STOCK OPTION AGREEMENT
THIS AGREEMENT, dated _________________ ____, 19____, is made by and
between United Defense Industries, Inc. a Delaware corporation (the "Company"),
and ___________________, an employee of the Company (or one of its Subsidiaries,
as defined herein), hereinafter referred to as "Optionee."
WHEREAS, the Company wishes to afford the Optionee the opportunity to
purchase shares of its common stock, par value $0.01 per share (the "Common
Stock"); and
WHEREAS, the Company wishes to carry out the United Defense Stock
Option Plan (the "Plan"), the terms of which are hereby incorporated by
reference and made a part of this Agreement; and
WHEREAS, the Committee appointed to administer the Plan has determined
that it would be to the advantage and best interest of the Company and its
shareholders to grant the stock option provided for herein to the Optionee as an
inducement to enter into or remain in the service of the Company (or one of its
Subsidiaries) and as an incentive for increased efforts during such service, and
has advised the Company thereof and instructed the undersigned officers to issue
said Option;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, receipt of which is hereby
acknowledged, the parties hereto do hereby agree as follows:
ARTICLE I.
DEFINITIONS
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Whenever the following terms are used in this Agreement, they shall
have the meaning specified below unless the context clearly indicates to the
contrary. Capitalized terms used in this Agreement and not defined below shall
have the meaning given such terms in the Plan. The singular pronoun shall
include the plural, where the context so indicates.
Section 1.1. Cash Flow for Debt Amortization; Cumulative Cash Flow for Debt
Amortization
"Cash Flow for Debt Amortization" for a given period shall mean the
consolidated free cash flow of the Company and its consolidated Controlled
Entities available for, or used for, principal repayments of debt of the Company
or its Controlled Entities. "Cumulative Cash Flow for Debt Amortization" as of a
given date means the total of Cash Flow for Debt Amortization from and after
October 6, 1997 through that date.
Section 1.2. Cash Flow for Debt Amortization Target; Cumulative Cash Flow
for Debt Amortization Target
"Cash Flow for Debt Amortization Target" and "Cumulative Cash Flow for
Debt Amortization Target" for a period shall be as set forth in Appendix A to
this Agreement, subject to the provisions of Section 4.6.
Section 1.3. Controlled Entity
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"Controlled Entity" shall mean either UDLP Holdings Corp. or United
Defense, L.P., as the case may be; "Controlled Entities" shall mean both UDLP
Holdings Corp. and United Defense, L.P.
Section 1.4. Corporate Transaction
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"Corporate Transaction" shall mean any of the following events:
(a) 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;
(b) the sale, transfer, exchange or other disposition of all
or substantially all of the assets of the Company or any Controlled Entity;
(c) 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
(d) 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).
Section 1.5. EBITDA; Cumulative EBITDA; Cumulative EBITDA Excess
- ------------ ---------------------------------------------------
"EBITDA" for a given period shall mean consolidated earnings before
interest and taxes (excluding management fees) adjusted by (x) adding thereto
(without duplication) the amount of all amortization of intangibles and
depreciation and all non-cash charges in respect of LIFO adjustments and pension
and retiree benefits, in each case that were deducted in arriving at
consolidated earnings before interest and taxes for such period and (y)
subtracting therefrom the amount of all non-cash income in respect of LIFO
adjustments and pension and retiree benefit plans, all as reflected on the
Company's audited consolidated financial statements for such period. "Cumulative
EBITDA" as of a given date means the total of EBITDA from and after October 6,
1997 through that date. "Cumulative EBITDA Excess" as of a given date means the
lesser of (i) $10,000,000 or (ii) the excess, if any, of Cumulative EBITDA as of
such date over the Cumulative EBITDA Target for the period from October 6, 1997
through such date; provided, however, that if the Cumulative EBITDA Target as of
such date equals or exceeds Cumulative EBITDA as of such date, "Cumulative
EBITDA Excess" as of such date shall be zero.
