FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED June 30, 1998 COMMISSION FILE NUMBER 333-43619
------------- ---------
United Defense Industries, Inc.
------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 52-2059782
- ------------------------------- -------------------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
Guarantors and Co-Registrants
Iron Horse Investors, L.L.C. Delaware 52-2059783
UDLP Holdings Corp. Delaware 52-2059780
United Defense, L.P. Delaware 54-1693796
1525 Wilson Boulevard, Suite 700
Arlington, VA 22209
(703) 312-6100
----------------------------------
(ADDRESS AND TELEPHONE NUMBER
OF PRINCIPAL EXECUTIVE
OFFICES OF EACH REGISTRANT
AND CO-RESIGTRANT)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (703) 312-6100
--------------
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS.
YES X NO
--- ---
Indicate the number of shares outstanding of each of the registrant's classes of
common stock as of August 12, 1998:
No. of shares Par value
------------- ---------
United Defense Industries, Inc. 17,890,700 $0.01
Iron Horse Investors, L.L.C. -none-
UDLP Holdings Corp. 1,000 $0.01
United Defense, L.P. -none-
<PAGE>
IRON HORSE INVESTORS, L.L.C.
UNITED DEFENSE INDUSTRIES, INC.
INDEX
-----
PART I - FINANCIAL INFORMATION PAGE
- ------------------------------
Item 1 - Unaudited Consolidated Financial Statements -
Iron Horse Investors, L.L.C.
Unaudited Consolidated Balance Sheets as of December 31,
1997 and June 30, 1998 1
Unaudited Consolidated Statements of Operations for the
Three Months Ended and for the Six
Months Ended June 30, 1997 and 1998 2
Unaudited Consolidated Statement of Members' Capital
for the Three Months Ended June 30, 1998 3
Unaudited Consolidated Statements of Cash Flows
for the Three Months Ended June 30, 1997 and 1998 4
Notes to Unaudited Consolidated Financial Statements 5-6
Unaudited Consolidated Financial Statements
United Defense Industries, Inc.
Unaudited Consolidated Balance Sheets as of
December 31, 1997 and June 30, 1998 7
Unaudited Consolidated Statements of Operations for the
Three Months Ended and for the Six
Months ended June 30, 1997 and 1998 8
Unaudited Consolidated Statement of Stockholders' Equity
for the Three Months Ended June 30, 1998 9
Unaudited Consolidated Statements of Cash Flows
for the Three Months Ended June 30, 1997 and 1998 10
Notes to Unaudited Consolidated Financial Statements 11-12
Item 2 - Management's Discussion and Analysis of the Results
of Operations and Financial Condition 13-18
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 19
Item 2(c) - Recent Sale of Unregistered Securities 20
Item 6 - Exhibits and Reports on Form 8-K 20
SIGNATURE
- ---------
<PAGE>
IRON HORSE INVESTORS, L.L.C.
UNAUDITED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS: DECEMBER 31, 1997 JUNE 30, 1998
----------------- -------------
<S><C>
Current assets:
Cash and marketable securities $ 35,623 $ 26,709
Trade receivables 94,847 101,589
Inventories -contracts in process 330,373 265,769
Other current assets 6,998 5,951
-------------------------------------------
Total current assets 467,841 400,018
Property, plant and equipment, net 198,909 168,363
Intangible assets 433,048 387,907
Prepaid pension 139,431 136,617
Other assets 6,854 5,081
-------------------------------------------
Total assets $1,246,083 $1,097,986
===========================================
LIABILITIES AND CAPITAL
Current liabilities:
Current portion of long term debt $12,000 $0
Accounts payable, trade and other 93,641 59,734
Advanced payments 261,401 194,182
Accrued and other liabilities 71,002 80,496
-------------------------------------------
Total current liabilities 438,044 334,412
Long term liabilities net of current portion:
Accrued pension 7,108 947
Accrued postretirement benefit 3,290 3,811
Long term debt 647,800 618,836
Other liabilities 13,100 22,800
-------------------------------------------
Total liabilities 1,109,342 980,806
Minority Interest 0 5,340
Commitments and contingencies (Note 3)
Members' Capital 136,741 111,840
-------------------------------------------
Total liabilities and members' capital $1,246,083 $1,097,986
===========================================
</TABLE>
1
<PAGE>
IRON HORSE INVESTORS, L.L.C.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS SIX MONTHS SIX MONTHS
ENDED ENDED ENDED ENDED
JUNE 30, 1997 JUNE 30, 1998 JUNE 30, 1997 JUNE 30, 1998
------------- ------------- ------------- -------------
(PREDECESSOR) (PREDECESSOR)
<S><C>
Revenue:
Sales $320,191 $316,866 $607,737 $631,670
Costs and expenses:
Cost of sales 257,255 260,792 485,123 541,127
Selling, general and
administrative expenses 26,642 35,369 54,123 86,809
Research and development 3,796 3,924 6,278 6,628
------------------------------------ ----------------------------------
Total expenses 287,693 300,085 545,524 634,564
Earnings related to investments
in foreign affiliates 4,453 (9,899) 12,675 5,450
------------------------------------ ----------------------------------
Income(loss) from operations 36,951 6,882 74,888 2,556
Other income (expense)
Interest income 497 227 1,013 512
Interest expense (10,920) 0 (26,336)
Miscellaneous, net (42) 68 0 68
------------------------------------ ----------------------------------
Income(loss) before taxes 37,406 (3,743) 75,901 (23,200)
Provision for income taxes 1,169 701 1,910 1,701
------------------------------------ ----------------------------------
Net Income(loss) $36,237 ($4,444) $73,991 ($24,901)
==================================== ==================================
</TABLE>
2
<PAGE>
IRON HORSE INVESTORS, L.L.C.
UNAUDITED CONSOLIDATED STATEMENT
OF MEMBERS' CAPITAL
(IN THOUSANDS)
AMOUNT
------
Balance, December 31, 1997 $136,741
Net loss for the six months ended June 30, 1998 (24,901)
--------
Balance, June 30, 1998 $111,840
========
3
<PAGE>
IRON HORSE INVESTORS, L.L.C.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1997 JUNE 30, 1998
---------------- ----------------
(PREDECESSOR)
<S><C>
OPERATING ACTIVITIES
Net Income(loss) $ 73,991 ($24,901)
Adjustments to reconcile net income(loss) to cash
provided by operating activities:
Depreciation 12,636 34,634
Amortization 7,560 49,388
Other (1,143) 1,663
Changes in assets and liabilities:
Trade receivables 19,760 (6,742)
Inventories 1,523 64,604
Other current assets (3,491) 1,047
Prepaid pension cost (4,176) 2,814
Accounts payable, trade and other (8,645) (33,907)
Advanced payments 7,303 (67,219)
Accrued and other liabilities 1,845 19,194
Accrued pension cost 4,879 (6,161)
Accrued post retirement benefits (2,081) 521
------------ -------------
Cash provided by operating activities 109,961 34,935
------------ -------------
INVESTING ACTIVITIES
Capital spending (10,279) (11,308)
Disposal of property, plant and equipment 5,324 3,015
Short term investment with FMC Corporation (35,826) 0
------------ -------------
Cash used in investing activities (40,781) (8,293)
------------ -------------
FINANCING ACTIVITIES
Payments on long term debt 0 (40,964)
Proceeds from sale of common stock by subsidiary 0 5,408
Partners' distributions (69,115) 0
------------ -------------
Cash used in financing activities (69,115) (35,556)
------------ -------------
Increase (decrease) in cash and marketable securities 65 (8,914)
Cash and marketable securities, beginning of period 23 35,623
------------ -------------
Cash and marketable securities, end of period $88 $26,709
============ =============
</TABLE>
4
<PAGE>
Iron Horse Investors, L.L.C.
Notes to Unaudited Consolidated Financial Statements
June 30, 1998
1. BASIS OF PRESENTATION
Iron Horse Investors, L.L.C. together with its subsidiaries (the "Company"),
was formed for the primary purpose of facilitating the acquisition of United
Defense, L.P. ("UDLP") via its investment in United Defense Industries,
Inc. ("UDI").
In October 1997, the Company was funded with $173 million of equity capital,
from an investment group led by the Carlyle Group ("Carlyle"), which was
invested in UDI. On October 6, 1997, UDI acquired 100% of the partnership
interests in UDLP from FMC and Harsco. As a result of adjustments to the
carrying value of assets and liabilities pursuant to the transaction, the
financial position and results of operations for periods subsequent to the
acquisition are not comparable to pre-acquisition UDLP amounts.
The financial information presented as of any other date than December 31 has
been prepared from the books and records without audit. Financial information as
of December 31 has been derived from the audited financial statements of the
Company, but does not include all the disclosures required by generally accepted
accounting principles. In the opinion of management, the accompanying unaudited
financial statements contain all adjustments, consisting of only normal
recurring adjustments, necessary to present fairly the Company's financial
position as of June 30, 1998, and the results of its and UDLP's operations and
its cash flows for the periods ended June 30, 1998 and 1997. The results of
operations are not necessarily indicative of the results that may be expected
for the year ending December 31, 1998. These unaudited consolidated financial
statements should be read in conjunction with the financial statements and the
notes thereto included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1997.
2. INCOME TAXES
As a limited partnership, income earned by UDLP passed to its partners and was
taxable at that level, except for taxes payable on the income of UDLP's Foreign
Sales Corporation (FSC) subsidiary.
As a limited liability company, income which has not been taxed previously is
passed through to its members. The Company's corporate subsidiaries are
responsible for income taxes at that level, and accordingly, the Company's
subsidiaries provide for income taxes at the corporate level. The income tax
provision for the 1998 interim periods is for taxes payable on the income of the
Company's FSC subsidiary.
5
<PAGE>
Iron Horse Investors, L.L.C.
Notes to Unaudited Consolidated Financial Statements
(continued)
3. COMMITMENTS AND CONTINGENCIES
LEGAL PROCEEDINGS
Alliant Techsystems, Inc. ("Alliant"), a subcontractor to UDLP in connection
with the Paladin howitzer prime contract, filed suit in February 1998 against
UDLP, its former owners (FMC and Harsco), and Sechan Electronics, Inc.
("Sechan"), a replacement subcontractor employed on the Paladin program. Alliant
seeks damages in an unspecified amount on breach of contract and other theories.
The dispute arises out of a U.S. Army-directed termination for convenience in
1996 of certain subcontract work, which until the time of termination had been
performed by Alliant, and was thereafter replaced by subcontract work performed
by Sechan. Management does not believe that Alliant's suit will have a material
adverse impact on the Company.
Certain software vendors have claimed UDLP is liable for the cost of software
licenses utilized in the business. UDLP has resolved certain of such claims and
expects to resolve the remaining claims, collectively, for an amount which
management does not believe will have a material adverse impact on the Company.
6
<PAGE>
UNITED DEFENSE INDUSTRIES, INC.
UNAUDITED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS: DECEMBER 31, 1997 JUNE 30, 1998
----------------- -------------
<S><C>
Current assets:
Cash and marketable securities $35,623 $26,709
Trade receivables 94,847 101,589
Inventories-contracts in process 330,373 265,769
Other current assets 6,998 5,951
--------------------------------------------
Total current assets 467,841 400,018
Property, plant and equipment, net 198,909 168,363
Intangible assets 433,048 387,907
Prepaid pension 139,431 136,617
Other assets 6,854 5,081
--------------------------------------------
Total assets $1,246,083 $1,097,986
============================================
LIABILITIES AND EQUITY
Current liabilities:
Current portion of long term debt $12,000 $0
Accounts payable, trade and other 93,641 59,734
Advanced payments 261,401 194,182
Accrued and other liabilities 71,002 80,496
--------------------------------------------
Total current liabilities 438,044 334,412
Long term liabilities net of current portion:
Accrued pension 7,108 947
Accrued postretirement benefit 3,290 3,811
Long term debt 647,800 618,836
Other liabilities 13,100 22,800
--------------------------------------------
Total liabilities 1,109,342 980,806
Commitments and contingencies (Note 3)
Stockholders' Equity (Note 4)
Common Stock $.01 par value, 20.000.000 authorized;
17,300,000 and 17,840,830 issued and outstanding
at 12/31/97 and 6/30/98 173 178
Additional paid-in-capital 172,827 178,230
Retained deficit (36,259) (61,228)
--------------------------------------------
Total Stockholder's Equity 136,741 117,180
--------------------------------------------
Total liabilities and stockholder's equity $1,246,083 $1,097,986
============================================
</TABLE>
7
<PAGE>
UNITED DEFENSE INDUSTRIES, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS SIX MONTHS SIX MONTHS
ENDED ENDED ENDED ENDED
JUNE 30, 1997 JUNE 30, 1998 JUNE 30, 1997 JUNE 30, 1998
-------------------------------------- --------------------------------------
(PREDECESSOR) (PREDECESSOR)
<S><C>
Revenue:
Sales $320,191 $316,866 $607,737 $631,670
Costs and expenses:
Cost of sales 257,255 260,792 485,123 541,127
Selling, general and
administrative expenses 26,642 35,369 54,123 86,809
Research and development 3,796 3,924 6,278 6,628
-------------------------------------- --------------------------------------
Total expenses 287,693 300,085 545,524 634,564
Earnings related to investments
in foreign affiliates 4,453 (9,899) 12,675 5,450
-------------------------------------- --------------------------------------
Income(loss) from operations 36,951 6,882 74,888 2,556
Other income (expense)
Interest income 497 227 1,013 512
Interest expense (10,920) 0 (26,336)
Miscellaneous, net (42) 0 0 0
-------------------------------------- --------------------------------------
Income(loss) before taxes 37,406 (3,811) 75,901 (23,268)
Provision for income taxes 1,169 701 1,910 1,701
====================================== ======================================
Net Income(loss) $36,237 ($4,512) $73,991 ($24,969)
====================================== ======================================
</TABLE
8
<PAGE>
UNITED DEFENSE INDUSTRIES, INC.
UNAUDITED CONSOLIDATED STATEMENT
OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
</TABLE>
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL DEFICIT TOTAL
------------------------------------------------------------
<S><C>
Balance, December 31, 1997 (Note 4) $173 $172,827 $ (36,259) $136,741
Sale of Common Stock 5 5,403 5,408
Net loss for the six months ended June 30, 1998 (24,969) (24,969)
------------------------------------------------------------
Balance, June 30, 1998 $178 $178,230 ($61,228) $117,180
============================================================
</TABLE>
9
<PAGE>
UNITED DEFENSE INDUSTRIES, INC.
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOW
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1997 JUNE 30, 1998
------------- -------------
(PREDECESSOR)
<S><C>
OPERATING ACTIVITIES
Net Income(loss) $73,991 ($24,969)
Adjustments to reconcile net income(loss) to cash
provided by operating activities:
Depreciation 12,636 34,634
Amortization 7,560 49,388
Other (1,143) 1,731
Changes in assets and liabilities:
Trade receivables 19,760 (6,742)
Inventories 1,523 64,604
Other current assets (3,491) 1,047
Prepaid pension cost (4,176) 2,814
Accounts payable, trade and other (8,645) (33,907)
Advanced payments 7,303 (67,219)
Accrued and other liabilities 1,845 19,194
Accrued pension cost 4,879 (6,161)
Accrued post retirement benefits (2,081) 521
------------------------ -------------------------
Cash provided by operating activities 109,961 34,935
------------------------ -------------------------
INVESTING ACTIVITIES
Capital spending (10,279) (11,308)
Disposal of property, plant and equipment 5,324 3,015
Short term investment with FMC Corporation (35,826) 0
------------------------ -------------------------
Cash used in investing activities (40,781) (8,293)
------------------------ -------------------------
FINANCING ACTIVITIES
Payments on long term debt 0 (40,964)
Proceeds from sale of common stock 0 5,408
Partners' distributions (69,115) 0
------------------------ -------------------------
Cash used in financing activities (69,115) (35,556)
------------------------ -------------------------
Increase (decrease) in cash and marketable securities 65 (8,914)
Cash and marketable securities, beginning of period 23 35,623
------------------------ -------------------------
Cash and marketable securities, end of period $88 $26,709
======================== =========================
</TABLE>
10
<PAGE>
United Defense Industries, Inc.
Notes to Unaudited Consolidated Financial Statements
June 30, 1998
1. BASIS OF PRESENTATION
United Defense Industries, Inc. (the "Company") is a subsidiary of Iron Horse
Investors, L.L.C. ("Iron Horse") and is organized under the laws of the state of
Delaware and was formed for the primary purpose of facilitating the acquisition
of United Defense, L.P. ("UDLP") by Iron Horse. Iron Horse is owned by an
investment group led by the Carlyle Group ("Carlyle"). On October 6, 1997, the
Company acquired 100% of the partnership interests in UDLP from FMC and Harsco.
