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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, 1998 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:
60 East 42nd Street, Suite 5010, New York, New York 10165
Telephone No.:
(212) 716-2000
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. [ ]
State the aggregate market value of the voting stock held by non-affiliates of
the Registrant as of March 1, 1999 ................................ $42,576,242
Indicate the number of shares outstanding of each of the Registrant's classes
of common stock as of March 1, 1999 ................................. 6,642,268
Documents Incorporated by Reference
Portions of the Definitive Proxy Statement of the Registrant, dated March 17,
1999, are incorporated by reference into Part III.
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Table of Contents
PART I................................................................... 1
ITEM 1. BUSINESS....................................................... 1
DEFENSE & AEROSPACE SYSTEMS.............................................. 1
Marine and Aircraft Systems.............................................. 1
Aircraft Stores Suspension and Release Equipment......................... 1
Airborne Mine Countermeasures Systems.................................... 1
Combat Systems........................................................... 2
Command, Control and Communications Systems.............................. 2
Undersea Warfare Sonar................................................... 2
Technology Services and Analysis......................................... 2
Electro-Ceramic Products................................................. 2
Fiber Composite Products................................................. 2
SATELLITE PRODUCTS....................................................... 3
DISCONTINUED OPERATIONS.................................................. 3
RESEARCH AND DEVELOPMENT................................................. 4
MARKETING AND INTERNATIONAL SALES........................................ 4
BACKLOG.................................................................. 5
GOVERNMENT CONTRACTS..................................................... 5
COMPETITION AND OTHER FACTORS............................................ 5
EMPLOYEES................................................................ 6
EXECUTIVE OFFICERS OF THE REGISTRANT..................................... 6
ITEM 2. PROPERTIES..................................................... 6
ITEM 3. LEGAL PROCEEDINGS.............................................. 6
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............ 6
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS.................................... 7
ITEM 6. SELECTED FINANCIAL DATA........................................ 7
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS............................ 7
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK...... 7
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.................... 7
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE......................... 7
PART III................................................................. 7
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT............ 7
ITEM 11. EXECUTIVE COMPENSATION........................................ 7
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT................................................ 7
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................ 7
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K....................................... 8
SIGNATURES............................................................... 9
SELECTED FINANCIAL DATA.................................................. 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................................ 11
BUSINESS................................................................. 11
RESULTS OF OPERATIONS - 1998 COMPARED TO 1997............................ 11
FINANCIAL CONDITION...................................................... 12
RESULTS OF OPERATIONS - 1997 COMPARED TO 1996............................ 13
MARKET RISKS............................................................. 13
NEW ACCOUNTING STANDARD.................................................. 13
YEAR 2000................................................................ 14
COMMON SHARE PRICES...................................................... 15
DIVIDENDS................................................................ 15
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995....................................................... 15
CONSOLIDATED STATEMENTS OF EARNINGS...................................... 16
CONSOLIDATED BALANCE SHEETS.............................................. 17
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY.......................... 18
CONSOLIDATED STATEMENTS OF CASH FLOWS.................................... 19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS............................... 20
QUARTERLY FINANCIAL INFORMATION (UNAUDITED).............................. 32
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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 designs and manufactures advanced electronic, mechanical and
electro-optical systems and engineered materials for domestic and international
defense and industrial markets.
The Company organizes its business into two segments, which constitute its
continuing operations: Defense and Aerospace Systems; and Satellite Products.
A description of the principal products of the Company within the two segments
is set forth below.
In 1996, the Company sold its general aviation floats business and announced
the discontinuance of its energy-related businesses. See Note 4 on page 22 of
this Report.
In 1997, the Company also discontinued certain of its former Acoustic Products
product lines.
Refer to "Management's Discussion and Analysis of Financial Condition and
Results of Operations" on pages 11 through 15, and Note 18 on page 30 of this
Report for information regarding the cost of compliance with environmental
regulations.
Certain business segment information on the Company's continuing operations is
set forth in Note 19 on pages 30 and 31 of this report.
The following discussion relates to the Company's continuing operations.
DEFENSE & AEROSPACE SYSTEMS
The Company's Defense and Aerospace Systems segment, which accounted for 85%,
78% and 73% of consolidated net sales for 1998, 1997 and 1996, respectively,
includes marine and aircraft systems, combat systems, electro-ceramic products
and fiber composite products.
Marine and Aircraft Systems
Marine and aircraft systems include the design, development and manufacture of
sophisticated mechanical, electromechanical, structural, hydrodynamic and
aerodynamic systems for military use. Additionally, the Company provides
logistics support for such 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 marine and aircraft systems are aircraft stores suspension
and release equipment and airborne mine countermeasures systems.
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 1998, the Company continued production of BRUs for the F-15E for
an international customer under prior orders received and new orders received
in 1998, 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.
Customer-sponsored development for this missile launcher, which employs new
internal carriage technology, is expected to continue throughout 1999. In
addition, an order for long lead material for the first two production F-22
aircraft was received in 1998. In 1997, the Company received a subcontract
from Boeing for development of new weapons carriage technology for application
to the Joint Strike Fighter and future aircraft. This effort is expected to
continue throughout 1999. Sales of aircraft stores suspension and release
equipment represented 19% of consolidated net sales in 1998, 1997 and 1996.
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 and upgraded in 1995. The first production contract for this
upgrade was received at the end of 1995. An additional production contract was
received in 1996. Production under these contracts is expected to continue
throughout 1999. An additional production order for these upgrades was
received in 1998. Production under this contract will also continue
throughout 1999.
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 and was used in fleet and NATO operations in 1997. In 1998, the Company
received an additional contract for the development of an acoustic sweep for
shallow water application. Work on this contract will continue through 1999.
In addition, the Company continued to provide logistic
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support for MK 105 systems previously provided to both the U.S. Navy and an
international customer.
For 1998, 1997 and 1996, respectively, sales of airborne mine countermeasures
systems represented 14%, 12% and 7% of consolidated net sales.
Combat Systems
Combat systems include the design, development and manufacture of command,
control and communications systems, undersea warfare systems and technology
services and analysis related to such. In addition, the Company provides
logistics support including spare and repair parts, training and technical
services for such products.
Command, Control and Communications Systems
Command, control and communication systems include integrated command systems,
tactical data links, display consoles and communication control and monitoring
systems for domestic and international customers. In 1998, work continued on
NATO Ship-Shore-Ship Buffer (SSSB) systems deliverable to several international
customers in 1998 and 1999. Additionally in 1998, a contract for a major
integrated combat system was received from an international customer. Work on
this contract is expected to continue through 2001.
Undersea Warfare Sonar
The Company has been a supplier of undersea warfare systems for more than forty
years. In 1997, the Company completed and delivered a major signal processing
subsystem of an upgrade to the U.S. Navy's AN/SQQ-89 undersea warfare system
to Northrop-Grumman and Lockheed Martin. Additional funding was received in
1998 from Lockheed Martin for work on the AN/SQQ-89. Logistics, maintenance
and training support was provided for EDO sonar systems installed in FF-1052
class ships in service for several international navies. Work continued in
1998 for an international customer on a major upgrade to the EDO Model 610E
sonar system. Work under this contract is expected to continue through 2003.
In 1997, the Company received an order for an additional Model 610E upgraded
sonar system for a new class of ship for this same international customer.
Work on this contract continued throughout 1998 and will be completed in 1999.
Technology Services and Analysis
In July 1998, the Company acquired substantially all of the assets of the
Technology Services Group of Global Associates, Ltd. The business provides
technical services to various agencies of the U.S. Department of Defense.
Such services include management services, operations analysis including but
not limited to wargaming, modeling and simulation, and systems analysis.
Electro-Ceramic Products
Piezoceramic elements convert acoustic energy to electrical energy and form the
basis of many defense and commercial products ranging from military sonars to
ink jet printers. The Company is one of North America's leading manufacturers
of piezoceramic components for defense applications and also provides ceramics
to several commercial markets.
The Company has automated and improved its 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 1998, 1997 and
1996, respectively, sales of piezoceramics represented 18%, 13% and 11% of
consolidated net sales.
The Company also designs and produces military and commercial transducers which
it provides for EDO acoustic systems as well as for the market.
The Company 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. Specifically, the Company has developed a product for
vibration reduction in cylindrical grinders. In addition, the Company is
delivering products it designed and manufactured to reduce vibration in the
manufacturing process for semiconductors.
In December 1998, the Company acquired substantially all of the assets of Zenix
Products, Inc. which manufactures ferrite and dielectric ceramics for the
wireless communications base station industry.
Fiber Composite Products
The Company's fiber composite products focus on the development, production and
after-market support of its traditional composite water and waste tanks for the
commercial aviation market. This concentrated technical and marketing effort
has yielded long-term production contracts from Boeing. For 1998, 1997 and
1996, sales of fiber composite products represented 11%, 11% and 10% of
consolidated net sales, respectively.
In December 1998, the Company acquired Specialty Plastics, Inc., a manufacturer
of fiberglass piping principally for the deep water offshore oil industry.
Page 2
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SATELLITE PRODUCTS
The Satellite Products segment, which accounted for 15%, 22% and 24% of
consolidated net sales for 1998, 1997 and 1996, respectively, includes
electro-optic systems supplied to the satellite market.
Electro-optic systems include the design, development and manufacture of
products and systems for satellites. The primary products include infrared
earth sensors and sun sensors which are used to provide satellites with
information relative to stabilization and orbit position. In 1998, the Company
continued to provide earth sensor assemblies for Hughes' GEO and ICO
satellites, to NASA for the Television and Infrared Observation Satellite
(TIROS), for the Motorola Iridium communication satellite constellation and
earth and sun sensor assemblies to DASA for the Loral Globalstar constellation.
New orders were received in 1998 for earth sensor assemblies from TRW, Hughes
and Lockheed Martin and for follow-on orders for additional sensors for
Iridium. In addition, the Company continues to work on the Boeing Global
Positioning System (GPS) IIF program.
DISCONTINUED OPERATIONS
The Company's former energy-related businesses consisted of the following: its
wholly-owned subsidiary EDO Energy Corporation, which provided program
management activities for compressed natural gas vehicles (CNGVs) and other
alternative fuel projects; its wholly-owned subsidiary EDO Automotive Natural
Gas, Inc. ("EDO ANGI"), which designed and manufactured CNGV refueling
stations and related equipment; and a 50.4% interest in EDO (Canada) Ltd.
("ECL"), which designed and manufactured LiteRider(R) fuel cylinders. The
products of these businesses were generally sold through independent
distributors and dealers to end users, and by employees of these businesses to
original equipment manufacturers.
Due to the historical 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, in 1996, 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.
In 1997, the Company sold the net assets of its EDO-ANGI subsidiary. The EDO
Energy operations were mostly discontinued in 1997 and ceased in 1998. In
1997, ECL made a voluntary assignment in bankruptcy pursuant to the Bankruptcy
and Insolvency Act of Canada and subsequently liquidated its assets through the
equivalent of Chapter 7 of the U.S. bankruptcy laws.
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 4 on page 22 of this Report.
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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
110 employees in the fields of combat systems, acoustic, electronic,
hydrodynamic, aerodynamic, structural and material engineering. Research and
development programs are designed to develop new products and 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. Major customer-sponsored research and development programs
include: improvements to the MK 105 mine countermeasures system; development
of a new shallow-water mine countermeasures system; development of new aircraft
weapons carriage technology; developments in combat systems integration; 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 and other factors. In
1998, customer-sponsored research and development expenditures in the aggregate
were essentially at the same level as in 1997.
Principal current Company-funded research and development includes: image and
signal processing and other improvements for combat systems, improvements to
minesweeping technology, new techniques for aircraft weapons carriage,
continued development of satellite-based sensors and the application of
acoustic and ceramic technologies to vibration control.
The following table sets forth research and development expenditures for the
periods presented.
===========================================================
Year Ended December 31,
1998 1997 1996
(in thousands)
-----------------------------------------------------------
Customer-sponsored $ 22,400 $ 23,000 $ 17,800
Company-funded 3,500 2,100 1,000
Total $ 25,900 $ 25,100 $ 18,800
===========================================================
MARKETING AND INTERNATIONAL SALES
Sales of the Company's defense 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 defense 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 defense products as a prime contractor and through
subcontracts with other prime contractors. In addition to defense sales to the
U.S. Department of Defense, the Company also sells defense 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.
The Company's satellite products are generally sold directly to spacecraft
manufacturers and integrators both domestically and abroad. Where sold
internationally, the products are subject to U.S. Department of State export
controls.
Commercial products 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 generally the Company's policy to denominate all foreign contracts in
U.S. dollars and seek not to incur 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. Recently, however, the
Company has not always been able to do so.
Refer to Note 19 on pages 30 and 31 of this Report for the amount of export
sales for the last three fiscal years.
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BACKLOG
A significant portion of the Company's sales are to prime contractors, the U.S.
Department of Defense and foreign governments pursuant to long-term contracts.
Accordingly, the Company's backlog of unfilled orders consists in large part of
orders under these contracts. As of December 31, 1998, the Company's total
backlog was approximately $151.8 million, as compared with $111.6 million on
December 31, 1997. Of the total backlog as of December 31, 1998, approximately
49% is scheduled for delivery in 1999.
GOVERNMENT CONTRACTS
Sales to the U.S. Government, as a prime contractor and through subcontracts
with other prime contractors, accounted for 47% of the Company's 1998
consolidated net sales compared with 41% in 1997 and 36% in 1996, 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 defense business can be and has been significantly affected by
changes in national defense policy and spending. The Company's U.S.
Government contracts and subcontracts and certain foreign government contracts
contain the usual required provisions permitting termination at any time for
the convenience of the government with payment for work completed and committed
along with associated profit at the time of termination.
The Company's contracts with the Department of Defense consist of fixed-price
contracts, cost-reimbursable contracts and incentive contracts of both types.
Fixed-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 performance, 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, cost 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
product lines 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.
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EMPLOYEES
As of December 31, 1998, the Company employed 776 persons.
EXECUTIVE OFFICERS OF THE REGISTRANT
==============================================================================
Name Age Position, Term of Office and Prior Positions
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Frank A. Fariello 64 Chairman of the Board since 1997 and Chief
Executive Officer since 1994. He was President
from 1993 to 1998. Director since 1982.
William J. Frost 57 Vice President-Administration since 1994,
Assistant Secretary since 1995.
Marvin D. Genzer 58 Vice President since 1990, General Counsel since
1988, and Secretary since 1995.
Ira Kaplan 63 President since 1998 and Chief Operating Officer
since 1997, prior to which he was Executive Vice
President since 1997. He was Corporate Vice
President since 1995, and Vice President and
General Manager of the Government Systems
Division since 1989.
Kenneth A. Paladino 41 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.
ITEM 2. PROPERTIES
All operating properties are leased facilities and the Company's facilities are
adequate for present purposes. 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 17 on page 29 of
this Report.
Set forth below is a listing of the Company's principal plants and other
materially important physical properties. All locations are used for the
Defense and Aerospace Systems segment, except the Shelton, CT facility, which
is used for the Satellite Products segment.
==============================================================================
Location Approximate Floor Area
(in sq. ft.)
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Marine and Aircraft Systems North Amityville, NY 85,000
Combat Systems Chesapeake, VA 30,000
Barnes Shelton, CT 72,000
Electro-Ceramic Products Salt Lake City, UT 117,000
Fiber Science Salt Lake City, UT 105,000
Technology Services and Analysis Falls Church, VA 29,000
Specialty Plastics Baton Rouge, LA 29,000
==============================================================================
ITEM 3. LEGAL PROCEEDINGS
The information responsive to this item is set forth under the heading
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" on pages 11 through 15, and in Note 18 on page 30 of this Report.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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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" on page 15 and "Dividends" on page 15, together with dividend
information contained in the "Consolidated Statements of Shareholders' Equity"
on page 18 and Note 9 on page 24 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 15 of this Report.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
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 15 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 LLP and the unaudited "Quarterly
Financial Information" are set forth on pages 16 through 32 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, and "Section 16(a) Beneficial Ownership Reporting Compliance" on page 10 of
the Company's Proxy Statement dated March 17, 1999, 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 17, 1999, which is incorporated
by reference, except for such information required by Item 402(k) and (l) of
Regulation S-K, which shall not be deemed to be filed as part of this Report.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding security ownership of certain beneficial owners and
management is set forth under the headings "Securities Ownership of Directors
and Executive Officers" on page 4 and "Principal Shareholders" on page 10 of
the Company's Proxy Statement dated March 17, 1999, which is incorporated by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
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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, 1998 and 1997 and for
the years ended December 31, 1998, 1997 and 1996, together with the report
thereon of KPMG LLP, independent auditors, dated February 12, 1999, appear on
pages 16 through 31 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), as further amended by amendment thereto dated July
29, 1998 (filed herewith).
3(ii) By-Laws of the Company. Incorporated by reference to Exhibit 3(ii) to
the Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1996.
4(a) Loan Agreement, dated as of September 9, 1998, between Mellon Bank, NA,
et. al., and EDO Corporation. Incorporated by reference to Exhibit 4(a) to the
Company's Quarterly Report on Form 10-Q for the fiscal quarter ended September
26, 1998.
4(b) Amendment No. 1 to the Loan Agreement referred to in Exhibit 4(a) above,
effective December 31, 1998.
4(c) Guarantee Agreement, dated as of July 22, 1988, restated as amended
through Amendment No. 13, effective December 31, 1998, made by the Company in
favor of Mellon Bank as successor in interest to Fleet Bank as successor in
interest to NatWest Bank and Manufacturers Hanover Trust Company.
10(a)* EDO Corporation 1996 Long-Term Incentive Plan. Incorporated by
reference to Exhibit 10(a) to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996.
10(b)* EDO Corporation Executive Termination Agreements, as amended through
November 24, 1989, between the Company and three 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. Incorporated by
reference to Exhibit 10(d) to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996.
10(e) Consent Decree, entered on November 25, 1992, amongst the United States,
EDO Corporation, Plessey, Inc., Vernitron Corporation and Pitney Bowes, Inc.
10(f) EDO Corporation 1997 Non-Employee Director Stock Option Plan.
Incorporated by reference to Appendix A to the Company's Definitive Proxy
Statement dated March 21, 1997.
10(g) EDO Corporation Compensation Plan for Directors (filed herewith).
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, 1998.
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, its chief financial and accounting officer,
thereunto duly authorized.
EDO CORPORATION (Registrant)
Dated: March 17, 1999 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 17, 1999 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, |
Chief Executive Officer |
and Director |
William J. Frost Vice President- |
Administration |
and Assistant Secretary |
Marvin D. Genzer Vice President, General |
Counsel and Secretary |- By: Kenneth A. Paladino
Ira Kaplan President and | ---------------------
Chief Operating Officer | Attorney-in-Fact
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 |
James M. Smith Director |
George A. Strutz, Jr. Director __|
Page 9
<PAGE>
SELECTED FINANCIAL DATA
EDO CORPORATION AND SUBSIDIARIES
(Not Covered by Independent Auditors' Report)
===============================================================================
1998 1997 1996 1995 1994
(in thousands, except per share amounts)
- -------------------------------------------------------------------------------
Summary of Operations
Net sales
Defense and
Aerospace Systems $ 81,403 73,708 68,716 63,842 69,777
Satellite Products 14,657 20,654 25,870 15,090 11,479
- -------------------------------------------------------------------------------
Total 96,060 94,362 94,586 78,932 81,256
===============================================================================
Operating earnings (loss)
Defense and
Aerospace Systems 10,315 6,164 8,711 6,990 (1,879)
Satellite Products (3,056) (1,528) (1,931) (1,625) (12,704)
Litigation settlement
income 2,200 2,900 - - -
Write-off of
anticipated
environmental
recovery - - - - (5,400)
Restructuring charge - - - - (1,127)
Postretirement health
care curtailment gain - - 7,120 - -
- -------------------------------------------------------------------------------
Operating earnings (loss) 9,459 7,536 13,900 5,365 (21,110)
- -------------------------------------------------------------------------------
Net interest expense (428) (459) (766) (1,199) (2,160)
Other (expense)
income, net (100) (50) (66) (41) 335
- -------------------------------------------------------------------------------
Earnings (loss) before
Federal income taxes 8,931 7,027 13,068 4,125 (22,935)
Provision (benefit)
for Federal income taxes 700 - - - (3,800)
===============================================================================
Earnings (loss) from:
Continuing operations 8,231 7,027 13,068 4,125 (19,135)
Discontinued operations - - (8,637) (1,465) (3,421)
===============================================================================
Net earnings (loss) 8,231 7,027 4,431 2,660 (22,556)
Dividends on preferred
shares(a) 1,063 1,127 1,179 1,239 1,333
- -------------------------------------------------------------------------------
Net earnings (loss)
available for
common shares $ 7,168 5,900 3,252 1,421 (23,889)
===============================================================================
Per Common Share Data
Basic net earnings
(loss)
Continuing
operations $ 1.09 0.94 1.99 0.50 (3.69)
Discontinued
operations $ - - (1.45) (0.25) (0.61)
- -------------------------------------------------------------------------------
Total $ 1.09 0.94 0.54 0.25 (4.30)
Diluted net
earnings (loss) $ 0.94 0.81 0.46 0.20 (4.30)
Cash dividends per
common share $ 0.115 0.10 - - 0.14
Other Information
Working capital $ 40,718 44,477 37,382 33,582 31,374
Depreciation and
amortization of
fixed assets $ 3,871 4,186 3,471 4,568 5,677
Plant and equipment
expenditures $ 3,621 4,083 4,227 1,800 1,731
Total assets $126,753 108,801 94,223 95,526 94,747
Long-term debt $ 28,000 29,317 29,317 29,317 29,317
ESOT loan obligation $ 8,955 10,368 11,676 12,887 14,007
Shareholders' equity $ 38,051 28,135 19,823 14,997 11,610
Backlog of
unfilled orders $151,800 111,557 102,981 85,558 70,682
===============================================================================
(a) ESOP Convertible Cumulative Preferred Shares, Series A (hereinafter
referred to as "preferred shares")
Page 10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
BUSINESS
The Company conducts its business in two segments: Defense and Aerospace
Systems; and Satellite Products. The Defense and Aerospace Systems segment
represents 85% of the Company's sales and includes the military and advanced
material products. The Satellite Products segment represents 15% of the
Company's sales and includes satellite and other space products.
RESULTS OF OPERATIONS - 1998 COMPARED TO 1997
Net sales for 1998 were $96.1 million compared to net sales of $94.4 million in
1997, an increase of 2%. Sales in the Defense and Aerospace Systems segment
increased 10% to $81.4 million as a result of increased sales of mine
countermeasures, command and control and sonar systems and five months of sales
of the newly acquired technical services business. These increases and
additional sales were partially offset by lower sales in the Satellite Products
segment, which decreased from $20.7 million to $14.7 million primarily due to
delays in the receipt of orders. These orders have subsequently been received
and are included in the 1998 year-end backlog.
Total operating earnings for 1998 increased to $9.5 million, an increase of
$2.0 million or 27% over the $7.5 million recorded in 1997. This increase
resulted from a favorable mix of higher margin programs and an increase in
pension income of approximately $1.0 million.
In 1998 and 1997 operating earnings include income from litigation settlements
of $2.2 million and $2.9 million, respectively. The settlements occurred in
the respective fourth quarters and related to an environmental matter that is
more fully explained in Note 18 to the Consolidated Financial Statements. The
fourth quarter results include a Satellite Products segment loss of $2.1
million in 1998, discussed below, and in 1997, product line discontinuance
charges of $2.0 million in the Defense and Aerospace Systems segment and $0.6
million in the Satellite Products segment.
Operating earnings in the Defense and Aerospace Systems segment in 1998 were
$10.3 million, an increase of 66% compared to operating earnings of $6.2
million in 1997. The 1997 operating earnings include a $2.0 million charge
related to the discontinuance of certain acoustic instrument products.
An operating loss of $3.1 million was recorded in the Satellite Products
segment in 1998 compared to an operating loss of $1.5 million in 1997. The
1998 operating loss occurred substantially in the fourth quarter, where a loss
of $2.1 million was recorded, primarily as a result of a technical problem on a
fixed price program that has since been resolved. In addition to this
technical problem, the Satellite Products segment experienced a 29% reduction
in sales in 1998 due to the previously mentioned delayed orders and the
resulting unabsorbed overhead. As a result of expense reductions and the
eventual receipt of the previously mentioned delayed orders, the Satellite
Products segment is expected to be profitable in the first quarter of 1999.
The 1997 loss in the Satellite Products segment included a $0.6 million charge
as a result of the discontinuance of a microscope product line.
Selling, general and administrative expenses in 1998 were $15.3 million
compared to $13.8 million in 1997. This increase resulted primarily from the
inclusion of the expenses of EDO Technology Services and Analysis, which was
acquired in July 1998 (Note 2) and increased expenditures related to business
development activities.
Company-funded research and development increased by 67% to $3.5 million
compared to $2.1 million in 1997. This increase is consistent with the
Company's strategy of increased investment in product development.
Customer-sponsored research and development was $22.4 million in 1998 compared
to $23.0 million in 1997. Customer-sponsored research and development 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, was $0.4 million in 1998 and $0.5
million in 1997. Interest expense primarily represents the interest accrued on
the 7% Convertible Subordinated Debentures Due 2011.
In the fourth quarter of 1998 the Company began recording a provision for
Federal income taxes as it fully recognized the benefit associated with its tax
net operating loss carryforward. The Company expects to record a higher
Federal income tax effective rate commencing in the first quarter of 1999.
Net earnings available for common shares in 1998 were $7.2 million compared to
$5.9 million in
Page 11
<PAGE>
1997. Basic net earnings per share were $1.09 in 1998 compared
to $0.94 in 1997. Basic net earnings per share calculations are based on a
weighted average of 6.5 million and 6.3 million common shares outstanding in
1998 and 1997, respectively. Diluted net earnings per share were $0.94 in 1998
as compared to $0.81 in 1997.
FINANCIAL CONDITION
The Company's cash, cash equivalents and marketable securities decreased by
$0.9 million in 1998 to $33.3 million compared to $34.2 million in 1997. The
net decrease results from cash flow from operations of $9.2 million offset
primarily by purchases of capital equipment of $3.6 million, outlays for
acquisitions of $5.6 million and payments of preferred and common dividends of
$1.8 million. Cash flow from operations in 1998 was $8.4 million lower than
the $17.6 million received in 1997 primarily as a result of increases in
accounts receivable and inventories as well as a reduction in the amount of net
contract advances received.
Consistent with the Company's strategic plans to grow the Company by adding to
its core capabilities, three acquisitions were made during 1998. In July 1998,
the Company acquired substantially all of the assets of the Technology Services
Group of Global Associates, Ltd., now operating as EDO Technology Services and
Analysis (EDO TSA), for $4.2 million in cash. EDO TSA provides technical
services to various agencies of the U.S. Department of Defense and is expected
to enhance the Company's ability to offer forward-looking integrated combat
system products to U.S. and international customers. For the five months the
Company owned EDO TSA it recorded sales of $3.4 million, and was accretive to
earnings.
In December 1998, the Company acquired all of the stock of Specialty Plastics,
Inc., now operating as EDO Specialty Plastics, for a $5.4 million note, due
January 1999. EDO Specialty Plastics manufactures and installs lightweight
fiber composite pipe for use on offshore, deep-water oil production platforms.
EDO Specialty Plastics is expected to expand and diversify the addressable
market for EDO's fiber composite products. The Company expects EDO Specialty
Plastics to be accretive to earnings in 1999.
In December 1998, the Company acquired the assets of Zenix Products Inc.
(Zenix) for approximately $0.7 million. Zenix manufactures ferrite and
dielectric ceramics for the wireless communications base station industry.
In February 1999 the Company announced that it had retained an investment
banking firm to evaluate strategic alternatives regarding its Satellite
Products segment to determine how it best fits with the Company's long-term
growth plan. The alternatives include the possible sale of this business.
The Company has outstanding $29.3 million of 7% Convertible Subordinated
Debentures Due 2011 (the Debentures). Commencing in 1996 and until the
retirement of these debentures, the Company is making annual sinking fund
payments of $1.75 million. As of December 31, 1998 the Company had $0.4
million of these debentures remaining in treasury, which will be used toward a
portion of the 1999 payment. The Company has classified the balance of the
1999 installment, or $1.3 million, as a current obligation.
The Company has an ESOT loan obligation with a balance at December 31, 1998 of
$9.0 million at an interest rate of 82% of the prime lending rate. The
repayment of this obligation is funded through dividends on the Company's
preferred shares and cash contributions. The obligation is scheduled to be
repaid in 2003.
In 1998, the Company established a new $30.0 million secured multi-year
revolving credit facility through a syndicate of banks, which replaced the
Company's previous $15.0 million secured line of credit. This larger facility
was established to be available for acquisitions as well as for standby letters
of credit, which are often required by international customers when the Company
receives contract advances. As of December 31, 1998 there were approximately
$15.2 million of standby letters of credit outstanding, and there have not
been any direct borrowings.
The Company has contracts to provide sonar equipment to the Brazilian
government and the Brazilian Navy. The contracts are denominated in U.S.
dollars and have an aggregate value of $25 million. The Brazilian Real/U.S.
Dollar exchange rate has increased significantly during the life of these
contracts and, while the Brazilian customers have met their payment and other
obligations under the contracts to date and have not given the Company any
reason to believe that they will not continue to meet their obligations, there
can be no assurance that the financial situation in Brazil will not adversely
affect the Company's timely realization of the full benefits of these
contracts.
The Company is incurring costs in connection with the remediation of a
Superfund site (noted above and more fully explained in Note 18 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, 1998
is approximately $3.0 million of which $0.5 million is classified as a current
liability. Approximately
Page 12
<PAGE>
38% of this liability will be expended over the next five years.
The Company believes that it has adequate liquidity and sufficient capital to
fund its current operating plans.
Backlog increased to $151.8 million at December 31, 1998 from $111.6 million at
December 31, 1997.
RESULTS OF OPERATIONS - 1997 COMPARED TO 1996
Net sales for 1997 were $94.4 million compared to $94.6 million in 1996. The
increase of $5.0 million in the Defense and Aerospace Systems segment,
attributable primarily to mine countermeasures and sonar systems, was offset by
the decrease of $5.2 million in the Satellite Products segment.
Total operating earnings in 1997 improved 11% to $7.5 million compared to $6.8
million in 1996, excluding the effect of a $7.1 million non-cash curtailment
gain from the discontinuance of medical benefits for Medicare eligible retirees
in 1996. Operating earnings in 1997 in the Defense and Aerospace Systems
segment decreased by $2.5 million and included a charge of $2.0 million
associated with the discontinuance of certain acoustic product lines, as
discussed in Note 3 to the Consolidated Financial Statements. The operating
loss in 1997 in the Satellite Products segment included a charge of $0.6
million associated with the discontinuance of a microscope product line. These
charges were offset by income from a litigation settlement of $2.9 million
related to an environmental matter (see Note 18 to the Consolidated Financial
Statements).
