<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 3, 1999
------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period to
------------- -------------
Commission file number: 0-14275
Edac Technologies Corporation
-----------------------------
(Exact name of registrant as specified in its charter)
Wisconsin 39-1515599
--------- ----------
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) Identification No.)
1806 New Britain Avenue, Farmington, CT 06032
---------------------------------------------
(Address of principal executive offices)
(860) 677-2603
--------------
(Registrant's telephone number, including area code)
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
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
On August 19, 1999 there were outstanding 4,269,080 shares of
the Registrant's Common Stock, $0.0025 par value per share.
<PAGE> 2
PART 1 FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
EDAC TECHNOLOGIES CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
July 3 January 2
1999 1999
(Unaudited) (Note)
----------- -----------
ASSETS
- ------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 87,164 $ 229,480
Trade accounts receivable 5,760,158 6,745,433
Inventories 8,626,742 12,418,181
Prepaid expenses and other 213,113 321,730
Refundable income taxes 463,000 -
Deferred income taxes 1,166,469 1,166,469
------------ ------------
TOTAL CURRENT ASSETS 16,316,646 20,881,293
PROPERTY, PLANT, AND EQUIPMENT 28,383,023 27,882,375
less-accumulated depreciation 9,834,751 8,630,371
------------ ----------
18,548,272 19,192,004
OTHER ASSETS:
Goodwill 11,092,196 11,234,420
Other 1,214,110 1,300,146
------------ ------------
$ 47,171,224 $ 52,607,863
============ ============
</TABLE>
Note: The balance sheet at January 2, 1999 has been derived from the
audited financial statements at that date.
The accompanying notes are an integral part of these financial
statements.
<PAGE> 3
EDAC TECHNOLOGIES CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
July 3 January 2
1999 1999
(Unaudited) (Note)
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
<S> <C> <C>
CURRENT LIABILITIES:
Revolving line of credit $ 5,918,922 $ 7,512,407
Current portion of long-term debt
and long-term debt in default 25,406,751 4,759,750
Trade accounts payable 2,789,686 3,623,598
Employee compensation and
amounts withheld 1,851,984 2,134,176
Accrued expenses 1,184,760 2,215,100
------------ ----------
TOTAL CURRENT LIABILITIES 37,152,103 20,245,031
LONG-TERM DEBT not in default,
less current portion 596,770 21,606,043
OTHER LIABILITIES 6,000 6,000
DEFERRED INCOME TAXES 1,168,000 1,168,000
COMMITMENTS AND CONTINGENT
LIABILITIES (NOTE C)
SHAREHOLDERS' EQUITY:
Common stock, par value $.0025 per
share; 10,000,000 shares authorized;
issued and outstanding--4,269,080
on July 3, 1999 and 4,261,580
on January 2, 1999 10,672 10,654
Additional paid-in-capital 9,043,483 9,033,162
(Accumulated deficit) retained earnings (402,604) 981,062
------------ ------------
8,651,551 10,024,878
Less deferred ESOP compensation
expense - (38,889)
Less accumulated other
comprehensive loss (403,200) (403,200)
------------- -------------
8,248,351 9,582,789
$ 47,171,224 $ 52,607,863
============= ============
</TABLE>
Note: The balance sheet at January 2, 1999 has been derived from the
audited financial statements at that date.
The accompanying notes are an integral part of these financial
statements.