As a result of adjustments to the carrying value of assets and liabilities
pursuant to this transaction, the financial position and results of operations
for periods subsequent to the acquisition are not comparable to pre-acquisition
amounts.
The financial information presented as of any other date than December 31 has
been prepared from the books and records without audit. Financial information as
of December 31 has been derived from the audited financial statements of the
Company, but does not include all the disclosures required by generally accepted
accounting principles. In the opinion of management, the accompanying unaudited
financial statements contain all adjustments, consisting of only normal
recurring adjustments, necessary to present fairly the Company's financial
position as of June 30, 1998, and the results of its and UDLP's operations and
its cash flows for the periods ended June 30, 1998 and 1997. The results of
operations are not necessarily indicative of the results that may be expected
for the year ending December 31, 1998. These unaudited consolidated financial
statements should be read in conjunction with the financial statements and the
notes thereto included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1997.
2. INCOME TAXES
As a limited partnership, income earned by UDLP passed to its partners and was
taxable at that level, except for taxes payable on the income of UDLP's Foreign
Sales Corporation (FSC) subsidiary.
As a corporation, the Company accounts for income taxes under the liability
method. The income tax provision for the 1998 interim periods is for taxes
payable on the income of the Company's FSC subsidiary.
11
<PAGE>
United Defense Industries, Inc.
Notes to Unaudited Consolidated Financial Statements
(continued)
3. COMMITMENTS AND CONTINGENCIES
LEGAL PROCEEDINGS
Alliant Techsystems, Inc. ("Alliant"), a subcontractor to UDLP in
connection with the Paladin howitzer prime contract, filed suit in February 1998
against UDLP, its former owners (FMC and Harsco), and Sechan Electronics, Inc.
("Sechan"), a replacement subcontractor employed on the Paladin program. Alliant
seeks damages in an unspecified amount on breach of contract and other theories.
The dispute arises out of a U.S. Army-directed termination for convenience in
1996 of certain subcontract work, which until the time of termination had been
performed by Alliant, and was thereafter replaced by subcontract work performed
by Sechan. Management does not believe that Alliant's suit will have a material
adverse impact on the Company.
Certain software vendors have claimed UDLP is liable for the cost of software
licenses utilized in the business. UDLP has resolved certain of such claims and
expects to resolve the remaining claims, collectively, for an amount which
management does not believe will have a material adverse impact on the Company.
4. STOCKHOLDERS' EQUITY
In April 1998, the Company's board of directors approved an increase in the
number of authorized shares to 20 million and authorized a 173 for 1 stock
split. Accordingly, all references in the financial statements to number of
shares and related amounts have been restated to reflect the stock split.
12
<PAGE>
IRON HORSE INVESTORS, L.L.C.
UNITED DEFENSE INDUSTRIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF THE RESULTS OF OPERATIONS AND FINANCIAL CONDITION
JUNE 30, 1998
FORWARD-LOOKING STATEMENTS
Management's Discussion and Analysis of Financial Condition and Results
of Operations contains forward-looking statements that are based on management's
expectations, estimates, projections and assumptions. Words such as "expects,"
"anticipates," "plans," "believes," "estimates," variations of these words and
similar expressions are intended to identify forward-looking statements which
include but are not limited to projections of revenues, earnings, performance,
cash flows and contract awards. Forward-looking statements are made pursuant to
the safe harbor provisions of the Private Securities Litigation Reform Act of
1995. These statements are not guarantees of future performance and involve
certain risks and uncertainties which are difficult to predict. Therefore,
actual future results and trends may differ materially from those made in or
suggested by any forward-looking statements due to a variety of factors,
including: the Company's ability to design and implement key technological
improvements (such as, for example, in the Crusader program) and to execute its
internal performance plans; performance issues with key suppliers and
subcontractors; developments with respect to contingencies such as legal
proceedings and environmental matters; labor negotiations; changing priorities
or reductions in the U.S. government defense budget; the performance of, and
political and other risks associated with United Defense Industries, Inc.'s
international operations and joint ventures; termination of government contracts
due to unilateral government action; and the impact of the "Year 2000" issue on
United Defense Industries, Inc. (the "Company") and its customers and suppliers.
For additional information, see "Risk Factors" in the Company's Registration
Statement on Form S-4, SEC File Number 333-43619 (the "Form S-4").
The following discussion and analysis should be read in conjunction
with the financial statements and related notes and the other financial
information, included elsewhere in this report, and with the Company's Annual
Report on Form 10-K for the year ended December 31, 1997.
INTRODUCTION
In October 1997, Iron Horse Investors, L.L.C. ("Iron Horse") was funded
with $173 million of equity capital from Carlyle Investment Fund Partnerships,
which was invested in the Company. On October 6, 1997, the Company acquired (the
13
<PAGE>
"Acquisition") directly and through its wholly owned subsidiary, UDLP Holdings
Corp., 100% of the partnership interests in United Defense, L.P. ("UDLP") for
$880.0 million from FMC Corporation ("FMC") and Harsco, Inc. ("Harsco"), subject
to adjustments as provided in the Acquisition Agreement.
United Defense Industries, Inc. is the only asset of Iron Horse.
Accordingly, Management's Discussion and Analysis of the Results of Operations
and Financial Condition is the same for both Iron Horse and United Defense
Industries, Inc. The Company's subsidiary guarantors, UDLP Holdings Corp. and
UDLP, are directly or indirectly wholly owned by the Company and both of those
subsidiary guarantors have guaranteed the Company's 8 3/4% Senior Subordinated
Notes on a full, unconditional and joint and several basis. Any non-guarantor
subsidiaries have assets, equity, income and cash flows on an individual and
combined basis less than 3% of related amounts of the Company. Accordingly,
separate financial statements of those guarantor subsidiaries are not considered
material or provided herein.
OVERVIEW
The Company is a leading supplier of tracked, armored combat vehicles
and weapons delivery systems to the U.S. Department of Defense ("DoD") and a
number of allied military forces worldwide. The Company's products include
critical elements of the U.S. military's tactical force structure. The Company
had a firm funded backlog of approximately $1.5 billion as of June 30, 1998, a
substantial majority of which is derived from sole-source, prime contracts.
Approximately 75% of the Company's sales for the first six months of 1998 were
to the U.S. government, primarily to agencies of the DoD (excluding Foreign
Military Sales), or through subcontracts with other government contractors.
For a description of the Company's business and principal operating
programs, see the Form S-4.
There have been no material changes to the Company's major programs
from those described in the Company's Registration Statement on Form S-4. As
indicated therein, the Company recently completed negotiations with the U.S.
Navy and Lockheed Martin Corporation regarding the U.S. Navy's next VLS
procurement, which will provide production and ancillary VLS work for the
Company from 1998 through 2002.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1998 ("THREE MONTHS 1998") COMPARED TO
THREE MONTHS ENDED JUNE 30, 1997 ("THREE MONTHS 1997")
REVENUE. Revenue in the Three Months 1998 was $316.9 million, a
reduction of $3.3 million, or 1.0%, from the Three Months 1997. The decline was
due to a shipment in 1997 of a large component for a Seawolf submarine which did
not reoccur in 1998 and reduced deliveries of armored personnel carrier vehicle
upgrades. These declines were
14
<PAGE>
partially offset by higher vehicle and kit shipments to certain foreign
customers and an increase in billings for the Crusader development program.
GROSS PROFIT. Gross profit declined $6.9 million, or 10.9% to $56.1
million for the Three Months 1998 versus the Three Months 1997. The gross profit
rate was also down two percentage points from 19.7% for the Three Months 1997 to
17.7% for the Three Months 1998. The decline resulted primarily from the
amortization of the Acquisition purchase price partially offset by lower
retirement benefit costs.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses were $35.4 million in the Three Months 1998, an increase
of $8.7 million, or 32.8% from the Three Months 1997. The increase was primarily
due to the amortization of goodwill and other intangible assets established as
part of the Acquisition and partially offset by the lower cost of corporate
overhead for the Three Months 1998 than the overhead charge assessed by FMC for
the Three Months 1997.
EARNINGS FROM FOREIGN AFFILIATES. The Company's foreign affiliates had
a loss of $9.9 million for the Three Months 1998 compared to a profit of $4.5
million for the Three Months 1997. The reason for the loss was the establishment
of a reserve for a potential offset penalty, which could be assessed by the
Turkish government if the Company's Turkish joint venture does not achieve
certain export sales.
INTEREST EXPENSE. Net interest expense was $10.7 million for the Three
Months 1998 compared to interest income of $0.5 million for the Three Months
1997. The interest expense is a result of the incurrence of debt to finance the
Acquisition.
NET INCOME. As a result of the foregoing, including the addition of
interest expense and amortization of the purchase price discussed earlier, there
was a net loss of $4.5 million in the Three Months 1998 compared with net income
of $36.2 million for the Three Months 1997.
SIX MONTHS ENDED JUNE 30, 1998 ("SIX MONTHS 1998") COMPARED TO
SIX MONTHS ENDED JUNE 30, 1997 ("SIX MONTHS 1997")
REVENUE. Revenue of $631.7 million for the Six Months 1998 was up $23.9
million, or 3.9%, compared with the Six Months 1997. The increase was primarily
due to increased billings for the Crusader development program, higher
deliveries of Paladin upgrades, the addition of FMC's former technology center
to the Company and shipments on a classified contract. The increase was
partially offset by the shipment in 1997 of a large component for the Seawolf
submarine which did not reoccur in 1998.
GROSS PROFIT. Gross profit declined $32.1 million, or 26.2%, to $90.5
million for the Six Months 1998 versus the Six Months 1997. The gross profit
rate decreased 5.9% from 20.2% for the Six Months 1997 to 14.3% for the Six
Months 1998. The primary reason for the decline in gross profit, as well as the
rate, is the depreciation and amortization of the increased value of assets
established in connection with the allocation of the purchase price for the
Acquisition. Also contributing to the decline was
15
<PAGE>
the establishment of reserves for a warranty claim and the shut down of the
Company's foundry operations in Anniston, Alabama and lower profit estimates for
several key contracts. This decline was partially offset by the gross profit
derived from the higher revenue discussed above and by lower retirement benefit
costs.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses rose to $86.8 million in the Six Months 1998, an
increase of $32.7 million or 60.4% compared with the Six Months 1997. The
unfavorable variance is attributable to the amortization of goodwill and other
intangible assets established in conjunction with the Acquisition. The higher
costs were partially offset by lower expense for corporate services and savings
related to the consolidation of staff functions within Ground Systems Division.
EARNINGS FROM FOREIGN AFFILIATES. Earnings from foreign affiliates were
$5.5 million for the Six Months 1998, down $7.2 million, or 57.0%, from the Six
Months 1997. The decline is due to reduced earnings from the Saudi Arabian joint
venture as this operation has experienced a decline in funding for both of its
contracts. Also, a reserve established for the potential offset penalty for the
joint venture in Turkey negated a year over year increase in dividends received
from the venture.
INTEREST EXPENSE. Net interest expense for the Six Months 1998 was
$25.8 compared with interest income of $1.0 million for the Six Months 1997. The
interest expense is the result of the debt incurred to finance the Acquisition.
NET INCOME. As a result of the foregoing, including the addition of
interest expense and non-cash amortization of the purchase price, there was a
net loss of $25.0 million for the Six Months 1998 compared with net income of
$74.0 million for the Six Months 1997.
LIQUIDITY
During the Six Months 1998, cash provided by operating activities was
$34.9 million compared with $110.0 million for the Six Months 1997. The decline
in cash flow can be attributed principally to (i) interest expense to service
the debt incurred to finance the Acquisition, (ii) the change for the Six Months
1998 in accounts receivable being $26.5 million less than the Six Months 1997 as
the Company experienced collection problems due to new, detailed reconciliation
requirements at the government payment office, and (iii) the change in accounts
payable for the Six Months 1998 was a negative $33.9 million which was $25.3
million more negative than in 1997 due to the timing of spending. Although
inventory contributed $64.6 million to cash from operations in the Six Months
1998, this was offset by a comparable reduction in advanced payments for this
period, as is usually the case for the Company, so that the net change in cash
flow for these two accounts was insignificant.
16
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Cash used in investing activities was $8.3 million for the Six Months
1998, down from $40.8 million for the Six Months 1997, when the Company made
short term investments in its former majority owner FMC.
Cash used for financing activities was applied to pay down debt in the
Six Months 1998, compared to distributions of funds to the former owners, FMC
and Harsco, as was the case in the Six Months 1997. For the Six Months 1998, $41
million of debt was paid back to the lenders, whereas for the Six Months of
1997, $69.1 million was distributed to FMC and Harsco. Also, in the first half
of 1998, the Company raised $5.4 million from the sale of additional shares of
its common stock to certain officers, directors, and other management members of
the Company and to individuals affiliated with Carlyle.
IMPACT OF YEAR 2000 ("Y2K")
The Company has a Y2K compliance program underway and is committing
extensive resources to overcome Y2K issues with the intent of minimizing or
eliminating disruption related to this potential computer problem. The Company
expects to spend $30 million repairing or replacing existing business systems so
that they are Y2K compliant. Through June 1998, approximately $10 million of the
foregoing figure has been spent. All of such costs will be financed through
internal cash flow.
All divisions have completed assessments of internal systems used by
the Company to operate its business and deliver products and services to
customers. Various projects intended to repair, replace, upgrade or dispose of
non-compliant systems are underway or already completed. The most significant
projects addressing Y2K compliance of internal systems are the Integrated
Business Systems Projects being executed at Armament Systems Division and Ground
Systems Division. These projects are projected to be completed in mid-1999 and
will replace mainframe financial, accounting and manufacturing legacy systems
with new Y2K compliant systems.
Suppliers are being contacted regarding their Y2K issues. Some
suppliers have indicated compliance through certifications, but many suppliers
have indicated that they have Y2K compliance issues which have not been
addressed or resolved. Procurement departments at the Company's various
divisions will continue to communicate with suppliers to attempt to ensure that
they have timely and appropriate plans to resolve Y2K problems. Procurement
documents utilized by the Company now include requirements as to Y2K. Because
the Company has only a limited understanding of the potential Y2K shortcomings
of its many suppliers, the Company is uncertain as to the full nature and extent
of the potential supplier-derived Y2K impact on the Company. However, the
Company is concerned that supplier Y2K problems could interrupt the flow of
components and services to the Company, which could in turn impair the Company's
timely delivery under its own customer contracts.
United States Government ("USG") agencies that the Company works with
have also been contacted. All of the agencies contacted indicated that they have
Y2K compliance problems which have not been addressed or resolved. Such USG
agencies have indicated to the Company that they are working to resolve their
Y2K problems, but the Company regards their ability to achieve this objective as
uncertain. Because the Company's understanding of the ways in which the USG
could experience Y2K difficulties is inherently limited, the Company is
uncertain as to the full nature and extent of the potential USG-derived Y2K
impact on the Company. However, the Company is concerned that Y2K problems
affecting USG financial administration functions could interrupt or
17
<PAGE>
delay the orderly flow of payments to the Company under its USG contracts.
Because of the Company's debt service obligations, any such interruption or
delay could severely impact the Company's financial condition.
The Company's production equipment, facilities and other infrastructure
assets using embedded computer chips are also being assessed. Results indicate
that there are Y2K problems in some equipment. Projects are underway to resolve
these issues. A cost estimate to correct these problems has not yet been
developed, but the Company believes the cost will be immaterial.
Assessments at all divisions indicate no Y2K problems with products the
Company produces and sells. Some divisions will do more thorough assessments of
products with complex embedded software to further validate results of existing
tests and studies. Certifications that the Company's products are Y2K compliant
have been provided to customers who have requested the certification.
To the extent that the Company's results depend upon foreign sales,
such results could also be adversely impacted by Y2K problems which might beset
the foreign customers of the Company or its foreign affiliates. The Company has
not yet developed an adequate understanding of potential foreign government Y2K
problems or compliance efforts. Also, the Company's foreign affiliates are
assessing and operationally addressing their internal Y2K situation, but such
efforts have not yet reached the point where the Company can estimate either the
cost of corrective efforts or the potential impact of non-correction.
Management believes it is expending appropriate efforts in addressing
the Y2K issue so that it will not incur a disruption to its business operations.
However, there can be no assurance that the Company will not incur Y2K problems
relating to its efforts or those involving its customers or suppliers or that
the costs of such efforts will not be greater than estimated currently.
