-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, H8FJAtVML64nHcUfmve8XWHsMuFNL+XhiJ/GwKGOWWKgl8LchUGHD04pFU4ofXZo Ra2lQbYrRMP0Fhte4ujcUA== 0000031617-97-000003.txt : 19970327 0000031617-97-000003.hdr.sgml : 19970327 ACCESSION NUMBER: 0000031617-97-000003 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970321 DATE AS OF CHANGE: 19970326 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: EDO CORP CENTRAL INDEX KEY: 0000031617 STANDARD INDUSTRIAL CLASSIFICATION: 3812 IRS NUMBER: 110707740 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-03985 FILM NUMBER: 97560970 BUSINESS ADDRESS: STREET 1: 14 04 111TH ST CITY: COLLEGE POINT STATE: NY ZIP: 113561434 BUSINESS PHONE: 7183214000 MAIL ADDRESS: STREET 1: 14 04 111TH ST CITY: COLLEGE POINT STATE: NY ZIP: 11356-1434 10-K405 1 ANNUAL REPORT ON FORM 10-K - - ------------------------------------------------------------------------------- FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended Commission File Number December 31, 1996 1-3985 EDO CORPORATION Exact name of Registrant as specified in its charter. State of Incorporation: IRS Employer Identification No.: New York 11-0707740 Address of principal executive offices: 14-04 111th Street, College Point, New York 11356-1434 Telephone No.: (718) 321-4000 Securities registered pursuant to Section 12(b) of the Act: Title of each class: Name of each exchange on which registered: Common Shares New York Stock Exchange par value $1 per share Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] State the aggregate market value of the voting stock held by non-affiliates of the Registrant as of March 4, 1997................................. $42,863,715 Indicate the number of shares outstanding of each of the Registrant's classes of common stock as of March 4, 1997 ................................. 6,146,766 Documents Incorporated by Reference Portions of the Definitive Proxy Statement of the Registrant, dated March 21, 1997, are incorporated by reference into Part III. - - ------------------------------------------------------------------------------- Table of Contents PART I.......................................................................1 ITEM 1. BUSINESS.............................................................1 DEFENSE AND SPACE SYSTEMS....................................................1 Marine and Aircraft Systems..................................................1 Aircraft Stores Suspension and Release Equipment.............................1 Airborne Mine Countermeasures Systems........................................1 Combat Systems...............................................................2 Command and Control Systems..................................................2 Antisubmarine Warfare Sonar..................................................2 Electro-Optics Systems.......................................................2 INDUSTRIAL PRODUCTS..........................................................2 Acoustic Products............................................................2 Ceramics.....................................................................3 Fiber Science................................................................3 DISCONTINUED OPERATIONS......................................................3 RESEARCH AND DEVELOPMENT.....................................................3 MARKETING AND INTERNATIONAL SALES............................................4 BACKLOG......................................................................4 GOVERNMENT CONTRACTS.........................................................4 COMPETITION AND OTHER FACTORS................................................5 EMPLOYEES....................................................................5 EXECUTIVE OFFICERS OF THE REGISTRANT.........................................5 ITEM 2. PROPERTIES...........................................................6 ITEM 3. LEGAL PROCEEDINGS....................................................6 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..................6 PART II......................................................................6 ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS...............................6 ITEM 6. SELECTED FINANCIAL DATA .............................................6 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS..................................6 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA..........................6 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE..................................6 PART III.....................................................................6 ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT..................6 ITEM 11. EXECUTIVE COMPENSATION..............................................6 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT....................................7 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS......................7 PART IV......................................................................7 ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.............................................7 SIGNATURES...................................................................9 SELECTED FINANCIAL DATA.....................................................10 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS............................11 BUSINESS ENVIRONMENT........................................................11 RESULTS OF OPERATIONS - 1996 COMPARED TO 1995...............................11 FINANCIAL CONDITION.........................................................12 RESULTS OF OPERATIONS - 1995 COMPARED TO 1994...............................12 COMMON SHARE PRICES.........................................................13 DIVIDENDS...................................................................13 "SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995................................13 CONSOLIDATED STATEMENTS OF OPERATIONS.......................................14 CONSOLIDATED BALANCE SHEETS.................................................15 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY.............................16 CONSOLIDATED STATEMENTS OF CASH FLOWS.......................................17 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS..................................18 INDEPENDENT AUDITORS' REPORT................................................27 QUARTERLY FINANCIAL INFORMATION (UNAUDITED).................................28 PART I ITEM 1. BUSINESS The term "Registrant" as used in this Annual Report refers to EDO Corporation. The term "Company" as used in this Annual Report, except where the context otherwise requires, includes the Registrant and its subsidiaries. EDO Corporation was incorporated in New York in 1925 by Earl Dodge Osborn, from whose initials "EDO" is derived. The Company is principally a supplier of proprietary advanced electro-optical, electronic, mechanical, acoustic and composite products to major prime defense contractors and commercial original equipment manufacturers. The Company also serves the domestic and international defense markets as a prime contractor for military systems. The Company organizes its business into two segments, which constitute its continuing operations: Defense and Space Systems; and Industrial Products. A description of the principal products of the Company within the two industry segments is set forth below. In 1996, the Company sold its general aviation floats business and announced the discontinuance of its energy-related businesses. Further information about the discontinuance of the energy-related businesses is provided in "Discontinued Operations" on page 3 and in Note 3 on page 20 of this Report. During 1993 and 1994, the Company adopted and implemented a restructuring plan. Information about this restructuring is contained in Note 2 on page 19 of this Report. Certain business segment information on the Company's continuing operations is set forth in Note 18 on page 26 of this Report. The following discussion relates to the Company's continuing operations. DEFENSE AND SPACE SYSTEMS The Company's Defense and Space Systems operations, which accounted for 68%, 66% and 70% of consolidated net sales for 1996, 1995 and 1994, respectively, are conducted by three separate business units. These business units are: Marine and Aircraft Systems located in College Point, New York; Combat Systems located in Chesapeake, Virginia; and Electro-Optics located in Shelton, Connecticut. In 1994, all sonar related business was transferred from the Marine and Aircraft Systems unit to the Combat Systems unit. As a result, the Marine and Aircraft Systems unit in New York is now dedicated to mechanical and structural products and the military electronics/software design business is conducted at Combat Systems. Marine and Aircraft Systems The Marine and Aircraft business unit designs, develops and manufactures sophisticated mechanical, electromechanical, structural, hydrodynamic and aerodynamic systems for military use. Additionally, the business unit provides logistics support for its products following initial hardware deliveries including spare and repair parts, upgrade modifications, training and technical services. The revenue from these support functions is a significant portion of sales. The major products of the Marine and Aircraft Systems business unit are aircraft stores suspension and release equipment and airborne mine countermeasures systems. This business unit also designs and manufactures speed measuring equipment for municipal rapid transit trains. Aircraft Stores Suspension and Release Equipment The Company developed and manufactured bomb release units (BRU) for the U.S. Air Force F-15E, ejection release units (ERU) for the Tornado Multirole Combat Aircraft and jettison release mechanisms (JRM) for the U.S. Navy F-14 aircraft. In 1996, the Company continued production of BRUs for the F-15E under prior orders received and new orders received in 1996, and provided spare parts support for Tornado ERUs previously produced. In addition, the Company continued the development of the Advanced Medium Range Air To Air Missile (AMRAAM) launcher for the F-22 air superiority fighter. Funded development for this missile launcher, which employs new internal carriage technology, is expected to continue throughout 1997. In 1996, the Company received a subcontract from Boeing for development of new weapons carriage technology for application to existing and future aircraft. This effort is expected to continue throughout 1997. For 1996, 1995 and 1994, respectively, sales of aircraft stores suspension and release equipment represented 19%, 19%, and 21% of consolidated net sales. Airborne Mine Countermeasures Systems The Company is the only manufacturer of the MK 105 helicopter towed magnetic minesweeping system designed and developed by the Company in conjunction with the U.S. Navy. In 1994, the Company completed development of a funded upgrade to the MK 105. The upgraded system was delivered to the U.S. Navy for testing and evaluation. These tests were completed in the first half of 1995. The first Page 1 production contract for this upgrade was received at the end of 1995. An additional production contract was received in 1996. Production under this contract is expected to continue throughout 1997. In 1994, the Company began work on a new U.S. Navy funded contract to develop a lightweight, self contained, helicopter towed magnetic sweep for shallow water applications. This system underwent U.S. Navy testing and evaluation in 1996. In addition, the Company continued to provide logistic support for MK 105 systems previously provided to both the U.S. Navy and an international customer. For 1996, 1995 and 1994, respectively, sales of airborne mine countermeasures systems represented 7%, 5% and 13% of consolidated net sales. Combat Systems The Combat Systems business unit designs, develops and produces combat systems equipment including command, control and communications systems, and antisubmarine warfare (ASW) systems. In addition, the business unit provides logistics support including spare and repair parts, training and technical services for its products. Command and Control Systems Command, control and communications systems include digital tactical data links for domestic and international military customers. In 1996, this business unit delivered an integrated command and control system for the U.S. Air Force. Work on the Ship Shore Ship Buffer (SSSB) program, awarded in 1995, continued in 1996. In 1996, new orders were received from another international customer for additional SSSB systems and additional data links. Antisubmarine Warfare Sonar The Company has been a supplier of ASW systems for more than forty years. In 1994, this business was transferred from the New York business unit to the business unit in Virginia. In 1996, development and testing continued for a new passive/active sonar system variation of the AN/SQR-18A(V) for the U.S. Navy. An additional contract for this program was received in 1996 and work is scheduled to continue throughout 1997. Logistics, maintenance and training support was provided for EDO sonar systems installed in the now decommissioned U.S. Navy FF-1052-class ships which are in service with several international navies through the foreign military sales program. In 1996, a significant contract was received from an international customer for a major upgrade to a previously provided EDO sonar system. Work under this contract is expected to continue for five years. For 1996, 1995 and 1994, respectively, sales of sonar systems represented 3%, 10% and 11% of consolidated net sales. Electro-Optics Systems The Electro-Optics business unit designs, develops and manufactures electro-optical products and systems for satellites. The primary products are infrared earth sensors, which are used to provide satellites with information relative to stabilization and orbit position. In 1996, Electro-Optics continued to provide earth sensor assemblies for Hughes communication satellites, the U.S. Air Force Global Positioning Satellite System, and Orbital Science's ORBCOM digital data transmission system, and began delivering earth sensor assemblies for the Motorola/Lockheed Iridium(TM) communication satellite constellation. In addition, work continued on the sensors for the Loral/DASA Globalstar(TM) communication satellite with deliveries scheduled for 1997. New orders were received for additional sensors for Hughes geosynchronous satellites and for the new INMARSAT constellation and for ORBCOM. For 1996, 1995 and 1994, respectively, sales of spaceflight systems represented 24%, 14% and 9% of consolidated net sales. INDUSTRIAL PRODUCTS In 1994, the business units that are primarily related to non-military markets were reorganized into the Industrial Products business segment. In late 1996, the Company announced the discontinuance of its participation in the energy-related market, and its intention to dispose of its interest in EDO (Canada) Ltd., EDO Automotive Natural Gas, Inc. (EDO ANGI) and EDO Energy Corporation. EDO Sports, a business unit dedicated to the production of composite sporting products, was discontinued in late 1994. The Industrial Products operations now include the Acoustic Products, Ceramics and Fiber Science business units. The Acoustic Products business unit, located in Salt Lake City, supplies the Industrial Products business units with support services as required. The Industrial Products operations accounted for 32%, 34% and 30% of consolidated net sales for 1996, 1995 and 1994, respectively. Acoustic Products The Acoustic Products business unit concentrates on industrial/commercial applications of acoustic technology. Standard product lines are focused on the precision measurement of velocity of objects in water or fluid streams. The Company has invested in recent years in this technology. Most undersea vehicles, both military and commercial, now carry the Company's velocity measurement instruments. Page 2 The Company has entered production of a new instrument product line, a precision current profiler, which will be used by the environmental sciences industry to map ocean and river currents. It was developed in a joint program with a major European company. Military transducer design and production also continue at the Acoustic Products business unit. This business unit provides all of the Company's commercial transducers as well. The Acoustic Products unit is developing products for the active vibration control marketplace. This initiative is intended to apply the Company's expertise in piezoceramic materials and transducers to reduce vibration emanating from industrial machinery. The Company has been working on a partially government funded program for vibration reduction in precision machine tools, specifically cylindrical grinders. In addition, the Company is delivering products it designed and manufactured to reduce vibration in the manufacturing process for semiconductors. Ceramics The Ceramics business unit, located in Salt Lake City, is one of North America's largest manufacturers of piezoceramic components. Piezoceramic elements convert acoustic energy to electrical energy and form the basis of many industrial and commercial products ranging from military sonars to ink jet printers. The Company has automated and improved this unit's production processes and is focusing its efforts on industrial markets in addition to maintaining its position as a leading supplier of ceramics for military applications. For 1996, 1995 and 1994, respectively, sales of piezoceramics represented 11%, 10% and 8% of consolidated net sales. Fiber Science In 1994, the Company decided to focus its Fiber Science business unit on the development and production of its traditional composite water and waste tanks for the commercial aviation market. This concentrated technical and marketing effort yielded long-term production contracts from Boeing and Airbus. While concentration on water and waste tanks is the primary mission of Fiber Science, the Company continues to pursue programs in other commercial markets. Fiber Science is now supplying composite pressure vessels for use as air start reservoirs on large trucks, through a program with Ingersoll-Rand. Composite pressure vessels are also being developed and tested for use in railroad car braking systems. DISCONTINUED OPERATIONS The Company's former energy-related businesses consisted of the following: its wholly-owned subsidiary EDO Energy Corporation, which provides program management activities for compressed natural gas vehicles (CNGVs) and other alternative fuel projects; its wholly-owned subsidiary EDO Automotive Natural Gas, Inc., which designs and manufactures CNGV refueling stations and related equipment; and a 50.4% interest in EDO (Canada) Ltd., which designs and manufactures LiteRider_ fuel cylinders. The products of these businesses are generally sold through independent distributors and dealers to end users, and by employees of these businesses to original equipment manufacturers. Due to the current and projected growth rates and financial returns of the energy-related businesses failing to meet the Company's strategic criteria, the Company decided in September 1996 to divest itself from these businesses. Accordingly, the Company recorded a provision for loss of $7,000,000, consisting of $2,000,000 in operating losses for the phase out period, and $5,000,000 for reduction of asset values and provisions for estimated future disposal costs. These businesses continue to operate while the Company seeks investors interested in their long-term development. The Company believes that adequate provision for the ultimate loss on disposal of these businesses has been made in the Company's financial statements, which provision is described in Note 3 on page 20 of this Report. RESEARCH AND DEVELOPMENT Research and development, performed both under development contracts with customers and at Company expense, are important factors in the Company's business. The Company's research and development efforts involve approximately 72 employees in the fields of acoustic, electronic, hydrodynamic, aerodynamic, structural and material engineering. Research and development programs are designed to develop technology for new products or to extend the capability of existing products and to assess their commercial potential. Customer-sponsored research and development programs are principally related to military programs in the Defense and Space Systems segment. Major customer-sponsored research and development programs include: continued development of improvements to the AN/SQR-18A(V) TACTAS system; improvements to the MK 105 mine countermeasures system; development of a new shallow-water mine countermeasures system; development of new aircraft weapons carriage Page 3 technology; developments in combat systems integration; development of new and improved stores launchers; and development of new earth and sun sensors for satellites. Expenditures under development contracts with customers vary in amount from year to year because of the timing of contract funding. In 1995, expenditures for customer-sponsored research and development declined 28% from1994, primarily as a result of less available funding, consistent with the general decline in military spending. In 1996, expenditures rose 34% over 1995 due primarily to increased funding in all business areas. Company-sponsored research and development has contributed to a number of advances in sonar systems, transducers, stores release systems, mine countermeasures systems, digital data links, filament-wound structures, and composite pressure vessels. Principal current research and development involves: image and signal processing and other improvements for combat systems, improvements to minesweeping technology, continued development of satellite-based sensors, the application of its acoustic and ceramic technologies to vibration control, and development of composite pressure vessels for the truck and train markets. The following table sets forth research and development expenditures for the periods presented. ====================================================== Year Ended December 31, 1996 1995 1994 (in thousands) ------------------------------------------------------ Customer-sponsored $ 17,800 $ 13,300 $ 18,400 Company-sponsored 1,000 1,000 2,500 ------------------------------------------------------ Total $ 18,800 $ 14,300 $ 20,900 ====================================================== MARKETING AND INTERNATIONAL SALES Military sales of the Company's products to both the U.S. and foreign governments are usually made under negotiated long-term contracts or subcontracts covering one or more years of production. The Company believes that its long history of association with its military customers is an important factor in the Company's overall business, and that the experience gained through this history has enhanced the Company's ability to anticipate its customers' needs. The Company's approach to its military business is to anticipate specific customer needs and to develop systems to meet those needs either at its own expense or pursuant to research and development contracts. The Company sells products in its Defense and Space Systems segment as a prime contractor and through subcontracts with other prime contractors. In addition to military sales to the U.S. Department of Defense, the Company also sells Defense and Space Systems segment equipment to the U.S. Government for resale to foreign governments under the Foreign Military Sales program and, subject to approval by the U.S. Department of State, directly to foreign governments. Products within the Industrial Products segment are sold in industrial and commercial markets. In foreign markets, piezoelectric and electronic products are generally sold commercially through a network of sales representatives. Fiber-reinforced composite products are sold, in certain product areas, on a direct basis and, in other product areas, through sales representatives. It is the Company's policy to denominate all foreign contracts in U.S. dollars and generally to incur no significant costs in connection with long-term foreign contracts until the Company has received advance payments or letters of credit on amounts due under the contracts. BACKLOG A significant portion of the Company's sales are made directly or indirectly through prime contractors to the U.S. armed services and foreign governments pursuant to long-term contracts. Accordingly, the Company's backlog of unfilled orders consists in large part of orders under these government contracts. As of December 31, 1996, the Company's total backlog was approximately $103.0 million, as compared with $85.6 million on December 31, 1995. Of the total backlog as of December 31, 1996, approximately 63% was scheduled for delivery in 1997. Total backlog as of December 31, 1996, divided between the Company's two industry segments, was Defense and Space Systems, $86.9 million, and Industrial Products, $16.1 million, as compared, respectively, with $64.1 million and $21.5 million as of December 31, 1995. GOVERNMENT CONTRACTS Sales to the U.S. Government, as a prime contractor and through subcontracts with other prime contractors, accounted for 36% of the Company's 1996 consolidated net sales compared with 43% in 1995 and 59% in 1994, and consisted primarily of sales to the Department of Defense. Such sales do not include sales of military equipment to the U.S. Government for resale to foreign governments under the Foreign Military Sales program. The Company's military business can be and has been significantly affected by changes in national defense policy and spending. The Company's U.S. Government contracts and subcontracts and certain foreign government contracts contain the Page 4 usual required provisions permitting termination at any time for the convenience of the government with payment for work completed and committed along with associated profit at the time of termination. The Company's contracts with the Department of Defense consist of fixed price contracts, cost-reimbursable contracts and incentive contracts of both types. Fixed-price contracts provide fixed compensation for specified work. Cost-reimbursable contracts require the Company to perform specified work in return for reimbursement of costs (to the extent allowable under government regulations) and a specified fee. In general, while the risk of loss is greater under fixed-price contracts than under cost-reimbursable contracts, the potential for profit under such contracts is greater than under cost-reimbursable contracts. Under both fixed-price incentive contracts and cost-reimbursable incentive contracts, an incentive adjustment is made in the Company's fee based on attainment of scheduling, cost, quality or other goals. The distribution of the Company's government contracts among the categories of contracts referred to above varies from time to time, although in recent years only a small percentage of the Company's contracts have been on a cost-reimbursable or incentive basis. COMPETITION AND OTHER FACTORS Some of the Company's products are sold in markets containing a number of competitors substantially larger than the Company and with greater financial resources. Direct sales of military products to U.S. and foreign governments are based principally on product performance and reliability. Such products are generally sold in competition with products of other manufacturers that may fulfill an equivalent function, but which are not direct substitutes. The Company purchases certain materials and components used in its systems and equipment from independent suppliers. These materials and components are normally not purchased under long-term contracts unless the Company has actually received a long-term sales contract requiring them. The Company believes that most of the items it purchases are obtainable from a variety of suppliers and it normally obtains alternative sources for major items, although the Company is sometimes dependent on a single supplier or a few suppliers for some items. It is difficult to state precisely the Company's market position in all of its market segments because information as to the volume of sales of similar products by its competitors is not generally available and the relevant markets are often not precisely defined. However, the Company believes that it is a significant factor in the markets for stores release mechanisms for military aircraft, military sonar systems, military data links, helicopter-towed mine countermeasures systems, piezoelectric ceramics, and satellite attitude and position sensors. Although the Company owns some patents and has filed applications for additional patents, it does not believe that its businesses depend significantly upon its patents. In addition, most of the Company's U.S. Government contracts license it to use patents owned by others. Similar provisions in the U.S. Government contracts awarded to other companies make it impossible for the Company to prevent the use by other companies of its patents in most domestic defense work. EMPLOYEES As of December 31, 1996, the Company employed 718 persons. EXECUTIVE OFFICERS OF THE REGISTRANT =============================================================================== Name Age Position, Term of Office and Prior Positions - - ------------------------------------------------------------------------------- Frank A. Fariello 62 Chairman of the Board since 1997, Chief Executive Officer since 1994, President since 1993 and Director since 1982. William J. Frost 55 Vice President-Administration since 1994, prior to which he was Assistant to the Vice President- Administration since 1989. Marvin D. Genzer 56 Vice President since 1990, General Counsel since 1988, and Secretary since 1995. Ira Kaplan 61 Executive Vice President and Chief Operating Officer since 1997, prior to which he was corporate Vice President since 1995. From 1989 to 1995, he was Vice President/General Manager of the Government Systems Division. J. Douglas Moore 51 Vice President-Special Assignments since 1997, prior to which he was corporate Vice President since 1995. From 1989 to 1995, he was Vice President/General Manager of the Acoustics Division. Kenneth A. Paladino 39 Vice President-Finance and Treasurer since 1995, prior to which he was Controller since 1989. =============================================================================== Each executive officer is appointed by the Board of Directors (the "Board"), and holds office until the first meeting of the Board following the next succeeding annual meeting of shareholders, and thereafter until a successor is appointed and qualified, unless the executive officer dies, is disqualified, resigns or is removed in accordance with the Company's By-Laws. Page 5 ITEM 2. PROPERTIES All operating properties are leased facilities. The College Point corporate headquarters and manufacturing facility had been owned until early 1996 when it was sold. The Company's facilities are adequate for present purposes. Except for College Point, all facilities in the following listing are suitable for expansion by using available but unused space, leasing additional available space, or by physical expansion of leased buildings. The Company's obligations under the various leases are set forth in Note 16 on page 26 of this Report. Set forth below is a listing of the Company's principal plants and other materially important physical properties. ========================================================= Approximate Floor Area Location (in sq. ft.) --------------------------------------------------------- Defense and Space Systems: Marine and Aircraft 97,000 College Point, NY Combat Systems 30,000 Chesapeake, VA Electro-Optics 72,000 Shelton, CT Industrial Products: Acoustic Products and Ceramics 117,000 Salt Lake City, UT Fiber Science 105,000 Salt Lake City, UT ========================================================= ITEM 3. LEGAL PROCEEDINGS The information responsive to this item is set forth under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 11 through 13, and in Note 17 on page 26 of this Report. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The information responsive to this item is set forth under the headings "Common Share Prices" and "Dividends" on page 13, together with dividend information contained in the "Consolidated Statements of Shareholders' Equity" on page 16, Note 9 on page 21 and Note 10 on page 22 of this Report. ITEM 6. SELECTED FINANCIAL DATA The information responsive to this item is set forth under the heading "Selected Financial Data" on page 10 of this Report. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information responsive to this item is set forth under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 11 through 13 of this Report. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The consolidated financial statements of the Company, together with the Independent Auditors' Report thereon of KPMG Peat Marwick LLP and the unaudited "Quarterly Financial Information" are set forth on pages 14 through 28 of this Report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information regarding directors is set forth under the headings "Election of Directors" and "The Board of Directors and Its Committees" on pages 1 through 3 of the Company's Proxy Statement dated March 21, 1997, which is incorporated by reference. Information regarding executive officers is set forth in Part I of this Report under "Executive Officers of the Registrant." ITEM 11. EXECUTIVE COMPENSATION Information regarding compensation of the Company's executive officers is set forth under the heading "Compensation of Executive Officers" on pages 5 through 9 of the Company's Proxy Statement dated March 21, 1997, which is incorporated by reference, except for such information required by Item 402(k) and (l) of Regulation S-K, which shall not be deemed to be filed as part of this Report. Page 6 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information regarding security ownership of certain beneficial owners and management is set forth under the headings "Securities Ownership of Directors and Executive Officers" on page 4 and "Principal Shareholders" on page 12 of the Company's Proxy Statement dated March 21, 1997, which is incorporated by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information responsive to this item is set forth under the headings "The Board of Directors and Its Committees" on page 3 and "Compensation Committee Interlocks and Insider Participation" on page 8 of the Company's Proxy Statement dated March 21, 1997, which is incorporated by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) Financial Statements and Financial Statement Schedules and Exhibits 1. Financial Statements. The consolidated financial statements as of December 31, 1996 and 1995 and for the years ended December 31, 1996, 1995 and 1994, together with the report thereon of KPMG Peat Marwick LLP, independent auditors, dated February 13, 1997, appear on pages 14 through 27 of this Report. 2. Financial Statement Schedules. Schedules have been omitted either because they are not applicable or the required information is shown in the consolidated financial statements or notes thereto. 3. Exhibits. Exhibits which are noted with an asterisk (*) are management contracts or compensatory plans or arrangements. 3(i) Certificate of Incorporation of the Company and amendments thereto dated June 14, 1984, July 18, 1988 and July 22, 1988. Incorporated by reference to Exhibit 3(i) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994. 3(ii) By-Laws of the Company. 4(a) Indenture dated December 1, 1986 between Chemical Bank as successor in interest to Manufacturers Hanover Trust Company, as Trustee, and EDO Corporation. Incorporated by reference to Exhibit 4(b) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1992. 4(b) Guarantee Agreement, dated as of July 22, 1988, as amended, made by the Company in favor of Fleet Bank as successor in interest to NatWest Bank NA and Manufacturers Hanover Trust Company. Incorporated by reference to Exhibit 4(c) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1992. 4(c) Term Loan Agreement, dated as of July 22, 1988, as amended, between The Bank of New York, as trustee of the trust established under the EDO Corporation Employee Stock Ownership Plan, and Fleet Bank as successor in interest to NatWest Bank NA and Manufacturers Hanover Trust Company. Incorporated by reference to Exhibit 4(d) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1992. 4(d) Term Note, dated July 22, 1988, as amended, between The Bank of New York, as trustee of the trust established under the EDO Corporation Employee Stock Ownership Plan, and Fleet Bank as successor in interest to NatWest Bank NA and Manufacturers Hanover Trust Company. Incorporated by reference to Exhibit 4(e) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1992. 4(e) Pledge and Security Agreement, dated as of July 22, 1988, as amended, between The Bank of New York, as trustee of the trust established under the EDO Corporation Employee Stock Ownership Plan, and Fleet Bank as successor in interest to NatWest Bank NA and Manufacturers Hanover Trust Company. Incorporated by reference to Exhibit 4(f) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1992. 4(f) Amendment No. 6 to the Guarantee Agreement referred to in Exhibit 4(b) above, effective March 27, 1993. Incorporated by reference to Exhibit 4(i) to the Company's Quarterly Report on Form 10-Q for the quarter ended June 26, 1993. 4(g) Amendment No. 7 to the Guarantee Agreement referred to in Exhibit 4(b) above, effective March 3, 1994. Incorporated by reference to Exhibit 4(h) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993. Page 7 4(h) Amendment No. 8 to the Guarantee Agreement referred to in Exhibit 4(b) above, effective February 10, 1995. Incorporated by reference to Exhibit 4(h) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994. 4(i) Amendment No. 9 to the Guarantee Agreement referred to in Exhibit 4(b) above, effective June 30, 1995. Incorporated by reference to Exhibit 4(i) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995. 4(j) Amendment No. 10 to the Guarantee Agreement referred to in Exhibit 4(b) above, effective June 30, 1996. 10(a)* EDO Corporation 1996 Long-Term Incentive Plan. 10(b)* EDO Corporation Executive Termination Agreements, as amended through November 24, 1989, between the Company and two employees. Incorporated by reference to Exhibit 10(f) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994. 10(c)* Executive Life Insurance Plan Agreements, as amended through January 23, 1990, between the Company and 30 employees and retirees. Incorporated by reference to Exhibit 10(g) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994. 10(d)* Form of Directors' and Officers' Indemnification Agreements between EDO Corporation and 14 current Company directors and officers. 10(e) Consent Decree, entered on November 25, 1992, amongst the United States, EDO Corporation, Plessey, Inc., Vernitron Corporation and Pitney Bowes, Inc. Incorporated by reference to Exhibit 10(j) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1992. 21 List of Subsidiaries. 23 Consent of Independent Auditors to the incorporation by reference in the Company's Registration Statements on Form S-8 of their report included in Item 14(a)1 of this Annual Report on Form 10-K. 24 Powers of Attorney used in connection with the execution of this Annual Report on Form 10-K. 27 Financial Data Schedule. (b) Reports on Form 8-K No reports on Form 8-K were required to be filed during the three months ended December 31, 1996. Page 8 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. EDO CORPORATION (Registrant) Dated: March 21, 1997 By: Kenneth A. Paladino ----------------------------- Vice President-Finance Pursuant to the requirements of Instruction D to Form 10-K under the Securities Exchange Act of 1934, this Report has been signed below on March 21, 1997 by the following persons on behalf of the Registrant and in the capacities indicated. Signature Title Kenneth A. Paladino Vice President-Finance and Treasurer __ Frank A. Fariello Chairman of the Board, | President, Chief Executive | Officer and Director | William J. Frost Vice President- | Administration | Marvin D. Genzer Vice President, General | Counsel and Secretary |- By: Kenneth A. Paladino Ira Kaplan Executive Vice President and | --------------------- Chief Operating Officer | Attorney-in-Fact J. Douglas Moore Vice President- | Special Assignments | Robert E. Allen Director | Robert Alvine Director | Mellon C. Baird Director | George M. Ball Director | Joseph F. Engelberger Director | Robert M. Hanisee Director | Michael J. Hegarty Director | George A. Strutz, Jr. Director __| Page 9 SELECTED FINANCIAL DATA EDO CORPORATION AND SUBSIDIARIES (NOT COVERED BY INDEPENDENT AUDITORS' REPORT) =============================================================================== 1996 1995 1994 1993 1992 (in thousands, except per share amounts) - - ------------------------------------------------------------------------------- Summary of Operations Net sales: Defense and Space Systems $ 64,110 52,055 56,568 69,182 81,432 Industrial Products 30,476 26,877 24,688 30,925 32,807 - - ------------------------------------------------------------------------------- $ 94,586 78,932 81,256 100,107 114,239 =============================================================================== Operating earnings (loss): Defense and Space Systems $ 14,060a 5,779 (6,546)b (1,179)b 11,811 Industrial Products 3,926 3,392 (9,853)c 2,346 2,499 General corporate expense (4,086) (3,806) (4,711) (4,146) (4,281) - - ------------------------------------------------------------------------------- 13,900 5,365 (21,110) (2,979) 10,029 Net interest expense (766) (1,199) (2,160) (2,337) (2,627) Other income (expense), net (66) (41) 335 (1,355) (443) - - ------------------------------------------------------------------------------- Earnings (loss) before Federal income taxes and cumulative effect of accounting change 13,068 4,125 (22,935) (6,671) 6,959 Provision (benefit) for Federal income taxes - - (3,800) (4,901) 1,684 - - ------------------------------------------------------------------------------- Earnings (loss) from continuing operations before cumulative effect of accounting change 13,068 4,125 (19,135) (1,770) 5,275 =============================================================================== Earnings (loss) from: Continuing operations 13,068 4,125 (19,135) (11,170)d 5,275 Discontinued operations (8,637) (1,465) (3,421) (5,178) 402 =============================================================================== Net earnings (loss) 4,431 2,660 (22,556) (16,348) 5,677 Dividends on preferred shares 1,179 1,239 1,333 1,406 1,455 - - ------------------------------------------------------------------------------- Net earnings (loss) available for common shares $ 3,252 1,421 (23,889) (17,754) 4,222 =============================================================================== Per Common Share Data Primary net earnings (loss) Continuing operations $ 1.95 0.50 (3.69) (2.32) 0.71 Discontinued operations $ (1.42) (0.25) (0.61) (0.96) 0.07 - - ------------------------------------------------------------------------------- Total $ 0.53 0.25 (4.30) (3.28) 0.78 Fully diluted net earnings (loss) $ 0.45 0.20 (4.30) (3.28) 0.69 Average number of shares outstanding- primary 6,086 5,768 5,551 5,415 5,389 Cash dividends per common share $ - - 0.14 0.28 0.28 Other Information Working capital $ 37,382 33,582 31,374 40,001 45,741 Depreciation and amortization of fixed assets $ 3,471 4,568 5,677 5,974 5,852 Plant and equipment expenditures, net $ 4,227 1,800 1,731 4,287 4,873 Total assets $ 94,223 95,526 94,747 115,414 127,281 Long-term debt $ 29,317 29,317 29,317 29,317 30,544 ESOT loan obligation $ 11,676 12,887 14,007 15,045 16,005 Shareholders' equity $ 19,823 14,997 11,610 35,035 52,797 Backlog of unfilled orders $ 102,981 85,558 70,682 86,468 92,084 =============================================================================== a Includes a $7,120 curtailment gain for the discontinuance of postretirement health care benefits for Medicare-eligible retirees. b Includes restructuring charges of $1,127 and $9,800 in 1994 and 1993, respectively, relating to the discontinuance, relocation and downsizing of certain operations. c Includes a $5,400 write off of a previously established receivable in anticipation of the recovery of remediation costs related to a Superfund site. d Includes the cumulative effect of a change in accounting for postretirement health benefits, as required by the adoption of SFAS No. 106, of $9,400, net of taxes, or $1.74 per share on primary net earnings. Page 10 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS BUSINESS ENVIRONMENT In 1996, the Company's financial condition continued to improve as evidenced by increased working capital, shareholders' equity, net sales, earnings and backlog over the prior year results. These increases reflect the effects of the emphasis being placed on the Company's core businesses where there has been a general improvement in the markets for the Company's products. In 1996, the Company announced its decision to exit its energy-related businesses that are involved in the natural gas vehicle markets. These businesses continue to operate while the Company seeks potential buyers. The financial statements have been reclassified to exclude the operating results of the energy-related businesses from the continuing operations and account for them as discontinued operations (see Note 3 to the Consolidated Financial Statements). The following discussion relates only to the Company's continuing operations in its two business segments: Defense and Space Systems; and Industrial Products. RESULTS OF OPERATIONS - 1996 COMPARED TO 1995 Net sales for 1996 were $94.6 million, a 20% increase when compared with sales of $78.9 million in 1995. Sales in the Defense and Space Systems segment increased 23% to $64.1 million primarily due to an increase in satellite system sales which in 1995, were negatively impacted by technical difficulties on a fixed-price development program that was completed and is now in production. Reductions in sonar system sales also partially offset the increased segment sales. Sales in the Industrial Products segment increased by 13% to $30.5 million where increases in piezo-ceramic and fiber composite product sales were partially offset by lower sales of acoustic products. Total operating earnings, excluding the effect of a $7.1 million non-cash curtailment gain from the discontinuance of medical benefits for Medicare eligible retirees (see Note 15 to the Consolidated Financial Statements), improved 26% to $6.8 million in 1996, as compared to $5.4 million in 1995. The increase results primarily from the higher sales levels as well as a modest improvement in margins and increases in pension and postretirement benefit income, partially offset by higher costs incurred during the completion of the development portion of fixed-price development programs for new satellite products. Operating earnings of the Defense and Space Systems segment, before general corporate expense allocations, were $6.9 million (excluding the $7.1 million gain mentioned above), an increase of 20% as compared to operating earnings of $5.8 million in 1995. Operating earnings in the Industrial Products segment, before general corporate expense allocations, were $3.9 million, a 16% increase when compared to operating earnings of $3.4 million in 1995. The improvement in earnings in both segments primarily results from the higher sales levels. Selling, general and administrative expenses increased to $15.6 million from $14.2 million in 1995 principally as a result of increased sales and marketing expenses. Company funded research and development expenditures were approximately $1.0 million for each year while customer funded research and development increased $4.5 million to $17.8 million in 1996. Customer funded research and development, which occurs primarily in the Defense and Space Systems segment, is included in cost of sales and represents the engineering development portion of programs where new products are being developed or technologies are being advanced. Interest expense, net of interest income, decreased 33% to $0.8 million from $1.2 million in 1995, primarily due to increased interest income on higher average balances of interest-earning assets. Interest expense primarily represents the interest paid on the 7% Convertible Subordinated Debentures Due 2011. In 1996, the Company did not have a provision for Federal income taxes due to the utilization of tax loss carryforwards and tax benefits associated with the preferred stock dividends. Net earnings in 1996 were $3.3 million as compared to net earnings in 1995 of $1.4 million. Net earnings in 1996 included a $7.0 million loss from discontinuance of the Company's energy-related businesses (see Note 3 to the Consolidated Financial Statements) and, as mentioned above, a $7.1 million curtailment gain. Primary net earnings per share were $0.53 as compared to net earnings of $0.25 in 1995. Primary earnings per share calculations are based on a weighted average of 6.1 million and 5.8 million common and equivalent shares outstanding in 1996 and 1995, respectively. Page 11 FINANCIAL CONDITION The Company's cash and cash equivalents decreased $2.2 million in 1996 to $20.7 million at December 31, 1996. The reduction results from net cash flow from continuing operations of approximately $2.6 million and $2.0 million of proceeds from the sale of the Company's College Point facility, offset by $4.2 million of purchases of capital equipment, a $1.2 million payment of preferred share dividends and $1.8 million of cash used by discontinued operations. Accounts receivable increased to $32.5 million from $23.6 million in 1995 primarily as a result of an increase in unbilled receivables. The increase in unbilled receivables resulted principally from the recognition of revenues under the percentage of completion method, on certain satellite system programs, as costs are incurred and where billings are made at shipment. Substantially all of the unbilled balances at December 31, 1996 are expected to be billed and collected during 1997. In January of 1996, the Company completed the sale of its College Point facility. Proceeds of the sale were comprised of cash of approximately $2.0 million, notes of $4.6 million and other consideration, including prepaid rent for the portion of the facility currently utilized by the Company. The notes receivable are due in varying annual amounts through 2004, bear interest at an effective rate of approximately 7% and are secured by a mortgage on the related facility. The Company has outstanding $29.3 million of 7% Convertible Subordinated Debentures Due 2011. Commencing in 1996 and until their retirement, the Company is making annual sinking fund payments of $1.8 million. As of December 31, 1996, the Company had $3.9 million of these debentures remaining in treasury to be used for these annual requirements. The Company also has an ESOT loan obligation with a balance at December 31, 1996 of $11.7 million with an interest rate of 82% of the prime lending rate. The ESOT obligation agreement can be canceled or refinanced by the Company or the lender on April 1, 2000. The repayment of this obligation is funded principally through dividends on the Company's preferred shares. The Company maintains a $15.0 million secured line of credit with a bank for short-term borrowing and letters of credit. The agreement expires on June 30, 1997 and limits the cash portion of potential borrowings to $5.0 million. There have been no direct borrowings under this agreement. The Company is incurring costs in connection with the remediation of a Superfund site (see Note 17 to the Consolidated Financial Statements). The Company has expensed all of the costs it has incurred, as well as a discounted estimate of all future costs related to this matter. The liability for these future costs as of December 31, 1996 is approximately $4.1 million of which $1.2 million is classified as a current obligation. Approximately 40% of the $4.1 million liability will be expended over the next two years. During 1996, the Company recognized a non-cash curtailment gain of $7.1 million in connection with the discontinuance of postretirement medical benefits for Medicare-eligible retirees. This gain represents the reversal of a significant portion of the postretirement obligation established upon the adoption of Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" in 1993. The Company believes that it has adequate liquidity and sufficient capital to fund its current operating plans. Backlog increased from $85.6 million at December 31, 1995 to $103.0 million at December 31, 1996. The increase was primarily due to awards received in the Defense and Space Systems segment. RESULTS OF OPERATIONS - 1995 COMPARED TO 1994 Sales for 1995 were $78.9 million, a 3% decrease when compared with sales of $81.3 million in 1994. Sales in the Defense and Space Systems segment decreased 8% to $52.1 million, due primarily to delays in expected awards in some military programs offset in part by increases in satellite system product sales. Sales in the Industrial Products segment increased by 9% to $26.9 million where increases were recorded in each of the business units. A profit from operations of $5.4 million was recorded in 1995 as compared to a loss of $21.1 million in 1994. Included in 1994 results were charges, net of a pension curtailment gain of $1.4 million, that amounted to approximately $17.4 million. Exclusive of the effects of these net charges, the Company in general experienced improvements in all of its operations. In addition, significant losses previously incurred on certain fixed-price development contracts, which included one for the development of a new earth sensor, did not recur in 1995. The results of operations of the Defense and Space Systems segment were a profit, before general corporate expense allocations, of $5.8 million as compared to a loss of $2.4 million (excluding net charges mentioned above) in 1994. The improvement in earnings, exclusive of the net charges, resulted primarily from an improvement in the Electro-Optics business unit, higher margins in the segment in general and inclusion of a pension curtailment gain of $0.6 million. Page 12 The Industrial Products segment recorded a profit, before general corporate expense allocations, of $3.4 million as compared to a profit of $3.5 million (excluding net charges of $13.3 million mentioned above) in 1994. Selling, general and administrative expenses decreased to $14.2 million from $14.9 million, (excluding a $3.6 million reserve on a foreign receivable) in 1994 principally as a result of the effects of cost reduction efforts. Company sponsored research and development expenditures decreased 60% to $1.0 million. Reductions occurred in both segments, primarily as a result of a more selective approach to, and customer sponsoring of, important Company development programs. Customer-sponsored research and development included in cost of sales, which occurs primarily in the Defense and Space Systems segment, declined $5.1 million to $13.3 million consistent with the general decline in available government development programs. Interest expense, net of interest income, decreased 43% to $1.2 million from $2.1 million in 1994 primarily due to increased interest income on higher average balances of interest earning assets. Interest expense primarily represented the interest paid on the 7% Convertible Subordinated Debentures Due 2011. In 1995, the Company did not have a provision for Federal income taxes due to the realization of benefits related to certain deductible temporary differences and preferred stock dividends. The net earnings in 1995 of $1.4 million compared to a net loss in 1994 of $23.9 million. The primary net earnings per share were $0.25 as compared to a net loss of $4.30 in 1994. Primary earnings per share calculations were based on a weighted average of 5.8 million and 5.6 million shares outstanding in 1995 and 1994, respectively. The Company's 1995 year end backlog was $85.6 million compared to $70.7 million in 1994. The increase occurred principally in the Defense and Space Systems segment. COMMON SHARE PRICES EDO common shares are traded on the New York Stock Exchange. As of February 5, 1997, there were 2,607 shareholders of record (brokers and nominees counted as one each). The price range in 1996 and 1995 was as follows: =================================================== 1996 1995 High Low High Low --------------------------------------------------- 1st Quarter 5-7/8 4-5/8 3-7/8 3 2nd Quarter 10-7/8 5 3-1/2 3 3rd Quarter 8-5/8 5-7/8 5-7/8 3 4th Quarter 9-1/4 6-1/2 6 4-3/8 =================================================== DIVIDENDS In the third quarter of 1994, the Board of Directors suspended cash dividends on the Company's common shares due to the financial circumstances at that time. In January of 1997, the Company announced that the Board of Directors had approved the payment of a quarterly cash dividend of $0.025 per common share payable on March 31, 1997 to shareholders of record at the close of business on March 4, 1997. The Company's ESOT guarantee agreement presently limits the payment of cash dividends. See Note 10 of the Consolidated Financial Statements. "SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 The statements in this Annual Report on Form 10-K and in the message from the Chairman of the Board, President and Chief Executive Officer contained in the Annual Report to Shareholders for 1996 relating to plans, strategies, economic performance and trends and other statements that are not descriptions of historical facts may be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27(a) of the Securities Act of 1933 and Section 21(e) of the Securities Exchange Act of 1934. Forward-looking statements are inherently subject to risks and uncertainties, and actual results could differ materially from those currently anticipated due to a number of factors, which include, but are not limited to the following for each of the types of information noted. U.S. and international military program sales, follow-on procurement, contract continuance, and future program awards, upgrades and spares support are subject to: U.S. and international military budget constraints and determinations; U.S. congressional and international legislative body discretion; U.S. and international government administration policies and priorities; changing world military threats, strategies and missions; competition from foreign manufacturers of platforms and equipment; NATO country determinations regarding participation in common programs; changes in U.S. and international government procurement timing, strategies and practices; and the general state of world military readiness and deployment. Achievement of margins on sales, earnings and cash flow can be affected by unanticipated technical problems, government termination of contracts for convenience, decline in expected levels of revenues and underestimation of anticipated costs on specific programs. The Company has no obligation to update any forward-looking statements. Page 13 CONSOLIDATED STATEMENTS OF OPERATIONS EDO CORPORATION AND SUBSIDIARIES =============================================================================== Years Ended December 31 1996 1995 1994 (in thousands, except per share amounts) - - ------------------------------------------------------------------------------- Continuing Operations: Income Net sales $ 94,586 $ 78,932 $ 81,256 Other 388 450 623 - - ------------------------------------------------------------------------------- 94,974 79,382 81,879 - - ------------------------------------------------------------------------------- Costs and Expenses Cost of sales 71,561 58,849 75,471 Selling, general and administrative 15,631 14,177 18,486 Research and development 1,002 991 2,505 Postretirement health care curtailment gain (7,120) - - Write off of environmental receivable - - 5,400 Restructuring charge - - 1,127 - - ------------------------------------------------------------------------------- 81,074 74,017 102,989 - - ------------------------------------------------------------------------------- Operating Earnings (Loss) 13,900 5,365 (21,110) Non-operating Income (Expense) - - ------------------------------------------------------------------------------- Interest income 1,427 1,097 256 Interest expense (2,193) (2,296) (2,416) Other, net (66) (41) 335 - - ------------------------------------------------------------------------------- (832) (1,240) (1,825) - - ------------------------------------------------------------------------------- Earnings (loss) before Federal income taxes 13,068 4,125 (22,935) Federal income tax benefit - - (3,800) - - ------------------------------------------------------------------------------- Earnings (Loss) from Continuing Operations 13,068 4,125 (19,135) Discontinued Operations: Loss from operations of discontinued energy business (1,637) (1,465) (3,421) Loss from discontinuance, including provision of $2,000 for operating losses during phase out period (7,000) - - - - ------------------------------------------------------------------------------- Loss from Discontinued Operations (8,637) (1,465) (3,421) - - ------------------------------------------------------------------------------- Net Earnings (Loss) 4,431 2,660 (22,556) Dividends on preferred shares 1,179 1,239 1,333 - - ------------------------------------------------------------------------------- Net Earnings (Loss) Available for Common Shares $ 3,252 $ 1,421 $(23,889) =============================================================================== Earnings (Loss) Per Common Share: Primary: Continuing operations $ 1.95 $ 0.50 $ (3.69) Discontinued operations (1.42) (0.25) (0.61) - - ------------------------------------------------------------------------------- Net Earnings (Loss) $ 0.53 $ 0.25 $ (4.30) =============================================================================== Fully diluted: Continuing operations $ 1.66 $ 0.41 $ (3.69) Discontinued operations (1.21) (0.21) (0.61) - - ------------------------------------------------------------------------------- Net Earnings (Loss) $ 0.45 $ 0.20 $ (4.30) =============================================================================== See accompanying Notes to Consolidated Financial Statements. Page 14 CONSOLIDATED BALANCE SHEETS EDO CORPORATION AND SUBSIDIARIES =============================================================================== December 31 1996 1995 (in thousands, except share amounts) - - ------------------------------------------------------------------------------- Assets Current assets: Cash and cash equivalents $ 20,745 $ 22,918 Accounts receivable 32,518 23,605 Inventories 7,994 8,087 Prepayments 2,678 1,180 - - ------------------------------------------------------------------------------- Total current assets 63,935 55,790 - - ------------------------------------------------------------------------------- Property, plant and equipment, net 12,968 12,212 Notes receivable 3,900 - Cost in excess of fair value of net assets acquired, net 7,159 7,526 Other assets 6,261 5,957 Assets held for sale, net - 8,700 Net assets of discontinued operations - 5,341 - - ------------------------------------------------------------------------------- $ 94,223 $ 95,526 =============================================================================== Liabilities and Shareholders' Equity Current liabilities: Accounts payable and accrued liabilities $ 21,517 $ 16,566 Contract advances and deposits 4,809 5,642 Net liabilities of discontinued operations 227 - - - ------------------------------------------------------------------------------- Total current liabilities 26,553 22,208 - - ------------------------------------------------------------------------------- Long-term debt 29,317 29,317 ESOT loan obligation 11,676 12,887 Postretirement obligation 3,995 12,348 Environmental obligation 2,859 3,769 Shareholders' Equity: 8% convertible preferred shares, par value $1 per share (liquidation preference $213.71 per share), authorized 500,000 shares (67,832 issued in 1996 and 71,001 in 1995) 68 71 Common shares, par value $1 per share, authorized 25,000,000 shares (8,453,902 issued in both years) 8,454 8,454 Additional paid-in capital 35,438 37,847 Retained earnings 22,368 19,116 - - ------------------------------------------------------------------------------- 66,328 65,488 Less: Treasury shares at cost (2,409,136 shares in 1996 and 2,645,863 shares in 1995) (34,240) (37,604) ESOT loan obligation (11,676) (12,887) Deferral under Long-Term Incentive Plan (589) - - - ------------------------------------------------------------------------------- Total shareholders' equity 19,823 14,997 - - ------------------------------------------------------------------------------- $ 94,223 $ 95,526 =============================================================================== See accompanying Notes to Consolidated Financial Statements. Page 15 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY EDO CORPORATION AND SUBSIDIARIES =============================================================================== 1996 1995 1994 (in thousands) Amount Shares Amount Shares Amount Shares - - ------------------------------------------------------------------------------- Preferred shares Balance at beginning of year $ 71 71 $ 75 75 $ 80 80 Par value of shares converted (3) (3) (4) (4) (5) (5) - - ------------------------------------------------------------------------------- Balance at end of year 68 68 71 71 75 75 - - ------------------------------------------------------------------------------- Common shares - - ------------------------------------------------------------------------------- Par value of shares issued 8,454 8,454 8,454 8,454 8,454 8,454 - - ------------------------------------------------------------------------------- Additional paid-in capital Balance at beginning of year 37,847 39,330 41,784 Exercise of stock options (227) - (5) Shares used for payment of directors' fees (57) (137) - Effect of sale of subsidiary's (EDO (Canada) Ltd.) capital stock - 795 - Shares used for Long-Term Incentive Plans (1,146) - 6 Conversion of preferred shares to common shares (979) (2,141) (2,455) - - ------------------------------------------------------------------------------- Balance at end of year 35,438 37,847 39,330 - - ------------------------------------------------------------------------------- Retained earnings Balance at beginning of year 19,116 17,695 42,350 Net earnings (loss) 4,431 2,660 (22,556) Common stock dividends ($0.14 per share in 1994) - - (766) Dividends on preferred shares (1,179) (1,239) (1,333) - - ------------------------------------------------------------------------------- Balance at end of year 22,368 19,116 17,695 - - ------------------------------------------------------------------------------- Treasury shares at cost Balance at beginning of year (37,604) (2,646) (39,937) (2,810) (42,393) (2,983) Shares used for exercise of stock options 393 28 - - 7 - Shares used for payment of directors' fees 106 7 188 13 - - Shares used for Long-Term Incentive Plans 1,883 133 - - (11) (1) Shares used for conversion of preferred shares 982 69 2,145 151 2,460 174 - - ------------------------------------------------------------------------------- Balance at end of year (34,240) (2,409) (37,604) (2,646) (39,937) (2,810) - - ------------------------------------------------------------------------------- ESOT loan obligation Balance at beginning of year (12,887) (14,007) (15,045) Repayments made during year 1,211 1,120 1,038 - - ------------------------------------------------------------------------------- Balance at end of year (11,676) (12,887) (14,007) - - ------------------------------------------------------------------------------- Deferral under Long- Term Incentive Plans Balance at beginning of year - - (195) Shares used for Long- Term Incentive Plans (737) - 5 Amortization of Long- Term Incentive Plan deferred expense 148 - 190 - - ------------------------------------------------------------------------------- Balance at end of year (589) - - =============================================================================== Total Shareholders' Equity $19,823 $14,997 $11,610 =============================================================================== See accompanying Notes to Consolidated Financial Statements. Page 16 CONSOLIDATED STATEMENTS OF CASH FLOWS EDO CORPORATION AND SUBSIDIARIES =============================================================================== Years Ended December 31 1996 1995 1994 (in thousands) - - ------------------------------------------------------------------------------- Operating Activities: Earnings (loss) from continuing operations $ 13,068 $ 4,125 $ (19,135) Adjustments to net earnings (loss) to arrive at cash provided by continuing operations: Gain on sale of building - - (427) Write off of environmental receivable - - 5,400 Write off of nonproductive fixed assets - - 1,739 Restructuring charge - - 1,127 Postretirement health care curtailment gain (7,120) - - Depreciation and amortization 5,303 4,935 6,044 Deferred compensation expense 148 - 190 Common shares issued for directors' fees 49 51 3 Changes in: Accounts receivable (8,913) (2,216) 13,503 Inventories 93 814 7,860 Prepayments, other assets and other (4,341) (1,479) (1,747) Decrease (Increase) in recoverable and deferred income taxes - 3,649 (316) Accounts payable and accrued liabilities 5,178 (1,877) 1,950 Contract advances and deposits (833) 2,142 (2,532) - - ------------------------------------------------------------------------------- Cash provided by continuing operations 2,632 10,144 13,659 Net cash used by discontinued operations (1,804) (2,024) (2,519) Investing Activities: Purchase of property, plant and equipment, net (4,227) (1,800) (1,731) Proceeds from assets held for sale 1,976 - - Proceeds from sale of building - - 3,084 - - ------------------------------------------------------------------------------- Cash (used) provided by investing activities (2,251) (1,800) 1,353 Financing Activities: Proceeds from exercise of stock options 166 - - Payments received on notes receivable 263 - - Payment of common share cash dividends - - (766) Payment of preferred share cash dividends (1,179) (1,239) (1,333) - - ------------------------------------------------------------------------------- Cash used by financing activities (750) (1,239) (2,099) =============================================================================== Net (decrease) increase in cash and cash equivalents (2,173) 5,081 10,394 Cash and cash equivalents at beginning of year 22,918 17,837 7,443 - - ------------------------------------------------------------------------------- Cash and cash equivalents at end of year $ 20,745 $ 22,918 $ 17,837 =============================================================================== Supplemental disclosures: Cash paid for: Interest $ 2,072 $ 2,143 $ 2,198 Income taxes $ 190 $ 345 $ 297 =============================================================================== See accompanying Notes to Consolidated Financial Statements. Page 17 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996, 1995 AND 1994 EDO CORPORATION AND SUBSIDIARIES (1) Summary of Significant Accounting Policies (a) Principles of Consolidation and Business The consolidated financial statements include the accounts of EDO Corporation and all majority-owned subsidiaries (the "Company"). All significant intercompany accounts and transactions have been eliminated in consolidation. The Company is principally a supplier of proprietary advanced electro-optical, electronic, mechanical, acoustic and composite products to major prime defense contractors and commercial original equipment manufacturers. The Company organizes its business into Defense and Space Systems and Industrial Products segments. The Company discontinued its energy-related business in 1996 (Note 3). (b) Cash Equivalents The Company considers all securities with an original maturity of three months or less at the date of acquisition to be cash equivalents. (c) Revenue Recognition Sales under long-term, fixed price contracts, including pro-rata profits, are generally recorded based on the relationship of costs incurred to date to total projected final costs or, alternatively, as deliveries are made. Estimated losses on long-term contracts are recorded when identified. Sales under cost reimbursement contracts are recorded as costs are incurred. Sales on other than long-term contract orders (principally commercial products) are recorded as shipments are made. (d) Inventories Inventories under long-term contracts and programs reflect all accumulated production costs, including factory overhead, initial tooling and other related costs (including general and administrative expenses relating to certain of the Company's defense contracts), less the portion of such costs charged to cost of sales. Inventory costs in excess of amounts recoverable under contracts are charged to cost of sales when they become known. All other inventories are stated at the lower of cost (principally first-in, first-out method) or market. (e) Depreciation Depreciation and amortization of property, plant and equipment have been provided primarily using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are being amortized over the lesser of their estimated useful lives or their respective lease periods. Deferred financing costs are amortized on a straight-line basis over the life of the related financing. The unamortized balances of $1,153,000 and $1,286,000 are included in other assets at December 31, 1996 and 1995, respectively. (f) Cost in Excess of Fair Value of Net Assets Acquired (Goodwill) The excess of the total acquisition cost of Barnes Engineering Company over the fair value of net assets acquired of approximately $11.0 million ($7.2 million, net of accumulated amortization at December 31, 1996) is being amortized on a straight-line basis over thirty years. The Company assesses the recoverability of unamortized goodwill by determining whether the amortization of the goodwill balance over its estimated life can be recovered through the undiscounted projected future earnings of the acquired business. (g) Long-Lived Assets In March 1995, Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," was issued. SFAS No. 121 requires that long-lived assets and certain identifiable intangibles to be held and used or disposed of by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable when measured by comparing the carrying amount of an asset to the future net cash flows expected to be generated by the asset. During 1996, the Company adopted SFAS No. 121 and determined that no impairment loss need be recognized for applicable assets of continuing operations or assets held for sale (Note 7), and thus, it did not have a material impact on the Company's financial position or results of operations. Page 18 (h) Income Taxes Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be realized or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. (i) Treasury Stock Treasury stock is recorded at cost, with issuances from treasury stock recorded at average cost. Treasury stock issued for directors' fees is recorded as an expense for an amount equal to the fair market value of the stock on the issuance date. (j) Earnings Per Share Primary earnings per share amounts are determined by using the weighted average number of common shares and dilutive common share equivalents (stock options) outstanding during the year. Primary earnings per share amounts were based on 6,086,235, 5,768,189 and 5,550,868 common and common equivalent shares outstanding for 1996, 1995 and 1994, respectively. Fully diluted earnings per share are based on the assumption that the convertible debentures and preferred shares, in the periods in which such securities are dilutive, are converted into common shares and their related interest and dividends, net of applicable income taxes, are not deducted in determining net earnings. Fully diluted earnings per share were based on 7,148,988 and 7,037,876 common and common equivalent shares outstanding for 1996 and 1995, respectively. In 1994, both the convertible debentures and preferred shares were antidilutive. (k) Financial Instruments The fair value and book value of the Company's long-term debt and ESOT obligation at December 31, 1996 were $36,676,000 and $40,993,000, respectively (Notes 9 and 10). The net carrying value of the notes receivable approximates fair value based on current rates for comparable commercial mortgages. The fair values of all other financial instruments approximate book values because of the short maturity of these instruments. (l) Use of Estimates Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these financial statements in conformity with generally accepted accounting principles. Among the more significant estimates included in these financial statements are the estimated costs to complete contracts in process, the estimated remediation costs related to the environmental matter discussed in Note 17, the collectibility of receivables and the estimated net realizable value of net assets of discontinued operations and the accrual for losses during the phase out period. Actual results could differ from these and other estimates. (m) Accounting for Stock-Based Compensation The Company records compensation expense for employee and director stock options and warrants only if the current market price of the underlying stock exceeds the exercise price on the date of the grant. On January 1, 1996, the Company adopted SFAS No. 123, "Accounting for Stock-Based Compensation." The Company has elected not to implement the fair value based accounting method for employee and director stock options and warrants, but has elected to disclose the pro forma net earnings and pro forma earnings per share for employee and director stock option and warrant grants made beginning in 1995 as if such method had been used to account for stock-based compensation cost as described in SFAS No. 123. (2) Restructuring of Operations In 1993, the Company adopted a restructuring plan to address the continuing worldwide decline in the defense and aerospace business, reduce costs and improve its competitiveness. This restructuring plan included discontinuing a portion of a business, relocating certain operations, the related disposition of nonproductive assets (principally land and buildings) and work force reductions. The accompanying consolidated statements of operations reflect a pretax charge of $1,127,000 for 1994 relating to this plan. The increase to the restructuring charge in 1994 principally resulted from a longer than anticipated holding period associated with the College Point production facility held for sale and severance costs. As of December 31, 1996, all expenditures related to the restructuring were made and were consistent in all material respects with the original charges taken. Page 19 (3) Discontinued Operations Pursuant to a Board of Directors resolution in September 1996, the Company adopted a plan to exit its energy-related businesses. Those businesses include: the Company's 50.4% interest in EDO (Canada) Limited, a manufacturer of Compressed Natural Gas (CNG) fuel cylinders; EDO Automotive Natural Gas Inc., a designer and manufacturer of CNG refueling stations and related equipment; and EDO Energy Corporation, a wholly owned subsidiary of the Company involved in program management activities in CNG and other alternative fuel projects. All of these businesses will continue to operate while the Company attempts to sell them. The consolidated financial statements of the Company have been reclassified to reflect the effects of the Company's decision to treat its energy-related businesses as discontinued operations. Accordingly, the revenues, costs and expenses, assets and liabilities, and cash flows associated with EDO (Canada) Limited, EDO Automotive Natural Gas Incorporated, and EDO Energy Corporation have been excluded from the respective captions in the Consolidated Statements of Operations, Balance Sheets and Statements of Cash Flows. The net operating results of these entities have been reported as "Loss from discontinued operations"; the net assets (liabilities) of these entities have been reported as "Net assets (liabilities) of discontinued operations"; and the cash flows of these entities have been reported as "Net cash used by discontinued operations." Net sales of the discontinued operations prior to the date of discontinuance were $9,321,000, $12,181,000, and $9,346,000 for the years ended December 31, 1996, 1995 and 1994, respectively. Net assets (liabilities) of discontinued operations were as follows: =============================================================================== At December 31 1996 1995 (in thousands) - - ------------------------------------------------------------------------------- Assets-net $1,579 $6,520 Liabilities (806) (1,179) Accrual for losses during phase out period (1,000) - - - ------------------------------------------------------------------------------- Net assets (liabilities) of discontinued operations (227) 5,341 =============================================================================== Assets-net at December 31, 1996 consisted primarily of accounts receivable and liabilities consisted of trade payables. Interest expense was not allocated to discontinued operations. (4) Canadian Subsidiary In December 1995, EDO (Canada) Ltd. received $3.5 million from the sale of its capital stock to three companies. As a result, the Company's ownership of EDO (Canada) Ltd. was reduced from approximately 60% to approximately 50.4% with approximately 33% owned by the Province of Alberta and approximately 17% owned by three other minority shareholders. The Company's additional paid-in capital was increased by $795,000, representing its equity in EDO (Canada)'s capital transactions in 1995. In 1996, the Company discontinued its energy business, including its interest in EDO (Canada) Ltd. as noted above in Note 3. (5) Accounts Receivable Accounts receivable included $16,121,000 and $9,742,000 at December 31, 1996 and 1995, respectively, representing unbilled revenues. Substantially all of the unbilled balances at December 31, 1996 will be billed and are expected to be collected during 1997. Total receivables due from the United States government, either directly or as a subcontractor to a prime contractor with the government, were $6,910,000 at December 31, 1996, and $9,562,000 at December 31, 1995. (6) Inventories Inventories are summarized by major classification as follows at December 31, 1996 and 1995: =============================================================================== 1996 1995 (in thousands) - - ------------------------------------------------------------------------------- Raw material and supplies $4,226 $5,051 Work-in-process 3,380 2,245 Finished goods 388 791 - - ------------------------------------------------------------------------------- $7,994 $8,087 =============================================================================== Page 20 (7) Property, Plant and Equipment, Net The Company's property, plant and equipment at December 31, 1996 and 1995, and their related useful lives are summarized as follows: =============================================================================== 1996 1995 Range in (in thousands) Years - - ------------------------------------------------------------------------------- Machinery and equipment 50,244 46,349 3 - 10 Leasehold improvements 8,595 9,517 lease terms - - ------------------------------------------------------------------------------- 58,839 55,866 Less accumulated depreciation and amortization 45,871 43,654 - - ------------------------------------------------------------------------------- $12,968 $12,212 =============================================================================== Assets held for sale at December 31,1995, amounting to $8.7 million, represented buildings, building improvements and land at the Company's College Point facility, net of related accumulated depreciation. In January 1996, such assets were sold for $2.0 million of cash, net of expenses, $4.6 million of notes, and other consideration including prepaid rent. The total consideration received approximated the carrying value of the assets held for sale. The notes receivable of $4,038,000 (net of deferred interest of $250,000) at December 31, 1996, of which $138,000 is included in current assets are due in varying annual amounts through 2004 and bear interest at 7% commencing January 1, 1998 for $1,850,000 of the notes and January 1, 1999 for the balance of the notes. The notes receivable are secured by a mortgage on the related facility. (8) Accounts Payable and Accrued Liabilities Accounts payable and accrued liabilities consisted of the following at December 31, 1996 and 1995: =============================================================================== 1996 1995 (in thousands) - - ------------------------------------------------------------------------------- Trade payables $3,568 $3,105 Employee compensation and benefits 2,579 2,567 Current Portion of Environmental Obligation 1,254 1,890 Other 14,116 9,004 - - ------------------------------------------------------------------------------- $21,517 $16,566 =============================================================================== (9) Long-Term Debt and Line of Credit Long-term debt of the Company at December 31, 1996 and 1995 consisted of the 7% Convertible Subordinated Debentures Due 2011 that were issued in November 1986. The debentures are convertible at the rate of 45.45 common shares for each $1,000 principal amount, which is equivalent to $22 per share. Debentures are redeemable at the option of the Company at par and at the option of the holder under certain circumstances involving a change in control of the Company. Commencing in 1996 and until retirement, the Company is required to make sinking fund payments of $1,750,000 per year. As of December 31, 1996, the Company had $3,933,000 of these debentures remaining in treasury which will be used to satisfy these annual payments. The carrying value of the debentures as of December 31, 1996 is $29,317,000. The Company estimates the fair value of the debentures as of December 31, 1996 to be approximately $25,000,000 based on trades during late 1996. The Company has a $15.0 million line of credit agreement with a bank for both short-term borrowings and letters of credit. The agreement expires on June 30, 1997 and limits the cash portion of potential borrowings to $5.0 million. Borrowings under the agreement bear interest based on the bank's prime rate plus 0.5% and are secured by the Company's accounts receivable, inventory, machinery and equipment. A condition to this agreement is compliance with the Company's Employee Stock Ownership Trust guarantee agreement that is described in Note 10. There have been no direct borrowings under this agreement. Page 21 (10) Employee Stock Ownership Plan and Trust The Company's Employee Stock Ownership Plan (ESOP) provides retirement benefits to substantially all employees. During 1996, 1995 and 1994, respectively, cash contributions of $879,000, $839,000 and $497,000 were made to the ESOP. As of December 31, 1996, there were 300,325 common shares in the ESOP. During 1988, the Employee Stock Ownership Trust (ESOT) purchased 89,772 convertible preferred shares from the Company for approximately $19,185,000. The shares are being allocated to employees through 2003 on the basis of compensation. The preferred shares provide for dividends of 8% per annum, which are deductible by the Company for Federal and state income tax purposes. The tax benefit that is attributable to unallocated shares is reflected as an increase to retained earnings. Each unallocated preferred share is convertible at its stated conversion rate into 10 common shares. Allocated shares are convertible at the greater of the stated conversion rate or the fair value of each preferred share ($175 at December 31, 1996) divided by the current market price of each common share. As of December 31, 1996, 47,708 shares have been allocated, 42,064 shares remained unallocated and 21,940 shares have been converted into 620,500 common shares. Until converted, each preferred share is entitled to 12.3 votes. The preferred shares are entitled to vote on all matters presented to holders of common shares voting together as a class, except that certain amendments and mergers could entitle the holders of preferred shares to vote separately as a class. The ESOP provides for pass-through of voting rights to the ESOP participants and beneficiaries. The ESOT purchased the preferred shares from the Company using the proceeds of a borrowing guaranteed by the Company. The ESOT services this obligation with the dividends received on the preferred shares and any additional contributions from the Company as required. Principal and interest payments on the note of the ESOT are to be made in quarterly installments through 2003. Interest is charged at 82% of the prime lending rate. During 1996, 1995 and 1994, respectively, the Company's cash contributions and preferred dividends were used to repay principal of $1,211,000, $1,120,000 and $1,038,000 and pay interest of $865,000, $982,000 and $816,000. Both the Company and the lender have the option to cancel or refinance the borrowing on or after April 1, 2000. The guarantee agreement also provides that the Company may be obligated to prepay the ESOT loan through redemption of the preferred shares at $213.71 per share upon the occurrence of certain prepayment events. In addition to these prepayment events, there are certain covenants placed on the Company that require that several predetermined ratios be maintained. At December 31, 1996, the Company was in compliance with such covenants. In addition, payments of common stock dividends in 1997 and beyond will be limited to each year's net income in excess of net income for that year required for the Company to be in compliance with its net worth debt covenant (approximately $4.8 million in 1997) up to $0.28 per common share. This obligation is secured with the Company's accounts receivable, inventory, machinery and equipment. The fair value of the ESOT obligation approximates book value since the interest rate is prime-based and accordingly is adjusted for market rate fluctuations. The ESOT's borrowing guaranteed by the Company is reflected as a liability on the balance sheet with an equal amount as a reduction of shareholders' equity, offsetting the increase in the capital stock accounts. As the principal portion of the note is repaid through 2003, the liability and the ESOT loan obligation will be reduced concurrently. (11) Federal Income Taxes The 1996, 1995 and 1994 (benefit) provision for Federal income taxes for continuing operations was comprised of the following amounts: =============================================================================== 1996 1995 1994 (in thousands) - - ------------------------------------------------------------------------------- Federal Current $ - $ - $(2,809) Deferred - - (991) - - ------------------------------------------------------------------------------- Total $ - $ - $(3,800) =============================================================================== Included in the 1996 current Federal provision is $858,000 of benefit for the utilization of net operating loss carryforwards. State income taxes of $257,000, $295,000 and $192,000 in 1996, 1995 and 1994, respectively, are included in general and administrative expenses. Page 22 The effective Federal income tax rate differed from the statutory Federal income tax rate for the following reasons: =============================================================================== Percent of Pretax Earnings 1996 1995 1994 - - ------------------------------------------------------------------------------- Tax at statutory rate 34.0% 34.0% (34.0%) Preferred stock dividends (1.2) (6.5) - (Decrease) increase in valuation allowance (29.4) (26.3) 24.0 Adjustment of prior year accruals - - (3.7) Other, net (3.4) (1.2) (0.4) - - ------------------------------------------------------------------------------- Effective Federal income tax