-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KWFf20nT6ppy4pUH3K1D4qGzaFpWOTluDPqEv1YThyaUSBAiZ7X5qEB3p1dNkXU6 zqXgXZP4+YMe94m6uZFmzA== 0001140437-03-000420.txt : 20031218 0001140437-03-000420.hdr.sgml : 20031218 20031218135931 ACCESSION NUMBER: 0001140437-03-000420 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 20030930 FILED AS OF DATE: 20031218 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN PACIFIC CORP CENTRAL INDEX KEY: 0000350832 STANDARD INDUSTRIAL CLASSIFICATION: INDUSTRIAL INORGANIC CHEMICALS [2810] IRS NUMBER: 596490478 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-08137 FILM NUMBER: 031061946 BUSINESS ADDRESS: STREET 1: 3770 HOWARD HUGHES PKWY STE 300 CITY: LAS VEGAS STATE: NV ZIP: 89109 BUSINESS PHONE: 7027352200 MAIL ADDRESS: STREET 1: 3770 HOWARD HUGHES PKWY STE 300 STREET 2: 3770 HOWARD HUGHES PKWY STE 300 CITY: LAS VEGAS STATE: NV ZIP: 89109 10-K 1 ap90605610k.htm FORM 10-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended September 30, 2003

Commission File Number 001-08137

AMERICAN PACIFIC CORPORATION
(Exact name of registrant as specified in its charter)

Delaware		59-6490478
(State or other jurisdiction of incorporation)		(IRS Employer Identification No.)

3770 Howard Hughes Parkway, Suite 300, Las Vegas, Nevada		89109
(Address of principal executive offices)		(Zip Code)

(702) 735-2200
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: Common Stock ($.10 par value)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act.

Yes

The aggregate market value of the voting stock held by non-affiliates of the registrant as of November 30, 2003, was approximately $63.6 million. Solely for the purposes of this calculation, shares held by directors and officers of the Registrant have been excluded. Such exclusion should not be deemed a determination by the Registrant that such individuals are, in fact, affiliates of the Registrant.

The number of shares of Common Stock, $.10 par value, outstanding as of November 30, 2003, was 7,250,000.

DOCUMENTS INCORPORATED BY REFERENCE

Part III Hereof

Definitive Proxy Statement for 2004 Annual Meeting of Stockholders to be filed not later than January 28, 2004.

Part IV Hereof

S-14 Registration Statement (2-70830); Annual Reports on Forms 10-K for the years ended September 30, 2002, 2000 and 1999; S-2 Registration Statement (33-36664); Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 1998; Form 8-A dated August 6, 1999; S-3 Registration Statement (33-52196); S-8 Registration Statement (333-104732); S-8 Registration Statement (333-53449); S-8 Registration Statement (333-62566) and Current Report on Forms 8-K dated November 9, 1999.

PART I

Item 1. Business

OVERVIEW

American Pacific Corporation is principally engaged in the production of a specialty chemical, ammonium perchlorate (“AP”), which is used as an oxidizing agent in composite solid propellants for rockets, booster motors and missiles. Our highest propellant grade AP (“Grade I AP”) is employed in the Space Shuttle, the Minuteman missile, the Delta and Atlas families of commercial space launch vehicles, a number of defense related missiles and rockets, and most other solid fuel rocket motors. Grade I AP customers include contractors of the National Aeronautics and Space Administration (“NASA”), the Department of Defense (“DOD”) and certain commercial space launch vehicle programs used to launch satellites for communication, navigation, intelligence gathering, space exploration, weather forecasting and environmental monitoring. The terms “Company”, “we”, “us”, and “our” are used herein to refer to American Pacific Corporation and, where the context requires, one or more of the direct and indirect subsidiaries or divisions of American Pacific Corporation.

We also produce a variety of other specialty chemicals and environmental protection equipment for niche applications, including: (i) a number of other grades of AP, and different types and grades of sodium and potassium perchlorates (collectively, “other perchlorates”) that are used in a variety of applications, including munitions, explosives, propellants, initiators and inflators; (ii) sodium azide, used primarily in the inflation of automotive airbags, in the production of certain tetrazoles and in certain pharmaceutical applications; (iii) Halotron products, used to extinguish fires; and (iv) water treatment equipment, used to disinfect effluents from sewage treatment and industrial facilities and for the treatment of seawater. In addition, at September 30, 2003, we owned approximately 14 remaining acres of improved undeveloped land in an industrial park in the Las Vegas, Nevada area. We also hold a 50% interest in a joint venture entity that developed a master planned residential community in the same area, but all homes in the residential community have been sold and the venture has wound down its operations. We do not expect to receive any cash returns from this venture in the future.

In fiscal 2003, we acquired a 50% interest in an entity that manufactures and distributes commercial explosives. (See below.)

As discussed in Note 13 to our Consolidated Financial Statements, in January 2003, we adopted our Dividend and Stock Repurchase Program. This program is intended to provide value to our shareholders in the form of cash dividends or through the timely repurchase of our Common Stock, while at the same time retaining sufficient liquidity to permit the continued pursuit of product development and growth programs designed to enhance our mix of products and diversify our cash generating activities. Our strategies with respect to existing products is described below. Our strategy with respect to new opportunities is principally focused on niche markets that involve the production and sale of energetic materials and reactive chemical intermediates.

See Note 11 to our Consolidated Financial Statements for financial information concerning our operating segments. Our perchlorate chemicals accounted for approximately 79%, 73% and 68% of revenues during the years ended September 30, 2003, 2002 and 2001, respectively.

SPECIALTY CHEMICALS

Perchlorate Chemicals

Strategy

In March 1998, we acquired certain assets and rights of Kerr-McGee Chemical Corporation (“Kerr-McGee”) related to its production of AP (the “Acquisition). By virtue of the Acquisition, we effectively became the only North American commercial producer of perchlorate chemicals. Our strategy is to maintain and enhance our position as the premier world-wide producer of perchlorate chemicals.

Market

AP is the sole oxidizing agent for solid fuel rockets, booster motors and missiles used in space exploration, commercial satellite transportation and national defense programs. A significant number of existing and planned launch vehicles providing access to space use solid fuel and thus depend, in part, upon AP. Many of the rockets and missiles used in national defense programs are also powered by solid fuel.

We have supplied AP for use in space and defense programs for over 40 years. Today, our principal space customers are Alliant Techsystems, Inc. (“Alliant”) for the Space Shuttle Program and the Delta family of commercial rockets, and Aerojet General Corporation for the Atlas family of commercial rockets. We also supply AP for use in a number of defense programs, including the Minuteman, Navy Standard Missile, Patriot, and Multiple Launch Rocket System programs. We have supplied AP to various foreign defense programs and commercial space programs, although AP is subject to strict export license controls.

Demand for perchlorate chemicals declined throughout the 1990’s. In 1998, supply capacity was substantially in excess of demand levels and, in an attempt to rationalize the domestic industry, we consummated the Acquisition with Kerr-McGee. See “Perchlorate Chemicals – Kerr-McGee Acquisition.” Subsequent to the Acquisition in 1998, our annual sales volumes of Grade I AP were approximately 20.2 million, 16.4 million, 12.6 million, 16.4 and 15.5 million pounds during the fiscal years ended September 30, 1999, 2000, 2001, 2002 and 2003, respectively. Prior to the tragic Space Shuttle Columbia disaster on February 1, 2003, and based principally upon information we had received from our major customers, we previously estimated that annual demand for Grade I AP would range between 16.0 million and 20.0 million pounds over the next several years.

As we have previously reported, we were not instructed to curtail production associated with the Space Shuttle program after the Columbia disaster. We continued to produce and deliver Grade I AP in accordance with our fiscal 2003 purchase order and, as a result, our customer’s inventory levels of Grade I AP increased throughout the year. Assuming the Space Shuttle returns to flight in the fall of 2004 (as to which there is no assurance), and achieves annual flight levels of between 4 and 5, we are currently estimating that our annual sales volumes of Grade I AP will range between 10.0 and 13.0 million pounds over at least the next three years. Our revenues, operating income and cash flows from operating activities will be significantly less at these lower volume levels. In addition, demand for Grade I AP is program specific and dependent upon, among other things, governmental appropriations. We have no ability to influence the demand for Grade I AP. Any decision to further delay, reduce or cancel Space Shuttle flights over an extended period of time would have a significant adverse effect on our results of operations and financial condition.

during the fiscal years 2001, 2000 and 1999. In fiscal 2003 and 2002, shipments of other perchlorates accounted for sales of $7.7 and $6.9 million, respectively, although there was no substantial change in volumes. Other perchlorates are used in a variety of applications, including munitions, explosives, propellants, and initiators. Some of these applications are in a development phase, and there can be no assurance that sales of the higher price and higher margin products will continue. A significant reduction in these sales would have a material adverse effect on our results of operations and financial condition.

Customers

Prospective purchasers of Grade I AP consist principally of contractors in programs of NASA and the DOD. As a practical matter, the specialized nature of the activities of these contractors restricts competitive entry by others. Therefore, there are relatively few potential customers for Grade I AP, and individual Grade I AP customers account for a significant portion of our revenues. Prospective customers also include companies providing commercial satellite launch services and agencies of foreign governments and their contractors.

During 2001, Alliant acquired the Thiokol Propulsion Division (“Thiokol”) of Alcoa. Alliant (including Thiokol) accounted for 66%, 51% and 60% of our revenues during the fiscal years 2003, 2002 and 2001, respectively.

Thiokol Agreement

In connection with the Acquisition, we entered into an agreement with Thiokol with respect to the supply of Grade I AP through the year 2008. The agreement, as amended, provides that during its term Thiokol will make all of its Grade I AP purchases from us. In addition to the Grade I AP purchased from us, Thiokol may use AP inventoried by it in prior years. The agreement also establishes a pricing matrix under which Grade I AP unit prices vary inversely with the quantity of a specific grade of Grade I AP sold by us to all of our customers. Grade I AP unit prices in the matrix at all quantity levels escalate each year through fiscal 2003 and, in fiscal 2004, are adjusted downward by approximately 20%. Such downward adjustment will have the effect of reducing revenues and operating cash flows on Grade I AP sold to Thiokol by at least 20% in fiscal 2004. After the adjustment, Grade I AP unit prices again escalate each year through fiscal 2008. See below for a discussion of the impact of the Alliant acquisition of Thiokol in 2001 on this agreement.

Alliant Agreement

In connection with the Acquisition, we entered into an agreement with Alliant to extend an existing agreement through the year 2008. The agreement establishes prices for any Grade I AP purchased by Alliant from us during the term of the agreement as extended. Under this agreement, Alliant agrees to use its efforts to cause our Grade I AP to be qualified on all new and current programs served by Alliant’s Bacchus Works. We have agreed with Alliant that the individual agreements in place prior to Alliant’s acquisition of Thiokol will remain in place. All Thiokol programs existing at the time of the Alliant acquisition (principally the Space Shuttle and Minuteman) will continue to be priced under the Thiokol Agreement. All Alliant programs (principally the Delta, Pegasus and Titan) will be priced under the Alliant Agreement.

Backlog

As of October 31, 2003, we had a backlog of approximately $5.2 million for delivery of perchlorate chemicals in fiscal 2004.

Manufacturing Capacity and Process

Production of AP at our manufacturing facility in Iron County, Utah commenced in July 1989. This facility, as currently configured, is capable of producing 30.0 million pounds of perchlorate chemicals annually and is readily expandable to 40.0 million pounds annually. Grade I AP produced at the facility and propellants

incorporating such AP have qualified for use in all programs for which testing has been conducted, including the Space Shuttle, Titan, Minuteman, Multiple Launch Rocket System, and the Delta and Atlas programs.

Our perchlorate chemicals facility is designed to site particular components of the manufacturing process in discrete areas of the facility. It incorporates modern equipment and materials-handling systems designed, constructed and operated in accordance with the operating and safety requirements of our customers, insurance carriers and governmental authorities.

Perchlorate chemicals are manufactured by electrochemical processes using our proprietary technology. The principal raw materials used in the manufacture of AP (other than electrical energy) are salt, sodium chlorate, graphite, ammonia and hydrochloric acid. All of the raw materials used in the manufacturing process have been available in commercial quantities. We have experienced difficulty in obtaining a long-term commitment for the supply of graphite. Graphite is critical to our electrochemical process, and we are working to resolve this issue.

During the first six months of fiscal 2001, we received power bills from Utah Power that were approximately $1.5 million in excess of average historical amounts. During this period, we purchased greater quantities of certain raw materials because of these excessive power costs. In the second half of 2001, we recovered the excessive power costs through a settlement and curtailment arrangement with Utah Power. This arrangement resulted in net power costs that were approximately $1.0 million less in fiscal 2001 compared to average historical annual amounts. We now purchase power from Utah Power under the equivalent of Utah’s Electric Service Schedule No. 9.

Competition

Upon consummation of the Acquisition, we effectively became the sole North American commercial producer of perchlorate chemicals. We are aware of production capacity for perchlorate chemicals (including AP) in France, Japan and possibly China and Taiwan. Although we have limited information with respect to these facilities, we believe that these foreign producers operate lower volume, higher cost production facilities and are not approved as AP suppliers for NASA or DOD programs, which represent the majority of domestic AP demand. In addition, we believe that the rigorous and sometimes costly NASA and DOD program qualification process, the strategic nature of such programs, the high cost of constructing a perchlorate chemicals facility, and our established relationships with key customers, constitute significant hurdles to entry for prospective competitors.

Kerr-McGee Acquisition

On March 12, 1998 we acquired, pursuant to a purchase agreement with Kerr-McGee, certain intangible assets related to Kerr-McGee’s production of AP (the “Rights”) for a purchase price of $39.0 million. The Acquisition did not include Kerr-McGee’s production facilities (the “Production Facilities”) and certain water and power supply agreements used by Kerr-McGee in the production of AP. Under the purchase agreement, Kerr-McGee ceased the production and sale of AP, although the Production Facilities may continue to be used by Kerr-McGee for production of AP under certain limited circumstances not competitive with our operations. Kerr-McGee also reserved a perpetual, royalty-free, nonexclusive license to use any of the technology forming part of the Rights as may be necessary or useful to use, repair or sell the Production Facilities.

Financing

On March 12, 1998, we sold $75.0 million in principal amount of 9¼% unsecured senior notes (the “Notes”). A portion of the net proceeds from the sale of the Notes ($39.0 million) was used to effect the Acquisition. Prior to March 1, 2003, we had repurchased and retired approximately $34.4 million in principal amount of Notes. On March 1, 2003, we redeemed all of our remaining outstanding Notes. The redemption was at a price of 102.313% of the principal amount of the Notes, plus accrued interest to the date of

redemption, aggregating approximately $43.4 million. We recognized a loss on the redemption of $1.5 million, including a non-cash charge of $0.6 million to write-off remaining debt issue costs.

Sodium Azide

Sodium Azide Facility

In July 1990, we entered into agreements with Dynamit Nobel A.G. (“Dynamit Nobel”) under which it has licensed to us on an exclusive basis for the North American market its technology and know-how for the production of sodium azide, the principal component of a gas generant used in certain automotive airbag safety systems. In addition, Dynamit Nobel provided technical support for the design, construction and startup of the facility. The facility was constructed on land owned by us in Iron County, Utah for its owner and operator, American Azide Corporation (“AAC”), our wholly-owned indirect subsidiary. Our obligation to make royalty payments to Dynamit Nobel under the license was suspended in 1995.

Financing

On February 21, 1992, we concluded a $40.0 million financing for the design, construction and startup of the sodium azide facility through the sale of our 11% noncallable subordinated secured term notes (the “Azide Notes”). On March 12, 1998, we repurchased the then remaining $25.0 million principal amount outstanding of the Azide Notes with funds obtained through the issuance of the Notes. In connection with the issuance of the Azide Notes, we issued Warrants (“the Warrants”) to purchase shares of our Common Stock to the purchasers of the Azide Notes, which expire on December 31, 2003.

Market

A number of firms have devoted extensive efforts to the development of automotive airbag safety systems. These efforts initially resulted in the acceptance by the automobile industry and the consuming public of an inflator for automotive airbags that was based principally upon sodium azide, combined in tablet or granule form with limited amounts of other materials. A number of other inflator technologies have since been commercially developed and have gained substantial market share, resulting in a decline in demand for sodium azide. Based principally upon market information received from inflator manufacturers, we expect sodium azide use to continue to decline and that inflators using sodium azide will be phased out over some period of time. Currently, demand for sodium azide is substantially less than supply on a worldwide basis.

We are evaluating the use of sodium azide in other applications. Sodium azide is used as an intermediary in the manufacture of certain tetrazoles and pharmaceuticals, and we sell small quantities into these markets.

Customers

Autoliv ASP, Inc. (“Autoliv”) accounted for approximately 3%, 8% and 12% of our revenues during the fiscal years 2003, 2002 and 2001, respectively.

Competition

We believe that current competing production capacity includes one producer in Japan and at least three producers in India. In addition, certain capacity has been idled in Japan. As noted above, worldwide demand for sodium azide is substantially less than worldwide supply.

In the fiscal years 2000 and 1997, we recognized impairment charges of $9.1 million and $52.6 million, respectively, relating to the fixed assets used in the production of sodium azide.

Halotron

Halotron is a fire extinguishing system composed of proprietary chemicals and hardware designed to replace halons, which are brominated CFC chemicals that have been widely used as fire extinguishing agents in military, industrial, and commercial applications since the early 1970’s. The impetus for the invention and improvement of Halotron was the discovery during the 1980’s that halons are highly destructive to the stratospheric ozone layer, which acts as a shield against harmful solar ultraviolet radiation.

Use of Halons

Halons have been used throughout the world in modalities that range from hand-held fire extinguishers to extensively engineered fixed systems. They are generally of two types, streaming and total flooding systems. Streaming systems rely upon the focused projection of a slowly gasifying liquid over distances of up to 50 feet from the point of projection. Total flooding systems release a quickly gasifying liquid or gas into a confined space, extinguishing any ongoing combustion and, in limited instances, inerting a space to prevent combustion. Halon 1211, principally a streaming agent, was used on aircraft and aircraft flightlines, on small boats and ships, in chemically clean rooms and laboratories, telecommunication facilities, hotels, manufacturing facilities and other commercial and industrial facilities, including those in the petroleum industries. Its worldwide production peaked in 1988 at 20,000 metric tons. Halon 1301, principally a flooding agent, protects such installations as computer, electronic and equipment rooms, ship and other engine room spaces, petroleum handling stations and repositories of literature and cultural heritage. Its worldwide production peaked in 1988 at 12,500 metric tons.

Customers and Market

The end-user market for halons and consequently, Halotron, is divided into several segments. The government segment consists of the armed services and other agencies, including the Department of Energy, NASA and governmental offices, laboratories and data processing centers. Historically, military applications have predominated in this segment. It will be critical to our efforts to market Halotron to the military that military specifications for the procurement of halon replacements include Halotron. We are not aware of any military specifications for halon replacements that have been issued to date.

Commercial market segments include fire critical industries such as utilities, telecommunications, oil and gas exploration and production, manufacturing, railroad, retail, wholesale, ocean transport and commercial aviation. Other market segments include schools, hotels, other business organizations and small users that typically follow selections made by the industry users described above.

Halotron I, the first phase of Halotron, has been extensively and successfully tested. In 1993, Halotron I was approved by the United States Environmental Protection Agency (the “EPA”) as a replacement agent for Halon 1211. During 1995, the Federal Aviation Administration (“FAA”) approved Halotron I as an acceptable airport ramp firefighting agent, concluding that Halotron I will extinguish flightline fires in a manner similar to Halon 1211. Furthermore, in 2002, the FAA approved a Halotron I extinguisher for use on civilian commercial transport aircraft.

Together with distributors Amerex Corporation (“Amerex”), Badger Fire Protection (“Badger”), Kidde Fyrnetics (“Kidde”) and Buckeye Fire Equipment Company (“Buckeye”), we have successfully completed Underwriters Laboratories (“UL”) fire tests for a number of sizes of portable and wheeled fire extinguishers using Halotron I in streaming agent applications. Four of the five major domestic fire extinguisher companies are now manufacturing and distributing UL listed portable fire extinguishers using Halotron I. We are also marketing Halotron I to other domestic and international fire extinguisher manufacturers.

We have also introduced Halotron II, a total flooding agent designed for certain niche clean agent markets. Halotron II has a zero Ozone Depletion Potential (“ODP”) and a relatively low Global Warming Potential (“GWP”). Sales of Halotron II to date have not been significant.

In order for us to increase market share for Halotron I and Halotron II and achieve a long term presence in the industry, it may be necessary to expend considerable additional funds and effort in research and development. Although Halotron I has an ODP that is virtually zero and therefore significantly lower than that of halons and that meets current environmental standards, potential users of halon replacements may eventually require a product with an absolute zero ODP. Accordingly, the product life of Halotron I may be limited, and we may be required to produce other agents that can meet increasingly stringent standards. There can be no assurance that we will be able to identify and produce such agents or that a competitor or competitors will not develop fire extinguishing agents with comparable or superior qualities.

Competition

Potential halon alternatives (not in-kind) and substitutes (halocarbons) compete as to performance characteristics, environmental effects and cost. Performance characteristics include throwability, visibility after application, after-fire damage, equipment portability and versatility, low and high temperature performance, corrosion probability, shelf life and efficiency. The environmental and human health effects include ODP, GWP and toxicity. Potential halon alternatives include water, carbon dioxide and a variety of chemicals in liquid, foam and powder form. It is likely that competitors producing alternatives and substitutes will be larger, will have as much or more experience in the production of fire extinguishing chemicals and systems and will have greater financial resources than those available to us.

FE-36™, a Dupont product, is our primary competition in the streaming agent market, or for Halotron I. In 2001, 3M introduced a Halon 1211 and Halon 1301 replacement agent called Novec 1230™, although we do not believe this agent has achieved any significant market share. Great Lakes Chemical Corp. and Dupont have products that are widely used in the total flooding market. In addition, there are currently no domestic use restrictions on halon, so that potential customers for halon substitutes may continue to use existing halon-based systems in their possession until the supply is exhausted, which could be a substantial period of time for some users.

Halotron Facility

We have designed and constructed a clean fire extinguishing agent manufacturing facility that has an annual capacity of at least 6.0 million pounds, located on our land in Iron County, Utah.

REAL ESTATE ASSETS

At September 30, 2003, we owned approximately 14 acres of improved undeveloped land at the Gibson Business Park near Las Vegas, Nevada. We also own approximately 4,700 acres of land and certain water rights at our site in Iron County, Utah that are dedicated to our growth and diversification.

In addition, we hold a 50% interest in the Ventana Canyon joint venture residential project located in the Las Vegas, Nevada area. All homes have been sold and the venture has wound down its operations. We do not expect to receive any cash returns from the venture in the future.

ENVIRONMENTAL PROTECTION EQUIPMENT

We engineer and manufacture equipment for a wide range of applications. These systems utilize an electrochemical process, which is an extension of one of our core competencies, to produce chemicals such as

sodium hypochlorite on site at the point of use. The industries and specific applications in which our equipment is used include the following: (i) our ChlorMaster systems used by municipalities and sewage plants for the disinfection of drinking water, effluent and waste water; (ii) our ChlorMaster systems used by power plants, desalination plants, chemical plants and on-shore/off-shore crude oil facilities for the control of marine growth in seawater used in cooling water circuits and (iii) our OdorMaster scrubber used by composting plants for the deodorizing of malodorous compounds in contaminated air.

At the heart of these systems is a proprietary bi-polar electrochemical cell which uses brine or seawater to produce the necessary chemicals. For drinking water applications, these cells are supplied with an NSF^® certification.

Our systems are marketed domestically by independent sales representatives and overseas by sales representatives and licensees. We also receive a significant amount of direct sales leads as a result of advertising and through attendance at key trade shows.

We compete both with companies that utilize other technologies and those that utilize technologies similar to ours. Most of these companies are substantially larger than us. Our success depends principally upon our ability to be cost competitive and, at the same time, to provide a quality product.

As of October 31, 2003, our environmental protection equipment division had a backlog of approximately $0.8 million.

INVESTMENT IN AND ADVANCES TO JOINT VENTURE

On December 11, 2002, we made an investment of approximately $10.7 million in Energetic Systems Inc., LLC (“ES”), a joint venture entity formed to acquire and manage a commercial explosives business. The form of our investment in ES represents a combination of term and revolving debt, preferred stock and common equity.

The investment was made and held by our newly organized, wholly-owned subsidiary, Energetic Additives Inc., LLC (“EA”). EA holds a 50% equity interest in ES. The remaining 50% equity interest is held by a private entity with extensive experience in the explosives industry.

On December 11, 2002, ES completed the purchase of certain assets and the assumption of certain liabilities of Slurry Explosives Corporation and Universal Tech Corporation (collectively “SEC/UTC”), subsidiaries within LSB industries, Inc. SEC/UTC is involved in the manufacture and distribution of commercial explosives, and is also a research, development and testing organization specializing in the development and testing of products and processes for commercial explosives and energetic compounds. We have accounted for our investment in ES using the equity method of accounting. (See Note 12 to our Consolidated Financial Statements.)

INTELLECTUAL PROPERTY

The following are registered trademarks and service marks pursuant to applicable intellectual property laws and are the property of American Pacific Corporation or our subsidiaries: Halotron^®, SEP-100™, OdorMaster^®, and ChlorMaster^®.