18
<PAGE>
PART II
OTHER INFORMATION
JUNE 30, 1998
ITEM 1. LEGAL PROCEEDINGS
The Company's Louisville, Kentucky facility is involved in an
administrative proceeding with the Kentucky Department of Environmental
Protection ("KDEP") regarding the Company's 1997 disposition to a local landfill
of old wood flooring materials from the facility. The Company and KDEP disagree
as to whether such materials are sufficiently contaminated by chemical residues
from prior U.S. Navy operations in the facility to constitute "hazardous waste"
within the meaning of applicable Kentucky law. In the course of this
administrative proceeding, KDEP asserted on December 15, 1997 that the disposal
subjects the Company to a civil penalty of $25,000 per day for so long as the
violation continues, a period which could amount to a year or more, depending
upon the duration and ultimate resolution of the proceeding.
The Company believes that the flooring materials do not constitute
hazardous waste and expects to prevail in the proceeding, and accordingly, that
the likelihood of this matter having a material adverse impact on the Company is
remote. However, no assurance of a favorable outcome can be given. The Company
also notes that (i) the flooring materials acquired whatever environmental
character they may have by virtue of the U.S. Navy operations at the facility
prior to the Company's leasehold takeover thereof in August 1996, and (ii) the
U.S. Navy has undertaken in writing to indemnify the Company regarding certain
environmental consequences of the U.S. Navy's acts and tenure at the facility.
Alliant Techsystems, Inc. ("Alliant"), a subcontractor to
the Company in connection with the Paladin howitzer prime contract, filed
suit in February 1998 in the U.S. District Court for the District of
Minnesota, Case No. 98-764 - MJD/AJB, captioned Alliant Techsystems, Inc. v.
United Defense Limited Partnership, FMC Corporation, Harso Corporation and
Sechan Electronics, Inc. (Sechan is a replacement subcontractor employed on
the Paladin program). Alliant seeks damages in an unspecified amount, stated
only to be in excess of $75,000 on breach of contract and other theories. The
Company has filed a motion to dismiss Alliant's lawsuit.
The dispute arises out of a U.S. Army-directed termination for
convenience in 1996 of certain subcontract work, which, until the time of
termination, had been performed by Alliant and was thereafter replaced by
subcontract work performed by Sechan. Management does not believe that Alliant's
suit will have a material adverse impact on the Company.
19
<PAGE>
ITEM 2(c). RECENT SALE OF UNREGISTERED SECURITIES
On May 15, 1998, the Company issued an aggregate of 540,830 shares
of its common stock for aggregate proceeds to the Company of $5.4 million. Such
shares were issued to certain officers, directors and other management members
of the Company and to certain individuals employed by or otherwise affiliated
with Carlyle and certain of their relatives. Given the limited nature of the
sales and the individuals to whom the sales were made, such sales were made
under the exemption provided by Section 4(2) and Rule 701 of the Securities Act
of 1933.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 2.1--Purchase Agreement dated as of August 25, 1997 among
FMC Corporation, Harsco Corporation, Harsco UDLP Corporation and
Iron Horse Acquisition Corp. (a copy of the schedules to this
agreement will be furnished supplementally upon the request of the
Commission)*
Exhibit 2.2--Supplemental Agreement No. 1 to Purchase Agreement
dated as of August 25, 1997 among FMC Corporation, Harsco
Corporation, Harsco UDLP Corporation and Iron Horse Acquisition
Corp.**
Exhibit 3.1a--Certificate of Incorporation of Iron Horse
Acquisition Corp. (n/k/a United Defense Industries, Inc.)*
Exhibit 3.1b--Certificate of Amendment of Certificate of
Incorporation Before Payment of Any Part of the Capital of Iron
Horse Acquisition Corp. (n/k/a United Defense Industries, Inc.)*
Exhibit 3.1c--Certificate of Amendment of the Certificate of
Incorporation of United Defense Industries, Inc.*
Exhibit 3.2--By-laws of United Defense Industries, Inc.*
Exhibit 3.7--Certificate of Formation of Iron Horse Investors,
L.L.C.*
Exhibit 3.8--Limited Liability Company Agreement of Iron Horse
Investors, L.L.C.*
Exhibit 10.1--Professional Service Agreement with J.H. Binford
Peay, III
Exhibit 10.2--Professional Service Agreement with John M.
Shalikashvili
Exhibit 10.3--Executive Compensation Agreement with David V.
Kolovat
Exhibit 10.4--Executive Compensation Agreement with Thomas W.
Rabaut
Exhibit 10.5--Executive Compensation Agreement with Arthur L.
Roberts
Exhibit 10.6--Executive Compensation Agreement with Frederick M.
Strader
Exhibit 10.7--Executive Compensation Agreement with Peter C.
Woglom
* Incorporated by reference to the identical exhibit number in the
Company's Registration Statement on Form S-4 (333-43619) filed
with the Securities and Exchange Commission on December 22, 1997.
** Incorporated by reference to the identical exhibit number in
the Company's Amendment No. 1 to Form S-4 (333-43619) filed with
the Securities and Exchange Commission on February 6, 1998.
Financial Data Schedule.
(b) Reports on Form 8-K
None.
20
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
By: /s/ Francis Raborn
___________________________
Francis Raborn
Principal Financial and
Accounting Officer
and Authorized Signatory
Dated: August 12, 1998
United Defense
Professional Services Agreement
This Professional Services Agreement ("Agreement") dated as of the 1st day of
December 1997, is entered into by and between UDLP Holding Corporation, a
Delaware corporation having a place of business at 1525 Wilson Boulevard, Suite
700, Arlington, VA 22209 (hereinafter referred to as the "Company") and General
J. H. Binford Peay, III (USA Ret), having his principal office at 4621 Bay to
Bay Boulevard, Tampa, FL 33629 (hereinafter referred to as "Director"). United
Defense desires the services of Director and Director desires to perform such
services. In consideration of the mutual covenants contained herein, the parties
agree as follows:
1. Statement of Work
Commencing on the date first herein written, Director shall perform the
services for United Defense as specifically directed by the authorized
representative(s) of United Defense as are described below:
Serve as member of the Board of Directors of the Company, and
if requested by the Company, one or more of its affiliates.
2. Payment
(a) In consideration of such services, subject to the terms and conditions of
this Agreement, and as Director's sole and entire compensation under or in
relation to this Agreement, United Defense shall pay Director compensation as
follows:
$25,000/year, plus expenses and options to acquire 1,000 shares of the
stock of the Company's affiliate, United Defense Industries, Inc.
(b) Payment of fees under this Agreement shall be made within thirty (30) days
of receipt by United Defense of invoices submitted by Director from time to time
as appropriate, but not more frequently than monthly, which invoices are to be
supported by a written summary of the work actually performed and the time
expended thereon by the Director during such billing period. United Defense
shall also reimburse Director for its reasonable out-of-pocket expenses
incurred, requested or authorized by United Defense. Reimbursements of expenses
hereunder will be made on the basis of itemized statements submitted by
Director, which statements are to include actual bills, receipts, invoices or
other evidence of expenditures. Aggregate payments of all compensation hereunder
shall not exceed $100,000.
(c) Time spent in travel shall not be deemed to be time spent in connection
with this Agreement except to the extent that work is actually performed during
travel periods. Director shall comply with United Defense's travel policies,
except as otherwise agreed by United Defense in writing. Director shall not
incur any expense on behalf of United Defense except as contemplated by
paragraph 2 above or upon the prior written approval of United Defense. From
time to time upon request by United Defense, Director shall permit audit of
Director's compliance with the terms of this Agreement by United Defense
employees and/or representatives of any Governmental agencies to which United
Defense is or may be accountable. Any consulting work and related expenses which
do not accord with applicable laws, regulations, United Defense standards of
conduct or the terms of this Agreement, shall not be reimbursed.
<PAGE>
3. Inventions and Data
(a) The term "subject invention" as used in this Agreement means any invention,
discovery, improvement, design, idea or suggestion, whether or not patentable,
conceived and/or first actually reduced to practice by Director, whether
acting alone or jointly with others, in the course of or as a result of any
work for United Defense. The term "subject data" as used in this Agreement means
any writings, sound recordings, pictorial reproductions, drawings or other
graphic representation and works of any similar nature, whether or not
copyrightable, which are prepared by Director, whether acting alone or jointly
with others, in the course of or as a result of any work for United Defense.
(b) All subject inventions and subject data are and shall remain the property of
United Defense, its successors or assigns, or its nominees, whether or not
United Defense obtains patent or copyright protection thereon. Director shall
(i) promptly disclose all subject inventions and subject data to United Defense;
(ii) assist United Defense upon request to procure and/or maintain patents,
copyrights and trade secrets throughout the world on said inventions and data;
and (iii) assist United Defense to record the existence of the right, title and
interest to said inventions and data in United Defense, at United Defense's
expense, including the execution of documents sought or required by United
Defense or any Governmental agency.
4. Confidential Treatment of Information
(a) Director shall not, either during or after the term of this Agreement,
directly or indirectly publish or disclose to any third party any information
(including but not limited to subject inventions or subject data) pertaining in
any way to the business of United Defense, its customers or suppliers, which is
developed, acquired or derived from association with United Defense, unless
United Defense gives written authorization to do so. Such information shall not
be used apart from United Defense business without written approval of United
Defense. Such prohibition against disclosure to others shall not apply to
information after it is clearly disclosed to the public by United Defense in
writing.
(b) Drawings, sketches and any other tangible material made or obtained by
Director from or for United Defense shall be turned over to United Defense in a
timely manner and shall not be removed from United Defense's premises without
the written permission of United Defense. If written permission is given to
remove any such material, the material shall be promptly returned to United
Defense upon completion of the work for United Defense or at any earlier time
requested by United Defense.
5. Work for Others
While engaged by the Company hereunder, Director shall not act as a consultant
for others regarding any matter in which any such other's interest is legally or
financially adverse to that of United Defense. Director represents and warrants
that Director has disclosed in writing to United Defense all other clients and
any work which may represent a conflict of interest with respect to the work to
be performed for United Defense under this Agreement. Director shall, during the
term hereof, advise United Defense prior to entering into any agreement with any
other entity or performing any other work which may result in such a conflict of
interest, and further shall during the term hereof, not enter into any such
agreement or perform any other such work without the prior written approval of
United Defense.
6. Term and Termination
Unless earlier terminated in accordance with this Section 6, this Agreement
shall expire in 52 weeks following the date first above written. Additionally,
the term of this Agreement may be extended for one or more successive one year
periods by written agreement of the parties. Whether during the original term or
any extension thereof, this Agreement may be terminated by either party at any
time (i) without cause, by giving not less than one (1) week's prior written
notice to the other, or (ii) upon breach by the other party, by the aggrieved
party's giving not less than ten (10) days' prior written notice, stating the
nature of such breach.
2
<PAGE>
7. Information Provided
Director represents and warrants as to any information in any form which
Director may provide to United Defense that (i) Director has the lawful right to
provide such information to United Defense without breach of any law,
regulation, contract obligation or duty of employment and that United Defense
may receive and use such information without incurring any liability or
obligation to any other person or entity, and (ii) that any information provided
to United Defense which may have been obtained directly by Director or from any
other person or entity was obtained without violation of any law, regulation,
contract obligation, proprietary right or duty of employment. Director shall
indemnify, defend and hold harmless United Defense (including its employees,
officers and directors) from any damages and claims arising out of or related to
any breach by Director of such representations and warrants.
8. Compliance with Laws
(a) Director represents and warrants that (i) Director is and shall remain
familiar with all applicable laws and regulations relating to gratuities,
bribery, kickbacks, conflicts of interest, classified information and political
activity, (ii) no principal or relative of any principal of Director is a U.S.
Government official other than as expressly disclosed in writing by Director
prior to the date of this Agreement as first set forth above; and (iii) no U.S.
Government official has any beneficial interest in Director nor in any
compensation payable to Director by United Defense. Director shall report to
United Defense all contacts with U.S. Government employees and officials during
which United Defense matters are discussed. Director shall strictly comply with
all applicable statutes and regulations in the conduct of Director's work for
United Defense (including the law described in subparagraph (b) below) and shall
indemnify, defend and hold United Defense (including its employees, officers and
directors) harmless from any failure of the Director to do so.
(b) Director represents and warrants that, throughout the term of this
Agreement, Director (i) shall remain familiar with federal law regarding
procurement integrity (41 U.S.C. Paragraph 423) and regulations issued
thereunder, hereafter collectively referred to as the "Law"), (ii) will comply
with the Law in all respects, and (iii) shall not be a "procurement official" on
any procurement for which United Defense is a "competing contractor" (as such
terms are defined in the Law). Director shall promptly execute the
procurement integrity certification attached hereto, shall re-execute such
certification annually or as otherwise requested by United Defense, and shall
provide to United Defense such other cooperation as United Defense may require
to comply with the Law, insofar as United Defense's compliance is affected by
Director's performance under or acts in relation to this Agreement.
9. Standards of Conduct
Director acknowledges receipt of a copy of the Business Conduct Guidelines and
Code of Ethics and shall comply with the standards of conduct set forth for
United Defense employees therein, and shall promptly complete and return to
United Defense the Letter of Certification appended to the Business Conduct
Guidelines.
10. Report of Violations
Director shall report to the appropriate United Defense manager or to United
Defense's Ethics Hot Line number at (888) 912-2112, any request by any United
Defense employee to obtain any information or perform any other act under this
Agreement in a manner which would violate any applicable law, regulation,
contract obligation, duty of employment or United Defense standard of conduct.
Director is requested similarly to report any observed violation of law or
regulation by any United Defense personnel. All such reports will be handled on
a confidential basis and may be made anonymously, if appropriate.
3
<PAGE>
11. Miscellaneous
(a) This Agreement contains the entire agreement of the parties with respect to
the subject matter hereof and supersedes any prior or contemporaneous
representation, warrants, understanding or agreement, written or oral, regarding
such subject matter. This Agreement shall not be deemed to create any
partnership, joint venture or enterprise or employment relationship between the
parties and Director shall have no authority to act in the name of or to
obligate United Defense in any way to third parties. Director shall diligently
make and perform all appropriate tax reports and filings as an independent
contractor and shall make all payments in such capacity required to federal,
state and local tax authorities, including but not limited to, income and social
security taxes; and Director shall indemnify and hold United Defense harmless
from and against any claim for taxes, interest and/or penalties, however
denominated, made by taxing authorities in respect to Director's activities
under or related to this Agreement.
(b) This Agreement shall be construed in accordance with and governed by the
laws of the State of Virginia and the United States of America.
(c) In the event any term or provision hereof is held to be invalid or
unenforceable by final judgment of any court of competent jurisdiction, such
term or provision shall thereupon be severed from this Agreement and the
remainder of the terms and provisions hereof shall remain in full force and
effect.
In Witness Whereof, the parties hereto have executed this Agreement.
Director:
J.H. Binford Peay III
-------------------------------------------
(Typed or printed name and title of signer)
/s/ J.H. Binford Peay III
-------------------------------------------
(Signature) 1 Dec 1997
Tax Identification No. (SSN): ###-##-####
United Defense, L.P.:
/s/ Thomas W. Rabaut
-------------------------------------------
(Signature)
Thomas W. Rabaut, President & CEO
(Typed or printed name and title of signer)
United Defense
Professional Services Agreement
This Professional Services Agreement ("Agreement") dated as of the 1st day of
June 1998, is entered into by and between United Defense Industries, Inc., a
Delaware corporation having a place of business at 1525 Wilson Boulevard, Suite
700, Arlington, VA 22209 (hereinafter referred to as the "Company") and John
M. Shalikashvili, having his principal office at 9302 76th Street, NW, Tacoma
WA 98498 (hereinafter referred to as "Director"). United Defense desires the
services of Director and Director desires to perform such services. In
consideration of the mutual covenants contained herein, the parties agree as
follows:
1. Statement of Work
Commencing on the date first herein written, Director shall perform the services
for United Defense as specifically directed by the authorized representative(s)
of United Defense as are described below:
Serve as member of the Board of Directors of the Company, and if
requested by the Company, one or more of its affiliates.
Payment
(a) In consideration of such services, subject to the terms and conditions of
this Agreement, and as Director's sole and entire compensation under or in
relation to this Agreement, United Defense shall pay Director compensation as
follows:
S25,000/year, plus expenses, and a one time grant of 1,000 options of
United Defense stock exerciseable at $10 per share. In addition, you
can elect to take your $25,000 compensation per year in stock.