rate - - (14.1%) =============================================================================== The items that comprise the significant portions of deferred tax assets and liabilities as of December 31, 1996 and 1995 are as follows: =============================================================================== December 31 Deferred Tax Assets 1996 1995 - - ------------------------------------------------------------------------------- Postretirement obligation other than pensions $1,358 $4,198 U.S. net operating loss carryforwards 3,091 4,422 Restructuring costs - 1,847 Environmental obligation 1,398 1,641 R&D and alternative minimum tax credit carryforwards 2,326 2,023 Deferred compensation 1,480 1,123 Capital loss carryforwards 1,207 1,207 Discontinued operations 2,380 - Other 429 392 - - ------------------------------------------------------------------------------- Total deferred tax assets 13,669 16,853 Less: Valuation allowance (5,328) (4,515) - - ------------------------------------------------------------------------------- 8,341 12,338 Deferred Tax Liabilities - - ------------------------------------------------------------------------------- Depreciation and amortization 3,357 8,381 Contract tax accounting 839 753 Prepaid pension asset 1,393 956 Other 2,752 2,248 - - ------------------------------------------------------------------------------- Total deferred tax liabilities 8,341 12,338 - - ------------------------------------------------------------------------------- Net deferred tax asset (liability) $ - $ - =============================================================================== Deferred income tax assets as of December 31, 1996 include U.S. net operating loss carryforwards and capital loss carryforwards for income tax purposes of approximately $9,100,000 and $3,550,000, respectively, primarily expiring in 2009, of which approximately $857,000 of the tax benefits will be allocated to retained earnings. R&D credits expire in the years 2008 and 2009. Realization of these assets is dependent on future taxable earnings and capital gains. A valuation allowance has been established at December 31, 1996 for the Company's net deferred tax asset since, based on the Company's recent cumulative losses, management cannot conclude that it is more likely than not that the deferred tax assets will be realized. (12) Shareholders' Equity At various times beginning in 1983, the Board of Directors has authorized and subsequently increased by amendments, a plan to purchase an aggregate amount of 4,190,000 shares of the Company's common stock. As of December 31, 1996, the Company had acquired approximately 3,957,000 shares in open market transactions at prevailing market prices. Approximately 1,548,000 of these shares have been used for various purposes, including: conversion of preferred shares; contributions of shares to the EDO Corporation Employee Stock Ownership Plan; grants pursuant to the Company's Long-Term Incentive Plans; payment of directors' fees; partial payment of a 50% stock dividend; and stock options exercised. As of December 31, 1996 and 1995, the Company held 2,409,136 and 2,645,863 treasury shares, respectively, for future use. At December 31, 1996, the Company had reserved, authorized and unissued common shares for the following purposes: =============================================================================== Shares - - ------------------------------------------------------------------------------- Conversion of 7% Convertible Subordinated Debentures Due 2011 1,332,590 Stock option and long-term incentive plans 1,202,063 Conversion of preferred shares 1,053,502 - - ------------------------------------------------------------------------------- 3,588,155 =============================================================================== (13) Stock Plans The Company has granted nonqualified stock options to officers, directors and other key employees, under a plan, approved by the shareholders in 1996, which replaced all previous stock option and long-term incentive plans, for the purchase of its common shares at the fair market value of the shares on the date of grant. Options generally become exercisable in four substantially equal annual installments beginning on the first anniversary of the date of the grant and expire on the tenth anniversary of the date of the grant. Changes in options outstanding are as follows: Page 23 =============================================================================== 1996 1995 1994 Weighted Shares Weighted Shares Weighted Shares Average Subject Average Subject Average Subject Exercise to Exercise to Exercise to Price Option Price Option Price Option - - ------------------------------------------------------------------------------- Beginning of year $ 6.54 767,800 $ 7.09 790,238 $ 7.91 791,963 Options granted 5.54 27,500 3.40 96,750 3.46 126,000 Options exercised 5.12 (27,662) - - 4.31 (500) Options cancelled 6.30 (30,325) 7.67 (119,188) 8.61 (127,225) - - ------------------------------------------------------------------------------- End of year $ 6.57 737,313 $ 6.54 767,800 $ 7.09 790,238 - - ------------------------------------------------------------------------------- Exercisable at year end 595,985 576,800 623,657 =============================================================================== The options outstanding as of December 31, 1996 are summarized in ranges as follows: =============================================================================== Range of Weighted Average Number of Options Weighted Average - Exercise Price Exercise Price Outstanding Remaining Life - - ------------------------------------------------------------------------------- $3.07- 5.99 3.75 232,938 7-1/2 years $6.00- 8.99 7.64 473,650 4-1/2 years $9.00-11.56 11.37 30,725 5 years - - ------------------------------------------------------------------------------- 737,313 =============================================================================== The options exercisable as of December 31, 1996 have a weighted average exercise price of $7.21. The plan, approved by the shareholders of the Company in 1996, also provides for common share long-term incentive awards as defined under the plan. All shares authorized under the previous plans not yet awarded were canceled upon the approval of the 1996 plan. As of December 31, 1996, plan participants had been awarded 132,500 restricted common shares and 7,500 non qualified stock options. The 1996 plan will expire in 2005. The cost of the awards under the 1996 plan (and the previous plans which it replaced) are amortized over the five-year period the related services are provided. The amount charged to operations in 1996, 1995 and 1994 was $148,000, $0 and $166,000, respectively. The per share weighted-average fair value of stock options granted during 1996 and 1995 was $2.70 and $2.37, respectively, on the date of grant using the Black Scholes option-pricing model with the following weighted-average assumptions: 1996 - expected dividend yield of 0%, risk free interest rate of 6%, expected stock volatility of 40%, and an expected option life of 7-1/2 years; 1995 - expected dividend yield of 0%, risk free interest rate of 5%, expected stock volatility of 50%, and an expected option life of 7-1/2 years. The Company applies APB Opinion No. 25 in accounting for its stock option grants and, accordingly, no compensation cost has been recognized in the financial statements for its stock options which have an exercise price equal to or greater than the fair value of the stock on the date of the grant. Had the Company determined compensation cost based on the fair value at the grant date for its stock options under SFAS No. 123, the Company's net earnings from continuing operations and primary net earnings from continuing operations per common share would have been reduced to the pro forma amounts indicated below: =============================================================================== 1996 1995 (in thousands) - - ------------------------------------------------------------------------------- Net earnings: As reported $ 13,068 $ 4,125 Pro forma 13,007 4,079 Net earnings per share: As reported $ 1.95 $ 0.50 Pro forma 1.94 0.49 =============================================================================== Pro forma net earnings reflects only options granted in 1996 and 1995. Therefore, the full impact of calculating compensation cost for stock options under SFAS No. 123 is not reflected in the pro forma net earnings amounts presented above because compensation cost is reflected over the options' vesting period and compensation cost for options granted prior to January 1, 1995 was not considered. (14) Other Employee Benefit Plans The Company maintains a noncontributory defined benefit pension plan covering substantially all of its employees. The benefits are based on years of service and the employees' highest five-year average base salary in the final ten years of employment. The Company's funding policy is to make annual contributions to the extent such contributions are actuarially determined and tax deductible. The net pension (income) expense for 1996, 1995 and 1994 was $(1,285,000), $316,000 and $73,000, respectively. In addition, during 1995 and 1994, the Company experienced curtailment gains of $645,000 and $1,394,000, respectively, which reduced cost of sales in the consolidated statements of operations, as a result of its reduction in the number of employees in those years. The expected long-term rate of return on plan assets was 9.0% in 1996, 1995 and 1994. The Page 24 actuarial computations assumed a discount rate on benefit obligations at December 31, 1996 and 1995 of 7.5% and 7.25%, respectively. The assumed rate of compensation increase approximates the Company's previous experience. The assets of the pension plan consist primarily of equity and fixed income securities which are readily marketable. A summary of the components of net periodic pension (income) expense follows: =============================================================================== 1996 1995 1994 (in thousands) - - ------------------------------------------------------------------------------- Service cost $ 1,277 $ 1,192 $ 1,784 Interest cost on projected benefit obligation 5,359 5,469 5,138 Actual return on plan assets (16,369) (18,791) 1,180 Net amortization and deferral 8,448 12,446 (8,029) - - ------------------------------------------------------------------------------- Net pension (income) expense $ (1,285) $ 316 $ 73 =============================================================================== The funded status of the plan as of December 31 was as follows: =============================================================================== 1996 1995 (in thousands) - - ------------------------------------------------------------------------------- Actuarial present value of benefit obligations: Accumulated benefit obligation, including vested benefits of $69,704 and $68,656 for 1996 and 1995, respectively $(71,404) $(70,926) - - ------------------------------------------------------------------------------- Projected benefit obligation for service rendered to date $(76,290) $(77,009) Plan assets at fair value 97,837 87,456 - - ------------------------------------------------------------------------------- Funded status of plan 21,547 10,447 Unrecognized net gain from past experience different from that assumed and effects of changes in assumptions (18,777) (7,940) Unrecognized prior service cost at December 31, being amortized over 5 years through 2000 1,368 354 Unrecognized net asset at December 31, being amortized over 15 years through 2001 (42) (50) - - ------------------------------------------------------------------------------- Prepaid pension cost (in other assets) $ 4,096 $ 2,811 =============================================================================== In addition, the Company established in 1988 a supplemental defined benefit plan for substantially all employees. In 1996, 1995 and 1994, the net pension expense for this plan was approximately $64,800, $58,300 and $104,900, respectively. The Company also has a supplemental retirement plan for officers and certain employees under which the Company has agreed to pay, at the option of the individual, either a predetermined retirement benefit or a fully paid up life insurance policy. In the event of preretirement death or disability, the plan provides for similar benefits. Total expenses under this plan in 1996, 1995 and 1994 were $585,000, $468,000, and $404,000, respectively. (15) Postretirement Health Care and Life Insurance Benefits The Company provides certain health care and life insurance benefits to qualified retired employees and dependents at certain locations. These benefits are funded on a pay-as-you-go basis, with the retiree paying a portion of the cost through contributions, deductibles and coinsurance provisions. The Company has always retained the right to modify or terminate the plans providing these benefits. In accordance with SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," the Company recognizes these benefit expenses on an accrual basis as the employees earn them during their employment rather than when they are actually paid. Cash outlays relating to retiree health care and life insurance benefits amounted to $631,000, $1,131,000 and $1,017,000 for 1996, 1995 and 1994, respectively. Postretirement health care and life insurance expense (income) included the following components: =============================================================================== 1996 1995 1994 (in thousands) - - ------------------------------------------------------------------------------- Service cost $ 42 $ 53 $ 93 Interest cost 320 694 884 Amortization of prior service cost (796) (662) - Amortization of net unrecognized gain (36) (71) - - - ------------------------------------------------------------------------------- Total postretirement health care and life insurance expense (income) $ (470) $ 14 $ 977 =============================================================================== In 1995 the Company modified these benefit plans to shift the cost for certain participants over age 65 to Medicare HMO type plans. The effect of this change was to reduce the postretirement obligation by approximately $5.0 million. During 1996, the Company recognized a non-cash curtailment gain of $7,120,000 in connection with the discontinuance of postretirement medical benefits for Medicare-eligible retirees. This gain represents the reversal of a significant portion of the postretirement obligation established upon the adoption of SFAS No. 106 in 1993. The funded status and breakdown of the postretirement health care and life insurance benefits are as follows as of December 31: Page 25 =============================================================================== 1996 1995 (in thousands) - - ------------------------------------------------------------------------------- Accumulated postretirement benefit obligation: Retirees $ 2,367 $ 5,787 Eligible active employees 571 857 Other ineligible active employees 583 962 - - ------------------------------------------------------------------------------- Unfunded accumulated postretirement benefit obligation $ 3,521 $ 7,606 Unrecognized prior service cost - 4,801 Unrecognized net (loss) gain 474 (59) - - ------------------------------------------------------------------------------- Accrued postretirement benefit cost $ 3,995 $ 12,348 =============================================================================== Actuarial assumptions used in determining the accumulated postretirement benefit obligation include a discount rate of 7.50% and 7.25% at December 31, 1996 and 1995, respectively, and estimated increases in health care costs of 5% per year. (16) Commitments and Contingencies The Company is contingently liable under the terms of letters of credit (Note 9) aggregating approximately $6,529,000 at December 31, 1996, should it fail to perform in accordance with the terms of its contracts with foreign customers. At December 31, 1996, the Company and its subsidiaries were obligated under building and equipment leases expiring between 1997 and 2005. Rental expense under such leases for the years ended December 31, 1996, 1995 and 1994 amounted to $3,050,000, $2,450,000 and $1,980,000, respectively. Minimum future rentals under those obligations with noncancellable terms in excess of one year are as follows: 1997 - $1,970,000 1998 - $1,900,000 1999 - $1,670,000 2000 - $1,480,000 2001 - $1,480,000 Thereafter - $5,290,000 (17) Legal Matters The Company and three other companies have entered into a consent decree with the Federal government for the remediation of a Superfund site. Management estimates that as of December 31, 1996 the remaining discounted liability over the remainder of the thirty years related to this matter is approximately $4.1 million of which approximately $1.3 million has been classified as current and is included in accounts payable and accrued liabilities. Approximately 40% of the $4.1 million liability will be expended over the next two years. Management believes it is covered by liability insurance for all of the unreimbursed costs it incurs. The matter is in court to determine the insurers' defense and indemnification obligations to the Company. Although the Company intends to continue to pursue its liability insurance carriers, in 1994 the Company recognized an expense of $5.4 million when it wrote off a previously recorded receivable relating to the amount the Company believes is covered by its insurance policies. The Company is also involved in other environmental cleanup efforts, none of which, management believes, is likely to have a material adverse effect on the Company's consolidated financial position or results of operations. Additionally, the Company and its subsidiaries are subject to certain legal actions that arise out of the normal course of business. It is management's belief that the ultimate outcome of these actions will not have a material adverse effect on the Company's consolidated financial position or results of operations. (18) Business Segments The Company operates in two industry segments: Defense and Space Systems, and Industrial Products. Sales between industry segments approximate market price. Sales are made and credit is granted generally to the U.S. Government or to customers in the defense or aerospace industry. The Company considers the risks associated with such customers to be minimal. Domestic government sales, which include sales where the Company is a subcontractor to a prime contractor with the government, amounted to 36%, 43% and 59% of net sales, which were 36%, 46% and 66% of Defense and Space Systems sales and 37%, 37% and 43% of Industrial Products sales for 1996, 1995 and 1994, respectively. Export sales comprised 35%, 31% and 22% of net sales for 1996, 1995 and 1994, respectively. Principal products and systems by industry segment are as follows: Defense and Space Systems * Suspension and Release Equipment * Sonar Systems * Spaceflight Systems * Infrared Instrumentation * Airborne Mine Countermeasures Systems * Command, Control, Communications & Intelligence Systems Industrial Products * Electroceramic Components * Acoustic Instrument Systems * Acoustic Systems * Fiber-Reinforced Structures Page 26 The distribution of net sales, operating earnings and identifiable assets for continuing operations of the Company's business segments follows: =============================================================================== 1996 1995 1994 (in thousands) - - ------------------------------------------------------------------------------- Net Sales: Defense and Space Systems: Unaffiliated customers $ 64,110 $ 52,055 $ 56,568 Industrial Products: Unaffiliated customers 30,476 26,877 24,688 Intersegment sales 36 751 776 - - ------------------------------------------------------------------------------- 94,622 79,683 82,032 Less intersegment sales 36 751 776 - - ------------------------------------------------------------------------------- Net sales $ 94,586 $ 78,932 $ 81,256 - - ------------------------------------------------------------------------------- Operating (loss) earnings: Defense and Space Systems $ 14,060 $ 5,779 $ (6,546) Industrial Products 3,926 3,392 (9,853) General corporate expenses (4,086) (3,806) (4,711) - - ------------------------------------------------------------------------------- 13,900 5,365 (21,110) Net interest expense (766) (1,199) (2,160) Other income (expense), net (66) (41) 335 - - ------------------------------------------------------------------------------- Earnings (loss) from continuing operations before Federal income taxes $ 13,068 $ 4,125 $(22,935) - - ------------------------------------------------------------------------------- Identifiable assets: Defense and Space Systems $ 42,198 $ 40,187 $ 43,404 Industrial Products 19,846 19,349 18,805 Corporate 32,179 30,649 28,565 - - ------------------------------------------------------------------------------- $ 94,223 $ 90,185 $ 90,774 - - ------------------------------------------------------------------------------- Depreciation expense: Defense and Space Systems $ 2,271 $ 3,233 $ 3,412 Industrial Products 1,200 1,335 2,265 - - ------------------------------------------------------------------------------- $ 3,471 $ 4,568 $ 5,677 - - ------------------------------------------------------------------------------- Capital expenditures: Defense and Space Systems $ 3,423 $ 1,567 $ 953 Industrial Products 804 233 778 - - ------------------------------------------------------------------------------- $ 4,227 $ 1,800 $ 1,731 =============================================================================== KPMG PEAT MARWICK LLP INDEPENDENT AUDITORS' REPORT The Board of Directors and Shareholders EDO Corporation We have audited the accompanying consolidated balance sheets of EDO Corporation and subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the years in the three year period ended December 31, 1996. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of EDO Corporation and subsidiaries at December 31, 1996 and 1995, and the results of their operations and their cash flows for each of the years in the three year period ended December 31, 1996, in conformity with generally accepted accounting principles. KPMG Peat Marwick LLP Jericho, New York February 13, 1997 Page 27 QUARTERLY FINANCIAL INFORMATION (UNAUDITED) The following table sets forth unaudited quarterly financial information for 1996 and 1995 (in thousands, except per share amounts). =============================================================================== First Quarter Second Quarter Third Quarter Fourth Quarter 1996 1995 1996 1995 1996 1995 1996 1995 - - ------------------------------------------------------------------------------- Net sales $23,669 $18,211 $24,771 $21,616 $23,107 $18,634 $23,039 $20,471 Gross profitb 5,022 4,978 5,891 4,194 4,711 4,082 6,399 5,838 Net earnings (loss) Continuing operations 1,480 838 1,534 869 8,754a 1,168 1,300 1,250 Discontinued operations (527) (407) (491) (279) (7,619) (384) - (395) - - ------------------------------------------------------------------------------- Total 953 431 1,043 590 1,135 784 1,300 855 Earnings (loss) per share: Primary Continuing operations 0.20 0.09 0.20 0.10 1.38 0.15 0.16 0.16 Discontinued operations (0.09) (0.07) (0.08) (0.05) (1.24) (0.07) - (0.06) - - ------------------------------------------------------------------------------- Total 0.11 0.02 0.12 0.05 0.14 0.08 0.16 0.10 Fully diluted Continuing operations 0.17 0.07 0.18 0.08 1.18 0.13 0.14 0.14 Discontinued operations (0.07) (0.06) (0.07) (0.04) (1.06) (0.06) - (0.06) - - ------------------------------------------------------------------------------- Total 0.10 0.01 0.11 0.04 0.12 0.07 0.14 0.08 Preferred dividends paid 303 322 293 307 293 307 290 303 =============================================================================== a The 1996 third quarter results from continuing operations include a $7,120 curtailment gain (or $1.17 per share) for the discontinuance of postretirement health care benefits for Medicare-eligible retirees. b Gross profit represents net sales less cost of sales and Company-sponsored research and development. Page 28 EXHIBIT INDEX Exhibits which are noted with an asterisk (*) are management contracts or compensatory plans or arrangements. 3(i) Certificate of Incorporation of the Company and amendments thereto dated June 14, 1984, July 18, 1988 and July 22, 1988. Incorporated by reference to Exhibit 3(i) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994. 3(ii) By-Laws of the Company. 4(a) Indenture dated December 1, 1986 between Chemical Bank as successor in interest to Manufacturers Hanover Trust Company, as Trustee, and EDO Corporation. Incorporated by reference to Exhibit 4(b) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1992. 4(b) Guarantee Agreement, dated as of July 22, 1988, as amended, made by the Company in favor of Fleet Bank as successor in interest to NatWest Bank NA and Manufacturers Hanover Trust Company. Incorporated by reference to Exhibit 4(c) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1992. 4(c) Term Loan Agreement, dated as of July 22, 1988, as amended, between The Bank of New York, as trustee of the trust established under the EDO Corporation Employee Stock Ownership Plan, and Fleet Bank as successor in interest to NatWest Bank NA and Manufacturers Hanover Trust Company. Incorporated by reference to Exhibit 4(d) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1992. 4(d) Term Note, dated July 22, 1988, as amended, between The Bank of New York, as trustee of the trust established under the EDO Corporation Employee Stock Ownership Plan, and Fleet Bank as successor in interest to NatWest Bank NA and Manufacturers Hanover Trust Company. Incorporated by reference to Exhibit 4(e) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1992. 4(e) Pledge and Security Agreement, dated as of July 22, 1988, as amended, between The Bank of New York, as trustee of the trust established under the EDO Corporation Employee Stock Ownership Plan, and Fleet Bank as successor in interest to NatWest Bank NA and Manufacturers Hanover Trust Company. Incorporated by reference to Exhibit 4(f) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1992. 4(f) Amendment No. 6 to the Guarantee Agreement referred to in Exhibit 4(b) above, effective March 27, 1993. Incorporated by reference to Exhibit 4(i) to the Company's Quarterly Report on Form 10-Q for the quarter ended June 26, 1993. 4(g) Amendment No. 7 to the Guarantee Agreement referred to in Exhibit 4(b) above, effective March 3, 1994. Incorporated by reference to Exhibit 4(h) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993. 4(h) Amendment No. 8 to the Guarantee Agreement referred to in Exhibit 4(b) above, effective February 10, 1995. Incorporated by reference to Exhibit 4(h) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994. 4(i) Amendment No. 9 to the Guarantee Agreement referred to in Exhibit 4(b) above, effective June 30, 1995. Incorporated by reference to Exhibit 4(i) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995. 4(j) Amendment No. 10 to the Guarantee Agreement referred to in Exhibit 4(b) above, effective June 30, 1996. 10(a)* EDO Corporation 1996 Long-Term Incentive Plan. 10(b)* EDO Corporation Executive Termination Agreements, as amended through November 24, 1989, between the Company and two employees. Incorporated by reference to Exhibit 10(f) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994. 10(c)* Executive Life Insurance Plan Agreements, as amended through January 23, 1990, between the Company and 30 employees and retirees. Incorporated by reference to Exhibit 10(g) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994. 10(d)* Form of Directors' and Officers' Indemnification Agreements between EDO Corporation and 14 current Company directors and officers. 10(e) Consent Decree, entered on November 25, 1992, amongst the United States, EDO Corporation, Plessey, Inc., Vernitron Corporation and Pitney Bowes, Inc. Incorporated by reference to Exhibit 10(j) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1992. 21 List of Subsidiaries. 23 Consent of Independent Auditors to the incorporation by reference in the Company's Registration Statements on Form S-8 of their report included in Item 14(a)1 of this Annual Report on Form 10-K. 24 Powers of Attorney used in connection with the execution of this Annual Report on Form 10-K. 27 Financial Data Schedule. EX-3.II 2 EXHIBIT 3(II) - BYLAWS EXHIBIT 3(ii) ================================================================================ EDO CORPORATION (A New York Corporation) BY-LAWS As Amended January 28, 1997 ================================================================================ EDO CORPORATION (A New York Corporation) By-Laws TABLE OF CONTENTS Page ARTICLE I Meetings of Shareholders Section 1.01 Annual Meetings ................................................ 1 Section 1.02 Special Meetings ............................................... 1 Section 1.03 Place of Meetings .............................................. 1 Section 1.04 Notice of Meetings ............................................. 1 Section 1.05 Quorum ......................................................... 2 Section 1.06 Inspectors of Election ......................................... 2 Section 1.07 Voting ......................................................... 2 Section 1.08 Proxies ........................................................ 3 Section 1.09 Record Date .................................................... 3 Section 1.10 Adjourned Meetings ............................................. 3 ARTICLE II Board of Directors Section 2.01 General Powers ................................................. 3 Section 2.02 Number, Term of Office, Election and Qualifications ............ 3 Section 2.03 Regular Meetings ............................................... 4 Section 2.04 Special Meetings ............................................... 4 Section 2.05 Quorum and Voting .............................................. 5 Section 2.06 Resignations ................................................... 5 Section 2.07 Removal of Directors ........................................... 5 Section 2.08 Newly Created Directorship and Vacancies ....................... 5 Section 2.09 Action by Written Consent ...................................... 6 Section 2.10 Participation in a Meeting by Telephone ........................ 6 i Page ARTICLE III Executive Committee and Other Committees Section 3.01 How Constituted ................................................ 6 Section 3.02 Powers of the Executive Committee .............................. 6 Section 3.03 Other Committees ............................................... 