<PAGE> 4
EDAC TECHNOLOGIES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
For the quarter ended Six months ended
--------------------- ----------------
July 3 July 4 July 3 July 4
1999 1998 1999 1998
-------- --------- --------- -------
<S> <C> <C> <C> <C>
Sales $ 14,945,132 $ 10,625,889 $ 30,115,417 $ 23,332,014
Cost of sales 15,135,172 8,254,242 27,911,555 18,650,179
------------ ------------ ------------ ------------
Gross profit (loss) (190,040) 2,371,647 2,203,862 4,681,835
Selling, general and
and administrative
expenses 1,348,218 1,147,081 2,705,094 2,262,442
------------ ------------ ------------ ------------
INCOME (LOSS)
FROM OPERATIONS (1,538,258) 1,224,566 (501,232) 2,419,393
Non-operating income
(expense):
Interest expense (639,482) (277,306) (1,274,874) (504,351)
Other 6,284 18,709 31,440 28,613
------------ ------------ ------------ ------------
(633,198) (258,597) (1,243,434) (475,738)
INCOME (LOSS) BEFORE
INCOME TAXES (2,171,456) 965,969 (1,744,666) 1,943,655
Provision (benefit) for
income taxes (501,800) 309,000 (361,000) 621,000
------------ ------------ ------------ ------------
NET INCOME (LOSS) $ (1,669,656) $ 656,969 $ (1,383,666) $ 1,322,655
============ ============ ============ ============
Basic earnings (loss) per
common share (Note A) $ (0.39) $ 0.16 $ (0.32) $ 0.31
============ ============ ============ ============
Diluted earnings (loss) per
common share (Note A) $ (0.39) $ 0.15 $ (0.32) $ 0.29
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 5
EDAC TECHNOLOGIES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
--------------------
July 3 July 4
1999 1998
--------- ---------
<S> <C> <C>
Operating Activities:
Net income (loss) $ (1,383,666) $ 1,322,655
Depreciation and amortization 1,462,731 644,135
Changes in working capital items 2,276,787 (167,846)
Other (2,965) (19,737)
------------ ------------
Net cash provided by
operating activities 2,352,887 1,779,207
------------ ------------
Investing Activities:
Additions to property, plant
and equipment (561,848) (5,294,257)
Proceeds from sales of property
plant and equipment 2,965 39,605
Acquisition of
Apex Machine Tool Company, Inc. -- (20,511,047)
Other 9,998 433,880
------------ ------------
Net cash used in investing
activities (548,885) (25,331,819)
------------ ------------
Financing Activities:
(Decrease) increase in revolving
line of credit, net (1,593,485) 3,696,228
Issuance of long term debt 457,283 20,955,772
Payments of long term debt (820,455) (1,279,541)
Proceeds from exercise of options
for common stock 10,339 58,654
------------ ------------
Net cash used in
financing activities (1,946,318) (22,116,419)
------------ ------------
Decrease in cash (142,316) (121,499)
Cash at the beginning of year 229,480 137,620
------------ ------------
Cash at end of period $ 87,164 $ 16,121
============ ============
Supplemental Disclosure of
Cash Flow Information:
Interest paid $ 1,495,245 $ 587,925
Income taxes paid $ 570,262 $ 5,700
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 6
EDAC TECHNOLOGIES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JULY 3, 1999
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited consolidated condensed financial statements have been
prepared in accordance with the generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Rule
10-01 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals and adjustments to previously established loss
provisions) considered necessary for a fair presentation have been included.
Operating results for the six month period ending July 3, 1999 are not
necessarily indicative of the results that may be expected for the year ending
January 1, 2000. For further information, refer to the financial statements and
footnotes thereto included in the Company's annual report on Form 10-K for the
year ended January 2, 1999.
On June 29, 1998, the Company consummated its acquisition of certain assets and
liabilities of Apex Machine Tool Company, Inc. (Apex). The unaudited pro forma
consolidated financial information for the quarter and six months ended July 3,
1999 as though the acquisition of Apex had been consummated at the beginning of
the periods are as follows:
<TABLE>
<CAPTION>
Quarter ended Six Months Ended
July 3, July 3,
1998 1998
---- ----
<S> <C> <C>
Sales $16,531,841 $34,430,841
Net income 828,372 1,866,372
Average shares (basic) 4,233,845 4,225,925
Basic income per share $ 0.20 $ 0.44
Average shares diluted 4,529,873 4,511,967
Diluted income per share $ 0.18 $ 0.41
</TABLE>
The unaudited information above includes proforma adjustments related to the
amortization of intangible assets, interest expense, certain operating expenses
and income taxes necessary to present the information had the acquisition been
consummated as of January 1, 1998.
Comprehensive Income (Loss): Comprehensive income (loss) is the same as net
income (loss) for the quarters and six month periods ended July 3, 1999 and July
4, 1998.
<PAGE> 7
Earnings (Loss) Per Share: The number of shares used in the earnings (loss) per
common share computation for the three and six month periods ended July 3, 1999
and July 4, 1998 are as follows:
<TABLE>
<CAPTION>
Quarter ended Six months ended
-------------------------- --------------------------
July 3, July 4, July 3, July 4,
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Basic:
Average common
shares outstanding 4,269,080 4,233,845 4,267,830 4,225,925
Diluted:
Dilutive effect of (a) (a)
stock options 0 296,028 0 286,042
---------- ---------- --------- ---------
Average shares diluted 4,269,080 4,529,873 4,267,830 4,511,967
========== ========== ========= =========
</TABLE>
(a) For the quarter and six months ended July 3, 1999, 479,158 of stock options
were not included above since the effect is dilutive.
