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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
----------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED JUNE 30, 1999 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 ororganization) 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-REGISTRANT)
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 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 6, 1999:
No. of Par
Shares Value
------ -----
United Defense Industries, Inc. ........................... 18,042,524 $0.01
Iron Horse Investors, L.L.C. .............................. -none-
UDLP Holdings Corp. ....................................... 1,000 $0.01
United Defense, L.P. ...................................... -none-
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<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,
1998 and June 30, 1999 1
Unaudited Consolidated Statements of Operations for the
Three Months Ended and for the Six
Months Ended June 30, 1998 and 1999 2
Unaudited Consolidated Statement of Members' Capital
for the Six Months Ended June 30, 1999 3
Unaudited Consolidated Statements of Cash Flows
for the Six Months Ended June 30, 1998 and 1999 4
Notes to Unaudited Consolidated Financial Statements 5
Unaudited Consolidated Financial Statements -
United Defense Industries, Inc.
Unaudited Consolidated Balance Sheets as of
December 31, 1998 and June 30, 1999 6
Unaudited Consolidated Statements of Operations for the
Three Months Ended and for the Six
Months Ended June 30, 1998 and 1999 7
Unaudited Consolidated Statement of Stockholders' Equity
for the Six Months Ended June 30, 1999 8
Unaudited Consolidated Statements of Cash Flows
for the Six Months Ended June 30, 1998 and 1999 9
Notes to Unaudited Consolidated Financial Statements 10
Item 2 - Management's Discussion and Analysis of the Results
of Operations and Financial Condition 11-16
Item 3 - Quantitative and Qualitative Disclosures About Market Risk 17
<PAGE>
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 18
Item 6 - Exhibits and Reports on Form 8-K 18-19
SIGNATURE
<PAGE>
Iron Horse Investors, L.L.C.
Unaudited Consolidated Balance Sheets
(In thousands)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Assets December 31, 1998 June 30, 1999
-------------------------------------
Current assets:
Cash and marketable securities $85,520 $15,608
Trade receivables 64,395 81,140
Inventories 254,343 256,913
Other current assets 4,255 4,506
-------------------------------------
Total current assets 408,513 358,167
Property, plant and equipment, net 122,721 99,628
Intangible assets, net 330,024 295,335
Prepaid pension cost 123,912 127,626
Prepaid postretirement benefit cost - 1,161
Other assets 5,910 3,675
-------------------------------------
Total assets $991,080 $885,592
=====================================
Liabilities and Capital
Current liabilities:
Current portion of long-term debt $16,643 $23,086
Accounts payable, trade and other 88,497 54,943
Advanced payments 258,395 271,417
Accrued and other liabilities 75,832 88,214
-------------------------------------
Total current liabilities 439,367 437,660
Long-term liabilities net of current portion:
Accrued pension cost 12,807 15,883
Accrued postretirement benefit cost 1,803 1,481
Long-term debt 490,343 376,800
Other liabilities 22,630 33,717
-------------------------------------
Total liabilities 966,950 865,541
Minority interest 3,851 3,712
Commitments and contingencies
Members' capital 20,279 16,339
-------------------------------------
Total liabilities and members' capital $991,080 $885,592
=====================================
</TABLE>
1
<PAGE>
Iron Horse Investors, L.L.C.
Unaudited Consolidated Statements of Operations
(In thousands)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Three months Three months Six months Six months
ended ended ended ended
June 30, 1998 June 30, 1999 June 30, 1998 June 30, 1999
------------------------------- -------------------------------
Revenue:
Sales $316,866 $331,630 $631,670 $596,160
Costs and expenses:
Cost of sales 260,792 273,505 541,127 494,656
Selling, general and
administrative expenses 35,369 46,869 86,809 83,632
Research and development 3,924 (677) 6,628 1,046
------------------------------- --------------- ---------------
Total expenses 300,085 319,697 634,564 579,334
Earnings related to investments
in foreign affiliates (9,899) 323 5,450 640
------------------------------- --------------- ---------------
Income from operations 6,882 12,256 2,556 17,466
Other income (expense):
Interest income 227 358 512 722
Interest expense (10,920) (10,270) (26,336) (21,046)
Miscellaneous, net 68 - 68
------------------------------- --------------- ---------------
Income (loss) before income taxes
and minority interest (3,743) 2,344 (23,200) (2,858)
Provision for income taxes 701 625 1,701 1,250
------------------------------- -------------------------------
Income (loss) before minority interest (4,444) 1,719 (24,901) (4,108)
Minority interest - (71) - 168
------------------------------- -------------------------------
Net income (loss) ($4,444) $1,648 ($24,901) ($3,940)
=============================== ===============================
</TABLE>
2
<PAGE>
Iron Horse Investors, L.L.C.
Unaudited Consolidated Statement
of Members' Capital
(In thousands)
Amount
---------------
Balance, December 31, 1998 $20,279
Net loss for the six months ended June 30, 1999 (3,940)
---------------
Balance, June 30, 1999 $16,339
===============
3
<PAGE>
Iron Horse Investors, L.L.C.
Unaudited Consolidated Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
<S> <C>
Six months Six months
ended ended
June 30, 1998 June 30, 1999
-----------------------------------
Operating activities
Net loss ($24,901) ($3,940)
Adjustments to reconcile net loss to cash
provided by operating activities:
Depreciation 34,634 33,668
Amortization 49,388 42,217
Minority interest - (168)
Other 1,663 2,892
Changes in assets and liabilities:
Trade receivables (6,742) (16,745)
Inventories 64,604 (2,570)
Other assets 1,047 (451)
Prepaid pension cost 2,814 (3,714)
Prepaid postretirement benefit cost - (1,161)
Accounts payable, trade and other (33,907) (33,554)
Advanced payments (67,219) 13,022
Accrued and other liabilities 19,194 23,470
Accrued pension cost (6,161) 3,076
Accrued post retirement benefits 521 (322)
-------------------------------------
Cash provided by operating activities 34,935 55,720
-------------------------------------
Investing activities
Capital spending (11,308) (19,398)
Disposal of property, plant and equipment 3,015 837
-------------------------------------
Cash used in investing activities (8,293) (18,561)
-------------------------------------
Financing activities
Payments on long-term debt (40,964) (107,100)
Proceeds from sale of common stock by subsidiary 5,408 29
-------------------------------------
Cash used in financing activities (35,556) (107,071)
-------------------------------------
Decrease in cash and marketable securities (8,914) (69,912)
Cash and marketable securities, beginning of period 35,623 85,520
-------------------------------------
Cash and marketable securities, end of period $26,709 $15,608
=====================================
</TABLE>
4
<PAGE>
Iron Horse Investors, L.L.C.
Notes to Unaudited Consolidated Financial Statements
June 30, 1999
1. Basis of Presentation
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 Iron
Horse Investors, L.L.C. (the "Company"), but does not include all the dislosures
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, 1999, and the
results of its operations and cash flows for the periods ended June 30, 1999 and
1998. The results of operations are not necessarily indicative of the results
that may be expected for the year ending December 31, 1999. 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, 1998.
2. Commitments and Contingencies
Alliant Techsystems, Inc. ("Alliant"), a subcontractor to United Defense, L.P.
("UDLP") in connection with the Paladin howitzer prime contract, filed suit in
February 1998 against UDLP and its former owners. 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. Management does not believe that Alliant's suit will have a material
adverse impact on the Company.
The Company is also a defendant in two so-called qui tam cases filed under the
U.S. Civil False Claims Act (the "FCA") by one present and one former employee
of the Company's Armament Systems Division in Fridley, Minnesota. The FCA, among
other things, permits individuals to seek recovery, including treble damages and
additional civil penalties, of amounts which under certain circumstances have
been improperly claimed from the government by its contractors, and provides
that such plaintiffs may personally collect 15-30% of any recovery obtained.
Each case primarily alleges that the Company improperly obtained payment under
various government contracts by supplying components which did not comply with
applicable technical specifications. The Department of Justice has declined to
intervene in either case. On motion by the Company, one case, U.S. EX REL.SHUKLA
V. UNITED DEFENSE, ET AL., has been dismissed, but the opposing party may appeal
such dismissal. In the other case, U.S. EX REL. SEMAN AND SHUKLA V. UNITED
DEFENSE, ET AL, the Company has filed an answer denying the material
allegations. Management does not believe the suits will have a material adverse
impact on the Company.
<PAGE>
United Defense Industries, Inc.
Unaudited Consolidated Balance Sheets
(In thousands)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Assets December 31, 1998 June 30, 1999
--------------------------------------
Current assets:
Cash and marketable securities $85,520 $15,608
Trade receivables 64,395 81,140
Inventories 254,343 256,913
Other current assets 4,255 4,506
--------------------------------------
Total current assets 408,513 358,167
Property, plant and equipment, net 122,721 99,628
Intangible assets, net 330,024 295,335
Prepaid pension cost 123,912 127,626
Prepaid postretirement benefit cost - 1,161
Other assets 4,571 2,336
--------------------------------------
Total assets $989,741 $884,253
======================================
Liabilities and Equity
Current liabilities:
Current portion of long-term debt $16,643 $23,086
Accounts payable, trade and other 88,497 54,943
Advanced payments 258,395 271,417
Accrued and other liabilities 75,832 88,214
--------------------------------------
Total current liabilities 439,367 437,660
Long-term liabilities net of current portion:
Accrued pension cost 12,807 15,883
Accrued postretirement benefit cost 1,803 1,481
Long-term debt 490,343 376,800
Other liabilities 22,630 33,717
--------------------------------------
Total liabilities 966,950 865,541
Commitments and contingencies
Stockholders' Equity :
Common Stock $.01 par value, 20,000,000 authorized;
18,039,624 and 18,042,524 issued and outstanding
at December 31, 1998 and June 30, 1999 180 180
Additional paid-in-capital 180,216 180,245
Stockholders' loans (1,339) (1,339)
Retained deficit (156,266) (160,374)
--------------------------------------
Total stockholders' equity 22,791 18,712
--------------------------------------
Total liabilities and stockholders' equity $989,741 $884,253
======================================
</TABLE>
6
<PAGE>
United Defense Industries, Inc.
Unaudited Consolidated Statements of Operations
(In thousands)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Three months Three months Six months Six months
ended ended ended ended
June 30, 1998 June 30, 1999 June 30, 1998 June 30, 1999
------------------------------- -------------------------------
Revenue:
Sales $316,866 $331,630 $631,670 $596,160
Costs and expenses:
Cost of sales 260,792 273,505 541,127 494,656
Selling, general and
administrative expenses 35,369 46,869 86,809 83,632
Research and development 3,924 (677) 6,628 1,046
------------------------------- -------------------------------
Total expenses 300,085 319,697 634,564 579,334
Earnings related to investments
in foreign affiliates (9,899) 323 5,450 640
------------------------------- -------------------------------
Income from operations 6,882 12,256 2,556 17,466
Other income (expense):
Interest income 227 358 512 722
Interest expense (10,920) (10,270) (26,336) (21,046)
------------------------------- -------------------------------
Income (loss) before taxes (3,811) 2,344 (23,268) (2,858)
Provision for income taxes 701 625 1,701 1,250
------------------------------- -------------------------------
Net income (loss) ($4,512) $1,719 ($24,969) ($4,108)
=============================== ===============================
</TABLE>
7
<PAGE>
United Defense Industries, Inc.
Unaudited Consolidated Statement
of Stockholders' Equity
(In thousands)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Additional
Common Paid-In Retained Stockholders'
Stock Capital Deficit Loans Total
----------------------------------------------------------------
Balance, December 31, 1998 $180 $180,216 ($156,266) ($1,339) $22,791
Sale of Common Stock 29 29
Net loss for the six months ended
June 30, 1999 (4,108) (4,108)
----------------------------------------------------------------
Balance, June 30, 1999 $180 $180,245 ($160,374) ($1,339) $18,712
================================================================
</TABLE>
8
<PAGE>
United Defense Industries, Inc.
Unaudited Consolidated Statement of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
<S> <C> <C>
Six months Six months
ended ended
June 30, 1998 June 30, 1999
-------------------------------------
Operating activities
Net loss ($24,969) ($4,108)
Adjustments to reconcile net loss to cash
provided by operating activities:
Depreciation 34,634 33,668
Amortization 49,388 42,217
Other 1,731 2,892
Changes in assets and liabilities:
Trade receivables (6,742) (16,745)
Inventories 64,604 (2,570)
Other assets 1,047 (451)
Prepaid pension cost 2,814 (3,714)
Prepaid postretirement benefit cost - (1,161)
Accounts payable, trade and other (33,907) (33,554)
Advanced payments (67,219) 13,022
Accrued and other liabilities 19,194 23,470
Accrued pension cost (6,161) 3,076
Accrued post retirement benefits 521 (322)
-------------------------------------
Cash provided by operating activities 34,935 55,720
-------------------------------------
Investing activities
Capital spending (11,308) (19,398)
Disposal of property, plant and equipment 3,015 837
-------------------------------------
Cash used in investing activities (8,293) (18,561)
-------------------------------------
Financing activities
Payments on long-term debt (40,964) (107,100)
Proceeds from sale of common stock 5,408 29
-------------------------------------
Cash used in financing activities (35,556) (107,071)
-------------------------------------
Decrease in cash and marketable securities (8,914) (69,912)
Cash and marketable securities, beginning of period 35,623 85,520
-------------------------------------
Cash and marketable securities, end of period $26,709 $15,608
=====================================
</TABLE>
9
<PAGE>
United Defense Industries, Inc.
Notes to Unaudited Consolidated Financial Statements
June 30, 1999
1. Basis of Presentation
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 United
Defense Industries, Inc. (the "Company"), but does not include all the
dislosures 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, 1999 and the
results of its operations and cash flows for the periods ended June 30, 1999 and
1998. The results of operations are not necessarily indicative of the results
that may be expected for the year ending December 31, 1999. 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, 1998.
2. Commitments and Contingencies
Alliant Techsystems, Inc. ("Alliant"), a subcontractor to United Defense, L.P.
("UDLP") in connection with the Paladin howitzer prime contract, filed suit in
February 1998 against UDLP and its former owners. 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. Management does not believe that Alliant's suit will have a material
adverse impact on the Company.
The Company is also a defendant in two so-called qui tam cases filed under the
U.S. Civil False Claims Act (the "FCA") by one present and one former employee
of the Company's Armament Systems Division in Fridley, Minnesota. The FCA, among
other things, permits individuals to seek recovery, including treble damages and
additional civil penalties, of amounts which under certain circumstances have
been improperly claimed from the government by its contractors, and provides
that such plaintiffs may personally collect 15-30% of any recovery obtained.
Each case primarily alleges that the Company improperly obtained payment under
various government contracts by supplying components which did not comply with
applicable technical specifications. The Department of Justice has declined to
intervene in either case. On motion by the Company, one case, U.S. EX REL.
SHUKLA V. UNITED DEFENSE, ET AL., has been dismissed, but the opposing party may
appeal such dismissal. In the other case, U.S. EX REL. SEMAN AND SHUKLA V.
UNITED DEFENSE, ET AL, the Company has filed an answer denying the material
allegations. Management does not believe the suits will have a material adverse
impact on the Company.
<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, 1999
Forward-Looking Statements
Management's Discussion and Analysis of the Results of Operations and
Financial Condition contains forward-looking statements that are based on
management's expectations, estimates, projections and assumptions. Words such as
"expects," "anticipates," "plans," "believes," "estimates," or 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 ability of United Defense Industries,
Inc. (the "Company") 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, the Company's international operations and joint
ventures; termination of government contracts due to unilateral government
action and the impact of the "Year 2000" issue on the Company and its customers
and suppliers.
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, 1998.
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
"Acquisition") directly or 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 Corporation ("Harsco").
This price was subsequently adjusted downward by $16.1 million to reflect
adjustment clauses in the Acquisition agreement.
<PAGE>
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 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, 1999, a substantial
majority of which is derived from sole-source, prime contracts. Approximately
85% of the Company's sales for the first six months of 1999 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 10-K for the year ended December 31 1998.
There have been no material changes to the Company's major programs from
those described in the Company's Form 10-K other than additional funding as new
contracts are negotiated and awarded.
Results of Operations
Three Months Ended June 30, 1999 ("Three Months 1999") Compared to
Three Months Ended June 30, 1998 ("Three Months 1998").
Revenue. Revenue in the Three Months 1999 was $331.6 million, higher by
$14.7 million, or 4.6%, from the Three Months 1998. The increase was due to a
larger shipment in 1999 of vertical launcher systems, new deliveries of M9
armored combat earth movers and rebuilt AAV7 amphibious vehicles, partly offset
by declines due to the completion of the self-propelled howitzer shipments to
Taiwan and the decline of M109A6 Paladin production.
Gross Profit. Gross profit for the Three Months 1999 was $58.1 million
higher by $2.0 million or 3.6% from the Three Months 1998. The increase in gross
profit was primarily due to upward contract adjustments, particularly for the
M109A6 Paladin and slightly lower amortization of the Acquisition purchase
price, partially offset by lower gross profit realized on vertical launcher
systems and canisters sales in 1999.
Selling, general and administrative expenses. Selling, general and
administrative expenses were $46.9 million in the Three Months 1999, an increase
of $11.5 million, or 32.5%
<PAGE>
from the Three Months 1998. The increase was primarily due to the amortization
of goodwill and other intangible assets established as part of the Acquisition.
Research and development. Research and development generated income of
$0.7 million for the Three Months 1999 whereas research and development costs
were $3.9 million in the Three Months in 1998. The income in 1999 was due to the
large reimbursement of R&D costs to the Company for the development of an
advanced gun system for the new DD21 class ship that was received in the Three
Months 1999, which more than offset costs of $4.9 for the period.
Earnings from foreign affiliates. Earnings from the Company's foreign
affiliates were $0.3 million for the Three Months 1999 compared to a loss of
$9.9 million for the Three Months 1998. The reason for the loss in the Three
Months 1998 was the establishment of a reserve for a potential offset penalty,
which could be asserted by the Turkish government if the Company's Turkish joint
venture does not achieve certain export sales.
Interest expense. Net interest expense was $10.3 million for the Three
Months 1999 compared to $10.9 million for the Three Months 1998. The decline in
interest was the result of lower debt levels and lower interests rates on senior
bank debt.
Net income/loss. As a result of the foregoing, there was a net income of
$1.7 million in the Three Months 1999 compared with a net loss of $4.5 million
for the Three Months 1998.
Six Months Ended June 30, 1999 ("Six Months 1999") Compared to Six
Months Ended June 30, 1998 ("Six Months 1998").
Revenue. Revenue of $596.2 million for the Six Months 1999 was down $35.5
million, or 5.6%, compared with $631.7 million for the Six Months 1998. The
decrease in revenue was due to the completion of self-propelled howitzer
shipments to Taiwan and Egypt, wind down of the Paladin program, and lower
upgrade and overhaul activities for naval equipment. The declines were partially
offset by higher billings for the Crusader program and vertical launcher systems
and shipments of rebuilt amphibious assault vehicles and armored combat
earthmovers to the DoD.
Gross Profit. Gross profit increased $10.9 million, or 12.0% to $101.5
million for the Six Months 1999 versus the Six Months 1998. The higher gross
profit was primarily due to the lower depreciation and amortization for assets
established in connection with the allocation of the purchase price in the
Acquisition and upward contract adjustments, specifically for the M109A6
Paladins. This increase is partially offset by the decreased gross profit from
lower revenue.
Selling, general and administrative expenses. Selling, general and
administrative expenses dropped to $83.6 million in the Six Months 1999, a
decrease of $3.2 million from the Six Months 1998. The favorable variance is
attributable to the lower amortization of goodwill and other intangible assets
established in conjunction with the Acquisition.
<PAGE>
Research and Development. Research and development costs were $1.0 million
for the Six Months 1999 which was $5.6 million, or 84.2%, lower than the Six
Months in 1998. The drop was due to the large reimbursement of R&D costs to the
Company that was received in the Six Months 1999 for the development of an
advanced gun system for the new DD21 class ship.
Earnings from foreign affiliates. Earnings from foreign affiliates were
$0.6 million for the Six Months 1999, down $4.8 million, or 88.3%, from the Six
Months 1998. The decline was due to the establishment of a reserve for the
potential offset penalty for the joint venture in Turkey equivalent to dividends
received for the venture in the Six Months 1999 thereby negating the benefit of
the dividend.
Interest expense. Net interest expense for the Six Months 1999 was $21.0
million compared with $26.3 million for the Six Months 1998. The decline in
interest expense was the result of lower debt levels and lower interest rates on
the senior bank debt.
Net loss. As a result of the foregoing, there was a net loss of $4.1
million for the Six Months 1999 compared with a net loss of $25.0 million for
the Six Months 1998.
Liquidity
During the Six Months 1999, cash provided by operating activities was
$55.7 million compared with $34.9 million for the Six Months 1998. The increase
in operating cash flow for the Six Months 1999 can primarily be attributed to
(i) a lower net loss mostly due to lower interest expense and (ii) a favorable
impact of the advance payments net of inventory changes, which is the result of
converting most contracts to a performance based payment approach from a cost
incurred basis.
Cash used in investing activities was $18.6 million for the Six Months
1999, up from $8.3 million for the Six Months 1998. The higher spending in 1999
is primarily for costs to install software for new integrated business systems.
Cash used for financing activities was applied to pay down debt in the Six
Months 1999; $107.1 million compared with $41.0 million in the Six Months 1998.
Impact of Year 2000 ("Y2K")
The Company continues to pursue its Y2K compliance program 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 has determined that all of its operating divisions are affected by
this problem. A Company Y2K task force provides guidance, coordination and
oversight to all division efforts. The task force has promulgated a standard
definition for Y2K compliance, a standard response to customer and supplier
inquiries and requests for information, a standard certification letter and form
to be sent to suppliers and business partners, guidelines on documentation
requirements, and standard Y2K language for new and modified contracts. Each
division is executing a Y2K program to identify, assess and remediate Y2K
problems. The approach is a five-phase strategy of awareness, assessment,
renovation, validation and implementation. Implementation for all mission
critical systems is
<PAGE>
expected to be complete by the third quarter 1999. Contingency and business
recovery plans are being developed to address critical systems if unexpected
failures occur.
The Company is tracking its state of readiness in terms of completion
status against a five-phase approach to remediation of Y2K problems. As of the
second quarter 1999, the Company's estimate of overall completion status is 100%
in Awareness, 100% in Assessment, 99% in Renovation, 98% in Validation and 97%
in Implementation.
In order to obviate Y2K problems, the Company expects to spend $30.5
million repairing or replacing existing business and information technology
computing systems and assets with embedded systems. Through June 1999, $28.3
million, or 93% of the estimated total spending requirement, has been spent.