Section 1.6. EBITDA Target; Cumulative EBITDA Target
- ------------ ---------------------------------------
"EBITDA Target" and "Cumulative EBITDA Target" for a period shall be as
set forth in Appendix A of this Agreement, subject to the provisions of Section
4.6.
Section 1.7. Option
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"Option" shall mean the Incentive Stock Option to purchase Common Stock
granted under this Agreement.
Section 1.8. Person
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"Person" shall mean an individual, partnership, corporation, limited
liability company, business trust, joint stock company, trust, unincorporated
association, joint venture, governmental authority or other entity of whatever
nature.
Section 1.9. Plan
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"Plan" shall mean the United Defense Stock Option Plan adopted by the
Corporation on ______, 1998, as amended from time to time.
Section 1.10. Stockholders Agreement
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"Stockholders Agreement" shall mean the Stockholders Agreement by and
among the Company, Iron Horse Investors, L.L.C., and the Optionee.
Section 1.11. Subsidiary
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"Subsidiary" of any entity shall mean any corporation in an unbroken
chain of corporations beginning with such entity if each of the corporations
other than the last corporation in the unbroken chain then owns stock possessing
50% or more of the total combined voting power of all classes of stock in one of
the other corporations in such chain.
ARTICLE II.
GRANT OF OPTION
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Section 2.1. Grant of Option
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In consideration of the Optionee's agreement to remain in the employ of
the Company and/or one or more of its Subsidiaries and for other good and
valuable consideration, on the date hereof the Company irrevocably grants to the
Optionee the Option to purchase any part or all of an aggregate of
___________________________________________ shares of Common Stock upon the
terms and conditions set forth in the Plan and this Agreement. The Option is
intended to qualify as an Incentive Stock Option under ss.422 of the Internal
Revenue Code. The Optionee hereby agrees that except as required by law, he or
she will not disclose to any person, other than the Optionee's spouse (if any),
attorney, accountant, and/or other professional advisor(s), the grant of the
Option or any of the terms or provisions hereof without the prior approval of
the Committee, and the Optionee agrees that, in the discretion of the Committee,
the Option shall terminate and any unexercised portion of such Option (whether
or not then exercisable) shall be forfeited if the Optionee violates the
non-disclosure provisions of this Section 2.1.
Section 2.2. Option Subject to Plan
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The Option granted hereunder is subject to the terms and provisions of
the Plan, including without limitation, Article V and Sections 7.1, 7.2 and 7.3
thereof.
Section 2.3. Option Price
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The purchase price of the shares of Common Stock covered by the Option
shall be $10.00 per share (without commission or other charge).
ARTICLE III.
EXERCISABILITY
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Section 3.1. Commencement of Exercisability
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Subject to subsection (g) and Section 3.3,
(a) 25% of the Option shall become exercisable in four
cumulative installments as follows:
(i) The first installment shall consist of ten
percent of the shares covered by such Option and shall become
exercisable on December 31, 1998;
(ii) The second installment shall consist of five
percent of the shares covered by such Option and shall become
exercisable on December 31, 1999;
(iii) The third installment shall consist of five
percent of the shares covered by such Option and shall become
exercisable on December 31, 2000;
(iv) The fourth installment shall consist of five
percent of the shares covered by such Option and shall become
exercisable on December 31, 2001;
(b) 75% of the Option shall become fully exercisable on the
day immediately preceding the tenth anniversary following the date of grant,
provided that the Optionee remains continuously employed in active service by
the Company from the date of grant through such date.
(c) Notwithstanding Section 3.1(b),
(i) (A) An installment consisting of 10% of the
shares covered by the Option shall become exercisable
on, or within 90 days following, the December 31 of
each calendar year 1998 through 1999 as determined by
the Committee in its sole discretion if (i) the Cash
Flow for Debt Amortization as of such December 31
equals or exceeds 50% of the Cash Flow for Debt
Amortization Target for such year, and (ii) the
Cumulative Cash Flow for Debt Amortization as of such
December 31 equals or exceeds the Cumulative Cash
Flow for Debt Amortization Target through such
December 31.