Currently the stock is valued at $10 per share; therefore a grant of
2,500 shares is offered for 1998. Each year the value of the stock will
be adjusted and the appropriate number of shares granted.
(b) Payment of fees under this Agreement shall be made within thirty (30) days
of receipt by United Defense of invoices submitted by Director from time to time
as appropriate, but not more frequently than monthly, which invoices are to be
supported by a written summary of the work actually performed and the time
expended thereon by the Director during such billing period. United Defense
shall also reimburse Director for its reasonable out-of pocket expenses
incurred, requested or authorized by United Defense. Reimbursements of expenses
hereunder will be made on the basis of itemized statements submitted by
Director, which statements are to include actual bills, receipts, invoices or
other evidence of expenditures.
(c) Time spent in travel shall not be deemed to be time spent in connection with
this Agreement except to the extent that work is actually performed during
travel periods. Director shall comply with United Defense's travel policies,
except as otherwise agreed by United Defense in writing. Director shall not
incur any expense on behalf of United Defense except as contemplated by
paragraph 2 above or upon the prior written approval of United Defense. From
time to time upon request by United Defense, Director shall permit audit of
Director's compliance with the terms of this Agreement by United Defense
employees and/or representatives of any Governmental agencies to which United
Defense is or may be accountable. Any consulting work and related expenses which
do not accord with applicable laws, regulations, United Defense standards of
conduct or the terms of this Agreement, shall not be reimbursed.
<PAGE>
3. Inventions and Data
(a) The term "subject invention" as used in this Agreement means any invention,
discovery, improvement, design, idea or suggestion, whether or not patentable,
conceived and/or first actually reduced to practice by Director, whether acting
alone or jointly with others, in the course of or as a result of any work for
United Defense. The term "subject data" as used in this Agreement means any
writings, sound recordings, pictorial reproductions, drawings or other graphic
representation and works of any similar nature, whether or not copyrightable,
which are prepared by Director, whether acting alone or jointly with others, in
the course of or as a result of any work for United Defense.
(b) All subject inventions and subject data are and shall remain the property of
United Defense, its successors or assigns, or its nominees, whether or not
United Defense obtains patent or copyright protection thereon. Director shall
(i) promptly disclose all subject inventions and subject data to United Defense;
(ii) assist United Defense upon request to procure and/or maintain patents,
copyrights and trade secrets throughout the world on said inventions and data;
and (iii) assist United Defense to record the existence of the right, title and
interest to said inventions and data in United Defense, at United Defense's
expense, including the execution of documents sought or required by United
Defense or any Governmental agency.
4. Confidential Treatment of Information
(a) Director shall not, either during or after the term of this Agreement,
directly or indirectly publish or disclose to any third party any information
(including but not limited to subject inventions or subject data) pertaining in
any way to the business of United Defense, its customers or suppliers, which is
developed, acquired or derived from association with United Defense, unless
United Defense gives written authorization to do so. Such information shall not
be used apart from United Defense business without written approval of United
Defense. Such prohibition against disclosure to others shall not apply to
information after it is clearly disclosed to the public by United Defense in
writing.
(b) Drawings, sketches and any other tangible material made or obtained by
Director from or for United Defense shall be turned over to United Defense in a
timely manner and shall not be removed from United Defense's premises without
the written permission of United Defense. If written permission is given to
remove any such material, the material shall be promptly returned to United
Defense upon completion of the work for United Defense or at any earlier time
requested by United Defense.
5. Work for Others
While engaged by the Company hereunder, Director shall not act as a consultant
for others regarding any matter in which any such other's interest is legally or
financially adverse to that of United Defense. Director represents and warrants
that Director has disclosed in writing to United Defense all other clients and
any work which may represent a conflict of interest with respect to the work to
be performed for United Defense under this Agreement. Director shall, during the
term hereof, advise United Defense prior to entering into any agreement with any
other entity or performing any other work which may result in such a conflict of
interest, and further shall, during the term hereof, not enter into any such
agreement or perform any other such work without the prior written approval of
United Defense.
6. Term and Termination
Unless earlier terminated in accordance with this Section 6, this Agreement
shall expire in 52 weeks following the date first above written. Additionally,
the term of this Agreement may be extended for one or more successive one-year
periods by written agreement of the parties. Whether during the original term
or any extension thereof, this Agreement may be terminated by either party at
any time (i) without cause, by giving not less than one (1) week's prior written
notice to the other, or (ii) upon breach by the other party, by the aggrieved
party's giving not less than ten (10) days' prior written notice, stating the
nature of such breach.
2
<PAGE>
7. Information Provided
Director represents and warrants as to any information in any form which
Director may provide to United Defense that (i) Director has the lawful right to
provide such information to United Defense without breach of any law,
regulation, contract obligation or duty of employment and that United Defense
may receive and use such information without incurring any liability or
obligation to any other person or entity, and (ii) that any information provided
to United Defense which may have been obtained directly by Director or from any
other person or entity was obtained without violation of any law, regulation,
contract obligation, proprietary right or duty of employment. Director shall
indemnify, defend and hold harmless United Defense (including its employees,
officers and directors) from any damages and claims arising out of or related to
any breach by Director of such representations and warrants.
8. Compliance with Laws
(a) Director represents and warrants that (i) Director is and shall remain
familiar with all applicable laws and regulations relating to gratuities,
bribery, kickbacks, conflicts of interest, classified information and political
activity, (ii) no principal or relative of any principal of Director is a U.S.
Government official other than as expressly disclosed in writing by Director
prior to the date of this Agreement as first set forth above; and (iii) no U.S.
Government official has any beneficial interest in Director nor in any
compensation payable to Director by United Defense. Director shall report to
United Defense all contacts with U.S. Government employees and officials during
which United Defense matters are discussed. Director shall strictly comply with
all applicable statutes and regulations in the conduct of Director's work for
United Defense (including the law described in subparagraph (b) below) and shall
indemnify, defend and hold United Defense (including its employees, officers and
directors) harmless from any failure of the Director to do so.
(b) Director represents and warrants that, throughout the term of this
Agreement, Director (i) shall remain familiar with federal law regarding
procurement integrity (41 U.S.C. Paragraph 423) and regulations issued
thereunder, hereafter collectively referred to as the "Law"), (ii) will comply
with the Law in all respects, and (iii) shall not be a "procurement official" on
any procurement for which United Defense is a "competing contractor" (as such
terms are defined in the Law). Director shall promptly execute the
procurement integrity certification attached hereto, shall re-execute such
certification annually or as otherwise requested by United Defense, and shall
provide to United Defense such other cooperation as United Defense may require
to comply with the Law, insofar as United Defense's compliance is affected by
Director's performance under or acts in relation to this Agreement.
9. Standards of Conduct
Director acknowledges receipt of a copy of the Business Conduct Guidelines and
Code of Ethics and shall comply with the standards of conduct set forth for
United Defense employees therein, and shall promptly complete and return to
United Defense the Letter of Certification appended to the Business Conduct
Guidelines.
10. Report of Violations
Director shall report to the appropriate United Defense manager or to United
Defense's Ethics Help Line number at (888) 912-2112, any request by any United
Defense employee to obtain any information or perform any other act under this
Agreement in a manner which would violate any applicable law, regulation,
contract obligation, duty of employment or United Defense standard of conduct.
Director is requested similarly to report any observed violation of law or
regulation by any United Defense personnel. All such reports will be handled on
a confidential basis and may be made anonymously, if appropriate.
3
<PAGE>
11. Miscellaneous
(a) This Agreement contains the entire agreement of the parties with respect to
the subject matter hereof and supersedes any prior or contemporaneous
representation, warrants, understanding or agreement, written or oral, regarding
such subject matter. This Agreement shall not be deemed to create any
partnership, joint venture or enterprise or employment relationship between the
parties and Director shall have no authority to act in the name of or to
obligate United Defense in any way to third parties. Director shall diligently
make and perform all appropriate tax reports and filings as an independent
contractor and shall make all payments in such capacity required to federal,
state and local tax authorities, including but not limited to, income and social
security taxes; and Director shall indemnify and hold United Defense harmless
from and against any claim for taxes, interest and/or penalties, however
denominated, made by taxing authorities in respect to Director's activities
under or related to this Agreement.
(b) This Agreement shall be construed in accordance with and governed by the
laws of the State of Virginia and the United States of America.
(c) In the event any term or provision hereof is held to be invalid or
unenforceable by final judgment of any court of competent jurisdiction, such
term or provision shall thereupon be severed from this Agreement and the
remainder of the terms and provisions hereof shall remain in full force and
effect.
In Witness Whereof, the parties hereto have executed this Agreement.
Director:
John M. Shalikasvili
----------------------------------------------
(Typed or printed name and title of signer)
/s/ John M. Shalikasvili
----------------------------------------------
(Signature)
Tax Identification No. (SSN or EIN): ###-##-####
United Defense, L.P.:
/s/ Thomas W. Rabaut
----------------------------------------------
(Signature)
Thomas W. Rabaut, President & CEO
----------------------------------------------
(Typed or printed name and title of signer)
UNITED DEFENSE, L.P.
July 29, 1997
David V. Kolovat
Re: Executive Compensation Agreement
--------------------------------
Dear Dave:
This Letter Agreement serves to confirm the discussion between
Thomas W. Rabaut, and you ("Executive") concerning the decision of the Board of
Directors of FMC Corporation ("FMC" or the "General Partner"), the general
partner of United Defense, L.P. (the "Company"), to (i) solicit potential
buyers for a possible sale of the outstanding general partner interests, or
outstanding general partner and limited partner interests, of the Company (a
"Sale of the Company") and (ii) to consider a spin-off of the Company in a
transaction or series of related transactions pursuant to which the stockholders
of FMC would become the holders of FMC's equity interests in the Company as a
result of a distribution of such interests (a "Spin-Off"). Each of a Sale of the
Company and a Spin-Off are referred to herein as a "Transaction." In connection
with such decision, the Company hereby agrees with Executive, effective as of
the date written above, to the following terms and conditions set forth in
this Letter Agreement.
1. Compensation Arrangements. In consideration of Executive's agreement to
cooperate with the General Partner in pursuing a Transaction and to fulfill
Executive's other obligations set forth in this Letter Agreement, Executive
shall be entitled to receive the payments and benef1ts described below:
(a) Performance Incentive. If a Transaction is consummated, Executive shall
be entitled to a bonus (the "Performance Incentive Bonus") of $100,000
payable 30 days after the consummation of such Transaction the "Final
Transaction Date"); provided, however that (i) the Performance Incentive
Bonus shall not be payable if, prior to the Final Transaction Date,
Executive's employment with the Company is voluntarily terminated
without Good Reason or is involuntarily terminated for Cause and (ii) the
Performance Incentive Bonus shall be payable if Executives employment is
voluntarily terminated with Good Reason or involuntarily terminated not
for Cause prior to the Final Transaction Date. Notwithstanding the
foregoing the Performance Incentive Bonus shall be payable if Executive
voluntarily terminates his employment prior to the Final Transaction Date
in order to accept an offer of employment from FMC.
(b) Severance Pay: Subject to consummation of a Sale of the Company (but not
a Spin-Off), if Executive is terminated by the Company not for Cause,
or if Executive voluntarily terminates his employment with the Company
with Good Reason, at any time after the Final Transaction Date up to and
including the two-year anniversary of the Final Transaction Date,
Executive shall be entitled to receive from the Company the following:
<PAGE>
(i) An amount equal to Executive's annualized base salary in effect at
the effective time of such termination plus an amount equal to
Executive's (A) earned and unused and (B) accrued vacation pay
through the effective time of such termination.
(ii) An amount equal to the greater of (A) Executive's target bonus
established for the plan period commencing January 1, 1997 and (B)
Executive's target bonus established for the plan period
commencing in the year of such termination.
(iii) A continuation of the welfare benefits of health care (including
dental insurance coverage), life and accidental death and
dismemberment and long-term disability insurance coverage for one
full year after the effective time of such termination. These
benefits shall be provided to Executive at the same premium cost,
and at the same coverage level, as in effect as of the effective
time of such termination. However, in the event the premium cost
and/or level of coverage shall change for all employees of the
Company, or for management employees with respect to supplemental
benefits, the cost and/or coverage level, as applicable, shall
change for Executive in a corresponding manner.
(iv) Executive outplacement assistance in accordance with FMC's
customary practices for persons in Executive's employment position
from the outplacement firm employed by FMC as of the effective
time of such termination.
Executive shall also be entitled to receive severance benefits under this
paragraph 1 (b) upon voluntary termination of employment with the
Company prior to the Final Transaction Date if the buyer of partnership
interests of the Company ("Buyer") indicates in writing to FMC prior to
the Final Transaction Date that Buyer intends to cause the Company to
terminate Executive following the Final Transaction Date, unless
Executive accepts an offer of employment with FMC prior to the Final
Transaction Date. A liquidation or dissolution of the Company in
connection with a Sale of the Company or as part of the integration of
the operations of the Company and Buyer shall not be deemed to involve a
termination of Executive for purposes of this paragraph 1 (b), but in
such event this paragraph 1 (b) is intended to apply to and be binding on
the successor of the Company.
2
<PAGE>
(c) FMC 1995 Management Incentive Plan:
(i) Bonus Performance Incentive Award. Whether or not Executive
completes the Three-Year Period (as defined in the FMC 1995
Management Incentive Plan (the "MIP") ending December 31, 1997 as
an employee of the Company, Executive shall receive a BPI Award
(as defined below) with respect to such Three-Year Period based on
the greater of the at-target performance and the actual
performance of the Company for such Three-Year Period. Such BPI
Award shall be reduced by the amount of the draw against such BPI
Award previously paid to Executive and, as so reduced, shall be
payable at the time when FMC makes payment of the BPI Awards to
other participants in the MIP. For purposes of this Letter
Agreement, the term "BPI Award" shall mean a Three-Year Incentive
Award within the meaning of the MIP.
(ii) Annual Performance Incentive Award. Whether or not Executive
completes the calendar year ending December 31, 1997 as an
employee of the Company, Executive shall receive an annual
performance incentive award with respect to such period based on
a review of Executive's performance during such period. Such
annual performance incentive award shall be payable at the time
when FMC makes payment of the annual performance incentive awards
to other participants in the MIP.
(d) Equity Incentive Awards: Notwithstanding any contrary term contained in
any applicable FMC stock option plan (the "Option Plan") or any
applicable stock option agreement, but subject to the approval of the
Compensation and Organization Committee of the Board of Directors of FMC
or any other appropriate committee, Executive shall have the right to
exercise any outstanding stock options granted to him under the Option
Plan that are vested as of the Final Transaction Date within the earlier
of (A) two years from the Final Transaction Date and (B) the scheduled
expiration date of such options under the Option Plan and the applicable
stock option agreements.
2. Obligations of Executive:
(a) Nondisclosure of Transaction Matters. Except as required by any court or
governmental entity, Executive agrees not to disclose or discuss with
any person (regardless of ann termination of this Letter Agreement or any
determination by FMC to no longer pursue a Transaction) the existence or
terms of this Letter Agreement, the fact that a Transaction is being
considered, the terms or conditions of a Transaction or the status of any
Transaction discussions or negotiations: provided, however, that (i)
Executive shall be free to consult with the other officers of the Company
or with his or her legal counsel, accountants and financial advisors in
connection with this Letter Agreement and any Transaction; and (ii)
Executive shall be free to disclose and discuss such matters in
connection with any Transaction by FMC officials leading FMC's efforts in
connection with any such Transaction.
3
<PAGE>
(b) Executive Cooperation in Transaction Efforts. Executive agrees to
cooperate with the partners of the Company in their respective efforts to
negotiate and close a Transaction, regardless of whether Executive or any
other member of the management of the Company ("Management") becomes a
participant in such Transaction. Without limiting the generality of the
foregoing, (i) Executive shall not take any action which could be
reasonably expected to give Management or any investors who propose to
participate with Management in a Transaction an advantage over other
potential participants in such Transaction or any alternative
Transaction; (ii) Executive shall make himself available at FMC's
request from time to time to answer questions and provide information to
potential participants in a Transaction, which shall be done in a manner
consistent with the policies, procedures and guidelines established by
FMC; and (iii) Executive shall otherwise promote any Transaction
consistent with his duty to act in the best interest of the Company and
shall continue his functional responsibilities and assist FMC in
connection with the negotiation and consummation of any such Transaction,
consistent with Executive's demonstrated capabilities.
