<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 27, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10/A
AMENDMENT NO. 1
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR (g) OF
THE SECURITIES EXCHANGE ACT OF 1934
----------------
PRIMEX TECHNOLOGIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
VIRGINIA 06-1458069
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
10101 NINTH STREET NORTH 33716-3807
ST. PETERSBURG, FLORIDA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
Registrant's telephone number, including area code:
(813) 578-8100
----------------
Securities to be registered pursuant to Section 12(b) of the Act:
None
Securities to be Registered Pursuant to Section 12(g) of the Act:
<TABLE>
<CAPTION>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH
TO BE SO REGISTERED EACH CLASS IS TO BE REGISTERED
------------------- ------------------------------
<S> <C>
Common Stock, The Nasdaq National Market System
par value $1.00 per share
Series A Participating Cumulative The Nasdaq National Market System
Preferred Stock Purchase Rights
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PRIMEX TECHNOLOGIES, INC.
INFORMATION INCLUDED IN INFORMATION STATEMENT
AND INCORPORATED IN FORM 10 BY REFERENCE
CROSS-REFERENCE SHEET BETWEEN INFORMATION STATEMENT
AND ITEMS OF FORM 10
<TABLE>
<CAPTION>
ITEM
NO. CAPTION LOCATION IN INFORMATION STATEMENT
---- ------- ---------------------------------
<C> <S> <C>
1. Business...................................... "Summary"; "The Distribution"; "Risk
Factors"; "Business"; and
"Management's Discussion and Analysis
of Financial Condition and Results of
Operations".
2. Financial Information......................... "Summary"; "The Distribution";
"Selected Financial and Operating
Data"; and "Management's Discussion
and Analysis of Financial Condition
and Results of Operations".
3. Properties.................................... "Properties".
4. Security Ownership of Certain Beneficial
Owners and Management........................ "The Distribution" and "Beneficial
Ownership".
5. Directors and Executive Officers.............. "Management and Executive
Compensation" and "Liability and
Indemnification of Officers and
Directors".
6. Executive Compensation........................ "Management and Executive
Compensation".
7. Certain Relationships and Related
Transactions................................. "Summary"; "The Distribution";
"Relationship between Olin and the
Company after the Distribution"; and
"Certain Relationships and Related
Transactions".
8. Legal Proceedings............................. "Legal Proceedings".
9. Market Price of and Dividends on the
Registrant's Common Equity and Related
Stockholder Matters.......................... "Summary"; "The Distribution"; "Risk
Factors"; and "Dividend Policy".
10. Recent Sales of Unregistered Securities....... Not Applicable.
11. Description of Registrant's Securities
to be Registered............................. "The Distribution"; "Dividend Policy";
"Description of Capital Stock"; and
"Rights Plan".
12. Indemnification of Directors and Officers..... "Liability and Indemnification of
Officers and Directors".
13. Financial Statements and Supplementary Data... "Summary"; "Selected Financial and
Operating Data"; and "Management's
Discussion and Analysis of Financial
Condition and Results of Operations".
14. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure....... Not Applicable.
15. Financial Statements and Exhibits............. "Selected Financial and Operating
Data"; "Index to Financial
Statements"; and "Index to Exhibits".
</TABLE>
1
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the registrant has duly caused this amendment to the registrant's
registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized.
PRIMEX TECHNOLOGIES, INC.
(Registrant)
/s/ Johnnie M. Jackson, Jr.
By:__________________________________
Name: Johnnie M. Jackson, Jr.
Title: Vice President and
Secretary
Date: November 27, 1996
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
EXHIBITS TO
FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
UNDER
THE SECURITIES EXCHANGE ACT OF 1934
----------------
PRIMEX TECHNOLOGIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
2 Distribution Agreement*
Amended and Restated Articles of Incorporation of Primex Technologies,
3.1 Inc.*
3.2 Amended and Restated By-laws of Primex Technologies, Inc.*
4.1 Specimen Common Share certificate*
4.2 Amended and Restated Articles of Incorporation of Primex Technologies,
Inc. (filed as Exhibit 3.1 hereto)*
Amended and Restated By-laws of Primex Technologies, Inc. (filed as
4.3 Exhibit 3.2 hereto)*
4.4 Rights Agreement between Primex Technologies, Inc. and ChaseMellon
Shareholder Services, L.L.C., as Rights Agent*
4.5 Form of Articles of Amendment of the Articles of Incorporation of
Primex Technologies, Inc. (attached as Exhibit A to the Rights
Agreement filed as Exhibit 4.4 hereto)*
Form of Right Certificate (attached as Exhibit B to the Rights
4.6 Agreement filed as Exhibit 4.4 hereto)*
10.1 Distribution Agreement (filed as Exhibit 2 hereto)*
10.2 Technology Transfer and License Agreement*
10.3 Tax Sharing Agreement*
10.4 Powder Supply Requirements Agreement*
10.5 Ball Powder Assignment Agreement*
10.6 Assumption of Liability and Indemnity Agreement*
10.7 Covenant Not to Compete Agreement*
10.8 Raufoss Technology Agreement*
10.9 Primex Technologies, Inc. Stock Plan for Nonemployee Directors*
10.10 Primex 1996 Long Term Incentive Plan*
10.11 Form of Executive Agreement*
10.12 Credit Agreement*
10.13 Trade Name License Agreement*
21 List of Subsidiaries of Primex Technologies, Inc.*
27 Financial Data Schedule**
Primex Technologies, Inc., Information Statement dated December ,
99.1 1996**
</TABLE>
- --------
* To be filed by amendment.
** Filed herewith.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information extracted from the
Financial Statements contained in the Information Statement for the periods
ended September 30, 1996 and December 31, 1995 and is qualified in its entirety
by reference to such Financial Statements. Figures are rounded to the nearest
1,000 (except EPS).
</LEGEND>
<MULTIPLIER>1,000
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995
<PERIOD-END> SEP-30-1996 DEC-31-1995
<CASH> $0 $0
<SECURITIES> 0 0
<RECEIVABLES> 126,504 153,076
<ALLOWANCES> 0 0
<INVENTORY> 49,122 49,763
<CURRENT-ASSETS> 185,712 209,426
<PP&E> 249,058 256,098
<DEPRECIATION> (145,765) (141,625)
<TOTAL-ASSETS> 351,812 380,979
<CURRENT-LIABILITIES> 165,702 191,493
<BONDS> 0 0
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 157,757 158,535
<TOTAL-LIABILITY-AND-EQUITY> 351,812 380,979
<SALES> 328,775 508,113
<TOTAL-REVENUES> 328,775 508,113
<CGS> 277,016 428,707
<TOTAL-COSTS> 277,016 428,707
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 6,943 9,276
<INCOME-PRETAX> (6,841) 12,624
<INCOME-TAX> 908 6,963
<INCOME-CONTINUING> (7,749) 5,661
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (7,749) 5,661
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
<PAGE>
OLIN CORPORATION
501 MERRITT 7
P.O. BOX 4500
NORWALK, CT 06856-4500
December , 1996
Dear Shareholder:
I am pleased to report that the previously announced spin-off of our
ordnance and aerospace businesses is expected to become effective on December
31, 1996. Primex Technologies, Inc., a recently-formed Virginia corporation
which now owns all of Olin's former ordnance and aerospace businesses
("Primex"), will commence operations on the following day as an independent
public company whose shares will be included in the Nasdaq National Market
System under the symbol PRMX.
Holders of Olin Common Stock of record as of the close of business on
December , 1996, will receive one Primex common share for every ten shares of
Olin Common Stock held.
Mailing of the Primex stock certificates will begin on January , 1997; no
action is required on your part to receive your Primex shares. You will not be
required either to pay anything for the new shares or to surrender any Olin
shares. No fractional shares of Primex stock will be issued. If you otherwise
would be entitled to a fractional share you will receive a check for the cash
value thereof, which may be taxable to you. In due course you will be provided
with information to enable you to compute your tax basis in both Olin and
Primex stock. For U.S. federal income tax purposes, Olin has received an
opinion of counsel that the distribution of the new Primex shares is tax-free
to Olin and to you to the extent that you receive Primex shares.
The enclosed Information Statement describes the distribution in detail and
contains important information about Primex, including financial statements. I
suggest that you read it carefully. If you have questions regarding the
distribution, please contact Richard Koch, Vice President-Investor Relations
at the following telephone number: (203) 750-3254.
I believe the distribution of Primex shares will serve the business
interests of both Olin and Primex. This action is demonstrative of and in
keeping with Olin's goal of further increasing shareholder value.
Sincerely,
Donald W. Griffin
Chairman of the Board, President &
Chief Executive Officer
<PAGE>
SUBJECT TO COMPLETION OR AMENDMENT, DATED NOVEMBER 27, 1996
INFORMATION STATEMENT
PRIMEX TECHNOLOGIES, INC.
DISTRIBUTION OF APPROXIMATELY 4,996,372 SHARES OF COMMON STOCK
This Information Statement is being furnished in connection with the
distribution (the "Distribution") by Olin Corporation ("Olin") to holders of
its common stock, par value $1.00 per share ("Olin Common Stock"), of all the
outstanding shares of common stock, par value $1.00 per share ("Company Common
Stock") of Primex Technologies, Inc. (the "Company"). Olin has transferred or
will transfer to the Company all of the ordnance and aerospace businesses
formerly conducted by Olin. See "Business".
Shares of Company Common Stock will be distributed to holders of Olin Common
Stock of record as of the close of business on December , 1996 (the "Record
Date"). Each such holder will receive one share of Company Common Stock for
every ten shares of Olin Common Stock held on the Record Date. The
Distribution will be effective at 12:00 midnight on December 31, 1996, with
the distribution of Company stock certificates commencing January , 1997. No
consideration will be paid by Olin's shareholders for shares of Company Common
Stock. There is no current trading market for Company Common Stock. However,
the Company Common Stock has been approved for quotation on the Nasdaq
National Market System, subject to official notice of issuance.
In reviewing this Information Statement, you should carefully consider the
matters described under the caption "Risk Factors" on pages 10-11.
----------------
NO SHAREHOLDER APPROVAL OF THE DISTRIBUTION IS REQUIRED OR SOUGHT.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE
REQUESTED NOT TO SEND US A PROXY.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
INFORMATION STATEMENT. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
----------------
Shareholders of Olin with inquiries related to the Distribution should
contact Investor Relations, Olin Corporation, 501 Merritt 7, P.O. Box 4500,
Norwalk, Connecticut 06856-4500, telephone (203) 750-3254, or Olin's stock
transfer agent, ChaseMellon Shareholder Services, L.L.C., 85 Challenger Road,
Ridgefield Park, New Jersey, 07660, telephone (800) 306-8594.
The date of this Information Statement is December , 1996.
<PAGE>
INFORMATION STATEMENT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY............................................................... 1
THE DISTRIBUTION...................................................... 6
General............................................................. 6
Manner of Effecting the Distribution................................ 6
Reasons for the Distribution........................................ 6
Results of the Distribution......................................... 7
Federal Income Tax Consequences of the Distribution................. 7
Listing and Trading of Company Common Stock......................... 9
Third Party Consents; Regulatory Approvals.......................... 9
Reasons for Furnishing the Information Statement.................... 9
RISK FACTORS.......................................................... 10
Current Operating Losses............................................ 10
Dependence on Sales to the U.S. Government.......................... 10
Risks Inherent in U.S. Government Contracting....................... 10
Company Dividend Policy............................................. 11
Absence of Trading Market for Company Stock......................... 11
Changes in Trading Prices of Olin Common Stock...................... 11
Competition......................................................... 11
DIVIDEND POLICY....................................................... 11
CAPITALIZATION........................................................ 12
SELECTED FINANCIAL AND OPERATING DATA................................. 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.................................. 14
BUSINESS.............................................................. 21
General............................................................. 21
Products and Services............................................... 22
Customers........................................................... 25
Raw Materials and Supplies.......................................... 25
U.S. Government Contracts and Regulations........................... 25
Novation of U.S. Government Contracts............................... 27
Competition......................................................... 28
Research and Development; Patents................................... 28
Backlog............................................................. 28
Export Sales........................................................ 29
Seasonality......................................................... 29
Employees........................................................... 29
Environmental Matters............................................... 29
Credit Facility..................................................... 29
PROPERTIES............................................................ 30
Principal Manufacturing Facilities.................................. 30
LEGAL PROCEEDINGS..................................................... 32
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
RELATIONSHIP BETWEEN OLIN AND THE COMPANY AFTER THE
DISTRIBUTION........................................................ 33
Distribution Agreement............................................. 33
Technology Transfer and License Agreement.......................... 34
Tax Sharing Agreement.............................................. 34
Powder Supply Requirements Agreement; Component Supply Agreement... 34
Ball Powder(R) Assignment Agreement................................ 35
Browning Distribution Agreement.................................... 35
Assumption of Liabilities and Indemnity Agreement.................. 35
Transition Services Agreement...................................... 35
Covenant Not To Compete Agreement.................................. 35
Raufoss Technology Agreement....................................... 35
Australia Agency Agreement......................................... 36
Olin Name Use Agreement............................................ 36
Primex Directors................................................... 36
MANAGEMENT AND EXECUTIVE COMPENSATION................................ 37
Board of Directors................................................. 37
Committees of the Board of Directors............................... 38
Compensation of Directors.......................................... 38
Executive Officers of the Company.................................. 39
Compensation of Executive Officers................................. 40
Adjustment to Prior Olin Equity-Based Benefits for Company Employ-
ees............................................................... 43
Stock Plan for Nonemployee Directors............................... 43
Pension and Savings Plan........................................... 43
Primex 1996 Long Term Incentive Plan............................... 45
Supplemental Plans................................................. 46
Retiree Medical and Life Insurance Benefits........................ 46
Other Benefits..................................................... 47
Executive Agreements............................................... 47
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER
PARTICIPATION....................................................... 47
BENEFICIAL OWNERSHIP................................................. 48
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS....................... 49
DESCRIPTION OF CAPITAL STOCK......................................... 49
Authorized Capital Stock........................................... 49
Common Stock....................................................... 49
Preferred Stock.................................................... 49
Authorized But Unissued Capital Stock.............................. 50
Rights............................................................. 50
No Preemptive Rights............................................... 50
Certain Provisions of the Articles of By-laws...................... 50
RIGHTS PLAN.......................................................... 51
LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS.............. 52
AVAILABLE INFORMATION................................................ 53
INDEX TO COMBINED FINANCIAL STATEMENTS............................... F-1
</TABLE>
iii
<PAGE>
SUMMARY
The following is a summary of certain information contained in this
Information Statement. This summary is included for convenience only and should
not be considered complete. This Summary is qualified in its entirety by the
more detailed information contained elsewhere in this Information Statement
which should be read in its entirety. Certain capitalized terms used in this
Summary are defined elsewhere in this Information Statement.
THE DISTRIBUTION
DISTRIBUTING COMPANY........ Olin Corporation ("Olin"). References to Olin
include its consolidated subsidiaries except
where the context otherwise requires.
DISTRIBUTED COMPANY......... Primex Technologies, Inc., a Virginia corporation
(the "Company"), which will own all of the
ordnance and aerospace businesses formerly
operated by Olin (the "Ordnance/Aerospace
Business"). References herein to the Company
prior to the Distribution means the Ordnance
Division and the Aerospace Division of Olin
conducting the Ordnance/Aerospace Business. See
"Business".
DISTRIBUTION RATIO.......... Each holder of Olin Common Stock will receive a
dividend of one share of Company Common Stock for
every ten shares of Olin Common Stock held on the
Record Date (the "Distribution Ratio").
SECURITIES TO BE
DISTRIBUTED................ Based on 49,963,728 shares of Olin Common Stock
outstanding on October 31, 1996, as adjusted to
reflect a two-for-one stock split effective
October 31, 1996, approximately 4,996,372 shares
of Company Common Stock (plus associated rights
pursuant to a Shareholders Rights Plan) (the
"Rights" and, collectively with the Company
Common Stock, the "Shares") will be distributed.
The Shares to be distributed will constitute all
of the outstanding Shares of the Company
immediately after the Distribution. No action is
required by an Olin shareholder to receive the
Company Common Stock to which an Olin shareholder
is entitled.
FRACTIONAL SHARES........... Fractional Shares will not be distributed.
Fractional Shares will be aggregated and sold in
the public market by the Distribution Agent and
the aggregate net cash proceeds will be
distributed ratably to those shareholders
entitled to fractional interests. See "The
Distribution--Manner of Effecting the
Distribution".
DISTRIBUTION RECORD DATE.... December , 1996 (close of business).
DISTRIBUTION DATE........... January , 1997.
DISTRIBUTION AGENT,
TRANSFER AGENT AND ChaseMellon Shareholder Services, L.L.C. (the
REGISTRAR FOR THE SHARES... "Distribution Agent") will be the Distribution
Agent, Transfer Agent and Registrar for the
Shares.
FEDERAL INCOME TAX
CONSEQUENCES OF THE Olin and the Company have received an opinion of
DISTRIBUTION............... counsel that for Federal income tax purposes the
receipt of Shares by Olin
1
<PAGE>
shareholders will be tax-free. No gain or loss
will be recognized by Olin on the Distribution.
Such opinion is subject to certain factual
representations and assumptions. No ruling has
been or will be sought from the Internal Revenue
Service with respect to the Federal income tax
consequences of the Distribution. See "The
Distribution--Federal Income Tax Consequences of
the Distribution".
STOCK EXCHANGE LISTING...... There is not currently a public market for the
Company Common Stock. However, the Company Common
Stock has been approved for inclusion in the
Nasdaq National Market System ("Nasdaq"), subject
to official notice of issuance, under the symbol
PRMX. It is possible that trading may commence on
a "when-issued" basis prior to the Distribution.
On the first Nasdaq trading day following the
Distribution Date, "when-issued" trading in
respect of Company Common Stock will end and
"regular-way" trading will begin. See "The
Distribution--Listing and Trading of Company
Common Stock".
COMPANY INDEBTEDNESS........
Prior to the Distribution, the Company will
assume a $160 million credit facility established
by Olin, under which Olin will borrow $125
million. Amounts to be borrowed by Olin will be
used to reduce its own borrowings. The credit
facility will have a five-year term and permits
borrowings thereunder with up to $ ,000
available for letters of credit. The facility is
intended to provide sufficient liquidity for the
Company's current funding needs. The facility
will permit various borrowing options and
contains customary commercial bank covenants,
including restrictions on the payment of
dividends by the Company and the acquisition by
the Company of its capital stock. See "Business--
Credit Facility".
RELATIONSHIP WITH OLIN
AFTER THE DISTRIBUTION.....
Following the Distribution, the Company will be
an independent public company and Olin will have
no continuing stock ownership interest in the
Company. The current chief financial officer of
Olin will serve as one of the Directors of the
Company following the Distribution. No officer of
Olin or the Company will be an officer of the
other following the Distribution. The Company and
Olin will enter into various agreements for the
purpose of accomplishing the Distribution,
governing their relationship subsequent to the
Distribution and providing for the allocation of
tax and certain other liabilities and obligations
attributable to periods prior to the
Distribution. These include agreements providing
for the transfer of assets and the assumption of
certain liabilities of Olin prior to the
Distribution by the Company, the transfer of
certain technologies to the Company by Olin, the
transfer of Olin's Ball Powder(R) trademark to
the Company, the supply of propellant powder to
Olin by the Company following the Distribution,
the agreements by Olin and the Company not to
compete with each other in certain businesses
following the Distribution and agreements
providing for the novation of certain contracts
with the U.S. Government to which
2
<PAGE>
Olin is a party. The Company and Olin will also
enter into an indemnification agreement whereby
the Company generally has indemnified Olin
against liabilities, litigation and claims
arising out of the Ordnance/Aerospace Business,
as well as costs associated with the removal,
remediation or control of environmental
conditions relating to certain of the Company's
existing and former plant sites, and Olin
generally will indemnify the Company against
liabilities, litigation and claims arising out of
Olin's other businesses following the
Distribution. See "Relationship Between Olin and
the Company After the Distribution";
"Management's Discussion and Analysis of
Financial Condition and Results of Operations--
Environmental Matters"; "Business--Environmental
Matters".
DIVIDEND POLICY............. The payment and level of cash dividends by the
Company after the Distribution will be subject to
the discretion of the Board of Directors of the
Company (the "Board"). Olin currently anticipates
that the Company will initially pay quarterly
cash dividends which, on an annual basis, will
aggregate $0.60 per Share. However, future
dividend decisions will be based on, and affected
by, a number of factors, including the operating
results and financial requirements of the Company
on an independent basis. See "The Distribution--
Dividend Policy".
CERTAIN PROVISIONS OF THE
COMPANY'S ARTICLES AND BY-
LAWS; RIGHTS AGREEMENT.....
Certain provisions of the Company's Amended and
Restated Articles of Incorporation (the
"Articles") and Amended and Restated By-laws (the
"By-laws"), as each will be in effect following
the Distribution, may have the effect of making
more difficult an acquisition of control of the
Company in a transaction not approved by the
Board. The Articles authorize the Board to issue
up to 10,000,000 shares of preferred stock in one
or more series and to fix the relative rights and
preferences and the voting powers of the shares
of any such series. See "Description of Capital
Stock--Preferred Stock". The Board consists of
three classes of directors, each of which serves
for three years. The Company's By-laws require
that shareholders give the Secretary of the
Company notice of shareholder nominees for
election as a director no later than 90 days
before an annual meeting of shareholders or seven
days following notice of a special meeting of
shareholders for election of directors. Special
meetings of shareholders may be called only by
the Board or designated officers of the Company.
Directors may be removed only with cause and
vacancies on the Board may be filled only by the
Board unless the vacancy is to be filled at an
annual meeting of shareholders. See "Description
of Capital Stock--Certain Provisions of Articles
and By-laws". The Rights Agreement described
elsewhere herein will also make more difficult an
acquisition of control of the Company in a
transaction not approved by the Board. See
"Rights Plan". The Company has elected to "opt
out" of coverage under Article 14.1 of the
Virginia Stock
3
<PAGE>
Corporation Act, which imposes restrictions on
the voting rights of certain significant
shareholders. See "Description of Capital Stock--
Certain Provisions of the Articles and By-laws".
RISK FACTORS................
Stockholders should consider certain factors
including recent operating losses, the importance
to the Company of its defense contracting
business and possible changes in national defense
policies, and risks associated with Government
contracting as discussed under "Risk Factors".
PRINCIPAL OFFICE OF THE 10101 Ninth Street North St. Petersburg, Florida
COMPANY.................... 33716-3807
4
<PAGE>
PRIMEX TECHNOLOGIES, INC.
SUMMARY FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS)
The historical financial information presented below summarizes certain
financial information of the Company and is derived from the Combined Financial
Statements of the Company. Such historical financial data may not be indicative
of the Company's future performance as an independent company. The summary data
presented below should be read in conjunction with the Combined Financial
Statements and Notes thereto and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this
Information Statement.
<TABLE>
<CAPTION>
UNAUDITED
NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
------------------- ----------------------------
1996(/1/) 1995 1995(/1/) 1994 1993(/2/)
--------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Sales......................... $328,775 $359,582 $508,113 $416,148 $376,332
Operating Income (Loss)....... (555) 17,402 21,093 28,723 9,317
Net Income (Loss)............. (7,749) 5,046 5,661 12,023 1,022
</TABLE>
<TABLE>
<CAPTION>
UNAUDITED
SEPTEMBER 30, DECEMBER 31,
--------------- -----------------------
1996 1995 1995 1994 1993
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total Assets.......................... 351,812 371,554 380,979 364,175 294,077
Short-term Borrowings due Olin........ 125,000 125,000 125,000 125,000 125,000
Total Liabilities..................... 194,055 210,247 222,444 233,062 202,790
Equity................................ 157,757 161,307 158,535 131,113 91,287
</TABLE>
- --------
(1) Earnings include a pre-tax charge for the settlement of claims relating to
a government investigation of certain testing irregularities at the Company's
Marion, Illinois facility ($6,000 in 1996 and $2,000 in the year ended 1995)
and a $4,500 pre-tax charge in 1996 related to a trial court ruling involving
a contract dispute with the Belgium Ministry of Defense related to a 1985
sale of tank ammunition.
(2) 1993 results include a pre-tax charge for a strategic action plan of
$12,600.
5
<PAGE>
THE DISTRIBUTION
GENERAL
The Board of Directors of Olin has approved the distribution of all of the
outstanding shares of Company Common Stock to all holders of Olin Common
Stock. In the Distribution, each holder of Olin Common Stock will receive as a
dividend one share of Company Common Stock for every ten shares of Olin Common
Stock held on the Record Date.
MANNER OF EFFECTING THE DISTRIBUTION
The general terms and conditions relating to the Distribution are set forth
in the Distribution Agreement between the Company and Olin (the "Distribution
Agreement"). See "Relationship Between Olin and the Company After the
Distribution--Distribution Agreement".
Pursuant to the terms and conditions of the Distribution Agreement, the
Distribution will be effective December 31, 1996 with Company stock
certificates being distributed on January , 1997 (the "Distribution Date") to
shareholders of record of Olin at the close of business on the Record Date.
Prior to the Distribution Date, Olin will deliver all outstanding Shares to
the Distribution Agent for distribution. The Distribution Agent will mail,
beginning on or about the Distribution Date, certificates representing the
Shares to Olin shareholders of record on the Record Date. Each Olin
shareholder will receive one Share for every ten shares of Olin Common Stock
held on the Record Date. Olin shareholders will not be required to pay for
Shares received in the Distribution, or to surrender or exchange Olin shares
in order to receive Shares of the Company. No vote of Olin shareholders is
required or sought in connection with the Distribution, and Olin shareholders
have no appraisal rights in connection with the Distribution.
No certificates or scrip representing fractional Shares will be issued to
Olin shareholders as part of the Distribution. In lieu of receiving fractional
Shares, each holder of Olin Common Stock who would otherwise be entitled to
receive a fractional Share will receive cash for such fractional interest. The
Distribution Agent will, as soon as practicable after the Distribution Date,
aggregate fractional Shares into whole Shares and sell them in the open market
at then prevailing market prices and distribute the aggregate proceeds (net of
brokerage fees) ratably to Olin shareholders entitled to fractional interests.
