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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1999
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 0-28942
PRIMEX TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Virginia 06-1458069
(State or other jurisdiction of (I.R.S. Employer
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: (727) 578-8100
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
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Common Stock, Par Value $1.00 Per Share
Series A Participating Cumulative
Preferred Stock Purchase Rights
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in a definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant, based on the closing price of such stock as of February 29, 2000,
as reported on The Nasdaq Stock Market(R) was $208,636,722.
The number of common shares, par value $1.00 per share, outstanding as of
February 29, 2000 was 10,406,543.
DOCUMENTS INCORPORATED BY REFERENCE
The definitive Proxy Statement for the 2000 Annual Meeting of Shareholders
is incorporated by reference into Part III of this Form 10-K.
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TABLE OF CONTENTS
FORM 10-K
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Page No.
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PART I
Item 1 Business.................................................. 1
Item 2 Properties................................................ 10
Item 3 Legal Proceedings......................................... 11
Item 4 Submission of Matters to a Vote of Security Holders....... 11
PART II
Item 5 Market for Registrant's Common Equity and Related
Stockholder Matters...................................... 11
Item 6 Selected Financial Data................................... 12
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations...................... 13
Item 7A Quantitative and Qualitative Disclosure About Market Risk. 18
Item 8 Financial Statements and Supplementary Data............... 19
Item 9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure...................... 39
PART III
Item 10 Directors and Executive Officers of the Registrant........ 39
Item 11 Executive Compensation.................................... 39
Item 12 Security Ownership of Certain Beneficial Owners and
Management............................................... 39
Item 13 Certain Relationships and Related Transactions............ 39
PART IV
Item 14 Exhibits, Financial Statements, Schedules, and Reports on
Form 8-K................................................. 40
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PART I
ITEM 1. BUSINESS
General
Primex Technologies, Inc. ("Primex" or the "Company") is an ordnance and
aerospace contractor with strong systems management and manufacturing
capability. Primex was organized under the laws of the Commonwealth of
Virginia in May 1996 and has been publicly owned since December 31, 1996, when
Olin Corporation ("Olin") made a distribution (the "Distribution") to its
shareholders of all the outstanding shares of Primex common stock (the "Common
Stock"). Primex provides a variety of ordnance and aerospace products and
services to the U.S. Government, friendly foreign governments, and domestic
and international commercial and industrial customers.
Primex's business operations are organized into two segments that
correspond to its primary products and services. Through its Ordnance and
Tactical Systems ("Ordnance") segment, the Company designs and manufactures
tank and other large and medium caliber ammunition for U.S. and friendly
foreign government customers. These products are used in ships, aircraft,
tanks, and fighting vehicle based weapons and other applications.
Additionally, the Ordnance segment manufactures precision metal components and
provides explosive load, assemble, and pack services for a variety of tactical
missile and rocket programs. The Ordnance segment also designs and produces
shaped charge warheads and control actuator systems that are used in various
weapons. Ball Powder(R) propellant, which is sold to U.S. and friendly foreign
militaries, commercial ammunition manufacturers, and sporting and recreational
customers, is also manufactured by the Ordnance segment.
The Aerospace and Electronics ("Aerospace") segment designs and
manufactures electronic products utilized primarily in aeronautic
applications, as well as rocket engines and electronic products used in space
applications. The Aerospace segment also produces solid propellant products
used in munitions dispensing and inflation devices.
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>
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Products and Services 1999 1998 1997
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<S> <C> <C> <C>
Tank and other Large Caliber Ammunition (1)...................... 29% 32% 29%
Tactical Missiles and Rockets (2)................................ 16% 5% 2%
Medium Caliber Ammunition........................................ 15% 15% 19%
Electronic Products.............................................. 9% 14% 10%
Ball Powder Propellant(R)........................................ 8% 9% 10%
Space Products................................................... 6% 8% 9%
Other Products and Services (3).................................. 17% 17% 21%
</TABLE>
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(1) The Company has two multi-year contracts with the U.S. Government for the
supply of 120mm tactical ammunition and 120mm training ammunition that
represented approximately 13% and 14%, respectively of 1999 sales, 14% and
17%, respectively, of 1998 sales; 16% and 12%, respectively, of 1997
sales. In February 1999, the Company was awarded a follow-on multi-year
contract for the supply of 120mm training ammunition that provides for
deliveries through mid-2004.
(2) Approximately 13% of 1999 sales and 2% of 1998 sales resulted from
companies acquired since November 1998.
(3) Approximately 3% of 1999 sales, 4% of 1998 sales and 5% of 1997 sales
resulted from contracts for artillery propelling charges.
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 by the U.S. Army and Marine Corps, as well as certain
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
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penetrator that utilizes kinetic energy to penetrate heavily armored targets
and is used primarily in tank-to-tank warfare. 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 tactical round, and the M831A/1
is the training round for the M830A/1 tactical multi-purpose round which is
produced by the Company's U.S. tank ammunition competitor. During 1995, the
Company entered into two contracts, each with four-year terms, to produce
these training and kinetic energy tactical rounds for the U.S. Government and
is currently in the final stages of production under these contracts. In
February 1999, the Company was awarded a five year follow-on contract for the
production of 120mm training rounds valued at approximately $395.0 million.
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 was the original developer of 120mm
tank ammunition, has developed an advanced 120mm kinetic energy round with a
tungsten alloy penetrator. In February 1999, the Company was awarded a $31.3
million contract for production of advanced kinetic energy tungsten penetrator
rounds for a foreign customer.
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 and friendly foreign governments. As a result the Company
continually invests in research and development of large caliber ammunition,
focusing primarily on improving the effectiveness of kinetic energy tactical
ammunition and reducing the cost of training ammunition.
During 1999, the Company received a subcontract from a major prime
contractor to participate in the development of 120mm tank ammunition capable
of extended range and beyond line of sight effectiveness.
In addition to tank ammunition, the Company has the ability to design and
manufacture artillery rounds and related components. The Company believes this
capability presents an opportunity for future sales. During 1997, 1998 and
1999, the Company was awarded subcontracts, by a major systems prime
contractor, to supply projectile structure and payload components under
engineering and manufacturing development contracts for advanced guided
artillery rounds to be used by both the U.S. Army and U.S. Navy. The Company
anticipates these development contracts will result in future production
contracts.
Tactical Missiles and Rockets. The Company is a supplier to prime
contractors for a variety of tactical missile and rocket programs. Significant
missile and rocket programs include the Hydra-70, a 2.75 inch rocket, the
Advanced Medium Range Air to Air Missile, the Joint Stand-off Weapon,
Brilliant-Anti-Tank Munition, and the Tomahawk Missile. In June, 1999, the
Company received a multi-year contract to supply, through 2006, components and
services for the Hydra-70, a low cost, unguided rocket that is used on a
variety of rotary and fixed wing aircraft.
The Company's manufacturing capabilities for tactical missile and rocket
programs fall into four principal areas: first, the manufacturing of precision
metal assemblies, which is a process utilizing custom designed tools and
fixtures for production at fine tolerances; second, the design and development
of shaped charge warheads including the ability to mix, coat and press
explosives into large diameter warheads; third, the manufacturing of small gas
generators, actuators and munitions dispensing devices used in a variety of
tactical missiles and precision guided munitions; and finally, explosive load,
assemble and pack services which the Company performs for a variety of
programs.
Medium Caliber Ammunition. The Company develops and produces medium caliber
ammunition. The Company's medium caliber product line includes 20mm, 25mm, and
30mm ammunition, which is utilized on a variety of platforms, including ships,
airplanes, helicopters, and fighting vehicles. The Company's family of medium
caliber ammunition includes armor piercing, as well as high-explosive
incendiary and training rounds. In addition, through a license with A/S
Raufoss Ammunisjonsfabrikker, the Company is a leading developer of multi-
purpose medium caliber ammunition that combines armor-piercing, high explosive
and incendiary features in one round.
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The Company produces the 25mm M919 round, an armor-piercing, fin
stabilized, discarding sabot round, utilizing a depleted uranium penetrator
that offers increased range and lethality. This round is the primary anti-
armor round of the Bushmaster cannon used on the Bradley Fighting Vehicle.
During 1999, the U.S. Army awarded the Company an option contract for
continued production of M919 ammunition. In addition, during 1999, the Company
was awarded a five-year contract to produce 25mm training ammunition for the
U.S. Army. These contract awards are evidence that the U.S. Government will
likely continue to buy medium caliber ammunition in the future. The Company
also has several contracts to produce 20mm and 30mm ammunition for both the
U.S. Government and foreign customers. Medium caliber ammunition historically
has been used by aircraft as well as land vehicles and ships. However, because
of the possible development of other aircraft weapons platforms that do not
require close strikes to be effective, the Company believes that medium
caliber ammunition may be used to a lesser extent in future aircraft.
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 of Ball Powder(R)
propellant to the commercial ammunition market. In 1999, 1998 and 1997,
approximately 80%, 75% and 72%, respectively, of Ball Powder(R) propellant
sales were to manufacturers of commercial ammunition and other non-U.S.
Government customers.
Olin's Winchester Division, a leading manufacturer of sporting ammunition,
was the Company's largest Ball Powder(R) propellant customer in 1999, 1998 and
1997, accounting for at least 33%, of the Company's Ball Powder(R) propellant
shipments. The Company has a multi-year supply agreement with respect to
future Winchester Ball Powder(R) propellant requirements.
Over the years, the Company has attempted to increase the use of Ball
Powder(R) propellant in medium and large caliber military ammunition. A
significant majority 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(R) propellant in additional types of large caliber ammunition.
Electronic Products. The Company manufactures a variety of electronic
products for aerospace applications. The Company's line of airborne electronic
products includes controls for lighting, temperature, audio, power and flight
systems, as well as in-flight communications and entertainment components and
products. The Company also produces military ground support equipment,
including stores management and weapons system test sets for the F-16 and
other aircraft. The Company also manufactures a variety of power conditioning
units (which convert one form of electronic power into another) for military,
commercial and space applications.
In 1996, the Company introduced its first EmPower(TM) product, an in-seat
power supply system for airplane passengers' laptop computers and other
personal electronic devices. The Company has contracted to provide EmPower(TM)
products to domestic and international airline companies, and is negotiating
with several additional prospective domestic and international customers.
During 1997, the Company made its first significant deliveries of this
product. During 1999, the Company introduced the EmPort(TM) product, which is
a high speed aircraft cabin local area network providing passengers a data
connection with access to services including email, file transfer and web
browsing.
Space Products. The Company is the world's leading supplier of
monopropellant hydrazine 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 power from one-
tenth to several hundred pounds of thrust, these products are integral to the
growing launch vehicle and satellite markets. The Company has delivered
approximately 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 applications.
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EP devices represent an advancement over conventional 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 currently has five thruster models in production. The first EP
product, a resistojet, was 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 expanding its role in propulsion system development and
production by implementing lower cost processes which allow customers to
achieve savings by purchasing full systems rather than individual components.
The Company is also developing advanced EP products that it anticipates will
provide greatly improved performance compared to conventional hydrazine
thrusters with commensurate economic benefits to users. These advanced EP
products were flight-tested on experimental flights in 1998 and 1999. To
further advance its propulsion technology, the Company entered into a
licensing agreement for an advanced thruster technology with fuel efficiency
capabilities approaching ten times that of first generation hydrazine
thrusters. A number of domestic and foreign companies are continuing to
develop EP products, and the Company expects increased competition in this
area.
Other Products and Services
The Company is a manufacturer of combat weapons systems such as the Shoulder
Launched-Multipurpose Assault Weapon, which is an anti-materiel/anti-armor
weapon used by individual soldiers.
The Company manufacturers a range of small gas generators and devices
incorporating gas generators which control the burning of a solid propellant
and use the exhaust products for a variety of military and commercial
applications. These applications include jet engine starter cartridges,
inflatables, buoyancy devices, ammunition initiating devices, and fire
suppression systems.
The Company manufactures artillery propelling charges, which are bags or
modules loaded into the breech of an artillery gun that propel an artillery
projectile out of a gun. Since 1997 the Company has received contracts from
both the U.S. Government and foreign customers for the manufacture of
artillery propelling charges.
The Company has provided services under contracts with the U.S. Government
to demilitarize or disassemble stocks of obsolete small, medium, and large
caliber ammunition and bombs. The Company expects these contracts to continue
for several years.
The Company is a supplier of forged-steel petroleum drilling pipe joints and
other steel products for commercial markets. These products are produced
primarily at the Company's Red Lion, Pennsylvania and Downey, California
facilities. Although these facilities primary produce components for medium
and large caliber ammunition, they have successfully utilized existing
manufacturing capability and expertise for commercial applications. During
1999, investments were made to expand the capabilities of the Downey facility.
New Weapons and Ammunition. The U.S. Army is developing a series of 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,
and will be used 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. The OCSW is expected to be introduced to the field within the next
ten years.
Customers
The Company's largest customer is the U.S. Government. PRIMEX sells products
to the U.S. Department of Defense, NASA, and other U.S. Government
agencies/laboratories. Other customers of the Company include friendly foreign
governments, major ordnance and aerospace contractors and a variety of
commercial customers.
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The Company is highly dependent on U.S. Government sales, which accounted for
approximately 76%, 67%, and 66% in 1999, 1998 and 1997, respectively, of the
Company's sales. See "Item 1. Business--U.S. Government Contracts and
Regulations." 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.
Raw Materials and Supplies
The raw materials used in the manufacture of ammunition, ammunition
components, and tactical missile and rocket 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 customer. The Company also purchases, for use in its
products, various electronic piece parts, printed wire boards, hydrazine
liquid propellants, solid propellant ingredients and subcontracted components,
including capacitors, various metals and explosives. 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 and consolidation in the defense
industry may create difficulties in procuring certain components in the
future. Additionally, availability and cost of certain unique components will
reflect market conditions and the increasing technical complexity of product
requirements. U.S. Government contractors, such as the Company, are frequently
directed to procure materials, components or services from sources of supply
approved or designated by the U.S. Department of Defense.
U.S. Government Contracts and Regulations
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-reimbursable 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 the contract.
From time to time, the Company has experienced cost overruns on fixed-price
contracts. 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 1999, 1998 and 1997, approximately 92%, 92%, and 88%, respectively,
of the Company's sales to the U.S. Government were derived from firm fixed-
price and 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 1999, 1998 and 1997, approximately 8%, 8%,
and 12%, respectively, of the Company's sales to the U.S. Government were
derived from cost-plus-fixed-fee and cost-plus-incentive-fee contracts.
Under U.S. Government regulations, certain costs, including certain
organization and financing costs, acquisition and restructuring costs,
portions of research and development costs, certain compensation expenses,
certain marketing expenses related to the preparation of competitive bids and
proposals, lobbying costs, and international and commercial 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 are audited by the Defense
Contract Audit Agency ("DCAA"), an arm of the U.S. 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 reconciliation.
Because the Company engages in U.S. Government contracting activities and
sells to the U.S. Government and prime U.S. Government contractors, it is
subject to extensive and complex U.S. Government procurement laws and
regulations. These laws and regulations provide for U.S. Government audits and
reviews of contractor
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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, to
civil and criminal penalties, and under certain circumstances, suspension or
debarment from bidding on future U.S. Government contracts for a specified
period of time.
U.S. Government contracts are, by their terms, subject to termination by the
U.S. Government either for its convenience or for default by the contractor.
Cost-reimbursable 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 U.S. 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 U.S. Government, (ii) the U.S. 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 U.S. Government in procuring undelivered
items from another source.
In addition to U.S. Government termination rights, Government contracts are
dependent upon the levels and continuing availability of Congressional
appropriations. Congress usually appropriates program funds on a fiscal-year
basis even though contract performance may require more than one year.
Consequently, for multi-year 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. Accordingly, the Company, like other U.S. Government contractors, is
continually subject to the business risks associated with changes in
Congressional appropriations and the failure of programs which have been
awarded to the Company to be funded for future years.
Because a large percentage of the Company's business is related, directly or
indirectly, to national defense, the Company is subject to the business risks
associated with 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.
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 and the U.S. Department of Commerce and restrict
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 and certain other devices.
Failure to comply with BATF regulations could subject the Company to the
revocation of these required licenses.
There can be no assurance that the U.S. Government will exercise options to
extend existing contracts, not terminate existing contracts, or continue to
purchase products from the Company over the long term. The termination of any
of the Company's significant contracts or the failure to obtain either
renewals of existing contracts or additional contracts with the U.S.
Government could have a material adverse effect on the Company's results of
future operations and financial condition.
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Competition
The Company encounters strong competition in the sale of each of its
products and services. The degree to which the Company participates in future
U.S. Government business will depend, to a large extent, on its ability to
continuously improve program performance at lower prices to the U.S.
Government than its competitors.
The Company competes principally 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.
Ball Powder(R) propellant is the primary propellant used by the U.S.
Government in small caliber ammunition. The Company competes with Alliant and
Expro Chemical Products ("Expro"), a Canadian company, 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 competes with a number of companies both
foreign and domestic, including the in-house capabilities of major ordnance
and aerospace contractors.
Research and Development
The Company's research activities are conducted at a number of facilities.
Company-sponsored research expenditures were approximately $10.4 million, $9.3
million, and $5.6 million for 1999, 1998 and 1997, respectively. Customer-
sponsored research expenditures by the Company (primarily sponsored by the
U.S. Government) were approximately $13.6 million, $17.8 million, and $54.0
million, respectively, for such years. The higher levels of customer-sponsored
research in 1997 were the result of an increased number of programs in the
areas of large and medium caliber ammunition and space products.
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 propellant technology is material to the Company's
St. Marks, Florida operation. This technology includes 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
February 26, 2006.
Backlog
The aggregate amount of contracted backlog orders for the Company on
December 31, 1999 and 1998 was approximately $391.9 million and $438.7
million, respectively. The backlog represents the value of contracts for which
goods and services are yet to be provided. Under multiyear contracts, only the
portion of the backlog that has been funded is included in the total. The
backlog consists of firm contracts, and although they can be and sometimes are
changed or canceled, the amount of changes and cancellations historically has
been insignificant.
Export Sales
The Company's export sales from the United States were approximately $57.0
million, $53.0 million and $67.9 million in 1999, 1998, and 1997 respectively.
Higher export sales during 1997 were primarily the result of a contract for
artillery propelling charges.
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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 propellant volumes, tend to be stronger
in the first half of the year.
Operations by Industry Segment and Geographic Area
Industry segment and geographic area data for the years 1999, 1998 and 1997,
which is included in the notes to the Company's financial statements on page
38 of this report, is an integral part of this description of the Company's
business.
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 manufacturing facilities. Federal
legislation providing for regulation of the manufacture, transportation, use
and disposal of hazardous and toxic substances has imposed additional
regulatory requirements on the 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, imposes a tax on the disposal of certain
hazardous wastes. The Company continues to explore methods of waste reduction
at its manufacturing sites.
In connection with the Distribution, the Company and Olin have agreed,
pursuant to an 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 "Item 1.
Business--Relationship Between Olin and the Company."
Relationship Between Olin and the Company
The company and Olin continue to have certain business relationships, some
of which arose from Olin's prior ownership of the Company. For example, the
Company and Olin are parties to a powder supply requirements agreement which
sets forth the terms of which Olin purchases propellant powder from the
Company. In addition, the Company and Olin are parties to an assumption of
liabilities and indemnity agreement which generally provides for the
assumption of liabilities and cross-indemnities generally designed to place
with the Company responsibility for liabilities of Olin's former
Ordnance/Aerospace business and with Olin responsibility for liabilities of
the businesses retained by Olin after the Distribution. At the time of the
Distribution, the Company and Olin also entered into a covenant-not-to-compete
agreement which generally provides that, for a period of five years ending
December 31, 2001, Olin will not, subject to certain exceptions, directly or
indirectly manufacture, sell, or distribute medium or large caliber ammunition
or components and that the Company will not, subject to certain exceptions,
directly or indirectly manufacture, sell or distribute small caliber
ammunition or components, ejection cartridges or shotshells.
Employees
As of December 31, 1999, the Company had approximately 2,850 employees, 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. The Company
is a party to labor contracts expiring in October 2000 and December 2001
relating to such employees at its St. Marks, Florida and Marion, Illinois
facilities, respectively. 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.
8
<PAGE>
Executive Officers of the Company
Set forth below is certain information regarding the Company's executive
officers.
<TABLE>
<CAPTION>
Name and Age Position
------------ --------
<S> <C>
James G. Hascall, 61.... Chairman of the Board and Chief Executive Officer
J. Douglas DeMaire, 53.. President
William W. Smith, 65.... Executive Vice President and President, Aerospace and Electronics Division
Michael S. Wilson, 53... Executive Vice President and President, Ordnance and Tactical Systems Division
John E. Fischer, 44..... Vice President and Chief Financial Officer
George H. Pain, 49...... Vice President, General Counsel and Secretary
Stephen C. Curley, 47... Vice President and Treasurer
Jackson C. Picker, 50... Vice President, Human Resources and Administration
</TABLE>
Mr. Hascall has served as Chairman and Chief Executive Officer of the
Company since January 1997. From January 1, 1996 through December 1996, Mr.
Hascall served as Executive Vice President of Olin Corporation, having
operating responsibility for Olin's Brass, Winchester, Ordnance and Aerospace
Divisions. From 1985 through 1995, Mr. Hascall served as President of Olin's
Brass Division. He was an Olin Corporate Vice President from 1985 to 1990 and
an Olin Senior Vice President from 1990 to December 1995.
Mr. DeMaire was elected President of the Company effective January 1, 1999.
From January 1997 to December 1998, he served as Executive Vice President of
the Company. From January 1996 to December 1996, he served as Corporate Vice
President, Corporate Planning for Olin. From 1991 to December 1995, Mr.
DeMaire served as Vice President, Planning for Olin's Winchester Division and
from 1985 to 1995 served as Vice President, Planning for Olin's Brass
Division.
Mr. Smith has served as Executive Vice President of the Company and
President of the Company's Aerospace and Electronics Division since January
1997 and will retire from the Company effective March 31, 2000. From April
1993 until December 1996 he served as Corporate Vice President for Olin, where
he also served as President of Olin's Aerospace Division from 1988 through
January 1997.
Mr. Wilson was elected Executive Vice President of the Company and President
of the Company's Ordnance and Tactical Systems Division effective January 1,
1999. From January 1997 to December 1998, he served as Vice President of the
Company and President of the Company's Ordnance and Tactical Systems Division.
From 1991 to December 1996, Mr. Wilson served as Vice President of Tank
Ammunition for Olin. From 1990 to 1991, Mr. Wilson served as Vice President of
Marketing for Olin's Ordnance Division, from 1988 to 1990 he served as Vice
President of Programs for Olin's Ordnance Division, and as Director of
Business Planning for Olin's Ordnance Division from 1985 to 1988.
Mr. Fischer has served as Vice President and Chief Financial Officer of the
Company since January 1997. From January 1995 to December 1996, he served as
Vice President and Chief Financial Officer of Olin's Ordnance Division. Prior
to January 1995, Mr. Fischer served in a number of financial and contract
management positions with Olin's subsidiary, General Defense Corporation
("GDC"). Mr. Fischer was Corporate Controller of GDC when it was acquired by
Olin in 1988.
Mr. Pain has served as Vice President, General Counsel and Secretary of the
Company since January 1997. From January 1995 until December 1996, Mr. Pain
served as Vice President, Legal of Olin's Brass and Winchester Divisions, and
as Deputy General Counsel of Olin. Prior to that time, Mr. Pain had served in
Olin's legal department since 1986.
Mr. Curley has served as Vice President and Treasurer of the Company since
January 1997. From September 1990 to December 1996, Mr. Curley served as
Assistant Treasurer of Olin. Prior to that date, Mr. Curley served as Senior
Tax Counsel and held various other positions with Olin's Tax Department, since
1980.
Mr. Picker has served as Vice President, Human Resources and Administration
of the Company since January 1997. From 1989 to December 1996, Mr. Picker
served as Vice President, Human Resources for Olin's Ordnance Division. Prior
to that time, Mr. Picker had served in various human resources positions with
Olin since 1975.
9
<PAGE>
ITEM 2. 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. The Company believes 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, Florida (1). Corporate headquarters
Systems management operation for large caliber
ammunition
Red Lion, Pennsylvania (2).. Manufacturing and research and development
facility for large caliber ammunition metal and
composite parts and commercial steel forged
parts Research and development laboratory
Redmond, Washington (2)..... Design, manufacturing and test facility for
space, solid propellant and electronic products
Research and development laboratory
St. Marks, Florida.......... Manufacturing facility for Ball Powder(R)
Propellant
Research and development laboratory
Test range
Marion, Illinois (1)........ Loading, assembly and packing of medium caliber
ammunition and artillery propelling changes
Manufacturing and test facility for solid
propellant products
Demilitarization services
Research and development laboratory
Marion, Illinois............ Test range
San Leandro, California (1). Advanced warhead engineering and management
Downey, California (2)...... Manufacturing facility for medium caliber
ammunition components, air dispensed munitions
components and commercial steel products
System management and research and development
laboratory
Moses Lake, Washington (1).. Manufacturing and test facility for solid
propellant products
Camden, Arkansas............ Load, assembly and pack operations
Manufacturing for warheads
Demilitarization services
Lucerne, Switzerland (1).... Design, development and testing of anti-armor
warhead systems for the Swiss Government
Shalimar, Florida (1)....... Engineering and manufacturing of air dispensed
weapons
Titusville, Florida (1)..... Manufacturing facility for munition components
Systems management operation for shoulder fired
weapons
Wiggins, Mississippi (1).... Load, assembly, pack and test operations
Test range
Anniston, Alabama (1)....... Fine tolerance machining and assembly of
missile components
Niceville, Florida (1)...... Warhead design
Research and development services
Rock Hill, Florida.......... Test Range
Healdsburg, California (1).. Design and development of actuators
</TABLE>
- --------
(1) Leased.
(2) Leased in part and owned in part.
10
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to a number of pending or threatened investigations,
claims and proceedings. While the Company cannot predict the ultimate outcome
of the 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 operation
or financial position or that the Company's liability with respect thereto
will exceed the amounts which have previously been charged to operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the year ended December 31, 1999.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock trades on The Nasdaq Stock Market(R) under the
symbol PRMX. As of February 29, 2000, there were approximately 5,700 holders
of record of the Company's common stock. The following table sets forth the
quarterly high and low closing sale prices for 1999 and 1998:
<TABLE>
<CAPTION>
Sales Price
(1)
-------------
Quarter Ended High Low
------------- ------ ------
<S> <C> <C>
March 28, 1999................................................. $24.75 $20.00
June 27, 1999.................................................. $23.75 $17.25
September 26, 1999............................................. $23.00 $18.75
December 31, 1999.............................................. $23.75 $19.13
<CAPTION>
Sales Price
(1)
-------------
Quarter Ended High Low
------------- ------ ------
<S> <C> <C>
March 30, 1998................................................. $24.75 $15.63
June 28, 1998.................................................. $26.88 $22.38
September 27, 1998............................................. $26.50 $15.75
December 31, 1998.............................................. $21.97 $14.03
</TABLE>
- --------
(1) Restated for two-for-one stock dividend in March 1999.
The Company has maintained a quarterly dividend rate of $0.075 per share
throughout 1999, 1998, and 1997. The Company anticipates it will continue its
policy of paying regular quarterly cash dividends, which on an annual basis
will aggregate $0.30 per share. The payment of cash dividends in the future
will be dependent upon the Company's results of operations, earnings, capital
requirements, contractual restrictions and other factors considered relevant
by the Board of Directors.
In August 1998, the board of Directors of the company authorized the
repurchase, at management's discretion, of up to 500,000 shares of the
Company's common stock. During 1999 and 1998, the Company purchased and
retired 230,858 and 112,800 shares of common stock (restated for the two-for-
one stock dividend March 1999), respectively, at an aggregate cost of $4.7
million in 1999 and $2.1 million in 1998.
The Company's credit facility imposes limits ("Restricted Payments") on the
payment or declaration of dividends, as well as any other distribution,
liquidation, purchase or other acquisition of the Company's stock by it or any
subsidiary. At December 31, 1999, the amount available for Restricted Payments
was approximately $23.0 million.
On February 2, 1999, the Company's Board of Directors authorized a two-for-
one split of its common stock payable March 22, 1999, in the form of a 100%
stock dividend, for shareholders of record on February 22, 1999.
11
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following table summarizes certain selected historical financial data of
the Company for the five most recently completed fiscal years. This historical
data should be read in conjunction with the Consolidated Financial Statements
of the Company and the related notes thereto in Item 8 and "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in
Item 7.
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(in thousand, except share data)
<S> <C> <C> <C> <C> <C>
Operations for the Year:
Sales........................ $544,352 $495,268 $490,824 $471,488 $508,113
Cost of Goods Sold........... 415,104 392,956 401,590 399,187 428,707
Selling and Administration... 74,580 67,756 62,751 53,336 51,297
Research and Development..... 10,408 9,253 5,568 6,241 5,016
Other Charges (1)............ -- -- -- 10,500 2,000
-------- -------- -------- -------- --------
Operating Income............. 44,260 25,303 20,915 2,224 21,093
Interest Expense............. 11,905 3,275 3,735 9,256 9,276
Other Income, Net............ 1,383 2,711 1,776 663 807
Non-recurring Income......... -- 2,920 -- -- --
-------- -------- -------- -------- --------
Income (Loss) Before Taxes... 33,738 27,659 18,956 (6,369) 12,624
Income Tax Provision......... 13,305 11,396 8,331 1,533 6,963
-------- -------- -------- -------- --------
Net Income (Loss)............ $ 20,433 $ 16,263 $ 10,625 $ (7,902) $ 5,661
======== ======== ======== ======== ========
Financial Position at Year-
End:
Property Plant and Equipment,
Net......................... $116,950 $118,906 $ 98,660 $105,023 $114,473
Total Assets................. 450,429 471,335 296,291 373,743 380,979
Capitalization:
Short-Term Borrowing....... 10,000 10,800 24,100 -- --
Long-Term Debt............. 140,000 160,000 -- 145,000 125,000
Shareholders' Equity....... 180,628 165,483 152,801 145,134 158,535
-------- -------- -------- -------- --------
Total Capitalization......... $330,628 $336,283 $176,901 $290,134 $283,535
======== ======== ======== ======== ========
Total Debt to Total
Capitalization.............. 45.5% 50.8% 13.6% 50.0% 44.1%
Other Data:
Depreciation................. $ 20,339 $ 16,862 $ 16,731 $ 17,211 $ 16,633
Capital Expenditures......... 19,278 17,894 10,641 13,273 19,191
Per Share Data: (2)
Net Income (Loss) Per Share :
Basic (3).................. $ 2.03 $ 1.58 $ 1.03 $ (0.76) $ 0.54
Diluted (3)................ $ 1.91 $ 1.51 $ 1.00 $ (0.76) $ 0.54
Cash Dividends Per Share... $ 0.30 $ 0.30 $ 0.30 $ -- $ --
</TABLE>
- --------
(1) Other charges include the cost for settlement of claims relating to a
government investigation of certain testing irregularities ($6.0 million
in 1996 and $2.0 million in 1995) and a $4.5 million charge in 1996
related to a court ruling in a contract dispute.
(2) The earnings per share and dividend amounts have been restated for the
two-for-one stock dividend in March 1999.
(3) The calculation of net income (loss) per share for 1996 and 1995 is
presented on a pro forma basis assuming that all 10,440,552 shares of
common stock issued when the Company became publicly owned were
outstanding for all prior periods.
12
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
The following table sets forth certain data, expressed as a percentage of
sales, from the Company's consolidated Statements of Income for the three
years ending December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Sales:
Large caliber ammunition.................................... 29% 32% 29%
Tactical missile and rocket components and services......... 16% 5% 2%
Medium caliber ammunition................................... 15% 15% 19%
Electronic products......................................... 9% 14% 10%
BALL POWDER(R) propellant................................... 8% 9% 10%
Space products.............................................. 6% 8% 9%
Other products and services................................. 17% 17% 21%
--- --- ---
100% 100% 100%
Cost of goods sold............................................ 76% 79% 82%
--- --- ---
Gross profit.................................................. 24% 21% 18%
Selling and administration expense............................ 14% 14% 13%
Research and development expense.............................. 2% 2% 1%
--- --- ---
Operating income.............................................. 8% 5% 4%
Interest expense.............................................. 2% 1% 1%
Other income, net............................................. -- 1% 1%
Non-recurring income.......................................... -- 1% --
--- --- ---
Income before income taxes.................................... 6% 6% 4%
Income tax provision.......................................... 2% 3% 2%
--- --- ---
Net income.................................................... 4% 3% 2%
=== === ===
</TABLE>
Year ended December 31, 1999 compared to 1998
The Company's sales of $544.4 million during 1999 represented an increase of
$49.1 million, or 10% compared to 1998.
Ordnance segment sales increased to $435.6 million in 1999 compared to
$360.7 million in 1998. This increase reflects the inclusion of a full year of
sales from CMS, Inc. and Defense Research Incorporated (the "CMS Group")
business units acquired in November 1998. Sales from the CMS Group, which
comprise a significant portion of the tactical missile and rocket component
product category, contributed $78.7 million to the sales increase from 1998 to
1999. Additionally, medium caliber ammunition sales increased $6.2 million
during 1999 compared to 1998 due to deliveries under 30mm contracts awarded
late in 1998. These 1999 sales increases were partially offset by a lower
volume of steel pipe joint sales. Propellant sales were comparable between
1999 and 1998.
Aerospace segment sales declined to $108.8 million in 1999 compared to
$134.6 million in 1998. This decline reflects a sales decrease of 24% for
electronic products and 17% for space products. These decreases are the result
of a reduction in sales of EmPower(TM) airline in-seat power supply system
following this product's introduction in 1997 and weakness in the markets for
launch vehicles and satellites. Additionally, this segment's 1998 sales
included $3.5 million of sales associated with the high power pulsed energy
device product line that was sold in April 1998.
13
<PAGE>
Gross margin as a percentage of sales increased to 24% in 1999 compared to
21% in 1998. Margins realized on the incremental CMS Group sales contributed
the majority of this improvement. Large caliber ammunition, medium caliber
ammunition and electronic product margins also improved in 1999 compared to
1998. Both the large caliber ammunition and the electronic product business
units benefited from favorable adjustments on the close-out of multi-year
contracts.
Selling and administrative expenses as a percentage of sales were 14% during
both 1999 and 1998. The increase, from 1998 to 1999, in administrative
expenses of $9.8 million was primarily due to the inclusion of a full year of
CMS Group costs. This increase was partly offset by a $3.0 million decrease,
from 1998 to 1999, in selling, bid and proposal costs as a result of fewer
multi-year proposal efforts during 1999 compared to 1998. Research and
development costs increased 12% from 1998 to 1999 as a result of expenditures
associated with the development of new aircraft cabin electronics products.
Interest expense during 1999 increased by $8.6 million from 1998 reflecting
the higher levels of outstanding borrowings during 1999 which were the result
of the CMS Group acquisition in November 1998, the acquisition of an actuator
business in July 1999 and the Company's stock repurchase program during 1999.
The average debt outstanding during 1999 was $180.5 million with an average
effective rate of 6.5% compared to average debt outstanding during 1998 of
$47.0 million with an average effective interest rate of 6.9%.
Income tax expense of $13.3 million and $11.4 million was recorded in 1999
and 1998, respectively, on pre-tax income of $33.7 million in 1999 and $27.7
million in 1998. The Company's effective tax rate of 39.4% in 1999 and 41.2%
in 1998, differ from statutory rates due principally to expenses associated
with goodwill which are not tax deductible for federal and state tax purposes,
and the favorable federal tax treatment given to certain export sales and
dividends received on pension related cash value life insurance policies.
Year ended December 31, 1998 compared to 1997
The Company's sales of $495.3 million during 1998 increased by $4.5 million,
or 1% compared to 1997.
The 1998 sales increase includes higher Ordnance segment sales which were
$360.7 million in 1998 compared to $358.9 million in 1997. This increase
reflects higher sales of large caliber ammunition, steel pipe joints and the
inclusion of $12.0 million of sales associated with the CMS Group which was
acquired in November of 1998. Ordnance segment sales increases were offset by
declines in the sales of medium caliber ammunition which benefited in 1997
from a catch-up in production resulting from delays in 1996.
Aerospace segment sales increased to $134.6 million in 1998 as compared to
$131.9 million in 1997. Aerospace segment electronic products sales reflect a
36% increase in the sales of EmPower(TM) airline passenger seat power supply
systems and solid systems sales reflect a 21% increase resulting from
munitions dispensing devices used on two missile systems. These increases more
than offset the decline in sales associated with the high-power pulsed energy
device product line that was sold in April 1998 and the decline in space
systems sales.
Gross margin as a percentage of sales increased to 21% in 1998 from 18% in
1997. Margins on large caliber ammunition increased 11% during 1998 due to
improved operations. Margins on electronic products increased 45% during 1998
due to improved performance and a more favorable product mix. Margins also
improved in 1998 due to the absence of cost overruns, which were experienced
in 1997 on ammunition demilitarization and high-power pulsed energy contracts.
Selling and administrative expenses as a percentage of sales increased to
14% from 13% in 1997. The increase reflects the combination of higher bid and
proposal costs, which increased 43% over the 1997 level, and higher management
incentive expense associated with improvements in the Company's operating
performance. Research and development costs increased 66% from 1997 due to new
product initiatives in the space and electronics businesses.
14
<PAGE>
Non-operating income and expense for 1998 include a pre-tax gain of $0.8
million recognized on the sale of the Company's high-power pulsed energy
device product line and a pre-tax charge of $0.8 million associated with a
settlement regarding costs for environmental remediation at a former
manufacturing site.
During 1998, the Company was awarded, net of expenses, $4.2 million in a
binding arbitration concerning a breach of contract. The award was based on
the defendant's ceasing and failing to complete payments on the production of
certain components used in automobile airbags. $1.3 million of the award
represents payments due under the contract and was included in 1998 operating
income. The balance of $2.9 million represents future payments which have been
recognized as 1998 non-recurring income.
Interest expense during 1998 decreased 12% from 1997. This reduction
reflects lower average outstanding debt balances during 1998 as compared to
1997. The average debt outstanding during 1998 was $47 million with an average
effective interest rate of 6.9% compared to average debt outstanding during
1997 of $54 million with an average effective interest rate of 6.9%.
Income tax expense of $11.4 million and $8.3 million was recorded in 1998
and 1997, respectively, on pre-tax income of $27.7 million in 1998 and $19.0
million in 1997. The Company's 1998 and 1997 effective tax rate of 41.2% and
43.9%, respectively, differ from statutory rates due principally to expenses
associated with goodwill which are not deductible for federal and state income
tax purposes and from the favorable federal tax treatment given to certain
export sales and dividends received on pension-related cash value life
insurance policies.
U.S. Government Sales
U.S. Government sales amounted to $415.3 million in 1999, $330.8 million in
1998 and $322.6 million in 1997. See "Item 1. Business--U.S. Government
Contracts and Regulations." Approximately 95%, 86% and 88%, respectively, of
total 1999, 1998 and 1997 U.S. Government sales were to the United States
Department of Defense ("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. 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.
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
The Company is a party to various governmental and private environmental
actions associated with waste disposal, manufacturing and test sites.
Associated costs of investigatory and remedial activities are provided for in
accordance with generally accepted accounting principles governing probability
and the ability to reasonably estimate future costs.
15
<PAGE>
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. 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 consolidated balance sheets included liabilities for future
environmental expenditures to investigate and remediate known sites amounting
to $0.8 million and $1.8 million at December 31, 1999 and 1998, respectively,
which are classified as other non-current 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.
Environmental-related cash outlays for site investigation and remediation,
capital projects and normal plant operations are expected to range between
$1.0 million and $2.0 million 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.
New Accounting Standards
In June 1998, the Financial Accounting Standards Board issued Statement No.
133 (The "Statement"), Accounting for Derivative Instruments and Hedging
Activities. The Company expects to adopt the new statement effective January
1, 2001. The Statement will require the Company to recognize all derivatives
on the balance sheet at fair value. The Company does not anticipate that the
adoption of this Statement will have a significant effect on its results of
operations or financial position.
Liquidity and Capital Resources
The Company has a revolving credit agreement ("RCA"), under the terms of
which participating banks have committed a maximum of $160.0 million to the
Company for cash borrowings and letters of credit. The RCA expires on December
31, 2001. The Company pays interest under the RCA on outstanding borrowings at
the Company's choice of various floating rate options and is required to pay a
facility fee ranging from 0.125% to 0.3125% of the borrowing commitment. To
facilitate short-term borrowing flexibility, certain RCA participating banks
have agreed to provide the Company uncommitted and unsecured short-term lines
of credit at interest rates similar to those under the RCA. Aggregate
borrowings under the RCA and short-term lines are limited to the committed
maximum of $160.0 million. Outstanding borrowings under the RCA at December
31, 1999 were $80.0 million with a weighted average note interest rate of
6.9%. Outstanding borrowings under short-term lines of credit at December 31,
1999 were $10.0 million with a weighted average note interest rate of 6.7%.
Interest paid on the RCA and short-term lines of credit in 1999 and 1998 was
$6.8 million and $2.0 million, respectively.
In December 1998, the Company issued 7.5% Senior Notes (the "Term Notes") in
the amount of $60.0 million. Interest on the Term Notes is payable
semiannually. Scheduled principal repayments on the Term Notes
16
<PAGE>
are $5.0 million annually commencing in 2000 with the remaining principal
balance due in December 2008. Interest paid on the Term Notes in 1999 was $4.5
million.
The RCA and Term Notes both contain a number of financial covenants
including requirements to maintain ratios of (i) minimum earnings before
interest and taxes to interest expense, and (ii) maximum total debt to
earnings before interest, taxes, depreciation and amortization and contain
certain minimum net worth requirements. The RCA also contains limitations on
amounts available to pay dividends or repurchase Company stock ("Restricted
Payments"). At December 31, 1999, the amount available for Restricted Payments
was $23.0 million. Under the terms of these financial covenants the Company
had up to an additional $63.0 million available for borrowings at December 31,
1999.
The Company has entered into hedging transactions, in the form of interest
rate swap agreements, to protect against increases in market interest rates on
long-term borrowings under the RCA. The notional principal subject to interest
rate swap agreements was $40.0 million on which the Company was receiving a
weighted-average variable interest rate of 6.2% and paying a weighted-average
fixed rate of 4.8% at December 31, 1999. The resulting reduction in interest
expense for 1999 was $0.2 million.
For the year ended December 31, 1999, net cash flow provided by operations
was $51.8 million compared to cash used by operations in 1998 of $5.7 million.
During 1997, the Company experienced working capital reductions associated
with the receipt of contract advances. During 1998 and 1999, the favorable
impacts of these advances were reduced due to a decrease in the value of
contracts providing for accelerated payments and an increase in the value of
contracts with less favorable payment terms. These changes resulted in a
reduction of contract advances and corresponding usage of cash of $18.4
million in 1999 and $16.1 million in 1998. These changes in the mix of
contract payment terms caused operating cash flows in 1999 and 1998 to be less
than the cash flows that ordinarily would have been realized. During 1999,
cash was generated as a result of reductions in receivables and inventory due
to improved deliveries of medium caliber ammunition, artillery propelling
charges and lower sales of electronic and space products.
Capital expenditures for property, plant and equipment in 1999 increased
$1.4 million or 8% compared to 1998 due to higher planned spending.
In 1998, the Company received $10.0 million from the sale of assets related
to its high-powered pulsed energy device product line.
The Company made two asset acquisitions in 1999 and acquired the stock of
one group of affiliated companies in 1998. The 1999 acquisitions include the
purchase of a commercial product line from American Made Motorcycle Suspension
Inc., which was completed in February 1999 and the purchase of Versatron
Corporation's actuator division, which was completed in July 1999. The
aggregate cash purchase price, including transaction costs, for these two
acquisitions was $7.8 million excluding additional consideration of up to $2.0
million contingent on certain future events. In November 1998, the company
acquired all of the issued and outstanding stock of the CMS Group for $124.8
million including $1.8 million of transaction costs.
In August 1998, the Board of Directors of the Company authorized the
repurchase, at management's discretion, of up to 500,000 shares of the
Company's common stock. During 1999 and 1998, the Company purchased and
retired 230,858 and 112,800 shares of common stock, (restated for the two-for-
one stock dividend in March 1999) respectively, at an aggregate cost of $4.7
million in 1999 and $2.1 million in 1998.
Cash dividends paid were $3.0 million in 1999 and $3.1 million in 1998 .
The net cash generated from operating activities, after capital spending,
stock repurchases, dividends, acquisitions totaled $17.5 million in 1999 which
was used to reduce debt. During 1998, the Company used net cash from operating
activities of $143.5 million after capital spending, stock repurchases,
dividends, acquisitions and divestitures, which was funded by increases in
debt.
17
<PAGE>
Subject to the risk factors identified in the "Forward-Looking Statements"
section set forth below and based upon the availability under the RCA and the
Company's projected cash flow from operations, management believes that the
Company's capital resources are adequate to meet its foreseeable business
needs.
Effect of Inflation
Because of the relatively low level of inflation experienced in the United
States, inflation did not have a material adverse effect on the sales or
operating results of the Company during the three most recent fiscal years.
Forward Looking Statements
All statements other than statements of historical facts in this Form 10-K
are "forward-looking statements" as defined in the Private Securities
Litigation Reform Act of 1995, and are based on management's current
expectations of the Company's near-term results, based on current information
available and pertaining to the Company. The Company assumes no obligation to
update publicly any forward-looking statement. Actual results may differ
materially from those projected in the forward-looking statements. These
forward-looking statements involve risks and uncertainties, including, but not
limited to, the following: demand for commercial powder; international
business opportunities; ammunition lot acceptance; timing of contract funding;
changing economic and political conditions in the United States and in other
countries; changes in governmental laws and regulations surrounding various
matters, such as environmental remediation, contract pricing, and
international trading restrictions; changes in governmental spending and
budgetary policies, such as reductions in the level of defense spending and
redirection of Department of Defense program funding; production and pricing
levels of important raw materials; lower than anticipated levels of plant
utilization resulting in production inefficiencies and higher costs, whether
related to the delay of new product introductions, improved production
processes or equipment, or labor relations issues; difficulties or delays in
the development, production, testing and marketing of products; product
margins and customer product acceptance; unforeseen difficulties associated
with the integration of acquired businesses; and costs and effects of legal
and administrative cases, proceedings, settlements and investigations
involving the Company.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market Risk and Risk Management Policies
The Company manages its exposures to changes in foreign currency exchange
rates on certain firm sales commitments and anticipated, but not yet committed
sales, by entering into foreign currency forward contracts and foreign
currency option contracts, respectively. The Company also is exposed to
changes in interest rates, primarily from its long-term revolving credit
agreement, and uses interest rate swap agreements to fix interest rates on
variable rate debt and reduce certain exposures to interest rate fluctuations.
The Company's risk management objective in entering into such contracts and
agreements is only to reduce its exposure to the effects of foreign currency
exchange rate movements and interest rate fluctuations and not for speculative
investment. Additional information regarding financial instruments included in
the notes to the Company's financial statements on pages 27 and 30 of this
report is an integral part of this disclosure about market risk.
18
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report--Ernst & Young LLP........................... 20
Consolidated Balance Sheets as of December 31, 1999 and 1998.............. 21
Consolidated Statements of Income, Years Ended December 31, 1999, 1998 and
1997..................................................................... 22
Consolidated Statements of Shareholders' Equity, Years Ended December 31,
1999, 1998 and 1997...................................................... 23
Consolidated Statements of Cash Flows, Years Ended December 31, 1999, 1998
and 1997................................................................. 24
Notes to Consolidated Financial Statements................................ 25
</TABLE>
19
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Primex Technologies, Inc.
We have audited the accompanying consolidated balance sheets of Primex
Technologies, Inc. as of December 31, 1999 and 1998, and the related
consolidated statements of income, shareholders' equity, and cash flows for
each of the three years in the period ended December 31, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Primex
Technologies, Inc. at December 31, 1999 and 1998, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1999, in conformity with accounting principles generally
accepted in the United States.
Ernst & Young LLP
Tampa, Florida
January 31, 2000
20
<PAGE>
PRIMEX TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
December 31,
-----------------
1999 1998
-------- --------
<S> <C> <C>
Assets
Current Assets:
Cash ...................................................... $ -- $ 3,193
Receivables................................................ 120,351 131,390
Inventories, Net........................................... 57,969 67,085
Deferred Income Taxes...................................... 10,803 6,436
Other Current Assets....................................... 3,106 2,013
-------- --------
Total Current Assets..................................... 192,229 210,117
Property, Plant and Equipment, Net........................... 116,950 118,906
Goodwill, Net................................................ 113,644 117,617
Deferred Income Taxes........................................ 8,129 6,784
Other Assets................................................. 19,477 17,911
-------- --------
Total Assets............................................. $450,429 $471,335
======== ========
Liabilities and Shareholders' Equity
Current Liabilities:
Short-Term Borrowing....................................... $ 10,000 $ 10,800
Accounts Payable........................................... 42,836 40,624
Contract Advances.......................................... 524 18,922
Accrued Liabilities........................................ 41,620 42,797
-------- --------
Total Current Liabilities................................ 94,980 113,143
Long-Term Debt............................................... 140,000 160,000
Other Liabilities............................................ 34,821 32,709
-------- --------
</TABLE>
<TABLE>
<S> <C> <C>
Total Liabilities...................................... 269,801 305,852
Commitments and Contingencies
Shareholders' Equity:
Common Stock, $1.00 par value; 60,000,000 shares
authorized; 9,946,525 and 10,163,952 shares issued and
outstanding in 1999 and 1998, respectively 9,946 10,164
Additional Paid-in Capital............................... 133,353 137,418
Retained Earnings........................................ 37,507 20,301
Unamortized Value of Restricted Stock Grants............. (157) (2,099)
Accumulated Other Comprehensive Income................... (21) (301)
-------- --------
Total Shareholders' Equity............................. 180,628 165,483
-------- --------
Total Liabilities and Shareholders' Equity............. $450,429 $471,335
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
21
<PAGE>
PRIMEX TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except share data)
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Sales ........................................ $ 544,352 $ 495,268 $ 490,824
Operating Expenses:
Cost of Goods Sold.......................... 415,104 392,956 401,590
Selling and Administration.................. 74,580 67,756 62,751
Research and Development.................... 10,408 9,253 5,568
---------- ---------- ----------
Operating Income.............................. 44,260 25,303 20,915
Interest Expense.............................. 11,905 3,275 3,735
Other Income, Net............................. 1,383 2,711 1,776
Non-Recurring Income.......................... -- 2,920 --
---------- ---------- ----------
Income Before Taxes........................... 33,738 27,659 18,956
Income Tax Provision.......................... 13,305 11,396 8,331
---------- ---------- ----------
Net Income.................................... $ 20,433 $ 16,263 $ 10,625
========== ========== ==========
Net Income Per Share:
Basic....................................... $ 2.03 $ 1.58 $ 1.03
========== ========== ==========
Diluted..................................... $ 1.91 $ 1.51 $ 1.00
========== ========== ==========
Weighted Average Shares Outstanding:
Basic ...................................... 10,079,004 10,273,880 10,347,338
========== ========== ==========
Diluted .................................... 10,674,501 10,757,384 10,573,816
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
22
<PAGE>
PRIMEX TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousand, except share data)
<TABLE>
<CAPTION>
Common Shares
-------------------
Unamortized
Value of Accumulated
Additional Restricted Other Total
Paid-in Retained Stock Comprehensive Shareholders'
Stock Amount Capital Earnings Grants Income Equity
---------- ------- ---------- -------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance December 31,
1996................... 10,440,552 $10,440 $134,694 $ -- $ -- $ -- $145,134
Grant of 688,000
Restricted Stock Units. -- -- 6,128 -- (6,128) -- --
Amortization of
Restricted Stock Grant. -- -- -- -- 1,983 -- 1,983
Dividends Paid.......... -- -- -- (3,098) -- -- (3,098)
Dividends on Stock
Compensation........... -- -- -- (205) -- -- (205)
Issuance of Stock Under
Directors Stock Plan... 5,614 6 46 -- -- -- 52
Repurchase of Common
Stock.................. (170,892) (170) (1,496) -- -- -- (1,666)
Translation Adjustments. -- -- -- -- -- (24) (24)
Net Income.............. -- -- -- 10,625 -- -- 10,625
---------- ------- -------- ------- ------- ----- --------
Balance December 31,
1997................... 10,275,274 $10,276 $139,372 $ 7,322 $(4,145) $ (24) $152,801
Grant of 4,000
Restricted Stock Units. -- -- 95 -- (95) -- --
Forfeiture of Restricted
Stock Units............ -- -- (89) -- 51 -- (38)
Amortization of
Restricted Stock Grant. -- -- -- -- 2,090 -- 2,090
Dividends Paid.......... -- -- -- (3,078) -- -- (3,078)
Dividends on Stock
Compensation........... -- -- -- (206) -- -- (206)
Issuance of Stock Under
Directors Stock Plan... 1,478 -- 25 -- -- -- 25
Repurchase of Common
Stock.................. (112,800) (112) (1,985) -- -- -- (2,097)
Translation Adjustments. -- -- -- -- -- 4 4
Minimum Pension
Liability Adjustments.. -- -- -- -- -- (281) (281)
Net Income.............. -- -- -- 16,263 -- -- 16,263
---------- ------- -------- ------- ------- ----- --------
Balance December 31,
1998................... 10,163,952 $10,164 $137,418 $20,301 $(2,099) $(301) $165,483
Grant of 13,400
Restricted Stock Units. -- -- 290 -- (290) -- --
Forfeiture of Restricted
Stock Units............ -- -- (89) -- 17 -- (72)
Amortization of
Restricted Stock Grant. -- -- -- -- 2,215 -- 2,215
Dividends Paid.......... -- -- -- (3,016) -- -- (3,016)
Dividends on Stock
Compensation........... -- -- -- (211) -- -- (211)
Exercise of Stock
Options................ 3,600 4 57 -- -- -- 61
Issuance of Stock Under
Directors Stock Plan... 9,831 9 143 -- -- -- 152
Repurchase of Common
Stock.................. (230,858) (231) (4,466) -- -- -- (4,697)
Translation Adjustments. -- -- -- -- -- (1) (1)
Minimum Pension
Liability
Adjustments............ -- -- -- -- -- 281 281
Net Income.............. -- -- -- 20,433 -- -- 20,433
---------- ------- -------- ------- ------- ----- --------
Balance December 31,
1999................... 9,946,525 $ 9,946 $133,353 $37,507 $ (157) $ (21) $180,628
========== ======= ======== ======= ======= ===== ========
</TABLE>
See accompanying notes to consolidated financial statements.
23
<PAGE>
PRIMEX TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, except share data)
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------
1999 1998 1997
------- -------- --------
<S> <C> <C> <C>
Operating Activities
Net Income....................................... $20,433 $ 16,263 $ 10,625
Adjustments to Reconcile Net Income to Net Cash
Provided (Used) by Operating Activities:
Depreciation..................................... 20,339 16,862 16,731
Amortization of Intangibles...................... 4,605 3,180 2,977
Deferred Taxes................................... (3,712) (2,590) (2,863)
Stock Compensation............................... 2,168 1,869 2,035
Other............................................ 660 (91) 43
Changes in Operating Assets and Liabilities:
Receivables.................................... 12,551 (29,993) 29,001
Inventories.................................... 9,131 (9,941) 22,084
Other Current Assets........................... (1,093) (336) (431)
Other Assets................................... (1,453) (6,348) (1,552)
Accounts Payable............................... 1,918 10,720 (1,253)
Contract Advances.............................. (18,398) (16,148) 35,070
Accrued Liabilities............................ 1,906 1,261 3,649
Other Liabilities.............................. 2,733 9,610 189
------- -------- --------
Net Operating Activities....................... 51,788 (5,682) 116,305
------- -------- --------
Investing Activities
Expenditures for Property, Plant and Equipment... (19,278) (17,894) (10,641)
Proceeds from Disposition of Property, Plant and
Equipment....................................... 517 73 --
Cash Paid for Purchase of Business............... (7,768) (124,829) --
Proceeds from Sale of Business................... -- 10,000 --
------- -------- --------
Net Investing Activities....................... (26,529) (132,650) (10,641)
------- -------- --------
Financing Activities
Net Short-Term Borrowing (Repayment)............. (800) (13,300) 24,100
Net Revolving Credit Agreement Borrowing
(Repayment)..................................... (20,000) 100,000 (145,000)
Proceeds from Issuance of Term Notes............. -- 60,000 --
Options Exercised................................ 61 -- --
Repurchase of Common Stock....................... (4,697) (2,097) (1,666)
Dividends Paid................................... (3,016) (3,078) (3,098)
------- -------- --------
Net Financing Activities....................... (28,452) 141,525 (125,664)
------- -------- --------
Net Increase (Decrease) in Cash.................. (3,193) 3,193 (20,000)
Cash, Beginning of Year.......................... 3,193 -- 20,000
------- -------- --------
Cash, End of Year................................ $ -- $ 3,193 $ --
======= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
24
<PAGE>
PRIMEX TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share data)
Basis of Presentation and Significant Accounting Policies
Primex Technologies, Inc. (the "Company") is an ordnance and aerospace
contractor providing systems management and manufacturing services. The
Company's operations are classified into two reportable segments which reflect
management's organization of operations around business units that offer
different products and services. Each reportable segment is managed separately
and requires different technology and marketing strategies.
The Ordnance and Tactical Systems ("Ordnance") segment produces large and
medium caliber ammunition for aircraft, artillery, tanks and warships; Ball
Powder propellant for sporting, military and commercial applications;
precision metal assemblies for use in missiles and rockets; and propulsion
systems for large caliber gun systems. Ordnance also provides load, assembly
and pack services for a variety of missile and rocket programs. Ordnance's
primary customers are the U.S. Department of Defense and other U.S. Government
research and development agencies/laboratories, allied U.S. Governments and
sporting ammunition manufacturers.
The Aerospace and Electronics ("Aerospace") segment products include rocket
engines, advanced electric propulsion systems, aerospace electronic products,
and solid propellant products, including munitions dispensing systems. Primary
Aerospace customers are satellite, aircraft and missile contractors and
airlines; other defense/aerospace subsystems and systems contractors; NASA and
other U.S. Government research and development agencies/laboratories.
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries. Intercompany balances and
transactions between entities included in these financial statements have been
eliminated. The preparation of the consolidated financial statements in
conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect amounts reported and disclosed
in the financial statements and related notes. Actual results could differ
from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
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 less than one year,
sales are recognized on the units shipped method of accounting.
Contract advances represent payments received by the Company for costs that
have not yet been incurred and are liquidated as costs on the related
contracts are recognized.
25
<PAGE>
PRIMEX TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Inventories
Inventories are stated at the lower of cost or net realizable value. Work-
in-process inventories related to long-term contracts and programs are stated
at the accumulated cost of material, labor and manufacturing overhead, less
the estimated cost of units delivered. To the extent total costs relating to
long-term contracts and programs are estimated to exceed the total sales
price, charges are made to current operations to reduce inventoried costs to
net realizable value.
Approximately 12% and 21% of 1999 and 1998 consolidated total inventories,
respectively, are valued by the dollar value last-in, first-out (LIFO) method
of inventory accounting.
Pursuant to contract provisions, agencies of the U.S. Government and other
customers have title to, or a security interest in, certain inventories as a
result of progress payments and advances.
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 20 years
</TABLE>
Leasehold improvements are amortized over the term of the lease or the
estimated useful life of the improvement, whichever is less.
Goodwill
Goodwill, the excess of the purchase price of acquired businesses over the
fair value of their respective net assets, is amortized on a straight-line
basis over periods ranging from fifteen to forty years. Accumulated
amortization was $30,192 and $25,732 at December 31, 1999 and 1998
respectively. The Company periodically reviews the value of its goodwill to
determine if an impairment has occurred. The Company assesses the potential
impairment of recorded goodwill by comparing the undiscounted value of
expected future operating cash flows to its carrying cost. An impairment, if
necessary, would be recorded based on the estimated fair value or a cash flow
measure.
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 are 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.
Stock-Based Compensation
The Company accounts for stock-based employee compensation using the
intrinsic value method of accounting.
26
<PAGE>
PRIMEX TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Capital Stock
On February 2, 1999, the Company's Board of Directors authorized a two-for-
one split of its common stock, effected in the form of a 100% stock dividend
paid March 22, 1999. As a result of this action, 5,084,369 shares were issued
to shareholders of record as of February 22, 1999. Par value of the stock
remains at $1.00 per share and accordingly, $5,084 was transferred from
additional paid-in capital to common stock. All references to the number of
common stock and per common share amounts have been restated to give
retroactive effect to the stock split for all periods presented.
Income Taxes
The Company accounts for income taxes under the liability method. 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.
Fair Value of Financial Instruments
The fair value of financial instruments, consisting primarily of cash,
receivables, and accounts payable, approximates carrying value due to the
liquid nature of the instruments. The fair value of life insurance policies,
included in other assets, approximates cash surrender value, which is carrying
value. The fair value of the short-term borrowing and long-term debt
approximates carrying value based on borrowing rates available to the Company
for borrowings with similar terms and maturities.
Foreign Currency Translation
Adjustments resulting from translating foreign functional currency financial
statements of a foreign subsidiary into U.S. dollars are included as a
component of other comprehensive income.
Derivatives
The Company enters into foreign currency contracts in order to reduce the
impact of certain foreign currency fluctuations. Firmly committed transactions
and the related receivables and payables may be hedged with forward exchange
contracts or purchased options. Premiums paid on purchased options and any
gains or losses are included in other assets or accrued liabilities and are
recognized in earnings when the transaction being hedged is recognized.
The Company uses interest rate swap agreements to fix interest rates on a
portion of its variable rate debt and reduce certain exposures to interest
rate fluctuations. The agreements involve the exchange of amounts based on a
variable interest rate for amounts based on fixed interest rates over the life
of the agreement, without an exchange of the notional amount upon which the
payments are based. The differential to be paid or received as interest rates
change is accrued and recognized as an adjustment of interest expense related
to the debt. The fair values of the swap agreements are not recognized in the
financial statements. Neither the Company nor the counterparties, which are
prominent financial institutions, are required to collateralize their
respective obligations under these swaps. The Company does not believe that
any reasonably likely change in interest rates would have a material adverse
effect on the financial position, the results of operations or cash flow of
the Company.
In June 1998, the Financial Accounting Standards Board issued Statement No.
133 (the "Statement"), Accounting of Derivative Instruments and Hedging
Activities. The Company expects to adopt the new Statement effective January
1, 2001. The Statement will require the Company to recognize all derivatives
on the balance sheet at fair value. The Company does not anticipate that the
adoption of the Statement will have a significant effect on its results of
operations or financial position.
27
<PAGE>
PRIMEX TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Acquisitions
The Company made two asset acquisitions in 1999 and acquired the stock of
one group of affiliated companies in 1998, (the "acquired business units") as
described below. The acquisitions have been accounted for using the purchase
method of accounting. Operations of the acquired business units are included
in the Company's results of operations and financial position subsequent to
the date of their acquisition. The aggregate purchase price, excluding future
contingent consideration, has been allocated to the net assets of the acquired
business units based upon their respective fair market values. Future
contingent consideration is recorded as additional purchase price when paid.
Goodwill is being amortized over periods not exceeding forty years. As a
result of the nature of the assets and liabilities of the acquired business
units, there were no material identifiable intangible assets.
The 1999 acquisitions include the purchase of a commercial product line from
American Made Motorcycle Suspension Inc., which was completed in February
1999, and the purchase of Versatron Corporation's actuator division, which was
completed in July 1999. The aggregate cash purchase price, including
transaction costs, for these two acquisitions was $7,768 excluding additional
consideration of up to $2,000, contingent on certain future events. The excess
of cost over fair value of the net assets acquired (goodwill) was $5,858,
based on the allocation of purchase price. The pro forma operating results for
1999 and 1998, assuming these acquisitions had been consummated as of January
1, 1998, would not be materially different from reported operating results.
On November 6, 1998, the Company acquired all of the issued and outstanding
stock of CMS, Inc. and Defense Research Incorporated (the "CMS Group") for
$124,829 ($123,000 in cash and $1,829 of transaction costs). The excess cost
over fair value of the net assets acquired (goodwill) was $70,277, based on
the final allocation of the purchase price
The following pro forma results of operations for the years ended December
31, 1998 and 1997, assumes the purchase of the CMS Group had been consummated
as of January 1, 1997. The pro forma results of operations include adjustments
to give effect to amortization of goodwill, interest expense on acquisition
debt and certain other adjustments, together with related income tax effects
and are not necessarily indicative of the results of operations that would
have occurred had the purchase been made at the beginning of the periods
presented or the future results of the combined operations.
Pro Forma Operating Results (Unaudited):
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Sales...................................................... $568,351 $570,337
Net income................................................. $ 15,510 $ 8,882
Net income per share:
Basic.................................................... $1.51 $0.86
Diluted.................................................. $1.44 $0.84
</TABLE>
Dispositions
On April 15, 1998, the Company sold substantially all of the assets related
to its high-power pulsed energy device product line for $10,000 in cash. A
gain on this sale of $800 was included in other income. Sales of products and
services in this product line were $3,698 in 1998 prior to the sale and
$16,833 for the year ending December 31, 1997.
28
<PAGE>
PRIMEX TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Receivables
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Receivables consist of the following:
Contract receivables:
Billed receivables................................. $ 60,862 $ 69,292
Unbilled receivables............................... 58,781 61,533
Trade and other receivables.......................... 869 943
Allowance for doubtful accounts...................... (161) (378)
-------- --------
Total receivables.................................... $120,351 $131,390
======== ========
</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, respectively, include amounts
related to Government contracts of $45,482 and $43,811 in 1999, and $46,082
and $42,906 in 1998.
Inventories
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Inventories consist of the following:
Raw materials and work-in-progress...................... $56,726 $65,909
Finished goods.......................................... 8,516 8,805
------- -------
Total inventories....................................... 65,242 74,714
Less revaluation to LIFO................................ 7,273 7,629
------- -------
Inventories, net........................................ $57,969 $67,085
======= =======
</TABLE>
Inventory balances at December 31, 1999 and 1998 are net of reductions for
progress payments in the amount of $5,283 and $282, respectively.
During 1999 and 1998, contract inventory quantities valued at LIFO were
reduced resulting in a LIFO liquidation, the effect of which decreased cost of
sales by $356 and $278, respectively.
Property, Plant and Equipment
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Property, plant and equipment consist of the
following:
Land and improvements to land....................... $ 16,885 $ 16,817
Building and building equipment..................... 50,842 49,868
Machinery and equipment............................. 187,507 186,920
Leasehold improvements.............................. 21,240 19,844
Construction-in-progress............................ 11,551 14,191
-------- --------
Total property, plant & equipment................... 288,025 287,640
Less accumulated depreciation....................... 171,075 168,734
-------- --------
Property, plant & equipment, net.................... $116,950 $118,906
======== ========
</TABLE>
29
<PAGE>
PRIMEX TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Accrued Liabilities
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Accrued liabilities consist of the following:
Accrued payroll and employee benefits................... $17,524 $16,045
Contract liabilities.................................... 17,875 22,510
Income taxes............................................ 2,602 390
Interest................................................ 1,044 873
Other................................................... 2,575 2,979
------- -------
Total accrued liabilities............................... $41,620 $42,797
======= =======
</TABLE>
Contract liabilities are principally reserves for anticipated losses on
certain incomplete contracts, reserves for contract adjustments and estimated
costs to perform future contractual services in connection with completed
contracts.
Credit Agreements and Long Term Debt
The Company has a revolving credit agreement ("RCA") under the terms of
which participating banks have committed a maximum of $160,000 to the Company
for cash borrowings and letters of credit. The RCA expires on December 31,
2001. The Company pays interest under the RCA on outstanding borrowings at the
Company's choice of various floating rate options and is required to pay a
facility fee ranging from 0.125% to 0.3125% of the borrowing commitment. To
facilitate short-term borrowing flexibility, certain RCA participating banks
have agreed to provide the Company uncommitted and unsecured short-term lines
of credit at interest rates similar to those under the RCA. Aggregate
borrowings under the RCA and short-term lines are limited to the committed
maximum of $160,000. Outstanding borrowings under the RCA at December 31, 1999
were $80,000 with a weighted average note interest rate of 6.9%. Outstanding
borrowings under short-term lines of credit at December 31, 1999 were $10,000
with a weighted average note interest rate of 6.7%. Interest paid on the RCA
and short-term lines of credit in 1999, 1998 and 1997 was $6,849, $2,008 and
$3,585, respectively.
In December 1998, the Company issued 7.5% Senior Notes (the "Term Notes") in
the amount of $60,000. Interest on the Term Notes is payable semiannually.
Scheduled principal repayments on the Term Notes are $5,000 annually
commencing in 2000 with the remaining principal balance due in December 2008.
Interest paid on the Term Notes in 1999 was $4,500.
The RCA and Term Notes both contain a number of financial covenants
including requirements to maintain ratios of (i) minimum earnings before
interest and taxes to interest expense, and (ii) maximum total debt to
earnings before interest taxes, depreciation and amortization and contain
certain minimum net worth requirements. The RCA also contains limitations on
amounts available to pay dividends or repurchase Company stock ("Restricted
Payments"). At December 31, 1999, the amount available for Restricted Payments
was $23,010. Under the terms of these financial covenants, the Company had up
to an additional $63,000 available for borrowings at December 31, 1999.
The Company has entered into hedging transactions, in the form of interest
rate swap agreements, to protect against increases in market interest rates on
long-term borrowings under the RCA. The notional principal subject to interest
rate swap agreements was $40,000 on which the Company was receiving a
weighted-average variable interest rate of 6.2% and paying a weighted-average
fixed rate of 4.8% at December 31, 1999. The resulting reduction in interest
expense for 1999 was $164. The fair market value of the Company's interest
rate swap agreements at December 31, 1999 was $1,983.
30
<PAGE>
PRIMEX TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Non-Recurring Items
During 1998, the Company received an arbitration award in the amount, net of
expenses, of $4,189 as the result of a binding arbitration concerning a breach
of contract of which $1,269 represents payments due under the contract which
were included in operating income. The remaining $2,920 balance of the award
represents future payments, which have been recognized as non-recurring
income.
Income Taxes
<TABLE>
<CAPTION>
Components of Income Tax Expense:
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Current:
Federal.................................. $15,256 $11,615 $ 9,528
State.................................... 1,770 2,371 1,666
Deferred................................... (3,721) (2,590) (2,863)
------- ------- -------
Income tax expense......................... $13,305 $11,396 $ 8,331
======= ======= =======
Effective Tax Rate Reconciliation (percent):
Statutory federal tax rate................. 35.0 % 35.0 % 35.0 %
State income taxes, net.................... 2.5 % 4.1 % 4.4 %
Goodwill................................... 4.5 % 3.6 % 4.7 %
Supplemental pension....................... (1.1)% (2.0)% (2.6)%
Foreign sales corporation tax benefit...... (2.4)% (2.5)% (3.6)%
Other, net................................. 0.9 % 3.0% 6.0 %
------- ------- -------
Effective tax rate......................... 39.4 % 41.2 % 43.9 %
======= ======= =======
Components of Deferred Tax Assets and Liabilities:
<CAPTION>
1999 1998
------- -------
<S> <C> <C> <C>
Deferred tax assets:
Post-retirement benefits................. $ 6,142 $ 5,602
Accruals and reserves.................... 19,580 20,344
Net operating loss carryforward.......... 7,976 11,500
Other miscellaneous items................ 2,025 1,385
------- -------
Total deferred tax assets.................. 35,723 38,831
Deferred tax liabilities:
Property, plant and equipment............ 8,877 10,125
Deferred contract income................. 6,068 9,186
------- -------
Total deferred tax liability............... 14,945 19,311
------- -------
Net deferred tax asset before valuation
allowance................................. 20,778 19,520
Valuation allowance........................ (1,846) (6,300)
------- -------
Net deferred tax asset..................... $18,932 $13,220
======= =======
</TABLE>
At December 31, 1999 the Company had a net operating loss carryforward
("NOL") of approximately $22,788 for income tax purposes that expire from 2004
through 2009. The Company obtained the future benefit
31
<PAGE>
PRIMEX TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
of this NOL as a result of the 1998 acquisition of the CMS Group. Future
utilization of the NOL is subject to limitations. For financial reporting
purposes, a valuation allowance of $1,846 has been recorded to offset the
deferred tax asset related to the NOL, which when realized will be applied to
reduce goodwill related to the acquisition of the CMS Group.
Income taxes paid in 1999, 1998 and 1997 were $14,541, 12,831 and $12,117,
respectively.
Employee Benefit Plans
Pension benefits for substantially all domestic employees are provided
through the Company's sponsorship of a defined contribution plan (the "PRIME
Plan"). The PRIME Plan is intended to meet the requirements of Section 401(k)
of the Internal Revenue Code. The PRIME Plan allows the Company to match
participant contributions up to certain limits and to make age weighted profit
sharing contributions for eligible participants. Total Company contributions
net of forfeitures to the PRIME Plan in 1999, 1998 and 1997 was $6,616, $6,341
and $6,244, respectively.
Certain Company employees participate in a supplemental non-qualified
pension plan (the "MSP Plan"). The Company's benefit obligation under the MSP
Plan is secured by life insurance agreements on the lives of the participants.
The Company owns the policies and pays the premiums. At December 31, 1999 and
1998 the discounted value of benefits payable under the MSP Plan, included in
other liabilities, was $7,162 and $7,713, respectively, and the cash value of
the life insurance policies, included in other assets, was $16,365 and
$14,876, respectively. MSP Plan benefit payments during 1999, 1998 and 1997
were $1,243, $1,250 and $1,280, respectively, which were offset by increases
in insurance cash values and policy proceeds of $1,489, $1,318 and $1,490,
respectively.
The Company has a defined benefit pension plan covering approximately 500
bargaining employees (the "Bargaining Employees Pension Plan"). The Bargaining
Employees Pension Plan provides a flat rate benefit based on the employee's
years of service. The Company's funding policy provides that payments to the
pension trust shall be at least equal to the minimum funding required by
applicable regulations.
The Company provides certain post-retirement health care and life insurance
benefits for eligible domestic employees (the "Post-Retirement Benefit Plan").
The Post-Retirement Benefit Plan is unfunded. On August 1, 1998, the Company
amended the Post-Retirement Benefit Plan to limit eligibility to employees who
were employed prior to that date.
The components of net periodic benefit cost for the Bargaining Employees
Pension Plan and Post-Retirement Benefit Plan for 1999, 1998 and 1997 is
summarized below:
<TABLE>
<CAPTION>
Bargaining
Employees Post-Retirement
Pension Plan Benefit Plan
---------------- ----------------------
1999 1998 1997 1999 1998 1997
---- ---- ---- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Components of net periodic benefit
cost:
Service cost........................ $524 $479 $336 $ 748 $ 682 $ 639
Interest cost....................... 172 133 78 763 616 621
Expected return on plan assets...... (93) (13) -- -- -- --
Amortization of prior service cost.. 91 91 71 -- -- --
Recognized net actuarial loss....... -- 1 -- -- -- --
---- ---- ---- ------ ------ ------
Net periodic benefit cost........... $694 $691 $485 $1,511 $1,298 $1,260
==== ==== ==== ====== ====== ======
Weighted-average assumptions as of
December 31:
Discount rate....................... 8.00% 7.00% 7.25% 8.00% 7.00% 7.25%
Expected return on plan assets...... 8.50% 8.50% 8.50% -- -- --
</TABLE>
32
<PAGE>
PRIMEX TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The change in benefit obligation and plan assets and reconciliation of
funded status of the Bargaining Employees Pension Plan and Post-Retirement
Benefit Plan at December 31, 1999 and 1998 is summarized below:
<TABLE>
<CAPTION>
Bargaining Employees Post-Retirement
Pension Plan Benefit Plan
---------------------- ------------------
1999 1998 1999 1998
---------- ---------- -------- --------
<S> <C> <C> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of
year.............................. $ 2,533 $ 1,709 $ 10,041 $ 9,642
Service cost..................... 524 479 748 682
Interest cost.................... 172 133 763 616
Plan amendments.................. -- 268 -- --
Business divestiture............. -- -- -- 262
Actuarial gain................... (513) (47) (125) (949)
Benefits paid.................... (26) (9) (190) (212)
---------- ---------- -------- --------
Benefit obligation at end of year.. $ 2,690 $ 2,533 $ 11,237 $ 10,041
========== ========== ======== ========
Change in plan assets:
Fair value of plan assets at
beginning of year................. $ 760 $ -- $ -- $ --
Actual return on plan assets..... 83 13 -- --
Company contributions............ 567 756 -- --
Benefits paid.................... (26) (9) -- --
---------- ---------- -------- --------
Fair value of plan assets at end of
year.............................. $ 1,384 $ 760 $ -- $ --
========== ========== ======== ========
Reconciliation of funded status:
Under funded status of the plan.. $ (1,305) $ (1,773) $(11,237) $(10,041)
Unrecognized net actuarial (gain)
losses.......................... (223) 281 (308) (183)
Unamortized prior service cost... 983 1,074 -- --
---------- ---------- -------- --------
Accrued benefit cost............... $ (545) $ (418) $(11,545) $(10,224)
========== ========== ======== ========
Amounts recognized in the
accompanying
consolidated balance sheets:
Accrued benefit liability........ $ (1,305) $ (1,773) $(11,545) $(10,224)
Intangible asset................. 760 1,074 -- --
Accumulated other comprehensive
income.......................... -- 281 -- --
---------- ---------- -------- --------
Net amount recognized.............. $ (545) $ (418) $(11,545) $(10,224)
========== ========== ======== ========
</TABLE>
The assumed health care cost trend rate used in measuring the Post-
Retirement Benefit Plan cost for 1999 is 7.25%, gradually declining to 5.00%
in 2002 and remaining at that level thereafter. Assumed health care cost trend
rates have a significant effect on the amounts reported for the Post-
Retirement Benefits Plan. A one-percentage-point change in assumed health care
cost trend rates would have the following effects:
<TABLE>
<CAPTION>
1-Percentage-Point 1-Percentage-Point
Increase Decrease
------------------ ------------------
<S> <C> <C>
Effect on total of service and
interest cost components in 1999.. $ 49 $ (53)
Effect on benefit obligation as of
December 31, 1999................. $384 $(432)
</TABLE>
33
<PAGE>
PRIMEX TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Long-Term Incentive Plan
The Company has adopted 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
provides the ability to grant stock options, stock appreciation rights,
restricted stock and restricted stock units, performance awards, and other
stock-based awards.
At December 31, 1999, a total of 700,000 shares of common stock were
reserved for issuance in connection with restricted stock unit grants, of
which a total of 14,600 shares were available for grant. Unearned compensation
is charged to shareholder's equity for the market value of restricted shares
when granted and amortized over the vesting period. Compensation expense
recognized on restricted shares in 1999, 1998 and 1997 was $2,215, $2,089 and
$1,983, respectively.
At December 31, 1999, a total of 996,400 shares of common stock were
reserved for issuance in connection with stock option grants of which a total
of 14,332 shares were available for grant. Stock options are granted to
employees at exercise prices equal to the fair market value of the Company's
common stock on the date of grant. Options generally become vested in one-
third installments over a three-year period beginning one year from the date
of grant and have a ten-year term from the date of grant. The Company accounts
for stock-based employee compensation using the intrinsic value method
prescribed by Accounting Principles Board Opinion 25, Accounting for Stock
Issued to Employees; accordingly, no compensation cost has been recognized for
the stock options granted.
Stock option activity for 1999 and 1998 is summarized as follows:
<TABLE>
<CAPTION>
Stock Weighted Average
Options Exercise Price
------- ----------------
<S> <C> <C>
Outstanding at December 31, 1997.................. -- $ --
Granted......................................... 550,000 $17.56
Exercised....................................... -- $ --
Forfeited....................................... -- $ --
------- ------
Outstanding at December 31, 1998.................. 550,000 $17.56
Granted......................................... 445,600 $21.13
Exercised....................................... 3,600 $16.94
Forfeited....................................... 9,932 $19.00
------- ------
Outstanding at December 31, 1999.................. 982,068 $19.16
======= ======
</TABLE>
Options outstanding and exercisable at December 31, 1999 are summarized as
follows:
<TABLE>
<CAPTION>
Outstanding Options
-------------------------------------------
Average
Exercise Number Remaining Exercisable
Prices Outstanding Contractual Life Stock Options
-------- ----------- ---------------- -------------
<S> <C> <C> <C>
$16.94 489,734 8.0 179,743
$23.72 47,334 8.4 16,673
$21.13 439,000 9.0 --
$20.94 6,000 9.3 --
------- --- -------
982,068 8.5 196,416
======= === =======
</TABLE>
34
<PAGE>
PRIMEX TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
For purposes of pro forma disclosures, the fair value of options was
estimated at the date of grant using Black-Scholes option pricing model. The
estimated per share weighted average fair value of options granted during 1999
was $7.53 and during 1998 was $6.12, using the following assumptions:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Dividend yield................................................. 1.4% 1.4%
Volatility factor.............................................. 38.4% 41.3%
Risk free interest rate........................................ 5.1% 5.9%
Expected life in years......................................... 3.0 4.5
</TABLE>
Had compensation expense been determined for awards under the plan based
upon fair values at the grant dates and the resulting expense amortized over
the options' vesting period in accordance with Statement of Financial
Accounting Standards 123, Accounting for Stock-Based Compensation, the
Company's net income and income per share would have been reduced to the pro
forma amounts indicated below.
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Pro forma net income...................................... $18,148 $14,609
Pro forma income per share:
Basic................................................... $ 1.80 $ 1.42
Diluted................................................. $ 1.70 $ 1.36
</TABLE>
Shareholder Rights Plan
The Company has adopted a Shareholder Rights Plan, which is designed to
prevent a potential acquirer from gaining control of the Company without
offering a fair price to all shareholders. Each right entitles a shareholder
(other than the acquirer) to buy one two-thousandth (1/2000), subject to
adjustment, of a share of Series A Participating Cumulative Preferred Stock at
an exercise price of $55.00. 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
acquires 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 acquirer) to purchase stock or other property of the acquirer having
a value of twice the exercise price. The rights will expire on December 19,
2006, unless earlier redeemed at $0.005 per right by the Company.
Commitments and Contingencies
The Company leases certain properties, such as manufacturing, warehousing
and office space, and 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 options. Total rent expense charged to operations amounted
to $6,537 in 1999, $5,648 in 1998 and $5,515 in 1997 (sublease income is not
significant). Future minimum rent payments under operating leases having
initial or remaining non-cancelable lease terms in excess of one year at
December 31, 1999 are as follows: $5,198 in 2000, $3,360 in 2001; $3,092 in
2002; $2,699 in 2003, $2,378 in 2004.
In the ordinary course of business, the Company is contingently liable for
performance under letters of credit totaling approximately $15,690 at December
31, 1999. The Company does not believe that exposure to loss is likely and is
of the opinion that the fair value of these instruments is zero.
35
<PAGE>
PRIMEX TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Environmental
The Company is party to various governmental and private environmental
actions associated with waste disposal, manufacturing and test sites.
Environmental provisions charged to operations were $150 in 1999, $830 in
1998, and none in 1997. The consolidated balance sheets include reserves for
future environmental expenditures to investigate and remediate known sites
amounting to $798 and $1,834 at December 31, 1999 and 1998, respectively,
which are classified as other non-current liabilities.
During 1998, the Company agreed to a settlement regarding costs associated
with environmental remediation at a location where the Company formerly had
manufacturing operations. As a result of this settlement, a charge to
operations of $800 was made during 1998 and the remaining cost of $800 was
charged to reserves during 1999.
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
The Company and its subsidiaries are involved in legal proceedings, claims
and litigation arising in the ordinary course of business. In the opinion of
management, none of these matters will materially affect the Company's
consolidated financial position or results of operations.
Net Income Per Share
The following sets forth the number of shares of common stock included in
the computation of basic and diluted net income per share for the years ended
December 31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Denominator for basic net income per share:
Weighted average shares outstanding and
vested.................................. 10,079,004 10,273,830 10,347,338
Effect of dilutive securities:
Employee stock options................... 77,645 58,424 --
Restricted stock unit grants............. 517,852 425,130 226,478
---------- ---------- ----------
595,497 483,554 226,478
---------- ---------- ----------
Denominator for diluted net income per
share.................................... 10,674,501 10,757,384 10,573,816
========== ========== ==========
</TABLE>
36
<PAGE>
PRIMEX TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Accumulated Other Comprehensive Income
The components of other comprehensive income are as follows:
<TABLE>
<CAPTION>
Minimum
Currency Pension
Translation Liability
Adjustments Adjustment Total
----------- ---------- -----
<S> <C> <C> <C>
Balance at December 31, 1997................ $ (24) $ -- $ (24)
Currency translation adjustment............. 4 -- 4
Minimum pension liability adjustment........ -- (281) (281)
----- ----- -----
Balance at December 31, 1998................ (20) (281) (301)
Currently translation adjustment............ (1) -- (1)
Minimum pension liability adjustment........ -- 281 281
----- ----- -----
Balance at December 31, 1999................ $ (21) $ -- $ (21)
===== ===== =====
</TABLE>
Quarterly Financial Data (Unaudited)
The following is a summary of unaudited quarterly operating results for years
ending December 31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
-------- -------- -------- --------
<S> <C> <C> <C> <C>
1999
Sales.................................. $117,372 $133,285 $129,837 $163,858
Gross Profit........................... 28,652 31,222 32,855 36,519
Operating Income....................... 9,252 10,988 11,555 12,465
Net Income............................. 4,054 5,142 5,343 5,894
Net Income Per Share:
Basic................................ $ 0.40 $ 0.51 $ 0.53 $ 0.59
Diluted.............................. $ 0.38 $ 0.48 $ 0.50 $ 0.55
1998
Sales.................................. $112,251 $111,068 $112,753 $159,196
Gross Profit........................... 23,462 26,916 24,146 27,788
Operating Income....................... 5,217 5,458 5,905 8,723
Net Income............................. 2,968 5,064 3,800 4,431
Net Income Per Share:
Basic................................ $ 0.29 $ 0.49 $ 0.37 $ 0.43
Diluted.............................. $ 0.28 $ 0.47 $ 0.35 $ 0.41
1997
Sales.................................. $114,799 $112,921 $118,861 $144,243
Gross Profit........................... 19,086 23,166 22,173 24,809
Operating Income....................... 3,387 6,079 5,734 5,715
Net Income............................. 871 2,864 3,027 3,863
Net Income Per Share:
Basic................................ $ 0.08 $ 0.28 $ 0.29 $ 0.38
Diluted.............................. $ 0.08 $ 0.27 $ 0.29 $ 0.36
</TABLE>
37
<PAGE>
PRIMEX TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Business Segment Information
The accounting policies of the Company's Ordnance and Aerospace segments
are the same as those described in the summary of significant accounting
policies. Corporate administration costs are allocated between reportable
segments based on sales, assets and personnel. Corporate interest expense is
allocated between reportable segments based on working capital employed.
Company management evaluates performance based on segment profit or loss from
operations before unusual items and income taxes.