NOTE B -- SEGMENT INFORMATION
The following amounts are in thousands:
<TABLE>
<CAPTION>
For the quarter ended July 3, 1999
------------------------------------------------------------------
Engineered Precision Precision Apex
Precision Engineered Large Machine
Components Technologies Machining Tool Co. Total
---------- ------------ --------- -------- -----
<S> <C> <C> <C> <C> <C>
Sales from
external
customers $ 4,626 $ 3,542 $ 2,067 $ 4,710 $ 14,945
Intersegment -- -- -- 56 56
------- ------- ------- ------- --------
Total sales 4,626 3,542 2,067 4,766 15,001
------- ------- ------- ------- --------
Segment
profit (loss) (1,517) 126 (130) (148) (1,669)
</TABLE>
<TABLE>
<CAPTION>
For the six months ended July 3, 1999
------------------------------------------------------------------
Engineered Precision Precision Apex
Precision Engineered Large Machine
Components Technologies Machining Tool Co. Total
---------- ------------ --------- -------- -----
<S> <C> <C> <C> <C> <C>
Sales from
external customers
$ 9,234 $ 6,583 $ 4,620 $ 9,678 $ 30,115
Intersegment -- -- -- 88 88
------- ------- ------- ------- --------
Total sales 9,234 6,583 4,620 9,766 30,203
------- ------- ------- ------- --------
Segment
profit (loss) (1,477) 223 (3) (127) (1,384)
</TABLE>
<PAGE> 8
<TABLE>
<CAPTION>
For the quarter ended July 4, 1998
---------------------------------------------------
Engineered Precision Precision
Precision Engineered Large
Components Technologies Machining Total
---------- ------------ --------- -----
<S> <C> <C> <C> <C>
Sales from
external
customers $4,498 $3,546 $2,582 $10,626
Intersegment -- -- -- --
Segment
profit 80 257 320 657
<CAPTION>
For the six months ended July 4, 1998
---------------------------------------------------
Engineered Precision Precision
Precision Engineered Large
Components Technologies Machining Total
---------- ------------ --------- -----
<S> <C> <C> <C> <C>
Sales from
external
customers $10,311 $7,230 $5,791 $23,332
Intersegment -- -- -- --
Segment
Profit 306 341 676 1,323
</TABLE>
Asset information is unavailable by segment.
NOTE C - SUBSEQUENT EVENT
On August 17, 1999, Edward J. McNerney, the Company's President and Chief
Executive Officer since January 1, 1997, resigned. John J. DiFrancesco, Chairman
of the Company has assumed the position of interim CEO and President while the
Board of Directors conducts a search for a successor. The Company will pay Mr.
McNerney a maximum severance of $710,000. This amount will be payable over three
years, $225,000 each year for the first two years and $260,000 in the third
year. In addition, the Company will provide Mr. McNerney with health insurance
coverage and provide him with as automobile until July 1, 2000.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
SALES: The Company's sales increased $4,319,000 or 40.6% for the three months
and $6,783,000 or 29.1% for the six months ended July 3, 1999 from the
comparable periods of 1998. The sales increases were primarily
<PAGE> 9
due to the acquisition of Apex Machine Tool Company which contributed sales of
$4,710,000 for the three months and $9,678,000 for the six months ended July 3,
1999. This business was acquired on June 29, 1998 and the comparable 1998
quarters include no sales from these operations. These sales increases were
offset by sales increases (decreases) of $128,000, $(4,000) and $(515,000) and
$(1,077,000), $(647,000) and $(1,171,000) in the Engineered Precision
Components, Precision Engineered Technologies and Precision Large Machining
areas for the quarter and six months ended July 3, 1999, respectively. Sales for
1999 in the Engineered Precision Components and Large Machining areas are
expected to be 40% to 60% less than 1998 levels due to the unstable aerospace
market. The Company is in process of hiring a vice president of marketing to
lead in its diversification program designed to diversify its sales both within
and outside of the aerospace industry.
COST OF SALES: Cost of Sales as a percentage of sales increased in the 1999
period to 101.3% from 77.7% and 92.7% from 79.9% for the three and six months
ended July 3, 1999 compared to 1998. Cost of sales as a percentage of sales
increased primarily due to fixed manufacturing costs being spread over lower
sales levels. In addition, rapid and dramatic decline in both the commercial and
military jet engine marketplace has caused severe schedule shifting, delays of
orders, cancellations of orders and smaller production quantities all of which
impacted productivity and gross profit margins in the Engineered Precision
Components and Large Machining areas. Due to this decline in sales and the
downward trend in the aerospace industry, the Company has increased it's
reserves on inventory by $1,200,000. Sales, orders and backlog have been in a
decline for the Company's Engineered Solutions and at Apex Machine Tool Company
for the same general business reasons.
To address these issues, the Company has taken steps to reduce costs. Precision
Engineered Technologies area is in the process of being merged into Apex. This
change will allow the Company to combine the talents of two tooling and design
groups and have them operate as one. This change resulted in a lay off 22
employees in the Gros-ite Precision Technologies area and Apex Machine Tool
Company in August, 1999.