The amount of such payment will depend on the prices at which the aggregated
fractional Shares are sold by the Distribution Agent in the open market
shortly after the Distribution Date.
In order to be entitled to receive Shares of the Company in the
Distribution, Olin shareholders must be shareholders at the close of business
on the Record Date, December , 1996.
REASONS FOR THE DISTRIBUTION
ACCESS TO CAPITAL. It is important to Olin that it maintain an investment
grade rating for its debt in order to ensure continued access to capital
markets at attractive rates, and it has been advised by Moody's Investors
Service that maintaining a target range of debt to total capital of 35-40% is
critical to Olin's rating level. Olin has effected two equity offerings in
recent years. Based upon the capital spending requests of the various Olin
businesses for fiscal year 1996, Olin will be required to limit its capital
spending in order to maintain a 35-40% ratio of debt to total capital. As part
of Olin, the Company has had to compete with Olin's other businesses for
capital. Olin has decided not to give its Ordnance and Aerospace Divisions
priority for growth capital and reinvestment, but rather to allocate its
capital resources primarily to other businesses which historically have been
its core businesses. Olin foresees that these capital priorities will continue
indefinitely. Because the Distribution will give the Company direct access to
capital markets, it is expected that the Company will be better able to grow
its business as an independent company, free of Olin's capital constraints. In
addition, Olin desires to focus its management resources on its historic
chemicals, metals and small caliber ammunition core businesses.
6
<PAGE>
CONSOLIDATION IN THE DEFENSE INDUSTRY. Olin and the Company have determined
that, as part of Olin, the Company will not be able to participate in as
meaningful a way in the consolidation currently occurring in the defense
industry or otherwise pursue appropriate strategies in the industry. However,
Olin and the Company believe that the Company can do so as a separate and
independent company. Following the Distribution, the Company will be in a
position to utilize its own cash flow (a portion of which has been used by
Olin in its other businesses in recent years) and to raise cash in the capital
markets (free of Olin's capital constraints and based on its own financial
performance) in order to modernize facilities, to make acquisitions and/or to
enter into joint ventures or other combinations. In addition, the Company
believes that it will be in a position to issue its own capital stock to make
acquisitions should an attractive opportunity present itself. The Company
intends to evaluate and, where appropriate, pursue potential acquisitions and
combinations following the Distribution.
EXPANSION OF CUSTOMER BASE. The Company produces a propellant used in small
and medium caliber military ammunition and marketed under the trade name Ball
Powder(R). This propellant is also used in commercial sporting ammunition,
including Olin's Winchester brand of sporting ammunition. The Company believes
that there has been some historical reluctance on the part of competitors of
Olin's Winchester Division ("Winchester") to buy large quantities of Ball
Powder(R) propellant from the Company because of the common ownership of
Winchester and the Company. The Company believes that, as a separate and
independent company, it will be able to gain more of these companies as
customers and to increase existing sales to such companies. In addition, the
Company believes that it will be able to increase sales to the so-called
"reloader" market (individuals who buy ammunition components and load their
own rounds with powder), a substantial market which has not been fully
exploited by Olin.
MORE FOCUSED INCENTIVE PROGRAMS. The Company believes that long-term
incentive programs keyed to its stock and its earnings can be an important
factor contributing to its operational and financial performance. At present,
the effect of any individual manager's performance on Olin's stock price or
earnings, and consequently on the manager's long-term compensation, is diluted
by the multiplicity and relative size of the businesses in which Olin is
engaged. By enabling the Company to provide incentive compensation in the form
of direct and indirect equity ownership in the Company, the Distribution will
permit the Company to design incentive compensation programs that relate
directly to its own business characteristics and performance. See "Management
and Executive Compensation" elsewhere herein.
For information concerning certain relationships between the Company and
Olin following the Distribution, see "Relationship Between Olin and the
Company After the Distribution" elsewhere herein.
RESULTS OF THE DISTRIBUTION
After the Distribution, the Company will be an independent public company
owning and operating the Ordnance/Aerospace Business. The number and identity
of shareholders of the Company immediately after the Distribution will be the
same as the number and identity of the shareholders of Olin on the Record
Date. Immediately after the Distribution, the Company expects to have
approximately 11,308 holders of record of Shares and approximately 4,996,372
Shares outstanding, based on the number of record shareholders and outstanding
shares of common stock of Olin on October 31, 1996, as adjusted to reflect a
two-for-one stock split effective as of October 31, 1996, and the Distribution
Ratio of one Share for every ten shares of Olin Common Stock. The actual
number of Shares to be distributed will be determined as of the Record Date.
The Distribution will not affect the number of outstanding shares of Olin
Common Stock or any rights of Olin shareholders.
FEDERAL INCOME TAX CONSEQUENCES OF THE DISTRIBUTION
Olin and the Company have received an opinion of Cravath, Swaine & Moore,
counsel to Olin, that for Federal income tax purposes:
1. The Distribution will qualify as a tax-free spin-off under Section 355
of the Internal Revenue Code of 1986, as amended (the "Code").
7
<PAGE>
2. No gain or loss will be recognized by Olin on the Distribution.
3. No gain or loss will be recognized by the holders of Olin Common Stock
solely as a result of their receipt of Shares in the Distribution.
4. The tax basis of the Olin Common Stock and the Company Common Stock
held immediately after the Distribution by any holder will equal such
holder's tax basis in its Olin Common Stock immediately before the
Distribution, allocated in proportion to the relative fair market values of
the Olin Common Stock and the Company Common Stock at the time of the
Distribution.
5. The holding period of the Company Common Stock received in the
Distribution will include the holding period of the Olin Common Stock with
respect to which the Company Common Stock was distributed, provided that
such Olin Common Stock was held as a capital asset on the Distribution
Date.
This opinion of counsel is subject to certain assumptions and the accuracy
of certain factual representations made by Olin and the Company. Olin is not
aware of any present facts or circumstances that would cause such assumptions
or representations to be untrue. Olin and the Company also will agree to
certain restrictions on their future actions to provide further assurances
that the Distribution will qualify as a tax-free spin-off. See "Relationship
Between Olin and the Company after the Distribution--Tax Sharing Agreement".
No ruling has been or will be sought from the Internal Revenue Service with
respect to the Federal income tax consequences of the Distribution, and there
can be no assurance that the Internal Revenue Service will not take a position
contrary to that expressed in Cravath, Swaine & Moore's opinion.
If the Distribution were not to qualify under Section 355 of the Code, then
(i) Olin would not recognize any loss realized on the Distribution, but would
recognize capital gain equal to the excess, if any, of (x) the fair market
value of the Company Common Stock on the Distribution Date over (y) its
adjusted tax basis in the Company Common Stock, and (ii) each holder of Olin
Common Stock who receives shares of Company Common Stock in the Distribution
would be treated as receiving a taxable distribution in an amount equal to the
fair market value of such shares of Company Common Stock on the Distribution
Date, taxed first as a dividend to the extent of such holder's pro rata share
of Olin's current and accumulated earnings and profits, and then as a
nontaxable return of capital to the extent of such holder's basis in the Olin
Common Stock (with any remaining amount being taxed as capital gain). Olin and
the Company will each be severally liable to the Internal Revenue Service for
the full amount of the Federal capital gains tax described in (i) above that
is not paid by the other. Pursuant to the Tax Sharing Agreement, Olin and the
Company will indemnify each other for any liabilities resulting from any
breach of their respective representations made to Cravath, Swaine & Moore in
connection with its opinion. If the Distribution fails to qualify as a tax-
free spin-off as a result of action taken after the Distribution by Olin or
the Company, the party that took such action will be responsible for the full
amount of any resulting corporate tax liability. Neither Olin nor the Company
will indemnify any holder of Olin Common Stock who receives Shares in the
Distribution for any tax liabilities.
In any case, cash received by a holder of Olin Common Stock in lieu of a
fractional share of Company Common Stock will be treated as received in
exchange for such fractional share and the holder will recognize gain or loss
for Federal income tax purposes measured by the difference between the amount
of cash received and the holder's tax basis in the fractional share. Such gain
or loss will be capital gain or loss to the holder if the Olin Common Stock
has been held as a capital asset, and will be long-term capital gain or loss
if such Olin Common Stock has been held for more than one year.
The discussion in the preceding two paragraphs of the anticipated Federal
income tax consequences of the Distribution is for general information only.
Olin stockholders should consult their own advisers as to the specific tax
consequences of the Distribution, including the effects of foreign, state and
local tax laws and the effect of possible changes in tax laws.
8
<PAGE>
LISTING AND TRADING OF COMPANY COMMON STOCK
There is not currently a public market for the Shares. However, the Company
Common Stock has been approved for inclusion in the NASDAQ National Market
System ("Nasdaq"), subject to official notice of issuance, under the symbol
PRMX. It is possible that trading may commence on a "when-issued" basis prior
to the Distribution. On the first Nasdaq trading day following the
Distribution Date, "when-issued" trading in respect of Company Common Stock
will end and "regular-way" trading will begin. Nasdaq will not approve any
trading in respect of Company Common Stock until the Securities and Exchange
Commission has declared effective the Registration Statement of the Company on
Form 10 in respect of the Company Common Stock.
There can be no assurance as to the price at which the Company Common Stock
will trade before, on or after the Distribution Date. Until the Company Common
Stock is fully distributed and an orderly market develops in the Company
Common Stock, the price at which such stock trades may fluctuate significantly
and may be lower than the price that would be expected for a fully distributed
issue. The price of the Company Common Stock will be determined in the
marketplace and may be influenced by many factors, including (i) the depth and
liquidity of the market for the Company Common Stock, (ii) developments
affecting the business of the Company generally, (iii) the Company's dividend
policy, (iv) investor perception of the Company and the industries in which
the Company participates and (v) general economic and market conditions.
The Shares distributed to Olin shareholders will be freely transferable,
except for Shares received by persons who may be deemed to be "affiliates" of
the Company under the Securities Act of 1933, as amended (the "Securities
Act"). Persons who may be deemed affiliates of the Company after the
Distribution generally include individuals or entities that control, are
controlled by, or are under common control with the Company and may include
certain officers and directors of the Company. Persons who are affiliates of
the Company will be permitted to sell their Shares only pursuant to an
effective registration statement under the Securities Act or an exemption from
the registration requirements of the Securities Act, such as exemptions
afforded by Section 4(2) of the Securities Act or Rule 144 thereunder.
THIRD PARTY CONSENTS; REGULATORY APPROVALS
Federal procurement regulations may require Olin to enter into novation
agreements with the Company and the U.S. Government relating to U.S.
Government contracts to which Olin is a party, pursuant to which Olin will
guarantee or otherwise become liable for the Company's obligations under such
contracts which are being transferred to the Company in connection with the
Distribution. See "Business--Novation of U.S. Government Contracts". Certain
consents or approvals may be required pursuant to (i) the Arms Export Control
Act, or the rules and regulations promulgated thereunder, (ii) rules and
regulations of the Bureau of Alcohol, Tobacco and Firearms and (iii) pursuant
to the Department of Defense Industrial Security Manual. In addition, the
Company may be required to obtain the consent of certain commercial customers
pursuant to contractual obligations.
REASONS FOR FURNISHING THE INFORMATION STATEMENT
This Information Statement is being furnished by Olin solely to provide
information to shareholders of Olin who will receive Shares in the
Distribution. It is not, and is not to be construed as, an inducement or
encouragement to buy or sell any securities of Olin or the Company. The
information contained in this Information Statement is believed by Olin and
the Company to be accurate as of the date set forth on its cover. Changes may
occur after that date, and neither Olin nor the Company will update the
information except in the normal course of their respective public disclosure
practices.
9
<PAGE>
RISK FACTORS
Certain factors, including those described below, should be considered
carefully in evaluating the Company, its Common Stock and its business.
Neither Olin nor the Company makes, nor is any other person authorized to
make, any representation as to the future market value of the Company Common
Stock.
CURRENT OPERATING LOSSES
The Company reported a net loss of approximately $7.7 million for the nine
months ended September 30, 1996, compared to net income of $5.0 million for
the comparable period of 1995. Lower sales of Ball Powder(R)* propellant
combined with a pretax charge of $10.5 million to provide for claims and legal
matters, were primarily responsible for the decrease in net income. Sales of
commercial Ball Powder(R) propellant declined in 1996 due to sporting
ammunition customers drastically reducing their purchases. The components of
the charge consist of the final settlement of an investigation of certain
testing irregularities at the Company's Marion, Illinois facility ($6 million)
and a contract dispute with the Belgium Ministry of Defense ($4.5 million net
of a $1.1 million receivable). Olin has agreed to assume responsibility for
certain post-Distribution legal costs, judgments and civil settlements
relating to the Belgium contract dispute. See "Legal Proceedings". For
information as to the pro forma effect on operating results of the higher
administrative costs anticipated as an independent public company, see
"Management's Discussion and Analysis--Future Service Costs".
DEPENDENCE ON SALES TO THE U.S. GOVERNMENT
The Company's sales to the U.S. Government and its agencies (primarily the
Department of Defense) amounted to $391 million in 1995, $319 million in 1994
and $302 million in 1993 and in 1995 such sales represented approximately 80%
of the Company's revenue. Over the past several years, the U.S. defense
budget, and in particular the ammunition budget, has declined. This reduction
has had an adverse effect upon the Company's sales and profitability and has
resulted in industry consolidations. While the Company believes that U.S.
defense spending has stabilized, future levels of defense spending cannot be
predicted with certainty. The impact of possible further reductions in the
level of defense procurement on the Company's income, liquidity, capital
resources and financial condition will depend on the timing and size of the
changes and the Company's ability to mitigate their impact with new business,
business consolidations or cost reductions. Licenses are also required from
U.S. Government agencies for export of many of the Company's products,
including munitions and spacecraft and military aircraft components and
subsystems. In view of the uncertainty regarding the size, content and
priorities of the annual Department of Defense procurement schedule, the
historical financial information of the Company may not be indicative of
future performance. See "Business--U.S. Government Contracts and Regulations".
RISKS INHERENT IN U.S. GOVERNMENT CONTRACTING
A significant portion of the Company's sales is associated with long-term
contracts and programs for the U.S. Government in which there are significant
inherent risks. A significant percentage of the Company's sales is pursuant to
firm fixed-price contracts which present the inherent risk of unreimbursed
cost overruns. U.S. Government contracts entered into by the Company are, by
their terms, subject to termination by the Government either for the
Government's convenience or default by the Company. Because the U.S.
Government currently provides, directly and indirectly, approximately 80% of
the Company's revenue, the loss of a significant portion of such business
would have a material adverse effect on the Company's operations. Government
contracts also are dependent upon the levels and continuing availability of
Congressional appropriations. Congress usually appropriates funds for a given
program on a fiscal-year basis even though contract performance may take more
than one year. Consequently, for such multiyear programs, the contract is
usually partially funded, and additional monies are normally committed to the
contract by the procuring agency only as appropriations are made by Congress
for future fiscal years. Most U.S. Government contracts are also subject to
modification in the event of changes in funding, and the Company's cost
recovery and revenue are subject to adjustment as a result of audits by the
Defense Contract Audit Agency and other U.S. Government auditors. The award of
U.S. Government contracts also may be subject to protest or challenge by
unsuccessful bidders.
- --------
* Ball Powder(R) is a registered trademark of Olin Corporation.
10
<PAGE>
In addition, the Company is subject to extensive and complex U.S. Government
procurement laws and regulations. These laws and regulations provide for
ongoing Government audits and reviews of contract procurement, performance and
administration. Failure to comply, even inadvertently, with these laws and
regulations and with laws governing the export of munitions and other
controlled products and commodities, and any significant violations of any
other federal law, could subject the Company or one or more of its businesses
to potential contract termination, civil and criminal penalties, and under
certain circumstances, suspension and debarment from future Government
contracts for a specified period of time. See "Business--U.S. Government
Contracts and Regulations"; "Legal Proceedings".
COMPANY DIVIDEND POLICY
The payment and level of cash dividends by the Company after the
Distribution will be subject to the discretion of the Board of Directors of
the Company (the "Board"). Olin initially expects the Company to declare
quarterly dividends of $0.15 per share. However, future dividend decisions
will be based on a number of factors, including the operating results and
financial requirements of the Company on an independent basis. As a result,
there can be no assurance that the dividend will remain at its initial level.
ABSENCE OF TRADING MARKET FOR COMPANY STOCK
There has not been any established public trading market for the Company
Common Stock. The Company Common Stock will be quoted on Nasdaq under the
symbol "PRMX". Trading in the Company Common Stock to be distributed may
commence on a "when issued" basis prior to the Distribution Date. There can be
no assurance as to the prices at which the Company Common Stock will trade
before, on, or after the Distribution Date. Until the Company Common Stock is
fully distributed and an orderly market develops, the prices at which such
stock trades may fluctuate significantly and may be lower than prices that
would be expected for a fully distributed issue. Prices for the Company Common
Stock will be determined in the marketplace and may be influenced by many
factors, including the depth and liquidity of the market for the Company
Common Stock, developments affecting the defense industry generally, investor
perception of the Company and general economic and market conditions.
CHANGES IN TRADING PRICES OF OLIN COMMON STOCK
After the Distribution, Olin Common Stock will continue to be listed for
trading on the New York Stock Exchange, Inc. and the Pacific and Chicago Stock
Exchanges under the symbol "OLN". As a result of the Distribution, the trading
prices of Olin Common Stock may be lower immediately following the
Distribution as compared to the trading prices of Olin Common Stock
immediately prior to the Distribution. The aggregate market values of Olin
Common Stock and Company Common Stock after the Distribution may be less than,
equal to, or greater than, the market value of Olin Common Stock prior to the
Distribution.
COMPETITION
The Company encounters strong competition in each of its product lines.
Certain of the Company's competitors are larger and have greater financial
resources than the Company. The degree to which the Company participates in
future U.S. Government business will depend to a large extent on its ability
to offer better program performance than its competitors at a lower price to
the Government. See "Business--Competition".
DIVIDEND POLICY
The payment and level of cash dividends by the Company after the
Distribution will be subject to the discretion of the Board of Directors of
the Company. Although it is anticipated that following the Distribution the
Company initially will declare quarterly cash dividends, which on an annual
basis will aggregate $0.60 per Share, future dividend decisions will be based
on, and affected by, a number of factors, including the operating results and
financial requirements of the Company on an independent basis. As a result,
there can be no assurance that the dividend will remain at its initial level.
The Company's credit facility will limit the payment or declaration of
dividends by the Company on any class of its stock, as well as any other
distribution, liquidation, purchase or other acquisition of the Company's
stock by it or any subsidiary. At September 30, 1996, the credit agreement
permitted approximately $ million to be paid in dividends.
11
<PAGE>
CAPITALIZATION
(DOLLARS IN THOUSANDS)
The following table sets forth the combined capitalization of the Company as
of September 30, 1996 on a historical basis and as adjusted to reflect (i) the
Distribution and (ii) the assumption by the Company of $125,000 of
indebtedness incurred by Olin prior to the Distribution Date, as if they
occurred as of that date. This data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the historical Combined Financial Statements and Notes thereto
of the Company included elsewhere herein.
<TABLE>
<CAPTION>
SEPTEMBER 30,
-----------------------------
PRO FORMA AS
ACTUAL ADJUSTMENTS ADJUSTED
-------- ----------- --------
<S> <C> <C> <C>
Short-Term Borrowings due Olin................... $125,000 $(125,000) $ --
Long-Term Debt................................... -- 125,000 125,000
-------- --------- --------
Total Debt..................................... $125,000 $ -- $125,000
-------- --------- --------
Preferred Stock.................................. -- -- --
Common Stock..................................... -- 4,990 4,990
Additional Paid-In Capital....................... -- 152,767 152,767
Equity........................................... 157,757 (157,757) --
-------- --------- --------
Total Shareholders' Equity..................... 157,757 -- 157,757
-------- --------- --------
Total Capitalization............................. $282,757 $ -- $282,757
======== ========= ========
</TABLE>
Based on each holder of Olin Common Stock receiving a dividend of one share
of Company Common Stock for every ten shares of Olin Common Stock. The number
of shares of Olin Common Stock outstanding as of the Distribution Date is
anticipated to be 49.9 million.
It is anticipated that the Company will assume a $160,000 credit facility
executed by Olin prior to the Distribution. Olin intends to borrow an amount
under that facility prior to the Distribution, currently estimated to be
$125,000, which assumes a certain level of the Company's working capital
anticipated at the time of the Distribution. Amounts remaining under the
credit facility are expected to provide sufficient liquidity for the Company's
current funding needs. The credit facility will permit borrowing on a
revolving basis over a five-year term. The facility will contain restrictive
covenants limiting the ratio of earnings before interest and taxes to interest
expense, the ratio of total debt to earnings before interest, taxes,
depreciation and amortization, and will contain minimum tangible net worth
requirements. No principal repayments are expected to be made on the revolving
debt until the end of the five-year term. Because this agreement has not been
finalized, the debt due Olin has been classified as short-term in the
Company's Combined Balance Sheets. When the credit agreement is signed and
assumed by the Company in connection with the Distribution, the debt will be
reclassified to long-term debt.
12
<PAGE>
PRIMEX TECHNOLOGIES, INC.
SELECTED FINANCIAL AND OPERATING DATA
(DOLLARS IN THOUSANDS)
The following table summarizes certain selected historical financial and
operating information with respect to the Company and is derived from the
Combined Financial Statements of the Company. The financial statements for the
three years ended December 31, 1995 were derived from the audited financial
statements included elsewhere herein. The financial statements for the nine
months ended September 30, 1996 and 1995 were derived from the unaudited
financial statements included elsewhere herein. Such historical financial data
may not be indicative of the Company's future performance as an independent
company. The information set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the historical Combined Financial Statements and Notes thereto
included elsewhere in this Information Statement. The following information is
qualified in its entirety by the information and financial statements
appearing elsewhere in this Information Statement.
<TABLE>
<CAPTION>
UNAUDITED
NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
------------------ ------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS
Sales................... $328,775 $359,582 $508,113 $416,148 $376,332 $430,120 $467,189
Cost of Goods Sold...... 277,016 299,916 428,707 335,303 304,717 350,942 376,377
Selling and 37,888 39,138 51,297 46,758 43,643 47,991 48,489
Administration..........
Research and 3,926 3,126 5,016 5,364 6,055 6,308 8,249
Development.............
Other charges(/1/)...... 10,500 -- 2,000 -- 12,600 -- --
-------- -------- -------- -------- -------- -------- --------
Operating Income (Loss). (555) 17,402 21,093 28,723 9,317 24,879 34,074
Interest Expense........ 6,943 6,958 9,276 8,638 7,880 8,490 9,533
Interest and Other 657 808 807 1,743 2,307 2,075 1,306
Income..................
-------- -------- -------- -------- -------- -------- --------
Income (Loss) Before (6,841) 11,252 12,624 21,828 3,744 18,464 25,847
Taxes...................
Income Tax Provision.... 908 6,206 6,963 9,805 2,722 8,001 13,624
-------- -------- -------- -------- -------- -------- --------
Income (Loss) Before
Cumulative Effect of
Accounting Changes..... (7,749) 5,046 5,661 12,023 1,022 10,463 12,223
Accounting Changes...... -- -- -- -- -- (6,159) --
-------- -------- -------- -------- -------- -------- --------
Net Income (Loss)....... $ (7,749) $ 5,046 $ 5,661 $ 12,023 $ 1,022 $ 4,304 $ 12,223
======== ======== ======== ======== ======== ======== ========
<CAPTION>
UNAUDITED
SEPTEMBER 30, DECEMBER 31,
------------------ ------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
FINANCIAL POSITION
Property Plant and $103,293 $107,096 $114,473 $114,113 $ 98,771 $107,836 $108,670
Equipment, Net..........
Total Assets............ 351,812 371,554 380,979 364,175 294,077 330,551 397,619
Capitalization:
Short-Term Borrowings
due Olin.............. 125,000 125,000 125,000 125,000 125,000 125,000 125,191
Long-Term Debt......... -- -- -- -- -- -- 91
Shareholders' Equity... 157,757 161,307 158,535 131,113 91,287 114,775 158,464
Total Capitalization.... 282,757 286,307 283,535 256,113 216,287 239,775 283,746
OTHER
Capital Expenditures.... 6,891 9,646 19,191 17,821 12,682 14,082 12,331
Depreciation............ 12,627 11,982 16,633 16,955 14,323 14,220 14,133
Total Debt to Total 44.2% 43.7% 44.1% 48.8% 57.8% 52.1% 44.2%
Capitalization..........
Effective Tax Rate...... -- % 55.2% 55.2% 44.9% 72.7% 43.3% 52.7%
</TABLE>
- --------
(1) Other charges include a charge for the settlement of claims relating to a
government investigation of certain testing irregularities at the
Company's Marion, Illinois facility ($6,000 in 1996 and $2,000 in the year
ended 1995) and a $4,500 charge in 1996 related to a trial court ruling
involving a contract dispute with the Belgium Ministry of Defense related
to a 1985 sale of tank ammunition. Also, 1993 other charges include a
charge for a strategic action plan of $12,600.
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (DOLLARS IN THOUSANDS)
This Management's Discussion and Analysis of Financial Condition and Results
of Operations covers periods when the Company operated as the Ordnance and
Aerospace Divisions of Olin. However, this discussion and analysis of
financial condition and results of operations has been prepared as if the
Company were a separate entity for all periods discussed. It should be read in
conjunction with the Company's historical Combined Financial Statements and
Notes thereto included elsewhere herein.
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
------------------ --------------------------
1996 1995 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Sales............................. $328,775 $359,582 $508,113 $416,148 $376,332
Gross margin...................... 51,759 59,666 79,406 80,845 71,615
Selling and administration........ 37,888 39,138 51,297 46,758 43,643
Other charges..................... 10,500 -- 2,000 -- 12,600
Net income (loss)................. (7,749) 5,046 5,661 12,023 1,022
</TABLE>
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO 1995
Sales declined 9%, principally attributable to lower shipments of combined
effects munitions, Ball Powder(R) propellant, and electromagnetic systems,
which more than offset higher tank ammunition sales to international
customers. The lower sales levels of combined effects munitions and
electromagnetic systems reflect the completion of major programs during 1996.