Selling, general and administrative expenses in 1997 decreased to $13.8 million
from $15.6 million in 1996, primarily as a result of the decrease in sales in
the Satellite Products segment and the discontinuance of the microscope product
line noted above. Company-funded research and development expenditures doubled
in 1997 to $2.1 million from $1.0 million in 1996, consistent with the
Company's strategy of increased investment in product development.
Customer-sponsored research and development, which is included in cost of
sales, increased $5.2 million to $23.0 million in 1997.
Interest expense, net of interest income, was $0.5 million in 1997 compared to
$0.8 million in 1996 due to increased interest income on higher average
balances of interest-earning assets. Interest expense consisted primarily of
the interest accrued on the 7% Convertible Subordinated Debentures Due 2011.
In 1997 and 1996, the Company did not have a provision for Federal income taxes
due to the utilization of tax loss carryforwards.
Net earnings available for common shares in 1997 were $5.9 million compared to
$3.3 million in 1996. Net earnings in 1996 included a $7.0 million loss from
the discontinuance of the Company's energy-related business (see Note 4 to the
Consolidated Financial Statements) and, as noted above, a $7.1 million
curtailment gain. Basic net earnings per share were $0.94 in 1997 and $0.54 in
1996, based on weighted average common shares outstanding of 6.3 million and
6.0 million, respectively. Diluted net earnings per share were $0.81 in 1997
and $0.46 in 1996.
MARKET RISKS
The Company's outstanding indebtedness as of December 31, 1998 is comprised of
the Debentures and the ESOT loan obligation, as discussed above. The
Debentures bear interest at a fixed rate and the interest on the ESOT loan
obligation fluctuates with the prime lending rate. The Company does not
believe it has a material exposure to fluctuations in interest rates.
Additionally, the Company does not believe it has a material exposure to
fluctuations in foreign currencies since substantially all contracts with
foreign customers are denominated in U.S. dollars. In limited instances where
supply contracts are not denominated in U.S. dollars, the Company has the
corresponding portion of the contract from its foreign customer denominated in
the currency of its supplier.
NEW ACCOUNTING STANDARD
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities," which is effective for all fiscal quarters of fiscal
years beginning after June 15, 1999. This statement requires companies to
record derivatives on the balance sheet as assets or liabilities at their fair
value. In certain circumstances, changes in the value of such derivatives may
be required to be recorded as gains or losses. Management believes that the
impact of this statement will not have a material effect on the Company's
consolidated financial statements.
Page 13
<PAGE>
YEAR 2000
The year 2000 issue ("Y2K") affects computer systems having date-sensitive
programs that may not properly recognize the year 2000. Y2K is reputed to be
able to cause computers and computer controlled equipment to cease functioning.
The Company has conducted several informal Y2K reviews over the last two years
of its products and internal systems. Based on these reviews, the only area
where the Company has noted that Y2K could materially affect the Company's
operations or products is that failures or miscalculations could be caused in
the computerized accounting programs provided by outside vendors and used at
the Company. The applicable vendors have provided modifications to their
programs to deal with Y2K and these modifications are currently being tested.
Initial testing has shown these modifications to be mostly effective. If these
modifications do not eventually prove entirely successful, the Company would be
required to seek other methods to process its accounting information.
The Company's formal Y2K program was established in 1998 to ensure that the
Company's initial conclusions were correct. The program is conducted under the
direction of its Vice President & General Counsel and the oversight of the
Audit Committee of the Board of Directors. The Y2K "Committee" consists of a
Y2K coordinator from each operating location and has met once to date. The
Committee will meet formally five times, or more if necessary, over the next 10
months to review plans and to share results of each of the Committee member's
efforts.
The Company's Y2K program addresses Y2K from four perspectives:
the Company looks at the products and services it sells to determine whether
Y2K will impact their performance;
the Company looks at the materials, products and services it buys to
determine whether the suppliers of such materials, products and services or
the materials, products or services themselves will be impacted by Y2K in
such a way as to adversely impact the Company's operations;
the Company looks at its interfaces with its customers and suppliers to
determine whether Y2K will adversely affect such interfaces; and
the Company reviews its internal operations, including engineering,
manufacturing, finance and administrative (office and facilities equipment,
general purpose computers and related systems) to determine whether Y2K will
adversely affect any of these functions.
The formalized Y2K program will encompass three phases:
Phase 1 will establish a baseline of Y2K compliance by a thorough review and
audit of each of the above four perspectives and determine readiness by
analysis and/or actual testing as necessary. This phase has been in process
and is expected to be completed in March 1999.
Phase 2 will determine a budget and actions necessary to bring into
compliance any areas determined to be either deficient, potentially deficient
or in an indeterminable state and a schedule for implementation completion.
This phase is expected to be completed in June 1999.
Phase 3 will verify by analysis and actual test that any material Y2K issues
have been corrected and that all systems are Y2K compliant. This phase will
be completed by the third quarter of 1999. Contingency plans will also be
established at that time.
The costs of the above Y2K program are being expensed as incurred and to date
have been minor. Based upon the Company's review over the last two years and
its findings to date, the Company does not believe that any other costs
associated with Y2K will be material. To date, the total cost associated with
the above Y2K program and required modifications and conversions, if any, have
not been completely determined, although they are not presently expected by the
Company to be material to its consolidated financial position, results of
operations or liquidity. However, if the modifications to accounting programs
provided by outside vendors do not prove entirely successful, the cost of
replacing these programs could have a material adverse effect. The Company
presently expects that any necessary remedial costs will be likewise expensed.
As part of the Company's Y2K program, the Company is currently seeking
information regarding Y2K compliance from vendors, customers, manufacturers and
financial institutions associated with the Company. However, given the
reliance on third party information as it relates to their compliance programs,
no assurance can be given that the Company's information systems or operations
will not be affected by third-party failures to complete their Y2K projects on
a timely basis.
Page 14
<PAGE>
COMMON SHARE PRICES
EDO common shares are traded on the New York Stock Exchange. As of February 1,
1999, there were 2,352 shareholders of record (brokers and nominees counted as
one each).
The price range in 1998 and 1997 was as follows:
===================================================================
1998 1997
High Low High Low
-------------------------------------------------------------------
1st Quarter 9-5/8 8-1/16 7-7/8 6-3/8
2nd Quarter 9-3/4 8-1/2 8-15/16 6-3/8
3rd Quarter 10-7/8 6-11/16 10-3/4 7-5/8
4th Quarter 8-3/4 6-3/4 10-5/8 8-1/4
===================================================================
DIVIDENDS
During 1998, the Board of Directors approved the payment of cash dividends of
$0.025 per common share in the first quarter and $0.03 per share in the second,
third and fourth quarters. During 1997, the Board of Directors approved the
payment of quarterly cash dividends of $0.025 per common share. The Company's
revolving credit agreement places certain limits on the payment of cash
dividends. See Note 9 to 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 to
shareholders contained in the Annual Report to Shareholders for 1998 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 as noted below.
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.
Commercial satellite programs and equipment sales, follow-on procurement,
contract continuance and future program awards are subject to: establishment
and continuance of various consortiums for satellite constellation programs;
delay in launch dates due to equipment, weather or other factors beyond the
control of the Company; and development of sufficient customer base to support
a particular satellite constellation program.
Other commercial product sales are subject to: success of product development
programs currently underway or planned; competitiveness of current and future
product production costs and prices; and market and consumer base development
for new product programs.
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; underestimation of
anticipated costs on specific programs; risks inherent in integrating recent
acquisitions into the Company's overall structure; and risks associated with
year 2000 compliance by the Company, its customers, suppliers and other third
parties. Expectations of future Federal income tax rates can be affected by a
variety of factors, including amounts of profits relating to foreign sales.
The Company has no obligation to update any forward-looking statements.
Page 15
<PAGE>
CONSOLIDATED STATEMENTS OF EARNINGS
EDO CORPORATION AND SUBSIDIARIES
===============================================================================
December 31
1998 1997 1996
(in thousands, except per share amounts)
- -------------------------------------------------------------------------------
Continuing Operations:
Income
Net sales $ 96,060 $ 94,362 $ 94,586
Other - 119 388
- -------------------------------------------------------------------------------
96,060 94,481 94,974
- -------------------------------------------------------------------------------
Costs and Expenses
Cost of sales (including a $2,000
charge for the discontinuance of
a product line in 1997) 69,940 73,981 71,561
Selling, general and administrative 15,344 13,785 15,631
Research and development 3,517 2,079 1,002
Litigation settlement income (2,200) (2,900) -
Postretirement health care
curtailment gain - - (7,120)
- -------------------------------------------------------------------------------
86,601 86,945 81,074
- -------------------------------------------------------------------------------
Operating Earnings 9,459 7,536 13,900
Non-operating Income (Expense)
Interest income 1,893 1,838 1,427
Interest expense (2,321) (2,297) (2,193)
Other, net (100) (50) (66)
- -------------------------------------------------------------------------------
(528) (509) (832)
- -------------------------------------------------------------------------------
Earnings before Federal income taxes 8,931 7,027 13,068
Federal income tax expense 700 - -
- -------------------------------------------------------------------------------
Earnings from Continuing Operations 8,231 7,027 13,068
Discontinued Operations:
Loss from operations of discontinued
energy business - - (1,637)
Loss from discontinuance, including
provision of $2,000 for operating
losses during phase out period - - (7,000)
- -------------------------------------------------------------------------------
Loss from Discontinued Operations - - (8,637)
- -------------------------------------------------------------------------------
Net Earnings 8,231 7,027 4,431
Dividends on preferred shares 1,063 1,127 1,179
- -------------------------------------------------------------------------------
Net Earnings Available
for Common Shares $ 7,168 $ 5,900 $ 3,252
===============================================================================
Earnings (Loss) Per Common Share:
Basic:
Continuing operations $ 1.09 $ 0.94 $ 1.99
Discontinued operations - - (1.45)
- -------------------------------------------------------------------------------
Net Earnings $ 1.09 $ 0.94 $ 0.54
===============================================================================
Diluted:
Continuing operations $ 0.94 $ 0.81 $ 1.67
Discontinued operations - - (1.21)
- -------------------------------------------------------------------------------
Net Earnings $ 0.94 $ 0.81 $ 0.46
===============================================================================
See accompanying Notes to Consolidated Financial Statements.
Page 16
<PAGE>
CONSOLIDATED BALANCE SHEETS
EDO CORPORATION AND SUBSIDIARIES
===============================================================================
December 31
1998 1997
(in thousands, except share
and per share amounts)
- -------------------------------------------------------------------------------
Assets
Current assets:
Cash and cash equivalents $ 21,801 $ 20,351
Marketable securities 11,519 13,851
Accounts receivable 39,853 32,421
Inventories 9,830 6,816
Deferred tax asset, net 1,280 -
Prepayments and other 2,177 5,564
- -------------------------------------------------------------------------------
Total current assets 86,460 79,003
- -------------------------------------------------------------------------------
Property, plant and equipment, net 13,964 12,865
Notes receivable 2,300 3,000
Cost in excess of fair value of net
assets acquired, net 11,736 6,792
Other assets 12,293 7,141
- -------------------------------------------------------------------------------
$ 126,753 $ 108,801
===============================================================================
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $ 24,427 $ 21,773
Contract advances and deposits 14,538 12,753
Note payable 5,460 -
Current portion of long-term debt 1,317 -
- -------------------------------------------------------------------------------
Total current liabilities 45,742 34,526
- -------------------------------------------------------------------------------
Long-term debt 28,000 29,317
ESOT loan obligation 8,955 10,368
Postretirement obligation 3,443 3,526
Environmental obligation 2,562 2,929
Shareholders' Equity:
Preferred shares, par value $1 per share
(liquidation preference $213.71 per share
or $12,960 in the aggregate in 1998),
authorized 500,000 shares, 60,641 issued
in 1998 and 64,843 in 1997 61 65
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 30,142 32,546
Retained earnings 35,294 27,641
- -------------------------------------------------------------------------------
73,951 68,706
Less: Treasury shares at cost (1,821,634
shares in 1998 and 2,054,474 shares
in 1997) (25,775) (29,201)
ESOT loan obligation (8,955) (10,368)
Deferred compensation under Long-Term
Incentive Plan (1,170) (1,002)
- -------------------------------------------------------------------------------
Total shareholders' equity 38,051 28,135
- -------------------------------------------------------------------------------
$ 126,753 $ 108,801
===============================================================================
See accompanying Notes to Consolidated Financial Statements.
Page 17
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
EDO CORPORATION AND SUBSIDIARIES
===============================================================================
1998 1997 1996
(in thousands)
Amount Shares Amount Shares Amount Shares
- -------------------------------------------------------------------------------
Preferred shares
Balance at beginning
of year $ 65 65 $ 68 68 $ 71 71
Shares converted
to common shares (4) (4) (3) (3) (3) (3)
- -------------------------------------------------------------------------------
Balance at end of year 61 61 65 65 68 68
- -------------------------------------------------------------------------------
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 32,546 35,438 37,847
Exercise of stock
options (645) (1,132) (227)
Shares used for payment
of directors' fees (71) (64) (57)
Shares used for Long-
Term Incentive Plans (369) (721) (1,146)
Conversion of preferred
shares to common shares (1,319) (975) (979)
- -------------------------------------------------------------------------------
Balance at end of year 30,142 32,546 35,438
- -------------------------------------------------------------------------------
Retained earnings
Balance at beginning
of year 27,641 22,368 19,116
Net earnings 8,231 7,027 4,431
Common share dividends
(11.5 cents and 10 cents
per share in 1998 and
1997, respectively) (755) (627) -
Dividends on
preferred shares (1,063) (1,127) (1,179)
Tax benefit of
unallocated preferred
share dividends 1,240 - -
- -------------------------------------------------------------------------------
Balance at end of year 35,294 27,641 22,368
- -------------------------------------------------------------------------------
Treasury shares at cost
Balance at beginning
of year (29,201) (2,054) (34,240) (2,409) (37,604) (2,646)
Shares used for exercise
of stock options 998 62 2,491 175 393 28
Shares used for payment
of directors' fees 167 11 149 11 106 7
Shares used for Long-
Term Incentive Plans 938 66 1,421 100 1,883 133
Shares used for
conversion of preferred
shares 1,323 93 978 69 982 69
- -------------------------------------------------------------------------------
Balance at end of year (25,775) (1,822) (29,201) (2,054) (34,240) (2,409)
- -------------------------------------------------------------------------------
ESOT loan obligation
Balance at beginning
of year (10,368) (11,676) (12,887)
Repayments made
during year 1,413 1,308 1,211
- -------------------------------------------------------------------------------
Balance at end of year (8,955) (10,368) (11,676)
- -------------------------------------------------------------------------------
Deferred compensation
under Long-Term
Incentive Plan
Balance at beginning
of year (1,002) (589) -
Shares used for Long-
Term Incentive Plans (569) (700) (737)
Amortization of Long-
Term Incentive Plan
deferred expense 401 287 148
- -------------------------------------------------------------------------------
Balance at end of year (1,170) (1,002) (589)
- -------------------------------------------------------------------------------
Total Shareholders' Equity $38,051 $28,135 $19,823
===============================================================================
See accompanying Notes to Consolidated Financial Statements.
Page 18
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
EDO CORPORATION AND SUBSIDIARIES
===============================================================================
Years Ended December 31
1998 1997 1996
(in thousands)
- -------------------------------------------------------------------------------
Operating Activities:
Earnings from continuing operations $ 8,231 $ 7,027 $ 13,068
Adjustments to earnings to arrive
at cash provided by continuing
operations:
Postretirement health care
curtailment gain - - (7,120)
Depreciation and amortization 4,574 6,027 5,303
Write-down of acoustic product
line inventory - 1,500 -
Deferred compensation expense 401 287 148
Common shares issued for
directors' fees 96 85 49
Changes in operating assets and
liabilities, excluding effects
of acquisitions:
Accounts receivable (3,862) 97 (8,913)
Inventories (2,791) (322) 93
Prepayments, other
assets and other 1,299 (5,279) (4,341)
Accounts payable and accrued
liabilities (556) 256 5,178
Contract advances and deposits 1,785 7,944 (833)
- -------------------------------------------------------------------------------
Cash provided by continuing
operations 9,177 17,622 2,632
Net cash used by discontinued
operations - - (1,804)
Investing Activities:
Purchase of property, plant
and equipment (3,621) (4,083) (4,227)
Cash paid for acquisitions,
net of cash acquired (5,648) - -
Sale (purchase) of marketable
securities 2,332 (13,851) -
Proceeds from assets held
for sale - - 1,976
- -------------------------------------------------------------------------------
Cash used by investing activities (6,937) (17,934) (2,251)
Financing Activities:
Proceeds from exercise
of stock options 353 1,359 166
Payments received on
notes receivable 675 313 263
Payment of common share
cash dividends (755) (627) -
Payment of preferred share
cash dividends (1,063) (1,127) (1,179)
- -------------------------------------------------------------------------------
Cash used by financing activities (790) (82) (750)
===============================================================================
Net increase (decrease)
in cash and cash equivalents 1,450 (394) (2,173)
Cash and cash equivalents
at beginning of year 20,351 20,745 22,918
- -------------------------------------------------------------------------------
Cash and cash equivalents
at end of year $ 21,801 $ 20,351 $ 20,745
===============================================================================
Supplemental disclosures:
Cash paid for:
Interest $ 2,052 $ 2,058 $ 2,072
Income taxes $ 1,386 $ 1,137 $ 190
===============================================================================
See accompanying Notes to Consolidated Financial Statements.
Page 19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
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 wholly-owned subsidiaries (the "Company"). All significant
intercompany accounts and transactions have been eliminated in consolidation.
The Company operates in two segments, Defense and Aerospace Systems and
Satellite Products (Note 19). The Company discontinued its energy-related
business in 1996 (Note 4).
(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) Marketable Securities
The Company's marketable securities, consisting of U.S. government-backed
securities, mortgage-backed securities and corporate bonds, are categorized as
available-for-sale. The securities have been reflected at cost, which
approximates market value at December 31, 1998 and 1997.
(d) 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 or services are
provided. 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.
(e) 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.
(f) Depreciation and Amortization
Depreciation and amortization of property, plant and equipment have been
provided primarily using the straight-line method over the estimated useful
lives of the assets. Leasehold improvements are amortized over the shorter 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 $1,382,000 and
$1,012,000 are included in other assets at December 31, 1998 and 1997,
respectively.
(g) Cost in Excess of Fair Value of Net Assets Acquired (Goodwill)
The excess of the total acquisition costs over the fair value of net assets
acquired of approximately $16.4 million ($11.7 million, net of accumulated
amortization at December 31, 1998) is being amortized on a straight-line basis
over fifteen to 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 cash flows of the acquired business.
(h) Long-Lived Assets
The Company reviews long-lived assets to be held and used or disposed of 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.
Page 20
<PAGE>
(i) 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.
(j) Treasury Shares
Common shares held as treasury shares are recorded at cost, with issuances from
treasury recorded at average cost. Treasury shares issued for directors' fees
are recorded as an expense for an amount equal to the fair market value of the
common shares on the issuance date.
(k) Earnings Per Share
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 (SFAS No. 128), "Earnings Per Share,"
which the Company adopted in the fourth quarter of 1997. Under SFAS No. 128,
the Company presents basic and diluted earnings per share (Note 13).
(l) Financial Instruments
The fair value and book value of the Company's 7% Convertible Subordinated
Debentures Due 2011 and ESOT obligation at December 31, 1998 were $34,167,000
and $38,272,000, respectively (Notes 9 and 10), and at December 31, 1997 were
$35,368,000 and $39,685,000, respectively. The net carrying value of notes
receivable approximates fair value based on current rates for comparable
commercial mortgages. The fair value of the environmental obligation (Note 18)
approximates its carrying value since it has been discounted.
The fair values of all other financial instruments approximate book values
because of the short-term maturities of these instruments.
(m) 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 consolidated financial
statements in conformity with generally accepted accounting principles. Among
the more significant estimates included in these consolidated financial
statements are the estimated costs to complete contracts in process, the
estimated remediation costs related to the environmental matter discussed in
Note 18 and the collectibility of receivables. Actual results could differ
from these and other estimates.
(n) Accounting for Stock-Based Compensation
The Company records compensation expense for employee stock options and
warrants only if the current market price of the underlying stock exceeds the
exercise price on the date of the grant. The Company has elected not to
implement the fair value based accounting method for employee stock options and
warrants, but has elected to disclose the pro forma net earnings and pro forma
earnings per share for employee stock option and warrant grants made beginning
in 1995 as if such method had been used to account for stock-based compensation
cost (Note 14).
(o) Comprehensive Income
In 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive Income,"
which establishes standards for the reporting and display of comprehensive
income and its components in a separate financial statement included in a full
set of financial statements. The Company has not provided additional financial
statement disclosure since the Company has no items of other comprehensive
income and, therefore, comprehensive income equaled net earnings for each of
the three years ended December 31, 1998.
Page 21
<PAGE>
(2) Acquisitions
In July 1998, the Company acquired substantially all of the assets of the
Technology Services Group of Global Associates, Ltd., now operating as EDO
Technology Services and Analysis (EDO TSA), for $4.2 million in cash. EDO TSA
provides technical services to various agencies of the U.S. Department of
Defense. The acquisition has been accounted for as a purchase and,
accordingly, the operating results of EDO TSA have been included in the
Company's consolidated financial statements since the date of acquisition. The
excess of the purchase price over the fair market value of net assets acquired
of approximately $2.4 million is being amortized over fifteen years.
In December 1998, the Company acquired all of the stock of Specialty Plastics,
Inc., now operating as EDO Specialty Plastics, in exchange for a $5.4 million
note, due January 1999. EDO Specialty Plastics manufactures and installs
lightweight fiber composite pipe for use on offshore, deep-water oil production
platforms. The acquisition has been accounted for as a purchase and,
accordingly, the operating results of EDO Specialty Plastics have been included
in the Company's consolidated financial statements since the date of
acquisition. The excess of the purchase price over the fair market value of
net assets acquired of approximately $2.9 million is being amortized over
twenty years.
Also in December 1998, the Company acquired the assets of Zenix Products Inc.
(Zenix) for approximately $0.7 million in cash. In addition, the Company is
required to pay the sellers a royalty of five percent of future sales, up to a
maximum of $1.2 million. Zenix manufactures ferrite and dielectric ceramics
for the wireless communications base station industry.
Unaudited pro forma results of operations, assuming these acquisitions had been
made at the beginning of each period, which include adjustments to interest
expense, interest income, amortization expense and income tax expense are as
follows:
==============================================================================
1998 1997
(unaudited)
(in thousands)
- ------------------------------------------------------------------------------
Net sales $ 107,017 $ 111,698
Net earnings available for common shares 6,967 5,339
- ------------------------------------------------------------------------------
Basic earnings per common share $ 1.06 $ 0.85
Diluted earnings per common share $ 0.89 $ 0.72
==============================================================================
The pro forma results of operations are not necessarily indicative of the
actual results of operations that would have occurred had the purchases been
made at the beginning of the periods, or of the results which may occur in the
future.
(3) Consolidation and Discontinuance of Product Lines
In December 1997, the Company made the decision to consolidate its Acoustic
Products product lines. Several products were consolidated into the Company's
Electro-Ceramic Products operations and Combat Systems operations, and several
were discontinued.
In connection with the consolidation, the Company recorded a charge in 1997
(included in cost of sales) of $2,000,000, which was principally comprised of
the write-down of inventory related to the discontinued product lines to its
net realizable value.
(4) 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
included: the Company's 50.4% interest in EDO (Canada) Limited, a manufacturer
of compressed natural gas (CNG) fuel cylinders; EDO Automotive Natural Gas Inc.
(EDO ANGI), 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. In April 1997, the Company sold EDO ANGI for approximately the book
value of the related net assets. In May 1997, EDO (Canada) Ltd. made a
voluntary assignment in bankruptcy pursuant to the Bankruptcy and Insolvency
Act of Canada. EDO Energy Corporation satisfied most of its obligations in
1997 and ceased operations in 1998. The terms of these events did not result
in a modification to the loss from discontinuing the businesses provided in
1996.
The consolidated financial statements of the Company reflect the effects of the
Company's decision to treat its energy-related businesses as discontinued
operations. Accordingly, the revenues, costs and expenses, and cash flows
associated with the energy-related businesses are excluded from the respective
captions in the Consolidated Statements of Earnings and Statements of Cash
Flows. The net operating results of these entities are reported as "Loss from
discontinued operations"; and the cash flows of these entities are reported as
"Net cash used by discontinued operations."
Net sales of the discontinued operations prior to the date of discontinuance
were $9,321,000 for the year ended December 31, 1996.
Page 22
<PAGE>
(5) Accounts and Notes Receivable
Accounts receivable included $21,161,000 and $17,917,000 at December 31, 1998
and 1997, respectively, representing unbilled revenues. Substantially all of
the unbilled balances at December 31, 1998 will be billed and are expected to
be collected during 1999. Total receivables due from the United States
government, either directly or as a subcontractor to a prime contractor with
the government, were $23,330,000 and $11,822,000 at December 31, 1998 and 1997,
respectively.
The notes receivable of $3,225,000 at December 31, 1998, of which $925,000 is
included in current assets, relate to the sale of the Company's College Point
facility in January 1996. The notes are due in varying annual amounts through
2004 and bear interest at 7%. The notes receivable are secured by a mortgage
on the related facility.
(6) Inventories
Inventories are summarized by major classification as follows at December 31,
1998 and 1997:
==================================================
1998 1997
(in thousands)
--------------------------------------------------
Raw material and supplies $ 4,292 $ 3,471
Work-in-process 5,262 3,120
Finished goods 276 225
--------------------------------------------------
$ 9,830 $ 6,816
==================================================
(7) Property, Plant and Equipment, Net
The Company's property, plant and equipment at December 31, 1998 and 1997, and
their related useful lives are summarized as follows:
================================================================
1998 1997
(in thousands) Life
----------------------------------------------------------------
Machinery and equipment $ 43,177 $ 53,418 3 - 10 years
Leasehold improvements 10,385 8,687 lease terms
----------------------------------------------------------------
53,562 62,105
Less accumulated
depreciation and
amortization 39,598 49,240
----------------------------------------------------------------
$ 13,964 $ 12,865
================================================================
(8) Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities consisted of the following at December
31, 1998 and 1997:
=======================================================================
1998 1997
(in thousands)
-----------------------------------------------------------------------
Trade payables $ 5,320 $ 4,205
Employee compensation and benefits 3,253 3,092
Current portion of environmental obligation 464 571
Other 15,390 13,905
-----------------------------------------------------------------------
$ 24,427 $ 21,773
=======================================================================
Page 23
<PAGE>
(9) Long-Term Debt and Line of Credit
Long-term debt of the Company at December 31, 1998 and 1997 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. The
Company is required to make sinking fund payments of $1,750,000 per year. As
of December 31, 1998, the Company had $433,000 of these debentures remaining in
treasury which may be used to satisfy a portion of the sinking fund
requirements for 1999. The remaining amount due in 1999 of $1,317,000 is
reflected in the current portion of long-term debt. The carrying value of the
debentures as of December 31, 1998 is $29,317,000. The Company estimates the
fair value of the debentures as of December 31, 1998 to be approximately
$25,212,000 based on yields of comparable financial instruments.
The Company has a $30.0 million revolving line of credit agreement with a
syndicate of banks for both short-term borrowings and letters of credit. The
agreement expires on August 27, 2001 and provides that the portion available
for potential cash borrowings be reduced by the amount of outstanding letters
of credit. As of December 31, 1998, the Company has outstanding approximately
$15.2 million of letters of credit. Borrowings under the agreement bear
interest based on the bank's prime rate plus adjustments of up to 0.25%
depending on the ratio of net total debt to earnings as defined in the
agreement. There are certain covenants placed on the Company that require that
several predetermined ratios be maintained. At December 31, 1998, the Company
was in compliance with such covenants. In addition, payments of common share
dividends will be limited to $0.28 per common share in any twelve-month period.
This obligation is secured by the Company's accounts receivable, inventory,
machinery and equipment. There have been no direct borrowings under this
agreement. Borrowings under this agreement would be senior to the debentures
described above.
(10) Employee Stock Ownership Plan and Trust
The Company's Employee Stock Ownership Plan (ESOP) provides retirement benefits
to substantially all employees. During 1998, 1997 and 1996, respectively, cash
contributions of $1,020,000, $942,000 and $879,000 were made to the ESOP. As
of December 31, 1998, there were 247,943 common shares in the ESOP.
During 1988, the Employee Stock Ownership Trust (ESOT) purchased 89,772
preferred shares from the Company for approximately $19,185,000. The preferred
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 preferred 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 preferred shares are convertible at the greater of the stated
conversion rate or the fair value of each preferred share ($214 at December 31,
1998) divided by the current market price of each common share. As of December
31, 1998, 59,547 preferred shares have been allocated, 30,225 preferred shares
remained unallocated, and 29,131 of the allocated preferred shares have been
converted into 782,534 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 1998, 1997 and 1996,
respectively, the Company's cash contributions and dividends on the preferred
shares were used to repay principal of $1,413,000, $1,308,000 and $1,211,000
and pay interest of $693,000, $780,000 and $865,000. The guarantee agreement
provides that, if the Company is in default under the revolving line of credit
agreement described in Note 9, such default will also be considered a default
under the guarantee agreement, permitting the lender to demand payment of the
full amount of the borrowing. 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.
Page 24
<PAGE>
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 1998, 1997 and 1996 provision for Federal income taxes for continuing
operations was comprised of the following amounts:
================================================
1998 1997 1996
(in thousands)
------------------------------------------------
Federal
Current $ 740 $ - $ -
Deferred (40) - -
------------------------------------------------
Total $ 700 $ - $ -
================================================
State income taxes of $586,000, $313,000 and $257,000 in 1998, 1997 and 1996,
respectively, are included in selling, general and administrative expenses.