The Company's largest customer is the U.S. Government. Sales from contracts
with the U.S. Government or U.S. Government prime contractors were
approximately 76%, 67% and 66% of total 1999, 1998 and 1997 sales,
respectively. Export sales from the United States were $56,983, $52,984 and
$67,867 in 1999, 1998 and 1997, respectively.
The following table presents information about reportable segment
operations and assets:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Revenues from external customers:
Ordnance..................................... $435,564 $360,675 $358,879
Aerospace.................................... 108,788 134,593 131,945
-------- -------- --------
Total consolidated revenues.................... 544,352 495,268 490,824
======== ======== ========
Depreciation and amortization
Ordnance..................................... 19,168 14,256 13,624
Aerospace.................................... 5,310 5,434 5,753
All other.................................... 466 352 331
-------- -------- --------
Total consolidated depreciation and
amortization.................................. 24,944 20,042 19,708
======== ======== ========
Interest expense:
Ordnance..................................... 9,758 1,676 957
Aerospace.................................... 2,147 1,599 2,778
-------- -------- --------
Total consolidated interest expense............ 11,905 3,275 3,735
======== ======== ========
Segment profit:
Ordnance..................................... 28,803 18,589 14,428
Aerospace.................................... 4,935 6,150 4,528
-------- -------- --------
Total segment profit........................... 33,738 24,739 18,956
Reconciling items:
Non-recurring income......................... -- 2,920 --
-------- -------- --------
Total consolidated income before income taxes.. 33,738 27,659 18,956
======== ======== ========
Segment assets:
Ordnance..................................... 322,028 348,264 172,318
Aerospace.................................... 106,178 107,922 115,141
-------- -------- --------
Total segment assets........................... 428,206 456,186 287,459
Corporate assets............................... 22,223 15,149 8,832
-------- -------- --------
Total consolidated assets...................... 450,429 471,335 296,291
======== ======== ========
Expenditures for additions to long-lived
assets:
Ordnance..................................... 12,344 10,972 6,531
Aerospace.................................... 6,900 6,840 3,793
All other.................................... 34 82 317
-------- -------- --------
Total expenditures for additions to long-lived
assets........................................ $ 19,278 $ 17,894 $ 10,641
======== ======== ========
</TABLE>
38
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information relating to executive officers is included in this report at the
end of Part I under the caption "Executive Officers of the Company."
The information relating to directors appearing under the caption "Proposal
No. 1--Election of Directors" in the definitive Proxy Statement for the 2000
Annual Meeting of Shareholders and filed with the Securities and Exchange
Commission is incorporated herein by reference.
The information concerning compliance with Section 16(a) of the Securities
Exchange Act of 1934, as amended, appearing under the caption "Section 16(a)
Beneficial Ownership Reporting Compliance" in the definitive Proxy Statement
for the 2000 Annual Meeting of Shareholders and filed with the Commission is
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information contained under the caption "Executive Compensation"
contained in the definitive Proxy Statement for the 2000 Annual Meeting of
Shareholders and filed with the Commission is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information contained under the captions "Security Ownership of
Directors and Officers" and "Certain Beneficial Owners" contained in the
definitive Proxy Statement for the 2000 Annual Meeting of Shareholders and
filed with the Commission is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information contained under the caption "Certain Relationships and
Related Transactions" contained in the definitive Proxy Statement for the 2000
Annual Meeting of Shareholders and filed with the Commission is incorporated
herein by reference.
39
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Documents Filed as Part of this Report:
(1) Financial Statements.
The following is a list of all the Consolidated Financial Statements
included in Item 8 of Part II.
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report--Ernst & Young LLP........................ 20
Consolidated Balance Sheets as of December 31, 1999 and 1998........... 21
Consolidated Statements of Income, Years Ended December 31, 1999, 1998
and 1997.............................................................. 22
Consolidated Statements of Shareholders' Equity, Years Ended December
31, 1999, 1998 and 1997............................................... 23
Consolidated Statements of Cash Flows, Years Ended December 31, 1999,
1998 and 1997......................................................... 24
Notes to the Consolidated Financial Statements......................... 25
</TABLE>
(2) Financial Statement Schedules
All schedules are omitted because they are not applicable or not required,
or because the required information is included in the Consolidated Financial
Statements or notes thereto.
(3) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
2 Stock Purchase Agreement by and between the Company and Daimler-Benz
Finance Corporation, dated October 9, 1998. Incorporated by reference
to Exhibit 2.1 to the Company's Form 8-K filed November 23, 1998 (SEC
File No. 0-28942). (Pursuant to Item 601(b)(2) of Regulation S-K, the
Company hereby agrees to furnish supplementally to the Commission,
upon request, a copy of any schedule or exhibit omitted from such
Stock Purchase Agreement as filed herewith.)
3.1 Amended and Restated Articles of Incorporation, as amended.
3.2 Amended and Restated By-laws of the Company.
4.1 Amended and restated Articles of Incorporation, as amended (filed as
Exhibit 3.1 hereto).
4.2 Amended and restated By-laws of the Company (filed as Exhibit 3.2
hereto).
4.3 Rights Agreement dated February 1, 2000 between the Company and The
Bank of New York.
4.4 Form of Rights Certificate (filed with Exhibit 4.3 hereto).
10.1 Form of Executive Agreement for Mr. J. G. Hascall.*
10.2 Form of Executive Agreement for Messrs. J. D. DeMaire, J. E. Fischer
and G. H. Pain.*
10.3 Form of Executive Agreement for Mr. M. S. Wilson.*
10.4 Primex Technologies, Inc. Stock Plan for Nonemployee Directors, as
amended.*
10.5 1996 Long Term Incentive Plan of Primex Technologies, Inc., as
amended.*
10.6 Technology Transfer and License Agreement dated December 30, 1996
between Primex Technologies, Inc. and Olin Corporation. Incorporated
by reference to Exhibit 10.2 to the Company's Form 8-K/A filed January
24, 1997 (SEC File No. 0-28942).
10.7 Assumption of Liabilities and Indemnity Agreement dated December 31,
1996 between Primex Technologies, Inc. and Olin Corporation.
Incorporated by reference to Exhibit 10.6 to the Company's Form 8-K/A
filed January 24, 1997 (SEC File No. 0-28942).
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
10.8 Covenant Not to Compete Agreement dated December 31, 1996 between
Primex Technologies, Inc. and Olin Corporation. Incorporated by
reference to Exhibit 10.7 to the Company's Form 8-K/A filed January
24, 1997 (SEC File No. 0-28942).
10.9 Primex Technologies, Inc. Incentive Compensation Plan, as amended.*
10.10 Transition Bonus Program of Primex Technologies, Inc., as amended.
Incorporated by reference to Exhibit 10.13 to the Company's Form 10-K
filed March 17, 1999 (SEC File No. 0-28942).*
10.11 Primex Technologies, Inc. Restoration Bonus Plan, as amended.*
10.12 Primex Technologies, Inc. 2000 Long Term Incentive Plan.*
10.13 Building and Igloo Lease between U.S. Fish and Wildlife Service and
Primex Technologies, Inc. dated January 1, 1997. Incorporated by
reference to Exhibit 10.23 to the Company's 10-K filed March 19, 1998
(SEC File No. 0-28942).
10.14 Lease Agreement between Zaser and Longston, Inc. and Primex Aerospace
Company dated March 11, 1998.
10.15 Lease Agreement between The Northwestern Mutual Life Insurance Company
(now BBS Corp.) and U.S. Ordnance (as assignee) dated July 1, 1956 (on
renewal). Incorporated by reference to Exhibit 10.26 to the Company's
10-K filed March 19, 1998 (SEC File No. 0-28942).
10.16 Lease Agreement between Heger Realty Corporation and Aerojet Ordnance
Company (now U.S. Ordnance Company) dated October 15, 1985.
Incorporated by reference to Exhibit 10.28 to the Company's 10-K filed
March 19, 1998 (SEC File No. 0-28942).
10.17 Lease Agreement between CMS Defense Systems, Inc. and The Board of
Education of the Stone County School District dated September 1, 1998.
Incorporated by reference to Exhibit 10.22 to the Company's 10-K filed
March 17, 1999 (SEC File No. 0-28942).
10.18 Lease Agreement between Richard R. Bennett and Betty J. Bennett and
OTI International, Inc. (now Hitech Holdings, Inc.) dated February 27,
1994. Incorporated by reference to Exhibit No. 10.23 to the Company's
10-K filed March 17, 1999 (SEC No. 0-28942).
10.19 Lease Agreement between The Industrial Development Board of the City
of Anniston and Defense Research Incorporated dated March 1, 1995.
10.20 Net Lease Agreement between Opus Northwest, L.L.C. and Primex
Aerospace Company dated July 27, 1998, as amended.
10.21 Stock Purchase Agreement by and between Primex Technologies, Inc. and
Daimler-Benz Finance Corporation, dated October 9, 1998. Incorporated
by reference to Exhibit 2.1 to the Company's Form 8-K/A filed November
23, 1998 (SEC File No. 0-28942). (Pursuant to Item 601(b)(2) of
Regulation S-K, the Company hereby agrees to furnish supplementally to
the Commission, upon request, a copy of any schedule or exhibit
omitted from such Stock Purchase Agreement as filed herewith).
21 List of subsidiaries of Primex Technologies, Inc.
23 Consent of Ernst & Young LLP.
27 Financial Data Schedule.
</TABLE>
- --------
* Denotes a management contract or compensatory plan or arrangement required
to be filed as an exhibit to Item 14(c) of Form 10-K.
(b) Reports on Form 8-K:
During the quarterly period ended December 31, 1999, no reports on Form 8-K
were filed by the Company.
41
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report be signed on
its behalf by the undersigned, thereunto duly authorized.
Primex Technologies, Inc.
(Registrant)
March 7, 2000
/s/ George H. Pain
By: _________________________________
George H. Pain
Vice President, General Counsel and
Secretary
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons in the capacities and on the
dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ James G. Hascall Chairman of the Board and March 7, 2000
___________________________________________ Chief Executive Officer
James G. Hascall and Director
/s/ J. Douglas DeMaire President and Director March 7, 2000
___________________________________________
J. Douglas DeMaire
/s/ John E. Fischer Vice President and Chief March 7, 2000
___________________________________________ Financial and Accounting
John E. Fischer Officer
/s/ David Lasky Director March 7, 2000
___________________________________________
David Lasky
/s/ Bob Martinez Director March 7, 2000
___________________________________________
Bob Martinez
/s/ William B. Mitchell Director March 7, 2000
___________________________________________
William B. Mitchell
/s/ Robert H. Rau Director March 7, 2000
___________________________________________
Robert H. Rau
/s/ Anthony W. Ruggiero Director March 7, 2000
___________________________________________
Anthony W. Ruggiero
/s/ Leon E. Salomon Director March 7, 2000
___________________________________________
Leon E. Salomon
</TABLE>
42
<PAGE>
Exhibit 3.1
ARTICLES OF AMENDMENT
AND RESTATEMENT OF
PRIMEX TECHNOLOGIES, INC.
The undersigned, being the Vice President, General Counsel, and Secretary
of Primex Technologies, Inc., a Virginia corporation, hereby submits these
Articles of Amendment and Restatement to the State Corporation Commission of
Virginia:
1. The name of the corporation is Primex Technologies, Inc. (the
"Company").
2. The Company's Articles of Incorporation are hereby amended and
restated in the manner set forth in Exhibit A, attached hereto.
---------
3. The attached amendment and restatement of the Company's Articles of
Incorporation contains amendments that were adopted on March 7, 2000, by the
Board of Directors of the Company without shareholder action, and no shareholder
action was required for the adoption of such amendments.
4. These Articles of Amendment and Restatement shall become effective on
the date that they are filed with the State Corporation Commission of Virginia.
The undersigned Vice President, General Counsel, and Secretary of the
Company declares that the facts herein stated are true as of March 9, 2000.
Primex Technologies, Inc.
By: /s/ George H. Pain
------------------
George H. Pain
Vice President, General Counsel
and Secretary
<PAGE>
Exhibit A
---------
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
of
PRIMEX TECHNOLOGIES, INC.
ARTICLE I
The name of the Corporation shall be Primex Technologies, Inc.
ARTICLE II
The purpose for which the Corporation is formed is to transact any or all
lawful business, not required to be specifically stated in these Articles, for
which corporations may be incorporated under the Virginia Stock Corporation Act,
as amended from time to time.
ARTICLE III
The aggregate number of shares that the Corporation shall have authority to
issue shall be 10,000,000 shares of Preferred Stock, par value $1 per share
(hereinafter called Preferred Stock), and 60,000,000 shares of Common Stock, par
value $1 per share (hereinafter called Common Stock).
The following is a description of each of said different classes of stock,
and a statement of the preferences, limitations, voting rights and relative
rights in respect of the shares of each such class:
1. The Board of Directors shall have authority, by resolution or
resolutions, at any time and from time to time to divide and establish any
or all of the unissued shares of Preferred Stock not then allocated to any
series of Preferred Stock into one or more series, and, without limiting
the generality of the foregoing, to fix and determine the designation of
each such series, the number of shares which shall constitute such series
and the following relative rights and preferences of the shares of each
series so established:
(a) The annual or other periodic dividend rate payable on shares of
such series, the time of payment thereof, whether such dividends shall be
<PAGE>
cumulative or non-cumulative, and the date or dates from which any
cumulative dividends shall commence to accrue;
(b) the price or prices at which and the terms and conditions, if
any, on which shares of such series may be redeemed;
(c) the amounts payable upon shares of such series in the event of
the voluntary or involuntary dissolution, liquidation or winding-up of the
affairs of the Corporation;
(d) the sinking fund provisions, if any, for the redemption or
purchase of shares of such series;
(e) the extent of the voting powers, if any, of the shares of such
series;
(f) the terms and conditions, if any, on which shares of such series
may be converted into shares of stock of the Corporation of any other class
or classes or into shares of any other series of the same or any other
class or classes;
(g) whether, and if so the extent to which, shares of such series may
participate with the Common Stock in any dividends in excess of the
preferential dividend fixed for shares of such series or in any
distribution of the assets of the Corporation, upon a liquidation,
dissolution or winding-up thereof, in excess of the preferential amount
fixed for shares of such series; and
(h) any other preferences and relative, optional or other special
rights, and qualifications, limitations or restrictions of such preferences
or rights, of shares of such series not fixed and determined by law or in
this Article III.
2. Each series of Preferred Stock shall be so designated as to
distinguish the shares thereof from the shares of all other series. Different
series of Preferred Stock shall not be considered to constitute different
classes of shares for the purpose of voting by classes except as otherwise fixed
by the Board of Directors with respect to any series at the time of the creation
thereof.
3. So long as any shares of Preferred Stock are outstanding, the
Corporation shall not declare and pay or set apart for payment any dividends
(other than dividends payable in Common Stock or other stock of the Corporation
ranking junior to the Preferred Stock as to dividends) or make any other
distribution on such junior stock, if at the time of making such declaration,
payment or distribution the Corporation shall be in default with respect to any
dividend payable on, or any obligation to retire, shares of Preferred Stock.
2
<PAGE>
4. Shares of any series of Preferred Stock that have been redeemed or
otherwise reacquired by the Corporation (whether through the operation of a
sinking fund, upon conversion or otherwise) shall have the status of authorized
and unissued shares of Preferred Stock and may be redesignated and reissued as a
part of such series (unless prohibited by the articles of amendment creating
such series) or of any other series of Preferred Stock. Shares of Common Stock
that have been reacquired by the Corporation shall have the status of authorized
and unissued shares of Common Stock and may be reissued.
5. Subject to the provisions of any applicable law or of the By-laws of
the Corporation as from time to time amended with respect to the closing of the
transfer books or the fixing of a record date for the determination of
shareholders entitled to vote, and except as otherwise provided by law or in
resolutions of the Board of Directors establishing any series of Preferred Stock
pursuant to the provisions of paragraph 1 of this Article III, the holders of
outstanding shares of Common Stock of the Corporation shall exclusively possess
voting power for the election of directors and for all other purposes, each
holder of record of shares of Common Stock of the Corporation being entitled to
one vote for each share of such stock standing in his name on the books of the
Corporation.
6. No holder of shares of stock of any class of the Corporation shall, as
such holder, have any right to subscribe for or purchase (a) any shares of stock
of any class of the Corporation, or any warrants, options or other instruments
that shall confer upon the holder thereof the right to subscribe for or purchase
or receive from the Corporation any shares of stock of any class, whether or not
such shares of stock, warrants, options or other instruments are issued for cash
or services or property or by way of dividend or otherwise, or (b) any other
security of the Corporation that shall be convertible into, or exchangeable for,
any shares of stock of the Corporation of any class or classes, or to which
shall be attached or appurtenant any warrant, option or other instrument that
shall confer upon the holder of such security the right to subscribe for or
purchase or receive from the Corporation any shares of its stock of any class or
classes, whether or not such securities are issued for cash or services or
property or by way of dividend or otherwise, other than such right, if any, as
the Board of Directors, in its sole discretion, may from time to time determine.
If the Board of Directors shall offer to the holders of shares of stock of any
class of the Corporation, or any of them, any such shares of stock, options,
warrants, instruments or other securities of the Corporation, such offer shall
not, in any way, constitute a waiver or release of the right of the Board of
Directors subsequently to dispose of other securities of the Corporation without
offering the same to said holders.
7. Anything herein to the contrary notwithstanding, dividends upon shares
of any class of stock of the Corporation shall be payable only out of assets
legally available for the payment of such dividends, and the rights of the
holders of shares of stock of the Corporation in respect of dividends shall at
all times be subject to the power of the Board of Directors to determine what
dividends, if any, shall be declared and paid to the shareholders.
3
<PAGE>
8. Subject to the provisions hereof and except as otherwise provided by
law, shares of stock of any class of the Corporation may be issued for such
consideration and for such corporate purposes as the Board of Directors may from
time to time determine.
9. Series A Participating Cumulative Preferred Stock. There is hereby
established a series of the Corporation's authorized Preferred Stock, to be
designated as the "Series A Participating Cumulative Preferred Stock, par value
$1 per share." The designation and number, and relative rights, preferences and
limitations of the Series A Participating Cumulative Preferred Stock, insofar as
not already fixed by any other provision of these Articles of Incorporation,
shall be as follows:
SECTION 1. Designation and Number of Shares. The shares of such
--------------------------------
series shall be designated as "Series A Participating Cumulative Preferred
Stock" (the "Series A Preferred Stock"), par value $1 per share. The number
of shares initially constituting the Series A Preferred Stock shall be
250,000; provided, however, that, if more than a total of 250,000 shares of
-------- -------
Series A Preferred Stock shall be issuable upon the exercise of Rights (the
"Rights") issued pursuant to the Rights Agreement dated as of February 1,
2000, between the Corporation and The Bank of New York, as Rights Agent
(the "Rights Agreement"), or pursuant to any successor rights agreement
(including any successor rights agreement with a different rights agent),
the Board of Directors of the Corporation, pursuant to Section 13.1-639 of
the Virginia Stock Corporation Act, shall direct by resolution or
resolutions that articles of amendment of the Articles of Incorporation of
the Corporation be properly executed and filed with the State Corporation
Commission of Virginia providing for the total number of shares of Series A
Preferred Stock authorized to be issued to be increased (to the extent that
the Articles of Incorporation then permit) to the largest number of whole
shares (rounded up to the nearest whole number) issuable upon exercise of
such Rights.
SECTION 2. Dividends or Distributions. (a) Subject to the prior and
--------------------------
superior rights of the holders of shares of any other series of Preferred
Stock or other class of capital stock of the Corporation ranking prior and
superior to the shares of Series A Preferred Stock with respect to
dividends, the holders of shares of the Series A Preferred Stock shall be
entitled to receive, when, as and if declared by the Board of Directors,
out of the assets of the Corporation legally available therefor, (i)
quarterly dividends payable in cash on the last day of each fiscal quarter
in each year, or such other dates as the Board of Directors of the
Corporation shall approve (each such date being referred to herein as a
"Quarterly Dividend Payment Date"), commencing on the first Quarterly
Dividend Payment Date after the first issuance of a share or a fraction of
a share of Series A Preferred Stock, in the amount of $.01 per whole share
(rounded to the nearest cent), less the amount of all cash dividends
declared on the Series A Preferred Stock pursuant to the following clause
(ii) since the immediately preceding Quarterly
4
<PAGE>
Dividend Payment Date or, with respect to the first Quarterly Dividend
Payment Date, since the first issuance of any share or fraction of a share
of Series A Preferred Stock (the total of which shall not, in any event, be
less than zero) and (ii) dividends payable in cash on the payment date for
each cash dividend declared on the Common Stock in an amount per whole
share (rounded to the nearest cent) equal to the Formula Number (as
hereinafter defined) then in effect times the cash dividends then to be
paid on each share of Common Stock. In addition, if the Corporation shall
pay any dividend or make any distribution on the Common Stock payable in
assets, securities or other forms of non-cash consideration (other than
dividends or distributions solely in shares of Common Stock), then, in each
such case, the Corporation shall simultaneously pay or make on each
outstanding whole share of Series A Preferred Stock a dividend or
distribution in like kind equal to the Formula Number then in effect times
such dividend or distribution on each share of the Common Stock. As used
herein, the "Formula Number" shall be 2,000; provided, however, that, if at
any time after February 1, 2000, the Corporation shall (x) declare or pay
any dividend on the Common Stock payable in shares of Common Stock or make
any distribution on the Common Stock in shares of Common Stock, (y)
subdivide (by a stock split or otherwise) the outstanding shares of Common
Stock into a larger number of shares of Common Stock or (z) combine (by a
reverse stock split or otherwise) the outstanding shares of Common Stock
into a smaller number of shares of Common Stock, then, in each such event,
the Formula Number shall be adjusted to a number determined by multiplying
the Formula Number in effect immediately prior to such event by a fraction,
the numerator of which is the number of shares of Common Stock that are
outstanding immediately after such event and the denominator of which is
the number of shares of Common Stock that are outstanding immediately prior
to such event (and rounding the result to the nearest whole number); and
provided further, that, if at any time after February 1, 2000, the
-------- -------
Corporation shall issue any shares of its capital stock in a merger,
reclassification, or change of the outstanding shares of Common Stock,
then, in each such event, the Formula Number shall be appropriately
adjusted to reflect such merger, reclassification or change so that each
share of Preferred Stock continues to be the economic equivalent of a
Formula Number of shares of Common Stock prior to such merger,
reclassification or change.
(b) The Corporation shall declare a dividend or distribution on the
Series A Preferred Stock as provided in Section 2(a) immediately prior
to or at the same time it declares a dividend or distribution on the
Common Stock (other than a dividend or distribution solely in shares of
Common Stock); provided, however, that, in the event no dividend or
-------- -------
distribution (other than a dividend or distribution in shares of Common
Stock) shall have been declared on the Common Stock during the period
between any Quarterly Dividend Payment Date and the next subsequent
Quarterly Dividend Payment Date, a dividend of $.01 per share on the Series
A Preferred Stock shall nevertheless be payable on such subsequent
5
<PAGE>
Quarterly Dividend Payment Date. The Board of Directors may fix a record
date for the determination of holders of shares of Series A Preferred Stock
entitled to receive a dividend or distribution declared thereon, which
record date shall be the same as the record date for any corresponding
dividend or distribution on the Common Stock.
(c) Dividends shall begin to accrue and be cumulative on outstanding
shares of Series A Preferred Stock from and after the Quarterly Dividend
Payment Date next preceding the date of original issue of such shares of
Series A Preferred Stock; provided, however, that dividends on such shares
-------- -------
that are originally issued after the record date for the determination of
holders of shares of Series A Preferred Stock entitled to receive a
quarterly dividend and on or prior to the next succeeding Quarterly
Dividend Payment Date shall begin to accrue and be cumulative from and
after such Quarterly Dividend Payment Date. Notwithstanding the foregoing,
dividends on shares of Series A Preferred Stock that are originally issued
prior to the record date for the determination of holders of shares of
Series A Preferred Stock entitled to receive a quarterly dividend on the
first Quarterly Dividend Payment Date shall be calculated as if cumulative
from and after the last day of the fiscal quarter next preceding the date
of original issuance of such shares. Accrued but unpaid dividends shall not
bear interest. Dividends paid on the shares of Series A Preferred Stock in
an amount less than the total amount of such dividends at the time accrued
and payable on such shares shall be allocated pro rata on a share-by-share
basis among all such shares at the time outstanding.
(d) So long as any shares of the Series A Preferred Stock are
outstanding, no dividends or other distributions shall be declared, paid or
distributed, or set aside for payment or distribution, on the Common Stock,
unless, in each case, the dividend required by this Section 2 to be
declared on the Series A Preferred Stock shall have been declared.
(e) The holders of the shares of Series A Preferred Stock shall not
be entitled to receive any dividends or other distributions, except as
provided herein.
SECTION 3. Voting Rights. The holders of shares of Series A Preferred
-------------
Stock shall have the following voting rights:
(a) Each holder of Series A Preferred Stock shall be entitled to a
number of votes equal to the Formula Number then in effect, for each share
of Series A Preferred Stock held of record on each matter on which holders
of the Common Stock or shareholders generally are entitled to vote,
multiplied by the maximum number of votes per share which any holder of the
Common Stock or shareholders generally then have with respect to such
matter (assuming any
6
<PAGE>
holding period or other requirement to vote a greater number of shares is
satisfied).
(b) Except as otherwise provided herein or by applicable law, the
holders of shares of Series A Preferred Stock and the holders of shares of
Common Stock shall vote together as one class for the election of directors
of the Corporation and on all other matters submitted to a vote of
shareholders of the Corporation.
(c) If, at the time of any annual meeting of shareholders for the
election of directors, the equivalent of six quarterly dividends (whether
or not consecutive) payable on any share or shares of Series A Preferred
Stock are in default, the number of directors constituting the Board of
Directors of the Corporation shall be increased by two. In addition to
voting together with the holders of Common Stock for the election of other
directors of the Corporation, the holders of record of the Series A
Preferred Stock, voting separately as a class to the exclusion of the
holders of Common Stock, shall be entitled at said meeting of shareholders
(and at each subsequent annual meeting of shareholders), unless all
dividends in arrears have been paid or declared and set apart for payment
prior thereto, to vote for the election of two directors of the
Corporation, the holders of any Series A Preferred Stock being entitled to
cast a number of votes per share of Series A Preferred Stock equal to the
Formula Number. Until the default in payments of all dividends that
permitted the election of said directors shall cease to exist, any director
who shall have been so elected pursuant to the next preceding sentence may
be removed at any time, either with or without cause, only by the
affirmative vote of the holders of the shares of Series A Preferred Stock
at the time entitled to cast a majority of the votes entitled to be cast
for the election of any such director at a special meeting of such holders
called for that purpose, and any vacancy thereby created may be filled by
the vote of such holders. If and when such default shall cease to exist,
the holders of the Series A Preferred Stock shall be divested of the
foregoing special voting rights, subject to revesting in the event of each
and every subsequent like default in payments of dividends. Upon the
termination of the foregoing special voting rights, the terms of office of
all persons who may have been elected directors pursuant to said special
voting rights shall forthwith terminate, and the number of directors
constituting the Board of Directors shall be reduced by two. The voting
rights granted by this Section 3(c) shall be in addition to any other
voting rights granted to the holders of the Series A Preferred Stock in
this Section 3.
(d) Except as provided herein, in Section 11 or by applicable law,
holders of Series A Preferred Stock shall have no special voting rights and
their consent shall not be required (except to the extent they are entitled
to vote with holders of Common Stock as set forth herein) for authorizing
or taking any corporate action.
7
<PAGE>
SECTION 4. Certain Restrictions. (a) Whenever quarterly dividends
--------------------
dividends or distributions payable on the Series A Preferred Stock as
provided in Section 2 are in arrears, thereafter and until all accrued and
unpaid dividends and distributions, whether or not declared, on shares of
Series A Preferred Stock outstanding shall have been paid in full, the
Corporation shall not
(i) declare or pay dividends on, make any other distributions
on, or redeem or purchase or otherwise acquire for consideration any
shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A Preferred
Stock;
(ii) declare or pay dividends on or make any other distributions
on any shares of stock ranking on a parity (either as to dividends or
upon liquidation, dissolution or winding up) with the Series A
Preferred Stock, except dividends paid ratably on the Series A
Preferred Stock and all such parity stock on which dividends are
payable or in arrears in proportion to the total amounts to which the
holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for consideration
shares of any stock ranking on a parity (either as to dividends or
upon liquidation, dissolution or winding up) with the Series A
Preferred Stock; provided that the Corporation may at any time
--------
redeem, purchase or otherwise acquire shares of any such parity stock
in exchange for shares of any stock of the Corporation ranking junior
(either as to dividends or upon dissolution, liquidation or winding
up) to the Series A Preferred Stock; or
(iv) purchase or otherwise acquire for consideration any shares
of Series A Preferred Stock, or any shares of stock ranking on a
parity with the Series A Preferred Stock, except in accordance with a
purchase offer made in writing or by publication (as determined by the
Board of Directors) to all holders of such shares upon such terms as
the Board of Directors, after consideration of the respective annual
dividend rates and other relative rights and preferences of the
respective series and classes, shall determine in good faith will
result in fair and equitable treatment among the respective series or
classes.
(b) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any shares
of stock of the Corporation unless the Corporation could, under paragraph
(a) of this Section 4, purchase or otherwise acquire such shares at such
time and in such manner.
SECTION 5. Liquidation Rights. Upon the liquidation, dissolution or
------------------
winding up of the Corporation, whether voluntary or involuntary, no
distribution
8
<PAGE>
shall be made (a) to the holders of shares of stock ranking junior (either
as to dividends or upon liquidation, dissolution or winding up) to the
Series A Preferred Stock, unless, prior thereto, the holders of shares of
Series A Preferred Stock shall have received an amount equal to the accrued
and unpaid dividends and distributions thereon, whether or not declared, to
the date of such payment, plus an amount equal to the greater of (i) $.01
per whole share or (ii) an aggregate amount per share equal to the Formula
Number then in effect times the aggregate amount to be distributed per
share to holders of Common Stock or (b) to the holders of stock ranking on
a parity (either as to dividends or upon liquidation, dissolution or
winding up) with the Series A Preferred Stock, except distributions made
ratably on the Series A Preferred Stock and all other such parity stock in
proportion to the total amounts to which the holders of all such shares are
entitled upon such liquidation, dissolution or winding up.
SECTION 6. Consolidation, Merger, etc. In case the Corporation shall
--------------------------
enter into any consolidation, merger, combination or other transaction in
which the shares of Common Stock are exchanged for or changed into other
stock or securities, cash or any other property, then, in any such case,
the then outstanding shares of Series A Preferred Stock shall at the same
time be similarly exchanged or changed into an amount per share equal to
the Formula Number then in effect times the aggregate amount of stock,
securities, cash or any other property (payable in kind), as the case may
be, into which or for which each share of Common Stock is exchanged or
changed. In the event both this Section 6 and Section 2 appear to apply to
a transaction, this Section 6 will control.
SECTION 7. No Redemption; No Sinking Fund. (a) The shares of Series
------------------------------
A Preferred Stock shall not be subject to redemption by the Corporation or
at the option of any holder of Series A Preferred Stock; provided, however,
------- -------
that the Corporation may purchase or otherwise acquire outstanding shares
of Series A Preferred Stock in the open market or by offer to any holder or
holders of shares of Series A Preferred Stock.
(b) The shares of Series A Preferred Stock shall not be subject to or
entitled to the operation of a retirement or sinking fund.
SECTION 8. Ranking. The Series A Preferred Stock shall rank junior
-------
to all other series of Preferred Stock of the Corporation, unless the Board
of Directors shall specifically determine otherwise in fixing the powers,
preferences and relative, participating, optional and other special rights
of the shares of such series and the qualifications, limitations and
restrictions thereof.
SECTION 9. Fractional Shares. The Series A Preferred Stock shall be
-----------------
issuable upon exercise of the Rights issued pursuant to the Rights
Agreement in whole shares or in any fraction of a share that is one two-
thousandth (1/2,000) of a
9
<PAGE>
share or any integral multiple of such fraction which shall entitle the
holder, in proportion to such holder's fractional shares, to receive
dividends, exercise voting rights, participate in distributions and have
the benefit of all other rights of holders of Series A Preferred Stock. In
lieu of fractional shares, the Corporation, prior to the first issuance of
a share or a fraction of a share of Series A Preferred Stock, may elect (a)
to make a cash payment as provided in the Rights Agreement for fractions of
a share other than one two-thousandth (1/2,000) of a share or any integral
multiple thereof or (b) to issue depository receipts evidencing such
authorized fraction of a share of Series A Preferred Stock pursuant to an
appropriate agreement between the Corporation and a depository selected by
the Corporation; provided that such agreement shall provide that the
--------
holders of such depository receipts shall have all the rights, privileges
and preferences to which they are entitled as holders of the Series A
Preferred Stock.
SECTION 10. Reacquired Shares. Any shares of Series A Preferred
-----------------
Stock purchased or otherwise acquired by the Corporation in any manner
whatsoever shall be retired and canceled promptly after the acquisition
thereof. All such shares shall upon their cancellation become authorized
but unissued shares of Preferred Stock, par value $1 per share, of the
Corporation, undesignated as to series, and may thereafter be reissued as
part of a new series of such Preferred Shares as permitted by law.
SECTION 11. Amendment. None of the powers, preferences and relative,
---------
participating, optional and other special rights of the Series A Preferred
Stock as provided herein or in the Articles of Incorporation shall be
amended in any manner that would alter or change the powers, preferences,
rights or privileges of the holders of Series A Preferred Stock so as to
affect such holders adversely without the affirmative vote of the holders
of at least 66-2/3% of the outstanding shares of Series A Preferred Stock,
voting as a separate class; provided, however, that no such amendment
-------- --------
approved by the holders of at least 66-2/3% of the outstanding shares of
Series A Preferred Stock shall be deemed to apply to the powers,
preferences, rights or privileges of any holder of shares of Series A
Preferred Stock originally issued upon exercise of a Right after the time
of such approval without the approval of such holder.
ARTICLE IV
The period of the duration of the Corporation is unlimited and perpetual.
ARTICLE V
10
<PAGE>
1. The number of directors shall be as specified in the By-laws of
the Corporation but such number may be increased or decreased from time to
time in such manner as may be prescribed in the By-laws. In the absence of
a By-law specifying the number of directors, the number shall be nine. The
Board of Directors shall be divided into three classes, Class I, Class II,
and Class III, as nearly equal in number as possible. The initial term of
each class of directors shall expire at the annual meeting of shareholders
to be held in the following years: Class I - 1997; Class II - 1998; and
Class III - 1999. At the 1997 annual meeting of shareholders, directors of
the first class (Class I) shall be elected to hold office for a term
expiring at the 2000 annual meeting of shareholders. At each annual meeting
of shareholders after 1997, the successors to the class of directors whose
term shall then expire shall be identified as being of the same class of
directors they succeed and shall be elected to hold office for a term
expiring at the third succeeding annual meeting of shareholders. When the
number of directors is changed, any newly-created directorships or any
decrease in directorships shall be so apportioned among the classes by the
Board of Directors as to make all classes as nearly equal in number as
possible.
2. Subject to the rights of the holders of any Preferred Stock then
outstanding, directors may be removed only with cause.
3. Subject to the rights of the holders of any Preferred Stock then
outstanding, newly-created directorships resulting from any increase in the
number of directors and any vacancies in the Board of Directors resulting
from death, resignation, disqualification, removal or other cause shall be
filled solely by the Board of Directors or at an annual meeting of
shareholders by the shareholders entitled to vote on the election of
directors. If the directors remaining in office constitute fewer than a
quorum of the Board, they may fill the vacancy by the affirmative vote of a
majority of the directors remaining in office.
4. Notwithstanding any other provision of these Articles of
Incorporation or any provision of law which might otherwise permit a lesser
vote, but in addition to any affirmative vote of the holders of any
particular class or series of the stock of the Corporation required by law,
these Articles of Incorporation or any Preferred Stock outstanding, the
affirmative vote of at least 80 percent of the outstanding shares of the
Corporation entitled to vote generally at any annual or special meeting of
the shareholders shall be required to alter, amend or repeal paragraph 1 of
this Article V.
ARTICLE VI
Except as expressly otherwise required in these Articles of Incorporation,
an amendment or restatement of these Articles requiring shareholder approval
shall be approved by a majority of the votes entitled to be cast by each voting
group that is entitled to vote on the matter, unless in
11
<PAGE>
submitting an amendment or restatement to the shareholders the Board of
Directors shall require a greater vote.
ARTICLE VII
1. Every person who is or was a director, officer or employee of the
Corporation, or who, at the request of the Corporation, serves or has
served in any such capacity with another corporation, partnership, joint
venture, trust, employee benefit plan, or other enterprise shall be
indemnified by the Corporation against any and all liability and reasonable
expense that may be incurred by him in connection with or resulting from
any claim, action or proceeding (whether brought in the right of the
Corporation or any such other corporation, entity, plan or otherwise), in
which he may become involved, as a party or otherwise, by reason of his
being or having been a director, officer or employee of the Corporation, or
such other corporation, entity or plan while serving at the request of the
Corporation, whether or not he continues to be such at the time such
liability or expense is incurred, unless such person engaged in willful
misconduct or a knowing violation of the criminal law.
As used in this Article VII: (a) the terms "liability" and "expense"
shall include, but shall not be limited to, counsel fees and disbursements
and amounts of judgments, fines or penalties against, and amounts paid in
settlement by, a director, officer or employee; (b) the terms "director,"
"officer" and employee," unless the context otherwise requires, include the
estate or personal representative of any such person; (c) a person is
considered to be serving an employee benefit plan as a director, officer or
employee of the plan at the Corporation's request if his duties to the
Corporation also impose duties on, or otherwise involve services by, him to
the plan or, in connection with the plan, to participants in or
beneficiaries of the plan; (d) the term "occurrence" means any act or
failure to act, actual or alleged, giving rise to a claim, action or
proceeding; and (e) service as a trustee or as a member of a management or
similar committee of a partnership, joint venture or limited liability
company shall be considered service as a director, officer or employee of
the trust, partnership, joint venture or limited liability company.
The termination of any claim, action or proceeding, civil or criminal,
by judgment, settlement, conviction or upon a plea of nolo contendere, or
its equivalent, shall not create a presumption that a director, officer or
employee did not meet the standards of conduct set forth in this paragraph
1. The burden of proof shall be on the Corporation to establish, by a
preponderance of the evidence, that the relevant standards of conduct set
forth in this paragraph 1 have not been met.
2. Any indemnification under paragraph 1 of this Article VII shall
be made unless (a) the Board, acting by a majority vote of those directors
who were directors at the time of the occurrence giving rise to the claim,
action or proceeding involved and who
12
<PAGE>
are not at the time parties to such claim, action or proceeding (provided
there are at least five such directors), finds that the director, officer
or employee has not met the relevant standards of conduct set forth in such
paragraph 1, or (b) if there are not at least five such directors, the
Corporation's principal Virginia legal counsel, as last designated by the
Board as such prior to the time of the occurrence giving rise to the claim,
action or proceeding involved, or in the event for any reason such Virginia
counsel is unwilling to so serve, then Virginia legal counsel mutually
acceptable to the Corporation and the person seeking indemnification,
deliver to the Corporation their written advice that, in their opinion,
such standards have not been met.
3. Expenses incurred with respect to any claim, action or proceeding
of the character described in paragraph 1 shall, except as otherwise set
forth in this paragraph 3, be advanced by the Corporation prior to the
final disposition thereof upon receipt of an undertaking by or on behalf of
the recipient to repay such amount if it is ultimately determined that he
is not entitled to indemnification under this Article VII. No security
shall be required for such undertaking and such undertaking shall be
accepted without reference to the recipient's final ability to make
repayment. Notwithstanding the foregoing, the Corporation may refrain from,
or suspend, payment of expenses in advance if at any time before delivery
of the final finding described in paragraph 2, the Board or Virginia legal
counsel, as the case may be, acting in accordance with the procedures set
forth in paragraph 2, find by a preponderance of the evidence then
available that the officer, director or employee has not met the relevant
standards of conduct set forth in paragraph 1.
4. No amendment or repeal of this Article VII shall adversely affect
or deny to any director, officer or employee the rights of indemnification
provided in this Article VII with respect to any liability or expense
arising out of a claim, action or proceeding based in whole or substantial
part on an occurrence the inception of which takes place before or while
this Article VII, as set forth in these Amended and Restated Articles of
Incorporation, is in effect. The provisions of this paragraph 4 shall apply
to any such claim, action or proceeding whenever commenced, including any
such claim, action or proceeding commenced after any amendment or repeal to
this Article VII.
5. The rights of indemnification provided in this Article VII shall
be in addition to any rights to which any such director, officer or
employee may otherwise be entitled by contraction or as a matter of law.
6. In any proceeding brought by or in the right of the Corporation
or brought by or on behalf of shareholders of the Corporation, no director
or officer of the Corporation shall be liable to the Corporation or its
shareholders for monetary damages with respect to any transaction,
occurrence or course of conduct, whether prior or subsequent to the
effective date of this Article VII, except for liability resulting from
such person's having engaged in willful misconduct or a knowing violation
of the criminal law or any federal or state securities law.
13
<PAGE>
Exhibit 3.2
BY-LAWS
of
PRIMEX TECHNOLOGIES, INC.
as amended November 3, 1999
___________________
ARTICLE I.
MEETINGS OF SHAREHOLDERS.
SECTION 1. Place of Meetings. All meetings of the shareholders of Primex
-----------------
Technologies, Inc. (hereinafter called the "Corporation") shall be held at such
place, either within or without the Commonwealth of Virginia, as may from time
to time be fixed by the Board of Directors of the Corporation (hereinafter
called the "Board").
SECTION 2. Annual Meetings. The annual meeting of the shareholders of the
---------------
Corporation for the election of directors and for the transaction of such other
business as may properly come before the meeting shall be held on the first
Tuesday in May in each year (or, if that day shall be a legal holiday, then on
the next succeeding business day), or on such other day and/or in such other
month as may be fixed by the Board, at such hour as may be specified in the
notice thereof.
SECTION 3. Annual Meeting Business. To be properly brought before an
-----------------------
annual meeting, business must be (i) specified in the notice of the meeting (or
any supplement thereto) given by or at the direction of the Board, (ii)
otherwise properly brought before the meeting by or at the direction of the
Board or (iii) otherwise properly brought before the meeting by a shareholder.
For business to be properly brought before an annual meeting by a shareholder,
the shareholder must have given written notice thereof, either by personal
delivery or by United States mail, postage prepaid, to the Secretary of the
Corporation, not later than 90 days in advance of such meeting (providing that
if the annual meeting of shareholders is held earlier than the first Tuesday in
May, such notice must be given within 10 days after the first public disclosure,
which may include any public filing with the Securities and Exchange Commission,
of the date of the annual meeting). Any such notice shall set forth as to each
matter the shareholder proposes to bring before the annual meeting (i) a brief
description of the business desired to be brought before the meeting and the
reasons for conducting such business at the meeting and in the event that such
business includes a proposal to amend either the Articles of Incorporation as
from time to time amended ("Articles") then in effect or By-laws of the
Corporation, the language of the proposed amendment, (ii) the name and address
of the shareholder proposing such business, (iii) a representation that the
shareholder is a holder of record of
<PAGE>
stock of the corporation entitled to vote at such meeting and intends to appear
in person or by proxy at the meeting to propose such business, (iv) any material
interest of the shareholder in such business and (v) a representation as to
whether or not the shareholder will solicit proxies in support of his proposal.
No business shall be conducted at an annual meeting of shareholders except in
accordance with this paragraph and the chairman of any annual meeting of
shareholders may refuse to permit any business to be brought before an annual
meeting which fails to comply with the foregoing procedures or, in the case of a
shareholder proposal, if the shareholder fails to comply with the
representations set forth in the notice.
SECTION 4. Special Meetings. A special meeting of the shareholders for
----------------
any purpose or purposes, unless otherwise provided by law or in the Articles,
may be held at any time only upon the call of the Board or the Chairman of the
Board.
SECTION 5. Notice of Meetings. Except as otherwise provided by law or the
------------------
Articles, not less than ten nor more than sixty days' notice in writing of the
place, day, hour and purpose or purposes of each meeting of the shareholders,
whether annual or special, shall be given to each shareholder of record of the
Corporation entitled to vote at such meeting, either by the delivery thereof to
such shareholder personally or by the mailing thereof to such shareholder in a
postage prepaid envelope addressed to such shareholder at his address as it
appears on the stock transfer books of the Corporation. Notice of any meeting of
shareholders shall not be required to be given to any shareholder who shall
attend the meeting in person or by proxy, unless attendance is for the express
purpose of objecting to the transaction of any business because the meeting was
not lawfully called or convened, or who shall waive notice thereof in writing
signed by the shareholder before, at or after such meeting. Notice of any
adjourned meeting need not be given, except when expressly required by law.
SECTION 6. Quorum. Shares representing a majority of the votes entitled
------
to be cast on a matter by each voting group entitled to vote thereon,
represented in person or by proxy at any meeting of the shareholders, shall
constitute a quorum of that voting group for the transaction of business thereat
with respect to such matter, unless otherwise provided by law or the Articles.
In the absence of a quorum at any such meeting or any adjournment or
adjournments thereof, shares representing a majority of the votes cast on the
matter of adjournment, either in person or by proxy, may adjourn such meeting
from time to time until a quorum is obtained. At any such adjourned meeting at
which a quorum has been obtained, any business may be transacted which might
have been transacted at the meeting as originally called.
SECTION 7. Voting. Unless otherwise provided by law or the Articles, at
------
each meeting of the shareholders each shareholder entitled to vote at such
meeting shall be entitled to one vote for each share of stock standing in his
name on the books of the Corporation upon any date fixed as hereinafter
provided, and may vote either in person or by proxy in writing. Unless demanded
by a shareholder present in person or represented by proxy at any meeting of the
shareholders and entitled to vote thereon or so directed by the chairman of the
meeting, the vote on any matter need not be by ballot. On a vote by
-2-
<PAGE>
ballot, each ballot shall be signed by the shareholder voting or his proxy, and
it shall show the number of shares voted.
SECTION 8. Judges. One or more judges or inspectors of election for any
------
meeting of shareholders may be appointed by the chairman of such meeting, for
the purpose of receiving and taking charge of proxies and ballots and deciding
all questions as to the qualification of voters, the validity of proxies and
ballots and the number of votes properly cast.
SECTION 9. Conduct of Meeting. The chairman of the meeting at each
------------------
meeting of shareholders shall have all the powers and authority vested in
presiding officers by law or practice, without restriction, as well as the
authority to conduct an orderly meeting and to impose reasonable limits on the
amount of time taken up in remarks by any one shareholder.
ARTICLE II.
BOARD OF DIRECTORS.
SECTION 1. Number, Classification, Term, Election. The property, business
--------------------------------------
and affairs of the Corporation shall be managed under the direction of the Board
as from time to time constituted. The Board shall consist of eight directors,
but the number of directors may be increased or decreased by amendment of this
Section 1 of Article II of these By-laws, provided that any increase or decrease
by more than thirty percent of the number of directors of all classes
immediately following the most recent election of directors by the shareholders
may only be effected by the shareholders. No director need be a shareholder.
The Board shall be divided into three classes, Class I, Class II and Class III,
as nearly equal in number as possible, with the members of each class to serve
for the respective terms of office provided in the Articles, and until their
respective successors shall have been duly elected or until death or resignation
or until removal in the manner hereinafter provided. In case the number of
directors shall be increased, the additional directors to fill the vacancies
caused by such increase shall be elected in accordance with the provisions of
Section 4 of Article V of these By-laws. Any increase or decrease in the number
of directors shall be so apportioned among the classes by the Board as to make
all classes as nearly equal in number as possible.
Subject to the rights of holders of any Preferred Stock outstanding,
nominations for the election of directors may be made by the Board or a
committee appointed by the Board or by any shareholder entitled to vote in the
election of directors generally. However, any shareholder entitled to vote in
the election of directors generally may nominate one or more persons for
election as directors at a meeting only if it is a meeting of shareholders for
the purposes of electing directors and written notice of such shareholder's
intent to make such nomination or nominations has been given, either by personal
delivery or by United States mail, postage prepaid, to the Secretary of the
Corporation not later than (i) with respect to an election to be held at an
annual meeting of shareholders, 90 days in advance of such meeting and (ii) with
respect to an election to be
-3-
<PAGE>
held at a special meeting of shareholders for the election of directors, the
close of business on the seventh day following the date on which notice of such
meeting is first given to shareholders. Each such notice shall set forth: (a)
the name and address of the shareholder who intends to make the nomination and
of the person or persons to be nominated; (b) a representation that the
shareholder is a holder of record of shares of the Corporation entitled to vote
at such meeting and intends to appear in person or by proxy at the meeting to
nominate the person or persons specified in the notice; (c) a description of all
arrangements or understandings between the shareholder and each nominee and any
other person or persons (naming such person or persons) pursuant to which the
nomination or nominations are to be made by the shareholder; (d) a
representation as to whether the shareholder intends to solicit by proxy other
shareholders in support of any nominee, (e) such other information regarding
each nominee proposed by such shareholder as would be required to be included in
a proxy statement filed pursuant to the proxy rules of the Securities and
Exchange Commission; and (f) the consent of each nominee to serve as a director
of the Corporation if so elected.
SECTION 2. Compensation. Each director, in consideration of his serving
------------
as such, shall be entitled to receive from the Corporation such amount per annum
or such fees for attendance at Board and Committee meetings, or both, in cash or
other property, including securities of the Corporation, as the Board shall from
time to time determine, together with reimbursements for the reasonable expenses
incurred by him in connection with the performance of his duties. Nothing
contained herein shall preclude any director from serving the Corporation, or
any subsidiary or affiliated corporation, in any other capacity and receiving
proper compensation therefor. If the Board adopts a resolution to that effect,
any director may elect to defer all or any part of the annual and other fees
hereinabove referred to for such period and on such terms and conditions as
shall be permitted by such resolution.
SECTION 3. Place of Meetings. The Board may hold its meetings at such
-----------------
place or places within or without the Commonwealth of Virginia as it may from
time to time by resolution determine or as shall be specified or fixed in the
respective notices or waivers of notice thereof.
SECTION 4. Organization Meeting. After each annual election of directors,
--------------------
as soon as conveniently may be, the newly constituted Board shall meet for the
purposes of organization. At such organization meeting, the newly constituted
Board shall elect officers of the Corporation and transact such other business
as shall come before the meeting. Notice of organization meetings of the Board
need not be given. Any organization meeting may be held at any other time or
place which shall be specified in a notice given as hereinafter provided for
special meetings of the Board, or in a waiver of notice thereof signed by all
the directors.
SECTION 5. Regular Meetings. Regular meetings of the Board may be held at
----------------
such time and place as may from time to time be specified in a resolution
adopted by the Board then in effect; and, unless otherwise required by such
resolution, or by law, notice of any such regular meeting need not be given.
-4-
<PAGE>
SECTION 6. Special Meetings. Special meetings of the Board shall be held
----------------
whenever called by the Chairman of the Board or Chief Executive Officer, or by
the Secretary at the request of any three directors. Notice of a special meeting
shall be mailed to each director, addressed to him at his residence or usual
place of business, not later than the second day before the day on which such
meeting is to be held, or shall be sent addressed to him at such place by
facsimile transmission or e-mail, or be delivered personally or by telephone,
not later than the day before the day on which such meeting is to be held.
Neither the business to be transacted at, nor the purpose of, any regular or
special meeting of the Board need be specified in the notice of such meeting,
unless required by the Articles.
SECTION 7. Quorum. At each meeting of the Board the presence of a
------
majority of the number of directors fixed by these By-laws shall be necessary to
constitute a quorum. The act of a majority of the directors present at a
meeting at which a quorum shall be present shall be the act of the Board, except
as may be otherwise provided by law or by these By-laws. Any meeting of the
Board may be adjourned by a majority vote of the directors present at such
meeting. Notice of any adjourned meeting need not be given.
SECTION 8. Waivers of Notice of Meetings. Anything in these By-laws or in
-----------------------------
any resolution adopted by the Board to the contrary notwithstanding, notice of
any meeting of the Board need not be given to any director if such notice shall
be waived in writing signed by such director before, at or after the meeting, or
if such director shall be present at the meeting. Any meeting of the Board shall
be a legal meeting without any notice having been given or regardless of the
giving of any notice or the adoption of any resolution in reference thereto, if
every member of the Board shall be present thereat. Except as otherwise
provided by law or these By-laws, waivers of notice of any meeting of the Board
need not contain any statement of the purpose of the meeting.
SECTION 9. Telephone Meetings. Members of the Board or any committee may
------------------
participate in a meeting of the Board or such committee by means of a conference
telephone or other means of communications whereby all directors participating
may simultaneously hear each other during the meeting, and participation by such
means shall constitute presence in person at such meeting.
SECTION 10. Actions Without Meetings. Any action that may be taken at a
------------------------
meeting of the Board or of a committee may be taken without a meeting if a
consent in writing, setting forth the action, shall be signed, either before or
after such action, by all of the directors or all of the members of the
committee, as the case may be. Such consent shall have the same force and
effect as a unanimous vote.
ARTICLE III.
COMMITTEES.
SECTION 1. Executive and Finance Committee. The Board may, by resolution
-------------------------------
or resolutions adopted by a majority of the number of directors fixed by these
By-laws,
-5-
<PAGE>
appoint two or more directors to constitute an Executive and Finance Committee,
each member of which shall serve as such during the pleasure of the Board, and
may designate for such Committee a Chairman, who shall continue as such during
the pleasure of the Board.
All completed action by the Executive and Finance Committee shall be
reported to the Board at its meeting next succeeding such action or at its
meeting held in the month following the taking of such action, and shall be
subject to revision or alteration by the Board; provided, that no acts or rights
of third parties shall be affected by any such revision or alteration.
The Executive and Finance Committee shall fix its own rules of procedure
and shall meet where and as provided by such rules or by resolution of the
Board. At all meetings of the Executive and Finance Committee, a majority of
the full number of members of such Committee shall constitute a quorum, and in
every case the affirmative vote of a majority of members present at any meeting
of the Executive and Finance Committee at which a quorum is present shall be
necessary for the adoption of any resolution.
During the intervals between the meetings of the Board, the Executive and
Finance Committee shall possess and may exercise all the power and authority of
the Board (including, without limitation, all the power and authority of the
Board in the management, control and direction of the financial affairs of the
Corporation) except with respect to those matters reserved to the Board by
Virginia law, in such manner as the Executive and Finance Committee shall deem
best for the interests of the Corporation, in all cases in which specific
directions shall not have been given by the Board.
SECTION 2. Other Committees. To the extent permitted by law, the Board
----------------
may from time to time by resolution adopted by a majority of the number of
directors fixed by these By-laws create such other committees of directors,
officers, employees or other persons designated by it as the Board shall deem
advisable and with such limited authority, functions and duties as the Board
shall by resolution prescribe. The Board shall have the power to change the
members of any such committee at any time, to fill vacancies, and to discharge
any such committee, either with or without cause, at any time.
ARTICLE IV.
OFFICERS.
SECTION 1. Number, Term, Election. The officers of the Corporation shall
----------------------
be a Chief Executive Officer, a Chairman of the Board, a President, one or more
Vice Presidents, a Treasurer and a Secretary. The Board may appoint such other
officers and such assistant officers and agents with such powers and duties as
the Board may find necessary or convenient to carry on the business of the
Corporation. Such officers and assistant officers shall serve until their
successors shall be chosen, or as otherwise provided in these By-laws. Any two
or more offices may be held by the same person.
-6-
<PAGE>
SECTION 2. Chief Executive Officer. The Chief Executive Officer shall,
-----------------------
subject to the control of the Board and the Executive and Finance Committee,
have full authority and responsibility for directing the conduct of the
business, affairs and operations of the Corporation. In addition to acting as
Chief Executive Officer of the Corporation, he shall perform such other duties
and exercise such other powers as may from time to time be prescribed by the
Board and shall see that all orders and resolutions of the Board and the
Executive and Finance Committee are carried into effect. In the event of the
inability of the Chief Executive Officer to act, the Board will designate an
officer of the Corporation to perform the duties of that office.
SECTION 3. Chairman of the Board. The Chairman of the Board shall preside
---------------------
at all meetings of the Board and of the shareholders and, in the absence of the
Chairman of the Executive and Finance Committee, at all meetings of the
Executive and Finance Committee. He shall perform such other duties and
exercise such other powers as may from time to time be prescribed by the Board
or, if he shall not be the Chief Executive Officer, by the Chief Executive
Officer.
SECTION 4. President. The President shall have such powers and perform
----------
such duties as may from time to time be prescribed by the Board or, if he shall
not be the Chief Executive Officer, by the Chief Executive Officer.
SECTION 5. Vice Presidents. Each Vice President shall have such powers
---------------
and perform such duties as may from time to time be prescribed by the Board, the
Chief Executive Officer or any officer to whom the Chief Executive Officer may
have delegated such authority. One Vice President shall be the principal
accounting officer of the Corporation with responsibility for keeping full and
accurate accounts of all assets, liabilities, receipts and disbursements and
other transactions of the Corporation and shall cause regular audits of the
books and records of the Corporation to be made. To such extent as the Board
shall deem proper, the duties of any Vice President may be performed by one or
more assistants, to be appointed by the Board.
SECTION 6. Treasurer. The Treasurer shall have the general care and
---------
custody of the funds and securities of the Corporation. He shall perform such
other duties and exercise such other powers as may from time to time be
prescribed by the Board, the Chief Executive Officer or any officer to whom the
Chief Executive Officer may have delegated such authority. To such extent as
the Board shall deem proper, the duties of the Treasurer may be performed by one
or more assistants, to be appointed by the Board.
SECTION 7. Secretary. The Secretary shall keep the minutes of meetings of
---------
shareholders, of the Board, and, when requested, of Committees of the Board; and
he shall attend to the giving and serving of notices of all meetings thereof.
He shall keep or cause to be kept such stock and other books, showing the names
of the shareholders of the Corporation, and all other particulars regarding
them, as may be required by law. He shall also perform such other duties and
exercise such other powers as may from time to time be prescribed by the Board,
the Chief Executive Officer or any officer to whom the Chief Executive Officer
may have delegated such authority. To such extent as the Board
-7-
<PAGE>
shall deem proper, the duties of the Secretary may be performed by one or more
assistants, to be appointed by the Board.
ARTICLE V.
REMOVALS, RESIGNATIONS AND VACANCIES.
SECTION 1. Removal of Directors. Any director may be removed at any time
--------------------
but only with cause, by the affirmative vote of the holders of record of a
majority of the shares of the Corporation entitled to vote on the election of
directors, given at a special meeting of the shareholders called expressly for
the purpose.
SECTION 2. Removal of Officers. Any officer, assistant officer or agent
-------------------
of the Corporation may be removed at any time, either with or without cause, by
the Board in its absolute discretion. Any such removal shall be without
prejudice to the recovery of damages for breach of the contract rights, if any,
of the officer, assistant officer or agent removed. Election or appointment of
an officer, assistant officer or agent shall not of itself create contract
rights.
SECTION 3. Resignation. Any director, officer or assistant officer of the
-----------
Corporation may resign as such at any time by giving written notice of his
resignation to the Board, the Chief Executive Officer or the Secretary of the
Corporation. Such resignation shall take effect at the time specified therein
or, if no time is specified therein, at the time of delivery thereof, and,
unless otherwise specified therein, the acceptance of such resignation shall not
be necessary to make it effective.
SECTION 4. Vacancies. Any vacancy in the Board caused by death,
---------
resignation, disqualification, removal, an increase in the number of directors,
or any other cause, may be filled by the affirmative vote of a majority of the
remaining directors though less than a quorum of the Board at any regular or
special meeting thereof. Each director so elected by the Board shall hold
office until the next annual election of directors and until his successor shall
be elected, or until his death, or until he shall resign, or until he shall have
been removed in the manner hereinabove provided. Any vacancy in the office of
any officer or assistant officer caused by death, resignation, removal or any
other cause, may be filled by the Board for the unexpired portion of the term.
ARTICLE VI.
CONTRACTS, LOANS, CHECKS, DRAFTS, DEPOSITS, ETC.
SECTION 1. Execution of Contracts. Except as otherwise provided by law or
----------------------
by these By-laws, the Board (i) may authorize any officer, employee or agent of
the Corporation to execute and deliver any contract, agreement or other
instrument in writing in the name and on behalf of the Corporation, and (ii) may
authorize any officer, employee or agent of the Corporation so authorized by the
Board to delegate such authority by
-8-
<PAGE>
written instrument to other officers, employees or agents of the Corporation.
Any such authorization by the Board may be general or specific and shall be
subject to such limitations and restrictions as may be imposed by the Board. Any
such delegation of authority by an officer, employee or agent may be general or
specific, may authorize re-delegation, and shall be subject to such limitations
and restrictions as may be imposed in the written instrument of delegation by
the person making such delegation.
SECTION 2. Loans. No loans shall be contracted on behalf of the
-----
Corporation and no negotiable paper shall be issued in its name unless
authorized by the Board. When authorized by the Board, any officer, employee or
agent of the Corporation may effect loans and advances at any time for the
Corporation from any bank, trust company or other institution, or from any firm,
corporation or individual, and for such loans and advances may make, execute and
deliver promissory notes, bonds or other certificates or evidences of
indebtedness of the Corporation and when so authorized may pledge, hypothecate
or transfer any securities or other property of the Corporation as security for
any such loans or advances. Such authority may be general or confined to
specific instances.
SECTION 3. Checks, Drafts, etc. All checks, drafts and other orders for
-------------------
the payment of money out of the funds of the Corporation and all notes or other
evidences of indebtedness of the Corporation shall be signed on behalf of the
Corporation in such manner as shall from time to time be determined by the
Board.
SECTION 4. Deposits. All funds of the Corporation not otherwise employed
--------
shall be deposited from time to time to the credit of the Corporation in such
banks, trust companies or other depositories as the Board may select or as may
be selected by the Treasurer or any other officer, employee or agent of the
Corporation to whom such power may from time to time be delegated by the Board.
SECTION 5. Voting of Securities. Unless otherwise provided by the Board,
--------------------
the Chief Executive Officer may from time to time appoint an attorney or
attorneys, or agent or agents of the Corporation, in the name and on behalf of
the Corporation, to cast the votes which the Corporation may be entitled to cast
as the holder of stock or other securities in any other corporation, any of
whose stock or other securities may be held by the Corporation, at meetings of
the holders of the stock or other securities of such other corporation, or to
consent in writing, in the name of the Corporation as such holder, to any action
by such other corporation, and may instruct the person or persons so appointed
as to the manner of casting such votes or giving such consent, or the Chief
Executive Officer may directly cast such votes or execute such consents, and may
execute or cause to be executed in the name and on behalf of the Corporation and
under its corporate seal, or otherwise, all such written proxies or other
instruments as such officer may deem necessary or proper in the premises.
-9-
<PAGE>
ARTICLE VII.
CAPITAL STOCK.
SECTION 1. Certificates. Every shareholder shall be entitled to a
------------
certificate, or certificates, in such form as shall be approved by the Board,
signed by the Chairman of the Board, the Vice Chairman, the Chief Executive
Officer or a Vice President and the Secretary or an Assistant Secretary or the
Treasurer or an Assistant Treasurer or any other officer authorized by these By-
laws or a resolution of the Board, certifying the number of shares owned by him
in the Corporation. Any such certificate may, but need not, bear the seal of
the Corporation or a facsimile thereof. If any such certificate is
countersigned by a transfer agent or registered by a registrar other than the
Corporation or an employee of the Corporation, the signatures of any of the
officers above specified upon such certificate may be facsimiles. In case any
such officer who shall have signed or whose facsimile signature shall have been
placed upon such certificate shall have ceased to be such before such
certificate is issued, it may be issued by the Corporation with the same effect
as if such officer had not ceased to be such at the date of its issue.
SECTION 2. Transfers. Shares of stock of the Corporation shall be
---------
transferable on the stock books of the Corporation by the holder in person or by
his attorney thereunto authorized by power of attorney duly executed and filed
with the Secretary or the transfer agent, but, except as hereinafter provided in
the case of loss, destruction or mutilation of certificates, no transfer of
stock shall be entered until the previous certificate, if any, given for the
same shall have been surrendered and canceled. Except as otherwise provided by
law, no transfer of shares shall be valid as against the Corporation, its
shareholders or creditors, for any purpose, until it shall have been entered in
the stock records of the Corporation by an entry showing from and to whom
transferred. The Board may also make such additional rules and regulations as
it may deem expedient concerning the issue and transfer of certificates
representing shares of the capital stock of the Corporation.
SECTION 3. Record Date. For the purpose of determining shareholders
-----------
entitled to notice of or to vote at any meeting of shareholders or any
adjournment thereof, or entitled to receive payment of any dividend, or in order
to make a determination of shareholders for any other proper purpose, the Board
may fix in advance a date as the record date for any such determination of
shareholders, such date in any case to be not more than seventy days prior to
the date on which the particular action, requiring such determination of
shareholders, is to be taken. When a determination of shareholders entitled to
vote at any meeting of shareholders has been made as provided in this section,
such determination shall apply to any adjournment thereof unless the Board fixes
a new record date, which it shall do if the meeting is adjourned to a date more
than 120 days after the date fixed for the original meeting.
SECTION 4. Lost, Destroyed or Mutilated Certificates. In case of loss,
-----------------------------------------
destruction or mutilation of any certificate of stock, another may be issued in
its place upon proof of such loss, destruction or mutilation and upon the giving
of a bond of indemnity to the Corporation in such form and in such sum as the
Board may direct;
-10-
<PAGE>
provided that a new certificate may be issued without requiring any bond when,
in the judgment of the Board, it is proper so to do.
SECTION 5. Control Share Acquisitions. Article 14.1 of Chapter 9 of Title
--------------------------
13.1 of the Code of Virginia shall not apply to acquisitions of shares of the
Corporation.
ARTICLE VIII.
INSPECTION OF RECORDS.
The Board from time to time shall determine whether, to what extent, at
what times and places, and under what conditions and regulations the accounts
and books and papers of the Corporation, or any of them, shall be open for the
inspection of the shareholders, and no shareholder shall have any right to
inspect any account or book or paper of the Corporation except as expressly
conferred by statute or by these By-laws or authorized by the Board.
ARTICLE IX.
AUDITOR.
The Board shall annually appoint an independent accountant who shall
carefully examine the books of the Corporation. One such examination shall be
made immediately after the close of the fiscal year and be ready for
presentation at the annual meeting of shareholders of the Corporation, and such
other examinations shall be made as the Board may direct.
ARTICLE X.
SEAL.
The seal of the Corporation shall be circular in form and shall bear the
name of the Corporation and the year "1996."
ARTICLE XI.
FISCAL YEAR.
The fiscal year of the Corporation shall end on the 31st day of December in
each year.
-11-
<PAGE>
ARTICLE XII.
AMENDMENTS.
The By-laws of the Corporation may be altered, amended or repealed and new
By-laws may be adopted by the Board (except as Section 1 of Article II may
otherwise require), or by the holders of the outstanding shares of the
Corporation entitled to vote generally at any annual or special meeting of the
shareholders when notice thereof shall have been given in the notice of the
meeting of shareholders; provided however, that, notwithstanding any other
provisions of these By-laws, the Articles, or applicable law, the affirmative
vote of at least 80 percent of the outstanding shares of the Corporation
entitled to vote generally at any annual or special meeting of the shareholders
shall be required for the holders of such outstanding shares to alter, amend or
repeal Article I Section 4 or Article II Section 1 of these By-laws or this
proviso to this Article XII of these By-laws.
-12-
<PAGE>
EMERGENCY BY-LAWS.
SECTION 1. Definitions. As used in these Emergency By-laws,
-----------
(a) the term "period of emergency" shall mean any period during which a
quorum of the Board cannot readily be assembled because of some catastrophic
event.
(b) the term "incapacitated" shall mean that the individual to whom such
term is applied shall not have been determined to be dead but shall be missing
or unable to discharge the responsibilities of his office; and
(c) the term "senior officer" shall mean the Chairman of the Board, the
President, the Chief Executive Officer, any Vice President, the Treasurer and
the Secretary, and any other person who may have been so designated by the Board
before the beginning of the period of emergency.
SECTION 2. Applicability. These Emergency By-laws, as from time to time
-------------
amended, shall be operative only during any period of emergency. To the extent
not inconsistent with these Emergency By-laws, all provisions of the regular By-
laws of the Corporation shall remain in effect during any period of emergency.
No officer, director or employee shall be liable for actions taken in good
faith in accordance with these Emergency By-laws.
SECTION 3. Board of Directors. (a) A meeting of the Board may be called
------------------
by any director or senior officer of the Corporation. Notice of any meeting of
the Board need be given only to such of the directors as it may be feasible to
reach at the time and by such means as may be feasible at the time, including
publication or radio, and at a time less than twenty-four hours before the
meeting if deemed necessary by the person giving notice.
(b) At any meeting of the Board, three directors in attendance shall
constitute a quorum. Any act of a majority of the directors present at a
meeting at which a quorum shall be present shall be the act of the Board. If
fewer than three directors shall be present at a meeting of the Board, any
senior officer of the Corporation in attendance at such meeting shall serve as a
director for such meeting, selected in order of rank and within the same rank in
order of seniority.
(c) In addition to the Board's powers under the regular By-laws of the
Corporation to fill vacancies on the Board, the Board may elect any individual
as a director to replace any director who may be incapacitated and to serve
until the latter ceases to be incapacitated or until the termination of the
period of emergency, whichever first occurs. In considering officers of the
Corporation for election to the Board, the rank and seniority of individual
officers shall not be pertinent.
-13-
<PAGE>
(d) The Board, during as well as before any such period of emergency, may
change the principal office or designate several alternative offices or
authorize the officers to do so.
SECTION 4. Appointment of Officers. In addition to the Board's powers
-----------------------
under the regular By-laws of the Corporation with respect to the election of
officers, the Board may elect any individual as an officer to replace any
officer who may be incapacitated and to serve until the latter ceases to be
incapacitated.
SECTION 5. Amendments. These Emergency By-laws shall be subject to repeal
----------
or change by further action of the Board of Directors or by action of the
shareholders, except that no such repeal or change shall modify the provisions
of the second paragraph of Section 2 with regard to action or inaction prior to
the time of such repeal or change. Any such amendment of these Emergency By-
laws may make any further or different provision that may be practical and
necessary for the circumstances of the emergency.
-14-
<PAGE>
CERTIFICATE
I, George H. Pain, hereby certify that I am Secretary of Primex
Technologies, Inc., a Virginia corporation, and that the foregoing is a true,
correct and complete copy of the By-laws of said Corporation as in force and
effect on the date hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed the seal of
Primex Technologies, Inc. as of the 15/th/ day of December, 1999.
__________________________
Secretary
(SEAL)
-15-
<PAGE>
Exhibit 4.3
RIGHTS AGREEMENT dated as of February 1, 2000, between
PRIMEX TECHNOLOGIES, INC., a Virginia corporation (the
"Company"), and THE BANK OF NEW YORK, a New York trust
company, as Rights Agent (the "Rights Agent").
The Board of Directors of the Company has authorized and declared a
dividend of one Right (as hereinafter defined) for each share of Common Stock,
par value $1 per share, of the Company (the "Common Stock") outstanding at the
Close of Business (as hereinafter defined) on December 31, 1996 (the "Record
Date"), and has authorized the issuance of one Right (as such number may
hereafter be adjusted pursuant to the provisions of this Rights Agreement) with
respect to each share of Common Stock that shall become outstanding between the
Record Date and the earliest of the Distribution Date, the Redemption Date or
the Expiration Date (as such terms are hereinafter defined); provided, however,
-------- -------
that Rights may be issued with respect to shares of Common Stock that shall
become outstanding after the Distribution Date and prior to the earlier of the
Redemption Date or the Expiration Date in accordance with the provisions of
Section 23. Each Right shall initially represent the right to purchase one two-
thousandth (1/2000) of a share of Series A Participating Cumulative Preferred
Stock, par value $1 per share, of the Company (the "Preferred Shares"), having
the powers, rights and preferences set forth in the Amended and Restated
Articles of Incorporation attached as Exhibit 1.
Accordingly, in consideration of the premises and the mutual
agreements herein set forth, the parties hereby agree as follows:
SECTION 1. Certain Definitions. For purposes of this Rights
--------------------
Agreement, the following terms have the meanings indicated:
"Acquiring Person" shall mean any Person who or which, alone or
----------------
together with all Affiliates and Associates of such Person, shall be the
Beneficial Owner of more than 15% of the Common Shares then outstanding but
shall not include (a) the Company, any Subsidiary of the Company, Olin
Corporation (prior to January 15, 1997), any employee benefit plan of the
Company or of any of its Subsidiaries or of Olin Corporation, or any Person
holding Common Shares for or pursuant to the terms of any such employee benefit
plan or (b) any such Person who has become and is such a Beneficial Owner solely
because (i) of a change in the aggregate number of Common Shares outstanding
since the last date on which such Person acquired Beneficial Ownership of any
Common Shares or (ii) it acquired such Beneficial Ownership in the good faith
belief that such acquisition would not (A) cause such Beneficial Ownership to
exceed 15% of the Common Shares then outstanding and such Person relied in good
faith in computing the percentage of its Beneficial Ownership on publicly filed
reports or documents of the Company which are inaccurate or out-of-date or
<PAGE>
(B) otherwise cause a Distribution Date or the adjustment provided for in
Section 11(a) to occur. Notwithstanding clause (b)(ii) of the prior sentence, if
any Person that is not an Acquiring Person due to such clause (b)(ii) does not
reduce its percentage of Beneficial Ownership of Common Shares to 15% or less by
the Close of Business on the fifth Business Day after notice from the Company
(the date of notice being the first day) that such Person's Beneficial Ownership
of Common Shares so exceeds 15%, such Person shall, at the end of such five
Business Day period, become an Acquiring Person (and such clause (b)(ii) shall
no longer apply to such Person). For purposes of this definition, the
determination whether any Person acted in "good faith" shall be conclusively
determined by the Board of Directors of the Company, acting by a vote of those
directors of the Company whose approval would be required to redeem the Rights
under Section 24.
"Affiliate" and "Associate", when used with reference to any Person,
--------- ---------
shall have the respective meanings ascribed to such terms in Rule 12b-2 of the
General Rules and Regulations under the Exchange Act, as in effect on the date
of this Rights Agreement.
A Person shall be deemed the "Beneficial Owner" of, and shall be
----------------
deemed to "beneficially own", and shall be deemed to have "Beneficial Ownership"
---------------- --------------------
of, any securities:
(a) which such Person or any of such Person's Affiliates or Associates
is deemed to "beneficially own" within the meaning of Rule 13d-3 of the
General Rules and Regulations under the Exchange Act, as in effect on the
date of this Rights Agreement;
(b) which such Person or any of such Person's Affiliates or Associates
has (i) the right to acquire (whether such right is exercisable immediately
or only after the passage of time) pursuant to any agreement, arrangement
or understanding (written or oral), or upon the exercise of conversion
rights, exchange rights, rights (other than the Rights), warrants or
options, or otherwise; provided, however, that a Person shall not be deemed
-------- -------
the Beneficial Owner of, or to beneficially own, or to have Beneficial
Ownership of, securities tendered pursuant to a tender or exchange offer
made by or on behalf of such Person or any of such Person's Affiliates or
Associates until such tendered securities are accepted for purchase or
exchange thereunder, or (ii) the right to vote pursuant to any agreement,
arrangement or understanding (written or oral); provided, however, that a
--------- -------
Person shall not be deemed the Beneficial Owner of, or to beneficially own,
any security if (A) the agreement, arrangement or understanding (written or
oral) to vote such security arises solely from a revocable proxy or consent
given to such Person in response to a public proxy or consent solicitation
made pursuant to, and in accordance with, the applicable rules and
regulations under the Exchange Act and (B) the beneficial ownership of such
security is not also then reportable on Schedule 13D under the Exchange Act
(or any comparable or successor report); or
<PAGE>
(c) which are beneficially owned, directly or indirectly, by any other
Person with which such Person or any of such Person's Affiliates or
Associates has any agreement, arrangement or understanding (written or
oral) for the purpose of acquiring, holding, voting (except pursuant to a
revocable proxy as described in clause (b)(ii) of this definition) or
disposing of any securities of the Company.
Notwithstanding the foregoing, nothing contained in this definition shall cause
a Person ordinarily engaged in business as an underwriter of securities to be
the "Beneficial Owner" of, or to "beneficially own", any securities acquired in
a bona fide firm commitment underwriting pursuant to an underwriting agreement
with the Company.
"Articles of Amendment" shall mean the Articles of Amendment of the
---------------------
Articles of Incorporation of the Company designating and establishing the Series
A Participating Cumulative Preferred Stock and setting forth the preferences,
limitations and relative rights of such series of Preferred Stock of the
Company, a copy of which is attached as Exhibit 1.
"Book Value", when used with reference to Common Shares issued by any
----------
Person, shall mean the amount of equity of such Person applicable to each Common
Share, determined (a) in accordance with generally accepted accounting
principles in effect on the date as of which such Book Value is to be
determined, (b) using all the consolidated assets and all the consolidated
liabilities of such Person on the date as of which such Book Value is to be
determined, except that no value shall be included in such assets for goodwill
arising from consummation of a business combination, and (c) after giving effect
to (i) the exercise of all rights, options and warrants to purchase such Common
Shares (other than the Rights), and the conversion of all securities convertible
into such Common Shares, at an exercise or conversion price, per Common Share,
which is less than such Book Value before giving effect to such exercise or
conversion (whether or not exercisability or convertibility is conditioned upon
occurrence of a future event), (ii) all dividends and other distributions on the
capital stock of such Person declared prior to the date as of which such Book
Value is to be determined and to be paid or made after such date, and (iii) any
other agreement, arrangement or understanding (written or oral), or transaction
or other action prior to the date as of which such Book Value is to be
determined which would have the effect of thereafter reducing such Book Value.
"Business Combination" shall have the meaning set forth in Section
--------------------
11(c)(i).
"Business Day" shall mean each Monday, Tuesday, Wednesday, Thursday
------------
and Friday which is not a day on which banking institutions in the Borough of
Manhattan, the City of New York, are authorized or obligated by law or executive
order to close.
"Close of Business" on any given date shall mean 5:00 p.m., New York
-----------------
City time, on such date; provided, however, that, if such date is not a Business
-------- --------
Day, "Close of
<PAGE>
Business" shall mean 5:00 p.m., New York City time, on the next succeeding
Business Day.
"Common Shares", when used with reference to the Company prior to a
-------------
Business Combination, shall mean the shares of Common Stock of the Company or
any other shares of capital stock of the Company into which the Common Stock
shall be reclassified or changed. "Common Shares", when used with reference to
any Person (other than the Company prior to a Business Combination), shall mean
shares of capital stock of such Person (if such Person is a corporation) of any
class or series, or units of equity interests in such Person (if such Person is
not a corporation) of any class or series, the terms of which do not limit (as a
maximum amount and not merely in proportional terms) the amount of dividends or
income payable or distributable on such class or series or the amount of assets
distributable on such class or series upon any voluntary or involuntary
liquidation, dissolution or winding up of such Person and do not provide that
such class or series is subject to redemption at the option of such Person, or
any shares of capital stock or units of equity interests into which the
foregoing shall be reclassified or changed; provided, however, that, if at any
-------- -------
time there shall be more than one such class or series of capital stock or
equity interests of such Person, "Common Shares" of such Person shall include
all such classes and series substantially in the proportion of the total number
of shares or other units of each such class or series outstanding at such time.
"Common Stock" shall have the meaning set forth in the introductory
------------
paragraph of this Rights Agreement.
"Company" shall have the meaning set forth in the heading of this
-------
Rights Agreement; provided, however, that if there is a Business Combination,
-------- -------
"Company" shall have the meaning set forth in Section 11(c)(iii).
The term "control" with respect to any Person shall mean the power to
-------
direct the management and policies of such Person, directly or indirectly, by or
through stock ownership, agency or otherwise, or pursuant to or in connection
with an agreement, arrangement or understanding (written or oral) with one or
more other Persons by or through stock ownership, agency or otherwise; and the
terms "controlling" and "controlled" shall have meanings correlative to the
foregoing.
"Distribution Date" shall have the meaning set forth in Section 3(b).
-----------------
"Exchange Act" shall mean the Securities Exchange Act of 1934, as in
------------
effect on the date in question, unless otherwise specifically provided.
"Exchange Consideration" shall have the meaning set forth in Section
----------------------
11(b)(i).
"Expiration Date" shall have the meaning set forth in Section 7(a).
---------------
<PAGE>
"Major Part", when used with reference to the assets of the Company
----------
and its Subsidiaries as of any date, shall mean assets (a) having a fair market
value aggregating 50% or more of the total fair market value of all the assets
of the Company and its Subsidiaries (taken as a whole) as of the date in
question, (b) accounting for 50% or more of the total value (net of depreciation
and amortization) of all the assets of the Company and its Subsidiaries (taken
as a whole) as would be shown on a consolidated or combined balance sheet of the
Company and its Subsidiaries as of the date in question, prepared in accordance
with generally accepted accounting principles then in effect, or (c) accounting
for 50% or more of the total amount of earnings before interest, taxes,
depreciation and amortization or of the revenues of the Company and its
Subsidiaries (taken as a whole) as would be shown on, or derived from, a
consolidated or combined statement of income or operations of the Company and
its Subsidiaries for the period of 12 months ending on the last day of the
Company's monthly accounting period next preceding the date in question,
prepared in accordance with generally accepted accounting principles then in
effect.
"Market Value", when used with reference to Common Shares on any date,
------------
shall be deemed to be the average of the daily closing prices, per share, of
such Common Shares for the period which is the shorter of (a) 30 consecutive
Trading Days immediately prior to the date in question or (b) the number of
consecutive Trading Days beginning on the Trading Day immediately after the date
of the first public announcement of the event requiring a determination of the
Market Value and ending on the Trading Day immediately prior to the record date
of such event; provided, however, that, in the event that the Market Value of
-------- -------
such Common Shares is to be determined in whole or in part during a period
following the announcement by the issuer of such Common Shares of any action of
the type described in Section 12(a) that would require an adjustment thereunder,
then, and in each such case, the Market Value of such Common Shares shall be
appropriately adjusted to reflect the effect of such action on the market price
of such Common Shares. The closing price for each Trading Day shall be the
closing price quoted on the principal United States securities exchange
registered under the Exchange Act (or any recognized foreign stock exchange) on
which such securities are listed, or, if such securities are not listed on any
such exchange, the average of the closing bid and asked quotations with respect
to a share of such securities on any National Association of Securities Dealers,
Inc. quotations system, or if no such quotations are available, the average of
the closing bid and asked prices as furnished by a professional market maker
making a market in such securities selected by the Board of Directors of the
Company. If on any such Trading Day no market maker is making a market in such
securities, the closing price of such securities on such Trading Day shall be
deemed to be the fair value of such securities as determined in good faith by
the Board of Directors of the Company (whose determination shall be described in
a statement filed with the Rights Agent and shall be binding on the Rights
Agent, the holders of Rights and all other Persons); provided, however, that for
-------- -------
the purpose of determining the closing price of the Preferred Shares for any
Trading Day on which there is no such market maker for the Preferred Shares the
closing price on such Trading Day shall be deemed to be the Formula Number (as
defined in the Articles of Incorporation) times the closing price of the Common
Shares of the
<PAGE>
Company on such Trading Day.
"Person" shall mean an individual, corporation, partnership, joint
------
venture, association, trust, unincorporated organization or other entity.
"Preferred Shares" shall have the meaning set forth in the
----------------
introductory paragraph of this Rights Agreement. Any reference in this Rights
Agreement to Preferred Shares shall be deemed to include any authorized fraction
of a Preferred Share, unless the context otherwise requires.
"Principal Party" shall mean the Surviving Person in a Business
---------------
Combination; provided, however, that, if such Surviving Person is a direct or
-------- -------
indirect Subsidiary of any other Person, "Principal Party" shall mean the Person
which is the ultimate parent of such Surviving Person and which is not itself a
Subsidiary of another Person. In the event ultimate control of such Surviving
Person is shared by two or more Persons, "Principal Party" shall mean that
Person that is immediately controlled by such two or more Persons.
"Purchase Price" with respect to each Right shall mean $55, as such
--------------
amount may from time to time be adjusted as provided herein. All references
herein to the Purchase Price shall mean the Purchase Price as in effect at the
time in question.
"Record Date" shall have the meaning set forth in the introductory
-----------
paragraph of this Rights Agreement.
"Redemption Date" shall have the meaning set forth in Section 24(a).
---------------
"Redemption Price" with respect to each Right shall mean $.005, as
----------------
such amount may from time to time be adjusted in accordance with Section 12.
All references herein to the Redemption Price shall mean the Redemption Price as
in effect at the time in question.
"Registered Common Shares" shall mean Common Shares which are, as of
------------------------
the date of consummation of a Business Combination, and have continuously been
for the 12 months immediately preceding such date, registered under Section 12
of the Exchange Act.
"Right Certificate" shall mean a certificate evidencing a Right in
-----------------
substantially the form attached as Exhibit 2.
"Rights" shall mean the rights to purchase Preferred Shares (or other
------
securities) as provided in this Rights Agreement.
"Securities Act" shall mean the Securities Act of 1933, as in effect
--------------
on the date in question, unless otherwise specifically provided.
<PAGE>
"Subsidiary" shall mean a Person, at least a majority of the total
----------
outstanding voting power (being the power under ordinary circumstances (and not
merely upon the happening of a contingency) to vote in the election of directors
of such Person (if such Person is a corporation) or to participate in the
management and control of such Person (if such Person is not a corporation)) of
which is owned, directly or indirectly, by another Person or by one or more
other Subsidiaries of such other Person or by such other Person and one or more
other Subsidiaries of such other Person.
"Surviving Person" shall mean (a) the Person which is the continuing
----------------
or surviving Person in a consolidation or merger specified in Section
11(c)(i)(A) or 11(c)(i)(B) or (b) the Person to which the Major Part of the
assets of the Company and its Subsidiaries is sold, leased, exchanged or
otherwise transferred or disposed of in a transaction specified in Section
11(c)(i)(C); provided, however, that, if the Major Part of the assets of the
-------- -------
Company and its Subsidiaries is sold, leased, exchanged or otherwise transferred
or disposed of in one or more related transactions specified in Section
11(c)(i)(C) to more than one Person, the "Surviving Person" in such case shall
mean the Person that acquired assets of the Company and/or its Subsidiaries with
the greatest fair market value in such transaction or transactions.
"Trading Day" shall mean a day on which the principal securities
-----------
trading facility (or principal recognized foreign stock exchange, as the case
may be) on which any securities or Rights, as the case may be, are listed or
admitted to trading is open for the transaction of business or, if the
securities or Rights in question are not listed or admitted to trading on any
national securities exchange (or recognized foreign stock exchange, as the case
may be), a Business Day.
SECTION 2. Appointment of Rights Agent. The Company hereby appoints
----------------------------
the Rights Agent to act as agent for the Company in accordance with the terms
and conditions hereof, and the Rights Agent hereby accepts such appointment.