PRODUCT DEVELOPMENT AND ENHANCEMENT

Our existing laboratory facilities are located on the premises of our perchlorate chemicals production site and are used to support those activities and our sodium azide and Halotron production activities. We also conduct development programs directed toward enhancement of product quality and performance and the development of complementary or related products at these facilities.

INSURANCE

Our insurance currently includes property insurance on all of our facilities and business interruption insurance. We also maintain certain liability insurance. We believe that the nature and extent of our current insurance coverages are adequate. We have not experienced difficulty obtaining these types of insurance, although the cost of such insurance has increased significantly over the last few years.

GOVERNMENT REGULATION

As a supplier to United States government projects, we have been and may be subject to audit and/or review by the government of the negotiation and performance of, and of the accounting and general practice relating to, government contracts. Most of our contracts for the sale of AP are in whole or in part subject to the commercial sections of the Federal Acquisition Regulations. Our AP pricing practices have been and may be reviewed by our customers and by certain government agencies.

ENVIRONMENTAL REGULATION

Our operations are subject to extensive Federal, State and local regulations governing, among other things, emissions to air, discharges to water and waste management. We believe that we are currently in compliance in all material respects with all applicable environmental, safety and health requirements and, subject to the matters discussed below, we do not anticipate any material adverse effects from existing or known future requirements. To meet changing licensing and regulatory standards, we may be required to make additional significant site or operational modifications, potentially involving substantial expenditures or the reduction or suspension of certain operations. In addition, the operation of our manufacturing plants entails risk of adverse environmental and health effects (not covered by insurance) and there can be no assurance that material costs or liabilities will not be incurred to rectify any future occurrences related to environmental or health matters.

In 1997, the Southern Nevada Water Authority detected trace amounts of perchlorate chemicals in Lake Mead and the Las Vegas Wash, bodies of water near our real estate development property in Henderson, Nevada (in the Las Vegas area). Lake Mead is a source of drinking water for the City of Las Vegas, neighboring areas and certain areas of metropolitan Southern California. Perchlorate chemicals (including AP) are a potential health concern because they can interfere with the production of a growth hormone by the thyroid gland. Although they are not currently included in the list of hazardous substances compiled by the EPA, perchlorates have been added to the EPA’s Contaminant Candidate List. We manufactured perchlorate chemicals at a facility on the Henderson site until the facility was destroyed in the May 1988 incident, described below, after which we relocated our perchlorate production to our current facilities in Iron County, Utah. For many years, Kerr-McGee operated a perchlorate production facility at a site near our Henderson site.

The Water Authority’s testing has shown perchlorate concentrations of 8 to 14 parts per billion (“ppb”) in Clark County drinking water. In response to this discovery, we have engaged environmental consultants to drill monitor wells in order to characterize ground water at and in the vicinity of the Henderson site. The results of our tests have shown perchlorate concentrations in the ground water at the former Henderson site ranging from

0 to approximately 750,000 ppb at certain monitoring wells. Since 1998, we have spent in excess of $6 million on the investigation and evaluation of the source or sources of these trace amounts, possible environmental impacts, and potential remediation methods (including the pilot process described below). Our ground water characterization investigations indicate that the ground water containing perchlorate at and around our former Henderson manufacturing site has not reached the Las Vegas Wash or Lake Mead and, accordingly, has not been introduced into any source of drinking water. Based upon flow rates and modeling techniques, such ground water is not expected to reach a source of drinking water for at least 10 years. We have, however, commenced a pilot remediation testing process to treat groundwater containing perchlorate at and near the Henderson site using a biological in situ method. To date, the pilot remediation process is proceeding in accordance with our plan and has shown promising results, but there can be no assurance as to its efficacy.

The EPA is conducting a risk assessment relating to perchlorates and has recommended a preliminary reference dose for perchlorates that would equate to 1 ppb in drinking water. Certain states are also conducting risk assessments and some have set preliminary levels as low as 1 ppb. To our knowledge, virtually all independent and qualified experts believe that such preliminary levels have been arbitrarily established and are not based upon credible science. At the request of the EPA, the National Academy of Science (“NAS”) recently began an evaluation and assessment of the health effects of perchlorates. This NAS evaluation is currently scheduled to be completed by January, 2005. Public statements indicate that the EPA intends to complete its risk assessment and make a final reference dose recommendation, presumably after the findings of NAS, although we do not know when that will occur. We are cooperating with Federal, State and local agencies, and with Kerr-McGee and other interested firms, in the investigation and evaluation of the source or sources of these trace amounts, possible environmental impacts, potential remediation methods and a proper reference dose. Until these investigations and evaluations have reached definitive conclusions, it will not be possible for us to determine the extent to which, if at all, we may be called upon to contribute to or assist with future remediation efforts, or the financial impact, if any, of such cooperation, contribution or assistance. Accordingly, no accrual for potential costs has been made in our Consolidated Financial Statements. However, the lower the level at which the final reference dose is established, the more severe the negative impact will likely be on our financial condition, results of operations and ability to manufacture and handle perchlorate chemicals.

SAFETY CONSIDERATIONS

We have one major operating facility located in Iron County, Utah. The loss or shutdown of operations over an extended period of time at such facility would have a material adverse effect on us. Our operations are subject to the usual hazards associated with chemical manufacturing and the related storage and transportation of products and wastes, including explosions, fires, inclement weather and natural disasters, mechanical failure, unscheduled downtime, transportation interruptions, chemical spills, discharges or releases of toxic or hazardous substances or gases and other environmental risks, such as required remediation of contamination. These hazards can cause personal injury and loss of life, severe damage to or destruction of property and equipment and environmental damage, and could result in suspension of operations and the imposition of civil or criminal penalties. We maintain property, business interruption and liability insurance at levels which we believe are in accordance with customary industry practice, but there can be no assurance that we will not incur losses beyond the limits or outside the coverage of our insurance.

AP, in the particle sizes and chemical purities produced by us, is categorized for transportation purposes by the United States Department of Transportation (“DOT”) as a Class IV oxidizer. Such classification indicates that the DOT considers AP to be non-explosive, non-flammable and non-toxic. Our perchlorate manufacturing plant was constructed in a manner intended to minimize, to the extent of known technologies and safety measures, the combination of AP with other materials in a manner that could result in explosions or combustion. However, no assurance can be given that our safety precautions will be effective in preventing explosions, fires and other such events from occurring. On July 30, 1997, an explosion and fire occurred at our

perchlorate production facility in Iron County, Utah. Although damage to our property was confined to a relatively small area, the incident left one employee dead and three others injured, one seriously. As a result of this incident, the Utah Occupational Safety and Health Division of the Utah Labor Commission cited us for violation of certain applicable Utah safety regulations in connection with the handling of AP and assessed fines totaling $5,250. Although we have taken steps to improve safety measures and training in response to this incident, there can be no assurance that such measures will be effective in preventing other such events in the future.

On May 4, 1988, our former manufacturing and office facilities in Henderson, Nevada were destroyed by a series of massive explosions and associated fires. Extensive property damage occurred both at our facilities and in immediately adjacent areas, the principal damage occurring within a three-mile radius. Production of AP ceased for a 15-month period. Significant interruptions were also experienced in our other businesses, which occupied the same or adjacent sites. Although our current facility is designed to site particular components of the manufacturing process in discrete areas of the facility and incorporates modern equipment and materials handling systems designed, constructed and operated in accordance with the operating and safety requirements of our customers, insurance carriers and governmental authorities, there can be no assurance that another incident would not interrupt some or all of the activities carried on at our current manufacturing site.

Sodium azide is a strong reducing agent and is classified by the DOT as a poison. Its manufacture entails certain hazards with which we have become familiar over the course of time. Our method of production is intended to limit the quantity of sodium azide in process at any one time and to utilize known safety measures in an effort to lessen attendant risks.

In late 1992, a fire occurred in a sodium azide reactor vessel at our facility during start-up and testing of the reactor vessel. In addition, fires are reported to have affected production at a competitor’s facility in the past. There can be no assurance that a fire or other incident will not occur at our sodium azide production facility in the future. On April 11, 2002, an accident occurred at our sodium azide plant that resulted in the death of an employee. No other employees were involved and there was no significant damage to the facility. We have received fines from Utah OSHA relating to this accident, but believe that the ultimate payment by us for these fines will be less than $75,000. See Item 3. Legal Proceedings.

We believe that exposure to sodium azide after an airbag is installed in an automobile is highly unlikely due to the way in which sodium azide is used and to the housing in which it is encased. However, in January 2002, AAC was named as a defendant in a complaint relating to airbag deployment. In the third quarter of fiscal 2003, we paid less than $50,000 to settle our part of this complaint See Item 3. Legal Proceedings.

EMPLOYEES

At September 30, 2003, we employed approximately 200 persons in executive, administrative, sales and manufacturing capacities. Although efforts have been made by union representatives to seek certification to represent certain of our employees, no such certification has been granted and we do not have collective bargaining agreements with any of our employees. We consider our relationships with our employees to be satisfactory.

Item 2. Properties

The following table sets forth certain information regarding our properties at September 30, 2003.

Location

Principal Use

Approximate
Area or
Floor Space

Status

Approximate
Annual Rent

Iron County, UT

Perchlorate Manufacturing Facility ^(a)

217 acres

Owned

––

Iron County, UT

Sodium Azide Manufacturing Facility ^(b)

41 acres

Owned

––

Iron County, UT

Halotron Manufacturing Facility ^(c)

6,720 sq. ft.

Owned

––

Las Vegas, NV

Executive Offices

22,262 sq. ft.

Leased

^(d)

550,000

	(a)	This facility is used for the production of perchlorate products and environmental protection equipment. It consists of approximately 112,000 sq. ft. of enclosed manufacturing space, a 12,000 sq. ft. administration building and a 3,200 sq. ft. laboratory building. Perchlorate capacity utilization rates for this production facility were approximately 62%, 66% and 51% during the fiscal years ended September 30, 2003, 2002 and 2001, respectively.

	(b)	This facility is used for the production of sodium azide and consists of approximately 34,600 sq. ft. of enclosed manufacturing and laboratory space. Capacity utilization rates for this production facility were approximately 14%, 30% and 33% during the fiscal years ended September 30, 2003, 2002 and 2001, respectively.

	(c)	Capacity utilization rates for the Halotron production facility were approximately 6%, 8% and 11% during the fiscal years ended September 30, 2003, 2002 and 2001, respectively.

	(d)	These facilities are leased from 3770 Howard Hughes Parkway Associates-Limited Partnership for an initial term of 10 years, which began on March 1, 1991, and was extended for an additional five years in March 2001. Approximately 25% of this space is currently sublet at an annual rent of approximately $130,000. (See Note 4 to our Consolidated Financial Statements.)

We consider our facilities to be adequate for our present needs and suitable for their current use. See Item 1. Business – “Real Estate Assets” for a description of our development properties in Iron County, Utah and Clark County, Nevada.

Item 3. Legal Proceedings

In January 2002, AAC was named as a defendant in a complaint filed in the Superior Court of the State of California for the County of Los Angeles – Southwest District. The complaint named a number of defendants, including AAC’s principal sodium azide customer, Autoliv. The complaint alleged, among other things “toxic injuries” as a result of the deployment of an airbag. In the third quarter of fiscal 2003, we paid less than $50,000 to settle our part of this complaint.

In January 2002, we received a demand for payment from Frontier Insurance Company (“Frontier”) of approximately $1.7 million as a result of the failure of a local developer to complete a project that had been bonded by Frontier. The local developer was an owner of a company that is the managing member of a limited liability company (the “LLC”) in which we are also a member. The LLC completed development of a residential project and has wound down its operations. In 1995, we entered into indemnity agreements relating to the development of this project. In February 2002, we (along with other plaintiffs) filed a complaint for declaratory

relief in District Court, Clark County, Nevada. The complaint seeks a judgment declaring that the indemnity agreements have been terminated and that we have no liability to Frontier. The complaint has been stayed for the time being pending the reorganization of Frontier.

As discussed above, on April 11, 2002, an accident occurred at our sodium azide plant that resulted in the death of an employee. In March 2003, we were named in a complaint filed in the District Court of Clark County, Nevada related to the accident referred to above, and the complaint alleged, among other things, negligence, breach of warranties and product liabilities. In the third quarter of fiscal 2003, the complaint against us was dismissed.

The information set forth in Note 9 to our Consolidated Financial Statements regarding litigation and contingencies is incorporated herein by reference. Reference is also made to Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Item 4. Submission of Matters to a Vote of Security Holders

Not Applicable.

PART II

Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters

Our Common Stock trades on The Nasdaq Stock Market^® under the symbol “APFC.” The table below sets forth the high and low sales prices of the Common Stock for the periods indicated.

	High		Low

Fiscal Year 2003
1st Quarter	$	10.05	$	5.59
2nd Quarter		10.25		6.77
3rd Quarter		8.65		6.66
4th Quarter		8.74		7.11

	High		Low

Fiscal Year 2002
1st Quarter	$	8.94	$	6.46
2nd Quarter		10.40		8.06
3rd Quarter		11.40		9.11
4th Quarter		9.68		7.83

At October 31, 2003, there were approximately 1,106 shareholders of record of our Common Stock. We have not paid a dividend on the Common Stock since our incorporation. In addition, covenants contained in the Indenture associated with the Notes had, until redemption of the Notes in March 2003, restricted our ability to pay dividends. However, in January 2003, we adopted our Dividend and Stock Repurchase Program. (See Note 13 to our Consolidated Financial Statements.)

Item 6. Selected Financial Data

FIVE-YEAR SUMMARY OF SELECTED CONSOLIDATED FINANCIAL DATA FOR THE YEARS ENDED SEPTEMBER 30,

	2003		2002		2001		2000			1999

	(in thousands except per share amounts)
STATEMENT OF OPERATIONS DATA:
Sales and operating revenues	$	68,866	$	73,588	$	63,089	$	67,369		$	72,834
Cost of sales		37,349		43,529		38,186		44,279			45,834
Gross profit		31,517		30,059		24,903		23,090			27,000
Operating expenses		14,480		13,776		10,050		10,236			10,024
Impairment charge								9,084
Operating income		17,037		16,283		14,853		3,770			16,976
Net interest and other expense (income)		1,544		3,235		2,590		3,581			5,363
Loss on Debt Extinguishments		1,522		149				1,594			174
Income (loss) before income taxes		13,971		12,899		12,263		(1,405	)		11,439
Income taxes		4,611		4,257		4,537		(15,136	)
Net income		9,360		8,642		7,726		13,731			11,439
Basic net income per share		1.29		1.21		1.10		1.88			1.41
Diluted net income per share	$	1.27	$	1.18	$	1.10	$	1.86		$	1.39
BALANCE SHEET DATA:
Cash and cash equivalents	$	27,140	$	65,826	$	51,471	$	30,128		$	40,434
Inventories and receivables		22,885		21,156		19,736		20,813			18,883
Property, plant and equipment – net		9,223		7,918		7,503		7,460			17,650
Intangible assets – net		17,579		21,297		25,411		29,805			34,210
Deferred income taxes		10,307		10,128		11,103		15,406
Total assets		101,685		131,971		123,042		117,590			132,882
Working capital		42,599		81,783		67,426		43,362			52,692
Long-term debt				40,600		44,175		44,175			67,000
Shareholders’ equity	$	84,834	$	76,241	$	66,955	$	59,609		$	52,204

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

We are principally engaged in the production of Grade I AP for the aerospace and national defense industries. In addition, we produce and sell sodium azide, the primary component of a gas generant used in certain automotive airbag safety systems, and Halotron, a chemical used in fire extinguishing systems ranging from portable fire extinguishers to airport firefighting vehicles. The perchlorate, sodium azide and Halotron facilities are located on our property in Southern Utah and the chemicals produced and sold at these facilities collectively represent our specialty chemicals operating segment. Our other lines of business include our real estate segment which is winding down, and the production of environmental protection equipment, including waste water and seawater treatment systems. As discussed in Note 12 to our Consolidated Financial

Statements, we also hold a 50% equity interest in an entity that manufactures and distributes commercial explosives.

Critical Accounting Estimates. A summary of our significant accounting policies is included in Note 1 to our Consolidated Financial Statements. We believe that the application of these policies on a consistent basis enables us to provide the users of our financial statements with useful and reliable information about our operating results and financial condition.

The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities and the reported amounts of revenue and expenses. Judgments and assessments of uncertainties are required in applying our accounting policies in many areas. For example, key assumptions are particularly important when determining our projected liabilities for pension benefits. Information with respect to pension expenses and liabilities, together with the impact of changes in key assumptions is discussed in Note 8 to our Consolidated Financial Statements.

Other areas in which significant uncertainties exist include, but are not limited to, projected costs to be incurred in connection with environmental matters, tax matters, and the resolution of litigation, and the recoverability of investments in and advances to our joint venture. A discussion of environmental and legal matters is included in Note 9 to our Consolidated Financial Statements. Information on some of the key estimates and assumptions on which our annual provision for income taxes is based may be found in Note 7 to our Consolidated Financial Statements. A discussion regarding the recoverability of investments in and advances to our joint venture is included in Note 12 to our Consolidated Financial Statements.

Actual results will inevitably differ to some extent from the estimates on which our Consolidated Financial Statements are prepared at any given point in time. Despite these inherent limitations, we believe that our Management’s Discussion and Analysis and audited Consolidated Financial Statements provide a meaningful and fair perspective on our company.

Sales and Operating Revenues. Sales of our perchlorate chemical products accounted for approximately 79%, 73% and 68% of revenues during the fiscal years ended September 30, 2003, 2002 and 2001, respectively. In general, demand for Grade I AP is driven by a relatively small number of DOD and NASA contractors. As a result, any one individual Grade I AP customer usually accounts for a significant portion of our revenues. For example, Alliant accounted for approximately 66%, 51% and 60% of our revenues during the fiscal years ended September 30, 2003, 2002 and 2001, respectively.

In connection with the Acquisition, we entered into an agreement with Thiokol with respect to the supply of Grade I AP through the year 2008. The agreement, as amended, provides that during its term Thiokol will make all of its Grade I AP purchases from us. In addition to the Grade I AP purchased from us, Thiokol may use AP inventoried by it in prior years. The agreement also establishes a pricing matrix under which Grade I AP unit prices vary inversely with the quantity of Grade I AP sold by us to all of our customers. Grade I AP unit prices in the matrix at all quantity levels escalate each year through fiscal 2003 and, in fiscal 2004, are adjusted downward by approximately 20%. Such downward adjustment will have the effect of reducing revenues and operating cash flows on Grade I AP sold to Thiokol by at least 20% in fiscal 2004. After the adjustment, Grade I AP unit prices again escalate each year through fiscal 2008.

During 2001, Alliant acquired Thiokol. We have agreed with Alliant that the individual agreements in place prior to Alliant’s acquisition of Thiokol remain in place. All Thiokol programs existing at the time of the Alliant acquisition (principally the Space Shuttle and Minuteman) will continue to be priced under the Thiokol Agreement. All Alliant programs (principally the Delta, Pegasus and Titan) will be priced under the Alliant Agreement.

Demand for perchlorate chemicals declined throughout the 1990’s. In 1998, supply capacity was substantially in excess of demand levels and, in an attempt to rationalize the industry, we consummated the Acquisition. Subsequent to the Acquisition in 1998, our annual sales volumes of Grade I AP were approximately 20.2 million, 16.4 million, 12.6 million, 16.4 million and 15.5 million pounds during the fiscal years ended September 30, 1999, 2000, 2001, 2002 and 2003 respectively. Prior to the tragic Space Shuttle Columbia disaster on February 1, 2003, and based principally upon information we had received from our major customers, we previously estimated that annual demand for Grade I AP would range between 16.0 million and 20.0 million pounds over the next several years.

We also produce and sell other perchlorates. Other perchlorates have a wide range of prices per pound, depending upon the type and grade of the product. We have recently experienced a change in the sales mix of other perchlorates, from lower price per pound products to higher price and margin per pound products. For example, shipments of other perchlorates accounted for annual sales of between $2.6 million and $3.2 million during the fiscal years 2001, 2000 and 1999. In fiscal 2003 and 2002, shipments of other perchlorates accounted for sales of $7.7 and $6.9 million, respectively, although there was no substantial change in volumes. Other perchlorates are used in a variety of applications, including munitions, explosives, propellants, and initiators. Some of these applications are in a development phase, and there can be no assurance that sales of the higher price and higher margin products will continue. A significant reduction in these sales would have a material adverse effect on our results of operations and financial condition.

Sodium azide sales accounted for approximately 6%, 12% and 15% of sales during fiscal years ended September 30, 2003, 2002 and 2001, respectively. Autoliv, our principal sodium azide customer, accounted for approximately 3%, 8% and 12% of our revenues during fiscal 2003, 2002 and 2001, respectively.

Worldwide sodium azide demand has recently declined considerably. Our sodium azide sales volumes declined approximately 17% in both fiscal 2001 and 2000, 10% in fiscal 2002, and 54% in fiscal 2003. Worldwide demand for sodium azide is substantially less than worldwide supply. Based principally upon market information received from airbag inflator manufacturers, we expect sodium azide use to continue to decline and that inflators using sodium azide will be phased out over some period of time.

Sales of Halotron amounted to approximately 4%, 5% and 6% of revenues during the fiscal years ended September 30, 2003, 2002 and 2001, respectively. Halotron is designed to replace halon-based fire extinguishing systems. Accordingly, demand for Halotron depends upon a number of factors including the

willingness of consumers to switch from halon-based systems, the effects of competing products, as well as existing and potential governmental regulations.

Real estate sales amounted to approximately 7%, 9% and 5% of revenues during the fiscal years ended September 30, 2003, 2002 and 2001, respectively. The nature of real estate development and sales is such that we are unable reliably to predict any pattern of future real estate sales. In addition, real estate sales are currently estimated to be completed by the end of fiscal 2004. We do not expect to receive any cash returns in the future from our interest in our residential joint venture project, which has wound down its operations.

Environmental protection equipment sales accounted for approximately 4%, 1% and 6% of revenues during the fiscal years ended September 30, 2003, 2002 and 2001, respectively.

Cost of Sales. The principal elements comprising our cost of sales are raw materials, electric power, labor, manufacturing overhead, depreciation and amortization and the book basis in real estate sold. The major raw materials used in our production processes are graphite, sodium chlorate, ammonia, hydrochloric acid, sodium metal, nitrous oxide and HCFC 123. Significant increases in the cost of raw materials may have an adverse impact on margins if we are unable to pass along such increases to our customers.

During the first six months of fiscal 2001, we received power bills from Utah Power that were approximately $1.5 million in excess of average historical amounts. During this period, we purchased greater quantities of certain raw materials because of these excessive power costs. In the second half of fiscal 2001, we recovered the excessive power costs through a settlement and curtailment arrangement with Utah Power. As a result of these arrangements, our net power costs were approximately $1.0 million less in fiscal 2001 compared to average historical annual amounts. We now purchase power from Utah Power under the equivalent of Utah Electric Service Schedule No. 9.

Prices paid by us for raw materials have historically been relatively stable, although we have experienced cost increases on certain raw materials. All the raw materials used in our manufacturing processes have been available in commercial quantities, although we have recently had difficulty obtaining a long-term commitment for the supply of graphite. Graphite is critical to the production of our perchlorate chemicals and we are working to resolve this issue. A substantial portion of the total cash costs of operating our specialty chemical plants, consisting mostly of labor and overhead, are largely fixed in nature.

Net Income. Although our net income and diluted net income per common share have not been subject to seasonal fluctuations, they have been and are expected to continue to be subject to variations from quarter to quarter and year to year due to the following factors, among others: (i) as discussed in Note 9 to our Consolidated Financial Statements, we may incur material legal and other costs associated with certain litigation and contingencies; (ii) the magnitude, pricing and timing of perchlorate chemicals, sodium azide, Halotron, and environmental protection equipment sales in the future is uncertain; (iii) weighted average common and common equivalent shares for purposes of calculating diluted net income per common share are subject to significant fluctuations based upon changes in the market price of our Common Stock due to outstanding warrants and options; (iv) the results of periodic reviews of impairment issues; and (v) the ability to pass on increases in raw material costs to our customers. (See “Liquidity and Capital Resources” and “Forward Looking Statements/Risk Factors” below.)

Results of Operations

Fiscal Year Ended September 30, 2003 Compared to Fiscal Year Ended September 30, 2002

Sales and Operating Revenues. Sales decreased $4.7 million, or 7%, to $68.9 million in fiscal 2003, from $73.6 million in fiscal 2002. This decrease was principally attributable to a decrease in specialty chemicals

sales of $4.6 million and a decrease in real estate sales of $2.2 million. This decrease was partially offset by an increase in environmental protection equipment sales of approximately $2.1 million. The decrease in specialty chemicals sales resulted principally from a decrease in shipments of sodium azide and Halotron.

Real estate sales decreased $2.2 million, or 31%, to $4.8 million in fiscal 2003, from $7.0 million in fiscal 2002, due to a decrease in land sales in fiscal 2003 compared to fiscal 2002. These sales are expected to decline substantially in 2004 by reason of the complete depletion of our real estate in Nevada that is held for sale.

Environmental protection equipment sales increased $2.1 million, or 300%, to $2.8 million in fiscal 2003, from $0.7 million in fiscal 2002. As of October 31, 2003, this segment had a backlog of approximately $0.8 million.

