted, and the Person or Persons entitled to receive the Common Shares
deliverable upon conversion of such Series A Preferred Shares shall be treated
for all purposes as the record holder or holders of such Common Shares on such
date. The Corporation shall not be required to convert any Series A Preferred
Shares while the stock transfer books of the Corporation are closed for any
purpose; but the surrender of Series A Preferred Shares for conversion during
any period while such books are so closed shall become effective for conversion
upon reopening of such books, as if the surrender had been made immediately
prior to the close of business on the date of such reopening, and conversion
shall be at the Conversion, Price in effect at such date.
E. The Conversion Price shall be subject to adjustment as follows:
(i) In case the Corporation shall (A) pay a dividend on its Common Shares in
its Common Shares, (B) subdivide its outstanding Common Shares into a greater
number of shares, or (C) combine its outstanding Common Shares into a smaller
number of shares, the Conversion Price in effect at the time. of the record
date of such dividend, or the effective date of such subdivision or
combination, as the case may be, shall be proportionately adjusted so that the
holder of any Series A Preferred Shares surrendered for conversion after such
time shall be entitled to receive the number and kind of shares which such
holder would have owned or have been entitled to receive had such Series A
Preferred Shares been converted immediately prior to such time. Such adjustment
shall be made successively whenever any event listed above shall occur and
shall become effective retroactively to immediately after the record date of
such dividend or immediately after the effective date of such subdivision or
combination.
(ii) Unless the holders of Series A Preferred Shares shall be permitted to
subscribe for or purchase Common Shares on the same basis as if theretofore
converted into Common Shares, in case the Corporation shall issue rights or
warrants to all holders of its Common Shares entitling them (for a period
expiring within 45 days after the record date for the determination of
shareholders entitled to receive such rights or warrants) to subscribe for or
purchase Common Shares at a price per share less than the Closing Price (as
defined below) per Common Share on such record date, then in each such case the
Conversion Price shall be adjusted to equal the price determined by dividing
the Conversion Price in effect immediately prior to such record date by a
fraction of which the numerator shall be the number of Common Shares
outstanding on such record date plus the number of additional Common Shares
offered for subscription or purchase pursuant to such rights or warrants and of
which the denominator shall be the number of Common Shares outstanding on such
record date plus the number of Common Shares which the aggregate offering price
of the total number of shares so offered pursuant to such rights or warrants
would purchase at such Closing Price. Such adjustment shall be made
successively whenever such rights or warrants are issued, and shall become
effective retroactively to immediately after the record date for the
determination of shareholders entitled to receive such rights or warrants;
provided that in the event that all the Common Shares offered for subscription
or purchase are not delivered upon the exercise of such rights or warrants,
upon the expiration of such rights or warrants the Conversion Price shall be
readjusted to the Conversion Price which would have been in effect had the
numerator and the denominator of the foregoing fraction and the resulting
adjustment been made based upon the number of Common Shares actually delivered
upon the exercise of such rights or warrants rather than upon the number of
Common hares offered for subscription or purchase. For the purposes of this
subclause (ii), the number of Common Shares at any time outstanding shall not
include shares held in the treasury of the Corporation but shall include shares
issuable in respect of scrip certificates issued in lieu of fractions of Common
Shares.
(iii) In case the Corporation shall distribute, to all holders of its Common
Shares, shares of its capital stock (other than Common Shares), evidences of
indebtedness, cash or assets of the Corporation (excluding any regular,
periodic dividend paid in, or distributions of, cash to the extent of an amount
(the "Non-Excess Portion") equal to the amount by which such dividend is at a
rate that is less than 150% of the rate (adjusted for any subsequent r.mergers,
consolidations, or events of the type referred to in clauses (A), (B) and (C)
of clause (i) above) at which the last previous regular periodic cash dividend
was paid) or subscription rights or warrants to subscribe 'for or purchase
securities of the Corporation (excluding those referred to in subclause (ii)
above), then in each such case the Conversion Price shall be adjusted to equal
the price determined by dividing the Conversion Price in effect immediately
prior to the record date for the determination of shareholders entitled to
receive such distribution by a fraction of which the numerator shall be the
Closing Price per Common Share on such record date and of which the denominator
shall be such Closing Price per Common Share less the amount equal to the sum
of (x) the excess of the cash distributed over the amount, if any, thereof
constituting the Non-Excess Portion and (y) the fair market value (as
determined by the Board of Directors, whose determination shall be conclusive)
of the portion of the capital stock (other than Common Shares), evidences of
indebtedness or assets or subscription rights or warrants distributed
applicable to one Common Share. Such adjustment shall be made successively
whenever any such distribution is made, and shall become effective
retroactively to immediately after such record date.
(iv) For the purpose of any computation under subclauses (ii) and (iii) above,
the "Closing Price" for each day shall be the reported last sale price regular
way or, in case no such reported sale takes place on such day, the average of
the reported closing bid and asked prices regular way, in either case as
reported on the New York Stock Exchange Composite Tape, or, if at any time the
Common Shares are not listed or admitted to trading on such Exchange, on the
principal national securities exchange on which the Common Shares are listed or
admitted to trading, or if the Common Shares are not listed or admitted to
trading on any national securities exchange, on the National Association of
Securities Dealers Automated Quotations National Market System, or, if the
Common Shares are not listed or admitted to trading on any national securities
exchange or quoted on such National Market System, the average of the closing
bid and asked prices in the over-the-counter market as furnished by any New
York Stock Exchange member firm selected from time to time by the Board of
Directors for such purpose, or if no such bid and asked prices can be obtained
from any such firm, the fair market value of one Common Share on each such day
as determined in good faith by the Board of Directors.
(v) In any case in which this clause (5)(E) shall require that an adjustment as
a result of any event becomes effective retroactively to immediately after a
record date or effective date for such event, the Corporation may elect to
defer until after the occurrence of such event issuing to the holder of any
Series A Preferred Shares converted after such record date and before the
occurrence of such event the additional Common Shares issuable upon such
conversion over and above the Common Shares issuable upon such conversion on
the basis of the Conversion Price prior to adjustment and, in lieu of the
shares the issuance of which is so deferred, the Corporation will cause its
Transfer Agent to issue due bills or other appropriate evidence of the right to
receive such shares and such cash.
(vi) No adjustment to the Conversion Price shall be required unless such
adjustment would require an increase or decrease of at least 1% in the
Conversion Price; provided that the Corporation may make any such adjustment at
its election; and provided further that any adjustments which by reason of this
subclause (vi) are not made shall be carried forward and taken into account in
any subsequent adjustment. All calculations under this clause (5)(E) shall be
made to the nearest cent or to the nearest one-hundredth of a share, as the
case may be. Anything in this clause (5)(E) notwithstanding, the Corporation
shall be entitled to make such decreases in the Conversion Price, in addition
to those required by this clause (5)(E), as it in its discretion shall
determine to be advisable in order that any stock dividend, subdivision or
combination of shares, distribution of rights or warrants to purchase stock or
securities, or distribution of securities convertible into or exchangeable for
stock hereafter made by the Corporation to its shareholders shall not be
taxable.
(vii) If the Corporation makes any distribution, dividend, issuance of rights
or warrants or subdivision, combination or reclassification of or on the Common
Shares, or any security to which the conversion right addressed in this clause
(5) then applies, which is not covered by any of the preceding provisions of
this clause (5)(E) and which equitably requires an adjustment in the Conversion
Price, such adjustment shall be made as determined by the Board of Directors of
the Corporation. In such case, the determination of the Board of Directors as
to whether an adjustment in the Conversion Price is required, the amount of any
such adjustment, and the effective date of any such adjustment shall be
conclusive.
F. In the case of any consolidation of the Corporation into, or merger of the
Corporation with or into, any other corporation (other than a consolidation or
merger in which the Corporation is the continuing corporation and which does
not result in any reclassification or change of outstanding Common Shares), or
in case of any sale or transfer of all or substantially all of the assets of
the Corporation, or in case of any reclassification or change of outstanding
Common Shares (other than a change in par value, or from par value to no par
value, or from no par value to par value, or as a result of a subdivision or
combination, but including any reclassification of the Common Shares into two
or more classes), or in case of any statutory exchange of securities with
another corporation (including any exchange effected in connection with a
merger of a third corporation into the Corporation), the holder of each Series
A Preferred Share then outstanding shall have the right thereafter to convert
such share into the kind and amount of shares of stock and other securities,
cash and other property receivable upon such consolidation, merger, sale,
transfer, reclassification, change or statutory exchange by a holder of the
number of Common Shares of the Corporation into which such Series A Preferred
Share might have been converted immediately prior to such consolidation,
merger, sale, transfer., reclassification, change or statutory exchange
(assuming that the holder of such Series A Preferred Share, as a holder of
Common Shares prior to such transaction, would not have exercised any rights of
election as a holder of Common Shares as to the kind or amount of shares of
stock and other securities, cash and other property receivable upon such
consolidation, merger, sale, transfer, reclassification, change or statutory
exchange; provided that if the kind or amount of shares of stock and other
securities, cash and other property receivable upon such consolidation, merger,
sale, transfer, reclassification, change or statutory exchnge is not the same
for each non-electing Common Share, then the kind and amount of shares of stock
and other securities, cash and other property receivable shall be deemed to be
the kind and amount so receivable by a plurality of the non-electing shares).
In any such event, effective provision shall be made, in the articles or
certificate of incorporation of the resulting or surviving corporation or other
corporation issuing or delivering such shares of stock, other securities, cash
or other property or otherwise, so that the provisions set forth herein for the
protection of the conversion rights of the Series A Preferred Shares shall
thereafter be applicable, as nearly as reasonably may be, to any such other
shares of stock and other securities, cash or other property deliverable upon
conversion of the Series A Preferred Shares remaining outstanding or other
convertible stock or securities received by the holders of the Series A
Preferred Shares in place thereof; and any such resulting or surviving
corporation or other corporation issuing or delivering such shares of stock,
other securities, cash or other property shall expressly assume the obligation
to deliver, upon the exercise of the conversion privilege, such shares of
stock, other securities, cash or other property as the holders of the Series A
Preferred Shares remaining outstanding, or other convertible stock or
securities received by the holders of the Series A Preferred Shares in place
thereof, shall be entitled to receive, pursuant to the provisions hereof, and
to make provision for the protection of the conversion right as above provided.
In case shares of stock, other securities, cash or other property is
deliverable upon conversion as 14 aforesaid, then all references to Common
Shares in this clause (5) shall be deemed to apply, so far as provided and as
nearly as is reasonable, to any such; shares, other securities, cash or other
property. The above provisions shall similarly apply to successive
consolidations, mergers, sales, transfers, reclassiication, changes or
statutory exchanges.
G. No fractional interests in Common Shares shall be issued upon conversion of
Series A Preferred Shares. If more than one Series A Preferred Share shall be
surrendered for conversion at one time by the same holder, the number of full
Common Shares issuable by the Corporation upon conversion thereof shall be
computed on the basis of the aggregate number of Series A Preferred Shares so
surrendered. Instead of any fractional Common Share which would otherwise be
issuable upon conversion of any Series A Preferred Share, the Corporation will
pay a cash adjustment in respect of such fractional interest in an amount equal
to the same fraction of the Closing Price per Common Share determined as of the
business day preceding the date of conversion.
H. Whenever any adjustment, required in the Conversion Price or the number or
type of shares of stock or other securities, cash or other property into which
each Series A Preferred Share is convertible, the Corporation shall forthwith
(i) file with each of the Transfer Agent for the Series A Preferred Shares and
the Transfer Agent for the Common Shares a statement describing in reasonable
detail the adjustment in the Conversion Price or conversion right, the date on
which the adjustment became effective and the facts requiring such adjustment
and (ii) cause a copy of such statement to be mailed to the holders of record
of the Series A Preferred Shares.
I. Upon any conversion of Series A Preferred Shares, the shares so converted
shall have the status of authorized and unissued Preferred Shares, without
designation as to series, and the number of Preferred Shares which the
Corporation shall have authority to issue shall not be decreased by the
conversion of Series A Preferred Shares. The Corporation shall at all times
reserve and keep available, free from preemptive rights, out of its authorized
and unissued Common Shares or Common Shares held as treasury shares, solely for
the purpose of effecting the conversion of the Series A Preferred Shares, such
number of its Common Shares as shall from time...e to time be sufficient to
effect the conversion of all Series A Preferred Shares at such time
outstanding. For the purpose of this clause (5)(I), the full number of Common
Shares, issuable upon the conversion of all outstanding Series A Preferred
Shares shall be computed as if at the tire of computation of such number of
Common Shares all outstanding Series A Preferred Shares were held by a single
holder. The Corporation shall from time to time, in accordance with the laws of
the State of New York, increase the authorized number of its Common Shares if
at any time the authorized number of its Common Shares not outstanding shall
not be sufficient to permit the conversion of all the then outstanding Series A
Preferred Shares.
J. The Corporation will pay any and all issue or other taxes that may be
payable in respect of any issue or delivery of Common Shares on conversion of
Series A Preferred Shares pursuant hereto. The Corporation shall not, however,
be required to pay any tax which may be payable in respect of any transfer
involved in the issue or delivery of Common Shares in a name other than that in
which the Series A Preferred Shares so converted was registered, and no such
issue or delivery shall be made unless and until the person requesting such
issue has paid to the Corporation the amount of such tax, or has established,
to the satisfaction of the Corporation, that such tax has been paid.
K. before taking any action which would cause an adjustment reducing the
Conversion Price below the then par value of the Common Shares, the Corporation
will take any corporate action which may, in the opinion of its counsel, be
necessary in order that the Corporation may validly and legally issue fully
paid and nonassessable Common Shares at the Conversion Price as so adjusted.