In addition, the Company laid off 33 employees in Precision Engineered Component
and Precision Large Machining. No severance was paid to the employees laid off.
While these lay offs were necessary, they do not prohibit the company's ability
to develop new business opportunities and produce a competitively priced,
quality product in a timely manner.
SELLING GENERAL AND ADMINISTRATIVE: Selling, general and administrative costs
increased by $201,000 or 17.5% and $443,000 or 19.6% for the three and six
months ended July 3, 1999 compared to 1998. This is due to an additional
$459,000 and $911,000 for the three and six months ended July 3, 1999,
attributable to the acquisition of Apex offset by reductions in compensation and
professional expenses.
INTEREST: Interest expense increased by $362,000 and $771,000 for the three and
six months ended July 3, 1999 compared to 1998. This was due to additional debt
incurred for the Apex acquisition.
LIQUIDITY AND CAPITAL RESOURCES: On July 3, 1999, the Company's current
liabilities exceeded current assets by $20,835,457. This is due primarily to the
reclassification of $20,835,457 to current liabilities from long-term
liabilities as a result of the breach of the financial covenants and due to
inventory reserves. Working capital (the difference between the Company's
current assets and current liabilities) was $(20,835,457) on July 3, 1999
representing a decrease of $21,471,719 from $636,262 of working capital the
Company had on January 2, 1999. The decrease in working capital was primarily
due to the reclassification of $19,928,778 of bank debt from a long term
liability to a short term liability, as a result of the Company's breach of the
financial covenants in its loan agreement with its bank as described below, an
increase of an inventory reserve of $1,200,000
<PAGE> 10
The Company is currently in default of its financial covenants in its loan
agreement with its bank. The Company had aggregate borrowings with the bank at
July 3, 1999 of $28,344,172. Because the bank has a right of immediate repayment
of the Company's indebtedness as a result of these covenant breaches,
$19,928,778 was reclassified from long-term debt to current liabilities. The
bank has orally informed the Company that, at present, the Bank is not
requesting repayment of the indebtedness. Rather, the bank has indicated that it
intends to monitor the Company's performance on a monthly basis. As long as the
bank does not require immediate repayment of the indebtedness, management
believes that funds generated from operations and its credit facilities will be
sufficient to meet the Company's cash requirements for 1999.
The Company has been advised by its independent public accountants that, if the
effects of the bank covenant violations have not been satisfactorily resolved
prior to the completion of their audit of the Company's consolidated financial
statements for the year ending January 1, 2000, their auditors' report on those
consolidated financial statements will include an explanatory paragraph
indicating the existence of substantial doubt as to the Company's ability to
continue as a going concern subject to the ultimate resolution of the repayment
requirements under the Company's bank debt. If the bank ultimately requires
repayment of the indebtedness, the Company will need to find alternative
financing and there can be no assurance that alternative financing would be
available on terms acceptable to the Company, if at all.
Other Matters
The "Year 2000" ("Y2K") issue affects computer and information technology ("IT")
systems, as well as non-IT systems which include embedded technology such as
micro-processors and micro-controllers (or micro-chips) that have date sensitive
programs that do not properly recognize the year 2000. Systems that do not
properly recognize such information could generate inaccurate data or cause a
system to fail, resulting in a business interruption.
The Company has completed a comprehensive inventory and assessment of its
existing IT and non-IT systems and those of the Company's suppliers. This
assessment included obtaining written assurances from key vendors and suppliers
if possible. Costs incurred to date have been minimal.
The Company believes, based on preliminary information, that the costs
associated with remediation and verification to become Y2K compliant will not
exceed $150,000.
Although the Company has taken steps to address the Y2K problem, there can be no
assurance that the failure of the Company and /or its material third parties to
timely attain Y2K compliance or that the failures and/or impacts of broader
compliance failures by telephone, mail, data transfer or other utility or
general service providers of government or private entities will not have a
material adverse effect on the Company.
All statements other than historical statements contained in this report on Form
10-Q constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Without limitation, these forward
looking statements include statements regarding the Company's business strategy
and plans, statements about the adequacy of the Company's working capital and
other financial resources, statements about the Company's Year 2000 compliance
and other statements herein that are not of a historical nature. These
forward-looking statements rely on a number of assumptions concerning future
events and are subject to a number of uncertainties and other factors, many of
which are outside of the Company's control, that could cause actual results to
differ materially from such statements. These include, but are not limited to
the Company's ability to restructure its loan agreement with its senior lender
so as to eliminate the current default or, if the senior lender ultimately
requires the Company to repay the indebtedness, the Company's ability to obtain
alternative senior financing on reasonable terms; factors which could affect
demand for the Company's products and services such as general economic
conditions and economic conditions in the aerospace industry and the other
industries in which the Company competes; competition from the Company's
competitors; the
<PAGE> 11
integration of the Company's Apex operations; the ability of the Company's
customers and suppliers to adequately address their Year 2000 issues; and the
Company's continued ability to attract and retain qualified employees. The
Company disclaims any intention or obligation to update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.