The Company may from time to time appoint one or more co-Rights Agents as it may
deem necessary or desirable upon notice to the Rights Agent (the term "Rights
Agent" being used herein to refer, collectively, to the Rights Agent together
with any such co-Rights Agents). In the event the Company appoints one or more
co-Rights Agents, the respective duties of the Rights Agent and any co-Rights
Agents shall be as the Company shall determine.
SECTION 3. Issue of Rights and Right Certificates. (a) One Right
---------------------------------------
shall be associated with each Common Share outstanding on the Record Date, each
additional Common Share that shall become outstanding between the Record Date
and the earliest of the Distribution Date, the Redemption Date or the Expiration
Date and each additional Common Share with which Rights are issued after the
Distribution Date but prior to the earlier of the Redemption Date or the
Expiration Date as provided in Section 23; provided, however, that, if the
--------- -------
number of outstanding Rights are combined into a smaller number of outstanding
Rights pursuant to Section 12(a), the appropriate fractional Right determined
pursuant to such
<PAGE>
Section shall thereafter be associated with each such Common Share.
(b) Until the earlier of (i) such time as the Company learns that a
Person has become an Acquiring Person or (ii) the Close of Business on such
date, if any, as may be designated by the Board of Directors of the Company
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, any
Subsidiary of the Company, any employee benefit plan of the Company or of any of
its Subsidiaries, or any Person holding Common Shares for or pursuant to the
terms of any such employee benefit plan) for outstanding Common Shares, if upon
consummation of such tender or exchange offer such Person could be the
Beneficial Owner of more than 15% of the outstanding Common Shares (the Close of
Business on the earlier of such dates being the "Distribution Date"), (x) the
Rights will be evidenced by the certificates for Common Shares registered in the
names of the holders thereof and not by separate Right Certificates and (y) the
Rights, including the right to receive Right Certificates, will be transferable
only in connection with the transfer of Common Shares. As soon as practicable
after the Distribution Date, the Rights Agent will send, by first-class,
postage-prepaid mail, to each record holder of Common Shares as of the
Distribution Date, at the address of such holder shown on the records of the
Company, a Right Certificate evidencing one whole Right for each Common Share
(or for the number of Common Shares with which one whole Right is then
associated if the number of Rights per Common Share held by such record holder
has been adjusted in accordance with the proviso in Section 3(a)). If the
number of Rights associated with each Common Share has been adjusted in
accordance with the proviso in Section 3(a), at the time of distribution of the
Right Certificates the Company may make any necessary and appropriate rounding
adjustments so that Right Certificates representing only whole numbers of Rights
are distributed and cash is paid in lieu of any fractional Right in accordance
with Section 15(a). As of and after the Distribution Date, the Rights will be
evidenced solely by such Right Certificates.
(c) With respect to any certificate for Common Shares, until the
earliest of the Distribution Date, the Redemption Date or the Expiration Date,
the Rights associated with the Common Shares represented by any such certificate
shall be evidenced by such certificate alone, the registered holders of the
Common Shares shall also be the registered holders of the associated Rights and
the surrender for transfer of any such certificate shall also constitute the
transfer of the Rights associated with the Common Shares represented thereby.
<PAGE>
(d) Certificates issued for Common Shares after the Record Date
(including, without limitation, upon transfer or exchange of outstanding Common
Shares), but prior to the earliest of the Distribution Date, the Redemption Date
or the Expiration Date, shall have printed on, written on or otherwise affixed
to them the following legend:
This certificate also evidences and entitles the holder hereof to
certain Rights as set forth in a Rights Agreement dated as of February 1,
2000, as it may be amended from time to time (the "Rights Agreement"),
between Primex Technologies, Inc. (the "Company") and The Bank of New York,
as Rights Agent (the "Rights Agent"), the terms of which are hereby
incorporated herein by reference and a copy of which is on file at the
principal executive offices of the Company. Under certain circumstances,
as set forth in the Rights Agreement, such Rights will be evidenced by
separate certificates and will no longer be evidenced by this certificate.
The Rights Agent will mail to the holder of this certificate a copy of the
Rights Agreement without charge after receipt of a written request
therefor. Rights beneficially owned by Acquiring Persons or their
Affiliates or Associates (as such terms are defined in the Rights
Agreement) and by any subsequent holder of such Rights are null and void
and nontransferable.
Notwithstanding this paragraph (d), the omission of a legend shall not
affect the enforceability of any part of this Rights Agreement or the rights of
any holder of Rights.
SECTION 4. Form of Right Certificates. The Right Certificates (and
---------------------------
the form of election to purchase and form of assignment to be printed on the
reverse side thereof) shall be in substantially the form set forth as Exhibit 2
and may have such marks of identification or designation and such legends,
summaries or endorsements printed thereon as the Company may deem appropriate
and as are not inconsistent with the provisions of this Rights Agreement, or as
may be required to comply with any applicable law or with any rule or regulation
made pursuant thereto or with any rule or regulation of any stock exchange on
which the Rights may from time to time be listed, or to conform to usage.
Subject to the provisions of Sections 7, 11 and 23, the Right Certificates,
whenever issued, shall be dated as of the Distribution Date, and on their face
shall entitle the holders thereof to purchase such number of Preferred Shares as
shall be set forth therein for the Purchase Price set forth therein, subject to
adjustment from time to time as herein provided.
SECTION 5. Execution, Countersignature and Registration. (a) The
---------------------------------------------
Right Certificates shall be executed on behalf of the Company by the Chairman of
the Board, the Chief Executive Officer, the President, the Chief Operating
Officer, the Treasurer or a Vice President (whether preceded by any additional
title) of the Company, either manually or by facsimile signature, and have
affixed thereto the Company's seal or a facsimile thereof which shall be
attested by the Secretary, an Assistant Secretary or a Vice President (whether
preceded by any additional title, provided that such Vice President shall not
have also executed the Right Certificates) of the Company, either manually or by
facsimile signature.
<PAGE>
The Right Certificates shall be manually countersigned by the Rights Agent and
shall not be valid or obligatory for any purpose unless so countersigned. In
case any officer of the Company who shall have signed any of the Right
Certificates shall cease to be such an officer of the Company before
countersignature by the Rights Agent and issuance and delivery by the Company,
such Right Certificates may nevertheless be countersigned by the Rights Agent
and issued and delivered by the Company with the same force and effect as though
the person who signed such Right Certificates had not ceased to be such an
officer of the Company; and any Right Certificate may be signed on behalf of the
Company by any person who, at the actual date of execution of such Right
Certificate, shall be a proper officer of the Company to sign such Right
Certificate, although at the date of execution of this Rights Agreement any such
person was not such an officer of the Company.
(b) Following the Distribution Date, the Rights Agent will keep or
cause to be kept, at its principal office in New York, New York, books for
registration and transfer of the Right Certificates issued hereunder. Such
books shall show the names and addresses of the respective holders of the Right
Certificates, the number of Rights evidenced by each of the Right Certificates,
the certificate number of each of the Right Certificates and the date of each of
the Right Certificates.
<PAGE>
SECTION 6. Transfer, Split-Up, Combination and Exchange of Right
-----------------------------------------------------
Certificates; Mutilated, Destroyed, Lost or Stolen Right Certificates;
- ----------------------------------------------------------------------
Uncertificated Rights. (a) Subject to the provisions of Sections 7(e) and 15,
- ----------------------
at any time after the Distribution Date, and at or prior to the Close of
Business on the earlier of the Redemption Date or the Expiration Date, any Right
Certificate or Right Certificates may be transferred, split-up, combined or
exchanged for another Right Certificate or Right Certificates representing, in
the aggregate, the same number of Rights as the Right Certificate or Right
Certificates surrendered then represented. Any registered holder desiring to
transfer, split-up, combine or exchange any Right Certificate shall make such
request in writing delivered to the Rights Agent and shall surrender the Right
Certificate or Right Certificates to be transferred, split- up, combined or
exchanged at the principal office of the Rights Agent; provided, however, that
-------- -------
neither the Rights Agent nor the Company shall be obligated to take any action
whatsoever with respect to the transfer of any Right Certificate surrendered for
transfer until the registered holder shall have completed and signed the
certification contained in the form of assignment on the reverse side of such
Right Certificate and shall have provided such additional evidence of the
identity of the Beneficial Owner (or former Beneficial Owner) or Affiliates or
Associates thereof as the Company shall reasonably request. Thereupon the
Rights Agent shall, subject to Sections 7(e) and 15, countersign and deliver to
the Person entitled thereto a Right Certificate or Right Certificates, as the
case may be, as so requested. The Company may require payment of a sum
sufficient to cover any tax or governmental charge that may be imposed in
connection with any transfer, split-up, combination or exchange of Right
Certificates.
(b) Upon receipt by the Company or the Rights Agent of evidence
reasonably satisfactory to them of the loss, theft, destruction or mutilation of
a valid Right Certificate, and, in case of loss, theft or destruction, of
indemnity or security reasonably satisfactory to them, and, at the Company's
request, reimbursement to the Company and the Rights Agent of all reasonable
expenses incidental thereto, and upon surrender to the Rights Agent and
cancellation of the Right Certificate if mutilated, the Company will make a new
Right Certificate of like tenor and deliver such new Right Certificate to the
Rights Agent for delivery to the registered owner in lieu of the Right
Certificate so lost, stolen, destroyed or mutilated.
(c) Notwithstanding any other provision hereof, the Company and the
Rights Agent may amend this Rights Agreement to provide for uncertificated
Rights in addition to or in place of Rights evidenced by Right Certificates.
SECTION 7. Exercise of Rights; Expiration Date of Rights. (a)
----------------------------------------------
Subject to Section 7(e) and except as otherwise provided herein (including
Section 11), each Right shall entitle the registered holder thereof, upon
exercise thereof as provided herein, to purchase for the Purchase Price, at any
time after the Distribution Date and at or prior to the earlier of (i) the Close
of Business on December 19, 2006 (the Close of Business on such date being the
"Expiration Date") or (ii) the Redemption Date, one two-thousandth (1/2000) of a
Preferred
<PAGE>
Share, subject to adjustment from time to time as provided in Sections 11 and
12.
(b) The registered holder of any Right Certificate may exercise the
Rights evidenced thereby (except as otherwise provided herein) in whole or in
part at any time after the Distribution Date, upon surrender of the Right
Certificate, with the form of election to purchase on the reverse side thereof
duly executed, to the Rights Agent at the principal office of the Rights Agent
in Richfield Park, New Jersey, together with payment of the Purchase Price for
each one two-thousandth (1/2000) of a Preferred Share as to which the Rights are
exercised, at or prior to the earlier of (i) the Expiration Date or (ii) the
Redemption Date.
(c) Upon receipt of a Right Certificate representing exercisable
Rights, with the form of election to purchase duly executed, accompanied by
payment of the Purchase Price for the Preferred Shares to be purchased together
with an amount equal to any applicable transfer tax, in lawful money of the
United States of America, in cash or by certified check or money order payable
to the order of the Company, the Rights Agent shall thereupon (i) either (A)
promptly requisition from any transfer agent of the Preferred Shares (or make
available, if the Rights Agent is the transfer agent) certificates for the
number of Preferred Shares to be purchased and the Company hereby irrevocably
authorizes its transfer agent to comply with all such requests or (B) if the
Company shall have elected to deposit the Preferred Shares with a depositary
agent under a depositary arrangement, promptly requisition from the depositary
agent depositary receipts representing the number of two thousandths (1/2000s)
of a Preferred Share to be purchased (in which case certificates for the
Preferred Shares to be represented by such receipts shall be deposited by the
transfer agent with the depositary agent) and the Company will direct the
depositary agent to comply with all such requests, (ii) when appropriate,
promptly requisition from the Company the amount of cash to be paid in lieu of
issuance of fractional shares in accordance with Section 15, (iii) promptly
after receipt of such certificates or depositary receipts, cause the same to be
delivered to or upon the order of the registered holder of such Right
Certificate, registered in such name or names as may be designated by such
holder and (iv) when appropriate, after receipt promptly deliver such cash to or
upon the order of the registered holder of such Right Certificate.
(d) In case the registered holder of any Right Certificate shall
exercise fewer than all the Rights evidenced thereby, a new Right Certificate
evidencing Rights equivalent to the Rights remaining unexercised shall be issued
by the Rights Agent and delivered to the registered holder of such Right
Certificate or to his duly authorized assigns, subject to the provisions of
Section 15.
(e) Notwithstanding anything in this Rights Agreement to the
contrary, any Rights that are at any time beneficially owned by (i) an Acquiring
Person or an Associate or Affiliate of an Acquiring Person, (ii) a transferee of
an Acquiring Person (or of any such Associate or Affiliate) who becomes a
transferee after the Acquiring Person becomes such, or (iii) a transferee of an
Acquiring Person (or of any such Associate or Affiliate) who becomes a
transferee prior to or concurrently with the Acquiring Person becoming such and
receives
<PAGE>
such Rights pursuant to either (A) a transfer (whether or not for consideration)
from the Acquiring Person to holders of equity interests in such Acquiring
Person or to any Person with whom the Acquiring Person has any continuing
agreement, arrangement or understanding regarding the transferred Rights or (B)
a transfer which the Board of Directors of the Company has determined is part of
a plan, arrangement or understanding which has as a primary purpose or effect
the avoidance of this Section 7(e), shall become null and void without any
further action and no holder of such Rights shall have any rights whatsoever
with respect to such Rights, whether under any provision of this Rights
Agreement or otherwise. The Company shall use all reasonable efforts to ensure
that the provisions of this Section 7(e) are complied with, but shall have no
liability to any holder of any Right Certificate or any other Person as a result
of its failure to make any determinations with respect to an Acquiring Person or
its Affiliate or Associate, or any transferee thereof, hereunder.
(f) Notwithstanding anything in this Rights Agreement to the
contrary, neither the Rights Agent nor the Company shall be obligated to
undertake any action with respect to a registered holder of any Right
Certificates upon the occurrence of any purported exercise as set forth in this
Section 7 unless such registered holder shall have (i) completed and signed the
certificate contained in the form of election to purchase set forth on the
reverse side of the Right Certificate surrendered for such exercise and (ii)
provided such additional evidence of the identity of the Beneficial Owner (or
former Beneficial Owner) or Affiliates or Associates thereof as the Company
shall reasonably request.
(g) The Company may temporarily suspend, for a period of time not to
exceed 90 calendar days after the Distribution Date, the exercisability of the
Rights in order to prepare and file a registration statement under the
Securities Act, on an appropriate form, with respect to the Preferred Shares
purchasable upon exercise of the Rights and permit such registration statement
to become effective; provided, however, that no such suspension shall remain
-------- -------
effective after, and the Rights shall without any further action by the Company
or any other Person become exercisable immediately upon, the effectiveness of
such registration statement. Upon any such suspension, the Company shall issue
a public announcement stating that the exercisability of the Rights has been
temporarily suspended and shall issue a further public announcement at such time
as the suspension is no longer in effect. Notwithstanding any provision herein
to the contrary, the Rights shall not be exercisable in any jurisdiction if the
requisite qualification under the blue sky or securities laws of such
jurisdiction shall not have been obtained or the exercise of the Rights shall
not be permitted under applicable law.
SECTION 8. Cancellation and Destruction of Right Certificates. All
---------------------------------------------------
Right Certificates surrendered or presented for the purpose of exercise,
transfer, split-up, combination or exchange shall, and any Right Certificate
representing Rights that have become null and void and nontransferable pursuant
to Section 7(e) surrendered or presented for any purpose shall, if surrendered
or presented to the Company or to any of its agents, be delivered to the Rights
Agent for cancellation or in canceled form, or, if surrendered or
<PAGE>
14
presented to the Rights Agent, shall be canceled by it, and no Right
Certificates shall be issued in lieu thereof except as expressly permitted by
this Rights Agreement. The Company shall deliver to the Rights Agent for
cancellation and retirement, and the Rights Agent shall so cancel and retire,
any Right Certificate purchased or acquired by the Company. The Rights Agent
shall deliver all canceled Right Certificates to the Company pursuant to a
written agreement that the Company maintain such certificates for such period of
time as required by law, or shall, at the written request of the Company,
destroy such canceled Right Certificates, and in such case shall deliver a
certificate of destruction thereof to the Company.
SECTION 9. Reservation and Availability of Preferred Shares. (a)
-------------------------------------------------
The Company covenants and agrees that it will cause to be reserved and kept
available out of its authorized and unissued Preferred Shares or any authorized
and issued Preferred Shares held in its treasury, free from preemptive rights or
any right of first refusal, a number of Preferred Shares sufficient to permit
the exercise in full of all outstanding Rights.
(b) In the event that there shall not be sufficient Preferred Shares
issued but not outstanding or authorized but unissued to permit the exercise or
exchange of Rights in accordance with Section 11, the Company covenants and
agrees that it will take all such action as may be necessary to authorize
additional Preferred Shares for issuance upon the exercise or exchange of Rights
pursuant to Section 11; provided, however, that if the Company is unable to
-------- -------
cause the authorization of additional Preferred Shares, then the Company shall,
or in lieu of seeking any such authorization, the Company may, to the extent
necessary and permitted by applicable law and any agreements or instruments in
effect prior to the Distribution Date to which it is a party, (i) upon surrender
of a Right, pay cash equal to the Purchase Price in lieu of issuing Preferred
Shares and requiring payment therefor, (ii) upon due exercise of a Right and
payment of the Purchase Price for each Preferred Share as to which such Right is
exercised, issue equity securities having a value equal to the value of the
Preferred Shares which otherwise would have been issuable pursuant to Section
11, which value shall be determined by a nationally recognized investment
banking firm selected by the Board of Directors of the Company or (iii) upon due
exercise of a Right and payment of the Purchase Price for each Preferred Share
as to which such Right is exercised, distribute a combination of Preferred
Shares, cash and/or other equity and/or debt securities having an aggregate
value equal to the value of the Preferred Shares which otherwise would have been
issuable pursuant to Section 11, which value shall be determined by a nationally
recognized investment banking firm selected by the Board of Directors of the
Company. To the extent that any legal or contractual restrictions (pursuant to
agreements or instruments in effect prior to the Distribution Date to which it
is party) prevent the Company from paying the full amount payable in accordance
with the foregoing sentence, the Company shall pay to holders of the Rights as
to which such payments are being made all amounts which are not then restricted
on a pro rata basis as such payments become permissible under such legal or
contractual restrictions until such payments have been paid in full.
(c) The Company covenants and agrees that it will take all such
action as may
<PAGE>
15
be necessary to ensure that all Preferred Shares delivered upon exercise or
exchange of Rights shall, at the time of delivery of the certificates for such
Preferred Shares (subject to payment of the Purchase Price), be duly and validly
authorized and issued and fully paid and nonassessable shares.
(d) So long as the Preferred Shares issuable upon the exercise or
exchange of Rights are to be listed on any national securities exchange, the
Company covenants and agrees to use its best efforts to cause, from and after
such time as the Rights become exercisable or exchangeable, all Preferred Shares
reserved for such issuance to be listed on such securities exchange upon
official notice of issuance upon such exercise or exchange.
(e) The Company further covenants and agrees that it will pay when
due and payable any and all Federal and state transfer taxes and charges which
may be payable in respect of the issuance or delivery of Right Certificates or
of any Preferred Shares or Common Shares or other securities upon the exercise
or exchange of the Rights. The Company shall not, however, be required to pay
any transfer tax which may be payable in respect of any transfer or delivery of
Right Certificates to a Person other than, or in respect of the issuance or
delivery of certificates for the Preferred Shares or Common Shares or other
securities, as the case may be, in a name other than that of, the registered
holder of the Right Certificate evidencing Rights surrendered for exercise or
exchange or to issue or deliver any certificates for Preferred Shares or Common
Shares or other securities, as the case may be, upon the exercise or exchange of
any Rights until any such tax shall have been paid (any such tax being payable
by the holder of such Right Certificate at the time of surrender) or until it
has been established to the Company's satisfaction that no such tax is due.
SECTION 10. Preferred Shares Record Date. Each Person in whose name
-----------------------------
any certificate for Preferred Shares or Common Shares or other securities is
issued upon the exercise or exchange of Rights shall for all purposes be deemed
to have become the holder of record of the Preferred Shares or Common Shares or
other securities, as the case may be, represented thereby on, and such
certificate shall be dated, the date upon which the Right Certificate evidencing
such Rights was duly surrendered and payment of any Purchase Price (and any
applicable transfer taxes) was made; provided, however, that, if the date of
-------- -------
such surrender and payment is a date upon which the transfer books of the
Company for the Preferred Shares or Common Shares or other securities, as the
case may be, are closed, such Person shall be deemed to have become the record
holder of such Preferred Shares or Common Shares or other securities, as the
case may be, on, and such certificate shall be dated as of, the next succeeding
Business Day on which the transfer books of the Company for the Preferred Shares
or Common Shares or other securities, as the case may be, are open.
<PAGE>
16
SECTION 11. Adjustments in Rights After There Is an Acquiring Person;
---------------------------------------------------------
Exchange of Rights for Shares; Business Combinations. (a) Upon a Person
- -----------------------------------------------------
becoming an Acquiring Person, proper provision shall be made so that each holder
of a Right, except as provided in Section 7(e), shall thereafter have a right to
receive, upon exercise thereof for the Purchase Price in accordance with the
terms of this Rights Agreement, such number of two-thousandths (1/2000s) of a
Preferred Share as shall equal the result obtained by multiplying the Purchase
Price by a fraction, the numerator of which is the number of two thousandths
(1/2000s) of a Preferred Share for which a Right is then exercisable and the
denominator of which is 50% of the Market Value of the Common Shares on the date
on which a Person becomes an Acquiring Person. As soon as practicable after a
Person becomes an Acquiring Person (provided the Company shall not have elected
to make the exchange permitted by Section 11(b)(i) for all outstanding Rights),
the Company covenants and agrees to use its best efforts to:
(i) prepare and file a registration statement under the Securities
Act, on an appropriate form, with respect to the Preferred Shares
purchasable upon exercise of the Rights;
(ii) cause such registration statement to become effective as soon as
practicable after such filing;
(iii) cause such registration statement to remain effective (with a
prospectus at all times meeting the requirements of the Securities Act)
until the Expiration Date; and
(iv) qualify or register the Preferred Shares purchasable upon
exercise of the Rights under the blue sky or securities laws of such
jurisdictions as may be necessary or appropriate.
(b)(i) The Board of Directors of the Company may, at its option, at
any time after a Person becomes an Acquiring Person, mandatorily exchange all or
part of the then outstanding and exercisable Rights (which shall not include
Rights that shall have become null and void and nontransferable pursuant to the
provisions of Section 7(e)) for consideration per Right consisting of either
one-half of the securities that would be issuable at such time upon the exercise
of one Right in accordance with Section 11(a) or, if applicable, Section
9(b)(ii) or (iii) or, if applicable the cash consideration specified in Section
9(b)(i) (the consideration issuable per Right pursuant to this Section 11(b)(i)
being the "Exchange Consideration"). The Board of Directors of the Company may,
at its option, issue, in substitution for Preferred Shares, Common Shares in an
amount per Preferred Share equal to the Formula Number (as defined in the
Articles of Amendment) if there are sufficient Common Shares issued but not
outstanding or authorized but unissued. If the Board of Directors of the
Company elects to exchange all the Rights for Exchange Consideration pursuant to
this Section 11(b)(i) prior to the physical distribution of the Rights
Certificates, the Corporation may distribute the Exchange Consideration in lieu
of distributing Right
<PAGE>
17
Certificates, in which case for purposes of this Rights Agreement holders of
Rights shall be deemed to have simultaneously received and surrendered for
exchange Right Certificates on the date of such distribution.
(ii) Any action of the Board of Directors of the Company ordering the
exchange of any Rights pursuant to Section 11(b)(i) shall be irrevocable and,
immediately upon the taking of such action and without any further action and
without any notice, the right to exercise any such Right pursuant to Section
11(a) shall terminate and the only right thereafter of a holder of such Right
shall be to receive the Exchange Consideration in exchange for each such Right
held by such holder or, if the Exchange Consideration shall not have been paid
or issued, to exercise any such Right pursuant to Section 11(c)(i). The Company
shall promptly give public notice of any such exchange; provided, however, that
-------- -------
the failure to give, or any defect in, such notice shall not affect the validity
of such exchange. The Company promptly shall mail a notice of any such exchange
to all holders of such Rights at their last addresses as they appear upon the
registry books of the Rights Agent. Any notice which is mailed in the manner
herein provided shall be deemed given, whether or not the holder receives the
notice. Each such notice of exchange will state the method by which the
exchange of the Rights for the Exchange Consideration will be effected and, in
the event of any partial exchange, the number of Rights which will be exchanged.
Any partial exchange shall be effected pro rata based on the number of Rights
(other than Rights which shall have become null and void and nontransferable
pursuant to the provisions of Section 7(e)) held by each holder of Rights.
(c)(i) In the event that, following a Distribution Date, directly or
indirectly, any transactions specified in the following clause (A), (B) or (C)
of this Section 11(c) (each such transaction being a "Business Combination")
shall be consummated:
(A) the Company shall consolidate with, or merge with and into, any
Acquiring Person or any Affiliate or Associate of an Acquiring Person;
(B) any Acquiring Person or any Affiliate or Associate of an Acquiring
Person shall merge with and into the Company and, in connection with such
merger, all or part of the Common Shares shall be changed into or exchanged
for capital stock or other securities of the Company or of any Acquiring
Person or Affiliate or Associate of an Acquiring Person or cash or any
other property; or
(C) the Company shall sell, lease, exchange or otherwise transfer or
dispose of (or one or more of its Subsidiaries shall sell, lease, exchange
or otherwise transfer or dispose of), in one or more transactions, the
Major Part of the assets of the Company and its Subsidiaries (taken as a
whole) to any Acquiring Person
<PAGE>
18
or any Affiliate or Associate of an Acquiring Person;
then, in each such case, proper provision shall be made so that each holder of a
Right, except as provided in Section 7(e), shall thereafter have the right to
receive, upon the exercise thereof for the Purchase Price in accordance with the
terms of this Rights Agreement, the securities specified below (or, at such
holder's option, the securities specified in Section 11(a)):
(x) if the Principal Party in such Business Combination has Registered
Common Shares outstanding, each Right shall thereafter represent the right
to receive, upon the exercise thereof for the Purchase Price in accordance
with the terms of this Rights Agreement, such number of Registered Common
Shares of such Principal Party, free and clear of all liens, encumbrances
or other adverse claims, as shall have an aggregate Market Value equal to
the result obtained by multiplying the Purchase Price by two; or
(y) if the Principal Party involved in such Business Combination does not
have Registered Common Shares outstanding, each Right shall thereafter
represent the right to receive, upon the exercise thereof for the Purchase
Price in accordance with the terms of this Rights Agreement, at the
election of the holder of such Right at the time of the exercise thereof,
any of:
(1) such number of Common Shares of the Surviving Person in such
Business Combination as shall have an aggregate Book Value immediately
after giving effect to such Business Combination equal to the result
obtained by multiplying the Purchase Price by two;
(2) such number of Common Shares of the Principal Party in such
Business Combination (if the Principal Party is not also the Surviving
Person in such Business Combination) as shall have an aggregate Book Value
immediately after giving effect to such Business Combination equal to the
result obtained by multiplying the Purchase Price by two; or
(3) if the Principal Party in such Business Combination is an
Affiliate of one or more Persons which has Registered Common Shares
outstanding, such number of Registered Common Shares of whichever of such
Affiliates of the Principal Party has Registered Common Shares with the
greatest aggregate Market Value on the date of consummation of such
Business Combination as shall have an aggregate Market Value on the date of
such Business Combination equal to the result obtained by multiplying the
Purchase Price by two.
(ii) The Company shall not consummate any Business Combination unless
each issuer of Common Shares for which Rights may be exercised, as set forth in
this Section 11(c), shall have sufficient authorized Common Shares that have not
been issued or reserved for issuance (and which shall, when issued upon exercise
thereof in accordance with
<PAGE>
19
this Rights Agreement, be validly issued, fully paid and nonassessable and free
of preemptive rights, rights of first refusal or any other restrictions or
limitations on the transfer or ownership thereof) to permit the exercise in full
of the Rights in accordance with this Section 11(c) and unless prior thereto:
(A) a registration statement under the Securities Act on an
appropriate form, with respect to the Rights and the Common Shares of such
issuer purchasable upon exercise of the Rights, shall be effective under
the Securities Act; and
(B) the Company and each such issuer shall have:
(1) executed and delivered to the Rights Agent a supplemental
agreement providing for the assumption by such issuer of the
obligations set forth in this Section 11(c) (including the obligation
of such issuer to issue Common Shares upon the exercise of Rights in
accordance with the terms set forth in Sections 11(c)(i) and
11(c)(iii)) and further providing that such issuer, at its own
expense, will use its best efforts to:
(x) cause a registration statement under the Securities Act
on an appropriate form, with respect to the Rights and the Common
Shares of such issuer purchasable upon exercise of the Rights, to
remain effective (with a prospectus at all times meeting the
requirements of the Securities Act) until the Expiration Date;
(y) qualify or register the Rights and the Common Shares of
such issuer purchasable upon exercise of the Rights under the
blue sky or securities laws of such jurisdictions as may be
necessary or appropriate; and
(z) list the Rights and the Common Shares of such issuer
purchasable upon exercise of the Rights on each national
securities exchange on which the Common Shares were listed prior
to the consummation of the Business Combination or, if the Common
Shares were not listed on a national securities exchange prior to
the consummation of the Business Combination, on a national
securities exchange;
(2) furnished to the Rights Agent a written opinion of
independent counsel stating that such supplemental agreement is a
valid, binding and enforceable agreement of such issuer; and
(3) filed with the Rights Agent a certificate of a nationally
recognized firm of independent accountants setting forth the number of
Common Shares
<PAGE>
20
of such issuer which may be purchased upon the exercise of each Right
after the consummation of such Business Combination.
(iii) After consummation of any Business Combination and subject to
the provisions of Section 11(c)(ii), (A) each issuer of Common Shares for which
Rights may be exercised as set forth in this Section 11(c) shall be liable for,
and shall assume, by virtue of such Business Combination, all the obligations
and duties of the Company pursuant to this Rights Agreement, (B) the term
"Company" shall thereafter be deemed to refer to such issuer, (C) each such
issuer shall take such steps in connection with such consummation as may be
necessary to assure that the provisions hereof (including the provisions of
Sections 11(a) and 11(c)) shall thereafter be applicable, as nearly as
reasonably may be, in relation to its Common Shares thereafter deliverable upon
the exercise of the Rights and (D) the number of Common Shares of each such
issuer thereafter receivable upon exercise of any Right shall be subject to
adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions of Sections 11 and 12 and the provisions of
Section 7, 9 and 10 with respect to the Preferred Shares shall apply, as nearly
as reasonably may be, on like terms to any such Common Shares.
SECTION 12. Certain Adjustments. (a) To preserve the actual or
--------------------
potential economic value of the Rights, if at any time after the date of this
Rights Agreement there shall be any change in the Common Shares or the Preferred
Shares, whether by reason of stock dividends, stock splits, recapitalizations,
mergers, consolidations, combinations or exchanges of securities, split-ups,
split-offs, spin-offs, liquidations, other similar changes in capitalization,
any distribution or issuance of cash, assets, evidences of indebtedness or
subscription rights, options or warrants to holders of Common Shares or
Preferred Shares, as the case may be (other than distribution of the Rights or
regular quarterly cash dividends) or otherwise, then, in each such event the
Board of Directors of the Company shall make such appropriate adjustments in the
number of Preferred Shares (or the number and kind of other securities) issuable
upon exercise of each Right, the Purchase Price and Redemption Price in effect
at such time and the number of Rights outstanding at such time (including the
number of Rights or fractional Rights associated with each Common Share) such
that following such adjustment such event shall not have had the effect of
reducing or limiting the benefits the holders of the Rights would have had
absent such event.
(b) If, as a result of an adjustment made pursuant to Section 12(a),
the holder of any Right thereafter exercised shall become entitled to receive
any securities other than Preferred Shares, thereafter the number of such
securities so receivable upon exercise of any Right shall be subject to
adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions of Sections 11 and 12 and the provisions of
Sections 7, 9 and 10 with respect to the Preferred Shares shall apply, as nearly
as reasonably may be, on like terms to any such other securities.
(c) All Rights originally issued by the Company subsequent to any
adjustment
<PAGE>
21
made to the amount of Preferred Shares or other securities relating to a Right
shall evidence the right to purchase, for the Purchase Price, the adjusted
number and kind of securities purchasable from time to time hereunder upon
exercise of the Rights, all subject to further adjustment as provided herein.
(d) Irrespective of any adjustment or change in the Purchase Price or
the number of Preferred Shares or number or kind of other securities issuable
upon the exercise of the Rights, the Right Certificates theretofore and
thereafter issued may continue to express the terms which were expressed in the
initial Right Certificates issued hereunder.
(e) In any case in which action taken pursuant to Section 12(a)
requires that an adjustment be made effective as of a record date for a
specified event, the Company may elect to defer until the occurrence of such
event the issuing to the holder of any Right exercised after such record date
the Preferred Shares and/or other securities, if any, issuable upon such
exercise over and above the Preferred Shares and/or other securities, if any,
issuable before giving effect to such adjustment; provided, however, that the
-------- -------
Company shall deliver to such holder a due bill or other appropriate instrument
evidencing such holder's right to receive such additional securities upon the
occurrence of the event requiring such adjustment.
SECTION 13. Certificate of Adjustment. Whenever an adjustment is
--------------------------
made as provided in Section 11 or 12, the Company shall (a) promptly prepare a
certificate setting forth such adjustment and a brief statement of the facts
accounting for such adjustment, (b) promptly file with the Rights Agent and with
each transfer agent for the Preferred Shares a copy of such certificate and (c)
mail a brief summary thereof to each holder of a Right Certificate (or, prior to
the Distribution Date, of the Common Shares) in accordance with Section 25. The
Rights Agent shall be fully protected in relying on any such certificate and on
any adjustment therein contained.
SECTION 14. Additional Covenants. (a) Notwithstanding any other
---------------------
provision of this Rights Agreement, no adjustment to the number of Preferred
Shares (or fractions of a share) or other securities for which a Right is
exercisable or the number of Rights outstanding or associated with each Common
Share or any similar or other adjustment shall be made or be effective if such
adjustment would have the effect of reducing or limiting the benefits the
holders of the Rights would have had absent such adjustment, including, without
limitation, the benefits under Sections 11 and 12, unless the terms of this
Rights Agreement are amended so as to preserve such benefits.
(b) The Company covenants and agrees that, after the Distribution
Date, except as permitted by Section 26, it will not take (or permit any
Subsidiary of the Company to take) any action if at the time such action is
taken it is intended or reasonably foreseeable that such action will reduce or
otherwise limit the benefits the holders of the Rights would have had absent
such action, including, without limitation, the benefits under Sections 11 and
12. Any action taken by the Company during any period after any Person becomes
an
<PAGE>
22
Acquiring Person but prior to the Distribution Date shall be null and void
unless such action could be taken under this Section 14(b) from and after the
Distribution Date. The Company shall not consummate any Business Combination if
any issuer of Common Shares for which Rights may be exercised after such
Business Combination in accordance with Section 11(c) shall have taken any
action that reduces or otherwise limits the benefits the holders of the Rights
would have had absent such action, including, without limitation, the benefits
under Sections 11 and 12.
SECTION 15. Fractional Rights and Fractional Shares. (a) The
----------------------------------------
Company may, but shall not be required to, issue fractions of Rights or
distribute Right Certificates which evidence fractional Rights. In lieu of such
fractional Rights, the Company may pay to the registered holders of the Right
Certificates with regard to which such fractional Rights would otherwise be
issuable an amount in cash equal to the same fraction of the current market
value of a whole Right. For purposes of this Section 15(a), the current market
value of a whole Right shall be the closing price of the Rights (as determined
pursuant to the second and third sentences of the definition of Market Value
contained in Section 1) for the Trading Day immediately prior to the date on
which such fractional Rights would have been otherwise issuable.
(b) The Company may, but shall not be required to, issue fractions of
Preferred Shares upon exercise of the Rights or distribute certificates which
evidence fractional Preferred Shares. In lieu of fractional Preferred Shares,
the Company may elect to (i) utilize a depository arrangement as provided by the
terms of the Preferred Shares or (ii) in the case of a fraction of a Preferred
Share (other than one two-thousandth (1/2000) of a Preferred Share or any
integral multiple thereof), pay to the registered holders of Right Certificates
at the time such Rights are exercised as herein provided an amount in cash equal
to the same fraction of the current market value of one Preferred Share, if any
are outstanding and publicly traded (or the Formula Number times the current
market value of one Common Share if the Preferred Shares are not outstanding and
publicly traded). For purposes of this Section 15(b), the current market value
of a Preferred Share (or Common Share) shall be the closing price of a Preferred
Share (or Common Share) (as determined pursuant to the second and third
sentences of the definition of Market Value contained in Section 1) for the
Trading Day immediately prior to the date of such exercise. If, as a result of
an adjustment made pursuant to Section 12(a), the holder of any Right thereafter
exercised shall become entitled to receive any securities other than Preferred
Shares, the provisions of this Section 15(b) shall apply, as nearly as
reasonably may be, on like terms to such other securities.
(c) The Company may, but shall not be required to, issue fractions of
Common Shares upon exchange of Rights pursuant to Section 11(b), or to
distribute certificates which evidence fractional Common Shares. In lieu of
such fractional Common Shares, the Company may pay to the registered holders of
the Right Certificates with regard to which such fractional Common Shares would
otherwise be issuable an amount in cash equal to the same fraction of the
current Market Value of one Common Share as of the date on which a
<PAGE>
23
Person became an Acquiring Person.
(d) The holder of Rights by the acceptance of the Rights expressly
waives his right to receive any fractional Rights or any fractional shares upon
exercise of a Right except as provided in this Section 15.
SECTION 16. Rights of Action. (a) All rights of action in respect
-----------------
of this Rights Agreement are vested in the respective registered holders of the
Right Certificates (and, prior to the Distribution Date, the registered holders
of the Common Shares); and any registered holder of any Right Certificate (or,
prior to the Distribution Date, of the Common Shares), without the consent of
the Rights Agent or of the holder of any other Right Certificate (or, prior to
the Distribution Date, of the Common Shares) may, in his own behalf and for his
own benefit, enforce, and may institute and maintain any suit, action or
proceeding against the Company to enforce, or otherwise act in respect of, his
right to exercise the Rights evidenced by such Right Certificate in the manner
provided in such Right Certificate and in this Rights Agreement. Without
limiting the foregoing or any remedies available to the holders of Rights, it is
specifically acknowledged that the holders of Rights would not have an adequate
remedy at law for any breach of this Rights Agreement and shall be entitled to
specific performance of the obligations of any Person under, and injunctive
relief against actual or threatened violations of the obligations of any Person
subject to, this Rights Agreement.
(b) Any holder of Rights who prevails in an action to enforce the
provisions of this Rights Agreement shall be entitled to recover the reasonable
costs and expenses, including attorneys' fees, incurred in such action.
SECTION 17. Transfer and Ownership of Rights and Right Certificates.
--------------------------------------------------------
(a) Prior to the Distribution Date, the Rights will be transferable
only in connection with the transfer of the Common Shares and the Rights
associated with the Common Shares shall be automatically transferred upon the
transfer of the Common Shares.
(b) After the Distribution Date, the Right Certificates will be
transferable, subject to Section 7(e), only on the registry books of the Rights
Agent if surrendered at the principal office of the Rights Agent, duly endorsed
or accompanied by a proper instrument of transfer.
(c) The Company and the Rights Agent may deem and treat the Person in
whose name a Right Certificate (or, prior to the Distribution Date, the
associated Common Shares certificate) is registered as the absolute owner
thereof and of the Rights evidenced thereby (notwithstanding any notations of
ownership or writing on the Right Certificates or the associated certificate for
Common Shares made by anyone other than the Company or the Rights Agent) for all
purposes whatsoever, and neither the Company nor the Rights Agent
<PAGE>
24
shall be affected by any notice to the contrary.
SECTION 18. Right Certificate Holder Not Deemed a Shareholder. No
--------------------------------------------------
holder, as such, of any Right Certificate shall be entitled to vote or receive
dividends or be deemed, for any purpose, the holder of the Preferred Shares or
of any other securities of the Company which may at any time be issuable on the
exercise of the Rights represented thereby, nor shall anything contained herein
or in any Right Certificate be construed to confer upon the holder of any Right
Certificate, as such, any of the rights of a shareholder of the Company,
including, without limitation, any right to vote for the election of directors
or upon any matter submitted to shareholders at any meeting thereof, or to give
or withhold consent to any corporate action, or to receive notice of meetings or
other actions affecting shareholders, or to receive dividends or other
distributions or subscription rights, or otherwise, until the Right or Rights
evidenced by such Right Certificate shall have been exercised in accordance with
the provisions hereof.
SECTION 19. Concerning the Rights Agent. (a) The Company agrees to
----------------------------
pay to the Rights Agent reasonable compensation for all services rendered by it
hereunder from time to time and its reasonable expenses and counsel fees and
other disbursements incurred in the administration and execution of this Rights
Agreement and the exercise and performance of its duties hereunder.
(b) The Rights Agent shall be protected and shall incur no liability
for or in respect of any action taken, suffered or omitted by it in connection
with its administration of this Rights Agreement in reliance upon any Right
Certificate or certificate for the Common Shares or for other securities of the
Company, instrument of assignment or transfer, power of attorney, endorsement,
affidavit, letter, notice, direction, consent, certificate, statement, or other
paper or document believed by it to be genuine and to be signed, executed and,
where necessary, verified or acknowledged, by the proper Person or Persons.
SECTION 20. Merger or Consolidation or Change of Rights Agent. (a)
--------------------------------------------------
Any corporation into which the Rights Agent or any successor Rights Agent may be
merged or with which it may be consolidated, or any corporation resulting from
any merger or consolidation to which the Rights Agent or any successor Rights
Agent shall be a party, or any corporation succeeding to the stock transfer or
corporate trust business of the Rights Agent or any successor Rights Agent,
shall be the successor to the Rights Agent under this Rights Agreement without
the execution or filing of any paper or any further act on the part of any of
the parties hereto; provided that such corporation would be eligible for
--------
appointment as a successor Rights Agent under the provisions of Section 22. In
case, at the time such successor Rights Agent shall succeed to the agency
created by this Rights Agreement, any of the Right Certificates shall have been
countersigned but not delivered, any such successor Rights Agent may adopt the
countersignature of the predecessor Rights Agent and deliver such Right
Certificates so countersigned; and, in case at that time any of the Right
Certificates shall not have been countersigned, any successor Rights Agent may
countersign such Right
<PAGE>
25
Certificates either in the name of the predecessor Rights Agent or in the name
of the successor Rights Agent; and in all such cases such Right Certificates
shall have the full force provided in the Right Certificates and in this Rights
Agreement.
(b) In case at any time the name of the Rights Agent shall be changed
and at such time any of the Right Certificates shall have been countersigned but
not delivered, the Rights Agent may adopt the countersignature under its prior
name and deliver Right Certificates so countersigned; and, in case at that time
any of the Right Certificates shall not have been countersigned, the Rights
Agent may countersign such Right Certificates either in its prior name or in its
changed name; and in all such cases such Right Certificates shall have the full
force provided in the Right Certificates and in this Rights Agreement.
SECTION 21. Duties of Rights Agent. The Rights Agent undertakes the
-----------------------
duties and obligations imposed by this Rights Agreement upon the following terms
and conditions, by all of which the Company and the holders of Right
Certificates (or, prior to the Distribution Date, of the Common Shares), by
their acceptance thereof, shall be bound:
(a) The Rights Agent may consult with legal counsel satisfactory to
it (who may be legal counsel for the Company), and the opinion of such counsel
shall be full and complete authorization and protection to the Rights Agent as
to any action taken, suffered or omitted by it in good faith and in accordance
with such opinion.
(b) Whenever in the performance of its duties under this Rights
Agreement the Rights Agent shall deem it necessary or desirable that any fact or
matter (including, without limitation, the identity of any Acquiring Person) be
proved or established by the Company prior to taking, refraining from taking or
suffering any action hereunder, such fact or matter (unless other evidence in
respect thereof be herein specifically prescribed) may be deemed to be
conclusively proved and established by a certificate signed by any one of the
Chairman of the Board, the Chief Executive Officer, the President, the Chief
Operating Officer, the Chief Financial Officer, a Vice President (whether
preceded by any additional title), the Treasurer or the Secretary of the Company
and delivered to the Rights Agent; and such certificate shall be full
authorization to the Rights Agent for any action taken or suffered in good faith
by it under the provisions of this Rights Agreement in reliance upon such
certificate.
(c) The Rights Agent shall be liable hereunder only for its own gross
negligence, bad faith or willful misconduct provided, however, that the Rights
Agent shall not be liable for any indirect, punitive, special or consequential
damages.
(d) The Rights Agent shall not be liable for or by reason of any of
the statements of fact or recitals contained in this Rights Agreement or in the
Right Certificates (except as to its countersignature thereof) or be required to
verify the same, but all such statements and recitals are and shall be deemed to
have been made by the Company only.
<PAGE>
26
(e) The Rights Agent shall not be under any responsibility in respect
of the validity of this Rights Agreement or the execution and delivery hereof
(except the due execution hereof by the Rights Agent) or in respect of the
validity or execution of any Right Certificate (except its countersignature
thereof); nor shall it be responsible for any breach by the Company of any
covenant or condition contained in this Rights Agreement or in any Right
Certificate; nor shall it be responsible for any adjustment required under the
provisions of Section 11 or 12 or responsible for the manner, method or amount
of any such adjustment or the ascertaining of the existence of facts that would
require any such adjustment (except with respect to the exercise of Rights
evidenced by Right Certificates after actual notice of any such adjustment); nor
shall it by any act hereunder be deemed to make any representation or warranty
as to the authorization or reservation of any Preferred Shares or Common Shares
to be issued pursuant to this Rights Agreement or any Right Certificate or as to
whether any Preferred Shares or Common Shares will, when so issued, be validly
authorized and issued, fully paid and nonassessable.
(f) The Company agrees that it will perform, execute, acknowledge and
deliver or cause to be performed, executed, acknowledged and delivered all such
further and other acts, instruments and assurances as may reasonably be required
by the Rights Agent for the carrying out or performing by the Rights Agent of
the provisions of this Rights Agreement.
(g) The Rights Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from any
one of the Chairman of the Board, the Chief Executive Officer, the President,
the Chief Operating Officer, a Vice President (whether preceded by any
additional title), the Secretary or the Treasurer of the Company, and to apply
to such officers for advice and instructions in connection with its duties and
it shall not be liable for any action taken or suffered to be taken by it in
good faith in accordance with instructions of any such officer.
(h) The Rights Agent and any shareholder, director, officer, employee
or affiliate of the Rights Agent may buy, sell or deal in any of the Rights or
other securities of the Company or become pecuniarily interested in any
transaction in which the Company may be interested, or contract with or lend
money to the Company or otherwise act as fully and freely as though it were not
the Rights Agent under this Rights Agreement. Nothing herein shall preclude the
Rights Agent from acting in any other capacity for the Company or for any other
legal entity.
(i) The Rights Agent may execute and exercise any of the rights or
powers hereby vested in it or perform any duty hereunder either itself or by or
through its attorneys or agents and the Rights Agent shall not be answerable or
accountable for any act, default, neglect or misconduct of any such attorneys or
agents or for any loss to the Company resulting from any such act, default,
neglect or misconduct provided reasonable care was exercised in the selection
and continued employment thereof.
<PAGE>
27
(j) The Company agrees to indemnify and to hold the Rights Agent
harmless against any loss, liability, damage or expense (including reasonable
fees and expenses of legal counsel) which the Rights Agent may incur resulting
from its actions as Rights Agent pursuant to this Rights Agreement; provided,
--------
however, that the Rights Agent shall not be indemnified or held harmless with
- -------
respect to any such loss, liability, damage or expense incurred by the Rights
Agent as a result of, or arising out of, its own gross negligence, bad faith or
willful misconduct. In no case shall the Company be liable with respect to any
action, proceeding, suit or claim against the Rights Agent unless the Rights
Agent shall have notified the Company, by letter or by facsimile confirmed by
letter, of the assertion of any action, proceeding, suit or claim against the
Rights Agent, promptly after the Rights Agent shall have notice of any such
assertion of an action, proceeding, suit or claim or have been served with the
summons or other first legal process giving information as to the nature and
basis of the action, proceeding, suit or claim. The Company shall at its own
expense assume the defense of any such action, proceeding, suit or claim. In
the event that the Company assumes such defense, the Company shall not
thereafter be liable for the fees and expenses of any additional counsel
retained by the Rights Agent, so long as the Company shall retain counsel
satisfactory to the Rights Agent, in the exercise of its reasonable judgment, to
defend such action, proceeding, suit or claim. In the event the Company fails
so to defend, the Rights Agent agrees not to settle any litigation in connection
with any action, proceeding, suit or claim with respect to which it may seek
indemnification from the Company without the prior written consent of the
Company.
(k) The Rights Agent shall be under no obligation to institute any
action, suit or legal proceeding or to take any other action likely to involve
expense unless the Company or one or more registered holders of Right
Certificates shall furnish the Rights Agent with security and indemnity to its
satisfaction for any costs and expenses which may be incurred.
(l) The Rights Agent shall not be liable for failure to perform any
duties except as specifically set forth herein and no implied covenants or
obligations shall be read into this Agreement against the Rights Agent, whose
duties and obligations are ministerial and shall be determined solely by the
express provisions hereof.
SECTION 22. Change of Rights Agent. The Rights Agent or any
-----------------------
successor Rights Agent may resign and be discharged from its duties under this
Rights Agreement upon 30 days' notice in writing mailed to the Company and to
each transfer agent of the Common Shares and the Preferred Shares by registered
or certified mail, and to the holders of the Right Certificates (or, prior to
the Distribution Date, of the Common Shares) by first-class mail. The Company
may remove the Rights Agent or any successor Rights Agent upon 30 days' notice
in writing, mailed to the Rights Agent or successor Rights Agent, as the case
may be, and to each transfer agent of the Common Shares and the Preferred Shares
by registered or certified mail, and to the holders of the Right Certificates
(or, prior to the Distribution Date, of the Common Shares) by first-class mail.
If the Rights Agent shall resign or be removed or
<PAGE>
28
shall otherwise become incapable of acting, the Company shall appoint a
successor to the Rights Agent. If the Company shall fail to make such
appointment within a period of 30 days after giving notice of such removal or
after it has been notified in writing of such resignation or incapacity by the
resigning or incapacitated Rights Agent or by the holder of a Right Certificate
(or, prior to the Distribution Date, of the Common Shares) who shall, with such
notice, submit his Right Certificate (or, prior to the Distribution Date, the
certificate representing his Common Shares) for inspection by the Company, then
the registered holder of any Right Certificate (or, prior to the Distribution
Date, of the Common Shares) may apply to any court of competent jurisdiction for
the appointment of a new Rights Agent. Any successor Rights Agent, whether
appointed by the Company or by such a court, shall be a corporation organized
and doing business under the laws of the United States or of any state of the
United States, in good standing, having a principal office in the United States,
which is authorized under such laws to exercise stock, transfer or corporate
trust powers and is subject to supervision or examination by Federal or state
authority and which has at the time of its appointment as Rights Agent a
combined capital and surplus of at least $25,000,000; provided that the
--------
principal transfer agent for the Common Shares shall in any event be qualified
to be the Rights Agent. After appointment, the successor Rights Agent shall be
vested with the same powers, rights, duties and responsibilities as if it had
been originally named as Rights Agent without further act or deed; but the
predecessor Rights Agent shall deliver and transfer to the successor Rights
Agent any property at the time held by it hereunder, and execute and deliver any
further assurance, conveyance, act or deed necessary for the purpose. Not later
than the effective date of any such appointment, the Company shall file notice
thereof in writing with the predecessor Rights Agent and each transfer agent of
the Common Shares and the Preferred Shares, and mail a notice thereof in writing
to the registered holders of the Right Certificates (or, prior to the
Distribution Date, of the Common Shares). Failure to give any notice provided
for in this Section 22, however, or any defect therein shall not affect the
legality or validity of the resignation or removal of the Rights Agent or the
appointment of the successor Rights Agent, as the case may be.
SECTION 23. Issuance of Additional Rights and Right Certificates.
-----------------------------------------------------
Notwithstanding any of the provisions of this Rights Agreement or of the Rights
to the contrary, the Company may, at its option, issue new Right Certificates
evidencing Rights in such form as may be approved by its Board of Directors to
reflect any adjustment or change made in accordance with the provisions of this
Rights Agreement. In addition, in connection with the issuance or sale of Common
Shares following the Distribution Date and prior to the earlier of the
Redemption Date and the Expiration Date, the Company (a) shall, with respect to
Common Shares so issued or sold pursuant to the exercise of stock options or
under any employee plan or arrangement, or upon the exercise, conversion or
exchange of securities, notes or debentures issued by the Company, and (b) may,
in any other case, if deemed necessary or appropriate by the Board of Directors
of the Company, issue Right Certificates representing the appropriate number of
Rights in connection with such issuance or sale; provided, however, that (x) no
-------- -------
such Right Certificate shall be issued if, and to the extent that, the Company
shall be advised by counsel that such issuance would create a significant risk
of
<PAGE>
29
material adverse tax consequences to the Company or the Person to whom such
Right Certificate would be issued, and (y) no such Right Certificate shall be
issued if, and to the extent that, appropriate adjustment shall otherwise have
been made in lieu of the issuance thereof.
SECTION 24. Redemption and Termination. (a) The Board of Directors
---------------------------
of the Company may, at its option, at any time prior to the earlier of (i) such
time as a Person becomes an Acquiring Person and (ii) the Expiration Date, order
the redemption of all, but not fewer than all, the then outstanding Rights at
the Redemption Price (the date of such redemption being the "Redemption Date"),
and the Company, at its option, may pay the Redemption Price either in cash or
Common Shares or other securities of the Company deemed by the Board of
Directors of the Company, in the exercise of its sole discretion, to be at least
equivalent in value to the Redemption Price.
(b) Immediately upon the action of the Board of Directors of the
Company ordering the redemption of the Rights, and without any further action
and without any notice, the right to exercise the Rights will terminate and the
only right thereafter of the holders of Rights shall be to receive the
Redemption Price. Within 10 Business Days after the action of the Board of
Directors of the Company ordering the redemption of the Rights, the Company
shall give notice of such redemption to the holders of the then outstanding
Rights by mailing such notice to all such holders at their last addresses as
they appear upon the registry books of the Rights Agent or, prior to the
Distribution Date, on the registry books of the transfer agent for the Common
Shares. Each such notice of redemption will state the method by which payment
of the Redemption Price will be made. The notice, if mailed in the manner
herein provided, shall be conclusively presumed to have been duly given, whether
or not the holder of Rights receives such notice. In any case, failure to give
such notice by mail, or any defect in the notice, to any particular holder of
Rights shall not affect the sufficiency of the notice to other holders of
Rights.
SECTION 25. Notices. Notices or demands authorized by this Agreement
--------
to be given or made by the Rights Agent or by the holder of a Right Certificate
(or, prior to the Distribution Date, of the Common Shares) to or on the Company
shall be sufficiently given or made if sent by first-class mail, postage
prepaid, addressed (until another address is filed in writing with the Rights
Agent) as follows:
Primex Technologies, Inc.
10101 9th Street
St. Petersburg, FL 33716-3807
Attention: General Counsel
<PAGE>
30
Subject to the provisions of Section 22, any notice or demand authorized by this
Rights Agreement to be given or made by the Company or by the holder of a Right
Certificate (or, prior to the Distribution Date, of the Common Shares) to or on
the Rights Agent shall be sufficiently given or made if sent by first-class
mail, postage prepaid, addressed (until another address is filed in writing with
the Company) as follows:
The Bank of New York
101 Barclay Street (12W)
New York, NY 10286
Attention: Vice President of Administration
Notices or demands authorized by this Rights Agreement to be given or made by
the Company or the Rights Agent to any holder of a Right Certificate (or, prior
to the Distribution Date, of the Common Shares) shall be sufficiently given or
made if sent by first-class mail, postage prepaid, addressed to such holder at
the address of such holder as shown on the registry books of the Rights Agent
or, prior to the Distribution Date, on the registry books of the transfer agent
for the Common Shares.
SECTION 26. Supplements and Amendments. At any time prior to the
---------------------------
Distribution Date and subject to the last sentence of this Section 26, the
Company may, and the Rights Agent shall if the Company so directs, supplement or
amend any provision of this Rights Agreement (including, without limitation, the
date on which the Distribution Date shall occur, the time during which the
Rights may be redeemed pursuant to Section 24 or any provision of the Articles
of Amendment) without the approval of any holder of the Rights. From and after
the Distribution Date and subject to applicable law, the Company may, and the
Rights Agent shall if the Company so directs, amend this Rights Agreement
without the approval of any holders of Right Certificates (a) to cure any
ambiguity or to correct or supplement any provision contained herein which may
be defective or inconsistent with any other provision of this Rights Agreement
or (b) to make any other provisions in regard to matters or questions arising
hereunder which the Company may deem necessary or desirable and which shall not
adversely affect the interests of the holders of Right Certificates (other than
an Acquiring Person or an Affiliate or Associate of an Acquiring Person). Any
supplement or amendment adopted during any period after any Person has become an
Acquiring Person but prior to the Distribution Date shall be null and void
unless such supplement or amendment could have been adopted under the prior
sentence from and after the Distribution Date. Any supplement or amendment to
this Rights Agreement duly approved by the Company that does not amend Sections
19, 20, 21 or 22 in a manner adverse to the Rights Agent shall become effective
immediately upon execution by the Company, whether or not also executed by the
Rights Agent. In addition, notwithstanding anything to the contrary contained
in this Rights Agreement, no supplement or amendment to this Rights Agreement
shall be made which (x) reduces the Redemption Price (except as required by
Section 12(a)) or (y) provides for an earlier Expiration Date.
<PAGE>
31
SECTION 27. Successors. All the covenants and provisions of this
-----------
Rights Agreement by or for the benefit of the Company or the Rights Agent shall
bind and inure to the benefit of their respective successors and assigns
hereunder.
SECTION 28. Benefits of Rights Agreement; Determinations and Actions
--------------------------------------------------------
by the Board of Directors, etc. (a) Nothing in this Rights Agreement shall be
- -------------------------------
construed to give to any Person other than the Company, the Rights Agent and the
registered holders of the Right Certificates (and, prior to the Distribution
Date, of the Common Shares) any legal or equitable right, remedy or claim under
this Rights Agreement; but this Rights Agreement shall be for the sole and
exclusive benefit of the Company, the Rights Agent and the registered holders of
the Right Certificates (and, prior to the Distribution Date, of the Common
Shares).
(b) Except as explicitly otherwise provided in this Rights Agreement,
the Board of Directors of the Company shall have the exclusive power and
authority to administer this Rights Agreement and to exercise all rights and
powers specifically granted to the Board of Directors of the Company or to the
Company, or as may be necessary or advisable in the administration of this
Rights Agreement, including, without limitation, the right and power to (i)
interpret the provisions of this Rights Agreement and (ii) make all
determinations deemed necessary or advisable for the administration of this
Rights Agreement (including, without limitation, a determination to redeem or
not redeem the Rights or to amend this Rights Agreement and whether there is an
Acquiring Person).
(c) Nothing contained in this Rights Agreement shall be deemed to be
in derogation of the obligation of the Board of Directors of the Company to
exercise its fiduciary duty. Without limiting the foregoing, nothing contained
herein shall be construed to suggest or imply that the Board of Directors shall
not be entitled to reject any tender offer, or to recommend that holders of
Common Shares reject any tender offer, or to take any other action (including,
without limitation, the commencement, prosecution, defense or settlement of any
litigation and the submission of additional or alternative offers or other
proposals) with respect to any tender offer that the Board of Directors believes
is necessary or appropriate in the exercise of such fiduciary duty.
SECTION 29. Severability. If any term, provision, covenant or
-------------
restriction of this Rights Agreement is held by a court of competent
jurisdiction or other authority to be invalid, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions of this Rights
Agreement shall remain in full force and effect and shall in no way be affected,
impaired or invalidated.
SECTION 30. Governing Law. This Rights Agreement and each Right
--------------
Certificate issued hereunder shall be deemed to be a contract made under the law
of the Commonwealth of Virginia and for all purposes shall be governed by and
construed in
<PAGE>
32
accordance with the law of such Commonwealth applicable to contracts to be made
and performed entirely within such Commonwealth except that the duties and
rights of the Rights Agent shall be governed by the law of the State of New York
without reference to the choice of law doctrine of such State.
SECTION 31. Counterparts; Effectiveness. This Rights Agreement may
----------------------------
be executed in any number of counterparts and each of such counterparts shall
for all purposes be deemed to be an original, and all such counterparts shall
together constitute but one and the same instrument. This Rights Agreement
shall be effective as of the Close of Business on the date hereof.
SECTION 32. Descriptive Headings. Descriptive headings of the
---------------------
several Sections of this Rights Agreement are inserted for convenience only and
shall not control or affect the meaning or construction of any of the provisions
of this Rights Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Rights
Agreement to be duly executed as of the day and year first above written.
PRIMEX TECHNOLOGIES, INC.,
by _______________________________
Name: George H. Pain
Title: Vice President, General Counsel
and Secretary
THE BANK OF NEW YORK, as Rights Agent,
by______________________________
Name:
Title:
<PAGE>
Exhibit 1
---------
ARTICLES OF AMENDMENT
AND RESTATEMENT OF
PRIMEX TECHNOLOGIES, INC.
The undersigned, being the Vice President, General Counsel, and Secretary
of Primex Technologies, Inc., a Virginia corporation, hereby submits these
Articles of Amendment and Restatement to the State Corporation Commission of
Virginia:
1. The name of the corporation is Primex Technologies, Inc. (the
"Company").
2. The Company's Articles of Incorporation are hereby amended and
restated in the manner set forth in Exhibit A, attached hereto.
---------
3. The attached amendment and restatement of the Company's Articles of
Incorporation contains amendments that were adopted on March 7, 2000, by the
Board of Directors of the Company without shareholder action, and no shareholder
action was required for the adoption of such amendments.
4. These Articles of Amendment and Restatement shall become effective on
the date that they are filed with the State Corporation Commission of Virginia.
The undersigned Vice President, General Counsel, and Secretary of the
Company declares that the facts herein stated are true as of March 9, 2000.
Primex Technologies, Inc.
By: /s/ George H. Pain
---------------------------
George H. Pain
Vice President, General Counsel
and Secretary
<PAGE>
Exhibit A
---------
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
of
PRIMEX TECHNOLOGIES, INC.
ARTICLE I
The name of the Corporation shall be Primex Technologies, Inc.
ARTICLE II
The purpose for which the Corporation is formed is to transact any or all
lawful business, not required to be specifically stated in these Articles, for
which corporations may be incorporated under the Virginia Stock Corporation Act,
as amended from time to time.
ARTICLE III
The aggregate number of shares that the Corporation shall have authority to
issue shall be 10,000,000 shares of Preferred Stock, par value $1 per share
(hereinafter called Preferred Stock), and 60,000,000 shares of Common Stock, par
value $1 per share (hereinafter called Common Stock).
The following is a description of each of said different classes of stock,
and a statement of the preferences, limitations, voting rights and relative
rights in respect of the shares of each such class:
1. The Board of Directors shall have authority, by resolution or
resolutions, at any time and from time to time to divide and establish any
or all of the unissued shares of Preferred Stock not then allocated to any
series of Preferred Stock into one or more series, and, without limiting
the generality of the foregoing, to fix and determine the designation of
each such series, the number of shares which shall constitute such series
and the following relative rights and preferences of the shares of each
series so established:
(a) The annual or other periodic dividend rate payable on shares
of such series, the time of payment thereof, whether such dividends
shall be cumulative or non-cumulative, and the date or dates from
which any cumulative dividends shall commence to accrue;
<PAGE>
35
(b) the price or prices at which and the terms and conditions,
if any, on which shares of such series may be redeemed;
(c) the amounts payable upon shares of such series in the event
of the voluntary or involuntary dissolution, liquidation or winding-up
of the affairs of the Corporation;
(d) the sinking fund provisions, if any, for the redemption or
purchase of shares of such series;
(e) the extent of the voting powers, if any, of the shares of
such series;
(f) the terms and conditions, if any, on which shares of such
series may be converted into shares of stock of the Corporation of any
other class or classes or into shares of any other series of the same
or any other class or classes;
(g) whether, and if so the extent to which, shares of such
series may participate with the Common Stock in any dividends in
excess of the preferential dividend fixed for shares of such series or
in any distribution of the assets of the Corporation, upon a
liquidation, dissolution or winding-up thereof, in excess of the
preferential amount fixed for shares of such series; and
(h) any other preferences and relative, optional or other
special rights, and qualifications, limitations or restrictions of
such preferences or rights, of shares of such series not fixed and
determined by law or in this Article III.
2. Each series of Preferred Stock shall be so designated as to
distinguish the shares thereof from the shares of all other series.
Different series of Preferred Stock shall not be considered to constitute
different classes of shares for the purpose of voting by classes except as
otherwise fixed by the Board of Directors with respect to any series at the
time of the creation thereof.
3. So long as any shares of Preferred Stock are outstanding, the
Corporation shall not declare and pay or set apart for payment any
dividends (other than dividends payable in Common Stock or other stock of
the Corporation ranking junior to the Preferred Stock as to dividends) or
make any other distribution on such junior stock, if at the time of making
such declaration, payment or distribution the Corporation shall be in
default with respect to any dividend payable on, or any obligation to
retire, shares of Preferred Stock.
4. Shares of any series of Preferred Stock that have been redeemed
or otherwise reacquired by the Corporation (whether through the operation
of a sinking fund, upon conversion or otherwise) shall have the status of
authorized and unissued shares of Preferred Stock and may be redesignated
and reissued as a part of such series
<PAGE>
(unless prohibited by the articles of amendment creating such series) or of
any other series of Preferred Stock. Shares of Common Stock that have been
reacquired by the Corporation shall have the status of authorized and
unissued shares of Common Stock and may be reissued.
5. Subject to the provisions of any applicable law or of the By-laws
of the Corporation as from time to time amended with respect to the closing
of the transfer books or the fixing of a record date for the determination
of shareholders entitled to vote, and except as otherwise provided by law
or in resolutions of the Board of Directors establishing any series of
Preferred Stock pursuant to the provisions of paragraph 1 of this Article
III, the holders of outstanding shares of Common Stock of the Corporation
shall exclusively possess voting power for the election of directors and
for all other purposes, each holder of record of shares of Common Stock of
the Corporation being entitled to one vote for each share of such stock
standing in his name on the books of the Corporation.
6. No holder of shares of stock of any class of the Corporation
shall, as such holder, have any right to subscribe for or purchase (a) any
shares of stock of any class of the Corporation, or any warrants, options
or other instruments that shall confer upon the holder thereof the right to
subscribe for or purchase or receive from the Corporation any shares of
stock of any class, whether or not such shares of stock, warrants, options
or other instruments are issued for cash or services or property or by way
of dividend or otherwise, or (b) any other security of the Corporation that
shall be convertible into, or exchangeable for, any shares of stock of the
Corporation of any class or classes, or to which shall be attached or
appurtenant any warrant, option or other instrument that shall confer upon
the holder of such security the right to subscribe for or purchase or
receive from the Corporation any shares of its stock of any class or
classes, whether or not such securities are issued for cash or services or
property or by way of dividend or otherwise, other than such right, if any,
as the Board of Directors, in its sole discretion, may from time to time
determine. If the Board of Directors shall offer to the holders of shares
of stock of any class of the Corporation, or any of them, any such shares
of stock, options, warrants, instruments or other securities of the
Corporation, such offer shall not, in any way, constitute a waiver or
release of the right of the Board of Directors subsequently to dispose of
other securities of the Corporation without offering the same to said
holders.
7. Anything herein to the contrary notwithstanding, dividends upon
shares of any class of stock of the Corporation shall be payable only out
of assets legally available for the payment of such dividends, and the
rights of the holders of shares of stock of the Corporation in respect of
dividends shall at all times be subject to the power of the Board of
Directors to determine what dividends, if any, shall be declared and paid
to the shareholders.
8. Subject to the provisions hereof and except as otherwise provided
by law, shares of stock of any class of the Corporation may be issued for
such consideration and for such corporate purposes as the Board of
Directors may from time to time determine.
<PAGE>
9. Series A Participating Cumulative Preferred Stock. There is
hereby established a series of the Corporation's authorized Preferred
Stock, to be designated as the "Series A Participating Cumulative Preferred
Stock, par value $1 per share." The designation and number, and relative
rights, preferences and limitations of the Series A Participating
Cumulative Preferred Stock, insofar as not already fixed by any other
provision of these Articles of Incorporation, shall be as follows:
SECTION 1. Designation and Number of Shares. The shares of such
--------------------------------
series shall be designated as "Series A Participating Cumulative
Preferred Stock" (the "Series A Preferred Stock"), par value $1 per
share. The number of shares initially constituting the Series A
Preferred Stock shall be 250,000; provided, however, that, if more
-------- -------
than a total of 250,000 shares of Series A Preferred Stock shall be
issuable upon the exercise of Rights (the "Rights") issued pursuant to
the Rights Agreement dated as of February 1, 2000, between the
Corporation and The Bank of New York, as Rights Agent (the "Rights
Agreement"), or pursuant to any successor rights agreement (including
any successor rights agreement with a different rights agent), the
Board of Directors of the Corporation, pursuant to Section 13.1-639 of
the Virginia Stock Corporation Act, shall direct by resolution or
resolutions that articles of amendment of the Articles of
Incorporation of the Corporation be properly executed and filed with
the State Corporation Commission of Virginia providing for the total
number of shares of Series A Preferred Stock authorized to be issued
to be increased (to the extent that the Articles of Incorporation then
permit) to the largest number of whole shares (rounded up to the
nearest whole number) issuable upon exercise of such Rights.
SECTION 2. Dividends or Distributions. (a) Subject to the prior
--------------------------
and superior rights of the holders of shares of any other series of
Preferred Stock or other class of capital stock of the Corporation
ranking prior and superior to the shares of Series A Preferred Stock
with respect to dividends, the holders of shares of the Series A
Preferred Stock shall be entitled to receive, when, as and if declared
by the Board of Directors, out of the assets of the Corporation
legally available therefor, (i) quarterly dividends payable in cash on
the last day of each fiscal quarter in each year, or such other dates
as the Board of Directors of the Corporation shall approve (each such
date being referred to herein as a "Quarterly Dividend Payment Date"),
commencing on the first Quarterly Dividend Payment Date after the
first issuance of a share or a fraction of a share of Series A
Preferred Stock, in the amount of $.01 per whole share (rounded to the
nearest cent), less the amount of all cash dividends declared on the
Series A Preferred Stock pursuant to the following clause (ii) since
the immediately preceding Quarterly Dividend Payment Date or, with
respect to the first Quarterly Dividend Payment Date, since the first
issuance of any share or fraction of a share of Series A Preferred
Stock (the total of which shall not, in any event, be less than zero)
and (ii) dividends payable in cash on the payment date for each cash
dividend declared on the Common Stock in an amount per whole share
(rounded to the nearest cent) equal to the Formula
<PAGE>
Number (as hereinafter defined) then in effect times the cash
dividends then to be paid on each share of Common Stock. In addition,
if the Corporation shall pay any dividend or make any distribution on
the Common Stock payable in assets, securities or other forms of non-
cash consideration (other than dividends or distributions solely in
shares of Common Stock), then, in each such case, the Corporation
shall simultaneously pay or make on each outstanding whole share of
Series A Preferred Stock a dividend or distribution in like kind equal
to the Formula Number then in effect times such dividend or
distribution on each share of the Common Stock. As used herein, the
"Formula Number" shall be 2,000; provided, however, that, if at any
time after February 1, 2000, the Corporation shall (x) declare or pay
any dividend on the Common Stock payable in shares of Common Stock or
make any distribution on the Common Stock in shares of Common Stock,
(y) subdivide (by a stock split or otherwise) the outstanding shares
of Common Stock into a larger number of shares of Common Stock or (z)
combine (by a reverse stock split or otherwise) the outstanding shares
of Common Stock into a smaller number of shares of Common Stock, then,
in each such event, the Formula Number shall be adjusted to a number
determined by multiplying the Formula Number in effect immediately
prior to such event by a fraction, the numerator of which is the
number of shares of Common Stock that are outstanding immediately
after such event and the denominator of which is the number of shares
of Common Stock that are outstanding immediately prior to such event
(and rounding the result to the nearest whole number); and provided
--------
further, that, if at any time after February 1, 2000, the Corporation
-------
shall issue any shares of its capital stock in a merger,
reclassification, or change of the outstanding shares of Common Stock,
then, in each such event, the Formula Number shall be appropriately
adjusted to reflect such merger, reclassification or change so that
each share of Preferred Stock continues to be the economic equivalent
of a Formula Number of shares of Common Stock prior to such merger,
reclassification or change.
(b) The Corporation shall declare a dividend or distribution on
the Series A Preferred Stock as provided in Section 2(a) immediately
prior to or at the same time it declares a dividend or distribution on
the Common Stock (other than a dividend or distribution solely in
shares of Common Stock); provided, however, that, in the event no
-------- -------
dividend or distribution (other than a dividend or distribution in
shares of Common Stock) shall have been declared on the Common Stock
during the period between any Quarterly Dividend Payment Date and the
next subsequent Quarterly Dividend Payment Date, a dividend of $.01
per share on the Series A Preferred Stock shall nevertheless be
payable on such subsequent Quarterly Dividend Payment Date. The Board
of Directors may fix a record date for the determination of holders of
shares of Series A Preferred Stock entitled to receive a dividend or
distribution declared thereon, which record date shall be the same as
the record date for any corresponding dividend or distribution on the
Common Stock.
(c) Dividends shall begin to accrue and be cumulative on
<PAGE>
outstanding shares of Series A Preferred Stock from and after the
Quarterly Dividend Payment Date next preceding the date of original
issue of such shares of Series A Preferred Stock; provided, however,
-------- -------
that dividends on such shares that are originally issued after the
record date for the determination of holders of shares of Series A
Preferred Stock entitled to receive a quarterly dividend and on or
prior to the next succeeding Quarterly Dividend Payment Date shall
begin to accrue and be cumulative from and after such Quarterly
Dividend Payment Date. Notwithstanding the foregoing, dividends on
shares of Series A Preferred Stock that are originally issued prior to
the record date for the determination of holders of shares of Series A
Preferred Stock entitled to receive a quarterly dividend on the first
Quarterly Dividend Payment Date shall be calculated as if cumulative
from and after the last day of the fiscal quarter next preceding the
date of original issuance of such shares. Accrued but unpaid dividends
shall not bear interest. Dividends paid on the shares of Series A
Preferred Stock in an amount less than the total amount of such
dividends at the time accrued and payable on such shares shall be
allocated pro rata on a share-by-share basis among all such shares at
the time outstanding.
(d) So long as any shares of the Series A Preferred Stock are
outstanding, no dividends or other distributions shall be declared,
paid or distributed, or set aside for payment or distribution, on the
Common Stock, unless, in each case, the dividend required by this
Section 2 to be declared on the Series A Preferred Stock shall have
been declared.
(e) The holders of the shares of Series A Preferred Stock shall
not be entitled to receive any dividends or other distributions,
except as provided herein.
SECTION 3. Voting Rights. The holders of shares of Series A
-------------
Preferred Stock shall have the following voting rights:
(a) Each holder of Series A Preferred Stock shall be entitled to
a number of votes equal to the Formula Number then in effect, for each
share of Series A Preferred Stock held of record on each matter on
which holders of the Common Stock or shareholders generally are
entitled to vote, multiplied by the maximum number of votes per share
which any holder of the Common Stock or shareholders generally then
have with respect to such matter (assuming any holding period or other
requirement to vote a greater number of shares is satisfied).
(b) Except as otherwise provided herein or by applicable law,
the holders of shares of Series A Preferred Stock and the holders of
shares of Common Stock shall vote together as one class for the
election of directors of the Corporation and on all other matters
submitted to a vote of shareholders of the Corporation.
(c) If, at the time of any annual meeting of shareholders for
the
<PAGE>
election of directors, the equivalent of six quarterly dividends
(whether or not consecutive) payable on any share or shares of Series
A Preferred Stock are in default, the number of directors constituting
the Board of Directors of the Corporation shall be increased by two.
In addition to voting together with the holders of Common Stock for
the election of other directors of the Corporation, the holders of
record of the Series A Preferred Stock, voting separately as a class
to the exclusion of the holders of Common Stock, shall be entitled at
said meeting of shareholders (and at each subsequent annual meeting of
shareholders), unless all dividends in arrears have been paid or
declared and set apart for payment prior thereto, to vote for the
election of two directors of the Corporation, the holders of any
Series A Preferred Stock being entitled to cast a number of votes per
share of Series A Preferred Stock equal to the Formula Number. Until
the default in payments of all dividends that permitted the election
of said directors shall cease to exist, any director who shall have
been so elected pursuant to the next preceding sentence may be removed
at any time, either with or without cause, only by the affirmative
vote of the holders of the shares of Series A Preferred Stock at the
time entitled to cast a majority of the votes entitled to be cast for
the election of any such director at a special meeting of such holders
called for that purpose, and any vacancy thereby created may be filled
by the vote of such holders. If and when such default shall cease to
exist, the holders of the Series A Preferred Stock shall be divested
of the foregoing special voting rights, subject to revesting in the
event of each and every subsequent like default in payments of
dividends. Upon the termination of the foregoing special voting
rights, the terms of office of all persons who may have been elected
directors pursuant to said special voting rights shall forthwith
terminate, and the number of directors constituting the Board of
Directors shall be reduced by two. The voting rights granted by this
Section 3(c) shall be in addition to any other voting rights granted
to the holders of the Series A Preferred Stock in this Section 3.
(d) Except as provided herein, in Section 11 or by applicable
law, holders of Series A Preferred Stock shall have no special voting
rights and their consent shall not be required (except to the extent
they are entitled to vote with holders of Common Stock as set forth
herein) for authorizing or taking any corporate action.
SECTION 4. Certain Restrictions. (a) Whenever quarterly
--------------------
dividends or other dividends or distributions payable on the Series A
Preferred Stock as provided in Section 2 are in arrears, thereafter
and until all accrued and unpaid dividends and distributions, whether
or not declared, on shares of Series A Preferred Stock outstanding
shall have been paid in full, the Corporation shall not
(i) declare or pay dividends on, make any other
distributions on, or redeem or purchase or otherwise acquire for
consideration any shares of stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the
Series A Preferred Stock;
<PAGE>
(ii) declare or pay dividends on or make any other
distributions on any shares of stock ranking on a parity (either
as to dividends or upon liquidation, dissolution or winding up)
with the Series A Preferred Stock, except dividends paid ratably
on the Series A Preferred Stock and all such parity stock on
which dividends are payable or in arrears in proportion to the
total amounts to which the holders of all such shares are then
entitled;
(iii) redeem or purchase or otherwise acquire for
consideration shares of any stock ranking on a parity (either as
to dividends or upon liquidation, dissolution or winding up) with
the Series A Preferred Stock; provided that the Corporation may
--------
at any time redeem, purchase or otherwise acquire shares of any
such parity stock in exchange for shares of any stock of the
Corporation ranking junior (either as to dividends or upon
dissolution, liquidation or winding up) to the Series A Preferred
Stock; or
(iv) purchase or otherwise acquire for consideration any
shares of Series A Preferred Stock, or any shares of stock
ranking on a parity with the Series A Preferred Stock, except in
accordance with a purchase offer made in writing or by
publication (as determined by the Board of Directors) to all
holders of such shares upon such terms as the Board of Directors,
after consideration of the respective annual dividend rates and
other relative rights and preferences of the respective series
and classes, shall determine in good faith will result in fair
and equitable treatment among the respective series or classes.
(b) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any
shares of stock of the Corporation unless the Corporation could, under
paragraph (a) of this Section 4, purchase or otherwise acquire such
shares at such time and in such manner.
SECTION 5. Liquidation Rights. Upon the liquidation,
------------------
dissolution or winding up of the Corporation, whether voluntary or
involuntary, no distribution shall be made (a) to the holders of
shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A Preferred
Stock, unless, prior thereto, the holders of shares of Series A
Preferred Stock shall have received an amount equal to the accrued and
unpaid dividends and distributions thereon, whether or not declared,
to the date of such payment, plus an amount equal to the greater of
(i) $.01 per whole share or (ii) an aggregate amount per share equal
to the Formula Number then in effect times the aggregate amount to be
distributed per share to holders of Common Stock or (b) to the holders
of stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series A Preferred
Stock, except distributions made ratably on the Series A Preferred
<PAGE>
Stock and all other such parity stock in proportion to the total
amounts to which the holders of all such shares are entitled upon such
liquidation, dissolution or winding up.
SECTION 6. Consolidation, Merger, etc. In case the Corporation
--------------------------
shall enter into any consolidation, merger, combination or other
transaction in which the shares of Common Stock are exchanged for or
changed into other stock or securities, cash or any other property,
then, in any such case, the then outstanding shares of Series A
Preferred Stock shall at the same time be similarly exchanged or
changed into an amount per share equal to the Formula Number then in
effect times the aggregate amount of stock, securities, cash or any
other property (payable in kind), as the case may be, into which or
for which each share of Common Stock is exchanged or changed. In the
event both this Section 6 and Section 2 appear to apply to a
transaction, this Section 6 will control.
SECTION 7. No Redemption; No Sinking Fund. (a) The shares of
------------------------------
Series A Preferred Stock shall not be subject to redemption by the
Corporation or at the option of any holder of Series A Preferred
Stock; provided, however, that the Corporation may purchase or
-------- -------
otherwise acquire outstanding shares of Series A Preferred Stock in
the open market or by offer to any holder or holders of shares of
Series A Preferred Stock.
(b) The shares of Series A Preferred Stock shall not be subject
to or entitled to the operation of a retirement or sinking fund.
SECTION 8. Ranking. The Series A Preferred Stock shall rank
-------
junior to all other series of Preferred Stock of the Corporation,
unless the Board of Directors shall specifically determine otherwise
in fixing the powers, preferences and relative, participating,
optional and other special rights of the shares of such series and the
qualifications, limitations and restrictions thereof.
SECTION 9. Fractional Shares. The Series A Preferred Stock
-----------------
shall be issuable upon exercise of the Rights issued pursuant to the
Rights Agreement in whole shares or in any fraction of a share that is
one two-thousandth (1/2,000) of a share or any integral multiple of
such fraction which shall entitle the holder, in proportion to such
holder's fractional shares, to receive dividends, exercise voting
rights, participate in distributions and have the benefit of all other
rights of holders of Series A Preferred Stock. In lieu of fractional
shares, the Corporation, prior to the first issuance of a share or a
fraction of a share of Series A Preferred Stock, may elect (a) to make
a cash payment as provided in the Rights Agreement for fractions of a
share other than one two-thousandth (1/2,000) of a share or any
integral multiple thereof or (b) to issue depository receipts
evidencing such authorized fraction of a share of Series A Preferred
Stock pursuant to an appropriate agreement between the Corporation and
a depository selected by the Corporation; provided that such agreement
--------
shall provide that the holders of such depository receipts shall have
<PAGE>
all the rights, privileges and preferences to which they are entitled
as holders of the Series A Preferred Stock.
SECTION 10. Reacquired Shares. Any shares of Series A
-----------------
Preferred Stock purchased or otherwise acquired by the Corporation in
any manner whatsoever shall be retired and canceled promptly after the
acquisition thereof. All such shares shall upon their cancellation
become authorized but unissued shares of Preferred Stock, par value $1
per share, of the Corporation, undesignated as to series, and may
thereafter be reissued as part of a new series of such Preferred
Shares as permitted by law.
SECTION 11. Amendment. None of the powers, preferences and
---------
relative, participating, optional and other special rights of the
Series A Preferred Stock as provided herein or in the Articles of
Incorporation shall be amended in any manner that would alter or
change the powers, preferences, rights or privileges of the holders of
Series A Preferred Stock so as to affect such holders adversely
without the affirmative vote of the holders of at least 66-2/3% of the
outstanding shares of Series A Preferred Stock, voting as a separate
class; provided, however, that no such amendment approved by the
-------- -------
holders of at least 66-2/3% of the outstanding shares of Series A
Preferred Stock shall be deemed to apply to the powers, preferences,
rights or privileges of any holder of shares of Series A Preferred
Stock originally issued upon exercise of a Right after the time of
such approval without the approval of such holder.
ARTICLE IV
The period of the duration of the Corporation is unlimited and perpetual.
ARTICLE V
1. The number of directors shall be as specified in the By-laws of
the Corporation but such number may be increased or decreased from time to
time in such manner as may be prescribed in the By-laws. In the absence of
a By-law specifying the number of directors, the number shall be nine. The
Board of Directors shall be divided into three classes, Class I, Class II,
and Class III, as nearly equal in number as possible. The initial term of
each class of directors shall expire at the annual meeting of shareholders
to be held in the following years: Class I - 1997; Class II - 1998; and
Class III - 1999. At the 1997 annual meeting of shareholders, directors of
the first class (Class I) shall be elected to hold office for a term
expiring at the 2000 annual meeting of shareholders. At each annual meeting
of shareholders after 1997, the successors to the class of directors whose
term shall then expire shall be identified as being of the same class of
directors they succeed and shall be elected to hold office for a term
expiring at the third succeeding annual meeting of shareholders. When the
number of directors is changed, any newly-created directorships or any
decrease in
<PAGE>
directorships shall be so apportioned among the classes by the Board of
Directors as to make all classes as nearly equal in number as possible.
2. Subject to the rights of the holders of any Preferred Stock then
outstanding, directors may be removed only with cause.
3. Subject to the rights of the holders of any Preferred Stock then
outstanding, newly-created directorships resulting from any increase in the
number of directors and any vacancies in the Board of Directors resulting
from death, resignation, disqualification, removal or other cause shall be
filled solely by the Board of Directors or at an annual meeting of
shareholders by the shareholders entitled to vote on the election of
directors. If the directors remaining in office constitute fewer than a
quorum of the Board, they may fill the vacancy by the affirmative vote of a
majority of the directors remaining in office.
4. Notwithstanding any other provision of these Articles of
Incorporation or any provision of law which might otherwise permit a lesser
vote, but in addition to any affirmative vote of the holders of any
particular class or series of the stock of the Corporation required by law,
these Articles of Incorporation or any Preferred Stock outstanding, the
affirmative vote of at least 80 percent of the outstanding shares of the
Corporation entitled to vote generally at any annual or special meeting of
the shareholders shall be required to alter, amend or repeal paragraph 1 of
this Article V.
ARTICLE VI
Except as expressly otherwise required in these Articles of Incorporation,
an amendment or restatement of these Articles requiring shareholder approval
shall be approved by a majority of the votes entitled to be cast by each voting
group that is entitled to vote on the matter, unless in submitting an amendment
or restatement to the shareholders the Board of Directors shall require a
greater vote.