The Company's largest projects to resolve Y2K problems are the integrated
business systems projects being executed at the Company's two largest divisions,
Armament Systems Division and Ground Systems Division, both of which are now
complete. Armament Systems Division installed a new Y2K compliant manufacturing
system that is part of a larger software package, but retained the existing
financial systems which were essentially already Y2K compliant. Ground Systems
Division has remediated its existing manufacturing and financial systems to
render them Y2K compliant.
Although all divisions have completed significant assessments of internal
systems and assets with embedded systems, assessments will continue to occur
until the Year 2000. Systems inventories and disposition decisions will be
updated as part of the ongoing assessment.
All divisions continue to contact suppliers regarding their Y2K issues. A
standard request for certification has been formulated and is being used by all
divisions as they continue to pursue Y2K certifications from active suppliers.
Procurement documents utilized by the Company will continue to include
requirements for Y2K compliance. Despite these efforts, the Company expects to
have only a limited understanding of the potential Y2K shortcomings of its many
suppliers, and will therefore be uncertain as to the full nature and extent of
the potential supplier-derived impact on the Company. 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 contacts.
Product assessments indicate there are no known Y2K problems with products
the Company produces or sells. The Company continues to receive requests for
certifications or warranties from customers. In some cases, these requests
resulted in contract modifications or negotiations. In others, the Company had
to provide details on its Y2K compliance programs by responding to detailed
surveys.
The Company continues to monitor the Y2K compliance status of DoD payment
offices. While DoD offices have indicated that they are working to resolve their
Y2K problems, the Company regards their ability to achieve this objective as
uncertain. Because the Company's understanding of the ways in which the DoD
could experience Y2K difficulties is inherently limited, the Company is
uncertain as to the full nature and extent of the potential DoD derived Y2K
impact on the Company. However, the Company is concerned that Y2K problems
<PAGE>
affecting DoD financial administration functions could interrupt or delay the
orderly flow of payments to the Company under its DoD contracts. Because of the
Company's debt service obligations, any such interruption or delay could
adversely impact the Company's financial condition, and a payment interruption
of extraordinary magnitude and duration could result in the Company going into
default under its debt instruments.
As to other Y2K risks, to the extent that the Company's results depend
upon foreign sales, such results could also be adversely impacted by Y2K
problems that might beset the foreign customers of the Company or its foreign
affiliates. Many foreign governments appear to seriously lag the DoD in terms of
assessing and addressing Y2K problems. As a result, the Company does not expect
to develop an adequate understanding of potential foreign government Y2K
problems. The Company's foreign affiliates have assessed their internal Y2K
situation and have determined some limited exposure due to non-compliant
internal systems. The foreign affiliates have indicated that they expect to
resolve non-compliance problems in time to avoid any disruptions to operations.
Management believes it is expending appropriate efforts in addressing the
Y2K issue so as not to incur disruptions to its business operations. However,
there is still uncertainty about the broader scope of the Y2K issue as it may
affect the Company and third parties that are critical to the Company's
operations. For example, lack of readiness by electrical and water utilities,
financial institutions, government agencies or other providers of general
infrastructure could pose significant impediments to the Company's ability to
carry on its normal operations in the area or areas so affected. In the event
that the Company is unable to complete its remedial actions as described above
and is unable to implement adequate contingency plans in the event that problems
are encountered, there could be a material adverse effect on the Company's
business, results of operations or financial condition.
<PAGE>
IRON HORSE INVESTORS, L.L.C.
UNITED DEFENSE INDUSTRIES, INC.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
June 30, 1999
In October 1997, the Company entered into a three year interest rate swap
agreement involving the exchange of floating rate interest payment obligations
for fixed rate interest payment obligations. The notional amount of this
interest rate swap agreement is $160 million. The Company entered into this
agreement as a hedge to manage interest costs and risks associated with
fluctuating interest rates. For additional information, see Note 12 to the
Consolidated Financial Statements of the Company's Annual Report on Form 10-K
for the year ended December 31, 1998. As of June 30, 1999, the Company has debt
totaling $400 million of which $200 million was subject to variable interest
rates.
<PAGE>
PART II
OTHER INFORMATION
June 30, 1999
ITEM 1. Legal Proceedings
For a description of the Company's pending litigation with Alliant Techsystems,
Inc., please refer to the Company's Annual Report on Form 10-K for the year
ended December 31, 1998.
For a description of the Company's two so-called qui tam cases under the U.S.
civil False Claims Act, U.S. EX REL. SHUKLA V. UNITED DEFENSE L.P.,ET AL. and
U.S. EX REL. SEMAN V. UNITED DEFENSE, ET AL. please refer to the Company's
Annual Report on Form 10-K for the year ended December 31, 1998. Subsequent
to such discription, the court recently dismissed the Shukla case on motion
by the Company, but the opposing party may appeal such dismissal.
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 supplementary 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 as 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 3.1d - Certificate of Amendment of the Certificate of
Incorporation of United Defense Industries, Inc.***
Exhibit 3.2 - By-laws of United Defense Industries, Inc.*
<PAGE>
Exhibit 3.3 - Certificate of Incorporation of UDLP Holdings Corp*
Exhibit 3.4 - By-laws of UDLP Holdings Corp.*
Exhibit 3.5 - Amended and Restated Agreement of Limited Partnership
of United Defense, L.P.*
Exhibit 3.6 - Certificate of Amendment to Certificate of Limited
Partnership of United Defense, L.PL.*
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 10.20 - Employment Agreement with Thomas W. Rabaut.
Exhibit 10.22 - Employment Agreement with Frederick M. Strader.
Exhibit 10.23 - Employment Agreement with Peter C. Woglom.
Exhibit 10.24 - Employment Agreement with David V. Kolovat.
Exhibit 10.25 - Employment Agreement with Francis Raborn.
Exhibit 10.26 - Employment Agreement with Dennis A. Wagner, III.
* Incorporated by reference to the exhibits in the Company's
Registration Statement of Form S-4 (333-43619) filed with the
Securities and Exchange Commission on December 31, 1997.
** Incorporated by reference to the exhibits in the Company's
Amendment No. 1 to Form S-4 (333-43619) filed with the Securities
and Exchange Commission on February 6, 1998.
*** Incorporated by reference to the exhibits in the Company's
Registration Statement on Form S-8 (333-60207) filed with the
Securities and Exchange Commission on July 30, 1998.
Financial Data Schedule.
(b) Reports on form 8-K
None.
<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
Date: August 13, 1999
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT, dated, and effective as of May 21, 1999 (the
"Agreement"), is-made by and between United Defense Industries, Inc., a
Delaware corporation (the "Company"), and Thomas W. Rabaut (the "Executive").
WHEREAS, it is the desire of the Company to assure itself of the services of
the Executive by engaging the Executive to perform such services under the
terms hereof; and
WHEREAS, the Executive desires to commit himself to serve the Company on the
terms herein provided;
NOW THEREFORE, in consideration of the foregoing and of the respective
covenants and agreements set forth below, the parties hereto agree as
follows:
Section 1. Certain Definitions.
(a) "Annual Base Salary" shall have the meaning set forth in Subsection
5(a).
(b) "Board" shall mean the Board of Directors of the Company or any
Committee thereof duly created or authorized by the Board to act in its
behalf.
(c) The Company shall have "Cause" to terminate the Executive's employment
hereunder upon Executive's
(i) failure substantially to perform his duties hereunder, other than
any such failure resulting from the Executive's Disability, after
notice and reasonable opportunity for cure, all as determined by
the Board;
(ii) conviction of a felony or a crime involving moral turpitude; or
(iii) fraud or personal dishonesty involving the Company's assets.
(d) "Company" shall have the meaning set forth in the preamble hereto.
(e) "Corporate Transaction" shall mean any of the following events:
(i) a merger or consolidation of the Company or any Controlled Entity
with a theretofore unaffiliated entity in which the stockholders
or interestholders of the Company or Controlled Entity (as
applicable) receive cash, securities and/or other marketable
property in exchange for their voting stock or partnership
interests;
<PAGE>
(ii) the sale, transfer, exchange or other disposition of all or
substantially all of the assets of the Company or any Controlled
Entity;
(iii) the acquisition by an unaffiliated Person, of (i) more than 50%
of the Common Stock then outstanding or (ii) more than 50% -of
the. voting stock or partnership interests of any Controlled
Entity then outstanding; or
(iv) the liquidation, dissolution, or winding up of the Company or any
Controlled Entity, other than a restructuring transaction which
results in the continuation of the Company's or Controlled
Entity's (as applicable) business by an Affiliate.
As used in this Subsection 1 (e), "Controlled Entity" shall mean UDLP
Holdings Corp. and/or United Defense, L. P.; "Affiliate", shall mean,
with respect to the Company or either Controlled Entity, any Person
which, prior to such Corporate Transaction, was directly or indirectly
controlling, controlled by, or under common control with such entity,
where "control" shall have the meaning given such term under Rule 405
of the Securities Act; and "Person" shall mean any individual,
corporation, partnership, limited liability company, business trust,
joint stock company, trust, unincorporated association, joint venture,
governmental authority, or other entity of whatever nature.
(f) "Date of Termination" shall mean (i) if the Executive's employment is
terminated by his death, the date of his death, or (ii) if the
Executive's employment is terminated pursuant to any other provision of
Subsection 6(a), the date specified in the Notice of Termination.
(g) "Disability" shall mean the absence of the Executive from the Executive's
duties to the Company on a full-time basis for a total of six (6) months
during any twelve (12) month period as a result of incapacity due to any
injury or to mental or physical illness which is determined to be
reasonably likely to extend beyond the completion of the Term by a
physician selected by the Company and acceptable to the Executive or the
Executive's legal representative (such agreement as to acceptability not
to be withheld unreasonably).
(h) "Discretionary Bonus" shall have the meaning set forth in Subsection 5(b).
Any Discretionary Bonus shall be paid no later than fifteen (15) business
days following completion of the financial statements which permit
calculation of the amount thereof.
(i) "Effective Date" shall mean the date first set forth in the preamble
hereto.
(j) "Executive" shall have the meaning set forth in the preamble hereto.
2
<PAGE>
(k) The Executive shall have "Good Reason" to terminate his employment in
the event that the Company either (i) fails to make any payment or
provide any benefit hereunder or commits a material breach of this
Agreement and does not cure such failure or breach after notice and a
reasonable opportunity to cure, or (ii) gives to the Executive a notice
of non-extension under Subsection 2(b). The characteristics,
attributes, and elements of Executive's employment and compensation set
forth in sections 2 through 7 hereof shall each constitute a material
undertaking of the Company to Executive under this Agreement.
(l) "Notice of Termination" shall have the meaning set forth in Subsection
6(b).
(m) "Severance Period" shall have the meaning set forth in Subsection
7(a)(i).
(n) "Term" shall have the meaning set forth in Subsection 2(b).
Section 2. Employment.
(a) The Company shall employ the Executive and the Executive shall work in
the employ of the Company for the period set forth in this Section 2,
in the position or positions set forth in Section 3, and upon the
other terms and conditions herein provided. The initial term of
employment under this Agreement (the "Initial Term") shall be for the
period beginning on the Effective Date and ending on December 31,
2001, unless earlier terminated as provided in Section 6.
(b) The employment term hereunder shall automatically be extended for
successive one year periods ("Extension Terms," and, collectively with
the Initial Term, the "Term") unless either party gives notice of
non-extension to the other no later than 90 days prior to the
expiration of the then-applicable Term.
Section 3. Position and Duties.
(a) The Executive shall serve as the President and Chief Executive Officer
of the Company and of its principal subsidiaries, UDLP Holdings Corp.,
a Delaware corporation, and United Defense, L.P., a Delaware limited
partnership. In such capacity, the Executive shall have such customary
responsibilities, duties, and authority as may from time to time be
assigned to the Executive by the Board; provided, however, that
Executive's responsibilities and authority shall not be reduced,
without his prior written consent, below the level and range thereof
prevailing as of the Effective Date of this Agreement. The Executive
shall devote substantially all his working time and efforts to the
business and affairs of the Company and its subsidiaries. The
Executive shall not be required to per-form any of his duties in a
manner inconsistent with applicable law or the Company's Code of
Ethics and Standards of Conduct.
(b) If elected or appointed thereto, and only for the duration of such
elected term or appointment, Executive shall, in addition to the
position(s) set forth in Subsection
3
<PAGE>
3(a) above, serve as a director of the Company and/or any of its
subsidiaries, and/or in one or more executive offices of any other
subsidiaries of the Company, provided that the Executive is indemnified
for serving in any and all such capacities on a basis consistent with
that provided by the Company to other directors of the Company or
similarly situated executive officers of any such other entities.
(c) In addition to the ongoing responsibilities of the Executive's
position(s) identified in Subsection 3(a) above, Executive specifically
acknowledges and agrees that his responsibilities under this Agreement
shall include assisting, as directed by the Board, in the evaluation,
preparation, and/or consummation of any sale, merger, consolidation, or
other change of control or ownership of the Company (collectively, a
"Corporate Transaction") as may be desired by the Company's majority
owner. Such assistance shall include, without limitation, the preparation
and production of materials and records of interest to a potential
acquirer; participation in meetings and presentations regarding the
Company and its business with any potential acquirer; assisting the
Company in providing materials and information to, and/or participating in
meetings with and presentations to any governmental agency or agencies
which may have a jurisdictional or other appropriate interest
in a Corporate Transaction; and the preparation and production
of any materials required in order to consummate any Corporate
Transaction in which the Company may agree.
Section 4. Place of Performance.
In connection with his employment during the Term, the Executive shall be
based in Arlington, Virginia.
Section 5. Compensation and Related Matters.
(a) Annual Base Salary. During the Term, the Executive shall receive an
Annual Base Salary which (i) is currently in the amount of $350,000
and (ii) may be increased from time to time during the Term hereof in
accordance with the Company's practices and procedures regarding
employee salaries.
(b) Bonus. For each calendar year, or part, of the Term, the Executive
shall be eligible to participate in the United Defense Management
Incentive Plan (or any revision, supplement, or replacement thereof,
however denominated; hereinafter, the "Bonus Plan") and to receive
thereunder a Discretionary Bonus based upon a target bonus under such
plan equal to 65% of the amount of the Executive's Annual Base Salary.
(c) Benefits. The Executive shall be entitled to participate in the other
employee benefit plans, programs, and arrangements of the Company now
or hereafter in effect which are applicable to the senior officers of
the Company, subject to and on a basis consistent with the terms,
conditions, and overall administration thereof, including but not
limited to the United Defense Stock Option Plan, the
4
<PAGE>
Company's Qualified and Non-qualified Pension Plans, the Company's
Qualified and Non-qualified Thrift Plans, the Executive Health Plan, the
Short-Term and Long-Term Disability Plans, life insurance, and the
Company's program and practices regarding vacations, personal days, and
paid holidays.
(d) Expenses. The Company shall reimburse the Executive for all
reasonable travel and other business expenses incurred by him in the
performance of his duties to the Company, in accordance with the
Company's expense reimbursement policy.
Section 6. Termination.
The Executive's employment hereunder may be terminated by the Company or the
Executive, as applicable, without any breach of this Agreement only under
the following circumstances:
(a) (i) Death. The Executive's employment hereunder shall terminate upon
his death.
(ii) Disability. If the Company determines in good faith that the
Executive has incurred a Disability, the Company may give the
Executive written notice of its intention to terminate the
Executive's employment. In such event, the Executive's
employment with the Company shall terminate effective on the
30th day after receipt of such notice by the Executive, provided
that within 30 days after such receipt, the Executive shall not
have returned to full-time performance of his duties. The
Executive shall continue to receive his Annual Base Salary until
the Date of Termination.
(iii) Cause. The Company may terminate the Executive's employment
hereunder for Cause.
(iv) Good Reason. The Executive may terminate his employment for Good
Reason.
(v) Without Cause. The Company may terminate the Executive's
employment hereunder without Cause.
(vi) Resignation without Good Reason. The Executive may resign his
employment without Good Reason upon sixty (60) days prior
written notice to the Company. Any retirement by Executive after
age 55 and upon sixty (60) days prior written notice shall also
constitute Resignation without Good Reason hereunder.
5
<PAGE>
(b) Notice of Termination. Any termination of the Executive's employment by
the Company or by the Executive under this Section 6, other than
termination pursuant to Subsection 6(a)(i), shall be communicated by
written notice to the other party hereto indicating the specific
termination provision in this Agreement relied upon, setting forth in
reasonable detail the facts and circumstances claimed to provide a
basis for termination of the Executive's employment under the provision
so indicated, and specifying a Date of Termination which, except in the
case of termination for Cause, shall be at least four-teen days
following the date of such notice (a "Notice of Termination").
Section 7. Severance Payments.
(a) Termination without Cause or for Good Reason. If the Executive's
employment shall terminate without Cause pursuant to Subsection 6(a)(v)
above, or for Good Reason pursuant to Section 6(a)(iv) above, the
Company shall:
(i) pay to the Executive, following the Date of Termination, an
amount equal to the Annual Base Salary that the Executive would
have been entitled to receive had he continued his employment
hereunder for a period of 3 years (the "Severance Period"), such
payment to be made as follows:
(A) if, within eighteen (18) months prior to the Date of
Termination, no Corporate Transaction has occurred, then
the Annual Base Salary amounts for the Severance Period
shall be paid over the duration of the Severance Period in
accordance with the Company's regular payroll practice for
salaried employees; or
(B) if, within eighteen (18) months prior to the Date of
Termination, a Corporate Transaction has occurred, then the
Annual Base Salary amounts for the Severance Period shall
be paid, at Executive's election, either in a lump sum
within thirty (30) days following the Date of Termination,
or in the manner specified by Subsection 7(a)(i)(A) above;
and
(ii) pay to the Executive a prorated Discretionary Bonus for that
portion of the calendar year in which the Date of Termination
occurred during which the Executive was employed by the Company
(i.e., the period commencing January 1 of such year and ending
on the Date of Termination), calculated at the higher of the
target bonus or the bonus payable upon actual results in
accordance with the Bonus Plan, such payment to be made at the
time the actual results calculation with respect to such year is
regularly made by the Company under the Bonus Plan; and
(iii) pay to the Executive, following the Date of Termination, a
Discretionary Bonus for the Severance Period, consisting of the
target bonus for each year of the Severance Period, such
payments to be made as follows:
6
<PAGE>
(A) if, within eighteen (18) months prior to the Date of
Termination, no Corporate Transaction has occurred, then the
Discretionary Bonus shall be paid pro rata on a monthly
basis over the duration of the Severance Period; or,
(B) if, within eighteen (18) months prior to the Date of
Termination, a Corporate Transaction has occurred, then the
Discretionary Bonus for all portions of the Severance Period
shall be paid, at Executive's election, either within thirty
(30) days following the Date of Termination, or in the
manner specified by Subsection 7(a)(iii)(A) above; and
(iv) continue, for the remainder of the Severance Period, Executive's
coverage under all Company welfare benefit plans and programs in
which the Executive was entitled to participate immediately
prior to the Date of Termination, at the same premium cost, and
at the same coverage level, as in effect immediately preceding
the Date of Termination. However, in the event the premium cost
shall change for all employees of the Company, or for management
employees with respect to supplemental benefits, the cost shall
change for Executive in a corresponding manner.
The payments required by Subsections 7(a)(i), 7(a)(ii), and, 7(a)(iii)
above shall be in lieu of any payments to which Executive would
otherwise be entitled under the Company's general severance policy
pertaining to reductions in force.
(b) Pension and Retirement Benefits. In the event that Executive's
employment is terminated under the circumstances contemplated by
Subsection 7(a) above, the Company shall, either under this Agreement
or via the Non-Qualified Pension Plan, make such payments at such times
and in such amounts as necessary to produce the same chronological
sequence and amount of payments which Executive would have been
eligible in the context of such termination to receive under the UDLP
Employees Pension Plan (the "Pension Plan") and other retirement
benefit plans, were the terms of the Pension Plan and/or such other
plans to include the following features: (i) period of service includes
both actual credited service thereunder and the Severance Period, such
total service period to be used for calculating the commencement of
Executive's pension eligibility and the credited service which is used
in calculating the amount of Executive's pension; (ii) Executive's age,
as used in all calculations under the Pension Plan affecting
Executive's pension eligibility and pension amount, shall be deemed to
consist of his actual age plus the Severance Period; (iii) the
Severance Period, and Executive's income during such period as paid
pursuant to Subsection 7(a)(i), shall be included in the calculation
base for Executive's "final average yearly earnings" under the Pension
Plan; and (iv) any termination under Subsection 7(a) shall render the
"rule of 65" applicable to Executive under the Pension Plan.
7
<PAGE>
(c) Tax Indemnification. With respect to any payment(s) made to Executive
under this Section 7 or otherwise and any accelerated vesting and/or
exercise of stock options under the United Defense Stock Option Plan,
and only in the event that any thereof result in the assertion by the
Internal Revenue Service ("IRS") that Executive is liable under Section
280G and/or 4999 of the Internal Revenue Code of 1986, as amended (the
"Code") for the payment of an excise tax on socalled "excess parachute
payments" under such Code sections, or for any other tax or imposition,
however denominated, and whether federal, state, or local, in addition
to or excess of ordinary income tax rates (any such tax being
hereinafter referred to as an "EPP Tax"), then the Company shall
indemnify and hold harmless Executive from and against any such demand
or assertion from the IRS or any other taxing authority, by (i) paying
to Executive an amount sufficient to cover both such asserted EPP Tax
and any income or other tax payable by Executive on or on account of
receiving such indemnification payment, and/or (ii) at the Company's
sole election, contesting, at the Company's expense and with counsel
and/or other advisors of the Company's choosing, the applicability or
amount of such EPP Tax with the IRS or other taxing authority, in which
event Executive shall cooperate as reasonably requested by the Company
in any such proceeding.
(d) Survival. The expiration or termination of the Term of Employment shall
not impair the rights or obligations of any party hereto which shall
have accrued hereunder prior to such expiration.
Section 8. Competition
(a) Executive shall not, at any time during the Term, and, if Executive's
employment is terminated by the Executive not for Good Reason, or by
the Company for Cause, then during the thirty-six (36) month period
following such Date of Termination, without the prior written consent
of the Board, directly or indirectly engage in, or have any interest in
or manage or operate any Competitor (as such term is defined in the
last sentence of this Subsection 8(a)), whether such engagement occurs
in the capacity of a director, officer, employee, agent,
representative, partner, security holder, consultant, or otherwise;
provided, however, that Executive shall be permitted to acquire a stock
interest in such a corporation provided such stock is publicly traded
and the stock so acquired is not more than one percent of the
outstanding shares of such corporation. As used in the preceding
sentence, "Competitor" shall mean any business organization, whether in
corporate, partnership, or other form, and whether located in the
United States or elsewhere, which, as of Executive's Date of
Termination, is established as either a prime contractor or major
subcontractor (i.e., accounting for at least 25% of the prime contract
value) on any military program for the design or production of armored
tracked vehicles or naval guns or naval missile launchers.