(c) Representations and Warranties Relating to any Transaction. Executive
understands that FMC and/or the limited partner of the Company may decide
to make certain representations and warranties relating to the business
and operations of the Company to participants in a Transaction under the
terms of the definitive agreements with such participants (the
"Definitive Agreements"). Executive agrees that, prior to the execution
of the Definitive Agreements and prior to the closing of any such
Transaction, Executive will (i) review all such representations and
warranties and (ii) certify in writing to FMC and/or the limited partner
of the Company (the "Certificate") (A) that Executive knows of no
material misstatement or omission contained in such representations and
warranties or (B) that Executive has identified to FMC and/or the limited
partner of the Company in writing any material misstatements or omissions
contained in such representations and warranties. Executive understands
and acknowledges that such certification is customary in connection
with transactions such as such Transaction and that FMC will rely on
such certification in executing the Definitive Agreement and in closing
such Transaction.
3. No Contract of Employment. This Letter Agreement is not a contract of
employment. Nothing expressed or implied in this Letter Agreement shall
create any right or duty of Executive's continued employment by FMC or the
Company, and the Company reserves all rights to terminate Executive's
employment at any time for or not for Cause, subject to the provisions
hereof.
4
<PAGE>
4. Certain Definitions.
(a) The term "Cause" as used herein shall mean (i) Executive's willful and
continued failure to substantially perform his duties with the Company
(other than any such failure resulting from disability or occurring after
issuance by Executive of a notice of termination with Good Reason), after
a written demand for substantial performance is delivered to Executive
that specifically identifies the manner in which the Company believes
that Executive has willfully failed to substantially perform his duties,
and after Executive has failed to resume substantial performance of his
duties on a continuous basis within thirty (30) calendar days of
receiving such demand, (ii) the commission by Executive of an act of
fraud, misappropriation, embezzlement or any other act involving moral
turpitude or constituting a felony, or (iii) the commission by Executive
of any act of dishonesty which injures the Company, any partner of the
Company or Buyer, as the case may be.
(b) The term "Good Reason" as used herein shall mean the occurrence of one or
more of the following events without Executive's consent: (i) Executive's
base salary as of the date hereof is reduced for any reason by more than
5% other than as a result of the termination of Executive's employment;
or (ii) after the Final Transaction Date, Executive's employment with the
Company is not on terms comparable to Executive's employment with the
Company as of the date hereof in terms of compensation, responsibility,
authority. Executive shall notify the Company within 15 days after
Executive knows of the occurrence of any event within the meaning of
clauses (i) or (ii) above and the Company may cure any such event and
notify Executive thereof within 15 days of the Company's receipt of
Executive's notice. Within 15 days after expiration of such 15-day
period, Executive must voluntarily terminate his employment with the
Company in order to be entitled to benefits hereunder.
5. General Provisions: It is expressly understood and agreed: (i) that all of
the terms and conditions of the compensation plans described in paragraph l
above are to remain in full force and effect as applied to Executive and (ii)
that, except as specifically modified by this Letter Agreement, any payments
and distributions made pursuant to paragraph 1 above are in lieu of any other
payments which would otherwise be due under the same compensation plan for
the same relevant time period. It is further understood and agreed that the
following provisions shall apply to this Letter Agreement:
5
<PAGE>
(a) Irreparable Harm. Executive acknowledges and agrees that the failure of
Executive to comply with any of the terms of paragraph 2 will irreparably
harm the Company and that money damages would not adequately compensate
them for such harm. Thus, Executive agrees that in addition to any other
remedies that the Company may have hereunder or otherwise, the Company
shall be entitled to injunctive or other equitable relief to restrain any
breach by Executive of such terms, and further that the Company shall be
entitled to apply for such relief in any court of competent jurisdiction
without the posting of a bond or any other security.
(b) Assignment. Neither this Letter Agreement nor any of the rights,
interests or obligations hereunder may be assigned by Executive. This
Letter Agreement may be assigned by the Company and is intended to be
binding on any successor to the Company.
(c) Governing Law. This Letter Agreement shall be governed by and construed
in accordance with the laws of the State of Illinois without reference to
the choice of law principles thereof.
(d) Parol Integration. The rights and benefits granted pursuant to this
Letter Agreement are in addition to, and not in lieu of, any rights and
other benefits to which Executive may be entitled.
(e) Arbitration. Each of Executive and the Company hereby irrevocably agree
that, except as provided in paragraph 5(a), any dispute arising out of or
relating in any way to this Letter Agreement shall be settled solely by
arbitration in the City of Chicago, Illinois to be administered by the
American Arbitration Association in accordance with its then prevailing
rules.
(f) Status of Payments. No payments made to Executive by the Company pursuant
to this Letter Agreement (other than with respect to the MIP) shall be
deemed to be pensionable income or compensation for purposes of
Executive's rights under the FMC and/or Company pension plan applicable
to Executive.
* * * * * *
6
<PAGE>
If you agree that the foregoing correctly sets forth the agreement
between us, please sign the enclosed copy of this Letter Agreement in the space
indicated below and return it to the Company.
Very truly yours,
UNITED DEFENSE, L.P.
By: FMC Corporation
Its: General Partner
By: /s/ Thomas W. Rabaut
--------------------
Its: Vice President
--------------------
Agreed to as of the day and
year first written above:
/s/ David V. Kolovat
- ----------------------------
David V. Kolovat
April 1, 1997
- ----------------------------
Date of Signature
UNITED DEFENSE, L.P.
June 30, 1997
Thomas W. Rabaut
Re: Executive Compensation Agreement
--------------------------------
Dear Tom:
This Letter Agreement serves to confirm the discussion between Larry D.
Brady and you ("Executive") concerning the decision of the Board of Directors of
FMC Corporation ("FMC" or the "General Partner"), the general partner of United
Defense, L.P. (the "Company"), to (i) solicit potential buyers for a possible
sale of the outstanding general partner interests, or outstanding general
partner and limited partner interests, of the Company (a "Sale of the Company")
and (ii) to consider a spin-off of the Company in a transaction or series of
related transactions pursuant to which the stockholders of FMC would become the
holders of FMC's equity interests in the Company as a result of a distribution
of such interests (a "Spin-Off"). Each of a Sale of the Company and a Spin-Off
are referred to herein as a "Transaction." In connection with such decision, the
Company hereby agrees with Executive, effective as of the date written above, to
the following terms and conditions set forth in this Letter Agreement.
1. Compensation Arrangements. In consideration of Executive's agreement to
cooperate with the General Partner in pursuing a Transaction and to fulfill
Executive's other obligations set forth in this Letter Agreement, Executive
shall be entitled to receive the payments and benefits described below:
(a) Performance Incentive: If a Transaction is consummated, Executive shall
be entitled to a bonus (the "Performance Incentive Bonus") of S250,000
payable 30 days after the consummation of such Transaction (the "Final
Transaction Date"); provided, however, that (i) the Performance
Incentive Bonus shall not be payable if, prior to the Final Transaction
Date, Executive's employment with the Company is voluntarily terminated
without Good Reason or is involuntarily terminated for Cause and (ii) the
Performance Incentive Bonus shall be payable if Executive's employment
is voluntarily terminated with Good Reason or involuntarily terminated
not for Cause prior to the Final Transaction Date. Notwithstanding the
foregoing and paragraph 1(b) below, both the Performance Incentive Bonus
and the Premium Incentive Bonus (as defined in such paragraph l(b)) shall
be payable if Executive voluntarily terminates his employment prior to
the Final Transaction Date in order to accept an offer of employment
from FMC.
(b) Premium Incentive: If a Sale of the Company is consummated (but not a
Spin-Off), Executive shall be entitled to a bonus (the "Premium Incentive
Bonus") in an amount ranging from $0 to $250,000 based on the price
obtained for such Sale of the Company and Executive's contribution to the
process of consummating such Sale of
<PAGE>
the Company, as determined by Robert N. Burt and Larry D. Brady in their
sole discretion. Any Premium Incentive Bonus shall be payable 30 days
after the Final Transaction Date; provided, however, that (i) the Premium
Incentive Bonus shall not be payable if, prior to the Final Transaction
Date, Executive's employment with the Company is voluntarily terminated
without Good Reason or is involuntarily terminated for Cause and (ii) the
Premium Incentive Bonus shall be payable if Executive is voluntarily
terminated with Good Reason or involuntarily terminated not for Cause
prior to the Final Transaction Date.
(c) Severance Pay: Subject to consummation of a Sale of the Company (but not
a Spin-Off), if Executive is terminated by the Company not for Cause, or
if Executive voluntarily terminates his employment with the Company with
Good Reason, at any time after the Final Transaction Date up to and
including the two-year anniversary of the Final Transaction Date,
Executive shall be entitled to receive from the Company the following:
(i) An amount equal to three times Executive's annualized base salary
in effect at the effective time of such termination plus an amount
equal to Executive's (A) earned and unused and (B) accrued
vacation pay through the effective time of such termination.
(ii) An amount equal to three times greater of (A) Executive's target
bonus established for the plan period commencing January 1, 1997
and (B) Executive's target bonus established for the plan period
commencing in the year of such termination.
(iii) A continuation of the welfare benefits of health care (including
dental insurance coverage), life and accidental death and
dismemberment and long-term disability insurance coverage for
three full years after the effective time of such termination.
These benefits shall be provided to Executive at the same premium
cost, and at the same coverage level, as in effect as of the
effective time of such termination. However, in the event the
premium cost and/or level of coverage shall change for all
employees of the Company, or for management employees with respect
to supplemental benefits, the cost and/or coverage level, as
applicable, shall change for Executive in a corresponding manner.
(iv) Executive outplacement assistance in accordance with FMC's
customary practices for persons in Executive's employment position
from the outplacement firm employed by FMC as of the effective
time of such termination.
Executive shall also be entitled to receive severance benefits under
this paragraph 1 (c) upon voluntary termination of employment with the
Company prior to the Final
2
<PAGE>
Transaction Date if the buyer of partnership interests of the Company
("Buyer") indicates in writing to FMC prior to the Final Transaction Date
that Buyer intends to cause the Company to terminate Executive following
the Final Transaction Date, unless Executive accepts an offer of
employment with FMC prior to the Final Transaction Date. A liquidation or
dissolution of the Company in connection with a Sale of the Company or as
part of the integration of the operations of the Company and Buyer shall
not be deemed to involve a termination of Executive for purposes of this
paragraph 1(c), but in such event this paragraph 1(c) is intended to
apply to and be binding on the successor of the Company.
(d) FMC 1995 Management Incentive Plan:
(i) Bonus Performance Incentive Award. Whether or not Executive
completes the Three-Year Period (as defined in the FMC 1995
Management Incentive Plan (the "MIP")) ending December 31, 1997 as
an employee of the Company, Executive shall receive a BPI Award
(as defined below) with respect to such Three-Year Period based on
the greater of the at-target performance and the actual
performance of the Company for such Three Year Period. Such BPI
Award shall be reduced by the amount of the draw against such BPI
Award previously paid to Executive and, as so reduced, shall be
payable at the time when FMC makes payment of the BPI Awards to
other participants in the MIP. For purposes of this Letter
Agreement, the term "BPI Award" shall mean a Three-Year Incentive
Award within the meaning of the MIP.
(ii) Annual Performance Incentive Award. Whether or not Executive
completes the calendar year ending December 31, 1997 as an
employee of the Company, Executive shall receive an annual
performance incentive award with respect to such period based on a
review of Executive's performance during such period. Such annual
performance incentive award shall be payable at the time when FMC
makes payment of the annual performance incentive awards to other
participants in the MIP.
(e) Equity Incentive Awards:
(i) Options: Notwithstanding any contrary term contained in any
applicable FMC stock option plan (the "Option Plan") or any
applicable stock option agreement, but subject to the approval of
the Compensation and Organization Committee of the Board of
Directors of FMC or any other appropriate committee, Executive
shall have the right to exercise any outstanding stock options
granted to him under the Option Plan that are vested as of the
Final Transaction Date within the earlier of (A) two years from
the Final Transaction Date and (B) the scheduled expiration date
of such options under the Option Plan and the applicable stock
option agreements.
3
<PAGE>
(ii) Restricted Stock: Subject to the approval of the Compensation and
Organization Committee of the Board of Directors of FMC or any
other appropriate committee, all shares of FMC restricted stock
awarded to Executive by FMC which are not vested as of the Final
Transaction Date shall be fully vested as of such date and shall
be issued to Executive 30 days after the Final Transaction Date.
2. Obligations of Executive:
(a) Nondisclosure of Transaction Matters. Except as required by any court or
governmental entity, Executive agrees not to disclose or discuss with
any person (regardless of any termination of this Letter Agreement or any
determination by FMC to no longer pursue a Transaction) the existence or
terms of this Letter Agreement, the fact that a Transaction is being
considered, the terms or conditions of a Transaction or the status of any
Transaction discussions or negotiations; provided, however, that (i)
Executive shall be free to consult with the other officers of the Company
or with his or their legal counsel, accountants and financial advisors in
connection with this Letter Agreement and any Transaction; and (ii)
Executive shall be free to disclose and discuss such matters in
connection with any Transaction as authorized by FMC officials leading
FMC's efforts in connection with any such Transaction.
(b) Executive Cooperation in Transaction Efforts. Executive agrees to
cooperate with the partners of the Company in their respective efforts to
negotiate and close a Transaction, regardless of whether Executive or any
other member of the management of the Company ("Management") becomes a
participant in such Transaction. Without limiting the generality of the
foregoing, (i) Executive shall not take any action which could be
reasonably expected to give Management or any investors who propose to
participate with Management in a Transaction an advantage over other
potential participants in such Transaction or any alternative
Transaction; (ii) Executive shall make himself available at FMC's request
from time to time to answer questions and provide information to
potential participants in a Transaction, which shall be done in a manner
consistent with the policies, procedures and guidelines established by
FMC; and (iii) Executive shall otherwise promote any Transaction
consistent with his duty to act in the best interest of the Company and
shall continue his functional responsibilities and assist FMC in
connection with the negotiation and consummation of any such Transaction,
consistent with Executive's demonstrated capabilities.
(c) Representations and Warranties Relation to any Transaction. Executive
understands that FMC and/or the limited partner of the Company may decide
to make certain representations and warranties relating to the business
and operations of the Company to participants in a Transaction under the
terms of the definitive agreements with such participants (the
"Definitive Agreements"). Executive agrees
4
<PAGE>
that, prior to the execution of the Definitive Agreements and prior to
the closing of any such Transaction, Executive will (i) review all such
representations and warranties and (ii) certify in writing to FMC and/or
the limited partner of the Company (the "Certificate") (A) that Executive
knows of no material misstatement or omission contained in such
representations and warranties or (B) that Executive has identified to
FMC and/or the limited partner of the Company in writing any material
misstatements or omissions contained in such representations and
warranties. Executive understands and acknowledges that such
certification is customary in connection with transactions such as such
Transaction and that FMC will rely on such certification in executing the
Definitive Agreement and in closing such Transaction.
3. No Contract of Employment. This Letter Agreement is not a contract of
employment. Nothing expressed or implied in this Letter Agreement shall
create any right or duty of Executive's continued employment by FMC or the
Company, and the Company reserves all rights to terminate Executive's
employment at any time for or not for Cause, subject to the provisions
hereof.
4. Certain Definitions.
(a) The term "Cause" as used herein shall mean (i) Executive's willful and
continued failure to substantially perform his duties with the Company
(other than any such failure resulting from disability or occurring after
issuance by Executive of a notice of termination with Good Reason), after
a written demand for substantial performance is delivered to Executive
that specifically identifies the manner in which the Company believes
that Executive has willfully failed to substantially perform his duties,
and after Executive has failed to resume substantial performance of his
duties on a continuous basis within thirty (30) calendar days of
receiving such demand, (ii) the commission by Executive of an act of
fraud, misappropriation, embezzlement or any other act involving moral
turpitude or constituting a felony, or (iii) the commission by Executive
of any act of dishonesty which injures the Company, any partner of the
Company or Buyer, as the case may be.
(b) The term "Good Reason" as used herein shall mean the occurrence of one or
more of the following events without Executive's consent: (i) Executive's
base salary as of the date hereof is reduced for any reason by more than
5% other than as a result of the termination of Executive's employment or
(ii) after the Final Transaction Date, Executive's employment with the
Company is not on terms comparable to Executive's employment with the
Company as of the date hereof in terms of compensation, responsibility
and authority. Executive shall notify the Company within 15 days after
Executive knows of the occurrence of any event within the meaning of
clauses (i) or (ii) above and the Company may cure any such event and
notify Executive thereof within 15 days of the Company's receipt of
Executive's notice. Within 15 days after expiration of such 15-day
period. Executive must
5
<PAGE>
voluntarily terminate his employment with the Company in order to be
entitled to benefits hereunder.