ARTICLE VII
1. Every person who is or was a director, officer or employee of the
Corporation, or who, at the request of the Corporation, serves or has
served in any such capacity with another corporation, partnership, joint
venture, trust, employee benefit plan, or other enterprise shall be
indemnified by the Corporation against any and all liability and reasonable
expense that may be incurred by him in connection with or resulting from
any claim, action or proceeding (whether brought in the right of the
Corporation or any such other corporation, entity, plan or otherwise), in
which he may become involved, as a party or otherwise, by reason of his
being or having been a director, officer or employee of the Corporation, or
such other corporation, entity or plan while serving at the request of the
Corporation, whether or not he continues to be such at the time such
liability or expense is incurred, unless such person engaged in willful
misconduct or a knowing violation of the criminal law.
<PAGE>
As used in this Article VII: (a) the terms "liability" and "expense"
shall include, but shall not be limited to, counsel fees and disbursements
and amounts of judgments, fines or penalties against, and amounts paid in
settlement by, a director, officer or employee; (b) the terms "director,"
"officer" and "employee," unless the context otherwise requires, include
the estate or personal representative of any such person; (c) a person is
considered to be serving an employee benefit plan as a director, officer or
employee of the plan at the Corporation's request if his duties to the
Corporation also impose duties on, or otherwise involve services by, him to
the plan or, in connection with the plan, to participants in or
beneficiaries of the plan; (d) the term "occurrence" means any act or
failure to act, actual or alleged, giving rise to a claim, action or
proceeding; and (e) service as a trustee or as a member of a management or
similar committee of a partnership, joint venture or limited liability
company shall be considered service as a director, officer or employee of
the trust, partnership, joint venture or limited liability company.
The termination of any claim, action or proceeding, civil or criminal,
by judgment, settlement, conviction or upon a plea of nolo contendere, or
its equivalent, shall not create a presumption that a director, officer or
employee did not meet the standards of conduct set forth in this paragraph
1. The burden of proof shall be on the Corporation to establish, by a
preponderance of the evidence, that the relevant standards of conduct set
forth in this paragraph 1 have not been met.
2. Any indemnification under paragraph 1 of this Article VII shall
be made unless (a) the Board, acting by a majority vote of those directors
who were directors at the time of the occurrence giving rise to the claim,
action or proceeding involved and who are not at the time parties to such
claim, action or proceeding (provided there are at least five such
directors), finds that the director, officer or employee has not met the
relevant standards of conduct set forth in such paragraph 1, or (b) if
there are not at least five such directors, the Corporation's principal
Virginia legal counsel, as last designated by the Board as such prior to
the time of the occurrence giving rise to the claim, action or proceeding
involved, or in the event for any reason such Virginia counsel is unwilling
to so serve, then Virginia legal counsel mutually acceptable to the
Corporation and the person seeking indemnification, deliver to the
Corporation their written advice that, in their opinion, such standards
have not been met.
3. Expenses incurred with respect to any claim, action or proceeding
of the character described in paragraph 1 shall, except as otherwise set
forth in this paragraph 3, be advanced by the Corporation prior to the
final disposition thereof upon receipt of an undertaking by or on behalf of
the recipient to repay such amount if it is ultimately determined that he
is not entitled to indemnification under this Article VII. No security
shall be required for such undertaking and such undertaking shall be
accepted without reference to the recipient's final ability to make
repayment. Notwithstanding the foregoing, the Corporation may refrain from,
or suspend, payment of expenses in advance if at any time before delivery
of the final finding described in paragraph 2, the Board or Virginia legal
counsel, as the case may be,
<PAGE>
acting in accordance with the procedures set forth in paragraph 2, find by
a preponderance of the evidence then available that the officer, director
or employee has not met the relevant standards of conduct set forth in
paragraph 1.
4. No amendment or repeal of this Article VII shall adversely affect
or deny to any director, officer or employee the rights of indemnification
provided in this Article VII with respect to any liability or expense
arising out of a claim, action or proceeding based in whole or substantial
part on an occurrence the inception of which takes place before or while
this Article VII, as set forth in these Amended and Restated Articles of
Incorporation, is in effect. The provisions of this paragraph 4 shall apply
to any such claim, action or proceeding whenever commenced, including any
such claim, action or proceeding commenced after any amendment or repeal to
this Article VII.
5. The rights of indemnification provided in this Article VII shall
be in addition to any rights to which any such director, officer or
employee may otherwise be entitled by contraction or as a matter of law.
6. In any proceeding brought by or in the right of the Corporation
or brought by or on behalf of shareholders of the Corporation, no director
or officer of the Corporation shall be liable to the Corporation or its
shareholders for monetary damages with respect to any transaction,
occurrence or course of conduct, whether prior or subsequent to the
effective date of this Article VII, except for liability resulting from
such person's having engaged in willful misconduct or a knowing violation
of the criminal law or any federal or state securities law.
<PAGE>
1
Exhibit 2
---------
[Form of Right Certificate]
Certificate No. [R]-
_________ Rights
NOT EXERCISABLE AFTER DECEMBER 19, 2006, OR EARLIER, IF REDEEMED BY
THE COMPANY. THE RIGHTS ARE SUBJECT TO REDEMPTION, AT THE OPTION OF
THE COMPANY, AT $.005 PER RIGHT, ON THE TERMS SET FORTH IN THE RIGHTS
AGREEMENT. RIGHTS BENEFICIALLY OWNED BY AN ACQUIRING PERSON OR AN
AFFILIATE OR ASSOCIATE OF AN ACQUIRING PERSON (AS SUCH TERMS ARE
DEFINED IN THE RIGHTS AGREEMENT) AND BY ANY SUBSEQUENT HOLDER OF SUCH
RIGHTS ARE NULL AND VOID AND NONTRANSFERABLE.
Right Certificate
PRIMEX TECHNOLOGIES, INC.
This certifies that , or registered assigns, is
the registered owner of the number of Rights set forth above, each of which
entitles the owner thereof, subject to the terms, provisions and conditions of
the Rights Agreement dated as of February 1, 2000 (the "Rights Agreement"),
between Primex Technologies, Inc., a Virginia corporation (the "Company"), and
The Bank of New York, a New York trust company, as Rights Agent (the "Rights
Agent"), unless the Rights evidenced hereby shall have been previously redeemed
by the Company, to purchase from the Company at any time after the Distribution
Date (as defined in the Rights Agreement) and prior to 5:00 p.m., New York City
time, on December 19, 2006 (the "Expiration Date"), at the principal office of
the Rights Agent, or its successors as Rights Agent, in New York, New York, one
two-thousandth (1/2000) of a fully paid, nonassessable share of Series A
Participating Cumulative Preferred Stock, without par value, of the Company (the
"Preferred Shares"), at a purchase price per one two-thousandth (1/2000) of a
share equal to $55 (the "Purchase Price"), payable in cash, upon presentation
and surrender of this Right Certificate with the Form of Election to Purchase
duly executed.
The Purchase Price and the number and kind of shares which may be
purchased upon exercise of each Right evidenced by this Right Certificate, as
set forth above, are the Purchase Price and the number and kind of shares which
may be so purchased as of February 1, 2000. As provided in the Rights Agreement,
the Purchase Price and the number and kind of shares which may be purchased upon
the exercise of each Right evidenced by this Right Certificate are subject to
modification and adjustment upon the happening of certain events.
If the Rights evidenced by this Right Certificate are at any time
beneficially owned by an Acquiring Person or an Affiliate or Associate of an
Acquiring Person (as such terms are defined in the Rights Agreement), such
Rights shall be null and void and nontransferable and the holder of any such
Right (including any purported transferee or subsequent holder) shall not have
any right to exercise or transfer any such Right.
<PAGE>
2
This Right Certificate is subject to all the terms, provisions and
conditions of the Rights Agreement, which terms, provisions and conditions are
hereby incorporated herein by reference and made a part hereof, and reference to
the Rights Agreement is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities hereunder of the
Rights Agent, the Company and the holders of the Right Certificates. Copies of
the Rights Agreement are on file at the above-mentioned office of the Rights
Agent and are also available from the Company upon written request.
This Right Certificate, with or without other Right Certificates, upon
surrender at the principal stock transfer or corporate trust office of the
Rights Agent, may be exchanged for another Right Certificate or Right
Certificates of like tenor and date evidencing Rights entitling the holder to
purchase a like aggregate number and kind of shares as the Rights evidenced by
the Right Certificate or Right Certificates surrendered shall have entitled such
holder to purchase. If this Right Certificate shall be exercised in part, the
holder shall be entitled to receive upon surrender hereof another Right
Certificate or Right Certificates for the number of whole Rights not exercised.
Subject to the provisions of the Rights Agreement, the Rights
evidenced by this Right Certificate may be redeemed by the Company at its option
at a redemption price (in cash or shares of Common Stock or other securities of
the Company deemed by the Board of Directors to be at least equivalent in value)
of $.005 per Right (which amount shall be subject to adjustment as provided in
the Rights Agreement) at any time prior to the earlier of (a) such time as a
Person becomes an Acquiring Person and (b) the Expiration Date.
The Company may, but shall not be required to, issue fractions of
Preferred Shares or distribute certificates which evidence fractions of
Preferred Shares upon the exercise of any Right or Rights evidenced hereby. In
lieu of issuing fractional shares, the Company may elect to make a cash payment
as provided in the Rights Agreement for fractions of a share other than one two-
thousandth (1/2000) of a share or any integral multiple thereof or to issue
certificates or to utilize a depositary arrangement as provided in the terms of
the Rights Agreement and the Preferred Shares.
No holder of this Right Certificate shall be entitled to vote or
receive dividends or be deemed for any purpose the holder of the Preferred
Shares or of any other securities of the Company which may at any time be
issuable on the exercise hereof, nor shall anything contained in the Rights
Agreement or herein be construed to confer upon the holder hereof, as such, any
of the rights of a shareholder of the Company, including, without limitation,
any right to vote for the election of directors or upon any matter submitted to
shareholders at any meeting thereof, or to give or withhold consent to any
corporate action, or to receive notice of meetings or other actions affecting
shareholders (except as provided in the Rights Agreement), or to receive
dividends or other distributions or subscription rights, or otherwise, until the
Right or Rights evidenced by this Right Certificate shall have been exercised as
provided in accordance with the provisions of the Rights Agreement.
<PAGE>
3
This Right Certificate shall not be valid or obligatory for any
purpose until it shall have been countersigned by the Rights Agent.
WITNESS the facsimile signature of the proper officers of the Company
and its corporate seal.
Dated as of:
PRIMEX TECHNOLOGIES, INC.,
by
Name:
Title:
Attest:
_______________________
Name:
Title:
Countersigned:
THE BANK OF NEW YORK, as Rights Agent,
by
_____________________
Name:
Title:
<PAGE>
[On Reverse Side of Right Certificate]
FORM OF ELECTION TO PURCHASE
----------------------------
(To be executed by the registered holder if
such holder desires to exercise the Rights
represented by this Right Certificate.)
To the Rights Agent:
The undersigned hereby irrevocably elects to exercise __________
Rights represented by this Right Certificate to purchase the Preferred Shares
(or other shares) issuable upon the exercise of such Rights and requests that
certificates for such shares be issued in the name of:
Please insert social security
or other identifying number
- --------------------------------------------------------------------------------
(Please print name and address)
- --------------------------------------------------------------------------------
If such number of Rights shall not be all the Rights evidenced by this
Right Certificate, a new Right Certificate for the balance remaining of such
Rights shall be registered in the name of and delivered to:
Please insert social security
or other identifying number
- --------------------------------------------------------------------------------
(Please print name and address)
- --------------------------------------------------------------------------------
Dated: _________, ____
------------------------------
Signature
Signature Guaranteed:
<PAGE>
FORM OF ASSIGNMENT
------------------
(To be executed by the registered holder if such
holder desires to transfer the Right Certificate.)
FOR VALUE RECEIVED _______________________________ hereby sells,
assigns and transfers unto ___________________
____________________________________________________________
(Please print name and address of transferee)
____________________________________________________________
this Right Certificate, together with all right, title and interest therein, and
does hereby irrevocably constitute and appoint ______________ Attorney, to
transfer the within Right Certificate on the books of the within-named
Corporation, with full power of substitution.
Dated: ____________, ____
______________________________
Signature
Signature Guaranteed:
The undersigned hereby certifies that (a) the Rights evidenced by this
Right Certificate are not being sold, assigned or transferred by or on behalf of
a Person who is or was an Acquiring Person or an Affiliate or Associate thereof
(as such terms are defined in the Rights Agreement), (b) this Rights Certificate
is not being sold, assigned or transferred to or on behalf of any such Acquiring
Person, Affiliate or Associate, and (c) after inquiry and to the best knowledge
of the undersigned, the undersigned did not acquire the Rights evidenced by this
Right Certificate from any Person who is or was an Acquiring Person or an
Affiliate or Associate thereof (as such terms are defined in the Rights
Agreement).
______________________________
Signature
NOTICE
------
The signature on the foregoing Form of Election to Purchase or Form of
Assignment must correspond to the name as written upon the face of this Right
Certificate in every particular, without alteration or enlargement or any change
whatsoever.
<PAGE>
Exhibit 10.1
EXECUTIVE AGREEMENT
-------------------
Agreement between Primex Technologies, Inc., a Virginia corporation
("Primex"), and [Name] (the "Executive"), dated as of November 2, 1999.
Primex and the Executive agree as follows:
1. Definitions
As used in this Agreement:
(a) "Cause" means the willful and continued failure of the Executive
to substantially perform his duties; the willful engaging by the Executive in
gross misconduct significantly and demonstrably financially injurious to Primex;
or willful misconduct by the Executive during his employment which is a felony
or fraud. No act or failure to act on the part of the Executive will be
considered "willful" unless done or omitted not in good faith and without
reasonable belief that the action or omission was in the interests of Primex or
not opposed to the interests of Primex and unless the act or failure to act has
not been cured by the Executive within a reasonable time after written notice to
the Executive specifying the nature of such violations.
Notwithstanding the foregoing, the Executive shall not be deemed
to have been terminated for Cause without (i) reasonable notice to the Executive
setting forth the reasons for Primex's intention to terminate for Cause, (ii) an
opportunity for the Executive, together with his counsel, to be heard before the
Board of Directors of Primex and (iii) delivery to the Executive of a notice of
Termination from the Board of Directors of Primex finding that, in the good
faith opinion of 75% of the entire membership of such Board, the Executive was
guilty of conduct described above and specifying the particulars thereof in
detail.
(b) "Change in Control" means:
(i) Primex ceases to be owned by at least 300 shareholders of
record after December 31, 1996, or ceases, by action of Primex's Board of
Directors, to be either listed on a national securities exchange or authorized
for quotation on The Nasdaq Stock Market;
(ii) a person, partnership, joint venture, corporation or other
entity, or two or more of any of the foregoing acting as a "person" within the
meaning of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended
(the "Act"), other than Primex, a majority-owned subsidiary of Primex, or an
employee benefit plan (or related trust)
<PAGE>
2
of Primex, or such subsidiary, become(s) the "beneficial owner" (as defined in
Rule 13(d)(3) under the Act) of 15% or more of the then outstanding voting stock
of Primex;
(iii) during any period of two consecutive years after 1996,
individuals who at the beginning of such period constitute Primex's Board of
Directors (together with any new Director whose election by Primex's Board of
Directors or whose nomination for election by Primex's shareholders, was
approved by a vote of at least two-thirds of the Directors then still in office
who either were Directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason to
constitute a majority of the Directors then in office;
(iv) all or substantially all of the business or assets of
Primex is disposed of pursuant to a merger, consolidation or other transaction,
whether or not Primex is the surviving corporation, (unless in either case the
shareholders of Primex immediately prior to such merger, consolidation,
combination or other transaction beneficially own, directly or indirectly, more
than 50% of the aggregate voting stock or other ownership interests of (x) the
entity or entities, if any, that succeed to the business of Primex or (y) the
combined company);
(v) Primex's Board of Directors determines that a tender offer
for Primex's shares indicates a serious intention by the offeror to acquire
control of Primex; or
(vi) shareholder approval of a liquidation or dissolution of
Primex.
(c) "Disability" means that the Executive has suffered an incapacity
due to physical or mental illness which meets the criteria for disability
established at the time under Primex's short-term disability plan.
(d) "Executive Severance" means:
(i) twelve months of the Executive's then current monthly
salary (without taking into account any reductions which may have occurred at or
after the date of a Change in Control); plus
(ii) an amount equal to the greater of (a) the Executive's
average annual award actually paid under Primex's short-term annual incentive
compensation plans or programs ("ICP") for the three years (or for such fewer
years as the ICP may have been in effect) immediately preceding the date of
Termination or (b) the Executive's then current ICP Target Incentive.
(iii) The Executive will not be entitled to receive any other
severance otherwise payable to the Executive under any other severance plan of
Primex.
(iv) If on the Termination date the Executive is eligible and
is receiving payments under any then existing Primex disability plan, then the
Executive agrees that all such payments may, and will be, suspended and offset
for 12 months following the
<PAGE>
3
Termination date. If after such period the Executive remains eligible to receive
disability payments, then such payments shall resume in the amounts and in
accordance with the provisions of the applicable Primex disability plan.
(e) "Potential Change in Control" means:
(i) Primex has entered into an agreement the consummation
of which would result in a Change in Control;
(ii) any person (including Primex ) publicly announces an
intention to take or to consider taking actions which if consummated would
constitute a Change in Control;
(iii) Primex learns that any person (other than Primex, a
majority-owned subsidiary of Primex, or an employee benefit plan (or related
trust) of Primex, or such subsidiary,) has become the beneficial owner directly
or indirectly of securities of Primex representing 9.5% or more of the combined
voting power of Primex's then outstanding securities ordinarily entitled to vote
in elections of directors; or
(iv) the Board of Directors of Primex adopts a resolution to
the effect that, for purposes of this Agreement, a Potential Change in Control
of Primex has occurred.
(f) "Termination" means:
(i) The Executive is discharged by Primex other than for
Cause;
(ii) The Executive terminates his or her employment in the
event that:
(1) Primex requires the Executive to relocate the
Executive's then office to a location that is more than 25 miles further from
his then principal residence than the distance from such residence to his prior
office, except that prior to a Change in Control, a requirement to relocate the
Executive's office to Primex's corporate headquarters is not a basis for
Termination;
(2) Primex reduces the Executive's base salary or fails
to increase the Executive's base salary on a basis consistent (as to frequency
and amount) with Primex's exempt salary system as then in effect or, in the
event of a Change in Control, as in effect immediately prior to the Change in
Control;
(3) Primex fails to continue the Executive's
participation in its benefit plans (including incentive compensation and stock
based incentives) on substantially the same basis, both in terms of the amount
of the benefits provided (other than due to Primex's or a relevant operation's
financial or stock price performance provided such performance is a relevant
criterion under such plan) and the level of the Executive's
<PAGE>
4
participation relative to other participants as exists on the date hereof;
provided that, with respect to annual and long term incentive compensation
plans, the basis with which the amount of benefits and level of participation of
the Executive shall be compared shall be the average benefit awarded to the
Executive under the relevant plan during the three years (or such fewer years as
such plans may have been in effect) immediately preceding the date of
Termination;
(4) The Executive suffers a Disability which prevents the
Executive from performing the Executive's duties with Primex for a period of at
least 180 consecutive days;
(5) Following a Change in Control, Primex fails to
substantially maintain its benefit plans as in effect at the time of the Change
in Control, unless reasonably equivalent arrangements (embodied in an on-going
substitute or alternative plan) have been made with respect to such plans; or
(6) The Executive's duties, position or reporting
responsibilities are diminished; or
(iii) The Executive terminates his or her employment with Primex
for any reason within the 90-day period immediately following the expiration of
six months following the date of a Change in Control.
2. Previous Change in Control Agreement. This Agreement supersedes and
replaces the Executive Agreement dated as of May 5, 1998 between Primex and the
Executive.
3. Term/Executive's Duties
(a) This Agreement expires at the close of business on December 31,
2002, unless prior to that date there is a Change in Control, in which case this
Agreement will expire on the later of the close of business on December 31, 2002
or three years following the date of a Change in Control; provided that the
expiration of this Agreement will not affect any of the Executive's rights
resulting from a Termination prior to such expiration. In the event of the
Executive's death while employed by Primex, this Agreement shall terminate and
be of no further force or effect on the date of his or her death; provided that
the Executive's death will not affect any of the Executive's rights resulting
from a Termination prior to death.
(b) During the period of the Executive's employment by Primex, the
Executive shall devote his or her full time best efforts during normal business
hours to Primex's business and affairs, except during reasonable vacation
periods and periods of illness or incapacity. Nothing in this Agreement will
preclude the Executive from devoting reasonable periods required for service as
a director or a member of any organization involving no conflict of interest
with Primex's interest, provided that no additional position as director or
member shall be accepted by the Executive during the period of his employment
with Primex without its prior consent.
<PAGE>
5
(c) The Executive agrees that in the event of any Potential Change in
Control of Primex occurring after the date hereof, the Executive will remain in
the employ of Primex until the earlier of (i) the end of the six-month period
following the occurrence of such Potential Change in Control and (ii) a Change
in Control, during which time the Executive will have an office, title, duties
and responsibilities substantially consistent with those applicable immediately
prior to the Potential Change in Control.
4. Executive Severance Payment
(a) In the event of a Termination occurring before the expiration of
this Agreement, Primex will pay the Executive a lump sum in an amount equal to
the Executive Severance. The payment will be made within 10 days of the
effective date of the Termination.
(b) In the event of a Termination after a Change in Control has
occurred, in addition to the Executive Severance paid under Paragraph 4(a)
above, Primex will pay a Change in Control severance premium to the Executive in
an amount equal to two times the Executive Severance. The Change in Control
severance premium, if it becomes due, will be made immediately (or in any event
as soon as administratively practicable) following the effective date of the
Termination.
(c) The Executive will not be required to mitigate the amount of any
payment provided for in paragraph 4(a) or 4(b) by seeking other employment or
otherwise, nor shall any compensation received by the Executive from a third
party reduce such payment. Except as may otherwise be expressly provided
herein, nothing in this Agreement will be deemed to reduce or limit the rights
which the Executive may have under any employee benefit plan, policy or
arrangement of Primex.
5. Other Benefits and Payments
(a) (1) If the Executive becomes entitled to payment under Paragraph
4(a), then the Executive shall be entitled to receive a lump sum payment from
Primex at the same time as the payment under Paragraph 4(a) is made equal to the
amount contributed or credited by Primex to the Executive's accounts in all
defined contribution plans of Primex (whether or not "qualified" plans) during
the 12 months preceding the Executive's Termination provided that in the event
there are fewer than 12 months in such period the payment required shall be
increased proportionately to make it equivalent to a 12 month period. The
"amount contributed or credited by Primex" as defined in this Paragraph 5 shall
not include any employee contributions, employer matching contributions,
dividends or investment gains or losses credited to the Executive's accounts,
but only the Primex contributions made or, in the case of supplementary plans,
credited, to the accounts. Such payment shall be in lieu of any such
contributions or credits by Primex to its defined contribution plans with
respect to the period after the Executive's Termination. If Primex is required
by law to contribute to such plans with respect to the period after the
Executive's Termination, any such contribution shall reduce the payout otherwise
due Executive under
<PAGE>
6
this Paragraph 5(a)(1). In the event the Executive receives a payment under
Paragraph 4(b), the amount required to be paid under the preceding sentences of
this Paragraph 5(a)(1) shall be tripled. Notwithstanding the foregoing, in the
event at the date of Termination the Executive is more than 69 years old (or
more than 68 years old in the case the Executive receives a payment under
Paragraph 4(b)) the lump sum payment required to be made under this Paragraph
5(a)(1) shall be reduced such that if it were expressed as equal monthly
payments made over a 12-month period (a 24-month period in the case of the
Executive receiving a payment under Paragraph 4(b)) and paid in monthly
installments on the first of every month following Termination no such monthly
payments would be received by the Executive beyond his or her seventieth
birthday.
(2) If the Executive becomes entitled to payment under Paragraph
4(a), for the 12 months from the date of the Termination the Executive will
continue to enjoy coverage under all Primex medical, dental, and life insurance
plans to the extent the Executive was enjoying such coverage immediately prior
to the Termination. The Executive shall accrue no vacation during the 12 months
following the date of Termination but shall be entitled to payment for accrued
and unused vacation for the then current year. If the Executive receives the
Executive Severance (including the amount referred to in Paragraph 1(d)(ii)),
the Executive shall not be entitled to an ICP award for the calendar year of
Termination if Termination occurs during the first calendar quarter. Even if
the Executive receives the Executive Severance (including the amount referred to
in Paragraph 1(d)(ii)), if Termination occurs during or after the second
calendar quarter, the Executive shall also be entitled to a prorated ICP award
for the calendar year of Termination which shall be determined by multiplying
his or her then current ICP Target Incentive by a fraction the numerator of
which is the number of weeks in the calendar year prior to the Termination and
the denominator of which is 52. The Executive shall accrue no ICP award during
the 12 months following the date of Termination.
(b) If the Executive receives payment under Paragraph 4(b), the insurance
coverage provided for in Paragraph 5(a) (2) will be for an additional 24-month
period.
(c) Notwithstanding the foregoing Paragraphs 5(a)(2), and (b), no such
insurance coverage will be afforded by this Agreement with respect to any period
after the Executive's seventieth birthday.
(d) In the event of a Termination, the Executive will be entitled at
Primex's expense to outplacement counseling and associated services in
accordance with Primex's customary practice at the time (or, if a Change in
Control shall have occurred, in accordance with such practice immediately prior
thereto) with respect to its senior executives who have been terminated other
than for Cause. It is understood that the counseling and services contemplated
by this Paragraph 5(d) are intended to facilitate the obtaining by the Executive
of other employment following a Termination, and payments or benefits by Primex
in lieu thereof will not be available to the Executive.
(e) If the Executive (i) receives the payment under Paragraph 4(b), (ii)
has an accrued vested benefit under Olin's qualified pension plan as of the date
of Termination
<PAGE>
7
and (iii) at age 55, would not qualify for subsidized early retirement from Olin
---
under the provisions of Olin's pension plans, then, concurrent with the payment
made to the Executive under Paragraph 4(b), the Executive will receive a lump
sum payment from Primex to make up for the lost subsidy calculated as follows:
First, by calculating the annual benefit which would otherwise be
-----
payable to the Executive at age 65 under all Olin pension plans assuming the
Executive had terminated his or her employment with Primex on the date of the
Change in Control, second, by multiplying such annual benefit by the percentage
------
then applicable in the calculation of benefits paid to employees retiring from
active service with Olin at age 55 under the early retirement provisions of the
Olin Employees Pension Plan (72% at the date hereof), third, by determining the
------
lump sum actuarial value (as of the date of Termination) of annual payments
beginning at age 55 as calculated in the second step and fourth, by deducting
------ ------
from such lump sum actuarial value the lump sum actuarial value (as of the date
of Termination) of the Executive's accrued annual benefits under all Olin
pension plans. Lump sum actuarial value shall be determined in accordance with
Olin's actuarial assumptions for its nonqualified defined benefit plans.
6. Participation in Change in Control/Section 4999 of Internal Revenue
Code
(a) In the event that the Executive participates or agrees to
participate by loan or equity investment (other than through ownership of less
than 1% of publicly traded securities of another company) in a transaction
("acquisition") which would result in an event described in paragraph 1(b)(i) or
(ii), the Executive must promptly disclose such participation or agreement to
Primex. If the Executive so participates or agrees to participate, no payments
due under this Agreement or by virtue of any Change in Control provisions
contained in any compensation or benefit plan of Primex will be paid to the
Executive until the acquiring group in which the Executive participates or
agrees to participate has completed the acquisition. In the event the Executive
so participates or agrees to participate and fails to disclose his or her
participation or agreement, the Executive will not be entitled to any payments
under this Agreement or by virtue of Change in Control provisions in any Primex
compensation or benefit plan, notwithstanding any of the terms hereof or
thereof.
(b) Any payments made pursuant to this Agreement or by virtue of
Change in Control provisions in any Primex compensation or benefit plan which
are subject to tax under Section 4999 of the Internal Revenue Code or a
successor provision ("4999") will be increased so that after paying the tax
imposed by 4999 and the income and employment tax on the amount of the increase
provided by this paragraph (b), the Executive will have received a net payment
equal to that which he or she would have received if 4999 did not apply. All
determinations required to be made under this Paragraph 6(b), including whether
and when the net gross-up payment is required and the amount of such net gross-
up payment including any determination of the parachute payments under Section
280G(b)(2) of the Internal Revenue Code, and the assumptions to be utilized in
arriving at such determinations shall be made by Primex's independent auditors
(the "Accounting Firm") which shall provide detailed supporting calculations
both to Primex and the Executive within 15 business days of the receipt of
notice from the Executive that there has been a payment
<PAGE>
8
contingent on a Change in Control that would trigger the excise tax imposed by
Sections 280G and 4999 of the Internal Revenue Code, or such earlier time as is
requested by Primex. All fees and expenses of the Accounting Firm shall be borne
solely by Primex. Any net gross-up payment shall be paid by Primex to the
Executive as soon as practicable following receipt of the Accounting Firm's
determination. Any determination by the Accounting Firm shall be binding upon
Primex and the Executive. As a result of uncertainty in the application of
Section 4999 of the Internal Revenue Code at the time of the initial
determination by the Accounting Firm hereunder, it is possible that the net
gross-up payment made will have been in an amount less than Primex should have
paid pursuant to this Paragraph 6(b) (the "Underpayment"). In the event that the
Executive thereafter is required to make a payment of any excise tax under
Section 280G of the Internal Revenue Code, the Accounting Firm shall determine
the amount of the underpayment and any such underpayment shall be promptly paid
by Primex to or for the benefit of the Executive.
7. Successors; Binding Agreement
(a) Primex will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business or assets of Primex, by agreement, in form and substance satisfactory
to the Executive, expressly to assume and agree to perform this Agreement in the
same manner and to the same extent that Primex would be required to perform if
no such succession had taken place. Failure of Primex to obtain such assumption
and agreement prior to the effectiveness of any such succession will be a breach
of this Agreement and entitle the Executive to compensation from Primex in the
same amount and on the same terms as the Executive would be entitled to
hereunder had a Termination occurred on the succession date. As used in this
Agreement, "Primex" means Primex as defined in the preamble to this Agreement
and any successor to its business or assets which executes and delivers the
agreement provided for in this Paragraph 7 or which otherwise becomes bound by
all the terms and provisions of this Agreement by operation of law or otherwise.
(b) This Agreement shall be enforceable by the Executive's personal or
legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees.
8. Notices. For the purpose of this Agreement, notices and all other
communications provided for herein shall be in writing and shall be deemed to
have been duly given when delivered or mailed by United States registered or
certified mail, return receipt requested, postage prepaid, addressed as follows:
If to the Executive: Name
Street Address
Building/Apartment No.
City, State Zip Code
If to the Company: Primex Technologies, Inc.
10101 Ninth Street North
<PAGE>
9
St. Petersburg, FL 33716-3807
Attention: Corporate Secretary
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
9. Governing Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
Florida without reference to choice of law principles thereunder.
10. Miscellaneous. No provisions of this Agreement may be modified,
waived or discharged unless such modification, waiver or discharge is agreed to
in writing signed by the Executive and Primex. No waiver by either party hereto
at any time of any breach by the other party hereto of, or compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time. No agreements or representations,
oral or otherwise, express or implied, with respect to the subject matter hereof
have been made by either party which are not set forth expressly in this
Agreement.
11. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same Agreement.
12. Withholding of Taxes. Primex may withhold from any benefits payable
under this Agreement all federal, state, city or other taxes as shall be
required pursuant to any law or governmental regulation or ruling.
13. Non-assignability. This Agreement is personal in nature and neither of
the parties hereto shall, without the consent of the other, assign or transfer
this Agreement or any rights or obligations hereunder, except as provided in
paragraph 7 above. Without limiting the foregoing, the Executive's right to
receive payments hereunder shall not be assignable or transferable, whether by
pledge, creation of a security interest or otherwise, other than a transfer by
his will or by the laws of descent or distribution, and, in the event of any
attempted assignment or transfer by the Executive contrary to this Paragraph,
Primex shall have no liability to pay any amount so attempted to be assigned or
transferred.
14. No Employment Right. This Agreement shall not be deemed to confer on
the Executive a right to continued employment with Primex.
15. Disputes/Arbitration.
(a) Any dispute or controversy arising under or in connection with
this Agreement shall be settled exclusively by binding arbitration at Primex's
corporate headquarters in accordance with the rules of the American Arbitration
Association then in effect. Judgment may be entered on the arbitrator's award
in any court having jurisdiction; provided, however, that the Executive shall be
entitled to seek specific performance of the
<PAGE>
10
Executive's right to be paid during the pendency of any dispute or controversy
arising under or in connection with this Agreement.
(b) Primex shall pay all reasonable legal fees and expenses, as they
become due, which the Executive may incur to enforce this Agreement through
arbitration or otherwise unless the arbitration determines that the Executive
had no reasonable basis for his claim. Should Primex dispute the entitlement of
the Executive to such fees and expenses, the burden of proof shall be on Primex
to establish that the Executive had no reasonable basis for his claim.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered as of the day and year first above set forth.
PRIMEX TECHNOLOGIES, INC.
By: ____________________________
James G. Hascall
Title: Chairman and CEO
_________________________
Executive
<PAGE>
Exhibit 10.2
EXECUTIVE AGREEMENT
-------------------
Agreement between Primex Technologies, Inc., a Virginia corporation
("Primex"), and [Name] (the "Executive"), dated as of February 29, 2000.
Primex and the Executive agree as follows:
1. Definitions
As used in this Agreement:
(a) "Cause" means the willful and continued failure of the Executive
to substantially perform his duties; the willful engaging by the Executive in
gross misconduct significantly and demonstrably financially injurious to Primex;
or willful misconduct by the Executive during his employment which is a felony
or fraud. No act or failure to act on the part of the Executive will be
considered "willful" unless done or omitted not in good faith and without
reasonable belief that the action or omission was in the interests of Primex or
not opposed to the interests of Primex and unless the act or failure to act has
not been cured by the Executive within a reasonable time after written notice to
the Executive specifying the nature of such violations.
Notwithstanding the foregoing, the Executive shall not be deemed
to have been terminated for Cause without (i) reasonable notice to the Executive
setting forth the reasons for Primex's intention to terminate for Cause, (ii) an
opportunity for the Executive, together with his counsel, to be heard before the
Board of Directors of Primex and (iii) delivery to the Executive of a notice of
Termination from the Board of Directors of Primex finding that, in the good
faith opinion of 75% of the entire membership of such Board, the Executive was
guilty of conduct described above and specifying the particulars thereof in
detail.
(b) "Change in Control" means:
(i) Primex ceases to be owned by at least 300 shareholders of
record after December 31, 1996, or ceases, by action of Primex's Board of
Directors, to be either listed on a national securities exchange or authorized
for quotation on The Nasdaq Stock Market;
(ii) a person, partnership, joint venture, corporation or other
entity, or two or more of any of the foregoing acting as a "person" within the
meaning of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended
(the "Act"), other than Primex, a majority-owned subsidiary of Primex, or an
employee benefit plan (or related trust)
<PAGE>
2
of Primex, or such subsidiary, become(s) the "beneficial owner" (as defined in
Rule 13(d)(3) under the Act) of 15% or more of the then outstanding voting stock
of Primex;
(iii) during any period of two consecutive years after 1996,
individuals who at the beginning of such period constitute Primex's Board of
Directors (together with any new Director whose election by Primex's Board of
Directors or whose nomination for election by Primex's shareholders, was
approved by a vote of at least two-thirds of the Directors then still in office
who either were Directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason to
constitute a majority of the Directors then in office;
(iv) all or substantially all of the business or assets of
Primex is disposed of pursuant to a merger, consolidation or other transaction,
whether or not Primex is the surviving corporation, (unless in either case the
shareholders of Primex immediately prior to such merger, consolidation,
combination or other transaction beneficially own, directly or indirectly, more
than 50% of the aggregate voting stock or other ownership interests of (x) the
entity or entities, if any, that succeed to the business of Primex or (y) the
combined company);
(v) Primex's Board of Directors determines that a tender offer
for Primex's shares indicates a serious intention by the offeror to acquire
control of Primex; or
(vi) shareholder approval of a liquidation or dissolution of
Primex.
(c) "Disability" means that the Executive has suffered an incapacity
due to physical or mental illness which meets the criteria for disability
established at the time under Primex's short-term disability plan.
(d) "Executive Severance" means:
(i) twelve months of the Executive's then current monthly
salary (without taking into account any reductions which may have occurred at or
after the date of a Change in Control); plus
(ii) an amount equal to the greater of (a) the Executive's
average annual award actually paid under Primex's short-term annual incentive
compensation plans or programs ("ICP") for the three years (or for such fewer
years as the ICP may have been in effect) immediately preceding the date of
Termination or (b) the Executive's then current ICP Target Incentive.
(iii) The Executive will not be entitled to receive any other
severance otherwise payable to the Executive under any other severance plan of
Primex.
(iv) If on the Termination date the Executive is eligible and is
receiving payments under any then existing Primex disability plan, then the
Executive agrees that all such payments may, and will be, suspended and offset
for 12 months following the
<PAGE>
3
Termination date. If after such period the Executive remains eligible to receive
disability payments, then such payments shall resume in the amounts and in
accordance with the provisions of the applicable Primex disability plan.
(e) "Potential Change in Control" means:
(i) Primex has entered into an agreement the consummation of
which would result in a Change in Control;
(ii) any person (including Primex ) publicly announces an
intention to take or to consider taking actions which if consummated would
constitute a Change in Control;
(iii) Primex learns that any person (other than Primex, a
majority-owned subsidiary of Primex, or an employee benefit plan (or related
trust) of Primex, or such subsidiary,) has become the beneficial owner directly
or indirectly of securities of Primex representing 9.5% or more of the combined
voting power of Primex's then outstanding securities ordinarily entitled to vote
in elections of directors; or
(iv) the Board of Directors of Primex adopts a resolution to the
effect that, for purposes of this Agreement, a Potential Change in Control of
Primex has occurred.
(f) "Termination" means:
(i) The Executive is discharged by Primex other than for Cause;
(ii) The Executive terminates his or her employment in the event
that:
(1) Primex requires the Executive to relocate the
Executive's then office to a location that is more than 25 miles further from
his then principal residence than the distance from such residence to his prior
office, except that prior to a Change in Control, a requirement to relocate the
Executive's office to Primex's corporate headquarters is not a basis for
Termination;
(2) Primex reduces the Executive's base salary or fails to
increase the Executive's base salary on a basis consistent (as to frequency and
amount) with Primex's exempt salary system as then in effect or, in the event of
a Change in Control, as in effect immediately prior to the Change in Control;
(3) Primex fails to continue the Executive's participation
in its benefit plans (including incentive compensation and stock based
incentives) on substantially the same basis, both in terms of the amount of the
benefits provided (other than due to Primex's or a relevant operation's
financial or stock price performance provided such performance is a relevant
criterion under such plan) and the level of the Executive's
<PAGE>
4
participation relative to other participants as exists on the date hereof;
provided that, with respect to annual and long term incentive compensation
plans, the basis with which the amount of benefits and level of participation of
the Executive shall be compared shall be the average benefit awarded to the
Executive under the relevant plan during the three years (or such fewer years as
such plans may have been in effect) immediately preceding the date of
Termination;
(4) The Executive suffers a Disability which prevents the
Executive from performing the Executive's duties with Primex for a period of at
least 180 consecutive days;
(5) Following a Change in Control, Primex fails to
substantially maintain its benefit plans as in effect at the time of the Change
in Control, unless reasonably equivalent arrangements (embodied in an on-going
substitute or alternative plan) have been made with respect to such plans; or
(6) The Executive's duties, position or reporting
responsibilities are diminished; or
(iii) The Executive terminates his or her employment with Primex
for any reason within the 90-day period immediately following the expiration of
six months following the date of a Change in Control.
2. Previous Change in Control Agreement. This Agreement supersedes and
replaces the Executive Agreement dated as of November 2, 1999 between Primex and
the Executive.
3. Term/Executive's Duties
(a) This Agreement expires at the close of business on December
31, 2002, unless prior to that date there is a Change in Control, in which case
this Agreement will expire on the later of the close of business on December 31,
2002 or three years following the date of a Change in Control; provided that the
expiration of this Agreement will not affect any of the Executive's rights
resulting from a Termination prior to such expiration. In the event of the
Executive's death while employed by Primex, this Agreement shall terminate and
be of no further force or effect on the date of his or her death; provided that
the Executive's death will not affect any of the Executive's rights resulting
from a Termination prior to death.
(b) During the period of the Executive's employment by Primex,
the Executive shall devote his or her full time best efforts during normal
business hours to Primex's business and affairs, except during reasonable
vacation periods and periods of illness or incapacity. Nothing in this Agreement
will preclude the Executive from devoting reasonable periods required for
service as a director or a member of any organization involving no conflict of
interest with Primex's interest, provided that no additional position as
director or member shall be accepted by the Executive during the period of his
employment with Primex without its prior consent.
<PAGE>
5
(c) The Executive agrees that in the event of any Potential
Change in Control of Primex occurring after the date hereof, the Executive will
remain in the employ of Primex until the earlier of (i) the end of the six-month
period following the occurrence of such Potential Change in Control and (ii) a
Change in Control, during which time the Executive will have an office, title,
duties and responsibilities substantially consistent with those applicable
immediately prior to the Potential Change in Control.
4. Executive Severance Payment
(a) In the event of a Termination occurring before the
expiration of this Agreement, Primex will pay the Executive a lump sum in an
amount equal to the Executive Severance. The payment will be made within 10 days
of the effective date of the Termination.
(b) In the event of a Termination after a Change in Control has
occurred, in addition to the Executive Severance paid under Paragraph 4(a)
above, Primex will pay a Change in Control severance premium to the Executive in
an amount equal to two times the Executive Severance. The Change in Control
severance premium, if it becomes due, will be made immediately (or in any event
as soon as administratively practicable) following the effective date of the
Termination.
(c) The Executive will not be required to mitigate the amount of
any payment provided for in paragraph 4(a) or 4(b) by seeking other employment
or otherwise, nor shall any compensation received by the Executive from a third
party reduce such payment. Except as may otherwise be expressly provided herein,
nothing in this Agreement will be deemed to reduce or limit the rights which the
Executive may have under any employee benefit plan, policy or arrangement of
Primex.
5. Other Benefits and Payments
(a) (1) If the Executive becomes entitled to payment under
Paragraph 4(a), then the Executive shall be entitled to receive a lump sum
payment from Primex at the same time as the payment under Paragraph 4(a) is made
equal to the amount contributed or credited by Primex to the Executive's
accounts in all defined contribution plans of Primex (whether or not "qualified"
plans) during the 12 months preceding the Executive's Termination provided that
in the event there are fewer than 12 months in such period the payment required
shall be increased proportionately to make it equivalent to a 12 month period.
The "amount contributed or credited by Primex" as defined in this Paragraph 5
shall not include any employee contributions, employer matching contributions,
dividends or investment gains or losses credited to the Executive's accounts,
but only the Primex contributions made or, in the case of supplementary plans,
credited, to the accounts. Such payment shall be in lieu of any such
contributions or credits by Primex to its defined contribution plans with
respect to the period after the Executive's Termination. If Primex is required
by law to contribute to such plans with respect to the period after the
Executive's Termination, any such contribution shall reduce the payout otherwise
due Executive under
<PAGE>
6
this Paragraph 5(a)(1). In the event the Executive receives a payment under
Paragraph 4(b), the amount required to be paid under the preceding sentences of
this Paragraph 5(a)(1) shall be tripled. Notwithstanding the foregoing, in the
event at the date of Termination the Executive is more than 69 years old (or
more than 68 years old in the case the Executive receives a payment under
Paragraph 4(b)) the lump sum payment required to be made under this Paragraph
5(a)(1) shall be reduced such that if it were expressed as equal monthly
payments made over a 12-month period (a 24-month period in the case of the
Executive receiving a payment under Paragraph 4(b)) and paid in monthly
installments on the first of every month following Termination no such monthly
payments would be received by the Executive beyond his or her seventieth
birthday.
(2) If the Executive becomes entitled to payment under Paragraph
4(a), for the 12 months from the date of the Termination the Executive will
continue to enjoy coverage under all Primex medical, dental, and life insurance
plans to the extent the Executive was enjoying such coverage immediately prior
to the Termination. The Executive shall accrue no vacation during the 12 months
following the date of Termination but shall be entitled to payment for accrued
and unused vacation for the then current year. If the Executive receives the
Executive Severance (including the amount referred to in Paragraph 1(d)(ii)),
the Executive shall not be entitled to an ICP award for the calendar year of
Termination if Termination occurs during the first calendar quarter. Even if
the Executive receives the Executive Severance (including the amount referred to
in Paragraph 1(d)(ii)), if Termination occurs during or after the second
calendar quarter, the Executive shall also be entitled to a prorated ICP award
for the calendar year of Termination which shall be determined by multiplying
his or her then current ICP Target Incentive by a fraction the numerator of
which is the number of weeks in the calendar year prior to the Termination and
the denominator of which is 52. The Executive shall accrue no ICP award during
the 12 months following the date of Termination.
(b) If the Executive receives payment under Paragraph 4(b), the
insurance coverage provided for in Paragraph 5(a) (2) will be for an additional
24-month period.
(c) Notwithstanding the foregoing Paragraphs 5(a)(2), and (b), no
such insurance coverage will be afforded by this Agreement with respect to any
period after the Executive's seventieth birthday.
(d) In the event of a Termination, the Executive will be entitled at
Primex's expense to outplacement counseling and associated services in
accordance with Primex's customary practice at the time (or, if a Change in
Control shall have occurred, in accordance with such practice immediately prior
thereto) with respect to its senior executives who have been terminated other
than for Cause. It is understood that the counseling and services contemplated
by this Paragraph 5(d) are intended to facilitate the obtaining by the Executive
of other employment following a Termination, and payments or benefits by Primex
in lieu thereof will not be available to the Executive.
(e) If the Executive (i) has an accrued vested benefit under Olin's
qualified pension plan as of the date of Change in Control and (ii) at age 55,
would not
---
<PAGE>
7
qualify for subsidized early retirement from Olin under the provisions of Olin's
pension plans, then, the Executive shall receive a lump sum payment from Primex
immediately upon the Change in Control to make up for the lost subsidy
calculated as follows:
First, by calculating the annual benefit which would otherwise be
-----
payable to the Executive at age 65 under all Olin pension plans assuming the
Executive had terminated his or her employment with Primex on the date of the
Change in Control, second, by multiplying such annual benefit by the percentage
------
then applicable in the calculation of benefits paid to employees retiring from
active service with Olin at age 55 under the early retirement provisions of the
Olin Employees Pension Plan (72% at the date hereof), third, by determining the
------
lump sum actuarial value (as of the date of Change in Control) of annual
payments beginning at age 55 as calculated in the second step and fourth, by
------ ------
deducting from such lump sum actuarial value the lump sum actuarial value (as of
the date of Change in Control) of the Executive's accrued annual benefits under
all Olin pension plans. Lump sum actuarial value shall be determined in
accordance with Olin's actuarial assumptions for its nonqualified defined
benefit plans.
Any payments made pursuant to this section 5(e) which are subject to tax will be
increased (grossed up) so that the Executive will have received a net payment
equal to that which he would have received if the payment was not subject to
tax.
6. Participation in Change in Control/Section 4999 of Internal Revenue
Code
(a) In the event that the Executive participates or agrees to
participate by loan or equity investment (other than through ownership of less
than 1% of publicly traded securities of another company) in a transaction
("acquisition") which would result in an event described in paragraph 1(b)(i) or
(ii), the Executive must promptly disclose such participation or agreement to
Primex. If the Executive so participates or agrees to participate, no payments
due under this Agreement or by virtue of any Change in Control provisions
contained in any compensation or benefit plan of Primex will be paid to the
Executive until the acquiring group in which the Executive participates or
agrees to participate has completed the acquisition. In the event the Executive
so participates or agrees to participate and fails to disclose his or her
participation or agreement, the Executive will not be entitled to any payments
under this Agreement or by virtue of Change in Control provisions in any Primex
compensation or benefit plan, notwithstanding any of the terms hereof or
thereof.
(b) Any payments made pursuant to this Agreement or by virtue of
Change in Control provisions in any Primex compensation or benefit plan which
are subject to tax under Section 4999 of the Internal Revenue Code or a
successor provision ("4999") will be increased so that after paying the tax
imposed by 4999 and the income and employment tax on the amount of the increase
provided by this paragraph (b), the Executive will have received a net payment
equal to that which he or she would have received if 4999 did not apply. All
determinations required to be made under this Paragraph 6(b), including whether
and when the net gross-up payment is required and the amount of such net gross-
up payment including any determination of the parachute payments under Section
280G(b)(2) of the Internal Revenue Code, and the assumptions to be utilized in
arriving at such
<PAGE>
8
determinations shall be made by Primex's independent auditors (the "Accounting
Firm") which shall provide detailed supporting calculations both to Primex and
the Executive within 15 business days of the receipt of notice from the
Executive that there has been a payment contingent on a Change in Control that
would trigger the excise tax imposed by Sections 280G and 4999 of the Internal
Revenue Code, or such earlier time as is requested by Primex. All fees and
expenses of the Accounting Firm shall be borne solely by Primex. Any net gross-
up payment shall be paid by Primex to the Executive as soon as practicable
following receipt of the Accounting Firm's determination. Any determination by
the Accounting Firm shall be binding upon Primex and the Executive. As a result
of uncertainty in the application of Section 4999 of the Internal Revenue Code
at the time of the initial determination by the Accounting Firm hereunder, it is
possible that the net gross-up payment made will have been in an amount less
than Primex should have paid pursuant to this Paragraph 6(b) (the
"Underpayment"). In the event that the Executive thereafter is required to make
a payment of any excise tax under Section 280G of the Internal Revenue Code, the
Accounting Firm shall determine the amount of the underpayment and any such
underpayment shall be promptly paid by Primex to or for the benefit of the
Executive.
7. Successors; Binding Agreement
(a) Primex will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business or assets of Primex, by agreement, in form and substance satisfactory
to the Executive, expressly to assume and agree to perform this Agreement in the
same manner and to the same extent that Primex would be required to perform if
no such succession had taken place. Failure of Primex to obtain such assumption
and agreement prior to the effectiveness of any such succession will be a breach
of this Agreement and entitle the Executive to compensation from Primex in the
same amount and on the same terms as the Executive would be entitled to
hereunder had a Termination occurred on the succession date. As used in this
Agreement, "Primex" means Primex as defined in the preamble to this Agreement
and any successor to its business or assets which executes and delivers the
agreement provided for in this Paragraph 7 or which otherwise becomes bound by
all the terms and provisions of this Agreement by operation of law or otherwise.
(b) This Agreement shall be enforceable by the Executive's personal or
legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees.
8. Notices. For the purpose of this Agreement, notices and all other
communications provided for herein shall be in writing and shall be deemed to
have been duly given when delivered or mailed by United States registered or
certified mail, return receipt requested, postage prepaid, addressed as follows:
If to the Executive: Name
Street Address
Building/Apartment No.
City, State Zip Code
<PAGE>
9
If to the Company: Primex Technologies, Inc.
10101 Ninth Street North
St. Petersburg, FL 33716-3807
Attention: Corporate Secretary
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
9. Governing Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
Florida without reference to choice of law principles thereunder.
10. Miscellaneous. No provisions of this Agreement may be modified,
waived or discharged unless such modification, waiver or discharge is agreed to
in writing signed by the Executive and Primex. No waiver by either party hereto
at any time of any breach by the other party hereto of, or compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time. No agreements or representations,
oral or otherwise, express or implied, with respect to the subject matter hereof
have been made by either party which are not set forth expressly in this
Agreement.
11. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same Agreement.
12. Withholding of Taxes. Primex may withhold from any benefits
payable under this Agreement all federal, state, city or other taxes as shall be
required pursuant to any law or governmental regulation or ruling.
13. Non-assignability. This Agreement is personal in nature and neither of
the parties hereto shall, without the consent of the other, assign or transfer
this Agreement or any rights or obligations hereunder, except as provided in
paragraph 7 above. Without limiting the foregoing, the Executive's right to
receive payments hereunder shall not be assignable or transferable, whether by
pledge, creation of a security interest or otherwise, other than a transfer by
his will or by the laws of descent or distribution, and, in the event of any
attempted assignment or transfer by the Executive contrary to this Paragraph,
Primex shall have no liability to pay any amount so attempted to be assigned or
transferred.
14. No Employment Right. This Agreement shall not be deemed to confer on
the Executive a right to continued employment with Primex.
15. Disputes/Arbitration.
(a) Any dispute or controversy arising under or in connection with
this Agreement shall be settled exclusively by binding arbitration at Primex's
corporate
<PAGE>
10
headquarters in accordance with the rules of the American Arbitration
Association then in effect. Judgment may be entered on the arbitrator's award
in any court having jurisdiction; provided, however, that the Executive shall be
entitled to seek specific performance of the Executive's right to be paid during
the pendency of any dispute or controversy arising under or in connection with
this Agreement.
(b) Primex shall pay all reasonable legal fees and expenses, as they
become due, which the Executive may incur to enforce this Agreement through
arbitration or otherwise unless the arbitration determines that the Executive
had no reasonable basis for his claim. Should Primex dispute the entitlement of
the Executive to such fees and expenses, the burden of proof shall be on Primex
to establish that the Executive had no reasonable basis for his claim.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered as of the day and year first above set forth.
PRIMEX TECHNOLOGIES, INC.
By: ____________________________
James G. Hascall
Title: Chairman and CEO
_________________________
Executive
<PAGE>
Exhibit 10.3
EXECUTIVE AGREEMENT
-------------------
Agreement between Primex Technologies, Inc., a Virginia corporation
("Primex"), and [Name] (the "Executive"), dated as of February 29, 2000.
Primex and the Executive agree as follows:
1. Definitions
As used in this Agreement:
(a) "Cause" means the willful and continued failure of the Executive
to substantially perform his duties; the willful engaging by the Executive in
gross misconduct significantly and demonstrably financially injurious to Primex;
or willful misconduct by the Executive during his employment which is a felony
or fraud. No act or failure to act on the part of the Executive will be
considered "willful" unless done or omitted not in good faith and without
reasonable belief that the action or omission was in the interests of Primex or
not opposed to the interests of Primex and unless the act or failure to act has
not been cured by the Executive within a reasonable time after written notice to
the Executive specifying the nature of such violations.
Notwithstanding the foregoing, the Executive shall not be deemed
to have been terminated for Cause without (i) reasonable notice to the Executive
setting forth the reasons for Primex's intention to terminate for Cause, (ii) an
opportunity for the Executive, together with his counsel, to be heard before the
Board of Directors of Primex and (iii) delivery to the Executive of a notice of
Termination from the Board of Directors of Primex finding that, in the good
faith opinion of 75% of the entire membership of such Board, the Executive was
guilty of conduct described above and specifying the particulars thereof in
detail.
(b) "Change in Control" means:
(i) Primex ceases to be owned by at least 300 shareholders of
record after December 31, 1996, or ceases, by action of Primex's Board of
Directors, to be either listed on a national securities exchange or authorized
for quotation on The Nasdaq Stock Market;
(ii) a person, partnership, joint venture, corporation or other
entity, or two or more of any of the foregoing acting as a "person" within the
meaning of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended
(the "Act"), other than Primex, a majority-owned subsidiary of Primex, or an
employee benefit plan (or related trust)
<PAGE>
2
of Primex, or such subsidiary, become(s) the "beneficial owner" (as defined in
Rule 13(d)(3) under the Act) of 15% or more of the then outstanding voting stock
of Primex;
(iii) during any period of two consecutive years after 1996,
individuals who at the beginning of such period constitute Primex's Board of
Directors (together with any new Director whose election by Primex's Board of
Directors or whose nomination for election by Primex's shareholders, was
approved by a vote of at least two-thirds of the Directors then still in office
who either were Directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason to
constitute a majority of the Directors then in office;
(iv) all or substantially all of the business or assets of
Primex is disposed of pursuant to a merger, consolidation or other transaction,
whether or not Primex is the surviving corporation, (unless in either case the
shareholders of Primex immediately prior to such merger, consolidation,
combination or other transaction beneficially own, directly or indirectly, more
than 50% of the aggregate voting stock or other ownership interests of (x) the
entity or entities, if any, that succeed to the business of Primex or (y) the
combined company);
(v) Primex's Board of Directors determines that a tender offer
for Primex's shares indicates a serious intention by the offeror to acquire
control of Primex; or
(vi) shareholder approval of a liquidation or dissolution of
Primex.
(c) "Disability" means that the Executive has suffered an incapacity
due to physical or mental illness which meets the criteria for disability
established at the time under Primex's short-term disability plan.
(d) "Executive Severance" means:
(i) twelve months of the Executive's then current monthly
salary (without taking into account any reductions which may have occurred at or
after the date of a Change in Control); plus
(ii) an amount equal to the greater of (a) the Executive's
average annual award actually paid under Primex's short-term annual incentive
compensation plans or programs ("ICP") for the three years (or for such fewer
years as the ICP may have been in effect) immediately preceding the date of
Termination or (b) the Executive's then current ICP Target Incentive.
(iii) The Executive will not be entitled to receive any other
severance otherwise payable to the Executive under any other severance plan of
Primex.
(iv) If on the Termination date the Executive is eligible and
is receiving payments under any then existing Primex disability plan, then the
Executive agrees that all such payments may, and will be, suspended and offset
for 12 months following the
<PAGE>
3
Termination date. If after such period the Executive remains eligible to receive
disability payments, then such payments shall resume in the amounts and in
accordance with the provisions of the applicable Primex disability plan.
(e) "Potential Change in Control" means:
(i) Primex has entered into an agreement the consummation
of which would result in a Change in Control;
(ii) any person (including Primex ) publicly announces an
intention to take or to consider taking actions which if consummated would
constitute a Change in Control;
(iii) Primex learns that any person (other than Primex, a
majority-owned subsidiary of Primex, or an employee benefit plan (or related
trust) of Primex, or such subsidiary,) has become the beneficial owner directly
or indirectly of securities of Primex representing 9.5% or more of the combined
voting power of Primex's then outstanding securities ordinarily entitled to vote
in elections of directors; or
(iv) the Board of Directors of Primex adopts a resolution to
the effect that, for purposes of this Agreement, a Potential Change in Control
of Primex has occurred.
(f) "Termination" means:
(i) The Executive is discharged by Primex other than for
Cause;
(ii) The Executive terminates his or her employment in the
event that:
(1) Primex requires the Executive to relocate the
Executive's then office to a location that is more than 25 miles further from
his then principal residence than the distance from such residence to his prior
office, except that prior to a Change in Control, a requirement to relocate the
Executive's office to Primex's corporate headquarters is not a basis for
Termination;
(2) Primex reduces the Executive's base salary or fails
to increase the Executive's base salary on a basis consistent (as to frequency
and amount) with Primex's exempt salary system as then in effect or, in the
event of a Change in Control, as in effect immediately prior to the Change in
Control;
(3) Primex fails to continue the Executive's
participation in its benefit plans (including incentive compensation and stock
based incentives) on substantially the same basis, both in terms of the amount
of the benefits provided (other than due to Primex's or a relevant operation's
financial or stock price performance provided such performance is a relevant
criterion under such plan) and the level of the Executive's
<PAGE>
4
participation relative to other participants as exists on the date hereof;
provided that, with respect to annual and long term incentive compensation
plans, the basis with which the amount of benefits and level of participation of
the Executive shall be compared shall be the average benefit awarded to the
Executive under the relevant plan during the three years (or such fewer years as
such plans may have been in effect) immediately preceding the date of
Termination;
(4) The Executive suffers a Disability which prevents the
Executive from performing the Executive's duties with Primex for a period of at
least 180 consecutive days;
(5) Following a Change in Control, Primex fails to
substantially maintain its benefit plans as in effect at the time of the Change
in Control, unless reasonably equivalent arrangements (embodied in an on-going
substitute or alternative plan) have been made with respect to such plans; or
(6) The Executive's duties, position or reporting
responsibilities are diminished.
2. Previous Change in Control Agreement. This Agreement supersedes
and replaces the Executive Agreement dated as of November 2, 1999 between Primex
and the Executive.
3. Term/Executive's Duties
(a) This Agreement expires at the close of business on December 31,
2002, unless prior to that date there is a Change in Control, in which case this
Agreement will expire on the later of the close of business on December 31, 2002
or three years following the date of a Change in Control; provided that the
expiration of this Agreement will not affect any of the Executive's rights
resulting from a Termination prior to such expiration. In the event of the
Executive's death while employed by Primex, this Agreement shall terminate and
be of no further force or effect on the date of his or her death; provided that
the Executive's death will not affect any of the Executive's rights resulting
from a Termination prior to death.
(b) During the period of the Executive's employment by Primex, the
Executive shall devote his or her full time best efforts during normal business
hours to Primex's business and affairs, except during reasonable vacation
periods and periods of illness or incapacity. Nothing in this Agreement will
preclude the Executive from devoting reasonable periods required for service as
a director or a member of any organization involving no conflict of interest
with Primex's interest, provided that no additional position as director or
member shall be accepted by the Executive during the period of his employment
with Primex without its prior consent.
(c) The Executive agrees that in the event of any Potential Change in
Control of Primex occurring after the date hereof, the Executive will remain in
the employ of Primex until the earlier of (i) the end of the six-month period
following the occurrence of
<PAGE>
5
such Potential Change in Control and (ii) a Change in Control, during which time
the Executive will have an office, title, duties and responsibilities
substantially consistent with those applicable immediately prior to the
Potential Change in Control.
4. Executive Severance Payment
(a) In the event of a Termination occurring before the expiration of
this Agreement, Primex will pay the Executive a lump sum in an amount equal to
the Executive Severance. The payment will be made within 10 days of the
effective date of the Termination.
(b) In the event of a Termination after a Change in Control has
occurred, in addition to the Executive Severance paid under Paragraph 4(a)
above, Primex will pay a Change in Control severance premium to the Executive in
an amount equal to two times the Executive Severance. The Change in Control
severance premium, if it becomes due, will be made immediately (or in any event
as soon as administratively practicable) following the effective date of the
Termination.
(c) The Executive will not be required to mitigate the amount of any
payment provided for in paragraph 4(a) or 4(b) by seeking other employment or
otherwise, nor shall any compensation received by the Executive from a third
party reduce such payment. Except as may otherwise be expressly provided
herein, nothing in this Agreement will be deemed to reduce or limit the rights
which the Executive may have under any employee benefit plan, policy or
arrangement of Primex.
5. Other Benefits and Payments
(a) (1) If the Executive becomes entitled to payment under Paragraph
4(a), then the Executive shall be entitled to receive a lump sum payment from
Primex at the same time as the payment under Paragraph 4(a) is made equal to the
amount contributed or credited by Primex to the Executive's accounts in all
defined contribution plans of Primex (whether or not "qualified" plans) during
the 12 months preceding the Executive's Termination provided that in the event
there are fewer than 12 months in such period the payment required shall be
increased proportionately to make it equivalent to a 12 month period. The
"amount contributed or credited by Primex" as defined in this Paragraph 5 shall
not include any employee contributions, employer matching contributions,
dividends or investment gains or losses credited to the Executive's accounts,
but only the Primex contributions made or, in the case of supplementary plans,
credited, to the accounts. Such payment shall be in lieu of any such
contributions or credits by Primex to its defined contribution plans with
respect to the period after the Executive's Termination. If Primex is required
by law to contribute to such plans with respect to the period after the
Executive's Termination, any such contribution shall reduce the payout otherwise
due Executive under this Paragraph 5(a)(1). In the event the Executive receives
a payment under Paragraph 4(b), the amount required to be paid under the
preceding sentences of this Paragraph 5(a)(1) shall be tripled. Notwithstanding
the foregoing, in the event at the date of Termination the Executive is more
than 69 years old (or more than 68 years old in the case the Executive
<PAGE>
6
receives a payment under Paragraph 4(b)) the lump sum payment required to be
made under this Paragraph 5(a)(1) shall be reduced such that if it were
expressed as equal monthly payments made over a 12-month period (a 24-month
period in the case of the Executive receiving a payment under Paragraph 4(b))
and paid in monthly installments on the first of every month following
Termination no such monthly payments would be received by the Executive beyond
his or her seventieth birthday.
(2) If the Executive becomes entitled to payment under Paragraph
4(a), for the 12 months from the date of the Termination the Executive will
continue to enjoy coverage under all Primex medical, dental, and life insurance
plans to the extent the Executive was enjoying such coverage immediately prior
to the Termination. The Executive shall accrue no vacation during the 12 months
following the date of Termination but shall be entitled to payment for accrued
and unused vacation for the then current year. If the Executive receives the
Executive Severance (including the amount referred to in Paragraph 1(d)(ii)),
the Executive shall not be entitled to an ICP award for the calendar year of
Termination if Termination occurs during the first calendar quarter. Even if
the Executive receives the Executive Severance (including the amount referred to
in Paragraph 1(d)(ii)), if Termination occurs during or after the second
calendar quarter, the Executive shall also be entitled to a prorated ICP award
for the calendar year of Termination which shall be determined by multiplying
his or her then current ICP Target Incentive by a fraction the numerator of
which is the number of weeks in the calendar year prior to the Termination and
the denominator of which is 52. The Executive shall accrue no ICP award during
the 12 months following the date of Termination.
(b) If the Executive receives payment under Paragraph 4(b), the
insurance coverage provided for in Paragraph 5(a) (2) will be for an additional
24-month period.
(c) Notwithstanding the foregoing Paragraphs 5(a)(2), and (b), no such
insurance coverage will be afforded by this Agreement with respect to any period
after the Executive's seventieth birthday.
(d) In the event of a Termination, the Executive will be entitled at
Primex's expense to outplacement counseling and associated services in
accordance with Primex's customary practice at the time (or, if a Change in
Control shall have occurred, in accordance with such practice immediately prior
thereto) with respect to its senior executives who have been terminated other
than for Cause. It is understood that the counseling and services contemplated
by this Paragraph 5(d) are intended to facilitate the obtaining by the Executive
of other employment following a Termination, and payments or benefits by Primex
in lieu thereof will not be available to the Executive.
(e) If the Executive (i) has an accrued vested benefit under Olin's
qualified pension plan as of the date of the Change in Control and (ii) at age
55, would not qualify for subsidized early retirement from Olin under the
---
provisions of Olin's pension plans, then, the Executive shall receive a lump sum
payment from Primex immediately upon the Change in Control to make up for the
lost subsidy calculated as follows:
<PAGE>
7
First, by calculating the annual benefit which would otherwise be
-----
payable to the Executive at age 65 under all Olin pension plans assuming the
Executive had terminated his or her employment with Primex on the date of the
Change in Control, second, by multiplying such annual benefit by the percentage
------
then applicable in the calculation of benefits paid to employees retiring from
active service with Olin at age 55 under the early retirement provisions of the
Olin Employees Pension Plan (72% at the date hereof), third, by determining the
------
lump sum actuarial value (as of the date of Change in Control) of annual
payments beginning at age 55 as calculated in the second step and fourth, by
------ ------
deducting from such lump sum actuarial value the lump sum actuarial value (as of
the date of Change in Control) of the Executive's accrued annual benefits under
all Olin pension plans. Lump sum actuarial value shall be determined in
accordance with Olin's actuarial assumptions for its nonqualified defined
benefit plans.
Any payments made pursuant to this section 5 (e) which are subject to tax will
be increased (grossed up) so that the Executive will have received a net payment
equal to that which he would have received if the payment was not subject to
tax.
6. Participation in Change in Control/Section 4999 of Internal
Revenue Code
(a) In the event that the Executive participates or agrees to
participate by loan or equity investment (other than through ownership of less
than 1% of publicly traded securities of another company) in a transaction
("acquisition") which would result in an event described in paragraph 1(b)(i) or
(ii), the Executive must promptly disclose such participation or agreement to
Primex. If the Executive so participates or agrees to participate, no payments
due under this Agreement or by virtue of any Change in Control provisions
contained in any compensation or benefit plan of Primex will be paid to the
Executive until the acquiring group in which the Executive participates or
agrees to participate has completed the acquisition. In the event the Executive
so participates or agrees to participate and fails to disclose his or her
participation or agreement, the Executive will not be entitled to any payments
under this Agreement or by virtue of Change in Control provisions in any Primex
compensation or benefit plan, notwithstanding any of the terms hereof or
thereof.
(b) Any payments made pursuant to this Agreement or by virtue of
Change in Control provisions in any Primex compensation or benefit plan which
are subject to tax under Section 4999 of the Internal Revenue Code or a
successor provision ("4999") will be increased so that after paying the tax
imposed by 4999 and the income and employment tax on the amount of the increase
provided by this paragraph (b), the Executive will have received a net payment
equal to that which he or she would have received if 4999 did not apply. All
determinations required to be made under this Paragraph 6(b), including whether
and when the net gross-up payment is required and the amount of such net gross-
up payment including any determination of the parachute payments under Section
280G(b)(2) of the Internal Revenue Code, and the assumptions to be utilized in
arriving at such determinations shall be made by Primex's independent auditors
(the "Accounting Firm") which shall provide detailed supporting calculations
both to Primex and the Executive within 15 business days of the receipt of
notice from the Executive that there has been a payment contingent on a Change
in Control that would trigger the excise tax imposed by Sections
<PAGE>
8
280G and 4999 of the Internal Revenue Code, or such earlier time as is requested
by Primex. All fees and expenses of the Accounting Firm shall be borne solely by
Primex. Any net gross-up payment shall be paid by Primex to the Executive as
soon as practicable following receipt of the Accounting Firm's determination.
Any determination by the Accounting Firm shall be binding upon Primex and the
Executive. As a result of uncertainty in the application of Section 4999 of the
Internal Revenue Code at the time of the initial determination by the Accounting
Firm hereunder, it is possible that the net gross-up payment made will have been
in an amount less than Primex should have paid pursuant to this Paragraph 6(b)
(the "Underpayment"). In the event that the Executive thereafter is required to
make a payment of any excise tax under Section 280G of the Internal Revenue
Code, the Accounting Firm shall determine the amount of the underpayment and any
such underpayment shall be promptly paid by Primex to or for the benefit of the
Executive.
7. Successors; Binding Agreement
(a) Primex will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business or assets of Primex, by agreement, in form and substance satisfactory
to the Executive, expressly to assume and agree to perform this Agreement in the
same manner and to the same extent that Primex would be required to perform if
no such succession had taken place. Failure of Primex to obtain such assumption
and agreement prior to the effectiveness of any such succession will be a breach
of this Agreement and entitle the Executive to compensation from Primex in the
same amount and on the same terms as the Executive would be entitled to
hereunder had a Termination occurred on the succession date. As used in this
Agreement, "Primex" means Primex as defined in the preamble to this Agreement
and any successor to its business or assets which executes and delivers the
agreement provided for in this Paragraph 7 or which otherwise becomes bound by
all the terms and provisions of this Agreement by operation of law or otherwise.
(b) This Agreement shall be enforceable by the Executive's personal or
legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees.
8. Notices. For the purpose of this Agreement, notices and all other
communications provided for herein shall be in writing and shall be deemed to
have been duly given when delivered or mailed by United States registered or
certified mail, return receipt requested, postage prepaid, addressed as follows:
If to the Executive: Name
Street Address
Building/Apartment No.
City, State Zip Code
<PAGE>
9
If to the Company: Primex Technologies, Inc.
10101 Ninth Street North
St. Petersburg, FL 33716-3807
Attention: Corporate Secretary
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
9. Governing Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
Florida without reference to choice of law principles thereunder.
10. Miscellaneous. No provisions of this Agreement may be modified,
waived or discharged unless such modification, waiver or discharge is agreed to
in writing signed by the Executive and Primex. No waiver by either party hereto
at any time of any breach by the other party hereto of, or compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time. No agreements or representations,
oral or otherwise, express or implied, with respect to the subject matter hereof
have been made by either party which are not set forth expressly in this
Agreement.
11. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same Agreement.
12. Withholding of Taxes. Primex may withhold from any benefits payable
under this Agreement all federal, state, city or other taxes as shall be
required pursuant to any law or governmental regulation or ruling.
13. Non-assignability. This Agreement is personal in nature and
neither of the parties hereto shall, without the consent of the other, assign or
transfer this Agreement or any rights or obligations hereunder, except as
provided in paragraph 7 above. Without limiting the foregoing, the Executive's
right to receive payments hereunder shall not be assignable or transferable,
whether by pledge, creation of a security interest or otherwise, other than a
transfer by his will or by the laws of descent or distribution, and, in the
event of any attempted assignment or transfer by the Executive contrary to this
Paragraph, Primex shall have no liability to pay any amount so attempted to be
assigned or transferred.
14. No Employment Right. This Agreement shall not be deemed to confer on
the Executive a right to continued employment with Primex.
15. Disputes/Arbitration.
(a) Any dispute or controversy arising under or in connection with
this Agreement shall be settled exclusively by binding arbitration at Primex's
corporate headquarters in accordance with the rules of the American Arbitration
Association then in
<PAGE>
10
effect. Judgment may be entered on the arbitrator's award in any court having
jurisdiction; provided, however, that the Executive shall be entitled to seek
specific performance of the Executive's right to be paid during the pendency of
any dispute or controversy arising under or in connection with this Agreement.
(b) Primex shall pay all reasonable legal fees and expenses, as they
become due, which the Executive may incur to enforce this Agreement through
arbitration or otherwise unless the arbitration determines that the Executive
had no reasonable basis for his claim. Should Primex dispute the entitlement of
the Executive to such fees and expenses, the burden of proof shall be on Primex
to establish that the Executive had no reasonable basis for his claim.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered as of the day and year first above set forth.
PRIMEX TECHNOLOGIES, INC.
By: ____________________________
James G. Hascall
Title: Chairman and CEO
_________________________
Executive
<PAGE>
Exhibit 10.4
PRIMEX TECHNOLOGIES, INC.
STOCK PLAN FOR NONEMPLOYEE DIRECTORS
(AMENDED AND RESTATED)
1. Purpose. The purpose of the Primex Technologies, Inc. Stock Plan for
Nonemployee Directors is to promote the long-term growth and financial success
of Primex Technologies, Inc. by attracting and retaining Nonemployee Directors
of outstanding ability and by promoting a greater identity of interest between
its Nonemployee Directors and its shareholders.
2. Definitions. The following capitalized terms utilized herein have the
following meanings:
"Annual Retainer" means the annual retainer as determined by the
Board from time to time to be paid to Nonemployee Directors for services as
a member thereof.
"Board" means the Board of Directors of the Company.
"Cash Account" means an account established under the Plan for a
Nonemployee Director to which cash meeting fees and retainers have been or
are to be credited in the form of cash.
"Change in Control" means the occurrence of any one of the
following events:
(i) the Corporation ceases to be owned by at least 300
shareholders after December 31, 1996, or ceases, by action of the
Corporation's Board of Directors, to be either listed on a national
securities exchange or authorized for quotation on The Nasdaq Stock Market;
(ii) a person, partnership, joint venture, corporation or other
entity, or two or more of any of the foregoing acting as a "person" within
the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934, as
amended (the "Act"), other than the Corporation, a majority-owned
subsidiary of the Corporation, or an employee benefit plan (or related
<PAGE>
2
trust) of the Corporation, or such subsidiary, become(s) the "beneficial
owner" (as defined in Rule 13(d)(3) under the Act) of 15% or more of the
then outstanding voting stock of the Corporation;
(iii) during any period of two consecutive years after 1996,
individuals who at the beginning of such period constitute the
Corporation's Board of Directors (together with any new Director whose
election by the Corporation's Board of Directors or whose nomination for
election by the Corporation's shareholders, was approved by a vote of at
least two-thirds of the Directors then still in office who either were
Directors at the beginning of such period or whose election or nomination
for election was previously so approved) cease for any reason to constitute
a majority of the Directors then in office.
(iv) all or substantially all of the business or assets of the
Corporation is disposed of pursuant to a merger, consolidation or other
transaction, whether or not the Corporation is the surviving corporation,
(unless in either case the shareholders of the Corporation immediately
prior to such merger, consolidation, combination or other transaction
beneficially own, directly or indirectly, more than 50% of the aggregate
voting stock or other ownership interests of (x) the entity or entities, if
any, that succeed to the business of the Corporation or (y) the combined
company);
(v) the Corporation's Board of Directors determines that a
tender offer for the Corporation's shares indicates a serious intention by
the offeror to acquire control of the Corporation; or
(vi) shareholder approval of a liquidation or dissolution of
the Corporation.
"Code" means the Internal Revenue Code of 1986, as amended from
time to time.
"Committee" means Compensation and Nominating Committee (or its
successor) of the Board.
"Common Stock" means the Company's Common Stock, $1.00 par value
per share.
<PAGE>
3
"Company" or "Corporation" means Primex Technologies, Inc., a
Virginia corporation, and any successor.
"Credit Date" means the first day of each calendar quarter,
beginning with January 1, 1997.
"Excess Retainer" means fifty percent (50%) of the Annual
Retainer; provided that in the event the Annual Retainer is prorated to
reflect that such Nonemployee Director did not serve as such for the full
calendar year, the Excess Retainer shall be similarly prorated.
"Fair Market Value" means, with respect to a date, on a per share
basis, the average of the high and low prices of a share of Common Stock
reported on the NASDAQ National Market System on such date or if the NASDAQ
National Market System is closed on such date, the next date on which it is
open.
"l934 Act" means the Securities Exchange Act of 1934, as amended
from time to time.
"Nonemployee Director" means a member of the Board who is not an
employee of the Company or any subsidiary thereof.
"Plan" means the Primex Technologies, Inc. Stock Plan for
Nonemployee Directors.
"Retirement Date" means the date the Nonemployee Director ceases
to be a member of the Board.
"Stock Account" means an account established under the Plan for a
Nonemployee Director to which shares of Common Stock have been or are to be
credited in the form of stock.
3. Term. The Plan became effective January 1, 1997. The Plan was amended
by action of the Board on November 5, 1997, May 5, 1998, February 2,1999 and
November 3, 1999. Once
<PAGE>
4
effective, the Plan shall operate and shall remain in effect until terminated by
action of the Board as provided in Section 9 hereof.
4. Administration. Full power and authority to construe, interpret and
administer the Plan shall be vested in the Committee. Decisions of the
Committee shall be final, conclusive and binding upon all parties. The Board
has all the power and authority of the Committee and may act in lieu of the
Committee at any time.
5. Participation. All Nonemployee Directors shall participate in the
Plan.
6. Grants and Deferrals.
(a) Annual Stock Grant. Subject to the terms and conditions of the
------------------
Plan, on each January 1 of each year beginning with 2000, each Nonemployee
Director who is such on such date shall receive that number of shares (rounded
up to the next whole share in the event of a fractional share) of Common Stock
having an aggregate Fair Market Value of the sum of (1) $20,000 and (2) 50% of
the Annual Retainer. (Such $20,000 plus 50% of the Annual Retainer being the
"Annual Stock Amount".) In the event a person becomes a Nonemployee Director
subsequent to January 1 of a calendar year and has not received the Annual Stock
Amount for such calendar year, such Nonemployee Director, on the first day of
the calendar month following his or her becoming such, shall receive that number
of shares (rounded up to the next whole share in the event of a fractional
share) of Common Stock having an aggregate Fair Market Value on such first day
of an amount equal to one-twelfth of the Annual Stock Amount for such year times
the number of whole calendar months remaining in such calendar year following
the date he or she becomes a Nonemployee Director. The portion of the Annual
Stock Amount that represents one-half of the Annual Retainer shall be in lieu of
the cash payment of one-half of the Annual Retainer and not in addition to the
Annual Retainer (or in the case of a Nonemployee Director who become such during
a calendar year such similar proportion). A Nonemployee Director may elect to
defer receipt of all or any portion of such shares in accordance with Section
6(d). Except with respect to any shares the director has so elected to defer,
certificates representing such shares shall be delivered to such Nonemployee
Director as soon as practicable.
<PAGE>
5
(b) Election to Receive Meeting Fees and Excess Retainer in Stock in
----------------------------------------------------------------
Lieu of Cash. Subject to the terms and conditions of the Plan, a Nonemployee
- ------------
Director may elect to receive all or a portion of the director meeting fees
established by the Board and the Excess Retainer his or her service as a
director for the calendar year in the form of shares of Common Stock. Such
election shall be made in accordance with Section 6(d). The number of shares
(rounded up to the next whole share in the event of a fractional share) payable
to a Nonemployee Director who so elects to receive all or a portion of the
Excess Retainer in the form of shares for such year shall be based upon the
aggregate Fair Market Value of the Common Stock on January 1 of such calendar
year (or in the case of a Nonemployee Director who becomes such after January 1,
on the first day of the calendar month following the day such new Nonemployee
Director became such) of the amount of Excess Retainer which has been elected to
be paid in shares. The number of shares (rounded up to the next whole share in
the event of a fractional share) payable to a Nonemployee Director who so elects
to receive meeting fees for a calendar quarter in the form of shares shall be
based upon the aggregate Fair Market Value of the Common Stock on the Credit
Date following such quarter of the director meeting fees which have been earned
in such quarter and which are elected to be paid in shares. Except with respect
to any shares the director has elected to defer, certificates representing such
shares shall be delivered to the Nonemployee Director as soon as practicable.
(c) Deferrals of Meeting Fees and Cash Retainer. Subject to the
-------------------------------------------
terms and conditions of the Plan, a Nonemployee Director may elect to defer all
or a portion of the shares payable under Section 6(b) and all or a portion of
the director meeting fees and Excess Retainer payable in cash by the Company for
his or her service as a director for the calendar year. Such election shall be
made in accordance with Section 6(d). A Nonemployee Director who elects to so
defer shall have any deferred shares deferred in the form of shares of Common
Stock and any deferred cash fees and retainer deferred in the form of cash.
(d) Elections.
---------
(1) Deferrals. All elections under Sections 6(a), 6(b) and
6(c) shall (A) be made in writing and delivered to the Secretary of the
Company and (B) be irrevocable.
<PAGE>
6
All elections for payments or deferrals shall be made on or before December
31 of the year prior to the year in which the director's fees or Annual
Retainer, as the case may be, are to be earned (or, in the case of an
individual who becomes a Nonemployee Director during a calendar year, no
later than 30 days after the individual becomes a Nonemployee Director).
Deferral elections shall also (A) specify the portions (in 25% increments)
to be deferred and (B) specify the future date or dates on which deferred
amounts are to be paid or the future event or events upon the occurrence of
which the deferred amounts are to be paid and the method of payment (lump
sum or annual installments of approximately equal amounts (up to 10)). In
the event of an election under Section 6(b) for director meeting fees or
Excess Retainer to be paid in shares of Common Stock, the election shall
specify the portion (in 25% increments) to be so paid. Any change with
respect to the terms of his or her election for (A) the payment or
investment of director meeting fees or Excess Retainer under Section 6(b)
from shares to cash or vice versa and (B) the amount of any deferral in the
form of Common Stock shall be effective upon receipt by the Secretary of
the Company. Any such change shall be effective only with respect to future
earnings.
(2) Stock Account. On the Credit Date, a Nonemployee Director
who has elected to defer shares under Sections 6(a) or 6(c) shall receive a
credit to his or her Stock Account. The amount of such credit shall be the
number of shares so deferred (rounded to the next whole share in the event
of a fractional share).
(3) Cash Account. On the Credit Date or in the case of the
Excess Retainer, on the day on which the Nonemployee Director is entitled
to receive such Excess Retainer, a Nonemployee Director who has elected to
defer cash fees and/or the Excess Retainer under Section 6(c) in the form
of cash shall receive a credit to his or her Cash Account. The amount of
the credit shall be the dollar amount of such Director's meeting fees
earned during the immediately preceding quarterly period or the amount of
the Excess Retainer to be paid for the calendar year, as the case may be,
and in each case, specified for deferral in cash.
<PAGE>
7
(4) Dividends and Interest. Each time a cash dividend is paid
on the Common Stock, a Nonemployee Director who has shares credited to his
or her Stock Account shall receive a credit for such dividends on the
dividend payment date to his or her Stock Account. The amount of the
dividend credit shall be the number of shares (rounded to the nearest one-
hundredth of a share) determined by multiplying the dividend amount per
share by the number of shares credited to such director's Stock Account as
of the record date for the dividend and dividing the product by the Fair
Market Value per share on the dividend payment date. The Cash Account of a
Nonemployee Director shall be credited on each Credit Date with interest on
such account's balance at the end of the preceding quarter, payable at a
rate equal to the pre-tax cost of borrowing of the Company on such date as
determined from time to time by the Chief Financial Officer, Controller or
Treasurer of the Company.
(5) Payouts. Cash Accounts will be paid out in cash and Stock
Accounts shall be paid out in shares of Common Stock. Cash amounts
credited to a Cash Account and certificates representing shares credited to
a Stock Account shall be delivered to the Nonemployee Director as soon as
practicable following the termination of the deferral and consistent
therewith.
(e) No Stock Rights. The deferral of shares of Common Stock into a
---------------
Stock Account shall confer no rights upon such Nonemployee Director, as a
shareholder of the Company or otherwise, with respect to the shares held in such
Stock Account, but shall confer only the right to receive such shares credited
as and when provided herein.
(f) Change in Control. Notwithstanding anything to the contrary in
-----------------
this Plan or any election, in the event a Change in Control occurs, amounts and
shares credited to Cash Accounts and Stock Accounts shall be immediately (or in
any event as soon as administratively practicable) distributed to Nonemployee
Directors following the Change in Control.
(g) Beneficiaries. A Nonemployee Director may designate at any time
-------------
and from time to time a beneficiary for his or her Stock and Cash Accounts in
the event his or her Stock or
<PAGE>
8
Cash Account may be paid out following his or her death. Such designation shall
be in writing and received by the Company prior to the death to be effective.
7. Limitations and Conditions.
(a) Total Number of Shares. The total number of shares of
----------------------
Common Stock that may be issued to Nonemployee Directors under the Plan is
100,000 . Such total number of shares may consist, in whole or in part, of
authorized but unissued shares. The foregoing number may be increased or
decreased by the events set forth in Section 8 below. No fractional shares shall
be issued hereunder. In the event a Nonemployee Director is entitled to a
fractional share, such share amount shall be rounded upward to the next whole
share amount.
(b) No Additional Rights. Nothing contained herein shall be
--------------------
deemed to create a right in any Nonemployee Director to remain a member of the
Board, to be nominated for reelection or to be reelected as such or, after
ceasing to be such a member, to receive any cash or shares of Common Stock under
the Plan which are not already credited to his or her accounts.
8. Stock Adjustments. In the event of any merger, consolidation, stock
or other non-cash dividend, extraordinary cash dividend, split-up, spin-off,
combination or exchange of shares or recapitalization or change in
capitalization, or any other similar corporate event, the Committee may make
such adjustments in (i) the aggregate number of shares of Common Stock that may
be issued under the Plan as set forth in Section 7(a) and the number of shares
that may be issued to a Nonemployee Director with respect to any year as set
forth in Section 6(a), (ii) the class of shares that may be issued under the
Plan, (iii) the number of shares credited to a Stock Account and (iv) the amount
and type of payment that may be made in respect of unpaid dividends on shares of
Common Stock whose receipt has been deferred pursuant to Section 6(d), as the
Committee shall deem appropriate in the circumstances. The determination by the
Committee as to the terms of any of the foregoing adjustments shall be final,
conclusive and binding for all purposes of the Plan.