<PAGE> 12
PART II -- OTHER INFORMATION
ITEM 3. The Company is currently in default of the financial covenants within
its loan agreement with its bank. The loan agreement with the bank gives the
bank the right to require repayment of the indebtedness due to these defaults.
The aggregate amount outstanding on the revolver and term loans with the
Company's bank at July 3, 1999 is $28,344,172 of which $19,928,778 was
reclassified from long-term debt to current liabilities due to these covenant
defaults. The bank has orally informed the Company they will not call the notes,
although they have the right to, and will monitor the Company's performance on a
monthly basis. As long as the bank does not require immediate repayment of the
indebtedness, management believes that funds generated from operations and its
credit facilities will be sufficient to meet the Company's cash requirements for
1999.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 18, 1999 the Company held its annual meeting of shareholders. The
following directors were elected at the meeting.
<TABLE>
<CAPTION>
Votes Cast
Votes Against or
Director Cast For Withheld
-------- -------- --------
<S> <C> <C>
James Biondi 3,383,547 712,175
John J. DiFrancesco 3,889,492 206,230
William J. Gallagher 4,054,356 41,366
Robert J. Gilchrist 4,059,097 36,625
Edward J. McNerney 3,865,454 230,268
Lee Morris 4,057,449 38,273
Arnold J. Sargis 4,058,767 36,955
Stephen G.W. Walk 4,059,867 35,855
</TABLE>
At the same meeting the appointment of Arthur Andersen LLP as auditors for the
Company for the fiscal year ending January 1, 2000 was ratified with a vote of
4,050,538 for and 33,964 against or withheld.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Edac's Amended and Restated Articles of Incorporation
3.2 Edac's By-laws
10 Employment contract between Edac and Ronald G. Popolizio
27 Financial Data Schedule
(b) Reports on Form 8-K
None
<PAGE> 13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EDAC TECHNOLOGIES CORPORATION
August 23, 1999 By /s/ Ronald G. Popolizio
-----------------------------------------
Ronald G. Popolizio, Chief Financial
Officer and duly authorized officer
<PAGE> 14
EXHIBIT INDEX
PAGE NUMBERING
IN SEQUENTIAL
NUMBER DESCRIPTION NUMBERING SYSTEM
- ------ ----------- ----------------
3.1 Edac's Amended and Restated Articles of (1)
Incorporation
3.2 Edac By-laws (2)
10 Employment contract between Edac and
Ronald G. Popolizio
27 Financial Data Schedule
(1) Exhibit incorporated by reference to the Company's registration
statement on Form S-1 dated August 6, 1985, commission file No.
2-99491, Amendment No. 1.
(2) Exhibit incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended December 31, 1995.
<PAGE> 1
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is dated as of June 23rd, 1999, by and
between EDAC TECHNOLOGIES CORPORATION, a Wisconsin corporation ("Edac"), and
RONALD G. POPOLIZIO ("Mr. Popolizio").
RECITAL
Edac desires to employ Mr. Popolizio and Mr. Popolizio is willing to make
his services available to Edac on the terms and conditions set forth below.
AGREEMENTS
In consideration of the premises and the mutual agreements which follow,
the parties agree as follows:
1. Employment. Edac hereby employs Mr. Popolizio and Mr. Popolizio hereby
accepts employment with Edac on the terms and conditions set forth in this
Agreement.
2. Term. The initial term of Mr. Popolizio's employment hereunder shall
commence on the date hereof and continue for a period of [three] years, subject
to earlier termination as set forth in this Agreement. The term of Mr.
Popolizio's employment will automatically be extended one year on each
anniversary of the date of this Agreement unless either party notifies the other
to the contrary at least 90 days prior to any such anniversary. The term of
employment is referred to in this Agreement as the "Employment Term."
3. Duties. Mr. Popolizio shall serve as the Executive Vice President and
Chief Financial Officer of Edac and will, under the direction of the Board of
Directors (the "Board"), faithfully and to the best of his ability, perform the
duties of such positions as determined by the Chief Executive Officer and the
Board from time to time. Mr. Popolizio shall perform those duties normally
associated with the offices of Executive Vice President and Chief Financial
Officer. Mr. Popolizio shall also perform such additional duties and
responsibilities which may from time to time be reasonably assigned or delegated
by the Chief Executive Officer or the Board. Mr. Popolizio agrees to devote his
entire business time, effort, skill and attention to the proper discharge of
such duties while employed by Edac.