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(b) In the event that the provisions of Subsection 8(a) shall be
determined by any court of competent jurisdiction to be unenforceable
by reason of its extending for too great a period of time or over too
great a geographical area or by reason of its being too extensive in
any other respect, then such provisions shall be interpreted to extend
only over the maximum period of time for which it may be enforceable,
and/or over the maximum geographical area as to which it may be
enforceable, and/or to the maximum extent in all other respects as to
which it may be enforceable, all as determined by such court in such
action.
Section 9. Nondisclosure of Proprietary Information.
(a) Except as required in the faithful performance of the Executive's
duties hereunder or pursuant to Subsection 9(c) below, Executive shall, in
perpetuity, maintain in confidence and shall not directly or indirectly use,
disseminate, disclose, or publish, or use for his benefit or the benefit of
any person, firm, corporation, or other entity any confidential or
proprietary information or trade secrets of or relating to the Company,
including, without limitation, information with respect to the Company's
operations, processes, products, inventions, business practices, finances,
principals, vendors, suppliers, customers, potential customers, marketing
methods, costs, prices, contractual relationships, regulatory sums,
compensation paid to employees or other terms of employment, or deliver to
any person, firm, corporation or other entity any document, record,
notebook, computer program, or similar repository of or containing any such
confidential or proprietary information or trade secrets. The parties hereby
stipulate and agree that as between them the foregoing matters are
important, material, confidential, and proprietary information and trade
secrets and affect the successful conduct of the business of the Company.
(b) Upon termination of Executive's employment with Company for any reason,
the Executive shall promptly deliver to the Company all correspondence,
drawings, manuals, letters, notes, notebooks, reports, programs, plans,
proposals, financial documents, or any other documents which either
concern the Company's customers, business plans, marketing strategies,
products, or processes, or which contain proprietary information or
trade secrets of the Company.
(c) Executive may respond to a lawful and valid subpoena or other legal
process seeking any of the information or material referred to in
Subsection 9(a) or 9(b) above, but shall give the Company the earliest
possible notice thereof, and shall, as much in advance of the return
date as possible, make available to the Company and its counsel the
documents and other information sought and shall assist such counsel
in resisting or otherwise responding to such process.
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10. Injunctive Relief.
The Executive recognizes and acknowledges that a breach of the covenants
contained in Sections 8 and 9 would cause irreparable damage to Company and
its goodwill., the exact amount. of which would be difficult or impossible
to ascertain, and that the remedies at law for any such breach would be
inadequate. Accordingly, Executive agrees that in the event of a breach of
any of the covenants contained in Sections 8 and 9, in addition to any other
remedy which may be available at law or in equity, the Company shall be
entitled to specific performance and injunctive relief.
11. Successors and Assigns.
This Agreement shall be binding upon and inure to the benefit of the
Company, the Executive, and their respective successors, assigns, personnel
and legal representatives, executors, administrators, heirs, distributees,
devisees, and legatees, as applicable, provided however that Executive
acknowledges that this Agreement is a personal services contract and is
therefore not assignable by Executive.
12. Governing Law.
This Agreement shall be governed, construed, interpreted, and enforced in
accordance with the laws of the State of Delaware.
13. Validity.
The invalidity or unenforceability of any provision or provisions of his
Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
14. Notices.
Any notice, request, claim, demand, document, or other communication
hereunder to any party shall be effective upon receipt (or refusal of
receipt) and shall be in writing and delivered personally or sent by telex,
telecopy, or certified or registered mail, postage prepaid, as follows:
(a) If to the Company,
United Defense, L.P.
1525 Wilson Boulevard,
Suite 700
Arlington, VA 22209
Attention: General Counsel
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(b) If to the Executive, to him at the address set forth below under his
signature on the last page of this Agreement;
or to any other address as any party shall have specified for itself by
notice in writing to the other parties.
Section 15. Counterparts.
This Agreement may be executed in several counterparts, each of which shall
be deemed to be an original, but all of which together will constitute one
and the same Agreement, which shall be sufficiently evidenced by any one of
such original counterparts.
Section 16.-- Scope of Agreement.
The terms of this Agreement are intended by the parties to constitute the
final expression of their agreement with respect to the employment of the
Executive by the Company and may not be contradicted by evidence of any
prior or contemporaneous agreement. The parties further intend that this
Agreement shall constitute the complete and exclusive statement of its terms
and that no extrinsic evidence whatsoever may be introduced in any judicial,
administrative, or other legal proceeding to vary the terms of this
Agreement. The parties also recognize that each of them has or may have
rights powers, and obligations arising under or with respect to various
employee benefit plans: programs, and/or policies of the Company and/or its
subsidiaries, including but not limited to (i) the United Defense Stock
Option Plan (the "Option Plan") and any Stock Option Agreement(s) between
the Company and Executive in connection with the Option Plan; (ii) the
United Defense Industries, Inc. Employee Equity Purchase Plan (the "Equity
Plan") and documentation related thereto; (iii) any Stockholders
Agreement(s) among Executive, the Company, and Iron Horse Investors, L.L.C.
entered into in connection with the Equity Plan, the Option Plan, or
otherwise; (iv) the so-called enhanced stock purchase plan under the Equity
Plan, including any Promissory Notes(s) and/or Stock Pledge and Security
Agreement(s) entered into in connection therewith; (v) the United Defense
Employees Thrift Plan (also known as the 401(k) Plan) -and the ULDP
Supplemental Retirement and Savings Plan (the latter being also known as the
Non-Qualified Thrift Plan); and (vi) the UDLP Employees Pension Plan, into
which the UDLP Salaried Employees Pension Plan was merged effective January
1, 1999, and the Non-Qualified Pension Plan. As to all such plans, programs,
and policies referred to in the preceding sentence (collectively, the "Other
Company Plans"), the Company and Executive intend and agree that, except as
specifically provided in this Agreement, neither the existence, provisions,
operation, nor enforcement of this Agreement shall in any way impair, alter,
of vary either (i) the terms and conditions of any of the Other Company
Plans, or (ii) the respective rights, powers, and obligations of the Company
or the Executive under any of the Other Company Plans.
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Section 17. Amendments and Waivers.
This Agreement may not be modified, amended, or terminated except by an
instrument in writing, signed by the Executive and the Chairman of the
Board. No right or power under this Agreement, including but not limited to
any right of termination by either party under Section 6, shall be waived
except by an instrument in writing, signed by the party whose right or power
is thereby being waived. No such waiver shall operate as a waiver of, or
estoppel with respect to, any other or subsequent failure. No failure to
exercise and no delay in exercising any right, remedy, or power hereunder
shall preclude any other or further exercise of such or any other right,
remedy, or power provided herein or by law or in equity.
Section 18. No Inconsistent Actions.
The parties hereto shall not voluntarily undertake or fail to undertake any
action or course of action inconsistent with the provisions or essential
intent of this Agreement. Furthermore, it is the intent of the parties
hereto to act in a fair and reasonable manner with respect to the
interpretation and application of the provisions of this Agreement.
Section 19. Arbitration.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a
panel of three arbitrators in Wilmington, Delaware, in accordance with the
rules of the American Arbitration Association then in effect. Judgment may
be entered on the arbitrator's award in any court having jurisdiction;
provided however, that the Company shall be entitled to seek a restraining
order or injunction in any court of competent jurisdiction to prevent any
continuation of any violation of the provisions of Sections 8 or 9 of this
Agreement and the Executive hereby consents that such restraining order or
injunction may be granted without the necessity of the Company's posting any
bond and provided further that the Executive shall be entitled to seek
specific performance of his right to be paid until the Date of Termination
during the pendency of any dispute or controversy arising under or in
connection with this Agreement. The fees and expenses of the arbitrators
shall be borne- by the Company.
Section 20. Stockholder Approval
This Agreement shall become effective when signed, but shall be submitted
for approval of the Company's stockholders within three (3) months after the
date of the Board's initial authorization for this Agreement. If such
approval has not been obtained by the end of such period, any payments to be
made under Section 7 hereof shall be reduced to the maximum amount which,
when aggregated with all other payments which are "parachute payments" as
defined in Code Section 280G, would not exceed 2.99 times the Executive's
"base amount" as defined in Code Section 280G. The
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Company intends to seek such approval as contemplated by Section
280G(b)(5)(A)(ii) of the Internal Revenue Code of 1986, as amended, and the
regulations thereunder. Executive shall cooperate as requested by the
Company in seeking any stockholder approval(s) of or with respect to this
Agreement.
Section 21. Executive Compensation Agreement.
This agreement supersedes all provisions of the Executive Compensation
Agreement dated June 30, 1997 to which Executive and the United Defense,
L.P. are parties, which agreement shall be of no further force or effect.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date and
year first above written.
United Defense Industries, Inc.
By: /s/ F. Raborn
---------------------------
Name: F. Raborn
Title: CFO
Executive
/s/ Thomas W. Rabaut
--------------------------------
Name: Thomas W. Rabaut
Address: 10604 Dogwood Farm Lane
Great Falls, Virginia 22066
13
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT, dated and effective as of. May 21, 1999 (the
"Agreement"), is. made by and between United Defense Industries, Inc.,. a.
Delaware corporation (the "Company"), and Frederick M. Strader (the
"Executive").
WHEREAS, it is the desire of the Company to assure itself of the services of the
Executive by engaging the Executive to perform such services under the terms
hereof; and
WHEREAS, the Executive desires to commit himself to serve the Company on the
terms herein provided;
NOW THEREFORE, in consideration of the foregoing and of the respective covenants
and agreements set forth below, the parties hereto agree as follows:
Section 1. Certain Definitions.
(a) "Annual Base Salary" shall have the meaning set forth in Subsection 5
(b) "Board" shall mean the Board of Directors of the Company or any Committee
thereof duly created or authorized by the Board to act in its behalf.
(c) The Company shall have "Cause" to terminate the Executive's employment
hereunder upon Executive's
(i) failure substantially to perform his duties hereunder, other than
any such failure resulting from the Executive's Disability, after
notice and reasonable opportunity for cure, all as determined by
the Board;
(ii) conviction of a felony or a crime involving moral turpitude; or
(iii) fraud or personal dishonesty involving the Company's assets.
(d) "Company" shall have the meaning set forth in the preamble hereto.
(e) "Corporate Transaction" shall mean any of the following events:
(i) a merger or consolidation of the Company or any Controlled Entity
with a theretofore unaffiliated entity in which the stockholders or
interestholders of the Company or Controlled Entity (as applicable)
receive cash, securities and/or other marketable property in
exchange for their voting stock or partnership interests;
<PAGE>
(ii) the sale, transfer, exchange or other disposition of all or
substantially all of the assets of the Company or any Controlled
Entity;
(ii) the acquisition by an unaffiliated Person, of (i) more than 50% of
the Common Stock then outstanding or (ii) more than 50% of the
voting stock or partnership interests of any Controlled Entity then
outstanding; or
(iv) the liquidation, dissolution, or winding up of the Company or any
Controlled Entity, other than a restructuring transaction which
results in the continuation of the Company's or Controlled Entity's
(as applicable) business by an Affiliate.
As used in this Subsection 1(e), "Controlled Entity" shall mean UDLP
Holdings Corp. and/or United Defense, L. P.; "Affiliate" shall mean, with
respect to the Company or either Controlled Entity, any Person which,
prior to such Corporate Transaction, was directly or indirectly
controlling, controlled by, or under common control with such entity,
where "control" shall have the meaning given such term under Rule 405 of
the Securities Act; and "Person" shall mean any individual, corporation,
partnership, limited liability company, business trust, joint stock
company, trust, unincorporated association, joint venture, governmental
authority, or other entity of whatever nature.
(f) "Date of Termination" shall mean (i) if the Executive's employment is
terminated by his death, the date of his death, or (ii) if the Executive's
employment is terminated pursuant to any other provision of Subsection
6(a), the date specified in the Notice of Termination.
(g) "Disability" shall mean the absence of the Executive from the Executive's
duties to the Company on a full-time basis for a total of six (6) months
during any twelve (12) month period as a result of incapacity due to any
injury or to mental or physical illness which is determined to be
reasonably likely to extend beyond the completion of the Term by a
physician selected by the Company and acceptable to the Executive or the
Executive's legal representative (such agreement as to acceptability not
to be withheld unreasonably).
(h) "Discretionary Bonus" shall have the meaning set forth in Subsection 5(b).
Any Discretionary Bonus shall be paid no later than fifteen (15) business
days following completion of the financial statements which permit
calculation of the amount thereof.
(i) "Effective Date" shall mean the date first set forth in the preamble
hereto.
(j) "Executive" shall have the meaning set forth in the preamble hereto.
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(k) The Executive shall have "Good Reason" to terminate his employment in the
event that the Company either (i) fails to make any payment or provide any
benefit hereunder or commits a material breach of this Agreement and does
not cure such failure or breach after notice and a reasonable opportunity
to cure, or (ii) gives to the Executive a notice of non-extension under
Subsection 2(b). The characteristics, attributes, and elements of
Executive's employment and compensation set forth in sections 2 through 7
hereof shall each constitute a material undertaking of the Company to
Executive under this Agreement.
(l) "Notice of Termination" shall have the meaning set forth in Subsection
6(b).
(m) "Severance Period" shall have the meaning set forth in Subsection 7(a)(i).
(n) "Term" shall have the meaning-set forth in Subsection 2(b).
Section 2. Employment.
(a) The Company shall employ the Executive and the Executive shall work in the
employ of the Company for the period set forth in this Section 2, in the
position or positions set forth in Section 3, and upon the other terms and
conditions herein provided. The initial term of employment under this
Agreement (the "Initial Term") shall be for the period beginning on the
Effective Date and ending on December 31, 2001, unless earlier terminated
as provided in Section 6.
(b) The employment term hereunder shall automatically be extended for
successive one year periods ("Extension Terms," and, collectively with the
Initial Term, the "Term") unless either party gives notice of
non-extension to the other no later than 90 days prior to the expiration
of the then-applicable Term.
Section 3. Position and Duties.
(a) The Executive shall serve as the Vice President and General Manager,
Armament Systems Division of the Company and of its principal
subsidiaries, UDLP Holdings Corp., a Delaware corporation, and United
Defense, L.P., a Delaware limited partnership. In such capacity, the
Executive shall have such customary responsibilities, duties, and
authority as may from time to time be assigned to the Executive by the
President and Chief Executive Officer; provided, however, that Executive's
responsibilities and authority shall not be reduced, without his prior
written consent, below the level and range thereof prevailing as of the
Effective Date of this Agreement. The Executive shall devote substantially
all his working time and efforts to the business and affairs of the
Company and its subsidiaries. The Executive shall not be required to
perform any of his duties in a manner inconsistent with applicable law or
the Company's Code of Ethics and Standards of Conduct.
(b) If elected or appointed thereto, and only for the duration of such elected
term or
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appointment, Executive shall, in addition to the position(s) set forth in
Subsection 3(a) above, serve as a director of the Company and/or any of
its subsidiaries, and/or in one or more executive offices of any other
subsidiaries of the Company, provided that the Executive is indemnified
for serving in any and all such capacities on a basis consistent with that
provided by the Company to other directors of the Company or similarly
situated executive officers of any such other entities.
(c) In addition to the ongoing responsibilities of the Executive's position(s)
identified in Subsection 3(a) above, Executive specifically acknowledges
and agrees that his responsibilities under this Agreement shall include
assisting, as directed by the President and Chief Executive Officer, in
the evaluation, preparation, and/or consummation of any sale, merger,
consolidation, or other change of control or ownership of the Company
(collectively, a "Corporate Transaction") as may be desired by the
Company's majority owner. Such assistance shall include, without
limitation, the preparation and production of materials and records of
interest to a potential acquirer; participation in meetings and
presentations regarding the Company and its business with any potential
acquirer; assisting the Company in providing materials and information to,
and/or participating in meetings with and presentations to any
governmental agency or agencies which may have a jurisdictional or other
appropriate interest in a Corporate Transaction; and the preparation and
production of any materials required in order to consummate any Corporate
Transaction in which the Company may agree.
Section 4. Place of Performance.
In connection with his employment during the Term, the Executive shall be based
in Minneapolis, Minnesota.
Section 5. Compensation and Related Matters.
(a) Annual Base Salary. During the Term, the Executive shall receive an Annual
Base Salary which (i) is currently in the amount of $200,698 and (ii) may
be increased from time to time during the Term hereof in accordance with
the Company's practices and procedures regarding employee salaries.
(b) Bonus. For each calendar year, or part, of the Term., the Executive shall
be eligible to participate in the United Defense Management Incentive Plan
(or any revision, supplement, or replacement thereof, however denominated;
hereinafter, the "Bonus Plan") and to receive thereunder a Discretionary
Bonus based upon a target bonus under such plan equal to 55% of the amount
of the Executive's Annual Base Salary.
(c) Benefits. The Executive shall be entitled to participate in the other
employee benefit plans, programs, and arrangements of the Company now or
hereafter in effect which are applicable to the senior officers of the
Company, subject to and on a basis consistent with the terms, conditions,
and overall administration
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thereof, including but not limited to the United Defense Stock Option
Plan, the Company's Qualified and Non-qualified Pension Plans, the
Company's Qualified and Non-qualified Thrift Plans, the Executive Health
Plan, the Short-Term and Long-Term Disability Plans, life insurance, and
the Company's program and practices regarding vacations, personal days,
and paid holidays.
(d) Expenses. The Company shall reimburse the Executive for all reasonable
travel and other business expenses incurred by him in the performance of
his duties to the Company, in accordance with the Company's expense
reimbursement policy.
Section 6. Termination.
The Executive's employment hereunder may be terminated by the Company or the
Executive, as applicable, without any breach of this Agreement only under the
following circumstances:
(a) (i) Death. The Executive's employment hereunder shall terminate upon his
death.
(ii) Disability. If the Company determines in good faith that the
Executive has incurred a Disability, the Company may give the
Executive written notice of its intention to terminate the
Executive's employment. In such event, the Executive's employment
with the Company shall terminate effective on the 30th day after
receipt of such notice by the Executive, provided that within 30
days after such receipt, the Executive shall not have returned to
full-time performance of his duties. The Executive shall continue to
receive his Annual Base Salary until the Date of Termination.
(iii) Cause. The Company may terminate the Executive's employment
hereunder for Cause.
(iv) Good Reason. The Executive may terminate his employment for Good
Reason.
(v) Without Cause. The Company may terminate the Executive's employment
hereunder without Cause.
(vi) Resignation without Good Reason. The Executive may resign his
employment without Good Reason upon sixty (60) days prior written
notice to the Company. Any retirement by Executive after age 55 and
upon sixty (60) days prior written notice shall also constitute
Resignation without Good Reason hereunder.
(b) Notice of Termination. Any termination of the Executive's employment by
the Company or by the Executive under this Section 6, other than
termination pursuant to Subsection 6(a)(i), shall be communicated by
written notice to the
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other party hereto indicating the specific termination provision in this
Agreement relied upon, setting forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the
Executive's employment under the provision so indicated, and specifying a
Date of Termination which, except in the case. of termination for Cause,
shall be at least fourteen days following the date of such notice (a
"Notice of Termination").
Section 7. Severance Payments.
(a) Termination without Cause or for Good Reason. If the Executive's
employment shall terminate without Cause pursuant to Subsection 6(a)(v)
above, or for Good Reason pursuant to Section 6(a)(iv) above, the Company
shall:
(i) pay to the Executive, following the Date of Termination, an amount
equal to the Annual Base Salary that the Executive would have been
entitled to receive had he continued his employment hereunder for a
period of 2 years (the "Severance Period"), such payment to be made
as follows:
(A) if, within eighteen (18) months prior to the Date of
Termination, no Corporate Transaction has occurred, then the
Annual Base Salary amounts for the Severance Period shall be
paid over the duration of the Severance Period in accordance
with the Company's regular payroll practice for salaried
employees; or
(B) if, within eighteen (18) months prior to the Date of
Termination, a Corporate Transaction has occurred, then the
Annual Base Salary amounts for the Severance Period shall be
paid, at Executive's election, either in a lump sum within
thirty (30) days following the Date of Termination, or in the
manner specified by Subsection 7(a)(i)(A) above; and
(ii) pay to the Executive a prorated Discretionary Bonus for that portion
of the calendar year in which the Date of Termination occurred
during which the Executive was employed by the Company (i.e., the
period commencing January 1 of such year and ending on the Date of
Termination), calculated at the higher of the target bonus or the
bonus payable upon actual results in accordance with the Bonus Plan,
such payment to be made at the time the actual results calculation
with respect to such year is regularly made by the Company under the
Bonus Plan; and
(iii) pay to the Executive, following the Date of Termination, a
Discretionary Bonus for the Severance Period, consisting of the
target bonus for each year of the Severance Period, such payments to
be made as follows:
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(A) if, within eighteen (18) months prior to the Date of
Termination, no Corporate Transaction has occurred, then the
Discretionary Bonus shall be paid pro rata on a monthly basis
over the duration of the Severance Period; or.
(B) if, within eighteen (18) months prior to the Date of
Termination, a Corporate Transaction has occurred, then the
Discretionary Bonus for all portions of the Severance Period
shall be paid, at Executive's election, either within thirty
(30) days following the Date of Termination, or in the manner
specified by Subsection 7(a)(iii)(A) above and
(iv) continue, for the remainder of the Severance Period, Executive's
coverage under all Company welfare benefit plans and programs in
which the Executive was entitled to participate immediately prior to
the Date of Termination, at the same premium cost, and at the same
coverage level, as in effect immediately preceding the Date of
Termination. However, in the event the premium cost shall change for
all employees of the Company, or for management employees with
respect to supplemental benefits, the cost shall change for
Executive in a corresponding manner.
The payments required by Subsections 7(a)(i), 7(a)(ii), and 7(a)(iii)
above shall be in lieu of any payments to which Executive would otherwise
be entitled under the Company's general severance policy pertaining to
reductions in force.
(b) Pension and Retirement Benefits. In the event that Executive's employment
is terminated under the circumstances contemplated by Subsection 7(a)
above, the Company shall, either under this Agreement or via the
Non-Qualified Pension Plan, make such payments at such times and in such
amounts as necessary to produce the same chronological sequence and amount
of payments which Executive would have been eligible in the context of
such termination to receive under the UDLP Employees Pension Plan (the
"Pension Plan") and other retirement benefit plans, were the terms of the
Pension Plan and/or such other plans to include the following features:
(i) period of service includes both actual credited service thereunder and
the Severance Period, such total service period to be used for calculating
the commencement of Executive's pension eligibility and the credited
service which is used in calculating the amount of Executive's pension;
(ii) Executive's age, as used in all calculations under the Pension Plan
affecting Executive's pension eligibility and pension amount, shall be
deemed to consist of his actual age plus the Severance Period; (iii) the
Severance Period, and Executive's income during such period as paid
pursuant to Subsection 7(a)(i), shall be included in the calculation base
for Executive's "final average yearly earnings" under the Pension Plan;
and (iv) any termination under Subsection 7(a) shall render the "rule of
65" applicable to Executive under the Pension Plan.