9. Amendment and Termination. This Plan may be amended, suspended or
terminated by action of the Board; provided, however, no termination or
modification of the Plan shall
<PAGE>
9
adversely affect the rights of any Nonemployee Director with respect to any
amounts otherwise payable or credited to his or her Cash Account or Stock
Account.
10. Nonassignability. No right to receive any payments under the Plan or
any amounts credited to a Nonemployee Director's Cash or Stock Account shall be
assignable or transferable by such Nonemployee Director other than by will or
the laws of descent and distribution or pursuant to a domestic relations order.
The designation of a beneficiary under Section 6(g) by a Nonemployee Director
does not constitute a transfer.
11. Unsecured Obligation. Benefits payable under this Plan shall be an
unsecured obligation of the Company.
12. Pooling. With respect to the provisions that were amended on November
3, 1999, if (i) the Board approves a merger or consolidation of the Company
which is intended by the Board to satisfy the accounting rules related to the
pooling of interest method of accounting (the "Pooling Rules") and (ii) any such
provision of this Plan would violate the Pooling Rules, then such provisions
shall be null and void ab initio. In such event, Primex shall offer, in good
faith, to the affected Nonemployee Directors, a replacement provision of
equivalent value which does not cause such a violation, provided, and to the
extent, that Primex's outside auditors determine that any such replacement
provision is permissible without violating the Pooling Rules.
<PAGE>
Exhibit 10.5
1996 LONG TERM INCENTIVE PLAN OF PRIMEX TECHNOLOGIES, INC.
Section 1. Purpose
-------
The purposes of the 1996 Long Term Incentive Plan of Primex Technologies, Inc.
(the "Plan") are to encourage selected salaried employees of Primex
Technologies, Inc. (together with any successor thereto, "Primex" or
"Corporation") and its Affiliates (as defined below) to acquire a proprietary
interest in Primex's growth and performance, to generate an increased incentive
to contribute to Primex's future success and to enhance the ability of Primex
and its Affiliates to attract and retain qualified individuals.
Section 2. Definitions
-----------
As used in the Plan:
(a) "Affiliate" means (i) any entity that, directly or through one or more
intermediaries, is controlled by Primex and (ii) any entity in which Primex
has a significant equity interest as determined by the Committee.
(b) "Award" means any Option, Stock Appreciation Right, Restricted Stock,
Restricted Stock Unit, Performance Award, Dividend Equivalent or Other
Stock-Based Award granted under the Plan.
(c) "Award Agreement" means any written agreement or other instrument or
document evidencing an Award granted under the Plan. The terms of any plan
or guideline adopted by the Board or the Committee and applicable to an
Award shall be deemed incorporated in and a part of the related Award
Agreement.
(d) "Board" means the Board of Directors of Primex.
(e) "Code" means the Internal Revenue Code of 1986, as amended from time to
time.
(f) "Committee" means a committee of the Board designated by the Board to
administer the Plan and composed of not fewer than two directors each of
whom shall be a Non-Employee Director as defined by Rule 16b-3.
(g) "Dividend Equivalent" means any right granted under Section 6(f)(iv) of the
Plan.
(h) "Fair Market Value" means, with respect to any property (including, without
limitation, Shares or other securities), the fair market value of such
property determined by such methods or procedures as shall be established
from time to time by the Committee.
<PAGE>
(i) "Incentive Stock Option" means an option to purchase Shares granted under
Section 6(a) of the Plan that is intended to meet the requirements of
Section 422 of the Code or a successor provision thereto.
(j) "Non-Qualified Stock Option" means an option to purchase Shares granted
under Section 6(a) of the Plan that is not intended to be an Incentive
Stock Option.
(k) "Olin" means Olin Corporation, a Virginia corporation, and its successors.
(l) "Option" means an Incentive Stock Option or a Non-Qualified Stock Option.
(m) "Other Stock-Based Award" means any right granted under Section 6(e) of the
Plan.
(n) "Participant" means a Salaried Employee granted an Award under the Plan.
(o) "Performance Award" means any right granted under Section 6(d) of the Plan.
(p) "Person" means any individual, corporation, partnership, association,
joint-stock company, trust, unincorporated organization, or government or
political subdivision thereof.
(q) "Released Securities" means securities that were Restricted Securities with
respect to which all applicable restrictions imposed under the terms of the
relevant Award have expired, lapsed or been waived or satisfied.
(r) "Restricted Securities" means Awards of Restricted Stock or other Awards
under which outstanding Shares are held subject to certain restrictions.
(s) "Restricted Stock" means any Share granted under Section 6(c) of the Plan.
(t) "Restricted Stock Unit" means any right granted under Section 6(c) of the
Plan that is denominated in Shares.
(u) "Rule 16b-3" means Rule 16b-3 promulgated by the Securities and Exchange
Commission under the Securities Exchange Act of 1934, as amended, or any
successor rule.
(v) "Salaried Employee" means any salaried employee of Primex or of an
Affiliate.
(w) "Shares" means the Common Stock of Primex and such other securities or
property as may become the subject of Awards pursuant to an adjustment made
under Section 4(b) of the Plan.
(x) "Stock Appreciation Right" means any right granted under Section 6(b) of
the Plan.
Section 3. Administration
--------------
The Plan shall be administered by the Committee which shall have full power and
authority to: (i) designate Participants; (ii) determine the Awards to be
granted to Participants; (iii)
2
<PAGE>
determine the number of Shares (or securities convertible into Shares) to be
covered by Awards; (iv) determine the terms and conditions of any Award; (v)
determine whether, to what extent, and under what circumstances Awards may be
settled or exercised in cash, Shares, other securities, other Awards, or other
property, or canceled, substituted, forfeited or suspended, and the method or
methods by which Awards may be settled, exercised, canceled, substituted,
forfeited or suspended; (vi) determine whether, to what extent, and under what
circumstances cash, Shares, other securities, other Awards, other property and
other amounts payable with respect to an Award under the Plan shall be deferred
either automatically or at the election of the Participant or of the Committee;
(vii) interpret and administer the Plan and any instrument or agreement relating
to, or Award made under, the Plan; (viii) establish, amend, suspend or waive
such rules and guidelines and appoint such agents as it shall deem appropriate
for the administration of the Plan; and (ix) make any other determination and
take any other action that it deems necessary or desirable for such
administration. All designations, determinations, interpretations and other
decisions with respect to the Plan or any Award shall be within the sole
discretion of the Committee and shall be final, conclusive and binding upon all
Persons, including Primex, any Affiliate, any Participants, any holder or
beneficiary of any Award, any shareholder and any employee of Primex or of any
Affiliate. All powers and responsibilities of the Committee provided in the Plan
may also be exercised by the Board at any time.
Section 4. Shares Available for Awards
---------------------------
(a) Shares Available. Subject to adjustment as provided in Section 4(b) of the
----------------
Plan:
(i) The aggregate number of Shares available for granting Awards under the
Plan shall be 700,000. If an Award is denominated in or relates to a
security of Primex convertible into its Common Stock, the number of
shares of Common Stock into which such security shall be convertible
(calculated as of the date of grant of the Award, subject to
adjustment as provided in Section 4(b) hereof or under the terms of
such security) shall be deemed denominated in Shares and counted
against the aggregate number of Shares available for the granting of
Awards under the Plan. If, after the effective date of the Plan,
Shares subject to an Award granted under the Plan (other than
Restricted Securities) are forfeited, or the Award otherwise
terminates without the delivery of Shares or of other consideration,
then the Shares subject to such Award or the number of Shares
otherwise counted against the aggregate number of Shares available
under the Plan with respect to such Award, to the extent of such
forfeiture or termination, shall again be available for granting
Awards under the Plan." Any Award (other than a Dividend Equivalent)
denominated in Shares shall be counted against the aggregate number of
Shares available for granting Awards under the Plan even though the
Award is ultimately paid in cash, provided that, notwithstanding the
foregoing, (i) Stock Appreciation Rights payable solely in cash shall
not be deemed to be an Award denominated in shares and (ii) an Award
shall not be deemed denominated in Shares if the dollar amount of the
Award is fixed at the time of grant by reference to the market value
of Shares or otherwise.
3
<PAGE>
(ii) For purposes of this Section 4:
(A) If an Award (other than a Dividend Equivalent) is denominated
in Shares, the number of Shares covered by such Award, or to
which such Award relates, shall be counted on the date of grant
of such Award against the aggregate number of Shares available
for granting Awards under the Plan; and
(B) Dividend Equivalents paid in Shares and Awards not denominated
in Shares but paid in Shares shall be counted against the
aggregate number of Shares available for granting Awards under
the Plan in such amount and at such time as the Committee shall
determine under procedures adopted by the Committee consistent
with the purposes of the Plan;
provided, however, that Awards that operate in tandem with, or that are
-------- -------
substituted for, other Awards may be counted or not counted under
procedures adopted by the Committee in order to avoid double counting. Any
Shares that are delivered by Primex, and any Awards that are granted by, or
become obligations of, Primex, through the assumption by Primex or an
Affiliate of, or in substitution for, outstanding awards previously granted
by an acquired company shall not, except in the case of Awards granted to
Salaried Employees who are officers or directors of Primex for purposes of
Section 16 of the Securities Exchange Act of 1934, as amended, be counted
against the Shares available for granting Awards under the Plan.
(b) Adjustments. In the event that the Committee determines that any dividend
-----------
or other distribution, recapitalization, stock split, reverse stock split,
reorganization, merger, consolidation, split-up, spin-off, combination,
repurchase or exchange of Shares or other securities of Primex, issuance of
warrants or other rights to purchase Shares or other securities of Primex,
or other similar corporate transaction or event affects the Shares such
that an adjustment is determined by the Committee to be appropriate in
order to prevent dilution or enlargement of the benefits intended to be
made available under the Plan, then the Committee shall, in such manner as
it may deem equitable, adjust any or all of (i) the number and type of
Shares (or other securities or property) which thereafter may be made the
subject of Awards, including the limitation contained in Section 4(c), (ii)
the number and type of Shares (or other securities or property) subject to
outstanding Awards, and (iii) the grant, purchase or exercise price with
respect to any Award, or, if the Committee deems it appropriate, make
provision for a cash payment to the holder of an outstanding Award;
provided, however, that with respect to Awards of Incentive Stock Options,
-------- -------
no such adjustment shall be authorized to the extent that such authority
would cause the Plan to violate Section 422 of the Code or any successor
provision thereto. Notwithstanding the foregoing, a Participant to whom
Dividend Equivalents or dividend units have been awarded shall not be
entitled to receive a special or extraordinary dividend or distribution
unless the Committee shall have expressly authorized such receipt.
4
<PAGE>
(c) Notwithstanding anything contained in this Plan to the contrary, grants to
any one Participant of Awards which represent or are designated in Shares
shall not exceed 70,000 Shares in any calendar year.
Section 5. Eligibility
-----------
Any Salaried Employee, including any officer or employee-director of Primex or
an Affiliate, who is not a member of the Committee shall be eligible to be
designated a Participant.
Section 6. Awards
------
(a) Options. The Committee is authorized to grant Options to Participants with
-------
the following terms and conditions and with such additional terms and
conditions, not inconsistent with the provisions of the Plan, as the
Committee shall determine:
(i) Exercise Price. The purchase price per Share purchasable under
an Option shall be determined by the Committee; provided,
--------
however, that such purchase price shall not be less than the
-------
Fair Market Value of a Share on the date of grant of such
Option.
(ii) Option Term. The term of each Option shall be fixed by the
Committee, provided that in no event shall the term of an
Option exceed a period of ten years from the date of its grant.
(iii) Exercise. The Committee shall determine the time or times at
which an Option may be exercised in whole or in part (but in no
event shall an Option be exercisable before the expiration of
six months from the date of its grant, subject to Section 9
thereof, or after the expiration of ten years from the date of
its grant), and the method or methods by which, and the form or
forms (including, without limitation, cash, Shares, other
Awards or other property, or any combination thereof, having a
Fair Market Value on the exercise date equal to the relevant
exercise price) in which, payment of the exercise price with
respect thereto may be made.
(iv) Incentive Stock Options. The terms of any Incentive Stock
Option granted under the Plan shall comply in all respects with
the provisions of Section 422 of the Code, or any successor
provision thereto, and any regulations promulgated thereunder.
Without limiting the preceding sentence, the aggregate Fair
Market Value (determined at the time an option is granted) of
Shares with respect to which Incentive Stock Options are
exercisable for the first time by a Participant during any
calendar year (under the Plan and any other plan of the
Participant's employer corporation and its parent and
subsidiary corporations providing for Options) shall not exceed
such dollar limitation as shall be applicable to Incentive
Stock Options under Section 422 of the Code or a successor
provision.
(b) Stock Appreciation Rights. The Committee is authorized to grant Stock
-------------------------
Appreciation Rights to Participants which may but need not relate to a
specific Option granted under
5
<PAGE>
Section 6(a). Subject to the terms of the Plan and any applicable
Award Agreement, each Stock Appreciation Right granted under the Plan
shall confer on the holder thereof a right to receive, upon exercise
thereof, up to the excess of (i) the Fair Market Value of one Share on
the date of exercise over (ii) the exercise price of the right as
specified by the Committee, which shall not be less than the Fair
Market Value of one Share on the date of grant of the Stock
Appreciation Right. Subject to the terms of the Plan and any
applicable Award Agreement, the exercise price, term, methods of
exercise, methods of payment or settlement and any other terms and
conditions of any Stock Appreciation Right shall be as determined by
the Committee, except that Stock Appreciation Rights related to
Incentive Stock Options shall have the same terms and conditions as
such Options, and in no event shall the term of a Stock Appreciation
Right exceed a period of ten years from the date of its grant. In the
case of any Stock Appreciation Right related to an Option, the Stock
Appreciation Right or applicable portion thereof shall terminate and
no longer be exercisable upon the termination or exercise of the
related Option, except that a Stock Appreciation Right granted with
respect to less than the full number of Shares covered by a related
Option shall not be reduced until the exercise or termination of the
related Option exceeds the number of shares not covered by the Stock
Appreciation Right and then only to the extent of the excess. Any
Option related to a Stock Appreciation Right shall no longer be
exercisable to the extent the related Stock Appreciation Right has
been exercised.
(c) Restricted Stock and Restricted Stock Units.
-------------------------------------------
(i) Issuance. The Committee is authorized to grant Awards of
Restricted Stock and Restricted Stock Units to Participants.
(ii) Restrictions. Shares of Restricted Stock and Restricted Stock
Units shall be subject to such restrictions as the Committee
may impose (including, without limitation, any limitation on
the right to vote a Share of Restricted Stock or the right to
receive any dividend or other right or property), which
restrictions may lapse separately or in combination at such
time or times, in such installments or otherwise, as the
Committee may deem appropriate, provided that in order for a
participant to vest in Awards of Restricted Stock or
Restricted Stock Units, the participant must remain in the
employ of Primex or an Affiliate for a period of not less than
six months commencing on the date of grant of the Award,
subject to Section 9 hereof and subject to relief for
specified reasons as may be approved by the Committee.
(iii) Registration. Any Restricted Stock granted under the Plan may
be evidenced in such manner as the Committee may deem
appropriate, including, without limitation, book-entry
registration or issuance of a stock certificate or
certificates. In the event any stock certificate is issued in
respect of Shares of Restricted Stock granted under the Plan,
such certificate shall be registered in the name of the
Participant and when delivered to the Participant shall bear
an appropriate legend referring to the terms, conditions and
restrictions applicable to such Restricted Stock.
6
<PAGE>
(iv) Forfeiture. Except as otherwise determined by the Committee, upon
termination of employment for any reason during the applicable
restriction period, all Shares of Restricted Stock and all
Restricted Stock Units still subject to restriction shall be
forfeited and reacquired by Primex; provided, however, that the
Committee may, in its sole discretion, waive in whole or in part any
or all remaining restrictions with respect to Shares of Restricted
Stock or Restricted Stock Units. Unrestricted Shares, evidenced in
such manner as the Committee shall deem appropriate, shall be
delivered to the holder of Restricted Stock promptly after such
Restricted Stock shall become Released Securities.
(d) Performance Awards. The Committee is authorized to grant Performance
------------------
Awards to Participants. Subject to the terms of the Plan and any
applicable Award Agreement, a Performance Award granted under the Plan (i)
may be denominated or payable in cash, Shares (including, without
limitation, Restricted Stock), other securities, other Awards or other
property and (ii) shall confer on the holder thereof rights valued as
determined by the Committee and payable to, or exercisable by, the holder
of the Performance Award, in whole or in part, upon the achievement of such
performance goals during such performance periods as the Committee shall
establish. Subject to the terms of the Plan and any applicable Award
Agreement, the performance goals to be achieved during any performance
period, the length of any performance period, the amount of any Performance
Award granted, and the amount of any payment or transfer to be made
pursuant to any Performance Award shall be determined by the Committee,
provided that a performance period shall be at least six months, subject to
Section 9 thereof.
(e) Other Stock-Based Awards. The Committee is authorized to grant to
------------------------
Participants such other awards denominated or payable in, valued in whole
or in part by reference to, or otherwise based on or related to, Shares
(including, without limitation, phantom Shares, securities convertible into
Shares and dividend units), as are deemed by the Committee to be consistent
with the purposes of the Plan, provided that such grants shall comply with
Rule 16b-3 to the extent applicable and applicable law. Subject to the
terms of the Plan and any applicable Award Agreement, the Committee shall
determine the terms and conditions of such Awards. Shares or other
securities delivered pursuant to a purchase, exchange or conversion right
granted under this Section 6(e) shall be issued for such consideration,
which may be paid by such method or methods and in such form or forms,
including, without limitation, cash, Shares, other securities, other
Awards, or other property, or any combination thereof, as the Committee
shall determine, the value of which consideration, as established by the
Committee, shall not be less than the Fair Market Value of such Shares or
other securities as of the date such purchase, exchange or conversion right
is granted.
Other Stock-based Award Agreements shall contain provisions dealing with
the disposition of such Award in the event of termination of the
Participant's employment prior to exercise, realization or payment of the
Award.
7
<PAGE>
(f) General.
-------
(i) No Cash Consideration for Awards. Participants shall not be
required to make any cash payment for the granting of an Award
except for such minimum consideration as may be required by
applicable law.
(ii) Awards May Be Granted Separately or Together. Awards may be
granted either alone or in addition to, in tandem with, or in
substitution for any other Award or any award or benefit granted
under any other plan or arrangement of Primex or any Affiliate,
or as payment for or to assure payment of an award or benefit
granted under any such other such plan or arrangement, provided
that the purchase or exercise price under an Award encompassing
the right to purchase Shares shall not be reduced by the
cancellation of such Award and the substitution of another Award.
Awards so granted may be granted either at the same time as or at
a different time from the grant of such other Awards or awards or
benefits.
(iii) Forms of Payment Under Awards. Subject to the terms of the Plan
and of any applicable Award Agreement, payments to be made by
Primex or an Affiliate upon the grant, exercise, or payment of an
Award may be made in such form or forms as the Committee shall
determine, including, without limitation, cash, Shares, other
securities, other Awards, or other property or any combination
thereof, and may be made in a single payment or transfer, in
installments, or on a deferred basis, in each case in accordance
with rules and procedures established by the Committee.
(iv) Dividend Equivalents or Interest. Subject to the terms of the
Plan and any applicable Award Agreement, a Participant, including
the recipient of a deferred Award, shall, if so determined by the
Committee, be entitled to receive, currently or on a deferred
basis, interest or dividends or interest or dividend equivalents,
with respect to the Shares covered by the Award. The Committee
may provide that any such amounts shall be deemed to have been
reinvested in additional Shares or otherwise reinvested.
Notwithstanding the award of Dividend Equivalents or dividend
units, a Participant shall not be entitled to receive a special
or extraordinary dividend or distribution unless the Committee
shall have expressly authorized such receipt.
(v) Limits on Transfer of Awards. No Award (other than Released
Securities) or right thereunder shall be assignable or
transferable by a Participant, other than (unless limited in the
Award Agreement) by will or the laws of descent and distribution
(or, in the case of an Award of Restricted Securities, to
Primex), except that an Option may be transferred by gift to any
member of the holder's immediate family or to a trust for the
benefit of one or more of such immediate family members, if
expressly permitted in the applicable Award Agreement; provided,
however, that, if so determined by the Committee, a Participant
may, in the manner established by the Committee, designate a
beneficiary or beneficiaries with respect to any Award to
exercise the rights of the Participant,
8
<PAGE>
and to receive any property distributable, upon the death of the
Participant. Each Award, and each right under any Award, shall be
exercisable, during the Participant's lifetime, only by the
Participant or, if permissible under applicable law by the
Participant's guardian or legal representative unless it is an
Option and has been transferred as permitted hereby to a member
of the Participant's immediate family or to a trust for the
benefit of one or more of such immediate family members, in which
case it shall be exercisable only by such transferee. For the
purposes of this provision, a Participant's "immediate family"
shall mean the Participant's spouse, children and grandchildren.
No Award (other than Released Securities), and no right under any
such Award, may be pledged, attached or otherwise encumbered
other than in favor of Primex, and any purported pledge,
attachment, or encumbrance thereof other than in favor of Primex
shall be void and unenforceable against Primex or any Affiliate.
(vi) Term of Awards. Except as otherwise expressly provided in the
Plan, the term of each Award shall be for such period as may be
determined by the Committee.
(vii) No Rights to Awards. No Salaried Employee, Participant or other
Person shall have any claim to be granted an Award, and there is
no obligation for uniformity of treatment of Salaried Employees,
Participants or holders or beneficiaries of Awards under the
Plan. The terms and conditions of Awards need not be the same
with respect to each recipient. The prospective recipient of any
Award under the Plan shall not, with respect to such Award, be
deemed to have become a Participant, or to have any rights with
respect to such Award, until and unless such recipient shall have
executed an agreement or other instrument accepting the Award and
delivered a fully executed copy thereof to the Company, and
otherwise complied with the then applicable terms and conditions.
(viii) Delegation. Notwithstanding any provision of the Plan to the
contrary, the Committee may delegate to one or more officers or
managers of Primex or any Affiliate, or a committee of such
officers or managers, the authority, subject to such terms and
limitations as the Committee shall determine, to grant Awards to,
or to cancel, modify, waive rights or conditions with respect to,
alter, discontinue, suspend, or terminate Awards held by,
Salaried Employees who are not officers or directors of Primex
for purposes of Section 16 of the Securities Exchange Act of
1934, as amended.
(ix) Withholding. Primex or any Affiliate may withhold from any Award
granted or any payment due or transfer made under any Award or
under the Plan the amount (in cash, Shares, other securities,
other Awards, or other property) of withholding taxes due in
respect of an Award, its exercise or any payment under such Award
or under the Plan, and take such other action as may be necessary
in the opinion of Primex or Affiliate to satisfy all obligations
for the payment of such taxes.
9
<PAGE>
(x) Other Compensation Arrangements. Nothing contained in the Plan
shall prevent Primex or any Affiliate from adopting or continuing
in effect other or additional compensation arrangements, and such
arrangements may be either generally applicable or applicable
only in specific cases.
(xi) No Right to Employment. The grant of an Award shall not be
construed as giving a Participant the right to be retained in the
employ of Primex or any Affiliate. Nothing in the Plan or any
Award Agreement shall limit the right of Primex or an Affiliate
at any time to dismiss a Participant from employment, free from
any liability or any claim under the Plan or the Award Agreement.
(xii) Governing Law. The validity, construction and effect of the Plan
and any rules and regulations relating to the Plan shall be
determined in accordance with the laws of the State of Florida
and applicable Federal law.
(xiii) Severability. If any provision of the Plan or any Award is
determined to be invalid, illegal or unenforceable in any
jurisdiction, or as to any Person or Award, or would disqualify
the Plan or any Award under any law deemed applicable by the
Committee, such provision shall be construed or deemed amended to
conform to applicable laws, or, if it cannot be so construed or
deemed amended without, in the determination of the Committee,
materially altering the intent of the Plan or the Award, such
provision shall be stricken as to such jurisdiction, Person or
Award, and the remainder of the Plan and any such Award shall
remain in full force and effect.
(xiv) No Trust or Fund Created. Neither the Plan nor any Award shall
create or be construed to create a trust or separate fund of any
kind or a fiduciary relationship between Primex or any Affiliate
and a Participant or any other Person. To the extent that any
Person acquires a right to receive payments from Primex or any
Affiliate pursuant to an Award, such right shall be no greater
than the right of any unsecured general creditor of Primex or any
Affiliate.
(xv) No Fractional Shares. No fractional Shares shall be issued or
delivered pursuant to the Plan or any Award, and the Committee
shall determine whether cash, other securities or other property
shall be paid or transferred in lieu of any fractional Shares, or
whether such fractional Shares or any rights thereto shall be
canceled, terminated or otherwise eliminated.
(xvi) Share Certificates. All certificates for Shares or other
securities delivered under the Plan pursuant to any Award or the
exercise thereof shall be subject to such stop transfer orders
and other restrictions as the Committee may deem advisable under
the Plan or the rules, regulations and other requirements of the
Securities and Exchange Commission, any stock exchange upon which
such Shares or other securities are then listed, and any
applicable Federal or state securities laws, and the Committee
may cause a legend or legends to be put on any such certificates
to make appropriate reference to such restrictions.
10
<PAGE>
(xvii) Conflict with Plan. In the event of any inconsistency or
conflict between the terms of the Plan and an Award Agreement,
the terms of the Plan shall govern.
(xviii) Notwithstanding any provision in this Plan to the contrary,
Awards granted under Sections 6(c), 6(d) or 6(e) and designated
by the Committee as being performance-based shall have as
performance measures any one of or any combination of any of
the following measures: Economic Value Added, Return on Equity
and Total Return to Shareholders. For purposes of the Plan,
"Economic Value Added" shall mean Primex's consolidated sales
less its operating costs (including tax) less a capital charge
based on Primex's cost of capital assets employed in its
business, "Return on Equity" shall mean consolidated income of
Primex after taxes and before the after-tax effect of any
special charge or gain and any cumulative effect of any change
in accounting, divided by average shareholders equity and
"Total Return to Shareholders" shall mean for the performance
period total return to shareholders of $100 worth of Shares for
such period assuming reinvestment of dividends on a quarterly
basis. The Committee shall determine the performance goals for
each such performance measure with respect to each such Award.
(xix) Death or Disability. In the event of the death or disability of
the holder of an Award while the holder is employed by Primex
or an Affiliate, [or, if holder is retired (at or after
attainment of age 55 with 10 years of service with the
Corporation or an Affiliate, including prior service with Olin
Corporation),] any outstanding Award will continue to be vested
and exercisable under the terms of the Plan. For purposes of
this Plan, a holder of an Award shall be considered disabled if
he is qualified under the Long-Term Disability Plan of Primex
Technologies, Inc.
Section 7. Amendment and Termination
-------------------------
(a) Amendments to the Plan. The Board may amend, suspend, discontinue or
----------------------
terminate the Plan, including, without limitation, any amendment,
suspension, discontinuation or termination that would impair the rights of
any Participant, or any other holder or beneficiary of any Award
theretofore granted, without the consent of any shareholder, Participant,
other holder or beneficiary of an Award, or other Person; provided,
--------
however, that, notwithstanding any other provision of the Plan or any Award
-------
Agreement, without the approval of the shareholders of Primex, no such
amendment, suspension, discontinuation or termination shall be made that
would permit any Award encompassing rights to purchase Shares to be granted
with per Share purchase or exercise prices of less than the Fair Market
Value of a Share on the date of grant thereof (except for any adjustment
permitted by Section 4(b)); provided further that no amendment, suspension,
-------- -------
discontinuation or termination (i) that would impair the rights of such
Participant, holder or beneficiary shall be made with respect to Section 9
of the Plan after a Change in Control, as defined therein and (ii) may
increase the amount of payment of any Award to any Participant.
11
<PAGE>
(b) Amendments to Awards. The Committee may waive any conditions or rights
--------------------
with respect to, or amend, alter, suspend, discontinue, or terminate, any
unexercised Award theretofore granted, prospectively or retroactively,
without the consent of any relevant Participant or holder or beneficiary of
an Award, provided that no amendment, alteration, suspension,
--------
discontinuation or termination of an Award that would impair the rights of
such Participant, holder or beneficiary shall be made after a Change in
Control, as defined in Section 9; provided further that the Committee may
not increase the payment of any Award granted any Participant.
(c) Adjustments of Awards Upon Certain Acquisitions. In the event Primex or
-----------------------------------------------
any Affiliate shall assume outstanding employee awards or the right or
obligation to make future such awards in connection with the acquisition of
another business or another company, the Committee may make such
adjustments, not inconsistent with the terms of the Plan, in the terms of
Awards as it shall deem appropriate.
d) Adjustments of Awards Upon the Occurrence of Certain Unusual or
---------------------------------------------------------------
Nonrecurring Events. The Committee may make adjustments in the terms and
-------------------
conditions of Awards in recognition of unusual or nonrecurring events
(including, without limitation, the events described in Section 4(b)
hereof) affecting Primex, any Affiliate, or the financial statements of
Primex or any Affiliate, or of changes in applicable laws, regulations, or
accounting principles, whenever the Committee determines that statements of
Primex or any Affiliate, or of changes in applicable laws, regulations, or
accounting principles, whenever the Committee determines that such
adjustments are appropriate in order to prevent dilution or enlargement of
the benefits to be made available under the Plan.
Section 8. Additional Conditions to Enjoyment of Awards.
--------------------------------------------
(a) The Committee may cancel any unexpired, unpaid or deferred Awards if at any
time the Participant is not in compliance with all applicable provisions of
the Award Agreement, the Plan and the following conditions:
(i) A Participant shall not render services for any organization or
engage, directly or indirectly, in any business which, in the
judgment of the Committee or, if delegated by the Committee to the
Chief Executive Officer, in the judgment of such Officer, is or
becomes competitive with Primex or any Affiliate, or which is or
becomes otherwise prejudicial to or in conflict with the interests
of Primex or any Affiliate. Such judgment shall be based on the
Participant's positions and responsibilities while employed by
Primex or an Affiliate, the Participant's post-employment
responsibilities and position with the other organization or
business, the extent of past, current and potential competition or
conflict between Primex or an Affiliate and the other organization
or business, the effect on customers, suppliers and competitors of
the Participant's assuming the post-employment position, the
guidelines established in the then current edition of Primex's Code
of Business Conduct, and such other considerations as are deemed
relevant given the applicable facts and circumstances. The
Participant shall be free, however, to purchase as an investment or
otherwise, stock or other securities of such organization or
business so long as they are listed upon
12
<PAGE>
a recognized securities exchange or traded over the counter, and such
investment does not represent a substantial investment to the
Participant or a greater than 1% equity interest in the organization
or business.
(ii) Participant shall not, without prior written authorization from
Primex, disclose to anyone outside Primex, or use in other than
Primex's business, any secret or confidential information, knowledge
or data, relating to the business of Primex or an Affiliate in
violation of his or her agreement with Primex or the Affiliate.
(iii) A Participant, pursuant to his or her agreement with Primex or an
Affiliate, shall disclose promptly and assign to Primex or the
Affiliate all right, title and interest in any invention or idea,
patentable or not, made or conceived by the Participant during
employment by Primex or the Affiliate, relating in any manner to the
actual or anticipated business, research or development work of
Primex or the Affiliate and shall do anything reasonably necessary to
enable Primex or the Affiliate to secure a patent where appropriate
in the United States and in foreign countries.
(b) Notwithstanding any other provision of the Plan, the Committee in its sole
discretion may cancel any Award at any time prior to the exercise thereof,
if the employment of the Participant shall be terminated, other than by
reason of death, unless the conditions in this Section 8 are met.
(c) Failure to comply with the conditions of this Section 8 prior to, or during
the six months after, any exercise, payment or delivery pursuant to an Award
shall cause the exercise, payment or delivery to be rescinded. Primex shall
notify the Participant in writing of any such rescission within two years
after such exercise payment or delivery and within ten days after receiving
such notice, the Participant shall pay to Primex the amount of any gain
realized or payment received as a result of the exercise, payment or
delivery rescinded. Such payment shall be made either in cash or by
returning to Primex the number of Shares that the Participant received in
connection with the rescinded exercise, payment or delivery.
(d) Upon exercise, payment or delivery pursuant to an Award, the Committee may
require the Participant to certify on a form acceptable to the Committee,
that he or she is in compliance with the terms and conditions of the Plan.
(e) Nothing herein shall be interpreted to limit the obligations of a
Participant under his or her employee agreement or any other agreement with
Primex.
Section 9. Pooling.
-------
With respect to the provisions that were amended on November 3, 1999, if (a) the
Board approves a merger or consolidation of Primex which is intended by the
Board to satisfy the accounting rules related to the pooling of interest method
of accounting (the "Pooling Rules") and (b) any provision of this Plan would
violate the Pooling Rules, then such provision shall be null and void ab initio.
In such event, Primex shall offer, in good faith, to the affected Participants,
a replacement provision of equivalent value which does not cause such a
13
<PAGE>
violation, provided, and to the extent, that Primex's outside auditors determine
that any such replacement provision is permissible without violating the Pooling
Rules.
Section 10. Change in Control
-----------------
(a) Except as the Board or the Committee may expressly provide otherwise prior
to a Change in Control of Primex (as defined below) and subject to the
provisions of Section 6(f)(ix) hereof, in the event of a Change in Control
of Primex:
(i) all Options and Stock Appreciation Rights then outstanding shall
become immediately and fully exercisable, notwithstanding any
provision therein for the exercise in installments;
(ii) unless a Stock Appreciation Right shall have already been granted
with respect to an outstanding Option, the Participant holding
such Option shall be deemed also to hold a Stock Appreciation
Right related to such Option, exercisable in accordance with and
subject to the terms and conditions of Section 6(b) for the
number of Shares exercisable under such Option after giving
effect to such acceleration, which Stock Appreciation Right may,
but need not be, evidenced by separate written agreement;
(iii) all restrictions and conditions of all Restricted Stock and
Restricted Stock Units then outstanding shall be deemed satisfied
as of the date of the Change in Control; and
(iv) all Performance Awards shall become vested, deemed earned in full
and paid to the Participants immediately (or in any event as soon
as administratively practicable) following the Change in Control,
cash units in cash and phantom stock units in the Shares
represented thereby or such other securities, property or cash as
may be deliverable in respect of Shares as a result of a Change
in Control, without regard to payment schedules and
notwithstanding that the applicable performance cycle or
retention cycle shall not have been completed.
(b) The term "Change in Control" shall mean the occurrence of any one of the
following events:
(i) Primex ceases to be owned by at least 300 shareholders of record
after December 31, 1996, or ceases, by action of Primex's Board
of Directors, to be either listed on a national securities
exchange or authorized for quotation on The Nasdaq Stock Market;
(ii) a person, partnership, joint venture, corporation or other
entity, or two or more of any of the foregoing acting as a
"person" within the meaning of Section 13(d)(3) of the Securities
Exchange Act of 1934, as amended (the "Act), other than the
Corporation, a majority-owned subsidiary of the Corporation, or
an employee benefit plan (or related trust) of the Corporation,
or such subsidiary, become(s) the "beneficial owner" (as defined
in Rule 13(d)(3) under the Act) of 15% or more of the then
outstanding voting stock of the Corporation;
14
<PAGE>
(iii) during any period of two consecutive years after 1996,
individuals who at the beginning of such period constitute
Primex's Board of Directors (together with any new Director whose
election by Primex's Board of Directors or whose nomination for
election by Primex's shareholders, was approved by a vote of at
least two-thirds of the Directors then still in office who either
were Directors at the beginning of such period or whose election
or nomination for election was previously so approved) cease for
any reason to constitute a majority of the Directors then in
office.
(iv) all or substantially all of the business or assets of Primex is
disposed of pursuant to a merger, consolidation or other
transaction, whether or not Primex is the surviving corporation,
(unless in either case the shareholders of Primex immediately
prior to such merger, consolidation, combination or other
transaction beneficially own, directly or indirectly, more than
50% of the aggregate voting stock or other ownership interests of
(x) the entity or entities, if any, that succeed to the business
of Primex or (y) the combined company);
(v) Primex's Board of Directors determines that a tender offer for
Primex's shares indicates a serious intention by the offeror to
acquire control of Primex; or
(vi) shareholder approval of a liquidation or dissolution of the
Corporation.
Section 11. Effective Date of the Plan
--------------------------
The Plan shall be effective as of the date of its approval by the shareholder of
Primex.
Section 12. Term of the Plan
----------------
No Award shall be granted under the Plan after December 1, 2006, but unless
otherwise expressly provided in the Plan or in an applicable Award Agreement,
any Award theretofore granted may extend beyond such date.
15
<PAGE>
APPENDIX I
DESCRIPTION OF
RESTRICTED STOCK UNIT AWARDS
GRANTED UNDER THE
1996 LONG TERM INCENTIVE PLAN OF
PRIMEX TECHNOLOGIES, INC.
The following will apply to restricted stock units granted effective
January 7, 1997, May 6, 1997, June 1, 1997, August 20, 1997 and May 5, 1998:
1. Definitions
As used herein:
"Fair Market Value" means, with respect to a date, on a per share basis,
the average of the high and the low price of a share of Common Stock
reported on the consolidated transaction reporting system for NASDAQ issues
on such date or if Common Stock is not traded on such day, such average
price on the next preceding date on which it is traded.
"Restricted Stock Unit" means one phantom share of Primex Common Stock
granted pursuant to the Plan.
"Vesting Period" means with respect to a Restricted Stock Unit, a time
period beginning with the date on which such Restricted Stock Unit is
granted and ending on January 4, 2002, provided that if the Committee
determines that Total Return to Shareholders of Primex using the Fair
Market Value of Primex Common Stock on January 7, 1997, as a base of $100
is equal to or greater than $160 at the close of business on December 31,
1999, then the Vesting Period shall end on January 4, 2000.
2. Vesting and Payment
(a) Except as otherwise provided in the Plan, a Participant's interest in
a Restricted Stock Unit will vest only at the end of the Vesting
Period for such Restricted Stock Unit.
(b) Each vested Restricted Stock Unit will be payable to a Participant by
delivery of one share of Primex Common Stock following the end of the
applicable Vesting Period, except as otherwise provided herein.
(c) Each outstanding Restricted Stock Unit shall accrue amounts equivalent
to the cash dividends payable on a share of Primex Common Stock
("dividend equivalents"). Such dividend equivalents will be paid to a
Participant only if
16
<PAGE>
the Restricted Stock Unit on which such dividend equivalents were
accrued vests. Dividend equivalents accrue interest at an annual rate
equal to Primex's before-tax cost of borrowing as determined from time
to time by Primex's Chief Financial Officer or Treasurer or the
Committee, 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 on such dividend
equivalents) shall not vest and shall be forfeited.
(d) The total amount of Restricted Stock Units (and dividend equivalents
and related interest) vested in a Participant at the end of each
applicable Vesting Period will be paid within 60 days following such
Vesting Period, except as specifically otherwise provided in the Plan
or herein.
(e) If Restricted Stock Units are to be paid in cash, the Primex Common
Stock will be valued at the average of the high and low sales prices
thereof as reported on the NASDAQ National Market System on the fifth
business day before such cash payment is due (or if Primex Common
Stock is not traded on such day, the first preceding day on which such
stock is traded).
(f) Restricted Stock Units will carry no voting rights nor, except as
provided herein, be entitled to receive any dividends or other rights
enjoyed by shareholders.
3. Termination of Employment
(a) With certain exceptions, as the Committee may determine, a
Participant's unvested Restricted Stock Units will be forfeited if his
or her employment terminates before the end of the applicable Vesting
Period.
4. Change in Control
(a) Upon a Change in Control, an amount equal to the then fair market
value of shares of Primex Common Stock equal to the number of
Restricted Stock Units otherwise not vested will be paid either in
cash or in Primex Common Stock, as the Participant elects. Such
distribution will be made immediately (or in any event as soon as
administratively practicable) following the Change in Control.
5. Tax Withholding
(a) Taxes will be withheld from payouts of Restricted Stock Units and
related cash.
This description of Restricted Stock Units is qualified in its entirety by
reference to the Plan.
17
<PAGE>
APPENDIX I(a)
DESCRIPTION OF
RESTRICTED STOCK UNIT AWARDS
GRANTED UNDER THE
1996 LONG TERM INCENTIVE PLAN OF
PRIMEX TECHNOLOGIES, INC.
The following will apply to restricted stock units granted after January 1,
1999.
1. Definitions
As used herein:
"Fair Market Value" means, with respect to a date, on a per share basis,
the average of the high and the low price of a share of Common Stock
reported on the consolidated transaction reporting system for NASDAQ issues
on such date or if Common Stock is not traded on such day, such average
price on the next preceding date on which it is traded.
"Restricted Stock Unit" means one phantom share of Primex Common Stock
granted pursuant to the Plan.
"Vesting Period" means with respect to a Restricted Stock Unit a time
period beginning with the date on which such Restricted Stock Unit is
granted and ending on the date on which such Restricted Stock Unit is to
vest as set forth in the Restricted Stock Unit certificate representing
such unit grant and as the Compensation & Nominating Committee
("Committee") shall determine.
2. Vesting and Payment
(a) Except as otherwise provided in the Plan, a Participant's interest in
a Restricted Stock Unit will vest only at the end of the Vesting
Period for such Restricted Stock Unit.
(b) Each vested Restricted Stock Unit will be payable to a Participant by
delivery of one share of Primex Common Stock following the end of the
Vesting Period, except as otherwise provided herein.
(c) Each outstanding Restricted Stock Unit shall accrue amounts equivalent
to the cash dividends payable on a share of Primex Common Stock
("dividend equivalents"). Such dividend equivalents will be paid to a
Participant only if the Restricted Stock Unit on which such dividend
equivalents were accrued vests. Dividend equivalents accrue interest
at an annual rate equal to Primex's
18
<PAGE>
before-tax cost of borrowing as determined from time to time by
Primex's Chief Financial Officer or Treasurer or the Committee,
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 on such dividend equivalents)
shall not vest and shall be forfeited.
(d) The total amount of Restricted Stock Units (and dividend equivalents
and related interest) vested in a Participant at each applicable
Vesting Period will be paid within 60 days following such Vesting
Period, except as specifically otherwise provided in the Plan or
herein.
(e) If Restricted Stock Units are to be paid in cash, the Primex Common
Stock will be valued at the average of the high and low sales prices
thereof as reported on the NASDAQ National Market System on the fifth
business day before such cash payment is due (or if Primex Common
Stock is not traded on such day, the first preceding day on which such
stock is traded).
(f) Restricted Stock Units will carry no voting rights nor, except as
provided herein, be entitled to receive any dividends or other rights
enjoyed by shareholders.
3. Termination of Employment
(a) With certain exceptions, as the Committee may determine, a
Participant's unvested Restricted Stock Units will be forfeited if his
or her employment terminates before the end of the applicable Vesting
Period.
4. Change in Control
(a) Upon a Change in Control, an amount equal to the then fair market
value of shares of Primex Common Stock equal to the number of
Restricted Stock Units otherwise not vested will be paid either in
cash or in Primex Common Stock, as the Participant elects. Such
distribution will be made immediately (or in any event as soon as
administratively practicable) following the Change in Control.
5. Tax Withholding
(a) Taxes will be withheld from payouts of Restricted Stock Units and
related cash.
This description of Restricted Stock Units is qualified in its entirety by
reference to the Plan.
19
<PAGE>
APPENDIX II
-----------
STOCK OPTIONS AND
STOCK APPRECIATION RIGHTS
-------------------------
The following terms will apply to Stock Options and Stock Appreciation
Rights granted pursuant to this Appendix II:
I. Definitions
-----------
A. "Cause" means the commission of an act of dishonesty, gross incompetency or
intentional or willful misconduct, which act occurs in the course of an
optionee's performance of his duties as an employee.
B. "Exercise Price" means the Fair Market Value of a Share on the date of
grant.
C. "Fair Market Value" means, with respect to a date, on a per share
basis, the average of the high and the low sale price of a Share reported on the
consolidated transaction reporting system for Nasdaq issues on such date or if
Shares are not traded on such day, such average price on the next preceding date
on which it is traded.
D. "Incapacity" means any material physical, mental or other disability
rendering the optionee incapable of substantially performing his or her services
for his employer that is not cured within 180 days of the first occurrence of
such incapacity.
E. "Option Term" means ten years from the date of grant.
II. Option Exercise
---------------
The optionee may purchase from Primex the following aggregate number of
shares covered by the Option on and after each of the following dates during the
term of the Option:
Date Number of Shares
---- ----------------
1st anniversary of the grant date 33-1/3% of original grant of Options
2nd anniversary of the grant date 66-2/3% of original grant of Options
3rd anniversary of the grant date 100% of original grant of Options
The Option, to the extent vested, shall be exercisable in whole at any time
or in part from time to time during the term of the Option, but not as to less
than 25 shares (or the shares then purchasable under the Option if less than 25
shares) at any one time.
The exercise price shall either be tendered in cash (or check) or Shares or
a combination of cash (or check) or Shares. Shares surrendered as payment for
the exercise price shall be
20
<PAGE>
valued at Fair Market Value on the date on which the certificates for such
Shares are surrendered to Primex.
If at any time the optionee's employment with Primex or any Affiliate
shall be terminated (a) voluntarily by the optionee for any reason other than
death or Incapacity or (b) by Primex or any Affiliate for any reason other than
for Cause, the optionee shall have the right to exercise his or her Option to
the extent of the Shares with respect to which the Option could have been
exercised by the optionee as of the date of his or her termination of employment
in accordance with its terms but in no event beyond the earlier of (i) one year
after the date of termination of employment or (ii) the scheduled expiration of
such Option.
If an optionee's employment with Primex or any of its Affiliates is
terminated due to retirement (at or after attaining age 55 with 10 years of
service with Primex or any Affiliate (including prior service with Olin
Corporation)), the optionee shall have the right to exercise his or her Option
to the extent of the Shares with respect to which the Option could have been
exercised by the optionee as of the date of his or her retirement in accordance
with its terms but in no event beyond the scheduled expiration of such Option.
If the optionee's employment with the Company shall be terminated for
Cause, his or her Option (whether or not vested) shall terminate and expire
concurrently with such termination of employment and shall not thereafter be
exercisable to any extent.
If an optionee's employment with Primex or any of its Affiliates is
terminated due to death or Incapacity, the Option shall (a) become fully vested
and (b) be exercisable by the optionee (or in the event of the optionee's death,
by his or her estate or by the person who acquired the right to exercise the
Option by bequest or inheritance) provided that the Option is exercised prior to
the scheduled expiration of such Option.
If an optionee dies after his or her termination of employment during the
period in which his or her Option remains exercisable, the Option may be
exercised, to the extent the Option could have been exercised by the decedent
immediately prior to his death, by the Optionee's estate or by the person who
acquired the right to exercise the Option by bequest or inheritance at any time
within one year after the date of death, but in no event beyond the scheduled
expiration of such Option.
III. Transferability of Options
--------------------------
All Options granted in accordance with this Appendix II shall be
transferable to the extent permitted in Section 6(f)(v) of the Plan.
21
<PAGE>
IV. Delegation
----------
The Committee hereby authorizes the Chairman, Chief Financial Officer and
Vice President of Human Resources ("Management") to determine if the Awards
granted pursuant to this Appendix will be incentive Stock Options or
nonqualified Options for all recipients. With respect to any individual who is
not an officer or director of Primex subject to Section 16 of the Securities
Exchange Act of 1934, as amended, the Committee authorizes Management to
determine if a Stock Appreciation Right shall be granted in connection with any
Option or as a separate Award. Any Stock Appreciation Right shall be exercisable
in accordance with the terms included in Section II of this Appendix unless the
Committee (or Management, in the case of an individual who is not subject to
Section 16 of the Securities Exchange Act of 1934, as amended) decides
otherwise.
V. Shares Available for Awards; Plan Terms
---------------------------------------
In addition to the 700,000 shares which were available for awards under the
Plan prior to the effective date hereof, an additional 1,000,000 shares shall be
available for the grant of stock options pursuant to this Appendix II.
Except as expressly provided in this Appendix II, all terms of the Plan
shall continue to be in full force and effect.
22
<PAGE>
Exhibit 10.9
PRIMEX TECHNOLOGIES, INC.
INCENTIVE COMPENSATION PLAN
ARTICLE I
Statement of Purpose
--------------------
1.1 The purpose of the Primex Technologies, Inc. Incentive Compensation Plan
(the "Plan") is to provide a system of incentive compensation which will
promote the maximization of Economic Value Added ("EVA(R)"/1/) over the
long term. In order to align management incentives with shareholder
interests, incentive compensation will reward the creation of value. This
Plan will tie incentive compensation to EVA(R) and, thereby, reward
management for creating value and penalize management for destroying
value.
1.2 EVA(R) is the performance measure of value creation for Primex
Technologies, Inc. (the "Company"). Managers create value when they employ
capital in an endeavor that generates a return that exceeds the cost of
the capital employed. Managers destroy value when they employ capital in
an endeavor that generates a return that is less than the cost of capital
employed. By subtracting the cost of capital from the operating profits
generated by a business group, EVA(R) measures the total value created (or
destroyed) by management. The Plan will reward management increases in
EVA(R) and penalize management for decreases in EVA(R).
1.3 The first year of the Plan, which was calendar year 1996, was administered
by Olin Corporation which owned and operated the businesses that now
comprise the Company. The Company was spun off from Olin at the end of
1996. Accordingly, Olin set the Expected Improvement in EVA(R), Leverage
Factor, and Target EVA(R) for the Company and these continue in full force
and effect for the Company. The Bank Balances, whether positive or
negative, for all Olin Participants that joined the Company in connection
with the spin off were transferred to the Participant's Bonus Bank under
the Plan.
ARTICLE II
Definitions
-----------
Unless the context provides a different meaning, the following terms shall have
the following meanings:
"Act" means the Securities Exchange Act of 1934, as amended.
____________________
/1/ EVA(R) is a registered trademark of Stern Stewart & Co.
<PAGE>
2
"Actual EVA(R)" means, with respect to an EVA(R) Center for a fiscal year,
the EVA(R) of such center for such year as calculated by the Chief
Financial Officer.
"Bank Balance" means, with respect to a Participant, a bookkeeping record
of the net balance of the amounts credited to and debited against such
Participant's Bonus Bank following the end of each fiscal year. For a
Participant's first year of participation in the Plan, such Participant's
Bank Balance shall initially be equal to zero.
"Bonus Bank" means, with respect to a Participant, a bookkeeping record of
an account to which Declared Bonuses are credited, or debited as the case
may be, from time to time under the Plan and from which bonus payments to
such Participants are debited.
"Bonus Multiple" means, with respect to a Participant for a fiscal year,
the Participant's Performance Multiple plus the Participant's Target
Multiple for such year, except in the case of a Participant who has a
Combined Performance Multiple for such year, the Performance Multiple shall
be the Combined Performance Multiple for such Participant for such year.
"Capital" means, with respect to an EVA(R) Center for a fiscal year, the
investment made (both equity and debt) in such center, as determined by the
Chief Financial Officer for such year. Each component of Capital will be
measured by computing an average balance based on the ending monthly
balance for the twelve months of a fiscal year.
"Capital Charge" means, with respect to an EVA(R) Center for a fiscal year,
the deemed opportunity cost of employing Capital in the business of such
EVA(R) Center for such year, as determined by the Chief Financial Officer.
The Capital Charge is computed as follows:
Capital Charge = Capital X Cost of Capital
"Cause" shall mean (i) dishonesty; (ii) theft or other criminal conduct;
(iii) insubordination; (iv) violation of, or deviation from, any Company or
facility work rule, or (v) other misconduct deemed by the Company to be of
a serious nature warranting termination.
"Change in Control" means the occurrence of any one of the following
events:
(i) the Corporation ceases to be owned by at least 300 shareholders of
record after December 31, 1996, or ceases, by action of the
Corporation's Board of Directors, to be either listed on a national
securities exchange or authorized for quotation on The Nasdaq Stock
Market;
(ii) a person, partnership, joint venture, corporation or other entity, or
two or more of any of the foregoing acting as a "person" within the
meaning of Section 13(d)(3) of the Securities Exchange Act of 1934, as
amended (the "Act"), other than the Corporation, a majority-owned
subsidiary of the Corporation, or an employee
<PAGE>
3
benefit plan (or related trust) of the Corporation, or such
subsidiary, become(s) the "beneficial owner" (as defined in Rule
13(d)(3) under the Act) of 15% or more of the then outstanding voting
stock of the Corporation;
(iii) during any period of two consecutive years after 1996, individuals
who at the beginning of such period constitute the Corporation's
Board of Directors (together with any new Director whose election by
the Corporation's Board of Directors or whose nomination for election
by the Corporation's shareholders, was approved by a vote of at least
two-thirds of the Directors then still in office who either were
Directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any
reason to constitute a majority of the Directors then in office;
(iv) all or substantially all of the business or assets of the Corporation
is disposed of pursuant to a merger, consolidation or other
transaction whether or not the Corporation is the surviving
corporation, (unless in either case the shareholders of the
Corporation immediately prior to such merger, consolidation,
combination, or other transaction beneficially own, directly or
indirectly, more than 50% of the aggregate voting stock or other
ownership interests of (x) the entity or entities, if any, that
succeed to the business of the Corporation or (y) the combined
company);
(v) the Corporation's Board of Directors determines that a tender offer
for the Corporation's shares indicates a serious intention by the
offeror to acquire control of the Corporation; or
(vi) shareholder approval of a liquidation or dissolution of the
Corporation.
"Chief Executive Officer" means the Chief Executive Officer of the Company
as designated by the Board of Directors of the Company from time to time.
"Chief Financial Officer" means the Chief Financial Officer of the Company
as designated by the Board of Directors of the Company from time to time.
"Combined Performance Multiple" means, with respect to a Participant who is
assigned to a Participating Group which has more than on EVA(R) Center, in
any fiscal year, the sum of the Performance Multiples for such centers for
such year as weighted for such Participating Group.
"Committee" means the Compensation and Nominating Committee of the Board of
Directors of the Company or such other committee as such Board may
designate from time to time.
"Company" or "Corporation" means Primex Technologies, Inc., a Virginia
corporation, and its successors and assigns, including any corporation with
which the Company is merged or consolidated.
<PAGE>
4
"Corporate Officer" means a corporate officer of the Company, elected by
the Board of Directors of the Company, who is not an assistant officer.
"Corporate EVA(R) Center" means the EVA(R) Center consisting of the entire
Company.
"Cost of Capital" means for a fiscal year the weighted average of the cost
of debt and the cost of equity for such year, as determined by the Chief
Financial Officer. The Cost of Capital will be reviewed at least annually
and revised if it has changed significantly. Calculations will be carried
to one decimal point.
"Declared Bonus" means, with respect to a Participant for a fiscal year,
the bonus earned by such Participant for such year and is equal to the
Participant's Initial Declared Bonus for such year except if the
Participant's Participating Group has a Value Driver Factor, such
Participant's Declared Bonus shall be equal to the sum of (i) the EVA(R)-
weighted portion of the Initial Declared Bonus for such year plus (ii) the
product of the non-EVA(R) weighted portion of the Initial Declared Bonus
for such year multiplied by the Value Driver Factor for such year provided
that in all cases prior to a Change in Control the Company in its sole
discretion may reduce a positive Declared Bonus of any and all Participants
to any amount (but no less than zero) prior to the crediting of such
Declared Bonus to the Participant's Bonus Bank.
"EVA(R)" means, with respect to an EVA(R) Center for a fiscal year, NOPAT
of such EVA(R) Center for such year minus Capital Charge of such EVA(R)
Center for such year, all as calculated by the Chief Financial Officer.
EVA(R) may be positive or negative.
"EVA(R) Center" means those centers or business groups, including the
Company, for which EVA(R) is separately calculated, such centers to be
determined annually by the Company for a fiscal year.
"Expected Improvement" means the constant EVA(R) improvement that is added
to shift the target up each year. This is determined by the expected
growth in EVA(R) per year with respect to an EVA(R) Center. In the event
the Long-Term Target is achieved in any one year, no Expected Improvement
is added to next year's target EVA(R). With respect to the Corporate
EVA(R) Center, the Expected Improvement shall be $900,000/year.
"Initial Declared Bonus" means, with respect to a fiscal year for a
Participant, the product of the Participant's Target Incentive for such
year multiplied by such Participant's Bonus Multiple for such year.
"Leverage Factor" means the amount of overscore above EVA(R) target that
yields a 200% payout or underscore that yields a zero % payout.
"Long-Term Target" means summation of Target EVA(R) in the initial year,
plus Expected Improvement multiplied by 7.
<PAGE>
5
"NOPAT" means, with respect to an EVA(R) Center for a fiscal year, the net
operating profit after taxes for such fiscal year, as determined by the
Chief Financial Officer.
"Participating Group" means for a fiscal year a business division or
subunit of a business division which are uniquely identified for the
purpose of bonus awards under this Plan and are so designated by the
Company from time to time as a Participating Group.
"Performance Multiple" means, with respect to an EVA(R) Center for a fiscal
year, the difference between the Actual EVA(R) and the Target EVA(R)
divided by the Leverage Factor. In the case of a Participant who is
assigned to more than one EVA(R) Center, the Participant will have a
Performance Multiple for each EVA(R) Center.
"Plan" means this Incentive Compensation Plan, as amended from time to
time.
"Target EVA(R)" means, with respect to an EVA(R) Center for the initial
year, of such center the level of EVA(R) as determined by the Company.
With respect to the Corporate EVA(R) Center for 1996, the Target EVA(R)
shall be ($6,400,000). After the initial year of an EVA(R) Center, the
Target EVA(R) for such center for each succeeding fiscal year is revised
according to the following formula:
Target EVA(R) = ((Prior Fiscal Year's Actual EVA(R) + Prior Fiscal Year's
Target EVA(R)) divided by 2) + Expected Improvement provided such Target
EVA(R) shall be adjusted to reflect any change in the Cost of Capital for
such succeeding fiscal year as provided in the EVA(R) Business Management
System prepared by Stern Stewart & Co. and provided further that if Long-
Term Target is achieved, no Expected Improvement will be added.
"Target Incentive" means, with respect to a Participant for a fiscal year,
the Target Incentive for such Participant for such fiscal year as
determined by the Committee in the case of Participants who are Corporate
Officers of the Company at the time of determination and in all other cases
by the Chief Executive Officer or his designee.
"Target Multiple" means 1.0 for each Participant except in the first four
years during which a Participant participates in the Plan, the Target
Multiple shall be 1.5.
"Value Driver Factor" is based on an assessment of individual and/or group
performance as determined annually by the Company.
ARTICLE III
Determination and Distribution of Bonuses
-----------------------------------------
3.1 Determinations. For each fiscal year of the Company beginning with the
--------------
1997 fiscal year, the Company shall determine with respect to such fiscal
year (1) the persons who will be Participants, (2) the Participating Group
for each such Participant, (3) the Target Incentive for each Participant,
(4) the minimum and maximum value of the
<PAGE>
6
Value Driver Factor, if any, for each Participant, (5) the EVA(R) Center or
EVA(R) Centers for each Participating Group, (6) if there is more than one
EVA(R) Center for a Participating Group, the weight each EVA(R) Center will
carry in determining the Bonus Multiple of such Participating Group and (7)
Cost of Capital for each EVA(R) Center. As soon as practicable following
the close of the fiscal year, the Company shall determine the following
with respect to such fiscal year for each Participant: (1) Actual EVA(R)
and Performance Multiple for each EVA(R) Center, (2) the Performance
Multiple or Combined Performance Multiple, as the case may be, for each
Participating Group, (3) the Bonus Multiple, (4) the Value Driver Factor,
(5) the Initial Declared Bonus, (6) the Declared Bonus and (7) the Capital
Charge for each EVA(R) Center. The Committee on behalf of the Company shall
determine the Initial Declared Bonus, Value Driver Factor (if any) and the
Declared Bonus for Participants who are Corporate Officers at the time of
determination. Capital, Cost of Capital, Capital Charge, Expected
Improvement in EVA(R), Leverage Factor and Target EVA(R) may be adjusted
from time to time for a fiscal year to reflect extraordinary or
nonrecurring charges or financial developments.
3.2 Distribution. As soon as practicable, following the close of each fiscal
------------
year of the Company, but no later than March 15 following such close, the
Company shall with respect to each Participant:
(1) Add the Declared Bonus for such fiscal year (including any negative
bonuses) to the Bonus Bank.
(2) Pay out a prescribed portion of any positive Bank Balance in
accordance with the distribution ratio shown below, and
(3) Carry the remaining Bank Balance (positive or negative) forward to the
next fiscal year.
The prescribed distribution ratios for the Bonus Bank for a Participant are
First year of Plan participation 67%
Second year of Plan participation 50%
Third year of Plan participation 40%
Fourth year of Plan participation 33%
If the first period of participation for a Participant is less than six
months, then the first year distribution ratio (i.e. 67%) applies to this
period and the full subsequent year of participation. Thereafter, the
distribution ratios are as above.
Notwithstanding the foregoing, the Company may, as it determines in its
sole discretion, reduce the distribution ratio for any and all Participants
at any time prior to payment of the distribution from the Bonus Bank for a
fiscal year, provided the Committee shall make such determination in the
case of any Corporate Officer.
3.3 Negative Bonus Bank. If, as a result of negative EVA(R), a Bonus Bank has
-------------------
a deficit, no Participant shall be required, at any time, to reimburse his
or her Bonus Bank.
<PAGE>
7
3.4 Lump Sum. All distributions from the Plan shall be made in a cash lump sum
--------
unless payment is deferred in a timely manner by the Participant with the
consent of the Company under the Company's bonus deferral policy as in
effect from time to time.
3.5 Interest. No interest shall be paid on or accrue to any Bank Balance.
--------
ARTICLE IV
Participation, Transfers and Terminations
-----------------------------------------
4.1 Participant Matters. Unless otherwise expressly reserved to the Committee
-------------------
or the Chief Financial Officer and except in cases affecting the Chief
Executive Officer, the Chief Executive Officer or his designee on behalf of
the Company shall determine all Plan matters with respect to all
Participants.
4.2 Transfers. A Participant who transfers his or her employment from one
---------
Participating Group of the Company to another Participating Group shall
retain his or her Bonus Bank and will be eligible to receive future Plan
bonuses in accordance with the provisions of the Plan. During the year of
transfer, the Initial Declared Bonus and Declared Bonus for such
Participant shall be pro rated on time spent in each Participating Group.
4.3 Retirement, Disability or Death. If during a fiscal year a Participant
-------------------------------
terminates employment with the Company by virtue of electing retirement
(must be minimum of fifty-five years of age with at least ten years
service), receiving disability payments under the Company's long-term
disability benefits program or death, such Participant, surviving
beneficiary or estate shall receive the positive Bank Balance. The
Participant, surviving beneficiary or estate, will receive his or her
balance as soon as practical after qualifying for receipt of benefit
payments under the Company's long-term disability benefits program or
retirement. Payments of such balance made under this Section 4.3 shall not
be included in any PRIME Plan or Restoration Plan calculation.
4.4 Involuntary Termination Without Cause. A Participant whose employment is
-------------------------------------
terminated by the Company or any subsidiary without Cause shall be paid the
positive Bank Balance, if any, within 30 days from the date of termination.
Any payments of such balance made under this Section 4.4 shall not be
included in any PRIME Plan or Restoration Plan calculation.
4.5 Voluntary Termination. In the event that a Participant voluntarily
---------------------
terminates employment with the Company or any of its subsidiaries, the
right of Participant to his or her Bonus Bank and any Bank Balance shall be
forfeited unless a different determination is made by the Company. Any
payments of such balance made under this Section 4.5 shall not be included
in any PRIME Plan or Restoration Plan calculation.
<PAGE>
8
4.6 Involuntary Termination for Cause. In the event of termination of
---------------------------------
employment for Cause, the right of Participant to his or her Bonus Bank and
any Bank Balance shall be forfeited unless a different determination is
made by the Company in its sole discretion. Any payments of such balance
made under this Section 4.6 shall not be included in any PRIME Plan or
Restoration Plan calculation.
4.7 Breach of Agreement. Notwithstanding any other provision of the Plan or
-------------------
any other agreement, in the event that a Participant shall breach any non-
competition agreement or provision relating to the Company or any
subsidiary of the Company or breach any agreement with respect to the post-
employment conduct of such Participant, including those contained in any
benefit or incentive plan or award, the Bonus Bank held by such
Participating Participant shall be forfeited.
4.8 Change in Control. Upon a Change in Control, an additional bonus shall be
-----------------
added to each Participant's Bonus Bank for the fiscal year in which the
Change in Control occurs. Such additional bonus shall be the Participant's
(1) preceding fiscal year's Declared Bonus or (2) current fiscal year's
Target Incentive, whichever is greater, multiplied by a fraction, the
numerator of which is the number of months (rounded to the nearest whole
month) that the Participant was employed by the Company and the denominator
of which is 12. No additional bonus shall be added to any Participant's
Bonus Bank if his or her Declared Bonus for the preceding fiscal year was
negative.
Immediately following the allocation in the preceding paragraph, the Plan
shall terminate and any positive Bank Balances shall be paid to
Participants immediately (or in any event as soon as administratively
practicable) following the Change in Control.
4.9 No Guarantee. Participation in the Plan provides no guarantee that
------------
payments under the Plan will be paid. Selection as a Participant is no
guarantee that payments under the Plan will be paid or that selection as a
Participant will be made for the subsequent fiscal year.
ARTICLE V
General Provisions
------------------
5.1 Withholding of Taxes. The Company shall have the right to withhold the
--------------------
amount of taxes, which in the determination of the Company, are required to
be withheld under law with respect to any amount due or paid under the
Plan.
5.2 Expenses. All expenses and costs in connection with the adoption and
--------
administration of the Plan shall be borne by the Company out of its general
funds.
5.3 Claims for Benefits. Participants whose employment with the Company or any
-------------------
subsidiary is terminated for any reason will be deemed to have made a
claim for benefits under the Plan and no written claim will be required.
Claims for benefits will be decided by the Chief Executive Officer or, in
the case or a claim pertaining to the
<PAGE>
9
Chief Executive Officer, by the Committee (collectively referred to as the
"Adjudicator"). If the Adjudicator believes that a terminated Participant
is not entitled to benefits under the terms and conditions of the Plan, it
shall notify the Participant in writing of the denial of benefits within 90
days of the Participant's termination of service. In the event that a claim
is wholly or partially denied, the Participant or his representative will
receive a written explanation of the reason for denial. The Participant or
his representative may request a review of the denied claim within 60 days
of receipt of the denial and, in connection therewith, may review pertinent
documents and submit comments in writing. Upon receipt of an appeal, the
Adjudicator shall decide the appeal within 60 days of receipt. The decision
on appeal shall be in writing, shall include specific reasons for the
decision and shall prefer to pertinent provisions of the Plan on which the
decision is based. In reaching its decision, the Adjudicator shall have
complete discretionary authority to determine all questions arising in the
interpretation and administration of the Plan and to construe the terms of
the Plan, including any doubtful or disputed terms and the eligibility of a
Participant for benefits.
5.4 Action Taken In Good Faith. The Company may employ attorneys, consultants,
--------------------------
accountants or other persons and the Company's directors and officers shall
be entitled to rely upon the advice, opinions or valuations of any such
persons. All actions taken and all interpretations and determinations made
by the Committee or Chief Executive Officer in good faith shall be final
and binding upon all employees, the Company and all other interested
parties. No member of the Committee, nor any officer, director, employee
or representative of the Company, or any of its affiliates acting on behalf
of or in conjunction with the Committee, shall be personally liable for any
action, determination, or interpretation, whether of commission or
omission, taken or made with respect to the Plan.
5.5 Rights Personal to Employee. Subject to Section 4.3 above, any rights
---------------------------
provided to an employee under the Plan shall be personal to such employee,
shall not be transferable (except by will or pursuant to the laws of
descent or distribution), and shall be exercisable during his lifetime,
only by such employee.
5.6 Distribution. Upon termination of the Plan or suspension of the Plan for a
------------
period of more than 90 days, the positive Bank Balance of each Participant
shall be distributed as soon as practicable, but in no event later than 90
days from such event. The Committee, in its sole discretion, may accelerate
distribution of the balance of any Bonus Bank, in whole or in part, at any
time without penalty.
5.7 Non-Allocation of Award. In the event of a suspension or termination of
-----------------------
the Plan during any fiscal year, except where expressly provided for, as
provided herein at Section 10.1, the Declared Bonus for such year shall be
deemed forfeited and no portion thereof shall be allocated to Participants.
In the event of a suspension, any such forfeiture shall not affect the
calculation of EVA(R) in any subsequent year.
<PAGE>
10
ARTICLE VI
Limitations
-----------
6.1 No Continued Employment. Nothing contained herein shall provide any
-----------------------
employee with any right to continued employment or in any way abridge the
rights of the Company and its subsidiaries to determine the terms and
conditions of employment and whether to terminate employment of any
employee. Neither the establishment of the Plan or the grant of an award or
bonus hereunder shall be deemed to constitute an express or implied
contract of employment for any period of time or in any way abridge the
rights of the Company or any of its subsidiaries to determine the terms and
conditions of employment or to terminate the employment of any employee
with or without cause at any time.
6.2 No Vested Rights. Except as otherwise expressly provided herein, no
----------------
employee or other personal shall have any claim of right (legal, equitable,
or otherwise) to any award, allocation, or distribution or any right,
title, or vested interest in any amounts in his Bonus Bank and no officer
or employee of the Company or any subsidiary or any other personnel shall
have any authority to make representations or agreements to the contrary.
No interest conferred herein to a Participant shall be assignable or
subject to any lien or pledge or any claim by a Participant's creditors.
The right of the Participant to receive a distribution thereunder shall be
an unsecured claim against the general assets of the Company and the
Participant shall have no rights in or against any specific assets of the
Company as the result of participation hereunder.
6.3 Not Part of Other Benefits. The benefits provided in this Plan shall not
--------------------------
be deemed a part of any other benefit provided by the Company or any of its
subsidiaries to its employees. Neither the Company nor any of its
subsidiaries assumes any obligation to Participants except as specified
herein.
6.4 Other Plans. Nothing contained herein shall limit the Company and its
-----------
subsidiaries' power or the Committee's power to grant bonuses to employees
of the Company or any of its subsidiaries, whether or not Participants in
this Plan.
6.5 Unfunded Plan. This Plan is unfunded and is maintained by the Company in
-------------
part to provide deferred compensation to a select group of management and
highly compensated employees. Nothing herein shall create or be construed
to create a trust or separate fund of any kind, or a fiduciary relationship
between the Company (or any of its subsidiaries) and any Participant.
ARTICLE VII
Authority
---------
7.1 Full power and authority to interpret and administer this Plan shall be
vested in the Committee, which shall have the authority to make rules and
regulations for the administration of the Plan. The Committee may from time
to time make such decisions and adopt such rules and regulations for
implementing the Plan as it deems
<PAGE>
11
appropriate for any Participant under the Plan. Any decision taken by the
Committee arising out of or in connection with the construction,
administration, interpretation and effect of the Plan shall be final,
conclusive and binding upon all Participants and any person claiming under
or through them. The Committee may delegate its power and authority with
respect to the Plan to the Chief Executive Officer from time to time as it
determines. All powers and responsibilities of the Committee provided in
this Plan may also be exercised by the Board of the Company at any time.
ARTICLE VIII
Notice
------
8.1 Any notice to be given pursuant to the provisions of the Plan shall be in
writing and directed to the appropriate recipient thereof at his business
address or office location.
ARTICLE IX
Effective Date
--------------
9.1 This Plan is deemed to be effective as of January 1, 1996.
ARTICLE X
Amendments
----------
10.1 This Plan may be amended, suspended or terminated in whole or in part at
any time from time to time at the sole discretion of the Committee;
provided however, that no such change in the Plan shall be effective to
eliminate or diminish the distribution of any award that has been allocated
to the Bonus Bank of a Participant prior to the date of such amendment,
suspension or termination. Notice of any such amendment, suspension or
termination shall be given promptly to each Participant.
ARTICLE XI
Applicable Law
--------------
11.1 This Plan shall be construed in accordance with the provisions of the laws
of the State of Florida.
<PAGE>
Exhibit 10.11
Revised 2 November 1999
PRIMEX TECHNOLOGIES, INC.
RESTORATION BONUS PLAN
Article I. Plan Establishment.
-------------------------------
1.1 Establishment of Plan. Primex Technologies, Inc. (the "Company" or
---------------------
"Primex") hereby establishes a bonus program known as the Primex Technologies,
Inc. Restoration Bonus Plan (the "Plan"), effective as of January 1, 1997.
1.2 Purpose of Plan. The purpose of the Plan is to provide all employees
---------------
the opportunity for bonus payments intended to approximate and restore the value
of Company funded benefits that cannot be provided under the Primex
Technologies, Inc. Retirement Investment Management Experience Plan (the "Prime
Plan") due to the limit on compensation that can be taken into account under
that plan imposed by Section 401(a)(17) of the Internal Revenue Code (the
"401(a)(17) limit").
Article II. Eligibility.
-----------------------
2.1 Participation in Plan. Any employee of Primex Technologies, Inc.
---------------------
who is a participant in the Prime Plan is eligible for participation in the
Restoration Bonus Plan.
Article III. Amount and Payment of Benefits.
-------------------------------------------
3.1 Matching Contribution. With respect to each Plan Year, the Company
---------------------
shall contribute to the Plan, on behalf of each Participant, the same percentage
of such Participant's Compensation in excess of the 401(a)(17) limit as was
being matched under the Prime Plan on the Participant's compensation below the
401(a)(17) limit. By way of example, if the Participant received a Company
matching contribution under the Prime Plan equal to 3% of his Compensation up to
the 401(a)(17) limit under the Prime Plan, the Company shall make a contribution
under this Plan equal to 3% of such Employee's Compensation in excess of the
applicable 401(a)(17) limit. The Participant shall not be required or permitted
to make salary reduction deferrals under this Plan.
3.2 Retirement Contribution. In addition to the contribution provided for
-----------------------
in Section 3.1, the Company shall, with respect to each Participant who
participates in the Prime Retirement account portion of the Prime Plan, make the
following contributions to the Plan on the
<PAGE>
Compensation of each Participant in excess of the 401(a)(17) limit, based upon
the Participant's attained age as of the first day of the Plan Year:
Participant's Company Retirement
Age as of Contribution As A
January 1 of Percentage of Participant's
Each Year Compensation over 401(a)(17)
-------------- ----------------------------
Younger than 30 2.0%
30-34 2.8%
35-39 3.6%
40-44 4.8%
45-49 6.9%
50-54 9.3%
55-59 10.8%
60 and over 12.3%
3.3 Crediting of Contribution to Memorandum Account. The Company shall
-----------------------------------------------
credit the contributions provided for in Sections 3.1 and 3.2 of this Plan to an
unfunded memorandum account on the books of the Company. No interest shall be
credited on such account balances. The Company shall provide each Participant
with a statement at least annually showing the amount credited to the memorandum
account on behalf of each Participant.
3.4 Payment of Account Balances. The Account Balance of each Participant
---------------------------
shall be paid to such Participant on an annual basis in the form of a cash bonus
by December 31 of each year, or as soon thereafter as administratively feasible
but in no event later than January 31 of the following year. In the event that
a Participant terminates service for any reason prior to the last day of the
Plan Year, the amount of his bonus for his final year of employment shall be
determined based upon his actual Compensation received from the Company during
the Plan Year, and shall be paid to him (or in the case of his death, to his
surviving Spouse, if any, otherwise to his estate) within thirty (30) days of
his termination of service from the Company (and all affiliated employers). In
the event that a Participant is absent from active service for a period of at
least six consecutive months due to a disability, his account balance under this
Plan shall be distributed to him in full. The amount of any bonus distribution
shall be net of all applicable withholding taxes.
Notwithstanding the foregoing, if the Plan Administrator determines that
the payment of any portion or all of the Account Balance would result in the
Company not being able to take a tax deduction under Section 162(m) of the Code,
the Plan Administrator may elect, in its sole discretion, instead to defer
payment of any portion or all of such Account Balance until the next succeeding
year (or years) in which the Participant's remuneration does not exceed the
limit set forth in Code Section 162(m) or is not subject to Code Section 162(m).
2
<PAGE>
3.5 Benefit Upon a Change of Control.
--------------------------------
(a) Lump Sum Distribution Upon a Change of Control. Notwithstanding
----------------------------------------------
any other provision of the Plan, upon a Change in control, each Participant
covered by the Plan shall automatically be paid a lump sum amount in cash
equal to his Account Balance under the Plan, including contributions with
respect to the year in which the Change of Control occurs calculated
assuming Participants were entitled to a full year's contribution for such
year. Such payment shall be made immediately (or in any event as soon as
administratively practicable) following the Change in Control. Payment
under this Section shall not in and of itself terminate the Plan, but such
payment shall be taken into account in calculating benefits under the Plan
which may otherwise become due the Participant thereafter so that no
duplication of benefit occurs.
(b) Divestment of Account Balance. If a Participant is removed from
-----------------------------
participation in the Plan after a Change of Control has occurred, in no
event shall his Account Balance accrued prior thereto be adversely
affected.
(c) Change of Control Defined. For purposes of the Plan, a "Change
-------------------------
in Control" shall be deemed to have occurred if
(i) The Corporation ceases to be owned by at least 300
shareholders of record after December 31, 1996, or ceases,
by action of the Corporation's Board of Directors, to be
either listed on a national securities exchange or
authorized for quotation on The Nasdaq Stock Market;
(ii) a person, partnership, joint venture, corporation or other
entity, or two or more of any of the foregoing acting as a
"person" within the meaning of Section 13(d)(3) of the
Securities Exchange Act of 1934, as amended (the "Act"),
other than the Corporation, a majority-owned subsidiary of
the Corporation, or an employee benefit plan (or related
trust) of the Corporation, or such subsidiary, become(s)
the "beneficial owner" (as defined in Rule 13(d)(3) under
the Act) of 15% or more of the then outstanding voting
stock of the Corporation;
(iii) during any period of two consecutive years after 1996,
individuals who at the beginning of such period constitute
the Corporation's Board of Directors (together with any new
Director whose election by the Corporation's Board of
Directors or whose nomination for election by the
Corporation's shareholders, was approved by a vote of at
least two-thirds of the Directors then still in office who
either were Directors at the beginning of such period or
whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of
the Directors then in office;
3
<PAGE>
(iv) all or substantially all of the business or assets of the
Corporation is disposed of pursuant to a merger,
consolidation or other transaction whether or not the
Corporation is the surviving corporation, (unless in either
case the shareholders of the Corporation immediately prior
to such merger, consolidation, combination or other
transaction beneficially own, directly or indirectly, more
than 50% of the aggregate voting stock or other ownership
interests of (x) the entity or entities, if any, that
succeed to the business of the Corporation or (y) the
combined company);
(v) the Corporation's Board of Directors determines that a
tender offer for the Corporation's shares indicates a
serious intention by the offeror to acquire control of the
Corporation; or
(vi) shareholder approval of a liquidation or dissolution of the
Corporation.
Article IV. Funding
-------------------
4.1 Unfunded Plan. This Plan shall be unfunded. All payments under this
-------------
Plan shall be made from the general assets of the Company. No provision shall
at any time be made with respect to segregating any assets of the Company. No
Participant, surviving Spouse or other individual or entity shall have any
interest in any particular assets of the company by reason of the right to
receive a benefit under this Plan and shall have the rights only of a general
unsecured creditor of the Company with respect to any rights under the plan.
4.2 Anti-Alienation. No Participant or beneficiary shall have the right to
---------------
assign, transfer, encumber or otherwise subject to any lien, any payment or any
other interest under this Plan, nor shall such payment or interest be subject to
attachment, execution or levy of any kind.
Article V. Plan Administration
------------------------------
5.1 Appointment of Plan Administrator. The Company hereby appoints the
---------------------------------
Corporate Vice President of Human Resources and Administration as the Plan
Administrator (the "Plan Administrator").
5.2 Delegation of Duties. The Corporate Vice President of Human Resources
--------------------
and Administration may delegate one or more of his duties to such other
individual(s) as he deems appropriate.
4
<PAGE>
5.3 Powers, Duties and Responsibilities. Except for those powers expressly
-----------------------------------
reserved to the Chief Executive Officer or delegated by the Plan Administrator
to designees, the Plan Administrator shall have all power to administer the Plan
for the exclusive benefit of the Participants and their Beneficiaries, in
accordance with the terms of the Plan. The Plan Administrator shall have the
absolute discretion and power to determine all questions arising in connection
with the administration, interpretation and application of the Plan, except for
questions related to the Plan Administrator individually or to a small group of
which the Plan Administrator is a part. Any such determination by the Plan
Administrator shall be conclusive and binding upon all persons. The Plan
Administrator may correct any defect or reconcile any inconsistency in such
manner and to such extent as shall be deemed necessary or advisable to carry out
the purposes of the Plan; provided, however, that such interpretation or
construction shall be done in a non-discriminatory manner and shall be
consistent with the intent of the Plan. Questions related to the Plan
Administrator individually or to a small group of employees of which the Plan
Administrator is a part shall be referred to the Primex Vice President, General
Counsel and Secretary for resolution; and, in such case, the Primex Vice
President, General Counsel and Secretary shall have the absolute discretion and
power to determine all questions arising in connection with the administration,
interpretation and application of the Plan.
The Plan Administrator shall:
(a) compute the amount and kind of benefits to which any Participant
shall be entitled hereunder;
(b) maintain all necessary records for the administration of the Plan;
(c) interpret the provisions of the Plan and make and publish such
rules for regulation of the Plan as are consistent with terms hereof;
(d) assist any Participant regarding his rights, benefits or elections
available under the Plan; and
(e) communicate to Participants and their Beneficiaries concerning the
provisions of the Plan.
5.4 Records and Reports. The Plan Administrator shall keep a record of all
-------------------
actions taken and shall keep such other books of account, records and other
information that may be necessary for proper administration of the Plan.
5.5 Appointment of Advisors. The Plan Administrator may appoint
-----------------------
accountants, counsel, advisors and other persons that he deems necessary or
desirable in connection with the administration of the Plan.
5
<PAGE>
5.6 Indemnification of Members. The Company shall indemnify and hold
--------------------------
harmless the Plan Administrator from any liability incurred in his capacity as
such for acts which he undertakes in good faith.
Article VI. Termination and Amendment
-------------------------------------
6.1 Amendment or Termination. The Company may amend or terminate the Plan
------------------------
at any time, in whole or in part, by action of its Board of Directors or any
duly authorized committee or officer. No amendment or termination of the Plan
or withdrawal therefrom by the company shall adversely affect the vested
benefits payable hereunder to any Participant for service rendered prior to the
effective date of such amendment, termination or withdrawal.
Article VII. Miscellaneous
--------------------------
7.1 Gender and Number. Whenever any words are used herein in the masculine
-----------------
feminine or neuter gender, they shall be construed as though they were also used
in another gender in all cases where such would apply, and whenever any words
are used herein in the singular or plural form, they shall be construed as
though they were also used in another form in all cases where they would so
apply.
7.2 Action by the Company. Whenever the Company under the terms of this
---------------------
Plan is permitted or required to do or perform any act or thing, it shall be
done and performed by an officer or committee duly authorized by the Board of
Directors of the Company.
7.3 Headings. The headings and subheadings of this Plan have been inserted
--------
for convenience of reference only and shall not be used in the construction of
any of the provisions hereof.
7.4 Uniformity and Non Discrimination. All provisions of this Plan shall
---------------------------------
be interpreted and applied in a uniform nondiscriminatory manner.
7.5 Governing Law. To the extent that state law has not been preempted by
-------------
the provisions of ERISA or any other laws of the United States heretofore or
hereafter enacted, this Plan shall be construed under the laws of the State of
Florida.
7.6 Employment Rights. Nothing in this Plan shall confer any right upon
-----------------
any Employee to be retained in the service of the Company or any of its
affiliates.
7.7 Incompetency. In the event that the Plan Administrator determines that
------------
a Participant is unable to care for his affairs because of illness or accident
or any other reason, any amounts payable under this Plan may, unless claim shall
have been made therefor by a duly appointed guardian, conservator, committee or
other legal representative, be paid by the Plan Administrator to the spouse,
child, parent or other blood relative or to any other person deemed by the Plan
Administrator to have incurred expenses for such Participant, and such payment
so made shall be complete discharge of the liabilities of the Plan therefor.
6
<PAGE>
Article VIII. Definitions.
--------------------------
As used in the Plan, the following words shall have the following meaning:
(a) "Board" or "Board of Directors" means the Board of Directors of
Primex Technologies, Inc.
(b) "Code" means the Internal Revenue Code of 1986, as amended from
time to time.
(c) "Compensation" shall have the same meaning as in the "Prime Plan,"
except that in determining contribution under Article III hereof,
"Compensation" shall not be limited by the 401(a)(17) limit.
(d) "Company" or "Primex" means Primex Technologies, Inc., and its
successors and assigns.
(e) "Employee" means any employee of the Company who is an "Eligible
Employee" as defined in the Prime Plan.
(f) "Olin" means Olin Corporation.
(g) "Participant" means an Employee who has been designated as a
Participant in this Plan in accordance with Section 2.1 of the Plan.
(h) "Plan" means the Primex Technologies, Inc. Restoration Bonus
Plan.
(i) "Plan Year" means the calendar year.
(j) "Prime Plan" means the Primex Technologies, Inc. Retirement
Investment Management Experience Plan.
Dated as of November 2, 1999
PRIMEX TECHNOLOGIES, INC.
By______________________________
Its
7
<PAGE>
Exhibit 10.12
PRIMEX TECHNOLOGIES, INC.
2000 LONG TERM INCENTIVE PLAN
Section 1. Purpose
-------
The purposes of the Primex Technologies, Inc. 2000 Long Term Incentive Plan (the
"Plan") are to encourage selected salaried employees of Primex Technologies,
Inc. (together with any successor thereto, "Primex") and its Affiliates (as
defined below) to acquire a proprietary interest in Primex's growth and
performance, to generate an increased incentive to contribute to Primex's future
success and to enhance the ability of Primex and its Affiliates to attract and
retain qualified individuals.
Section 2. Definitions
-----------
As used in the Plan:
(a) "Affiliate" means (i) any entity that, directly or through one or more
---------
intermediaries, is controlled by Primex and (ii) any entity in which Primex
has a significant equity interest as determined by the Committee.
(b) "Award" means any Option, Stock Appreciation Right, Restricted Stock,
-----
Restricted Stock Unit, Performance Award, Dividend Equivalent or Other
Stock-Based Award granted under the Plan.
(c) "Award Agreement" means any written agreement or other instrument or
---------------
document evidencing an Award granted under the Plan. The terms of any plan
or guideline adopted by the Board or the Committee and applicable to an
Award shall be deemed incorporated in and a part of the related Award
Agreement.
(d) "Board" means the Board of Directors of Primex.