7 Section 3.04 Proceedings, Quorum and Manner of Acting ....................... 7 ARTICLE IV Notices Section 4.01 Form and Delivery .............................................. 7 Section 4.02 Waiver ......................................................... 7 ARTICLE V Officers Section 5.01 Number and Qualification ....................................... 8 Section 5.02 Appointment and Term of Office ................................. 8 Section 5.03 Subordinate Officers ........................................... 8 Section 5.04 Resignations ................................................... 8 Section 5.05 Removal ........................................................ 8 Section 5.06 Vacancies ...................................................... 8 Section 5.07 The Chairman of the Board of Directors ......................... 8 Section 5.08 The President .................................................. 9 Section 5.09 The Vice Presidents ............................................ 9 Section 5.10 The Secretary .................................................. 9 Section 5.11 The Treasurer .................................................. 9 ARTICLE VI Fiscal Matters Section 6.01 Execution of Instruments ...................................... 10 Section 6.02 Loans, etc. ................................................... 11 Section 6.03 Deposits ...................................................... 11 Section 6.04 Checks, Drafts, etc. .......................................... 11 ii Page ARTICLE VII Capital Stock Section 7.01 Certificates for Shares ....................................... 11 Section 7.02 Transfer of Shares; Registered Shareholders ................... 12 Section 7.03 Transfer Agents and Registrars ................................ 12 Section 7.04 Record Date ................................................... 12 Section 7.05 Lost or Destroyed Certificates ................................ 12 ARTICLE VIII Books and Records Section 8.01 Books and Records ............................................. 13 Section 8.02 Examination of Books .......................................... 13 ARTICLE IX Indemnification Section 9.01 Indemnification - Third Party and Derivative Actions .......... 13 Section 9.02 Payment of Indemnification; Repayment ......................... 15 Section 9.03 Procedure for Indemnification ................................. 15 Section 9.04 Survival; Preservation of Other Rights ........................ 16 Section 9.05 Savings Clause ................................................ 16 ARTICLE X Miscellaneous Section 10.01 Corporate Seal ............................................... 17 Section 10.02 Fiscal Year .................................................. 17 ARTICLE XI Amendments Section 11.01 Amendments ................................................... 17 Section 11.02 Notice of Amendment .......................................... 17 iii EDO CORPORATION (A New York Corporation) BY-LAWS ARTICLE I Meetings of Shareholders Section 1.01. Annual Meetings. The annual meeting of shareholders for the election of directors and for the transaction of such other business as properly may come before such meeting shall be held on the fourth Tuesday in April in each year, if not a legal holiday, or, if a legal holiday, then on the next succeeding day not a legal holiday, at such time as the Board of Directors may fix. [Sec. 602(a), (b)]* Section 1.02. Special Meetings. Special meetings of shareholders may be called at any time by the Chairman of the Board of Directors, or by the President, or by order of the Board of Directors, or by a majority of the directors then in office acting without a meeting. At any special meeting of shareholders, only such business may be transacted as is related to the purpose or purposes set forth in the notice required by Section 1.04. [Sec. 602(c)] Section 1.03. Place of Meetings. Each meeting of shareholders shall be held at the principal office of the Corporation in the State of New York or at such other place within or without the State of New York as may be specified in the notice of the meeting. [Sec. 602(a)] Section 1.04. Notice of Meetings. Written notice of the place, date and hour of each meeting of the shareholders shall be given as provided in Section 4.01 to each shareholder entitled to vote thereat, or otherwise entitled by law to notice thereof, not less than 10 nor more than 50 days before the meeting. Notice of a special meeting shall also state the purposes for which the meeting is called and indicate by or at whose direction the notice is being issued. If any action is proposed to be taken at any shareholders' meeting which would, if taken, entitle shareholders fulfilling the requirements of section 623 of the New York Business Corporation Law (relating to a shareholder's statutory appraisal rights) to receive payment for their shares, the notice shall also include - - ------------------------ * Except as otherwise noted, citations are to the New York Business Corporation Law as in effect on September 26, 1986 for Sections 1 to 800 and October 2, 1986 for Sections 801 to end. Bracketed citations are for reference only and do not constitute a part of the By-Laws. 1 a statement to that effect. Notice of any meeting need not be given to any shareholder with whom communication is then unlawful by virtue of any law of the State of New York or of the United States of America now or hereafter enacted or amended or any rule, regulation, proclamation or executive order issued under any such law. [Secs. 108, 605*] Section 1.05. Quorum. Except as otherwise provided by law and subject to the provisions of Section 1.07 and Section 6.02(b), the holders of a majority of the shares issued and outstanding entitled to vote thereas, present in person or by proxy, shall constitute a quorum for the transaction of business at any meeting of shareholders. Once a quorum is present to organize a meeting, the subsequent withdrawal of any shareholders shall not be deemed to break the quorum. [Sec. 608] Section 1.06. Inspectors of Election. At each meeting of shareholders for the election of directors the chairman of the meeting, if requested to do so by any shareholder entitled to vote for the election of directors, whether or not present at such meeting, shall appoint two persons, who may but need not be shareholders or officers, to act as Inspectors of Election at the meeting. If any Inspector so appointed be absent or refuse or fail to act, the chairman of the meeting shall fill the vacancy by appointing a successor Inspector. If there be a failure so to appoint Inspectors, or to fill a vacancy, the shareholders present at the meeting in person or by proxy and entitled to vote, by a per capita vote, may choose temporary Inspectors of the number required. The Inspectors appointed to act at any meeting of shareholders, before entering upon the discharge of their duties, shall be sworn faithfully to execute the duties of Inspectors at such meeting with strict impartiality, and according to the best of their ability, and the oath so taken shall be subscribed by them. [Secs. 610, 611] Section 1.07. Voting. At each meeting of shareholders each holder of record of shares entitled to vote at such meeting shall be entitled to one vote for each such share standing in his name on the books of the Corporation on the record date as determined pursuant to Section 1.09. Except as at the time otherwise expressly required by statute, by the Certificate of Incorporation of the Corporation or by Section 1.06 (regarding appointment of Inspectors), Section 2.02 (regarding election of directors) or Section 2.07 (regarding removal of directors), all corporate action to be taken by vote of the shareholders shall be authorized by a majority of the votes cast by the holders of shares entitled to vote thereon at a meeting of the shareholders at which a quorum is present. Treasury shares and shares held by any other corporation (if a majority of the shares entitled to vote in the election of directors of such other corporation is held by the Corporation) shall not be shares entitled to vote or to be counted in determining the total number of outstanding shares. [Secs. 612, 614] - - ------------------------ * As in effect prior to passage of 1982 N.Y. Laws ch. 202, sec. 2 and 1986 N.Y. Laws ch. 735, sec. 1, amending Sec. 605(a). 2 Section 1.08. Proxies. Any shareholder entitled to vote at a meeting of shareholders or to express consent or dissent without a meeting may authorize another person or persons to act for him by proxy. Each proxy must be in writing, signed by the shareholder or by his attorney-in-fact and shall be filed with the secretary of any meeting at which the holder thereof votes thereunder. No proxy shall be valid after the expiration of 11 months from the date thereof unless otherwise provided in the proxy. Each proxy shall be revocable at the pleasure of the shareholder executing it, except if and to the extent that an irrevocable proxy is given and is permitted by law. [Sec. 609] Section 1.09. Record Date. The Board of Directors may fix, in advance, a date as the record date for determining the shareholders entitled to notice of or to vote at any meeting of shareholders or any adjournment thereof, or to express consent to or dissent from any proposal without a meeting. Such date shall be not more than 50 nor less than 10 days before the date of such meeting. [Sec. 604] Section 1.10. Adjourned Meetings. The holders of a majority of the shares present in person or by proxy at a meeting and entitled to vote thereat may from time to time adjourn the meeting, whether or not a quorum was present at the meeting. When a determination of shareholders of record entitled to notice of or to vote at any meeting of shareholders has been made pursuant to Section 1.09, such determination shall apply to any adjournment of the meeting unless the Board of Directors fixes a new record date for the adjourned meeting. When a meeting is adjourned to another time or place, no notice need be given if such time or place is announced at the meeting at which the adjournment is taken. However, if the Board of Directors fixes a new record date for the adjourned meeting, notice of the adjourned meeting shall be given to each shareholder of record on the new record date entitled to notice. At any adjourned meeting at which a quorum is present, any business may be transacted which might have been transacted at the meeting as originally called. [Secs. 604(c), 605(b), 608(d)] ARTICLE II Board of Directors Section 2.01. General Powers. The property, affairs and business of the Corporation shall be managed under the direction of the Board of Directors. [Sec. 701] Section 2.02. Number, Term of Office, Election and Qualifications. The full Board of Directors shall consist of not less than nine nor more than fifteen directors, all of whom shall be at least 21 years of age, and no more than 73 years of age on the date of the annual meeting of shareholders. The Board of Directors may also appoint a retiring Chairman of the Board to emeritus status which shall not include the right to vote, or to be counted toward the determination of the full Board of Directors or for the determination of a quorum. Past or present officers or employees of the Corporation shall not comprise more than one third of the 3 Board of Directors. Each director shall hold at least 1000 shares of any class of the Corporation; provided that failure to hold such number of shares shall not prevent or disqualify any person not a director from being elected a director pursuant to this Section 2.02 or Section 2.08 or from serving as a director for a period of 60 days from the time of such election. Subject to the provisions of this Section and of Section 2.08, the number of directors, within the limits provided, necessary to constitute a full Board shall be determined from time to time by vote of a majority of the entire Board of Directors. Directors shall be elected at the annual meeting of shareholders. If the number of directors be increased between annual meetings of shareholders, the additional directors to fill the vacancies thus created shall be elected as provided in Section 2.08. There shall be three classes of directors. All classes shall be as nearly equal in number as possible, and no class shall include less than three directors. At each annual meeting of shareholders, each director elected to replace a director whose term expires at such annual meeting shall be elected to hold office for a term expiring at the third succeeding annual meeting after his election. Each director shall hold office until the expiration of his term and until his successor is elected and qualified or until his earlier death, resignation or removal. A director elected to fill a vacancy, unless elected by the shareholders, shall be elected to hold office for a term expiring at the next meeting of shareholders at which the election of directors is in the regular order of business. If the number of directors is changed, (a) any newly created directorship or any decrease in directorships shall be so apportioned among the classes as to make all classes as nearly equal in number as possible, and (b) when the number of directors is increased by the Board and any newly created directorships are filled by the Board, there shall be no classification of the additional directors until the next annual meeting of shareholders. At each meeting of shareholders for the election of directors the directors shall be chosen and elected by a plurality of the votes cast at such meeting by the holders of shares entitled to vote in the election. [Secs. 701-05] Section 2.03. Regular Meetings. Promptly after the close of each annual meeting of the shareholders, the Board of Directors shall, without notice, meet where such annual meeting was held, or at such other place as may be fixed by resolution of the Board of Directors, for the purpose of appointing officers and committees for the ensuing year and transacting other proper business. Other regular meetings of the Board of Directors may be held without notice at such time and place as shall from time to time be scheduled by resolution of the Board of Directors, and such schedule may be changed at any regular meeting of the Board of Directors or at any special meeting called for that purpose, provided that notice of the change shall be given to all directors no later than 5 days prior to the first meeting held under such schedule as so changed. [Secs. 710, 711] Section 2.04. Special Meetings. Special meetings of the Board of Directors may be called by the Chairman of the Board of Directors, the President, or any two directors. If such a meeting is called by the Chairman of the Board of Directors or by the President, such officer shall, or shall direct the Secretary to, fix a time and place for and give notice of 4 the time, place, and purposes of such meeting. If such a meeting is called by any two directors, upon delivery to the Chairman of the Board of Directors, President or Secretary, in person or by registered mail, of a request in writing for a special meeting, specifying the purposes thereof, it shall be the duty of the officer to whom the request is delivered to fix a time and place for (unless the requesting directors shall have fixed such time and place) and give notice of the time, place and purposes of such meeting. All such notices of meetings shall be given as provided in Section 4.01, if by mail, at least three days before the day on which the meeting is to be held, or, if by personal delivery, telephone or telegram, not later than the day before the day on which the meeting is to be held. [Secs. 710, 711] Section 2.05. Quorum and Voting. One third of the total number of directors which the Corporation would have if there were no vacancies shall constitute a quorum for the transaction of business at any meeting of the Board of Directors, but if a quorum shall not be present thereat, a majority of the directors present may from time to time adjourn any such meeting until a quorum shall be present, and the meeting may be held at adjourned without further notice. If a quorum is present at any meeting, the vote of a majority of the directors present shall be the act of the Board of Directors, except as otherwise provided by law. The directors shall act only as a Board and, except as provided in Section 1.02 (relating to calling special meetings of the shareholders), Section 2.04 (relating to calling special meetings of the Board of Directors) and this Section 2.05 (relating to the adjournment of meetings in the absence of a quorum), individual directors shall have no powers as such. [Secs. 707, 708, 711(d)] Section 2.06. Resignations. Any director may resign at any time by delivering a written resignation to either the Chairman of the Board of Directors, the President, a Vice President or the Secretary. Unless otherwise specified therein, such resignation shall take effect upon such delivery. Section 2.07. Removal of Directors. Any director may be removed at any time, either for or without cause, by the affirmative vote of the holders of a majority of the outstanding shares of the Corporation entitled to vote for the election of directors, given at a meeting of the shareholders called for the purpose. Any vacancy in the Board of Directors caused by any such removal may be filled at such meeting by the shareholders entitled to vote for the election of directors; if the shareholders do not fill such vacancy at such meeting, such vacancy may be filled in the manner provided in Section 2.08. The provisions of this Section may be amended, altered or repealed only by the shareholders in the manner specified in clause (1) of Section 11.01. [Sec. 706] Section 2.08. Newly Created Directorships and Vacancies. Newly created directorships resulting from an increase in the number of directors and vacancies occurring in the Board of Directors for any reason except the removal of directors without cause may be filled (unless theretofore filled by the shareholders in accordance with the provisions of Section 2.07) by vote of a majority of the directors then in office, al- 5 though less than a quorum exists. Any such newly created directorship or vacancy (unless theretofore filled by the directors in accordance with the provisions of this Section) may also be filled by the shareholders entitled to vote for the election of directors at any meeting held during the existence of such vacancy provided that the notice of the meeting shall have mentioned such vacancy or expected vacancy. [Sec. 705] Section 2.09. Action by Written Consent. Any action required or permitted to be taken by the Board of Directors or any committee thereof may be taken without a meeting if all members of the Board of Directors or the committee consent in writing to the adoption of a resolution authorizing the action. The resolution and the written consents thereto by the members of the Board of Directors or committee shall be filed with the minutes of the proceedings of the Board of Directors or committee. [Sec. 708(b)] Section 2.10. Participation in a Meeting by Telephone. Any one or more members of the Board of Directors or any committee thereof may participate in a meeting of the Board of Directors or such committee by means of a conference telephone or similar communications equipment allowing all persons participating in the meeting to hear each other at the same time. Participation by such means shall constitute presence in person at such meeting. [Sec. 708(c)] ARTICLE III Executive Committee and Other Committees Section 3.01. How Constituted. By resolution adopted by a majority of the entire Board of Directors, the Board may designate one or more committees, including an Executive Committee, each consisting of three or more directors. Each such committee shall serve at the pleasure of the Board. [Sec. 712] Section 3.02. Powers of the Executive Committee. Unless otherwise provided by resolution adopted by a majority of the entire Board of Directors, when the Board of Directors is not in session the Executive Committee shall have and may exercise all the powers of the Board of Directors, except that the Executive Committee shall not have the authority as to the following matters: (a) the submission to shareholders of any action as to which shareholders' approval is required by law; (b) the filling of vacancies in the Board of Directors or in any committee thereof; (c) the fixing of compensation of the directors for serving on the Board of Directors or any committee thereof; 6 (d) the amendment or repeal of the By-Laws, or the adoption of new By-Laws; or (e) the amendment or repeal of any resolution of the Board of Directors which by its terms shall not be so amendable or repealable. [Sec. 712] Section 3.03. Other Committees. To the extent provided by resolution adopted by a majority of the entire Board of Directors, other committees shall have and may exercise any of the powers of the Board of Directors except that no such committee shall have authority as to the matters set forth in Section 3.02(a)-(e). [Sec. 712] Section 3.04. Proceedings, Quorum and Manner of Acting. Subject to the control of the Board of Directors, each committee may adopt such rules and regulations governing its proceedings, quorum and manner of acting as it shall deem proper and desirable, provided that a quorum shall not be less than two directors. ARTICLE IV Notices Section 4.01. Form and Delivery. Except as otherwise expressly provided by law or by these By-Laws, any written notice required to be given by law, the Certificate of Incorporation or these By-Laws to any shareholder, director or other person may be delivered personally or by mail or, in the case of notices to directors, by telephone or telegram. Notice by mail shall be deemed to have been given at the time when such notice is deposited in the United States mail, postage prepaid, addressed to such shareholder, director or other person at his last known address as the same appears on the records of the Corporation or, if a shareholder shall have filed with the Secretary a written request that notices to him be mailed to some other address, then directed to him at such other address. [Secs. 605(a), 711(b)] Section 4.02. Waiver. No notice required to be given by any statute, by the Certificate of Incorporation or by these By-Laws need be given to any person otherwise entitled to notice who signs in person or, if a shareholder, by proxy, a waiver of notice, whether signed before or after the time of the action to which the notice relates. In addition, the attendance by any shareholder at any meeting of the shareholders in person or by proxy without protesting prior to the conclusion of such meeting the absence of notice thereof to him, and the attendance by any director at any meeting of the Board of Directors without protesting prior to such meeting or at its commencement such absence of notice, shall, in each such case, constitute a waiver of notice of such meeting. [Secs. 606, 711(c)] 7 ARTICLE V Officers Section 5.01. Number and Qualification. The officers of the Corporation shall be a Chairman of the Board of Directors, a President, one or more Vice Presidents, a Secretary and a Treasurer, and such other officers as may be appointed in accordance with the provisions of Section 5.03. Any one person may hold more than one of such offices except those of President and Secretary. The Chairman of the Board of Directors and the President shall be chosen from among the directors. No other officer need be a director. Officers shall be at least 21 years of age and, except for the Chairman of the Board of Directors, no more than 70 years of age on the date of the annual meeting of shareholders. [Sec. 715] Section 5.02. Appointment and Term of Office. Each officer (unless appointed under power delegated pursuant to the second sentence of Section 5.03) shall be appointed by the Board of Directors and (unless appointed under the provisions of Section 5.03 for a different term) shall hold office until the first meeting of the Board of Directors following the next succeeding annual meeting of shareholders and thereafter until his successor shall have been appointed and qualified or until his earlier death or disqualification or until he shall have resigned in the manner provided in Section 5.04 or shall have been removed in the manner provided in Section 5.05. [Sec. 715] Section 5.03. Subordinate Officers. The Board of Directors from time to time may appoint such other officers or agents as it may deem advisable, each of whom shall have such title, hold office for such period, have such authority and perform such duties as the Board of Directors from time to time may determine. The Board of Directors may delegate to any officer or agent the power to appoint any such subordinate officers or agents and to prescribe their respective titles, terms of office, authorities and duties. Section 5.04. Resignations. Any officer may resign at any time by delivering a written resignation to the Board of Directors, the Chairman of the Board of Directors, the President or the Secretary. Unless otherwise specified therein, such resignation shall take effect upon such delivery. Section 5.05. Removal. Any officer may be removed at any time, either for or without cause, by action of the Board of Directors. [Sec. 716] Section 5.06. Vacancies. A vacancy in any office because of death, resignation, removal, disqualification or any other cause, may be filled in the manner prescribed in this Article for regular appointment to such office. [Sec. 715] Section 5.07. The Chairman of the Board of Directors. The Chairman of the Board of Directors shall preside at all meetings of shareholders and the Board of Directors at which he shall be present. He shall 8 have such other powers and perform such other duties as may be assigned to him from time to time by the Board of Directors. Section 5.08. The President. In the absence of the Chairman of the Board of Directors, the President shall preside at all meetings of the shareholders and of the Board of Directors at which he shall be present. He shall have such other powers and perform such other duties as may be assigned to him from time to time by the Board of Directors. Section 5.09. The Vice Presidents. Each Vice President shall perform such duties as from time to time may be assigned to him by the Board of Directors, the Chairman of the Board of Directors or the President. The Vice President designated by the Board of Directors (or, in the absence of such designation, by the Chairman of the Board of Directors) shall, at the request of the Chairman of the Board of Directors or the President, or in the event of the absence or disability of both of such officers, perform all the duties of the Chairman of the Board of Directors or the President or both, as the case may be. When so acting, such designated Vice President shall have all the powers of and be subject to all the restrictions upon the Chairman of the Board of Directors or the President or both, as the case may be. Section 5.10. The Secretary. The Secretary shall: (a) Keep the minutes of meetings of shareholders and of the Board of Directors and cause the same to be recorded in books provided by him for that purpose. (b) Upon the request of any shareholder given at or prior to any meeting of shareholders, produce at such meeting a list of shareholders as of the record date for such meeting, certified by the corporate officer responsible for its preparation or by a transfer agent. [Sec. 607] (c) Cause all notices to be duly given in accordance with the provisions of these By-Laws and as required by statute. [Sec. 605] (d) Be custodian of the records and seal of the Corporation, and cause such seal (or a facsimile thereof) to be affixed to all certificates for shares of the Corporation the issuance of which shall have been authorized by the Board of Directors, and to all instruments the execution of which under the seal of the Corporation shall have been duly authorized. [Sec. 508] (e) Cause a record of shareholders to be kept in accordance with Section 8.01. (f) In general, perform all duties incident to the office of the Secretary and such other duties as from time to time may be assigned to him by the Board of Directors, the Chairman of the Board of Directors or the President. Section 5.11. The Treasurer. The Treasurer shall: 9 (a) Have charge of and supervision over and be responsible for the funds, securities, receipts and disbursements of the Corporation. (b) Cause the moneys and other valuable effects of the Corporation not otherwise employed to be deposited in the name and to the credit of the Corporation in such banks or trust companies or with such bankers or other depositaries as shall be selected in accordance with Section 6.03. (c) Cause the moneys of the Corporation to be disbursed by checks or drafts (signed as provided in Section 6.04) upon the authorized depositaries of the Corporation, and cause to be taken and preserved proper vouchers for all moneys disbursed. (d) Render to the Board of Directors, the Chairman of the Board of Directors, or the President, whenever requested, a statement of the financial condition of the Corporation and of all his transactions as Treasurer, and render a full financial report at any annual meeting of shareholders if called upon to do so. (e) Cause to be kept at the principal office of the Corporation correct books of account of all its business and transactions and exhibit such books to any director upon application at such office during business hours. (f) Be empowered from time to time to require from all officers or agents of the Corporation reports or statements giving such information as he may desire with respect to any and all financial transactions of the Corporation. (g) In general, perform all duties incident to the office of the Treasurer and such other duties as from time to time may be assigned to him by the Board of Directors, the Chairman of the Board of Directors or the President. ARTICLE VI Fiscal Matters Section 6.01. Execution of Instruments. The Chairman of the Board of Directors, the President, any Vice President or the Treasurer may enter into any contract or execute and deliver any instrument in the name and on behalf of the Corporation in the ordinary course of its business. Subject to the approval of the Board of Directors, any officer or agent of the Corporation may enter into any contract or execute and deliver any instrument in the name and on behalf of the Corporation. The Board of Directors may authorize any officer or agent to enter into any contract or execute and deliver any instrument in the name and on behalf of the Corporation. Any such authorization may be general or confined to specific instances. 