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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, 1996 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 of 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 10-K. [X]
State the aggregate market value of the voting stock held by non-affiliates of
the Registrant as of March 4, 1997................................. $42,863,715
Indicate the number of shares outstanding of each of the Registrant's classes
of common stock as of March 4, 1997 ................................. 6,146,766
Documents Incorporated by Reference
Portions of the Definitive Proxy Statement of the Registrant, dated March 21,
1997, 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 Release Equipment.............................1
Airborne Mine Countermeasures Systems........................................1
Combat Systems...............................................................2
Command and Control Systems..................................................2
Antisubmarine Warfare Sonar..................................................2
Electro-Optics Systems.......................................................2
INDUSTRIAL PRODUCTS..........................................................2
Acoustic Products............................................................2
Ceramics.....................................................................3
Fiber Science................................................................3
DISCONTINUED OPERATIONS......................................................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...........................................................6
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....................................7
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS......................7
PART IV......................................................................7
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K.............................................7
SIGNATURES...................................................................9
SELECTED FINANCIAL DATA.....................................................10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS............................11
BUSINESS ENVIRONMENT........................................................11
RESULTS OF OPERATIONS - 1996 COMPARED TO 1995...............................11
FINANCIAL CONDITION.........................................................12
RESULTS OF OPERATIONS - 1995 COMPARED TO 1994...............................12
COMMON SHARE PRICES.........................................................13
DIVIDENDS...................................................................13
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995................................13
CONSOLIDATED STATEMENTS OF OPERATIONS.......................................14
CONSOLIDATED BALANCE SHEETS.................................................15
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY.............................16
CONSOLIDATED STATEMENTS OF CASH FLOWS.......................................17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS..................................18
INDEPENDENT AUDITORS' REPORT................................................27
QUARTERLY FINANCIAL INFORMATION (UNAUDITED).................................28
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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.
The Company is principally a supplier of proprietary advanced electro-optical,
electronic, mechanical, acoustic and composite products to major prime defense
contractors and commercial original equipment manufacturers. The Company also
serves the domestic and international defense markets as a prime contractor for
military systems.
The Company organizes its business into two segments, which constitute its
continuing operations: 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.
In 1996, the Company sold its general aviation floats business and announced
the discontinuance of its energy-related businesses. Further information about
the discontinuance of the energy-related businesses is provided in
"Discontinued Operations" on page 3 and in Note 3 on page 20 of this Report.
During 1993 and 1994, the Company adopted and implemented a restructuring plan.
Information about this restructuring is contained in Note 2 on page 19 of this
Report.
Certain business segment information on the Company's continuing operations is
set forth in Note 18 on page 26 of this Report.
The following discussion relates to the Company's continuing operations.
DEFENSE AND SPACE SYSTEMS
The Company's Defense and Space Systems operations, which accounted for 68%,
66% and 70% of consolidated net sales for 1996, 1995 and 1994, respectively,
are conducted by three separate business units. 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 Systems unit to the Combat Systems unit. As a result, the
Marine and Aircraft Systems unit in New York is now dedicated to mechanical and
structural products and the military electronics/software design business is
conducted at Combat Systems.
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, upgrade modifications, training and technical
services. The revenue from these support functions is a significant portion of
sales. The major products of the Marine and Aircraft Systems business unit are
aircraft stores suspension and release equipment and airborne mine
countermeasures systems. This business unit also designs and manufactures speed
measuring equipment for municipal rapid transit trains.
Aircraft Stores Suspension and Release Equipment
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 1996, the Company continued production of BRUs for the F-15E under prior
orders received and new orders received in 1996, and provided spare parts
support for Tornado ERUs previously produced. In addition, the Company
continued the development of the Advanced Medium Range Air To Air Missile
(AMRAAM) launcher for the F-22 air superiority fighter. Funded development for
this missile launcher, which employs new internal carriage technology, is
expected to continue throughout 1997. In 1996, the Company received a
subcontract from Boeing for development of new weapons carriage technology for
application to existing and future aircraft. This effort is expected to
continue throughout 1997. For 1996, 1995 and 1994, respectively, sales of
aircraft stores suspension and release equipment represented 19%, 19%, and 21%
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 were completed in the first half of 1995. The first
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production contract for this upgrade was received at the end of 1995. An
additional production contract was received in 1996. Production under this
contract is expected to continue throughout 1997. 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
system underwent U.S. Navy testing and evaluation in 1996. 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 1996, 1995 and 1994, respectively, sales of airborne mine countermeasures
systems represented 7%, 5% and 13% of consolidated net sales.
Combat Systems
The Combat Systems business unit designs, develops and produces combat systems
equipment including command, control and communications systems, and
antisubmarine warfare (ASW) systems. In addition, the business unit provides
logistics support including spare and repair parts, training and technical
services for its products.
Command and Control Systems
Command, control and communications systems include digital tactical data links
for domestic and international military customers. In 1996, this business unit
delivered an integrated command and control system for the U.S. Air Force. Work
on the Ship Shore Ship Buffer (SSSB) program, awarded in 1995, continued in
1996. In 1996, new orders were received from another international customer for
additional SSSB systems and additional data links.
Antisubmarine Warfare Sonar
The Company has been a supplier of ASW 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 1996, development and testing continued for a new
passive/active sonar system variation of the AN/SQR-18A(V) for the U.S. Navy.
An additional contract for this program was received in 1996 and work is
scheduled to continue throughout 1997. Logistics, maintenance and training
support was provided for EDO sonar systems installed in the now decommissioned
U.S. Navy FF-1052-class ships which are in service with several international
navies through the foreign military sales program. In 1996, a significant
contract was received from an international customer for a major upgrade to a
previously provided EDO sonar system. Work under this contract is expected to
continue for five years. For 1996, 1995 and 1994, respectively, sales of sonar
systems represented 3%, 10% and 11% of consolidated net sales.
Electro-Optics Systems
The Electro-Optics business unit designs, develops and manufactures
electro-optical products and systems for satellites. The primary products are
infrared earth sensors, which are used to provide satellites with information
relative to stabilization and orbit position. In 1996, Electro-Optics continued
to provide earth sensor assemblies for Hughes communication satellites, the
U.S. Air Force Global Positioning Satellite System, and Orbital Science's
ORBCOM digital data transmission system, and began delivering earth sensor
assemblies for the Motorola/Lockheed Iridium(TM) communication satellite
constellation. In addition, work continued on the sensors for the Loral/DASA
Globalstar(TM) communication satellite with deliveries scheduled for 1997. New
orders were received for additional sensors for Hughes geosynchronous
satellites and for the new INMARSAT constellation and for ORBCOM. For 1996,
1995 and 1994, respectively, sales of spaceflight systems represented 24%, 14%
and 9% of consolidated net sales.
INDUSTRIAL PRODUCTS
In 1994, the business units that are primarily related to non-military markets
were reorganized into the Industrial Products business segment. In late 1996,
the Company announced the discontinuance of its participation in the
energy-related market, and its intention to dispose of its interest in EDO
(Canada) Ltd., EDO Automotive Natural Gas, Inc. (EDO ANGI) and EDO Energy
Corporation. EDO Sports, a business unit dedicated to the production of
composite sporting products, was discontinued in late 1994.
The Industrial Products operations now include the Acoustic Products, Ceramics
and Fiber Science business units. The Acoustic Products business unit, located
in Salt Lake City, supplies the Industrial Products business units with support
services as required. The Industrial Products operations accounted for 32%, 34%
and 30% of consolidated net sales for 1996, 1995 and 1994, respectively.
Acoustic Products
The Acoustic Products business unit concentrates on industrial/commercial
applications of acoustic technology. Standard product lines are focused on the
precision measurement of velocity of objects in water or fluid streams. The
Company has invested in recent years in this technology. Most undersea
vehicles, both military and commercial, now carry the Company's velocity
measurement instruments.
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The Company has entered production of 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 was developed in a joint program
with a major European company.
Military transducer design and production also continue at the Acoustic
Products business unit. This business unit provides all of the Company's
commercial transducers as well.
The Acoustic Products unit is developing products for the active vibration
control marketplace. This initiative is intended to apply the Company's
expertise in piezoceramic materials and transducers to reduce vibration
emanating from industrial machinery. The Company has been working on a
partially government funded program for vibration reduction in precision
machine tools, specifically cylindrical grinders. In addition, the Company is
delivering products it designed and manufactured to reduce vibration in the
manufacturing process for semiconductors.
Ceramics
The Ceramics business unit, located in Salt Lake City, is one of North
America's largest manufacturers of piezoceramic components. Piezoceramic
elements convert acoustic energy to electrical energy and form the basis of
many industrial and commercial products ranging from military sonars to ink jet
printers. The Company has automated and improved this unit's production
processes and is focusing its efforts on industrial markets in addition to
maintaining its position as a leading supplier of ceramics for military
applications. For 1996, 1995 and 1994, respectively, sales of piezoceramics
represented 11%, 10% and 8% of consolidated net sales.
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 concentrated technical and marketing
effort yielded long-term production contracts from Boeing and Airbus.
While concentration on water and waste tanks is the primary mission of Fiber
Science, the Company continues to pursue programs in other commercial markets.
Fiber Science is now supplying composite pressure vessels for use as air start
reservoirs on large trucks, through a program with Ingersoll-Rand. Composite
pressure vessels are also being developed and tested for use in railroad car
braking systems.
DISCONTINUED OPERATIONS
The Company's former energy-related businesses consisted of the following: its
wholly-owned subsidiary EDO Energy Corporation, which provides program
management activities for compressed natural gas vehicles (CNGVs) and other
alternative fuel projects; its wholly-owned subsidiary EDO Automotive Natural
Gas, Inc., which designs and manufactures CNGV refueling stations and related
equipment; and a 50.4% interest in EDO (Canada) Ltd., which designs and
manufactures LiteRider_ fuel cylinders. The products of these businesses are
generally sold through independent distributors and dealers to end users, and
by employees of these businesses to original equipment manufacturers.
Due to the current and projected growth rates and financial returns of the
energy-related businesses failing to meet the Company's strategic criteria, the
Company decided in September 1996 to divest itself from these businesses.
Accordingly, the Company recorded a provision for loss of $7,000,000,
consisting of $2,000,000 in operating losses for the phase out period, and
$5,000,000 for reduction of asset values and provisions for estimated future
disposal costs.
These businesses continue to operate while the Company seeks investors
interested in their long-term development. The Company believes that adequate
provision for the ultimate loss on disposal of these businesses has been made
in the Company's financial statements, which provision is described in Note 3
on page 20 of this Report.
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
72 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 shallow-water mine
countermeasures system; development of new aircraft weapons carriage
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technology; developments in combat systems integration; development of new and
improved stores launchers; and development of new earth and sun sensors for
satellites.
Expenditures under development contracts with customers vary in amount from
year to year because of the timing of contract funding. In 1995, expenditures
for customer-sponsored research and development declined 28% from1994,
primarily as a result of less available funding, consistent with the general
decline in military spending. In 1996, expenditures rose 34% over 1995 due
primarily to increased funding in all business areas.
Company-sponsored research and development has contributed to a number of
advances in sonar systems, transducers, stores release systems, mine
countermeasures systems, digital data links, filament-wound structures, and
composite pressure vessels.
Principal current research and development involves: image and signal
processing and other improvements for combat systems, improvements to
minesweeping technology, continued development of satellite-based sensors, the
application of its acoustic and ceramic technologies to vibration control, and
development of composite pressure vessels for the truck and train markets.
The following table sets forth research and development expenditures for the
periods presented.
======================================================
Year Ended December 31,
1996 1995 1994
(in thousands)
------------------------------------------------------
Customer-sponsored $ 17,800 $ 13,300 $ 18,400
Company-sponsored 1,000 1,000 2,500
------------------------------------------------------
Total $ 18,800 $ 14,300 $ 20,900
======================================================
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 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.
It is the Company's policy to denominate all foreign contracts 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.
BACKLOG
A significant portion of the Company's sales are made directly or indirectly
through prime contractors 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, 1996, the Company's total backlog was approximately $103.0
million, as compared with $85.6 million on December 31, 1995. Of the total
backlog as of December 31, 1996, approximately 63% was scheduled for delivery
in 1997. Total backlog as of December 31, 1996, divided between the Company's
two industry segments, was Defense and Space Systems, $86.9 million, and
Industrial Products, $16.1 million, as compared, respectively, with $64.1
million and $21.5 million as of December 31, 1995.
GOVERNMENT CONTRACTS
Sales to the U.S. Government, as a prime contractor and through subcontracts
with other prime contractors, accounted for 36% of the Company's 1996
consolidated net sales compared with 43% in 1995 and 59% in 1994, 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
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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-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 or incentive basis.
COMPETITION AND OTHER FACTORS
Some of the Company's products are sold in markets containing a number of
competitors substantially larger than the Company and 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 that 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 release mechanisms for military
aircraft, military sonar systems, military data links, helicopter-towed mine
countermeasures systems, piezoelectric ceramics, and satellite attitude and
position sensors.
Although the Company owns some patents and has filed applications for
additional patents, it does not believe that its businesses depend
significantly 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, 1996, the Company employed 718 persons.
EXECUTIVE OFFICERS OF THE REGISTRANT
===============================================================================
Name Age Position, Term of Office and Prior Positions
- - -------------------------------------------------------------------------------
Frank A. Fariello 62 Chairman of the Board since 1997, Chief Executive
Officer since 1994, President since 1993 and
Director since 1982.
William J. Frost 55 Vice President-Administration since 1994, prior to
which he was Assistant to the Vice President-
Administration since 1989.
Marvin D. Genzer 56 Vice President since 1990, General Counsel since
1988, and Secretary since 1995.
Ira Kaplan 61 Executive Vice President and Chief Operating
Officer since 1997, prior to which he was corporate
Vice President since 1995. From 1989 to 1995, he
was Vice President/General Manager of the
Government Systems Division.
J. Douglas Moore 51 Vice President-Special Assignments since 1997,
prior to which he was corporate Vice President
since 1995. From 1989 to 1995, he was Vice
President/General Manager of the Acoustics Division.
Kenneth A. Paladino 39 Vice President-Finance and Treasurer since 1995,
prior to which he was Controller since 1989.
===============================================================================
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.
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ITEM 2. PROPERTIES
All operating properties are leased facilities. The College Point corporate
headquarters and manufacturing facility had been owned until early 1996 when it
was sold. The Company's facilities are adequate for present purposes. Except
for College Point, 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 buildings. The Company's obligations
under the various leases are set forth in Note 16 on page 26 of this Report.
Set forth below is a listing of the Company's principal plants and other
materially important physical properties.
=========================================================
Approximate Floor Area
Location (in sq. ft.)
---------------------------------------------------------
Defense and Space Systems:
Marine and Aircraft 97,000
College Point, NY
Combat Systems 30,000
Chesapeake, VA
Electro-Optics 72,000
Shelton, CT
Industrial Products:
Acoustic Products and Ceramics 117,000
Salt Lake City, UT
Fiber Science 105,000
Salt Lake City, UT
=========================================================
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 11 through 13, and in Note 17 on page 26 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 13, together with dividend information
contained in the "Consolidated Statements of Shareholders' Equity" on page 16,
Note 9 on page 21 and Note 10 on page 22 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 10 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 11 through 13 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 14 through 28 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 the headings "Election of
Directors" and "The Board of Directors and Its Committees" on pages 1 through 3
of the Company's Proxy Statement dated March 21, 1997, 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 the heading "Compensation of Executive Officers" on pages 5 through
9 of the Company's Proxy Statement dated March 21, 1997, 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.
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding security ownership of certain beneficial owners and
management is set forth under the headings "Securities Ownership of Directors
and Executive Officers" on page 4 and "Principal Shareholders" on page 12 of
the Company's Proxy Statement dated March 21, 1997, which is incorporated by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information responsive to this item is set forth under the headings "The
Board of Directors and Its Committees" on page 3 and "Compensation Committee
Interlocks and Insider Participation" on page 8 of the Company's Proxy
Statement dated March 21, 1997, which is incorporated by reference.
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, 1996 and 1995 and for
the years ended December 31, 1996, 1995 and 1994, together with the report
thereon of KPMG Peat Marwick LLP, independent auditors, dated February 13,
1997, appear on pages 14 through 27 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. Incorporated by reference to
Exhibit 3(i) to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1994.
3(ii) By-Laws of the Company.
4(a) Indenture dated December 1, 1986 between Chemical Bank as successor in
interest to 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 Fleet Bank as successor in interest to NatWest Bank NA and
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 Fleet Bank as successor in interest to
NatWest Bank NA and 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 Fleet Bank as successor in interest to NatWest Bank NA and
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 Fleet Bank as successor in
interest to NatWest Bank NA and 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, effective March 27, 1993. Incorporated by reference to Exhibit 4(i) to
the Company's Quarterly Report on Form 10-Q for the quarter ended June 26,
1993.
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.
Page 7
<PAGE>
4(h) Amendment No. 8 to the Guarantee Agreement referred to in Exhibit 4(b)
above, effective February 10, 1995. Incorporated by reference to Exhibit 4(h)
to the Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1994.
4(i) Amendment No. 9 to the Guarantee Agreement referred to in Exhibit 4(b)
above, effective June 30, 1995. Incorporated by reference to Exhibit 4(i) to
the Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1995.
4(j) Amendment No. 10 to the Guarantee Agreement referred to in Exhibit 4(b)
above, effective June 30, 1996.
10(a)* EDO Corporation 1996 Long-Term Incentive Plan.
10(b)* EDO Corporation Executive Termination Agreements, as amended through
November 24, 1989, between the Company and two employees. Incorporated by
reference to Exhibit 10(f) to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1994.
10(c)* Executive Life Insurance Plan Agreements, as amended through January 23,
1990, between the Company and 30 employees and retirees. Incorporated by
reference to Exhibit 10(g) to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1994.
10(d)* Form of Directors' and Officers' Indemnification Agreements between EDO
Corporation and 14 current Company directors and officers.
10(e) 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 of this Annual Report on Form 10-K.
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, 1996.
Page 8
<PAGE>
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)
Dated: March 21, 1997 By: Kenneth A. Paladino
-----------------------------
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 21, 1997 by
the following persons on behalf of the Registrant and in the capacities
indicated.
Signature Title
Kenneth A. Paladino Vice President-Finance
and Treasurer __
Frank A. Fariello Chairman of the Board, |
President, Chief Executive |
Officer and Director |
William J. Frost Vice President- |
Administration |
Marvin D. Genzer Vice President, General |
Counsel and Secretary |- By: Kenneth A. Paladino
Ira Kaplan Executive Vice President and | ---------------------
Chief Operating Officer | Attorney-in-Fact
J. Douglas Moore Vice President- |
Special Assignments |
Robert E. Allen Director |
Robert Alvine Director |
Mellon C. Baird Director |
George M. Ball Director |
Joseph F. Engelberger Director |
Robert M. Hanisee Director |
Michael J. Hegarty Director |
George A. Strutz, Jr. Director __|
Page 9
<PAGE>
SELECTED FINANCIAL DATA
EDO CORPORATION AND SUBSIDIARIES
(NOT COVERED BY INDEPENDENT AUDITORS' REPORT)
===============================================================================
1996 1995 1994 1993 1992
(in thousands, except per share amounts)
- - -------------------------------------------------------------------------------
Summary of Operations
Net sales:
Defense and
Space Systems $ 64,110 52,055 56,568 69,182 81,432
Industrial Products 30,476 26,877 24,688 30,925 32,807
- - -------------------------------------------------------------------------------
$ 94,586 78,932 81,256 100,107 114,239
===============================================================================
Operating earnings
(loss):
Defense and
Space Systems $ 14,060a 5,779 (6,546)b (1,179)b 11,811
Industrial Products 3,926 3,392 (9,853)c 2,346 2,499
General corporate
expense (4,086) (3,806) (4,711) (4,146) (4,281)
- - -------------------------------------------------------------------------------
13,900 5,365 (21,110) (2,979) 10,029
Net interest expense (766) (1,199) (2,160) (2,337) (2,627)
Other income
(expense), net (66) (41) 335 (1,355) (443)
- - -------------------------------------------------------------------------------
Earnings (loss) before
Federal income taxes
and cumulative effect
of accounting change 13,068 4,125 (22,935) (6,671) 6,959
Provision (benefit)
for Federal income
taxes - - (3,800) (4,901) 1,684
- - -------------------------------------------------------------------------------
Earnings (loss) from
continuing operations
before cumulative
effect of accounting
change 13,068 4,125 (19,135) (1,770) 5,275
===============================================================================
Earnings (loss) from:
Continuing operations 13,068 4,125 (19,135) (11,170)d 5,275
Discontinued operations (8,637) (1,465) (3,421) (5,178) 402
===============================================================================
Net earnings (loss) 4,431 2,660 (22,556) (16,348) 5,677
Dividends on
preferred shares 1,179 1,239 1,333 1,406 1,455
- - -------------------------------------------------------------------------------
Net earnings (loss)
available for common
shares $ 3,252 1,421 (23,889) (17,754) 4,222
===============================================================================
Per Common Share Data
Primary net earnings
(loss)
Continuing operations $ 1.95 0.50 (3.69) (2.32) 0.71
Discontinued operations $ (1.42) (0.25) (0.61) (0.96) 0.07
- - -------------------------------------------------------------------------------
Total $ 0.53 0.25 (4.30) (3.28) 0.78
Fully diluted net
earnings (loss) $ 0.45 0.20 (4.30) (3.28) 0.69
Average number of
shares outstanding-
primary 6,086 5,768 5,551 5,415 5,389
Cash dividends per
common share $ - - 0.14 0.28 0.28
Other Information
Working capital $ 37,382 33,582 31,374 40,001 45,741
Depreciation and
amortization of
fixed assets $ 3,471 4,568 5,677 5,974 5,852
Plant and equipment
expenditures, net $ 4,227 1,800 1,731 4,287 4,873
Total assets $ 94,223 95,526 94,747 115,414 127,281
Long-term debt $ 29,317 29,317 29,317 29,317 30,544
ESOT loan obligation $ 11,676 12,887 14,007 15,045 16,005
Shareholders' equity $ 19,823 14,997 11,610 35,035 52,797
Backlog of
unfilled orders $ 102,981 85,558 70,682 86,468 92,084
===============================================================================
a Includes a $7,120 curtailment gain for the discontinuance of postretirement
health care benefits for Medicare-eligible retirees.
b Includes restructuring charges of $1,127 and $9,800 in 1994 and 1993,
respectively, relating to the discontinuance, relocation and downsizing of
certain operations.
c Includes a $5,400 write off of a previously established receivable in
anticipation of the recovery of remediation costs related to a Superfund site.
d Includes the cumulative effect of a change in accounting for postretirement
health benefits, as required by the adoption of SFAS No. 106, of $9,400, net of
taxes, or $1.74 per share on primary net earnings.