The U.S. Government contract for combined effects munitions is not expected to
be renewed. Sales of commercial Ball Powder(R) propellant declined 18% in the
1996 period as sporting ammunition customers drastically reduced their
purchases. In 1995, heavy consumer buying patterns for sporting ammunition
were driven by a concern over the threat of restrictive legislation and
taxation, which increased the demand for Ball Powder(R) propellant.
Restrictive legislation in the form of the Brady bill and the assault weapons
ban was passed in 1993 and 1994, respectively, while a proposed prohibitive
tax on ammunition was not adopted.
Gross margin percentage decreased to 16% from 17% due to the decline in
sales of Ball Powder(R) propellant.
Selling and administration expenses as a percentage of sales increased to
12% from 11% due to lower sales. Selling and administration expenses decreased
in amount due to lower legal and consulting fees associated with the
government investigation of certain testing irregularities at the Company's
Marion, Illinois facility which were approximately $1,200 and $2,700 in 1996
and 1995, respectively.
Other charges shown in Results of Operations above represents the provision
for the settlement of claims relating to a government investigation of certain
testing irregularities at the Company's Marion, Illinois facility ($6,000) and
the charge for the Belgian contract dispute ($4,500).
Customer-sponsored research of $28,574 decreased $6,561 due to the
completion of an international contract for electromagnetic systems in 1995.
Income tax expense of $908 and $6,206 was recorded in 1996 and 1995 on
pretax losses of $6,841 and pretax income of $11,252 in 1996 and 1995,
respectively. The impact of the Marion legal settlement which is non-
deductible and other higher non-deductible expenses on a lower level of
profits in 1996 was the main contributor to the change.
14
<PAGE>
YEAR ENDED DECEMBER 31, 1995 COMPARED TO 1994
Sales increased 22% primarily due to additional shipments of medium caliber
ammunition, strong demand for electronic and solid propellant products and
sales under a combined effects munition contract. The inclusion of a full year
of sales from the Company's acquisition of certain assets of the medium
caliber ammunition business of GenCorp's Aerojet Ordnance Division in April
1994, and sales under a combined effects munition contract awarded in 1994
accounted for a 15% increase in sales. Sales of large caliber ammunition
declined due to the completion of a contract to supply tank ammunition
components to the U.S. Army during 1994. Tank ammunition cartridge sales and
profits in 1995 were consistent with 1994 levels. Ball Powder(R) propellant
sales increased slightly as higher selling prices due to a more favorable
product mix more than offset a decline in volumes. Increased volumes in the
electronics business, specifically the in-flight entertainment product line,
and strong demand for the solid propellant systems product lines contributed
6% to the sales increase.
The gross margin percentage decreased to 16% from 19%. Cost overruns on
certain production and development programs and additional costs associated
with certain discontinued programs more than offset the increased margins from
large caliber ammunition due to a favorable contract settlement and the profit
impact from the additional medium caliber ammunition volumes.
Selling and administration expenses as a percentage of sales decreased to
10% from 11% due primarily to the additional sales from the medium caliber
ammunition acquisition. Selling and administration expenses increased in
amount due to the inclusion of the operating expenses of the medium caliber
ammunition acquisition for a full year and its related relocation and
consolidation costs, and additional legal and consulting fees. Legal and
consulting fees associated with the government investigation of certain
testing irregularities at the Company's Marion, Illinois facility increased to
$3,500 in 1995 from $500 in 1994.
Other charges shown in Results of Operations above represents a provision
for the settlement of claims relating to a government investigation of certain
testing irregularities at the Company's Marion, Illinois facility.
Customer-sponsored research of $47,748 decreased $33,271 due to the overall
reduction in government-funded ammunition programs and the advancement of a
major ammunition development program into the production stage.
The effective tax rate was 55% in 1995, compared to 45% in 1994. The impact
of the charge related to the Marion legal settlement which is non-deductible
and other non-deductible expenses on a lower level of profits in 1995 were the
main contributors to the effective tax rate increase.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO 1993
Sales increased 11% primarily from the inclusion of sales of the medium
caliber ammunition acquisition and increased volumes of Ball Powder(R)
propellant. The integration of the medium caliber acquisition was implemented
and expanded the Company's medium caliber ammunition line of products. This
acquisition accounted for a 16% increase in sales and more than offset the
volume declines in other medium caliber ammunition and large caliber
ammunition. Additional Ball Powder(R) propellant sales, which contributed 1%
of the total sales increase were attributable to heavy consumer buying due in
part to a fear of restrictive taxation and legislation affecting commercial
ammunition. Electronic products sales increased due to the sale of in-flight
entertainment seat telephony boxes and aircraft telephones used in commercial
aircraft, but were offset in total by decreases in the propulsion products
business and the tactical systems product lines.
The gross margin percentage was 19% in 1995 and 1994. The impact of the
increase in sales volumes was offset by corresponding increases in production
costs.
Selling and administration expenses as a percentage of sales decreased to
11% from 12% due primarily to the additional sales from the medium caliber
ammunition acquisition. Selling and administration expenses increased in
amount as the inclusion of the operating expenses of the acquisition more than
offset the impact from certain workforce reductions which occurred during
1993.
15
<PAGE>
In 1993, the Company recorded a pretax charge of $12,600 for a series of
strategic actions consisting of personnel reductions ($4,100), business
restructurings involving the shutdown of a manufacturing facility and the
discontinuance of artillery metal parts manufacturing ($7,000), and other
charges including asset write-downs ($1,500). As of December 31, 1995, all of
the actions within the strategic action plan had been completed. The savings
resulting from the workforce reduction and the business restructurings were
approximately $1,900 in 1995 ($2,700 in 1994).
Customer-sponsored research of $81,019 decreased $3,563 due to the overall
reduction in government-funded ammunition programs and in response to the
overall Department of Defense ("DoD") budget reduction.
The effective tax rate for 1994 was 45%, compared to 46% in 1993, excluding
the effect of the charge (pretax-$12,600; after tax-$7,800). The impact of
slightly higher non-deductible expenses on a higher level of profits in 1994
was the main contributor to the effective tax rate decrease.
U.S. GOVERNMENT SALES
U.S. Government sales amounted to $391,099 in 1995, $318,898 in 1994 and
$302,022 in 1993. Sales under the combined effects munition contract was the
main contributor to the increase in 1995 government sales. Approximately 80%
of 1995 sales were to the DoD or agencies thereof. Changes in the strategic
direction of defense spending, the timing of defense procurements and specific
defense program appropriation decisions may adversely affect the performance
of the Company in future years, including its income, liquidity, capital
resources, and financial condition. The precise impact of these decisions will
depend upon their timing and the size of changes and the Company's ability to
mitigate their impact with new business, business consolidations or cost
reductions. In view of the continuing uncertainty regarding the size, content
and priorities of the annual DoD budget, the historical financial information
of the Company may not be indicative of future performance and the viability
of certain facilities and equipment may also be impacted. The results of
operations for the nine months ended September 30, 1996 and 1995, should not
be regarded as indicative of the results that may be expected for the entire
year. DoD sales activities are historically stronger in the latter part of the
year because the timing of the recognition of the DoD ammunition sales tends
to reflect the procurement cycle utilized by the U.S. Army. Certain commercial
sales, such as Ball Powder(R) propellant volumes, tend to be stronger in the
first half of the year because the buying patterns of sporting ammunition
manufacturers are primarily driven by the fall hunting season.
Since the U.S. Government usually awards and funds ordnance contracts on a
year-by-year basis and the Company's business is dependent upon periodic
awards of new contracts and the exercise of options contained in existing
contracts, there can be no assurance that the U.S. Government will continue to
purchase the Company's products and services over the long-term. The
termination of any of the Company's significant contracts or the failure to
obtain either renewals of certain existing contracts or additional contracts
with the U.S. Government would have a material adverse effect on its results
of future operations and financial condition.
ENVIRONMENTAL
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1995 1994 1993
-------- -------- --------
($ IN THOUSANDS)
<S> <C> <C> <C>
Cash Outlays:
Remedial and Investigatory Spending............... $ 291 $ 407 $ 224
Capital Spending.................................. 500 500 700
Plant Operations.................................. 2,100 2,200 1,700
-------- -------- --------
Total Cash Outlays.................................. $ 2,891 $ 3,107 $ 2,624
======== ======== ========
</TABLE>
The Company is party to various governmental and private environmental
actions associated with former manufacturing and test facilities. Associated
costs of investigatory and remedial activities are provided for in accordance
with generally accepted accounting principles governing probability and the
ability to reasonably
16
<PAGE>
estimate future costs. Charges to income for investigatory and remedial
efforts were not material to operating results in 1995, 1994 and 1993
(excluding the special charge) and are not expected to be material to net
income in future years. The Company's estimated environmental liability at the
end of 1995 was attributable to five sites.
Cash outlays for remedial and investigatory activities associated with
former manufacturing and test facilities and past operations were not charged
to income but instead were charged to reserves established for such costs
identified and expensed to income in prior years; such charges to income were
$795, $120 and $1,101 in 1995, 1994 and 1993, respectively. Cash outlays for
normal plant operations for the disposal of waste and the operation and
maintenance of pollution control equipment and facilities to ensure compliance
with mandated and voluntarily imposed environmental quality standards were
charged to income. Historically, the Company has funded its environmental
capital expenditures through cash flow from operations and expects to do so in
the future.
The Company's combined balance sheets included liabilities for future
environmental expenditures to investigate and remediate known sites amounting
to $2,574 at December 31, 1995 and $2,070 at December 31, 1994, of which
$1,774 and $1,770 were classified as other noncurrent liabilities. Those
amounts did not take into account any discounting of future expenditures or
any consideration of insurance recoveries or advances in technology. Those
liabilities are reassessed periodically to determine if environmental
circumstances have changed and/or remediation efforts and their costs can be
better estimated. As a result of these reassessments, future charges to income
may be made for additional liabilities.
Total environmental-related cash outlays for 1996 are estimated to be
$3,400, of which $800 is expected to be spent on investigatory and remedial
efforts, $800 on capital projects and $1,800 on normal plant operations.
Environmental-related cash outlays for site investigation and remediation,
capital projects and normal plant operations are expected to range between
$2,000--$5,000 annually over the next several years. While the Company does
not anticipate a material increase in the projected annual level of its
environmental-related costs, there is always the possibility that such
increases may occur in the future in view of the uncertainties associated with
environmental exposures. Environmental exposures are difficult to assess for
numerous reasons, including the identification of new sites, developments at
sites resulting from investigatory studies, advances in technology, changes in
environmental laws and regulations and their application, the scarcity of
reliable data pertaining to identified sites, the difficulty in assessing the
involvement and financial capability of other potentially responsible parties
and the Company's ability to obtain contributions from other parties and the
time periods (sometimes lengthy) over which site remediation occurs. It is
possible that some of these matters (the outcomes of which are subject to
various uncertainties) may be resolved unfavorably against the Company.
LITIGATION
There are a variety of legal proceedings pending or threatened against the
Company. It is possible that some of these matters (the outcomes of which are
subject to various uncertainties) may be decided unfavorably against the
Company. The Company has provided for those matters which it believes are both
probable of occurring and for which the liability can be estimated.
In May 1994, the Company discovered that an employee may have modified
inspection and testing software used on certain medium caliber ammunition
production lines at its Marion, Illinois testing facility to permit
inspections to be performed at tolerances which may not have been fully
compliant with applicable contract specifications. Upon discovering the issue,
the Company promptly notified U.S. Government contract representatives,
voluntarily disclosed the circumstances then known to the Department of
Defense's Office of the Inspector General and expressed its intent to
investigate fully the matter and take all necessary corrective actions. In
September 1994, a Federal grand jury in the United States District Court for
the Southern District of Illinois issued two subpoenas to the Company
requesting production of documents relating generally to certain medium
caliber ammunition programs and specifically to the software modification
described above. Subsequently, the Company received additional subpoenas and
several Marion employees have received
17
<PAGE>
subpoenas to testify before the grand jury. The Company has complied with the
subpoenas and cooperated with Government officials to resolve the matter.
After discussion with the U.S. Attorney's Office regarding the investigation
of the performance of the contracts in question, Olin and the U.S. Attorney
entered into an agreement to settle this matter on September 11, 1996. Under
the agreement, the U.S. Government agreed not to pursue any criminal or civil
claims against Olin or its subsidiaries in connection with these government
contracts. Olin has paid to the U.S. Government $8,000 in connection with the
settlement and without admitting to any wrongdoing or liability. The Company's
financial statements reflect the expenses associated with this matter,
including the $8,000 settlement.
The Company is involved in a contract dispute with the Belgium Ministry of
Defense related to a 1985 sale of tank ammunition. The Belgium Ministry of
Defense has alleged improprieties committed by the Belgium national who
represented Olin in the transaction. Based on these allegations, the Belgium
Ministry of Defense withheld final payment on the contract. The Company agreed
to extend the letter of credit related to the contract guarantee pending
resolution of the underlying contract dispute. In March 1996, the trial court
ruled against the Company. The decision has been appealed. In the event that
the trial court's decision is sustained, the resultant liability is estimated
at approximately $4,500 at current exchange rates. The Company's financial
statements reflect the expenses associated with this matter. However, since
the liability for this matter has been assumed by Olin in accordance with the
Assumption of Liabilities and Indemnity Agreement between Olin and the
Company, the balance sheet does not include any reserves related to this
matter.
INCOME TAXES
Prior to January 1, 1997, the Company's operations will be included in the
U.S. federal consolidated tax returns of Olin. The provision for income taxes
includes the Company's allocated share of Olin's consolidated income tax
provision and is calculated on a separate Company basis pursuant to the
requirements of Financial Accounting Standards No. 109, "Accounting for Income
Taxes." Allocated income taxes are settled with Olin on a current basis.
Deferred taxes are provided for differences between the financial statement
and the tax bases of assets and liabilities using enacted tax rates in effect
for the year in which the differences are expected to reverse.
FUTURE SERVICE COSTS
From the time of the Distribution to December 31, 1997, Olin and the Company
will share certain services, such as payroll and benefits administration,
mainframe computing services, and telecommunications support. Olin will be
reimbursed by the Company at rates comparable to current inter-company
accounting charges. By December 31, 1997, the Company will develop and
establish these services on its own, at costs that may be more or less than
the rates charged by Olin. Costs for such services were $2,957 and $1,628 for
the nine months ended September 30, 1996 and 1995, respectively, and $2,170 in
1995, $2,528 in 1994 and $3,103 in 1993. It is anticipated that when the
Company becomes a separate public company costs of other types of services, in
addition to these previously mentioned, will increase by approximately $4,000
per year as a result of additional financial reporting requirements, stock
transfer fees, directors' fees, insurance, and executive compensation and
benefits. Pro forma net loss for the nine months ended September 30, 1996,
would have been $9,699 compared to the reported net loss of $7,749, and pro
forma net income for the year ended December 31, 1995, would have been $3,061
compared to the reported net income of $5,661 after giving effect to the
additional $4,000 of annual pretax costs expected to be incurred in the future
as a separate public company.
NEW ACCOUNTING STANDARDS
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 121, "Accounting for Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of". The adoption of this
standard did not have a material impact on the Company's financial position
and its operating results.
18
<PAGE>
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation." As allowable by SFAS No. 123,
the Company will not recognize compensation cost for stock-based compensation
arrangements, but rather will disclose in the notes to the financial
statements the impact on net income and earnings per share as if the fair
value based compensation cost had been recognized commencing in 1996.
LIQUIDITY AND INVESTMENT ACTIVITY
Cash flow from operations supplemented by credit provided by Olin and
proceeds from sales of property, plant and equipment were used to finance the
Company's funding needs of capital spending and the 1994 acquisition of the
medium caliber ammunition business of GenCorp's Aerojet Ordnance Division. In
the past and until the Distribution, the Company's financing requirements have
been provided by Olin. The Company is in the process of negotiating a new loan
agreement with various banks to provide financing for the Company's working
capital requirements, capital expenditures and general corporate purposes
subsequent to the Distribution. It is anticipated that the Company will assume
a $160,000 credit facility which is intended to provide sufficient liquidity
for the Company's current funding needs. Prior to the Distribution, it is
anticipated that Olin will borrow $125,000 under the credit facility based on
reductions in the Company's working capital estimated to occur by the
Distribution. A final determination of the amount of the Olin borrowing will
be made prior to the Distribution. The Company expects the credit facility to
permit borrowings on a revolving basis over a five-year term. It will contain
restrictive covenants limiting the ratio of earnings before interest and taxes
to interest expense, the ratio of total debt to earnings before interest,
taxes, depreciation and amortization, and will contain minimum tangible net
worth requirements. No principal repayments are expected to be made on the
revolving debt until the end of the five-year term. Because this has not been
finalized, the debt due Olin has been classified as short-term in the
Company's Combined Balance Sheet. When the credit agreement is signed and
assumed by the Company in connection with the Distribution, the debt will be
reclassified to long-term debt.
CASH FLOW DATA
Provided by (used for)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
------------------- ----------------------------
1996 1995 1995 1994 1993
-------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net operating activities..... $ (4,577) $ (20,184) $ (7,824) $ 15,720 $ 42,363
Capital expenditures......... (6,891) (9,646) (19,191) (17,821) (12,682)
Net investing activities..... (2,394) (6,078) (15,332) (43,523) (11,181)
</TABLE>
For the nine months ended September 30, 1996, cash used for operations
totaled $4,577 compared to $20,184 for the comparable 1995 period. During
1996, the reduction in accounts receivable and inventories due to the near-
completion of the combined effects munition contract and a cash settlement
resulting from an in-flight entertainment contract cancellation that occurred
in 1995 was offset in part by lower current liabilities, primarily accounts
payable. Also, cash used for operating activities increased as $9,200 of loans
taken against the cash surrender value of key employees life insurance
policies were repaid. During the first nine months of 1995, investments in
working capital were made to support a $95 million combined effects munition
contract and increased volumes associated with in-flight entertainment
products.
The utilization of cash by operating activities for the year ended 1995 was
due to an increase in working capital required to support the higher sales
from the combined effects munition contract and because of shipment delays on
certain medium caliber and tank ammunition contracts. Cash provided by
operating activities increased due to loans taken against the cash surrender
value of key employees life insurance policies. Operating cash flow in 1994
decreased significantly from the prior year as additional funds were spent for
working capital. Increase in inventories was due to shipment delays on certain
medium caliber ammunition and additional funds to support both the combined
effects munition contract and the commercial in-flight entertainment product
line, and was
19
<PAGE>
offset in part by higher current liabilities. Also, funds were spent for the
expansion of the Company's complete line of medium caliber ammunition
products. Operating cash flow in 1993 included working capital reductions
caused by lower sales levels in the large and medium caliber ammunition
product lines, which experienced a 14% decline in sales from 1992 levels. Cash
flow was negatively impacted by the low level of earnings caused by reduced
sales.
Capital spending for the nine months ended September 30, 1996 decreased 29%
from the comparable period in 1995 due to a planned reduction to control
capital costs and the completion of the medium caliber ammunition
consolidation and the ammunition de-mil facility.
Capital spending in 1995 increased 8% from the prior year, mainly to
complete the consolidation of some medium caliber ammunition assembly
operations into the Company's Marion operations and the facilities to
demilitarize obsolete ammunition stocks (ammunition de-mil). Capital spending
in 1994 increased 40% from the prior year mainly to consolidate the acquired
medium caliber ammunition operations with the Company's
existing medium caliber ammunition facilities and to construct a facility to
perform ammunition de-mil. In 1993, the lower level of sales and the uncertain
business climate contributed to a 10% decrease in capital spending.
During 1994, the Company purchased certain medium caliber ammunition and air
dispensed munitions assets of GenCorp's Aerojet Ordnance Division for
approximately $25,400. This acquisition provided the Company with a complete
line of medium caliber ammunition as well as air dispensed munitions products.
20
<PAGE>
BUSINESS
GENERAL
The Company was organized under the laws of the Commonwealth of Virginia on
May 10, 1996, for the purpose of effecting the distribution of Olin's ordnance
and aerospace businesses to its shareholders. The Company is an ordnance and
aerospace contractor with strong systems management and manufacturing
capability. Although the Company provides a variety of products and services,
it draws upon a common set of capabilities in bringing these products and
services to market. The Company's systems management and manufacturing
capabilities, combined with its technology base, represent the common skills
on which the Company relies in serving its markets and customers. The
Company's principal executive offices are located at 10101 Ninth Street North,
St. Petersburg, Florida 33716-3807, telephone (813) 578-8100.
SYSTEMS MANAGEMENT. Systems management in the defense/aerospace industry
means total management responsibility for the completion of a system which can
vary from a large weapons platform to the smaller systems and subsystems
managed by the Company, such as complete rounds of sophisticated tank
ammunition and small space subsystems incorporated in commercial satellites.
Systems management incorporates the management of materials acquisition,
configuration data management, selection and auditing of subcontractors,
manufacturing, quality assurance, testing, and product delivery, as well as
administrative support to ensure that all documentation reflects compliance
with contract terms.
MANUFACTURING. The Company's success in servicing its customers and markets
is largely the result of strict product quality and reliability standards. The
nature of the products offered by the Company require strict compliance with
detailed specifications. Even a small deviation from specifications in the
manufacture of tank or medium caliber ammunition often will cause the customer
to reject the final product. The Company's space and electronics products,
intended for use in satellites and aircraft, must be of the highest
reliability. Ball Powder(R) propellant must meet strict quality standards to
assure that the ammunition in which it is incorporated is safe and effective.
See "Properties" for a more complete description of the Company's properties
and manufacturing capabilities.
TECHNOLOGY. The Company's technology base positions it as a leader in a
number of product offerings and provides the key to its future growth and
success. The Company's composite materials technology has helped forge its
leadership position in tank ammunition. The Company is applying its composite
expertise and its knowledge of propellants and physics in developing the next
generation of tank ammunition which will provide improved performance.
The Company's propellant research and development laboratory is equipped to
perform a wide range of chemical and thermal analyses and propellant syntheses
which enable the Company to tailor its Ball Powder(R) propellant to a wide
variety of ammunition applications.
In its space products business, the Company's research and development
capabilities enable it to improve existing products by lowering product weight
and cost. These capabilities also have led to the development of new
propulsion products, including those incorporating electric propulsion to
reduce the fuel requirements for performing a given mission.
21
<PAGE>
PRODUCTS AND SERVICES
The following table sets forth the principal products and services offered
by the Company and identifies the percentage of sales represented by each
category for the years shown.
<TABLE>
<CAPTION>
PERCENTAGE OF
SALES(2)
------------------------
PRODUCTS AND SERVICES 1995 1994 1993
--------------------- ---- ---- ----
<S> <C> <C> <C>
Tank and other Large Caliber Ammunition................. 28% 37% 44%
Medium Caliber Ammunition............................... 14 14 9
Ball Powder(R) Propellant............................... 11 13 14
Electronic Products..................................... 8 5 5
Space Products.......................................... 4 6 8
Other Products and Services............................. 35(/1/) 25(/1/) 20
</TABLE>
- --------
(1) Approximately 15% of 1995 sales and 2% of 1994 sales resulted from a U.S.
Government contract for combined effects munitions. Sales under this
contract will be completed in 1996 and this contract is not expected to be
renewed.
(2) The Company currently has two multi-year contracts for the supply of 120mm
tactical and training ammunition that represent approximately 15% and 10%,
respectively, of 1995 sales. These multi-year contracts provide for
deliveries through mid-1999. The Company currently has numerous other
contracts, none of which accounts for more than 6% of 1995 sales.
TANK AND OTHER LARGE CALIBER AMMUNITION. The Company develops and produces a
family of tactical and training ammunition used primarily in the M1A1 and M1A2
Abrams class tanks of the U.S. Army and Marine Corps and U.S. allies. The
Company is currently the sole source producer of the 120mm M829A-2 round,
which is an armor piercing, fin stabilized, discarding sabot round with a
depleted uranium penetrator that utilizes kinetic energy to penetrate heavily
armored targets and is used primarily in tank-to-tank warfare. This round is
the successor round to the 120mm M829A-1 round that was used successfully
during Operation Desert Storm. The Company is also one of two suppliers of
120mm M865 and M831A-1 training rounds to the U.S. Government. The M865 is the
training round for the M829A-2 round and the M831A-1 is the training round for
the M830A-1 tactical multipurpose round which is produced by the Company's
U.S. tank ammunition competitor.
During 1995, the Company entered into two contracts with four-year terms to
produce training and kinetic energy tactical ammunition for the U.S.
Government.
A number of foreign countries will not buy ammunition containing depleted
uranium and the U.S. Government limits the export of depleted uranium
ammunition to NATO and certain other friendly foreign governments. To improve
its opportunities to sell tank ammunition to foreign buyers, the Company, in
association with the foreign company that is the original developer of 120mm
tank ammunition, has developed an advanced 120mm kinetic energy round with a
tungsten alloy penetrator. During 1995, the Company signed a $20 million
contract with the U.S. Army for the sale of 120mm tungsten penetrator
ammunition to a foreign customer. Delivery is expected in 1997. The Company is
actively pursuing additional international tank ammunition sales involving
both training ammunition and the advanced kinetic energy tungsten round.
Because the Company believes that a key element of its long-term
profitability is its continued participation as a major producer of tank
ammunition for the U.S. Government, the Company continually invests in
research and development in this area, focusing on improving the effectiveness
of kinetic energy tactical ammunition and reducing the cost of training
ammunition.
The majority of the Company's large caliber ammunition production contracts
are for tank ammunition. However, the Company believes that artillery
ammunition presents an opportunity for growth because of an extended past
period of minimal investment by the United States in this arena. This problem
was highlighted during Operation Desert Storm, when United States artillery
systems were outranged by enemy guns. The Company believes that the U.S.
Government has recognized the need to match and surpass the capability of
other countries and is investing in the development of new artillery platforms
and ammunition.
MEDIUM CALIBER AMMUNITION. The Company develops and produces medium caliber
ammunition. The medium caliber product line includes 20mm, 25mm, and 30mm
ammunition, and is utilized on a variety of
22
<PAGE>
platforms, including ships, airplanes, helicopters, and fighting vehicles. The
family of medium caliber ammunition includes armor piercing, high explosive,
incendiary and training rounds. In addition, through a license with Raufoss
A/S, the Company is a leading developer of multi-purpose medium caliber
ammunition that combines armor-piercing, high explosive and incendiary
features in one round.