10 Section 6.02. Loans, etc. (a) No loans or advances to or by the Corporation shall be contracted, and no notes or other evidences of indebtedness shall be issued in its name, unless and except as authorized by the Board of Directors. Any such authorization may be general or confined to specific instances. So far as may be lawful, any officer or agent of the Corporation thereunto so authorized may effect loans and advances to or by the Corporation, and for loans and advances made to the Corporation may make, execute and deliver promissory notes, bonds or other evidences of indebtedness of the Corporation. So far as may be lawful, any officer or agent of the Corporation thereunto so authorized may pledge, hypothecate or transfer, as security for the payment of any and all loans or advances to or indebtedness and liabilities of the Corporation, any and all stocks, bonds, claims and other personal property, securities or receivables at any time owned by the Corporation or to which it is or will be at any time entitled, and to that end may endorse, assign and deliver the same and take any action necessary or proper in connection therewith. (b) No loan shall be made by the Corporation to any director unless it is authorized by vote of the shareholders. For this purpose, the shares of the director who would be the borrower shall not be shares entitled to vote. [Sec. 714] Section 6.03. Deposits. All funds of the Corporation not otherwise employed shall be deposited from time to time to its credit in such banks or trust companies or with such bankers or other depositaries as the Board of Directors from time to time may select, or as may be selected by any officer or agent authorized to do so by the Board of Directors. Section 6.04. Checks, Drafts, etc. All notes, drafts, acceptances, checks, endorsements, and all evidences of indebtedness of the Corporation whatsoever, shall be signed by such officer or officers or such agent or agents of the Corporation and in such manner as the Board of Directors from time to time may determine. ARTICLE VII Capital Stock Section 7.01. Certificates for Shares. Shares of the Corporation shall be represented by certificates, in form approved by the Board of Directors, signed by the Chairman of the Board of Directors, the President or a Vice President and by the Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer and sealed with the seal of the Corporation. Such seal may be a facsimile, engraved, lithographed, printed or otherwise reproduced. The signatures of the officers upon a certificate may be facsimiles if the certificate is countersigned by a transfer agent or registered by a registrar other than the Corporation itself or its employee. In case any such officer who has signed or whose facsimile signature has been placed upon such certificate shall have ceased to be such before such certificate is issued, it may be issued by 11 the Corporation with the same effect as if such officer had not ceased to be such at the date of its issue. [Sec. 508(a)*] Section 7.02. Transfer of Shares; Registered Shareholders. (a) Shares of the Corporation shall be transferable only upon the books of the Corporation kept for such purpose upon surrender to the Corporation or its transfer agent or agents of a certificate representing shares, duly endorsed or accompanied by appropriate evidence of succession, assignment or authority to transfer. (b) The Board of Directors, subject to applicable law and these By-Laws, may make such rules, regulations and conditions as it may deem expedient concerning the subscription for, issue, transfer and registration of, shares of the Corporation. Except as otherwise provided by law, the Corporation, prior to due presentment for registration of transfer, may treat the registered owner of shares as the person exclusively entitled to vote, to receive notifications, and otherwise to exercise all the rights and powers of an owner. [Sec. 508(d), UCC** Secs. 8-207, 8-401, 8-402, 8-403] Section 7.03. Transfer Agents and Registrars. The Board of Directors may appoint one or more transfer agents and may appoint one or more registrars of the shares of the Corporation, and upon such appointments being made, no certificate representing shares shall be valid unless and until countersigned by one of such transfer agents, if any, and registered by one of such registrars, if any. The same person may act as transfer agent and registrar for the shares of any class of the Corporation. Section 7.04. Record Date. The Board of Directors may fix, in advance, a date as the record date for determining the shareholders entitled to receive payment of any dividend, the allotment of any rights, the making of any distribution, or for the delivery of evidences of rights or evidences of interests arising out of any change, conversion or exchange of shares. Such date shall be not more than 50 days prior to any such action. [Sec. 604(a)] Section 7.05. Lost or Destroyed Certificates. The Corporation may issue a new certificate in the place of any certificate theretofore issued by it alleged to have been lost or destroyed, and the Board of Directors may require the owner of the lost or destroyed certificate, or his legal representative, to give the Corporation a bond in such sum as the Board may direct, with such surety or sureties as may be satisfactory to the Board, to indemnify the Corporation against any claim that may be made against it on account of the alleged loss or destruction of any such certificate or the issuance of any such new certificate. A new certificate may be issued without requiring any bond when, in the judgment of the Board of Directors, it is proper to do so. [Sec. 508(e); UCC Sec. 8-405] - - ------------------------ * As in effect prior to passage of 1985 N.Y. Laws ch. 578, sec. 1, amending sec. 508(a). ** New York Uniform Commercial Code, as in effect on September 15, 1986. 12 ARTICLE VIII Books and Records Section 8.01. Books and Records. The Corporation shall keep correct and complete books and records of account and shall keep minutes of the proceedings of the shareholders, the Board of Directors and the Executive Committee, if any. The Corporation shall keep at the principal office of the Corporation in the State of New York or at the office of its transfer agent or registrar in the State of New York a record containing the names and addresses of all shareholders, the number and class of shares held by each and the dates when they respectively became the owners of record thereof. Any of the foregoing books, minutes or records may be in written form or in any other form capable of being converted into written form within a reasonable time. Unless otherwise expressly required by statute or by these By-Laws, the books and records of the Corporation shall be kept, within or outside the State of New York, at such place or places as may be designated from time to time by the Board of Directors. [Sec. 624(a)] Section 8.02. Examination of Books. So far as permitted by law, the Board of Directors shall have power to determine from time to time whether, to what extent, at what times and places and under what conditions and regulations, the books, records, documents and accounts of the Corporation, or any of them, shall be open to inspection by shareholders; and no shareholder shall have any right to inspect any books, records, documents or accounts of the Corporation, except as conferred by statute or these By-Laws or authorized by resolution of the shareholders or the Board of Directors. [Sec. 624(b)] Article IX Indemnification Section 9.01. Indemnification--Third Party and Derivative Actions. (a) The Company shall indemnify any person made, or threatened to be made, a party to an action or proceeding (other than one by or in the right of the Company to procure a judgment in its favor), whether civil or criminal, including an action by or in the right of any other corporation of any type or kind, domestic or foreign, or any partnership, joint venture, trust, employee benefit plan or other enterprise, which any director or officer of the Company served in any capacity at the request of the Company, by reason of the fact that he, his testator or intestate, was a director or officer of the Company, or served such other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise in any capacity, against judgments, fines, amounts paid in settlement and reasonable expenses, including attorneys' fees actually and necessarily incurred as a result of such action or proceeding, or any appeal therein, if such director or officer acted, in good faith, for a purpose which he reasonably believed to be in, or, in the case of service 13 for any other corporation or any partnership, joint venture, trust, employee benefit plan or other enterprise, not opposed to, the best interests of the Company and, in criminal actions or proceedings, in addition, had no reasonable cause to believe that his conduct was unlawful. (b) The termination of any such civil or criminal action or proceeding by judgment, settlement, conviction or upon a plea of nolo contendere, or its equivalent, shall not in itself create a presumption that any such director or officer did not act, in good faith, for a purpose which he reasonably believed to be in, or, in the case of service forany other corporation or any partnership, joint venture, trust, employee benefit plan or other enterprise, not opposed to, the best interests of the Company or that he had reasonable cause to believe that his conduct was unlawful. (c) The Company shall indemnify any person made, or threatened to be made, a party to an action by or in the right of the Company to procure a judgment in its favor by reason of the fact that he, his testator or intestate, is or was a director or officer of the Company, or is or was serving at the request of the Company as a director or officer of any other corporation of any type or kind, domestic or foreign, of any partnership, joint venture, trust, employee benefit plan or other enterprise, against amounts paid in settlement and reasonable expenses, including attorneys' fees, actually and necessarily incurred by him in connection with the defense or settlement of such action, or in connection with an appeal therein, if such director or officer acted, in good faith, for a purpose which he reasonably believed to be in, or, in the case of service for any other corporation or any partnership, joint venture, trust, employee benefit plan or other enterprise, not opposed to, the best interests of the Company, except that no indemnification under this subparagraph (c) shall be made in respect of (1) a threatened action, or a pending action which is settled or otherwise disposed of, or (2) any claim, issue or matter as to which such person shall have been adjudged to be liable to the Company, unless and only to the extent that the court in which the action was brought, or, if no action was brought, any court of competent jurisdiction, determines upon application that, in view of all the circumstances of the case, the person is fairly and reasonably entitled to indemnity for such portion of the settlement amount and expenses as the court deems proper. (d) For the purpose of this Section 1, the Company shall be deemed to have requested a person to serve an employee benefit plan where the performance by such person of his duties to the Company also imposes duties on, or otherwise involves services by, such person to the plan or participants or beneficiaries of the plan; excise taxes assessed on a person with respect to an employee benefit plan pursuant to applicable law shall be considered fines; and action taken or omitted by a person with respect to an employee benefit plan in the performance of such person's duties for a purpose reasonably believed by such person to be in the interest of the participants and beneficiaries of the plan shall be deemed to be for a purpose which is not opposed to the best interests of the Company. [Sec. 722] 14 Section 9.02. Payment of Indemnification; Repayment. (a) A person who has been successful, on the merits or otherwise, in the defense of a civil or criminal action or proceeding of the character described in Section 1 of this Article shall be entitled to indemnification as authorized in such Section. (b) Except as provided in the foregoing sentence, any indemnification under Section 1 of this Article, unless ordered by a court under Section 724 of the New York Business Corporation Law as from time to time amended, shall be made by the Company, only if authorized in the specific case: (1) by the Board of Directors acting by a quorum consisting of directors who are not parties to such action or proceeding upon a finding that the director or officer has met the standard of conduct set forth in Section 1 of this Article or otherwise established by the Company pursuant to the last sentence of Section 4 of this Article; or (2) if a quorum under the foregoing subparagraph (1) is not obtainable or, even if obtainable, a quorum of disinterested directors so directs: (i) by the Board of Directors upon the opinion in writing of independent legal counsel that indemnification is proper in the circumstances because the applicable standard of conduct set forth in such Section 1 of this Article or otherwise established by the Company pursuant to the last sentence of Section 4 of this Article has been met by such director or officer, or (ii) by the shareholders upon a finding that the director or officer has met such applicable standard of conduct. (c) Expenses incurred in defending a civil or criminal action or proceeding shall be paid by the Company in advance of the final disposition of such action or proceeding upon receipt of an undertaking by or on behalf of such director or officer to repay such amount as, and to the extent, required by Section 2(d) of this Article. (d) All expenses incurred in defending a civil or criminal action or proceeding which are advanced by the Company under this Article or allowed by a court shall be repaid in case the person receiving such advancement or allowance is ultimately found, under the procedure set forth in this Article, not to be entitled to indemnification or, where indemnity is granted, to the extent the expenses so advanced by the Company or allowed by the court exceed the indemnification to which he is entitled. [Secs. 723,72 5(a)] Section 9.03. Procedure for Indemnification. Any indemnification of a director or officer of the Company under Section 1, or advance of costs, charges and expenses under Section 2(c) of this Article, shall be made promptly, and in any event within 60 days, upon the written request of the director or officer. The right to indemnification or advances as granted by this Article shall be enforceable by the director or 15 officer in any court of competent jurisdiction if the Company denies such request, in whole or in part, or if no disposition thereof is made within 60 days. Such person's costs and expenses incurred in connection with successfully establishing his right to indemnification, in whole or in part, in any such action shall also be indemnified by the Company. It shall be a defense to any such action (other than an action brought to enforce a claim for the advance of costs, charges and expenses under Section 2(c) of this Article where the required undertaking, if any, has been received by the Company) that the claimant has not met the standard of conduct set forth in Section 1 of this Article or otherwise established by the Company pursuant to the last sentence of Section 4 of this Article, but the burden of proving such defense shall be on the Company. Neither the failure of the Company (including its Board of Directors, its independent legal counsel, and its stockholders), to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he has met the applicable standard of conduct set forth in Section 1 of this Article or otherwise established by the Company pursuant to the last sentence of Section 4 of this Article, nor the fact that there has been an actual determination by the Company (including its Board of Directors, its independent legal counsel, and its stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that the claimant has not met the applicable standard of conduct. Section 9.04. Survival; Preservation of Other Rights. The foregoing indemnification provisions shall be deemed to be a contract between the Company and each director and officer (and each director and officer of any of its subsidiaries) who serves in such capacity at any time while these provisions as well as the relevant provisions of the New York Business Corporation Law are in effect and any repeal or modification thereof shall not affect any right or obligation then existing with respect to any state of facts then or previously existing or any action, suit, or proceeding previously or thereafter brought or threatened based in whole or in part upon any such state of facts. Such a "contract right" may not be modified retroactively without the consent of such director or officer. The indemnification provided by this Article shall not be deemed exclusive of any other rights to which those indemnified may be entitled under any by-law, agreement, vote of stockholders or directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director or officer and shall inure to the benefit of the heirs, executors and administrators of such a person. The Company is hereby authorized to provide further indemnification if it deems it advisable by resolution of shareholders or directors or by agreement. [Sec. 721] Section 9.05. Savings Clause. If this Article or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Company shall nevertheless indemnify each director or officer of the Company as to costs, charges and expenses (including 16 attorneys' fees), judgments, fines and amounts paid in settlement with respect to any action, suit or proceeding, whether civil, criminal, administrative or investigative, including an action by or in the right of the Company, to the full extent permitted by any applicable portion of this Article that shall not have been invalidated and to the full extent permitted by applicable law. ARTICLE X Miscellaneous Section 10.01. Corporate Seal. The seal of the Corporation shall be circular in form and shall bear the name of the Corporation and the words and figures "Corporate Seal - 1925 - New York". [Sec. 202(a)(3)] Section 10.02. Fiscal Year. The fiscal year of the Corporation shall be the calendar year. ARTICLE XI Amendments Section 11.01. Amendments. All By-Laws of the Corporation, whether adopted by the Board of Directors or the shareholders, shall be subject to amendment, alteration or repeal, and new by-laws may be made, either (1) by vote of the holders of the shares of the Corporation at the time entitled to vote in the election of directors, given at any annual or special meeting of shareholders the notice of which shall have specified or summarized the proposed amendment, alteration, repeal or new by-laws, or (2) by the affirmative vote of at least a majority of the total number of directors then necessary to constitute a full Board, as determined pursuant to Section 2.02, given at any annual, regular or special meeting the notice or waiver of notice of which, unless none is required under the provisions of Section 4.02, shall have specified or summarized the proposed amendment, alteration, repeal or new by-law, provided that the shareholders may at any time provide in the By-Laws that any specified provision or provisions of the By-Laws may be amended, altered or repealed only in the manner specified in the foregoing clause (1), in which event such provision or provisions shall be subject to amendment, alteration or repeal only in such manner. [Sec. 601(a)] Section 11.02. Notice of Amendment. If any by-law regulating an impending election of directors is adopted, amended or repealed by the 17 Board of Directors, there shall be set forth in the notice of the next meeting of shareholders for the election of directors the by-law so adopted, amended or repealed, together with a concise statement of the changes made. [Sec. 601(b)] 18 EX-4.J 3 EXHIBIT 4(J) - AMENDMENT 10 AMENDMENT NO. 10 TO GUARANTEE AGREEMENT AMENDMENT NO. 10 (the "Amendment") dated as of June 30, 1996 to that certain Guarantee Agreement dated as of July 12, 1988 as amended by Amendment and Waiver dated as of April 12, 1990, Amendment No. 2 dated as of October 9, 1990, Amendment No. 3 dated as of April 8, 1991, Amendment No. 4 dated March 26, 1992, Amendment No. 5 dated June 9, 1992, Amendment No. 6 dated July 30, 1993, Amendment No. 7 dated March 3, 1994, effective as of December 31, 1993, Waiver and Amendment No. 8 to Guarantee Agreement dated February 10, 1995, and Amendment No. 9 dated as of June 30, 1995 (as so amended, the "Existing Guarantee") made by EDO Corporation, a New York corporation (the "Guarantor") in favor of NatWest Bank N.A. (formerly National Westminster Bank USA) (the "Bank") (as successor in interest to Manufacturers Hanover Trust Company ("Manufacturers"). W I T N E S S E T H : WHEREAS, the Guarantor and Manufacturers were parties to the Existing Guarantee; WHEREAS, the Bank succeeded to all of Manufacturers' right, title and interest under the Guarantee Agreement pursuant to that certain Assignment and Assumption Agreement dated as of June 8, 1990 between Manufacturers and the Bank; WHEREAS, the Guarantor has requested that the Bank amend certain provisions of the Existing Guarantee; WHEREAS, the Bank has agreed to such request subject to the terms and conditions set forth herein; NOW, THEREFORE, in consideration of the mutual promises contained herein and other good and valuable consideration the receipt of which is hereby acknowledged, the parties hereto agree as follows: 1. The Existing Guarantee is hereby amended as follows: (a) Subsection 10(b)(x) is deleted in its entirety and there is substituted therefor the following: "(x) Limitation on Capital Expenditures. Make any capital expenditures or fixed asset acquisitions, or, without duplication, incur any obligation so to do or permit any Subsidiary so to do, with respect to the Guarantor and its Subsidiaries on a consolidated basis in an amount exceeding (i) $3,500,000 for the fiscal year ending December 31, 1995, (ii) $4,500,000 for the fiscal year ending December 31, 1996, and (iii) $4,000,000 in any fiscal year thereafter. Capital expenditures and fixed asset acquisitions shall be calculated on a non-cumulative basis so that amounts not expended in any fiscal year may not be carried over and expended in subsequent fiscal years." (b) Subsection 10(b)(xiv) is deleted in its entirety and there is substituted therefor the following: "(xiv) Limitations on Acquisitions. Acquire all or any substantial portion of the business, stock or assets of any company or permit any Subsidiary to do any of the foregoing, except that the Guarantor or any Subsidiary may acquire all or any substantial portion of the business, stock or assets of any company if and only if: (i) after giving effect thereto, no Event of Default under the Loan Agreement shall have occurred or would exist as a result of such purchase; (ii) each such acquisition shall be of assets utilized by the transferor thereof in a line of business related to the Guarantor's business or of capital stock of a corporation substantially all of whose properties consist of such assets; (iii) the Guarantor shall have given the Bank not less than thirty (30) days prior written notice of such proposed acquisition, such notice to include the proposed amount, date and form of the proposed transaction, a reasonable description of the assets or stock to be acquired, a description of the liabilities to be assumed (if any) and the location of all assets to be acquired; (iv) concurrently with the consummation of any such acquisition, the Guarantor or its Subsidiary, as the case may be, shall, as additional collateral security for any and all of their respective obligations to the Bank, grant to the Bank a first lien on all of its right, title and interest in and to the acquired assets, if any, by the execution and delivery to the Bank of such agreements, instruments and documents as shall be satisfactory in form and substance to the Bank; and (v) the amount of all such acquisitions with respect to the Guarantor and its Subsidiaries on a consolidated basis shall not exceed $10,000,000 in the aggregate and no single acquisition shall be in excess of $5,000,000." (c) Subsection 12(a) is amended by deleting the clause "At any time on or after April 1, 1997," and substituting therefor the clause "At any time on or after April 1, 2000,". 2. In order to induce the Bank to execute and deliver this Amendment No. 10, the Guarantor hereby represents and warrants to the Bank that the representations and warranties set forth in Section 9 of the Existing Guarantee are true and correct as if made on the date hereof except for changes in the ordinary course of business, none of which, singly or in the aggregate, have had a material adverse effect on the business, operations or financial condition of the Guarantor or on the ability of the Guarantor to perform its obligations under the Existing Guarantee and other than as has been publicly reported by the Guarantor in its announcements, releases or filings with the Securities and Exchange Commission; provided, however, that all references to the term "Guarantee" shall be deemed to be references to the Existing Guarantee as amended by this Amendment No. 10. 3. Defined terms used in this Amendment No. 10 not otherwise defined herein shall have the meanings set forth in the Existing Guarantee unless the context otherwise requires. Except as expressly amended hereby, all of the terms and conditions of the Existing Guarantee shall remain in full force and effect. 4. This Amendment No. 10 shall be governed by and construed in accordance with the laws of the State of New York and may be executed in any number of counterparts, all of which taken together, shall constitute one and the same document. IN WITNESS WHEREOF, the parties hereto have set their signatures as of the date first above written. EDO CORPORATION By: K. A. Paladino ----------------------------- Vice President-Finance and Treasurer Title FLEET BANK, N.A. By: Phillip H. Sorace ----------------------------- Vice President Title EX-10.A 4 EXHIBIT 10(A) - 1996 LONG-TERM INCENTIVE PLAN EDO CORPORATION 1996 Long-Term Incentive Plan 1. PURPOSE. The purpose of the Plan is to foster and promote the long-term financial success of the Company and materially increase shareholder value by motivating superior performance by means of performance-related incentives, encouraging and providing for the acquisition of an ownership interest in the Company by Eligible Employees, and enabling the Company to attract and retain the services of an outstanding management team upon whose judgment, interest and special effort the successful conduct of its operations is largely dependent. 2. DEFINITIONS. "Award" shall mean any grant or award under the Plan, as evidenced in a written document delivered to a Participant as provided in Section 11(b). "Board" shall mean the Board of Directors of the Company. "Cause" shall mean (i) the willful failure by the Participant to perform substantially the Participant's duties as an employee of the Company (other than due to physical or mental illness) (ii) the Participant's engaging in serious misconduct that is injurious to the Company or any Subsidiary or any employee of either (iii) the Participant's having been convicted of, or entered a plea of nolo contendere to, a crime that constitutes a felony, or (iv) the breach by the Participant of any written covenant or agreement not to compete with the Company or any Subsidiary. "Change in Control" shall mean the occurrence of any of the following events: (i) a majority of the members of the Board at any time cease for any reason other than due to death or disability to be persons who were members of the Board twenty-four months prior to such time (the "Incumbent Directors"); provided that any director whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the members of the Board then still in office who are Incumbent Directors shall be treated as an Incumbent Director; or (ii) any "person," including a "group" (as such terms are used in Sections 13(d) and 14(d)(2) of the Exchange Act, but excluding the Company, its Subsidiaries, any employee benefit plan of the Company or any Subsidiary, all employees of the Company or any Subsidiary or any group of which any of the foregoing is a member) is or becomes the "beneficial owner" (as defined in Rule 13(d)(3) under the Exchange Act), directly or indirectly, including, without limitation, by means of a tender or exchange offer, of securities of the Company representing 30% or more of the combined voting power of the Company's then outstanding securities; or (iii) the shareholders of the Company shall approve a definitive agreement (x) for the merger or other business combination of the Company with or into another corporation immediately following which merger or combination (A) the stock of the surviving entity is not readily tradeable on an established securities market, (B) a majority of the directors of the surviving entity are persons who (1) were not directors of the Company immediately prior to the merger and (2) are not nominees or representatives of the Company or (C) any "person," including a "group" (as such terms are used in Sections 13(d) and 14(d)(2) of the Exchange Act, but excluding the Company, its Subsidiaries, any employee benefit plan of the Company or any Subsidiary, employees of the Company or any Subsidiary or any group of which any of the foregoing is a member) is or becomes the "beneficial owner" (as defined in Rule 13(d)(3) under the Exchange Act), directly or indirectly, of 30% or more of the securities of the surviving entity or (y) for the direct or indirect sale or other disposition of all or substantially all of the assets of the Company, or (iv) any other event or transaction that is declared by resolution of the Board to constitute a Change in Control for purposes of the Plan. Notwithstanding the foregoing, a "Change in Control" shall not be deemed to occur in the event the Company files for bankruptcy, liquidation or reorganization under the United States Bankruptcy Code. "Change in Control Price" shall mean the highest price per share paid or offered in any bona fide transaction related to a Change in Control, as determined by the Committee, except that, in the case of Incentive Stock Options and Stock Appreciation Rights relating to Incentive Stock Options, such price shall be the Fair Market Value on the date on which the cash out described in Section 10(a) occurs. "Code" shall mean the Internal Revenue Code of 1986, as amended, and the regulations thereunder. "Committee" shall mean the Compensation Committee of the Board, or such other Board committee as may be designated by the Board to administer the Plan. "Common Shares" shall mean the Common Shares, par value $1.00 per share, of the Company. "Company" shall mean EDO Corporation and any successor thereto. "Director Option" shall mean a Nonstatutory Stock Option granted to each Eligible Director pursuant to Section 5(f) without any action by the Board or the Committee. "Disability" shall mean long-term disability as defined under the terms of the Company's applicable long-term disability plans or policies. "Early Retirement" shall mean retirement at or after the earliest age at which the Participant may retire and receive an immediate, but actuarially reduced, retirement benefit under any defined benefit pension plan maintained by the Company or any of its Subsidiaries in which such Participant participates. "Eligible Director" shall mean a person who is serving as a member of the Board and who is not (and was not at any time during his tenure on the Board) an Eligible Employee. "Eligible Employee" shall mean each Executive Officer and each other key employee of the Company or its Subsidiaries, but shall not include directors who are not employees of any such entity. "Employment" shall mean, for purposes of Sections 5(d), 7(b) and 8(b), continuous and regular salaried employment with the Company or a Subsidiary, which shall include (unless the Committee shall otherwise determine) any period of vacation, any approved leave of absence or any salary continuation or severance pay period and, at the discretion of the Committee, may include service with any former Subsidiary of the Company. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. "Executive Officer" shall mean those persons who are officers of the Company within the meaning of Rule 16a-1(f) of the Exchange Act. "Fair Market Value" shall mean, on any date, the closing price of a Common Share, as reported for such day on a national exchange, or the mean between the closing bid and asked prices for a Common Share on such date, as reported on a nationally recognized system of price quotation. In the event that there are no Common Share transactions reported on such exchange or system on such date, Fair Market Value shall mean the closing price on the immediately preceding date on which Common Share transactions were so reported. "Incentive Stock Option" shall mean an Option which is intended to meet the requirements of Section 422 of the Code. "Nonstatutory Stock Option" shall mean an Option which is not intended to be an Incentive Stock Option. "Normal Retirement" shall mean retirement at or after the earliest age at which the Participant may retire and receive an immediate retirement benefit without an actuarial reduction for early commencement of benefits under any defined benefit pension plan maintained by the Company or any of its Subsidiaries in which such Participant participates. "Option" shall mean the right to purchase the number of Common Shares specified by the Committee, at a price and for the term fixed by the Committee in accordance with the Plan and subject to any other limitations and restrictions as this Plan and the Committee shall impose; provided that a Director Option shall mean the right to purchase the number of Common Shares specified in Section 5(f), on the terms and conditions set forth in such Section 5(f). "Participant" shall mean an Eligible Employee who is selected by the Committee to receive an Award under the Plan. "Performance Period" shall mean the period during which performance measures are established for Performance Shares or Performance Units as determined by the Committee. "Performance Share" shall mean any contingent right granted under Section 8 to receive a Common Share, which right becomes vested and nonforfeitable upon the attainment, in whole or in part, of performance objectives determined by the Committee. "Performance Unit" shall mean any contingent right granted under Section 8 to receive cash (or, at the discretion of the Committee, Common Shares), which right becomes vested and nonforfeitable upon the attainment, in whole or in part, of performance objectives determined by the Committee. "Plan" shall mean the EDO Corporation 1996 Long-Term Incentive Plan, described herein, and as may be amended from time to time. "Predecessor Plans" means the Company's 1983, 1985 and 1988 Stock Option Plans, and the Company's 1983 and 1988 Long-Term Incentive Plans. "Reload Option" shall have the meaning ascribed thereto in Section 5(e). "Restricted Period" shall mean the period during which a grant of Restricted Shares is subject to forfeiture. "Restricted Share" shall mean a Common Share granted under Section 7 which becomes vested and non-forfeitable, in whole or in part, upon the completion of such period of service or performance objectives as shall be determined by the Committee. "Stock Appreciation Right" shall mean a contractual right granted under Section 6 to receive cash, Common Shares or a combination thereof. "Subsidiary" shall mean any corporation of which the Company possesses directly or indirectly fifty percent (50%) or more of the total combined voting power of all classes of stock of such corporation and any other business organization, regardless of form, in which the Company possesses directly or indirectly fifty percent (50%) or more of the total combined equity interests in such organization. 3. ADMINISTRATION. The Plan shall be administered by the Committee which shall consist of at least two directors of the Company chosen by the Board, each of whom is a "disinterested person" within the meaning of Rule 16b-3 under the Exchange Act. The Committee shall have the responsibility of construing and interpreting the Plan and of establishing and amending such rules and regulations as it deems necessary or desirable for the proper administration of the Plan. Any decision or action taken or to be taken by the Committee, arising out of or in connection with the construction, administration, interpretation and effect of the Plan and of its rules and regulations, shall, to the maximum extent permitted by applicable law, be within its absolute discretion (except as otherwise specifically provided herein) and shall be conclusive and binding upon all Participants and any person claiming under or through any Participant. Notwithstanding the foregoing, neither the Committee nor the Board shall have any discretion regarding whether an Eligible Director receives a Director Option pursuant to Section 5(f), or regarding the terms of any such Director Option, including, without limitation, the number of shares subject to any such Director Option. 4. MAXIMUM AMOUNT OF SHARES AVAILABLE FOR AWARDS. (a) Maximum Number of Shares. The maximum number of Common Shares in respect of which Awards may be made under the Plan shall be a total of 600,000 Common Shares. Any shares which, as of the effective date of the Plan (as determined pursuant to Section 11(h)), remain available for awards under the Predecessor Plans shall, upon approval of the Plan by the shareholders of the Company, be cancelled and no longer available for Awards. The maximum number of Common Shares that may be subject to any Awards granted to a Participant in any 12 month period shall not exceed 200,000 shares, as each such number may be adjusted pursuant to Section 4(c). Without limiting the generality of the foregoing, whenever shares are received by the Company in connection with the exercise of or payment for any Award granted under the Plan or any award granted under the Predecessor Plans, only the net number of shares actually issued shall be counted against the foregoing limit. (b) Shares Available for Issuance. Common Shares may be made available from the authorized but unissued shares of the Company or from shares held in the Company's treasury and not reserved for some other purpose. In the event that any Award is payable solely in cash, no shares shall be deducted from the number of shares available for issuance under Section 4(a) by reason of such Award. In addition, if any Award or award under the Predecessor Plans in respect of shares is canceled or forfeited for any reason without delivery of Common Shares, the shares subject to such Award or award shall thereafter again be available for award pursuant to the Plan. (c) Adjustment for Corporate Transactions. In the event that the Committee shall determine that any stock dividend, extraordinary cash dividend, recapitalization, reorganization, merger, consolidation, split-up, spin-off, combination, exchange of shares, warrants or rights offering to purchase Common Shares at a price substantially below fair market value, or other similar event affects the Common Shares such that an adjustment is required to preserve, or to prevent enlargement of, the benefits or potential benefits made available under this Plan, then the Committee may, in such manner as the Committee may deem equitable, adjust any or all of (i) the number and kind of shares which thereafter may be awarded or optioned and sold or made the subject of Stock Appreciation Rights under the Plan, (ii) the number and kinds of shares subject to outstanding Options (including Director Options) and other Awards and (iii) the grant, exercise or conversion price with respect to any of the foregoing. Additionally, the Committee may make provisions for a cash payment to a Participant or a person who has an outstanding Option (other than a Director Option) or other Award. However, the number of shares subject to any Option or other Award shall always be a whole number. 5. STOCK OPTIONS. (a) Grant. Subject to the provisions of the Plan, the Committee shall have the authority to grant Options to an Eligible Employee and to determine (i) the number of shares to be covered by each Option, (ii) the exercise price therefor and (iii) the conditions and limitations applicable to the exercise of the Option. The Committee shall have the authority to grant Incentive Stock Options or Nonstatutory Stock Options; provided that Incentive Stock Options may not be granted to any Participant who is not an employee of the Company or one of its Subsidiaries at the time of grant. In the case of Incentive Stock Options, the terms and conditions of such grants shall be subject to and comply with Section 422 of the Code. (b) Option Price. The Committee shall establish the exercise price at the time each Option is granted, which price shall not be less than 100% of the Fair Market Value of the Common Shares at the date of grant, except that, for purposes of satisfying the foregoing requirement with respect to a Nonstatutory Stock Option, the Committee may elect to credit against the exercise price payable by a Participant the value of any compensation otherwise payable to the Participant under the terms of the Company's compensation practices and programs which is surrendered, foregone or exchanged pursuant to such rules or procedures as the Committee shall establish from time to time. (c) Exercise. Each Option shall be exercised at such times and subject to such terms and conditions as the Committee may specify in the applicable Award or thereafter; provided, however, that if the Committee does not establish a different exercise schedule at or after the date of grant of an Option, such Option shall become exercisable in full on the third anniversary of the date the Option is granted. The Committee may impose such conditions with respect to the exercise of Options as it shall deem appropriate, including, without limitation, any conditions relating to the application of federal or state securities laws. No shares shall be delivered pursuant to any exercise of an Option unless arrangements satisfactory to the Committee have been made to assure full payment of the option price therefor. Without limiting the generality of the foregoing, payment of the option price may be made in cash or its equivalent or, if and to the extent permitted by the Committee, by exchanging Common Shares owned by the optionee (which are not the subject of any pledge or other security interest), or by a combination of the foregoing, provided that the combined value of all cash and cash equivalents and the Fair Market Value of any such Common Shares so tendered to the Company, valued as of the date of such tender, is at least equal to such option price. (d) Termination of Employment. Unless the Committee shall otherwise determine at or after grant, an Option shall be exercisable following the termination of a Participant's Employment only to the extent provided in this Section 5(d). If a Participant's Employment terminates due to the Participant's (i) death, (ii) Disability, (iii) Early Retirement with the consent of the Committee or (iv) Normal Retirement, the Participant (or, in the event of the Participant's death or Disability during Employment or during the period during which an Option is exercisable under this sentence, the Participant's beneficiary or legal representative) may exercise any Option held by the Participant at the time of such termination, regardless of whether then exercisable, for a period of three years (or such greater or lesser period as the Committee shall determine at or after grant), but in no event after the date the Option otherwise expires. If a Participant's Employment is terminated for Cause (or, if after the Participant's termination of Employment, the Committee determines that the Participant's Employment could have been terminated for Cause had the Participant still been employed or has otherwise engaged in conduct that is detrimental to the interests of the Company, as determined by the Committee in its sole discretion), all Options held by the Participant shall immediately terminate, regardless of whether then exercisable. In the event of a Participant's termination of Employment for any reason not described in the preceding two sentences, the Participant (or, in the event of the Participant's death or Disability during the period during which an Option is exercisable under this sentence, the Participant's beneficiary, estate or legal representative) may exercise any Option which was exercisable at the time of such termination for 90 days (or such greater or lesser period as the Committee shall specify at or after the grant of such Option) following the date of such termination, but in no event after the date the Option otherwise expires. (e) Reload Options. The Committee may provide that a Participant (or, if applicable, the Participant's permitted transferee) who delivers Common Shares that have been owned by such Participant (or permitted transferee) for any minimum period of time specified by the Committee to exercise an Option or an option granted under the Predecessor Plans, will automatically (to the extent Common Shares are available for Awards under the Plan) be granted new Options ("Reload Options") for a number of Common Shares equal to the number of shares so delivered. Unless the Committee determines otherwise, such Reload Options will be subject to the same terms and conditions (including the same expiration date) as the related Option except (i) that the exercise price shall be equal to the Fair Market Value of a Common Share on the date such Reload Option is granted and (ii) such Reload Option shall not be exercisable prior to the six month anniversary of the date of grant and, thereafter, shall be exercisable in full. (f) Director Options. Notwithstanding anything else contained herein to the contrary, on the date an Eligible Director is first elected to be a member of the Board of Directors, such Eligible Director shall receive a Director Option to purchase 2,000 Common Shares at an exercise price per share equal to the Fair Market Value on the date of grant. Each Director Option shall be exercisable six months after the date of grant and shall remain exercisable until the earlier to occur of (i) the tenth anniversary of the date of grant or (ii) the first anniversary of the date the Eligible Director ceases to be a member of the Board, except that if the Eligible Director ceases to be a member of the Board after having been convicted of, or pled guilty or nolo contendere to, a felony, his Director Options shall be canceled on the date he ceases to be a director. An Eligible Director may exercise a Director Option in the manner described in Section 5(c). 6. STOCK APPRECIATION RIGHTS. (a) Grant of SARs. The Committee shall have the authority to grant Stock Appreciation Rights in tandem with an Option, in addition to an Option (other than a Director Option), or freestanding and unrelated to an Option. Stock Appreciation Rights granted in tandem or in addition to an Option may be granted either at the same time as the Option or at a later time. Stock Appreciation Rights shall not be exercisable after the expiration of ten years from the date of grant and shall have an exercise price determined in the same manner as, and subject to the same conditions as apply with respect to, a Nonstatutory Stock Option under Section 5(b). (b) Exercise of SARs. A Stock Appreciation Right shall entitle the Participant to receive from the Company an amount equal to the excess of the Fair Market Value of a Common Share on the date of exercise of the Stock Appreciation Right over the exercise price thereof. The Committee shall determine the time or times at which or the event or events (including, without limitation, a Change of Control) upon which a Stock Appreciation Right may be exercised in whole or in part, the method of exercise and whether such Stock Appreciation Right shall be settled in cash, Common Shares or a combination of cash and Common Shares; provided, however, that unless otherwise specified by the Committee at or after grant, a Stock Appreciation Right granted in tandem with an Option shall be exercisable only at the same time or times as the related Option is exercisable. 7. RESTRICTED SHARES. (a) Grant of Restricted Shares. The Committee may grant Awards of Restricted Shares with or without performance criteria to Eligible Employees at such times and in such amounts, and subject to such other terms and conditions not inconsistent with the Plan, as it shall determine. Each grant of Restricted Shares shall be evidenced by an Award agreement. Unless the Committee provides otherwise at or after the date of grant, stock certificates evidencing any Restricted Shares so granted shall be held in the custody of the Secretary of the Company until the Restricted Period lapses, and, as a condition to the grant of any Award of Restricted Shares, the Participant shall have delivered to the Secretary of the Company a certificate, endorsed in blank, relating to the Common Shares covered by such Award. (b) Termination of Employment. Unless the Committee otherwise determines at or after grant, the rights of a Participant with respect to an Award of Restricted Shares outstanding at the time of the Participant's termination of Employment shall be determined under this Section 7(b). In the event that a Participant's Employment terminates due to the Participant's (i) death, (ii) Disability, (iii) Early Retirement with the consent of the Committee or (iv) Normal Retirement, any Award of Restricted Shares shall become vested and nonforfeitable as to that number of shares which is equal to the number of Common Shares subject to such Award times a fraction, the numerator of which is the number of days actually worked during the Restricted Period (or, in the case of an Award which has previously vested in part (an "Installment Award"), the number of days worked since the last vesting date) and the denominator of which is the total number of days during the Restricted Period (or, in the case of an Installment Award, the number of days between the last vesting date and the end of the Restricted Period). Unless the Committee otherwise determines, any portion of any Restricted Shares Award that has not become nonforfeitable at the date of a Participant's termination of Employment shall be forfeited as of such date. (c) Restricted Period; Restrictions on Transferability during Restricted Period. Unless otherwise determined by the Committee at or after the date of grant, the Restricted Period applicable to any Award of Restricted Shares shall lapse, and the shares related to such Award of Restricted Shares shall become freely transferable, at such time as may be determined by the Committee. Restricted Shares may not be sold, assigned, pledged or otherwise encumbered, except as herein provided, during the Restricted Period. Any certificates issued in respect of Restricted Shares shall be registered in the name of the Participant and deposited by such Participant, together with a stock power endorsed in blank, with the Company. (d) Delivery of Shares. Upon the expiration or termination of the Restricted Period and the satisfaction (as determined by the Committee) of any other conditions determined by the Committee, the restrictions applicable to the Restricted Shares shall lapse and a stock certificate for the number of Common Shares with respect to which the restrictions have lapsed shall be delivered, free of all such restrictions, except any that may be imposed by law, to the Participant or the Participant's beneficiary, estate or legal representative, as the case may be. No payment will be required to be made by the Participant upon the delivery of such Common Shares and/or cash, except as otherwise provided in Section 11(a) of the Plan. At or after the date of grant, the Committee may accelerate the vesting of any Award of Restricted Shares or waive any conditions to the vesting of any such Award. (e) Rights as a Shareholder; Dividends. Unless otherwise determined by the Committee at or after the date of grant, Participants granted Restricted Shares shall be entitled to receive, either currently or at a future date, as specified by the Committee, all dividends and other distributions paid with respect to those shares, provided that if any such dividends or distributions are paid in Common Shares or other property (other than cash), such shares and other property shall be subject to the same forfeiture restrictions and restrictions on transferability as apply to the Restricted Shares with respect to which they were paid. The Committee will determine whether and to what extent to credit to the account of, or to pay currently to, each recipient of Restricted Shares, an amount equal to any dividends paid by the Company during the Restricted Period with respect to the corresponding number of Common Shares. To the extent provided by the Committee at or after the date of grant, any dividends with respect to cash dividends on the Common Shares credited to a Participant's account shall be deemed to have been invested in Common Shares on the record date established for the related dividend and, accordingly, a number of additional Restricted Shares shall be credited to such Participant's account equal to the greatest whole number which may be obtained by dividing (x) the value of such dividend on the record date by (y) the Fair Market Value of a Common Share on such date. 8. PERFORMANCE AWARDS. (a) Performance Shares and Performance Units. Subject to the provisions of the Plan, the Committee shall have the authority to grant Performance Shares and Performance Units to any Eligible Employee and to determine (i) the number of Performance Shares and the number of Performance Units to be granted to each Participant and (ii) the other terms and conditions of such Awards. The Performance Period related to Performance Shares or Performance Units shall lapse upon the determination by the Committee that the performance objectives established by the Committee have been attained, in whole or in part on the date established by the Committee. Such performance objectives may be related to the performance of (i) the Company, (ii) a Subsidiary, (iii) a division or unit of the Company or any Subsidiary, (v) the Participant or (vi) any combination of the foregoing, over a measurement period or periods established by the Committee. Unless the Committee otherwise determines at the time of grant of Performance Shares or Performance Units to an Executive Officer, the performance objectives with respect to such Award shall include at least one of the following criteria, which may be determined solely by reference to the performance of the Company or a Subsidiary or based on comparative performance relative to other companies: (i) total return to shareholders, (ii) return on equity, (iii) operating income or net income, (iv) return on capital, (v) economic value added, (vi) earnings per Common Share, or (vii) market price of the Common Shares. Except to the extent otherwise expressly provided herein, the Committee may, at any time and from time to time, change the performance objectives applicable with respect to any Performance Shares or Performance Units to reflect such factors, including, without limitation, changes in a Participant's duties or responsibilities or changes in business objectives (e.g., from corporate to Subsidiary or business unit performance or vice versa), as the Committee shall deem necessary or appropriate. Payment for Performance Shares or Performance Units shall be made by the Company in Common Shares, cash or in any combination thereof, as determined by the Committee. (b) Termination of Employment. Unless the Committee otherwise determines at or after grant, the rights of a Participant with respect to an Award of Performance Shares or Performance Units outstanding at the time of the Participant's termination of Employment shall be determined under this Section 8(b). In the event that a Participant's Employment terminates due to the Participant's (i) death, (ii) Disability, (iii) Early Retirement with the consent of the Committee or (iv) Normal Retirement, any Award of Performance Shares or Performance Units shall become vested and nonforfeitable at the end of the measurement period as to that number of shares or units which is equal to that percentage, if any, of such award that would have been earned based on the attainment or partial attainment of such performance objectives. In all other cases, any portion of any Award of Performance Shares or Performance Units that has not become nonforfeitable at the date of a Participant's termination of Employment shall be forfeited as of such date. (c) Awards Nontransferable. Performance Shares or Performance Units may not be sold, assigned, pledged or otherwise encumbered, except as herein provided, during the Performance Period. (d) Award of Dividend Equivalents. Unless otherwise determined by the Committee at or after the date of grant, Participants granted Performance Shares or Performance Units shall be entitled to receive, either currently or at a future date, as specified by the Committee, all dividends and other distributions paid with respect to those shares and units, provided that if any such dividends or distributions are paid in Common Shares or other property (other than cash), such shares and units and other property shall be subject to the same forfeiture restrictions and restrictions on transferability as apply to the Performance Shares and Performance Units with respect to which they were paid. The Committee will determine whether and to what extent to credit to the account of, or to pay currently to, each recipient of Performance Shares or Performance Units, an amount equal to any dividends paid by the Company during the period of deferral with respect to the corresponding number of Common Shares ("Dividend Equivalents"). To the extent provided by the Committee at or after the date of grant, any Dividend Equivalents with respect to cash dividends on the Common Shares credited to a Participant's account shall be deemed to have been invested in Common Shares on the record date established for the related dividend and, accordingly, a number of additional Performance Shares or Performance Units shall be credited to such Participant's account equal to the greatest whole number which may be obtained by dividing (x) the value of such Dividend Equivalent on the record date by (y) the Fair Market Value of a Common Share on such date. (e) Interpretation. Notwithstanding anything else contained in this Section 8 to the contrary, if any Award of Performance Shares or Performance Units is intended, at the time of grant, to be other performance based compensation within the meaning of Section 162(m)(4)(C) of the Code, to the extent required to so qualify any Award hereunder, the Committee shall not be entitled to exercise any discretion otherwise authorized under this Section 8 with respect to such Award if the ability to exercise such discretion (as opposed to the exercise of such discretion) would cause such Award to fail to qualify as other performance based compensation. 9. STOCK IN LIEU OF CASH. The Committee may grant Awards or Common Shares in lieu of all or a portion of an award otherwise payable in cash to an Executive Officer pursuant to any bonus or incentive compensation plan of the Company. If shares are issued in lieu of cash, the number of Common Shares to be issued shall be the greatest number of whole shares which has an aggregate Fair Market Value on the date the cash would otherwise have been payable pursuant to the terms of such other plan equal to or less than the amount of such cash. 10. CHANGE IN CONTROL. (a) Accelerated Vesting and Payment. Subject to the provisions of Section 10(b) below, in the event of a Change in Control, each Option (including a Director Option) and Stock Appreciation Right shall promptly be canceled in exchange for a payment in cash of an amount equal to the excess of the Change in Control Price over the exercise price for such Option or the exercise price for such Stock Appreciation Right, whichever is applicable, the Restricted Period applicable to all Restricted Shares, and the Performance Period applicable to Performance Shares and Performance Units shall expire and all such shares shall become nonforfeitable and immediately transferable and the Common Shares with respect thereto shall be immediately payable. (b) Alternative Awards. Notwithstanding Section 10(a), no cancellation, acceleration of exercisability, vesting, cash settlement or other payment shall occur with respect to any Award or any class of Awards if the Committee reasonably determines in good faith prior to the occurrence of a Change in Control that such Award or class of Awards shall be honored or assumed, or new rights substituted therefor (such honored, assumed or substituted award hereinafter called an "Alternative Award") by a Participant's new employer (or the parent or a subsidiary of such employer) immediately following the Change in Control, provided that any such Alternative Award must: (i) be based on stock which is traded on an established securities market, or which will be so traded within 60 days following the Change in Control; (ii) provide such Participant (or each Participant in a class of Participants) with rights and entitlements substantially equivalent to or better than the rights and entitlements applicable under any such Award or class of Awards, including, but not limited to, an identical or better exercise or vesting schedule and identical or better timing and methods of payment; (iii) have substantially equivalent economic value to such Award or class of Awards (determined by the Committee as constituted immediately prior to the Change in Control, in its sole discretion, promptly after the Change in Control); and (iv) have terms and conditions which provide that in the event that the Participant's Employment is involuntarily terminated or constructively terminated (other than for Cause) upon or following such Change in Control, any conditions on a Participant's rights under, or any restrictions on transfer or exercisability applicable to, each such Alternative Award shall be waived or shall lapse, as the case may be. For this purpose, a constructive termination shall mean a termination by a Participant following a material reduction in the Participant's compensation, a material reduction in the Participant's responsibilities or the relocation of the Participant's principal place of Employment to another location a material distance farther away from the Participant's home, in each case, without the Participant's prior written consent. 