-----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, RL9vPAH1H3YjaVHvGjOXw4n+IuRWQIXsY94/+hPePi6uDktPQFrX43FlowWaAbXh fgNMiWFu95jkW7UShEfyKg== 0001157523-07-010754.txt : 20071105 0001157523-07-010754.hdr.sgml : 20071105 20071105172641 ACCESSION NUMBER: 0001157523-07-010754 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 20070929 FILED AS OF DATE: 20071105 DATE AS OF CHANGE: 20071105 FILER: COMPANY DATA: COMPANY CONFORMED NAME: EDO CORP CENTRAL INDEX KEY: 0000031617 STANDARD INDUSTRIAL CLASSIFICATION: SEARCH, DETECTION, NAVIGATION, GUIDANCE, AERONAUTICAL SYS [3812] IRS NUMBER: 110707740 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-03985 FILM NUMBER: 071215022 BUSINESS ADDRESS: STREET 1: 60 EAST 42ND STREET STREET 2: 42ND FLOOR CITY: NEW YORK STATE: NY ZIP: 10165 BUSINESS PHONE: 2127162000 MAIL ADDRESS: STREET 1: 60 EAST 42ND STREET STREET 2: 42ND FLOOR CITY: NEW YORK STATE: NY ZIP: 10165 10-Q 1 a5534801.txt EDO CORPORATION 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------- FORM 10-Q (MARK ONE) |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 29, 2007 OR | | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______________ TO _______________ COMMISSION FILE NUMBER 1-3985 --------------- EDO CORPORATION (Exact name of registrant as specified in its charter) NEW YORK 11-0707740 (State of Incorporation) (IRS Employer Identification No.) 60 EAST 42ND STREET, 42ND FLOOR, 10165 NEW YORK, NEW YORK (Zip Code) (Address of principal executive offices) (212) 716-2000 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No [ ] Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer (as defined in Rule 12b-2 of the Act), or a non-accelerated filer. Large accelerated filer [ ] Accelerated filer |X| Non-accelerated filer [ ] Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). [ ] Yes |X| No The number of shares of EDO common stock outstanding as of November 2, 2007 was 21,330,597 shares, with a par value $1 per share.
EDO CORPORATION TABLE OF CONTENTS Page PART I FINANCIAL INFORMATION ITEM 1 Financial Statements..............................................................................3 Consolidated Balance Sheets - September 29, 2007 (unaudited) and December 31, 2006................3 Consolidated Statements of Earnings - (unaudited) Three months ended September 29, 2007 and September 30, 2006..............................4 Consolidated Statements of Earnings - (unaudited) Nine months ended September 29, 2007 and September 30, 2006...............................5 Consolidated Statements of Cash Flows - (unaudited) Nine months ended September 29, 2007 and September 30, 2006...............................6 Notes to Consolidated Financial Statements (unaudited)............................................7 ITEM 2 Management's Discussion and Analysis of Financial Condition and Results of Operations............19 ITEM 3 Quantitative and Qualitative Disclosures about Market Risk.......................................27 ITEM 4 Controls and Procedures..........................................................................27 PART II OTHER INFORMATION ITEM 1 Legal Proceedings................................................................................28 ITEM 1A Risk Factors...........................................................................................28 ITEM 4 Submission of Matters to a Vote of Security Holders..................................................28 ITEM 6 Exhibits and Reports Filed on Form 8-K...............................................................28 SIGNATURE PAGE...................................................................................................28
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PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS EDO CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS SEPTEMBER 29, DECEMBER 31, 2007 2006 --------------- ---------------- (UNAUDITED) (IN THOUSANDS) ASSETS Current assets: Cash and cash equivalents $ 3,418 $ 25,322 Accounts receivable, net 233,116 265,298 Inventories 118,724 56,255 Deferred income tax asset, net 12,159 12,160 Prepayments and other 9,442 13,682 --------------- ---------------- Total current assets 376,859 372,717 --------------- ---------------- Property, plant and equipment, net 60,499 59,109 Goodwill 394,879 385,926 Other intangible assets, net 86,463 103,776 Deferred income tax asset, net 16,295 8,291 Other assets 18,535 20,003 --------------- ---------------- $ 953,530 $ 949,822 =============== ================ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 64,456 $ 63,334 Accrued liabilities 82,366 78,780 Contract advances and deposits 49,006 44,323 Postretirement benefits obligation, short-term 2,512 1,794 Short-term borrowings under revolver 144,000 180,000 Notes payable 7,766 7,766 --------------- ---------------- Total current liabilities 350,106 375,997 --------------- ---------------- Income taxes payable 14,333 4,154 Notes payable, long-term 8,766 14,533 Long-term debt 201,250 201,250 Postretirement benefits obligation, long-term 67,232 77,734 Environmental obligation 1,187 1,198 Other long-term liabilities 29 40 Shareholders' equity: Preferred shares, par value $1 per share, authorized 500,000 shares -- -- Common shares, par value $1 per share, authorized 50,000,000 shares, 21,451,588 issued in 2007 and 21,177,072 issued in 2006 21,452 21,177 Additional paid-in capital 191,134 177,117 Retained earnings 148,131 129,444 Accumulated other comprehensive loss, net of income tax benefit ($24,229 in 2007 and $25,814 in 2006) (35,088) (37,319) Treasury shares at cost (129,074 shares in 2007 and 111,499 shares in 2006) (2,444) (1,966) Unearned Employee Stock Ownership Plan shares (12,558) (13,537) --------------- ---------------- Total shareholders' equity 310,627 274,916 --------------- ---------------- $ 953,530 $ 949,822 =============== ================
See accompanying Notes to Consolidated Financial Statements. 3
EDO CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS FOR THE THREE MONTHS ENDED ------------------------------------ SEPTEMBER 29, SEPTEMBER 30, 2007 2006 --------------- ---------------- (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) NET SALES $ 256,782 $ 184,393 --------------- ---------------- COSTS AND EXPENSES Cost of sales 200,009 144,586 Selling, general and administrative 35,741 30,207 Research and development 2,907 4,701 Acquisition-related costs 2,011 1,008 Impairment loss on other intangible assets -- 1,487 --------------- ---------------- 240,668 181,989 --------------- ---------------- OPERATING EARNINGS 16,114 2,404 NON-OPERATING INCOME (EXPENSE) Interest income 180 1,096 Interest expense (5,017) (3,624) Other, net (37) 113 --------------- ---------------- (4,874) (2,415) --------------- ---------------- Earnings (loss) before income taxes 11,240 (11) Income tax (expense) benefit (42) 2,076 --------------- ---------------- NET EARNINGS $ 11,198 $ 2,065 =============== ================ NET EARNINGS PER COMMON SHARE: Basic $ 0.60 $ 0.11 =============== ================ Diluted $ 0.49 $ 0.11 =============== ================ Weighted-average common shares outstanding: Basic 18,771 18,205 =============== ================ Diluted 25,438 18,598 =============== ================ Dividends declared per common share $ 0.03 $ 0.03 =============== ================
See accompanying Notes to Consolidated Financial Statements. 4
EDO CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS FOR THE NINE MONTHS ENDED ------------------------------------ SEPTEMBER 29, SEPTEMBER 30, 2007 2006 --------------- ---------------- (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) NET SALES $ 758,218 $ 456,500 --------------- ---------------- COSTS AND EXPENSES Cost of sales 592,329 355,487 Selling, general and administrative 105,068 79,021 Research and development 7,437 10,913 Acquisition-related costs 6,314 1,455 Impairment loss on other intangible assets -- 1,487 --------------- ---------------- 711,148 448,363 --------------- ---------------- OPERATING EARNINGS 47,070 8,137 NON-OPERATING INCOME (EXPENSE) Interest income 531 3,218 Interest expense (16,793) (8,285) Other, net (49) (144) --------------- ---------------- (16,311) (5,211) --------------- ---------------- Earnings before income taxes 30,759 2,926 Income tax (expense) benefit (7,861) 4,471 --------------- ---------------- NET EARNINGS $ 22,898 $ 7,397 =============== ================ NET EARNINGS PER COMMON SHARE: Basic: $ 1.23 $ 0.41 =============== ================ Diluted: $ 1.05 $ 0.40 =============== ================ Weighted-average common shares outstanding: Basic 18,657 18,105 =============== ================ Diluted 25,178 18,563 =============== ================ Dividends declared per common share $ 0.09 $ 0.09 =============== ================
See accompanying Notes to Consolidated Financial Statements 5
EDO CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED ------------------------------------ SEPTEMBER 29, SEPTEMBER 30, 2007 2006 ---------------- ----------------- (UNAUDITED) (IN THOUSANDS) OPERATING ACTIVITIES: Earnings from operations $ 22,898 $ 7,397 Adjustments to earnings to arrive at cash provided by operations: Depreciation 10,694 8,865 Amortization 7,713 5,121 Impairment loss on other intangible assets -- 1,487 Bad debt expense (recovery) 54 (6) Deferred tax provision 880 15 Loss (gain) on disposal of property, plant and equipment 162 (59) Long-Term Incentive Plan compensation expense 5,184 2,261 Stock option compensation expense 970 838 Employee Stock Ownership Plan compensation expense 4,209 3,310 Dividends on unallocated Employee Stock Ownership Plan shares 156 172 Common shares issued for directors' fees 159 162 Changes in operating assets and liabilities, excluding effects of acquisitions: Accounts receivable 32,128 23,065 Inventories (62,469) (12,336) Prepayments and other assets 14,444 1,630 Accounts payable, accrued liabilities and other 6,243 (23,831) Contribution to defined benefit pension plan (9,200) (6,000) Contract advances and deposits 4,683 1,194 ---------------- ----------------- Cash provided by operations 38,908 13,285 ---------------- ----------------- INVESTING ACTIVITIES: Purchase of property, plant and equipment (12,246) (14,216) Proceeds from the sale of property, plant and equipment -- 633 Payments received on notes receivable -- 100 Cash paid for acquisitions, net of cash acquired (9,327) (265,318) ---------------- ----------------- Cash used by investing activities (21,573) (278,801) ---------------- ----------------- FINANCING ACTIVITIES: Short-term borrowings under revolver 80,000 200,000 Repayment of revolving debt (116,000) -- Payment of short-term notes (5,767) -- Proceeds from exercise of stock options 3,029 852 Excess income tax benefit from stock options and Long-Term Incentive Plan 1,408 429 Proceeds from management group receivables -- 140 Payment of common share cash dividends (1,909) (1,830) ---------------- ----------------- Cash (used) provided by financing activities (39,239) 199,591 ---------------- ----------------- Net decrease in cash and cash equivalents (21,904) (65,925) Cash and cash equivalents at beginning of year 25,322 108,731 ---------------- ----------------- Cash and cash equivalents at end of period $ 3,418 $ 42,806 ================ ================= Supplemental disclosures: Cash paid for: Interest $ 14,516 $ 3,891 ================ ================= Income taxes $ 4,866 $ 10,937 ================ =================
See accompanying Notes to Consolidated Financial Statements. 6 EDO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS The accompanying unaudited consolidated financial statements have been prepared in accordance with instructions to Form 10-Q and, therefore, do not include all information and footnotes normally included in consolidated financial statements prepared in conformity with accounting principles generally accepted in the United States. They should be read in conjunction with the consolidated financial statements and notes thereto of EDO Corporation and Subsidiaries (the "Company") for the year ended December 31, 2006 filed by the Company on Form 10-K with the Securities and Exchange Commission. The accompanying consolidated financial statements include all adjustments (consisting of normal recurring adjustments) that management considers necessary for a fair presentation of its consolidated financial position and results of operations for the interim periods presented. The results of operations for the interim periods are not necessarily indicative of the results that may be expected for the entire year. Certain reclassifications have been made to prior year's presentations to conform to current year's presentations. (2) PROPOSED SALE OF THE COMPANY On September 16, 2007, the Company entered into a definitive Agreement and Plan of Merger (the "Merger Agreement") with ITT Corporation, an Indiana corporation ("ITT"), and Donatello Acquisition Corp., a New York corporation and a wholly-owned subsidiary of ITT ("Merger Sub"). The Merger Agreement provides that, upon the terms and subject to the conditions set forth in the Merger Agreement, Merger Sub will merge with and into the Company (the "Merger"), with the Company continuing as a surviving corporation and a wholly-owned subsidiary of ITT. Pursuant to the Merger Agreement, each common share of the Company issued and outstanding immediately prior to the effective time of the Merger will be converted into the right to receive $56.00 in cash, without interest, on the terms set forth in the Merger Agreement. The Merger is expected to close in early 2008. Consummation of the Merger is subject to customary conditions, including approval by the shareholders of the Company, expiration or termination of the applicable Hart-Scott-Rodino waiting period and receipt of certain other regulatory approvals, the absence of any Material Adverse Effect (as defined in the Merger Agreement) with respect to the Company's business, and certain other customary closing conditions. The Merger Agreement also contains certain termination rights for both the Company and ITT upon termination of the Merger Agreement under specified circumstances, a termination initiated by EDO could require the Company to pay ITT a termination fee of $47.0 million and reimburse ITT for up to $3.0 million in transaction-related expenses. (3) ACQUISITIONS On September 15, 2006, the Company acquired all of the stock of Impact Science and Technology Inc., (IST) for $123.7 million, consisting of a cash payment of $106.4 million and a $17.3 million promissory note to be paid over three years. In addition, certain key IST employees received retention payments in the form of 405,103 restricted EDO Common Shares valued at $9 million. We also incurred $0.6 million of transaction costs. Also, there was a subsequent determination of the final purchase price, resulting in a $9.2 million accrual at December 31, 2006 and payment in January 2007. IST is a privately-held company providing signals intelligence (SIGINT) systems and analysis support to the intelligence community, and advanced countermeasures and electronic-attack systems to the U.S. Department of Defense (DoD) and other government agencies. The acquisition strengthened our position in specialized communication products and expanded the Company's business in the intelligence community. The acquired company became part of the Company's Electronic Systems and Communications segment. The excess of the purchase price over the net assets acquired related to IST is not deductible for income tax purposes. During the first quarter of 2007, the Company finalized its valuation for the allocation of the purchase price and acquired intangible assets. The final allocation did not change amortization expense materially from the amounts reported as of December 31, 2006. On September 6, 2006, the Company acquired all of the stock of CAS Inc., (CAS) for $178.1 million, consisting of a cash payment of $173.2 million and 214,574 EDO common shares valued at $4.9 million. We also incurred $1.6 million in transaction costs. In addition, there was a subsequent determination of the final purchase price, resulting in a $0.1 million payment in the first quarter of 2007. During the three months ended June 30, 2007, the Company recorded an adjustment to increase goodwill by $0.2 million related to the resolution of contingencies at the acquisition date. CAS is a privately-held company providing engineering services, logistics support, and weapon-systems analysis to the DoD. This acquisition has strengthened and expanded our range of professional and engineering services. The acquired company became part of the Company's Engineered Systems and Services segment. The excess of the purchase price over the net assets acquired recorded as goodwill and other intangible assets in the amount of $168.5 million are deductible for income tax purposes over 15 years. During the first quarter of 2007, the Company finalized its valuation for the allocation of the purchase price and acquired intangible assets. The final allocation did not change amortization expense materially from the amounts reported as of December 31, 2006. 7 (4) STOCK-BASED COMPENSATION The Company has granted non-qualified stock options and restricted shares under the 2002 Long-Term Incentive Plan (LTIP), the 2002 Non-Employee Director Stock Option Plan (NEDSOP) and in connection with the CAS and IST acquisitions. These plans are described in Note 12 to the consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2006. The Company records stock-based compensation in accordance with the provisions of Statement of Financial Accounting Standards No. 123 (Revised 10/04), "Share-Based Payment" ("FAS 123R"). The Company did not grant any options during the three months ended September 29, 2007. During the nine months ended September 29, 2007, the Company granted 65,000 options to its Board of Directors that were fully vested upon grant. The stock-based compensation expense related to stock option plans included in operating expenses for the three months ended September 29, 2007 and September 30, 2006 were $0 and $37 thousand, respectively, and $1.0 million and $0.8 million for the nine months ended September 29, 2007 and September 30, 2006, respectively. Tax benefits related to this expense for the three months ended September 29, 2007 and September 30, 2006 were $0 and $15 thousand, respectively. Tax benefits related to this expense for the nine months ended September 29, 2007 and September 30, 2006 were $0.4 million and $0.3 million, respectively. The net effect of stock based compensation expense related to stock option plans resulted in a reduction in net income of $0 and $22 thousand for the three months ended September 29, 2007 and September 30, 2006, respectively. The net effect of stock based compensation expense related to stock option plans resulted in a reduction in net income of $0.6 million and $0.5 million for the nine months ended September 29, 2007 and September 30, 2006, respectively. The significant weighted average assumptions used for the valuation of the Company's stock options using the Black-Scholes option pricing model for the nine months ended September 29, 2007 were as follows: expected dividend yield of 1%, risk free interest rate of 5.09%, expected volatility of 33.91% and an expected option life of 7 years. As of September 29, 2007, there was no future compensation expense related to non-vested stock options. The Company did not issue any stock-settled appreciation right options (SSAR) for the three months ended September 29, 2007. During the nine months ended September 29, 2007, the Company issued 243,775 SSAR to select employees. Stock based compensation expense recognized for stock-settled appreciation rights awards for the three and nine months ended September 29, 2007 was $0.2 million and $0.5 million, respectively. There were no SSARs granted during the three and nine months ended September 30, 2006. The significant weighted average assumptions relating to the valuation of the Company's SSARs using the Black-Scholes option pricing model for the nine months ended September 29, 2007: expected dividend yield of 1%, risk free interest rate of 4.60%, expected volatility of 34.79% and an expected option life of 5 years. As of September 29, 2007, there was $2.1 million of unrecognized future compensation expense related to non-vested SSARs not yet recognized in the consolidated statement of earnings. Stock-based compensation expense recognized for restricted/performance share awards for the three and nine months ended September 29, 2007 was $1.3 million and $4.6 million, respectively, compared to $0.7 million and $2.3 million for the three and nine months ended September 30, 2006, respectively. The unrecognized compensation cost related to the unvested restricted/performance shares at September 29, 2007 was approximately $9.9 million and will be recognized over a weighted-average period of 1.8 years. (5) BUSINESS COMBINATIONS AND GOODWILL AND OTHER INTANGIBLE ASSETS Statement of Financial Accounting Standard ("SFAS") No. 141, "Business Combinations," requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. SFAS No. 141 also includes guidance on the initial recognition and measurement of goodwill and other intangible assets arising from business combinations completed after June 30, 2001. SFAS No. 142, "Goodwill and Other Intangible Assets," prohibits the amortization of goodwill and other intangible assets with indefinite useful lives and requires that those assets be reviewed for impairment at least annually. Other intangible assets with definite lives are amortized over their estimated useful lives. 8 In accordance with SFAS No. 142, goodwill must be tested at least annually for impairment at the reporting unit level. If an indication of impairment exists, the Company is required to determine if such goodwill's implied fair value is less than the carrying value in order to determine the amount, if any, of the impairment loss required to be recorded. Impairment indicators include, among other conditions, cash flow deficits, an historic or anticipated decline in revenue or operating profits, adverse legal or regulatory developments, accumulation of costs significantly in excess of amounts originally expected to acquire the asset and/or a material decrease in the fair value of some or all of the assets. The Company performs the required impairment tests of goodwill as of October 1, each year. The changes in the carrying amount of goodwill by segment during the nine months ended September 29, 2007 were as follows:
ENGINEERED ELECTRONIC SYSTEMS SYSTEMS AND AND COMMUNICATIONS SERVICES TOTAL --------------- ---------------- ---------------- (IN THOUSANDS) Balance as of January 1, 2007 $ 186,460 $ 199,466 $ 385,926 Purchase price adjustments 333 2 335 Reclassification from other intangibles based on final purchase price allocation 7,410 1,208 8,618 --------------- ---------------- ---------------- Balance as of September 29, 2007 $ 194,203 $ 200,676 $ 394,879 =============== ================ ================ Summarized below are other intangible assets: SEPTEMBER 29, DECEMBER 31, LIFE 2007 2006 ---------------- ---------------- --------------- (IN THOUSANDS) Other intangible assets subject to amortization: Capitalized non-compete agreements related to acquisitions $ 2,738 $ 2,738 1-5 years Purchased technologies related to acquisitions 27,213 28,083 8-25 years Customer contracts and relationships related to acquisitions 81,422 87,186 6-20 years Trade name related to acquisitions 5,498 8,464 3-10 years ---------------- ---------------- 116,871 126,471 Less accumulated amortization (30,808) (23,095) ---------------- ---------------- $ 86,063 $ 103,376 Other intangible assets not subject to amortization: Trade name related to acquisitions 400 400 ---------------- ---------------- $ 86,463 $ 103,776 ================ ================
The amortization expense for the three months ended September 29, 2007 and September 30, 2006 amounted to $2.6 million and $1.7 million, respectively. The amortization expense for the nine months ended September 29, 2007 and September 30, 2006 amounted to $7.7 million and $5.1 million, respectively. Total remaining amortization expense for 2007, 2008, 2009, 2010, 2011 and thereafter related to these other intangible assets is estimated to be $2.6 million, $9.6 million, $9.4 million, $8.7 million, $7.0 million and $48.8 million, respectively. For the three and nine months ended September 30, 2006, the Company incurred an impairment charge of approximately $1.5 million related to certain other intangible assets associated with the Company's rugged computer product line. As sales and orders were not materializing to expected levels, the Company tested for impairment and it was determined that the future undiscounted cash flows associated with these assets were insufficient to recover their carrying values. These assets were written down to zero, which was determined on the basis of future discounted cash flows. (6) INVENTORIES Inventories are summarized by major classification as follows: SEPTEMBER 29, DECEMBER 31, 2007 2006 ------------- ------------- (IN THOUSANDS) Raw material and supplies $ 34,890 $ 14,881 Work-in-process 47,804 52,742 Finished goods 39,143 15,045 Less: Unliquidated progress payments (3,113) (26,413) ------------- ------------- $ 118,724 $ 56,255 ============= ============= 9 (7) INCOME TAXES The Company adopted FASB Interpretation 48 ("FIN 48"), Accounting for Uncertainty in Income Taxes, at the beginning of fiscal year 2007. FIN 48 creates a single model to address accounting for uncertainty in tax positions. FIN 48 clarifies the accounting for income taxes, by prescribing a minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. FIN 48 also provides guidance on de-recognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition. As a result of the implementation, the Company recognized a $2.5 million net increase to reserves for uncertain tax positions. This increase was accounted for as an adjustment to the beginning balance of retained earnings on the balance sheet. As of September 29, 2007, the Company had approximately $12.5 million of total gross unrecognized tax benefits. Of this total, approximately $5.1 million represents the amount of net unrecognized tax benefits that, if recognized, would favorably affect the effective income tax rate in any future periods. For the three months ended September 29, 2007, the gross unrecognized tax benefit decreased by $2.5 million. This decrease resulted from favorable settlements with taxing authorities and the expiration of the statute of limitations net of increases related to unrecognized tax benefits resulting from tax positions taken during the current period. The net favorable effect to the effective income tax rate was $2.3 million. For the nine months ended September 29, 2007, the gross unrecognized tax benefit decreased by $3.0 million. The net favorable effect to the effective income tax rate was $2.6 million. The Company is subject to U.S. federal income tax as well as income tax of multiple state jurisdictions. The Company has substantially concluded all U.S. federal income tax matters for years through 2003, except as it relates to the Company's amended return for 2002 claiming a federal research and development credit which is currently under audit. Substantially all material state and local matters have been concluded for years through 2003. In addition, the Company is subject to income tax in various foreign jurisdictions. The Company has substantially concluded all material tax matters in foreign jurisdictions for years through 2004. While it is reasonably possible that a reduction in the unrecognized tax benefit may occur, based on audit process protocol from the various taxing authorities, it is not possible to estimate the impact of any amount of such changes that may occur within the next twelve months. The Company's continuing practice is to recognize interest and/or penalties related to income tax matters in income tax expense. The Company had $4.0 million accrued for interest and penalties as of September 29, 2007. For the three months ended September 29, 2007, the gross interest and penalties decreased by $2.2 million as a result of favorable settlements with taxing authorities and the expiration of the statue of limitations net of additional accrued interest and penalties. For the three months ended September 29, 2007, the net favorable effect to the effective income tax rate was $1.5 million. For the nine months ended September 29, 2007, the gross interest and penalties decreased by $1.6 million. For the nine months ended September 29, 2007, the net favorable effect to the effective income tax rate was $1.1 million. (8) EARNINGS PER SHARE The following table sets forth the computation of basic and diluted earnings per share:
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED --------------------------------------------------------------------------- SEPTEMBER 29, SEPTEMBER 30, SEPTEMBER 29, SEPTEMBER 30, 2007 2006 2007 2006 --------------- ---------------- ---------------- ---------------- (IN THOUSANDS) Numerator: Earnings for basic calculation $ 11,198 $ 2,065 $ 22,898 $ 7,397 Effect of dilutive securities: Convertible Notes 1,187 -- 3,562 -- --------------- ---------------- ---------------- ---------------- Numerator for diluted calculation $ 12,385 $ 2,065 $ 26,460 $ 7,397 =============== ================ ================ ================ Denominator: Denominator for basic calculation 18,771 18,205 18,657 18,105 Effect of dilutive securities: Stock based awards 781 393 635 458 Convertible Notes 5,886 -- 5,886 -- --------------- ---------------- ---------------- ---------------- Denominator for diluted calculation 25,438 18,598 25,178 18,563 =============== ================ ================ ================
10 The assumed conversion of the Convertible Notes was dilutive for the three and nine months ended September 29, 2007 and anti-dilutive for the three months and nine months ended September 30, 2006. The following table summarizes, for each year presented, the number of shares excluded from the computation of diluted earnings per share, as their effect upon potential issuance was anti-dilutive: FOR THE NINE MONTHS ENDED SEPTEMBER 29, SEPTEMBER 30, 2007 2006 ------------- ------------- (IN THOUSANDS) Convertible Subordinated Notes -- 5,886 Unexercised stock options -- 399 ------------- ------------- -- 6,285 ============= ============= (9) DEFINED BENEFIT PLAN The Company maintains a qualified noncontributory defined benefit pension plan covering approximately twenty five percent of its employees. In November 2002, the plan was amended whereby benefits accrued under the plan were frozen as of December 31, 2002. The Company's funding policy is to make annual contributions to the extent such contributions are actuarially determined and tax deductible. For the three and nine months ended September 29, 2007, the Company contributed $9.2 million to the plan. For the three and nine months ended September 30, 2006, the Company contributed $6.0 million to the plan. For the three months ended September 29, 2007 and September 30, 2006, the Company recorded pension expense of $0.6 million and $1.2 million, respectively. For the nine months ended September 29, 2007 and September 30, 2006, the Company recorded pension expense of $2.2 million and $3.6 million, respectively. Summarized below are the components of the expense for each period presented:
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED ------------------------------ ----------------------------- SEPTEMBER 29, SEPTEMBER 30, SEPTEMBER 29, SEPTEMBER 30, 2007 2006 2007 2006 ------------- ------------- ----------------------------- (IN THOUSANDS) Interest cost $ 3,078 $ 3,038 $ 9,234 $ 9,115 Expected return on plan assets (3,544) (3,209) (10,230) (9,628) Amortization of unrecognized net loss 1,076 1,365 3,229 4,095 ------------- ------------- ------------- ------------- $ 610 $ 1,194 $ 2,233 $ 3,582 ============= ============= ============= =============
(10) EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST The Company sponsors an employee stock ownership plan (ESOP) which provides retirement benefits to substantially all employees. The cost basis of the unearned/unallocated shares was initially recorded as a reduction to shareholders' equity. Compensation expense is recorded based on the market value of the Company's common shares as they are committed-to-be-released quarterly, as payments are made under the related indirect loan. The difference between the market value and the cost basis of the shares was recorded as additional paid-in capital. Dividends on unallocated shares are recorded as compensation expense. (11) COMPREHENSIVE INCOME As of September 29, 2007, accumulated other comprehensive loss included in shareholders' equity in the accompanying consolidated balance sheets primarily represents additional minimum liabilities on benefit plans and the effect of adopting FASB Statement No. 158 (SFAS 158), Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans, on December 31, 2006. Comprehensive income for the three months ended September 29, 2007 was $11.3 million compared to comprehensive income for the three months ended September 30, 2006 of $2.1 million. Comprehensive income for the nine months ended September 29, 2007 was $23.0 million compared to comprehensive income for the nine months ended September 30, 2006 of $7.8 million. 11 (12) BUSINESS SEGMENTS The Company determines its operating segments based upon an analysis of its products and services, production processes, types of customers, economic characteristics and the related regulatory environment, which is consistent with how management operates the Company. The Company's operations are reflected in two business segments: Engineered Systems and Services and Electronic Systems and Communications. The Engineered Systems and Services segment addresses the Integrated Systems and Structures, Undersea Warfare, and Professional Services markets. Primary products include aircraft armament systems, integrated composite structures, mine countermeasure systems, sonar systems and components, and flight line products. This segment also includes a wide range of professional and engineering services. The Electronic Systems and Communications segment includes products that serve the Electronic Warfare, C4 (Command, Control, Communications and Computers) products and systems, and Intelligence and Information Warfare markets. Primary products include electronic force protection systems, interference cancellation technology, airborne electronic warfare systems, electronic intelligence (ELINT) and electronic support measure (ESM) systems, intelligence and information warfare systems, C4 products and services, and antenna products. The following table sets forth net sales, operating earnings, and earnings before income taxes for each period presented.