Cost of Sales. Cost of sales decreased $6.2 million, or 14%, to $37.3 million in fiscal 2003, from $43.5 million in fiscal 2002. As a percentage of sales, cost of sales was 54% in fiscal 2003, compared to 59% in fiscal 2002. The decrease in the percentage of cost of sales to sales was principally attributable to decreased depreciation expense associated with our specialty chemicals segment as a result of certain fully depreciated assets, and a change in the mix of products sold to higher margin products within the specialty chemicals segment.

Operating Expenses. Operating (selling, general and administrative) expenses increased $0.7 million, or 5%, in fiscal 2003 to $14.5 million, from $13.8 million in fiscal 2002. The increase was primarily due to increased insurance costs and costs associated with the issue of perchlorate chemicals found in Lake Mead. (See Note 9 to our Consolidated Financial Statements.) These increases were partially offset by decreased spending on corporate development activities.

Segment Operating Income (Loss). Operating income (loss) of our operating segments during the fiscal years ended September 30, 2003 and 2002 was as follows:

	2003			2002

Specialty chemicals	$	14,020,000		$	13,551,000
Environmental protection equipment		(318,000	)		(1,046,000	)
Real estate		3,335,000			3,778,000

Total	$	17,037,000		$	16,283,000

The increase in operating income in our specialty chemicals industry segment was primarily attributable to a decrease in depreciation expense associated with our specialty chemicals segment, offset partially by decreased Halotron and sodium azide shipments. The increase in the operating performance of our environmental protection equipment business was primarily due to increased sales. The decrease in operating income of our real estate segment was principally due to decreased land sales.

Net Interest and Other Expense (Income). Net interest and other expense (income) decreased to $1.5 million in fiscal 2003 from $3.2 million in fiscal 2002. The decrease was principally due to the redemption of the Notes. This decrease was partially offset by our equity in the loss of ES. (See Note 12 to our Consolidated Financial Statements.)

Fiscal Year Ended September 30, 2002 Compared to Fiscal Year Ended September 30, 2001

Sales and Operating Revenues. Sales increased $10.5 million, or 17%, to $73.6 million in fiscal 2002, from $63.1 million in fiscal 2001. This increase was principally attributable to an increase in specialty chemicals sales of $9.1 million and an increase in real estate sales of $4.4 million. This increase was partially offset by a decrease in environmental protection equipment sales of approximately $3.0 million. The increase in specialty

chemicals sales resulted principally from increased perchlorate shipments, offset in part by a decrease in shipments of sodium azide and Halotron.

Real estate sales increased $4.4 million, or 169%, to $7.0 million in fiscal 2002, from $2.6 million in fiscal 2001, due to an increase in land sales in fiscal 2002 compared to fiscal 2001.

Environmental protection equipment sales decreased $3.0 million, or 81%, to $0.7 million in fiscal 2002, from $3.7 million in fiscal 2001.

Cost of Sales. Cost of sales decreased $5.3 million, or 14%, to $43.5 million in fiscal 2002, from $38.2 million in fiscal 2001. As a percentage of sales, cost of sales was 59% in fiscal 2002, compared to 61% in fiscal 2001. The decrease in the percentage of cost of sales to sales was principally attributable to increased perchlorate shipments and an increase in real estate sales, which generally have a higher gross margin than our other products.

Operating Expenses. Operating (selling, general and administrative) expenses increased $3.7 million, or 37%, in fiscal 2002 to $13.8 million, from $10.1 million in fiscal 2001. Most of the increases in operating expenses relate to costs incurred in connection with corporate and product development activities. We incurred increased costs relating to the evaluation and investigation of the potential for alternative uses and applications of certain of our existing and related products. In addition, during the fiscal year ended September 30, 2002, we experienced increases in operating expenses as a result of detailed due diligence activities directly related to certain corporate development opportunities. Operating expenses during each of the fiscal years 2002 and 2001, also include approximately $0.9 million in costs associated with the investigation and evaluation of trace amounts of perchlorate chemicals found in Lake Mead. (See Note 9 to our Consolidated Financial Statements.)

Segment Operating Income (Loss). Operating income (loss) of our operating segments during the fiscal years ended September 30, 2002 and 2001 was as follows:

	2002			2001

Specialty chemicals	$	13,551,000		$	13,479,000
Environmental protection equipment		(1,046,000	)		140,000
Real estate		3,778,000			1,234,000

Total	$	16,283,000		$	14,853,000

The increases in operating income in our specialty chemicals industry segment was primarily attributable to an increase in perchlorate chemical shipments, offset partially by decreased Halotron and sodium azide shipments, and lower power costs in fiscal 2001 (see above). The increase in operating income of our real estate segment was principally due to increased land sales. The operating loss incurred in our environmental protection equipment business in fiscal 2002 was primarily due to decreased sales.

Net Interest and Other Expense (Income). Net interest and other expense (income) increased to $3.2 million in fiscal 2002 from $2.6 million in fiscal 2001. The increase was principally due to lower average interest rates earned on cash and cash equivalent balances.

Inflation

General inflation did not have a significant effect on our sales and operating revenues or costs during the three-year period ended September 30, 2003. General inflation may have an effect on gross profit in the future as certain of our agreements relating to Grade I AP and sodium azide customers require fixed prices, although certain of such agreements contain escalation features that should somewhat insulate us from increases in costs associated with inflation. As discussed above, we have recently experienced increases in certain raw material

costs and power costs, although we believe that such increases are not specifically related to the effects of general inflation.

Liquidity and Capital Resources

Cash flows provided by operating activities were $17.7 million, $17.1 million and $18.2 million during the fiscal years ended September 30, 2003, 2002 and 2001, respectively. We believe that our cash flows from operations and existing cash balances will be adequate for the foreseeable future to satisfy the needs of our operations. However, the resolution of litigation and contingencies, and the timing, pricing and magnitude of orders for perchlorates, sodium azide and Halotron, may have an effect on the use and availability of cash.

The combination of the lower levels of expected Grade I AP sales, the 20% price reduction on Grade I AP sold to Thiokol beginning in fiscal 2004, and declining real estate sales (all referred to above) is expected to significantly reduce our revenues and cash flows from operating activities in fiscal 2004. As a result of these factors and absent the consideration of any changes in working capital, we currently expect that our cash flows from operating activities will be at least 50% less in fiscal 2004 as compared to fiscal 2003.

Capital expenditures were $3.1 million, $2.1 million and $1.6 million during the fiscal years ended September 30, 2003, 2002 and 2001, respectively. Capital expenditures relate principally to specialty chemicals segment capital improvement projects and enterprise software.

As discussed in Note 12 to our Consolidated Financial Statements, in December 2002 we made an investment of approximately $10.7 million in ES. The form of our investment in ES represents a combination of term and revolving debt, preferred stock and common equity. We are currently in negotiations to modify the terms of the term and revolving debt, but do not presently expect to incur any impairment loss related to any such modifications.

As discussed in Note 5 to our Consolidated Financial Statements, we redeemed the Notes on March 1, 2003. The total cost of the redemption, including interest on the Notes, was approximately $43.4 million. We recognized a loss on the redemption of the Notes of approximately $1.5 million.

During the three-year period ended September 30, 2003, we received cash of approximately $6.6 million (none in fiscal 2003) from our Ventana Canyon residential joint venture. The venture has wound down its operations and we do not expect to receive any cash returns from this venture in the future.

During the three-year period ended September 30, 2003, we spent $2.5 million on the repurchase of our Common Stock. As discussed in Note 13 to our Consolidated Financial Statements, our Dividend and Stock Repurchase Program became effective in fiscal 2003. Under the provisions of this Program, on December 18, 2003, our Board of Directors declared a cash dividend of $0.42 per share, payable on January 9, 2004, to shareholders of record on December 29, 2003.

As a result of the litigation and contingencies discussed in Note 9 to our Consolidated Financial Statements, we have incurred legal and other costs, and we may incur material legal and other costs associated with the resolution of litigation and contingencies in future periods. Any such costs, to the extent borne by us and not recovered through insurance, would adversely affect our liquidity. We are currently unable to predict or quantify the amount or range of such costs or the period of time over which such costs may be incurred.

Contractual Obligations and Commitments. The following tables summarize our fiscal year contractual obligations and commitments as of September 30, 2003.

	Payments Due by Period

	Total		2004		2005		2006		2007 and Thereafter

Contractual Obligations
Operating leases	$	1,375,000	$	550,000	$	550,000	$	275,000
Pension obligations		7,031,000		1,700,000		1,700,000		1,700,000	$	1,931,000

Total contractual obligations	$	8,406,000	$	2,250,000	$	2,250,000	$	1,975,000	$	1,931,000

	Amount of Commitment Expiration by Period

	Total Amounts Committed		2004		2005		2006		2007 and Thereafter

Other Commitments
Letters of credit	$	1,915,000	$	1,634,000	$	59,000	$	42,000	$	180,000

Total other commitments	$	1,915,000	$	1,634,000	$	59,000	$	42,000	$	180,000

Forward-Looking Statements/Risk Factors

Certain matters discussed in this Report may be forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from those projected. Such risks and uncertainties include, but are not limited to, the risk factors set forth below.

The following risk factors, among others, may cause our operating results and/or financial position to be adversely affected from time to time:

1.	(a) Declining demand (including excess customer inventories) or downward pricing pressure for our products as a result of general or specific economic conditions, (b) governmental budget decreases affecting the DOD or NASA, including the status of the Space Shuttle Program, that would cause a decrease in demand for Grade I AP, (c) technological advances and improvements with respect to existing or new competitive products causing a reduction or elimination of demand for Grade I AP and other perchlorates, sodium azide or Halotron, (d) the ability and desire of purchasers to change existing products or substitute other products for our products based upon perceived quality, environmental effects and pricing, and (e) the fact that perchlorate chemicals, sodium azide, Halotron and our environmental products have limited applications and highly concentrated customer bases.

2.	The cost and effects of legal and administrative proceedings, settlements and investigations, particularly those investigations described in Note 9 to our Consolidated Financial Statements, as well as the costs resulting from regulatory and environmental matters that may have a negative impact on sales or costs.

3.	Our ability to profitably integrate, manage and operate new businesses and/or investments competitively and cost effectively.

4.	Competitive factors including, but not limited to, our limitations respecting financial resources and our ability to compete against companies with substantially greater resources, significant excess market supply in the sodium azide market and in the perchlorate market, potential patent coverage issues, and the development or penetration of competing new products, particularly in the propulsion, airbag inflation, fire extinguishing and explosives businesses.

5.	Underutilization of our manufacturing facilities resulting in production inefficiencies and increased costs, the inability to recover facility costs, reductions in margins, and impairment issues.

6.	The near depletion of our Clark County, Nevada commercial real estate, with only 14 acres remaining for sale.

7.	The effects of, and changes in, trade, monetary and fiscal policies, laws and regulations and other activities of governments, agencies or similar organizations, including, but not limited to, environmental, safety and transportation issues.

8.	The dependence upon a single facility for the production of most of our products.

9.	Provisions of our Certificate of Incorporation and By-laws and Series D Preferred Stock, and the dividend of preference stock purchase rights and related Rights Agreement, could have the effect of making it more difficult for potential acquirors to obtain a control position in us.

Item 7A. Quantitative and Qualitative Disclosure About Market Risk

Market risk represents the risk of loss arising from adverse changes in market rates and prices, commodity prices and foreign currency exchange rates. We had certain long-term fixed-rate debt that was redeemed on March 1, 2003. In December 2002, we entered into a revolving line of credit facility that is secured by certain inventory and receivables. To date, we have not drawn upon the line of credit. We believe that any market risk arising from our fixed-rate debt is not material. At September 30, 2003, we did not have any derivative-based financial instruments. However, the amount of outstanding debt may fluctuate and we may at some time be subject to refinancing risk.

Item 8. Financial Statements and Supplementary Data

Financial statements called for hereunder are included herein on the following pages:

	Page(s)

Independent Auditors’ Report	33
Consolidated Balance Sheets	34
Consolidated Statements of Income	35
Consolidated Statements of Cash Flows	36
Consolidated Statements of Changes in Shareholders’ Equity	37
Notes to Consolidated Financial Statements	38-51

SUMMARIZED QUARTERLY FINANCIAL DATA
(unaudited)
(amounts in thousands except per share amounts)

	Quarters For Fiscal Year 2003

	1st		2nd		3rd		4th		Total

Sales and Operating Revenues	$	15,063	$	19,550	$	13,809	$	20,444	$	68,866
Gross Profit		6,379		9,372		5,502		10,264		31,517
Net Income		1,191		2,682		1,600		3,887		9,360
Diluted Net Income Per Share	$	.16	$	.36	$	.22	$	.53	$	1.27

	Quarters For Fiscal Year 2002

	1st			2nd		3rd		4th		Total

Sales and Operating Revenues	$	13,117		$	20,046	$	18,542	$	21,883	$	73,588
Gross Profit		3,839			7,887		7,383		10,950		30,059
Net Income		(5	)		2,566		1,991		4,090		8,642
Diluted Net Income Per Share	$	(.00	)	$	.35	$	.27	$	.55	$	1.18

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Not Applicable.

Item 9A. Controls and Procedures

Based on their evaluation, as of the end of the period covered by this Form 10-K, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) are effective.

PART III

Item 10. Directors and Executive Officers of the Registrant

The required information regarding directors and executive officers is incorporated herein by reference from our definitive proxy statement for the 2004 Annual Meeting of Stockholders, to be filed with the Securities and Exchange Commission not later than January 28, 2004. We have adopted a policy that applies to all of our directors and employees entitled “Standards of Business Conduct” that is filed as an exhibit to this annual report. This policy is also posted to our website at www.apfc.com.

Item 11. Executive Compensation

The required information regarding executive compensation is incorporated herein by reference from our definitive proxy statement for the 2004 Annual Meeting of Stockholders, to be filed with the Securities and Exchange Commission not later than January 28, 2004.

Item 12. Security Ownership of Certain Beneficial Owners and Management

The required information regarding security ownership of certain beneficial owners and management is incorporated herein by reference from our definitive proxy statement for the 2004 Annual Meeting of Stockholders, to be filed with the Securities and Exchange Commission not later than January 28, 2004.

Item 13. Certain Relationships and Related Transactions

The required information regarding certain relationships and related transactions is incorporated herein by reference from our definitive proxy statement for the 2004 Annual Meeting of Stockholders, to be filed with the Securities and Exchange Commission not later than January 28, 2004.

Item 14. Principal Accounting Fees and Services

The required information regarding principal accounting fees and services is incorporated herein by reference from our definitive proxy statement for the 2004 Annual Meeting of Shareholders, to be filed with the Securities and Exchange Commission not later than January 28, 2004.

PART IV

Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K

(a)	(1)	Financial Statements

		See Part II, Item 8 for an index to the Registrant’s financial statements and supplementary data.

	(2)	Financial Statement Schedules

		None applicable.

	(3)	Exhibits

		The following Exhibits are filed as part of this Report (references are to Regulation S-K Exhibit Numbers):

		3.1	Registrant’s Restated Certificate of Incorporation, incorporated by reference to Exhibit 3A to Registrant’s Registration Statement on Form S-14 (File No. 2-70830), (the “S-14”).

		3.2	Registrant’s By-Laws, incorporated by reference to Exhibit 3B to the S-14.

		3.3	Amendments to Registrant’s By-Laws, incorporated by Reference to the Registrant’s Current Report on Form 8-K dated November 9, 1999.

		3.4	Articles of Amendment to the Restated Certificate of Incorporation, as filed with the Secretary of State, State of Delaware, on October 7, 1991, incorporated by reference to Exhibit 4.3 to Registrant’s Registration Statement on Form S-3 (File No. 33-52196) (the “S-3”).

		3.5	Articles of Amendment to the Restated Certificate of Incorporation as filed with the Secretary of State, State of Delaware, on April 21, 1992, incorporated by reference to Exhibit 4.4 to the S-3.

		3.6	Form of Indemnification Agreement between the Registrant and all Directors of the Registrant, incorporated by reference to Exhibit 3.6 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended September 30, 2000 (the “2000 10-K”).

		4.1	American Pacific Corporation 1997 Stock Option Plan (the “1997 Plan”), incorporated by reference to Exhibit 4.1 to Registrant’s Form S-8 (File No. 333-53449) (the “1998 S-8”).

		4.2	Form of Option Agreement under the 1997 Plan, incorporated by reference to Exhibit 4.2 to the 1998 S-8.

		4.3	American Pacific Corporation 2001 Amended and Restated Stock Option Plan (the “2001 Plan”), incorporated by reference to Exhibit 4.1 to Registrant’s Form S-8 (File No. 333-104732) (the “2003 S-8”).

		4.4	Form of Option Agreement under the 2001 Plan, incorporated by reference to Exhibit 4.3 to the 2003 S-8.

		4.5		American Pacific Corporation 2002 Directors Stock Option Plan (the “2002 Plan”), incorporated by reference to Exhibit 4.2 to the 2003 S-8.

		4.6		Form of Option Agreement under the 2002 Plan, incorporated by reference to Exhibit 4.4 to the 2003 S-8.

		4.7		Form of Rights Agreement, dated as of August 3, 1999, between Registrant and American Stock Transfer & Trust Company, incorporated by reference to the Registrant’s Registration Statement on Form 8-A dated August 6, 1999 (the “Form 8-A”).

		4.8		Form of Letter to Stockholders with copies of Summary of Rights to Purchase Preference Shares, incorporated by reference to the Form 8-A.

		10.1		Employment agreement dated January 1, 2002, between the Registrant and David N. Keys, incorporated by reference to Exhibit 10.1 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended September 30, 2002 (the “2002 10-K”).

		10.2		Employment agreement dated January 1, 2002, between the Registrant and John R. Gibson, incorporated by reference to Exhibit 10.2 to the Registrant’s 2002 10-K.

		10.3		Amended and Restated American Pacific Corporation Defined Benefit Pension Plan, incorporated by reference to Exhibit 10.4 to the 1999 10-K.

		10.4		Amended and Restated American Pacific Corporation Supplemental Executive Retirement Plan effective January 1, 1999, incorporated by reference to Exhibit 10.5 to the 1999 10-K.

		10.5		Trust Agreement for the Amended and Restated American Pacific Corporation Supplemental Executive Retirement Plan, incorporated by reference to Exhibit 10.6 to the 1999 10-K.

		10.6		Lease Agreement between 3770 Hughes Parkway Associates Limited Partnership and the Registrant, dated July 31, 1990, incorporated by reference to Exhibit 10.22 to the Registrant’s Registration Statement on Form S-2 (File No. 33-36664) (the “1990 S-2”).

		10.7		Limited Partnership Agreement of 3770 Hughes Parkway Associates, Limited Partnership, incorporated by reference to Exhibit 10.23 to the 1990 S-2.

		10.8		Cooperation and Stock Option Agreement dated as of July 4, 1990, by and between Dynamit Nobel AG and the Registrant, including exhibits thereto, incorporated by reference to Exhibit 10.24 to the 1990 S-2.

		10.9		Long-Term Pricing Agreement dated as of December 12, 1997, between Thiokol Corporation-Propulsion and the Registrant, incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 1998 (the “1998 March 10-Q”).

		10.10		Modification No. 1 dated September 13, 2000, to Long-Term Pricing Agreement between Thiokol Propulsion and the Registrant, incorporated by reference to Exhibit 10.14 to the 2000 10-K.

		10.11		Partnershipping Agreement between Alliant Techsystems Incorporated (“Alliant”) and Western Electrochemical Company and letter dated November 24, 1997, from the Registrant to Alliant and revised Exhibit B with respect thereto, incorporated by reference to Exhibit 10.2 to the 1998 March 10-Q.

		* 10.12		Articles of Organization of Energetic Systems Inc., LLC

		* 10.13		Operating Agreement of Energetic Systems Inc., LLC

		* 14		Standards of Business Conduct.

		* 21		Subsidiaries of the Registrant.

		* 23		Consent of Deloitte & Touche LLP.

		* 24		Power of Attorney, included on Page 32.

		* 31. 1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

		* 31. 2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

		* 32. 1		Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

		* 32. 2		Certification of Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

* Filed herewith.

(b)	Reports on Form 8-K

	On August 1, 2003, we filed a Form 8-K furnishing our press release dated July 31, 2003.

(c)	See (a)(3) above.

(d)	None applicable.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

Dated: December 18, 2003		AMERICAN PACIFIC CORPORATION
		(Registrant)


	By:	/s/ JOHN R. GIBSON

		John R. Gibson President & Chief Executive Officer


	By:	/s/ DAVID N. KEYS

		David N. Keys Executive Vice President, Chief Financial Officer, Secretary and Treasurer, Principal Financial and Accounting Officer

POWER OF ATTORNEY

American Pacific Corporation and each of the undersigned do hereby appoint John R. Gibson and David N. Keys and each of them severally, its or his true and lawful attorneys, with full power of substitution and resubstitution, to execute on behalf of American Pacific Corporation and the undersigned any and all amendments to this Report and to file the same with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission. Each of such attorneys shall have the power to act hereunder with or without the others.

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below on behalf of the Registrant by the following persons in the capacities and on the dates indicated.

/s/ JOHN R. GIBSON		Date: December 18, 2003

John R. Gibson, Chief Executive Officer, President, and Director

/s/ DAVID N. KEYS		Date: December 18, 2003

David N. Keys, Executive Vice President, Chief Financial Officer, Secretary and Treasurer; Principal Financial and Accounting Officer and Director

/s/ FRED D. GIBSON, JR.		Date: December 18, 2003

Fred D. Gibson, Jr., Director

/s/ JAN H. LOEB		Date: December 18, 2003

Jan H. Loeb, Director

/s/ BERLYN D. MILLER		Date: December 18, 2003

Berlyn D. Miller, Director

/s/ NORVAL F. POHL		Date: December 18, 2003

Norval F. Pohl, Ph.D., Director

/s/ C. KEITH ROOKER		Date: December 18, 2003

C. Keith Rooker, Director

/s/ VICTOR M. ROSENZWEIG		Date: December 18, 2003

Victor M. Rosenzweig, Director

/s/ DEAN M. WILLARD		Date: December 18, 2003

Dean M. Willard, Director

/s/ JANE L. WILLIAMS		Date: December 18, 2003

Jane L. Williams, Director

INDEPENDENT AUDITORS’ REPORT

To the Board of Directors of
American Pacific Corporation:

We have audited the accompanying consolidated balance sheets of American Pacific Corporation and Subsidiaries (the “Company”) as of September 30, 2003 and 2002, and the related consolidated statements of income, cash flows and changes in shareholders’ equity for each of the three years in the period ended September 30, 2003. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company at September 30, 2003 and 2002, and the results of its operations and its cash flows for each of the three years in the period ended September 30, 2003 in conformity with accounting principles generally accepted in the United States of America.

/s/ DELOITTE & TOUCHE LLP

DELOITTE & TOUCHE LLP

Las Vegas, Nevada
December 18, 2003

AMERICAN PACIFIC CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2003 AND 2002

	2003			2002

ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	27,140,000		$	65,826,000
Accounts and notes receivable		8,951,000			6,787,000
Related party notes and accrued interest receivable		321,000			380,000
Inventories		13,613,000			13,989,000
Prepaid expenses and other assets		446,000			445,000
Deferred income taxes		79,000			435,000

Total Current Assets		50,550,000			87,862,000
PROPERTY, PLANT AND EQUIPMENT, NET		9,223,000			7,918,000
INTANGIBLE ASSETS, NET		17,579,000			21,297,000
INVESTMENT IN AND ADVANCES TO JOINT VENTURE		10,393,000
DEFERRED INCOME TAXES		10,228,000			9,693,000
OTHER ASSETS, NET		3,712,000			5,201,000

TOTAL ASSETS	$	101,685,000		$	131,971,000

LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities	$	7,951,000		$	6,079,000

Total Current Liabilities		7,951,000			6,079,000
LONG-TERM DEBT					40,600,000
OTHER LONG-TERM LIABILITIES		5,331,000			5,482,000

TOTAL LIABILITIES		13,282,000			52,161,000

COMMITMENTS AND CONTINGENCIES
WARRANTS TO PURCHASE COMMON STOCK		3,569,000			3,569,000
SHAREHOLDERS’ EQUITY:
Common stock – $.10 par value, 20,000,000 shares authorized, issued – 8,995,041 shares in 2003 and 8,824,541 shares in 2002		898,000			881,000
Capital in excess of par value		83,554,000			82,249,000
Retained earnings		16,180,000			6,820,000
Treasury stock (1,752,212 shares in 2003, and 1,570,087 shares in 2002)		(14,230,000	)		(12,483,000	)
Accumulated other comprehensive loss		(1,568,000	)		(1,226,000	)

Total Shareholders’ Equity		84,834,000			76,241,000

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	101,685,000		$	131,971,000

See Notes to Consolidated Financial Statements.