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(c) Tax Indemnification. With respect to any payment(s) made to Executive
under this Section 7 or otherwise and any accelerated vesting and/or
exercise of stock options under the United Defense Stock Option Plan, and
only in the event that any thereof result in the assertion by the Internal
Revenue Service ("IRS") that Executive is liable under Section 280G and/or
4999 of the Internal Revenue Code of 1986, as amended (the "Code") for the
payment of an excise tax on socalled "excess parachute payments" under
such Code sections, or for any other tax or imposition, however
denominated, and whether federal, state, or local, in addition to or
excess of ordinary income tax rates (any such tax being hereinafter
referred to as an "EPP Tax"), then the Company shall indemnify and hold
harmless Executive from and against any such demand or assertion from the
IRS or any other taxing authority, by (i) paying to Executive an amount
sufficient to cover both such asserted EPP Tax and any income or other tax
payable by Executive on or on account of receiving such indemnification
payment, and/or (ii) at the Company's sole election, contesting, at the
Company's expense and with counsel and/or other advisors of the Company's
choosing, the applicability or amount of such EPP Tax with the IRS or
other taxing authority, in which event Executive shall cooperate as
reasonably requested by the Company in any such proceeding.
(d) Survival. The expiration or termination of the Term of Employment shall
not impair the rights or obligations of any party hereto which shall have
accrued hereunder prior to such expiration.
Section 8. Competition.
(a) Executive shall not, at any time during the Term, and, if Executive's
employment is terminated by the Executive not for Good Reason, or by the
Company for Cause, then during the thirty-six (36) month period following
such Date of Termination, without the prior written consent of the Board,
directly or indirectly engage in, or have any interest in or manage or
operate any Competitor (as such term is defined in the last sentence of
this Subsection 8(a)), whether such engagement occurs in the capacity of a
director, officer, employee, agent, representative, partner, security
holder, consultant, or otherwise; provided, however, that Executive shall
be perm itted to acquire a stock interest in such a corporation provided
such stock is publicly traded and the stock so acquired is not more than
one percent of the outstanding shares of such corporation. As used in the
preceding sentence, "Competitor" shall mean any business organization,
whether in corporate, partnership, or other form, and whether located in
the United States or elsewhere, which, as of Executive's Date of
Termination, is established as either a prime contractor or major
subcontractor (i.e., accounting for at least 25% of the prime contract
value) on any military program for the design or production of armored
tracked vehicles or naval guns or naval missile launchers.
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(b) In the event that the provisions of Subsection 8(a) shall be determined by
any court of competent jurisdiction to be unenforceable by reason of its
extending for too great a period of time or over too great a geographical
area or by reason of its being too extensive in any other respect, then
such provisions shall be interpreted to extend only over the maximum
period of time for which it may be enforceable, and/or over the maximum
geographical area as to which it may be enforceable, and/or to the maximum
extent in all other respects as to which it may be enforceable, all as
determined by such court in such action.
Section 9. Nondisclosure of Proprietary Information.
(a) Except as required in the faithful performance of the Executive's duties
hereunder or pursuant to Subsection 9(c) below, Executive shall, in
perpetuity, maintain in confidence and shall not directly or indirectly
use, disseminate, disclose, or publish, or use for his benefit or the
benefit of any person, firm, corporation, or other entity any confidential
or proprietary information or trade secrets of or relating to the Company,
including, without limitation, information with respect to the Company's
operations, processes, products, inventions, business practices, finances,
principals, vendors, suppliers, customers, potential customers, marketing
methods, costs, prices, contractual relationships, regulatory sums,
compensation paid to employees or other terms of employment, or deliver to
any person, firm, corporation or other entity any document, record,
notebook, computer program, or similar repository of or containing any
such confidential or proprietary information or trade secrets. The parties
hereby stipulate and agree that as between them the foregoing matters are
important, material, confidential, and proprietary information and trade
secrets and affect the successful conduct of the business of the Company.
(b) Upon termination of Executive's employment with Company for any reason,
the Executive shall promptly deliver to the Company all correspondence,
drawings, manuals, letters, notes, notebooks, reports, programs, plans,
proposals, financial documents, or any other documents which either
concern the Company's customers, business plans, marketing strategies,
products, or processes, or which contain proprietary information or trade
secrets of the Company.
(c) Executive may respond to a lawful and valid subpoena or other legal
process seeking any of the information or material referred to in
Subsection 9(a) or 9(b) above, but shall give the Company the earliest
possible notice thereof, and shall, as much in advance of the return date
as possible, make available to the Company and its counsel the documents
and other information sought and shall assist such counsel in resisting or
otherwise responding to such process.
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10. Injunctive Relief.
The Executive recognizes and acknowledges that a breach of the covenants
contained in Sections 8 and 9 would cause irreparable damage to Company and its
goodwill, the exact amount of which would be difficult or impossible to
ascertain, and that the remedies at law for any such breach would be inadequate.
Accordingly, Executive agrees that in the event of a breach of any of the
covenants contained in Sections 8 and 9, in addition to any other remedy which
may be available at law or in equity, the Company shall be entitled to specific
performance and injunctive relief.
11. Successors and Assigns.
This Agreement shall be binding upon and inure to the benefit of the Company,
the Executive, and their respective successors, assigns, personnel and legal
representatives, executors, administrators, heirs, distributees, devisees, and
legatees, as applicable, provided however that Executive acknowledges that this
Agreement is a personal services contract and is therefore not assignable by
Executive.
12. Governing Law.
This Agreement shall be governed, construed, interpreted, and enforced in
accordance with the laws of the State of Delaware.
13. Validity.
The invalidity or unenforceability of any provision or provisions of his
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement, which shall remain in full force and effect.
14. Notices.
Any notice, request, claim, demand, document, or other communication hereunder
to any party shall be effective upon receipt (or refusal of receipt) and shall
be in writing and delivered personally or sent by telex, telecopy, or certified
or registered mail, postage prepaid, as follows:
(a) If to the Company,
United Defense, L.P.
1525 Wilson Boulevard,
Suite 700
Arlington, VA 22209
Attention: General Counsel
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(b) If to the Executive, to him at the address set forth below under his
signature on the last page of this Agreement;
or to any other address as any party shall have specified for itself by notice
in writing to the other parties..
Section 15. Counterparts.
This Agreement may be executed in several counterparts, each of which shall be
deemed to be an original, but all of which together will constitute one and the
same Agreement, which shall be sufficiently evidenced by any one of such
original counterparts.
Section 16. Scope of Agreement.
The terms of this Agreement are intended by the parties to constitute the final
expression of their agreement with respect to the employment of the Executive by
the Company and may not be contradicted by evidence of any prior or
contemporaneous agreement. The parties further intend that this Agreement shall
constitute the complete and exclusive statement of its terms and that no
extrinsic evidence whatsoever may be introduced in any judicial, administrative,
or other legal proceeding to vary the terms of this Agreement. The parties also
recognize that each of them has or may have rights, powers, and obligations
arising under or with respect to various employee benefit plans, programs,
and/or policies of the Company and/or its subsidiaries, including but not
limited to (i) the United Defense Stock Option Plan (the "Option Plan") and any
Stock Option Agreement(s) between the Company and Executive in connection with
the Option Plan; (ii) the United Defense Industries, Inc. Employee Equity
Purchase Plan (the "Equity Plan") and documentation related thereto; (iii) any
Stockholders Agreement(s) among Executive, the Company, and Iron Horse
Investors, L.L.C. entered into in connection with the Equity Plan, the Option
Plan, or otherwise; (iv) the so-called enhanced stock purchase plan under the
Equity Plan, including any Promissory Notes(s) and/or Stock Pledge and Security
Agreement(s) entered into in connection therewith; (v) the United Defense
Employees Thrift Plan (also known as the 401(k) Plan) -and the ULDP Supplemental
Retirement and Savings Plan (the latter being also known as the Non-Qualified
Thrift Plan); and (vi) the UDLP Employees Pension Plan, into which the UDLP
Salaried Employees Pension Plan was merged effective January 1, 1999, and the
Non-Qualified Pension Plan. As to all such plans, programs, and policies
referred to in the preceding sentence (collectively, the "Other Company Plans"),
the Company and Executive intend and agree that, except as specifically provided
in this Agreement, neither the existence, provisions, operation, nor enforcement
of this Agreement shall in any way impair, alter, of vary either (i) the terms
and conditions of any of the Other Company Plans, or (ii) the respective rights,
powers, and obligations of the Company or the Executive under any of the Other
Company Plans.
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Section 17. Amendments and Waivers.
This Agreement may not be modified, amended, or terminated except by an
instrument in writing, signed by the Executive and the President and Chief
Executive Officer. No. right or power under this Agreement, including but not
limited to any right of termination by either party under Section 6, shall be
waived except by an instrument in 'writing, signed by the party whose right or
power is thereby being waived. No such waiver shall operate as a waiver of, or
estoppel with respect to, any other or subsequent failure. No failure to
exercise and no delay in exercising any right, remedy, or power hereunder shall
preclude any other or further exercise of such or any other right, remedy, or
power provided herein or by law or in equity.
Section 18. No Inconsistent Actions.
The parties hereto shall not voluntarily undertake or fail to undertake any
action or course of action inconsistent with the provisions or essential intent
of this Agreement. Furthermore, it is the intent of the parties hereto to act in
a fair and reasonable manner with respect to the interpretation and application
of the provisions of this Agreement.
Section 19. Arbitration.
Any dispute or controversy arising under or in connection with this Agreement
shall be settled exclusively by arbitration, conducted before a panel of three
arbitrators in Wilmington, Delaware, in accordance with the rules of the
American Arbitration Association then in effect. Judgment may be entered on the
arbitrator's award in any court having jurisdiction; provided however, that the
Company shall be entitled to seek a restraining order or injunction in any court
of competent jurisdiction to prevent any continuation of any violation of the
provisions of Sections 8 or 9 of this Agreement and the Executive hereby
consents that such restraining order or injunction may be granted without the
necessity of the Company's posting any bond; and provided further that the
Executive shall be entitled to seek specific performance of his right to be paid
until the Date of Termination during the pendency of any dispute or controversy
arising under or in connection with this Agreement. The fees and expenses of the
arbitrators shall be borne- by the Company.
Section 20. Stockholder Approval
This Agreement shall become effective when signed, but shall be submitted for
approval of the Company's stockholders within three (3) months after the date of
the Board's initial authorization for this Agreement. If such approval has not
been obtained by the end of such period, any payments to be made under Section 7
hereof shall be reduced to the maximum amount which, when aggregated with all
other payments which are Is parachute payments" as defined in Code Section 280G,
would not exceed 2.99 times the Executive's "base amount" as defined in Code
Section 280G. The
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Company intends to seek such approval as contemplated by Section
280G(b)(5)(A)(ii) of the Internal Revenue Code of 1986, as amended, and the
regulations thereunder. Executive shall cooperate as requested by the Company in
seeking any stockholder approval(s) of or with respect to this Agreement.
Section 21. Executive Compensation Agreement.
This agreement supersedes all provisions of the Executive Compensation Agreement
dated June 30, 1997 to which Executive and the United Defense, L.P. are parties,
which agreement shall be of no further force or effect.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date and
year first above written.
United Defense Industries, Inc.
By: /s/ Thomas W. Rabaut
--------------------------
Name: Thomas W. Rabaut
Title: President CEO
Executive
/s/ Frederick M. Strader
-------------------------------
Name: Frederick M. Strader
Address: 6800 Indian Hills Road
Edina, Minnesota 55439
13
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT, AGREEMENT, dated and effective as of May 21, 1999 (the
("Agreement"), is made by and between United Defense Industries-, Inc., a
Delaware corporation (the "Company"), and Peter C. Woglom (the "Executive").
WHEREAS, it is the desire of the Company to assure itself of the services of the
Executive by engaging the Executive to perform such services under the terms
hereof; and
WHEREAS, the Executive desires to commit himself to serve the Company on the
terms herein provided;
NOW THEREFORE, in consideration of the foregoing and of the respective covenants
and agreements set forth below, the parties hereto agree as follows:
Section 1. Certain Definitions.
(a) "Annual Base Salary" shall have the meaning set forth in Subsection 5
(b) "Board" shall mean the Board of Directors of the Company or any Committee
thereof duly created or authorized by the Board to act in its behalf.
(c) The Company shall have "Cause" to terminate the Executive's employment
hereunder upon Executive's
(i) failure substantially to perform his duties hereunder, other than
any such failure resulting from the Executive's Disability, after
notice and reasonable opportunity for cure, all as determined by the
Board;
(ii) conviction of a felony or a crime involving moral turpitude; or
(iii) fraud or personal dishonesty involving the Company's assets.
(d) "Company" shall have the meaning set forth in the preamble hereto. (e)
"Corporate Transaction" shall mean any of the following events:
(i) a merger or consolidation of the Company or any Controlled Entity
with a theretofore unaffiliated entity in which the stockholders or
interestholders, of the Company or Controlled Entity (as applicable)
receive cash, securities and/or other marketable property in
exchange for their voting stock or partnership interests;
<PAGE>
(ii) the sale, transfer, exchange or other disposition of all or
substantially all of the assets of the Company or any Controlled
Entity;
(iii) the acquisition by an unaffiliated Person, of (i) more than 50% of
the Common Stock then outstanding or (ii) more than 50% of the
voting stock or partnership interests of any Controlled Entity then,
outstanding; or
(iv) the liquidation, dissolution, or winding up of the Company or any
Controlled Entity, other than a restructuring transaction which
results in the continuation of the Company's or Controlled Entity's
(as applicable) business by an Affiliate.
As used in this Subsection 1 (e), "Controlled Entity" shall mean UDLP
Holdings Corp. and/or United Defense, L. P.; "Affiliate" shall mean, with
respect to the Company or either Controlled Entity, any Person which,
prior to such Corporate Transaction, was directly or indirectly
controlling, controlled by, or under common control with such entity,
where "control" shall have the meaning given such term under Rule 405 of
the Securities Act; and "Person" shall mean any individual, corporation,
partnership, limited liability company, business trust, joint stock
company, trust, unincorporated association, joint venture, governmental
authority, or other entity of whatever nature.
(f) "Date of Termination" shall mean (i) if the Executive's employment is
terminated by his death, the date of his death, or (ii) if the Executive's
employment is terminated pursuant to any other provision of Subsection
6(a), the date specified in the Notice of Termination.
(g) "Disability" shall mean the absence of the Executive from the Executive's
duties to the Company on a full-time basis for a total of six (6) months
during any twelve (12) month period as a result of incapacity due to any
injury or to mental or physical illness which is determined to be
reasonably likely to extend beyond the completion of the Term by a
physician selected by the Company and acceptable to the Executive or the
Executive's legal representative (such agreement as to acceptability not
to be withheld unreasonably).
(h) "Discretionary Bonus" shall have the meaning set forth in Subsection 5(b).
Any Discretionary Bonus shall be paid no later than fifteen (15) business
days following completion of the financial statements which permit
calculation of the amount thereof.
(i) "Effective Date" shall mean the date first set forth in the preamble
hereto.
(j) "Executive" shall have the meaning set forth in the preamble hereto.
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<PAGE>
(k) The Executive shall have "Good Reason" to terminate his employment in the
event that the Company either (i) fails to make any payment or provide any
benefit hereunder or commits a material breach of this Agreement and does
not cure such failure or breach after notice and a reasonable opportunity
to cure, or (ii) gives to the Executive a notice of non-extension under
Subsection 2(b). The characteristics, attributes, and elements of
Executive's employment and compensation set forth in sections 2 through 7
hereof shall each constitute a material undertaking of the Company to
Executive under this Agreement.
(1) "Notice of Termination" shall have the meaning set forth in Subsection
6(b).
(m) "Severance Period" shall have the meaning set forth in Subsection 7(a)(i).
(n) "Term" shall have the meaning set forth in Subsection 2(b).
Section 2. Employment.
(a) The Company shall employ the Executive and the Executive shall work in the
employ of the Company for the period set forth in this Section 2, in the
position or positions set forth in Section 3, and upon the other terms and
conditions herein provided. The initial term of employment under this
Agreement (the "Initial Term") shall be for the period beginning on the
Effective Date and ending on December 31, 2001, unless earlier terminated
as provided in Section 6.
(b) The employment term hereunder shall automatically be extended for
successive one year periods ("Extension Terms," and, collectively with the
Initial Term, the "Term") unless either party gives notice of
non-extension to the other no later than 90 days prior to the expiration
of the then-applicable Term.
Section 3. Position and Duties.
(a) The Executive shall serve as the Vice President and General Manager,
Ground Systems Division of the Company and of its principal subsidiaries,
UDLP Holdings Corp., a Delaware corporation, and United Defense, L.P., a
Delaware limited partnership. In such capacity, the Executive shall have
such customary responsibilities, d " duties and authority as may from time
to time be assigned to the Executive by the President and Chief Executive
Officer; provided, however, that Executive's responsibilities and
authority shall not be reduced, without his prior written consent, below
the level and range thereof prevailing as of the Effective Date of this
Agreement. The Executive shall devote substantially all his working time
and efforts to the business and affairs of the Company and its
subsidiaries. The Executive shall not be required to perform any of his
duties in a manner inconsistent with applicable law or the Company's Code
of Ethics and Standards of Conduct.
(b) If elected or appointed thereto, and only for the duration of such elected
term or
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<PAGE>
appointment, Executive shall, in addition to the position(s) set forth in
Subsection 3(a) above, serve as a director of the Company and/or any of
its subsidiaries, and/or in one or more executive offices of any other
subsidiaries of the Company, provided that the Executive is indemnified
for serving in any and all such capacities on a basis consistent with that
provided by the Company to other directors of the Company or similarly
situated executive officers of any such other entities.
(c) In addition to the ongoing responsibilities of the Executive's position(s)
identified in Subsection 3(a) above, Executive specifically acknowledges
and agrees that his responsibilities under this Agreement shall include
assisting, as directed by the President and Chief Executive Officer, in
the evaluation, preparation, and/or consummation of any sale, merger,
consolidation, or other change of control or ownership of the Company
(collectively, a "Corporate Transaction") as may be desired by the
Company's majority owner. Such assistance shall include, without
limitation, the preparation and production of materials and records of
interest to a potential acquirer; participation in meetings and
presentations regarding the Company and its business with any potential
acquirer; assisting the Company in providing materials and information to,
and/or participating in meetings with and presentations to any
governmental agency or agencies which may have a jurisdictional or other
appropriate interest in a Corporate Transaction; and the preparation and
production of any materials required in order to consummate any Corporate
Transaction in which the Company may agree.
Section 4. Place of Performance.
In connection with his employment during the Term, the Executive shall be based
in York, Pennsylvania.
Section 5. Compensation and Related Matters.
(a) Annual Base Salary. During the Term, the Executive shall receive an Annual
Base Salary which (i) is currently in the amount of $239,130 and (ii) may
be increased from time to time during the Term hereof in accordance with
the Company's practices and procedures regarding employee salaries.
(b) Bonus. For each calendar year, or part, of the Term, the Executive shall
be eligible to participate in the United Defense Management Incentive Plan
(or any revision, supplement, or replacement thereof, however denominated;
hereinafter, the "Bonus Plan") and to receive thereunder a Discretionary
Bonus based upon a target bonus under such plan equal to 55% of the amount
of the Executive's Annual Base Salary.
(c) Benefits. The Executive shall be entitled to participate in the other
employee benefit plans, programs, and arrangements of the Company now or
hereafter in effect which are applicable to the senior officers of the
Company, subject to and on a basis consistent with the terms, conditions,
and overall administration
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<PAGE>
thereof, including but not limited to the United Defense Stock Option
Plan, the Company's Qualified and Non-qualified Pension Plans, the
Company's Qualified and Non-qualified Thrift Plans, the Executive Health
Plan, the Short-Term and Long-Term Disability Plans, life insurance, and
the Company's program and practices regarding vacations, personal days,
and paid holidays.
(d) Expenses. The Company shall reimburse the Executive for all reasonable
travel and other business expenses incurred by him in the performance of
his duties to the Company, in accordance with the Company's expense
reimbursement policy.
Section 6. Termination.
The Executive's employment hereunder may be terminated by the Company or the
Executive, as applicable, without any breach of this Agreement only under the
following circumstances:
(a) (i) Death. The Executive's employment hereunder shall terminate upon his
death.
(ii) Disability If the Company determines in good faith that the
Executive has incurred a Disability, the Company may give the
Executive written notice of its intention to terminate the
Executive's employment. In such event, the Executive's employment
with the Company shall terminate effective on the 30th day after
receipt of such notice by the Executive, provided that within 30
days after such receipt, the Executive shall not have returned to
full-time performance of his duties. The Executive shall continue to
receive his Annual Base Salary until the Date of Termination.
(iii) Cause. The Company may terminate the Executive's employment
hereunder for Cause.
(iv) Good Reason. The Executive may terminate his employment for Good
Reason.
(v) Without Cause. The Company may terminate the Executive's employment
hereunder without Cause.
(vi) Resignation without Good Reason. The Executive may resign his
employment without Good Reason upon sixty (60) days prior written
notice to the Company. Any retirement by Executive after age 55 and
upon sixty (60) days prior written notice shall also constitute
Resignation without Good Reason hereunder.
(b) Notice of Termination. Any termination of the Executive's employment by
the Company or by the Executive under this Section 6, other than
termination pursuant to Subsection 6(a)(i), shall be communicated by
written notice to the
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other party hereto indicating the specific termination provision in this
Agreement relied upon, setting forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the
Executive's employment under the provision so indicated, and specifying a
Date of Termination which, except in the case of termination for Cause,
shall be at least fourteen days following the date of such notice (a
"Notice of Termination"),
Section 7. Severance Payments.