The Company has recently commenced production of the 25mm M919 round, a U.S.
produced medium caliber armor-piercing, fin stabilized, discarding sabot
round, utilizing a depleted-uranium penetrator that offers increased range and
lethality. This round will be the primary anti-armor round of the Bushmaster
cannon used on the Bradley Fighting Vehicle. In addition, the Company has
several contracts with the U.S. Government for the production of multi-purpose
rounds. The Company believes that the U.S. Government will continue to buy
both the M919 and multi-purpose rounds for the next several years, but does
not know whether the Government will purchase material quantities of any other
medium caliber ammunition. During 1995 and 1996, the Company experienced
difficulties in producing the M919 round within its specifications for
accuracy and gun pressure. These difficulties have increased the Company's
costs and lowered its margins on this round in 1995 and 1996 and delayed
recognition of revenue from this contract to 1997. The Company has performed
extensive testing and made improvements to its production processes in an
effort to correct these issues. Medium caliber ammunition historically has
been used in aircraft as well as in land vehicles and ships. However, because
of the development of other aircraft weapon platforms that do not require
close strikes to be effective, the Company believes that medium caliber
ammunition will be used to a much lesser extent in future aircraft.
NEW WEAPONS AND AMMUNITION. The U.S. Army is developing a series of small-
arms weapons to increase the firepower of 21st century soldiers. The Company
has been selected as the systems developer of the objective crew served weapon
("OCSW"). This two-person weapon system is slated to replace the machine gun
for use against lightly-armored vehicles, fortified positions, infantry and
low-flying aircraft. As systems developer, the Company is responsible for the
development of the entire OCSW including both the gun and ammunition.
Complementing the OCSW is the objective individual combat weapon ("OICW"), the
future individual weapon for the dismounted soldier. Two teams of companies
are developing the OICW. The Company is the ammunition developer on one of the
teams. The OCSW and OICW are both expected to be introduced to the field in
approximately ten years.
BALL POWDER(R) PROPELLANT. The Company manufactures and sells Ball Powder(R)
propellant, a smokeless gun powder with a spherical grain shape. The Company
manufactures more than one hundred different varieties of propellant in the
Ball Powder(R) product line. Significant amounts of all U.S. military small
caliber ammunition are loaded with the Company's Ball Powder(R) propellant. In
response to the decline in military procurements over recent years, the
Company has focused on increasing its sales to the commercial ammunition
market. In 1995, approximately 65% of Ball Powder(R) propellant sales was to
manufacturers of commercial ammunition and to the "reloader" market
("reloaders" are individuals who buy ammunition components and load their own
rounds).
Olin's Winchester division, a leading manufacturer of sporting ammunition,
was the Company's largest Ball Powder(R) propellant customer in 1995 and 1996,
accounting for approximately 42% of the Company's $55 million of Ball
Powder(R) propellant sales in 1995 and approximately 34% of the Company's $39
million of such sales through September 30, 1996 (see "Relationship Between
Olin and the Company after the Distribution--Powder Supply Requirements
Agreement" for a description of the long-term supply contract entered into
between the Company and Olin with respect to future Ball Powder(R) propellant
sales to Winchester). The Company believes that historically there has been
some reluctance on the part of competitors of Winchester to buy large
quantities of Ball Powder(R) propellant from the Company because of the common
ownership of Winchester and the Company. The Company believes that, as a
separate and independent company, it may be able to gain more of these
companies as customers and to increase its existing sales to those companies
which are already customers.
Over the years, the Company has attempted to increase the use of Ball
Powder(R) propellant in medium and large caliber military ammunition.
Virtually all of the medium caliber ammunition manufactured by the Company
except the 25mm M919 round is now loaded with Ball Powder(R) propellant. Ball
Powder(R) propellant has achieved only limited use in U.S. Government large
caliber ammunition. The Company continues to pursue the use of Ball Powder
propellant in additional types of large caliber ammunition.
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<PAGE>
ELECTRONIC PRODUCTS. The Company manufactures a variety of electronic
products for aerospace applications. The Company in recent years has entered
the field of in-flight communications and entertainment ("IFE") through design
and production of a variety of IFE components and products. In 1995, the
Company's most significant IFE contract was for the production of in-flight
telephone devices. Although 1996 sales of IFE products are not expected to be
material to the Company, one of the Company's long-term objectives is to grow
in the IFE product area. The Company's line of airborne electronic products
also includes controls for lighting, temperature, audio, power and flight
systems.
In 1996, the Company introduced its first EmPower(TM) product, an in-seat
power supply system for airplane passengers' laptop computers. A universal
power socket is provided in the passenger's seat, to which the passenger's
laptop may be connected in order to operate and recharge the computer. The
Company has contracted to provide EmPower(TM) products to three major airline
companies, and is negotiating with several prospective domestic and
international customers.
The Company produces ground support equipment for military purposes,
including stores management and weapons systems test sets for F-16 and other
aircraft. The Company also produces a variety of power conditioning units
("PCUs") for military, commercial and space applications. PCUs convert one
form of electric power into another. The Company's space electronics
capability includes spacecraft PCUs, which convert a satellite's electric
power to power used in electric propulsion systems.
SPACE PRODUCTS. The Company is the world's leading supplier of
monopropellant hydrazine products and electric propulsion ("EP") products. The
Company's hydrazine propulsion products include individual rocket engines or
thrusters, rocket engine modules, gas generators, propellant pressurization
systems and complete integrated propulsion systems. Ranging in size from 0.1
to several hundred pounds of thrust, these products are integral to the
growing commercial launch vehicle and satellite markets. The Company has
delivered over 10,000 rocket engines for spacecraft applications including
orbit insertion, maneuvering, and attitude control as well as launch vehicle
and upper-stage attitude and velocity control.
EP devices represent an advance over standard chemical rocket engines. The
current generation of these products uses satellite electrical power to heat
propellant gases to provide additional energy and velocity in the process of
producing thrust. There are significant gains in fuel efficiency using the
Company's EP products over conventional hydrazine thrusters. This fuel
efficiency translates into economic benefit for satellite manufacturers and
service providers by reducing spacecraft weight, increasing in-orbit life
and/or allowing for the use of lower cost launch vehicles.
The Company is the only U.S. source of EP products which are currently
operating on orbiting satellites within product life expectancies and has four
models in production. The first EP product, a resistojet, was first launched
in 1983 and is now flying on a number of satellites. The latest EP device, the
arcjet, was first flown in 1993 on the Telstar-4 satellite.
The Company is developing advanced EP products which it anticipates will
provide greatly improved performance compared to conventional hydrazine
thrusters with commensurate economic benefits to users. These advanced EP
products are expected to be flight-tested on experimental flights in 1997-98.
A number of domestic and foreign companies are developing EP products and
the Company expects increased competition in this area.
OTHER PRODUCTS AND SERVICES. The Company manufactures a range of solid
propellant products. The Company's products are primarily used in military
applications, although the Company is continuously examining potential
commercial applications. Although the products are diverse, they are based on
a common technology, namely, controlled burning of a solid propellant whose
exhaust products are used for a variety of functions.
The Company provides small gas generators and devices incorporating gas
generators used in a variety of military and commercial applications,
including tactical missiles, jet engine starter cartridges, inflatables,
including buoyance devices and specialized structures, and ammunition
initiating devices. The Company also is developing a family of fire
suppression systems offering a low-cost, low-volume, alternative to halon
compounds in situations, such as fighter aircraft "dry bay" areas, where size
and weight are significant considerations.
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As part of the 1994 acquisition of certain assets of GenCorp's Aerojet
Ordnance Division, the Company acquired systems capability to manufacture
combined effects munition ("CEM"), an air-dispensed munition with anti-armor,
anti-personnel and anti-materiel capability. The Company has recently
completed what it believes will be the last U.S. Government purchase of CEM.
The Company is a supplier of extremely high-power pulsed energy devices
("pulsed power"). Such devices are used in a wide variety of defense
applications including test and evaluation of electronics, materials testing,
nuclear weapons effects simulation, advanced electric weapon technology (such
as electric guns envisioned for 21st century warfare), high-power microwaves,
and electromagnetic pulse simulation.
The Company is also a developer of precision anti-tank warheads and ordnance
systems for smart weapons for United States, Swiss and other Governmental
agencies. This development activity includes applied research, advanced
development, engineering and development manufacturing and low-rate initial
production programs.
The U.S. Government has decided that it needs to demilitarize or disassemble
large stocks of obsolete conventional ammunition. The Company has bid on a
number of these contracts, and in 1995 was awarded two small contracts for
demilitarization services.
In addition, in 1995 the Company made its first commercial sales of forged
petroleum pipeline components and other heavy industrial cylindrical steel
products. These sales were generated by the Company's Red Lion, Pennsylvania
operation, which principally produces components for large caliber ammunition
and successfully utilized this manufacturing expertise for a commercial
application.
CUSTOMERS
The Company's largest customers are the U.S. Department of Defense, NASA and
the U.S. Department of Energy. Other customers of the Company include
additional U.S. Government agencies/laboratories, allied governments, major
ordnance and aerospace contractors and a variety of commercial customers. With
the exception of the U.S. Government and its agencies, no other single
customer accounted for more than 10% of the Company's total annual sales
during any of the Company's last three fiscal years. See "Risk Factors" and
"Business--U.S. Government Contracts and Regulations".
RAW MATERIALS AND SUPPLIES
The raw materials used in the manufacturing of ammunition and ammunition
components include metals, composite materials, chemicals and nitrocellulose.
In addition, the manufacture of ammunition requires components, including
propellants, cartridge cases and primers, all of which may be provided by
subcontractors or supplied directly by the Government. Various electronic
piece parts, printed wire boards, hydrazine liquid propellants, solid
propellant ingredients and subcontracted components, including capacitors,
various metals and explosives, are also used by the Company. The Company has
not experienced difficulty in recent years in obtaining an adequate supply of
any raw materials, components or other supplies needed in its manufacturing
processes, although continued downsizing in the defense industry may create
difficulties in procuring certain medium caliber ammunition components in the
future. Government contractors such as the Company are frequently directed to
procure materials and components from sources of supply approved by the U.S.
Department of Defense.
U.S. GOVERNMENT CONTRACTS AND REGULATIONS
The Company is highly dependent on Government sales, which during 1995,
accounted for approximately 80% of the Company's sales. The Company's U.S.
Government business is performed under fixed-price contracts (firm fixed-price
and fixed-price incentive) and, to a lesser extent, under cost-plus contracts
(cost-plus-fixed-fee or cost-plus-incentive-fee).
Under firm fixed-price contracts, the Company agrees to perform certain work
for a fixed price and, accordingly, realizes all the benefit or detriment
resulting from decreases or increases in the costs of performing
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<PAGE>
the contract. Fixed-price incentive contracts are fixed-price contracts
providing for adjustment of profit and establishment of final contract prices
by a formula based on the relationship which final total costs bear to total
target cost. In 1995, approximately 75% of the Government sales of the Company
derived from firm fixed-price contracts and approximately 12% from fixed-price
incentive contracts.
Cost-plus-fixed-fee contracts provide for reimbursement of costs, to the
extent that such costs are allowable, and the payment of a fixed fee. Cost-
plus-incentive-fee contracts provide for increases or decreases in the
contract fee, within specific limits, based upon actual results as compared to
contractual targets for cost. In 1995, approximately 12% of the Government
sales of the Company derived from cost-plus-fixed-fee contracts and
approximately 1% from cost-plus-incentive fee contracts.
Under U.S. Government regulations, certain costs, including certain
organization and financing costs, portions of research and development costs,
and certain marketing expenses related to the preparation of competitive bids
and proposals, lobbying costs, and international sales, are not reimbursable.
In addition, the accuracy and appropriateness of certain direct and indirect
costs of the Company under both fixed-price and cost-plus contracts are
subject to extensive regulation and audit by the Defense Contract Audit Agency
("DCAA"), an arm of the United States Department of Defense. The DCAA has the
right to challenge the Company's cost estimates or allocations with respect to
any such contract. If a DCAA audit establishes overcharges or other
discrepancies in costs or accounting, it can seek the repayment of such
overcharges or seek other reconciliations.
U.S. Government contracts are, by their terms, subject to termination by the
U.S. Government either for its convenience or due to default by the
contractor. Cost-plus contracts provide that, upon termination, the contractor
is entitled to reimbursement of its allowable costs; and if the termination is
for convenience, a total fee proportionate to the percentage of the work
completed under the contract. Fixed-priced contracts provide for payment upon
termination for items delivered to and accepted by the Government, and, if the
termination is for convenience, for payment of cost incurred, plus profit, for
work performed, plus the costs of settling and paying claims by terminated
subcontractors and other settlement expenses. If a contract termination is for
default, however, (i) the contractor is paid an amount agreed upon for
completed and partially completed products and services accepted by the
Government, (ii) the Government is not liable for the contractor's costs with
respect to unaccepted items, and is entitled to repayment of advance payments
and progress payments, if any, related to the terminated portions of the
contracts, and (iii) the contractor may be liable for excess costs incurred by
the Government in procuring undelivered items from another source.
Because the Company engages in Government contracting activities and sells
to the U.S. Government and prime Government contractors, it is subject to
extensive and complex U.S. Government procurement laws and regulations. These
laws and regulations provide for Government audits and reviews of contractor
quality, procurement, performance and administration. Failure to comply, even
inadvertently, with these laws and regulations and with laws governing the
export of munitions and other controlled products and commodities, could
subject the Company or one or more of its businesses to price adjustments,
including adjustments of fixed prices, and to civil and criminal penalties,
and under certain circumstances, suspension and debarment from future
Government contracts for a specified period of time. See "Legal Proceedings".
In connection with the resolution of the investigation of certain testing
irregularities at the Company's Marion, Illinois facility, Olin entered into
an Administrative Agreement with the United States Department of the Air Force
(the "Air Force"). That Agreement, among other things, requires a similar
agreement to be executed by the Company with the Air Force. The Agreement
executed by the Company is expected to obligate the Company to implement and
maintain an ethics actions plan designed to ensure the present responsibility
of the Company and its employees that is required of a U.S. Government
contractor. The Agreement is expected to be substantially similar to the
Administrative Agreement entered into by Olin and is expected to require,
among other things, a communication and training program for all employees,
the operation of a toll-free, dedicated telephone number for confidential
calls to report suspected misconduct and a self-governance program that
includes the periodic submission of written reports to the Air Force
describing the measures taken by the Company to implement the Agreement.
In addition to the right of the U.S. Government to terminate, Government
contracts are dependent upon the levels and continuing availability of
Congressional appropriations. Congress usually appropriates funds for a
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<PAGE>
given program on a fiscal-year basis even though contract performance may
require more than one year. Consequently, for multiyear programs, the contract
is usually partially funded, and additional monies are normally committed to
the contract by the procuring agency only as appropriations are made by
Congress for future fiscal years.
U.S. Government contract awards may also be subject to protest or challenge
by unsuccessful bidders.
Licenses are required from U.S. Government agencies for export of many of
the Company's products, including munitions and spacecraft and military
aircraft components and subsystems. These licenses are administered by the
U.S. Department of State under the Arms Export Control Act, which restricts
exports of certain products and technologies. Failure to comply with these
laws and regulations could subject the Company or one or more of its
businesses to penalties, including, under certain circumstances, the
suspension or debarment from future export licenses for a specified period of
time. In addition, the U.S. Bureau of Alcohol, Tobacco and Firearms ("BATF")
licenses the Company for the handling of explosives. Failure to comply with
BATF regulations could subject the Company to the revocation of these required
licenses. The Company believes that to the best of its knowledge it is
currently in compliance in all material respects with all such material
licenses and regulations.
In common with other companies which derive a substantial portion of their
revenues from contracts with the U.S. Government for defense-related products,
the Company is subject to business risks, including changes in Governmental
appropriations and changes in national defense policies. Future reductions in
the level of defense procurement or changes in the strategic direction of
defense spending could adversely affect the Company's financial performance in
future years, including its income, liquidity, capital resources and financial
condition. The impact of any of these changes will depend on the timing and
magnitude thereof and the Company's ability to mitigate their impact with new
business, business consolidations or cost reductions. In view of the
uncertainty regarding the priorities of the Department of Defense, the
historical financial information of the Company's businesses may not be
indicative of future performance.
Since the U.S. Government usually awards and funds ordnance contracts on a
year-by-year basis and the Company's business is dependent upon periodic
awards of new contracts and the exercise of options contained in existing
contracts, there can be no assurance that the U.S. Government will continue to
purchase the Company's products or services over the long-term. The
termination of any of the Company's significant contracts or the failure to
obtain either renewals of certain existing contracts or additional contracts
with the U.S. Government could have a material adverse effect on its results
of future operations and financial condition.
NOVATION OF U.S. GOVERNMENT CONTRACTS
As required by Federal procurement regulations providing for the U.S.
Government to recognize the Company as the successor in interest to Olin on
contracts between Olin and the U.S. Government, Olin will be required to enter
into novation agreements with the Company and the U.S. Government which will
provide, among other things, for Olin to directly or indirectly guarantee or
otherwise become liable for the performance of the Company's obligations under
such contracts which are being transferred to the Company in connection with
the Distribution (the "Guaranteed Contracts"), including post-novation
modifications to the Guaranteed Contracts. Such novation agreements also
provide that the Company assumes all obligations under the Guaranteed
Contracts and that the U.S. Government recognizes the transfer of such
Guaranteed Contracts and related assets. While these Guaranteed Contracts are
scheduled to be performed over a period of time, it is not expected that they
will be fully and finally discharged for a number of years.
The Company has agreed in the Assumption of Liabilities and Indemnity
Agreement to perform all of its obligations under each Guaranteed Contract and
to indemnify Olin against any liability Olin may incur under the novation
agreements by reason of any failure by the Company to perform such
obligations.
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<PAGE>
COMPETITION
The Company encounters strong competition in each of its product lines. The
degree to which the Company participates in future U.S. Government business
will depend to a large extent on its ability to offer better program
performance than its competitors at a lower price to the Government.
The Company competes with Alliant Techsystems Inc. ("Alliant") for the
supply of large and medium caliber ammunition to the U.S. Government and
foreign Governments. The Company also faces competition for international
sales of tank and medium caliber ammunition from foreign suppliers.
The Company's St. Marks, Florida facility is currently the only supplier of
Ball Powder(R) propellant to the U.S. Government for use in small caliber
ammunition. The Company competes with Alliant and Expro Chemical Products
("Expro"), a Canadian company, in North America for the supply of gunpowder
for medium caliber ammunition and other military applications. In many cases,
the gunpowder available varies from one supplier to another and, as a result,
competition is based on both price and performance characteristics. In the
commercial gunpowder market, the Company competes with Alliant, Expro and a
variety of foreign suppliers.
In other product lines, the Company's principal competitors are: Kaiser
Marquardt Company in the area of monopropellant hydrazine propulsion, Hughes
Aircraft Company and International Space Technology, Inc. with regard to
electric propulsion, and Talley Industries in specialty solid propellant
products. The Company's electronic products compete with a variety of other
companies' technology and hardware. Other than work done by the Government's
National Laboratory System, competition in the field of high-voltage pulsed
power systems is provided principally by Maxwell Laboratories, Inc., and in
the case of high-performance, precision warheads, the competition is comprised
of Alliant, Aerojet-General Corporation and CMS Defense Systems.
RESEARCH AND DEVELOPMENT; PATENTS
The Company's research activities are conducted at a number of facilities.
Company-sponsored research expenditures were approximately $5 million, $5
million and $6 million for 1995, 1994 and 1993, respectively. Customer-
sponsored research expenditures of the Company (primarily U.S. Government)
were approximately $48 million, $81 million, and $85 million, respectively,
for such years. Customer-sponsored research declined in 1995 primarily as a
result of the reduction in Government-funded ammunition programs and the
advancement of a major ammunition development program into the production
stage.
The Company owns, or is the licensee under, a number of technologies and/or
patents relating to various products and processes. The Company believes that,
in the aggregate, the rights under its technological assets and licenses are
important to the Company but, except as discussed herein, the Company does not
consider any one technology, patent or license or group thereof related to a
specific process or product to be of material importance to the Company as a
whole. The Ball Powder(R) propellant technology is material to the Company's
St. Marks, Florida operation. This is proprietary manufacturing know-how and
trade secret information which is critical in the manufacture of propellants.
A patent covers an important aspect of that know-how, namely, a process for
the production of spherical, single-base, low-density propellant grains. The
patent was issued in 1987 and will expire on September 22, 2004.
BACKLOG
The aggregate amount of contracted backlog orders for the Company on
September 30, 1996 and 1995 was $389 million and $400 million, respectively.
It is expected that approximately $126 million of sales during the remainder
of 1996 will fill orders that were in backlog as of September 30, 1996. The
backlog represents the value of contracts for which goods and services are yet
to be provided. Under multiyear contracts, a portion of the backlog is subject
to approval of Government appropriations. The backlog consists of firm
contracts, and although they can be and sometimes are changed or cancelled,
the amount of changes and cancellations historically has been insignificant.
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EXPORT SALES
The Company's export sales from the United States to unaffiliated customers
were $24 million, $16 million and $21 million in 1995, 1994 and 1993,
respectively.
SEASONALITY
Although the business of the Company is not seasonal in nature, sales to the
Department of Defense are historically stronger in the latter part of the year
reflecting the procurement cycle utilized by the U.S. Army. Certain commercial
sales, such as Ball Powder(R) propellant volumes, tend to be stronger in the
first half of the year.
EMPLOYEES
As of December 31, 1995, the Company had approximately 2,640 employees,
approximately six of whom were working in foreign countries. Approximately 500
of the hourly paid employees of the Company located at its St. Marks, Florida
and Marion, Illinois facilities are represented, for purposes of collective
bargaining, by local unions affiliated with the United Steelworkers of
America, and the Company is party to two labor contracts relating to such
employees. These labor contracts extend for three year terms, with one
expiring in December 1996 and the other expiring in October 1997. The Company
has commenced contract negotiations with respect to the contract expiring in
1996. No major work stoppages have occurred in the last three years. While
relations between the Company and its employees and their various
representatives are generally considered satisfactory, there can be no
assurance that new labor contracts can be concluded without stoppages.
ENVIRONMENTAL MATTERS
The establishment and implementation of Federal, state and local standards
to regulate air, water and land quality has affected, and will continue to
affect, substantially all of the Company's plants. Federal legislation
providing for regulation of the manufacture, transportation, use and disposal
of hazardous and toxic substances has imposed additional regulatory
requirements on industry. In addition, implementation of environmental laws,
such as the Resource Conservation and Recovery Act and the Clean Air Act, has
required and will continue to require new capital expenditures and will
increase operating costs. In order to help finance the cleanup of waste
disposal sites, the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended by the Superfund Amendments and
Reauthorization Act of 1986 ("Superfund"), imposes a tax on the disposal of
certain hazardous wastes. The Company employs waste minimization programs at
most of its manufacturing sites. See the discussion of environmental matters
contained in "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Environmental".
The Company and Olin have agreed pursuant to the Assumption of Liabilities
and Indemnity Agreement that the Company will assume, and indemnify and hold
Olin harmless against, all liabilities associated with the removal,
remediation and control of environmental conditions at several of the
Company's existing and former plant sites. Such liabilities are not expected
to have a material adverse effect upon the Company's financial condition or
results of operations. See "Relationship Between Olin and the Company after
the Distribution--Assumption of Liabilities and Indemnity Agreement".
CREDIT FACILITY
Prior to the Distribution Date, the Company will assume a $160 million
credit facility established by Olin, under which Olin will borrow $125
million. The credit facility has a five-year term and permits borrowings
thereunder with up to $ million available for letters of credit. The
facility is intended to provide sufficient liquidity for the Company's current
funding needs. The facility permits various borrowing options and contains
customary commercial bank covenants, including restrictions on the payment of
dividends by the Company and the acquisition by the Company of its capital
stock.
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PROPERTIES
The table below sets forth the locations where the Company conducts its
business and a brief description of the activities conducted at each
identified location. A more detailed description of the Company's principal
manufacturing facilities follows the table. The Company believes that its
facilities are sufficiently maintained and suitable and adequate for its
immediate needs and that additional space is available to accommodate
expansion. Unless otherwise noted below, the identified location is owned by
the Company.
<TABLE>
<CAPTION>
LOCATION PRIMARY ACTIVITIES
-------- ------------------
<C> <S>
St. Petersburg, Flori-
da(1)..................... Corporate headquarters
Systems management operation for large caliber
ammunition
Red Lion, Pennsylvania..... Manufacturing and research and development
facility for large caliber ammunition metal and
composite parts
Redmond, Washington........ Design, manufacturing and test facility for space,
solid propellant and electronic products
Office facilities
Research and development laboratory
St. Marks, Florida......... Manufacturing facility for Ball Powder (R)
propellant
Research and development laboratory
Marion, Illinois(1)........ Loading, assembly and packing of medium caliber
ammunition
Manufacturing and test facility for solid
propellant products
Demilitarization services
Research and development laboratory
San Leandro, California(1). Pulsed power research and development laboratory
and test facilities; pulsed power and advanced
warhead engineering and management
Downey, California(1)...... Manufacturing facility for medium caliber
ammunition components and air dispensed munitions
components
System management and research and development
Moses Lake, Washington(1).. Manufacturing and test facility for solid
propellant products
Camden, Arkansas(2)........ Test range
Support for the ammunition business
Tracy, California.......... Manufacturing and test facility for advanced anti-
armor warhead systems
Lucerne, Switzerland(1).... Design, development and testing of anti-armor
warhead systems for the Swiss Government
</TABLE>
- --------
(1) Leased.
(2) Occupied under a subcontract.
PRINCIPAL MANUFACTURING FACILITIES
The principal manufacturing properties of the Company described below are
all owned by the Company, except for the Marion, Illinois manufacturing
facility which is leased from the U.S. Government.
RED LION, PENNSYLVANIA. The Company's facility located in Red Lion,
Pennsylvania designs, develops and manufactures large caliber ammunition
components, primarily 120mm tank ammunition, training and tactical
projectiles and case bases. Thick cross section composite structures are
produced at this location from carbon fiber and are incorporated into the
Company's tactical tank ammunition.