Page 10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
BUSINESS ENVIRONMENT
In 1996, the Company's financial condition continued to improve as evidenced by
increased working capital, shareholders' equity, net sales, earnings and
backlog over the prior year results. These increases reflect the effects of the
emphasis being placed on the Company's core businesses where there has been a
general improvement in the markets for the Company's products.
In 1996, the Company announced its decision to exit its energy-related
businesses that are involved in the natural gas vehicle markets. These
businesses continue to operate while the Company seeks potential buyers. The
financial statements have been reclassified to exclude the operating results of
the energy-related businesses from the continuing operations and account for
them as discontinued operations (see Note 3 to the Consolidated Financial
Statements). The following discussion relates only to the Company's continuing
operations in its two business segments: Defense and Space Systems; and
Industrial Products.
RESULTS OF OPERATIONS - 1996 COMPARED TO 1995
Net sales for 1996 were $94.6 million, a 20% increase when compared with sales
of $78.9 million in 1995. Sales in the Defense and Space Systems segment
increased 23% to $64.1 million primarily due to an increase in satellite system
sales which in 1995, were negatively impacted by technical difficulties on a
fixed-price development program that was completed and is now in production.
Reductions in sonar system sales also partially offset the increased segment
sales. Sales in the Industrial Products segment increased by 13% to $30.5
million where increases in piezo-ceramic and fiber composite product sales were
partially offset by lower sales of acoustic products.
Total operating earnings, excluding the effect of a $7.1 million non-cash
curtailment gain from the discontinuance of medical benefits for Medicare
eligible retirees (see Note 15 to the Consolidated Financial Statements),
improved 26% to $6.8 million in 1996, as compared to $5.4 million in 1995. The
increase results primarily from the higher sales levels as well as a modest
improvement in margins and increases in pension and postretirement benefit
income, partially offset by higher costs incurred during the completion of the
development portion of fixed-price development programs for new satellite
products.
Operating earnings of the Defense and Space Systems segment, before general
corporate expense allocations, were $6.9 million (excluding the $7.1 million
gain mentioned above), an increase of 20% as compared to operating earnings of
$5.8 million in 1995. Operating earnings in the Industrial Products segment,
before general corporate expense allocations, were $3.9 million, a 16% increase
when compared to operating earnings of $3.4 million in 1995. The improvement in
earnings in both segments primarily results from the higher sales levels.
Selling, general and administrative expenses increased to $15.6 million from
$14.2 million in 1995 principally as a result of increased sales and marketing
expenses. Company funded research and development expenditures were
approximately $1.0 million for each year while customer funded research and
development increased $4.5 million to $17.8 million in 1996. Customer funded
research and development, which occurs primarily in the Defense and Space
Systems segment, is included in cost of sales and represents the engineering
development portion of programs where new products are being developed or
technologies are being advanced.
Interest expense, net of interest income, decreased 33% to $0.8 million from
$1.2 million in 1995, primarily due to increased interest income on higher
average balances of interest-earning assets. Interest expense primarily
represents the interest paid on the 7% Convertible Subordinated Debentures Due
2011.
In 1996, the Company did not have a provision for Federal income taxes due to
the utilization of tax loss carryforwards and tax benefits associated with the
preferred stock dividends.
Net earnings in 1996 were $3.3 million as compared to net earnings in 1995 of
$1.4 million. Net earnings in 1996 included a $7.0 million loss from
discontinuance of the Company's energy-related businesses (see Note 3 to the
Consolidated Financial Statements) and, as mentioned above, a $7.1 million
curtailment gain. Primary net earnings per share were $0.53 as compared to net
earnings of $0.25 in 1995. Primary earnings per share calculations are based on
a weighted average of 6.1 million and 5.8 million common and equivalent shares
outstanding in 1996 and 1995, respectively.
Page 11
<PAGE>
FINANCIAL CONDITION
The Company's cash and cash equivalents decreased $2.2 million in 1996 to $20.7
million at December 31, 1996. The reduction results from net cash flow from
continuing operations of approximately $2.6 million and $2.0 million of
proceeds from the sale of the Company's College Point facility, offset by $4.2
million of purchases of capital equipment, a $1.2 million payment of preferred
share dividends and $1.8 million of cash used by discontinued operations.
Accounts receivable increased to $32.5 million from $23.6 million in 1995
primarily as a result of an increase in unbilled receivables. The increase in
unbilled receivables resulted principally from the recognition of revenues
under the percentage of completion method, on certain satellite system
programs, as costs are incurred and where billings are made at shipment.
Substantially all of the unbilled balances at December 31, 1996 are expected to
be billed and collected during 1997.
In January of 1996, the Company completed the sale of its College Point
facility. Proceeds of the sale were comprised of cash of approximately $2.0
million, notes of $4.6 million and other consideration, including prepaid rent
for the portion of the facility currently utilized by the Company. The notes
receivable are due in varying annual amounts through 2004, bear interest at an
effective rate of approximately 7% and are secured by a mortgage on the related
facility.
The Company has outstanding $29.3 million of 7% Convertible Subordinated
Debentures Due 2011. Commencing in 1996 and until their retirement, the Company
is making annual sinking fund payments of $1.8 million. As of December 31,
1996, the Company had $3.9 million of these debentures remaining in treasury to
be used for these annual requirements.
The Company also has an ESOT loan obligation with a balance at December 31,
1996 of $11.7 million with an interest rate of 82% of the prime lending rate.
The ESOT obligation agreement can be canceled or refinanced by the Company or
the lender on April 1, 2000. The repayment of this obligation is funded
principally through dividends on the Company's preferred shares.
The Company maintains a $15.0 million secured line of credit with a bank for
short-term borrowing and letters of credit. The agreement expires on June 30,
1997 and limits the cash portion of potential borrowings to $5.0 million. There
have been no direct borrowings under this agreement.
The Company is incurring costs in connection with the remediation of a
Superfund site (see Note 17 to the Consolidated Financial Statements). The
Company has expensed all of the costs it has incurred, as well as a discounted
estimate of all future costs related to this matter. The liability for these
future costs as of December 31, 1996 is approximately $4.1 million of which
$1.2 million is classified as a current obligation. Approximately 40% of the
$4.1 million liability will be expended over the next two years.
During 1996, the Company recognized a non-cash curtailment gain of $7.1 million
in connection with the discontinuance of postretirement medical benefits for
Medicare-eligible retirees. This gain represents the reversal of a significant
portion of the postretirement obligation established upon the adoption of
Statement of Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions" in 1993.
The Company believes that it has adequate liquidity and sufficient capital to
fund its current operating plans.
Backlog increased from $85.6 million at December 31, 1995 to $103.0 million at
December 31, 1996. The increase was primarily due to awards received in the
Defense and Space Systems segment.
RESULTS OF OPERATIONS - 1995 COMPARED TO 1994
Sales for 1995 were $78.9 million, a 3% decrease when compared with sales of
$81.3 million in 1994. Sales in the Defense and Space Systems segment decreased
8% to $52.1 million, due primarily to delays in expected awards in some
military programs offset in part by increases in satellite system product
sales. Sales in the Industrial Products segment increased by 9% to $26.9
million where increases were recorded in each of the business units.
A profit from operations of $5.4 million was recorded in 1995 as compared to a
loss of $21.1 million in 1994. Included in 1994 results were charges, net of a
pension curtailment gain of $1.4 million, that amounted to approximately $17.4
million. Exclusive of the effects of these net charges, the Company in general
experienced improvements in all of its operations. In addition, significant
losses previously incurred on certain fixed-price development contracts, which
included one for the development of a new earth sensor, did not recur in 1995.
The results of operations of the Defense and Space Systems segment were a
profit, before general corporate expense allocations, of $5.8 million as
compared to a loss of $2.4 million (excluding net charges mentioned above) in
1994. The improvement in earnings, exclusive of the net charges, resulted
primarily from an improvement in the Electro-Optics business unit, higher
margins in the segment in general and inclusion of a pension curtailment gain
of $0.6 million.
Page 12
<PAGE>
The Industrial Products segment recorded a profit, before general corporate
expense allocations, of $3.4 million as compared to a profit of $3.5 million
(excluding net charges of $13.3 million mentioned above) in 1994.
Selling, general and administrative expenses decreased to $14.2 million from
$14.9 million, (excluding a $3.6 million reserve on a foreign receivable) in
1994 principally as a result of the effects of cost reduction efforts. Company
sponsored research and development expenditures decreased 60% to $1.0 million.
Reductions occurred in both segments, primarily as a result of a more selective
approach to, and customer sponsoring of, important Company development
programs. Customer-sponsored research and development included in cost of
sales, which occurs primarily in the Defense and Space Systems segment,
declined $5.1 million to $13.3 million consistent with the general decline in
available government development programs.
Interest expense, net of interest income, decreased 43% to $1.2 million from
$2.1 million in 1994 primarily due to increased interest income on higher
average balances of interest earning assets. Interest expense primarily
represented the interest paid on the 7% Convertible Subordinated Debentures Due
2011.
In 1995, the Company did not have a provision for Federal income taxes due to
the realization of benefits related to certain deductible temporary differences
and preferred stock dividends.
The net earnings in 1995 of $1.4 million compared to a net loss in 1994 of
$23.9 million. The primary net earnings per share were $0.25 as compared to a
net loss of $4.30 in 1994. Primary earnings per share calculations were based
on a weighted average of 5.8 million and 5.6 million shares outstanding in 1995
and 1994, respectively. The Company's 1995 year end backlog was $85.6 million
compared to $70.7 million in 1994. The increase occurred principally in the
Defense and Space Systems segment.
COMMON SHARE PRICES
EDO common shares are traded on the New York Stock Exchange. As of February 5,
1997, there were 2,607 shareholders of record (brokers and nominees counted as
one each).
The price range in 1996 and 1995 was as follows:
===================================================
1996 1995
High Low High Low
---------------------------------------------------
1st Quarter 5-7/8 4-5/8 3-7/8 3
2nd Quarter 10-7/8 5 3-1/2 3
3rd Quarter 8-5/8 5-7/8 5-7/8 3
4th Quarter 9-1/4 6-1/2 6 4-3/8
===================================================
DIVIDENDS
In the third quarter of 1994, the Board of Directors suspended cash dividends
on the Company's common shares due to the financial circumstances at that time.
In January of 1997, the Company announced that the Board of Directors had
approved the payment of a quarterly cash dividend of $0.025 per common share
payable on March 31, 1997 to shareholders of record at the close of business on
March 4, 1997. The Company's ESOT guarantee agreement presently limits the
payment of cash dividends. See Note 10 of the Consolidated Financial
Statements.
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995
The statements in this Annual Report on Form 10-K and in the message from the
Chairman of the Board, President and Chief Executive Officer contained in the
Annual Report to Shareholders for 1996 relating to plans, strategies, economic
performance and trends and other statements that are not descriptions of
historical facts may be forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995, Section 27(a) of the
Securities Act of 1933 and Section 21(e) of the Securities Exchange Act of
1934. Forward-looking statements are inherently subject to risks and
uncertainties, and actual results could differ materially from those currently
anticipated due to a number of factors, which include, but are not limited to
the following for each of the types of information noted.
U.S. and international military program sales, follow-on procurement, contract
continuance, and future program awards, upgrades and spares support are subject
to: U.S. and international military budget constraints and determinations; U.S.
congressional and international legislative body discretion; U.S. and
international government administration policies and priorities; changing world
military threats, strategies and missions; competition from foreign
manufacturers of platforms and equipment; NATO country determinations
regarding participation in common programs; changes in U.S. and international
government procurement timing, strategies and practices; and the general state
of world military readiness and deployment.
Achievement of margins on sales, earnings and cash flow can be affected by
unanticipated technical problems, government termination of contracts for
convenience, decline in expected levels of revenues and underestimation of
anticipated costs on specific programs.
The Company has no obligation to update any forward-looking statements.
Page 13
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
EDO CORPORATION AND SUBSIDIARIES
===============================================================================
Years Ended December 31
1996 1995 1994
(in thousands, except per share amounts)
- - -------------------------------------------------------------------------------
Continuing Operations:
Income
Net sales $ 94,586 $ 78,932 $ 81,256
Other 388 450 623
- - -------------------------------------------------------------------------------
94,974 79,382 81,879
- - -------------------------------------------------------------------------------
Costs and Expenses
Cost of sales 71,561 58,849 75,471
Selling, general and administrative 15,631 14,177 18,486
Research and development 1,002 991 2,505
Postretirement health care
curtailment gain (7,120) - -
Write off of environmental receivable - - 5,400
Restructuring charge - - 1,127
- - -------------------------------------------------------------------------------
81,074 74,017 102,989
- - -------------------------------------------------------------------------------
Operating Earnings (Loss) 13,900 5,365 (21,110)
Non-operating Income (Expense)
- - -------------------------------------------------------------------------------
Interest income 1,427 1,097 256
Interest expense (2,193) (2,296) (2,416)
Other, net (66) (41) 335
- - -------------------------------------------------------------------------------
(832) (1,240) (1,825)
- - -------------------------------------------------------------------------------
Earnings (loss) before Federal
income taxes 13,068 4,125 (22,935)
Federal income tax benefit - - (3,800)
- - -------------------------------------------------------------------------------
Earnings (Loss) from
Continuing Operations 13,068 4,125 (19,135)
Discontinued Operations:
Loss from operations of
discontinued energy business (1,637) (1,465) (3,421)
Loss from discontinuance, including
provision of $2,000 for operating
losses during phase out period (7,000) - -
- - -------------------------------------------------------------------------------
Loss from Discontinued Operations (8,637) (1,465) (3,421)
- - -------------------------------------------------------------------------------
Net Earnings (Loss) 4,431 2,660 (22,556)
Dividends on preferred shares 1,179 1,239 1,333
- - -------------------------------------------------------------------------------
Net Earnings (Loss) Available
for Common Shares $ 3,252 $ 1,421 $(23,889)
===============================================================================
Earnings (Loss) Per Common Share:
Primary:
Continuing operations $ 1.95 $ 0.50 $ (3.69)
Discontinued operations (1.42) (0.25) (0.61)
- - -------------------------------------------------------------------------------
Net Earnings (Loss) $ 0.53 $ 0.25 $ (4.30)
===============================================================================
Fully diluted:
Continuing operations $ 1.66 $ 0.41 $ (3.69)
Discontinued operations (1.21) (0.21) (0.61)
- - -------------------------------------------------------------------------------
Net Earnings (Loss) $ 0.45 $ 0.20 $ (4.30)
===============================================================================
See accompanying Notes to Consolidated Financial Statements.
Page 14
<PAGE>
CONSOLIDATED BALANCE SHEETS
EDO CORPORATION AND SUBSIDIARIES
===============================================================================
December 31
1996 1995
(in thousands, except share amounts)
- - -------------------------------------------------------------------------------
Assets
Current assets:
Cash and cash equivalents $ 20,745 $ 22,918
Accounts receivable 32,518 23,605
Inventories 7,994 8,087
Prepayments 2,678 1,180
- - -------------------------------------------------------------------------------
Total current assets 63,935 55,790
- - -------------------------------------------------------------------------------
Property, plant and equipment, net 12,968 12,212
Notes receivable 3,900 -
Cost in excess of fair value of net
assets acquired, net 7,159 7,526
Other assets 6,261 5,957
Assets held for sale, net - 8,700
Net assets of discontinued operations - 5,341
- - -------------------------------------------------------------------------------
$ 94,223 $ 95,526
===============================================================================
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $ 21,517 $ 16,566
Contract advances and deposits 4,809 5,642
Net liabilities of discontinued operations 227 -
- - -------------------------------------------------------------------------------
Total current liabilities 26,553 22,208
- - -------------------------------------------------------------------------------
Long-term debt 29,317 29,317
ESOT loan obligation 11,676 12,887
Postretirement obligation 3,995 12,348
Environmental obligation 2,859 3,769
Shareholders' Equity:
8% convertible preferred shares, par value
$1 per share (liquidation preference
$213.71 per share), authorized 500,000 shares
(67,832 issued in 1996 and 71,001 in 1995) 68 71
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 35,438 37,847
Retained earnings 22,368 19,116
- - -------------------------------------------------------------------------------
66,328 65,488
Less: Treasury shares at cost (2,409,136
shares in 1996 and 2,645,863
shares in 1995) (34,240) (37,604)
ESOT loan obligation (11,676) (12,887)
Deferral under Long-Term Incentive Plan (589) -
- - -------------------------------------------------------------------------------
Total shareholders' equity 19,823 14,997
- - -------------------------------------------------------------------------------
$ 94,223 $ 95,526
===============================================================================
See accompanying Notes to Consolidated Financial Statements.
Page 15
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
EDO CORPORATION AND SUBSIDIARIES
===============================================================================
1996 1995 1994
(in thousands)
Amount Shares Amount Shares Amount Shares
- - -------------------------------------------------------------------------------
Preferred shares
Balance at beginning
of year $ 71 71 $ 75 75 $ 80 80
Par value of shares
converted (3) (3) (4) (4) (5) (5)
- - -------------------------------------------------------------------------------
Balance at end of year 68 68 71 71 75 75
- - -------------------------------------------------------------------------------
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 37,847 39,330 41,784
Exercise of stock
options (227) - (5)
Shares used for payment
of directors' fees (57) (137) -
Effect of sale of
subsidiary's (EDO
(Canada) Ltd.)
capital stock - 795 -
Shares used for
Long-Term Incentive
Plans (1,146) - 6
Conversion of
preferred shares
to common shares (979) (2,141) (2,455)
- - -------------------------------------------------------------------------------
Balance at end of year 35,438 37,847 39,330
- - -------------------------------------------------------------------------------
Retained earnings
Balance at beginning
of year 19,116 17,695 42,350
Net earnings (loss) 4,431 2,660 (22,556)
Common stock dividends
($0.14 per share
in 1994) - - (766)
Dividends on
preferred shares (1,179) (1,239) (1,333)
- - -------------------------------------------------------------------------------
Balance at end of year 22,368 19,116 17,695
- - -------------------------------------------------------------------------------
Treasury shares at cost
Balance at beginning
of year (37,604) (2,646) (39,937) (2,810) (42,393) (2,983)
Shares used for
exercise of stock
options 393 28 - - 7 -
Shares used for
payment of
directors' fees 106 7 188 13 - -
Shares used for
Long-Term Incentive
Plans 1,883 133 - - (11) (1)
Shares used for
conversion of
preferred shares 982 69 2,145 151 2,460 174
- - -------------------------------------------------------------------------------
Balance at end of year (34,240) (2,409) (37,604) (2,646) (39,937) (2,810)
- - -------------------------------------------------------------------------------
ESOT loan obligation
Balance at beginning
of year (12,887) (14,007) (15,045)
Repayments made
during year 1,211 1,120 1,038
- - -------------------------------------------------------------------------------
Balance at end of year (11,676) (12,887) (14,007)
- - -------------------------------------------------------------------------------
Deferral under Long-
Term Incentive Plans
Balance at beginning
of year - - (195)
Shares used for Long-
Term Incentive Plans (737) - 5
Amortization of Long-
Term Incentive Plan
deferred expense 148 - 190
- - -------------------------------------------------------------------------------
Balance at end of year (589) - -
===============================================================================
Total Shareholders'
Equity $19,823 $14,997 $11,610
===============================================================================
See accompanying Notes to Consolidated Financial Statements.
Page 16
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
EDO CORPORATION AND SUBSIDIARIES
===============================================================================
Years Ended December 31
1996 1995 1994
(in thousands)
- - -------------------------------------------------------------------------------
Operating Activities:
Earnings (loss) from continuing operations $ 13,068 $ 4,125 $ (19,135)
Adjustments to net earnings (loss) to
arrive at cash provided by continuing
operations:
Gain on sale of building - - (427)
Write off of environmental receivable - - 5,400
Write off of nonproductive fixed assets - - 1,739
Restructuring charge - - 1,127
Postretirement health care curtailment gain (7,120) - -
Depreciation and amortization 5,303 4,935 6,044
Deferred compensation expense 148 - 190
Common shares issued for directors' fees 49 51 3
Changes in:
Accounts receivable (8,913) (2,216) 13,503
Inventories 93 814 7,860
Prepayments, other assets and other (4,341) (1,479) (1,747)
Decrease (Increase) in recoverable and
deferred income taxes - 3,649 (316)
Accounts payable and accrued liabilities 5,178 (1,877) 1,950
Contract advances and deposits (833) 2,142 (2,532)
- - -------------------------------------------------------------------------------
Cash provided by continuing operations 2,632 10,144 13,659
Net cash used by discontinued operations (1,804) (2,024) (2,519)
Investing Activities:
Purchase of property, plant and equipment, net (4,227) (1,800) (1,731)
Proceeds from assets held for sale 1,976 - -
Proceeds from sale of building - - 3,084
- - -------------------------------------------------------------------------------
Cash (used) provided by investing activities (2,251) (1,800) 1,353
Financing Activities:
Proceeds from exercise of stock options 166 - -
Payments received on notes receivable 263 - -
Payment of common share cash dividends - - (766)
Payment of preferred share cash dividends (1,179) (1,239) (1,333)
- - -------------------------------------------------------------------------------
Cash used by financing activities (750) (1,239) (2,099)
===============================================================================
Net (decrease) increase in cash
and cash equivalents (2,173) 5,081 10,394
Cash and cash equivalents at beginning of year 22,918 17,837 7,443
- - -------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 20,745 $ 22,918 $ 17,837
===============================================================================
Supplemental disclosures:
Cash paid for:
Interest $ 2,072 $ 2,143 $ 2,198
Income taxes $ 190 $ 345 $ 297
===============================================================================
See accompanying Notes to Consolidated Financial Statements.
