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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, 1999 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. [X]
State the aggregate market value of the voting stock held by non-affiliates of
the Registrant as of February 23, 2000..........$39,092,731
Indicate the number of shares outstanding of each of the Registrant's classes
of common stock as of February 23, 2000...........6,761,160
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TABLE OF CONTENTS
PART I................................................................... 1
ITEM 1. BUSINESS....................................................... 1
DEFENSE AND AEROSPACE SYSTEMS.......................................... 1
Marine and Aircraft Systems........................................... 1
Aircraft Stores Suspension and Release Equipment..................... 1
Airborne Mine Countermeasures Systems................................ 1
Combat Systems and Analysis........................................... 2
Integrated Combat Systems............................................ 2
Command, Control and Communications Systems.......................... 2
Undersea Warfare Sonar Systems....................................... 2
Technology Services and Analysis..................................... 2
ENGINEERED MATERIALS................................................... 2
Electro-Ceramic Products.............................................. 3
Advanced Fiber Composite Structural Products.......................... 3
DISCONTINUED OPERATIONS................................................ 3
RESEARCH AND DEVELOPMENT............................................... 4
MARKETING AND INTERNATIONAL SALES...................................... 4
BACKLOG................................................................ 4
GOVERNMENT CONTRACTS................................................... 4
COMPETITION AND OTHER FACTORS.......................................... 5
EMPLOYEES.............................................................. 5
ITEM 2. PROPERTIES..................................................... 5
ITEM 3. LEGAL PROCEEDINGS.............................................. 6
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............ 6
PART II.................................................................. 6
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS.................................... 6
ITEM 6. SELECTED FINANCIAL DATA........................................ 6
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS............................ 6
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK...... 6
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.................... 6
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE......................... 6
PART III................................................................. 6
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT............ 6
The EDO Board of Directors and Its Committees.......................... 6
Executive Officers..................................................... 8
Section 16(a) Beneficial Ownership Reporting Compliance................ 8
ITEM 11. EXECUTIVE COMPENSATION........................................ 9
Pension and Retirement Plans........................................... 10
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION................ 10
Short-Term Compensation............................................... 10
Intermediate-Term Compensation........................................ 11
Long-Term Stock Option Compensation................................... 11
COMPARISON OF FIVE-YEAR CUMULATIVE RETURN.............................. 11
EXECUTIVE LIFE INSURANCE PLAN.......................................... 12
EXECUTIVE TERMINATION AGREEMENTS....................................... 12
1996 LONG-TERM INCENTIVE PLAN.......................................... 12
INSURANCE FOR INDEMNIFICATION OF DIRECTORS AND OFFICERS................ 12
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT......................................... 12
SECURITIES OWNERSHIP OF EDO DIRECTORS AND EXECUTIVE OFFICERS........... 12
PRINCIPAL SHAREHOLDERS................................................. 13
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................ 14
PART IV.................................................................. 14
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K....................................... 14
SELECTED FINANCIAL DATA.................................................. 17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS..................................... 18
BUSINESS............................................................... 18
RESULTS OF CONTINUING OPERATIONS - 1999 COMPARED TO 1998............... 18
FINANCIAL CONDITION.................................................... 19
RESULTS OF CONTINUING OPERATIONS - 1998 COMPARED TO 1997............... 20
MARKET RISKS........................................................... 20
NEW ACCOUNTING STANDARD................................................ 20
YEAR 2000.............................................................. 21
COMMON SHARE PRICES.................................................... 21
DIVIDENDS.............................................................. 21
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995.............................. 21
CONSOLIDATED STATEMENTS OF EARNINGS.................................... 22
CONSOLIDATED BALANCE SHEETS............................................ 23
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY........................ 24
CONSOLIDATED STATEMENTS OF CASH FLOWS.................................. 25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS............................... 26
INDEPENDENT AUDITORS' REPORT............................................. 36
QUARTERLY FINANCIAL INFORMATION (UNAUDITED).............................. 37
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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 and mechanical 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 Engineered
Materials. A description of the principal products of the Company within the
two segments is set forth below.
In 1999, the Company announced the discontinuance of its satellite products
business, which it subsequently sold in January 2000. See Note 4 on page 28 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 18 through 21, and Note 18 on page 34 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 34 and 35 of this Report.
The following discussion relates to the Company's continuing operations.
DEFENSE AND AEROSPACE SYSTEMS
The Company's Defense and Aerospace Systems segment, which accounted for 68%,
66% and 59% of consolidated net sales for 1999, 1998 and 1997, respectively,
includes marine and aircraft systems and combat systems and analysis.
Marine and Aircraft Systems
Marine and aircraft systems include the design, development and manufacture of
sophisticated mechanical, electro-mechanical, 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
net 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 for the U.S. Navy F-14 aircraft. In
1999, the Company continued production of BRUs for the U.S. Air Force F-15E
and two international customers and provided spare parts support for Tornado
ERUs. 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 launcher will be completed in
2000 as the Company enters into pilot production for the equipment. Contracts
for the first 48 units were received in 1999. The Company has been selected by
both Lockheed and Boeing as their Joint Strike Fighter systems integrator for
the suspension and release equipment (S&RE). This program, in concert with
Company-sponsored research and development in pneumatic BRU technology, will
maintain the Company's prominent position in new S&RE development.
In 1999, the Company purchased M. Technologies, Inc., which developed the
BRU-57 Smart Rack for the U.S. Air Force. This equipment enhances the payload
capability of U.S. Air Force fighters such as the F-15 and F-16 to carry smart
weapons such as the Joint Standoff Weapon and the Joint Direct Attack Munition.
A Navy variant BRU-55 provides the same capability for Naval aircraft such as
the F-18E/F.
Net sales of aircraft stores suspension and release equipment represented 21%,
22% and 24% of consolidated net sales in 1999, 1998 and 1997, respectively.
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. A significant upgrade to the MK 105 was later designed and
developed by the Company under contract to the U.S. Navy followed by an
initial production contract in 1995. During 1999, the Company received an
additional order for kits to upgrade existing MK 105 systems. The Company
continues to provide spares and logistics support for these systems to the U.S.
Navy and an international customer. The Company also continues to function as
the U.S. Navy depot for the MK 105 systems.
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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. The Company received a production contract for these
systems in 1999. During 2000, the Company will continue work under two U.S.
Navy contracts received in 1998 and 1999 to develop an acoustic sweep for
shallow water mine countermeasure applications.
For 1999, 1998 and 1997, respectively, net sales of airborne mine
countermeasures systems represented 19%, 20% and 18% of consolidated net sales.
Combat Systems and Analysis
Combat systems and analysis consists of the integration of EDO manufactured
subsystems, purchased subsystems, and custom developed software applications
for U.S. and international military customers. EDO designs, develops and
manufactures subsystems for command, control, communications and undersea
warfare applications. In addition, the Company provides logistics support
including spare and repair parts, training and technical services for EDO
integrated and manufactured products.
The Company's analysis business includes a service component that provides
technical, analytical, operational and program management services to the U.S.
Federal services and information technology markets.
Integrated Combat Systems
Integrated combat systems consist of the integration of subsystems selected
using a customer's requirements and specifications. These subsystems include
EDO designed and manufactured subsystems and other subsystems selected and
qualified from the commercial marketplace. Integration contracts typically
include the requirement for development of integration software that allows the
various subsystems to intercommunicate and produce common information displays.
In 1998, the Company began integration of a combat system for the upgrade of a
major class of ship for an international customer. The integrated system
includes radars, sonars, internal and external communications and navigation
subsystems, fire control subsystems, helicopter control subsystems and display
equipment and integration software to produce common tactical displays.
Command, Control and Communications Systems
Command, control and communications systems include integrated command systems,
tactical data links, display consoles and communication control and monitoring
systems for domestic and international customers. In 1999, work continued on
NATO Ship-Shore-Ship Buffer (SSSB) systems deliverable to several international
customers in 1999 and 2000.
Undersea Warfare Sonar Systems
The Company has been a supplier of undersea warfare sonar 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 sonar 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 1999 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 1999, the Company completed its delivery of an additional
Model 610E upgraded sonar system for a new class of ship for this same
international customer. For 1999, 1998 and 1997, respectively, net sales of
undersea warfare sonar systems represented 10%, 14% and 14% of consolidated net
sales.
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, analytical, operational and program management services to the U.S.
Federal services and information technology markets. In 1999, EDO was awarded
follow-on orders for core services contracts in this business area. These
contracts, expected to be completed in 2000, are with the U.S. Marine Corps
Warfighting Lab, the Naval Surface Fire Support directorate of Naval Sea
Systems Command and the Navy's Regionalization Office in the Office of the
Chief of Naval Operations. In addition, EDO will complete 1999 contract awards
in 2000 for support to the Acquisition Center for Excellence of the Acquisition
Reform Office in the Office of the Assistant Secretary of the Navy for Research
and Development.
ENGINEERED MATERIALS
The Company's Engineered Materials segment, which accounted for 32%, 34% and
41% of consolidated net sales for 1999, 1998 and 1997, respectively, includes
electro-ceramic products and advanced fiber composite structural products.
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Electro-Ceramic Products
Piezoceramic elements convert acoustic energy to electrical energy and vice
versa, 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 material and related transducers to several commercial markets.
The business includes manufacturing and development with in-house manufacturing
of piezoelectric, dielectric and ferrite ceramic materials coupled with
state-of-practice mixed analog/digital electronics and software engineering.
This combination of engineered active materials and electronics capabilities
makes the Company competitive in several niche markets.
Examples of the Company's products include underwater acoustic transducers for
use in all areas of undersea warfare, piezoelectric shapes for a variety of
industries, as well as microwave ceramics for the wireless communication
industry.
The Company is ISO 9001 certified and is focusing its efforts on industrial
markets in addition to maintaining its position in the defense market. More
than 50% of its products are currently U.S. defense related. For 1999, 1998
and 1997, respectively, net sales of piezoceramics represented 16%, 21% and 26%
of consolidated net sales.
One of the products the Company was developing was for vibration reduction in
cylindrical grinders. In 1999, based on development progress and market
analysis, the Company decided to abandon this effort.
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. The business was moved to and
integrated into the Salt Lake City-based electro-ceramic products location in
1999. Production operations for ferrite and dielectric ceramic products
commenced in the fourth quarter of 1999.
Advanced Fiber Composite Structural Products
The Company's advanced fiber composite structural products include the design,
development, qualification, production and after-market support of advanced
composite structures with focus in the commercial aviation and marine markets.
The Company is the exclusive supplier of vacuum waste tanks for all Boeing
Seattle commercial aircraft under long-term production contracts.
In December 1998, the Company acquired Specialty Plastics, Inc. (SPI) to
establish a presence in deep water and shallow water offshore oil platforms and
petrochemical markets. SPI is a system designer, manufacturer and installer of
suspended fiberglass piping systems. SPI has supplied piping for most of the
major Gulf of Mexico oil platforms constructed over the last six years and in
1999 successfully completed its first Asia Pacific installation for Shell Oil.
For 1999, 1998 and 1997, net sales of advanced fiber composite structural
products represented 16%, 13% and 14% of consolidated net sales, respectively.
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 and other alternative
fuel projects; its wholly-owned subsidiary EDO Automotive Natural Gas, Inc.
(EDO ANGI), which designed and manufactured compressed natural gas vehicle
refueling stations and related equipment; and a 50.4% interest in EDO (Canada)
Ltd. (ECL), which designed and manufactured LiteRider(R) fuel cylinders.
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 $7.0
million, consisting of $2.0 million in operating losses for the phase out
period, and $5.0 million 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's former satellite products business included the design,
development and manufacture of products and systems for satellites at its
subsidiary, Barnes Engineering Company. The primary products included infrared
earth sensors and sun sensors, which are used to provide satellites with
information relative to stabilization and orbit position. In 1999, the Company
decided to divest itself of this business and subsequently sold it in January
2000. Refer to Note 4 on page 28 of this Report for additional information on
discontinued operations.
The Company believes that adequate provision for the ultimate loss on disposal
of these businesses has been made in the Company's consolidated financial
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statements, which provision is described in Note 4 on page 28 of this Report.
RESEARCH AND DEVELOPMENT
Research and development, performed both under development contracts with
customers and at the Company's expense, are important factors in the Company's
business. The Company's research and development efforts involve approximately
115 employees in the fields of combat systems, and 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; and developments in combat systems integration.
Expenditures under development contracts with customers vary in amount from
year to year because of the timing of contract funding and other factors. In
1999, customer-sponsored research and development expenditures in the aggregate
were less than in 1998.
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 systems
and the application of composites for structural uses.
The following table sets forth research and development expenditures for the
years presented.
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Years Ended December 31,
1999 1998 1997
(in thousands)
------------------------------------------------------------------
Customer-sponsored $ 18,900 $ 22,300 $ 21,900
Company-funded 2,700 2,400 1,700
Total $ 21,600 $ 24,700 $ 23,600
==================================================================
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.
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 34 and 35 of this Report for the amount of export
sales for the last three fiscal years.
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, 1999, the Company's total
backlog was approximately $133.9 million, as compared with $130.2 million at
December 31, 1998. Of the total backlog at December 31, 1999, approximately
69% is scheduled for delivery in 2000.
GOVERNMENT CONTRACTS
Net sales to the U.S. Government, as a prime contractor and through
subcontracts with other prime contractors, accounted for 48% of the Company's
1999 consolidated net sales compared with 50% in 1998 and 44% in 1997, 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
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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 the U.S. Government 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. The Company normally obtains alternative sources for major items,
although it 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 and piezoelectric ceramics.
Although the Company owns some patents and has filed applications for
additional patents, it does not believe that its businesses depend
significantly upon its patents. In addition, most of the Company's U.S.
Government contracts license it to use patents owned by others. Similar
provisions in the U.S. Government contracts awarded to other companies make it
impossible for the Company to prevent the use by other companies of its patents
in most domestic defense work.
EMPLOYEES
As of December 31, 1999, the Company employed 665 persons.
EXECUTIVE OFFICERS OF THE REGISTRANT
==============================================================================
Name Age Position, Term of Office and Prior Positions
- ------------------------------------------------------------------------------
Frank A. Fariello 65 Chairman of the Board since 1997, Chief Executive
Officer since 1994 and acting Chief Financial
Officer since February 2000. He was President
from 1993 to 1998. Director since 1982.
William J. Frost 58 Vice President-Administration since 1994,
Assistant Secretary since 1995.
Marvin D. Genzer 59 Vice President since 1990, General Counsel since
1988, and Secretary since 1995.
Ira Kaplan 64 President since 1998 and Chief Operating Officer
since 1997, prior to which he was Executive Vice
President since 1997 and Vice President
since 1995.
Kenneth A. Paladino(1) 42 Vice President-Finance and Treasurer since 1995.
==============================================================================
1. Mr. Paladino's employment with the Company ended February 15, 2000.
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
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expansion of leased buildings. The Company's
obligations under the various leases are set forth in Note 17 on page 34 of
this Report.
Set forth below is a listing of the Company's principal plants and other
materially important physical properties.
==============================================================================
Approximate Floor
Location Area (in sq. ft.)
- ------------------------------------------------------------------------------
Defense and Aerospace Systems
Marine and Aircraft Systems North Amityville, NY 92,000
Combat Systems Chesapeake, VA 32,000
Technology Services and Analysis Falls Church, VA 29,000
M. Technologies Huntingdon, PA 12,000
Engineered Materials
Electro-Ceramic Products Salt Lake City, UT 117,000
Fiber Science Salt Lake City, UT 105,000
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 18 through 21, and in Note 18 on page 34 of this Report.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information responsive to this item is set forth under the headings "Common
Share Prices" on page 21 and "Dividends" on page 21, together with dividend
information contained in the "Consolidated Statements of Shareholders' Equity"
on page 24 and Note 9 on page 29 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 17 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 18 through 21 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 18 through 21 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 22 through 37 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
The EDO Board of Directors and Its Committees
Three directors of EDO whose regular terms of office expire at the 2000 annual
meeting of EDO shareholders have been nominated for reelection at the next
annual meeting of shareholders to EDO's board of directors to hold office until
2003. The names of the three nominees and certain information about them are
set forth below.
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Nominees for Election as Directors to Hold Office Until the 2003 Annual Meeting
==============================================================================
Principal Occupation and Experience
Director for the Past Five Years,
Name Age Since and Certain Other Directorships
- ------------------------------------------------------------------------------
Robert E. Allen 55 1995 Mr. Allen is Managing Director of Redding
Consultants, Inc. (a management consulting
firm).
Robert Alvine 61 1995 Mr. Alvine is Chairman, President and CEO
of I-Ten Management Corp. (an investment,
mergers and acquisitions, and management
company).
Michael J. Hegarty 60 1982 Mr. Hegarty is a Director and the President
and CEO of Flushing Financial Corporation (a
federal chartered savings bank) and was,
until 1998, its Executive Vice President and
Chief Operating Officer. Until 1995, he was
Vice President-Finance, Treasurer and
Secretary of EDO.
==============================================================================
The names of the remaining six directors of EDO, whose terms of office will
continue after the 2000 annual meeting, and certain information about them are
set forth below.
Directors Whose Terms of Office Will Expire at the 2002 Annual Meeting
==============================================================================
Principal Occupation and Experience
Director for the Past Five Years,
Name Age Since and Certain Other Directorships
- ------------------------------------------------------------------------------
Frank A. Fariello 65 1982 Mr. Fariello is Chairman of the EDO board
of directors (since 1997) and Chief
Executive Officer of EDO (since 1994) and
acting Chief Financial Officer (since
February 2000). Until 1998, he was also
President of EDO.
Robert M. Hanisee 61 1992 Mr. Hanisee is a Managing Director of Trust
Company of the West (an investment
management company). He is a director of
Titan Corporation and Illgen Simulation
Technology Inc.
George A. Strutz, Jr. 67 1995 Mr. Strutz is President and CEO of Strutz
and Company, Inc., a consulting and
management advisory company. Until 1997, he
was President and CEO of Clopay Corporation
(a manufacturer and marketer of specialty
plastic films and building products).
==============================================================================
Directors Whose Terms of Office Will Expire at the 2001 Annual Meeting
==============================================================================
Principal Occupation and Experience
Director for the Past Five Years,
Name Age Since and Certain Other Directorships
- ------------------------------------------------------------------------------
Mellon C. Baird 69 1995 Mr. Baird is, since 1998, Senior Vice
President of Titan Corporation and President
and CEO of Titan Systems Corporation (a
defense information and communications
company, a wholly-owned subsidiary of Titan
Corporation). He is a director of Software
Spectrum, Inc. and Hawker Pacific Aerospace
Corporation.
George M. Ball 65 1995 Mr. Ball is Chairman of Philpott, Ball &
Company (an investment banking firm). He is
a director of BB Walker Company.
James M. Smith 58 1999 Mr. Smith is President and CEO of AIL
Technologies Inc. (an aerospace and defense
company).
==============================================================================
During the fiscal year ended December 31, 1999: the EDO board of directors met
thirteen times; the EDO board of directors' audit committee, consisting of
Messrs. Allen, Hanisee and Hegarty, met three times; the EDO board of
directors' compensation committee, consisting of Messrs. Alvine, Baird and
Strutz, met three times; and the EDO board of directors' nominating committee,
consisting of Messrs. Fariello, Ball and Hanisee, met once. Following the
March 23, 1999 meeting of the EDO board of directors, Mr. Smith recused himself
from further meetings during the pendency of the discussions leading to the
execution of the merger agreement between EDO and AIL Technologies Inc. as
discussed on page 18 and Note 20 on page 35 of this Report. As a result, Mr.
Smith attended only 2 of the 13 meetings of the EDO board of directors for
1999.
The audit committee reviews and approves audit plans of independent auditors.
In reviewing the results of the auditors' activities, the audit committee also
meets privately with the auditors. It reviews the annual consolidated
financial statements of EDO, considers other matters in relation to the
internal and external auditing of EDO's accounts, reviews services other than
audit services performed by outside auditors, and recommends to the EDO board
of directors the selection of outside auditors. The audit committee was also
appointed by the EDO board of directors to oversee EDO's Y2K compliance
program.
The compensation committee reviews and approves compensation of EDO's corporate
officers, administers EDO's stock option and long-term incentive plans, and
recommends compensation of directors to the EDO board of directors.
The nominating committee is responsible for selecting candidates for vacant
director positions. The nominating committee will consider nominees
recom-
7
<PAGE>
mended by shareholders. Recommendations should be submitted to the
secretary of EDO.
During 1999, an ad hoc special committee of the EDO board of directors was
established to consider compensation and other executive officer employment
matters in connection with the proposed merger between EDO and AIL Technologies
Inc. The committee consisted of Messrs. Alvine, Baird, Hanisee, Hegarty and
Strutz and met five times in 1999. The committee also met in 2000 and will
dissolve following the meeting of shareholders that considers issuance of
shares in connection with the proposed merger.
Directors who are employees of EDO receive no additional compensation for their
services as directors or chairs. The compensation paid non-employee directors
or chairs is as follows: to each director, $18,000 annually and $900 for each
meeting of the EDO board of directors or its committees attended; and to a
director serving as chair of a committee, $1,500 for each meeting of the
committee attended.
A minimum of one-half of a director's retainer is paid in EDO common shares
valued at the end of each quarter. Directors may defer all of their remaining
cash compensation in the form of interest-bearing cash, or stock units which
are valued at the close of the quarter, credited with dividends declared during
the deferral period and paid out in EDO common shares or cash at the end of the
deferral period at the then fair market value of EDO common shares. In
addition, non-employee directors receive an annual grant of 2,000 options for
EDO common shares which vest upon receipt. Non-employee directors receive a
one-time grant of 5,000 options for EDO common shares upon initial election as
a director. 2,000 of such options are exercisable after 6 months of date of
grant and 3,000 of such options are immediately exercisable. Newly elected
directors are required to own, or acquire within 60 days of election, at least
1,000 EDO common shares. Directors who are not employees of EDO may receive
additional compensation for undertaking special assignments outside the normal
scope of their duties as directors. Philpott, Ball & Company, of which Mr.
Ball is Chairman, performed investment banking services for EDO during 1999 in
connection with the proposed merger with AIL and will receive $75,000 if the
merger is not completed or $400,000 if the merger is completed.
Executive Officers
Information regarding executive officers is set forth in Part I of this Report
under "Executive Officers of the Registrant."
Section 16(a) Beneficial Ownership Reporting Compliance
Based solely upon a review of Forms 3 and 4 and amendments thereto furnished to
EDO pursuant to Rule 16a-3(e) of the Securities Exchange Act of 1934, as
amended, during its most recent fiscal year and Form 5 and amendments thereto
furnished to EDO with respect to its most recent fiscal year, and certain
written representations provided to EDO, there was no person who, at any time
during the fiscal year, was a director, officer, beneficial owner of more than
ten percent of any class of equity securities of EDO or any other person
subject to Section 16 of the Securities Exchange Act with respect to EDO
because of the requirements of Section 30 of the Investment Company Act or
Section 17 of the Public Utility Holding Company Act that failed to file on a
timely basis, as disclosed in the above forms, reports required by Section
16(a) of the Securities Exchange Act during the most recent fiscal year or
prior fiscal years.
8
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The following table summarizes the total compensation of the chief executive
officer of EDO and each of the four most highly compensated executive officers
whose total compensation exceeds $100,000 (the "named Executive Officers") for
the fiscal years ended December 31, 1999, 1998 and 1997.
Summary Compensation Table
==============================================================================
Annual Long-Term
Compensation Compensation
---------------- ----------------------
Securities All
Name Restricted Underlying Other
and Stock Options/ Compen-
Principal Salary Bonus Awards1 SARs sation2
Position Year ($) ($) ($) (#) ($)
- ------------------- ---- ------------------ ---------------------- -------
Frank A. Fariello 1999 352,512 117,000 0 0 11,458
Chairman of the 1998 338,163 174,000 258,750 14,500 5,601
Board and Chief 1997 315,277 162,000 266,000 19,000 4,605
Executive Officer
William J. Frost 1999 129,757 28,000 0 0 3,888
Vice President- 1998 126,832 38,000 25,875 5,000 5,589
Administration 1997 118,952 31,000 21,000 1,500 4,480
and Assistant
Secretary
Marvin D. Genzer 1999 144,504 28,000 0 0 3,888
Vice President, 1998 139,609 42,000 25,875 6,000 5,601
General Counsel 1997 127,294 32,000 21,000 1,500 4,540
and Secretary
Ira Kaplan 1999 231,249 80,000 0 0 13,069
President and 1998 218,853 88,000 120,750 8,750 5,601
Chief Operating 1997 195,741 79,000 157,500 11,250 4,605
Officer
Kenneth A. 1999 150,004 0 0 0 153,888
Paladino(3) 1998 147,504 37,000 51,750 6,000 5,601
Vice President- 1997 128,656 37,000 105,000 7,500 9,335
Finance and
Treasurer
==============================================================================
1. The number and value of the aggregate restricted stock holdings at the end
of 1999 for Messrs. Fariello, Frost, Genzer, Kaplan and Paladino were
respectively: 142,250 shares, $835,719; 20,000 shares, $117,500; 24,000
shares, $141,000; 59,000 shares, $346,625; and 36,000 shares, $211,500.
Dividends are paid on restricted stock.
2. Amounts reflect the value of EDO's contributions to the named Executive
Officers' employee stock ownership plan accounts. In addition, the amount for
Mr. Paladino for 1997 and Messrs. Fariello and Kaplan for 1999 includes
$4,730, $7,570 and $9,181, respectively, representing a one-time gain for the
purchase of their company cars at book value, which was less than fair market
value. The amount for Mr. Paladino for 1999 also includes $150,000
representing a one-time "stay bonus" paid to him in return for his agreement to
remain with EDO until November 25, 1999. Mr. Paladino was also paid an
additional $100,000 on February 15, 2000 in return for his agreement to remain
with the Company until that date.
3. Mr. Paladino's employment with the Company ended February 15, 2000.
The following table provides the aggregate number and total value of exercised
and unexercised options of the named Executive Officers for fiscal year 1999
under the EDO's 1996 Long-Term Incentive Plan.
Aggregated Option/SAR Exercises in Last Fiscal Year
and FY-End Option/SAR Values
==============================================================================
Number of Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Shares Options/SARs at Options/SARs at
Acquired FY-End FY-End
on Value (#) ($)
Exercise Realized Exercisable/ Exercisable/
Name (#) ($) Unexercisable Unexercisable
- -------------------------------------------------------------------------------
Frank A. Fariello 10,000 $49,975 83,000/33,500 97,400/0
William J. Frost 0 0 17,800/ 6,500 19,480/0
Marvin D. Genzer 0 0 19,000/ 7,500 19,960/0
Ira Kaplan 0 0 39,000/20,000 36,525/0
Kenneth A. Paladino 0 0 12,200/13,500 9,570/0
==============================================================================
9
<PAGE>
Pension and Retirement Plans
==============================================================================
Final
Average
Base
Annual
Compensation Years of Credited Service at Retirement
-------------------------------------------------------------------
5 10 15 20 25 30 35 40
- -------------------------------------------------------------------------------
$100,000 $ 8,500 $17,000 $25,500 $ 34,000 $ 42,500 $ 51,000 $ 59,500 $ 67,000
150,000 12,750 25,500 38,250 51,000 63,750 76,500 89,250 100,500
200,000 17,000 34,000 51,000 68,000 85,000 102,000 119,000 134,000
250,000 21,250 42,500 63,750 85,000 106,250 127,500 148,750 167,500
300,000 25,500 51,000 76,500 102,000 127,500 153,000 178,500 201,000
350,000 29,750 59,500 89,250 119,000 148,750 178,500 208,250 234,500
==============================================================================
The pension plan table above shows the estimated annual benefits, based on
straight life annuity, payable upon retirement under the EDO non-contributory
employees pension plan and the EDO non-qualified supplemental retirement
benefit plan to individuals in specified compensation and years of service
classifications. The figures set forth above are before deduction of social
security benefits.
Benefits payable under the EDO non-contributory employees pension plan are
based on (i) the average of an employee's five highest consecutive years'
compensation (annual salary as of January 1 of each year, not the total annual
salary shown in the summary compensation table, excluding bonus) out of the
employee's final ten years of employment with EDO prior to retirement, and (ii)
the number of years of credited service. As of January 1, 2000, Messrs.
Fariello, Frost, Genzer, Kaplan and Paladino had completed, respectively, 35,
30, 31, 38 and 9 years of credited service under the EDO non-contributory
employees pension plan.
Under the EDO non-qualified supplemental retirement benefit plan, employees
will receive from EDO any amount by which their benefits earned under the
pension plan exceed the limitations imposed by the Internal Revenue Code. For
any participant whose employment actually or constructively terminates within
three years following a "change of control" (as defined in the EDO
non-qualified supplemental retirement benefit plan), vesting would accelerate;
and all accrued benefits either would become automatically payable in a lump
sum based on present value or, at the discretion of the compensation committee,
would be funded under a third party arrangement intended to insure payment of
such benefits in the future. The proposed merger with AIL Technologies Inc.
will not constitute a change of control under the plan.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The compensation committee of the EDO board of directors is composed entirely
of outside directors. One of the committee's functions is to determine the
compensation of EDO's executive officers.
The compensation committee's overall objectives in establishing the
compensation of EDO's executive officers are to: enhance shareholder value;
attract and retain talented, experienced, qualified individuals, critical to
the short- and long-term success of EDO, by providing compensation competitive
to that offered by comparable competitors; align the interests of executive
officers with the long-term interests of shareholders by providing award
opportunities that can result in ownership of EDO common shares and increase
the portion of executive compensation based on EDO's performance.
The compensation committee achieves these objectives by providing executive
officers with total compensation packages comprising three elements:
short-term compensation, intermediate-term compensation, and long-term stock
option compensation.
Short-Term Compensation
Base salary is primarily set in accordance with competitive comparable base
salaries paid by a set of peer group companies and national studies as verified
by an outside agency. Decisions on base salary are also subjectively based on
EDO's performance when compared to others in the industry, EDO's current and
projected size, EDO's pursuit of new product initiatives, and recognition of
EDO's performance in industry reports.
Annual incentive compensation awards for executive officers are primarily a
function of EDO's operational results for the year in accordance with an
established plan. The plan provides for the establishment, by the compensation
committee, of specific target performance criteria. These performance criteria
are set in accordance with the strategic and operating objectives of EDO and
individual business units at the beginning of each year and include, but are
not limited to financial criteria, such as corporate and business unit
earnings, return on capital employed, cash flow and revenue growth and
subjectively-based individual qualitative goals. The compensation committee
also reserves the right to exercise its subjective discretion in amending any
annual incentive compensation awards based on overall corporate considerations
at the time of the award.
10
<PAGE>
Annual incentive compensation awards were paid to executive officers based on
the achievement of performance goals established for 1999. Mr. Fariello's
combined salary and bonus for 1999 was $42,651 less than for 1998, reflecting
the results of the Company and performance against personal and corporate
objectives.
Executive officers' compensation also includes, in addition to participation in
EDO-wide plans generally available to all employees, certain benefits
comparable to those of other businesses in EDO's industry, such as a
supplemental pension and other items as reported collectively in the summary
compensation table.
Intermediate-Term Compensation
Under EDO's 1996 Long-Term Incentive Plan and prior similar shareholder
approved plans, subjective awards of performance units and stock can be made,
including contingent awards of performance shares and restricted EDO common
shares.
Restricted EDO common shares have been generally awarded at the beginning of a
performance period and convey to the executive officer receiving the award all
the rights of share ownership, including voting rights and dividends as may be
paid to holders of EDO common shares.
In 1999, the compensation committee did not grant any restricted EDO common
shares to executive officers.
Long-Term Stock Option Compensation
In accordance with EDO's 1996 Long-Term Incentive Plan, options to purchase EDO
common shares are ordinarily awarded to executive officers at market price and
become exercisable after three years. EDO did not award any stock options to
executive officers in 1999.
With respect to the one million dollar cap on deductibility under Section 162
of the Internal Revenue Code, EDO does not presently believe that the
compensation of its executive officers will approach such level. As a result,
EDO has not established a policy with respect to Section 162. In addition, the
compensation committee emphasizes the portion of executive compensation based
on performance, which further serves to reduce the likelihood of reaching the
Section 162 cap.
Members of the Committee:
Robert Alvine (Chairman)
Mellon C. Baird
George A. Strutz, Jr.
COMPARISON OF FIVE-YEAR CUMULATIVE RETURN
The following graph shows a five-year comparison of cumulative total returns on
EDO common shares, based on the market price of EDO common stock, with the
cumulative total return of companies in the Standard & Poors 500 Index and the
Value Line Aerospace/Defense Group.
- -------------------------------------------------------------------------------
Note
The printed copy of Form 10-K contains a Performance Graph comparing
EDO Corporation, S&P 500 Index and Value Line Aerospace/Defense Group. The
Performance Graph shows the Cumulative Return in dollars (vertical axis) for a
period of five years (horizontal axis) based on an initial investment of
$100.00 on December 31, 1993. The table below contains the data used to plot
the Performance Graph. The title and footnotes are identical to those contained
in the printed Proxy Statement.
Comparison of Five-Year Cumulative Total Return*
EDO Corporation, Standard & Poors 500 Index
and Value Line Aerospace/Defense Group
(Performance Results through 12/31/99)
- -------------------------------------------------------------------------------
Dollars
----------------------------------------------
1994 1995 1996 1997 1998 1999
------ ------ ------ ------ ------ ------
EDO CORPORATION 100.00 148.15 211.11 262.54 254.73 182.10
STANDARD AND POORS 500 100.00 137.50 169.47 226.03 290.22 349.08
AEROSPACE/DEFENSE GROUP 100.00 154.35 210.91 255.11 240.17 312.58
Assumes $100 invested at the close of trading on December 31, 1994 in EDO
Corporation common shares, Standard & Poors 500 Index and Aerospace/Defense
Group.
* Cumulative total return assumes reinvestment of dividends.
- -------------------------------------------------------------------------------
11
<PAGE>
EXECUTIVE LIFE INSURANCE PLAN
EDO maintains an Executive Life Insurance Plan for key employees, including the
named Executive Officers, funded by EDO-owned life insurance policies on the
participants. Preretirement death, disability and retirement benefits are
available, for at least 15 years, as an annuity option equivalent in value to a
percentage no greater than 40% of the participant's base annual salary (as base
annual salary is defined in the Executive Life Insurance Plan). Generally, the
Executive Life Insurance Plan may be terminated at any time unilaterally by
EDO. Special provisions, however, would apply following a change of control
(as defined in the Executive Life Insurance Plan): vesting would accelerate,
and payments would be automatically payable or would be funded under a third
party arrangement intended to insure payment. The proposed merger with AIL
Technologies Inc. will not constitute a change of control under the plan.
EXECUTIVE TERMINATION AGREEMENTS
EDO is a party to executive termination agreements with Messrs. Fariello,
Kaplan and Genzer, which provide for severance benefits in the event employment
terminates within three years following a change in control (as defined in the
agreements) unless termination is on account of death, normal retirement or
termination for cause. These agreements provide basic severance benefits,
which include an amount equal to three times the sum of: (i) the executive
officer's annual base salary; plus (ii) either (a) 20% of the executive
officer's base salary, or (b) the highest percentage of base salary paid as a
bonus to the executive officer over the prior three years, whichever is
greater. The agreements also provide for the payment of legal fees incurred by
the executive officers to enforce their rights under the agreements and for
additional compensation to take into account the effect of any excise tax on
executive officers' net benefits under the agreements and EDO's other benefit
plans. In connection with the proposed merger with AIL Technologies Inc.,
these agreements will be replaced by employment agreements, but only if such
transaction closes.
1996 LONG-TERM INCENTIVE PLAN
EDO maintains the 1996 Long-Term Incentive Plan for executive officers and
other key employees of EDO and its subsidiaries. Pursuant to the 1996 Long-
Term Incentive Plan, EDO can grant the following types of awards: (1)
nonstatutory and incentive stock options; (2) stock appreciation rights; (3)
restricted shares; (4) performance shares and performance units; and/or (5)
stock in lieu of other cash compensation. Each of these awards may be granted
alone, in conjunction with or in tandem with other awards under the 1996
Long-Term Incentive Plan and/or cash awards outside the 1996 Long-Term
Incentive Plan.
The 1996 Long-Term Incentive Plan provides that, except as provided below, in
the event of a change in control: (i) all SARs will become immediately
exercisable; (ii) the restrictions and deferral limitations applicable to
outstanding performance shares, restricted shares, and performance unit awards
will lapse and the shares in question will fully vest; and (iii) each option
shall be canceled in exchange for cash in an amount equal to the excess of the
highest price paid (or offered) for EDO common shares during the preceding 60
day period over the exercise price for such option. Notwithstanding the
foregoing, if the compensation committee determines that the grantee of such
award will receive a new award (or have the grantee's prior award honored) in a
manner that preserves its value and eliminates the risk that the value of the
award will be forfeited due to involuntary termination, no acceleration of
exercisability or vesting, lapse of restriction or deferral limitations, or
cash settlement will occur as a result of a change in control. The proposed
merger with AIL Technologies Inc. will not constitute a change of control under
the plan.
INSURANCE FOR INDEMNIFICATION OF DIRECTORS AND OFFICERS
EDO renewed its directors' and officers' liability insurance policy effective
December 31, 1998 for a term ending on December 31, 2000. This policy insures
the directors and corporate and business unit officers of EDO and its
subsidiaries against certain liabilities they may incur in the performance of
their duties, and EDO against any obligation to indemnify such individuals
against such liabilities. The policy was issued by Great American Insurance
Company for a premium for the above term of $166,000.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITIES OWNERSHIP OF EDO DIRECTORS AND EXECUTIVE OFFICERS
The table below shows the number of EDO common shares beneficially owned, as of
February 23, 2000, by EDO's directors, by EDO's executive officers named in the
summary compensation table set forth under ITEM 11, "Executive Compensation"
and by EDO's directors and executive officers as a group. No director or
executive officer of EDO owns any of EDO's 7% Convertible Subordinated
Debentures Due 2011.
12
<PAGE>
====================================================
Name Number of Shares Percent
(See Notes 1-4) of Class
----------------------------------------------------
Robert E. Allen 31,469 *
Robert Alvine 36,533 *
Mellon C. Baird 15,233 *
George M. Ball 26,233 *
Frank A. Fariello 295,933 4.3%
William J. Frost 45,484 *
Marvin D. Genzer 52,489 *
Robert M. Hanisee 46,873 *
Michael J. Hegarty 77,173 1.1%
Ira Kaplan 141,274 2.1%
Kenneth A. Paladino(5) 60,680 *
James M. Smith 9,409 *
George A. Strutz, Jr. 26,226 *
All Directors and Executive
Officers as a Group 865,009 12.2%
====================================================
* Less than 1%
Notes:
1. Certain family members of Messrs. Fariello and Genzer and of persons
included in the category "all directors and executive officers as a group" also
own and vote: 1,175; 840; and 2,015 EDO common shares, respectively. Each of
the above individuals disclaims beneficial ownership of these EDO common
shares.
2. The amounts indicated include the following numbers of (a) restricted EDO
common shares under EDO's 1996 Long-Term Incentive Plan, and, (b) as of
December 31, 1999, EDO common shares, and EDO common shares into which EDO
preferred shares are convertible allocated to certain individuals and the group
under EDO's employee stock ownership plan: Mr. Fariello, 156,936 shares; Mr.
Frost, 26,184 shares; Mr. Genzer, 30,519 shares; Mr. Kaplan, 69,816 shares; Mr.
Paladino, 37,980 shares; and all directors and executive officers as a group,
321,435 shares.
3. The amounts indicated include the following numbers of EDO common shares as
to which certain individuals and all directors and executive officers as a
group share voting and investment power: Mr. Fariello, 7,885 shares; Mr.
Genzer, 630 shares; Mr. Strutz, 15,226 shares; and all directors and executive
officers as a group, 23,741 shares. Except as described in Note 1 above, each
of these individuals has sole voting and investment power with respect to all
other EDO common shares beneficially owned.
4. The amounts indicated include the following numbers of EDO common shares
which each individual and all directors and executive officers as a group have
the right to acquire within 60 days upon exercise of options granted pursuant
to EDO's 1996 Long-Term Incentive Plan and 1997 Non-Employee Director Stock
Option Plan: Messrs. Allen, Alvine and Ball, 21,000 shares each; Messrs.
Baird, Hegarty and Strutz, 11,000 shares each; Mr. Fariello, 102,000 shares;
Mr. Frost, 19,300 shares; Mr. Genzer, 20,500 shares; Mr. Hanisee, 27,000
shares; Mr. Kaplan, 50,250 shares; Mr. Paladino, 19,700 shares; Mr. Smith,
7,000 shares; and all directors and executive officers as a group, 341,750
shares.
5. Mr. Paladino's employment with the Company ended February 15, 2000.
PRINCIPAL SHAREHOLDERS
The table below contains certain information with respect to the only
beneficial owners known to EDO, based upon publicly available documents, as of
February 23, 2000, of more than 5% of EDO common shares.
==============================================================================
Percent
of
Name and Address of Beneficial Owner Amount of EDO Common Shares Class
- ------------------------------------------------------------------------------
EDO Corporation Employee 222,381 and 57,384 ESOP 10.9%
Stock Ownership Plan Preferred Shares
60 East 42nd Street, Suite 5010 convertible into 573,840(1)
New York, NY 10165
Loomis, Sayles & Company, L.P. 7% Convertible Subordinated 13.0%
One Financial Center Debentures due 2011
Boston, MA 02111 convertible into 1,011,455
David L. Babson and Company Inc.(2) 695,900 10.3%
One Memorial Drive
Cambridge, MA 02142
Dimensional Fund Advisors Inc.(3) 391,100 5.8%
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
==============================================================================
1. Represents EDO common shares and EDO preferred shares held by the trust
established to fund the EDO employee stock ownership plan, all of which EDO
common shares and EDO preferred shares are held for the benefit of the
participants under such Plan. Under the terms of the Plan, EDO common shares
and EDO preferred shares which have been allocated to the account of a
participant are required to be voted in accordance with the direction of such
participant. EDO common shares and EDO preferred shares which are not so
allocated are
13
<PAGE>
deemed to be allocated solely for the purpose of determining how
such EDO common shares and EDO preferred shares are to be voted. In addition,
EDO common shares and EDO preferred shares so allocated or deemed to be
allocated, as to which no directions are given, are voted in the same
proportion as those EDO common shares and EDO preferred shares as to which
voting instructions have been received. Each EDO preferred share is entitled
to 12.3 votes on all matters presented to holders of EDO common shares, voting
together as one class. EDO believes that the Plan is not the beneficial owner
of such EDO common shares and EDO preferred shares, as the trustee under the
EDO employee stock ownership plan trust has no voting or investment power with
respect to such EDO common shares and EDO preferred shares.
2. David L. Babson, in its capacity as investment adviser, may be deemed the
beneficial owner of these EDO common shares which are owned by numerous
investment counseling clients.
3. According to the Schedule 13G dated February 12, 2000, filed by Dimensional
Fund Advisors Inc., as investment advisor registered under Section 203 of the
Investment Advisors Act of 1940, Dimensional furnishes investment advice to
four investment companies registered under the Investment Company Act of 1940,
and serves as investment manager to certain other commingled group trusts and
separate accounts. These investment companies, trusts and accounts are the
"Funds." In its role as investment adviser or manager, Dimensional possesses
voting and/or investment power over the securities that are owned by the Funds.
Dimensional disclaims beneficial ownership of such securities.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Financial Statements and Financial Statement Schedules and Exhibits
1. Financial Statements.
The consolidated financial statements as of December 31, 1999 and 1998 and for
the years ended December 31, 1999, 1998 and 1997, together with the report
thereon of KPMG LLP, independent auditors, dated February 15, 2000, appear on
pages 22 through 36 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.
2(a) Agreement and Plan of Merger by and among EDO Corporation, EDO Acquisition
III Corporation and AIL Technologies Inc. as amended and restated dated January
2, 2000.
2(b) Management Stock Purchase Agreement dated as of January 2, 2000 between
EDO Corporation as Buyer and eleven individuals as Sellers, relating to the
purchase and sale of shares of common stock of AIL Technologies Inc.
2(c) Stock Purchase Agreement dated as of January 2, 2000 between EDO
Corporation, as Buyer, and Defense Systems Holding Co., as Seller, relating to
the purchase and sale of shares of common and preferred stock of AIL
Technologies Inc.
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 (incorporated by reference to Exhibit 3(i) to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1998).
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, as amended by amendments thereto dated December 7, 1999, January 25, 2000
and February 23, 2000.
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
14
<PAGE>
December 31, 1998. Incorporated by reference to Exhibit 4(b) to the
Company's Annual Report on Form 10-K for the fiscal year ended 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. Incorporated
by reference to Exhibit 4(c) to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1998.
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 28 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.
Incorporated by reference to Exhibit 10(e) to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1998.
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. Incorporated by
reference to Exhibit 10(g) to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1998.
10(h) Amended and Restated Employment and Retirement Agreement, dated as of
January 2, 2000, between EDO and Frank A. Fariello.
10(i) Amended and Restated Employment Agreement, dated as of January 2, 2000,
between EDO and Ira Kaplan.
10(j) Amended and Restated Employment Agreement, dated as of January 2, 2000,
between EDO and Marvin D. Genzer.
10(k) Second Amended and Restated Employment Agreement, dated as of January 2,
2000, by and among AIL Systems, Inc., EDO and James M. Smith.
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, 1999.
15
<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: February 28, 2000 By: Frank A. Fariello
Chief Financial Officer (acting)
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 February 28, 2000 by
the following persons on behalf of the Registrant and in the capacities
indicated.
Signature Title
Frank A. Fariello Chairman of the Board,
Chief Executive Officer
Acting Chief Financial
Officer and and Director __
William J. Frost Vice President- |
Administration |
and Assistant Secretary |
Marvin D. Genzer Vice President, General |
Counsel and Secretary |
Ira Kaplan President and |
Chief Operating Officer |
Robert E. Allen Director |- By: Frank A. Fariello
Robert Alvine Director | ---------------------
Mellon C. Baird Director | Attorney-in-Fact
George M. Ball Director |
Robert M. Hanisee Director |
Michael J. Hegarty Director |
James M. Smith Director |
George A. Strutz, Jr. Director __|
16
<PAGE>
SELECTED FINANCIAL DATA
EDO Corporation and Subsidiaries
(Not Covered by Independent Auditors' Report)
==============================================================================
1999 1998 1997 1996 1995
(in thousands, except per share amounts)
- ------------------------------------------------------------------------------
Summary of Operations
Net sales from
continuing operations:
Defense and Aerospace Systems $ 66,381 53,785 43,807 38,240 36,966
Engineered Materials 31,555 27,618 29,901 30,476 26,876
- ------------------------------------------------------------------------------
Total 97,936 81,403 73,708 68,716 63,842
==============================================================================
Operating earnings from
continuing operations:
Defense and Aerospace Systems 7,012 5,966 3,910 5,397 4,514
Engineered Materials 2,237 3,589 1,159 2,223 1,721
Litigation settlement income - 2,200 2,900 - -
Postretirement health
care curtailment gain - - - 7,120 -
- ------------------------------------------------------------------------------
Total 9,249 11,755 7,969 14,740 6,235
- ------------------------------------------------------------------------------
Net interest expense (785) (428) (459) (766) (1,199)
Other income (expense), net 230 (100) (50) (66) (41)
- ------------------------------------------------------------------------------
Earnings before Federal
income taxes 8,694 11,227 7,460 13,908 4,995
Provision for Federal
income taxes 2,610 880 - - -
==============================================================================
Earnings (loss) from:
Continuing operations 6,084 10,347 7,460 13,908 4,995
Discontinued operations (4,064) (2,116) (433) (9,477) (2,335)
==============================================================================
Net earnings 2,020 8,231 7,027 4,431 2,660
Dividends on preferred shares(a) 1,000 1,063 1,127 1,179 1,239
- ------------------------------------------------------------------------------
Net earnings available for
common shares $ 1,020 7,168 5,900 3,252 1,421
==============================================================================
Per Common Share Data
Basic net earnings (loss):
Continuing operations $ 0.76 1.42 1.01 2.13 0.66
Discontinued operations $ (0.61) (0.33) (0.07) (1.59) (0.41)
- ------------------------------------------------------------------------------
Total $ 0.15 1.09 0.94 0.54 0.25
Diluted net earnings $ 0.15 0.94 0.81 0.46 0.20
Cash dividends $ 0.12 0.115 0.10 - -
Other Information
Working capital $ 35,110 32,674 31,599 26,671 30,081
Depreciation and amortization
of fixed assets $ 2,572 1,999 2,210 2,113 2,660
Plant and equipment expenditures $ 4,032 3,133 1,903 903 1,094
Total assets $124,491 124,630 107,556 90,801 90,126
Long-term debt $ 26,250 28,000 29,317 29,317 29,317
ESOT loan obligation $ 7,429 8,955 10,368 11,676 12,887
Shareholders' equity $ 40,241 38,051 28,135 19,823 14,997
Backlog of unfilled orders $133,880 130,151 93,028 72,296 62,552
==============================================================================
a ESOP Convertible Cumulative Preferred Shares, Series A (hereinafter referred
to as "preferred shares")
17
<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 Engineered Materials. The Defense and Aerospace Systems segment
represents 68% of the Company's net sales and includes the products of marine
and aircraft systems and combat systems and analysis. The Engineered Materials
segment represents 32% of net sales and includes the electro-ceramic and
advanced fiber composite structural products.
During 1999, the Company announced its intention to sell its satellite products
business, and in January 2000 the Company completed the sale of this business
(see Note 4 to the Consolidated Financial Statements). Accordingly, the
consolidated financial statements of the Company have been restated to reflect
the satellite products business as discontinued operations. Revenues, costs
and expenses, assets and liabilities, cash flows and backlog associated with
the satellite products business have been excluded from the respective captions
in the consolidated financial statements and discussion below.
In January 2000, the Company announced that its Board of Directors approved the
merger of a wholly-owned subsidiary of the Company with AIL Technologies Inc.
(AIL). Under the merger agreement and share purchase agreements with certain
AIL shareholders, all of the outstanding common and preferred shares of AIL
will be exchanged or purchased for approximately 6.6 million newly-issued EDO
common shares and a cash payment aggregating approximately $13 million,
depending on the final exchange ratio and the market price of EDO common shares
on or about the closing date. The merged company will also assume AIL debt
which was approximately $23.2 million as of December 31, 1999. Approximately
5.3 million of the newly-issued shares will be held in trust by AIL's Employee
Stock Ownership Plan (AIL ESOP). The transaction is subject to a vote by both
companies' shareholders, including the trustee of the AIL ESOP, and regulatory
authorities, among other conditions. (See Note 20 to the Consolidated
Financial Statements.)
RESULTS OF CONTINUING OPERATIONS - 1999 COMPARED TO 1998
Net sales for 1999 were $97.9 million compared with net sales of $81.4 million
in 1998, an increase of 20%. Sales in the Defense and Aerospace Systems
segment increased 23% to $66.4 million due to increases in sales of aircraft
stores suspension and release equipment; airborne mine countermeasures systems;
integrated combat systems; and technology services and analysis. This increase
was partially offset by lower sales of undersea warfare sonar. The increase in
aircraft stores suspension and release equipment sales was partially due to
sales of M. Technologies, Inc., which was acquired in November 1999. The
increase in technology services and analysis sales was due to sales of EDO
Technology Services and Analysis (EDO TSA), which was acquired in July 1998.
Sales in the Engineered Materials segment increased 14% to $31.6 million due to
the acquisition of EDO Specialty Plastics in December 1998. This increase was
partially offset by lower sales of electro-ceramic products and fiber composite
waste tanks due to reduced orders.
Total operating earnings for 1999 were $9.2 million, down $2.6 million compared
with the $11.8 million recorded in 1998, which included litigation settlement
income of $2.2 million. Operating earnings in the Defense and Aerospace
Systems segment in 1999 were $7.0 million, an increase of 18% compared with
operating earnings of $6.0 million in 1998 due to the increased sales noted
above. Operating margins were 11% in both 1999 and 1998. Operating earnings
in the Engineered Materials segment were $2.2 million, a decrease of 38%
compared with operating earnings of $3.6 million in 1998. Operating margin was
7% in 1999 compared with 13% in 1998. The reduced operating earnings and
margins were primarily due to the decrease in sales of electro-ceramic products
and advanced fiber composite structural products.
Selling, general and administrative expenses in 1999 were $13.6 million
compared with $11.6 million in 1998. At approximately 14% of sales, the level
of expense is consistent with the prior year.
Company-funded research and development increased by 15% to $2.7 million
compared with $2.4 million in 1998. This increase is consistent with the
Company's strategy of increased investment in product development. Customer-
sponsored research and development was $18.9 million in 1999 compared with
$22.3 million in 1998. 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.
18
<PAGE>
Interest expense, net of interest income, was $0.8 million in 1999 and $0.4
million in 1998. This increase was principally due to lower interest income as
a result of lower levels of average invested cash. Interest expense primarily
represents the interest paid on the 7% Convertible Subordinated Debentures Due
2011.
The Company recorded a provision for Federal income taxes at an effective rate
of approximately 30%, which was higher than what was recorded in 1998 as the
Company fully recognized the benefit associated with its tax net operating loss
carryforwards in the fourth quarter of 1998.
Net earnings from continuing operations available for common shares in 1999
were $5.1 million compared with $9.3 million in 1998. Basic net earnings per
common share from continuing operations were $0.76 in 1999 compared with $1.42
in 1998. Basic net earnings per common share from continuing operations were
based on a weighted average of 6.7 million and 6.5 million common shares
outstanding in 1999 and 1998, respectively. Diluted net earnings per common
share from continuing operations were $0.65 in 1999 as compared with $1.21 in
1998.
FINANCIAL CONDITION
The Company's cash, cash equivalents and marketable securities decreased by
$3.9 million in 1999 to $29.6 million compared with $33.5 million in 1998. The
net decrease resulted from aggregate cash flows from continuing and
discontinued operations of $11.2 million offset primarily by purchases of
capital equipment of $4.0 million, net outlays for an acquisition of $2.6
million, repurchase of debentures of $1.4 million, payment of a note payable of
$5.5 million, which related to a 1998 acquisition, and payments of preferred
and common dividends of $1.8 million.
In November 1999, the Company acquired all of the stock of M. Technologies,
Inc., now operating as EDO M.Tech, an integrator of aircraft weapons and
avionics systems, for $4.5 million. Three million dollars was paid at closing
and the remaining $1.5 million will be paid over the next three years. The
transaction was accounted for as a purchase. M.Technologies' sales for 1998
were $4.4 million. On a pro forma basis, had the M.Technologies acquisition
taken place as of the beginning of the years presented, results of operations
for those years would not have been materially affected.
In January 2000, the Company announced that it had completed the sale of its
satellite products business (Barnes Engineering Company subsidiary) for $10.0
million in cash. The transaction is subject to certain post-closing balance
sheet and other adjustments that could reduce the amount by up to $1.8 million.
In addition, the Company has agreed to indemnify the buyer for certain
contract-related matters. As of December 31, 1999 the Company recorded an
estimated loss on the disposal of this business of $4.7 million (net of a $2.4
million income tax benefit).
Notes receivable of $2.7 million at December 31, 1999, of which $1.2 million 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%. Payments of $0.4 million due on the notes are
currently in arrears. The Company is currently in discussions with the current
owner of the properties about the amounts in arrears. The notes are fully
secured by the facility.
The Company has outstanding $27.8 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 $1.8 million that are due each December 15th. In July 1999, the
Company purchased $1.6 million face value of these debentures for $1.4 million.
As of December 31, 1999 the Company had $0.2 million of these debentures
remaining in treasury, which will be used toward a portion of the 2000 payment.
The Company has classified the balance of the 2000 installment, or $1.5
million, as a current obligation.
The Company has an ESOT loan obligation with a balance at December 31, 1999 of
$7.4 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 from the Company. The obligation is
scheduled to be repaid in 2003.
The Company maintains a $30.0 million secured multi-year revolving credit
facility through a syndicate of banks. This facility is available for
acquisitions, short-term borrowings, 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, 1999 there were approximately $13.4
million of standby letters of credit outstanding, and there have not been any
direct borrowings.
The Company is incurring costs in connection with the remediation of a
Superfund site (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, 1999 is approximately $2.5 million of which $0.4
million is classified as a current liability. Approximately $0.8 million of
this liability will be expended over the next five years.
19
<PAGE>
The Company believes that it has adequate liquidity and sufficient capital to
fund its current operating plans.
Backlog increased to $133.9 million at December 31, 1999 from $130.2 million at
December 31, 1998.
RESULTS OF CONTINUING OPERATIONS - 1998 COMPARED TO 1997
Net sales for 1998 were $81.4 million compared with net sales of $73.7 million
in 1997, an increase of 10%. Sales in the Defense and Aerospace Systems
segment increased 23% to $53.8 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. Sales in the Engineered
Materials segment decreased 8% to $27.6 million due to reduced sales of
electro-ceramic products.
Total operating earnings for 1998 increased to $11.8 million, an increase of
$3.8 million or 48% over the $8.0 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.
Operating earnings in the Defense and Aerospace Systems segment in 1998 were
$6.0 million, an increase of 53% compared with operating earnings of $3.9
million in 1997. This increase was primarily due to a more favorable mix of
higher margin programs. Operating earnings in the Engineered Materials segment
were $3.6 million compared with operating earnings of $1.2 million in 1997.
The increased earnings were primarily due to a $2.0 million charge in 1997
related to the discontinuance of certain acoustic instrument products.
Selling, general and administrative expenses in 1998 were $11.6 million
compared with $8.8 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 and increased expenditures related to business
development activities.
Company-funded research and development increased by 41% to $2.4 million
compared with $1.7 million in 1997. This increase is consistent with the
Company's strategy of increased investment in product development. Customer-
sponsored research and development was $22.3 million in 1998 compared with
$21.9 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 carryforwards.
Net earnings from continuing operations available for common shares in 1998
were $9.3 million compared with $6.3 million in 1997. Basic net earnings per
common share from continuing operations were $1.42 in 1998 compared to $1.01 in
1997. Basic net earnings per common share from continuing operations
calculations were 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 common share from continuing operations were $1.21 in 1998 as compared with
$0.87 in 1997.
MARKET RISKS
The Company's outstanding indebtedness as of December 31, 1999 comprises 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 (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities," as amended by SFAS No. 137, which is
effective for all fiscal quarters of fiscal years beginning after June 15,
2000. 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
20
<PAGE>
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.
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. The Company's formal Y2K program was
established in 1998 to ensure that the Company's initial conclusions were
correct. The program was 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" consisted of a Y2K coordinator from each
operating location and met five times.
The costs of the above Y2K program were expensed as incurred and were
immaterial. Based upon the Company's review over the last two years and the
results of confirmatory testing after the changeover to 2000, no problems
related to Y2K have resulted which have any material impact on the Company's
consolidated financial position. The Company will continue to monitor any Y2K
issues for the remainder of 2000.
COMMON SHARE PRICES
EDO common shares are traded on the New York Stock Exchange. As of February
10, 2000, there were 2,301 shareholders of record (brokers and nominees counted
as one each).
The price range in 1999 and 1998 was as follows:
================================================
1999 1998
High Low High Low
------------------------------------------------
1st Quarter 8-11/16 6-7/16 9-5/8 8-1/16
2nd Quarter 7-9/16 6-1/8 9-3/4 8-1/2
3rd Quarter 9-3/8 5-3/4 10-7/8 6-11/16
4th Quarter 6-3/16 5-1/8 8-3/4 6-3/4
================================================
DIVIDENDS
During 1999, the Board of Directors approved the payment of quarterly cash
dividends of $0.03 per common share. 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 common share in the second, third and fourth quarters.
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 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 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 sales; 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.
21
<PAGE>
CONSOLIDATED STATEMENTS OF EARNINGS
EDO Corporation and Subsidiaries
==============================================================================
Years Ended December 31
1999 1998 1997
(in thousands,
except per share amounts)
- ------------------------------------------------------------------------------
Continuing Operations:
Net sales $ 97,936 $ 81,403 $ 73,708
- ------------------------------------------------------------------------------
Costs and Expenses
Cost of sales (including a $2,000 charge
for the discontinuance of a product
line in 1997) 72,337 57,817 58,142
Selling, general and administrative 13,602 11,649 8,809
Research and development 2,748 2,382 1,688
Litigation settlement income - (2,200) (2,900)
- ------------------------------------------------------------------------------
88,687 69,648 65,739
- ------------------------------------------------------------------------------
Operating Earnings 9,249 11,755 7,969
Non-operating Income (Expense)
Interest income 1,634 1,893 1,838
Interest expense (2,419) (2,321) (2,297)
Other, net 230 (100) (50)
- ------------------------------------------------------------------------------
(555) (528) (509)
- ------------------------------------------------------------------------------
Earnings before Federal income taxes 8,694 11,227 7,460
Federal income tax expense 2,610 880 -
- ------------------------------------------------------------------------------
Earnings from Continuing Operations 6,084 10,347 7,460
Discontinued Operations:
Earnings (loss) from discontinued satellite
products business, net of income tax
benefit (expense) 609 (2,116) (433)
Estimated loss on disposal (including
provision of $530 for operating losses
during phase-out period), net of income
tax benefit (4,673) - -
- ------------------------------------------------------------------------------
Loss from Discontinued Operations (4,064) (2,116) (433)
- ------------------------------------------------------------------------------
Net Earnings 2,020 8,231 7,027
Dividends on preferred shares 1,000 1,063 1,127
- ------------------------------------------------------------------------------
Net Earnings Available for Common Shares $ 1,020 $ 7,168 $ 5,900
==============================================================================
Earnings (Loss) Per Common Share:
Basic:
Continuing operations $ 0.76 $ 1.42 $ 1.01
Discontinued operations (0.61) (0.33) (0.07)
- ------------------------------------------------------------------------------
Net Earnings $ 0.15 $ 1.09 $ 0.94
==============================================================================
Diluted:
Continuing operations $ 0.65 $ 1.21 $ 0.87
Discontinued operations (0.50) (0.27) (0.06)
- ------------------------------------------------------------------------------
Net Earnings $ 0.15 $ 0.94 $ 0.81
==============================================================================
See accompanying Notes to Consolidated Financial Statements.
22
<PAGE>
CONSOLIDATED BALANCE SHEETS
EDO Corporation and Subsidiaries
==============================================================================
December 31
1999 1998
(in thousands, except
share and per share
amounts)
- ------------------------------------------------------------------------------
Assets
Current assets:
Cash and cash equivalents $ 13,799 $ 21,991
Marketable securities 15,843 11,519
Accounts receivable 32,818 30,182
Inventories 12,188 9,250
Deferred tax asset, net 2,336 1,280
Prepayments and other 2,299 2,071
- ------------------------------------------------------------------------------
Total current assets 79,283 76,293
- ------------------------------------------------------------------------------
Plant and equipment, net 10,218 8,694
Notes receivable 1,450 2,300
Cost in excess of fair value of net
assets acquired, net 9,050 5,308
Other assets 16,351 12,215
Net assets of discontinued operations 8,139 19,820
- ------------------------------------------------------------------------------
$ 124,491 $ 124,630
==============================================================================
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $ 23,108 $ 23,253
Contract advances and deposits 19,153 13,589
Current portion of notes payable 397 5,460
Current portion of long-term debt 1,515 1,317
- ------------------------------------------------------------------------------
Total current liabilities 44,173 43,619
- ------------------------------------------------------------------------------
Note payable 892 -
Long-term debt 26,250 28,000
ESOT loan obligation 7,429 8,955
Postretirement benefits obligation 3,402 3,443
Environmental obligation 2,104 2,562
Shareholders' equity:
Preferred shares, par value $1 per share
(liquidation preference $213.71 per share or $12,264
in the aggregate in 1999), authorized 500,000 shares,
57,384 issued in 1999 and 60,641 in 1998 57 61
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 28,483 30,142
Retained earnings 35,667 35,294
Accumulated other comprehensive loss (255) -
- ------------------------------------------------------------------------------
72,406 73,951
Less: Treasury shares at cost (1,693,867 shares in
1999 and 1,821,634 shares in 1998) (23,967) (25,775)
ESOT loan obligation (7,429) (8,955)
Deferred compensation under Long-Term
Incentive Plan (769) (1,170)
- ------------------------------------------------------------------------------
Total shareholders' equity 40,241 38,051
- ------------------------------------------------------------------------------
$ 124,491 $ 124,630
==============================================================================
See accompanying Notes to Consolidated Financial Statements.
23
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
EDO Corporation and Subsidiaries
==============================================================================
1999 1998 1997
(in thousands)
Amount Shares Amount Shares Amount Shares
- ------------------------------------------------------------------------------
Preferred shares
Balance at beginning
of year $ 61 61 $ 65 65 $ 68 68
Shares converted to
common shares (4) (4) (4) (4) (3) (3)
- ------------------------------------------------------------------------------
Balance at end of year 57 57 61 61 65 65
- ------------------------------------------------------------------------------
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 30,142 32,546 35,438
Exercise of stock options (112) (645) (1,132)
Shares used for payment of
directors' fees (132) (71) (64)
Shares used for Long-Term
Incentive Plan - (369) (721)
Conversion of preferred
shares to common shares (1,415) (1,319) (975)
- ------------------------------------------------------------------------------
Balance at end of year 28,483 30,142 32,546
- ------------------------------------------------------------------------------
Retained earnings
Balance at beginning
of year 35,294 27,641 22,368
Net earnings 2,020 8,231 7,027
Common share dividends
(12 cents, 11.5 cents
and 10 cents per share
in 1999, 1998 and 1997,
respectively) (806) (755) (627)
Dividends on
preferred shares (1,000) (1,063) (1,127)
Tax benefit of
unallocated preferred
share dividends 159 1,240 -
- ------------------------------------------------------------------------------
Balance at end of year 35,667 35,294 27,641
- ------------------------------------------------------------------------------
Accumulated other
comprehensive loss
Balance at beginning
of year - - -
Unrealized loss on
marketable securities,
net of income tax
benefit (255) - -
- ------------------------------------------------------------------------------
Balance at end of year (255) - -
- ------------------------------------------------------------------------------
Treasury shares at cost
Balance at beginning
of year (25,775) (1,822) (29,201) (2,054) (34,240) (2,409)
Shares used for
exercise of stock
options 149 11 998 62 2,491 175
Shares used for payment
of directors' fees 240 17 167 11 149 11
Shares used for Long-
Term Incentive Plan - - 938 66 1,421 100
Shares used for
conversion of preferred
shares 1,419 100 1,323 93 978 69
- ------------------------------------------------------------------------------
Balance at end of year (23,967) (1,694) (25,775) (1,822) (29,201) (2,054)
- ------------------------------------------------------------------------------
ESOT loan obligation
Balance at beginning
of year (8,955) (10,368) (11,676)
Repayments made
during year 1,526 1,413 1,308
- ------------------------------------------------------------------------------
Balance at end of year (7,429) (8,955) (10,368)
- ------------------------------------------------------------------------------
Deferred compensation
under Long-Term
Incentive Plan
Balance at beginning
of year (1,170) (1,002) (589)
Shares used for Long-
Term Incentive Plan - (569) (700)
Amortization of Long-
Term Incentive Plan
deferred expense 401 401 287
- ------------------------------------------------------------------------------
Balance at end of year (769) (1,170) (1,002)
==============================================================================
Total Shareholders'
Equity $ 40,241 $ 38,051 $ 28,135
==============================================================================
Comprehensive income
Net earnings $ 2,020 $ 8,231 $ 7,027
Unrealized loss on
marketable securities,
net of income tax
benefit of $131 (255) - -
- ------------------------------------------------------------------------------
Comprehensive income $ 1,765 $ 8,231 $ 7,027
==============================================================================
See accompanying Notes to Consolidated Financial Statements.