The effective Federal income tax rate differed from the statutory Federal
income tax rate for the following reasons:
==============================================================
Percent of Pretax Earnings
1998 1997 1996
--------------------------------------------------------------
Tax at statutory rate 34.0% 34.0% 34.0%
Preferred share dividends (2.0) (2.4) (1.2)
Decrease in valuation allowance (16.0) (28.3) (29.4)
Foreign Sales Corporation benefit (1.7) - -
Other, net (6.5) (3.3) (3.4)
--------------------------------------------------------------
Effective Federal income tax rate 7.8% - -
==============================================================
The items that comprise the significant portions of deferred tax assets and
liabilities as of December 31, 1998 and 1997 are as follows:
======================================================================
1998 1997
(in thousands)
----------------------------------------------------------------------
Deferred Tax Assets
Postretirement obligation other than pensions $ 1,171 $ 1,199
U.S. net operating loss carryforwards 2,006 2,853
Environmental obligation - 958
R&D and alternative minimum
tax credit carryforwards 2,662 2,138
Deferred compensation 1,659 1,792
Capital loss carryforwards 976 976
Other 143 1,080
----------------------------------------------------------------------
Total deferred tax assets 8,617 10,996
Less: Valuation allowance (976) (3,477)
----------------------------------------------------------------------
7,641 7,519
----------------------------------------------------------------------
Deferred Tax Liabilities
Depreciation and amortization 2,407 3,535
Identifiable intangible asset 763 -
Prepaid pension asset 2,541 1,796
Other 650 2,188
----------------------------------------------------------------------
Total deferred tax liabilities 6,361 7,519
----------------------------------------------------------------------
Net deferred tax asset $ 1,280 $ -
======================================================================
Deferred income tax assets as of December 31, 1998 include U.S. net operating
loss carryforwards and capital loss carryforwards for income tax purposes of
approximately $5,900,000 and $2,870,000, respectively, primarily expiring in
2009 and 2000, respectively. 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, 1998 for the
portion of the deferred tax asset representing capital loss carryforwards since
management cannot conclude that it is more likely than not that such asset will
be realized.
Page 25
<PAGE>
(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 common shares. As of December 31, 1998, the Company had acquired
approximately 3,957,000 common shares in open market transactions at prevailing
market prices. Approximately 2,135,000 of these shares have been used for
various purposes, including: conversion of preferred shares; contributions of
common shares to the ESOP; 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, 1998 and 1997, respectively, the
Company held 1,821,634 and 2,054,474 common shares in its treasury for future
use.
At December 31, 1998, the Company had reserved, authorized and unissued common
shares for the following purposes:
======================================================
Shares
------------------------------------------------------
Conversion of 7% Convertible
Subordinated Debentures Due 2011 1,332,458
Stock option and long-term incentive plans 908,450
Conversion of preferred shares 1,081,000
------------------------------------------------------
3,321,908
======================================================
(13) Earnings Per Share
The following table sets forth the computation of basic and diluted earnings
per share:
=========================================================================
1998 1997 1996
(in thousands)
-------------------------------------------------------------------------
Numerator:
Net earnings available
for common shares $ 7,168 $ 5,900 $ 3,252
Impact of assumed conversion
of preferred shares 125 97 -
-------------------------------------------------------------------------
Numerator for diluted
calculation $ 7,293 $ 5,997 $ 3,252
=========================================================================
Denominator:
Weighted average common
shares outstanding 6,549 6,261 5,975
Dilutive effect of
stock options 155 151 111
Dilutive effect of
conversion of preferred shares 1,081 983 1,054
-------------------------------------------------------------------------
Denominator for diluted calculation 7,785 7,395 7,140
=========================================================================
The assumed conversion of the convertible debentures was anti-dilutive for all
periods presented.
Page 26
<PAGE>
(14) Stock Plans
The Company has granted nonqualified stock options to officers, directors and
other key employees under plans approved by the shareholders in 1996 and 1997,
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 common shares on
the dates of grant. Options under the 1996 plan generally become exercisable
on the third anniversary of the date of the grant and expire on the tenth
anniversary of the date of the grant. The 1996 plan will expire in 2005.
Options under the 1997 plan, which pertains only to non-employee directors, are
immediately exercisable and expire on the tenth anniversary of the date of the
grant. The 1997 plan will expire in 2006.
Changes in options outstanding are as follows:
===============================================================================
1998 1997 1996
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 $ 6.55 688,950 $ 6.57 737,313 $ 6.54 767,800
Options
granted 8.66 100,750 7.20 157,750 5.54 27,500
Options
exercised 6.29 (87,600) 7.26 (175,313) 5.12 (27,662)
Options
expired/
cancelled 11.21 (21,150) 6.39 (30,800) 6.30 (30,325)
- -------------------------------------------------------------------------------
End of
year $ 6.72 680,950 $ 6.55 688,950 $ 6.57 737,313
- -------------------------------------------------------------------------------
Exercisable
at year end $ 6.43 488,544
===============================================================================
The options outstanding as of December 31, 1998 are summarized in ranges as
follows:
===========================================================================
Range of Weighted Average Number of Weighted Average
Exercise Prices Exercise Price Options Outstanding Remaining Life
---------------------------------------------------------------------------
$ 3.07- 5.99 $ 3.76 172,000 6 years
6.00- 8.99 7.67 498,450 4 years
9.00-11.56 10.12 10,500 5 years
---------------------------------------------------------------------------
680,950
===========================================================================
In 1998, 25,774 common shares held greater than six months were utilized to
exercise stock options. The 1996 plan also provides for restricted common
share long-term incentive awards as defined under the plan. All common shares
authorized under the previous plans not yet awarded were canceled upon the
approval of the 1996 plan. As of December 31, 1998, plan participants had been
awarded 298,500 restricted common shares. Deferred compensation is recorded
for the fair value of the restricted common share awards on the date of grant
and is amortized over the five-year period the related services are provided.
The amount charged to operations in 1998, 1997 and 1996 was $401,000, $287,000
and $148,000, respectively. As of December 31, 1998, 227,500 shares are
available for grant as stock options or awards.
The per share weighted-average fair value of stock options granted was $2.58,
$2.77 and $2.70 in 1998, 1997 and 1996, respectively, on the dates of grant
using the Black Scholes option-pricing model with the following
weighted-average assumptions: 1998 - expected dividend yield of 1.4%, risk
free interest rate of 5.0%, expected stock volatility of 20%, and an expected
option life of 7-1/2 years; 1997 - expected dividend yield of 1.3%, risk free
interest rate of 5.5%, expected stock volatility of 30%, and an expected option
life of 7-1/2 years; 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.
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 exercise prices equal to
or greater than the fair values of the common shares on the dates of the grant.
Had the Company determined compensation cost based on the fair values at the
grant dates for its stock options under SFAS No. 123, the Company's earnings
from continuing operations, and basic and diluted earnings from continuing
operations per common share would have been reduced to the pro forma amounts
indicated below:
=====================================================================
1998 1997 1996
(in thousands,
except per share amounts)
---------------------------------------------------------------------
Earnings from continuing operations:
As reported $ 8,231 $ 7,027 $ 13,068
Pro forma 7,938 6,879 13,007
Basic earnings per share:
As reported $ 1.09 $ 0.94 $ 1.99
Pro forma 1.05 0.92 1.98
Diluted earnings per share:
As reported $ 0.94 $ 0.81 $ 1.67
Pro forma 0.90 0.79 1.66
=====================================================================
Page 27
<PAGE>
Pro forma earnings from continuing operations reflect only options granted
beginning in 1995. Therefore, the full impact of calculating compensation cost
for stock options under SFAS No. 123 is not reflected in the pro forma earnings
from continuing operations 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.
(15) 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 employee's 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 for 1998, 1997 and 1996 was $2,192,000, $1,185,000, and
$1,285,000, respectively. The expected long-term rate of return on plan assets
was 9.0% in 1998, 1997 and 1996. The actuarial computations assumed a discount
rate on benefit obligations at December 31, 1998 and 1997 of 6.75% and 7.0%,
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 follows:
=======================================================================
1998 1997 1996
(in thousands)
-----------------------------------------------------------------------
Service cost $ (1,495) $ (1,380) $ (1,277)
Interest on projected benefit
obligation (6,124) (5,999) (5,359)
Expected return on plan assets 9,586 8,527 7,777
Amortization of transitional assets 8 8 8
Amortization of prior service cost (208) (208) (119)
Amortization of gain 425 237 255
-----------------------------------------------------------------------
Net pension income $ 2,192 $ 1,185 $ 1,285
=======================================================================
The following sets forth the funded status of the plan as of December 31:
=================================================================
1998 1997
(in thousands)
-----------------------------------------------------------------
Change in projected benefit obligation:
Projected benefit obligation
at beginning of year $ 88,654 $ 76,290
Service cost 1,495 1,380
Interest cost 6,124 5,999
Benefits paid (5,600) (5,350)
Actuarial loss 4,580 10,335
-----------------------------------------------------------------
Projected benefit obligation
at end of year $ 95,253 $ 88,654
-----------------------------------------------------------------
Change in plan assets:
Fair value of plan assets at
beginning of year 109,793 97,837
Actual return on plan assets 7,242 17,306
Benefits paid (5,600) (5,350)
-----------------------------------------------------------------
Fair value of plan assets
at end of year $111,435 $109,793
-----------------------------------------------------------------
Funded status $ 16,182 $ 21,139
Unrecognized net gain (9,636) (16,985)
Unrecognized prior service cost 952 1,160
Unrecognized net assets (25) (33)
-----------------------------------------------------------------
Prepaid pension cost (in other assets) $ 7,473 $ 5,281
=================================================================
In addition, the Company established in 1988 a supplemental defined benefit
plan for substantially all employees. In 1998, 1997 and 1996, the net pension
expense for this plan was approximately $126,500, $125,900, and $64,800,
respectively.
The Company also has a supplemental retirement plan for officers and certain
employees under which the Company has agreed to pay a predetermined retirement
benefit. In the event of preretirement death or disability, the plan provides
for similar benefits. Total expenses under this plan in 1998, 1997 and 1996
were $672,000, $600,000 and $585,000, respectively.
Page 28
<PAGE>
(16) 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.
Postretirement health care and life insurance expense (income) included the
following components:
======================================================================
1998 1997 1996
(in thousands)
----------------------------------------------------------------------
Service cost $ 41 $ 36 $ 42
Interest cost 237 250 320
Amortization of prior service cost - - (796)
Amortization of net unrecognized gain - (15) (36)
----------------------------------------------------------------------
Total postretirement health care
and life insurance expense (income) $ 278 $ 271 $ (470)
======================================================================
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:
========================================================
1998 1997
(in thousands)
--------------------------------------------------------
Change in accumulated
postretirement benefit obligation:
Accumulated benefit obligation
at beginning of year $ 3,574 $ 3,521
Service cost 41 36
Interest cost 237 250
Benefits paid (392) (794)
Participant contributions 31 54
Actuarial loss 15 380
Change in discount rate 66 127
--------------------------------------------------------
Unfunded accumulated postretirement
benefit obligation at end of year $ 3,572 $ 3,574
Unrecognized net loss (129) (48)
--------------------------------------------------------
Accrued postretirement benefit cost $ 3,443 $ 3,526
========================================================
Actuarial assumptions used in determining the accumulated postretirement
benefit obligation include a discount rate of 6.75% and 7.0% at December 31,
1998 and 1997, respectively, and estimated increases in health care costs. The
Company has limited its increase in health care costs to 5% per year by
requiring the retirees to absorb any costs in excess of 5% and has used such
rate to measure its obligation.
(17) Commitments and Contingencies
The Company is contingently liable under the terms of letters of credit (Note
9) aggregating approximately $15,221,000 at December 31, 1998, should it fail
to perform in accordance with the terms of its contracts with foreign
customers.
At December 31, 1998, the Company and its subsidiaries were obligated under
building and equipment leases expiring between 1999 and 2012. Minimum future
rentals under those obligations with noncancellable terms in excess of one year
are as follows:
1999 - $ 3,764,000
2000 - $ 3,717,000
2001 - $ 3,670,000
2002 - $ 3,301,000
2003 - $ 3,047,000
Thereafter - $ 8,961,000
Rental expense under such leases for the years ended December 31, 1998, 1997
and 1996 amounted to $3,221,000, $3,555,000 and $3,490,000, respectively.
Page 29
<PAGE>
(18) Legal Matters
The Company and three other companies entered into a consent decree with the
Federal government for the remediation of a Superfund site. The Superfund site
has been divided into three operable units. The consent decree relates to two
of the operable units. The third operable unit has not been formally studied.
The Company believes that the aggregate amount of the obligation and timing of
cash payments associated with these two operable units are reasonably fixed and
determinable. Accordingly, the environmental obligation has been discounted at
five percent. Management estimates that as of December 31, 1998, the
discounted liability over the remainder of the twenty-seven years related to
these two operable units is approximately $3.0 million of which approximately
$0.5 million has been classified as current and is included in accounts payable
and accrued liabilities. Approximately $1.2 million of the $3.0 million
liability will be incurred over the next five years. In 1998 and 1997, the
Company settled with one of its insurance carriers for $2,200,000, net of
associated costs of $300,000, and $2,900,000, respectively, which was recorded
as litigation settlement income. All $5,100,000 was collected in 1998.
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, results of operations, or liquidity.
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, results of
operations, or liquidity.
(19) Business Segments
The Company operates in two segments that have been organized by the products
and services they offer, as follows: Defense and Aerospace Systems, and
Satellite Products. The Defense and Aerospace Systems segment sells its
products and services primarily to customers in the defense industry. The
Satellite Products segment sells its products to customers in the satellite
industry.
Domestic government sales, which include sales to prime contractors of the
government, amounted to 47%, 41% and 36% of net sales, which were 49%, 44% and
44% of Defense and Aerospace Systems net sales and 33%, 30% and 16% of
Satellite Products net sales for 1998, 1997 and 1996, respectively. Export
sales comprised 30%, 33% and 35% of net sales for 1998, 1997 and 1996,
respectively.
Principal products and services by segment are as follows:
Defense and Aerospace Systems Segment
Marine and Aircraft Systems
Aircraft Stores Suspension and Release Equipment
Airborne Mine Countermeasures Systems
Combat Systems
Command, Control and Communications Systems
Undersea Warfare Sonar
Technology Services and Analysis
Electro-Ceramic Products
Fiber Composite Products
Satellite Products Segment
Page 30
<PAGE>
=================================================================
1998 1997 1996
(in thousands)
-----------------------------------------------------------------
Net sales:
Defense and Aerospace Systems $ 81,403 $ 73,708 $ 68,716
Satellite Products 14,657 20,654 25,870
-----------------------------------------------------------------
$ 96,060 $ 94,362 $ 94,586
-----------------------------------------------------------------
Operating earnings (loss):
Defense and Aerospace Systems $ 10,315 $ 6,164 $ 8,711
Satellite Products (3,056) (1,528) (1,931)
Litigation settlement income 2,200 2,900 -
Postretirement health
care curtailment gain - - 7,120
-----------------------------------------------------------------
$ 9,459 $ 7,536 $ 13,900
Net interest expense 428 459 766
Other expense 100 50 66
-----------------------------------------------------------------
Earnings before
Federal income taxes $ 8,931 $ 7,027 $ 13,068
-----------------------------------------------------------------
Identifiable assets:
Defense and Aerospace Systems $ 56,066 $ 31,561 $ 34,083
Satellite Products 22,133 27,909 27,961
Corporate 48,554 49,331 32,179
-----------------------------------------------------------------
$126,753 $108,801 $ 94,223
-----------------------------------------------------------------
Depreciation and amortization:
Defense and Aerospace Systems $ 2,008 $ 3,507 $ 3,380
Satellite Products 2,235 2,343 1,765
Corporate 331 177 158
-----------------------------------------------------------------
$ 4,574 $ 6,027 $ 5,303
-----------------------------------------------------------------
Capital Expenditures:
Defense and Aerospace Systems $ 3,121 $ 1,788 $ 660
Satellite Products 488 2,180 3,365
Corporate 12 115 202
-----------------------------------------------------------------
$ 3,621 $ 4,083 $ 4,227
=================================================================
KPMG 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, 1998 and 1997, and the related consolidated
statements of earnings, shareholders' equity and cash flows for each of the
years in the three-year period ended December 31, 1998. 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, 1998 and 1997, and the results of their operations
and their cash flows for each of the years in the three-year period ended
December 31, 1998, in conformity with generally accepted accounting principles.
KPMG LLP
Melville, New York
February 12, 1999
Page 31
<PAGE>
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following table sets forth unaudited quarterly financial information for
1998 and 1997 (in thousands, except per share amounts).
==============================================================================
First Quarter Second Quarter Third Quarter Fourth Quarter
1998 1997 1998 1997 1998 1997 1998 1997
- ------------------------------------------------------------------------------
Net sales $23,301 $23,704 $23,397 $23,193 $23,171 $23,246 $26,191 $24,219
Operating
earnings 1,943 1,784 2,369 1,835 2,431 1,916 2,716 2,001a
Net earnings 1,905 1,561 2,278 1,703 2,272 1,878 1,776 1,885
Earnings
per share:
Basic 0.25 0.21 0.31 0.23 0.30 0.25 0.23 0.25
Diluted 0.22 0.18 0.27 0.20 0.26 0.22 0.20 0.22
Preferred
dividends
paid 277 290 263 281 264 281 259 275
==============================================================================
(a) Includes a charge of approximately $2,000 for the consolidation and
discontinuance of an Acoustic Products product line.
Page 32
<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), as further amended by amendment thereto dated July
29, 1998 (filed herewith).
3(ii) By-Laws of the Company. Incorporated by reference to Exhibit 3(ii) to
the Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1996.
4(a) Loan Agreement, dated as of September 9, 1998, between Mellon Bank, NA,
et. al., and EDO Corporation. Incorporated by reference to Exhibit 4(a) to the
Company's Quarterly Report on Form 10-Q for the fiscal quarter ended September
26, 1998.
4(b) Amendment No. 1 to the Loan Agreement referred to in Exhibit 4(a) above,
effective December 31, 1998.
4(c) Guarantee Agreement, dated as of July 22, 1988, restated as amended
through Amendment No. 13, effective December 31, 1998, made by the Company in
favor of Mellon Bank as successor in interest to Fleet Bank as successor in
interest to NatWest Bank and Manufacturers Hanover Trust Company.
10(a)* EDO Corporation 1996 Long-Term Incentive Plan. Incorporated by
reference to Exhibit 10(a) to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996.
10(b)* EDO Corporation Executive Termination Agreements, as amended through
November 24, 1989, between the Company and three 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. Incorporated by
reference to Exhibit 10(d) to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996.
10(e) Consent Decree, entered on November 25, 1992, amongst the United States,
EDO Corporation, Plessey, Inc., Vernitron Corporation and Pitney Bowes, Inc.
10(f) EDO Corporation 1997 Non-Employee Director Stock Option Plan.
Incorporated by reference to Appendix A to the Company's Definitive Proxy
Statement dated March 21, 1997.
10(g) EDO Corporation Compensation Plan for Directors (filed herewith).
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.
Certificate of Amendment of the
Certificate of Incorporation of EDO Corporation
Under Section 805 of the Business Corporation Law
Frank A. Fariello, the Chairman and Chief Executive Officer, and Marvin D.
Genzer, the Secretary, of EDO Corporation, certify as follows:
1. The name of the corporation is EDO Corporation (the "Company").
2. The Certificate of Incorporation was filed by the Department of State on
October 16, 1925.
3. The Certificate of Incorporation is amended to change the location of the
office of the Company and the address to which the Secretary of State shall
mail a copy of process in any action or proceeding against the Company that is
served upon him or her.
4. Article FOURTH of the Certificate of Incorporation is amended to read as
follows:
The office of the Corporation is to be located in the City of New
York, Borough of Manhattan, County of New York and State of New York.
The Secretary of State of the State of New York is hereby designated
as the agent of the Corporation upon whom process in any action or
proceeding against it may be served within the State of New York, and
the address to which the Secretary of State shall mail a copy of any
process against the Corporation which may be served upon him or her
pursuant to law is EDO Corporation, 60 East 42nd Street, Suite 5010,
New York, NY 10165.
5. The above amendment to the Certificate of Incorporation was authorized by
vote of the Company's Board of Directors, pursuant to Sections 803(b)(1) and
803(b)(2) of the New York Business Corporation Law.
IN WITNESS WHEREOF, we have executed this certificate and affirm the truth of
the statements set forth herein under penalty of perjury on this 29 day of
July, 1998.
s/Frank A. Fariello
- ----------------------------------
Frank A. Fariello
Chairman & Chief Executive Officer
s/Marvin D. Genzer
- ----------------------------------
Marvin D. Genzer
Secretary
AMENDMENT No. 1 TO LOAN AGREEMENT
FIRST AMENDMENT TO LOAN AGREEMENT (this "Amendment") dated as of December 31,
1998, between EDO CORPORATION (the "Borrower") and MELLON BANK, N.A.
("Mellon"), EUROPEAN AMERICAN BANK ("EAB") and KEYBANK, NA ("KeyBank"; Mellon,
EAB and Key Bank are hereinafter each referred to individually as a "Lender",
and collectively as the "Lenders"); Mellon, as issuer of the Letters of Credit
(Mellon, in such capacity, and any successor issuing bank shall be referred to
hereinafter as the "Issuing Bank") and Mellon, as agent for the Lenders and the
Issuing Bank (Mellon, in such capacity, and any successor agent shall be
referred to hereinafter as the "Agent").
BACKGROUND
A. The Lenders, the Issuing Bank, the Agent and the Borrower entered into that
certain Loan Agreement dated as of September 9, 1998 (the "Original Loan
Agreement"), pursuant to which the Lenders and the Issuing Bank made available
to the Borrower the credit facilities described therein. The Original Loan
Agreement as amended hereby and hereafter from time to time shall be referred
to herein as the "Loan Agreement." All terms capitalized but not defined
herein shall have the meanings given to such terms in the Loan Agreement.
B. The Lenders, the Issuing Bank, the Agent and the Borrower desire to amend
the Original Loan Agreement to allow the Borrower to declare and pay dividends
on the Borrower's preferred stock in accordance with the Loan Agreement as
amended hereby.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged and intending to be legally bound,
the parties hereto agree as follows:
Article I
AMENDMENTS TO LOAN AGREEMENT
SECTION 1.1 Amendments to the Loan Agreement. The parties hereto agree to
amend the Loan Agreement as follows:
(A) Section 6.30 of the Loan Agreement is hereby amended by adding the
following language at the end of Section 6.30:
"provided further that the Borrower may declare and pay dividends on
preferred stock of the Borrower held by the ESOT in the aggregate amount up
to the lesser of (1) the percentage dividend required to be paid under such
preferred stock or (2) the amounts necessary to satisfy the portion of the
ESOT's and/or the trustee of the ESOT's payment obligations to Mellon under
the ESOT Loan Documents."
(B) Exhibit 3.6 of the Loan Agreement is hereby amended by substituting
therefor Exhibit 3.6 attached hereto and made a part hereof.
SECTION 1.2 Incorporation of Terms. The terms of this Amendment are hereby
incorporated into the Loan Agreement.
Article II
REPRESENTATIONS, WAIVERS
SECTION 2.1 Borrower's Representations and Warranties. The Borrower represents
and warrants to the Lenders, the Issuing Bank and the Agent that, as of the
date of execution of this Amendment:
(A) The representations and warranties set forth in Article V of the Loan
Agreement are true and correct as to the Borrower and its Subsidiaries as of
the date hereof except to the extent the Borrower has previously notified the
Agent, the Lenders and the Issuing Bank in writing of subsequent circumstances,
which subsequent circumstances, the Borrower hereby represents, do not
constitute a Default or Event of Default;
(B) No Default or Event of Default has occurred or is continuing, and
(C) The Loan Documents continue in full force and effect and the Borrower does
not have any charge, lien, claim or offset against Lender, or defenses to
enforcement of the Loan Documents by Lender.
SECTION 2.2 Amounts Outstanding. The Borrower hereby represents and warrants
to the Lenders, the Issuing Bank and the Agent that as of the date of execution
of this Amendment Exhibit 2.2 attached hereto and made a part hereof accurately
reflects all Loans and Letters of Credit outstanding under the Loan Agreement.
The Borrower hereby reaffirms its obligations under the Loan Agreement,
including without limitation its obligation to repay such Loans and reimburse
draws under such Letters of Credit as s et forth in the Loan Agreement. The
Lenders and the Issuing Bank each reaffirms its obligations under the Loan
Agreement including without limitation the obligation of each Lender to
reimburse the Issuing Bank to the extent of its Pro Rata Share, for draws under
the Letters of Credit to the extent not reimbursed by the Borrower.
Article III
MISCELLANEOUS
SECTION 3.1 Modifications. This Amendment contains all of the modifications to
the Loan Agreement. No further modifications shall be deemed effective, unless
in writing executed by the parties hereto.
SECTION 3.2 No Waivers. Except as expressly set forth herein, the execution,
delivery and effectiveness of this Amendment shall not operate as a waiver of
any right, power or remedy of the Lender under the Loan Agreement, nor
constitute a waiver of any Default or Event of Default or any provision of the
Loan Agreement.
SECTION 3.3 Governing Law. This Amendment shall be construed and enforced in
accordance with the laws of the Commonwealth of Pennsylvania.
SECTION 3.4 Counterparts. This Amendment may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument, and any of the parties hereto may execute this Amendment by signing
any such counterpart.
SECTION 3.5 Binding Effect. This Amendment shall become effective as of
December 31, 1998 when it shall have been executed by the Borrower, the Agent,
the Issuing Bank and the Lenders, and it shall thereafter be binding upon and
inure to the benefit of the Borrower, the Agent, the Issuing Bank and the
Lenders and their respective successors and assigns, except that the Borrower
shall not have the right to assign any right or obligation hereunder or any
interest herein.
SECTION 3.6 No Novation. The Loan Agreement, as amended hereby, shall remain
in full force and effect. Execution of this Amendment shall not constitute a
novation between the Borrower, the Agent, the Issuing Bank and the Lenders.
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound, have
caused this Amendment to be executed by their respective officers thereunto
duly authorized, as of the date first above written.
EDO CORPORATION
By: s/Kenneth A. Paladino, V.P.
- --------------------------------
By: s/Peter A. Dontas, V.P.
- --------------------------------
MELLON BANK, N.A. (as Lender, the Agent, and Issuing Bank)
By: s/George Goodman, V.P.
- --------------------------------
EUROPEAN AMERICAN BANK
By: s/James V. Maiorino, V.P.
- --------------------------------
KEYBANK, NA
Date of Execution: March , 1999
GUARANTEE AGREEMENT
(Restated as Amended through
Amendment #13 effective December 31, 1998)
GUARANTEE, dated as of July 22, 1988, made by EDO CORPORATION, a New York
corporation (the "Guarantor"), in favor of Mellon Bank, N.A. (the "Bank").
W I T N E S S E T H :
WHEREAS, pursuant to the Term Loan Agreement, dated as of July 22, 1988 (as
amended, supplemented or otherwise modified from time to time, the "Loan
Agreement"), between EDO Corporation Employee Stock Ownership Plan (the
"ESOP"), and the Bank, the Bank has agreed to make a loan to the ESOP upon the
terms and subject to the conditions set forth therein, to be evidenced by the
Term Note issued by the ESOP thereunder;
WHEREAS, it is a condition precedent to the obligation of the Bank to make its
loan to the ESOP under the Loan Agreement that the Guarantor shall have
executed and delivered this Guarantee to the Bank.
NOW, THEREFORE, in consideration of the premises and to induce the Bank to make
its loan to the ESOP under the Loan Agreement, the Guarantor hereby agrees with
the Bank as follows:
1. Defined Terms. Unless otherwise defined herein (including in Schedule 1
hereto), terms which are defined in the Loan Agreement and used herein are so
used as so defined. As used herein, "Obligations" shall mean the unpaid
principal of and interest on the Term Note and all other obligations and
liabilities of the ESOP to the Bank, whether direct or indirect, absolute or
contingent, due or to become due, or now existing or hereafter incurred, which
may arise under, out of, or in connection with, the Loan Agreement, the Term
Note, the Pledge Agreement or the Basic Documents and any other document made,
delivered or given in connection therewith, whether on account of principal,
interest, reimbursement obligations, fees, indemnities, costs, expenses
(including, without limitation, all fees and disbursements of counsel to the
Bank) or otherwise.
2. Guarantee. The Guarantor hereby unconditionally and irrevocably guarantees
to the Bank the prompt and complete payment and performance by the ESOP when
due (whether at the stated maturity, by acceleration or otherwise) of the
Obligations. The Guarantor further agrees to pay any and all expenses
(including, without limitation, all reasonable fees and disbursements of
counsel) which may be paid or incurred by the Bank in enforcing, or obtaining
advice of counsel in respect of enforcing, any of its rights under this
Guarantee.
The Guarantor agrees that whenever, at any time, or from time to time, it shall
make any payment to the Bank on account of its liability hereunder, it will
notify the Bank in writing that such payment is made under this Guarantee for
such purpose. No payment or payments made by the ESOP or any other Person or
received or collected by the Bank from the ESOP or any other Person by virtue
of any action or proceeding or any set-off or appropriation or application, at
any time or from time to time, in reduction of or in payment of the
Obligations shall be deemed to modify, reduce, release or otherwise affect the
liability of the Guarantor hereunder which shall, notwithstanding any such
payment or payments, remain liable for the amount of the Obligations until the
Obligations are paid in full.
2.1 Collateral.
(a) Security Interests. As security for the performance of this Guarantee and
the other Basic Documents, including without limitation the payment and
performance of all Obligations, whether absolute or contingent, matured or
unmatured, direct or indirect, sole, joint, several, or joint and several,
similar or dissimilar, due to become due or heretofore or hereafter contracted
or acquired (collectively the "Guarantee Liabilities"), each Guarantor hereby
grants, pledges, and assigns to the Bank, a security interest in all assets of
such Guarantor constituting personal property now owned or hereafter acquired
including, without limitation, (i) all Accounts, Chattel Paper, Equipment
(whether or not constituting fixtures but excluding motor vehicles title to
which is evidenced by a certificate of title), Documents, Instruments, General
Intangibles (including, but not limited to, any and all interests in
trademarks, service marks, patents, licenses, permits, copyrights, contracts
and agreements), including without limitation such Guarantor's rights under all
present and future contracts (to the extent assignments thereof are not
prohibited by their terms), authorizations, permits and licenses issued or
granted to such Guarantor by any governmental agency, whether federal, state or
local for the ownership and operation of its business, and all proceeds of sale
thereof, (ii) all Inventory of such Guarantor held for sale or lease or to be
furnished under contracts of service, (iii) all books, records, tapes,
information, data, stored material, computer media, passwords, access codes
arising or related to such Guarantor's business, now existing or hereafter
acquired (collectively, "Books and Records"), (iv) any account maintained by
such Guarantor with the Bank or any affiliate of the Bank and all cash held
therein, and (v) all proceeds and products of the foregoing, including casualty
insurance thereon, now owned or hereafter acquired by such Guarantor.