AMERICAN PACIFIC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED SEPTEMBER 30, 2003, 2002 AND 2001

	2003		2002		2001

SALES AND OPERATING REVENUES	$	68,866,000	$	73,588,000	$	63,089,000
COST OF SALES		37,349,000		43,529,000		38,186,000

GROSS PROFIT		31,517,000		30,059,000		24,903,000
OPERATING EXPENSES		14,480,000		13,776,000		10,050,000

OPERATING INCOME		17,037,000		16,283,000		14,853,000
NET INTEREST AND OTHER EXPENSE (INCOME)		1,544,000		3,235,000		2,590,000
LOSS ON DEBT EXTINGUISHMENTS		1,522,000		149,000

INCOME BEFORE INCOME TAXES		13,971,000		12,899,000		12,263,000
INCOME TAXES		4,611,000		4,257,000		4,537,000

NET INCOME	$	9,360,000	$	8,642,000	$	7,726,000

BASIC NET INCOME PER SHARE	$	1.29	$	1.21	$	1.10

AVERAGE SHARES OUTSTANDING		7,253,000		7,145,000		7,034,000

DILUTED NET INCOME PER SHARE	$	1.27	$	1.18	$	1.10

DILUTED SHARES		7,353,000		7,335,000		7,052,000

See Notes to Consolidated Financial Statements.

AMERICAN PACIFIC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 2003, 2002 AND 2001

	2003			2002			2001

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	9,360,000		$	8,642,000		$	7,726,000

Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization		5,794,000			6,384,000			6,303,000
Basis in development property sold		632,000			2,517,000			769,000
Equity in loss of joint venture		760,000
Loss on debt extinguishments		1,522,000			149,000
Stock options tax effects		170,000			269,000
Changes in assets and liabilities:
Accounts and notes receivable		(2,105,000	)		(1,328,000	)		4,166,000
Inventories		376,000			(81,000	)		(3,033,000	)
Prepaid expenses and other		193,000			(2,412,000	)		(176,000	)
Deferred income taxes		(179,000	)		975,000			4,303,000
Accounts payable and other liabilities		1,197,000			1,992,000			(1,894,000	)

Total adjustments		8,360,000			8,465,000			10,438,000

Net cash from operating activities		17,720,000			17,107,000			18,164,000

CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures		(3,119,000	)		(2,080,000	)		(1,624,000	)
Investment in and advances to joint venture		(11,153,000	)
Real estate equity returns					1,385,000			5,239,000

Net cash from investing activities		(14,272,000	)		(695,000	)		3,615,000

CASH FLOWS FROM FINANCING ACTIVITIES:
Debt related payments		(41,539,000	)		(3,647,000	)
Issuance of common stock		1,152,000			1,903,000			12,000
Treasury stock acquired		(1,747,000	)		(313,000	)		(448,000	)

Net cash from financing activities		(42,134,000	)		(2,057,000	)		(436,000	)

NET CHANGE IN CASH AND CASH EQUIVALENTS		(38,686,000	)		14,355,000			21,343,000
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR		65,826,000			51,471,000			30,128,000

CASH AND CASH EQUIVALENTS, END OF YEAR	$	27,140,000		$	65,826,000		$	51,471,000

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during year for interest	$	1,875,000		$	3,800,000		$	4,100,000

Cash paid during year for income taxes	$	4,400,000		$	2,400,000		$	200,000

See Notes to Consolidated Financial Statements.

AMERICAN PACIFIC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 2003, 2002 AND 2001

	Net Outstanding Number of Common Shares		Par Value of Shares Issued		Capital in excess of Par Value		Retained Earnings (Accumulated Deficit)			Treasury Stock			Note Receivable from the Sale of Stock			Accumulated Other Comprehensive Loss

BALANCES, OCTOBER 1, 2000	7,078,637		$	852,000	$	80,094,000	$	(9,548,000	)	$	(11,722,000	)	$	(67,000	)
Net income								7,726,000
Issuance of common stock	2,500					12,000
Treasury stock acquired	(83,933	)									448,000	)
Note payments														56,000

BALANCES, SEPTEMBER 30, 2001	6,997,204			852,000		80,106,000		(1,822,000	)		(12,170,000	)		(11,000	)
Net income								8,642,000								$	8,642,000
Other comprehensive loss																	(1,226,000	)

Subtotal – comprehensive income																	7,416,000
Issuance of common stock	308,750			29,000		1,874,000
Stock option tax effects						269,000
Treasury stock acquired	(51,500	)									(313,000	)
Note payments														11,000

BALANCES, SEPTEMBER 30, 2002	7,254,454			881,000		82,249,000		6,820,000			(12,483,000	)					(1,226,000	)
Net income								9,360,000									9,360,000
Other comprehensive loss																	(342,000	)

Subtotal – comprehensive income																	9,018,000
Issuance of common stock	170,500			17,000		1,135,000
Stock option tax effects						170,000
Treasury stock acquired	(182,125	)									(1,747,000	)

BALANCES, SEPTEMBER 30, 2003	7,242,829		$	898,000	$	83,554,000	$	16,180,000		$	(14,230,000	)				$	(1,568,000	)

See Notes to Consolidated Financial Statements.

AMERICAN PACIFIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 2003, 2002 AND 2001

1.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

	Principles of Consolidation – The Consolidated Financial Statements include the accounts of American Pacific Corporation and Subsidiaries (the “Company”, “we”, “us”, or “our”). All significant intercompany accounts and transactions have been eliminated.

	Estimates and Assumptions – The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities and the reported amounts of revenue and expenses. Judgments and assessments of uncertainties are required in applying our accounting policies in many areas. For example, key assumptions and estimates are particularly important when determining our projected liabilities for pension benefits, useful lives for depreciable and amortizable assets, and the recoverability of our investment in and advances to joint ventures, deferred tax assets and long-lived assets, including intangible assets. Other areas in which significant uncertainties exist include, but are not limited to, costs that may be incurred in connection with environmental matters and the resolution of litigation and other contingencies. Actual results will inevitably differ to some extent from estimates on which our Consolidated Financial Statements were prepared.

	Cash and Cash Equivalents – All highly liquid investment securities with a maturity of three months or less when acquired are considered to be cash equivalents.

	Related Party Transactions – Related party notes and accrued interest receivable represent demand notes bearing interest at a bank’s prime rate from our former Chairman and a current officer.

	Our other related party transactions generally fall into the following categories:

	•	Payments of professional fees to firms affiliated with certain members of our Board.

	•	Payments to certain directors for consulting services outside of the scope of their duties as directors.

	For the years ended September 30, 2003, 2002 and 2001, such transactions totaled $0.5 million, $0.5 million and $0.4 million, respectively.

	Inventories – Inventories are stated at the lower of cost or market. Cost of the specialty chemicals segment inventories is determined principally on a moving average basis and cost of the environmental protection equipment segment inventories is determined principally on the specific identification basis.

	Property, Plant and Equipment – Property, plant and equipment are carried at cost less accumulated depreciation. We periodically assess the recoverability of property, plant and equipment and evaluate such assets for impairment whenever events or changes in circumstances indicate that the net carrying amount of an asset may not be recoverable. Asset impairment (including intangible assets) is determined to exist if estimated future cash flows, undiscounted and without interest charges, are less than the net carrying amount. Depreciation is computed on the straight-line method over the estimated productive lives of the assets (3 to 12 years for machinery and equipment and 15 to 31 years for buildings and improvements).

	Intangible Assets – During the first quarter of fiscal 2002, we adopted Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets”. The adoption of SFAS No. 142 did not have a material effect on our results of operations or financial position. Under the provisions of SFAS

	No. 142, our intangible assets, related primarily to our perchlorate acquisition in fiscal 1998, will continue to be amortized under its originally assigned life of ten years. At September 30, 2003, our intangible assets had a gross carrying value of approximately $39.5 million and accumulated amortization of approximately $21.9 million. Amortization expense was approximately $3.9 million in fiscal 2003 and $4.4 million in both fiscal 2002 and 2001. Amortization expense is estimated to amount to approximately $3.9 million in each of the years during the five-year period ending September 30, 2007.

	Accounts Payable and Accrued Liabilities – Accounts payable and accrued liabilities at September 30, 2003 and 2002 consist of the following:

	2003		2002

Accounts payable	$	1,098,000	$	921,000
Accrued liabilities (principally pension and payroll related, and taxes)		6,853,000		5,158,000

Total	$	7,951,000	$	6,079,000

	Fair Value Disclosure as of September 30, 2003:

	Cash and cash equivalents, accounts and notes receivable, accounts payable and accrued liabilities, and other long-term liabilities – The carrying value of these items is a reasonable estimate of their fair value due to their short-term nature.

	Warrants – Market quotations are not available for our Warrants. However, the $14 strike price of the Warrants is substantially in excess of the recent trading prices of our Common Stock and the Warrants expire on December 31, 2003. (See Note 5.)

	Sales and Revenue Recognition – Sales of the specialty chemicals segment are recognized as the product is shipped and billed pursuant to outstanding purchase orders. Sales of the environmental protection equipment segment are recognized when the product is shipped. We receive cash for the full amount of real estate sales at the time of closing.

	Net Income Per Common Share – Basic per share amounts are calculated by dividing net income by average shares outstanding during the period. Diluted per share amounts are calculated by dividing net income by average shares outstanding plus the dilutive effect of common share equivalents. The effect of outstanding stock options and warrants to purchase approximately 2.9 million, 2.9 million and 3.2 million shares of common stock during the fiscal years 2003, 2002 and 2001, respectively, were not included in diluted per share calculations, since the average exercise price of such options and warrants was greater than the average market price of our common stock during these periods. The dilutive effect of the assumed exercise of stock options increased the weighted average of common shares by 100,000, 190,000 and 18,000 during the years ended September 30, 2003, 2002 and 2001, respectively.

	Accounting for Stock-Based Compensation – In December 2002, SFAS No. 148, “Accounting for Stock-Based Compensation-Transition and Disclosure,” which amends SFAS No. 123, “Accounting for Stock-Based Compensation” was issued. SFAS 148 is effective for fiscal years ending after December 15, 2002, and gives further guidance regarding methods of transition for a voluntary change to the fair-value-based method of accounting for stock-based employee compensation and regarding disclosure requirements as previously defined in SFAS 123. We have elected to follow Accounting Principles Board Opinion (“APB”) No. 25, “Accounting for Stock Issued to Employees” and related interpretations in accounting for our stock options. Under APB No. 25, if the exercise price of our employee stock options equals the market price of the underlying stock on the date of the grant, no compensation expense is recognized. (See Note 10.)

	Income Taxes – We account for income taxes under the provisions of SFAS No. 109, “Accounting for Income Taxes”. (See Note 7.)

	Loss on Debt Extinguishments – During the first quarter of fiscal 2003, we adopted SFAS No. 145. SFAS No. 145 requires that gains and losses from extinguishment of debt be classified as extraordinary items only if they meet the criteria in APB No. 30. Applying the provisions of APB No. 30 distinguishes transactions that are part of an entity’s recurring operations from those that are unusual and infrequent and that meet the criteria for classification as an extraordinary item. We have reclassified previously reported extraordinary losses on debt extinguishments to a separate line item above the caption “Income Before Income Taxes” in our Consolidated Statements of Income.

	Comprehensive Loss – Other comprehensive loss is reported in our Consolidated Statements of Shareholders’ Equity and Accumulated other comprehensive loss is reported in our Consolidated Balance Sheets. Our only component of other comprehensive loss represents a minimum pension liability adjustment. (See Note 8.)

	Recently Issued Accounting Standards – In May 2003, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of Both Liability and Equity.” SFAS No. 150 established standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity and requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). We have determined that SFAS No. 150 will not have a material impact on our financial position or results of operations.

	In January 2003, FASB issued Interpretation No. 46 (“FIN 46”), “Consolidation of Variable Interest Entities,” which addresses consolidation by business enterprises of variable interest entities that either: (1) do not have sufficient equity investment at risk to permit the entity to finance its activities without additional subordinated financial support, or (2) hold a significant variable interest in, or have significant involvement with, an existing variable interest entity. We are currently evaluating the impact, if any, FIN 46 will have on our consolidated financial position, results of operations and cash flows.

	Reclassifications – Certain reclassifications have been made in the 2002 and 2001 Consolidated Financial Statements in order to conform to the presentation used in 2003.

2.	INVENTORIES

	Inventories at September 30, 2003 and 2002 consist of the following:

	2003		2002

Work-in-process	$	6,613,000	$	6,923,000
Raw material and supplies		7,000,000		7,066,000

Total	$	13,613,000	$	13,989,000

3.	PROPERTY, PLANT AND EQUIPMENT

	Property, plant and equipment at September 30, 2003 and 2002 are summarized as follows:

	2003		2002

Land	$	117,000	$	117,000
Buildings, machinery and equipment		19,465,000		16,680,000
Construction in progress		1,029,000		695,000

Total		20,611,000		17,492,000
Less: accumulated depreciation		11,388,000		9,574,000

Property, plant and equipment, net	$	9,223,000	$	7,918,000

	Depreciation expense was approximately $1.8 million, $2.2 million and $2.1 million during the years ended September 30, 2003, 2002 and 2001, respectively.

4.	REAL ESTATE ASSETS

	At September 30, 2003, we owned approximately 14 acres of improved undeveloped land at the Gibson Business Park near Las Vegas, Nevada. We also own approximately 4,700 acres of land and certain water rights at our site in Iron County, Utah that are dedicated to our growth and diversification.

	We hold a 50% interest in the Ventana Canyon joint venture residential project located in the Las Vegas, Nevada area. All homes have been sold and the venture has wound down its operations. During the three-year period ended September 30, 2003, we received cash returns from this venture of approximately $6.6 million (none in fiscal 2003). We do not expect to receive any cash returns from the venture in the future.

	In July 1990, we contributed $0.7 million to Gibson Business Park Associates 1986-I, a real estate development limited partnership (the “Partnership”), in return for a 70% interest as a general and limited partner, and other limited partners contributed $0.3 million in return for a 30% interest as limited partners. Such other limited partners include certain current and former members of our Board of Directors. The Partnership, in turn, contributed $1.0 million to 3770 Hughes Parkway Associates Limited Partnership, a Nevada limited partnership (“Hughes Parkway”), in return for a 33% interest as a limited partner in Hughes Parkway. We entered into an agreement with Hughes Parkway pursuant to which we lease office space in a building in Las Vegas, Nevada. (See Note 9.)

	Our real estate assets, grouped with Other Assets in our Consolidated Balance Sheet, had a total carrying value of approximately $1.7 million and $2.3 million at September 30, 2003 and 2002, respectively.

5.	LONG-TERM DEBT

	On March 1, 2003, we redeemed all of our outstanding 9¼% Senior Unsecured Notes (the “Notes”). The redemption was at a price of 102.313% of the principal amount of the Notes, plus accrued interest to the date of redemption, aggregating approximately $43.4 million. We recognized a loss on the redemption of $1.5 million, including a non-cash charge of $0.6 million to write-off remaining debt issue costs.

	In 1992, we issued warrants (the “Warrants”) to the purchasers of certain subordinated secured notes (the “Azide Notes”). The remaining principal balance of the outstanding Azide Notes were repurchased in 1998. The Warrants, which grant the right to purchase shares of Common Stock at an exercise price of $14.00 per share, expire on December 31, 2003. The maximum number of shares purchasable upon exercise of the Warrants is 2,857,000 shares. The Warrants are exercisable, at the option of their holders, to purchase up to 20 percent of the common stock of American Azide Corporation (“AAC”), our wholly-owned subsidiary, rather than our Common Stock. In the event of such an election, the exercise price of the Warrants will be based upon a pro rata share of AAC’s capital, adjusted for earnings and losses, plus interest from the date of contribution. The Warrants contain certain provisions for a reduction in exercise price in the event we issue or are deemed to issue stock, rights to purchase stock or convertible debt at a price less than the exercise price in effect, or in the event of certain stock dividends, stock splits, mergers or similar transactions.

	We may call up to 50% of the Warrants at prices that would provide a 30% internal rate of return to the holders thereof through the date of call (inclusive of the 11% Azide Notes’ yield). The holders of the Warrants were also granted the right to require that the Common Stock underlying the Warrants be registered on one occasion, as well as certain incidental registration rights.

	We have accounted for the proceeds of the financing applicable to the Warrants as temporary capital. Any adjustment of the value assigned at the date of issuance will be reported as an adjustment to retained earnings. The value assigned to the Warrants was determined in accordance with Accounting Principle Board Opinion No. 14 “Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants” and was based upon the relative fair value of the Warrants and indebtedness at the time of issuance.

	In December 2002, we entered into a revolving line of credit with a bank. The maximum available credit under the line is the lesser of $10.0 million, or the sum of 85% of eligible receivables and 50% of qualifying inventory. No funds have been borrowed under the line of credit. The loan agreement associated with the revolving line of credit requires us to maintain certain financial ratios at certain minimum levels. We believe we were in compliance with these maintenance requirements at September 30, 2003.

6.	ACQUISITION

	On March 12, 1998 we acquired, pursuant to a purchase agreement with Kerr-McGee, certain intangible assets related to Kerr-McGee’s production of AP (the “Rights”) for a purchase price of $39.0 million. The Acquisition did not include Kerr-McGee’s production facilities (the “Production Facilities”) and certain water and power supply agreements used by Kerr-McGee in the production of AP. Under the Purchase Agreement, Kerr-McGee ceased the production and sale of AP, although the Production Facilities may continue to be used by Kerr-McGee for production of AP under certain limited circumstances not competitive with our operations. Kerr-McGee also reserved a perpetual, royalty-free, nonexclusive license to use any of the technology forming part of the Rights as may be necessary or useful to use, repair or sell the Production Facilities.

	In connection with the Acquisition, we entered into an agreement with the Thiokol Propulsion Division (“Thiokol”) of Alcoa with respect to the supply of Grade I AP through the year 2008. The agreement, as amended, provides that during its term Thiokol will make all of its Grade I AP purchases from us. In addition to the Grade I AP purchased from us, Thiokol may use AP inventoried by it in prior years. The agreement also establishes a pricing matrix under which Grade I AP unit prices vary inversely with the quantity of a specific grade of AP sold by us to all of our customers. Grade I AP unit prices in the matrix at all quantity levels escalate each year through fiscal 2003 and, in fiscal 2004, are adjusted downward by approximately 20%. Such downward adjustment will have the effect of reducing revenues and operating cash flows on Grade I AP sold to Thiokol by at least 20% in fiscal 2004. After the adjustment, Grade I AP unit prices again escalate each year through fiscal 2008.

	In connection with the Acquisition, we also entered into an agreement with Alliant Techsystems, Inc. (“Alliant”) to extend an existing agreement through the year 2008. The agreement establishes prices for any Grade I AP purchased by Alliant from us during the term of the agreement as extended. Under this agreement, Alliant agrees to use its efforts to cause our Grade I AP to be qualified on all new and current programs served by Alliant’s Bacchus Works.

	During 2001, Alliant acquired Thiokol. We have agreed with Alliant that the individual agreements in place prior to Alliant’s acquisition of Thiokol will remain in place. All Thiokol programs existing at the time of the Alliant acquisition (principally the Space Shuttle and Minuteman) will continue to be priced under the Thiokol Agreement. All Alliant programs (principally the Delta, Pegasus and Titan) will be priced under the Alliant Agreement.

7.	INCOME TAXES

	We account for income taxes using the asset and liability approach required by SFAS No. 109. The asset and liability approach requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of our assets

	and liabilities. Future tax benefits attributable to temporary differences are recognized to the extent that realization of such benefits are more likely than not. These future tax benefits are measured by applying currently enacted tax rates.

	The following table provides an analysis of our income taxes for the years ended September 30:

	2003			2002		2001

Current	$	4,790,000		$	3,282,000	$	234,000
Deferred (federal and state)		(179,000	)		975,000		4,303,000

Income taxes	$	4,611,000		$	4,257,000	$	4,537,000

Income taxes for the years ended September 30, 2003, 2002 and 2001 differ from the amount computed at the federal and state income tax statutory rates as a result of the following:

	2003			%			2002			%			2001		%

Expected provision for Income taxes	$	4,890,000			35.0	%	$	4,515,000			35.0	%	$	4,169,000		34.0	%
Adjustment:
Nondeductible expenses		21,000			0.1	%		24,000			0.2	%		43,000		0.3	%
Other		(300,000	)		(2.1	)%		(282,000	)		(2.2	)%		325,000		2.7	%

Provision for income taxes	$	4,611,000			33.0	%	$	4,257,000			33.0	%	$	4,537,000		37.0	%

The components of net deferred taxes at September 30, 2003, 2002 and 2001 consisted of the following:

	2003			2002			2001

Deferred tax assets:
Amortization	$	3,255,000		$	3,004,000		$	2,003,000
Property		6,740,000			7,231,000			6,860,000
Net operating losses								1,314,000
Alternative minimum tax credits					706,000			1,643,000
Reorganization costs		107,000			160,000			219,000
Inventory capitalization		146,000			156,000			259,000
Accruals		1,546,000			1,549,000			1,988,000
Other		998,000			1,524,000			1,119,000

Total deferred tax assets	$	12,792,000		$	14,330,000		$	15,405,000

Deferred tax liabilities:
Accrued income and expenses	$	(2,252,000	)	$	(2,102,000	)	$	(1,740,000	)
Other		(233,000	)		(2,100,000	)		(2,563,000	)

Total deferred tax liabilities		(2,485,000	)		(4,202,000	)		(4,302,000	)

Net deferred tax assets	$	10,307,000		$	10,128,000		$	11,103,000

8.	EMPLOYEE BENEFIT PLANS

	We maintain a group health and life benefit plan, an employee stock ownership plan (“ESOP”) that includes a Section 401(k) feature, a defined benefit pension plan (the “Plan”), and a supplemental executive retirement plan (“SERP”). The ESOP permits employees to make contributions. We do not presently match any portion of employee ESOP contributions.

	All full-time employees age 21 and over with one year of service are eligible to participate in the Plan. Benefits are paid based on an average of earnings, retirement age, and length of service, among other factors.

The tables below provide relevant financial information about the Plan as of and for the fiscal years ended September 30:

	2003			2002

Change in Benefit Obligation:
Benefit obligation, beginning of year	$	20,160,000		$	18,231,000
Service cost		770,000			615,000
Interest cost		1,388,000			1,245,000
Actuarial (gains)/losses		3,728,000			821,000
Benefits paid		(791,000	)		(752,000	)

Benefit obligation, end of year	$	25,255,000		$	20,160,000

Change in Plan Assets:
Fair value of plan assets, beginning of year	$	11,232,000		$	12,124,000
Actual return (loss) on plan assets		1,717,000			(920,000	)
Employer contributions		1,810,000			780,000
Benefits paid		(791,000	)		(752,000	)

Fair value of plan assets, end of year	$	13,968,000		$	11,232,000

Reconciliation of Funded Status:
Funded status	$	(11,287,000	)	$	(8,928,000	)
Unrecognized net actuarial (gains)/losses		8,040,000			5,728,000
Unrecognized transition obligation
Unrecognized prior service costs		462,000			280,000

Net amount recognized	$	2,785,000		$	2,920,000

Amounts Recognized:
Accrued benefit liability	$	4,815,000		$	4,426,000
Intangible assets		(462,000	)		(280,000	)
Accumulated other comprehensive loss (net of taxes)		(1,568,000	)		(1,226,000	)

Net amount recognized	$	2,785,000		$	2,920,000

	2003			2002			2001

Net Periodic Pension Cost:
Service cost	$	770,000		$	615,000		$	713,000
Interest cost		1,388,000			1,245,000			1,192,000
Expected return on assets		(930,000	)		(966,000	)		(1,075,000	)
Net total of other components		445,000			254,000			189,000

Net periodic pension cost	$	1,673,000		$	1,148,000		$	1,019,000

Actuarial Assumptions:
Discount rate		6.00	%		6.75	%		7.25	%
Rate of compensation increase		4.50	%		4.50	%		5.00	%
Expected return on plan assets		8.00	%		8.00	%		8.00	%

Participants in the SERP include only our Chief Executive Officer, Chief Financial Officer and our former Chief Executive Officer. Benefits paid under the SERP were approximately $0.1 million in each of the fiscal years 2003, 2002 and 2001. Net periodic pension cost was approximately $0.2 million, $0.2 million and $0.3 million during the years ended September 30, 2003, 2002 and 2001, respectively. At both September 30, 2003 and 2002, the accrued benefit liabilities recognized for the SERP were approximately $2.2 million. During fiscal 2002, we established and funded a trust for the SERP. The balance of $2.1 million was invested in cash equivalents at September 30, 2003, and is included in Other Assets in our Consolidated Balance Sheet. The non-current portions of the accrued benefit liabilities under the Plan and

	SERP of approximately $5.3 million and $5.5 million at September 30, 2003 and 2002, respectively, are included in Other Long-Term Liabilities in our Consolidated Balance Sheet.

9.	COMMITMENTS AND CONTINGENCIES

	In 1997, the Southern Nevada Water Authority detected trace amounts of perchlorate chemicals in Lake Mead and the Las Vegas Wash, bodies of water near our real estate development property in Henderson, Nevada (in the Las Vegas area). Lake Mead is a source of drinking water for the City of Las Vegas, neighboring areas and certain areas of metropolitan Southern California. Perchlorate chemicals (including AP) are a potential health concern because they can interfere with the production of a growth hormone by the thyroid gland. Although they are not currently included in the list of hazardous substances compiled by the Environmental Protection Agency (“EPA”), perchlorates have been added to the EPA’s Contaminant Candidate List. We manufactured perchlorate chemicals at a facility on the Henderson site until the facility was destroyed in May 1988, after which we relocated our perchlorate production to our current facilities in Iron County, Utah. For many years, Kerr-McGee operated a perchlorate production facility at a site near our Henderson site.