24
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
EDO Corporation and Subsidiaries
==============================================================================
Years Ended December 31
1999 1998 1997
(in thousands)
- ------------------------------------------------------------------------------
Operating Activities:
Earnings from continuing operations $ 6,084 $ 10,347 $ 7,460
Adjustments to earnings to arrive at cash
provided by continuing operations:
Depreciation and amortization 3,390 2,343 3,684
Deferred tax expense (benefit) 740 (50) -
Write-down of acoustic product
line inventory - - 1,500
Gain on repurchase of debentures (147) - -
Deferred compensation expense 401 401 287
Common shares issued for directors' fees 108 96 85
Changes in operating assets and
liabilities, excluding effects
of acquisitions:
Accounts receivable (1,796) (7,788) 2,202
Inventories (2,938) (2,871) (2,291)
Prepayments, other assets and other (5,050) 1,274 (5,305)
Accounts payable and accrued liabilities (1,062) (469) 1,891
Contract advances and deposits 5,564 870 8,486
- ------------------------------------------------------------------------------
Cash provided by continuing operations 5,294 4,153 17,999
Net cash provided (used) by
discontinued operations 5,952 4,461 (2,437)
Investing Activities:
Purchase of plant and equipment (4,032) (3,133) (1,903)
Payments received on notes receivable 575 675 313
Cash paid for acquisitions,
net of cash acquired (2,638) (5,648) -
Sale (purchase) of marketable securities (4,709) 2,332 (13,851)
- ------------------------------------------------------------------------------
Cash used by investing activities (10,804) (5,774) (15,441)
Financing Activities:
Proceeds from exercise of stock options 37 353 1,359
Repurchase of debentures (1,405) - -
Payment made on note payable (5,460) - -
Payment of common share cash dividends (806) (755) (627)
Payment of preferred share cash dividends (1,000) (1,063) (1,127)
- ------------------------------------------------------------------------------
Cash used by financing activities (8,634) (1,465) (395)
==============================================================================
Net increase (decrease) in cash
and cash equivalents (8,192) 1,375 (274)
Cash and cash equivalents at
beginning of year 21,991 20,616 20,890
- ------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 13,799 $ 21,991 $ 20,616
==============================================================================
Supplemental disclosures:
Cash paid for:
Interest $ 2,002 $ 2,052 $ 2,058
Income taxes $ 2,126 $ 1,386 $ 1,137
==============================================================================
See accompanying Notes to Consolidated Financial Statements.
25
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
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
Engineered Materials (Note 19). The Company discontinued its satellite
products business in 1999 (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 market value in the
accompanying consolidated balance sheets.
(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 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 $1,058,000 and
$1,382,000 are included in other assets at December 31, 1999 and 1998,
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 $9.4 million ($9.1 million, net of accumulated
amortization at December 31, 1999) is being amortized on a straight-line basis
over fifteen to twenty 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 businesses. The amount of goodwill
impairment, if any, is measured based on projected discounted future operating
cash flows using a discount rate reflecting the Company's average cost of
funds. The assessment of the recoverability of goodwill will be impacted if
estimated future operating cash flows are not achieved.
(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. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets. Assets to be
disposed of are reported at the lower of the carrying amount or fair value less
costs to sell.
(i) Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differ-
26
<PAGE>
ences 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, 1999 were $31,429,000
and $35,194,000, respectively (Notes 9 and 10), and at December 31, 1998 were
$34,167,000 and $38,272,000, respectively. The net carrying value of notes
receivable approximates fair value based on current rates for comparable
commercial mortgages. The fair values of the environmental obligation (Note
18) and notes payable approximate their carrying values since they have 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 full set of financial statements. Comprehensive
income comprises net earnings less the unrealized loss on marketable securities
net of the related income tax benefit.
(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 $2.1 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 $5.5 million
note, which was paid in 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.
27
<PAGE>
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 from continuing operations $ 92,360 $ 91,044
Net earnings from continuing operations
available for common shares 9,089 5,786
- ------------------------------------------------------------------------------
Basic earnings per common share
from continuing operations $ 1.39 $ 0.92
Diluted earnings per common share
from continuing operations $ 1.18 $ 0.80
==============================================================================
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.
In November 1999, the Company acquired the outstanding stock of M.Technologies
Inc., an integrator of aircraft weapons and avionics systems, for $3 million in
cash paid at closing and $1.5 million to be paid over three years. The $1.5
million note payable has been present valued in the accompanying consolidated
balance sheet at an interest rate of 8% as of December 31, 1999. The
acquisition has been accounted for as a purchase, and accordingly, the
operating results of M.Technologies 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 $4.4 million is being amortized over fifteen years. On a pro
forma basis, had the M.Technologies acquisition taken place as of the beginning
of the periods presented, results of operations for those periods would not
have been materially affected.
(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 $2.0 million, which principally comprised the
write-down of inventory related to the discontinued product lines to its net
realizable value.
(4) Discontinued Operations
In November 1999, the Board of Directors of the Company approved the decision
to sell its satellite products business. On January 31, 2000, the Company
completed the sale of its satellite products business (Barnes Engineering
Company). The sales price of $10.0 million is subject to adjustment relating
to changes in net assets of the business from July 31, 1999 through the closing
date (estimated to result in a decrease of approximately $1.8 million). In
addition, the Company has agreed to indemnify the buyer for certain
contract-related costs aggregating an estimated $2.3 million. The estimated
adjustment for the changes in net assets and the estimated indemnification
costs have been included in the loss on disposal of the satellite products
business.
The Company's consolidated financial statements for 1998 and 1997 have been
restated to reflect the satellite products business as discontinued operations.
Accordingly, the revenues, costs and expenses, assets and liabilities, cash
flows and backlog associated with the satellite products business have been
excluded from the respective captions in the accompanying consolidated
financial statements.
The estimated loss on disposal is net of aggregate settlement and curtailment
gains of $950,000 and $47,000 relating to the impact of the disposal on the
Company's pension and postretirement benefit plans, respectively. In addition,
the net earnings (loss) from discontinued operations prior to the measurement
date and the estimated loss on disposal are reflected in the accompanying
consolidated statements of earnings net of the related income tax benefit
(expense). In 1999, the earnings from discontinued operations are net of a
$261,000 tax expense, and the estimated loss on disposal is net of a $1,833,000
tax benefit. In 1998, the loss from discontinued operations is net of a
$180,000 tax benefit.
Summarized financial information for the discontinued operations is as follows:
=================================================================
1999 1998 1997
-----------------------------------------------------------------
Net sales $ 14,123 $ 14,657 $ 20,654
Net earnings (loss) 609 (2,116) (433)
=================================================================
28
<PAGE>
==============================================================================
1999 1998
- ------------------------------------------------------------------------------
Current assets (primarily accounts receivable) $ 5,906 $ 10,167
Noncurrent assets (primarily plant and equipment
and goodwill) 3,968 11,776
Current liabilities (1,735) (2,123)
- ------------------------------------------------------------------------------
Net assets of discontinued operations $ 8,139 $ 19,820
==============================================================================
(5) Accounts and Notes Receivable
Accounts receivable included $18,407,000 and $15,583,000 at December 31, 1999
and 1998, respectively, representing unbilled revenues. Substantially all of
the unbilled balances at December 31, 1999 will be billed and are expected to
be collected during 2000. Total receivables due from the United States
government, either directly or as a subcontractor to a prime contractor with
the government, were $16,897,000 and $15,080,000 at December 31, 1999 and 1998,
respectively.
Notes receivable of $2,650,000 at December 31, 1999, of which $1,200,000 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%. Two payments on the notes receivable aggregating
$350,000 are past due as of December 31, 1999. The Company is currently in
discussions with the current owner of the properties about the amounts in
arrears. The notes receivable are secured by a mortgage on the facility.
(6) Inventories
Inventories are summarized by major classification as follows at December 31,
1999 and 1998:
=======================================================
1999 1998
(in thousands)
-------------------------------------------------------
Raw material and supplies $ 4,475 $ 3,960
Work-in-process 7,182 5,038
Finished goods 531 252
-------------------------------------------------------
$ 12,188 $ 9,250
=======================================================
(7) Plant and Equipment, Net
The Company's plant and equipment at December 31, 1999 and 1998, and their
related useful lives are summarized as follows:
==============================================================================
1999 1998
(in thousands) Life
- ------------------------------------------------------------------------------
Machinery and equipment $ 28,568 $ 25,296 3 - 10 years
Leasehold improvements 8,789 8,133 lease terms
- ------------------------------------------------------------------------------
37,357 33,429
Less accumulated depreciation
and amortization 27,139 24,735
- ------------------------------------------------------------------------------
$ 10,218 $ 8,694
==============================================================================
(8) Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities consisted of the following at December
31, 1999 and 1998:
==============================================================================
1999 1998
(in thousands)
- ------------------------------------------------------------------------------
Trade payables $ 4,065 $ 4,511
Employee compensation and benefits 3,596 3,064
Current portion of environmental obligation 434 464
Indemnification liability 2,280 -
Other 12,733 15,214
- ------------------------------------------------------------------------------
$ 23,108 $ 23,253
==============================================================================
(9) Long-Term Debt and Line of Credit
Long-term debt of the Company at December 31, 1999 and 1998 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.
During 1999, the Company purchased $1.6 million of the debentures for $1.4
million and recognized a gain of $0.2 million, which is included in other
non-operating income in the accompanying consolidated statement of earnings.
As of December 31, 1999, the Company had $235,000 of these debentures remaining
in treasury, which may be used to satisfy a portion of the sinking fund
requirements for 2000. The remaining amount due in 2000 of $1,515,000 is
reflected in the current portion of long-term debt. The carrying value of the
debentures as of December 31, 1999 is $27,765,000. The Company estimates the
fair value of the debentures as of December 31, 1999 to be approximately
$24,000,000 based on yields of comparable financial instruments and recent
transactions.
The Company has a $30.0 million secured, multi-year 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, 1999, the Company has
outstanding approximately $13.4 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,
29
<PAGE>
1999, the
Company was in compliance with such covenants. In addition, payments of common
share dividends are 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 1999, 1998 and 1997, respectively, cash
contributions of $1,048,000, $1,020,000 and $942,000 were made to the ESOP. As
of December 31, 1999, there were 222,381 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 ($180 at December 31,
1999) divided by the current market price of each common share. As of December
31, 1999, 65,471 preferred shares have been allocated, 24,301 preferred shares
remained unallocated, and 32,388 of the allocated preferred shares have been
converted into 882,800 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 1999, 1998 and 1997,
respectively, the Company's cash contributions and dividends on the preferred
shares were used to repay principal of $1,526,000, $1,413,000 and $1,308,000
and pay interest of $541,000, $693,000 and $780,000. 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.
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 accompanying consolidated balance sheets 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 1999, 1998 and 1997 provision for Federal income taxes for continuing
operations comprised the following amounts:
================================================
1999 1998 1997
(in thousands)
------------------------------------------------
Federal
Current $ 1,870 $ 930 $ -
Deferred 740 (50) -
------------------------------------------------
Total $ 2,610 $ 880 $ -
================================================
State income taxes of $482,000, $586,000 and $313,000 in 1999, 1998 and 1997,
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
1999 1998 1997
----------------------------------------------------------------
Tax at statutory rate 34.0% 34.0% 34.0%
Preferred share dividends (2.1) (2.0) (2.4)
Decrease in valuation allowance - (16.0) (28.3)
Foreign Sales Corporation benefit (3.3) (1.7) -
Other, net 1.4 (6.5) (3.3)
----------------------------------------------------------------
Effective Federal income tax rate 30.0% 7.8% -
================================================================
30
<PAGE>
The items that comprise the significant portions of deferred tax assets and
liabilities as of December 31, 1999 and 1998 are as follows:
================================================================
1999 1998
(in thousands)
----------------------------------------------------------------
Deferred Tax Assets
Postretirement benefits obligation
other than pensions $ 1,157 1,171
U.S. net operating loss carryforwards - 2,006
Loss on sale of discontinued operations 1,666 -
R&D and alternative minimum
tax credit carryforwards 3,797 2,662
Deferred compensation 1,723 1,659
Capital loss carryforwards 976 976
Other 836 143
----------------------------------------------------------------
Total deferred tax assets 10,155 8,617
Less: Valuation allowance (976) (976)
----------------------------------------------------------------
9,179 7,641
----------------------------------------------------------------
Deferred Tax Liabilities
Depreciation and amortization 1,781 2,407
Identifiable intangible asset 725 763
Prepaid pension asset 3,623 2,541
Other 714 650
----------------------------------------------------------------
Total deferred tax liabilities 6,843 6,361
----------------------------------------------------------------
Net deferred tax asset $ 2,336 $ 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. The net operating loss carryforwards were fully
utilized in 1999. Research and development credits expire in the years 2008
and 2009. Realization of the asset relating to the capital loss carryforward
is dependent on future capital gains. A valuation allowance has been
established at December 31, 1999 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.
(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, 1999, the Company had acquired
approximately 3,957,000 common shares in open market transactions at prevailing
market prices. Approximately 2,263,000 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, 1999 and 1998, respectively, the
Company held 1,693,867 and 1,821,634 common shares in its treasury for future
use.
At December 31, 1999, the Company had reserved, authorized and unissued common
shares for the following purposes:
==============================================================================
Shares
- ------------------------------------------------------------------------------
Conversion of 7% Convertible Subordinated Debentures Due 2011 1,261,919
Stock option and long-term incentive plans 897,950
Conversion of preferred shares 1,275,000
- ------------------------------------------------------------------------------
3,434,869
==============================================================================
(13) Earnings Per Share
The following table sets forth the computation of basic and diluted earnings
per share:
==============================================================================
1999 1998 1997
(in thousands)
- ------------------------------------------------------------------------------
Numerator:
Earnings from continuing operations
available for common shares $ 5,084 $ 9,284 $ 6,333
Impact of assumed conversion of
preferred shares 153 125 97
- ------------------------------------------------------------------------------
Numerator for diluted calculation $ 5,237 $ 9,409 $ 6,430
==============================================================================
Denominator:
Weighted average common shares outstanding 6,701 6,549 6,261
Dilutive effect of stock options 56 155 151
Dilutive effect of conversion of
preferred shares 1,275 1,081 983
- ------------------------------------------------------------------------------
Denominator for diluted calculation 8,032 7,785 7,395
==============================================================================
The assumed conversion of the convertible debentures was anti-dilutive for all
periods presented.
(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.
31
<PAGE>
Changes in options outstanding are as follows:
==============================================================================
1999 1998 1997
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 $ 6.72 680,950 $ 6.55 688,950 $ 6.57 737,313
Options granted 8.42 21,000 8.66 100,750 7.20 157,750
Options exercised 3.42 (10,500) 6.29 (87,600) 7.26 (175,313)
Options expired/
cancelled 8.43 (79,100) 11.21 (21,150) 6.39 (30,800)
- ------------------------------------------------------------------------------
End of year $ 6.61 612,350 $ 6.72 680,950 $ 6.55 688,950
- ------------------------------------------------------------------------------
Exercisable
at year end $ 6.21 455,131
==============================================================================
The options outstanding as of December 31, 1999 are summarized in ranges as
follows:
==============================================================================
Range of Weighted Average Number of Options Weighted Average
Exercise Prices Exercise Price Outstanding Remaining Life
- ------------------------------------------------------------------------------
$ 3.07- 5.99 $ 3.79 160,375 5 years
6.00- 8.99 7.60 446,975 5 years
9.00-11.56 9.09 5,000 8 years
- ------------------------------------------------------------------------------
612,350
==============================================================================
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, 1999, 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 1999, 1998 and 1997 was $401,000, $401,000 and
$287,000, respectively. As of December 31, 1999, 285,600 shares are available
for grant as stock options or awards.
The per share weighted-average fair value of stock options granted was $3.17,
$2.58, and $2.77 in 1999, 1998 and 1997, respectively, on the dates of grant
using the Black Scholes option-pricing model with the following weighted-
average assumptions: 1999 - expected dividend yield of 2.0%, risk free
interest rate of 6.5%, expected stock volatility of 30%, and an expected option
life of 7-1/2 years; 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.
The Company applies APB Opinion No. 25 in accounting for its stock option
grants and, accordingly, no compensation cost has been recognized in the
consolidated 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:
==============================================================================
1999 1998 1997
(in thousands,
except per share amounts)
- ------------------------------------------------------------------------------
Earnings from continuing operations:
As reported $ 6,084 $ 10,347 $ 7,460
Pro forma 5,778 10,054 7,254
Basic earnings per common share:
As reported $ 0.76 $ 1.42 $ 1.01
Pro forma 0.71 1.37 0.98
Diluted earnings per common share:
As reported $ 0.65 $ 1.21 $ 0.87
Pro forma 0.61 1.17 0.84
==============================================================================
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.
32
<PAGE>
The net pension income for 1999, 1998 and 1997 was $2,233,000, $2,192,000, and
$1,185,000, respectively. The expected long-term rate of return on plan assets
was 9.0% in 1999, 1998 and 1997. The actuarial computations assumed a discount
rate on benefit obligations at December 31, 1999 and 1998 of 7.5% and 6.75%,
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:
==============================================================================
1999 1998 1997
(in thousands)
- ------------------------------------------------------------------------------
Service cost $ (1,544) $ (1,495) $ (1,380)
Interest on projected benefit obligation (5,970) (6,124) (5,999)
Expected return on plan assets 9,732 9,586 8,527
Amortization of transitional assets 8 8 8
Amortization of prior service cost (208) (208) (208)
Amortization of gain 215 425 237
- ------------------------------------------------------------------------------
Net pension income $ 2,233 $ 2,192 $ 1,185
==============================================================================
In addition, in connection with the sale of the Company's satellite products
business (Note 4), the Company recognized an aggregate settlement/curtailment
gain of $950,000.
The following sets forth the funded status of the plan as of December 31:
==============================================================================
1999 1998
(in thousands)
- ------------------------------------------------------------------------------
Change in projected benefit obligation:
Projected benefit obligation
at beginning of year $ 95,253 $ 88,654
Service cost 1,544 1,495
Interest cost 5,970 6,124
Benefits paid (5,881) (5,600)
Actuarial (gain) loss (10,662) 4,580
Settlement/curtailment gain (2,856) -
- ------------------------------------------------------------------------------
Projected benefit obligation
at end of year $ 83,368 $ 95,253
- ------------------------------------------------------------------------------
Change in plan assets:
Fair value of plan assets
at beginning of year 111,435 109,793
Actual return on plan assets 15,032 7,242
Benefits paid (5,881) (5,600)
Expected transfer of
settlement/curtailment assets (2,625) -
- ------------------------------------------------------------------------------
Fair value of plan assets at end of year $ 117,961 $ 111,435
- ------------------------------------------------------------------------------
Funded status $ 34,593 $ 16,182
Unrecognized net gain (24,528) (9,636)
Unrecognized prior service cost 607 952
Unrecognized net assets (16) (25)
- ------------------------------------------------------------------------------
Prepaid pension cost (in other assets) $ 10,656 $ 7,473
==============================================================================
In addition, the Company established in 1988 a supplemental defined benefit
plan for substantially all employees. In 1999, 1998 and 1997, the net pension
expense for this plan was approximately $130,000, $127,000, and $126,000,
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 1999, 1998 and 1997
were $602,000, $672,000 and $600,000, respectively.
(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 included the following
components:
======================================================================
1999 1998 1997
(in thousands)
----------------------------------------------------------------------
Service cost $ 80 $ 41 $ 36
Interest cost 276 237 250
Amortization of net unrecognized
loss (gain) 43 - (15)
----------------------------------------------------------------------
Total postretirement health care
and life insurance expense $ 399 $ 278 $ 271
======================================================================
In addition, in connection with the sale of the Company's satellite products
business (Note 4), the Company recognized a curtailment gain of $47,000.
The funded status and breakdown of the postretirement health care and life
insurance benefits are as follows as of December 31:
33
<PAGE>
==================================================================
1999 1998
(in thousands)
------------------------------------------------------------------
Change in accumulated postretirement
benefit obligation:
Accumulated benefit obligation
at beginning of year $ 3,572 $ 3,574
Service cost 80 41
Interest cost 276 237
Benefits paid (419) (392)
Participant contributions 26 31
Actuarial loss 695 15
Change in discount rate (208) 66
Effect of curtailment (620) -
------------------------------------------------------------------
Unfunded accumulated postretirement
benefit obligation at end of year $ 3,402 $ 3,572
Unrecognized net loss - (129)
------------------------------------------------------------------
Accrued postretirement benefit cost $ 3,402 $ 3,443
==================================================================
Actuarial assumptions used in determining the accumulated postretirement
benefit obligation include a discount rate of 7.5% and 6.75% at December 31,
1999 and 1998, 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 $13,430,000 at December 31, 1999, should it fail
to perform in accordance with the terms of its contracts with foreign
customers.
At December 31, 1999, the Company and its subsidiaries were obligated under
building and equipment leases expiring between 2000 and 2012. Minimum future
rentals under those obligations with noncancellable terms in excess of one year
are as follows:
2000 - $ 2,963,000
2001 - $ 2,867,000
2002 - $ 2,406,000
2003 - $ 2,207,000
2004 - $ 1,512,000
Thereafter - $ 6,642,000
Rental expense for continuing operations under such leases for the years ended
December 31, 1999, 1998 and 1997 amounted to $2,885,000, $2,412,000 and
$2,703,000, respectively.
(18) Legal Matters
The Company and three other companies entered into a consent decree in 1990
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, 1999, the discounted liability over the remainder of the
twenty-six years related to these two operable units is approximately $2.5
million of which approximately $0.4 million has been classified as current and
is included in accounts payable and accrued liabilities. Approximately $0.8
million of the $2.5 million liability will be incurred over the next five
years. In 1998 and 1997, the Company settled with one of its insurance
carriers for $2.2 million, net of associated costs of $0.3 million, and $2.9
million, respectively, which was recorded as litigation settlement income. All
$5.1 million 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 determines its operating segments based upon an analysis of its
products and services, production processes, types of customers, economic
characteristics, and the related regulatory environment. The Company's
continuing operations are conducted in two business segments: Defense and
Aerospace Systems and Engineered Materials. The Defense and Aerospace Systems
segment sells its products and services primarily to customers in the defense
industry. The Engineered Materials segment sells its products to customers in
various commercial industries.
Domestic government sales, which include sales to prime contractors of the
government, amounted to 48%, 50% and 44% of net sales, which were 58%, 57% and
63% of Defense and Aerospace Systems' net sales and 26%, 36% and 32% of
Engineered Materials' net sales for 1999, 1998 and 1997, respectively. Export
sales comprised 34%, 32% and 37% of net sales for 1999, 1998 and 1997,
respectively.
Principal products and services by segment are as follows:
34
<PAGE>
Defense and Aerospace Systems Segment
Marine and Aircraft Systems
* Aircraft Stores Suspension and Release Equipment
* Airborne Mine Countermeasures Systems
Combat Systems and Analysis
* Integrated Combat Systems
* Command, Control and Communications Systems
* Undersea Warfare Sonar
* Technology Services and Analysis
Engineered Materials Segment
* Electro-Ceramic Products
* Advanced Fiber Composite Structural Products
==============================================================================
1999 1998 1997
(in thousands)
- ------------------------------------------------------------------------------
Net sales from continuing operations:
Defense and Aerospace Systems $ 66,381 $ 53,785 $ 43,807
Engineered Materials 31,555 27,618 29,901
- ------------------------------------------------------------------------------
$ 97,936 $ 81,403 $ 73,708
- ------------------------------------------------------------------------------
Operating earnings from
continuing operations:
Defense and Aerospace Systems $ 7,012 $ 5,966 $ 3,910
Engineered Materials(1) 2,237 3,589 1,159
Litigation settlement income - 2,200 2,900
- ------------------------------------------------------------------------------
$ 9,249 $ 11,755 $ 7,969
Net interest expense (785) (428) (459)
Other income (expense), net 230 (100) (50)
- ------------------------------------------------------------------------------
Earnings before Federal income taxes $ 8,694 $ 11,227 $ 7,460
- ------------------------------------------------------------------------------
Identifiable assets:
Defense and Aerospace Systems $ 43,455 $ 33,511 $ 14,445
Engineered Materials 26,522 23,368 17,452
Net assets of discontinued operations 8,139 19,820 26,399
Corporate 46,375 47,931 49,260
- ------------------------------------------------------------------------------
$ 124,491 $ 124,630 $ 107,556
- ------------------------------------------------------------------------------
Depreciation and amortization:
Defense and Aerospace Systems $ 1,331 $ 935 $ 2,349
Engineered Materials 1,653 1,068 1,158
Corporate 406 340 177
- ------------------------------------------------------------------------------
$ 3,390 $ 2,343 $ 3,684
- ------------------------------------------------------------------------------
Capital Expenditures:
Defense and Aerospace Systems $ 1,114 $ 2,100 $ 808
Engineered Materials 2,890 1,021 980
Corporate 28 12 115
- ------------------------------------------------------------------------------
$ 4,032 $ 3,133 $ 1,903
==============================================================================
1. Includes a $2.0 million charge in 1997 for the consolidation and
discontinuance of an acoustic products product line.
(20) Subsequent Event
In January 2000, the Company announced that its Board of Directors approved the
merger of a wholly-owned subsidiary of the Company with AIL Technologies Inc.
(AIL). Under the merger agreement and share purchase agreements with certain
AIL shareholders, all of the outstanding common and preferred shares of AIL
will be exchanged or purchased for approximately 6.6 million newly issued EDO
common shares and a cash payment aggregating approximately $13 million
depending on the final exchange ratio and the market price of EDO common shares
on or about the closing date. The merged company will also assume AIL debt,
which was approximately $23.2 million of as of December 31, 1999. The
transaction is subject to a vote by both companies' shareholders, including the
trustee of AIL's Employee Stock Ownership Plan, and regulatory authorities as
well as certain other conditions. As of December 31, 1999, approximately
$1,000,000 of deferred transaction costs relating to the merger are included in
other noncurrent assets in the accompanying consolidated balance sheet.
35
<PAGE>
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, 1999 and 1998, 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, 1999. 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, 1999 and 1998, and the results of their operations
and their cash flows for each of the years in the three-year period ended
December 31, 1999, in conformity with generally accepted accounting principles.
KPMG LLP
Melville, New York
February 15, 2000
36
<PAGE>
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following table sets forth unaudited quarterly financial information for
1999 and 1998 (in thousands, except per share amounts).
==============================================================================
First Quarter Second Quarter Third Quarter Fourth Quarter
1999 1998 1999 1998 1999 1998 1999 1998
- ------------------------------------------------------------------------------
Net sales from
continuing
operations $23,022 $18,886 $23,661 $18,949 $23,812 $20,035 $27,441 $23,533
Net earnings
(loss):
Continuing
operations 1,188 1,922 1,320 2,285 1,677 2,528 1,899 3,612
Discontinued
operations 232 (17) 211 (7) (3,509) (256) (998) (1,836)
- ------------------------------------------------------------------------------
Total 1,420 1,905 1,531 2,278 (1,832) 2,272 901 1,776
Earnings (loss)
per share:
Basic:
Continuing
operations 0.14 0.26 0.16 0.31 0.21 0.34 0.25 0.51
Discontinued
operations 0.03 (0.01) 0.03 - (0.52) (0.04) (0.15) (0.28)
- ------------------------------------------------------------------------------
Total 0.17 0.25 0.19 0.31 (0.31) 0.30 0.10 0.23
Diluted:
Continuing
operations 0.12 0.22 0.14 0.27 0.18 0.29 0.21 0.44
Discontinued
operations 0.03 - 0.02 - (0.43) (0.04) (0.12) (0.24)
- ------------------------------------------------------------------------------
Total 0.15 0.22 0.16 0.27 (0.25) 0.25 0.09 0.20
Preferred
dividends paid 259 277 249 263 247 264 245 259
==============================================================================
37
<PAGE>
EXHIBIT INDEX
Exhibits which are noted with an asterisk (*) are management contracts or
compensatory plans or arrangements.
2(a) Agreement and Plan of Merger by and among EDO Corporation, EDO Acquisition
III Corporation and AIL Technologies Inc. as amended and restated dated January
2, 2000.
2(b) Management Stock Purchase Agreement dated as of January 2, 2000 between
EDO Corporation as Buyer and eleven individuals as Sellers, relating to the
purchase and sale of shares of common stock of AIL Technologies Inc.
2(c) Stock Purchase Agreement dated as of January 2, 2000 between EDO
Corporation, as Buyer, and Defense Systems Holding Co., as Seller, relating to
the purchase and sale of shares of common and preferred stock of AIL
Technologies Inc.
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 (incorporated by reference to Exhibit 3(i) to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1998).
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, as amended by amendments thereto dated December 7, 1999, January 25, 2000
and February 23, 2000.
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. Incorporated by reference to Exhibit 4(b) to the
Company's Annual Report on Form 10-K for the fiscal year ended 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. Incorporated
by reference to Exhibit 4(c) to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1998.
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 28 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.
Incorporated by reference to Exhibit 10(e) to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1998.
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. Incorporated by
reference to Exhibit 10(g) to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1998.
10(h) Amended and Restated Employment and Retirement Agreement, dated as of
January 2, 2000, between EDO and Frank A. Fariello.
10(i) Amended and Restated Employment Agreement, dated as of January 2, 2000,
between EDO and Ira Kaplan.
10(j) Amended and Restated Employment Agreement, dated as of January 2, 2000,
between EDO and Marvin D. Genzer.
10(k) Second Amended and Restated Employment Agreement, dated as of January 2,
2000, by and among AIL Systems, Inc., EDO and James M. Smith.
21 List of Subsidiaries.
23 Consent of Independent Auditors to the incorporation by reference in the
Company's Registration Statements on Form S-8 of their report included in Item
14(a)1 of this Annual Report on Form 10-K.
24 Powers of Attorney used in connection with the execution of this Annual
Report on Form 10-K.
27 Financial Data Schedule
<PAGE>
Exhibit 2(a)
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
BY AND AMONG
EDO CORPORATION,
EDO ACQUISITION III CORPORATION
AND
AIL TECHNOLOGIES INC.
A-1
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
EDO CORPORATION,
EDO ACQUISITION III CORPORATION
AND
AIL TECHNOLOGIES INC.
DATED AS OF JANUARY 2, 2000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
A-2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
1. The Merger............................................... A-7
1.1. The Merger.......................................... A-7
1.2. Closing............................................. A-7
1.3. Conversion of Stock................................. A-8
1.4. Effect of Conversion................................ A-8
1.5. Options............................................. A-9
1.6. Exchange of Certificates Representing Common
Shares................................................. A-9
1.7. Deposits in the Escrow Account...................... A-11
1.8. Shares of Dissenting Stockholders................... A-11
1.9. Adjustments to Prevent Dilution..................... A-12
2. Representations and Warranties of AIL.................... A-12
2.1. Authorization, etc. ................................ A-12
2.2. Title to Shares, Capitalization, etc................ A-12
2.3. No Conflicts, etc................................... A-13
2.4. Corporate Status.................................... A-13
2.5. Discontinued and Acquired Businesses................ A-13
2.6. Company Financial Statements........................ A-13
2.7. Undisclosed Liabilities, etc........................ A-14
2.8. Absence of Changes.................................. A-14
2.9. Taxes............................................... A-14
2.10. Assets.............................................. A-15
2.11. Real Property....................................... A-15
2.12. Contracts........................................... A-16
2.13. Intellectual Property............................... A-18
2.14. Insurance........................................... A-19
2.15. Litigation.......................................... A-19
2.16. Compliance with Laws and Instruments; Consents...... A-19
2.17. Environmental Matters............................... A-20
2.18. Affiliate Transactions.............................. A-21
2.19. Employees, Labor Matters, etc. ..................... A-21
2.20. Employee Benefit Plans and Related Matters; ERISA... A-21
2.21. Accounts Receivable................................. A-23
2.22. Inventories......................................... A-23
2.23. Customers........................................... A-24
2.24. Suppliers; Raw Materials............................ A-24
2.25. Products; Product and Service Warranties............ A-24
2.26. Brokers, Finders, etc............................... A-24
2.27. Disclosure.......................................... A-24
2.28. Opinion of Financial Advisor........................ A-25
2.29. Required Vote of AIL's Stockholders................. A-25
2.30. EDO Share Ownership................................. A-25
2.31. Board Recommendation................................ A-25
2.32. Amendment to AIL ESOP............................... A-25
3. Representations and Warranties of EDO and Merger Sub..... A-25
3.1. Authorization, etc. ................................ A-25
</TABLE>
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<TABLE>
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3.2. Capitalization...................................... A-25
3.3. No Conflicts, etc................................... A-26
3.4. Corporate Status.................................... A-26
3.5. Discontinued and Acquired Businesses................ A-27
3.6. SEC Reports; EDO Financial Statements............... A-27
3.7. Undisclosed Liabilities, etc........................ A-27
3.8. Absence of Changes.................................. A-27
3.9. Taxes............................................... A-28
3.10. Assets.............................................. A-28
3.11. Real Property....................................... A-28
3.12. Contracts........................................... A-30
3.13. Intellectual Property............................... A-31
3.14. Insurance........................................... A-32
3.15. Litigation.......................................... A-32
3.16. Compliance with Laws and Instruments; Consents...... A-32
3.17. Environmental Matters............................... A-33
3.18. Affiliate Transactions.............................. A-34
3.19. Employees, Labor Matters, etc. ..................... A-34
3.20. Employee Benefit Plans and Related Matters; ERISA... A-35
3.21. Accounts Receivable................................. A-36
3.22. Inventories......................................... A-36
3.23. Customers........................................... A-37
3.24. Suppliers; Raw Materials............................ A-37
3.25. Products; Product and Service Warranties............ A-37
3.26. Brokers, Finders, etc............................... A-37
3.27. Disclosure.......................................... A-37
3.28. Opinion of Financial Advisor........................ A-38
3.29. Required Vote of EDO's Stockholders................. A-38
3.30. AIL Share Ownership................................. A-38
3.31. Board Recommendation................................ A-38
4. Covenants................................................ A-38
4.1. Conduct of Business................................. A-38
4.2. Access and Information.............................. A-41
4.3. Subsequent Reports and Information.................. A-42
4.4. Public Announcements................................ A-42
4.5. Further Actions..................................... A-42
4.6. Further Assurances.................................. A-43
4.7. Takeover Statute.................................... A-44
4.8. Accountants' "Comfort" Letters...................... A-44
4.9. Tax-Free Reorganization............................. A-44
4.10. No Solicitation..................................... A-44
4.11. Affiliate Agreements................................ A-45
4.12. [Intentionally omitted.]............................ A-45
</TABLE>
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<TABLE>
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4.13. Indemnification and Insurance....................... A-45
4.14. Actions Relating to Conversion of Options........... A-46
5. Stockholder Meeting; Share Issuance; etc................. A-46
5.1. Stockholder Approvals................................ A-46
5.2. Board Recommendations............................... A-46
5.3. Proxy Statement/Registration Statement.............. A-47
5.4. NYSE Listing........................................ A-47
6. Certain Post-Closing Covenants.......................... A-47
6.1. Headquarters........................................ A-47
6.2. EDO Board of Directors.............................. A-47
6.3. EDO Officers........................................ A-48
6.4. Employee Stock Ownership Plans...................... A-48
7. Conditions Precedent..................................... A-48
7.1. Conditions to Obligations of Each Party............. A-48
7.1.1. HSR Act Notification............................ A-48
7.1.2. Stockholder Approvals........................... A-48
7.1.3. Registration Statement.......................... A-48
7.1.4. NYSE Listing.................................... A-48
7.1.5. No Injunctions.................................. A-48
7.2. Conditions to Obligations of EDO and Merger Sub...... A-48
7.2.1. Representations, Performance.................... A-48
7.2.2. Consents........................................ A-49
7.2.3. No AIL Material Adverse Effect.................. A-49
7.2.4. Ancillary Agreements............................ A-49
7.2.5. Tax Opinion..................................... A-49
7.2.6. Amendments to AIL ESOP.......................... A-49
7.3. Conditions to Obligations of AIL..................... A-49
7.3.1. Representations, Performance, etc............... A-49
7.3.2. Consents........................................ A-49
7.3.3. No EDO Material Adverse Effect.................. A-50
7.3.4. Ancillary Agreements............................ A-50
7.3.5. Tax Opinion..................................... A-50
7.3.6. Reservation or Authorization of Shares of EDO
Common Stock Subject to Substituted Options..... A-50
8. Termination.............................................. A-50
8.1. Termination or Abandonment........................... A-50
8.2. Effect of Termination................................ A-52
8.3. Termination Fees..................................... A-52
9. Indemnification.......................................... A-52
9.1. Survival of Representations and Warranties, etc...... A-52
9.2. Indemnification by AIL and the Exchanging Common
Stockholders........................................... A-52
9.3. Indemnification By EDO............................... A-54
9.4. Third Party Claims................................... A-54
9.5. Tax Treatment and Limitation of Indemnity Payments... A-55
9.6. Form of Consideration............................... A-55
</TABLE>
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10. Definitions............................................. A-56
10.1. Terms Generally.................................... A-56
10.2. Certain Terms...................................... A-56
11. Miscellaneous.......................................... A-65
11.1. Expenses........................................... A-65
11.2. Confidentiality.................................... A-65
11.3. Notices............................................ A-65
11.4. Arbitration; Governing Law, etc. .................. A-66
11.5. Binding Effect..................................... A-67
11.6. Assignment......................................... A-67
11.7. No Third Party Beneficiaries....................... A-67
11.8. Amendment; Waivers, etc. .......................... A-67
11.9. Entire Agreement................................... A-67
11.10. Severability....................................... A-67
11.11. Headings........................................... A-67
11.12. Counterparts....................................... A-67
11.13. Common Stockholder Representative.................. A-67
11.14. Escrow Agent....................................... A-68
11.15. Disclosure Schedules............................... A-68
</TABLE>
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EXHIBITS
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Exhibit A Form of Affiliate Letter
Exhibit B Escrow Agreement
Exhibit C Form of Amendment to AIL ESOP
Exhibit D Board Resolutions
Exhibit E Form of Election Form
</TABLE>
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<PAGE>
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER, dated as of January 2,
2000, among EDO CORPORATION, a New York corporation ("EDO"), EDO ACQUISITION III
CORPORATION, a Delaware corporation and a wholly-owned subsidiary of EDO
("Merger Sub"), and AIL TECHNOLOGIES INC., a Delaware corporation ("AIL").
Capitalized terms used herein are defined in Section 10.
RECITALS
A. The Boards of Directors of EDO, Merger Sub and AIL have each determined
that it is in the best interests of their respective companies and stockholders,
for AIL to be merged with and into Merger Sub pursuant to the laws of the State
of Delaware and upon the terms and subject to the conditions set forth herein.
The Boards of Directors of AIL and Merger Sub have each approved and declared
the advisability of the Merger and this Agreement.
B. The Common Stockholders are the record holders of all of the issued and
outstanding shares of the common stock, par value $0.10 per share, of AIL (the
"Common Shares").
C. Pursuant to a Stock Purchase Agreement, dated as of the date hereof, by
and among Defense Systems Holding Co. ("Defense Systems"), EDO and Merger Sub
(the "Defense Systems Agreement"), EDO will, immediately prior to Closing,
acquire 754,598 Common Shares from Defense Systems, representing all Common
Shares owned by Defense Systems, and 5,873 shares of Series A Cumulative
Preferred Stock, par value $.01 per share, of AIL (the "Preferred Shares"),
representing all the issued and outstanding Preferred Shares, for a total
purchase price of $11,438,160 payable in cash. Pursuant to a Stock Purchase
Agreement, dated as of the date hereof, by and among certain Common
Stockholders, EDO and Merger Sub (the "Management Stock Purchase Agreement"),
EDO will, immediately prior to Closing, acquire 225,000 Common Shares from such
Common Stockholders for a total purchase price equal to the product of (i)
225,000, (ii) the Exchange Ratio and (iii) the EDO Average Price, payable in
cash. The Common Shares and the Preferred Shares shall hereinafter be referred
to as the "Shares".
D. It is intended, for federal income tax purposes, that the Merger will
qualify as a reorganization under the provisions of Section 368(a) of the Code.
E. Simultaneously with the execution and delivery of this Agreement, each
of James M. Smith, Frank A. Fariello, Ira Kaplan and Marvin D. Genzer is
executing and delivering an employment agreement with EDO (each, an "Employment
Agreement").
NOW, THEREFORE, in consideration of the mutual promises, covenants,
representations and warranties made herein and of the mutual benefits to be
derived herefrom, the parties hereto agree as follows:
1. The Merger
1.1. The Merger. (a) Subject to the terms and conditions of this
Agreement, AIL shall be merged with and into Merger Sub (the "Merger") in
accordance with the provisions of the General Corporation Law of the State of
Delaware (the "DGCL"). Following the Merger, the separate corporate existence of
AIL shall cease and Merger Sub shall continue as the surviving corporation (the
"Surviving Corporation") and be a wholly owned direct subsidiary of EDO.
(b) The Merger shall have the effects set forth in the DGCL.
1.2 Closing. (a) The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at 10:00 am on a date to be specified
by the parties (the "Closing Date") which shall be no later than the second
business day after satisfaction or waiver of the conditions set forth in Section
7, unless another time is agreed to in writing by the parties hereto. The
Closing shall take place at the offices of Debevoise & Plimpton, 875 Third
Avenue, New York, New York 10022.
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(b) On the Closing Date, the parties shall cause the Merger to become
effective by filing a certificate of merger (the "Certificate of Merger") with
the Secretary of State of the State of Delaware in such form as is required by,
and executed in accordance with, the relevant provisions of the DGCL. The Merger
shall become effective upon the filing of the Certificate of Merger or such
other time specified in the Certificate of Merger (the time of such
effectiveness being the "Effective Time").
1.3. Conversion of Stock. At the Effective Time:
(a) Shares. Each Common Share issued and outstanding immediately
prior to the Effective Time (other than any Common Shares to be canceled
pursuant to Section 1.3(b) and Dissenting Shares) shall, by virtue of the
Merger and without any action on the part of the holder thereof, be
converted into the right to receive a number of shares of EDO Common Stock
equal to the Exchange Ratio (such per Common Share amount, the "Merger
Consideration"). The "Exchange Ratio" means a fraction, the numerator of
which is 6,553,229 (the "Merger Shares"), and the denominator of which is
the number of issued and outstanding Common Shares (other than any Common
Shares, including any Common Shares subject to the Defense Systems
Agreement or the Management Stock Purchase Agreement, to be canceled
pursuant to Section 1.3(b)) as of the Effective Time.
(b) Treasury Shares. Each Share then held, directly or indirectly, by
EDO (including any Common Shares subject to the Defense Systems Agreement
or the Management Stock Purchase Agreement), Merger Sub or any other
Subsidiary of EDO, or held in AIL's treasury or held by any Subsidiary of
AIL, shall, by virtue of the Merger and without any action on the part of
the holder thereof, be canceled and retired without payment of any
consideration therefor.
(c) Shares of Merger Sub. Each share of common stock, par value $.01
per share, of Merger Sub issued and outstanding immediately prior to the
Effective Time shall, by virtue of the Merger and without any action on the
part of the holder thereof, be converted into and represent one share of
common stock of the Surviving Corporation.
1.4 Effect of Conversion. (a) No Further Rights. Except as set forth in
Section 1.8, at and after the Effective Time, by virtue of the Merger and
without any action on the part of the holders thereof, all of the Shares shall
cease to be outstanding and shall be automatically canceled and retired and
shall cease to exist and the certificates representing such Shares shall
thereafter, subject to Sections 1.3(b) and 1.7, represent only the right to
receive (i) the Merger Consideration, (ii) certain dividends and other
distributions in accordance with Section 1.6(g), and (iii) cash in lieu of
fractional shares of EDO Common Stock in accordance with Section 1.6(h), without
interest.
(b) Certificate of Incorporation of the Surviving Corporation. The
Certificate of Incorporation of Merger Sub as in effect immediately prior to the
Effective Time shall be the Certificate of Incorporation of the Surviving
Corporation until duly amended in accordance with its terms and applicable Law,
except that the name of Merger Sub as set forth in the Certificate of
Incorporation shall be changed to AIL Technologies Inc. at the Effective Time.
(c) By-Laws of the Surviving Corporation. The By-Laws of AIL, as in effect
immediately prior to the Effective Time, shall be the By-Laws of the Surviving
Corporation until duly amended in accordance with their terms and applicable
Law.
(d) Directors of the Surviving Corporation. The individuals listed on
Schedule 1.4(d) shall be the directors of the Surviving Corporation as of the
Effective Time and shall hold office until their resignation or removal or until
their successors are duly appointed or elected in accordance with applicable
Law.
(e) Officers of the Surviving Corporation. The officers of AIL immediately
prior to the Effective Time, together with such additions listed on Schedule
1.4(e), shall be the officers of the Surviving Corporation as of the Effective
Time and shall hold office until their resignation or removal or until their
successors are duly appointed or elected in accordance with the Surviving
Corporation's Certificate of Incorporation and By-Laws and applicable Law.
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1.5. Options. At the Effective Time, each of the Options listed on
Schedule 2.2 hereto which is outstanding and unexercised at the Effective Time
(the "Employee Stock Options") shall be converted automatically into an EDO
Option (a "Substituted Option") in an amount and at an exercise price determined
as provided below:
(a) The number of shares of EDO Common Stock to be subject to each
Substituted Option shall be equal to the product of the number of Common
Shares subject to the corresponding Employee Stock Option and the Exchange
Ratio, provided that any fractional shares of EDO Common Stock resulting
from such multiplication shall be rounded down to the nearest share and,
except with respect to any Options which are intended to qualify as
"incentive stock options" (as defined in Section 422 of the Code ("ISOs")),
EDO shall pay an amount in cash to the holder of such Employee Stock Option
equal to the fair market value immediately prior to the Effective Time of
such fractional shares calculated based on the EDO Average Price; and
(b) The exercise price per share of EDO Common Stock under the
Substituted Option shall be equal to the aggregate exercise price of the
corresponding Employee Stock Option divided by the total number of full
shares of EDO Common Stock subject to the Substituted Option (as determined
under paragraph (a) immediately above), provided that such exercise price
shall be rounded up to the nearest cent.
The adjustment provided herein with respect to any ISOs shall be and is intended
to be effected in a manner that is consistent with section 424(a) of the Code.
The duration and other terms of the Substituted Option shall be the same as that
of the corresponding Employee Stock Option, except that all references to AIL
shall be deemed to be references to EDO.
1.6 Exchange of Certificates Representing Common Shares. (a) Exchange
Agent. Prior to the Effective Time, EDO shall appoint the American Stock
Transfer and Trust Company or a commercial bank or trust company organized and
having an office in the United States having net capital of not less than
$100,000,000 and which is reasonably satisfactory to AIL, to act as agent
hereunder in connection with the Merger (the "Exchange Agent"). As of the
Effective Time, EDO shall provide the Exchange Agent with certificates ("EDO
Certificates") representing (i) the number of whole shares of EDO Common Stock
issuable pursuant to Section 1.3(a) in exchange for outstanding Common Shares,
less (ii) the Total Escrowed Shares to be deposited in the Escrow Account in
accordance with Section 1.7 (such shares of EDO Common Stock, together with any
dividends or distributions with respect thereto payable with regard to a record
date after the Effective Time and any cash payable in lieu of any fractional
shares of EDO Common Stock being hereinafter referred to as the "Exchange
Fund").
(b) Exchange Procedures. As soon as reasonably practicable after the
Effective Time (but no later than the second business day thereafter), the
Exchange Agent shall mail to each holder of record, as of the Effective Time, of
a certificate or certificates, which immediately prior to the Effective Time
represented outstanding Common Shares (the "Certificates"), whose Common Shares
were converted pursuant to Section 1.3(a) into the right to receive the Merger
Consideration, a letter of transmittal (which shall specify that delivery shall
be effected, and risk of loss and title to the Certificates shall pass, only
upon proper delivery of the Certificates to the Exchange Agent and shall be in
such form and have such other provisions as EDO may reasonably specify) and
instructions for use in effecting the surrender of the Certificates in exchange
for the Merger Consideration. Upon surrender of a Certificate for cancellation
to the Exchange Agent or to such other agent or agents as may be appointed by
EDO, together with such letter of transmittal as may be mutually acceptable to
EDO and AIL, properly completed and duly executed in accordance with the
instructions thereto, the holder of such Certificate, subject to Section 1.7,
shall be entitled to receive in exchange therefor (either directly or through
the Escrow Account in accordance with Section 1.7 and the terms of the Escrow
Agreement) (i) EDO Certificates representing that number of whole shares of EDO
Common Stock which such holder has the right to receive pursuant to Section
1.3(a), provided that any shares of EDO Common Stock that such holder is
entitled to receive in respect of Common Shares that are pledged to secure loans
from AIL shall be delivered into pledge, or if such shares of EDO Common Stock
are delivered into the Escrow Account, shall be delivered into pledge upon
release from the Escrow Account upon
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<PAGE>
its termination to the extent the pledgee is entitled thereto, (ii) certain
dividends or other distributions in accordance with Section 1.6(g), (iii) cash
in lieu of any fractional share in accordance with Section 1.6(h) for each
Common Share formerly represented by such Certificate, and the Certificate so
surrendered shall forthwith be cancelled. No interest will be paid or accrued on
any cash payable upon the surrender of the Certificates. If the issuance of the
Merger Consideration is to be made to a Person other than the Person in whose
name the surrendered Certificate is registered or the Escrow Agent (as defined
in the Escrow Agreement), it shall be a condition of exchange that the
Certificate so surrendered shall be properly endorsed or shall be otherwise in
proper form for transfer and that the Person requesting such exchange shall have
paid all transfer and other Taxes required by reason of the issuance to a Person
other than the registered holder of the Certificate surrendered (and which if
not paid could adversely affect EDO or the Surviving Corporation) or shall have
established to the reasonable satisfaction of the Surviving Corporation that
such Tax either has been paid or is not applicable.
(c) Transfer Books; No Further Ownership Rights in the Common Shares. At
the Effective Time, the stock transfer books of AIL shall be closed, and
thereafter there shall be no further registration of transfers of the Common
Shares on the records of AIL. From and after the Effective Time, the holders of
Certificates evidencing ownership of the Common Shares outstanding immediately
prior to the Effective Time shall cease to have any rights with respect to such
Common Shares, except as otherwise provided for herein or by applicable Law. If,
after the Effective Time, Certificates are presented to the Surviving
Corporation for any reason, they shall be cancelled and exchanged as provided in
this Section 1.6.
(d) Termination of Fund; No Liability. At any time following six months
after the Effective Time, the Surviving Corporation shall be entitled to require
the Exchange Agent to deliver to it any portion of the Exchange Fund (including
any interest received with respect thereto and any shares of EDO Common Stock)
which had been made available to the Exchange Agent, and holders of Shares shall
be entitled to look to the Surviving Corporation (subject to abandoned property,
escheat or other similar laws) only as general creditors thereof with respect to
the aggregate Merger Consideration payable upon due surrender of their
Certificates, without any interest thereon. Notwithstanding the foregoing,
neither the Surviving Corporation nor the Exchange Agent shall be liable to any
holder of a Certificate for Merger Consideration delivered to a public official
pursuant to any applicable abandoned property, escheat or similar law.
(e) Lost, Stolen or Destroyed Certificates. In the event any Certificates
for Common Shares shall have been lost, stolen or destroyed, upon the making of
an affidavit of that fact by the Person claiming such Certificate(s) to be lost,
stolen or destroyed and, if required by EDO, the posting by such Person of a
bond or the provision of other indemnity in such sum as EDO may reasonably
direct as indemnity against any claim that may be made against it or the
Surviving Corporation with respect to such Certificate(s), the Exchange Agent
will issue the aggregate Merger Consideration pursuant to Section 1.6(b)
deliverable in respect of the Common Shares represented by such lost, stolen or
destroyed Certificates.
(f) Investment of Exchange Fund. The Exchange Agent shall invest any cash
included in the Exchange Fund, as directed by EDO, on a daily basis. Any
interest and other income resulting from such investments and remaining in the
Exchange Fund after the satisfaction of all its obligations under this Article I
shall be paid to EDO.
(g) Dividends; Distributions. No dividends or other distributions with
respect to EDO Common Stock with a record date after the Effective Time shall be
paid to the holder of any unsurrendered Certificate with respect to the Common
Shares and no cash payment in lieu of fractional shares shall be paid to any
such holder pursuant to Section 1.6(h), and, subject to Section 1.7, all such
dividends, other distributions and cash in lieu of fractional shares of EDO
Common Stock shall be paid by EDO to the Exchange Agent and shall be included in
the Exchange Fund, in each case until the surrender of such Certificate in
accordance with this Section 1.6. Subject to the effect of applicable escheat or
similar laws, following surrender of any such Certificate and subject to Section
1.7, there shall be paid to the holder of the EDO Certificate representing whole
shares of EDO Common Stock issued in exchange therefor, without interest, (i) at
the time of surrender, the amount of dividends or other distributions with a
record date after the Effective Time theretofore paid with respect to such whole
shares of EDO Common Stock and the amount of any cash
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<PAGE>
payable in lieu of a fractional share of EDO Common Stock to which such holder
is entitled pursuant to Section 1.6(h) and (ii) at the appropriate payment date,
the amount of dividends or other distributions with a record date after the
Effective Time but prior to such surrender and with a payment date subsequent to
such surrender payable with respect to such whole shares of EDO Common Stock.
The EDO shall make available to the Exchange Agent (or the Escrow Agent, as
applicable) cash for these purposes.
(h) No Fractional Shares. No EDO Certificates or scrip representing
fractional shares of EDO Common Stock shall be issued upon the surrender for
exchange of Certificates, no dividend or distribution of EDO shall relate to
such fractional share interests and such fractional share interests will not
entitle the owner thereof to vote or to any rights of a stockholder of EDO. In
lieu of any such fractional shares, each holder of a Certificate who would
otherwise have been entitled to receive a fractional share interest in exchange
for such Certificate pursuant to this Section shall receive from the Exchange
Agent an amount in cash equal to the product obtained by multiplying (A) the
fractional share interest to which such holder (after taking into account all
Common Shares held at the Effective Time by such holder) would otherwise be
entitled by (B) the closing price for a share of EDO Common Stock as reported on
the New York Stock Exchange (the "NYSE") Composite Transactions Tape (as
reported in The Wall Street Journal, or, if not reported thereby, any other
authoritative source) on the Closing Date.
1.7 Deposits in the Escrow Account. (a) Notwithstanding anything in this
Agreement to the contrary, upon the surrender of a holder's Certificates in
accordance with Section 1.6, EDO shall deposit, or shall cause to be deposited,
into the Escrow Account an EDO Certificate representing such holder's Escrowed
Shares, together with any dividends, other distributions or cash in lieu of
fractional shares of EDO Common Stock with respect thereto, calculated in
accordance with Sections 1.6(g) and (h) (the Total Escrowed Shares together with
such additional amounts, the "Escrow Amount"). The aggregate Merger
Consideration payable directly to such holder upon such surrender shall be
reduced by the number of such holder's Escrowed Shares, and any cash amounts
that become part of the Escrow Amount pursuant to this Section 1.7 shall not be
paid into the Exchange Fund. The Escrow Amount shall not be paid to former
holders of Common Shares except in accordance with the Escrow Agreement and
Section 1.7(c) hereof.
(b) A holder's "Escrowed Shares" means (i) with respect to any Common
Stockholder other than the AIL ESOP and those individuals named on Schedule
1.7(b), that number of shares of EDO Common Stock equal to 15% (rounded up to
the nearest whole number) of the Aggregate Consideration to which such holder
(or such holder's pledgee) is entitled; and (ii) with respect to the AIL ESOP
and those individuals named on Schedule 1.7(b), that number of shares of EDO
Common Stock equal to the product of the AIL ESOP Percentage and the Aggregate
Consideration to which the AIL ESOP and those individuals named on Schedule
1.7(b) are entitled (rounded up to the nearest whole number). "Total Escrowed
Shares" means the sum of the Escrowed Shares of all holders of Common Shares
immediately prior to the Effective Time, other than Dissenting Stockholders.
1.8. Shares of Dissenting Stockholders. Notwithstanding anything in this
Agreement to the contrary, any issued and outstanding Common Shares held by a
person (a "Dissenting Stockholder") who has neither voted in favor of the Merger
nor consented in writing thereto and who otherwise complies with all the
applicable provisions of the DGCL concerning the right of holders of Common
Shares to dissent from the Merger and require appraisal of their Common Shares
("Dissenting Shares") shall not be converted as described in Section 1.3(a) but
shall become the right to receive such consideration as may be determined to be
due to such Dissenting Stockholder pursuant to the laws of the State of
Delaware. If, after the Effective Time, such Dissenting Stockholder withdraws
his, her or its demand for appraisal or fails to perfect or otherwise loses his,
her or its right of appraisal, in any case pursuant to the DGCL, each of his,
her or its Common Shares shall be deemed to be converted as of the Effective
Time into the right to receive the Merger Consideration, in the manner
contemplated by this Section 1. AIL or, after the Effective Time, the Surviving
Corporation, shall give EDO prompt notice of any demands for appraisal of Common
Shares received by AIL or the Surviving Corporation, as applicable. AIL or,
after the Effective Time, the Surviving Corporation, shall not, without the
prior written consent of EDO, make any payment with respect to, settle or offer
to settle, any such demands.
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1.9. Adjustments to Prevent Dilution. Subject to Section 4.1, in the event
that EDO changes the number of shares of EDO Common Stock, or securities
convertible or exchangeable into or exercisable for shares of EDO Common Stock
issued and outstanding prior to the Effective Time as a result of a
reclassification, stock split (including a reverse split), stock dividend or
distribution, recapitalization, merger, subdivision, issuer tender or exchange
offer, or other similar transaction, the Merger Consideration shall be equitably
adjusted.
2. Representations and Warranties of AIL. AIL represents and warrants to
EDO and Merger Sub as follows:
2.1 Authorization, etc. (a) AIL. AIL has full corporate power and
authority to execute and deliver this Agreement and the Ancillary Agreements to
which it is or shall be a party, to perform its obligations hereunder and
thereunder and (subject to stockholder approval) to consummate the transactions
contemplated hereby and thereby, and the execution and delivery of this
Agreement and the Ancillary Agreements to which AIL is or shall be a party, the
performance of AIL's obligations hereunder and thereunder, and (subject to
stockholder approval) the consummation of the transactions contemplated hereby
and thereby, have been duly authorized by all requisite corporate action of AIL.
(b) Binding Agreement. AIL has duly executed and delivered this Agreement
and at the Effective Time will have duly executed and delivered the Ancillary
Agreements to which it is or shall be a party. This Agreement constitutes, and
each such Ancillary Agreement when so executed and delivered will constitute,
the legal, valid and binding obligation of AIL enforceable against AIL in
accordance with its respective terms.
2.2 Title to Shares, Capitalization, etc. (a) Title. Schedule 2.2(a) sets
forth a complete and accurate list of all record holders of the issued and
outstanding Common Shares as of the date set forth therein, and all of the
holders of issued and outstanding Options (which list shall identify the strike
price, first date of exercisability and expiration date of each such Option) as
of the date of this Agreement. No Subsidiary of AIL holds beneficially or of
record any shares of capital stock of AIL.
(b) Authorized Capital Stock of AIL. The authorized capital stock of AIL
consists of 8,000,000 Common Shares and 20,000 Preferred Shares of which
5,563,781 Common Shares and 5,873 Preferred Shares are issued and outstanding as
of the date hereof, including the Common Shares and Preferred Shares subject to
the Defense Systems Agreement. As of Closing, there will be 6,083,781 Common
Shares and 5,873 Preferred Shares issued and outstanding, including the Common
Shares and Preferred Shares subject to the Defense Systems Agreement and the
Management Stock Purchase Agreement. The Common Shares and the Preferred Shares
have been duly authorized and validly issued and are fully paid and
nonassessable. As of the date hereof, there are outstanding Options to purchase
279,520 shares of Common Shares, no Common Shares are reserved for issuance upon
the exercise of outstanding Options, and no Common Shares are reserved for
future grants under the AIL Stock Option Plans.
(c) Equity Interests Held by the AIL Group. Schedule 2.2(c) sets forth a
complete and correct description of the shares of stock and other equity
interests in any Person owned by any member of the AIL Group. Except as set
forth on Schedule 2.2(c), AIL has no Subsidiaries, and a member of the AIL Group
owns all of the outstanding shares of stock or other equity interests in each of
AIL's Subsidiaries. All such outstanding shares of stock or other equity
interests are duly authorized, validly issued, fully paid and nonassessable.
(d) No Equity Rights. There are no preemptive or similar rights on the
part of any holders of any class of securities of AIL or any member of the AIL
Group. Except for the Options, this Agreement, the Defense Systems Agreement and
the Management Stock Purchase Agreement, no subscriptions, options, warrants,
conversion or other rights, agreements, commitments, arrangements or
understandings of any kind obligating any member of the AIL Group or any of the
Common Stockholders or any other Person, contingently or otherwise, to issue or
sell, or cause to be issued or sold, any shares of capital stock of any class of
AIL, or any securities convertible into or exchangeable for any such shares, are
outstanding, and no authorization therefor has been given. Except for the
Defense Systems Agreement and the Management Stock Purchase Agreement, there are
no outstanding contractual or other rights or obligations to or of any Common
Stockholder or any other Person to repurchase, redeem or otherwise acquire any
outstanding shares or other equity interests of AIL.
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2.3. No Conflicts, etc. Except as set forth in Schedule 2.3, the
execution, delivery and performance of this Agreement and the Ancillary
Agreements by AIL and the consummation of the transactions contemplated hereby
and thereby, do not and will not conflict with, contravene, result in a
violation or breach of or default under (with or without the giving of notice or
the lapse of time or both), create in any other Person a right or valid claim of
termination, amendment, or require modification, acceleration or cancellation
of, or result in the creation of any Lien (or any obligation to create any Lien)
upon any of the properties or assets of any member of the AIL Group under, (a)
any Law applicable to any member of the AIL Group or any of their respective
properties or assets, (b) any provision of any of the Organizational Documents
of any member of the AIL Group or (c) any Contract, or any other agreement or
instrument to which any member of the AIL Group is a party or by which any of
their respective properties or assets may be bound, except, with respect to
clauses (a) and (c), for such conflicts, violations, breaches, defaults or other
occurrences which, individually or in the aggregate, would not have an AIL
Material Adverse Effect. Notwithstanding anything to the contrary in this
Section 2.3 or otherwise in this Agreement, AIL makes no representation or
warranty regarding the obligation of any party hereto to novate any of the
Governmental Contracts or Governmental Subcontracts to which any member of the
AIL Group is a party as a result of the transaction contemplated hereby or
regarding the consequences of failing to obtain any such novations. The
immediately preceding sentence is subject to Section 2.12(c)(vi).
2.4. Corporate Status. (a) Organization. Except as set forth on Schedule
2.4(a), each member of the AIL Group is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation and has full corporate power and authority to conduct its business
and to own or lease and to operate its properties as and in the places where
such business is conducted and such properties are owned, leased or operated.
(b) Qualification. Each member of the AIL Group is duly qualified or
licensed to do business and is in good standing in each of the jurisdictions
specified in Schedule 2.4(b) (which includes each jurisdiction in which the
nature of its business or the properties owned or leased by it makes such
qualification or licensing necessary), except where the failure to be so duly
qualified, licenced or in good standing would not, individually or in the
aggregate, reasonably be expected to have or result in an AIL Material Adverse
Effect.
(c) Organizational Documents. AIL has delivered or made available to EDO
complete and correct copies of the Organizational Documents of each member of
the AIL Group, as in effect on the date hereof. The Organizational Documents of
each member of the AIL Group are in full force and effect. No member of the AIL
Group is in violation of any of the provisions of its Organizational Documents.
The minute books of each member of the AIL Group, which have heretofore been
made available to EDO, correctly reflect, in all material respects, all meetings
and written consents of the boards of directors, committees and stockholders of
each such member of the AIL Group since October 1, 1997.
2.5. Discontinued and Acquired Businesses. Since October 1, 1997, no
member of the AIL Group has dissolved, discontinued, sold, transferred or
otherwise disposed of any businesses or operations having annual sales in excess
of $1,000,000 or involving assets having a book value in excess of $1,000,000.
Except as set forth on Schedule 2.5, since October 1, 1997, no member of the AIL
Group has acquired any business of any other Person, through the purchase of
assets, merger, consolidation, acquisition of shares or otherwise, with respect
to which any member of the AIL Group is subject to any contractual obligation,
contingent or otherwise, to such Person (including any indemnification
obligation) in an amount that could exceed $500,000 and which would survive at
least until the Closing.
2.6. Company Financial Statements. (a) AIL has delivered or made available
to EDO complete and correct copies of the AIL Financial Statements and the AIL
Proxy Financials. AIL will have delivered to EDO consents from Ernst & Young LLP
("E&Y"), AIL's accountants, permitting the use of E&Y's reports of independent
auditors on AIL's consolidated financial statements for the nine-month period
ended September 30, 1997, the three-month period ended December 31, 1997 and the
years ended December 31, 1996 and 1998 to be included in the Registration
Statement and the Proxy Statement. AIL will obtain a "SAS No. 71" review by E&Y
of the most recent interim consolidated financial statements included in the
Registration Statement and the Proxy Statement.
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(b) The AIL Financial Statements for any and all periods since October 1,
1997 are complete and correct, have been derived from the accounting books and
records of the AIL Group and have been prepared in accordance with U.S. GAAP
applied on a consistent basis throughout the periods presented in such AIL
Financial Statements, subject, in the case of interim unaudited AIL Financial
Statements, only to normal recurring year-end adjustments. The AIL Proxy
Financials for any and all periods prior to October 1, 1997 are complete and
correct, have been derived from the accounting books and records of the AIL
Group and have been prepared in accordance with U.S. GAAP applied on a
consistent basis throughout the periods presented in such AIL Proxy Financials.
(c) The consolidated balance sheets included in the AIL Financial
Statements present fairly the financial position of the AIL Group as at the
respective dates thereof, and the consolidated statements of income, statements
of shareholders' equity, and consolidated statements of cash flows included in
such AIL Financial Statements present fairly the results of operations,
shareholders' equity and cash flows of the AIL Group for the respective periods
indicated.
2.7. Undisclosed Liabilities, etc. No member of the AIL Group has any
liabilities or obligations of any nature, whether known, unknown, absolute,
accrued, contingent or otherwise and whether due or to become due, except (a) as
and to the extent disclosed or reserved against in the AIL Balance Sheet or
specifically disclosed in the notes thereto, (b) liabilities and obligations not
required by U.S. GAAP to be reflected or reserved against in the AIL Balance
Sheet (other than any such liabilities or obligations which were not reflected
or reserved against because they were contingent as of the date of the AIL
Balance Sheet, but which would be reflected or reserved against in a balance
sheet prepared in accordance with U.S. GAAP as of the date hereof), and (c)
liabilities and obligations that (i) are incurred after the date of the AIL
Balance Sheet in the ordinary course of business and are not prohibited by this
Agreement and (ii) individually and in the aggregate, would not be reasonably
expected to have or result in an AIL Material Adverse Effect.
2.8. Absence of Changes. Since the date of the AIL Balance Sheet, except
(i) as set forth in Schedule 2.8 and (ii) as specifically permitted after the
date hereof pursuant to Section 4.1, (x) the Businesses of the AIL Group have
been conducted in the ordinary course consistent with past practice, (y) there
has not occurred or come to exist any AIL Material Adverse Effect or any event,
occurrence, fact, condition, change, development or effect that, individually or
in the aggregate, would be reasonably expected to have or result in an AIL
Material Adverse Effect, and (z) no member of the AIL Group has taken any action
or omitted to take any action, which action or omission, if it occurred after
the date hereof, would violate any of the provisions of Sections 4.1(a)(i)-(xvi)
or 4.1(a)(xviii)-(xx).