(a) Termination without Cause or for Good Reason. If the Executive's
employment shall terminate without Cause pursuant to Subsection 6(a)(v)
above, or for Good Reason pursuant to Section 6(a)(iv) above, the Company
shall:
(i) pay to the Executive, following the Date of Termination, an amount
equal to the Annual Base Salary that the Executive would have been
entitled to receive had he continued his employment hereunder for a
period of 2 years (the "Severance Period"), such payment to be made
as follows:
(A) if, within eighteen (18) months prior to the Date of
Termination, no Corporate Transaction has occurred, then the
Annual Base Salary amounts for the Severance Period shall be
paid over the duration of the Severance Period in accordance
with the Company's regular payroll practice for salaried
employees; or
(B) if, within eighteen (18) months prior to the Date of
Termination, a Corporate Transaction has occurred, then the
Annual Base Salary amounts for the Severance Period shall be
paid, at Executive's election, either in a lump sum within
thirty (30) days following the Date of Termination, or in the
manner specified by Subsection 7(a)(i)(A) above; and
(ii) pay to the Executive a prorated Discretionary Bonus for that portion
of the calendar year in which the Date of Termination occurred
during which the Executive was employed by the Company (i.e., the
period commencing January 1 of such year and ending on the Date of
Termination), calculated at the higher of the target bonus or the,
bonus payable upon actual results in' accordance with the Bonus
Plan, such payment to be made at the time the actual results
calculation with respect to such year is regularly made by the
Company under the Bonus Plan; and
(iii) pay to the Executive, following the Date of Termination, a
Discretionary Bonus for the Severance Period, consisting of the
target bonus for each year of the Severance Period, such payments to
be made as follows:
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<PAGE>
(A) if, within eighteen (18) months prior to the Date of
Termination, no Corporate Transaction has occurred, then the
Discretionary Bonus shall be paid pro rata on a monthly basis
over the duration of the Severance Period; or,
(B) if, within eighteen (18) months prior to the Date of
Termination, a Corporate Transaction has occurred, then the
Discretionary Bonus for all portions of the Severance Period
shall be paid, at Executive's election, either within thirty
(30) days following the Date of Termination, or in the manner
specified by Subsection 7(a)(iii)(A) above and
(iv) continue, for the remainder of the Severance Period, Executive's
coverage under all Company welfare benefit plans and programs in
which the Executive was entitled to participate immediately prior to
the Date of Termination, at the same premium cost, and at the same
coverage level, as in effect immediately preceding the Date of
Termination. However, in the event the premium cost shall change for
all employees of the Company, or for management employees with
respect to supplemental benefits, the cost shall change for
Executive in a corresponding manner.
The payments required by Subsections 7(a)(i), 7(a)(ii), and 7(a)(iii)
above shall be in lieu of any payments to which Executive would otherwise
be entitled under the Company's general severance policy pertaining to
reductions in force.
(b) Pension and Retirement Benefits. In the event that Executive's employment
is terminated under the circumstances contemplated by Subsection 7(a)
above, the Company shall, either under this Agreement or via the
Non-Qualified Pension Ran, make such payments at such times and in such
amounts as necessary to produce the same chronological sequence and amount
of payments which Executive would have been eligible in the context of
such termination to receive under the UDLP Employees Pension Plan (the
"Pension Plan") and other retirement benefit plans, were the terms of the
Pension Plan and/or such other plans to include the following features:
(i) period of service includes both actual credited service thereunder
and. the Severance Period, such total service period to be used for
calculating the commencement of Executive's pension eligibility and the
credited service which is used in calculating the amount of Executive's
pension; (ii) Executive's age, as used in all calculations under the
Pension Plan affecting Executive's pension eligibility and pension amount,
shall be deemed to consist of his actual age plus the Severance Period;
(iii) the Severance Period, and Executive's income during such period as
paid pursuant to Subsection 7(a)(i), shall be included in the calculation
base for Executive's "final average yearly earnings" under the Pension
Plan; and (iv) any termination under Subsection 7(a) shall render the
"rule of 65" applicable to Executive under the Pension Plan.
7
<PAGE>
(c) Tax Indemnification. With respect to any payment(s) made to Executive
under this Section 7 or otherwise and any accelerated vesting and/or
exercise of stock options under the United Defense Stock Option Plan, and
only in the event that any thereof result in the assertion by the Internal
Revenue Service ("IRS") that Executive is liable under Section 280G and/or
4999 of the Internal Revenue Code of 1986, as amended (the "Code") for the
payment of an excise tax on socalled "excess parachute payments" under
such Code sections, or for any other tax or imposition, however
denominated, and whether federal, state, or local, in addition to or
excess of ordinary income tax rates (any such tax being hereinafter
referred to as an "EPP Tax"), then the Company shall indemnify and hold
harmless Executive from and against any such demand or assertion from the
IRS or any other taxing authority, by (i) paying to Executive an amount
sufficient to cover both such asserted EPP Tax and any income or other tax
payable by Executive on or on account of receiving such indemnification
payment, and/or (ii) at the Company's sole election, contesting, at the
Company's expense and with counsel and/or other advisors of the Company's
choosing, the applicability or amount of such EPP Tax with the IRS or
other taxing authority, in which event Executive shall cooperate as
reasonably requested by the Company in any such proceeding.
(d) Survival. The expiration or termination of the Term of Employment shall
not impair the rights or obligations of any party hereto which shall have
accrued hereunder prior to such expiration.
Section 8. competition.
(a) Executive shall not, at any time during the Term, and, if Executive's
employment is terminated by the Executive not for Good Reason, or by the
Company for Cause, then during the thirty-six (36) month period following
such Date of Termination, without the prior written consent of the Board,
directly or indirectly engage in, or have any interest in or manage or
operate any Competitor (as such term is defined in the last sentence of
this Subsection 8(a)), whether such engagement occurs in the capacity of a
director, officer, employee, . agent, representative, partner, security
holder, consultant, or otherwise; provided, however, that Executive shall
be permitted to acquire a stock interest in such a corporation provided
such stock is publicly traded and the stock so acquired is not more than
one percent of the outstanding shares of such corporation. As used in the
preceding sentence, "Competitor" shall mean any business organization,
whether in corporate, partnership, or other form, and whether located in
the United States or elsewhere, which, as of Executive's Date of
Termination, is established as either a prime contractor or major
subcontractor (i.e., accounting for at least 25% of the prime contract
value) on any military program for the design or production of armored
tracked vehicles or naval guns or naval missile launchers.
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<PAGE>
(b) In the event that the provisions of Subsection 8(a) shall be determined by
any court of competent jurisdiction to be unenforceable by reason of its
extending for too great a period of time or over too great a geographical
area or by reason of its being too. extensive in any other respect, then
such provisions shall be. interpreted to extend only over the maximum
period of time for which it may be enforceable, and/or over the maximum
geographical area as to which it may be enforceable, and/or to the maximum
extent in all other respects as to which it may be enforceable, all as
determined by such court in such action.
Section 9. Nondisclosure of Proprietary Information.
(a) Except as required in the faithful performance of the Executive's duties
hereunder or pursuant to Subsection 9(c) below, Executive shall, in
perpetuity, maintain in confidence and shall not directly or indirectly
use, disseminate, disclose, or publish, or use for his benefit or the
benefit of any person, firm, corporation, or other entity any confidential
or proprietary information or trade secrets of or relating to the Company,
including, without limitation, information with respect to the Company's
operations, processes, products, inventions, business practices, finances,
principals, vendors, suppliers, customers, potential customers, marketing
methods, costs, prices, contractual relationships, regulatory sums,
compensation paid to employees or other terms of employment, or deliver to
any person, firm, corporation or other entity any document, record,
notebook, computer program, or similar repository of or containing any
such confidential or proprietary information or trade secrets. The parties
hereby stipulate and agree that as between them the foregoing matters are
important, material, confidential, and proprietary information and trade
secrets and affect the successful conduct of the business of the Company.
(b) Upon termination of Executive's employment with Company for any reason,
the Executive shall promptly deliver to the Company all correspondence,
drawings, manuals, letters, notes, notebooks, reports, programs, plans,
proposals, financial documents, or any other documents which either
concern the Company's customers, business plans, marketing strategies,
products, or processes, or which contain proprietary information or trade
secrets of the Company.
(c) Executive may respond to a lawful and valid subpoena or other legal
process seeking any of the information or material referred to in
Subsection 9(a) or 9(b) above, but shall give the Company the earliest
possible notice thereof, and shall, as much in advance of the return date
as possible, make available to the Company and its counsel the documents
and other information sought and shall assist such counsel in resisting or
otherwise responding to such process.
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10. Injunctive Relief.
The Executive recognizes and acknowledges that a breach of the covenants
contained in Sections. 8 and 9 would cause irreparable damage to Company and.
its goodwill, the exact amount of which would be, difficult or impossible . to'
ascertain, and that the executive remedies at law for any such breach would be
inadequate. Accordingly, Exe * . agrees that in the event of a breach of any of
the covenants contained in Sections 8 and 9, in addition to any other remedy
which may be available at law or in equity, the Company shall be entitled to
specific performance and injunctive relief.
11. Successors and Assigns.
This Agreement shall be binding upon and inure to the benefit of the Company,
the Executive, and their respective successors, assigns, personnel and legal
representatives, executors, administrators, heirs, distributees, devisees, and
legatees, as applicable, provided however that Executive acknowledges that this
Agreement is a personal services contract and is therefore not assignable by
Executive.
12. Governing Law.
This Agreement shall be governed, construed, interpreted, and enforced in
accordance with the laws of the State of Delaware.
13. Validity.
The invalidity or unenforceability of any provision or provisions of his
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement, which shall remain in full force and effect.
14. Notices.
Any notice, request, claim, demand, document, or other communication hereunder
to any party shall be effective upon receipt (or refusal of receipt) and shall
be in writing and delivered personally or sent by telex, telecopy, or certified
or, registered mail, postage prepaid, as follows:
(a) If to the Company,
United Defense, L.P.
1525 Wilson Boulevard,
Suite 700
Arlington, VA 22209
Attention: General Counsel
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(b) If to the Executive, to him at the address set forth below under his
signature on the last page of this Agreement; or. to any other address as
any party shall have specified for itself by notice in writing to the
other parties.
Section 15. Counterparts.
This Agreement may be executed in several counterparts, each of which shall be
deemed to be an original, but all of which together will constitute one and the
same Agreement, which shall be sufficiently evidenced by any one of such
original counterparts.
Section 16. Scope of Agreement.
The terms of this Agreement are intended by the parties to constitute the final
expression of their agreement with respect to the employment of the Executive by
the Company and may not be contradicted by evidence of any prior or
contemporaneous agreement. The parties further intend that this Agreement shall
constitute the complete and exclusive statement of its terms and that no
extrinsic evidence whatsoever may be introduced in any judicial, administrative,
or other legal proceeding to vary the terms of this Agreement. The parties also
recognize that each of them has or may have rights, powers, and obligations
arising under or with respect to various employee benefit plans, programs,
and/or policies of the Company and/or its subsidiaries, including but not
limited to (i) the United Defense Stock Option Plan (the "Option Plan") and any
Stock Option Agreement(s) between the Company and Executive in connection with
the Option Plan; (ii) the United Defense Industries, Inc. Employee Equity
Purchase Plan (the "Equity Plan") and documentation related thereto; (iii) any
Stockholders Agreement(s) among Executive, the Company, and Iron Horse
Investors, L.L.C. entered into in connection with the Equity Plan, the Option
Plan, or otherwise; (iv) the so-called enhanced stock purchase plan under the
Equity Plan, including any Promissory Notes(s) and/or Stock Pledge and Security
Agreement(s) entered into in connection therewith; (v) the United Defense
Employees Thrift Plan (also known as the 401 (k) Plan) and the ULDP Supplemental
Retirement and Savings Plan (the latter being also known as the Non-Qualified
Thrift Plan); and (vi) the UDLP Employees Pension Plan, into which the UDLP
Salaried Employees Pension Plan was merged effective January 1, 1999, and the
Non-Qualified Pension Plan. As to all such plans, programs, and policies
referred to in the preceding sentence (collectively, the "Other Company Plans"),
the Company and Executive intend and agree that, except as specifically provided
in this Agreement, neither the existence, provisions, operation, nor enforcement
of this Agreement shall in any way impair, alter, of vary either (i) the terms
and conditions of any of the Other Company Plans, or (ii) the respective rights,
powers, and obligations of the Company or the Executive under any of the Other
Company Plans.
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Section 17. Amendments and Waivers.
This Agreement may not be modified, amended, or terminated except by an
instrument in writing, signed by -the Executive and the President and Chief
Executive Officer. No right or power under this Agreement, including but not
limited to any . right of termination by either party under Section 6, shall be
waived except by an instrument in writing, signed by the party whose right or
power is thereby being waived. No such waiver shall operate as a waiver of, or
estoppel with respect to, any other or subsequent failure. No failure to
exercise and no delay in exercising any right, remedy, or power hereunder shall
preclude any other or further exercise of such or any other right, remedy, or
power provided herein or by law or in equity.
Section 18. No Inconsistent Actions.
The parties hereto shall not voluntarily undertake or fail to undertake any
action or course of action inconsistent with the provisions or essential intent
of this Agreement. Furthermore, it is the intent of the parties hereto to act in
a fair and reasonable manner with respect to the interpretation and application
of the provisions of this Agreement.
Section 19. Arbitration.
Any dispute or controversy arising under or in connection with this Agreement
shall be settled exclusively by arbitration, conducted before a panel of three
arbitrators in Wilmington, Delaware, in accordance with the rules of the
American Arbitration Association then in effect. Judgment may be entered on the
arbitrator's award in any court having jurisdiction; provided however, that the
Company shall be entitled to seek a restraining order or injunction in any court
of competent jurisdiction to prevent any continuation of any violation of the
provisions of Sections 8 or 9 of this Agreement and the Executive hereby
consents that such restraining order or injunction may be granted without the
necessity of the Company's posting any bond; and provided further that the
Executive shall be entitled to seek specific performance of his right to be paid
until the Date of Termination during the pendency of any dispute or controversy
arising under or in connection with this Agreement. The fees and expenses of the
arbitrators shall be borne by the Company.
Section 20. Stockholder Approval
This Agreement shall become effective when signed, but shall be submitted for
approval of the Company's stockholders within three (3) months after the date of
the Board's initial authorization for this Agreement. If such approval has not
been obtained by the end of such period, any payments to be made under Section 7
hereof shall be reduced to the maximum amount which, when aggregated with all
other payments which are "parachute payments" as defined in Code Section 280G,
would not exceed 2.99 times the Executive's "base amount" as defined in Code
Section 280G. The
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Company intends to seek such approval as contemplated by Section
280G(b)(5)(A)(ii) of the Internal Revenue Code of 1986, as amended, and the
regulations thereunder. Executive shall cooperate as requested by the Company in
seeking any stockholder approval(s) of or with respect to this Agreement.
Section 21. Executive Compensation Agreement.
This agreement supersedes all provisions of the Executive Compensation Agreement
dated June 30, 1997 to which Executive and the United Defense, L.P. are parties,
which agreement shall be of no further force or effect.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date and
year first above written.
United Defense Industries, Inc.
By: /s/ Thomas W. Rabaut
----------------------------
Name: Thomas W. Rabaut
Title: President CEO
Executive
/s/ Peter C. Woglom
--------------------------------
Name: Peter C. Woglom
Address: 1335 Hilltop Place
York, Pennsylvania 17403
13
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT, dated and effective as of May 21, 1999 (the
"Agreement"), is made by and between United Defense Industries, Inc., a Delaware
corporation (the "Company"), and David V. Kolovat (the' "Executive").
WHEREAS, it is the desire of the Company to assure itself of the services of the
Executive by engaging the Executive to perform such services under the terms
hereof; and
WHEREAS, the Executive desires to commit himself to serve the Company on the
terms herein provided;
NOW THEREFORE, in consideration of the foregoing and of the respective covenants
and agreements set forth below, the parties hereto agree as follows:
Section 1. Certain Definitions.
(a) "Annual Base Salary" shall have the meaning set forth in Subsection 5 (a).
(b) "Board" shall mean the Board of Directors of the Company or any Committee
thereof duly created or authorized by the Board to act in its behalf.
(c) The Company shall have "Cause" to terminate the Executive's employment
hereunder upon Executive's
(i) failure substantially to perform his duties hereunder, other than
any such failure resulting from the Executive's Disability, after
notice and reasonable opportunity for cure, all as determined by the
Board;
(ii) conviction of a felony or a crime involving moral turpitude; or
(iii) fraud or personal dishonesty involving the Company's assets.
(d) "Company" shall have the meaning set forth in the preamble hereto.
(e) "Corporate Transaction" shall mean any of the following events:
(i) a merger or consolidation of the Company or any Controlled Entity
with a theretofore unaffiliated entity in which the stockholders or
interestholders of the Company or Controlled Entity (as applicable)
receive cash, securities and/or other marketable property in
exchange for their voting stock or partnership interests;
<PAGE>
(ii) the sale, transfer, exchange or other disposition of all or
substantially all of the assets of the Company or any Controlled
Entity;
(iii) the acquisition by an unaffiliated Person, of (i) more than 50% of
the Common Stock then outstanding or (ii) more than 50% of the
voting stock or partnership interests of any Controlled Entity then
outstanding; or
(iv) the liquidation, dissolution, or winding up of the Company or any
Controlled Entity, other than a restructuring transaction which
results in the continuation of the Company's or Controlled Entity's
(as applicable) business by an Affiliate.
As used in this Subsection 1(e), "Controlled Entity" shall mean UDLP
Holdings Corp. and/or United Defense, L. P.; "Affiliate" shall mean, with
respect to the Company or either Controlled Entity, any Person which,
prior to such Corporate Transaction, was directly or indirectly
controlling, controlled by, or under common control with such entity,
where "control" shall have the meaning given such term under Rule 405 of
the Securities Act; and "Person" shall mean any individual, corporation,
partnership, limited liability company, business trust, joint stock
company, trust, unincorporated association, joint venture, governmental
authority, or other entity of whatever nature.
(f) "Date of Termination" shall mean (i) if the Executive's employment is
terminated by his death, the date of his death, or (ii) if the Executive's
employment is terminated pursuant to any other provision of Subsection
6(a), the date specified in the Notice of Termination.
(g) "Disability" shall mean the absence of the Executive from the Executive's
duties to the Company on a full-time basis for a total of six (6) months
during any twelve (12) month period as a result of incapacity due to any
injury or to mental or physical illness which is determined to be
reasonably likely to extend beyond the completion of the Term by a
physician selected by the Company and acceptable to the Executive or the
Executive's legal representative (such agreement as to acceptability not
to be withheld unreasonably).
(h) "Discretionary Bonus" shall have the meaning set forth in Subsection 5(b).
Any Discretionary Bonus shall be paid no later than fifteen (15) business
days following completion of the financial statements which permit
calculation of the amount thereof.
(i) "Effective Date" shall mean the date first set forth in the preamble
hereto.
(j) "Executive" shall have the meaning set forth in the preamble hereto.
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(k) The Executive shall have "Good Reason" to terminate his employment in the
event that the Company either (i) fails to make any payment or provide any
benefit hereunder or commits a material breach of this Agreement and does
not cure such failure or breach after notice and a reasonable opportunity
to cure, or (ii) gives to the Executive a notice of non-extension under
Subsection 2(b). The characteristics, attributes, and elements of
Executive's employment and compensation set forth in sections 2 through 7
hereof shall each constitute a material undertaking of the Company to
Executive under this Agreement.
(1) "Notice of Termination" shall have the meaning set forth in Subsection
6(b).
(m) "Severance Period" shall have the meaning set forth in Subsection 7(a)(i).
(n) "Term" shall have the meaning Set forth in Subsection 2(b).
Section 2. Employment.
(a) The Company shall employ the Executive and the Executive shall work in the
employ of the Company for the period set forth in this Section 2, in the
position or positions set forth in Section 3, and upon the other terms and
conditions herein provided. The initial term of employment under this
Agreement (the "Initial Term") shall be for the period beginning on the
Effective Date and ending on December 31, 2001, unless earlier terminated
as provided in Section 6.
(b) The employment term hereunder shall automatically be extended for
successive one year periods ("Extension Terms," and, collectively with the
Initial Term, the "Term") unless either party gives notice of
non-extension to the other no later than 90 days prior to the expiration
of the then-applicable Term.
Section 3. Position and Duties.
(a) The Executive shall serve as the Vice President, General Counsel, and
Secretary of the Company and of its principal subsidiaries, UDLP Holdings
Corp., a Delaware corporation, and United Defense, L.P., a Delaware
limited partnership. In such capacity, the Executive shall have such
customary responsibilities, duties, and authority as may from time to time
be assigned to the Executive by the President and Chief Executive Officer;
provided, however, that Executive's responsibilities and authority shall
not be reduced, without his prior written consent, below the level and
range thereof prevailing as of the Effective Date of this Agreement. The
Executive shall devote substantially all his working time and efforts to
the business and affairs of the Company and its subsidiaries. The
Executive shall not be required to perform any of his duties in a manner
inconsistent with applicable law or the Company's Code of Ethics and
Standards of Conduct.
(b) If elected or appointed thereto, and only for the duration of such elected
term or
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appointment, Executive shall, in addition to the position(s) set forth in
Subsection 3(a) above, serve as a director of the Company and/or any of
its subsidiaries, and/or in one or more executive offices of any other
subsidiaries of the Company, provided that the Executive is indemnified
for serving in any and all such capacities on a basis consistent with that
provided by the Company to other directors of the Company or similarly
situated executive e officers of any such other entities.
(c) In addition to the ongoing responsibilities of the Executive's position(s)
identified in Subsection 3(a) above, Executive specifically acknowledges
and agrees that his responsibilities under this Agreement shall include
assisting, as directed by the President and Chief Executive Officer, in
the evaluation, preparation, and/or consummation of any sale, merger,
consolidation, or other change of control or ownership of the Company
(collectively, a "Corporate Transaction") as may be desired by the
Company's majority owner. Such assistance shall include, without
limitation, the preparation and production of materials and records of
interest to a potential acquirer; participation in meetings and
presentations regarding the Company and its business with any potential
acquirer; assisting the Company in providing materials and information to,
and/or participating in meetings with and presentations to any
governmental agency or agencies which may have a -jurisdictional or other
appropriate interest in a Corporate Transaction; and the preparation and
production of any materials required in order to consummate any Corporate
Transaction in which the Company may agree.
Section 4. Place of Performance.
In connection with his employment during the Term, the Executive shall be based
in Arlington, Virginia.
Section 5. Compensation and Related Matters.
(a) Annual Base Salary. During the Term, the Executive shall receive an Annual
Base Salary which (i) is currently in the amount of $203,562 and (ii) may
be increased from time to time during the Term hereof in accordance with
the Company's practices and procedures regarding employee salaries.
(b) Bonus. For each calendar year, or part, I of the Term, the Executive shall
be eligible to participate in the United Defense Management Incentive Plan
(or any revision, supplement, or replacement thereof, however denominated;
hereinafter, the "Bonus Plan") and to receive thereunder a Discretionary
Bonus based upon a target bonus under such plan equal to 36% of the amount
of the Executive's Annual Base Salary.
(c) Benefits. The Executive shall be entitled to participate in the other
employee benefit plans, programs, and arrangements of the Company now or
hereafter in effect which are applicable to the senior officers of the
Company, subject to and on a basis consistent with the terms, conditions,
and overall administration
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thereof, including but not limited to the United Defense Stock Option
Plan, the Company's Qualified and Non-qualified Pension Plans, the
Company's Qualified and Non-qualified Thrift Plans, the Executive Health
Plan, the Short-Term and Long-Term Disability Plans, life insurance, and
the Company's program and practices regarding vacations, personal days,
and paid holidays.