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED ------------------------------ ----------------------------- SEPTEMBER 29, SEPTEMBER 30, SEPTEMBER 29, SEPTEMBER 30, 2007 2006 2007 2006 ------------- ------------- ------------- ------------- (IN THOUSANDS) Net Sales: Engineered Systems & Services..........$ 117,974 $ 79,409 $ 353,954 $ 204,462 Electronic Systems & Communications.... 138,808 104,984 404,264 252,038 ------------- ------------- ------------- ------------- $ 256,782 $ 184,393 $ 758,218 $ 456,500 ------------- ------------- ------------- ------------- Operating earnings: Engineered Systems & Services.......... 7,335 646 25,902 4,069 Electronic Systems & Communications.... 8,779 1,758 21,168 4,068 ------------- ------------- ------------- ------------- 16,114 2,404 47,070 8,137 Net interest expense................... (4,837) (2,528) (16,262) (5,067) Other, net............................. (37) 113 (49) (144) ------------- ------------- ------------- ------------- Earnings (loss) before income taxes....$ 11,240 $ (11) $ 30,759 $ 2,926 ============= ============= ============= =============
(13) RECENT ACCOUNTING PRONOUNCEMENTS In September 2006, the Financial Accounting Standards Board ("FASB") issued Statement No. 157, "Fair Value Measurements" (SFAS 157). SFAS 157 defines fair value, establishes a framework for using fair value to measure assets and liabilities, and expands disclosure requirements about fair value measurements. SFAS 157 is effective for fiscal years beginning after November 15, 2007, and early application is permitted. SFAS 157 becomes effective for the Company on January 1, 2008. The Company does not believe SFAS 157 will have a material impact on our results from operations or financial position. In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities - Including an Amendment of FASB Statement No. 115." SFAS No. 159 permits entities to choose to measure eligible items at fair value at specified election dates and report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. The Company is currently evaluating the impact of adopting this Statement; however, the adoption is not expected to have an effect on EDO's consolidated results of operations or financial position. (14) GUARANTOR AND NON-GUARANTOR SUBSIDIARIES The Company may, from time to time, issue indebtedness, a condition of which would be the guarantee of this indebtedness by certain of its subsidiaries. Presented below is condensed consolidating financial information for the Company and the contemplated subsidiary guarantors and non-guarantors at September 29, 2007 and December 31, 2006 and for the three and nine month periods ended September 29, 2007 and September 30, 2006. Each contemplated subsidiary guarantor is 100% owned, directly or indirectly, by the Company. Any guarantees that may be issued will be full and unconditional, as well as joint and several. In connection with the Company's credit facility, the Company cannot declare or pay any dividend on its outstanding common stock in an amount that exceeds fifty percent of its consolidated net income for the immediately preceding four quarters. 12
EDO CORPORATION CONDENSED CONSOLIDATING BALANCE SHEET SEPTEMBER 29, 2007 (IN THOUSANDS) (UNAUDITED) EDO Corporation Parent Subsidiary Company Only Guarantors Non-Guarantors Eliminations Consolidated ---------------------------------------------------------------------------- ASSETS Current assets: Cash and cash equivalents $ 1,409 $ (3641) $ 5,650 $ -- $ 3,418 Accounts receivable, net 48,747 179,886 4,483 -- 233,116 Inventories 12,203 102,367 4,154 -- 118,724 Deferred income tax asset, net 12,159 -- -- -- 12,159 Prepayments and other 5,100 4,020 322 -- 9,442 ---------------------------------------------------------------------------- Total current assets 79,618 282,632 14,609 -- 376,859 Investment in subsidiaries 658,009 -- -- (658,009) -- Property, plant and equipment, net 29,298 27,814 3,387 -- 60,499 Goodwill -- 386,169 8,710 -- 394,879 Other intangible assets, net -- 77,854 8,609 -- 86,463 Deferred income tax asset, net 16,295 -- -- -- 16,295 Other assets 16,209 2,326 -- -- 18,535 ---------------------------------------------------------------------------- $ 799,429 776,795 35,315 (658,009) 953,530 ---------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable and accrued liabilities $ 22,203 $ 118,477 $ 6,142 $ -- $ 146,822 Contract advances and deposits 20,398 28,608 -- -- 49,006 Postretirement benefits obligation, short-term 2,512 -- -- -- 2,512 Short-term borrowing under revolver 144,000 -- -- -- 144,000 Notes payable 7,766 -- -- -- 7,766 ---------------------------------------------------------------------------- Total current liabilities 196,879 147,085 6,142 -- 350,106 Income taxes payable 14,333 -- -- -- 14,333 Notes payable, long-term 8,766 -- -- -- 8,766 Deferred income taxes (438) -- 438 -- -- Long-term debt 201,250 -- -- -- 201,250 Postretirement benefits obligation, long-term 67,232 -- -- -- 67,232 Environmental obligation 1,187 -- -- -- 1,187 Other long-term liabilities 29 -- -- -- 29 Intercompany accounts -- 464,808 20,667 (485,475) -- Shareholders' equity: Preferred shares -- -- -- -- -- Common shares 21,452 98 -- (98) 21,452 Additional paid-in capital 191,134 60,152 6,418 (66,570) 191,134 Retained earnings 148,131 108,703 1,214 (109,917) 148,131 Accumulated other comprehensive (loss) income, net of income tax benefit (35,524) -- 436 -- (35,088) Treasury shares (2,444) (4,051) -- 4,051 (2,444) Unearned ESOP shares (12,558) -- -- -- (12,558) ---------------------------------------------------------------------------- Total shareholders' equity 310,191 164,902 8,068 (172,534) 310,627 ---------------------------------------------------------------------------- $ 799,429 $ 776,795 $ 35,315 $ (658,009) $ 953,530 ============================================================================
13
EDO CORPORATION CONDENSED CONSOLIDATING STATEMENT OF EARNINGS FOR THE THREE MONTHS ENDED SEPTEMBER 29, 2007 (IN THOUSANDS) (UNAUDITED) EDO Corporation Parent Company Subsidiary Only Guarantors Non-Guarantors Eliminations Consolidated ----------------------------------------------------------------------- Net Sales $ 55,284 $ 198,059 $ 8,676 $ (5,237) $ 256,782 ----------------------------------------------------------------------- Costs and expenses: Cost of sales 44,220 155,648 5,378 (5,237) 200,009 Selling, general and administrative 4,833 28,910 1,998 -- 35,741 Research and development 932 1,922 53 -- 2,907 Acquisition-related costs -- 2,011 -- -- 2,011 ----------------------------------------------------------------------- 49,985 188,491 7,429 (5,237) 240,668 Operating earnings 5,299 9,568 1,247 -- 16,114 Non-operating income (expense): Interest income 54 60 66 -- 180 Interest expense (5,010) -- (7) -- (5,017) Other, net (82) 45 -- -- (37) ----------------------------------------------------------------------- (5,038) 105 59 -- (4,874) Earnings before income taxes 261 9,673 1,306 -- 11,240 Income tax benefit (expense) 5,160 (4,785) (417) -- (42) ----------------------------------------------------------------------- Earnings after income taxes 5,421 4,888 889 -- 11,198 Equity in undistributed earnings of subsidiaries 5,777 -- -- (5,777) -- ----------------------------------------------------------------------- Net earnings $ 11,198 $ 4,888 $ 889 $ (5,777) $ 11,198 ======================================================================= EDO CORPORATION CONDENSED CONSOLIDATING STATEMENT OF EARNINGS FOR THE NINE MONTHS ENDED SEPTEMBER 29, 2007 (IN THOUSANDS) (UNAUDITED) EDO Corporation Parent Subsidiary Company Only Guarantors Non-Guarantors Eliminations Consolidated ------------------------------------------------------------------------ Net Sales $ 166,772 $ 576,227 $ 24,651 $ (9,432) $ 758,218 ------------------------------------------------------------------------ Costs and expenses: Cost of sales 132,874 452,412 16,475 (9,432) 592,329 Selling, general and administrative 13,619 85,948 5,501 -- 105,068 Research and development 2,231 5,032 174 -- 7,437 Acquisition-related costs -- 6,314 -- -- 6,314 ------------------------------------------------------------------------ 148,724 549,706 22,150 (9,432) 711,148 Operating earnings 18,048 26,521 2,501 -- 47,070 Non-operating income (expense): Interest income 173 184 174 -- 531 Interest expense (16,748) (38) (7) -- (16,793) Other, net (245) 126 70 -- (49) ------------------------------------------------------------------------ (16,820) 272 237 -- (16,311) Earnings before income taxes 1,228 26,793 2,738 -- 30,759 Income tax benefit (expense) 5,549 (12,392) (1,018) -- (7,861) ------------------------------------------------------------------------ Earnings after income taxes 6,777 14,401 1,720 -- 22,898 Equity in undistributed earnings of subsidiaries 16,121 -- -- (16,121) -- ------------------------------------------------------------------------ Net earnings $ 22,898 $ 14,401 $ 1,720 $ (16,121) $ 22,898 ========================================================================
14
EDO CORPORATION CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 29, 2007 (IN THOUSANDS) (UNAUDITED) EDO Corporation Parent Subsidiary Company Only Guarantors Non-GuarantorsEliminations Consolidated ---------------------------------------------------------------------- OPERATING ACTIVITIES: Earnings from operations $ 22,898 $ 14,401 $ 1,720 $ (16,121) $ 22,898 Adjustments to earnings to arrive at cash (used) provided by operations: Depreciation 3,915 6,153 626 -- 10,694 Amortization -- 7,140 573 -- 7,713 Bad debt expense 7 47 -- -- 54 Deferred tax provision 880 -- -- -- 880 Loss on sale of property, plant and equipment 8 154 -- -- 162 Long-term Incentive Plan compensation expense 5,184 -- -- -- 5,184 Stock option compensation expense 970 -- -- -- 970 Employee Stock Ownership Plan compensation expense 4,209 -- -- -- 4,209 Dividends on unallocated Employee Stock Ownership Plan shares 156 -- -- -- 156 Common shares issued for directors' fees 159 -- -- -- 159 Changes in operating assets and liabilities, excluding effects of acquisitions: Equity in earnings of subsidiaries (16,121) -- -- 16,121 -- Intercompany 39,402 (38,818) (584) -- -- Accounts receivable (513) 32,258 383 -- 32,128 Inventories (1,387) (60,347) (735) -- (62,469) Prepayments and other assets 13,400 1,060 (16) -- 14,444 Accounts payable, accrued liabilities and other (30,369) 35,006 1,606 -- 6,243 Contribution to defined benefit pension plan (9,200) -- -- -- (9,200) Contract advances and deposits 6,817 (2,134) -- -- 4,683 ---------------------------------------------------------------------- Cash (used) provided by operations 40,415 (5,080) 3,573 -- 38,908 ---------------------------------------------------------------------- INVESTING ACTIVITIES: Purchase of property, plant and equipment (5,745) (6,149) (352) -- (12,246) Cash paid for acquisitions, net of cash acquired (9,327) -- -- -- (9,327) ---------------------------------------------------------------------- Cash used by investing activities (15,072) (6,149) (352) -- (21,573) ---------------------------------------------------------------------- FINANCING ACTIVITIES: Proceeds from exercise of stock options 3,029 -- -- -- 3,029 Excess income tax benefit from stock options and Long-term Incentive Plan 1,408 -- -- -- 1,408 Short-term borrowings under revolver 80,000 -- -- -- 80,000 Repayment of revolving debt (116,000) -- -- -- (116,000) Payment of short-term notes (5,767) -- -- -- (5,767) Payment of common share cash dividends (1,909) -- -- -- (1,909) ---------------------------------------------------------------------- Cash used by financing activities (39,239) -- -- -- (39,239) ---------------------------------------------------------------------- Net (decrease) increase in cash and cash equivalents (13,896) (11,229) 3,221 -- (21,904) Cash and cash equivalents at beginning of period 15,305 7,588 2,429 -- 25,322 ---------------------------------------------------------------------- Cash and cash equivalents at end of period $ 1,409 $ (3,641) $ 5,650 $ -- $ 3,418 ======================================================================
15
EDO CORPORATION CONDENSED CONSOLIDATING BALANCE SHEET DECEMBER 31, 2006 (IN THOUSANDS) EDO Corporation Parent Subsidiary Company Only Guarantors Non-Guarantors Eliminations Consolidated ---------------------------------------------------------------------------- ASSETS Current assets: Cash and cash equivalents $ 15,305 $ 7,588 $ 2,429 -- $ 25,322 Accounts receivable, net 48,241 212,191 4,866 -- 265,298 Inventories 10,816 42,020 3,419 -- 56,255 Deferred income tax asset, net 12,160 -- -- -- 12,160 Prepayments and other 10,312 3,064 306 -- 13,682 ---------------------------------------------------------------------------- Total current assets 96,834 264,863 11,020 -- 372,717 Investment in subsidiaries 678,997 -- -- (678,997) -- Property, plant and equipment, net 27,476 27,974 3,659 -- 59,109 Goodwill -- 377,216 8,710 -- 385,926 Other intangible assets, net -- 94,594 9,182 -- 103,776 Deferred income tax asset, net 8,291 -- -- -- 8,291 Other assets 17,387 2,616 -- -- 20,003 ---------------------------------------------------------------------------- $ 828,985 $ 767,263 $ 32,571 $ (678,997) $ 949,822 ---------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable and accrued liabilities $ 52,769 $ 84,685 $ 4,660 -- $ 142,114 Contract advances and deposits 13,581 30,742 -- -- 44,323 Postretirement benefits obligation, short-term 1,794 -- -- -- 1,794 Short-term borrowing under revolver 180,000 -- -- -- 180,000 Notes payable 7,766 -- -- -- 7,766 ---------------------------------------------------------------------------- Total current liabilities 255,910 115,427 4,660 -- 375,997 Income taxes payable 4,154 -- -- -- 4,154 Notes payable 14,533 -- -- -- 14,533 Deferred income tax (427) -- 427 -- -- Long-term debt 201,250 -- -- -- 201,250 Postretirement benefits obligation 77,734 -- -- -- 77,734 Environmental obligation 1,198 -- -- -- 1,198 Other long-term liabilities 40 -- -- -- 40 Inter-company accounts -- 501,335 21,249 (522,584) -- Shareholders' equity: Preferred shares -- -- -- -- -- Common shares 21,177 98 -- (98) 21,177 Additional paid-in capital 177,117 60,403 6,418 (66,821) 177,117 Retained earnings 129,444 94,052 (506) (93,546) 129,444 Accumulated other comprehensive loss, net of income tax benefit (37,642) -- 323 -- (37,319) Treasury shares (1,966) (4,052) -- 4,052 (1,966) Unearned Employee Stock Ownership Plan shares (13,537) -- -- -- (13,537) ---------------------------------------------------------------------------- Total shareholders' equity 274,593 150,501 6,235 (156,413) 274,916 ---------------------------------------------------------------------------- $ 828,985 $ 767,263 $ 32,571 $ (678,997) $ 949,822 ============================================================================
16
EDO CORPORATION CONDENSED CONSOLIDATING STATEMENT OF EARNINGS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2006 (IN THOUSANDS) (UNAUDITED) EDO Corporation Parent Company Subsidiary Only Guarantors Non-Guarantors Eliminations Consolidated ----------------------------------------------------------------------- Net Sales $ 53,878 $ 126,808 $ 6,687 $ (2,980) $ 184,393 ----------------------------------------------------------------------- Costs and expenses: Cost of sales 43,901 99,740 3,925 (2,980) 144,586 Selling, general and administrative 7,513 20,658 2,036 -- 30,207 Research and development 1,076 3,446 179 -- 4,701 Acquisition-related costs -- 1,008 -- -- 1,008 Impairment loss on other intangible assets -- -- 1,487 -- 1,487 ----------------------------------------------------------------------- 52,490 124,852 7,627 (2,980) 181,989 Operating earnings (loss) 1,388 1,956 (940) -- 2,404 Non-operating income (expense): Interest income 918 103 75 -- 1,096 Interest expense (3,590) (34) -- -- (3,624) Other, net (1) 167 (53) -- 113 ----------------------------------------------------------------------- (2,673) 236 22 -- (2,415) (Loss) earnings before income taxes (1,285) 2,192 (918) -- (11) Income tax benefit (expense) 4,066 (1,723) (267) -- 2,076 ----------------------------------------------------------------------- Earnings (loss) after income taxes 2,781 469 (1,185) -- 2,065 Equity in undistributed earnings of subsidiaries (716) -- -- 716 -- ----------------------------------------------------------------------- Net earnings (loss) $ 2,065 $ 469 $ (1,185) $ 716 $ 2,065 ======================================================================= EDO Corporation Parent Subsidiary Company Only Guarantors Non-Guarantors Eliminations Consolidated ------------------------------------------------------------------------- Net Sales $ 151,218 $ 294,779 $ 19,098 $ (8,595) $ 456,500 ------------------------------------------------------------------------- Costs and expenses: Cost of sales 125,091 226,766 12,225 (8,595) 355,487 Selling, general and administrative 17,206 55,169 6,646 -- 79,021 Research and development 2,891 7,565 457 -- 10,913 Acquisition-related costs -- 1,455 -- -- 1,455 Impairment loss on other intangible assets -- -- 1,487 -- 1,487 ------------------------------------------------------------------------- 145,188 290,955 20,815 (8,595) 448,363 Operating earnings (loss) 6,030 3,824 (1,717) -- 8,137 Non-operating income (expense): Interest income 2,933 103 182 -- 3,218 Interest expense (8,285) -- -- -- (8,285) Other, net (23) 15 (136) -- (144) ------------------------------------------------------------------------- (5,375) 118 46 -- (5,211) Earnings (loss) before income taxes 655 3,942 (1,671) -- 2,926 Income tax benefit (expense) 8,610 (3,940) (199) -- 4,471 ------------------------------------------------------------------------- Earnings (loss) after income taxes 9,265 2 (1,870) -- 7,397 Equity in undistributed earnings of subsidiaries (1,868) -- -- 1,868 -- ------------------------------------------------------------------------- Net earnings (loss) $ 7,397 $ 2 $ (1,870) $ 1,868 $ 7,397 =========================================================================
17
EDO CORPORATION CONDENSED CONSOLIDATING STATEMENT OF EARNINGS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2006 (IN THOUSANDS) (UNAUDITED) EDO Corporation Parent Subsidiary Company Only Guarantors Non-Guarantors Eliminations Consolidated ------------------------------------------------------------------------- OPERATING ACTIVITIES: Earnings (loss) from operations $ 7,397 $ 2 $ (1,870) $ 1,868 $ 7,397 Adjustments to earnings (loss) to arrive at cash (used) provided by operations: Depreciation 3,722 4,454 689 -- 8,865 Amortization -- 4,370 751 -- 5,121 Impairment loss on other intangible assets -- -- 1,487 -- 1,487 Bad (recovery) debt expense (75) 69 -- -- (6) Deferred tax provision (2,591) 2,606 -- -- 15 Loss (gain) on sale of property, plant and equipment 15 (74) -- -- (59) Long-term Incentive Plan compensation expense 2,261 -- -- -- 2,261 Stock option compensation expense 838 -- -- -- 838 Employee Stock Ownership Plan compensation expense 3,310 -- -- -- 3,310 Dividends on unallocated Employee Stock Ownership Plan shares 172 -- -- -- 172 Common shares issued for directors' fees 162 -- -- -- 162 Changes in operating assets and liabilities, excluding effects of acquisitions: Equity in earnings of subsidiaries 1,868 -- -- (1,868) -- Intercompany (36,188) 36,053 135 -- -- Accounts receivable 16,110 7,079 (124) -- 23,065 Inventories 6,300 (17,744) (892) -- (12,336) Prepayments and other assets 8,454 (6,831) 7 -- 1,630 Accounts payable, accrued liabilities and other (18,561) (6,285) 1,015 -- (23,831) Contribution to defined benefit pension plan (6,000) -- -- -- (6,000) Contract advances and deposits 9,885 (8,691) -- -- 1,194 ------------------------------------------------------------------------- Cash (used) provided by operations (2,921) 15,008 1,198 -- 13,285 ------------------------------------------------------------------------- INVESTING ACTIVITIES: Purchase of property, plant and equipment (5,221) (8,048) (947) -- (14,216) Payments received on notes receivable 100 -- -- -- 100 Proceeds from sale of property, plant and equipment -- 633 -- -- 633 Cash paid for acquisitions, net of cash acquired (265,318) -- -- -- (265,318) ------------------------------------------------------------------------- Cash used by investing activities (270,439) (7,415) (947) -- (278,801) ------------------------------------------------------------------------- FINANCING ACTIVITIES: Proceeds from exercise of stock options 842 10 -- -- 852 Excess income tax benefit from stock options and Long-term Incentive Plan 429 -- -- -- 429 Proceeds from management group receivables 140 -- -- -- 140 Short-term borrowings under revolver 200,000 -- -- -- 200,000 Payment of common share cash dividends (1,830) -- -- -- (1,830) ------------------------------------------------------------------------- Cash provided by financing activities 199,581 10 -- -- 199,591 ------------------------------------------------------------------------- Net (decrease) increase in cash and cash equivalents (73,779) 7,603 251 -- (65,925) Cash and cash equivalents at beginning of period 99,067 4,232 5,432 -- 108,731 ------------------------------------------------------------------------- Cash and cash equivalents at end of period $ 25,288 $ 11,835 $ 5,683 $ -- $ 42,806 =========================================================================
18 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INTRODUCTION EDO Corporation (the "Company") designs and manufactures a diverse range of products with core competencies in critical defense areas. We are a leading supplier of sophisticated, highly engineered products and systems for defense, aerospace and intelligence applications. We believe our advanced systems are mission-critical on a wide range of military programs and are at the core of transforming defense capabilities. We have two reporting segments: Engineered Systems and Services and Electronic Systems and Communications. Our Engineered Systems and Services segment comprises of aircraft armament systems, integrated composite structures, undersea warfare sonar systems, and professional engineering services. Our Electronic Systems and Communications segment provides highly-engineered electronic systems and equipment including electronic warfare systems, reconnaissance and surveillance systems, and command, control, communications, and computers (C4) products and systems. The Company has a disciplined acquisition program which is diversifying its base of major platforms and customers. The Company's Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports, and the Proxy Statement for its Annual Meeting of Shareholders are made available, free of charge, on its Web site www.edocorp.com, as soon as reasonably practicable after such reports have been filed with or furnished to the Securities and Exchange Commission. Additional Information and Where to Find It On September 17, EDO announced that it has entered into a definitive merger agreement with ITT Corporation, pursuant to which ITT will acquire all of the outstanding shares of EDO for $56.00 per share in cash. In connection with the proposed merger, EDO filed with the SEC a definitive proxy statement and other relevant materials on November 5, 2007. The definitive proxy statement will be mailed to EDO's shareholders of record at the close of business on November 2, 2007, the record date for the special meeting of our shareholders to consider and vote on a proposal to approve and adopt the merger agreement. EDO's shareholders are urged to read the definitive proxy statement and other relevant materials carefully because they will contain important information about EDO and the merger. Shareholders, investors and other interested parties may obtain a free copy of the definitive proxy statement and any other relevant documents (when they become available) that EDO files with the SEC at the SEC's web site at www.sec.gov. The definitive proxy statement and any other relevant documents may also be accessed at www.edocorp.com or obtained free from the Company by directing a request to EDO Corporation, 60 East 42nd Street, 42nd Floor, New York, NY 10165, Attn: Investor Relations. DISCUSSION OF CRITICAL ACCOUNTING POLICIES We make estimates and assumptions in the preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the United States. Actual results could differ significantly from those estimates under different assumptions and conditions. We believe that the following discussion addresses our critical accounting policies, which are those that are most important to the portrayal of our consolidated financial condition and results of operations and which require our most difficult and subjective judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Except for the treatment of tax contingency accruals, there have been no material changes from the methodology applied by management for critical estimates previously disclosed in the Company's most recent Annual Report on Form 10-K. Effective January 1, 2007, the company began to measure and record tax contingency accruals in accordance with FIN 48 - Accounting for Uncertainty in Income Taxes - an Interpretation of FASB Statement No. 109. The expanded disclosure requirements of FIN 48 are presented in Note 6 of this report. FIN 48 prescribes a threshold for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Only tax positions meeting the more-likely-than-not recognition threshold at the effective date may be recognized or continue to be recognized upon adoption of this Interpretation. FIN 48 also provides guidance on accounting for de-recognition, interest and penalties, and classification and disclosure of matters related to uncertainty in income taxes. The following is a brief discussion of the critical accounting policies employed by us: 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 and other milestones are achieved or services are provided. These projections are revised throughout the lives of the contracts. Adjustments to profits resulting from such revisions are made cumulative to the date of change and may affect current period earnings. Sales on other than long-term contract orders (principally commercial products) are recorded as shipments are made. Our gross profit is affected by a variety of factors, including the mix of products, systems and services sold production efficiencies, price competition and general economic conditions. Estimated losses on long-term contracts are recorded when identified. 19 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 our defense contracts), less the portion of such costs charged to cost of sales. All other inventories are stated at the lower of cost (principally first-in, first-out method) or market. Inventory costs in excess of amounts recoverable under contracts and which relate to a specific technology or application and which may not have alternative uses are charged to cost of sales when such circumstances are identified. From time to time, we manufacture certain products prior to receiving firm contracts in anticipation of future demand. Such costs are inventoried and are incurred to help maintain stable and efficient production schedules. Several factors may influence the sale and use of our inventories, including our decision to exit a product line, technological change, new product development and/or revised estimates of future product demand. If inventory is determined to be overvalued due to one or more of the above factors, we would be required to recognize such loss in value at the time of such determination. Under the contractual arrangements by which progress payments are received, the United States Government has a title to or a security interest in the inventories identified with related contracts. PROPERTY, PLANT AND EQUIPMENT AND OTHER LONG-LIVED ASSETS Property, plant and equipment is recorded at cost and is depreciated on a straight-line basis over the estimated useful lives of such assets. Leasehold improvements are amortized over the shorter of their estimated useful lives or their respective lease periods. In those cases where we determine that the useful life of property, plant and equipment should be shortened, we depreciate the net book value in excess of salvage value over its revised remaining useful life thereby increasing depreciation expense. Factors such as technological advances, changes to our business model, changes in our capital strategy, changes in the planned use of equipment, fixtures, software or changes in the planned use of facilities could result in shortened useful lives. Long-lived assets, other than goodwill, are reviewed by us for impairment whenever events or changes in circumstances indicate that the carrying amount of any such asset may not be recoverable. The estimate of cash flow, which is used to determine recoverability, is based upon, among other things, certain assumptions about future operating performance. Our estimates of undiscounted cash flow may differ from actual cash flow due to such factors including technological advances, changes to our business model, or changes in our capital strategy or planned use of long-lived assets. If the sum of the undiscounted cash flows, excluding interest, is less than the carrying value, we would recognize an impairment loss, measured as the amount by which the carrying value exceeds the fair value of the asset. In accordance with SFAS No. 142, goodwill must be tested at least annually for impairment at the reporting unit level. If an indication of impairment exists, we are required to determine if such goodwill's implied fair value is less than the unit carrying value in order to determine the amount, if any, of the impairment loss required to be recorded. Impairment indicators include, among other conditions, cash flow deficits, an historic or anticipated decline in revenue or operating profits, adverse legal or regulatory developments, accumulation of costs significantly in excess of amounts originally expected to acquire the asset and/or a material decrease in the fair value of some or all of the assets. To determine the fair value of our reporting units, we generally use a present value technique (discounted cash flow) corroborated by market multiples when available and as appropriate, for all of the reporting units. The discounted cash flow method measures intrinsic value by reference to an enterprise's or an asset's expected annual free cash flows. We applied what we believe to be the most appropriate valuation methodology for each of the reporting units. If we had established different reporting units or utilized different valuation methodologies, the impairment test results could differ. PENSION AND POST-RETIREMENT BENEFITS OBLIGATIONS We sponsor defined benefit pension and other retirement plans in various forms covering all eligible employees. Several statistical and other factors which attempt to anticipate future events are used in calculating the expense and liability related to the plans. These factors include assumptions about the discount rate and expected return on plan assets within certain guidelines and in conjunction with our actuarial consultants. In addition, our actuarial consultants also use subjective factors such as withdrawal and mortality rates to estimate the expense and liability related to these plans. The actuarial assumptions used by us may differ significantly, either favorably or unfavorably, from actual results due to changing market, economic or regulatory conditions, higher or lower withdrawal rates or longer or shorter life spans of participants. 20 We used the building block approach to the estimation of the long-term rate of return on assets. Under this approach, we reviewed the publicly available common source data for the range of returns on basic types of equity and fixed income instruments and the differential to those rates provided by active investment management. In consultation with our actuarial and active asset management consultants and taking into account the funds' actual performance and expected asset allocation going forward, we selected an overall return rate within the resulting range. RESULTS OF OPERATIONS The following information should be read in conjunction with the Consolidated Financial Statements as of September 29, 2007.