Page 17
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
EDO CORPORATION AND SUBSIDIARIES
(1) Summary of Significant Accounting Policies
(a) Principles of Consolidation and Business
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.
The Company is principally a supplier of proprietary advanced electro-optical,
electronic, mechanical, acoustic and composite products to major prime defense
contractors and commercial original equipment manufacturers. The Company
organizes its business into Defense and Space Systems and Industrial Products
segments. The Company discontinued its energy-related business in 1996 (Note
3).
(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 deliveries are made. Estimated
losses on long-term contracts are recorded when identified. 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) Inventories
Inventories under long-term contracts and programs reflect 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 inventories are
stated at the lower of cost (principally first-in, first-out method) or
market.
(e) Depreciation
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 balances of $1,153,000 and $1,286,000
are included in other assets at December 31, 1996 and 1995, 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 $11.0 million ($7.2 million,
net of accumulated amortization at December 31, 1996) is being amortized on a
straight-line basis over thirty years. The Company assesses the recoverability
of unamortized goodwill by determining whether the amortization of the goodwill
balance over its estimated life can be recovered through the undiscounted
projected future earnings of the acquired business.
(g) Long-Lived Assets
In March 1995, Statement of Financial Accounting Standards (SFAS) No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of," was issued. SFAS No. 121 requires that long-lived assets
and certain identifiable intangibles to be held and used or disposed of by an
entity be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable when
measured by comparing the carrying amount of an asset to the future net cash
flows expected to be generated by the asset. During 1996, the Company adopted
SFAS No. 121 and determined that no impairment loss need be recognized for
applicable assets of continuing operations or assets held for sale (Note 7),
and thus, it did not have a material impact on the Company's financial position
or results of operations.
Page 18
<PAGE>
(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) Treasury Stock
Treasury stock is recorded at cost, with issuances from treasury stock recorded
at average cost. Treasury stock issued for directors' fees is recorded as an
expense for an amount equal to the fair market value of the stock on the
issuance date.
(j) 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
6,086,235, 5,768,189 and 5,550,868 common and common equivalent shares
outstanding for 1996, 1995 and 1994, 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, net of applicable income taxes, are not deducted in
determining net earnings. Fully diluted earnings per share were based on
7,148,988 and 7,037,876 common and common equivalent shares outstanding for
1996 and 1995, respectively. In 1994, both the convertible debentures and
preferred shares were antidilutive.
(k) Financial Instruments
The fair value and book value of the Company's long-term debt and ESOT
obligation at December 31, 1996 were $36,676,000 and $40,993,000, respectively
(Notes 9 and 10). The net carrying value of the notes receivable approximates
fair value based on current rates for comparable commercial mortgages.
The fair values of all other financial instruments approximate book values
because of the short maturity of these instruments.
(l) Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Among the more
significant estimates included in these financial statements are the estimated
costs to complete contracts in process, the estimated remediation costs related
to the environmental matter discussed in Note 17, the collectibility of
receivables and the estimated net realizable value of net assets of
discontinued operations and the accrual for losses during the phase out period.
Actual results could differ from these and other estimates.
(m) Accounting for Stock-Based Compensation
The Company records compensation expense for employee and director stock
options and warrants only if the current market price of the underlying stock
exceeds the exercise price on the date of the grant. On January 1, 1996, the
Company adopted SFAS No. 123, "Accounting for Stock-Based Compensation." The
Company has elected not to implement the fair value based accounting method for
employee and director stock options and warrants, but has elected to disclose
the pro forma net earnings and pro forma earnings per share for employee and
director stock option and warrant grants made beginning in 1995 as if such
method had been used to account for stock-based compensation cost as described
in SFAS No. 123.
(2) Restructuring of Operations
In 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 included discontinuing a
portion of a business, relocating certain operations, the related disposition
of nonproductive assets (principally land and buildings) and work force
reductions. The accompanying consolidated statements of operations reflect a
pretax charge of $1,127,000 for 1994 relating to this plan. 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, 1996, all
expenditures related to the restructuring were made and were consistent in all
material respects with the original charges taken.
Page 19
<PAGE>
(3) Discontinued Operations
Pursuant to a Board of Directors resolution in September 1996, the Company
adopted a plan to exit its energy-related businesses. Those businesses include:
the Company's 50.4% interest in EDO (Canada) Limited, a manufacturer of
Compressed Natural Gas (CNG) fuel cylinders; EDO Automotive Natural Gas Inc., a
designer and manufacturer of CNG refueling stations and related equipment; and
EDO Energy Corporation, a wholly owned subsidiary of the Company involved in
program management activities in CNG and other alternative fuel projects. All
of these businesses will continue to operate while the Company attempts to sell
them.
The consolidated financial statements of the Company have been reclassified to
reflect the effects of the Company's decision to treat its energy-related
businesses as discontinued operations. Accordingly, the revenues, costs and
expenses, assets and liabilities, and cash flows associated with EDO (Canada)
Limited, EDO Automotive Natural Gas Incorporated, and EDO Energy Corporation
have been excluded from the respective captions in the Consolidated Statements
of Operations, Balance Sheets and Statements of Cash Flows. The net operating
results of these entities have been reported as "Loss from discontinued
operations"; the net assets (liabilities) of these entities have been reported
as "Net assets (liabilities) of discontinued operations"; and the cash flows of
these entities have been reported as "Net cash used by discontinued
operations."
Net sales of the discontinued operations prior to the date of discontinuance
were $9,321,000, $12,181,000, and $9,346,000 for the years ended December 31,
1996, 1995 and 1994, respectively. Net assets (liabilities) of discontinued
operations were as follows:
===============================================================================
At December 31
1996 1995
(in thousands)
- - -------------------------------------------------------------------------------
Assets-net $1,579 $6,520
Liabilities (806) (1,179)
Accrual for losses during phase out period (1,000) -
- - -------------------------------------------------------------------------------
Net assets (liabilities) of discontinued operations (227) 5,341
===============================================================================
Assets-net at December 31, 1996 consisted primarily of accounts receivable and
liabilities consisted of trade payables. Interest expense was not allocated to
discontinued operations.
(4) Canadian Subsidiary
In December 1995, EDO (Canada) Ltd. received $3.5 million from the sale of its
capital stock to three companies. As a result, the Company's ownership of EDO
(Canada) Ltd. was reduced from approximately 60% to approximately 50.4% with
approximately 33% owned by the Province of Alberta and approximately 17% owned
by three other minority shareholders. The Company's additional paid-in capital
was increased by $795,000, representing its equity in EDO (Canada)'s capital
transactions in 1995. In 1996, the Company discontinued its energy business,
including its interest in EDO (Canada) Ltd. as noted above in Note 3.
(5) Accounts Receivable
Accounts receivable included $16,121,000 and $9,742,000 at December 31, 1996
and 1995, respectively, representing unbilled revenues. Substantially all of
the unbilled balances at December 31, 1996 will be billed and are expected to
be collected during 1997. Total receivables due from the United States
government, either directly or as a subcontractor to a prime contractor with
the government, were $6,910,000 at December 31, 1996, and $9,562,000 at
December 31, 1995.
(6) Inventories
Inventories are summarized by major classification as follows at December 31,
1996 and 1995:
===============================================================================
1996 1995
(in thousands)
- - -------------------------------------------------------------------------------
Raw material and supplies $4,226 $5,051
Work-in-process 3,380 2,245
Finished goods 388 791
- - -------------------------------------------------------------------------------
$7,994 $8,087
===============================================================================
Page 20
<PAGE>
(7) Property, Plant and Equipment, Net
The Company's property, plant and equipment at December 31, 1996 and 1995, and
their related useful lives are summarized as follows:
===============================================================================
1996 1995 Range in
(in thousands) Years
- - -------------------------------------------------------------------------------
Machinery and equipment 50,244 46,349 3 - 10
Leasehold improvements 8,595 9,517 lease terms
- - -------------------------------------------------------------------------------
58,839 55,866
Less accumulated depreciation
and amortization 45,871 43,654
- - -------------------------------------------------------------------------------
$12,968 $12,212
===============================================================================
Assets held for sale at December 31,1995, amounting to $8.7 million,
represented buildings, building improvements and land at the Company's College
Point facility, net of related accumulated depreciation. In January 1996, such
assets were sold for $2.0 million of cash, net of expenses, $4.6 million of
notes, and other consideration including prepaid rent. The total consideration
received approximated the carrying value of the assets held for sale.
The notes receivable of $4,038,000 (net of deferred interest of $250,000) at
December 31, 1996, of which $138,000 is included in current assets are due in
varying annual amounts through 2004 and bear interest at 7% commencing January
1, 1998 for $1,850,000 of the notes and January 1, 1999 for the balance of the
notes. The notes receivable are secured by a mortgage on the related facility.
(8) Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities consisted of the following at December
31, 1996 and 1995:
===============================================================================
1996 1995
(in thousands)
- - -------------------------------------------------------------------------------
Trade payables $3,568 $3,105
Employee compensation and benefits 2,579 2,567
Current Portion of Environmental Obligation 1,254 1,890
Other 14,116 9,004
- - -------------------------------------------------------------------------------
$21,517 $16,566
===============================================================================
(9) Long-Term Debt and Line of Credit
Long-term debt of the Company at December 31, 1996 and 1995 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 and at the option of the holder
under certain circumstances involving a change in control of the Company.
Commencing in 1996 and until retirement, the Company is required to make
sinking fund payments of $1,750,000 per year. As of December 31, 1996, the
Company had $3,933,000 of these debentures remaining in treasury which will be
used to satisfy these annual payments. The carrying value of the debentures as
of December 31, 1996 is $29,317,000. The Company estimates the fair value of
the debentures as of December 31, 1996 to be approximately $25,000,000 based on
trades during late 1996.
The Company has a $15.0 million line of credit agreement with a bank for both
short-term borrowings and letters of credit. The agreement expires on June 30,
1997 and limits the cash portion of potential borrowings to $5.0 million.
Borrowings under the agreement bear interest based on the bank's prime rate
plus 0.5% and are 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 that is described
in Note 10. There have been no direct borrowings under this agreement.
Page 21
<PAGE>
(10) Employee Stock Ownership Plan and Trust
The Company's Employee Stock Ownership Plan (ESOP) provides retirement benefits
to substantially all employees. During 1996, 1995 and 1994, respectively, cash
contributions of $879,000, $839,000 and $497,000 were made to the ESOP. As of
December 31, 1996, there were 300,325 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 are being 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. The
tax benefit that is attributable to unallocated shares is reflected as an
increase to retained earnings. 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 ($175 at December 31, 1996) divided by the current market
price of each common share. As of December 31, 1996, 47,708 shares have been
allocated, 42,064 shares remained unallocated and 21,940 shares have been
converted into 620,500 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 made in quarterly installments through 2003. Interest is
charged at 82% of the prime lending rate. During 1996, 1995 and 1994,
respectively, the Company's cash contributions and preferred dividends were
used to repay principal of $1,211,000, $1,120,000 and $1,038,000 and pay
interest of $865,000, $982,000 and $816,000. Both the Company and the lender
have the option to cancel or refinance the borrowing on or after April 1, 2000.
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. At
December 31, 1996, the Company was in compliance with such covenants. In
addition, payments of common stock dividends in 1997 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
$4.8 million in 1997) up to $0.28 per common share. This obligation is secured
with the Company's accounts receivable, inventory, machinery and equipment. The
fair value of the ESOT obligation approximates book value since the interest
rate is prime-based and accordingly is adjusted for market rate fluctuations.
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 Income Taxes
The 1996, 1995 and 1994 (benefit) provision for Federal income taxes for
continuing operations was comprised of the following amounts:
===============================================================================
1996 1995 1994
(in thousands)
- - -------------------------------------------------------------------------------
Federal
Current $ - $ - $(2,809)
Deferred - - (991)
- - -------------------------------------------------------------------------------
Total $ - $ - $(3,800)
===============================================================================
Included in the 1996 current Federal provision is $858,000 of benefit for the
utilization of net operating loss carryforwards.
State income taxes of $257,000, $295,000 and $192,000 in 1996, 1995 and 1994,
respectively, are included in general and administrative expenses.
Page 22
<PAGE>
The effective Federal income tax rate differed from the statutory Federal
income tax rate for the following reasons:
===============================================================================
Percent of Pretax Earnings
1996 1995 1994
- - -------------------------------------------------------------------------------
Tax at statutory rate 34.0% 34.0% (34.0%)
Preferred stock dividends (1.2) (6.5) -
(Decrease) increase in valuation
allowance (29.4) (26.3) 24.0
Adjustment of prior year accruals - - (3.7)
Other, net (3.4) (1.2) (0.4)
- - -------------------------------------------------------------------------------
Effective Federal income tax rate - - (14.1%)
===============================================================================
The items that comprise the significant portions of deferred tax assets and
liabilities as of December 31, 1996 and 1995 are as follows:
===============================================================================
December 31
Deferred Tax Assets 1996 1995
- - -------------------------------------------------------------------------------
Postretirement obligation other than pensions $1,358 $4,198
U.S. net operating loss carryforwards 3,091 4,422
Restructuring costs - 1,847
Environmental obligation 1,398 1,641
R&D and alternative minimum tax credit carryforwards 2,326 2,023
Deferred compensation 1,480 1,123
Capital loss carryforwards 1,207 1,207
Discontinued operations 2,380 -
Other 429 392
- - -------------------------------------------------------------------------------
Total deferred tax assets 13,669 16,853
Less: Valuation allowance (5,328) (4,515)
- - -------------------------------------------------------------------------------
8,341 12,338
Deferred Tax Liabilities
- - -------------------------------------------------------------------------------
Depreciation and amortization 3,357 8,381
Contract tax accounting 839 753
Prepaid pension asset 1,393 956
Other 2,752 2,248
- - -------------------------------------------------------------------------------
Total deferred tax liabilities 8,341 12,338
- - -------------------------------------------------------------------------------
Net deferred tax asset (liability) $ - $ -
===============================================================================
Deferred income tax assets as of December 31, 1996 include U.S. net operating
loss carryforwards and capital loss carryforwards for income tax purposes of
approximately $9,100,000 and $3,550,000, respectively, primarily expiring in
2009, of which approximately $857,000 of the tax benefits will be allocated to
retained earnings. R&D credits expire in the years 2008 and 2009. Realization
of these assets is dependent on future taxable earnings and capital gains. A
valuation allowance has been established at December 31, 1996 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 shares of the Company's common stock. As of December 31, 1996, the
Company had acquired approximately 3,957,000 shares in open market transactions
at prevailing market prices. Approximately 1,548,000 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; payment of
directors' fees; partial payment of a 50% stock dividend; and stock options
exercised. As of December 31, 1996 and 1995, the Company held 2,409,136 and
2,645,863 treasury shares, respectively, for future use.
At December 31, 1996, the Company had reserved, authorized and unissued common
shares for the following purposes:
===============================================================================
Shares
- - -------------------------------------------------------------------------------
Conversion of 7% Convertible Subordinated Debentures Due 2011 1,332,590
Stock option and long-term incentive plans 1,202,063
Conversion of preferred shares 1,053,502
- - -------------------------------------------------------------------------------
3,588,155
===============================================================================
(13) Stock Plans
The Company has granted nonqualified stock options to officers, directors and
other key employees, under a plan, approved by the shareholders in 1996, which
replaced all previous stock option and long-term incentive plans, for the
purchase of its common shares at the fair market value of the shares on the
date of grant. Options generally become exercisable in four substantially equal
annual installments beginning on the first anniversary of the date of the grant
and expire on the tenth anniversary of the date of the grant.
Changes in options outstanding are as follows:
Page 23
<PAGE>
===============================================================================
1996 1995 1994
Weighted Shares Weighted Shares Weighted Shares
Average Subject Average Subject Average Subject
Exercise to Exercise to Exercise to
Price Option Price Option Price Option
- - -------------------------------------------------------------------------------
Beginning
of year $ 6.54 767,800 $ 7.09 790,238 $ 7.91 791,963
Options
granted 5.54 27,500 3.40 96,750 3.46 126,000
Options
exercised 5.12 (27,662) - - 4.31 (500)
Options
cancelled 6.30 (30,325) 7.67 (119,188) 8.61 (127,225)
- - -------------------------------------------------------------------------------
End of year $ 6.57 737,313 $ 6.54 767,800 $ 7.09 790,238
- - -------------------------------------------------------------------------------
Exercisable
at year end 595,985 576,800 623,657
===============================================================================
The options outstanding as of December 31, 1996 are summarized in ranges as
follows:
===============================================================================
Range of Weighted Average Number of Options Weighted Average -
Exercise Price Exercise Price Outstanding Remaining Life
- - -------------------------------------------------------------------------------
$3.07- 5.99 3.75 232,938 7-1/2 years
$6.00- 8.99 7.64 473,650 4-1/2 years
$9.00-11.56 11.37 30,725 5 years
- - -------------------------------------------------------------------------------
737,313
===============================================================================
The options exercisable as of December 31, 1996 have a weighted average
exercise price of $7.21.
The plan, approved by the shareholders of the Company in 1996, also provides
for common share long-term incentive awards as defined under the plan. All
shares authorized under the previous plans not yet awarded were canceled upon
the approval of the 1996 plan. As of December 31, 1996, plan participants had
been awarded 132,500 restricted common shares and 7,500 non qualified stock
options. The 1996 plan will expire in 2005. The cost of the awards under the
1996 plan (and the previous plans which it replaced) are amortized over the
five-year period the related services are provided. The amount charged to
operations in 1996, 1995 and 1994 was $148,000, $0 and $166,000, respectively.
The per share weighted-average fair value of stock options granted during 1996
and 1995 was $2.70 and $2.37, respectively, on the date of grant using the
Black Scholes option-pricing model with the following weighted-average
assumptions: 1996 - expected dividend yield of 0%, risk free interest rate of
6%, expected stock volatility of 40%, and an expected option life of 7-1/2
years; 1995 - expected dividend yield of 0%, risk free interest rate of 5%,
expected stock volatility of 50%, and an expected option life of 7-1/2 years.
The Company applies APB Opinion No. 25 in accounting for its stock option
grants and, accordingly, no compensation cost has been recognized in the
financial statements for its stock options which have an exercise price equal
to or greater than the fair value of the stock on the date of the grant. Had
the Company determined compensation cost based on the fair value at the grant
date for its stock options under SFAS No. 123, the Company's net earnings from
continuing operations and primary net earnings from continuing operations per
common share would have been reduced to the pro forma amounts indicated below:
===============================================================================
1996 1995
(in thousands)
- - -------------------------------------------------------------------------------
Net earnings:
As reported $ 13,068 $ 4,125
Pro forma 13,007 4,079
Net earnings per share:
As reported $ 1.95 $ 0.50
Pro forma 1.94 0.49
===============================================================================
Pro forma net earnings reflects only options granted in 1996 and 1995.
Therefore, the full impact of calculating compensation cost for stock options
under SFAS No. 123 is not reflected in the pro forma net earnings amounts
presented above because compensation cost is reflected over the options'
vesting period and compensation cost for options granted prior to January 1,
1995 was not considered.
(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 (income) expense for 1996, 1995 and 1994 was $(1,285,000),
$316,000 and $73,000, respectively. In addition, during 1995 and 1994, the
Company experienced curtailment gains of $645,000 and $1,394,000, respectively,
which reduced cost of sales in the consolidated statements of operations, as a
result of its reduction in the number of employees in those years. The expected
long-term rate of return on plan assets was 9.0% in 1996, 1995 and 1994. The
Page 24
<PAGE>
actuarial computations assumed a discount rate on benefit obligations at
December 31, 1996 and 1995 of 7.5% and 7.25%, respectively. The assumed rate of
compensation increase approximates the Company's previous experience. The
assets of the pension plan consist primarily of equity and fixed income
securities which are readily marketable.