L. In the event that: (i) the Corporation shall declare a dividend (or any
other distribution) on its Common Shares (other than cash dividends paid out of
the retained earnings of the Corporation and dividends payable in Common
Shares); or (ii) the Corporation shall authorize the granting to the holders of
its Common Shares of rights or warrants to subscribe for or purchase any shares
of stock of any class or of any other rights or warrants; or (iii) of any
reclassification or change of the Common Shares of the Corporation (other than
a subdivision or combination of its outstanding Common Shares (but including
any reclassification of the Common Shares into two or more classes), or a
change in par value, or from par value to no par value, or from no par value to
par value), or of any consolidation or merger to which the Corporation is a
party or of any statutory exchange of securities with another corporation and
for which approval of any shareholders of the Corporation is required, or of
the sale or transfer of all or substantially all of the assets of the
Corporation; or (iv) of the voluntary or involuntary dissolution, liquidation
or winding up of the Corporation; then, in each such case, the Corporation
shall mail to each holder of Series A Preferred Shares at least fifteen days
prior to the applicable date hereinafter specified, a notice stating (A) the
date on which a record is to be taken for the purpose of such dividend,
distribution of rights or warrants or, if a record is not to be taken, the date
as of which the holders of Common Shares of record to be entitled to such
dividend, distribution or rights or warrants are to be determined, or (B) the
date on which such reclassification, change, consolidation, merger, sale,
transfer, statutory exchange, dissolution, liquidation or winding up is
expected to become effective, and the dates of which it is expected that
holders of Common Shares of record shall be entitled to exchange their Common
Shares for securities, cash or other property deliverable upon such
reclassification, change, consolidation, merger, sale, transfer, statutory
exchange, dissolution, liquidation or winding up. Failure to give such notice,
or any defect therein, shall not, however, affect the legality or validity of
any action described in subclauses (i), (ii) (iii) or (iv) of this clause
(5)(L).
(6) Right of First Refusal. If the holder of any Series A Preferred Shares
desires to accept an offer (which must be irrevocable by its terms for at least
60 days) from any prospective purchaser to purchase all or any part of the
Series A Preferred Shares at any time owned by such holder, such holder shall
give notice in writing to the Corporation (i) designating the number of shares
proposed to be sold, (ii) naming the prospective purchaser of such shares and
(iii) specifying the cash or other consideration or combination thereof (the
"Offered consideration") for which, and the terms (the "Offer Terms") upon
which, such holder desires to sell the same. During the 30-day period following
receipt of such notice (the "Refusal Period") by the Corporation, the
Corporation shall have the right to purchase from such holder all (but not less
than all) of the Series A Preferred Shares specified in such notice, with, at
the option of the Corporation, cash in an amount equal to the fair value (as
determined in good faith by the Board.of Directors) of the Offered
Consideration or Qualifying Employer Securities of the Corporation having a
fair value (as determined in good faith by the Board of Directors) equal to the
fair value (as determined in good faith by the Board of Directors) of the
Offered Consideration and on the Offer Terms. The rights provided hereunder
shall be exercised by written notice to such holder given at any time during
the applicable period. If such right is exercised, the Corporation shall l
deliver such cash or Qualifying Employer Securities of the Corporation to such
holder against delivery of certificates or other instruments representing the
shares so purchased, appropriately endorsed by such holder. If such right shall
not have been exercised prior to the expiration of the Refusal Period, then at
any time during the 30 days following the expiration of the Refusal Period,
such holder may sell such shares to (but only to) the intended purchaser named
in his notice to the Corporation for the Offered Cnsideration and on the Offer
Terms specified in such notice, free of all restrictions or obligations imposed
by this clause (6).
(7) Liquidation.
A. The liquidation price of Series A Preferred Shares, in case of the voluntary
or involuntary liquidation, dissolution or winding up of the Corporation, shall
be $213.71 per share, plus an amount equal to the dividends accrued and unpaid
thereon to the payment date.
B. In the event of any voluntary or involuntary liquidation, dissolution or
winding up of the Corporation, the holders of Series A Preferred Shares shall
be entitled to receive the liquidation price of such shares held by them in
preference to and in priority over any distributions upon the Common Shares and
all Junior Shares. Upon payment in full of the liquidation price to which the
holders of Series A Preferred Shares are entitled, the holders of Series A
Preferred Shares will not be entitled to any further participation in any
distribution of assets by the Corporation. If the assets of the Corporation are
not sufficient to pay in full the liquidation price payable to the holders of
Series A Preferred Shares and the liquidation price payable to the holders of
all Parity Shares, the holders of all such shares shall share ratably in such
distribution of assets in accordance with the amounts which would be payable on
such distribution if the amounts to which the holders of Series A Preferred
Shares and the holders of Parity Shares are entitled were paid in full.
C. Neither a consolidation or merger of the Corporation with or into any other
corporation, nor a merger of any other corporation with or into the
Corporation, nor a sale or transfer of all or any part of the Corporation's
assets for cash or securities shall be considered a liquidation, dissolution or
winding up of the Corporation within the meaning of this clause (7).
(8) Voting Rights.
A. In addition to any voting rights provided by applicable law or elsewhere in
this clause (8), the holders of Series A Preferred Shares shall be entitled to
vote upon all matters upon which the holders of Common Shares are entitled to
vote and shall vote together with the holders of Common Shares (and of any
other class or series which may similarly be entitled to vote with the Common
Shares, if any) as a single class. For the purpose of any vote contemplated by
this clause (8)(A), each Series A Preferred Share shall be entitled to the
number of votes equal to the number of Common Shares into which such Series A
Preferred Share could then be converted (including for such purpose any
fractional share into which it could then be converted were it not for the
provisions of clause (5)(G)) pursuant to the provisions of clause (5) on the
record date for the determination of shareholders entitled to vote on such
matters multiplied by 1.23.
B. If at any time dividends payable on the Series A Preferred Shares, or on any
Parity Shares, are in arrears and unpaid in an amount equal to or exceeding the
amount of dividends payable thereon for six quarterly dividend periods, the
number of members of the Board of Directors shall increase by two, and the
holders of the outstanding Series A Preferred Shares and such Parity Shares
will have the exclusive right, voting separately as a class, to elect such two
directors of the Corporation at the next regular or special meeting of
shareholders of the Corporation. Such voting right will continue until all
dividends on the Series A Preferred Shares and on such Parity Shares have been
paid in full, at which time such voting right of the holders of Series A
Preferred Shares and such Parity Shares will terminate, subject to re-vesting
in the event of a subsequent arrearage. Upon any termination of the aforesaid
voting right, the term of office of all the directors elected by holders of
Series A Preferred Shares and such Parity Shares voting separately as a class
will terminate and the number of members of the Board of Directors shall
decrease by two.
(9) Certain Definitions. As used in this Paragraph A.l of this Certificate of
Incorporation, the following terms shall have the following respective
meanings:
"Common Shares" shall include any shares of the Corporation of any class or
series which have no preference or priority in the payment of dividends or in
the distribution of assets upon any voluntary or involuntary liquidation,
dissolution or winding-up of the Corporation and which are not subject to
redemption by the Corporation. However, Common Shares issuable upon conversion
of Series A Preferred Shares shall include only shares of the class designated
as Common Shares as of the original date of issuance of Series A Preferred
Shares, or shares of the Corporation of any classes or series resulting from
any reclassification or reclassifications thereof and which have no preference
or priority in the payment of dividends or in the distribution of assets upon
any voluntary or involuntary liquidation,
"Junior Shares" shall mean Preference Shares of any class of the Corporation
which are by their terms expressly made junior to Series A Preferred Shares at
the time outstanding both as to dividends and as to the distribution of assets
on any voluntary or involuntary liquidation of the Corporation.
"Parity Shares" shall mean any Preference Shares which are by their terms on a
parity with the series A Preferred Shares at the time outstanding both as to
dividends and as to the distribution of assets on any voluntary or involuntary
liquidation of the Corporation.
"Person" shall mean and include an individual, a partnership, a joint venture,
a corporation, a trust, an unincorporated organization and any government or
any department or agency thereof.
"Preference Shares" shall mean any class of shares of the Corporation ranking
prior to at least one other class of shares of the Corporation as to the
payment of dividends or the distribution of assets on any voluntary or
involuntary liquidation of the Corporation.
"Qualifying Employer Securities" shall have the meaning set forth in section
4975(e)(8) of the Internal Revenue Code of 1986, as amended.
"Senior Shares" shall mean any Preference Shares of any class of the
Corporation which are by their terms expressly made senior to Series A
Preferred Shares at the time outstanding both as to dividends and as to the
distribution of assets on any voluntary or involuntary liquidation of the
Corporation.
B. Except as otherwise provided by the laws of the State of New York or by any
certificate of amendment filed pursuant to Paragraph A of this Article THIRD,
setting forth the relative rights, preferences and limitations of any series of
Preferred Shares, the entire voting power of the shares of the Corporation for
the election of Directors and for all other purposes, as well as all other
rights appertaining to shares of the Corporation, shall be vested exclusively
in the Common Shares. Each Common Share shall have one vote upon all matters to
be voted on by the holders of the Common Shares, and shall be entitled to
participate equally in all dividends payable with respect to the Common Shares
and to share ratably, subject to the rights and preferences of any such
Preferred Shares, in all assets of the Corporation in the event of any
voluntary or involuntary liquidation, dissolution or winding-up of the affairs
of the Corporation.
FOURTH: The office of the Corporation is to be located in the City of New York,
Borough of Queens, County of Queens and State of New York. The Secretary of
State of the State of New York is hereby designated as the agent of the
Corporation upon whom process in any action or proceeding against it may be
served within the State of New York, and the address to which the Secretary of
State shall mail a copy of any process against the Corporation which may be
served upon him pursuant to law is EDO Corporation, 14-04 111th Street, College
Point, New York 11356.
FIFTH: The number of directors constituting the entire Board of Directors of
the Corporation shall be not less than nine nor more than fifteen. The Board of
Directors shall be divided into three classes. The vote of the holders of 80%
of the outstanding shares of the Corporation entitled to vote thereon shall be
required to amend, alter, change or repeal this Article FIFTH or to remove any
director without cause.
SIXTH: No shareholder of the Corporation, as such, shall be entitled as a
matter of right to purchase, subscribe for or otherwise acquire any new or
additional shares of the Corporation of any class, whether now or hereafter
authorized, or any options or warrants to purchase, subscribe for or otherwise
acquire any such new or additional shares, or any shares, notes, bonds,
debentures or other securities, convertible into or carrying options or
warrants to purchase, subscribe for or otherwise acquire any such new or
additional shares.
SEVENTH:
Section 1. Vote Required for Certain Business Combinations.
A. Higher Vote for Certain Business Combinations. In addition to any
affirmative vote required by law or this Restated Certificate of Incorporation,
and except as otherwise expressly provided in Section 2 of this Article
SEVENTH:
(i) any merger or consolidation of the Corporation or any Subsidiary (as
hereinafter defined) with (a) any Interested Shareholder (as hereinafter
defined) or (b) any other corporation (whether or not itself an Interested
Shareholder) which is, or after such merger or consolidation would be, an
Affiliate (as hereinafter defined) of an Interested Shareholder; or
(ii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition
(in one transaction or a series of transactions) to or with any Interested
Shareholder or any Affiliate of any Interested Shareholder of any assets of the
Corporation or any Subsidiary having an aggregate Fair Market Value (as
hereinafter defined) of $1,000,000 or more; or
(iii) the issuance or transfer by the Corporation or any Subsidiary (in one
transaction or a series of transactions) of any securities of the Corporation
or any Subsidiary to any Interested Shareholder or any Affiliate of any
Interested Shareholder in exchange for cash, securities or other property (or a
combination thereof) having an aggregate Fair Market Value of $1,000,000 or
more; or
(iv) the adoption of any plan or proposal for the liquidation or dissolution of
the Corporation proposed by or on behalf of an Interested Shareholder or any
Affiliate of any Interested Shareholder; or
(v) any reclassification of securities (including any reverse stock split), or
recapitalization of the Corporation, or any merger or consolidation of the
Corporation with any of its Subsidiaries or any other transaction (whether or
not with or into or otherwise involving an Interested Shareholder) which has
the effect, directly or indirectly, of increasing the proportionate share of
the outstanding shares of any class of equity or convertible securities of the
Corporation or any Subsidiary which is directly or indirectly owned by any
Interested Shareholder or any Affiliate of any Interested Shareholder;
shall require the affirmative vote of the holders of two-thirds of the
outstanding Shares of the Corporation entitled to vote generally in the
election of Directors (the "Voting Shares"), which are not beneficially owned
directly or indirectly by an Interested Shareholder voting together as a single
class (it being understood that for purposes of this Article SEVENTH, each
share of the Voting Shares shall have the number of votes granted to it
pursuant to Article THIRD of this Restated Certificate of Incorporation). Such
affirmative vote shall be required notwithstanding the fact that no vote may be
required, or that a lesser percentage may be specified, by law or in any
agreement with any national securities exchange or otherwise.
B. Definition of "Business Combination." The term "Business Combination" as
used in this Article SEVENTH shall mean any transaction which is referred to in
any one or more of clauses (i) through (v) of paragraph A of this Section 1.
Section 2. When Higher Vote is Not Required. The provisions of Section 1 of
this Article SEVENTH shall not be applicable to any particular Business
Combination, and such Business Combination shall require only such affirmative
vote as is required by law and any other provision of this Restated Certificate
of Incorporation, if all the conditions specified in either of the following
paragraphs A and B are met:
A. Approval by Continuing Directors. The Business Combination shall have been
approved by a majority of the Continuing Directors (as hereinafter defined).
B. Price and Procedure Requirements. All of the following conditions shall have
been met:
(i) The aggregate amount of the cash and the Fair Market Value as of the date
of the consummation of the Business Combination of consideration other than
cash to be received per share by holders of Common Shares in such Business
Combination shall be at least equal to the highest of the following:
(a) A price equal to the Fair Market Value of the Common Shares on the date of
the first public announcement of the proposed Business Combination multiplied
by a fraction the numerator of which is the highest per share price (including
brokerage commissions and/or soliciting dealers' fees) which the Interested
Shareholder has theretofore paid for any of the Common Shares already owned by
it and the denominator of which is the Fair Market Value of the Common Shares
immediately prior to the commencement of acquisition of the Common Shares by
the Interested Shareholder;
(b) The highest per share price (including brokerage commissions and/or
soliciting dealers' fees) paid by the Interested Shareholder in acquiring any
of its holdings of the Common Shares;
(c) The Fair Market Value per Common Share on the date of the first public
announcement of the proposed Business Combination or on the date on which the
Interested Shareholder became an Interested Shareholder, whichever is higher;
and
(d) The earnings per Common Share of the Corporation for the four full
consecutive fiscal quarters immediately preceding the record date for
solicitation of votes on such Business Combination, multiplied by the then
price/earnings multiple (if any) of the Interested Shareholder as customarily
computed and reported in the financial community.
(ii) The consideration to be received by holders of a particular class or
series of outstanding Voting Shares shall be in cash or in the same form as the
Interested Shareholder has previously paid for shares of such class or series.