(b) Further Security. As further security for payment of the Guarantee
Liabilities: (i) each Guarantor shall execute and deliver a pledge agreement
(the "Guarantee Pledge Agreement") in favor of the Bank, pursuant to which it
will grant to the Bank a lien on and security interest, in (A) 100% of the
capital stock in each Subsidiary of such Guarantor, organized under the laws of
one of the states or territories of the United States, whether now existing or
hereafter created or acquired, (B) 65% of the capital stock of each Subsidiary
of such Guarantor, organized under the laws of a jurisdiction other than a
state or territory oft United States, whether now existing or hereafter created
or acquired, and (C) obligations owed by such Guarantor to any other Guarantor,
whether now existing or hereafter created; (ii) each Guarantor shall deliver to
the Bank original stock certificates and instruments (if any) representing the
property pledged pursuant to the Guarantee Pledge Agreement, together with
powers executed in blank; and (iii) each Guarantor shall deliver executed
UCC-1 financing statements as to such pledges and security interests in form
and substance as required by the Bank.
(c) Financing Statements; Certificates of Title. Each Guarantor will join with
the Bank in executing such financing statements and continuation statements (in
form satisfactory to the Bank) under the Uniform Commercial Code as the Bank
may specify, and will pay the cost of filing the same in such public offices as
the Bank shall designate. Each Guarantor agrees to take whatever action the
Bank reasonably requests to perfect and to continue perfection of the Bank's
security interest in the Collateral.
(d) Landlord's Waiver. Each Guarantor shall exercise reasonable commercial
efforts to cause the owners of the locations identified on Exhibit 2.1(f)
attached hereto to execute and deliver to the Bank an instrument (in form
satisfactory to the Bank) by which each such owner waives its right to distrain
on any of the Collateral, and by which such owner grants to the Bank the right
(but not the obligation) to cure any default by such Guarantor under the
applicable lease (each, a "Landlord's Waiver").
(e) The Bank's Rights With Respect to Accounts, Chattel Paper, Instruments and
General Intangibles. With respect to any Account, Chattel Paper, Instrument
and General Intangible that is Collateral hereunder, upon the occurrence and
continuance of a Guarantee Event of Default which has resulted in the
acceleration of the Term Loan, the Bank shall have the right at any time and
from time to time, with notice to the appropriate Guarantor or Guarantors
(which may be oral or written), to: (i) endorse in the name of such Guarantor
all proceeds of the Accounts, Chattel Paper, Instruments and General
Intangibles payable to such Guarantor that may come to the Bank; (ii) notify
Purchasers under such Guarantor's Accounts, Chattel Paper, Instruments and
General Intangibles that such Accounts, Chattel Paper, Instruments and General
Intangibles have been assigned to the Bank, forward invoices to such Purchasers
directing them to make payments to the Bank, collect all Accounts, Chattel
Paper, Instruments and General Intangibles of such Guarantor in the Bank's or
such Guarantor's name, and take control of any cash or non-cash proceeds of
such Guarantor's Accounts, Chattel Paper, any Instruments and General
Intangibles; (ii) compromise, extend, or renew any Account, Chattel Paper,
Instrument or General Intangible of such Guarantor or deal with such
Guarantor's Accounts, Chattel Paper, Instruments and General Intangibles as the
Bank may deem advisable; (D) make exchanges, substitutions, or surrenders of
Collateral; and (E) take control of any cash or non-cash proceeds of any
Collateral.
(f) Places of Business; Location of Collateral. (i) The Guarantors represent
that (A) the properties listed on part A of Exhibit 2.1(f) attached hereto
serve as each Guarantor's chief place of business, chief executive office, and
the place where it keeps its Books and Records, and (B) all of the locations
where any one or more Guarantors keep Equipment or Inventory having an
aggregate value in excess of $1,000,000.00 are listed on part B of Exhibit
2.1(f) attached hereto.(ii) Each Guarantor will notify the Bank prior to (A)
any change in the location of the chief place of business or chief executive
office of such Guarantor, (B) any change in the place where such Guarantor
keeps its Equipment and/or Inventory or its Books and Records, (C) the
establishment of any new or the discontinuance of any existing place of
business of such Guarantor, and (D) the establishment of any new or the
discontinuance of any location where Inventory, Equipment or Books and Records
are kept by such Guarantor. (iii) Except for the temporary removal of mobile
Equipment in the ordinary course of a Guarantor's business, no Guarantor will
permit any of their Equipment having aggregate value of $1,000,000.00 or more
to be removed from its current location or any of their Inventory having an
aggregate value of $1,000,000.00 or more to be so removed without giving the
Bank prior written notice and then, only if and to the extent the Bank retains
a first priority, perfected security interest therein.
(g) Accounts. With respect to each Account represented on EDO's Consolidated
balance sheet each Guarantor represents that: (A) except as reflected on such
Consolidated balance sheet, such Account is not evidenced by a judgment, an
Instrument or Chattel Paper or secured by a letter of credit (except (1) such
judgment as has been assigned, (2) such Instrument or Chattel Paper as has been
endorsed and delivered to the Bank and (3) such letter of credit as has been
assigned and delivered to the Bank) and represents a bona fide completed
transaction; (B) except as reflected on such Consolidated balance sheet, the
amount shown on such Guarantor's Books and Records and on any list, invoice or
statement furnished to the Bank is owing to such Guarantor; (C) such Guarantor
has good title to the Account free and clear of all liens and encumbrances
except for Permitted Encumbrances; (D) the Account has not been transferred to
any other Person, and, at the time such Account is created, no person except
such Guarantor or Purchaser has any claim thereto or to the goods or services
represented thereby; (E) except as reflected on such Consolidated balance
sheet, no partial payment against any Account has been made by anyone other
than as noted on such Guarantor's Books and Records and (F) except as reflected
on such Consolidated balance sheet, to the best of such Guarantor's knowledge,
except as reflected on such Consolidated balance sheet, no set-off or counter
claim to such Account exists, and no agreement has been made with any person
under which any deduction or discount may be claimed. The Guarantors shall be
deemed not to have made a misrepresentation with respect to this Section 2.1(g)
unless such representation would constitute a misrepresentation under Section
3.7(A) of the Revolving Credit Loan Agreement. The Guarantors will promptly
notify the Bank if any Account arises out of contracts with the United States,
any United States state, territory or local government or any department,
agency or instrumentality thereof, furnish the Bank with copies of each such
contract, at the Bank's request, and execute any instruments and take any steps
in order that (subject to the following sentence) all moneys due and to become
due under any such contract shall be assigned to the Bank and notice given
under the Federal Assignment of Claims Act (or applicable state statute, if
any). The Bank agrees not to deliver any such notices or assignments to the
applicable United States or other United States state, territory or local
governmental department, agency or instrumentality unless and until there
occurs a Guarantee Event of Default and then the Bank shall deliver such
notices of assignment only if it determines in good faith that under the
circumstances it is reasonable to do so to protect its rights in and to such
Accounts or the proceeds thereof or in anticipation of exercising its rights
hereunder as a result of such Guarantee Event of Default. Each Guarantor will
(i) if requested by the Bank, furnish to the Bank copies, with such duplicate
copies as the Bank may request, of any invoice applicable to each of its
Accounts; (ii) inform the Bank immediately of any delay in performance by such
Guarantor or claims made in regard to its Accounts which alone or in the
aggregate with other claims or delays could likely have a Material Adverse
Effect; and (iii) furnish the Bank with such other reports as the Bank may from
time to time reasonably request.
(h) Chattel Paper; Letters of Credit and Instruments. Each Guarantor covenants
that it will deliver to the Bank promptly all copies (or if requested by the
Bank, all originals) of (i) all letters of credit securing Accounts except to
the extent, permitted under the Revolving Credit Loan Agreement, (ii) Chattel
Paper, and/or (iii) Instruments now in its possession or hereafter acquired,
each properly assigned and/or endorsed over to the Bank, the originals which
letters of credit, Chattel Paper and Instruments delivered to the Bank shall be
held by the Bank as security hereunder. The Guarantors shall remain solely
responsible for the observance and performance of all of its or their covenants
and obligations under all Chattel Paper and Instruments, and the Bank shall not
be required to observe or perform any such covenants or obligations.
(i) Equipment. Each Guarantor represents, warrants and agrees that (i) such
Guarantor has good title to its Equipment (other than leased Equipment),
subject only to the security interests created hereby and Permitted
Encumbrances; and (ii) such Guarantor will not dispose of any of its Equipment
other than in the ordinary course of business and then in accordance with the
terms of this Agreement, or permit any of its Equipment to become a fixture or
an accession to other property unless the Bank's security interest therein
would continue to be a perfected, first lien priority security interest
therein.
(j) Expenses of Bank. The Guarantors will reimburse the Bank within ten (10)
days after demand for all reasonable expenses (including the reasonable fees
and expenses of legal counsel for the Bank) in connection with the enforcement
of the Bank's rights to take possession of the Collateral and the proceeds
thereof and to hold, collect, render in compliance with applicable laws and
regulations (including without limitation Environmental Laws), prepare for
sale, sell and dispose of the Collateral.
(k) Notices. If notice of sale, disposition or other intended action by the
Bank with respect to the Collateral is required by the U.C.C. or other
applicable law, any notice thereof sent to the appropriate Guarantor at its
address listed herein or such other address of such Guarantor as may from time
to time be shown on the records of the Bank at least ten days prior to such
action, shall constitute reasonable notice to such Guarantor.
(l) Insurance; Discharge of Taxes, etc. The Bank shall have the right at any
time and from time to time, with or without notice to any Guarantor, to (i)
obtain insurance covering any of the Collateral if the appropriate Guarantor
fails to do so, (ii) discharge taxes, liens, security interests or other
encumbrances at any time levied or placed on any of the Collateral and (iii)
pay for the maintenance and preservation of any of the Collateral. The
Guarantors will reimburse the Bank, on demand, with interest thereon at the
Default Rate for any payment the Bank makes, or any reasonable expense the Bank
incurs under this authorization. Each Guarantor assigns to the Bank all rights
to receive the proceeds of insurance covering the Collateral. If there exists
a Guarantee Event of Default and an acceleration of the Term Note, the
Guarantors authorize the Bank to apply such proceeds as a prepayment of the
Term Note, subject to the Agent's pari passu rights under the Revolving Credit
Loan Agreement, and as set forth in the Intercreditor Agreement. In the event
that there does not exist a Guarantee Event of Default and an acceleration of
the Term Note, such proceeds shall be subject to Section 2.6 of the Revolving
Credit Loan Agreement. If the Revolving Credit Loan Agreement has been
terminated and all of EDO's obligations thereunder have been discharged in full
and there does not exist a Guarantee Event of Default and an acceleration of
the Term Note, at the Guarantor's written request , the Bank shall make such
proceeds available to such Guarantor for the repair or replacement of damaged
Collateral if and on condition that (A) such Guarantor proceeds diligently to
cause such replacement and/or repair, and (B) any excess proceeds remaining
after such repair and/or replacement shall be applied by the Bank as a
prepayment of the Term Note.
(m) Waiver and Release by the Guarantors. Each Guarantor (i) waives protest of
all commercial paper at any time held by the Bank on which such Guarantor is in
any way liable, notice of nonpayment at maturity of any and all Accounts and,
except where required hereby or by law, notice of action taken by the Bank
under any of the Basic Documents, and (ii) releases the Bank from all claims
for loss or damage caused by any failure to collect any Account or by any act
or omission on the part of the Bank or its officers, agents and employees,
except to the extent resulting from the willful misconduct or gross negligence
as determined in a final judgment of a court of competent jurisdiction or a
settlement tantamount to such formal order.
(n) Records and Reports. Each Guarantor shall keep accurate and complete
records of its Accounts (and the collection thereof), General Intangibles,
Chattel Paper, Instruments, Documents and Inventory and furnish the Bank such
information about its Accounts, General Intangibles, Chattel Paper,
Instruments, Documents, and Inventory as the Bank may reasonably request. The
Bank shall have the right to conduct periodic examinations and verifications of
such Guarantor's Books and Records, which examination may include, without
limitation, verifications of Accounts by contacting Purchasers; provided that
if there then exists no Guarantee Event of Default, the Bank shall conduct such
verifications with such Guarantor's assistance (which such Guarantor agrees to
provide) using such Guarantor's letterhead with responses to be returned to a
lock box under the Bank's control. Each Guarantor agrees to make its Books and
Records available to the Bank at such Guarantor's principal place of business
for purposes of such examination. Provided there does not exist a Guarantee
Event of Default, the Bank agrees to give such Guarantor at least two (2)
Business Days prior notice of such examination (which notice need not be in
writing) and to conduct such examination during normal business hours. The
Guarantors shall reimburse the Bank for the reasonable costs and expenses of
any such examination conducted following the occurrence and during the
continuation of a Guarantee Event of Default.
(o) Further Assurances. From time to time the Guarantors will execute and
deliver to the Bank such additional instruments as the Bank may reasonably
request to effectuate the purposes of this Agreement and to assure to the Bank,
as secured party, a perfected, first priority security interest in the
Collateral.
(p) Application of Proceeds of Collateral. After the occurrence of a Guarantee
Event of Default, all proceeds of Collateral shall be applied (i) to the costs
of preservation and liquidation of such Collateral and the Bank's exercise of
its rights hereunder then (ii) to all other Guarantee Liabilities.
(q) Continuing Collateral. The Bank shall be under no obligation to proceed
first against (a) any part of the Collateral before proceeding against any
other part of the Collateral, (b) any Guarantor before any other Guarantor. It
is expressly agreed that all of the Collateral stands as equal security for all
Guarantee Liabilities and the other obligations of the Guarantors hereunder and
the Bank shall have the right to proceed against or sell any and/or all of the
Collateral in any order, or simultaneously, as it, in its sole discretion,
shall determine.
(r) Section 8 of the Guarantee is hereby amended by deleting the address of the
Bank set forth therein and substituting, in lieu thereof , the following:
"1735 Market Street, Philadelphia, PA 19101."
3. Right of Set-off. The Bank is hereby irrevocably authorized at any time and
from time to time without notice to the Guarantor, any such notice being hereby
waived by the Guarantor, to set off and appropriate and apply any and all
deposits (general or special, time or demand, provisional or final), in any
currency, and any other credits, indebtedness or claims, in any currency, in
each case whether direct or indirect, at any time held or owing by the Bank to
or for the credit or the account of the Guarantor, or any part thereof in such
amounts as the Bank may elect, on account of the liabilities of the Guarantor
hereunder and claims of every nature and description of the Bank against the
Guarantor, in any currency, whether arising hereunder, under the Loan
Agreement, the Term Note, any other Basic Document, or otherwise in connection
herewith, as the Bank may elect, whether or not the Bank has made any demand
for payment. The Bank shall notify the Guarantor promptly of any such set-off
and the application made by the Bank of the proceeds thereof, provided that the
failure to give such notice shall not affect the validity of such set-off and
application. The rights of the Bank under this paragraph are in addition to
other rights and remedies (including, without limitation, other rights of
set-off) which the Bank may have.
4. No Subrogation. Notwithstanding any payment or payments made by the
Guarantor hereunder, or any set-off or application of funds of the Guarantor by
the Bank, the Guarantor shall not be entitled to be subrogated to any of the
rights of the Bank against the ESOP or against any collateral security or
guarantee or right of offset held by the Bank for the payment of the
Obligations, nor shall the Guarantor seek any reimbursement from the ESOP in
respect of payments made by the Guarantor hereunder, until all amounts owing to
the Bank by the ESOP on account of the Obligations are paid in full. If any
amount shall be paid to the Guarantor on account of such subrogation rights at
any time when all of the Obligations shall not have been paid in full, such
amount shall be held by the Guarantor in trust for the Bank, segregated from
other funds of the Guarantor, and shall, forthwith upon receipt by the
Guarantor, be turned over to the Bank in the exact form received by the
Guarantor (duly indorsed by the Guarantor to the Bank, if required), to be
applied against the Obligations, whether matured or unmatured, in such order as
the Bank may determine.
5. Amendments, etc. with respect to the Obligations. The Guarantor shall
remain obligated hereunder notwithstanding that, without any reservation of
rights against the Guarantor, and without notice to or further assent by the
Guarantor, any demand for payment of any of the Obligations made by the Bank
may be rescinded by the Bank, and any of the Obligations continued, and the
Obligations, or the liability of any other party upon or for any part thereof,
or any collateral security or guarantee therefor or right of offset with
respect thereto, may, from time to time, in whole or in part, be renewed,
extended, amended, modified, accelerated, compromised, waived, surrendered or
released by the Bank, and the Loan Agreement, the Term Note, the Pledge
Agreement or any other Basic Document and any other document in connection
therewith may be amended, modified, supplemented or terminated, in whole or in
part, as the Bank may deem advisable from time to time, and any collateral
security, guarantee or right of offset at any time held by the Bank for the
payment of the Obligations may be sold, exchanged, waived, surrendered or
released. The Bank shall have no obligation to protect, secure, perfect or
insure any Lien at any time held by it as security for the Obligations or for
this Guarantee or any property subject thereto.
6. Guarantee Absolute and Unconditional. The Guarantor waives any and all
notice of the creation, renewal, extension or accrual of any of the Obligations
and notice of or proof of reliance by the Bank upon this Guarantee or
acceptance of this Guarantee; the Obligations, and any of them, shall
conclusively be deemed to have been created, contracted or incurred in reliance
upon this Guarantee; and all dealings between the ESOP or the Guarantor, on the
one hand, and the Bank, on the other, shall likewise be conclusively presumed
to have been had or consummated in reliance upon this Guarantee. The Guarantor
waives diligence, presentment, protest, demand for payment and notice of
default or nonpayment to or upon the ESOP or the Guarantor with respect to the
Obligations. This Guarantee shall be construed as a continuing, absolute and
unconditional guarantee of payment without regard to (a) the validity or
enforceability of the Loan Agreement, the Term Note, the Pledge Agreement, or
any other Basic Document, any of the Obligations or any collateral security
therefor or guarantee or right of offset with respect thereto at any time or
from time to time held by the Bank, (b) any defense, set-off or counterclaim
(other than a defense of payment or performance) which may at any time be
available to or be asserted by the ESOP against the Bank, or (c) any other
circumstance whatsoever (with or without notice to or knowledge of the ESOP or
the Guarantor) which constitutes, or might be construed to constitute, an
equitable or legal discharge of the ESOP for the Obligations, or of the
Guarantor under this Guarantee, in bankruptcy or in any other instance. When
pursuing its rights and remedies hereunder against the Guarantor, the Bank may,
but shall be under no obligation to, pursue such rights and remedies as it may
have against the ESOP or any other Person or against any collateral security or
guarantee for the Obligations or any right of offset with respect thereto, and
any failure by the Bank to pursue such other rights or remedies or to collect
any payments from the ESOP or any such other Person or to realize upon any such
collateral security or guarantee or to exercise any such right of offset, or
any release of the ESOP or any such other Person or any such collateral
security, guarantee or right of offset, shall not relieve the Guarantor of any
liability hereunder, and shall not impair or affect the rights and remedies,
whether express, implied or available as a matter of law, of the Bank against
the Guarantor.
7. Reinstatement. This Guarantee shall continue to be effective, or be
reinstated, as the case may be, if at any time payment, or any part thereof, of
any of the Obligations is rescinded or must otherwise be restored or returned
by the Bank upon the insolvency, bankruptcy, dissolution, liquidation or
reorganization of the ESOP or upon or as a result of the appointment of a
receiver, intervenor or conservator of, or trustee or similar officer for, the
ESOP or any substantial part of its property, or otherwise, all as though such
payments had not been made.
8. Payments. The Guarantor hereby agrees that the Obligations will be paid to
the Bank without set-off or counterclaim in U.S. Dollars at the office of the
Bank located at 270 Park Avenue, New York, New York 10017.
9. Representations and Warranties. The Guarantor represents and warrants that:
(a) each of the Guarantor and its Subsidiaries is duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation, has the corporate power to own its assets and to transact the
business in which it is presently engaged, is duly qualified as a foreign
corporation and in good standing under the laws of each jurisdiction where its
ownership, lease or operation of property or the conduct of its business
requires such qualification, and is in compliance with all Requirements of Law
except to the extent that the failure to so qualify or comply therewith could
not have a material adverse effect on the business, operations, property or
financial or other condition of the Guarantor and its Subsidiaries taken as a
whole.
(b) the Guarantor has the corporate power, authority and legal right to make,
deliver and perform the Basic Documents to which it is a party and has taken
all necessary corporate action to authorize the execution, delivery and
performance of the Basic Documents to which it is a party. No consent of any
other Person, and no consent, license, permit, approval or authorization of,
exemption by, notice or report to, or registration, filing or declaration with,
any Governmental Authority is required in connection with the execution,
delivery, performance, validity or enforceability of the Basic Documents to
which it is a party.
(c) the execution, delivery and performance by the Guarantor of the Basic
Documents to which it is a party will not violate any Requirement of Law or any
Contractual Obligation of the Guarantor and will not result in, or require, the
creation or imposition of any Lien on any of its property, assets or revenues
pursuant to any Requirement of Law or Contractual Obligation.
(d) there is no litigation, investigation or other proceeding of or before any
arbitrator or Governmental Authority pending or threatened against the
Guarantor or any of its Subsidiaries or any of its or their assets or with
respect to the Basic Documents or any of the transactions contemplated thereby,
which, if adversely determined, would have a material adverse effect on the
business, assets or financial condition of the Guarantor and its Subsidiaries
taken as a whole.
(e) the Basic Documents to which the Guarantor is a party have been duly
executed and delivered on behalf of the Guarantor and constitute legal, valid
and binding obligations of the Guarantor enforceable against the Guarantor in
accordance with their respective terms except as such enforcement may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting the enforcement of creditors' rights generally.
(f) (i) the ESOP is a trust duly existing under the laws of the State of New
York and is a stock bonus plan qualified under Section 401(a) of the Code and
the provisions of the ESOP satisfy the requirements for employee stock
ownership plans set forth in Section 4975(e)(7) of the Code. The Trustee
executing the Basic Documents on behalf of the ESOP has adequate authority to
do so under the ESOP's organizational documents. No "prohibited transaction"
under ERISA or the Code has occurred with respect to the ESOP or will occur
upon the execution of the Term Note or the other Basic Documents;
(ii) the ESOP has the power, authority and legal right to make, deliver and
perform the Basic Documents to which it is a party and to borrow under the Loan
Agreement and has taken all necessary action to authorize the borrowings on the
terms and conditions of the Loan Agreement and to authorize the execution,
delivery and performance of the Basic Documents to which it is a party. No
consent of any Person, and no further consent, license, permit, approval or
authorization of, exemption by, notice or report to, or registration, filing or
declaration with, any Governmental Authority is required in connection with the
borrowings hereunder or with the execution, delivery, performance, validity or
enforceability of the Basic Documents to which it is a party. The Basic
Documents to which the ESOP is a party have been duly executed and delivered on
behalf of the ESOP, and the Basic Documents to which ESOP is a party constitute
legal, valid and binding obligations of the ESOP enforceable against the ESOP
in accordance with their respective terms except as enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting the enforcement of creditors' rights generally;
(iii) the execution, delivery and performance by the ESOP of the Basic
Documents to which it is a party, the borrowings and the use of the proceeds
thereof will not violate any Requirement of Law or any Contractual Obligation
of the ESOP and will not result in, or require, the creation or imposition of
any Lien on any of its property, assets or revenues pursuant to any Requirement
of Law or Contractual Obligation;
(iv) no litigation, investigation or other proceeding of or before any
arbitrator or Governmental Authority is pending or, to the knowledge of the
Guarantor, threatened against the Trustee or the ESOP or any of the assets of
the ESOP (a) with respect to the Basic Documents or any of the transactions
contemplated thereby, or (b) which, if adversely determined, would have a
material adverse effect on the business, assets or financial condition of the
ESOP;
(v) the ESOP is not in default in the payment or performance of any of its
Contractual Obligations in any respect which could be materially adverse to the
business, operations, property or condition (financial or otherwise) of the
ESOP or which could materially adversely affect the ability of the ESOP to
perform its obligations under any of the Basic Documents to which it is a
party. No Default or Event of Default has occurred and is continuing. The
ESOP is not in default under any order, award or decree of any arbitrator or
Governmental Authority binding upon or affecting it or by which any of its
assets may be bound or affected, and no such order, award or decree materially
adversely affects the ability of the ESOP to perform its obligations under any
of the Basic Documents to which it is a party;
(vi) the Term Loan is an exempt loan within the meaning of Treasury Regulation
Section 54.4975-7(b)(1)(iii). Neither the Term Loan nor the taking of any
action contemplated by the Basic Documents is a "prohibited transaction" within
the meaning of Section 4975 of the Code or Sections 406 and 408 of ERISA, or
violates any provision of the ESOP; and
(vii) the ESOP has filed copies of all statements and reports which are
required to be filed with any Governmental Authority, except to the extent that
failure to file any such statements or reports would not have a material
adverse effect on the assets or financial condition of the ESOP.
(g) (i) neither the Guarantor nor any of its Subsidiaries is in default in the
payment or performance of any Contractual Obligations in any respect which
could be materially adverse to the business, operations, property or condition
(financial or otherwise) of the Guarantor and its Subsidiaries taken as a whole
or which could materially adversely affect the ability of the Guarantor to
perform its obligations under any of the Basic Documents to which it is a
party, (b) no Guarantee Event of Default hereunder and no Default or Event of
Default under any of the Basic Documents has occurred and is continuing and (c)
neither the Guarantor nor any of its Subsidiaries is in default under any
order, award or decree of any Governmental Authority binding upon or affecting
the Guarantor or any of its Subsidiaries, and no such order, award of decree
materially adversely affects the ability of the Guarantor to perform its
obligations under any of the Basic Documents to which it is a party.
(h) all of the shares of the Pledged Stock (as defined in the Pledge Agreement)
have been duly and validly issued and are fully paid and non-assessable.
Assuming that the Bank or its duly appointed agent therefor obtains and
maintains continuous possession of the Pledged Stock, the Pledge Agreement
creates in favor of the Bank a first priority security interest in such Pledged
Stock, and the proceeds thereof, pledged thereunder.
(i) the proceeds of the borrowings pursuant to the Loan Agreement will not be
used for any purpose which would violate or be inconsistent with Regulation G,
T, U or X of the Board of Governors of the Federal Reserve System.
(j) the Guarantor is not an "investment company" or a company "controlled" by
an "investment company" (as each of the quoted terms is defined or used in the
Investment Company act of 1940, as amended).
(k) the consolidated balance sheet of the Guarantor and its Subsidiaries as at
December 31, 1987 and the related consolidated statement of income and retained
earnings for the fiscal year then ended (copies of which have heretofore been
furnished to the Bank) have been prepared in accordance with GAAP applied
consistently throughout the period involved, are complete and correct and
present fairly the consolidated financial condition of the Guarantor and its
Subsidiaries as at such date and the results of their operations for such
fiscal year; since such date there has been no material adverse change in the
business, operations, property or financial or other condition of the Guarantor
and its Subsidiaries taken as a whole. Neither the Guarantor nor izs
Subsidiaries has any material Contingent Obligation, contingent liability or
liability for taxes, long-term lease or unusual forward or long-term commitment
which is not reflected in the foregoing statements or in the notes thereto.
(l) The representations and warranties of each Guarantor set forth in Article V
of the Revolving Credit Loan Agreement and in Section 4 of the Guarantee and
Security Agreement, in each case as of September 9, 1998 (the "Original
Revolving Credit Loan Agreement Representations and Warranties"), are true and
correct as to each Guarantor (making such representations and warranties) as of
September 9, 1998 and the Original Revolving Credit Loan Agreement
Representations and Warranties (together with those defined terms used therein)
are hereby incorporated into this Guarantee. Each Guarantor acknowledges and
agrees that the Original Revolving Credit Loan Agreement Representations and
Warranties are in addition to the other representations and warranties set
forth in this Guarantee and shall in no way limit such other representations
and warranties. Additionally, for the sole purpose of this Subsection 9(l),
any amendment, supplement or modification to any of the Original Revolving
Credit Loan Agreement Representations and Warranties after September 9, 1998
shall not be deemed to amend, supplement or modify the Original Revolving
Credit Loan Agreement Representations and Warranties as incorporated herein by
reference unless agreed to in writing by the Bank and the Guarantor.
(m) EDO's guarantee hereunder of principal of (and premium if any) and interest
on the Obligations constitutes "Senior Indebtedness", as such term is defined
in the Indenture dated November 15, 1986 between EDO and Manufacturers Hanover
Trust Company."
10. Affirmative and Negative Covenants. (a) The Guarantor hereby covenants
and agrees with the Bank that, from and after the date of this Guarantee until
the Obligations are paid in full, unless otherwise consented to in writing by
the Bank, the Guarantor shall:
(i) Notices. Promptly give notice to the Bank of
(a) the occurrence of any Guarantee Event of Default under this Agreement or of
any default under any instrument or other agreement of the Guarantor or any of
its Subsidiaries, (b) the receipt of any notice from the Internal Revenue
Service of its intent to issue an adverse determination letter to the effect
that the ESOP is not a qualified plan, and (c) any default or event of default
under any instrument or other agreement binding upon the ESOP which default is
likely to have a material adverse effect on the financial condition of the ESOP
or on the ability of the ESOP to perform its obligations under the Basic
Documents. Each notice pursuant to this subsection shall be accompanied by a
statement of the president or chief executive officer of the Guarantor setting
forth details of the occurrence referred to therein and stating what action the
Guarantor proposes to take with respect thereto.
(ii) Compliance of ESOP. Cause and require the ESOP (i) to use the proceeds of
the Term Loan exclusively for the acquisition of employer securities (within
the meaning of-Code Section 409(l)), (ii) subject to compliance with ERISA, to
make principal payments in the amounts and at the time the ESCP is required to
make principal payments of the Term Note, (iii) to comply with the requirements
for an "exempt loan" to the ESOP as defined in Treasury Regulations Section
54.4975-7 and the requirements, if any, of Treasury Regulations which may be
promulgated from time to time with respect to Code Section 133, (iv) promptly,
upon receipt thereof, to deliver to the Bank each determination letter from the
Internal Revenue Service stating that the ESOP is an employee stock ownership
plan qualified under Code Sections 401(a) and 4975(e)(7), and (v) to be
operated and administered as a qualified employee stock ownership plan under
Section 401(a) of the Code and, to the extent applicable, Sections 409 and
4975(e)(7) of the Code and to be in material compliance with all applicable
requirements of ERISA (including Titles I and II) and the Code and Regulations
thereunder as from time in effect and applicable to the ESOP.
(iii) Contribution to ESOP. Contribute to the ESOP such amounts as may be
required to enable the ESOP to repay the Term Note in accordance with the terms
thereof.
(b) No Amendments. The Guarantor hereby covenants and agrees with the Bank
that, from and after the date of this Guarantee until the Obligations are paid
in full, unless otherwise consented to in writing by the Bank, the Guarantor
shall not, nor will it permit any Subsidiary to, directly or indirectly,
without the prior written consent of the Bank, permit the modification or
waiver of or any change in any of the provisions of the Basic Documents.