A summary of the components of net periodic pension (income) expense follows:
===============================================================================
1996 1995 1994
(in thousands)
- - -------------------------------------------------------------------------------
Service cost $ 1,277 $ 1,192 $ 1,784
Interest cost on projected
benefit obligation 5,359 5,469 5,138
Actual return on plan assets (16,369) (18,791) 1,180
Net amortization and deferral 8,448 12,446 (8,029)
- - -------------------------------------------------------------------------------
Net pension (income) expense $ (1,285) $ 316 $ 73
===============================================================================
The funded status of the plan as of December 31 was as follows:
===============================================================================
1996 1995
(in thousands)
- - -------------------------------------------------------------------------------
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested
benefits of $69,704 and $68,656 for 1996 and
1995, respectively $(71,404) $(70,926)
- - -------------------------------------------------------------------------------
Projected benefit obligation for service
rendered to date $(76,290) $(77,009)
Plan assets at fair value 97,837 87,456
- - -------------------------------------------------------------------------------
Funded status of plan 21,547 10,447
Unrecognized net gain from past experience
different from that assumed and effects of
changes in assumptions (18,777) (7,940)
Unrecognized prior service cost at December 31,
being amortized over 5 years through 2000 1,368 354
Unrecognized net asset at December 31, being
amortized over 15 years through 2001 (42) (50)
- - -------------------------------------------------------------------------------
Prepaid pension cost (in other assets) $ 4,096 $ 2,811
===============================================================================
In addition, the Company established in 1988 a supplemental defined benefit
plan for substantially all employees. In 1996, 1995 and 1994, the net pension
expense for this plan was approximately $64,800, $58,300 and $104,900,
respectively.
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. Total expenses under this plan in 1996, 1995 and
1994 were $585,000, $468,000, and $404,000, respectively.
(15) Postretirement Health Care and Life Insurance Benefits
The Company provides certain health care and life insurance benefits to
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.
In accordance with SFAS No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions," the Company recognizes these benefit expenses on
an accrual basis as the employees earn them during their employment rather than
when they are actually paid.
Cash outlays relating to retiree health care and life insurance benefits
amounted to $631,000, $1,131,000 and $1,017,000 for 1996, 1995 and 1994,
respectively.
Postretirement health care and life insurance expense (income) included the
following components:
===============================================================================
1996 1995 1994
(in thousands)
- - -------------------------------------------------------------------------------
Service cost $ 42 $ 53 $ 93
Interest cost 320 694 884
Amortization of prior service cost (796) (662) -
Amortization of net unrecognized
gain (36) (71) -
- - -------------------------------------------------------------------------------
Total postretirement health care
and life insurance expense
(income) $ (470) $ 14 $ 977
===============================================================================
In 1995 the Company modified these benefit plans to shift the cost for certain
participants over age 65 to Medicare HMO type plans. The effect of this change
was to reduce the postretirement obligation by approximately $5.0 million.
During 1996, the Company recognized a non-cash curtailment gain of $7,120,000
in connection with the discontinuance of postretirement medical benefits for
Medicare-eligible retirees. This gain represents the reversal of a significant
portion of the postretirement obligation established upon the adoption of SFAS
No. 106 in 1993.
The funded status and breakdown of the postretirement health care and life
insurance benefits are as follows as of December 31:
Page 25
<PAGE>
===============================================================================
1996 1995
(in thousands)
- - -------------------------------------------------------------------------------
Accumulated postretirement benefit obligation:
Retirees $ 2,367 $ 5,787
Eligible active employees 571 857
Other ineligible active employees 583 962
- - -------------------------------------------------------------------------------
Unfunded accumulated postretirement benefit
obligation $ 3,521 $ 7,606
Unrecognized prior service cost - 4,801
Unrecognized net (loss) gain 474 (59)
- - -------------------------------------------------------------------------------
Accrued postretirement benefit cost $ 3,995 $ 12,348
===============================================================================
Actuarial assumptions used in determining the accumulated postretirement
benefit obligation include a discount rate of 7.50% and 7.25% at December 31,
1996 and 1995, respectively, and estimated increases in health care costs of 5%
per year.
(16) Commitments and Contingencies
The Company is contingently liable under the terms of letters of credit (Note
9) aggregating approximately $6,529,000 at December 31, 1996, should it fail to
perform in accordance with the terms of its contracts with foreign customers.
At December 31, 1996, the Company and its subsidiaries were obligated under
building and equipment leases expiring between 1997 and 2005. Rental expense
under such leases for the years ended December 31, 1996, 1995 and 1994 amounted
to $3,050,000, $2,450,000 and $1,980,000, respectively. Minimum future rentals
under those obligations with noncancellable terms in excess of one year are as
follows:
1997 - $1,970,000
1998 - $1,900,000
1999 - $1,670,000
2000 - $1,480,000
2001 - $1,480,000
Thereafter - $5,290,000
(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 as of December 31, 1996 the remaining discounted liability over
the remainder of the thirty years related to this matter is approximately $4.1
million of which approximately $1.3 million has been classified as current and
is included in accounts payable and accrued liabilities. Approximately 40% of
the $4.1 million liability will be expended over the next two years. Management
believes it is covered by liability insurance for all of the unreimbursed costs
it incurs. 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, in 1994 the Company
recognized an expense of $5.4 million when it wrote off a previously recorded
receivable relating to the amount the Company believes is covered by its
insurance policies.
The Company is also involved in other environmental cleanup efforts, none of
which, management believes, is likely to have a material adverse effect on the
Company's consolidated financial position or results of operations.
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
adverse effect on the Company's consolidated financial position or results of
operations.
(18) Business Segments
The Company operates in two industry segments: Defense and Space Systems, and
Industrial Products. 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 36%, 43%
and 59% of net sales, which were 36%, 46% and 66% of Defense and Space Systems
sales and 37%, 37% and 43% of Industrial Products sales for 1996, 1995 and
1994, respectively.
Export sales comprised 35%, 31% and 22% of net sales for 1996, 1995 and 1994,
respectively.
Principal products and systems by industry segment are as follows:
Defense and Space Systems
* Suspension and Release Equipment
* Sonar Systems
* Spaceflight Systems
* Infrared Instrumentation
* Airborne Mine Countermeasures Systems
* Command, Control, Communications & Intelligence Systems
Industrial Products
* Electroceramic Components
* Acoustic Instrument Systems
* Acoustic Systems
* Fiber-Reinforced Structures
Page 26
<PAGE>
The distribution of net sales, operating earnings and identifiable assets for
continuing operations of the Company's business segments follows:
===============================================================================
1996 1995 1994
(in thousands)
- - -------------------------------------------------------------------------------
Net Sales:
Defense and Space Systems:
Unaffiliated customers $ 64,110 $ 52,055 $ 56,568
Industrial Products:
Unaffiliated customers 30,476 26,877 24,688
Intersegment sales 36 751 776
- - -------------------------------------------------------------------------------
94,622 79,683 82,032
Less intersegment sales 36 751 776
- - -------------------------------------------------------------------------------
Net sales $ 94,586 $ 78,932 $ 81,256
- - -------------------------------------------------------------------------------
Operating (loss) earnings:
Defense and Space Systems $ 14,060 $ 5,779 $ (6,546)
Industrial Products 3,926 3,392 (9,853)
General corporate expenses (4,086) (3,806) (4,711)
- - -------------------------------------------------------------------------------
13,900 5,365 (21,110)
Net interest expense (766) (1,199) (2,160)
Other income (expense), net (66) (41) 335
- - -------------------------------------------------------------------------------
Earnings (loss) from continuing operations
before Federal income taxes $ 13,068 $ 4,125 $(22,935)
- - -------------------------------------------------------------------------------
Identifiable assets:
Defense and Space Systems $ 42,198 $ 40,187 $ 43,404
Industrial Products 19,846 19,349 18,805
Corporate 32,179 30,649 28,565
- - -------------------------------------------------------------------------------
$ 94,223 $ 90,185 $ 90,774
- - -------------------------------------------------------------------------------
Depreciation expense:
Defense and Space Systems $ 2,271 $ 3,233 $ 3,412
Industrial Products 1,200 1,335 2,265
- - -------------------------------------------------------------------------------
$ 3,471 $ 4,568 $ 5,677
- - -------------------------------------------------------------------------------
Capital expenditures:
Defense and Space Systems $ 3,423 $ 1,567 $ 953
Industrial Products 804 233 778
- - -------------------------------------------------------------------------------
$ 4,227 $ 1,800 $ 1,731
===============================================================================
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, 1996 and 1995, 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, 1996. 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, 1996 and 1995, and the results of their operations
and their cash flows for each of the years in the three year period ended
December 31, 1996, in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Jericho, New York
February 13, 1997
Page 27
<PAGE>
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following table sets forth unaudited quarterly financial information for
1996 and 1995 (in thousands, except per share amounts).
===============================================================================
First Quarter Second Quarter Third Quarter Fourth Quarter
1996 1995 1996 1995 1996 1995 1996 1995
- - -------------------------------------------------------------------------------
Net sales $23,669 $18,211 $24,771 $21,616 $23,107 $18,634 $23,039 $20,471
Gross
profitb 5,022 4,978 5,891 4,194 4,711 4,082 6,399 5,838
Net
earnings
(loss)
Continuing
operations 1,480 838 1,534 869 8,754a 1,168 1,300 1,250
Discontinued
operations (527) (407) (491) (279) (7,619) (384) - (395)
- - -------------------------------------------------------------------------------
Total 953 431 1,043 590 1,135 784 1,300 855
Earnings
(loss) per
share:
Primary
Continuing
operations 0.20 0.09 0.20 0.10 1.38 0.15 0.16 0.16
Discontinued
operations (0.09) (0.07) (0.08) (0.05) (1.24) (0.07) - (0.06)
- - -------------------------------------------------------------------------------
Total 0.11 0.02 0.12 0.05 0.14 0.08 0.16 0.10
Fully diluted
Continuing
operations 0.17 0.07 0.18 0.08 1.18 0.13 0.14 0.14
Discontinued
operations (0.07) (0.06) (0.07) (0.04) (1.06) (0.06) - (0.06)
- - -------------------------------------------------------------------------------
Total 0.10 0.01 0.11 0.04 0.12 0.07 0.14 0.08
Preferred
dividends
paid 303 322 293 307 293 307 290 303
===============================================================================
a The 1996 third quarter results from continuing operations include a $7,120
curtailment gain (or $1.17 per share) for the discontinuance of postretirement
health care benefits for Medicare-eligible retirees.
b Gross profit represents net sales less cost of sales and Company-sponsored
research and development.
Page 28
<PAGE>
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. Incorporated by reference to
Exhibit 3(i) to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1994.
3(ii) By-Laws of the Company.
4(a) Indenture dated December 1, 1986 between Chemical Bank as successor in
interest to 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 Fleet Bank as successor in interest to NatWest Bank NA and
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 Fleet Bank as successor in interest to
NatWest Bank NA and 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 Fleet Bank as successor in interest to NatWest Bank NA and
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 Fleet Bank as successor in
interest to NatWest Bank NA and 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, effective March 27, 1993. Incorporated by reference to Exhibit 4(i) to
the Company's Quarterly Report on Form 10-Q for the quarter ended June 26,
1993.
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. Incorporated by reference to Exhibit 4(h)
to the Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1994.
4(i) Amendment No. 9 to the Guarantee Agreement referred to in Exhibit 4(b)
above, effective June 30, 1995. Incorporated by reference to Exhibit 4(i) to
the Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1995.
4(j) Amendment No. 10 to the Guarantee Agreement referred to in Exhibit 4(b)
above, effective June 30, 1996.
10(a)* EDO Corporation 1996 Long-Term Incentive Plan.
10(b)* EDO Corporation Executive Termination Agreements, as amended through
November 24, 1989, between the Company and two employees. Incorporated by
reference to Exhibit 10(f) to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1994.
10(c)* Executive Life Insurance Plan Agreements, as amended through January 23,
1990, between the Company and 30 employees and retirees. Incorporated by
reference to Exhibit 10(g) to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1994.
10(d)* Form of Directors' and Officers' Indemnification Agreements between EDO
Corporation and 14 current Company directors and officers.
10(e) 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 of this Annual Report on Form 10-K.
24 Powers of Attorney used in connection with the execution of this Annual
Report on Form 10-K.
27 Financial Data Schedule.
<PAGE>
EXHIBIT 3(ii)
<PAGE>
================================================================================
EDO CORPORATION
(A New York Corporation)
BY-LAWS
As Amended January 28, 1997
================================================================================
<PAGE>
EDO CORPORATION
(A New York Corporation)
By-Laws
TABLE OF CONTENTS
Page
ARTICLE I
Meetings of Shareholders
Section 1.01 Annual Meetings ................................................ 1
Section 1.02 Special Meetings ............................................... 1
Section 1.03 Place of Meetings .............................................. 1
Section 1.04 Notice of Meetings ............................................. 1
Section 1.05 Quorum ......................................................... 2
Section 1.06 Inspectors of Election ......................................... 2
Section 1.07 Voting ......................................................... 2
Section 1.08 Proxies ........................................................ 3
Section 1.09 Record Date .................................................... 3
Section 1.10 Adjourned Meetings ............................................. 3
ARTICLE II
Board of Directors
Section 2.01 General Powers ................................................. 3
Section 2.02 Number, Term of Office, Election and Qualifications ............ 3
Section 2.03 Regular Meetings ............................................... 4
Section 2.04 Special Meetings ............................................... 4
Section 2.05 Quorum and Voting .............................................. 5
Section 2.06 Resignations ................................................... 5
Section 2.07 Removal of Directors ........................................... 5
Section 2.08 Newly Created Directorship and Vacancies ....................... 5
Section 2.09 Action by Written Consent ...................................... 6
Section 2.10 Participation in a Meeting by Telephone ........................ 6
i
<PAGE>
Page
ARTICLE III
Executive Committee and Other Committees
Section 3.01 How Constituted ................................................ 6
Section 3.02 Powers of the Executive Committee .............................. 6
Section 3.03 Other Committees ............................................... 7
Section 3.04 Proceedings, Quorum and Manner of Acting ....................... 7
ARTICLE IV
Notices
Section 4.01 Form and Delivery .............................................. 7
Section 4.02 Waiver ......................................................... 7
ARTICLE V
Officers
Section 5.01 Number and Qualification ....................................... 8
Section 5.02 Appointment and Term of Office ................................. 8
Section 5.03 Subordinate Officers ........................................... 8
Section 5.04 Resignations ................................................... 8
Section 5.05 Removal ........................................................ 8
Section 5.06 Vacancies ...................................................... 8
Section 5.07 The Chairman of the Board of Directors ......................... 8
Section 5.08 The President .................................................. 9
Section 5.09 The Vice Presidents ............................................ 9
Section 5.10 The Secretary .................................................. 9
Section 5.11 The Treasurer .................................................. 9
ARTICLE VI
Fiscal Matters
Section 6.01 Execution of Instruments ...................................... 10
Section 6.02 Loans, etc. ................................................... 11
Section 6.03 Deposits ...................................................... 11
Section 6.04 Checks, Drafts, etc. .......................................... 11
ii
<PAGE>
Page
ARTICLE VII
Capital Stock
Section 7.01 Certificates for Shares ....................................... 11
Section 7.02 Transfer of Shares; Registered Shareholders ................... 12
Section 7.03 Transfer Agents and Registrars ................................ 12
Section 7.04 Record Date ................................................... 12
Section 7.05 Lost or Destroyed Certificates ................................ 12
ARTICLE VIII
Books and Records
Section 8.01 Books and Records ............................................. 13
Section 8.02 Examination of Books .......................................... 13
ARTICLE IX
Indemnification
Section 9.01 Indemnification - Third Party and Derivative Actions .......... 13
Section 9.02 Payment of Indemnification; Repayment ......................... 15
Section 9.03 Procedure for Indemnification ................................. 15
Section 9.04 Survival; Preservation of Other Rights ........................ 16
Section 9.05 Savings Clause ................................................ 16
ARTICLE X
Miscellaneous
Section 10.01 Corporate Seal ............................................... 17
Section 10.02 Fiscal Year .................................................. 17
ARTICLE XI
Amendments
Section 11.01 Amendments ................................................... 17
Section 11.02 Notice of Amendment .......................................... 17
iii
<PAGE>
EDO CORPORATION
(A New York Corporation)
BY-LAWS
ARTICLE I
Meetings of Shareholders
Section 1.01. Annual Meetings. The annual meeting of shareholders for the
election of directors and for the transaction of such other business as
properly may come before such meeting shall be held on the fourth Tuesday in
April in each year, if not a legal holiday, or, if a legal holiday, then on the
next succeeding day not a legal holiday, at such time as the Board of Directors
may fix. [Sec. 602(a), (b)]*
Section 1.02. Special Meetings. Special meetings of shareholders may be called
at any time by the Chairman of the Board of Directors, or by the President, or
by order of the Board of Directors, or by a majority of the directors then in
office acting without a meeting. At any special meeting of shareholders, only
such business may be transacted as is related to the purpose or purposes set
forth in the notice required by Section 1.04. [Sec. 602(c)]
Section 1.03. Place of Meetings. Each meeting of shareholders shall be held at
the principal office of the Corporation in the State of New York or at such
other place within or without the State of New York as may be specified in the
notice of the meeting. [Sec. 602(a)]
Section 1.04. Notice of Meetings. Written notice of the place, date and hour of
each meeting of the shareholders shall be given as provided in Section 4.01 to
each shareholder entitled to vote thereat, or otherwise entitled by law to
notice thereof, not less than 10 nor more than 50 days before the meeting.
Notice of a special meeting shall also state the purposes for which the meeting
is called and indicate by or at whose direction the notice is being issued. If
any action is proposed to be taken at any shareholders' meeting which would, if
taken, entitle shareholders fulfilling the requirements of section 623 of the
New York Business Corporation Law (relating to a shareholder's statutory
appraisal rights) to receive payment for their shares, the notice shall also
include
- - ------------------------
* Except as otherwise noted, citations are to the New York Business Corporation
Law as in effect on September 26, 1986 for Sections 1 to 800 and October 2,
1986 for Sections 801 to end. Bracketed citations are for reference only and do
not constitute a part of the By-Laws.
1
<PAGE>
a statement to that effect. Notice of any meeting need not be given to any
shareholder with whom communication is then unlawful by virtue of any law of
the State of New York or of the United States of America now or hereafter
enacted or amended or any rule, regulation, proclamation or executive order
issued under any such law. [Secs. 108, 605*]
Section 1.05. Quorum. Except as otherwise provided by law and subject to the
provisions of Section 1.07 and Section 6.02(b), the holders of a majority of
the shares issued and outstanding entitled to vote thereas, present in person
or by proxy, shall constitute a quorum for the transaction of business at any
meeting of shareholders. Once a quorum is present to organize a meeting, the
subsequent withdrawal of any shareholders shall not be deemed to break the
quorum. [Sec. 608]
Section 1.06. Inspectors of Election. At each meeting of shareholders for the
election of directors the chairman of the meeting, if requested to do so by any
shareholder entitled to vote for the election of directors, whether or not
present at such meeting, shall appoint two persons, who may but need not be
shareholders or officers, to act as Inspectors of Election at the meeting. If
any Inspector so appointed be absent or refuse or fail to act, the chairman of
the meeting shall fill the vacancy by appointing a successor Inspector. If
there be a failure so to appoint Inspectors, or to fill a vacancy, the
shareholders present at the meeting in person or by proxy and entitled to vote,
by a per capita vote, may choose temporary Inspectors of the number required.
The Inspectors appointed to act at any meeting of shareholders, before entering
upon the discharge of their duties, shall be sworn faithfully to execute the
duties of Inspectors at such meeting with strict impartiality, and according to
the best of their ability, and the oath so taken shall be subscribed by them.
[Secs. 610, 611]
Section 1.07. Voting. At each meeting of shareholders each holder of record of
shares entitled to vote at such meeting shall be entitled to one vote for each
such share standing in his name on the books of the Corporation on the record
date as determined pursuant to Section 1.09. Except as at the time otherwise
expressly required by statute, by the Certificate of Incorporation of the
Corporation or by Section 1.06 (regarding appointment of Inspectors), Section
2.02 (regarding election of directors) or Section 2.07 (regarding removal of
directors), all corporate action to be taken by vote of the shareholders shall
be authorized by a majority of the votes cast by the holders of shares entitled
to vote thereon at a meeting of the shareholders at which a quorum is present.
Treasury shares and shares held by any other corporation (if a majority of the
shares entitled to vote in the election of directors of such other corporation
is held by the Corporation) shall not be shares entitled to vote or to be
counted in determining the total number of outstanding shares. [Secs. 612, 614]
- - ------------------------
* As in effect prior to passage of 1982 N.Y. Laws ch. 202, sec. 2 and 1986 N.Y.
Laws ch. 735, sec. 1, amending Sec. 605(a).
2
<PAGE>
Section 1.08. Proxies. Any shareholder entitled to vote at a meeting of
shareholders or to express consent or dissent without a meeting may authorize
another person or persons to act for him by proxy. Each proxy must be in
writing, signed by the shareholder or by his attorney-in-fact and shall be
filed with the secretary of any meeting at which the holder thereof votes
thereunder. No proxy shall be valid after the expiration of 11 months from the
date thereof unless otherwise provided in the proxy. Each proxy shall be
revocable at the pleasure of the shareholder executing it, except if and to the
extent that an irrevocable proxy is given and is permitted by law. [Sec. 609]
Section 1.09. Record Date. The Board of Directors may fix, in advance, a date
as the record date for determining the shareholders entitled to notice of or to
vote at any meeting of shareholders or any adjournment thereof, or to express
consent to or dissent from any proposal without a meeting. Such date shall be
not more than 50 nor less than 10 days before the date of such meeting. [Sec.
604]
Section 1.10. Adjourned Meetings. The holders of a majority of the shares
present in person or by proxy at a meeting and entitled to vote thereat may
from time to time adjourn the meeting, whether or not a quorum was present at
the meeting. When a determination of shareholders of record entitled to notice
of or to vote at any meeting of shareholders has been made pursuant to Section
1.09, such determination shall apply to any adjournment of the meeting unless
the Board of Directors fixes a new record date for the adjourned meeting. When
a meeting is adjourned to another time or place, no notice need be given if
such time or place is announced at the meeting at which the adjournment is
taken. However, if the Board of Directors fixes a new record date for the
adjourned meeting, notice of the adjourned meeting shall be given to each
shareholder of record on the new record date entitled to notice. At any
adjourned meeting at which a quorum is present, any business may be transacted
which might have been transacted at the meeting as originally called. [Secs.