If the Interested Shareholder has paid for Voting Shares of any class or series
with varying forms of consideration, the form of consideration for such class
or series in the Business Combination shall be either cash or the form used to
acquire the largest number of shares of such class or series previously
acquired by the Interested Shareholder prior to the first public announcement
of the proposed Business Combination.
(iii) After such Interested Shareholder has become an Interested Shareholder
and prior to the consummation of such Business Combination: (a) except as
approved by a majority of the Continuing Directors, there shall have been no
failure to declare and pay at the regular date therefor any full quarterly
dividends (whether or not cumulative) on the outstanding Preferred Shares; (b)
there shall have been (I) no reduction in the annual rate of dividends paid on
the Common Shares (except as necessary to reflect any subdivision of the Common
Shares), except as approved by a majority of the Continuing Directors, and (2)
an increase in such annual rate of dividends as necessary to reflect any
reclassification (including any reverse stock split), recapitalization,
reorganization or any similar transaction which has the effect of reducing the
number of outstanding Common Shares, unless the failure so to increase such
annual rate is approved by a majority of the Continuing Directors; and (c) such
Interested Shareholder shall have not become the beneficial owner of any
additional Voting Shares except as part of the transaction which results in
such Interested Shareholder becoming an Interested Shareholder.
(iv) After such Interested Shareholder has become an Interested Shareholder,
such Interested Shareholder shall not have received the benefit, directly or
indirectly (except proportionately as a shareholder), of any loans, advances,
guarantees, pledges or other financial assistance or any tax credits or other
tax advantages provided by the Corporation, whether in anticipation of or in
connection with such Business Combination or otherwise.
(v) A proxy or information statement describing the proposed Business
Combination and complying with the requirements of the Securities Exchange Act
of 1934 and the rules and regulations thereunder (or any subsequent provisions
replacing such Act, rules or regulations) shall be mailed to public
shareholders of the Corporation at least 30 days prior to the consummation of
such Business Combination (whether or not such proxy or information statement
is required to be mailed pursuant to such Act or subsequent provisions).
Section 3. Certain Definitions. For the purposes of this Article SEVENTH:
A. A "person" shall mean any individual, firm, corporation or other entity.
B. "Interested Shareholder" shall mean any person (other than the Corporation
or any Subsidiary and other than any employee stock ownership plan or the
employee benefit plan of the Corporation or any subsidiary or any trustee of,
or fiduciary with respect to, any such plan when acting in such capacity) who
or which:
(i) is the beneficial owner, directly or indirectly, of 10% or more of the
Voting Shares; or
(ii) is an Affiliate of the Corporation and at any time within the two-year
period immediately prior to the date in question was the beneficial owner,
directly or indirectly, of 10% or more of the Voting Shares; or
(iii) is an assignee of or has otherwise succeeded to any voting Shares which
were at any time within the two-year period immediately prior to the date in
question beneficially owned by any Interested Shareholder, if such assignment
or succession shall have occurred in the course of a transaction or series of
transactions not involving a public offering within the meaning of the
Securities Act of 1933.
C. A person shall be a "beneficial owner" of any Voting Shares:
(i) which such person or any of its Affiliates or Associates (as hereinafter
defined) beneficially owns, directly or indirectly; or
(ii) which such person or any of its Affiliates or Associates has (a) the right
to acquire (whether such right is exercisable immediately or only after the
passage of time), pursuant to any agreement, arrangement or understanding or
upon the exercise of conversion rights, exchange rights, warrants or options,
or otherwise, or (b) the right to vote pursuant to any agreement, arrangement
or understanding; or
(iii) which are beneficially owned, directly or indirectly, by any other person
with which such person or any of its Affiliates or Associates has any
agreement, arrangement or understanding for the purpose of acquiring, holding,
voting or disposing of any Voting Shares.
D. For the purposes of determining whether a person is an Interested
Shareholder pursuant to paragraph B of this Section 3, the number of Voting
Shares deemed to be outstanding shall include shares deemed owned through
application of paragraph C of this Section 3 but shall not include any other
Voting Shares which may be issuable pursuant to any agreement, arrangement or
understanding, or upon exercise of conversion rights, warrants or options, or
otherwise.
E. "Affiliate" or "Associate" shall have the respective meanings ascribed to
such terms in Rule 12b-2 of the General Rules and Regulations under the
Securities Exchange Act of 1934, as in effect on March 9, 1983.
F. "Subsidiary" means any corporation of which a majority of each class of
equity security is owned, directly or indirectly, by the Corporation; provided,
however, that for the purposes of the definition of Interested Shareholder set
forth in paragraph B of this Section 3, the term "Subsidiary" shall mean only a
corporation of which a majority of each class of equity security is owned,
directly or indirectly, by the Corporation.
G. "Continuing Director" means any member of the Board of Directors of the
Corporation (the "Board") who is unaffiliated with the Interested Shareholder
and was a member of the Board prior to the time that the Interested Shareholder
became an Interested Shareholder, and any successor of a Continuing Director
who is unaffiliated with the Interested Shareholder and is recommended to
succeed a Continuing Director by a majority of the Continuing Directors then on
the Board. For purposes of this Article SEVENTH, any action by "a majority of
Continuing Directors" shall require the affirmative votes of a majority of the
Continuing Directors then in office at a time when there are at least seven
Continuing Directors.
H. "Fair Market Value" means:
(i) in the case of shares, the highest closing sale price per share during the
30-day period immediately preceding the date in question on the Composite Tape,
or, if such shares are not quoted on the Composite Tape, on the principal
United States securities exchange registered under the Securities Exchange Act
of 1934 on which such shares are listed, or, if such shares are not listed on
any such exchange, the highest closing bid quotation with respect to such
shares during the 30-day period preceding the date in question on the National
Association of Securities Dealers, Inc. Automated Quotations Systems or any
system then in use, or if no such quotations are available, the fair market
value on the date in question per share as determined by the Board in good
faith; and
(ii) in the case of property other than cash or shares, the fair market value
of such property on the date in question as determined by the Board in good
faith.
I. In the event of any Business Combination in which the corporation survives,
the phrase "other consideration to be received" as used in paragraph B(i) of
Section 2 of this Article SEVENTH shall include the Common Shares and/or other
shares of any other class of outstanding Voting Shares retained by the holders
of such shares.
The directors of the Corporation shall have the power and duty to determine for
the purposes of this Article SEVENTH, on the basis of information known to them
after reasonable inquiry, (A) whether a person is an Interested Shareholder,
(B) the number of Voting Shares beneficially owned by any person, (C) whether a
person is an Affiliate or Associate of another, and (D) whether the assets
which are the subject of any Business Combination have, or the consideration to
be received for the issuance or transfer of securities by the Corporation or
any Subsidiary in any Business Combination has, an aggregate Fair Market Value
of $1,000,000 or more.
Section 4. No Effect on Fiduciary Obligations of Interested Shareholders.
Nothing contained in this Article SEVENTH shall be construed to relieve any
Interested Shareholder from any fiduciary obligation imposed by law.
Section 5. Amendment, Repeal, etc. Notwithstanding any other provisions of this
Restated Certificate of Incorporation or the By-Laws of the Corporation (and
notwithstanding the fact that a lesser percentage may be specified by law, this
Restated Certificate of Incorporation or by By-Laws of the Corporation), the
affirmative vote of the holders of two-thirds of the outstanding Voting Shares
of the Corporation which are not beneficially owned directly or indirectly by
an Interested Shareholder voting together as a single class, shall be required
to amend or repeal, or adopt any provisions inconsistent with, this Article
SEVENTH of this Restated Certificate of Incorporation.
EIGHTH: No director of the Corporation shall be liable to the Corporation or
its shareholders for damages for any breach of duty in such capacity, provided
that nothing contained in this Article EIGHTH shall eliminate or limit:
(a) the liability of any director if a judgment or other final adjudication
adverse to such director establishes that his or her acts or omissions were in
bad faith or involved intentional misconduct or a knowing; violation of law or
that such director personally gained in fact a financial profit or other
advantage to v.which such director was not legally entitled or that his or her
acts violated section 719 of the Business Corporation Law of the State of New
York; or
(b) the liability of any director for any act or omission prior to the adoption
of the amendment to this Certificate of Incorporation that included this
Article EIGHTH.
WAIVER AND AMENDMENT NO. 8
TO GUARANTEE AGREEMENT
WAIVER AND AMENDMENT NO. 8 (the "Amendment") dated February 10, 1995 to that
certain Guarantee Agreement dated as of July 12, 1988 as amended by Amendment
and Waiver dated as of April 12, 1990, Amendment No. 2 dated as of October 9,
1990, Amendment No. 3 dated as of April 8, 1991, Amendment No. 4 dated March
26, 1992, Amendment No. 5 dated June 9, 1992, Amendment No. 6 dated July 30,
1993 and Amendment No. 7 dated March 3, 1994, effective as of December 31, 1993
(as so amended, the "Existing Guarantee") ma de by EDO Corporation, a New York
corporation (the "Guarantor") in favor of NatWest Bank N.A. (formerly National
Westminster Bank USA) (the "Bank") (as successor in interest to Manufacturers
Hanover Trust Company ("Manufacturers").
W I T N E S S E T H :
WHEREAS, the Guarantor and Manufacturers were parties to the Existing
Guarantee;
WHEREAS, the Bank succeeded to all of Manufacturers' right, title and interest
under the Existing Guarantee pursuant to that certain Assignment and Assumption
Agreement dated as of June 8, 1990 between Manufacturers and the Bank;
WHEREAS, the Guarantor has requested that the Bank (i) waive certain defaults
under the Existing Guarantee, and (ii) amend certain provisions of the Existing
Guarantee;
WHEREAS, the Bank has agreed to such request subject to the terms and
conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual promises contained herein and
other good and valuable consideration the receipt of which is hereby
acknowledged, the parties hereto agree as follows:
1. The Guarantor has advised the Bank that:
(a) Notwithstanding the requirement of subsection 10(b)(vi) of the Existing
Guarantee, the ratio of Consolidated Total Liabilities (minus Subordinated
Debt) to Consolidated Tangible Net Worth (plus Subordinated Debt) at September
24, 1994 and at December 31, 1994 was more than 1.0 to 1.0;
(b) Notwithstanding the requirement of subsection 10(b)(vii) of the Existing
Guarantee, the Interest Coverage Ratio was less than 1.25 to 1.00 at June 25,
1994, was less than 1.75 to 1.00 at September 24, 1994 and was less than 2.25
to 1.00 at December 31, 1994;
(c) Notwithstanding the requirement of subsection 10(b)(viii) of the Existing
Guarantee, Consolidated Capital Funds was less than $62,300,000 at June 25,
1994 and at September 24, 1994 and was less than $63,300,000 at December 31,
1994; and
(d) Notwithstanding the requirement of subsection 10(b)(xvi) of the Existing
Guarantee, Consolidated Net Worth was less than $33,000,000 at June 25, 1994
and at September 24, 1994 and was less than $34,000,000 at December 31, 1994.
The Bank hereby waives non-compliance by the Guarantor of the aforesaid
provisions of the Existing Guarantee; provided, however, that as to those
provisions with respect to which the Guarantor has ongoing obligations, the
waivers contained herein shall not be deemed to be a waiver of any future
violations of such provisions or a waiver of any violations of any other
provisions of the Existing Guarantee.
2. The Existing Guarantee is hereby amended as follows:
(a) Subsection 10(b)(vi) is deleted in its entirety and there is substituted
therefor the following:
"(vi) Liabilities to Net Worth.
Permit the ratio of Consolidated Total Liabilities (minus Subordinated Debt) to
Consolidated Tangible Net Worth (plus Subordinated Debt) at any time during any
of the periods set forth below to be more than the ratio set forth opposite
each such period:
Maximum Liabilities
Period to Net Worth
December 31, 1994 through and
including December 30, 1995 1.70:1.00
December 31, 1995 through and
including December 30, 1996 1.30:1.00
December 31, 1996 through and
including December 30, 1997 1.10:1.00
December 31, 1997 and thereafter 1.00:1.00"
(b) Subsection 10(b)(vii) is deleted in its entirety and there is substituted
therefor the following:
"(vii) Interest Coverage.
Permit, as of the last day of each fiscal quarter of the Guarantor commencing
March 25, 1995, the Interest Coverage Ratio to be less than 2.0 to 1.0."
(c) Subsection 10(b)(viii) is deleted in its entirety and there is substituted
therefor the following:
"(viii) Maintenance of Capital Funds. Permit Consolidated Capital Funds at any
time during any of the periods set forth below to be less than the amount set
forth opposite each such period:
Minimum Consolidated
Period Capital Funds
December 31, 1994 through and
including December 30, 1995 $39,600,000
December 31, 1995 through and
including December 30, 1996 41,600,000
December 31, 1996 through and
including December 30, 1997 46,600,000
December 31, 1997 through and
including December 30, 1998 53,600,000
December 31, 1998 through and
including December 30, 1999 59,600,000
December 31, 1999 and at all
times thereafter 64,600,000"
(d) Subsection 10(b)(x) is amended by deleting clause (ii) thereof in its
entirety and substituting therefor the following:
"(ii) $3,000,000 for each of the fiscal years ending December 31, 1995 and
December 31, 1996, and (iii) $4,000,000 in any fiscal year thereafter."
(e) The typographical error in designating a new subsection as "10(b)(xv)
(Minimum Consolidated Net Worth)" is corrected by designating such subsection
as "10(b)(xvi)" and amending it to read as follows:
"(xvi) Minimum Consolidated Net Worth. Permit Consolidated Net Worth at any
time during any of the periods set forth below to be less than the amount set
forth opposite each such period:
Minimum Consolidated
Period Net Worth
December 31, 1994 through and
including December 30, 1995 $10,600,000
December 31, 1995 through and
including December 30, 1996 12,600,000
December 31, 1996 through and
including December 30, 1997 17,600,000
December 31, 1997 through and
including December 30, 1998 24,600,000
December 31, 1998 through and
including December 30, 1999 30,600,000
December 31, 1999 and at all
times thereafter 35,600,000"
(f) Subsection 12(a) is amended by deleting the clause "At any time on or after
the seventh anniversary of the Closing Date," and substituting therefor the
clause "At any time on or after April 1, 1996,".
3. Notwithstanding anything to the contrary contained in subsection 10(b)(ix)
of the Existing Guarantee, the Guarantor hereby confirms to the Bank that from
and after September 30, 1994 through the fiscal year ending December 31, 1994,
no cash dividends on the Guarantor's common stock were declared or paid by the
Guarantor.