-----
(e) "Cause" means the willful and continued failure of an optionee to perform
-----
his duties, willful engagement in gross misconduct significantly and
demonstrably financially injurious to Primex or willful misconduct during
employment with Primex which is a felony or fraud.
(f) "Code" means the Internal Revenue Code of 1986, as amended from time to
----
time.
(g) "Committee" means a committee of the Board designated by the Board to
---------
administer the Plan and composed of not fewer than two directors each of
whom shall be a Non-Employee Director as defined in Rule 16b-3.
<PAGE>
2
(h) "Dividend Equivalent" means any right granted under Sections 6(c)(v) and
-------------------
6(f)(iv) of the Plan.
(i) "Fair Market Value" means, as of a specified date, with respect to (i) a
-----------------
Share, the average of the high and low price of a Share as reported on the
consolidated transaction reporting system for NASDAQ issues on such date
or, if Shares are not traded on such date, such average price on the next
date on which they are traded or (ii) any other property, the fair market
value of such property as determined by such methods or procedures as shall
be established from time to time by the Committee.
(j) "Incapacity" means any material physical, mental or other disability that
----------
qualifies the individual for benefits under the Long-Term Disability Plan
of Primex Technologies, Inc.
(k) "Management" means the Chairman and CEO, Chief Financial Officer and/or
----------
Vice President of Human Resources of Primex.
(l) "Olin" means Olin Corporation, a Virginia corporation, and its successors.
----
(m) "Option" means an option to purchase Shares granted under Section 6(a) of
------
the Plan.
(n) "Other Stock-Based Award" means any right granted under Section 6(e) of the
-----------------------
Plan.
(o) "Participant" means a salaried employee granted an Award under the Plan.
-----------
(p) "Performance Award" means any right granted under Section 6(d) of the Plan.
-----------------
(q) "Person" means any individual, corporation, partnership, association,
------
joint-stock company, trust, unincorporated organization, or government or
political subdivision thereof.
(r) "Released Securities" means securities that were Restricted Securities with
-------------------
respect to which all applicable restrictions imposed under the terms of the
relevant Award have expired, lapsed or been waived or satisfied.
(s) "Restricted Securities" means Awards of Restricted Stock or other Awards
---------------------
under which outstanding Shares are held subject to certain restrictions.
(t) "Restricted Stock" means any Share granted under Section 6(c) of the Plan.
----------------
(u) "Restricted Stock Unit" means one phantom Share granted under Section 6(c)
---------------------
of the Plan.
(v) "Rule 16b-3" means Rule 16b-3 promulgated by the Securities and Exchange
----------
Commission under the Securities Exchange Act of 1934, as amended, or any
successor rule.
<PAGE>
3
(w) "Shares" means the common stock of Primex and such other securities or
------
property as may become the subject of Awards pursuant to an adjustment made
under Section 4 of the Plan.
(x) "Stock Appreciation Right" means any right granted under Section 6(b) of
------------------------
the Plan.
(y) "Vesting Period" means, with respect to Restricted Stock or Restricted
--------------
Stock Units, a time period beginning with the date on which such Restricted
Stock or Restricted Stock Units are granted and ending on the date on which
such Restricted Stock or Restricted Stock Units vest as set forth in the
Award Agreement and as the Committee shall determine.
Section 3. Administration
--------------
The Plan shall be administered by the Committee which shall have full power and
authority to: (i) designate Participants; (ii) determine the Awards to be
granted to Participants; (iii) determine the number of Shares (or securities
convertible into Shares) to be covered by Awards; (iv) determine the terms and
conditions of any Award; (v) determine whether, to what extent, and under what
circumstances Awards may be settled or exercised in cash, Shares, other
securities, other Awards, or other property, or canceled, substituted, forfeited
or suspended, and the method or methods by which Awards may be settled,
exercised, canceled, substituted, forfeited or suspended; (vi) determine
whether, to what extent, and under what circumstances cash, Shares, other
securities, other Awards, other property and other amounts payable with respect
to an Award under the Plan shall be deferred either automatically or at the
election of the Participant or of the Committee; (vii) interpret and administer
the Plan and any instrument or agreement relating to, or Award made under, the
Plan; (viii) establish, amend, suspend or waive such rules and guidelines and
appoint such agents as it shall deem appropriate for the administration of the
Plan; and (ix) make any other determination and take any other action that it
deems necessary or desirable for such administration. All designations,
determinations, interpretations and other decisions with respect to the Plan or
any Award shall be within the sole discretion of the Committee and shall be
final, conclusive and binding upon all Persons, including Primex, any Affiliate,
any Participants, any holder or beneficiary of any Award, any shareholder and
any employee of Primex or of any Affiliate. All powers and responsibilities of
the Committee provided in the Plan may also be exercised by the Board at any
time. In any event, a majority of the Shares underlying Awards granted under
the Plan must be awarded to employees who are not officers (within the meaning
of Rule 16a-1(f) issued under the Securities Exchange Act of 1934, as amended)
during any consecutive three calendar year period.
Section 4. Adjustment to Outstanding Awards
--------------------------------
In the event that the Committee determines that any dividend or other
distribution, recapitalization, stock split, reverse stock split,
reorganization, merger, consolidation, split-up, spin-off, combination,
repurchase or exchange of Shares or other securities of Primex, issuance of
warrants or other rights to purchase Shares or other securities of Primex, or
other similar corporate transaction or event affects the Shares such that an
adjustment is determined by the
<PAGE>
4
Committee to be appropriate in order to prevent dilution or enlargement of the
benefits intended to be made available under the Plan, then the Committee shall,
in such manner as it may deem equitable, adjust any or all of (i) the number and
type of Shares (or other securities or property) subject to outstanding Awards,
and (ii) the grant, purchase or exercise price with respect to any Award, or, if
the Committee deems it appropriate, make provision for a cash payment to the
holder of an outstanding Award. Notwithstanding the foregoing, a Participant to
whom Dividend Equivalents or dividend units have been awarded shall not be
entitled to receive a special or extraordinary dividend or distribution unless
the Committee shall have expressly authorized such receipt.
Section 5. Eligibility
-----------
Any salaried employee, including any officer or employee-director of Primex or
an Affiliate, shall be eligible to be designated a Participant by the Committee.
Section 6. Awards
------
(a) Options. The Committee is authorized to grant Options to Participants with
-------
the following terms and conditions and with such additional terms and
conditions, not inconsistent with the provisions of the Plan, as the
Committee shall determine:
(i) Exercise Price. The purchase price per Share purchasable under an
--------------
Option shall be determined by the Committee; provided, however, that
-------- -------
such purchase price shall not be less than the Fair Market Value of a
Share on the date of grant of such Option.
(ii) Option Term. The term of each Option shall be fixed by the Committee,
-----------
provided that in no event shall the term of an Option exceed a period
of ten years from the date of its grant.
(iii) Exercise. The Committee shall determine the time or times at which
--------
an Option may be exercised in whole or in part (but in no event shall
an Option be exercisable after the expiration of ten years from the
date of its grant). The Option, to the extent vested, shall be
exercisable in whole at any time or in part from time to time during
the term of the Option, but not as to less than 25 Shares (or the
Shares then purchasable under the Option if less than 25 Shares) at
any one time. Unless the Committee determines otherwise, the exercise
price shall either be tendered in cash (or check) or Shares (either
by actual delivery or attestation) or a combination of cash (or
check) or Shares; provided, however, that if Shares are used to
-------- -------
satisfy the exercise price, such Shares shall have been acquired (i)
at least six months prior to the exercise date or (ii) in an open
market purchase. Shares surrendered as payment for the exercise price
shall be valued at Fair Market Value on the date on which the
certificates for such Shares are surrendered to Primex or the
attestation documents are filed with Primex.
<PAGE>
5
If at any time the optionee's employment with Primex or any Affiliate
shall be terminated (a) voluntarily by the optionee for any reason
other than death or Incapacity or (b) by Primex or any Affiliate for
any reason other than for Cause, the optionee shall have the right to
exercise his or her Option to the extent of the Shares with respect
to which the Option could have been exercised by the optionee as of
the date of his or her termination of employment in accordance with
its terms but in no event beyond the earlier of (i) one year after
the date of termination of employment or (ii) the scheduled
expiration of such Option.
If an optionee's employment with Primex or any of its Affiliates is
terminated due to retirement (at or after attaining age 55 with ten
years of service with Primex or any Affiliate (including prior
service with Olin)), the optionee shall have the right to exercise
his or her Option to the extent of the Shares with respect to which
the Option could have been exercised by the optionee as of the date
of his or her retirement in accordance with its terms but in no event
beyond the scheduled expiration of such Option.
If the optionee's employment with the Company shall be terminated for
Cause, his or her Option (whether or not vested) shall terminate and
expire concurrently with such termination of employment and shall not
thereafter be exercisable to any extent.
If an optionee's employment with Primex or any of its Affiliates is
terminated due to death or Incapacity, the Option shall (a) become
fully vested and (b) be exercisable by the optionee (or in the event
of the optionee's death, by his or her estate or by the person who
acquired the right to exercise the Option by bequest or inheritance)
provided that the Option is exercised prior to the scheduled
expiration of such Option.
If an optionee dies after his or her termination of employment during
the period in which his or her Option remains exercisable, the Option
may be exercised, to the extent the Option could have been exercised
by the decedent immediately prior to his death, by the optionee's
estate or by the person who acquired the right to exercise the Option
by bequest or inheritance at any time within one year after the date
of death, but in no event beyond the scheduled expiration of such
Option.
(b) Stock Appreciation Rights. The Committee is authorized to grant Stock
-------------------------
Appreciation Rights to Participants which may but need not relate to a
specific Option granted under Section 6(a). With respect to any individual
who is not an officer or director of Primex subject to Rule 16b-3, the
Committee authorizes Management to determine if a Stock Appreciation Right
shall be granted in connection with any Option or as a separate Award.
(i) Award Subject to the terms of the Plan and any applicable Award
-----
Agreement, each Stock Appreciation Right granted under the Plan shall
confer on the holder
<PAGE>
6
thereof a right to receive, upon exercise thereof, up to the excess
of (x) the Fair Market Value of one Share on the date of exercise
over (y) the base price of the right as specified by the Committee,
which shall not be less than the Fair Market Value of one Share on
the date of grant of the Stock Appreciation Right. Unless the
Committee (or Management, in the case of an individual who is not
subject to Rule 16b-3) determines otherwise, Stock Appreciation
Rights shall be exercisable in accordance with the terms described in
Section 6(a)(iii).
(ii) Term Subject to the terms of the Plan and any applicable Award
----
Agreement, the base price, term, methods of payment or settlement and
any other terms and conditions of any Stock Appreciation Right shall
be as determined by the Committee (or Management, in the case of an
individual who is not subject to Rule 16b-3), except that in no event
shall the term of a Stock Appreciation Right exceed a period of ten
years from the date of its grant.
(iii) SARs Related to Stock Options In the case of any Stock Appreciation
-----------------------------
Right related to an Option, the Stock Appreciation Right or
applicable portion thereof shall terminate and no longer be
exercisable upon the termination or exercise of the related Option,
except that a Stock Appreciation Right granted with respect to less
than the full number of Shares covered by a related Option shall not
be reduced until the exercise or termination of the related Option
exceeds the number of shares not covered by the Stock Appreciation
Right and then only to the extent of the excess. Any Option related
to a Stock Appreciation Right shall no longer be exercisable to the
extent the related Stock Appreciation Right has been exercised.
(c) Restricted Stock and Restricted Stock Units.
-------------------------------------------
(i) Issuance. The Committee is authorized to grant Awards of Restricted
--------
Stock and Restricted Stock Units to Participants. Each such Award
shall be subject to the terms set forth in a Restricted Stock
Certificate or Restricted Stock Unit Certificate.
(ii) Restrictions. Except as provided below, shares of Restricted Stock
------------
and Restricted Stock Units shall be subject to such restrictions as
the Committee may impose (including, without limitation, any
limitation on the right to vote a share of Restricted Stock or the
right to receive any dividend or other right or property), which
restrictions may lapse separately or in combination at such time or
times, in such installments or otherwise, as the Committee may deem
appropriate, provided that in order for a Participant to vest in
Awards of Restricted Stock or Restricted Stock Units, the Participant
must remain in the employ of Primex or an Affiliate for a period of
not less than six months commencing on the date of grant of the
Award, subject to Section 10 hereof and subject to relief for
specified reasons as may be approved by the Committee. At the end of
the Vesting Period, each vested Restricted Stock Unit will be payable
to a Participant either by delivery of one Share or by a cash payment
equal to the value of one Share, as determined by
<PAGE>
7
the Committee. If Restricted Stock Units are to be paid in cash, each
Restricted Stock Unit will be valued at the average of the high and
low sales prices of a Share as reported on the NASDAQ National Market
System on the fifth business day before such cash payment is due (or
if Shares are not traded on such day, the first preceding day on
which such Shares are traded). The total amount of Restricted Stock
Units (and dividend equivalents and related interest) vested in a
Participant at each applicable Vesting Period will be paid within
sixty days following the end of such Vesting Period, except as
specifically otherwise provided in the Plan.
(iii) Registration. Any Restricted Stock granted under the Plan may be
------------
evidenced in such manner as the Committee may deem appropriate,
including, without limitation, book-entry registration or issuance of
a stock certificate or certificates. In the event any stock
certificate is issued in respect of shares of Restricted Stock
granted under the Plan, such certificate shall be registered in the
name of the Participant and when delivered to the Participant shall
bear an appropriate legend referring to the terms, conditions and
restrictions applicable to such Restricted Stock.
(iv) Forfeiture. Except as otherwise determined by the Committee, upon
----------
termination of employment for any reason during the applicable
Vesting Period, all shares of Restricted Stock and all Restricted
Stock Units still subject to restriction shall be forfeited and
reacquired by Primex; provided, however, that the Committee may, in
-------- -------
its sole discretion, waive, in whole or in part, any or all remaining
restrictions with respect to shares of Restricted Stock or Restricted
Stock Units. Unrestricted Shares, evidenced in such manner as the
Committee shall deem appropriate, shall be delivered to the holder of
Restricted Stock promptly after such Restricted Stock shall become
Released Securities.
(v) Dividend Equivalents. Unless the Committee determines otherwise,
--------------------
each outstanding Restricted Stock Unit shall accrue amounts
equivalent to the cash dividends payable on a Share ("dividend
equivalents"). Such dividend equivalents will be paid to a
Participant only if the Restricted Stock Unit on which such dividend
equivalents were accrued vests. Dividend equivalents accrue interest
at an annual rate equal to Primex's before-tax cost of borrowing as
determined from time to time by Primex's Chief Financial Officer or
Treasurer or the Committee, 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 on
such dividend equivalents) shall not vest and shall be forfeited.
(vi) Voting Rights. Restricted Stock Units will carry no voting rights
-------------
nor, except as provided herein, be entitled to receive any dividends
or other rights enjoyed by shareholders.
<PAGE>
8
(d) Performance Awards. The Committee is authorized to grant Performance
------------------
Awards to Participants. Subject to the terms of the Plan and any
applicable Award Agreement, a Performance Award granted under the Plan (i)
may be denominated or payable in cash, Shares (including, without
limitation, Restricted Stock), other securities, other Awards or other
property and (ii) shall confer on the holder thereof rights valued as
determined by the Committee and payable to, or exercisable by, the holder
of the Performance Award, in whole or in part, upon the achievement of such
performance goals during such performance periods as the Committee shall
establish. Subject to the terms of the Plan and any applicable Award
Agreement, the performance goals to be achieved during any performance
period, the length of any performance period, the amount of any Performance
Award granted, and the amount of any payment or transfer to be made
pursuant to any Performance Award shall be determined by the Committee in
accordance with Section 6(f)(xviii).
(e) Other Stock-Based Awards. The Committee is authorized to grant to
------------------------
Participants such other Awards denominated or payable in, valued in whole
or in part by reference to, or otherwise based on or related to, Shares
(including, without limitation, phantom Shares, securities convertible into
Shares and dividend units), as are deemed by the Committee to be consistent
with the purposes of the Plan, provided that such grants shall comply with
Rule 16b-3 to the extent applicable and applicable law. Subject to the
terms of the Plan and any applicable Award Agreement, the Committee shall
determine the terms and conditions of such Awards. Shares or other
securities delivered pursuant to a purchase, exchange or conversion right
granted under this Section 6(e) shall be issued for such consideration,
which may be paid by such method or methods and in such form or forms,
including, without limitation, cash, Shares, other securities, other
Awards, or other property, or any combination thereof, as the Committee
shall determine, the value of which consideration, as established by the
Committee, shall not be less than the Fair Market Value of such Shares or
other securities as of the date such purchase, exchange or conversion right
is granted.
Other Stock-Based Award Agreements shall contain provisions dealing with
the disposition of such Award in the event of termination of the
Participant's employment prior to exercise, realization or payment of the
Award.
(f) General.
-------
(i) No Cash Consideration for Awards. Participants shall not be
--------------------------------
required to make any cash payment for the granting of an Award except
for such minimum consideration as may be required by applicable law.
(ii) Awards May Be Granted Separately or Together. Awards may be granted
--------------------------------------------
either alone or in addition to, in tandem with, or in substitution
for any other Award or any award or benefit granted under any other
plan or arrangement of Primex or any Affiliate, or as payment for or
to assure payment of an award or benefit granted under any such other
such plan or arrangement, provided that the purchase
<PAGE>
9
or exercise price under an Award encompassing the right to purchase
Shares shall not be reduced by the cancellation of such Award and the
substitution of another Award. Awards so granted may be granted
either at the same time as or at a different time from the grant of
such other Awards or awards or benefits.
(iii) Forms of Payment Under Awards. Subject to the terms of the Plan and
-----------------------------
of any applicable Award Agreement, payments to be made by Primex or
an Affiliate upon the grant, exercise, or payment of an Award may be
made in such form or forms as the Committee shall determine,
including, without limitation, cash, Shares, other securities, other
Awards, or other property or any combination thereof, and may be made
in a single payment or transfer, in installments, or on a deferred
basis, in each case in accordance with rules and procedures
established by the Committee.
(iv) Dividend Equivalents or Interest. Subject to the terms of the Plan
--------------------------------
and any applicable Award Agreement, a Participant, including the
recipient of a deferred Award, shall, if so determined by the
Committee, be entitled to receive, currently or on a deferred basis,
interest or dividends or interest or dividend equivalents, with
respect to the Shares covered by the Award. The Committee may provide
that any such amounts shall be deemed to have been reinvested in
additional Shares or otherwise reinvested. Notwithstanding the award
of Dividend Equivalents or dividend units, a Participant shall not be
entitled to receive a special or extraordinary dividend or
distribution unless the Committee shall have expressly authorized
such receipt.
(v) Limits on Transfer of Awards. No Award (other than Released
----------------------------
Securities) or right thereunder shall be assignable or transferable
by a Participant, other than (unless limited in the Award Agreement)
by will or the laws of descent and distribution (or, in the case of
an Award of Restricted Securities, to Primex), except that an Option
may be transferred by gift to any member of the holder's immediate
family or to a trust for the benefit of one or more of such immediate
family members, if expressly permitted in the applicable Award
Agreement; provided, however, that, if so determined by the
Committee, a Participant may, in the manner established by the
Committee, designate a beneficiary or beneficiaries with respect to
any Award to exercise the rights of the Participant, and to receive
any property distributable, upon the death of the Participant. Each
Award, and each right under any Award, shall be exercisable, during
the Participant's lifetime, only by the Participant or, if
permissible under applicable law by the Participant's guardian or
legal representative unless, subject to the approval of the
Committee, it is an Option and has been transferred as permitted
hereby to a member of the Participant's immediate family or to a
trust for the benefit of one or more of such immediate family
members, in which case it shall be exercisable only by such
transferee. For the purposes of this provision, a Participant's
"immediate family" shall mean the Participant's spouse, children and
grandchildren, parents, grandparents, former spouses, siblings,
nieces, nephews, parents-in-law, sons-in-
<PAGE>
10
law, daughters-in-law, brothers-in-law, sisters-in-law, including
adoptive or step relationships and any person sharing the employee's
household (other than as a tenant or employee). No Award (other than
Released Securities), and no right under any such Award, may be
pledged, attached or otherwise encumbered other than in favor of
Primex, and any purported pledge, attachment, or encumbrance thereof
other than in favor of Primex shall be void and unenforceable
against Primex or any Affiliate.
(vi) Term of Awards. Except as otherwise expressly provided in the Plan,
--------------
the term of each Award shall be for such period as may be determined
by the Committee.
(vii) No Rights to Awards. No salaried employee, Participant or other
-------------------
Person shall have any claim to be granted an Award, and there is no
obligation for uniformity of treatment of salaried employees,
Participants or holders or beneficiaries of Awards under the Plan.
The terms and conditions of Awards need not be the same with respect
to each recipient. The prospective recipient of any Award under the
Plan shall not, with respect to such Award, be deemed to have become
a Participant, or to have any rights with respect to such Award,
until and unless such recipient shall have executed an agreement or
other instrument accepting the Award and delivered a fully executed
copy thereof to the Company, and otherwise complied with the then
applicable terms and conditions.
(viii) Delegation. Notwithstanding any provision of the Plan to the
----------
contrary, the Committee may delegate to one or more officers or
managers of Primex or any Affiliate, or a committee of such officers
or managers, the authority, subject to such terms and limitations as
the Committee shall determine, to grant Awards to, or to cancel,
modify, waive rights or conditions with respect to, alter,
discontinue, suspend, or terminate Awards held by, salaried
employees who are not officers or directors of Primex for purposes
of Rule 16b-3.
(ix) Withholding. Primex or any Affiliate may withhold from any Award
-----------
granted or any payment due or transfer made under any Award or under
the Plan the amount (in cash, Shares, other securities, other
Awards, or other property) of withholding taxes due in respect of an
Award, its exercise or any payment under such Award or under the
Plan, and take such other action as may be necessary in the opinion
of Primex or any Affiliate to satisfy all obligations for the
payment of such taxes.
(x) Other Compensation Arrangements. Nothing contained in the Plan shall
-------------------------------
prevent Primex or any Affiliate from adopting or continuing in
effect other or additional compensation arrangements, and such
arrangements may be either generally applicable or applicable only
in specific cases.
(xi) No Right to Employment. The grant of an Award shall not be construed
----------------------
as giving a Participant the right to be retained in the employ of
Primex or any Affiliate.
<PAGE>
11
Nothing in the Plan or any Award Agreement shall limit the right of
Primex or an Affiliate at any time to dismiss a Participant from
employment, free from any liability or any claim under the Plan or
the Award Agreement.
(xii) Governing Law. The validity, construction and effect of the Plan and
-------------
any rules and regulations relating to the Plan shall be determined
in accordance with the laws of the State of Florida and applicable
Federal law.
(xiii) Severability. If any provision of the Plan or any Award is
------------
determined to be invalid, illegal or unenforceable in any
jurisdiction, or as to any Person or Award, or would disqualify the
Plan or any Award under any law deemed applicable by the Committee,
such provision shall be construed or deemed amended to conform to
applicable laws, or, if it cannot be so construed or deemed amended
without, in the determination of the Committee, materially altering
the intent of the Plan or the Award, such provision shall be
stricken as to such jurisdiction, Person or Award, and the remainder
of the Plan and any such Award shall remain in full force and
effect.
(xiv) No Trust or Fund Created. Neither the Plan nor any Award shall
------------------------
create or be construed to create a trust or separate fund of any
kind or a fiduciary relationship between Primex or any Affiliate and
a Participant or any other Person. To the extent that any Person
acquires a right to receive payments from Primex or any Affiliate
pursuant to an Award, such right shall be no greater than the right
of any unsecured general creditor of Primex or any Affiliate.
(xv) No Fractional Shares. No fractional Shares shall be issued or
--------------------
delivered pursuant to the Plan or any Award, and the Committee shall
determine whether cash, other securities or other property shall be
paid or transferred in lieu of any fractional Shares, or whether
such fractional Shares or any rights thereto shall be canceled,
terminated or otherwise eliminated.
(xvi) Share Certificates. All certificates for Shares or other securities
------------------
delivered under the Plan pursuant to any Award or the exercise
thereof shall be subject to such stop transfer orders and other
restrictions as the Committee may deem advisable under the Plan or
the rules, regulations and other requirements of the Securities and
Exchange Commission, any stock exchange upon which such Shares or
other securities are then listed, and any applicable Federal or
state securities laws, and the Committee may cause a legend or
legends to be put on any such certificates to make appropriate
reference to such restrictions.
<PAGE>
12
(xvii) Conflict with Plan. In the event of any inconsistency or conflict
------------------
between the terms of the Plan and an Award Agreement, the terms of
the Plan shall govern.
(xviii) Performance Criteria. Notwithstanding any provision in this Plan
--------------------
to the contrary, Awards granted under Sections 6(c), 6(d) or 6(e)
and designated by the Committee as being performance-based shall
have as performance measures any one of or any combination of any
of the following measures: Economic Value Added, Return on Equity
and Total Return to Shareholders. For purposes of the Plan,
"Economic Value Added" shall mean Primex's consolidated sales less
its operating costs (including tax) less a capital charge based on
Primex's cost of capital assets employed in its business, "Return
on Equity" shall mean consolidated income of Primex after taxes and
before the after-tax effect of any special charge or gain and any
cumulative effect of any change in accounting, divided by average
shareholders equity and "Total Return to Shareholders" shall mean
for the performance period total return to shareholders of $100
worth of Shares for such period assuming reinvestment of dividends
on a quarterly basis. The Committee shall determine the performance
goals for each such performance measure with respect to each such
Award.
(xix) Death or Incapacity. In the event of the death or Incapacity of
-------------------
the holder of an Award while the holder is employed by Primex or an
Affiliate, or, if holder is retired (at or after attainment of age
55 with ten years of service with Primex or an Affiliate, including
prior service with Olin), any outstanding Award will continue to be
vested and exercisable under the terms of the Plan.
Section 7. Amendment and Termination
-------------------------
(a) Amendments to the Plan. The Board may amend, suspend, discontinue or
----------------------
terminate the Plan, including, without limitation, any amendment,
suspension, discontinuation or termination that would impair the rights of
any Participant, or any other holder or beneficiary of any Award
theretofore granted, without the consent of any shareholder, Participant,
other holder or beneficiary of an Award, or other Person; provided further
-------- -------
that no amendment, suspension, discontinuation or termination (i) that
would impair the rights of such Participant, holder or beneficiary shall be
made with respect to Section 10 of the Plan after a Change in Control, as
defined therein and (ii) may increase the amount of payment of any Award to
any Participant.
(b) Amendments to Awards. The Committee may waive any conditions or rights
--------------------
with respect to, or amend, alter, suspend, discontinue, or terminate, any
unexercised Award theretofore granted, prospectively or retroactively,
without the consent of any relevant Participant or holder or beneficiary of
an Award, provided that no amendment, alteration, suspension,
--------
discontinuation or termination of an Award that would impair the rights of
such Participant, holder or beneficiary shall be made after a Change in
Control, as defined
<PAGE>
13
in Section 10; provided further that the Committee may not increase the
payment of any Award granted any Participant.
(c) Adjustments of Awards Upon Certain Acquisitions. In the event Primex or
-----------------------------------------------
any Affiliate shall assume outstanding employee awards or the right or
obligation to make future such awards in connection with the acquisition of
another business or another company, the Committee may make such
adjustments, not inconsistent with the terms of the Plan, in the terms of
Awards as it shall deem appropriate.
(d) Adjustments of Awards Upon the Occurrence of Certain Unusual or
---------------------------------------------------------------
Nonrecurring Events. The Committee may make adjustments in the terms and
-------------------
conditions of Awards in recognition of unusual or nonrecurring events
(including, without limitation, the events described in Section 4 hereof)
affecting Primex, any Affiliate, or the financial statements of Primex or
any Affiliate, or of changes in applicable laws, regulations, or accounting
principles, whenever the Committee determines that statements of Primex or
any Affiliate, or of changes in applicable laws, regulations, or accounting
principles, whenever the Committee determines that such adjustments are
appropriate in order to prevent dilution or enlargement of the benefits to
be made available under the Plan.
Section 8. Additional Conditions to Enjoyment of Awards.
--------------------------------------------
(a) The Committee may cancel any unexpired, unpaid or deferred Awards if at any
time the Participant is not in compliance with all applicable provisions of
the Award Agreement, the Plan and the following conditions:
(i) A Participant shall not render services for any organization or
engage, directly or indirectly, in any business which, in the judgment
of the Committee or, if delegated by the Committee to the Chief
Executive Officer, in the judgment of such Officer, is or becomes
competitive with Primex or any Affiliate, or which is or becomes
otherwise prejudicial to or in conflict with the interests of Primex
or any Affiliate. Such judgment shall be based on the Participant's
positions and responsibilities while employed by Primex or an
Affiliate, the Participant's post-employment responsibilities and
position with the other organization or business, the extent of past,
current and potential competition or conflict between Primex or an
Affiliate and the other organization or business, the effect on
customers, suppliers and competitors of the Participant's assuming the
post-employment position, the guidelines established in the then
current edition of Primex's Code of Business Conduct, and such other
considerations as are deemed relevant given the applicable facts and
circumstances. The Participant shall be free, however, to purchase as
an investment or otherwise, stock or other securities of such
organization or business so long as they are listed upon a recognized
securities exchange or traded over the counter, and such investment
does not represent a substantial investment to the Participant or a
greater than 1% equity interest in the organization or business.
<PAGE>
14
(ii) Participant shall not, without prior written authorization from
Primex, disclose to anyone outside Primex, or use in other than
Primex's business, any proprietary, secret or confidential
information, knowledge or data, relating to the business of Primex or
an Affiliate in violation of his or her agreement with Primex or the
Affiliate.
(iii) A Participant, pursuant to his or her agreement with Primex or an
Affiliate, shall disclose promptly and assign to Primex or the
Affiliate all right, title and interest in any invention or idea,
patentable or not, made or conceived by the Participant during
employment by Primex or the Affiliate, relating in any manner to the
actual or anticipated business, research or development work of
Primex or the Affiliate and shall do anything reasonably necessary to
enable Primex or the Affiliate to secure a patent where appropriate
in the United States and in foreign countries.
(b) Notwithstanding any other provision of the Plan, the Committee in its sole
discretion may cancel any Award at any time prior to the exercise thereof,
if the employment of the Participant shall be terminated, other than by
reason of death, unless the conditions in this Section 8 are met.
(c) Failure to comply with the conditions of this Section 8 prior to, or during
the six months after, any exercise, payment or delivery pursuant to an
Award shall cause the exercise, payment or delivery to be rescinded.
Primex shall notify the Participant in writing of any such rescission
within two years after such exercise payment or delivery and within ten
days after receiving such notice, the Participant shall pay to Primex the
amount of any gain realized or payment received as a result of the
exercise, payment or delivery rescinded. Such payment shall be made either
in cash or by returning to Primex the number of Shares that the Participant
received in connection with the rescinded exercise, payment or delivery.
(d) Upon exercise, payment or delivery pursuant to an Award, the Committee may
require the Participant to certify on a form acceptable to the Committee,
that he or she is in compliance with the terms and conditions of the Plan.
(e) Nothing herein shall be interpreted to limit the obligations of a
Participant under his or her employee agreement or any other agreement with
Primex.
<PAGE>
15
Section 9. Pooling
-------
If (a) the Board approves a merger or consolidation of Primex which is intended
by the Board to satisfy the accounting rules related to the pooling of interest
method of accounting (the "Pooling Rules") and (b) any provision of this Plan
would violate the Pooling Rules, then such provision shall be null and void ab
initio. In such event, Primex shall offer, in good faith, to the affected
Participants, a replacement provision of equivalent value which does not cause
such a violation, provided, and to the extent, that Primex's outside auditors
determine that any such replacement provision is permissible without violating
the Pooling Rules.
Section 10. Change in Control
-----------------
(a) Except as the Board or the Committee may expressly provide otherwise prior
to a Change in Control of Primex (as defined below) in the event of a Change in
Control of Primex:
(i) all Options and Stock Appreciation Rights then outstanding shall
become immediately and fully exercisable, notwithstanding any
provision therein for the exercise in installments;
(ii) unless a Stock Appreciation Right shall have already been granted
with respect to an outstanding Option, the Participant holding such
Option shall be deemed also to hold a Stock Appreciation Right
related to such Option, exercisable in accordance with and subject to
the terms and conditions of Section 6(b) for the number of Shares
exercisable under such Option after giving effect to such
acceleration, which Stock Appreciation Right may, but need not be,
evidenced by separate written agreement;
(iii) all restrictions and conditions of all Restricted Stock and
Restricted Stock Units then outstanding shall be deemed satisfied as
of the date of the Change in Control and immediately (or, in any
event, as soon as administratively practicable) following the Change
in Control, Restricted Stock Units will be settled in cash or in
Shares as the Participant elects; and
(iv) all Performance Awards shall become vested, deemed earned in full and
paid to the Participants immediately (or in any event as soon as
administratively practicable) following the Change in Control, cash
units in cash and phantom stock units in the Shares represented
thereby or such other securities, property or cash as may be
deliverable in respect of Shares as a result of a Change in Control,
without regard to payment schedules and notwithstanding that the
applicable performance cycle or retention cycle shall not have been
completed.
<PAGE>
16
(b) The term "Change in Control" shall mean the occurrence of any one of the
following events:
(i) Primex ceases to be owned by at least 300 shareholders of record
after December 31, 1996, or ceases, by action of the Board, to be
either listed on a national securities exchange or authorized for
quotation on The Nasdaq Stock Market;
(ii) a person, partnership, joint venture, corporation or other entity, or
two or more of any of the foregoing acting as a "person" within the
meaning of Section 13(d)(3) of the Securities Exchange Act of 1934,
as amended (the "Act), other than Primex, a majority-owned subsidiary
of Primex, or an employee benefit plan (or related trust) of Primex,
or such subsidiary, become(s) the "beneficial owner" (as defined in
Rule 13(d)(3) under the Act) of 15% or more of the then outstanding
voting stock of Primex;
(iii) during any period of two consecutive years after 1996, individuals
who at the beginning of such period constitute the Board (together
with any new Director whose election by the Board or whose nomination
for election by Primex's shareholders, was approved by a vote of at
least two-thirds of the Directors then still in office who either
were Directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any
reason to constitute a majority of the Directors then in office;
(iv) all or substantially all of the business or assets of Primex is
disposed of pursuant to a merger, consolidation or other transaction,
whether or not Primex is the surviving corporation (unless in either
case the shareholders of Primex immediately prior to such merger,
consolidation, combination or other transaction beneficially own,
directly or indirectly, more than 50% of the aggregate voting stock
or other ownership interests of (x) the entity or entities, if any,
that succeed to the business of Primex or (y) the combined company);
(v) Primex's Board determines that a tender offer for Primex's shares
indicates a serious intention by the offeror to acquire control of
Primex; or
(vi) shareholder approval of a liquidation or dissolution of Primex.
Section 11. Effective Date and Term of the Plan
-----------------------------------
The Plan shall be effective as of January 1, 2000. The Plan shall be unlimited
in duration and, in the event of termination of the Plan, shall remain in effect
as long as any Awards under it are outstanding.
<PAGE>
EXHIBIT 10.14
COMMERCIAL LEASE
THIS LEASE is made effective the 11th day of March, 1998, between ZASER &
LONGSTON, INC., a Washington corporation ("Landlord") and PRIMEX AEROSPACE
COMPANY, a Washington corporation ("Tenant").
1. Basic Lease Provisions.
----------------------
DATE: March 11, 1998
LANDLORD: ZASE & LONGSTON, INC.
ADDRESS OF LANDLORD: 1802 136TH PLACE N.E.
BELLEVUE, WA 98005
TENANT: PRIMEX AEROSPACE COMPANY
ADDRESS OF TENANT: 11441 WILLOWS ROAD N.E.
P.O. BOX 97009
REDMOND, WA 98073-9709
LEASED PREMISES: Approximately 70 acres of land and the
buildings and structures located thereon
LEASE TERM: Ten (10) Lease Years
COMMENCEMENT DATE: July 1, 1998
TERMINATION DATE: June 30, 2008
BASIC MONTHLY RENT: As set forth in Article 5 below.
PERMITTED USES: Research and manufacture of aerospace and
defense related products, including but not
limited to propellants, with associated
testing, engineering and management
activities.
2. Exhibits. The exhibits designated in this Section and attached to this
--------
Lease are incorporated into this Lease by reference and are to be construed as a
part of this Lease.
Exhibit A -- Leased Premises Legal Description
Exhibit B -- Site Plan
<PAGE>
3. Leased Premises. Landlord hereby leases to Tenant, and Tenant hereby
---------------
leases and takes from Landlord, the improved real property commonly known as the
Special Weapons Storage Area near the Grant County Airport in Moses Lake,
Washington (herein the "Leased Premises" or the "Premises"). The Leased Premises
consist of the real property legally described in attached Exhibit A and the
buildings and structures shown on the Site Plan attached as Exhibit B.
4. Term. The term of this Lease shall be for a period of ten (10) years,
----
commencing on the first day of July, 1998 and ending on the 30th day of June,
2008, unless extended as provided herein. As used herein the term "Lease Year"
shall mean the twelve (12) calendar month period commencing July 1, 1998 and
ending on June 30, 1999 and each twelve (12) calendar month period thereafter
during the term of this Lease.
5. Rent.
----
5.1. Minimum Rent. During the (10) year term, Tenant covenants and
------------
agrees to pay Landlord, without deduction or offset, as monthly minimum rent for
the Leased Premises, the following amounts, in lawful money of the United
States, per month in advance on the first day of each and every calendar month
during each and every Lease Year of the term of the Lease:
Lease Year Monthly Minimum Rent
---------- --------------------
July 1, 1998 - June 30, 1999 $12,000.00
July 1, 1999 - June 30, 2000 $12,300.00
July 1, 2000 - June 30, 2001 $12,607.50
July 1, 2001 - June 30, 2002 $12,922.69
July 1, 2002 - June 30, 2003 $13,245.75
July 1, 2003 - June 30, 2004 $13,576.90
July 1, 2004 - June 30, 2005 $13,916.32
July 1, 2005 - June 30, 2006 $14,264.23
July 1, 2006 - June 30, 2007 $14,620.83
July 1, 2007 - June 30, 2008 $14,986.35
If the term ends prior to its expiration date, monthly minimum rent for any
partial month at the end of the term shall be prorated on a daily basis and paid
by Tenant in advance.
5.2. Additional Rent. This Lease is entered into by Landlord for the
---------------
express purpose of providing Landlord with net income from minimum rent, free
and clear of any and all expenses, charges, taxes, liens or impositions of any
kind. In addition to the minimum rent, Tenant shall pay as additional rent all
real or personal property taxes or other assessments, insurance premiums and
operating and maintenance charges arising out of the Leased Premises or Tenant's
use and occupancy thereof.
2
<PAGE>
6. Utilities. Tenant covenants and agrees to pay all charges for heat,
---------
light, sewer, water and all services and public utilities which may be used in
or charged against the Leased Premises during the term of this Lease. All
amounts due hereunder for utilities shall be deemed additional rent. Landlord
shall not be liable for the failure of any utility services for any reason
whatsoever, unless caused solely by Landlord's negligence or willful misconduct.
7. Taxes and Assessments. During the term of this Lease, Tenant
---------------------
covenants and agrees to pay all real estate taxes and assessments on the Leased
Premises or contents thereof directly to the taxing authority before
delinquency. Landlord shall provide Tenant with copies of all tax and assessment
statements that are sent to Landlord. All amounts due hereunder for real estate
taxes and assessments shall be deemed additional rent. Any taxes and assessments
payable during the year in which this Lease ends shall be prorated for the
portion of the year the Leased Premises are under lease by Tenant. At Landlord's
request, Tenant shall provide Landlord with receipts for tax payments or other
evidence of payment. With respect to assessments which may be levied against or
upon the Leased Premises, during the Lease term, Tenant shall be required to pay
each year only the amount of such annual installments as shall be payable during
any year of the Lease term (with appropriate proration for any partial year),
and Tenant shall have no obligation to continue such payments after the
termination of this Lease. Tenant shall be responsible for all personal property
taxes attributable to Tenant's property. Subject to Landlord's prior written
consent, Tenant may, at its sole discretion, appeal the valuation of the Leased
Premises for real property tax purposes.
8. Business Purpose. The Leased Premises may be used and occupied by
----------------
Tenant for research and manufacture of aerospace and defense related products,
including but not limited to propellants, with associated testing, engineering
and management activities. Tenant shall, at its expense, comply with all laws
regulating the use of the Premises and Tenant's activities thereon.
9. Condition of Premises. Tenant and its predecessor-in-interest have
---------------------
used and occupied the Leased Premises for a continuous period of approximately
sixteen (16) years under a prior lease dated July 14, 1982. Tenant has inspected
the Leased Premises and accepts the premises "as is," in its existing condition.
Tenant acknowledges that Landlord has made no representations to Tenant
respecting the condition of the Premises, the buildings and related improvements
or their mechanical/electrical/utility systems. Tenant shall keep the Leased
Premises neat, clean, and in a sanitary condition, to the satisfaction of the
Board of Health and Fire Department of the City of Moses Lake and its
inspectors; and shall comply with each and all applicable federal and state
statutes and all ordinances of the City of Moses Lake now in force or hereafter
enacted pertaining to the use and occupancy of said Premises by Tenant. Tenant
shall control weeds on the Premises as required by the local weed control
district.
10. Liability Insurance. Tenant shall, commencing on the lease
-------------------
commencement date and during the entire term of this Lease, keep in full force
and effect a policy or policies of commercial general liability and property
damage insurance with respect to the Leased Premises with coverage on an
"occurrence basis" for bodily injury and property damage, in an amount not less
than $3,000,000 per occurrence and $5,000,000 in the aggregate. Tenant's
commercial
3
<PAGE>
general liability insurance coverage shall be reviewed at three (3) year
intervals during the term of this Lease to determine adequacy of coverage and
compliance with current industry standards. Each such policy shall name Landlord
as an additional insured and shall contain a clause that the insurer shall not
cancel or materially change such liability insurance without giving Landlord at
least thirty (30) days prior written notice. Liability insurance shall be
written by insurance companies authorized to do business in the State of
Washington and accorded a rating by A.M. Best Company of "A" or better (or a
comparable rating by any comparable successor rating agency). A certificate of
liability insurance for each such policy shall be delivered to Landlord.
11. Property Insurance and Waiver of Subrogation. Commencing on the lease
--------------------------------------------
commencement date and at all times during the term of this Lease, Tenant shall
maintain in effect upon the Leased Premises, fire and extended property
insurance coverage for physical loss or damage to the buildings and improvements
on the Leased Premises (including earthquake) and 100% (one year) rental income
loss insurance written by insurance companies authorized to do business in the
State of Washington and accorded a rating by A.M. Best Company of "A" or better
(or a comparable rating by any comparable successor rating agency). The property
insurance policy or policies shall be written in the form of replacement cost
insurance in an amount not less than one hundred percent (100%) of the full
replacement cost of the Tenant's Building, with building ordinance and increased
cost of construction coverage. Landlord shall be designated as an additional
insured on all such policies. Said policies shall provide that notice of
cancellation of any policy or endorsement shall be given to Landlord at least
thirty (30) days prior to such cancellation. Certificates of property insurance
coverage and copies of all endorsements shall be furnished to Landlord prior to
the lease commencement date. Landlord and Tenant hereby mutually waive their
respective rights of recovery against each other for any loss insured by fire,
extended coverage or other property insurance policies existing for the benefit
of the respective parties. Each party shall obtain any policy endorsements
necessary to evidence waiver of subrogation by the insurer against the parties.
It shall be Tenant's responsibility to carry such fire, extended coverage
and other insurance as it desires on its business and property located in or
about the Leased Premises. Tenant agrees that any and all such insurance
policies covering the business and property of Tenant 'shall be endorsed so as
to waive any subrogation claim against Landlord. Neither Landlord nor Landlord's
agent shall be liable for any damage sustained by Tenant or others, either to
person or property caused by any defects in the Leased Premises or hereafter
occurring therein; or due to the buildings on the Leased Premises or any part or
appurtenance thereof, becoming out of repair; or caused by fire or by the
bursting or leaking of water, gas, sewer or steam pipes; or from any act or
neglect of Tenant or other occupant of said buildings, or any other persons,
including Landlord or Landlord's agent or employees, or due to the happening of
any accident from any cause in and about said buildings. Tenant agrees to
defend, indemnify and hold harmless Landlord and Landlord's agents from and
against all loss, liability, cost or expense including attorneys' fees arising
out of any and all claims for damage suffered or alleged to be suffered in or
about the Leased Premises by any person, firm or corporation, except for claims
arising solely from the negligence or intentional acts of Landlord or its
agents.
4
<PAGE>
12. Hazardous Substances.
--------------------
12.1. Compliance with Law. In its use of the Leased Premises, Tenant
-------------------
shall comply with all applicable laws, rules and regulations pertaining to the
use, disposal, treatment, generation, storage or sale of any substances
designated as, or containing components designated as hazardous, dangerous,
toxic or harmful, or subject to regulation by any federal, state or local law,
regulation, statute or ordinance (collectively referred to as "Hazardous
Substances"). With respect to any such Hazardous Substance, Tenant shall:
12.1.1. Comply with all applicable governmental rules,
regulations and requirements regarding the proper and lawful use, sale,
transportation, generation, treatment, and disposal of Hazardous Substances; and
12.1.2. Allow Landlord or Landlord's agent or representative
to enter upon the Leased Premises at all times to check Tenant's compliance with
all applicable governmental regulations regarding the Hazardous Substances.
12.2. Cleanup Costs, Default and Indemnification.
------------------------------------------
12.2.1. Tenant shall be fully and completely liable to
Landlord for any and all cleanup costs, and any and all other charges, fees,
penalties (civil and criminal) imposed by any governmental authority with
respect to Tenant's use, disposal, transportation, generation and/or sale of
Hazardous Substances, in or about the Leased Premises.
12.2.2. Tenant shall indemnify, defend and save Landlord
harmless from any and all of claims, costs, fees, penalties and charges assessed
against or imposed upon Landlord (as well as Landlord's attorneys' fees and
costs) as a result of Tenant's use, disposal, transportation, generation and/or
sale of Hazardous Substances or the release thereof in or about the Leased
Premises during the term of this Lease.
12.2.3. Upon Tenant's default under this Paragraph 12, in
addition to the rights and remedies set forth elsewhere in this Lease, Landlord
shall be entitled to the following rights and remedies:
12.2.3.1. At Landlord's option, to terminate this
Lease for default as provided in Article 22; and
12.2.3.2. To recover any and all damages associated
with the default, including, but not limited to cleanup costs and charges, civil
and criminal penalties and fees, any and all damages and claims asserted by
third parties, and Landlord's attorneys' fees and costs.
12.3. Landlord's Obligations. Except for Tenant's obligations under
----------------------
Section 12.1 and 12.2 above, Landlord shall indemnify, defend and save Tenant
harmless from any and
5
<PAGE>
all claims, costs, fees, penalties and charges assessed against or imposed upon
Tenant (as well as Tenant's attorneys' fees and costs) as the result of
Landlord's use, disposal, transportation, generation and/or sale of Hazardous
Substances or the release thereof in or about the Leased Premises prior to
Tenant's (or its predecessor's) entry into possession on or about July 1, 1982.
The parties acknowledge that the Hold Harmless Agreement dated March 20, 1990
(Tenant was then known as Rocket Research Company) between the parties remains
in full force and effect.
13. Accidents. Tenant shall defend, indemnify and hold the Landlord and
---------
Landlord's agents harmless from all liability, claims or damages of every kind
and nature whatsoever that may be claimed or accrue by reason of any accident in
or about the Leased Premises or from Tenant's use or occupation of the Leased
Premises and areas adjacent thereto or caused by the acts or neglect of the
Tenant or any agent of Tenant. Tenant agrees that neither Landlord nor
Landlord's agents shall be liable to Tenant or to any person for claims arising
from any defect in the construction or present condition of the Premises,
whether known or unknown, except a claim arising out of Landlord's failure to
repair or remedy a defect for which Landlord is responsible under Section 15.2
within thirty (30) days after Tenant's written notice of such defect to
Landlord. In case Landlord shall, without fault on its part, be made a party to
any litigation related to any accident in or about the Leased Premises, Tenant's
use or occupation of the Leased Premises or any act or omission of Tenant or its
agents, then Tenant shall defend, indemnify, protect and hold Landlord harmless
and shall pay all costs, expenses, and reasonable attorneys' 'fees incurred or
paid by Landlord in connection with such litigation. All personal property on
the Leased Premises shall be at the risk of Tenant.
14. Damage by Fire or Other Casualty. In case the improvements on the
--------------------------------
Leased Premises are destroyed or substantially damaged by fire, earthquake, or
other casualty during the term of this Lease, Tenant shall give Landlord prompt
written notice thereof. If the improvements on the Leased Premises are destroyed
or substantially damaged by fire or other casualty, Landlord or Tenant shall
have the right at its option to terminate this Lease by written notice to the
other. In the event of such termination of this Lease, the rights and
liabilities of the parties hereto shall be determined and adjusted as of the
date of such substantial damage or destruction, and the Lease shall terminate.
Any such termination may be made by notice in writing of exercise of its option
to terminate the Lease within sixty (60) days following the date of the
destruction or damage. For purposes of this paragraph, damage will be deemed to
be substantial if the reasonable cost of repairing and restoring the damaged or
destroyed buildings and improvements for Tenant's use exceeds fifty percent
(50%) of the value of such buildings and improvements prior to such damage.
If less than all or a substantial portion of the buildings and improvements
on the Leased Premises are damaged or destroyed and Landlord elects to rebuild
and restore, then the Lease shall not be terminated, but shall remain in full
force and effect subject to the following provisions. In the event that the
Lease is not terminated, Landlord will rebuild and restore, at its expense and
with reasonable diligence, the damaged or destroyed portions of the Premises as
nearly as practicable to the condition they were in prior to such damage or
destruction, provided, however, that the requirement to rebuild and restore the
Premises shall not extend to any
6
<PAGE>
furnishings, fixture, or equipment which Tenant has previously installed in the
Premises, whether or not title to such items had passed to Landlord under other
provisions of this Lease. During the period of such rebuilding and restoration
the rent shall be abated in the same ratio that the portion of the said Leased
Premises rendered for the time being unfit for occupancy shall bear to the whole
Leased Premises. Landlord and Tenant agree that any and all insurance payments
for fire damage or destruction to the improvements on the Leased Premises shall
be used for the sole purpose of repairing, rebuilding and/or restoring the
improvements on the Leased Premises, unless this Lease is terminated as the
result of such damage or destruction. If, under the terms of this Lease, the
improvements on the Leased Premises are not rebuilt or restored, the insurance
proceeds for loss of Landlord's building and property and loss of rents shall
become the property of the Landlord, and the Lease shall terminate effective as
of the date of such damage or destruction. Tenant shall release its interest and
endorse all insurance proceeds checks to Landlord when no rebuilding is
undertaken or for payment of rebuilding and restoration when such is undertaken,
provided that property insurance on Tenant's trade fixtures, equipment and
personal property shall be the property of Tenant. Notwithstanding any other
provision of this paragraph to the contrary, in the event there are insufficient
insurance proceeds available to the Landlord to rebuild and restore the Premises
damaged by casualty, Landlord shall have the right at its option to terminate
this Lease.
15. Maintenance and Repairs.
-----------------------
15.1. Tenant's Obligations. Except as provided in Section 15.2 below,
--------------------
Tenant shall at all times throughout the lease term at its sole cost and expense
keep and maintain the Leased Premises and every part thereof, exterior and
interior (whether or not the need for such repairs occurs as the result of
Tenant's use, the elements or the age of any portion of the Premises), including
without limitation the interior and exterior of all buildings, exterior walls
and roofs of buildings and all building fixtures, equipment, systems, utilities
and appurtenances thereof (including lighting, heating and plumbing fixtures and
HVAC systems) and all fences, gates, parking areas, driveways, roads, exterior
lighting, landscaping and sprinkler systems in good order, condition and repair.
The costs of any such repairs shall be billed directly to and paid by Tenant.
Tenant shall immediately replace all broken glass in the Premises; make any
necessary repairs to, or replacements of all mechanical, electrical and plumbing
systems, apparatus and mechanisms; keep all plumbing operational and in good
condition and repair including pipes, drains, toilets, basins, water heaters and
the heating system of the Premises; and keep all utilities, including circuit
breaker and panel box and meters in good condition and repair. Tenant shall
permit no waste, injury or damage to the Premises. If Tenant fails or neglects
to perform its obligation to preserve and maintain the Leased Premises in good
condition and repair, then Landlord may, at its option, put or cause the same to
be put into good condition and repair, and in such case Tenant shall pay the
cost thereof on demand.
15.2. Landlord's Obligations. Subject to Tenant's repair and
----------------------
maintenance obligations under Section 15.1 above, Landlord agrees to maintain in
good condition and repair, at its expense, the structure and foundation of all
buildings on the Premises. Landlord shall have no other obligation to maintain
or repair the Premises or any portion thereof.
7
<PAGE>
16. Capital Improvements. If the need for any major new major new
--------------------
improvements related to Tenant's use of the Leased Premises or the repair or
replacement of any major improvement in or to the Premises, having a cost in
excess of $10,000.00 (collectively "Capital Improvement"), arises during the
lease term, Landlord or Tenant may, by written notice to the other, request that
the Capital Improvement be made. Capital Improvements shall not include normal
maintenance and repair items or the repair or replacement of improvements at a
cost of less than $10,000.00. The party requesting the Capital Improvement shall
obtain and present to the other party a description of the proposed Capital
Improvement, plans (if reasonably available) and one or more cost estimates. The
proposed Capital Improvement shall be subject to mutual approval of Landlord and
Tenant, which approval shall not be unreasonably withheld or delayed. If either
party objects to the proposed Capital Improvement or its cost, the parties agree
to negotiate in good faith to resolve the objection or to reduce the cost. If,
after good faith negotiations, the parties are unable to agree on the proposed
Capital Improvement, the Capital Improvement issue may be submitted to
arbitration as provided in Article 30 below at the request of either party. (For
purposes of this Section 16, the exclusions contained in Sections 30.3.1 and
30.3.2 shall not apply.)
Landlord agrees to pay the cost of a mutually approved or arbitrator
ordered Capital Improvement, and Tenant agrees to wholly or partially reimburse
Landlord for the cost of such Capital Improvement by paying additional rent as
provided herein. On the first day of the first month following completion of an
approved Capital Improvement, Tenant shall commence payment of monthly
additional rent in an amount sufficient to amortize the cost of the Improvement
over a ten (10) year period with interest at the rate of ten percent (10%) per
annum. Additional rent shall be due and payable with, and in addition to,
monthly payment of minimum rent. Tenant shall have no obligation to pay such
additional rent following the expiration of the ten (10) year lease term. If
this Lease is terminated prior to the expiration of the ten (10) year lease
term, as the result of Tenant's exercise of its option to terminate under
Article 31 or as the result of Tenant's breach of this Lease, then Tenant agrees
that, in addition to any other amounts due Landlord, the full amount of
additional rent payable for Capital Improvements, which would have been paid
during the balance of the lease term (without the assessment of unearned
interest), shall become immediately due and payable as of the date of such
termination.
17. Alterations. Subject to Landlord's prior written approval of plans
-----------
and specifications, which approval shall not be unreasonably withheld or
delayed, Tenant may make alterations and improvements to the Leased Premises
reasonably necessary and appropriate for the conduct of Tenant's business.
Tenant shall have no right to make any exterior or structural alterations to any
building without Landlord's prior written consent. If Landlord consents to
Tenant's proposed alterations, Landlord shall inform Tenant in connection with
such consent whether Landlord will require Tenant to remove the proposed
alterations and restore the Premises at the expiration of the term. All such
alterations, additions and improvements shall be at the sole cost and expense of
Tenant. With the exception of any movable partitions, trade fixtures, appliances
and equipment which may be installed with Landlord's consent, all such
alterations, additions and improvements shall become the property of Landlord
and shall remain
8
<PAGE>
in and be surrendered with the Premises as a part thereof at the termination of
this Lease, without disturbance or injury, provided that, at Landlord's option
(which option must be exercised at the time consent to such alteration is given
as provided above), Tenant shall, at its expense, remove such alterations and
restore the Premises to its pre-existing condition, normal wear and tear
excepted, at the expiration or earlier termination of this Lease. If Tenant
performs work on the Premises, Tenant agrees to comply with all laws,
ordinances, rules and regulations of any authorized public authority. Tenant
further agrees to defend, indemnify and save Landlord and its property free and
harmless from lien, damage, loss or expense arising out of said work.
Tenant shall have the right to construct on, or move additional structures
or buildings onto, the Premises subject to thirty (30) days prior written notice
to and approval by Landlord. Said buildings or structures shall be constructed
in accordance with the Grant County Building. Code. Landlord's approval shall
not be unreasonably withheld in light of the present use and type of buildings
on the Premises. Tenant shall bear all costs and expenses associated with
construction of said additional structures or buildings. Ownership of any
buildings built and permanently attached to the Premises shall revert to
Landlord, and Tenant agrees to execute any documents necessary to convey title
to said buildings to Landlord. Ownership of structures moved to or constructed
on the Premises which may be readily relocated shall remain with Tenant. Tenant
shall have, the right to remove said movable structures at any time upon thirty
(30) days prior written notice to Landlord. Tenant shall not be charged any
additional rent for the newly constructed or moved structures.
18. Condemnation. If all or any substantial portion of the Leased
------------
Premises shall be taken by any public or quasi-public authority under the power
of eminent domain or conveyance in lieu thereof (hereinafter "condemnation"),
Landlord or Tenant shall have the right at its option to terminate this Lease.
In the event of such a termination, the rights and liabilities of the parties
shall be determined and adjusted as of the date the condemning authority has a
right to possession, and the Lease shall terminate. Upon such termination,
Tenant shall surrender possession of the Leased Premises to Landlord. Any such
termination may be made by notice in writing of its option to terminate the
Lease given within sixty (60) days following the date on which the parties
received notice of the proposed taking.
A condemnation of a substantial portion of the Leased Premises shall be
deemed to be any of the following:
18.1. If twenty-five percent (25%) or more of the value of the
Premises is taken in the condemnation; or
18.2. If regardless of the value of the amount of the Premises taken,
the cost of repairing and restoring the remainder of the Premises for Tenant's
use exceeds twenty-five percent (25%) of the value of the entire Premises prior
to condemnation or in Tenant's good faith opinion the condemnation has rendered
the remaining Premises unusable for Tenant's actual use of the Premises.
9
<PAGE>
For purposes of this Article 18, the value of the Premises shall be the quotient
determined by dividing the total annual minimum rent by ten percent (10%). If
less than all or a substantial portion of the Premises is taken by condemnation,
then, at Landlord's option, the Lease shall remain in full force and effect
subject to the provisions set forth below. If either party cannot or does not
elect to terminate this Lease as aforesaid, this Lease shall be and remain
unaffected by any such condemnation, except that the rent shall be equitably
abated to the extent that Tenant is deprived of use of the Premises. In the
event that the Lease is not terminated, Landlord will, at its expense, restore
with reasonable diligence the remaining portions of the Premises as nearly as
practicable to the condition they were in prior to such condemnation, provided,
however, that there are sufficient condemnation proceedings available to
Landlord to restore the Premises, and provided further that the requirement to
restore the Premises shall not extend to any furnishings, fixtures, or equipment
which Tenant had previously installed in the Premises, whether or not title to
such items had passed to. Landlord under other provisions of this Lease.
Landlord reserves, and shall be entitled to receive, the entire damage
award in the condemnation proceedings. Tenant hereby specifically grants and
assigns to Landlord any interest which Tenant may have in or to any portion of
such award by virtue of Tenant's leasehold estate. Notwithstanding the
foregoing, Tenant shall be entitled to claim compensation for Tenant's moving
expenses and the value of Tenant's trade fixtures so long as title to such
fixtures has not passed to Landlord in accordance with other provisions of this
Lease.
19. Inspection Fees. Tenant shall, during the term of this Lease, pay all
---------------
fees due the city, county, or state, on account of any inspection made on or
about the Leased Premises by any officer of said city, county, or state, which
inspections are in relation to the use and occupancy of said Premises by Tenant
or the conduct of the business of Tenant therein.
20. Liens and Insolvency. Tenant shall keep the Leased Premises free from
--------------------
any and all liens, claims, and encumbrances arising out of Tenant's use and
occupancy of the Premises or out of any work performed, materials furnished or
obligations incurred by Tenant, including taxes. Tenant has no authority to
incur any debt or charge against Landlord or Landlord's property. Tenant has no
authority to create any lien against the Leased Premises for any work performed
or materials furnished for or on behalf of Tenant. If Tenant becomes insolvent
or bankrupt, or if a receiver is appointed, then Tenant shall be in default
under the terms of this Lease, and Landlord may terminate this Lease at its
option in accordance with Paragraph 22 hereof.
21. Signs and Advertising. Tenant may erect and install or otherwise
---------------------
utilize signs, symbols and other advertising or decorative matter visible from
the exterior of the Premises in accordance with applicable sign ordinances. At
the termination of this Lease, all such signs, symbols and advertising matter
attached to or painted by Tenant upon the Premises, whether on the exterior or
interior thereof, shall be removed by Tenant at its own expense. Tenant shall
repair any damage or injury to the Premises and correct any unsightly condition,
caused by the maintenance or removal of any sign.
10
<PAGE>
22. Landlord's Access. Landlord hereby reserves and Tenant hereby grants
-----------------
to said Landlord or Landlord's agents, the right to enter the Leased Premises
upon reasonable notice at all reasonable times for the purpose of inspecting the
Premises and making necessary repairs when Tenant fails or refuses to make the
same, but this right, or the granting of the same, shall not be construed as an
agreement on the, part of the said Landlord to make any repairs whatsoever.
Landlord, or Landlord's agents, shall have the right to place and maintain "For
Lease" signs upon the said Premises for a period of 90 days prior to the
expiration of this Lease.
11
<PAGE>
23. Default, Cancellation & Re-Entry.
--------------------------------
23.1. Payments Deemed Rent. Time is of the essence hereof. Any
--------------------
payment due Landlord from Tenant hereunder shall be deemed rent. Unpaid rent and
any other payment due Landlord hereunder, which is not paid within ten (10) days
after such sum is due, shall bear interest at the rate of one and one-half
percent (1.5%) per month or the maximum lawful rate of interest, whichever is
less, from the original due date until paid.
23.2. Termination of Lease. If Tenant fails to keep and perform any
--------------------
of the covenants herein contained, Landlord may terminate this Lease upon giving
the notice required by law, and re-enter said Premises, but notwithstanding such
re-entry by Landlord, the liability of Tenant for the rent provided herein shall
not be extinguished for the balance of the term of this Lease. Upon such
termination, Landlord may recover from Tenant the following:
23.2.1. Unpaid Rent at Termination. The unpaid rent,
--------------------------
additional rent and all other amounts that had been earned at the time of
termination.
23.2.2. Unpaid Rent at Award. The worth at the time of award
--------------------
of the amount by which the reasonable value of the unpaid rent and additional
rent which would have been earned after termination until the time of award
exceeds the amount of such rental loss that Tenant proves could have been
reasonably avoided.
23.2.3. Future Rent. The worth at the time of award of the
-----------
amount by which the reasonable value of the unpaid rent and additional rent for
the balance of the term of this Lease exceeds the amount of such rental loss
that Tenant proves could have been reasonably avoided; and
23.2.4. Other Amounts. Any other amount necessary to
-------------
compensate Landlord for all losses proximately caused by Tenant's failure to
perform his obligations under this Lease or that in the ordinary course of
events would be likely to result therefrom.
23.3. Terms Defined. As used in this Paragraph 22, the following
-------------
terms are defined as follows:
23.3.1. "Worth at the Time of Award." The "worth at the time
--------------------------
of award," of the amounts referred to in subparagraphs 23.2.2 and 23.2.3 is
computed by allowing interest at the lesser of the rate of interest specified in
subparagraph 23.1 or the maximum lawful rate. The "worth at the time of award"
of the amount referred to in subparagraph 23.2.3 is computed by discounting such
amount at the discount rate of the Federal Reserve Bank of San Francisco at the
time of award plus one percent (1%).
23.3.2. "Time of Award." The "time of award" as used in
----------------------------------------------
paragraph 23.2 is the date on which judgment is entered by a court of competent
- -------------------------------------------------------
jurisdiction.
12
<PAGE>
23.3.3. "Reasonable Value." The "reasonable value" of the
----------------
amount referred to in subparagraph 23.2.2 is computed by determining the
mathematical product of (1) the "reasonable annual rental value" (as herein
defined) and (2) the number of years, including fractional parts thereof,
between the date of termination and the time of award. The "reasonable value" of
the amount referred to in subparagraph 23.2.3 is computed by determining the
mathematical product of (1) the "reasonable annual rental value" (as herein
defined) and (2) the number of years, including fractional portions thereof,
remaining in the balance of the term of this Lease after the time of award. As
used in this subsection the term "reasonable annual rental value" is computed by
obtaining the sum of the three following components: (1) the minimum annual
rental; plus (2) all additional rent, paid or payable during the calendar year
immediately preceding the time of award.
23.3.4. Tenant's Personal Property. If upon re-entry by
--------------------------
Landlord, there remains any personal property of Tenant or others upon the
Premises, Landlord may (but without the obligation to do so) remove said
personal property and place the same in a public warehouse or storage, as may be
reasonable, at the expense and risk of the owners thereof. Tenant shall
reimburse Landlord for any expense incurred by Landlord in connection with said
removal and/or storage. Tenant covenants and agrees to make good to Landlord any
deficiency arising from a re-entry and reletting of the Premises, including the
costs of any necessary renovation and alteration of the Premises, and that
portion of any leasing commission paid by Landlord and applicable to the
unexpired lease term of the Lease. Tenant shall pay such deficiency each and
every month as the amount thereof is ascertained by Landlord.
23.3.5. Notice of Default. Tenant shall be and remain liable
-----------------
to Landlord for any and all cost, damage or expense caused by Tenant's breach of
any covenant or agreement contained herein. Prior to declaring a default under
the terms of this Lease, Landlord shall give Tenant thirty (30) days' written
notice of the default, except a default in the payment of rent or additional
rent or in the event Tenant fails to maintain insurance as required hereunder,
in which case the written notice shall be only five (5) days. In the event such
default is not cured within said thirty (30) days, or within five (5) days in
the case of a default in minimum rent or additional rent, Landlord may proceed
to take any and all action which is available to it under the terms of this
Lease or at law to protect its rights as Landlord, provided, that if the nature
of said non-monetary default is such that it cannot be cured within a period of
thirty (30) days in the exercise of due diligence by Tenant, then Tenant shall
have such additional time as may be required to accomplish the cure of said
default in the exercise of reasonable diligence.
23.3.6. Attorneys' Fees. If any arbitration or litigation is
---------------
brought to interpret or enforce any of the covenants or agreements of this Lease
or to recover damages or otherwise, the prevailing party in such arbitration or
litigation, including any bankruptcy court proceedings and any appeal, shall be
entitled to an award of all costs, expenses, and reasonable attorneys' fees.
24. Assignment and Subletting.
-------------------------
13
<PAGE>
24.1. Assignment. This Lease may not be assigned, in whole or in
----------
part, for security or otherwise, and no assignment shall be effective, without
the written consent of Landlord. If notice of any proposed assignment is given
to Landlord at least sixty (60) days prior to its proposed effective date,
together with the instrument proposed to evidence such assignment, which
instrument contains the agreement of any assignee to assume and be bound by all
of the terms, conditions and covenants of this Lease to be performed by Tenant,
in a form satisfactory to Landlord, then Landlord shall not unreasonably
withhold its consent to the assignment. If consent is once given by the Landlord
to the assignment of this Lease, or any interest therein, Landlord shall not be
barred from afterwards refusing to consent to any further assignment. This Lease
shall not be assignable by operation of law, nor at any time when a default has
occurred and is continuing. If Tenant is a corporation, then any transfer of
this Lease from Tenant by merger, consolidation or liquidation and any change in
ownership or power to vote the majority of its outstanding voting stock, shall
constitute an assignment for the purpose of this section, provided that, subject
to Tenant's compliance with the notice and assumption requirements set forth
above, Landlord agrees to consent to any transfer of Tenant's interest under
this Lease to any entity which owns and controls Tenant or which is owned and
controlled by Tenant.
24.2. Subletting. The Leased Premises may not be sublet, in whole or
----------
in part, and no subletting shall be effective, without the written consent of
Landlord. If notice of any proposed subletting is given to Landlord at least
sixty (60) days prior to its proposed effective date, together with instrument
proposed to evidence such subletting, then Landlord shall not unreasonably
withhold its .consent to the subletting. If consent is once given by the
Landlord to any subletting, Landlord shall not be barred from afterwards
refusing to consent to any further subletting. Notwithstanding the foregoing, no
subletting shall be permitted at any time when default has occurred and is
continuing.
24.3. Further Conditions. In addition, and as a further condition of
------------------
the approval and effectiveness of any sublease, the minimum rent otherwise
payable under this Lease shall be increased, in the case of a sublease, to an
amount equal to the total of all amounts payable by the subtenant to the Tenant
in excess of the otherwise payable minimum rent, (less the amount of additional
rent payable by subtenant for its share of taxes, utilities and similar
charges). Such increased minimum rent shall be paid to Landlord beginning on the
effective date of such sublease or other transfer, and the additional rent and
all other charges payable under this Lease shall remain in effect as provided
herein.
24.4. Tenant Remains Liable. Notwithstanding any assignment, sublease
---------------------
or transfer, the original Tenant shall remain fully liable under this Lease for
the payment of all sums due and the performance of all terms and covenants of
this Lease. Any increased minimum rent payable pursuant to the preceding
provisions of this section shall remain in effect until a higher minimum rent
otherwise provided herein, if so provided, would be payable.
24.5. Reimbursement of Expenses. Tenant shall reimburse Landlord for
-------------------------
14
<PAGE>
Landlord's reasonable expenses including attorney's fees incurred in conjunction
with the processing and documentation of any requested assignment or subletting.
25. Expiration of Lease. Tenant covenants and agrees to surrender the
-------------------
Leased Premises without notice at the expiration of the term of this Lease in
the same or better condition as when first obtained by Tenant, reasonable wear
and tear and damage by insurable risks excepted. Tenant further agrees to remove
all of its personal property from said Premises, to clean the Premises and to
deliver to Landlord all keys to the Premises at the expiration of the term. At
the expiration or earlier termination of this Lease, Landlord shall have the
right, but not the obligation, to remove from the Leased Premises all personal
property located therein, and may store the same in any place selected by
Landlord, including, but not limited to, a public warehouse, at the expense and
risk of the owner thereof.
26. Hold-Over. If Tenant shall, with the written consent of Landlord, hold
---------
over after the expiration of the term of this Lease, such tenancy shall be for
an indefinite term on a month to month tenancy, which tenancy may be terminated
as provided by the laws of the State of Washington. During such tenancy, Tenant
agrees to pay to Landlord rent in an amount equal to one hundred fifty percent
(150%) of the rent payable prior to the expiration of the Lease term, unless a
different rate is agreed upon, and to be bound by all of the terms, covenants,
and conditions as herein specified, so far as applicable.
27. Bankruptcy. If at any time: (a) Tenant makes any general assignment or
----------
general arrangement for the benefit of creditors; (b) Tenant files or has filed
against it a petition in bankruptcy, including reorganization or arrangement, or
(c) a trustee or receiver is appointed to take possession of any of Tenant's
assets located at the Premises or of Tenant's interest in this Lease, then
Landlord may, if Landlord so elects, at any time thereafter, terminate this
Lease upon giving to Tenant ten (10) days notice in writing of Landlord's
intention to do so, and this Lease shall expire and come to an end at the date
fixed in such notice as if the date were the date originally fixed in this Lease
for the expiration hereof. If the Landlord does not exercise the foregoing
option to terminate or if it is precluded by law from doing so, then this Lease,
being a lease of nonresidential real property, shall be deemed rejected and
terminated by Tenant pursuant to Section 365(d)(4) of the United States
Bankruptcy Code, as now in effect or as hereafter amended, unless Tenant shall
have affirmatively and after notice and a hearing obtained a bankruptcy court
order assuming the Lease in full, curing all past defaults, and providing
adequate assurances of future performance.
28. Late Charge. Tenant acknowledges that late payment by Tenant to
-----------
Landlord of rent or other sums due hereunder will cause Landlord to incur costs
not contemplated by this Lease, the exact amount of which would be extremely
difficult and impractical to ascertain. Such costs include, but are not limited
to, processing and accounting charges, and late charges which may be imposed on
Landlord by the terms of any mortgage or deed of trust covering the Premises.
Therefore, in the event Tenant should fail to pay any installment of rent or any
other sum due hereunder within ten (10) days after such sum is due, Tenant-shall
pay to Landlord as additional rent a late charge equal to five percent (5%) of
each such installment or sum. Waiver
15
<PAGE>
of said five percent (5%) late charge with respect to any installment or sum
shall not be deemed to constitute a waiver with respect to any subsequent
installment or sum so due.
16
<PAGE>
29. Notices. All notices under and payments made pursuant to this Lease
-------
shall be given or made to the respective parties hereto at the following
addresses:
TO LANDLORD: Zaser & Longston, Inc.
1802 136th Place N.E.
Bellevue, WA 98005
TO TENANT: Primex Aerospace Company
11441 Willows Rd.
P.O. Box 97009
Redmond, WA 98073-9709
unless by prior notice hereunder a different person or address shall have been
specified for such purpose, in which event, notices and payments shall be made
as so specified. All notices shall be in writing and shall be deemed to have
been effectively given upon the receipt thereof if delivered by hand or sent by
ordinary mail, or upon the mailing thereof if mailed by certified mail, return
receipt requested, addressed as above specified.
30. Arbitration.
-----------
30.1. Matters Subject to Arbitration. The parties agree that
------------------------------
potential disputes and issues between Landlord and Tenant regarding the meaning
and interpretation of certain provisions of this Lease and the correct
determination or calculation of certain amounts due hereunder should be resolved
by arbitration, not litigation. Accordingly, the parties agree that, with the
exception of the matters described in Section 30.3, disputes and issues arising
out of this Lease shall be subject to arbitration, unless otherwise mutually
agreed.
30.2. Arbitration Procedure. Any arbitration specified in this Lease
---------------------
shall be conducted in Seattle, Washington or other mutually acceptable location
by one (1) arbitrator selected in accordance with the arbitration rules of the
American Arbitration Association ("AAA") or other mutually acceptable dispute
resolution or arbitration service. The arbitrator shall be selected from the
panel of qualified commercial arbitrators in accordance with the rules of the
AAA. The arbitrator shall render his decision within thirty (30) days after the
scheduled arbitration hearing. The decision of the arbitrator shall be final,
binding and conclusive upon the parties, and a judgment may be rendered thereon
in any court having jurisdiction over the Leased Premises and the parties
hereto. Landlord and Tenant shall each pay one half (1/2) of the cost and
expense of the AAA and its arbitrator for such arbitration, provided that the
arbitrator shall have authority to award to the prevailing party in the
arbitration its reasonable attorneys' fees and all costs of arbitration
including the fees of the arbitrator.
30.3. Matters Not Subject to Arbitration. There shall be no
----------------------------------
arbitration of issues, disputes or matters except those identified in Section
29.1 above as matters to be resolved by
17
<PAGE>
arbitration unless Landlord and Tenant agree in writing to arbitrate other
matters. Even if a matter is otherwise subject to arbitration, at the election
of either Landlord or Tenant, the following matters shall not be submitted to
arbitration:
30.3.1. Claims or causes of action in equity or seeking
primarily equitable relief;
30.3.2. Causes of action or claims which, in the aggregate of
all actions or claims in the proceeding, seek damages or relief in excess of
Twenty Five Thousand Dollars ($25,000.00);
30.3.3. Proceedings in which a party or parties other than
Landlord and Tenant are joined or are required to be joined under applicable
law; or
30.3.4. Unlawful detainer or other possessory actions
following Tenant's default.
A party shall make its election to proceed with legal action, instead of
arbitration by notice, in writing, (i) if the party making the election is the
moving party, then at least five (5) days prior to such party's institution of
legal proceedings; or (ii) if the party making the election is not the moving
party, then within ten (10) days after receipt of the other party's demand for
arbitration.
31. Tenant's Option to Terminate. On the condition that (a) no default
----------------------------
exists at the time Tenant gives its early termination notice or at the
expiration of the first five (5) Lease Years on June 30, 2003, and (b) Tenant
pays Landlord the early termination payment described herein, Tenant shall have
the right and option to terminate the lease at the expiration of the first five
(5) Lease Years on June 30, 2003 ("Early Termination") as provided herein.
Tenant may exercise its Early Termination option only by (i) giving Landlord not
less than six 6) months' prior written notice of its Early Termination election
and (ii) paying Landlord on or before June 30, 2003, the sum of (y) $650,000.00,
plus (z) an amount equal to additional rent attributable to any Capital
Improvement otherwise payable during the last five (5) years of the lease term
as provided in Paragraph 16 above (collectively the "Early Termination
Payment"). If Tenant exercises its Early Termination option and makes the early
termination payment required hereunder, the minimum rent and all other
obligations under the lease shall be paid and performed as of the date of
termination, June 30, 2003, and the lease shall then terminate.
32. Non-Waiver of Breach. The failure of Landlord or Tenant to insist upon
--------------------
strict performance of any of the covenants and agreements of this Lease by the
other party, shall not be construed to be a waiver or relinquishment of any
such, or any other covenants or agreements, but the same shall be and remain in
full force and effect during the term of this Lease.
33. Successors. The covenants and agreements of this Lease shall be
----------
binding upon the successors and assigns of the parties hereto.
18
<PAGE>
34. Quiet Enjoyment. Landlord covenants that if and so long as Tenant pays
---------------
the minimum rent, additional rent and all other sums due hereunder and performs
all of the covenants, conditions and agreements aforesaid, Tenant shall and may
peaceably and quietly have, hold and enjoy the Premises for the term aforesaid,
subject, however, to the terms of this Lease.
35. Captions. The words "Landlord" and "Tenant" as used herein shall
--------
include the plural as well as both genders. The paragraph headings of this Lease
are not part of this Lease and, shall have no affect upon the construction or
interpretation of any part hereof.
36. Governing Law. This Lease shall be governed by and construed pursuant
-------------
to the laws of the State of Washington.
37. Limitation of Liability. In the event of any default by Landlord
-----------------------
hereunder, Tenant shall look only to Landlord's interest in the Leased Premises
for the satisfaction of Tenant's remedies; and no other property or assets of
Landlord shall be subject to levy, execution or other 'enforcement procedure for
the satisfaction of Tenant's remedies under or with respect to this Lease.
38. Partial Invalidity. Any provision of this Lease which shall prove to
------------------
be invalid, void or illegal shall in no way affect, impair or invalidate any
other provision hereof and such other provisions shall remain in full force and
effect.
39. Corporate Authority. If Tenant is a corporation, each individual
-------------------
executing this Lease on behalf of said corporation represents and warrants that
he is duly authorized to execute and deliver this Lease on behalf of said
corporation in accordance with a duly adopted resolution of the Board of
Directors of said corporation or in accordance with the bylaws of said
corporation, and that this Lease is binding upon said corporation in accordance
with its terms. If Tenant is a corporation Tenant shall, upon execution of this
Lease, deliver to Landlord a certified copy of a resolution of the Board of
Directors of said corporation authorizing or ratifying the execution of this
Lease. Landlord is a corporation, and Landlord agrees to deliver to Tenant upon
execution of this Lease similar evidence of corporate authority to execute this
Lease.
40. Entire Agreement. There are no verbal or other agreements (unless
----------------
attached hereto) which modify or affect this Lease. This Lease supersedes any
and all prior agreements executed by or on behalf of the parties hereto
regarding the Premises. Neither Landlord nor Tenant shall be bound by any
understanding, agreement, promise or representation, expressed or implied, not
specified herein or attached hereto.
19
<PAGE>
IN WITNESS WHEREOF, the, parties hereto have executed this Lease the day
and year first written above.
LANDLORD: ZASER & LONGSTON, INC.
By: /s/
------------------------------
Name: Greg D. Zaser
Title President
TENANT: PRIMEX AEROSPACE COMPANY
By: /s/
------------------------------
Name: W.W. Smith
Title: President
STATE OF WASHINGTON)
) ss.
COUNTY OF KING )
On this 11/th/ day of March, 1998, before me, the undersigned, a Notary
Public in and for the State of Washington, duly commissioned and sworn,
personally appeared Greg D. Zaser to me known to be the President of ZASER &
LONGSTON, INC., the corporation that executed the foregoing instrument, and
acknowledged the said instrument to be the free and voluntary act and deed of
said corporation, for the uses and purposes therein mentioned, and on oath
stated that he is authorized to execute the said instrument and that the seal
affixed is the corporate seal of said corporation.
WITNESS MY HAND AND OFFICIAL SEAL the day and year first above written.
/s/
-----------------------------------
Printed Name: Judith Y. Plute
NOTARY PUBLIC in and for the State
of Washington residing at ISSAQUAH
My Commission expires: 7/28/2001
20
<PAGE>
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
On this 10/th/ day of March, 1998, before me, the undersigned, a Notary
Public in and for the State of Washington, duly commissioned and sworn,
personally appeared W.W. Smith to me known to be the President of PRIMEX
AEROSPACE COMPANY, the corporation that executed the foregoing instrument, and
acknowledged the said instrument to be the free and voluntary act and deed of
said corporation, for the uses and purposes therein mentioned, and on oath
stated that he is authorized to execute the said instrument and that the seal
affixed is the corporate seal of said corporation.
WITNESS MY HAND AND OFFICIAL SEAL the day and year first above written.
/s/
-----------------------------------
Printed Name: Linda J. Vincent
NOTARY PUBLIC in and for the State
of Washington residing at Redmond, WA
My Commission expires: 01/06/2000
21
<PAGE>
EXHIBIT A
LEGAL DESCRIPTION
That part of Larson Air Force Base located in the South half of Sections 15 and
16, Township 20 North, Range 28 E.W.M., Grant County, Washington, described as
follows:
Beginning at a point 16,950.89 feet North and 2,822.58 feet West of the
Southeast corner of Section 33, Township 20 North, Range 28 E.W.M., (whose
Washington State Grid South zone coordinates are Y=674047.08 - X=2298909.20 and
are referred to U.S.C. & G.S. Station "SPAD" whose Washington State Grid South
zone coordinates are Y=676911.66 - X=2288625.74); thence South 72 degrees 40
feet 29 inches East, a distance of 2,526.41 feet; thence North 17 degrees 18
feet 57 inches East, a distance of 813.11 feet; thence South 72 degrees 42 feet
41 inches East, a distance of 51.31 feet, to the P.C. of a curve to the right
having a radius of 369.31 feet; thence Southeasterly along said curve through a
central angle of 24 degrees 32 feet 20 inches for a distance of 158.17 feet;
thence North 17 degrees 18 feet 57 inches East, a distance of 158.93 feet;
thence North 72 degrees 41 feet 3 inches West, a distance of 475.21 feet; thence
North 17 degrees 18feet 57 inches East, a distance of 147.20 feet; thence North
72 degrees 41 feet 3 inches West, a distance of 2,525.51 feet; thence South 17
degrees 17 feet 48 inches West, a distance of 1,085.51 feet; thence South 72
degrees 40 feet 29 inches East, a distance of 269.24 feet to the point of
beginning.
22
<PAGE>
Exhibit 10.19
- --------------------------------------------------------------------------------
LEASE AGREEMENT
- --------------------------------------------------------------------------------
THE INDUSTRIAL DEVELOPMENT BOARD
OF THE CITY OF ANNISTON
AND
DEFENSE RESEARCH INCORPORATED
DATED AS OF MARCH 1, 1995
- --------------------------------------------------------------------------------
The interest of The Industrial Development Board of the City of Anniston in this
Lease Agreement (except for certain rights personal to the Board) and in any
rents, revenues and receipts derived from the leasing or sale of the Project
referenced in this Lease Agreement has been assigned to SouthTrust Bank of
Alabama, National Association, as agent under Mortgage and Indenture dated as of
March 1, 1995 from the Board.
- --------------------------------------------------------------------------------
<PAGE>
This Lease Agreement was prepared by Heyward C. Hosch of Walston, Stabler,
Wells, Anderson & Bains, Financial Center, Suite 500, 505 20th Street North,
Birmingham, Alabama 35203
<PAGE>
LEASE AGREEMENT
TABLE OF CONTENTS
-----------------
<TABLE>
<S> <C>
RECITALS.................................................................. 1
ARTICLE 1
Definitions and Other Provisions of General Application
SECTION 1.1 Definitions.......................................... 1
SECTION 1.2 Date of Lease Agreement.............................. 5
SECTION 1.3 Enforceability....................................... 5
SECTION 1.4 Effect of Headings and Table of Contents............. 5
SECTION 1.5 Successors and Assigns............................... 5
SECTION 1.6 Governing Law........................................ 6
SECTION 1.7 Execution of Counterparts............................ 6
SECTION 1.8 Notices.............................................. 6
SECTION 1.9 Investment of Special Funds; Surplus
After Bonds Paid................................... 6
SECTION 1.10 Ratification of Abatement Agreement.................. 7
ARTICLE 2
Representations and Warranties; Provisions Respecting Relationships
SECTION 2.1 Representations by the Issuer......................... 7
SECTION 2.2 Representations by the User........................... 7
SECTION 2.3 Issuer and User as Landlord and Tenant................ 8
SECTION 2.4 Covenant of Quiet Enjoyment: Rights Against
Third Parties....................................... 8
SECTION 2.5 Issuer's Liabilities Limited.......................... 8
SECTION 2.6 Certain Prior Agreements Canceled..................... 9
ARTICLE 3
Demising Clauses..................................................... 9
ARTICLE 4
The Series A Facilities
SECTION 4.1 Acquisition of Series A Facilities.................... 10
SECTION 4.2 No Warranty by Issuer................................. 11
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
SECTION 4.3 Remedies Against Vendors, Contractors, Subcontractors,
and Sureties.................................................... 11
SECTION 4.4 Completion of the Series A Facilities........................... 11
ARTICLE 5
Lease Term; Payment and Indemnity Provisions: Substitute Letter of Credit
SECTION 5.1 Initial Lease Term.............................................. 12
SECTION 5.2 Rental and Payment Provisions................................... 12
SECTION 5.3 Advances by Issuer or Agent..................................... 13
SECTION 5.4 Indemnity of Issuer, Agent and Holders.......................... 13
SECTION 5.5 Payment of Taxes and Other Governmental Charges................. 14
SECTION 5.6 Nature of Obligations of User................................... 15
SECTION 5.7 Substitute Letter of Credit..................................... 15
ARTICLE 6
Maintenance, Alterations Replacements: Insurance
SECTION 6.1 Maintenance, Repairs, Alterations, Use in Connection with
other Facilities; Easements Granted by Issuer................... 16
SECTION 6.2 Substitution and Replacement for Equipment...................... 17
SECTION 6.3 Installation By User of Machinery and Equipment................. 17
SECTION 6.4 Insurance Required.............................................. 17
ARTICLE 7
Provisions Respecting Damage, Destruction and Condemnation
SECTION 7.1 Damage and Destruction.......................................... 20
SECTION 7.2 Condemnation.................................................... 21
ARTICLE 8
Provisions Relating to Conveyance of the Project, the Agent and the Bonds
SECTION 8.1 Assignment and Subleasing of Project by User.................... 23
SECTION 8.2 Mortgage of the Project and Assignment of Lease Agreement
and Rents by the Issuer: Restrictions on Amendments of
Lease Agreement and Indenture................................... 23
SECTION 8.3 Restrictions on Mortgage or Sale of Project by Issuer........... 24
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
SECTION 8.4 Redemption of Bonds................................... 24
ARTICLE 9
Covenants of the User................................................ 24
ARTICLE 10
Events of Default and Remedies
SECTION 10.1 Events of Default Defined............................ 26
SECTION 10.2 Remedies on Default.................................. 27
SECTION 10.3 Agreement to Pay Attorneys' Fees and Expenses........ 28
SECTION 10.4 Waivers of Past Defaults............................. 28
SECTION 10.5 Availability of Remedies............................. 28
ARTICLE 11 Options
SECTION 11.1 Option to Terminate.................................. 29
SECTION 11.2 Options to Extend and Renew.......................... 29
SECTION 11.3 Option to Purchase Project........................... 30
SECTION 11.4 Option to Purchase Portions of Protect Site.......... 30
SECTION 11.5 Conveyance on Exercise of Option to Purchase......... 31
</TABLE>
iii
<PAGE>
LEASE AGREEMENT
---------------
THIS LEASE AGREEMENT dated as of March 1, 1995 is entered into by THE
INDUSTRIAL DEVELOPMENT BOARD OF THE CITY OF ANNISTON, a public corporation
organized under the laws of the State of Alabama (the "Issuer"), and DEFENSE
RESEARCH INCORPORATED (the "User").