<PAGE> 2
4. Compensation.
(a) Base Salary. Mr. Popolizio shall receive a base salary of
$150,000 per year, payable in regular and equal installments in accordance with
Edac's payroll practices as in effect from time to time (the "Base Salary"). Mr.
Popolizio's Base Salary shall be reviewed annually by the Compensation Committee
of the Board (the "Compensation Committee") to determine appropriate increases,
if any, in the Base Salary, but the Base Salary shall not be reduced below the
amount stated above without Mr. Popolizio's written consent.
(b) Bonus. For each of Edac's fiscal years during the Employment
Term, Mr. Popolizio shall be eligible to receive a cash bonus (the "Cash
Bonus"). The amount of the Cash Bonus for each fiscal year shall be determined
by the Compensation Committee by evaluating Mr. Popolizio's achievements in
meeting the mutually agreed upon objectives during the fiscal year. The Cash
Bonus shall be paid to Mr. Popolizio, subject to appropriate tax withholding, as
soon as practicable after the close of the fiscal year but, in any event, no
later than March 15.
(c) Stock Options. The Board strongly endorses the concept that it is
in the best interests of Edac and its shareholders to have executives whose
financial interests are closely-aligned with those of Edac's shareholders. An
effective method of achieving this objective is to reward selected executives
with stock options based on their contributions in meeting long-term (two to
five years) and short-term objectives which improve shareholder value. The
objectives and options to be awarded Mr. Popolizio shall be established by the
Compensation Committee and management.
5. Fringe Benefits. During the Employment Term, Mr. Popolizio shall
receive all normal benefits available to every Edac employee, plus the following
fringe benefits:
(a) Vacation. Mr. Popolizio shall be entitled to three weeks of paid
vacation annually.
(b) Automobile. Edac shall provide Mr. Popolizio with the use of a
Company-owned or leased automobile. In addition, Edac shall pay, or reimburse
Mr. Popolizio for his payment of, the ordinary and reasonable expenses incurred
in the normal operation of such automobile.
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<PAGE> 3
(c) Reimbursement for Reasonable Business Expenses. Edac shall pay or
reimburse Mr. Popolizio for reasonable expenses incurred by him in connection
with the performance of his duties pursuant to this Agreement, including, but
not limited to, travel expenses, expenses in connection with trade shows,
seminars, professional conventions or similar professional functions and other
reasonable business expenses.
6. Termination of Employment.
(a) Termination for Death, Disability or Cause. Mr. Popolizio's
employment hereunder shall automatically terminate upon his death. In addition,
Edac shall be entitled to terminate Mr. Popolizio's employment at any time upon
his "Disability." For purposes of this Agreement, "Disability" shall mean a
physical or mental sickness or injury which renders Mr. Popolizio incapable of
performing the services required of him as an employee of Edac and which does or
may be expected to continue for more than three months during any twelve-month
period. Edac and Mr. Popolizio shall determine the existence of a Disability and
the date upon which it occurred. In the event of a dispute regarding whether or
when a Disability occurred, the matter shall be referred to a medical doctor
selected by Edac and Mr. Popolizio. If they fail to agree upon such a medical
doctor, Edac and Mr. Popolizio shall each select a medical doctor and the two
doctors so selected shall together select a third medical doctor who shall make
the determination. The determination by the selected medical doctor shall be
conclusive and binding upon the parties hereto.
If it becomes apparent that the Disability renders Mr. Popolizio
unable to discharge his responsibilities and is supported by medical evidence
that his return cannot be determined, Edac may, in its discretion, terminate or
modify this Agreement once it is established that Mr. Popolizio will not return
to full-time status.
Edac may also terminate Mr. Popolizio's employment under this
agreement for "Cause," effective immediately upon delivery of notice to Mr.
Popolizio. "Cause" shall mean:
(i) the willful and continued failure of Mr. Popolizio to
perform substantially Mr. Popolizio's duties with Edac or its affiliates (other
than any such failure resulting from incapacity due to physical or mental
illness), after a written demand for substantial performance is delivered to Mr.
Popolizio by the Board which specifically identifies the manner in which the
Board believes that Mr. Popolizio has not substantially performed his duties and
3
<PAGE> 4
after Mr. Popolizio is given a reasonable period of time to rectify or eliminate
such failure;
(ii) the willful engaging by Mr. Popolizio in illegal conduct or
gross misconduct which is materially and demonstrably injurious to Edac; or
(iii) the commission by Mr. Popolizio of fraud or dishonesty with
respect to Edac or a material misrepresentation by Mr. Popolizio to Edac's
shareholders or directors.