4. In order to induce the Bank to execute and deliver this Amendment, the
Guarantor hereby represents and warrants to the Bank that the representations
and warranties set forth in Section 9 of the Existing Guarantee are true and
correct as if made on the date hereof except for changes in the ordinary course
of business, none of which, singly or in the aggregate, have had a material
adverse effect on the business, operations or financial condition of the
Guarantor or on the ability of the Guarantor to perfo rm its obligations under
the Existing Guarantee and other than as has been publicly reported by the
Guarantor in its announcements, releases or filings with the Securities and
Exchange Commission; provided, however, that all references to the term
"Guarantee" shall be deemed to be references to the Existing Guarantee as
amended by this Amendment.
5. Defined terms used in this Amendment not otherwise defined herein shall have
the meanings set forth in the Existing Guarantee unless the context otherwise
requires. Except as expressly waived or amended hereby, all of the terms and
conditions of the Existing Guarantee shall remain in full force and effect.
6. This Amendment shall be governed by and construed in accordance with the
laws of the State of New York and may be executed in any number of
counterparts, all of which taken together, shall constitute one and the same
document.
IN WITNESS WHEREOF, the parties hereto have set their signatures as of the date
first above written.
EDO CORPORATION
By Michael J. Hagerty
--------------------------
Vice President
Title
NATWEST BANK N.A.
By Richard Farrarri
--------------------------
Vice President
Title
EXHIBIT 10(b)
EDO CORPORATION
1985 STOCK OPTION PLAN
1. Purpose
The EDO Corporation 1985 Stock Option Plan (the "Plan") is intended to attract
and retain qualified executives and other key employees of EDO Corporation (the
"Corporation") and its Subsidiaries by providing them with opportunities for
stock ownership under the Plan.
2. Administration
The Plan shall be administered by a committee (the "Com- mittee") of not less
than three directors of the Corporation selected by, and serving at the
pleasure of, its Board of Direc- tors (the "Board"). Directors who are also
employees of the Corporation or any Subsidiary, or who have been such employees
within one year, may not serve on the Committee.
The Committee shall have the authority, subject to the terms of the Plan, to
determine the persons eligible for options and those to whom options shall be
granted, the number of shares to be covered by each option, the time or times
at which options shall be granted, and the terms and provisions of the
instruments by which options shall be evidenced; and to interpret the Plan and
make all determinations necessary or advisable for its administration. The
Committee may consult with legal counsel, who may be counsel to the
Corporation, and shall not incur any liability for any action taken in good
faith in reliance upon the advice of counsel.
The Committee's decisions under the Plan to grant options shall be subject to
the approval of the Board.
3. Eligibility
Options may be granted only to an executive or other key employee of the
Corporation or a Subsidiary. "Subsidiary" means any company in which the
Corporation and/or Subsidiary owns 50% or more of the combined voting power of
all classes of stock. A member of the Committee shall not be eligible, while a
member, to receive an option under the Plan, but may exercise any options
previously granted to him.
4. Stock
The stock for which options may be granted shall be the Corpora- tion's Common
Shares ("Common Shares"). When options are exercised the Corporation may either
issue authorized but unissued Common Shares or transfer issued Common Shares
held in its treasury. The total number of Common Shares which may be sold to
employees under the Plan pursuant to options shall not exceed 600,000 shares.
If an option expires, or is otherwise terminated prior to its exercise, the
Common Shares covered by such an option immediately prior to such expiration or
other termination shall continue to be available under the Plan.
5. Granting of Options
The date of grant of an option under the Plan will be the date on which the
option is awarded by the Committee. The granting of any option to any employee
shall neither entitle such employee to, or disqualify him from, participation
in any other grant of options. The total number of Common Shares which may be
sold to any one employee under the Plan pursuant to options shall not exceed
90,000 shares.
6. Terms and Conditions of Options
Options shall be evidenced by instruments in form approved by the Committee.
Such instruments shall conform to the following terms and conditions:
(a) Option price. The option price per share shall be the fair market value of
the optioned shares on the day the option is granted, which shall be the mean
of the high and low prices of the Common Shares on the Consolidated Trading
Tape on that day or, if no sale of Common Shares is recorded on such Tape on
that day, then on the next preceding day on which there was such a sale. Upon
exercise, the option price shall be paid (i) in cash or (ii) in Common Shares
of the Corporation having a fair market value equal to such option price or
(iii) in a combination of cash and Common Shares. The fair market value of
Common Shares delivered to the Corporation pursuant to the immediately
preceding sentence shall be determined on the basis of the mean of the high and
low price for a Common Share on theConsolidated Trading Tape on the day of
exercise or, if there was no such sale on the day of exercise, on the day next
preceding the day of exercise on which there was such a sale.
(b) Term and exercise of options. Each option shall expire on the fifth
anniversary of the date of its grant and shall be exercisable in four
substantially equal annual installments commencing on the first anniversary of
the date of grant, provided, however, that the Committee may include in any
option instrument, initially or by amendment at any time, a provision making
any installment or installments exercisable at such earlier date, or upon the
occurrence of such earlier event, as may be specified by such provision, if the
Committee deems such provision to be in the interests of the Corporation or
necessary to realize the reasonable expectation of the optionee, but in no
event shall any option be exercisable sooner than six months from the date on
which such option is granted, except when the death of the optionee occurs
within such six month period. After becoming exercisable, each installment
shall remain exercisable until expiration or termination of the option. An
option may be exercised from time to time, in whole or part, up to the total
number of shares with respect to which it is then exercisable.
(c) Termination of employment. If an optionee ceases, other than by reason of
death or retirement, to be employed by the Corporation or a Subsidiary, all
options granted to him and exercisable on the date of his termination of
employment shallterminate on the earlier of such options' expiration or one
month after the day his employment ends. If an optionee retires, all options
granted to him and exercisable on the date of his retirement shall terminate on
the earlier of such options' expiration or the first anniversary of the day of
his retirement. Any installment not exercisable on the date of such termination
or retirement shall lapse and be thenceforth unexercisable. Whether authorized
leave of absence or absence in military or governmental service may constitute
employment for the purposes of the Plan shall be conclusively determined by the
Committee.
(d) Exercise upon death of optionee. If an optionee dies, his option may be
exercised, to the extent of the number of shares with respect to which he could
have exercised it on the date of his death, by his estate, personal
representative or beneficiary who acquires the option by will or by the laws of
descent and distribution, at any time prior to the earlier of such option's
expiration or the first anniversary of the optionee's death. On the earlier of
such dates, the option shall terminate.
(e) Assignability. No option shall be assignable or transferable by the
optionee except by will or by the laws of descent and distribution and during
the lifetime of the optionee the option shall be exercisable only by him. At
the request of an optionee, Common Shares purchased on exercise of an option
may be issued or transferred in the name of the optionee and another person
jointly with the right of survivorship.
(f) Repurchase of option shares.
(1) Any optionee may at the time of exercise or, provided such optionee has
duly made an election under section 83(b) of the Internal Revenue Code of 1954,
as amended (the "Code"), within thirty days thereafter request that the
Corporation repurchase from him a portion of the Common Shares to be purchased
by the optionee upon such exercise with an aggregate fair market value not
exceeding one-half of the amount by which (a) the fair market value of a Common
Share on the day of exercise, multiplied by the number of Common Shares as to
which the optionee is exercising an option, exceeds (b) the total purchase
price for that number of Common Shares under the terms of such option.
(2) Subject to paragraph (3) of this section 6(f), an optionee who is at the
time of exercise a director or officer of the Corporation or the beneficial
owner, directly or indirectly, of 10% or more of the Corporation's Common
Shares may at a day following such exercise which complies with the requirement
of paragraph (3) of this section 6(f), request that the Corporation repurchase
from him a portion of the Common Shares which he purchased upon exercise of his
option, and which, after reduction (if any) for repurchase following a request
pursuant to paragraph (1) of this section 6(f), has an aggregate fair market
value not exceeding one-half of the amount by which (a) the fair market value
of a Common Share on the day of exercise, (or day of request for repurchase if
such optionee has not made an election under section 83(b) of the Code)
multiplied by the number of Common Shares as to which the optionee exercised
suchoption exceeded (b) the total purchase price for that number of Common
Shares under the terms of such option.
(3) Any request for repurchase made pursuant to para- graph (2) of this section
6(f) shall be made not earlier than six months after date of exercise nor later
than the end of the ninth business day of the initial period thereafter in
which such optionee is permitted to trade in the Common Shares of the
Corporation in compliance with federal securities laws and rules, and policies
of the New York Stock Exchange.
(4) Upon receipt of a request for repurchase made pursuant to paragraph (1) or
(2) of this section 6(f), the Com- mittee shall then, in its sole discretion,
determine whether the Corporation will purchase any or all of such Common
Shares. If the Corporation purchases any such Common Shares, the purchase price
thereof shall be determined on the basis of the fair market value of a Common
Share on the day of receipt of the request for repurchase. The fair market
value of a Common Share shall be the mean of the high and low price for a
Common Share on the Consolidated Trading Tape on the day of such receipt of
request, or, if there was no such sale on the day of such receipt of request,
on the day next preceding the day of such receipt of request on which there was
such a sale.
(5) Any action taken by an optionee pursuant to this section 6(f) must be in
the form of written notice to the Committee and shall be effective upon receipt
thereof.
(g) Other provisions. Instruments evidencing options may contain such other
provisions, not inconsistent with thePlan, as the Committee deems advisable,
including a requirement that an optionee represent to the Corporation in
writing, when an option is granted, or when he receives shares on its exercise,
that he is accepting such option, or receiving such shares (unless they are
then covered by a Securities Act of 1933 registration statement), for his own
account for investment only.
7. Capital Adjustments
The number and price of Common Shares covered by each option, the total number
of shares that may be sold under the Plan, and the maximum number of shares
that may be sold, issued or transferred to any employee, shall be
proportionally adjusted to reflect, as deemed equitable and appropriate by the
Committee, any stock dividend, stock split or share combination of the Common
Shares or recapitalization of the Corporation. To the extent deemed equitable
and appropriate by the Committee, subject to any required action by
shareholders, in any merger, consolidation, reorganization, liquidation or
dissolution, any option granted under the Plan shall pertain to the securities
and other property to which a holder of the number of Common Shares covered by
the option would have been entitled to receive in connection with such event.
8. Effective Date of Plan
The effective date of the Plan is April 23, 1985. The Plan will become
effective as of that date provided that the Planreceives the approval of the
holders of a majority of the out- standing Common Shares at the Corporation's
1985 Annual Meeting of Shareholders. If such approval is not forthcoming, the
Plan shall be null and void.
9. Term; Amendment of Plan
This Plan shall expire on April 24, 1995 (except as to op- tions outstanding on
that date). The Board may terminate or amend the Plan in any respect at any
time, except that, without the approval of the holders of a majority of the
outstanding Common Shares, the total number of shares that may be sold, issued
or transferred under the Plan may not be increased (except by adjustment
pursuant to section 7), the provisions of section 3, regarding eligibility, may
not be modified, the purchase price at which shares may be offered pursuant to
options may not be reduced (except by adjustment pursuant to section 7) and the
expiration date of the Plan may not be extended. No action of the Board or
shareholders, however, may, without the consent of an optionee, alter or impair
his rights under any option previously granted to him.
AGREEMENT made this day of by and between EDO Corporation, a
New York corporation having its office and principal place of business at
14-04 111th Street, College Point, N.Y. 11356 (the "Company"), and residing at
("Executive").
W I T N E S S E T H:
WHEREAS, the Company and Executive have previously entered into an Executive
Termination Agreement (the "Agreement"), which Agreement was amended and
restated effective as of August 4, 1988, providing Executive with certain
rights upon the occurrence of a "Change in Control" (paragraph 9.1);
WHEREAS, the Company considers it essential to the best interests of the
Company and its stockholders that its management (including Executive) be
encouraged to remain with the Company and to continue to devote full attention
to the Company's business in the event of a Change in Control or a "Potential
Change in Control" (paragraph 9.2);
WHEREAS, the Company recognizes that the possibility of a Change in Control or
a Potential Change in Control and the uncertainty and questions which either
event may raise among management may result in the departure or distraction of
management personnel to the detriment of the Company and its stockholders;
WHEREAS, the Company's Board of Directors (the "Board") has determined that
appropriate steps should be taken to reinforce and encourage the continued
attention and dedication of members of the Company's management to their
assigned duties without distraction in the face of the potentially disturbing
circumstances arising from a Change in Control or a Potential Change in
Control;
WHEREAS, the Company believes Executive has made valuable contributions to the
productivity and profitability of the Company;
WHEREAS, should a Potential Change in Control occur, the Board believes it
imperative that the Company and the Board be able to rely upon the Executive to
continue in his position, and that the Company be able to receive and rely upon
his advice as to the best interests of the Company and its stockholders without
concern that he might be distracted by the personal uncertainties and risks
created by such event; and
WHEREAS, should a Potential Change in Control occur, in addition to the
Executive's regular duties, he may be called upon to assist in the assessment
of any proposals of any person concerning the possible business combination of
the Company or acquisition of equity securities of the Company, advise
management and the Board as to whether such proposals would be in the best
interests of the Company and its stockholders, and to take such other actions
as the Board might determine to be appropriate;
NOW, THEREFORE, to induce the Executive to remain in the employ of the Company
so that the Company will have the continued undivided attention and services of
the Executive and the availability of his advice and counsel during the period
of a Change in Control or a Potential Change in Control, and for other good and
valuable consideration, the Company and Executive agree to further amend and
restate the Agreement in its entirety as follows:
GENERAL
1. The purpose of this Agreement is to provide Executive with "Special
Severance Pay Benefits" in the event of, or following, a Change in Control. The
term Change in Control is defined in paragraph 9.1 of this Agreement. The
benefits available to Executive in the event of, or following, a Change in
Control are provided for in Articles 2 through 7 of this Agreement.
2. The Company shall have the right to cancel this Agreement as provided herein
prior to a Change in Control, by written notice given to Executive. Such
cancellation shall not take effect unless and until the "Notice Period" (as
defined below) shall have expired.
The Notice Period shall commence on the date the Company shall deliver to
Executive written notice of its election to cancel this Agreement and shall end
as of the date which is six months following the date of delivery of such
written notice; provided, however, that, in the event there is an intervening
Potential Change in Control or Change in Control, such cancellation shall
become void and of no effect whatsoever.