5. General Provisions: It is expressly understood and agreed: (i) that all of
the terms and conditions of the compensation plans described in paragraph 1
above are to remain in full force and effect as applied to Executive and (ii)
that, except as specifically modified by this Letter Agreement, any payments
and distributions made pursuant to paragraph 1 above are in lieu of any other
payments which would otherwise be due under the same compensation plan for
the same relevant time period. It is further understood and agreed that the
following provisions shall apply to this Letter Agreement:
(a) Irreparable Harm. Executive acknowledges and agrees that the failure of
Executive to comply with any of the terms of paragraph 2 will
irreparably harm the Company and that money damages would not adequately
compensate them for such harm. Thus, Executive agrees that, in addition
to any other remedies that the Company may have hereunder or otherwise,
the Company shall be entitled to injunctive or other equitable relief to
restrain any breach by Executive of such terms, and further that the
Company shall be entitled to apply for such relief in any court of
competent jurisdiction without the posting of a bond or any other
security.
(b) Assignment. Neither this Letter Agreement nor any of the rights,
interests or obligations hereunder may be assigned by Executive. This
Letter Agreement may be assigned by the Company and is intended to be
binding on any successor to the Company.
(c) Governing Law. This Letter Agreement shall be governed by and construed
in accordance with the laws of the State of Illinois without reference to
the choice of law principles thereof.
(d) Parol Integration. The rights and benefits granted pursuant to this
Letter Agreement are in addition to, and not in lieu of, any rights and
other benefits to which Executive may be entitled.
(e) Arbitration. Each of Executive and the Company hereby irrevocably agree
that, except as provided in paragraph 5(a), any dispute arising out of or
relating in any way to this Letter Agreement shall be settled solely by
arbitration in the City of Chicago, Illinois to be administered by the
American Arbitration Association in accordance with its then prevailing
rules.
(f) Status of Payments. No payments made to Executive by the Company pursuant
to this Letter Agreement (other than with respect to the MIP) shall be
deemed to be pensionable income or compensation for purposes of
Executive's rights under the FMC and/or Company pension plan applicable
to Executive.
6
<PAGE>
If you agree that the foregoing correctly sets forth the agreement
between us, please sign the enclosed copy of this Letter Agreement in the space
indicated below and return it to the Company.
Very truly yours,
UNITED DEFENSE, L.P.
By: FMC Corporation
Its: General Partner
By:
-------------------------
Its:
-------------------------
Agreed to as of the day and
year first written above:
/s/ Thomas W. Rabaut
- ----------------------------
Thomas W. Rabaut
June 30, 1997
- ----------------------------
Date of Signature
7
<PAGE>
FMC CORPORATION
200 East Randolph Drive
Chicago, Illinois 60601
June 30, 1997
Thomas W. Rabaut
Re: Executive Compensation Agreement
--------------------------------
Dear Tom:
Reference is hereby made to the Letter Agreement (the "Letter
Agreement"), dated as of the date hereof, between you and United Defense, L.P.
(the "Company"). Capitalized terms used and not otherwise defined herein shall
have the meaning ascribed to such terms in the Letter Agreement.
In consideration of your agreement to assist FMC Corporation
("FMC") and the Company in connection with the negotiation and consummation of a
possible Transaction, FMC hereby agrees that if FMC's partnership interest is
sold to any buyer other than a buyer that is or is organized or controlled by an
investment firm that desires to retain your service after the Final Transaction
Date, FMC shall offer you employment at a level of compensation and benefits
comparable to the level provided to you by the Company as of the date hereof.
If you agree that the foregoing correctly sets forth the
agreement between us, please sign the enclosed copy of this Letter Agreement in
the space indicated below and return it to FMC.
Very truly yours,
FMC CORPORATION
By:
--------------------------
Its:
--------------------------
Agreed to as of the day and
year first written above:
/s/ Thomas W. Rabaut
- -----------------------------
Thomas W. Rabaut
June 30, 1997
- -----------------------------
Date of Signature
UNITED DEFENSE, L.P.
June 3O, 1997
Arthur L. Roberts
Re: Executive Compensation Agreement
--------------------------------
Dear Arthur:
This Letter Agreement serves to confirm the discussion between Thomas
W. Rabaut and you ("Executive") concerning the decision of the Board of
Directors of FMC Corporation ("FMC" or the "General Partner"), the general
partner of United Defense, L.P. (the "Company"), to (i) solicit potential buyers
for a possible sale of the outstanding general partner interests, or outstanding
general partner and limited partner interests, of the Company (a "Sale of the
Company") and (ii) to consider a spin-off of the Company in a transaction or
series of related transactions pursuant to which the stockholders of FMC would
become the holders of FMC's equity interests in the Company as a result of a
distribution of such interests (a "Spin-Off"). Each of a Sale of the Company
and a Spin-Off are referred to herein as a "Transaction." In connection with
such decision, the Company hereby agrees with Executive, effective as of the
date written above, to the following terms and conditions set forth in this
Letter Agreement.
1. Compensation Arrangements. In consideration of Executive's agreement to
cooperate with the General Partner in pursuing a Transaction and to fulfill
Executive's other obligations set forth in this Letter Agreement, Executive
shall be entitled to receive the payments and benefits described below:
(a) Performance Incentive: If a Transaction is consummated, Executive shall
be entitled to a bonus (the "Performance Incentive Bonus") of $100,000
payable 30 days after the consummation of such Transaction (the "Final
Transaction Date"); provided, however, that (i) the Performance Incentive
Bonus shall not be payable if, prior to the Final Transaction Date,
Executive's employment with the Company is voluntarily terminated without
Good Reason or is involuntarily terminated for Cause and (ii) the
Performance Incentive Bonus shall be payable if Executive's employment is
voluntarily terminated with Good Reason or involuntarily terminated not
for Cause prior to the Final Transaction Date. Notwithstanding the
foregoing, the Performance Incentive Bonus shall be payable if Executive
voluntarily terminates his employment prior to the Final Transaction Date
in order to accept an offer of employment from FMC.
(b) Severance Pay: Subject to consummation of a Sale of the Company (but not
a Spin-Off), if Executive is terminated by the Company not for Cause, or
if Executive voluntarily terminates his employment with the Company with
Good Reason, at any time after the Final Transaction Date up to and
including the two-year anniversary
<PAGE>
of the Final Transaction Date, Executive shall be entitled to receive
from the Company the following:
(i) An amount equal to Executive's annualized base salary in effect at
the effective time of such termination plus an amount equal to
Executive's (A) earned and unused and (B) accrued vacation pay
through the effective time of such termination.
(ii) An amount equal to the greater of (A) Executive's target bonus
established for the plan period commencing January 1, 1997 and (B)
Executive's target bonus established for the plan period
commencing in the year of such termination.
(iii) A continuation of the welfare benefits of health care (including
dental insurance coverage), life and accidental death and
dismemberment and long-term disability insurance coverage for one
full year after the effective time of such termination. These
benefits shall be provided to Executive at the same premium cost,
and at the same coverage level, as in effect as of the effective
time of such termination. However, in the event the premium cost
and/or level of coverage shall change for all employees of the
Company, or for management employees with respect to supplemental
benefits, the cost and/or coverage level, as applicable, shall
change for Executive in a corresponding manner.
(iv) Executive outplacement assistance in accordance with FMC's
customary practices for persons in Executive's employment position
from the outplacement firm employed by FMC as of the effective
time of such termination.
Executive shall also be entitled to receive severance benefits under this
paragraph 1(b) upon voluntary termination of employment with the Company
prior to the Final Transaction Date if the buyer of partnership interests
of the Company ("Buyer") indicates in writing to FMC prior to the Final
Transaction Date that Buyer intends to cause the Company to terminate
Executive following the Final Transaction Date, unless Executive accepts
an offer of employment with FMC prior to the Final Transaction Date. A
liquidation or dissolution of the Company in connection with a Sale of
the Company or as part of the integration of the operations of the
Company and Buyer shall not be deemed to involve a termination of
Executive for purposes of this paragraph 1(b), but in such event this
paragraph 1(b) is intended to apply to and be binding on the successor
of the Company.
(c) FMC 1995 Management Incentive Plan:
(i) Bonus Performance Incentive Award. Whether or not Executive
completes the Three-Year Period (as defined in the FMC 1995
Management Incentive Plan (the "MIP")) ending December 31, 1997 as
an employee of the
<PAGE>
Company, Executive shall receive a BPI Award (as defined below)
with respect to such Three-Year Period based on the greater of the
at-target performance and the actual performance of the Company
for such Three-Year Period. Such BPI Award shall be reduced by the
amount of the draw against such BPI Award previously paid to
Executive and, as so reduced, shall be payable at the time when
FMC makes payment of the BPI Awards to other participants in the
MIP. For purposes of this Letter Agreement, the term "BPI Award"
shall mean a Three-Year Incentive Award within the meaning of the
MIP.
(ii) Annual Performance Incentive Award. Whether or not Executive
completes the calendar year ending December 31, 1997 as an
employee of the Company, Executive shall receive an annual
performance incentive award with respect to such period based on a
review of Executive's performance during such period. Such annual
performance incentive award shall be payable at the time when FMC
makes payment of the annual performance incentive awards to other
participants in the MIP.
(d) Equity Incentive Awards: Notwithstanding any contrary term contained in
any applicable FMC stock option plan (the "Option Plan") or any
applicable stock option agreement, but subject to the approval of the
Compensation and Organization Committee of the Board of Directors of FMC
or any other appropriate committee, Executive shall have the right to
exercise any outstanding stock options granted to him under the Option
Plan that are vested as of the Final Transaction Date within the earlier
of (A) two years from the Final Transaction Date and (B) the scheduled
expiration date of such options under the Option Plan and the applicable
stock option agreements.
2. Obligations of Executive:
(a) Nondisclosure of Transaction Matters. Except as required by any court or
governmental entity, Executive agrees not to disclose or discuss with any
person (regardless of any termination of this Letter Agreement or any
determination by FMC to no longer pursue a Transaction) the existence or
terms of this Letter Agreement, the fact that a Transaction is being
considered, the terms or conditions of a Transaction or the status of any
Transaction discussions or negotiations; provided, however, that (i)
Executive shall be free to consult with the other officers of the Company
or with his or their legal counsel, accountants and financial advisors in
connection with this Letter Agreement and any Transaction; and (ii)
Executive shall be free to disclose and discuss such matters in
connection with any Transaction as authorized by FMC officials leading
FMC's efforts in connection with any such Transaction.
(b) Executive Cooperation in Transaction Efforts. Executive agrees to
cooperate with the partners of the Company in their respective efforts to
negotiate and close a Transaction, regardless of whether Executive or any
other member of the
<PAGE>
management of the Company ("Management") becomes a participant in such
Transaction. Without limiting the generality of the foregoing, (i)
Executive shall not take any action which could be reasonably expected to
give Management or any investors who propose to participate with
Management in a Transaction an advantage over other potential
participants in such Transaction or any alternative Transaction; (ii)
Executive shall make himself available at FMC's request from time to time
to answer questions and provide information to potential participants in
a Transaction, which shall be done in a manner consistent with the
policies, procedures and guidelines established by FMC; and (iii)
Executive shall otherwise promote any Transaction consistent with his
duty to act in the best interest of the Company and shall continue his
functional responsibilities and assist FMC in connection with the
negotiation and consummation of any such Transaction, consistent with
Executive's demonstrated capabilities.
(c) Representations and Warranties Relating to any Transaction. Executive
understands that FMC and/or the limited partner of the Company may decide
to make certain representations and warranties relating to the business
and operations of the Company to participants in a Transaction under the
terms of the definitive agreements with such participants (the
"Definitive Agreements"). Executive agrees that, prior to the execution
of the Definitive Agreements and prior to the closing of any such
Transaction, Executive will (i) review all such representations and
warranties and (ii) certify in writing to FMC and/or the limited partner
of the Company (the "Certificate") (A) that Executive knows of no
material misstatement or omission contained in such representations and
warranties or (B) that Executive has identified to FMC and/or the limited
partner of the Company in writing any material misstatements or omissions
contained in such representations and warranties. Executive understands
and acknowledges that such certification is customary in connection with
transactions such as such Transaction and that FMC will rely on such
certification in executing the Definitive Agreement and in closing such
Transaction.
3. No Contract of Employment. This Letter Agreement is not a contract of
employment. Nothing expressed or implied in this Letter Agreement shall
create any right or duty of Executive's continued employment by FMC or the
Company, and the Company reserves all rights to terminate Executive's
employment at any time for or not for Cause, subject to the provisions
hereof.
<PAGE>
4. Certain Definitions.
(a) The term "Cause" as used herein shall mean (i) Executive's willful and
continued failure to substantially perform his duties with the Company
(other than any such failure resulting from disability or occurring after
issuance by Executive of a notice of termination with Good Reason), after
a written demand for substantial performance is delivered to Executive
that specifically identifies the manner in which the Company believes
that Executive has willfully failed to substantially perform his duties,
and after Executive has failed to resume substantial performance of his
duties on a continuous basis within thirty (30) calendar days of
receiving such demand, (ii) the commission by Executive of an act of
fraud, misappropriation, embezzlement or any other act involving moral
turpitude or constituting a felony, or (iii) the commission by Executive
of any act of dishonesty which injures the Company, any partner of the
Company or Buyer, as the case may be.
(b) The term "Good Reason" as used herein shall mean the occurrence of one or
more of the following events without Executive's consent: (i) Executive's
base salary as of the date hereof is reduced for any reason by more than
5% other than as a result of the termination of Executive's employment or
(ii) after the Final Transaction Date, Executive's employment with the
Company is not on terms comparable to Executive's employment with the
Company as of the date hereof in terms of compensation, responsibility
and authority. Executive shall notify the Company within 15 days after
Executive knows of the occurrence of any event within the meaning of
clauses (i) or (ii) above and the Company may cure any such event and
notify Executive thereof within 15 days of the Company's receipt of
Executive's notice. Within 15 days after expiration of such 15-day
period, Executive must voluntarily terminate his employment with the
Company in order to be entitled to benefits hereunder.
5. General Provisions: It is expressly understood and agreed: (i) that all of
the terms and conditions of the compensation plans described in paragraph 1
above are to remain in full force and effect as applied to Executive and (ii)
that, except as specifically modified by this Letter Agreement, any payments
and distributions made pursuant to paragraph 1 above are in lieu of any other
payments which would otherwise be due under the same compensation plan for
the same relevant time period. It is further understood and agreed that the
following provisions shall apply to this Letter Agreement:
(a) Irreparable Harm. Executive acknowledges and agrees that the failure of
Executive to comply with any of the terms of paragraph 2 will irreparably
harm the Company and that money damages would not adequately compensate
them for such harm. Thus, Executive agrees that, in addition to any other
remedies that the Company may have hereunder or otherwise, the Company
shall be entitled to injunctive or other equitable relief to restrain any
breach by Executive of such terms, and further that the Company shall be
entitled to apply for such relief in any court of competent jurisdiction
without the posting of a bond or any other security.
<PAGE>
(b) Assignment. Neither this Letter Agreement nor any of the rights,
interests or obligations hereunder may be assigned by Executive. This
Letter Agreement may be assigned by the Company and is intended to be
binding on any successor to the Company.
(c) Governing Law. This Letter Agreement shall be governed by and construed
in accordance with the laws of the State of Illinois without reference to
the choice of law principles thereof.
(d) Parol Integration. The rights and benefits granted pursuant to this
Letter Agreement are in addition to, and not in lieu of, any rights and
other benefits to which Executive may be entitled.
(e) Arbitration. Each of Executive and the Company hereby irrevocably agree
that, except as provided in paragraph 5(a), any dispute arising out of or
relating in any way to this Letter Agreement shall be settled solely by
arbitration in the City of Chicago, Illinois to be administered by the
American Arbitration Association in accordance with its then prevailing
rules.
(f) Status of Payments. No payments made to Executive by the Company pursuant
to this Letter Agreement (other than with respect to the MIP) shall be
deemed to be pensionable income or compensation for purposes of
Executive's rights under the FMC and/or Company pension plan applicable
to Executive.
* * * * *
<PAGE>
If you agree that the foregoing correctly sets forth the agreement
between us, please sign the enclosed copy of this Letter Agreement in the space
indicated below and return it to the Company.
Very truly yours,
UNITED DEFENSE, L.P.