(c) The covenants of each Guarantor set forth in Article VI of the Revolving
Credit Loan Agreement and in Section 5 of the Guarantee and Security Agreement,
as of September 9, 1998 (the "Original Revolving Credit Loan Agreement
Covenants"), together with those defined terms used therein, are hereby
incorporated into this Guarantee. Each Guarantor acknowledges and agrees to
comply with such Original Revolving Credit Loan Agreement Covenants (made by
such Guarantor) and that the Original Revolving Credit Loan Agreement Covenants
are in addition to the covenants and other agreements set forth in this
Guarantee and shall in no way limit such other covenants and other agreements.
Additionally, for the sole purpose of this Subsection 10(c), any amendment,
supplement or modification of any of the Original Revolving Credit Loan
Agreement Covenants after September 9, 1998 shall not be deemed to amend,
supplement or modify the Original Revolving Credit Loan Agreement Covenants as
incorporated herein by reference unless agreed to in writing by the Bank and
the Guarantor."
(d) No Guarantor shall create or acquire any Subsidiary unless (in addition to
meeting the requirements set forth in Section 6.15(C) of the Revolving Credit
Loan Agreement as incorporated herein by Subsection 10(c) hereof) (i) if such
Subsidiary is a Domestic Subsidiary, such Subsidiary becomes a guarantor
hereunder and assumes the Guarantee Liabilities pursuant to a joinder and
assumption documents satisfactory to the Bank and grants to the Bank a first
priority lien and security interest in and to all assets of such Subsidiary,
and (ii) if such Subsidiary is a Foreign Subsidiary, the Bank has consented
thereto, which consent may be conditional on, among other things, an amendment
to this Guarantee satisfactory to the Bank and (iii) if such Subsidiary is a
Domestic Subsidiary all of the stock of such Subsidiary is pledged as
Collateral to secure the Guarantee Liabilities and if such Subsidiary is a
Foreign Subsidiary, 65% of the stock of such Subsidiary is pledged as
Collateral to secure the Guarantee Liabilities in each case, on a pari passu
basis with the rights of the Agent under the Revolving Credit Loan Agreement.
(e) Now and at all times hereafter, EDO's guaranty hereunder of principal of
(and premium, if any) and interest on the Obligations shall constitute "Senior
Indebtedness", as such term is defined in the Indenture dated November 15, 1986
between EDO and Manufacturers Hanover Trust Company.
11. Events of Default. Upon the occurrence and continuation of any of the
following events (each a "Guarantee Event of Default"):
(i) any representation or warranty or statement made by the Guarantor in any of
the Basic Documents to which the Guarantor is a party or which is contained in
any certificate, document, financial or other statement furnished at any time
under or pursuant to the Basic Documents shall prove to have been incorrect in
any material respect on or as of the date made or deemed made; or
(ii) failure by the Guarantor to make any payment to the Bank on account of its
obligations hereunder or to perform or observe any other term, covenant or
agreement contained in Sections 6.3, 6.4, 6.7, 6.8, 6.10, 6.12, 6.15, 6.17,
6.19, 6.20, 6.21 or 6.24 through 6.31 of the Revolving Credit Loan Agreement as
of September 9, 1998 on its part to be performed or observed; or
(iii) an Event of Default (as defined in the Loan Agreement) shall occur and be
continuing under the Loan Agreement; or
(iv) default by the Guarantor in the observance or performance of any other
agreement contained herein or in any of the Basic Documents to which the
Guarantor is a party, and, if such default is capable of being cured, such
default shall continue unremedied for a period ending 30 days after the earlier
of (1) the date a Responsible Officer (as defined in the Revolving Credit Loan
Agreement as of September 9, 1998) of the Guarantor shall have discovered such
default and (2) the date written notice of such de fault has been given to the
Guarantor by the Bank; or
(v) an Event of Default (as defined in the Revolving Credit Loan Agreement as
of September 9, 1998) shall occur and be continuing under the Revolving Credit
Loan Agreement; or
(vi) an Event of Default (as defined in the Revolving Credit Loan Agreement as
may be amended from time to time) shall occur and be continuing under the
Revolving Credit Loan Agreement.
then, and in any such event, (a) if such event is a Guarantee Event of Default
specified in paragraph (iv) above, automatically the Guarantor shall be
obligated to purchase on the next succeeding Business Day the Term Note from
the holder thereof for a purchase price paid in U.S. dollars in immediately
available funds equal to the then outstanding balance of all principal and
accrued interest remaining due and payable under such Term Note, plus any other
amounts (including but not limited to any indemnity payments) owing to such
holder from the ESOP or the Guarantor pursuant to any of the Basic Documents,
calculated as of the date of such purchase and (b) if such event is any other
Guarantee Event of Default, the Bank may, by notice of default to the
Guarantor, declare this Guarantee Agreement to be in default, whereupon the
Guarantor shall be obligated to purchase the Term Note from the holder thereof
on such Business Day as shall be specified in such notice of default (such
purchase date to occur not less than 1 Business Day nor more than 60 Business
n@ays from the date of receipt of such notice) for a purchase price paid in
U.S. dollars in immediately available funds equal to the then outstanding
balance of all principal and accrued interest remaining due and payable under
such Term Note, plus any other amounts (including but not limited to any
indemnity payments) owing to such holder from the ESOP or the Guarantor
pursuant to any of the Basic Documents, calculated as of the date of such
purchase.
12. Purchase Recruirement. At any time on or after the earlier of (i) the
seventh anniversary of the Closing Date, (ii) the date upon which the ESOP Rate
is increased due to a Determination of Taxability, and (iii) the date upon
which the Guarantor shall be liable to pay indemnification amounts pursuant to
Section 20 hereof, the Guarantor may, upon prior written notice to the Bank,
require the Bank or the holder of the Term Note to sell the Term Note to the
Guarantor on such Business Day as shall be specified in such notice (such
purchase date to occur with respect to clause (i) at the option of the Bank and
with respect to clauses (ii) and (iii) at the option of the Guarantor) not less
than 3 Business Days nor more than 60 Business Days from the date of receipt of
such notice) for a purchase price paid in U.S. dollars in immediately available
funds equal to the then outstanding balance of all principal and accrued
interest remaining due and payable under such Term Note, plus any other
amounts'(including but not limited to any indemnity payments) owing to such
holder from the ESOP or the Guarantor pursuant to any of the Basic Documents,
calculated as of the date of such purchase.
13. Purchase Terms. In the event the Guarantor purchases the Term Note under
any of the circumstances contemplated in Section 11 or Secticn 12 above, then
in such event (a) such Term Note shall be purchased by the Guarantor from the
holder thereof without recourse and without representation or warranty of any
kind as to such Term Note and (b) upon the payment in full of the purchase
price for the Term Note all rights of the Bank under the Pledge Agreement and
all Pledged Stock pledged under the Pledge Agreement shall be assigned and
deliver without recourse and without representation or warranty of any kind to
the Guarantor.
14. Severability. Any provision of this Guarantee which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
15. Paragraph Headings. The paragraph headings used in this Guarantee are for
convenience of reference only and are not to affect the construction hereof or
be taken into consideration in the interpretation hereof.
16. No Waiver; Cumulative Remedies. The Bank shall not by any act (excent by
a written instrument pursuant to paragrah 17 hereof), delay, indulgence,
omission or otherwise be deemed to have waived any right or remedy hereunder or
to haie acquiesced in any Guarantee Event of Default or any Loan Agreement
Default or Event of Default or in any breach of any of the terms and conditions
hereof or of the other Basic Documents. No failure to exercise, nor any delay
in exercising, on the part of the Bank, any right, power or privilege hereunder
shall operate as a waiver thereof. No single or partial exercise of any right,
power or privilege hereunder shall preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. A waiver by
the Bank of any right or remedy hereunder or under any of the other Basic
Documents on any one occasion shall not be construed as a bar to any right or
remedy which the Bank would otherwise have on any future occasion. The rights
and remedies herein provided are cumulative, may be exercised singly or
concurrently and are not exclusive of any rights or remedies provided by law.
17. Waivers and Amendments; Successors and Assigns; Governing Law. None of
the terms or provisions of this Guarantee may be waived, amended, supplemented
or otherwise modified except by a written instrument executed by the Guarantor
and the Bank, provided that any provision of this Guarantee may be waived by
the Bank in a letter or agreement executed by the Bank or by telex or facsimile
transmission from the Bank. This Guarantee shall be binding upon the
successors and assigns of the Guarantor and shall inure to the benefit of the
Bank and its successors and assigns. This Guarantee shall be governed by, and
construed and interpreted in accordance with, the laws of the State of New
York.
18. Notices. Notices by the Bank to the Guarantor may be given by mail, by
telex or by facsimile transmission, addressed to the Guarantor at its address
set forth under its signature below and shall be effective (a) in the case of
mail, 3 days after deposit in the postal system, first class postage pre-paid
and (b) in the case of telex or facsimile transmissions, when sent. The
Guarantor may change its address and transmission numbers by written notice to
the Bank.
19. Jurisdiction; Venue. Any legal action or proceeding with respect to this
Agreement, the Term Note or any of the other Basic Documents may be brought in
the courts of the State of New York or of the United States of America for the
Southern District of New York and, by execution and of this Agreement, the
Guarantorhereby accepts for itself and in respect of its property, generally
and unconditionally, the non-exclusive jurisdiction of the aforesaid courts.
The Guarantor further irrevocably consents to the service of process out of any
of the aforementioned courts in any such action or proceeding by the mailing of
copies thereof by registered or certified mail, postage prepaid, to the
Guarantor, as the case may be, at its address referred to herein, such service
to become effective 30 days after such mailing. Nothing herein shall affect
the right of the Bank or the Guarantor to serve process in any other manner
permitted by law or to commence legal proceedings or otherwise proceed against
the Guarantor or the Bank, as the case may be, in any other jurisdiction. The
Guarantor and the Bank hereby irrevocably and unconditionally waive any
objection that they may now or hereafter have to the venue in New York of any
action described in this Section 19, or that such proceeding was brought in an
inconvenient court, and agrees not to plead or claim the same. The Guarantor
and the Bank hereby irrevocably and unconditionally waive trial by jury in any
legal action or proceeding referred to in this Section 19.
20. Indemnification.
20.1 Agreement to Indemnify. Upon the occurrence of any Indemnification Event
(as defined in subsection 20.2), the Guarantor shall pay to the Bank such
amounts as are described in subsection 20.4.
20.2 Indemnification Event. For the purposes of this Section 20, an
"Indemnification Event" means a payment of tax by the Bank, or an offset
against any tax refund or other amount otherwise due to the Bank, as a result
of, or in conjunction with, any of the events set forth below:
(i) The issuance of an IRS Notice (as defined in subsection 20.3) to the Bank,
and (A) the failure of the Guarantor to exercise its contest rights within the
period specified in subsection 20.6 or (B) if the Guarantor exercises its
contest rights within the period specified in subsection 20.6, the termination
of said contest;
(ii) The occurrence of a final and unappealable decision, judgment, decree or
other order by the Tax Court or by any other court of competent jurisdiction
holding that the Bank is liable for the tax on prohibited transactions imposed
by Section 4975 of the Code with respect to the Term Loan provided that the
Guarantor shall have had the opportunity to exercise any applicable rights of
contest granted to it under subsection 20.6; or
(iii) The execution of a closing agreement by the Bank under Section 7121 of
the Code to which the Guarantor has consented.
For the purposes of this Section 20 a decision, judgment, decree or order
holding that the Bank is liable for the tax on prohibited transactions is
"unappealable" if the time for taking a timely appeal has elapsed or if the
Bank and the Guarantor agree that an appeal will not be taken with respect to
the issue of the tax on prohibited transactions.
20.3 IRS Notice. For the purposes of this Section 20, "IRS Notice" means a
revenue agent's report or notice of proposed adjustment, or a notice of
deficiency issued by the Internal Revenue Service to the Bank, which asserts or
is premised upon the Bank's liability for the tax on prohibited transactions
imposed by Section 4975 of the Code with respect to the Term Loan. (For the
purposes of this Agreement, the Term Loan with respect to which the Bank's
liability for the tax on prohibited transactions is asserted shall be called
the "Challenged Loan".)
20.4 Indemnification Amounts. The amounts to be paid by the Guarantor to the
Bank upon the occurrence of an Event of Indemnification shall equal:
(i) the amount of any tax paid by the Bank, which constitutes a tax on
prohibited transactions, as defined in either Section 4975(a) or Section
4975(b) of the Code, with respect to the Term Loan; plus
(ii) the amount of any interest and of any penalties, additions to tax and
additional amounts payable under Chapter 68 of the Code (collectively
"Penalties") which are paid by the Bank with respect to the tax on prohibited
transactions described in subsection 20.4(i); plus
(iii) any amount necessary to hold the Bank harmless on an after-tax basis from
all taxes required to be paid under the laws of any Federal, state or local
government or taxing authority that are attributable to the receipt of any
amounts from the Guarantor under this subsection 20.4 such taxes to be
calculated at the maximum statutory rate applicable to the Bank in the year of
such payment.
For the purposes of this subsection 20.4, payment by the Bank includes the
payment of estimated taxes, a reduction of the Bank's net operating loss, or an
offset against any tax refund or other amount otherwise due the Bank.
20.5 Prompt Payment of Indemnification Amounts.
Payments under subsection 20.4 shall be paid by the Guarantor promptly on
written demand by the Bank. If the Guarantor shall fail to pay any amount
payable under this Section 20 on the date due pursuant to this section, the
Guarantor shall also pay, to the extent permissible by law, interest on such
un,paid amount at a rate per annum equal to 2-1/2% above the MHTC Rate from
such due date until such amount is paid.
20.6 Contest of Claims. (a) If an IRS Notice is issued to the Bank, the Bank
shall notify the Guarantor promptly of such claim, shall forbear payment of the
tax claimed for the lesser of 30 days after giving such notice or until the end
of the taxable period, as defined in Section 4975(f)(2) of the Code (the
"Taxable Period") if such forbearance is permitted by law, shall advise the
Guarantor of all action taken or proposed to be taken by the Internal Revenue
Service, and, if the conditions set forth in subsection 20.6(b) have been met,
shall contest such proposed adjustment in good faith, ect, owever, to the
following conditions:
(i) the Bank need not undertake administrative proceedings beyond the level of
an auditing agent with respect to any proposed adjustment;
(ii) although the Bank will keep the Guarantor informed as to the progress of
such litigation and will consult with the Guarantor's counsel, if requested,
the conduct of such litigation shall remain within the sole discretion of the
Bank and its tax counsel;
(iii) the Bank shall determine the court of competent jurisdiction in which to
contest such proposed adjustment;
(b) the Bank's obligation to contest a proposed adjustment pursuant to
subsection 20.6(a) shall arise only if, within the earlier of 30 days after
notice to the Guarantor from the Bank of such proposed adjustment or the end of
the Taxable Period, each of the following conditions shall be met:
(i) the Guarantor shall in writing request that such proposed adjustment be
contested and agree to indemnify the Bank in a manner satisfactory to the Bank
for any liability or loss which the Bank may incur as a result of contesting
the proposed adjustment and to pay the Bank on demand all costs and expenses
that the Bank may incur in connection with contesting such proposed adjustment,
including, without limitation, attorneys', accountants', and like professional
fees and disbursements, and the amount of any interest or penalties that may be
payable as a result of contesting such proposed adjustment;
(ii) the Guarantor shall furnish to the Bank an opinion of counsel reasonably
satisfactory to the Bank to the effect that there exists a meritorious claim
that no prohibited transaction occurred with respect to the Challenged Loan;
and
(iii) the Guarantor shall have deposited into an escrow account with the Bank,
an escrow agent, an amount in cash equal to the tax on prohibited transactions
imposed under Section 4975(a) of the Code, and, if the Challenged Loan is not
repaid by the Borrower before the end of the Taxable Period, the tax on
prohibited transactions imposed under Section 4975(b) of the Code.
(c) If the Bank shall have elected to contest such proposed adjustment by
paying the amount of the tax attributable to the proposed adjustment and filing
a claim for refund (and, upon denial of such claim for refund, commencing a
suit for refund in the forum chosen by the Bank in its sole discretion), the
Bank shall be paid the funds deposited in escrow by the Guarantor with the
Bank, as escrow agent, pursuant to subsection 20.6(b)(iii) hereof, to be
applied by the Bank in payment of such tax, and the Guarantor shall promptly
deliver to the Bank such additional amounts as may be needed for that purpose.
Upon receipt by the Bank of a refund or credit of such tax, the Bank shall pay
to the Guarantor forthwith the amount of such refund or credit.
(d) If the Bank shall elect to contest such proposed adjustment by filing a
petition in the Tax Court, upon a final determination by the Tax Court (or, if
the decision of the Tax Court shall be appealed, upon the determination of such
appeal) all or such portion of the funds deposited by the Guarantor in escrow
with the Bank, as escrow agent, pursuant to subsection 20.6(b)(iii) hereof
shall be delivered to the Bank as shall be required to pay the tax determined
to be due with respect to such proposed adjustment. Any balance remaining in
such escrow account (or, if such final determination shall provide that no
prohibited transaction occurred with respect to the Challenged Loan, the entire
amount of such escrow account) shall promptly be returned by the Bank, as
escrow agent, to the Guarantor.
(e) Although any contest pursuant to this section
20.6 shall be controlled by the Bank and its tax counsel, upon the Guarantor's
reqest, the Bank and its tax counsel shall permit the Guarantor and its tax
counsel to participate, with respect to the issue of the Bank's liability for
any tax on prohibited transactions imposed by Section 4975 of the Code with
respect to the Term Loan in all proceedings before the Internal Revenue Service
or any court, such participation may, with the consent of the Bank, include
attendance at any meetings, hearings, trials, and arguments, the provision of
any documentation, protests, memoranda of factor or law, and briefs, the making
of oral arguments and Presentations, the selection of witnesses, and the
negotiation of stipulations of fact.
(f) In event that any court issues a decision, judgment, decree or other order
holding that the Bank is liable for the tax on prohibited transactions imposed
by section 4975 of the Code with respect to the Term Loan, the Guarantor shall
have the right to request the Bank to appeal such decision, judgment, decree or
other order, provided, that the Guarantor shall furnish to the Bank an opinion
of counsel reasonably satisfactory to the Bank to the effect that there exists
a meritorious claim that no prohibited transaction occurred with respect to the
Challenged Loan and valid grounds for appeal of the aforementioned decision,
judgment, decree or other order and provided, further, that the Bank shall have
sole discretion as to the decision whether or not to make such an appeal.
20.7 Successors and Assigns; Survival. (a) This Section 20 shall be binding
upon and inure to the benefit of the Guarantor and the Bank and their
respective successors and assigns, notwithstanding the amendment or termination
of this Agreement or of any of the rights or obligations of any of the parties
thereto, except that the Guarantor may not assign or transfer any of its rights
or delegate any of its obligations under this Section 20, without the prior
written consent of the Bank.
(b) The obligations of the Guarantor under this Section 20 shall survive the
payment in full of all sums due under the Term Note and shall continue in
effect until all amounts due hereunder have been paid and in any event until
five days after all statutes of limitation have run (after taking into account
all extensions and suspensions thereof) in respect of any taxable year (or
portion thereof), during which any payment of interest on the Term Note or any
payment pursuant to this Section 12 was received or accrued.
21. Payment of Expenses. The Guarantor agrees (a) to pay or reimburse the
Bank for all its out-of-pocket costs and expenses incurred in connection with
the negotiation, preparation and execution of this Agreement, the Loan
Agreement, the Term Note and the other Basic Documents and of any amendment,
supplement or modification to this Agreement, the Loan Agreement, the Term Note
or the other Basic Documents, including, without limitation, the reasonable
fees and disbursements of Simpson Thacher Bartlett, counsel to the Bank, (b) to
pay or reimburse the Bank for all its costs and expenses incurred in connection
with the enforcement or reservation of any rights under this Agreement, the
Loan Agreement, the Term Note and the other Basic Documents, including, without
limitation, the reasonable fees and disbursements of Simpson Thacher &
Bartlett, counsel to the Bank, and (c) to pay, indemnify, and hold harmless
from and against any and all other liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, out-of-pocket costs, expenses or
disbursements of any kind or nature whatsoever with respect to the execution,
delivery, enforcement, performance and administration of this Agreement, the
Loan Agreement, the Term Note and any of the other Basic Documents (all the
foregoing being herein collectively, called the "indemnified liabilities"),
provided that the Guarantor shall have no obligation under this clause (d) with
respect to indemnified liabilities arising from the gross negligence or willful
misconduct of the Bank. The agreements in this subsection shall survive
repayment of the Term Note and all other Obligations.
IN WITNESS WHEREOF, the undersigned has caused this Guarantee to be duly
executed and delivered as of the date first above written.
EDO CORPORATION,
By s/Michael J. Hegarty
Title: Vice President
Address for Notices:
14-04 lllth Street
College Point, New York 11356
Attention: Chief Financial Officer
Schedule 1
GUARANTEE DEFINITIONS
"Accounts": shall have the meaning given to such term in the U.C.C.
"Affiliate": shall have the meaning given to such term in the Revolving Credit
Loan Agreement as of the date hereof.
"Agent": shall have the meaning given to such term in the Revolving Credit
Loan Agreement, as of the date hereof.
"Books and Records": shall have the meaning given to such term in Section 2.1
hereof.
"Chattel Paper": shall have the meaning given to such term in the U.C.C.
"Collateral": shall mean all property which serves or is intended to serve,
whether now or in the future, as collateral for any of the Guarantee
Liabilities hereunder.
"Consolidated": shall have the meaning given to such term in the Revolving
Credit Loan Agreement, as of the date hereof.
"Default Rate": shall have the meaning given to such term in the Revolving
Credit Loan Agreement, as of the date hereof.
"Documents": shall have the meaning given to such term in the U.C.C.
"Domestic Subsidiary": shall have the meaning given to such term in the
Revolving Credit Loan Agreement, as of the date hereof.
"EDO": shall mean EDO Corporation, a New York corporation.
"EDO Subsidiaries": shall mean EDO Western Corporation, EDO International
Corporation, Barnes Engineering Co., EDO Sports, Inc., EDO Energy Corporation,
EDO Automotive Natural Gas, Inc., EDO Acquisition II, Inc. and EDO Foreign
Sales Corporation and any other direct or indirect Subsidiary of EDO now
existing or hereafter created.
"Environmental Law": shall have the meaning given to such term in the
Revolving Credit Loan Agreement, as of the date hereof.
"Equipment": shall have the meaning given to such term in the U.C.C.
"Foreign Subsidiary" shall have the meaning given to such term in the Revolving
Credit Loan Agreement, as of the date hereof.
"General Intangibles": shall have the meaning given to such term in the U.C.C.
"Guarantee and Security Agreement": shall mean the Guarantee and Security
Agreement among the EDO Subsidiaries dated as of September 9, 1998 and entered
into in connection with the execution of the Revolving Credit Loan Agreement.
"Guarantee Pledge Agreement": shall have the meaning given to such term in
Section 2.1 hereof.
"Guarantee Liabilities": shall have the meaning given to such term in Section
2.1 hereof.
"Guarantor": shall mean EDO and the EDO Subsidiaries, jointly and severally.
"Instruments": shall have the meaning given to such term in the U.C.C.
"Intercreditor Agreement": shall have the meaning given to such term in the
Revolving Credit Loan Agreement, as of the date hereof.
"Inventory": shall have the meaning given to such term in the U.C.C.
"Landlord's Waiver": shall have the meaning given to such term in Section 2.1
hereof.
"Loans": shall have the meaning given to such term in the Revolving Credit
Loan Agreement, as of the date hereof.
"Material Adverse Effect": shall have the meaning given to such term in the
Revolving Credit Loan Agreement, as of the date hereof.
"Original Revolving Credit Loan Agreement Representations and Warranties":
shall have the meaning given to such term in Section 9(l) hereof.
"Original Revolving Credit Loan Agreement Covenants": shall have the meaning
given to such term in Section 10(c) hereof.
"Permitted Encumbrances": shall have the meaning given to such term in the
Revolving Credit Loan Agreement, as of the date hereof.
"Purchaser": shall mean a buyer of goods or services from a Guarantor .
"Revolving Credit Loan Agreement": shall have the meaning set forth in the
Second Amendment to Basic Documents among the Bank, EDO Corporation and the
Trustee dated as of September 9,1998.
"Revolving Credit Loan Documents": shall have the meaning set forth in the
Second Amendment to Basic Documents among the Bank, each Guarantor and the
Trustee dated as of September 9, 1998.
"Subsidiary": shall have the meaning given to such term in the Revolving
Credit Loan Agreement, as of the date hereof.
"U.C.C.": shall mean the Uniform Commercial Code as adopted in the
Commonwealth of Pennsylvania.
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF CONNECTICUT
UNITED STATES OF AMERICA
Plaintiff,
CIVIL ACTION NO. 591CV00078
V.
EDO Corporation, Plessey
Incorporated, Vernitron
Corporation and Pitney Bowes,
Inc.
Defendants.
<PAGE>
CONSENT DECREE
TABLE OF CONTENTS
Page
I. BACKGROUND 1
II. JURISDICTION 4
III. PARTIES TOUND 5
IV. DEFINITIONS 6
V. GENERAL PROVISIONS 14
VI. PERFORMANCE OF THE WORK BY SETTLING DEFENDANTS 19
VII U.S. EPA PERIODIC REVIEW TO ASSURE PROTECTION OF HUMAN
HEALTH AND THE ENVIRONMENT 25
VIII. ADDITIONAL WORK 26
IX. QUALITY ASSURANCE; SAMPLING 28
X. ACCESS AND INSTITUTIONAL CONTROLS 29
XI. REPORTING REQUIREMENTS 32
XII. SUBMISSIONS REOUIRING AGENCY APPROVAL 34
XIII. REMEDIAL PROJECT MANAGER/PROJECT COORDINATORS 35
XIV. ASSURANCE OF ABILITY TO COMPLETE WORK 36
XV. TRUST FUND 38
XVI. CERTIFICATION OF COMPLETION OF WORK 39
XVII. ENDANGERMENT AND FUTURE RESPONSE 40
XVIII. REIMBURSEMENT OF RESPONSE COSTS 42
XIX. INDEMNIFICATION AND INSURANCE 46
XX. FORCE MAJEURE 48
XXI. DISPUTE RESOLUTION 50
XXII. STIPULATED PENALTIES 54
XXIII. COVENANTS NOT TO SUE BY PLAINTIFFS 58
ii
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XXIV. CONTRIBUTION PROTECTION 64
XXV. COVENANTS BY DEFENDANTS; ASSIGNMENT OF CLAIMS 65
XXVI. ACCESS TO INFORMATION 66
XXVII. RETENTION OF RECORDS 68
XXVIII. NOTICES AND SUBMISSIONS 69
XXIX. EFFECTIVE DATE 70
XXX. RETENTION OF JURISDICTION 71
XXXI. TERMINATION 71
XXXII. MODIFICATION 72
XXXIII. COMMUNITY RELATIONS 72
XXXIV. LODGING AND OPPORTUNITY FOR PUBLIC COMMENT 73
XXXV. SIGNATORIES 73
LIST OF APPENDICES
I. Record of Decision - Second Operable Unit
II. Statement of Work
III. Site Maps
IV. Settling Defendants
iii
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I.
BACKGROUND
The United States of America ("United States"), on behalf of the Administrator
of the United States Environmental Protection Agency ("EPA"), filed a complaint
in this matter pursuant to the Comprehensive Environmental Response,
Compensation, and Liability Act, 42 U.S.C. section 9601 et seq., as amended
(hereinafter "CERCLA");
EPA pursuant to Section 105 of CERCLA, 42 U.S.C. section 9605, placed the
Kellogg-Deering Well Field Site in Norwalk, CT (the "Site") in 1984 on the
National Priorities List, set forth at 40 C.F.R. Part 300, Appendix B, by
publication in the Federal Register on September 21, 1984, 49 Fed. Reg. 37070;
Pursuant to Section 117(b) and (d) of CERCLA 42 U.S.C. section 9617(b) and (d),
EPA provided public notice of its adoption of the remedial action plan for the
first operable unit of the Kellogg-Deering Wellfield Site embodied in the form
of the Record of Decision (ROD), including notice of the ROD's availability to
the public;
EPA commenced in December, 1987, the Supplemental RI/FS for the second operable
unit pursuant to 40 C.F.R. section 300.68;
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EPA completed the Supplemental RI for the second operable unit in July, 1989,
and completed the Supplemental FS in July, 1989;
On July 26, 1989, pursuant to Section 117 of CERCLA, 42 U.S.C. section 9617,
EPA published notice of the completion of the Supplemental FS and of the
proposed plan for the second operable unit and provided opportunity for public
comment between July 26 and August 25, 1989;
Certain persons, including certain Settling Defendants, provided comments on
EPA's proposed plan for the second operable unit and to such comments EPA
provided a summary of responses;
The decision by EPA on the selected remedy for the second operable unit is
embodied in a Record of Decision for the second operable unit ("Second Operable
Unit ROD"), executed on September 29, 1989, to which the State of Connecticut
has given its concurrence. The "Second Operable Unit ROD" includes a
discussion of the reasons EPA selected the remedy for the second operable unit
and an explanation of any significant changes in the plan from that proposed;
Pursuant to Section 117(b) and (d) of CERCLA, 42 U.S.C. 9617(b) and (d), EPA
provided public notice of its adoption of the remedial action plan for the
second operable unit embodied in
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the form of the "Second Operable Unit ROD," including notice of the Second
Operable Unit ROD's availability to the public;
In accordance with Section 121(f) of CERCLA, 42 U.S.C. section 9621(f), EPA
notified the State of Connecticut on May 23, 1990, of negotiations with
potentially responsible parties ("PRPs") regarding the scope of the remedial
design and remedial action for the second operable unit for the Site, and EPA
has provided the State of Connecticut with an opportunity to participate in
such negotiations and be a party to any settlement; the State participated in
such negotiations but has elected not to be a party to this settlement;
In accordance with Section 122(j) of CERCLA, 42 U.S.C. section 9622(j), EPA on
May 23, 1990, notified the Federal Natural Resource Trustees of negotiations
with PRPs regarding the scope of the remedial design and remedial action for
the second operable unit at the Site, and has encouraged the participation of
the Trustees in such negotiations;
EPA, the Paying Settling Defendants and the Settling Defendants (collectively
"The Parties") agree that the remedy selected in the Second operable Unit ROD
as adopted by EPA and embodied in the Statement of Work herein is protective of
the public health and the environment and is consistent with CERCLA
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and the National Contingency Plan ("NCP"); the Parties desire to settle this
matter;
Pursuant to the Special Notice Procedures of Section 122(e) of CERCLA, 42
U.S.C. section 9622(e), the Parties have negotiated an agreement to implement a
remedy consistent with the Second Operable Unit ROD, which remedy is set forth
in the Statement of Work attached as Appendix II of this Consent Decree.