(d) Expenses. The Company shall reimburse the Executive for all reasonable
travel and other business expenses incurred by him in the performance of
his duties to the Company, in accordance with the Company's expense
reimbursement policy.
Section 6. Termination.
The Executive's employment hereunder may be terminated by the Company or the
Executive, as applicable, without any breach of this Agreement only under the
following circumstances:
(a) (i) Death. The Executive's employment hereunder shall terminate
upon his death.
(ii) Disability If the Company determines in good faith that the
Executive has incurred a Disability, the Company may give the
Executive written notice of its intention to terminate the
Executive's employment. In such event, the Executive's employment
with the Company shall terminate effective on the 30th day after
receipt of such notice by the Executive, provided that within 30
days after such receipt, the Executive shall not have returned to
full-time performance of his duties. The Executive shall continue to
receive his Annual Base Salary until the Date of Termination.
(iii) Cause. The Company may terminate the Executive's employment
hereunder for Cause.
(iv) Good Reason. The Executive may terminate his employment for Good
Reason.
(v) Without Cause,. The Company may terminate the Executive's employment
hereunder without Cause.
(vi) Resignation without Good Reason. The Executive may resign his
employment without Good Reason upon sixty (60) days prior written
notice to the Company. Any retirement by Executive after age 55 and
upon sixty (60) days prior written notice shall also constitute
Resignation without Good Reason hereunder.
(b) Notice of Termination. Any termination of the Executive's employment by
the Company or by the Executive under this Section 6, other than
termination pursuant to Subsection 6(a)(i), shall be communicated by
written notice to the
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other party hereto indicating the specific termination provision in this
Agreement relied upon, setting forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the
Executive's employment under the provision so indicated, and specifying a
Date of Termination which, except in the case of termination for Cause,
shall be at least fourteen days following the date of such notice (a
"Notice-of Termination").
Section 7. Severance Payments.
(a) Termination without Cause or for Good Reason. If the Executive's
employment shall terminate without Cause pursuant to Subsection 6(a)(v)
above, or for Good Reason pursuant to Section 6(a)(iv) above, the Company
shall:
(i) pay to the Executive, following the Date of Termination, an amount
equal to the Annual Base Salary that the Executive would have been
entitled to receive had he continued his employment hereunder for a
period of 2 years (the "Severance Period"), such payment to be made
as follows:
(A) if, within eighteen (18) months prior to the Date of
Termination, no Corporate Transaction has occurred, then the
Annual Base Salary amounts for the Severance Period shall be
paid over the duration of the Severance Period in accordance
with the Company's regular payroll practice for salaried
employees; or
(B) if, within eighteen (18) months prior to the Date of
Termination, a Corporate Transaction has occurred, then the
Annual Base Salary amounts for the Severance Period shall be
paid, at Executive's election, either in a lump sum within
thirty (30) days following the Date of Termination, or in the
manner specified by Subsection 7(a)(i)(A) above; and
(ii) pay to the Executive a prorated Discretionary Bonus for that portion
of the calendar year in which the Date of Termination occurred
during which the Executive was employed by the Company (i.e., the
period commencing January 1 of such year and ending on the Date of
Termination), calculated at the higher of the target bonus or the
bonus payable upon actual results in accordance with the Bonus Plan,
such payment to be made at the time the actual results calculation
with respect to such year is regularly made by the Company under the
Bonus Plan; and
(iii) pay to the Executive, following the Date of Termination, a
Discretionary Bonus for the Severance Period, consisting of the
target bonus for each year of the Severance Period, such payments to
be made as follows:
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(A) if, within eighteen (18) months prior to the Date of
Termination, no Corporate Transaction has occurred, then the
Discretionary Bonus shall be paid pro rata on a monthly basis
over the duration of the Severance Period; or
(B) if, within eighteen (18) months prior to the Date of
Termination, a Corporate Transaction has occurred, then the
Discretionary Bonus for all portions of the Severance Period
shall be paid, at Executive's election, either within thirty
(30) days following the Date of Termination, or in the manner
specified by Subsection 7(a)(iii)(A) above; and
(iv) continue, for the remainder of the Severance Period, Executive's
coverage under all Company welfare benefit plans and programs in
which the Executive was entitled to participate immediately prior to
the Date of Termination, at the same premium cost, and at the same
coverage level, as in effect immediately preceding the Date of
Termination. However, in the event the premium cost shall change for
all employees of the Company, or for management employees with
respect to supplemental benefits, the cost shall change for
Executive in a corresponding manner.
The payments required by Subsections 7(a)(i), 7(a)(ii), and 7(a)(iii)
above shall be in lieu of any payments to which Executive would otherwise
be entitled under the Company's general severance policy pertaining to
reductions in force.
(b) Pension and Retirement Benefits. In the event that Executive's employment
is terminated under the circumstances contemplated by Subsection 7(a)
above, the Company shall, either under this Agreement or via the
Non-Qualified Pension Plan, make such payments at such times and in such
amounts as necessary to produce the same chronological sequence and amount
of payments which Executive would have been eligible in the context of
such termination to receive under the UDLP Employees Pension Plan (the
"Pension Plan") and other retirement benefit plans, were the terms of the
Pension Plan and/or such other plans to include the following features:
(i) period of service includes both actual credited service thereunder and
the Severance Period, such total service period to be used for calculating
the commencement of Executive's pension eligibility and the credited
service which is used in calculating the amount of Executive's pension;
(ii) Executive's age, as used in all calculations under the Pension Plan
affecting Executive's pension eligibility and pension amount, shall be
deemed to consist of his actual age plus the Severance Period; (iii) the
Severance Period, and Executive's income during such period as paid
pursuant to Subsection 7(a)(i), shall be included in the calculation base
for Executive's "final average yearly earnings" under the Pension Plan;
and (iv) any termination under Subsection 7(a) shall render the "rule of
65" applicable to Executive under the Pension Plan.
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(c) Tax Indemnification. With respect to any payment(s) made to Executive
under this Section 7 or otherwise and any accelerated vesting and/or
exercise of stock options under the United Defense Stock Option Plan, and
only in the event that any thereof result in the assertion by the Internal
Revenue Service, ("IRS") that Executive is liable under Section 280G
and/or 4999 of. the Internal Revenue Code of 1986, as amended (the "Code")
for the payment of an excise tax on socalled "excess parachute payments"
under such Code sections, or for any other tax or imposition, however
denominated, and whether federal, state, or local, in addition to or
excess of ordinary income tax rates (any such tax being hereinafter
referred to as an "EPP Tax"), then the Company shall indemnify and hold
harmless Executive from and against any such demand or assertion from the
IRS or any other taxing authority, by (i) paying to Executive an amount
sufficient to cover both such asserted EPP Tax and any income or other tax
payable by Executive on or on account of receiving such indemnification
payment, and/or (ii) at the Company's sole election, contesting, at the
Company's expense and with counsel and/or other advisors of the Company's
choosing, the applicability or amount of such EPP Tax with the IRS or
other taxing authority, in which event Executive shall cooperate as
reasonably requested by the Company in any such proceeding.
(d) Survival. The expiration or termination of the Term of Employment shall
not impair the rights or obligations of any party hereto which shall have
accrued hereunder prior to such expiration.
Section 8. Competition.
(a) Executive shall not, at any time during the Term, and, if Executive's
employment is terminated by the Executive not for Good Reason, or by the
Company for Cause, then during the thirty-six (36) month period following
such Date of Termination, without the prior written consent of the Board,
directly or indirectly engage in, or have any interest in or manage or
operate any Competitor (as such term is defined in the last sentence of
this Subsection 8(a)), whether such engagement occurs in the capacity of a
director, officer, employee, -agent, representative, partner, security
holder, consultant, or otherwise; provided, however, that Executive shall
be permitted to acquire a stock interest in such a corporation provided
such stock is publicly traded and the stock so acquired is not more than
one percent of the outstanding shares of such corporation. As used in the
preceding sentence, "Competitor" shall mean any business organization,
whether in corporate, partnership, or other form, and whether located in
the United States or elsewhere, which, as of Executive's Date of
Termination, is established as either a prime contractor or major
subcontractor (i.e., accounting for at least 25% of the prime contract
value) on any military program for the design or production of armored
tracked vehicles or naval guns or naval missile launchers.
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(b) In the event that the provisions of Subsection 8(a) shall be determined by
any court of competent jurisdiction to be unenforceable by reason of its
extending for too great a period of time or over too great a geographical
area or by reason of its being too extensive in any other respect, then
such provisions shall be interpreted to extend only -over the maximum
period of time for which* it may be enforceable, and/or over the maximum
geographical area as to which it may be enforceable, and/or to the maximum
extent in all other respects as to which it may be enforceable, all as
determined by such court in such action.
Section 9. Nondisclosure of Proprietary Information.
(a) Except as required in the faithful performance of the Executive's duties
hereunder or pursuant to Subsection 9(c) below, Executive shall, in
perpetuity, maintain in confidence and shall not directly or indirectly
use, disseminate, disclose, or publish, or use for his benefit or the
benefit of any person, firm, corporation, or other entity any confidential
or proprietary information or trade secrets of or relating to the Company,
including, without limitation, information with respect to the Company's
operations, processes, products, inventions, business practices, finances,
principals, vendors, suppliers, customers, potential customers, marketing
methods, costs, prices, contractual relationships, regulatory sums,
compensation paid to employees or other terms of employment, or deliver to
any person, firm, corporation or other entity any document, record,
notebook, computer program, or similar repository of or containing any
such confidential or proprietary information or trade secrets. The parties
hereby stipulate and agree that as between them the foregoing matters are
important, material, confidential, and proprietary information and trade
secrets and affect the successful conduct of the business of the Company .
(b) Upon termination of Executive's employment with Company for any reason,
the Executive shall promptly deliver to the Company all correspondence,
drawings, manuals, letters, notes, notebooks, reports, programs, plans,
proposals, financial documents, or any other documents which either
concern the Company's customers, business plans, marketing strategies,
products, or processes, or which contain proprietary information or trade
secrets of the Company.
(c) Executive may respond to a lawful and valid subpoena or other legal
process seeking any of the information or material referred to in
Subsection 9(a) or 9(b) above, but shall give the Company the earliest
possible notice thereof, and shall, as much in advance of the return date
as possible, make available to the Company and its counsel the documents
and other information sought and shall assist such counsel in resisting or
otherwise responding to such process.
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10. Injunctive Relief.
The Executive recognizes and acknowledges that a breach of the covenants
contained in. Sections 8 and 9 would cause irreparable damage to Company and its
goodwill, the exact amount of which would be difficult or impossible to
ascertain, and that the remedies at law for any such breach would be inadequate.
Accordingly, Executive agrees that in. the event of a breach of any of the
covenants contained in Sections 8 and 9, in addition to any other remedy which
may be available at law or in equity, the Company shall be entitled to specific
performance and injunctive relief.
11. Successors and Assigns.
This Agreement shall be binding upon and inure to the benefit of the Company,
the Executive, and their respective successors, assigns, personnel and legal
representatives, executors, administrators, heirs, distributees, devisees, and
legatees, as applicable, provided however that Executive acknowledges that this
Agreement is a personal services contract and is therefore not assignable by
Executive.
12. Governing Law.
This Agreement shall be governed, construed, interpreted, and enforced in
accordance with the laws of the State of Delaware.
13. Validity.
The invalidity or unenforceability of any provision or provisions of his
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement, which shall remain in full force and effect.
14. Notices.
Any notice, request, claim, demand, document, or other communication hereunder
to any party shall be effective upon receipt (or refusal of receipt) and shall
be in writing and delivered personally or sent by telex, telecopy, or certified
or registered mail, postage prepaid, as follows:
(a) If to the Company,
United Defense, L.P.
1525 Wilson Boulevard,
Suite 700
Arlington, VA 22209
Attention: General Counsel
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(b) If to the Executive, to him at the address set forth below under his
signature on the last page of this Agreement; or to any other address as
any party shall have specified for itself by notice in writing to the
other parties.
Section 15. Counterparts.
This Agreement may be executed in several counterparts, each of which shall be
deemed to be an original, but all of which together will constitute one and the
same Agreement, which shall be sufficiently evidenced by any one of such
original counterparts.
Section 16. Scope of Agreement.
The terms of this Agreement are intended by the parties to constitute the final
expression of their agreement with respect to the employment of the Executive by
the Company and may not be contradicted by evidence of any prior or
contemporaneous agreement. The parties further intend that this Agreement shall
constitute the complete and exclusive statement of its terms and that no
extrinsic evidence whatsoever may be introduced in any judicial, administrative,
or other legal proceeding to vary the terms of this Agreement. The parties also
recognize that each of them has or may have rights, powers, and obligations
arising under or with respect to various employee benefit plans, programs,
and/or policies of the Company and/or its subsidiaries, including but not
limited to (i) the United Defense Stock Option Plan (the "Option Plan") and any
Stock Option Agreement(s) between the Company and Executive in connection with
the Option Plan; (ii) the United Defense Industries, Inc. Employee Equity
Purchase Plan (the "Equity Plan") and documentation related thereto; (iii) any
Stockholders Agreement(s) among Executive, the Company, and Iron Horse
Investors, L.L.C. entered into in connection with the Equity Plan, the Option
Plan, or otherwise; (iv) the so-called enhanced stock purchase plan under the
Equity Plan, including any Promissory Notes(s) and/or Stock Pledge and Security
Agreement(s) entered into in connection therewith; (v) the United Defense
Employees Thrift Plan (also known as the 401(k) Plan and the ULDP Supplemental
Retirement and Savings Plan (the latter being also known as the Non-Qualified
Thrift Plan); and (vi) the UDLP Employees Pension Plan, into which the UDLP
Salaried Employees Pension Plan was merged effective January 1, 1999, and the
Non-Qualified Pension Plan. As to all such plans, programs, and policies
referred to in the preceding sentence (collectively, the "Other Company Plans"),
the Company and Executive intend and agree that, except as specifically provided
in this Agreement, neither the existence, provisions, operation, nor enforcement
of this Agreement shall in any way impair, alter, of vary either (i) the terms
and conditions of any of the Other Company Plans, or (ii) the respective rights,
powers, and obligations of the Company or the Executive under any of the Other
Company Plans.
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Section 17. Amendments and Waivers.
This Agreement may not be modified, amended, or terminated except by an
instrument in writing, signed by, the Executive and the President and Chief
Executive Officer. No right or power under this Agreement, including -but not
limited to any right of termination by either party under Section 6, shall be
waived except by an instrument in writing, signed by the party whose right or
power is thereby being waived. No such waiver shall operate as a waiver of, or
estoppel with respect to, any other or subsequent failure. No failure to
exercise and no delay in exercising any right, remedy, or power hereunder shall
preclude any other or further exercise of such or any other right, remedy, or
power provided herein or by law or in equity.
Section 18. No Inconsistent Actions.
The parties hereto shall not voluntarily undertake or fail to undertake any
action or course of action inconsistent with the provisions or essential intent
of this Agreement. Furthermore, it is the intent of the parties hereto to act in
a fair and reasonable manner with respect to the interpretation and application
of the provisions of this Agreement.
Section 19. Arbitration.
Any dispute or controversy arising under or in connection with this Agreement
shall be settled exclusively by arbitration, conducted before a panel of three
arbitrators in Wilmington, Delaware, in accordance with the rules of the
American Arbitration Association then in effect. Judgment may be entered on the
arbitrator's award in any court having jurisdiction; provided however, that the
Company shall be entitled to seek a restraining order or injunction in any court
of competent jurisdiction to prevent any continuation of any violation of the
provisions of Sections 8 or 9 of this Agreement and the Executive hereby
consents that such restraining order or injunction may be granted without the
necessity of the Company's posting any bond; and provided further that the
Executive shall be entitled to seek specific performance of his right to be paid
until the Date of Termination during the pendency of any dispute or controversy
arising under or in connection with this Agreement. The fees and expenses of the
arbitrators shall be borne by the Company.
Section 20. Stockholder Approval
This Agreement shall become effective when signed, but shall be submitted for
approval of the Company's stockholders within three (3) months after the date of
the Board's initial authorization for this Agreement. If such approval has not
been obtained by the end of such period, any payments to be made under Section 7
hereof shall be reduced to the maximum amount which, when aggregated with all
other payments which are 99 parachute payments" as defined in Code Section 280G,
would not exceed 2.99 times the Executive's "base amount" as defined in Code
Section 280G. The
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Company intends to seek such approval as contemplated by Section
280G(b)(5)(A)(ii) of the Internal Revenue Code of 1986, as amended, and the
regulations thereunder. Executive shall cooperate as requested by the Company in
seeking any stockholder approval(s) of or with respect to this Agreement.
Section 21. Executive Compensation Agreement.
This agreement supersedes all provisions of the Executive Compensation Agreement
dated July 29, 1997 to which Executive and the United Defense, L.P. are parties,
which agreement shall be of no further force or effect.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date and
year first above written.
United Defense Industries, Inc.
By: /s/ Thomas W. Rabaut
----------------------------
Name: Thomas W. Rabaut
Title: President CEO
Executive
/s/ David V. Kolovat
--------------------------------
Name: David V. Kolovat
Address: 6656 Corner Lane
McLean, Virginia 22101
13
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT, dated and effective as of May 21, 1999 (the
"Agreement"), is made by and between United Defense Industries, Inc., a Delaware
corporation (the "Company"), and Francis Raborn (the "Executive").
WHEREAS, it is the desire of the Company to assure itself of the services of the
Executive by engaging the Executive to perform such services under the terms
hereof; and
WHEREAS, the Executive desires to commit himself to serve the Company on the
terms herein provided;
NOW THEREFORE, in consideration of the foregoing and of the respective covenants
and agreements set forth below, the parties hereto agree as follows:
Section 1. Certain Definitions.
(a) "Annual Base Salary" shall have the meaning set forth in Subsection 5
(b) "Board" shall mean the Board of Directors of the Company or any Committee
thereof duly created or authorized by the Board to act in its behalf.
(c) The Company shall have "Cause" to terminate the Executive's employment
hereunder upon Executive's
(i) failure substantially to perform his duties hereunder, other than
any such failure resulting from the Executive's Disability, after
notice and reasonable opportunity for cure, all as determined by the
Board;
(ii) conviction of a felony or a crime involving moral turpitude; or
(iii) fraud or personal dishonesty involving the Company's assets.
(d) "Company" shall have the meaning set forth in the preamble hereto.
(e) "Corporate Transaction" shall mean any of the following events:
(i) a merger or consolidation of the Company or any Controlled Entity
with a theretofore unaffiliated entity in which the stockholders or
interestholders of the Company or Controlled Entity (as applicable)
receive cash, securities and/or other marketable property in
exchange for their voting stock or partnership interests;
<PAGE>
(ii) the sale, transfer, exchange or other disposition of all or
substantially all of the assets of the Company or any Controlled
Entity;
(iii) the acquisition by an. unaffiliated Person, of (i) more than 50% of
the Common Stock then outstanding or (ii) more than 50% of the
voting stock or partnership interests of any Controlled Entity then
outstanding; or
(iv) the liquidation, dissolution, or winding up of the Company or any
Controlled Entity, other than a restructuring transaction which
results in the continuation of the Company's or Controlled Entity's
(as applicable) business by an Affiliate.
As used in this Subsection 1(e), "Controlled Entity" shall mean UDLP
Holdings Corp. and/or United Defense, L. P.; "Affiliate" shall mean, with
respect to the Company or either Controlled Entity, any Person which,
prior to such Corporate Transaction, was directly or indirectly
controlling, controlled by, or under common control with such entity,
where "control" shall have the meaning given such term under Rule 405 of
the Securities Act; and "Person if shall mean any individual, corporation,
partnership, limited liability company, business trust, joint stock
company, trust, unincorporated association, joint venture, governmental
authority, or other entity of whatever nature.
(f) "Date of Termination" shall mean (i) if the Executive's employment is
terminated by his death, the date of his death, or (ii) if the Executive's
employment is terminated pursuant to any other provision of Subsection
6(a), the date specified in the Notice of Termination.
(g) "Disability" shall mean the absence of the Executive from the Executive's
duties to the Company on a full-time basis for a total of six (6) months
during any twelve (12) month period as a result of incapacity due to any
injury or to mental or physical illness which is determined to be
reasonably likely to extend beyond the completion of the Term by a
physician selected by the Company and acceptable to the Executive or the
Executive's legal representative (such agreement as to acceptability not
to be withheld unreasonably).
(h) "Discretionary Bonus" shall have the meaning set forth in Subsection 5(b).
Any Discretionary Bonus shall be paid no later than fifteen (15) business
days following completion of the financial statements which permit
calculation of the amount thereof.
(i) "Effective Date" shall mean the date first set forth in the preamble
hereto.
(j) "Executive" shall have the meaning set forth in the preamble
hereto.
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(k) The Executive shall have "Good Reason" to terminate his employment in the
event that the Company either (i) fails to make any payment or provide any
benefit hereunder or commits a material breach of this Agreement and does
not cure such failure or breach after notice and a reasonable opportunity
to cure, or (ii) gives to the Executive a notice of non-extension under
Subsection 2(b). The characteristics, attributes, and elements of
Executive's employment and compensation set forth in sections 2 through 7
hereof shall each constitute a material undertaking of the Company to
Executive under this Agreement.
(1) "Notice of Termination" shall have the meaning set forth in Subsection
6(b).
(m) "Severance Period" shall have the meaning set forth in Subsection 7(a)(i).
(n) "Term" shall have the meaning set forth in Subsection 2(b).
Section 2. Employment.
(a) The Company shall employ the Executive and the Executive shall work in the
employ of the Company for the period set forth in this Section 2, in the
position or positions set forth in Section 3, and upon the other terms and
conditions herein provided. The initial term of employment under this
Agreement (the "Initial Term") shall be for the period beginning on the
Effective Date and ending on December 31, 2001, unless earlier terminated
as provided in Section 6.
(b) The employment term hereunder shall automatically be extended for
successive one year periods ("Extension Terms," and, collectively with the
Initial Term, the Term") unless either party gives notice of non-extension
to the other no later than 90 days prior to the expiration of the
then-applicable Term.
Section 3. Position and Duties.
(a) The Executive shall serve as the Chief Financial Officer of the Company
and of its principal subsidiaries, UDLP Holdings Corp., a Delaware
corporation, and United Defense, L.P., a Delaware limited partnership. In
such capacity, the Executive shall.have such customary
responsibilities, duties, and authority as may from time to time be
assigned to the Executive by the President and Chief Executive Officer;
provided, however, that Executive's responsibilities and authority shall
not be reduced, without his prior written consent, below the level and
range thereof prevailing as of the Effective Date of this Agreement. The
Executive shall devote substantially all his working time and efforts to
the business and affairs of the Company and its subsidiaries. The
Executive shall not be required to perform any of his duties in a manner
inconsistent with applicable law or the Company's Code of Ethics and
Standards of Conduct.