THREE MONTHS ENDED SEPTEMBER 29, 2007 COMPARED WITH THREE MONTHS ENDED SEPTEMBER 30, 2006 Net sales by segment were as follows: THREE MONTHS ENDED INCREASE/ ------------------------------ (DECREASE) SEPTEMBER 29, SEPTEMBER 30, FROM SEGMENT 2007 2006 PRIOR PERIOD - ------- ----------------------------------------------- (IN THOUSANDS) Engineered Systems & Services $ 117,974 $ 79,409 48.6% Electronic Systems & Communications 138,808 104,984 32.2% ----------------------------------------------- Total $ 256,782 $ 184,393 39.3% ===============================================
In the Engineered Systems and Services segment, the increase in sales is attributable primarily to the contribution of sales of CAS which was acquired on September 6, 2006, and higher sales on aircraft armament products. This increase was partially offset by lower sales in our flight-line test systems product and various undersea warfare programs. In the Electronic Systems and Communications segment, the increase in sales is attributable to deliveries associated with the Transition Switch Module (TSM) program, sales contributed by IST which was acquired on September 15, 2006, increased sales on our force protection systems as well as spares related to ESM systems. Operating earnings by segment were as follows: THREE MONTHS ENDED SEPTEMBER 29, SEPTEMBER 30, SEGMENT 2007 2006 ------------------------------ (IN THOUSANDS) Engineered Systems & Services $ 7,335 $ 646 Electronic Systems & Communications 8,779 1,758 ------------------------------ Total $ 16,114 $ 2,404 ============================== Operating earnings for the three months ended September 29, 2007 were $16.1 million or 6.3% of net sales. This compares to operating earnings for the three months ended September 30, 2006 of $2.4 million or 1.3% of net sales. Items of note affecting operating earnings are summarized here to help clarify the comparison of results. THREE MONTHS ENDED SEPTEMBER 29, SEPTEMBER 30, 2007 2006 -------------------------------- (IN THOUSANDS) Pension $ 610 $ 1,194 ESOP Compensation expense $ 1,725 $ 975 Other intangible asset amortization $ 2,562 $ 1,707 ------------------------------ $ 4,897 $ 3,876 ============================== 21 The decrease in pension expense in 2007 compared to 2006 is attributable to changes in actuarial assumptions such as discount rate and return on plan assets as well as the contributions made by the Company in 2007 for the 2006 plan year. The higher ESOP compensation expense for the three months ended September 29, 2007 is attributable to our higher average stock price compared to the three months ended September 30, 2006. The increase in other intangible asset amortization expense is attributable to the acquisitions of CAS and IST in the third quarter of 2006. The Engineered Systems and Services segment's operating earnings for the three months ended September 29, 2007 were $7.3 million or 6.2% of this segment's net sales compared to operating earnings of $0.6 million or 0.8% of this segment's net sales for the three months ended September 30, 2006. The increase is attributable the increased sales on aircraft armament programs, the mix of programs in our services division, and the contributions of CAS, which was acquired on September 6, 2006. These increases were partially offset by a $3.2 million cost growth on the ALOFTS sonar program and the aforementioned lower sales on flight line test systems. For the three months ended September 30, 2006, operating earnings in the Engineering Systems and Services segment were negatively impacted by a $2.2 million cost growth on an aircraft armament systems program and a $0.4 million cost growth on an undersea warfare program as well as lower margins due to lower sales volume of composite structures, primarily the Joint Air to Surface Standoff Missile units (JASSM) and the attendant higher absorption of overhead costs. In addition, operating earnings for Engineered Systems and Services were impacted by a write-down of unamortized other intangible assets of $1.5 million related to the Company's rugged computer product line. The Electronic Systems and Communications segment's operating earnings for the three months ended September 29, 2007 were $8.8 million or 6.3% of this segment's net sales compared to operating earnings of $1.8 million or 1.7% of this segment's net sales for the three months ended September 30, 2006. This increase is mainly attributable to sales on our TSM program, increased sale of our Antenna Products, and higher sales of ESM systems. This increase is partially offset by unabsorbed overhead costs at two of our facilities as we prepare for increased production of force protection systems. For the three months ended September 30, 2006, operating earnings in the Electronic Systems and Communications segment were negatively impacted by the significantly lower sales volume of electronic force protection systems. In addition, earnings were negatively impacted by a charge of approximately $2.1 million related to the settlement of a contract dispute during the third quarter of 2006. Selling, general and administrative expenses for the three months ended September 29, 2007 were $35.7 million or 13.9% of net sales compared to $30.2 million or 16.4% of net sales for the three months ended September 30, 2006. The increase is primarily attributable to the acquisitions of CAS and IST made in the third quarter of 2006 and includes the other intangible assets amortization expense associated with these acquisitions. During the three months ended September 29, 2007, the Company recorded acquisition-related costs of $2.0 million for "stay-pay" related to the acquisitions in 2005 and 2006 compared to $1.0 million for the three months ended September 30, 2006. We expect to incur similar amounts related primarily to the CAS and IST acquisitions over the next 2 years. Research and development expense for the three months ended September 29, 2007 decreased to $2.9 million or 1.1% of net sales from $4.7 million or 2.5% of net sales for the three months ended September 30, 2006, during which time there was higher than usual spending on electronic force protection and ESM Systems. Interest expense, net of interest income, for the three months ended September 29, 2007 increased to $4.8 million from $2.5 million for the three months ended September 30, 2006, primarily due to interest on borrowings under our credit facility. Also included in interest expense is interest on our 4.0% Convertible Subordinated Notes ("Notes") which were issued in November 2005 and due in 2025, interest on the promissory note associated with the IST acquisition made in September 2006 and due in 2009, interest on the promissory note associated with the NexGen acquisition made in 2005 and due in 2008, and the amortization of deferred debt issuance costs associated with the offering of the Notes and amortization of deferred financing costs associated with our credit facility. For the three months ended September 29, 2007 we recorded a discrete net income tax benefit of $4.7 million primarily related to changes in tax contingencies and the claim for the federal research and development credit for 2003 not previously claimed This compares to a $2.3 million discrete net income tax benefit recorded for the three months ended September 30, 2006 related primarily to claims for the federal research and development credit and extraterritorial income (ETI) exclusion tax benefits not previously claimed. 22 For the three months ended September 29, 2007, net earnings were $11.2 million or $0.49 per diluted common share on 25.4 million diluted shares compared to net earnings of $2.1 million or $0.11 per diluted common share on 18.6 million diluted shares for the three months ended September 30, 2006. The convertible Notes were dilutive for the third quarter of 2007 and anti-dilutive in the third quarter of 2006.
NINE MONTHS ENDED SEPTEMBER 29, 2007 COMPARED WITH NINE MONTHS ENDED SEPTEMBER 30, 2006 Net sales by segment were as follows: NINE MONTHS ENDED INCREASE/ ------------------------------ (DECREASE) SEPTEMBER 29, SEPTEMBER 30, FROM SEGMENT 2007 2006 PRIOR PERIOD ------------------------------------------------ (IN THOUSANDS) Engineered Systems & Services $ 353,954 $ 204,462 73.1% Electronic Systems & Communications 404,264 252,038 60.4% ------------------------------------------------ Total $ 758,218 $ 456,500 66.1% ================================================
In the Engineered Systems and Services segment, the increase in sales is attributable primarily to the contribution of sales of CAS which was acquired on September 6, 2006, increased sales of our flight line test systems products and higher sales in undersea warfare products. In the Electronic Systems and Communications segment, the increase in sales is attributable to deliveries associated with the Transition Switch Module (TSM) program, deliveries of force protection systems and the sales contributed by IST which was acquired on September 15, 2006. Operating earnings by segment were as follows: NINE MONTHS ENDED SEPTEMBER 29, SEPTEMBER 30, SEGMENT 2007 2006 ------------------------------ (IN THOUSANDS) Engineered Systems & Services...................$ 25,902 $ 4,069 Electronic Systems & Communications............. 21,168 4,068 ------------------------------ Total...........................................$ 47,070 $ 8,137 ============================== Operating earnings for the nine months ended September 29, 2007 were $47.1 million or 6.2% of net sales. This compares to operating earnings for the nine months ended September 30, 2006 of $8.1 million or 1.8% of net sales. Items of note affecting operating earnings are summarized here to help clarify the comparison of results. NINE MONTHS ENDED SEPTEMBER 29, SEPTEMBER 30, 2007 2006 -------------------------------- (IN THOUSANDS) Pension.........................................$ 2,233 $ 3,582 ESOP Compensation expense.......................$ 4,209 $ 3,310 Other intangible asset amortization.............$ 7,713 $ 5,121 Stock-based compensation expense re: options....$ 970 $ 838 -------------------------------- $ 15,125 $ 12,851 ================================ The decrease in pension expense in 2007 compared to 2006 is attributable to changes in actuarial assumptions such as discount rate and return on plan assets as well as the contributions made by the Company in 2007 for the 2006 plan year. The higher ESOP compensation expense for the first nine months of 2007 is attributable to our higher average stock price compared to the first nine months of 2006. The increase in other intangible asset amortization expense is attributable to the acquisitions of CAS and IST in the third quarter of 2006. The increase in stock-based compensation expense relates to the higher share price on the dates of grant compared to 2006. 23 The Engineered Systems and Services segment's operating earnings for the nine months ended September 29, 2007 were $25.9 million or 7.3% of this segment's net sales compared to operating earnings of $4.1 million or 2.0% of this segment's net sales for the nine months ended September 30, 2006. This increase is attributable to cost reductions on an aircraft armament program, increased sales on flight line test equipment, the contribution of CAS, which was acquired on September 6, 2006 and the mix of sales in our services business. These increases were partially offset by cost growth on the ALOFTS sonar program and an aircraft armament program. For the nine months ended September 30, 2006, operating earnings in the Engineered Systems Services segment were negatively impacted by a $2.5 million cost growth on ALOFTS, $1.4 million and $2.2 million on two aircraft armament systems programs, $1.2 million related to the conclusion of a legal action as well as a write-off of unamortized other intangible assets of $1.5 million related to the Company's rugged computer product line. In the Electronic Systems and Communications segment, operating earnings for the nine months ended September 29, 2007 were $21.2 million or 5.2% of this segment's net sales compared to operating earnings of $4.1 million or 1.6% of this segment's net sales for the nine months ended September 30, 2006. The increase is attributable to increased sales on our TSM program, electronic warfare products, and antenna products. This was partially offset by unabsorbed overhead costs at two of our facilities as we prepare for increased production of force protection systems, as well as cost growth on a close-out of an open contract issue on a long standing contract that is now complete. For the nine months ended September 30, 2006, operating earnings were negatively impacted by less recovery of overhead expenses due to lower sales volume of electronic force protection systems, cost growth of $2.5 million on an interference cancellation program, lower milestone achievements of reconnaissance and surveillance systems, and approximately $5.0 million in legal costs and provisions for liabilities in respect of concluded legal matters. Selling, general and administrative expenses for the nine months ended September 29, 2007 were $105.1 million or 13.9% of net sales compared to $79.0 million or 17.3% for the nine months ended September 30, 2006. The increase is primarily attributable to the acquisitions of CAS and IST made in 2006 including the other intangible assets amortization expense associated with these acquisitions. During the nine months ended September 29, 2007, the Company recorded acquisition-related costs of $6.3 million for "stay-pay" related to the acquisitions made in 2005 and 2006, compared to $1.5 million for the nine months ended September 30, 2006. We expect to incur similar amounts related primarily to the CAS and IST acquisitions over the next 2 years. Research and development expense for the nine months ended September 29, 2007 decreased to $7.4 million or 1.0% of net sales from $10.9 million or 2.4% of net sales for the nine months ended September 30, 2006, during which time there was higher spending on electronic force protection and aircraft armament systems. Interest expense, net of interest income, for the nine months ended September 29, 2007 increased to $16.3 million from $5.1 million for the nine months ended September 30, 2006 primarily due to interest on borrowings under our credit facility. Also included in interest expense is interest on our 4.0% Convertible Subordinated Notes ("Notes") which were issued in November 2005 and due in 2025, interest on the promissory note associated with the IST acquisition made in September 2006 and due in 2009, interest on the promissory note associated with the NexGen acquisition made in 2005 and due in 2008, and the amortization of deferred debt issuance costs associated with the offering of the Notes and amortization of deferred financing costs associated with our credit facility. For the nine months ended September 29, 2007, we recorded a discrete net income tax benefit of $4.7 million primarily related to changes in tax contingencies and the claim for the federal research and development credit for 2003 not previously claimed, compared to a $6.0 million discrete net income tax benefit recorded for the nine months ended September 30, 2006 related primarily to claims for the federal research and development credit and extraterritorial income (ETI) exclusion tax benefits not previously claimed and changes in tax contingencies. For the nine months ended September 29, 2007, net earnings were $22.9 million or $1.05 per diluted common share on 25.2 million diluted shares compared to net earnings of $7.4 million or $0.40 per diluted common share on 18.6 million diluted shares for the nine months ended September 30, 2006. The Convertible Notes were dilutive for the nine months ended September 29, 2007 and anti-dilutive for the nine months ended September 30. 24 LIQUIDITY AND CAPITAL RESOURCES Balance sheet Cash and cash equivalents decreased 86.5% to $3.4 million at September 29, 2007 from $25.3 million at December 31, 2006. For the nine months ended September 29, 2007, cash provided by operations was $38.9 million, reflecting earnings from operations and collections of billed receivables which were partially offset by increases in inventories and contributions to the defined benefit pension plan. During the nine months ended September 29, 2007, we reduced our borrowings under the credit facility by a net $36.0 million. Furthermore, $9.3 million was used to settle the final purchase prices of CAS and IST, $12.2 million was used for the purchase of plant and equipment, $5.8 million for a scheduled principal payment on our IST promissory note and $1.9 million for the payment of common share dividends. Accounts receivable decreased 12.1% to $233.1 million at September 29, 2007 from $265.3 million at December 31, 2006 due to collections of billed receivables. At September 29, 2007 approximately 90% of billed receivables were in the under-60 days aging category compared with 89% at December 31, 2006. Inventories increased to $118.7 million at September 29, 2007 from $56.3 million at December 31, 2006 due primarily to the efforts expended on work-in-process on major programs such as TSM and Crew 2.1. FINANCING ACTIVITIES Credit Facility We have a five-year credit facility with a consortium of banks, led by Citibank, N.A., as the administrative agent, Bank of America, N.A, as the documentation agent and Wachovia Bank, N.A. as syndication agent. The facility expires in November 2010. The credit agreement provides for a revolving credit facility in an aggregate amount equal to $300 million with sub-limits of $20 million for short-term swing loans and $100 million for letters of credit. The potential cash borrowing under the facility is reduced by the amount of outstanding letters of credit. The Company has the option to select Base Rate or Eurodollar Rate loans under the terms of the Credit Agreement. Any borrowings under the facility would be priced initially at LIBOR plus a predetermined amount depending on our consolidated leverage ratio at the time of the borrowing. At September 29, 2007, LIBOR was approximately 5.13% and the applicable adjustment to LIBOR was 2.00%. The facility requires us to pay each lender in the consortium a commitment fee on the average daily unused portion of their respective commitment at a rate equal to 0.25%. In addition, the agreement provides for potential incremental credit extensions in the form of term loans or revolving credit commitment increases of up to $100 million. At September 29, 2007 there were $21.9 million of letters of credit outstanding and $144.0 million of direct borrowings outstanding under the credit facility, resulting in $134.1 million available for additional borrowings. At December 31, 2006, there were $180.0 million of direct borrowings outstanding under the credit facility. Accrued interest payable related to the credit facility was $0.3 million and $0.8 million at September 29, 2007 and December 31, 2006, respectively. In connection with the credit facility, the Company is required to maintain both financial and non-financial covenants and ratios, including, but not limited to, leverage ratio, fixed charge coverage ratio, and senior secured leverage ratio. As of September 29, 2007, the Company was in compliance with its covenants. The credit facility is secured by the Company's accounts receivable, inventory and machinery and equipment. 4.0% Convertible Subordinated Notes due 2025 ("4.0% Notes") In November 2005, we completed the offering of $201.2 million principal of 4.0% Notes and received proceeds of $195.7 million, net of $5.5 million of commissions. Interest payments are due May 15 and November 15 of each year commencing on May 15, 2006. The Company made its scheduled interest payment of $4.0 million on the 4.0% Notes during the second quarter of 2007. Accrued interest payable, included in accrued liabilities, was $3.1 million and $1.0 million at September 29, 2007 and December 31, 2006, respectively. The Notes are convertible, unless previously redeemed or repurchased by the Company, at the option of the holder at any time prior to maturity, into the Company's common stock at an initial conversion price of $34.19 per share, subject to adjustment in certain events. As of September 29, 2007, there had been no such conversions. 25 Shelf Registration At September 29, 2007, our remaining capacity under the universal shelf registration statement that became effective in January 2004 was approximately $298.8 million. We believe that, for the foreseeable future, we have adequate liquidity and sufficient capital to fund our currently anticipated requirements for working capital, capital expenditures, including acquisitions, research and development expenditures, interest payments and funding of our pension and post-retirement benefit obligations. We continue to focus on positioning ourselves to be a significant player in the consolidation of first-tier defense suppliers and, to that end, actively seek candidates for strategic acquisitions. Future acquisitions may be funded from any of the following sources: cash on hand; borrowings under our credit facility; issuance of our common stock or other equity securities; and/or convertible or other debt offerings. COMMITMENT AND CONTINGENCIES We are obligated under building and equipment leases expiring between 2007 and 2019. The aggregate future minimum lease commitments under those obligations with non-cancellable terms in excess of one year are shown below. Our commitments under letters of credit and advance payment and performance bonds relate primarily to advances received on foreign contracts should we fail to perform in accordance with the contract terms. We do not expect to have to make payments under these letters of credit or bonds since these obligations are removed as we perform under the related contracts. The amounts for letters of credit and performance bonds represent the amount of commitment expiration per period. In order to aggregate all commitments and contractual obligations as of September 29, 2007, we have included the following table:
PAYMENTS DUE IN (IN MILLIONS): ---------------------------------------------------------------------- COMMITMENTS AND CONTRACTUAL OBLIGATIONS: 2012 AND TOTAL 2007 2008 2009 2010 2011 BEYOND - ------------------------------------------------------------------------------------------------------------------------ Borrowings Under Revolver $ 144.0 $ 144.0 $ -- $ -- $ -- $ -- $ -- Notes payable 16.5 2.0 8.8 5.7 -- -- -- 4.0% Convertible Subordinated Notes due 2025 (1) 201.2 -- -- -- -- -- 201.2 Operating leases 145.2 5.7 22.4 20.6 19.3 18.1 59.1 Letters of credit 21.9 2.5 7.0 11.8 -- -- 0.6 Projected pension contributions (2) 33.6 -- 14.7 8.5 8.3 2.1 -- Advance payment and performance bonds 1.7 -- -- 1.7 -- -- -- ---------------------------------------------------------------------- Total $ 564.1 $ 154.2 $ 52.9 $ 48.3 $ 27.6 $ 20.2 $ 260.9 ======================================================================
(1) Excludes interest of approximately $8 million annually. (2) Actual pension contributions may differ from amounts presented above and are contingent on cash flow, liquidity, and actuarial assumptions. Additionally, we are subject to certain legal actions that arise out of the normal course of business. It is our belief that the ultimate outcome of these actions is unlikely to have a material adverse effect on our consolidated financial position, results of operations or liquidity CONCENTRATION OF SALES We conduct a significant amount of our business with the United States Government. Although there are currently no indications of a significant change in the status of government funding of certain programs, should this occur, our results of operations, financial position and liquidity could be materially affected. Such a change could have a significant impact on our profitability and our stock price. This could also affect our ability to acquire funds from our credit facility due to covenant restrictions or from other sources. For the three and nine months ended September 29, 2007, sales of TSM represented 12.7% and 15.1% of net sales, respectively. For the three and nine months ended September 30, 2006, sales of TSM represented 13.9% and 7.3% of net sales, respectively. 26 The funded backlog of unfilled orders at September 29, 2007 increased to $1,362.3 million from $804.4 million at December 31, 2006. Our backlog consists primarily of current orders under long-lived, mission-critical programs of key defense platforms. "SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 The statements in this Quarterly report and in oral statements that may be made by representatives of the Company 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 below. U.S. and international military program sales, follow-on procurement, contract continuance, and future program awards, upgrades and spares support are subject to: U.S. and international military budget constraints and determinations; U.S. congressional and international legislative body discretion; U.S. and international government administration policies and priorities; changing world military threats, strategies and missions; competition from foreign manufacturers of platforms and equipment; NATO country determinations regarding participation in common programs; changes in U.S. and international government procurement timing, strategies and practices, the general state of world military readiness and deployment; and the ability to obtain export licenses. Commercial product sales are subject to: success of product development programs currently underway or planned; competitiveness of current and future production costs and prices and market and consumer base development of new product programs. Achievement of margins on sales, earnings and cash flow can be affected by: unanticipated technical problems; government termination of contracts for convenience; decline in expected levels of sales; underestimation of anticipated costs on specific programs; the ability to effect acquisitions; and risks inherent in integrating recent acquisitions into our overall structure. Expectations of future income tax rates can be affected by a variety of factors, including statutory changes in Federal and state tax rates, tax treatment of acquisitions, results of tax audits, the amount of the non-deductible portion of our non-cash ESOP compensation expense and other factors detailed under "Special Note Regarding Forward-Looking Statements" in the definitive proxy statement filed by the Company on November 5, 2007 in connection with the proposed sale of the company described in Note 2. The Company has no obligation to update any forward-looking statements. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS For quantitative and qualitative disclosures about market risk, see Item 7A, "Quantitative and Qualitative Disclosures About Market Risk," of our annual report on Form 10-K for the year ended December 31, 2006. ITEM 4. CONTROLS AND PROCEDURES As of the end of the period covered by this Quarterly Report on Form 10-Q, the Company carried out an evaluation, under the supervision and with the participation of the Company's senior management, including the Chief Executive Officer and the Chief Financial Officer, as well as the audit committee of the Board of Directors, of the effectiveness of the design and operation of the Company's disclosure controls and procedures. Based on their evaluation, the Chief Executive Officer and the Chief Financial Officer of the Company have concluded that the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) are effective to ensure that the information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms. There were no changes in EDO's internal controls over financial reporting during EDO's last fiscal quarter that have materially affected, or are likely to materially affect internal controls over financial reporting. 27 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS On October 15, 2007, one of our shareholders, the City of Bethlehem Aggregated Pension Fund, filed in the Supreme Court of the State of New York, New York County, a putative shareholder class action against the Company and the individual members of the Board of Directors. The complaint alleges, among other things, that the proposed acquisition of the Company by ITT substantially undervalues our common shares and unfairly benefits the Company's insiders. The plaintiff seeks injunctive relief with regard to the proposed acquisition. On November 1, 2007 plaintiff filed an amended complaint. We believe that the allegations in the complaint are without merit, and we intend to defend against them vigorously. On October 26, 2007, one of our shareholders, Mr. Samuel Pill, filed in the Supreme Court of the State of New York, New York County, a putative shareholder class action against the individual members of our Board of Directors, the Company, ITT and Merger Sub. The complaint alleges, among other things, that the $56.00 per share merger consideration is inadequate and unfair to the public shareholders of the Company and that the preliminary proxy statement filed by the Company on October 23, 2007 failed to disclose material non-public information concerning the financial position and prospects of the Company. The plaintiff seeks injunctive relief with regard to the proposed transaction. We believe that the allegations in the complaint are without merit, and we intend to defend against them vigorously. ITEM 1A. RISK FACTORS There have been no material changes in our risk factors from the risk factors disclosed in our annual report on Form10-K for the year ended December 31, 2006, except for risks related to the proposed sale of the company, as described in Note 2 above. There are no assurances that the proposed merger will be consummated. If the proposed merger is not consummated, under certain circumstances we may be required to pay a termination fee plus reimbursement of out-of-pocket expenses to the proposed acquirer, which amounts could be significant. In addition, the proposed merger may disrupt our current plans and operations and create potential difficulties in customer and employee retention. The effect of the announcement of the proposed merger or any subsequent announcements related to the merger may affect our business relationships. We have incurred and may continue to incur significant amounts of costs and fees associated with the proposed merger. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. ITEM 6. EXHIBITS AND REPORTS FILED ON FORM 8-K 2(d) Agreement and Plan of Merger, dated as of September 16, 2007, by and among ITT Corporation, Donatello Acquisition Corporation and EDO Corporation (File No. 001-03985, Form 8-K dated September 18, 2007, Exhibit 2.1) 2(e) Form of Shareholder Voting Agreement, dated as of September 16, 2007, by and between ITT Corporation and Shareholder ("Shareholder") party thereto. (File No. 001-03985, Form 8-K dated September 18 , 2007, Exhibit 2.2) 10(a)* Extension Agreement to James M. Smith Employment Agreement, dated August 30, 2007 10(b)* Amended and Restated Change in Control Agreement dated June 12, 2007 between the Company and Jon A. Anderson 10(c)* Amended and Restated Change in Control Agreement dated June 12, 2007 between the Company and Frederic B. Bassett 10(d)* Amended and Restated Change in Control Agreement dated June 12, 2007 between the Company and Patricia D. Comiskey 10(e)* Amended and Restated Change in Control Agreement dated June 12, 2007 between the Company and Milo Hyde 10(f)* Amended and Restated Change in Control Agreement dated June 12, 2007 between the Company and Frank W. Otto 10(g)* Amended and Restated Change in Control Agreement dated June 12, 2007 between the Company and Lisa M. Palumbo 31.1* Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.2* Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32* Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. * Filed herewith. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, its principal financial officer, thereunto duly authorized. EDO CORPORATION (Registrant) Dated: November 5, 2007 By: /s/ FREDERIC B. BASSETT ------------------------------------- Frederic B. Bassett Senior Vice President Finance, Treasurer and Chief Financial Officer 28 EX-10.A 2 a5534801ex10_l-1.txt EXHIBIT 10(A) Exhibit 10(a) EXTENSION AGREEMENT THIS EXTENSION AGREEMENT is made and entered into as of the 30th day of August, 2007, by and among EDO CORPORATION, a New York corporation, and JAMES M. SMITH with respect to that certain Amended and Restated Employment Agreement between the parties dated as of October 1, 2004 (the "Master Agreement"). Terms not otherwise defined herein have the same meaning as in the Master Agreement. WHEREAS, the Master Agreement will expire by its terms pursuant to Section 3 thereof at the earlier of the date of the 2008 Annual Meeting of the Company or May 31, 2008 (the "Normal Expiration") and parties desire to assure themselves of sufficient time for an orderly transition in the senior management of the Company. WHEREAS, the Company desires to have access to your skill and experience during such transition, which could take up to an additional year beyond the normal expiration of the Master Agreement and desires to extend your employment for such additional year on terms agreed between you and the Company; NOW THEREFORE, you and the Company agree as follows: 1. Extension Period. Unless the Master Agreement has otherwise terminated prior to its Normal Expiration, the parties agree that the Master Agreement shall be extended automatically and without further action of the parties for a period of twelve (12) months from the end of its term on May 31, 2008 or if earlier, the date of the 2008 Annual Meeting of the Company (such twelve month period, the "Extension Period"). 2. Extension Period Terms. Except as modified by this Extension Agreement, the terms of the Master Agreement shall continue to apply in full force and effect during the Extension Period. The following provisions of the Master Agreement shall be amended and apply as indicated during the Extension Period. a. Employment Duties. Section 2 of the Master Agreement shall continue in effect, except that last sentence shall be replaced in its entirety with the following: "During the Extension Period, your duties shall include participation in such succession and transition plan, including the timely implementation of such plan, as determined by the Board of Directors." b. Term. Section 3 of the Master Agreement shall be amended to such that the term of the Master Agreement, as extended by this Extension Agreement, shall be through the earlier of the date of the Company's 2009 Annual Meeting or May 31, 2009, unless earlier terminated in accordance with the provision of Section 5 of the Master Extension Agreement. c. Compensation and Benefits. During the Extension Period, the provisions of Section 4 of the Master Agreement shall govern your compensation and benefits during the Extension Period; provided that, your bonus target under Section 4(b) of the Master Agreement shall be 100% of your Base Salary and a payment for financial and tax planning under Section 4(i) of the Master Agreement shall be made in respect of the year following the year in which your employment terminates. 3. Termination of Employment. During the Extension Period, Section 5(d) of the Master Agreement (Good Reason) shall be replaced in its entirety by the following: "d. Other Terminations. Unless this Agreement has earlier been terminated for another reason specified in this Section 5, you or the Company may terminate this Agreement at any time, for any reason or no reason, upon notice from one to the other, and the provisions of Section 6 (d) shall govern compensation on termination." 4. Compensation Upon Termination. a. Severance Payment. During the Extension Period, Section 6 shall continue to apply, except that the first lead-in paragraph of Section 6(d) (Good Reason; Without Cause) shall be replaced in its entirety by the following, after which the balance of Section 6(d) (subparagraphs (i) through (vi)) continue unmodified: "d. Other Terminations. For all other terminations of employment you shall be entitled to termination payments ("Termination Payments"), subject to the provisions of Section 6(e), determined in accordance with this Section 6(d). A. Prior to a Change in Control. Except for a termination following a Change in Control, if your employment is terminated (x) by you for any reason pursuant to Section 5(d), or (y) by the Company for any reason other than death, disability, or Cause, or (z) on account of the expiration of the Term or your retirement, the Company will pay you as a Termination Payment, in a lump sum promptly following the date of termination, an amount equal to the sum of your then current Base Salary and 100% of your target Annual Bonus for the year of termination. B. Following a Change in Control. If your employment terminates, voluntarily or involuntarily, for any reason or no reason, following a Change in Control, the Company will pay you the following amounts as Termination Payments:" b. Annual Bonus Upon Termination. The provisions of Article X of the EDO Corporation Incentive Compensation Plan shall apply with respect to the Annual Bonus in respect of the year of termination, pursuant to which the Compensation Committee may, in its sole discretion, approve the payment of your Annual Bonus on a pro-rata basis at the same time other participants are paid depending on the circumstances surrounding the termination of your employment, without regard to the payments provided for in Section 6(d)(A) of the Master Agreement, as amended hereby. -2- 5. Miscellaneous. a. Effective Date. For the avoidance of doubt, (i) no provision of this Extension Agreement shall apply in any period prior to the Normal Expiration of the Master Agreement, (ii) this Extension Agreement shall become effective immediately upon the Normal Expiration of the Master Agreement and (iii) this Extension Agreement shall lapse and be of no effect whatsoever in the event of any termination of your employment prior to the Normal Expiration. b. Counterparts. This Extension Agreement may be executed in multiple counterparts, each of which shall be deemed an original. IN WITNESS WHEREOF, the parties have caused this Extension Agreement to be executed as of the date first above written. EDO CORPORATION By: /s/ Patricia D. Comiskey -------------------------------- Name: Patricia D. Comiskey Title: Sr. Vice President, Human Resources & Assistant Secretary /s/ James M. Smith ---------------------------------------- JAMES M. SMITH -3- EX-10.B 3 a5534801ex10_b.txt EXHIBIT 10(B) Exhibit 10(b) AMENDED AND RESTATED CHANGE IN CONTROL AGREEMENT AGREEMENT made this 12th day of June, 2007 by and between EDO Corporation, a New York Corporation having its office and principal place of business at 60 East 42nd Street, Suite 4200, New York, NY 10165 (the "Company") and Jon A. Anderson, 5023 No. Washington Blvd, Arlington, VA 22205 ("Executive"). W I T N E S E T H: ------------------ WHEREAS, the Company considers it essential to the best interests of the Company and its stockholders that its management (including Executive) be encouraged to remain with the Company and to continue to devote full attention to the Company's business in the event of a change in control or potential change in control of the Company. WHEREAS, the Company recognizes that the possibility of a Change in Control or a Potential Change in Control and the uncertainty and questions, which either event may raise among management, may result in the departure or distraction of management personnel to the detriment of the Company and its stockholders; WHEREAS, the Company's Board of Directors (the "Board") has determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of members of the Company's management to their assigned duties without distraction in the face of the potentially disturbing circumstances arising from a Change in Control or a Potential Change in Control; WHEREAS, the Company believes Executive has made and will continue to make valuable contributions to the productivity and profitability of the Company; WHEREAS, should a Potential Change in Control occur, the Board believes it imperative that the Company and the Board be able to rely upon the Executive to continue in his position, and that the Company be able to receive and rely upon his advice as to the best interests of the Company and its stockholders without concern that he might be distracted by the personal uncertainties and risks created by such event; and WHEREAS, should a Potential Change in Control occur, in addition to the Executive's regular duties, he may be called upon to assist in the assessment of any proposals of any person concerning the possible business combination of the Company or acquisition of equity securities of the Company, advise management and the Board as to whether such proposals would be in the best interests of the Company and its stockholders, and to take such other actions as the Board might determine to be appropriate; WHEREAS, Section 409A of the Internal Revenue Code of 1986, as amended (the "Code"), imposes certain restrictions and requirements upon the payment of amounts treated as deferred compensation for such purposes, in order to avoid immediate taxation at a rate of federal income taxation at least 20% in excess of the otherwise applicable rate of income taxation; WHEREAS, certain payments that may become due and payable under this Agreement may be treated as such deferred compensation and the Company and the Executive desire to satisfy the applicable conditions specified under such Section 409A: NOW, THEREFORE, in consideration of the recitals and for other good and valuable consideration, the Company and Executive agree as follows: GENERAL 1. Purpose. The purpose of this Agreement is to provide Executive with Special Severance Pay Benefits in the event of certain terminations of Executive's employment in connection with a Change in Control, as such terms are defined in this Agreement. 