	The Water Authority’s testing has shown perchlorate concentrations of 8 to 14 parts per billion (“ppb”) in Clark County drinking water. In response to this discovery, we have engaged environmental consultants to drill monitor wells in order to characterize ground water at and in the vicinity of the Henderson site. The results of our tests have shown perchlorate concentrations in the ground water at the former Henderson site ranging from 0 to approximately 750,000 ppb at certain monitoring wells. Since 1998, we have spent in excess of $6.0 million on the investigation and evaluation of the source or sources of these trace amounts, possible environmental impacts, and potential remediation methods (including the pilot process described below). Our ground water characterization investigations indicate that the ground water containing perchlorate at and around our former Henderson manufacturing site has not reached the Las Vegas Wash or Lake Mead and, accordingly, has not been introduced into any source of drinking water. Based upon flow rates and modeling techniques, such ground water is not expected to reach a source of drinking water for at least 10 years. We have, however, commenced a pilot remediation testing process to treat groundwater containing perchlorate at and near the Henderson site using a biological in situ method. To date, the pilot remediation process is proceeding in accordance with our plan and has shown promising results, but there can be no assurance as to its efficacy.

	The EPA is conducting a risk assessment relating to perchlorates and has recommended a preliminary reference dose for perchlorates that would equate to 1 ppb in drinking water. Certain states are also conducting risk assessments and some have set preliminary levels as low as 1 ppb. To our knowledge, virtually all independent and qualified experts believe that such preliminary levels have been arbitrarily established and are not based upon credible science. At the request of the EPA, the National Academy of Science (“NAS”) recently began an evaluation and assessment of the health effects of perchlorates. This NAS evaluation is currently scheduled to be completed by January, 2005. Public statements indicate that the EPA intends to complete its risk assessment and make a final reference dose recommendation, presumably after the findings of NAS, although we do not know when that will occur. We are cooperating with Federal, State and local agencies, and with Kerr-McGee and other interested firms, in the investigation and evaluation of the source or sources of these trace amounts, possible environmental impacts, potential remediation methods and a proper reference dose. Until these investigations and evaluations have reached definitive conclusions, it will not be possible for us to determine the extent to which, if at all, we may be called upon to contribute to or assist with future remediation efforts, or the financial impact, if any, of such cooperation, contribution or assistance. Accordingly, no accrual for potential costs has been made in our Consolidated Financial Statements. However, the lower the level at which final reference dose is established, the more severe the negative impact will likely be on our financial condition, results of operations and ability to manufacture and handle perchlorate chemicals.

	In January 2002, AAC was named as a defendant in a complaint filed in the Superior Court of the State of California for the County of Los Angeles – Southwest District. The complaint named a number of defendants, including AAC’s principal sodium azide customer, Autoliv ASP, Inc. (“Autoliv”). The complaint alleged, among other things “toxic injuries” as a result of the deployment of an airbag. In the third quarter of fiscal 2003, we paid less than $50,000 to settle our part of this complaint.

	In January 2002, we received a demand for payment from Frontier Insurance Company (“Frontier”) of approximately $1.7 million as a result of the failure of a local developer to complete a project that had been bonded by Frontier. The local developer was an owner of a company that is the managing member of a limited liability company (the “LLC”) in which we are also a member. The LLC completed development of a residential project and has wound down its operations. In 1995, we entered into indemnity agreements relating to the development of this project. In February 2002, we (along with other plaintiffs) filed a complaint for declaratory relief in District Court, Clark County, Nevada. The complaint seeks a judgment declaring that the indemnity agreements have been terminated and that we have no liability to Frontier. The complaint has been stayed for the time being pending the reorganization of Frontier.

	On April 11, 2002, an accident occurred at our sodium azide plant that resulted in the death of an employee. No other employees were involved and there was no significant damage to the facility. We have received fines from Utah OSHA relating to this accident, but believe that the ultimate payment by us for these fines will be less than $75,000. In March 2003, we were named in a complaint filed in the District Court of Clark County, Nevada. The complaint related to the accident referred to above and alleged, among other things, negligence, breach of warranties and product liabilities. In the third quarter of fiscal 2003, the complaint against us was dismissed.

	We have been and are also involved in other lawsuits. We believe that these other lawsuits, individually and in the aggregate, will not have a material adverse effect on our financial condition or results of operations.

	As discussed in Note 4, we entered into an agreement with Hughes Parkway pursuant to which we lease office space. The lease, which had an initial term of 10 years expiring in March 2001, was renewed for an additional five year term (the “Amended Lease”). The Amended Lease is subject to escalation every three years based on changes in the consumer price index, and permits us to occupy 22,262 square feet of office space. Rental payments were approximately $0.6 million during the fiscal years ended September 30, 2003, 2002 and 2001. We received approximately $130,000 in the fiscal years 2003 and 2002 associated with sublet arrangements of certain of this office space. At September 30, 2003, minimum rentals to be received under non-cancelable subleases were approximately $67,000 in fiscal 2004. Future gross minimum rental payments under this lease for the years ending September 30, are as follows:

2004	$	550,000
2005		550,000
2006		275,000

Total	$	1,375,000

As of September 30, 2003, we had approximately $1.9 million in outstanding standby letters of credit. These letters of credit principally secure performance of certain environmental protection equipment sold by us and payment of fees associated with the delivery of natural gas and power.

10.	SHAREHOLDERS’ EQUITY

	Preferred Stock and Purchase Rights

	We have authorized the issuance of 3,000,000 shares of preferred stock, of which 125,000 shares have been designated as Series A, 125,000 shares have been designated as Series B and 15,340 shares have been designated as Series C redeemable convertible preferred stock. No Series A or Series B preferred stock is issued or outstanding. The Series C redeemable convertible preferred stock was redeemed in December 1989, and is no longer authorized for issuance.

	On August 3, 1999, our Board of Directors adopted a Shareholder Rights Plan and declared a dividend of one preference share purchase right (a “Right”) for each outstanding share of our Common Stock, par value $.10 per share (the “Common Shares”). The dividend was paid to stockholders of record on August 16, 1999. Each Right entitles the registered holder to purchase from us one one-hundredth of a share of Series D Participating Preference Stock, par value $1.00 per share, at a price of $24.00 per one one-hundredth of a Preference Share, subject to adjustment under certain circumstances. The description and terms of the Rights are set forth in a Rights Agreement dated as of August 3, 1999, between us and American Stock Transfer & Trust Company, as Rights Agent. The Rights may also, under certain conditions, entitle the holders (other than any Acquiring Person, as defined), to receive our Common Stock, Common Stock of an entity acquiring us, or other consideration, each having a market value of two times the exercise price of each Right.

	Three hundred and fifty-thousand (350,000) Preference Shares have been designated as Series D Preference Shares and are reserved for issuance under the Plan. The Rights are redeemable at a price of $.001 per Right under the conditions provided in the Plan. If not exercised or redeemed (or exchanged by us), the Rights expire on August 2, 2009.

	Stock Options and Warrants

	We have granted options and issued warrants to purchase shares of our Common Stock at prices at or in excess of market value at the date of grant or issuance. The options were granted under various plans or by specific grants approved by our Board of Directors.

	Option and warrant transactions are summarized as follows:

	Shares Under Options and Warrants		Option Price

October 1, 2000	3,797,000		$	4.88	-	$	14.00
Granted	206,000			4.88
Exercised	(3,000	)		4.88
Expired	(102,000	)		7.00	-		7.50

September 30, 2001	3,898,000			4.88	-		14.00
Exercised	(309,000	)		4.88	-		7.88
Expired	(86,000	)		6.38	-		7.13

September 30, 2002	3,503,000			4.88	-		14.00
Granted	249,000			8.30	-		8.36
Exercised	(170,500	)		4.88	-		7.78
Expired	(64,000	)		6.94	-		7.00

September 30, 2003	3,517,500		$	4.88	-	$	14.00

In February 1992, we issued $40,000,000 in Azide Notes with Warrants. See Note 5 for a description of the Warrants. Shares under options and warrants at September 30, 2003 include approximately 2,857,000 Warrants at a price of $14 per Warrant. The Warrants expire on December 31, 2003.

The following table summarizes information about stock options and warrants outstanding at September 30, 2003:

	Options and Warrants Outstanding				Options Exercisable

Range of Exercise Price	Number Outstanding	Average Remaining Contractual Life (Years)		Weighted Average Exercise Price	Number Exercisable		Weighted Average Exercise Price

$ 4.88	174,000	7.5	$	4.88	174,000	$	4.88
6.38 – 8.36	486,500	5.37		7.94	362,000		7.82
14.00	2,857,000	0.25		14.00	2,857,000		14.00

	3,517,500	1.32	$	13.30	3,393,000	$	13.42

	We have elected to follow APB No. 25, “Accounting for Stock Issued to Employees” and related interpretations in accounting for our stock options. Under APB No. 25, if the exercise price of our employee stock options equals the market price of the underlying stock on the date of the grant, no compensation expense is recognized.

	We granted stock options to our employees and directors in fiscal 2003 and 2001. The effect on net income and earnings per share if we had applied the fair value recognition provisions of SFAS No. 123 to our stock option grants for the years ended September 30, would have been as follows:

	2003			2002			2001

Net income:
As reported	$	9,360,000		$	8,642,000		$	7,726,000
Total stock based employee compensation expense using the fair value based method, net of taxes		(205,000	)		(106,000	)		(235,000	)

Pro forma	$	9,155,000		$	8,536,000		$	7,491,000

Basic earnings per share:
As reported	$	1.29		$	1.21		$	1.10
Pro forma	$	1.26		$	1.19		$	1.06

Diluted earnings per share:
As reported	$	1.27		$	1.18		$	1.10
Pro forma	$	1.25		$	1.16		$	1.06

The estimated weighted-average fair value of the individual options granted during the fiscal years 2003 and 2001 was $3.68 and $2.57 respectively, on the date of grant. The fair values for these years were determined using a Black-Scholes option-pricing model with the following assumptions:

	2003			2001

Dividend yield		0	%		0	%
Volatility		50	%		55	%
Risk-free interest rate		2.9	%		4.6	%
Expected life		4.5 years			4.5 years

11.	SEGMENT INFORMATION

	Our three reportable operating segments are specialty chemicals, environmental protection equipment and real estate sales and development. These segments are based upon business units that offer distinct products and services, are operationally managed separately and produce products using different production methods.

	We evaluate the performance of each operating segment and allocate resources based upon operating income or loss before an allocation of interest expense and income taxes. Our accounting policies of each reportable operating segment are the same as those set forth in Note 1 to our Consolidated Financial Statements.

	Our specialty chemicals segment manufactures and sells perchlorate chemicals used principally in solid rocket propellants for the space shuttle and defense programs, sodium azide used principally in the inflation of certain automotive airbag systems and in the manufacture of certain pharmaceuticals and Halotron clean gas fire extinguishing agents designed to replace halons. The specialty chemicals segment’s production facilities are located in Iron County, Utah. Perchlorate chemical sales comprised approximately 89%, 81% and 76% of specialty chemicals segment sales during the fiscal years ended September 30, 2003, 2002 and 2001, respectively. We had two customers that accounted for 10% or more of both our total and our specialty chemicals segment’s sales during at least one of our last three fiscal years. Sales to these customers during the fiscal years ended September 30 were as follows:

Customer	Chemical	2003		2002		2001

A	Perchlorates	$	45,161,000	$	37,182,000	$	37,567,000
B	Sodium Azide		1,790,000		6,205,000		7,436,000

	In fiscal 1998, we acquired certain intangible assets related to the production and sale of AP from Kerr-McGee and entered into long-term agreements with respect to the supply of Grade I AP to certain domestic users. (See Note 6).

	The specialty chemicals operating segment is subject to various Federal, State and local environmental and safety regulations. We have designed and implemented policies and procedures to minimize the risk of potential violations of these regulations, although such risks will likely always be present in the production and sale of our specialty chemicals. (See Note 9).

	Our environmental protection equipment operating segment designs, manufactures and markets systems for the control of noxious odors, the disinfection of waste water streams and the treatment of seawater. These operations are also located in Iron County, Utah.

	At September 30, 2003, our real estate operating segment had only 14 remaining acres of improved land in the Gibson Business Park near Las Vegas, Nevada. Activity during the last three fiscal years has consisted of sales of land parcels.

	We also hold an equity investment in a joint venture entity that owns a commercial explosives business. (See Note 12.)

Additional information about our operations in different segments for each of the last three fiscal years ended September 30, is provided below.

	2003			2002			2001

Revenues:
Specialty chemicals	$	61,248,000		$	65,811,000		$	56,803,000
Environmental protection		2,834,000			726,000			3,660,000
Real estate		4,784,000			7,051,000			2,626,000

Total revenues	$	68,866,000		$	73,588,000		$	63,089,000

Gross profit (loss):
Specialty chemicals	$	26,806,000		$	25,714,000		$	22,131,000
Environmental protection		559,000			(189,000	)		915,000
Real estate		4,152,000			4,534,000			1,857,000

Total segment gross profit	$	31,517,000		$	30,059,000		$	24,903,000

Operating income (loss):
Specialty chemicals	$	14,020,000		$	13,551,000		$	13,479,000
Environmental protection		(318,000	)		(1,046,000	)		140,000
Real estate		3,335,000			3,778,000			1,234,000

Total operating income		17,037,000			16,283,000			14,853,000
Net interest and other (expense) income		(3,066,000	)		(3,384,000	)		(2,590,000	)

Income before income taxes	$	13,971,000		$	12,899,000		$	12,263,000

Depreciation and amortization:
Specialty chemicals	$	5,486,000		$	5,940,000		$	5,852,000
All other segments and corporate		228,000			119,000			123,000

Total depreciation and amortization	$	5,714,000		$	6,059,000		$	5,975,000

Capital Expenditures:
Specialty chemicals	$	1,475,000		$	2,058,000		$	1,453,000
All other segments and corporate		1,600,000			22,000			171,000

Total capital expenditures	$	3,075,000		$	2,080,000		$	1,624,000

Assets:
Specialty chemicals	$	44,118,000		$	45,726,000		$	50,859,000
Environmental protection		1,947,000			1,353,000			932,000
Real estate		1,986,000			3,130,000			6,752,000
Corporate		53,634,000			81,762,000			64,499,000

Total assets	$	101,685,000		$	131,971,000		$	123,042,000

	Our operations are located in the United States. Export sales, consisting mostly of specialty chemical and environmental protection equipment sales, have represented less than 10% of our revenues during each of the last three fiscal years.

12.	INVESTMENT IN AND ADVANCES TO JOINT VENTURE

	On December 11, 2002, we made an investment of approximately $10.7 million in Energetic Systems Inc., LLC (“ES”), a joint venture entity formed to acquire and manage a commercial explosives business.

	The form of our investment in ES represents a combination of term and revolving debt, preferred stock and common equity. The term and revolving debt, including accrued interest receivable, amounted to $10.2 million at September 30, 2003. Both the term and revolving debt bear interest at 8% per annum. The term debt, in the amount of $7.0 million, is payable in equal annual installments over the next ten years. During the fiscal year ended September 30, 2003, net interest and other expense (income) includes approximately $0.6 million in interest income relating to the term and revolving debt.

	The investment was made and is held by our newly organized, wholly-owned subsidiary, Energetic Additives Inc., LLC (“EA”). EA holds a 50% equity interest in ES. The remaining 50% equity interest is held by a private entity with extensive experience in the explosives industry.

	On December 11, 2002, ES completed the purchase of certain assets and the assumption of certain liabilities of Slurry Explosives Corporation and Universal Tech Corporation (collectively “SEC/UTC”), subsidiaries within LSB Industries, Inc. SEC/UTC is involved in the manufacture and distribution of commercial explosives, and is also a research, development and testing organization specializing in the development and testing of products and processes for commercial explosives and energetic compounds. We have accounted for our investment in ES using the equity method of accounting.

	At September 30, 2003, ES had current assets, noncurrent assets, current liabilities, noncurrent liabilities, total assets and equity of approximately $4.5 million, $7.7 million, $5.4 million , $7.0 million and $(0.2) million, respectively. Since the purchase on December 11, 2002, ES had revenues of approximately $10.5 million, gross profit of approximately $2.6 million and incurred a net loss of approximately $1.5 million. Our share of the net loss is included in net interest and other expense (income) in the accompanying Consolidated Statements of Income. The financial performance of ES has not met our expectations. As a result of the lower than expected operating results, ES will likely not be able to make the installment payment on the term debt due to us in January 2004. We are currently in negotiations to modify the terms of the term and revolving debt. Based upon current projections, we do not expect to incur any impairment loss related to any such modifications.

13.	DIVIDEND AND STOCK REPURCHASE PROGRAM

	In January 2003, our Board of Directors approved a Dividend and Stock Repurchase Program (the “Program”). The Program is designed to allocate a portion of our annual free cash flows (as calculated) for the purposes of paying cash dividends and repurchasing our Common Stock. The amount available for these purposes each fiscal year will equal 25% of our annual cash flows from operating activities less our annual capital expenditures, plus the amount of cash received from the issuance of our Common Stock resulting from the exercise of stock options. We will subtract the total amount spent on the repurchase of our Common Stock (if any) during the fiscal year from the total amount otherwise available under the Program, and pay the resultant amount as an annual dividend to our shareholders. As part of the stock repurchase portion of the Program, our Board of Directors have approved a provision that permits the repurchase of Common Stock from our employees and directors.

	In accordance with the provisions of the Program, on December 18, 2003, our Board of Directors declared a cash dividend of $0.42 per share payable on January 9, 2004, to shareholders of record on December 29, 2003.

EX-10.12 3 ap906056ex1012.htm EXHIBIT 10.12

EXHIBIT 10.12

ARTICLES OF ORGANIZATION
OF
ENERGETIC SYSTEMS INC., LLC

The undersigned natural person of the age of eighteen (18) years of more, acting as organizer of a limited liability company under Chapter 86 of the Nevada Revised Statues (the “Chapter”), hereby adopts the following Articles of Organization.

ARTICLE ONE

NAME

The name of the limited liability company is Energetic Systems Inc., LLC (the “Company”).

ARTICLE TWO

DURATION

This Company’s duration is perpetual unless earlier dissolved in accordance with its Operating Agreement. The issuance of the Certificate of Organization by the Nevada Secretary of State will be the Company’s beginning date.

ARTICLE THREE

PURPOSE

The purpose for which the Company is organized is to conduct any lawful business, to promote any lawful purpose and to engage in any lawful act or activity for which limited liability companies may be organized under the Nevada Revised Statutes.

ARTICLE FOUR

RESIDENT AGENT

The name of the Company’s initial registered agent is The Corporation Trust Company of Nevada. The street address of the Company’s initial registered office where process may be served upon the Company is 6100 Neil Road, Suite 500, Reno, Nevada 89511.

ARTICLE FIVE

MANAGER

The Company is to be managed by a Manager or Managers. The number of Managers of the Company shall be fixed by, or in the manner provided in, the Operating Agreement of the Company. The initial number of Managers of the Company is four (4), and the names and addresses of the persons who will to serve as Managers until the first meeting of the Managers or until their successor or successors are elected and qualified are:

Name		Address

David P. Taylor		9950 Claymore Drive
		Dallas, Texas 75243

James P. O’Reilly		34 Golden Boulevard
		St. Catherines, Ontario, Canada
		L2N 7M9

Forunato Villamagna		3770 Howard Hughes Parkway
		Suite 300
		Las Vegas, Nevada 89109

David N. Keys		3770 Howard Hughes Parkway
		Suite 300
		Las Vegas, Nevada 89109

ARTICLE SIX

EXEMPTION OF MANAGERS FROM LIABILITY

No Manager shall be liable to the Company or Members for monetary damages for an act or omission in such Person’s capacity as a Manager, except for liability for (a) a breach of such Manager’s duty of loyalty to the Company or its Managers, (b) an act or omission not in good faith that constitutes a breach of duty of such Manager to the Company or an act or omission that involves intentional misconduct or a knowing violation of law, (c) a transaction from which such Manager received an improper benefit, whether or not the benefit resulted from an action taken within the scope of such Manager’s position, or (d) an act or omission for which the liability of a Manager is expressly provided for by an applicable statute. If the Chapter or other applicable law is amended to authorize action further elimination or limitation of the liability of a Manager, then the liability of a Manager shall be eliminated or limited to the fullest extent permitted by the Chapter or other applicable law, as so amended. Any repeal or modification of this paragraph by the Managers or the Mangers shall not adversely affect the right or protection of a Manager existing at the time of such repeal or modification.

ARTICLE SEVEN

INDEMNIFICATION OF MANAGER, MEMBER, EMPLOYEE OR AGENT

Consistent with the provisions of Sections 86.411 and 86.421 of the Chapter, the Company shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, including an action by or in the right of the Company to procure a judgment in its favor, by reason of the fact that they are or were a manager, member, employee or agent of the Company, or are or were serving at the request of the Company as a manager, member, employee or agent, against expenses, including attorney’s fees, judgments, fines and amounts paid in settlement actually and reasonably incurred by them in connection with the action, suit or proceeding if they acted in good faith and in a manner which they reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement or conviction, or upon a plea of nolo contendere or its equivalent, does not, of itself, create a presumption that the person did not act in

Page 2 of Exhibit 10.12

good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the limited-liability company, and that, with respect to any criminal action or proceeding, they had reasonable cause to believe that his conduct was unlawful.

ARTICLE EIGHT

OPERATING AGREEMENT

The initial Operating Agreement will be adopted by the Managers. The powers to alter, amend, or repeal the Operating Agreement or adopt new Operating Agreement is vested in the Managers.

ARTICLE NINE

ORGANIZER

The name of the organizer is Bradley S. Knippa, and his address for purposes of these Articles of Organization is 100 Congress Avenue, Suite 1100. Austin, Texas 78701.

IN WITNESS WHEREOF, the undersigned being the organizer for the purpose of forming a limited liability corporation under the laws of the State of Nevada has executed these Articles of Organization on this the 4^th day of October, 2002.


		Bradley S. Knippa, Organizer

Page 3 of Exhibit 10.12

EX-10.13 4 ap906056ex1013.htm EXHIBIT 10.13

EXHIBIT 10.13

OPERATING AGREEMENT
OF
ENERGETIC SYSTEMS INC., LLC

By this Operating Agreement (this “Agreement”) made and entered into as of this 5th day of October, 2002, those entities whose names, addresses, and signatures are set forth below (the “Members”), being all of the members of Energetic Systems Inc., LLC (the “Company”), represent, warrant, and covenant as follows.

ARTICLE I
FORMATION, NAME, PURPOSES, DEFINITIONS

1.01 Formation. The Members have formed a Nevada limited liability company pursuant to Chapter 86 of the Nevada Revised Statutes (the “Act”) effective upon the filing of the Articles of Organization with the Secretary of State of Nevada. The Members shall immediately, and from time to time hereafter, execute all documents and do all filing, recording, and other acts as may be required to comply with the Act.

1.02 Intent. It is the intent of the Members that the Company shall always be operated in a manner consistent with treatment of the Company as a partnership for federal income tax purposes. It is also the intent of the Members that the Company not be operated or treated as a partnership for purposes of Section 303 of the Federal Bankruptcy Code. No Member shall take any action inconsistent with the express intent of the Members.

1.03 Name. The name of the Company shall be Energetic Systems Inc., LLC.

1.04 Place of Business. The principal place of business of the Company shall be 5700 N. Portland, Oklahoma City, Oklahoma 73112 or such other place as the Managers shall determine in their sole discretion.

1.05 Purpose. The Company has been formed for the purpose of: (a) consummating the Initial Major Transaction (as hereinafter defined); (b) organizing and acting as the member of the Subsidiaries (as hereinafter defined); (c) establishing and operating a research and development group for the research and development of commercial explosives using perchiorates as sensitizers, including, without limitation, reclaimed ammonium perchlorate (“Products”); (d) selling and licensing Products or offering for sale or license Products to third parties; (e) selling sodium perchlorate to third parties; (f) operating and managing the Subsidiaries; and (g) doing all things necessary or appropriate to carry out the foregoing. The purpose of the Company may not be changed without the unanimous written consent of the Members.

1.06 Term. The Company shall commence upon the filing of the Articles of Organization and shall continue until such time as dissolved under the provisions of the Articles of Organization or Article VIII.

1.07 Agent for Service of Process. The name and business address of the agent for service of process for the Company is the Corporation Trust Company of Nevada, 6100 Neil Road, Suite 500, Reno, Nevada 89511, or such other Person as the Managers shall appoint from time to time.

1.08 Definitions. Certain terms used herein shall have the meaning ascribed to such terms as set forth in Schedule 1.

(a) The words “Schedule” or “Exhibit” shall mean an enumerated schedule or exhibit all of which shall be deemed attached hereto and incorporated herein by way of the specific reference or references made in this Agreement.

(b) Each reference to a “Section” or an “Article” shall be deemed a reference to an enumerated provision of this Agreement.

(d) All the defined terms, if defined in the singular or present tense, shall also retain such general meaning if used in the plural or past tense, and if used in the plural or past tense, shall retain the general meaning if used in the singular or present tense.