The Company's right to cancel this Agreement shall be suspended following a
Potential Change in Control. In the event no Change in Control occurs following
such Potential Change in Control, the Company's right to cancel this Agreement
as described above shall be reinstated as of the date which is eighteen months
following the commencement of such Potential Change in Control.
Article 1
Principal Undertaking
1.1 If (a) following a Potential Change in Control (provided a Change in
Control occurs within eighteen months thereafter) or (b) within a three (3)
year period after a Change in Control shall have occurred, Executive's
employment shall have terminated for any reason, including, but not limited to,
"Termination for Good Reason" (Article 11), except for death, voluntary
retirement or "for Cause" (paragraph 10.2), then Executive shall be paid by the
Company the following "Special Severance Pay Benefits":
* Current Salary and Other Compensation Benefits (Article 2);
* Other Salary and Incentive Compensation Benefits (Article 3);
* Pension Benefit Adjustment (Article 4);
* Stock Option Adjustment (Article 5); and
* Tax Adjustment (Article 6).
1.2 The total of the amounts to be paid under Articles 3 through 6, subject to
any taxes required to be withheld, shall be paid to Executive as follows: (A)
in a lump sum, on or before the fifth day following "Date of Employment
Termination" (paragraph 13.2); or (B) at Executive's option, in monthly
installments not to exceed a 36-month period, commencing the fifth day of the
month following the Date of Employment Termination, if written notification by
the Executive is received by the Company within three days following the Date
of Employment Termination.
1.3 The amount of any loan or advance to Executive shall be due
and payable as of the Date of Employment Termination. The Company
shall have no right of setoff against any amount due Executive
under this Agreement, except that the Company may set off against
such amount the balance of any loan or advance which remains
unpaid after the third day following the Date of Employment
Termination.
Article 2
Current Salary and Other Compensation Benefits
Payment of this portion of Special Severance Pay benefits shall consist of the
following:
* Executive's full base salary through the Date of Employment Termination, at
the rate in effect ten (10) days prior to the Date of Employment Termination;
plus
* Executive's full base salary earned from the beginning of the calendar year
in which the Date of Employment Termination occurs through the Date of
Employment Termination multiplied by the greater of (a) 20% or (b) the
percentage which is equal to the highest percentage of base salary paid as a
bonus to Executive for any of the three calendar years preceding the calendar
year in which the Date of Employment Termination occurs, in either case,
reduced by any installment of cash bonus previously paid by the Company to
Executive for the calendar year in which the Date of Employment Termination
occurs; plus
* the full amount, if any, of any incentive or special award which Executive
earned but which has not yet been paid.
Article 3
Other Salary and Incentive Compensation Benefits
Payment of this portion of Special Severance Pay Benefits shall consist of an
amount equal to three times the sum of (a) Executive's annual base salary, at
the highest rate in effect at any time up to Date of Employment Termination
(the "Highest Base Salary") and (b) an amount equal to the Highest Base Salary
multiplied by the greater of (i) 20% or (ii) the percentage which is equal to
the highest percentage of base salary paid as a bonus to Executive for any of
the three calendar years preceding the calendar year in which the Date of
Employment Termination occurs.
Article 4
Pension Adjustment Payment
Payment of this portion of Special Severance Pay Benefits shall consist of the
following:
* an amount which, as of the Date of Employment Termination, is equal to the
present value (calculated at a discount rate of 7% per annum) of (x) the Lump
Sum Value of the Retirement Pension (paragraph 13.1) to which Executive would
have been entitled if the four (4) years after the Date of Employment
Termination were added to his Credited Service under the EDO Corporation
Employees Pension Plan, reduced by (y) the Lump Sum Value of the Retirement
Pension to which Executive will be entitled under the terms of such plan based
upon termination of employment as of the Date of Employment Termination and
assuming commencement of payment of Executive's pension benefits at age 65.
Article 5
Stock Option Adjustment
The "Stock Option Adjustment" portion of Special Severance Pay Benefits shall
be payable if, after a Change in Control, Executive elects, pursuant to options
issued to him under the 1980, !985 or 1988 Stock Option Plans, to elect stock
appreciation rights and shall consist of an amount equal to (a) the number of
common shares as to which Executive shall have made such election, multiplied
by (k) the excess, if any, of (x) the highest price per share actually paid in
connection with any Change in Control, over (y) the fair market value of a
common share on the date of such election.
Article 6
Taxes
6.1 The "Tax Adjustment" portion of Special Severance Pay Benefits shall be
payable in the event that any amount or benefit paid or distributed or to be
paid or distributed to Executive pursuant to this Agreement (taken together
with any amounts or benefits otherwise paid or distributed or to be paid or
distributed to Executive by the Company, including, but not limited to,
pursuant to stock appreciation rights) are subject to an excise tax under
section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), or
any successor or similar provision thereto, and shall consist of an additional
amount such that, after taking into account federal, state and local taxes
incurred by Executive on the payment of such additional amount (assuming that
Executive pays income taxes at the highest marginal rate in effect at the
relevant time and applicable to persons residing in the jurisdiction in which
Executive resides), Executive is left with the same after-tax amount which
Executive would have been left with had no such tax been imposed under section
4999 of the Code.
Subject to the notice requirement described below, all determinations required
to be made with respect to any Tax Adjustment payment, including whether a Tax
Adjustment payment is required and the amount of such Tax Adjustment payment,
shall be made by the Company's independent public accountants approved by
shareholders at the last annual meeting preceding any Change in Control (the
"Accounting Firm") which shall provide detailed supporting calculations both to
the Company and Executive within 15 business days of the Date of Employment
Termination or such earlier time as is requested by the Company. If the
Accounting Firm determines that no excise tax is payable by Executive, it shall
furnish Executive with a written statement describing the authority upon which
Executive may rely to not report any excise tax on his federal income tax
return. Executive shall notify the Company in writing of any claim by the
Internal Revenue Service that, if successful, would require the payment by the
Company of the Tax Adjustment payment. Such notification shall be given as soon
as practicable but no later than ten business days after Executive knows of
such claim and shall apprise the Company of the nature of such claim and the
date on which such claim is requested to be paid. If it is determined that the
amount of the excess taxes payable by Executive exceeds the amount determined
to be payable by the Accounting Firm, the Accounting Firm shall determine the
amount required to compensate Executive for such underpayment and any such
underpayment shall be paid within 10 days by the Company to or for the benefit
of Executive, plus interest at the applicable federal rate, compounded
semi-annually, from the date the amount of such underpayment should have been
paid to the date of actual payment. If, after the receipt by Executive of an
amount advanced by the Company as a Tax adjustment payment, Executive is
determined not to be liable for the amount of any excise tax estimated by-the
accounting Firm for purposes of making such Tax djustment payment, Executive
shall promptly pay to the Company the amount of such Tax Adjustment payment
which is not required to meet Executive's actual liability for any excise tax
(or any income taxes related thereto as determined above), plus interest
thereon from the date of such payment to the date on which such amount is
repaid at the applicable federal rate, compounded semi-annually, as in effect
on the date the Tax Adjustment payment was initially made.
Article 7
Benefit Plans
If (a) following a Potential Change in Control (provided a Change in Control
occurs within eighteen months thereafter), or (b) within a three (3) year
period after a Change in Control shall have occurred, Executive's employment
shall have terminated for any reason, including, but not limited to,
Termination for Good Reason, except for death, voluntary retirement or for
Cause, then, (i) for three (3) years after the Date of Employment Termination,
the Company shall maintain in full force and effect and Executive shall
continue to participate in all group life, health and accident, and disability
insurance, and other employee benefit plans, programs and arrangements in which
Executive was entitled to participate immediately prior to the Date of
Employment Termination or the date of the Change in Control, whichever is more
favorable to Executive, provided that continued participation is possible under
the general terms and provisions of such plans, programs and arrangements and
(ii) as of the third anniversary of Executive's Date of Employment Termination,
Executive shall be deemed to have retired (regardless of Executive's age at
such time) from active employment with the Company for purposes of any plan or
program maintained by the Company under which medical, health, life or other
welfare benefits are provided to eligible retirees. If participation is barred,
or an applicable plan, program or arrangement in effect as of the date of the
Change in Control or at any time thereafter is discontinued or the benefits
thereunder are materially reduced from the level in effect at the time of the
Change in Control (including without limitation, the elimination of, or
reduction in benefits under, any welfare plan providing benefits to retirees),
the Company shall arrange to provide Executive with benefits substantially
similar to those which he was entitled to receive immediately prior to the Date
of Employment Termination or the date of the Change in Control, whichever is
more favorable to Executive. At the end of the period of coverage above
provided for, Executive shall have the option to have assigned to him, at no
cost and with no apportionment of prepaid premiums, any assignable insurance
owned by the Company and relating specifically to him. The foregoing shall not
be deemed to apply to the EDO Corporation Employees Pension Plan, the EDO
Corporation Employee Stock Ownership Plan, the EDO Corporation Payroll Based
Employee Stock Ownership Plan nor the EDO Corporation Employees 401(k) Savings
Plan.
Article 8
No Mitigation Required
Executive shall not be required to mitigate the amount of any payment or
benefit provided for in this Agreement by seeking other employment or
otherwise, nor shall the amount of any payment or benefit so provided for be
reduced by any compensation earned by him as the result of employment by
another employer after the Date of Employment Termination, or otherwise.
Article 9
Definition of "Change in Control" and "Potential Change in Control"
9.1 "Change in Control" shall mean an occurrence in which:
(i) a "person," including a "group," other than the Company's Employees Stock
Ownership Trust (a "Person"), becomes the "beneficial owner" ("Beneficial
Owner"), directly or indirectly, of securities of the Company having 25% or
more of the total number of votes which may be cast for the election of
Directors of the Company (as the terms "persons," "group" and "beneficial
owner" are used in Sections 13(d)(3) and 14(d)(2) of the Securities Exchange
Act of 1934), or
(ii) during any period of two consecutive years, individuals who at the
beginning of such period constitute the Board cease for any reason to
constitute at least a majority thereof unless the election, or the nomination
for election by the Company's shareholders, of each new director was approved
by a vote of at least two-thirds of the directors then still in office who were
directors at the beginning of the period, or
(iii) the shareholders of the Company approve any merger or other business
combination, sale of assets or combination of the foregoing transactions not
involving Executive in an interest other than in his capacity as Executive.
9.2 "Potential Change in Control" shall mean an occurrence in which:
(i) a Person hereafter becomes the Beneficial owner of securities of the
Company having at least 5% of the total number of votes that may be cast for
the election of Directors of the Company, or
(ii) any Person holds a 5% Beneficial Ownership interest on the date hereof and
there occurs an increase in such Person's Beneficial Ownership of such number
of securities of the Company as shall increase the Beneficial Ownership by such
Person by an additional 1% of the total number of votes that may be cast for
the election of Directors of the Company, or
(iii) a Person commences a tender offer for at least 25% of the outstanding
shares of the Company's common stock, or
(iv) approval of any corporate transaction is requested of shareholders, which
if obtained would result in a Change in Control occurring, or
(v) any Person solicits proxies for the election of Directors of the Company,
or
(vi) the Board of Directors of the Company deems any other event or occurrence
to be a Potential Change in Control.
Article 10
Termination for Cause
10.1 If the Executive's employment is terminated by the Company for Cause, the
Company shall pay the Executive his full base salary through the Date of
Termination (at the rate in effect as of the Date of Termination), and the
Company shall have no further obligations to the Executive under this
Agreement.
10.2 The following are the only reasons for which the Company may terminate
Executive's services for Cause without further obligations under this
Agreement:
* for providing the Company with materially false reports concerning
Executive's business interests or employment-related activities;
* for making materially false representations relied upon by the Company in
furnishing information to shareholders, a stock exchange, or the Securities and
Exchange Commission;
* for maintaining an undisclosed, unauthorized and material conflict of
interest in the discharge of duties owed by Executive to the Company;
* for misconduct causing a serious violation by the Company of state or federal
laws;
* for theft of Company funds or corporate assets; or
* for conviction of a crime (excluding traffic violations or similar
misdemeanors).
Article 11
Definition of "Termination for Good Reason"
"Termination for Good Reason" shall mean termination of Executive's employment
by Executive following, or in connection with:
(i) without the express advance written consent of Executive, (a) the
assignment to Executive of any duties inconsistent in any substantial respect
with the position, authority or responsibilities of Executive immediately prior
to the earlier to occur of a Potential Change in Control or a Change in Control
or (k) any other substantial change in such position, including titles,
authority or responsibilities, or
(ii) during the three (3) year period following a Change in Control or during a
period of Potential Change in Control, any reduction in executive's salary or
any reduction in bonus or incentive compensation (based upon the highest dollar
amount or other rate of salary, bonus and incentive compensation in effect at
any time up to Date of Employment Termination), a termination, reduction or
alteration of disability policies or medical, life or disability benefits
maintained for Executive, any alteration or reduction of expense allowances or
reimbursement policies or a significant reduction in scope or value of the
aggregate other benefits to which Executive was entitled immediately prior to
the earlier to occur of a Potential Change in Control or a Change in Control,
or
(iii) the Company's requiring Executive to be based at any office or location
other than the one where he worked immediately prior to the earlier to occur of
a Potential Change in Control or a Change in Control, except for travel
reasonably required in the performance of Executive's responsibilities, or
(iv) any purported termination by the Company of Executive's employment
otherwise than as permitted by this Agreement, it being understood that any
such purported termination shall not be effective for any purpose of this
Agreement, or
(v) any failure by the Company to obtain. the assumption and agreement to
perform this Agreement by a successor as contemplated by paragraph 12.1.
Article 12
Successors. Binding Agreement
12.1 The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of
the business and/or assets of the Company, by agreement in form and substance
satisfactory to Executive, to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform it if no such succession had taken place. Failure of the
Company to obtain such agreement prior to the effectiveness of any such
succession shall be a breach of this Agreement and shall entitle Executive to
compensation from the Company in the same amount and on the same terms as
Executive would be entitled hereunder if the Company had terminated Executive's
employment other than for Cause after a Change in Control occurring at the time
of succession, except that for purposes of implementing the foregoing, the date
on which any such succession becomes effective shall be deemed the Date of
Employment Termination.
12.2 As used in this Agreement, "Company" shall include any successor to its
business and/or assets as aforesaid which executes and delivers the agreement
provided for in paragraph 12.1 or which otherwise becomes bound by all the
terms and provisions of this Agreement by operation of law.