2. Term. This Agreement will be effective as of the date first set forth above (the "Effective Date"), but no compensation or benefits will be payable hereunder unless the Executive experiences a Qualifying Termination of employment following a Potential Change in Control or Change in Control. In addition, no compensation or benefits will be payable to the Executive under this Agreement, and this Agreement will be without further force or effect, if a Potential Change in Control or a Change in Control does not occur on or before the end of the initial Term or any extended Term. The initial "Term" of this Agreement shall begin on the Effective Date and end on December 31, 2007; provided that, the Term may be extended for additional one year periods (each, an extended Term) upon the lapse of the initial Term or the then current extended Term by the Company's written notice of extension to the Executive and the Executive's written acknowledgement of such notice. ARTICLE 1 PRINCIPAL UNDERTAKING 1.1. Special Severance Upon a Qualifying Termination. If (a) following a Potential Change in Control but prior to a Change in Control (provided a Change in Control occurs within twelve months after the Potential Change in Control) or (b) within a one and one-half (1-1/2) year period after a Change in Control, Executive's employment shall have been terminated by the Company without Cause or by Executive in a Termination for Good Reason (either, a "Qualifying Termination"), then Executive shall be paid by the Company subject to adjustment as provided in Article 4, the following "Special Severance Pay Benefits": - Current Salary and Other Compensation Benefits (Article 2); - Other Salary and Incentive Compensation Benefits (Article 3); and 2 - Tax Adjustment (Article 4). 1.2. Timing of Payment. Except as provided in Article 4, the Special Severance Pay Benefits, subject to any taxes required to be withheld therefrom, shall be paid to Executive in a lump sum, on or before the fifth day following the later of the "Date of Employment Termination" or the date the Change in Control is consummated (the "Payment Date"); provided, however, that, if Executive is a "specified employee" of the Company or any member of its affiliated group of corporations (within the meaning of Section 409A of the Code), as of the Date of Employment Termination and any payment of deferred compensation payable under this Agreement or any other deferred compensation arrangement with the Company and its subsidiaries (including, but not limited to, the payments provided for under Article 4) is required to be delayed to avoid incurring "additional tax" under Section 409A of the Code and the regulations promulgated thereunder, then each such payment shall be delayed until the date which is six months and one day following the Date of Employment Termination. 1.3. Loans and Advances. The amount of any loan or advance to Executive shall be due and payable as of the Date of Employment Termination. The Company shall have no right of setoff against any amount due Executive under this Agreement, except that the Company may set off against such amount the balance of any loan or advance which remains unpaid after the third day following the Date of Employment Termination. ARTICLE 2 CURRENT SALARY AND OTHER COMPENSATION BENEFITS Payment of this portion of Special Severance Pay Benefits shall consist of the following: - Executive's full base salary through the Date of Employment Termination, at the rate in effect ten (10) days prior to the Date of Employment Termination; plus - Executive's full base salary earned from the beginning of the calendar year in which the Date of Employment Termination occurs through the Date of Employment Termination multiplied by the greater of (a) twenty percent (20%) or (b) the percentage which is equal to the highest percentage of base salary paid as a bonus to Executive for any of the three calendar years preceding the calendar year in which the Date of Employment Termination occurs, in either case, reduced by any installment of cash bonus previously paid by the Company to Executive for the calendar year in which the Date of Employment Termination occurs, plus - The full amount, if any, of any incentive or special award, which Executive earned but which, has not yet been paid. 3 ARTICLE 3 OTHER SALARY AND INCENTIVE COMPENSATION BENEFITS Payment of this portion of Special Severance Pay Benefits shall consist of an amount equal to one and one-half (1 1/2) times the sum of (a) Executive's annual base salary, at the highest rate in effect at any time up to Date of Employment Termination (the "Highest Base Salary") and (b) and amount equal to the Highest Base Salary multiplied by the greater of (i) twenty percent (20%) or (ii) the percentage which is equal to the highest percentage of base salary paid as a bonus to Executive for any of the three calendar years preceding the calendar year in which the Date of Employment Termination occurs. ARTICLE 4 TAXES 4.1. Application of Article 4. In the event that any amount or benefit paid or distributed to Executive pursuant to this Agreement, taken together with any amounts or benefits otherwise paid or distributed to Executive by the Company or any affiliated company (collectively, the "Covered Payments"), would be an "excess parachute payment" as defined in Section 280G of the Code and would thereby subject Executive to the tax (the "Excise Tax") imposed under Section 4999 of the Code (or any similar tax that may hereafter be imposed), the provisions of this Article 4 shall apply to determine the amounts payable to Executive pursuant to this Agreement. 4.2. Determination of Payment Cap or Tax Adjustment. On or before the Payment Date, the Company shall notify Executive of the aggregate present value of all termination benefits to which he would be entitled under this Agreement and any other plan, program or arrangement as of the Payment Date, together with the projected maximum payments, determined as of the Payment Date that could be paid without Executive being subject to the Excise Tax. (a) Payment Cap. If the aggregate value of all compensation payments or benefits to be paid or provided to Executive under this Agreement and any other plan, agreement or arrangement with the Company is less than 105% of the amount which can be paid to Executive without Executive incurring an Excise Tax, then the amounts payable to Executive under this Agreement may, in the discretion of the Company, be reduced (but not below zero), to the maximum amount which may be paid hereunder without Executive becoming subject to such an Excise Tax (such reduced payments to be referred to as the "Payment Cap"). In the event that Executive receives reduced payments and benefits hereunder, Executive shall have the right to designate which of the payments and benefits otherwise provided for in this Agreement that he will receive in connection with the application of the Payment Cap. (b) Tax Adjustment. If the aggregate value of all compensation payments or benefits to be paid or provided to Executive under this Agreement and any other plan, agreement or arrangement with the Company is greater than 105% of the amount which can be paid to Executive without Executive incurring an Excise Tax, the Company shall pay to Executive immediately following Executive's termination of employment an additional amount (the "Tax Adjustment") such that the net amount retained by Executive with respect to such Covered Payments, after deduction of any Excise Tax on the Covered Payments and any Federal, state and local income tax and Excise Tax on the Tax Adjustment provided for by this Article 4, but before deduction for any Federal, state or local income or employment tax withholding on such Covered Payments, shall be equal to the amount of Covered Payments. 4 4.3. Assumptions. For purposes of determining whether any of the Covered Payments will be subject to the Excise Tax, and the amount of such Excise Tax, (a) Such Covered Payments will be treated as "parachute payments" within the meaning of Section 280G of the Code, and all "parachute payments" in excess of the "base amount" (as defined under Section 280G(b)(3) of the Code) shall be treated as subject to the Excise Tax, unless and except to the extent that, in the good faith judgment of the Company's independent certified public accountants appointed prior to the Effective Date or tax counsel selected by such accountants (the "Accountants"), the Company has a reasonable basis to conclude that such Covered Payments (in whole or in part) either do not constitute "parachute payments" or represent reasonable compensation for personal services actually rendered (within the meaning of Section 280G(b)(4)(B) of the Code) in excess of the "base amount," or such "parachute payments" are otherwise not subject to such Excise Tax, and (b) The value of any non-cash benefits or any deferred payment or benefit shall be determined by the Accountants in accordance with the principles of Section 280G of the Code. (c) For purposes of determining whether Executive would receive a greater net after-tax benefit were the amounts payable under this Agreement reduced in accordance with Paragraph 4.2, Executive shall be deemed to pay: (i) Federal income taxes at the highest applicable marginal rate of federal income taxation for the calendar year in which the first amounts are to be paid hereunder, and (ii) Any applicable state and local income taxes at the highest applicable marginal rate of taxation for such calendar year, net of the maximum reduction in Federal income taxes which could be obtained from the deduction of such state or local taxes if paid in such year. 4.4. Correction Following Determination. 5 (a) Corrections For Payment Cap. If Executive receives reduced payments and benefits under this Article 4, or this Article 4 is determined not to be applicable to Executive because the Accountants conclude that Executive is not subject to any Excise Tax, and in either case it is thereafter established pursuant to a final determination and non-appealable settlement or other resolution of litigation or an Internal Revenue Service proceeding (a "Final Determination") that, notwithstanding the good faith of Executive and the Company in applying the terms of this Agreement, the aggregate of the "parachute payments" within the meaning of Section 280G of the Code paid to Executive or for his benefit are in an amount that would result in Executive being subject to an Excise Tax, then, to the extent not prohibited by applicable law, the amount equal to such excess parachute payments shall be deemed for all purposes to be a loan to Executive made on the date of receipt of such excess payments, which Executive shall have an obligation to repay to the Company on demand, together with interest on such amount at the applicable Federal rate (as defined in Section 1274(d) of the Code) from the date of the payment hereunder to the date of repayment by Executive. If this Article 4 is not applied to reduce Executive's entitlements because the Accountants determine that Executive would not receive a greater net-after-tax benefit by applying this Article 4 and it is established pursuant to a Final Determination that, notwithstanding the good faith of Executive and the Company in applying the terms of this Agreement, Executive would have received a greater net-after-tax benefit by subjecting his payments and benefits hereunder to the Payment Cap, then the aggregate "parachute payments" paid to Executive or for his benefit in excess of the Payment Cap shall, to the extent not prohibited by applicable law, be deemed for all purposes a loan to Executive made on the date of receipt of such excess payments, which Executive shall have an obligation to repay to the Company on demand, together with interest on such amount at the applicable Federal rate (as defined in Section 1274(d) of the Code) from the date of the payment hereunder to the date of repayment by the Executive. If Executive receives reduced payments and benefits by reason of this Article 4 and it is established pursuant to a Final Determination that Executive could have received a greater amount without exceeding the Payment Cap, then the Company shall promptly thereafter (but in no event later than the end of the Executive's taxable year in which such Final Determination occurs) pay Executive the aggregate additional amount which could have been paid without exceeding the Payment Cap, together with interest on such amount at the applicable Federal rate (as defined in Section 1274(d) of the Code) from the original payment due date to the date of actual payment by the Company. (b) Corrections for Tax Adjustment. In the event that the Excise Tax is subsequently determined by the Accountants or pursuant to any proceeding or negotiations with the Internal Revenue Service to be less that the amount taken into account hereunder in calculating the Tax Adjustment made, Executive shall, to the extent not prohibited by applicable law, repay to the Company, at the time that the amount of such reduction in the Excise Tax is finally determined, the portion of such prior Tax Adjustment that would not have been paid if such Excise Tax had been applied in initially calculating such Tax Adjustment, plus interest on the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. Notwithstanding the foregoing, in the event any portion of the Tax Adjustment to be refunded to the Company has been paid to any Federal, state or local tax authority, repayment thereof shall not be required until actual refund or credit of such portion has been made to Executive, and interest payable to the Company shall not exceed interest received or credited to Executive by such tax authority for the period it held such portion. Executive and the Company shall mutually agree upon the course of action to be pursued (and the method of allocating the expenses thereof) if Executives good faith claim for refund or credit is denied. 6 In the event that the Excise Tax is later determined by the Accountants or pursuant to any proceeding or negotiations with the Internal Revenue Service to exceed the amount taken into account hereunder at the time the Tax Adjustment is made (including, but not limited to, by reason of any payment the existence or amount of which cannot be determined at the time of the Tax Adjustment), the Company shall make an additional Tax Adjustment in respect of such excess (plus any interest or penalty payable with respect to such excess) at the time that the amount of such excess is the subject of a Final Determination, but in no event later than (A) the end of the taxable year next following the year of the Final Determination if there was no additional payment required to the taxing authority by the Executive or (B) the end of the year next following the year in which the taxes that are the subject of the Final Determination are remitted to the taxing authority by the Executive. 4.5. Timing of Payment of Tax Adjustment. Except as provided in section 4.4, any Tax Adjustment (or portion thereof) provided for in Article 4 shall be paid to Executive not later than 10 business days following the Payment Date; provided, however, that if the amount of such Tax Adjustment (or portion thereof) cannot be finally determined on or before the date on which payment is due, the Company shall pay to Executive by such date an amount estimated in good faith by the Accountants to be the minimum amount of such Tax Adjustment and shall pay the remainder of such Tax Adjustment (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code) as soon as the amount thereof can be determined, but in no event later than the end of the Executive's taxable year following the year in which the Executive remits the related taxes to the applicable taxing authority or by such later time as is provided for above in the case of a Final Determination. In the event that the amount of the estimated Tax Adjustment exceeds the amount subsequently determined to have been due, such excess shall, to the extent not prohibited by applicable law, constitute a loan by the Company to Executive, payable on the fifth business day after written demand by the Company for payment (together with interest at the rate provided in Section (1274(b)(2)(B) of the Code.) 7 ARTICLE 5 BENEFIT PLAN If (a) following a Potential Change in Control but prior to a Change in Control (provided a Change in Control occurs within twelve months after the Potential Change in Control) or (b) within a one year period after a Change In Control shall have occurred, Executive's employment shall have terminated for any reason, including, but not limited to, Termination for good Reason, except for death, voluntary retirement or for Cause, then, for one year after the Payment Date, the Company shall maintain in full force and effect and Executive shall continue to participate in all group life, health and accident and disability insurance, and other employee welfare benefit plans, programs and arrangements in which Executive was entitled to participate immediately prior to the Date of Employment Termination, provided that continued participation is possible under the general terms and provisions of such plans, programs and arrangements. If participation is barred, or an applicable plan, program or arrangement is discontinued or the benefits thereunder are materially reduced, the Company shall arrange to provide Executive with benefits substantially similar to those which he was entitled to receive immediately prior to the Date of Employment Termination. The foregoing shall not be deemed to apply to the EDO Corporation Employees Pension Plan or the EDO Corporation Employee Stock Ownership and Employee Investment Plan. ARTICLE 6 NO MITIGATION REQUIRED Executive shall not be required to mitigate the amount of any payment or benefit provided for in this Agreement by seeking other employment or otherwise, nor shall the amount of any payment or benefit so provided for be reduced by any compensation earned by him as the result of employment by another employer after the Date of Employment Termination, or otherwise. ARTICLE 7 DEFINITION OF "CHANGE IN CONTROL" AND "POTENTIAL CHANGE IN CONTROL" 7.1. Change in Control. A "Change in Control" occurs on the first to occur of any of the following: (a) The date that any one person, or more than one person acting as a Group (other than the Company, its subsidiaries, or any employee benefit plan of the Company or its subsidiaries) (a "person"), acquires ownership of stock of the Company that, together with stock held by such person or Group, constitutes more than 50 percent of the total fair market value or total voting power of the stock of the Company; provided that, if any one person, or Group owns more than 50 percent of the total fair market value or total voting power of the stock of the Company, the acquisition of additional stock by the same person or persons in the Group is not a subsequent Change in Control; 8 (b) The date any person, or Group, acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such person or Group) ownership of stock of the Company possessing 30 percent or more of the total voting power of the stock of the Company, or (c) The date a majority of members of the Company's board of directors is replaced during any 12-month period by directors whose appointment or election is not endorsed by a majority of the members of the Company's board of directors before the date of the appointment or election. For purposes of this Paragraph 7.1, an increase in the percentage of stock owned by any one person, or Group as a result of a transaction in which the Company acquires its own stock in exchange for property will be treated as an acquisition of stock of the Company by a person or Group. The transfer of stock of the Company (or issuance of stock by the Company) will be considered only if such stock remains outstanding after the applicable transaction. Notwithstanding the foregoing, no event set forth in this Section 7.1 shall be a Change in Control unless such even constitutes a "change in control" within the meaning of Section 409A of the Code and the regulations promulgated thereunder. 7.2 Potential Change in Control. A "Potential Change in Control" occurs if: (a) A person hereafter becomes the beneficial owner of securities of the Company having at least 25% of the total number of votes that may be cast for the election of directors of the Company, or (b) any person holds a 15% beneficial ownership interest on the date hereof and there occurs an increase in such person's beneficial ownership of such number of securities of the Company as shall increase the beneficial ownership by such person by an additional 1% of the total number of votes that may be cast for the election of directors of the Company, or (c) a Person commences a tender offer for at least 25% of the outstanding shares of the Company's common stock, or (d) approval of any corporate transaction is requested of shareholders, which, if obtained, would result in a Change in Control occurring, or (e) any person solicits proxies for the election of more than one member of the Board (other than for any such election or nomination for election that is approved by the then current Board). 9 7.3 Group. Determination of the existence of a "Group" for purposes of this Article 7 shall be determined under the provisions of Treasury Regulation ss. 1.409A-3(i)(5)(v)(B). The terms herein shall be interpreted in a manner consistent with the provisions of Treasury Regulation ss. 1.409A-3. ARTICLE 8 TERMINATION FOR CAUSE 10.1. If the Executive's employment is terminated by the Company for Cause, the Company shall pay the Executive his full base salary through the Date of Employment Termination (at the rate in effect as of the Date of Employment Termination), and the Company shall have no further obligations to the Executive under this Agreement. 10.2. The following are the only reasons for which the Company may terminate Executive's service for Cause without further obligations under this Agreement: - for failure to consistently meet the performance objectives set for the Executive as determined in the reasonable discretion of the Board of Directors - for providing the Company with materially false reports concerning Executive's business interests or employment-related activities; - for making materially false representations relied upon by the Company in furnishing information to shareholders, a stock exchange, or the Securities and Exchange Commission; - for maintaining an undisclosed, unauthorized and material conflict of interest in the discharge of duties owed by Executive to the Company; - for misconduct causing a serious violation by the Company of state or federal laws or violation of a material written policy of the Company; - for theft of Company funds or corporate assets; or - for conviction of a crime (excluding traffic violations or similar misdemeanors). ARTICLE 9 DEFINITION OF "TERMINATION FOR GOOD REASON" "Termination for Good Reason" shall mean termination of Executive's employment by Executive following or in connection with: (i) without the express advance written consent of Executive, (a) the assignment to Executive of any duties inconsistent in any substantial respect with the position, authority or responsibilities of Executive immediately prior to the earlier to occur of a Potential Change in Control or a Change in Control or (b) any other substantial change in such position, including titles, authority or responsibilities, or 10 (ii) during the one and one-half (1-1/2) year period following a Change in Control or during a period of Potential Change in Control, any reduction in Executive's salary or any reduction in bonus or incentive compensation targets (based upon the highest dollar amount or other rate of salary, bonus and incentive compensation in effect at any time up to Date of Employment Termination), a termination, reduction or alteration of disability policies or life or disability insurance benefits maintained for Executive, any alteration or reduction of expense allowances or reimbursement policies or a significant reduction in scope or value of the aggregate other benefits to which Executive was entitled immediately prior to the earlier to occur of a Potential Change in Control or a Change in Control, or (iii) the Company's requiring Executive to be based at any office or location more than 50 miles from the one where he worked immediately prior to the earlier to occur of a Potential Change in Control or a Change in Control, except for travel reasonably required in the performance of Executives responsibilities, or (iv) any purported termination by the Company of Executive's employment otherwise than as permitted by this Agreement, it being understood that any such purported termination shall not be effective for any purpose of this Agreement, or (v) any failure by the Company to obtain the assumption and agreement to perform this Agreement by a successor as contemplated by paragraph 10.1. ARTICLE 10 SUCCESSORS, BINDING AGREEMENT 10.1. The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company, by agreement in form and substance satisfactory to Executive, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle Executive to compensation from the Company in the same amount and on the same terms as Executive would be entitled hereunder if the Company had terminated Executive's employment other than for Cause after a Change in Control occurring at the time of succession, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Employment Termination. 11 10.2. As used in this Agreement, "Company" shall include any successor to this business and/or assets as aforesaid which executes and delivers the agreement provided for in paragraph 10.1 or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law. 10.3. This Agreement shall inure to the benefit of, and be enforceable by, Executive's personal or legal representatives, executors, administrators, successors, heirs, distributes, devisees and legatees. If Executive should die while any amounts would still be payable if he had continues to live, all such amounts shall be paid in accordance with the terms of this Agreement to Executive's devisee, legatee, or other designee or, if there be no such designee, to his estate. ARTICLE 11 MISCELLANEOUS PROVISIONS 11.1. Date of Employment Termination is the date on which Executive experiences a "separation from service" within the meaning of Treasury Regulation ss.1.409A-1(h)(1). 11.2. Notice and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth on the first page of this Agreement, provided that all notices to the Company shall be directed to the attention of the corporate counsel, or to such other address as either party may have furnished to the other in writing in accordance herewith. Notices of change of address shall be effective only upon receipt. 11.3. This Agreement supersedes any other agreement on the subject matter hereof executed by the parties hereto. No provisions of this Agreement may be modified, waived or discharged unless such modification, waiver or discharge is agreed to in writing signed by Executive and, on behalf of the Company, by such officer as may be specifically designated by the Board. 11.4. All benefits provided for in this Agreement are provided on an unfunded basis and are not intended to meet the qualification requirements of Section 401 of the Code. The Company shall not be deemed to be a trustee of any amounts to be paid under this Agreement and shall not be required to segregate any assets with respect to benefits under this Agreement. Such benefits shall be payable solely from the general assets of the Company. 11.5. Any failure at any time of either party to enforce any provision of this Agreement shall not constitute a waiver of such provision, or prejudice the right of either party to enforce such provision at any subsequent time. 12 11.6. No agreements or representations, oral or otherwise, expressed or implied, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement. 11.7. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of New York. 11.8. The invalidity or unenforceability of any one or more provisions of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 11.9. In the event of any action or proceeding between the parties arising out of this agreement, the Company will pay the costs of any such legal proceedings including, but not limited to, the costs of Executive for all expenses, including attorneys' fees, incurred in such action or proceeding. Such costs and expenses shall be advanced to Executive currently as reasonably required to continue such action or proceeding. EDO CORPORATION By: /s/ Patricia D. Comiskey ---------------------------------- Patricia D. Comiskey Senior Vice President - Human Resources EXECUTIVE: /s/ Jon A. Anderson ------------------------------------- Jon A. Anderson 13 EX-10.C 4 a5534801ex10_c.txt EXHIBIT 10(C) Exhibit 10(c) AMENDED AND RESTATED CHANGE IN CONTROL AGREEMENT AGREEMENT made this 12th day of June, 2007 by and between EDO Corporation, a New York Corporation having its office and principal place of business at 60 East 42nd Street, Suite 4200, New York, NY 10165 (the "Company") and Frederic Bassett, 205 Weston Road, Weston, CT 06883 ("Executive"). W I T N E S E T H: ------------------ WHEREAS, the Company considers it essential to the best interests of the Company and its stockholders that its management (including Executive) be encouraged to remain with the Company and to continue to devote full attention to the Company's business in the event of a change in control or potential change in control of the Company. WHEREAS, the Company recognizes that the possibility of a Change in Control or a Potential Change in Control and the uncertainty and questions, which either event may raise among management, may result in the departure or distraction of management personnel to the detriment of the Company and its stockholders; WHEREAS, the Company's Board of Directors (the "Board") has determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of members of the Company's management to their assigned duties without distraction in the face of the potentially disturbing circumstances arising from a Change in Control or a Potential Change in Control; WHEREAS, the Company believes Executive has made and will continue to make valuable contributions to the productivity and profitability of the Company; WHEREAS, should a Potential Change in Control occur, the Board believes it imperative that the Company and the Board be able to rely upon the Executive to continue in his position, and that the Company be able to receive and rely upon his advice as to the best interests of the Company and its stockholders without concern that he might be distracted by the personal uncertainties and risks created by such event; and WHEREAS, should a Potential Change in Control occur, in addition to the Executive's regular duties, he may be called upon to assist in the assessment of any proposals of any person concerning the possible business combination of the Company or acquisition of equity securities of the Company, advise management and the Board as to whether such proposals would be in the best interests of the Company and its stockholders, and to take such other actions as the Board might determine to be appropriate; WHEREAS, Section 409A of the Internal Revenue Code of 1986, as amended (the "Code"), imposes certain restrictions and requirements upon the payment of amounts treated as deferred compensation for such purposes, in order to avoid immediate taxation at a rate of federal income taxation at least 20% in excess of the otherwise applicable rate of income taxation; WHEREAS, certain payments that may become due and payable under this Agreement may be treated as such deferred compensation and the Company and the Executive desire to satisfy the applicable conditions specified under such Section 409A: NOW, THEREFORE, in consideration of the recitals and for other good and valuable consideration, the Company and Executive agree as follows: GENERAL 1. Purpose. The purpose of this Agreement is to provide Executive with Special Severance Pay Benefits in the event of certain terminations of Executive's employment in connection with a Change in Control, as such terms are defined in this Agreement. 2. Term. This Agreement will be effective as of the date first set forth above (the "Effective Date"), but no compensation or benefits will be payable hereunder unless the Executive experiences a Qualifying Termination of employment following a Potential Change in Control or Change in Control. In addition, no compensation or benefits will be payable to the Executive under this Agreement, and this Agreement will be without further force or effect, if a Potential Change in Control or a Change in Control does not occur on or before the end of the initial Term or any extended Term. The initial "Term" of this Agreement shall begin on the Effective Date and end on December 31, 2007; provided that, the Term may be extended for additional one year periods (each, an extended Term) upon the lapse of the initial Term or the then current extended Term by the Company's written notice of extension to the Executive and the Executive's written acknowledgement of such notice. ARTICLE 1 PRINCIPAL UNDERTAKING 1.1. Special Severance Upon a Qualifying Termination. If (a) following a Potential Change in Control but prior to a Change in Control (provided a Change in Control occurs within twelve months after the Potential Change in Control) or (b) within a one and one-half (1-1/2) year period after a Change in Control, Executive's employment shall have been terminated by the Company without Cause or by Executive in a Termination for Good Reason (either, a "Qualifying Termination"), then Executive shall be paid by the Company subject to adjustment as provided in Article 4, the following "Special Severance Pay Benefits": - Current Salary and Other Compensation Benefits (Article 2); - Other Salary and Incentive Compensation Benefits (Article 3); and - Tax Adjustment (Article 4). 2 1.2. Timing of Payment. Except as provided in Article 4, the Special Severance Pay Benefits, subject to any taxes required to be withheld therefrom, shall be paid to Executive in a lump sum, on or before the fifth day following the later of the "Date of Employment Termination" or the date the Change in Control is consummated (the "Payment Date"); provided, however, that, if Executive is a "specified employee" of the Company or any member of its affiliated group of corporations (within the meaning of Section 409A of the Code), as of the Date of Employment Termination and any payment of deferred compensation payable under this Agreement or any other deferred compensation arrangement with the Company and its subsidiaries (including, but not limited to, the payments provided for under Article 4) is required to be delayed to avoid incurring "additional tax" under Section 409A of the Code and the regulations promulgated thereunder, then each such payment shall be delayed until the date which is six months and one day following the Date of Employment Termination. 1.3. Loans and Advances. The amount of any loan or advance to Executive shall be due and payable as of the Date of Employment Termination. The Company shall have no right of setoff against any amount due Executive under this Agreement, except that the Company may set off against such amount the balance of any loan or advance which remains unpaid after the third day following the Date of Employment Termination. ARTICLE 2 CURRENT SALARY AND OTHER COMPENSATION BENEFITS Payment of this portion of Special Severance Pay Benefits shall consist of the following: - Executive's full base salary through the Date of Employment Termination, at the rate in effect ten (10) days prior to the Date of Employment Termination; plus - Executive's full base salary earned from the beginning of the calendar year in which the Date of Employment Termination occurs through the Date of Employment Termination multiplied by the greater of (a) twenty percent (20%) or (b) the percentage which is equal to the highest percentage of base salary paid as a bonus to Executive for any of the three calendar years preceding the calendar year in which the Date of Employment Termination occurs, in either case, reduced by any installment of cash bonus previously paid by the Company to Executive for the calendar year in which the Date of Employment Termination occurs, plus - The full amount, if any, of any incentive or special award, which Executive earned but which, has not yet been paid. ARTICLE 3 OTHER SALARY AND INCENTIVE COMPENSATION BENEFITS 3 Payment of this portion of Special Severance Pay Benefits shall consist of an amount equal to one and one-half (1 1/2) times the sum of (a) Executive's annual base salary, at the highest rate in effect at any time up to Date of Employment Termination (the "Highest Base Salary") and (b) and amount equal to the Highest Base Salary multiplied by the greater of (i) twenty percent (20%) or (ii) the percentage which is equal to the highest percentage of base salary paid as a bonus to Executive for any of the three calendar years preceding the calendar year in which the Date of Employment Termination occurs. ARTICLE 4 TAXES 4.1. Application of Article 4. In the event that any amount or benefit paid or distributed to Executive pursuant to this Agreement, taken together with any amounts or benefits otherwise paid or distributed to Executive by the Company or any affiliated company (collectively, the "Covered Payments"), would be an "excess parachute payment" as defined in Section 280G of the Code and would thereby subject Executive to the tax (the "Excise Tax") imposed under Section 4999 of the Code (or any similar tax that may hereafter be imposed), the provisions of this Article 4 shall apply to determine the amounts payable to Executive pursuant to this Agreement. 