The plant is vertically integrated for the manufacture and assembly of
metal parts. Equipment and processes exist on site to forge, heat treat,
turn, mill, anodize and paint metal parts. The plant applies the same
manufacturing processes utilized in the production of large caliber
ammunition components to the production of large cylindrical commercial
items. The vertical integration of the plant combined with its large
machining capabilities provide the Company with the opportunity to produce
products with military and commercial applications.
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<PAGE>
REDMOND, WASHINGTON. The Company's space products and electronic products
and certain propellant products are designed, manufactured and tested at
this facility, utilizing integrated product development techniques. State-
of-the-art equipment and processes at the Redmond location facilitate the
Company's ability to produce high technology products. The Redmond
engineering staff, supported by the latest CAD/CAE/CAM programs, is capable
of simulating conditions within an aircraft cabin and rigorous launch and
space environments, which enables the Company to meet the exacting
specifications of products having commercial, Department of Defense and
NASA applications.
ST. MARKS, FLORIDA. Ball Powder(R) propellant is developed and produced
for commercial and military ammunition at the Company's highly automated
propellant plant located in St. Marks, Florida. The research and
development laboratory located at the St. Marks plant site is equipped to
perform chemical and thermal analyses and propellant syntheses. The
Company's ability to conduct research and development activities on-site
facilitates the creation of propellants with a variety of ballistic
performance characteristics. These capabilities enable the Company to meet
a wide range of product specifications as evidenced by more than one
hundred different varieties of propellant in the Ball Powder(R) product
line.
MARION, ILLINOIS. The Company develops and loads, assembles and packs
medium caliber ammunition and manufactures solid propellant products at its
Marion, Illinois manufacturing facility. The Company conducts
demilitarization activities at this facility which involve the disassembly
of obsolete ammunition. Artillery propulsion charges are also loaded,
assembled and packed in Marion. In addition to the manufacturing facility,
the Company has extensive testing capabilities at the plant site. This
includes a Company-owned 290-acre test facility which utilizes three
enclosed, fully instrumented test tunnels, with multiple test set-ups and
remote firing bays.
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LEGAL PROCEEDINGS
The Company is primarily engaged in providing products and services under
contracts with the U.S. Government and, to a lesser degree, under foreign
Government contracts, some of which are funded by the U.S. Government. All
such contracts are subject to extensive legal and regulatory requirements and,
from time to time, agencies of the U.S. Government investigate whether the
Company's operations are being conducted in accordance with these
requirements. Such investigations could result in administrative, civil or
criminal liabilities including repayments, fines or penalties being imposed
upon the Company or could lead to suspension or debarment from future
Government contracting by the Company. See "Risk Factors--Risks Inherent in
Government Contracting" and "Business--U.S. Government Contracts and
Regulations ".
The Company has strict policies requiring its employees to comply with all
applicable legal standards relating to contract procurement and
administration. In addition, the Company requires adherence to high ethical
standards by its employees. The Company also has Government Contract
Compliance Officers who are responsible for assuring that adequate policies
and procedures exist and for monitoring compliance with these procedures. It
is the policy of the Company and its subsidiaries to cooperate fully with all
Governmental investigations of their affairs.
The Company is a party to a number of pending or threatened investigations,
claims and proceedings.
In May 1994, the Company discovered that an employee may have modified
inspection and testing software used on certain medium caliber ammunition
production lines at its Marion, Illinois testing facility to permit
inspections to be performed at tolerances which may not have been fully
compliant with applicable contract specifications. Upon discovering the issue,
the Company promptly notified U.S. Government contract representatives,
voluntarily disclosed the circumstances then known to the Department of
Defense's Office of the Inspector General and expressed its intent to
investigate fully the matter and take all necessary corrective actions. In
September 1994, a Federal grand jury in the United States District Court for
the Southern District of Illinois issued two subpoenas to the Company
requesting production of documents relating generally to certain medium
caliber ammunition programs and specifically to the software modification
described above. Subsequently, the Company received additional subpoenas and
several Marion employees received subpoenas to testify before the grand jury.
The Company has fully complied with the subpoenas and cooperated with
Government officials to resolve the matter. After discussions with the U.S.
Attorney's Office regarding the investigation of the performance of the
contracts in question, Olin and the U.S. Attorney entered into an agreement to
settle this matter on September 11, 1996. Under the agreement, the U.S.
Government agreed not to pursue any criminal or civil claims against Olin or
its subsidiaries in connection with these government contracts. Olin has paid
to the U.S. Government $8 million in connection with the settlement and
without admitting to any wrongdoing or liability. For information concerning
an Administrative Agreement between the Company and the United States
Department of the Air Force to be entered into as a result of the settlement
of this matter, see "Business--U.S. Government Contracts and Regulations"
elsewhere herein.
The Company is involved in a contract dispute with the Belgium Ministry of
Defense related to a 1985 sale of tank ammunition. The Belgium Ministry of
Defense has alleged improprieties committed by the Belgium national who
represented Olin in the transaction. Based on these allegations, the Belgium
Ministry of Defense withheld final payment on the contract. On July 2, 1990,
the Company's wholly-owned subsidiary General Defense International ("GDI")
instituted an action in the Court of First Instance of Brussels (the "Court")
seeking that the Court declare that because the Ministry of Defense withheld
the final payment, the contract had been terminated and GDI's obligations
thereunder extinguished. The Company agreed to extend a letter of credit
related to the contract guarantee pending resolution of the underlying
contract dispute. In March, 1996, the trial court ruled against the Company.
The decision has been appealed. In the event that the trial court's decision
is sustained, the resultant liability is estimated at approximately $4.5
million, net of a $1.1 million receivable, at current exchange rates.
32
<PAGE>
While the Company cannot predict the ultimate outcome of the Belgian
contract dispute summarized above, as well as other pending or threatened
proceedings, including matters arising under provisions relating to the
protection of the environment, it does not believe that the consequences will
be materially adverse to its results of operations or financial position or
that the Company's liability with respect thereto will exceed the amounts
which have previously been charged to its income. Olin has agreed to assume
responsibility for certain post-Distribution legal costs, judgments and civil
settlements associated with the Belgium contract dispute.
RELATIONSHIP BETWEEN OLIN AND THE COMPANY AFTER THE DISTRIBUTION
The Company was organized by Olin as a wholly owned subsidiary in
anticipation of the Distribution. After the Distribution, Olin will not have
any ownership interest in the Company, and the Company will be an independent
public company.
Prior to the Distribution, the Company and Olin will enter into certain
agreements, described below, for the purpose of giving effect to the
Distribution, governing their relationship subsequent to the Distribution and
providing for the allocation of tax and certain other liabilities and
obligations arising from periods prior to the Distribution. While the
agreements contain terms which generally are comparable to those which would
have been reached in arms-length negotiations with unaffiliated parties, these
agreements were reached while the Company was wholly owned by Olin and
therefore are not the result of arm's-length negotiations between independent
parties.
Following the Distribution, additional or modified agreements, arrangements
and transactions may be entered into by the Company, Olin and their respective
subsidiaries. Any such future agreements, arrangements and transactions will
be determined through arm's-length negotiation between the parties in the
ordinary course.
Copies of the forms of the principal agreements between the Company and Olin
are filed as exhibits to the Company's Registration Statement on Form 10
registering the Company Common Stock under the Exchange Act. The following
description summarizes certain terms of such agreements, but the following
descriptions do not purport to be complete and are qualified in their entirety
by reference to such exhibits.
DISTRIBUTION AGREEMENT
Olin and the Company have entered into a Distribution Agreement providing
for, among other things, certain corporate transactions required to effect the
Distribution and other arrangements between Olin and the Company subsequent to
the Distribution.
The Distribution Agreement provides for the transfer by Olin to the Company
of the assets and business entities comprising the Ordnance/Aerospace
Business. The assets of the Ordnance/Aerospace Business will be transferred to
the Company on an "as is, where is" basis and no representations will be made
by Olin with respect thereto. The Distribution Agreement also provides that
prior to the Distribution the Company will assume approximately $125 million
of indebtedness incurred by Olin. The Distribution Agreement also provides for
the treatment of employee obligations and benefit plans of certain employees
of the Company in the manner described under "Employee Benefits and
Compensation Matters". The Distribution Agreement also provides for the
allocation of benefits between the Company and Olin under existing insurance
policies after the Distribution Date and sets forth procedures for the
administration of insured claims.
The Distribution Agreement provides that each of Olin and the Company will
be granted access to certain records and information in the possession of the
other and requires each of Olin and the Company to provide to the other copies
of all documents filed with the Securities and Exchange Commission pursuant to
the periodic and interim reporting requirements of the Exchange Act. The
Distribution Agreement provides that on or prior to the Distribution the
Articles of Incorporation and By-laws of the Company will have been adopted in
the forms attached thereto and that the individuals identified therein as
directors of the Company shall have been elected.
33
<PAGE>
The Distribution Agreement provides that, in general, except as otherwise
set forth therein or in any related agreement, all costs and expenses incurred
in connection with the Distribution will be paid by Olin, other than costs and
expenses expressly incurred by the Company (including fees of attorneys or
financial advisors retained by the Company, if any).
TECHNOLOGY TRANSFER AND LICENSE AGREEMENT
The Company and Olin have entered into a technology transfer and license
agreement (the "Technology Transfer and License Agreement"), which provides
for the transfer by Olin to the Company of certain intellectual property and
proprietary technology relating to the Company's businesses. The Technology
Transfer and License Agreement provides for the grant of licenses by the
Company to Olin to use such transferred intellectual property and technology
in certain of Olin's retained businesses following the Distribution and for
the granting of licenses between Olin and the Company relating to the use of
certain jointly-developed intellectual property and technology.
TAX SHARING AGREEMENT
The Company and Olin have entered into a Tax Sharing Agreement effectively
providing that Olin will be responsible for the tax liability of the Company
for the years that the Company was included in Olin's consolidated Federal
income tax return. The Tax Sharing Agreement also provides that state, local
and foreign taxes attributable to periods prior to the Distribution will be
the responsibility of Olin and that if the Distribution fails to qualify as a
tax-free spin-off as a result of action taken after the distribution by Olin
or the Company, the party that took such action will be responsible for the
full amount of any resulting corporate tax liability. Neither Olin nor the
Company will indemnify any shareholder for any tax liability.
POWDER SUPPLY REQUIREMENTS AGREEMENT; COMPONENT SUPPLY AGREEMENT
The Company and Olin have entered into a powder supply requirements
agreement (the "Powder Supply Requirements Agreement") and a component supply
agreement (the "Component Supply Agreement") which set forth the terms on
which Olin will purchase propellant powder from the Company and the Company
will purchase certain ammunition components from Olin following the
Distribution.
The Powder Supply Requirements Agreement generally provides that Olin will
purchase, at prices to be agreed upon from time to time, a certain percentage
of the propellant powder required in any calendar year by its Winchester
Division from the Company, starting at 100% of such requirements for 1997 for
Ball Powder propellant and decreasing annually to 70% for 2002. The prices are
expected to be at a range of discounts from competitive prices depending on
requirements purchased. In 1995, Olin's purchases of propellant powder
accounted for approximately 42% of the Company's annual production. The Powder
Supply Requirements Agreement provides for reductions in the amounts of
propellant powder that Olin is required to purchase to the extent that the
Company is unable or unwilling to meet a request by Olin to produce a type of
propellant powder or to match pricing and other terms offered by third
parties. The arrangement provides that Olin will reimburse the Company for any
lost profits resulting from Olin's failure to purchase the required amount of
propellant powder from the Company in any year. The Powder Supply Requirements
Agreement also provides for the purchase by Olin from the Company of certain
powders manufactured by Synthesia a.s., a Czech manufacturer for whom the
Company acts as North American distributor. Any purchases by Olin of such
Synthesia powders are in addition to Olin's required purchase obligations
described above. The term of the Powder Supply Requirements Agreement expires
on December 31, 2002, unless earlier terminated in accordance with its terms.
Pursuant to the Powder Supply Requirements Agreement, the Company shall
indemnify Olin against all losses arising from actual or alleged manufacturing
or design defects in the products delivered pursuant thereto and Olin shall
indemnify the Company against all losses arising from Olin's negligent misuse
or improper handling thereof or defects in the ammunition (other than powder
defects).
The Component Supply Agreement provides that the Company will purchase
certain ammunition components (the "Components") from Olin at agreed-upon
prices until December 31, 1999, unless the
34
<PAGE>
Component Supply Agreement is earlier terminated in accordance with its terms.
Pursuant to the Component Supply Agreement, Olin will indemnify the Company
against all losses arising in connection with actual or alleged manufacturing
and design defects in the Components delivered pursuant thereto and the
Company will indemnify Olin against all losses arising in connection with the
Company's negligent misuse or improper handling of the Components delivered
pursuant thereto.
BALL POWDER(R) ASSIGNMENT AGREEMENT
The Company and Olin have entered into an assignment agreement (the "Ball
Powder(R) Assignment Agreement") providing for the assignment by Olin to the
Company of Olin's Ball Powder(R) trademarks. Pursuant to the Ball Powder(R)
Assignment Agreement, the Company has agreed to grant to Olin such rights and
licenses as may be necessary for Olin to fulfill certain existing contractual
obligations to Browning S.A. relating to the manufacture and sale of certain
products in Europe.
BROWNING DISTRIBUTION AGREEMENT
The Company and Olin have entered into a powder distribution agreement (the
"Browning Distribution Agreement") pursuant to which the Company has appointed
Olin its exclusive distributor of canister powder to Browning, S.A., and
certain of its subsidiaries throughout Europe.
ASSUMPTION OF LIABILITIES AND INDEMNITY AGREEMENT
The Company and Olin have entered into an assumption of liabilities and
indemnity agreement (the "Assumption of Liabilities and Indemnity Agreement")
which generally provides for the assumption of liabilities and cross
indemnities designed to place with the Company responsibility for liabilities
of the Ordnance/Aerospace Business and with Olin responsibility for
liabilities of the businesses to be retained by Olin after the Distribution.
Specifically, the Company has agreed, subject to certain exceptions, to
assume, and indemnify and hold Olin harmless from and against, all damages,
losses, liabilities, fines, penalties, costs and expenses arising out of or
associated with the business, conduct, operations, assets, properties or
status of the Company prior to, on or after the Distribution.
The Assumption of Liabilities and Indemnity Agreement also provides that the
Company will assume, and indemnify and hold Olin harmless from, all
liabilities in connection with the removal, remediation or control of
environmental conditions at certain of the Company's facilities (see
"Business--Environmental Matters") and that the Company will indemnify Olin
for any liabilities arising out of Olin's existing guarantee of certain lease
obligations of the Company. The Assumption of Liabilities and Indemnity
Agreement also provides for cross indemnities relating to certain employee
benefit claims.
TRANSITION SERVICES AGREEMENT
The Company and Olin have entered into a transition services agreement (the
"Transition Services Agreement") pursuant to which Olin and the Company will
provide each other with certain services which have been provided by Olin and
the Company prior to the Distribution. The length of time for which any such
service shall be provided, and the compensation therefor, vary based upon the
mutual agreement of the Company and Olin.
COVENANT NOT TO COMPETE AGREEMENT
The Company and Olin have entered into a covenant not to compete agreement
(the "Covenant Not To Compete Agreement") which generally provides that, for a
period of five years, Olin shall not, subject to certain exceptions, directly
or indirectly manufacture, sell or distribute medium or large caliber
ammunition or components and that the Company shall not, subject to certain
exceptions, directly or indirectly manufacture, sell or distribute small
caliber ammunition or components, ejection cartridges or shotshells.
RAUFOSS TECHNOLOGY AGREEMENT
The Company and Olin have entered into an assignment agreement (the "Raufoss
Technology Agreement") pursuant to which Olin has assigned to the Company all
of Olin's rights under and interests in a license agreement with Raufoss A/S
("Raufoss") relating to the use of certain proprietary technology of Raufoss
in the
35
<PAGE>
manufacture and sale of ammunition. Pursuant to the Raufoss Technology
Agreement, Olin has also assigned to the Company all of Olin's rights under
and interests in a teaming agreement with Raufoss providing for cooperation in
the manufacture and sale of multipurpose ammunition. The Raufoss Technology
Agreement also provides for the grant by the Company to Olin of an exclusive
sublicense to utilize the Company's rights and licenses with respect to
proprietary technology of Raufoss in the manufacture and sale of small caliber
ammunition.
AUSTRALIA AGENCY AGREEMENT
The Company and Olin Australia Ltd., a subsidiary of Olin ("Olin
Australia"), have entered into an agency agreement (the "Australia Agency
Agreement") pursuant to which the Company has appointed Olin Australia as its
non-exclusive agent for the sale of certain medium and large caliber
ammunition to government agencies in Australia, New Zealand, Papua New Guinea
and Oceania. Under the Australia Agency Agreement, Olin Australia will be paid
individually agreed-upon commissions by the Company at the time of order
acceptance by the Company. The Australia Agency Agreement will continue in
effect until such time as either party thereto provides the other with 30-
days' notice of termination.
TRADE NAME LICENSE AGREEMENT
Olin and the Company have entered into an agreement to permit the Company
and its subsidiaries to use the "Olin" name and its derivatives in certain
limited circumstances for a certain limited period of time.
PRIMEX DIRECTORS
Following the Distribution Date, Anthony W. Ruggiero, Olin's Senior Vice
President and Chief Financial Officer, will serve on the Board of Directors of
the Company. See "Management--Board of Directors".
36
<PAGE>
MANAGEMENT AND EXECUTIVE COMPENSATION
BOARD OF DIRECTORS
The following table sets forth information as to persons who serve or who
are expected to serve as directors of the Company immediately following the
Distribution. The Company's Board of Directors will be comprised of eight
directors, only two of whom are officers of the Company and one of whom, Mr.
Ruggiero, is an officer of Olin. The following table contains information
concerning directors selected as of the date hereof.
<TABLE>
<CAPTION>
NAME AND AGE YEAR TERM EXPIRES
------------ -----------------
<S> <C>
Angelo A. Catani, 64.................................... 1998
James G. Hascall, 57.................................... 1999
David Lasky, 64......................................... 1999
Bob Martinez, 62........................................ 1998
William B. Mitchell, 60................................. 1999
Robert H. Rau, 60....................................... 1997
Anthony W. Ruggiero, 55................................. 1998
Leon E. Salomon, 60..................................... 1997
</TABLE>
Mr. Catani is Vice Chairman of the Company. Mr. Catani was elected a
Corporate Vice President of Olin in April 1993 and has served as President of
Olin's Ordnance Division since 1988. Mr. Catani also served as Vice President
and General Manager of Defense Products for Olin from 1985 to 1987.
Mr. Hascall is Chairman and Chief Executive Officer of the Company. Mr.
Hascall has served as Executive Vice President of Olin since January 1, 1996,
having operating responsibility for Olin's Brass, Winchester, Ordnance and
Aerospace Divisions. From October 1985 through December 1995, Mr. Hascall
served as President of Olin's Brass Division and as a Corporate Senior Vice
President of Olin.
Mr. Lasky has served as Chairman of the Board of Directors of Curtiss-Wright
Corporation since May 1995 and as Director, President and Chief Executive
Officer of Curtiss-Wright since May 1993. Mr. Lasky previously served as
Senior Vice President and General Counsel of Curtiss-Wright.
Governor Martinez is a principal of Bob Martinez & Company, a domestic and
international business development consulting firm, founded by him in 1993.
From 1991-1993, Governor Martinez served as the nation's Drug Czar and from
1987 to 1991 as the Governor of the State of Florida. Prior to that time, he
served in a variety of governmental positions, including Mayor of the City of
Tampa, Florida.
Mr. Mitchell has served as Vice Chairman of Texas Instruments Incorporated
since 1993. Mr. Mitchell previously served as Executive Vice President of
Texas Instruments. He is currently a director of Curtiss-Wright Corporation.
Mr. Rau has served as President and Chief Executive Officer of Rohr, Inc.
since April 1993. Mr. Rau previously served as Executive Vice President of
Parker Hannifin Corporation and as President of the Parker Bertea Aerospace
Group of Parker Hannifin. He is also a member of the Board of Directors of
Rohr.
Mr. Ruggiero has served as Senior Vice President and Chief Financial Officer
of Olin since September 1995. Prior to joining Olin, Mr. Ruggiero was Senior
Vice President and Chief Financial Officer of Reader's Digest Association.
General Salomon is presently the Corporate Vice President of Purchasing and
Logistics for Rubbermaid Incorporated. General Salomon retired from active
duty in the U.S. Army in April 1996. Prior to his retirement, General Salomon
commanded the U.S. Army Material Command from February 11, 1994. From 1992-
1994, General Salomon was the Deputy Chief of Staff for Logistics, Department
of the Army. Prior to that assignment, he was the Deputy Commanding General
for Combined Arms Support, U.S. Army Training and Doctrine Command, and
Commanding General, U.S. Army Combined Arms Support Command and Fort Lee,
Virginia from 1989 to 1992.
37
<PAGE>
COMMITTEES OF THE BOARD OF DIRECTORS
The Company will be managed under the direction of its Board of Directors.
The Company's By-laws also provide for an Audit Committee and a Compensation
and Nominating Committee of the Board of Directors.
The Audit Committee will be composed solely of directors who are not
employees of the Company or any of its subsidiaries. The Audit Committee will
advise the Board on audit matters affecting the Company, including
recommendation of the appointment of independent auditors of the Company;
review with such auditors the scope and results of their examination of the
financial statements of the Company and any investigations and surveys by such
auditors; and review the presentation of the Company's financial results. The
committee will also advise the Board on government and other compliance
programs, on corporate and governmental security matters, and monitor major
litigation with a particular interest in the event there are claims that the
Company has acted unethically or unlawfully. The members of the Audit
Committee are expected to be Messrs. Rau, Ruggiero and Salomon.
The Compensation and Nominating Committee will set policy, develop and
monitor strategies for and administer the programs which compensate the Chief
Executive Officer (the "CEO") and other senior executives of the Company. The
committee will approve the salary plans for the CEO and other senior
executives including total direct compensation opportunity and the mix of base
salary and long term incentive awards. The committee will administer the
Primex 1996 Long Term Incentive Plan described herein, the Primex Savings and
Retirement Plan described herein and the Primex Technologies, Inc. Stock Plan
for Nonemployee Directors described herein, and review plans for management
development and succession. The committee also will advise the Board on such
matters as the composition and remuneration of the Board and committees
thereof, including the nomination of directors, protection against liability
and indemnification. The committee will consider candidates recommended by
shareholders for election as directors at annual meetings. The members of the
Compensation and Nominating Committee are expected to be Messrs. Lasky,
Mitchell and Martinez.
COMPENSATION OF DIRECTORS
Each director who is not an employee of the Company will receive a fixed
annual retainer of $20,000 and a fee of $1,000 for each meeting of the Board
and for each meeting of a committee of the Board attended, together with
expenses incurred in the performance of their duties as directors. Each
Director who serves as the chair of a Board committee also will receive an
additional annual meeting fee of $3,000. Half of the $20,000 annual retainer
will be paid in Company Common Stock, and each director may elect to receive
the balance thereof in cash or Company Common Stock. All meeting fees may be
payable in cash or Company Common Stock, at the election of the director.
Directors may defer the cash portions of their annual retainer and meetings
fees into cash accounts which will bear interest and/or into stock accounts
which will be credited with dividend equivalents. The Company's Stock Plan for
Nonemployee Directors described elsewhere herein provides that each non-
employee director serving in such capacity on January 1 of each year will be
credited with a number of shares of Company Common Stock having a fair market
value equal to $5,000. See "Management and Executive Compensation--Stock Plan
for Nonemployee Directors".
38
<PAGE>
EXECUTIVE OFFICERS OF THE COMPANY
Set forth below is certain information as to the Company's executive
officers who will serve as such after the Distribution. On the Distribution
Date, all executive officers will resign from any positions then held with
Olin.
<TABLE>
<CAPTION>
NAME AND AGE POSITION
------------ --------
<C> <S>
James G. Hascall, 57................ Chairman and Chief Executive Officer
Angelo A. Catani, 64................ Vice Chairman
J. Douglas DeMaire, 50.............. Executive Vice President
William W. Smith, 61................ Executive Vice President and President, Aerospace and Electronics Division
Stephen C. Curley, 44............... Vice President and Treasurer
John E. Fischer, 41................. Vice President and Chief Financial Officer
George H. Pain, 45.................. Vice President, General Counsel and Secretary
Jackson C. Picker, 47............... Vice President, Human Resources
Michael S. Wilson, 50............... Vice President and President, Ordnance and Tactical Systems Division
</TABLE>
Mr. Hascall has served as Executive Vice President of Olin since January 1,
1996, having operating responsibility for Olin's Brass, Winchester, Ordnance
and Aerospace Divisions. From October 1985 through December 1995, Mr. Hascall
served as President of Olin's Brass Division and as a Corporate Senior Vice
President of Olin.
Mr. Catani was elected a Corporate Vice President of Olin in April 1993 and
has served as President of Olin's Ordnance Division since 1988. Mr. Catani
also served as Vice President and General Manager of Defense Products for Olin
from 1985 to 1987.
Mr. DeMaire has served as Corporate Vice President, Corporate Planning for
Olin since January 1996. Previously, Mr. DeMaire served as Vice President,
Planning for Olin's Brass and Winchester Divisions from 1986 and 1991,
respectively.
Mr. Smith was elected a Corporate Vice President of Olin in April 1993,
having served as President of Olin's Aerospace Division since 1988.
Mr. Curley has served as Assistant Treasurer of Olin since September 1990.
Previously, Mr. Curley served as a Senior Tax Counsel in Olin's Tax
Department.
Mr. Fischer has served as Vice President and Financial Officer of Olin's
Ordnance Division since January 1995. Mr. Fischer previously served in a
number of financial and contract management positions with Olin's subsidiary
General Defense Corporation ("GDC"), and was corporate controller of GDC when
it was acquired by Olin in 1988.
Mr. Pain has served as Vice President Legal, of Olin's Brass and Winchester
Divisions, and as Deputy General Counsel of Olin, since 1995. Mr. Pain has
served in Olin's legal department since at least 1986.