By: FMC Corporation
Its: General Partner
By: /s/ Thomas W. Rabaut
-------------------------
Its: Vice President
-------------------------
Agreed to as of the day and
year first written above:
/s/ Arthur L. Roberts
- ----------------------------
Arthur L. Roberts
July 9, 1997
- ----------------------------
Date of Signature
<PAGE>
To: Arthur L. Roberts
Re: Amendment to Executive Compensation Agreement
Dear Art:
In connection with the Letter Agreement dated as of June 30, 1997,
between you ("Executive") and United Defense L.P. (the "Company"), the Company
desires, in order to more fully realize the objectives of the Letter Agreement,
to amend the same to clarify certain additional aspects of your compensation not
addressed or only partially addressed therein, as follows:
FMC Stock Option Plan: Certain options have been granted to you in
connection with such plan (the "Option Plan") under one or more stock option
agreements which, among other things, ordinarily subject the right of exercise
to the condition precedent that Executive shall have been continuously employed
by the Company or one of its affiliates between the grant date for such options
and December 31, 1997. Regarding such options, the condition regarding such
period of continuous employment shall be deemed fully satisfied if Executive
remains continuously employed from the grant date until the earlier of December
31, 1997 or the Final Transaction Date.
Any terms not separately defined above shall have the same definitions
set forth in the Letter Agreement.
If you are in agreement with the foregoing, please execute both
originals of this Amendment, keep one original for your records, and return the
other original to the Company, whereupon the Letter Agreement shall become
amended in the manner set forth above.
Very truly yours,
UNITED DEFENSE, L.P.
By FMC Corporation, acting as
General Partner of United
Defense, L.P., and acting for
itself regarding the Option Plan
By: /s/ Thomas W. Rabaut
---------------------------
Its: Vice President
---------------------------
Accepted and agreed to as of the date and
year first written above
/s/ Arthur L. Roberts
- ----------------------------
Arthur L. Roberts
July 22, 1997
- ----------------------------
Date of Signature
UNITED DEFENSE, L.P.
June 30, 1997
Frederick M. Strader
Re: Executive Compensation Agreement
--------------------------------
Dear Fred:
This Letter Agreement serves to confirm the discussion between Larry D.
Brady and you ("Executive") concerning the decision of the Board of Directors of
FMC Corporation ("FMC" or the "General Partner"), the general partner of United
Defense, L.P. (the "Company"), to (i) solicit potential buyers for a possible
sale of the outstanding general partner interests, or outstanding general
partner and limited partner interests, of the Company (a "Sale of the Company")
and (ii) to consider a spin-off of the Company in a transaction or series of
related transactions pursuant to which the stockholders of FMC would become the
holders of FMC's equity interests in the Company as a result of a distribution
of such interests (a "Spin-Off"). Each of a Sale of the Company and a
Spin-Off are referred to herein as a "Transaction." In connection with such
decision, the Company hereby agrees with Executive, effective as of the date
written above, to the following terms and conditions set forth in this Letter
Agreement.
1. Compensation Arrangements. In consideration of Executive's agreement to
cooperate with the General Partner in pursuing a Transaction and to fulfill
Executive's other obligations set forth in this Letter Agreement, Executive
shall be entitled to receive the payments and benefits described below:
(a) Performance Incentive: If a Transaction is consummated, Executive shall
be entitled to a bonus (the "Performance Incentive Bonus") of $150,000
payable 30 days after the consummation of such Transaction (the "Final
Transaction Date"); provided, however, that (i) the Performance Incentive
Bonus shall not be payable if, prior to the Final Transaction Date,
Executive's employment with the Company is voluntarily terminated
without Good Reason or is involuntarily terminated for Cause and (ii) the
Performance Incentive Bonus shall be payable if Executive's employment is
voluntarily terminated with Good Reason or involuntarily terminated not
for Cause prior to the Final Transaction Date. Notwithstanding the
foregoing and paragraph l(b) below, both the Performance Incentive Bonus
and the Premium Incentive Bonus (as defined in such paragraph l(b)) shall
be payable if Executive voluntarily terminates his employment prior to
the Final Transaction Date in order to accept an offer of employment from
FMC.
(b) Premium Incentive: If a Sale of the Company is consummated (but not a
Spin-Off), Executive shall be entitled to a bonus (the "Premium
Incentive Bonus") in an amount ranging from $0 to $150,000 based on the
price obtained for such Sale of the Company and Executive's contribution
to the process of consummating such Sale of
<PAGE>
the Company, as determined by Larry D. Brady and Thomas W. Rabaut in
their sole discretion. Any Premium Incentive Bonus shall be payable 30
days after the Final Transaction Date; provided, however, that (i) the
Premium Incentive Bonus shall not be payable if, prior to the Final
Transaction Date, Executive's employment with the Company is voluntarily
terminated without Good Reason or is involuntarily terminated for Cause
and (ii) the Premium Incentive Bonus shall be payable if Executive is
voluntarily terminated with Good Reason or involuntarily terminated not
for Cause prior to the Final Transaction Date.
(c) Severance Pay: Subject to consummation of a Sale of the Company (but not
a Spin-Off), if Executive is terminated by the Company not for Cause, or
if Executive voluntarily terminates his employment with the Company with
Good Reason, at any time after the Final Transaction Date up to and
including the two-year anniversary of the Final Transaction Date,
Executive shall be entitled to receive from the Company the following:
(i) An amount equal to Executive's annualized base salary in effect at
the effective time of such termination plus an amount equal to
Executive's (A) earned and unused and (B) accrued vacation pay
through the effective time of such termination.
(ii) An amount equal to the greater of (A) Executive's target bonus
established for the plan period commencing January 1, 1997 and (B)
Executive's target bonus established for the plan period
commencing in the year of such termination.
(iii) A continuation of the welfare benefits of health care (including
dental insurance coverage), life and accidental death and
dismemberment and long-term disability insurance coverage for one
full year after the effective time of such termination. These
benefits shall be provided to Executive at the same premium cost,
and at the same coverage level, as in effect as of the effective
time of such termination. However, in the event the premium cost
and/or level of coverage shall change for all employees of the
Company, or for management employees with respect to supplemental
benefits, the cost and/or coverage level, as applicable, shall
change for Executive in a corresponding manner.
(iv) Executive outplacement assistance in accordance with FMC's
customary practices for persons in Executive's employment position
from the outplacement firm employed by FMC as of the effective
time of such termination.
Executive shall also be entitled to receive severance benefits under this
paragraph 1(c) upon voluntary termination of employment with the Company
prior to the Final
2
<PAGE>
Transaction Date if the buyer of partnership interests of the Company
("Buyer") indicates in writing to FMC prior to the Final Transaction Date
that Buyer intends to cause the Company to terminate Executive following
the Final Transaction Date, unless Executive accepts an offer of
employment with FMC prior to the Final Transaction Date. A liquidation or
dissolution of the Company in connection with a Sale of the Company or as
part of the integration of the operations of the Company and Buyer shall
not be deemed to involve a termination of Executive for purposes of this
paragraph 1(c), but in such event this paragraph 1(c) is intended to
apply to and be binding on the successor of the Company.
(d) FMC 1995 Management Incentive Plan:
(i) Bonus Performance Incentive Award. Whether or not Executive
completes the Three-Year Period (as defined in the FMC 1995
Management Incentive Plan (the "MIP")) ending December 31, 1997 as
an employee of the Company, Executive shall receive a BPI Award
(as defined below) with respect to such Three-Year Period based on
the greater of the at-target performance and the actual
performance of the Company for such Three-Year Period. Such BPI
Award shall be reduced by the amount of the draw against such BPI
Award previously paid to Executive and, as so reduced, shall be
payable at the time when FMC makes payment of the BPI Awards to
other participants in the MIP. For purposes of this Letter
Agreement, the term "BPI Award" shall mean a Three-Year Incentive
Award within the meaning of the MIP.
(ii) Annual Performance Incentive Award. Whether or not Executive
completes the calendar year ending December 31, 1997 as an
employee of the Company, Executive shall receive an annual
performance incentive award with respect to such period based on a
review of Executive's performance during such period. Such annual
performance incentive award shall be payable at the time when FMC
makes payment of the annual performance incentive awards to other
participants in the MIP.
(e) Equity Incentive Awards:
(i) Options: Notwithstanding any contrary term contained in any
applicable FMC stock option plan (the "Option Plan") or any
applicable stock option agreement, but subject to the approval of
the Compensation and Organization Committee of the Board of
Directors of FMC or any other appropriate committee, Executive
shall have the right to exercise any outstanding stock options
granted to him under the Option Plan that are vested as of the
Final Transaction Date within the earlier of (A) two years from
the Final Transaction Date and (B) the scheduled expiration date
of such options under the Option Plan and the applicable stock
option agreements.
3
<PAGE>
(ii) Restricted Stock: Subject to the approval of the Compensation and
Organization Committee of the Board of Directors of FMC or any
other appropriate committee, all shares of FMC restricted stock
awarded to Executive by FMC which are not vested as of the Final
Transaction Date shall be fully vested as of such date and shall
be issued to Executive 30 days after the Final Transaction Date.
2. Obligations of Executive:
(a) Nondisclosure of Transaction Matters. Except as required by any court or
governmental entity, Executive agrees not to disclose or discuss with any
person (regardless of any termination of this Letter Agreement or any
determination by FMC to no longer pursue a Transaction) the existence or
terms of this Letter Agreement, the fact that a Transaction is being
considered, the terms or conditions of a Transaction or the status of any
Transaction discussions or negotiations; provided, however, that (i)
Executive shall be free to consult with the other officers of the Company
or with his or their legal counsel, accountants and financial advisors in
connection with this Letter Agreement and any Transaction; and (ii)
Executive shall be free to disclose and discuss such matters in
connection with any Transaction as authorized by FMC officials leading
FMC's efforts in connection with any such Transaction.
(b) Executive Cooperation in Transaction Efforts. Executive agrees to
cooperate with the partners of the Company in their respective efforts to
negotiate and close a Transaction, regardless of whether Executive or any
other member of the management of the Company ("Management") becomes a
participant in such Transaction. Without limiting the generality of the
foregoing, (i) Executive shall not take any action which could be
reasonably expected to give Management or any investors who propose to
participate with Management in a Transaction an advantage over other
potential participants in such Transaction or any alternative
Transaction; (ii) Executive shall make himself available at FMC's request
from time to time to answer questions and provide information to
potential participants in a Transaction, which shall be done in a manner
consistent with the policies, procedures and guidelines established by
FMC; and (iii) Executive shall otherwise promote any Transaction
consistent with his duty to act in the best interest of the Company and
shall continue his functional responsibilities and assist FMC in
connection with the negotiation and consummation of any such Transaction,
consistent with Executive's demonstrated capabilities.
(c) Representations and Warranties Relating to any Transaction. Executive
understands that FMC and/or the limited partner of the Company may decide
to make certain representations and warranties relating to the business
and operations of the Company to participants in a Transaction under the
terms of the definitive agreements with such participants (the
"Definitive Agreements"). Executive agrees
4
<PAGE>
that, prior to the execution of the Definitive Agreements and prior to
the closing of any such Transaction, Executive will (i) review all such
representations and warranties and (ii) certify in writing to FMC and/or
the limited partner of the Company (the "Certificate") (A) that Executive
knows of no material misstatement or omission contained in such
representations and warranties or (B) that Executive has identified to
FMC and/or the limited partner of the Company in writing any material
misstatements or omissions contained in such representations and
warranties. Executive understands and acknowledges that such
certification is customary in connection with transactions such as such
Transaction and that FMC will rely on such certification in executing the
Definitive Agreement and in closing such Transaction.
3. No Contract of Employment. This Letter Agreement is not a contract of
employment. Nothing expressed or implied in this Letter Agreement shall
create any right or duty of Executive's continued employment by FMC or the
Company, and the Company reserves all rights to terminate Executive's
employment at any time for or not for Cause, subject to the provisions
hereof.
4. Certain Definitions.
(a) The term "Cause" as used herein shall mean (i) Executive's willful and
continued failure to substantially perform his duties with the Company
(other than any such failure resulting from disability or occurring after
issuance by Executive of a notice of termination with Good Reason), after
a written demand for substantial performance is delivered to Executive
that specifically identifies the manner in which the Company believes
that Executive has willfully failed to substantially perform his duties,
and after Executive has failed to resume substantial performance of his
duties on a continuous basis within thirty (30) calendar days of
receiving such demand, (ii) the commission by Executive of an act of
fraud, misappropriation, embezzlement or any other act involving moral
turpitude or constituting a felony, or (iii) the commission by Executive
of any act of dishonesty which injures the Company, any partner of the
Company or Buyer, as the case may be.
(b) The term "Good Reason" as used herein shall mean the occurrence of one or
more of the following events without Executive's consent: (i) Executive's
base salary as of the date hereof is reduced for any reason by more than
5% other than as a result of the termination of Executive's employment or
(ii) after the Final Transaction Date, Executive's employment with the
Company is not on terms comparable to Executive's employment with the
Company as of the date hereof in terms of compensation, responsibility
and authority. Executive shall notify the Company within 15 days after
Executive knows of the occurrence of any event within the meaning of
clauses (i) or (ii) above and the Company may cure any such event and
notify Executive thereof within 15 days of the Company's receipt of
Executive's notice. Within 15 days after expiration of such 15-day
period, Executive must
5
<PAGE>
voluntarily terminate his employment with the Company in order to be
entitled to benefits hereunder.
5. General Provisions: It is expressly understood and agreed: (i) that all of
the terms and conditions of the compensation plans described in paragraph 1
above are to remain in full force and effect as applied to Executive and (ii)
that, except as specifically modified by this Letter Agreement, any payments
and distributions made pursuant to paragraph 1 above are in lieu of any other
payments which would otherwise be due under the same compensation plan for
the same relevant time period. It is further understood and agreed that the
following provisions shall apply to this Letter Agreement:
(a) Irreparable Harm. Executive acknowledges and agrees that the failure of
Executive to comply with any of the terms of paragraph 2 will irreparably
harm the Company and that money damages would not adequately compensate
them for such harm. Thus, Executive agrees that, in addition to any other
remedies that the Company may have hereunder or otherwise, the Company
shall be entitled to injunctive or other equitable relief to restrain any
breach by Executive of such terms, and further that the Company shall be
entitled to apply for such relief in any court of competent jurisdiction
without the posting of a bond or any other security.
(b) Assignment. Neither this Letter Agreement nor any of the rights,
interests or obligations hereunder may be assigned by Executive. This
Letter Agreement may be assigned by the Company and is intended to be
binding on any successor to the Company.
(c) Governing Law. This Letter Agreement shall be governed by and construed
in accordance with the laws of the State of Illinois without reference to
the choice of law principles thereof.
(d) Parol Integration. The rights and benefits granted pursuant to this
Letter Agreement are in addition to, and not in lieu of, any rights and
other benefits to which Executive may be entitled.
(e) Arbitration. Each of Executive and the Company hereby irrevocably agree
that, except as provided in paragraph 5(a), any dispute arising out of or
relating in any way to this Letter Agreement shall be settled solely by
arbitration in the City of Chicago, Illinois to be administered by the
American Arbitration Association in accordance with its then prevailing
rules.
(f) Status of Payments. No payments made to Executive by the Company pursuant
to this Letter Agreement (other than with respect to the MIP) shall be
deemed to be pensionable income or compensation for purposes of
Executive's rights under the FMC and/or Company pension plan applicable
to Executive.
6
<PAGE>
If you agree that the foregoing correctly sets forth the agreement
between us, please sign the enclosed copy of this Letter Agreement in the space
indicated below and return it to the Company.
Very truly yours,
UNITED DEFENSE, L.P.
By: FMC Corporation
Its: General Partner
By: /s/ Thomas W. Rabaut
-------------------------
Its: Vice President
-------------------------
Agreed to as of the day and
year first written above:
/s/ Frederick M. Strader
- ----------------------------
Frederick M. Strader
July 8, 1997
- ----------------------------
Date of Signature
7
<PAGE>
To: Frederick M. Strader
Re: Amendment to Executive Compensation Agreement
Dear Fred:
In connection with the Letter Agreement dated as of June 30, 1997,
between you ("Executive") and United Defense L.P. (the "Company"), the Company
desires, in order to more fully realize the objectives of the Letter Agreement,
to amend the same to clarify certain additional aspects of your compensation not
addressed or only partially addressed therein, as follows:
FMC Stock Option Plan: Certain options have been granted to you in
connection with such plan (the "Option Plan") under one or more stock option
agreements which, among other things, ordinarily subject the right of exercise
to the condition precedent that Executive shall have been continuously employed
by the Company or one of its affiliates between the grant date for such options
and December 31, 1997. Regarding such options, the condition regarding such
period of continuous employment shall be deemed fully satisfied if Executive
remains continuously employed from the grant date until the earlier of December
31, 1997 or the Final Transaction Date.