ARTICLE II
CAPITALIZATION OF THE COMPANY

2.01 Initial Capital Contributions. The Company may issue a total of three hundred (300) Common Units in consideration for the contributions set forth below and other good and valuable consideration contributed by the Members.

Member	Common Units		Contribution

Wimase Investment Fund Inc., LLC (“WIF”)		150	$	150,000
Energetic Additives Inc., LLC (“EAI”)		150	$	150,000

2.02 Time of Initial Capital Contributions. The initial Capital Contributions shall be made at or as near to the time of formation of the Company as is reasonably possible.

2.03 Additional Capital Contributions.

(a) Prior to the closing of the Initial Major Transaction, EAI shall purchase from the Company, 1,000 preferred dividend-bearing membership units in the LLC for an aggregate consideration of $1,000,000. WIF will immediately thereafter purchase 500 of these Units from EAI, all of which shall be registered in WIF’s name, for $500,000, to be paid for at the rate of $125K per year over four years, beginning December 31, 2003. Annual dividends, if any, on such preferred membership units acquired but not yet paid for by WIF at the end of each fiscal year will accrue to EAI. Such dividends will commence in and for CY 2003 and shall be 10% through CY 2005 and thereafter, 25%. Other than this dividend, the preferred membership units shall be entitled to the same distributions and allocations as the Common Units, but shall have no other rights or duties hereunder.

Page 2 of Exhibit 10.13

(b) In addition to the Capital Contributions set forth in Sections 2.01 and 2.03(a) the Chief Executive Officer may determine, from time to time, the amount of any additional Capital Contributions necessary to enable the Company to conduct its business (“Additional Capital Contribution”). Upon making such determination, the Chief Executive Officer shall give Notice first to the Executive Officers, and upon approval by the Executive Officers pursuant to Section 3.05 of this Agreement, the Chief Executive Officer shall give notice to all Members in writing at least thirty (30) days prior to the date on which such contribution is due. The Notice shall set forth the amount of the Additional Capital Contribution, the purpose for which the Additional Capital Contribution is to be used, and the date by which Members must contribute. Each Member shall be entitled, but not obligated, to contribute a proportionate share of such Additional Capital Contribution. If fewer than all of the Members make the requested Capital Contributions in proportion to the Percentage Interests, the Members may, but shall not be obligated to, fund such contribution. If more than one of the Members elects to fund such additional capital contribution, the contributing Members shall have the right to fund such additional contribution on a pro rata basis (based upon their Percentage Interest).

(c) Other Borrowings The Executive Officers may authorize such borrowings as may be required for the prudent operation of the business of the Company on such terms as determined in the Executive Officers’ sole discretion

2.04 Capital Accounts.

(a) Debits and Credits. A separate Capital Account shall be maintained for each Unit Holder in accordance with the applicable provisions of the Regulations.

(i) Each Unit Holder’s Capital Account shall be credited with such Unit Holder’s Capital Contributions, such Unit Holder’s distributive share of Tax Profits allocated to such Unit Holder in accordance with the provisions of this Agreement, any items in the nature of income or gain that are specially allocated pursuant to Section 6.03, and the amount of any Debt that is assumed by such Unit Holder or that is secured by any Company Property distributed to such Unit Holder.

(ii) Each Unit Holder’s Capital Account shall be debited by the amount of cash distributed to such Unit Holder in accordance with this Agreement, the Gross Asset Value of any other Company Property distributed to such Unit Holder pursuant to any provision of this Agreement, such Unit Holder’s distributive share of Tax Losses allocated to such Unit Holder in accordance with this Agreement, and the amount of any liabilities of such Unit Holder that are assumed by the Company or that are secured by any property contributed by such Unit Holder to the Company.

(iii) If any Units are Transferred in accordance with the terms of this Agreement, the Transferee shall succeed to the Capital Account of the Transferring Unit Holder to the extent it relates to the Transferred Units.

(iv) If the Gross Asset Values of the Company Property are adjusted pursuant to this Agreement, the Capital Accounts of all Unit Holders shall be adjusted simultaneously to reflect the aggregate net adjustment as if the Company had recognized gain or loss equal to the amount of such aggregate net adjustment and the resulting gain or loss had been allocated among the Unit Holders in accordance with this Agreement.

Page 3 of Exhibit 10.13

(b) Interpretation and Changes. The foregoing provisions and the other provisions of this Agreement relating to the maintenance of Capital Accounts are intended to comply with the Code and applicable Regulations and shall be interpreted and applied in a manner consistent therewith. If the Executive Officers shall determine, after consultation with Company counsel, that it is prudent to modify the manner in which the Capital Accounts or any debits or credits thereto are allocated or computed in order to comply with such applicable federal Law, the Executive Officers shall make such modification without the consent of any Unit Holder; provided, however, that the Executive Officers determine in good faith that such modification is not likely to have a material adverse effect on the amounts properly distributable to any Unit Holder and that such modification shall not increase the liability of any Member to third parties.

ARTICLE III
RIGHTS AND DUTIES OF MANAGERS AND OFFICERS

3.01 Wimase Limited, through a Management Agreement with the Company, shall provide the services of David Taylor as President and CEO of the Company. Mr. Taylor shall have primary responsibility to manage and represent the Company in its day to day affairs.

3.02 EAI shall appoint the Secretary and Treasurer of the Company who will initially be David Keys.

3.03 The Company shall be managed by a board of Executive Officers comprised of not less than four and no more than six (6) individuals. WIF and EAI shall each appoint an equal number of Executive Officers, two, or three, as the case maybe. The initial Executive Officers to be appointed by WIF are David Taylor and Jim O’Reilly. The initial Executive Officers to be appointed by EAI are Fortunato Villamagna and David Keys. EAI’s and WIF’s Executive Officers shall be jointly referred to as “Executive Officers.” The Executive Officers will appoint the executive officers of any operating subsidiary LLC ‘s. The Executive Officers shall, at all time, work with each other in the spirit of mutual support and cooperation for the benefit of the Company in the performance of this Agreement. In the event that the Executive Officers are unable to reach a consensus on any matter pertaining to the Company, David Taylor shall have sole and absolute authority to make a final decision and bind the Company accordingly, except for such matters reserved for decision hereunder to the Members, such matters requiring the unanimous approval hereunder of the Executive Officers or any matter which may be submitted for resolution by arbitration hereunder. Executive Officers may be reimbursed for their services provided the Members agree to such fees at each annual meeting.

3.04 All other employees will be employees of the Company or one of its operating subsidiary LLC’s unless it is more practical or cost effective to do otherwise.

3.05 The Executive Officers shall have full, exclusive and complete authority and discretion in the management and control of the business of the Company for the purposes stated herein and shall make all decisions affecting the business of the Company. As such, any action taken shall constitute the act of, and serve to bind, the Company. The Executive Officers shall manage and control the affairs of the Company to the best of their ability and shall use their best efforts to carry out the business of the Company.

Page 4 of Exhibit 10.13

3.06 The responsibility of the Executive Officers will be to direct, control and coordinate the management of the Company. In as much as the Members agree that the efficiency of the Company strongly depends on a positive approach and spirit of cooperation between and within the parties, the Executive Officers will use their best efforts to maintain such positive approach and spirit of cooperation within their respective organizations.

3.07 The Executive Officers shall establish the policies governing the operation of the Company and establish authority, procedures, rules and guidelines for its administration. Such policies, authority, procedures, rules and guidelines shall be documented in a Manual of Operations.

3.08 The Executive Officers shall be responsible for coordinating all accountants, lawyers, managers, agents and other management service personnel on behalf of, and at the expense of the Company, as may from time to time be required or appropriate in the judgment of the Executive Officers, provided, however, in no event shall the Executive Officers hire any person who is an affiliate of any of the Members without the consent of both of the Members.

(a) Each of the following items shall be undertaken by the Company only when unanimously approved by the Executive Officers:

(i) The borrowing of funds by the Company.

(ii) The entering into of any contract for consideration to be paid by the Company which is: a) not in the ordinary course of business, or b) not included in or anticipated by the annual budget, or, c) in excess of $500,000 calculated in “2002” dollars.

(iii) The employment of any person for consideration to be paid by the Company in excess of $100,000, calculated in “2002” dollars.

(iv) The execution, on behalf of and in the name of the Company, of any contract or arrangement on behalf of the Company for the (i) disposition, exchange, encumbrance, or sale of all or a portion of property (excepting by way of lease), or (ii) acquisition of additional property;

(v) Dispose of, exchange, encumber or sell all or any of the property;

(vi) Incur any indebtedness on behalf of the Company, whether on a secured or unsecured basis.

(vii) Settle any claims for payment of awards or damages arising out of any contract of the Company.

(viii) Initiate or settle any legal action in regard to any claim or confess any judgment on behalf of the Company.

(ix) Make, execute or deliver on behalf of the Company any guaranty, indemnity, bond, or surety bond, except as may be required in the ordinary course of business of the Company, or make any assignment to the benefit of creditors.

Page 5 of Exhibit 10.13

(x) Use, directly or indirectly, any assets of the Company for any purpose other than carrying on the business of the Company for the full and exclusive benefit of the Members.

(xi) Issue any securities of the Company or any of its subsidiaries.

(b) All actions of the Executive Officers shall be unanimously approved by vote of the Executive Officers at a duly constituted meeting at which there is an equal number of Executive Officers of both EAI and WIF.

3.09 WIF is designated as the Managing Member of the Company. WIF will delegate to Wimase Limited (“Wimase”) its responsibilities as Managing Member pursuant to a Management Agreement to be entered into between the Company and Wimase.

3.10 Managing Member responsibilities include:

(a) Administration of the day to day affairs of the Company and operating subsidiary LLC’s.

(b) Maintenance of the accounting and other administrative records of the Company at the offices of the Managing Member or Company.

(d) Primary responsibility to coordinate responses on behalf of the Company to all Government agencies.

(e) Itemization of all major equipment, facilities, and other resources to be furnished to or acquired by the Company by each Party, with a detailed schedule of cost or value of each.

(f) Preparation and submission of quarterly financial and business performance statements of the Company and its operating subsidiary LLC’s to the Executive Officers within forty-five (45) days of the end of each calendar quarter.

(g) Prior to the beginning of each fiscal year, Wimase, on behalf of WIF, shall provide annual financial budgets and business plans for review by the Executive Officers. Upon acceptance of the annual budgets and business plans, Wimase shall cause the Company and its operating subsidiary LLC’s to operate according to the approved budgets and plans. The initial approved budget and capital expenditure estimates for CY 2003 will be attached hereto as Exhibit “A” and are hereby accepted by the Members as the initial budgets for the Company. Should the Executive Officers fail to approve the annual budgets for a subsequent year for any reason, the previously approved operating budgets will remain in effect until such time as new budgets are approved.

3.11 Meetings. The Executive Officers shall hold such meetings as the Executive Officers shall determine, upon at least five (5) days prior Notice given by the Chief Executive Officer. An Executive Officer may call an Executive Officers meeting by issuing Notice thereof as herein provided.

Page 6 of Exhibit 10.13

The place of the Executive Officers meetings shall be at such place as stated in the Notice of meeting. An Executive Officer shall have twenty-four (24) hours from the receipt of Notice of an Executive Officers meeting to notify the Chief Executive Officer of such Executive Officers: (i) unavailability to attend such meeting and (ii) demand that such meeting be postponed. If the Chief Executive Officer receives any demand for postponement as provided above, the Chief Executive Officer shall reschedule the subject meeting, and give Notice thereof as provided above, to a date that is not earlier than three (3) days from the date of the date originally noticed, and such meeting must be held in Las Vegas, Nevada.

3.12 Quorum and Voting. At all Executive Officers meetings, an equal number of Executive Officers appointed by WIF and EAI (whether present in person, by telephone or other means of telecommunication, or represented by proxy) shall constitute a quorum for the transaction of business. Each Executive Officer shall be entitled to one (1) vote on any matter as to which the Executive Officers have decision-making authority and responsibility. Unless otherwise specified herein, the unanimous act of the Executive Officers present or represented by proxy at a meeting at which there is a quorum shall be the act of the Executive Officers. An Executive Officer may give a proxy to another Executive Officer. If a quorum shall not be present, the Executive Officers present may adjourn the meeting from time to time, with Notice to all Executive Officers, until a quorum shall be present.

3.13 Action Without Meeting. Unless otherwise specified herein, any action required or permitted to be taken at a meeting of the Executive Officers or of any committee thereof, may be taken without a meeting if all Executive Officers, or committee thereof, consent in writing to such action.

3.14 Committees. The Executive Officers may, from time to time, establish committees of the Executive Officers, including an audit committee and compensation committee. Except as expressly limited by applicable Law, each such committee shall exercise such powers and authority as the Executive Officers may determine and specify in a writing designating such committee or any amendment thereto. Unless otherwise specified in the writing designating the committee, a majority of the members of such committee may elect the committee’s chairperson, fix the committee’s rules of procedure, fix the time and place of meetings and specify what notice of meetings, if any, shall be given. Written records of the proceedings of any committee shall be maintained and furnished to the Executive Officers.

3.15 Cooperation. By acceptance of the position as an Executive Officer, each Executive Officer agrees to use best efforts to work in a spirit of mutual cooperation and support to carry out the business of the Company and in making decisions required to be made by the Executive Officers.

3.16 Executive Officers Have No Exclusive Duty to Company. An Executive Officer shall not be required to manage the Company as such Executive Officer’s sole and exclusive function and may have other business interests and may engage in other activities in addition to those relating to the Company. Nevertheless, each Executive Officer shall have a duty of loyalty to the Company in a manner similar to that of directors of a Nevada corporation. Neither the Company nor any Member shall have any right, by virtue of this Agreement, to share or participate in such other investments or activities of the Executive Officers or to the income or proceeds derived therefrom.

3.17 Indemnity of the Executive Officers. Each Executive Officer shall be indemnified by the Company to the fullest extent permitted by the Articles of Organization or Nevada Law.

Page 7 of Exhibit 10.13

3.18 Resignation. An Executive Officer may resign at any time by giving Notice to the Members. The resignation of any Executive Officer shall take effect upon receipt of Notice thereof or at such later time as shall be specified in such Notice; unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.

3.19 Vacancies. If an Executive Officer has resigned or been removed or has otherwise ceased to be an Executive Officer, a successor Executive Officer shall be appointed within thirty (30) days by the Member whom appointed such Executive Officer.

3.20 Reimbursement of Executive Officer. Executive Officers shall be reimbursed for all of out-of-pocket expenses incurred in connection with the formation and operation of the Company and the acquisition of Company Property including Accountants’ and attorneys’ fees.

3.21 Appointment of Officers. The Executive Officer may appoint individuals to hold the offices described in Section 3.26 and have the duties associated therewith. Any such officer of the Company may, but need not, be an employee of a Member. Each such officer of the Company shall hold office until such officer resigns or is removed or otherwise is disqualified to serve, or until such officer’s successor is appointed. Any single individual can hold two (2) or more of the following offices and have the duties associated therewith.

3.22 Chief Executive Officer.

(a) Authority The Chief Executive Officer shall have the general powers and duties of management usually vested in the office of Chief Executive Officer of a corporation and shall have such other powers and duties as may be prescribed by the Executive Officers or this Agreement. The Chief Executive Officer shall be David P. Taylor who shall hold office until the earlier of his death, resignation, or removal. Subject to the control of the Executive Officer’s with respect to Company matters requiring a vote of the Executive Officers under this Agreement, the Chief Executive Officer is the general manager of the Company, shall have supervising authority over and may exercise general executive power concerning the supervision, direction and control of the day-to-day business and affairs of the Company and shall carry out the decisions approved by the Executive Officers and/or by the Members, with the authority from time to time and at any time to delegate to any other officer or executive employee of the Company such executive powers and duties as the Chief Executive Officer may deem advisable. Subject to the terms and provisions of Section 3.03 and Section 4.02 and all other provisions of this Agreement requiring approval of Company or Executive Officer action by the affirmative vote or written consent of the Executive Officers or Members, the Chief Executive Officer shall have authority to do all things necessary to carry on the day-to-day business and affairs of the Company and hereby is authorized to take any action of any kind and to do anything and everything that the Chief Executive Officer deems necessary or appropriate with respect to the day-to-day business and affairs of the Company in accordance with the terms and provisions of this Agreement and applicable Law. In addition to the general authority provided to the Chief Executive Officer in this Section 3.22 and without limiting the generality of any of the foregoing (but subject to the provisions of Section 3.03 and Section 4.02) the Chief Executive Officer shall have the following specific rights, subject to compliance with the other terms and provisions of this Agreement:

(i) To maintain and operate the business of the Company and in connection therewith to execute and deliver on behalf of the Company: (A) licenses or other contracts; (B) checks, drafts and other orders with respect to the payment of Company funds; (C) powers of attorney, consents,

Page 8 of Exhibit 10.13

waivers and other documents as may be necessary to the conduct of the business of the Company; and (D) all other agreements, documents and commitments relating to the affairs of the Company;

(ii) On behalf of the Company, to select and remove such agents and employees of the Company as may be deemed necessary or expedient and to assist with the management or operation of Company business, to prescribe such powers and duties for them as are not inconsistent with Law, the Articles of Organization or this Agreement, to supervise their activities and duties and to fix their compensation;

(iii) On behalf of the Company, to employ and terminate the services of such Persons for or in connection with the business of the Company as may be deemed necessary or expedient and to assist with the management or operation of Company business and to perform Company administrative services, accounting services and other services for the benefit of the Company, excluding legal and financial advisors and Accountants;

(iv) In any single transaction or series of related transactions having a value of under $100,000, on behalf of the Company, to acquire such real or tangible personal property and intangible property as may be necessary or desirable to carry on the business of the Company, and to sell, exchange or otherwise dispose of the same;

(v) On behalf of the Company, to make any reasonable expenditure for the organization, operation and conduct of the business and affairs of the Company and to negotiate, execute, acknowledge, file, record, deliver and perform any agreement or instrument considered necessary or appropriate by the Chief Executive Officer for the conduct of the Company’s business and affairs in accordance with this Agreement or for the implementation of the powers granted to the Chief Executive Officer under this Agreement;

(vi) On behalf of the Company, to obtain or keep in force, or cause to be obtained and kept in force, fire and extended coverage, workmen’s compensation, and public liability insurance and such other insurance in favor of the Company, its Managers, fiduciaries and agents reasonably necessary to cover risks associated with the operation of the business of the Company;

(vii) On behalf of the Company, keep and maintain, or cause to be kept and maintained, adequate and correct books and records of account of the Company at the Company’s Principal Place of Business or such other location as determined by the Chief Executive Officer; provided, however, that such location does not unreasonably burden any Member’s access to such accounting and other administrative records. The Chief Executive Officer shall receive and deposit all moneys and other valuables belonging to the Company in the name and to the credit of the Company and shall disburse the same only in such manner as the Executive Officers may from time to time determine;

(viii) On behalf of the Company and the Subsidiaries act as the liaison of the Company and the Subsidiaries with any and all Governmental and Regulatory Authority, and coordinate all responses on behalf of the Company and the Subsidiaries to the Governmental and Regulatory Authority;

Page 9 of Exhibit 10.13

(ix) Prepare and submit quarterly Operating Statements of the Company and the Subsidiaries to the Executive Officers within two (2) business days of the end of each calendar quarter.

(x) Prior to each Fiscal Year prepare the Operating Budgets for approval by the Executive Officers and prepare and submit to the Executive Officers for approval an annual business plan summarizing the production, marketing, and financial objectives of the Company for the next Fiscal Year. In the event that the Executive Officers fail to approve the Operating Budgets for a subsequent year for any reason, the previously approved Operating Budgets will remain in effect until such time as new budgets are approved;

(xi) Call meeting of the Members;

(xii) Provide such other information regarding the Company Property, and the business and activities of the Company as any Member reasonably may request from time to time;

(xiii) On behalf of the Company act as the manager of the Subsidiaries and perform all duties and responsibilities in connection therewith all on such terms as may be set forth in the operating agreement of each Subsidiary or pursuant to a management agreement with the Subsidiaries, individually or collectively, as approved by the Executive Officers.

(b) General Obligations. The Chief Executive Officer shall:

(i) Preside at all meetings of the Executive Officers and at all meetings of the Members;

(ii) Take or cause to be taken all actions that may be necessary or appropriate for the development, maintenance, preservation and operation of the business of the Company in accordance with the terms and provisions of this Agreement and applicable Laws;

(iii) Execute and cause to be filed original or amended documents and take all other actions that reasonably may be necessary to perfect and maintain the status of the Company as a limited liability company under the Laws of the State of Nevada and of other states or jurisdictions in which the Company engages in business and, if required by Law, execute and cause to be recorded appropriate original or amended documents in each county in each state in which the Company owns real property;

(iv) Take such actions as may be necessary or appropriate in order to qualify the Company under the Laws of any jurisdiction in which the Company is doing business or owns property or in which such qualification is necessary in order to protect the limited liability of the Members or in order to continue in effect such qualification; and

(v) At all times conduct the affairs of the Company in such a manner that the Company shall be able to service all Debts and satisfy financial obligations of the Company.

Page 10 of Exhibit 10.13

3.23 President The President shall perform the duties of the Chief Executive Officer when the Chief Executive Officer is absent and shall have such other powers and duties as may be prescribed by the Executive Officers. The initial President of the Company shall be David Taylor who shall hold office until the earlier of his death, resignation, or removal.

3.24 Treasurer The Treasurer shall have the general powers and duties usually vested in the office of Treasurer of a corporation and shall have such other powers and duties as may be prescribed by the Executive Officers. The initial Treasurer of the Company shall be David Keys who shall hold office until the earlier of his death, resignation, or removal.

3.25 Secretary. The Secretary shall have the general powers and duties of management usually vested in the office of Secretary of a corporation and shall have such other powers and duties as may be prescribed by the Executive Officers. The initial Secretary of the Company shall be David Keys who shall hold office until the earlier of his death, resignation, or removal.

3.26 Subordinate Officers, Employees and Agents. The Executive Officers shall have the right at any time and from time to time to appoint such other officers, employees and agents of the Company as the business of the Company may require in the discretion of the Executive Officers, each of whom shall hold office for such period, have such authority and perform such duties as the Executive Officers from time to time may determine.

3.27 Removal and Resignation. Any officer may be removed, either with or without cause, by the Executive Officers at any regular or special meeting of the Executive Officers (subject, in each case, to the rights, if any, of an officer under any contract of employment). Any officer may resign at any time by giving written Notice to the Executive Officers, to the Chief Executive Officer or to the Secretary, without prejudice, however, to the rights, if any, of the Company under any contract of employment to which such officer is a party. Any such resignation shall take effect on the date of the Company’s receipt of such Notice or at any later time specified therein, and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.

3.28 Vacancies. A vacancy in any office because of death, resignation, removal, disqualification or any other cause shall be filled in the manner prescribed in this Article III for appointments to such office.

3.29 Limitation of Liability and Indemnification of Company Officers.

(a) Limitation of Liability. No officer of the Company shall be liable to the Company or to the Members for acts or omissions of such officer of the Company in connection with the business or affairs of the Company, including, without limitation, any breach of the duty of loyalty, as such duty is described in Section 3.16 any mistake of judgment of such officer as an officer of the Company and any business decision of such officer as an officer of the Company, except for acts or omissions of such officer of the Company that a final Order establishes involved breach of such officer’s duty of loyalty to the Company, bad faith, intentional misconduct, fraud or a knowing violation of the Law that was material to the cause of action subject to such final Order. Without limiting the generality of the foregoing, each officer shall, in the performance of his, her or its duties, be fully protected in relying in good faith upon the records of the Company and upon information, opinions, reports or statements presented to such officer by any other Person as to matters such officer reasonably believes

Page 11 of Exhibit 10.13

are within such other Person’s professional or expert competence and that has been selected with reasonable care by or on behalf of the Company.

(b) Indemnification of Officers. The Company and/or its successor, trustee or receiver may indemnify, defend and hold harmless every officer of the Company and every individual who at any time was but ceased to be an officer of the Company, and the heirs and Personal Representative of every officer of the Company and of every such individual, against all Claims, demands, actions, losses, liabilities, damages, costs and expenses, which after the date of this Agreement arise out of the Company or its business or affairs, including reasonable attorneys’ fees incurred in defending all such matters in accordance with the provisions of this Section 3.29, the Articles of Organization or the Act

(c) Satisfaction of Obligation of Indemnity. The satisfaction of the indemnification obligations of the Company under this Section 3.29 shall be from and limited to the Company Property, and no Members shall have any personal liability for the satisfaction of any such indemnification obligation.

(d) Amendment and Repeal. The terms and provisions of this Section 3.29 cannot and shall not be amended or repealed under any circumstance, except as may be necessary to increase or expand (but not to reduce) the rights or protections under this Section 3.29 of officers of the Company or other individuals referenced in this Section 3.29 to the maximum extent permitted by the Act. No amendment or repeal of any term or provision of this Section 3.29 that otherwise would restrict or limit any right or protection of an officer of the Company or other individuals under this Section 3.29 shall apply to or have any affect on any such right or protection of any officer of the Company existing at the time of such amendment or repeal or of any individual who at any time before such amendment or repeal was but ceased to be an officer of the Company, or of the heirs and Personal Representative of any such officer of the Company or other individual.