604(c), 605(b), 608(d)]
ARTICLE II
Board of Directors
Section 2.01. General Powers. The property, affairs and business of the
Corporation shall be managed under the direction of the Board of Directors.
[Sec. 701]
Section 2.02. Number, Term of Office, Election and Qualifications. The full
Board of Directors shall consist of not less than nine nor more than fifteen
directors, all of whom shall be at least 21 years of age, and no more than 73
years of age on the date of the annual meeting of shareholders. The Board of
Directors may also appoint a retiring Chairman of the Board to emeritus status
which shall not include the right to vote, or to be counted toward the
determination of the full Board of Directors or for the determination of a
quorum. Past or present officers or employees of the Corporation shall not
comprise more than one third of the
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Board of Directors. Each director shall hold at least 1000 shares of any class
of the Corporation; provided that failure to hold such number of shares shall
not prevent or disqualify any person not a director from being elected a
director pursuant to this Section 2.02 or Section 2.08 or from serving as a
director for a period of 60 days from the time of such election. Subject to the
provisions of this Section and of Section 2.08, the number of directors, within
the limits provided, necessary to constitute a full Board shall be determined
from time to time by vote of a majority of the entire Board of Directors.
Directors shall be elected at the annual meeting of shareholders. If the number
of directors be increased between annual meetings of shareholders, the
additional directors to fill the vacancies thus created shall be elected as
provided in Section 2.08. There shall be three classes of directors. All
classes shall be as nearly equal in number as possible, and no class shall
include less than three directors. At each annual meeting of shareholders, each
director elected to replace a director whose term expires at such annual
meeting shall be elected to hold office for a term expiring at the third
succeeding annual meeting after his election. Each director shall hold office
until the expiration of his term and until his successor is elected and
qualified or until his earlier death, resignation or removal. A director
elected to fill a vacancy, unless elected by the shareholders, shall be elected
to hold office for a term expiring at the next meeting of shareholders at which
the election of directors is in the regular order of business. If the number of
directors is changed, (a) any newly created directorship or any decrease in
directorships shall be so apportioned among the classes as to make all classes
as nearly equal in number as possible, and (b) when the number of directors is
increased by the Board and any newly created directorships are filled by the
Board, there shall be no classification of the additional directors until the
next annual meeting of shareholders. At each meeting of shareholders for the
election of directors the directors shall be chosen and elected by a plurality
of the votes cast at such meeting by the holders of shares entitled to vote in
the election. [Secs. 701-05]
Section 2.03. Regular Meetings. Promptly after the close of each annual meeting
of the shareholders, the Board of Directors shall, without notice, meet where
such annual meeting was held, or at such other place as may be fixed by
resolution of the Board of Directors, for the purpose of appointing officers
and committees for the ensuing year and transacting other proper business.
Other regular meetings of the Board of Directors may be held without notice at
such time and place as shall from time to time be scheduled by resolution of
the Board of Directors, and such schedule may be changed at any regular meeting
of the Board of Directors or at any special meeting called for that purpose,
provided that notice of the change shall be given to all directors no later
than 5 days prior to the first meeting held under such schedule as so changed.
[Secs. 710, 711]
Section 2.04. Special Meetings. Special meetings of the Board of Directors may
be called by the Chairman of the Board of Directors, the President, or any two
directors. If such a meeting is called by the Chairman of the Board of
Directors or by the President, such officer shall, or shall direct the
Secretary to, fix a time and place for and give notice of
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the time, place, and purposes of such meeting. If such a meeting is called by
any two directors, upon delivery to the Chairman of the Board of Directors,
President or Secretary, in person or by registered mail, of a request in
writing for a special meeting, specifying the purposes thereof, it shall be the
duty of the officer to whom the request is delivered to fix a time and place
for (unless the requesting directors shall have fixed such time and place) and
give notice of the time, place and purposes of such meeting. All such notices
of meetings shall be given as provided in Section 4.01, if by mail, at least
three days before the day on which the meeting is to be held, or, if by
personal delivery, telephone or telegram, not later than the day before the day
on which the meeting is to be held. [Secs. 710, 711]
Section 2.05. Quorum and Voting. One third of the total number of directors
which the Corporation would have if there were no vacancies shall constitute a
quorum for the transaction of business at any meeting of the Board of
Directors, but if a quorum shall not be present thereat, a majority of the
directors present may from time to time adjourn any such meeting until a quorum
shall be present, and the meeting may be held at adjourned without further
notice. If a quorum is present at any meeting, the vote of a majority of the
directors present shall be the act of the Board of Directors, except as
otherwise provided by law. The directors shall act only as a Board and, except
as provided in Section 1.02 (relating to calling special meetings of the
shareholders), Section 2.04 (relating to calling special meetings of the Board
of Directors) and this Section 2.05 (relating to the adjournment of meetings in
the absence of a quorum), individual directors shall have no powers as such.
[Secs. 707, 708, 711(d)]
Section 2.06. Resignations. Any director may resign at any time by delivering a
written resignation to either the Chairman of the Board of Directors, the
President, a Vice President or the Secretary. Unless otherwise specified
therein, such resignation shall take effect upon such delivery.
Section 2.07. Removal of Directors. Any director may be removed at any time,
either for or without cause, by the affirmative vote of the holders of a
majority of the outstanding shares of the Corporation entitled to vote for the
election of directors, given at a meeting of the shareholders called for the
purpose. Any vacancy in the Board of Directors caused by any such removal may
be filled at such meeting by the shareholders entitled to vote for the election
of directors; if the shareholders do not fill such vacancy at such meeting,
such vacancy may be filled in the manner provided in Section 2.08. The
provisions of this Section may be amended, altered or repealed only by the
shareholders in the manner specified in clause (1) of Section 11.01. [Sec. 706]
Section 2.08. Newly Created Directorships and Vacancies. Newly created
directorships resulting from an increase in the number of directors and
vacancies occurring in the Board of Directors for any reason except the removal
of directors without cause may be filled (unless theretofore filled by the
shareholders in accordance with the provisions of Section 2.07) by vote of a
majority of the directors then in office, al-
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though less than a quorum exists. Any such newly created directorship or
vacancy (unless theretofore filled by the directors in accordance with the
provisions of this Section) may also be filled by the shareholders entitled to
vote for the election of directors at any meeting held during the existence of
such vacancy provided that the notice of the meeting shall have mentioned such
vacancy or expected vacancy. [Sec. 705]
Section 2.09. Action by Written Consent. Any action required or permitted to be
taken by the Board of Directors or any committee thereof may be taken without a
meeting if all members of the Board of Directors or the committee consent in
writing to the adoption of a resolution authorizing the action. The resolution
and the written consents thereto by the members of the Board of Directors or
committee shall be filed with the minutes of the proceedings of the Board of
Directors or committee. [Sec. 708(b)]
Section 2.10. Participation in a Meeting by Telephone. Any one or more members
of the Board of Directors or any committee thereof may participate in a meeting
of the Board of Directors or such committee by means of a conference telephone
or similar communications equipment allowing all persons participating in the
meeting to hear each other at the same time. Participation by such means shall
constitute presence in person at such meeting. [Sec. 708(c)]
ARTICLE III
Executive Committee and Other Committees
Section 3.01. How Constituted. By resolution adopted by a majority of the
entire Board of Directors, the Board may designate one or more committees,
including an Executive Committee, each consisting of three or more directors.
Each such committee shall serve at the pleasure of the Board. [Sec. 712]
Section 3.02. Powers of the Executive Committee. Unless otherwise provided by
resolution adopted by a majority of the entire Board of Directors, when the
Board of Directors is not in session the Executive Committee shall have and may
exercise all the powers of the Board of Directors, except that the Executive
Committee shall not have the authority as to the following matters:
(a) the submission to shareholders of any action as to which shareholders'
approval is required by law;
(b) the filling of vacancies in the Board of Directors or in any committee
thereof;
(c) the fixing of compensation of the directors for serving on the Board of
Directors or any committee thereof;
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(d) the amendment or repeal of the By-Laws, or the adoption of new By-Laws; or
(e) the amendment or repeal of any resolution of the Board of Directors which
by its terms shall not be so amendable or repealable. [Sec. 712]
Section 3.03. Other Committees. To the extent provided by resolution adopted by
a majority of the entire Board of Directors, other committees shall have and
may exercise any of the powers of the Board of Directors except that no such
committee shall have authority as to the matters set forth in Section
3.02(a)-(e). [Sec. 712]
Section 3.04. Proceedings, Quorum and Manner of Acting. Subject to the control
of the Board of Directors, each committee may adopt such rules and regulations
governing its proceedings, quorum and manner of acting as it shall deem proper
and desirable, provided that a quorum shall not be less than two directors.
ARTICLE IV
Notices
Section 4.01. Form and Delivery. Except as otherwise expressly provided by law
or by these By-Laws, any written notice required to be given by law, the
Certificate of Incorporation or these By-Laws to any shareholder, director or
other person may be delivered personally or by mail or, in the case of notices
to directors, by telephone or telegram. Notice by mail shall be deemed to have
been given at the time when such notice is deposited in the United States mail,
postage prepaid, addressed to such shareholder, director or other person at his
last known address as the same appears on the records of the Corporation or, if
a shareholder shall have filed with the Secretary a written request that
notices to him be mailed to some other address, then directed to him at such
other address. [Secs. 605(a), 711(b)]
Section 4.02. Waiver. No notice required to be given by any statute, by the
Certificate of Incorporation or by these By-Laws need be given to any person
otherwise entitled to notice who signs in person or, if a shareholder, by
proxy, a waiver of notice, whether signed before or after the time of the
action to which the notice relates. In addition, the attendance by any
shareholder at any meeting of the shareholders in person or by proxy without
protesting prior to the conclusion of such meeting the absence of notice
thereof to him, and the attendance by any director at any meeting of the Board
of Directors without protesting prior to such meeting or at its commencement
such absence of notice, shall, in each such case, constitute a waiver of notice
of such meeting. [Secs. 606, 711(c)]
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ARTICLE V
Officers
Section 5.01. Number and Qualification. The officers of the Corporation shall
be a Chairman of the Board of Directors, a President, one or more Vice
Presidents, a Secretary and a Treasurer, and such other officers as may be
appointed in accordance with the provisions of Section 5.03. Any one person may
hold more than one of such offices except those of President and Secretary. The
Chairman of the Board of Directors and the President shall be chosen from among
the directors. No other officer need be a director. Officers shall be at least
21 years of age and, except for the Chairman of the Board of Directors, no more
than 70 years of age on the date of the annual meeting of shareholders. [Sec.
715]
Section 5.02. Appointment and Term of Office. Each officer (unless appointed
under power delegated pursuant to the second sentence of Section 5.03) shall be
appointed by the Board of Directors and (unless appointed under the provisions
of Section 5.03 for a different term) shall hold office until the first meeting
of the Board of Directors following the next succeeding annual meeting of
shareholders and thereafter until his successor shall have been appointed and
qualified or until his earlier death or disqualification or until he shall have
resigned in the manner provided in Section 5.04 or shall have been removed in
the manner provided in Section 5.05. [Sec. 715]
Section 5.03. Subordinate Officers. The Board of Directors from time to time
may appoint such other officers or agents as it may deem advisable, each of
whom shall have such title, hold office for such period, have such authority
and perform such duties as the Board of Directors from time to time may
determine. The Board of Directors may delegate to any officer or agent the
power to appoint any such subordinate officers or agents and to prescribe their
respective titles, terms of office, authorities and duties.
Section 5.04. Resignations. Any officer may resign at any time by delivering a
written resignation to the Board of Directors, the Chairman of the Board of
Directors, the President or the Secretary. Unless otherwise specified therein,
such resignation shall take effect upon such delivery.
Section 5.05. Removal. Any officer may be removed at any time, either for or
without cause, by action of the Board of Directors. [Sec. 716]
Section 5.06. Vacancies. A vacancy in any office because of death, resignation,
removal, disqualification or any other cause, may be filled in the manner
prescribed in this Article for regular appointment to such office. [Sec. 715]
Section 5.07. The Chairman of the Board of Directors. The Chairman of the Board
of Directors shall preside at all meetings of shareholders and the Board of
Directors at which he shall be present. He shall
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have such other powers and perform such other duties as may be assigned to him
from time to time by the Board of Directors.
Section 5.08. The President. In the absence of the Chairman of the Board of
Directors, the President shall preside at all meetings of the shareholders and
of the Board of Directors at which he shall be present. He shall have such
other powers and perform such other duties as may be assigned to him from time
to time by the Board of Directors.
Section 5.09. The Vice Presidents. Each Vice President shall perform such
duties as from time to time may be assigned to him by the Board of Directors,
the Chairman of the Board of Directors or the President. The Vice President
designated by the Board of Directors (or, in the absence of such designation,
by the Chairman of the Board of Directors) shall, at the request of the
Chairman of the Board of Directors or the President, or in the event of the
absence or disability of both of such officers, perform all the duties of the
Chairman of the Board of Directors or the President or both, as the case may
be. When so acting, such designated Vice President shall have all the powers of
and be subject to all the restrictions upon the Chairman of the Board of
Directors or the President or both, as the case may be.
Section 5.10. The Secretary. The Secretary shall:
(a) Keep the minutes of meetings of shareholders and of the Board of Directors
and cause the same to be recorded in books provided by him for that purpose.
(b) Upon the request of any shareholder given at or prior to any meeting of
shareholders, produce at such meeting a list of shareholders as of the record
date for such meeting, certified by the corporate officer responsible for its
preparation or by a transfer agent. [Sec. 607]
(c) Cause all notices to be duly given in accordance with the provisions of
these By-Laws and as required by statute. [Sec. 605]
(d) Be custodian of the records and seal of the Corporation, and cause such
seal (or a facsimile thereof) to be affixed to all certificates for shares of
the Corporation the issuance of which shall have been authorized by the Board
of Directors, and to all instruments the execution of which under the seal of
the Corporation shall have been duly authorized. [Sec. 508]
(e) Cause a record of shareholders to be kept in accordance with Section 8.01.
(f) In general, perform all duties incident to the office of the Secretary and
such other duties as from time to time may be assigned to him by the Board of
Directors, the Chairman of the Board of Directors or the President.
Section 5.11. The Treasurer. The Treasurer shall:
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(a) Have charge of and supervision over and be responsible for the funds,
securities, receipts and disbursements of the Corporation.
(b) Cause the moneys and other valuable effects of the Corporation not
otherwise employed to be deposited in the name and to the credit of the
Corporation in such banks or trust companies or with such bankers or other
depositaries as shall be selected in accordance with Section 6.03.
(c) Cause the moneys of the Corporation to be disbursed by checks or drafts
(signed as provided in Section 6.04) upon the authorized depositaries of the
Corporation, and cause to be taken and preserved proper vouchers for all moneys
disbursed.
(d) Render to the Board of Directors, the Chairman of the Board of Directors,
or the President, whenever requested, a statement of the financial condition of
the Corporation and of all his transactions as Treasurer, and render a full
financial report at any annual meeting of shareholders if called upon to do so.
(e) Cause to be kept at the principal office of the Corporation correct books
of account of all its business and transactions and exhibit such books to any
director upon application at such office during business hours.
(f) Be empowered from time to time to require from all officers or agents of
the Corporation reports or statements giving such information as he may desire
with respect to any and all financial transactions of the Corporation.
(g) In general, perform all duties incident to the office of the Treasurer and
such other duties as from time to time may be assigned to him by the Board of
Directors, the Chairman of the Board of Directors or the President.
ARTICLE VI
Fiscal Matters
Section 6.01. Execution of Instruments. The Chairman of the Board of Directors,
the President, any Vice President or the Treasurer may enter into any contract
or execute and deliver any instrument in the name and on behalf of the
Corporation in the ordinary course of its business. Subject to the approval of
the Board of Directors, any officer or agent of the Corporation may enter into
any contract or execute and deliver any instrument in the name and on behalf of
the Corporation. The Board of Directors may authorize any officer or agent to
enter into any contract or execute and deliver any instrument in the name and
on behalf of the Corporation. Any such authorization may be general or confined
to specific instances.
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Section 6.02. Loans, etc.
(a) No loans or advances to or by the Corporation shall be contracted, and no
notes or other evidences of indebtedness shall be issued in its name, unless
and except as authorized by the Board of Directors. Any such authorization may
be general or confined to specific instances. So far as may be lawful, any
officer or agent of the Corporation thereunto so authorized may effect loans
and advances to or by the Corporation, and for loans and advances made to the
Corporation may make, execute and deliver promissory notes, bonds or other
evidences of indebtedness of the Corporation. So far as may be lawful, any
officer or agent of the Corporation thereunto so authorized may pledge,
hypothecate or transfer, as security for the payment of any and all loans or
advances to or indebtedness and liabilities of the Corporation, any and all
stocks, bonds, claims and other personal property, securities or receivables at
any time owned by the Corporation or to which it is or will be at any time
entitled, and to that end may endorse, assign and deliver the same and take any
action necessary or proper in connection therewith.
(b) No loan shall be made by the Corporation to any director unless it is
authorized by vote of the shareholders. For this purpose, the shares of the
director who would be the borrower shall not be shares entitled to vote. [Sec.
714]
Section 6.03. Deposits. All funds of the Corporation not otherwise employed
shall be deposited from time to time to its credit in such banks or trust
companies or with such bankers or other depositaries as the Board of Directors
from time to time may select, or as may be selected by any officer or agent
authorized to do so by the Board of Directors.
Section 6.04. Checks, Drafts, etc. All notes, drafts, acceptances, checks,
endorsements, and all evidences of indebtedness of the Corporation whatsoever,
shall be signed by such officer or officers or such agent or agents of the
Corporation and in such manner as the Board of Directors from time to time may
determine.
ARTICLE VII
Capital Stock
Section 7.01. Certificates for Shares. Shares of the Corporation shall be
represented by certificates, in form approved by the Board of Directors, signed
by the Chairman of the Board of Directors, the President or a Vice President
and by the Secretary or an Assistant Secretary or the Treasurer or an Assistant
Treasurer and sealed with the seal of the Corporation. Such seal may be a
facsimile, engraved, lithographed, printed or otherwise reproduced. The
signatures of the officers upon a certificate may be facsimiles if the
certificate is countersigned by a transfer agent or registered by a registrar
other than the Corporation itself or its employee. In case any such officer who
has signed or whose facsimile signature has been placed upon such certificate
shall have ceased to be such before such certificate is issued, it may be
issued by
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the Corporation with the same effect as if such officer had not ceased to be
such at the date of its issue. [Sec. 508(a)*]
Section 7.02. Transfer of Shares; Registered Shareholders.
(a) Shares of the Corporation shall be transferable only upon the books of the
Corporation kept for such purpose upon surrender to the Corporation or its
transfer agent or agents of a certificate representing shares, duly endorsed or
accompanied by appropriate evidence of succession, assignment or authority to
transfer.
(b) The Board of Directors, subject to applicable law and these By-Laws, may
make such rules, regulations and conditions as it may deem expedient concerning
the subscription for, issue, transfer and registration of, shares of the
Corporation. Except as otherwise provided by law, the Corporation, prior to due
presentment for registration of transfer, may treat the registered owner of
shares as the person exclusively entitled to vote, to receive notifications,
and otherwise to exercise all the rights and powers of an owner. [Sec. 508(d),
UCC** Secs. 8-207, 8-401, 8-402, 8-403]
Section 7.03. Transfer Agents and Registrars. The Board of Directors may
appoint one or more transfer agents and may appoint one or more registrars of
the shares of the Corporation, and upon such appointments being made, no
certificate representing shares shall be valid unless and until countersigned
by one of such transfer agents, if any, and registered by one of such
registrars, if any. The same person may act as transfer agent and registrar for
the shares of any class of the Corporation.
Section 7.04. Record Date. The Board of Directors may fix, in advance, a date
as the record date for determining the shareholders entitled to receive payment
of any dividend, the allotment of any rights, the making of any distribution,
or for the delivery of evidences of rights or evidences of interests arising
out of any change, conversion or exchange of shares. Such date shall be not
more than 50 days prior to any such action. [Sec. 604(a)]
Section 7.05. Lost or Destroyed Certificates. The Corporation may issue a new
certificate in the place of any certificate theretofore issued by it alleged to
have been lost or destroyed, and the Board of Directors may require the owner
of the lost or destroyed certificate, or his legal representative, to give the
Corporation a bond in such sum as the Board may direct, with such surety or
sureties as may be satisfactory to the Board, to indemnify the Corporation
against any claim that may be made against it on account of the alleged loss or
destruction of any such certificate or the issuance of any such new
certificate. A new certificate may be issued without requiring any bond when,
in the judgment of the Board of Directors, it is proper to do so. [Sec. 508(e);
UCC Sec. 8-405]
- - ------------------------
* As in effect prior to passage of 1985 N.Y. Laws ch. 578, sec. 1, amending
sec. 508(a).