The Settling Defendants and the Paying Settling Defendants that have entered
into this Consent Decree ("Defendants") do not admit any liability to the
Plaintiffs arising out of the transactions or occurrences alleged in the
Complaints.
The Parties recognize, and the Court by entering this Consent Decree finds,
that implementation of this Consent Decree will expedite the cleanup of the
Site, will avoid prolonged and complicated litigation between the Parties, and
that entry of this Consent Decree is therefore in the public interest;
NOW, THEREFORE, it is hereby Ordered, Adjudged, and Decreed:
II.
JURISDICTION
1. This Court has jurisdiction over the subject matter of these actions
pursuant to the following: 28 U.S.C. sections 1331, 1345; 42 U.S.C. sections
9606, 9607, and 9613(b). This Court also has personal jurisdiction over the
Defendants. Venue in this
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District is proper under 42 U.S.C. section 9613(b). For purposes of this
Consent Decree and the underlying Complaint, Defendants waive all objections
and defenses that they may have to personal jurisdiction and to jurisdiction of
the Court or to venue in this District. The Complaint states claims against
Settling Defendants and Paying Settling Defendants upon which relief may be
granted. Settling Defendants and Paying Settling Defendants shall not
challenge this Court's jurisdiction to enter and enforce this Consent Decree.
III.
PARTIES BOUND
2. This Consent Decree applies to and is binding upon the United States and
upon the Paying Settling Defendants and the Settling Defendants and their
directors, officers, employees, shareholders, agents, successors, assigns,
trustees, and contractors. Any change in ownership or corporate status of a
Settling Defendant or Paying Settling Defendant, including any transfer of
property, shall in no way alter such Settling Defendant's or Paying Settling
Defendant's responsibility under this Consent Decree. Settling Defendants
shall provide a copy of this Consent Decree to any contractors and
subcontractors hired to perform the Work required by this Consent Decree and
shall condition all contracts and subcontracts entered into hereunder upon
performance of the Work in conformity with the terms of this Consent Decree.
Settling Defendants shall
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nonetheless be responsible for ensuring that their contractors and
subcontractors perform the work contemplated herein in accordance with this
Consent Decree. With regard to the activities undertaken pursuant to this
Consent Decree, each contractor and subcontractor shall be deemed to be related
by contract to the Settling Defendants within the meaning of Section 107(b)(3)
of CERCLA, 42 U.S.C. section 9607(b)(3). Thus, as to acts or omissions of
contractors, the Settling Defendants shall not assert a defense based upon
CERCLA Section 107(b)(3), 42 U.S.C. section 9607(b)(3).
IV.
DEFINITIONS
3. Unless noted to the contrary, the terms of this Consent Decree shall have
the meaning assigned to those terms by CERCLA and its implementing regulations.
Whenever the terms listed below are used in this Consent Decree and the
Appendices attached hereto, the following definitions shall apply:
"Additional Work" shall mean all activities required by Section VIII herein.
"CERCLA" shall mean the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended, 42 U.S.C. sections 9601 et seq.
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"Cleanup Standards" shall mean the numerical criteria respecting the degree of
cleanup to be achieved in the groundwater and soil at the Site. These criteria
are set forth in the Statement of Work attached hereto.
"Complex" shall mean the area encompassing the Elinco/Pitney Bowes/Matheis
Court Complex located at 270 1/2, 272, 276 and 280 Main Avenue in Norwalk,
Connecticut, as delineated on the Site maps attached hereto as Appendix III.
"Contractor" shall mean the company or companies retained by the Settling
Defendants to undertake and complete the work required by this Consent Decree.
Each contractor and subcontractor shall be qualified to do those portions of
the work for which it is retained.
"CT DEP" shall mean the Connecticut Department of Environmental Protection.
"Day" shall mean a calendar day unless expressly stated to be a working day.
"Working day" shall mean a day other than a Saturday, Sunday, or legal holiday.
In computing any period of time under this Consent Decree, where the last day
would fall on a Saturday, Sunday, or federal or state legal holiday, the period
shall run until the end of the next working day.
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"Defendents" shall mean Settling Defendants and "Paying Settling Defendants".
"Downgradient Area" as defined in the "Second Operable Unit ROD" refers to
areas at the Site in which trichloroethene ("TCE") concentrations were found to
be between 5 micrograms per liter ("ug/1") and 6,600 ug/l from data collected
during the Supplemental RI. For purposes of this Consent Decree, the
Downgradient Area refers to the area of groundwater contamination downgradient
of the Source Remediation Area as defined herein. The Downgradient Area is
delineated on the Site map attached hereto as Appendix III.
"EPA" shall mean the United States Environmental Protection Agency.
"Entry" of the Consent Decree, for purpose of determining the obligations of
the Settling Defendants and Paying Settling Defendants which are dependent upon
that date, shall be the earlier of-(!) the date notice of the entry of the
Consent Decree is received by the Settling Defendants and Paying Settling
Defendants, or (2) five calendar days following the date notice of entry of the
Decree is mailed to the Parties by the Court.
"Facility" shall have the meaning provided in Section 101(9) of CERCLA, 42
U.S.C. section 9601(9).
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"Hazardous Substance" shall have the meaning provided in Section 101(14) of
CERCLA, 42 U.S.C. 9601(14).
"Institutional Controls" shall mean the land use and deed restrictions and
other regulations and controls developed pursuant to this Consent Decree and
the Statement of Work to restrict soil excavation in areas of soil
contamination at the Complex and restrictions on well installations and use in
areas of groundwater contamination in the Source Area and Downgradient Area.
"National Contingency Plan" or "NCP" shall mean the National Contingency Plan
promulgated pursuant to Section 105 of CERCLA, 42 U.S.C. section 9605, codified
at 40 C.F.R. Part 300, including any amendments thereto.
"Operation and Maintenance" or "O & M" shall mean all activities required under
the Operation and Maintenance Plan approved or developed by Plaintiff pursuant
to this Consent Decree and Section VI of the Statement of Work.
"Paragraph" shall mean a portion of this Consent Decree identified by an arabic
numeral.
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"Parties" shall mean the United States, the Settling Defendants and the Paying
Settling Defendants.
"Paying Settling Defendants" shall mean those Parties listed in Appendix IV
and-who make the payments required by Section XVIII, Paragraph 48b. of this
Consent Decree.
"Performance Standards" shall mean the criteria respecting the degree and
method of cleanup to be achieved at the Site, including all location, chemical,
and action specific applicable or relevant and appropriate standards,
requirements, criteria and limitations identified in the Second Operable Unit
ROD and the SOW or by EPA prior to Certification of Completion of the Work and
all other health or environmentally related numerical standards in the Second
Operable Unit SOW. Performance Standards include all Cleanup Standards.
"Plaintiff" shall mean the United States and its agencies and departments.
"RCRA" (Resource Conservation and Recovery Act) shall mean the Solid Waste
Disposal Act, as amended, 42 U.S.C. sections 6901 et seq.
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"Remedial Action" shall mean all activities required by the Consent Decree,
including any Additional work required under Section VIII hereof, except for
operation and Maintenance.
"Response Costs" shall mean any costs incurred by Plaintiff with respect to the
Site pursuant to 42 U.S.C. sections 9601 et seq.; as set forth herein.
"Section" shall mean a portion of this Consent Decree identified by a roman
numeral and including one or more paragraphs.
"Second Operable Unit Record of Decision" or "Second Operable Unit ROD" shall
mean the EPA Record of Decision relating to the second operable unit for the
Site signed on September 29, 1989, by the Acting Regional Administrator, EPA
Region I, and all attachments thereto. The Second Operable Unit ROD is
attached as Appendix I.
"Settling Defendants" shall mean those Defendants who both are listed in
Appendix IV and who sign this Consent Decree and make payments required under
Section XVIII, Paragraphs 48a. and 49 of this Consent Decree.
"Site" for purposes of this Consent Decree shall mean the area delineated on
Appendix III as the SRA and all areas outside
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of the SRA that are necessary to monitor the effectiveness of the Second
Operable Unit remedial actions.
"Source Area" as defined in the "Second Operable Unit ROD" refers to the area
at the Site where contaminated groundwater plume concentrations were found to
be above 6,600 ug/l of trichloroethene ("TCE") from data collected during the
Supplemental RI. The Source Area includes the Elinco/Pitney Bowes/Matheis
Court Complex as well as an adjacent area extending approximately 400 feet west
and approximately 500 feet southeast of the Complex.
"Source Remediation Area" or "SRA" shall mean the Complex and the area within
the boundary lines as shown on the map in Appendix III and bounded as described
below: on the west by the railroad tracks, on the north by a line extending
between the railroad tracks and the northwest corner of the complex, on the
south by a line extending from the intersection of Broad Street and the
railroad tracks to the southeast corner of the complex, and all of the complex
property itself.
"State" shall mean the State of Connecticut.
"Statement of Work" or "SOW" shall mean statement of work for implementation of
the remedial design, remedial action, and operation and maintenance of the
remedial action for the second
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operable unit at the Site, as set forth in Appendix II and any modifications
thereto in accordance with this Consent Decree.
"United States" shall mean the United States of America, including the United
States Environmental Protection Agency.
"Waste Material" shall mean (1) any substance meeting the definition provided
in Section 101(14) of CERCLA, 42 U.S.C. 9601(14); (2) any "pollutant" or
"contaminant" under Section 101(33) of CERCIA, 42 U.S.C. section 9601(33); or
(3) any "hazardous waste" under Section 1004(5) of SWDA, 42 U.S.C. section
6903(5).
"Work" shall mean all work or other activities or obligations required by this
Consent Decree, including but not limited to Remedial Action and Operation and
Maintenance and any activities required to be undertaken pursuant to Section
VIII.
"Workplan" or "Work plan" shall mean a work plan or work plans for design and
implementation of the Work required under this Consent Decree and the Statement
of Work and any modifications thereto in accordance with this Consent Decree
and the Statement of Work.
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V.
GENERAL PROVISIONS
4. Objectives of the Parties
The objectives of the Parties in entering into this Consent Decree are to
protect public health, welfare and the environment from releases or threatened
releases of Waste Materials at and from the Site by the investigation,
development, design and implementation of remedial and monitoring programs by
the Settling Defendants and reimbursement of certain Response Costs incurred by
EPA by the Settling Defendants and Paying Settling Defendants.
5. Commitment of Settling Defendants and Paying Settling Defendants
a. Settling Defendants agree jointly and severally to finance and perform all
Work, including the remedial design and remedial action work set forth in
Section VI, and to reimburse the United States for Response Costs and
stipulated penalties as provided herein.
b. In the event of the insolvency, inability or refusal of any one or more
Settling Defendants to implement the requirements of this Consent Decree, the
remaining Settling Defendants agree to complete all such requirements.
However, in such an event the Settling Defendants shall meet and attempt to
provide an alternate allocation of financial responsibility to complete all
such requirements. The Dispute Resolution provisions of this Consent Decree
shall govern the failure of the
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Settling Defendants to arrive at a mutually agreeable allocation of
responsibility.
c. The Work set forth in Section VI shall be completed in accordance with the
standards, specifications and within the time periods prescribed in Section VI
and in the SOW, or any amendment thereto agreed to by the Parties or approved
by the Court.
d. The Defendants agree that with respect to any suit or claim for contribution
brought by or against them for matters related to this Consent Decree they will
notify the United States within ten (10) working days of the initiation of such
suit or claim.
e. In any subsequent administrative or judicial proceeding initiated by the
United States for injunctive relief, recovery of response costs, or other
appropriate relief relating to the Kellogg-Deering Wellfield Site, Settling
Defendants and Paying Settling Defendants shall not assert, and may not
maintain, any defense or claim based upon the principles of waiver or
claim-splitting or otherwise based upon any contention that the claims raised
by the United States or the State in the subsequent proceeding were or should
have been brought in the instant case; provided, however, that nothing in this
Paragraph affects the enforceability of the covenants not to sue set forth in
Section XXIII.
f. The United States may, in its unreviewable discretion, excuse or postpone
any of the Settling Defendants
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obligations under this Consent Decree but only in a manner consistent with
Section XXXII.
6. Permits and Approvals
a. All activities undertaken by the Settling Defendants pursuant to this
Consent Decree shall be undertaken in accordance with the requirements of
Section 121(d) of CERCLA and the NCP. The United States has determined that
the obligations and procedures authorized under this Consent Decree are
consistent with the NCP.
b. Except as provided in Section 121(e) of CERCLA and the NCP, no permit shall
be required for any portion of the Work conducted entirely onsite. Where any
portion of the Work requires a federal or state permit or approval under CERCLA
and the NCP, Settling Defendants shall timely submit applications and take all
other actions necessary to obtain all such permits or approvals.
c. Settling Defendants shall include in all contracts or subcontracts entered
into for work required under this Consent Decree, provisions stating that such
contractors or subcontractors, including their agents and employees, shall
perform all activities required by such contracts or subcontracts in compliance
with all applicable laws and regulations.
d. This Consent Decree is not, and shall not be construed to be, a permit
issued pursuant to any federal or state statute or regulation.
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7. Conveyance of the Site
a. Within thirty (30) days after the entry of this Consent Decree, Settling
Defendants shall record a certified copy of this Consent Decree with the
Recorder's Office [or Registry of Deeds], Town of Norwalk, Fairfield County,
State of Connecticut with respect to each property that is part of the Complex.
Thereafter, each deed, title, or other instrument of conveyance for all such
property shall contain a notice stating that the property is subject to this
Consent Decree and shall reference the recorded l ocation of the Consent Decree
and any restrictions applicable to the property under this Consent Decree.
b. The obligations of each Settling Defendant who owns any interest in property
included in the Site, with respect to the provision of access under Section X
and the implementation of Institutional Controls under Section X, shall run
with the land and shall be binding upon any and all such Settling Defendants
and any and all persons who subsequently acquire any such interest or portion
thereof (hereinafter "Successors-in-Title"). Within ten (10) working days
after the entry of this Consent Decree, each Settling Defendant who owns any
interest in property included in the Site shall record at the Registry of
Deeds, or other office where land ownership and transfer records are maintained
for the property, a notice of obligation to provide access and related
covenants. Each subsequent deed to any such property included in the Site
shall reference the recorded location of such notice and covenants applicable
to the property.
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In addition, each such Settling Defendant shall provide for conveyancing and
recording of easements for access to such property to the United States for
purposes of monitoring and implementation of the activities required under this
Consent Decree. The granting of such easements pursuant to this paragraph
shall not operate to make the United States an owner or operator of the Site
for purposes of liability under any environmental statute administered by EPA.
c. Any Settling Defendant that owns an interest in property included in the
Site and any Successor-in-Title shall, within thirty (30) days prior to the
conveyance of any such interest, give written notice of this Consent Decree to
the grantee and written notice to EPA of the proposed conveyance, including the
name and address of the grantee, and the date on which notice of the Consent
Decree was given to the grantee. In the event of any such conveyance, the
Settling Defendants' obligations under this Consent Decree shall continue to
be met by the Settling Defendant and, subject to approval by the United States,
by the grantee. Violation of the provisions of Paragraph 4.a and 4.c of this
Consent Decree by any Settling Defendant who owns interests in property
included in the Site shall not render the other Settling Defendants to be in
violation of this Consent Decree.
d. Settling Defendants and Paying Settling Defendants shall not use any portion
of the Site in any manner which would adversely affect the integrity of any
treatment system or
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monitoring system installed pursuant to this Consent Decree as determined by
EPA.
VI.
PERFORMANCE OF THE WORK BY
SETTLING DEFENDANTS
8. The Settling Defendants shall perform the Work for the Site as described in
this Decree; in the "Second Operable Unit ROD," attached hereto as Appendix I;
in the Statement of Work (which the Parties agree is consistent with the Second
Operable Unit ROD), attached hereto as Appendix II; and any modifications
thereto. The Second Operable Unit ROD, the SOW, or any amendment thereto
agreed to by the Parties or approved by the Court are hereby incorporated by
reference and made a part of this Consent Decree. The Work shall be performed
in accordance with all the provisions of this Consent Decree, the SOW, or any
amendment. thereto agreed to by the Parties or approved by the Court and all
design specifications, Work Plans or other plans or schedules attached to or
approved pursuant to the SOW. Any modifications to the SOW, design
specifications, Work Plans or other plans or schedules that are proposed by the
Settling Defendants shall be effective upon approval by EPA, after opportunity
for review and comment by the State. In the event of any conflict between the
Consent Decree and the SOW, the Consent Decree shall control. In the event of
any conflict between the Second Operable Unit ROD and the Consent Decree or the
SOW, the Consent Decree or the SOW
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shall control. As described with particularity in the SOW, the major
components of the remedial action for the Site are as follows: 1) a source
control component which will involve the design, installation, monitoring,
operation, and maintenance of a soil vapor vacuum extraction system in the
unsaturated zone at the Elinco/Pitney Bowes/Matheis Court Complex which will
intercept laterally and vertically all areas of subsurface soil contamination
until soil cleanup standards are attained; 2) a management of migration
component which will involve the design, installation, monitoring, operation
and maintenance of a groundwater extraction, treatment and disposal system for
the Source Remediation Area; and 3) institutional controls which shall involve
restrictions on soil excavation in areas of soil contamination at the Complex
and restrictions on well installations and use in areas of groundwater
contamination in the Source Area and Downgradient Area.
9. In order to expedite the design of the remedial action at the Site, Settling
Defendants agree to commence and perform certain remedial design-related
activities as described herein and in the SOW as a contractual obligation
effective upon the lodging of this Consent Decree with the Court. All
oversight response costs incurred prior to the entry of the Consent Decree
shall be reimbursed after entry in accordance with Section XVIII.
10. All remedial design work to be performed by Settling Defendants pursuant
to this Consent Decree shall be under the
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direction and supervision of a qualified contractor. Within thirty (30) days
after the lodging of this Consent Decree, the Settling Defendants shall notify
EPA and the State, in writing, of the name, title, and qualifications of any
supervising contractor and the names of principal contractors and/or
subcontractors proposed to be used in carrying out the remedial design work to
be performed pursuant to this Consent Decree. Selection of any such contractor
shall be subject to disapproval by EPA, after opportunity for review and
comment by the State. If EPA, after opportunity for review and comment by the
State, disapproves of the selection of any contractor, the Settling Defendants
shall submit a list of contractors to EPA and the State within twenty-one (21)
days of receipt of the disapproval of the contractor previously selected. EPA,
after opportunity for review and comment by the State, will, if practicable,
within twenty-one (21) days of receipt of the list, provide written notice of
the names of contractors that the Plaintiff disapproves. The Settling
Defendants may at their election select any one not disapproved on the list.
After selection of a contractor, Settling Defendants shall notify EPA and the
State of the name of the contractor within fourteen (14) calendar days
following receipt of notice.
11. All remedial action work to be performed by the Settling Defendants
pursuant to this Consent Decree shall be under the direction and supervision of
a qualified contractor. Within thirty (30) days after Settling Defendants
receive notice
<PAGE>
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that EPA, after opportunity for review and comment by the State, has approved
or modified the Settling Defendants' remedial design for each remedial
component, pursuant to Section VI.A. of the SOW, the Settling Defendants shall
notify EPA and the State in writing of the name, title and qualifications of
any supervising Contractor and the names of principal contractors and/or
subcontractors proposed to be used in carrying out the remedial action work to
be performed pursuant to this Consent Decree. Selection of any such
contractor and/or subcontractor shall be subject to disapproval by the
Plaintiff in accordance with the provisions of Paragraph 10.
12. Appendix II to this Consent Decree provides a Statement of Work for the
completion of remedial design and remedial action at the Site. This Statement
of Work is incorporated into and made an enforceable part of this Consent
Decree.
13. The following work shall be performed by Settling Defendants:
a. In accordance with the schedule set forth in the SOW, Settling Defendants
shall commence Remedial Design activities as described in the Statement of
Work.
b. The Remedial Design activities shall include, but not be limited to, the
following tasks and submissions: Initial Remedial Steps, including the
submittal of an Indoor Air ,Monitoring Plan and a Groundwater Monitoring Plan
in accordance with the schedule in Section V.A. of the SOW; submittal of a
PreDesign Work Plan for Contaminated Soils and a Pre-Design Work
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Plan for Contaminated Groundwater in the Source Remediation Area, including a
schedule for performance of all activities, as described in and in accordance
with the schedule in section V.B. of the SOW; implementation of the Pre-Design
Work Plans as approved by EPA, and in accordance with the approved schedule, as
described in Section V.E. of the SOW; submission of the reports for each of
items described in the approved Pre-Design Work Plans for approval by EPA, as
described in Section V.E. of the SOW; submittal of a Pre-Design Report for
Contaminated Soils and a Pre-Design Report for Contaminated Groundwater in the
Source Remediation Area for approval by EPA, and in accordance with the
approved schedule, as described in Section V.E. of the SOW; submittal of a
Remedial Design for Contaminated Soils at the Complex and a Remedial Design for
Contaminated Groundwater in the Source Remediation Area, including a schedule
for performance of all activities, as described in and in accordance with the
schedule in Section V.F. of the SOW; implementation of the Remedial Action
according to the Remedial Designs, as approved by EPA, and in accordance with
the approved schedule and as described iri Section VI of the SOW; selection of
the Remedial Action Contractor(s), as described in Section VI.A of the SOW and
Paragraph 11 of this Consent Decree; and submittal of the Remedial Action Work
Plan for Contaminated Soil and a Remedial Action Work Plan for Contaminated
Groundwater in the Source Remediation Area, including a schedule for
performance of all
<PAGE>
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activities, as described in and in accordance with the schedule in Section VI
of the SOW.
c. Settling Defendants shall implement the Work detailed in the Statement of
Work upon approval or modification of the Work Plans by EPA, after opportunity
for reveiew and comment by the State, pursuant to the procedures in Section
XII. Unless otherwise directed by EPA and except for operation of the
currently existing groundwater pump and treat system at the Complex, the
Settling Defendants shall not commence Remedial Action activities until
approval by EPA of the Remedial Action Work Plans and entry of the Consent
Decree. Upon approval by EPA, a Work Plan and any submissions required by it
or this Consent Decree shall be deemed incorporated into and made an
enforceable part of this Consent Decree. All Work shall be conducted in
accordance with the National Contingency Plan, the EPA Superfund Remedial
Design and Remedial Action Guidance, any additional guidance provided by EPA,
and the requirements of this Consent Decree, including the standards,
specifications and schedule contained in the SOW and Work Plans approved in
accordance with this Consent Decree and the SOW.
d. Upon entry of this Consent Decree, all obligations concerning Remedial
Design are subject to enforcement pursuant to this Consent Decree, including
but not limited to stipulated penalties, as set forth herein.
14. The Parties acknowledge and agree that neither the SOW nor Work Plans
approved pursuant to this Consent Decree and the
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SOW constitute a warranty or representation of any kind by Plaintiff that the
SOW or such Work Plans will achieve the cleanup and performance standards set
forth in the ROD and in the SOW and shall not foreclose Plaintiff from seeking
performance of all terms and conditions of this Consent Decree, including
achieving the applicable Performance and Cleanup Standards.
15. The Work performed by Settling Defendants pursuant to this Consent Decree
must achieve the Cleanup and Performance Standards identified in the SOW.
VII.
U.S. EPA PERIODIC REVIEW TO ASSURE
PROTECTION OF HUMAN HEALTH AND THE ENVIRONMENT
16. To the extent required by Section 121(c) of CERCLA, 42 U.S.C. section
9621(c), and any applicable regulations, EPA shall review the remedial action
at the Site at least every five (5) years after initiation of the remedial
action to assure that human health and the environment are being protected by
the remedial action being implemented. Prior to EPA Certification of
Completion of the Work, Settling Defendants shall conduct the requisite
studies, investigations, or other response actions as determined necessary by
EPA in order to permit EPA to conduct the review of the Site required by
Section 121(c) of CERCLA. If upon such review and after providing Settling
Defendants with reasonable opportunity for comment, EPA, after opportunity for
<PAGE>
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review and comment by the State, determines prior to the Certification of the
Completion of the Work that further response action is appropriate at the Site
in accordance with Section 104 or 106 of CERCIA, then Settling Defendants shall
implement such action. Any dispute regarding the necessity for, or scope of
such further response action shall be based upon the administrative record and
shall be subject to judicial review pursuant to the dispute resolution
provisions in Section XXI hereof to the extent permitted by, and in accordance
with, Section 113 of CERCLA, 42 U.S.C. section 9613.
17. As provided by Sections 113(k) and 117 of CERCLA, 42 U.S.C. sections
9613(k) and 9617, and the National Contingency Plan, Settling Defendants will
have an opportunity to submit comments for the record on any proposed
subsequent response action during the public comment period. Settling
Defendants shall be provided with an opportunity to confer with EPA on any
additional work proposed by EPA during the 5-year review process. Selection of
any subsequent response action shall be based on the administrative record.
VIII.
ADDITIONAL WORK
18. In the event that EPA, after opportunity for review and comment by the
State, or the Settling Defendants determine that Additional Work, including
Additional Work identified during the CERCLA Section 121(c) review process, is
necessary to meet the
<PAGE>
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Performance Standards described in Section VI above, or is necessary to protect
human health or the environment, notification of such Additional Work will be
provided to the EPA Remedial Project Manager and Project Coordinators
designated pursuant to this Consent Decree.
19. Any Additional Work determined to be necessary by Settling Defendants is
subject to approval by EPA, after opportunity for review and comment by the
State.
20. Any Additional Work determined to be necessary by Settling Defendants and
approved by EPA, after opportunity for review and comment by the State, or
determined to be necessary by EPA, after opportunity for review and comment by
the State, and after providing Settling Defendants with reasonable opportunity
for comment, to meet the Performance and Cleanup Standards or to protect human
health and the environment shall be completed by Settling Defendants in
accordance with standards, specifications, and schedules approved or
established by EPA.
21. Unless otherwise stated by EPA, within thirty (30) days of receipt of
notice by EPA that Additional Work is necessary, or otherwise agreed to by the
Parties, the Settling Defendants shall submit for approval by EPA, after
opportunity for review and comment by the State, a work plan for the Additional
Work. The -plan shall conform to the requirements of this Consent Decree, the
National Contingency Plan, Superfund Remedial Design and Remedial Action
Guidance and any additional guidance documents provided by EPA. Upon approval
pursuant to the procedures set
<PAGE>
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forth in Section XII, Settling Defendants shall implement the plan for
Additional Work in accordance with the schedule contained therein.
IX.
QUALITY ASSURANCE; SAMPLING
22. Settling Defendants shall use quality assurance, quality control, and
chain of custody procedures in accordance with EPA's "Interim Guidelines and
Specifications For Preparing Quality Assurance Project Plans" (QAM-005/80) and
subsequent amendments to such guidelines upon notification to Settling
Defendants of such amendments by EPA. Settling Defendants shall submit as part
of work plans or monitoring plans, including, but not limited to, the Indoor
Air Monitoring Plan, the Groundwater Monitoring Plan, Pre-Design Work Plans and
Remedial Action Work Plans, Project operation Plans ("POPs") that are
consistent with the SOW and applicable guidelines to EPA for approval pursuant
to Section XII. Sampling data generated consistent with the POPs shall be
admissible as evidence, without objection, in any proceeding under Section XXI
of this Consent Decree. Settling Defendants shall assure that EPA personnel or
authorized representatives are allowed access to any laboratory utilized by
Settling Defendants in implementing this Consent Decree. In addition,
Settling Defendants shall have a designated laboratory analyze samples
submitted by EPA for quality assurance monitoring.
<PAGE>
-29-
23. Settling Defendants shall make available to EPA the results of all
sampling and/or tests or other data generated by Settling Defendants with
respect to the implementation of this Consent Decree, and shall submit these
results in monthly progress reports as described in Section XI of this Consent
Decree.
24. At the request of EPA, Settling Defendants shall allow split or duplicate
samples to be taken by EPA, and/or its authorized representatives, of any
samples collected by Settling Defendants pursuant to the implementation of this
Consent Decree. Settling Defendants shall notify EPA not less than
twenty-eight (28) days in advance of any sample collection activity. In
addition, EPA shall have the right to take any additional samples that EPA
deems necessary.
25. Notwithstanding any provision of this Consent Decree, the United States
shall retain all of its information gathering, and inspection authorities and
rights under CERCLA, RCRA and any other applicable statute or regulations.
X.
ACCESS AND INSTITUTIONAL CONTROLS
26. From the date of the lodging of this Consent Decree the United States and
its representatives, including but not limited to EPA, its employees, agents,
authorized representatives, and contractors, shall have access at all times to
the Site and any
<PAGE>
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property to which access is required for the implementation of this Consent
Decree, to the extent access to the property is owned, controlled by or
available to Settling Defendants, for the purposes of conducting any activity
authorized by or related to this Consent Decree, including, but not limited to:
a. Monitoring the Work or any other activities taking place on the property;
b. Verifying any data or information submitted to the, United States;
c. Conducting investigations relating to contamination at or near the Site;
d. Obtaining samples;
e. Assessing the need for or planning and implementing additional response
actions at or near the Site; and
f. Inspecting and copying records, operating logs, contracts, or other
documents required to assess Settling Defendants' compliance with this Consent
Decree; and
g. Assessing Settling Defendants' compliance with this Consent Decree.
From the date of the entry of this Consent Decree, Settling Defendants shall
impose and maintain the necessary Institutional Controls, as determined by EPA,
after opportunity for review and comment by the State, to the extent that the
property to which they relate are owned, controlled by or available to the
Settling Defendants.
<PAGE>
-31-
27. To the extent that any area where Work or Additional Work is to be
performed under this Consent Decree or any area subject to Institutional
Controls is owned or controlled by persons other than Settling Defendants,
Settling Defendants shall use best efforts to secure from such persons access
for Settling Defendants, the United States, including EPA, and its employees,
agents and authorized representatives, contractors or consultants as necessary
to effectuate implementation of this Consent Decree and to secure the
Institutional Controls. For purposes of this Paragraph, "best efforts" may
include, but is not limited to, offer by the Settling Defendants of the payment
of a reasonable sum of money in consideration of access and Institutional
Controls for the purpose of obtaining the right to perform the Work or
Additional Work or the imposition of Institutional Controls. Settling
Defendants shall not be required to pay money to Elinco Associates for the
purpose of obtaining the right to perform the Work or Additional Work or the
imposition of Institutional Controls. If access or Institutional Controls are
not obtained within one hundred and eighty (180) days of the date of the
lodging of this Consent Decree, or within one hundred and eighty (180) days of
the date EPA determines in writing to Settling Defendants that additional
access or Institutional Controls beyond those previously secured is necessary,
Settling Defendants shall promptly notify the United States in writing. EPA
may thereafter, consistent with its authority, assist Settling Defendants in
obtaining access or Institutional
<PAGE>
-32 -
Controls. Settling Defendants shall, in accordance with Section XVIII herein,
reimburse the United States for all costs not inconsistent with the NCP
incurred by it in obtaining access and Institutional Controls.