Any terms not separately defined above shall have the same definitions
set forth in the Letter Agreement.
If you are in agreement with the foregoing, please execute both
originals of this Amendment, keep one original for your records, and return the
other original to the Company, whereupon the Letter Agreement shall become
amended in the manner set forth above.
Very truly yours,
UNITED DEFENSE, L.P.
By FMC Corporation, acting as
General Partner of United
Defense, L.P., and acting for
itself regarding the Option Plan
By: /s/ Thomas W. Rabaut
---------------------------
Its: Vice President
---------------------------
Accepted and agreed to as of the date and
year first written above
/s/ Frederick M. Strader
- ----------------------------
Frederick M. Strader
July 30, 1997
- ----------------------------
Date of Signature
UNITED DEFENSE, L.P.
June 30, 1997
Peter C. Woglom
Re: Executive Compensation Agreement
--------------------------------
Dear Fred:
This Letter Agreement serves to confirm the discussion between Larry D.
Brady and you ("Executive") concerning the decision of the Board of Directors of
FMC Corporation ("FMC" or the "General Partner"), the general partner of United
Defense, L.P. (the "Company"), to (i) solicit potential buyers for a possible
sale of the outstanding general partner interests, or outstanding general
partner and limited partner interests, of the Company (a "Sale of the Company")
and (ii) to consider a spin-off of the Company in a transaction or series of
related transactions pursuant to which the stockholders of FMC would become the
holders of FMC's equity interests in the Company as a result of a distribution
of such interests (a "Spin-Off"). Each of a Sale of the Company and a
Spin-Off are referred to herein as a "Transaction." In connection with such
decision, the Company hereby agrees with Executive, effective as of the date
written above, to the following terms and conditions set forth in this Letter
Agreement.
1. Compensation Arrangements. In consideration of Executive's agreement to
cooperate with the General Partner in pursuing a Transaction and to fulfill
Executive's other obligations set forth in this Letter Agreement, Executive
shall be entitled to receive the payments and benefits described below:
(a) Performance Incentive: If a Transaction is consummated, Executive shall
be entitled to a bonus (the "Performance Incentive Bonus") of $150,000
payable 30 days after the consummation of such Transaction (the "Final
Transaction Date"); provided, however, that (i) the Performance Incentive
Bonus shall not be payable if, prior to the Final Transaction Date,
Executive's employment with the Company is voluntarily terminated
without Good Reason or is involuntarily terminated for Cause and (ii) the
Performance Incentive Bonus shall be payable if Executive's employment is
voluntarily terminated with Good Reason or involuntarily terminated not
for Cause prior to the Final Transaction Date. Notwithstanding the
foregoing and paragraph l(b) below, both the Performance Incentive Bonus
and the Premium Incentive Bonus (as defined in such paragraph l(b)) shall
be payable if Executive voluntarily terminates his employment prior to
the Final Transaction Date in order to accept an offer of employment from
FMC.
(b) Premium Incentive: If a Sale of the Company is consummated (but not a
Spin-Off), Executive shall be entitled to a bonus (the "Premium
Incentive Bonus") in an amount ranging from $0 to $150,000 based on the
price obtained for such Sale of the Company and Executive's contribution
to the process of consummating such Sale of
<PAGE>
the Company, as determined by Larry D. Brady and Thomas W. Rabaut in
their sole discretion. Any Premium Incentive Bonus shall be payable 30
days after the Final Transaction Date; provided, however, that (i) the
Premium Incentive Bonus shall not be payable if, prior to the Final
Transaction Date, Executive's employment with the Company is voluntarily
terminated without Good Reason or is involuntarily terminated for Cause
and (ii) the Premium Incentive Bonus shall be payable if Executive is
voluntarily terminated with Good Reason or involuntarily terminated not
for Cause prior to the Final Transaction Date.
(c) Severance Pay: Subject to consummation of a Sale of the Company (but not
a Spin-Off), if Executive is terminated by the Company not for Cause, or
if Executive voluntarily terminates his employment with the Company with
Good Reason, at any time after the Final Transaction Date up to and
including the two-year anniversary of the Final Transaction Date,
Executive shall be entitled to receive from the Company the following:
(i) An amount equal to Executive's annualized base salary in effect at
the effective time of such termination plus an amount equal to
Executive's (A) earned and unused and (B) accrued vacation pay
through the effective time of such termination.
(ii) An amount equal to the greater of (A) Executive's target bonus
established for the plan period commencing January 1, 1997 and (B)
Executive's target bonus established for the plan period
commencing in the year of such termination.
(iii) A continuation of the welfare benefits of health care (including
dental insurance coverage), life and accidental death and
dismemberment and long-term disability insurance coverage for one
full year after the effective time of such termination. These
benefits shall be provided to Executive at the same premium cost,
and at the same coverage level, as in effect as of the effective
time of such termination. However, in the event the premium cost
and/or level of coverage shall change for all employees of the
Company, or for management employees with respect to supplemental
benefits, the cost and/or coverage level, as applicable, shall
change for Executive in a corresponding manner.
(iv) Executive outplacement assistance in accordance with FMC's
customary practices for persons in Executive's employment position
from the outplacement firm employed by FMC as of the effective
time of such termination.
Executive shall also be entitled to receive severance benefits under this
paragraph 1(c) upon voluntary termination of employment with the Company
prior to the Final
2
<PAGE>
Transaction Date if the buyer of partnership interests of the Company
("Buyer") indicates in writing to FMC prior to the Final Transaction Date
that Buyer intends to cause the Company to terminate Executive following
the Final Transaction Date, unless Executive accepts an offer of
employment with FMC prior to the Final Transaction Date. A liquidation or
dissolution of the Company in connection with a Sale of the Company or as
part of the integration of the operations of the Company and Buyer shall
not be deemed to involve a termination of Executive for purposes of this
paragraph 1(c), but in such event this paragraph 1(c) is intended to
apply to and be binding on the successor of the Company.
(d) FMC 1995 Management Incentive Plan:
(i) Bonus Performance Incentive Award. Whether or not Executive
completes the Three-Year Period (as defined in the FMC 1995
Management Incentive Plan (the "MIP")) ending December 31, 1997 as
an employee of the Company, Executive shall receive a BPI Award
(as defined below) with respect to such Three-Year Period based on
the greater of the at-target performance and the actual
performance of the Company for such Three-Year Period. Such BPI
Award shall be reduced by the amount of the draw against such BPI
Award previously paid to Executive and, as so reduced, shall be
payable at the time when FMC makes payment of the BPI Awards to
other participants in the MIP. For purposes of this Letter
Agreement, the term "BPI Award" shall mean a Three-Year Incentive
Award within the meaning of the MIP.
(ii) Annual Performance Incentive Award. Whether or not Executive
completes the calendar year ending December 31, 1997 as an
employee of the Company, Executive shall receive an annual
performance incentive award with respect to such period based on a
review of Executive's performance during such period. Such annual
performance incentive award shall be payable at the time when FMC
makes payment of the annual performance incentive awards to other
participants in the MIP.
(e) Equity Incentive Awards:
(i) Options: Notwithstanding any contrary term contained in any
applicable FMC stock option plan (the "Option Plan") or any
applicable stock option agreement, but subject to the approval of
the Compensation and Organization Committee of the Board of
Directors of FMC or any other appropriate committee, Executive
shall have the right to exercise any outstanding stock options
granted to him under the Option Plan that are vested as of the
Final Transaction Date within the earlier of (A) two years from
the Final Transaction Date and (B) the scheduled expiration date
of such options under the Option Plan and the applicable stock
option agreements.
3
<PAGE>
(ii) Restricted Stock: Subject to the approval of the Compensation and
Organization Committee of the Board of Directors of FMC or any
other appropriate committee, all shares of FMC restricted stock
awarded to Executive by FMC which are not vested as of the Final
Transaction Date shall be fully vested as of such date and shall
be issued to Executive 30 days after the Final Transaction Date.
2. Obligations of Executive:
(a) Nondisclosure of Transaction Matters. Except as required by any court or
governmental entity, Executive agrees not to disclose or discuss with any
person (regardless of any termination of this Letter Agreement or any
determination by FMC to no longer pursue a Transaction) the existence or
terms of this Letter Agreement, the fact that a Transaction is being
considered, the terms or conditions of a Transaction or the status of any
Transaction discussions or negotiations; provided, however, that (i)
Executive shall be free to consult with the other officers of the Company
or with his or their legal counsel, accountants and financial advisors in
connection with this Letter Agreement and any Transaction; and (ii)
Executive shall be free to disclose and discuss such matters in
connection with any Transaction as authorized by FMC officials leading
FMC's efforts in connection with any such Transaction.
(b) Executive Cooperation in Transaction Efforts. Executive agrees to
cooperate with the partners of the Company in their respective efforts to
negotiate and close a Transaction, regardless of whether Executive or any
other member of the management of the Company ("Management") becomes a
participant in such Transaction. Without limiting the generality of the
foregoing, (i) Executive shall not take any action which could be
reasonably expected to give Management or any investors who propose to
participate with Management in a Transaction an advantage over other
potential participants in such Transaction or any alternative
Transaction; (ii) Executive shall make himself available at FMC's request
from time to time to answer questions and provide information to
potential participants in a Transaction, which shall be done in a manner
consistent with the policies, procedures and guidelines established by
FMC; and (iii) Executive shall otherwise promote any Transaction
consistent with his duty to act in the best interest of the Company and
shall continue his functional responsibilities and assist FMC in
connection with the negotiation and consummation of any such Transaction,
consistent with Executive's demonstrated capabilities.
(c) Representations and Warranties Relating to any Transaction. Executive
understands that FMC and/or the limited partner of the Company may decide
to make certain representations and warranties relating to the business
and operations of the Company to participants in a Transaction under the
terms of the definitive agreements with such participants (the
"Definitive Agreements"). Executive agrees
4
<PAGE>
that, prior to the execution of the Definitive Agreements and prior to
the closing of any such Transaction, Executive will (i) review all such
representations and warranties and (ii) certify in writing to FMC and/or
the limited partner of the Company (the "Certificate") (A) that Executive
knows of no material misstatement or omission contained in such
representations and warranties or (B) that Executive has identified to
FMC and/or the limited partner of the Company in writing any material
misstatements or omissions contained in such representations and
warranties. Executive understands and acknowledges that such
certification is customary in connection with transactions such as such
Transaction and that FMC will rely on such certification in executing the
Definitive Agreement and in closing such Transaction.
3. No Contract of Employment. This Letter Agreement is not a contract of
employment. Nothing expressed or implied in this Letter Agreement shall
create any right or duty of Executive's continued employment by FMC or the
Company, and the Company reserves all rights to terminate Executive's
employment at any time for or not for Cause, subject to the provisions
hereof.
4. Certain Definitions.
(a) The term "Cause" as used herein shall mean (i) Executive's willful and
continued failure to substantially perform his duties with the Company
(other than any such failure resulting from disability or occurring after
issuance by Executive of a notice of termination with Good Reason), after
a written demand for substantial performance is delivered to Executive
that specifically identifies the manner in which the Company believes
that Executive has willfully failed to substantially perform his duties,
and after Executive has failed to resume substantial performance of his
duties on a continuous basis within thirty (30) calendar days of
receiving such demand, (ii) the commission by Executive of an act of
fraud, misappropriation, embezzlement or any other act involving moral
turpitude or constituting a felony, or (iii) the commission by Executive
of any act of dishonesty which injures the Company, any partner of the
Company or Buyer, as the case may be.
(b) The term "Good Reason" as used herein shall mean the occurrence of one or
more of the following events without Executive's consent: (i) Executive's
base salary as of the date hereof is reduced for any reason by more than
5% other than as a result of the termination of Executive's employment or
(ii) after the Final Transaction Date, Executive's employment with the
Company is not on terms comparable to Executive's employment with the
Company as of the date hereof in terms of compensation, responsibility
and authority. Executive shall notify the Company within 15 days after
Executive knows of the occurrence of any event within the meaning of
clauses (i) or (ii) above and the Company may cure any such event and
notify Executive thereof within 15 days of the Company's receipt of
Executive's notice. Within 15 days after expiration of such 15-day
period, Executive must
5
<PAGE>
voluntarily terminate his employment with the Company in order to be
entitled to benefits hereunder.
5. General Provisions: It is expressly understood and agreed: (i) that all of
the terms and conditions of the compensation plans described in paragraph 1
above are to remain in full force and effect as applied to Executive and (ii)
that, except as specifically modified by this Letter Agreement, any payments
and distributions made pursuant to paragraph 1 above are in lieu of any other
payments which would otherwise be due under the same compensation plan for
the same relevant time period. It is further understood and agreed that the
following provisions shall apply to this Letter Agreement:
(a) Irreparable Harm. Executive acknowledges and agrees that the failure of
Executive to comply with any of the terms of paragraph 2 will irreparably
harm the Company and that money damages would not adequately compensate
them for such harm. Thus, Executive agrees that, in addition to any other
remedies that the Company may have hereunder or otherwise, the Company
shall be entitled to injunctive or other equitable relief to restrain any
breach by Executive of such terms, and further that the Company shall be
entitled to apply for such relief in any court of competent jurisdiction
without the posting of a bond or any other security.
(b) Assignment. Neither this Letter Agreement nor any of the rights,
interests or obligations hereunder may be assigned by Executive. This
Letter Agreement may be assigned by the Company and is intended to be
binding on any successor to the Company.
(c) Governing Law. This Letter Agreement shall be governed by and construed
in accordance with the laws of the State of Illinois without reference to
the choice of law principles thereof.
(d) Parol Integration. The rights and benefits granted pursuant to this
Letter Agreement are in addition to, and not in lieu of, any rights and
other benefits to which Executive may be entitled.
(e) Arbitration. Each of Executive and the Company hereby irrevocably agree
that, except as provided in paragraph 5(a), any dispute arising out of or
relating in any way to this Letter Agreement shall be settled solely by
arbitration in the City of Chicago, Illinois to be administered by the
American Arbitration Association in accordance with its then prevailing
rules.
(f) Status of Payments. No payments made to Executive by the Company pursuant
to this Letter Agreement (other than with respect to the MIP) shall be
deemed to be pensionable income or compensation for purposes of
Executive's rights under the FMC and/or Company pension plan applicable
to Executive.
6
<PAGE>
If you agree that the foregoing correctly sets forth the agreement
between us, please sign the enclosed copy of this Letter Agreement in the space
indicated below and return it to the Company.
Very truly yours,
UNITED DEFENSE, L.P.
By: FMC Corporation
Its: General Partner
By: /s/ Thomas W. Rabaut
-------------------------
Its: Vice President
-------------------------
Agreed to as of the day and
year first written above:
/s/ Peter C. Woglom
- ----------------------------
Peter C. Woglom
July 8, 1997
- ----------------------------
Date of Signature
7
<PAGE>
To: Peter C. Woglom
Re: Amendment to Executive Compensation Agreement
Dear Pete:
In connection with the Letter Agreement dated as of June 30, 1997,
between you ("Executive") and United Defense L.P. (the "Company"), the Company
desires, in order to more fully realize the objectives of the Letter Agreement,
to amend the same to clarify certain additional aspects of your compensation not
addressed or only partially addressed therein, as follows:
FMC Stock Option Plan: Certain options have been granted to you in
connection with such plan (the "Option Plan") under one or more stock option
agreements which, among other things, ordinarily subject the right of exercise
to the condition precedent that Executive shall have been continuously employed
by the Company or one of its affiliates between the grant date for such options
and December 31, 1997. Regarding such options, the condition regarding such
period of continuous employment shall be deemed fully satisfied if Executive
remains continuously employed from the grant date until the earlier of December
31, 1997 or the Final Transaction Date.
Any terms not separately defined above shall have the same definitions
set forth in the Letter Agreement.
If you are in agreement with the foregoing, please execute both
originals of this Amendment, keep one original for your records, and return the
other original to the Company, whereupon the Letter Agreement shall become
amended in the manner set forth above.
Very truly yours,
UNITED DEFENSE, L.P.
By FMC Corporation, acting as
General Partner of United
Defense, L.P., and acting for
itself regarding the Option Plan
By: /s/ Thomas W. Rabaut
---------------------------
Its: Vice President
---------------------------
Accepted and agreed to as of the date and
year first written above
/s/ Peter C. Woglom
- ----------------------------
Peter C. Woglom
July 22, 1997
- ----------------------------
Date of Signature
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