2.9. Taxes. (a) Except as set forth on Schedule 2.9(a), (i) all Tax
Returns relating to any member of the AIL Group or the business or assets of any
such member that were required to be filed on or before the Effective Time have
been duly and timely filed and are correct and complete in all respects, (ii)
all Taxes shown as owing on such Tax Returns have been paid and (iii) no member
of the AIL Group is currently the beneficiary of any extension of time within
which to file any Tax Return.
(b) Except as set forth on Schedule 2.9(b), (i) all Taxes that are or have
become payable by any member of the AIL Group or chargeable as a Lien upon its
assets as of the Closing Date for which the filing of a Tax Return is not
required have been duly and timely paid, (ii) each member of the AIL Group has
duly and timely withheld all Taxes required to be withheld in connection with
the business or assets of such member, and such withheld Taxes have been either
duly and timely paid to the proper governmental authorities or properly set
aside in accounts for such purpose and (iii) the AIL Financial Statements
reflect an adequate reserve for all Taxes payable or asserted to be payable by
the AIL Group for all taxable periods or portions thereof through the date of
the AIL Financial Statements.
(c) Except as set forth on Schedule 2.9(c), (i) no Returns with respect to
the AIL Group are currently under audit by any taxing authority, (ii) no taxing
authority is now asserting, or to the Best Knowledge of the AIL Group,
threatening to assert against the AIL Group, any deficiency or claim for Taxes
or any adjustment
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to Taxes, and (iii) to the Best Knowledge of AIL, no circumstances exist to form
the basis for such a claim or audit.
(d) Schedule 2.9(d) lists all Tax Returns that have been filed by the AIL
Group that are open or otherwise subject to audit or examination by the IRS or
any other taxing authority.
(e) No member of the AIL Group has (i) waived any statute of limitations,
(ii) agreed to any extension of the period for assessment or collection or (iii)
executed or filed any power of attorney with respect to Taxes, which waiver,
agreement or power of attorney is currently in force.
(f) Except for the nine-month period ended September 30, 1997, the AIL
Group's taxable year for federal, state and local income and franchise tax
purposes has always been a taxable year ending on December 31.
(g) Except as set forth in Schedule 2.9(g), no member of the AIL Group (i)
is a party to or bound by or has any obligation under any tax allocation,
sharing, indemnity or similar agreement or arrangement or (ii) is or has been a
member of any affiliated, consolidated, combined or unitary group for the
purposes of filing Tax Returns or paying taxes.
(h) Schedule 2.9(h) contains a list of states, cities and jurisdictions
(whether foreign or domestic) in which the AIL Group has filed income,
franchise, employment, property, sales and use Tax Returns for the taxable
periods after September 30, 1997.
2.10. Assets. Each member of the AIL Group owns, or otherwise has full,
exclusive, sufficient and legally enforceable rights to use, all of the AIL
Assets (other than Intellectual Property which is addressed elsewhere in this
Agreement). Except as set forth on Schedule 2.10, each member of the AIL Group
has good, valid and marketable title to, or in the case of leased property has
good and valid leasehold interests in, all AIL Assets (other than Intellectual
Property) that are material to its Business, including but not limited to all
such AIL Assets reflected in the AIL Balance Sheet or acquired since the date
thereof (except as may be disposed of in the ordinary course of business after
the date hereof and in accordance with this Agreement), in each case free and
clear of any Lien, except Permitted Liens. Each member of the AIL Group has
maintained all of its tangible AIL Assets in good repair, working order and
operating condition subject only to ordinary wear and tear, and all such
tangible AIL Assets are fully adequate and suitable for the purposes for which
they are presently being used.
2.11. Real Property. (a) Owned Real Property. Schedule 2.11(a) contains a
complete and correct list of Real Property owned by any member of the AIL Group
setting forth the address and owner of each parcel of such owned Real Property
and describing all improvements thereon. Except as set forth on Schedule
2.11(a), the AIL Group has, or on the Closing Date will have, good, valid and
marketable fee simple title to such owned Real Property, free and clear of Liens
other than Permitted Liens. Except as set forth on Schedule 2.11(a), there are
no outstanding options or rights of first refusal to purchase such owned Real
Property or any portion thereof or interest therein.
(b) AIL Leases. Schedule 2.11(b) contains a complete and correct list of
all AIL Leases setting forth the address, landlord and tenant for each AIL
Lease. AIL has delivered or made available to EDO correct and complete copies of
the AIL Leases. Each AIL Lease is legal, valid, binding, in full force and
effect and enforceable against each member of the AIL Group that is a party
thereto. No member of the AIL Group is in default, violation or breach in any
material respect under any AIL Lease, and, to the Best Knowledge of AIL, no
event has occurred and is continuing that constitutes or, with notice or the
passage of time or both, would constitute a default, violation or breach in any
respect under any AIL Lease. Each AIL Lease grants the tenant under the AIL
Lease the exclusive right to use and occupy the premises and rights demised and
intended to be demised thereunder. Each member of the AIL Group has good and
valid title to the leasehold estate under its respective AIL Leases free and
clear of any Liens other than Permitted Liens. Each member of the AIL Group
enjoys peaceful and undisturbed possession under its respective AIL Leases for
its Real Property.
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(c) Fee and Leasehold Interests, etc. Except as set forth on Schedule
2.11(c), the AIL Group's Real Property constitutes all the fee or leasehold
interests in real property held by the AIL Group, and constitutes all of the fee
or leasehold interests in real property used or held for use in connection with,
necessary for the conduct of, or otherwise material to, the Business of any
member of the AIL Group.
(d) No Proceedings. There are no proceedings in eminent domain or other
similar proceedings pending or, to the Best Knowledge of AIL, threatened,
affecting any portion of the AIL Group's Real Property. There exists no writ,
injunction, decree, order or judgment outstanding, nor any Litigation, pending
or, to the Best Knowledge of AIL, threatened, relating to the ownership, lease,
use, occupancy or operation by any Person of any of the AIL Group's Real
Property.
(e) Current Use. The use and operation of the AIL Group's Real Property in
the conduct of the Business of each member of the AIL Group does not violate in
any material respect any instrument of record or agreement affecting such Real
Property. There is no violation of any covenant, condition, restriction,
easement or agreement or order of any Governmental Authority that materially
affects the AIL Group's Real Property or the ownership, operation, use or
occupancy thereof. No damage or destruction has occurred with respect to any of
such Real Property.
(f) Real Property Taxes. Each parcel included in the AIL Group's Real
Property is assessed for real estate tax purposes as a wholly independent tax
lot, separate from any adjoining land or improvements not constituting a part of
that parcel.
(g) Compliance with Laws. The AIL Group's Real Property is in full
compliance with all Real Property Laws, and no member of the AIL Group has
received any notice of violation or claimed violation of any Real Property Law.
There is no pending or, to the Best Knowledge of AIL, anticipated, change in any
Real Property Law that could reasonably be expected to have or result in a
material adverse effect upon the ownership, alteration, use, occupancy or
operation of the AIL Group's Real Property or any portion thereof. No current
use by any member of the AIL Group of its Real Property is dependent on a
nonconforming use or other Governmental Approval, the absence of which would
materially limit the use of any of the properties or assets in its Business. The
AIL Group's Real Property and its continued use, occupancy and operation as
currently used, occupied and operated do not constitute nonconforming uses under
any Law, and, except for permits, licenses and other forms of authorizations
issued in the ordinary course of business and held pursuant to applicable
Environmental Laws, the continued existence, use, occupancy and operation of
each improvement located on any of such AIL Group's Real Property is not
dependent on any Consent or Governmental Approval that is limited in duration.
To the Best Knowledge of AIL, the permits, licenses and other authorizations
referred to in the prior sentence will be issued or renewed without undue delay.
(h) Real Property Consents. The execution, delivery and performance of
this Agreement and the Ancillary Agreements by AIL and the consummation of the
transactions contemplated hereby and thereby, do not and will not require the
Consent of any Person pursuant to any of the AIL Leases or any instrument of
record or agreement affecting the AIL Group's Real Property. The enforceability
of the AIL Leases will not be affected in any manner by the execution, delivery
or performance of this Agreement, and no AIL Lease contains any change in
control provision or other terms or conditions that will become applicable or
inapplicable as a result of the consummation of the transactions contemplated by
this Agreement and the Ancillary Agreements.
2.12 Contracts. (a) Disclosure. Schedule 2.12(a) contains a complete and
correct list, as of the date hereof, of all Contracts that are material to the
Business of any member of the AIL Group ("AIL Material Contracts"). AIL has
delivered or made available to EDO complete and correct copies of all written
AIL Material Contracts, and accurate descriptions of all material terms of all
oral AIL Material Contracts, set forth or required to be set forth in Schedule
2.12(a).
(b) Enforceability. All Contracts are legal, valid, binding, in full force
and effect and enforceable against each member of the AIL Group that is a party
thereto, except to the extent that any failure to be enforceable, individually
and in the aggregate, would not reasonably be expected to have or result in an
AIL Material Adverse Effect. Except as set forth in Schedule 2.12(b), to the
Best Knowledge of AIL, there does
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not exist under any AIL Material Contract any violation, breach or event of
default, or event or condition that, after notice or lapse of time or both,
would constitute a violation, breach or event of default thereunder, on the part
of AIL, any of its Subsidiaries or any other Person. Except as set forth in
Schedule 2.12(b), the enforceability of all AIL Material Contracts will not be
affected in any manner by the execution, delivery or performance of this
Agreement or the Ancillary Agreements, and no AIL Material Contract contains any
change in control or other terms or conditions that will become applicable or
inapplicable as a result of the consummation of the transactions contemplated by
this Agreement and the Ancillary Agreements.
(c) Government Contracts.
(i) Except as specified on Schedule 2.12(c), to the Best Knowledge of
AIL, since October 1, 1997: (A) each member of the AIL Group has complied
with all material terms and conditions of each Government Contract or
Government Subcontract, (B) each member of the AIL Group has complied in
all material respects with all requirements of all Laws or agreements
pertaining to each Government Contract or Government Subcontract and (C)
all representations and certifications executed, acknowledged or set forth
in or pertaining to each Government Contract or Government Subcontract were
complete and correct in all material respects as of their effective date
and the AIL Group has complied in all material respects with all such
representations and certifications.
(ii) Except as set forth on Schedule 2.12(c), since October 1, 1997:
(A) neither any Governmental Authority nor any prime contractor,
subcontractor or other Person has notified AIL, either in writing or, to
the Best Knowledge of AIL, orally, that any member of the AIL Group has
breached or violated any Law, certification, representation, clause,
provision or requirement pertaining to any Government Contract or
Government Subcontract, (B) no termination for convenience, termination for
default, cure notice or show cause notice is currently in effect pertaining
to any Government Contract or Government Subcontract, (C) no material cost
incurred by any member of the AIL Group pertaining to any Government
Contract or Government Subcontract has been questioned or challenged by
representatives of the Administrative Contracting Officer or the Defense
Contract Audit Agency, is, to the Best Knowledge of AIL, the subject of any
investigation, or has been disallowed by any Governmental Authority, and
(D) no amount of money due to any member of the AIL Group, pertaining to
any Government Contract or Government Subcontract has been withheld or set
off nor has any claim been made to withhold or set off money, and the
members of the AIL Group are entitled to all progress payments received
with respect thereto.
(iii) Except as set forth on Schedule 2.12(c): (A) to the Best
Knowledge of AIL, neither any member of the AIL Group nor any of its
directors, officers, employees, consultants or agents is or during the past
three years has been under administrative, civil or criminal investigation,
indictment or information by any Governmental Authority with respect to any
alleged irregularity, misstatement or omission arising under or relating to
any Government Contract or Government Subcontract, and (B) during the past
three years, no member of the AIL Group has conducted or initiated any
internal investigation or made a voluntary disclosure to any Governmental
Authority with respect to any alleged irregularity, misstatement or
omission arising under or relating to a Government Contract or Government
Subcontract.
(iv) Except as set forth on Schedule 2.12(c), to the Best Knowledge of
AIL, there exist (A) no outstanding claims against any member of the AIL
Group, either by any Governmental Authority or by any prime contractor,
subcontractor, vendor or other Person, arising under or relating to any
Government Contract or Government Subcontract and (B) no material disputes
between any member of the AIL Group and any Governmental Authority under
the Contract Disputes Act or any other federal statute or regulation or
between any member of the AIL Group and any prime contractor, subcontractor
or vendor arising under or relating to any Government Contract or
Government Subcontract. Schedule 2.12(c) lists each Government Contract or
Government Subcontract which is currently under audit by any Governmental
Authority or any other person that is a party to such Government Contract
or Government Subcontract.
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(v) Except as set forth on Schedule 2.12(c), since October 1, 1997, no
member of the AIL Group has been debarred or suspended from participation
in the award of contracts with the DOD or any other Governmental Authority
(excluding for this purpose ineligibility to bid on certain contracts due
to generally applicable bidding requirements). To the Best Knowledge of
AIL, there exist no facts or circumstances that would warrant suspension or
debarment or the finding of nonresponsibility or ineligibility on the part
of any member of the AIL Group. Neither AIL nor any member of the AIL Group
nor any director, officer, agent or employee of any member of the AIL Group
directly or indirectly has (A) used any funds for contributions, gifts,
entertainment or other expenses relating to political or governmental
activity in violation of any Law; (B) made any payment to foreign or
domestic government officials or employees or to foreign or domestic
political parties or campaigns in violation of any Law, or violated any
provision of the Foreign Corrupt Practices Act of 1977, as amended, or the
OECD's Convention on Combating Bribery of Foreign Officials in
International Business Transactions; or (C) made any other payment in
violation of any Law. Except as set forth in Schedule 2.12(c), AIL's cost
accounting and procurement systems and the associated entries reflected in
the AIL Financial Statements with respect to the Government Contracts and
Government Subcontracts are in compliance in all material respects with all
Laws.
(vi) AIL (as opposed to its Subsidiaries) is not a party to any
Governmental Contracts or Governmental Subcontracts.
2.13. Intellectual Property. (a) Disclosure. Schedule 2.13(a) sets forth
a complete and correct list of all filed or registered AIL Owned Intellectual
Property that is material to the Business of the AIL Group.
(b) Title. A member of the AIL Group either owns or has adequate rights,
pursuant to license or otherwise, to use all of the Intellectual Property used
or held for use in connection with, necessary for the conduct of, or otherwise
material to, the Businesses of the AIL Group (the "AIL Intellectual Property").
The AIL Group has, and at the Closing will have, adequate rights to use the AIL
Intellectual Property for the life thereof for any purpose in connection with
their Businesses, free from any Liens (except for Permitted Liens incurred in
the ordinary course of business). Immediately after the Effective Time, the
Surviving Corporation or one of its Subsidiaries shall own or have adequate
rights, pursuant to license or otherwise, to use all the AIL Intellectual
Property, in each case free from Liens (except for Permitted Liens incurred in
the ordinary course of business) and on the same terms and conditions owned,
licensed or used by the AIL Group as in effect prior to the Effective Time.
(c) Licensing and Similar Arrangements. AIL has delivered or made
available to EDO complete and correct copies of all written or oral agreements,
arrangements and applicable Laws (i) pursuant to which any member of the AIL
Group has licensed Intellectual Property to, or the use of Intellectual Property
is otherwise permitted (through non-assertion, settlement or similar agreements
or otherwise) with respect to, any other Person and (ii) pursuant to which any
member of the AIL Group has had Intellectual Property licensed to it, or has
otherwise been permitted to use Intellectual Property (through non-assertion,
settlement or similar agreements or otherwise). All royalties, license fees,
charges and other amounts payable by, on behalf of, to or for the account of any
member of the AIL Group in respect of any Intellectual Property are reflected in
the AIL Financial Statements.
(d) No Infringement. The conduct of the AIL Group's Businesses does not
infringe or otherwise conflict with any rights of any Person in respect of any
Intellectual Property. To the Best Knowledge of AIL, none of the AIL
Intellectual Property is being infringed or otherwise used or available for use
by any Person without a license or permission from a member of the AIL Group,
except as set forth in Schedule 2.13(d).
(e) Due Registration, etc. To the Best Knowledge of AIL, the AIL Owned
Intellectual Property has been duly registered with, filed in or issued by, as
the case may be, the United States Patent and Trademark Office, the United
States Copyright Office or other filing offices, domestic or foreign, to the
extent necessary to ensure full protection under any applicable Law, and such
registrations, filings, issuances and other actions remain in full force and
effect. The AIL Group has taken all necessary actions to ensure full protection
of the AIL Owned Intellectual Property (including maintaining the secrecy of all
confidential Intellectual Property) under any applicable Law.
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(f) Software. The AIL Group has valid licenses to all copies of all
material Software that are utilized in connection with the AIL Group's Business
that are not owned by AIL ("AIL Commercial Software"), and the use by the AIL
Group of such AIL Commercial Software, including all modifications and
enhancements thereto (whether created by a member of the AIL Group or by a third
party) is in material compliance with the terms and provisions of such licenses.
Each member of the AIL Group owns all right, title and interest in and to all
material Software marketed or licensed by it to its customers or held for use or
in development for marketing and licensing to the customers of each member of
the AIL Group (collectively, the "AIL Owned Software"), including all
Intellectual Property rights therein and thereto, except for AIL Commercial
Software identified on Schedule 2.13(f) as Software incorporated into the AIL
Owned Software. None of the AIL Commercial Software or AIL Owned Software, and
no use thereof by the AIL Group or permitted use by its licensees, infringes
upon or violates any patent, copyright, trade secret or other Intellectual
Property right of any person or entity, and no claim or demand with respect to
any such infringement or violation has been made or threatened.
(g) Calendar Function. Except as set forth on Schedule 2.13(g), to the
Best Knowledge of AIL, all Software, hardware and equipment owned by the AIL
Group and all Software, hardware and equipment used in the AIL Group's Business
that contains or calls on a calendar function, including any function that is
indexed to a computer processing unit clock, provides specific days, dates or
times, or calculates spans of dates or times, is and will be able to record,
store, process, calculate, compare, sequence and provide true and accurate day,
date and time data from, into and between the twentieth and twenty-first
centuries, including but not limited to with respect to the years 1999, 2000 and
2001 and leap year calculations, except for failures to do any of the foregoing
which, individually or in the aggregate, would not reasonably be expected to
have or result in an AIL Material Adverse Effect.
2.14. Insurance. Schedule 2.14 contains a complete and correct list and
summary description of all insurance policies maintained (at present or since
October 1, 1997) by or on behalf of the AIL Group. AIL has delivered or made
available to EDO complete and correct copies of all such policies together with
all riders and amendments thereto. Such policies are in full force and effect,
and all premiums due thereon have been paid. Each member of the AIL Group has
complied in all material respects with the terms and provisions of such
policies. The insurance coverage provided by such policies is adequate and
suitable for the AIL Group's Businesses, and is on such terms (including without
limitation as to deductibles and self-insured retentions), covers such risks,
contains such deductibles and retentions, and is in such amounts, as the
insurance customarily carried by comparable companies of established reputation
similarly situated and carrying on the same or similar business.
2.15. Litigation. Except as set forth on Schedule 2.15, there is and has
been since October 1, 1997, no Litigation that, individually or in the
aggregate, is material and is pending or, to the Best Knowledge of AIL,
threatened, against any member of the AIL Group or any of its properties or
assets. There are no outstanding orders, judgments, decrees or injunctions
issued by any Governmental Authority against any member of the AIL Group, or
that in any way affect the AIL Group's Businesses and would reasonably be
expected to have or result in an AIL Material Adverse Effect.
2.16. Compliance with Laws and Instruments; Consents. (a)
Compliance. Except as set forth on Schedule 2.16(a), (i) no member of the AIL
Group is, or, since October 1, 1997, has been, in conflict with or in violation
or breach of or default under (and there exists no event that, with notice or
passage of time or both, would constitute a conflict, violation, breach or
default with, of or under) (x) any Law applicable to it or any of its
properties, assets, operations or business (except Laws compliance with which is
specifically addressed elsewhere in this Agreement), (y) any provision of its
Organizational Documents, or (z) any Contract, or any other agreement or
instrument to which it is party or by which it or any of its properties or
assets is bound or affected, except in the case of the foregoing clauses (x) and
(z) for any such conflicts, breaches, violations and defaults that, individually
or in the aggregate, would not reasonably be expected to have or result in an
AIL Material Adverse Effect, and (ii) no member of the AIL Group has received
any written notice or, to the Best Knowledge of AIL, oral notice alleging any
such conflict, violation, breach or default which has not been cured or waived.
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(b) Consents. No Governmental Approval or other Consent is required to be
obtained or made by any member of the AIL Group in connection with the execution
and delivery of this Agreement and the Ancillary Agreements or the consummation
of the transactions contemplated hereby or thereby, except (x) as specified on
Schedule 2.16(b)(i), (y) for applicable requirements, if any, of the Exchange
Act, state securities or "blue sky" laws, notification requirements under the
HSR Act and filings required under Delaware and New York Law, and (z) where
failure to obtain such Consents or make such filings or notifications would not
reasonably be expected, individually or in the aggregate, to have or result in
an AIL Material Adverse Effect.
(ii) All Governmental Approvals and other Consents necessary for, or
otherwise material to, the conduct of the AIL Group's Business, have been duly
obtained and are held by a member of the AIL Group and are in full force and
effect. Each member of the AIL Group is, and at all times since October 1, 1997,
has been, in compliance with all Governmental Approvals and other Consents held
by them. Except as specified in Schedule 2.16(b)(i), the execution, delivery and
performance of this Agreement and the Ancillary Agreements and the consummation
of the transactions contemplated hereby and thereby do not and will not violate
any such Governmental Approval or Consent, or result in any revocation,
cancellation, suspension, modification or nonrenewal thereof.
2.17 Environmental Matters. (a) Compliance with Environmental Law. Each
member of the AIL Group has complied and is in compliance in all but de minimis
respects with all applicable Environmental Laws pertaining to their respective
assets and the use, ownership or transferability thereof, the manufacturing and
commercial distribution of its products and to the operation of its Business. To
the Best Knowledge of AIL, no member of the AIL Group is alleged to be in
violation of any applicable Environmental Law relating to the operation of its
Business or the use or ownership of its assets.
(b) Other Environmental Matters. No member of the AIL Group has caused or
taken any action that would result in, and no member of the AIL Group is subject
to, any liability or obligation relating to (x) the environmental conditions on,
under, or about the AIL Group's Real Property or other properties or assets
owned, leased or used by any member of the AIL Group at the present time or in
the past, including the soil and groundwater conditions at such properties, or
(y) the past or present use, management, handling, transport, treatment,
generation, storage or Release of any Hazardous Materials, other than such
liabilities and obligations that, individually or in the aggregate, do not
exceed $250,000.
(ii) The present value of the aggregate amount of the liabilities and
obligations listed on Schedule 2.17(b), net of reserves therefor, does not
exceed $150,000.
(c) Without limiting the generality of the foregoing:
(i) Except as disclosed in Schedule 2.17(c), none of the AIL Group's
current or past operations and none of the currently or formerly owned or
occupied property or assets of any member of the AIL Group is related to
or, to the Best Knowledge of AIL, subject to any investigation or
evaluation by any Governmental Authority, as to whether any Remedial Action
is needed to respond to a Release or threatened Release of any Hazardous
Materials.
(ii) Except as disclosed in Schedule 2.17(c), no member of the AIL
Group is subject to any outstanding order from, or contractual or other
obligation with, any Governmental Authority or other person in respect of
which such member of the AIL Group may be required to incur any
Environmental Liabilities and Costs arising from the Release or threatened
Release of a Hazardous Material and no member of the AIL Group has entered
into any contractual or other obligation with any governmental body or
other person pursuant to which such member assumed responsibility for,
either directly or indirectly, the remediation of any condition arising
from or relating to the Release or threatened Release of Hazardous
Materials.
(iii) Except as disclosed in Schedule 2.17(c), none of the AIL Group's
Real Property, to the Best Knowledge of AIL, no properties adjacent to the
AIL Group's Real Property, and no properties previously owned or leased by
any member of the AIL Group or any of their predecessors or affiliates is,
and, since January 1, 1995, no member of the AIL Group has transported or
arranged for transportation (directly or indirectly) of any Hazardous
Materials to any location that is, listed or formally proposed for
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listing under the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, 42 U.S.C. sec.sec. 9601, et seq., or on
any similar state list, or, to the Best Knowledge of AIL, the subject of
federal, state or local enforcement actions or investigations or Remedial
Action.
(iv) Except as disclosed in Schedule 2.17(c), there are no
Environmental Laws applicable to any member of the AIL Group, the AIL
Group's Real Property, the AIL Group's assets or the AIL Group's Business
that would require any member of the AIL Group, Merger Sub, EDO, the
Surviving Corporation, or any other party to provide notice to, to take
actions to satisfy, or to obtain the approval of, any governmental entity
as a condition to the consummation of the transactions contemplated by this
Agreement.
(d) AIL has disclosed and made available to EDO all material information,
including all studies, analyses and test results, in its possession, custody or
control relating to (i) the environmental conditions on, under or about the AIL
Group's Real Property or any other real property previously owned, leased,
operated or otherwise used by any member of the AIL Group, and (ii) Hazardous
Materials used, managed, handled, transported, treated, generated, stored or
Released by any member of the AIL Group at any time or by any member of the AIL
Group or any other person on any of the AIL Group's Real Property or any other
real property previously owned, leased, operated or otherwise used by any member
of the AIL Group, or otherwise in connection with the use or operation of the
AIL Group's assets or Businesses.
2.18 Affiliate Transactions. (a) Schedule 2.18(a) contains a complete and
correct list of all agreements, contracts, arrangements, understandings,
transfers of assets or liabilities or other commitments or transactions, whether
or not entered into in the ordinary course of business, to or by which AIL, on
the one hand, and any of its Affiliates (other than its wholly-owned
Subsidiaries), on the other hand, are or have been a party or otherwise bound or
affected, and that (i) were entered into since October 1, 1997, (ii) are
currently pending or in effect and (iii) involve continuing liabilities and
obligations. Except as disclosed in Schedule 2.18(a), each agreement, contract,
arrangement, understanding, transfer of assets or liabilities or other
commitment or transaction set forth or required to be set forth in Schedule
2.18(a) was on terms and conditions as favorable to AIL as would have been
obtainable by it at the time in a comparable arm's-length transaction with a
Person other than an Affiliate.
(b) Except as set forth in Schedule 2.18(b), no stockholder, officer,
director or employee of any member of the AIL Group, or any family member,
relative or Affiliate of any such stockholder, officer, director or employee,
(i) owns, directly or indirectly, and whether on an individual, joint or other
basis, any interest (other than in such Person's capacity as a stockholder) in
(x) any property or asset, real or personal, tangible or intangible, used in or
held for use in connection with or pertaining to the Business of any member of
the AIL Group, or (y) to the Best Knowledge of AIL, any Person that is a
supplier, customer or competitor of any member of the AIL Group, (ii) to the
Best Knowledge of AIL, serves as an officer, director or employee of any Person
that is a supplier, customer or competitor (other than EDO) of any member of the
AIL Group or (iii) has received any loans from or is otherwise a debtor of, or
made any loans to or is otherwise a creditor of, any member of the AIL Group.
2.19. Employees, Labor Matters, etc. Except as set forth on Schedule 2.19,
no member of the AIL Group is a party to or bound by any collective bargaining
agreement, and there are no labor unions or other organizations representing,
purporting to represent or attempting to represent any employees employed by any
member of the AIL Group. Since October 1, 1997, there has not occurred or, to
the Best Knowledge of AIL, been threatened any strike, slowdown, picketing, work
stoppage, concerted refusal to work overtime or other similar labor activity
with respect to any employees of any member of the AIL Group. Except as set
forth on Schedule 2.19, there are no labor disputes currently subject to any
grievance procedure, arbitration or litigation and there is no representation
petition pending or, to the Best Knowledge of AIL, threatened with respect to
any employee of any member of the AIL Group.
2.20. Employee Benefit Plans and Related Matters; ERISA. (a) Employee
Benefit Plans. Schedule 2.20(a) sets forth a complete and correct list of each
"employee benefit plan", as such term is defined in section 3(3) of ERISA, and
each bonus, incentive or deferred compensation, severance, termination,
retention, change of control, stock option, stock appreciation, stock purchase,
phantom stock or
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other equity-based, performance or other employee or retiree benefit or
compensation plan, program, arrangement, agreement, policy or understanding,
whether written or unwritten, that provides or may provide benefits or
compensation in respect of any employee or former employee of any member of the
AIL Group or the beneficiaries or dependents of any such employee or former
employee (collectively, the "AIL Employees") or under which any AIL Employee is
or may become eligible to participate or derive a benefit and that is or has
been maintained or established by any member of the AIL Group or any other trade
or business, whether or not incorporated, which, together with AIL or any of its
Subsidiaries, is or would have been at any date of determination occurring (x)
since October 1, 1997 or (y) to the Best Knowledge of AIL, within the six years
preceding the date hereof, treated as a single employer under Section 414 of the
Code (such other trades and businesses hereinafter referred to as the "AIL
Related Persons"), or to which any member of the AIL Group or any AIL Related
Person contributes or (x) since October 1, 1997 or (y) to the Best Knowledge of
AIL, within the six years preceding the date hereof, is or has been obligated or
required to contribute (collectively, the "AIL Plans"). With respect to each
such AIL Plan, the AIL Parties have provided or made available to Merger Sub
complete and correct copies of: (i) such AIL Plan, if written, or a description
of such AIL Plan if not written, and (ii) to the extent applicable to such AIL
Plan, all trust agreements, insurance contracts or other funding arrangements,
the two most recent actuarial and trust reports, the two most recent Forms 5500
required to have been filed with the IRS and all schedules thereto, the most
recent IRS determination letter, all current summary plan descriptions, all
material communications received from or sent to the IRS, the Pension Benefit
Guaranty Corporation or the Department of Labor (including a written description
of any oral communication), any actuarial study of any post-employment life or
medical benefits provided under any such AIL Plan, if any, statements or other
communications regarding withdrawal or other multiemployer plan liabilities, if
any, and all amendments and modifications to any such document. Except as set
forth on Schedule 2.20(a), no member of the AIL Group and no officer of AIL has
communicated to any AIL Employee any intention or commitment to modify any AIL
Plan or to establish or implement any other employee or retiree benefit or
compensation plan or arrangement.
(b) Qualification. Each AIL Plan intended to be qualified under section
401(a) of the Code, and the trust (if any) forming a part thereof, has received
a favorable determination letter from the IRS as to its qualification under the
Code and to the effect that each such trust is exempt from taxation under
Section 501(a) of the Code, and nothing has occurred since the date of such
determination letter that could adversely affect such qualification or
tax-exempt status.
(c) Compliance; Liability.
(i) None of AIL, its Subsidiaries or any AIL Related Person has been
involved in any transaction that could cause the AIL Group or any AIL
Related Person or the Surviving Corporation to be subject to liability
under Section 4069 or 4212 of ERISA. None of AIL, its Subsidiaries, the
Surviving Corporation or any AIL Related Person has incurred (either
directly or indirectly, including as a result of an indemnification
obligation) any material liability under or pursuant to Title I or IV of
ERISA or the penalty, excise Tax or joint and several liability provisions
of the Code relating to employee benefit plans and no event, transaction or
condition has occurred or exists that could result in any such liability to
any member of the AIL Group, any such AIL Related Person or the Surviving
Corporation or any of its Affiliates. Except as set forth on Schedule
2.20(c), all contributions and premiums required to have been paid by the
AIL Group and each AIL Related Person to any employee benefit plan (within
the meaning of Section 3(3) of ERISA) (including each plan) under the terms
of any such plan or its related trust, insurance contract or other funding
arrangement, or pursuant to any applicable Law or collective bargaining
agreement (including ERISA and the Code) have been paid within the time
prescribed by any such plan, agreement or applicable Law.
(ii) Except as set forth in Schedule 2.20(c), each of the AIL Plans
has been operated and administered in all respects in compliance with its
terms, all applicable Laws and all applicable collective bargaining
agreements. There are no material pending or threatened claims by or on
behalf of any of the AIL Plans, by any AIL Employee or otherwise involving
any such AIL Plan or the assets of any AIL Plan (other than routine claims
for benefits, all of which have been fully reserved for on the regularly
prepared balance sheets of AIL).
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(iii) No AIL Plan is a "multiple employer plan" within the meaning of
section 4001(a)(3), 4063 or 4064 of ERISA.
(iv) Except to the extent set forth in Schedule 2.20(a) hereto, no AIL
Employee is or will become entitled to post-employment benefits of any kind
by reason of employment with AIL, including death or medical benefits
(whether or not insured), other than (x) coverage mandated by section 4980B
of the Code, (y) benefits payable under any AIL Plan qualified under
section 401(a) of the Code or (z) deferred compensation accrued as a
liability as of the Closing Date. Except as set forth in Schedule 2.20(a),
the consummation of the transactions contemplated by this Agreement and the
Ancillary Agreements will not result in an increase in the amount of
compensation or benefits or the acceleration of the vesting or timing of
payment of any compensation or benefits payable to or in respect of any AIL
Employee. AIL has disclosed or made available information regarding any and
all liabilities and obligations of any member of the AIL Group to or in
respect of the AIL Employees or the AIL Plans for (A) unpaid compensation,
salaries, wages, vacation and sick pay, disability payments and other
payroll items (including, without limitation, bonus, incentive and deferred
compensation), (B) unpaid contributions, insurance premiums, Pension
Benefit Guaranty Corporation premiums, costs and expenses to or in respect
of any AIL Plan and (C) severance or other termination benefits relating
to, resulting from or arising in respect of any claim of actual or
constructive termination of employment occurring on or prior to the
Effective Time or otherwise in connection with the consummation of the
transactions contemplated by this Agreement and the Ancillary Agreements.
(v) The AIL ESOP qualifies as an "employee stock ownership plan"
within the meaning of sec.4975(e)(7) of the Code, and no non-exempt
prohibited transaction has occurred with respect thereto.
2.21. Accounts Receivable. (a) AIL has delivered or caused to be delivered
to Merger Sub a complete and accurate aging of all billed accounts receivable of
the AIL Group as of September 26, 1999. Except as set forth in Schedule 2.21(a),
no billed account receivable of the AIL Group reflected on the AIL Balance Sheet
and no billed account receivable arising after the date of the AIL Balance Sheet
and reflected on the books of any member of the AIL Group is uncollectible or
subject to counterclaim or offset, except to the extent of the aggregate
reserves thereon for doubtful accounts for billed receivables and except to the
extent that any billed account receivable is or becomes uncollectible due to
insolvency, of which the AIL Group is not presently aware, of the account debtor
thereunder. All billed accounts receivable reflected on the AIL Balance Sheet or
on such books have been generated in the ordinary course of business and reflect
a bona fide obligation for the payment of goods or services provided by a member
of the AIL Group. All allowances, rebates and cash discounts to customers of the
AIL Group are as shown on its books and records and in no event exceed one
percent of billed receivables to which they relate.
(b) To the Best Knowledge of AIL, the unbilled account receivable balances
of the AIL Group reflected on the AIL Balance Sheet and the unbilled account
receivable balances arising after the date of the AIL Balance Sheet and
reflected on the books of any member of the AIL Group will convert into billed
accounts receivable, except (i) to the extent of the aggregate reserves
associated with unbilled receivables, or (ii) to the extent that any unbilled
account receivable is or becomes uncollectible due to insolvency, of which the
AIL Group is not presently aware, of the account debtor thereunder and would not
reasonably be expected to have or result in an AIL Material Adverse Effect. All
unbilled accounts receivable reflected on the AIL Balance Sheet or on such books
have been generated in the ordinary course of business and will reflect a bona
fide obligation for the payment of goods or services provided by a member of the
AIL Group, except for failures to result in bona fide obligations that,
individually or in the aggregate, would not reasonably be expected to have or
result in an AIL Material Adverse Effect.
2.22. Inventories . All inventories reflected on AIL's most recently
prepared quarterly balance sheet of raw materials, supplies, work in progress
and finished goods of the AIL Group are of good, usable and merchantable
quality. Except as set forth in Schedule 2.22, (a) all such inventories are of
such quality as to meet the quality control standards of the AIL Group and any
applicable governmental quality control standards, (b) all such finished goods
are saleable as current inventories at the current prices of the AIL Group in
the ordinary course of business in the aggregate net of reserves for
inventories, and (c) no write-down in inventory has been made or should have
been made pursuant to U.S. GAAP during the past two years.
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2.23. Customers. No member of the AIL Group has received any notice that
any existing customer of the AIL Group (i) has ceased, or will cease, to use the
products, goods or services of any member of the AIL Group, (ii) has reduced or
will reduce, the use of products, goods or services of any member of the AIL
Group or (iii) has sought, or is seeking, to reduce the price it will pay for
products, goods or services of any member of the AIL Group, except for any such
cessations or reductions that, individually or in the aggregate, would not
reasonably be expected to have or result in an AIL Material Adverse Effect.
2.24. Suppliers; Raw Materials. Schedule 2.24 sets forth for each of the
years ended December 31, 1998, 1997 and 1996 and for the nine-month period ended
September 26, 1999 (a) the names of the ten largest suppliers to the AIL Group
based on the aggregate value of raw materials, supplies, merchandise and other
goods and services ordered by the AIL Group from such suppliers during each such
period and (b) the amount for which each such supplier invoiced the AIL Group.
No member of the AIL Group has received any notice or has any reason to believe
that there has been any material adverse change in the price of such raw
materials, supplies, merchandise or other goods or services, or that any such
supplier will not sell raw materials, supplies, merchandise and other goods to
the AIL Group at any time after the Closing Date on terms and conditions
substantially the same as those used in its current sales to the AIL Group,
subject to general and customary price increases.
2.25. Products; Product and Service Warranties. (a) Schedule 2.25(a)
contains a complete and correct list of the ten products currently manufactured,
produced, assembled, sold or marketed by the AIL Group that generated the
highest revenues during the nine-month period ended September 26, 1999 (the
"Products"). Schedule 2.25(a) also sets forth the amount of revenues during such
period for each such Product.
(b) Except as required by Law or as set forth on Schedule 2.25(b), no
product manufactured, sold, leased or delivered by, or service rendered by or on
behalf of, any member of the AIL Group is subject to any guaranty, warranty or
other indemnity, express or implied, beyond its standard terms and conditions.
(c) Product Liability. No member of the AIL Group has any liability or
obligation of any nature (whether known or unknown, accrued, absolute,
contingent or otherwise, and whether due or to become due), whether based on
strict liability, negligence, breach of warranty (express or implied), breach of
contract or otherwise, in respect of any Product manufactured, sold, designed or
produced prior to the Effective Time by, or service rendered prior to the
Effective Time by or on behalf of, any member of the AIL Group or any
predecessor thereto, that (i) is not fully and adequately covered by policies of
insurance or by indemnity, contribution, cost sharing or similar agreements or
arrangements by or with other Persons and (ii) is not otherwise fully and
adequately reserved against in the AIL Balance Sheet.
2.26. Brokers, Finders, etc. No actions taken or agreements entered into
by any member of the AIL Group in connection with the transactions contemplated
by this Agreement and the Ancillary Agreements or otherwise will give rise to
any valid claim against any member of the AIL Group, the EDO Group or the
Surviving Corporation or any of their Affiliates for any brokerage or finder's
commission, fee or similar compensation, other than (i) the fee of $825,000
payable to Houlihan Lokey Howard and Zukin ("Houlihan"), (ii) the fee of
$100,000 payable to Valumetrics, or (iii) for any bonus payable to any officer,
director, employee, agent or representative of or consultant to any member of
the AIL Group upon consummation of the transactions contemplated hereby or
thereby.
2.27. Disclosure. (a) Proxy Statement; Registration Statement. None of the
information with respect to AIL, the Common Stockholders or any member of the
AIL Group to be included in the Proxy Statement or the Registration Statement
will, in the case of the Proxy Statement or any amendments thereof or
supplements thereto, at the time of the mailing of the Proxy Statement or any
amendments or supplements thereto, and at the time of the EDO Meeting, or, in
the case of the Registration Statement, at the time it becomes effective,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading, except that no representation is made by AIL with respect to
information supplied by any party other than the AIL Group specifically for
inclusion in the Proxy Statement.
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(b) General. The senior officers of AIL do not believe there is any fact
(other than matters of a general economic or political nature that do not affect
the Business of any member of the AIL Group uniquely) that would reasonably be
expected to have or result in an AIL Material Adverse Effect, except as
described in the Schedules hereto.
2.28. Opinion of Financial Advisor. The Board of Directors of AIL has
received the opinion of Houlihan, dated the date of this Agreement, to the
effect that, as of such date, the Exchange Ratio is fair to AIL's stockholders
from a financial point of view. A copy of the written opinion of Houlihan will
be delivered to EDO as soon as practicable after the date of this Agreement.
2.29. Required Vote of AIL's Stockholders. The affirmative vote of the
holders of a majority of the outstanding Common Shares is required to approve
the Merger and approve and adopt this Agreement. No other vote of the holders of
the capital stock of AIL is required by Law, the Organizational Documents of AIL
or otherwise in order for AIL to consummate the Merger and the transactions
contemplated hereby and under the Ancillary Agreements.
2.30. EDO Share Ownership. Except as set forth on Schedule 2.30, no member
of the AIL Group owns any shares of EDO Common Stock or other securities
convertible into EDO Common Stock.
2.31. Board Recommendation. The Board of Directors of AIL, at a meeting
duly called and held, (a) determined that this Agreement, the Ancillary
Agreements and the transactions contemplated hereby and thereby are fair and in
the best interests of AIL and its stockholders, and (b) resolved to recommend
that the Common Stockholders and the holder of Preferred Shares approve this
Agreement and the transactions contemplated hereby.
2.32. Amendment to AIL ESOP. AIL has adopted, subject to the AIL ESOP
Trustee's approval, an amendment to the AIL ESOP in the form of Exhibit C
hereto, effective on the date hereof, so that the AIL ESOP, as so amended,
provides that decisions made with respect to unallocated shares as to (a)
selling such shares in response to offers to buy and (b) voting on all matters
are made in the same proportions as such decisions are made with respect to
allocated shares, and such decisions with respect to allocated shares are kept
confidential by the Trustee.
3. Representations and Warranties of EDO and Merger Sub. EDO and Merger
Sub, jointly and severally, represent and warrant to AIL and the Exchanging
Common Stockholders as follows:
3.1 Authorization, etc. (a) Each of EDO and Merger Sub has full corporate
power and authority to execute and deliver this Agreement and the Ancillary
Agreements to which it is or shall be a party, to perform its obligations
hereunder and thereunder and (subject to stockholder approval) to consummate the
transactions contemplated hereby and thereby, and the execution and delivery of
this Agreement and the Ancillary Agreements to which EDO or Merger Sub is or
shall be a party (subject to stockholder approval), the performance of EDO's and
Merger Sub's obligations hereunder and thereunder, and the consummation of the
transactions contemplated hereby and thereby, have been duly authorized by all
requisite corporate action of each of EDO and Merger Sub.
(b) EDO and Merger Sub have each duly executed and delivered this Agreement
and at the Effective Time will have duly executed and delivered the Ancillary
Agreements to which each is or shall be a party. This Agreement constitutes, and
each such Ancillary Agreement when so executed and delivered will constitute,
the legal, valid and binding obligation of each of EDO and Merger Sub,
enforceable against such EDO or Merger Sub in accordance with its respective
terms.
3.2. Capitalization. (a) Authorized Capital Stock of EDO and Merger
Sub. (i) The authorized capital stock of EDO consists of 25,000,000 shares of
EDO Common Stock and 500,000 shares of EDO Preferred Stock, of which 8,453,902
shares of EDO Common Stock (of which 1,698,892 are held in Treasury) and 57,384
shares of EDO Preferred Stock are issued and outstanding as of the date hereof.
As of the date hereof, there are outstanding EDO Options to purchase 630,975
shares of EDO Common Stock, and 3,321,908 shares of EDO Common Stock are
reserved for issuance upon the exercise of outstanding EDO Options (908,450
shares), conversion of EDO's 7% Convertible Subordinated Debentures due 2011
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(1,332,458 shares) and conversion of shares of EDO Preferred Stock (1,081,000
shares). The EDO ESOP is the only record holder of EDO Preferred Stock. The
shares of EDO Common Stock to be issued in the Share Issuance will, when issued,
be validly issued, fully paid and non-assessable.
(ii) The authorized capital stock of Merger Sub consists of 100 shares of
common stock, par value $0.01 per share, of Merger Sub, of which 100 shares are
issued and outstanding as of the date hereof, and EDO is the record holder of
all such shares. As of the date hereof, there are no options or warrants
outstanding to purchase shares of common stock of Merger Sub.
(b) Equity Interests Held by the EDO Group. Schedule 3.2(b) sets forth a
complete and correct description of the shares of stock and other equity
interests in any Person owned by any member of the EDO Group. Except for Merger
Sub and as set forth on Schedule 3.2(b), EDO has no Subsidiaries, and a member
of the EDO Group owns all of the outstanding shares of stock or other equity
interests in each of EDO's Subsidiaries. All such outstanding shares of stock or
other equity interests are duly authorized, validly issued, fully paid and
nonassessable.
(c) No Equity Rights. There are no preemptive or similar rights on the
part of any holders of any class of securities of EDO or any member of the EDO
Group. Except for the EDO Options, EDO Preferred Stock, the EDO Convertible
Debentures and this Agreement, no subscriptions, options, warrants, conversion
or other rights, agreements, commitments, arrangements or understandings of any
kind obligating any member of the EDO Group or any other Person, contingently or
otherwise, to issue or sell, or cause to be issued or sold, any shares of
capital stock of any class of EDO, or any securities convertible into or
exchangeable for any such shares, are outstanding, and no authorization therefor
has been given. There are no outstanding contractual or other rights or
obligations to or of any Person to repurchase, redeem or otherwise acquire any
outstanding shares or other equity interests of EDO from EDO.
3.3. No Conflicts, etc. The execution, delivery and performance of this
Agreement and the Ancillary Agreements by each of EDO and Merger Sub and the
consummation of the transactions contemplated hereby and thereby, do not and
will not conflict with, contravene, result in a violation or breach of or
default under (with or without the giving of notice or the lapse of time or
both), create in any other Person a right or valid claim of termination,
amendment, or require modification, acceleration or cancellation of, or result
in the creation of any Lien (or any obligation to create any Lien) upon any of
the properties or assets of any member of the EDO Group under, (a) any Law
applicable to any member of the EDO Group or any of their respective properties
or assets, (b) any provision of any of the Organizational Documents of any
member of the EDO Group or (c) any EDO Contract, or any other agreement or
instrument to which any member of the EDO Group is a party or by which any of
their respective properties or assets may be bound, except, with respect to
clauses (a) and (c), for such conflicts, breaches, defaults or other occurrences
which, individually or in the aggregate, would not have an EDO Material Adverse
Effect.
3.4. Corporate Status. (a) Organization. Each member of the EDO Group is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation and has full corporate power and
authority to conduct its business and to own or lease and to operate its
properties as and in the places where such business is conducted and such
properties are owned, leased or operated. Merger Sub was incorporated in
Delaware on December 9, 1999 and has conducted no business since the date of its
incorporation and has no outstanding assets or liabilities, except in each case
as expressly contemplated by this Agreement.
(b) Qualification. Each member of the EDO Group is duly qualified or
licensed to do business and is in good standing in each of the jurisdictions
specified in Schedule 3.4(b) (which includes each jurisdiction in which the
nature of its business or the properties owned or leased by it makes such
qualification or licensing necessary), except where the failure to be so duly
qualified, licenced or in good standing, would not, individually or in the
aggregate, reasonably be expected to have or result in an EDO Material Adverse
Effect.
(c) Organizational Documents. EDO has delivered or made available to AIL
complete and correct copies of the Organizational Documents of each member of
the EDO Group, as in effect on the date hereof. The Organizational Documents of
each member of the EDO Group are in full force and effect. No member of
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the EDO Group is in violation of any of the provisions of its Organizational
Documents. The minute books of each member of the EDO Group, which have
heretofore been made available to AIL, correctly reflect, in all material
respects, all meetings and written consents of the boards of directors,
committees and stockholders of each such member of the EDO Group since January
1, 1993.
3.5. Discontinued and Acquired Businesses. Except as set forth on Schedule
3.5, since October 1, 1997, no member of the EDO Group has dissolved,
discontinued, sold, transferred or otherwise disposed of any businesses or
operations having annual sales in excess of $1,000,000 or involving assets
having a book value in excess of $1,000,000. Except as set forth on Schedule
3.5, since October 1, 1997, no member of the EDO Group has acquired any business
of any other Person, through the purchase of assets, merger, consolidation,
acquisition of shares or otherwise, with respect to which any member of the EDO
Group is subject to any contractual obligation, contingent or otherwise, to such
Person (including any indemnification obligation) in an amount that could exceed
$500,000 and which would survive at least until the Closing.
3.6. SEC Reports; EDO Financial Statements. (a) EDO has made available to
AIL each registration statement, report, proxy statement or information
statement prepared by it for filing with the SEC since January 1, 1994, each in
the form (including exhibits and any amendments thereto) filed with the SEC
(collectively, the "EDO Reports"). As of their respective dates, the EDO Reports
(a) complied as to form in all material respects with the applicable
requirements of the Securities Act of 1933, as amended, and the rules and
regulations thereunder (the "Securities Act") or the Exchange Act, as the case
may be, and (b) did not contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements made therein, in the light of the circumstances under which they were
made, not misleading.
(b) EDO has delivered or made available to AIL complete and correct copies
of the EDO Proxy Financials and the EDO Financial Statements. The EDO Proxy
Financials are complete and correct, have been derived from the accounting books
and records of the EDO Group and have been prepared in accordance with U.S. GAAP
applied on a consistent basis throughout the periods presented in the EDO Proxy
Financials subject, in the case of interim unaudited EDO Proxy Financials, only
to normal recurring year-end adjustments.
(c) The consolidated balance sheets included in the EDO Financial
Statements present fairly the financial position of the EDO Group as at the
respective dates thereof, and the consolidated statements of earnings,
consolidated statements of shareholders' equity, and consolidated statements of
cash flows included in such EDO Financial Statements present fairly the results
of operations, shareholders' equity and cash flows of the EDO Group for the
respective periods indicated.
3.7. Undisclosed Liabilities, etc. No member of the EDO Group has any
liabilities or obligations of any nature, whether known, unknown, absolute,
accrued, contingent or otherwise and whether due or to become due, except (a) as
set forth in Schedule 3.7, (b) as and to the extent disclosed or reserved
against in the EDO Balance Sheet or specifically disclosed in the notes thereto,
(c) liabilities and obligations not required by U.S. GAAP to be reflected or
reserved against in the EDO Balance Sheet (other than any such liabilities and
obligations which were not reflected or reserved against because they were
contingent as of the date of the EDO Balance Sheet, but which would be reflected
or reserved against in a balance sheet prepared in accordance with U.S. GAAP as
of the date hereof), and (d) liabilities and obligations that (i) are incurred
after the date of the EDO Balance Sheet in the ordinary course of business and
are not prohibited by this Agreement and (ii) individually and in the aggregate,
would not be reasonably expected to have or result in an EDO Material Adverse
Effect.
3.8. Absence of Changes. Since the date of the EDO Balance Sheet, except
(i) as set forth in Schedule 3.8 and (ii) as specifically permitted after the
date hereof pursuant to Section 4.1, (x) the Business of the EDO Group have been
conducted in the ordinary course consistent with past practice, (y) there has
not occurred or come to exist any EDO Material Adverse Effect or any event,
occurrence, fact, condition, change, development or effect that, individually or
in the aggregate, would be reasonably expected to have or result in an EDO
Material Adverse Effect, and (z) no member of the EDO Group has taken any action
or omitted to
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take any action which action or omission, if it occurred after the date hereof,
would violate any of the provisions of Sections 4.1(b)(i)-(xvi) and
(xviii)-(xxi).
3.9. Taxes. (a)(i) All Tax Returns relating to any member of the EDO Group
or the business or assets of any such member that were required to be filed on
or before the Effective Time have been duly and timely filed and are correct and
complete in all respects, (ii) all Taxes shown as owing on such Tax Returns have
been paid and (iii) no member of the EDO Group is currently the beneficiary of
any extension of time within which to file any Tax Return.
(b) (i) All Taxes that are or have become payable by any member of the EDO
Group or chargeable as a Lien upon its assets as of the Closing Date for which
the filing of a Tax Return is not required have been duly and timely paid, (ii)
each member of the EDO Group has duly and timely withheld all Taxes required to
be withheld in connection with the business or assets of such member, and such
withheld Taxes have been either duly and timely paid to the proper governmental
authorities or properly set aside in accounts for such purpose and (iii) the EDO
Financial Statements reflect an adequate reserve for all Taxes payable or
asserted to be payable by the EDO Group for all taxable periods or portions
thereof through the date of the EDO Financial Statements.
(c) Except as set forth on Schedule 3.9(c), (i) no Returns with respect to
the EDO Group are currently under audit by any taxing authority, (ii) no taxing
authority is now asserting, or to the Best Knowledge of the EDO Group,
threatening to assert against the EDO Group, any deficiency or claim for Taxes
or any adjustment to Taxes, and (iii) to the Best Knowledge of EDO, no
circumstances exist to form the basis for such a claim or audit.
(d) Schedule 3.9(d) lists all Tax Returns that have been filed with respect
to the EDO Group that are, open or otherwise subject to audit or examination by
the IRS or any other taxing authority.
(e) Except as set forth on Schedule 3.9(e), no member of the EDO Group has
(i) waived any statute of limitations, (ii) agreed to any extension of the
period for assessment or collection or (iii) executed or filed any power of
attorney with respect to Taxes, which waiver, agreement or power of attorney is
currently in force.
(f) The EDO Group's taxable year for federal, state and local income and
franchise tax purposes has always been a taxable year ending on December 31.
(g) Except as set forth in Schedule 3.9(g), no member of the EDO Group (i)
is a party to or bound by or has any obligation under any tax allocation,
sharing, indemnity or similar agreement or arrangement or (ii) is or has been a
member of any affiliated, consolidated, combined or unitary group for the
purposes of filing Tax Returns or paying taxes.
(h) Schedule 3.9(h) contains a list of states, cities and jurisdictions
(whether foreign or domestic) in which the EDO Group has filed income,
franchise, employment, property, sales and use Tax Returns for past three years.
3.10. Assets. Each member of the EDO Group owns, or otherwise has full,
exclusive, sufficient and legally enforceable rights to use, all of the EDO
Assets (other than Intellectual Property which is addressed elsewhere in this
Agreement). Each member of the EDO Group has good, valid and marketable title
to, or in the case of leased property has good and valid leasehold interests in,
all EDO Assets (other than Intellectual Property) that are material to its
Business, including but not limited to all such EDO Assets reflected in the EDO
Balance Sheet or acquired since the date thereof (except as may be disposed of
in the ordinary course of business after the date hereof and in accordance with
this Agreement), in each case free and clear of any Lien, except Permitted
Liens. Each member of the EDO Group has maintained all of its tangible EDO
Assets in good repair, working order and operating condition subject only to
ordinary wear and tear, and all such tangible EDO Assets are fully adequate and
suitable for the purposes for which they are presently being used.
3.11. Real Property. (a) Owned Real Property. Schedule 3.11(a) contains a
complete and correct list of Real Property owned by any member of the EDO Group
setting forth the address and owner of each parcel of such owned Real Property
and describing all improvements thereon. The EDO Group has, or on the Closing
Date will have, good, valid and marketable fee simple title to such owned Real
Property, free and clear
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of Liens other than Permitted Liens. There are no outstanding options or rights
of first refusal to purchase such owned Real Property or any portion thereof or
interest therein.
(b) EDO Leases. Schedule 3.11(b) contains a complete and correct list of
all EDO Leases setting forth the address, landlord and tenant for each EDO
Lease. EDO has delivered or made available to AIL correct and complete copies of
the EDO Leases. Each EDO Lease is legal, valid, binding, in full force and
effect and enforceable against each member of the EDO Group that is a party
thereto. No member of the EDO Group is in default, violation or breach in any
material respect under any EDO Lease, and, to the Best Knowledge of EDO, no
event has occurred and is continuing that constitutes or, with notice or the
passage of time or both, would constitute a default, violation or breach in any
respect under any EDO Lease. Each EDO Lease grants the tenant under the EDO
Lease the exclusive right to use and occupy the premises and rights demised and
intended to be demised thereunder. Each member of the EDO Group has good and
valid title to the leasehold estate under its respective EDO Leases free and
clear of any Liens other than Permitted Liens. Each member of the EDO Group
enjoys peaceful and undisturbed possession under its respective EDO Leases for
its Real Property.
(c) Fee and Leasehold Interests, etc. The EDO Group's Real Property
constitutes all the fee or leasehold interests in real property held by the EDO
Group, and constitutes all of the fee or leasehold interests in real property
used or held for use in connection with, necessary for the conduct of, or
otherwise material to, the Business of any member of the EDO Group.
(d) No Proceedings. There are no proceedings in eminent domain or other
similar proceedings pending or, to the Best Knowledge of EDO, threatened,
affecting any portion of the EDO Group's Real Property. There exists no writ,
injunction, decree, order or judgment outstanding, nor any Litigation, pending
or, to the Best Knowledge of EDO, threatened, relating to the ownership, lease,
use, occupancy or operation by any Person of any of the EDO Group's Real
Property.
(e) Current Use. The use and operation of the EDO Group's Real Property in
the conduct of the Business of each member of the EDO Group does not violate in
any material respect any instrument of record or agreement affecting such Real
Property. There is no violation of any covenant, condition, restriction,
easement or agreement or order of any Governmental Authority that materially
affects the EDO Group's Real Property or the ownership, operation, use or
occupancy thereof. No damage or destruction has occurred with respect to any of
such Real Property.
(f) Real Property Taxes. Each parcel included in the EDO Group's Real
Property is assessed for real estate tax purposes as a wholly independent tax
lot, separate from any adjoining land or improvements not constituting a part of
that parcel.
(g) Compliance with Laws. The EDO Group's Real Property is in full
compliance with all Real Property Laws, and no member of the EDO Group has
received any notice of violation or claimed violation of any Real Property Law.
There is no pending or, to the Best Knowledge of EDO, anticipated, change in any
Real Property Law that could reasonably be expected to have or result in a
material adverse effect upon the ownership, alteration, use, occupancy or
operation of the EDO Group's Real Property or any portion thereof. No current
use by any member of the EDO Group of its Real Property is dependent on a
nonconforming use or other Governmental Approval, the absence of which would
materially limit the use of any of the properties or assets in its Business. The
EDO Group's Real Property and its continued use, occupancy and operation as
currently used, occupied and operated do not constitute nonconforming uses under
any Law, and, except for permits, licenses and other forms of authorizations
issued in the ordinary course of business and held pursuant to applicable
Environmental Laws, the continued existence, use, occupancy and operation of
each improvement located on any of such Real Property is not dependent on any
Consent or Governmental Approval that is limited in duration. To the Best
Knowledge of EDO, the permits, licenses and other authorizations referred to in
the prior sentence will be issued or renewed without undue delay.
(h) Real Property Consents. The execution, delivery and performance of
this Agreement and the Ancillary Agreements by EDO and the consummation of the
transactions contemplated hereby and thereby, do not and will not require the
Consent of any Person pursuant to any of the EDO Leases or any instrument of
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record or agreement affecting the EDO Group's Real Property. Except as set forth
in Schedule 3.11(h), the enforceability of the EDO Leases will not be affected
in any manner by the execution, delivery or performance of this Agreement, and
no EDO Lease contains any change in control provision or other terms or
conditions that will become applicable or inapplicable as a result of the
consummation of the transactions contemplated by this Agreement and the
Ancillary Agreements.
3.12. Contracts. (a) Disclosure. Schedule 3.12(a) contains a complete and
correct list, as of the date hereof, of all EDO Contracts that are material to
the Business of any member of the EDO Group ("EDO Material Contracts"). EDO has
delivered or made available to AIL complete and correct copies of all written
EDO Material Contracts, and accurate descriptions of all material terms of all
oral EDO Material Contracts, set forth or required to be set forth in Schedule
3.12(a).
(b) Enforceability. All EDO Contracts are legal, valid, binding, in full
force and effect and enforceable against each member of the EDO Group that is a
party thereto, except to the extent that any failure to be enforceable,
individually and in the aggregate, would not reasonably be expected to have or
result in an EDO Material Adverse Effect. Except as set forth in Schedule
3.12(b), to the Best Knowledge of EDO, there does not exist under any EDO
Material Contract any violation, breach or event of default, or event or
condition that, after notice or lapse of time or both, would constitute a
violation, breach or event of default thereunder, on the part of EDO, any of its
Subsidiaries or any other Person. Except as set forth in Schedule 3.12(b), the
enforceability of all EDO Material Contracts will not be affected in any manner
by the execution, delivery or performance of this Agreement or the Ancillary
Agreements, and no EDO Material Contract contains any change in control or other
terms or conditions that will become applicable or inapplicable as a result of
the consummation of the transactions contemplated by this Agreement and the
Ancillary Agreements.
(c) Government Contracts.
(i) Except as specified on Schedule 3.12(c), to the Best Knowledge of
EDO, since October 1, 1997: (A) each member of the EDO Group has complied
with all material terms and conditions of each Government Contract or
Government Subcontract, (B) each member of the EDO Group has complied in
all material respects with all requirements of all Laws or agreements
pertaining to each Government Contract or Government Subcontract and (C)
all representations and certifications executed, acknowledged or set forth
in or pertaining to each Government Contract or Government Subcontract were
complete and correct in all material respects as of their effective date
and the EDO Group has complied in all material respects with all such
representations and certifications.
(ii) Except as set forth on Schedule 3.12(c), since October 1, 1997:
(A) neither any Governmental Authority nor any prime contractor,
subcontractor or other Person has notified EDO, either in writing or, to
the Best Knowledge of EDO, orally, that any member of the EDO Group has
breached or violated any Law, certification, representation, clause,
provision or requirement pertaining to any Government Contract or
Government Subcontract, (B) no termination for convenience, termination for
default, cure notice or show cause notice is currently in effect pertaining
to any Government Contract or Government Subcontract, (C) no material cost
incurred by any member of the EDO Group pertaining to any Government
Contract or Government Subcontract has been questioned or challenged by
representatives of the Administrative Contracting Officer or the Defense
Contract Audit Agency, is, to the Best Knowledge of EDO, the subject of any
investigation, or has been disallowed by any Governmental Authority, and
(D) no amount of money due to any member of the EDO Group, pertaining to
any Government Contract or Government Subcontract has been withheld or set
off nor has any claim been made to withhold or set off money, and the
members of the EDO Group are entitled to all progress payments received
with respect thereto.
(iii) (A) to the Best Knowledge of EDO, neither any member of the EDO
Group nor any of its directors, officers, employees, consultants or agents
is or during the past three years has been under administrative, civil or
criminal investigation, indictment or information by any Governmental
Authority with respect to any alleged irregularity, misstatement or
omission arising under or relating to any Government Contract or Government
Subcontract, and (B) during the past three years, no member of the EDO
Group has conducted or initiated any internal investigation or made a
voluntary disclosure to
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any Governmental Authority with respect to any alleged irregularity,
misstatement or omission arising under or relating to a Government Contract
or Government Subcontract.
(iv) To the Best Knowledge of EDO, there exist (A) no outstanding
claims against any member of the EDO Group, either by any Governmental
Authority or by any prime contractor, subcontractor, vendor or other
Person, arising under or relating to any Government Contract or Government
Subcontract and (B) no material disputes between any member of the EDO
Group and any Governmental Authority under the Contract Disputes Act or any
other federal statute or regulation or between any member of the EDO Group
and any prime contractor, subcontractor or vendor arising under or relating
to any Government Contract or Government Subcontract.
(v) Since October 1, 1997, no member of the EDO Group has been
debarred or suspended from participation in the award of contracts with the
DOD or any other Governmental Authority (excluding for this purpose
ineligibility to bid on certain contracts due to generally applicable
bidding requirements). To the Best Knowledge of EDO, there exist no facts
or circumstances that would warrant suspension or debarment or the finding
of nonresponsibility or ineligibility on the part of any member of the EDO
Group. Neither EDO nor any member of the EDO Group nor any director,
officer, agent or employee of any member of the EDO Group directly or
indirectly has (A) used any funds for contributions, gifts, entertainment
or other expenses relating to political or governmental activity in
violation of any Law; (B) made any payment to foreign or domestic
government officials or employees or to foreign or domestic political
parties or campaigns in violation of any Law, or violated any provision of
the Foreign Corrupt Practices Act of 1977, as amended, or the OECD's
Convention on Combating Bribery of Foreign Officials in International
Business Transactions; or (C) made any other payment in violation of any
Law. EDO's cost accounting and procurement systems and the associated
entries reflected in the EDO Financial Statements with respect to the
Government Contracts and Government Subcontracts are in compliance in all
material respects with all Laws.
3.13. Intellectual Property. (a) Disclosure. Schedule 3.13(a) sets forth
a complete and correct list of all filed or registered EDO Owned Intellectual
Property that is material to the Businesses of the EDO Group.
(b) Title. A member of the EDO Group either owns or has adequate rights,
pursuant to license or otherwise, to use all of the Intellectual Property used
or held for use in connection with, necessary for the conduct of, or otherwise
material to, the Businesses of the EDO Group (the "EDO Intellectual Property").
The EDO Group has, and at the Closing will have, adequate rights to use the EDO
Intellectual Property for the life thereof for any purpose in connection with
their Businesses, free from any Liens (except for Permitted Liens incurred in
the ordinary course of business). Immediately after the Effective Time, EDO or
one of its Subsidiaries shall own or have adequate rights, pursuant to license
or otherwise, to use all the EDO Intellectual Property, in each case free from
Liens (except for Permitted Liens incurred in the ordinary course of business)
and on the same terms and conditions owned, licensed or used by the EDO Group as
in effect prior to the Effective Time.
(c) Licensing and Similar Arrangements. EDO has delivered or made
available to AIL complete and correct copies of all written or oral agreements,
arrangements and applicable Laws (i) pursuant to which any member of the EDO
Group has licensed Intellectual Property to, or the use of Intellectual Property
is otherwise permitted (through non-assertion, settlement or similar agreements
or otherwise) with respect to, any other Person and (ii) pursuant to which any
member of the EDO Group has had Intellectual Property licensed to it, or has
otherwise been permitted to use Intellectual Property (through non-assertion,
settlement or similar agreements or otherwise). All royalties, license fees,
charges and other amounts payable by, on behalf of, to or for the account of any
member of the EDO Group in respect of any Intellectual Property are reflected in
the EDO Financial Statements.
(d) No Infringement. The conduct of the EDO Group's Businesses does not
infringe or otherwise conflict with any rights of any Person in respect of any
Intellectual Property. To the Best Knowledge of EDO, none of the EDO
Intellectual Property is being infringed or otherwise used or available for use
by any Person without a license or permission from a member of the EDO Group,
except as set forth in Schedule 3.13(d).
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(e) Due Registration, etc. To the Best Knowledge of EDO, the EDO Owned
Intellectual Property has been duly registered with, filed in or issued by, as
the case may be, the United States Patent and Trademark Office, the United
States Copyright Office or other filing offices, domestic or foreign, to the
extent necessary to ensure full protection under any applicable Law, and such
registrations, filings, issuances and other actions remain in full force and
effect. Except as set forth in Schedule 3.13(e), the EDO Group has taken all
necessary actions to ensure full protection of the EDO Owned Intellectual
Property (including maintaining the secrecy of all confidential Intellectual
Property) under any applicable Law.