Notwithstanding anything herein to the contrary, no act or failure to act, on
the part of Mr. Popolizio, shall be considered "willful" unless it is done, or
omitted to be done, by Mr. Popolizio in bad faith or without reasonable belief
that Mr. Popolizio's action or omission was in the best interests of Edac. Any
act, or failure to act, based upon authority given pursuant to a resolution duly
adopted by the Board or upon the instructions of a more senior officer of Edac
or based upon the advice of counsel for Edac shall be conclusively presumed to
be done, or omitted to be done, by Mr. Popolizio in good faith and in the best
interests of Edac. The cessation of employment of Mr. Popolizio shall not be
deemed to be for Cause unless and until there shall have been delivered to Mr.
Popolizio a copy of a resolution duly adopted by the Board at a meeting of the
Board called and held for such purpose (after reasonable notice is provided to
Mr. Popolizio and Mr. Popolizio is given an opportunity, together with counsel,
to be heard before the Board), finding that, in the good faith opinion of the
Board, Mr. Popolizio is guilty of the conduct described in subparagraph (i),
(ii) or (iii) above, and specifying the particulars thereof in detail.
If Mr. Popolizio's employment terminates due to his Disability or
death, or Mr. Popolizio voluntarily terminates his employment or is terminated
by Edac for Cause, Mr. Popolizio shall be entitled to receive his Base Salary
and vested fringe benefits prorated to the date of termination. In addition, in
the event of a termination due to Mr. Popolizio's death or Disability, Mr.
Popolizio shall also receive a prorated Cash Bonus for the year of termination.
The amount of the prorated Cash Bonus shall be determined by the Compensation
Committee and paid as soon as possible after such determination.
(b) Termination Without Cause. Notwithstanding anything in this
Agreement to the contrary, if Mr. Popolizio's employment is terminated by Edac
for any reason other than for Cause, Disability or death, or if this Agreement
is terminated by Edac for what Edac believes is Cause or Disability, and it is
ultimately determined that Mr. Popolizio was wrongfully
4
<PAGE> 5
terminated, Mr. Popolizio shall, as full and liquidated damages for such
termination, receive a severance payment equal to 24 months of Base Salary plus
two times the average of the three highest annual bonus payments Mr. Popolizio
received during the five fiscal years prior to the termination or, if he was
employed less than five fiscal years at the time of termination, the average of
the annual bonuses paid to Mr. Popolizio during his employment.
7. Noncompetition. The parties agree that Edac's supplier, customer,
vendor and employee contacts and relations are established and maintained at
great expense and, by virtue of Mr. Popolizio's employment with Edac, Mr.
Popolizio will have unique and extensive exposure to and personal contact with
Edac's suppliers, customers, vendors and employees and that he will be able to
establish a unique relationship with those individuals and entities that will
enable him, both during and after employment, to unfairly compete with Edac.
Further, the parties agree that the terms and conditions of the following
restrictive covenants are reasonable and necessary for the protection of Edac's
business, trade secrets and confidential information and to prevent great damage
or loss to Edac as a result of action taken by Mr. Popolizio. Mr. Popolizio
acknowledges that the noncompete restrictions and nondisclosure of confidential
information restrictions contained in this Agreement are reasonable and the
consideration provided for herein is sufficient to fully and adequately
compensate Mr. Popolizio for agreeing to such restrictions. Mr. Popolizio
acknowledges that he could continue to actively pursue his career and earn
sufficient compensation in the same or similar business without breaching any of
the restrictions contained in this Agreement. For purposes of this section 7 and
section 8 below, "Edac" shall refer to each of Edac Technologies Corporation and
each of its subsidiaries.
(a) During Term of Employment. Mr. Popolizio covenants and agrees
that, during his employment with Edac, he shall not, directly or indirectly,
either individually or as an employee, principal, agent, partner, shareholder,
owner, trustee, beneficiary, co-venturer, distributor, consultant or in any
other capacity, participate in, become associated with, provide assistance to,
engage in or have a financial or other interest in any business, activity or
enterprise which is competitive with Edac or any successor or assign of Edac.
The ownership of less than a one percent interest in a corporation whose shares
are traded in a recognized stock exchange or traded in the over-the-counter
market, even though that corporation may be a competitor of Edac, shall not be
deemed financial participation in a competitor.