3.30 Confidentiality and Non Disclosure.

(a) By acceptance of the position of officer of the Company, each officer acknowledges that the officer will have access to, have to disclosed to, or otherwise obtain Confidential Information. Each officer further acknowledges and agrees that the officer shall hold Confidential Information in confidence and not Disclose Confidential Information to any third Person other than as set forth herein or as necessary for such officer to perform its duties to the Company. Each officer shall use best efforts to prevent and protect such Confidential Information from unauthorized use, Disclosure or availability. Such care shall include securing writings, documents, and other Media containing such Confidential Information in a safe, locked file cabinet or the equivalent and maintaining a written agreement with each employee who may have access to such Confidential Information sufficient to comply with the terms of this Agreement.

(b) Each officer further acknowledges that the Confidential Information includes commercially valuable, Company Trade Secrets, the design and Development of which reflect the effort of skilled Development experts and required the investment of considerable amounts of time and money. Each officer further acknowledges that the Company has treated such Confidential Information as confidential and secret information that Company entrusts to an officer in confidence to use only for the purpose of carrying out such officer’s duties and responsibilities to the Company. Each officer also acknowledges that the Company claims and reserves all rights and benefits afforded under all U.S. and

Page 12 of Exhibit 10.13

international Laws or treaties, including, without limitation, patent, copyright and Trade Secret law, in all Confidential Information furnished or otherwise made available to an officer. In perpetuity, an officer shall not Disclose the Company Trade Secrets to any Person.

(c) The unauthorized use or Disclosure of any Confidential Information by an officer in violation of this Section 3.30 will cause severe and irreparable damages to the Company, which may be difficult to measure with certainty or to compensate through damages. If an officer violates this Section 3.30 the Company shall have the remedies described in Section 9.02 in addition to all other remedies available to the Company at Law or equity.

(d) Notwithstanding the foregoing, if an officer or anyone to whom it has supplied the Confidential Information, receives a request to Disclose all or any part of the Confidential Information under the terms of a subpoena or order issued by a court or by a governmental body, the Officer shall (i) notify the Executive Officers immediately of the existence, terms, and circumstances surrounding such request, (ii) consult with the Executive Officers on the advisability of taking legally available steps to resist or narrow such request, and (iii) if Disclosure of such Confidential Information is required to prevent the officer or the Company from being held in contempt or subject to other penalty, furnish only such portion of the Confidential Information as, in the written opinion of counsel for the Company, is legally compelled to be Disclosed, and to exercise best efforts to obtain an order or other reliable assurance that confidential treatment will be accorded to the Disclosed Confidential Information.

ARTICLE IV
RIGHTS AND OBLIGATIONS OF MEMBERS

4.01 Limitation of Liability. Each Member’s liability shall be limited as set forth in this Agreement, the Act and other applicable Law. No Member shall be personally liable for any Debts or Losses of the Company, except as otherwise required by Law or as specifically assumed in writing by such Member.

4.02 Actions Requiring Approval of Members. The Executive Officers shall obtain the affirmative vote or written consent of Members holding a Majority-in-Interest of the Membership Voting Interests prior to engaging in the following matters:

(i) Commencing a voluntary Bankruptcy of the Company;

(ii) Merging or consolidating the Company with another Person or exchanging

more than fifty percent (50%) of the issued and outstanding Units with a Person;

(iii) Authorizing or issuing any additional Units, or authorizing or issuing any bonds, debentures, notes, warrants, rights, options or other obligations convertible into or exchangeable for, or having option rights to purchase, any Units; or

(iv) Creating any Unit incentive, Unit purchase or Unit option plans for or in relation to any Unit or other Securities of the Company for employees.

Page 13 of Exhibit 10.13

(v) Submitting any matter in dispute or subject to a deadlock to arbitration pursuant to Section 9.11.

If action is required, or if an agreement or consent of the Members is required on any matter arising under this Section 4.02 and there are neither sufficient votes to approve nor disapprove the matter, the Members shall use their good faith efforts to resolve such matter promptly; provided, however, that if the Members are unable to resolve such matter, the matter shall be submitted for dispute resolution as stated above pursuant to Section 9.11

4.03 Inspection Rights.

(a) Right to Inspect. The Company shall maintain, at the Company’s principal place of business, separate books of account for the Company that shall show a true and accurate record of all costs and expenses incurred, all charges made, all credits made and received and all income derived in connection with the operation of the Company in accordance with GAAP consistently applied, and, to the extent inconsistent therewith, in accordance with this Agreement. A copy of this Agreement, the Articles of Organization and a current list of Unit Holders and Managers with mailing addresses shall be maintained at the principal place of business of the Company and shall be open to inspection and examination by a Member upon ten (10) days written Notice to the Company which Notice shall include the Member’s purpose of such demand. Inspections conducted pursuant to this section shall be permitted at the principal place of business of the Company between the hours of 9 a.m. and 5 p.m., Monday through Friday.

(b) Confidentiality. The Chief Executive Officer shall have the right to keep confidential from the Members any Confidential Information which the Chief Executive Officer in good faith believes should not be Disclosed to the Members or which the Company is required by Law or by agreement with third Persons to keep confidential. The records of the Company may be maintained in any Media provided that such Media is capable of conversion into written form within a reasonable time. Each Member may exercise the inspection right set forth in Section 4.03(a) only for a purpose related to such Member’s interest in the Company and may not Disclose such information (whether orally or in writing) to any third Person other than in connection with a purpose related to such Member’s interest in the Company. The information obtained through exercise of the inspection right set forth in Section 4.03(a) above shall be considered Confidential Information for a period of three (3) years after Disclosure. The unauthorized use or Disclosure of any Confidential Information by a Member in violation of this Section 4.03(b) will cause severe and irreparable damages to the Company, which may be difficult to measure with certainty or to compensate through damages. If a Member violates this Section 4.03(b) the Company shall have the remedies described in Section 9.02 in addition to all other remedies available to the Company at Law or equity

4.04 Priority and Return of Capital. Except as otherwise provided in Sections 6.01 and 8.03, no Unit Holder shall have priority over any other Unit Holder as to the return of Capital Contributions or as to Tax Profits, Tax Losses, or distributions. This Section shall not apply to loans that a Member has made to the Company.

4.05 Certificates of Interest. Every Member shall be entitled to have a certificate certifying the number of Units owned by such Member. In addition to any other restrictive legends that may be imposed, each certificate evidencing ownership of the Units shall bear, and be subject to, the legend set forth in Section 7.02.

Page 14 of Exhibit 10.13

4.06 Limitation on Activities. As long as EM and WIF are members of the Company, neither party will become involved in a business that is in competition with the Company or any of its operating subsidiary LLC’s (“Competitive Business”). Notwithstanding the foregoing, each Member must offer the other Member the opportunity to participate with it in any Competitive Business, and if the other elects not to participate, then the other Member can do so even if it is otherwise a Competitive Business.

4.07 Reimbursement of Expenses of Members. Each Member shall pay such Member’s respective out-of-pocket and other incidental expenses such as employee travel, lodging, entertainment and telephone, federal express and postage incurred in connection with the formation and operation of the Company. Any such out-of-pocket and other incidental expenses and fees, which benefit the Company, incurred personally by a Member, shall be reimbursed to that Member from funds of the Company provided that suitable records of such expenses are delivered to the Company.

4.08 Confidentiality and Non Disclosure.

(a) For a period of five (5) years after Disclosure, each Member shall hold Confidential Information in confidence and not Disclose Confidential Information to any third Person. Each Member shall use best efforts, but in all events at least the same degree of care in respect to Confidential Information that the Member uses to protect such Member’s own confidential information from unauthorized use, Disclosure or availability. Such care shall include securing writings, documents, and other Media containing such Confidential Information in a safe, locked file cabinet or the equivalent and maintaining a written agreement with each employee who may have access to such Confidential Information sufficient to comply with the terms of this Agreement.

(b) Each Member acknowledges that the Confidential Information includes commercially valuable, Company Trade Secrets, the design and Development of which reflect the effort of skilled Development experts and required the investment of considerable amounts of time and money. Each Member further acknowledges that the Company has treated such Confidential Information as confidential and secret information that Company entrusts to a Member in confidence to use only for the purpose of participating in the Company as a Member. Each Member also acknowledges that the Company claims and reserves all rights and benefits afforded under all U.S. and international Laws or treaties, including, without limitation, patent, copyright and Trade Secret law, in all Confidential Information furnished or otherwise made available to a Member. In perpetuity, a Member shall not Disclose the Company Trade Secrets to any Person.

(c) The unauthorized use or Disclosure of any Confidential Information by a Member in violation of this Section 4.08 will cause severe and irreparable damages to the Company, which may be difficult to measure with certainty or to compensate through damages. If a Member violates this Section 4.08 the Company shall have the remedies described in Section 9.02 in addition to all other remedies available to the Company at Law or equity.

ARTICLE V
MEETINGS OF MEMBERS

5.01 Meetings. Meetings of the Members for any purpose or purposes may be called by the Executive Officers or by a Majority-In-Interest of the Members at anytime. The Company need not hold an annual meeting of the Members.

Page 15 of Exhibit 10.13

5.02 Place of Meetings. The Members may designate any place, either within or outside the State of Nevada, as the place of meeting for any meeting of the Members. If no designation is made, or if a special meeting is otherwise called, the place of meeting shall be held at the Company’s principal place of business as specified in Section 1.04.

5.03 Notice of Meetings. Notice stating the place, day, and hour of the meeting and the purpose or purposes for which the meeting is called shall be delivered no fewer than ten (10) nor more than fifty (50) days before the date of the meeting.

5.04 Meeting of all Members. If all of the Members shall meet at any time and place, either within or outside of the State of Nevada, and consent to the holding of a meeting at such time and place, such meeting shall be valid without call or Notice, and at such meeting, any lawful action may be taken.

5.05 Voting Rights. For the purpose of voting or approving or taking action required or permitted to be taken or approved by the Members under this Agreement, each Member upon and after becoming such, shall have voting power equal to such Member’s percentage of all issued and outstanding Units held by all Members, determined as of the date of giving notice of the meeting of the Members or as of the date of the notice for proposed action by written consent without a meeting of the Members. For all purposes of this Agreement, such voting power of each Member shall constitute and be such Member’s individual Membership Voting Interest.

5.06 Record Date. For the purpose of determining Members entitled to Notice of, or to vote at, any meeting of Members or any adjournment thereof, the date on which notice of the meeting is mailed or the date on which the resolution declaring such distribution is adopted, as the case may be, shall be the record date for such determination of Members. Except as provided in Section 5.07 when a determination of Members entitled to vote at any meeting of Members has been made as provided in this Section 5.06 such determination shall apply to any adjournment thereof.

5.07 Quorum. A Majority-In-Interest of the Membership Voting Interests, represented in person or by proxy, shall constitute a quorum at any meeting of Members. In the absence of a quorum at any such meeting, a majority of the Membership Voting Interests so represented may adjourn the meeting from time to time for a period not to exceed sixty (60) days without further notice. However, if the adjournment is for more than sixty (60) days, a new record date shall be fixed for the adjourned meeting, and a notice of the adjourned meeting shall be given to each Member of record entitled to vote at such meeting.

5.08 Manner of Acting. If a quorum is present, the affirmative vote of a majority of the Membership Voting Interests constituting such quorum shall be the act of the Members, unless the vote of a greater or lesser proportion or number is otherwise required by the Articles of Organization or by this Agreement.

5.09 Proxies. At all meetings of Members, a Member may vote in person or by proxy executed in writing by the Member or by a duly authorized attorney-in-fact. Such proxy shall be filed with the Executive Officers of the Company before or at the time of the meeting. No proxy shall be valid after eleven (11) months from the date of execution, unless otherwise provided in the proxy.

Page 16 of Exhibit 10.13

5.10 Action by Members Without a Meeting. Any action required or permitted to be taken at a meeting of Members may be taken without a meeting if the action is evidenced by one or more written consents describing the action taken, signed by the Members holding the requisite number of Units required to approve the action, and delivered to the Executive Officers of the Company for inclusion in the minutes or for filing with the Company records. Action taken under this Section 5.10 is effective when all of the necessary Members have signed the consent unless the consent specifies a different effective date. The record date for determining Members entitled to take action without a meeting shall be the date the first Member signs a written consent.

5.11 Waiver of Notice. When any notice is required to be given to any Member, a waiver thereof in writing signed by the Person entitled to such notice, whether before, at, or after the time stated therein, shall be equivalent to the giving of such notice.

ARTICLE VI
PROFITS. LOSSES, DISTRIBUTIONS AND TAX MATTERS

6.01 Distributions. Subject to the reasonably anticipated business needs and opportunities of the Company and the limitations set forth in the Act, the Executive Officers may resolve to distribute Net Cash From Operations and Net Cash From Sales Refinancings as provided below at such intervals as the Executive Officers shall determine from time to time.

(a) Net Cash From Operations. Until the $7,000,000 note from EAI to the Company has been paid in full, twenty-five percent (25%) of the Net Cash From Operations, shall be distributed to the Unit Holders in proportion to their Percentage Interests, and twenty-five percent (25%) shall be used to accelerate or increase payments on the aforementioned note. After said note is paid, at least fifty percent (50%) of Net Cash From Operations shall be distributed to the Unit Holders in proportion to their Percentage Interests. The remaining fifty percent (50%) of Net Cash From Operations shall initially be retained by the Company subject to agreement of the Members as to its expenditure or allocation.

(b) Net Cash from Sales and Refinancings. Net Cash From Sales and Refinancings may be distributed to the Unit Holders in proportion to their Percentage Interests should the Members agree to such.

(c) Mandatory Distributions. To the extent of available Net Cash From Operations, the Unit Holders shall be entitled to receive from the Company not later than April 1 of each Fiscal Year, in proportion to the number of Units held by each, Permitted Tax Distributions from Net Cash From Operations.” Permitted Tax Distributions” shall mean an amount equal to: (i) the product of (A) each Unit Holder’s cumulative allocated share of the Tax Profits and other items of net taxable gain for the previous Taxable Year, and (B) the maximum marginal federal income tax rate applicable to corporations for that year; (ii) less the amount of Net Cash from Operations and Net Cash from Sales and Refinancings previously distributed to such Unit Holder during the previous Taxable Year (excluding cash distributed in such previous Taxable Year in satisfaction of the preceding year’s Permitted Tax Distributions). Appropriate adjustment shall be made for Transfers of Units during the Taxable Year.

6.02 Allocation of Tax Profits and Tax Losses. After giving effect to the special allocations set forth in Section 6.03 Tax Profits and Tax Losses shall be allocated as provided below:

Page 17 of Exhibit 10.13

(a) Tax Profits Tax Profits for any Taxable Year shall be allocated among the Unit Holders in the same manner that Net Cash from Operations is allocated to the Unit Holders under Section 6.01.

(b) Tax Losses Tax Losses for any Taxable Year shall be allocated among the Unit Holders in the manner that Net Cash from Operations is allocated to the Unit Holders under Section 6.01.

(c) Limitation on Tax Losses The Tax Losses allocated pursuant to this Section shall not exceed the maximum amount of Tax Losses that can be so allocated without causing any Unit Holder to have an Adjusted Capital Account Deficit at the end of any Taxable Year. In the event some but not all of the Unit Holders would have Adjusted Capital Account Deficits as a consequence of an allocation of Tax Losses pursuant to this Section 6.02(b) the limitation set forth in this Section 6.02(b) shall be applied on a Unit Holder by Unit Holder basis so as to allocate the maximum permissible Tax Losses to each Unit Holder under Regulations Section 1.704-1(b)(2)(ii)(d). Notwithstanding the provisions of Section 6.02(a) one hundred percent (100%) of the Tax Profits shall be allocated, prior to any other allocations of Tax Profits, to the Unit Holders up to the aggregate of, and in proportion to, any Tax Losses previously allocated to each Unit Holder in accordance with this Section 6.02(c) in the reverse order in which such Tax Losses were allocated.

6.03 Accounting Method and Period. The books and records of account of the Company shall be maintained in accordance with the accrual method of accounting. The Company’s accounting period shall be the calendar year.

6.04 Records and Reports. The Chief Executive Officer shall prepare and maintain, or cause to be prepared and maintained, the books of account of the Company, and the following documents shall be transmitted by the Chief Executive Officer and Members, as the case maybe, as set forth below.

(a) Financial Statements. To each Member within four (4) months after the close of each Fiscal Year, the following financial statements: (i) a balance sheet of the Company as of the beginning and close of such Fiscal Year; (ii) for such Fiscal Year, both a statement of Company net income as determined for financial purposes and a statement of Tax Profits or Tax Losses as determined above hereof; and (iii) a statement of such Member’s Capital Account as of the close of such Fiscal Year, and changes therein during such Fiscal Year.

(b) Tax Return Information. Within three (3) months after the close of each Fiscal Year, the following documents: (i) to each Unit Holder a statement indicating such Unit Holder’s share of each item of Company income, gain, loss, deduction or credit for such Fiscal Year for income tax purposes; and (ii) to each Member a copy of each income tax return, federal or state, filed by the Company for such Fiscal Year.

(c) Objection and Confidentiality. All information contained in any statement or other document distributed to any Member pursuant to this Section 6.04 shall be deemed accurate, binding and conclusive with respect to such Member unless written objection is made thereto by a Member to the Company within twenty (20) business days after the receipt of such statement or other document by such Member. Each Member covenants that the books and records of account, the items described above, and information on other Members is Confidential Information and shall only be used by the Member for a purpose related to such Member’s interest in the Company and may not be disclosed

Page 18 of Exhibit 10.13

(whether orally or in writing) to any third Person other than in connection with a purpose related to such Member’s interest in the Company. The unauthorized use or Disclosure by a Member of any Confidential Information Disclosed to a Member under this Section 6.04 will cause severe and irreparable damages to the Company that may be difficult to measure with certainty or to compensate through damages. If a Member violates this Section 6.04(c), the Company shall have the remedies described in Section 9.02, in addition to all other remedies available to the Company at Law or equity.

ARTICLE VII
NO TRANSFER OF UNITS

7.01 Transfer of Units. No Unit Holder may Transfer Units to a third Person.

7.02 Purchase of Units Upon Default. In the Event of Default (as hereinafter defined), the Member who is not subject to the Event of Default shall be entitled to purchase all, but not less than all of the Units of the Member who is subject to the Event of Default. The purchase price to be paid for the Units to be purchased pursuant to this Section shall, if the parties are unable to agree upon such price, be the fair market value of such Units determined by appraisal by an appraiser reasonably acceptable to both parties. In the event no one appraiser is mutually acceptable, each Party shall appoint an appraiser and their appraisers shall appoint a third appraiser who will then all three collectively determine the fair market value. The purchase price for the Units shall be payable in five equal annual installments without interest. An “Event of Default” shall mean a transfer of Units in violation of this Operating Agreement or the voluntary or involuntary Bankruptcy of a Member not dismissed within 90 days of the commencement thereof.

7.03 Restrictive Legend. In addition to any other restrictive legend that may be imposed on any certificate evidencing ownership of any Units, such certificate shall bear the following legend:

THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON TRANSFER AS SET FORTH IN THE OPERATING AGREEMENT OF THE COMPANY.

ARTICLE VIII
DISSOLUTION AND TERMINATION

8.01 Dissolution. The Company shall be dissolved upon the occurrence of any of the following events:

	(a)	Mutual consent of Members;

	(b)	The entry of an Order of judicial dissolution under the Act;

	(c)	Upon the written notice of either Member to the other Members in the event that the Initial Major Transaction has not closed by December 31, 2003.

Bankruptcy or dissolution of a Member shall not cause a dissolution of the Company.

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8.02 Liabilities. Liquidation shall continue until the Company’s affairs are in such condition that there can be a final accounting, showing that all fixed or liquidated obligations and Debt of the Company are satisfied or can be adequately provided for under this Agreement. The assumption or guarantee in good faith by one or more financially responsible Persons shall be deemed to be an adequate means of providing for such obligations and Debt. When the Executive Officers have determined that there can be a final accounting, the Executive Officers shall establish a date (not to be later than the end of the Taxable Year of the liquidation as provided in Regulations Section 1.704-1(b)(2)(ii)(g), or, if later, ninety (90) days after the date of such liquidation) for the distribution of the proceeds of liquidation of the Company (the “Distribution Date”). The net proceeds of liquidation of the Company shall be distributed to the Members as provided in Section 8.03 not later than the Distribution Date.

8.03 Distribution of Proceeds. Upon final liquidation of the Company but not later than the Distribution Date, the net proceeds of liquidation shall be distributed in the following order of priority:

(a) to creditors, including any Member, to the extent of any unpaid expenses or any outstanding loan or advance;

(b) to the Members in respect of the costs of winding up the affairs of the Company, discharging the Debt of the Company, distributing the Company Property and dissolving the Company in accordance with this Article VIII and then

(c) to the Unit Holders in accordance with their positive Capital Account balances, as determined after taking into account all Capital Account adjustments for the Taxable Year of the Company during which the liquidation of the Company occurs (other than such Capital Account adjustments made by reason of this clause).

8.04 Creation of Liquidating Trust or Reserve for Liabilities. In the discretion of the Executive Officers, a pro rata portion of the distributions that would otherwise be made to the Unit Holders pursuant to Section 8.03 may be distributed to a trust established for the benefit of the Members for the purposes of liquidating Company Property, collecting amounts owed to the Company, and paying any contingent or unforeseen Debt or obligations of the Company or of the Members arising out of or in connection with the Company. The assets of any such trust shall be: (a) distributed to the Unit Holders from time to time, in the reasonable discretion of the Executive Officers, in the same proportions as the amount distributed to such trust by the Company would otherwise have been distributed to the Members pursuant to Section 8.03 or (b) withheld to provide a reasonable reserve for Company Debt (contingent or otherwise) and to reflect the unrealized portion of any installment obligations owed to the Company, provided that such withheld amounts shall be distributed to the Unit Holders as soon as practicable.

8.05 Deemed Distribution and Recontribution. Notwithstanding any other provisions of this Article VIII, in the event the Company is liquidated within the meaning of Regulations Section 1.704-l(b)(2)(ii)(g) but no event of dissolution (as defined in Section 8.01). has occurred, the Company Property shall not be liquidated, the Company’s Debt shall not be paid or discharged, and the Company’s affairs shall not be wound up. Instead, the Company shall be deemed to have distributed the Company Property in kind to the Unit Holders, who shall be deemed to have assumed and taken subject to all Debt in accordance with their respective Capital Accounts. Immediately thereafter, the Members shall be deemed to have recontributed the Company Property in kind to the Company, which shall be deemed to have assumed and taken subject to all such Debt.

Page 20 of Exhibit 10.13

8.06 Articles of Dissolution. When all Debts have been paid and discharged or adequate provisions have been made therefore and all of the remaining Company Property has been distributed to the Unit Holders, articles of dissolution shall be executed and filed with the Nevada Secretary of State.

8.07 Deficit Balance as Non Recourse. If any Unit Holder’s Capital Account has a deficit balance (after giving effect to all contributions, distributions, and allocations for all Taxable Years, including the Taxable Year during which liquidation occurs), such Unit Holder shall have no obligation to contribute to the capital of the Company with respect to such deficit, and such deficit shall not be considered a debt owed to the Company or to any other Person for any purposes whatsoever, except to the extent of any required but unpaid Capital Contribution or as otherwise provided in the Act.

ARTICLE IX
MISCELLANEOUS PROVISIONS

9.01 Notices. Any notice or communication to be given under the terms of this Agreement (“Notice”) shall be in writing and shall be personally delivered or sent by facsimile, overnight delivery, or registered or certified mail, return receipt requested. Notice shall be effective: (a) if personally delivered, when delivered; (b) if by facsimile, on the day of transmission thereof on a proper facsimile machine with confirmed answerback; (c) if by overnight delivery, the day after delivery thereof to a reputable overnight courier service, delivery charges prepaid; and (d) if mailed, at midnight on the fifth business day after deposit in the mail, postage prepaid. Notices shall be addressed as follows:

	if to the Executive Officers:	at the address then appearing for such Executive Officers on the books and records of the Company

	if to the Company:	5700 N. Portland
		Oklahoma City, Oklahoma 73112

	with a copy to:	Jackson Walker L.L.P.
		Attn: Larry Waks
		100 Congress Avenue, Suite 1100
		Austin, Texas 78701

	if to a Member:	EM




		WIF

9.02 Application of Nevada Law. This Agreement, and the application or interpretation hereof, shall be governed exclusively by the terms of this Agreement and by the Laws of the State of Nevada. Notwithstanding the provisions of Section 9.11 in the event of a breach or threatened breach of the provisions of Sections 4.03(b). 4.06, 6.04(c) or 9.11 shall cause irreparable injury entitling the Company to extraordinary and equitable relief by a court outside of any requirement for Arbitration, including but not limited to temporary restraining orders and preliminary and permanent injunctions,

Page 21 of Exhibit 10.13

without the necessity of posting bond or security. The opinions, findings, determinations and Orders of any court with respect to permanent equitable relief granted consistent with this Section 9.02 shall have binding effect upon any Arbitration and shall otherwise have res judicata and collateral estoppel effect upon any Arbitration; provided, however, that the Arbitration Panel shall give any court Order granting temporary or preliminary equitable relief persuasive juridical authority. Each Member irrevocably submits to the exclusive jurisdiction of the United States District Court for the District of Nevada (Unofficial Southern District) or any court of the State of Nevada located in the City of Las Vegas in any Action or Proceeding arising out of the breach or threatened breach of Sections 4.03(b), 4.06, 6.04(c) or 9.11, and for the enforcement of any award of the arbitrator under Section 9.11 and covenants that any such Action or Proceeding shall be brought only in such court; provided, however, that such consent to jurisdiction is solely for the purpose referred to in this Section and shall not be deemed to be a general submission to the jurisdiction of said courts or in the State of Nevada other than for such purpose. The Company and each Member irrevocably waives, to the fullest extent permitted by Law, any objection that it may now or hereafter have to the laying of the venue of any such Action or Proceeding brought in such a court and any Claim that any such Action or Proceeding brought in such a court has been brought in an inconvenient forum.

