Sparton Corporation and EPA Agree on Plan for Coors Road Facility

Sparton Corporation and the United States Environmental Protection Agency (EPA), along with other governmental plaintiffs, lodged with the United States District Court in Albuquerque, New Mexico the final terms of a Consent Decree (Agreement) to resolve all outstanding litigation among the parties related to the February 10, 1998 Administrative Order and all related issues for the remediation at the Coors Road facility located in Albuquerque, New Mexico.

In 1961, Sparton Corporation began operations at the Coors Road facility producing sophisticated nuclear related switching devices. Plating was a part of this manufacturing process. In 1983, Sparton discovered leakage in the holding ponds that were used to accumulate the waste generated from this plating process. Since 1983, Sparton has spent approximately $10,000,000 on a series of tasks designed to investigate and remediate the plume of pollution both on and off the facility. Of the $10,000,000, $3,000,000 has been recovered from insurance carriers.

This Agreement between Sparton and related agencies is subject to a 30-day public review and comment period before it can become effective. The Agreement outlines several work plans providing for the installation of an off-site containment well (already completed and operating), an on-site containment well and an enhancement to an on-site soil vapor extraction system (in operation). The purpose of the containment wells is to restrict further migration of impacted groundwater. The soil vapor extraction system removes solvents in the on-site soil above groundwater.

It is anticipated that these remediation activities will operate for a period of time during which Sparton and the regulatory agencies will analyze their effectiveness. Sparton believes that it will take at least three to five years before the effectiveness of the groundwater extraction wells can be established. Until then, in the Sparton's judgment, no definitive conclusion can be reached as to whether or not additional remediation activities may be required. It is expected, however, that the operation of these remediation efforts will probably continue for 20 to 30 years, or more.

As a result of reaching this Agreement, Sparton will record a $10,000, 000 pre-tax charge to operations in the second quarter of Fiscal 2000. This charge includes $1,675,000 to resolve claims for damages to natural resources, civil penalties and costs, payable to the various governmental agencies as part of the settlement. The charge does not reflect the impact, if any, of the various claims for reimbursement and recovery now being pursued by Sparton against its insurance companies, several prime contractors and the U.S. Department of Energy (DOE).

At December 31, 1999, Sparton's accrual for the Coors Road EPA remediation will approximate $11,300,000 of which $2,000,000 is expected to be incurred over the next 12 months, with the remainder incurred somewhat evenly over the next 29 years. Beyond the initial pre-tax charge to operations and cash payment, Sparton does not anticipate that the described workplans will have a material adverse impact on either the Company's liquidity or annual results of operations. These cost estimates have the potential of being revised upward or downward in the future.