(f) Software. The EDO Group has valid licenses to all copies of all
material Software that are utilized in connection with the Business that are not
owned by EDO ("EDO Commercial Software"), and the use by the EDO Group of such
EDO Commercial Software, including all modifications and enhancements thereto
(whether created by a member of the EDO Group or by a third party) is in
material compliance with the terms and provisions of such licenses. Each member
of the EDO Group owns all right, title and interest in and to all material
Software marketed or licensed by it to its customers or held for use or in
development for marketing and licensing to the customers of each member of the
EDO Group (collectively, the "EDO Owned Software"), including all Intellectual
Property rights therein and thereto. None of the EDO Commercial Software or EDO
Owned Software, and no use thereof by the EDO Group or permitted use by its
licensees, infringes upon or violates any patent, copyright, trade secret or
other Intellectual Property right of any person or entity, and no claim or
demand with respect to any such infringement or violation has been made or
threatened.
(g) Calendar Function. To the Best Knowledge of EDO, all Software,
hardware and equipment owned by the EDO Group and all Software, hardware and
equipment used in the Business that contains or calls on a calendar function,
including any function that is indexed to a computer processing unit clock,
provides specific days, dates or times, or calculates spans of dates or times,
is and will be able to record, store, process, calculate, compare, sequence and
provide true and accurate day, date and time data from, into and between the
twentieth and twenty-first centuries, including but not limited to with respect
to the years 1999, 2000 and 2001 and leap year calculations , except for
failures to do any of the foregoing which, individually or in the aggregate,
would not reasonably be expected to have or result in an EDO Material Adverse
Effect.
3.14. Insurance. Schedule 3.14 contains a complete and correct list and
summary description of all insurance policies maintained (at present or since
October 1, 1997) by or on behalf of the EDO Group. EDO has delivered or made
available to AIL complete and correct copies of all such policies together with
all riders and amendments thereto. Such policies are in full force and effect,
and all premiums due thereon have been paid. Each member of the EDO Group has
complied in all material respects with the terms and provisions of such
policies. The insurance coverage provided by such policies is adequate and
suitable for the EDO Group's Businesses, and is on such terms (including without
limitation as to deductibles and self-insured retentions), covers such risks,
contains such deductibles and retentions, and is in such amounts, as the
insurance customarily carried by comparable companies of established reputation
similarly situated and carrying on the same or similar business.
3.15. Litigation. EDO has disclosed to AIL all Litigation pending, or to
the Best Knowledge of EDO threatened, against any member of the EDO Group or any
of its properties or assets since October 1, 1997 and has disclosed all material
facts and given or referenced all documents regarding all such Litigation and
threatened Litigation that are active as of the date hereof. Except as set forth
on Schedule 3.15, there is and has been since October 1, 1997, no Litigation
that, individually or in the aggregate, is material and is pending or, to the
Best Knowledge of EDO, threatened, against any member of the EDO Group or any of
its properties or assets. There are no outstanding orders, judgments, decrees or
injunctions issued by any Governmental Authority against any member of the EDO
Group, or that in any way affect the EDO Group's Businesses and would reasonably
be expected to have or result in an EDO Material Adverse Effect.
3.16. Compliance with Laws and Instruments; Consents. (a) Compliance. (i)
No member of the EDO Group is, or since October 1, 1997, has been, in conflict
with or in violation or breach of or default under (and there exists no event
that, with notice or passage of time or both, would constitute a conflict,
violation, breach or default with, of or under) (x) any Law applicable to it or
any of its properties, assets, operations or
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business (except Laws compliance with which is specifically addressed elsewhere
in this Agreement), (y) any provision of its Organizational Documents, or (z)
any EDO Contract, or any other agreement or instrument to which it is party or
by which it or any of its properties or assets is bound or affected, except in
the case of the foregoing clauses (x) and (z) for any such conflicts, breaches,
violations and defaults that, individually or in the aggregate, would not
reasonably be expected to have or result in an EDO Material Adverse Effect, and
(ii) no member of the EDO Group has received any written notice or, to the Best
Knowledge of EDO, oral notice alleging any such conflict, violation, breach or
default which has not been cured or waived.
(b) Consents. (i) No Governmental Approval or other Consent is required to
be obtained or made by any member of the EDO Group in connection with the
execution and delivery of this Agreement and the Ancillary Agreements or the
consummation of the transactions contemplated hereby or thereby, except (x) as
specified on Schedule 3.16(b)(i), (y) for applicable requirements, if any, of
the Exchange Act, state securities or "blue sky" laws, notification requirements
under the HSR Act and filings required under Delaware and New York Law, and (z)
where failure to obtain such Consents or make such filings or notifications
would not reasonably be expected, individually or in the aggregate, to have or
result in an EDO Material Adverse Effect.
(ii) All Governmental Approvals and other Consents necessary for, or
otherwise material to, the conduct of the EDO Group's Business, have been duly
obtained and are held by a member of the EDO Group and are in full force and
effect. Each member of the EDO Group is, and at all times since October 1, 1997,
has been, in compliance with all Governmental Approvals and other Consents held
by them. Except as specified in Schedule 3.16(b)(i), the execution, delivery and
performance of this Agreement and the Ancillary Agreements and the consummation
of the transactions contemplated hereby and thereby do not and will not violate
any such Governmental Approval or Consent, or result in any revocation,
cancellation, suspension, modification or nonrenewal thereof.
3.17. Environmental Matters. (a) Compliance with Environmental Law. Each
member of the EDO Group has complied and is in compliance in all but de minimis
respects with all applicable Environmental Laws pertaining to their respective
assets and the use, ownership or transferability thereof, the manufacturing and
commercial distribution of its products and to the operation of its Business. To
the Best Knowledge of EDO, no member of the EDO Group is alleged to be in
violation of any applicable Environmental Law relating to the operation of its
business or the use or ownership of its assets.
(b) Other Environmental Matters. (i) Except as disclosed on Schedule
3.17(b), no member of the EDO Group has caused or taken any action that would
result in, and no member of the EDO Group is subject to, any liability or
obligation relating to (x) the environmental conditions on, under, or about the
EDO Group's Real Property or other properties or assets owned, leased or used by
any member of the EDO Group at the present time or in the past, including the
soil and groundwater conditions at such properties, or (y) the past or present
use, management, handling, transport, treatment, generation, storage or Release
of any Hazardous Materials, other than such liabilities and obligations that
individually or in the aggregate, do not exceed $250,000.
(ii) The present value of the aggregate amount of the liabilities and
obligations listed on Schedule 3.17(b), net of reserves therefor, does not
exceed $150,000.
(c) Without limiting the generality of the foregoing:
(i) Except as disclosed in Schedule 3.17(c), none of the EDO Group's
current or past operations and none of the currently or formerly owned or
occupied property or assets of any member of the EDO Group is related to
or, to the Best Knowledge of EDO, subject to any investigation or
evaluation by any Governmental Authority, as to whether any Remedial Action
is needed to respond to a Release or threatened Release of any Hazardous
Materials.
(ii) Except as disclosed in Schedule 3.17(c), no member of the EDO
Group is subject to any outstanding order from, or contractual or other
obligation with, any Governmental Authority or other person in respect of
which such member of the EDO Group may be required to incur any
Environmental Liabilities and Costs arising from the Release or threatened
Release of a Hazardous Material and no member of the EDO Group has entered
into any contractual or other obligation with any governmental body or
other person pursuant to which such member assumed responsibility for,
either directly or
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indirectly, the remediation of any condition arising from or relating to
the Release or threatened Release of Hazardous Materials.
(iii) Except as disclosed in Schedule 3.17(c), none of the EDO Group's
Real Property, to the Best Knowledge of EDO, no properties adjacent to such
Real Property, and no properties previously owned or leased by any member
of the EDO Group or any of their predecessors or affiliates is, and, since
January 1, 1995, no member of the EDO Group has transported or arranged for
transportation (directly or indirectly) of any Hazardous Materials to any
location that is, listed or formally proposed for listing under the
Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended, 42 U.S.C. sec.sec. 9601, et seq., or on any similar state
list, or, to the Best Knowledge of EDO, or the subject of federal, state or
local enforcement actions or investigations or Remedial Action.
(iv) Except as disclosed on Schedule 3.17(c), there are no
Environmental Laws applicable to any member of the EDO Group, the EDO
Group's Real Property, the EDO Group's assets or the EDO Group's Business
that would require any member of the AIL Group, Merger Sub, EDO, the
Surviving Corporation, or any other party to provide notice to, to take
actions to satisfy, or to obtain the approval of, any governmental entity
as a condition to the consummation of the transactions contemplated by this
Agreement.
(d) EDO has disclosed and made available to AIL all material information,
including all studies, analyses and test results, in its possession, custody or
control relating to (i) the environmental conditions on, under or about the EDO
Group's Real Property or any other real property previously owned, leased,
operated or otherwise used by any member of the EDO Group, and (ii) Hazardous
Materials used, managed, handled, transported, treated, generated, stored or
Released by any member of the EDO Group at any time or by any member of the EDO
Group or any other person on any of the EDO Group's Real Property or any other
real property previously owned, leased, operated or otherwise used by any member
of the EDO Group, or otherwise in connection with the use or operation of the
EDO Group's assets or its business.
3.18. Affiliate Transactions. (a) Schedule 3.18(a) contains a complete and
correct list of all agreements, contracts, arrangements, understandings,
transfers of assets or liabilities or other commitments or transactions, whether
or not entered into in the ordinary course of business, to or by which EDO, on
the one hand, and any of its Affiliates (other than its wholly owned
Subsidiaries), on the other hand, are or have been a party or otherwise bound or
affected, and that (i) were entered into since October 1, 1997, (ii) are
currently pending or in effect and (iii) involve continuing liabilities and
obligations. Except as disclosed in Schedule 3.18(a), each agreement, contract,
arrangement, understanding, transfer of assets or liabilities or other
commitment or transaction set forth or required to be set forth in Schedule
3.18(a) was on terms and conditions as favorable to EDO as would have been
obtainable by it at the time in a comparable arm's-length transaction with a
Person other than an Affiliate.
(b) Except as set forth in Schedule 3.18(b), no officer, director or
employee of any member of the EDO Group, or, to the Best Knowledge of EDO, any
5% Stockholder, or any family member, relative or Affiliate of any such officer,
director or employee, (i) owns, directly or indirectly, and whether on an
individual, joint or other basis, any interest (other than in such Person's
capacity as a stockholder) in (x) any property or asset, real or personal,
tangible or intangible, used in or held for use in connection with or pertaining
to the Business of any member of the EDO Group, or (y) to the Best Knowledge of
EDO, any Person that is a supplier, customer or competitor of any member of the
EDO Group, (ii) to the Best Knowledge of EDO, serves as an officer, director or
employee of any Person that is a supplier, customer or competitor (other than
AIL) of any member of the EDO Group or (iii) has received any loans from or is
otherwise a debtor of, or made any loans to or is otherwise a creditor of, any
member of the EDO Group.
3.19. Employees, Labor Matters, etc. No member of the EDO Group is a party
to or bound by any collective bargaining agreement, and there are no labor
unions or other organizations representing, purporting to represent or
attempting to represent any employees employed by any member of the EDO Group.
Since October 1, 1997, there has not occurred or, to the Best Knowledge of EDO,
been threatened any strike, slowdown, picketing, work stoppage, concerted
refusal to work overtime or other similar labor activity with respect to any
employees of any member of the EDO Group. There are no labor disputes currently
subject to
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any grievance procedure, arbitration or litigation and there is no
representation petition pending or, to the Best Knowledge of EDO, threatened
with respect to any employee of any member of the EDO Group.
3.20. Employee Benefit Plans and Related Matters; ERISA. (a) Employee
Benefit Plans. Schedule 3.20(a) sets forth a complete and correct list of each
"employee benefit plan", as such term is defined in section 3(3) of ERISA, and
each bonus, incentive or deferred compensation, severance, termination,
retention, change of control, stock option, stock appreciation, stock purchase,
phantom stock or other equity-based, performance or other employee or retiree
benefit or compensation plan, program, arrangement, agreement, policy or
understanding, whether written or unwritten, that provides or may provide
benefits or compensation in respect of any employee or former employee of any
member of the EDO Group or the beneficiaries or dependents of any such employee
or former employee (collectively, the "EDO Employees") or under which any EDO
Employee is or may become eligible to participate or derive a benefit and that
is or has been maintained or established by any member of the EDO Group or any
other trade or business, whether or not incorporated, which, together with EDO
or any of its Subsidiaries, is or would have been at any date of determination
occurring within the preceding six years, treated as a single employer under
section 414 of the Code (such other trades and businesses hereinafter referred
to as the "EDO Related Persons"), or to which any member of the EDO Group or any
Related Person contributes or is or has been obligated or required to contribute
(collectively, the "EDO Plans"). With respect to each such EDO Plan, EDO has
provided or made available to AIL complete and correct copies of: (i) such EDO
Plan, if written, or a description of such EDO Plan if not written, and (ii) to
the extent applicable to such EDO Plan, all trust agreements, insurance
contracts or other funding arrangements, the two most recent actuarial and trust
reports, the two most recent Forms 5500 required to have been filed with the IRS
and all schedules thereto, the most recent IRS determination letter, all current
summary plan descriptions, all material communications received from or sent to
the IRS, the Pension Benefit Guaranty Corporation or the Department of Labor
(including a written description of any oral communication), any actuarial study
of any post-employment life or medical benefits provided under any such EDO
Plan, if any, statements or other communications regarding withdrawal or other
multiemployer plan liabilities, if any, and all amendments and modifications to
any such document. Except as set forth on Schedule 3.20(a), no member of the EDO
Group and no officer of EDO has communicated to any EDO Employee any intention
or commitment to modify any EDO Plan or to establish or implement any other
employee or retiree benefit or compensation plan or arrangement.
(b) Qualification. Each EDO Plan intended to be qualified under section
401(a) of the Code, and the trust (if any) forming a part thereof, has received
a favorable determination letter from the IRS as to its qualification under the
Code and to the effect that each such trust is exempt from taxation under
section 501(a) of the Code, and nothing has occurred since the date of such
determination letter that could adversely affect such qualification or
tax-exempt status.
(c) Compliance; Liability.
(i) None of EDO, its Subsidiaries or any EDO Related Person has been
involved in any transaction that could cause the EDO Group or any EDO
Related Person or the Surviving Corporation to be subject to liability
under section 4069 or 4212 of ERISA. None of EDO, its Subsidiaries, the
Surviving Corporation or any EDO Related Person has incurred (either
directly or indirectly, including as a result of an indemnification
obligation) any material liability under or pursuant to Title I or IV of
ERISA or the penalty, excise Tax or joint and several liability provisions
of the Code relating to employee benefit plans and no event, transaction or
condition has occurred or exists that could result in any such liability to
any member of the EDO Group, any such EDO Related Person or the Surviving
Corporation or any of its Affiliates. All contributions and premiums
required to have been paid by the EDO Group and each EDO Related Person to
any employee benefit plan (within the meaning of Section 3(3) of ERISA)
(including each plan) under the terms of any such plan or its related
trust, insurance contract or other funding arrangement, or pursuant to any
applicable Law or collective bargaining agreement (including ERISA and the
Code) have been paid within the time prescribed by any such plan, agreement
or applicable Law.
(ii) Each of the EDO Plans has been operated and administered in all
respects in compliance with its terms, all applicable Laws and all
applicable collective bargaining agreements. There are no material pending
or threatened claims by or on behalf of any of the EDO Plans, by any EDO
Employee or
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otherwise involving any such EDO Plan or the assets of any EDO Plan (other
than routine claims for benefits, all of which have been fully reserved for
on the regularly prepared balance sheets of EDO).
(iii) No EDO Plan is a "multiple employer plan" within the meaning of
section 4001(a)(3), 4063 or 4064 of ERISA.
(iv) Except to the extent set forth in Schedule 3.20(c) hereto, no EDO
Employee is or will become entitled to post-employment benefits of any kind
by reason of employment with EDO, including death or medical benefits
(whether or not insured), other than (x) coverage mandated by section 4980B
of the Code, (y) benefits payable under any EDO Plan qualified under
section 401(a) of the Code or (z) deferred compensation accrued as a
liability as of the Closing Date. Except as set forth on Schedule 3.20(c),
the consummation of the transactions contemplated by this Agreement and the
Ancillary Agreements will not result in an increase in the amount of
compensation or benefits or the acceleration of the vesting or timing of
payment of any compensation or benefits payable to or in respect of any EDO
Employee. EDO has disclosed or made available information regarding any and
all liabilities and obligations of any member of the EDO Group to or in
respect of the EDO Employees or the EDO Plans for (A) unpaid compensation,
salaries, wages, vacation and sick pay, disability payments and other
payroll items (including, without limitation, bonus, incentive and deferred
compensation), (B) unpaid contributions, insurance premiums, Pension
Benefit Guaranty Corporation premiums, costs and expenses to or in respect
of any EDO Plan and (C) severance or other termination benefits relating
to, resulting from or arising in respect of any claim of actual or
constructive termination of employment occurring on or prior to the
Effective Time or otherwise in connection with the consummation of the
transactions contemplated by this Agreement and the Ancillary Agreements.
(v) The EDO ESOP qualifies as an "employee stock ownership plan"
within the meaning of sec.4975(e)(7) of the Code, and no non-exempt
prohibited transaction has occurred with respect thereto.
3.21. Accounts Receivable. (a) EDO has delivered or caused to be delivered
to AIL a complete and accurate aging of all billed accounts receivable of the
EDO Group as of September 30, 1999. Except as set forth in Schedule 3.21(a), no
billed account receivable of the EDO Group reflected on the EDO Balance Sheet
and no billed account receivable arising after the date of the EDO Balance Sheet
and reflected on the books of any member of the EDO Group is uncollectible or
subject to counterclaim or offset, except to the extent of the aggregate
reserves thereon for doubtful accounts for billed receivables and except to the
extent that any billed account receivable is or becomes uncollectible due to
insolvency, of which the EDO Group is not presently aware, of the account debtor
thereunder. All billed accounts receivable reflected on the EDO Balance Sheet or
on such books have been generated in the ordinary course of business and reflect
a bona fide obligation for the payment of goods or services provided by a member
of the EDO Group. All allowances, rebates and cash discounts to customers of the
EDO Group are as shown on its books and records and in no event exceed one
percent of billed receivables to which they relate.
(b) Except as set forth in Schedule 3.21(b), to the Best Knowledge of EDO,
the unbilled account receivable balances of the EDO Group reflected on the EDO
Balance Sheet and the unbilled account receivable balances arising after the
date of the EDO Balance Sheet and reflected on the books of any member of the
EDO Group will convert into billed accounts receivable, except (i) to the extent
of the aggregate reserves associated with unbilled receivables, or (ii) to the
extent that any unbilled account receivable is or becomes uncollectible due to
insolvency, of which the EDO Group is not presently aware, of the account debtor
thereunder and would not reasonably be expected to have or result in an EDO
Material Adverse Effect. All unbilled accounts receivable reflected on the EDO
Balance Sheet or on such books have been generated in the ordinary course of
business and will result in a bona fide obligation for the payment of goods or
services provided by a member of the EDO Group, except for failures to reflect
bona fide obligations that, individually or in the aggregate, would not
reasonably be expected to have or result in an EDO Material Adverse Effect.
3.22. Inventories. All inventories reflected on EDO's most recently
prepared quarterly balance sheet of raw materials, supplies, work in progress
and finished goods of the EDO Group are of good, usable and merchantable
quality. Except as set forth in Schedule 3.22, (a) all such inventories are of
such quality as to meet the quality control standards of the EDO Group and any
applicable governmental quality control standards, (b) all such finished goods
are saleable as current inventories at the current prices of the EDO
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Group in the ordinary course of business in the aggregate net of reserves for
inventories, and (c) no write-down in inventory has been made or should have
been made pursuant to U.S. GAAP during the past two years.
3.23. Customers. No member of the EDO Group has received any notice that
any existing customer of the EDO Group (i) has ceased, or will cease, to use the
products, goods or services of any member of the EDO Group, (ii) has reduced or
will reduce, the use of products, goods or services of any member of the EDO
Group or (iii) has sought, or is seeking, to reduce the price it will pay for
products, goods or services of any member of the EDO Group, except for any such
cessations or reductions that, individually or in the aggregate, would not
reasonably be expected to have or result in an EDO Material Adverse Effect.
3.24. Suppliers; Raw Materials. Schedule 3.24 sets forth for each of the
years ended December 31, 1998, 1997 and 1996 and for the nine-month period ended
September 30, 1999 (a) the names of the ten largest suppliers to the EDO Group
based on the aggregate value of raw materials, supplies, merchandise and other
goods and services ordered by the EDO Group from such suppliers during each such
period and (b) the amount for which each such supplier invoiced the EDO Group.
No member of the EDO Group has received any notice or has any reason to believe
that there has been any material adverse change in the price of such raw
materials, supplies, merchandise or other goods or services, or that any such
supplier will not sell raw materials, supplies, merchandise and other goods to
the EDO Group at any time after the Closing Date on terms and conditions
substantially the same as those used in its current sales to the EDO Group,
subject to general and customary price increases.
3.25. Products; Product and Service Warranties. (a) Schedule 3.25(a)
contains a complete and correct list of the ten products currently manufactured,
produced, assembled, sold or marketed by the EDO Group that generated the
highest revenues during the nine-month period ended September 30, 1999 (the "EDO
Products"). Schedule 3.25(a) also sets forth the amount of revenues during such
period for each such Product.
(b) Except as required by Law or as set forth on Schedule 3.25(b), no
product manufactured, sold, leased or delivered by, or service rendered by or on
behalf of, any member of the EDO Group is subject to any guaranty, warranty or
other indemnity, express or implied, beyond its standard terms and conditions.
(c) Product Liability. No member of the EDO Group has any liability or
obligation of any nature (whether known or unknown, accrued, absolute,
contingent or otherwise, and whether due or to become due), whether based on
strict liability, negligence, breach of warranty (express or implied), breach of
contract or otherwise, in respect of any EDO Product manufactured, sold,
designed or produced prior to the Effective Time by, or service rendered prior
to the Effective Time by or on behalf of, any member of the EDO Group or any
predecessor thereto, that (i) is not fully and adequately covered by policies of
insurance or by indemnity, contribution, cost sharing or similar agreements or
arrangements by or with other Persons and (ii) is not otherwise fully and
adequately reserved against in the EDO Balance Sheet.
3.26. Brokers, Finders, etc. No actions taken or agreements entered into
by any member of the EDO Group in connection with the transactions contemplated
by this Agreement and the Ancillary Agreements or otherwise will give rise to
any valid claim against any member of the AIL Group, the EDO Group or the
Surviving Corporation or any of their Affiliates for any brokerage or finder's
commission, fee or similar compensation, other than (i) the fee of $300,000
payable to AG Edwards & Sons Inc. ("AG Edwards") and (ii) the fee of $400,000
payable to Philpott Ball and Company.
3.27. Disclosure. (a) Proxy Statement; Registration Statement. None of
the information with respect to any member of the EDO Group to be included in
the Proxy Statement or the Registration Statement will, in the case of the Proxy
Statement or any amendments thereof or supplements thereto, at the time of the
mailing of the Proxy Statement or any amendments or supplements thereto, and at
the time of the EDO Meeting, or, in the case of the Registration Statement, at
the time it becomes effective, contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading, except that no representation is made by EDO or
Merger Sub with respect to information supplied
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by any party other than the EDO Group specifically for inclusion in the Proxy
Statement. The Proxy Statement and the Registration Statement will comply as to
form in all material respects with the provisions of the Securities Act and the
Exchange Act.
(b) General. The senior officers of EDO do not believe there is any fact
(other than matters of a general economic or political nature that do not affect
the Business of any member of the EDO Group uniquely) that would reasonably be
expected to have or result in an EDO Material Adverse Effect except as described
in the Schedules hereto.
3.28. Opinion of Financial Advisor. The Board of Directors of EDO has
received the opinion of AG Edwards, dated the date of this Agreement, to the
effect that, as of such date, the Merger Consideration, together with the
consideration paid pursuant to the Defense Systems Agreement and the Management
Stock Purchase Agreement, are fair in the aggregate to EDO from a financial
point of view. A copy of the written opinion of AG Edwards will be delivered to
AIL as soon as practicable after the date of this Agreement.
3.29. Required Vote of EDO's Stockholders. The affirmative vote of the
holders of shares of EDO Common Stock and EDO Preferred Stock (voting together
as a single class) representing a majority of the votes cast at the EDO Meeting
is required to approve the Share Issuance. No other vote of the stockholders of
EDO is required by law, the charter or by-laws of EDO or otherwise in order for
EDO to consummate the Merger and the transactions contemplated hereby.
3.30. AIL Share Ownership. Except for any Common Shares purchased by
Merger Sub pursuant to the Defense Systems Agreement and the Management Stock
Purchase Agreement, no member of the EDO Group owns any Common Shares or other
securities convertible into Common Shares.
3.31. Board Recommendation. The Board of Directors of EDO, at a meeting
duly called and held, has by the unanimous vote of all directors present, (a)
determined that this Agreement, the Ancillary Agreements and the transactions
contemplated hereby and thereby are fair and in the best interests of EDO and
its stockholders, and (b) resolved to recommend that the holders of shares of
EDO Common Stock and EDO Preferred Stock approve the Share Issuance.
4. Covenants.
4.1. Conduct of Business. (a) AIL. On and after the date hereof to the
Closing Date, except as required by this Agreement or as otherwise expressly
consented to by EDO in writing, or except as set forth on Schedule 4.1(a), AIL
will and will cause each of its Subsidiaries to:
(i) carry on its Business in, and only in, the ordinary course of
business consistent with past practice, and use reasonable best efforts to
preserve intact its present business organization, keep available the
services of its present officers and significant employees, and preserve
its relationships with customers, suppliers and others having business
dealings with it, to the end that its goodwill and ongoing business shall
be in all material respects unimpaired following the Effective Time;
(ii) other than regular dividends on the Preferred Shares, not declare
dividends or distributions on, or redeem or repurchase any shares of, any
class of its capital stock, increase or enter into any obligations of AIL
with respect to Indebtedness, make capital expenditures in excess of
$500,000 in any case or $2,000,000 in the aggregate, pay any material
bonuses or advances against salaries, or make any other cash payments or
year-end bonuses other than in the ordinary course of business, provided
that nothing shall preclude AIL from borrowing under its current revolving
line of credit;
(iii) maintain all of the tangible Assets and all other tangible
properties and assets owned, leased, occupied, operated or used by it in
good repair, working order and operating condition subject only to ordinary
wear and tear;
(iv) not transfer, assign, mortgage, pledge, hypothecate, grant any
security interest in, or otherwise subject to any other Lien, any of its
assets;
(v) use reasonable best efforts to keep in full force and effect
insurance comparable in amount and scope of coverage to insurance now
carried by it;
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(vi) pay accounts payable and other obligations, when they become due
and payable, in the ordinary course of business;
(vii) perform in all material respects all of its obligations under
any Material Contracts, agreements or other instruments relating to or
affecting any of its properties and assets;
(viii) not enter into or assume any Contract, or enter into or permit
any amendment, supplement, waiver or other modification in respect thereof
other than in the ordinary course of business consistent with past
practice;
(ix) maintain its books of account and records in the usual, regular
and ordinary manner consistent with past policies and practice;
(x) comply in all material respects with all Laws applicable to it or
any of its properties, assets or business;
(xi) not compromise, settle, grant any waiver or release relating to
or otherwise adjust any Litigation in excess of $100,000;
(xii) not cause or permit any amendment, supplement, waiver or
modification to or of any of its Organizational Documents;
(xiii) use reasonable best efforts to maintain each member of the AIL
Group's good standing in its state of incorporation and in the
jurisdictions in which it is qualified to do business as a foreign
corporation and to maintain all Governmental Approvals and other Consents
necessary for, or otherwise material to, the Businesses of the AIL Group;
(xiv) except as may be permitted under Section 4.10, not merge or
consolidate with, or agree to merge or consolidate with, or purchase
substantially all of the assets of, or otherwise acquire, any business,
business organization or division thereof, or any other Person, and not
effect any type of recapitalization;
(xv) not sell, transfer or otherwise dispose of, any Business,
Subsidiary, or assets that are material to the AIL Group taken as a whole,
or fixed assets that are sold, transferred or otherwise disposed of, either
individually or in the aggregate, with a net book value in excess of
$100,000;
(xvi) not take any action or omit to take any action, which action or
omission would result in a breach of any of the representations and
warranties set forth in Section 2 (including Section 2.8);
(xvii) promptly advise EDO in writing of any event, occurrence, fact,
condition, change, development or effect that, individually or in the
aggregate, would reasonably be expected to have or result in an AIL
Material Adverse Effect or a breach of this Section 4.1(a);
(xviii) not split, combine or reclassify any shares of its capital
stock, or authorize for issuance, issue, sell, deliver or agree or commit
to issue, sell or deliver (whether through the issuance or granting of
additional options, warrants, commitments, subscriptions, rights to
purchase or otherwise) any shares of capital stock of any class or any
securities convertible into or exchangeable for shares of capital stock of
any class, except as required by any AIL Stock Option Plan existing as of
the date hereof;
(xix) conduct all Tax affairs relating to the AIL Group only in the
ordinary course of business, in substantially the same manner as heretofore
conducted and in good faith in substantially the same manner as such
affairs would have been conducted if this Agreement had not been entered
into; and
(xx) not cause or permit any amendment, supplement, waiver or
modification to or of the AIL ESOP; and
(xxi) not agree or otherwise commit to take any of the actions
described in the foregoing paragraphs (ii), (iv), (viii), (xi), (xii),
(xiv), (xv), (xvi, (xviii) or (xx), and not agree or otherwise commit to
any actions inconsistent with the foregoing paragraphs (i), (iii),
(v)-(vii), (ix)-(x), (xiii), (xvii) or (xix).
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(b) EDO. On and after the date hereof to the Closing Date, except as
required by this Agreement or as otherwise expressly consented to by AIL in
writing, or except as set forth on Schedule 4.1(b), EDO will and will cause each
of its Subsidiaries to:
(i) carry on its Business in, and only in, the ordinary course of
business consistent with past practice, and use reasonable best efforts to
preserve intact its present business organization, keep available the
services of its present officers and significant employees, and preserve
its relationships with customers, suppliers and others having business
dealings with it, to the end that its goodwill and ongoing business shall
be in all material respects unimpaired following the Effective Time;
(ii) other than the regular quarterly dividend of $0.03 per share of
EDO Common Stock and regular dividends on the EDO Preferred Stock, not
declare dividends or distributions on, or redeem or repurchase any shares
of, any class of its capital stock, increase or enter into any obligations
of EDO with respect to Indebtedness, make capital expenditures in excess of
$500,000 in any case or $2,000,000 in the aggregate, pay any material
bonuses or advances against salaries except as set forth on Schedule
4.1(b), or make any other cash payments or year-end bonuses other than in
the ordinary course of business, provided that nothing contained herein
shall be deemed to restrict EDO from redeeming or repurchasing any of the
EDO Convertible Debentures in order to satisfy any current sinking fund
requirement related to such EDO Convertible Debentures, and provided
further that nothing shall preclude EDO from borrowing under its current
revolving line of credit;
(iii) maintain all of the tangible EDO Assets and all other tangible
properties and assets owned, leased, occupied, operated or used by the EDO
Group in good repair, working order and operating condition subject only to
ordinary wear and tear;
(iv) not transfer, assign, mortgage, pledge, hypothecate, grant any
security interest in, or otherwise subject to any other Lien, any of its
assets;
(v) use reasonable best efforts to keep in full force and effect
insurance comparable in amount and scope of coverage to insurance now
carried by it;
(vi) pay accounts payable and other obligations, when they become due
and payable, in the ordinary course of business;
(vii) perform in all material respects all of its obligations under
any EDO Material Contracts, agreements or other instruments relating to or
affecting any of its properties and assets;
(viii) not enter into or assume any EDO Contract, or enter into or
permit any amendment, supplement, waiver or other modification in respect
thereof other than in the ordinary course of business consistent with past
practice;
(ix) maintain its books of account and records in the usual, regular
and ordinary manner consistent with past policies and practice;
(x) comply in all material respects with all Laws applicable to it or
any of its properties, assets or business;
(xi) not compromise, settle, grant any waiver or release relating to
or otherwise adjust any Litigation in excess of $100,000;
(xii) not cause or permit any amendment, supplement, waiver or
modification to or of any of its Organizational Documents;
(xiii) use reasonable best efforts to maintain each member of the EDO
Group's good standing in its state of incorporation and in the
jurisdictions in which it is qualified to do business as a foreign
corporation and to maintain all Governmental Approvals and other Consents
necessary for, or otherwise material to, the Businesses of the EDO Group;
(xiv) except as may be permitted under Section 4.10, not merge or
consolidate with, or agree to merge or consolidate with, or purchase
substantially all of the assets of, or otherwise acquire, any
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business, business organization or division thereof, or any other Person,
and not effect any type of recapitalization;
(xv) not sell, transfer or otherwise dispose of, any Business,
Subsidiary, or assets that are material to the EDO Group taken as a whole,
or fixed assets that are sold, transferred or otherwise disposed of, either
individually or in the aggregate, with a net book value in excess of
$100,000;
(xvi) not take any action or omit to take any action, which action or
omission would result in a breach of any of the representations and
warranties set forth in Section 3 (including Section 3.8);
(xvii) promptly advise AIL in writing of any event, occurrence, fact,
condition, change, development or effect that, individually or in the
aggregate, would reasonably be expected to have or result in an EDO
Material Adverse Effect or a breach of this Section 4.1(b);
(xviii) not split, combine or reclassify any shares of its capital
stock, or authorize for issuance, issue, sell, deliver or agree or commit
to issue, sell or deliver (whether through the issuance or granting of
additional options, warrants, commitments, subscriptions, rights to
purchase or otherwise) any shares of capital stock of any class or any
securities convertible into or exchangeable for shares of capital stock of
any class, except as required by any EDO Stock Option Plan existing as of
the date hereof;
(xix) conduct all Tax affairs relating to the EDO Group only in the
ordinary course of business, in substantially the same manner as heretofore
conducted and in good faith in substantially the same manner as such
affairs would have been conducted if this Agreement had not been entered
into;
(xx) not cause or permit any amendment, supplement, waiver or
modification to or of any of the Employment Agreements; and
(xxi) not agree or otherwise commit to take any of the actions
described in the foregoing paragraphs (ii), (iv), (viii), (xi), (xii),
(xiv), (xv), (xvi), (xviii) or (xx), and not agree or otherwise commit to
any actions inconsistent with the foregoing paragraphs (i), (iii),
(v)-(vii), (ix)-(x), (xiii), (xvii) or (xix).
4.2. Access and Information. (a) AIL. So long as this Agreement remains
in effect, AIL will (and will cause its Representatives to) give EDO, Merger
Sub, their lenders and the Representatives of any of them full access (subject
to DOD security requirements) during reasonable business hours and upon
reasonable prior notice to all of the properties, assets, books, contracts,
commitments, Tax Returns, reports and records of the AIL Group, and furnish to
them all such documents, records and information with respect to the properties,
assets and business of the AIL Group and copies of any work papers relating
thereto as EDO, Merger Sub, their Affiliates and lenders or the Representatives
of any of them shall from time to time reasonably request, provided, that
nothing herein shall require AIL to disclose any information to EDO that would
cause significant competitive harm to such disclosing party or its Affiliates if
the transactions contemplated by this Agreement or the Ancillary Agreements are
not consummated or would cause any member of the AIL Group to violate any
confidentiality agreement with a third party to which such member is subject. In
addition, AIL will, and will cause each of its Representatives to, permit EDO,
Merger Sub, their Affiliates and lenders and the Representatives of any of them
reasonable access during reasonable business hours and upon reasonable prior
notice to the non-confidential information of lenders, customers and suppliers,
other Persons with whom any member of the AIL Group does or has done business,
and other Representatives or other personnel of AIL, as may be necessary or
useful to EDO, Merger Sub, their Affiliates or lenders in their judgment in
connection with their review of the properties, assets and business of the AIL
Group and the above-mentioned documents, records and information. AIL will, and
will cause its Representatives to, keep EDO generally informed as to the affairs
of AIL's Business.
(b) EDO. So long as this Agreement remains in effect, EDO will (and will
cause each of their Representatives to) give AIL, the AIL ESOP and its
Representatives full access (subject to DOD security requirements) during
reasonable business hours and upon reasonable prior notice to all of the
properties, assets, books, contracts, commitments, Tax Returns, reports and
records of EDO and its Subsidiaries, and furnish to them all such documents,
records and information with respect to the properties, assets and business
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of EDO and its Subsidiaries and copies of any work papers relating thereto as
AIL and its Representatives shall from time to time reasonably request, provided
that nothing herein shall require EDO to disclose any information to AIL that
would cause significant competitive harm to such disclosing party or its
Affiliates if the transactions contemplated by this Agreement and the Ancillary
Agreements are not consummated or would cause any member of the EDO Group to
violate any confidentiality agreement with a third party to which such member is
subject. In addition, EDO will, and will cause each of its Representatives to,
permit AIL, its Affiliates and lenders and the Representatives of any of them
reasonable access during reasonable business hours and upon reasonable prior
notice to the non-confidential information of lenders, customers and suppliers,
other Persons with whom any member of the EDO Group does or has done business,
and other Representatives or other personnel of EDO, as may be necessary or
useful to AIL, its Affiliates or lenders in their judgment in connection with
their review of the properties, assets and business of the EDO Group and the
above-mentioned documents, records and information. EDO will, and will cause its
Representatives to, keep AIL generally informed as to the affairs of EDO's
Business.
(c) Confidentiality. The parties hereby agree that each of them will treat
any information provided pursuant to this Section 4.2 or Section 4.3 in
accordance with the Confidentiality Agreement. Notwithstanding any provision of
this Agreement to the contrary, no party shall be obligated to make any
disclosure in violation of applicable Laws, including any such Laws pertaining
to the treatment of classified information.
4.3. Subsequent Reports and Information. (a) Subsequent AIL Reports. From
the date hereof to the Effective Time, AIL will (i) provide to EDO a monthly
management report in scope and detail consistent with those management reports
that have historically been distributed to AIL's senior management, and (ii)
timely prepare, and promptly deliver to EDO, unaudited monthly financial
statements, to be in scope and detail consistent with such monthly financial
statements as historically distributed to AIL's senior management. Each such
financial statement shall present fairly the financial position, assets and
liabilities of the AIL Group as at the date thereof and in comparison to the
previous month and the results of its operations and its cash flows for the
period then ended and in comparison to the previous month, in accordance with
accounting policies and procedures consistent with those historically used by
AIL in the preparation of such monthly financial statements.
(b) Subsequent EDO Reports. From the date hereof to the Effective Time,
EDO will (i) provide to AIL a monthly management report in scope and detail
consistent with those management reports that have historically been distributed
to EDO's senior management, and (ii) timely prepare, and promptly deliver to
AIL, unaudited monthly financial statements, to be in scope and detail
consistent with such monthly financial statements as historically distributed to
EDO's senior management. Each such financial statement shall present fairly the
financial position, assets and liabilities of the EDO Group as at the date
thereof and in comparison to the previous month and the results of its
operations and its cash flows for the period then ended and in comparison to the
previous month, in accordance with accounting policies and procedures consistent
with those historically used by EDO in the preparation of such monthly financial
statements.
4.4. Public Announcements. Except as required by applicable Law, AIL shall
not, and prior to the Closing, EDO and Merger Sub shall not, make any public
announcement in respect of this Agreement, the Ancillary Agreements or the
transactions contemplated hereby or thereby without the prior written consent of
EDO or AIL, as applicable, and prior to Closing, in no event without timely
consultation with the other party to this Agreement. The initial announcement of
this Agreement shall be mutually agreed to by the parties hereto.
4.5. Further Actions. (a) Reasonable Best Efforts. (i) AIL shall use all
reasonable best efforts to take or cause to be taken all actions, and to do or
cause to be done all other things, necessary, proper or advisable in order for
AIL to fulfill and perform its obligations in respect of this Agreement and the
Ancillary Agreements to which it is a party, to cause the conditions set forth
in Article 7 to be fulfilled and otherwise to consummate and make effective the
transactions contemplated hereby and thereby.
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(ii) Each of EDO and Merger Sub shall use all reasonable best efforts to
take or cause to be taken all actions, and to do or cause to be done all other
things, necessary, proper or advisable in order for each of EDO and Merger Sub
to fulfill and perform their respective obligations in respect of this Agreement
and the Ancillary Agreements to which it is a party, to cause the conditions set
forth in Article 7 to be fulfilled, and otherwise to consummate and make
effective the transactions contemplated hereby and thereby.
(b) Filings; Consent. (i) AIL shall, as promptly as reasonably
practicable, (i) make, or cause to be made, all filings and submissions
(including those under the HSR Act and any Law governing DOD security
clearances) required under any Law applicable to AIL if necessary, and give such
reasonable undertakings as may be required in connection therewith, and (ii)
subject to Section 4.1(a), use reasonable best efforts to obtain, cause to be
obtained by AIL, all Governmental Approvals and Consents necessary to be
obtained or made by AIL in each case in connection with this Agreement or the
Ancillary Agreements, the Merger, or the consummation of the other transactions
contemplated hereby or thereby. Notwithstanding anything to the contrary in this
Agreement, neither AIL nor any of its Affiliates shall be required to enter into
any "hold-separate" agreement or take any action that involves divestiture of an
existing business of AIL or any of its Affiliates, that involves unreasonable
expense or that could reasonably be expected to impair the overall benefit
expected to be realized from the consummation of the transactions contemplated
by this Agreement and the Ancillary Agreements.
(ii) EDO shall, as promptly as practicable, (i) make, or cause to be made,
all filings and submissions (including those under the HSR Act and any Law
governing DOD security clearance) required under any Law applicable to EDO or
Merger Sub if necessary, and give such reasonable undertakings as may be
required in connection therewith, and (ii) subject to Section 4.1(b), use
reasonable best efforts to obtain or make, or cause to be obtained or made, all
Governmental Approvals and Consents necessary to be obtained or made by EDO or
Merger Sub, in each case in connection with this Agreement or the Ancillary
Agreements, the Merger pursuant hereto, or the consummation of the other
transactions contemplated hereby or thereby. Notwithstanding anything to the
contrary in this Agreement, neither EDO nor Merger Sub nor any of their
Affiliates shall be required to enter into any "hold-separate" agreement or take
any action that involves divestiture of an existing business of EDO or any of
its Affiliates or the Surviving Corporation, that involves unreasonable expense
or that could reasonably be expected to impair the overall benefit expected to
be realized from the consummation of the transactions contemplated by this
Agreement and the Ancillary Agreements.
(c) Coordination. AIL and EDO shall coordinate and cooperate with each
other in exchanging such information and supplying such reasonable assistance as
may be reasonably requested in connection with the filings and other actions
contemplated by this Section 4.5.
(d) Notification; Cooperation. At all times prior to the Effective Time,
AIL shall promptly notify EDO, and EDO shall promptly notify AIL, in writing of
any fact, condition, event or occurrence that reasonably could be expected to
result in the failure of any of the conditions contained in Sections 7.1, 7.2 or
7.3 to be satisfied, promptly upon becoming aware of the same. AIL, EDO and
Merger Sub shall cooperate with one another in order to lift any injunction or
remove any other impediment to the consummation of the transactions contemplated
hereby.
(e) Advance Agreement of DOD. AIL and EDO shall take all such action as
reasonably may be necessary to obtain the advance agreement of the DOD to
provide any Consent required with respect to any Government Contract or
Government Subcontract in connection with the transactions contemplated by the
Agreement and the Ancillary Agreements.
4.6. Further Assurances. EDO and the Surviving Corporation shall, from
time to time, execute and deliver such additional instruments, documents,
conveyances or assurances and take such other actions as shall be necessary, or
otherwise reasonably requested by the Exchanging Common Stockholders, in each
case to confirm and assure the rights and obligations provided for in this
Agreement and the Ancillary Agreements and render effective the consummation of
the transactions contemplated hereby and thereby, or otherwise to carry out the
intent and purposes of this Agreement.
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4.7. Takeover Statute. If any "fair price," "moratorium," "control share
acquisition" or other form of antitakeover statute or regulation shall become
applicable to the transactions contemplated by this Agreement or the Ancillary
Agreements, each of AIL, EDO, Merger Sub and the members of the Boards of
Directors of AIL, EDO and Merger Sub shall grant such approvals and take such
actions as are reasonably necessary so that the transactions contemplated by
this Agreement and the Ancillary Agreements may be consummated as promptly as
practicable on the terms contemplated hereby and thereby and otherwise act to
eliminate or minimize the effects of such statute or regulation on the
transactions contemplated hereby and thereby.
4.8. Accountants' "Comfort" Letters. EDO and AIL will each use reasonable
best efforts to cause to be delivered to each other letters from their
respective independent accountants, dated a date within two business days before
the effective date of the Registration Statement, in form reasonably
satisfactory to the recipient and customary in scope for comfort letters
delivered by independent accountants in connection with registration statements
on Form S-4 under the Securities Act.
4.9. Tax-Free Reorganization. (a) The parties intend that the transactions
contemplated by this Agreement and the Ancillary Agreements qualify as a
reorganization under Section 368(a)(2)(D) of the Code, and each party hereto and
its Affiliates shall use their reasonable best efforts to cause such
transactions to so qualify. Neither the parties hereto nor any of their
Affiliates shall take any action that would cause such transactions not to
qualify as a reorganization under such Section, and the parties hereto will take
the position for all purposes that the transactions qualify as a reorganization
under such Section.
(b) The parties will cooperate with one another in obtaining opinions of
Debevoise & Plimpton, counsel to EDO, and Kleinberg, Kaplan, Wolff & Cohen P.C.,
counsel to AIL, dated as of the Effective Time, to the effect that the
transactions contemplated hereby and by the Ancillary Agreements will qualify as
a reorganization within the meaning of Section 368(a)(2)(D) of the Code. In
connection therewith, each of EDO, AIL and Merger Sub shall deliver to Debevoise
& Plimpton and Kleinberg, Kaplan, Wolff & Cohen P.C., respectively,
representation letters in form and substance reasonably satisfactory to such
counsel.
4.10. No Solicitation. (a) AIL (i) During the term of this Agreement, AIL
shall not, and AIL shall cause each of its Representatives not to, (x) directly
or indirectly solicit or encourage any inquiries or proposals for, or enter into
or continue any discussions with respect to, the acquisition by any Person of
any of the Shares, any other shares of capital stock or other securities of any
member of the AIL Group, or all or any material portion of the Business or of
the assets of any member of the AIL Group, or any merger, consolidation,
recapitalization, liquidation, dissolution or similar transaction involving AIL
or any of its Subsidiaries (an "AIL Acquisition Transaction"), (y) furnish or
permit to be furnished any non-public information concerning any member of the
AIL Group or the Business of any member of the AIL Group to any Person (other
than EDO, Merger Sub and their Representatives) other than information furnished
in the ordinary course of business after prior written notice to and
consultation with EDO, or (z) directly or indirectly, with or through any other
party, market or otherwise publicize or make any arrangements to market or
otherwise publicize the sale of, or sell, any securities of AIL in a public
offering or make any public announcement or disclosure regarding such a public
offering. Notwithstanding the foregoing, if the Board of Directors of AIL
determines in its good faith judgment, after consultation with outside counsel,
that failure to do so would constitute a breach of fiduciary duty under
applicable Law, AIL may, in response to an unsolicited inquiry or proposal with
respect to an AIL Acquisition Transaction, (A) furnish non-public information
with respect to AIL and its Subsidiaries to the Person that made such inquiry or
proposal pursuant to a customary and reasonable confidentiality agreement and
(B) participate in negotiations regarding such AIL Acquisition Transaction. AIL
shall immediately cease and cause to be terminated any existing activities,
discussions or negotiations with any Person other than EDO in respect of any AIL
Acquisition Transaction. AIL shall promptly notify EDO of any inquiry or
proposal received by AIL or any Representative thereof with respect to an AIL
Acquisition Transaction, which notice shall include the identity of the
inquiring party, and the terms of the proposal, and promptly deliver to EDO
copies of any documents or agreements proferred to AIL with respect thereto.
(ii) The Board of Directors of AIL shall not cause or permit AIL to enter
into any letter of intent, agreement in principle, acquisition agreement or
other agreement (an "AIL Acquisition Agreement") with
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respect to an AIL Acquisition Transaction, unless (A) the Board of Directors of
AIL shall have determined in its good faith judgment, after consultation with
outside counsel, that failure to do so would constitute a breach of fiduciary
duty under applicable Law, (B) AIL shall have delivered a copy of such AIL
Acquisition Agreement to EDO and notified EDO of its intent to enter into such
AIL Acquisition Agreement at least five Business Days prior to executing such
AIL Acquisition Agreement and (C) AIL shall have terminated this Agreement in
accordance with Section 8.1(j).
(b) EDO. (i) During the term of this Agreement, EDO shall not, and EDO
shall cause each of its Representatives not to, (x) directly or indirectly
solicit or encourage any inquiries or proposals for, or enter into or continue
any discussions with respect to, the acquisition by any Person of any shares of
EDO Common Stock, any other shares of capital stock or other securities of any
member of the EDO Group, or all or any material portion of the Business or of
the assets of any member of the EDO Group, or any merger, consolidation,
recapitalization, liquidation, dissolution or similar transaction involving EDO
or any of its Subsidiaries (an "EDO Acquisition Transaction"), (y) furnish or
permit to be furnished any non-public information concerning any member of the
EDO Group or the Business of any member of the EDO Group to any Person (other
than AIL and its Representatives) other than information furnished in the
ordinary course of business after prior written notice to and consultation with
AIL, or (z) directly or indirectly, with or through any other party, market or
otherwise publicize or make any arrangements to market or otherwise publicize
the sale of, or sell, any securities of EDO in a public offering or make any
public announcement or disclosure regarding such a public offering.
Notwithstanding the foregoing, if the Board of Directors of EDO determines in
its good faith judgment, after consultation with outside counsel, that failure
to do so would constitute a breach of fiduciary duty under applicable Law, EDO
may, in response to an unsolicited inquiry or proposal with respect to an EDO
Acquisition Transaction, (A) furnish non-public information with respect to EDO
and its Subsidiaries to the Person that made such inquiry or proposal pursuant
to a customary and reasonable confidentiality agreement and (B) participate in
negotiations regarding such EDO Acquisition Transaction. EDO shall immediately
cease and cause to be terminated any existing activities, discussions or
negotiations with any Person in respect of any EDO Acquisition Transaction. EDO
shall promptly notify AIL of any inquiry or proposal received by EDO or any
Representative thereof with respect to an EDO Acquisition Transaction, which
notice shall include the identity of the inquiring party and the terms of the
proposal, and promptly deliver to AIL any documents or agreements proferred to
EDO with respect thereto.
(ii) The Board of Directors of EDO shall not cause or permit EDO to enter
into any letter of intent, agreement in principle, acquisition agreement or
other agreement (an "EDO Acquisition Agreement") with respect to an EDO
Acquisition Transaction, unless (A) the Board of Directors of EDO shall have
determined in its good faith judgment, after consultation with outside counsel,
that failure to do so would constitute a breach of fiduciary duty under
applicable Law and (B) EDO shall have delivered a copy of such EDO Acquisition
Agreement to AIL and notified AIL of its intent to enter into such EDO
Acquisition Agreement at least five Business Days prior to executing such EDO
Acquisition Agreement.
4.11. Affiliate Agreements. AIL shall, prior to the Effective Time,
deliver to EDO a list setting forth in AIL's reasonable judgment the names and
addresses of all Persons who are, as of the date hereof, in AIL's reasonable
judgment, "affiliates" of AIL for purposes of Rule 145 under the Securities Act.
The parties agree that the AIL ESOP Trustee is an "affiliate" for such purposes.
AIL shall furnish such information and documents as EDO may reasonable request
for the purpose of reviewing such list. AIL shall use its reasonable best
efforts to cause any Person who is identified as an "affiliate" on such list to
execute a written agreement on or prior to the Effective Time substantially in
the form of Exhibit A hereto.
4.12. [Intentionally omitted.]
4.13. Indemnification and Insurance. (a) From and after the Effective
Time, the Surviving Corporation shall indemnify and hold harmless each present
and former director and officer of AIL determined as of the Effective Time (the
"Indemnified Parties"), against any costs or expenses (including reasonable
attorneys' fees), judgments, fines, losses, claims, damages or liabilities
(collectively, "Costs") incurred in connection with any claim, action, suit,
proceeding or investigation, whether civil, criminal, administrative or
investigative, arising out of or pertaining to matters existing or occurring at
or prior to the
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Effective Time (including without limitation in connection with the transactions
contemplated by this Agreement), whether asserted or claimed prior to, at or
after the Effective Time, to the fullest extent permitted under the DGCL (and
the Surviving Corporation shall also advance expenses as incurred to the fullest
extent permitted under applicable law, provided the Person to whom expenses are
advanced provides an undertaking to repay such advances if it is ultimately
determined that such Person is not entitled to indemnification).
(b) For a period of two years after the Effective Time, EDO shall cause to
be maintained in effect the current policies of directors' and officers'
liability insurance maintained by AIL ("D&O Insurance") with respect to claims
arising from facts or events which occurred before the Effective Time, provided
that EDO may substitute therefor policies of at least the same coverage and
amounts containing terms and conditions that are no less advantageous; provided,
however, that nothing contained herein shall require EDO or the Surviving
Corporation to incur any annual premium in excess of 150% of the last annual
estimated aggregate premium paid prior to the date of this Agreement for all
current D&O Insurance policies maintained by AIL, which AIL estimates to be
$85,000 (the "Current Premium"). If such premiums for such insurance would at
any time exceed 150% of the Current Premium, then EDO shall cause to be
maintained policies of insurance which, in EDO's good faith determination,
provide the maximum coverage available at an annual premium equal to 150% of the
Current Premium.
(c) If EDO or any of its successors or assigns (i) shall consolidate with
or merge into any other corporation or entity and shall not be the continuing or
surviving corporation or entity of such consolidation or merger or (ii) shall
transfer all or substantially all of its properties and assets to any
individual, corporation or other entity, then and in each such case, proper
provision shall be made so that the successors and assigns of EDO shall assume
all of the obligations set forth in this Section.
4.14. Actions Relating to Conversion of Options. EDO shall, prior to the
Effective Time, take all necessary actions to ensure that the aggregate number
of shares of EDO Common Stock to be issued upon the exercise of the Substituted
Options be reserved for or otherwise authorized to be issued under the 1996 Long
Term Incentive Plan.
5. Stockholder Meeting; Share Issuance; etc.
5.1. Stockholder Approvals. Subject to the terms and conditions contained
in this Agreement, (a) the issuance of EDO Common Stock in connection with the
Merger (the "Share Issuance") shall be submitted for approval to the holders of
shares of EDO Common Stock and EDO Preferred Stock at a meeting to be duly held
for this purpose by EDO (the "EDO Meeting"), and (b) this Agreement shall be
submitted for approval and adoption by the holders of Common Shares at a meeting
to be duly held for this purpose by AIL (the "AIL Meeting"). AIL and EDO shall
coordinate and cooperate with respect to the timing of such meetings, shall each
give its respective shareholders at least 10 days written notice of its meeting,
shall not change the date or time of such meeting (including adjournment) unless
the other party approves in writing the changed date and time and shall each
endeavor to hold its meeting as soon as practicable after the date hereof.
5.2. Board Recommendations. (a) Subject to Section 5.2(b), the respective
recommendations of the Boards of Directors of AIL and EDO described in Sections
2.31(b) and 3.31(b) shall be contained in the Proxy Statement.
(b) (i) Neither AIL nor its Board of Directors may withdraw or modify, or
propose publicly to withdraw or modify, its position with respect to this
Agreement, the Ancillary Agreements or the Merger and neither AIL nor its Board
of Directors may approve or recommend, or propose publicly to approve or
recommend, an AIL Acquisition Transaction, unless, in each case, in the good
faith judgment of the Board of Directors of AIL, after consultation with outside
counsel, failure to so withdraw, modify, approve or recommend would constitute a
breach of fiduciary duty under applicable Law.
(ii) Neither EDO nor its Board of Directors may withdraw or modify, or
propose publicly to withdraw or modify, its position with respect to this
Agreement, the Ancillary Agreements or the Merger unless, in the good faith
judgment of the Board of Directors of EDO, after consultation with outside
counsel, failure to so
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withdraw or modify would constitute a breach of fiduciary duty under applicable
Law. Neither EDO nor its Board of Directors may approve or recommend, or propose
publicly to approve or recommend, an EDO Acquisition Transaction, unless (A) in
the good faith judgment of the Board of Directors of EDO, after consultation
with outside counsel, failure to so approve or recommend would constitute a
breach of fiduciary duty under applicable Law, and (B) EDO shall have notified
AIL of its intent to approve or recommend such EDO Acquisition Transaction at
least five Business Days prior to publicly doing so.
(iii) Nothing contained in this Agreement shall prohibit EDO from taking
and disclosing to its stockholders a position contemplated by Rule 14e-2(a)
under the Exchange Act, provided that for all purposes of this Agreement, taking
a position under Rule 14e-2(a)(2) or 14e-2(a)(3) with respect to an EDO
Acquisition Transaction shall be deemed to be an approval or recommendation of
such EDO Acquisition Transaction.
5.3. Proxy Statement/Registration Statement. (a) EDO and AIL shall
cooperate and promptly prepare and file with the SEC as soon as is reasonably
practicable the Proxy Statement and the Registration Statement, and shall use
their reasonable best efforts to have the Proxy Statement cleared by the SEC
under the Exchange Act and the Registration Statement declared effective by the
SEC under the Securities Act. EDO shall use its reasonable best efforts to cause
the Proxy Statement to be mailed to holders of shares of EDO Common Stock and
EDO Preferred Stock, and AIL shall use its reasonable best efforts to cause the
Proxy Statement and Registration Statement to be mailed to holders of Common
Shares, in each case as soon as practicable after the Registration Statement has
been declared effective by the SEC. EDO shall also take any action required to
be taken under state blue sky or other securities laws in connection with the
issuance of EDO Common Stock in the Merger.
(b) No filing of, or amendment or supplement to, the Registration Statement
or the Proxy Statement will be made by EDO without providing AIL a reasonable
opportunity to review and comment thereon. EDO will advise AIL promptly after it
receives notice thereof of any request by the SEC for amendment of the Proxy
Statement or the Registration Statement or comments thereof or requests by the
SEC for additional information. EDO shall provide AIL with copies of any
communication received from or sent to the SEC in connection with the Proxy
Statement or the Registration Statement and with a reasonable opportunity to
review all responses to SEC comments or other requests prior to their being sent
to the SEC. If at any time prior to the Effective Time any information relating
to AIL or EDO, or any of their respective affiliates, officers or directors,
should be discovered by AIL or EDO which should be set forth in an amendment or
supplement to the Registration Statement or the Proxy Statement, so that any
such documents would not include any misstatement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, the party which discovered such information shall promptly
notify the other party hereto and an appropriate amendment or supplement
describing such information shall be promptly filed with the SEC and, to the
extent required by law, disseminated to the stockholders of EDO and AIL.
5.4. NYSE Listing. EDO shall promptly prepare and file with the NYSE a
listing application covering the shares of EDO Common Stock issuable in the
Merger and use its reasonable best efforts to obtain, prior to the Effective
Time, approval for the listing of such EDO Common Stock, subject only to
official notice of issuance.
6. Certain Post-Closing Covenants.
6.1. Headquarters. The headquarters of EDO and AIL immediately following
the Merger shall be located in New York City.
6.2. EDO Board of Directors. The composition of the Board of Directors of
EDO immediately following the Effective Time shall be as set forth in Schedule
6.2. Attached hereto as Exhibit D are the duly adopted resolutions of the Board
of Directors of EDO expanding the size of the board to 11 and appointing to the
board, and nominating for election to the board at the next annual meeting of
stockholders, Messrs. N. Armstrong and R. Leach, all in accordance with Sections
2.02 and 2.08 of the By-Laws of EDO. It
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is contemplated by the parties that the size of the board will be reduced to
nine within one year following the Closing.
6.3. EDO Officers. The officers of EDO, immediately following the
Effective Time shall be as set forth in Schedule 6.3, and EDO shall take all
necessary action to appoint such individuals to such offices effective as of the
Closing.
6.4. Employee Stock Ownership Plans. The parties agree that the AIL ESOP
and the EDO ESOP shall be merged into a single employee stock option plan within
one year of the Effective Time subject to any approvals or consents of the AIL
ESOP Trustee and the trustee of the EDO ESOP.
7. Conditions Precedent.
7.1. Conditions to Obligations of Each Party. The obligations of AIL, EDO
and Merger Sub to consummate the transactions contemplated hereby shall be
subject to the fulfillment or written waiver by both parties at or prior to the
Effective Time of the following conditions:
7.1.1. HSR Act Notification. The notifications of EDO and AIL
pursuant to the HSR Act, if any, shall have been made and the applicable
waiting period and any extensions thereof shall have expired or been
terminated.
7.1.2. Stockholder Approvals. (a) The holders of issued and
outstanding Common Shares shall have approved and adopted this Agreement in
accordance with applicable Law and the AIL Organizational Documents.
(b) The holders of issued and outstanding shares of EDO Common Stock
and EDO Preferred Stock shall have approved the Share Issuance in
accordance with applicable Law, the EDO Organizational Documents and the
rules of the NYSE.
7.1.3. Registration Statement. The Registration Statement shall have
become effective in accordance with the provisions of the Securities Act,
no stop order suspending such effectiveness shall have been issued and
remain in effect and no proceeding for that purpose shall have been
initiated or threatened by the SEC.
7.1.4. NYSE Listing. The shares of EDO Common Stock issuable in the
Merger shall have been approved for listing on the NYSE, subject only to
official notice of issuance.
7.1.5. No Injunctions. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, promulgated or
enforced by any court or other tribunal or Governmental Authority which
prohibits the consummation of the transactions contemplated by this
Agreement and the Ancillary Agreements substantially on the terms
contemplated hereby and thereby. In the event any order, decree or
injunction shall have been issued, each party shall use its reasonable best
efforts to remove an such order, decree or injunction.
7.2. Conditions to Obligations of EDO and Merger Sub. The obligations of
EDO and Merger Sub to consummate the transactions contemplated hereby shall be
subject to the fulfillment or written waiver by EDO at or prior to the Effective
Time of the following additional conditions:
7.2.1. Representations, Performance. (a) The representations and
warranties of AIL contained in Section 2 or in any Ancillary Agreement
shall be, ignoring for these purposes any qualification as to materiality
or AIL Material Adverse Effect, (i) true and correct in all material
respects at and as of the date hereof, and (ii) repeated and shall be true
and correct in all material respects at and as of the Effective Time with
the same effect as though made at and as of the Effective Time.
(b) AIL shall have in all material respects duly performed and
complied with all agreements, covenants and conditions required by this
Agreement to be performed or complied with by AIL prior to or at the
Effective Time.
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(c) AIL shall have delivered to EDO and Merger Sub a certificate,
effective at the Closing Date and signed by the Chief Executive Officer and
the Chief Financial Officer of AIL confirming the items set forth above in
this Section 7.2.1.
7.2.2. Consents. All Governmental Approvals required to be made or
obtained by AIL in connection with the execution and delivery of this
Agreement and the Ancillary Agreements or the consummation of the
transactions contemplated hereby or thereby and all other Consents listed
on Schedule 2.16(b) shall have been made or obtained. Complete and correct
copies of all such Governmental Approvals and Consents shall have been
delivered to EDO and Merger Sub.
7.2.3. No AIL Material Adverse Effect. No event, occurrence, fact,
condition, change, development or effect shall exist or have occurred or
come to exist or been threatened since the date of this Agreement that,
individually or in the aggregate, has had or resulted in, or would
reasonably be expected to become or result in, an AIL Material Adverse
Effect.
7.2.4. Ancillary Agreements. The Ancillary Agreements shall have been
executed and delivered by each of the parties thereto (other than EDO and
Merger Sub), and the Escrow Agreement shall have been executed and
delivered by the parties thereto (other than EDO and Merger Sub) in the
form attached hereto as Exhibit B or otherwise in form and substance
satisfactory to EDO. Neither the Defense Systems Agreement nor the
Management Stock Purchase Agreement shall have been terminated, and all of
the conditions precedent to the obligations of the parties to such
agreements (other than Section 6.3 of the Defense Systems Agreement and
Section 5.3 and 6.3 of the Management Stock Purchase Agreement) shall have
been satisfied or waived.
7.2.5. Tax Opinion. EDO shall have received an opinion of Debevoise &
Plimpton, tax counsel to EDO, dated as of the Effective Time, to the effect
that the transactions contemplated by this Agreement and the Ancillary
Agreements will qualify as a reorganization within the meaning of Section
368(a)(2)(D) of the Code. The issuance of such opinion shall be conditioned
upon the receipt by such tax counsel of representation letters from each of
AIL, Merger Sub and EDO, in each case, in form and substance reasonably
satisfactory to such tax counsel. The specific provisions of each such
representation letter shall be in form and substance reasonably
satisfactory to such tax counsel, and each such representation letter shall
be dated on or before the date of such opinion and shall not have been
withdrawn or modified in any material respect.
7.2.6. Amendments to AIL ESOP. The amendments to the AIL ESOP
referred to in Section 4.12 shall be in full force and effect.
7.3. Conditions to Obligations of AIL. The obligation of AIL to consummate
the transactions contemplated hereby shall be subject to the fulfillment or
written waiver by AIL at or prior to the Effective Time of the following
additional conditions:
7.3.1. Representations, Performance, etc. (a) The representations and
warranties of EDO and Merger Sub contained in Section 3 or in any Ancillary
Agreement shall be, ignoring for these purposes any qualification as to
materiality or EDO Material Adverse Effect, (i) true and correct in all
material respects at and as of the date hereof and (ii) repeated and shall
be true and correct in all material respects at and as of the Effective
Time with the same effect as though made at and as of such time.
(b) Each of EDO and Merger Sub shall have in all material respects
duly performed and complied with all agreements, covenants and conditions
required by this Agreement to be performed or complied with by it prior to
or at the Effective Time.
(c) Each of EDO and Merger Sub shall have delivered to AIL a
certificate dated the Closing Date and signed by its Chief Executive
Officer and Chief Financial Officer to the effect set forth above in this
Section 7.3.1.
7.3.2. Consents. All Governmental Approvals required to be made or
obtained by EDO in connection with the execution and delivery of this
Agreement and the Ancillary Agreements or the consummation of the
transactions contemplated hereby or thereby and all other Consents listed
on
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Schedule 3.16(b)(i) shall have been made or obtained. Complete and correct
copies of all such Governmental Approvals and Consents shall have been
delivered to AIL.
7.3.3. No EDO Material Adverse Effect. No event, occurrence, fact,
condition, change, development or effect shall exist or have occurred or
come to exist or been threatened since the date of this Agreement that,
individually or in the aggregate, has had or resulted in, or would
reasonably be expected to become or result in, an EDO Material Adverse
Effect.
7.3.4. Ancillary Agreements. The Ancillary Agreements shall have been
executed and delivered by each of the parties thereto (other than AIL or a
Common Stockholder), and the Escrow Agreement shall have been executed and
delivered by the parties thereto (other than the Common Stockholder
Representative) in the form attached hereto as Exhibit B or otherwise in
form and substance satisfactory to AIL. Neither the Defense Systems
Agreement nor the Management Stock Purchase Agreement shall have been
terminated, and all of the conditions precedent to the obligations of the
parties to such agreements (other than Section 6.3 of the Defense Systems
Agreement and Section 5.3 and 6.3 of the Management Stock Purchase
Agreement) shall have been satisfied or waived.