4.2. Determination of Payment Cap or Tax Adjustment. On or before the Payment Date, the Company shall notify Executive of the aggregate present value of all termination benefits to which he would be entitled under this Agreement and any other plan, program or arrangement as of the Payment Date, together with the projected maximum payments, determined as of the Payment Date that could be paid without Executive being subject to the Excise Tax. (a) Payment Cap. If the aggregate value of all compensation payments or benefits to be paid or provided to Executive under this Agreement and any other plan, agreement or arrangement with the Company is less than 105% of the amount which can be paid to Executive without Executive incurring an Excise Tax, then the amounts payable to Executive under this Agreement may, in the discretion of the Company, be reduced (but not below zero), to the maximum amount which may be paid hereunder without Executive becoming subject to such an Excise Tax (such reduced payments to be referred to as the "Payment Cap"). In the event that Executive receives reduced payments and benefits hereunder, Executive shall have the right to designate which of the payments and benefits otherwise provided for in this Agreement that he will receive in connection with the application of the Payment Cap. (b) Tax Adjustment. If the aggregate value of all compensation payments or benefits to be paid or provided to Executive under this Agreement and any other plan, agreement or arrangement with the Company is greater than 105% of the amount which can be paid to Executive without Executive incurring an Excise Tax, the Company shall pay to Executive immediately following Executive's termination of employment an additional amount (the "Tax Adjustment") such that the net amount retained by Executive with respect to such Covered Payments, after deduction of any Excise Tax on the Covered Payments and any Federal, state and local income tax and Excise Tax on the Tax Adjustment provided for by this Article 4, but before deduction for any Federal, state or local income or employment tax withholding on such Covered Payments, shall be equal to the amount of Covered Payments. 4 4.3. Assumptions. For purposes of determining whether any of the Covered Payments will be subject to the Excise Tax, and the amount of such Excise Tax, (a) Such Covered Payments will be treated as "parachute payments" within the meaning of Section 280G of the Code, and all "parachute payments" in excess of the "base amount" (as defined under Section 280G(b)(3) of the Code) shall be treated as subject to the Excise Tax, unless and except to the extent that, in the good faith judgment of the Company's independent certified public accountants appointed prior to the Effective Date or tax counsel selected by such accountants (the "Accountants"), the Company has a reasonable basis to conclude that such Covered Payments (in whole or in part) either do not constitute "parachute payments" or represent reasonable compensation for personal services actually rendered (within the meaning of Section 280G(b)(4)(B) of the Code) in excess of the "base amount," or such "parachute payments" are otherwise not subject to such Excise Tax, and (b) The value of any non-cash benefits or any deferred payment or benefit shall be determined by the Accountants in accordance with the principles of Section 280G of the Code. (c) For purposes of determining whether Executive would receive a greater net after-tax benefit were the amounts payable under this Agreement reduced in accordance with Paragraph 4.2, Executive shall be deemed to pay: (i) Federal income taxes at the highest applicable marginal rate of federal income taxation for the calendar year in which the first amounts are to be paid hereunder, and (ii) Any applicable state and local income taxes at the highest applicable marginal rate of taxation for such calendar year, net of the maximum reduction in Federal income taxes which could be obtained from the deduction of such state or local taxes if paid in such year. 4.4. Correction Following Determination. (a) Corrections For Payment Cap. If Executive receives reduced payments and benefits under this Article 4, or this Article 4 is determined not to be applicable to Executive because the Accountants conclude that Executive is not subject to any Excise Tax, and in either case it is thereafter established pursuant to a final determination and non-appealable settlement or other resolution of litigation or an Internal Revenue Service proceeding (a "Final Determination") that, notwithstanding the good faith of Executive and the Company in applying the terms of this Agreement, the aggregate of the "parachute payments" within the meaning of Section 280G of the Code paid to Executive or for his benefit are in an amount that would result in Executive being subject to an Excise Tax, then, to the extent not prohibited by applicable law, the amount equal to such excess parachute payments shall be deemed for all purposes to be a loan to Executive made on the date of receipt of such excess payments, which Executive shall have an obligation to repay to the Company on demand, together with interest on such amount at the applicable Federal rate (as defined in Section 1274(d) of the Code) from the date of the payment hereunder to the date of repayment by Executive. 5 If this Article 4 is not applied to reduce Executive's entitlements because the Accountants determine that Executive would not receive a greater net-after-tax benefit by applying this Article 4 and it is established pursuant to a Final Determination that, notwithstanding the good faith of Executive and the Company in applying the terms of this Agreement, Executive would have received a greater net-after-tax benefit by subjecting his payments and benefits hereunder to the Payment Cap, then the aggregate "parachute payments" paid to Executive or for his benefit in excess of the Payment Cap shall, to the extent not prohibited by applicable law, be deemed for all purposes a loan to Executive made on the date of receipt of such excess payments, which Executive shall have an obligation to repay to the Company on demand, together with interest on such amount at the applicable Federal rate (as defined in Section 1274(d) of the Code) from the date of the payment hereunder to the date of repayment by the Executive. If Executive receives reduced payments and benefits by reason of this Article 4 and it is established pursuant to a Final Determination that Executive could have received a greater amount without exceeding the Payment Cap, then the Company shall promptly thereafter (but in no event later than the end of the Executive's taxable year in which such Final Determination occurs) pay Executive the aggregate additional amount which could have been paid without exceeding the Payment Cap, together with interest on such amount at the applicable Federal rate (as defined in Section 1274(d) of the Code) from the original payment due date to the date of actual payment by the Company. (b) Corrections for Tax Adjustment. In the event that the Excise Tax is subsequently determined by the Accountants or pursuant to any proceeding or negotiations with the Internal Revenue Service to be less that the amount taken into account hereunder in calculating the Tax Adjustment made, Executive shall, to the extent not prohibited by applicable law, repay to the Company, at the time that the amount of such reduction in the Excise Tax is finally determined, the portion of such prior Tax Adjustment that would not have been paid if such Excise Tax had been applied in initially calculating such Tax Adjustment, plus interest on the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. Notwithstanding the foregoing, in the event any portion of the Tax Adjustment to be refunded to the Company has been paid to any Federal, state or local tax authority, repayment thereof shall not be required until actual refund or credit of such portion has been made to Executive, and interest payable to the Company shall not exceed interest received or credited to Executive by such tax authority for the period it held such portion. Executive and the Company shall mutually agree upon the course of action to be pursued (and the method of allocating the expenses thereof) if Executives good faith claim for refund or credit is denied. 6 In the event that the Excise Tax is later determined by the Accountants or pursuant to any proceeding or negotiations with the Internal Revenue Service to exceed the amount taken into account hereunder at the time the Tax Adjustment is made (including, but not limited to, by reason of any payment the existence or amount of which cannot be determined at the time of the Tax Adjustment), the Company shall make an additional Tax Adjustment in respect of such excess (plus any interest or penalty payable with respect to such excess) at the time that the amount of such excess is the subject of a Final Determination, but in no event later than (A) the end of the taxable year next following the year of the Final Determination if there was no additional payment required to the taxing authority by the Executive or (B) the end of the year next following the year in which the taxes that are the subject of the Final Determination are remitted to the taxing authority by the Executive. 4.5. Timing of Payment of Tax Adjustment. Except as provided in section 4.4, any Tax Adjustment (or portion thereof) provided for in Article 4 shall be paid to Executive not later than 10 business days following the Payment Date; provided, however, that if the amount of such Tax Adjustment (or portion thereof) cannot be finally determined on or before the date on which payment is due, the Company shall pay to Executive by such date an amount estimated in good faith by the Accountants to be the minimum amount of such Tax Adjustment and shall pay the remainder of such Tax Adjustment (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code) as soon as the amount thereof can be determined, but in no event later than the end of the Executive's taxable year following the year in which the Executive remits the related taxes to the applicable taxing authority or by such later time as is provided for above in the case of a Final Determination. In the event that the amount of the estimated Tax Adjustment exceeds the amount subsequently determined to have been due, such excess shall, to the extent not prohibited by applicable law, constitute a loan by the 7 Company to Executive, payable on the fifth business day after written demand by the Company for payment (together with interest at the rate provided in Section (1274(b)(2)(B) of the Code.) ARTICLE 5 BENEFIT PLAN If (a) following a Potential Change in Control but prior to a Change in Control (provided a Change in Control occurs within twelve months after the Potential Change in Control) or (b) within a one and one-half (1 1/2 ) year period after a Change In Control shall have occurred, Executive's employment shall have terminated for any reason, including, but not limited to, Termination for good Reason, except for death, voluntary retirement or for Cause, then, for one year after the Payment Date, the Company shall maintain in full force and effect and Executive shall continue to participate in all group life, health and accident and disability insurance, and other employee welfare benefit plans, programs and arrangements in which Executive was entitled to participate immediately prior to the Date of Employment Termination, provided that continued participation is possible under the general terms and provisions of such plans, programs and arrangements. If participation is barred, or an applicable plan, program or arrangement is discontinued or the benefits thereunder are materially reduced, the Company shall arrange to provide Executive with benefits substantially similar to those which he was entitled to receive immediately prior to the Date of Employment Termination. The foregoing shall not be deemed to apply to the EDO Corporation Employees Pension Plan or the EDO Corporation Employee Stock Ownership and Employee Investment Plan. ARTICLE 6 NO MITIGATION REQUIRED Executive shall not be required to mitigate the amount of any payment or benefit provided for in this Agreement by seeking other employment or otherwise, nor shall the amount of any payment or benefit so provided for be reduced by any compensation earned by him as the result of employment by another employer after the Date of Employment Termination, or otherwise. ARTICLE 7 DEFINITION OF "CHANGE IN CONTROL" AND "POTENTIAL CHANGE IN CONTROL" 7.1. Change in Control. A "Change in Control" occurs on the first to occur of any of the following: (a) The date that any one person, or more than one person acting as a Group (other than the Company, its subsidiaries, or any employee benefit plan of the Company or its subsidiaries) (a "person"), acquires ownership of stock of the Company that, together with stock held by such person or Group, constitutes more than 50 percent of the total fair market value or total voting power of the stock of the Company; provided that, if any one person, or Group owns more than 50 percent of the total fair market value or total voting power of the stock of the Company, the acquisition of additional stock by the same person or persons in the Group is not a subsequent Change in Control; 8 (b) The date any person, or Group, acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such person or Group) ownership of stock of the Company possessing 30 percent or more of the total voting power of the stock of the Company, or (c) The date a majority of members of the Company's board of directors is replaced during any 12-month period by directors whose appointment or election is not endorsed by a majority of the members of the Company's board of directors before the date of the appointment or election. For purposes of this Paragraph 7.1, an increase in the percentage of stock owned by any one person, or Group as a result of a transaction in which the Company acquires its own stock in exchange for property will be treated as an acquisition of stock of the Company by a person or Group. The transfer of stock of the Company (or issuance of stock by the Company) will be considered only if such stock remains outstanding after the applicable transaction. Notwithstanding the foregoing, no event set forth in this Section 7.1 shall be a Change in Control unless such even constitutes a "change in control" within the meaning of Section 409A of the Code and the regulations promulgated thereunder. 7.2 Potential Change in Control. A "Potential Change in Control" occurs if: (a) A person hereafter becomes the beneficial owner of securities of the Company having at least 25% of the total number of votes that may be cast for the election of directors of the Company, or (b) any person holds a 15% beneficial ownership interest on the date hereof and there occurs an increase in such person's beneficial ownership of such number of securities of the Company as shall increase the beneficial ownership by such person by an additional 1% of the total number of votes that may be cast for the election of directors of the Company, or (c) a Person commences a tender offer for at least 25% of the outstanding shares of the Company's common stock, or (d) approval of any corporate transaction is requested of shareholders, which, if obtained, would result in a Change in Control occurring, or (e) any person solicits proxies for the election of more than one member of the Board (other than for any such election or nomination for election that is approved by the then current Board). 9 7.3 Group. Determination of the existence of a "Group" for purposes of this Article 7 shall be determined under the provisions of Treasury Regulation ss. 1.409A-3(i)(5)(v)(B). The terms herein shall be interpreted in a manner consistent with the provisions of Treasury Regulation ss. 1.409A-3. ARTICLE 8 TERMINATION FOR CAUSE 10.1. If the Executive's employment is terminated by the Company for Cause, the Company shall pay the Executive his full base salary through the Date of Employment Termination (at the rate in effect as of the Date of Employment Termination), and the Company shall have no further obligations to the Executive under this Agreement. 10.2. The following are the only reasons for which the Company may terminate Executive's service for Cause without further obligations under this Agreement: - for failure to consistently meet the performance objectives set for the Executive as determined in the reasonable discretion of the Board of Directors - for providing the Company with materially false reports concerning Executive's business interests or employment-related activities; - for making materially false representations relied upon by the Company in furnishing information to shareholders, a stock exchange, or the Securities and Exchange Commission; - for maintaining an undisclosed, unauthorized and material conflict of interest in the discharge of duties owed by Executive to the Company; - for misconduct causing a serious violation by the Company of state or federal laws or violation of a material written policy of the Company; - for theft of Company funds or corporate assets; or - for conviction of a crime (excluding traffic violations or similar misdemeanors). ARTICLE 9 DEFINITION OF "TERMINATION FOR GOOD REASON" "Termination for Good Reason" shall mean termination of Executive's employment by Executive following or in connection with: (i) without the express advance written consent of Executive, (a) the assignment to Executive of any duties inconsistent in any substantial respect with the position, authority or responsibilities of Executive immediately prior to the earlier to occur of a Potential Change in Control or a Change in Control or (b) any other substantial change in such position, including titles, authority or responsibilities, or 10 (ii) during the one and one-half (1-1/2) year period following a Change in Control or during a period of Potential Change in Control, any reduction in Executive's salary or any reduction in bonus or incentive compensation targets (based upon the highest dollar amount or other rate of salary, bonus and incentive compensation in effect at any time up to Date of Employment Termination), a termination, reduction or alteration of disability policies or life or disability insurance benefits maintained for Executive, any alteration or reduction of expense allowances or reimbursement policies or a significant reduction in scope or value of the aggregate other benefits to which Executive was entitled immediately prior to the earlier to occur of a Potential Change in Control or a Change in Control, or (iii) the Company's requiring Executive to be based at any office or location more than 50 miles from the one where he worked immediately prior to the earlier to occur of a Potential Change in Control or a Change in Control, except for travel reasonably required in the performance of Executives responsibilities, or (iv) any purported termination by the Company of Executive's employment otherwise than as permitted by this Agreement, it being understood that any such purported termination shall not be effective for any purpose of this Agreement, or (v) any failure by the Company to obtain the assumption and agreement to perform this Agreement by a successor as contemplated by paragraph 10.1. ARTICLE 10 SUCCESSORS, BINDING AGREEMENT 10.1. The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company, by agreement in form and substance satisfactory to Executive, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle Executive to compensation from the Company in the same amount and on the same terms as Executive would be entitled hereunder if the Company had terminated Executive's employment other than for Cause after a Change in Control occurring at the time of succession, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Employment Termination. 10.2. As used in this Agreement, "Company" shall include any successor to this business and/or assets as aforesaid which executes and delivers the agreement provided for in paragraph 10.1 or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law. 11 10.3. This Agreement shall inure to the benefit of, and be enforceable by, Executive's personal or legal representatives, executors, administrators, successors, heirs, distributes, devisees and legatees. If Executive should die while any amounts would still be payable if he had continues to live, all such amounts shall be paid in accordance with the terms of this Agreement to Executive's devisee, legatee, or other designee or, if there be no such designee, to his estate. ARTICLE 11 MISCELLANEOUS PROVISIONS 11.1. Date of Employment Termination is the date on which Executive experiences a "separation from service" within the meaning of Treasury Regulation ss.1.409A-1(h)(1). 11.2. Notice and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth on the first page of this Agreement, provided that all notices to the Company shall be directed to the attention of the corporate counsel, or to such other address as either party may have furnished to the other in writing in accordance herewith. Notices of change of address shall be effective only upon receipt. 11.3. This Agreement supersedes any other agreement on the subject matter hereof executed by the parties hereto. No provisions of this Agreement may be modified, waived or discharged unless such modification, waiver or discharge is agreed to in writing signed by Executive and, on behalf of the Company, by such officer as may be specifically designated by the Board. 11.4. All benefits provided for in this Agreement are provided on an unfunded basis and are not intended to meet the qualification requirements of Section 401 of the Code. The Company shall not be deemed to be a trustee of any amounts to be paid under this Agreement and shall not be required to segregate any assets with respect to benefits under this Agreement. Such benefits shall be payable solely from the general assets of the Company. 11.5. Any failure at any time of either party to enforce any provision of this Agreement shall not constitute a waiver of such provision, or prejudice the right of either party to enforce such provision at any subsequent time. 11.6. No agreements or representations, oral or otherwise, expressed or implied, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement. 12 11.7. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of New York. 11.8. The invalidity or unenforceability of any one or more provisions of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 11.9. In the event of any action or proceeding between the parties arising out of this agreement, the Company will pay the costs of any such legal proceedings including, but not limited to, the costs of Executive for all expenses, including attorneys' fees, incurred in such action or proceeding. Such costs and expenses shall be advanced to Executive currently as reasonably required to continue such action or proceeding. EDO CORPORATION By: /s/ Patricia D. Comiskey ------------------------------ Patricia D. Comiskey Senior Vice President - Human Resources EXECUTIVE: /s/ Frederic Bassett ------------------------------------ Frederic Bassett 13 EX-10.D 5 a5534801ex10_d.txt EXHIBIT 10(D) Exhibit 10(d) AMENDED AND RESTATED CHANGE IN CONTROL AGREEMENT AGREEMENT made this 12th day of June, 2007 by and between EDO Corporation, a New York Corporation having its office and principal place of business at 60 East 42nd Street, Suite 4200, New York, NY 10165 (the "Company") and Patricia D. Comiskey, 5 New Street, Great River, NY 11739 ("Executive"). W I T N E S E T H: ------------------ WHEREAS, the Company considers it essential to the best interests of the Company and its stockholders that its management (including Executive) be encouraged to remain with the Company and to continue to devote full attention to the Company's business in the event of a change in control or potential change in control of the Company. WHEREAS, the Company recognizes that the possibility of a Change in Control or a Potential Change in Control and the uncertainty and questions, which either event may raise among management, may result in the departure or distraction of management personnel to the detriment of the Company and its stockholders; WHEREAS, the Company's Board of Directors (the "Board") has determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of members of the Company's management to their assigned duties without distraction in the face of the potentially disturbing circumstances arising from a Change in Control or a Potential Change in Control; WHEREAS, the Company believes Executive has made and will continue to make valuable contributions to the productivity and profitability of the Company; WHEREAS, should a Potential Change in Control occur, the Board believes it imperative that the Company and the Board be able to rely upon the Executive to continue in his position, and that the Company be able to receive and rely upon his advice as to the best interests of the Company and its stockholders without concern that he might be distracted by the personal uncertainties and risks created by such event; and WHEREAS, should a Potential Change in Control occur, in addition to the Executive's regular duties, he may be called upon to assist in the assessment of any proposals of any person concerning the possible business combination of the Company or acquisition of equity securities of the Company, advise management and the Board as to whether such proposals would be in the best interests of the Company and its stockholders, and to take such other actions as the Board might determine to be appropriate; WHEREAS, Section 409A of the Internal Revenue Code of 1986, as amended (the "Code"), imposes certain restrictions and requirements upon the payment of amounts treated as deferred compensation for such purposes, in order to avoid immediate taxation at a rate of federal income taxation at least 20% in excess of the otherwise applicable rate of income taxation; WHEREAS, certain payments that may become due and payable under this Agreement may be treated as such deferred compensation and the Company and the Executive desire to satisfy the applicable conditions specified under such Section 409A: NOW, THEREFORE, in consideration of the recitals and for other good and valuable consideration, the Company and Executive agree as follows: GENERAL 1. Purpose. The purpose of this Agreement is to provide Executive with Special Severance Pay Benefits in the event of certain terminations of Executive's employment in connection with a Change in Control, as such terms are defined in this Agreement. 2. Term. This Agreement will be effective as of the date first set forth above (the "Effective Date"), but no compensation or benefits will be payable hereunder unless the Executive experiences a Qualifying Termination of employment following a Potential Change in Control or Change in Control. In addition, no compensation or benefits will be payable to the Executive under this Agreement, and this Agreement will be without further force or effect, if a Potential Change in Control or a Change in Control does not occur on or before the end of the initial Term or any extended Term. The initial "Term" of this Agreement shall begin on the Effective Date and end on December 31, 2007; provided that, the Term may be extended for additional one year periods (each, an extended Term) upon the lapse of the initial Term or the then current extended Term by the Company's written notice of extension to the Executive and the Executive's written acknowledgement of such notice. ARTICLE 1 PRINCIPAL UNDERTAKING 1.1. Special Severance Upon a Qualifying Termination. If (a) following a Potential Change in Control but prior to a Change in Control (provided a Change in Control occurs within twelve months after the Potential Change in Control) or (b) within a one and one-half (1-1/2) year period after a Change in Control, Executive's employment shall have been terminated by the Company without Cause or by Executive in a Termination for Good Reason (either, a "Qualifying Termination"), then Executive shall be paid by the Company subject to adjustment as provided in Article 4, the following "Special Severance Pay Benefits": - Current Salary and Other Compensation Benefits (Article 2); - Other Salary and Incentive Compensation Benefits (Article 3); and - Tax Adjustment (Article 4). 2 1.2. Timing of Payment. Except as provided in Article 4, the Special Severance Pay Benefits, subject to any taxes required to be withheld therefrom, shall be paid to Executive in a lump sum, on or before the fifth day following the later of the "Date of Employment Termination" or the date the Change in Control is consummated (the "Payment Date"); provided, however, that, if Executive is a "specified employee" of the Company or any member of its affiliated group of corporations (within the meaning of Section 409A of the Code), as of the Date of Employment Termination and any payment of deferred compensation payable under this Agreement or any other deferred compensation arrangement with the Company and its subsidiaries (including, but not limited to, the payments provided for under Article 4) is required to be delayed to avoid incurring "additional tax" under Section 409A of the Code and the regulations promulgated thereunder, then each such payment shall be delayed until the date which is six months and one day following the Date of Employment Termination. 1.3. Loans and Advances. The amount of any loan or advance to Executive shall be due and payable as of the Date of Employment Termination. The Company shall have no right of setoff against any amount due Executive under this Agreement, except that the Company may set off against such amount the balance of any loan or advance which remains unpaid after the third day following the Date of Employment Termination. ARTICLE 2 CURRENT SALARY AND OTHER COMPENSATION BENEFITS Payment of this portion of Special Severance Pay Benefits shall consist of the following: - Executive's full base salary through the Date of Employment Termination, at the rate in effect ten (10) days prior to the Date of Employment Termination; plus - Executive's full base salary earned from the beginning of the calendar year in which the Date of Employment Termination occurs through the Date of Employment Termination multiplied by the greater of (a) twenty percent (20%) or (b) the percentage which is equal to the highest percentage of base salary paid as a bonus to Executive for any of the three calendar years preceding the calendar year in which the Date of Employment Termination occurs, in either case, reduced by any installment of cash bonus previously paid by the Company to Executive for the calendar year in which the Date of Employment Termination occurs, plus - The full amount, if any, of any incentive or special award, which Executive earned but which, has not yet been paid. 3 ARTICLE 3 OTHER SALARY AND INCENTIVE COMPENSATION BENEFITS Payment of this portion of Special Severance Pay Benefits shall consist of an amount equal to one and one-half (1 1/2) times the sum of (a) Executive's annual base salary, at the highest rate in effect at any time up to Date of Employment Termination (the "Highest Base Salary") and (b) and amount equal to the Highest Base Salary multiplied by the greater of (i) twenty percent (20%) or (ii) the percentage which is equal to the highest percentage of base salary paid as a bonus to Executive for any of the three calendar years preceding the calendar year in which the Date of Employment Termination occurs. ARTICLE 4 TAXES 4.1. Application of Article 4. In the event that any amount or benefit paid or distributed to Executive pursuant to this Agreement, taken together with any amounts or benefits otherwise paid or distributed to Executive by the Company or any affiliated company (collectively, the "Covered Payments"), would be an "excess parachute payment" as defined in Section 280G of the Code and would thereby subject Executive to the tax (the "Excise Tax") imposed under Section 4999 of the Code (or any similar tax that may hereafter be imposed), the provisions of this Article 4 shall apply to determine the amounts payable to Executive pursuant to this Agreement. 4.2. Determination of Payment Cap or Tax Adjustment. On or before the Payment Date, the Company shall notify Executive of the aggregate present value of all termination benefits to which he would be entitled under this Agreement and any other plan, program or arrangement as of the Payment Date, together with the projected maximum payments, determined as of the Payment Date that could be paid without Executive being subject to the Excise Tax. (a) Payment Cap. If the aggregate value of all compensation payments or benefits to be paid or provided to Executive under this Agreement and any other plan, agreement or arrangement with the Company is less than 105% of the amount which can be paid to Executive without Executive incurring an Excise Tax, then the amounts payable to Executive under this Agreement may, in the discretion of the Company, be reduced (but not below zero), to the maximum amount which may be paid hereunder without Executive becoming subject to such an Excise Tax (such reduced payments to be referred to as the "Payment Cap"). In the event that Executive receives reduced payments and benefits hereunder, Executive shall have the right to designate which of the payments and benefits otherwise provided for in this Agreement that he will receive in connection with the application of the Payment Cap. (b) Tax Adjustment. If the aggregate value of all compensation payments or benefits to be paid or provided to Executive under this Agreement and any other plan, agreement or arrangement with the Company is greater than 105% of the amount which can be paid to Executive without Executive incurring an Excise Tax, the Company shall pay to Executive immediately following Executive's termination of employment an additional amount (the "Tax Adjustment") such that the net amount retained by Executive with respect to such Covered Payments, after deduction of any Excise Tax on the Covered Payments and any Federal, state and local income tax and Excise Tax on the Tax Adjustment provided for by this Article 4, but before deduction for any Federal, state or local income or employment tax withholding on such Covered Payments, shall be equal to the amount of Covered Payments. 4 4.3. Assumptions. For purposes of determining whether any of the Covered Payments will be subject to the Excise Tax, and the amount of such Excise Tax, (a) Such Covered Payments will be treated as "parachute payments" within the meaning of Section 280G of the Code, and all "parachute payments" in excess of the "base amount" (as defined under Section 280G(b)(3) of the Code) shall be treated as subject to the Excise Tax, unless and except to the extent that, in the good faith judgment of the Company's independent certified public accountants appointed prior to the Effective Date or tax counsel selected by such accountants (the "Accountants"), the Company has a reasonable basis to conclude that such Covered Payments (in whole or in part) either do not constitute "parachute payments" or represent reasonable compensation for personal services actually rendered (within the meaning of Section 280G(b)(4)(B) of the Code) in excess of the "base amount," or such "parachute payments" are otherwise not subject to such Excise Tax, and (b) The value of any non-cash benefits or any deferred payment or benefit shall be determined by the Accountants in accordance with the principles of Section 280G of the Code. (c) For purposes of determining whether Executive would receive a greater net after-tax benefit were the amounts payable under this Agreement reduced in accordance with Paragraph 4.2, Executive shall be deemed to pay: (i) Federal income taxes at the highest applicable marginal rate of federal income taxation for the calendar year in which the first amounts are to be paid hereunder, and (ii) Any applicable state and local income taxes at the highest applicable marginal rate of taxation for such calendar year, net of the maximum reduction in Federal income taxes which could be obtained from the deduction of such state or local taxes if paid in such year. 4.4. Correction Following Determination. (a) Corrections For Payment Cap. If Executive receives reduced payments and benefits under this Article 4, or this Article 4 is determined not to be applicable to Executive because the Accountants conclude that Executive is not subject to any Excise Tax, and in either case it is thereafter established pursuant to a final determination and non-appealable settlement or other resolution of litigation or an Internal Revenue Service proceeding (a "Final Determination") that, notwithstanding the good faith of Executive and the Company in applying the terms of this Agreement, the aggregate of the "parachute payments" within the meaning of Section 280G of the Code paid to Executive or for his benefit are in an amount that would result in Executive being subject to an Excise Tax, then, to the extent not prohibited by applicable law, the amount equal to such excess parachute payments shall be deemed for all purposes to be a loan to Executive made on the date of receipt of such excess payments, which Executive shall have an obligation to repay to the Company on demand, together with interest on such amount at the applicable Federal rate (as defined in Section 1274(d) of the Code) from the date of the payment hereunder to the date of repayment by Executive. 