11. GENERAL PROVISIONS. (a) Withholding. The Company shall have the right to deduct from all amounts paid to a Participant in cash (whether under this Plan or otherwise) any taxes required by law to be withheld in respect of Awards under this Plan. In the case of any Award satisfied in the form of Common Shares, no Common Shares shall be issued unless and until arrangements satisfactory to the Committee shall have been made to satisfy any withholding tax obligations applicable with respect to such Award. Without limiting the generality of the foregoing and subject to such terms and conditions as the Committee may impose, the Company shall have the right to retain, or the Committee may, subject to such terms and conditions as it may establish from time to time, permit Participants to elect to tender, Common Shares (including Common Shares issuable in respect of an Award) to satisfy, in whole or in part, the amount required to be withheld. (b) Awards. Each Award hereunder shall be evidenced in writing. The written agreement shall be delivered to the Participant and shall incorporate the terms of the Plan by reference and specify the terms and conditions thereof and any rules applicable thereto. (c) Nontransferability. Unless the Committee shall permit (on such terms and conditions as it shall establish) an Award to be transferred to a member of the Participant's immediate family or to a trust or similar vehicle for the benefit of such immediate family members (collectively, the "Permitted Transferees"), no Award shall be assignable or transferable except by will or the laws of descent and distribution, and except to the extent required by law, no right or interest of any Participant shall be subject to any lien, obligation or liability of the Participant. Except as otherwise expressly provided in this Plan, all rights with respect to Awards granted to a Participant under the Plan shall be exercisable during the Participant's lifetime only by such Participant or, if applicable, the Permitted Transferees. (d) No Right to Employment. No person shall have any claim or right to be granted an Award, and the grant of an Award shall not be construed as giving a Participant the right to Employment. Further, the Company and each Subsidiary expressly reserves the right at any time to terminate the Employment of a Participant free from any liability or any claim under the Plan, except as provided herein or in any agreement entered into with respect to an Award. (e) No Rights to Awards; No Shareholder Rights. No Participant or Eligible Employee shall have any claim to be granted any Award under the Plan, and there is no obligation of uniformity of treatment of Participants and Eligible Employees. Subject to the provisions of the Plan and the applicable Award, no person shall have any rights as a shareholder with respect to any Common Shares to be issued under the Plan prior to the issuance thereof. (f) Construction of the Plan. The validity, construction, interpretation, administration and effect of the Plan and of its rules and regulations, and rights relating to the Plan, shall be determined solely in accordance with the laws of the State of New York. (g) Legend. To the extent any stock certificate is issued to a Participant in respect of an Award of Restricted Shares under the Plan prior to the expiration of the applicable Restricted Period, such certificate shall be registered in the name of the Participant and shall bear an appropriate legend. Upon the lapse of the Restricted Period with respect to any such Restricted Shares, the Company shall issue or have issued new share certificates without a legend in exchange for those previously issued. (h) Effective Date. The effective date of this Plan is January 1, 1996. The Plan will become effective as of that date provided that the Plan receives the approval, within 12 months of its approval by the Board, of the holders of a majority of the outstanding Common Shares entitled to vote. If such approval is not forthcoming, the Plan and all Awards shall be null and void. No Awards may be granted under the Plan after December 31, 2005. Upon shareholder approval of the Plan, no further awards may be made under the Predecessor Plans. Subject to shareholder approval of the Plan, if the Committee so determines and the holder thereof shall consent to any amendment to any outstanding award that has an adverse affect on such holder's rights thereunder, the provisions of the Plan shall apply to, and govern, existing awards under the Predecessor Plans and, such awards shall be amended to provide such holder with any additional benefits available hereunder. (i) Amendment of Plan. The Board or the Committee may amend, suspend or terminate the Plan or any portion thereof at any time, provided that no amendment shall be made without shareholder approval if such amendment would: increase the number of Common Shares subject to the Plan, except pursuant to Section 4(c); change the price at which Options may be granted; or remove the administration of the Plan from the Committee. No amendment may be made to Section 5(f) or any other provision of the Plan relating to Director Options within six months of the last date on which any such provision was amended. Without the written consent of an affected Participant, no termination, suspension or modification of the Plan shall adversely affect any right of such Participant under the terms of an Award granted before the date of such termination, suspension or modification. (j) Application of Proceeds. The proceeds received by the Company from the sale of its shares under the Plan will be used for general corporate purposes. (k) Compliance with Legal and Exchange Requirements. The Plan, the granting and exercising of Awards thereunder, and the other obligations of the Company under the Plan, shall be subject to all applicable federal and state laws, rules, and regulations, and to such approvals by any regulatory or governmental agency as may be required. The Company, in its discretion, may postpone the granting and exercising of Awards, the issuance or delivery of Common Shares under any Award or any other action permitted under the Plan to permit the Company, with reasonable diligence, to complete such stock exchange listing or registration or qualification of such Common Shares or other required action under any federal or state law, rule, or regulation and may require any Participant to make such representations and furnish such information as it may consider appropriate in connection with the issuance or delivery of Common Shares in compliance with applicable laws, rules, and regulations. The Company shall not be obligated by virtue of any provision of the Plan to recognize the exercise of any Award or to otherwise sell or issue Common Shares in violation of any such laws, rules, or regulations; and any postponement of the exercise or settlement of any Award under this provision shall not extend the term of such Awards, and neither the Company nor its directors or officers shall have any obligation or liability to the Participant with respect to any Award (or Common Shares issuable thereunder) that shall lapse because of such postponement. (l) Deferrals. The Committee may postpone the exercising of Awards, the issuance or delivery of Common Shares under any Award or any action permitted under the Plan to prevent the Company or any of its Subsidiaries from being denied a federal income tax deduction with respect to any Award other than an Incentive Stock Option. (m) Number. Except when otherwise indicated by the context, words in the singular shall include the plural, and the plural shall include the singular. EX-10.D 5 EXHIBIT 10(D) - INDEMNITY AGREEMENT Dated as of Indemnity Agreement In consideration of your continuing to serve as Director of EDO Corporation, a New York corporation (the "Company"), the Company hereby agrees with you as follows: 1. Certain Definitions. As used herein, the following terms and phrases shall have the following meanings: (a) A "Change in Control" of the Company shall be deemed to have occurred if (i) any "Person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company or a corporation owned and controlled, directly or indirectly, by the shareholders of the Company in substantially the same proportions as their ownership of stock of the Company, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of outstanding securities of the Company representing 20% or more of the total combined voting power entitled to vote in the election of directors of the Company; (ii) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Directors of the Company cease for any reason to constitute at least a majority thereof, unless the election or nomination for election by the Company's shareholders of each new director was approved by a vote of at least two-thirds of the directors then in office who were directors at the beginning of the period; (iii) there is a consolidation of the Company with, or a merger of the Company into or with, any other company, other than a merger or consolidation which would result in the outstanding voting securities of the Company immediately prior to such merger or consolidation representing (either by remaining outstanding or by being converted into voting securities of the surviving entity), immediately after such merger or consolidation, more than 80% of the total combined voting power entitled to vote in the election of directors of the entity surviving such consolidation or merger; (iv) there is an acquisition of the Company or of all or substantially all of the assets of the Company by another entity; or (v) any event occurs that would be a reportable event under Item 1(a) of Form 8-K under the Exchange Act. (b) "Action" shall mean any threatened, pending or completed action, suit or proceeding and any appeal therein, whether civil, criminal, administrative, investigative or other, including, without limitation, an action by any third party, an action by or in the right of the Company or an action by or in the right of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise of any type or kind, foreign or domestic, which you served in any capacity at the request of the Company, to which you are, have been made or are threatened to be made a party by reason of the fact that you are or were a director, officer or employee of the Company, or are or were serving such other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise in any capacity. For purposes of this Agreement, the Company shall be deemed to have requested you to serve an employee benefit plan where the performance by you of your duties to the Company also imposes duties on, or otherwise involves services by, you to the plan or participants or beneficiaries of the plan. (c) "Expenses" shall mean any and all costs, charges and expenses (including attorneys' fees) paid or incurred in connection with investigating, preparing to defend, defending, being a witness in or participating in any Action. (d) "Ineligible Conduct" shall mean (i) acts which were committed in bad faith by you or which were the result of your active and deliberate dishonesty and which were material to an Action or (ii) the personal gain in fact by you of a financial profit or other advantage to which you were not legally entitled. 2. Indemnification. (a) Subject to paragraphs 2(b), (c) and (d), the Company shall indemnify you against judgments, fines, amounts paid in settlement and Expenses incurred in connection with any Action. (b) To the extent that you are successful, in whole or in part, on the merits or otherwise, in the defense of an Action, you shall be entitled to the indemnification provided for in paragraph 2(a). (c) To the extent that a judgment or other final adjudication adverse to you establishes that your conduct constituted Ineligible Conduct, you shall not be entitled to the indemnification provided for in paragraph 2(a). (d) Except as otherwise provided in paragraphs 2(b) and (c), unless ordered by a court as contemplated by paragraph 5, you shall be entitled to the indemnification provided for in paragraph 2(a) in connection with any Action only to the extent that such indemnification is authorized in the specific case: (i) by the Board of Directors of the Company acting by a quorum consisting of directors who are not parties to such Action upon a finding that your conduct did not constitute Ineligible Conduct; or (ii) if a quorum under the foregoing clause (i) is not obtainable or, even if obtainable, a quorum of disinterested directors so directs: (A) by the Board of Directors of the Company upon the opinion in writing of independent legal counsel that such indemnification is proper in the circumstances because your conduct did not constitute Ineligible Conduct, or (B) by the shareholders of the Company upon a finding that your conduct did not constitute Ineligible Conduct. (e) The Company shall provide any indemnification required under this Agreement promptly, and in any event within 60 days after your written request. In the case of any request for indemnification to which paragraph 2(d) is applicable, the Board of Directors shall, no later than 60 days after your written request, make an express finding that you are entitled or are not entitled to indemnification (whether or not the question is put to shareholders pursuant to paragraph 2(d)(ii)). In connection with any determination that you are not entitled to be indemnified hereunder, in whole or in part, the burden of proof shall be on the Company to establish that you are not so entitled. (f) The termination of any civil or criminal action or proceeding by judgment, settlement, conviction or upon a plea of nolo contendere, or its equivalent, shall not in itself create a presumption that your conduct constituted Ineligible Conduct. (g) Excise taxes assessed on you with respect to an employee benefit plan pursuant to applicable law shall be considered fines. 3. Expenses. (a) Expenses incurred by you in defending an Action shall be paid by the Company in advance of the final disposition of such Action upon receipt of an undertaking by you or on your behalf to (i) repay such amount in case you are ultimately found, in accordance with this Agreement, not to be entitled to indemnification, or (ii) where indemnity is granted, to repay such amount to the extent the Expenses so advanced exceed the indemnification to which you are entitled. (b) The Company shall indemnify you against any and all Expenses incurred by you in connection with successfully establishing, in whole or in part, any claim asserted by or action brought by you to enforce (i) any right to indemnification or advance payment of Expenses by the Company under this or any other agreement or Company By-Law now or hereafter in effect relating to Actions, or (ii) any right to recovery under any liability insurance policies maintained by the Company, or (iii) upon a Change in Control, any other right you may have against the Company. The Company shall also advance such Expenses to you, upon receipt of an undertaking meeting the requirements of paragraph 3(a). (c) Any advancement of Expenses pursuant to paragraphs 3(a) or (b) hereof shall be made promptly, and in any event within 10 days of your written request for such advancement of Expenses accompanied by an undertaking meeting the requirements of paragraph 3(a). 4. Partial Indemnification. If you are found not to be entitled under the provisions of this Agreement to indemnification by the Company for a portion of the judgments, fines, amounts paid or to be paid in settlement or Expenses of an Action, the Company shall nevertheless indemnify you for that portion thereof to which you are entitled. A finding pursuant to paragraph 2(c) or 2(d) that you engaged in Ineligible Conduct shall not relieve the Company of its obligation to indemnify you except to the extent that the judgments, fines, amounts paid in settlement or Expenses incurred by you are attributable to such Ineligible Conduct. 5. Enforcement; Defenses. If the Company denies a request for indemnification or advancement of Expenses, in whole or in part, or if no disposition thereof is made within the periods specified therefor in paragraphs 2(e) and 3(c), the right to indemnification or advancement of Expenses granted by this Agreement shall be enforceable by you in any court of competent jurisdiction. It shall be a defense to any such action (other than an action brought to enforce a claim for the advancement of Expenses under paragraphs 3(a) or (b) of this Agreement where the required undertaking has been received by the Company) that your conduct in connection with the Action in question constituted Ineligible Conduct, but the burden of proving such defense shall be on the Company. Neither the failure of the Company (including its Board of Directors, its independent legal counsel or its shareholders) to have made a determination that you are entitled to indemnification under this Agreement, nor the fact that there has been an actual determination by the Company (including its Board of Directors, its independent legal counsel or its shareholders) that you are not entitled to indemnification under this Agreement, shall be a defense to the action or create a presumption that you are not entitled to indemnification under this Agreement. 6. Contribution. In the event that the indemnification provided for in this Agreement with respect to any Claim is unavailable to you for any reason whatsoever, the Company, in lieu of indemnifying you, shall contribute to any judgments, fines, penalties, excise taxes, amounts paid or to be paid in settlement or Expenses incurred by you in connection with such Action in such proportion as is fair and reasonable in light of all of the circumstances of such Action in order to reflect (i) the relative benefits received by the Company and yourself as a result of the event(s) or transaction(s) giving cause to such Action, and (ii) the relative fault of the Company (and its other directors, officers, employees and agents) and yourself in connection with such event(s) or transaction(s). Your right to contribution under this paragraph 6 is subject to and shall be determined in accordance with the provisions applicable to indemnification set forth in paragraph 2. 7. Notice to the Company by Indemnitee. You agree to promptly notify the Company in writing upon being served with or having actual knowledge of any citation, summons, complaint, indictment or any other similar document relating to any action which may result in a claim of indemnification or contribution hereunder. 8. Non-exclusivity, etc. Your rights hereunder shall be in addition to any other rights you may have under the Company's Certificate of Incorporation or By-Laws or under the New York Business Corporation Law or otherwise, and nothing herein shall be deemed to diminish, qualify or otherwise restrict your rights to indemnification under any such other provision. This Agreement is intended to indemnify you to the greatest extent permitted under applicable law and the Certificate of Incorporation and By-Laws of the Company. To the extent that applicable law or the Certificate of Incorporation or the By-Laws of the Company, as in effect on the date hereof or at any time in the future, permit greater indemnification than as provided for in this Agreement, the parties hereto agree that you shall enjoy by this Agreement the greater benefits so afforded by such law or provision of the Certificate of Incorporation or By-Laws, and this Agreement and the definition of Ineligible Conduct set forth in paragraph 1(d), to the extent applicable, shall be deemed amended without any further action by the Company or yourself to grant such greater benefits. You may elect to have your rights hereunder interpreted (i) on the basis of applicable law in effect at the time of execution of this Agreement, (ii) at the time of the occurrence of the event(s) or transaction(s) giving rise to an Action or (iii) at the time indemnification is sought. 9. Liability Insurance. To the extent the Company maintains at any time an insurance policy or policies providing directors' and officers' liability insurance, the Company shall use its best efforts to ensure that you are covered by such policy or policies, in accordance with its or their terms, to the maximum extent that coverage is available for any other Company director, officer or employee under such insurance policy, provided that if you are no longer serving the Company or any other business entity at the request of the Company, the Company shall not be required to maintain insurance for you for more than six years after your service terminated or such longer period of coverage after service as may at the time be afforded any other past director or officer of the Company. The purchase and maintenance of such insurance shall not in any way limit or affect the rights and obligations of the parties hereto, and the execution and delivery of this Agreement shall not in any way be construed to limit or affect the rights and obligations of the Company or of any other parties to such insurance policy. 10. Period of Limitations. Except for actions based on Ineligible Conduct by you, no legal action shall be brought and no cause of action shall be asserted by or on behalf of the Company or any affiliate of the Company against you, your spouse, heirs, executors or personal or legal representatives after the expiration of two years from the date of accrual of such cause of action, and any claim or cause of action of the Company or its affiliates not based on Ineligible Conduct by you shall be extinguished and deemed released unless asserted by the timely filing of a legal action within such two-year period; provided, however, that if any shorter period of limitations is otherwise applicable to any such cause of action such shorter period shall govern. 11. Amendments, etc. No supplement, modification or amendment of this Agreement shall be binding on either party unless agreed to and executed in writing by both of the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions hereof (whether or not similar) nor shall such waiver constitute a continuing waiver. 12. Subrogation. In the event of a payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of your rights of recovery with respect to such payment, and you shall execute all papers required and shall do anything else that may be necessary to secure such rights, including without limitation, the execution of such documents as are necessary to enable the Company effectively to bring suit to enforce such rights and full cooperation with the Company in the prosecution of such suit. 13. No Duplication of Payments. The Company shall not be liable to make any payment under this Agreement in respect of any judgment, fine, penalty, excise tax, settlement payment, Expense or other cost to the extent you have otherwise actually received payment (under any insurance policy, By-Law or otherwise) of the amount of such judgment, fine, penalty, excise tax, settlement payment, Expense or other cost. 14. Successors, Assigns, Etc. This Agreement shall be binding upon, inure to the benefit of and be enforceable against and by the parties hereto and their respective successors, assigns (including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business or assets of the Company), spouses, heirs and personal and legal representatives. The Company shall require and cause any successor (whether direct or indirect by purchase, merger, consolidation or otherwise) to all, substantially all, or a substantial part, of the business or assets of the Company, by written agreement in form and substance satisfactory to you, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place. This Agreement shall continue in effect regardless of whether you continue to serve as a director, officer or employee of the Company or of any other enterprise at the Company's request. 15. Severability. The provisions of this Agreement shall be severable, and in the event that any provision hereof (including any provision or word within a single section, paragraph or sentence) is held by a court of competent jurisdiction to be invalid, void or otherwise unenforceable, the remaining provisions shall remain enforceable to the fullest extent permitted by law. 16. Notices. All notices, requests, demands and other communications required or permitted hereunder shall be in writing and shall be deemed to have been duly given when delivered by hand or when mailed by certified registered mail, return receipt requested, with postage prepaid, (i) If to you, at the address set forth above or to such other person or address which you shall furnish to the Company in writing pursuant to the above, and (ii) If to the Company, to: EDO Corporation 14-04 111th Street College Point, New York 11356-1434 Attention: Secretary or to such person or address as the Company shall furnish to you in writing pursuant to the above. 17. Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of New York applicable to contracts made and to be performed in New York without giving effect to the principles of conflicts of laws. If you are in agreement with the foregoing, please sign the Agreement as provided below and return one of the same to the Company, whereupon this letter shall become a binding agreement between you and the Company. Very truly yours, EDO CORPORATION By:_______________________ Secretary The foregoing Agreement is hereby agreed and accepted as of __________________. ____________________________________________ Schedule to Exhibit 10(d) - Indemnity Agreement The Company has entered into Indemnity Agreements with the following directors and/or officers. Robert E. Allen Robert Alvine Mellon C. Baird George M. Ball Joseph F. Engelberger Frank A. Fariello William J. Frost Marvin D. Genzer Robert M. Hanisee Michael J. Hegarty Ira Kaplan J. Douglas Moore Kenneth A. Paladino George A. Strutz, Jr. EX-21 6 EXHIBIT 21 - SUBSIDIARIES EXHIBIT 21 LIST OF SUBSIDIARIES The following are subsidiaries of the Company, the respective jurisdictions of their incorporation and names (if any) under which they do business. The Company owns all of the voting securities (including directors' qualifying shares owned beneficially by the Company) of each such subsidiary except the Company owns only approximately 50% of EDO (Canada) Limited. The names of particular subsidiaries of the Company have been omitted. When considered in the aggregate as a single subsidiary, these omitted subsidiaries do not constitute a "significant subsidiary" as such term is defined in Rule 1-02(v) of Regulation S-X of the Securities Exchange Act of 1934, as amended. Jurisdiction Name Under Which of Subsidiary Name Incorporation Does Business EDO Western Corporation Utah EDO Acoustics, and EDO Ceramics Barnes Engineering Company Delaware EDO Electro Optics EDO (Canada) Limited Canada EDO Operations (Israel) Ltd. Israel EDO Foreign Sales Corporation U.S. Virgin Islands EDO Sports, Inc. Delaware EDO Western International Corporation Delaware EDO International Corporation Delaware VT Technologies, Inc. Delaware EDO Energy Corporation Delaware EDO Automotive Natural Gas, Inc. Delaware EX-23 7 EXHIBIT 23 - KPMG CONSENT Exhibit 23 KPMG Peat Marwick LLP Consent of Independent Auditors The Board of Directors EDO Corporation: We consent to incorporation by reference in Registration Statement Nos.2-69243, 33-1526 and 33-28020 on Form S-8 of EDO Corporation of our report dated February 13, 1997, relating to the consolidated balance sheets of EDO Corporation and subsidiaries as of December 31, 1996 and 1995 and the related consolidated statements of operations, shareholders' equity and cash flows for each of the years in the three-year period ended December 31, 1996, which report appears in the December 31, 1996 annual report on Form 10-K of EDO Corporation. KPMG PEAT MARWICK LLP Jericho, New York March 18, 1997 EX-24 8 EXHIBIT 24 - POWERS OF ATTORNEYS EXHIBIT 24 POWER OF ATTORNEY The undersigned hereby constitutes and appoints Kenneth A. Paladino and Marvin D. Genzer, and each of them, with full power of substitution, the undersigned's true and lawful attorneys and agents to execute in his name and on his behalf, in any and all capabilities, the Annual Report on Form 10-K of EDO Corporation (the "Company"), a New York corporation, for the fiscal year ended December 31, 1996, and any and all other instruments which such attorneys and agents, or either of them, deem necessary or advisable to enable the Company to comply with the annual reporting requirements of the Securities Exchange Act of 1934, as amended, and the rules, regulations and requirements of the Securities and Exchange Commission; and the undersigned hereby ratifies and confirms as his own act and deed all that such attorneys and agents, and each of them, shall do or cause to be done by virtue hereof. Either of such attorneys and agents shall have, and may exercise, all of the powers hereby conferred. IN WITNESS WHEREOF, the undersigned have subscribed their signatures this 21st day of March, 1997. Robert E. Allen Robert Alvine Mellon C. Baird George M. Ball Joseph F. Engelberger Frank A. Fariello William J. Frost Marvin D. Genzer Robert M. Hanisee Michael J. Hegarty Ira Kaplan J. Douglas Moore Kenneth A. Paladino George A. Strutz, Jr. EX-27 9 ART. 5 FDS FOR 1996 YEAR 10-K
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS AND THE NOTES THERETO. 1,000 YEAR DEC-31-1996 DEC-31-1996 20,745 0 32,518 354 7,994 63,935 58,839 45,871 94,223 26,553 40,993 8,454 0 68 11,301 94,223 94,586 94,974 71,561 81,074 66 100 2,193 13,068 0 11,889 (8,637) 0 0 3,252 0.53 0.45
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