Mr. Picker has served as Vice President, Human Resources of Olin's Ordnance
Division since 1989, and has served in various other human resource positions
with Olin since 1975.
Mr. Wilson has served as Vice President of Tank Ammunition for Olin since
1991. Mr. Wilson served from 1990 to 1991 as Vice President of Marketing, and
from 1988 to 1991 as Vice President of Programs, for Olin's Ordnance Division.
Mr. Wilson joined Olin's Ordnance Division in 1985 as Director of Business
Development and Planning.
39
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS
The Company was formed on May 10, 1996. The following table discloses
compensation received by the Company's Chief Executive Officer and the four
other most highly compensated executive officers of the Company (the "Named
Executive Officers") for services rendered to Olin for the fiscal year ended
December 31, 1995:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
---------------------
1995 ANNUAL COMPENSATION AWARDS PAYOUTS
--------------------------------- ------------- -------
SECURITIES
NAME AND PRINCIPAL POSITION OTHER ANNUAL UNDERLYING LTIP ALL OTHER
AS OF DECEMBER 31, 1995 SALARY BONUS COMPENSATION(B) OPTIONS(#)(C) PAYOUTS COMPENSATION(D)
- --------------------------- -------- -------- --------------- ------------- ------- ---------------
<S> <C> <C> <C> <C> <C> <C>
James G. Hascall........ $312,500 $260,000 $31,293 5,439 $ 0 $17,081
Senior Vice
President(a)
Angelo A. Catani........ 239,626 150,000 14,180 3,626 0 14,007
Vice President
William W. Smith........ 239,242 125,000 12,930 3,626 0 14,125
Vice President
J. Douglas DeMaire...... 180,546 88,000 5,994 1,073 0 7,220
Vice President,
Business Planning,
Brass & Winchester
Divisions
Michael S. Wilson....... 158,877 52,000 4,408 820 0 7,921
Vice President 120MM
Tank-Ordnance Division
</TABLE>
- --------
(a) Effective January 1, 1996, the Board of Directors of Olin elected Mr.
Hascall Executive Vice President.
(b) Includes dividend equivalents on outstanding performance share units paid
at the same rate as dividends paid on Olin Common Stock. Also includes tax
gross-ups paid for imputed income on use of company-provided automobiles.
(c) The stock options reported are for Olin Common Stock and do not represent
options to acquire Company Common Stock. In the event options are
exercised and shares of Olin Common Stock are issued prior to the Record
Date, the option holder will receive Company Common Stock in the
Distribution on the same basis as all other shareholders of record of Olin
Common Stock on the Record Date. Figures do not reflect a two-for-one
stock split effective October 31, 1996.
(d) Amounts reported in this column for 1995 are comprised of the following
items:
<TABLE>
<CAPTION>
OLIN CONTRIBUTING
EMPLOYEE OLIN SUPPLEMENTAL
OWNERSHIP PLAN CONTRIBUTING EMPLOYEE OLIN TERM LIFE
COMPANY MATCH OWNERSHIP PLAN(1) INSURANCE(2)
----------------- --------------------- --------------
<S> <C> <C> <C>
J.G. Hascall...... $6,111 $6,338 $4,632
A. A. Catani...... 5,956 3,515 4,536
W. W. Smith....... 6,111 3,479 4,535
J. D. DeMaire..... 6,175 1,045 0
M. S. Wilson...... 5,801 385 3,068
</TABLE>
- --------
(1) The Olin Supplemental CEOP permits participants in the CEOP to make
contributions, and Olin to match the same, in amounts permitted by the
CEOP but which would otherwise be in excess of those permitted by certain
Internal Revenue Service limitations.
(2) Under Olin's key executive insurance program, additional life insurance is
provided and monthly payments are made to the spouse and dependent
children of deceased participants.
40
<PAGE>
OPTION GRANTS OF OLIN COMMON STOCK TO COMPANY EXECUTIVES IN LAST FISCAL YEAR
The following table sets forth as to the Named Executive Officers
information relating to options granted by Olin from January 1, 1995 through
December 31, 1995. In connection with the Distribution, options to purchase
Olin Common Stock granted in January 1996, and which have not been exercised
(other than those options vesting on January 24, 1997 and in the case of Mr.
Hascall those options vesting on January 24, 1998, which will be accelerated
to vest immediately prior to the Distribution Date) will be surrendered and
cancelled. In their stead, the affected optionees will receive grants of
restricted stock units pursuant to the Primex 1996 Long Term Incentive Plan
described elsewhere herein. In addition, options to purchase Olin Common Stock
outstanding under the 1980 Stock Option Plan of Olin will be extended to
terminate upon the earlier of (i) the end of their term or (ii) two years
following the Distribution. Options to purchase Olin Common Stock granted
under Olin's 1988 Stock Option Plan (the "1988 Plan") will not terminate when
the optionee ceases to be employed by Olin but will be extended to their
original terms. No options to acquire Company Common Stock have been granted
or are outstanding. See "Management and Executive Compensation--Adjustment to
Prior Olin Equity-Based Benefits for Primex Employees".
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
NUMBER OF % OF TOTAL
SECURITIES OPTIONS POTENTIAL REALIZABLE VALUE AT
UNDERLYING GRANTED ASSUMED RATES OF STOCK PRICE
OPTIONS TO ALL APPRECIATION FOR OPTION TERM (d)
GRANTED EMPLOYEES EXERCISE EXPIRATION ----------------------------------
NAME (a,b) IN FISCAL YEAR PRICE (c) DATE 0% 5% 10%
- ---- ---------- -------------- --------- ---------- ------------------ ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
J. G. Hascall........... 5,439 4.1% $55.63 4/26/05 0 $ 190,281 $ 482,221
A. A. Catani............ 3,626 2.8% $55.63 4/26/05 0 $ 126,854 $ 321,481
W. W. Smith............. 3,626 2.8% $55.63 4/26/05 0 $ 126,854 $ 321,481
J. D. DeMaire........... 1,073 0.8% $55.63 4/26/05 0 $ 37,538 $ 95,132
M. S. Wilson............ 820 0.6% $55.63 4/26/05 0 $ 28,687 $ 72,701
All Olin Shareholders... n/a n/a n/a n/a 0 $ 851,015,735 $ 2,156,696,863
All Olin Optionees...... 131,254 100.0% $55.63 4/26/05 0 $ 4,591,856 $ 11,636,965
</TABLE>
- --------
(a) Options were awarded on April 27, 1995 and became exercisable on April 27,
1996. Figures do not reflect an option adjustment resulting from a two-
for-one stock split effective October 31, 1996.
(b) Under the 1988 Plan, the Compensation and Nominating Committee of Olin's
Board of Directors, in its discretion, may grant stock appreciation rights
("SARs") to optionees. To date, no such SARs have been granted. Each such
right will relate to and have the same terms and conditions, including
restrictions, as a specific option granted under the 1988 Plan, together
with such additional terms and conditions as Olin's Compensation Committee
may prescribe.
(c) The exercise price of the options reflects the fair market value of Common
Stock on the date of grant and does not reflect an adjustment resulting
from a two-for-one stock split effective October 31, 1996.
(d) No gain to the optionees is possible without appreciation in the stock
price which will benefit all shareholders commensurately. The dollar
amounts under these columns are the result of calculations at the 5% and
10% assumption rates set by the SEC and therefore are not intended to
forecast possible future appreciation of Olin's stock price or to
establish any present value of the options.
41
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table sets forth as to the Named Executive Officers
information regarding options to purchase Olin Common Stock exercised during
1995 and the value of in-the-money outstanding options to purchase Olin Common
Stock at the end of 1995. For information relating to the termination of
options granted in January, 1996, see "Management and Executive Compensation--
Option Grants of Olin Common Stock to Company Executives in Last Fiscal Year."
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE
SECURITIES UNDERLYING VALUE OF UNEXERCISED,
UNEXERCISED OPTIONS IN-THE-MONEY
SHARES AT 12/31/95(a) OPTIONS AT 12/31/95(a)(b)
ACQUIRED VALUE ------------------------- -------------------------
ON EXERCISE(a) REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
-------------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
J. G. Hascall........... 4,828 93,195 30,559 5,439 743,147 101,274
A. A. Catani............ 8,880 135,976 8,208 3,626 177,024 67,516
W. W. Smith............. -- -- 13,148 3,626 330,651 67,516
J. D. DeMaire........... 950 17,927 3,525 1,073 79,102 19,979
M. S. Wilson............ 300 5,979 4,219 820 108,948 15,268
</TABLE>
- --------
(a) Figures do not reflect an option adjustment resulting from a two-for-one
stock split effective October 31, 1996.
(b) Value was computed as the difference between the exercise price and the
$74.25 per share closing price of Olin Common Stock on December 29, 1995,
as reported on the consolidated transaction reporting system of the New
York Stock Exchange.
LONG TERM INCENTIVE PLAN-AWARDS IN LAST FISCAL YEAR(A)
The following table sets forth long-term incentive awards to the Named
Executive Officers under the Olin 1991 Long Term Incentive Plan made during
1995.
<TABLE>
<CAPTION>
NUMBER OF PERFORMANCE ESTIMATED FUTURE PAYOUTS UNDER
PERFORMANCE OR OTHER PERIOD NON-STOCK PRICE BASED PLAN(b)
SHARE UNITS UNTIL MATURATION --------------------------------
NAME (a) OR PAYOUT THRESHOLD TARGET MAXIMUM
- ---- ----------- ---------------- --------------------- ----------
<S> <C> <C> <C> <C> <C>
J. G. Hascall.... 2,931 5 yrs. $2221,763 $11119,695 $22217,627
A. A. Catani..... 1,954 5 yrs. 14,508 79,796 145,085
W. W. Smith...... 1,954 5 yrs. 14,508 79,796 145,085
J. D. DeMaire.... 578 5 yrs. 4,292 23,604 42,917
M. S. Wilson..... 442 5 yrs. 3,282 18,050 32,819
</TABLE>
- --------
(a) Each performance share unit consists of a phantom share of Olin Common
Stock. Performance share units have a five-year performance cycle. Olin's
Compensation Committee has established a payment schedule which sets forth
the portion of each performance share unit to be paid at the end of the
performance cycle if Olin achieves a certain return on shareholders'
equity and a certain measure of total return to shareholders compared to a
special twenty-four company peer group. Payout may occur early at the end
of the third or fourth year of the performance cycle in the event the
five-year performance targets are achieved by those dates. At the end of
the five-year performance cycle, or earlier if the performance targets are
achieved sooner in year three or four, each participant will receive the
portion of each performance share unit earned in accordance with the
payment schedule. The portion of the performance share unit not earned by
the end of the five-year performance cycle will be forfeited. Figures do
not reflect adjustment of units resulting from a two-for-one stock split
effective October 31, 1996.
(b) The payment schedule provides for payouts ranging from 10% to 100% of the
performance units. If the minimum threshold is not reached, no payouts
will occur during the performance cycle. The threshold amount shown in the
table assumes the minimum is achieved. The target amount shown in the
table represents a 55% payout at the end of the performance cycle, which
is the midpoint of the 10% to 100% range of payouts in the payment
schedule. The maximum amount shown in the table reflects a 100% payout.
42
<PAGE>
The value of performance share units on payout is dependent upon the fair
market value of Olin Common Stock at the time of payout. For purposes of
calculating the dollar value of the performance share units in the table,
the $74.25 per share closing price of Olin Common Stock on December 29,
1995 as reported on the consolidated transaction reporting system of the
New York Stock Exchange was utilized.
ADJUSTMENT TO PRIOR OLIN EQUITY-BASED BENEFITS FOR COMPANY EMPLOYEES
Officers of Olin who become employees of the Company and who were
participating in Olin's EVA Incentive Plan (Management Incentive Compensation
Plan) will, assuming performance objectives are satisfied, receive annual
incentive bonus awards in respect of 1996 performance prorated for the period
prior to the Distribution Date. Olin Performance Unit Plan retention units
consisting of phantom shares of Olin Common Stock will be prorated based on
the number of months such individuals were employed with Olin during the
applicable 10 year retention cycle. Olin shares distributed (assuming
achievement of performance targets) to employees of the Company holding 1994
and 1995 performance share awards granted under the Olin 1991 Long Term
Incentive Plan will be prorated based upon an assumed termination of
employment at December 31, 1996. Restricted stock unit awards which have not
yet vested will be accelerated to vest in their entirety and be paid out in
cash effective upon termination of employment with Olin. The exercise price
and number of shares subject to options to purchase Olin Common Stock
outstanding under the Olin 1980 Stock Option Plan (the "1980 Plan"), the Olin
1988 Stock Option Plan (the "1988 Plan") and the Olin 1996 Stock Option Plan
(the "1996 Plan") will be adjusted to assure that the pre-distribution spread
is maintained after the Distribution Date. Options granted under the 1980 Plan
will be extended to terminate upon the earlier of (i) the end of their term or
(ii) two years following termination of employment with Olin. Options granted
under the 1988 Plan will be extended to the original term of the option.
Options granted under the 1996 Plan on January 24, 1996, which vest on January
24, 1997 (and in the case of Mr. Hascall, which vest on January 24, 1998),
will be accelerated to become exercisable immediately prior to termination of
employment with Olin, with the remaining options granted on January 24, 1996,
being surrendered and cancelled with affected optionees receiving grants of
restricted stock units pursuant to the Primex 1996 Long Term Incentive Plan.
The 1996 Plan options which are accelerated will be extended to the original
term of the option. Any options which are incentive stock options and are
exercised more than three months after termination of employment with Olin
will be converted to non-qualified stock options.
STOCK PLAN FOR NONEMPLOYEE DIRECTORS
The Company has adopted the Primex Technologies, Inc. Stock Plan for
Nonemployee Directors (the "Directors Plan"), which will become effective
following the Distribution. Generally speaking, the Directors Plan (i)
provides for the granting annually, beginning in 1997, of shares of Company
Common Stock having a fair market value equal to $5,000 to each nonemployee
director of the Company, (ii) provides that 50% of a director's annual
retainer will be paid in shares of Company Common Stock, (iii) permits each
such director to elect to receive his or her quarterly meeting fees and the
balance of his or her annual cash retainer in the form of shares of Company
Common Stock in lieu of cash and (iv) permits each such director to elect to
defer the payment of cash meeting fees and any shares of Company Common Stock
to be delivered under the Directors Plan. Deferred cash will be credited with
interest quarterly and deferred shares will be credited with dividend
equivalents. In the event of a Change in Control (as defined in the Directors
Plan) all deferred cash and deferred shares of Company Common Stock will be
distributed.
PENSION AND SAVINGS PLAN
Following the Distribution, Olin will remain liable for the payment of
benefits accrued as of the date of termination of employment with Olin by
employees of the Company under Olin's pension plans. Employees of the Company
will be credited with service to the Company for the purpose of meeting
vesting and early retirement requirements under Olin pension plans but not for
purposes of calculating accrued benefits or for purposes of qualifying for
disability retirement benefits. With respect to salaried and hourly
nonbargaining
43
<PAGE>
employees of the Company, compensation received from the Company will be
credited toward Final Average Pay under Olin pension plans, which will be
determined at the time the employee retires from the Company. No Olin pension
assets will be transferred to the Company in connection with the Distribution.
Employees of the Company will not be eligible to receive payments under Olin
qualified pension plans prior to retirement from the Company.
In connection with the Distribution, employee contributions and employer
matching contributions in respect of employees of the Company under the Olin
Corporation Contributing Employee Ownership Plan (the "Olin CEOP") will cease
as of the date of termination of employment with Olin. Those employees who are
Olin CEOP participants may transfer their existing account balances from the
Olin CEOP to the Primex Technologies, Inc. Retirement Investment Management
Experience Plan described below. Company employees who are participants in the
Olin CEOP will be 100% vested in their account balances as of the date their
employment terminates in connection with the Distribution.
The Company has adopted the Primex Technologies, Inc. Retirement Investment
Management Experience Plan ("PRIME") pursuant to which both retirement
benefits and compensation deferral, or savings, opportunities will be
available to employees of the Company following the Distribution.
Substantially all of the domestic non-bargaining employees of the Company will
be eligible for coverage under the retirement feature of PRIME. Under the
retirement feature of PRIME, the Company will make periodic contributions to a
special account (a "Special Account") established for each covered employee.
Such contribution will be a percentage of pay that will vary by age in
accordance with a formula. The contribution will be invested in one or more of
PRIME's investment funds described below, as selected by the employee.
Employees will be 100% vested in Special Accounts following the completion of
two years' participation in PRIME including prior participation under the Olin
CEOP. Balances in Special Accounts may only be withdrawn upon retirement,
death, permanent disability or termination of employment.
The savings feature of PRIME consists of a defined contribution plan
available to substantially all domestic employees of the Company, pursuant to
which employees may defer on a pre-tax or post-tax basis a portion of their
compensation. Employees may elect to invest their contribution in Company
Common Stock or in one or more of several investment funds. Employee
contributions will be based on total compensation, including base pay,
overtime, shift differential and bonus (other than long-term bonus). The
Company will make a matching contribution equal to 50% of the amount
contributed by a participant (up to 6% of the participant's compensation) in
Company Common Stock for the account of such participant. Participants will be
100% vested in such matching contributions following completion of two years'
participation in the PRIME including prior service rendered to Olin CEOP.
Participants will be eligible for a Performance Matching Contribution for 1996
only based on their contributions to the Olin CEOP through December 31, 1996,
and on Olin's Return on Equity (as defined in the Olin CEOP) for 1996. Olin
Common Stock transferred to an employee's PRIME account that is attributable
to Olin contributions may be retained in Olin Common Stock or reinvested only
in Company Common Stock. Dividends on Olin Common Stock transferred to an
employee's PRIME account will be reinvested in Company Common Stock and
contributions made to or held under the PRIME may not be invested in Olin
Common Stock.
The Company will be the "successor employer" under the union contracts
covering employees at its Marion, Illinois and St. Marks, Florida sites. These
contracts require the Company essentially to replicate the benefits provided
to covered employees by Olin prior to the Distribution. The Company has
adopted a defined benefit pension plan and related pension trust (the "Company
Bargaining Pension Plan") for the purpose of providing benefits accrued after
the effective date of the Distribution under these union contracts. No Olin
pension assets will be transferred to the Company's pension trust. Service
credited under Olin's pension plan for these unionized employees will be
recognized for the purpose of qualifying for vesting and early retirement
benefits under the terms of the Company Bargaining Pension Plan. Olin will
remain liable for the payment of benefits accrued as of the effective date of
the Distribution by employees in connection with such contracts.
44
<PAGE>
PRIMEX 1996 LONG TERM INCENTIVE PLAN
The Company has adopted the Primex 1996 Long Term Incentive Plan (the
"Incentive Plan"), which is designed to help the Company attract and retain
key employees by providing an incentive to increase their proprietary interest
in the Company. Awards under the 1996 Plan may be in the form of stock options
(including incentive stock options meeting the requirements of Section 422 of
the Code ("ISOs")), stock appreciation rights ("SARs"), restricted stock and
restricted stock units, performance awards, dividend equivalents and in any
other form (including convertible securities) that the committee administering
the Incentive Plan (the "Committee") approves valued in whole or in part by
reference to, or otherwise based on or related to, shares of Company Common
Stock. Three hundred fifty thousand shares of Company Common Stock (subject to
adjustment as provided below and for dividends, stock splits, mergers, spin-
offs, split-ups, recapitalizations and the like) will be available for awards
under the Incentive Plan.
Awards may be granted under the Incentive Plan to salaried employees,
including officers, of the Company and any of its controlled subsidiaries who
are not members of the Committee. Awards may also be granted to salaried
employees of any other entity in which the Company has a significant equity
interest as determined by the Committee. Awards will be granted for no cash
consideration or for such minimal cash consideration as may be required by
applicable law. However, the exercise price per share of stock purchasable
under any stock option, the exercise price of any SAR and the purchase price
of stock which may be purchased under any other award providing rights to
purchase Company Common Stock will not be less than the fair market value of
such stock on the date of grant of the option, SAR or other right.
Administration of the Incentive Plan is the responsibility of a committee of
the Board consisting of at least two non-employee Directors. The Committee
will have the authority to designate participants, determine the nature and
size of, and terms and conditions applicable to, awards, permit deferral of
award payments; permit the settlement or exercise of awards, and make all
other determinations and interpretations relating to the Plan. Committee
determinations and interpretations will be binding on all interested parties.
Under the Incentive Plan, the Company's Board of Directors may act at any time
in lieu of the Committee.
STOCK OPTIONS. The term of options granted under the Incentive Plan will be
fixed by the Committee; however, such term may not exceed ten years from the
date of grant. The purchase price per share of stock purchasable under any
option will be determined by the Committee but will not be less than the fair
market value of the stock on the date of grant of the option. The Committee
will determine the time or times at which an option may be exercised in whole
or in part, provided that no option may be exercised before the expiration of
at least six months from its date of grant, subject to the provisions of the
Incentive Plan relating to changes in control of the Company. Options may be
exercised by payment in full of the purchase price, either in cash or, at the
discretion of the Committee, in whole or in part in Company Common Stock or
other consideration having a fair market value on the date the option is
exercised equal to the option price.
STOCK APPRECIATION RIGHTS. Upon exercise of an SAR, the holder will be
entitled to receive the excess of the fair market value (calculated as of the
exercise date) of a specified number of Shares over the exercise price of the
SAR. The exercise price (which may not be less than the fair market value of
the shares on the date of grant), method of payment by the Company upon
exercise and other terms of the SAR will be determined by the Committee.
However, the term of an SAR may not exceed ten years from the date of its
grant. Any related stock option will no longer be exercisable to the extent
that an SAR has been exercised, and the exercise or termination of an option
will cancel the related SAR (in the case of exercise, to the extent thereof).
RESTRICTED STOCK. Restricted stock or restricted stock units may not be
disposed of by the recipient until certain restrictions established by the
Committee lapse. These restrictions will require recipients to remain in the
employ of the Company (or an affiliate participating in the Incentive Plan)
for at least six months in order to vest, except in the event of a Change in
Control (as defined in the Incentive Plan) or for such specified reasons as
the Committee may approve. Recipients will have with respect to restricted
stock all of the rights of a shareholder of the Company, including the right
to vote the shares and the right to receive any cash dividends,
45
<PAGE>
unless the Committee otherwise determines. Upon termination of employment
during the restriction period, the restricted stock and/or restricted stock
units will be forfeited, subject to such exceptions, if any, as may be
authorized by the Committee.
PERFORMANCE AWARDS. From time to time, the Committee may select a period
during which performance criteria approved by the Committee will be measured
for the purpose of determining the extent to which a performance award has
been earned. Such period will not be less than six months, subject to the
Change in Control provisions of the Incentive Plan. Performance awards may be
denominated or payable in cash, shares of Common Stock, others securities,
other awards or other property.
AWARDS AS OF THE DISTRIBUTION DATE. On or following the Distribution Date,
the Company will grant restricted stock units valued in the aggregate at
$4,530,000 to an aggregate of 25 employees of the Company. Each restricted
stock unit represents one phantom share of Company Common Stock and generally
vests and is payable in one share of Company Common Stock to the employee upon
the fifth anniversary of the grant provided the employee remains employed by
the Company during the five-year period; however, if certain performance
targets are met, the units may vest after three years. Each restricted stock
unit will accrue amounts equivalent to the cash dividends payable on the
Company's Common Stock ("dividend equivalents"). Such dividend equivalents
will be deferred in the form of cash and will be payable only when and if the
restricted stock unit on which such dividend equivalents were accrued become
vested. Dividend equivalents will accrue interest at an annual rate equal to
the Company's before tax cost of borrowing compounded quarterly. To the extent
a restricted stock unit does not vest or is otherwise forfeited, the accrued
and unpaid dividend equivalents thereon and any interest thereon shall not
vest and be forfeited. In the event an employee's employment is terminated for
cause or without the Company's written consent, the restricted stock units are
forfeited. If employment is terminated without cause and with written consent
or by virtue of death or total disability or retirement under a Company
benefit plan, the Compensation Committee shall decide in its sole discretion
which outstanding restricted stock units not yet vested shall not be
forfeited, provided that in the case of employees who are not officers or
employees of the Company when their employment terminates and have not been
such during the preceding six month period, the Chief Executive Officer of the
Company is authorized to make such determination. Upon a "Change in Control"
of the Company, restricted stock units not yet vested will automatically vest
and be paid out in the form of cash. There is mandatory tax withholding on all
payouts of restricted stock units. The value of such awards to the named
executive officers of the Company are as follows: J.G. Hascall ($840,000);
A.A. Catani ($600,000); W.W. Smith ($330,000); M.S. Wilson ($330,000) and J.D.
DeMaire ($330,000). All executive officers as a group received units
aggregating $3,255,000 in value.
SUPPLEMENTAL PLANS
Following the Distribution, Olin will remain liable for payment of benefits
accrued for employees of the Company under any Olin non-qualified benefit
plans as of the Distribution. Such benefits will not be paid until the
participant retires from the Company. The Company may establish a non-
qualified, unfunded Supplemental Savings and Retirement Plan (the
"Supplemental Plan") that is intended to restore any benefit under the Primex
Savings Plan that would otherwise be reduced as a consequence of certain
restrictions required by the Code. In addition, employees who are covered by
the Supplemental Plan may be able to defer before-tax contributions above the
annual limitations imposed on qualified contribution plans such as PRIME.
RETIREE MEDICAL AND LIFE INSURANCE BENEFITS
Following the Distribution, Olin will remain liable for medical and death
benefits provided to former employees of the Company who retire prior to the
Distribution. The Company has adopted a medical and retiree death benefits
plan which largely replicates the Olin retiree benefit program, under which
employees of the Company will be covered (with appropriate credit for service
with Olin) as of the effective date of the Distribution. Other than possible
increases in employee contributions and other than for retirees under the age
of 65 who have coverage under the active employee medical benefit program, the
Company has agreed that it will not reduce or terminate the benefits provided
by this program for a period of five years. The Company also has agreed to
indemnify Olin from and against any claims brought against it by employees of
the Company who retire after the effective date of the Distribution.