7.3.5. Tax Opinion. AIL shall have received an opinion of Kleinberg,
Kaplan, Wolff & Cohen P.C., tax counsel to AIL, dated as of the Effective
Time, to the effect that the transactions contemplated by this Agreement
and the Ancillary Agreements will qualify as a reorganization within the
meaning of Section 368(a)(2)(D) of the Code. The issuance of such opinion
shall be conditioned upon the receipt by such tax counsel of representation
letters from each of AIL, Merger Sub and EDO, in each case, in form and
substance reasonably satisfactory to such tax counsel. The specific
provisions of each such representation letter shall be in form and
substance reasonably satisfactory to such tax counsel, and each such
representation letter shall be dated on or before the date of such opinion
and shall not have been withdrawn or modified in any material respect.
7.3.6. Reservation or Authorization of Shares of EDO Common Stock
Subject to Substituted Options. EDO shall have taken, to the reasonable
satisfaction of AIL, the actions referred to in Section 4.14 to ensure that
the aggregate number of shares of EDO Common Stock to be issued upon the
exercise of Substituted Options be reserved for or otherwise authorized to
be issued under the 1996 Long Term Incentive Plan.
8. Termination.
8.1. Termination or Abandonment. Notwithstanding anything contained in
this Agreement to the contrary, this Agreement may be terminated and abandoned
at any time prior to the Effective Time, whether before or after any approval of
the matters presented in connection with the Merger by the respective
stockholders of EDO and AIL:
(a) by the mutual written consent of EDO, Merger Sub and AIL;
(b) by either AIL or EDO if the Effective Time shall not have occurred
on or before June 15, 2000; provided that the party seeking to terminate
this Agreement pursuant to this clause 8.1(b) shall not have breached in
any material respect its obligations under this agreement in any manner
that shall have proximately contributed to the failure to consummate the
Merger on or before such date;
(c) by either AIL or EDO if (i) a statute, rule, regulation or
executive order shall have been enacted, entered or promulgated prohibiting
the consummation of the transactions contemplated by this Agreement and the
Ancillary Agreements substantially on the terms contemplated hereby and
thereby or (ii) an order, decree, ruling or injunction shall have been
entered permanently restraining, enjoining or otherwise prohibiting the
consummation of the transactions contemplated by this Agreement and the
Ancillary Agreements substantially on the terms contemplated hereby and
thereby and such order, decree, ruling or injunction shall have become
final and non-appealable; provided that the party seeking to terminate this
Agreement pursuant to this clause 8.1(c)(ii) shall have used its reasonable
best efforts to prevent or remove such injunction, order or decree;
(d) by either AIL or EDO if (i) the holders of issued and outstanding
shares of EDO Common Stock and EDO Preferred Stock (voting together as a
single class) shall have failed to approve the Share Issuance at the EDO
Meeting or any adjournment thereof or (ii) the holders of issued and
outstanding
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Common Shares shall have failed to approve and adopt this Agreement at the
AIL Meeting or any adjourned thereof;
(e) by either AIL or EDO if the Defense Systems Agreement or the
Management Stock Purchase Agreement has been terminated in accordance with
its terms;
(f) by AIL if (i) the representations and warranties of EDO and Merger
Sub contained in Section 2 or in any Ancillary Agreement are not, ignoring
for these purposes any qualification as to materiality or EDO Material
Adverse Effect, (A) true and correct in all material respects at and as of
the date hereof, and (B) true and correct in all material respects at and
as of the Effective Time with the same effect as though made at and as of
the Effective Time (except for representations and warranties made of a
specific date, which must be true and correct in all material respects as
of such date, and except as expressly contemplated by this Agreement), or
(ii) EDO or Merger Sub has materially breached any agreement, covenant or
condition required by this Agreement to be performed or complied with by
EDO or Merger Sub prior to or at the Effective Time, and in the case of
either clause (i) or (ii), such breach or failure to be true and correct
shall not be curable or shall not have been cured within 15 days after
notice thereof shall have been received by EDO;
(g) by EDO if (i) the representations and warranties of AIL contained
in Section 3 or in any Ancillary Agreement are not, ignoring for these
purposes any qualification as to materiality or AIL Material Adverse
Effect, (A) true and correct in all material respects at and as of the date
hereof, and (B) true and correct in all material respects at and as of the
Effective Time with the same effect as though made at and as of the
Effective Time (except for representations and warranties made of a
specific date, which must be true and correct in all material respects as
of such date, and except as expressly contemplated by this Agreement), or
(ii) AIL has materially breached any agreement, covenant or condition
required by this Agreement to be performed or complied with by it prior to
or at the Effective Time, and in the case of either clause (i) or (ii),
such breach or failure to be true and correct shall not be curable or shall
not have been cured within 15 days after notice thereof shall have been
received by AIL;
(h) by EDO if the Board of Directors of AIL shall have (i) withdrawn
or modified in a manner adverse to EDO, or proposed publicly to withdraw or
modify in a manner adverse to EDO, its position with respect to this
Agreement and the transactions contemplated hereby or (ii) approved or
recommended, or proposed publicly to approve or recommend, an AIL
Acquisition Transaction;
(i) by AIL if the Board of Directors of EDO shall have (i) withdrawn
or modified in a manner adverse to AIL, or proposed publicly to withdraw or
modify in a manner adverse to AIL, its position with respect to this
Agreement and the transactions contemplated hereby or (ii) approved or
recommended, or proposed publicly to approve or recommend, an EDO
Acquisition Transaction, provided that AIL may not terminate this Agreement
pursuant to this Section 8.1(i)(ii) unless (I) EDO has notified AIL of its
intent to approve or recommend such EDO Acquisition Transaction pursuant to
Section 5.2(b)(ii), (II) prior to the end of the five Business Day period
specified in Section 5.2(b)(ii) AIL has notified EDO that it intends to
terminate this Agreement pursuant to this Section 8.1(i)(ii), and (III)
five Business Days have elapsed since the end of the five Business Day
period specified in Section 5.2(b)(ii) and EDO has failed to publicly
recommend against such EDO Acquisition Transaction;
(j) by AIL if AIL enters into an AIL Acquisition Agreement pursuant to
Section 4.10(a)(ii), provided that AIL may not terminate this Agreement
pursuant to this Section 8.1(j) unless and until (i) five Business Days
have elapsed following delivery to EDO of a written notice of the
determination by the Board of Directors of AIL to terminate this Agreement,
and during such five Business Day period AIL informs EDO of the terms and
conditions of the AIL Acquisition Transaction and the identity of the
person making such AIL Acquisition Transaction, and (ii) at the end of such
five Business Day period the Board of Directors of AIL makes a good faith
judgment, after consultation with outside counsel, that, taking into
account any amendment of the terms of this Agreement or the Merger offered
by EDO or any firm proposal (without conditions) by EDO to amend the terms
of this Agreement or the Merger, failure
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to enter into the AIL Acquisition Agreement would still constitute a breach
of fiduciary duties under applicable Law;
(k) by AIL if (I) EDO has notified AIL of its intent to enter into an
EDO Acquisition Agreement pursuant to Section 4.10(b)(ii), (II) at the end
of the five Business Day period specified in Section 4.10(b)(ii) AIL has
notified EDO that it intends to terminate this Agreement pursuant to this
Section 8.1(k), and (III) five Business Days have elapsed since the end of
the five Business Days period specified in Section 4.10(b)(ii) and either
(x) EDO has entered into and failed to terminate such EDO Acquisition
Agreement, (y) EDO has entered into and terminated with penalty such EDO
Acquisition Agreement or (z) EDO has failed to cease all discussions and
negotiations with the third party proposing to enter into the EDO
Acquisition Agreement and to notify AIL that it has done so.
8.2. Effect of Termination. In the event of the termination of this
Agreement pursuant to the provisions of Section 8.1, this Agreement, other than
Sections 8, 11.1, 11.2, 11.3, 11.4, 11.5 (with respect only to the other
Sections that survive termination) and 11.13, shall become void and have no
effect, without any liability to any Person in respect hereof or of the
transactions contemplated hereby on the part of any party hereto, or any of its
directors, officers, Representatives, stockholders or Affiliates, except for any
liability resulting from such party's breach of this Agreement. Notwithstanding
the foregoing, the payment by AIL of the AIL Termination Fee or the payment by
EDO of the EDO Termination Fee in respect of a termination pursuant to Section
8.1(f) or 8.1(g), respectively, shall constitute liquidated damages, and, in the
absence of fraud, the breaching party shall not be liable to the terminating
party for any additional damages whatsoever resulting from or arising out of the
breach or breaches that gave rise to the termination of this Agreement.
8.3. Termination Fees. (a) Notwithstanding any provision in this Agreement
to the contrary, if this Agreement is terminated by AIL pursuant to Section
8.1(j) or by EDO pursuant to Section 8.1(g) or 8.1(h), then AIL shall pay to EDO
a fee (the "AIL Termination Fee") of $3,000,000 in cash, such payment to be made
as soon as practicable (but in no event more than two days) following a
termination pursuant to Section 8.1(g), 8.1(h) or 8.1(j).
(b) Notwithstanding any provision in this Agreement to the contrary, if
this Agreement is terminated by AIL pursuant to Section 8.1(f), 8.1(i) or
8.1(k), then EDO shall pay to AIL a fee (the "EDO Termination Fee") of
$3,000,000 in cash, such payment to be made as soon as practicable (but in no
event more than two days) following such termination.
(c) EDO and AIL each acknowledges that the agreements contained in this
Section 8.3 are an integral part of the transactions contemplated by this
Agreement, and that, without these agreements, EDO on the one hand and AIL on
the other would not enter into this Agreement; accordingly, if either EDO or AIL
fails to promptly pay any amounts owing pursuant to this Section 8.3 when due,
EDO or AIL, as the case may be, shall in addition thereto pay to the other all
costs and expenses (including, fees and disbursements of counsel) incurred in
collecting such amounts, together with interest on such amounts (or any unpaid
portion thereof) from the date such payment was required to be made until the
date such payment is received by the EDO or AIL, as the case may be, at the
prime rate of Chase Manhattan Bank, as in effect from time to time during such
period.
9. Indemnification.
9.1. Survival of Representations and Warranties, etc. The representations
and warranties of AIL, EDO and Merger Sub contained in this Agreement shall
survive the execution and delivery of this Agreement, any examination by or on
behalf of the parties hereto and the completion of the transactions contemplated
herein, but only until the earlier of (x) the date of the acceptance by EDO's
audit committee of the consolidated audit of EDO for the fiscal year ended
December 31, 2000, and (y) June 30, 2001 (the "Survival Date"), and all claims
for indemnification under this Section 9 by any party, whether against the
Escrow Account under the Escrow Agreement or otherwise, must be asserted on or
prior to the date that is 30 days after such Survival Date.
9.2. Indemnification by AIL and the Exchanging Common
Stockholders. Subject to Section 9.2(z), AIL (prior to the Closing) and the
Exchanging Common Stockholders severally (on and after the Closing)
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shall indemnify EDO, Merger Sub, their respective Affiliates, and their
respective stockholders, partners, members, officers, directors, advisory
directors, employees, agents, advisors and representatives (collectively, the
"EDO Indemnitees") and hold such EDO Indemnitees harmless from and against, and
pay and reimburse the EDO Indemnitees for, any and all demands, claims, actions,
losses, damages, liabilities, obligations, fines, Taxes, royalties,
deficiencies, costs and expenses (including reasonable consultants' and
attorneys' fees), whether or not resulting from third-party claims, including
interest and penalties with respect thereto (collectively, "EDO Damages"),
asserted against or incurred or sustained by any EDO Indemnitee as a result of
or arising out of:
(a) any breach of any representation or warranty of AIL contained in
this Agreement; or
(b) any breach of any covenant or agreement of AIL contained in this
Agreement.
Any EDO Indemnitee's right to indemnity hereunder for any EDO Damages shall
be subject to the following limitations:
(y) No indemnification shall be required to be made under Section
9.2(a) or (b) for a breach of representation, warranty, covenant or
agreement until the aggregate amount of EDO Damages exceeds $500,000;
provided that, if the aggregate amount of EDO Damages exceeds such amount,
AIL or the Exchanging Common Stockholders, as the case may be, shall be
liable for indemnification for the entire amount of EDO Damages, subject to
the other provisions of this Section.
(z) (i) After the Effective Time, any claim by the EDO Indemnitees
under this Section 9.2 may be asserted against any or all of the Exchanging
Common Stockholders (through the Common Stockholder Representative or
otherwise). Notwithstanding the foregoing, in no event shall any Exchanging
Common Stockholder be required to indemnify the EDO Indemnitees for any
single claim for EDO Damages under this Section 9.2 in excess of an amount
equal to the product of (I) the amount of such single claim and (II) a
fraction, the numerator of which is equal to the sum of the number of
Common Shares held by such Exchanging Common Stockholder that were
converted into the right to receive the Merger Consideration and the number
of Common Shares purchased from such Exchanging Common Stockholder pursuant
to the Management Stock Purchase Agreement, and the denominator of which is
equal to the total number of Common Shares that were so converted and
purchased.
(ii) Notwithstanding anything in this Agreement (other than Section
9.6(a)) or the Escrow Agreement to the contrary, except as contemplated by
Section 9.6(a), under no circumstances will any EDO Indemnitee be entitled
to indemnification pursuant to this Agreement or otherwise from any
Exchanging Common Stockholder other than from the portion of the Escrow
Account that is attributable (based on the percentages set forth on Exhibit
A to the Escrow Agreement) to such Exchanging Common Stockholder.
Notwithstanding anything in this Agreement to the contrary other than the
immediately succeeding paragraph, the Common Stockholder Representative shall
have the full power and authority to represent, negotiate on behalf of and bind
the Exchanging Common Stockholders with respect to the enforcement by any EDO
Indemnitee or any disputes with any EDO Indemnitee arising out of the rights of
any EDO Indemnitee under this Section 9.2, and the EDO Indemnitees shall be
entitled to deal exclusively with the Common Stockholder Representative in
respect of such rights. For the avoidance of doubt, the Common Stockholder
Representative shall not be personally liable for any nonpayment by any other
Exchanging Common Stockholder. Nothing in this Section 9.2 shall prevent an
Exchanging Common Stockholder from making a claim individually under Section
9.3.
Notwithstanding anything else contained herein to the contrary, the Common
Stockholder Representative (i) shall deliver to the AIL ESOP Trustee, promptly
upon receipt, copies of all notices received by the Common Stockholder
Representative in her capacity as such from EDO, AIL, the Escrow Agent or any
other party, (ii) will not agree (or be deemed to agree by failure to respond to
a notice given or failure to take any other action) to any settlement of any
claim, consent (or be deemed to consent by failure to respond to a notice given
or failure to take any other action) to the release of any amounts in the Escrow
Fund that are attributable to the Merger Shares issued to the AIL ESOP or that
otherwise adversely affects the AIL
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ESOP, without the prior consent of the AIL ESOP Trustee, (iii) will consult with
the AIL ESOP Trustee in connection with exercising its authority hereunder, and
(iv) has been granted no authority to act on behalf of the AIL ESOP or any of
its property in violation of the foregoing. Any action required of the Common
Stockholder Representative to dispute a claim of an EDO Indemnitee or otherwise
preserve any rights of the AIL ESOP not taken by the Common Stockholder
Representative without the consent of the AIL ESOP Trustee to refrain from
taking such action may be taken by the AIL ESOP Trustee on behalf of the AIL
ESOP. Any action taken in violation of the foregoing shall be void and of no
effect. Any deemed waiver or acquiescence by reason a failure to take any action
without the consent of the AIL ESOP Trustee shall be void and of no effect,
except if the AIL ESOP Trustee shall have received copies of the notices
referred to in clause (i) above, shall have been notified that the Common
Stockholder Representative intends to waive objection by inaction and shall have
failed to take any action on its own under the second preceding sentence within
a reasonable time. Any action taken by the AIL ESOP Trustee shall be effective
solely with respect to the AIL ESOP and not with respect to any other Exchanging
Common Stockholder.
9.3. Indemnification By EDO. EDO and Merger Sub jointly and severally
shall indemnify AIL (prior to Closing) and the Exchanging Common Stockholders
(on and after Closing) (collectively, the "AIL Indemnitees") and hold the AIL
Indemnitees harmless from and against, and pay and reimburse the AIL Indemnitees
for, any and all demands, claims, actions, losses, damages, liabilities,
obligations, fines, Taxes, royalties, deficiencies, costs and expenses
(including reasonable consultants' and attorneys' fees), whether or not
resulting from third-party claims, including interest and penalties with respect
thereto (collectively, the "Common Stockholder Damages"), asserted against or
incurred or sustained by any AIL Indemnitee as a result of or arising out of:
(a) any breach of any representation or warranty of EDO or Merger Sub
contained in this Agreement; or
(b) any breach of any covenant or agreement of EDO or Merger Sub
contained in this Agreement.
Any AIL Indemnitee's right to indemnity hereunder for any Common
Stockholder Damages shall be subject to the following limitations:
(y) No indemnification shall be required to be made under Section
9.3(a) or (b) for a breach of representation, warranty, covenant or
agreement until the aggregate amount of all Common Stockholder Damages
exceeds $500,000; provided that, if the aggregate amount of Common
Stockholder Damages exceeds such amount, EDO shall be liable for
indemnification for the entire amount of Common Stockholder Damages,
subject to the other provisions of this Section.
(z) In no event shall the AIL Indemnitees be entitled to indemnity for
Common Stockholder Damages in excess of an aggregate dollar amount equal to
7.5% of the product of (m) the sum of the number of Merger Shares and the
number of Management Shares and (n) the EDO Average Price.
9.4. Third Party Claims. All claims for indemnification by an EDO
Indemnitee or an AIL Indemnitee, as the case may be (any such indemnitee, an
"Indemnitee"), relating to a Third Party Claim shall be asserted and resolved as
follows:
(a) In the event any claim or demand for which indemnification may be
sought hereunder is made against or sought to be collected from any
Indemnitee by a third party (a "Third Party Claim"), such Indemnitee shall
give to the indemnifying party or parties (the "Indemnifying Parties"), or,
if the Exchanging Common Stockholders are the Indemnifying Parties, to the
Common Stockholders Representative, prompt notice of such Third Party
Claim, and such Indemnitee shall permit the Indemnifying Parties (at their
own expense and with the Indemnifying Parties' counsel) to assume the
defense of such Third Party Claim or any litigation resulting therefrom,
provided that (i) counsel for the Indemnifying Parties who shall conduct
the defense of such Third Party Claim or litigation shall be reasonably
satisfactory to such Indemnitee, (ii) such Indemnitee may participate in
such defense at the expense of such Indemnitee and (iii) the failure of
such Indemnitee to give notice as provided herein shall not relieve the
Indemnifying Parties of their respective indemnification obligation under
this Agreement except to the extent that such failure results in a lack of
actual notice to the Indemnifying
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Parties and then only to the extent that the Indemnifying Parties are
significantly prejudiced as a result of such failure. The notice referred
to above shall describe in reasonable detail the claim or demand for which
indemnification is being sought and shall identify the section of this
Agreement under which indemnification is being sought. The Person seeking
indemnification shall provide all materials in its possession with respect
to such claim or demand.
Except with the prior written consent of such Indemnitee, such consent
not to be unreasonably withheld, the Indemnifying Parties, in the defense
of any such Third Party Claim or litigation, shall not consent to entry of
any judgment or enter into any settlement that does not include as an
unconditional term thereof the giving by each claimant or plaintiff to such
Indemnitee of a release from all liability with respect to such Third Party
Claim or litigation, or that would materially increase the Tax liability of
any Indemnitee. After notice from the Indemnifying Parties to such
Indemnitee of their election to assume the defense of such Third Party
Claim or litigation, the Indemnifying Parties shall not be liable to such
Indemnitee under this Section 9.4 for any legal or other expenses
subsequently incurred by such Indemnitee in connection with the defense
thereof; provided, that such Indemnitee shall have the right to employ
separate counsel in any such action and to participate in the defense
thereof, but the fees and expenses for such counsel shall be at the expense
of such Indemnitee unless (x) the employment thereof has been specifically
authorized by the Indemnifying Parties or (y) such Indemnitee shall have
been advised by counsel that, due to a conflict of interest (or a potential
conflict of interest) between such Indemnitee and the Indemnifying Parties,
in the reasonable judgment of such counsel it is advisable for such
Indemnitee to employ separate counsel and the Indemnifying Parties do not
employ other reasonably satisfactory counsel for the Indemnitee. The
Indemnifying Parties shall in any event keep the Indemnitee reasonably
apprised of material developments with respect to such Third Party Claim or
litigation and shall furnish a copy to the Common Stockholder
Representative or EDO, as the case may be, of all relevant documents except
to the extent delivery of any such documents would jeopardize any
attorney-client privilege available to the Indemnifying Parties.
(b) In the event that within 15 Business Days after an Indemnitee's
delivery of any notice pursuant to Section 9.4(a), the Indemnifying Parties
fail to notify such Indemnitee of their intention to defend, such
Indemnitee shall (upon further notice to the Indemnifying Parties) have the
right to undertake the defense, compromise, settlement or payment in full
of such Third Party Claim or litigation for the account of the Indemnifying
Parties.
(c) Notwithstanding anything in this Agreement to the contrary, all
rights of the Exchanging Common Stockholders as either Indemnitees or
Indemnifying Parties under this Section 9.4(c) shall be exercisable
exclusively by the Common Stockholder Representative, and EDO and Merger
Sub shall be entitled to deal exclusively with the Common Stockholder
Representative in respect of all such rights.
9.5. Tax Treatment and Limitation of Indemnity Payments. EDO, Merger Sub
and the Exchanging Common Stockholders agree to treat any indemnity payment made
pursuant to Section 9 of this Agreement as an adjustment to the aggregate Merger
Consideration paid at Closing for all Tax purposes.
9.6. Form of Consideration. (a) Each Exchanging Common Stockholder may
elect in an Election Form substantially in the form of Exhibit E hereto to pay
any indemnity obligations payable by him or her pursuant to Section 9.2 in cash,
provided that the applicable Election Form has been executed and delivered to
EDO no later than 10 days following the Closing. Any Exchanging Common
Stockholder who has not executed and delivered an Election Form within such
period or has not indicated a preference will be required to pay any indemnity
obligations in shares of EDO Common Stock. All payments in respect of indemnity
obligations shall be made out of the Escrow Account, provided that if an
Exchanging Common Stockholder has elected to pay in cash, payments in respect of
indemnity obligations of such Exchanging Common Stockholder shall be made by
such Exchanging Common Stockholder in cash, and property in the Escrow Account
having a value equal to such cash payment (with shares of EDO Common Stock being
valued at the Indemnity Share Price) shall be promptly released to such
Exchanging Common Stockholder in accordance with the Escrow Agreement; provided
further that if an Exchanging Common Stockholder has elected to pay in cash, but
fails to tender such payment to EDO within seven Business Days after such
payment is due under
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Section 5 of the Escrow Agreement, such Exchanging Common Stockholder shall no
longer be permitted to pay such claim in cash and such Exchanging Common
Stockholder's indemnity obligation shall be satisfied out of the Escrow Account
as if such Exchanging Common Stockholder had not executed and delivered an
Election Form. If an Exchanging Common Stockholder has elected (or is required)
to pay in shares of EDO Common Stock, the number of shares of EDO Common Stock
payable with respect to any portion of such Exchanging Common Stockholder's
indemnity obligation shall equal the amount of such portion divided by the
Indemnity Share Price.
(b) EDO may elect to pay any indemnity obligations payable by it pursuant
to Section 9.2 in cash or shares of EDO Common Stock, at EDO's option, provided
that if EDO elects to pay in shares of EDO Common Stock, such shares will be
issued or otherwise transferred pursuant to an effective registration statement
or an exemption from registration under the Securities Act. If EDO elects to pay
in shares of EDO Common Stock, the number of shares of EDO Common Stock payable
with respect to its indemnity obligation shall equal the amount of such
obligation divided by the Indemnity Share Price.
(c) Any shares of EDO Common Stock paid to EDO by the Exchanging Common
Stockholders shall be put into EDO's treasury.
10. Definitions.
10.1. Terms Generally. The words "hereby", "herein", "hereof", "hereunder"
and words of similar import refer to this Agreement as a whole (including any
Exhibits and Schedules hereto) and not merely to the specific section, paragraph
or clause in which such word appears. All references herein to Sections,
Exhibits and Schedules shall be deemed references to Sections of, and Exhibits
and Schedules to, this Agreement unless the context shall otherwise require. The
words "include", "includes" and "including" shall be deemed to be followed by
the phrase "without limitation." The definitions given for terms in this Section
10 and elsewhere in this Agreement shall apply equally to both the singular and
plural forms of the terms defined. Whenever the context may require, any pronoun
shall include the corresponding masculine, feminine and neuter forms. Except as
otherwise expressly provided herein, all references to "dollars" or "$" shall be
deemed references to the lawful money of the United States of America.
10.2. Certain Terms. Whenever used in this Agreement (including in the
Schedules), the following terms shall have the respective meanings given to them
below or in the Sections indicated below:
Affiliate: of a Person means a Person that directly or indirectly
through one or more intermediaries, controls, is controlled by, or is under
common control with, the first Person. "Control" (including the terms
"controlled by" and "under common control with") means the possession,
directly or indirectly, of the power to direct or cause the direction of
the management policies of a Person, whether through the ownership of
voting securities, by contract, as trustee or executor, or otherwise.
AG Edwards: as defined in Section 3.26.
Aggregate Consideration: (i) with respect to a Common Stockholder not
party to the Management Stock Purchase Agreement, the aggregate Merger
Consideration to which such Common Stockholder is entitled pursuant to
Section 1, and (ii) with respect to a Common Stockholder party to the
Management Stock Purchase Agreement, the sum of (x) the aggregate Merger
Consideration to which such Common Stockholder is entitled pursuant to
Section 1 and (y) that number of shares of EDO Common Stock equal to the
quotient of the consideration to which such Common Stockholder is entitled
pursuant to the Management Stock Purchase Agreement divided by the EDO
Average Price.
Agreement: this Merger Agreement, including the Exhibits and
Schedules hereto.
AIL: as defined in the first paragraph to this Agreement.
AIL Acquisition Agreement: as defined in Section 4.10(a).
AIL Acquisition Transaction: as defined in Section 4.10(a).
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AIL Assets: the properties and assets (real, personal or mixed,
tangible or intangible) used or held for use in connection with, necessary
for the conduct of, or otherwise material to, the Business of any member of
the AIL Group.
AIL Balance Sheet: the audited balance sheet of AIL and its
Subsidiaries, as of December 31, 1998, included in the AIL Financial
Statements.
AIL Commercial Software: as defined in Section 2.13(f).
AIL Employees: as defined in Section 2.20(a).
AIL ESOP: the AIL Employee Stock Ownership Plan, as amended through
the date hereof.
AIL ESOP Percentage: (i) 13%, if the EDO Closing Price is $6.25 or
greater; (ii) 9.0%, if the EDO Closing Price is $6.00 or greater, but less
than $6.25; (iii) 7.0%, if the EDO Closing Price is $5.75 or greater, but
less than $6.00; or (iv) 5.0%, if the EDO Closing Price is less than $5.75.
AIL ESOP Trustee: means Marine Midland Bank, now known as HSBC Bank
USA, solely in its capacity as Trustee of the AIL ESOP.
AIL Financial Statements: the unaudited consolidated financial
statements of the AIL Group as at and for the nine-month period ended
September 26, 1999, and the audited consolidated financial statements of
the AIL Group as at and for the year ended December 31, 1998, and the
three-month period ended December 31, 1997 together with reports on such
year-end statements (including the statement for the period ended December
31, 1997) by E&Y, including in each case a consolidated balance sheet, a
consolidated statement of income, a statement of shareholders' equity and a
consolidated statement of cash flows, and accompanying notes.
AIL Group: AIL and its Subsidiaries.
AIL Indemnitee: as defined in Section 9.3.
AIL Intellectual Property: as defined in Section 2.13(b).
AIL Leases: the real property leases, subleases, licenses and
occupancy agreements pursuant to which any member of the AIL Group is the
lessee, sublessee, licensee, user or occupant of real property used in or
held for use in connection with its Business.
AIL Material Adverse Effect: any (a) event, occurrence, fact,
condition, change, development or effect that is materially adverse to the
business, operations, results of operations, financial condition,
properties (including intangible properties), assets (including intangible
assets) or liabilities of the AIL Group taken as a whole or (b) material
impairment or delay of the ability of AIL to perform its obligations
hereunder or under any of the Ancillary Agreements.
AIL Material Contract: as defined in Section 2.12(a).
AIL Meeting: as defined in Section 5.1(b).
AIL Owned Intellectual Property: all Intellectual Property that is
owned by any member of the AIL Group and that either has been filed or
registered or is material to the Business of the AIL Group.
AIL Owned Software: as defined in Section 2.13(g).
AIL Plans: as defined in Section 2.20(a).
AIL Proxy Financials: the unaudited consolidated financial statements
of the AIL Group as at and for the nine-month period ended September 26,
1999, and the audited consolidated financial statements of the AIL Group as
at and for the years ended December 31, 1998 and 1996, the nine-month
period ended September 30, 1997 and the three-month period ended December
31, 1997, together with reports on such year-end and partial year
statements (other than the statements as at and for the nine-month period
ended September 26, 1999) by E&Y, including in each case a consolidated
balance sheet, a consolidated statement of income, a statement of
shareholders' equity and a consolidated statement of cash flows, and
accompanying notes.
AIL Related Persons: as defined in Section 2.20(a).
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AIL Stock Option Plans: the AIL Systems Inc. Stock Option Plan and
the AIL Systems Inc. 1998 Long Term Stock Option Plan.
AIL Termination Fee: as defined in Section 8.3(a).
Ancillary Agreements: the Defense Systems Agreement, the Management
Stock Purchase Agreement and the Escrow Agreement.
Appraisal Rights: any and all rights of Dissenting Stockholders to
the proposed Merger, including any and all rights of appraisal arising out
of Section 262 of the DGCL and the certificate of incorporation and by-laws
of AIL.
Best Knowledge of EDO: the actual knowledge of any officer of EDO,
after reasonable inquiry of the employees of the EDO Group having
responsibility for the matter knowledge of which is involved.
Best Knowledge of AIL: the actual knowledge of any officer of AIL,
after reasonable inquiry of employees of the AIL Group having
responsibility for the matter knowledge of which is involved.
Business: the business and operations of any Person, in each case as
currently conducted by such Person.
Business Day: a day other than a Saturday or a Sunday when banks in
New York are lawfully open for business.
CERCLA: the Comprehensive Environmental Response, Compensation and
Liability Act, as amended, 42 U.S.C. sec. 9601 et seq.
Certificate: as defined in Section 1.6(b).
Certificate of Merger: as defined in Section 1.2(b).
Closing: as defined in Section 1.2(a).
Closing Date: as defined in Section 1.2(a).
Code: the Internal Revenue Code of 1986, as amended.
Common Shares: as defined in the second recital to this Agreement.
Common Stockholder: any record holder of issued and outstanding
Common Shares.
Common Stockholder Damages: as defined in Section 9.3.
Common Stockholder Representative: as defined in Section 11.13.
Confidentiality Agreement: as defined in Section 11.2.
Consent: any consent, approval, authorization, waiver, permit, grant,
filing, report or notice of, with or to any Person.
Contract: all loan agreements, indentures, letters of credit
(including related letter of credit applications and reimbursement
obligations), mortgages, security agreements, pledge agreements, deeds of
trust, bonds, notes, guarantees, surety obligations, non-governmental
licenses, powers of attorney, purchase orders and other agreements,
contracts, instruments, obligations, offers, commitments, arrangements and
understandings, written or oral, including all Governmental Contracts and
Governmental Subcontracts, to which any member of the AIL Group is a party
or by which it or any of its properties or assets may be bound or affected,
in each case as amended, supplemented, waived or otherwise modified.
Costs: as defined in Section 4.13(a).
DGCL: as defined in Section 1.1(a).
DOD: means the United States Department of Defense or any branch or
agency thereof.
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Defense Systems: as defined in the third recital to this Agreement.
Defense Systems Agreement: as defined in the third recital to this
Agreement.
Dissenting Shares: as defined in Section 1.8.
Dissenting Stockholder: as defined in Section 1.8.
E&Y: as defined in Section 2.6(a).
EDO: as defined in the first paragraph of this Agreement.
EDO Acquisition Agreement: as defined in Section 4.10(b).
EDO Acquisition Transaction: as defined in Section 4.10(b).
EDO Assets: the properties and assets (real, personal or mixed,
tangible or intangible) used or held for use in connection with, necessary
for the conduct of, or otherwise material to, the Business of any member of
the EDO Group.
EDO Average Price: the average of the closing prices per share of EDO
Common Stock as reported on the NYSE Composite Transactions Tape (as
reported in The Wall Street Journal, or, if not reported thereby, any other
authoritative source) on each of the 5 consecutive NYSE trading days ending
on (and including) the trading day immediately prior to the Closing Date.
EDO Balance Sheet: the audited balance sheet of EDO and its
Subsidiaries, as of December 31, 1998, included in the EDO Financial
Statements.
EDO Certificates: as defined in Section 1.6(a).
EDO Closing Price: the closing price per share of EDO Common Stock as
reported on the NYSE Composite Transactions Tape (as reported in The Wall
Street Journal, or if not reported thereby, any other authoritative source)
on the last NYSE trading day prior to the Effective Time.
EDO Commercial Software: as defined in Section 3.13(f).
EDO Common Stock: means shares of common stock, par value $1.00 per
share, of EDO.
EDO Contracts: all loan agreements, indentures, letters of credit
(including related letter of credit applications and reimbursement
obligations), mortgages, security agreements, pledge agreements, deeds of
trust, bonds, notes, guarantees, surety obligations, non-governmental
licenses, powers of attorney, purchase orders and other agreements,
contracts, instruments, obligations, offers, commitments, arrangements and
understandings, written or oral, including all Governmental Contracts and
Governmental Subcontracts, to which any member of the EDO Group is a party
or by which it or any of its properties or assets may be bound or affected,
in each case as amended, supplemented, waived or otherwise modified.
EDO Convertible Debentures: the 7% Convertible Subordinated
Debentures Due 2011 of EDO.
EDO Damages: as defined in Section 9.2.
EDO Employees: as defined in Section 3.20.
EDO ESOP: the EDO Employee Stock Ownership Plan, as amended through
the date hereof.
EDO Financial Statements: the unaudited consolidated financial
statements of the EDO Group as at and for the nine-month period ended
September 30, 1999, and the audited consolidated financial statements of
the EDO Group as at and for the years ended December 31, 1998 and 1997
together with reports on such year-end statements by KPMG LLP, including in
each case a consolidated balance sheet, a consolidated statement of
earnings, a consolidated statement of shareholders' equity and a
consolidated statement of cash flows, and accompanying notes.
EDO Group: EDO and its Subsidiaries (including Merger Sub).
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EDO Indemnitee: as defined in Section 9.2.
EDO Intellectual Property: as defined in Section 3.13(b).
EDO Leases: the real property leases, subleases, licenses and
occupancy agreements pursuant to which any member of the EDO Group is the
lessee, sublessee, licensee, user or occupant of real property used in or
held for use in connection with its Business.
EDO Material Adverse Effect: any (a) event, occurrence, fact,
condition, change, development or effect that is materially adverse to the
business, operations, results of operations, financial condition,
properties (including intangible properties), assets (including intangible
assets) or liabilities of the EDO Group taken as a whole or (b) material
impairment or delay of the ability of EDO or Merger Sub to perform its
obligations hereunder or under any of the Ancillary Agreements.
EDO Material Contracts: as defined in Section 3.12(a).
EDO Meeting: as defined in Section 5.1(a).
EDO Option: any option or warrant to purchase shares of EDO Common
Stock.
EDO Owned Intellectual Property: all Intellectual Property that is
owned by any member of the EDO Group and that either has been filed or
registered or is material to the Business of the EDO Group.
EDO Owned Software: as defined in Section 3.13(f).
EDO Plans: as defined in Section 3.20.
EDO Proxy Financials: the unaudited consolidated financial statements
of the EDO Group as at and for the nine-month period ended September 30,
1999, and the audited consolidated financial statements of the EDO Group as
at and for the years ended December 31, 1998, 1997 and 1996 together with
reports on such year-end statements by KPMG LLP, including in each case a
consolidated balance sheet, a consolidated statement of earnings, a
consolidated statement of shareholders' equity and a consolidated statement
of cash flows, and accompanying notes.
EDO Preferred Stock: means shares of EDO ESOP Convertible Cumulative
Preferred Stock, Series A, par value $1 per share.
EDO Products: as defined in Section 3.25.
EDO Related Persons: as defined in Section 3.20.
EDO Reports: as defined in Section 3.1.
EDO Stock Option Plans: the 1996 Long Term Incentive Plan and the
1997 Non-Employee Director Stock Option Plan.
EDO Termination Fee: as defined in Section 8.3(b).
Effective Time: as defined in Section 1.2(b).
Election Form: means an Election Form, the form of which is attached
hereto as Exhibit E.
Employment Agreement: as defined in Recital E.
Employee Stock Options: as defined in Section 1.5.
Environmental Laws: all Laws relating to the protection of the
environment, including (a) CERCLA, the Resource Conservation and Recovery
Act, and the Occupational Safety and Health Act, (b) all other requirements
pertaining to reporting, licensing, permitting, investigation or
remediation of emissions, discharges, Releases or threatened Releases of
Hazardous Materials into the air, surface water, groundwater or land, or
relating to the manufacture, processing, distribution, use, sale,
treatment, receipt, storage, disposal, transport or handling of Hazardous
Materials, and (c) all other requirements pertaining to the protection of
the health and safety of employees or the public.
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Environmental Liabilities and Costs: all Losses, whether direct or
indirect, known or unknown, current or potential, past, present or future,
imposed by, under or pursuant to Environmental Laws, including, without
limitation, all Losses related to Remedial Actions, and all fees,
disbursements and expenses of counsel, experts, personnel and consultants
based on, arising out of or otherwise in respect of: (i) the ownership or
operation of the business of any member of the AIL Group or the EDO Group,
as applicable, the Real Property of the AIL Group or the EDO Group, as
applicable, or any other real property, assets, equipment or facilities, by
the any member of the AIL Group or the EDO Group, as applicable, or any of
their predecessors or Affiliates; (ii) the environmental conditions
existing at the Effective Time on, under, above, or about any Real Property
of the AIL Group or the EDO Group, as applicable, or any other real
property, assets, equipment or facilities currently or previously owned,
leased or operated by any member of the AIL Group or the EDO Group, as
applicable, or any of their respective predecessors or Affiliates; and
(iii) expenditures necessary to cause any Real Property of the AIL Group or
the EDO Group, as applicable, or any aspect of the business of any member
of the AIL Group to be in compliance with any and all requirements of
Environmental Laws as of the Effective Time, including, without limitation,
all Environmental Permits issued under or pursuant to such Environmental
Laws, and reasonably necessary to make full economic use of any Real
Property of the AIL Group or the EDO Group, as applicable.
ERISA: the Employee Retirement Income Security Act of 1974, as
amended.
Escrow Account: means the account pursuant to the Escrow Agreement.
Escrow Agreement: means the agreement, the form of which is attached
hereto as Exhibit B.
Escrow Amount: as defined in Section 1.7(a).
Escrowed Shares: as defined in Section 1.7(b).
Exchange Act: Securities Exchange Act of 1934, as amended, and the
rules and regulations thereunder.
Exchange Agent: as defined in Section 1.6(a).
Exchange Fund: as defined in Section 1.6(a).
Exchange Ratio: as defined in Section 1.3(a).
Exchanging Common Stockholder: any Common Stockholder who receives
the Merger Consideration in the Merger.
5% Stockholder: as to any Person, a beneficial owner of at least five
percent of the common equity of such Person, as calculated pursuant to Rule
13d-3 under the Exchange Act, who has on file with the SEC a Schedule 13D
or 13G stating that such holder is the beneficial owner of at least five
percent of such common equity.
Governmental Approval: any Consent of, with or to any Governmental
Authority, including any DOD security clearance.
Governmental Authority: any nation or government, any state or other
political subdivision thereof; any entity, authority or body exercising
executive, legislative, judicial, regulatory or administrative functions of
or pertaining to government, including the DOD; any court, tribunal or
arbitrator of competent jurisdiction; and any self-regulatory (including
securities self-regulatory) organization.
Governmental Contract: means a contract, agreement, commitment,
guaranty, bid or proposal between a member of the AIL Group or the EDO
Group, as applicable, and the DOD or any other Governmental Authority,
including any facilities contract for the use of government-owned
facilities.
Governmental Subcontract: means a contract, agreement, commitment,
guaranty, bid or proposal that is a subcontract between a member of the AIL
Group or the EDO Group, as applicable, and any third party relating to a
prime contract with the DOD or any other Governmental Authority.
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Hazardous Materials: any substance that: (a) is or contains asbestos,
urea formaldehyde foam insulation, polychlorinated biphenyls, petroleum or
petroleum-derived substances or wastes, or related materials (b) requires
investigation, removal or remediation under any Environmental Law, or is
defined, listed or identified as a "hazardous waste" or "hazardous
substance" thereunder, or (c) is toxic, explosive, corrosive, flammable,
infectious, radioactive, carcinogenic, mutagenic, or otherwise hazardous
and is regulated by any Governmental Authority or Environmental Law.
Houlihan: as defined in Section 2.26.
HSR Act: the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, and the rules and regulations thereunder.
Indebtedness: as applied to any Person, means, without duplication,
(a) all indebtedness for borrowed money, (b) all obligations evidenced by a
note, bond, debenture, letter of credit, draft or similar instrument, (c)
that portion of obligations with respect to capital leases that is properly
classified as a liability on a balance sheet in conformity with U.S. GAAP,
(d) notes payable and drafts accepted representing extensions of credit,
(e) any obligation owed for all or any part of the deferred purchase price
of property or services, which purchase price is due more than six months
from the date of incurrence of the obligation in respect thereof, and (f)
all indebtedness and obligations of the types described in the foregoing
clauses (a) through (e) to the extent secured by any Lien on any property
or asset owned or held by such Person regardless of whether the
indebtedness secured thereby shall have been assumed by such Person or is
nonrecourse to the credit of such Person.
Indemnified Party: as defined in Section 4.13(a).
Indemnifying Party: as defined in Section 9.4(a).
Indemnitee: as defined in Section 9.4.
Indemnity Share Price: means (i) the average of the closing prices of
EDO Common Stock on the NYSE (or, if the EDO Common Stock is no longer
trading on the NYSE, on any other national securities exchange on which the
EDO Common Stock is then trading) on the first Business Day immediately
prior to each of (A) delivery by an Indemnitee to any Indemnifying Party
(or its representative) of written notice requesting indemnification under
Section 9.2 or 9.3, as applicable, and (B) payment of such indemnity claim
or (ii) if the EDO Common Stock is no longer trading on any national
securities exchange, the average of the values of a share of EDO Common
Stock on such dates based on the most current appraisal performed for the
AIL ESOP (or its successor) on each of such dates.
IRS: the Internal Revenue Service.
Intellectual Property: the United States and foreign trademarks,
service marks, trade names, trade dress, domain names, copyrights, and
similar rights, including registrations and applications to register or
renew the registration of any of the foregoing, the United States and
foreign letters patent (including design patents, industrial designs and
utility models) and patent applications (including docketed patent
disclosures awaiting filing, reissues, revisions, divisions, continuations,
continuations-in-part, extensions and re-examinations), patent disclosures
awaiting filing determination, and improvements thereto, and inventions
(whether patentable or unpatentable and whether or not reduced to
practice), and improvements thereto, processes, designs, formulae, trade
secrets, know-how, ideas, research and development, manufacturing and
production processes and techniques, technical data, copyrightable works,
engineering notebooks, confidential information, Software, firmware,
Internet Web sites, mask works and other semiconductor chip rights and
applications, registrations and renewals thereof, and all similar
intellectual property rights (including moral rights), all rights to sue
for and remedies against past, present and future infringements of any or
all of the foregoing and rights of priority and protection of interests
therein under the Laws of any jurisdiction, tangible embodiments of any of
the foregoing (in any medium including electronic media), and licenses of
any of the foregoing.
ISO: as defined in Section 1.5.
Law: all applicable provisions of all (a) constitutions, treaties,
statutes, the common law, codes, rules, regulations, ordinances or orders
of any Governmental Authority, and (b) orders, decisions,
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injunctions, judgments, awards and decrees of or written consent agreements
with any Governmental Authority.
Lien: any mortgage, pledge, deed of trust, hypothecation, right of
others, claim, security interest, encumbrance, burden, title retention
agreement, license, occupancy agreement, easement, covenant, condition,
encroachment, voting trust agreement, interest, option, right of first
offer, negotiation or refusal, proxy, lien, lien with respect to Taxes,
charge or other restrictions or limitations of any nature whatsoever,
including but not limited to such Liens as may arise under any written or
oral contract, agreement, instrument, obligation, offer, commitment,
arrangement or understanding.
Litigation: any action, cause of action, claim, demand, suit,
proceeding, summons, subpoena, civil, criminal, regulatory or otherwise, in
law or in equity.
Losses: any and all claims, demands, liabilities, obligations,
losses, fines, costs, expenses, deficiencies or damages (whether absolute,
accrued, conditional or otherwise and whether or not resulting from third
party claims), including interest and penalties with respect thereto and
out-of-pocket expenses and reasonable attorneys' and accountants' fees and
expenses incurred in the investigation or defense of any of the same or in
asserting, preserving or enforcing any of their respective rights hereunder
or under any Ancillary Agreement.
Management Shares: the product of the number of Common Shares subject
to the Management Stock Purchase Agreement and the Exchange Ratio.
Management Stock Purchase Agreement: as defined in the third recital
to this Agreement.
Merger: as defined in Section 1.1(a).
Merger Consideration: as defined in Section 1.3(a).
Merger Shares: as defined in Section 1.3(a).
Merger Sub: as defined in the first paragraph of this Agreement.
NYSE: as defined in Section 1.6(h).
Option: any option or warrant to purchase Common Shares.
Organizational Documents: as to any Person, its certificate or
articles of incorporation, by-laws and other organizational documents.
Permitted Liens: (a) Liens for Taxes not yet due and payable or (b)
those Liens that (i) are set forth in Schedule 2.10 or Schedule 3.10 or
(ii) individually and in the aggregate with all other Permitted Liens, do
not and will not materially detract from the value of any of the property
or assets of any member of the AIL Group or the EDO Group, as applicable,
or materially interfere with the use thereof as currently used or
contemplated to be used, or otherwise have or result in an AIL Material
Adverse Effect or an EDO Material Adverse Effect, as applicable.
Person: any natural person, firm, partnership, association,
corporation, company, trust, business trust, Governmental Authority or
other entity.
Preferred Shares: as defined in the third recital to this Agreement.
Prime Rate: the rate of interest publicly announced by Citibank N.A.
from time to time in New York City as its prime rate.
Products: as defined in Section 2.25(a).
Proxy Statement: the letters to stockholders, notices of meeting,
proxy statement and forms of proxies to be distributed to stockholders in
connection with the Share Issuance and the approval and adoption of this
Agreement, and any schedules required to be filed with the SEC in
connection therewith.
Real Property: all interests leased pursuant to the AIL Leases or the
EDO Leases, as applicable, together with all real property owned, operated
or occupied by any member of the AIL Group or the EDO Group, as applicable,
on the date of this Agreement or at the Effective Time, including all
improvements and fixtures, located on, or attached to such real property,
and all easements, licenses, rights and appurtenances relating to the
foregoing.
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Real Property Laws: all applicable building, zoning, subdivision and
other land use and similar Laws affecting the EDO Group's Real Property or
the AIL Group's Real Property, as the case may be.
Registration Statement: the Registration Statement on Form S-4 under
the Securities Act with respect to the EDO Common Stock to be issued in the
Merger.
Release: any releasing, disposing, discharging, injecting, spilling,
leaking, leaching, pumping, dumping, emitting, escaping, emptying, seeping,
dispersal, leeching or migration into the environment, including into or
upon, any land, soil, surface water, ground water or air.
Remedial Action: all actions required to (i) clean up, remove, treat
or in any other way remediate any Hazardous Materials; (ii) prevent the
release of Hazardous Materials so that they do not migrate or endanger or
threaten to endanger public health or welfare or the environment; or (iii)
perform studies, investigations and care related to any such Hazardous
Materials.
Representatives: as to any Person, its accountants, counsel,
consultants (including actuarial, environmental and industry consultants),
officers, directors, employees, agents and other advisors and
representatives.
SEC: U.S. Securities and Exchange Commission.
Securities Act: as defined in Section 3.6.
Share Issuance: as defined in Section 5.1(a).
Shares: as defined in the third recital to this Agreement.
Software: all computer software, including but not limited to,
application software and system software, including all source code and
object code versions thereof, in any and all forms and media, whether
recorded on paper, magnetic media or other electronic or non-electronic
media (including user manuals, training materials, flow charts, diagrams,
descriptive tests and programs, computer print-outs, underlying tapes,
computer databases and similar items), integrated circuits, embedded
systems, and other electro-mechanical or processor based systems.
Subsidiaries: each corporation or other Person in which a Person owns
or controls, directly or indirectly, capital stock or other equity
interests representing more than 50% of the outstanding voting stock or
other equity interests.
Substituted Option: as defined in Section 1.5.
Survival Date: as defined in Section 9.
Surviving Corporation: as defined in Section 1.1(a).
Tax: any federal, state, local or foreign income, alternative,
minimum, accumulated earnings, personal holding company, franchise, capital
stock, profits, windfall profits, gross receipts, sales, use, value added,
transfer, registration, stamp, premium, excise, customs duties, severance,
environmental (including taxes under section 59A of the Code), real
property, personal property, ad valorem, occupancy, license, occupation,
employment, payroll, social security, disability, unemployment, workers'
compensation, withholding, estimated or other similar tax, duty, fee,
assessment or other governmental charge or deficiencies thereof (including
all interest and penalties thereon and additions thereto).
Tax Return: any return, report, declaration, form, claim for refund
or information return or statement relating to Taxes, including any
schedule or attachment thereto, and including any amendment thereof.
Third Party Claim: as defined in Section 9.4(a).
Total Escrowed Shares: as defined in Section 1.7(b).
Treasury Regulations: the regulations prescribed under the Code.
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U.S. GAAP: United States generally accepted accounting principles.
11. Miscellaneous.
11.1. Expenses. Except as otherwise specifically provided for in this
Agreement, whether or not the transactions contemplated hereby shall be
consummated, all costs and expenses incurred in connection with this Agreement,
the Ancillary Agreements and the transactions contemplated hereby and thereby
shall be paid by the party incurring such expenses, except that the expenses
incurred in connection with the printing and mailing of the Proxy Statement and
Registration Statement and the filing fee in connection with any HSR Act filing
shall be shared equally by EDO and AIL. AIL will pay any real property transfer
Taxes imposed on it or its stockholders.
11.2. Confidentiality. The parties hereto agree that with respect to the
disclosure of information furnished hereunder or in connection herewith, the
parties shall continue to be bound by the terms of that certain confidentiality
agreement, dated April 6, 1999 (the "Confidentiality Agreement"), between EDO
and AIL until the Effective Time, at which time such Confidentiality Agreement
shall terminate automatically. The parties hereto agree that they shall use its
reasonable best efforts to cause its officers, employees and Representatives and
their Subsidiaries and their respective officers, employees and Representatives
to, hold in strict confidence all data and information given to them by any
other party hereto (unless such information is or becomes readily ascertainable
from public or published information) and shall not, and shall use their
reasonable best efforts to ensure that such officers, employees and
Representatives do not, disclose such information to others without the prior
written consent of such other party.
11.3. Notices. All notices, requests, demands, waivers and other
communications required or permitted to be given under this Agreement shall be
in writing and shall be deemed to have been duly given if (a) delivered
personally, (b) mailed, certified or registered mail with postage prepaid, (c)
sent by next-day or overnight mail or delivery or (d) sent by telecopy or
telegram, as follows:
(i) if to Merger Sub or EDO,
EDO Corporation
60 East 42nd Street
Suite 5010
New York, New York 10165
Fax: (212) 716-2051
Telephone: (212) 716-2000
Attention: Frank A. Fariello
with a copy to:
Debevoise & Plimpton
875 Third Avenue
New York, New York 10022
Fax: (212) 909-6836
Telephone: (212) 909-6000
Attention: Robert F. Quaintance, Jr.
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(ii) if to AIL,
AIL Technologies Inc.
455 Commack Road
Deer Park, New York 11729-4591
Fax: (516) 595-5472
Telephone: (516) 595-5082
Attention: James M. Smith
with a copy to:
Kleinberg Kaplan, Wolff & Cohen P.C.
551 Fifth Avenue, 18th Floor
New York, New York 10176
Fax: (212) 986-8866
Telephone: (212) 986-6000
Attention: Harold I. Steinbach
or, in each case, at such other address as may be specified in writing to the
other parties hereto.
All such notices, requests, demands, waivers and other communications shall
be deemed to have been received (w) if by personal delivery on the day after
such delivery, (x) if by certified or registered mail, on the seventh business
day after the mailing thereof, (y) if by next-day or overnight mail or delivery,
on the day delivered, (z) if by telecopy or telegram, on the day following the
day on which such telecopy or telegram was sent, provided that a copy is also
sent by certified or registered mail.
11.4. Arbitration; Governing Law, etc. (a) Arbitration. Any dispute in
connection with this Agreement shall be resolved by binding arbitration pursuant
to the most expedited method available. The arbitration shall be held in New
York City, New York and shall be conducted in accordance with the Commercial
Arbitration Rules of the American Arbitration Association then in effect at the
time of the arbitration. The arbitrator shall be a lawyer acceptable to both AIL
(or the Common Stockholder Representative or the relevant AIL Indemnitee, if
applicable) and EDO (or the relevant EDO Indemnitee, if applicable). If the
parties cannot agree on an acceptable arbitrator, the dispute shall be heard by
a panel of three arbitrators, all of whom shall be lawyers, one appointed by
each of the parties and the third appointed by the other two arbitrators. The
arbitrator or arbitrators shall make findings of fact and reach conclusions of
law and shall submit such findings of fact and conclusions of law in writing to
all parties to the arbitration. Any expense of arbitration shall be borne by the
party who incurs such expense and joint expenses (including, without limitation,
the arbitrator's fees) shall be shared equally.
(b) Governing Law, etc. THIS AGREEMENT SHALL BE GOVERNED IN ALL RESPECTS,
INCLUDING AS TO VALIDITY, INTERPRETATION AND EFFECT, BY THE INTERNAL LAWS OF THE
STATE OF NEW YORK (EXCEPT TO THE EXTENT THE DGCL IS IMPLICATED), WITHOUT GIVING
EFFECT TO THE CONFLICT OF LAWS RULES THEREOF. Solely in connection with the
enforcement of the arbitration provisions of, or an arbitral award made pursuant
to, Section 11.4(a), Merger Sub, EDO and AIL hereby irrevocably submit to the
exclusive jurisdiction of the courts of the State of New York and the Federal
courts of the United States of America located in the State, City and County of
New York and hereby waive, and agree not to assert, as a defense in any action,
suit or proceeding for the enforcement of such provisions or award, that it is
not subject thereto or that such action, suit or proceeding may not be brought
or is not maintainable in said courts or that the venue thereof may not be
appropriate or that such provisions or award may not be enforced in or by such
courts, and the parties hereto irrevocably agree that all claims with respect to
such action or proceeding shall be heard and determined in such a New York State
or Federal court. EDO, Merger Sub and AIL hereby consent to and grant any such
court jurisdiction over the person of such parties and over the subject matter
of any such dispute and agree that mailing of process or other papers in
connection with any such action or proceeding in the manner provided in Section
11.3 or in such other manner as may be permitted by law, shall be valid and
sufficient service thereof.
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11.5. Binding Effect. This Agreement shall be binding upon and inure to
the benefit of the parties hereto, the Exchanging Common Stockholders and their
respective heirs, successors and permitted assigns.
11.6. Assignment. This Agreement shall not be assignable or otherwise
transferable by any party hereto without the prior written consent of the other
parties hereto.
11.7. No Third Party Beneficiaries. Except as provided in Sections 3, 9
and 11.5, nothing in this Agreement shall confer any rights upon any person or
entity other than the parties hereto and their respective heirs, successors and
permitted assigns.
11.8. Amendment; Waivers, etc. No amendment, modification or discharge of
this Agreement, and no waiver hereunder, shall be valid or binding unless set
forth in writing and duly executed by the party against whom or which
enforcement of the amendment, modification, discharge or waiver is sought. Any
such waiver shall constitute a waiver with respect to only the specific matter
described in such writing and shall in no way impair the rights of the party
granting such waiver in any other respect or at any other time. Neither the
waiver by any of the parties hereto of a breach of or a default under any of the
provisions of this Agreement, nor the failure by any of the parties, on one or
more occasions, to enforce any of the provisions of this Agreement or to
exercise any right or privilege hereunder, shall be construed as a waiver of any
other breach or default, or as a waiver of any of such provisions, rights or
privileges hereunder. The rights and remedies herein provided are cumulative and
none is exclusive of any other, or of any rights or remedies that any party may
otherwise have at law or in equity. The representations and warranties of AIL
shall not be affected or deemed waived by reason of any investigation made by or
on behalf of EDO or Merger Sub (including by any of its advisors, consultants or
Representatives) or by reason of the fact that EDO or Merger Sub or any of such
advisors, consultants or Representatives knew or should have known that any such
representation or warranty is or might be inaccurate. The representations and
warranties of EDO and Merger Sub shall not be affected or deemed waived by
reason of any investigation made by or on behalf of any of AIL (including by any
of its advisors, consultants or Representatives) or by reason of the fact that
AIL or any of such advisors, consultants or Representatives knew or should have
known that any such representation or warranty is or might be inaccurate.
11.9. Entire Agreement. This Agreement, including the Schedules and
Exhibits, the Confidentiality Agreement, the Escrow Agreement, the Defense
Systems Agreement, the Management Stock Purchase Agreement and the Employment
Agreements constitute the entire agreement and supersede all prior agreements
and understandings, both written and oral, between the parties with respect to
the subject matter hereof.
11.10. Severability. If any provision, including any phrase, sentence,
clause, section or subsection, of this Agreement is invalid, inoperative or
unenforceable for any reason, such circumstances shall not have the effect of
rendering such provision in question invalid, inoperative or unenforceable in
any other case or circumstance, or of rendering any other provision herein
contained invalid, inoperative, or unenforceable to any extent whatsoever.
11.11. Headings. The headings contained in this Agreement are for purposes
of convenience only and shall not affect the meaning or interpretation of this
Agreement.
11.12. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed an original and all of which shall
together constitute one and the same instrument.
11.13. Common Stockholder Representative. Subject to the last paragraph of
Section 9.2, each of the Exchanging Common Stockholders pursuant to this
Agreement irrevocably appoints as his, her or its agent, proxy and
attorney-in-fact for all purposes of this Agreement and the Escrow Agreement,
with full power to act in the place and stead of such Exchanging Common
Stockholders in all matters arising under or in connection with this Agreement
and the Escrow Agreement, (i) Patricia Comiskey, (ii) in the event of the death,
disability, termination of employment or absence of Patricia Comiskey, Jerry
Reynolds, and (iii) in the event of the death, termination of employment or
disability of both of Patricia Comiskey and Jerry Reynolds, such other persons
as a majority in the interest of the remaining Exchanging Common Stockholders
shall designate (each such agent, proxy and attorney-in-fact being herein
referred to as the "Common Stockholder Representative").
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11.14. Escrow Agent. The Escrow Agent shall be selected by mutual
agreement of EDO and AIL. EDO and AIL agree to ask Mellon Bank to serve as the
Escrow Agent.
11.15. Disclosure Schedules. Information disclosed on any of Schedules 2.1
through 2.30 that could reasonably be understood on its face to be responsive to
the requirements of any other of such Schedules shall be deemed disclosed for
the purposes of such other Schedule. Information disclosed on any of Schedules
3.1 through 3.30 that could reasonably be understood on its face to be
responsive to the requirements of any other of such Schedules shall be deemed
disclosed for the purposes of such other Schedule.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
date first above written.
AIL TECHNOLOGIES INC.
By:
--------------------------------------
Name:
Title:
EDO CORPORATION
By:
--------------------------------------
Name:
Title:
EDO ACQUISITION III CORPORATION
By:
--------------------------------------
Name:
Title:
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EXHIBIT B
ESCROW AGREEMENT
This ESCROW AGREEMENT (this "Agreement") is dated as of [ ]
among (i) EDO CORPORATION, a New York corporation ("EDO"); (ii) [insert name of
Escrow Agent] (the "Escrow Agent") and (iii) Patricia Comiskey, as Common
Stockholder Representative (the "Common Stockholder Representative").
Capitalized terms used in this Agreement and not otherwise defined herein shall
have the meanings ascribed thereto in the Agreement and Plan of Merger, dated as
of January 2, 2000 (the "Merger Agreement"), among EDO, EDO Acquisition III
Corporation ("Merger Sub") and AIL Technologies Inc. ("AIL"); provided that,
solely for purposes of this Agreement, the term "Exchanging Common Stockholders"
shall include the Common Stockholders party to the Management Stock Purchase
Agreement referred to below.
R E C I T A L S:
A. Pursuant to a Stock Purchase Agreement, dated as of January 2, 2000, by
and among certain Common Stockholders, EDO and Merger Sub (the "Management Stock
Purchase Agreement"), EDO will, immediately prior to the closing of the Merger,
acquire 225,000 Common Shares from such Common Stockholders for a total purchase
price equal to the product of (i) 225,000, (ii) the Exchange Ratio and (iii) the
EDO Average Price, payable in cash.
B. Pursuant to the Merger Agreement, (i) AIL will merge with and into
Merger Sub; (ii) holders of Common Shares will receive, in exchange for their
Common Shares, shares of EDO Common Stock; (iii) AIL shall cease to exist and
Merger Sub shall continue as the surviving corporation (the "Surviving
Corporation"); and (iv) the Surviving Corporation will become a wholly-owned
direct subsidiary of EDO.
C. AIL has made certain representations, warranties, covenants and
agreements to and for the benefit of EDO and Merger Sub under or in connection
with the Merger Agreement.
D. Pursuant to the Management Stock Purchase Agreement and the Merger
Agreement, and in order to secure the indemnification obligations of the
Exchanging Common Stockholders, a certain portion of the consideration to be
issued in connection with the Merger (the "Escrow Amount") is to be deposited in
escrow (the "Escrow Account"), subject to the terms and conditions of this
Agreement.
E. EDO desires the Escrow Agent to hold and dispose of the Escrow Amount
and the Escrow Agent is willing to do so on the terms and conditions hereinafter
set forth.
A G R E E M E N T
NOW THEREFORE, in consideration of the premises and of the mutual
agreements, covenants and provisions herein contained and for good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties hereto agree as follows:
1. Appointment of Escrow Agent. The Escrow Agent is hereby appointed to
act as Escrow Agent hereunder and agrees to accept, hold and distribute the
Escrow Amount in accordance with and subject to the terms hereof.
2. Deposit of Escrow Amount. (a) Pursuant to the Management Stock Purchase
Agreement and the Merger Agreement, EDO has deposited, or has caused to be
deposited, the Escrow Amount with the Escrow Agent, and the Escrow Agent hereby
acknowledges receipt of the Escrow Amount. On the date hereof, the Escrow Amount
is comprised of shares of EDO Common Stock, and $ in cash.
The Escrow Amount shall be deemed to have been contributed into escrow hereunder
by the Exchanging Common Stockholders in proportion to the percentages set forth
next to the name of each such Exchanging Common Stockholder in Exhibit A hereto
as amended pursuant to Section 6.1(b). The shares of EDO Common Stock deposited
with the Escrow Agent hereunder (together with any shares or other securities
subsequently
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distributed in respect of such shares of EDO Common Stock as contemplated
pursuant to Section 3.1(a), the "Escrow Deposit Shares") are and will be
registered in the name of the Escrow Agent for convenience only; the parties
hereto acknowledge that, unless and until the Escrow Deposit Shares are
distributed to EDO hereunder, the Exchanging Common Stockholders are the
beneficial owners of the Escrow Deposit Shares.
(b) The Escrow Amount shall be used to secure the Exchanging Common
Stockholders' indemnification obligations under Section 9 of the Merger
Agreement.
3. Dividends; Voting Rights.
3.1(a) Subject to Section 3.1(b), all dividends or other property
distributed in respect of the Escrow Deposit Shares, including, without
limitation, any shares issued as a result of stock splits, stock dividends or
other recapitalizations, shall be retained in and become a part of the Escrow
Amount upon issuance or payment, as the case may be. The term "Escrow Deposit
Shares" shall be deemed to include all shares of EDO Common Stock and other
securities of EDO distributed in respect of the Escrow Deposit Shares, except as
contemplated pursuant to Section 3.1(b).
(b) All dividends or other property distributed in respect of those Escrow
Deposit Shares retained in the Escrow Account pursuant to Section 6.3,
including, without limitation, any shares issued as a result of stock splits,
stock dividends or other recapitalizations, at any time after the Survival Date,
shall be paid by EDO or, on their receipt by the Escrow Agent, by the Escrow
Agent, to the Exchanging Common Stockholders in accordance with the percentages
set forth in Exhibit A as amended pursuant to Section 6.1(b).
3.2 The Escrow Deposit Shares shall be voted on all matters submitted to
the shareholders of EDO as the Exchanging Common Stockholders shall direct in
respect of that number of Escrow Deposit Shares deemed contributed by each under
Section 2 above and not distributed pursuant to Section 6.1 or 6.2. In the
absence of direction from an Exchanging Common Stockholder, such Escrow Deposit
Shares shall be voted proportionately in accordance with the votes of the other
Exchanging Common Stockholders.
4. Investments. The Escrow Agent shall cause the cash portion of the
Escrow Amount from time to time to be invested and reinvested as directed in
writing by the Common Stockholder Representative in (a) debt securities for the
payment of which the full faith and credit of the United States of America is
pledged ("U.S. Securities") and repurchase agreements collateralized with U.S.
Securities, or (b) money market funds investing exclusively in U.S. Securities.
Absent direction by the Common Stockholder Representative to the Escrow Agent,
the Escrow Agent shall invest the cash portion of the Escrow Amount in the Pilot
Short Term U.S. Treasury Fund. The portion of the Escrow Amount consisting of
Escrow Deposit Shares shall remain invested in Escrow Deposit Shares.
5. Application of the Escrow Amount to Claims of EDO.
5.1 In the event any EDO Indemnitee suffers any EDO Damages ("Loss") which
it believes in good faith is covered by the Exchanging Common Stockholders'
indemnification obligations under Section 9.2 of the Merger Agreement, EDO shall
have the right (but not the obligation) to deliver to the Escrow Agent, with a
copy to the Common Stockholder Representative, a written notice (a "Disbursement
Notice"). A Disbursement Notice shall set forth (i) the amount of such Loss for
which reimbursement is then sought hereunder (the "Claimed Amount"), (ii) a
description, in reasonable detail, of the facts giving rise to such Loss to the
extent then known by EDO, and (iii) payment instructions for any cash portion of
such payment. Subject to Section 5.3(b) below, on the forty-fifth calendar day
following the date of receipt of such notice by the Escrow Agent, the Escrow
Agent shall pay to EDO the Claimed Amount pursuant to Section 5.3 and in
accordance with such payment instructions, provided, however, that if the Escrow
Agent receives a Contest Notice (as defined below) from the Common Stockholder
Representative to such Disbursement Notice prior to the forty-fifth calendar day
following the date the Escrow Agent receives such Disbursement Notice, the
Escrow Agent shall disburse all or a portion of the amounts sought under such
Disbursement Notice, but only in accordance with (x) joint written instructions
executed by EDO and the Common Stockholder Representative authorizing such
disbursement or (y) a letter of instruction from EDO specifying the portion of
the Claimed Amount to which it is entitled to receive payment and attaching a
copy of a decision by an arbitrator establishing such EDO Indemnitee's right to
receive payment in such amount. It is expressly agreed
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that, provided EDO has given notice as provided in this Agreement, the failure
by the Common Stockholder Representative to deliver a Contest Notice within the
time period specified above shall be deemed an irrevocable acceptance by the
Exchanging Common Stockholders of their liability for the Claimed Amount as set
forth in such Disbursement Notice or for such portion of the Claimed Amount as
to which the Common Stockholder Representative did not object.