Recitals
--------
Pursuant to Division 1 of Article 4 of Chapter 54 of Title 11 of the Code
of Alabama 1975 (Section 11-54-80 et seq.) and for the purposes expressed
therein, the Issuer and the User have executed and delivered this Lease
Agreement simultaneously with the issuance and sale by the Issuer of its
$1,500,000 Industrial Development Revenue Bonds, Series A (Defense Research
Incorporated Project), dated the date of delivery and payment therefor, to
finance the acquisition, construction and installation of the Project described
herein, under and pursuant to that certain Mortgage and Indenture dated as of
March 1, 1995 from the Issuer to SouthTrust Bank of Alabama, National
Association, as Agent, First Alabama Bank, as Holder of Series A Bonds
thereunder, and SouthTrust Bank of Alabama, National Association, as Holder of
Series A Bonds thereunder; said Mortgage and Indenture being recorded in the
Office of the Judge of Probate of Calhoun County, Alabama simultaneously
herewith.
NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants hereinafter contained, the parties hereto covenant, agree and bind
themselves as follows:
ARTICLE 1
Definitions and Other Provisions
of General Application
SECTION 1.1 Definitions
For all purposes of this Lease Agreement, except as otherwise expressly
provided or unless the context otherwise requires:
(1) The terms defined in this Article have the meanings assigned to
them in this Article and include the plural as well as the singular.
(2) All accounting terms not otherwise defined herein have the
meanings assigned to them, and all computations herein provided for shall
be made, in accordance with generally accepted accounting principles. All
references herein to "generally accepted accounting principles" refer to
such principles as they exist at the date of application thereof.
(3) All references in this instrument to designated "Articles,"
"Sections" and other subdivisions are to the designated Articles, Sections
and subdivisions of this instrument as originally executed.
1
<PAGE>
(4) The terms "herein", "hereof" and "hereunder" and other words of
similar import refer to this Lease Agreement as a whole and not to any
particular Article, Section or other subdivision.
(5) The term "person" shall include any individual, corporation,
partnership, joint venture, association, trust, unincorporated organization
and any Governmental Authority.
(6) Capitalized terms used herein without definition shall have the
respective meanings assigned thereto in the Indenture.
Abatement Agreement shall mean that certain Abatement Agreement dated
-------------------
January 30, 1995 among the Issuer and the User.
Additional Rent shall mean that portion of the Rent payable under Section
---------------
5.02(b).
Affiliate of any specified person shall mean any other person directly or
---------
indirectly controlling or controlled by or under direct or indirect common
control with such specified person. For purposes of this definition, "control"
when used with respect to any specified person means the power to direct the
management and policies of such person, directly or indirectly, whether through
ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
Agent shall mean the person named as the "Agent" in the Indenture until a
-----
successor shall have become such pursuant to the applicable provisions of the
Indenture, and thereafter "Agent" shall mean such successor.
Basic Rent shall mean that portion of the Rent payable under Section
----------
5.02(x).
Bond Payment Date shall mean a date on which any installment of the
-----------------
principal of (and premium, if any) or interest on the Bonds is due and payable,
whether at the stated maturity or due date, or on a date fixed for optional or
mandatory redemption of any Bond of any series of Bonds, or upon acceleration of
the Bonds.
Contribution Agreement shall mean that certain Contribution Agreement dated
----------------------
the date of execution by and among the Calhoun County Commission, the Calhoun
County Economic Development Commission, Forward Calhoun County, and the Issuer,
as providers thereunder, and the Issuer for the purposes thereof.
Contribution Amount shall mean the aggregate amounts contributed for the
-------------------
Series A Facilities pursuant to the Contribution Agreement and as earnest money
pursuant to the Purchase Contract.
2
<PAGE>
Credit Obligor shall mean Deutsche Bank North America Holding Corporation,
--------------
and its successors and assigns, until a Substitute Letter of Credit shall have
been accepted by the Agent and thereafter "Credit Obligor" shall mean the issuer
of such Substitute Letter of Credit.
Engineer shall mean a person qualified to practice as an engineer under the
--------
laws of the State, who shall be appointed by the User and acceptable to the
Agent.
Equipment shall have the meaning assigned in Demising Clause III.
---------
Event of Default shall have the meaning assigned in Article 10. An Event
----------------
of Default shall "exist" if an Event of Default shall have occurred and be
continuing.
Financing Documents shall mean collectively the Bonds, Indenture, Lease
-------------------
Agreement, Guaranty, Purchase Contract, and Contribution Agreement and Letter of
Credit.
Governmental Authority shall mean any federal, state, county, municipal, or
----------------------
other government, domestic or foreign, and any agency, authority, department,
commission, bureau, board, court or other instrumentality thereof.
Guaranty shall mean the Guaranty Agreement dated as of March 1, 1995 from
--------
the User and CMS, Inc.
Holders shall have the meaning assigned in the Indenture.
-------
Improvements shall have the meaning assigned in Demising Clause II.
------------
Indenture shall mean that certain Mortgage and Indenture dated as of March
---------
1, 1995 among the Issuer, the Agent and the Holders, including any amendments or
supplements to such instrument from time to time entered into pursuant to the
applicable provisions hereof and thereof.
Issuer shall mean the person named as the "Issuer" in the first paragraph
------
of this instrument until a successor corporation shall have become such pursuant
to the applicable provisions of the Indenture, and thereafter "Issuer" shall
mean such successor corporation.
Lease Agreement shall mean this instrument as originally executed or as it
---------------
may at any time be supplemented, modified or amended by one or more supplemental
leases or other instruments supplemental hereto entered into pursuant to the
applicable provisions of the Indenture and hereof.
Lease Term shall mean collectively (i) the term of the leasehold estate
----------
granted in Section 5.01 of this Lease Agreement and (ii) each extension and
renewal term elected by the User pursuant to Section 11.02.
3
<PAGE>
Letter of Credit shall mean (i) the initial letter of credit delivered to
----------------
the Agent on the date of delivery of the Bonds, and (ii) unless the context or
use indicates another or different meaning or intent, any Substitute Letter of
Credit delivered to the Agent.
Letter of Credit Termination Date shall mean the date on which the Letter
---------------------------------
of Credit will, by its terms, expire unless the Letter of Credit is terminated
on an earlier date in accordance with its terms.
Net Proceeds when used with respect to any insurance or condemnation award,
------------
means the gross proceeds from the insurance or condemnation award with respect
to which that term is used remaining after payment of all reasonable expenses
(including reasonable attorneys' fees and any extraordinary fee of the Agent)
incurred in the collection of such gross proceeds.
Project shall mean the Project Site, the Improvements, the Equipment, as
-------
the same may at any time exist, and all other property and rights referred to or
intended so to be, in the Demising Clauses hereof, less any portion thereof that
may be released from this Lease Agreement or the Indenture or taken by eminent
domain.
Project Site shall mean the real estate described in Demising Clause I.
------------
Purchase Contract shall mean that certain Contract of Purchase and Sale
-----------------
dated the date of execution by and between the Municipality and the Issuer.
Rent shall mean collectively Additional Rent and Basic Rent.
----
Series A Facilities shall mean that portion of the Project to be acquired
-------------------
or constructed with the proceeds of the Series A Bonds or with funds advanced or
paid pursuant to Article 4 of this Lease Agreement.
Series A Facilities Costs shall mean all costs of acquiring, constructing,
-------------------------
equipping and improving the Series A Facilities, including without limitation:
(1) the cost of acquisition of the Project Site,
(2) the cost of labor, materials and supplies furnished or used in
the acquiring, construction, installation or equipping, of buildings and
improvements,
(3) acquisition, transportation and installation costs for personal
property and fixtures,
(4) fees for architectural, engineering and supervisory services,
(5) expenses incurred in the enforcement of any remedy against any
contractor, subcontractor, materialmen, vendor, supplier or surety,
4
<PAGE>
(6) interest accruing on the Series A Bonds until the Series A
Facilities are placed in service,
(7) expenses incurred by the Issuer and the User in connection with
the financing of the Series A Facilities, including legal, consulting and
accounting fees,
(8) reimbursement to the User for any of the foregoing costs, fees
and expenses set forth in (1) through (7) above, paid with funds thereof.
State shall mean the State of Alabama.
-----
Substitute Letter of Credit shall mean a letter of credit delivered to the
---------------------------
Agent in substitution for a then existing letter of credit as more particularly
provided in Section 5.07 of this Lease Agreement.
Unimproved when used with reference to the Project Site means any part of
----------
the Project Site upon the surface of which no part of a building or other
structure rests.
User shall mean Defense Research Incorporated and its successors and
----
assigns.
SECTION 1.2 Date of Lease Agreement
The date of this Lease Agreement is intended as and for a date for the
convenient identification of this Lease Agreement and is not intended to
indicate that this Lease Agreement was executed and delivered on said date, this
Lease Agreement being executed on the dates of the respective acknowledgments
hereto attached.
SECTION 1.3 Enforceability
If any provision in this Lease Agreement shall be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
SECTION 1.4 Effect of Headings and Table of Contents
The Article and Section headings herein and in the Table of Contents are
for convenience only and shall not affect the construction hereof.
SECTION 1.5 Successors and Assigns
All covenants and agreements in this Lease Agreement by the Issuer or the
User shall bind their respective successors, assigns, heirs, administrators and
executors, whether so expressed or not.
5
<PAGE>
SECTION 1.6 Governing Law
This Lease Agreement shall be construed in accordance with and governed by
the laws of the State of Alabama.
SECTION 1.7 Execution of Counterparts
This Lease Agreement may be executed in several counterparts, each of which
shall be an original and all of which shall constitute but one and the same
instrument.
SECTION 1.8 Notices
All notices, demands, consents, certificates or other communications
hereunder shall be in writing, shall be sufficiently given and shall be deemed
given when delivered personally to the party or to an officer of the party to
whom the same is directed, or mailed by registered or certified mail, postage
prepaid, or sent by telecopy or facsimile if followed by mailing or sending by
overnight courier the original or a hard copy thereof as herein provided (with
date of receipt to be determined by manner of delivery of such original or hard
copy documents) or sent by overnight courier, addressed as follows:
(1) if to the Issuer, at City Hall, Anniston, Alabama 35203;
(2) if to the User, at 4904 Eisenhower Blvd, Tampa Florida 33634
(Attn: General Counsel [James D. Foyil]), and 1205 Front Street, Anniston,
Alabama 36201; and
(3) if to the Agent at SouthTrust Bank of Alabama, National
Association, 1000 Quintard Avenue, Anniston, Alabama 36201 (Attention:
Senior Trust Officer [Joseph W. Cotlin]).
A duplicate copy of each notice, certificate or other communication given
hereunder by either the Issuer or the User to the other shall also be given to
the Agent. The Issuer, the User, the Agent and the original purchaser, may, by
notice given hereunder, designate any further or different addresses to which
subsequent notices, certificates or other communications shall be sent.
Any such notice or other document shall be deemed to be received as of the
date delivered, if delivered personally, or as of three (3) days after the date
deposited in the mail, if mailed, or the next Business Day, if sent by overnight
courier.
SECTION 1.9 Investment of Special Funds; Surplus After Bonds Paid
(a) The Issuer shall cause any money held as a part of the Special Funds
to be invested or reinvested in Qualified Investments as directed by the User.
Any interest bearing deposits, including certificates of deposit, issued by or
deposited with the Agent shall be deemed to be investments and not trust
deposits.
6
<PAGE>
(b) If, after full payment of the Bonds and full reimbursement of the
Contribution Amount as provided in Section 2.02 of the Contribution Agreement
and Section 5.03 of the Purchase Contract, there is any surplus remaining in the
Special Funds, the Issuer will promptly pay such surplus to the User.
SECTION 1.10 Ratification of Abatement Agreement
The Issuer does hereby make, grant, ratify and confirm all abatements of
taxes set forth in the Abatement Agreement.
ARTICLE 2
Representations and Warranties;
Profisions Respecting Relationships
of Issuer and User and Third Parties
SECTION 2.1 Representations by the Issuer
-----------------------------
The Issuer makes the following representations:
(1) The Issuer is duly organized and validly existing under the
Enabling Law; has legal authority and power to enter into and perform this
Lease Agreement; by proper corporate action has duly authorized, executed
and delivered this Lease Agreement; and is not in default under its
certificate of incorporation, as amended, its bylaws, or the laws of the
State.
(2) The Issuer has determined that the issuance of the Series A
Bonds, the acquisition, construction, equipping and improvement of the
Series A Facilities and the Project and the demise of the same pursuant to
this Lease Agreement will be in furtherance of the purposes of the Issuer's
incorporation and the Enabling Law.
(3) The Series A Bonds will be issued and delivered contemporaneously
with the delivery of this Lease Agreement.
SECTION 2.2 Representations by the User
The User makes the following representations:
7
<PAGE>
(a) The User is duly incorporated under the laws of the State of Delaware
and is duly qualified to do business in the State, is not in violation of any
provisions of its articles of incorporation, its bylaws or the laws of the State
or the State of Delaware, has power to enter into this Lease Agreement, and by
proper corporate action has duly authorized the execution and delivery of this
Lease Agreement.
(b) The financing of the Project through the issuance of the Bonds and the
leasing of the Project to the User has induced the User to enlarge, expand and
improve existing operations in the State as provided in the Enabling Law.
(c) The User intends to operate the Project for manufacturing, production,
assembling, processing, storing and distribution of such agricultural,
manufactured or mineral products as the User shall determine and in such a
manner that it will constitute a "project" within the meaning of the Enabling
Law.
(d) This Lease Agreement is necessary to promote and further the financial
and economic interests of such User and the assumption by such User of its
obligations hereunder will result in direct financial benefits to such User.
SECTION 2.3 Issuer and User as Landlord and Tenant
Upon delivery, this Lease Agreement shall govern the relationship of the
parties hereto as landlord and tenant.
SECTION 2.4 Covenant of Quiet Enjoyment; Rights Against Third Parties
(a) So long as the User perform and observe all the covenants and
agreements on the part thereof herein contained, the User shall peaceably and
quietly have, hold and enjoy the Project during the Lease Term subject to all
the terms and provisions hereof.
(b) The User may, at the cost and expense thereof and in the name thereof
or in the name of the Issuer, prosecute or defend any action or proceeding, or
take any other action involving third persons which the User deem reasonably
necessary in order to secure or protect the rights of use and occupancy and the
other rights hereunder.
SECTION 2.5 Issuer's Liabilities Limited
This Lease Agreement is entered into under and pursuant to the provisions
of the Enabling Law. No provision hereof shall be construed to impose a charge
against the general credit of the Issuer or any personal or pecuniary liability
upon the Issuer except to apply the proceeds to be derived from the sale of the
Bonds and the revenues and receipts to be derived from any leasing or sale of
the Project or any part thereof as provided herein and in the Indenture.
8
<PAGE>
SECTION 2.6 Certain Prior Agreements Canceled
This Lease Agreement shall completely and fully supersede all other prior
agreements, both written and oral, between the Issuer and the User relating to
the acquisition and construction of the Series A Facilities specifically
excepting however the Abatement Agreement and any other agreements pursuant
thereto, and any deed or other instrument by which the Project, any part
thereof, or any interest therein has been transferred and conveyed to the
Issuer. Neither the Issuer nor the User shall hereafter have any rights under
such prior agreements but shall look solely to this Lease Agreement for
definition and determination of all of their respective rights, liabilities and
responsibilities relating to the Project.
ARTICLE 3
Demising Clauses
The Issuer, for and in consideration of the rents, covenants and agreements
hereinafter reserved, mentioned and contained on the part of the User to be
paid, kept and performed, does hereby assign, demise and lease to the User, and
the User does hereby accept, lease, take and hire from the Issuer the following
property:
I.
The real property described on Exhibit A hereto and all other real
property, or interests therein, acquired by the Issuer with proceeds of the
Bonds or with funds advanced or paid pursuant to this Lease Agreement (the
"Project Site"), together with all easements, permits, licenses, rights-of-
way, contracts, leases, tenements, hereditaments, appurtenances, rights,
privileges and immunities pertaining or applicable to said real property.
II.
All buildings, structures, fixtures and other improvements now or
hereafter constructed or situated on the Project Site, including without
limitation all buildings, structures, fixtures and other improvements
constructed on the Project Site with proceeds of the Bonds or with funds
advanced or paid pursuant to this Lease Agreement (the "Improvements").
III.
The machinery, equipment, personal property and fixtures described on
Exhibit B attached hereto and all other machinery, equipment, personal
property and fixtures acquired with the proceeds of the Bonds or with funds
advanced or paid pursuant to this Lease Agreement, together with all
personal property and fixtures acquired in substitution therefor or as a.
renewal or replacement thereof, and the proceeds thereof (the "Equipment").
9
<PAGE>
SUBJECT, HOWEVER, to Permitted Encumbrances.
ARTICLE 4
The Series A Facilities
SECTION 4.1 Acquisition of Series A Facilities
(a) Simultaneously with the issuance of the Series A Bonds, the Issuer
will acquire the Project Site.
(b) Simultaneously with the delivery of this Lease Agreement the Issuer
shall cause the proceeds of the Series A Bonds to be deposited in the Series A
Construction Fund. The Issuer shall cause the proceeds to be advanced to the
User by withdrawal from the Series A Construction Fund, in accordance with the
requirements of the Indenture, for the payment of Series A Facilities Costs at
such times and in such amounts as shall be directed by the User. The User is
hereby irrevocably appointed as agent for the Issuer to issue and execute, for
and in the name and behalf of the Issuer and without any approval of any
officer, employee or other agent thereof, a payment request or requisition on
the Series A Construction Fund, and to direct the expenditure of funds on
deposit therein to pay Series A Facilities Costs. The proceeds of the Series A
Bonds shall be used solely for the payment of Series A Facilities Costs as
provided in the Indenture.
(c) The User will acquire and construct the Series A Facilities with all
reasonable dispatch and due diligence and will cause the Series A Facilities (1)
to constitute a "project" under the Enabling Law and (2) to be placed in service
as promptly as practicable. The Issuer will not execute any contract or purchase
orders for the Series A Facilities without the prior written consent of the
User.
(d) Compliance with laws and regulations necessary to realize any sales
and use tax exemption with respect to the acquisition, construction and
equipping of the Series A Facilities shall be the sole responsibility of the
User and the Issuer does not assume any responsibility or give any assurance
with respect to any possible exemption from sales and use taxes.
(e) The User hereby covenants and agrees (1) to contribute the amount of
$400,000 for the payment of Series A Facilities Costs and (2) in the event the
proceeds derived from the sale of the Bonds are insufficient to pay in full all
Series A Facilities Costs, to complete the acquisition and construction of the
Series A Facilities at its own expense and pay any such deficiency and save the
Issuer whole and harmless from any obligation to pay such deficiency, except as
the Issuer and the User may otherwise agree in writing. The User shall not, by
reason of the said contribution of $400,000 or the payment of such deficiency
from its own funds, be entitled to any diminution in Rent.
10
<PAGE>
(f) The Issuer hereby covenants and agrees to enforce the Contribution
Agreement and the Purchase Contract and cause all funds received thereunder to
be applied for the Series A Facilities in accordance with the provisions of the
Indenture.
SECTION 4.2 No Warranty by Issuer
THE USER AGREES THAT THE ISSUER MAKES NO WARRANTY, EITHER EXPRESS OR
IMPLIED, NOR OFFERS ANY ASSURANCES, THAT THE SERIES A FACILITIES WILL BE
SUITABLE FOR THE PURPOSES OR NEEDS OF THE USER OR THAT THE PROCEEDS DERIVED FROM
THE SALE OF THE SERIES A BONDS WILL BE SUFFICIENT TO PAY IN FULL ALL SERIES A
FACILITIES COSTS.
SECTION 4.3 Remedies Against Vendors. Contractors. Subcontractors, and
Sureties
In the event of default of any vendor, contractor, sub-contractor or surety
therefor, under any contract or purchase order for acquisition, construction or
installation of the Series A Facilities, the User may, in its own name or in the
name of the Issuer, prosecute or defend any action or proceeding or take any
other action involving any such vendor, contractor, subcontractor or surety
which the User deems reasonably necessary, and in such event the Issuer will
cooperate fully with the User and will take all action necessary to effect the
substitution of the User for the Issuer in any such action or proceeding. Any
amounts recovered by way of damages, refunds, adjustments or otherwise in
connection with the foregoing shall be paid into the Series A Construction Fund
and applied as provided for funds on deposit therein.
SECTION 4.4 Completion of the Series A Facilities
(a) The completion of the Series A Facilities shall be evidenced to the
Agent by a certificate signed by an Authorized User Representative stating that
(i) construction and installation of the buildings and structures constituting a
part of the Series A Facilities has been completed in accordance with the plans
and specifications approved by the User, (ii) all personal property and fixtures
constituting a part of the Series A Facilities have been acquired and installed
in accordance with the User's instructions, (iii) all labor, services, materials
and supplies in connection with such construction, acquisition and installation
have been paid for, and (iv) all facilities necessary in connection with the
Series A Facilities have been constructed, acquired and installed and all costs
and expenses incurred in connection therewith have been paid. Notwithstanding
the foregoing, such certificate shall state that it is given without prejudice
to any rights against any vendor, contractor, subcontractor or other person not
a party to this Lease Agreement which exist at the date of such certificate or
which may subsequently come into being.
(b) After the delivery of the aforesaid certificate to the Agent, any
moneys then remaining in the Series A Construction Fund shall be applied as
provided in the Indenture.
11
<PAGE>
ARTICLE 5
Lease Term; Payment and Indemnity
Provisions: Substitute Letter of Credit
SECTION 5.1 Initial Lease Term
The term of this Lease Agreement shall begin on the date of the delivery of
this Lease Agreement and, subject to the provisions of this Lease Agreement and
to extension and renewal as provided in Section 11.02 hereof, shall continue
until midnight of March 15, 2000.
SECTION 5.2 Rental and Payment Provisions
(a) Basic Rent. On or before each Bond Payment Date, the User shall pay to
----------
the Agent, in immediately available funds for the account of the Issuer, an
amount equal to the principal of, premium (if any) and interest on the Bonds due
and payable on such Bond Payment Date ("Basic Rent"); provided, however, that on
each regularly scheduled Bond Payment Date (which shall not include any Bond
Payment Date with respect to redemption or acceleration of the Bonds) which
occurs during the period beginning on the date of delivery hereof and ending on
and including March 15, 1999 and on which the amount of $12,800 is due and
payable as principal of and interest on the Series A Bonds, the User shall not
be required to pay more than $11,420 as Basic Rent for each such Bond Payment
Date with respect to the Series A Bonds.
(b) Additional Rent. The User shall pay to the Agent the reasonable fees,
---------------
,charges and expenses of the Agent for necessary services rendered and expenses
incurred under the Indenture ("Additional Rent"); provided, that the User may,
---------------
without creating a default hereunder, contest in good faith the necessity for
any such services and expenses and the reasonableness of any such fees, charges
or expenses.
(c) Late Payment Charge. The User hereby agrees to pay a late charge on
-------------------
any installment of principal of and, to the extent legally enforceable, interest
on the Series A Bonds which installment shall not be paid by the twenty-fifth
day of the month in which such installment is due and payable, in an amount
equal to five percent (5 %) of such installment.
(d) Net Lease. The User acknowledges and agrees that it is the intention
---------
hereof that this Lease Agreement be a net lease and that until the Bonds are
fully paid, except as may be otherwise specifically provided for a specific
period in Section 5.02(a) hereof, Basic Rent shall be in such amounts and shall
be due at such times as shall be required to pay the installments of principal
of and interest on the Bonds as the same mature and become due and payable. This
Lease Agreement shall be construed to effectuate such intent.
12
<PAGE>
(e) Payments Under Letter of Credit. The User hereby authorizes and
-------------------------------
directs the Agent to draw funds available under the Letter of Credit in
accordance with the terms of Section 8.01(c) and Section 11.02(2) of the
Indenture. The User shall receive a credit against Basic Rent payable hereunder
for the corresponding amount drawn by the Agent under the Letter of Credit and
applied to the payment of principal of and interest on the Bonds.
(f) Partial Prepayment Upon Nonrenewal of Lease Term. In the event the
------------------------------------------------
User elects not to extend or renew the term of this Lease Agreement in
accordance with the terms hereof on or before June 15, 2000, the User will pay
to the Agent for deposit in the Bond Fund for the account of the Issuer on or
before such date the amount of $150,000 in immediately available funds and the
obligation of the User hereunder shall survive any termination of this Lease
Agreement prior to such date.
SECTION 5.3 Advances by Issuer or Agent
In the event that the User fails to perform or observe any covenants in
this Lease Agreement the Issuer or the Agent, after first notifying the User of
any such failure, may (but shall not be obligated to) make advances to effect
performance or observance of such covenants on behalf of the User. All amounts
so advanced therefor by the Issuer or the Agent, together with interest thereon
from the date of advancement at the Base Rate plus two percent (2%) per annum or
the maximum rate of interest allowed by law, whichever is less, shall become an
additional obligation payable by the User to the Issuer or to the Agent upon
demand and secured hereby.
SECTION 5.4 Indemnity of Issuer. Agent and Holders
(a) The User agrees to pay, and to indemnify and hold the Issuer
(including without limitation all officers, agents, representatives and members
of the board of directors thereof), the Agent and each of the Holders harmless
against, any and all liabilities, losses, damages, claims or actions (including
all reasonable attorneys' fees and expenses of the Issuer or the Agent), of any
nature whatsoever incurred by the Issuer, the Agent and each of the Holders
without gross negligence thereby arising from or in connection with the
ownership of any interest in the Project or the leasing thereof and granting of
security interests therein, or performance or observance of any covenant or
condition on the part thereof to be observed or performed under any of the
Financing Documents, including without limitation: (1) any injury to, or the
death of, any person or any damage to property at the Project, or in any manner
growing out of or connected with the use, nonuse, condition or occupation of the
Project or any part thereof, (2) any damage, injury, loss or destruction of the
Project, (3) any other act or event occurring upon, or affecting, any part of
the Project, (4) violation by the User of any contract, agreement or restriction
affecting the Project or the use thereof or of any law, ordinance or regulation
affecting the Project or any part thereof or the ownership, occupancy or use
thereof, (5) the presence of any pollutants, contaminants, toxic or hazardous
wastes, and/or other substances regulated by law or which might create a hazard
to health and safety, now or hereafter on, under or included in the Project
Site, and any clean up or other
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remedial action with respect to any thereof, and the violation of any law, rule,
regulation, order, ruling, notice or decree of any Governmental Authority
relating to pollution or the protection of human health or the environment, and
(6) liabilities, losses, damages, claims or actions arising out of the offer and
sale of the Bonds or a subsequent sale of the Bonds or any interest therein,
unless the same resulted from a representation or warranty of the Issuer in this
Lease Agreement or any certificate delivered by the Issuer pursuant thereto
being false or misleading in a material respect and such representation or
warranty was not based upon a similar representation or warranty of the User
furnished to the Issuer in connection therewith.
(b) The User hereby agrees that (1) the Issuer shall not incur any
liability to the User, and (2) the Issuer shall be indemnified against all
liabilities, with respect to any action taken by the Issuer in exercising or
refraining from asserting, maintaining or exercising any right, privilege or
power of the Issuer under the Indenture if the Issuer is acting in good faith
and without gross negligence or in reliance upon a written request by the User.
(c) The User further agrees to indemnify the Agent for, and to hold it
harmless against, any loss, liability or expense incurred without negligence or
bad faith on its part, arising out of or in connection with the acceptance or
observance or performance of the duties, rights, and powers of the Agent under
the Indenture, including the costs and expenses of defending itself against any
claim or liability in connection with the exercise or performance of any of its
powers and duties under the Indenture.
(d) The covenants of indemnity by the User contained in this Section with
respect to any event or occurrence arising on or before termination of this
Lease Agreement shall survive termination of this Lease Agreement and shall
remain in full force and effect until commencement of an action based on such
event or occurrence shall be prohibited by law.
SECTION 5.5 Payment of Taxes and Other Governmental Charges
(a) The User will pay, as the same respectively become due, except as
otherwise provided in the Abatement Agreement, (1) all taxes and governmental
charges of any kind whatsoever that may at any time be lawfully assessed or
levied against or with respect to the Project or any other property installed or
brought by the User on the Project Site, including without limitation any taxes
levied on or with respect to the revenues, income or profits of the Issuer from
the Project and any other taxes levied upon or with respect to the Project
which, if not paid, will become a lien on the Project prior to or on a parity
with the lien of the Indenture or a charge on the revenues and receipts from the
Project prior to or on a parity with the charge thereon and pledge or assignment
thereof created and made in the Indenture and including any ad valorem taxes
assessed upon the leasehold interest in the Project, and (2) all assessments and
charges lawfully made by any governmental body for public improvements that may
be secured by a lien on the Project, provided, that with respect to special
assessments or other governmental charges that may lawfully be paid in
installments over a period of years, the User shall be obligated to pay only
such installments as are required to be paid during the Lease Term.
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(b) The User may, at the expense thereof and in the name and behalf
thereof or in the name and behalf of the Issuer, in good faith contest any such
taxes, assessments and other charges and, in the event of any such contest, may
permit the taxes, assessments or other charges so contested to remain unpaid
during the period of such contest and any appeal therefrom, provided that during
such period enforcement of such contested items shall be effectively stayed. The
Issuer, at the expense of the User, will cooperate fully with the User in any
such contest.
SECTION 5.6 Nature of Obligations of User
(a) The obligations of the User to make all payments required under
Sections 5.02, 5.03, 5.04, 5.05 and the other provisions of this Lease Agreement
and to perform and observe the other agreements and covenants on the part
thereof herein contained shall be absolute and unconditional, irrespective of
any rights of setoff, recoupment or counterclaim the User may otherwise have
against the Issuer. The User will not suspend or discontinue any such payment or
fail to perform and observe any other agreements and covenants contained herein
or terminate this Lease Agreement for any cause whatsoever, including, without
limiting the generality of the foregoing, failure of the Issuer to complete the
Project, any acts or circumstances that may constitute an eviction or
constructive eviction, failure of consideration or commercial frustration of
purpose, the unenforceability or the invalidity of, or of any provision
contained in, this Lease Agreement or any of the other Financing Documents, or
any damage to or destruction of the Project or any part thereof, or the taking
by eminent domain of title to or the right to temporary use of all or any part
of the Project, or any change in the tax or other laws or administrative
rulings, actions or regulations of the United States of America or of the State
or any political or taxing subdivision of either thereof, or any failure of the
Issuer to perform and observe any agreement or covenant, whether express or
implied, or any duty, liability or obligation arising out of or in connection
with this Lease Agreement.
(b) The User shall not be deemed to be a party to the Indenture or the
Bonds and any reference in this Lease Agreement to the Indenture and the Bonds
shall not impose any liability or obligation upon the User other than the
specific obligations and liabilities undertaken in this Lease Agreement.
SECTION 5.7 Substitute Letter of Credit
(a) The User may at any time deliver a written extension of an existing
Letter of Credit, or a Substitute Letter of Credit in substitution of an
existing Letter of Credit, provided that:
(1) such Substitute Letter of Credit complies with the applicable
requirements of this Section, and
(2) simultaneously with the delivery of such Substitute Letter of
Credit the User delivers to the Agent an opinion of counsel for the issuer
of the Substitute Letter of Credit to the effect that such Substitute
Letter of Credit is enforceable against such issuer, subject to such
qualifications as the Agent shall approve, and
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(3) if such written extension or Substitute Letter of Credit are not
delivered to the Agent on or before the first day of the calendar month in
which the Letter of Credit Termination Date occurs, the Bonds shall be
subject to mandatory redemption as provided therein.
(b) Each Substitute Letter of Credit delivered pursuant hereto must
(1) be in substantially the same form and tenor as the then existing
Letter of Credit and provide for the payment of interest on the Bonds at
the then effective interest rate thereof for the same period as the then
existing Letter of Credit, and
(2) have a Letter of Credit Termination Date that is (i) the same
calendar day as the expiration date of the then existing Letter of Credit
and (ii) not earlier than one year after its effective date, and
(3) be issued by an issuer having a credit rating comparable to or
better than that of the issuer of the then existing Letter of Credit.
ARTICLE 6
Maintenance. Alterations Replacements: Insurance
SECTION 6.1 Maintenance, Repairs, Alterations, Use in Connection with
other Facilities; Easements Granted by Issuer
(a) The User will, at the expense thereof, (1) keep the Project in as
reasonably safe condition as operations permit, (2) maintain the Project in good
repair, working order and condition, ordinary wear and tear excepted, and (3)
pay all gas, electric, water, sewer and other charges for the operation,
maintenance, use and upkeep of the Project.
(b) The User will not permit any mechanics' or other liens to stand
against the Project or the Project Site for labor or material furnished it. The
User may, however, in good faith contest any such mechanics' or other liens and
in such event may permit any such liens to remain unsatisfied and undischarged
during the period of such contest and any appeal therefrom unless by such action
the lien of the Indenture on the Project or any part thereof, or the Project or
any part thereof shall be subject to loss or forfeiture, in either of which
events such mechanics' or other liens shall be promptly satisfied.
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(c) The User may, at the expense thereof or may permit any sublessee to,
at such sublessee's expense, make structural changes, additions, improvements,
alterations or replacements to the Improvements that it or such sublessee may
deem desirable, provided that such additions, improvements, alterations or
replacements will not adversely affect the utility of the Project or
substantially reduce its value and will not change the character of the Project
as a "project" under the Enabling Law. All such changes, additions,
improvements, alterations and replacements whether made by the User or the
Issuer shall become a part of the Project and shall be covered by this Lease
Agreement and the Indenture.
(d) The User may connect or "tie-in" walls of the Improvements and utility
and other facilities located on the Project Site to other structures and
facilities owned or leased by the User on real property adjacent to the Project
Site. The User may use as a party wall any wall of the Improvements which is on
or contiguous to the boundary line of real property owned or leased by the User,
and in the event of such use, each party hereto hereby grants to the other a
ten-foot easement adjacent to any such party wall for the purpose of inspection,
maintenance, repair and replacement thereof and the tying in of new
construction. If the User utilize any wall of the Improvements as a party wall
for the purpose of tying in new construction that will be utilized under common
control with the with the Project, the User may also remove any non-loadbearing
wall panel in the party wall; provided, however, if the adjacent property ceases
to be operated under common control with the Project, the User will at the
expense thereof, install wall panels similar in quality to those that have been
removed. Prior to the exercise of any one or more of the rights granted by this
subsection (d), the User shall furnish the Issuer and Agent a certificate of an
Independent Engineer or an Independent Architect that the operation of the
Project will not be adversely affected by the exercise of such rights.
(e) The Issuer will, upon request of the User, grant such utility and
other similar easements over, across or under the Project Site as shall be
necessary or convenient for the furnishing of utility and other similar services
to the Project or to real property adjacent to or near the Project Site and
owned or leased by the User; provided that such easements shall not adversely
affect the operation of the facilities forming a part of the Project.
SECTION 6.2 Substitution and Replacement for Equipment
If the User in the sole discretion thereof determines that any item of
Equipment has become inadequate, obsolete, wornout, unsuitable, undesirable or
unnecessary in the operation of the Project, the User may remove such Equipment
from the Project Site and (on behalf of the Issuer) sell, trade in, exchange or
otherwise dispose of it without any responsibility or accountability to the
Issuer or the Agent therefor, provided that the User shall either:
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(a) substitute and install in or on the Project Site other personal
property or fixtures which shall (1) have equal or greater utility (but not
necessarily the same value or function) in the operation of the Project, (2) be
free of all liens and encumbrances except for purchase money liens or
encumbrances reasonably acceptable to the Agent, (3) be the sole property of the
Issuer, subject to the demise hereof and to the lien of the Indenture, (4) be
held by the User on the same terms and conditions as the items originally
comprising the Equipment, and (5) not impair the Project or change the nature of
the Project as a "project" under the Enabling Law; or
(b) forthwith upon such sale deposit in the Bond Fund the price or amount
obtained upon the sale of such Equipment, which amount shall be applied to the
redemption of the principal of the applicable series of Bonds on the earliest
practicable installment payment date for which the required notice can be given.
SECTION 6.3 Installation By User of Machinery and Equipment
The User may, at the expense thereof, or may permit any sublessee of the
Project to, at its own expense, install in the Improvements or on the Project
Site any personal property or fixtures which will facilitate the operation of
the Project. Any such personal property or fixtures which is so installed and
does not constitute a substitution or replacement for the Equipment pursuant to
Section 6.02 hereof shall be and remain the property of the User or such
sublessee and may be removed by the same at any time and from time to time while
there is no default under the terms of this Lease Agreement; provided, however,
that any damage to the Project occasioned by such removal shall be repaired by
the party removing such property at its own expense.
SECTION 6.4 Insurance Required
(a) The User will take out and continuously maintain in effect the
following insurance with respect to the Project, paying as the same become due
all premiums with respect thereto:
(1) Insurance to the extent of the full replacement cost of the
Project (but not less than the principal amount of Bonds Outstanding at any
time plus the maximum Contribution Amount) against loss or damage by fire,
tornado, windstorm, and other casualties and hazards with uniform standard
extended coverage endorsement limited only as may be provided in the
standard form of extended coverage endorsement at the time in use in the
State.
(2) Insurance against liability for bodily injury to or death of
persons and for damage to or loss of property occurring on or about the
Project or in any way related to the condition or operation of the Project,
in the minimum amounts of $3,000,000 combined single limit for any one
occurrence and $3,000,000 in the aggregate for any one year.
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(3) Title insurance insuring the first mortgage in the Project Site
created by the Indenture subject to no liens and encumbrances other than
such encumbrances as shall be approved by the Agent. Any proceeds of such
title insurance shall be deposited with the Agent and shall be applied
(together with the moneys in the Bond Fund available for such purpose) to
the redemption of the Bonds on the next ensuing installment payment dates
for which the required notice may be given.
(4) Flood insurance under the national flood insurance program
established by the Flood Disaster Protection Act of 1973, as at any time
amended, at all times while the Project is eligible under such program, in
a amount at least equal to the unpaid principal amount of the Bonds or to
the maximum limit of coverage made available with respect to the Project
under said Act, whichever is less.
(5) During the period of acquisition and construction of any part of
the Project, builders' risk insurance in the amount of the full replacement
value of the Project against all losses which are normally covered by such
builders' risk insurance. The User may satisfy said obligations with
respect to the builder's risk insurance by causing such insurance to be
carried by a construction contractor for any part of the Project.
(6) Use and occupancy insurance (or business interruption or risk
insurance) covering suspension or interruption of the operations at the
Project in whole or in part, with such exemptions as are customarily
imposed by insurers, covering a period of suspension or interruption of at
least six months with a minimum limit in an amount equal to 100 % of the
maximum amount to be paid as Rent and other payments under Section 5.02
hereof during any such six month period.
(b) All policies evidencing the insurance required by the terms of this
Section shall be taken out and maintained in generally recognized responsible
insurance companies, qualified under the laws of the State to assume the
respective risks undertaken, and shall name as insureds the Issuer, the Agent
and the User (as their respective interests shall appear) and shall contain
standard mortgage clauses providing for all losses thereunder in excess of
$50,000 to be paid jointly to the Agent and the User; provided that all losses
(including those in excess of $50,000) may be adjusted by the User, subject, in
the case of any single loss in excess of $50,000, to the approval of the Agent.
The User may insure under a blanket policy or policies.
(c) Each insurance policy required to be carried by this Section shall
contain, to the extent obtainable, an agreement by the insurer that (1) the User
may not, without the consent of the Agent, cancel such insurance or sell, assign
or dispose of any interest in such insurance, such policy, or any proceeds
thereof, (2) such insurer will notify the Issuer and the Agent if any premium
shall not be paid when due or any such policy shall not be renewed prior to the
expiration thereof, and (3) such insurer shall not materially amend or cancel
any such policy except on 30 days' prior written notice to the Issuer and the
Agent.
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(d) All policies evidencing the insurance required to be carried by this
Section shall be deposited with the Agent; provided, however, that in lieu
thereof the User may deposit with the Agent a certificate or certificates of the
respective insurers attesting the fact that such insurance is in force and
effect. Prior to the expiration of any such policy, the User will furnish to the
Agent evidence reasonably satisfactory to the Agent that such policy has been
renewed or replaced by another policy or that there is no necessity therefor
under this Lease Agreement.
ARTICLE 7
Provisions Respecting Damage,
Destruction and Condemnation
SECTION 7.1 Damage and Destruction
(a) If the Project or Project Site is damaged to such extent that the
claim for loss is not greater than $50,000, the User will continue to pay Rent
and all other payments required to be paid hereunder and the User will promptly
repair, rebuild or restore the property damaged and will apply for such purpose
so much as may be necessary of Net Proceeds of insurance resulting from claims
for such losses, as well as any additional moneys of the User necessary
therefor. If the cost of such repairs, rebuilding and restoration is less than
the amount of Net Proceeds of the insurance referable thereto, the User may
retain the amount by which such insurance proceeds exceed said total cost.
(b) If the Project or the Project Site is destroyed or is damaged to such
extent that the claim for loss is in excess of $50,000, the User will continue
to pay Rent and all other payments required to be paid hereunder and will
promptly give written notice of such damage and destruction to the Agent and the
Issuer. All Net Proceeds of insurance resulting from claims for such losses
shall be paid to the Agent, whereupon (1) the User will proceed promptly to
repair, rebuild or restore the property damaged or destroyed to substantially
the same condition in which it existed prior to the event causing such damage or
destruction, with such changes, alterations and modifications (including the
substitution and addition of other property) as may be desired by the User and
as will not impair the Project or its character as a "project" under the
Enabling law, and (2) the Issuer will cause the Agent to pay the costs of such
repair, rebuilding or restoration, either on completion thereof, or as the work
progresses, upon appropriate verification of costs. The balance, if any, of Net
Proceeds shall be applied to the redemption of Bonds in accordance with the
terms thereof in the same manner and order specified in Section 11.07 of the
Indenture for moneys collected or held by the Agent, and then to the payment of
the Contribution Amount, or, if the Bonds and the Contribution Amount are fully
paid, shall be paid to the User.
(c) In the event the User elects to repair, rebuild, or restore the
Project and the Net Proceeds of insurance are not sufficient to pay in full the
costs of repairing, rebuilding and restoring the Project as provided in this
Section, the User will nonetheless complete the work thereof and will pay that
portion of the costs thereof in excess of the amount of said Net Proceeds. The
User shall not by reason of the payment of such excess costs be entitled to any
reimbursement from the Issuer or any abatement or diminution of the Rent payable
hereunder.
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(d) Anything in this Section to the contrary notwithstanding, if, upon
such damage or destruction of the Project (regardless of whether the loss
resulting therefrom is greater than $50,000 or not) the User elects not to
repair, rebuild or restore the Project and duly exercises an option to purchase
the Project in accordance with Section 11.03 hereof, then neither the User nor
the Issuer shall be required to repair, rebuild or restore the property damaged
or destroyed, and any Net Proceeds referable to such damage or destruction shall
be paid to the Agent and applied to payment of the purchase price for the
Project as provided in Section 11.03 hereof and the excess thereafter remaining
(if any) shall be paid to the User.
SECTION 7.2 Condemnation
(a) If title to, or the temporary use of, the Project or any part thereof
shall be taken under the exercise of the power of eminent domain, the User shall
be obligated to continue to pay Rent and all other payments required to be paid
under this Lease Agreement, and the entire Net Proceeds referable to such
taking, including the amounts awarded to the Issuer and the Agent and the amount
awarded to the User for the taking of all or any part of the leasehold estate of
the User in the Project, shall be paid to the Agent and applied in one or more
of the following ways as shall be directed in writing by the User:
(1) To the restoration of the remaining improvements located on the
Project Site to substantially the same condition in which they existed
prior to the exercise of the power of eminent domain (the same to be
subject to this Lease Agreement and the Indenture and be covered thereby);
or
(2) To the acquisition, by construction or otherwise, of other
improvements suitable for the operations of the Project (the same to be
subject to this Lease Agreement and the Indenture and be covered thereby),
provided such acquisition shall become a part of the Project and shall not
result in the creation or establishment of any liens or encumbrances on the
Project prior to the lien of the Indenture.
(b) In the event the User elects to replace or restore the Project as
provided in Section 7.02(a) and Net Proceeds are not sufficient to fully provide
for the foregoing, the User will nonetheless complete the work thereof and will
pay that portion of the costs thereof in excess of the amount of the Net
Proceeds. The User shall not by reason of the payment of such costs be entitled
to any reimbursement from the Issuer or any abatement or diminution of the Rent
payable hereunder.
(c) Any balance of such Net Proceeds shall be applied to the redemption of
Bonds in accordance with the terms thereof in the same manner and order
specified in Section 11.07 of the Indenture for moneys collected or held by the
Agent, and then to the payment of the Contribution Amount, or, if the Bonds and
the Contribution Amount are fully paid, shall be paid to the User.
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(d) The Issuer shall cooperate fully with the User in the handling and
conduct of any prospective or pending condemnation proceeding with respect to
the Project or any part thereof and will, to the extent it may lawfully do so,
permit the User to litigate in any such proceeding in the name and behalf of the
Issuer. In no event will the Issuer settle, or consent to the settlement of, any
prospective or pending condemnation proceeding without the prior written consent
of the User.
(e) Anything in this Section to the contrary notwithstanding, if, upon
such taking of the Project, the User elects not to restore or replace the
Project as provided herein and duly exercises an option to purchase the Project
in accordance with Section 11.03 hereof, then any Net Proceeds referable to such
taking shall be paid to the Agent and applied to payment of the purchase price
for the Project as provided in Section 11.03 hereof, and the excess thereafter
remaining (if any) shall be paid to the User.
(f) The User shall be entitled to the Net Proceeds of any award or portion
thereof made for damage to or taking of any property of the User not included in
the Project.
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ARTICLE 8
Provisions Relating to Conveyance
of the Project, the Agent and the Bonds
SECTION 8.1 Assignment and Subleasing of Project by User
The User may assign this Lease Agreement and the leasehold interest created
hereby and may sublet the Project or any part thereof, subject, however, to the
following conditions:
(a) In the event of any such assignment or subleasing the User shall
continue to remain liable for the payment of all Rent herein provided to be paid
and for the performance and observance of all agreements and covenants on the
part of the User herein provided to be performed and observed unless the User
shall be released from such liability by written instrument executed by the
Agent, the Holders and the Issuer.
(b) The User will not assign the leasehold interest created hereby nor
sublease the Project or any part thereof to any person whatsoever unless the
operations of such assignee or sublessee are consistent with, and in furtherance
of, the purpose of the Enabling Law and the Abatement Agreement.
(c) The User shall furnish to the Issuer and the Agent a true and complete
copy of each such assignment or sublease promptly after the delivery thereof and
shall assign the rights of the User thereunder to the Issuer and the Agent as
additional security for the obligations of the User hereunder.
(d) The User shall not, without the prior written consent of the Holders
of the Bonds Outstanding, mortgage or assign the leasehold interest created
hereby as security for money paid to or for the benefit of the User.
SECTION 8.2 Mortgage of the Project and Assignment of Lease Agreement
and Rents by the Issuer; Restrictions on Amendments of Lease Agreement and
Indenture
(a) The Issuer has, simultaneously with the delivery of this Lease
Agreement, mortgaged the Project to the Agent and assigned its interest in and
pledged any money receivable under this Lease Agreement (other than certain
rights to indemnification and reimbursement) to the Agent as security for
payment of the Bonds and the User hereby consents to such mortgage, assignment
and pledge. The Issuer has in the Indenture obligated itself to follow the
instructions of the Agent in the election or pursuit of any remedies herein
vested in it. The Agent shall have all rights and remedies herein accorded to
the Issuer and any reference herein to the Issuer shall be deemed, with the
necessary changes in detail, to include the Agent, and the Agent and the Holders
are deemed to be third party beneficiaries of the covenants, agreements and
representations of the User herein contained.
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(b) The Issuer and the User shall have no power to modify, alter, amend or
terminate this Lease Agreement without the prior written consent of the Agent
and the Holders. The Issuer will not amend the Indenture or any indenture
supplemental thereto without the prior written consent of the User.
SECTION 8.3 Restrictions on Mortgage or Sale of Project by Issuer
Except as provided in the Indenture, the Issuer will not (a) mortgage,
sell, assign, transfer, convey or grant a security interest in the Project or
any part thereof, or (b) merge or consolidate with, or transfer its assets to,
any person.
SECTION 8.4 Redemption of Bonds
(a) Upon the occurrence of any event which gives rise to any mandatory
redemption of Bonds, the Issuer will redeem any or all of the same in accordance
with the respective provisions thereof and the Indenture.
(b) If the Bonds are subject to optional redemption the Issuer will, but
only upon the written request of the User, redeem the same in accordance with
the respective provisions thereof and the Indenture.
(c) On the redemption date with respect to the Bonds the User shall pay to
the Agent for the account of the Issuer the applicable redemption price with
respect to such Bonds.
ARTICLE 9
Covenants of the User
The User hereby covenants and agrees:
(a) The User will not do or permit anything to be done at the Project that
will affect, impair or contravene any policies of insurance that may be carried
on the Project or any part thereof.
(b) The User will, subject to the provisions of any agreement or contract
of the User with any person and any applicable rule or regulation thereof
pertaining thereto, permit the Issuer, the Agent, the Holders and their
respective duly authorized agents at all reasonable times to enter upon, examine
and inspect the Project; and in the event of default as hereinafter provided,
the User will permit a public accountant or firm of public accountants
designated by the Agent or the Holders to have access to, inspect, examine and
make copies of the books and records, accounts and data of the User respecting
the Project and the Bonds.
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(c) The User will maintain proper books of record and account, in which
full and correct entries will be made, in accordance with generally accepted
accounting principles, of all business and affairs with respect to the Project.
The User shall furnish to the Agent with reasonable promptness unaudited
financial operating statements with respect to the User on an annual basis and
such other financial statements and information with respect to the User as
shall be produced in the ordinary course of business of the User and the
Affiliates thereof.
(d) The User will comply with all valid laws, ordinances, regulations and
requirements of all Governmental Authorities which are applicable to the User
and the Project.
(e) The User will duly pay and discharge all taxes, assessments and other
governmental charges and liens lawfully imposed on the User and upon the
properties of the User, provided, however, the User will not be required to pay
any taxes, assessments or other governmental charges so long as in good faith it
shall contest the validity thereof by appropriate legal proceedings, the User
has given notice of such contest to the Agent, the User has established adequate
reserves therefor, and no part of the Project shall, in the opinion of the
Agent, be subject to loss or forfeiture, and provided further the User shall not
be required to pay any (i) liens, subordinate to the Indenture, arising by
operation of law (such as mechanics', workmen's, materialmen's, carriers and
other liens) securing obligations which are not yet overdue or which are being
contested in good faith and by appropriate proceedings and for which adequate
reserves have been established by the User and (ii) any judgments, subordinate
to the Indenture, not in excess of $100,000, the execution of which has been
stayed, and which are being contested in good faith by appropriate appellate
proceedings, and for which adequate reserves have been established by the User.
(f) Except as permitted by this Lease Agreement the User will maintain and
preserve its existence as a corporation under the laws of the State of Delaware
and will not voluntarily dissolve without first discharging its obligations
under this Lease Agreement (except as permitted herein).
(g) (1) Except as provided in subparagraph (g)(4) below, the User will not
transfer or dispose of all or substantially all of its assets (either in a
single transaction or in a series of related transactions), and will not merge
or consolidate with any other corporation nor permit one or more corporations to
consolidate with or merge into it unless the following conditions and provisions
are complied with: (i) that such surviving, successor or transferee corporation
is a corporation organized and existing under the laws of one of the states of
the United States of America and is duly qualified to do business in the State
of Alabama, (ii) that the assignee corporation or the corporation resulting from
or surviving such merger or consolidation shall expressly assume and agree in
writing delivered to the Issuer and the Agent and the Holders to pay and perform
all of the User's obligations under the Financing Documents and (iii) in
connection with any such consolidation or merger, there shall be filed with the
Issuer and the Agent and the Holders a letter or certificate by a firm of
Independent certified public accountants acceptable to the Agent and the Holders
certifying that upon the consummation of such consolidation or merger the
corporation resulting from or surviving such consolidation or merger will have
an excess of assets over liabilities at least as great as the User would have
had if such consolidation or merger had not occurred; or (iv) in connection with
any transfer or other disposition of assets there shall be filed with the Issuer
and the Agent and the
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Holders a letter or certificate by a firm of Independent certified public
accountants acceptable to the Agent and the Holders certifying that upon the
consummation of such transfer the corporation to which such transfer is made
will have an excess of assets over liabilities at least as great as the User
would have had if such transfer had not been made.
(2) If consolidation, merger or sale or other transfer is made as
provided in subparagraph (g)(1), the provisions of subparagraph (g)(1) shall
continue in full force and effect and no further consolidation, merger or sale
or other transfer shall be made except in compliance with the provisions of
subparagraph (g)(1).
(3) The User will not transfer or convey any substantial portion of
its property, assets and licenses except upon receipt of adequate consideration
therefor.
(4) Anything in this Lease Agreement to the contrary notwithstanding,
the provisions of subparagraphs (g)(1), (2) and (3) shall not apply to any
transfer, merger, or consolidation by or among the User and Daimler-Benz North
America Corporation or the User and any Affiliate or Affiliates of Daimler-Benz
North America Corporation.
(h) The User will do, execute, acknowledge and deliver such further acts,
conveyances, mortgages, financing statements and assurances as the Issuer or the
Agent shall require for accomplishing the purposes of the Financing Documents.
The User will cause this Lease Agreement, any amendments to this Lease
Agreement, and other instruments of further assurance, including financing
statements and continuation statements, to be promptly recorded, registered and
filed, and at all times to be kept recorded, registered and filed in such places
as may be required by law fully to preserve and protect the rights of the Issuer
and the Agent to all property comprising the Project.
ARTICLE 10
Events of Default and Remedies
SECTION 10.1 Events of Default Defined
The following shall be events of default under this Lease Agreement and the
term "Event of Default" shall mean, whenever used in this Lease Agreement, any
one or more of the following events:
(1) Failure to pay any installment of Rent, or any other amount due
and payable under Section 5.02 hereof, that has become due and payable by
the terms of this Lease Agreement (except with respect to any payment of
Rent due in connection with optional redemption of any Bond), and such
failure continues for a period of ten Business Days after written notice
specifying such failure and requesting that such payment be made has been
received by the User.
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(2) Failure by the User to observe and perform any covenant,
condition or agreement on the part thereof to be observed or performed
pursuant to this Lease Agreement other than as referred to in subsection
(a) of this Section, for a period of 30 days after written notice,
specifying such failure and requesting that it be remedied, given to the
User by the Issuer or the Agent or any Holder, provided that if such
default is of a kind which cannot reasonably be cured within such 30-day
period, the User shall have a reasonable period of time within which to
cure such default, provided that the User begin to cure the default
promptly after receipt of such written notice and proceeds in good faith,
and with due diligence, to cure such default.
(3) The filing by the User of a voluntary petition in bankruptcy, or
failure by the User promptly to lift any execution, garnishment or
attachment of such consequence as will impair operations at the Project,
the seeking of or consenting to or acquiescing by the User in the
appointment of a receiver of all or substantially all property thereof or
of the Project, or the adjudication of the User as a bankrupt, or any
assignment by the User for the benefit of creditors thereof, or the entry
by the User into an agreement of composition with creditors, or if a
petition or answer is filed by the User proposing the adjudication of such
User as a bankrupt or debt readjustment under any present or future federal
bankruptcy code or any similar federal or state law in any court, or if any
such petition or answer is filed by any other person and such petition or
answer shall not be stayed or dismissed within 90 days.
(4) Any warranty, representation or other statement by or on behalf
of the User and contained in any of the Financing Documents or in any other
document or certificate furnished by the User in connection with the
issuance of the Bonds shall be false, untrue or misleading in any material
respect at the time made and the same shall not be made good or remedied
within thirty days after written notice thereof to the User by the Agent or
the Issuer or any Holder.
(5) An event of default by the User or the Guarantor shall occur
under any of the Financing Documents.
SECTION 10.2 Remedies on Default
Whenever any such Event of Default shall have happened and be continuing,
the Issuer or the Agent may take any or all of the following remedial steps:
(1) Declare all installments of Basic Rent, and any other payments to
be paid under Section 5.02 hereof, payable under this Lease Agreement for
the remainder of the Lease Term to be immediately due and payable,
whereupon the same shall become immediately due and payable;
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(2) Reenter the Project Site and take possession of the Project,
without terminating this Lease Agreement, and, upon ten days' prior written
notice to the User, relet the Project or any part thereof for the account
of the User, for such term (including a term extending beyond the Lease
Term) and at such rentals and upon such other terms and conditions,
including the right to make alterations to the Project or any part thereof,
as the Issuer may, with the approval of the Agent, deem advisable, and such
reletting of the Project shall not be construed as an election to terminate
this Lease Agreement nor relieve the User of obligations to pay Rent or to
perform any other obligations under this Lease Agreement, all of which
shall survive such reentry and reletting, and the User shall continue to
pay Rent until the end of the Lease Term, less the net proceeds, if any, of
any reletting of the Project after deducting all of the Issuer's and
Agent's expenses in connection with such reletting, including, without
limitation, all repossession costs, brokers' commissions, attorneys' fees,
alteration costs and expenses of preparation for relating.
(3) Terminate this Lease Agreement, exclude the User from possession
of the Project and, if the Issuer or Agent elect so to do, lease the same
for the account of the Issuer, holding the User liable for all Rent due up
to the date such lease is made for the account of the Issuer.
(4) Take whatever legal proceedings may appear necessary or desirable
to protect the interests of the Agent and the Holders under this Lease
Agreement.
SECTION 10.3 Agreement to Pay Attorneys' Fees and Expenses
In the event the Issuer or the Agent (in its own name or in the name and on
behalf of the Issuer) should employ attorneys or incur other expenses for the
collection of Rent or the enforcement of performance or observance of any
obligation or agreement on the part of the User herein contained, the User will
on demand therefor pay to the Issuer or the Agent (as the case may be) the
reasonable fee of such attorneys and such other expenses.
SECTION 10.4 Waivers of Past Defaults
Either party hereto may waive any default by the other party under this
Lease Agreement and its consequence provided that any waiver by the Issuer must
be in writing and joined in by the Agent and the Holders. Upon such waiver,
such default shall cease to exist and an Event of Default arising therefrom
shall be deemed to have been cured for every purpose of this Lease Agreement but
no such waiver shall extend to any subsequent or other default or impair any
right consequent thereon.
SECTION 10.5 Availability of Remedies
(a) No remedy herein conferred upon or reserved to the Issuer or the Agent
is intended to be exclusive of any other available remedy or remedies, but each
and every such remedy shall be cumulative and shall be in addition to every
other remedy given under this Lease Agreement or now or hereafter existing at
law or in equity or by statute.
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(b) No delay or omission to exercise any right or power accruing upon any
default shall impair any such right or power or shall be construed to be a
waiver thereof but any such right or power may be exercised from time to time
and as often as may be deemed expedient.
(c) All rights, remedies and powers provided by this Article may be
exercised only to the extent the exercise thereof does not violate any
applicable provision of law in the premises, and all the provisions of this
Article are intended to be subject to all applicable mandatory provisions of law
which may be controlling in the premises and to be limited to the extent
necessary so that they will not render this Lease Agreement invalid or
unenforceable.
ARTICLE 11
Options
SECTION 11.1 Option to Terminate
The User shall have, if not in default hereunder, the option to cancel or
terminate this Lease Agreement at any time prior to the expiration of any then
effective term hereof after full payment to the Issuer of an amount equal to the
purchase price set forth in Section 11.03 hereof by giving the Issuer notice in
writing of such termination and such termination shall forthwith become
effective.
SECTION 11.2 Options to Extend and Renew
(a) The User shall have the right and option, hereby granted by the Issuer
and subject to the provisions of subsection (c) below, to extend and renew the
term of this Lease Agreement, as hereinafter provided, for the following
extension and renewal terms, upon compliance herewith:
(1) a term beginning on March 16, 2000 and continuing until and
including March 15, 2005, and
(2) a term beginning on March 16, 2005 and continuing until and
including March 15, 2010.
(b) Upon delivery to the Issuer and the Agent by the User on or before
June 15, 2000 or June 15, 2005, as applicable, of written notice of the election
of the User to extend and renew the term of this Lease Agreement for the then
applicable extension and renewal period as specified in said notice, the Lease
Term shall thereupon be extended and renewed for such extension and renewal term
as specified in said notice, and this Lease Agreement shall continue in full
force and effect on all terms and provisions hereof for such extension and
renewal term.
(c) Anything in this Lease Agreement or the other Financing Documents to
the contrary notwithstanding, the User shall have no right of extension or
renewal of the term hereof unless all Rent due and payable to the date of said
notice of extension and renewal shall have been paid in full and no Event of
Default shall then exist or would not be cured by exercise of said option.
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SECTION 11.3 Option to Purchase Project
(a) Anything in this Lease Agreement to the contrary notwithstanding, the
User shall have the option to purchase the Project at any time if no Event of
Default shall then exist or would not be cured by exercise of such option.
(b) To exercise such option, the User shall give written notice to the
Issuer and to the Agent, shall specify therein the date of closing such purchase
(which date shall not be more than 30 days from the date of such notice), and on
such date shall pay to the Agent for the benefit of the persons entitled thereto
the purchase price for the Project equal to (1) One Million Four Hundred
Thousand Dollars ($1,400,000), plus (2) the amount (if any) by which the amount
of the principal proceeds of the Series A Bonds applied to Series A Facilities
Costs exceed $1,400,000, plus (3) the expenses of the Issuer in connection with
such purchase; provided, the User shall receive a credit against such purchase
price for the amount of Net Proceeds of any insurance or condemnation award paid
to the Agent pursuant to Section 7.01(d) or Section 7.02(e).
SECTION 11.4 Option to Purchase Portions of Project Site
(a) The User, if not in default hereunder, shall have the option to
purchase any Unimproved portion of the Project Site at any time and from time to
time with the prior written consent of the Agent and the Holders and for a
purchase price equal to the pro-rata cost of such portion of the Project Site to
be so purchased, provided that the User furnish the Issuer and the Agent and the
Holders with the following:
(1) A notice in writing containing (i) an adequate legal description
of that portion of the Project Site with respect to which such option is to
be exercised, which portion may include rights granted in party walls, the
right to "tie-into" existing utilities, the right to connect and join any
building, structure or improvement with existing structures, facilities and
improvements on the Project Site, and the right of ingress or egress to and
from the public highway which shall not interfere with the use and
occupancy of existing structures, improvements and buildings, and (ii) a
statement that the User intends to exercise such option to purchase such
portion of the Project Site on a date stated.
(2) A certificate of an Independent Engineer or of an Independent
Architect made and dated not more than 90 days prior to the date of the
purchase and stating that, in the opinion of the person signing such
certificate, (i) the portion of the Project Site with respect to which the
option is exercised is not needed for the operation of the then existing
Project and (ii) the severance of such portion of the Project Site and the
location or construction thereon of buildings, structures and improvements,
if any, will not impair the usefulness of the then existing Project or the
means of ingress and egress to and from the remaining portions of the
Project or impair or deny highway access, rail access or utility services
to such remaining portions of the Project.
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(3) An amount of money equal to the purchase price computed as
provided in this Section, which amount shall be paid to the Agent and
applied to the redemption or purchase of the principal of the Bonds in
accordance with the terms thereof.
(b) Upon receipt of the notice and certificate required in this Section to
be furnished by the User and the payment by the User to the Agent of the
purchase price, the Issuer will promptly deliver to the User the documents
referred to in Section 11.05 hereof and will, if requested by the User, secure
from the Agent a release from the lien of the Indenture of the portion of the
Project Site with respect to which the User shall have exercised the option
granted in this Section.
(c) If such option relates to portions of the Project Site on which
transportation or utility facilities are located, the Issuer shall retain an
easement to use such transportation or utility facilities to the extent
necessary for the efficient operation of the Project.
(d) No purchase effected under the provisions of this Section shall affect
the obligation of the User for the payment of Rent and other payments in the
amounts and at the times provided in this Lease Agreement or the performance of
any other agreement, covenant or provision hereof, and there shall be no
abatement or adjustment in Rent by reason of the release of any such portion of
the Project Site and the obligations of the User shall continue in all respects
as provided in this Lease Agreement, excluding, however, any portion of the
Project Site so purchased.
SECTION 11.5 Conveyance on Exercise of Option to Purchase
At the closing of the purchase pursuant to the exercise of any option to
purchase granted in this Lease Agreement, the Issuer will, upon receipt of the
purchase price, deliver to the User documents conveying to the User the property
with respect to which such option was exercised, as such property then exists,
subject to the following: (1) those liens and encumbrances, if any, to which
title to said property was subject when conveyed to the Issuer; (2) these liens
and encumbrances created by the User or to the creation or suffering of which
the User consented; and (3) those liens and encumbrances resulting from the
failure of the User to perform or observe any of the agreements on the part of
the User contained in this Lease Agreement. Upon such conveyance this Lease
Agreement shall be terminated and the Issuer and the User shall record an
appropriate instrument evidencing the same.
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IN WITNESS WHEREOF, the Issuer and the User have each caused this Lease
Agreement to be executed in its name under its corporate seal and the same to be
attested, all by officers thereof duly authorized thereunto, and the parties
hereto have caused this Lease Agreement to be dated as of March 1, 1995.
THE INDUSTRIAL DEVELOPMENT BOARD
OF THE CITY OF ANNISTON
By: /s/
--------------------------
John P. Wheeler
Its Chairman of its Board of Directors
----------------------------------
S E A L
- -------
Attest: /s/
---------------------
Its Secretary
DEFENSE RESEARCH INCORPORATED
By: /s/
--------------------------
Duane F. Hawkins
Its President
--------------------------
S E A L
- -------
Attest: /s/
---------------------
Its: General Counsel and Secretary
---------------------------------------
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STATE OF ALABAMA )
)
CALHOUN COUNTY )
I, the undersigned, a Notary Public in and for said County in said State,
hereby certify that John P. Wheeler , whose name as Chairman of the Board of
Directors of The Industrial Development Board of the City of Anniston, a public
corporation, is signed to the foregoing Lease Agreement and who is known to me,
acknowledged before me on this day that, being informed of the contents of said
Lease Agreement, he, as such officer and with full authority, executed the same
voluntarily for and as the act of said public corporation.
Given under my hand and seal this the 31sday of March 1995.
/s/
----------
Notary Public
NOTARIAL SEAL
My commission expires:_____
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STATE OF FLORIDA )
HILLSBOROUGH COUNTY )
I, the undersigned, a Notary Public in and for said County in said State,
hereby certify that. D. F. Hawkins whose name as President of Defense Research
Incorporated, a Delaware corporation, is signed to the foregoing Lease
Agreement, and who is known to me, acknowledged before me on this day that,
being informed of the contents of said Lease Agreement, he, as such officer and
with full authority, executed the same voluntarily for and as the act of said
corporation.
Given under my hand and seal this the 28th day of March, 1995.
/s/
--------
Notary Public
NOTARIAL SEAL
My commission expires:______
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EXHIBIT A
Description of Project Site
---------------------------
Lots 12 and 13, Greenbrier Industrial Park, as recorded in Plat Book "Z" at page
100; and Lot 14A, a resubdivision of Greenbrier Industrial Park Lot 14, as
recorded in Plat Book "CC" at page 5, in the Probate Office of Calhoun County,
Alabama.
ALSO: Lot 25A-3, a resubdivision of Lots 25A & 26B, as recorded in Plat Book CC,
at Page 12, in the Probate Office of Calhoun County, Alabama; said lot being
more particularly described as follows: Beginning at a point described as being
the Southeast corner of the SW1/4 of the NWl/4 of Section 22, Township 16 South,
Range 8 East; said point also being the Southeast corner of said Lot 26; thence
Westerly along the described South line of quarter 1009.32 ft.; thence Northerly
with an interior angle of 90 degrees 10 min. 52 sec. 1077.76 ft. to the North
line of said Lot 26; thence Easterly with an interior angle of 90 degrees 12
min. 21 sec. 368.88 ft. to the true point of beginning of the hereafter
described TRACT 25A-3; thence continue Easterly along the previous course 11.13
ft. to the intersection of said North line with the cul-de-sac ending Commerce
Boulevard; thence Southeasterly with an interior angle of 140 degrees 50 min. 59
sec. counterclockwise along a radius of 82 ft. a chord length of 99.70 ft.;
thence Southeasterly with an interior angle of 147 degrees 27 min. 26 sec. 61.05
ft; thence Easterly with an interior angle of 108 degrees 18 min. 25 sec. 482.95
ft.; thence Northerly with an interior angle of 91 degrees 31 min. 35 sec. 86.03
ft.; thence Northerly with an interior angle of 179 degrees 55 min. 53 sec.
34.91 ft.; thence Northerly with an interior angle of 180 degrees 02 min. 57
sec. 356.09 ft. to the South Right of Way line of Red Morris Parkway; thence
Westerly along said South ROW line as follows: with an interior angle of 88
degrees 45 min. 36 sec. 104.73 ft.; with an interior angle of 202 degrees 29
min. 59 sec. a chord length of 180.02 ft. with an interior angle of 157 degrees
30 min. 01 sec. a chord length of 35.36 ft. to the Southeast Right of Way line
of Commerce Boulevard; thence Southwesterly with an interior angle of 135
degrees 00 min. 00 sec. 259.91 ft.; thence Southwesterly with an interior angle
of 165 degrees 22 min. 09 sec. along said ROW line a chord length of 161.66 ft.;
thence clockwise along a cul-de-sac with radius of 65 ft. with an interior angle
of 153 degrees 37 min. 20 sec. a chord length of 104.55 ft. to the South line of
said Lot 25; thence Easterly with an interior angle of 85 degrees 44 min. 29
sec. along said South line 45.36 ft. to the true point of beginning; containing
5.75 acres, more or less, situated, lying and being in Calhoun County, Alabama.
35
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EXHIBIT B
Description of Personal Properly and Fixtures
---------------------------------------------
Heating and air conditioning equipment; electrical equipment, apparatus,
and fixtures; plumbing fixtures; fire detection, suppression and extinguishment
equipment and apparatus; and building materials and supplies to be incorporated
in the Series A Facilities.
36
<PAGE>
Exhibit 10.20
Willows Commerce Pink Phase 11
Redmond, WA
NET LEASE AGREEMENT
This NET LEASE AGREEMENT ("Lease") is made as of the ______ day of July,
1998, by and between OPUS NORTHWEST, L.L.C., a Delaware limited liability
company ("Landlord"), and PRIMEX AEROSPACE COMPANY, a Washington corporation
("Tenant").
GRANT
Landlord, in consideration of the rents to be paid and the covenants to be
observed and performed by Tenant, hereby leases to Tenant, and Tenant hereby
leases from Landlord each upon and subject to the terms and conditions set forth
herein, that certain space shown and designated as Building A (the "Building")
on the Site Plan attached as Exhibit A (the "Site Plan") and containing
approximately 97,971 square feet of rentable floor area consisting of
approximately 40,860 square feet of first floor assembly space, approximately
10,000 square feet of warehouse space and approximately 46,861 square feet of
office space, of which approximately 42,000 square feet will be located on the
mezzanine (the "Premises"). The Premises are located on the real property
described in Exhibit B (the "Real Property" which, together with the
improvements located upon the Real Property, constitutes the "Project"), which
is part of the property known as Willows Commerce Park Phase II (the "Park"),
shown on the Site Plan and situated in the City of Redmond, County of King,
State of Washington. Tenant is also hereby granted the non-exclusive license to
use, in common with Landlord and other tenants of the Park and their respective
officers, directors, employees, agents and customers, all portions of the Park
subject to reciprocal easements pursuant to any covenants or easements
benefiting the Park, as the same may exist from time to time.
SECTION 1. LEASE TERM
1.1 Lease Term. The initial lease term ("Initial Term") shall commence on
the Commencement Date (as defined in Section 2.2), and shall continue for 7 full
calendar years plus the part of the month, if any, from the Commencement Date
through the last day of the month in which the Commencement Date occurs. Any
reference to the Lease Term, Term of this Lease or similar reference shall be a
reference to the Initial Term together with any Renewal Term and any extensions
to or modifications of the Initial Term.
1.2 Option to Renew. Tenant shall have the right, subject to all
provisions of this Section 1.2, to extend the Initial Term for one period of 3
years (the "Renewal Term"), provided that: (a) this Lease is in full force and
effect; (b) Tenant is not in default under this Lease, subject to any notice
required and any applicable grace or cure period, at the time of exercise of the
right of renewal or at the time set for commencement of the Renewal Term (c)
Tenant exercises its right to the Renewal Term by giving Landlord written notice
of its election at least 240 days before the first day of the Renewal Term; and
(d) each Renewal Term shall be upon the same terms, covenants and conditions as
provided in this Lease, except that the monthly Fixed Rent shall be the Fixed
Rent for the Renewal Term determined pursuant to Section 3.1.1.
1.3 Special Termination Option. Tenant shall have the right, provided
Tenant is not then in default under this Lease, subject to any notice required
and any applicable grace or cure period, to terminate this Lease as of the end
of the 60th full calendar month of the Initial Term, by giving not less than 8
months irrevocable written notice of termination to Landlord. Tenant's notice of
termination shall be effective only if it is delivered to Landlord during or
before the 52nd full calendar month of the Initial Term and is accompanied by
payment to Landlord of the sum of Three Hundred Seventy-nine Thousand Two
Hundred Seventy Dollars ($379,270). The provisions of this Section 1.3 are for
the personal benefit of the original Tenant who executes this Lease only, and
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no assignee or sublessee shall have any rights whatsoever under this Section
1.3. THE PARTIES HEREBY AGREE THAT (a) TIME IS PARTICULARLY OF THE ESSENCE WITH
RESPECT TO THE PROVISIONS OF THIS SECTION 1.3; (b) NOTWITHSTANDING ANY LAW IN
THE STATE OF WASHINGTON, INCLUDING CASE LAW, TO THE CONTRARY, LANDLORD SHALL BE
UNDER NO DUTY WHATSOEVER TO NOTIFY TENANT THAT TENANT HAS FAILED TO GIVE THE
NOTICE IT HAS THE RIGHT TO GIVE UNDER THE FOREGOING PROVISIONS OF THIS SECTION
1.3; AND (c) THE ENTIRE PROVISIONS OF THIS SECTION 1.3 HAVE BEEN SPECIALLY
NEGOTIATED BY THE PARTIES.
SECTION 2. CONSTRUCTION OF IMPROVEMENTS
2.1 Landlord's Improvements. Landlord agrees to furnish at Landlord's sole
cost and expense all of the material, labor, and equipment for the construction
of the Base Building Shell and Sitework and Tenant Improvements specified in the
Outline Specifications attached hereto as Exhibit C, the Space Plan to be
attached hereto as Exhibit C-1 and the Final Plans and Specifications (as
defined below in this Section 2.1) ("Landlord's Improvements"). Landlord's
Improvements shall be constructed in a good and workmanlike manner in accordance
with the Outline Specifications, the Space Plan, the Final Plans and
Specifications and the applicable laws, rules and regulations, including the
building code, as they are presently interpreted and enforced by the
governmental bodies having jurisdiction thereof (collectively, "Applicable
Laws"). Landlord agrees, at its cost, in consultation with Tenant, to cause a
space plan and plans and specifications for Tenant's proposed tenant
improvements to be prepared in accordance with the Outline Specifications and
the Applicable Laws and to submit the same to Tenant for its approval. If Tenant
objects to any portion of the submitted space plan, it shall notify Landlord
within 5 business days after receipt of such space plan. If Tenant objects to
any portion of the submitted plans and specifications, it shall notify Landlord
within 10 business days after receipt of such plans and specifications. Tenant
also agrees that it will not act in an arbitrary or capricious manner with
respect to the approval of the plans and specifications. The space plan and
plans and specifications shall be approved by Landlord and Tenant affixing
thereon the signature or initials of a Designated Representative (as defined in
Section 2.3) of each of them. The space plan approved by Landlord and Tenant
(the "Space Plan") shall be deemed attached to this Lease as Exhibit C-1. The
plans and specifications approved by Landlord and Tenant (the "Approved Plans
and Specifications") shall be the permit plans submitted by Landlord to the City
of Redmond with Landlord's application for permits to construct the Building.
Landlord shall promptly notify Tenant's Designated Representatives (as defined
in Section 2.3) of any changes to the Approved Plans and Specifications that are
required by the City of Redmond. The Approved Plans and Specifications, as
revised as required by the City of Redmond, shall be the "Final Plans and
Specifications" and shall be deemed attached to each party's copy of this Lease
as Exhibit D. Such Exhibit D shall be in lieu of and shall replace Exhibit C and
Exhibit C-1, except as to nonconstruction matters contained in Exhibit C or
Exhibit C-1 such as allowances and exclusions not expressly and specifically
superseded by Exhibit D. The signature or initials of a Designated
Representative of a party shall be deemed conclusive evidence of the appr6val of
such party. When Landlord requests Tenant to specify details or layouts, Tenant
shall promptly specify the some, subject to the provisions of the Outline
Specifications, so as not to delay completion of the Space Plan, Final Plans and
Specifications or Landlord's Improvements. Tenant shall be responsible for
Landlord's increased cost of labor and materials, if any, slid loss of rent,
arising out of delay in the completion of the Premises caused by Tenant's
failure to comply in a timely manner with the requirements of this Section 2.1.
Tenant shall have a turnkey build out allowance (the "Allowance") of Thirty
Six and No/100 Dollars ($36) per rentable square foot of floor area of the
office portion of the Premises for the Cost of Construction of all of Landlord's
Improvements to the Initial Premises, as shown on the Outline Specifications and
Final Plans and Specifications, other than the Base Building Shell and Sitework
("Tenant Improvements"). "Cost of Construction" shall mean (a) all costs
(including sales and excise taxes) incurred in the design or construction of
Tenant Improvements, including the contractor's fee; (b) premiums for Builder's
Risk and Indemnification Insurance directly related to [lie construction of
Tenant Improvements; and (c) costs of obtaining building permits, water, sewer
and utility tap fees. Landlord shall deliver to Tenant a preliminary budget for
the Cost of Construction of Tenant Improvements as soon as reasonably possible.
Landlord shall work with Tenant to value engineer the proposed plans and
specifications for the Tenant Improvements to maximize the probability that
the Tenant
2
<PAGE>
Improvements can be constructed for the amount of the Allowance. If the final
Cost of Construction of Tenant Improvements exceeds the Allowance, Tenant shall
pay said excess to Landlord as Additional Rent within 10 days sifter Landlord
notifies Tenant of the amount of the excess, which notice shall be accompanied
by reasonable documentation of the excess.
If Tenant requests a change to the Landlord's Improvements, Landlord shall
notify Tenant in writing, before executing the change, of any additional Cost of
Construction thereof to the Landlord and any delay in substantial completion of
the Landlord's Improvements caused by the change. Within 2 business days after
receipt of Landlord's notice, Tenant shall either direct Landlord in writing to
proceed with the requested change order or withdraw the request. If Tenant does
not take any action with respect to the requested change order within such 2day
period, the requested change order shall be deemed withdrawn. Tenant shall pay
Landlord the Cost of Construction of a change order within 10 days after
directing Landlord to proceed.
2.2 Possession of Premises. The "Commencement Date" of this Lease is the
later of: (a) the date two days after the date Landlord's Improvements are
substantially complete and ready for occupancy by Tenant (subject to Punch List
items correction of which does not materially interfere with Tenant's use and
enjoyment of the Premises); or (b) December 30, 1998. The Landlord's
Improvements shall be deemed to be substantially complete and ready for
occupancy on the date that the municipality having jurisdiction thereof issues a
temporary or permanent certificate of occupancy permitting Tenant to occupy the
Premises for the purposes set forth in Section 4 or takes such other action as
may be customary to permit occupancy or use thereof; provided, however, that the
issuance of a certificate of occupancy or the taking of such other customary
action shall not be a condition to payment of Rent or commencement of the Lease
Term if failure to secure such certificate or action is caused by the act or
omission of Tenant or if matters required for issuance are not the
responsibility of Landlord. Landlord shall not be liable for any damages arising
from delay in putting Tenant in possession of the Premises provided that: (a) if
the Commencement Date is delayed until after March 31, 1999, Tenant shall be
entitled to a credit against the Fixed Rent first coming due under this Lease in
the amount of $1,000 for each day of delay after March 31, 1999 and (b) if the
Commencement Date is delayed until after April 30, Tenant shall have the right
to terminate this Lease upon written notice given to Landlord on or before April
30, 1999.
2.3 Representatives. "Designated Representative" means any person
authorized to speak and act on behalf of Landlord or Tenant and upon whom the
other shall fully and unconditionally be entitled to rely for any and all
purposes of this Lease until such designation has been revoked or changed in
accordance with the applicable provisions of this Section 2.3, Landlord hereby
appoints Harry DeMarre and Bart Brynestad as its Designated Representatives.
Tenant hereby appoints Scott Neish and John Shuba as its Designated
Representatives. Either party may change or revoke the authority of a Designated
Representative by notice to the other, but no such change or revocation shall
affect any approval or consent given by a party's Designated Representative
before the other party receives notice of such change or revocation.
2.4 Construction Guaranty. Landlord guarantees the Landlord's Improvements
against defective workmanship and/or materials for a period of one year from the
date of substantial completion of Landlord's Improvements. Landlord agrees, at
its sole cost, to repair or replace any defective item occasioned by poor
workmanship and/or materials during said one-year guaranty period. Performance
of such one-year guaranty shall be Landlord's sole and exclusive obligation with
respect to defective workmanship and/or materials. Tenant's right to enforce
such one-year guaranty shall be Tenant's sole and exclusive remedy with respect
to such defective workmanship and/or materials in limitation of any contract,
warranty or other rights, whether express or implied, that Tenant may otherwise
have under applicable law. Upon expiration of the one-year guaranty of Landlord
against defective workmanship and materials, Landlord shall assign to Tenant any
warranties or guaranties of workmanship or materials given to Landlord by
subcontractors or materialmen for a period longer than the one-year guaranty
period described above. Landlord makes no warranty or representation that any of
such warranties or guaranties will be assignable. To the extent that any such
warranties or guaranties are not assignable, Landlord agrees to cooperate with
Tenant in the enforcement thereof by Tenant, at Tenant's sole cost. Landlord
also agrees to cooperate with Tenant in the enforcement by Tenant, at Tenant's
sole cost, of any service contracts that provide service, repair or maintenance
for a period longer than such one-year guaranty period, on any item incorporated
in the Building that is to be maintained by Tenant.
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2.5 Tenant's Acceptance of Premises. If on the date the Landlord's
Improvements are substantially complete there remain items of construction or
finish work to be completed which do not materially interfere with Tenant's use,
occupancy or enjoyment of the Premises, Landlord and Tenant shall, within 2
business days from the date the Landlord's Improvements are substantially
complete, prepare a written list (the "Punch List") of such uncompleted items.
Landlord agrees to complete the Punch List item(s) within that time period which
is reasonable for completion of such items. If there is any dispute as to work
performed or required to be performed by Landlord, the existence of any Punch.
List items or the completion thereof in accordance with the terms of the Lease,
such dispute shall be decided by Landlord's architect (Lance Mueller), whose
decision shall be final and binding upon the parties. Subject to the preceding,
Tenant's acceptance of possession shall conclusively be deemed to establish that
the Premises have been completed. Tenant waives any claim as to matters not
listed in the Punch List.
2.6 Expansion Space. Notwithstanding the provisions of the first paragraph
of this Lease, the initial Premises does not include 20,000 square feet of the
mezzanine office space (the "Pocket Space"). The entire Pocket Space shall be
included in the Premises on the earlier of the date Tenant occupies any portion
of the Pocket Space for any purpose or twelve (12) months after the Commencement
Date.
2.7 Security System. Tenant may install any security system in the Premise
at Tenant's sole cost and expense. Tenant shall provide Landlord with the name
and telephone number of a person or persons who are authorized to give Landlord
access to the Building 24 hours per day in the event of an emergency.
SECTION 3. FIXED RENT
3.1 Fixed Rent. Tenant shall pay Landlord, without previous demand
therefore and without any right of setoff or deduction whatsoever (except as
otherwise specifically permitted in this Lease), at the office of Landlord at:
Opus Northwest, L.L.C., Attn: John Solberg, Vice President, 200 - 112th Avenue
N.E., Suite 205, Bellevue, WA 98004, or at such other place or account as
Landlord may from time to time designate in writing, rent for the Term of this
Lease in the following amounts (the "Fixed Rent"):
Initial Term: Renewal Term
------------ ------------
Months 1 - 3 $ 0 See Section 3.1.1
Months 4 - 12 $ 91,151
Months 13 - 60 $106,879
Months 61 - 84 $119,704
payable monthly, in advance, commencing on the Commencement Date and continuing
on the first day of each month thereafter during the balance of the Lease Term.
Fixed Rent for any partial calendar month shall be prorated. The free rent
period shown above shall begin on the first full calendar month of the Lease
Term. The Fixed Rent for any partial month starting on the Commencement Date
shall be a prorated portion of Ninety-one Thousand One Hundred Fifty-one Dollars
($91,151) and shall be due and payable on the Commencement Date. If the Pocket
Space is included in the Premises earlier than twelve (12) months after the
Commencement Date, the Fixed Rent shall increase to One Hundred Six Thousand
Eight Hundred Seventy-nine Dollars ($106,879) per month starting on the date on
which the Pocket Space is included in the Premises.