(b) If elected or appointed thereto, and only for the duration of such elected
term or appointment, Executive shall, in addition to the position(s) set
forth in Subsection
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3(a) above, serve as a director of the Company and/or any of its
subsidiaries, and/or in one or more executive offices of any other
subsidiaries of the Company, provided that the Executive is indemnified
for serving in any and all such capacities on a basis consistent with that
provided by the Company to other directors of the Company or similarly
situated executive officers of any such.other entities.
(c) In addition to the ongoing responsibilities of the Executive's position(s)
identified in Subsection 3(a) above, Executive specifically acknowledges
and agrees that his responsibilities under this Agreement shall include
assisting, as directed by the President and Chief Executive Officer, in
the evaluation, preparation, and/or consummation of any sale, merger,
consolidation, or other change of control or ownership of the Company
(collectively, a "Corporate Transaction") as may be desired by the
Company's majority owner. Such assistance shall include, without
limitation, the preparation and production of materials and records of
interest to a potential acquirer; participation in meetings and
presentations regarding the Company and its business with any potential
acquirer; assisting the Company in providing materials and information to,
and/or participating in meetings with and presentations to any
governmental agency or agencies which may have a jurisdictional or other
appropriate interest in a Corporate Transaction; and the preparation and
production of any materials required in order to consummate any Corporate
Transaction in which the Company may agree.
Section 4. Place of Performance.
In connection with his employment during the Term, the Executive shall be based
in Arlington, Virginia.
Section 5. Compensation and Related Matters.
(a) Annual Base Salary. During the Term, the Executive shall receive an Annual
Base Salary which (i) is currently in the amount of $208,000 and (ii) may
be increased from time to time during the Term hereof in accordance with
the Company's practices and procedures regarding employee salaries.
(b) Bonus. For each calendar year, or part, of the Term, the Executive shall
be eligible to participate in the United Defense Management Incentive Plan
(or any revision, supplement, or replacement thereof, however denominated;
hereinafter, the "Bonus Plan") and to receive thereunder a Discretionary
Bonus based upon a target bonus under such plan equal to 55% of the amount
of the Executive's Annual Base Salary.
(c) Benefits. The Executive shall be entitled to participate in the other
employee benefit plans, programs, and arrangements of the Company now or
hereafter in effect which are applicable to the senior officers of the
Company, subject to and on a basis consistent with the terms, conditions,
and overall administration thereof, including but not limited to the
United Defense Stock Option Plan, the
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<PAGE>
Company's Qualified and Non-qualified Pension Plans, the Company's
Qualified and Non-qualified Thrift Plans, the Executive Health Plan, the
Short-Term and Long-Term Disability Plans, life insurance, and the
Company's program and practices regarding vacations, personal days, and
paid holidays.
(d) Expenses. The Company shall.reimburse the Executive for all reasonable
travel and other business expenses incurred by him in the performance of
his duties to the Company, in accordance with the Company's expense
reimbursement policy.
Section 6. Termination.
The Executive's employment hereunder may be terminated by the Company or the
Executive, as applicable, without any breach of this Agreement only under the
following circumstances:
(a) (i) Death. The Executive's employment hereunder shall terminate upon his
death.
(ii) Disability. If the Company determines in good faith that the
Executive has incurred a Disability, the Company may give the
Executive written notice of its intention to terminate the
Executive's employment. In such event, the Executive's employment
with the Company shall terminate effective on the 30th day after
receipt of such notice by the Executive, provided that within 30
days after such receipt, the Executive shall not have returned to
full-time performance of his duties. The Executive shall continue to
receive his Annual Base Salary until the Date of Termination.
(iii) Cause. The Company may terminate the Executive's employment
hereunder for Cause.
(iv) Good Reason. The Executive may terminate his employment for Good
Reason.
(v) Without Cause. The Company may terminate the Executive's employment
hereunder without Cause.
(vi) Resignation without Good Reason. The Executive may resign his
employment without Good Reason upon sixty (60) days prior written
notice to the Company. Any retirement by Executive after age 55 and
upon sixty (60) days prior written notice shall also constitute
Resignation without Good Reason hereunder.
(b) Notice of Termination. Any termination of the Executive's employment by
the Company or by the Executive under this Section 6, other than
termination pursuant to Subsection 6(a)(i), shall be communicated by
written notice to the other party hereto indicating the specific
termination provision in this Agreement
5
<PAGE>
relied upon, setting forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the
Executive's employment under the provision so indicated, and specifying a
Date of Termination which, except in the case of termination for Cause,
shall be at least fourteen days following the date of such notice (a
"Notice of Termination").
Section 7. Severance Payments.
(a) Termination without Cause or for Good Reason. If the Executive's
employment shall terminate without Cause pursuant to Subsection 6(a)(v)
above, or for Good Reason pursuant to Section 6(a)(iv) above, the Company
shall:
(i) pay to the Executive, following the Date of Termination, an amount
equal to the Annual Base Salary that the Executive would have been
entitled to receive had he continued his employment hereunder for a
period of 3 years (the "Severance Period"), such payment to be made
as follows:
(A) if, within eighteen (18) months prior to the Date of
Termination, no Corporate Transaction has occurred, then the
Annual Base Salary amounts for the Severance Period shall be
paid over the duration of the Severance Period in accordance
with the Company's regular payroll practice for salaried
employees; or
(B) if, within eighteen (18) months prior to the Date of
Termination, a Corporate Transaction has occurred, then the
Annual Base Salary amounts for the Severance Period shall be
paid, at Executive's election, either in a lump sum within
thirty (30) days following the Date of Termination, or in the
manner specified by Subsection 7(a)(i)(A) above; and
(ii) pay to the Executive a prorated Discretionary Bonus for that portion
of the calendar year in which the Date of Termination occurred
during which the Executive was employed by the Company (i.e., the
period commencing January 1 of such year and ending on the Date of
Termination), calculated at the higher of the target bonus or the
bonus payable upon actual -results in accordance with the Bonus
Plan, such payment to be made at the time the actual results
calculation with respect to such year is regularly made by the
Company under the Bonus Plan; and
(iii) pay to the Executive, following the Date of Termination, a
Discretionary Bonus for the Severance Period, consisting of the
target bonus for each year of the Severance Period, such payments to
be made.as follows:
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(A) if, within eighteen (18) months prior to the Date of
Termination, no Corporate Transaction has occurred, then the
Discretionary Bonus shall be paid pro rata on a monthly basis
over the duration of the Severance Period; or
(B) if, within eighteen (18) months prior to the Date of
Termination, a Corporate Transaction has occurred, then the
Discretionary Bonus for all portions of the Severance Period
shall be paid, at Executive's election, either within thirty
(30) days following the Date of Termination, or in the manner
specified by Subsection 7(a)(iii)(A) above;and
(iv) continue, for the remainder of the Severance Period, Executive's
coverage under all Company welfare benefit plans and programs in
which the Executive was entitled to participate immediately prior to
the Date of Termination, at the same premium cost, and at the same
coverage level, as in effect immediately preceding the Date of
Termination. However, in the event the premium cost shall change for
all employees of the Company, or for management employees with
respect to supplemental benefits, the cost shall change for
Executive in a corresponding manner.
The payments required by Subsections 7(a)(i), 7(a)(ii), and 7(a)(iii)
above shall be in lieu of any payments to which Executive would otherwise
be entitled under the Company's general severance policy pertaining to
reductions in force.
(b) Pension and Retirement Benefits. In the event that Executive's employment
is terminated under the circumstances contemplated by Subsection 7(a)
above, the Company shall, either under this Agreement or via the
Non-Qualified Pension Plan, make such payments at such times and in such
amounts as necessary to produce the same chronological sequence and amount
of payments which Executive would have been eligible in the context of
such termination to receive under the UDLP Employees Pension Plan (the
"Pension Plan") and other retirement benefit plans, were the terms of the
Pension Plan and/or such other plans to include the following features:
(i) period of service includes, both--actual credited service thereunder
and the Severance Period, such total service period to be used for
calculating the commencement of Executive's pension eligibility and the
credited service which is used in calculating the amount of Executive's
pension; (ii) Executive's age, as used in all calculations under the
Pension Plan affecting Executive's pension eligibility and pension amount,
shall be deemed to consist of his actual age plus the Severance Period;
(iii) the Severance Period, and Executive's income during such period as
paid pursuant to Subsection 7(a)(i), shall be included in the calculation
base for Executive's "final average yearly earnings" under the Pension
Plan; and (iv) any termination under Subsection 7(a) shall render the
"rule of 65" applicable to Executive under the Pension Plan.
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<PAGE>
(c) Tax Indemnification. With respect to any payment(s) made to Executive
under this Section 7 or otherwise and any accelerated vesting and/or
exercise of stock options under the United Defense Stock Option Plan, and
only in the event that any thereof result in the assertion by the Internal
Revenue Service ("IRS") that Executive. is liable under Section 280G
and/or 4999 of the Internal Revenue Code of 1986, as amended (the "Code")
for the payment of an excise tax on so-called "excess parachute payments"
under such Code sections, or for any other tax or imposition, however
denominated, and whether federal, state, or local, in addition to or
excess of ordinary income tax rates (any such tax being hereinafter
referred to as an "EPP Tax"), then the Company shall indemnify and hold
harmless Executive from and against any such demand or assertion from the
IRS or any other taxing authority, by (i) paying to Executive an amount
sufficient to cover both such asserted EPP Tax and any income or other tax
payable by Executive on or on account of receiving such indemnification
payment, and/or (ii) at the Company's sole election, contesting, at the
Company's expense and with counsel and/or other advisors of the Company's
choosing, the applicability or amount of such EPP Tax with the IRS or
other taxing authority, in which event Executive shall cooperate as
reasonably requested by the Company in any such proceeding.
(d) Survival. The expiration or termination of the Term of Employment shall
not impair the rights or obligations of any party hereto which shall have
accrued hereunder prior to such expiration.
Section 8. Competition.
(a) Executive shall not, at any time during the Term, and, if Executive's
employment is terminated by the Executive not for Good Reason, or by the
Company for Cause, then during the thirty-six (36) month period following
such Date of Termination, without the prior written consent of the Board,
directly or indirectly engage in, or have any interest in or manage or
operate any Competitor (as such term is defined in the last sentence of
this Subsection 8(a)), whether such engagement occurs in the capacity of a
director, officer, employee, agent, representative, partner, security-
holder, consultant, or otherwise; provided, however, that Executive shall
be permitted to acquire a stock interest in such a corporation provided
such stock is publicly traded and the stock so acquired is not more than
one percent of the outstanding shares of such corporation. As used in the
preceding sentence, "Competitor" shall mean any business organization,
whether in corporate, partnership, or other form, and whether located in
the United States or elsewhere, which, as of Executive's Date of
Termination, is established as either a prime contractor or major
subcontractor (i.e., accounting for at least 25% of the prime contract
value) on any military program for the design or production of armored
tracked vehicles or naval guns or naval missile launchers.
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<PAGE>
(b) In the event that the provisions of Subsection 8(a) shall be determined by
any court of competent jurisdiction to be unenforceable by reason of its
extending for too great a period of time or over too great a geographical
area or by reason of .its being too extensive in any other respect, then
such provisions shall be interpreted to extend only over the
maximum period. of time for which it may be enforceable, and/or over the
maximum geographical area as to which it may be enforceable, and/or to the
maximum extent in all other respects as to which it may be enforceable,
all as determined by such court in such action.
Section 9. Nondisclosure of Proprietary Information.
(a) Except as required in the faithful performance of the Executive's duties
hereunder or pursuant to Subsection 9(c) below, Executive shall, in
perpetuity, maintain in confidence and shall not directly or indirectly
use, disseminate, disclose, or publish, or use for his benefit or the
benefit of any person, firm, corporation, or other entity any confidential
or proprietary information or trade secrets of or relating to the Company,
including, without limitation, information with respect to the Company's
operations, processes, products, inventions, business practices, finances,
principals, vendors, suppliers, customers, potential customers, marketing
methods, costs, prices, contractual relationships, regulatory sums,
compensation paid to employees or other terms of employment, or deliver to
any person, firm, corporation or other entity any document, record,
notebook, computer program, or similar repository of or containing any
such confidential or proprietary information or trade secrets. The parties
hereby stipulate and agree that as between them the foregoing matters are
important, material, confidential, and proprietary information and trade
secrets and affect the successful conduct of the business of the Company .
(b) Upon termination of Executive's employment with Company for any reason,
the Executive shall promptly deliver to the Company all correspondence,
drawings, manuals, letters, notes, notebooks, reports, programs, plans,
proposals, financial documents, or any other documents which either
concern the Company's customers, business plans, marketing strategies,
products, or processes, or which contain proprietary information or trade
secrets of the Company.
(c) Executive may respond to a lawful and valid subpoena or other legal
process seeking any of the information or material referred to in
Subsection 9(a) or 9(b) above, but shall give the Company the earliest
possible notice thereof, and shall, as much in advance of the return date
as possible, make available to the Company and its counsel the documents
and other information sought and shall assist such counsel in resisting or
otherwise responding to such process.
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10. Injunctive Relief.
The Executive recognizes and acknowledges that a breach of the covenants
contained in Sections 8 and 9 would cause irreparable damage to Company and its
goodwill, the exact amount of which would be difficult or impossible to
ascertain, and that the remedies at law for any such breach would be inadequate.
Accordingly, Executive agrees that in the event of a breach of any of the
covenants contained in Sections 8 and 9, in addition to any other remedy which
may be available at law or in equity, the Company shall be entitled to specific
performance and injunctive relief.
11. Successors and Assiqns.
This Agreement shall be binding upon and inure to the benefit of the Company,
the Executive, and their respective successors, assigns, personnel and legal
representatives, executors, administrators, heirs, distributees, devisees, and
legatees, as applicable, provided however that Executive acknowledges that this
Agreement is a personal services contract and is therefore not assignable by
Executive.
12. Governing Law.
This Agreement shall be governed, construed, interpreted, and enforced in
accordance with the laws of the State of Delaware.
13. Validity.
The invalidity or unenforceability of any provision or provisions of his
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement, which shall remain in full force and effect.
14. Notices.
Any notice, request, claim, demand, document, or other communication hereunder
to any party shall be effective upon receipt (or refusal of receipt) and shall
be in writing and delivered personally or sent by telex, telecopy, or certified
or registered mail, postage prepaid, as follows:
(a) If to the Company,
United Defense, L.P.
1525 Wilson Boulevard,
Suite 700
Arlington, VA 22209
Attention: General Counsel
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(b) If to the Executive, to him at the address set forth below under his
signature on the last page of this Agreement; or to any other address as
any party shall have specified for itself by notice in writing to the.
other parties.
Section 15. Counterparts.
This Agreement may be executed in several counterparts, each of which shall be
deemed to be an original, but all of which together will constitute one and the
same Agreement, which shall be sufficiently evidenced by any one of such
original counterparts.
Section 16. Scope of Agreement.
The terms of this Agreement are intended by the parties to constitute the final
expression of their agreement with respect to the employment of the Executive by
the Company and may not be contradicted by evidence of any prior or
contemporaneous agreement. The parties further intend that this Agreement shall
constitute the complete and exclusive statement of its terms and that no
extrinsic evidence whatsoever may be introduced in any judicial, administrative,
or other legal proceeding to vary the terms of this Agreement. The parties also
recognize that each of them has or may have rights, powers, and obligations
arising under or with respect to various employee benefit plans, programs,
and/or policies of the Company and/or its subsidiaries, including but not
limited to (i) the United Defense Stock Option Plan (the "Option Plan") and any
Stock Option Agreement(s) between the Company and Executive in connection with
the Option Plan; (ii) the United Defense Industries, Inc. Employee Equity
Purchase Plan (the "Equity Plan") and documentation related thereto; (iii) any
Stockholders Agreement(s) among Executive, the Company, and Iron Horse
Investors, L.L.C. entered into in connection with the Equity Plan, the Option
Plan, or otherwise; (iv) the so-called enhanced stock purchase plan under the
Equity Plan, including any Promissory Notes(s) and/or Stock Pledge and Security
Agreement(s) entered into in connection therewith; (v) the United Defense
Employees Thrift Plan (also known as the 401(k) Plan)'and the ULDP Supplemental
Retirement and Savings Plan (the latter being also known as the Non-Qualified
Thrift Plan); and (vi) the UDLP Employees Pension Plan, into which the UDLP
Salaried Employees Pension Plan was merged effective January 1, 1999, and the
Non-Qualified Pension Plan. As to all such plans, programs, and policies
referred to in the preceding sentence (collectively, the "Other Company Plans"),
the Company and Executive intend and agree that, except as specifically provided
in this Agreement, neither the existence, provisions, operation, nor enforcement
of this Agreement shall in any way impair, alter, of vary either (i) the terms
and conditions of any of the Other Company Plans, or (ii) the respective rights,
powers, and obligations of the Company or the Executive under any of the Other
Company Plans.
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Section 17. Amendments and Waivers.
This Agreement may not be modified, amended, or terminated except by an
instrument in writing, signed by the Executive and the President and Chief
Executive Officer. No right or power under th,is Agreement, including but not
limited! to any right of termination by either party under Section 6, shall be
waived except by an instrument in writing, signed by the party whose right or
power is thereby being waived. No such waiver shall operate as a waiver of, or
estoppel with respect to, any other or subsequent failure. No failure to
exercise and no delay in exercising any right, remedy, or power hereunder shall
preclude any other or further exercise of such or any other right, remedy, or
power provided herein or by law or in equity.
Section 18. No Inconsistent Actions.
The parties hereto shall not voluntarily undertake or fail to undertake any
action or course of action inconsistent with the provisions or essential intent
of this Agreement. Furthermore, it is the intent of the parties hereto to act in
a fair and reasonable manner with respect to the interpretation and application
of the provisions of this Agreement.
Section 19. Arbitration.
Any dispute or controversy arising under o*r in connection with this Agreement
shall be settled exclusively. by arbitration, conducted before a panel of three
arbitrators in Wilmington, Delaware, in accordance with the rules of the
American Arbitration Association then in effect. Judgment may be entered on the
arbitrator's award in any court having jurisdiction; provided however, that the
Company shall be entitled to seek a restraining order or injunction in any court
of competent jurisdiction to prevent any continuation of any violation of the
provisions of Sections 8 or 9 of this Agreement and the Executive hereby
consents that such restraining order or injunction may be granted without the
necessity of the Company's posting any bond; and provided further that the
Executive shall be entitled to seek specific performance of his right to be paid
until the Date of Termination during the pendency of any dispute or controversy
arising under or in connection with this Agreement. The fees and expenses of the
arbitrators shall be borne by the Company.
Section 20. Stockholder Approval
This Agreement shall become effective when signed, but shall be submitted for
approval of the Company's stockholders within three (3) months after the date of
the Board's initial authorization for this Agreement. If such approval has not
been obtained by the end of such period, any payments to be made under Section 7
hereof shall be reduced to the maximum amount which, when aggregated with all
other payments which are "parachute payments" as defined in Code Section 280G,
would not exceed 2.99 times the Executive's "base amount" as defined in Code
Section 280G. The
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Company intends to seek such approval as contemplated by Section
280G(b)(5)(A)(ii) of the Internal Revenue Code of 1986, as amended, and the
regulations thereunder. Executive shall cooperate as requested by the Company in
seeking any stockholder approval(s) of or with respect to this Agreement.
Section 21. Executive Compensation Aqreement.
This agreement supersedes all provisions of the Executive Compensation Agreement
dated June 30, 1997 to which Executive and the United Defense, L.P. are parties,
which agreement shall be of no further force or effect.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date and
year first above written.
United Defense Industries, Inc.
By: /s/ Thomas W. Rabaut
----------------------------
Name: Thomas W. Rabaut
Title: President CEO
Executive
/s/ Francis Raborn
--------------------------------
Name: Francis Raborn
Address: 9221 Black Riffles Court
Great Falls, Virginia 22066
13
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT, dated and effective as of May 21, 1999 (the
"Agreement"), is made by and between United Defense Industries, Inc., a Delaware
corporation (the "Company"), and Dennis A. Wagner (the "Executive").
WHEREAS, it is the desire of the Company to assure itself of the services of the
Executive by engaging the Executive to perform such services under the terms
hereof; and
WHEREAS, the Executive desires to commit himself to serve the Company on the
terms herein provided;
NOW THEREFORE, in consideration of the foregoing and of the respective covenants
and agreements set forth below, the parties hereto agree as follows:
Section 1. Certain Definitions.
(a) "Annual Base Salary" shall have the meaning set forth in Subsection 5
(b) "Board" shall mean the Board of Directors of the Company or any Committee
thereof duly created or authorized by the Board to act in its behalf.
(c) The Company shall have "Cause" to terminate the Executive's employment
hereunder upon Executive's
(i) failure substantially to perform his duties hereunder, other than
any such failure resulting from the Executive's Disability, after
notice and reasonable opportunity for cure, all as determined by the
Board;
(ii) conviction of a felony or a crime involving moral turpitude; or
(iii) fraud or personal dishonesty involving the Company's assets.
(d) "Company" shall have the meaning set forth in the preamble hereto.
(e) "Corporate Transaction" shall mean any of the following events:
(i) a merger or consolidation of the Company or any Controlled Entity
with a theretofore unaffiliated entity in which the stockholders or
interestholders of the Company or Controlled Entity (as applicable)
receive cash, securities and/or other marketable property in
exchange for their voting stock or partnership interests;
<PAGE>
(ii) the sale, transfer, exchange or other disposition of all or
substantially all of the assets of the Company or any Controlled
Entity;
(iii) the acquisition by an unaffiliated Person, of (i) more than 50% of
the Common Stock then outstanding or (ii) more than 50%.of the
voting stock or partnership interests of any Controlled Entity then
outstanding; or
(iv) the liquidation, dissolution, or winding up of the Company or any
Controlled Entity, other than a restructuring transaction which
results in the continuation of the Company's or Controlled Entity's
(as applicable) business by an Affiliate.
As used in this Subsection 1 (e), "Controlled Entity" shall mean UDLP
Holdings Corp. and/or United Defense, L. P.; "Affiliate" shall mean, with
respect to the Company or either Controlled Entity, any Person which,
prior to such Corporate Transaction, was directly or indirectly
controlling, controlled by, or under common control with such entity,
where "control" shall have the meaning given such term under Rule 405 of
the Securities Act; and "Person" shall mean any individual, corporation,
partnership, limited liability company, business trust, joint stock
company, trust, unincorporated association, joint venture, governmental
authority, or other entity of whatever nature.
(f) "Date of Termination" shall mean (i) if the Executive's employment is
terminated by his death, the date of his death, or (ii) if the Executive's
employment is terminated pursuant to any other provision of Subsection
6(a), the date specified in the Notice of Termination.