** New York Uniform Commercial Code, as in effect on September 15, 1986.
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ARTICLE VIII
Books and Records
Section 8.01. Books and Records. The Corporation shall keep correct and
complete books and records of account and shall keep minutes of the proceedings
of the shareholders, the Board of Directors and the Executive Committee, if
any. The Corporation shall keep at the principal office of the Corporation in
the State of New York or at the office of its transfer agent or registrar in
the State of New York a record containing the names and addresses of all
shareholders, the number and class of shares held by each and the dates when
they respectively became the owners of record thereof. Any of the foregoing
books, minutes or records may be in written form or in any other form capable
of being converted into written form within a reasonable time. Unless otherwise
expressly required by statute or by these By-Laws, the books and records of the
Corporation shall be kept, within or outside the State of New York, at such
place or places as may be designated from time to time by the Board of
Directors. [Sec. 624(a)]
Section 8.02. Examination of Books. So far as permitted by law, the Board of
Directors shall have power to determine from time to time whether, to what
extent, at what times and places and under what conditions and regulations, the
books, records, documents and accounts of the Corporation, or any of them,
shall be open to inspection by shareholders; and no shareholder shall have any
right to inspect any books, records, documents or accounts of the Corporation,
except as conferred by statute or these By-Laws or authorized by resolution of
the shareholders or the Board of Directors. [Sec. 624(b)]
Article IX
Indemnification
Section 9.01. Indemnification--Third Party and Derivative Actions.
(a) The Company shall indemnify any person made, or threatened to be made, a
party to an action or proceeding (other than one by or in the right of the
Company to procure a judgment in its favor), whether civil or criminal,
including an action by or in the right of any other corporation of any type or
kind, domestic or foreign, or any partnership, joint venture, trust, employee
benefit plan or other enterprise, which any director or officer of the Company
served in any capacity at the request of the Company, by reason of the fact
that he, his testator or intestate, was a director or officer of the Company,
or served such other corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise in any capacity, against judgments, fines,
amounts paid in settlement and reasonable expenses, including attorneys' fees
actually and necessarily incurred as a result of such action or proceeding, or
any appeal therein, if such director or officer acted, in good faith, for a
purpose which he reasonably believed to be in, or, in the case of service
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for any other corporation or any partnership, joint venture, trust, employee
benefit plan or other enterprise, not opposed to, the best interests of the
Company and, in criminal actions or proceedings, in addition, had no reasonable
cause to believe that his conduct was unlawful.
(b) The termination of any such civil or criminal action or proceeding by
judgment, settlement, conviction or upon a plea of nolo contendere, or its
equivalent, shall not in itself create a presumption that any such director or
officer did not act, in good faith, for a purpose which he reasonably believed
to be in, or, in the case of service forany other corporation or any
partnership, joint venture, trust, employee benefit plan or other enterprise,
not opposed to, the best interests of the Company or that he had reasonable
cause to believe that his conduct was unlawful.
(c) The Company shall indemnify any person made, or threatened to be made, a
party to an action by or in the right of the Company to procure a judgment in
its favor by reason of the fact that he, his testator or intestate, is or was a
director or officer of the Company, or is or was serving at the request of the
Company as a director or officer of any other corporation of any type or kind,
domestic or foreign, of any partnership, joint venture, trust, employee benefit
plan or other enterprise, against amounts paid in settlement and reasonable
expenses, including attorneys' fees, actually and necessarily incurred by him
in connection with the defense or settlement of such action, or in connection
with an appeal therein, if such director or officer acted, in good faith, for a
purpose which he reasonably believed to be in, or, in the case of service for
any other corporation or any partnership, joint venture, trust, employee
benefit plan or other enterprise, not opposed to, the best interests of the
Company, except that no indemnification under this subparagraph (c) shall be
made in respect of (1) a threatened action, or a pending action which is
settled or otherwise disposed of, or (2) any claim, issue or matter as to which
such person shall have been adjudged to be liable to the Company, unless and
only to the extent that the court in which the action was brought, or, if no
action was brought, any court of competent jurisdiction, determines upon
application that, in view of all the circumstances of the case, the person is
fairly and reasonably entitled to indemnity for such portion of the settlement
amount and expenses as the court deems proper.
(d) For the purpose of this Section 1, the Company shall be deemed to have
requested a person to serve an employee benefit plan where the performance by
such person of his duties to the Company also imposes duties on, or otherwise
involves services by, such person to the plan or participants or beneficiaries
of the plan; excise taxes assessed on a person with respect to an employee
benefit plan pursuant to applicable law shall be considered fines; and action
taken or omitted by a person with respect to an employee benefit plan in the
performance of such person's duties for a purpose reasonably believed by such
person to be in the interest of the participants and beneficiaries of the plan
shall be deemed to be for a purpose which is not opposed to the best interests
of the Company. [Sec. 722]
14
<PAGE>
Section 9.02. Payment of Indemnification; Repayment.
(a) A person who has been successful, on the merits or otherwise, in the
defense of a civil or criminal action or proceeding of the character described
in Section 1 of this Article shall be entitled to indemnification as authorized
in such Section.
(b) Except as provided in the foregoing sentence, any indemnification under
Section 1 of this Article, unless ordered by a court under Section 724 of the
New York Business Corporation Law as from time to time amended, shall be made
by the Company, only if authorized in the specific case:
(1) by the Board of Directors acting by a quorum consisting of directors who
are not parties to such action or proceeding upon a finding that the director
or officer has met the standard of conduct set forth in Section 1 of this
Article or otherwise established by the Company pursuant to the last sentence
of Section 4 of this Article; or
(2) if a quorum under the foregoing subparagraph (1) is not obtainable or,
even if obtainable, a quorum of disinterested directors so directs:
(i) by the Board of Directors upon the opinion in writing of independent
legal counsel that indemnification is proper in the circumstances because the
applicable standard of conduct set forth in such Section 1 of this Article or
otherwise established by the Company pursuant to the last sentence of Section 4
of this Article has been met by such director or officer, or
(ii) by the shareholders upon a finding that the director or officer has
met such applicable standard of conduct.
(c) Expenses incurred in defending a civil or criminal action or proceeding
shall be paid by the Company in advance of the final disposition of such action
or proceeding upon receipt of an undertaking by or on behalf of such director
or officer to repay such amount as, and to the extent, required by Section 2(d)
of this Article.
(d) All expenses incurred in defending a civil or criminal action or proceeding
which are advanced by the Company under this Article or allowed by a court
shall be repaid in case the person receiving such advancement or allowance is
ultimately found, under the procedure set forth in this Article, not to be
entitled to indemnification or, where indemnity is granted, to the extent the
expenses so advanced by the Company or allowed by the court exceed the
indemnification to which he is entitled. [Secs. 723,72 5(a)]
Section 9.03. Procedure for Indemnification. Any indemnification of a director
or officer of the Company under Section 1, or advance of costs, charges and
expenses under Section 2(c) of this Article, shall be made promptly, and in any
event within 60 days, upon the written request of the director or officer. The
right to indemnification or advances as granted by this Article shall be
enforceable by the director or
15
<PAGE>
officer in any court of competent jurisdiction if the Company denies such
request, in whole or in part, or if no disposition thereof is made within 60
days. Such person's costs and expenses incurred in connection with successfully
establishing his right to indemnification, in whole or in part, in any such
action shall also be indemnified by the Company. It shall be a defense to any
such action (other than an action brought to enforce a claim for the advance of
costs, charges and expenses under Section 2(c) of this Article where the
required undertaking, if any, has been received by the Company) that the
claimant has not met the standard of conduct set forth in Section 1 of this
Article or otherwise established by the Company pursuant to the last sentence
of Section 4 of this Article, but the burden of proving such defense shall be
on the Company. Neither the failure of the Company (including its Board of
Directors, its independent legal counsel, and its stockholders), to have made a
determination prior to the commencement of such action that indemnification of
the claimant is proper in the circumstances because he has met the applicable
standard of conduct set forth in Section 1 of this Article or otherwise
established by the Company pursuant to the last sentence of Section 4 of this
Article, nor the fact that there has been an actual determination by the
Company (including its Board of Directors, its independent legal counsel, and
its stockholders) that the claimant has not met such applicable standard of
conduct, shall be a defense to the action or create a presumption that the
claimant has not met the applicable standard of conduct.
Section 9.04. Survival; Preservation of Other Rights. The foregoing
indemnification provisions shall be deemed to be a contract between the Company
and each director and officer (and each director and officer of any of its
subsidiaries) who serves in such capacity at any time while these provisions as
well as the relevant provisions of the New York Business Corporation Law are in
effect and any repeal or modification thereof shall not affect any right or
obligation then existing with respect to any state of facts then or previously
existing or any action, suit, or proceeding previously or thereafter brought or
threatened based in whole or in part upon any such state of facts. Such a
"contract right" may not be modified retroactively without the consent of such
director or officer. The indemnification provided by this Article shall not be
deemed exclusive of any other rights to which those indemnified may be entitled
under any by-law, agreement, vote of stockholders or directors or otherwise,
both as to action in his official capacity and as to action in another capacity
while holding such office, and shall continue as to a person who has ceased to
be a director or officer and shall inure to the benefit of the heirs, executors
and administrators of such a person. The Company is hereby authorized to
provide further indemnification if it deems it advisable by resolution of
shareholders or directors or by agreement. [Sec. 721]
Section 9.05. Savings Clause. If this Article or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
Company shall nevertheless indemnify each director or officer of the Company as
to costs, charges and expenses (including
16
<PAGE>
attorneys' fees), judgments, fines and amounts paid in settlement with respect
to any action, suit or proceeding, whether civil, criminal, administrative or
investigative, including an action by or in the right of the Company, to the
full extent permitted by any applicable portion of this Article that shall not
have been invalidated and to the full extent permitted by applicable law.
ARTICLE X
Miscellaneous
Section 10.01. Corporate Seal. The seal of the Corporation shall be circular in
form and shall bear the name of the Corporation and the words and figures
"Corporate Seal - 1925 - New York". [Sec. 202(a)(3)]
Section 10.02. Fiscal Year. The fiscal year of the Corporation shall be the
calendar year.
ARTICLE XI
Amendments
Section 11.01. Amendments. All By-Laws of the Corporation, whether adopted by
the Board of Directors or the shareholders, shall be subject to amendment,
alteration or repeal, and new by-laws may be made, either
(1) by vote of the holders of the shares of the Corporation at the time
entitled to vote in the election of directors, given at any annual or special
meeting of shareholders the notice of which shall have specified or summarized
the proposed amendment, alteration, repeal or new by-laws, or
(2) by the affirmative vote of at least a majority of the total number of
directors then necessary to constitute a full Board, as determined pursuant to
Section 2.02, given at any annual, regular or special meeting the notice or
waiver of notice of which, unless none is required under the provisions of
Section 4.02, shall have specified or summarized the proposed amendment,
alteration, repeal or new by-law, provided that the shareholders may at any
time provide in the By-Laws that any specified provision or provisions of the
By-Laws may be amended, altered or repealed only in the manner specified in the
foregoing clause (1), in which event such provision or provisions shall be
subject to amendment, alteration or repeal only in such manner. [Sec. 601(a)]
Section 11.02. Notice of Amendment. If any by-law regulating an impending
election of directors is adopted, amended or repealed by the
17
<PAGE>
Board of Directors, there shall be set forth in the notice of the next meeting
of shareholders for the election of directors the by-law so adopted, amended or
repealed, together with a concise statement of the changes made. [Sec. 601(b)]
18
AMENDMENT NO. 10 TO GUARANTEE AGREEMENT
AMENDMENT NO. 10 (the "Amendment") dated as of June 30, 1996 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,
Amendment No. 7 dated March 3, 1994, effective as of December 31, 1993, Waiver
and Amendment No. 8 to Guarantee Agreement dated February 10, 1995, and
Amendment No. 9 dated as of June 30, 1995 (as so amended, the "Existing
Guarantee") made 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 Guarantee Agreement 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 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 Existing Guarantee is hereby amended as follows:
(a) Subsection 10(b)(x) is deleted in its entirety and there is
substituted therefor the following:
"(x) Limitation on Capital Expenditures. Make any capital expenditures or fixed
asset acquisitions, or, without duplication, incur any obligation so to do or
permit any Subsidiary so to do, with respect to the Guarantor and its
Subsidiaries on a consolidated basis in an amount exceeding (i) $3,500,000 for
the fiscal year ending December 31, 1995, (ii) $4,500,000 for the fiscal year
ending December 31, 1996, and (iii) $4,000,000 in any fiscal year thereafter.
Capital expenditures and fixed asset acquisitions shall be calculated on a
non-cumulative basis so that amounts not expended in any fiscal year may not be
carried over and expended in subsequent fiscal years."
(b) Subsection 10(b)(xiv) is deleted in its entirety and there is
substituted therefor the following:
"(xiv) Limitations on Acquisitions. Acquire all or any substantial portion of
the business, stock or assets of any company or permit any Subsidiary to do any
of the foregoing, except that the Guarantor or any Subsidiary may acquire all
or any substantial portion of the business, stock or assets of any company if
and only if:
(i) after giving effect thereto, no Event of Default under the
Loan Agreement shall have occurred or would exist as a result of such purchase;
(ii) each such acquisition shall be of assets utilized by the
transferor thereof in a line of business related to the Guarantor's business or
of capital stock of a corporation substantially all of whose properties consist
of such assets;
(iii) the Guarantor shall have given the Bank not less than thirty
(30) days prior written notice of such proposed acquisition, such notice to
include the proposed amount, date and form of the proposed transaction, a
reasonable description of the assets or stock to be acquired, a description of
the liabilities to be assumed (if any) and the location of all assets to be
acquired;
(iv) concurrently with the consummation of any such acquisition,
the Guarantor or its Subsidiary, as the case may be, shall, as additional
collateral security for any and all of their respective obligations to the
Bank, grant to the Bank a first lien on all of its right, title and interest in
and to the acquired assets, if any, by the execution and delivery to the Bank
of such agreements, instruments and documents as shall be satisfactory in form
and substance to the Bank; and
(v) the amount of all such acquisitions with respect to the
Guarantor and its Subsidiaries on a consolidated basis shall not exceed
$10,000,000 in the aggregate and no single acquisition shall be in excess of
$5,000,000."
(c) Subsection 12(a) is amended by deleting the clause "At any time on
or after April 1, 1997," and substituting therefor the clause "At any time on
or after April 1, 2000,".
2. In order to induce the Bank to execute and deliver this Amendment No. 10,
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 perform 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 No. 10.
3. Defined terms used in this Amendment No. 10 not otherwise defined herein
shall have the meanings set forth in the Existing Guarantee unless the context
otherwise requires. Except as expressly amended hereby, all of the terms and
conditions of the Existing Guarantee shall remain in full force and effect.
4. This Amendment No. 10 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: K. A. Paladino
-----------------------------
Vice President-Finance
and Treasurer
Title
FLEET BANK, N.A.
By: Phillip H. Sorace
-----------------------------
Vice President
Title
EDO CORPORATION
1996 Long-Term Incentive Plan
1. PURPOSE.
The purpose of the Plan is to foster and promote the long-term financial
success of the Company and materially increase shareholder value by motivating
superior performance by means of performance-related incentives, encouraging
and providing for the acquisition of an ownership interest in the Company by
Eligible Employees, and enabling the Company to attract and retain the services
of an outstanding management team upon whose judgment, interest and special
effort the successful conduct of its operations is largely dependent.
2. DEFINITIONS.
"Award" shall mean any grant or award under the Plan, as evidenced in a written
document delivered to a Participant as provided in Section 11(b).
"Board" shall mean the Board of Directors of the Company.
"Cause" shall mean (i) the willful failure by the Participant to perform
substantially the Participant's duties as an employee of the Company (other
than due to physical or mental illness) (ii) the Participant's engaging in
serious misconduct that is injurious to the Company or any Subsidiary or any
employee of either (iii) the Participant's having been convicted of, or entered
a plea of nolo contendere to, a crime that constitutes a felony, or (iv) the
breach by the Participant of any written covenant or agreement not to compete
with the Company or any Subsidiary.
"Change in Control" shall mean the occurrence of any of the following events:
(i) a majority of the members of the Board at any time cease for any reason
other than due to death or disability to be persons who were members of the
Board twenty-four months prior to such time (the "Incumbent Directors");
provided that any director whose election, or nomination for election by the
Company's shareholders, was approved by a vote of at least a majority of the
members of the Board then still in office who are Incumbent Directors shall be
treated as an Incumbent Director; or
(ii) any "person," including a "group" (as such terms are used in Sections
13(d) and 14(d)(2) of the Exchange Act, but excluding the Company, its
Subsidiaries, any employee benefit plan of the Company or any Subsidiary, all
employees of the Company or any Subsidiary or any group of which any of the
foregoing is a member) is or becomes the "beneficial owner" (as defined in Rule
13(d)(3) under the Exchange Act), directly or indirectly, including, without
limitation, by means of a tender or exchange offer, of securities of the
Company representing 30% or more of the combined voting power of the Company's
then outstanding securities; or
(iii) the shareholders of the Company shall approve a definitive agreement (x)
for the merger or other business combination of the Company with or into
another corporation immediately following which merger or combination (A) the
stock of the surviving entity is not readily tradeable on an established
securities market, (B) a majority of the directors of the surviving entity are
persons who (1) were not directors of the Company immediately prior to the
merger and (2) are not nominees or representatives of the Company or (C) any
"person," including a "group" (as such terms are used in Sections 13(d) and
14(d)(2) of the Exchange Act, but excluding the Company, its Subsidiaries, any
employee benefit plan of the Company or any Subsidiary, employees of the
Company or any Subsidiary or any group of which any of the foregoing is a
member) is or becomes the "beneficial owner" (as defined in Rule 13(d)(3) under
the Exchange Act), directly or indirectly, of 30% or more of the securities of
the surviving entity or (y) for the direct or indirect sale or other
disposition of all or substantially all of the assets of the Company, or
(iv) any other event or transaction that is declared by resolution of the Board
to constitute a Change in Control for purposes of the Plan.
Notwithstanding the foregoing, a "Change in Control" shall not be deemed to
occur in the event the Company files for bankruptcy, liquidation or
reorganization under the United States Bankruptcy Code.
"Change in Control Price" shall mean the highest price per share paid or
offered in any bona fide transaction related to a Change in Control, as
determined by the Committee, except that, in the case of Incentive Stock
Options and Stock Appreciation Rights relating to Incentive Stock Options, such
price shall be the Fair Market Value on the date on which the cash out
described in Section 10(a) occurs.
"Code" shall mean the Internal Revenue Code of 1986, as amended, and the
regulations thereunder.
"Committee" shall mean the Compensation Committee of the Board, or such other
Board committee as may be designated by the Board to administer the Plan.
"Common Shares" shall mean the Common Shares, par value $1.00 per share, of the
Company.
"Company" shall mean EDO Corporation and any successor thereto.
"Director Option" shall mean a Nonstatutory Stock Option granted to each
Eligible Director pursuant to Section 5(f) without any action by the Board or
the Committee.
"Disability" shall mean long-term disability as defined under the terms of the
Company's applicable long-term disability plans or policies.
"Early Retirement" shall mean retirement at or after the earliest age at which
the Participant may retire and receive an immediate, but actuarially reduced,
retirement benefit under any defined benefit pension plan maintained by the
Company or any of its Subsidiaries in which such Participant participates.
"Eligible Director" shall mean a person who is serving as a member of the Board
and who is not (and was not at any time during his tenure on the Board) an
Eligible Employee.
"Eligible Employee" shall mean each Executive Officer and each other key
employee of the Company or its Subsidiaries, but shall not include directors
who are not employees of any such entity.
"Employment" shall mean, for purposes of Sections 5(d), 7(b) and 8(b),
continuous and regular salaried employment with the Company or a Subsidiary,
which shall include (unless the Committee shall otherwise determine) any period
of vacation, any approved leave of absence or any salary continuation or
severance pay period and, at the discretion of the Committee, may include
service with any former Subsidiary of the Company.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"Executive Officer" shall mean those persons who are officers of the Company
within the meaning of Rule 16a-1(f) of the Exchange Act.
"Fair Market Value" shall mean, on any date, the closing price of a Common
Share, as reported for such day on a national exchange, or the mean between the
closing bid and asked prices for a Common Share on such date, as reported on a
nationally recognized system of price quotation. In the event that there are no
Common Share transactions reported on such exchange or system on such date,
Fair Market Value shall mean the closing price on the immediately preceding
date on which Common Share transactions were so reported.
"Incentive Stock Option" shall mean an Option which is intended to meet the
requirements of Section 422 of the Code.
"Nonstatutory Stock Option" shall mean an Option which is not intended to be an
Incentive Stock Option.
"Normal Retirement" shall mean retirement at or after the earliest age at which
the Participant may retire and receive an immediate retirement benefit without
an actuarial reduction for early commencement of benefits under any defined
benefit pension plan maintained by the Company or any of its Subsidiaries in
which such Participant participates.
"Option" shall mean the right to purchase the number of Common Shares specified
by the Committee, at a price and for the term fixed by the Committee in
accordance with the Plan and subject to any other limitations and restrictions
as this Plan and the Committee shall impose; provided that a Director Option
shall mean the right to purchase the number of Common Shares specified in
Section 5(f), on the terms and conditions set forth in such Section 5(f).
"Participant" shall mean an Eligible Employee who is selected by the Committee
to receive an Award under the Plan.
"Performance Period" shall mean the period during which performance measures
are established for Performance Shares or Performance Units as determined by
the Committee.
"Performance Share" shall mean any contingent right granted under Section 8 to
receive a Common Share, which right becomes vested and nonforfeitable upon the
attainment, in whole or in part, of performance objectives determined by the
Committee.
"Performance Unit" shall mean any contingent right granted under Section 8 to
receive cash (or, at the discretion of the Committee, Common Shares), which
right becomes vested and nonforfeitable upon the attainment, in whole or in
part, of performance objectives determined by the Committee.
"Plan" shall mean the EDO Corporation 1996 Long-Term Incentive Plan, described
herein, and as may be amended from time to time.
"Predecessor Plans" means the Company's 1983, 1985 and 1988 Stock Option Plans,
and the Company's 1983 and 1988 Long-Term Incentive Plans.