3.1.1 Renewal Term Fixed Rent. The monthly Fixed Rent during each
Renewal Term shall be the monthly market rate for a 3 year term for comparable
space leased on comparable terms in the greater eastside area (Bothell,
Kirkland, Bellevue, Redmond, Issaquah, Renton and Kent, Washington,
collectively, the "Eastside") ("Market Rent") but in no event less than one
hundred percent (100%) of the Fixed Rent payable in the period immediately
preceding the Renewal Term. Landlord shall give Tenant notice of Landlord's
estimation of Market Rent within 10 business days after receiving Tenant's
notice exercising its option to renew. If Tenant disagrees with such estimate,
it shall notify Landlord in writing thereof within 10 business days of Tenant's
receipt of its notice. If Tenant fails to notify Landlord that it disagrees with
the estimation within said 10 business day period, Tenant shall be deemed to
have agreed to the Market Rent proposed by Landlord. If there is a disagreement
on such estimation, the parties shall promptly meet to attempt to resolve their
differences. If the differences as to
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Market Rent are not resolved within 25 business days of the date Tenant receives
the Landlord's initial estimate of Market Rent, then the parties shall submit
the matter to appraisal in accordance with the next paragraph so that Market
Rent is determined before the first day of the Renewal Term, or Tenant may give
Landlord written notice within 3 business days after expiration of the 25
business day period that Tenant withdraws the notice exercising its right of
renewal and this Lease shall expire as of the expiration of the then-existing
Term.
If the parties are unable to reach agreement on Market Rent during the
period specified in the immediately preceding paragraph, then Landlord or Tenant
(the "Moving Party") may give notice to the other demanding appraisal and naming
an appraisal company. The recipient of such notice (the "Recipient") shall,
within 10 days after receiving the Moving Party's notice, give notice to the
Moving Party naming an appraisal company selected by the Recipient. Each
appraiser shall be a member of the American Institute of Appraisers and shall
have not less than 10 years experience in the appraisal of properties like the
Park in the Eastside area, including Redmond. If the Recipient fails to notify
the Moving Party of the name of the appraisal company it has selected within
said 10 day period, the appraisal company selected by the Moving Party shall
determine the Market Rent for the Renewal Term. The appraiser(s) shall
determine the Fixed Rent for the Renewal Term, which shall be the monthly amount
per square foot that a willing, comparable tenant would pay and a willing,
comparable landlord would accept, in an arms-length lease for comparable space
in a comparable building in a comparable Park for a comparable period of time,
giving consideration to the rent rates per square foot, the standard of
measurement by which square footage is measured, the type and extent of
liability under any escalation clauses and all other applicable conditions of
tenancy (which is a more detailed description of the Market Rate). The Market
Rate shall not be less than 100% of the Fixed Rent payable in the period
immediately preceding the Renewal Term. The appraiser(s) shall render a
decision in writing to Landlord and Tenant simultaneously within 10 days of
their appointment. Any decision in which the appraiser appointed by Landlord
and the appraiser appointed by Tenant concur shall be binding and conclusive
upon the parties.
If the two appraisers are unable to agree upon a determination of Market
Rent within 20 days after appointment of the appraiser(s), they shall appoint a
third appraiser, who shall be an impartial person with qualifications similar to
those required of the first two appraisers. If the initial two appraisers are
unable to agree upon such appointment within 5 days after expiration of the 20
day period, the third appraiser shall be selected by the parties themselves, if
they can agree, within a further period of 10 days. If the parties do not so
agree, then either party, on behalf of both, may request appointment of such a
qualified person by the then presiding judge of the King County Superior Court
acting in his private non-judicial. capacity. The other party shall not raise
any question as to such Judge's full power and jurisdiction to entertain the
application for and make the appointment, and the parties agree to indemnify the
presiding judge against all claims arising out of the presiding judge's
appointment of an appraiser. If the Market Rent cannot be determined by
agreement between the two appraisers. selected by Landlord and Tenant, or
settlement between the parties during the course of appraisal, the Market Rent
shall be determined by the three appraisers in accordance with the following
procedure. Each of the two appraisers originally selected by the parties shall
prepare a written statement of his determination of the Market Rent supported by
the reasons therefor, with counterpart copies for each party and the third
appraiser. The appraisers shall arrange for a simultaneous exchange of their
Market Rent determinations. The role of the third appraiser shall be to select
which of the two proposed determinations most closely approximates his
determination of the Market Rent. The third appraiser shall have no right to
propose a middle ground or any modification of either of the two proposed Market
Rents. The appraisers shall attempt to decide the issue within 10 days after
the appointment of the third appraiser. The Market Rent chosen by the third
appraiser shall constitute the decision of the appraisers and be final and
binding upon the parties.
In the event of a failure, refusal or inability of any appraiser to act,
his successor shall be appointed by him, but in the case of the third appraiser,
his successor shall be appointed in the manner described above for appointment
of the third appraiser. The appraisers shall have the right to consult experts
and competent authorities with factual information or evidence pertaining to a
determination of Market Rent, but any such consultation shall be made in the
presence of both parties with full right on their part to cross-examine. The
appraiser(s) shall render the determination of Market Rent in writing, with
counterpart copies to each party. The appraisers shall have no power to modify
the provisions of this Lease. Each party shall pay the fees and expenses of its
respective appraiser and both shall share equally the fees and expenses of the
third appraiser, if any. Each party shall pay the attorneys'
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fees and expenses of its counsel and the fees and expenses of any witnesses
called by that party. Time is of the essence in connection with the
establishment of Market Rent. If the Market Rent for a Renewal Term is not
determined before the first day of the Renewal Term, Tenant shall continue to
pay Fixed Rent in the amount payable during the immediately preceding period
until the Fixed Rent for the Renewal Term is determined. Within 10 business days
after the Fixed Rent for the Renewal Term has been determined, Tenant shall pay
to the Landlord the excess, if any, of the Fixed Rent due at the rate set by the
appraiser(s) over the Fixed Rent actually paid during any expired portion of the
Renewal Term.
3.2 Additional Rent. Tenant shall fully and timely pay or discharge any
and all charges, real estate taxes, insurance premiums, utility charges,
maintenance, repair or replacement expenses and any other amount to be paid by
Tenant under the terms of this Lease as additional rent (sometimes collectively
referred to as "Additional Rent"). If Tenant fails to pay or discharge any item
of Additional Rent, Landlord may, but shall not be obligated to, pay or
discharge the same. Tenant shall immediately reimburse Landlord for all costs so
incurred by Landlord, together with interest at the Agreed Rate (as defined in
Section 3.3) from the date of Landlord's expenditure until the date Landlord
receives Tenant's reimbursement. The term "Rent" means the aggregate of Fixed
Rent and Additional Rent.
3.3 Delinquent Payments. Any installment of Fixed Rent or Additional. Rent
or any other charges payable by Tenant under the provisions. hereof which is not
paid when due shall bear interest from the date due until it has been paid at an
annual rate equal to (the "Agreed Rate") 5% in excess of the published "prime
rate" announced as such by U.S. Bank National Association, it's successors or
assigns, including by merger or other operation of law, but in no event greater
than the maximum lawful rate Landlord may charge Tenant. In addition, any
installment of Fixed Rent or Additional Rent payable by Tenant under the
provisions hereof which is not paid when due and which remains unpaid ten days
thereafter shall be subject to a late payment fee of 5% of the unpaid amount.
3.4 Security Deposit. Contemporaneously with the execution hereof, Tenant
shall pay to Landlord the sum of One Hundred Nineteen Thousand Seven Hundred
Four Dollars ($119,704) (the "Security Deposit"). The Security Deposit shall be
held by Landlord without liability for interest as security for the performance
by Tenant of Tenant's obligations under this Lease. Upon the occurrence of any
Event of Default. by Tenant (as defined in Section 11), Landlord may, from time
to time, without prejudice to any other remedy, use the Security Deposit to the
extent necessary to pay any arrearages of Fixed Rent or Additional Rent, to pay
any amount which Landlord may spend or become obligated to spend by reason of
such Event of Default or to compensate Landlord for any other loss, damage or
liability which Landlord may suffer by reason of such Event of Default.
Following any such application of the Security Deposit, Tenant shall pay to
Landlord on demand the amount so applied in order to restore the Security
Deposit to its original amount. Provided there exists no Event of Default
hereunder, any remaining balance of the Security Deposit shall be returned by
Landlord to Tenant upon expiration or earlier termination of this Lease. If
Landlord transfers its interest in the Premises during the Lease Term, Landlord
may assign the Security Deposit to the transferee and thereafter shall have no
further liability for the return of the Security Deposit.
SECTION 4. USE OF PREMISES
The Premises shall be used for office, light manufacturing, assembly and
warehouse uses (the "Permitted Use") and no other use. Tenant shall not use or
occupy the same, or knowingly permit them to be used or occupied, contrary to
any applicable statute, rule, order, ordinance, requirement or regulation, or in
any manner which would: (a) violate any certificate of occupancy affecting the
same; (b) cause structural injury to the improvements or overload the floors;
(c) cause the value or usefulness of the Premises, or any portion thereof,
substantially to diminish (reasonable wear and tear excepted); (d) constitute a
public or private nuisance or waste; or (e) increase the cost of any insurance
maintained by Landlord relating to the Premises, unless the increased cost is
paid by Tenant. Tenant agrees that it will promptly, upon discovery of any such
use, take all necessary steps to compel the discontinuance of such use. Tenant
shall comply with any recorded covenants, conditions, and restrictions affecting
the Premises and the Building as of the Commencement Date or which are recorded
during the Lease Term.
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SECTION 5. OPERATING EXPENSES AND TAXES
5.1 Definitions.
"Operating Expenses" shall mean all costs of operating, maintaining,
repairing and replacing the Project and shall include: all sums expended for
lighting, cleaning, sealing, striping, inspecting, painting and removing snow,
ice, debris and surface water; all insurance costs incurred by Landlord in
connection with the Park, including liability insurance, insurance against all
risks of physical loss (including earthquake and flood if required by Landlord's
Mortgagee, as defined in Section 16. 1) or other casualties, rental loss,
workmen's compensation and employer's liability insurance, and any "deductible"
cost incurred in connection with any covered loss; all costs incurred by
Landlord in connection with transportation management for the Park including
surcharges levied upon or assessed against parking spaces or areas, payments to
or for public transit, shuttles, car pooling facilities, a transportation
manager or otherwise, as required by governmental authorities having
jurisdiction over the Park; costs incurred by Landlord in connection with
complying with applicable federal, state or local environmental laws,
regulations, rules, ordinances or other legal requirements not applicable or
required at the Commencement Date; costs of providing security guards, if any;
acquisition costs (rental fees and/or purchase price amortized over the useful
life thereof) or, in lieu of acquisition costs, the annual depreciation (over
the useful life applicable thereto) of machinery and equipment used in
connection with the maintenance or operation of the Common Areas; costs of any
capital improvements to the Park which are for the purpose of reducing energy
costs or Operating Expenses; costs of service and maintenance contracts; costs
of inspecting, repairing and maintaining equipment used in the maintenance or
operation of the Common Area; reasonable costs paid or incurred by Landlord for
professional and other services (including consultants, attorneys, appraisers
and experts) in connection with contesting or attempting to lower Taxes or
resist increased Taxes; all costs incurred by Landlord in connection with
operating, maintaining and repairing any areas or facilities used in common by
the owners and occupants of the Park pursuant to recorded covenants affecting
the Park and a property management fee equal to 3% of Tenant's annual Fixed
Rent. Operating Expenses shall not include: (1) any capital improvement to the
Park other than replacements required for normal maintenance and repair, except
as specifically set forth above; (2) repairs, restoration or other work
occasioned by fire, windstorm or other insured casualty, except for any
applicable deductible; (3) expenses incurred in leasing or procuring tenants,
such as leasing commissions, advertising expenses or expenses for renovating
space for new or existing tenants; (4) legal expenses incident to the
negotiation or enforcement by Landlord of the terms of any lease; (5) interest
or principal payments on any Mortgage (as defined in Section 16. 1) or other
indebtedness of Landlord; (6) expenses for constructing or reconstructing the
exterior of the buildings in the Park; (7) any structural change or improvement
to the Premises or the Park that was expressly required as of the date hereof
under governmental law, regulation or ordinance (as the same are presently
interpreted and enforced) but which Landlord failed to construct as part of the
initial development of the Park; or (8) fines, penalties, and interest. In the
calculation of any expenses hereunder, no expense shall be charged more than
once. Landlord agrees to keep, for a period of at least 3 years, books and
records showing the Operating Expenses in accordance with a system of accounts
and accounting practices consistently maintained on a year-to-year basis.
"Lease Year" shall mean, in the case of the first Lease Year, that period
from the Commencement Date to the first succeeding December 31. Thereafter,
"Lease Year" shall mean each successive 12 calendar month period following the
expiration of the first Lease Year, except that if this Lease terminates or
expires on any day other than December 31, the last Lease Year shall be the
period from the end of the preceding Lease Year to such termination or
expiration date.
"Taxes" shall mean all taxes and assessments (general and special, ordinary
and extraordinary, foreseen as well as unforeseen, of any kind whatsoever)
against the Real Property or the buildings or improvements located on the Real
Property and all other governmental charges that are levied or assessed by any
lawful authority during each calendar year, excluding any net income tax, estate
tax, transfer tax or inheritance tax. Taxes shall not include any fine,
penalty, interest, or cost attributable to delinquent payment thereof Landlord
and Tenant recognize that new forms of taxes, assessments, charges, levies or
fees may be imposed, in connection with the ownership, leasing, occupancy or
operation of the Park or the Premises. All such new or increased taxes,
assessments, charges, levies or fees which are imposed or increased as a result
of, or arising out of any change in the structure of, or are in lieu of,
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the current tax system, or are for the purpose of funding special assessment
districts heretofore funded by taxes, shall also be included within the meaning
of Taxes, unless any such taxes, assessments, charges, levies or fees are herein
expressly excluded.
"Tenant's Pro Rata Share" of Operating Expenses solely attributable to the
Project shall be 100%. Tenant's Proportionate Share of Operating Expenses
attributable to the entire Park equals the ratio of the Premises rentable area
at the time to the rentable area at the time of all buildings then included in
the Park. Tenant's Proportionate Share of Operating Costs attributable to the
Premises and one or more but not all of the other buildings or lots included in
the Park equals the ratio of the Premises rentable area at the time to the
rentable area of all buildings benefited by the Operating Expense.
5.2 Payment. Tenant shall pay to Landlord Tenant's Pro Rata Share of Taxes
and Operating Expenses, as Additional Rent, in monthly installments on or before
the first day of each calendar month, in advance, in an amount estimated by
Landlord from time to time. Landlord shall, on or about March 31 of each
calendar year, submit to Tenant a statement of estimated Operating Expenses and
Taxes for such Lease Year and Tenant's Pro Rata Share thereof, whereupon Tenant
shall pay Landlord any deficit over Tenant's first quarter payments within 30
days of receipt of Landlord's statement, and any overpayment by Tenant shall be
credited to the next installments of Tenant's Pro Rata Share of Operating
Expenses or Taxes. Landlord may from time to time revise such estimate by notice
to Tenant, whereupon subsequent payments by Tenant shall be based upon such
revised estimate until Tenant receives the next estimate.
Within 90 days after the end of each Lease Year, Landlord shall furnish
Tenant with a statement (the "Annual Statement") of the actual amount of
Tenant's Pro Rata Share of Operating Expenses and Taxes for such period. If the
total of the monthly installments paid by Tenant for such Lease Year does not
equal Tenant's Pro Rata Share as shown on the Annual Statement, (a) Tenant shall
promptly pay Landlord any deficiency or (b) Tenant shall be entitled to offset
any excess against Tenant's Pro Rata Share of Operating Expenses or Taxes next
due under this Lease or, if this Lease has terminated, Landlord shall promptly
pay such excess to Tenant.
5.3 Common Area Maintenance. "Common Area" shall mean the portions of the
Project that are on or outside the exterior surface of the Building, including
parking areas, landscaped and vacant areas, roads, walks, curbs, corridors,
stairs, ramps, common utility facilities, storm water detention facilities
(whether located within or outside of the Park), the roof membrane and exterior
surfaces of the Building, except for doors, windows and Tenant's signs. Landlord
shall operate and maintain the Common Area, or shall cause the same to be
operated and maintained, in a manner deemed by Landlord to be reasonable or
appropriate for the Park. Landlord shall have the right: (a) to change the
location and arrangement of parking areas and other Common Areas; (b) to
establish and change the level of parking surfaces; (c) to close all or any
portion of the Common Area to such extent as may, in the opinion of Landlord's
counsel, be necessary to make repairs or alterations or prevent a dedication
thereof or the accrual of any rights by any person or the public therein; and
(d) to do and perform such other acts in and to said area and improvements as,
in the exercise of good business judgment, Landlord shall determine to be
advisable with a view to the improvement of the convenience and use thereof. If
Landlord exercises any right set forth in the preceding sentence, Landlord shall
use reasonable efforts to minimize material adverse interference with Tenant's
operation of the Premises for the Permitted Use. Tenant shall not, without the
prior written consent of the Landlord, solicit business or display merchandise
within the Common Area, distribute handbills therein or take any action which
would interfere with the rights of other persons to use the Common Area.
5.4 Other Taxes. Tenant shall pay, as Additional Rent, any tax or excise
on rents, gross receipts tax, transaction privilege tax or other tax, however
described, which is levied or assessed by any lawful authority against Landlord
with respect to the Fixed Rent, Additional Rent or other charges accruing under
this Lease. If it shall not be lawful for Tenant so to reimburse Landlord, the
monthly Fixed Rent payable to Landlord shall be increased so that after
imposition of any such tax or charge Landlord receives the some net rental that
it received before the imposition thereof.
5.5 Tenant Parking. Landlord agrees to make available to Tenant up to 270
parking stalls in the Park on an unassigned basis and in common with all other
occupants of the Park.
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SECTION 6. INSURANCE
6.1 Landlord's Casualty Insurance. Landlord shall keep the improvements on
the Real Property insured in an amount equivalent to their full insurable
replacement cost (excluding foundation, grading and excavation costs) with
deductibles reasonably acceptable to Landlord against loss or damage by fire and
such other risks as are customarily covered with respect to buildings and
improvements similar to the Park in construction, general location, use,
occupancy and design, and such other risks as Landlord may deem appropriate.
6.2 Liability Insurance Coverage. Tenant, at its sole cost, shall carry
commercial general liability insurance covering the Premises and Tenant's use of
the Premises with a combined single limit not less than Five Million Dollars
($5,000,000), per occurrence, coverage on an occurrence basis, with a deductible
of not more than Ten Thousand Dollars ($10,000.00). Such insurance shall: (a)
name Landlord, its managing agent and Mortgagee as additional insureds; (b)
specifically insure (by contractual liability endorsement) Tenant's obligations
under Section 10 of this Lease; (c) be primary to any liability insurance
maintained by Landlord, its managing agent or Mortgagee; (d) protect each of the
insureds under a severability of interest clause as if each were separately
insured under separate policies; and (e) include employer's liability and
Washington stop gap coverage.
6.3 Tenant's Casualty and Business Insurance. Tenant, at its sole cost,
shall keep all of its inventory, equipment, furniture, fixtures and personal
property located at the Premises insured in an amount equivalent to the full
insurable replacement cost against loss or damage by fire and such other risks
as are customarily covered with respect to a tenant's machinery, equipment,
furniture, fixtures, personal property and business located in a building
similar to the Park in general location, use, occupancy and design, including
sprinkler leakage, windstorms, hail, explosions, vandalism, theft, malicious
mischief, civil commotion and such other coverage capable of being covered by a
special extended coverage insurance policy. Tenant, at its sole cost, shall also
carry business interruption and extra expense insurance in a sufficient amount
to protect Tenant against any additional costs and lost income associated with
interruption of its business from the Premises for a period not less than one
year.
6.4 General Provisions. All policies required under Section 6.2 or Section
6.3 shall be written by companies licensed in the state in which the Premises
are located and reasonably acceptable to Landlord (having a financial rating of
at. least "VIII" and a general policyholder's rating of "A", as rated in the
most current Best's Key Rating Guide Property-Casualty). Each policy shall not
be canceled or materially changed without at least 45 days prior written notice
to Landlord. Certificates of insurance for each insurance policy required under
Section 6.2 and Section 6.3, in a form reasonably acceptable to Landlord, shall
be delivered to Landlord before Tenant has access to or possession of any
portion of the Premises. Not less than 20 days before the expiration of each
policy, a new certificate evidencing the continuation of such insurance shall be
delivered to Landlord.
6.5 Blanket Insurance Coverage. Nothing in this Section 6 shall prevent
Landlord or Tenant from maintaining insurance of the kinds and in the amounts
required by Section 6.1, Section 6.2 or Section 6.3 under a blanket insurance
policy or policies covering other properties owned or operated by Landlord or
Tenant as well as the Premises; provided, however, that (a) each policy contains
the various provisions and coverages required by this Section 6 and (b) the
certificate for such policy includes a statement from the insurer setting forth
the coverages maintained and the amounts exclusively allocated to the Premises.
6.6 Self Insurance. Subject to the requirements of Landlord's Mortgagee,
Tenant may maintain deductibles exceeding those required in this Section 6 so
long as Tenant's Tangible Net Worth, as evidenced by the latest available
financial statements prepared by an independent Certified Public Accountant is
at least One Hundred Million and 00/100 Dollars ($100,000,000.00). "Tangible
--------
Net Worth" means, as of any time the same is to be determined, the total
- ---------
shareholders' equity (including capital stock, additional paid-in-capital and
retained earnings after deducting Treasury stock, but excluding minority
interests in subsidiaries) which would appear on the balance sheet of Tenant and
its subsidiaries determined on a consolidated basis in accordance with generally
accepted accounting principles less the sum of (a) all notes receivable from
officers and employees of Tenant and its subsidiaries; (b) the aggregate book
value of all assets which would be classified as intangible assets under
generally accepted accounting principles, including good will, patents,
trademarks, tradenames, copyrights, franchises, and deferred charges (including
unamortized debt, discount and expense, organization costs and deferred research
and development expense) and similar assets; and (c) the write-up of assets
above costs. Any undertaking by Tenant to
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assume deductibles as permitted hereunder shall not serve to adversely affect
Landlord, Landlord's managing agent or Landlord's Mortgagee, which shall be
protected against loss or damage (including to Tenant's property) in the same
manner as if Tenant had maintained the insurance required in this Section 6.
6.7 Release and Waiver of Subrogation. Notwithstanding any other provision
of this Lease, Landlord and Tenant each hereby waives, releases and discharges
the other, its agents and employees from all claims whatsoever arising out of
loss, claim, expense, damage or destruction covered or coverable by insurance
required by Section 6.1 or Section 6.3 or covered by other casualty insurance it
may carry (a "Loss"), notwithstanding that such Loss may have been caused by the
other, its agents or employees. Landlord and Tenant each hereby agrees to look
to its insurance coverage only upon such Loss. Landlord's policy or policies of
insurance described in Section 6.1 shall contain a waiver of subrogation clause
as to Tenant. Tenant's policy or policies of insurance required by Section 6.3
shall contain a waiver of subrogation clause as to Landlord.
SECTION 7. UTILITIES
Before the Commencement Date, Tenant shall pay for all utilities and.
services used by Tenant, its agents, or contractors at the Premises. During the
Lease Term, Tenant shall pay, when due, all charges and costs for utilities or
services furnished to the Premises. Tenant shall pay directly to the provider
the charges and costs of utilities which are separately metered or billed
directly to Tenant. Extra or after hours services shall be available on demand.
If any utility is jointly metered with another user or users, Tenant shall pay
an equitable portion of the charges therefore, as reasonably determined by
Landlord, within 10 days after receiving an invoice therefore from Landlord.
Landlord shall not be liable in damages or otherwise, nor shall there be an
abatement of Rent, if any utility or other service to the Premises is
interrupted or impaired by fire, accident, riot, strike, act of God, the making
of necessary repairs or improvements, or by any other cause beyond Landlord's
reasonable control.
SECTION 8. REPAIRS AND ALTERATIONS
8.1 Tenant's Repairs. Except for the one-year guaranty against defective
materials and workmanship provided for in Section 2.4, and the completion of
incomplete items provided for in Section 2.5, and subject to Section 13 and
Section 14, Tenant agrees, at its sole cost, to maintain the Premises, all parts
thereof, all loading docks contiguous thereto and all Tenant's signs in good
order, condition and repair, ordinary wear and tear excepted, including keeping
the inside of all glass in doors and windows of the Premises clean, promptly
replacing any broken door or door closers and any cracked or broken glass with
glass of like kind and quality. Tenant, at its sole cost, shall also: keep any
garbage removed on a regular basis and temporarily stored in the Premises or in
exterior dumpsters approved by Landlord; maintain, repair, and replace the
mechanical systems (including HVAC) and all utility lines serving the Premises,
including those beneath the slab and within the exterior or demising walls; keep
all mechanical apparatus free of vibration and noise which may be transmitted
beyond the Premises; and maintain a contract with a licensed and bonded
mechanical contractor reasonably acceptable to Landlord for the repair and
maintenance of the heating, ventilating and air conditioning equipment serving
the Premises in accordance with the recommendations of manufacturers and
suppliers. When used in this Section 8, the term, "repair" shall include making
all necessary replacements, renewals, alterations and additions. All repairs
shall be at least equal in quality to the original work and shall be made by
Tenant in accordance with all applicable laws, ordinances and regulations. If
Tenant fails to perform any of its obligations under this Section 8.1, Landlord
may, in addition to exercising any other remedies provided herein, perform such
repairs or maintenance. Any sums expended by Landlord in performing such
repairs or maintenance shall be due and payable, together with interest thereon
at the Agreed Rate from the date of expenditure by Landlord to file date of
repayment by Tenant, within 10 days after Tenant's receipt of Landlord's written
request for reimbursement, which request shall be accompanied by reasonable
evidence of such costs.
8.2 Landlord's Repairs. Landlord shall keep (or cause to be kept) the
structural portions of the Building, including the foundations, the exterior
surfaces of the exterior walls, the roof and, to the extent Tenant or other
Tenants are not obligated to maintain the same, all utility systems, lines and
conduits located within the Real
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Property but outside the exterior walls of the Premises in good repair, ordinary
wear and tear excepted. If the need for repair results from the business
activity being conducted within the Premises, or from the acts or omissions of
Tenant, its officers, directors, employees, agents, contractors or invitees,
Tenant shall reimburse Landlord for the reasonable costs so incurred by
Landlord. Landlord shall commence repairs required under this Section 8.2 as
soon as reasonably practicable after receiving written notice from Tenant of the
necessity for such repairs. Landlord shall have no liability for any damage or
injury arising out of any condition or occurrence causing a need for such
repairs, unless the damage or injury was caused solely by Landlord's gross
negligence. If Landlord fails to make repairs required under this Section 8.2,
Tenant shall promptly deliver to Landlord, and to any Mortgagee (provided that
Tenant has received notice of the identity and address of any such Mortgagee)
notice that such specified repairs must be performed within 30 days. If Landlord
or such Mortgagee fails to perform the specified repairs within the 30-day
period (or, if the repair cannot with due diligence be accomplished within such
period, fails to commence the repair within such period and thereafter
diligently complete the repair), Tenant may perform said repair in a good and
workmanlike manner, Landlord shall reimburse Tenant for the reasonable costs so
incurred by Tenant within 10 days after Landlord's receipt of Tenant's written
request for reimbursement, which request shall be accompanied by reasonable
evidence of such costs and final lien waivers.
8.3 Tenant's Changes and Alterations. Tenant may make any modifications,
improvements, alterations or additions to the Premises ("Work") that do not
affect the exterior appearance of the Building or the structural, electrical or
mechanical systems of the Premises or the Building and that do not in the
aggregate cost more than $10,000 in any 12 month period without obtaining
Landlord's consent, provided Tenant: (a) notifies Landlord at least 10 days
before beginning such Work; (b) delivers to Landlord a copy of the plans for
such Work, if Tenant has arranged to have plans prepared therefor; and (c)
delivers to Landlord copies of any necessary permits. Tenant shall not perform
any other Work without Landlord's prior written consent, which consent shall not
be unreasonably withheld. Along with any request for Landlord's consent and
before commencement of any Work or delivery of any materials to the Premises or
the Park, Tenant shall furnish Landlord with names and addresses of contractors
and copies of any plans and specifications, contracts and necessary permits and
licenses. All such Work shall be performed in a good and workman like manner
and in compliance with all applicable laws, ordinances and regulations. Tenant
hereby agrees to defend and indemnify Landlord against any and all claims and
liabilities of any kind connected in any way with such Work. Tenant shall pay
the cost of all such Work, and the cost of painting, restoring or repairing the
Premises and the Park occasioned by such Work.
8.4 Mechanic's Liens. Tenant shall not suffer or permit any mechanic's lien
or other lien to be filed against all or any portion of the Premises, the Real
Property or the Park because of work, labor, services, equipment or materials
supplied or claimed to have been supplied to the Premises at the request of
Tenant, or anyone holding all or any portion of the Premises through Tenant. If
any such lien is filed against all or any portion of the Premises, Tenant shall
give Landlord immediate notice of the filing and shall cause the lien to be
discharged within 10 days after Landlord's demand. If Tenant fails to discharge
such lien within such period, in addition to any other right or remedy Landlord
may have, after five days prior written notice to Tenant, Landlord may, but
shall not be obligated to, discharge the lien by paying to the claimant the
amount claimed to be due or by procuring the discharge in any other manner that
is now or may in the future be permitted by law. Any amount paid by Landlord,
together with all costs, fees and expenses in connection therewith (including
Landlord's reasonable Attorneys' Fees as defined in Section 18.20), together
with interest thereon at the Agreed Rate, shall be repaid by Tenant to Landlord
on demand by Landlord. Tenant shall indemnify and defend Landlord against all
losses, costs, damages, expenses (including reasonable Attorneys' Fees as
defined in Section 18.20), liabilities, penalties, claims, demands and
obligations, resulting from such lien.
SECTION 9. COMPLIANCE WITH LAWS
9.1 Generally. Tenant shall, at Tenant's sole cost, promptly comply with:
(a) any and all present and future laws, ordinances, orders, rules, regulations
and requirements of all federal, state, municipal and other governmental bodies
having jurisdiction over the Premises and/or the use of the Premises; and (b)
all easements, restrictions, reservations or covenants, if any, set forth in
Exhibit B, hereafter created by Tenant or requested or consented to, in writing,
by Tenant.
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9.2 Compliance with Hazardous Materials Laws. Tenant shall comply with all
federal, state and local laws, ordinances, codes, regulations, orders and
decrees, as they now exist or are hereafter amended, including all policies,
interpretations, guidelines, directions, or recommendations ("Hazardous
Materials Laws") relating to industrial hygiene, environmental protection or the
use, analysis, generation, manufacture, storage, presence, release, disposal or
transportation of any petroleum products, flammable explosives, asbestos, urea
formaldehyde, polychlorinated biphenyls, radioactive materials or waste, or
other hazardous, toxic, contaminating or polluting materials, substances or
wastes, including any materials defined as "hazardous substances," "hazardous
wastes," "hazardous materials" or "toxic substances" (collectively, "Hazardous
Materials") under any such Hazardous Materials Laws.
Tenant shall at its own expense procure, maintain in effect and comply with
all conditions of any and all permits, licenses and other governmental and
regulatory approvals required for Tenant's use of the Premises, including
discharge of (appropriately treated) materials or waste into any sanitary sewer
system serving the Premises. Tenant shall operate the Premises in a manner
designed to prevent the release of any Hazardous Materials. If any release of
any quantity of Hazardous Materials occurs in, on, under or about the Premises
of which Tenant is or becomes aware, Tenant shall promptly notify all
appropriate governmental agencies and Landlord. Tenant shall promptly and fully
investigate, remediate and remove all such Hazardous Materials released by
Tenant, its employees, agents or invitees, in accordance with all applicable
governmental requirements and shall restore the affected portions of the Park.
Tenant shall promptly provide Landlord with copies of all reports, analyses and
correspondence in Tenant's possession relating to such release and the
remediation thereof. Upon expiration or earlier termination of this Lease,
Tenant shall cause all Hazardous Materials located in, on, under or about the
Premises as a result of the acts or omissions of Tenant to be removed from the
Premises and transported for use, storage or disposal in compliance with all
applicable Hazardous Materials Laws. Tenant shall not take any remedial action
in response to the presence of any Hazardous Materials in, on, about or under
the Premises or any Improvements situated in the Park, nor enter into any
settlement agreement, consent decree or other compromise with respect to any
claims relating to the Premises or the Park without first notifying Landlord of
Tenant's intention to do so and affording Landlord ample opportunity to appear,
intervene or otherwise protect Landlord's interest with respect thereto. At the
expiration or earlier termination of this Lease, Tenant shall remove all tanks
or fixtures which were placed on the Premises (except for any placed by
Landlord) during the term of this Lease and which contain, have contained or ate
contaminated with, Hazardous Materials.
Tenant shall notify Landlord in writing immediately upon receiving notice
of (a) any enforcement, clean-up, removal or other governmental or regulatory
action effecting the Premises instituted, completed or threatened pursuant to
any Hazardous Materials Laws; (b) any claim made or threatened by any person
against Tenant, Landlord or the Premises, relating to damage, contribution, cost
recovery, compensation, loss or injury resulting from or claimed to result from
any Hazardous Materials; and (c) any reports made to any environmental agency
arising out of or in connection with any Hazardous Materials in, on or about the
Premises or with respect to any Hazardous Materials removed from the Premises.
Tenant shall also provide to Landlord, as promptly as possible, and in any event
within five business days after Tenant first receives or sends the same, copies
of all claims, reports, complaints, notices, warnings or asserted violations
relating in any way to the Premises or Tenant's use thereof. Upon written
request of Landlord, Tenant shall promptly deliver to Landlord copies of
hazardous waste manifests, if Tenant is required by applicable law to obtain
such manifests, reflecting the legal and proper disposal of all such Hazardous
Materials removed or to be removed from the Premises. All such manifests shall
list Tenant or its agent as a responsible party and in no way shall attribute
responsibility for any such Hazardous Materials to Landlord.
9.3 Hazardous Materials Representation by Landlord. To Landlords knowledge,
Landlord is not aware of any Hazardous Materials which exist or are located on
or in the Premises, except as may be disclosed in that certain environmental
site assessment prepared by Terra Associates, Inc., dated March 16, 1996, as its
Project No. T-1285-8. Further, Landlord represents to Tenant that, to the best
of its knowledge, Landlord has not caused the generation, storage or release of
Hazardous Materials upon the Premises, except in accordance with Hazardous
Materials Laws and prudent industry practices regarding construction of the
Premises.
9.4 Indemnification. Tenant shall defend (with counsel reasonably
acceptable to Landlord) and indemnify Landlord and Landlord's officers,
directors, partners, managers, members, employees, agents, successors
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and assigns against any and all claims, liabilities, damages, costs, penalties,
forfeitures, losses, obligations, investigation costs, remediation and removal
costs, natural resource damages and expenses (including Attorneys' Fees)
(collectively "Damages") arising in whole or in part, directly or indirectly,
from (a) the presence or release of Hazardous Materials, in, on, under, upon or
from the Premises as a result of acts or omissions of Tenant or its employees,
agents or invitees; (b) the transportation or disposal of Hazardous Materials to
or from the Premises by, at the request or with the permission of Tenant, its
employees, agents or invitees; (c) the violation of any Hazardous Materials Laws
by Tenant, its employees or agents; (d) the failure of Tenant, its employees or
agents to comply with the terms of this Section 9 or (e) the use, storage,
generation or disposal of Hazardous Materials in, on or about the Premises by
Tenant or its employees, agents contractors, assignees, sublesees or invitees
during the Term of this Lease. Except in the foregoing cases where Tenant shall
defend and indemnify Landlord, Landlord shall defend (with counsel reasonably
acceptable to Tenant) and indemnify Tenant, its officers, directors, employees,
agents, successors and assigns against any and all Damages arising out of the
presence or release of Hazardous Materials in, on or about the Premises released
by Landlord, its employees, agents, contractors or invitees (other than Tenant).
The parties recognize that neither party is indemnifying the other for Damages
arising out of acts of third parties not under either party's control. The
respective rights and obligations of Landlord and Tenant under this Section 9
shall survive the expiration or earlier termination of this Lease.
9.5 Environmental Site Assessments. Upon request by Landlord during the
term of this Lease, prior to the exercise of any Renewal Term and/or prior to
vacating the Premises, Tenant shall obtain and submit to Landlord an
environmental site assessment from an environmental consulting company
reasonably acceptable to Landlord and Tenant, which assessment shall evidence
Tenant's compliance with this Section 9.
9.6 Americans with Disabilities Act. Landlord's obligations with respect to
the Building include compliance with the Americans with Disabilities Act of
1990, and all regulations and rules promulgated thereunder (the "ADA") as
existing, interpreted and enforced as of the Commencement Date. All such
compliance with the ADA shall be at Landlord's sole cost and expense, except
that Tenant shall be solely responsible for any costs resulting from (a) new
regulations or amendments to, or interpretations of, the ADA which become
effective after 'Tenant has accepted delivery of the Premises from Landlord and
which pertain to the Premises rather than the Common Area; (b) any special
requirements needed for the Park or the Premises to comply with ADA that were
caused by Tenant's specific use, requirements or configuration of the Premises;
(c) any requirements related to reasonable accommodations for any of Tenant's
current or prospective employees; and (d) operation of Tenant's business in
compliance with the ADA. If Landlord is required to make any improvement or
modification to the improvements located on the Real Property to comply with the
requirements of any amendments or regulations to or interpretations of the ADA
that become effective after the Commencement Date, the cost of such improvement
and/or modification (amortized over its useful life) shall be included in
Operating Expenses.
SECTION 10. INDEMNIFICATION
10.1 Tenant's Indemnity. Tenant shall defend (using legal counsel
reasonably acceptable to Landlord) and indemnify Landlord, its Mortgagees,
agents and employees from any claims, expenses (including Attorneys' Fees or
damages of any kind arising in connection with (a) the occupancy or use of the
Premises by Tenant, its agents, customers, employees, contractors, subtenants or
assignees; (b) Tenant's breach of its obligations under this Lease; (c) any
grossly negligent or wrongful act or omission of Tenant, its agents, customers,
employees, contractors, subtenants or assignees; or (d) Landlord's inability to
obtain prompt entry to the Building because of Tenant's security system. The
provisions of this Section 10.1 shall survive expiration or termination of this
Lease and shall include all claims against Landlord by any employee or former
employee of Tenant. Landlord and Tenant have specifically negotiated and Tenant
specifically waives any provisions of any industrial insurance act, including
Title 51 of the Revised Code of Washington, or any other employee benefit act
which might otherwise operate to release or immunize Tenant from its obligations
under this Section 10.1.
10.2 Landlord's Indemnity. Landlord shall defend (using legal counsel
reasonably acceptable to Tenant) and indemnify Tenant, its agents and employees
from any claims, expenses (including Attorneys' Fees) or damages of any kind
arising in connection with any breach by Landlord of its obligations under this
Lease and any grossly
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negligent or wrongful act or omission of Landlord, its agents, customers,
employees or contractors. The provisions of this Section 10.2 shall survive
expiration or termination of this Lease and shall include, but not be limited
to, all claims against Tenant by any employee or former employee of Landlord.
Landlord and Tenant have specifically negotiated and Landlord specifically
waives any provisions of any industrial insurance act, including Title 51 of the
Revised Code of Washington, or any other employee benefit act which might
otherwise operate to release or immunize Landlord from its obligations under
this Section 10.2.
10.3 Limitation on Indemnities. In compliance with RCW 4.24.115 as in
effect on the date of this Lease, all provisions of this Lease pursuant to which
a party agrees to indemnify another party against liability for damages arising
out of bodily injury to persons or damage to property ("Damages") in connection
with the construction, a alteration, repair, addition to, subtraction from,
improvement to or maintenance of any improvement attached to the Property
("Indemnities") shall be limited by the provisions of this Section 10.3. None of
such Indemnities shall apply to damages caused by or resulting from the sole
negligence of the indemnitee, its agents or employees. To the extent that any
such Damages are caused by or result from the concurrent negligence of (a) the
indemnitee or its agents or employees and (b) the indemnitor or its agents or
employees, the Indemnities shall apply only to the extent of the indemnitor's
negligence. If RCW 4.24.115 is hereafter amended to eliminate or modify the
limitations on indemnities set forth therein, this Section 10.3 shall
automatically and without further act by either party be deemed amended to
remove any of the limitations contained in this Section 10.3 that are no longer
required by the then-applicable law.
10.4 Personal Property Damage. It is the intention of the parties that each
party to this Lease insure its personal property to the extent it desires.
Accordingly, notwithstanding the other provisions of this Lease, to the extent
permitted by applicable law, Tenant and Landlord each releases the other and
their agents and employees from, and waives all claims for damage to personal
property sustained by it or any occupant of the Premises. Each party agrees to
look to its insurance coverage only, if any, in the event of such loss. All
property belonging to Landlord, Tenant or any other occupant of the Premises
that is in, on or about the Premises, shall be there at the risk of Landlord,
Tenant or such other occupant only.
SECTION 11. DEFAULTS OF TENANT
11.1 Events of Default. The occurrence of any of the following ("Events of
Default") shall constitute default and breach of this Lease by Tenant:
(a) If Tenant fails to pay any installment of Fixed Rent or Additional
Rent, when and as the same shall become due and payable;
(b) If Tenant or its guarantor makes any general assignment or
arrangement for the benefit of creditors; the filing by or against Tenant
or Tenant's guarantor of a petition to have Tenant or Tenant's guarantor
adjudged a bankrupt, or a petition for reorganization or arrangement under
any law relating to bankruptcy or insolvency; the appointment of a trustee
or receiver to take possession of all or any part of Tenant's or Tenants
guarantor's assets or of Tenants interest in this Lease (Tenant shall
immediately notify Landlord upon the occurrence of any event described in
this Section 11. 1 (b)); or
(c) If Tenant fails to keep, observe or perform any other obligation,
term, covenant or condition contained in this Lease, other than those
referred to in Section 11.1 (a) or 11.1 (b).
11.2 Right to Cure. Tenant shall have the right to cure an Event of Default
referred to in Section 11.l(a) by making the required payment within 5 business
days after receiving written notice of default from Landlord. Tenant shall have
the right to cure an Event of Default referred to in Section 11.1 (b) by
securing the dismissal of a petition filed against Tenant or Tenant's guarantor,
or by securing the restoration of possession to Tenant or Tenant's guarantor,
within 30 days. Tenant shall have the right to cure an Event of Default referred
to in Section 11.1 (c) within 30 days after receiving written notice of such
default from Landlord; provided that if such failure cannot with due diligence
be cured within 30 days, Tenant shall have the right to cure the default if
Tenant commences such cure promptly and within the 30 day period and thereafter
diligently and prosecutes such cure to completion.
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11.3 Remedies for Default by Tenant. Upon Tenant's failure to cure an Event
of Default, Landlord may exercise one or more of the following remedies in
addition to any other remedies available under the laws of the State of
Washington:
(a) Landlord may terminate the Lease by notice to Tenant. Unless and
until Landlord gives Tenant written notice stating specifically that
Landlord has elected to terminate the Lease pursuant to this Section I
13(a), no termination of Tenant's right to possession of the Premises, acts
of maintenance, efforts to relet the Premises, the reletting of the
Premises or the appointment of a receiver to protect Landlord's interest
under this Lease shall constitute a termination of this Lease. Termination
shall be without prejudice to Landlord's right to recover damages for the
default.
(b) Landlord may terminate Tenant's right to possession of the
Premises, retake possession if necessary and relet the Premises upon any
reasonable terms. All Rent received by Landlord from such reletting shall
be applied first to the payment of any amounts other than Rent due
hereunder from Tenant to Landlord; second, to the payment of any costs of
such reletting and of alterations and repairs; third, to the payment of
Rent due and unpaid; and the residue, if any, shall be held by Landlord and
applied to the payment of future Rent as it becomes due under the terms of
this Lease. Upon a reletting of the Premises, Landlord shall not be
required to pay Tenant any sums received by Landlord in excess of amounts
payable in accordance with this Lease.
(c) Whether or not the Lease is terminated or possession is retaken,
Landlord may recover all damages caused by the Event of Default. Landlord
may, in one action, recover accrued damages plus damages attributable to
the remaining Lease Term equal to the present value of the difference
between the aggregate Fixed Rent and Additional Rent under this Lease for
the remaining portion of the Lease Term and the Rent received or to be
received by Landlord during the same period under any new lease. In the
computation of present value, a discount at the rate of 6% per annum shall
be employed. Landlord's damages shall include all of Landlord's reasonable
expenses in connection with any reletting or attempt to relet, including
all costs of retaking possession of the Premises, brokerage commissions,
costs of preparing and altering the Premises and reasonable Attorneys'
Fees.
SECTION 12. INSOLVENCY
Landlord and Tenant (as either debtor or debtor-in-possession) agree that
if a petition is filed by or against Tenant (each a "Petition") tinder any
chapter of Title 11 of the United States Code as it now exists or is hereafter
amended (the "Bankruptcy Code"), and is not dismissed within 30 days: (a) Tenant
shall perform each and every obligation of Tenant under this Lease, until such
time as this Lease is either rejected or assumed; (b) adequate protection for
the performance of Tenant's post-Petition but pre-assumption or pre-rejection
obligations tinder this Lease shall be provided within 30 business days after
the filing and shall be in the form of a security deposit to be held by the
court or an independent escrow agent approved by the court, in an amount equal
to all amounts then payable by Tenant to Landlord under the terms of the Lease
during a one-month period; (c) Tenant shall give Landlord at least 30 days prior
written notice of any abandonment of the Premises; (d) if Tenant abandons the
Premises, Tenant stipulates to the entry, without notice to any party, of an ex
parte order modifying the stay to permit Landlord to take reasonable steps to
secure the Premises, including changing the locks, putting lights on timers and
covering the windows; (e) if Tenant has failed to timely and fully perform any
of its obligations under this Lease before the filing of the Petition, whether
or not Landlord has given Tenant written notice of said failure and whether or
not any time period for performance or cure set forth in Section 11 has expired
before the filing of the Petition, Tenant shall be deemed to have been in
default on the date the Petition was filed; (1) Tenant shall provide Landlord
with 30 days prior written notice of the proposed assumption or assignment of
this Lease, which notice shall set forth (1) the compensation for pecuniary loss
to be provided to Landlord, (2) the adequate assurance of prompt cure and future
performance to be provided to Landlord, (3) the name, address, state and federal
tax identification numbers, and any other federal, state or local registration
numbers, of any proposed assignee and (4) all of the terms and conditions of any
proposed assignment; (g) prompt cure of defaults shall mean cure within 30 days
after assumption; (h) adequate assurance of future performance of this Lease
after assumption by Tenant or any proposed assignee will require that Tenant or
the proposed assignee deposit with Landlord as security for such future
performance, an amount equal to 3 months of Fixed Rent and Additional Rent; and
(i) if this Lease is to be
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assigned, adequate assurance of future performance by the proposed assignee
shall also require that (1) the assignee demonstrate that it has the business
experience and financial ability to perform Tenant's obligations under this
Lease and operate the Premises in the manner contemplated by this Lease, (2) the
Premises will remain a single space and no physical changes of any kind will be
made to the Premises without complying with the applicable provisions of this
Lease and (3) the assignee assumes any obligations of Tenant to pay for
improvements to the Premises constructed by Landlord, which obligations are
contained in any agreement or instrument other than this Lease. Tenant shall do
all other things of benefit to Landlord that are otherwise permitted under the
Bankruptcy Code.
SECTION 13. DAMAGE AND RESTORATION
13.1 Repair Obligations. Subject to the terms of Section 13.2, if any of
the Premises, Common Areas or improvements located on the Real Property is
damaged by fire or other casualty for which Landlord is carrying or required by
this Lease to carry insurance, Landlord shall repair such damage at its expense.
If the damage is an insured loss, as long as Landlord is diligently pursuing
collection of the insurance proceeds, repair shall commence upon receipt of the
proceeds, provided that repair shall commence within 90 days after the damage.
Landlord shall not be obligated to repair Tenant's personal property, equipment
or improvements installed by Tenant. Landlord's obligation to repair under this
Section 13.1 shall be limited to the extent of the insurance proceeds available
to Landlord for such restoration. Tenant agrees that it will proceed with
reasonable diligence at its sole cost to rebuild, repair and/or replace its
signs, fixtures and equipment.
13.2 Termination Rights. If any damage or destruction to the Premises
cannot in Landlord's reasonable judgment be repaired within 180 days after the
date of damage, Landlord shall give Tenant notice thereof within 30 days after
the date of damage, and either Tenant or Landlord may terminate this Lease by
delivering written notice to the other within 30 days after the date Tenant
receives Landlord's notice. If (a) the cost to repair any damage to the Premises
exceeds 50% of the insurable replacement cost of the Premises or (b) the portion
of the damage that is uninsurable through reasonable insurance policies
typically maintained by landlords in the greater Seattle-Bellevue-Renton
metropolitan area exceeds $100,000, and Landlord elects not to repair such
damage, then Landlord shall have the right to terminate this Lease by written
notice to Tenant given within 60 days after the date such damage occurred. If
the cost to repair damage to the Premises that occurs during the last 24 months
of the Lease Term exceeds 30% of the insurable replacement cost of the Premises,
either party shall have the option to terminate this Lease by giving written
notice to the other party within 60 days after the date of damage, unless Tenant
exercises its renewal option within 10 days after receiving Landlord's notice.
If the cost to repair damage to the improvements located on the Real Property
exceeds 50% of the insurable replacement cost of all improvements located on the
Real Property, whether or not such damage can be repaired within 180 days,
Landlord may, by giving written notice to Tenant within 90 days after the date
of such damage, terminate this Lease as of a date specified in the notice, which
date may not be less than 45 days or more than 90 days after the date of the
notice.
13.3 Rent Apportionment and Abatement. If the Premises are damaged, Fixed
Rent and Additional Rent shall be abated by the same percentage as the
percentage of the Premises damaged from the date of damage to the date the
damage is repaired or this Lease terminates.
SECTION 14. CONDEMNATION
14.1 General Rights Upon Condemnation. If all or any portion of the Real
Property or the Premises are taken under the power of eminent domain exercised
by any governmental or quasi-governmental authority (the "Condemning
Authority"), or are conveyed in lieu thereof (a "Condemnation"), this Lease
shall automatically terminate as to the portion condemned as of the date that
possession and use are transferred to the Condemning Authority (the
"Condemnation Date"). The Landlord shall have the exclusive right to grant
possession and use to the Condemning Authority. Landlord shall give Tenant
written notice (a "Condemnation Notice") specifying the extent of the taking and
the anticipated Condemnation Date promptly after it receives such information.
If more than 35% of the Premises or more than 20% of the Common Areas are taken
by Condemnation, either Landlord or Tenant shall have the right to terminate
this Lease by giving written notice to the other within 60 days after the date
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of the Condemnation Notice. If more than 30% of the Buildings owned by Landlord
in the Park are taken by Condemnation and Landlord elects not to repair,
restore, alter or reconstruct the same, Landlord may elect to terminate this
Lease by giving written notice to Tenant within 60 days after the date of the
Condemnation Notice. Any such termination shall be effective as of the
Condemnation Date. If this Lease is terminated pursuant to this Section 14.1,
Landlord and Tenant shall be released from any liability arising after the
termination date, but all Fixed Rent, Additional Rent and other amounts payable
under this Lease shall be paid to the termination date. If this Lease will not
terminate, the Fixed Rent shall be reduced pro-rata based upon the percentage of
Tenant's floor area condemned, and Tenant's Pro Rata Share shall be
recalculated. Landlord shall make such repairs and alterations necessary to
restore the portion of the Premises not condemned to a condition reasonably
satisfactory for Tenant's use; provided that at least 3 years of the Lease Term
remain and that Landlord's obligation shall be limited to the amount of the
Condemnation Award available therefore after deducting all costs of obtaining
the Condemnation Award. Within 60 days after the amount of the Condemnation
Award available for restoration is known, Landlord shall give Tenant reasonable
notice of the repairs and alterations Landlord anticipate making to restore the
portion of the Promises not condemned. If Tenant reasonably determines that the
anticipated repairs and alterations are insufficient to restore such portion of
the Premises to a condition reasonably satisfactory for Tenant's use, Tenant
shall have the right to terminate this Lease by giving notice to Landlord within
10 days after receiving Landlord's notice describing the repairs and
alterations.
14.2 Award. Landlord shall be entitled to receive the entire award in any
condemnation proceeding ("Condemnation Award"), including any award for the
value of any unexpired portion of the Term of this Lease. Tenant shall have the
right to claim and recover from the Condemning Authority, but not from Landlord,
such compensation as may be separately recoverable by Tenant for Tenant's moving
expenses or the taking of Tenant's personal property other than Tenant's
leasehold interest; provided that such compensation may not reduce the amount
awarded to Landlord.
SECTION 15. ASSIGNMENT, SUBLETTING, ETC.
15.1 Permitted Subletting and Assigning by Tenant. Provided that Tenant is
not in default at the time, and subject to other applicable provisions of this
Lease, Tenant shall have the right to sublet the Premises (in whole or in part)
to a Successor Corporation or a Related Corporation for so long as it remains a
Related Corporation of Tenant. "Related Corporation" means a corporation,
limited liability company, partnership or other business entity, which, directly
or indirectly, is owned by or under common ownership with Tenant. "Successor
Corporation" means a corporation, limited liability company, partnership or
other business entity into or with which Tenant is merged or consolidated or to
which all or substantially all of the assets and goodwill of Tenant are
transferred, which assumes substantially all of the liabilities of Tenant and
has a net worth (determined in accordance with generally accepted accounting
principles) at least equal to the net worth of Tenant immediately prior thereto.
15.2 Restriction on Transfer. Except as permitted by Section 15.1, Tenant
shall not sublet all or any portion of the Premises nor assign, mortgage, pledge
or otherwise encumber or transfer this Lease, or any interest herein, or in any
manner assign, mortgage, pledge, or otherwise encumber or transfer its interest
or estate in all or any portion of the Premises (each a "Transfer") without
obtaining Landlord's prior written consent in each and every instance, which
consent shall not be unreasonably withheld or delayed. For purposes of this
Section 15, a change in control of Tenant, however effected, including by
operation of law, shall be deemed to be a Transfer of this Lease. For the
purposes of this Section 15.2, the term "control" shall mean the possession of
the power to direct or cause the direction of the management and policies of
Tenant, whether through ownership of voting securities, by contract or
otherwise. The change in control provisions of this Section 15.2, however,
shall not apply to any Tenant corporation the outstanding voting stock of which
is listed on a national securities exchange or actively traded over-the-counter.
In determining whether or not to grant its consent to a Transfer request, Tenant
agrees that failure to satisfy any one of the following factors, or any other
reasonable factor, will be reasonable grounds for Landlord denying Tenant's
request: (a) the financial strength of the proposed subtenant/assignee, as
evidenced by audited financial statements, certified by an independent certified
public accountant (or, if such audited statements are unavailable, financial
statements may be certified by the chief financial officer of any such proposed
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subtenant/assignee), is not sufficient to reasonably assure Landlord that it can
perform Tenant's obligations under this Lease, or is not at least equal to that
of Tenant as of the date of this Lease; (b) the use of the Premises by the
proposed subtenant/assignee will violate any agreements affecting the Premises,
the Landlord or the Park, or will constitute a nuisance, disturb or endanger
occupants of the Park, interfere with their use of their respective premises, or
tend to injure the reputation of the Park; and/or (c) the assignment or sublease
would be to any person or entity which is (or immediately prior to such
subletting or assignment was) an occupant or tenant of the Park.
15.3 Transfer Requirements. Any transfer permitted under the terms of
Section 15.1 or consented to by Landlord under the terms of Section 15.2 or
Section 15.4 shall comply with the following requirements:
(a) Any assignment of this Lease shall transfer to the assignee all of
Tenant's right, title and interest in this Lease and all of Tenant's estate
or interest in the Premises.
(b) Any assignee shall assume, by written, recordable instrument, all
of Tenant's obligations under this Lease. Such assumption agreement shall
state that the same is made by the assignee for the express benefit of
Landlord as a third party beneficiary. A copy of the assignment and
assumption agreement, in form and content satisfactory to Landlord, fully
executed and acknowledged by assignee, together with a certified copy of a
properly executed corporate resolution (if the assignee is a corporation)
authorizing the execution and delivery of such assumption agreement, shall
be sent to Landlord at least 10 days before the effective date of the
assignment.
(c) In the case of a subletting, a copy of any sublease fully executed
and acknowledged by Tenant and the sublessee shall be mailed to Landlord at
least 10 days before the effective date of the subletting.
(d) Any Transfer shall be subject to all the provisions, covenants and
conditions of this Lease. Tenant-transferor, any guarantor or guarantors
of this Lease and any assignee or assignees shall remain liable under this
Lease, as it may be amended from time to time, without notice to the
assignor or any guarantor.
(e) Tenant shall reimburse Landlord for any and all reasonable costs
of Landlord, including reasonable attorneys' fees paid or payable to
outside counsel, occasioned by such assignment or subletting.
15.4 Restriction From Further Assignment. Notwithstanding any consent by
Landlord to any Transfer, no sublessee shall assign its sublease or further
sublease all or any portion of the Premises, and no assignee shall further
assign its interest in this Lease or its interest or estate in all or any
portion of the Premises, or sublease all or any portion of the Premises, without
Landlord's prior written consent in each and every instance. Landlord and
Tenant agree that, in determining whether or not to grant its consent, Landlord
may consider any reasonable factor, including the factors described in Section
15.2, and failure to satisfy any one of the factors will be reasonable grounds
for denying the request.
15.5 Landlord's Termination Rights. Except for transfers permitted by
Section 15.1, notwithstanding anything contained in this Lease to the contrary,
if Tenant desires to (a) assign its entire interest in this Lease, or its
interest or estate in the entire Premises; (b) sublet the entire Premises; or
(c) sublet any portion of the Premises for the entire then remaining portion of
the Lease Term, Tenant shall give written notice of its intention to do so to
Landlord 60 days or more before the effective date of such proposed assignment
or subletting. Landlord may, at any time within 30 days after receiving such
notice from Tenant, cancel this Lease or, in the case of (c), the portion of the
Premises which Tenant wishes to sublet, by giving Tenant written notice of its
intention to do so, in which event such cancellation shall become effective upon
the date specified by Landlord, which date shall not be less than 30 days nor
more than 90 days after its receipt by Tenant. Landlord may enter into a direct
lease with the proposed sublessee or assignee or with any other persons without
obligation or liability to Tenant, its assignees, sublessees or their respective
successors, assigns, agents or brokers.
15.6 Sharing of Excess Rent. Except for transfers permitted by Section
15.1, if Landlord consents to Tenant assigning its interest under this Lease or
subletting all or any portion of the Premises, Tenant shall pay to Landlord (in
addition to all other amounts payable by Tenant under this Lease) 80% of the net
rents and other consideration payable by such assignee or subtenant in excess of
the Rent and other amounts otherwise payable by
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Tenant from time to time under this Lease, after deducting all of Tenant's
reasonable expenses in connection with such assigning or subletting, including
all brokerage commissions, legal expenses, reasonable Attorneys' Fees,
alteration costs, and expenses of preparing the Premises. The additional amount
payable by Tenant shall be determined by application of the rental rate per
square foot for the Premises or any portion thereof sublet. The additional
amount shall be paid to Landlord immediately upon receipt by Tenant. If any part
of the consideration received by Tenant for an assignment or subletting will be
payable other than in cash, the payment to Landlord shall be in cash for its
share of non-cash consideration based upon its fair market value.
SECTION 16. SUBORDINATION, NONDISTURBANCE, NOTICE TO MORTGAGEE
16.1 Subordination by Tenant. This Lease and all rights of Tenant
herein, and all interest of Tenant in the Premises, shall be subject and
subordinate to the lien of any Mortgage which at any time may be placed upon all
or any portion of the Park by Landlord. For the purposes of this Lease, the term
"Mortgage" means any mortgage, deed of trust, sale and leaseback used for
financing purposes, or other security instrument; any replacements, renewals,
amendments, modifications, extensions or refinancings thereof, and each and
every advance made under any Mortgage. For the purposes of this Lease, the term
"Mortgagee" means the beneficial owner of any encumbrance created by a Mortgage
and, in the case. of a sale and leaseback, the leaseback lessor. In order to
confirm such subordination, Tenant agrees at any time, and from time to time on
demand of Landlord, to execute and deliver to Landlord any instruments, releases
or other documents that may be reasonably required for the purpose of confirming
the subordination, including an instrument in the form of Exhibit E. So long as
Tenant is not in default in the performance of any of Tenant's obligations under
this Lease, such subordination shall not interfere with Tenant's right to quiet
enjoyment under this Lease.
16.2 Attornment. If any Mortgagee succeeds to the rights of Landlord
under this Lease or to ownership of the Premises, whether through possession,
foreclosure or the delivery of a deed to the Premises, upon the written request
of such Mortgagee, Tenant shall attorn to and recognize such Mortgagee as
Tenant's landlord under this Lease, and shall promptly execute and deliver any
instrument that such Mortgagee may reasonably request to evidence such
attornment.
SECTION 17. SIGNS
Tenant may, at its sole cost, erect signs on the exterior or interior of
the Building, provided that such sign or signs (a) do not cause any structural
or other damage to the Building; (b) do not violate applicable governmental
laws, ordinances, rules or regulations; (c) do not violate any existing
restrictions affecting the Premises; (d) are in accordance with the sign
standards set forth on Exhibit F attached hereto; and (e) are approved in
advance by Landlord (which approval shall not be unreasonably withheld) and the
City of Redmond. Tenant, upon vacating the Premises or removing or altering its
signs for any reason, shall repair, paint and/or replace the Building surfaces
where its signs were attached. Landlord shall, at its cost, provide a monument
sign for the Park and allow Tenant, at Tenant's sole cost, to install its panel
thereon.
SECTION 18. MISCELLANEOUS PROVISIONS
18.1 Access to Premises. Tenant shall have free access to the Premises
all day every day. Tenant shall permit Landlord and its authorized
representatives to enter the Premises at all reasonable times after reasonable
notice (except in case of emergency) for the purpose of inspecting the Premises,
making any changes to Building systems, making any repairs required or permitted
by the terms of this Lease or conducting any reasonable test or environmental
audit of the Premises or Tenant's operation or use of the Premises to determine
Tenant's compliance with this Lease. Landlord may, during the progress of any
such work, store necessary materials, tools and equipment at the Premises.
Landlord shall not be liable for, and the obligations of Tenant shall not be
affected by, inconvenience, disturbance, loss of business or other damage caused
by Landlord in connection therewith, provided that Landlord makes reasonable
efforts to avoid interfering with the conduct of Tenant's business.
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18.2 Exhibition of Premises. Landlord shall have the right during normal
business hours at any time during the Lease Term, after reasonable notice, to
enter the Premises to exhibit the same for the purpose of mortgaging or selling
the Real Property and, during the final 6 months of the Lease Term and/or any
time after Tenant gives Landlord a termination notice pursuant to Section 1.3 to
exhibit the Premises to prospective Tenants. Landlord shall have the right to
display on the Premises, in a manner that does not unreasonably interfere with
Tenant's business, signs indicating that the Premises are for sale and, during
the final 6 months of the Lease Term and/or anytime after Tenant give Landlord a
termination notice pursuant to Section 1.3, signs indicating that the Premises
are for rent.
18.3 Estoppel Certificates. Landlord and Tenant shall, each without
charge at any time and from time to time, within 10 business days after written
request by the other party, execute and deliver to the requesting party or any
person whom the requesting party may designate, an estoppel certificate
certifying: (a) that this Lease (and all guaranties, if any) is unmodified and
in full force and effect (or, if there have been modifications, that the same is
in full force and effect, as modified, and stating the modifications); (b) the
dates to which the Fixed Rent or Additional Rent have been paid in advance; (c)
whether or not there are then existing any breaches or defaults by such party or
the other party known by such party and specifying such breach or default, if
any; (d) whether or not there are then any setoffs or defenses against the
enforcement of any term of this Lease (or of any guaranties) (and, if so,
specifying the same and the steps being taken to remedy the same); and (e) such
other statements or certificates as Landlord or any Mortgagee may reasonably
request, including an Estoppel Certificate in the form. attached as Exhibit 0.
It is the intention of the parties that any statement delivered pursuant to this
Section 18.3 may be relied upon by any persons dealing with Landlord, Tenant or
the Premises.
18.4 Notices. All notices, demands and requests which may be or are
required to be given by either party to the other shall be in writing and shall
be sent by United States certified mail, postage prepaid or by a nationally
recognized independent overnight courier service, addressed to Landlord at Opus
Northwest, L.L.C., Attn: John Solberg, Vice President, 200 112th Avenue NE,
Suite 205, Bellevue, WA 98004, with a copy to each of Tousley Brain PLLC, Attn:
Russell F. Tousley, P.S., 56th Floor, Key Tower, 700 Fifth Avenue, Seattle, WA
98104-5056 and Opus U.S. Corporation, Attn: Legal Department 800 Opus Center,
9900 Bren Road East, Minnetonka, MN 55343, and addressed to Tenant at Primex
Aerospace Company, Attn: Scott Neish, Vice President, P.O. Box 97009 (98073-
9709), 11441 Willows Rd. N.E., Redmond, WA 98052-2501 with a copy to Primex
Aerospace Company, Attn: General Counsel, P.O. Box 97009 (98073-9709), 11441
Willows Rd. N.E., Redmond, WA 98052-2501 or to such other address which is not a
post office box as either party may from time to time designate by written
notice to the other. Any notice, demand or request which is given as described
shall be deemed to be given on the date it is delivered to a courier or 3 days
after it is deposited in the mail.
18.5 Annual Statements. Upon request by Landlord at any time more than
135 days after the end of Tenant's applicable fiscal year, Tenant shall promptly
deliver to Landlord a copy of Tenant's financial statement for such fiscal year,
and a financial statement of any guarantor of Tenant's obligations under this
Lease for such guarantor's fiscal year, which financial statement or statements
shall be prepared in accordance with generally accepted accounting principles
and certified as correct by the auditors or the Chief Financial Officer of
Tenant or its guarantors, as the case may be. Such financial statements may
contain confidential or proprietary information not available to the general
public and shall only be used by Landlord to evaluate the Tenant's financial
condition and shall, except as follows, be kept confidential. Landlord may
further disclose such financial statements to its mortgage lender (or potential
lender), accountants or other financial advisors or analysts, or any potential
purchaser of the Project, provided that they have also agreed to. the foregoing
limit on use and confidentiality
18.6 Landlord's Continuing Obligations. The term "Landlord," as used in
this Lease so far as obligations on the part of Landlord are concerned, shall
mean only the owner or owners of fee title to the Premises at the time in
question, and upon any transfer, the then grantor shall be automatically freed
and relieved after the date of such transfer of all liability for the
performance of any obligations on the part of the landlord contained in this
Lease thereafter to be performed, provided that any funds in the hands of such
landlord or the then grantor at the time of such transfer, in which Tenant has
an interest, shall be turned over to the grantee, and any amount then due and
payable to Tenant by Landlord or the then grantor under any provision of this
Lease shall be paid to Tenant. The Landlord's obligations contained in this
Lease shall, subject to the aforesaid, be binding on Landlord's
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successors and assigns, during and in respect of their respective successive
periods of ownership. Nothing herein contained shall be construed as relieving
Landlord of its obligations under Section 2 of this Lease, or releasing Landlord
from any obligation to complete the cure of any breach by Landlord during the
period of its ownership of the Premises.
18.7 Surrender of Premises. At the expiration or termination of the term
of this Lease, Tenant shall surrender the Premises in the same condition it was
in upon delivery of possession on the Commencement Date, reasonable wear and
tear excepted, shall surrender all keys to the Premises to Landlord at the place
then fixed for the payment of Fixed Rent and shall inform Landlord of all
combinations on any locks, safes and vaults. On or before expiration or
termination of this Lease, Tenant shall remove all of its personal property and
any fixtures, alterations and improvements installed by Tenant which Landlord
directs Tenant to remove (other than Landlord's Improvements). Tenant shall
repair any damage to the Premises caused by such removal and restore the
affected Portions of the Premises. Tenant shall be liable for Fixed Rent and
Addition Rent until the removal, repair and restoration has been completed. Any
and all such property, alterations and improvements not so removed within 30
days after expiration or termination of this Lease shall, at Landlord's option,
become the exclusive property of Landlord or be disposed of by Landlord, at
Tenant's cost, without further notice to or demand upon Tenant. Tenant agrees
that its failure to remove any such property, alterations or improvements within
30 days after the expiration or earlier termination of this Lease shall be
conclusive evidence of Tenant's intention to abandon the same. If the Premises
is not surrendered as set forth above, Tenant shall indemnify, defend and hold
Landlord harmless against loss or liability resulting from the delay by Tenant
in so surrendering the Premises, including, without limitation, any claim made
by any succeeding occupant based upon such delay. Tenant's obligation to observe
or perform this covenant shall survive the expiration or other termination of
this Lease.
18.8 Rules and Regulations. Tenant shall perform, observe and comply
with all reasonable nondiscriminatory rules and regulations established by
Landlord for the Park from time to time, including the Rules and Regulations
attached as Exhibit H.
18.9 Severability. If any covenant, condition, provision, term or
agreement of this Lease shall, to any extent, be held invalid or unenforceable,
the remaining covenants, conditions, provisions, terms and agreements of this
Lease shall not be affected thereby, but each covenant, condition, provision,
term or agreement of this Lease shall be valid and in force to the fullest
extent permitted by law.
18.10 Successors and Assigns. Subject to provisions of this Lease limiting
assignment or sublease by Tenant, the covenants contained in this Lease shall
bind and inure to the benefit of Landlord, its successors and assigns, and
Tenant and its permitted successors and assigns.
18.11 Relationship of Parties. This Lease does not create the relationship
of principal and agent, partnership, joint venture, association or any other
relationship between Landlord and Tenant, other than that of landlord and
tenant.
18.12 Prior Agreements. This Lease, together with the attached exhibits
and the written agreements concurrently or hereafter executed and/or delivered
pursuant to or in connection with this Lease, embody the entire agreement
between the parties relating to the subject matter hereof, and supersede all
prior agreements and understandings between the Landlord and Tenant, if any,
relating to the subject matter hereof. Tenant acknowledges that neither Landlord
nor any agent of Landlord has made any representation or warranty not contained
in this Lease with respect to the Premises, the Building or the suitability or
fitness of either for the conduct of Tenant's business or for any other purpose.
18.13 No Waiver. No failure by Landlord or by Tenant to insist upon the
performance of any of the terms of this Lease or to exercise any right or remedy
available for a breach thereof, and no acceptance by Landlord of full or partial
rent from Tenant or any third party during the continuance of any such breach,
shall constitute a waiver of any such breach or of any of the terms of this
Lease. None of the terms of this Lease to be kept, observed or performed by
Landlord or by Tenant, and no breach thereof, shall be waived, altered or
modified except by a written instrument executed by the waiving party. No
express waiver shall waive any default other than the default specified in the
express waiver. An express waiver waives the specified default only for the time
and to the extent therein stated.
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18.14 No Merger. There shall be no merger of this Lease or the leasehold
estate created by this Lease with any other estate or interest in the Premises
by reason of the fact that the some person or entity may acquire, bold or own
directly or indirectly, (a) this Lease, the leasehold interest created by this
Lease or any interest therein and (b) any such other estate or interest in the
Premises, or any portion thereof. No such merger shall occur unless and until
all persons and entities having an interest (including a security interest) in
(i) this Lease or the leasehold estate created thereby and (ii) any such other
estate or interest in the Premises, or any portion thereof, shall join in a
written instrument expressly effecting such merger and duly record the same.
18.15 Landlord's Liability Limited. Tenant recognizes that Landlord is a
limited liability company. Tenant expressly agrees, anything herein to the
contrary notwithstanding, that each and all of the representations and
agreements made by Landlord are intended to bind only that portion of Landlord's
property leased hereunder. No personal liability or personal responsibility is
assumed by, nor shall at any time be asserted or enforced against, any of the
members, managers, shareholders, partners, directors, officers, employees or
agents of Landlord on account of any agreements of Landlord contained in this
Lease. If Landlord fails to perform any obligation of Landlord under this Lease
and as a result Tenant recovers a money judgment against Landlord, such judgment
shall be satisfied only out of the proceeds of sale received upon execution of
such judgment and levied against the right, title and interest of Landlord in
the Real Property. Any claim. which Tenant may have against Landlord for
default in performance of any of Landlord's obligations herein contained shall
be deemed waived unless suit is brought thereon within 6 months of Landlord's
sale or conveyance of its interest in the Real Property.
18.16 Holding Over. If Tenant fails to surrender possession of the
Premises upon termination or expiration of this Lease, and if Tenant obtains
Landlord's written consent to Tenant's continued occupancy, Tenant's occupancy
shall be deemed to be a month to month tenancy, subject to all the terms of this
Lease that can apply to a month to month tenancy, except that Fixed Rent shall
be escalated to 150% of the rate payable by Tenant during the calendar month
immediately preceding such termination or expiration (the "Latest Rent") and
Landlord may terminate such month to month tenancy upon 20 days notice to
Tenant. If Tenant fails to surrender possession of the Premises upon termination
or expiration of this Lease, and if Tenant does not obtain Landlord's written
consent to Tenant's continued occupancy, Tenant shall be deemed a trespasser and
shall be liable to Landlord for all damages sustained by Landlord as a result
thereof, together with Fixed Rent at a rate equal to 150% of the Latest Rent.
18.17 Force Majeure. Whenever a period of time is herein prescribed for
action to be taken by either party, said party shall not be liable or
responsible for, and there shall be excluded from the computation of any such
period of time, any delays due to ("force majeure"): strikes, riots, acts of
God, delay caused by the failure of a governmental agency to issue a building or
occupancy permit despite diligent pursuit thereof, shortages of labor or
materials because of priority or similar regulations or order of any
governmental or regulatory body, war, or any other causes of any kind which are
beyond the reasonable control of said party. Lack of funds or inability to
obtain financing shall not be an event of force majeure.
18.18 Landlord Approvals. Any approval by Landlord or Landlord's
architects and/or engineers of any of Tenant's drawings, plans and
specifications which are prepared in connection with any construction at the
Premises shall not be construed as a representation or warranty of Landlord as
to the adequacy or sufficiency of such drawings, plans and specifications, or
the improvements to which they relate.
18.19 Survival. All obligations (together with interest on monetary
obligations at the Agreed Rate) accruing before expiration of the Lease Term
shall survive the expiration or other termination of this Lease.
18.20 Attorneys' Fees. Upon any litigation or other proceeding between the
parties hereto, declaratory or otherwise, arising out of this Lease, the
prevailing party shall recover from the nonprevailing party all costs, damages
and expenses, including attorneys', paralegals' clerical and consultants' fees
and charges actually expended or incurred in connection therewith, including for
appeals or any bankruptcy proceeding (collectively "Attorneys' Fees"). In
addition, if Landlord engages counsel to enforce the terms of this Lease,
including for the purpose of preparing a delinquency notice, Tenant shall be
required to reimburse Landlord for all Attorneys' Fees incurred before the
subject default is considered cured.
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18.21 Quiet Enjoyment. Landlord warrants and represents that Tenant,
provided it complies with its obligations hereunder, shall have quiet enjoyment
of the Premises during the Lease Term without disturbance by Landlord or any
person claiming by, through or under Landlord.
18.22 Brokers. Landlord and Tenant each represent to the other that it has
dealt directly only with CB Richard Ellis, Inc. ("CB") as broker in connection
with this Lease. Landlord and Tenant shall each defend and indemnify the other
against all claims of other brokers, finders or any like third party claiming
any right to a commission or compensation by or through their acts. Landlord
shall be responsible for payment of a commission to CB in accordance with the
written agreement between Landlord and CB.
18.23 Preparation of Lease; Governing Law. Landlord and Tenant have
negotiated this Lease, have had an opportunity to be advised by legal counsel
respecting the provisions contained herein and have had the right to approve
each and every provision hereof. Therefore, this Lease shall not be construed
against either Landlord or Tenant as a result of the preparation of this Lease
by or on behalf of either party. This Lease shall be governed by the laws of the
State of Washington. Any suit arising from or relating to this Lease shall be
brought in the county in which the Premises are located, and the parties hereto
waive the right to be sued elsewhere.
18.24 Construction. Words and phrases used in the singular shall be deemed
to include the plural and vice versa. Nouns and pronouns used in any particular
gender shall be deemed to include any other gender. When the word "including" is
used in this Lease, it shall mean "including, but not limited to." Whenever
words such as "herein," "hereunder," etc., are used in this Lease, they shall
mean and refer to this Lease in its entirety and not to any specific section,
paragraph or other part of this Lease. The word "person" includes any natural
person, corporation, firm, partnership, limited partnership, limited liability
company, trust, estate, unincorporated organization, or other legal or business
entity, however designated or constituted. "Business day" means days when
national banks are open in Seattle, Washington and Minneapolis, Minnesota. The
caption of each section of this Lease is for convenience of reference only, and
in no way defines, limits or describes the scope or intent of such section.
18.25 Time Is of the Essence. Time is of the essence with respect to the
performance of every provision of this Lease in which time of performance is a
factor.
18.26 Joint and Several Liability. All parties signing this Lease as
Tenant shall be jointly and severally liable for all obligations of Tenant.
18.27 No Oral Amendments. This Lease may be modified or amended only by an
agreement in writing signed by the parties hereto. No receipt of money by
Landlord from Tenant or any other person after termination of this Lease, the
service of any notice, the commencement of any suit or final judgment for
possession of the Premises, shall reinstate, continue or extend the Term of this
Lease, affect any such notice, demand or suit, or imply consent for any action
for which Landlord's consent is required, unless specifically agreed to in
writing by Landlord. Any amounts received by Landlord may be allocated to any
specific amounts due from Tenant to Landlord as Landlord determines.
18.28 Net Lease. Landlord and Tenant each agree it is their intention
that: (a) this Lease shall be interpreted and construed as an absolute net
lease; (b) all Fixed Rent and Additional Rent shall be paid by Tenant to
Landlord without abatement, deduction, suspension or setoff, except as otherwise
specifically provided in this Lease; (c) the obligations of Landlord and Tenant
are separate and independent covenants; (d) all costs or expenses of any kind,
general or special, ordinary or extraordinary, foreseen or unforeseen, that may
be necessary or required in and about the Premises or any portion thereof,
during Tenant's possession or authorized use thereof shall be paid by Tenant,
except as specifically provided otherwise in this Lease; (e) all provisions of
this Lease are to be interpreted and construed in light of the intentions
expressed in this Section 18.28; and (f) the Fixed Rent specified in Section 3.1
shall be absolutely net to Landlord.
18.29 Waiver of Jury Trial. Landlord and Tenant each unconditionally
waives any right to trial by jury to resolve any claim asserted in connection
with any matter arising in connection with this Lease, the Premises, the Real
Property, the Park or use or occupancy of the Premises.
23
<PAGE>
18.30 Amendment of Legal Description. Landlord and Tenant acknowledge that
as of the date this Lease is executed Landlord is in the process of dividing the
Real Property described on Exhibit B into three lots through use of the binding
site plan procedure. Accordingly, the Real Property described on Exhibit B
includes more Real Property than the lot upon which Building A is to be located.
As soon as reasonably practical after the binding site plan has been approved by
the City of Redmond and recorded in the official records of King County,
Washington, Landlord and Tenant shall execute an amendment to this Lease
amending the Legal Description set forth on Exhibit B so that it includes only
the lot upon which Building A is located, as created pursuant to the binding
site plan. Thereafter, the phrase "Real Property" as used in this Lease shall
mean only the lot upon which Building A is located.
18.31 Exhibits. All exhibits enumerated in this Section 18.31 and/or now
or hereafter attached to this Lease are incorporated into this Lease in full by
this reference. Each party agrees to perform any obligations to be performed by
it pursuant to the provisions of all such exhibits.
EXHIBITS:
- --------
Exhibit A: Site Plan of the Park
Exhibit A-1: Floor Plan
Exhibit B: Legal Description
Exhibit C: Outline Specifications
Exhibit C-1: Space Plan
Exhibit D: Final Plans and Specifications
Exhibit E: Form of Subordination Agreement
Exhibit F: Sign Standards
Exhibit G: Form of Estoppel Certificate
Exhibit H: Rules and Regulations
IN WITNESS WHEREOF, each of the parties hereto has caused this Lease to be
duly executed as of the day and year first above written.
LANDLORD:
OPUS NORTHWEST, L.L.C.,
a Delaware limited liability company
By:_______________________________________________
John Solberg, Vice President
TENANT:
PRIMEX AEROSPACE COMPANY,
a Washington corporation
By:_______________________________________________
Name________________________________________
Title:______________________________________
STATE OF WASHINGTON )
)ss.
COUNTY OF KING )
24
<PAGE>
I certify that I know or have satisfactory evidence that John Solberg
is the person who appeared before me, and said person acknowledged that he
signed this instrument, on oath stated that he was authorized to execute the
instrument and acknowledged it as the Vice President of OPUS NORTHWEST, L.L.C.,
a Delaware limited liability company, to be the free and voluntary act of such
party for the uses and purposes mentioned in the instrument.
Dated:__________, 2000.
___________________________________________
(Signature of Notary Public)
___________________________________________
(Printed Name of Notary Public)
My Appointment expires_____________________
STATE OF_____________ )
) ss.
COUNTY OF____________ )
I certify that I know or have satisfactory evidence that______________
_____________________ is the person who appeared before me, and said person
acknowledged that he/she signed this instrument, on oath stated that he/she was
authorized to execute the instrument and acknowledge it as the
_____________________ of PRIMEX AEROSPACE COMPANY, a __________________
corporation, to be the free and voluntary act of such party for the uses and
purposes mentioned in the instrument.
Dated:___________, 2000.
___________________________________________
(Signature of Notary Public)
___________________________________________
(Printed Name of Notary Public)
My Appointment expires_____________________
25
<PAGE>
FIRST AMENDMENT TO NET LEASE AGREEMENT
This FIRST AMENDMENT TO NET LEASE AGREEMENT (the "Amendment") dated as of
February 12, 1999, is made by and between OPUS NORTHWEST, L.L.C., a Delaware
limited liability company ("Landlord") and PRIMEX AEROSPACE COMPANY, a
Washington corporation ("Tenant"). Landlord and Tenant are parties to that
certain Net Lease Agreement dated July 27, 1998 (the "Original Lease") for
certain space in Willows Commerce Park Phase II located on certain real property
in the City of Redmond, County of King, State of Washington, described on
Exhibit A, attached hereto. Unless specifically defined in this Amendment,
capitalized terms herein have the same meaning as set forth in the Original
Lease .
1. The Landlord and Tenant hereby delete and replace entirely the text in
Exhibit B of the Original Lease with the text of Exhibit A to this First
Amendment.
2. Except as amended herein, the Original Lease is affirmed by the parties
and continues in full force and effect in accordance with its terms.
LANDLORD:
OPUS NORTHWEST,L.L.C.,
a Delaware limited liability company
By:/s/ John Solberg
--------------------------------
John Solberg, Vice President
TENANT:
PRIMEX AEROSPACE COMPANY
a Washington corporation
By:
Name:
Title:
26
<PAGE>
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
I certify that I know or have satisfactory evidence that John Solberg
is the person who appeared before me, and said person acknowledged that he
signed this instrument, on oath stated that he was authorized to execute the
instrument and acknowledged it as the Vice President of OPUS NORTHWEST, L.L.C.,
a Delaware limited liability company, to be the free and voluntary act of such
party for the uses and purposes mentioned in the instrument.
Dated:___________, 1999.
/s/ Bets Adair
----------------------
(Signature of Notary Public)
Bets Adair
----------
(Printed Name of Notary Public)
My Appointment expires
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
I certify that I know or have satisfactory evidence that William W.
Smith is the person who appeared before me, and said person acknowledged that he
signed this instrument, on oath stated that he was authorized to execute the
instrument and acknowledged it as the President of PRIMEX AEROSPACE COMPANY, a
Washington corporation, to be the free and voluntary act of such party for the
uses and purposes mentioned in the instrument.
Dated: February 24, 1999.
/s/ Linda J. Vincent
----------------------------
(Signature of Notary Public)
Linda J. Vincent
----------------
(Printed Name of Notary Public)
My Appointment expires January 6, 2000
27
<PAGE>
EXHIBIT A
TO
FIRST AMENDMENT TO NET LEASE AGREEMENT
Legal Description
-----------------
LOT 2 OF CITY OF REDMOND BINDING SITE PLAN NO. BSP-98-002 RECORDED NOVEMBER 16,
1998 UNDER RECORDING NO. 9811161574, RECORDS OF KING COUNTY, STATE OF
WASHINGTON.
28
<PAGE>
EXHIBIT 21
JURISDICTION PERCENTAGE OF DIRECT/
WHERE INDIRECT OWNERSHIP BY
SUBSIDIARY ORGANIZED PRIMEX OF VOTING SECURITIES
General Defense Corporation Pennsylvania 100%
Primex Aerospace Company Washington 100%
Primex Tactical Systems, Inc. California 100%
U.S. Ordnance Company Delaware 100%
St. Marks Powder, Inc. Delaware 100%
Defense Research Incorporated Alabama 100%
Hitech Holdings, Inc. Delaware 100%
Versatron, Inc. Delaware 100%
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements,
(Form S-8, No. 333-33051) pertaining to Primex Technologies, Inc. Retirement
Investment Management Experience Plan; (Form S-8, No. 333-18297) pertaining to
Primex Technologies, Inc. Stock Plan for Non-employees Directors; (Form S-8, No.
333-57857) pertaining to 1996 Long Term Incentive Plan of Primex Technologies,
Inc., of our report dated January 31, 2000, with respect to the consolidated
financial statements of Primex Technologies, Inc. included in this Annual Report
(Form 10-K) for the year ended December 31, 1999.
/s/ Ernst & Young LLP
Tampa, Florida
March 13, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 1999 AND THE CONSOLIDATED STATEMENT
OF INCOME FOR THE TWELVE MONTHS ENDING DECEMBER 31, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 120,351
<ALLOWANCES> 161
<INVENTORY> 57,969
<CURRENT-ASSETS> 192,229
<PP&E> 288,025
<DEPRECIATION> 171,075
<TOTAL-ASSETS> 450,429
<CURRENT-LIABILITIES> 94,980
<BONDS> 0
0
0
<COMMON> 9,946
<OTHER-SE> 170,682
<TOTAL-LIABILITY-AND-EQUITY> 450,429
<SALES> 544,352
<TOTAL-REVENUES> 544,352
<CGS> 415,104
<TOTAL-COSTS> 415,104
<OTHER-EXPENSES> 10,408
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,905
<INCOME-PRETAX> 33,738
<INCOME-TAX> 13,305
<INCOME-CONTINUING> 20,433
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,433
<EPS-BASIC> 2.03
<EPS-DILUTED> 1.91
</TABLE>