5.2 If the Common Stockholder Representative disagrees in good faith with
any item or amount shown on any Disbursement Notice, the Common Stockholder
Representative may, prior to the forty-fifth calendar day following the date of
receipt by the Escrow Agent of the Disbursement Notice, deliver a notice to EDO
(with a copy to the Escrow Agent), setting forth, in reasonable detail, each
disputed item or amount and the basis of the Exchanging Common Stockholders'
disagreement (the "Contest Notice"). EDO and the Common Stockholder
Representative first shall attempt in good faith to resolve all of the issues
set forth in the Contest Notice within 45 calendar days after EDO's receipt of
the Contest Notice. After such 45 day negotiation period, (a) EDO and the Common
Stockholder Representative shall deliver joint written instructions to the
Escrow Agent directing the Escrow Agent to disburse or retain any portion of the
Claimed Amount with respect to which all disputes have been resolved and (b)
either EDO or the Common Stockholder Representative may submit outstanding
disputes set forth in the Contest Notice to arbitration pursuant to Section 16
below. On receipt of a decision by the arbitrator resolving any outstanding
disputes set forth in the Contest Notice, EDO will send a letter of instruction
to the Escrow Agent, attaching a copy of the arbitrator's decision, and the
Escrow Agent shall disburse or retain such portion of the Claimed Amount in
accordance with the terms of such arbitrator's decision.
5.3(a) Any payment by the Escrow Agent of any amounts payable to EDO under
this Agreement shall be paid from the Escrow Amount (i) in cash in immediately
available funds in accordance with the instructions described in Section 5.1 in
an amount equal to the Cash Percentage (as defined below) of such payment and
(ii) by transfer, delivery and assignment to EDO of Escrow Deposit Shares
(rounded up or down to the nearest whole share) together with stock powers and
other transfer documents as are necessary to transfer such Escrow Deposit
Shares, in an amount equal to the Share Percentage (as defined below) of such
payment. For purposes of the determination of the above proportions, Escrow
Deposit Shares shall be valued at the Indemnity Share Price.
(b) Notwithstanding anything in this Agreement to the contrary but subject
to Section 5.3(c), if an Exchanging Common Stockholder has elected in a duly
executed Election Form delivered to EDO prior to the tenth day following the
Closing Date to pay indemnity claims in cash, then, immediately upon
presentation to the Escrow Agent of a receipt executed by EDO evidencing the
receipt by EDO of the appropriate portion of the aggregate amount payable to EDO
in respect of such an indemnity claim, the Escrow Agent shall release from
Escrow to such Exchanging Common Stockholder the same amount and kind of
property (if any) that would have been paid to EDO out of the Escrow Account on
behalf of such Exchanging Common Stockholder if such Exchanging Common
Stockholder had not elected to pay in cash.
(c) Notwithstanding anything in this Agreement to the contrary, if an
Exchanging Common Stockholder has elected in a duly executed Election Form
delivered to EDO prior to the tenth day following the Closing Date to pay
indemnity claims in cash, but fails to tender payment to EDO of his, her or its
portion of any indemnity claim within seven Business Days after the date on
which the Escrow Agent has made a payment with respect to such indemnity claim
pursuant to Section 5.3(a) or 5.3(b), as the case may be, such Exchanging Common
Stockholder shall no longer be permitted to pay such claim in cash and such
Exchanging Common Stockholder's indemnity obligation shall be satisfied out of
the Escrow Account as if such Exchanging Common Stockholder had failed to
execute and deliver an Election Form.
5.4(a) For purposes of this Agreement, the term "Cash Percentage" means the
total amount of cash in the Escrow Account on the date of payment pursuant to
this Section 5 divided by the sum of (i) such total amount of cash and (ii) the
product of the number of Escrow Deposit Shares in the Escrow Account as of the
date of payment pursuant to this Section 5 and the Indemnity Share Price.
(b) For purposes of this Agreement, the term "Share Percentage" means one
minus the Cash Percentage.
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<PAGE>
5.5 Notwithstanding anything else contained herein to the contrary, the
Common Stockholder Representative (i) shall deliver to the AIL ESOP Trustee,
promptly upon receipt, copies of all notices received by the Common Stockholder
Representative in her capacity as such from EDO, AIL, the Escrow Agent or any
other party, (ii) will not agree (or be deemed to agree by failure to respond to
a notice given or failure to take any other action) to any settlement of any
claim, consent (or be deemed to consent by failure to respond to a notice given
or failure to take any other action) to the release of any amounts in the Escrow
Fund that are attributable to the Merger Shares issued to the AIL ESOP or that
otherwise adversely effects the AIL ESOP, without the prior consent of the AIL
ESOP Trustee, (iii) will consult with the AIL ESOP Trustee in connection with
exercising its authority hereunder, and (iv) has been granted no authority to
act on behalf of the AIL ESOP or any of its property in violation of the
foregoing. Any action required of the Common Stockholder Representative to
dispute a claim of an EDO Indemnitee or otherwise preserve any rights of the AIL
ESOP not taken by the Common Stockholder Representative without the consent of
the AIL ESOP Trustee to refrain from taking such action may be taken by the AIL
ESOP Trustee on behalf of the AIL ESOP. Any action taken in violation of the
foregoing shall be void and of no effect. Any deemed waiver or acquiescence by
reason a failure to take any action without the consent of the AIL ESOP Trustee
shall be void and of no effect, except if the AIL ESOP Trustee shall have
received copies of the notices referred to in clause (i) above, shall have been
notified that the Common Stockholder Representative intends to waive objection
by inaction and shall have failed to take any action its own under the second
preceding sentence within a reasonable time. Any action taken by the AIL ESOP
Trustee shall be effective solely with respect to the AIL ESOP and not with
respect to any other Exchanging Common Stockholder.
6. Distributions to Exchanging Common Stockholders.
6.1 [Intentionally Omitted.]
6.2 Subject to Section 6.3 below, as soon as practicable after the date
that is 45 days after the Survival Date, the Escrow Amount, together with all
income earned thereon, less any amounts distributed to EDO from the Escrow
Amount pursuant to Section 5.3, shall be distributed by the Escrow Agent to the
Exchanging Common Stockholders in accordance with the percentages set forth in
Exhibit A as amended pursuant to Section 6.1(b), provided that EDO may direct
the Escrow Agent to deliver any Escrow Deposit Shares that are to be released
pursuant to this Section 6.2 and that were originally delivered in the Merger in
respect of Common Shares that were subject to pledge to secure loans to the
Exchanging Common Stockholders, into pledge to the extent that the pledgee is
entitled thereto.
6.3 Distributions pursuant to Section 6.2 shall be subject to the proviso
that if any claim(s) asserted by EDO on or prior to the date of such
distribution(s) shall not have been paid or finally determined to be without
merit or the amount of such claim(s) shall not have been finally determined, a
portion of the Escrow Amount having an aggregate value (determined and allocated
between Escrow Deposit Shares and cash as provided in Sections 5.3 and 5.4
above, except that for the purpose of such determination and allocation the date
of distribution pursuant to Section 6.2 shall be deemed to be the date of
payment) equal to the amount of such pending claim(s) on such date shall be
retained and held in escrow in the Escrow Account, until such pending claim(s)
shall have been paid or finally determined to be without merit, whereupon any
remaining portion of the Escrow Amount shall be distributed as provided in
Section 6.2. Any such distribution shall be net of any required tax or other
withholding or deduction.
6.4 For the avoidance of doubt and notwithstanding anything herein to the
contrary, with respect to any Exchanging Common Stockholder, in no event will
the Escrow Agent disburse to EDO Escrow Deposit Shares attributable to such
Exchanging Common Stockholder with a dollar value greater than 15% of the dollar
value of the Aggregate Consideration applicable to such Exchanging Common
Stockholder measured as of the Effective Time.
7. Provisions Concerning the Escrow Agent.
7.1 The duties of the Escrow Agent shall be as expressed herein and the
Escrow Agent shall have no implied duties nor shall the permissive right or
power to take any action be construed as a duty to take such
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<PAGE>
action under any circumstances and it shall not be liable except in the event of
its gross negligence or willful misconduct.
7.2 The fees and expenses of the Escrow Agent (including the fees and
expenses of legal counsel engaged pursuant to Section 7.10) shall be paid by
EDO. The Escrow Agent need not take any action under the Escrow Agreement which
may involve it in any expense or liability until indemnified to its satisfaction
for any expense or liability it reasonably believes it may incur.
7.3 Any recitals contained herein shall be deemed to be those of the
parties hereto other than the Escrow Agent.
7.4 The Escrow Agent shall not be required to give any bond or surety or
report to any court despite any statute, custom or rule to the contrary.
7.5 The Escrow Agent shall be protected in acting upon any notice, request,
consent, certificate, order, affidavit, letter, telegram, or other paper or
document believed by it to be genuine and correct and to have been signed or
sent by the proper person or persons.
7.6 The Escrow Agent may execute any of the duties under this Escrow
Agreement by or through agents or receivers.
7.7 The Escrow Agent shall not be required to take notice or be deemed to
have notice of any default or other fact or event under the Agreement unless the
Escrow Agent shall be specifically notified in writing of such default, fact or
event.
7.8 The Escrow Agent may at any time resign from the position created in
the Escrow Agreement by giving thirty (30) days written notice prior to the
proposed resignation date by registered or certified mail to EDO and the Common
Stockholder Representative. However such resignation shall take effect only upon
the appointment of, and acceptance by, a successor mutually acceptable to EDO
and the Common Stockholder Representative. If EDO and the Common Stockholder
Representative fail to agree on the identity of a successor Escrow Agent 15 days
prior to the proposed resignation date, the existing Escrow Agent shall in its
sole discretion choose the successor Escrow Agent. In the event of such
resignation, the Escrow Agent shall deliver all funds, securities and other
property held by it pursuant to this Agreement to the successor Escrow Agent.
Upon receipt of such escrow funds the successor Escrow Agent shall be bound by
all of the provisions hereof.
7.9 In the event the Escrow Agent becomes involved in litigation by reason
hereof, it is hereby authorized to deposit with the Clerk of the Court in which
the litigation is pending any and all funds, securities, or other property held
by it pursuant hereto and thereupon shall stand fully relieved and discharged of
any further duties hereunder. Also, in the event the Escrow Agent is threatened
with litigation by reason hereof, it is hereby authorized to implead all
interested parties in any court of competent jurisdiction and to deposit with
the Clerk of such Court any such funds, securities, or other property held by it
pursuant hereto and thereupon shall stand fully relieved and discharged of any
further duties hereunder.
7.10 The Escrow Agent may engage legal counsel, who may be counsel for any
party to the Escrow Agreement, and shall not be liable for any act or omission
taken or suffered pursuant to the opinion of such counsel.
7.11 Unless specifically required by the terms of the Escrow Agreement, the
Escrow Agent need not take notice of or enforce any other document or
relationship, including, without limiting the generality of the foregoing, any
contract, settlement, arrangement, plan, assignment, pledge, release, decree or
the like, but its duties shall be solely as set out in the Escrow Agreement.
7.12 EDO shall indemnify and save harmless the Escrow Agent from and
against any loss, liability or expense reasonably incurred, without gross
negligence or willful misconduct on its part, arising out of or in connection
with the Escrow Agreement, including the expense of defending itself against any
claim or liability in the premises. This indemnity agreement shall survive the
termination of the Escrow Agreement.
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<PAGE>
7.13 The appointment of the Escrow Agent hereunder may be terminated on the
written agreement of EDO and the Common Stockholder Representative communicated
by written notice to the Escrow Agent specifying the proposed date upon which
such termination shall take effect providing that no such termination shall be
effective until the appointment of and acceptance by a successor Escrow Agent.
In the event of such termination, EDO and the Common Stockholder Representative
shall before the date of such termination appoint a mutually acceptable
successor Escrow Agent. If EDO and the Common Stockholder Representative fail to
agree on the identity of a successor Escrow Agent 15 days prior to the date of
such proposed termination, the original Escrow Agent shall, in its sole
discretion, choose the successor Escrow Agent. In the event of such termination,
the Escrow Agent shall deliver all funds, securities and other property held by
it pursuant to this Agreement to the successor Escrow Agent. Upon receipt of
such escrow funds, the successor Escrow Agent shall be bound by all of the
provisions hereof.
8. Notices. (a) All notices, requests, demands, waivers and other
communications to be given by any party hereunder shall be in writing and shall
be (i) mailed by first-class, registered or certified mail, postage prepaid,
(ii) sent by hand delivery or reputable overnight delivery service or (iii)
transmitted by telefax (provided that a copy is also sent by reputable overnight
delivery service) addressed as follows:
<TABLE>
<S> <C>
If to EDO Corporation: Copy to
[ ] Debevoise & Plimpton
875 Third Avenue
New York, New York 10022
Fax: (212) 909-6836
Tel: (212) 909-6000
Attention: Robert F. Quaintance, Jr., Esq.
If to the Escrow Agent Copy to
[ ] [ ]
If to the Common Copy to
Stockholder Representative Kleinberg, Kaplan, Wolff & Cohen, P.C.
551 Fifth Avenue
New York, New York
Fax: (212) 986-8866
Tel: (212) 986-6000
Attention: Harold I. Steinbach
</TABLE>
(b) All notices, requests, demands, waivers and other communications to be
given to any Exchanging Common Stockholder by EDO shall be given by the Escrow
Agent in accordance with Section 8(a) promptly, but in no event later than one
business day, after such notice, request, demand, waiver or other communication
was received by the Escrow Agent. If the Escrow Agent receives any notice,
request, demand, waiver or other communications from any Exchanging Common
Stockholder which is intended for EDO, the Escrow Agent shall, promptly, but in
no event later than one business day, after it was received by the Escrow Agent,
forward such notice, request, demand, waiver or other communication to EDO in
accordance with Section 8(a). If the Escrow Agent receives any notice, request,
demand, waiver or other communications from EDO which is intended for the Common
Stockholder Representative, the Escrow Agent shall, promptly, but in no event
later than one business day, after it was received by the Escrow Agent, forward
such notice, request, demand, waiver or other communication to the Common
Stockholder Representative in accordance with Section 8(a).
(c) All such notices, requests, demands, waivers and other communications
shall be deemed to have been given and received (i) if by personal delivery or
telecopy, on the day of such delivery, (ii) if by first-class, registered or
certified mail, on the fifth business day after the mailing thereof or (iii) if
by reputable overnight delivery service, on the day delivered.
9. Amendments; Waivers. The provisions of this Agreement may not be
amended or modified and no waiver hereunder shall be valid and binding except by
a writing duly executed by a party against whom enforcement of the amendment,
modification, supplement or discharge is sought. The failure of any party at
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<PAGE>
any time or times to require performance of any provision of this Agreement
shall in no manner affect the rights at a later time to enforce the same. No
waiver by any party of the breach of any term contained in this Agreement,
whether by conduct or otherwise, in any one or more instances, shall be deemed
to be or construed as a further or continuing waiver of any such breach or the
breach of any other term of this Agreement.
10. Severability. If the final determination of a court of competent
jurisdiction declares, that any term or provision hereof is invalid or
unenforceable, (a) the remaining terms and provisions hereof shall be unimpaired
and (b) the invalid or unenforceable term or provision shall be deemed replaced
by a term or provision that is valid and enforceable and that comes closest to
expressing the intention of the invalid or unenforceable term or provision.
11. Representatives, Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of the respective parties hereto and their
respective successors and assigns, but neither this Agreement nor any right,
interest or obligation hereunder shall be assigned, whether by operation of law
or otherwise by any of the respective parties hereto without the prior written
consent of all of the other parties hereto.
12. No Third-Party Beneficiaries. Except for the Exchanging Common
Stockholders and the EDO Indemnitees all of whom shall be deemed to be
third-party beneficiaries to this Agreement, nothing in this Agreement shall
confer any rights upon any person or entity other than the parties hereto and
their respective successors and permitted assigns.
13. Governing Law. THIS AGREEMENT SHALL BE GOVERNED IN ALL RESPECTS,
INCLUDING AS TO VALIDITY, INTERPRETATION AND EFFECT, BY THE INTERNAL LAWS OF THE
STATE OF NEW YORK (EXCEPT TO THE EXTENT THE DGCL IS IMPLICATED), WITHOUT GIVING
EFFECT TO THE CONFLICT OF LAWS RULES THEREOF. Solely in connection with the
enforcement of the arbitration provisions of, or an arbitral award made pursuant
to, Section 11.4(a) of the Merger Agreement, each of the parties hereto, for
itself and its successors and assigns hereby irrevocably submits to the
exclusive jurisdiction of the courts of the State of New York and the Federal
courts of the United States of America in each case located in the State, City
and County of New York and hereby waives, and agrees not to assert, as a defense
in any action, suit or proceeding for the enforcement of such provisions or
award, that it is not subject thereto or that such action, suit or proceeding
may not be brought or is not maintainable in said courts or that the venue
thereof may not be appropriate or that such provisions or award may not be
enforced in or by such courts, and the parties hereto irrevocably agree that all
claims with respect to such action or proceeding shall be heard and determined
in such a New York State or Federal court. Each of the parties hereto hereby
consents to and grants any such court jurisdiction over the person of such
parties and over the subject matter of any such dispute and agree that mailing
of process or other papers in connection with any such action or proceeding in
the manner provided in Section 8 or in such other manner as may be permitted by
law, shall be valid and sufficient service thereof.
14. Execution in Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original, but all such
counterparts shall together constitute but one and the same instrument.
15. Miscellaneous. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. The rights and remedies herein provided are
cumulative and are not exclusive of any rights or remedies that any party or
other indemnitee may otherwise have at law or in equity or otherwise.
16. Arbitration. Other than in respect of any matter for which this
Agreement specifies a mechanism for dispute resolution, any dispute in
connection with this Agreement shall be resolved by binding arbitration pursuant
to Section 11.4(a) of the Merger Agreement.
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<PAGE>
IN WITNESS THEREOF, the parties have executed and delivered this Agreement
as of the date first written above.
EDO CORPORATION
By:
------------------------------------
Name:
Title:
[ESCROW AGENT]
By:
------------------------------------
Name:
Title:
PATRICIA COMISKEY, as Common
Stockholder Representative
By:
------------------------------------
Name:
Title:
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<PAGE>
EXHIBIT E
FORM OF ELECTION FORM
Reference is made to the Agreement and Plan of Merger (the "Merger
Agreement"), dated as of January 2, 2000, among EDO Corporation ("EDO"), EDO
Acquisition III Corporation and AIL Technologies Inc. ("AIL"). All capitalized
terms in this Election Form that are not defined herein shall have the meanings
set forth in the Merger Agreement; provided that, solely for purposes of this
Election Form, the term "Exchanging Common Stockholders" shall include the
Common Stockholders party to the Management Stock Purchase Agreement.
The undersigned understands that, by executing and delivering this Election
Form within ten Business Days after the Closing, he, she or it may elect to pay
indemnity claims made by EDO in cash. The undersigned also understands that the
decision whether to pay in cash is irrevocable and may not be changed once this
Election Form has been executed and delivered. The undersigned further
understands that the election under this Election Form is subject to the
limitations set forth in Section 9.6(a) of the Merger Agreement.
The undersigned hereby elects to pay all indemnity claims to EDO in cash.
The terms of the indemnity, the method of payment and related matters are
more fully described and governed by the terms of the Merger Agreement and the
Escrow Agreement.
The undersigned hereby represents and warrants to EDO as follows:
(a) Immediately prior to the Effective Time, the undersigned was the
record holder of shares of common stock, par value $0.10 per
share, of AIL.
(b) The undersigned has full power and authority to execute and
deliver this Election Form.
(c) The undersigned has received copies of and has read the Merger
Agreement, the Proxy Statement and the Registration Statement.
The undersigned agrees to be bound by all of the provisions of Sections 9
("Indemnification"), 10 ("Definitions") and 11 ("Miscellaneous") of the Merger
Agreement (other than Sections 11.1 and 11.2 thereof) to the same extent as if
the undersigned had been an original signatory of the Merger Agreement. The
undersigned understands and agrees that he, she or it is an Exchanging Common
Stockholder for all purposes of the Merger Agreement, including the provisions
of Sections 9, 10 and 11 thereof. The undersigned further irrevocably appoints
(i) Patricia Comiskey, (ii) in the event of the death, disability, termination
of employment or absence of Patricia Comiskey, Jerry Reynolds and (iii) in the
event of the death, termination of employment or disability of both Patricia
Comiskey and Jerry Reynolds, such other persons as a majority in interest of the
remaining Exchanging Common Stockholders shall designate, as the undersigned's
agent, proxy and attorney-in-fact for all purposes in connection with the Merger
Agreement and the Escrow Agreement and agrees that such person may represent and
bind the undersigned to the fullest extent permitted under Sections 9.2, 9.4 and
11.13 of the Merger Agreement and as provided under the Escrow Agreement.
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<PAGE>
This Election Form is hereby executed on the day of
, 2000.
-------------------------------------------------------------------------------
<TABLE>
<S> <C>
Please send an executed copy Address for Notices and
of this Election Form to: Return of Shares
EDO Corporation (if applicable):
60 East 42nd Street --------------------------------
Suite 5010 --------------------------------
New York, New York 10165 --------------------------------
Attention: Marvin Genzer
</TABLE>
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<PAGE>
MANAGEMENT STOCK PURCHASE AGREEMENT
DATED AS OF
JANUARY 2, 2000
BETWEEN
EDO CORPORATION,
AS BUYER,
AND
THE INDIVIDUALS LISTED ON ANNEX A,
AS SELLERS,
RELATING TO THE PURCHASE AND SALE
OF
SHARES OF COMMON STOCK
OF
AIL TECHNOLOGIES INC.
<PAGE>
MANAGEMENT STOCK PURCHASE AGREEMENT
This MANAGEMENT STOCK PURCHASE AGREEMENT (the "Agreement") is dated as of
January 2, 2000 between EDO CORPORATION ("Buyer"), a New York corporation and
the individuals (each a "Seller" and collectively "Sellers") listed on Annex A
hereto.
RECITALS
A. Each Seller owns the number of shares of common stock par value $ 0.10
per share ("AIL Common Stock"), of AIL Technologies Inc. (the "Company") set
forth opposite his name on Annex A attached hereto (such 225,000 common shares
are collectively referred to herein as the "Shares");
B. Sellers wish to sell the Shares to Buyer, and Buyer wishes to purchase
the Shares from Sellers, on the terms and subject to the conditions described in
this Agreement.
C. Buyer and the Company propose to enter into an Agreement and Plan of
Merger (as amended from time to time, the "Merger Agreement") providing for the
merger (the "Merger") of the Company with and into EDO Acquisition III
Corporation ("Merger Sub"), a Delaware corporation and a wholly owned subsidiary
of Buyer.
D. Capitalized terms used herein are defined in Section 10 of this
Agreement.
NOW, THEREFORE, in consideration of the mutual promises, covenants,
representations and warranties made herein and of the mutual benefits to be
derived therefrom, the parties hereto agree as follows:
1. Purchase and Sale.
1.1. Purchase and Sale. Upon the terms and subject to the conditions of
this Agreement, at the Closing, Sellers agree to sell all of the Shares to the
Buyer, and Buyer agrees to purchase all of the Shares from Sellers.
1.2. Purchase Price. The purchase price for the Shares shall be an
aggregate amount equal to the product of (a) 225,000, (b) the Exchange Ratio and
(c) the EDO Average Price (the "Purchase Price"), payable in cash at the Closing
in the manner set forth in Section 1.3 of this Agreement. The portion of the
Purchase Price payable to each Seller for his Shares is set out opposite his
name on Annex A.
1.3. Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") will take place at the offices of Debevoise &
Plimpton, 875 Third Avenue, New York, New York, immediately prior to the closing
under the Merger Agreement unless the parties otherwise agree in writing,
provided that (i) the conditions described in Sections 5 and 6 of this Agreement
have been satisfied or waived, (ii) this Agreement has not been terminated in
accordance with its terms and (iii) Sellers have been given prior notice of the
proposed Closing Date. The date on which the Closing actually occurs shall be
referred to herein as the "Closing Date". At the Closing:
(a) Sellers will deliver to Buyer, free and clear of any Liens,
certificates representing the Shares to be sold to Buyer hereunder, duly
endorsed for transfer in blank or accompanied by stock powers or other
instruments of transfer duly endorsed in blank; and
(b) Buyer will pay an aggregate amount equal to the Purchase Price to
the Sellers for the Shares so delivered by Sellers, by wire transfer of
immediately available funds to accounts designated by Sellers in writing at
least two Business Days prior to the Closing Date.
1.4. Escrowed Shares. Notwithstanding anything to the contrary contained
in the Merger Agreement, each Seller hereby covenants and agrees that (i) upon
surrender of the certificate or certificates representing such Seller's shares
of AIL Common Stock pursuant to the Merger Agreement, in addition to any shares
of EDO Common Stock deposited into the Escrow Account pursuant to the Merger
Agreement, the number of additional shares of EDO Common Stock equal to 15% of
the portion of the Purchase Price payable to such Seller hereunder divided by
the EDO Average Price shall not be delivered to such Seller as provided in the
Merger Agreement but shall instead be deposited to the Escrow Account and shall
constitute Escrow Deposit
<PAGE>
Shares for all purposes of the Escrow Agreement; (ii) deposit of such shares of
EDO Common Stock into the Escrow Account shall constitute satisfaction of the
obligations of EDO and the Exchange Agent to deliver that portion of the shares
of EDO Common Stock to such Seller pursuant to the Merger Agreement; and (iii)
such Seller shall execute and deliver such additional instruments, documents,
conveyances or assurances and take such other actions as shall be necessary or
otherwise reasonably be requested by Buyer or the Exchange Agent, to confirm and
assure the parties' agreement that such shares of EDO Common Stock be deposited
into the Escrow Account.
1.5. Assumption of Indemnification Obligations Under the Merger Agreement,
etc. (a) Each of the Sellers hereby agrees (i) to be bound by all of the
provisions of Sections 9 ("Indemnification"), 10 ("Definitions") and 11
("Miscellaneous") of the Merger Agreement (other than Sections 11.1 and 11.2
thereof) to the same extent as if such Seller had been an original signatory of
the Merger Agreement, (ii) that he or she is an "Exchanging Common
Stockholder"for all purposes of the Merger Agreement, including the provisions
of Sections 9, 10 and 11 thereof, and of the Escrow Agreement and (iii) by
executing and delivering this Agreement, he or she assumes his or her portion of
the indemnification obligations and liabilities set forth in Section 9 of the
Merger Agreement subject to the limitations set forth in Sections 9.2(y) and
9.2(z) and all other applicable Sections of the Merger Agreement.
(b) Each of the Sellers hereby irrevocably appoints (i) Patricia Comiskey,
(ii) in the event of the death, disability or absence of Patricia Comiskey,
Jerry Reynolds and (iii) in the event of the death or disability of both of
Patricia Comiskey and Jerry Reynolds, such other persons as a majority in
interest of the remaining Exchanging Common Stockholders shall designate, as
such Seller's agent, proxy and attorney-in-fact for all purposes in connection
with the Merger Agreement and the Escrow Agreement and agrees that such person
may represent and bind him or her to the fullest extent permitted under Sections
9.2, 9.4 and 11.13 of the Merger Agreement and provided under the Escrow
Agreement.
2. Representations and Warranties of Sellers. Each Seller hereby,
severally and not jointly, represents and warrants to Buyer as of the date
hereof and as of the Closing Date in respect of himself or herself as follows:
2.1. Title to Shares. The Seller is the sole record and beneficial owner
of, and has good and valid title to, the Shares set forth opposite his name on
Annex A, free and clear of any Liens. The Seller has the sole right to vote the
Shares set forth opposite his name on Annex A, and none of such Shares is
subject to any voting trust or any other agreement, arrangement or restriction
with respect to the voting of such Shares, except as contemplated by this
Agreement and except as provided for under the AIL Stockholders Agreement (which
is being terminated effective on the Closing). Upon the delivery of and payment
for the Shares set forth opposite his name on Annex A at the Closing as provided
for in this Agreement, Buyer will acquire all of Seller's right, title and
interest in and to such Shares and will receive good and valid title to such
Shares, free and clear of any Lien other than any Lien created by Buyer.
2.2. Authority. (a) The Seller has all requisite power and authority to
execute and deliver this Agreement, to perform its obligations hereunder and to
consummate the transactions contemplated hereby.
(b) Binding Agreement. The Seller has duly executed and delivered this
Agreement. This Agreement constitutes the legal, valid and binding obligation of
the Seller enforceable against such Seller in accordance with its terms.
2.3. Compliance with Laws and Instruments; Consents. (a) Compliance. The
execution, delivery and performance by such Seller of this Agreement and the
consummation of the transactions contemplated hereby, do not and will not
conflict with or contravene, result in a violation or breach of or default under
(with or without the giving of notice or passage of time or both), create in any
other Person a right or claim of termination, amendment, or require
modification, acceleration or cancellation of, or result in the creation of any
Lien (or any obligation to create any Lien) upon any properties or assets of
such Seller under, (i) any law applicable to such Seller, or (ii) any contract,
or any other agreement or instrument to which such Seller is party or by which
such Seller may be bound or affected, except in the case of the foregoing clause
(ii) for (x) the AIL Stockholders Agreement (which is being terminated effective
on the Closing) and (y) any such
2
<PAGE>
violations and defaults that, individually or in the aggregate, could not
materially impair or delay the ability of the parties to this Agreement to
consummate the transactions contemplated hereby. No Seller has received any
notice alleging any such conflict, violation, breach or default. No trust of
which such Seller is a trustee requires the consent of any beneficiary to the
execution and delivery of this Agreement or to the consummation of the
transactions contemplated hereby.
(b) Consents. No consent, approval, authorization, registration,
declaration, filing or notice of, with or to a Governmental body ("Governmental
Approval") or other consent is required to be obtained or made by such Seller in
connection with the execution and delivery of this Agreement or the consummation
of the transactions contemplated hereby.
2.4. Knowledge of Merger. Such Seller represents that he has had the
opportunity to seek information regarding the terms of the Merger Agreement and
the transactions contemplated thereby, and to discuss such terms and
transactions with management of the Company, has sufficient knowledge of
financial and business matters so as to be capable of evaluating the merits and
risks of the potential financial or other effects of the Merger Agreement on the
shares of the Company, and has obtained all of the information that he deems
necessary to make an informed judgment as to the sale of the Shares set forth
opposite his name on Annex A.
3. Representations and Warranties of Buyer. Buyer represents and warrants
to Sellers as follows as of the date hereof and as of the Closing Date:
3.1. Organization and Authority. (a) Organization. Buyer is a corporation
that is duly organized, validly existing and in good standing under the laws of
the State of New York.
(b) Authority. Buyer has full corporate power and authority to execute and
deliver this Agreement, to perform its obligations hereunder and to consummate
the transactions contemplated hereby. The execution and delivery of this
Agreement, the performance of its obligations hereunder, and the consummation of
the transactions contemplated hereby, have been duly authorized by all requisite
corporate action of Buyer.
(c) Binding Agreement. Buyer has duly executed and delivered this
Agreement. This Agreement constitutes the legal, valid and binding obligation of
Buyer enforceable against Buyer in accordance with its terms.
3.2. Compliance with Laws and Instruments; Consents. (a) Compliance. The
execution, delivery and performance by Buyer of this Agreement, and the
consummation of the transactions contemplated hereby, do not and will not
conflict with, contravene, result in the violation or breach of or default under
(with or without the giving of notice or the lapse of time, or both), create in
any other Person a right or claim of termination, amendment, modification,
acceleration or cancellation of, or result in or require the creation of any
Lien (or any obligation to create any Lien) upon any of the properties or assets
of Buyer under (i) any law applicable to Buyer or any of its properties, assets,
operations or business, (ii) any provision of its organizational documents, or
(iii) any contract, or any other agreement or instrument to which it is party or
by which it or any of its properties or assets may be bound or affected, except
in the case of the foregoing clause (iii) for any such violations and defaults
that, individually or in the aggregate, could not materially impair or delay the
ability of the parties to this Agreement to consummate the transactions
contemplated hereby. Buyer has not received any notice alleging any such
conflict, violation, breach or default.
(b) Consents. No Governmental Approval or other consent is required to be
obtained or made by Buyer in connection with the execution and delivery of this
Agreement or the consummation of the transactions contemplated hereby.
4. Covenants.
4.1. Cooperation. Following the Closing Date, Sellers shall, from time to
time, at no additional cost to the Sellers, execute and deliver such additional
instruments, documents, conveyances or assurances and take such other actions as
shall be necessary, or otherwise reasonably be requested by Buyer, to confirm
and assure the rights and obligations provided for in this Agreement and render
effective the consummation of the transactions contemplated hereby, or otherwise
to carry out the intent and purposes of this Agreement.
3
<PAGE>
(b) Following the Closing Date, Buyer shall, from time to time, execute and
deliver such additional instruments, documents, conveyances or assurances and
take such other actions as shall be necessary, or otherwise reasonably be
requested by Sellers, to confirm and assure the rights and obligations provided
for in this Agreement and render effective the consummation of the transactions
contemplated hereby, or otherwise to carry out the intent and purposes of this
Agreement.
4.2. Restriction on Transfer, Voting and Acquisition of Additional
Shares. Sellers shall not, prior to the earliest of (i) the Closing and (ii)
the termination of the Merger Agreement in accordance with its terms, (x) sell,
transfer, give, pledge, assign or otherwise dispose of (including, without
limitation, by gift) (collectively, "Transfer"), consent to any Transfer of, any
or all of the Shares or any interest therein or enter into any contract, option
or other arrangement (including, without limitation, any profit sharing
arrangement) with respect to the Transfer of, the Shares to any person other
than pursuant to the terms of this Agreement, the Termination Amendment to the
AIL Stockholders Agreement (which will be effective on the Closing) or the
Merger Agreement or (y) enter into any voting arrangement, whether by proxy,
voting agreement or otherwise, with respect to the Shares.
5. Conditions to Closing of Sellers. The obligations of Sellers to
consummate the Closing are subject to the satisfaction of the following
conditions:
5.1. The representations and warranties of Buyer contained in this
Agreement shall be true and correct in all material respects at and as of the
date hereof and shall be repeated and shall be true and correct in all material
respects on and as of the Closing Date as if made at and as of such date.
5.2. Buyer shall have complied in all material respects with all agreements
and covenants required by this Agreement to be performed or complied with.
5.3. The Merger Agreement shall have been executed and delivered by Buyer,
Merger Sub, the Company and the other parties thereto and shall not have been
terminated in accordance with its terms and all of the conditions precedent to
the obligations of such parties thereunder (other than Section 7.3.4 with
respect to this Agreement) shall have been satisfied or waived.
5.4. No domestic or foreign governmental authority or other agency or
commission or state court or judicial body of competent jurisdiction shall have
enacted, issued, promulgated, enforced or entered any statute, rule, regulation,
injunction or other order (whether temporary, preliminary, or permanent) that is
in effect and has the effect of prohibiting consummation of the transactions
contemplated by this Agreement.
6. Conditions to Closing of Buyer. The obligations of Buyer to consummate
the Closing are subject to the satisfaction of the following conditions:
6.1. The representations and warranties of each Seller contained in this
Agreement shall be true and correct in all material respects at and as of the
date hereof and shall be repeated and shall be true and correct in all material
respects on and as of the Closing Date as if made at and as of such date.
6.2. Sellers shall have delivered all of the Shares in accordance with
Section 1.3(a) of this Agreement, and Sellers shall have complied in all
material respects with all other agreements and covenants required by this
Agreement to be performed or complied with.
6.3. The Merger Agreement shall have been executed and delivered by Buyer,
Merger Sub, the Company and the other parties thereto and shall not have been
terminated in accordance with its terms and all of the conditions precedent to
the obligations of such parties thereunder (other than Section 7.2.4 with
respect to this Agreement) shall have been satisfied or waived.
6.4. No domestic or foreign governmental authority or other agency or
commission or state court or judicial body of competent jurisdiction shall have
enacted, issued, promulgated, enforced or entered any statute, rule, regulation,
injunction or other order (whether temporary, preliminary, or permanent) that is
in effect and has the effect of prohibiting consummation of the transactions
contemplated by this Agreement.
4
<PAGE>
7. Termination.
7.1. Termination. This Agreement may be terminated with respect to any
Seller's Shares at any time prior to the Closing by mutual written agreement of
Buyer and such Seller. This Agreement shall automatically terminate if the
Merger Agreement is terminated prior to the Closing hereunder.
7.2. Effect of Termination. If this Agreement is terminated pursuant to
Section 7.1 above, all further obligations of the parties hereto under this
Agreement shall terminate without further liability or obligation of any party
to any other party, including, without limitation, liability for damages, except
that (i) Section 7.1, this Section 7.2, Sections 8 and 10 shall survive the
termination hereof and (ii) no such termination shall relieve any party hereto
from liability for breach of this Agreement.
8. Miscellaneous.
8.1. Expenses. Except as otherwise provided for in this Agreement, whether
or not the transactions contemplated hereby shall be consummated, all costs and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such expenses.
8.2. Notices. All notices, requests, demands, waivers and other
communications required or permitted to be given under this Agreement shall be
in writing and shall be deemed to have been duly given if (a) delivered
personally, (b) mailed, certified or registered mail with postage prepaid, (c)
sent by next-day or overnight mail or delivery or (d) sent by telecopy or
telegram, as follows:
(i) if to Buyer,
EDO Corporation
60 East 42nd Street
Suite 5010
New York, New York 10165
Fax: (212) 716-2051
Telephone: (212) 716-2000
Attention: Frank A. Fariello
with a copy to:
Debevoise & Plimpton
875 Third Avenue
New York, NY 10022
Fax: (212) 909-6836
Telephone: (212) 909-6000
Attention: Robert F. Quaintance, Jr., Esq.
(ii) if to any Seller,
AIL Technologies Inc.
455 Commack Road
Deer Park, New York 11729
Fax: (516) 595-5472
Telephone: (516) 595-5082
Attention: James M. Smith
with a copy to:
Kleinberg, Kaplan, Wolff & Cohen, P.C.
551 Fifth Avenue
New York, New York 10176
Fax: (212) 986-8866
Telephone: (212) 986-6000
Attention: Harold I. Steinbach, Esq.
5
<PAGE>
or, in each case, at such other address as may be specified in writing to the
other parties hereto.
All such notices, requests, demands, waivers and other communications shall
be deemed to have been received (i) if by personal delivery on the day after
such delivery, (ii) if by certified or registered mail, on the seventh Business
Day after the mailing thereof, (iii) if by next-day overnight mail or delivery,
on the day delivered, (iv) if by telecopy or telegram, on the next day following
the day on which such telecopy or telegram was sent, provided that a copy is
also sent by certified or registered mail.
8.3. Entire Agreement. This Agreement constitutes the entire agreement
between the parties with respect to the subject matter of this Agreement and
supersedes all prior agreements and understandings, both oral and written,
between the parties with respect to the subject matter of this Agreement.
8.4. Governing Law, Arbitration etc. THIS AGREEMENT SHALL BE GOVERNED IN
ALL RESPECTS, INCLUDING AS TO VALIDITY, INTERPRETATION AND EFFECT, BY THE
INTERNAL LAWS OF THE STATE OF NEW YORK (EXCEPT TO THE EXTENT THE DGCL IS
IMPLICATED), WITHOUT GIVING EFFECT TO THE CONFLICT OF LAWS RULES THEREOF. Solely
in connection with the enforcement of the arbitration provisions of, or an
arbitral award made pursuant to, this Section, each of the parties hereto, for
itself and its successors and assigns hereby irrevocably submits to the
exclusive jurisdiction of the courts of the State of New York and the Federal
courts of the United States of America in each case located in the State, City
and County of New York and hereby waive, and agree not to assert, as a defense
in any action, suit or proceeding for the enforcement of such provisions or
award, that it is not subject thereto or that such action, suit or proceeding
may not be brought or is not maintainable in said courts or that the venue
thereof may not be appropriate or that such provisions or award may not be
enforced in or by such courts, and the parties hereto irrevocably agree that all
claims with respect to such action or proceeding shall be heard and determined
in such a New York State or Federal court. Each of the parties hereto hereby
consents to and grants any such court jurisdiction over the person of such
parties and over the subject matter of any such dispute and agree that mailing
of process or other papers in connection with any such action or proceeding in
the manner provided in Section 8.2 or in such other manner as may be permitted
by law, shall be valid and sufficient service thereof. Any dispute in connection
with this Agreement shall be resolved by binding arbitration pursuant to Section
11.4(a) of the Merger Agreement.
8.5. Binding Effect. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective heirs, successors and
permitted assigns.
8.6. Assignment. This Agreement shall not be assignable or otherwise
transferable by any party hereto without the prior written consent of the other
parties hereto; provided, that Buyer may assign this Agreement to any holding
company or wholly-owned subsidiary of Buyer without consent, and provided,
further, that no such assignment shall in any way affect Buyer's or Sellers'
obligations or liabilities under this Agreement.
8.7. No Third Party Beneficiaries. Nothing in this agreement shall confer
any rights upon any person or entity other than the parties hereto and their
respective heirs, successors and permitted assigns.
8.8. Amendment; Waivers, etc. No amendment, modification or discharge of
this Agreement, and no waiver hereunder, shall be valid or binding unless set
forth in writing and duly executed by the party against whom enforcement of the
amendment, modification, discharge or waiver is sought. Any such waiver shall
constitute a waiver only with respect to the specified matter described in such
writing and shall in no way impair the rights of the party granting such waiver
in any other respect or at any other time. Neither the waiver by any of the
parties hereto of a breach of or a default under any of the provisions of this
Agreement, nor the failure by any of the parties, on one or more occasions, to
enforce any of the provisions of this Agreement or to exercise any right or
privilege hereunder, shall be construed as a waiver of any other breach or
default of a similar nature, or as a waiver of any of such provisions, rights or
privileges hereunder. The rights and remedies herein provided are cumulative and
none is exclusive of any other, or of any rights or remedies that any party may
otherwise have at law or in equity.
8.9. Severability. If any provision, including, without limitation, any
phrase, sentence, clause, section or subsection, of this Agreement is invalid,
inoperative or unenforceable for any reason, such circumstances shall not have
the effect of rendering such provision in question invalid, inoperative or
unenforceable in any other
6
<PAGE>
case or circumstance, or of rendering any other provision herein contained
invalid, inoperative, or unenforceable to any extent whatsoever.
8.10. Headings. The headings contained in this Agreement are for purposes
of convenience only and shall not affect the meaning or interpretation of this
Agreement.
8.11. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed an original and all of which shall
together constitute one and the same instrument.
8.12. Specific Performance. The parties hereto acknowledge that, in view
of the uniqueness of the parties hereto and the transactions contemplated
hereby, the parties hereto would not have an adequate remedy at law for money
damages in the event that this Agreement were not performed in accordance with
its terms, and therefore agree that the parties shall be entitled to specific
enforcement of the terms hereof in addition to any other remedy to which the
parties hereto may be entitled at law or in equity.
9. Certain Events. Sellers agree that this Agreement and the obligations
hereunder shall attach to the Shares, and shall be binding upon any person or
entity to which legal or beneficial ownership of such Shares shall pass whether
by operation of law or otherwise, including without limitation Sellers' heirs,
guardians, administrators or successors. In the event of any stock split, stock
dividend, merger, reorganization, recapitalization or other change in the
capital structure of the Company affecting the Shares, the number of Shares
referred to in Recital A of this Agreement comprising the Shares shall be
adjusted appropriately and this Agreement and the obligations hereunder shall
attach to any additional shares of the Company or other voting securities of the
Company issued to or acquired by Seller.
10. Definitions. Whenever the context may require, any pronoun shall
include the corresponding masculine, feminine and neuter forms. Whenever used in
this Agreement (including in the Annex), the following terms shall have the
respective meanings given to them below or in the Sections indicated below:
Agreement: this Agreement.
AIL Common Stock: as defined in recital A to this Agreement.
AIL Stockholders Agreement: the Stockholders Agreement, dated as of
September 30, 1997, and amended on December 28, 1998, by and among AIL
Technologies Inc., AIL Systems Holding Co., AIL Technologies Inc. Employee
Stock Ownership Trust, AIL Systems Inc., Employee Stock Trust and the
Persons listed on Schedule I thereto.
Business Day: a day other than a Saturday or a Sunday when banks in
New York are lawfully open for business.
Buyer: as defined in the first paragraph of this Agreement.
Closing: as defined in Section 1.3 of this Agreement.
Closing Date: as defined in Section 1.3 of this Agreement.
Company: as defined in recital A to this Agreement.
EDO Average Price: as defined in the Merger Agreement.
EDO Common Stock: as defined in the Merger Agreement.
Escrow Account: as defined in the Merger Agreement.
Escrow Agent: as defined in the Merger Agreement.
Escrow Agreement: as defined in the Merger Agreement.
Exchange Act: Securities Exchange Act of 1934, as amended, and the
rules and regulations thereunder.
Exchange Agent: as defined in the Merger Agreement.
7
<PAGE>
Exchange Ratio: as defined in the Merger Agreement.
Exchange Common Stockholder: as defined in the Merger Agreement.
Governmental Approval: as defined in Section 2.3(b) of this
Agreement.
Holdback Amount: as defined in Section 1.3 of this Agreement.
Lien: any debt, claim, security interest, lien, encumbrance, pledge,
assessment, restriction and charge of any nature.
Merger: as defined in recital C to this Agreement.
Merger Agreement: as defined in recital C to this Agreement.
Merger Sub: as defined in recital C to this Agreement. Person: any
natural person, firm, partnership, association, corporation, company,
trust, business trust, governmental authority or other entity.
Purchase Price: as defined in Section 1.2 of this Agreement.
Seller(s): as defined in the first paragraph of this Agreement.
Shares: as defined in recital A to this Agreement.
Termination Amendment to the AIL Stockholders Agreement: The
Termination Amendment to the AIL Stockholders Agreement dated December ,
1999.
Transfer: as defined in Section 4.2 of this Agreement.
8
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
date first above written.
EDO CORPORATION
By:
------------------------------------
Name:
Title:
--------------------------------------
J. Anderson
--------------------------------------
E. Bresnihan
--------------------------------------
P. Comiskey
--------------------------------------
J. Corbellini
--------------------------------------
B. Fitzgerald
--------------------------------------
G. Fox
--------------------------------------
H. Kreisberg
9
<PAGE>
--------------------------------------
E. Palacio
--------------------------------------
D.L. Reed
--------------------------------------
L. Schwartz
--------------------------------------
J.M. Smith
10
<PAGE>
ANNEX A
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
NAME OF COMMON STOCK OF THE PORTION OF PURCHASE PRICE
SELLER COMPANY OWNED OF RECORD PAYABLE TO SELLER
- ------------------------------ ------------------------------ ------------------------------
<S> <C> <C>
</TABLE>
11
<PAGE>
AMENDED AND RESTATED
STOCK PURCHASE AGREEMENT
DATED AS OF
JANUARY 2, 2000
BETWEEN
EDO CORPORATION,
AS BUYER,
AND
DEFENSE SYSTEMS HOLDING CO.,
AS SELLER,
RELATING TO THE PURCHASE AND SALE
OF
SHARES OF COMMON AND PREFERRED STOCK
OF
AIL TECHNOLOGIES INC.
<PAGE>
AMENDED AND RESTATED STOCK PURCHASE AGREEMENT
This AMENDED AND RESTATED STOCK PURCHASE AGREEMENT (the "Agreement") is
dated as of January 2, 2000 between EDO CORPORATION ("Buyer"), a New York
corporation, and DEFENSE SYSTEMS HOLDING CO. (formerly known as AIL Systems
Holding Co.) ("Seller"), a Nevada corporation.
RECITALS
A. Seller owns 754,598 shares (the "Common Shares") of common stock, par
value $0.10 per share, and 5,873 shares (the "Preferred Shares" and, together
with the Common Shares, the "Shares") of Series A Cumulative Preferred Stock,
par value $0.01 per share, of AIL Technologies Inc. (the "Company").
B. Seller wishes to sell the Shares to Buyer, and Buyer wishes to purchase
the Shares from Seller, on the terms and subject to the conditions described in
this Agreement.
C. Buyer and the Company propose to enter into an Agreement and Plan of
Merger (as amended from time to time, the "Merger Agreement") providing for the
merger (the "Merger") of the Company with and into EDO Acquisition III
Corporation ("Merger Sub"), a Delaware corporation and a wholly owned subsidiary
of Buyer.
D. Capitalized terms used herein are defined in Section 10 of this
Agreement.
NOW, THEREFORE, in consideration of the mutual promises, covenants,
representations and warranties made herein and of the mutual benefits to be
derived therefrom, the parties hereto agree as follows:
1. Purchase and Sale.
1.1. Purchase and Sale. Upon the terms and subject to the conditions of
this Agreement, at the Closing, Seller agrees to sell all of the Shares to
Buyer, and Buyer agrees to purchase all of the Shares from Seller.
1.2. Purchase Price. The purchase price for the Shares shall be an
aggregate amount equal to $11,438,160 (the "Purchase Price"), payable in cash at
the Closing in the manner set forth in Section 1.3 of this Agreement. The
portion of the Purchase Price payable for the Common Shares shall be $5,565,160
and the portion of the Purchase Price payable for the Preferred Shares shall be
$5,873,000.
1.3. Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") will take place at the offices of Debevoise &
Plimpton, 875 Third Avenue, New York, New York, immediately prior to the closing
under the Merger Agreement unless the parties otherwise agree in writing,
provided that (i) the conditions described in Section 5 and 6 of this Agreement
have been satisfied or waived, (ii) this Agreement has not been terminated in
accordance with its terms and (iii) the Seller has been given prior notice of
the proposed Closing Date. The date on which the Closing actually occurs shall
be referred to herein as the "Closing Date". At the Closing:
(a) Seller will deliver to Buyer, free and clear of any Liens, one or
more certificates representing the Shares to be sold to Buyer hereunder,
duly endorsed for transfer in blank or accompanied by stock powers or other
instruments of transfer duly endorsed in blank, with any required stock
transfer stamps attached; and
(b) Buyer will pay the Purchase Price to Seller for the Shares so
delivered by Seller, by wire transfer of immediately available funds to an
account designated by the Seller in writing at least two Business Days
prior to the Closing Date.
2. Representations and Warranties of Seller. Seller represents and
warrants to Buyer as of the date hereof and as of the Closing Date:
2.1. Title to Shares. Seller is the sole record and beneficial owner of
the Shares. Seller has, and will have immediately prior to Closing, good and
valid title to such Shares, free and clear of any Liens. Except as
<PAGE>
provided under the AIL Stockholders Agreement, Seller has the sole right to vote
the Shares, and none of such Shares is subject to any voting trust or any other
agreement, arrangement or restriction with respect to the voting of such Shares,
except as contemplated by this Agreement. Upon the delivery of and payment for
the Shares at the Closing as provided for in this Agreement, Buyer will acquire
all of Seller's right, title and interest in and to such Shares and will receive
good and valid title to such Shares, free and clear of any Lien other than any
Lien created by Buyer. Seller does not own of record or beneficially, any shares
of capital stock of the Company other than the Shares.
2.2. Organization and Authority. (a) Organization. Seller is a
corporation that is duly organized, validly existing and in good standing under
the laws of the State of Nevada.
(b) Authority. Seller has full corporate power and authority to execute
and deliver this Agreement, to perform its obligations hereunder and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement, the performance of its obligations hereunder and the
consummation of the transactions contemplated hereby have been duly authorized
by all requisite corporate action of Seller.
(c) Binding Agreement. Seller has duly executed and delivered this
Agreement. This Agreement constitutes the legal, valid and binding obligation of
Seller enforceable against Seller in accordance with its terms.
2.3. Compliance with Laws and Instruments; Consents. (a) Compliance. The
execution, delivery and performance by Seller of this Agreement and the
consummation of the transactions contemplated hereby, do not and will not
conflict with or contravene, result in a violation or breach of or default under
(with or without the giving of notice or passage of time or both), create in any
other Person a right or claim of termination, amendment, or require
modification, acceleration or cancellation of, or result in the creation of any
Lien (or any obligation to create any Lien) upon any properties or assets of
Seller under, (i) any law applicable to it or any of its properties, assets,
operations or business, (ii) any provision of its organizational documents, or
(iii) any contract, or any other agreement or instrument to which it is party or
by which it or any of its properties or assets may be bound or affected, except
in the case of the foregoing clause (iii) for any such violations and defaults
that, individually or in the aggregate, could not materially impair or delay the
ability of the parties to this Agreement to consummate the transactions
contemplated hereby. Seller has not received any notice alleging any such
conflict, violation, breach or default.
(b) Consents. No consent, approval, authorization, registration,
declaration, filing or notice of, with or to a Governmental body ("Governmental
Approval") or other consent is required to be obtained or made by Seller in
connection with the execution and delivery of this Agreement or the consummation
of the transactions contemplated hereby.
2.4. Knowledge of Merger. Seller represents that it has had the
opportunity to seek information regarding the terms of the Merger Agreement and
the transactions contemplated thereby, and to discuss such terms and
transactions with management of the Company, has sufficient knowledge of
financial and business matters so as to be capable of evaluating the merits and
risks of the potential financial or other effects of the Merger Agreement on the
Common Shares and Preferred Shares, and has obtained all of the information that
Seller deems necessary for Seller to make an informed judgment as to the sale of
the Shares.
3. Representations and Warranties of Buyer. Buyer represents and warrants
to Seller as follows as of the date hereof and as of the Closing Date:
3.1. Organization and Authority. (a) Organization. Buyer is a corporation
that is duly organized, validly existing and in good standing under the laws of
the State of New York.
(b) Authority. Buyer has full corporate power and authority to execute and
deliver this Agreement, to perform its obligations hereunder and to consummate
the transactions contemplated hereby. The execution and delivery of this
Agreement, the performance of its obligations hereunder, and the consummation of
the transactions contemplated hereby, have been duly authorized by all requisite
corporate action of Buyer.
2
<PAGE>
(c) Binding Agreement. Buyer has duly executed and delivered this
Agreement. This Agreement constitutes the legal, valid and binding obligation of
Buyer enforceable against Buyer in accordance with its terms.
3.2. Compliance with Laws and Instruments; Consents. (a) Compliance. The
execution, delivery and performance by Buyer of this Agreement, and the
consummation of the transactions contemplated hereby, do not and will not
conflict with, contravene, result in the violation or breach of or default under
(with or without the giving of notice or the lapse of time, or both), create in
any other Person a right or claim of termination, amendment, modification,
acceleration or cancellation of, or result in or require the creation of any
Lien (or any obligation to create any Lien) upon any of the properties or assets
of Buyer under (i) any law applicable to Buyer or any of its properties, assets,
operations or business, (ii) any provision of its organizational documents, or
(iii) any contract, or any other agreement or instrument to which it is party or
by which it or any of its properties or assets may be bound or affected, except
in the case of the foregoing clause (iii) for any such violations and defaults
that, individually or in the aggregate, could not materially impair or delay the
ability of the parties to this Agreement to consummate the transactions
contemplated hereby. Buyer has not received any notice alleging any such
conflict, violation, breach or default.
(b) Consents. No Governmental Approval or other consent is required to be
obtained or made by the Buyer in connection with the execution and delivery of
this Agreement or the consummation of the transactions contemplated hereby.
4. Covenants.
4.1. Cooperation. Following the Closing Date, Seller shall, from time to
time, at no additional cost to the Seller, execute and deliver such additional
instruments, documents, conveyances or assurances and take such other actions as
shall be necessary, or otherwise reasonably be requested by Buyer, to confirm
and assure the rights and obligations provided for in this Agreement and render
effective the consummation of the transactions contemplated hereby, or otherwise
to carry out the intent and purposes of this Agreement. Seller (i) shall
cooperate with Buyer in order to facilitate the consummation of the Merger
(including, without limitation, voting all the Shares in favor of the Merger and
against any proposal with respect to the acquisition of the Company by any party
other than Buyer, Merger Sub or their Affiliates) and (ii) shall not take any
action which would restrict, limit or frustrate in any way the transactions
contemplated by this Agreement or the Merger Agreement. No party hereto will
take any action for the purpose of delaying, impairing or impeding the receipt
of any required consent or Governmental Approval.
4.2. Restriction on Transfer, Voting and Acquisition of Additional
Shares. Seller shall not, prior to the earliest of (i) the Closing and (ii) the
termination of the Merger Agreement in accordance with its terms, (x) sell,
transfer, give, pledge, assign or otherwise dispose of (including, without
limitation, by gift) (collectively, "Transfer"), consent to any Transfer of, any
or all of the Shares or any interest therein or enter into any contract, option
or other arrangement (including, without limitation, any profit sharing
arrangement) with respect to the Transfer of, the Shares to any person other
than pursuant to the terms of this Agreement or the Merger Agreement, (y) enter
into any voting arrangement, whether by proxy, voting agreement or otherwise
with respect to the Shares or (z) acquire additional shares of common or
preferred stock of the Company or other voting securities of the Company and
agrees not to commit or agree to take any of the foregoing actions.
4.3. No Solicitation. During the term of this Agreement, Seller shall not,
and Seller shall cause each of its subsidiaries and Representatives not to, (i)
directly or indirectly solicit or encourage any inquiries or proposals for, or
enter into or continue any discussions with respect to, the acquisition by any
Person of any of the capital stock or assets of the Company (including the
Shares), or (ii) furnish or permit to be furnished any non-public information
concerning the Company other than information furnished in the ordinary course
of business after prior written notice to and consultation with Buyer. Seller
shall promptly notify Buyer of any inquiry or proposal received by Seller or any
Representative thereof with respect to any transaction described in clause (i)
above. Seller shall immediately cease and cause to be terminated any existing
activities, discussions or negotiations with any Person other than Buyer in
respect of any transaction to acquire any of the Shares.
3
<PAGE>
4.4. Public Announcements. Except as required by law or regulation or the
rules of any stock exchange or under the circumstance in which Buyer wishes to
make an announcement in connection with the signing of this Agreement and the
Merger Agreement, Buyer and Seller agree that they will not, and will use
commercially reasonable efforts to cause their respective agents and Affiliates
not to, issue or cause the publication of any press release or other
announcement with respect to or otherwise disclose the transactions contemplated
by this Agreement, the terms thereof or the parties thereto without the consent
of the other party hereto.
4.5. Notices of Certain Events. Each party agrees that it will, upon
obtaining knowledge of any of the following, promptly notify the other party
hereto of: (i) any notice or other communication from any person alleging that
the consent of such person is or may be required in connection with the
transactions contemplated hereby; (ii) any notice or other communication from
any governmental or regulatory agency or authority in connection with the
transactions contemplated hereby; and (iii) any actions, suits, claims,
investigations or proceedings commenced or, to its knowledge threatened against,
relating to or involving or otherwise affecting Buyer or Seller that relates to
this Agreement or the consummation of the transactions contemplated hereby.
5. Conditions to Closing of Seller. The obligations of Seller to
consummate the Closing are subject to the satisfaction of the following
conditions:
5.1. The representations and warranties of Buyer contained in this
Agreement shall be true and correct in all material respects at and as of the
date hereof and shall be repeated and shall be true and correct in all material
respects on and as of the Closing Date as if made at and as of such date.
5.2. Buyer shall have complied in all material respects with all agreements
and covenants required by this Agreement to be performed or complied with.
5.3. No domestic or foreign governmental authority or other agency or
commission or state court or judicial body of competent jurisdiction shall have
enacted, issued, promulgated, enforced or entered any statute, rule, regulation,
injunction or other order (whether temporary, preliminary, or permanent) that is
in effect and has the effect of prohibiting consummation of the transactions
contemplated by this Agreement.
6. Conditions to Closing of Buyer. The obligations of Buyer to consummate
the Closing are subject to the satisfaction of the following conditions:
6.1. The representations and warranties of Seller contained in this
Agreement shall be true and correct in all material respects at and as of the
date hereof and shall be repeated and shall be true and correct in all material
respects on and as of the Closing Date as if made at and as of such date.
6.2. Seller shall have delivered all of the Shares in accordance with
Section 1.3(a) of this Agreement, and Seller shall have complied in all material
respects with all other agreements and covenants required by this Agreement, to
be performed or complied with.
6.3. The Merger Agreement shall have been executed and delivered by Buyer,
Merger Sub, the Company and the other parties thereto and shall not have been
terminated in accordance with its terms, and all of the conditions precedent to
the obligations of such parties thereunder (other than the condition that the
conditions precedent to the obligations of the parties to this Agreement shall
have been satisfied or waived) shall have been satisfied or waived.
6.4. No domestic or foreign governmental authority or other agency or
commission or state court or judicial body of competent jurisdiction shall have
enacted, issued, promulgated, enforced or entered any statute, rule, regulation,
injunction or other order (whether temporary, preliminary, or permanent) that is
in effect and has the effect of prohibiting consummation of the transactions
contemplated by this Agreement.
7. Termination.
7.1. Termination. This Agreement may be terminated at any time prior to
the Closing by mutual written agreement of Buyer and Seller. This Agreement may
be terminated by either Seller or Buyer if the Closing hereunder shall not have
occurred on or before June 15, 2000. This Agreement shall automatically
4
<PAGE>
terminate if the Merger Agreement is terminated prior to the Closing hereunder
(it being understood and agreed that Buyer shall promptly notify Seller of such
termination of the Merger Agreement).
7.2. Effect of Termination. If this Agreement is terminated pursuant to
Section 7.1 above, all further obligations of the parties hereto under this
Agreement shall terminate without further liability or obligation of any party
to any other party, including, without limitation, liability for damages, except
that (i) Section 4.4, Section 7.1, this Section 7.2, Sections 8 and 10 shall
survive the termination hereof and (ii) no such termination shall relieve any
party hereto from liability for breach of this Agreement.
8. Miscellaneous.
8.1. Expenses. Except as otherwise provided for in this Agreement, whether
or not the transactions contemplated hereby shall be consummated, all costs and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such expenses.
8.2. Notices. All notices, requests, demands, waivers and other
communications required or permitted to be given under this Agreement shall be
in writing and shall be deemed to have been duly given if (a) delivered
personally, (b) mailed, certified or registered mail with postage prepaid, (c)
sent by next-day or overnight mail or delivery or (d) sent by telecopy or
telegram, as follows:
(i) if to Buyer,
EDO Corporation
60 East 42nd Street, Suite 5010
New York, New York 10165
Fax: (212) 716-2050
Telephone: (212) 716-2000
Attention: Marvin D. Genzer, Esq.
with a copy to:
Debevoise & Plimpton
875 Third Avenue
New York, NY 10022
Fax: (212) 909-6836
Telephone: (212) 909-6000
Attention: Robert F. Quaintance, Jr.
and
Kleinberg, Kaplan, Wolff & Cohen P.C.
551 Fifth Avenue, 18th Floor
New York, New York 10176
Fax: (212) 986-8866
Telephone: (212) 986-6000
Attention: Harold I. Steinbach, Esq.
(ii) if to Seller,
Defense Systems Holding Co.
Eaton Center
1111 Superior Ave.
Cleveland, Ohio 44114-2584
Fax: 216-479-7122
Telephone: (216) 523-5000
Attention: Office of the Secretary
5
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with a copy to:
Baker & Hostetler LLP
3200 National City Center
1900 East 9th Street
Cleveland, Ohio 44114-3485
Fax: (216) 696-0740
Telephone: (216) 620-0200
Attention: James B. Griswold, Esq.
and
Kleinberg, Kaplan, Wolff & Cohen P.C.
551 Fifth Avenue, 18th Floor
New York, New York 10176
Fax: (212) 986-8866
Telephone: (212) 986-6000
Attention: Harold I. Steinbach, Esq.
or, in each case, at such other address as may be specified in writing to the
other parties hereto.
All such notices, requests, demands, waivers and other communications shall
be deemed to have been received (i) if by personal delivery on the day after
such delivery, (ii) if by certified or registered mail, on the seventh Business
Day after the mailing thereof, (iii) if by next-day overnight mail or delivery,
on the day delivered, (iv) if by telecopy or telegram, on the next day following
the day on which such telecopy or telegram was sent, provided that a copy is
also sent by certified or registered mail.
8.3. Entire Agreement. This Agreement constitutes the entire agreement
between the parties with respect to the subject matter of this Agreement and
supersedes all prior agreements and understandings, both oral and written,
between the parties with respect to the subject matter of this Agreement.
8.4. Governing Law, etc. THIS AGREEMENT SHALL BE GOVERNED IN ALL RESPECTS,
INCLUDING, WITHOUT LIMITATION, AS TO VALIDITY, INTERPRETATION AND EFFECT, BY THE
INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO THE CONFLICT OF
LAWS RULES THEREOF. Buyer and Seller hereby irrevocably submit to the exclusive
jurisdiction of the courts of the State of New York and the Federal courts of
the United States of America located in the State, City and County of New York
solely in respect of the interpretation and enforcement of the provisions of
this Agreement and of the documents referred to in this Agreement, and in
respect of the transactions contemplated hereby and hereby waive, and agree not
to assert, as a defense in any action, suit or proceeding for the interpretation
or enforcement hereof or of any such document, that it is not subject thereto or
that such action, suit or proceeding may not be brought or is not maintainable
in said courts or that the venue thereof may not be appropriate or that this
Agreement or any such document may not be enforced in or by such courts, and the
parties hereto irrevocably agree that all claims with respect to such action or
proceeding shall be heard and determined in such a New York State or Federal
court. Buyer and Seller hereby consent to and grant any such court jurisdiction
over the person of such parties and over the subject matter of any such dispute
and agree that mailing of process or other papers in connection with any such
action or proceeding in the manner provided in Section 8.2 of this Agreement or
in such other manner as may be permitted by law, shall be valid and sufficient
service thereof.
8.5. Binding Effect. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective heirs, successors and
permitted assigns.
8.6. Assignment. This Agreement shall not be assignable or otherwise
transferable by any party hereto without the prior written consent of the other
parties hereto; provided, that Buyer may assign this Agreement to any holding
company or wholly-owned subsidiary of Buyer without consent, and provided,
further, that no such assignment shall in any way affect Buyer's or Seller's
obligations or liabilities under this Agreement.
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8.7. No Third Party Beneficiaries. Nothing in this Agreement shall confer
any rights upon any person or entity other than the parties hereto and their
respective heirs, successors and permitted assigns.
8.8. Amendment; Waivers, etc. No amendment, modification or discharge of
this Agreement, and no waiver hereunder, shall be valid or binding unless set
forth in writing and duly executed by the party against whom enforcement of the
amendment, modification, discharge or waiver is sought. Any such waiver shall
constitute a waiver only with respect to the specified matter described in such
writing and shall in no way impair the rights of the party granting such waiver
in any other respect or at any other time. Neither the waiver by any of the
parties hereto of a breach of or a default under any of the provisions of this
Agreement, nor the failure by any of the parties, on one or more occasions, to
enforce any of the provisions of this Agreement or to exercise any right or
privilege hereunder, shall be construed as a waiver of any other breach or
default of a similar nature, or as a waiver of any of such provisions, rights or
privileges hereunder.
The rights and remedies herein provided are cumulative and none is
exclusive of any other, or of any rights or remedies that any party may
otherwise have at law or in equity.