5 If this Article 4 is not applied to reduce Executive's entitlements because the Accountants determine that Executive would not receive a greater net-after-tax benefit by applying this Article 4 and it is established pursuant to a Final Determination that, notwithstanding the good faith of Executive and the Company in applying the terms of this Agreement, Executive would have received a greater net-after-tax benefit by subjecting his payments and benefits hereunder to the Payment Cap, then the aggregate "parachute payments" paid to Executive or for his benefit in excess of the Payment Cap shall, to the extent not prohibited by applicable law, be deemed for all purposes a loan to Executive made on the date of receipt of such excess payments, which Executive shall have an obligation to repay to the Company on demand, together with interest on such amount at the applicable Federal rate (as defined in Section 1274(d) of the Code) from the date of the payment hereunder to the date of repayment by the Executive. If Executive receives reduced payments and benefits by reason of this Article 4 and it is established pursuant to a Final Determination that Executive could have received a greater amount without exceeding the Payment Cap, then the Company shall promptly thereafter (but in no event later than the end of the Executive's taxable year in which such Final Determination occurs) pay Executive the aggregate additional amount which could have been paid without exceeding the Payment Cap, together with interest on such amount at the applicable Federal rate (as defined in Section 1274(d) of the Code) from the original payment due date to the date of actual payment by the Company. (b) Corrections for Tax Adjustment. In the event that the Excise Tax is subsequently determined by the Accountants or pursuant to any proceeding or negotiations with the Internal Revenue Service to be less that the amount taken into account hereunder in calculating the Tax Adjustment made, Executive shall, to the extent not prohibited by applicable law, repay to the Company, at the time that the amount of such reduction in the Excise Tax is finally determined, the portion of such prior Tax Adjustment that would not have been paid if such Excise Tax had been applied in initially calculating such Tax Adjustment, plus interest on the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. Notwithstanding the foregoing, in the event any portion of the Tax Adjustment to be refunded to the Company has been paid to any Federal, state or local tax authority, repayment thereof shall not be required until actual refund or credit of such portion has been made to Executive, and interest payable to the Company shall not exceed interest received or credited to Executive by such tax authority for the period it held such portion. Executive and the Company shall mutually agree upon the course of action to be pursued (and the method of allocating the expenses thereof) if Executives good faith claim for refund or credit is denied. 6 In the event that the Excise Tax is later determined by the Accountants or pursuant to any proceeding or negotiations with the Internal Revenue Service to exceed the amount taken into account hereunder at the time the Tax Adjustment is made (including, but not limited to, by reason of any payment the existence or amount of which cannot be determined at the time of the Tax Adjustment), the Company shall make an additional Tax Adjustment in respect of such excess (plus any interest or penalty payable with respect to such excess) at the time that the amount of such excess is the subject of a Final Determination, but in no event later than (A) the end of the taxable year next following the year of the Final Determination if there was no additional payment required to the taxing authority by the Executive or (B) the end of the year next following the year in which the taxes that are the subject of the Final Determination are remitted to the taxing authority by the Executive. 4.5. Timing of Payment of Tax Adjustment. Except as provided in section 4.4, any Tax Adjustment (or portion thereof) provided for in Article 4 shall be paid to Executive not later than 10 business days following the Payment Date; provided, however, that if the amount of such Tax Adjustment (or portion thereof) cannot be finally determined on or before the date on which payment is due, the Company shall pay to Executive by such date an amount estimated in good faith by the Accountants to be the minimum amount of such Tax Adjustment and shall pay the remainder of such Tax Adjustment (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code) as soon as the amount thereof can be determined, but in no event later than the end of the Executive's taxable year following the year in which the Executive remits the related taxes to the applicable taxing authority or by such later time as is provided for above in the case of a Final Determination. In the event that the amount of the estimated Tax Adjustment exceeds the amount subsequently determined to have been due, such excess shall, to the extent not prohibited by applicable law, constitute a loan by the Company to Executive, payable on the fifth business day after written demand by the Company for payment (together with interest at the rate provided in Section (1274(b)(2)(B) of the Code.) 7 ARTICLE 5 BENEFIT PLAN If (a) following a Potential Change in Control but prior to a Change in Control (provided a Change in Control occurs within twelve months after the Potential Change in Control) or (b) within a one and one-half (1 1/2 ) year period after a Change In Control shall have occurred, Executive's employment shall have terminated for any reason, including, but not limited to, Termination for good Reason, except for death, voluntary retirement or for Cause, then, for one year after the Payment Date, the Company shall maintain in full force and effect and Executive shall continue to participate in all group life, health and accident and disability insurance, and other employee welfare benefit plans, programs and arrangements in which Executive was entitled to participate immediately prior to the Date of Employment Termination, provided that continued participation is possible under the general terms and provisions of such plans, programs and arrangements. If participation is barred, or an applicable plan, program or arrangement is discontinued or the benefits thereunder are materially reduced, the Company shall arrange to provide Executive with benefits substantially similar to those which he was entitled to receive immediately prior to the Date of Employment Termination. The foregoing shall not be deemed to apply to the EDO Corporation Employees Pension Plan or the EDO Corporation Employee Stock Ownership and Employee Investment Plan. ARTICLE 6 NO MITIGATION REQUIRED Executive shall not be required to mitigate the amount of any payment or benefit provided for in this Agreement by seeking other employment or otherwise, nor shall the amount of any payment or benefit so provided for be reduced by any compensation earned by him as the result of employment by another employer after the Date of Employment Termination, or otherwise. ARTICLE 7 DEFINITION OF "CHANGE IN CONTROL" AND "POTENTIAL CHANGE IN CONTROL" 7.1. Change in Control. A "Change in Control" occurs on the first to occur of any of the following: (a) The date that any one person, or more than one person acting as a Group (other than the Company, its subsidiaries, or any employee benefit plan of the Company or its subsidiaries) (a "person"), acquires ownership of stock of the Company that, together with stock held by such person or Group, constitutes more than 50 percent of the total fair market value or total voting power of the stock of the Company; provided that, if any one person, or Group owns more than 50 percent of the total fair market value or total voting power of the stock of the Company, the acquisition of additional stock by the same person or persons in the Group is not a subsequent Change in Control; 8 (b) The date any person, or Group, acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such person or Group) ownership of stock of the Company possessing 30 percent or more of the total voting power of the stock of the Company, or (c) The date a majority of members of the Company's board of directors is replaced during any 12-month period by directors whose appointment or election is not endorsed by a majority of the members of the Company's board of directors before the date of the appointment or election. For purposes of this Paragraph 7.1, an increase in the percentage of stock owned by any one person, or Group as a result of a transaction in which the Company acquires its own stock in exchange for property will be treated as an acquisition of stock of the Company by a person or Group. The transfer of stock of the Company (or issuance of stock by the Company) will be considered only if such stock remains outstanding after the applicable transaction. Notwithstanding the foregoing, no event set forth in this Section 7.1 shall be a Change in Control unless such even constitutes a "change in control" within the meaning of Section 409A of the Code and the regulations promulgated thereunder. 7.2 Potential Change in Control. A "Potential Change in Control" occurs if: (a) A person hereafter becomes the beneficial owner of securities of the Company having at least 25% of the total number of votes that may be cast for the election of directors of the Company, or (b) any person holds a 15% beneficial ownership interest on the date hereof and there occurs an increase in such person's beneficial ownership of such number of securities of the Company as shall increase the beneficial ownership by such person by an additional 1% of the total number of votes that may be cast for the election of directors of the Company, or (c) a Person commences a tender offer for at least 25% of the outstanding shares of the Company's common stock, or (d) approval of any corporate transaction is requested of shareholders, which, if obtained, would result in a Change in Control occurring, or (e) any person solicits proxies for the election of more than one member of the Board (other than for any such election or nomination for election that is approved by the then current Board). 7.3 Group. Determination of the existence of a "Group" for purposes of this Article 7 shall be determined under the provisions of Treasury Regulation ss. 1.409A-3(i)(5)(v)(B). The terms herein shall be interpreted in a manner consistent with the provisions of Treasury Regulation ss. 1.409A-3. 9 ARTICLE 8 TERMINATION FOR CAUSE 10.1. If the Executive's employment is terminated by the Company for Cause, the Company shall pay the Executive his full base salary through the Date of Employment Termination (at the rate in effect as of the Date of Employment Termination), and the Company shall have no further obligations to the Executive under this Agreement. 10.2. The following are the only reasons for which the Company may terminate Executive's service for Cause without further obligations under this Agreement: - for failure to consistently meet the performance objectives set for the Executive as determined in the reasonable discretion of the Board of Directors - for providing the Company with materially false reports concerning Executive's business interests or employment-related activities; - for making materially false representations relied upon by the Company in furnishing information to shareholders, a stock exchange, or the Securities and Exchange Commission; - for maintaining an undisclosed, unauthorized and material conflict of interest in the discharge of duties owed by Executive to the Company; - for misconduct causing a serious violation by the Company of state or federal laws or violation of a material written policy of the Company; - for theft of Company funds or corporate assets; or - for conviction of a crime (excluding traffic violations or similar misdemeanors). ARTICLE 9 DEFINITION OF "TERMINATION FOR GOOD REASON" "Termination for Good Reason" shall mean termination of Executive's employment by Executive following or in connection with: (i) without the express advance written consent of Executive, (a) the assignment to Executive of any duties inconsistent in any substantial respect with the position, authority or responsibilities of Executive immediately prior to the earlier to occur of a Potential Change in Control or a Change in Control or (b) any other substantial change in such position, including titles, authority or responsibilities, or 10 (ii) during the one and one-half (1-1/2) year period following a Change in Control or during a period of Potential Change in Control, any reduction in Executive's salary or any reduction in bonus or incentive compensation targets (based upon the highest dollar amount or other rate of salary, bonus and incentive compensation in effect at any time up to Date of Employment Termination), a termination, reduction or alteration of disability policies or life or disability insurance benefits maintained for Executive, any alteration or reduction of expense allowances or reimbursement policies or a significant reduction in scope or value of the aggregate other benefits to which Executive was entitled immediately prior to the earlier to occur of a Potential Change in Control or a Change in Control, or (iii) the Company's requiring Executive to be based at any office or location more than 50 miles from the one where he worked immediately prior to the earlier to occur of a Potential Change in Control or a Change in Control, except for travel reasonably required in the performance of Executives responsibilities, or (iv) any purported termination by the Company of Executive's employment otherwise than as permitted by this Agreement, it being understood that any such purported termination shall not be effective for any purpose of this Agreement, or (v) any failure by the Company to obtain the assumption and agreement to perform this Agreement by a successor as contemplated by paragraph 10.1. ARTICLE 10 SUCCESSORS, BINDING AGREEMENT 10.1. The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company, by agreement in form and substance satisfactory to Executive, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle Executive to compensation from the Company in the same amount and on the same terms as Executive would be entitled hereunder if the Company had terminated Executive's employment other than for Cause after a Change in Control occurring at the time of succession, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Employment Termination. 10.2. As used in this Agreement, "Company" shall include any successor to this business and/or assets as aforesaid which executes and delivers the agreement provided for in paragraph 10.1 or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law. 11 10.3. This Agreement shall inure to the benefit of, and be enforceable by, Executive's personal or legal representatives, executors, administrators, successors, heirs, distributes, devisees and legatees. If Executive should die while any amounts would still be payable if he had continues to live, all such amounts shall be paid in accordance with the terms of this Agreement to Executive's devisee, legatee, or other designee or, if there be no such designee, to his estate. ARTICLE 11 MISCELLANEOUS PROVISIONS 11.1. Date of Employment Termination is the date on which Executive experiences a "separation from service" within the meaning of Treasury Regulation ss.1.409A-1(h)(1). 11.2. Notice and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth on the first page of this Agreement, provided that all notices to the Company shall be directed to the attention of the corporate counsel, or to such other address as either party may have furnished to the other in writing in accordance herewith. Notices of change of address shall be effective only upon receipt. 11.3. This Agreement supersedes any other agreement on the subject matter hereof executed by the parties hereto. No provisions of this Agreement may be modified, waived or discharged unless such modification, waiver or discharge is agreed to in writing signed by Executive and, on behalf of the Company, by such officer as may be specifically designated by the Board. 11.4. All benefits provided for in this Agreement are provided on an unfunded basis and are not intended to meet the qualification requirements of Section 401 of the Code. The Company shall not be deemed to be a trustee of any amounts to be paid under this Agreement and shall not be required to segregate any assets with respect to benefits under this Agreement. Such benefits shall be payable solely from the general assets of the Company. 11.5. Any failure at any time of either party to enforce any provision of this Agreement shall not constitute a waiver of such provision, or prejudice the right of either party to enforce such provision at any subsequent time. 11.6. No agreements or representations, oral or otherwise, expressed or implied, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement. 11.7. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of New York. 12 11.8. The invalidity or unenforceability of any one or more provisions of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 11.9. In the event of any action or proceeding between the parties arising out of this agreement, the Company will pay the costs of any such legal proceedings including, but not limited to, the costs of Executive for all expenses, including attorneys' fees, incurred in such action or proceeding. Such costs and expenses shall be advanced to Executive currently as reasonably required to continue such action or proceeding. EDO CORPORATION By: /s/ James M. Smith ------------------------------- James M. Smith Chairman, President & CEO EXECUTIVE: /s/ Patricia D. Comiskey ----------------------------------- Patricia D. Comiskey 13 EX-10.E 6 a5534801ex10_e.txt EXHIBIT 10(E) Exhibit 10(e) AMENDED AND RESTATED CHANGE IN CONTROL AGREEMENT AGREEMENT made this 12th day of June, 2007 by and between EDO Corporation, a New York Corporation having its office and principal place of business at 60 East 42nd Street, Suite 4200, New York, NY 10165 (the "Company") and Milo W. Hyde, 713 Donnington Drive, Chesapeake, VA 23322 ("Executive"). W I T N E S E T H: ------------------ WHEREAS, the Company considers it essential to the best interests of the Company and its stockholders that its management (including Executive) be encouraged to remain with the Company and to continue to devote full attention to the Company's business in the event of a change in control or potential change in control of the Company. WHEREAS, the Company recognizes that the possibility of a Change in Control or a Potential Change in Control and the uncertainty and questions, which either event may raise among management, may result in the departure or distraction of management personnel to the detriment of the Company and its stockholders; WHEREAS, the Company's Board of Directors (the "Board") has determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of members of the Company's management to their assigned duties without distraction in the face of the potentially disturbing circumstances arising from a Change in Control or a Potential Change in Control; WHEREAS, the Company believes Executive has made and will continue to make valuable contributions to the productivity and profitability of the Company; WHEREAS, should a Potential Change in Control occur, the Board believes it imperative that the Company and the Board be able to rely upon the Executive to continue in his position, and that the Company be able to receive and rely upon his advice as to the best interests of the Company and its stockholders without concern that he might be distracted by the personal uncertainties and risks created by such event; and WHEREAS, should a Potential Change in Control occur, in addition to the Executive's regular duties, he may be called upon to assist in the assessment of any proposals of any person concerning the possible business combination of the Company or acquisition of equity securities of the Company, advise management and the Board as to whether such proposals would be in the best interests of the Company and its stockholders, and to take such other actions as the Board might determine to be appropriate; WHEREAS, Section 409A of the Internal Revenue Code of 1986, as amended (the "Code"), imposes certain restrictions and requirements upon the payment of amounts treated as deferred compensation for such purposes, in order to avoid immediate taxation at a rate of federal income taxation at least 20% in excess of the otherwise applicable rate of income taxation; WHEREAS, certain payments that may become due and payable under this Agreement may be treated as such deferred compensation and the Company and the Executive desire to satisfy the applicable conditions specified under such Section 409A: NOW, THEREFORE, in consideration of the recitals and for other good and valuable consideration, the Company and Executive agree as follows: GENERAL 1. Purpose. The purpose of this Agreement is to provide Executive with Special Severance Pay Benefits in the event of certain terminations of Executive's employment in connection with a Change in Control, as such terms are defined in this Agreement. 2. Term. This Agreement will be effective as of the date first set forth above (the "Effective Date"), but no compensation or benefits will be payable hereunder unless the Executive experiences a Qualifying Termination of employment following a Potential Change in Control or Change in Control. In addition, no compensation or benefits will be payable to the Executive under this Agreement, and this Agreement will be without further force or effect, if a Potential Change in Control or a Change in Control does not occur on or before the end of the initial Term or any extended Term. The initial "Term" of this Agreement shall begin on the Effective Date and end on December 31, 2007; provided that, the Term may be extended for additional one year periods (each, an extended Term) upon the lapse of the initial Term or the then current extended Term by the Company's written notice of extension to the Executive and the Executive's written acknowledgement of such notice. ARTICLE 1 PRINCIPAL UNDERTAKING 1.1. Special Severance Upon a Qualifying Termination. If (a) following a Potential Change in Control but prior to a Change in Control (provided a Change in Control occurs within twelve months after the Potential Change in Control) or (b) within a one and one-half (1-1/2) year period after a Change in Control, Executive's employment shall have been terminated by the Company without Cause or by Executive in a Termination for Good Reason (either, a "Qualifying Termination"), then Executive shall be paid by the Company subject to adjustment as provided in Article 4, the following "Special Severance Pay Benefits": - Current Salary and Other Compensation Benefits (Article 2); - Other Salary and Incentive Compensation Benefits (Article 3); and - Tax Adjustment (Article 4). 2 1.2. Timing of Payment. Except as provided in Article 4, the Special Severance Pay Benefits, subject to any taxes required to be withheld therefrom, shall be paid to Executive in a lump sum, on or before the fifth day following the later of the "Date of Employment Termination" or the date the Change in Control is consummated (the "Payment Date"); provided, however, that, if Executive is a "specified employee" of the Company or any member of its affiliated group of corporations (within the meaning of Section 409A of the Code), as of the Date of Employment Termination and any payment of deferred compensation payable under this Agreement or any other deferred compensation arrangement with the Company and its subsidiaries (including, but not limited to, the payments provided for under Article 4) is required to be delayed to avoid incurring "additional tax" under Section 409A of the Code and the regulations promulgated thereunder, then each such payment shall be delayed until the date which is six months and one day following the Date of Employment Termination. 1.3. Loans and Advances. The amount of any loan or advance to Executive shall be due and payable as of the Date of Employment Termination. The Company shall have no right of setoff against any amount due Executive under this Agreement, except that the Company may set off against such amount the balance of any loan or advance which remains unpaid after the third day following the Date of Employment Termination. ARTICLE 2 CURRENT SALARY AND OTHER COMPENSATION BENEFITS Payment of this portion of Special Severance Pay Benefits shall consist of the following: - Executive's full base salary through the Date of Employment Termination, at the rate in effect ten (10) days prior to the Date of Employment Termination; plus - Executive's full base salary earned from the beginning of the calendar year in which the Date of Employment Termination occurs through the Date of Employment Termination multiplied by the greater of (a) twenty percent (20%) or (b) the percentage which is equal to the highest percentage of base salary paid as a bonus to Executive for any of the three calendar years preceding the calendar year in which the Date of Employment Termination occurs, in either case, reduced by any installment of cash bonus previously paid by the Company to Executive for the calendar year in which the Date of Employment Termination occurs, plus - The full amount, if any, of any incentive or special award, which Executive earned but which, has not yet been paid. 3 ARTICLE 3 OTHER SALARY AND INCENTIVE COMPENSATION BENEFITS Payment of this portion of Special Severance Pay Benefits shall consist of an amount equal to one and one-half (1 1/2) times the sum of (a) Executive's annual base salary, at the highest rate in effect at any time up to Date of Employment Termination (the "Highest Base Salary") and (b) and amount equal to the Highest Base Salary multiplied by the greater of (i) twenty percent (20%) or (ii) the percentage which is equal to the highest percentage of base salary paid as a bonus to Executive for any of the three calendar years preceding the calendar year in which the Date of Employment Termination occurs. ARTICLE 4 TAXES 4.1. Application of Article 4. In the event that any amount or benefit paid or distributed to Executive pursuant to this Agreement, taken together with any amounts or benefits otherwise paid or distributed to Executive by the Company or any affiliated company (collectively, the "Covered Payments"), would be an "excess parachute payment" as defined in Section 280G of the Code and would thereby subject Executive to the tax (the "Excise Tax") imposed under Section 4999 of the Code (or any similar tax that may hereafter be imposed), the provisions of this Article 4 shall apply to determine the amounts payable to Executive pursuant to this Agreement. 4.2. Determination of Payment Cap or Tax Adjustment. On or before the Payment Date, the Company shall notify Executive of the aggregate present value of all termination benefits to which he would be entitled under this Agreement and any other plan, program or arrangement as of the Payment Date, together with the projected maximum payments, determined as of the Payment Date that could be paid without Executive being subject to the Excise Tax. (a) Payment Cap. If the aggregate value of all compensation payments or benefits to be paid or provided to Executive under this Agreement and any other plan, agreement or arrangement with the Company is less than 105% of the amount which can be paid to Executive without Executive incurring an Excise Tax, then the amounts payable to Executive under this Agreement may, in the discretion of the Company, be reduced (but not below zero), to the maximum amount which may be paid hereunder without Executive becoming subject to such an Excise Tax (such reduced payments to be referred to as the "Payment Cap"). In the event that Executive receives reduced payments and benefits hereunder, Executive shall have the right to designate which of the payments and benefits otherwise provided for in this Agreement that he will receive in connection with the application of the Payment Cap. (b) Tax Adjustment. If the aggregate value of all compensation payments or benefits to be paid or provided to Executive under this Agreement and any other plan, agreement or arrangement with the Company is greater than 105% of the amount which can be paid to Executive without Executive incurring an Excise Tax, the Company shall pay to Executive immediately following Executive's termination of employment an additional amount (the "Tax Adjustment") such that the net amount retained by Executive with respect to such Covered Payments, after deduction of any Excise Tax on the Covered Payments and any Federal, state and local income tax and Excise Tax on the Tax Adjustment provided for by this Article 4, but before deduction for any Federal, state or local income or employment tax withholding on such Covered Payments, shall be equal to the amount of Covered Payments. 4 4.3. Assumptions. For purposes of determining whether any of the Covered Payments will be subject to the Excise Tax, and the amount of such Excise Tax, (a) Such Covered Payments will be treated as "parachute payments" within the meaning of Section 280G of the Code, and all "parachute payments" in excess of the "base amount" (as defined under Section 280G(b)(3) of the Code) shall be treated as subject to the Excise Tax, unless and except to the extent that, in the good faith judgment of the Company's independent certified public accountants appointed prior to the Effective Date or tax counsel selected by such accountants (the "Accountants"), the Company has a reasonable basis to conclude that such Covered Payments (in whole or in part) either do not constitute "parachute payments" or represent reasonable compensation for personal services actually rendered (within the meaning of Section 280G(b)(4)(B) of the Code) in excess of the "base amount," or such "parachute payments" are otherwise not subject to such Excise Tax, and (b) The value of any non-cash benefits or any deferred payment or benefit shall be determined by the Accountants in accordance with the principles of Section 280G of the Code. (c) For purposes of determining whether Executive would receive a greater net after-tax benefit were the amounts payable under this Agreement reduced in accordance with Paragraph 4.2, Executive shall be deemed to pay: (i) Federal income taxes at the highest applicable marginal rate of federal income taxation for the calendar year in which the first amounts are to be paid hereunder, and (ii) Any applicable state and local income taxes at the highest applicable marginal rate of taxation for such calendar year, net of the maximum reduction in Federal income taxes which could be obtained from the deduction of such state or local taxes if paid in such year. 4.4. Correction Following Determination. (a) Corrections For Payment Cap. If Executive receives reduced payments and benefits under this Article 4, or this Article 4 is determined not to be applicable to Executive because the Accountants conclude that Executive is not subject to any Excise Tax, and in either case it is thereafter established pursuant to a final determination and non-appealable settlement or other resolution of litigation or an Internal Revenue Service proceeding (a "Final Determination") that, notwithstanding the good faith of Executive and the Company in applying the terms of this Agreement, the aggregate of the "parachute payments" within the meaning of Section 280G of the Code paid to Executive or for his benefit are in an amount that would result in Executive being subject to an Excise Tax, then, to the extent not prohibited by applicable law, the amount equal to such excess parachute payments shall be deemed for all purposes to be a loan to Executive made on the date of receipt of such excess payments, which Executive shall have an obligation to repay to the Company on demand, together with interest on such amount at the applicable Federal rate (as defined in Section 1274(d) of the Code) from the date of the payment hereunder to the date of repayment by Executive. 5 If this Article 4 is not applied to reduce Executive's entitlements because the Accountants determine that Executive would not receive a greater net-after-tax benefit by applying this Article 4 and it is established pursuant to a Final Determination that, notwithstanding the good faith of Executive and the Company in applying the terms of this Agreement, Executive would have received a greater net-after-tax benefit by subjecting his payments and benefits hereunder to the Payment Cap, then the aggregate "parachute payments" paid to Executive or for his benefit in excess of the Payment Cap shall, to the extent not prohibited by applicable law, be deemed for all purposes a loan to Executive made on the date of receipt of such excess payments, which Executive shall have an obligation to repay to the Company on demand, together with interest on such amount at the applicable Federal rate (as defined in Section 1274(d) of the Code) from the date of the payment hereunder to the date of repayment by the Executive. If Executive receives reduced payments and benefits by reason of this Article 4 and it is established pursuant to a Final Determination that Executive could have received a greater amount without exceeding the Payment Cap, then the Company shall promptly thereafter (but in no event later than the end of the Executive's taxable year in which such Final Determination occurs) pay Executive the aggregate additional amount which could have been paid without exceeding the Payment Cap, together with interest on such amount at the applicable Federal rate (as defined in Section 1274(d) of the Code) from the original payment due date to the date of actual payment by the Company. (b) Corrections for Tax Adjustment. In the event that the Excise Tax is subsequently determined by the Accountants or pursuant to any proceeding or negotiations with the Internal Revenue Service to be less that the amount taken into account hereunder in calculating the Tax Adjustment made, Executive shall, to the extent not prohibited by applicable law, repay to the Company, at the time that the amount of such reduction in the Excise Tax is finally determined, the portion of such prior Tax Adjustment that would not have been paid if such Excise Tax had been applied in initially calculating such Tax Adjustment, plus interest on the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. Notwithstanding the foregoing, in the event any portion of the Tax Adjustment to be refunded to the Company has been paid to any Federal, state or local tax authority, repayment thereof shall not be required until actual refund or credit of such portion has been made to Executive, and interest payable to the Company shall not exceed interest received or credited to Executive by such tax authority for the period it held such portion. Executive and the Company shall mutually agree upon the course of action to be pursued (and the method of allocating the expenses thereof) if Executives good faith claim for refund or credit is denied. 6 In the event that the Excise Tax is later determined by the Accountants or pursuant to any proceeding or negotiations with the Internal Revenue Service to exceed the amount taken into account hereunder at the time the Tax Adjustment is made (including, but not limited to, by reason of any payment the existence or amount of which cannot be determined at the time of the Tax Adjustment), the Company shall make an additional Tax Adjustment in respect of such excess (plus any interest or penalty payable with respect to such excess) at the time that the amount of such excess is the subject of a Final Determination, but in no event later than (A) the end of the taxable year next following the year of the Final Determination if there was no additional payment required to the taxing authority by the Executive or (B) the end of the year next following the year in which the taxes that are the subject of the Final Determination are remitted to the taxing authority by the Executive. 4.5. Timing of Payment of Tax Adjustment. Except as provided in section 4.4, any Tax Adjustment (or portion thereof) provided for in Article 4 shall be paid to Executive not later than 10 business days following the Payment Date; provided, however, that if the amount of such Tax Adjustment (or portion thereof) cannot be finally determined on or before the date on which payment is due, the Company shall pay to Executive by such date an amount estimated in good faith by the Accountants to be the minimum amount of such Tax Adjustment and shall pay the remainder of such Tax Adjustment (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code) as soon as the amount thereof can be determined, but in no event later than the end of the Executive's taxable year following the year in which the Executive remits the related taxes to the applicable taxing authority or by such later time as is provided for above in the case of a Final Determination. In the event that the amount of the estimated Tax Adjustment exceeds the amount subsequently determined to have been due, such excess shall, to the extent not prohibited by applicable law, constitute a loan by the Company to Executive, payable on the fifth business day after written demand by the Company for payment (together with interest at the rate provided in Section (1274(b)(2)(B) of the Code.) 7 ARTICLE 5 BENEFIT PLAN If (a) following a Potential Change in Control but prior to a Change in Control (provided a Change in Control occurs within twelve months after the Potential Change in Control) or (b) within a one year period after a Change In Control shall have occurred, Executive's employment shall have terminated for any reason, including, but not limited to, Termination for good Reason, except for death, voluntary retirement or for Cause, then, for one year after the Payment Date, the Company shall maintain in full force and effect and Executive shall continue to participate in all group life, health and accident and disability insurance, and other employee welfare benefit plans, programs and arrangements in which Executive was entitled to participate immediately prior to the Date of Employment Termination, provided that continued participation is possible under the general terms and provisions of such plans, programs and arrangements. If participation is barred, or an applicable plan, program or arrangement is discontinued or the benefits thereunder are materially reduced, the Company shall arrange to provide Executive with benefits substantially similar to those which he was entitled to receive immediately prior to the Date of Employment Termination. The foregoing shall not be deemed to apply to the EDO Corporation Employees Pension Plan or the EDO Corporation Employee Stock Ownership and Employee Investment Plan. ARTICLE 6 NO MITIGATION REQUIRED Executive shall not be required to mitigate the amount of any payment or benefit provided for in this Agreement by seeking other employment or otherwise, nor shall the amount of any payment or benefit so provided for be reduced by any compensation earned by him as the result of employment by another employer after the Date of Employment Termination, or otherwise. ARTICLE 7 DEFINITION OF "CHANGE IN CONTROL" AND "POTENTIAL CHANGE IN CONTROL" 7.1. Change in Control. A "Change in Control" occurs on the first to occur of any of the following: (a) The date that any one person, or more than one person acting as a Group (other than the Company, its subsidiaries, or any employee benefit plan of the Company or its subsidiaries) (a "person"), acquires ownership of stock of the Company that, together with stock held by such person or Group, constitutes more than 50 percent of the total fair market value or total voting power of the stock of the Company; provided that, if any one person, or Group owns more than 50 percent of the total fair market value or total voting power of the stock of the Company, the acquisition of additional stock by the same person or persons in the Group is not a subsequent Change in Control; 8 (b) The date any person, or Group, acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such person or Group) ownership of stock of the Company possessing 30 percent or more of the total voting power of the stock of the Company, or (c) The date a majority of members of the Company's board of directors is replaced during any 12-month period by directors whose appointment or election is not endorsed by a majority of the members of the Company's board of directors before the date of the appointment or election. For purposes of this Paragraph 7.1, an increase in the percentage of stock owned by any one person, or Group as a result of a transaction in which the Company acquires its own stock in exchange for property will be treated as an acquisition of stock of the Company by a person or Group. The transfer of stock of the Company (or issuance of stock by the Company) will be considered only if such stock remains outstanding after the applicable transaction. Notwithstanding the foregoing, no event set forth in this Section 7.1 shall be a Change in Control unless such even constitutes a "change in control" within the meaning of Section 409A of the Code and the regulations promulgated thereunder. 