(b) Upon Termination of Employment. Mr. Popolizio agrees that for a
two-year period after Mr. Popolizio's employment with Edac terminates for any
reason, he will not, directly or indirectly, either individually or
5
<PAGE> 6
as an employee, agent, partner, shareholder, owner, trustee, beneficiary,
co-venturer, distributor, consultant or in any other capacity:
(i) Request or advise any of the customers, vendors, suppliers,
or other business contacts of Edac who currently have or have had business
relationships with Edac within two years preceding the date of such action, to
withdraw, curtail or cancel any of their business or relations with Edac.
(ii) Induce or attempt to induce any employee, sales
representative, supplier, consultant or personnel of Edac to terminate his or
her relationship or breach his or her agreements with Edac.
(iii) Participate in, become associated with, provide assistance
to, engage in or have a financial or other interest in any business, activity or
enterprise which is competitive with the business of Edac or any successor or
assign of Edac and which conducts such competitive business within the United
States; provided, however, that the ownership of less than 1% of the stock of a
corporation whose shares are traded in a recognized stock exchange or traded in
the over-the-counter market, even though that corporation may be a competitor of
Edac, shall not be deemed financial participation in a competitor.
8. Confidential Information. The parties agree that Edac's customers,
business connections, customer lists, procedures, operations, techniques,
customer profiles and other aspects of its business are established at great
expense and protected as confidential information and provide Edac with a
substantial competitive advantage in conducting its business. The parties
further agree that, by virtue of Mr. Popolizio's employment with Edac, he will
have access to, and be entrusted with, secret, confidential and proprietary
information, and that Edac would suffer great loss and injury if Mr. Popolizio
would disclose this information or use it to compete with Edac. Therefore, Mr.
Popolizio agrees that during the term of his employment, and for a period ending
on the earlier of (a) two years after the termination of his employment with
Edac or (b) the date on which the information referred to in this section
becomes publicly known through no fault of Mr. Popolizio, he will not, directly
or indirectly, either individually or as an employee, agent, partner,
shareholder, owner, trustee, beneficiary, co-venturer, distributor, consultant
or in any other capacity, use or disclose, or cause to be used or disclosed, any
secret, confidential or proprietary information acquired by Mr. Popolizio during
his employment with Edac whether owned by Edac prior to or discovered and
developed by Edac subsequent to Mr. Popolizio's employment, and regardless of
the fact that Mr. Popolizio may have participated in the discovery and the
development of that information.
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<PAGE> 7
9. Law of Torts and Trade Secrets. The parties agree that nothing in this
Agreement shall be construed to limit or negate the statutory or common law of
torts or trade secrets where it provides Edac with broader protection than that
provided herein.
10. Waiver. The failure of either party to insist, in any one or more
instances, upon performance of the terms or conditions of this Agreement shall
not be construed as a waiver or a relinquishment of any right granted hereunder
or of the future performance of any such term, covenant or condition.
11. Notices. Any notice to be given hereunder shall be deemed sufficient
if addressed in writing, and delivered by registered or certified mail or
delivered personally, in the case of Edac, to its principal business office, and
in the case of Mr. Popolizio, to his address appearing on the records of Edac,
or to such other address as he may designate in writing to Edac.
12. Severability. If any provision of this Agreement is held to be invalid
or unenforceable for any reason whatsoever, it is agreed such invalidity or
unenforceability shall not affect any other provision of this Agreement and the
remaining covenants, restrictions and provisions hereof shall remain in full
force and effect and any court of competent jurisdiction may so modify the
objectionable provision as to make it valid, reasonable and enforceable.
Furthermore, the parties specifically acknowledge that the provisions of
sections 7(a), 7(b)(i), 7(b)(ii) and 7(b)(iii) are each separate and independent
agreements.
13. Amendment. This Agreement may only be amended by an agreement in
writing signed by all of the parties hereto.
14. Benefit. This Agreement shall be binding upon and inure to the benefit
of and shall be enforceable by and against Edac, its successors and assigns and
Mr. Popolizio, his heirs, beneficiaries and legal representatives. It is agreed
that the rights and obligations of Mr. Popolizio may not be delegated or
assigned.
15. Entire Agreement. Except for the Change of Control Agreement between
Mr. Popolizio and Edac, if any, the provisions of which will control in the
event of a conflict with the provisions of this Agreement, this Agreement
constitutes the entire agreement between the parties hereto with respect to the
subject matter hereof and supersedes all prior agreements and understandings
among the parties with respect to such subject matter.
7
<PAGE> 8
The parties have executed or caused this Agreement to be executed as of the
day, month and year first above written.
EDAC TECHNOLOGIES CORPORATION
BY /s/ Robert Gilchrist
-------------------------------------------------
Its Chairman Compensation Committee
Edac Board
/s/ Ronald G. Popolizio
-------------------------------------------------
Ronald G. Popolizio
8
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