46
<PAGE>
OTHER BENEFITS
Following the Distribution, Olin will be responsible for health care and
disability claims incurred by an employee of the Company prior to the
Distribution under Olin benefit plans. The Company has adopted health care and
disability benefits programs covering employees of the Company following the
Distribution which will provide benefits substantially similar to those
currently provided by Olin.
EXECUTIVE AGREEMENTS
Each of the executive officers named in the table on page 40 and four other
employees have agreements with the Company which provide, among other things,
that in the event of a covered termination of employment (which could include,
among other things, termination of employment other than for cause and
termination at the election of the individual under certain circumstances),
the individual will receive a lump sum severance payment from the Company
equal to 12 months' salary plus the greater of (a) the average incentive
compensation award from the Company during the three years preceding the
termination or (b) the then standard annual incentive compensation award, less
any amounts payable under existing severance or disability plans of the
Company. In the event that a "Change in Control" of the Company occurs, and
there is a covered termination, the individual will receive twice the
severance payment or in the case of the Chairman of the Board and Chief
Executive Officer and the Vice Chairman three times. Insurance coverage would
be afforded for either a one- or two-year period. The agreements also provide
for certain outplacement services. In addition, employees will receive a
payment representing an amount equal to one or two years of the Company's
contributions to the retirement feature of the Primex Savings Plan plus, in
the case of employees who have an accrued benefit under Olin pension plans and
are under age 55, an amount equal to the difference between (x) the amount
that the employee would have received at age 55 upon early retirement under
the Olin pension plan had the employee remained employed with the Company and
(y) the pension amount actually received from such Olin pension plans. The
agreements will expire on January 31, 2002 (except in the case of Mr. Hascall
on December 31, 2000, and in the case of Mr. Catani on December 31, 1999),
unless prior to that date there is a "Change in Control" of the Company, in
which event they will expire on the later of January 31, 2002 (except in the
case of Mr. Hascall on December 31, 2000, and in the case of Mr. Catani on
December 31, 1999) or three years following the date of the "Change in
Control". For purposes of the agreements, "Change in Control" would occur if
the Company ceases to be publicly owned; 15% or more of its voting stock is
acquired by others (other than an employee benefit plan of the Company); the
incumbent Directors and their designated successors cease over a two-year
period to constitute a majority of the Board; or all or substantially all of
the Company's business is disposed of in a transaction in which the Company is
not the surviving corporation or the Company combines with another company and
is the surviving corporation (unless shareholders of the Company following the
transaction own more than 50% of the voting stock or other ownership interest
of the surviving entity or combined company). Each agreement provides that the
individual agrees to remain in the Company's employ for six months after a
"Potential Change in Control" of the Company has occurred. The agreements
provide that payments made thereunder or under any change in control provision
of a compensation or benefit plan of the Company which are subject to "excess
parachute payment" tax will be increased so that the individual will receive a
net payment equal to that which would have been received if such tax did not
apply. Certain of the Company's benefit and compensation plans also contain
"change-in-control" provisions.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
There are not expected to be any compensation committee interlocks. The
members of the Company's Compensation and Nominating Committee are expected to
be Messrs. Lasky, Mitchell and Martinez.
47
<PAGE>
BENEFICIAL OWNERSHIP
All of the outstanding shares of Company Common Stock are, and will be prior
to the Distribution, held beneficially and of record by Olin. The following
table sets forth information concerning shares of Company Common Stock
projected to be beneficially owned after the Distribution Date by (i) each
person or entity known by the Company to own more than five percent of the
outstanding Company Common Stock, (ii) each person who will be a director of
the Company at the time of the Distribution, (iii) each of the named executive
officers of the Company and (iv) all persons who will be directors and
executive officers of the Company at the time of the Distribution as a group.
The projections are based on the number of shares of Olin Common Stock owned
by such person or entity at October 14, 1996, and with respect to Travellers
Group Inc., December 31, 1995, in each case adjusted to reflect the two-for-
one split of Olin Common Stock effective October 31, 1996, and reflect the
Distribution Ratio of one share of Company Common Stock for every ten shares
of Olin Common Stock. The percentage ownership of Company Common Stock of each
person or entity named below immediately following the Distribution will be
the same as the percentage ownership of such person or entity immediately
prior to the Distribution. Unless otherwise indicated in the footnotes below,
each person or entity has sole voting and investment power with respect to the
shares set forth opposite such person's or entity's name. Also included in the
figures are shares of Company Common Stock which may be acquired within 60
days through the exercise of options, if any.
<TABLE>
<CAPTION>
NO. OF SHARES
BENEFICIALLY PERCENT OF
NAME OF BENEFICIAL OWNER OWNED CLASS (a)
------------------------ ------------- ----------
<S> <C> <C>
Travelers Group Inc. ........................... 287,501(b) 5.8%
388 Greenwich Street
New York, NY 10013
A. A. Catani.................................... 771 --
J. D. DeMaire................................... 461 --
J. G. Hascall................................... 1,864 --
D. Lasky........................................ 0 --
B. Martinez..................................... 0 --
W. B. Mitchell.................................. 0 --
R. H. Rau....................................... 0 --
A. W. Ruggiero.................................. 1,044 --
L. E. Salomon................................... 0 --
W. W. Smith..................................... 703 --
M. S. Wilson.................................... 454 --
Directors and executive officers as a group, in-
cluding those named above (15 persons)......... 20,971 --
</TABLE>
--------
(a) Unless otherwise indicated, beneficial ownership of any
named individual does not exceed 1% of the outstanding
shares of Company Common Stock.
(b) Travelers Group Inc. has advised Olin in a Schedule 13G
filing that it and its wholly owned subsidiary, Smith
Barney Holdings Inc., have shared voting and shared
dispositive power with respect to 287,501 shares. They
disclaim beneficial ownership of all such securities.
48
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In connection with the Distribution, the Company will assume approximately
$125 million of indebtedness of Olin. In addition, there will be certain
ongoing relationships between Olin and the Company. See "Relationship Between
Olin and the Company After the Distribution."
DESCRIPTION OF CAPITAL STOCK
AUTHORIZED CAPITAL STOCK
Under the Amended and Restated Articles of Incorporation of the Company (the
"Articles"), the Company has authority to issue 10 million shares of preferred
stock, par value $1.00 per share ("Preferred Stock"), and 60 million shares of
Company Common Stock, par value $1.00 per share. As of the date hereof, 100
shares of Company Common Stock were issued and outstanding.
Based on the number of shares of Olin Common Stock outstanding at October
31, 1996, as adjusted to reflect the two-for-one stock split effective October
31, 1996, and the Distribution ratio of one share of the Company for every ten
shares of Olin Common Stock, it is expected that approximately 4,996,372
shares will be issued to shareholders of Olin in the Distribution. The Company
Common Stock to be distributed will constitute all of the outstanding Company
Common Stock immediately after the Distribution. All of the shares of Company
Common Stock to be distributed to Olin shareholders in the Distribution will
be fully paid and non-assessable.
The following statements with respect to the capital stock of the Company
are subject to the detailed provisions of the Company's Articles and By-laws
as currently in effect. These statements do not purport to be complete, or to
give full effect to the provisions of statutory or common law, and are subject
to, and are qualified in their entirety by reference to, the terms of the
Articles, By-laws and the Rights Agreement, dated as of December 19, 1996
between the Company and ChaseMellon Shareholder Services, L.L.C. (the "Rights
Agreement").
COMMON STOCK
Holders of Company Common Stock are entitled to dividends as declared by the
Board from time to time after payment of, or provision for, full cumulative
dividends on and any required redemptions of shares of Preferred Stock then
outstanding. Holders of Company Common Stock are entitled to one vote per
share on all matters submitted to a vote of such holders and may not cumulate
votes for the election of directors. Holders of Company Common Stock have no
preemptive or subscription rights and have no liability for further calls or
assessments. In the event of the liquidation, dissolution or winding up of the
Company, holders of Company Common Stock are entitled to receive pro rata all
the remaining assets of the Company available for distribution, after
satisfaction of the prior preferential rights of the Preferred Stock and the
satisfaction of all debts and liabilities of the Company.
The Transfer Agent and Registrar for the Company Common Stock is ChaseMellon
Shareholder Services L.L.C.
PREFERRED STOCK
The Articles authorize the Board, without any vote or action by the holders
of Company Common Stock, to issue up to 10 million shares of Preferred Stock
from time to time in one or more series. The Board is authorized to determine
the number of shares and designation of any series of Preferred Stock and the
dividend rights, dividend rate, conversion rights and terms, voting rights
(full or limited, if any), redemption rights and terms, liquidation
preferences and sinking fund and other terms of any series of Preferred Stock.
Issuances of Preferred Stock would be subject to the applicable rules of
Nasdaq or other organizations on whose systems the stock of the Company may
then be quoted or listed. Depending upon the terms of the Preferred Stock
established by the
49
<PAGE>
Board, any or all series of Preferred Stock could have preference over the
Company Common Stock with respect to dividends and other distributions and
upon liquidation of the Company. Issuance of any such shares with voting
powers, or issuance of additional shares of Company Common Stock, would dilute
the voting power of the outstanding Company Common Stock. The Company has no
present plans to issue any Preferred Stock, except that the Rights Agreement
provides for the issuance of shares of Preferred Stock, under the
circumstances specified in the Rights Agreement, upon the exercise or exchange
of rights issued thereunder. See "Rights Plan".
AUTHORIZED BUT UNISSUED CAPITAL STOCK
Virginia law does not require shareholder approval for any issuance of
authorized shares other than in connection with certain mergers to which the
Company may be a party. However, the criteria for designation as a Nasdaq
National Market System security, which would apply so long as Company Common
Stock remains so designated, require shareholder approval of certain issuances
equal to or exceeding 20% of the then outstanding voting power or then
outstanding number of shares of Company Common Stock. These additional shares
may be used for a variety of corporate purposes, including future public
offerings to raise additional capital or to facilitate corporate acquisitions.
RIGHTS
On December , 1996, the Company declared a dividend of one right (a
"Right") for each outstanding share of Company Common Stock to the
shareholders of record on December 31, 1996. Rights also will be issued with
respect to Company Common Stock issued thereafter, prior to the occurrence of
certain change-in-control events. The Rights become exercisable upon certain
potential change-in-control events. When exercisable and upon the occurrence
of certain events, the Rights entitle holders (other than any person who
beneficially owns more than 15% of the outstanding Company Common Stock (an
"Acquiring Person")) to purchase shares of Preferred Stock, other securities
of the Company or shares of the Acquiring Person's common stock (or stock of
one of its affiliates or associates) at a substantial discount. Exercise of
the Rights will cause substantial dilution to a person or group attempting to
acquire control of the Company without the approval of the Board. Except under
certain circumstances, the Board may cause the Company to redeem the Rights in
whole, but not in part, at a price of $0.01 per Right. The Rights will not
interfere with any merger or other business combination approved by the Board.
The Rights expire on December 31, 2006, if not redeemed earlier. The Rights
have no voting or dividend privileges. Until such time as the Rights become
exercisable, they are attached to and will not trade separately from the
Company Common Stock. For a more complete description of the Rights, see
"Rights Plan".
NO PREEMPTIVE RIGHTS
No holder of any class of stock of the Company authorized at the time of the
Distribution will have any preemptive right to subscribe to any securities of
the Company of any kind or class.
CERTAIN PROVISIONS OF THE ARTICLES AND BY-LAWS
The Board's membership is divided into three classes as nearly equal in
number as possible, each of which serves for three years with one class being
elected each year. The total number of Directors is currently fixed at eight.
Special meetings of shareholders may be called only by the Board or certain
designated officers. Directors may be removed only with cause, and vacancies
on the Board, including any vacancy created by an increase in the number of
Directors, may be filled only by the Board unless the vacancy is required to
be filled at an annual meeting of shareholders. The By-laws require that
advance notice of nominees for election as Directors to be made by a
shareholder and proposals to be submitted by a shareholder be given to the
Secretary of the Company, together with certain specified information, no
later than 90 days before an annual meeting of shareholders or seven days
following notice of a special meeting of shareholders for the election of
Directors. The provisions of the Articles and By-laws described above may, in
certain circumstances, make more difficult or discourage a takeover of the
50
<PAGE>
Company. The Company has elected to "opt out" of coverage under Article 14.1
of the Virginia Stock Corporation Act, which prohibits significant
shareholders who acquire specific amounts of Company Common Stock from voting
certain shares of Common Stock so acquired without obtaining the affirmative
vote of a majority of the shares of Company Common Stock held by persons other
than such a shareholder or officers and certain directors of the Company. As a
result of this election, a purchaser of Company shares in a "control share
acquisition" will not have the right to cause a special meeting of
shareholders to be convened for the purpose of considering whether to grant
voting rights otherwise prohibited by the Virginia Stock Corporation Act to
such an acquiring shareholder.
RIGHTS PLAN
The Company declared a dividend of one Right for each share of Common Stock
to the holders of record at the close of business on December , 1996, and has
approved the issuance of additional Rights with respect to Company Common
Stock issued thereafter and before the occurrence of certain change-of-control
events. Each Right, when it becomes exercisable as described below, will
entitle the registered holder to purchase from the Company one one-thousandth
(1/1000) of a share of Series A Participating Cumulative Preferred Stock, par
value $1 per share, of the Company (the "Preferred Shares") or, under certain
circumstances, Company Common Stock or other securities of the Company at a
price of $ (the "Purchase Price"). The description and terms of the Rights
are set forth in a Rights Agreement dated as of December 19, 1996 (the "Rights
Agreement"), between the Company and ChaseMellon Shareholder Services, L.L.C.,
as Rights Agent.
Until the earlier of (a) such time as the Company learns that a person or
group (including any affiliate or associate of such person or group) has
acquired, or has obtained the right to acquire, beneficial ownership of 15% or
more of the outstanding Company Common Stock (an "Acquiring Person"), unless
provisions preventing accidental triggering of the Rights apply, and (b) the
close of business on such date, if any, as may be designated by the Board
following the commencement of, or first public disclosure of an intent to
commence, a tender or exchange offer by any person (other than the Company,
its subsidiaries or benefit plans) for 15% of the outstanding Company Common
Stock, if upon consummation of such tender or exchange offer such person could
be the beneficial owner of more than 15% of the outstanding Company Common
Stock, the Rights will be evidenced by the certificates for Company Common
Stock registered in the names of the holders thereof and will be transferred
only with the Company Common Stock.
The Rights will expire on December 31, 2006 (the "Expiration Date"), unless
earlier redeemed by the Company as described below.
In the event the Company is acquired in a merger or other business
combination by an Acquiring Person or an associate or affiliate of an
Acquiring Person that is a publicly traded corporation or 50% or more of the
Company's assets or assets representing 50% or more of the Company's revenues
or cash flow are sold, leased, exchanged or otherwise transferred (in one or
more transactions) to an Acquiring Person or an associate or affiliate of an
Acquiring Person that is a publicly traded corporation, each Right (other than
Rights that are beneficially owned by an Acquiring Person or any affiliate or
associate of an Acquiring Person) will entitle its holder to purchase, for the
Purchase Price, that number of common shares of such corporation which at the
time of the transaction would have a market value of twice the Purchase Price.
In the event the Company is acquired in a merger or other business combination
by an Acquiring Person or an associate or affiliate of an Acquiring Person
that is not a publicly traded entity or 50% or more of the Company's assets or
assets representing 50% or more of the Company's revenues or cash flow are
sold, leased, exchanged or otherwise transferred (in one or more transactions)
to an Acquiring Person or an associate or affiliate of an Acquiring Person
that is not a publicly traded entity, each Right (other than Rights that are
beneficially owned by an Acquiring Person or any affiliate or associate of an
Acquiring Person) will entitle its holder to purchase, for the Purchase Price,
at such holder's option, (a) that number of shares of the surviving
corporation in the transaction with such entity (which surviving corporation
could be the Company) which at the time of the transaction would have a book
value of twice the Purchase Price, (b) that number of shares of such entity
which at the time of the transaction would have a book value of twice the
Purchase Price or (c) if such entity has an affiliate which has publicly
traded common shares, that number of common shares of such affiliate which at
the time of the transaction would have a market value
51
<PAGE>
of twice the Purchase Price. In addition, upon a person becoming an Acquiring
Person, the Rights Agreement provides that proper provision will be made so
that each Right (other than Rights that are beneficially owned by an Acquiring
Person or an affiliate or associate of an Acquiring Person) will entitle its
holder to purchase, for the Purchase Price, a number of shares of Preferred
Stock having a market value at the time of the transaction equal to two times
the Purchase Price. The number of Preferred Shares or other securities
issuable upon exercise of the Rights is subject to adjustment from time to
time in the event of any change in the Company Common Stock or the Preferred
Shares.
At any time prior to the earlier of (a) such time as a person or group
becomes an Acquiring Person and (b) the Expiration Date, the Board may redeem
the Rights in whole, but not in part, at a price of $0.01 per Right (subject
to adjustment as provided in the Rights Agreement).
Until a Right is exercised, the holder thereof, as such, will have no rights
as a shareholder of the Company, including, without limitation, the right to
vote or to receive dividends.
LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Virginia Stock Corporation Act permits, and the Company's Articles
require, indemnification of the Company's directors, officers, and employees
in a variety of circumstances. Under Section 13.1-697 and 13.1-704 of the
Virginia Stock Corporation Act, a Virginia corporation generally is authorized
to indemnify its directors, officers, and employees in civil or criminal
actions if such persons acted in good faith and believed their conduct to be
in the best interests of the corporation and, in the case of criminal actions,
had no reasonable cause to believe that their conduct was unlawful. The
Company's Articles require indemnification of directors, officers and
employees with respect to certain liabilities, expenses, and other amounts
imposed upon such persons by reason of having been directors, officers or
employees if such persons acted in good faith and believed that their conduct
was in the best interests of the Company or related entity. Also, Section
13.1-692.1 of the Virginia Stock Corporation Act permits a Virginia
corporation to limit or totally eliminate the liability of a director or
officer in a shareholder or derivative proceeding and the Company's Articles
contains a provision intended to eliminate such liability.
Directors and officers of the Company are insured, subject to policy limits
and certain exclusions and limitations and to the extent not otherwise
indemnified by the Company, against loss (including expenses incurred in the
defense of actions, suits and proceedings in connection therewith) arising
from any error, misstatement, misleading statement, omission or other act made
or performed in their capacity as directors and officers. The policies also
reimburse the Company for liability incurred in the indemnification of its
directors and officers under common or statutory laws or the Company's
Articles of Incorporation, subject to the terms, conditions and exclusions of
the policy. In addition, directors and officers and other employees of the
Company who may be "fiduciaries" as that term is used in the Employee
Retirement Income Security Act of 1974, are insured with respect to
liabilities under such Act.
52
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form 10 under the Exchange Act with
respect to the Shares being issued in the Distribution (the "Registration
Statement"). This Information Statement does not contain all of the
information set forth in the Registration Statement and the exhibits thereto,
to which reference is hereby made. Statements made in this Information
Statement as to the contents of any contract, agreement or other document
referred to herein are summaries only and are not necessarily complete. With
respect to each such contract, agreement or other document filed as an exhibit
to the Registration Statement, reference is made to such exhibit for a more
complete description of the matter involved, and each such statement shall be
deemed qualified in its entirety by such reference. The Registration Statement
and the exhibits thereto filed by the Company with the Commission may be
inspected at the public reference facilities of the Commission listed below.
After the Distribution, the Company will be subject to the informational
requirements of the Exchange Act, and in accordance therewith will file
reports, proxy statements and other information with the Commission. Such
reports, proxy statements and other information can be inspected and copied at
the public reference facilities maintained by the Commission at its principal
offices at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and at
the Regional Offices of the Commission at Seven World Trade Center, Suite
1300, New York, New York 10048 and in the Citicorp Center, Suite 1400, 500
West Madison Street, Chicago, Illinois 60661. Copies of such information may
be obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549 at prescribed rates. The Commission also
maintains a World Wide Web site (http: //www.sec.gov) that contains reports,
proxy and information statements and other information regarding registrants
that file electronically with the Commission. In addition, it is expected that
reports, proxy statements and other information concerning the Company will be
available for inspection at the offices of the National Association of
Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C. 20006.
The Company intends to furnish holders of the Company's shares with annual
reports containing consolidated financial statements (beginning with the year
ending December 31, 1996) audited by independent accountants.
----------------
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS INFORMATION STATEMENT, AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED. NEITHER THE DELIVERY OF THIS INFORMATION STATEMENT
NOR ANY DISTRIBUTION OF SECURITIES MADE HEREUNDER SHALL IMPLY THAT THERE HAS
BEEN NO CHANGE IN THE INFORMATION SET FORTH HEREIN OR IN THE AFFAIRS OF THE
COMPANY SINCE THE DATE HEREOF.
53
<PAGE>
INDEX TO
COMBINED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report.............................................. F-2
Combined Balance Sheets as of September 30, 1996 (unaudited) and as of De-
cember 31, 1995 and 1994................................................. F-3
Combined Statements of Income for the Nine Months ended September 30, 1996
and 1995 (unaudited) and for the Years Ended December 31, 1995, 1994 and
1993..................................................................... F-4
Combined Statements of Cash Flow for the Nine Months ended September 30,
1996 and 1995 (unaudited) and for the Years Ended December 31, 1995, 1994
and 1993................................................................. F-5
Notes to Combined Financial Statements.................................... F-6
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors of Olin Corporation:
We have audited the accompanying combined balance sheets of Primex
Technologies, Inc. as of December 31, 1995 and 1994, and the related combined
statements of income and cash flow for each of the years in the three-year
period ended December 31, 1995. These combined financial statements are the
responsibility of the company's management. Our responsibility is to express
an opinion on these combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the combined financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the combined
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Primex
Technologies, Inc. as of December 31, 1995 and 1994, and the results of their
operations and their cash flow for each of the years in the three-year period
ended December 31, 1995, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Stamford, Connecticut
January 25, 1996
F-2
<PAGE>
PRIMEX TECHNOLOGIES, INC.
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
UNAUDITED
SEPTEMBER 30, DECEMBER 31,
------------- -----------------
1996 1995 1994
------------- -------- --------
($ IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Current Assets:
Receivables................................... $126,504 $153,076 $104,894
Inventories, Net.............................. 49,122 49,763 66,708
Other Current Assets.......................... 10,086 6,587 7,856
-------- -------- --------
Total Current Assets........................ 185,712 209,426 179,458
Property, Plant and Equipment, Net.............. 103,293 114,473 114,113
Goodwill........................................ 48,026 49,831 52,357
Other Assets.................................... 14,781 7,249 18,247
-------- -------- --------
Total Assets.................................... $351,812 $380,979 $364,175
======== ======== ========
LIABILITIES AND EQUITY
Current Liabilities:
Short-Term Borrowings due Olin................ $125,000 $125,000 $125,000
Accounts Payable.............................. 16,450 42,781 51,706
Income Taxes Payable.......................... -- 625 276
Accrued Liabilities........................... 24,252 23,087 29,060
-------- -------- --------
Total Current Liabilities................... 165,702 191,493 206,042
Other Liabilities............................... 28,353 30,951 27,020
-------- -------- --------
Total Liabilities............................. 194,055 222,444 233,062
Commitments and Contingencies
Equity.......................................... 157,757 158,535 131,113
-------- -------- --------
Total Liabilities and Equity.................... $351,812 $380,979 $364,175
======== ======== ========
</TABLE>
See accompanying notes to combined financial statements
F-3
<PAGE>
PRIMEX TECHNOLOGIES, INC.
COMBINED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
UNAUDITED
NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
------------------ --------------------------
1996 1995 1995 1994 1993
-------- -------- -------- -------- --------
($ IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Sales............................. $328,775 $359,582 $508,113 $416,148 $376,332
Operating Expenses:
Cost of Goods Sold.............. 277,016 299,916 428,707 335,303 304,717
Selling and Administration...... 37,888 39,138 51,297 46,758 43,643
Research and Development........ 3,926 3,126 5,016 5,364 6,055
Other charges................... 10,500 -- 2,000 -- 12,600
-------- -------- -------- -------- --------
Operating Income (Loss)........... (555) 17,402 21,093 28,723 9,317
Interest Expense.................. 6,943 6,958 9,276 8,638 7,880
Interest and Other Income......... 657 808 807 1,743 2,307
-------- -------- -------- -------- --------
Income (Loss) Before Taxes........ (6,841) 11,252 12,624 21,828 3,744
Income Tax Provision.............. 908 6,206 6,963 9,805 2,722
-------- -------- -------- -------- --------
Net Income (Loss)................. $ (7,749) $ 5,046 $ 5,661 $ 12,023 $ 1,022
======== ======== ======== ======== ========
</TABLE>
See accompanying notes to combined financial statements
F-4
<PAGE>
PRIMEX TECHNOLOGIES, INC.
COMBINED STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
UNAUDITED
NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
------------------ ----------------------------
1996 1995 1995 1994 1993
-------- -------- -------- -------- --------
($ IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net Income (Loss)........... $ (7,749) $ 5,046 $ 5,661 $ 12,023 $ 1,022
Adjustments to Reconcile Net
Income (Loss) to Net Cash
Provided (Used) by
Operating Activities:
Depreciation................ 12,627 11,982 16,633 16,955 14,323
Amortization of Intangibles. 2,212 2,098 3,042 2,669 2,630
Deferred Taxes.............. (3,415) -- 2,502 (2,007) (1,993)
Charge for 1993 Strategic
Action Plan................ -- -- -- -- 12,600
Change in Assets and
Liabilities Net of Purchase
of Business:
Receivables............. 26,572 (26,959) (48,182) (93) 14,916
Inventories............. 641 14,119 16,038 (31,149) 8,639
Other Current Assets.... (2,418) 1,258 481 (213) (4)
Current Liabilities..... (25,791) (24,584) (16,899) 23,624 (4,139)
Other Liabilities....... (264) 1,769 2,217 (2,945) (2,028)
Other Assets............ (7,939) (4,912) 10,482 (3,280) (3,488)
Other Operating Activities.. 947 (1) 201 136 (115)
-------- -------- -------- -------- --------
Net Operating Activities.. (4,577) (20,184) (7,824) 15,720 42,363
-------- -------- -------- -------- --------
INVESTING ACTIVITIES
Capital Expenditures........ (6,891) (9,646) (19,191) (17,821) (12,682)
Acquisition................. -- -- -- (25,400) --
Disposition of Property
Plant and Equipment........ 4,497 3,568 3,859 -- 1,600
Other Investing Activities.. -- -- -- (302) (99)
-------- -------- -------- -------- --------
Net Investing Activities.. (2,394) (6,078) (15,332) (43,523) (11,181)
-------- -------- -------- -------- --------
FINANCING ACTIVITIES
Net Intercompany Activity... 6,971 26,262 23,156 27,803 (31,182)
-------- -------- -------- -------- --------
Net Increase in Cash........ -- -- -- -- --
Cash, Beginning of Period... -- -- -- -- --
-------- -------- -------- -------- --------
Cash, End of Period......... $ -- $ -- $ -- $ -- $ --
======== ======== ======== ======== ========
</TABLE>
See accompanying notes to combined financial statements
F-5
<PAGE>
PRIMEX TECHNOLOGIES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
($ IN THOUSANDS)
OLIN CORPORATION'S PROPOSED DISTRIBUTION OF PRIMEX TECHNOLOGIES, INC.