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(B) An installment consisting of 7.5% of the
shares covered by the Option shall become exercisable
within 90 days following each of December 31, 2000
through December 31, 2002 if (i) the Cash Flow for
Debt Amortization as of such December 31 equals or
exceeds 50% of the Cash Flow for Debt Amortization
Target for such calendar year, and (ii) the
Cumulative Cash Flow for Debt Amortization as of such
December 31 equals or exceeds the Cumulative Cash
Flow for Debt Amortization Target through such
December 31.
(i) If the Cumulative Cash Flow for Debt Amortization
as of the end of any calendar year 1998 through 2002 is less than the
Cumulative Cash Flow for Debt Amortization Target through the end of
such year, but Cash Flow for Debt Amortization for such year is at
least 80% of the Cash Flow for Debt Amortization Target for such year,
that portion of the Option that was subject to accelerated
exercisability pursuant to Section 3.1(c)(i) with respect to such year
shall become exercisable on, or within 90 days following, the last day
of the first calendar year ending on or prior to December 31, 2002 as
of which the Cumulative Cash Flow for Debt Amortization equals or
exceeds the Cumulative Cash Flow for Debt Amortization Target through
such December 31.
(ii) If the Cash Flow for Debt Amortization for any
calendar year 1998 through 2002 is less than 80% of the Cash Flow for
Debt Amortization Target for such year, that portion of the Option that
was subject to accelerated exercisability pursuant to Section 3.1(c)(i)
with respect to such year shall become exercisable only in accordance
with Section 3.1(b).
(d) Notwithstanding Section 3.1(b),
(i) An installment consisting of 5.0% of the shares
covered by the Option shall become exercisable within 90 days following
the December 31 of each calendar year 1998 through 1999 if the EBITDA
for the year ending on such December 31 plus the Cumulative EBITDA
Excess as of such December 31 equals or exceeds the EBITDA Target for
such year.
(ii) An installment consisting of 7.5% of the shares
covered by the Option shall become exercisable within 90 days following
each of December 31, 2000 through December 31, 2002 if the EBITDA as of
such December 31 plus the Cumulative EBITDA Excess as of such December
31 equals or exceeds the EBITDA Target for such year.
(iii) If the EBITDA for any calendar year 1998
through 2002 plus the Cumulative EBITDA Excess as of the December 31 of
such year is less than the EBITDA Target for such year, that portion of
the Option that was subject to accelerated exercisability pursuant to
Section 3.1(d)(i) or (ii) with respect to such year shall become
exercisable only in accordance with Section 3.1(b).
(e) Notwithstanding the foregoing provisions of this Section
3.1, but subject to subsection (g), upon the occurrence of the first Corporate
Transaction,
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(i) that portion of the Option that remains eligible
to become exercisable pursuant to Section 3.1(a), and
(ii) that portion of the of the Option that remains
eligible to become exercisable pursuant to Sections 3.1(c)(i) or (ii)
or 3.1(d)(i) or (ii)
at any time on or after the effective date of such Corporate Transaction shall,
immediately prior to the effective date of such Corporate Transaction,
automatically become exercisable in full. However, no outstanding Option (or any
portion thereof) shall so accelerate if and to the extent such Option (or
portion thereof) is, in connection with the Corporate Transaction, either to be
assumed by the successor or survivor corporation (or parent thereof) or to be
replaced with a comparable right with respect to shares of the capital stock of
the successor or survivor corporation (or parent thereof) or with respect to
other property. The determination of comparability of rights under the preceding
sentence shall be made by the Committee, and its determination shall be final,
binding and conclusive.