8.9. Severability. If any provision, including, without limitation, any
phrase, sentence, clause, section or subsection, of this Agreement is invalid,
inoperative or unenforceable for any reason, such circumstances shall not have
the effect of rendering such provision in question invalid, inoperative or
unenforceable in any other case or circumstance, or of rendering any other
provision herein contained invalid, inoperative, or unenforceable to any extent
whatsoever.
8.10. Headings. The headings contained in this Agreement are for purposes
of convenience only and shall not affect the meaning or interpretation of this
Agreement.
8.11. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed an original and all of which shall
together constitute one and the same instrument.
8.12. Specific Performance. The parties hereto acknowledge that, in view
of the uniqueness of the parties hereto and the transactions contemplated
hereby, the parties hereto would not have an adequate remedy at law for money
damages in the event that this Agreement were not performed in accordance with
its terms, and therefore agree that the parties shall be entitled to specific
enforcement of the terms hereof in addition to any other remedy to which the
parties hereto may be entitled at law or in equity.
8.13. Consents Related to Certain Agreements. Each of Seller and Buyer, by
the execution of this Agreement, hereby (x) acknowledges and agrees that the
consummation of the Merger and the transactions related thereto shall not affect
the enforceability of any agreement to which Seller and any of its subsidiaries,
on the one hand, and the Company or any of its subsidiaries, on the other, are
parties, (y) consents, to the extent necessary, to the assignment and transfer
of all such agreements from the Company to the surviving corporation of the
Merger, and (z) agrees that no change in control provision or other term or
condition contained in any such agreement will be applicable or inapplicable as
a result of the consummation of the Merger and the transactions related thereto.
9. Certain Events. Seller agrees that this Agreement and the obligations
hereunder shall attach to the Shares, and shall be binding upon any person or
entity to which legal or beneficial ownership of such Shares shall pass whether
by operation of law or otherwise, including without limitation Seller's heirs,
guardians, administrators or successors. In the event of any stock split, stock
dividend, merger, reorganization, recapitalization or other change in the
capital structure of the Company affecting the Shares, the number of Shares
referred to in Section 1.2 of this Agreement comprising the Shares shall be
adjusted appropriately and this Agreement and the obligations hereunder shall
attach to any additional shares of the Company or other voting securities of the
Company issued to or acquired by Seller.
10. Definitions. Whenever used in this Agreement (including in the
Schedules), the following terms shall have the respective meanings given to them
below or in the Sections indicated below:
Affiliate: of a Person means a Person that directly or indirectly
through one or more intermediaries, controls, is controlled by, or is under
common control with, the first Person.
7
<PAGE>
Agreement: this Agreement.
Business Day: a day other than a Saturday or a Sunday when banks in
New York are lawfully open for business.
Buyer: as defined in the first paragraph of this Agreement.
Closing: as defined in Section 1.3 of this Agreement.
Closing Date: as defined in Section 1.3 of this Agreement.
Common Shares: as defined in recital A to this Agreement.
Company: as defined in recital A to this Agreement.
Exchange Act: Securities Exchange Act of 1934, as amended, and the
rules and regulations thereunder.
Governmental Approval: as defined in Section 2.3(b) of this
Agreement.
HSR Act: the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, and the rules and regulations thereunder.
Lien: and debt, claim, security interest, liens, encumbrance, pledge,
assessment, restriction and charge of any nature.
Merger: as defined in recital C to this Agreement.
Merger Agreement: as defined in recital C to this Agreement.
Merger Sub: as defined in recital C to this Agreement.
AIL Stockholders Agreement: the Stockholders Agreement, dated as of
September 30, 1997, by and among AIL Technologies Inc., AIL Systems Holding
Co., AIL Technologies Inc. Employee Stock Ownership Trust, AIL Systems Inc.
Employee Stock Trust and the persons listed on Schedule I thereto, as
amended.
Person: any natural person, firm, partnership, association,
corporation, company, trust, business trust, governmental authority or
other entity.
Preferred Shares: as defined in recital A to this Agreement.
Purchase Price: as defined in Section 1.2 of this Agreement.
Representatives: as to any Person, its accountants, counsel,
consultants (including, but not limited to, actuarial, environmental and
industry consultants), officers, directors, employees, agents and other
advisors and representatives.
Seller: as defined in the first paragraph of this Agreement.
Shares: as defined in the third recital to this Agreement.
Transfer: as defined in Section 4.2 of this Agreement.
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<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
date first above written.
EDO CORPORATION
By:
------------------------------------
Name:
Title:
DEFENSE SYSTEMS HOLDING CO.
By:
------------------------------------
Name:
Title:
By:
------------------------------------
Name:
Title:
9
<PAGE>
Amendments to the By-Laws of
EDO Corporation duly adopted by the
Board of Directors of EDO Corporation
The following sections have been amended and are restated to read as follows:
Section 1.01 Annual Meetings. The annual meeting of shareholders for the
election of directors and for the transaction of such other business as
properly may come before such meeting shall be held at such place, either
within or without the State of New York, on the fourth Tuesday in April in each
year or as the Board of Directors may from time to time otherwise determine.
Section 1.05 Quorum. Except as otherwise provided by law and subject to the
provisions of Section 1.07 and Section 6.02(b), the presence in person or by
proxy of the holders of record of a majority of the votes of shares entitled to
vote at any meeting of shareholders shall constitute a quorum for the
transaction of business at such meeting. When a quorum is once present to
organize a meeting, the subsequent withdrawal of any shareholders shall not be
deemed to break the quorum. [Sec. 608]
Section 1.07 Voting:
(a) At each meeting of shareholders, each holder of record of common shares
entitled to vote at such meeting shall be entitled to one vote for each such
common share standing in his name on the books of the Company on the record
date as determined pursuant to Section 1.09. [Sec. 612]
(b) At each meeting of shareholders, each holder of record of preferred shares
entitled to vote at such meeting shall be entitled to such number of votes as
may be specified in the Certificate of Incorporation. [Sec. 612]
(c) Except as at the time otherwise expressly required by statute, by the
Certificate of Incorporation of the Company or by Section 1.06 (regarding
appointment of Inspectors), Section 2.02 (regarding election of directors) or
Section 2.07 (regarding removal of directors), all corporate action to be taken
by vote of the shareholders shall be authorized by a majority of the votes cast
by the holders of shares entitled to vote thereon at a meeting of the
shareholders at which a quorum is present. Treasury sha res and shares held by
any other corporation (if a majority of the shares entitled to vote in the
election of directors of such other corporation is held by the Company) shall
not be shares entitled to vote or to be counted in determining the total number
of outstanding shares. [Sec. 614]
Section 1.09 Record Date. The Board of Directors may fix, in advance, a date
as the record date for determining the shareholders entitled to notice of or to
vote at any meeting of shareholders or any adjournment thereof, or to express
consent to or dissent from any proposal without a meeting. Such date shall be
not more than 60 nor less than 10 days before the date of such meeting. [Sec.
604]
I hereby certify that the above amended and restated sections of the By-Laws of
EDO Corporation have been duly adopted by the Board of Directors of Edo
Corporation and are effective as of this 23rd day of February 2000.
s/ Marvin D. Genzer
-------------------------------
Marvin D. Genzer, Secretary
<PAGE>
AMENDED AND RESTATED EMPLOYMENT AND RETIREMENT
AGREEMENT made this 2nd day of January, 2000 by and between EDO Corporation, a
New York corporation (the "Company"), and Frank A. Fariello ("Executive").
W I T N E S S E T H:
WHEREAS, the Company and Executive have previously entered into an
Executive Termination Agreement (the "Termination Agreement") providing
Executive with certain rights upon the occurrence of a Change in Control;
WHEREAS, substantially contemporaneously with the execution hereof,
the Company is entering into an Agreement and Plan of Merger (the "Merger
Agreement") with AIL Systems Inc. ("AIL") pursuant to which AIL will become a
wholly owned subsidiary of the Company;
WHEREAS, the Company acknowledges that the merger contemplated
under the Merger Agreement (the "Merger") would constitute a Change of Control
of the Company under the terms of the Termination Agreement, and that Executive
would have the right to terminate his employment following the effective time of
the Merger (the "Effective Time") and receive the separation benefits payable
thereunder;
WHEREAS, the Company has determined that, notwithstanding the
occurrence of such a Change of Control, it wants to have the services of the
Executive for a transition period following the Effective Time, and the
Executive is willing to agree to provide such services, in each case on the
terms and conditions set forth herein;
WHEREAS, the Executive understands and agrees that, by agreeing to
the terms and conditions of this Agreement, if he terminates his own employment
voluntarily other than for Good Reason (as defined below) prior to the end of
the Employment Term, as specified in Section 2 below, he may lose the right to
receive the amounts that would otherwise have been payable to him under the
Termination Agreement;
NOW, THEREFORE, the Company and Executive agree to supersede the
Termination Agreement and enter into the following Amended and Restated
Employment Agreement:
1. Effect at Effective Time. This Amended and Restated Employment
Agreement shall be and become effective at the Effective Time. Until the time,
if any, at which the Effective Time occurs, the Termination Agreement shall
remain in full force and effect. Upon the occurrence of the Effective Time, the
Termination Agreement shall be superceded in its entirety by this Agreement and
neither the Company nor the Executive
<PAGE>
shall have any rights against, or obligations to, the other thereunder. In the
event that the Effective Time does not occur by June 15, 2000 or the Merger
Agreement is terminated in accordance with its terms, this Amended and Restated
Employment Agreement shall be rendered void and without effect and neither the
Company nor the Executive has or will have any rights against, or obligations
to, the other party hereunder.
2. Term; Duties.
(a) Term. This Amended and Restated Employment Agreement shall have
an initial term commencing on the Effective Time and ending on July 2, 2000 (the
"Employment Term"). At the end of the Employment Term, the Executive shall
voluntarily resign from the Company's employment and, except as provided in
Section 2(b), as Chairman of the Board of Directors and as a member of the Board
of Directors.
(b) Duties. During the Employment Term, the Executive shall serve
as the Chairman of the Board of Directors. In such capacity, the Executive shall
be responsible for shareholders relations and shall continue to be the Company's
principal representative to its shareholders, participate in the analysis of
strategic planning issues and opportunities and advise the Chief Executive
Officer and the Company with respect to matters pertaining to the Company's
international operations. The Executive shall also serve as a consultant to the
Chief Executive Officer, providing such assistance in the integration of the
Company and AIL and the transition of authority as the Chief Executive Officer
shall reasonably request from time to time, and have such other duties and
responsibilities commensurate with his position, training and experience as the
Board of Directors may assign. During the Employment Term, the Executive shall
also serve as a member of the Board of Directors. Following the end of the
Employment Term, the Executive shall resign from the Board of Directors unless
the Board of Directors requests in writing prior to the end of the Employment
Term that he continue to serve as Chairman and a member of the Board of
Directors, for such period as the Board specifies in writing, and Executive
agrees to continue in such capacity for such period. The Executive and the Chief
Executive Officer shall each report directly to the Board of Directors and,
except to the extent the Chairman is serving as a consultant to the Chief
Executive Officer, neither shall report to the other. The Executive shall devote
his full business time, other than periods of absence due to vacation or
illness, to the Company's affairs.
3. Compensation. During the Employment Term, the Executive will
receive the following compensation for his services hereunder:
(a) Base Salary. The Executive's annual base salary shall be at the
rate in effect on the date this Amended and Restated Employment Agreement is
executed. Such base salary shall be periodically reviewed by the Board of
Directors (or a duly authorized
2
<PAGE>
committee thereof) and may, as a result of such review, be increased in
accordance with the Company's policies and practices for senior executives
generally. The Executive's base salary, as it may be increased from time to
time, shall not be decreased without his written consent.
(b) Annual Incentive. With respect to calendar year 1999, the
Executive shall be eligible for an annual incentive award for his services as
Chief Executive Officer of the Company in accordance with the Company's policies
and practices applicable generally to the Company's senior executives; provided
that, the amount payable to the Executive in respect of 1999 shall be based on
the highest bonus amount paid to the Executive with respect to any of the three
immediately preceding fiscal years, pro-rated for his period of service as Chief
Executive Officer. Any bonus amounts payable to the Executive with respect to
his services as Chairman shall be determined by the Board or a duly authorized
committee thereof, in its sole discretion.
(c) Benefits. The Executive shall be eligible to participate in
such employee and executive benefit plans and policies as shall generally be
made available to the Company's senior executives from time to time; including,
without limitation, all group life, health, accident and disability insurance
plans, and each qualified and nonqualified pension, profit-sharing or savings
plan maintained generally for the benefit of the Company's employees or for its
senior executives. Notwithstanding the foregoing, the amount of retirement
benefits (and the form in which any such benefits are) payable to the Executive
may not be modified.
4. Entitlement to Separation Benefits.
(a) Termination Without Cause or For Good Reason. If during the
Employment Term Executive's employment is terminated due to his death or
Disability (as defined below), by the Company without "Cause" or by Executive in
a "Termination for Good Reason" (as each such term is defined below), the
Executive shall be paid the separation benefits described in Section 5 hereof.
For the avoidance of doubt, despite the provisions of the Termination Agreement,
Executive shall not be entitled to any payment of separation benefits hereunder
if he shall terminate his employment voluntarily (other than in a Termination
for Good Reason as expressly defined in this Amended and Restated Employment
Agreement) prior to the expiration of the current Employment Term.
(b) Form of Payment. The total of the cash amounts to be paid under
Section 5(a) , subject to any taxes required to be withheld, shall be paid to
Executive as follows: (A) in a lump sum, on or before the fifth day following
"Date of Employment Termination" (as defined below); or (B) at Executive's
option, in monthly installments not to exceed a 36-month period, commencing on
the fifth day of the month following the
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Date of Employment Termination, if written notification from the Executive is
received by the Company within 90 days prior to the Date of Employment
Termination or, if later, within 10 days prior to the Effective Time.
(c) Loans. [The amount of any loan or advance to Executive shall be
due and payable as of the Date of Employment Termination. The Company shall have
no right of set off against any amount due Executive under this Agreement].
(d) Termination for Cause. If the Executive's employment is
terminated by the Company for Cause, the Company shall pay the Executive his
full base salary through the Date of Employment Termination (at the rate in
effect as of the Date of Employment Termination), and the Company shall have no
further obligations to the Executive under this Agreement.
(e) Disability. Disability shall mean the Executive's inability to
perform the principal duties of his position for a period of at least 180
consecutive days due to illness or injury. Disability shall be deemed to exist
under this Amended and Restated Employment Agreement if the Executive shall
become eligible to receive long-term disability benefits under any plan, policy
or arrangement maintained by the Company.
(f) Definition of Cause. The following are the only reasons for
which the Company may terminate Executive's services for Cause without further
obligations under this Agreement:
- for providing the Company with materially false reports
concerning Executive's business interests or
employment-related activities;
- for making materially false representations relied upon by the
Company in furnishing information to shareholders, a stock
exchange, or the Securities and Exchange Commission;
- for maintaining an undisclosed, unauthorized and material
conflict of interest in the discharge of duties owed by
Executive to the Company;
- for misconduct causing a serious violation by the Company of
state or federal laws;
- for theft of Company funds or corporate assets; or
- for conviction of a crime (excluding traffic violations or
similar misdemeanors).
4
<PAGE>
(g) "Termination for Good Reason" shall mean termination of
Executive's employment by Executive following, or in connection with:
- during the Employment Term, any reduction in Executive's base
salary or any reduction in the Executive's bonus or incentive
compensation from the highest dollar amount or other rate of
bonus or incentive compensation payable to the Executive as an
annual bonus for the three calendar years preceding the
Effective Time or a significant reduction in the aggregate
value of the benefits to which Executive was entitled
immediately prior to the Effective Time;
- the Company's requiring Executive to be based at any office or
location other than the one where he worked immediately prior
to the Effective Time, except for travel reasonably required
in the performance of Executive's responsibilities;
- any purported termination by the Company of Executive's
employment otherwise than as permitted by this Agreement, it
being understood that any such purported termination shall not
be effective for any purpose of this Agreement; or
- any failure by the Company to obtain the assumption and
agreement to perform this Agreement by a successor as
contemplated by Section 9(a) hereof.
(h) "Date of Employment Termination" shall mean the earlier of the
date on which Executive or the Company gives written notice of termination of
Executive's employment to the other party or, in the case where the Employment
Term expires due to the delivery of a notice of non-renewal, the date the
Employment Term lapses.
5. Amount of Separation Benefits.
(a) Cash Separation Payments. Upon a termination of Executive's
employment under circumstances described in Section 4(a), the Executive shall
receive the following amounts in cash:
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- Executive's full base salary through the Date of Employment
Termination, at the rate in effect ten (10) days prior to the
Date of Employment Termination; plus
- the product of
(A) an amount equal to Executive's full base salary earned
from the beginning of the calendar year in which Date of
Employment Termination occurs through the Date of
Employment Termination, and
(B) the greater of
(i) 20% and
(ii) the percentage equal to the highest percentage of
base salary paid to the Executive as an annual
bonus for any of the three calendar years
preceding the calendar year in which the
Executive's termination of employment occurs (the
"Prior Bonus Percentage"),
reduced by any installment of cash bonus previously paid by the
Company to Executive for the applicable calendar year; plus
- the full amount, if any, of any incentive or special
award which Executive earned but which has not yet been
paid; plus
- three times the sum of
(A) Executive's annual base salary, at the highest
rate in effect at any time up to Date of
Employment Termination, and
(B) an amount equal to the product of
(i) the annual base salary referred to in
subclause (A) and
(ii) the greater of
(1) 20% and
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(2) the Prior Bonus Percentage;
provided, however, that two-thirds of such amount (the
"Forfeitable Amount") shall be subject to recapture by the
Company in the event that a court of competent jurisdiction
finds that the Executive breached any of the covenants
contained in Section 7 in any material way; plus
- an amount which, as of the Date of Employment Termination, is
equal to the present value (calculated at a discount rate of
7% per annum) of (x) the lump sum value of the Retirement -
Pension to which Executive would have been entitled if the
four (4) years after the Date of Employment Termination were
added to his Credited Service under the EDO Corporation
Employees Pension Plan, reduced by (y) the lump sum value of
the Retirement Pension to which Executive - will be entitled
under the terms of such plan based upon termination of
employment as of the Date of Employment Termination and
assuming commencement of payment of Executive's pension
benefits at age 65. The lump sum value of Executive's
Retirement Pension shall be determined as of Executive's
retirement at age 65, using the same methods and assumptions
used at the Date of Employment Termination for purposes of the
EDO Corporation Employees Pension Plan.
(b) Benefits. For three (3) years after the Date of Employment
Termination, the Company shall maintain in full force and effect and Executive
(and, if eligible dependents, if applicable) shall continue to participate in
all group life, health and accident, and disability insurance, and other
employee benefit plans, programs and arrangements in which Executive was
entitled to participate immediately prior to the Date of Employment Termination
(including, without limitation, the continued use of a company car, tax and
financial planning services and the right to an annual physical at the Company's
expense), provided that (i) continued participation is possible under the
general terms and provisions of such plans, programs and arrangements and (ii)
as of the third anniversary of Executive's Date of Termination, Executive shall
be deemed to have retired (regardless of Executive's age at such time) from
active employment with the Company for purposes of any plan or program
maintained by the Company under which medical, health, life or other welfare
benefits are provided to eligible retirees. If participation is barred, or an
applicable plan, program or arrangement is discontinued or the benefits
thereunder are materially reduced, the Company shall arrange to provide
Executive with benefits substantially similar to those which he was entitled to
receive immediately prior to the Date of Employment Termination. At the end of
the period of coverage above provided for, Executive shall have the option to
have assigned to him, at no cost and with no apportionment of prepaid premiums,
any assignable insurance owned by the Company and
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relating specifically to him. The foregoing shall not be deemed to apply to any
plan which is intended to meet the requirements of Section 401(a) of the
Internal Revenue Code of 1986, as amended (the "Code") or any successor section
thereto.
(c) No Offset or Mitigation. Executive shall not be required to
mitigate the amount of any payment or benefit provided for in this Agreement by
seeking other employment or otherwise, nor shall the amount of any payment or
benefit so provided for be reduced by any compensation earned by him as the
result of employment by another employer after the Date of Employment
Termination, or otherwise.
(d) Release. Notwithstanding the foregoing, payment of any amounts
under Section 5(a) shall be subject to and conditioned upon the execution by the
Executive of an appropriate release in such form as shall reasonably be
requested by the Company. For the avoidance of doubt, such release shall, among
other things, release the Company from any on going obligations under the
provisions of Section 10(g), pertaining to legal fees.
(e) Treatment of Termination for Purposes of the SERP. If the
Executive's employment terminates in a manner which entitles the Executive to
receive the benefits payable under this Section 5, or terminates for any reason
other than Cause after the end of the Initial Term, the Executive shall be
eligible to receive a lump sum payment from the Company of an amount at least
equal to the present value of his accrued benefits under the Supplemental
Executive Retirement Plan ("SERP"), as in effect on the date hereof, regardless
of any amendment, termination or other modification the SERP occurring after the
date hereof.
6. Special Retention Payment. To induce the Executive to enter into
this Amended and Restated Employment Agreement and to remain in the employ of
the Company during the critical transition period following the Effective Time
to enable the Company to successfully integrate the operations of the Company
and AIL, if the Executive is still employed by the Company on the last day of
the Employment Term, then subject to the execution from the Executive of a
release in accordance with the provisions of Section 5(d), the Company shall pay
to the Executive an amount in cash, in consideration for the performance of such
services on behalf of the Company following the Effective Time, equal to the
cash amount that would have been paid to the Executive pursuant to Section 5(a)
had his employment with the Company been terminated without Cause, which amount
shall be subject to the same conditions as apply to the amounts payable under
Section 5(a) (the "Special Retention Payment"). If payable in accordance with
the preceding sentence, such Special Retention Payment shall be paid to
Executive as follows: (A) in a lump sum, on or before the 10th day following the
date that Executive ceases to serve as Chairman or (B) at Executive's option, in
monthly installments not to exceed a 36-month period, commencing on the fifth
day of the month following the date
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that Executive ceases to serve as Chairman, if written notification by the
Executive is received by the Company within 90 days prior to the date that
Executive ceases to serve as Chairman. If the Executive receives the Special
Retention Payment, the Company shall also provide to the Executive and his
dependents the same benefits (and on the same terms and for the same period of
time) as such benefits would have been provided under Section 5(b), were it
applicable.
7. Covenants.
(a) Confidential Information. The Executive acknowledges and agrees
that the Executive has and will come into contact with, have access to and learn
various technical and nontechnical trade secrets and other confidential
information, which are the property of the Company (the "Confidential
Information"). Such Confidential Information includes but is not limited to
methods, procedures, devices and other means used by the Company in the conduct
of its business, marketing plans and strategies, pricing plans and strategies,
data processing programs, databases, formulae, secret processes, machines and
adaptions thereto, inventions, research projects, and all other matters of a
technical nature, all of which Confidential Information is not publicly
available, but has been developed by the Company at its great effort and
expense; names and addresses of the Company's customers and their
representatives responsible for entering into contracts for the Company's
services, customer leads or referrals, specific customer needs and requirements
and the manner in which they have been met by the Company, information with
respect to pricing, costs, profits, sales, markets, plans for future business
and other development, all of which Confidential Information is not available
from directories or other public sources; and information with respect to the
Company's employees, their names and addresses, compensation, experience,
qualifications, abilities, job performance and similar information. All of the
Confidential Information has been developed, acquired or compiled by the Company
at its great effort and expense.
(b) Non-Disclosure of Confidential Information. The Executive
acknowledges and agrees that any disclosure, divulging, revealing or other use
of any of the aforesaid Confidential Information by the Executive, other than in
connection with the Company's business will be highly detrimental to the
business of the Company and serious loss of business and pecuniary damage may
result therefrom. Accordingly, the Executive specifically covenants and agrees
to hold all such Confidential Information and any documents containing or
reflecting the same in the strictest confidence, and the Executive will not,
both during employment with the Company or at any time thereafter, without the
Company's prior written consent, disclose, divulge or reveal to any person
whomsoever, or use for any purpose other than the exclusive benefit of the
Company, any Confidential Information whatsoever, whether contained in his
memory or embodied in writing or other physical form.
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(c) Covenant Not To Compete. The Executive acknowledges and agrees
that the Company is engaged in a highly competitive business, and by virtue of
his position and responsibilities with the Company, and his access to the
Confidential Information, engaging in any business which is directly or
indirectly competitive with the Company will cause it great and irreparable
harm. Consequently, the Executive covenants and agrees that during the Term, and
for a period of two years after the Date of Employment Termination, the
Executive shall not directly or indirectly own, manage, operate, control, be
employed by, participate in, or be connected with, in any manner, any business
engaged in whole or in part in the pursuit of electronic counter-measures,
environmental monitoring, radar systems, satellite communications or advanced
electro-optical products for the defense and aerospace industries in the
continental United States and any other country in which the Company conducts
business (or, with respect to the period following the Date of Termination, at
such Date of Termination), without the prior written specific consent of the
Company. If requested, this consent shall not be unreasonably withheld where the
elements of competition are not direct, or specific, to the Company's business.
(d) Non-Solicitation of Customers. The Executive acknowledges and
agrees that during the course and solely as a result of his employment with the
Company, the Executive has and will become aware of some, most or all of the
Company's customers and clients, their names and addresses, their
representatives responsible for engaging the Company's services, their specific
needs and requirements, and leads and referrals to prospective customers and
clients. The Executive further acknowledges and agrees that the loss of such
customers and clients would cause the Company great and irreparable harm.
Consequently, the Executive covenants and agrees that the Executive will not,
for a period of two years after the Date of Employment Termination, directly or
indirectly solicit or seek to do business with any customer or client, former
customer or client or prospective customer or client of the Company with whom
the Executive came into contact while employed by the Company or who was known
to the Executive to be a current, former or prospective customer or client of
the Company, without the prior written specific consent of the Company. If
requested, this consent shall not be unreasonably withheld with respect to the
solicitation of any such customer or client in respect of a product, process or
service which, at the relevant time, is not competitive with any product,
process or service which is available from the Company or which the Company has
begun substantial efforts to make available to its clients or customers.
(e) Non-Solicitation of Employees. The Executive acknowledges and
agrees that during the course of employment by the Company, the Executive has
and may hereafter come into contact with some, most or all of the Company's
employees, their knowledge, skills, abilities, salaries, commissions, benefits
and other matters with respect to such employees not generally known to the
public. The Executive further acknowledges and agrees that any solicitation,
luring away or hiring of such employees of
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the Company will be highly detrimental to the business of the Company and will
cause the Company serious loss of business and great and irreparable harm.
Consequently, the Executive covenants and agrees that during the course of
employment by the Company and for a period of two years after the Date of
Employment Termination the Executive shall not directly or indirectly, on behalf
of himself or another, solicit, lure or hire any employees of the Company of
whom the Executive became aware while employed by the Company, or assist or aid
in any such activity.
(f) Enforcement of Covenants. The Executive acknowledges and agrees
that compliance with the covenants set forth in this Section 7 is necessary to
protect the business and goodwill of the Company and that any breach of this
Section 7 or any subparagraph hereof will result in irreparable and continuing
harm to the Company, for which money damages may not provide adequate relief.
Accordingly, in the event of any breach or anticipatory breach of Section 7 by
the Executive, the Company and the Executive agree that the Company shall have
the right in its sole discretion to terminate any payments otherwise due under
this Agreement and shall also be entitled to the following particular forms of
relief as a result of such breach, in addition to any remedies otherwise
available to it at law or equity: (a) injunctions, both preliminary and
permanent, enjoining or restraining such breach or anticipatory breach, and the
Executive hereby consents to the issuance thereof forthwith and without bond by
any court of competent jurisdiction, (b) recovery of all reasonable sums and
costs, including attorneys' fees, incurred by the Company to enforce the
provisions of Section 7, and (c) as liquidated damages, to recapture the
Forfeitable Amount in accordance with the provisions of Section 5(a) hereof (or
Section 6 hereof, to the extent a payment is made thereunder which is calculated
based on the provisions of Section 5(a)).
(g) Prior Commitments. The covenants set forth in this Section 7
supplement, and do not supersede, the covenants contained in any other agreement
between the Executive and the Company (other than the Termination Agreement).
8. Taxes.
(a) Imposition of Excise Tax. In the event that any amount or
benefit paid or distributed to Executive pursuant to this Agreement, taken
together with any amounts or benefits otherwise paid or distributed to Executive
by the Company or any affiliated company (collectively, the "Covered Payments"),
would be an "excess parachute payment" as defined in Section 280G of the Code
and would thereby subject Executive to the tax (the "Excise Tax") imposed under
Section 4999 of the Code (or any similar tax that may hereafter be imposed), the
provisions of this Section 8 shall apply to determine the amounts payable to
Executive pursuant to this Agreement.
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(b) Present Value of Benefits. Immediately following Date of
Employment Termination, the Company shall notify Executive of the aggregate
present value of all termination benefits to which he would be entitled under
this Agreement and any other plan, program or arrangement as of the projected
date of termination, together with the projected maximum payments, determined as
of such projected date of termination that could be paid without Executive being
subject to the Excise Tax.
(c) Payment Cap. If the aggregate value of all compensation
payments or benefits to be paid or provided to Executive under this Agreement
and any other plan, agreement or arrangement with the Company is less than 105%
of the amount which can be paid to Executive without Executive incurring an
Excise Tax, then the amounts payable to Executive under this Agreement may, in
the discretion of the Company, be reduced (but not below zero) to the maximum
amount which may be paid hereunder without Executive becoming subject to such an
Excise Tax (such reduced payments to be referred to as the "Payment Cap"). In
the event that Executive receives reduced payments and benefits hereunder,
Executive shall have the right to designate which of the payments and benefits
otherwise provided for in this Agreement that he will receive in connection with
the application of the Payment Cap.
(d) Tax Adjustment. If the aggregate value of all compensation
payments or benefits to be paid or provided to Executive under this Agreement
and any other plan, agreement or arrangement with the Company is greater than
105% of the amount which can be paid to Executive without Executive incurring an
Excise Tax, the Company shall pay to Executive immediately following Executive's
termination of employment an additional amount (the "Tax Adjustment") such that
the net amount retained by Executive with respect to such Covered Payments,
after deduction of any Excise Tax on the Covered Payments and any Federal, state
and local income tax and Excise Tax on the Tax Adjustment provided for by this
Section 8 , but before deduction for any Federal, state or local income or
employment tax withholding on such Covered Payments, shall be equal to the
amount of the Covered Payments.
(e) Calculation of Payment. For purposes of determining whether any
of the Covered Payments will be subject to the Excise Tax and the amount of such
Excise Tax,
(i) such Covered Payments will be treated as "parachute payments"
within the meaning of Section 280G of the Code, and all "parachute
payments" in excess of the "base amount" (as defined under Section
280G(b)(3) of the Code) shall be treated as subject to the Excise Tax,
unless, and except to the extent that, in the good faith judgment of the
Company's independent certified public accountants appointed prior to the
Effective Date or tax counsel selected by such Accountants (the
"Accountants"), the Company has a reasonable basis to conclude that such
Covered
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Payments (in whole or in part) either do not constitute "parachute
payments" or represent reasonable compensation for personal services
actually rendered (within the meaning of Section 280G(b)(4)(B) of the
Code) in excess of the "base amount," or such "parachute payments" are
otherwise not subject to such Excise Tax, and
(ii) the value of any non-cash benefits or any deferred payment or
benefit shall be determined by the Accountants in accordance with the
principles of Section 280G of the Code.
(f) Assumptions on Rates. For purposes of determining whether
Executive would receive a greater net after-tax benefit were the amounts payable
under this Agreement reduced in accordance with Section 8(c), Executive shall be
deemed to pay:
(i) Federal income taxes at the highest applicable marginal rate of
Federal income taxation for the calendar year in which the first amounts
are to be paid hereunder, and
(ii) any applicable state and local income taxes at the highest
applicable marginal rate of taxation for such calendar year, net of the
maximum reduction in Federal incomes taxes which could be obtained from
the deduction of such state or local taxes if paid in such year;
provided, however, that Executive may request that such determination be made
based on his individual tax circumstances, which shall govern such determination
so long as Executive provides to the Accountants such information and documents
as the Accountants shall reasonably request to determine such individual
circumstances.
(g) Adjustments. If Executive receives reduced payments and
benefits under this Section 8 is determined not to be applicable to Executive
because the Accountants conclude that Executive is not subject to any Excise Tax
and it is established pursuant to a final determination of a court or an
Internal Revenue Service proceeding (a "Final Determination") that,
notwithstanding the good faith of Executive and the Company in applying the
terms of this Agreement, the aggregate "parachute payments" within the meaning
of Section 280G of the Code paid to Executive or for his benefit are in an
amount that would result in Executive being subject an Excise Tax, then the
amount equal to such excess parachute payments shall be deemed for all purposes
to be a loan to Executive made on the date of receipt of such excess payments,
which Executive shall have an obligation to repay to the Company on demand,
together with interest on such amount at the applicable Federal rate (as defined
in Section 1274(d) of the Code) from the date of the payment hereunder to the
date of repayment by Executive. If this Section 8 is not applied to reduce
Executive's entitlements because the Accountants determine that
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Executive would not receive a greater net-after tax benefit by applying this
Section 8 and it is established pursuant to a Final Determination that,
notwithstanding the good faith of Executive and the Company in applying the
terms of this Agreement, Executive would have received a greater net after tax
benefit by subjecting his payments and benefits hereunder to the Payment Cap,
then the aggregate "parachute payments" paid to Executive or for his benefit in
excess of the Payment Cap shall be deemed for all purposes a loan to Executive
made on the date of receipt of such excess payments, which Executive shall have
an obligation to repay to the Company on demand, together with interest on such
amount at the applicable Federal rate (as defined in Section 1274(d) of the
Code) from the date of the payment hereunder to the date of repayment by
Executive. If Executive receives reduced payments and benefits by reason of this
Section 8 and it is established pursuant to a Final Determination that Executive
could have received a greater amount without exceeding the Payment Cap, then the
Company shall promptly thereafter pay Executive the aggregate additional amount
which could have been paid without exceeding the Payment Cap, together with
interest on such amount at the applicable Federal rate (as defined in Section
1274(d) of the Code) from the original payment due date to the date of actual
payment by the Company.
(h) Repayment of Excess Amounts. In the event that the Excise Tax
is subsequently determined by the Accountants or pursuant to any proceeding or
negotiations with the Internal Revenue Service to be less than the amount taken
into account hereunder in calculating the Tax Adjustment made, Executive shall
repay to the Company, at the time that the amount of such reduction in the
Excise Tax is finally determined, the portion of such prior Tax Adjustment that
would not have been paid if such Excise Tax had been applied in initially
calculating such Tax Adjustment, plus interest on the amount of such repayment
at the rate provided in Section 1274(b)(2)(B) of the Code. Notwithstanding the
foregoing, in the event any portion of the Tax Adjustment to be refunded to the
Company has been paid to any Federal, state or local tax authority, repayment
thereof shall not be required until actual refund or credit of such portion has
been made to Executive, and interest payable to the Company shall not exceed
interest received or credited to Executive by such tax authority for the period
it held such portion. Executive and the Company shall mutually agree upon the
course of action to be pursued (and the method of allocating the expenses
thereof) if Executive's good faith claim for refund or credit is denied.
(i) Additional Company Payments. In the event that the Excise Tax
is later determined by the Accountants or pursuant to any proceeding or
negotiations with the Internal Revenue Service to exceed the amount taken into
account hereunder at the time the Tax Adjustment is made (including, but not
limited to, by reason of any payment the existence or amount of which cannot be
determined at the time of the Tax Adjustment), the Company shall make an
additional Tax Adjustment in respect of such excess (plus any
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interest or penalty payable with respect to such excess and the amount of any
other expenses incurred by Executive in connection with any audit, appeal,
litigation or other judicial or administrative process pertaining to the Tax
Adjustment or any amounts deemed subject to the Excise Tax) at the time that the
amount of such excess is finally determined.
(j) Timing of Payment. Any Tax Adjustment (or portion thereof)
provided for in Section 8(d) above shall be paid to Executive not later than 10
business days following the payment of the Covered Payments; provided, however,
that if the amount of such Tax Adjustment (or portion thereof) cannot be finally
determined on or before the date on which payment is due, the Company shall pay
to Executive by such date an amount estimated in good faith by the Accountants
to be the minimum amount of such Tax Adjustment and shall pay the remainder of
such Tax Adjustment (together with interest at the rate provided in Section
1274(b)(2)(B) of the Code) as soon as the amount thereof can be determined, but
in no event later than 45 calendar days after payment of the related Covered
Payment. In the event that the amount of the estimated Tax Adjustment exceeds
the amount subsequently determined to have been due, such excess shall
constitute a loan by the Company to Executive, payable on the fifth business day
after written demand by the Company for payment (together with interest at the
rate provided in Section 1274(b)(2)(B) of the Code).
9. Successors, Binding Agreement.
(a) Mandatory Assumption. The Company will require any successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business and/or assets of the Company, by
agreement in form and substance satisfactory to Executive, to expressly assume
and agree to perform this Amended and Restated Employment Agreement in the same
manner and to the same extent that the Company would be required to perform it
if no such succession had taken place.
(b) Definition of Company. As used in this Amended and Restated
Employment Agreement, "Company" shall include any successor to its business
and/or assets as aforesaid which executes and delivers the agreement provided
for in Section 9(a) or which otherwise becomes bound by all the terms and
provisions of this Amended and Restated Employment Agreement by operation of
law.
(c) Executive's Successors. This Amended and Restated Employment
Agreement shall inure to the benefit of, and be enforceable by, Executive's
personal or legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. If Executive should die while any amounts
would still be payable if he had
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continued to live, all such amounts shall be paid in accordance with the terms
of this Amended and Restated Employment Agreement to Executive's devisee,
legatee, or other designee or, if there be no such designee, to his estate.
10. Miscellaneous Provisions.
(a) Notices. Notices and all other communications provided for in
this Amended and Restated Employment Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed to the
respective addresses set forth on the first page of this Amended and Restated
Employment Agreement, provided that all notices to the Company shall be directed
to the attention of the Corporate Counsel, or to such other address as either
party may have furnished to the other in writing in accordance herewith. Notices
of change of address shall be effective only upon receipt.
(b) Amendment, Waiver. No provisions of this Amended and Restated
Employment Agreement may be modified, waived or discharged unless such
modification, waiver or discharge is agreed to in writing signed by Executive
and, on behalf of the Company, by such officer as may be specifically designated
by the Board. Any failure at any time of either party to enforce any provision
of this Amended and Restated Employment Agreement shall not constitute a waiver
of such provision, or prejudice the right of either party to enforce such
provision at any subsequent time.
(c) Unfunded Arrangement. All benefits provided for in this Amended
and Restated Employment Agreement are provided on an unfunded basis and are not
intended to meet the qualification requirements of section 401 of the Code. The
Company shall not be deemed to be a trustee of any amounts to be paid under this
Amended and Restated Employment Agreement and shall not be required to segregate
any assets with respect to benefits under this Amended and Restated Employment
Agreement. Such benefits shall be payable solely from the general assets of the
Company.
(d) Entire Agreement. No agreements or representations, oral or
otherwise, expressed or implied, with respect to the subject matter hereof have
been made by either party which are not set forth expressly in this Amended and
Restated Employment Agreement.
(e) Governing Law. The validity, interpretation, construction and
performance of this Amended and Restated Employment Agreement shall be governed
by the laws of the State of New York, without regard to principles of conflict
of laws.
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(f) Severability. The invalidity or unenforceability of any one or
more provisions of this Amended and Restated Employment Agreement shall not
affect the validity or enforceability of any other provision of this Amended and
Restated Employment Agreement, which shall remain in full force and effect.
(g) Legal Fees. In the event of any action or proceeding between
the parties arising out of this Amended and Restated Employment Agreement, the
Company will pay the costs of any such legal proceedings including, but not
limited to, the costs of Executive for all expenses, including attorneys' fees,
incurred in such action or proceeding. Such costs and expenses shall be advanced
to Executive currently as reasonably required to continue such action or
proceeding.
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IN WITNESS WHEREOF, each of the duly authorized officer of the
Company and the Executive have executed this Amended and Restated Employment
Agreement as of the date first written above.
EDO CORPORATION
By
----------------------------
FRANK A. FARIELLO
------------------------------
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AMENDED AND RESTATED EMPLOYMENT AGREEMENT made this 2nd day of
January, 2000 by and between EDO Corporation, a New York corporation (the
"Company"), and Ira Kaplan ("Executive").
W I T N E S S E T H:
WHEREAS, the Company and Executive have previously entered into an
Executive Termination Agreement (the "Termination Agreement") providing
Executive with certain rights upon the occurrence of a Change in Control as
defined therein;
WHEREAS, substantially contemporaneously with the execution hereof,
the Company is entering into an Agreement and Plan of Merger (the "Merger
Agreement") with AIL Systems Inc. ("AIL") pursuant to which AIL will become a
wholly owned subsidiary of the Company;
WHEREAS, the Company acknowledges that the merger contemplated
under the Merger Agreement (the "Merger") would constitute a Change of Control
of the Company under the terms of the Termination Agreement, and that Executive
would have the right to terminate his employment following the effective time of
the Merger (the "Effective Time") and receive the separation benefits payable
thereunder;
WHEREAS, the Company has determined that, notwithstanding the
occurrence of such a Change of Control, it wants to have the services of the
Executive following the Effective Time, and the Executive is willing to agree to
provide such services, in each case on the terms and conditions set forth
herein;
WHEREAS, the Executive understands and agrees that, by agreeing to
the terms and conditions of this Agreement, if he terminates his own employment
voluntarily other than for Good Reason prior to the end of the initial term of
this Amended and Restated Employment Agreement, as specified in Section 2 below,
he may lose the right to receive the amounts that would otherwise have been
payable to him under the Termination Agreement;
NOW, THEREFORE, the Company and Executive agree to supercede the
Termination Agreement and enter into the following Amended and Restated
Employment Agreement:
1. Effect at Effective Time. This Amended and Restated Employment
Agreement shall be and become effective at the Effective Time. Until the time,
if any, at which the Effective Time occurs, the Termination Agreement shall
remain in full force and effect. Upon the occurrence of the Effective Time, the
Termination Agreement shall be
<PAGE>
superceded in its entirety by this Agreement and neither the Company nor the
Executive shall have any rights against, or obligations to, the other
thereunder. In the event that the Effective Time does not occur by June 15, 2000
or the Merger Agreement is terminated in accordance with its terms, this Amended
and Restated Employment Agreement shall be rendered void and without effect and
neither the Company nor the Executive has or will have any rights against, or
obligations to, the other party hereunder.
2. Term; Duties.
(a) Term. This Amended and Restated Employment Agreement shall have
an initial term commencing on the Effective Time and ending on the first
anniversary thereof (the "Initial Term"). The term of this Amended and Restated
Employment Agreement shall automatically be extended for one additional year on
each anniversary of the Effective Time, unless either party to this Amended and
Restated Employment Agreement shall give the other party at least 60 days'
written notice prior to such anniversary date. The Initial Term and each and any
extension of the term hereof shall be referred to as the "Employment Term."
(b) Duties. During the Employment Term, the Executive shall have
the title of Executive Vice President -- Chief Operating Officer and such
executive duties and responsibilities that are commensurate with such office and
his training and experience as shall be assigned to him from time to time by the
Company's Chief Executive Officer or the Board of Directors. The Executive shall
devote his full business time, other than periods of absence due to vacation or
illness, to the Company's affairs.
3. Compensation. During the Employment Term, the Executive will
receive the following compensation for his services hereunder:
(a) Base Salary. The Executive's annual base salary shall be at the
rate in effect on the date this Amended and Restated Employment Agreement is
executed. Such base salary shall be periodically reviewed by the Board of
Directors (or a duly authorized committee thereof) and may, as a result of such
review, be increased in accordance with the Company's policies and practices for
senior executives generally. The Executive's base salary, as it may be increased
from time to time, shall not be decreased without his written consent.
(b) Annual Incentive. The Executive shall be eligible for an annual
incentive award in accordance with the Company's policies and practices
applicable generally to the Company's senior executives.
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(c) Benefits. The Executive shall be eligible to participate in
such employee and executive benefit plans and policies as shall generally be
made available to the Company's senior executives from time to time; including,
without limitation, all group life, health, accident and disability insurance
plans, and each qualified and nonqualified pension, profit-sharing or savings
plan maintained generally for the benefit of the Company's employees or for its
senior executives. Notwithstanding the foregoing, the amount of retirement
benefits (and the form in which any such benefits are) payable to the Executive
may not be reduced without his written consent.
4. Entitlement to Separation Benefits.
(a) Termination Without Cause or For Good Reason. If during the
Initial Term Executive's employment is terminated due to his death or Disability
(as defined below), by the Company without "Cause" or by Executive in a
"Termination for Good Reason" (as each such term is defined below), the
Executive shall be paid the separation benefits described in Section 5 hereof.
For the avoidance of doubt, despite the provisions of the Termination Agreement,
Executive shall not be entitled to any payment of separation benefits under
Section 5 if he shall terminate his employment voluntarily (other than in a
Termination for Good Reason as expressly defined in this Amended and Restated
Employment Agreement) prior to the end of the Initial Term. After the expiration
of the Initial Term, upon any termination of Executive's employment by the
Company for any reason, including without "Cause", or the Executive's
termination of employment for any reason, including "Good Reason," the Company
shall only pay Executive severance benefits in accordance with the Company's
otherwise applicable policies and practices for senior executives (and not the
separation benefits described in Section 5 hereof) and the provisions of Section
10(g)(pertaining to legal fees) shall cease to have any effect.
(b) Form of Payment. The total of the cash amounts to be paid under
Section 5(a) , subject to any taxes required to be withheld, shall be paid to
Executive as follows: (A) in a lump sum, on or before the fifth day following
"Date of Employment Termination" (as defined below); or (B) at Executive's
option, in monthly installments not to exceed a 36-month period, commencing on
the fifth day of the month following the Date of Employment Termination, if
written notification from the Executive is received by the Company within 90
days prior to the Date of Employment Termination or, if later, within 10 days
prior to the Effective Time.
(c) Loans. [The amount of any loan or advance to Executive shall be
due and payable as of the Date of Employment Termination. The Company shall have
no right of set off against any amount due Executive under this Agreement].
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(d) Termination for Cause. If the Executive's employment is terminated
by the Company for Cause, the Company shall pay the Executive his full base
salary through the Date of Employment Termination (at the rate in effect as of
the Date of Employment Termination), and the Company shall have no further
obligations to the Executive under this Agreement.
(e) Disability. Disability shall mean the Executive's inability to
perform the principal duties of his position for a period of at least 180
consecutive days due to illness or injury. Disability shall be deemed to exist
under this Amended and Restated Employment Agreement if the Executive shall
become eligible to receive long-term disability benefits under any plan, policy
or arrangement maintained by the Company.
(f) Definition of Cause. The following are the only reasons for which
the Company may terminate Executive's services for Cause without further
obligations under this Agreement:
- for providing the Company with materially false reports
concerning Executive's business interests or
employment-related activities;
- for making materially false representations relied upon by the
Company in furnishing information to shareholders, a stock
exchange, or the Securities and Exchange Commission;
- for maintaining an undisclosed, unauthorized and material
conflict of interest in the discharge of duties owed by
Executive to the Company;
- for misconduct causing a serious violation by the Company of
state or federal laws;
- for theft of Company funds or corporate assets; or
- for conviction of a crime (excluding traffic violations or
similar misdemeanors).
(g) "Termination for Good Reason" shall mean termination of Executive's
employment by Executive following, or in connection with:
- during the Employment Term, any reduction in Executive's base
salary or any reduction in the Executive's bonus or incentive
compensation from the highest dollar amount or other rate of
bonus or incentive compensation payable to the Executive as an
annual bonus for the three calendar years
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preceding the Effective Time or a significant reduction in the
aggregate value of the benefits to which Executive was
entitled immediately prior to the Effective Time;
- the Company's requiring Executive to be based at any office or
location more than 25 miles from the one where he worked
immediately prior to the Effective Time, except for travel
reasonably required in the performance of Executive's
responsibilities;
- any purported termination by the Company of Executive's
employment otherwise than as permitted by this Agreement, it
being understood that any such purported termination shall not
be effective for any purpose of this Agreement; or
- any failure by the Company to obtain the assumption and
agreement to perform this Agreement by a successor as
contemplated by Section 9(a) hereof.
(h) "Date of Employment Termination" shall mean the earlier of the date
on which Executive or the Company gives written notice of termination of
Executive's employment to the other party or, in the case where the Employment
Term expires due to the delivery of a notice of non-renewal, the date the
Employment Term lapses.
5. Amount of Separation Benefits.
(a) Cash Separation Payments. Upon a termination of Executive's
employment under circumstances described in Section 4(a), the Executive shall
receive the following amounts in cash:
- Executive's full base salary through the Date of Employment
Termination, at the rate in effect ten (10) days prior to the
Date of Employment Termination; plus
- the product of
(A) an amount equal to Executive's full base salary
earned from the beginning of the calendar year in
which Date of Employment Termination occurs through
the Date of Employment Termination, and
(B) the greater of
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(i) 20% and
(ii) the percentage equal to the highest
percentage of base salary paid to the
Executive as an annual bonus for any of the
three calendar years preceding the calendar
year in which the Executive's termination of
employment occurs (the "Prior Bonus
Percentage"),
reduced by any installment of cash bonus previously paid by
the Company to Executive for said calendar year; plus
- the full amount, if any, of any incentive or special award
which Executive earned but which has not yet been paid; plus
- three times the sum of
(A) Executive's annual base salary, at the highest rate
in effect at any time up to Date of Employment
Termination, and
(B) an amount equal to the product of
(i) the annual base salary referred to in
subclause (A) and
(ii) the greater of
(1) 20% and
(2) the Prior Bonus Percentage;
provided, however, that two-thirds of such amount (the
"Forfeitable Amount") shall be subject to recapture by the
Company in the event that a court of competent jurisdiction
finds that the Executive breached any of the covenants
contained in Section 7 in any material way; plus
- an amount which, as of the Date of Employment Termination, is
equal to the present value (calculated at a discount rate of
7% per annum) of (x) the lump sum value of the Retirement
Pension to which Executive would have been entitled if the
four (4) years after the Date of Employment Termination were
added to his Credited Service under the EDO Corporation
Employees Pension Plan, reduced by (y) the lump sum value of
the Retirement Pension to which Executive will be entitled
under the
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terms of such plan based upon termination of employment as of
the Date of Employment Termination and assuming commencement
of payment of Executive's pension benefits at age 65. The lump
sum value of Executive's Retirement Pension shall be
determined as of Executive's retirement at age 65, using the
same methods and assumptions used at the Date of Employment
Termination for purposes of the EDO Corporation Employees
Pension Plan.
(b) Benefits. For three (3) years after the Date of Employment
Termination, the Company shall maintain in full force and effect and Executive
(and, if eligible dependents, if applicable) shall continue to participate in
all group life, health and accident, and disability insurance, and other
employee benefit plans, programs and arrangements in which Executive was
entitled to participate immediately prior to the Date of Employment Termination,
provided that (i) continued participation is possible under the general terms
and provisions of such plans, programs and arrangements and (ii) as of the third
anniversary of Executive's Date of Termination, Executive shall be deemed to
have retired (regardless of Executive's age at such time) from active employment
with the Company for purposes of any plan or program maintained by the Company
under which medical, health, life or other welfare benefits are provided to
eligible retirees. If participation is barred, or an applicable plan, program or
arrangement is discontinued or the benefits thereunder are materially reduced,
the Company shall arrange to provide Executive with benefits substantially
similar to those which he was entitled to receive immediately prior to the Date
of Employment Termination. At the end of the period of coverage above provided
for, Executive shall have the option to have assigned to him, at no cost and
with no apportionment of prepaid premiums, any assignable insurance owned by the
Company and relating specifically to him. The foregoing shall not be deemed to
apply to any plan which is intended to meet the requirements of Section 401(a)
of the Internal Revenue Code of 1986, as amended (the "Code") or any successor
section thereto.
(c) No Offset or Mitigation. Executive shall not be required to
mitigate the amount of any payment or benefit provided for in this Agreement by
seeking other employment or otherwise, nor shall the amount of any payment or
benefit so provided for be reduced by any compensation earned by him as the
result of employment by another employer after the Date of Employment
Termination, or otherwise.
(d) Release. Notwithstanding the foregoing, payment of any amounts
under Section 5(a) shall be subject to and conditioned upon the execution by the
Executive of an appropriate release in such form as shall reasonably be
requested by the Company. For the avoidance of doubt, such release shall, among
other things, release the Company from any on going obligations under the
provisions of Section 10(g), pertaining to legal fees.
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(e) Treatment of Termination for Purposes of the SERP. If the
Executive's employment terminates in a manner which entitles the Executive to
receive the benefits payable under this Section 5, or terminates for any reason
other than Cause after the end of the Initial Term, the Executive shall be
eligible to receive a lump sum payment from the Company of an amount at least
equal to the present value of his accrued benefits under the Supplemental
Executive Retirement Plan ("SERP"), as in effect on the date hereof, regardless
of any amendment, termination or other modification the SERP occurring after the
date hereof.
6. Special Retention Payment. To induce the Executive to enter into
this Amended and Restated Employment Agreement and to remain in the employ of
the Company during the critical transition period following the Effective Time
to enable the Company to successfully integrate the operations of the Company
and AIL, if the Executive is still employed by the Company on the last day of
the Initial Term, then subject to the execution by the Executive of a release in
accordance with the provisions of Section 5(d), the Company shall pay to the
Executive an amount in cash, in consideration for the performance of such
services on behalf of the Company following the Effective Time, an amount equal
to the cash amount that would have been paid to the Executive pursuant to
Section 5(a) had his employment with the Company been terminated without Cause,
which amount shall be subject to the same conditions as apply to the amounts
payable under Section 5(a) (the "Special Retention Payment"). If payable in
accordance with the preceding sentence, such Special Retention Payment shall be
paid to Executive as follows: (A) in a lump sum, on or before the 10th day
following the Date of Employment Termination or (B) at Executive's option, in
monthly installments not to exceed a 36-month period, commencing on the fifth
day of the month following the Date of Employment Termination, if written
notification by the Executive is received by the Company within 90 days prior to
the Date of Employment Termination. If the Executive receives the Special
Retention Payment, the Company shall also provide to the Executive and his
dependents the same benefits (and on the same terms and for the same period of
time) as such benefits would have been provided under Section 5(b), were it
applicable.
7. Covenants.
(a) Confidential Information. The Executive acknowledges and agrees
that the Executive has and will come into contact with, have access to and learn
various technical and nontechnical trade secrets and other confidential
information, which are the property of the Company (the "Confidential
Information"). Such Confidential Information includes but is not limited to
methods, procedures, devices and other means used by the Company in the conduct
of its business, marketing plans and strategies, pricing plans and strategies,
data processing programs, databases, formulae, secret processes, machines and
adaptions thereto, inventions, research projects, and all other matters of a
technical nature,
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all of which Confidential Information is not publicly available, but has been
developed by the Company at its great effort and expense; names and addresses of
the Company's customers and their representatives responsible for entering into
contracts for the Company's services, customer leads or referrals, specific
customer needs and requirements and the manner in which they have been met by
the Company, information with respect to pricing, costs, profits, sales,
markets, plans for future business and other development, all of which
Confidential Information is not available from directories or other public
sources; and information with respect to the Company's employees, their names
and addresses, compensation, experience, qualifications, abilities, job
performance and similar information. All of the Confidential Information has
been developed, acquired or compiled by the Company at its great effort and
expense.
(b) Non-Disclosure of Confidential Information. The Executive
acknowledges and agrees that any disclosure, divulging, revealing or other use
of any of the aforesaid Confidential Information by the Executive, other than in
connection with the Company's business will be highly detrimental to the
business of the Company and serious loss of business and pecuniary damage may
result therefrom. Accordingly, the Executive specifically covenants and agrees
to hold all such Confidential Information and any documents containing or
reflecting the same in the strictest confidence, and the Executive will not,
both during employment with the Company or at any time thereafter, without the
Company's prior written consent, disclose, divulge or reveal to any person
whomsoever, or use for any purpose other than the exclusive benefit of the
Company, any Confidential Information whatsoever, whether contained in his
memory or embodied in writing or other physical form.
(c) Covenant Not To Compete. The Executive acknowledges and agrees
that the Company is engaged in a highly competitive business, and by virtue of
his position and responsibilities with the Company, and his access to the
Confidential Information, engaging in any business which is directly or
indirectly competitive with the Company will cause it great and irreparable
harm. Consequently, the Executive covenants and agrees that during the Term, and
for a period of two years after the Date of Employment Termination, the
Executive shall not directly or indirectly own, manage, operate, control, be
employed by, participate in, or be connected with, in any manner, any business
engaged in whole or in part in the pursuit of electronic counter-measures,
environmental monitoring, radar systems, satellite communications or advanced
electro-optical products for the defense and aerospace industries in the
continental United States and any other country in which the Company conducts
business at the relevant time (or, with respect to the period following the Date
of Termination, at such Date of Termination), without the prior written specific
consent of the Company. If requested, this consent shall not be unreasonably
withheld where the elements of competition are not direct, or specific, to the
Company's business.
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(d) Non-Solicitation of Customers. The Executive acknowledges and
agrees that during the course and solely as a result of his employment with the
Company, the Executive has and will become aware of some, most or all of the
Company's customers and clients, their names and addresses, their
representatives responsible for engaging the Company's services, their specific
needs and requirements, and leads and referrals to prospective customers and
clients. The Executive further acknowledges and agrees that the loss of such
customers and clients would cause the Company great and irreparable harm.
Consequently, the Executive covenants and agrees that the Executive will not,
for a period of two years after the Date of Employment Termination, directly or
indirectly solicit or seek to do business with any customer or client, former
customer or client or prospective customer or client of the Company with whom
the Executive came into contact while employed by the Company or who was known
to the Executive to be a current, former or prospective customer or client of
the Company, without the prior written specific consent of the Company. If
requested, this consent shall not be unreasonably withheld with respect to the
solicitation of any such customer or client in respect of a product, process or
service which, at the relevant time, is not competitive with any product,
process or service which is available from the Company or which the Company has
begun substantial efforts to make available to its clients or customers.
(e) Non-Solicitation of Employees. The Executive acknowledges and
agrees that during the course of employment by the Company, the Executive has
and may hereafter come into contact with some, most or all of the Company's
employees, their knowledge, skills, abilities, salaries, commissions, benefits
and other matters with respect to such employees not generally known to the
public. The Executive further acknowledges and agrees that any solicitation,
luring away or hiring of such employees of the Company will be highly
detrimental to the business of the Company and will cause the Company serious
loss of business and great and irreparable harm. Consequently, the Executive
covenants and agrees that during the course of employment by the Company and for
a period of two years after the Date of Employment Termination the Executive
shall not directly or indirectly, on behalf of himself or another, solicit, lure
or hire any employees of the Company of whom the Executive became aware while
employed by the Company, or assist or aid in any such activity.
(f) Enforcement of Covenants. The Executive acknowledges and agrees
that compliance with the covenants set forth in this Section 7 is necessary to
protect the business and goodwill of the Company and that any breach of this
Section 7 or any subparagraph hereof will result in irreparable and continuing
harm to the Company, for which money damages may not provide adequate relief.
Accordingly, in the event of any breach or anticipatory breach of Section 7 by
the Executive, the Company and the Executive agree that the Company shall have
the right in its sole discretion to terminate
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any payments otherwise due under this Agreement and shall also be entitled to
the following particular forms of relief as a result of such breach, in addition
to any remedies otherwise available to it at law or equity: (a) injunctions,
both preliminary and permanent, enjoining or restraining such breach or
anticipatory breach, and the Executive hereby consents to the issuance thereof
forthwith and without bond by any court of competent jurisdiction, (b) recovery
of all reasonable sums and costs, including attorneys' fees, incurred by the
Company to enforce the provisions of Section 7, and (c) as liquidated damages,
to recapture the Forfeitable Amount in accordance with the provisions of Section
5(a) hereof (or Section 6 hereof, to the extent a payment is made thereunder
which is calculated based on the provisions of Section 5(a)). .
(g) Prior Commitments. The covenants set forth in this Section 7
supplement, and do not supersede, the covenants contained in any other agreement
between the Executive and the Company (other than the Termination Agreement).
8. Taxes.
(a) Imposition of Excise Tax. In the event that any amount or
benefit paid or distributed to Executive pursuant to this Agreement, taken
together with any amounts or benefits otherwise paid or distributed to Executive
by the Company or any affiliated company (collectively, the "Covered Payments"),
would be an "excess parachute payment" as defined in Section 280G of the Code
and would thereby subject Executive to the tax (the "Excise Tax") imposed under
Section 4999 of the Code (or any similar tax that may hereafter be imposed), the
provisions of this Section 8 shall apply to determine the amounts payable to
Executive pursuant to this Agreement.
(b) Present Value of Benefits. Immediately following Date of
Employment Termination, the Company shall notify Executive of the aggregate
present value of all termination benefits to which he would be entitled under
this Agreement and any other plan, program or arrangement as of the projected
date of termination, together with the projected maximum payments, determined as
of such projected date of termination that could be paid without Executive being
subject to the Excise Tax.
(c) Payment Cap. If the aggregate value of all compensation
payments or benefits to be paid or provided to Executive under this Agreement
and any other plan, agreement or arrangement with the Company is less than 105%
of the amount which can be paid to Executive without Executive incurring an
Excise Tax, then the amounts payable to Executive under this Agreement may, in
the discretion of the Company, be reduced (but not below zero) to the maximum
amount which may be paid hereunder without Executive becoming subject to such an
Excise Tax (such reduced payments to be referred to as the "Payment Cap"). In
the event that Executive receives reduced payments and benefits
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hereunder, Executive shall have the right to designate which of the payments and
benefits otherwise provided for in this Agreement that he will receive in
connection with the application of the Payment Cap.
(d) Tax Adjustment. If the aggregate value of all compensation
payments or benefits to be paid or provided to Executive under this Agreement
and any other plan, agreement or arrangement with the Company is greater than
105% of the amount which can be paid to Executive without Executive incurring an
Excise Tax, the Company shall pay to Executive immediately following Executive's
termination of employment an additional amount (the "Tax Adjustment") such that
the net amount retained by Executive with respect to such Covered Payments,
after deduction of any Excise Tax on the Covered Payments and any Federal, state
and local income tax and Excise Tax on the Tax Adjustment provided for by this
Section 8 , but before deduction for any Federal, state or local income or
employment tax withholding on such Covered Payments, shall be equal to the
amount of the Covered Payments.
(e) Calculation of Payment. For purposes of determining whether any
of the Covered Payments will be subject to the Excise Tax and the amount of such
Excise Tax,
(i) such Covered Payments will be treated as "parachute payments"
within the meaning of Section 280G of the Code, and all "parachute
payments" in excess of the "base amount" (as defined under Section
280G(b)(3) of the Code) shall be treated as subject to the Excise Tax,
unless, and except to the extent that, in the good faith judgment of the
Company's independent certified public accountants appointed prior to the
Effective Date or tax counsel selected by such Accountants (the
"Accountants"), the Company has a reasonable basis to conclude that such
Covered Payments (in whole or in part) either do not constitute
"parachute payments" or represent reasonable compensation for personal
services actually rendered (within the meaning of Section 280G(b)(4)(B)
of the Code) in excess of the "base amount," or such "parachute payments"
are otherwise not subject to such Excise Tax, and
(ii) the value of any non-cash benefits or any deferred payment or
benefit shall be determined by the Accountants in accordance with the
principles of Section 280G of the Code.
(f) Assumptions on Rates. For purposes of determining whether
Executive would receive a greater net after-tax benefit were the amounts payable
under this Agreement reduced in accordance with Section 8(c), Executive shall be
deemed to pay:
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(i) Federal income taxes at the highest applicable marginal rate of
Federal income taxation for the calendar year in which the first amounts
are to be paid hereunder, and
(ii) any applicable state and local income taxes at the highest
applicable marginal rate of taxation for such calendar year, net of the
maximum reduction in Federal incomes taxes which could be obtained from
the deduction of such state or local taxes if paid in such year;
provided, however, that Executive may request that such determination be made
based on his individual tax circumstances, which shall govern such determination
so long as Executive provides to the Accountants such information and documents
as the Accountants shall reasonably request to determine such individual
circumstances.
(g) Adjustments. If Executive receives reduced payments and
benefits under this Section 8 is determined not to be applicable to Executive
because the Accountants conclude that Executive is not subject to any Excise Tax
and it is established pursuant to a final determination of a court or an
Internal Revenue Service proceeding (a "Final Determination") that,
notwithstanding the good faith of Executive and the Company in applying the
terms of this Agreement, the aggregate "parachute payments" within the meaning
of Section 280G of the Code paid to Executive or for his benefit are in an
amount that would result in Executive being subject an Excise Tax, then the
amount equal to such excess parachute payments shall be deemed for all purposes
to be a loan to Executive made on the date of receipt of such excess payments,
which Executive shall have an obligation to repay to the Company on demand,
together with interest on such amount at the applicable Federal rate (as defined
in Section 1274(d) of the Code) from the date of the payment hereunder to the
date of repayment by Executive. If this Section 8 is not applied to reduce
Executive's entitlements because the Accountants determine that Executive would
not receive a greater net-after tax benefit by applying this Section 8 and it is
established pursuant to a Final Determination that, notwithstanding the good
faith of Executive and the Company in applying the terms of this Agreement,
Executive would have received a greater net after tax benefit by subjecting his
payments and benefits hereunder to the Payment Cap, then the aggregate
"parachute payments" paid to Executive or for his benefit in excess of the
Payment Cap shall be deemed for all purposes a loan to Executive made on the
date of receipt of such excess payments, which Executive shall have an
obligation to repay to the Company on demand, together with interest on such
amount at the applicable Federal rate (as defined in Section 1274(d) of the
Code) from the date of the payment hereunder to the date of repayment by
Executive. If Executive receives reduced payments and benefits by reason of this
Section 8 and it is established pursuant to a Final Determination that Executive
could have received a greater amount without exceeding the Payment Cap, then the
Company shall promptly thereafter
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pay Executive the aggregate additional amount which could have been paid without
exceeding the Payment Cap, together with interest on such amount at the
applicable Federal rate (as defined in Section 1274(d) of the Code) from the
original payment due date to the date of actual payment by the Company.
(h) Repayment of Excess Amounts. In the event that the Excise Tax
is subsequently determined by the Accountants or pursuant to any proceeding or
negotiations with the Internal Revenue Service to be less than the amount taken
into account hereunder in calculating the Tax Adjustment made, Executive shall
repay to the Company, at the time that the amount of such reduction in the
Excise Tax is finally determined, the portion of such prior Tax Adjustment that
would not have been paid if such Excise Tax had been applied in initially
calculating such Tax Adjustment, plus interest on the amount of such repayment
at the rate provided in Section 1274(b)(2)(B) of the Code. Notwithstanding the
foregoing, in the event any portion of the Tax Adjustment to be refunded to the
Company has been paid to any Federal, state or local tax authority, repayment
thereof shall not be required until actual refund or credit of such portion has
been made to Executive, and interest payable to the Company shall not exceed
interest received or credited to Executive by such tax authority for the period
it held such portion. Executive and the Company shall mutually agree upon the
course of action to be pursued (and the method of allocating the expenses
thereof) if Executive's good faith claim for refund or credit is denied.
(i) Additional Company Payments. In the event that the Excise Tax
is later determined by the Accountants or pursuant to any proceeding or
negotiations with the Internal Revenue Service to exceed the amount taken into
account hereunder at the time the Tax Adjustment is made (including, but not
limited to, by reason of any payment the existence or amount of which cannot be
determined at the time of the Tax Adjustment), the Company shall make an
additional Tax Adjustment in respect of such excess (plus any interest or
penalty payable with respect to such excess and the amount of any other expenses
incurred by Executive in connection with any audit, appeal, litigation or other
judicial or administrative process pertaining to the Tax Adjustment or any
amounts deemed subject to the Excise Tax) at the time that the amount of such
excess is finally determined.