On October 9, 1996 the Board of Directors of Olin Corporation ("Olin")
approved a plan to distribute all of the outstanding shares of Primex
Technologies, Inc. (the "Company") to shareholders on a date to be determined
(the "Distribution"). The Company will own the assets and liabilities of
Olin's former Ordnance Division ("Ordnance") and Aerospace Division
("Aerospace"). The anticipated distribution will result in the Company
operating as a free standing corporation whose common shares will be publicly
traded. Olin expects the distribution to be completed by the end of 1996,
after the appropriate approvals of third parties including the U.S. Government
and the receipt of an acceptable opinion of counsel that the transaction will
be tax-free.
Prior to the Distribution, it is anticipated that the Company will assume a
$160,000 credit facility which is intended to provide sufficient liquidity for
the Company's current funding needs. Olin will borrow $125,000 under the
credit facility. The Company expects that the credit facility will have a five
year term.
Olin and the Company have entered into a Tax Sharing Agreement effectively
providing that Olin is responsible for taxes attributable to periods prior to
the Distribution.
Olin and the Company have entered into a Powder Supply Requirements
Agreement providing for the supply by the Company of Ball Powder(R) propellant
to Olin subsequent to the Distribution.
ACCOUNTING POLICIES
The preparation of the combined financial statements requires estimates and
assumptions that affect amounts reported and disclosed in the financial
statements and related notes. Actual results could differ from those
estimates.
BASIS OF PRESENTATION
The Company is a business unit of Olin consisting of the Ordnance and
Aerospace divisions.
Ordnance produces large and medium caliber ammunition for aircraft,
artillery, tanks, warships; air dispensed munitions; Ball Powder(R) propellant
for sporting, military and commercial applications; and propulsion systems for
large caliber gun systems. Ordnance's primary customers are the U.S.
Department of Defense and other government R&D agencies/laboratories, allied
governments and sporting ammunition manufacturers.
Aerospace products include rocket engines, advanced electric propulsion
systems, aerospace electronic products, pulsed power systems and solid
propellant products, including munitions dispensing systems. Aerospace's
primary customers are satellite, aircraft and missile contractors; other
defense/aerospace subsystems and systems contractors; NASA and other
government R&D agencies/laboratories.
The accompanying combined financial statements, which have been prepared as
if the Company had operated as a separate stand-alone entity for all periods
presented, include only those assets and liabilities to be transferred to the
Company, and revenues and expenses attributable to the Company's operations.
The combined financial statements include the accounts of the Company and
certain majority-owned subsidiaries of Olin which will become subsidiaries of
the Company prior to the Distribution. Inter-company balances and transactions
between entities included in these financial statements have been eliminated.
These financial statements include the assets, liabilities, revenues and
expenses of the following Olin subsidiaries:
F-6
<PAGE>
PRIMEX TECHNOLOGIES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
($ IN THOUSANDS)
Olin Aerospace Company.
Physics International Company.
U.S. Ordnance Company.
General Defense Corporation (GDC).
GD International, LTD, a wholly-owned subsidiary of GDC.
Olin Services, Inc., a wholly-owned subsidiary of GDC.
PI Physics International (Schweiz) A.G., a wholly-owned subsidiary of
Physics International Company.
The combined financial statements include an allocation of Olin's
consolidated debt and interest expense related to the assigned portion of
Olin's debt. The amount of debt allocated was based on providing a debt to
equity ratio similar to that of Olin as well as a level of debt the Company
could maintain on an independent basis in the future. Management believes the
method used to allocate the debt is reasonable and also reflects reductions in
the Company's working capital estimated to occur prior to the Distribution. An
assessment of corporate overhead is included in selling and administration
expenses with the allocation based on either effort committed or number of
employees. Management believes that the allocation method used to allocate the
costs and expenses is reasonable, however, such allocated amounts may or may
not necessarily be indicative of what selling and administration expenses
would have been if the Company operated independently of Olin. It is
anticipated that when the Company becomes a separate public company
administration expenses will increase by approximately $4,000 per year as a
result of additional financial reporting requirements, stock transfer fees,
directors' fees, insurance, and executive compensation and benefits.
LONG-TERM CONTRACTS
Sales and cost of sales related to government contracts that extend beyond
one year are primarily recognized under the percentage-of-completion method of
accounting as costs are incurred. Profits expected to be realized on contracts
are based on the Company's estimates of costs at completion compared to total
contract sales value; profits for interim reporting periods are based on costs
incurred relative to total estimated costs at completion. When the Company
believes the cost of completing a contract will exceed contract-related
revenues, the full amount of the anticipated contract loss is recognized.
For contracts or commercial orders with performance periods of under one
year, sales are recognized on the units shipped method of accounting.
Sales directly to the U.S. government and its agencies amounted to $391,099
in 1995, $318,898 in 1994, and $302,022 in 1993. No other single customer
accounted for more than 10% of the Company's total annual sales during the
three-year period ended December 31, 1995. Export sales from the United States
to unaffiliated customers were $24,285, $16,428 and $21,140 in 1995, 1994 and
1993, respectively.
INVENTORIES
Inventories are stated at the lower of cost or net realizable value. Certain
inventories are included in a larger pool of Olin inventories valued by the
dollar value last-in, first-out (LIFO) method of inventory accounting.
The allocation of LIFO reserves is determined by the Company's percentage
share of the related inventory pool (based on first-in, first-out).
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost. Depreciation is computed
on a straight-line basis over the following estimated useful lives:
<TABLE>
<S> <C>
Improvements to land.......................................... 10 to 20 years
Building and building equipment............................... 5 to 45 years
Machinery and equipment....................................... 3 to 12 years
</TABLE>
F-7
<PAGE>
PRIMEX TECHNOLOGIES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
($ IN THOUSANDS)
Leasehold improvements are amortized over the term of the lease or the
estimated useful life of the improvement, whichever is less. Start-up costs
are expensed as incurred.
GOODWILL
Goodwill, the excess of the purchase price of the acquired businesses over
the fair value of the respective net assets, is amortized principally over 30
years on a straight-line basis. Accumulated amortization was $19,790, $17,869,
and $15,344 at September 30, 1996, December 31, 1995 and 1994, respectively.
The Company periodically reviews the value of its goodwill to determine if an
impairment has occurred. The Company measures the potential impairment of
recorded goodwill by the undiscounted value of expected future operating cash
flows in relation to its net capital investment in the subsidiary. An
impairment would be recorded based on the estimated fair value.
ENVIRONMENTAL LIABILITIES AND EXPENDITURES
Accruals for environmental matters are recorded when it is probable that a
liability has been incurred and the amount of the liability can be reasonably
estimated, based upon current law and existing technologies. These amounts,
which are not discounted and exclusive of claims against third parties, are
adjusted periodically as assessment and remediation efforts progress or
additional technical or legal information becomes available. Environmental
remediation costs are charged to expense. Environmental costs are capitalized
if the costs increase the value of the property and /or mitigate or prevent
contamination from future operations.
INCOME TAXES
Prior to the distribution, the Company's operations are included in the U.S.
federal consolidated tax returns of Olin. The provision for income taxes
includes the Company's allocated share of Olin's consolidated income tax
provision and is calculated on a separate Company basis pursuant to the
requirements of Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes". Allocated income taxes are settled with Olin on
a current basis. Deferred taxes are provided for differences between the
financial statement and tax bases of assets and liabilities using enacted tax
rates in effect for the year in which the differences are expected to reverse.
ACCOUNTING STANDARDS
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of". The adoption of this
standard did not have a material impact on the Company's financial position
and its operating results.
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation". As
allowable by SFAS No. 123, the Company will not recognize compensation cost
for stock-based compensation arrangements, but rather will disclose in the
notes to the financial statements the impact on net income and earnings per
share as if the fair value based compensation cost had been recognized.
INTERIM FINANCIAL STATEMENTS (UNAUDITED)
In the opinion of management, the information furnished in the unaudited
interim combined financial statements reflects all adjustments necessary for a
fair statement of the results of operations as of and for the nine month
periods ended September 30, 1996 and 1995. The unaudited interim combined
financial statements have been prepared in accordance with the instructions to
Form 10-Q and therefore do not include some information and notes necessary to
conform with the annual reporting requirements.
F-8
<PAGE>
PRIMEX TECHNOLOGIES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
($ IN THOUSANDS)
RECEIVABLES
Receivables, including amounts due under long-term contracts (contract
receivables), are summarized as follows:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Contract receivables:
Billed receivables...................................... $ 18,851 $ 14,259
Unbilled receivables.................................... 92,113 70,804
Trade receivables......................................... 40,621 19,321
-------- --------
Total accounts receivable trade........................... 151,585 104,384
Other receivables......................................... 1,491 510
-------- --------
Total..................................................... $153,076 $104,894
======== ========
</TABLE>
Unbilled receivables represent the balance of recoverable costs and accrued
profit comprised principally of revenue recognized on contracts for which
billings have not been presented to the customer because the amounts were
earned but not billable as of the balance sheet date under the contractual
terms. Billed and unbilled contract receivables include amounts related to
Government contracts of $12,061 and $79,473 in 1995 and $10,381 and $57,620 in
1994. Also included in contract receivables are claims in the amount of $445
and $127 at December 31, 1995 and 1994, respectively.
INVENTORIES
Inventories are presented below:
<TABLE>
<CAPTION>
UNAUDITED
SEPTEMBER
1996 1995 1994
--------- ------- -------
<S> <C> <C> <C>
Raw materials and work-in-progress................. $40,320 $50,690 $68,458
Finished goods..................................... 17,478 7,749 6,489
------- ------- -------
57,798 58,439 74,947
Less revaluation to LIFO........................... 8,676 8,676 8,239
------- ------- -------
Total inventories.................................. $49,122 $49,763 $66,708
======= ======= =======
</TABLE>
Inventory valued at LIFO represented approximately 22% of total inventory at
September 30, 1996 and December 31, 1995 and 17% of total inventory at
December 31, 1994.
PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
UNAUDITED
SEPTEMBER
1996 1995 1994
--------- -------- --------
<S> <C> <C> <C>
Land and improvements to land................... $ 14,378 $ 17,497 $ 18,977
Building and building equipment................. 38,375 37,942 39,840
Machinery and equipment......................... 156,689 158,771 154,802
Leasehold improvements.......................... 17,686 17,961 18,092
Construction-in-progress........................ 21,930 23,927 14,827
-------- -------- --------
Property, plant and equipment................... 249,058 256,098 246,538
Less accumulated depreciation................... 145,765 141,625 132,425
-------- -------- --------
$103,293 $114,473 $114,113
======== ======== ========
</TABLE>
F-9
<PAGE>
PRIMEX TECHNOLOGIES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
($ IN THOUSANDS)
Leased assets capitalized and included above are not significant.
Maintenance and repairs charged to operations amounted to $9,846, $8,568 and
$7,788 in 1995, 1994 and 1993, respectively.
SHORT-TERM BORROWINGS
The financial statements include $125,000 of debt in 1995, 1994 and 1993
which represents the expected amount of debt at the time of the Distribution.
Associated interest expense amounted to $9,250, $8,625, and $7,875 in 1995,
1994 and 1993, respectively, and was determined using Olin's annual average
borrowing rates for those periods. Prior to the distribution, it is
anticipated that the Company will assume a $160,000 credit facility which is
intended to provide sufficient liquidity for the Company's current funding
needs. Olin will borrow $125,000 under the credit facility. The Company
expects the credit agreement to permit borrowings on a revolving basis over a
five-year term. The facility will contain restrictive covenants limiting the
ratio of earnings before interest and taxes to interest expense, the ratio of
total debt to earnings before interest, taxes, depreciation and amortization,
and will contain minimum tangible net worth requirements. No principal
repayments are expected to be made on the revolving debt until the end of the
five-year term. Because this agreement has not been finalized, the debt due
Olin has been classified as short-term in the Company's Combined Balance
Sheets. When the credit agreement is signed and assumed by the Company in
connection with the Distribution, the debt will be reclassified to long-term
debt.
OTHER CHARGES
Other charges include a provision for the settlement of claims relating to a
government investigation of certain testing irregularities at the Company's
Marion, Illinois facility of $6,000 in the nine months ended September 30,
1996 and $2,000 in the year ended December 31, 1995. Also included in other
charges in the nine months ended September 30, 1996 is a $4,500 provision
relating to the Belgian contract dispute. See footnote titled "Legal
Proceedings" included herein.
Included in other charges for 1993 is a charge of $12,600 associated with a
strategic action plan formulated during the fourth quarter of 1993. The plan
included costs of business restructurings involving the shutdown of a
manufacturing facility and the discontinuance of artillery metal parts
manufacturing ($7,000), other charges including asset write-downs ($1,500),
and a reduction in the salaried workforce ($4,100). All actions related to the
1993 charge had been completed as of December 31, 1995.
ACCRUED LIABILITIES
Included in accrued liabilities at the end of the year are the following
items:
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Accrued payroll and employee benefits......................... $10,802 $11,543
Contract Liabilities.......................................... 6,495 10,093
Other......................................................... 5,790 7,424
------- -------
Total accrued liabilities..................................... $23,087 $29,060
======= =======
</TABLE>
Contract liabilities represent principally reserves for anticipated losses
on certain incomplete contracts as well as estimated costs to perform
contractual activities associated with completed contracts.
F-10
<PAGE>
PRIMEX TECHNOLOGIES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
($ IN THOUSANDS)
INCOME TAXES
COMPONENTS OF INCOME TAX EXPENSE:
<TABLE>
<CAPTION>
1995 1994 1993
------ ------- -------
<S> <C> <C> <C>
Currently payable:
Federal........................................... $3,774 $ 9,976 $ 3,987
State............................................. 687 1,836 728
Deferred............................................ 2,502 (2,007) (1,993)
------ ------- -------
Income tax expense.................................. $6,963 $ 9,805 $ 2,722
====== ======= =======
</TABLE>
The following table accounts for the difference between the actual tax
provision and the amounts obtained by applying the statutory U.S. federal
income tax to the income before taxes.
EFFECTIVE TAX RATE RECONCILIATION (PERCENT):
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Statutory federal tax rate.................................... 35.0 35.0 34.0
State income taxes, net....................................... 5.5 4.5 7.4
Goodwill...................................................... 7.0 4.1 23.6
Fines and penalties........................................... 5.5 -- --
Supplemental pension.......................................... 0.8 1.0 5.4
Other, net.................................................... 1.4 0.3 2.3
---- ---- ----
Effective tax rate............................................ 55.2 44.9 72.7
==== ==== ====
</TABLE>
COMPONENTS OF DEFERRED TAX ASSETS AND LIABILITIES:
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Deferred tax assets:
Postretirement benefits................................... $ 3,653 $ 3,609
Non-deductible reserves................................... 9,900 10,038
Other miscellaneous items................................. 3,390 3,253
------- -------
Total deferred tax assets................................... $16,943 $16,900
======= =======
Deferred tax liabilities:
Property, plant and equipment............................. $13,895 $14,984
Deferred contract income.................................. 6,061 2,427
------- -------
Total deferred tax liabilities.............................. $19,956 $17,411
======= =======
</TABLE>
Income from foreign subsidiaries is not significant and represented less
than $70 in each of the years presented. Included in other current assets at
December 31, 1995 and 1994, respectively, are $4,802 and $5,590 of net current
deferred assets.
ACQUISITIONS
In 1994, the Company acquired certain assets of the medium caliber
ammunition business of GenCorp's Aerojet Ordnance Division for approximately
$25,400. The fair value of assets acquired included working capital of $11,170
and property, plant and equipment of $14,230. This acquisition was accounted
for as a purchase and
F-11
<PAGE>
PRIMEX TECHNOLOGIES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
($ IN THOUSANDS)
accordingly, its results of operations, which were not material, are included
in the combined financial statements from the date of acquisition.
PENSION PLANS
Virtually all U.S. employees of the Company are participants in one of
several Olin pension benefit plans covering employees of other Olin
businesses. It is impracticable to segregate the vested benefits attributable
to employees of the Company. Costs and expenses include accruals for pensions
at rates determined by Olin corporate personnel and which amounted to $4,622,
$4,427 and $4,401 in 1995, 1994, and 1993, respectively. It is anticipated
that the Company will adopt a defined contribution savings plan to provide
pension benefits to its employees. The Company estimates that the costs of
such plans will approximate the costs under the Olin plans. The pension
liability for active and retired employees participating in the Olin plans
prior to the Distribution will remain with Olin.
Certain Company employees participated in Olin supplemental non-qualified
pension plans. Costs and expenses associated with the non-qualified plans were
$566, $688, and $761 in 1995, 1994, and 1993, respectively. Included in other
assets in 1995 and 1994 is the cash surrender value of the related life
insurance policies of $1,991 and $9,938, respectively, which is net of loans
against those policies of $9,200 in 1995. The loans were repaid in 1996. Olin
will remain liable for payment of benefits accrued for employees of the
Company under any Olin non-qualified benefit plan as of the Distribution Date.
It is anticipated that the Company will establish a non-qualified plan after
the Distribution.
The Company's employees also participate in Olin-provided postretirement
health care and life insurance benefits for eligible active and retired
domestic employees. The following table reflects the components of post
retirement liability for active employees of the Company. Costs and expenses
include accruals for post retirement benefits for both active and retired
employees at rates determined by Olin corporate personnel and which amounted
to $1,100, $550 and $306 in 1995, 1994 and 1993, respectively. The liability
for retired employees prior to the Distribution will remain with Olin. It is
anticipated that the Company will adopt a plan similar to the Olin plan to
provide postretirement benefits for its active employees.
UNFUNDED LIABILITY FOR POSTRETIREMENT BENEFITS
<TABLE>
<CAPTION>
1995 1994
------ ------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Fully eligible active plan participants.................... $3,473 $3,337
Other active participants.................................. 5,666 5,445
------ ------
Cumulative accumulated postretirement benefit obligation..... 9,139 8,782
Unrecognized loss............................................ (912) (769)
Unrecognized prior service cost.............................. 1,165 1,264
------ ------
Net postretirement benefit liability......................... $9,392 $9,277
====== ======
</TABLE>
The accumulated postretirement benefit obligation was determined using the
projected unit credit method and an assumed discount rate of 7.5% in 1995,
8.5% in 1994 and 7.5% in 1993. The assumed health care cost trend rate used
for pre-65 retirees was 12.5% in 1995 and 13% in 1994 and 13.5% in 1993,
declining one-half percent per annum to 6%. A one percent increase each year
in the health care cost trend rate used would have resulted in a $160 increase
in aggregate service and interest components of expense for the year 1995, and
a $925 increase in the accumulated postretirement benefit obligation at
December 31, 1995.
F-12
<PAGE>
PRIMEX TECHNOLOGIES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
($ IN THOUSANDS)
CONTRIBUTING EMPLOYEE OWNERSHIP PLAN
Prior to the distribution, the Company employees participated in the Olin
Corporation Contributing Employee Ownership Plan, which is a defined
contribution plan available to essentially all domestic Olin employees and
provides a match of employee contributions. The matching contribution
allocable to the Company employees has been included in cost and expenses in
the accompanying financial statements and was $2,274, $1,958, and $1,261 in
1995, 1994 and 1993, respectively.
LONG-TERM INCENTIVE PLAN
It is anticipated that the Company will adopt a long-term incentive plan to
encourage selected salaried employees to acquire a proprietary interest in the
Company's growth and performance and to attract and retain qualified
individuals. The plan will provide for the ability to issue stock options,
stock appreciation rights, restricted stock and restricted stock units,
performance awards, and other stock-based awards. Shortly after the date of
the distribution it is anticipated that the Company will issue restricted
stock units to certain officers of the Company. The estimated value of the
restricted stock units is $3,500 which will be charged to income over the
vesting period of 5 years.
SHAREHOLDER RIGHTS PLAN
It is anticipated that the Company will adopt a Shareholder Rights Plan
which is designed to prevent an acquiror from gaining control of the Company
without offering a fair price to all shareholders. Each right entitles a
shareholder (other than the acquiror) to buy one one-thousandth of a share of
Series A Participating Cumulative Preferred Stock at an exercise price of
$ . The rights are exercisable only if a person acquires more than 15% of
the Company's common stock or if the Board of Directors so determines
following the commencement of a tender or exchange offer to acquire more than
15% of the Company's common stock. If any person acquirers more than 15% of
the Company's common stock and in the event of a subsequent merger or
combination, each right will entitle the holder (other than the acquiror) to
purchase stock or other property of the acquiror having a value of twice the
exercise price. The Company can redeem the rights at $.01 for a certain period
of time. The rights will expire on December , 2007, unless earlier redeemed
by the Company.
EQUITY
Equity represents Olin's ownership interest in the recorded net assets of
the Company. All cash and inter-company transactions flow through the equity
account. A summary of the activity for the periods ended December 31 follows:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Balance, beginning of period...................... $131,113 $ 91,287 $114,775
Net income........................................ 5,661 12,023 1,022
Net inter-company activity........................ 21,761 27,803 (24,510)
-------- -------- --------
Balance, end of period............................ $158,535 $131,113 $ 91,287
======== ======== ========
</TABLE>
COMMITMENTS AND CONTINGENCIES
The Company leases certain properties, such as manufacturing, warehousing
and office space, data processing and office equipment. Leases covering these
properties generally contain escalation clauses based on increased costs of
the lessor, primarily property taxes, maintenance and insurance and have
renewal or purchase
F-13
<PAGE>
PRIMEX TECHNOLOGIES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
($ IN THOUSANDS)
options. Total rent expense charged to operations amounted to $4,684 in 1995,
$4,876 in 1994 and $3,694 in 1993 (sublease income is not significant). Future
minimum rent payments under operating leases having initial or remaining
noncancelable lease terms in excess of one year at December 31, 1995 are as
follows: $3,850 in 1996; $3,237 in 1997; $2,810 in 1998; $2,528 in 1999;
$2,151 in 2000; and $9,906 thereafter.
At December 31, 1995, the Company had approximately $8,050 in stand by
letters of credit primarily representing performance guarantees under certain
supply agreements.
ENVIRONMENTAL
The Company is party to various governmental and private environmental
actions associated with waste disposal sites and manufacturing facilities.
Environmental provisions charged to income amounted to $795 in 1995, $120 in
1994 and $1,101 in 1993. The combined balance sheets include reserves for
future environmental expenditures to investigate and remediate known sites
amounting to $2,574 in 1995 and $2,070 in 1994 and are classified as other
noncurrent liabilities, respectively.
Environmental exposures are difficult to assess for numerous reasons,
including the identification of new sites, developments at sites resulting
from investigator studies, advances in technology, changes in environmental
laws and regulations and their application, the scarcity of reliable data
pertaining to identified sites, the difficulty in assessing the involvement
and financial capability of other potentially responsible parties and the time
periods (sometimes lengthy) over which site remediation occurs. It is possible
that some of these matters (the outcomes of which are subject to various
uncertainties) may be resolved unfavorably against the Company.
LEGAL PROCEEDINGS
In May 1994, the Company discovered that an employee may have modified
inspection and testing software used on certain medium caliber ammunition
production lines at its Marion, Illinois testing facility to permit
inspections to be performed at tolerances which may not have been fully
compliant with applicable contract specifications. Upon discovering the issue,
the Company promptly notified U.S. Government contracting representatives,
voluntarily disclosed the circumstances then known to the Department of
Defense's Office of the Inspector General and expressed its intent to fully
investigate the matter and take all necessary corrective actions. In September
of 1996 this matter was settled with the U.S. Government for $8,000. The
settlement charges are included in "Other charges" in the accompanying
combined statements of income.
The Company is involved in a contract dispute with the Belgium Ministry of
Defense related to the 1985 sale of tank ammunition. The Belgium Ministry of
Defense has alleged improprieties committed by the Belgium national who
represented Olin in the transaction. Based on these allegations, the Belgium
Ministry of Defense withheld final payment on the contract and the Company
agreed to extend the letter of credit related to the contract guarantee
pending a decision by the Belgium courts on the underlying contract dispute.
The trial court ruled against the Company. The decision has been appealed. In
the event that the trial court's decision is sustained, the resultant
liability is estimated at approximately $4,500, net of a $1,100 receivable, at
current exchange rates. The provision for the estimated settlement is included
in "Other charges" in the accompanying combined statements of income. However,
since the liability for this matter has been assumed by Olin in accordance
with the Assumption of Liabilities and Indemnity Agreement between Olin and
the Company the balance sheet does not include any reserves related to this
matter.
RELATED PARTY TRANSACTIONS
The Company sells propellant to Olin's Winchester Division which is used in
the manufacturing of sporting ammunition. These product sales aggregated
$23,272 in 1995, $25,706 in 1994, and $21,702 in 1993 and are reflected in
sales on the statement of income for the respective periods. Payment of these
inter-company sales occurred at the time of shipments by way of the inter-
company account.
F-14
<PAGE>
PRIMEX TECHNOLOGIES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
($ IN THOUSANDS)
The Company is charged by Olin for the Company's share of expenses of
certain centralized activities using various allocation bases. These
activities include, but are not limited to, administration of employee benefit
programs, tax compliance, management information systems, treasury, legal and
general corporate functions. Charges to the Company for centralized corporate
services were $2,170 in 1995, $2,528 in 1994 and $3,103 in 1993.
F-15