(f) The Committee shall make the determination as to whether
the respective Cash Flow for Debt Amortization Targets, Cumulative Cash Flow for
Debt Amortization Targets and EBITDA Targets have been met, and shall determine
the extent, if any, to which the Option has become exercisable, on any such date
as the Committee in its sole discretion shall determine; provided, however, that
with respect to each calendar year such date shall not be later than the 90th
day following December 31 of such calendar year.
(g) No portion of the Option which is unexercisable at
Termination of Employment shall thereafter become exercisable.
Section 3.2. Duration of Exercisability
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The installments provided for in Section 3.1 are cumulative. Each such
installment which becomes exercisable pursuant to Section 3.1 shall remain
exercisable until it becomes unexercisable.
Section 3.3. Expiration of Option
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(a) The Option may not be exercised to any extent by anyone
after the first to occur of the following events:
(i) The expiration of ten years from the date the
Option was granted; or
(ii) In the case of an Optionee owning (within the
meaning of Section 424(d) of the Code), at the time the Incentive Stock
Option was granted, more than 10% of the total combined voting power of
all classes of stock of the Company or any Subsidiary corporation, the
expiration of five years from the date the Incentive Stock Option was
granted; or
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(iii) Except as the Committee may otherwise approve,
the date of the Optionee's Termination of Employment for any reason
other than death or disability (as defined in Section 22(e)(3) of the
Code); or
(iv) In the case of an Optionee whose Termination of
Employment is by reason of his or her disability (within the meaning of
Section 22(e)(3) of the Code), the expiration of 12 months from the
date of the Optionee's Termination of Employment, unless the Optionee
dies within said 12 month period, in which case the Option shall cease
to be exercisable upon the expiration of 180 days from the date of the
Optionee's death; or
(v) The expiration of 180 days from the date of the
Optionee's death.
Section 3.4. Partial Exercise
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Any exercisable portion of the Option or the entire Option, if then
wholly exercisable, may be exercised in whole or in part at any time prior to
the time when the Option or portion thereof becomes unexercisable; provided,
however, that each partial exercise shall be for not less than one hundred (100)
shares (or the minimum installment set forth in Section 3.1, if a smaller number
of shares) and shall be for whole shares only.
Section 3.5. Exercise of Option
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The exercise of the Option shall be governed by the terms of this
Agreement and the terms of the Plan, including, without limitation, the
provisions of Article V of the Plan.
Section 3.6. Special Tax Consequences
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The Optionee acknowledges that, to the extent that the aggregate fair
market value of stock with respect to which "incentive stock options" (within
the meaning of Section 422 of the Code, but without regard to Section 422(d) of
the Code), including the Option, are exercisable for the first time by the
Optionee during any calendar year (under the Plan and all other stock option
plans of the Company, any Subsidiary and any parent corporation) exceeds
$100,000, such options shall be treated as not qualifying under Section 422 of
the Code but rather shall be treated and taxable as non-qualified options. The
Optionee further acknowledges that the rule set forth in the preceding sentence
shall be applied by taking options into account in the order in which they were
granted, and the stock certificate issued upon exercise of options shall
designate whether such stock was acquired upon exercise of an Incentive Stock
Option. For purposes of these rules, the fair market value of stock shall be
determined as of the date of grant of the applicable option covering such stock.
ARTICLE IV.
OTHER PROVISIONS
----------------
Section 4.1. Not a Contract of Employment
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Nothing in this Agreement or in the Plan shall confer upon the Optionee
any right to continue in the employ of the Company or any of its Subsidiaries or
shall interfere with or restrict
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in any way the rights of the Company or its Subsidiaries, which are hereby
expressly reserved, to discharge the Optionee at any time for any reason
whatsoever, with or without cause.
Section 4.2. Shares Subject to Plan and Stockholders Agreement
- ------------ -------------------------------------------------
The Optionee acknowledges that any shares acquired upon exercise of the
Option are subject to the terms of the Plan and the Stockholders Agreement
including without limitation, the restrictions set forth in Sections 5.5 and 5.6
of the Plan.