12.3 This Agreement shall inure to the benefit of, and be enforceable by,
Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If Executive should die
while any amounts would still be payable if he had continued to live, all such
amounts shall be paid in accordance with the terms of this Agreement to
Executive's devisee, legatee, or other designee or, if there be no such
designee, to his estate.
Article 13
Miscellaneous Provisions
13.1 The Lump Sum Value of the Retirement Pension shall be determined as of
Executive's retirement at age 65, using the same methods and assumptions used
at the Date of Employment Termination for purposes of the EDO Corporation
Employees Pension Plan.
13.2 Date of Employment Termination is the earlier of the date on which
Executive or the Company gives written notice of termination of Executive's
employment to the other party after the earlier to occur of a Potential Change
in Control or a Change in Control.
13.3 Notices and all other communications provided for in this Agreement shall
be in writing and shall be deemed to have been duly given when delivered or
mailed by United States registered mail, return receipt requested, postage
prepaid, addressed to the respective addresses set forth on the first page of
this Agreement, provided that all notices to the Company shall be directed to
the attention of the Corporate Counsel, or to such other address as either
party may have furnished to the other in writing in accordance herewith.
Notices of change of address shall be effective only upon receipt.
13.4 No provisions of this Agreement may be modified, waived or discharged
unless such modification, waiver or discharge is agreed to in writing signed by
Executive and, on behalf of the Company, by such officer as may be specifically
designated by the Board.
13.5 All benefits provided for in this Agreement are provided on an unfunded
basis and are not intended to meet the qualification requirements of section
401 of the Code. The Company shall not be deemed to be a trustee of any amounts
to be paid under this Agreement and, except as provided in Article 9, shall not
be required to segregate any assets with respect to benefits under this
Agreement. Such benefits shall be payable solely from the general assets of the
Company.
13.6 Any failure at any time of either party to enforce any provision of this
Agreement shall not constitute a waiver of such provision, or prejudice the
right of either party to enforce such provision at any subsequent time.
13.7 No agreements or representations, oral or otherwise, expressed or implied,
with respect to the subject matter hereof have been made by either party which
are not set forth expressly in this Agreement.
13.8 The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the State of New York.
13.9 The invalidity or unenforceability of any one or more provisions of this
Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
13.10 In the event of any action or proceeding between the parties arising out
of this Agreement, the Company will pay the costs of any such legal proceedings
including, but not limited to, the costs of Executive for all expenses,
including attorneys, fees, incurred in such action or proceeding. Such costs
and expenses shall be advanced to Executive currently as reasonably required to
continue such action or proceeding.
EDO Corporation
By
President
Executive
PRE-RETIREMENT DEATH BENEFIT
AGREEMENT WITH RIGHT TO
POLICY ELECTION
THIS Agreement, made and entered into the day of , between EDO
Corporation (the "Corporation"), a New York Corporation, and
(the "Executive").
ARTICLE I - GENERAL
1.1 Purpose of Agreement
The purpose of this Agreement is to advance the interests of the Corporation
and its shareholders by providing the Executive and other key employees of the
Corporation and its Subsidiaries, upon whose judgment, initiative and efforts
the successful conduct of the Corporation's business largely depends, with an
additional incentive to continue their efforts on behalf of the Corporation, as
well as to attract to the Corporation people of experience and ability.
1.2 Effective Date
The effective date of this Agreement is .
1.3 Definitions
For purposes of this Agreement, the following terms have the meanings set forth
below:
1.3.1 "Change in Control" means an occurrence in which:
(i) a "person", including a "group", other than the Corporation's Employee's
Stock Ownership Trust, becomes the "beneficial owner", directly orindirectly,
of securities of the Corporation having 25% or more of the total number of
votes which may be cast for Directors of the Corporation (as the terms
"persons", "group" and "beneficial owner" are used in Sections 13(d)(3) and
14(d)(2) of the Securities Exchange Act of 1934), or
(ii) during any period of two consecutive years, individuals who at the
beginning of such period constitute the Board of Directors cease for any reason
to constitute at least a majority thereof unless the election, or the
nomination for election by the Corporation's shareholders, of each new director
was approved by a vote of at least two-thirds of the directors then still in
office who were directors at the beginning of such period.
1.3.2 "Disinterested Directors" means such members of the Board of Directors of
the Corporation (the "Board") who are unaffilitated with an "Interested
Shareholder" (as defined in Section 3(B) of Article Seven of the Company's
Certificate of Incorporation) and were members of the Board prior to the time
that the Interested Shareholder became an Interested Shareholder, and any
successor of a Disinterested Director who is unaffiliated with the Interested
Shareholder and is recommended to succeed a Disinterested Director by a
majority of Disinterested Directors then on the Board.
1.3.3 "Full-Time Employment" means employment on a full-time basis with the
Corporation or any wholly-owned subsidiary thereof.
1.3.4 "Insurer" will mean the New England Mutual Life Insurance Company of
Boston, Massachusetts, or other legal reserve life insurance company.
1.3.5 "Policy" means policy number and will include any other life insurance or
other contract issued by the Insurer on the life of the Executive.
1.3.6 "Retirement" means the Termination of the Executive's Employment after
attaining age 55 for any reason, other than the Termination of the Executive's
Employment for Cause or the Executive's death.
1.3.7 "Termination of the Executive's Employment" means the cessation of the
Executive's Full-Time Employment for any reason.
1.3.8 "Termination of the Executive's Employment for Cause" means the
Termination of the Executive's Employment after: (a) providing the Corporation
with materially false reports concerning the Executive's business interests or
employment-related activities; (b) making materially false representations
relied upon the Corporation in furnishing information to shareholders, a stock
exchange, or the Securities and Exchange Commission; (c) maintaining an
undisclosed, unauthorized and material conflict of interest in the discharge of
duties owned by the Executive to the Corporation; (d) misconduct causing a
serious violation by the Corporation of state or federal laws; (e) theft of
Corporate funds or corporate assets; or (f) conviction of a crime (excluding
traffic violations and similar misdemeanors).
ARTICLE II - BENEFIT UPON TERMINATION OF THE EXECUTIVE'S
EMPLOYMENT ON ACCOUNT OF THE EXECUTIVE'S DEATH
If the Termination of the Executive's Employment is on account of the
Executive's death, a death benefit equal to forty percent (40%) of the highest
base annual salary paid by the Corporation to Executive at any time prior to
the date of the Termination of the Executive's Employment will be paid to such
beneficiary as determined under Article V. This death benefit will be paid by
the Corporation to the beneficiary of the Executive each year for fifteen (15)
years. The amount to be paid each year will be paid in monthly installments
beginning on the first day of the month following the date of the Executive's
death and on the first day of each month thereafter. In the event the
Termination of the Executive's Employment is on account of any reason other
than death, no benefit will be paid by the Corporation under this Agreement on
the Executive's death.
ARTICLE III - EXECUTIVE'S ELECTION TO RECEIVE THE POLICY
INSTEAD OF THE SUPPLEMENTAL RETIREMENT BENEFIT
3.1 Election to Receive the Policy
3.1.1 If the Termination of the Executive's Employment is on account of the
Executive's Retirement after having been in Full-Time Employment for at least
84 months, and if the Policy has been in existence for at least 84 months prior
to the date of the Executive's Retirement, the Executive will have the right to
elect to receive the Policy from the Corporation with a net death benefit equal
to Two-times the highest base annual salary paid by the Corporation to
Executive at any time prior to the date of the Termination of the Executive's
Employment multiplied by the applicable percentage set forth in Appendix A. The
election to receive the Policy must be made by delivery of a written notice to
the Corporation at least six months prior to the date of the Executive's
Retirement, if retirement occurs prior to a Change in Control, or at least five
business days prior to the date of the Executive's Retirement if such
retirement occurs within the three year period following a Change in Control.
Any such election made pursuant to this paragraph 3.1.1 may be made irrevocably
but in any event will become irrevocable on the date that is six months prior
to such date of the Executive's Retirement, if such retirement occurs prior to
a Change in Control, or on the date that is five business days prior to the
date of the Executive's Retirement following a Change in Control.
3.1.2 If the Termination of the Executive's Employment is on account of the
Executive's Retirement after having been in Full-Time Employment for at least
84 months, but the Policy has not been in existence for 84 months prior to the
date of the Executive's Retirement, the Executive will have the right to elect
to receive the Policy from the Corporation on the date that the Policy has been
in existence for 84 months, with a net death benefit equal to two-times the
highest base annual salary paid by the Corporation to Executive at any time
prior to the date of the termination of the Executive's Employment multiplied
by the applicable percentage set forth in Appendix A. The election to receive
the Policy at a date later than the date of the Termination of the Executive's
Employment must be made by delivery of a written notice to the Corporation at
least six months prior to the date of the Executive's Retirement, if such
retirement occurs prior to a Change in Control, or at least five business days
prior to the date of Executive's Retirement if such retirement occurs within
the three year period following a Change in Control. Any such election made
pursuant to the paragraph 3.1.2 may be made irrevocably but in any event will
become irrevocable on the date that is six months prior to the date that the
Policy has been in existence for 84 months.
3.1.3 If the Termination of the Executive's Employment occurs at a date that is
prior to his attaining age 65, the Executive will have no right to receive the
Policy under this Article III unless the Executive also elects to receive
benefits under the Corporation Employee Pension Plan beginning as of the date
of the Termination of the Executive's Employment.
3.1.4 If at any time prior to receipt of the Policy the Executive revokes an
election to receive the Policy after the date of the Termination of the
Executive's Retirement, the Executive will not thereafter have a right to
receive the Policy.
3.1.5 Prior to the date upon which an election by the Executive to receive the
Policy becomes irrevocable, the Corporation may provide to the Executive a
reasonable description and a projection of the terms of the Policy and the
value of the Policy as of the date that the Executive will be entitled to the
Policy. If the Executive then makes an irrevocable election to receive the
Policy and if the Policy on the date the Executive is entitled to receive the
Policy differs materially from this description and projection, the Executive
may, at that time, revoke his election to receive the Policy and return the
Policy to the Corporation.
3.2 Rights After Election is Exercised or After Right to Elect Terminates
3.2.1 If the Executive timely elects to receive the Policy pursuant to
paragraph 3.1.1, the Corporation will transfer all its right, title and
interest in the Policy to the Executive on the date of the Termination of the
Executive's Employment. Upon the transfer of the Policy by the Corporation, the
Executive will thereafter own the Policy free from this Agreement, but subject
to any loans thereon.
3.2.2 If the Executive has elected to receive the Policy pursuant to paragraph
3.1.1 and if the Executive's election is or has become irrevocable, the
Executive will not be entitled thereafter to receive a Supplemental Retirement
Benefit, and the transfer of the Policy pursuant to paragraph 3.2.1 will be
treated as a payment in satisfaction of the Corporation's obligation to pay a
Supplemental Retirement Benefit.
3.2.3 If the Executive has elected to receive the Policy pursuant to paragraph
3.1.2, and if the Executive's election is or has become irrevocable, the
Executive will not be entitled to receive any Supplemental Retirement Benefit
Payments after the date of transfer of the Policy pursuant to paragraph 3.2.1
Such transfer will be treated as a payment in satisfaction of the Corporation's
obligation to pay any remaining Supplemental Retirement Benefit payments.
3.2.4 If the Executive does not elect or is not entitled to elect to receive
the Policy, on the date of Termination of the Executive's Employment, the
Executive agrees to transfer all of his right, title and interest in the Policy
to the Corporation, by executing such documents as the Corporation deems
necessary to transfer such right, title and interest to the Corporation. The
Corporation will thereafter be able to deal with the Policy in any way it may
see fit.
3.2.5 If the Executive has elected to receive the Policy on the date that the
Policy is in existence 84 months, and has not revoked that election, the
Corporation will keep the Policy in existence until the date that the Policy
has been in existence 84 months.
3.2.6 If the Executive has elected to receive the Policy pursuant to paragraph
3.1.2, and if the Executive dies after the date of the Termination of the
Executive's Employment but prior to the date the Policy has been in existence
for 84 months, no benefit will be paid under this agreement on the Executive's
death.
3.2.7 Notwithstanding any other provision of this agreement, the Corporation
may in its sole discretion make adjustment(s) in the face value of the Policy
to take into account any amount(s) paid to the Executive as a Supplemental
Retirement Benefit.
ARTICLE IV - LIMITATIONS ON BENEFITS
4.1 In General
Any right of the Executive under Article III of this Agreement to own purchase,
acquire or receive the Policy or any interest therein or portion thereof and
the payment of the death benefit provided in Article II will be contingent upon
the issuance of a policy (or policies) insuring the Executive's life and will
be subject to the terms thereof. Apart from its responsibility to pay premiums,
the Corporation is in no way responsible for the Executive's failure to obtain
the issuance of the Policy.
4.2 Misrepresentation
If the Executive is required by the Corporation to submit information to the
Insurer, and if the Executive has made a material misrepresentation in an
application for any insurance that is used or the Corporation may wish to use
to provide a benefit hereunder, and if as a result of that material
misrepresentation the Insurer is not required to pay all or any part of the
benefit provided under that insurance, the Executive's right to a benefit under
this Agreement will be reduced by the amount of the benefit that is not paid by
the Insurer because of such material misrepresentation.
4.3 Suicide
No benefit will be payable under this Agreement if the Executive dies by
suicide within two years after the date of this Agreement. No increase in the
amount of any benefit provided in this Agreement will be payable under this
Agreement if the Executive dies by suicide within two years after the effective
date of such increase.
ARTICLE V - BENEFICIARY OF DEATH BENEFIT
If the Termination of the Executive's Employment with the Corporation is on
account of the Executive's death, any death benefit to which the Executive may
be entitled under Article II of this Agreement will be paid to such beneficiary
as the Executive may have designated by filing with the Corporation a notice in
writing in a form acceptable to the Corporation. In the absense of any such
designation, such unpaid amounts will be paid to the Executive's surviving
spouse, or if the Executive should die without a spouse surviving, to the
Executive's estate.
ARTICLE VI - TERMINATION OF AGREEMENT
This Agreement may be terminated at any time while the Executive is living by
written notice thereof by either the Corporation or the Executive to the other;
provided, however, that if this Agreement is terminated unilaterally by the
Corporation, the Executive shall have the right to purchase the Policy from the
Corporation for its cash surrender value as of the date of the termination of
this Agreement.