28. Notwithstanding any provision of this Consent Decree, the United States
retains all of its access authorities and rights under CERCLA, RCRA and any
other applicable statute or regulations.
XI.
REPORTING REQUIREMENTS
29. Settling Defendants shall submit to EPA written monthly progress reports
which: (a) describe the actions which have been taken toward achieving
compliance with this Consent Decree during the previous month; (b) include all
results of sampling and tests and all other data received by Settling
Defendants during the course of the Work in the previous month; (c) include all
plans and procedures completed under Work Plans during the previous month; (d)
describe all actions, data and plans which are scheduled for the next month and
provide any other information relating to the progress of construction that is
necessary to assess compliance under this Consent Decree; (e) include
.information regarding percentage of completion, unresolved delays encountered
or anticipated that may affect the future schedule for implementation of the
Statement of Work or Work Plans including, without limitation, efforts made to
gain access and
<PAGE>
-33-
institutional controls, and a description of efforts made to mitigate those
delays or anticipated delays. These progress reports are to be submitted to
EPA by the tenth day of every month following the date of the lodging of this
Consent Decree until EPA certifies Completion of the Work.
30. Upon the occurrence of any event during performance of the work which,
pursuant to Section 103 of CERCLA, 42 U.S.C. section 9603 and/or Section 304 of
the Emergency Planning and Community Right-To-Know Act (EPCRA), 42 U.S.C.
section 11004, requires reporting, Settling Defendants shall upon becoming
aware of such an event, promptly orally notify the EPA Remedial Project Manager
("RPM"), and the EPA Geographic Section Chief designated pursuant to Section
XIII, or in the event of the unavailability of the EPA RPM, the Emergency
Response Unit in addition to the reporting required by Section 103 and Section
304 of EPCRA. Within twenty (20) days of becoming aware of such an event,
Settling Defendants shall furnish to Plaintiff a written report setting forth
the events which occurred and the measures taken, and to be taken, in response
thereto. Within thirty (30) days of the conclusion of the activiiy'described
by the report in the previous sentence, Settling Defendants shall submit a
report setting forth all actions taken to respond thereto.
<PAGE>
-34 -
SUBMISSIONS REOUIRING AGENCY APPROVAL
31. After review of any plan, report or other item which is required to be
submitted for approval pursuant to this Consent Decree, EPA, after opportunity
for review and comment by the State, shall either: (1) approve the submission;
(2) disapprove the submission, notifying Settling Defendants of deficiencies;
(3) modify the submission to cure the deficiencies after giving the Settling
Defendants sufficient and reasonable information and time to respond to such;
or (4) direct that the Settling Defendants modify the submission.
32. In the event of approval or EPA modification, Settling Defendants shall
proceed to take any action required by the plan, report, or other item, as
approved or modified.
33. Upon receipt of a notice of disapproval or a request for a modification,
Settling Defendants shall, within twenty (20) days thereafter, correct the
deficiencies and resubmit the plan, report, or other item for approval.
Notwithstanding a notice of a disapproval, Settling Defendants shall proceed to
take any action required by any non-deficient portion of the submission unless
otherwise directed by EPA. Implementation of non-deficient portions of the
submission shall not relieve Settling Defendants of their liability for
stipulated penalties under Section XXII.
34. If, upon resubmission, the plan, report, or item is not approved by EPA,
after opportunity for review and comment by the
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State, EPA may deem Settling Defendants to be in violation of this Consent
Decree.
XIII.
REMEDIAL PROJECT MANAGER/PROJECT COORDINATORS
35. Within thirty (30) days of the lodging of this Consent Decree, the
Settling Defendants shall notify EPA, in writing, of the name, address and
telephone number of the Settling Defendants' Project Coordinator and an
Alternate Project Coordinator. The Settling Defendants' Project Coordinator
shall have responsibility for implementation of the Work at the Site by the
Settling Defendants. EPA will designated Remedial Project Manager and a
Geographic Section Chief within the same ten (10) day period. If any Party
decides to change its designated Project Coordinator or RPM, the name, address,
and telephone number of the successor shall be given to the other Parties
within five (5) working days before the change is to be effective unless
impracticable, but in no event later than the actual day the change is made.
36. Plaintiff may designate other representatives, including EPA and state
employees, and federal and state contractors and consultants, to observe and
monitor the progress of any activity undertaken pursuant to this Consent
Decree. EPA's RPM shall have the authority lawfully vested in an RPM and
On-Scene Coordinator ("OSCII) by the National Contingency Plan, 40 C.F.R. Part
300. In addition, the EPA RPM shall have authority
<PAGE>
-36-
consistent with the National Contingency Plan, to halt, conduct, or direct any
work required by this Consent Decree, and to take any necessary response action
when he or she determines that conditions at the Site may constitute an
emergency situation or may present an immediate threat to public health or
welfare or the environment. Prior to taking such action to halt, conduct, or
direct any work to take any response actions, the EPA RPM shall make reasonable
efforts to consult with the Settling Defendants' Project Coordinator or
Alternate Project Coordinator.
XIV.
ASSURANCE OF ABILITY TO COMPLETE WORK
37. Settling Defendants shall demonstrate their ability to complete the Work
and to pay all claims that arise from the performance of the Work by obtaining
within 30 days of entry of this Consent Decree one of the following:
a. A surety bond guaranteeing performance of the Work;
b. one or more letters of credit equalling the total estimated cost of the
Work;
c. A guarantee to perform the Work by a one or more parent corporation, sibling
corporation, subsidiary, or unrelated corporation which has a substantial
business relationship with at least one of the Settling Defendants; or
d. Internal financial information regarding Settling Defendants' net worth,
cash flow, total liabilities, and current rating for most recent bond issuances
sufficient to demonstrate
<PAGE>
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to EPA's satisfaction that one or more Settling Defendants have the financial
ability to complete the Work.
38. If the Settling Defendants seek to demonstrate the ability to complete the
Work through a guarantee by a third party, they must provide financial
information regarding the guarantor's net worth, cash flow, total liabilities,
and current rating for their most recent bond issuance sufficient to
demonstrate to EPA's satisfaction that the guarantor(s) has (have) the
financial ability to finance completion of the Work. If Settling Defendants
seek to demonstrate ability to complete the Work by means of internal financial
information, they shall resubmit sworn statements conveying such information
annually, on the anniversary of the effective date of this Consent Decree. To
the extent any Settling Defendant whose stock is publicly traded submits
information that is provided to the Securities and Exchange Commission, EPA
will accept that information, subject to supplementation by such Settling
Defendant as is necessary to satisfy the requirements of 40 C.F.R. section
264.143(f).
39. In the event that EPA determines at any time that such financial
assurances are inadequate, Settling Defendants shall, within 30 days of receipt
of notice of EPA's determination, obtain and present for approval to EPA, one
of the other forms of financial assurance listed in Paragraph 37. Settling
Defendants' inability to demonstrate financial ability to complete the Work
shall not excuse performance of any activities required under this Consent
Decree.
<PAGE>
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XV.
TRUST FUND
40. Within thirty (30) days of the date of the entry of this Consent Decree,
Settling Defendants shall present to EPA for approval as to form a fully
executed trust agreement (the "Trust Agreement") establishing the 270-280 Main
Avenue Area Trust Fund (the "Trust Fund") and shall notify EPA of the identity
and qualifications of the trustee(s). The Trust Agreement shall confer upon
the Trustee all powers and authorities necessary to finance the obligations of
the Settling Defendants under this Consent Decree. Money paid into the Trust
Fund by Settling Defendants shall be used solely to pay proper and necessary
expenses pursuant to this Consent Decree, including expenses of administering
the Trust. The Trust Fund may not be used to pay stipulated penalties that may
be required to be paid pursuant.to Section XXII and shall not be used to pay
attorneys' fees or other litigation costs of the Settling Defendants.
41. Notwithstanding anything in the Trust Agreement, Settling Defendants shall
be jointly and severally liable to the United States for compliance with this
Consent Decree. Settling Defendants shall provide EPA with written notice at
least ten (10) days in advance of any proposed change in the'Trust Agreement or
of the Trustee. EPA, through its approval of the terms and conditions of the
Trust Agreement or otherwise, does
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not guarantee the monetary sufficiency of the Trust Fund nor the legal
sufficiency of the Trust Agreement.
42. The Trust Agreement shall provide that the Trustee shall, within sixty
(60) days of his appointment and every ninety (90) days thereafter, submit to
Settling Defendants and EPA, financial reports that include the amount of money
currently in the Trust Fund. Settling Defendants shall make payments to the
Trust Fund when and to the extent necessary to ensure the uninterrupted
progress and timely completion of the Work.
43. The failure of any Settling Defendant to pay for its share of the proper
and necessary expenses of this Consent Decree shall not excuse timely
completion of any obligation under this Consent Decree.
XVI.
CERTIFICATION OF COMPLETION OF WORK
44. Within ninety (90) days after Settling Defendants conclude that the Work
has been fully performed, Settling Defendants shall so notify the United States
Department of Justice, EPA, and the State and shall schedule and conduct a
precertification inspection to be attended by Settling Defendants and EPA.
Such inspection shall be followed within thirty (30) days by a written report
signed by the Settling Defendants' project coordinator and by a registered
professional engineer certifying that all such activities have been completed
in full satisfaction of the pertinent requirements of this Consent
<PAGE>
-40-
Decree. If EPA, after opportunity for review and comment by the State,
determines that the Work or any portion thereof has not been completed in
accordance with this Consent Decree, EPA shall notify Settling Defendants in
writing of the activities that must be done to complete the Work and shall set
forth in the notice a schedule for performance of such activities after
providing Settling Defendants with reasonable opportunity for comment.
Settling Defendants shall perform all activities described in the notice in
accordance with the specifications and schedules established therein.
45. If EPA, after opportunity for review and comment by the State, concludes,
following the initial or any subsequent notification of completion of Work by
Settling Defendants, that all Work has been performed in accordance with this
Consent Decree, EPA shall so certify in writing to Settling Defendants. This
certification shall constitute the "Certification of Completion of Work" for
purposes of this Consent Decree, including Section XXIII (Plaintiffs' Covenants
Not to Sue).
XVII.
ENDANGERMENT AND FUTURE RESPONSE
46. In the event of any action or occurrence during the performance of the
Work or pursuant to or in violation of any of the Institutional Controls that
causes or threatens a release of Waste Material on, at, or from the Site that
is not contemplated by the SOW, or that may present an endangerment to public
health
<PAGE>
-41-
or welfare or the environment, settling Defendants shall immediately take all
appropriate action consistent with the NCP to prevent, abate, or minimize such
release or endangerment, and shall immediately notify the EPA RPM, or if that
is impracticable, the EPA Emergency Response Unit, Region I. Settling
Defendants shall take such action in accordance with all applicable provisions
of the Health and Safety Plan developed pursuant to the SOW and approved by
EPA. The Settling Defendants shall develop and submit a response plan to EPA
within ten (10) days or as soon thereafter as is practicable. The provisions
of Section XII apply to the submission of such response plan, except that the
time period for resubmission after disapproval shall be five (5) working days
rather than the thirty (30) days unless extended by EPA. In the event that
Settling Defendants fail to take appropriate response action consistent with
the NCP as required by this Section and EPA takes such action instead, Settling
Defendants shall reimburse all costs of the response action not inconsistent
with the NCP. Payment of such response costs shall be made in the manner
described in Paragraph 49 of Section XVIII, within thirty (30) days of Settling
Defendants' receipt of demand for payment.
47. Nothing in the preceding Paragraph shall be deemed to limit the power and
authority of the United States, or this Court to take, direct, or order all
appropriate action to protect public health, welfare, or the environment or to
prevent, abate,
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or minimize an actual or threatened release of hazardous substances on, at, or
from the Site.
XVIII.
REIMBURSEMENT OF RESPONSE COSTS
48.a. Within forty-five (45) days of the entry of this Consent Decree,
Settling Defendants shall, jointly and severally, pay to EPA $560,000 and
interest accrued thereon from the date of lodging to the date of entry at the
rate established by Section 107(a) of CERCLA, in the form of a certified check
made payable to "EPA Hazardous Substances Superfund," and referencing the
Kellogg-Deering Well Field Superfund Site, CERCLA Number CTD980670814 and DOJ
Case Number 90-11-2-582, in reimbursement of Response Costs incurred by the
United States prior to entry relating to the Site. The certified check
shall-be forwarded-to EPA Region I, Attn: Superfund Accounting, P.O. Box
360197M, Pittsburgh, PA 15251. Copies of the check and any transmittal letter
shall be sent to the Regional Hearing Clerk, EPA Region I, J.F.K. Federal
Building, Boston, MA 02203.
48.b. Within forty-five (45) days of the entry of this Consent Decree, Paying
Settling Defendants shall, jointly and severally, pay to EPA $240,000 and
interest accrued thereon from the date of lodging to the date of entry at the
rate established by Section 107(a) of CERCLA, in the form of a certified check
made payable to "EPA Hazardous Substances Superfund," and
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referencing the Kellogg-Deering Well Field Superfund Site, CERCLA Number
CTD980670814 and DOJ Case Number 90-11-2-582, in reimbursement of Response
Costs incurred by the United States prior to entry relating to the Site. The
certified check shall be forwarded to EPA Region I, Attn: Superfund
Accounting, P.O. Box 360197M, Pittsburgh, PA 15251. Copies of the check and
any transmittal letter shall be sent to the Regional Hearing Clerk, EPA Region
I, J.F.K. Federal Building, Boston, MA 02203.
49a. Settling Defendants shall reimburse the United States for all costs
incurred by it in connection with: the review or development of plans,
reports, and other items; overseeing or verifying the Work pursuant to this
Consent Decree; undertaking action to prevent, abate, or minimize a release or
endangerment pursuant to Section XVII; securing access to the Site or other
property to which access is required for the performance of the Work; securing
Institutional Controls; conducting the review of the Site required by Section
121(c) of CERCLA in accordance with Section VII; and enforcing and monitoring
compliance with this Consent Decree. The United States, through EPA, shall
send Settling De7fendants a demand for payment of such costs, together with an
itemized accounting and explanation of such costs, on an annual basis, with
each demand to be made as soon as practicable after each anniversary date of
the entry of this Consent Decree. For purposes of this Paragraph, an itemized
accounting and explanation shall consist of a summary of costs in dollars by
category of costs, including payroll, travel,-indirect costs and
<PAGE>
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contracts, and a brief narrative summary of the work performed during the
billing period. Payment shall be made in the manner described in Paragraph 48
above, within thirty (30) days of Settling Defendants' receipt of the demand
for payment.
b. During the pendency of and pending the resolution of any dispute relating to
the payment of costs pursuant to Section XXI herein, the Settling Defendants
shall not be required to tender payment of any disputed costs to EPA under this
Section, provided that, during the pendency of the resolution of the dispute,
such disputed costs shall be paid into an interest-bearing account within forty
five (45) calendar days of receipt of a demand for payment.
c. In the event that Settling Defendants prevail in whole or in part in any
dispute resolution under Section XXI relating to costs, the Settling Defendants
shall pay only that much of the costs and interest thereon as are appropriate
pursuant to the resolution of the dispute.
d. In the event the Settling Defendants do not prevail in any dispute
resolution under Section XXI, the Settling Defendants shall be liable to EPA
for all the moneys in the interest-bearing escrow account, such moneys to be
paid to EPA within forty-five (45) calendar days of the final resolution of the
dispute.
e. The total amount of costs recoverable from Settling Defendants pursuant to
paragraph 49-a of t his Consent Decree, excepting enforcement costs incurred by
the United States in
<PAGE>
-45-
response to Settling Defendants' non-compliance with this Consent Decree, shall
be one million dollars.
50a. In the event that the payments required by Paragraphs 48a. and 49 are not
made timely, Settling Defendants shall pay interest on the unpaid balance at
the rate established by the Department of the Treasury pursuant to 31 U.S.C.
section 3717 and 4 C.F.R. section 102.13. Settling Defendants shall, jointly
and severally, further pay and a six (6) percent per annum penalty charge, to
be assessed if Settling Defendants have not paid in full within ninety (90)
days after the payment is due. Payments made under this Paragraph shall be in
addition to such other remedies or sanctions available to Plaintiffs by virtue
of Settling Defendants' failure to make timely payments under this Section.
50b. In the event that the payments required by Paragraph 49b. are not made
timely, Paying Settling Defendants shall pay interest on the unpaid balance at
the rate established by the Department of the Treasury pursuant to 31 U.S.C.
3717 and 4 C.F.R. 102.13. Paying Settling Defendants shall, jointly and
severally, further pay a six (6) percent per annum penalty charge, to be
assessed if Paying Settling Defendants have not paid in full within ninety (90)
days after the payment is due. Payments made under the Paragraph shall be in
addition to such other remedies or sanctions available to Plaintiffs by virtue
of Settling Defendants' or Paying Settling Defendants' failure to make timely
payments under this Section.
<PAGE>
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XIX.
INDEMNIFICATION AND INSURANCE
51. The United States does not assume any liability by entering into this
agreement or by virtue of any designation of Settling Defendants as EPA's
authorized representatives, if such occurs, under Section 104(e) of CERCLA.
52. Settling Defendants shall indemnify and save and hold harmless the United
States and its officials, agents, employees, contractors, and representatives
from any and all claims or causes of action or other costs incurred by the
United States including, but not limited to attorneys fees and other expenses
of litigation and settlement arising from or on account of acts or omissions of
Settling Defendants, their officers, employees, agents, contractors,
subcontractors, and any persons acting on their behalf or under their control,
in carrying out activities pursuant to this Consent Decree, including any
claims arising from any designation of the Settling Defendants as EPA's
authorized representatives under Section 104(e) of CERCLA. The United States
shall not be held out as a party to any contract entered into by or on behalf
of Settling Defendants in carrying out activities pursuant to this Consent
Decree. Neither Settling Defendants nor any such contractor shall be
considered an agent of the United States.
53. Settling Defendants waive any claims or causes of action against and shall
indemnify and hold harmless the United
<PAGE>
-47-
States, and its officials, agents, employees, contractors, and representatives
for damages or reimbursement, or set-off of any payments made or to be made to
the United States, arising from or on account.of any contract, agreement, or
arrangement between any one or more of Settling Defendants and any person for
performance of work on or relating to the Site, including claims on account of
construction delays. Settling Defendants do not waive any claims that arise
solely from actions or omissions of Plaintiff or its employees or contractors
that are based on gross negligence.
54. Prior to commencing any on-Site work, Settling Defendants shall secure,
and shall maintain for the duration of this Consent Decree: i) comprehensive
general liability and automobile insurance with limits of $1 million, and $1
million respectively, in each case naming as insured the United States and the
State. In addition, for the duration of this Consent Decree, Settling
Defendants shall satisfy, or shall ensure that their contractors or
subcontractors satisfy, all applicable laws and regulations regarding the
provision of worker's compensation insurance for all persons performing work on
behalf of Settling Defendants in furtherance of this Consent Decree. Prior to
commencement of onsite work under this Consent Decree, Settling Defendants
shall provide to EPA certificates of such insurance and a copy of each
insurance policy. If Settling Defendants demonstrate by evidence satisfactory
to EPA that any contractor or subcontractor maintains insurance equivalent to
that described
<PAGE>
-48-
above, or insurance covering the same risks but in a lesser amount, then with
respect to that contractor or subcontractor Settling Defendants need provide
only that portion of the insurance described above which is not maintained by
the contractor or subcontractor.
XX.
FORCE MAJEURE
55. "Force Majeure" is defined for the purposes of this Consent Decree as an
event arising from causes entirely beyond the control of Settling Defendants
and of any entity controlled by Settling Defendants, including their
contractors and subcontractors, which delays or prevents the performance of any
obligation under this Consent Decree notwithstanding Settling Defendants' best
efforts to avoid the delay. The requirement that the Settling Defendants
exercise "best efforts to avoid the delay" includes using best efforts to
anticipate any potential Force Majeure event and best efforts to address the
effects of any potential Force Majeure event (i) as it is occurring and (ii)
following fhe potential Force Majeure event, such that the delay is minimized
to the greatest extent possible. "Force Majeure" does not include
unanticipated or increased costs, changed financial circumstances, or
non-attainment of the cleanup or performance standards and requirements set
forth in Section VI hereof or in the SOW.
<PAGE>
-49-
56. When circumstances occur which may delay or prevent the completion of any
obligation of the Consent Decree, whether or not caused by a Force Majeure
event, Settling Defendants shall notify the EPA RPM orally of the circumstances
within forty-eight (48) hours after Settling Defendants first become aware of
such circumstances. If the EPA RPM is unavailable, Settling Defendants shall
notify the Director of the Waste Management Division, EPA Region I. Within five
(5) working days after Settling Defendants first become aware of such
circumstances, Settling Defendants shall supply to Plaintiff in writing an
explanation of the cause(s) of any actual or expected delay, the anticipated
duration of any delay, the measures taken and to be taken by Settling
Defendants to prevent or minimize the delay, and the timetable for
implementation of such measures. Settling Defendants shall exercise best
efforts to avoid or minimize any delay and any effects of a delay. Failure to
give timely oral and written notice to Plaintiff in accordance with this
Paragraph shall constitute a waiver of any claim of Force majeure with respect
to the circumstances in question.
57. If EPA agrees that an event delaying or preventing the completion of an
obligation under this Consent Decree is or was caused by a Force Majeure event,
then EPA shall notify Settling Defendants in writing as soon as practicable of
its agreement to provide such additional time as may be necessary to allow the
completion of the specific phase of the Work and/or any succeeding phase of the
Work directly affected by such delay,
<PAGE>
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which additional time shall be no longer than the actual delay resulting from
the Force Majeure event or shall allow for the completion of a substitute
activity in furtherance of the Work if EPA determines that a substitute
activity is appropriate. In proceedings on any dispute regarding a delay or
prevention in performance, Settling Defendants shall have the burden of proving
by a preponderance of the evidence (1) that the delay is or was caused by a
Force Majeure event, and (2) that the amount of additional time requested is
necessary to compensate for that event.
58. Delay in achievement of any milestone established by the RD/RA Work Plan
and/or other relevant documents shall not automatically justify or excuse delay
in Achievement of any subsequent milestone unless Settling Defendants can
demonstrate to EPA's satisfaction that a subsequent milestone is dependent upon
a prior milestone.
XXI.
DISPUTE RESOLUTION
59. Any dispute which arises under or with respect to this Consent Decree or
the SOW shall in the first instance be the subject of informal negotiations
between the parties to the dispute. The period for informal negotiations shall
not exceed thirty (30) days from the time EPA or the Settling Defendants
receives written notice of the existence of a dispute, unless it is extended by
agreement between Plaintiff and. Settling
<PAGE>
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Defendants. The dispute shall be considered to have arisen when one Party
notifies the other Parties in writing that there is a dispute. The period for
informal negotiations shall end when EPA provides its position on the disputed
matter to Settling Defendants in writing.
60. In the event that the Parties cannot resolve a dispute by informal
negotiations under the preceding Paragraph, then the position advanced by EPA
shall be considered binding unless, within ten (10) working days after the end
of the informal negotiations period, Settling Defendants invoke the dispute
resolution procedures of this Section by giving written notice to the United
States and EPA. After receiving such notice from Settling Defendants, EPA
shall notify Settling Defendants of its unreviewable decision regarding whether
the dispute is to be resolved on the administrative record under Paragraph 62
below. Settling Defendants shall waive any rights to contest EPA's
determination that the dispute is subject to resolution under Paragraph 62
below. The filing of such a petition shall not stay or otherwise delay the
administrative proceeding under Paragraphs 62 through 65.
61. The dispute resolution procedures of this Section shall be the exclusive
mechanism to resolve disputes arising under or with respect to this Consent
Decree or the SOW and shall apply to all provisions of this Consent Decree and
SOW unless otherwise expressly provided. Invocation of the procedures of this
Section shall not of itself extend or postpone any obligation of Settling
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Defendants under this Consent Decree or the SOW and no such extension or
postponement shall occur unless agreed to in writing by EPA or ordered by this
Court. Stipulated penalties shall accrue from the first day of noncompliance
with any provision of this Consent Decree or the SOW. In proceedings on any
dispute under this Section, Settling Defendants shall bear the initial burden
of coming forward with evidence and of persuasion on factual issues.
62. Any dispute under this Section which relates to the selection, extent, or
adequacy of any aspect of the Work, including, but not limited to, the
selection of any alternate treatment technology for contaminated groundwater,
the selection of the disposal method for treated groundwater and the selection
of soil cleanup standards, shall be resolved on the administrative record
maintained by EPA. Any dispute concerning action taken by EPA pursuant to
Section IV.D of the SOW shall not be considered one that relates to the
selection, extent, or adequacy of any aspect of the Work and shall not be
subject to Dispute Resolution under Section XXI. The administrative record
sha,ll include the written notification of dispute, all Statements of Position,
as hereinafter defined in Paragraph 63, and any other materials submitted by
the Parties in support of their positions and shall be available at all
reasonable times for review by the Parties after the record has been prepared.
63. Within fifteen (15) working days after receiving notice from EPA that a
dispute is subject to resolution on the
<PAGE>
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administrative record, Settling Defendants shall serve on the other Parties a
written statement of their position on the matter in dispute ("Statement of
Position"), including any factual data, analysis, or opinion supporting that
position and all supporting documentation relied upon. Any party wishing to
contest the Settling Defendants' position shall serve a Statement of Position
(in EPA's case, a Supplemental Statement of Position), including supporting
documentation, on the other Parties no later than ten (10) days after receipt
of Settling Defendants' Statement of Position. EPA may extend the time periods
for exchange of Statements of Position or, in the event that these ten-day
periods for exchange of Statements of Position may delay the Work, they may be
shortened in accordance with notice by EPA.
64. Upon review of the administrative record, the Director of the Waste
Management Division, EPA Region I, shall issue a final decision resolving the
dispute.
65. Any decision of EPA pursuant to the preceding Paragraph shall be
reviewable by this Court, provided that a Notice of Judicial Appeal is filed
within (10) days of receipt of EPA's decision. With respect to matters covered
by Paragraph 62 judicial review of such a decision shall be conducted on the
administrative record, and EPA's decision shall be upheld unless Settling
Defendants can demonstrate it is arbitrary and capricious or otherwise not in
accordance with law.
66. If EPA determines that a dispute'is not subject to Paragraph 62, then the
position on the dispute advanced by EPA
<PAGE>
-54-
following informal negotiations shall be considered binding on all Parties
unless, within ten (10) days after receipt of the determination that Paragraph
62 is inapplicable, Settling Defendants file a petition with this Court setting
forth the matter in dispute, the efforts made by the Parties to resolve it, the
relief requested, and the schedule, if any, within which the dispute must be
resolved to ensure orderly implementation of this Consent Decree and the SOW.
In proceedings on any dispute, Settling Defendants shall bear the burden of
coming forward with evidence and of persuasion on factual issues. Nothing
herein shall prevent the United States from arguing that the Court should apply
the arbitrary and capricious standard of review to all disputes under this
Consent Decree or the SOW.
67. Notwithstanding the invocation of the procedures stated in this Section,
Settling Defendants shall continue to perform their obligations under this
Consent Decree or the SOW that are undisputed or that EPA determines are not
affected substantially by the disputed issue unless otherwise agreed to by the
Parties or ordered by this Court.
XXII.
STIPULATED PENALTIES
68. Settling Defendants shall be jointly and severally liable for stipulated
penalties in the amounts set forth in this Paragraph to the United States for
failure to comply with the requirements of this Consent Decree, unless excused
under
<PAGE>
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Paragraph 57. "Compliance" by Settling Defendants shall include completion of
any activity under this Consent Decree or any plan approved under this Consent
Decree in a manner consistent with the requirements herein within the specified
time schedules established by and approved under this Consent Decree.
a. For each and every violation of the reporting requirements contained in
Section XI, five hundred dollars ($500) per day per violation.
b. For all other violations:
Period of Delay Penalty Per Violation Per Day
lst through 5th day $ 1,500
6th through 15th day $ 5,000
16th through 30th day $ 7,500
31st day and beyond $10,000
69. All penalties shall begin to accrue on the day that performance is due or
other failure or refusal to comply occurs, and shall continue to accrue through
the final day of the noncompliance. Penalties relating to the adequacy of any
reports, plans or other items requiring EPA's response shall begin to accrue on
the due date of such submittals and shall continue to accrue for thirty days,
at which point penalties shall stop accruing until EPA notifies Settling
Defendant of the violation, whereupon accrual of penalties shall resume. With
respect to all other violations, penalties shall accrue from the date of
violation regardless of whether the United States has
<PAGE>
-56-
notified Settling Defendants of a violation. Separate penalties shall accrue
for each separate failure or refusal to comply with the terms or conditions of
this Consent Decree, provided that in the event a report, plan or other item
requiring EPA approval is disapproved for more than one reason, only a single
stipulated penalty shall be owed for each day of noncompliance stemming from
such disapproval.
70. All penalties due to EPA under this Section shall be payable within
forty-five (45) days of receipt by Settling Defendants of notification of
noncompliance. Interest shall begin to accrue on the unpaid balance at the end
of said period, at the rate established by the Department of the Treasury under
31 U.S.C. section 3717. Settling Defendants shall pay a six (6) percent per
annum penalty charge to be assessed if the penalty is not paid within ninety
(90) days after it is due.
71. Stipulated penalties due to EPA shall be paid by certified check made
payable to "EPA Hazardous Substances Superfund" and referencing DOJ case number
90-11-2-582 and shall be mailed to EPA Region I, Attn: Superfund Accounting,
P.O. Box 360197M, Pittsburgh, PA 15251. Copies of the checks and any
transmittal letters shall be sent to the United States. EPA has the
unreviewable discretion to waive or reduce payments otherwise due under this
Section.
72. Neither the filing of a petition to resolve a dispute nor the payment of
penalties shall alter in-any way Settling
<PAGE>
-57-
Defendants' obligation to complete the performance required hereunder.
73. No payment made under this Section shall be tax deductible.
74. If Settling Defendants fail to pay stipulated penalties, the United States
may institute a proceeding to collect the penalties, as well as late charges
and interest. Notwithstanding the stipulated penalties provision of this
Section, EPA may also assess civil penalties and/or bring an action in the U.S.