7.2 Potential Change in Control. A "Potential Change in Control" occurs if: (a) A person hereafter becomes the beneficial owner of securities of the Company having at least 25% of the total number of votes that may be cast for the election of directors of the Company, or (b) any person holds a 15% beneficial ownership interest on the date hereof and there occurs an increase in such person's beneficial ownership of such number of securities of the Company as shall increase the beneficial ownership by such person by an additional 1% of the total number of votes that may be cast for the election of directors of the Company, or (c) a Person commences a tender offer for at least 25% of the outstanding shares of the Company's common stock, or (d) approval of any corporate transaction is requested of shareholders, which, if obtained, would result in a Change in Control occurring, or (e) any person solicits proxies for the election of more than one member of the Board (other than for any such election or nomination for election that is approved by the then current Board). 7.3 Group. Determination of the existence of a "Group" for purposes of this Article 7 shall be determined under the provisions of Treasury Regulation ss. 1.409A-3(i)(5)(v)(B). The terms herein shall be interpreted in a manner consistent with the provisions of Treasury Regulation ss. 1.409A-3. 9 ARTICLE 8 TERMINATION FOR CAUSE 10.1. If the Executive's employment is terminated by the Company for Cause, the Company shall pay the Executive his full base salary through the Date of Employment Termination (at the rate in effect as of the Date of Employment Termination), and the Company shall have no further obligations to the Executive under this Agreement. 10.2. The following are the only reasons for which the Company may terminate Executive's service for Cause without further obligations under this Agreement: - for failure to consistently meet the performance objectives set for the Executive as determined in the reasonable discretion of the Board of Directors - for providing the Company with materially false reports concerning Executive's business interests or employment-related activities; - for making materially false representations relied upon by the Company in furnishing information to shareholders, a stock exchange, or the Securities and Exchange Commission; - for maintaining an undisclosed, unauthorized and material conflict of interest in the discharge of duties owed by Executive to the Company; - for misconduct causing a serious violation by the Company of state or federal laws or violation of a material written policy of the Company; - for theft of Company funds or corporate assets; or - for conviction of a crime (excluding traffic violations or similar misdemeanors). ARTICLE 9 DEFINITION OF "TERMINATION FOR GOOD REASON" "Termination for Good Reason" shall mean termination of Executive's employment by Executive following or in connection with: (i) without the express advance written consent of Executive, (a) the assignment to Executive of any duties inconsistent in any substantial respect with the position, authority or responsibilities of Executive immediately prior to the earlier to occur of a Potential Change in Control or a Change in Control or (b) any other substantial change in such position, including titles, authority or responsibilities, or 10 (ii) during the one and one-half (1-1/2) year period following a Change in Control or during a period of Potential Change in Control, any reduction in Executive's salary or any reduction in bonus or incentive compensation targets (based upon the highest dollar amount or other rate of salary, bonus and incentive compensation in effect at any time up to Date of Employment Termination), a termination, reduction or alteration of disability policies or life or disability insurance benefits maintained for Executive, any alteration or reduction of expense allowances or reimbursement policies or a significant reduction in scope or value of the aggregate other benefits to which Executive was entitled immediately prior to the earlier to occur of a Potential Change in Control or a Change in Control, or (iii) the Company's requiring Executive to be based at any office or location more than 50 miles from the one where he worked immediately prior to the earlier to occur of a Potential Change in Control or a Change in Control, except for travel reasonably required in the performance of Executives responsibilities, or (iv) any purported termination by the Company of Executive's employment otherwise than as permitted by this Agreement, it being understood that any such purported termination shall not be effective for any purpose of this Agreement, or (v) any failure by the Company to obtain the assumption and agreement to perform this Agreement by a successor as contemplated by paragraph 10.1. ARTICLE 10 SUCCESSORS, BINDING AGREEMENT 10.1. The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company, by agreement in form and substance satisfactory to Executive, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle Executive to compensation from the Company in the same amount and on the same terms as Executive would be entitled hereunder if the Company had terminated Executive's employment other than for Cause after a Change in Control occurring at the time of succession, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Employment Termination. 10.2. As used in this Agreement, "Company" shall include any successor to this business and/or assets as aforesaid which executes and delivers the agreement provided for in paragraph 10.1 or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law. 11 10.3. This Agreement shall inure to the benefit of, and be enforceable by, Executive's personal or legal representatives, executors, administrators, successors, heirs, distributes, devisees and legatees. If Executive should die while any amounts would still be payable if he had continues to live, all such amounts shall be paid in accordance with the terms of this Agreement to Executive's devisee, legatee, or other designee or, if there be no such designee, to his estate. ARTICLE 11 MISCELLANEOUS PROVISIONS 11.1. Date of Employment Termination is the date on which Executive experiences a "separation from service" within the meaning of Treasury Regulation ss.1.409A-1(h)(1). 11.2. Notice and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth on the first page of this Agreement, provided that all notices to the Company shall be directed to the attention of the corporate counsel, or to such other address as either party may have furnished to the other in writing in accordance herewith. Notices of change of address shall be effective only upon receipt. 11.3. This Agreement supersedes any other agreement on the subject matter hereof executed by the parties hereto. No provisions of this Agreement may be modified, waived or discharged unless such modification, waiver or discharge is agreed to in writing signed by Executive and, on behalf of the Company, by such officer as may be specifically designated by the Board. 11.4. All benefits provided for in this Agreement are provided on an unfunded basis and are not intended to meet the qualification requirements of Section 401 of the Code. The Company shall not be deemed to be a trustee of any amounts to be paid under this Agreement and shall not be required to segregate any assets with respect to benefits under this Agreement. Such benefits shall be payable solely from the general assets of the Company. 11.5. Any failure at any time of either party to enforce any provision of this Agreement shall not constitute a waiver of such provision, or prejudice the right of either party to enforce such provision at any subsequent time. 11.6. No agreements or representations, oral or otherwise, expressed or implied, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement. 11.7. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of New York. 12 11.8. The invalidity or unenforceability of any one or more provisions of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 11.9. In the event of any action or proceeding between the parties arising out of this agreement, the Company will pay the costs of any such legal proceedings including, but not limited to, the costs of Executive for all expenses, including attorneys' fees, incurred in such action or proceeding. Such costs and expenses shall be advanced to Executive currently as reasonably required to continue such action or proceeding. EDO CORPORATION By: /s/ Patricia D. Comiskey ------------------------------------ Patricia D. Comiskey Senior Vice President - Human Resources EXECUTIVE: /s/ Milo W. Hyde ---------------------------------------- Milo W. Hyde 13 EX-10.F 7 a5534801ex10_f.txt EXHIBIT 10(F) Exhibit 10(f) AMENDED AND RESTATED CHANGE IN CONTROL AGREEMENT AGREEMENT made this 12th day of June, 2007 by and between EDO Corporation, a New York Corporation having its office and principal place of business at 60 East 42nd Street, Suite 4200, New York, NY 10165 (the "Company") and Frank W. Otto, 21 Farm Road South, Wading River, NY 11792("Executive"). W I T N E S E T H: ------------------ WHEREAS, the Company considers it essential to the best interests of the Company and its stockholders that its management (including Executive) be encouraged to remain with the Company and to continue to devote full attention to the Company's business in the event of a change in control or potential change in control of the Company. WHEREAS, the Company recognizes that the possibility of a Change in Control or a Potential Change in Control and the uncertainty and questions, which either event may raise among management, may result in the departure or distraction of management personnel to the detriment of the Company and its stockholders; WHEREAS, the Company's Board of Directors (the "Board") has determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of members of the Company's management to their assigned duties without distraction in the face of the potentially disturbing circumstances arising from a Change in Control or a Potential Change in Control; WHEREAS, the Company believes Executive has made and will continue to make valuable contributions to the productivity and profitability of the Company; WHEREAS, should a Potential Change in Control occur, the Board believes it imperative that the Company and the Board be able to rely upon the Executive to continue in his position, and that the Company be able to receive and rely upon his advice as to the best interests of the Company and its stockholders without concern that he might be distracted by the personal uncertainties and risks created by such event; and WHEREAS, should a Potential Change in Control occur, in addition to the Executive's regular duties, he may be called upon to assist in the assessment of any proposals of any person concerning the possible business combination of the Company or acquisition of equity securities of the Company, advise management and the Board as to whether such proposals would be in the best interests of the Company and its stockholders, and to take such other actions as the Board might determine to be appropriate; WHEREAS, Section 409A of the Internal Revenue Code of 1986, as amended (the "Code"), imposes certain restrictions and requirements upon the payment of amounts treated as deferred compensation for such purposes, in order to avoid immediate taxation at a rate of federal income taxation at least 20% in excess of the otherwise applicable rate of income taxation; WHEREAS, certain payments that may become due and payable under this Agreement may be treated as such deferred compensation and the Company and the Executive desire to satisfy the applicable conditions specified under such Section 409A: NOW, THEREFORE, in consideration of the recitals and for other good and valuable consideration, the Company and Executive agree as follows: GENERAL 1. Purpose. The purpose of this Agreement is to provide Executive with Special Severance Pay Benefits in the event of certain terminations of Executive's employment in connection with a Change in Control, as such terms are defined in this Agreement. 2. Term. This Agreement will be effective as of the date first set forth above (the "Effective Date"), but no compensation or benefits will be payable hereunder unless the Executive experiences a Qualifying Termination of employment following a Potential Change in Control or Change in Control. In addition, no compensation or benefits will be payable to the Executive under this Agreement, and this Agreement will be without further force or effect, if a Potential Change in Control or a Change in Control does not occur on or before the end of the initial Term or any extended Term. The initial "Term" of this Agreement shall begin on the Effective Date and end on December 31, 2007; provided that, the Term may be extended for additional one year periods (each, an extended Term) upon the lapse of the initial Term or the then current extended Term by the Company's written notice of extension to the Executive and the Executive's written acknowledgement of such notice. ARTICLE 1 PRINCIPAL UNDERTAKING 1.1. Special Severance Upon a Qualifying Termination. If (a) following a Potential Change in Control but prior to a Change in Control (provided a Change in Control occurs within twelve months after the Potential Change in Control) or (b) within a one and one-half (1-1/2) year period after a Change in Control, Executive's employment shall have been terminated by the Company without Cause or by Executive in a Termination for Good Reason (either, a "Qualifying Termination"), then Executive shall be paid by the Company subject to adjustment as provided in Article 4, the following "Special Severance Pay Benefits": - Current Salary and Other Compensation Benefits (Article 2); - Other Salary and Incentive Compensation Benefits (Article 3); and - Tax Adjustment (Article 4). 2 1.2. Timing of Payment. Except as provided in Article 4, the Special Severance Pay Benefits, subject to any taxes required to be withheld therefrom, shall be paid to Executive in a lump sum, on or before the fifth day following the later of the "Date of Employment Termination" or the date the Change in Control is consummated (the "Payment Date"); provided, however, that, if Executive is a "specified employee" of the Company or any member of its affiliated group of corporations (within the meaning of Section 409A of the Code), as of the Date of Employment Termination and any payment of deferred compensation payable under this Agreement or any other deferred compensation arrangement with the Company and its subsidiaries (including, but not limited to, the payments provided for under Article 4) is required to be delayed to avoid incurring "additional tax" under Section 409A of the Code and the regulations promulgated thereunder, then each such payment shall be delayed until the date which is six months and one day following the Date of Employment Termination. 1.3. Loans and Advances. The amount of any loan or advance to Executive shall be due and payable as of the Date of Employment Termination. The Company shall have no right of setoff against any amount due Executive under this Agreement, except that the Company may set off against such amount the balance of any loan or advance which remains unpaid after the third day following the Date of Employment Termination. ARTICLE 2 CURRENT SALARY AND OTHER COMPENSATION BENEFITS Payment of this portion of Special Severance Pay Benefits shall consist of the following: - Executive's full base salary through the Date of Employment Termination, at the rate in effect ten (10) days prior to the Date of Employment Termination; plus - Executive's full base salary earned from the beginning of the calendar year in which the Date of Employment Termination occurs through the Date of Employment Termination multiplied by the greater of (a) twenty percent (20%) or (b) the percentage which is equal to the highest percentage of base salary paid as a bonus to Executive for any of the three calendar years preceding the calendar year in which the Date of Employment Termination occurs, in either case, reduced by any installment of cash bonus previously paid by the Company to Executive for the calendar year in which the Date of Employment Termination occurs, plus - The full amount, if any, of any incentive or special award, which Executive earned but which, has not yet been paid. 3 ARTICLE 3 OTHER SALARY AND INCENTIVE COMPENSATION BENEFITS Payment of this portion of Special Severance Pay Benefits shall consist of an amount equal to one and one-half (1 1/2) times the sum of (a) Executive's annual base salary, at the highest rate in effect at any time up to Date of Employment Termination (the "Highest Base Salary") and (b) and amount equal to the Highest Base Salary multiplied by the greater of (i) twenty percent (20%) or (ii) the percentage which is equal to the highest percentage of base salary paid as a bonus to Executive for any of the three calendar years preceding the calendar year in which the Date of Employment Termination occurs. ARTICLE 4 TAXES 4.1. Application of Article 4. In the event that any amount or benefit paid or distributed to Executive pursuant to this Agreement, taken together with any amounts or benefits otherwise paid or distributed to Executive by the Company or any affiliated company (collectively, the "Covered Payments"), would be an "excess parachute payment" as defined in Section 280G of the Code and would thereby subject Executive to the tax (the "Excise Tax") imposed under Section 4999 of the Code (or any similar tax that may hereafter be imposed), the provisions of this Article 4 shall apply to determine the amounts payable to Executive pursuant to this Agreement. 4.2. Determination of Payment Cap or Tax Adjustment. On or before the Payment Date, the Company shall notify Executive of the aggregate present value of all termination benefits to which he would be entitled under this Agreement and any other plan, program or arrangement as of the Payment Date, together with the projected maximum payments, determined as of the Payment Date that could be paid without Executive being subject to the Excise Tax. (a) Payment Cap. If the aggregate value of all compensation payments or benefits to be paid or provided to Executive under this Agreement and any other plan, agreement or arrangement with the Company is less than 105% of the amount which can be paid to Executive without Executive incurring an Excise Tax, then the amounts payable to Executive under this Agreement may, in the discretion of the Company, be reduced (but not below zero), to the maximum amount which may be paid hereunder without Executive becoming subject to such an Excise Tax (such reduced payments to be referred to as the "Payment Cap"). In the event that Executive receives reduced payments and benefits hereunder, Executive shall have the right to designate which of the payments and benefits otherwise provided for in this Agreement that he will receive in connection with the application of the Payment Cap. (b) Tax Adjustment. If the aggregate value of all compensation payments or benefits to be paid or provided to Executive under this Agreement and any other plan, agreement or arrangement with the Company is greater than 105% of the amount which can be paid to Executive without Executive incurring an Excise Tax, the Company shall pay to Executive immediately following Executive's termination of employment an additional amount (the "Tax Adjustment") such that the net amount retained by Executive with respect to such Covered Payments, after deduction of any Excise Tax on the Covered Payments and any Federal, state and local income tax and Excise Tax on the Tax Adjustment provided for by this Article 4, but before deduction for any Federal, state or local income or employment tax withholding on such Covered Payments, shall be equal to the amount of Covered Payments. 4 4.3. Assumptions. For purposes of determining whether any of the Covered Payments will be subject to the Excise Tax, and the amount of such Excise Tax, (a) Such Covered Payments will be treated as "parachute payments" within the meaning of Section 280G of the Code, and all "parachute payments" in excess of the "base amount" (as defined under Section 280G(b)(3) of the Code) shall be treated as subject to the Excise Tax, unless and except to the extent that, in the good faith judgment of the Company's independent certified public accountants appointed prior to the Effective Date or tax counsel selected by such accountants (the "Accountants"), the Company has a reasonable basis to conclude that such Covered Payments (in whole or in part) either do not constitute "parachute payments" or represent reasonable compensation for personal services actually rendered (within the meaning of Section 280G(b)(4)(B) of the Code) in excess of the "base amount," or such "parachute payments" are otherwise not subject to such Excise Tax, and (b) The value of any non-cash benefits or any deferred payment or benefit shall be determined by the Accountants in accordance with the principles of Section 280G of the Code. (c) For purposes of determining whether Executive would receive a greater net after-tax benefit were the amounts payable under this Agreement reduced in accordance with Paragraph 4.2, Executive shall be deemed to pay: (i) Federal income taxes at the highest applicable marginal rate of federal income taxation for the calendar year in which the first amounts are to be paid hereunder, and (ii) Any applicable state and local income taxes at the highest applicable marginal rate of taxation for such calendar year, net of the maximum reduction in Federal income taxes which could be obtained from the deduction of such state or local taxes if paid in such year. 4.4. Correction Following Determination. (a) Corrections For Payment Cap. If Executive receives reduced payments and benefits under this Article 4, or this Article 4 is determined not to be applicable to Executive because the Accountants conclude that Executive is not subject to any Excise Tax, and in either case it is thereafter established pursuant to a final determination and non-appealable settlement or other resolution of litigation or an Internal Revenue Service proceeding (a "Final Determination") that, notwithstanding the good faith of Executive and the Company in applying the terms of this Agreement, the aggregate of the "parachute payments" within the meaning of Section 280G of the Code paid to Executive or for his benefit are in an amount that would result in Executive being subject to an Excise Tax, then, to the extent not prohibited by applicable law, the amount equal to such excess parachute payments shall be deemed for all purposes to be a loan to Executive made on the date of receipt of such excess payments, which Executive shall have an obligation to repay to the Company on demand, together with interest on such amount at the applicable Federal rate (as defined in Section 1274(d) of the Code) from the date of the payment hereunder to the date of repayment by Executive. 5 If this Article 4 is not applied to reduce Executive's entitlements because the Accountants determine that Executive would not receive a greater net-after-tax benefit by applying this Article 4 and it is established pursuant to a Final Determination that, notwithstanding the good faith of Executive and the Company in applying the terms of this Agreement, Executive would have received a greater net-after-tax benefit by subjecting his payments and benefits hereunder to the Payment Cap, then the aggregate "parachute payments" paid to Executive or for his benefit in excess of the Payment Cap shall, to the extent not prohibited by applicable law, be deemed for all purposes a loan to Executive made on the date of receipt of such excess payments, which Executive shall have an obligation to repay to the Company on demand, together with interest on such amount at the applicable Federal rate (as defined in Section 1274(d) of the Code) from the date of the payment hereunder to the date of repayment by the Executive. If Executive receives reduced payments and benefits by reason of this Article 4 and it is established pursuant to a Final Determination that Executive could have received a greater amount without exceeding the Payment Cap, then the Company shall promptly thereafter (but in no event later than the end of the Executive's taxable year in which such Final Determination occurs) pay Executive the aggregate additional amount which could have been paid without exceeding the Payment Cap, together with interest on such amount at the applicable Federal rate (as defined in Section 1274(d) of the Code) from the original payment due date to the date of actual payment by the Company. (b) Corrections for Tax Adjustment. In the event that the Excise Tax is subsequently determined by the Accountants or pursuant to any proceeding or negotiations with the Internal Revenue Service to be less that the amount taken into account hereunder in calculating the Tax Adjustment made, Executive shall, to the extent not prohibited by applicable law, repay to the Company, at the time that the amount of such reduction in the Excise Tax is finally determined, the portion of such prior Tax Adjustment that would not have been paid if such Excise Tax had been applied in initially calculating such Tax Adjustment, plus interest on the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. Notwithstanding the foregoing, in the event any portion of the Tax Adjustment to be refunded to the Company has been paid to any Federal, state or local tax authority, repayment thereof shall not be required until actual refund or credit of such portion has been made to Executive, and interest payable to the Company shall not exceed interest received or credited to Executive by such tax authority for the period it held such portion. Executive and the Company shall mutually agree upon the course of action to be pursued (and the method of allocating the expenses thereof) if Executives good faith claim for refund or credit is denied. 6 In the event that the Excise Tax is later determined by the Accountants or pursuant to any proceeding or negotiations with the Internal Revenue Service to exceed the amount taken into account hereunder at the time the Tax Adjustment is made (including, but not limited to, by reason of any payment the existence or amount of which cannot be determined at the time of the Tax Adjustment), the Company shall make an additional Tax Adjustment in respect of such excess (plus any interest or penalty payable with respect to such excess) at the time that the amount of such excess is the subject of a Final Determination, but in no event later than (A) the end of the taxable year next following the year of the Final Determination if there was no additional payment required to the taxing authority by the Executive or (B) the end of the year next following the year in which the taxes that are the subject of the Final Determination are remitted to the taxing authority by the Executive. 4.5. Timing of Payment of Tax Adjustment. Except as provided in section 4.4, any Tax Adjustment (or portion thereof) provided for in Article 4 shall be paid to Executive not later than 10 business days following the Payment Date; provided, however, that if the amount of such Tax Adjustment (or portion thereof) cannot be finally determined on or before the date on which payment is due, the Company shall pay to Executive by such date an amount estimated in good faith by the Accountants to be the minimum amount of such Tax Adjustment and shall pay the remainder of such Tax Adjustment (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code) as soon as the amount thereof can be determined, but in no event later than the end of the Executive's taxable year following the year in which the Executive remits the related taxes to the applicable taxing authority or by such later time as is provided for above in the case of a Final Determination. In the event that the amount of the estimated Tax Adjustment exceeds the amount subsequently determined to have been due, such excess shall, to the extent not prohibited by applicable law, constitute a loan by the Company to Executive, payable on the fifth business day after written demand by the Company for payment (together with interest at the rate provided in Section (1274(b)(2)(B) of the Code.) 7 ARTICLE 5 BENEFIT PLAN If (a) following a Potential Change in Control but prior to a Change in Control (provided a Change in Control occurs within twelve months after the Potential Change in Control) or (b) within a one and one-half (1 1/2 ) year period after a Change In Control shall have occurred, Executive's employment shall have terminated for any reason, including, but not limited to, Termination for good Reason, except for death, voluntary retirement or for Cause, then, for one year after the Payment Date, the Company shall maintain in full force and effect and Executive shall continue to participate in all group life, health and accident and disability insurance, and other employee welfare benefit plans, programs and arrangements in which Executive was entitled to participate immediately prior to the Date of Employment Termination, provided that continued participation is possible under the general terms and provisions of such plans, programs and arrangements. If participation is barred, or an applicable plan, program or arrangement is discontinued or the benefits thereunder are materially reduced, the Company shall arrange to provide Executive with benefits substantially similar to those which he was entitled to receive immediately prior to the Date of Employment Termination. The foregoing shall not be deemed to apply to the EDO Corporation Employees Pension Plan or the EDO Corporation Employee Stock Ownership and Employee Investment Plan. ARTICLE 6 NO MITIGATION REQUIRED Executive shall not be required to mitigate the amount of any payment or benefit provided for in this Agreement by seeking other employment or otherwise, nor shall the amount of any payment or benefit so provided for be reduced by any compensation earned by him as the result of employment by another employer after the Date of Employment Termination, or otherwise. ARTICLE 7 DEFINITION OF "CHANGE IN CONTROL" AND "POTENTIAL CHANGE IN CONTROL" 7.1. Change in Control. A "Change in Control" occurs on the first to occur of any of the following: (a) The date that any one person, or more than one person acting as a Group (other than the Company, its subsidiaries, or any employee benefit plan of the Company or its subsidiaries) (a "person"), acquires ownership of stock of the Company that, together with stock held by such person or Group, constitutes more than 50 percent of the total fair market value or total voting power of the stock of the Company; provided that, if any one person, or Group owns more than 50 percent of the total fair market value or total voting power of the stock of the Company, the acquisition of additional stock by the same person or persons in the Group is not a subsequent Change in Control; 8 (b) The date any person, or Group, acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such person or Group) ownership of stock of the Company possessing 30 percent or more of the total voting power of the stock of the Company, or (c) The date a majority of members of the Company's board of directors is replaced during any 12-month period by directors whose appointment or election is not endorsed by a majority of the members of the Company's board of directors before the date of the appointment or election. For purposes of this Paragraph 7.1, an increase in the percentage of stock owned by any one person, or Group as a result of a transaction in which the Company acquires its own stock in exchange for property will be treated as an acquisition of stock of the Company by a person or Group. The transfer of stock of the Company (or issuance of stock by the Company) will be considered only if such stock remains outstanding after the applicable transaction. Notwithstanding the foregoing, no event set forth in this Section 7.1 shall be a Change in Control unless such even constitutes a "change in control" within the meaning of Section 409A of the Code and the regulations promulgated thereunder. 7.2 Potential Change in Control. A "Potential Change in Control" occurs if: (a) A person hereafter becomes the beneficial owner of securities of the Company having at least 25% of the total number of votes that may be cast for the election of directors of the Company, or (b) any person holds a 15% beneficial ownership interest on the date hereof and there occurs an increase in such person's beneficial ownership of such number of securities of the Company as shall increase the beneficial ownership by such person by an additional 1% of the total number of votes that may be cast for the election of directors of the Company, or (c) a Person commences a tender offer for at least 25% of the outstanding shares of the Company's common stock, or (d) approval of any corporate transaction is requested of shareholders, which, if obtained, would result in a Change in Control occurring, or (e) any person solicits proxies for the election of more than one member of the Board (other than for any such election or nomination for election that is approved by the then current Board). 7.3 Group. Determination of the existence of a "Group" for purposes of this Article 7 shall be determined under the provisions of Treasury Regulation ss. 1.409A-3(i)(5)(v)(B). The terms herein shall be interpreted in a manner consistent with the provisions of Treasury Regulation ss. 1.409A-3. 9 ARTICLE 8 TERMINATION FOR CAUSE 10.1. If the Executive's employment is terminated by the Company for Cause, the Company shall pay the Executive his full base salary through the Date of Employment Termination (at the rate in effect as of the Date of Employment Termination), and the Company shall have no further obligations to the Executive under this Agreement. 10.2. The following are the only reasons for which the Company may terminate Executive's service for Cause without further obligations under this Agreement: - for failure to consistently meet the performance objectives set for the Executive as determined in the reasonable discretion of the Board of Directors - for providing the Company with materially false reports concerning Executive's business interests or employment-related activities; - for making materially false representations relied upon by the Company in furnishing information to shareholders, a stock exchange, or the Securities and Exchange Commission; - for maintaining an undisclosed, unauthorized and material conflict of interest in the discharge of duties owed by Executive to the Company; - for misconduct causing a serious violation by the Company of state or federal laws or violation of a material written policy of the Company; - for theft of Company funds or corporate assets; or - for conviction of a crime (excluding traffic violations or similar misdemeanors). ARTICLE 9 DEFINITION OF "TERMINATION FOR GOOD REASON" "Termination for Good Reason" shall mean termination of Executive's employment by Executive following or in connection with: (i) without the express advance written consent of Executive, (a) the assignment to Executive of any duties inconsistent in any substantial respect with the position, authority or responsibilities of Executive immediately prior to the earlier to occur of a Potential Change in Control or a Change in Control or (b) any other substantial change in such position, including titles, authority or responsibilities, or 10 (ii) during the one and one-half (1-1/2) year period following a Change in Control or during a period of Potential Change in Control, any reduction in Executive's salary or any reduction in bonus or incentive compensation targets (based upon the highest dollar amount or other rate of salary, bonus and incentive compensation in effect at any time up to Date of Employment Termination), a termination, reduction or alteration of disability policies or life or disability insurance benefits maintained for Executive, any alteration or reduction of expense allowances or reimbursement policies or a significant reduction in scope or value of the aggregate other benefits to which Executive was entitled immediately prior to the earlier to occur of a Potential Change in Control or a Change in Control, or (iii) the Company's requiring Executive to be based at any office or location more than 50 miles from the one where he worked immediately prior to the earlier to occur of a Potential Change in Control or a Change in Control, except for travel reasonably required in the performance of Executives responsibilities, or (iv) any purported termination by the Company of Executive's employment otherwise than as permitted by this Agreement, it being understood that any such purported termination shall not be effective for any purpose of this Agreement, or (v) any failure by the Company to obtain the assumption and agreement to perform this Agreement by a successor as contemplated by paragraph 10.1. ARTICLE 10 SUCCESSORS, BINDING AGREEMENT 10.1. The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company, by agreement in form and substance satisfactory to Executive, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle Executive to compensation from the Company in the same amount and on the same terms as Executive would be entitled hereunder if the Company had terminated Executive's employment other than for Cause after a Change in Control occurring at the time of succession, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Employment Termination. 