ARTICLE VII - RIGHTS WITH RESPECT TO THE POLICY
7.1 Interests in Policy
The Executive will have the right to designated the beneficiary of the death
benefit payable under Article II of this Agreement. The Corporation will have
and may exercise, except as limited in this Article VII, all ownership rights
in the Policy. The Corporation will not take any action in dealing with the
Insurer that would impair any right or interest of the Executive in the Policy.
7.2 Premiums
The Corporation will pay all premiums on the Policy when due.
7.3 Dividends
Any dividends credited to the Policy may be applied to provide paid-up
additional insurance on the life of the Executive. Any dividends used to
provide paid-up additional insurance will be treated as premiums paid on the
Policy by the Corporation for purposes of this Agreement. Any proceeds paid on
the death of the Executive that are attributable to the paid-up additional
insurance will be treated as Policy proceeds for purposes of this Agreement.
Any dividends credited to the Policy while this Agreement is in effect which
are not applied to provide paid-up additional insurance under the terms of the
Policy will be paid to the Corporation.
7.4 Possession, Etc. of Policy
The Corporation will have possession of the Policy. The Corporation agrees from
time to time to make the Policy available to the Executive or to the Insurer
for the purpose of endorsing or filing any change of beneficiary on the Policy
for that portion of the death proceeds payable to the beneficiary designated by
the Executive, but the Policy will promptly be returned to the Corporation.
ARTICLE VIII - MISCELLANEOUS PROVISIONS
8.1 Satisfaction of Claims
The Executive agrees that his rights and interest, and rights and interests of
any persons taking under or through him, will be completely satisfied upon
compliance by the Corporation with the provisions of this Agreement.
8.2 Amendment/Entire Agreement
This Agreement or any relevant insurance policy provisions may be altered,
amended or modified only by a written instrument signed at least by the
Corporation and the Executive. This Agreement represents the entire Agreement
of the parties with respect to the subject matter thereof.
8.3 Governing Law
This Agreement will be governed by the laws of the State of New York.
8.4 Interpretation
The Executive Committee (or, upon or within a three (3) year period following a
Change in Control, a majority of the Corporation's Disinterested Directors)
shall have authority to render interpretations under this Agreement binding on
both parties and their legal representatives.
8.5 Non-Assignable Rights
It is agreed that neither the Executive nor his spouse, nor other beneficiary,
will have any right to commute, sell, assign, transfer or otherwise convey the
right to receive any payments hereunder without having the written consent of
the Corporation to do so. Such payments and the right thereto are expressly
declared to be otherwise non-assignable and nontransferable.
8.6 Independence of Agreement
Subject to paragraph 3.2.2 and paragraph 3.2.3, the benefits under this
Agreement will be independent of, and in addition to, any other agreement that
may exist from time to time between the parties, or any other compensation
payable by the Corporation to the Executive, whether as salary, bonus or
otherwise. This Agreement will not be deemed to constitute a contract of
employment, nor will any provision hereof restrict the right of the Corporation
to discharge the Executive, or restrict the right of the Executive to terminate
his employment.
8.7 Non-Secured Promise
The rights of the Executive under this Agreement and of any beneficiary of the
Executive will be solely those of an unsecured creditor of the Corporation. Any
insurance policy or any other asset acquired or held by the Corporation in
connection with the liabilities assumed by it hereunder, will not be deemed to
be held under any trust for the benefit of the Executive or his beneficiaries
or to be security for the performance of the obligations of the Corporation,
but will be, and remain, a general, unpledged, unrestricted asset of the
Corporation.
8.8 Change of Business Form
The Corporation agrees that it will not merge or consolidate with any other
corporation or organization, or permit its business activities to be taken over
by any other organization, unless and until the suceeding or continuing
corporation or other organization agrees to assume the rights and obligations
of the Corporation herein set forth. The Corporation further agrees that it
will not cease its business activities or terminate its existence, other than
as heretofore set forth, without having made adequate provisions for the
fulfilling of its obligations hereunder. 8.9 Fiduciary and Administrator
For the purposes of the Employee Retirement Income Security Act of 1974, if
applicable, the Corporation will be the "Named Fiduciary" and "Plan
Administrator" of the split dollar life insurance plan (the "Plan") for which
this Agreement is hereby designated the written plan instrument. The
Corporation's Board of Directors may authorize a person or group of persons to
fulfill the responsibilities of the Corporation as Plan Administrator.
The Named Fiduciary or the Plan Administrator may employ others to render
advice with regard to its reponsibilities under this Plan. The Named Fiduciary
may also allocate fiduciary responsibilities to others and may exercise any
other powers necessary for the discharge of its duties to the extent not in
conflict with the Employee Retirement Income Security Act of 1974 that may be
applicable.
8.10 Claims Procedure
Filing Claims. Any insured, beneficiary or other individual (hereinafter
"Claimant") entitled to benefits under the Plan or under the Policy will file a
claim request with the Plan Administrator with respect to benefits under the
Plan and with the Insurer, with respect to the benefits under the Policy. The
Plan Administrator will, upon written request of a claimant, make available
copies of any claim forms or instructions provided by the Insurer or advise the
Claimant where such forms or instructions may be obtained.
Notification to Claimant. If a claim request is wholly or partially denied, the
Plan Administrator will furnish to the Claimant a notice of the decision with
90 days in writing and in a manner calculated to be understood by the claimant,
which notice will contain the following information:
(a) The specific reason or reasons for the denial;
(b) Specific reference to pertinent Plan provisions upon which the denial is
based;
(c) A description of any additional material or information necessary for the
Claimant to perfect the Claim and an explanation of why such material or
information is necessary; and
(d) An explanation of the Plan's claims review procedure describing the steps
to be taken by a claimant who wishes to submit his claim for review.
In the case of benefits which are provided under the Policy, the initial
decision on the claims will be made by New England Life.
Review Procedure. A Claimant or his authorized representative may with respect
to any denied claim:
(a) Request a review upon written application filed within 60 days after
receipt by the Claimant of written notice of the denial of his claim;
(b) Review pertinent documents; and
(c) Submit issues and comments in writing.
Any request or submission will be in writing and will be directed to the Named
Fiduciary (or its designee). The Named Fiduciary (or its designee) will have
the sole responsibility for the review of any denied claim and will take all
steps appropriate in the light of its findings.
Decision on Review. The Named Fiduciary (or its designee) will render a
decision upon review. If special circumstances (such as the need to hold a
hearing on any matter pertaining to the denied claim) warrant additional time,
the decision will be rendered as soon as possible, but not later than 120 days
after receipt of the request for review. Written notice of any such extension
will be furnished to the claimant prior to the commencement of the extension.
The decision on review will be in writing and will include specific reasons for
the decision, written in a manner calculated to be understood by the Claimant,
as well as specific references to the pertinent provisions of the Plan on which
the decision is based.
If the decision on the review is not furnished to the Claimant within the time
limits prescribed above, the claim will be deemed denied on review.
8.11 Termination of the Executive's Employment for Cause
If the Termination of the Executive's Employment is a Termination of the
Executive's Employment for Cause, notwithstanding any other provision of this
Agreement, the Executive will not be entitled to receive any benefits under
this Agreement.
IN WITNESS WHEREOF, the parties have entered into the foregoing Agreement on
the day and year first written above.
Executive
EDO CORPORATION
By
(Name)
(Title)
APPENDIX A
ATTAINED AGE AT TERMINATION
OF EMPLOYMENT PERCENTAGE OF BENEFIT
65 100
64 97
63 94
62 91
61 88
60 85
59 82
58 79
57 76
56 73
55 or younger 70 (This Percentage shall be
reduced by 3% for every
year younger than 55)
<PAGE>
AGREEMENT CONCERNING
SUPPLEMENTAL RETIREMENT BENEFITS
THIS Agreement, made and entered into the day of , between
EDO Corporation (the "Corporation"), a New York Corporation, and
(the "Executive").
ARTICLE I - GENERAL
1.1 Purpose of Agreement
The purpose of this Agreement is to advance the interests of the Corporation
and its shareholders by providing the Executive and other key employees of the
Corporation and its Subsidiaries, upon whose judgment, initiative and efforts
the successful conduct of the Corporation's business largely depends, with an
additional incentive to continue their efforts on behalf of the Corporation, as
well as to attract to the Corporation people of experience and ability.
1.2 Effective Date
The effective date of this Agreement is .
1.3 Definitions
For purposes of this Agreement, the following terms have the meanings set forth
below:
1.3.1 "Change in Control" means an occurrence in which:
(i) a "person," including a "group," other than the Company's Employee's Stock
Ownership Trust (a "Person"), becomes the "beneficial owner" (Beneficial
Owner"), directly or indirectly, of securities of the Company having 25% or
more of the total number of votes which may be cast for the election of
Directors of the Company (as the terms "persons," "group" and "beneficial
owner" are used in Sections 13(d)(3) and 14(d)(2) of the Securities Exchange
Act of 1934),
(ii) during any period of two consecutive years, individuals who at the
beginning of such period constitute the Board of Directors cease for any reason
to constitute at least a majority thereof unless the election, or the
nomination for election by the Company's shareholders, of each new director was
approved by a vote of at least two-thirds of the directors then still in office
who were directors at the beginning of the period, or
(iii) the shareholders of the Company approve any merger or other business
combination, sale of assets or combination of the foregoing transactions.
1.3.2 "Disinterested Directors" means such members of the Board of Directors of
the Corporation ( the "Board") who are unaffiliated with an "Interested
Shareholder" (as defined in Section 3(B) of Article Seventh of the Company's
Certificate of Incorporation) and were members of the Board prior to the time
that the Interested Shareholder became an Interested Shareholder, and any
successor of a Disinterested Director who is unaffiliated with the Interested
Shareholder and is recommended to succeed a Disinterested Director by a
majority of Disinterestd Directors then on the Board.
1.3.3 "Executive Termination Agreement" means an agreement between the
Corporation and an employee of the Corporation of the type filed as Item 10(f)
of the Corporation's Form 10-K Annual Report for the fiscal year ending
December 31, 1982.
1.3.4 "Full-Time Employment" means employment on a Full-Time basis with the
Corporation or any wholly-owned subsidiary thereof.
1.3.5 "Retirement" means the Termination of the Executive's Employment after
attaining age 55 for any reason other than the Termination of the Executive's
Employment for Cause or the Executive's death.
1.3.6 "Termination of the Executive's Employment" means the cessation of the
Executive's Full-Time Employment for any reason.
1.3.7 "Termination of The Execuitve's Employment for Cause" means the
Termination of the Executive's Employment after: (a) providing the Corporation
with materially false reports concerning the Executive's business interests or
employment related activities; (b) making materially false representations
relied upon by the Corporation in furnishing information to shareholders, a
stock exchange, or the Securities and Exchange Commission; (c) maintaining an
undisclosed, unauthorized and material conflict of interest in the discharge of
duties owed by the Executive to the Corporation; (d) misconduct causing a
serious violation by the Corporation of state or federal laws; (e) theft of
Corpoate funds or corporate assets; or (f) conviction of a crime (excluding
traffic violations and similar misdemeanors).
1.3.8 "Total Disability" shall have the meaning provided for in Federal
Regulations governing entitlement to Social Security Insurance benefits.
ARTICLE II - SUPPLEMENTAL RETIREMENT BENEFIT
2.1 Eligibility for Supplemental Retirement Benefit on Account of Retirement
after Age 65.
If the Termination of the Executive's Employment is on account of Retirment
after having been in Full-Time Employment for at least 84 months, and after
having attained age 65, the Executive will be entitled to receive a
Supplemental Retirement Benefit under this Agreement in an amount equal to
twenty-five percent (25%) of the highest base annual salary paid by the
Corporation to Executive at any time prior to the date of the Termination of
the Executive's Employment. This Supplemental Retirement Benefit will be paid
by the Corporation to the Executive each year for the life of the Executive, or
for fifteen years, whichever period is longer. The amount to be paid each year
will be paid in monthly installments beginning on the first day of the month
following the date of the Termination of the Executive's Employment and on the
first day of each month thereafter.
2.2 Eligibility for Supplemental Retirement Benefits on Account of Retirement
After Age 55 and After Completing Service Requirements.
If the Termination of the Executive's Employment is on account of Retirement
after having been in Full-Time Employment for at least 84 months, and after
having attained age 55 but prior to attaining age 65, and if the Executive has
elected to receive benefits under the EDO Corporation Employee's Pension Plan
beginning as of the date of the Termination of the Executive's Employment, the
Executive will be entitled to receive a Supplemental Retirement Benefit under
this Agrement in an amount equal to twenty-five percent (25%) of the highest
base annual salary paid by the Corporation to Executive at any time prior to
the date of the Termination of the Executive's Employment, multiplied by the
applicable percentage set forth in Appendix A. This Supplemental Retirement
Benefit will be paid by the Corporation to the Executive each year for the life
of the Executive, or for fifteen years, whichever period is longer. The amount
to be paid each year will be paid in monthly installments beginning on the
first day of the month following the date of the Terminiation of the
Executive's Employment and on the first day of each month thereafter.
2.3 Eligibility for Supplemental Retirement Benefits on Total Disability.
2.3.1 If the Termination of the Executive's Employment is occasioned by Total
Disability after having been in Full-Time Employment for at least 84 months,
the Executive, unless he qualifies for the benefit provided for in paragraph
2.1 or paragraph 2.2, will be entitled to receive a Supplemental Retirement
Benefit under this Agreement on account of such Total Disability in an amount
equal to twenty-five percent (25%) of the highest base annual salary paid by
the Corporation to Executive at any time prior to the date of the Termination
of the Executive's Employment, reduced by any benefit to which the Executive
may be entitled under Social Security, Long-Term Disability Plan payments,
Worker's Compensation awards, or any combinations thereof, on account of Total
Disability. This Supplemental Retirement Benefit will be paid by the
Corporation to the Executive each year for the life of the Executive but for at
least fifteen years whichever period is longer. The amount to be paid each year
will be paid in monthly installments beginning on the first day of the month
following the date of the Termination of the Executive's Employment and on the
first day of each month thereafter.
2.3.2 If the Termination of the Executive's Employment is occasioned by Total
Disability, but such Total Disability occurs prior the the Executive's having
been in Full-Time Employment for at least 84 months, the Executive will not be
entitled to a Supplemental Retirement Benefit on account of such Total
Disability under this Article II unless the Executive Committee of the Board of
Directors, in its absolute discretion, elects to waive the requirement that the
Executive must have been in Full-Time Employment for at least 84 months in
order to be eligible for a Supplemental Retirement Benefit on Total Disability
under this Article II.