District Court pursuant to Sections 109 and 122 of CERCLA, 42 U.S.C. sections
9609 and 9622, as amended by SARA, to enforce the provisions of this Consent
Decree. Such remedies shall not, however, b e used to obtain penalties for any
alleged noncompliance with respect to which Settling Defendants have prevailed
in Dispute Resolution under this Consent Decree, and the Plaintiff shall not
commence any action or proceeding seeking penalties against Settling Defendants
with respect to noncompliance which is the subject of a pending active dispute
resolution proceeding under this Consent Decree. Payment of stipulated
penalties shall not preclude EPA from electing to pursue any other remedy or
sanction to e nforce this Consent Decree, and nothing shall preclude EPA from
seeking statutory penalties against Settling Defendants for violations of
statutory or regulatory requirements. Settling Defendants reserve the right to
argue that the amounts of stipulated penalties already paid by the Settling
Defendants for a particular violation should
<PAGE>
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be considered in the award of any monetary sanctions or penalties that the
Settling Defendants may be required to pay in the event the United States seeks
additional relief against the Settling Defendants for the same noncompliance.
75. Settling Defendants may dispute the United States' right to the stated
amount of penalties by invoking the Dispute Resolution procedures under Section
XXI herein. Penalties shall accrue but need not be paid during the dispute
resolution period. If a disputed matter is submitted to the District Court,
the period of dispute shall end upon the rendering of a decision by the
District Court regardless of whether any party appeals such decision. If
Settling Defendants do not prevail upon resolution, the United States has the
right to collect all penalties which accrued prior to and during the period of
dispute. If Settling Defendants prevail upon resolution, Settling Defendants
shall pay only such penalties as the resolution requires.
XXIII.
COVENANTS NOT TO SUE BY PLAINTIFFS
76. Settling Defendants and Paying Settling Defendants. In consideration of
the actions that will be performed and the payments that will be made by the
Settling Defendants and the Paying Settling Defendants under the terms of the
Consent Decree, and except as specifically provided in Paragraphs 78, 79, and
81 of this Section, the United States covenants not to sue or to take
administrative action under its authorities against Settling
<PAGE>
-59-
Defendants and Paying Settling Defendants for Covered Matters. With respect to
all such liability, (except for any future liability relating to response
activities at the Site tot identified in the Second Operable Unit ROD or the
SOW), these covenants not to sue shall take effect upon the receipt by EPA of
the payments required by Paragraphs 48 and 49 of Section XVIII. With respect
to future liability, these covenants not to sue shall take effect upon
Certification of Completion of the Work pursuant to Paragraphs 44 and 45.
These covenants not to sue are conditioned upon complete and satisfactory
performance by Settling Defendants and Paying Settling Defendants of their
respective obligations under this Consent Decree. These covenants not to sue
extend only to the Settling Defendants and Paying Settling Defendants and do
not extend to any other person or entity.
77. Except as provided in Paragraphs 78, 79, and 81, Covered Matters shall
include any and all claims for civil liability to the United States arising
under sections 106 and 107(a) of CERCLA, 42 U.S.C. sections 9606 or 9607(a),
and under Section 7003 of RCRA, 42 U.S.C. section 6973, for performance of the
Work at the site identified in the Second Operable Unit ROD or the SOW,
performance of any Additional Work that is undertaken pursuant to Section VIII,
and reimbursement of any Response Costs incurred by the United States with
respect to Operable Unit One and Operable Unit Two of the Kellogg Deering
Wellfield Superfund Site, whether incurred prior or subsequent to the entry of
this Consent Decree.
<PAGE>
-60-
78. Pre-certification reservations. Notwithstanding any other provision of
this Consent Decree, the United States reserves the right to institute
proceedings in this action or in a new action, or to issue an Administrative
Order, seeking to compel Settling Defendants and Paying Settling Defendants (1)
to perform additional response actions at the Site or (2) to reimburse the
United States for response costs if, prior to Certification of Completion of
the Work:
a. conditions at the site, previously unknown to the United States, are
discovered after the entry of this Consent Decree;
b. information is received by the United States, in whole or in part, after the
entry of this Consent Decree, and the EPA Administrator or his delegate finds,
based on these previously unknown conditions or this information together with
any other relevant information, that the Work is not protective of human health
and the environment; or
c. information is received by the United States in whole or in part after entry
of the Consent Decree and the EPA Administrator or his delegate finds based on
this new information that the achievement of groundwater Cleanup Standards is
not technically impracticable. The preceding sentence shall only be effective
where groundwater cleanup standards have been excused or altered under Section
IV.D of the SOW.
79. Post-certification reservations.- Notwithstanding any other provision of
this Consent Decree, the United States
<PAGE>
-61-
reserves the right to institute proceedings in this action or in a new action,
or to issue an Administrative Order, seeking to compel Settling Defendants and
Paying Settling Defendants (1) to perform additional response actions at the
Site or (2) to reimburse the United States for response costs if, subsequent to
Certification of Completion of Work:
a. conditions at the Site, previously unknown to the United States, are
discovered after the Certification of Completion of Work; or
b. information is received by the United States, in whole or in part, after the
Certification of Completion of Work, and the EPA Administrator or his delegate
finds, based on these previously unknown conditions or this information
together with other relevant information, that the Work is not protective of
human health and the environment; or
c. information is received by the United States in whole or in part after
Certification of Completion of Work an d the EPA Administrator or his delegate
finds based on this new information that the achievement of groundwater Cleanup
Standards is not technically impracticable. The preceding sentence shall be
effective where groundwater cleanup standards have been excused or altered
under Section IV.D of the SOW.
The above-mentioned reservation of rights in Paragraphs 78 and 79 includes the
right to institute proceedings in this action or in a new action to seek
reimbursement of costs incurred as a
<PAGE>
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result of actions undertaken pursuant to Section 121(c) of CERCLA, 42 U.S.C.
section 9621(c).
80. For purposes of Paragraph 78, the information received by the United
States prior to entry of this Consent Decree and all conditions known to the
United States at such time shall include that information and those conditions
set forth in the Supplemental Record of Decision for the Kellogg-Deering Site,
the administrative record supporting the Supplemental Record of Decision and
all information contained in written submissions made to EPA during the public
comment period. For purposes of Paragraph 79, the information received by and
the conditions known to the United States shall include that information and
those conditions set forth in the Supplemental Record of Decision, the
administrative record supporting the Supplemental Record of Decision and all
information contained in written submissions made to EPA during the public
comment period and any information received by the United States pursuant to
the requirements of this Consent Decree.
81. General reservations of-rights as to Settling Defendants. The covenants
not to sue set forth in Paragraphs 76 and 77 do not pertain to any matters
other than those expressly specified to be Covered Matters. The United States
reserves, and this Consent Decree is without prejudice to, all rights against
Settling Defendants and Paying Settling Defendants with respect to all other
matters. In addition, the following are specifically identified as matters
that are not covered matters:
<PAGE>
-63-
a. claims based on a failure or refusal by Settling Defendants or Paying
Settling Defendants to meet a requirement of the Consent Decree;
b. liability arising from the past, present, or future disposal, release, or
threat of release of Waste Material outside of the Site and not attributable to
the Site;
c. liability for the disposal of any Waste Material taken from the Site;
d. liability for damages for injury to, destruction of, or loss of natural
resources;
e. any matter as to which the United States is owed indemnification under
Section XIX above:
f. criminal liability;
g. all response costs other than those expressly included in Covered Matters,
including, but not limited to, any action undertaken pursuant to a subsequent
Record of Decision;
h. liability for violations of federal law which occur during implementation of
the Work.
82. Notwithstanding any other provision of this Consent Decree, the United
States retains all authority and reserves all rights to take any and all
response actions authorized by law.
83. Notwithstanding any other provisions in this Consent Decree, the covenant
not to sue in this Section shall not relieve the Settling Defendants of their
obligation to meet and maintain compliance with the requirements set forth in
this Consent Decree, including the conditions in the Second Operable Unit ROD,
<PAGE>
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and the United States reserves its rights to take response actions at the Site
in the event of a breach of the terms of this Consent Decree and to seek
recovery of costs incurred after entry of the Consent Decree: (1) resulting
from such a breach; (2) relating to any portion of the Work funded or performed
by the United States or (3) incurred by the United States as a result of having
to seek judicial assistance to remedy conditions at or adjacent to the Site.
84. Nothing in this Consent Decree shall constitute or be construed as a
release or a covenant not to sue regarding any claim or cause of action against
any person, firm, trust, joint venture, partnership, corporation or other
entity not a signatory to this Consent Decree for any liability it may have
arising out of or relating to the Site.
XXIV.
CONTRIBUTION PROTECTION
85. Subject to the reservations of rights in Section XXIII, Paragraphs 7.8, 79
and 81, the United States agrees that by entering into and carrying out the
terms of this Consent Decree, the Settling Defendants and the Paying Settling
Defendants will have resolved their liability to the United States for Covered
Matters as defined in Section XXIII, Paragraph 77, pursuant to Section 113(f)
of CERCLA and shall not be liable for claims for contribution for Covered
Matters.
<PAGE>
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86. Plaintiff expressly reserves the right to continue to sue any person(s)
other than the Settling Defendants and the Paying Settling Defendants in
connection with the Site.
87. Settling Defendants and Paying Settling Defendants further retain and
reserve the right to assert claims against other Settling Defendants and Paying
Settling Defendants, with respect to any agreements relating to the performance
of their obligations under this Consent Decree.
88. Nothing in this Consent Decree shall be construed to create any rights in
or grant any cause of action to any person not a party to this Consent Decree.
Except as provided in Paragraph 89, each of the Parties expressly reserves any
and all rights (including any right to contribution), defenses, claims,
demands, and causes of action which each party may have with respect to any
matter, transaction, or occurrence relating in any way to the Site against any
person not a party hereto.
XXV.
COVENANTS BY DEFENDANTS; ASSIGNMENT OF CLAIMS
89. Defendants hereby covenant not to sue and agree not to assert any claims
or causes of action against the United States for any claims related to or
arising from Covered Matters or any response action taken with respect to
Operable Unit One or Operable Unit Two of this Consent Decree, including, but
not limited to, any direct or indirect claim for reimbursement from
<PAGE>
-66-
the Hazardous Substance Superfund (established pursuant to the Internal Revenue
Code, 26 U.S.C. section 9507), through CERCLA Sections 106(b)(2), 111 or 112 or
otherwise, or to seek any other costs, damages, or attorneys fees from the
United States arising out of response activities at the Site. To the extent
necessary to assure the United States' ability to collect from non-settling
parties response costs not reimbursed by Settling Defendants and Paying
Settling Defendants, Settling Defendants and Paying Settling Defendants hereby
assign to the United States all claims or causes of action that they may have
against any entities that are not Settling Defendants or Paying Settling
Defendants regarding "Covered Matters" as defined in Paragraph 77. Nothing in
this Consent Decree shall be deemed to constitute preauthorization of a claim
within the meaning of Section 111 of CERCLA, 42 U.S.C. section 9611, or 40
C.F.R. section 300.25(d).
XXVI.
ACCESS TO INFORMATION
90. Settling Defendants shall provide to EPA, upon request, copies of all
documents and information within their possession and/or control or that of
their contractors or agents relating to activities at the Site or to the
implementation of this Consent Decree, including sampling, analysis, chain of
custody records, manifests, trucking logs, receipts, reports, sample traffic
routing, correspondence, or other documents or information related to the Work.
Settling Defendants shall also make
<PAGE>
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available to EPA, for purposes of investigation, information gathering, or
testimony, their employees, agents, or representatives with knowledge of
relevant facts concerning the performance of the Work.
91. Settling Defendants may assert business confidentiality claims covering
part or all of the documents or information submitted to Plaintiff under this
Consent Decree to the extent permitted by and in accordance with Section
104(e)(7) of CERCLA, 42 U.S.C. section 9604(e)(7), and 40 C.F.R. section
2.203(b). Documents or information determined to be confidential by EPA will
be afforded the protection specified in 40 C.F.R. Part 2, Subpart B. If no
claim of confidentiality accompanies specific documents or information when
they are submitted to EPA, or if EPA has notified Settling Defendants that the
documents or information are not confidential under the standards of Section
104(e)(7) of CERCLA, the public may be given access to such documents or
information without further notice to Settling Defendants.
92. No claim of confidentiality shall be made with respect to any sampling or
analytical data or any other documents or information evidencing conditions at
or around the Site.
93. In the event that this Court is called upon to resolve a dispute
concerning implementation of this Consent Decree, the Parties waive any
evidentiary objection to the admissibility into evidence of the results of any
analysis of samples conducted by or for a party pursuant to this Consent Decree
unless a party can demonstrate that there was significant noncompliance with
<PAGE>
-68-
applicable chain of custody, or laboratory procedures, or a clear error in
reporting. Further, the parties waive their right to contest the validity of
any data unless it is established that such data has not been validated in
accordance with all relevant quality assurance and quality control procedures
established by or pursuant to this Consent Decree.
XXVII.
RETENTION OF RECORDS
94. Until six years after EPA Certification of Completion of the Work, each of
the Settling Defendants and the Paying Settling Defendants shall preserve and
retain all records and documents now in its possession or control as of the
date of lodging of the Consent Decree that relate in any manner to the Site.
After this document retention period, Defendants shall notify the United States
at least ninety (90) calendar days prior to the destruction of any such records
or documents, and, upon request by the United States, Defendants shall deliver
all such records or documents to EPA.
95. Until six years after Certification of Completion of the Work and
termination of this Consent Decree, Settling Defendants shall preserve, and
shall instruct their contractors and agents to preserve, all documents,
records, and information of whatever kind, nature or description relating to
the performance of the Work. Upon Certification of Completion of the Work,
Settling Defendants shall deliver all such documents,
<PAGE>
-69-
records and information to EPA. EPA may in its sole discretion waive this
requirement in whole or in part.
96. Settling Defendants and Paying Settling Defendants each individually
hereby certify that they have no knowledge that they have altered, mutilated,
discarded, destroyed or otherwise disposed of any records, documents or other
information relating to their potential liability with regard to the Site since
notification of potential liability by the United States which, for purposes of
this provision shall be July 24, 1986.
XXVIII.
NOTICES AND SUBMISSIONS
97. Whenever, under the terms of this Consent Decree, written notice is
required to be given or a report or other document is required to be sent by
one party to another, it shall be directed to the individuals and the addresses
specified below, unless those individuals or their successors give written
notice of a change to the other Parties. Written notice as specified herein
shall constitute complete satisfaction of any written notice requirement of the
Consent Decree with respect to the United States EPA, and the Settling
Defendants, respectively.
As to the United States:
Chief, Environmental Enforcement Section
Environment and Natural Resources Division
Department of Justice
10th & Pennsylvania Avenue, N.W.
Washington, D.C. 20530
Re: DOJ
<PAGE>
-70-
and
Director, Waste Management Division
United States Environmental
Protection Agency, Region I
JFK Federal Building
Boston, MA 02203
and
EPA RPM Kellogg-Deering Site
Connecticut Section
Waste Management Division
J.F.K. Federal Building
Boston, MA 02203
As to the State:
Kellogg-Deering Project Coordinator
Christine Atkinson
Site Remediation Division
Department of Environmental Protection
165 Capitol Avenue
Hartford, CT 06101 [203-566-5486]
As to the Settling Defendants:
The Defendants' Project Coordinator
As to the Paying Settling Defendants:
Jones, Day Reavis & Pague
599 Lexington Avenue
New York, NY
Attn: Debra Rothberg
XXIX.
EFFECTIVE DATE
98. Except as to Paragraph 9, 10 and 13, 26, 35 and 94 which are effective
upon lodging of this Consent Decree with the
<PAGE>
-71-
Court, the effective date of this Consent Decree shall be the date upon which
this Consent Decree is entered by the Court.
XXX.
RETENTION OF JURISDICTION
99. This Court will retain jurisdiction for the purpose of enabling any of the
Parties to apply to the Court at any time for such further order, direction,
and relief as may be necessary or appropriate for the construction or
modification of this Consent Decree, or to effectuate or enforce compliance
with its terms, or to resolve disputes in accordance with Section XXI hereof.
XXXI.
TERMINATION
l00. Upon notice by the United States to the Court that EPA, after opportunity
for review and comment by the State, has certified the Work as complete and
that Settling Defendants have satisfied their obligations under Section XVIII
[Response Costs], Section XXII [Stipulated Penalties], Section XVII
[Endangerment and Emergency Response], and Section VIII [Additional Work], this
Consent Decree shall terminate upon the motion of any of the Parties.
Termination of this Consent Decree shall not affect the Covenants Not to Sue
(Sections XXIII and XXV above), including all reservations pertaining to those
covenants, shall not affect Section XXIV (Contribution Protection] and shall
not affect any
<PAGE>
-72 -
continuing obligation of Settling Defendants under Sections V, VI, VII, VIII,
X, XI, XV, XIX, XXVI, and XXVII.
XXXII.
MODIFICATION
101. No material modification shall be made to this Consent Decree without
written notification to and written approval of the Parties and the Court. The
notification required by this Section shall set forth the nature of and reasons
for the requested modification. No oral modification of this consent Decree
shall be effective. Modifications that do not materially alter the
requirements of this Consent Decree may be made upon the written consent of
EPA, and of the Settling Defendants' Project coordinator, which consent shall
be filed with this Court. Nothing in this Paragraph shall be deemed to alter
the Court's power to supervise or modify this Consent Decree; notwithstanding
the above, modifications to the SOW or the RD/RA Work Plan shall be made by
written agreement between EPA and the Settling Defendants.
XXXIII.
COMMUNITY RELATIONS
102. Settling Defendants shall cooperate with EPA in providing information
regarding the Work to the public. As requested by EPA, Settling Defendants
shall participate in the preparation of such information for dissemination to
the public
<PAGE>
-73-
and in public meetings which may be held or sponsored by EPA to explain
activities at or relating to the Site. Settling Defendants shall submit a
Community Relations Support Plan as a section of every POP in accordance with
the SOW which specifies the support to be provided to EPA for community
relations.
XXXIV.
LODGING AND OPPORTUNITY FOR PUBLIC COMMENT
103. This Consent Decree shall be lodged with the Court for a period of not
less than thirty (30) days for public notice and comment in accordance with
Section 122(d)(2) of CERCLA, 42 U.S.C. section 9622(d)(2), and 28 C.F.R.
section 50.7. The United States reserves the right to withdraw or withhold its
consent if the comments regarding the Consent Decree disclose facts or
considerations which indicate that the Consent Decree is inappropriate,
improper, or inadequate. Defendants consent to the entry of this Consent
Decree without further notice.
XXXV.
SIGNATORIES
104. Each undersigned representative of a Defendant to this Consent Decree
certifies that he or she is fully authorized to enter into the terms and
conditions of this Consent Decree and to execute and legally bind such party to
this document.
105. Each Defendant shall identify, -on the attached signature page, the name,
address and telephone number of an
<PAGE>
-74-
agent who is authorized to accept service of process by mail on behalf of that
party with respect to all matters arising under or relating to this Consent
Decree. Defendants hereby agree to accept service in that manner and to waive
the formal service requirements set forth in Rule 4 of the Federal Rules of
Civil Procedure, including service of a summons, and any applicable local rules
of this Court.
106. This Consent Decree may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
SO ORDERED THIS DAY OF 19-.
United States District Judge
THE UNDERSIGNED PARTIES enter into this Consent Decree relating to the
Superfund Site.
<PAGE>
- 73 -
FOR THE UNITED STATES OF AMERICA
Date:
s/Richard B. Stewart
- ----------------------------------
Assistant Attorney General
Envirorment and Natural
Resources Division
U.S. Department of Justice
Washington, D.C. 20530
s/Cynthia S. Huber
- ----------------------------------
Environmental Enforcement Section
Environment and Natural
Resources Division
U.S. Department of Justice
Washington, D.C. 20530
s/Paul Keough
- ----------------------------------
Acting Regional Administrator,
Region I
U.S. Environmental Protection
Agency
s/Richard N. Palmer
- ----------------------------------
UNITED STATES ATTORNEY
DISTRICT OF CONNECTICUT
UNITED STATES ATTORNEYS' OFFICE
141 CHURCH STREET
NEW HAVEN, CT 06510
<PAGE>
-74-
THE UNDERSIGNED PARTY enters into this Consent Decree relating to the
Kellogg-Deering Well Field Superfund Site.
FOR EDO Corporation
Date: September 26, 1990
s/Marvin D. Genzer
- ----------------------------------
Vice President
Agent Authorized to Accept Service on Behalf of EDO:
Name: Law Department
Title: EDO Corporation
Address: 14-04 111th Street College Point, NY 11356
Telephone: (718) 321-4443
<PAGE>
-74-
THE UNDERSIGNED PARTY enters into this Consent Decree relating to the
Kellogg-Deering Well Field Superfund Site.
FOR Plessey Incorporated
Date: October 25, 1990
s/Patricia A. Hoffman
- ----------------------------------
Assistant Secretary
Agent Authorized to Accept Service on Behalf of Plessey Incorporated
Name: Patricia A. Hoffman
Title: Assistant Secretary
Address: 5700 W. Touhy Avenue, Chicago, IL 60648
Telephone: (312) 763-1900 x2227
<PAGE>
-76-
THE UNDERSIGNED PARTY enters into this Consent Decree relating to the
Kellogg-Deering Well Field Superfund Site.
FOR PITNEY BOWES INC.
Date: October 30, 1990
s/John T. Schmidt
- ----------------------------------
Agent authorized to Accept Service on Behalf of PITNEY BOWES INC.:
Name: CT Corporation System
Title:
Address: 1 Commercial Plaza, Hartford, Connecticut 06103
Telephone: (203) 275-8333
<PAGE>
-76a -
THE UNDERSIGNED PARTY enters into this Consent Decree relating to the
Kellogg-Deering Well Field Superfund Site.
FOR VERNITRON CORPORATION
s/Elliot N. Konopko
- ----------------------------------
Date: Nov. 13, 1990
Agent Authorized to Accept Service on Behalf of Vernitron Corporation:
Name: Elliot N. Konopko
Title: Secretary and General Counsel
Address: 645 Madison Avenue
New York, N.Y. 10022
Telephone: (212) 593-7900
EDO Corporation
Compensation Plan for Directors
1. Purpose.
The Purpose of the EDO Corporation (the "Company") Compensation Plan for
Directors (the "Plan") is to provide one-half of Director's retainer in the
form of Company Common Shares, and also to provide its Directors with the
opportunity to defer receipt of their cash compensation to a future date. The
Company has adopted this Plan in recognition of the valuable services of these
Directors and the desire to increase the alignment of the interests of
Directors with those of shareholders and to provide them with additional
flexibility in their personal financial planning.
2. Compensation in Stock
One-half of a Director's retainer shall be paid in Common Shares of the
Company. Such shares shall be distributed on the last Friday of each quarter
in an amount equal to one-half of a Director?s earned quarterly retainer based
on the Fair Market Value on such date. A Director may elect to receive any or
all of the remainder of any cash compensation due such Director in the form of
Common Shares of the Company by election made in the same manner and under
comparable irrevocable terms as election for the deferral feature. Such
additional Common Shares shall be distributed at the same time and in the same
manner as those for one-half of the Director?s retainer.
3. Eligibility for Deferral Feature.
Any Director of the Board of the Company who receives compensation for his or
her services on the Board is eligible to participate in the deferral feature of
the Plan.
4. Election to Participate in Deferral Feature.
(a) Any eligible Director may elect, prior to the beginning of each calendar
year, but no later than December 31st of the preceding year, to participate in
the deferral feature of the Plan and defer receipt of either all or part of the
cash compensation that would otherwise have been payable to him or her for
services as a Director (including his or her annual retainer, committee and
meeting fees) to a distribution date defined in Section 6. A new Director may
make an election with respect to future cash compensation including cash
compensation earned in the first year of eligibility, within 30 days after
becoming eligible.
(b) The election will be made on a written form called a "Notice of Election"
signed by the Director and delivered to the Secretary of the Company. This
election will continue in effect for future years in which the Director is
eligible to participate unless the Director submits a written request revoking
or revising his or her election on a Notice of Election form.
Any revocation or revised deferral election will be applicable only to
compensation the Director may earn for services performed in the future and
will be effective as of January 1st of the year specified, provided that the
signed Notice of Election form has been received by the Company by December
31st of the preceding calendar year.
(c) Nothing in this Section prevents a Director from filing an election not to
participate for a calendar year and thereafter filing another election to
participate in the deferral feature of the Plan for any subsequent calendar
year.
5. Deferral Accounts.
A deferred compensation account will be established for each Director
participating in the deferral feature ("Participant") as a bookkeeping
instrument. Credits will be made to a Participant's account on the same dates
compensation would have otherwise been paid to him or her currently.
Compensation can be deferred in the form of cash or stock. Cash deferrals will
be credited with interest, compounded quarterly, until distribution is made in
full. The interest rate for purposes of this deferral feature of the Plan will
be the most recent published average one-year U.S. Treasury Bill rate as
published by the Federal Reserve Board on the day interest is computed.
Deferrals in the form of stock will be converted to stock units based on the
closing reported sales price of EDO Common Shares par value $1 ("Common
Shares"), on the New York Stock Exchange (consolidated trading) (the "Fair
Market Value") on the day that monies would have otherwise been paid. Stock
units will be credited with cash or stock dividends that will be converted into
stock units based on the Fair Market Value on these dates.
6. Distribution of Deferred Compensation.
Amounts deferred and accumulated interest or dividends will be credited to a
Participant's account and be paid out according to either of two schedules: a
lump sum, or in annual installments not to exceed 10 years. The Participant
will indicate his or her choice of payment schedule on the election form.
Payment(s) will commence on January 1st of the following year in which the
Participant ceases to be a Director of the Company, or the date specified by
the Participant in his or her election form. Stock units or cash amounts held
pending distribution shall continue to accrue dividends or interest as provided
in Section 5 until the date of distribution. Any tax required by any
governmental authority to be withheld shall be deducted from each distribution
under the deferral feature of the Plan. Distribution of stock units shall be
in Common Shares, or, at the election of the Participant, in the cash
equivalent at the Fair Market Value on the date of distribution.
Any modification of a prior election to receive Common Shares or cash payment
in a lump sum distribution or in annual installments shall, be made no later
than the end of the calendar year preceding the year in which the Participant
ceases to serve as a Director.
7. Designation of a Beneficiary.
Each Participant will designate one or more beneficiaries to receive all
amounts due upon his or her death. If a Participant designates more than one
beneficiary, any cash or stock payments to such beneficiaries shall be made in
equal shares unless the Participant has designated otherwise. In the absence
of any designated beneficiary, all compensation accrued to the date of death
will be paid to the Participant's estate. Any beneficiary designation, change
or cancellation may be made in writing at any time.
A Participant shall bear full responsibility for the accuracy and legal
sufficiency of his or her beneficiary designation.
8. Change in Distribution Schedule.
(a) In the event of death, or permanent disability of a Participant before full
payment has been made, the Committee (as defined below) in its sole discretion
shall be permitted to pay the balance of any deferred amount in one lump sum to
the Participant or his or her designated beneficiary regardless of any
distribution schedule the Participant has requested.
(b) The Participant will be considered disabled for the purposes of this Plan
if the administrative Committee determines, based on medical evidence, that the
Participant is disabled, mentally or physically, and is, therefore, unable to
continue his or her services to the Company.
9. Administration of the Plan.
The Plan will be administered by the Compensation Committee of the Board of
Directors (the "Committee") which will consist of not less than three members
selected by the Board. This administrative Committee will have the right to
interpret the provisions of the Plan. However, no Director may participate in
any decision which would specifically affect his or her own deferral account.
All decisions regarding payments or amendments to the Plan will be subject to
the approval of the Board of Directors of the Company.
10. Rights of a Participant.
Income deferred under this Plan will not be segregated from the general funds
of the Company and no Participant will have any claim on any specific assets of
the Company. To the extent that any Participant acquires a right to receive
benefits under this Plan, his or her right will be no greater than the right of
any unsecured general creditor of the Company and is not assignable or
transferable except to his or her beneficiary or estate as defined in Section
7.
11. Amendment and Termination.
(a) The Plan may be amended from time to time by resolution of the Board of
Directors to comply with changes in the laws of the State and Federal
Government having jurisdiction over the Company. The amendment of any one or
more provisions of the Plan shall not affect the remaining provisions of the
Plan. No amendment shall reduce any benefits accrued by any Participant prior
to the amendment.
(b) The Board of Directors has the right to alter the method of crediting
dividends or interest to deferral accounts or to cease crediting future
dividends or interest at any time.
(c) The Board of Directors has the right to terminate the Plan at any time.
Any amount accumulated prior to the Plan's termination will continue to be
subject to the provisions of the Plan.
12. Arbitration of Disputes.
Any disagreement, dispute, controversy or claim arising out of, or relating to,
this Plan or interpretation or validity hereof shall be settled exclusively and
finally by arbitration. The arbitration shall be conducted in accordance with
the commercial arbitration rules of the American Arbitration Association.
13. Notices.
Notices and elections under this Plan must be in writing. A notice or election
is deemed delivered if it is delivered personally or if it is mailed by
registered or certified mail to the person at his or her last known business
address.
14. Applicable Law.
This Plan shall be interpreted under the laws of the State of New York without
reference to its conflict of law rules.
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 Electro-Ceramics
Barnes Engineering Company Delaware EDO Barnes
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
Specialty Plastics, Inc. Louisiana EDO Specialty Plastics
EDO Acquisition II, Inc, Delaware EDO Technology Services
and Analysis
Exhibit 23
KPMG 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 12, 1999, relating to the consolidated balance sheets of EDO
Corporation and subsidiaries as of December 31, 1998 and 1997 and the related
consolidated statements of earnings, shareholders' equity and cash flows for
each of the years in the three-year period ended December 31, 1998, which
report appears in the December 31, 1998 annual report on Form 10-K of EDO
Corporation.
KPMG LLP
Melville, New York
March 15, 1999
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,
1998, 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 17th
day of March, 1999.
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
James M. Smith
George A. Strutz, Jr.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1998 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS AND THE NOTES THERETO.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 21,801
<SECURITIES> 11,519
<RECEIVABLES> 39,853
<ALLOWANCES> 0
<INVENTORY> 9,830
<CURRENT-ASSETS> 86,460
<PP&E> 53,562
<DEPRECIATION> 39,598
<TOTAL-ASSETS> 126,753
<CURRENT-LIABILITIES> 45,742
<BONDS> 36,955
<COMMON> 8,454
0
61
<OTHER-SE> 29,536
<TOTAL-LIABILITY-AND-EQUITY> 126,753
<SALES> 96,060
<TOTAL-REVENUES> 96,060
<CGS> 69,940
<TOTAL-COSTS> 86,601
<OTHER-EXPENSES> 100
<LOSS-PROVISION> 171
<INTEREST-EXPENSE> (2,321)
<INCOME-PRETAX> 8,931
<INCOME-TAX> 700
<INCOME-CONTINUING> 7,168
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,168
<EPS-PRIMARY> 1.09
<EPS-DILUTED> 0.94
</TABLE>