"Reload Option" shall have the meaning ascribed thereto in Section 5(e).
"Restricted Period" shall mean the period during which a grant of Restricted
Shares is subject to forfeiture.
"Restricted Share" shall mean a Common Share granted under Section 7 which
becomes vested and non-forfeitable, in whole or in part, upon the completion of
such period of service or performance objectives as shall be determined by the
Committee.
"Stock Appreciation Right" shall mean a contractual right granted under Section
6 to receive cash, Common Shares or a combination thereof.
"Subsidiary" shall mean any corporation of which the Company possesses directly
or indirectly fifty percent (50%) or more of the total combined voting power of
all classes of stock of such corporation and any other business organization,
regardless of form, in which the Company possesses directly or indirectly fifty
percent (50%) or more of the total combined equity interests in such
organization.
3. ADMINISTRATION.
The Plan shall be administered by the Committee which shall consist of at least
two directors of the Company chosen by the Board, each of whom is a
"disinterested person" within the meaning of Rule 16b-3 under the Exchange Act.
The Committee shall have the responsibility of construing and interpreting the
Plan and of establishing and amending such rules and regulations as it deems
necessary or desirable for the proper administration of the Plan. Any decision
or action taken or to be taken by the Committee, arising out of or in
connection with the construction, administration, interpretation and effect of
the Plan and of its rules and regulations, shall, to the maximum extent
permitted by applicable law, be within its absolute discretion (except as
otherwise specifically provided herein) and shall be conclusive and binding
upon all Participants and any person claiming under or through any Participant.
Notwithstanding the foregoing, neither the Committee nor the Board shall have
any discretion regarding whether an Eligible Director receives a Director
Option pursuant to Section 5(f), or regarding the terms of any such Director
Option, including, without limitation, the number of shares subject to any such
Director Option.
4. MAXIMUM AMOUNT OF SHARES AVAILABLE FOR AWARDS.
(a) Maximum Number of Shares.
The maximum number of Common Shares in respect of which Awards may be made
under the Plan shall be a total of 600,000 Common Shares. Any shares which, as
of the effective date of the Plan (as determined pursuant to Section 11(h)),
remain available for awards under the Predecessor Plans shall, upon approval of
the Plan by the shareholders of the Company, be cancelled and no longer
available for Awards. The maximum number of Common Shares that may be subject
to any Awards granted to a Participant in any 12 month period shall not exceed
200,000 shares, as each such number may be adjusted pursuant to Section 4(c).
Without limiting the generality of the foregoing, whenever shares are received
by the Company in connection with the exercise of or payment for any Award
granted under the Plan or any award granted under the Predecessor Plans, only
the net number of shares actually issued shall be counted against the foregoing
limit.
(b) Shares Available for Issuance.
Common Shares may be made available from the authorized but unissued shares of
the Company or from shares held in the Company's treasury and not reserved for
some other purpose. In the event that any Award is payable solely in cash, no
shares shall be deducted from the number of shares available for issuance under
Section 4(a) by reason of such Award. In addition, if any Award or award under
the Predecessor Plans in respect of shares is canceled or forfeited for any
reason without delivery of Common Shares, the shares subject to such Award or
award shall thereafter again be available for award pursuant to the Plan.
(c) Adjustment for Corporate Transactions.
In the event that the Committee shall determine that any stock dividend,
extraordinary cash dividend, recapitalization, reorganization, merger,
consolidation, split-up, spin-off, combination, exchange of shares, warrants or
rights offering to purchase Common Shares at a price substantially below fair
market value, or other similar event affects the Common Shares such that an
adjustment is required to preserve, or to prevent enlargement of, the benefits
or potential benefits made available under this Plan, then the Committee may,
in such manner as the Committee may deem equitable, adjust any or all of (i)
the number and kind of shares which thereafter may be awarded or optioned and
sold or made the subject of Stock Appreciation Rights under the Plan, (ii) the
number and kinds of shares subject to outstanding Options (including Director
Options) and other Awards and (iii) the grant, exercise or conversion price
with respect to any of the foregoing. Additionally, the Committee may make
provisions for a cash payment to a Participant or a person who has an
outstanding Option (other than a Director Option) or other Award. However, the
number of shares subject to any Option or other Award shall always be a whole
number.
5. STOCK OPTIONS.
(a) Grant.
Subject to the provisions of the Plan, the Committee shall have the authority
to grant Options to an Eligible Employee and to determine (i) the number of
shares to be covered by each Option, (ii) the exercise price therefor and (iii)
the conditions and limitations applicable to the exercise of the Option. The
Committee shall have the authority to grant Incentive Stock Options or
Nonstatutory Stock Options; provided that Incentive Stock Options may not be
granted to any Participant who is not an employee of the Company or one of its
Subsidiaries at the time of grant. In the case of Incentive Stock Options, the
terms and conditions of such grants shall be subject to and comply with Section
422 of the Code.
(b) Option Price.
The Committee shall establish the exercise price at the time each Option is
granted, which price shall not be less than 100% of the Fair Market Value of
the Common Shares at the date of grant, except that, for purposes of satisfying
the foregoing requirement with respect to a Nonstatutory Stock Option, the
Committee may elect to credit against the exercise price payable by a
Participant the value of any compensation otherwise payable to the Participant
under the terms of the Company's compensation practices and programs which is
surrendered, foregone or exchanged pursuant to such rules or procedures as the
Committee shall establish from time to time.
(c) Exercise.
Each Option shall be exercised at such times and subject to such terms and
conditions as the Committee may specify in the applicable Award or thereafter;
provided, however, that if the Committee does not establish a different
exercise schedule at or after the date of grant of an Option, such Option shall
become exercisable in full on the third anniversary of the date the Option is
granted. The Committee may impose such conditions with respect to the exercise
of Options as it shall deem appropriate, including, without limitation, any
conditions relating to the application of federal or state securities laws. No
shares shall be delivered pursuant to any exercise of an Option unless
arrangements satisfactory to the Committee have been made to assure full
payment of the option price therefor. Without limiting the generality of the
foregoing, payment of the option price may be made in cash or its equivalent
or, if and to the extent permitted by the Committee, by exchanging Common
Shares owned by the optionee (which are not the subject of any pledge or other
security interest), or by a combination of the foregoing, provided that the
combined value of all cash and cash equivalents and the Fair Market Value of
any such Common Shares so tendered to the Company, valued as of the date of
such tender, is at least equal to such option price.
(d) Termination of Employment.
Unless the Committee shall otherwise determine at or after grant, an Option
shall be exercisable following the termination of a Participant's Employment
only to the extent provided in this Section 5(d). If a Participant's Employment
terminates due to the Participant's (i) death, (ii) Disability, (iii) Early
Retirement with the consent of the Committee or (iv) Normal Retirement, the
Participant (or, in the event of the Participant's death or Disability during
Employment or during the period during which an Option is exercisable under
this sentence, the Participant's beneficiary or legal representative) may
exercise any Option held by the Participant at the time of such termination,
regardless of whether then exercisable, for a period of three years (or such
greater or lesser period as the Committee shall determine at or after grant),
but in no event after the date the Option otherwise expires. If a Participant's
Employment is terminated for Cause (or, if after the Participant's termination
of Employment, the Committee determines that the Participant's Employment could
have been terminated for Cause had the Participant still been employed or has
otherwise engaged in conduct that is detrimental to the interests of the
Company, as determined by the Committee in its sole discretion), all Options
held by the Participant shall immediately terminate, regardless of whether then
exercisable. In the event of a Participant's termination of Employment for any
reason not described in the preceding two sentences, the Participant (or, in
the event of the Participant's death or Disability during the period during
which an Option is exercisable under this sentence, the Participant's
beneficiary, estate or legal representative) may exercise any Option which was
exercisable at the time of such termination for 90 days (or such greater or
lesser period as the Committee shall specify at or after the grant of such
Option) following the date of such termination, but in no event after the date
the Option otherwise expires.
(e) Reload Options.
The Committee may provide that a Participant (or, if applicable, the
Participant's permitted transferee) who delivers Common Shares that have been
owned by such Participant (or permitted transferee) for any minimum period of
time specified by the Committee to exercise an Option or an option granted
under the Predecessor Plans, will automatically (to the extent Common Shares
are available for Awards under the Plan) be granted new Options ("Reload
Options") for a number of Common Shares equal to the number of shares so
delivered. Unless the Committee determines otherwise, such Reload Options will
be subject to the same terms and conditions (including the same expiration
date) as the related Option except (i) that the exercise price shall be equal
to the Fair Market Value of a Common Share on the date such Reload Option is
granted and (ii) such Reload Option shall not be exercisable prior to the six
month anniversary of the date of grant and, thereafter, shall be exercisable in
full.
(f) Director Options.
Notwithstanding anything else contained herein to the contrary, on the date an
Eligible Director is first elected to be a member of the Board of Directors,
such Eligible Director shall receive a Director Option to purchase 2,000 Common
Shares at an exercise price per share equal to the Fair Market Value on the
date of grant. Each Director Option shall be exercisable six months after the
date of grant and shall remain exercisable until the earlier to occur of (i)
the tenth anniversary of the date of grant or (ii) the first anniversary of the
date the Eligible Director ceases to be a member of the Board, except that if
the Eligible Director ceases to be a member of the Board after having been
convicted of, or pled guilty or nolo contendere to, a felony, his Director
Options shall be canceled on the date he ceases to be a director. An Eligible
Director may exercise a Director Option in the manner described in Section
5(c).
6. STOCK APPRECIATION RIGHTS.
(a) Grant of SARs.
The Committee shall have the authority to grant Stock Appreciation Rights in
tandem with an Option, in addition to an Option (other than a Director Option),
or freestanding and unrelated to an Option. Stock Appreciation Rights granted
in tandem or in addition to an Option may be granted either at the same time as
the Option or at a later time. Stock Appreciation Rights shall not be
exercisable after the expiration of ten years from the date of grant and shall
have an exercise price determined in the same manner as, and subject to the
same conditions as apply with respect to, a Nonstatutory Stock Option under
Section 5(b).
(b) Exercise of SARs.
A Stock Appreciation Right shall entitle the Participant to receive from the
Company an amount equal to the excess of the Fair Market Value of a Common
Share on the date of exercise of the Stock Appreciation Right over the exercise
price thereof. The Committee shall determine the time or times at which or the
event or events (including, without limitation, a Change of Control) upon which
a Stock Appreciation Right may be exercised in whole or in part, the method of
exercise and whether such Stock Appreciation Right shall be settled in cash,
Common Shares or a combination of cash and Common Shares; provided, however,
that unless otherwise specified by the Committee at or after grant, a Stock
Appreciation Right granted in tandem with an Option shall be exercisable only
at the same time or times as the related Option is exercisable.
7. RESTRICTED SHARES.
(a) Grant of Restricted Shares.
The Committee may grant Awards of Restricted Shares with or without performance
criteria to Eligible Employees at such times and in such amounts, and subject
to such other terms and conditions not inconsistent with the Plan, as it shall
determine. Each grant of Restricted Shares shall be evidenced by an Award
agreement. Unless the Committee provides otherwise at or after the date of
grant, stock certificates evidencing any Restricted Shares so granted shall be
held in the custody of the Secretary of the Company until the Restricted Period
lapses, and, as a condition to the grant of any Award of Restricted Shares, the
Participant shall have delivered to the Secretary of the Company a certificate,
endorsed in blank, relating to the Common Shares covered by such Award.
(b) Termination of Employment.
Unless the Committee otherwise determines at or after grant, the rights of a
Participant with respect to an Award of Restricted Shares outstanding at the
time of the Participant's termination of Employment shall be determined under
this Section 7(b). In the event that a Participant's Employment terminates due
to the Participant's (i) death, (ii) Disability, (iii) Early Retirement with
the consent of the Committee or (iv) Normal Retirement, any Award of Restricted
Shares shall become vested and nonforfeitable as to that number of shares which
is equal to the number of Common Shares subject to such Award times a fraction,
the numerator of which is the number of days actually worked during the
Restricted Period (or, in the case of an Award which has previously vested in
part (an "Installment Award"), the number of days worked since the last vesting
date) and the denominator of which is the total number of days during the
Restricted Period (or, in the case of an Installment Award, the number of days
between the last vesting date and the end of the Restricted Period). Unless the
Committee otherwise determines, any portion of any Restricted Shares Award that
has not become nonforfeitable at the date of a Participant's termination of
Employment shall be forfeited as of such date.
(c) Restricted Period; Restrictions on Transferability during Restricted
Period.
Unless otherwise determined by the Committee at or after the date of grant, the
Restricted Period applicable to any Award of Restricted Shares shall lapse, and
the shares related to such Award of Restricted Shares shall become freely
transferable, at such time as may be determined by the Committee. Restricted
Shares may not be sold, assigned, pledged or otherwise encumbered, except as
herein provided, during the Restricted Period. Any certificates issued in
respect of Restricted Shares shall be registered in the name of the Participant
and deposited by such Participant, together with a stock power endorsed in
blank, with the Company.
(d) Delivery of Shares.
Upon the expiration or termination of the Restricted Period and the
satisfaction (as determined by the Committee) of any other conditions
determined by the Committee, the restrictions applicable to the Restricted
Shares shall lapse and a stock certificate for the number of Common Shares with
respect to which the restrictions have lapsed shall be delivered, free of all
such restrictions, except any that may be imposed by law, to the Participant or
the Participant's beneficiary, estate or legal representative, as the case may
be. No payment will be required to be made by the Participant upon the delivery
of such Common Shares and/or cash, except as otherwise provided in Section
11(a) of the Plan. At or after the date of grant, the Committee may accelerate
the vesting of any Award of Restricted Shares or waive any conditions to the
vesting of any such Award.
(e) Rights as a Shareholder; Dividends.
Unless otherwise determined by the Committee at or after the date of grant,
Participants granted Restricted Shares shall be entitled to receive, either
currently or at a future date, as specified by the Committee, all dividends and
other distributions paid with respect to those shares, provided that if any
such dividends or distributions are paid in Common Shares or other property
(other than cash), such shares and other property shall be subject to the same
forfeiture restrictions and restrictions on transferability as apply to the
Restricted Shares with respect to which they were paid. The Committee will
determine whether and to what extent to credit to the account of, or to pay
currently to, each recipient of Restricted Shares, an amount equal to any
dividends paid by the Company during the Restricted Period with respect to the
corresponding number of Common Shares. To the extent provided by the Committee
at or after the date of grant, any dividends with respect to cash dividends on
the Common Shares credited to a Participant's account shall be deemed to have
been invested in Common Shares on the record date established for the related
dividend and, accordingly, a number of additional Restricted Shares shall be
credited to such Participant's account equal to the greatest whole number which
may be obtained by dividing (x) the value of such dividend on the record date
by (y) the Fair Market Value of a Common Share on such date.
8. PERFORMANCE AWARDS.
(a) Performance Shares and Performance Units.
Subject to the provisions of the Plan, the Committee shall have the authority
to grant Performance Shares and Performance Units to any Eligible Employee and
to determine (i) the number of Performance Shares and the number of Performance
Units to be granted to each Participant and (ii) the other terms and conditions
of such Awards. The Performance Period related to Performance Shares or
Performance Units shall lapse upon the determination by the Committee that the
performance objectives established by the Committee have been attained, in
whole or in part on the date established by the Committee. Such performance
objectives may be related to the performance of (i) the Company, (ii) a
Subsidiary, (iii) a division or unit of the Company or any Subsidiary, (v) the
Participant or (vi) any combination of the foregoing, over a measurement period
or periods established by the Committee. Unless the Committee otherwise
determines at the time of grant of Performance Shares or Performance Units to
an Executive Officer, the performance objectives with respect to such Award
shall include at least one of the following criteria, which may be determined
solely by reference to the performance of the Company or a Subsidiary or based
on comparative performance relative to other companies: (i) total return to
shareholders, (ii) return on equity, (iii) operating income or net income, (iv)
return on capital, (v) economic value added, (vi) earnings per Common Share, or
(vii) market price of the Common Shares. Except to the extent otherwise
expressly provided herein, the Committee may, at any time and from time to
time, change the performance objectives applicable with respect to any
Performance Shares or Performance Units to reflect such factors, including,
without limitation, changes in a Participant's duties or responsibilities or
changes in business objectives (e.g., from corporate to Subsidiary or business
unit performance or vice versa), as the Committee shall deem necessary or
appropriate. Payment for Performance Shares or Performance Units shall be made
by the Company in Common Shares, cash or in any combination thereof, as
determined by the Committee.
(b) Termination of Employment.
Unless the Committee otherwise determines at or after grant, the rights of a
Participant with respect to an Award of Performance Shares or Performance Units
outstanding at the time of the Participant's termination of Employment shall be
determined under this Section 8(b). In the event that a Participant's
Employment terminates due to the Participant's (i) death, (ii) Disability,
(iii) Early Retirement with the consent of the Committee or (iv) Normal
Retirement, any Award of Performance Shares or Performance Units shall become
vested and nonforfeitable at the end of the measurement period as to that
number of shares or units which is equal to that percentage, if any, of such
award that would have been earned based on the attainment or partial attainment
of such performance objectives. In all other cases, any portion of any Award of
Performance Shares or Performance Units that has not become nonforfeitable at
the date of a Participant's termination of Employment shall be forfeited as of
such date.
(c) Awards Nontransferable.
Performance Shares or Performance Units may not be sold, assigned, pledged or
otherwise encumbered, except as herein provided, during the Performance Period.
(d) Award of Dividend Equivalents.
Unless otherwise determined by the Committee at or after the date of grant,
Participants granted Performance Shares or Performance Units shall be entitled
to receive, either currently or at a future date, as specified by the
Committee, all dividends and other distributions paid with respect to those
shares and units, provided that if any such dividends or distributions are paid
in Common Shares or other property (other than cash), such shares and units and
other property shall be subject to the same forfeiture restrictions and
restrictions on transferability as apply to the Performance Shares and
Performance Units with respect to which they were paid. The Committee will
determine whether and to what extent to credit to the account of, or to pay
currently to, each recipient of Performance Shares or Performance Units, an
amount equal to any dividends paid by the Company during the period of deferral
with respect to the corresponding number of Common Shares ("Dividend
Equivalents"). To the extent provided by the Committee at or after the date of
grant, any Dividend Equivalents with respect to cash dividends on the Common
Shares credited to a Participant's account shall be deemed to have been
invested in Common Shares on the record date established for the related
dividend and, accordingly, a number of additional Performance Shares or
Performance Units shall be credited to such Participant's account equal to the
greatest whole number which may be obtained by dividing (x) the value of such
Dividend Equivalent on the record date by (y) the Fair Market Value of a Common
Share on such date.
(e) Interpretation.
Notwithstanding anything else contained in this Section 8 to the contrary, if
any Award of Performance Shares or Performance Units is intended, at the time
of grant, to be other performance based compensation within the meaning of
Section 162(m)(4)(C) of the Code, to the extent required to so qualify any
Award hereunder, the Committee shall not be entitled to exercise any discretion
otherwise authorized under this Section 8 with respect to such Award if the
ability to exercise such discretion (as opposed to the exercise of such
discretion) would cause such Award to fail to qualify as other performance
based compensation.
9. STOCK IN LIEU OF CASH.
The Committee may grant Awards or Common Shares in lieu of all or a portion of
an award otherwise payable in cash to an Executive Officer pursuant to any
bonus or incentive compensation plan of the Company. If shares are issued in
lieu of cash, the number of Common Shares to be issued shall be the greatest
number of whole shares which has an aggregate Fair Market Value on the date the
cash would otherwise have been payable pursuant to the terms of such other plan
equal to or less than the amount of such cash.
10. CHANGE IN CONTROL.
(a) Accelerated Vesting and Payment.
Subject to the provisions of Section 10(b) below, in the event of a Change in
Control, each Option (including a Director Option) and Stock Appreciation Right
shall promptly be canceled in exchange for a payment in cash of an amount equal
to the excess of the Change in Control Price over the exercise price for such
Option or the exercise price for such Stock Appreciation Right, whichever is
applicable, the Restricted Period applicable to all Restricted Shares, and the
Performance Period applicable to Performance Shares and Performance Units shall
expire and all such shares shall become nonforfeitable and immediately
transferable and the Common Shares with respect thereto shall be immediately
payable.
(b) Alternative Awards.
Notwithstanding Section 10(a), no cancellation, acceleration of exercisability,
vesting, cash settlement or other payment shall occur with respect to any Award
or any class of Awards if the Committee reasonably determines in good faith
prior to the occurrence of a Change in Control that such Award or class of
Awards shall be honored or assumed, or new rights substituted therefor (such
honored, assumed or substituted award hereinafter called an "Alternative
Award") by a Participant's new employer (or the parent or a subsidiary of such
employer) immediately following the Change in Control, provided that any such
Alternative Award must:
(i) be based on stock which is traded on an established securities market, or
which will be so traded within 60 days following the Change in Control;
(ii) provide such Participant (or each Participant in a class of Participants)
with rights and entitlements substantially equivalent to or better than the
rights and entitlements applicable under any such Award or class of Awards,
including, but not limited to, an identical or better exercise or vesting
schedule and identical or better timing and methods of payment;
(iii) have substantially equivalent economic value to such Award or class of
Awards (determined by the Committee as constituted immediately prior to the
Change in Control, in its sole discretion, promptly after the Change in
Control); and
(iv) have terms and conditions which provide that in the event that the
Participant's Employment is involuntarily terminated or constructively
terminated (other than for Cause) upon or following such Change in Control, any
conditions on a Participant's rights under, or any restrictions on transfer or
exercisability applicable to, each such Alternative Award shall be waived or
shall lapse, as the case may be.