Section 4.3. Construction
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This Agreement shall be administered, interpreted and enforced under
the laws of the State of Delaware.
Section 4.4. Conformity to Securities Laws
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The Optionee acknowledges that the Plan is intended to conform to the
extent necessary with all provisions of the Securities Act and the Exchange Act
and any and all regulations and rules promulgated thereunder by the Securities
and Exchange Commission, including without limitation Rule 16b-3.
Notwithstanding anything herein to the contrary, the Plan shall be
administered, and the Option is granted and may be exercised, only in such a
manner as to conform to such laws, rules and regulations. To the extent
permitted by applicable law, the Plan and this Agreement shall be deemed amended
to the extent necessary to conform to such laws, rules and regulations.
Section 4.5. Stockholder Approval
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The Plan will be submitted for approval by the Company's stockholders
within twelve months after the date the Plan was initially adopted by the Board
and the Plan and this Agreement will be effective upon approval by such
stockholders as provided in Section 280G(b)(5)(A)(ii) of the Code and
regulations thereunder. This Option may not be exercised to any extent by anyone
unless and until the Plan is so approved by the stockholders, and if such
approval has not been obtained by the end of said twelve-month period, this
Option shall thereupon be canceled and become null and void. The Company shall
take such actions as may be necessary to satisfy any applicable requirements of
Rule 16b-3(b).
Section 4.6. Adjustments in Cash Flow for Debt Amortization and EBITDA
Targets
The Cash Flow for Debt Amortization Targets and EBITDA Targets
(including the Cumulative Cash Flow for Debt Amortization Targets and Cumulative
EBITDA Targets) specified in Appendix A are based upon certain revenue and
expense assumptions about the future business of the Company and its Controlled
Entities as of the date the Option is granted. Accordingly, in the event that,
after such date, the Committee determines, in its sole discretion, that any
acquisition of any business by the Company or any of its Controlled Entities or
any dividend or other distribution (whether in the form of cash, Common Stock,
other securities, or other property), recapitalization, reclassification, stock
split, reverse stock split, reorganization, merger, consolidation, split-up,
spin-off, combination, repurchase, or exchange of Common Stock or other
securities of the Company,
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issuance of warrants or other rights to purchase Common Stock or other
securities of the Company, any unusual or nonrecurring transactions or events
affecting the Company, any affiliate of the Company, or the financial statements
of the Company or any affiliate, or change in applicable laws, regulations, or
accounting principles occurs such that an adjustment is determined by the
Committee to be appropriate in order to prevent dilution or enlargement of the
benefits or potential benefits intended to be made available under the Plan or
with respect to the Option, then the Committee shall, in good faith and in such
manner as it may deem equitable, adjust the financial targets set forth on
Appendix A to reflect the projected effect of such transaction(s) or event(s) on
Cash Flow for Debt Amortization and/or EBITDA, subject to Section 7.1 of the
Plan.
* * * * *
IN WITNESS WHEREOF, this Agreement has been executed and
delivered by the parties hereto.
United Defense Industries, Inc.
By: ___________________________
Title: ________________________
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Optionee
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Address
Optionee's Taxpayer Identification Number: ____________________________
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APPENDIX A
INCENTIVE STOCK OPTION AGREEMENT
EBITDA AND CASH FLOW TARGETS
($ MILLIONS)
CALENDAR YEAR ENDING DECEMBER 31
PERFORMANCE MEASURE Q4 1997 1998 1999 2000 2001 2002
- --------------------------------------------------------------------------------------------------------------------------
EBITDA 32.5 130.0 120.0 125.0 130.0 135.0
CUMULATIVE EBITDA 32.5 162.5 282.5 407.5 537.5 672.5
CASH FLOW FOR DEBT
AMORTIZATION 12.8 68.0 23.4 34.3 49.4 61.6
CUMULATIVE CASH FLOW FOR
DEBT AMORTIZATION 12.8 80.8 104.2 138.5 187.9 249.5
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