10.2. As used in this Agreement, "Company" shall include any successor to this business and/or assets as aforesaid which executes and delivers the agreement provided for in paragraph 10.1 or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law. 11 10.3. This Agreement shall inure to the benefit of, and be enforceable by, Executive's personal or legal representatives, executors, administrators, successors, heirs, distributes, devisees and legatees. If Executive should die while any amounts would still be payable if he had continues to live, all such amounts shall be paid in accordance with the terms of this Agreement to Executive's devisee, legatee, or other designee or, if there be no such designee, to his estate. ARTICLE 11 MISCELLANEOUS PROVISIONS 11.1. Date of Employment Termination is the date on which Executive experiences a "separation from service" within the meaning of Treasury Regulation ss.1.409A-1(h)(1). 11.2. Notice and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth on the first page of this Agreement, provided that all notices to the Company shall be directed to the attention of the corporate counsel, or to such other address as either party may have furnished to the other in writing in accordance herewith. Notices of change of address shall be effective only upon receipt. 11.3. This Agreement supersedes any other agreement on the subject matter hereof executed by the parties hereto. No provisions of this Agreement may be modified, waived or discharged unless such modification, waiver or discharge is agreed to in writing signed by Executive and, on behalf of the Company, by such officer as may be specifically designated by the Board. 11.4. All benefits provided for in this Agreement are provided on an unfunded basis and are not intended to meet the qualification requirements of Section 401 of the Code. The Company shall not be deemed to be a trustee of any amounts to be paid under this Agreement and shall not be required to segregate any assets with respect to benefits under this Agreement. Such benefits shall be payable solely from the general assets of the Company. 11.5. Any failure at any time of either party to enforce any provision of this Agreement shall not constitute a waiver of such provision, or prejudice the right of either party to enforce such provision at any subsequent time. 11.6. No agreements or representations, oral or otherwise, expressed or implied, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement. 11.7. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of New York. 12 11.8. The invalidity or unenforceability of any one or more provisions of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 11.9. In the event of any action or proceeding between the parties arising out of this agreement, the Company will pay the costs of any such legal proceedings including, but not limited to, the costs of Executive for all expenses, including attorneys' fees, incurred in such action or proceeding. Such costs and expenses shall be advanced to Executive currently as reasonably required to continue such action or proceeding. EDO CORPORATION By: /s/ Patricia D. Comiskey -------------------------------- Patricia D. Comiskey Senior Vice President - Human Resources EXECUTIVE: /s/ Frank W. Otto ------------------------------------ Frank W. Otto 13 EX-10.G 8 a5534801ex10_g.txt EXHIBIT 10(G) Exhibit 10(g) AMENDED AND RESTATED CHANGE IN CONTROL AGREEMENT AGREEMENT made this 12th day of June, 2007 by and between EDO Corporation, a New York Corporation having its office and principal place of business at 60 East 42nd Street, Suite 4200, New York, NY 10165 (the "Company") and Lisa Palumbo, 10 Kenilworth Road, Rye, NY 10580 ("Executive"). W I T N E S E T H: ------------------ WHEREAS, the Company considers it essential to the best interests of the Company and its stockholders that its management (including Executive) be encouraged to remain with the Company and to continue to devote full attention to the Company's business in the event of a change in control or potential change in control of the Company. WHEREAS, the Company recognizes that the possibility of a Change in Control or a Potential Change in Control and the uncertainty and questions, which either event may raise among management, may result in the departure or distraction of management personnel to the detriment of the Company and its stockholders; WHEREAS, the Company's Board of Directors (the "Board") has determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of members of the Company's management to their assigned duties without distraction in the face of the potentially disturbing circumstances arising from a Change in Control or a Potential Change in Control; WHEREAS, the Company believes Executive has made and will continue to make valuable contributions to the productivity and profitability of the Company; WHEREAS, should a Potential Change in Control occur, the Board believes it imperative that the Company and the Board be able to rely upon the Executive to continue in his position, and that the Company be able to receive and rely upon his advice as to the best interests of the Company and its stockholders without concern that he might be distracted by the personal uncertainties and risks created by such event; and WHEREAS, should a Potential Change in Control occur, in addition to the Executive's regular duties, he may be called upon to assist in the assessment of any proposals of any person concerning the possible business combination of the Company or acquisition of equity securities of the Company, advise management and the Board as to whether such proposals would be in the best interests of the Company and its stockholders, and to take such other actions as the Board might determine to be appropriate; WHEREAS, Section 409A of the Internal Revenue Code of 1986, as amended (the "Code"), imposes certain restrictions and requirements upon the payment of amounts treated as deferred compensation for such purposes, in order to avoid immediate taxation at a rate of federal income taxation at least 20% in excess of the otherwise applicable rate of income taxation; WHEREAS, certain payments that may become due and payable under this Agreement may be treated as such deferred compensation and the Company and the Executive desire to satisfy the applicable conditions specified under such Section 409A: NOW, THEREFORE, in consideration of the recitals and for other good and valuable consideration, the Company and Executive agree as follows: GENERAL 1. Purpose. The purpose of this Agreement is to provide Executive with Special Severance Pay Benefits in the event of certain terminations of Executive's employment in connection with a Change in Control, as such terms are defined in this Agreement. 2. Term. This Agreement will be effective as of the date first set forth above (the "Effective Date"), but no compensation or benefits will be payable hereunder unless the Executive experiences a Qualifying Termination of employment following a Potential Change in Control or Change in Control. In addition, no compensation or benefits will be payable to the Executive under this Agreement, and this Agreement will be without further force or effect, if a Potential Change in Control or a Change in Control does not occur on or before the end of the initial Term or any extended Term. The initial "Term" of this Agreement shall begin on the Effective Date and end on December 31, 2007; provided that, the Term may be extended for additional one year periods (each, an extended Term) upon the lapse of the initial Term or the then current extended Term by the Company's written notice of extension to the Executive and the Executive's written acknowledgement of such notice. ARTICLE 1 PRINCIPAL UNDERTAKING 1.1. Special Severance Upon a Qualifying Termination. If (a) following a Potential Change in Control but prior to a Change in Control (provided a Change in Control occurs within twelve months after the Potential Change in Control) or (b) within a one and one-half (1-1/2) year period after a Change in Control, Executive's employment shall have been terminated by the Company without Cause or by Executive in a Termination for Good Reason (either, a "Qualifying Termination"), then Executive shall be paid by the Company subject to adjustment as provided in Article 4, the following "Special Severance Pay Benefits": - Current Salary and Other Compensation Benefits (Article 2); - Other Salary and Incentive Compensation Benefits (Article 3); and - Tax Adjustment (Article 4). 2 1.2. Timing of Payment. Except as provided in Article 4, the Special Severance Pay Benefits, subject to any taxes required to be withheld therefrom, shall be paid to Executive in a lump sum, on or before the fifth day following the later of the "Date of Employment Termination" or the date the Change in Control is consummated (the "Payment Date"); provided, however, that, if Executive is a "specified employee" of the Company or any member of its affiliated group of corporations (within the meaning of Section 409A of the Code), as of the Date of Employment Termination and any payment of deferred compensation payable under this Agreement or any other deferred compensation arrangement with the Company and its subsidiaries (including, but not limited to, the payments provided for under Article 4) is required to be delayed to avoid incurring "additional tax" under Section 409A of the Code and the regulations promulgated thereunder, then each such payment shall be delayed until the date which is six months and one day following the Date of Employment Termination. 1.3. Loans and Advances. The amount of any loan or advance to Executive shall be due and payable as of the Date of Employment Termination. The Company shall have no right of setoff against any amount due Executive under this Agreement, except that the Company may set off against such amount the balance of any loan or advance which remains unpaid after the third day following the Date of Employment Termination. ARTICLE 2 CURRENT SALARY AND OTHER COMPENSATION BENEFITS Payment of this portion of Special Severance Pay Benefits shall consist of the following: - Executive's full base salary through the Date of Employment Termination, at the rate in effect ten (10) days prior to the Date of Employment Termination; plus - Executive's full base salary earned from the beginning of the calendar year in which the Date of Employment Termination occurs through the Date of Employment Termination multiplied by the greater of (a) twenty percent (20%) or (b) the percentage which is equal to the highest percentage of base salary paid as a bonus to Executive for any of the three calendar years preceding the calendar year in which the Date of Employment Termination occurs, in either case, reduced by any installment of cash bonus previously paid by the Company to Executive for the calendar year in which the Date of Employment Termination occurs, plus - The full amount, if any, of any incentive or special award, which Executive earned but which, has not yet been paid. 3 ARTICLE 3 OTHER SALARY AND INCENTIVE COMPENSATION BENEFITS Payment of this portion of Special Severance Pay Benefits shall consist of an amount equal to one and one-half (1 1/2) times the sum of (a) Executive's annual base salary, at the highest rate in effect at any time up to Date of Employment Termination (the "Highest Base Salary") and (b) and amount equal to the Highest Base Salary multiplied by the greater of (i) twenty percent (20%) or (ii) the percentage which is equal to the highest percentage of base salary paid as a bonus to Executive for any of the three calendar years preceding the calendar year in which the Date of Employment Termination occurs. ARTICLE 4 TAXES 4.1. Application of Article 4. In the event that any amount or benefit paid or distributed to Executive pursuant to this Agreement, taken together with any amounts or benefits otherwise paid or distributed to Executive by the Company or any affiliated company (collectively, the "Covered Payments"), would be an "excess parachute payment" as defined in Section 280G of the Code and would thereby subject Executive to the tax (the "Excise Tax") imposed under Section 4999 of the Code (or any similar tax that may hereafter be imposed), the provisions of this Article 4 shall apply to determine the amounts payable to Executive pursuant to this Agreement. 4.2. Determination of Payment Cap or Tax Adjustment. On or before the Payment Date, the Company shall notify Executive of the aggregate present value of all termination benefits to which he would be entitled under this Agreement and any other plan, program or arrangement as of the Payment Date, together with the projected maximum payments, determined as of the Payment Date that could be paid without Executive being subject to the Excise Tax. (a) Payment Cap. If the aggregate value of all compensation payments or benefits to be paid or provided to Executive under this Agreement and any other plan, agreement or arrangement with the Company is less than 105% of the amount which can be paid to Executive without Executive incurring an Excise Tax, then the amounts payable to Executive under this Agreement may, in the discretion of the Company, be reduced (but not below zero), to the maximum amount which may be paid hereunder without Executive becoming subject to such an Excise Tax (such reduced payments to be referred to as the "Payment Cap"). In the event that Executive receives reduced payments and benefits hereunder, Executive shall have the right to designate which of the payments and benefits otherwise provided for in this Agreement that he will receive in connection with the application of the Payment Cap. (b) Tax Adjustment. If the aggregate value of all compensation payments or benefits to be paid or provided to Executive under this Agreement and any other plan, agreement or arrangement with the Company is greater than 105% of the amount which can be paid to Executive without Executive incurring an Excise Tax, the Company shall pay to Executive immediately following Executive's termination of employment an additional amount (the "Tax Adjustment") such that the net amount retained by Executive with respect to such Covered Payments, after deduction of any Excise Tax on the Covered Payments and any Federal, state and local income tax and Excise Tax on the Tax Adjustment provided for by this Article 4, but before deduction for any Federal, state or local income or employment tax withholding on such Covered Payments, shall be equal to the amount of Covered Payments. 4 4.3. Assumptions. For purposes of determining whether any of the Covered Payments will be subject to the Excise Tax, and the amount of such Excise Tax, (a) Such Covered Payments will be treated as "parachute payments" within the meaning of Section 280G of the Code, and all "parachute payments" in excess of the "base amount" (as defined under Section 280G(b)(3) of the Code) shall be treated as subject to the Excise Tax, unless and except to the extent that, in the good faith judgment of the Company's independent certified public accountants appointed prior to the Effective Date or tax counsel selected by such accountants (the "Accountants"), the Company has a reasonable basis to conclude that such Covered Payments (in whole or in part) either do not constitute "parachute payments" or represent reasonable compensation for personal services actually rendered (within the meaning of Section 280G(b)(4)(B) of the Code) in excess of the "base amount," or such "parachute payments" are otherwise not subject to such Excise Tax, and (b) The value of any non-cash benefits or any deferred payment or benefit shall be determined by the Accountants in accordance with the principles of Section 280G of the Code. (c) For purposes of determining whether Executive would receive a greater net after-tax benefit were the amounts payable under this Agreement reduced in accordance with Paragraph 4.2, Executive shall be deemed to pay: (i) Federal income taxes at the highest applicable marginal rate of federal income taxation for the calendar year in which the first amounts are to be paid hereunder, and (ii) Any applicable state and local income taxes at the highest applicable marginal rate of taxation for such calendar year, net of the maximum reduction in Federal income taxes which could be obtained from the deduction of such state or local taxes if paid in such year. 4.4. Correction Following Determination. (a) Corrections For Payment Cap. If Executive receives reduced payments and benefits under this Article 4, or this Article 4 is determined not to be applicable to Executive because the Accountants conclude that Executive is not subject to any Excise Tax, and in either case it is thereafter established pursuant to a final determination and non-appealable settlement or other resolution of litigation or an Internal Revenue Service proceeding (a "Final Determination") that, notwithstanding the good faith of Executive and the Company in applying the terms of this Agreement, the aggregate of the "parachute payments" within the meaning of Section 280G of the Code paid to Executive or for his benefit are in an amount that would result in Executive being subject to an Excise Tax, then, to the extent not prohibited by applicable law, the amount equal to such excess parachute payments shall be deemed for all purposes to be a loan to Executive made on the date of receipt of such excess payments, which Executive shall have an obligation to repay to the Company on demand, together with interest on such amount at the applicable Federal rate (as defined in Section 1274(d) of the Code) from the date of the payment hereunder to the date of repayment by Executive. 5 If this Article 4 is not applied to reduce Executive's entitlements because the Accountants determine that Executive would not receive a greater net-after-tax benefit by applying this Article 4 and it is established pursuant to a Final Determination that, notwithstanding the good faith of Executive and the Company in applying the terms of this Agreement, Executive would have received a greater net-after-tax benefit by subjecting his payments and benefits hereunder to the Payment Cap, then the aggregate "parachute payments" paid to Executive or for his benefit in excess of the Payment Cap shall, to the extent not prohibited by applicable law, be deemed for all purposes a loan to Executive made on the date of receipt of such excess payments, which Executive shall have an obligation to repay to the Company on demand, together with interest on such amount at the applicable Federal rate (as defined in Section 1274(d) of the Code) from the date of the payment hereunder to the date of repayment by the Executive. If Executive receives reduced payments and benefits by reason of this Article 4 and it is established pursuant to a Final Determination that Executive could have received a greater amount without exceeding the Payment Cap, then the Company shall promptly thereafter (but in no event later than the end of the Executive's taxable year in which such Final Determination occurs) pay Executive the aggregate additional amount which could have been paid without exceeding the Payment Cap, together with interest on such amount at the applicable Federal rate (as defined in Section 1274(d) of the Code) from the original payment due date to the date of actual payment by the Company. (b) Corrections for Tax Adjustment. In the event that the Excise Tax is subsequently determined by the Accountants or pursuant to any proceeding or negotiations with the Internal Revenue Service to be less that the amount taken into account hereunder in calculating the Tax Adjustment made, Executive shall, to the extent not prohibited by applicable law, repay to the Company, at the time that the amount of such reduction in the Excise Tax is finally determined, the portion of such prior Tax Adjustment that would not have been paid if such Excise Tax had been applied in initially calculating such Tax Adjustment, plus interest on the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. Notwithstanding the foregoing, in the event any portion of the Tax Adjustment to be refunded to the Company has been paid to any Federal, state or local tax authority, repayment thereof shall not be required until actual refund or credit of such portion has been made to Executive, and interest payable to the Company shall not exceed interest received or credited to Executive by such tax authority for the period it held such portion. Executive and the Company shall mutually agree upon the course of action to be pursued (and the method of allocating the expenses thereof) if Executives good faith claim for refund or credit is denied. 6 In the event that the Excise Tax is later determined by the Accountants or pursuant to any proceeding or negotiations with the Internal Revenue Service to exceed the amount taken into account hereunder at the time the Tax Adjustment is made (including, but not limited to, by reason of any payment the existence or amount of which cannot be determined at the time of the Tax Adjustment), the Company shall make an additional Tax Adjustment in respect of such excess (plus any interest or penalty payable with respect to such excess) at the time that the amount of such excess is the subject of a Final Determination, but in no event later than (A) the end of the taxable year next following the year of the Final Determination if there was no additional payment required to the taxing authority by the Executive or (B) the end of the year next following the year in which the taxes that are the subject of the Final Determination are remitted to the taxing authority by the Executive. 4.5. Timing of Payment of Tax Adjustment. Except as provided in section 4.4, any Tax Adjustment (or portion thereof) provided for in Article 4 shall be paid to Executive not later than 10 business days following the Payment Date; provided, however, that if the amount of such Tax Adjustment (or portion thereof) cannot be finally determined on or before the date on which payment is due, the Company shall pay to Executive by such date an amount estimated in good faith by the Accountants to be the minimum amount of such Tax Adjustment and shall pay the remainder of such Tax Adjustment (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code) as soon as the amount thereof can be determined, but in no event later than the end of the Executive's taxable year following the year in which the Executive remits the related taxes to the applicable taxing authority or by such later time as is provided for above in the case of a Final Determination. In the event that the amount of the estimated Tax Adjustment exceeds the amount subsequently determined to have been due, such excess shall, to the extent not prohibited by applicable law, constitute a loan by the Company to Executive, payable on the fifth business day after written demand by the Company for payment (together with interest at the rate provided in Section (1274(b)(2)(B) of the Code.) 7 ARTICLE 5 BENEFIT PLAN If (a) following a Potential Change in Control but prior to a Change in Control (provided a Change in Control occurs within twelve months after the Potential Change in Control) or (b) within a one and one-half (1 1/2 ) year period after a Change In Control shall have occurred, Executive's employment shall have terminated for any reason, including, but not limited to, Termination for good Reason, except for death, voluntary retirement or for Cause, then, for one year after the Payment Date, the Company shall maintain in full force and effect and Executive shall continue to participate in all group life, health and accident and disability insurance, and other employee welfare benefit plans, programs and arrangements in which Executive was entitled to participate immediately prior to the Date of Employment Termination, provided that continued participation is possible under the general terms and provisions of such plans, programs and arrangements. If participation is barred, or an applicable plan, program or arrangement is discontinued or the benefits thereunder are materially reduced, the Company shall arrange to provide Executive with benefits substantially similar to those which he was entitled to receive immediately prior to the Date of Employment Termination. The foregoing shall not be deemed to apply to the EDO Corporation Employees Pension Plan or the EDO Corporation Employee Stock Ownership and Employee Investment Plan. ARTICLE 6 NO MITIGATION REQUIRED Executive shall not be required to mitigate the amount of any payment or benefit provided for in this Agreement by seeking other employment or otherwise, nor shall the amount of any payment or benefit so provided for be reduced by any compensation earned by him as the result of employment by another employer after the Date of Employment Termination, or otherwise. ARTICLE 7 DEFINITION OF "CHANGE IN CONTROL" AND "POTENTIAL CHANGE IN CONTROL" 7.1. Change in Control. A "Change in Control" occurs on the first to occur of any of the following: (a) The date that any one person, or more than one person acting as a Group (other than the Company, its subsidiaries, or any employee benefit plan of the Company or its subsidiaries) (a "person"), acquires ownership of stock of the Company that, together with stock held by such person or Group, constitutes more than 50 percent of the total fair market value or total voting power of the stock of the Company; provided that, if any one person, or Group owns more than 50 percent of the total fair market value or total voting power of the stock of the Company, the acquisition of additional stock by the same person or persons in the Group is not a subsequent Change in Control; 8 (b) The date any person, or Group, acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such person or Group) ownership of stock of the Company possessing 30 percent or more of the total voting power of the stock of the Company, or (c) The date a majority of members of the Company's board of directors is replaced during any 12-month period by directors whose appointment or election is not endorsed by a majority of the members of the Company's board of directors before the date of the appointment or election. For purposes of this Paragraph 7.1, an increase in the percentage of stock owned by any one person, or Group as a result of a transaction in which the Company acquires its own stock in exchange for property will be treated as an acquisition of stock of the Company by a person or Group. The transfer of stock of the Company (or issuance of stock by the Company) will be considered only if such stock remains outstanding after the applicable transaction. Notwithstanding the foregoing, no event set forth in this Section 7.1 shall be a Change in Control unless such even constitutes a "change in control" within the meaning of Section 409A of the Code and the regulations promulgated thereunder. 7.2 Potential Change in Control. A "Potential Change in Control" occurs if: (a) A person hereafter becomes the beneficial owner of securities of the Company having at least 25% of the total number of votes that may be cast for the election of directors of the Company, or (b) any person holds a 15% beneficial ownership interest on the date hereof and there occurs an increase in such person's beneficial ownership of such number of securities of the Company as shall increase the beneficial ownership by such person by an additional 1% of the total number of votes that may be cast for the election of directors of the Company, or (c) a Person commences a tender offer for at least 25% of the outstanding shares of the Company's common stock, or (d) approval of any corporate transaction is requested of shareholders, which, if obtained, would result in a Change in Control occurring, or (e) any person solicits proxies for the election of more than one member of the Board (other than for any such election or nomination for election that is approved by the then current Board). 7.3 Group. Determination of the existence of a "Group" for purposes of this Article 7 shall be determined under the provisions of Treasury Regulation ss. 1.409A-3(i)(5)(v)(B). The terms herein shall be interpreted in a manner consistent with the provisions of Treasury Regulation ss. 1.409A-3. 9 ARTICLE 8 TERMINATION FOR CAUSE 10.1. If the Executive's employment is terminated by the Company for Cause, the Company shall pay the Executive his full base salary through the Date of Employment Termination (at the rate in effect as of the Date of Employment Termination), and the Company shall have no further obligations to the Executive under this Agreement. 10.2. The following are the only reasons for which the Company may terminate Executive's service for Cause without further obligations under this Agreement: - for failure to consistently meet the performance objectives set for the Executive as determined in the reasonable discretion of the Board of Directors - for providing the Company with materially false reports concerning Executive's business interests or employment-related activities; - for making materially false representations relied upon by the Company in furnishing information to shareholders, a stock exchange, or the Securities and Exchange Commission; - for maintaining an undisclosed, unauthorized and material conflict of interest in the discharge of duties owed by Executive to the Company; - for misconduct causing a serious violation by the Company of state or federal laws or violation of a material written policy of the Company; - for theft of Company funds or corporate assets; or - for conviction of a crime (excluding traffic violations or similar misdemeanors). ARTICLE 9 DEFINITION OF "TERMINATION FOR GOOD REASON" "Termination for Good Reason" shall mean termination of Executive's employment by Executive following or in connection with: (i) without the express advance written consent of Executive, (a) the assignment to Executive of any duties inconsistent in any substantial respect with the position, authority or responsibilities of Executive immediately prior to the earlier to occur of a Potential Change in Control or a Change in Control or (b) any other substantial change in such position, including titles, authority or responsibilities, or 10 (ii) during the one and one-half (1-1/2) year period following a Change in Control or during a period of Potential Change in Control, any reduction in Executive's salary or any reduction in bonus or incentive compensation targets (based upon the highest dollar amount or other rate of salary, bonus and incentive compensation in effect at any time up to Date of Employment Termination), a termination, reduction or alteration of disability policies or life or disability insurance benefits maintained for Executive, any alteration or reduction of expense allowances or reimbursement policies or a significant reduction in scope or value of the aggregate other benefits to which Executive was entitled immediately prior to the earlier to occur of a Potential Change in Control or a Change in Control, or (iii) the Company's requiring Executive to be based at any office or location more than 50 miles from the one where he worked immediately prior to the earlier to occur of a Potential Change in Control or a Change in Control, except for travel reasonably required in the performance of Executives responsibilities, or (iv) any purported termination by the Company of Executive's employment otherwise than as permitted by this Agreement, it being understood that any such purported termination shall not be effective for any purpose of this Agreement, or (v) any failure by the Company to obtain the assumption and agreement to perform this Agreement by a successor as contemplated by paragraph 11.1. ARTICLE 10 SPECIAL CORPORATE RELOCATION PROVISION In event that the Company should relocate its principal Corporate office to a location more than 100 miles outside of the current New York City (Manhattan) location, and the executive is either not offered relocation to the location or elects of her own accord to not relocate to the new location, Executive shall be entitled to elect "Termination for Good Reason" and receive separation pay equal to 36 months of salary in effect at the time of separation, as well as the other benefits as stated specifically in this agreement. This relocation provision does not require a Change-in-Control, nor potential Change-in-Control to have occurred. It remains in effect in the event of a Change-in-Control, however, the 36-month benefit is in place of the 18-month provision, not in addition to. All other benefits would remain in place as stated. 11 ARTICLE 11 SUCCESSORS, BINDING AGREEMENT 11.1. The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company, by agreement in form and substance satisfactory to Executive, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle Executive to compensation from the Company in the same amount and on the same terms as Executive would be entitled hereunder if the Company had terminated Executive's employment other than for Cause after a Change in Control occurring at the time of succession, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Employment Termination. 11.2. As used in this Agreement, "Company" shall include any successor to this business and/or assets as aforesaid which executes and delivers the agreement provided for in paragraph 10.1 or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law. 11.3. This Agreement shall inure to the benefit of, and be enforceable by, Executive's personal or legal representatives, executors, administrators, successors, heirs, distributes, devisees and legatees. If Executive should die while any amounts would still be payable if he had continues to live, all such amounts shall be paid in accordance with the terms of this Agreement to Executive's devisee, legatee, or other designee or, if there be no such designee, to his estate. ARTICLE 12 MISCELLANEOUS PROVISIONS 12.1. Date of Employment Termination is the date on which Executive experiences a "separation from service" within the meaning of Treasury Regulation ss.1.409A-1(h) (1). 12.2. Notice and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth on the first page of this Agreement, provided that all notices to the Company shall be directed to the attention of the corporate counsel, or to such other address as either party may have furnished to the other in writing in accordance herewith. Notices of change of address shall be effective only upon receipt. 12.3. This Agreement supersedes any other agreement on the subject matter hereof executed by the parties hereto. No provisions of this Agreement may be modified, waived or discharged unless such modification, waiver or discharge is agreed to in writing signed by Executive and, on behalf of the Company, by such officer as may be specifically designated by the Board. 12 12.4. All benefits provided for in this Agreement are provided on an unfunded basis and are not intended to meet the qualification requirements of Section 401 of the Code. The Company shall not be deemed to be a trustee of any amounts to be paid under this Agreement and shall not be required to segregate any assets with respect to benefits under this Agreement. Such benefits shall be payable solely from the general assets of the Company. 12.5. Any failure at any time of either party to enforce any provision of this Agreement shall not constitute a waiver of such provision, or prejudice the right of either party to enforce such provision at any subsequent time. 12.6. No agreements or representations, oral or otherwise, expressed or implied, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement. 12.7. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of New York. 12.8. The invalidity or unenforceability of any one or more provisions of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 12.9. In the event of any action or proceeding between the parties arising out of this agreement, the Company will pay the costs of any such legal proceedings including, but not limited to, the costs of Executive for all expenses, including attorneys' fees, incurred in such action or proceeding. Such costs and expenses shall be advanced to Executive currently as reasonably required to continue such action or proceeding. EDO CORPORATION By: /s/ Patricia D. Comiskey -------------------------------- Patricia D. Comiskey Senior Vice President - Human Resources EXECUTIVE: /s/ Lisa Palumbo ---------------------------------- Lisa Palumbo 13 EX-31.1 9 a5534801ex311.txt EXHIBIT 31.1 EXHIBIT 31.1 Certification I, James M. Smith, certify that: 1. I have reviewed this quarterly report on Form 10-Q of EDO Corporation (the "Registrant"); 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report; 4. The Registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d - 15(f)) for the Registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the Registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the Registrant's internal control over financial reporting that occurred during the Registrant's most recent fiscal quarter (the Registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting; and 5. The Registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant's auditors and the 5 audit committee of the Registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal control over financial reporting. Date: November 5, 2007 /s/ JAMES M. SMITH ---------------------------------------- Title: Chairman, President and Chief Executive Officer EX-31.2 10 a5534801ex312.txt EXHIBIT 31.2 EXHIBIT 31.2 Certification I, Frederic B. Bassett, certify that: 1. I have reviewed this quarterly report on Form 10-Q of EDO Corporation (the "Registrant"); 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report; 4. The Registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d - 15(f)) for the Registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the Registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the Registrant's internal control over financial reporting that occurred during the Registrant's most recent fiscal quarter (the Registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting; and 5. The Registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant's auditors and the audit committee of the Registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal control over financial reporting. Date: November 5, 2007 /s/ FREDERIC B. BASSETT ---------------------------------------- Title: Senior Vice President-Finance, Treasurer and Chief Financial Officer EX-32 11 a5534801ex32.txt EXHIBIT 32 EXHIBIT 32 Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code), each of the undersigned officers of EDO Corporation, a New York corporation (the "Company"), does hereby certify that: The Quarterly Report on Form 10-Q for the quarter ended September 29, 2007 (the "Form 10-Q") of the Company fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ JAMES M. SMITH Dated: November 5, 2007 ---------------------------------------- Name: James M. Smith Title: Chairman, President and Chief Executive Officer /s/ FREDERIC B. BASSETT Dated: November 5, 2007 ---------------------------------------- Name: Frederic B. Bassett Title: Senior Vice President-Finance, Treasurer and Chief Financial Officer A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----