For this purpose, a constructive termination shall mean a termination by a
Participant following a material reduction in the Participant's compensation, a
material reduction in the Participant's responsibilities or the relocation of
the Participant's principal place of Employment to another location a material
distance farther away from the Participant's home, in each case, without the
Participant's prior written consent.
11. GENERAL PROVISIONS.
(a) Withholding.
The Company shall have the right to deduct from all amounts paid to a
Participant in cash (whether under this Plan or otherwise) any taxes required
by law to be withheld in respect of Awards under this Plan. In the case of any
Award satisfied in the form of Common Shares, no Common Shares shall be issued
unless and until arrangements satisfactory to the Committee shall have been
made to satisfy any withholding tax obligations applicable with respect to such
Award. Without limiting the generality of the foregoing and subject to such
terms and conditions as the Committee may impose, the Company shall have the
right to retain, or the Committee may, subject to such terms and conditions as
it may establish from time to time, permit Participants to elect to tender,
Common Shares (including Common Shares issuable in respect of an Award) to
satisfy, in whole or in part, the amount required to be withheld.
(b) Awards.
Each Award hereunder shall be evidenced in writing. The written agreement shall
be delivered to the Participant and shall incorporate the terms of the Plan by
reference and specify the terms and conditions thereof and any rules applicable
thereto.
(c) Nontransferability.
Unless the Committee shall permit (on such terms and conditions as it shall
establish) an Award to be transferred to a member of the Participant's
immediate family or to a trust or similar vehicle for the benefit of such
immediate family members (collectively, the "Permitted Transferees"), no Award
shall be assignable or transferable except by will or the laws of descent and
distribution, and except to the extent required by law, no right or interest of
any Participant shall be subject to any lien, obligation or liability of the
Participant. Except as otherwise expressly provided in this Plan, all rights
with respect to Awards granted to a Participant under the Plan shall be
exercisable during the Participant's lifetime only by such Participant or, if
applicable, the Permitted Transferees.
(d) No Right to Employment.
No person shall have any claim or right to be granted an Award, and the grant
of an Award shall not be construed as giving a Participant the right to
Employment. Further, the Company and each Subsidiary expressly reserves the
right at any time to terminate the Employment of a Participant free from any
liability or any claim under the Plan, except as provided herein or in any
agreement entered into with respect to an Award.
(e) No Rights to Awards; No Shareholder Rights.
No Participant or Eligible Employee shall have any claim to be granted any
Award under the Plan, and there is no obligation of uniformity of treatment of
Participants and Eligible Employees. Subject to the provisions of the Plan and
the applicable Award, no person shall have any rights as a shareholder with
respect to any Common Shares to be issued under the Plan prior to the issuance
thereof.
(f) Construction of the Plan.
The validity, construction, interpretation, administration and effect of the
Plan and of its rules and regulations, and rights relating to the Plan, shall
be determined solely in accordance with the laws of the State of New York.
(g) Legend.
To the extent any stock certificate is issued to a Participant in respect of an
Award of Restricted Shares under the Plan prior to the expiration of the
applicable Restricted Period, such certificate shall be registered in the name
of the Participant and shall bear an appropriate legend. Upon the lapse of the
Restricted Period with respect to any such Restricted Shares, the Company shall
issue or have issued new share certificates without a legend in exchange for
those previously issued.
(h) Effective Date.
The effective date of this Plan is January 1, 1996. The Plan will become
effective as of that date provided that the Plan receives the approval, within
12 months of its approval by the Board, of the holders of a majority of the
outstanding Common Shares entitled to vote. If such approval is not
forthcoming, the Plan and all Awards shall be null and void. No Awards may be
granted under the Plan after December 31, 2005. Upon shareholder approval of
the Plan, no further awards may be made under the Predecessor Plans. Subject to
shareholder approval of the Plan, if the Committee so determines and the holder
thereof shall consent to any amendment to any outstanding award that has an
adverse affect on such holder's rights thereunder, the provisions of the Plan
shall apply to, and govern, existing awards under the Predecessor Plans and,
such awards shall be amended to provide such holder with any additional
benefits available hereunder.
(i) Amendment of Plan.
The Board or the Committee may amend, suspend or terminate the Plan or any
portion thereof at any time, provided that no amendment shall be made without
shareholder approval if such amendment would: increase the number of Common
Shares subject to the Plan, except pursuant to Section 4(c); change the price
at which Options may be granted; or remove the administration of the Plan from
the Committee.
No amendment may be made to Section 5(f) or any other provision of the Plan
relating to Director Options within six months of the last date on which any
such provision was amended. Without the written consent of an affected
Participant, no termination, suspension or modification of the Plan shall
adversely affect any right of such Participant under the terms of an Award
granted before the date of such termination, suspension or modification.
(j) Application of Proceeds.
The proceeds received by the Company from the sale of its shares under the Plan
will be used for general corporate purposes.
(k) Compliance with Legal and Exchange Requirements.
The Plan, the granting and exercising of Awards thereunder, and the other
obligations of the Company under the Plan, shall be subject to all applicable
federal and state laws, rules, and regulations, and to such approvals by any
regulatory or governmental agency as may be required. The Company, in its
discretion, may postpone the granting and exercising of Awards, the issuance or
delivery of Common Shares under any Award or any other action permitted under
the Plan to permit the Company, with reasonable diligence, to complete such
stock exchange listing or registration or qualification of such Common Shares
or other required action under any federal or state law, rule, or regulation
and may require any Participant to make such representations and furnish such
information as it may consider appropriate in connection with the issuance or
delivery of Common Shares in compliance with applicable laws, rules, and
regulations. The Company shall not be obligated by virtue of any provision of
the Plan to recognize the exercise of any Award or to otherwise sell or issue
Common Shares in violation of any such laws, rules, or regulations; and any
postponement of the exercise or settlement of any Award under this provision
shall not extend the term of such Awards, and neither the Company nor its
directors or officers shall have any obligation or liability to the Participant
with respect to any Award (or Common Shares issuable thereunder) that shall
lapse because of such postponement.
(l) Deferrals.
The Committee may postpone the exercising of Awards, the issuance or delivery
of Common Shares under any Award or any action permitted under the Plan to
prevent the Company or any of its Subsidiaries from being denied a federal
income tax deduction with respect to any Award other than an Incentive Stock
Option.
(m) Number.
Except when otherwise indicated by the context, words in the singular shall
include the plural, and the plural shall include the singular.
Dated as of
Indemnity Agreement
In consideration of your continuing to serve as Director of EDO Corporation, a
New York corporation (the "Company"), the Company hereby agrees with you as
follows:
1. Certain Definitions. As used herein, the following terms and phrases shall
have the following meanings:
(a) A "Change in Control" of the Company shall be deemed to have occurred if
(i) any "Person" (as such term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act")), other than a
trustee or other fiduciary holding securities under an employee benefit plan of
the Company or a corporation owned and controlled, directly or indirectly, by
the shareholders of the Company in substantially the same proportions as their
ownership of stock of the Company, is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
outstanding securities of the Company representing 20% or more of the total
combined voting power entitled to vote in the election of directors of the
Company; (ii) during any period of two consecutive years, individuals who at
the beginning of such period constitute the Board of Directors of the Company
cease for any reason to constitute at least a majority thereof, unless the
election or 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 in
office who were directors at the beginning of the period; (iii) there is a
consolidation of the Company with, or a merger of the Company into or with, any
other company, other than a merger or consolidation which would result in the
outstanding voting securities of the Company immediately prior to such merger
or consolidation representing (either by remaining outstanding or by being
converted into voting securities of the surviving entity), immediately after
such merger or consolidation, more than 80% of the total combined voting power
entitled to vote in the election of directors of the entity surviving such
consolidation or merger; (iv) there is an acquisition of the Company or of all
or substantially all of the assets of the Company by another entity; or (v) any
event occurs that would be a reportable event under Item 1(a) of Form 8-K under
the Exchange Act.
(b) "Action" shall mean any threatened, pending or completed action, suit or
proceeding and any appeal therein, whether civil, criminal, administrative,
investigative or other, including, without limitation, an action by any third
party, an action by or in the right of the Company or an action by or in the
right of any other corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise of any type or kind, foreign or domestic,
which you served in any capacity at the request of the Company, to which you
are, have been made or are threatened to be made a party by reason of the fact
that you are or were a director, officer or employee of the Company, or are or
were serving such other corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise in any capacity. For purposes of this
Agreement, the Company shall be deemed to have requested you to serve an
employee benefit plan where the performance by you of your duties to the
Company also imposes duties on, or otherwise involves services by, you to the
plan or participants or beneficiaries of the plan.
(c) "Expenses" shall mean any and all costs, charges and expenses (including
attorneys' fees) paid or incurred in connection with investigating, preparing
to defend, defending, being a witness in or participating in any Action.
(d) "Ineligible Conduct" shall mean (i) acts which were committed in bad faith
by you or which were the result of your active and deliberate dishonesty and
which were material to an Action or (ii) the personal gain in fact by you of a
financial profit or other advantage to which you were not legally entitled.
2. Indemnification. (a) Subject to paragraphs 2(b), (c) and (d), the Company
shall indemnify you against judgments, fines, amounts paid in settlement and
Expenses incurred in connection with any Action.
(b) To the extent that you are successful, in whole or in part, on the merits
or otherwise, in the defense of an Action, you shall be entitled to the
indemnification provided for in paragraph 2(a).
(c) To the extent that a judgment or other final adjudication adverse to you
establishes that your conduct constituted Ineligible Conduct, you shall not be
entitled to the indemnification provided for in paragraph 2(a).
(d) Except as otherwise provided in paragraphs 2(b) and (c), unless ordered by
a court as contemplated by paragraph 5, you shall be entitled to the
indemnification provided for in paragraph 2(a) in connection with any Action
only to the extent that such indemnification is authorized in the specific
case:
(i) by the Board of Directors of the Company acting by a quorum consisting of
directors who are not parties to such Action upon a finding that your conduct
did not constitute Ineligible Conduct; or
(ii) if a quorum under the foregoing clause (i) is not obtainable or, even if
obtainable, a quorum of disinterested directors so directs:
(A) by the Board of Directors of the Company upon the opinion in writing of
independent legal counsel that such indemnification is proper in the
circumstances because your conduct did not constitute Ineligible Conduct, or
(B) by the shareholders of the Company upon a finding that your conduct did not
constitute Ineligible Conduct.
(e) The Company shall provide any indemnification required under this Agreement
promptly, and in any event within 60 days after your written request. In the
case of any request for indemnification to which paragraph 2(d) is applicable,
the Board of Directors shall, no later than 60 days after your written request,
make an express finding that you are entitled or are not entitled to
indemnification (whether or not the question is put to shareholders pursuant to
paragraph 2(d)(ii)). In connection with any determination that you are not
entitled to be indemnified hereunder, in whole or in part, the burden of proof
shall be on the Company to establish that you are not so entitled.
(f) The termination of any civil or criminal action or proceeding by judgment,
settlement, conviction or upon a plea of nolo contendere, or its equivalent,
shall not in itself create a presumption that your conduct constituted
Ineligible Conduct.
(g) Excise taxes assessed on you with respect to an employee benefit plan
pursuant to applicable law shall be considered fines.
3. Expenses. (a) Expenses incurred by you in defending an Action shall be paid
by the Company in advance of the final disposition of such Action upon receipt
of an undertaking by you or on your behalf to (i) repay such amount in case you
are ultimately found, in accordance with this Agreement, not to be entitled to
indemnification, or (ii) where indemnity is granted, to repay such amount to
the extent the Expenses so advanced exceed the indemnification to which you are
entitled.
(b) The Company shall indemnify you against any and all Expenses incurred by
you in connection with successfully establishing, in whole or in part, any
claim asserted by or action brought by you to enforce (i) any right to
indemnification or advance payment of Expenses by the Company under this or any
other agreement or Company By-Law now or hereafter in effect relating to
Actions, or (ii) any right to recovery under any liability insurance policies
maintained by the Company, or (iii) upon a Change in Control, any other right
you may have against the Company. The Company shall also advance such Expenses
to you, upon receipt of an undertaking meeting the requirements of paragraph
3(a).
(c) Any advancement of Expenses pursuant to paragraphs 3(a) or (b) hereof shall
be made promptly, and in any event within 10 days of your written request for
such advancement of Expenses accompanied by an undertaking meeting the
requirements of paragraph 3(a).
4. Partial Indemnification. If you are found not to be entitled under the
provisions of this Agreement to indemnification by the Company for a portion of
the judgments, fines, amounts paid or to be paid in settlement or Expenses of
an Action, the Company shall nevertheless indemnify you for that portion
thereof to which you are entitled. A finding pursuant to paragraph 2(c) or 2(d)
that you engaged in Ineligible Conduct shall not relieve the Company of its
obligation to indemnify you except to the extent that the judgments, fines,
amounts paid in settlement or Expenses incurred by you are attributable to such
Ineligible Conduct.
5. Enforcement; Defenses. If the Company denies a request for indemnification
or advancement of Expenses, in whole or in part, or if no disposition thereof
is made within the periods specified therefor in paragraphs 2(e) and 3(c), the
right to indemnification or advancement of Expenses granted by this Agreement
shall be enforceable by you in any court of competent jurisdiction. It shall be
a defense to any such action (other than an action brought to enforce a claim
for the advancement of Expenses under paragraphs 3(a) or (b) of this Agreement
where the required undertaking has been received by the Company) that your
conduct in connection with the Action in question constituted Ineligible
Conduct, but the burden of proving such defense shall be on the Company.
Neither the failure of the Company (including its Board of Directors, its
independent legal counsel or its shareholders) to have made a determination
that you are entitled to indemnification under this Agreement, nor the fact
that there has been an actual determination by the Company (including its Board
of Directors, its independent legal counsel or its shareholders) that you are
not entitled to indemnification under this Agreement, shall be a defense to the
action or create a presumption that you are not entitled to indemnification
under this Agreement.
6. Contribution. In the event that the indemnification provided for in this
Agreement with respect to any Claim is unavailable to you for any reason
whatsoever, the Company, in lieu of indemnifying you, shall contribute to any
judgments, fines, penalties, excise taxes, amounts paid or to be paid in
settlement or Expenses incurred by you in connection with such Action in such
proportion as is fair and reasonable in light of all of the circumstances of
such Action in order to reflect (i) the relative benefits received by the
Company and yourself as a result of the event(s) or transaction(s) giving cause
to such Action, and (ii) the relative fault of the Company (and its other
directors, officers, employees and agents) and yourself in connection with such
event(s) or transaction(s). Your right to contribution under this paragraph 6
is subject to and shall be determined in accordance with the provisions
applicable to indemnification set forth in paragraph 2.
7. Notice to the Company by Indemnitee. You agree to promptly notify the
Company in writing upon being served with or having actual knowledge of any
citation, summons, complaint, indictment or any other similar document relating
to any action which may result in a claim of indemnification or contribution
hereunder.
8. Non-exclusivity, etc. Your rights hereunder shall be in addition to any
other rights you may have under the Company's Certificate of Incorporation or
By-Laws or under the New York Business Corporation Law or otherwise, and
nothing herein shall be deemed to diminish, qualify or otherwise restrict your
rights to indemnification under any such other provision. This Agreement is
intended to indemnify you to the greatest extent permitted under applicable law
and the Certificate of Incorporation and By-Laws of the Company. To the extent
that applicable law or the Certificate of Incorporation or the By-Laws of the
Company, as in effect on the date hereof or at any time in the future, permit
greater indemnification than as provided for in this Agreement, the parties
hereto agree that you shall enjoy by this Agreement the greater benefits so
afforded by such law or provision of the Certificate of Incorporation or
By-Laws, and this Agreement and the definition of Ineligible Conduct set forth
in paragraph 1(d), to the extent applicable, shall be deemed amended without
any further action by the Company or yourself to grant such greater benefits.
You may elect to have your rights hereunder interpreted (i) on the basis of
applicable law in effect at the time of execution of this Agreement, (ii) at
the time of the occurrence of the event(s) or transaction(s) giving rise to an
Action or (iii) at the time indemnification is sought.
9. Liability Insurance. To the extent the Company maintains at any time an
insurance policy or policies providing directors' and officers' liability
insurance, the Company shall use its best efforts to ensure that you are
covered by such policy or policies, in accordance with its or their terms, to
the maximum extent that coverage is available for any other Company director,
officer or employee under such insurance policy, provided that if you are no
longer serving the Company or any other business entity at the request of the
Company, the Company shall not be required to maintain insurance for you for
more than six years after your service terminated or such longer period of
coverage after service as may at the time be afforded any other past director
or officer of the Company. The purchase and maintenance of such insurance shall
not in any way limit or affect the rights and obligations of the parties
hereto, and the execution and delivery of this Agreement shall not in any way
be construed to limit or affect the rights and obligations of the Company or
of any other parties to such insurance policy.
10. Period of Limitations. Except for actions based on Ineligible Conduct by
you, no legal action shall be brought and no cause of action shall be asserted
by or on behalf of the Company or any affiliate of the Company against you,
your spouse, heirs, executors or personal or legal representatives after the
expiration of two years from the date of accrual of such cause of action, and
any claim or cause of action of the Company or its affiliates not based on
Ineligible Conduct by you shall be extinguished and deemed released unless
asserted by the timely filing of a legal action within such two-year period;
provided, however, that if any shorter period of limitations is otherwise
applicable to any such cause of action such shorter period shall govern.
11. Amendments, etc. No supplement, modification or amendment of this Agreement
shall be binding on either party unless agreed to and executed in writing by
both of the parties hereto. No waiver of any of the provisions of this
Agreement shall be deemed or shall constitute a waiver of any other provisions
hereof (whether or not similar) nor shall such waiver constitute a continuing
waiver.
12. Subrogation. In the event of a payment under this Agreement, the Company
shall be subrogated to the extent of such payment to all of your rights of
recovery with respect to such payment, and you shall execute all papers
required and shall do anything else that may be necessary to secure such
rights, including without limitation, the execution of such documents as are
necessary to enable the Company effectively to bring suit to enforce such
rights and full cooperation with the Company in the prosecution of such suit.
13. No Duplication of Payments. The Company shall not be liable to make any
payment under this Agreement in respect of any judgment, fine, penalty, excise
tax, settlement payment, Expense or other cost to the extent you have otherwise
actually received payment (under any insurance policy, By-Law or otherwise) of
the amount of such judgment, fine, penalty, excise tax, settlement payment,
Expense or other cost.
14. Successors, Assigns, Etc. This Agreement shall be binding upon, inure to
the benefit of and be enforceable against and by the parties hereto and their
respective successors, assigns (including any direct or indirect successor by
purchase, merger, consolidation or otherwise to all or substantially all of the
business or assets of the Company), spouses, heirs and personal and legal
representatives. The Company shall require and cause any successor (whether
direct or indirect by purchase, merger, consolidation or otherwise) to all,
substantially all, or a substantial part, of the business or assets of the
Company, by written agreement in form and substance satisfactory to you, 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 if no such
succession had taken place. This Agreement shall continue in effect regardless
of whether you continue to serve as a director, officer or employee of the
Company or of any other enterprise at the Company's request.
15. Severability. The provisions of this Agreement shall be severable, and in
the event that any provision hereof (including any provision or word within a
single section, paragraph or sentence) is held by a court of competent
jurisdiction to be invalid, void or otherwise unenforceable, the remaining
provisions shall remain enforceable to the fullest extent permitted by law.
16. Notices. All notices, requests, demands and other communications required
or permitted hereunder shall be in writing and shall be deemed to have been
duly given when delivered by hand or when mailed by certified registered mail,
return receipt requested, with postage prepaid, (i) If to you, at the address
set forth above or to such other person or address which you shall furnish to
the Company in writing pursuant to the above, and
(ii) If to the Company, to:
EDO Corporation
14-04 111th Street
College Point, New York 11356-1434
Attention: Secretary
or to such person or address as the Company shall furnish to you in writing
pursuant to the above.
17. Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of New York applicable to
contracts made and to be performed in New York without giving effect to the
principles of conflicts of laws.
If you are in agreement with the foregoing, please sign the Agreement as
provided below and return one of the same to the Company, whereupon this letter
shall become a binding agreement between you and the Company.
Very truly yours,
EDO CORPORATION
By:_______________________
Secretary
The foregoing Agreement is hereby
agreed and accepted as of __________________.
____________________________________________
Schedule to Exhibit 10(d) - Indemnity Agreement
The Company has entered into Indemnity Agreements with the following directors
and/or officers.
Robert E. Allen
Robert Alvine
Mellon C. Baird
George M. Ball
Joseph F. Engelberger
Frank A. Fariello
William J. Frost
Marvin D. Genzer
Robert M. Hanisee
Michael J. Hegarty
Ira Kaplan
J. Douglas Moore
Kenneth A. Paladino
George A. Strutz, Jr.
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 50% 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 constitute 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
Exhibit 23
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
February 13, 1997, relating to the consolidated balance sheets of EDO
Corporation and subsidiaries as of December 31, 1996 and 1995 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, 1996, which
report appears in the December 31, 1996 annual report on Form 10-K of EDO
Corporation.
KPMG PEAT MARWICK LLP
Jericho, New York
March 18, 1997
EXHIBIT 24
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints Kenneth A. Paladino 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,
1996, 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 have subscribed their signatures this 21st
day of March, 1997.
Robert E. Allen
Robert Alvine
Mellon C. Baird
George M. Ball
Joseph F. Engelberger
Frank A. Fariello
William J. Frost
Marvin D. Genzer
Robert M. Hanisee
Michael J. Hegarty
Ira Kaplan
J. Douglas Moore
Kenneth A. Paladino
George A. Strutz, Jr.
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1996 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS AND THE NOTES THERETO.
</LEGEND>
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