(j) Timing of Payment. Any Tax Adjustment (or portion thereof)
provided for in Section 8(d) above shall be paid to Executive not later than 10
business days following the payment of the Covered Payments; provided, however,
that if the amount of such Tax Adjustment (or portion thereof) cannot be finally
determined on or before the date on which payment is due, the Company shall pay
to Executive by such date an amount estimated in good faith by the Accountants
to be the minimum amount of such Tax Adjustment and shall pay the remainder of
such Tax Adjustment (together with interest at
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the rate provided in Section 1274(b)(2)(B) of the Code) as soon as the amount
thereof can be determined, but in no event later than 45 calendar days after
payment of the related Covered Payment. In the event that the amount of the
estimated Tax Adjustment exceeds the amount subsequently determined to have been
due, such excess shall constitute a loan by the Company to Executive, payable on
the fifth business day after written demand by the Company for payment (together
with interest at the rate provided in Section 1274(b)(2)(B) of the Code).
9. Successors, Binding Agreement.
(a) Mandatory Assumption. The Company will require any successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business and/or assets of the Company, by
agreement in form and substance satisfactory to Executive, to expressly assume
and agree to perform this Amended and Restated Employment Agreement in the same
manner and to the same extent that the Company would be required to perform it
if no such succession had taken place.
(b) Definition of Company. As used in this Amended and Restated
Employment Agreement, "Company" shall include any successor to its business
and/or assets as aforesaid which executes and delivers the agreement provided
for in Section 9(a) or which otherwise becomes bound by all the terms and
provisions of this Amended and Restated Employment Agreement by operation of
law.
(c) Executive's Successors. This Amended and Restated Employment
Agreement shall inure to the benefit of, and be enforceable by, Executive's
personal or legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. If Executive should die while any amounts
would still be payable if he had continued to live, all such amounts shall be
paid in accordance with the terms of this Amended and Restated Employment
Agreement to Executive's devisee, legatee, or other designee or, if there be no
such designee, to his estate.
10. Miscellaneous Provisions.
(a) Notices. Notices and all other communications provided for
in this Amended and Restated Employment Agreement shall be in writing and shall
be deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed to the
respective addresses set forth on the first page of this Amended and Restated
Employment Agreement, provided that all notices to the Company shall be directed
to the attention of the Corporate Counsel, or to such
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other address as either party may have furnished to the other in writing in
accordance herewith. Notices of change of address shall be effective only upon
receipt.
(b) Amendment, Waiver. No provisions of this Amended and Restated
Employment Agreement may be modified, waived or discharged unless such
modification, waiver or discharge is agreed to in writing signed by Executive
and, on behalf of the Company, by such officer as may be specifically designated
by the Board. Any failure at any time of either party to enforce any provision
of this Amended and Restated Employment Agreement shall not constitute a waiver
of such provision, or prejudice the right of either party to enforce such
provision at any subsequent time.
(c) Unfunded Arrangement. All benefits provided for in this Amended
and Restated Employment Agreement are provided on an unfunded basis and are not
intended to meet the qualification requirements of section 401 of the Code. The
Company shall not be deemed to be a trustee of any amounts to be paid under this
Amended and Restated Employment Agreement and shall not be required to segregate
any assets with respect to benefits under this Amended and Restated Employment
Agreement. Such benefits shall be payable solely from the general assets of the
Company.
(d) Entire Agreement. No agreements or representations, oral or
otherwise, expressed or implied, with respect to the subject matter hereof have
been made by either party which are not set forth expressly in this Amended and
Restated Employment Agreement.
(e) Governing Law. The validity, interpretation, construction and
performance of this Amended and Restated Employment Agreement shall be governed
by the laws of the State of New York, without regard to principles of conflict
of laws.
(f) Severability. The invalidity or unenforceability of any one or
more provisions of this Amended and Restated Employment Agreement shall not
affect the validity or enforceability of any other provision of this Amended and
Restated Employment Agreement, which shall remain in full force and effect.
(g) Legal Fees. In the event of any action or proceeding between
the parties arising out of this Amended and Restated Employment Agreement, the
Company will pay the costs of any such legal proceedings including, but not
limited to, the costs of Executive for all expenses, including attorneys' fees,
incurred in such action or proceeding. Such costs and expenses shall be advanced
to Executive currently as reasonably required to continue such action or
proceeding.
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IN WITNESS WHEREOF, each of the duly authorized officer of the
Company and the Executive have executed this Amended and Restated Employment
Agreement as of the date first written above.
EDO CORPORATION
By
----------------------------
Chairman of the Board
IRA KAPLAN
------------------------------
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AMENDED AND RESTATED EMPLOYMENT AGREEMENT made this 2nd day of
January, 2000 by and between EDO Corporation, a New York corporation (the
"Company"), and Marvin D. Genzer ("Executive").
W I T N E S S E T H:
WHEREAS, the Company and Executive have previously entered into an
Executive Termination Agreement (the "Termination Agreement") providing
Executive with certain rights upon the occurrence of a Change in Control as
defined therein;
WHEREAS, substantially contemporaneously with the execution hereof,
the Company is entering into an Agreement and Plan of Merger (the "Merger
Agreement") with AIL Systems Inc. ("AIL") pursuant to which AIL will become a
wholly owned subsidiary of the Company;
WHEREAS, the Company acknowledges that the merger contemplated
under the Merger Agreement (the "Merger") would constitute a Change of Control
of the Company under the terms of the Termination Agreement, and that Executive
would have the right to terminate his employment following the effective time of
the Merger (the "Effective Time") and receive the separation benefits payable
thereunder;
WHEREAS, the Company has determined that, notwithstanding the
occurrence of such a Change of Control, it wants to have the services of the
Executive following the Effective Time, and the Executive is willing to agree to
provide such services, in each case on the terms and conditions set forth
herein;
WHEREAS, the Executive understands and agrees that, by agreeing to
the terms and conditions of this Agreement, if he terminates his own employment
voluntarily other than for Good Reason (as defined below) prior to the end of
the initial term of this Amended and Restated Employment Agreement, as specified
in Section 2 below, he may lose the right to receive the amounts that would
otherwise have been payable to him under the Termination Agreement;
NOW, THEREFORE, the Company and Executive agree to supercede the
Termination Agreement and enter into the following Amended and Restated
Employment Agreement:
1. Effect at Effective Time. This Amended and Restated Employment
Agreement shall be and become effective at the Effective Time. Until the time,
if any, at which the Effective Time occurs, the Termination Agreement shall
remain in full force and effect. Upon the occurrence of the Effective Time, the
Termination Agreement shall be
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superceded in its entirety by this Agreement and neither the Company nor the
Executive shall have any rights against, or obligations to, the other
thereunder. In the event that the Effective Time does not occur by June 15, 2000
or the Merger Agreement is terminated in accordance with its terms, this Amended
and Restated Employment Agreement shall be rendered void and without effect and
neither the Company nor the Executive has or will have any rights against, or
obligations to, the other party hereunder.
2. Term; Duties.
(a) Term. This Amended and Restated Employment Agreement shall have
an initial term commencing on the Effective Time and ending on the first
anniversary thereof (the "Initial Term"). The term of this Amended and Restated
Employment Agreement shall automatically be extended for one additional year on
each anniversary of the Effective Time, unless either party to this Amended and
Restated Employment Agreement shall give the other party at least 60 days'
written notice prior to such anniversary date. The Initial Term and each and any
extension of the term hereof shall be referred to as the "Employment Term."
(b) Duties. During the Employment Term, the Executive shall have
the tile of Senior Vice President -- General Counsel and such executive duties
and responsibilities that are commensurate with such position and his training
and experience as shall be assigned to him from time to time by the Company's
Chief Executive Officer or the Board of Directors. The Executive shall devote
his full business time, other than periods of absence due to vacation or
illness, to the Company's affairs.
3. Compensation. During the Employment Term, the Executive will
receive the following compensation for his services hereunder:
(a) Base Salary. The Executive's annual base salary shall be at the
rate in effect on the date this Amended and Restated Employment Agreement is
executed. Such base salary shall be periodically reviewed by the Board of
Directors (or a duly authorized committee thereof) and may, as a result of such
review, be increased in accordance with the Company's policies and practices for
senior executives generally. The Executive's base salary, as it may be increased
from time to time, shall not be decreased without his written consent.
(b) Annual Incentive. The Executive shall be eligible for an annual
incentive award in accordance with the Company's policies and practices
applicable generally to the Company's senior executives.
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(c) Benefits. The Executive shall be eligible to participate in
such employee and executive benefit plans and policies as shall generally be
made available to the Company's senior executives from time to time; including,
without limitation, all group life, health, accident and disability insurance
plans, and each qualified and nonqualified pension, profit-sharing or savings
plan maintained generally for the benefit of the Company's employees or for its
senior executives. Notwithstanding the foregoing, the amount of retirement
benefits (and the form in which any such benefits are) payable to the Executive
may not be reduced without his written consent.
4. Entitlement to Separation Benefits.
(a) Termination Without Cause or For Good Reason. If during the
Initial Term Executive's employment is terminated due to his death or Disability
(as defined below), by the Company without "Cause" or by Executive in a
"Termination for Good Reason" (as each such term is defined below), the
Executive shall be paid the separation benefits described in Section 5 hereof.
For the avoidance of doubt, despite the provisions of the Termination Agreement,
Executive shall not be entitled to any payment of separation benefits under
Section 5 if he shall terminate his employment voluntarily (other than in a
Termination for Good Reason as expressly defined in this Amended and Restated
Employment Agreement) prior to the end of the Initial Term. After the expiration
of the Initial Term, upon any termination of Executive's employment by the
Company for any reason, including without "Cause", or the Executive's
termination of employment for any reason, including "Good Reason," the Company
shall only pay Executive severance benefits in accordance with the Company's
otherwise applicable policies and practices for senior executives (and not the
separation benefits described in Section 5 hereof) and the provisions of Section
10(g)(pertaining to legal fees) shall cease to have any effect.
(b) Form of Payment. The total of the cash amounts to be paid under
Section 5(a) , subject to any taxes required to be withheld, shall be paid to
Executive as follows: (A) in a lump sum, on or before the fifth day following
"Date of Employment Termination" (as defined below); or (B) at Executive's
option, in monthly installments not to exceed a 36-month period, commencing on
the fifth day of the month following the Date of Employment Termination, if
written notification from the Executive is received by the Company within 90
days prior to the Date of Employment Termination or, if later, within 10 days
prior to the Effective Time.
(c) Loans. The amount of any loan or advance to Executive shall be
due and payable as of the Date of Employment Termination. The Company shall have
no right of set off against any amount due Executive under this Agreement.
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(d) Termination for Cause. If the Executive's employment is
terminated by the Company for Cause, the Company shall pay the Executive his
full base salary through the Date of Employment Termination (at the rate in
effect as of the Date of Employment Termination), and the Company shall have no
further obligations to the Executive under this Agreement.
(e) Disability. Disability shall mean the Executive's inability to
perform the principal duties of his position for a period of at least 180
consecutive days due to illness or injury. Disability shall be deemed to exist
under this Amended and Restated Employment Agreement if the Executive shall
become eligible to receive long-term disability benefits under any plan, policy
or arrangement maintained by the Company.
(f) Definition of Cause. The following are the only reasons for
which the Company may terminate Executive's services for Cause without further
obligations under this Agreement:
- for providing the Company with materially false reports
concerning Executive's business interests or
employment-related activities;
- for making materially false representations relied upon by the
Company in furnishing information to shareholders, a stock
exchange, or the Securities and Exchange Commission;
- for maintaining an undisclosed, unauthorized and material
conflict of interest in the discharge of duties owed by
Executive to the Company;
- for misconduct causing a serious violation by the Company of
state or federal laws;
- for theft of Company funds or corporate assets; or
- for conviction of a crime (excluding traffic violations or
similar misdemeanors).
(g) "Termination for Good Reason" shall mean termination of
Executive's employment by Executive following, or in connection with:
- during the Employment Term, any reduction in Executive's base
salary or any reduction in the Executive's bonus or incentive
compensation from the highest dollar amount or other rate of
bonus or incentive compensation payable to the Executive as an
annual bonus for the three calendar years
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preceding the Effective Time or a significant reduction in the
aggregate value of the benefits to which Executive was
entitled immediately prior to the Effective Time;
- the Company's requiring Executive to be based at any office or
location more than 25 miles from the one where he worked
immediately prior to the Effective Time, except for travel
reasonably required in the performance of Executive's
responsibilities;
- any purported termination by the Company of Executive's
employment otherwise than as permitted by this Agreement, it
being understood that any such purported termination shall not
be effective for any purpose of this Agreement; or
- any failure by the Company to obtain the assumption and
agreement to perform this Agreement by a successor as
contemplated by Section 9(a) hereof.
(h) "Date of Employment Termination" shall mean the earlier of the
date on which Executive or the Company gives written notice of termination of
Executive's employment to the other party or, in the case where the Employment
Term expires due to the delivery of a notice of non-renewal, the date the
Employment Term lapses.
5. Amount of Separation Benefits.
(a) Cash Separation Payments. Upon a termination of Executive's
employment under circumstances described in Section 4(a), the Executive shall
receive the following amounts in cash:
- Executive's full base salary through the Date of Employment
Termination, at the rate in effect ten (10) days prior to the
Date of Employment Termination; plus
- the product of
(A) an amount equal to Executive's full base salary earned
from the beginning of the calendar year in which Date
of Employment Termination occurs through the Date of
Employment Termination, and
(B) the greater of
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(i) 20% and
(ii) the percentage equal to the highest percentage of
base salary paid to the Executive as an annual
bonus for any of the three calendar years
preceding the calendar year in which the
Executive's termination of employment occurs (the
"Prior Bonus Percentage"),
reduced by any installment of cash bonus previously paid by
the Company to Executive for said calendar year; plus
- the full amount, if any, of any incentive or special award
which Executive earned but which has not yet been paid; plus
- three times the sum of
(A) Executive's annual base salary, at the highest rate in
effect at any time up to Date of Employment
Termination, and
(B) an amount equal to the product of
(i) the annual base salary referred to in subclause
(A) and
(ii) the greater of
(1) 20% and
(2) the Prior Bonus Percentage;
provided, however, that two-thirds of such amount (the
"Forfeitable Amount") shall be subject to recapture by the
Company in the event that a court of competent jurisdiction
finds that the Executive breached any of the covenants
contained in Section 7 in any material way; plus
- an amount which, as of the Date of Employment Termination, is
equal to the present value (calculated at a discount rate of
7% per annum) of (x) the lump sum value of the Retirement
Pension to which Executive would have been entitled if the
four (4) years after the Date of Employment Termination were
added to his Credited Service under the EDO Corporation
Employees Pension Plan, reduced by (y) the lump sum value of
the Retirement Pension to which Executive will be entitled
under the
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terms of such plan based upon termination of employment as of
the Date of Employment Termination and assuming commencement
of payment of Executive's pension benefits at age 65. The
lump sum value of Executive's Retirement Pension shall be
determined as of Executive's retirement at age 65, using the
same methods and assumptions used at the Date of Employment
Termination for purposes of the EDO Corporation Employees
Pension Plan.
(b) Benefits. For three (3) years after the Date of Employment
Termination, the Company shall maintain in full force and effect and Executive
(and, if eligible dependents, if applicable) shall continue to participate in
all group life, health and accident, and disability insurance, and other
employee benefit plans, programs and arrangements in which Executive was
entitled to participate immediately prior to the Date of Employment Termination,
provided that (i) continued participation is possible under the general terms
and provisions of such plans, programs and arrangements and (ii) as of the third
anniversary of Executive's Date of Termination, Executive shall be deemed to
have retired (regardless of Executive's age at such time) from active employment
with the Company for purposes of any plan or program maintained by the Company
under which medical, health, life or other welfare benefits are provided to
eligible retirees. If participation is barred, or an applicable plan, program or
arrangement is discontinued or the benefits thereunder are materially reduced,
the Company shall arrange to provide Executive with benefits substantially
similar to those which he was entitled to receive immediately prior to the Date
of Employment Termination. At the end of the period of coverage above provided
for, Executive shall have the option to have assigned to him, at no cost and
with no apportionment of prepaid premiums, any assignable insurance owned by the
Company and relating specifically to him. The foregoing shall not be deemed to
apply to any plan which is intended to meet the requirements of Section 401(a)
of the Internal Revenue Code of 1986, as amended (the "Code") or any successor
section thereto.
(c) No Offset or Mitigation. Executive shall not be required to
mitigate the amount of any payment or benefit provided for in this Agreement by
seeking other employment or otherwise, nor shall the amount of any payment or
benefit so provided for be reduced by any compensation earned by him as the
result of employment by another employer after the Date of Employment
Termination, or otherwise.
(d) Release. Notwithstanding the foregoing, payment of any amounts
under Section 5(a) shall be subject to and conditioned upon the execution by the
Executive of an appropriate release in such form as shall reasonably be
requested by the Company. For the avoidance of doubt, such release shall, among
other things, release the Company from any on going obligations under the
provisions of Section 10(g), pertaining to legal fees.
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(e) Treatment of Termination for Purposes of the SERP. If the
Executive's employment terminates in a manner which entitles the Executive to
receive the benefits payable under this Section 5, or terminates for any reason
other than Cause after the end of the Initial Term, the Executive shall be
eligible to receive a lump sum payment from the Company of an amount at least
equal to the present value of his accrued benefits under the Supplemental
Executive Retirement Plan ("SERP"), as in effect on the date hereof, regardless
of any amendment, termination or other modification the SERP occurring after the
date hereof.
6. Special Retention Payment. To induce the Executive to enter into
this Amended and Restated Employment Agreement and to remain in the employ of
the Company during the critical transition period following the Effective Time
to enable the Company to successfully integrate the operations of the Company
and AIL, if the Executive is still employed by the Company on the last day of
the Initial Term, then subject to the execution by the Executive of a release in
accordance with the provisions of Section 5(d), the Company shall pay to the
Executive an amount in cash, in consideration for the performance of such
services on behalf of the Company following the Effective Time, an amount equal
to the cash amount that would have been paid to the Executive pursuant to
Section 5(a) had his employment with the Company been terminated without Cause,
which amount shall be subject to the same conditions as apply to the amounts
payable under Section 5(a) (the "Special Retention Payment"). If payable in
accordance with the preceding sentence, such Special Retention Payment shall be
paid to Executive as follows: (A) in a lump sum, on or before the 10th day
following the Date of Employment Termination or (B) at Executive's option, in
monthly installments not to exceed a 36- month period, commencing on the fifth
day of the month following the Date of Employment Termination, if written
notification by the Executive is received by the Company within 90 days prior to
the Date of Employment Termination. If the Executive receives the Special
Retention Payment, the Company shall also provide to the Executive and his
dependents the same benefits (and on the same terms and for the same period of
time) as such benefits would have been provided under Section 5(b), were it
applicable.
7. Covenants.
(a) Confidential Information. The Executive acknowledges and agrees
that the Executive has and will come into contact with, have access to and learn
various technical and nontechnical trade secrets and other confidential
information, which are the property of the Company (the "Confidential
Information"). Such Confidential Information includes but is not limited to
methods, procedures, devices and other means used by the Company in the conduct
of its business, marketing plans and strategies, pricing plans and strategies,
data processing programs, databases, formulae, secret processes, machines and
adaptions thereto, inventions, research projects, and all other matters of a
technical nature,
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all of which Confidential Information is not publicly available, but has been
developed by the Company at its great effort and expense; names and addresses of
the Company's customers and their representatives responsible for entering into
contracts for the Company's services, customer leads or referrals, specific
customer needs and requirements and the manner in which they have been met by
the Company, information with respect to pricing, costs, profits, sales,
markets, plans for future business and other development, all of which
Confidential Information is not available from directories or other public
sources; and information with respect to the Company's employees, their names
and addresses, compensation, experience, qualifications, abilities, job
performance and similar information. All of the Confidential Information has
been developed, acquired or compiled by the Company at its great effort and
expense.
(b) Non-Disclosure of Confidential Information. The Executive
acknowledges and agrees that any disclosure, divulging, revealing or other use
of any of the aforesaid Confidential Information by the Executive, other than in
connection with the Company's business will be highly detrimental to the
business of the Company and serious loss of business and pecuniary damage may
result therefrom. Accordingly, the Executive specifically covenants and agrees
to hold all such Confidential Information and any documents containing or
reflecting the same in the strictest confidence, and the Executive will not,
both during employment with the Company or at any time thereafter, without the
Company's prior written consent, disclose, divulge or reveal to any person
whomsoever, or use for any purpose other than the exclusive benefit of the
Company, any Confidential Information whatsoever, whether contained in his
memory or embodied in writing or other physical form.
(c) Covenant Not To Compete. The Executive acknowledges and agrees
that the Company is engaged in a highly competitive business, and by virtue of
his position and responsibilities with the Company, and his access to the
Confidential Information, engaging in any business which is directly or
indirectly competitive with the Company will cause it great and irreparable
harm. Consequently, the Executive covenants and agrees that during the Term, and
for a period of two years after the Date of Employment Termination, the
Executive shall not directly or indirectly own, manage, operate, control, be
employed by, participate in, or be connected with, in any manner, any business
engaged in whole or in part in the pursuit of electronic counter-measures,
environmental monitoring, radar systems, satellite communications or advanced
electro-optical products for the defense and aerospace industries in the
continental United States and any other country in which the Company conducts
business at the relevant time (or, with respect to the period following the Date
of Termination, at such Date of Termination), without the prior written specific
consent of the Company. If requested, this consent shall not be unreasonably
withheld where the elements of competition are not direct, or specific, to the
Company's business.
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(d) Non-Solicitation of Customers. The Executive acknowledges and
agrees that during the course and solely as a result of his employment with the
Company, the Executive has and will become aware of some, most or all of the
Company's customers and clients, their names and addresses, their
representatives responsible for engaging the Company's services, their specific
needs and requirements, and leads and referrals to prospective customers and
clients. The Executive further acknowledges and agrees that the loss of such
customers and clients would cause the Company great and irreparable harm.
Consequently, the Executive covenants and agrees that the Executive will not,
for a period of two years after the Date of Employment Termination, directly or
indirectly solicit or seek to do business with any customer or client, former
customer or client or prospective customer or client of the Company with whom
the Executive came into contact while employed by the Company or who was known
to the Executive to be a current, former or prospective customer or client of
the Company, without the prior written specific consent of the Company. If
requested, this consent shall not be unreasonably withheld with respect to the
solicitation of any such customer or client in respect of a product, process or
service (including legal services) which, at the relevant time, is not
competitive with any product, process or service which is available from the
Company or which the Company has begun substantial efforts to make available to
its clients or customers.
(e) Non-Solicitation of Employees. The Executive acknowledges and
agrees that during the course of employment by the Company, the Executive has
and may hereafter come into contact with some, most or all of the Company's
employees, their knowledge, skills, abilities, salaries, commissions, benefits
and other matters with respect to such employees not generally known to the
public. The Executive further acknowledges and agrees that any solicitation,
luring away or hiring of such employees of the Company will be highly
detrimental to the business of the Company and will cause the Company serious
loss of business and great and irreparable harm. Consequently, the Executive
covenants and agrees that during the course of employment by the Company and for
a period of two years after the Date of Employment Termination the Executive
shall not directly or indirectly, on behalf of himself or another, solicit, lure
or hire any employees of the Company of whom the Executive became aware while
employed by the Company, or assist or aid in any such activity.
(f) Enforcement of Covenants. The Executive acknowledges and agrees
that compliance with the covenants set forth in this Section 7 is necessary to
protect the business and goodwill of the Company and that any breach of this
Section 7 or any subparagraph hereof will result in irreparable and continuing
harm to the Company, for which money damages may not provide adequate relief.
Accordingly, in the event of any breach or anticipatory breach of Section 7 by
the Executive, the Company and the
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Executive agree that the Company shall have the right in its sole discretion to
terminate any payments otherwise due under this Agreement and shall also be
entitled to the following particular forms of relief as a result of such breach,
in addition to any remedies otherwise available to it at law or equity: (a)
injunctions, both preliminary and permanent, enjoining or restraining such
breach or anticipatory breach, and the Executive hereby consents to the issuance
thereof forthwith and without bond by any court of competent jurisdiction, (b)
recovery of all reasonable sums and costs, including attorneys' fees, incurred
by the Company to enforce the provisions of Section 7, and (c) as liquidated
damages, to recapture the Forfeitable Amount in accordance with the provisions
of Section 5(a) hereof (or Section 6 hereof, to the extent a payment is made
thereunder which is calculated based on the provisions of Section 5(a)). .
(g) Prior Commitments. The covenants set forth in this Section 7
supplement, and do not supersede, the covenants contained in any other agreement
between the Executive and the Company (other than the Termination Agreement).
8. Taxes.
(a) Imposition of Excise Tax. In the event that any amount or
benefit paid or distributed to Executive pursuant to this Agreement, taken
together with any amounts or benefits otherwise paid or distributed to Executive
by the Company or any affiliated company (collectively, the "Covered Payments"),
would be an "excess parachute payment" as defined in Section 280G of the Code
and would thereby subject Executive to the tax (the "Excise Tax") imposed under
Section 4999 of the Code (or any similar tax that may hereafter be imposed), the
provisions of this Section 8 shall apply to determine the amounts payable to
Executive pursuant to this Agreement.
(b) Present Value of Benefits. Immediately following Date of
Employment Termination, the Company shall notify Executive of the aggregate
present value of all termination benefits to which he would be entitled under
this Agreement and any other plan, program or arrangement as of the projected
date of termination, together with the projected maximum payments, determined as
of such projected date of termination that could be paid without Executive being
subject to the Excise Tax.
(c) Payment Cap. If the aggregate value of all compensation
payments or benefits to be paid or provided to Executive under this Agreement
and any other plan, agreement or arrangement with the Company is less than 105%
of the amount which can be paid to Executive without Executive incurring an
Excise Tax, then the amounts payable to Executive under this Agreement may, in
the discretion of the Company, be reduced (but not below zero) to the maximum
amount which may be paid hereunder without Executive becoming subject to such an
Excise Tax (such reduced payments to be referred to as the
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"Payment Cap"). In the event that Executive receives reduced payments and
benefits hereunder, Executive shall have the right to designate which of the
payments and benefits otherwise provided for in this Agreement that he will
receive in connection with the application of the Payment Cap.
(d) Tax Adjustment. If the aggregate value of all compensation
payments or benefits to be paid or provided to Executive under this Agreement
and any other plan, agreement or arrangement with the Company is greater than
105% of the amount which can be paid to Executive without Executive incurring an
Excise Tax, the Company shall pay to Executive immediately following Executive's
termination of employment an additional amount (the "Tax Adjustment") such that
the net amount retained by Executive with respect to such Covered Payments,
after deduction of any Excise Tax on the Covered Payments and any Federal, state
and local income tax and Excise Tax on the Tax Adjustment provided for by this
Section 8 , but before deduction for any Federal, state or local income or
employment tax withholding on such Covered Payments, shall be equal to the
amount of the Covered Payments.
(e) Calculation of Payment. For purposes of determining whether any
of the Covered Payments will be subject to the Excise Tax and the amount of such
Excise Tax,
(i) such Covered Payments will be treated as "parachute payments"
within the meaning of Section 280G of the Code, and all "parachute
payments" in excess of the "base amount" (as defined under Section
280G(b)(3) of the Code) shall be treated as subject to the Excise Tax,
unless, and except to the extent that, in the good faith judgment of the
Company's independent certified public accountants appointed prior to the
Effective Date or tax counsel selected by such Accountants (the
"Accountants"), the Company has a reasonable basis to conclude that such
Covered Payments (in whole or in part) either do not constitute
"parachute payments" or represent reasonable compensation for personal
services actually rendered (within the meaning of Section 280G(b)(4)(B)
of the Code) in excess of the "base amount," or such "parachute payments"
are otherwise not subject to such Excise Tax, and
(ii) the value of any non-cash benefits or any deferred payment or
benefit shall be determined by the Accountants in accordance with the
principles of Section 280G of the Code.
(f) Assumptions on Rates. For purposes of determining whether
Executive would receive a greater net after-tax benefit were the amounts payable
under this Agreement reduced in accordance with Section 8(c), Executive shall be
deemed to pay:
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(i) Federal income taxes at the highest applicable marginal rate of
Federal income taxation for the calendar year in which the first amounts
are to be paid hereunder, and
(ii) any applicable state and local income taxes at the highest
applicable marginal rate of taxation for such calendar year, net of the
maximum reduction in Federal incomes taxes which could be obtained from
the deduction of such state or local taxes if paid in such year;
provided, however, that Executive may request that such determination be made
based on his individual tax circumstances, which shall govern such determination
so long as Executive provides to the Accountants such information and documents
as the Accountants shall reasonably request to determine such individual
circumstances.
(g) Adjustments. If Executive receives reduced payments and
benefits under this Section 8 is determined not to be applicable to Executive
because the Accountants conclude that Executive is not subject to any Excise Tax
and it is established pursuant to a final determination of a court or an
Internal Revenue Service proceeding (a "Final Determination") that,
notwithstanding the good faith of Executive and the Company in applying the
terms of this Agreement, the aggregate "parachute payments" within the meaning
of Section 280G of the Code paid to Executive or for his benefit are in an
amount that would result in Executive being subject an Excise Tax, then the
amount equal to such excess parachute payments shall be deemed for all purposes
to be a loan to Executive made on the date of receipt of such excess payments,
which Executive shall have an obligation to repay to the Company on demand,
together with interest on such amount at the applicable Federal rate (as defined
in Section 1274(d) of the Code) from the date of the payment hereunder to the
date of repayment by Executive. If this Section 8 is not applied to reduce
Executive's entitlements because the Accountants determine that Executive would
not receive a greater net-after tax benefit by applying this Section 8 and it is
established pursuant to a Final Determination that, notwithstanding the good
faith of Executive and the Company in applying the terms of this Agreement,
Executive would have received a greater net after tax benefit by subjecting his
payments and benefits hereunder to the Payment Cap, then the aggregate
"parachute payments" paid to Executive or for his benefit in excess of the
Payment Cap shall be deemed for all purposes a loan to Executive made on the
date of receipt of such excess payments, which Executive shall have an
obligation to repay to the Company on demand, together with interest on such
amount at the applicable Federal rate (as defined in Section 1274(d) of the
Code) from the date of the payment hereunder to the date of repayment by
Executive. If Executive receives reduced payments and benefits by reason of this
Section 8 and it is established pursuant to a Final Determination that Executive
could have received a greater amount without exceeding the Payment Cap, then the
Company shall promptly thereafter
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pay Executive the aggregate additional amount which could have been paid without
exceeding the Payment Cap, together with interest on such amount at the
applicable Federal rate (as defined in Section 1274(d) of the Code) from the
original payment due date to the date of actual payment by the Company.
(h) Repayment of Excess Amounts. In the event that the Excise Tax
is subsequently determined by the Accountants or pursuant to any proceeding or
negotiations with the Internal Revenue Service to be less than the amount taken
into account hereunder in calculating the Tax Adjustment made, Executive shall
repay to the Company, at the time that the amount of such reduction in the
Excise Tax is finally determined, the portion of such prior Tax Adjustment that
would not have been paid if such Excise Tax had been applied in initially
calculating such Tax Adjustment, plus interest on the amount of such repayment
at the rate provided in Section 1274(b)(2)(B) of the Code. Notwithstanding the
foregoing, in the event any portion of the Tax Adjustment to be refunded to the
Company has been paid to any Federal, state or local tax authority, repayment
thereof shall not be required until actual refund or credit of such portion has
been made to Executive, and interest payable to the Company shall not exceed
interest received or credited to Executive by such tax authority for the period
it held such portion. Executive and the Company shall mutually agree upon the
course of action to be pursued (and the method of allocating the expenses
thereof) if Executive's good faith claim for refund or credit is denied.
(i) Additional Company Payments. In the event that the Excise Tax
is later determined by the Accountants or pursuant to any proceeding or
negotiations with the Internal Revenue Service to exceed the amount taken into
account hereunder at the time the Tax Adjustment is made (including, but not
limited to, by reason of any payment the existence or amount of which cannot be
determined at the time of the Tax Adjustment), the Company shall make an
additional Tax Adjustment in respect of such excess (plus any interest or
penalty payable with respect to such excess and the amount of any other expenses
incurred by Executive in connection with any audit, appeal, litigation or other
judicial or administrative process pertaining to the Tax Adjustment or any
amounts deemed subject to the Excise Tax) at the time that the amount of such
excess is finally determined.
(j) Timing of Payment. Any Tax Adjustment (or portion thereof)
provided for in Section 8(d) above shall be paid to Executive not later than 10
business days following the payment of the Covered Payments; provided, however,
that if the amount of such Tax Adjustment (or portion thereof) cannot be finally
determined on or before the date on which payment is due, the Company shall pay
to Executive by such date an amount estimated in good faith by the Accountants
to be the minimum amount of such Tax Adjustment and shall pay the remainder of
such Tax Adjustment (together with interest at
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the rate provided in Section 1274(b)(2)(B) of the Code) as soon as the amount
thereof can be determined, but in no event later than 45 calendar days after
payment of the related Covered Payment. In the event that the amount of the
estimated Tax Adjustment exceeds the amount subsequently determined to have been
due, such excess shall constitute a loan by the Company to Executive, payable on
the fifth business day after written demand by the Company for payment (together
with interest at the rate provided in Section 1274(b)(2)(B) of the Code).
9. Successors, Binding Agreement.
(a) Mandatory Assumption. The Company will require any successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business and/or assets of the Company, by
agreement in form and substance satisfactory to Executive, to expressly assume
and agree to perform this Amended and Restated Employment Agreement in the same
manner and to the same extent that the Company would be required to perform it
if no such succession had taken place.
(b) Definition of Company. As used in this Amended and Restated
Employment Agreement, "Company" shall include any successor to its business
and/or assets as aforesaid which executes and delivers the agreement provided
for in Section 9(a) or which otherwise becomes bound by all the terms and
provisions of this Amended and Restated Employment Agreement by operation of
law.
(c) Executive's Successors. This Amended and Restated Employment
Agreement shall inure to the benefit of, and be enforceable by, Executive's
personal or legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. If Executive should die while any amounts
would still be payable if he had continued to live, all such amounts shall be
paid in accordance with the terms of this Amended and Restated Employment
Agreement to Executive's devisee, legatee, or other designee or, if there be no
such designee, to his estate.
10. Miscellaneous Provisions.
(a) Notices. Notices and all other communications provided for in
this Amended and Restated Employment Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed to the
respective addresses set forth on the first page of this Amended and Restated
Employment Agreement, provided that all notices to the Company shall be directed
to the attention of the Corporate Counsel, or to such
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other address as either party may have furnished to the other in writing in
accordance herewith. Notices of change of address shall be effective only upon
receipt.
(b) Amendment, Waiver. No provisions of this Amended and Restated
Employment Agreement may be modified, waived or discharged unless such
modification, waiver or discharge is agreed to in writing signed by Executive
and, on behalf of the Company, by such officer as may be specifically designated
by the Board. Any failure at any time of either party to enforce any provision
of this Amended and Restated Employment Agreement shall not constitute a waiver
of such provision, or prejudice the right of either party to enforce such
provision at any subsequent time.
(c) Unfunded Arrangement. All benefits provided for in this Amended
and Restated Employment Agreement are provided on an unfunded basis and are not
intended to meet the qualification requirements of section 401 of the Code. The
Company shall not be deemed to be a trustee of any amounts to be paid under this
Amended and Restated Employment Agreement and shall not be required to segregate
any assets with respect to benefits under this Amended and Restated Employment
Agreement. Such benefits shall be payable solely from the general assets of the
Company.
(d) Entire Agreement. No agreements or representations, oral or
otherwise, expressed or implied, with respect to the subject matter hereof have
been made by either party which are not set forth expressly in this Amended and
Restated Employment Agreement.
(e) Governing Law. The validity, interpretation, construction and
performance of this Amended and Restated Employment Agreement shall be governed
by the laws of the State of New York, without regard to principles of conflict
of laws.
(f) Severability. The invalidity or unenforceability of any one or
more provisions of this Amended and Restated Employment Agreement shall not
affect the validity or enforceability of any other provision of this Amended and
Restated Employment Agreement, which shall remain in full force and effect.
(g) Legal Fees. In the event of any action or proceeding between
the parties arising out of this Amended and Restated Employment Agreement, the
Company will pay the costs of any such legal proceedings including, but not
limited to, the costs of Executive for all expenses, including attorneys' fees,
incurred in such action or proceeding. Such costs and expenses shall be advanced
to Executive currently as reasonably required to continue such action or
proceeding.
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IN WITNESS WHEREOF, each of the duly authorized officer of the
Company and the Executive have executed this Amended and Restated Employment
Agreement as of the date first written above.
EDO CORPORATION
By
----------------------------
MARVIN D. GENZER
------------------------------
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SECOND AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
SECOND AMENDED AND RESTATED EMPLOYMENT AGREEMENT, dated as of January
2, 2000, by and among AIL Systems Inc., a Delaware corporation, EDO Corporation,
a New York corporation, and James M. Smith.
WHEREAS, AIL Systems Inc. ("AIL") and James M. Smith ("you") entered
into an employment agreement, dated as of April 29, 1998 (the "Employment
Agreement");
WHEREAS, contemporaneously with the date hereof, AIL and EDO
Corporation (the "Company") are entering into an Agreement and Plan of Merger
(the "Merger Agreement") pursuant to which AIL will become a wholly-owned
subsidiary of the Company;
WHEREAS, the Company desires that you assume the positions of Chief
Executive Officer and President immediately following the effective time of the
merger contemplated under the Merger Agreement (the "Effective Time") and you
are willing to assume such positions, all on the terms and conditions set forth
herein;
NOW, THEREFORE, the parties hereto agree as follows:
1. Effective Date. This Agreement shall be and become effective as of the
Effective Time. The Employment Agreement shall continue in full force in
effect until the Effective Time, at which time it shall be amended and
restated and superseded in its entirety by this Agreement. In the event
that the Merger Agreement is terminated in accordance with its terms or
that the Effective Time does not occur prior to June 15, 2000, this
Agreement shall be rendered void and without effect and none of the
parties hereto shall have any duties or obligations to, or rights against,
any other party.
<PAGE>
2. Employment, Duties.
(a) Position and Duties. Subject to the terms and conditions of this
Agreement, the Company shall employ you as its Chief Executive
Officer and President from and after the Effective Time until the
expiration of the Term (as defined in Section 3) of this Agreement.
In such position, you shall be responsible for the day to day
operation and management of the Company and have such powers,
duties, responsibilities and indemnifications commensurate with your
experience and your position as Chief Executive Officer and
President as are set forth in the Company's By-Laws and as may be
assigned to you from time to time by the Company's Board of
Directors. You shall also serve, without additional compensation, in
such other position or positions with the Company and/or its
majority-owned subsidiaries commensurate with your experience and
position as Chief Executive Officer as the Board of Directors shall
assign to you at any time and from time to time.
(b) Report to the Board. You shall report directly to the Company's
Board of Directors. Immediately following the Effective Time, you
shall be elected as a member of the Board of Directors of the
Company. During the term hereof, you shall be duly and timely
nominated by the Board of Directors for reelection as a member of
the Board at all appropriate times.
(c) Working Time. You shall devote all of your working time, on an
exclusive basis, and except for vacations, periods of illness,
injury or other disability, to the business and affairs of the
Company.
(d) Location. Your principal place of employment shall be at the
Company's headquarters in New York City.
3. Term. The term of this Agreement shall be the period of three (3) years
commencing on the Effective Date (the "Term"). The Company shall give you
at least 90 days' written notice prior to the end of the Term regarding
whether it intends to negotiate in good faith an agreement with you to
replace this Agreement.
4. Compensation and Benefits. During the Term of this Agreement, the Company
shall pay to you, and you shall accept from the Company, as full
compensation for your services hereunder, the following:
(a) Base Salary. The Company shall pay to you a salary at the rate of
$425,000 per year ("Base Salary"), to be paid in accordance with the
Company's customary payroll practices. Base Salary will be reviewed
at least annually at or about April
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of each year by the Company's Compensation Committee in light of
competitive practices, the annual base salaries paid to other
executives of the Company and your performance and that of the
Company. Any increase in such base salary shall not reduce or
otherwise offset any other obligation of the Company hereunder.
(b) Other Compensation and Benefits. You shall be eligible to
participate in, on a basis commensurate with your position with the
Company as provided herein, all of the Company's employee
compensation and benefit plans and arrangements in effect at any
time or from time to time during the Term. You shall be entitled to
participate in or receive benefits under any employee benefit plan
or arrangement made available by the Company to its executives and
key management employees, subject to and on a basis consistent with
the terms and conditions thereof.
(c) Company Equity Awards. As of the Effective Time, you shall be
granted 25,000 shares of the Company's common stock which shall not
be transferrable and which shall remain subject to forfeiture until
vested in accordance with the terms of such award. Such restricted
shares shall generally vest in five approximately equal
installments, on each of the first five anniversaries of the date of
grant. The remaining terms and conditions of each such award shall
be as set forth in a separate award agreement to be entered into
between you and the Company.
(d) Car Allowance. During the Term, the Company will provide you with a
new vehicle every three years.
(e) Vacation. You shall be eligible for vacation benefits in accordance
with the Company's vacation policy. In no event, however, shall you
be provided less than four weeks of vacation during any calendar
year.
(f) Business Expenses. The Company shall reimburse you for reasonable
and necessary business expenses (including travel by business
class), in accordance with the Company's policies as the same may be
amended from time to time, and upon presentation of appropriate
documentation reasonably satisfactory to the Company.
5. Special Retention Payment. If you remain continuously employed on a
full-time basis by the Company for a period of one year following the
Effective Time, the Company will pay to you in a lump sum, within fifteen
days of the first anniversary of the Effective Time, an amount equal to
your Base Salary as in effect at the Effective Time.
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<PAGE>
6. Termination of Employment. Your employment with the Company may terminate
upon the occurrence of the following circumstances:
(a) Death and Disability. Your death or your inability to perform your
duties hereunder by reason of disability, due to physical or mental
illness, for a period in excess of one hundred and eighty (180)
consecutive business days. Your employment may be terminated by the
Company by reason of your disability, pursuant to this subsection
(a) only if you do not return to work within thirty (30) days after
a notice of termination has been provided to you in writing by the
Company.
(b) Cause. Termination of your employment by the Company for "Cause",
which for purposes of this Agreement shall mean:
(i) the willful and continued failure by you to substantially
perform your duties hereunder (other than any such failure
resulting from your disability due to physical or mental
illness), after you have received from the Board of Directors
of the Company a written demand for substantial performance
that specifically identifies the manner in which the Board of
Directors believes you have not substantially performed your
duties and a reasonable opportunity under the circumstances to
cure any such failure; or
(ii) the willful engaging by you in gross misconduct materially and
demonstrably injurious to the Company.
For purposes of this subsection (b), no act, or failure to act, shall
be considered "willful" unless done, or omitted to be done, by you
not in good faith and without reasonable belief that your act or
omission was in the best interest of the Company. Notwithstanding the
foregoing, your employment shall not be deemed to have terminated for
Cause unless and until there shall have been delivered to you a copy
of a resolution duly adopted by the affirmative vote of not less than
three-quarters (3/4) of the membership of the Board of Directors of
the Company (excluding you) at a meeting of the Board of Directors
called and held for such a purpose (after reasonable notice to you
and an opportunity for you, together with your counsel, to be heard
before the Board of Directors), finding that in the good faith
opinion of the Board of Directors you were guilty of the conduct set
forth in this subparagraph (b) and specifying the particular details
thereof in detail. Such finding by the Board of Directors shall be
conclusive and binding upon all parties,
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<PAGE>
and the Board of Directors is hereby granted discretionary authority
to make such determination.
(c) Retirement. Termination of your employment by you due to your
retirement in accordance with the terms of any Company
retirement plan in which you participate.
(d) Good Reason. Termination of your employment at any time by you
for "Good Reason." For the purpose of this Agreement, Good
Reason shall mean:
(i) without your express written consent, the assignment to
you of any duties inconsistent with your position,
duties, responsibilities and status at the Company, as
provided herein, or a change inconsistent with the
provisions of this Agreement in your reporting
responsibilities, titles or offices; provided that, in
the event that there occurs a Change of Control of the
Company (as defined in the Company's 1996 Long-Term
Incentive Plan, as currently in effect), you shall not
have "Good Reason" following such event under this
subclause (i) so long as you continue to be responsible
for the day to day operation and management of the
Company (or the successor in interest to the Company);
(ii) a reduction in your Base Salary (as defined in Section
4(a)), as the same may be increased from time to time.
(iii) failure to allow you to participate in the employee
benefit and executive compensation plans and
arrangements in accordance with the provisions of
Section 4(b).
(iv) the relocation of the Company's principal executive
offices to a location outside the New York metropolitan
area, or a requirement that you be based anywhere other
than the Company's principal executive offices or, in
the event you consent to any such relocation of the
Company's principal executive offices, the failure by
the Company to pay (or reimburse you for) all reasonable
moving expenses incurred by you relating to a change of
your principal residence in connection with such
relocation and/or to indemnify you against any loss
realized in the sale of your principal residence in
connection with any such change of residence. For
purposes of this paragraph, "loss" is defined as the
amount by which the higher of (a) your aggregate
investment in such residence and (b) the fair market
value of such residence as determined by any real estate
appraiser designated by you and reasonably
5
<PAGE>
satisfactory to the Company, exceeds the actual sale
price of such residence.
(v) the failure of the Company to obtain the assumption of,
and agreement to perform, this Agreement by any
successor (whether direct or indirect, by purchase,
consolidation or otherwise) to all or substantially all
of the assets of the Company, by agreement in form and
substance reasonably satisfactory to you.
7. Compensation Upon Termination.
(a) Death or Disability. If your employment is terminated by
reason of your death or disability pursuant to Section 6(a),
you or your estate, as the case may be, shall receive your
Base Salary through the date of your termination and such
other compensation and benefits to which you are entitled in
accordance with the terms and conditions of the compensation
and benefit plans and arrangements in which you are then a
participant.
(b) Cause.If your employment is terminated for Cause pursuant to
Section 6(b), you shall not be entitled to any compensation
for any period after termination, but you shall receive such
compensation and benefits for time worked prior to such
termination and to which you are entitled in accordance with
the terms of the compensation and benefit plans in which you
are then a participant.
(c) Good Reason; Without Cause. If your employment is terminated
by you for Good Reason pursuant to Section 6(c), or is
terminated by the Company for any reason other than death,
disability, Cause or mutual written agreement, the Company
will pay to you the amount set forth in subsection (i), below,
and in the manner provided in subsection (ii), below. Such
amount shall be in lieu of any other severance or termination
benefits to which you may be entitled under the Company's
plans, policies, programs or agreements.
(i) A termination payment ("Termination Payment") equal to:
(A) The product of (x) the number three multiplied by
(y) the sum of (A) your annual Base Salary as
defined in Section 4(a), plus (B) the average
annual Company incentive amount awarded to you for
the three years preceding the termination of your
employment (including, for this purpose, any
bonuses payable to you by AIL), or the previous
year's incentive if higher, minus
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(B) If your employment terminates on or after (but not
before) the first anniversary of the Effective
Time, an amount equal to the amount paid to you
pursuant to Section 5 times
(i) one, if your termination of employment with
the Company occurs at the first anniversary
of the Effective Time or
(ii) a fraction, the numerator of which is the
number of whole calendar months between the
termination of your employment and the end of
the three-year period following the Effective
Time, and the denominator of which is twenty-
four, if your termination of employment
occurs after such first anniversary and prior
to the third anniversary of the Effective
Time.
(ii) The Termination Payment will be paid in cash in a single sum
promptly following the date of termination. For the three-year
period following your termination of employment, you (and to
the extent covered at the date of your termination of
employment, your spouse and your eligible dependents) shall be
entitled to continued coverage under the Company's medical,
life and disability plans for employees, as the same may be
modified from time to time for employees generally, on the
same terms and conditions as though you had continued in the
Company's employ (or, at the Company's election, coverage
equivalent thereto). During the same period you shall be
entitled to five years (or up to age 65 whichever is earlier)
of continued participation service accrual under each employee
retirement plan in which you are then participating, whether
or not qualified (the "Pension Plans"), to a period not to
exceed the granting of credited service to all Plan
participants. Upon the completion of the period set forth
above, you will also be entitled to those benefits (or their
equivalent) to which retirees of the Company may be entitled
in accordance with the terms and conditions of the Pension
Plans and the medical and life insurance plans for retirees,
as those plans may be modified from time to time for employees
generally.
(iii) Notwithstanding the foregoing, in the event that the granting
of vested service accrual credit to you under the Pension Plan
could, in the reasonable opinion of the Company, adversely
affect the tax-qualified status of the Pension Plan, such
service credit shall not be granted. In lieu thereof, the
Company shall pay you, upon the expiration of the period set
forth in (ii) above, a single cash payment equal to the
actuarial equivalent of the increase in your retirement
benefit that would
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<PAGE>
have resulted if the service credit had been granted. This
amount will be determined by the enrolled actuary regularly
consulted by the Company for the Pension Plan and shall be
made in accordance with the terms of the Pension Plan in
effect at that time. Such determination will be final and
binding upon all parties.
(iv) Upon a termination described in Section 7(c) prior to the
second anniversary of the Effective Date, all of the shares of
Company restricted stock granted pursuant to Section 4(c)
shall fully and immediately vested on the date your employment
terminates and all of the shares of the Company common stock
subject to stock options issued in substitution of the options
granted in respect of Ail common stock on December 3, 1999
(the "Special Grant") shall become and remain exercisable
thereunder for a period of one year from the date of your
termination of employment. Following the second anniversary of
the Effective Time, no special vesting shall be applicable to
the restricted shares or the Special Option in the event of
your termination of employment for any reason.
(v) Upon any termination described in Section 7(c) (whenever
occurring during the Employment Term), any options to purchase
Company stock granted in substitution of options (other than
the Special Option) granted to you prior to the Effective Time
under the AIL Stock Option Plan shall be deemed to be and
shall become fully vested and nonforfeitable and immediately
exercisable, and remain exercisable for three years after the
date of your termination of employment.
(vi) If your employment terminates prior to the date as of which
you shall have accrued the right to be paid the special
retention bonus payable under Section 5, the Company shall
also pay you an amount equal to the amount that would have
been payable to you thereunder on the first anniversary of the
Effective Time had you remained in the Company's employ.
(d) Full Satisfaction. Payment of any amounts under Section 7(c) shall
be in full and complete satisfaction of any claims that you may have
under this Agreement or otherwise arising in connection with your
employment with or termination of employment by the Company and/or
any of its subsidiaries; provided that nothing contained in this
Section 7(d) shall be construed to limit your right to any vested
benefits accrued or payable under the terms of any employee benefit
plan (other than any severance plan) established and maintained by
the Company, any vested
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rights under any equity based incentive award, whether granted to
you under the terms of this Agreement or otherwise, or any of its
subsidiaries or your right to indemnification with respect to his
service as an employee, officer or director of the Company or any of
its subsidiaries.
8 Gross-up Payment.
(a) Imposition of Excise Tax. In the event that any amount or benefit
paid or distributed to you pursuant to this Agreement, taken
together with any amounts or benefits otherwise paid or distributed
to you by the Company, any subsidiary or any affiliated company
(collectively, the "Covered Payments"), would be an "excess
parachute payment" as defined in Section 280G of the Internal
Revenue Code of 1986, as amended (the "Code"), and would thereby
subject you to the tax (the "Excise Tax") imposed under Section 4999
of the Code (or any similar tax that may hereafter be imposed), the
Company shall pay to you immediately following your termination of
your employment an additional amount (the "Tax Adjustment") such
that the net amount retained by you with respect to such Covered
Payments, after deduction of any Excise Tax on the Covered Payments
and any Federal, state and local income tax, employment tax and
Excise Tax (including any interest and penalties) on the Tax
Adjustment provided for by this Section 8, but before deduction for
any Federal, state or local income or employment tax withholding on
such Covered Payments, shall be equal to the amount of the Covered
Payments.
(b) Calculation Assumptions. For purposes of determining whether any of
the Covered Payments will be subject to the Excise Tax and the amount
of such Excise Tax,
(i) such Covered Payments will be treated as "parachute payments"
within the meaning of Section 280G of the Code, and all
"parachute payments" in excess of the "base amount" (as
defined under Section 280G(b)(3) of the Code) shall be treated
as subject to the Excise Tax, unless, and except to the extent
that, in the good faith judgment of the Company's independent
certified public accountants or tax counsel selected by such
Accountants (the "Accountants"), the Company has a reasonable
basis to conclude that such Covered Payments (in whole or in
part) either do not constitute "parachute payments" or
represent reasonable compensation for personal services
actually rendered (within the meaning of Section 280G(b)(4)(B)
of the Code) in excess of the "base amount," or such
"parachute payments" are otherwise not subject to such Excise
Tax, and
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(ii) the value of any non-cash benefits or any deferred payment or
benefit shall be determined by the Accountants in accordance
with the principles of Section 280G of the Code.
(c) Overpayment Adjustment. In the event that the Excise Tax is
subsequently determined by the Accountants or pursuant to any
proceeding or negotiations with the Internal Revenue Service to be
less than the amount taken into account hereunder in calculating the
Tax Adjustment made, you shall repay to the Company, at the time
that the amount of such reduction in the Excise Tax is finally
determined, the portion of such prior Tax Adjustment that would not
have been paid if such Excise Tax had been applied in initially
calculating such Tax Adjustment, plus interest on the amount of such
repayment at the rate provided in Section 1274(b)(2)(B) of the Code.
Notwithstanding the foregoing, in the event any portion of the Tax
Adjustment to be refunded to the Company has been paid to any
Federal, state or local tax authority, repayment thereof shall not
be required until actual refund or credit of such portion has been
made to you, and interest payable to the Company shall not exceed
interest received or credited to you by such tax authority for the
period it held such portion. You and the Company shall mutually
agree upon the course of action to be pursued (and the method of
allocating the expenses thereof) if your good faith claim for refund
or credit is denied.
(d) Underpayment Adjustment. In the event that the Excise Tax is later
determined by the Accountants or pursuant to any proceeding or
negotiations with the Internal Revenue Service to exceed the amount
taken into account hereunder at the time the Tax Adjustment is made
(including, but not limited to, by reason of any payment the
existence or amount of which cannot be determined at the time of the
Tax Adjustment), the Company shall make an additional Tax Adjustment
in respect of such excess (plus any interest or penalty payable with
respect to such excess) at the time that the amount of such excess is
finally determined.
(e) Timing of Payment. Any Tax Adjustment (or portion thereof) shall be
paid to you not later than 10 business days following the payment of
the Covered Payment to which it relates; provided, however, that if
the amount of such Tax Adjustment (or portion thereof) cannot be
finally determined on or before the date on which payment is due,
the Company shall pay to you by such date an amount estimated in
good faith by the Accountants to be the minimum amount of such Tax
Adjustment and shall pay the remainder of such Tax Adjustment
(together with interest at the rate provided in Section
1274(b)(2)(B) of the Code) as soon as the amount thereof can be
determined, but in no event later than 45 calendar days after
payment of the related Covered Payment. In the event that the amount
of
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the estimated Tax Adjustment exceeds the amount subsequently
determined to have been due, such excess shall constitute a loan by
the Company to Executive, payable on the fifth business day after
written demand by the Company for payment (together with interest at
the rate provided in Section 1274(b)(2)(B) of the Code).
(f) Impact of Section 8. Notwithstanding anything else to the contrary
contained in this Section 8, you shall not be required to take any
actions or pay any amounts under this Section that will in the
aggregate, cause you to receive less compensation (on a net-after tax
basis) than if this Section 8 was omitted from this Agreement in its
entirety.
9. Successors. As used in this Agreement, "the Company" shall mean the
Company as hereinbefore defined and any successor (whether direct or
indirect, by purchase, merger, consolidation, reorganization or otherwise)
to all or substantially all of the assets of the Company. This Agreement
shall inure to the benefit of and be enforceable by your personal or legal
representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees.
10. Covenants. Confidential Information. You acknowledge and agree that you
have and will come into contact with, have access to and learn various
technical and nontechnical trade secrets and other Confidential
Information, which are the property of the Company. Such Confidential
Information includes but is not limited to methods, procedures, devices
and other means used by the Company in the conduct of its business,
marketing plans and strategies, pricing plans and strategies, data
processing programs, databases, formulae, secret processes, machines and
adaptions thereto, inventions, research projects, and all other matters of
a technical nature, all of which Confidential Information is not publicly
available, but has been developed by the Company at its great effort and
expense; names and addresses of the Company's customers and their
representatives responsible for entering into contracts for the Company's
services, customer leads or referrals, specific customer needs and
requirements and the manner in which they have been met by the Company,
information with respect to pricing, costs, profits, sales, markets, plans
for future business and other development, all of which Confidential
Information is not available from directories or other public sources; and
information with respect to the Company's employees, their names and
addresses, compensation, experience, qualifications, abilities, job
performance and similar information. All of the Confidential Information
has been developed, acquired or compiled by the Company at its great
effort and expense.
11
<PAGE>
(a) Non-Disclosure of Confidential Information. Except as may be
required in the proper performance of your duties hereunder or as
may be compelled by administrative or judicial subpoena or other
process, you acknowledge and agree that any disclosure, divulging,
revealing or other use of any of the aforesaid Confidential
Information by you, other than in connection with the Company's
business will be highly detrimental to the business of the Company
and serious loss of business and pecuniary damage may result
therefrom. Accordingly, you specifically covenant and agree to hold
all such Confidential Information and any documents containing or
reflecting the same in the strictest confidence, and you will not,
both during employment with the Company or at any time thereafter,
without the Company's prior written consent, disclose, divulge or
reveal to any person whomsoever, or use for any purpose other than
the exclusive benefit of the Company, any Confidential Information
whatsoever, whether contained in your memory or embodied in writing
or other physical form.
(b) Covenant Not to Compete. You acknowledge and agree that the Company
is engaged in a highly competitive business, and by virtue of your
position and responsibilities with the Company, and your access to
the Confidential Information, engaging in any business which is
directly or indirectly competitive with the Company will cause it
great and irreparable harm. Consequently, you covenant and agree
that during the Term, or for the two-year period following your
termination of employment hereunder, you shall not directly or
indirectly own, manage, operate, control, be employed by,
participate in, or be connected with, in any manner (other than as a
shareholder of less than 2% of the outstanding equity of any
publicly traded company), any business engaged in whole or in part
in the pursuit of electronic counter-measures, environmental
monitoring, radar systems or satellite communications in the
continental United States, the same being the same geographic area
in which the Company's business is conducted, without the prior
written specific consent of the Company. If requested, this consent
shall not be unreasonably withheld where the elements of competition
are not direct, or specific, to the Company's business.
(c) Non-Solicitation of Customers. You acknowledge and agree that during
the course and solely as a result of your employment with the
Company, you have and will become aware of some, most or all of the
Company's customers and clients, their names and addresses, their
representatives responsible for engaging the Company's services,
their specific needs and requirements, and lead and referrals to
prospective customers and clients. You further acknowledge and agree
that the loss of such customers and clients would cause the Company
great and irreparable harm. Consequently, you covenant and agree
that in the event of the termination of your employment with the
Company, whether voluntarily or
12
<PAGE>
involuntarily, you will not, for the two year period following your
termination of employment hereunder, directly or indirectly solicit
to do business of a nature that is directly or indirectly
competitive with the business of the Company or any of its
subsidiaires with any customer or client, former customer or client
or prospective customer or client of the Company with whom you came
into contact while employed by the Company or who was known to you
to be a current, former or prospective customer or client of the
Company. For purposes of the immediately preceeding sentence, a
person or entity shall be treated as a prospective customer only if
and to the extent that the Company has undertaken a deliberate
effort to obtain the business of such person or entity and has a
reasonable expectation of obtaining such business.
(d) Non-Solicitation of Employees. You acknowledge and agree that during
the course of employment by the Company, you have and may hereafter
come into contact with some, most or all of the Company's employees,
their knowledge, skills, abilities, salaries, commissions, benefits
and other matters with respect to such employees not generally known
to the public. You further acknowledge and agree that any
solicitation, luring away or hiring of such employees of the Company
will be highly detrimental to the business of the Company and will
cause the Company serious loss of business and great and irreparable
harm. Consequently, you covenant and agree that during the course of
employment by the Company and for the two year period following the
termination of your employment hereunder, you shall not directly or
indirectly, on behalf of yourself or another, solicit, lure or hire
any employees of the Company of whom you became aware while employed
by the Company, or assist or aid in any such activity.
(e) Enforcement of Covenants. You acknowledge and agree that compliance
with the covenants set forth in this Section 10 is necessary to
protect the business and goodwill of the Company and that any breach
of this Section 10 or any subparagraph hereof will result in
irreparable and continuing harm to the Company, for which money
damages may not provide adequate relief. Accordingly, in the event
of any breach or anticipatory breach of Section 10 by you, the
Company and you agree that the Company shall be entitled to the
following particular forms of relief as a result of such breach, in
addition to any remedies otherwise available to it at law or equity:
(a) injunctions, both preliminary and permanent, enjoining or
restraining such breach or anticipatory breach, and you hereby
consent to the issuance thereof forthwith and without bond by any
court of competent jurisdiction; and (b) recovery of all reasonable
sums and costs, including attorneys' fees, incurred by the Company
to enforce the provisions of Section 10.
13
<PAGE>
(f) Prior Commitments. The covenants set forth in this Section 10
supplement, and do not supersede, the covenants contained in any
other agreement between you and the Company.
(g) Interpretation. Nothing in Section 10(c) or (d) shall be construed
to prevent any entity to which you provide services from
independently enagaging in conduct of a nature and type that you
would be prohibited from undertaking by reason of such Sections so
long as you do not, directly or indirectly, assist such entity in
such conduct.
11. Arbitration of Disputes and Jury Waivers. Except as set forth in Section
10 of this Agreement, the parties hereto agree to arbitrate any dispute,
claim, or controversy (claim) against each other arising out of the
cessation of your employment, any claim of unlawful discrimination or
harassment that might or did arise during or as a result of your
employment which could have been brought before an appropriate government
administrative agency or in an appropriate court, including but not
limited to claims of age discrimination under the Age Discrimination in
Employment Act of 1967, as amended, as well as any claim or controversy
under this Agreement.
The arbitration shall be arbitrated by one arbitrator in accordance with
the National Rules for the Resolution of Employment Disputes of the
American Arbitration Association. The parties hereto agree that the
arbitration shall take place in Suffolk County, New York. The arbitrator's
fees will be shared equally by the parties. The decision or award of the
arbitration shall be final and binding upon the parties. Any arbitral
award may be entered as a judgment or order in any court of competent
jurisdiction.
Any claims under Section 10 of this Employment Agreement shall not be
subject to arbitration, but shall be subject to the remedies set forth
therein.
(a) Jury Trial. If for any reason this Arbitration Provision is declared
unenforceable, you agree to waive any right you may have to a jury
trial with respect to any dispute or claim against the Company
relating to this Agreement, your employment, and the termination or
modification of any terms and conditions of employment, including
but not limited to claims of age discrimination under the Age
Discrimination in Employment Act of 1967, as amended.
(b) Venue.In the event this Arbitration Provision is declared
unenforceable for any reason, or in the event of any litigation
arising pursuant to Section 10 of this Employment Agreement, the
parties agree that, with respect to any litigation
14
<PAGE>
arising pursuant to this Agreement, Suffolk County, New York shall
be the only proper county for purposes of venue. The parties further
agree that they will submit to the personal jurisdiction of any
Court (Federal or State) located within New York State.
12. Miscellaneous.
(a) Waiver. No waiver or modification of the Agreement, nor any portion
hereof, shall be valid unless in writing and signed by you and such
officers as may be specifically designated by the Board of Directors
of the Company. No waiver by either party hereto at any time of any
breach by the other party hereto of, or compliance with, any
condition or provision of this Agreement to be performed by such
other party shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or subsequent
time. Any Notice of Termination by you must be given not later than
forty-five (45) days after the occurrence of the event which you
claim to constitute Good Reason and any Notice of Termination by the
Company must be given not later than forty-five (45) days after the
Company becomes aware of the occurrence of the event claimed by the
Company to constitute Cause or Disability. Subject to the preceding
sentence, any failure by the Company to claim promptly that any
event constitutes Cause, or failure by you to claim promptly that
any event constitutes Good Reason, shall not preclude either the
Company or you from claiming subsequently that such event or any
earlier or later event constitutes Cause or Good Reason. No
agreements or representation, oral or otherwise, express or implied,
with respect to the subject matter hereof have been made by any
party which are not set forth expressly in this Agreement.
(b) Notices. All notices required or permitted to be given under the
terms of the Agreement, or which any of the parties desires to give
hereunder, shall be in writing and delivered personally or be sent
by registered mail or certified mail, postage prepaid, return
receipt requested, or by reputable private courier addressed as
follows:
If to the Company: EDO Corporation
60 E. 42nd St.
New York, New York
Attn: Secretary
If to you: Mr. James M. Smith
8 Dexter Court
Hauppauge, NY 11788
15
<PAGE>
Any party may change the address to which notice is to be sent to it
or to him by notice in writing to the other party as provided above.
(c) Governing Law. This Agreement shall be subject to and governed by
the laws of the State of New York without regard to its conflict of
laws provisions.
(d) Severability. If any provision(s) of this Agreement shall be found
invalid or unenforceable, in whole or in part, then such
provision(s) shall be deemed to be modified or restricted to the
extent and in the manner necessary to render the same value and
enforceable, or shall be deemed excised from the Agreement, as the
case may require, and this Agreement shall be construed and enforced
to the maximum extent permitted by law, as if such provision(s) had
been originally incorporated herein as so modified or restricted or
as if such provision(s) had not been originally incorporated herein
as the case may be.
(e) Legal Fees and Expenses. If, following any final adjudication of
any proceding, you shall have prevailed as to at least one material
issue presented in any arbitration or other contest regarding your
rights or obligations under this Agreement or regarding the validity
or enforceability of any provision of this Agreement, the Company
shall pay any legal fees and expenses which you shall have incurred
as a result of such arbitration or contest.
(f) Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original.
16
<PAGE>
EDO CORPORATION
By:_________________________________
Name:
Title:
AIL SYSTEMS INC.
By:_________________________________
Name:
Title:
_________________________________
JAMES M. SMITH
17
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
EDO (Canada) Limited Canada
EDO Foreign Sales Corporation U.S. Virgin
Islands
EDO Sports, Inc. Delaware
EDO Western International Corporation Delaware
EDO International Corporation 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
EDO Acquisition III Corporation Delaware
M. Technologies Inc. Pennsylvania EDO M. Tech
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, 33-28020 and 333-77865 on Form S-8 of EDO Corporation of our
report dated February 15, 2000, relating to the consolidated balance sheets of
EDO Corporation and subsidiaries as of December 31, 1999 and 1998 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, 1999,
which report appears in the December 31, 1999 annual report on Form 10-K of EDO
Corporation.
KPMG LLP
Melville, New York
February 28, 2000
EXHIBIT 24
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints Frank A. Fariello 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,
1999, 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 25th
day of February, 2000.
Robert E. Allen
Robert Alvine
Mellon C. Baird
George M. Ball
Frank A. Fariello
William J. Frost
Marvin D. Genzer
Robert M. Hanisee
Michael J. Hegarty
Ira Kaplan
James M. Smith
George A. Strutz, Jr.
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1999 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS AND THE NOTES THERETO.
</LEGEND>
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<PERIOD-END> DEC-31-1999
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<DEPRECIATION> 27,139
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<SALES> 97,936
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