2.3.3 If, at any time during a period in which the Executive is entitled to
receive payments on account of Total Disability, the condition of Total
Disability no longer exists, the Corporation's obligation to make any further
payments on account of Total Disability will terminate on the date on which the
Total Disability no longer exists.
2.4 Eligibility for Supplemental Retirement Benefits on Other Than Retirement
or Total Disability.
If the Termination of the Executive's Employment is for any reason other than
for those reasons provided for in this Article II, or is for a reason provided
for in this Article II but is under circumstances which do not meet the
requirements for entitlement to a benefit under this Article II, the exclusive
benefit to which the Executive may be entitled under this Agreement will be
determined under Article IV hereof.
ARTICLE III - BENEFIT UPON TERMINATION OF THE
EXECUTIVE'S EMPLOYMENT FOR CAUSE OR ON ACCOUNT
OF THE EXECUTIVE'S DEATH
Notwithstanding any other provision(s) of the Agreement, if the Termination of
the Executive's Employment is for Cause or on account of the Executive's death,
no benefit will be paid under this Agreement.
ARTICLE IV - BENEFITS UPON TERMINATION
OF THE EXECUTIVE'S EMPLOYMENT BEFORE COMPLETING
AGE AND SERVICE REQUIREMENTS
4.1.1 Termination of the Executive's Employment Following Change in Control.
Except as otherwise provided for in Article III, if the Termination of the
Execuitve's Employment occurs within three (3) years after the date of a Change
in Control, or if he is constructively terminated within the meaning of section
4.1.2 within such three (3) year period, the Executive will be entitled to
receive a benefit under this Agreement in an amount equal to twenty-five
percent (25%) of the highest base annual salary paid by the Corporation to
Executive at any time prior to the date of the Termination of the Executive's
Employment. This benefit will be paid by the Corporation to the Executive in
monthly installments each year for the life of the Executive or for fifteen
years, whichever period is longer. Notwithstanding the previous sentence,
however, the Executive shall be entitled to receive his benefits under this
Agreement in the form of a lump sum payment equal to the present value of his
benefits hereunder, payable immediately to such employee upon the termination
or constructive termination of his employment, unless the Audit and
Compensation Committee of the Board of Directors shall decide to cause such
employee's benefits hereunder to be funded through a third-party trust or other
funding arrangements intended to assure payment of such benefits. This benefit
will be paid instead of any Supplemental Retirement Benefit to which the
Executive may be entitled under Article II.
4.1.2 Constructive Termination.
An employee's employment shall be deemed to have been constructively terminated
for purposes of this Agreement if, without his express written consent,
(i) he is assigned any duties inconsistent in any substantial respect with his
position, authority or responsibilities as they existed immediately prior to
the Change of Control;
(ii) there is any other substantial adverse change in his position or working
conditions (including title, authority or responsibility) or conpensation; or
(iii) he is requiared to be based at any office or location other than his
location immediately prior to the Change of Control.
4.2 Benefits on Termination of the Executive's Employment Prior to Age 55 or
Before Completing Service Requirements
If the Termination of the Executive's Employment is under circumstances which
do not qualify the Executive for a Supplemental Retirement Benefit under
Article II or for a benefit under paragraph 4.1.1, the Executive will not be
entitled to any benefit under this Agreement except as provided for in
paragraphs 4.3.
4.3 Discretionary Benefits - Termination of the Executive's Employment Not
Following Change in Control.
If the termination of the Executive's Employment occurs prior to the
Executive's having been in Full-Time Employment for at least 84 months or prior
to his attaining age 55 and if such termination occurs at a date either not
following a Change in Control or following a Change in Control but by more than
three (3) years, the Executive will not be entitled to receive a benefit under
this Agreement unless the Executive Committee of the Board of Directors, in its
absolute discretion, elects to grant a benefit in an amount equal to
twenty-five percent (25%) of the highest base annual salary paid by the
Corporation to the Executive at any time prior to the date of the Termination
of the Executive's Employment, multiplied by the applicable percentage set
forth in Appendix A. If this benefit is granted, the amount of the benefit will
be paid by the Corporation to the Executive each year for the life of the
Executive or for fifteen years, whichever period is longer. The amount to be
paid each year will be paid in monthly installments beginning on the first day
of the month following the Termination of the Executive's Employment and on the
first day of each month thereafter. This benefit will be paid to the Executive
instead of any other benefit to which he may be entitled under this Agreement.
ARTICLE V - BENEFICIARY OF DEATH BENEFIT
In the event that the Executive should die prior to receipt of any amount(s)
payable under this Agreement, any amounts due under Article III or remaining to
be paid under Article II or Article IV will be paid to such beneficiary or
beneficiaries as the Executive may have designated by filing with the
Corporation a notice in writing in a form acceptable to the Corporation. In the
absense of any such designation, such unpaid amounts will be paid to the
Executive's estate.
ARTICLE VI - TERMINATION OF AGREEMENT
6.1 Subject to paragraphs 6.2 and 6.3, this Agreement may be terminated at any
time while the Executive is living by written notice thereof by either the
Corporation or the Executive to the other, provided, however, that this
Agreement may not be terminated unilaterally by the Corporation after the Board
of Directors has reason to know a Change in Control may occur.
6.2 If this Agreement is terminated by the Corporation at any time prior to the
Termination of the Executive's Employment, and before the Executive is
receiving any benefits under this Agreement, the Executive will not be entitled
any benefits under this Agreement unless the Executive Committee of the Board
of Directors (or upon or following a Change in Control, a majority of the
Corporation's Disinterested Directors), in its absolute discretion, elects to
grant, as the exclusive benefit due under this Agreement an amount not in
excess of twenty-five (25%) of the Executive's base annual salary as of the
date of the termination of this Agreement, multiplied by the applicable
percentage set forth in Appendix A.
6.3 If the Executive is receiving any benefits under this Agreement prior to
issuance of written notice of termination by the Corporation, this Agreement
will not terminate until the date such benefits are paid in full.
ARTICLE VII - MISCELLANEOUS PROVISIONS
7.1 Satisfaction of Claim
The Executive agrees that his rights and interest, and rights and interests of
any persons taking under or though him, will be completely satisfied upon
compliance by the Corporation with the provisions of this Agreement.
7.2 Amendment/Entire Agreement
This Agreement or any relevant insurance policy provisions may be altered,
amended or modified only by a written instrument signed by the Corporation and
the Executive. This Agreement represents the Entire Agreement of the parties
with respect to the subject matter thereof.
7.3 Governing Law
This Agreement will be governed by the laws of the State of New York.
7.4 Interpretation
The Executive Committee (or, upon or following a Change in Control, the
majority of the Corporation's Disinterested Directors) have authority to render
interpretations under this Agreement binding on both parties and their legal
representatives.
7.5 Non-Assignable Rights
It is agreed that neither the Executive nor his spouse, nor other beneficiary,
will have any right to commute, sell, assign, transfer or otherwise convey the
right to receive any payments hereunder without having the written consent of
the Corporation to do so. Such payments and the right thereto are expressly
declared to be otherwise nonassignable and nontransferable.
7.6 Independence of Agreement
The benefits under this Agreement will be independent of, and in addition to,
any other Agreement that may exist from time to time between the parties, or
any other compensation payable by the Corporation to the Executive, whether as
salary, bonus or otherwise. This Agreement will not be deemed to constitute a
contract of employment, nor will any provision hereof restrict the right of the
Corporation to discharge the Executive, or restrict the right of the Executive
to terminate his employment.
7.7 Non-Secured Promise
7.7.1 Except as provided in Section 4.1.1, the rights of the Executive under
this Agreement and of any beneficiary of the Executive will be solely those of
an unsecured creditor of the Corporation and any insurance policy or any other
asset acquired or held by the Corporation in connection with the liabilities
assumed by it hereunder, will not be deemed to be held under any trust for the
benefit of the Executive or his beneficiaries or to be security for the
performance of the obligations of the Corporation, but will be, and remain, a
general, unpledged, unrestricted asset of the Corporation.
7.7.2 Except as provided in Section 4.1.1, the benefits under this Agreement
will be paid by the Corporation from its general assets. To cover all or part
of its potential liabilities under the plan, the Corporation may, but need not,
purchase life insurance policies on the life of the Executive, but the
Executive will not have any preferred claim against the policies or any
beneficial ownership in the policies under this Agreement. The corporation
makes no representation that it will use any life insurance policies acquired
by it and insuring the life of the Executive only to provide benefits under
this Agreement or that any such policies will, in any way, represent security
for the payment of the benefits provided for in this Agreement. An Executive's
right to a benefit under this Agreement will not, accept as may provided for in
paragraph 7.8, be limited or governed in any way by the amount of insurance
proceeds received by the Corporation.
7.8 Limitations on Benefits
7.8.1 The Corporation may deem it appropriate to insure its obligation to
provide all or any part of any of the benefits described in this Agreement. The
Corporation may wish to make any insurance used to insure its obligation
effective as of the date the Executive becomes entitled to benefit insured with
such insurance. If the Corporation does deem it appropriate to insure all or
any part of any such benefits, the Corporation will so notify the Executive.
The Executive agrees to take whatever actions may be necessary to enable the
Corporation to timely apply for and acquire such insurance and to fulfill the
requirements of the insurance company relative to the issuance thereof.
7.8.2 If the Executive is required by this Agreement to submit information to
the insurance company, and if the Executive has made a material
misrepresentation in an application for any insurance that is used to provide a
benefit hereunder, and if as a result of that material misrepresentation the
insurance company is not required to pay all or any part of the death benefit
provided under that insurance, the Executive' right to a benefit under this
Agreement will be reduced to take into account the amount of the death benefit
that is not paid by the insurance company because of such material
misrepresentation.
7.8.3 No benefit will be payable under this Agreement if the Executive dies by
suicide within two years after the date of this Agreement. No increase in the
amount of any benefit provided in this Agreement will be payable under this
Agreement if the Executive dies by suicide within two years after the effective
date of such increase.
7.9 Change of Business Form
The Corporation agrees that it will not merge or consolidate with any other
corporation or organization, or permit its business activities to be taken over
by any other organization, unless and until the succeeding or continuing
corporation or other organization agrees to assume the rights and obligations
of the Corporation herein set forth. The Corporation further agrees that it
will not cease its business activities or terminate its existence, other than
as heretofore set forth in this Article VII, without having made adequate
provisions for the fulfilling of its obligations hereunder.
7.10 Settlement Options
Any Benefit to be paid under this Agreement may be paid in any method of
payment not in excess of the actuarial equivalent to the method set forth
herein, provided however that except as provided in Section 4.1.1, any other
payment method must be approved by the Corporation and must be elected by the
Executive at least six months prior to the date of the Termination of the
Executive's Employment.
IN WITNESS WHEREOF, the parties have entered into the foregoing Agreement on
the day and year first written above.
Executive
EDO CORPORATION
By
(Name)
(Title)
APPENDIX A
ATTAINED AGE AT TERMINATION
OF EMPLOYMENT PERCENTAGE OF BENEFIT
65 100
64 97
63 94
62 91
61 88
60 85
59 82
58 79
57 76
56 73
55 or younger 70 (This Percentage shall be
reduced by 3% for every year
younger than 55)
EXHIBIT 21
LIST OF SUBSIDIARIES
The following are subsidiaries of the Company, the respective jurisdictions of
their incorporation and names (if any) under which they do business. The
Company owns all of the voting securities (including directors' qualifying
shares owned beneficially by the Company) of each such subsidiary except the
Company owns only approximately 60% of EDO (Canada) Limited.
The names of particular subsidiaries of the Company have been omitted. When
considered in the aggregate as a single subsidiary, these omitted subsidiaries
do not constitutew a "significant subsidiary" as such term is defined in Rule
1-02(v) of Regulation S-X of the Securities Exchange Act of 1934, as amended.
Jurisdiction Name Under Which
of Subsidiary
Name Incorporation Does Business
EDO Western Corporation Utah EDO Acoustics, and
EDO Ceramics
Barnes Engineering Company Delaware EDO Electro Optics
EDO (Canada) Limited Canada
EDO Operations (Israel) Ltd. Israel
EDO Foreign Sales Corporation U.S. Virgin Islands
EDO Sports, Inc. Delaware
EDO Western International Corporation Delaware
EDO International Corporation Delaware
VT Technologies, Inc. Delaware
EDO Energy Corporation Delaware
EDO Automotive Natural Gas, Inc. Delaware
KPMG Peat Marwick LLP
Consent of Independent Auditors
The Board of Directors
EDO Corporation:
We consent to incorporation by reference in Registration Statement Nos.2-69243,
33-1526 and 33-28020 on Form S-8 of EDO Corporation of our report dated March
3, 1995, relating to the consolidated balance sheets of EDO Corporation and
subsidiaries as of December 31, 1994 and 1993 and the related consolidated
statements of operations, shareholders' equity and cash flows for each of the
years in the three-year period ended December 31, 1994, which report appears in
the December 31, 1994 annual report on Form 10-K of EDO Corporation.
Our report refers to changes in the methods of accounting for income taxes and
postretirement health care and life insurance benefits.
KPMG PEAT MARWICK LLP
Jericho, New York
March 22, 1995
EXHIBIT 24
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints Michael J. Hegarty and Marvin
D. Genzer, and each of them, with full power of substitution, the undersigned's
true and lawful attorneys and agents to execute in his name and on his behalf,
in any and all capabilities, the Annual Report on Form 10-K of EDO Corporation
(the "Company"), a New York corporation, for the fiscal year ended December 31,
1994, and any and all other instruments which such attorneys and agents, or
either of them, deem necessary or advisable to enable the Company to comply
with the annual reporting requirements of the Securities Exchange Act of 1934,
as amended, and the rules, regulations and requirements of the Securities and
Exchange Commission; and the undersigned hereby ratifies and confirms as his
own act and deed all that such attorneys and agents, and each of them, shall do
or cause to be done by virtue hereof. Either of such attorneys and agents shall
have, and may exercise, all of the powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has subscribed his signature this 24th day
of March, 1995.
Robert E. Allen
Robert Alvine
Mellon C. Baird
George M. Ball
Alfred Brittain III
Joseph F. Engelberger
Frank A. Fariello
William J. Frost
Marvin D. Genzer
Robert m. Hanisee
Michael J. Hegarty
John H. Meyn
Kenneth A. Paladino
Richard Rachals
William R. Ryan
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
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