(g) "Disability" shall mean the absence of the Executive from the Executive's
duties to the Company on a full-time basis for a total of six (6) months
during any twelve (12) month period as a result of incapacity due to any
injury or to mental or physical illness which is determined to be
reasonably likely to extend beyond the completion of the Term by a
physician selected by the Company and acceptable to the Executive or the
Executive's legal representative (such agreement as to acceptability not
to be withheld unreasonably).
(h) "Discretionary Bonus" shall have the meaning set forth in Subsection 5(b).
Any Discretionary Bonus shall be paid no later than fifteen (15) business
days following completion of the financial statements which permit
calculation of the amount thereof.
(i) "Effective Date" shall mean the date first set forth in the preamble
hereto.
(j) "Executive" shall have the meaning set forth in the preamble hereto.
2
<PAGE>
(k) The Executive shall have "Good Reason" to terminate his employment in the
event that the Company either (i) fails to make any payment or provide any
benefit hereunder or commits a material breach of this Agreement and does
not cure such failure or breach after notice and a reasonable opportunity
to cure, or (ii) gives to the Executive a notice of non-extension under
Subsection 2(b). The characteristics, attributes, and elements of
Executive's employment and compensation set forth in sections 2 through 7
hereof shall each constitute a material undertaking of the Company to
Executive under this Agreement.
(1) "Notice of Termination" shall have the meaning set forth in Subsection
6(b).
(m) "Severance Period" shall have the meaning set forth in Subsection 7(a)(i).
(n) "Term" shall have the meaning set forth in Subsection 2(b).
Section 2. Employment.
(a) The Company shall employ the Executive and the Executive shall work in the
employ of the Company for the period set forth in this Section 2, in the
position or positions set forth in Section 3, and upon the other terms and
conditions herein provided. The initial term of employment under this
Agreement (the "Initial Term") shall be for the period 'beginning on the
Effective Date and ending on December 31, 2001, unless earlier terminated
as provided in Section 6.
(b) The employment term hereunder shall automatically be extended for
successive one year periods ("Extension Terms," and, collectively with the
Initial Term, the "Term") unless either party gives notice of
non-extension to the other no later than 90 days prior to the expiration
of the then-applicable Term.
Section 3. Position and Duties.
(a) The Executive shall serve as the Vice President, Business Development and
Marketing of the Company and of its principal subsidiaries, UDLP Holdings
Corp., a Delaware corporation, and United Defense, L.P., a Delaware -
limited partnership. In such capacity, the Executive shall have such
customary responsibilities, duties, and authority as may from time to time
be assigned to the Executive by the President and Chief Executive Officer;
provided, however, that Executive's responsibilities and authority shall
not be reduced, without his prior written consent, below the level and
range thereof prevailing as of the Effective Date of this Agreement. The
Executive shall devote substantially all his working time and efforts to
the business and affairs of the Company and its subsidiaries. The
Executive shall not be required to perform any of his duties in a manner
inconsistent with applicable law or the Company's Code of Ethics and
Standards of Conduct.
(b) If elected or appointed thereto, and only for the duration of such elected
term or
3
<PAGE>
appointment, Executive shall, in addition to the position(s) set forth in
Subsection 3(a) above, serve as a director of the Company and/or any of
its subsidiaries, and/or in one or more executive offices of any other
subsidiaries of the Company, provided that the Executive is indemnified
for serving in any and all such capacities on a basis consistent with that
provided- by the Company to other directors of the Company or similarly
situated executive officers' of any such other entities.
(c) In addition to the ongoing responsibilities of the Executive's position(s)
identified in Subsection 3(a) above, Executive specifically acknowledges
and agrees that his responsibilities under this Agreement shall include
assisting, as directed by the President and Chief Executive Officer in the
evaluation, preparation, and/or consummation of any sale, merger,
consolidation, or other change of control or ownership of the Company
(collectively, a "Corporate Transaction") as may be desired by the
Company's majority owner. Such assistance shall include, without
limitation, the preparation and production of materials and records of
interest to a potential acquirer; participation in meetings and
presentations regarding the Company and its business with any potential
acquirer; assisting the Company in providing materials and information to,
and/or participating in meetings with and presentations to any
governmental agency or agencies which may have a jurisdictional or other
appropriate interest in a Corporate Transaction; and the preparation and
production of any materials required in order to consummate any Corporate
Transaction in which the Company may agree.
Section 4. Place of Performance.
In connection with his employment during the Term, the Executive shall be based
in Arlington, Virginia.
Section 5. Compensation and Related Matters.
(a) Annual Base Salary. During the Term, the Executive shall receive an Annual
Base Salary which (i) is currently in the amount of $173,422 and (ii) may
be increased from time to time during the Term hereof in accordance with
the Company's practices and procedures regarding employee salaries.
(b) Bonus. For each calendar year, or part, of the Term, the Executive shall
be eligible to participate in the United Defense Management Incentive Plan
(or any revision, supplement, or replacement thereof, however denominated;
hereinafter, the "Bonus Plan") and to receive thereunder a Discretionary
Bonus based upon a target bonus under such plan equal to 55% of the amount
of the Executive's Annual Base Salary.
(c) Benefits. The Executive shall be entitled to participate in the other
employee benefit plans, programs, and arrangements of the Company now or
hereafter in effect which are applicable to the senior officers of the
Company, subject to and on a basis consistent with the terms, conditions,
and overall administration
4
<PAGE>
thereof, including but not limited to the United Defense Stock Option
Plan, the Company's Qualified and Non-qualified Pension Plans, the
Company's Qualified and Non-qualified Thrift Plans, the Executive Health
Plan, the Short-Term and Long-Term Disability Plans, life insurance, and
the Company's program and practices regarding vacations, personal days,
and paid holidays.
(d) Expenses. The Company shall reimburse the Executive for all reasonable
travel and other business expenses incurred by him in the performance of
his duties to the Company, in accordance with the Company's expense
reimbursement policy.
Section 6. Termination.
The Executive's employment hereunder may be terminated by the Company or the
Executive, as applicable, without any breach of this Agreement only under the
following circumstances:
(a) (i) Death. The Executive's employment hereunder shall terminate upon his
death.
(ii) Disability. If the Company determines in good faith that the
Executive has incurred a Disability, the Company may give the
Executive written notice of its intention to terminate the
Executive's employment. In such event, the Executive's employment
with the Company shall terminate effective on the 30th day after
receipt of such notice by the Executive, provided that within 30
days after such receipt, the Executive shall not have returned to
full-time performance of his duties. The Executive shall continue to
receive his Annual Base Salary until the Date of Termination.
(iii) Cause. The Company may terminate the Executive's employment
hereunder for Cause.
(iv) Good Reason. The Executive may terminate his employment for Good
Reason.
(v) Without Cause. The Company may terminate the Executive's employment
hereunder without Cause.
(vi) Resiqnation without Good Reason. The Executive may resign his
employment without Good Reason upon sixty (60) days prior written
notice to the Company. Any retirement by Executive after age 55 and
upon sixty (60) days prior written notice shall also constitute
Resignation without Good Reason hereunder.
(b) Notice of Termination. Any termination of the Executive's employment by
the Company or by the Executive under this Section 6, other than
termination pursuant to Subsection 6(a)(i), shall be communicated by
written notice to the
5
<PAGE>
other party hereto indicating the specific termination provision in this
Agreement relied upon, setting forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the
Executive's employment under the provision so indicated, and specifying a
Date of Termination which, except in the case of termination for Cause,
shall be at least fourteen days following the date of such notice (a
"Notice of Termination").
Section 7. Severance Payments.
(a) Termination without Cause or for Good Reason. If the Executive's
employment shall terminate without Cause pursuant to Subsection 6(a)(v)
above, or for Good Reason pursuant to Section 6(a)(iv) above, the Company
shall:
(i) pay to the Executive, following the Date of Termination, an amount
equal to the Annual Base Salary that the Executive would have been
entitled to receive had he continued his employment hereunder for a
period of 2 years (the "Severance Period"), such payment to be made
as follows:
(A) if, within eighteen (18) months prior to the Date of
Termination, no Corporate Transaction has occurred, then the
Annual Base Salary amounts for the Severance Period shall be
paid over the duration of the Severance Period in accordance
with the Company's regular payroll practice for salaried
employees; or
(B) if, within eighteen (18) months prior to the Date of
Termination, a Corporate Transaction has occurred, then the
Annual Base Salary amounts for the Severance Period shall be
paid, at Executive's election, either in a lump sum within
thirty (30) days following the Date of Termination, or in the
manner specified by Subsection 7(a)(i)(A) above; and
(ii) pay to the Executive a prorated Discretionary Bonus for that portion
of the calendar year in which the Date of Termination occurred
during which the Executive was employed by the Company (i.e., the
period commencing January 1 of such year and ending on the Date of
Termination), calculated at the higher of the target bonus or the
bonus payable upon actual results in accordance with the Bonus Plan,
such payment to be made at the time the actual results calculation
with respect to such year is regularly made by the Company under the
Bonus Plan; and
(iii) pay to the Executive, following the Date of Termination, a
Discretionary Bonus for the Severance Period, consisting of the
target bonus for each year of the Severance Period, such payments to
be made as follows:
6
<PAGE>
(A) if, within eighteen (18) months prior to the Date of
Termination, no Corporate Transaction has occurred, then the
Discretionary Bonus shall be paid pro rata on a monthly basis
over the duration of the Severance Period; or
(B) if, within eighteen (18) months prior to the Date of
Termination, a Corporate Transaction has occurred, then the
Discretionary Bonus for all portions of the Severance Period
shall be paid, at Executive's election, either within thirty
(30) days following the Date of Termination, or in the manner
specified by Subsection 7(a)(iii)(A) above;and
(iv) continue, for the remainder of the Severance Period, Executive's
coverage under all Company welfare benefit plans and programs in
which the Executive was entitled to participate immediately prior to
the Date of Termination, at the same premium cost, and at the same
coverage level, as in effect immediately preceding the Date of
Termination. However, in the event the premium cost shall change for
all employees of the Company, or for management employees with
respect to supplemental benefits, the cost shall change for
Executive in a corresponding manner.
The payments required by Subsections 7(a)(i), 7(a)(ii), and 7(a)(iii)
above shall be in lieu of any payments to which Executive would otherwise
be entitled under the Company's general severance policy pertaining to
reductions in force.
(b) Pension and Retirement Benefits. In the event that Executive's employment
is terminated under the circumstances contemplated by Subsection 7(a)
above, the Company shall, either under this Agreement or via the
Non-Qualified Pension Plan, make such payments at such times and in such
amounts as necessary to produce the same chronological sequence and amount
of payments which Executive would have been eligible in the context of
such termination to receive under the UDLP Employees Pension Plan (the
"Pension Plan") and other retirement benefit plans, were the terms of the
Pension Plan and/or such other plans to include the following features:
(i) period of service includes both- actual credited service thereunder
and the Severance Period, such total service period to be used for
calculating the commencement of Executive's pension eligibility and the
credited service which is used in calculating the amount of Executive's
pension; (ii) Executive's age, as used in all calculations under the
Pension Plan affecting Executive's pension eligibility and pension amount,
shall be deemed to consist of his actual age plus the Severance Period;
(iii) the Severance Period, and Executive's income during such period as
paid pursuant to Subsection 7(a)(i), shall be included in the calculation
base for Executive's "final average yearly earnings" under the Pension
Plan; and (iv) any termination under Subsection 7(a) shall render the
"rule of 65" applicable to Executive under the Pension Plan.
7
<PAGE>
(c) Tax Indemnification. With respect to any payment(s) made to Executive
under this Section 7 or otherwise and any accelerated vesting and/or
exercise of stock options under the United Defense Stock Option Plan, and
only in the event that ahythereof result in the assertion by the Internal
Revenue Service IRS") that Executive is liable under Section 280G and/or
4999 of the Internal Revenue Code of 1986, as amended (the "Code") for the
payment of an excise tax on socalled "excess parachute payments" under
such Code sections, or for any other tax or imposition, however
denominated, and whether federal, state, or local, in addition to or
excess of ordinary income tax rates (any such tax being hereinafter
referred to as an "EPP Tax"), then the Company shall indemnify and hold
harmless Executive from and against any such demand or assertion from the
IRS or any other taxing authority, by (i) paying to Executive an amount
sufficient to cover both such asserted EPP Tax and any income or other tax
payable by Executive on or on account of receiving such indemnification
payment, and/or (ii) at the Company's sole election, contesting, at the
Company's expense and with counsel and/or other advisors of the Company's
choosing, the applicability or amount of such EPP Tax with the IRS or
other taxing authority, in which event Executive shall cooperate as
reasonably requested by the Company in any such proceeding.
(d) Survival. The expiration or termination of the Term of Employment shall
not impair the rights or obligations of any party hereto which shall have
accrued hereunder prior to such expiration.
Section 8. Competition.
(a) Executive shall not, at any time during the Term, and, if Executive's
employment is terminated by the Executive not for Good Reason, or by the
Company for Cause, then during the thirty-six (36) month period following
such Date of Termination, without the prior written consent of the Board,
directly or indirectly engage in, or have any interest in or manage or
operate any Competitor (as such term is defined in the last sentence of
this Subsection 8(a)), whether such engagement occurs in the capacity of a
director, officer, employee, agent, representative, partner, security
holder, consultant, or otherwise; provided, however, that Executive
shall be permitted to acquire a stock interest in such a corporation
provided such stock is publicly traded and the stock so acquired is not
more than one percent of the outstanding shares of such corporation. As
used in the preceding sentence, "Competitor" shall mean any business
organization, whether in corporate, partnership, or other form, and
whether located in the United States or elsewhere, which, as of
Executive's Date of Termination, is established as either a prime
contractor or major subcontractor (i.e., accounting for at least 25% of
the prime contract value) on any military program for the design or
production of armored tracked vehicles or naval guns or naval missile
launchers.
8
<PAGE>
(b) In the event that the provisions of Subsection 8(a) shall be determined by
any court of competent jurisdiction to be unenforceable by reason of its
extending for too great a period of time or over too great a geographical
area or by reason of its being too extensive in any other respect, then
such provisions shall be interpreted to extend only over the maximum
period of time for which it may ~be enforceable, and/or over the maximum
geographical area as to which it may be enforceable, and/or to the maximum
extent in all other respects as to which it may be enforceable, all as
determined by such court in such action.
Section 9. Nondisclosure of Proprieta!y Information.
(a) Except as required in the faithful performance of the Executive's duties
hereunder or pursuant to Subsection 9(c) below, Executive shall, in
perpetuity, maintain in confidence and shall not directly or indirectly
use, disseminate, disclose, or publish, or use for his benefit or the
benefit of any person, firm, corporation, or other entity any confidential
or proprietary information or trade secrets of or relating to the Company,
including, without limitation, information with respect to the Company's
operations, processes, products, inventions, business practices, finances,
principals, vendors, suppliers, customers, potential customers, marketing
methods, costs, prices, contractual relationships, regulatory sums,
compensation paid to employees or other terms of employment, or deliver to
any person, firm, corporation or other entity any document, record,
notebook, computer program, or similar repository of or containing any
such confidential or proprietary information or trade secrets. The parties
hereby stipulate and agree that as between them the foregoing matters are
important, material, confidential, and proprietary information and trade
secrets and affect the successful conduct of the business of the Company .
(b) Upon termination of Executive's employment with Company for any reason,
the Executive shall promptly deliver to the Company all correspondence,
drawings, manuals, letters, notes, notebooks, reports, programs, plans,
proposals, financial documents, or any other documents which either
concern the Company's customers, business plans, marketing strategies,
products, or processes, or which contain proprietary information or trade
secrets of the Company.
(c) Executive may respond to a lawful and valid subpoena or other legal
process seeking any of the information or material referred to in
Subsection 9(a) or 9(b) above, but shall give the Company the earliest
possible notice thereof, and shall, as much in advance of the return date
as possible, make available to the Company and its counsel the documents
and other information sought and shall assist such counsel in resisting or
otherwise responding to such process.
9
<PAGE>
10. Injunctive Relief.
The Executive recognizes and acknowledges that .1 breach of the covenants
contained in Sections 8 and 9 would cause Irreparable damage to Company and its
goodwill, the exact amount of which would be difficult or impossible to
ascertain, and that the remedies at law for any such breach, would be
inadequate, Accordingly, Executive agrees that in the event of a breach of any
of the covenants contained in Sections 8 and 9, in addition to any other remedy
which may be available at law or in equity, the Company shall be entitled to
specific performance and injunctive relief.
11. Successors and Assigns.
This Agreement shall be binding upon and 'inure to the benefit of the Company,
the Executive, and their respective successors, assigns, personnel and legal
representatives, executors, administrators, heirs, distributees, devisees, and
legatees, as applicable, provided however that Executive acknowledges that this
Agreement Is a personal services contract and is therefore not assignable by
Executive.
12. Governing Law.
This Agreement shall be governed, construed, interpreted, and enforced in
accordance with the laws of the State of Delaware.
13. Validity.
The Invalidity or unenforceability of any provision or provisions of his
Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
14. Notices,
Any notice, request, claim, demand, document, or other communication
hereunder to any party shall be effective upon receipt (or refusal
of receipt) and shall be in writing and delivered personally or sent
by telex, telecopy, or certified or registered mail, postage
prepaid, as follows:
(a) If to the Company,
United Defense, L.P.
152-5 Wilson Boulevard,
Suite 700
Arlington, VA 22209
Attention: General Counsel
10
<PAGE>
(b) If to the Executive, to him at the address set forth below under his
signature on the last page of this Agreement;
or to any other address as any party shall have specified for itself by
notice in writing to the other parties.
Section 15. Counterparts
This Agreement may be executed in several counterparts each of which
shall be deemed to be an original, but all of which together will
constitute one and the same Agreement, which shall be sufficiently
evidenced by any one of such original counterparts.
Section 16. Scope of Agreement.
The terms of this Agreement expression of their agreement with respect to
the employment of the Executive by the Company and may not be contradicted by
evidence of any prior or contemporaneous agreement. The parties further intend
that this Agreement shall constitute the complete and e xclusive statement of
its terms and that no extrinsic evidence whatsoever may be introduced In any
judicial, administrative, or other legal proceeding to vary the terms of this
Agreement. The parties also recognize that each of them has or may have
rights, powers, and obligations arising under or with respect to various
employee benefit plans, programs, and/or policies of the Company and/or its
subsidiaries, including but not limited to (i) the United Defense Stock Option
Plan (the"'Option Plan") and any Stock Option Agreement(s) between the
Company and Executive in connection with the Option Ran; (ii) the United
Defense Industries, Inc. Employee Equity Purchase Plan (the "Equity Plan")
and documentation related thereto; (iii) any Stockholders Agreement(s) among
Executive, the Company, and Iron Horse Investors, L.L.C. entered into in
connection with the Equity Plan, the Option Plan, or otherwise; (iv) the
so-called enhanced stock purchase plan under, the Equity Plan., including any
Promissory Notes(s) and/or Stock Pledge and Security Agreement(s) entered into
in connection therewith; (v) the United Defense Employees Thrift Plan (also
known as the 401(k) Plan) and the ULDP Supplemental Retirement and Savings
Plan (the latter being also known as the Non-Qualified Thrift Plan); and (vi)
the UDLP Employees Pension Plan, into which the UDLP Salaried Employees
Pension Plan was merged effective January 1, 1999, and the Non-Qualified
Pension Plan. As to all such plans, programs, and policies referred to in the
preceding sentence (collectively, the "Other Company Plans"), the Company and
Executive intend and agree that, except as specifically provided in this
Agreement, neither the existence, provisions,. operation, nor enforcement of
this Agreement shall in any way impair, alter, of vary either (i) the terms
and conditions of any of the Other Company Plans, or (ii) the respective
rights, powers, and obligations of the Company or the Executive under any of
the Other Company Plans.
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Section 17. Amendments and Waivers.
This Agreement may not be modified, amended, or terminated except by an
instrument in writing, signed by the Executive and the President and Chief
Executive Officer. No right or power under this Agreement, including but not
limited to any right of termination by either party under Section 6, shall be
waived except by an instrument in writing, signed by the party whose right or
power is thereby being waived. No such waiver shall operate as a waiver of, or
estoppel with respect to, any other or subsequent failure. No failure to
exercise and no delay in exercising any right, remedy, or power hereunder shall
preclude any other or further exercise of such or any other right, remedy, or
power provided herein or by law or in equity.
Section 18. No Inconsistent Actions.
The parties hereto shall not voluntarily undertake or fail to undertake any
action or course of action inconsistent with the provisions or essential intent
of this Agreement. Furthermore, it is the intent of the parties hereto to act
in a fair and reasonable manner with respect to the interpretation and
application of the provisions of this Agreement.
Section 19. Arbitration.
Any dispute or controversy arising under or in connection with this Agreement
shall be settled exclusively by arbitration, conducted before a panel of three
arbitrators in Wilmington, Delaware, in accordance with the rules of the
American Arbitration Association then in effect. Judgment may be entered on the
arbitrator's award in any court having jurisdiction; provided however, that the
Company shall be entitled to seek a restraining order or injunction in any
court of competent jurisdiction to prevent any continuation of any violation of
the provisions of Sections 8 or 9 of this Agreement and the Executive hereby
consents that such restraining order or injunction may be granted without the
necessity of the Company's posting any bond; and provided further that the
Executive shall be entitled to seek specific performance of his right to be
paid until the Date of Termination during the pendency of any dispute or
controversy arising under or in connection with this Agreement. The fees and
expenses of the arbitrators shall be borne by the Company.
Section 20. Stockholder Approval
This Agreement shall become effective when signed, but shall be submitted for
approval of the Company's stockholders within three (3) months after the date
of the Board's initial authorization for this Agreement. If such approval has
not been obtained by the end of such period, any payments to be made under
Section 7 hereof shall be reduced to the maximum amount which, when aggregated
with all other payments which are a "parachute payments" as defined in Code
Section 280G, would not exceed 2.99 times the Executive's "base amount" as
defined in Code Section 280G. The
<PAGE>
Company intends to seek such approval as contemplated by Section
280G(b)(5)(A)(ii) of the Internal Revenue Code of 1986, as amended, and the
regulations thereunder. Executive shall cooperate as requested by the Company
in seeking any stockholder approval(s) of or with respect to this Agreement.
Section 21. Executive Compensation Agreement.
This agreement supersedes all provisions of the Executive Compensation
Agreement dated June 30, 1997 to which Executive and the United Defense, L.P.
are parties, which agreement shall be of no further force or effect.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date and
year first above written.
United Defense Industries, Inc.
By: /s/ Thomas W. Rabaut
-----------------------------
Name: Thomas W. Rabaut
Title: President CEO
Executive
/s/ Dennis A. Wagner
---------------------------------
Name: Dennis A. Wagner
Address: 9425 Lakeside Drive
Vienna, Virginia 22182
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