9.03 Amendments Except as otherwise provided herein, this Agreement may be amended, modified or revised, in whole or in part, upon the approval by a majority vote of the Executive Officers; provide, however, that no amendment, modification or revision of Sections 2.01, 2.03, 2.04, 3.01, 3.02, 3.04, 3.06, 3.08, 3.09, 3.22, 4.01, 4.02, 4.03(b), 4.06, 5.05, 6.04(c), 7.01, 7.02, 7.03, 8.01, 8.03. 9.02, 9.03, or 9.11 and any defined term used therein shall be effective without the vote or written consent of the holders of a Majority-In-Interest of the Membership Voting Interests. Any amendment to this Agreement need only be evidenced by the execution of such amendment by a majority of the Executive Officers.

9.04 Execution of Additional Instruments. Each Member shall execute such other and further statements of interest and holdings, designations, powers of attorney, and other instruments necessary to comply with any Laws, or to give effect to the terms and provisions of this Agreement.

9.05 Waivers. The failure of any Person to seek redress for violation of or to insist upon the strict performance of any covenant or condition of this Agreement shall not prevent a subsequent act, which would have originally constituted a violation, from having the effect of an original violation.

9.06 Rights and Remedies Cumulative. The rights and remedies provided by this Agreement are cumulative, and the use of any one right or remedy by any Person shall not preclude or waive the right or use of any or all other remedies.

9.07 Severability. If any provision of this Agreement or the application thereof to any Person or circumstance shall be invalid, illegal, or unenforceable to any extent, the remainder of this Agreement and the application thereof shall not be affected and shall be enforceable to the fullest extent permitted by Law.

9.08 Heirs, Successors, and Assigns. Each and all of the covenants, terms and provisions, herein contained shall be binding upon and inure to the benefit of the Members and, to the extent permitted by this Agreement, their respective heirs, Personal Representatives, successors, and assigns.

Page 22 of Exhibit 10.13

9.09 Creditors. None of the provisions of this Agreement shall be for the benefit of or enforceable by any creditors of the Company.

9.10 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same instrument.

9.11 Dispute Resolution. Subject to Section 9.02 the Members covenant that any controversy, dispute or Claim between the Members, in such capacity, arising out of or relating to this Agreement or any breach of this Agreement, or as may have otherwise been provided in this Agreement, shall be resolved by Arbitration in Las Vegas, Nevada before a single arbitrator pursuant to the AAA rules, but not under the auspices of the AAA.

IN WITNESS WHEREOF, this Agreement has been executed as of the date first above written.

(see attached signature page)

Page 23 of Exhibit 10.13

WIMASE INVESTMENT FUND INC., LLC

By:

Name:

Its.


ENERGETIC ADDITIVES INC., LLC

By:

Name:

Its.

Page 24 of Exhibit 10.13

SCHEDULE 1

GLOSSARY OF DEFINED TERMS

Whenever used in this Agreement, the following terms shall have the following meanings:

“Accountants” shall mean the firm of independent certified public accountants engaged by the Executive Officers from time to time to perform accounting and tax services on behalf of and at the cost of the Company.

“Act” shall mean have the meaning ascribed to it in Section 1.01.

“Action or Proceeding” shall mean any action, suit, proceeding, arbitration or Governmental and Regulatory Authority investigation.

“Additional Capital Contributions” has the meaning ascribed to in Section 2.03.

“Adjusted Capital Account Deficit” shall mean, with respect to any Unit Holder, the deficit balance, if any, in such Unit Holder’s Capital Account as of the end of the relevant Taxable Year, after giving effect to the following adjustments: (i) credit to such Capital Account any amounts which such Unit Holder is obligated to restore pursuant to any provision of this Agreement or is deemed to be obligated to restore pursuant to the penultimate sentences of Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5); and (ii) debit to such Capital Account the items described in Regulations Sections 1.704-1 (b)(2)(ii)(d)(4), 1.704-1 (b)(2)(ii)(d)(5), and 1.704-1 (b)(2)(ii)(d)(6). The foregoing definition of Adjusted Capital Account Deficit is intended to comply with the provisions of Regulations Section 1.704-1 (b)(2)(ii)(d) and shall be interpreted consistently therewith.

“Affiliate” shall mean: (i) any Person directly or indirectly Controlling, Controlled by or under common Control with such Person; or (ii) any Person who is an officer, director, manager, general partner, trustee, or holder often percent (10%) or more of the voting interests of any Person described in clause (i) above.

“Agreement” shall mean this written Operating Agreement as originally executed and as amended from time to time.

“Arbitration” shall have the meaning ascribed to such term in Section 9.11.

“Articles of Organization” shall mean the Articles of Organization of the Company filed on October 4, 2002, with the office of the Secretary of State of Nevada, as the same may be amended or restated from time to time in accordance with the Act and this Agreement.

“Bankruptcy or Bankrupt” shall mean with respect to any Person: (i) such Person making an assignment for the benefit of creditors, becoming a party to any liquidation or dissolution Action or Proceeding with respect to such Person or any bankruptcy, reorganization, insolvency or other Action or Proceeding for the relief of financially distressed debtors with respect to such Person, or a receiver, liquidator, custodian, or trustee being appointed for such Person or a substantial part of such

Page 25 of Exhibit 10.13

Person’s assets and, if any of the same occur involuntarily, the same not being dismissed, stayed or discharged within one hundred (120) days of the filing of such Action or Proceeding or other Bankruptcy event; or (ii) the entry of an Order for relief against such Person under Title 11 of the United States Code. A Person shall be deemed Bankrupt if the Bankruptcy of such Person shall have occurred and be continuing.

“Capital Account” shall mean the account established and maintained for each Unit Holder in accordance with this Agreement and applicable Regulations.

“Capital Contribution” shall mean any contribution to the capital of the Company in cash, property, or services by a Member whenever made.

“Claim” shall mean any demand, complaint, request for redress, assertion of a cause of action or other claim whatsoever.

“Code” shall mean the Internal Revenue Code of 1986, as amended from time to time.

“Common Unit” shall have the meaning given such term in Section 2.01.

“Company” shall refer to Energetic Systems Inc., LLC.

“Company Content” shall mean the Company Intellectual Property and all other material, information, documents, matter, text, data, graphics, computer-generated displays and interfaces, images, photographs and works of whatever nature, including, without limitation, all compilations of the foregoing and all results and/or derivations of the expression of the foregoing in any and all Media, owned, licensed or created by the Company.

“Company Intellectual Property” shall mean all Intellectual Property owned, held, licensed, possessed, used or Developed by Company, including, without limitation, the Intellectual Property embodied in, relating to, based upon or arising from Confidential Information.

“Company Property” shall mean all Company Technology, Confidential Information, Company Intellectual Property and all other assets and properties of every kind, nature, character and description (whether real, personal or mixed, whether tangible or intangible, and wherever situated and in any and all Media), including the goodwill related thereto, operated, owned, licensed, or leased by the Company.

“Company Technology” shall mean the concepts, ideas, Developments and Content concerning, relating to, embodying and/or otherwise arising out of the research and development of commercial explosives.

“Company Trade Secrets” shall mean Trade Secrets owned, held, used or licensed by Company.

“Confidential Information” shall mean all the Content relating to, used in or arising out of Company’s business, finances or other operations and held by, owned, licensed, or otherwise

Page 26 of Exhibit 10.13

possessed by Company (whether held by, owned, licensed, possessed or otherwise existing in, on or about Company’s offices, residence(s) or facilities and regardless of how such Content came into being, as well as regardless of who created, generated or gathered the Content), including, without limitation, all Content contained in, embodied in (in any Media whatsoever) or relating to Company’s ideas, creations, works of authorship, works of visual art, business documents, Contracts, licenses, business and non-business relationships, correspondence, operations, manuals, performance manuals, operating data, projections, bulletins, supplier and customer lists and data, sales data, cost data, profit data, strategic planning data, financial planning data, designs, logos, motifs, proposed trademarks or service marks, test results, product or service literature, product or service concepts, manufacturing or sales techniques, process data, specification data, know how, show how, Software, data bases, research and development information and data; provided, however, that “Confidential Information” shall not include information or data “generally publicly known”. The phrase in the previous sentence “generally publicly known” shall not be deemed to include the Content set forth in patents despite the fact that patents have been published by the federal government, unless such embodiment has otherwise been the subject of a publication for general public consumption (other than publication as a patent) or if that embodiment is otherwise utilized generally by Persons in the United States of America in the industry or market within which Company competes. All provisions protecting “Confidential Information” in this Agreement shall be deemed to also protect “Company Trade Secrets” as well, but references to “Company Trade Secrets” shall not be deemed to automatically refer to “Confidential Information.”

“Content” shall mean all material, information, documents, matter, text, Software, data, graphics, computer-generated displays and interfaces, images, photographs and works of whatsoever nature, including, without limitation, all compilations of the foregoing and all results and/or derivations of the expression of the foregoing.

“Contributing Member” shall have the meaning give such term in Section 2.04.

“Control” (including, with correlative meanings, the terms “Controlling,” “Controlled by” and “under common Control with”) shall mean the constructive ownership (within the meaning of Code Section 267(b)), directly or indirectly, of more than fifty percent (50%) in value of the outstanding equity interests of a Person.

“Debt” shall mean: (i) any indebtedness for borrowed money or for the deferred purchase price of property or evidenced by a note, bonds, or other instruments; (ii) obligations under capital leases, commitments, any other financial obligations required to be reflected as liabilities on a balance sheet prepared in accordance with GAAP; (iii) obligations secured by any mortgage, pledge, security interest, encumbrance, lien or charge of any kind existing on any asset owned or held by the Company whether or not the Company has assumed or become liable for the obligations secured thereby; and (iv) obligations under direct or indirect guarantees of (including obligations (contingent or otherwise) to assure a creditor against Loss in respect of indebtedness or obligations of the kinds referred to in clauses (i), (ii) and (iii) above, provided that Debt shall not include obligations in respect of any accounts payable incurred in the ordinary course of the Company’s business that are not delinquent or are being contested in good faith by appropriate Action or Proceeding.

“Depreciation” shall mean, for each Taxable Year, an amount equal to the depreciation, amortization, or other cost recovery deduction allowable with respect to an asset for such Taxable Year, except that if the Gross Asset Value of an asset differs from the adjusted basis of such asset for Federal income tax purposes at the beginning of such Taxable Year, Depreciation shall be an amount which bears

Page 27 of Exhibit 10.13

the same ratio to such beginning Gross Asset Value as the Federal income tax depreciation, amortization, or other cost recovery deduction for such Taxable Year bears to such beginning adjusted tax basis; provided, however, that if the adjusted basis for Federal income tax purposes of an asset at the beginning of such Taxable Year is zero, Depreciation shall be determined with reference to such beginning Gross Asset Value using any reasonable method selected by the Executive Officers.

“Develop” shall mean develop, conceive, reduce to practice, create, or otherwise arise out of efforts in any manner whatsoever and through any means whether now known or hereafter developed.

“Development” shall mean the result of an act of Developing.

“Disclose” shall mean disclose, disseminate, transmit, publish, distribute, make available or otherwise convey.

“Distribution Date” shall have the meaning ascribed to it in Section 8.02.

“Event of Default” shall have the meaning ascribed to it in Section 7.02.

“Executive Officers” shall mean the Persons designated in this Agreement in Section 3.03 as such or any other Person who becomes an Executive Officer pursuant to this Agreement.

“Fiscal Year” shall mean the Company’s fiscal year, which shall be the calendar year.

“GAAP” shall mean those generally accepted accounting principles and practices which are recognized as such by the American Institute of Certified Public Accountants acting through the Accounting Principles Executive Officers or by the Financial Accounting Standards Executive Officers and which are consistently applied for all periods to properly reflect the financial condition and the results of operations and changes in financial position of the Company.

“Governmental and Regulatory Authority” shall mean any court, tribunal, arbitrator, authority, administrative or other agency, commission, official or other authority or instrumentality of the United States or other country or any state, county, city or other political subdivision.

“Gross Asset Value” shall mean, with respect to any asset, the asset’s adjusted basis for Federal income tax purposes, except as follows:

(i) The initial Gross Asset Value of any asset contributed by a Unit Holder to the Company shall be the gross fair market value of such asset;

(ii) The Gross Asset Value of all Company Property shall be adjusted to equal the respective gross fair market values of such property, as of the following times: (A) the acquisition of additional Units in the Company by any new or existing Unit Holder in exchange for more than a de minimis Capital Contribution; (B) the distribution by the Company to a Unit Holder of more than a de minimis amount of property of the Company as consideration for Units; and (C) the liquidation of the Company; provided, however, that adjustments pursuant to clauses (A) and (B) above shall be made only

Page 28 of Exhibit 10.13

if the Executive Officers reasonably determines that such adjustments are necessary or appropriate to reflect the relative economic interests of the Unit Holders;

(iii) The Gross Asset Value of any Company Property distributed to any Unit Holder shall be adjusted to equal the gross fair market value of such property on the date of distribution;

(iv) The Gross Asset Values of Company Property shall be increased (or decreased) to reflect any adjustments to the adjusted basis of such assets pursuant to Code Sections 734(b) or 743(b), but only to the extent that such adjustments are taken into account in determining Capital Accounts pursuant to Regulation Section 1.704-l(b)(2)(iv)(m); provided, however, that Gross Asset Values shall not be adjusted pursuant to this subsection (iv) to the extent the Executive Officers determines that an adjustment pursuant to subsection (ii is necessary or appropriate in connection with a transaction that would otherwise result in an adjustment pursuant to this subsection (iv).

If the Gross Asset Value of an asset has been determined or adjusted pursuant to subsections (i), (ii), or (iv) hereof, such Gross Asset Value shall thereafter be adjusted by the Depreciation taken into account with respect to such asset for purposes of computing Tax Profits and Tax Losses.

“Initial Major Transaction” means the execution, delivery, performance and consummation of the terms, covenants and conditions of that certain Asset Purchase Agreement among, inter alia, the Company and the Subsidiaries as buyers and Slurry Explosive Corporation, an Oklahoma corporation, Universal Tech Corporation, an Oklahoma corporation, as sellers, in the substantially the form as set forth in Exhibit “B”, or a like transaction wherein the Company and/or the Subsidiaries acquires technical, manufacturing and distribution assets in order to carry out the Purpose of the Company as set forth in Section 1.05.

“Intellectual Property” shall mean all foreign, federal, state and common law trademarks, service marks, domain names, Internet path names and addresses of whatsoever nature, trade dress, copyrights, know-how, show-how, patents, Inventions (whether or not patentable), mask works, Software, proprietary data, customer lists, strategic plans, financial data, Trade Secrets, all other intangible assets of whatsoever nature and all applications for registration and/or issuance with respect to all the foregoing and whether or not any of the foregoing is registerable or patentable, including, without limitation, with respect to all of the foregoing: (a) all goodwill associated with any and all of the foregoing; (b) all parents, continuations, continuations in part, divisionals, reissues and extensions; and (c) all moral rights associated with any and all of the foregoing.

“Laws” shall mean all laws, statutes, rules, regulations, ordinances and other pronouncements having the effect of law of the United States or any state, county, city or other political subdivision or of any Governmental and Regulatory Authority.

“Majority-In-Interest” shall mean Members owning a simple majority of the Membership Voting Interests.

“Management Agreement” shall mean the Agreement described in Section 3.01.

“Managing Member” shall mean WIF.

Page 29 of Exhibit 10.13

“Media” shall mean shall mean any medium of expression or medium in or through which Content may be embodied or Disclosed (whether tangible or intangible, fixed or unfixed), including, but not limited to, a natural person, print, document-based medium, television, facsimile, telex, telephony, radio, satellite, cable, wire, computer-based network, network, magnetic means, optical means, electronic means, Internet, intranet, Software, compact and laser disc, digital video displays, video cassettes, and multi-media and any other method (now known or hereafter Developed) for the publication, retention, conveyance, possession or holding of Content.

“Member” shall mean any Person holding Common Units and named as a member of the Company in Section 2.01, and “Members” shall mean two (2) or more of such Persons when acting in their capacities as members of the Company. Member shall not mean the holder of Preferred Units unless specifically set forth herein.

“Members’ Option Period” shall have the meaning variously ascribed to it in Article VII.

“Membership Voting Interest” shall mean with respect to Members only, the right to vote on matters to which this Agreement requires or permits the Members to vote. Only Members who have become such in accordance with the terms and provisions of the Agreement shall have Membership Voting Interests. The voting power of any Membership Voting Interest shall be determined under the terms and conditions of Section 5.05.

“Net Cash From Operations” shall mean earnings before Interest, Taxes and Management Fees

	Plus:	Depreciation
	Less:	Interest
	Less:	Management Fees
	Plus/Less:	Decrease/Increase in Accounts Receivable
		Decrease/Increase in Inventory
		Increase/Decrease in Accounts Payable
	Less:	Distributions in respect of Taxes to Members
		Dividend Payments
		Capital Expenditures
		Debt Reduction
	Plus:	New Borrowings
	Equal:	Net Cash From Operations.

“Net Cash From Sales or Refinancings” shall mean the net cash proceeds from all refinancings of Debt and the sale of Company Property, less any portion thereof used to establish Reserves or pay Debt, all as determined by the Executive Officers.

“Notice” shall have the meaning ascribed to it in Section 9.01.

“Order” shall mean any writ, judgment, decree, injunction or similar order of any Governmental and Regulatory Authority (in each case whether preliminary or final).

“Permitted Tax Distributions” shall have the meaning ascribed to it in Section 6.0 1(c).

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“Person” shall mean any natural person, corporation, limited liability company, general partnership, limited partnership, proprietorship, other business organization, trust, union, estate, association, Governmental and Regulatory Authority or other entity of whatever nature.

“Personal Representative” shall mean an executor, administrator, trustee, conservator, guardian or other fiduciary, receiver, or in the case of Bankruptcy, a debtor-in-possession or Bankruptcy trustee.

“Products” shall have the meaning ascribed to it in Section 1.05.

“Regulations” shall mean, except where the context indicates otherwise, the permanent, temporary, proposed, or proposed and temporary regulations of Department of the Treasury under the Code as such regulations may be lawfully changed from time to time. Application of the requirements and the definitions set forth in said Regulations to the provisions of this Agreement shall be made by substituting “Unit Holder” for “partner” and “Company” for “partnership.”

“Reserves” shall mean the amount of cash that the Executive Officers from time to time determine) to be reasonably necessary or advisable as reserves for: (i) payment of Company Debts, including any amounts required under any loan agreement or bond indenture of the Company; (ii) management and operation of the Company; (iii) payment of anticipated Company expenses; (iv) expansion or renovation of the improvements on any Company properties; (v) acquisition of new properties or expansion of the businesses of the Company; and (vi) other contingencies related to the businesses of the Company.

“Securities” shall mean Units, shares of stock, trust certificates, bonds, debentures, notes and other evidences of indebtedness, warrants, rights or options (including rights to purchase securities convertible into or exchangeable for other securities).

“Subsidiaries” means collectively UteC Inc., LLC, a Nevada limited liability company, SEC Investment Corp., LLC, a Nevada limited liability company, Energetic Properties, LLC, a Nevada limited liability company, Slurry Explosive Manufacturing Corporation, LLC, a Nevada limited liability company and DetaCorp LLC, a Nevada limited liability company.

“Tax Profits” and “Tax Losses” shall mean, for each Taxable Year, items of income and gain (including items not subject to Federal income tax) and items of loss, expense and deduction (including items not deductible, depreciable, amortizable or otherwise excluded from income for Federal income tax purposes), respectively, as determined under Federal income tax principles.

“Taxable Year” shall mean the taxable year of the Company as determined pursuant to Code Section 706.

“Trade Secrets” shall mean trade secrets as such term is defined in the Uniform Trade Secrets Act, as promulgated from time to time in Nevada.

Page 31 of Exhibit 10.13

“Transfer” shall mean when used as a noun, any sale, hypothecation, pledge, assignment, attachment, disposal, loan, gift, devise, bequest, levy or other transfer, and, when used as a verb, to sell, hypothecate, pledge, assign, devise, bequeath, dispose, loan, gift, levy or otherwise transfer.

“Unit Holder” shall mean any Person who holds one (1) or more Units.

“Unit” shall mean an ownership interest in the Company representing such fractional part of the interests of the Company, including all benefits to which the holder of such Units may be entitled as provided in this Agreement, together with all obligations of such Person to comply with the terms and provisions of this Agreement.

Page 32 of Exhibit 10.13

Exhibit “A

Page 33 of Exhibit 10.13

Exhibit “B

Page 34 of Exhibit 10.13

EX-14 5 ap906056ex14.htm EXHIBIT 14

EXHIBIT 14

VI-12 Standards of Business Conduct

AMERICAN PACIFIC CORPORATION & SUBSIDIARIES
Policy and Procedures Manual
STANDARDS OF BUSINESS CONDUCT Policy Number VI-12

I. POLICY

A. It is the policy of the Company to conduct its business ethically and in accordance with the laws of the United States and every other jurisdiction in which the Company operates. All employees and directors of the Company, and consultants retained by the Company (collectively referred to hereinafter as “employees”) shall adhere strictly to this Policy.

II. GENERAL MATTERS

A. Each employee must recognize that the Company’s reputation for integrity is an invaluable and essential asset. Each employee must follow, at all times, the highest standards of integrity and personal conduct in work for the Company.

B. It is the personal responsibility of each employee to know, understand and diligently follow the policies and procedures set forth in the Company’s Standards of Business Conduct.

C. The prohibitions contained in these Standards apply to an employees direct conduct as well as conduct done indirectly through agents or any other representative.

D. No consultant shall be retained by the Company without that consultant being advised first of the Company’s commitment to the Standards and then directed to refrain from any conduct for or on behalf of the Company that would affect adversely the Company’s reputation for integrity.

E. Each supervisor shall ensure that all employees for whom he or she is responsible know and understand their obligations under these Standards as well as the Company’s commitment to enforce these Standards.

F. All employees shall comply with the Company’s Insider Trading Policy.

III. PROHIBITED ACTS

A. All unethical and unlawful acts are prohibited. The following areas of specific concern to the Company are listed as non-exclusive examples of prohibited conduct:

	1.	Bribes, kickbacks or other unlawful payments made by or on behalf of the Company, directly or indirectly ;

	2.	Maintenance of funds or assets by or on behalf of the Company for any unethical or unlawful purpose, or maintenance of funds or assets by or on behalf of the Company for any purpose not disclosed in the books and records of the Company;


	3.	False or misleading entries in or material omissions from the books and records of the Company;

	4.	Payments made by or on behalf of the Company for purposes other than those described by the Company’s supporting documents and records;

	5.	Unlawful political contributions made by or on behalf of the Company, directly or indirectly; and

	6.	Solicitation or acquisition, in violation of the law, regulation or authorized procurement procedure, of customer or competitor related data.

B. Employees, both individually and collectively, must act in a manner that will facilitate full and fair disclosure of the Company’s financial condition and results of operations in accordance with applicable accounting principles, laws, rules and regulations, and in such connection, keep the Company’s books and records so as to fully and fairly reflect all Company transactions. Employees must be mindful that these records will be used for the purpose of providing full, fair, accurate and timely disclosure in reports and documents that the Company files with or submits to regulatory authorities, as well as financial, stockholder and other internal or external reports, documentation or audits.

IV. CUSTOMER RELATIONS

A. It is the Company’s policy to deal with the United States Government and it’s contractors fairly and honestly. Supervisors shall ensure that all employees are aware of, understand and comply with the sometimes complex requirements of law, regulations and contracts that guide the Company’s work for the United States Government and it’s contractors. It is the responsibility of each employee to understand and follow this policy and to seek guidance whenever he or she is uncertain about a proposed course of conduct.

B. The following are listed as non-exclusive examples of areas in which the Company requires employees to pay particular concern:

COSTS: Only costs properly chargeable to a contract may be billed to or reimbursed by the United States Government. Examples of improper charging of costs include: false or otherwise incorrect entries on timecards; false or otherwise incorrect subcontractor charges; false or otherwise incorrect classification of costs as direct rather than indirect; submission of false or otherwise incorrect expense accounts; or false or otherwise incorrect charge of time or materials to a work order.

PREPARATION AND SUBMISSION OF PROPOSALS: All employees who are involved, directly or indirectly, in supporting a proposal must take adequate precautions to ensure that cost

Page 2 of Exhibit 14

or pricing data is current, accurate and complete, properly disclosed and documented, and retained in the appropriate files.

PRODUCT INTEGRITY: Intentional deviation from applicable specification requirements, including product substitution, can have consequences as serious as those associated with the submission of false cost data. Product substitution includes such activities as the delivery of products that are not the same as called for by a specification, even though it may be generally thought that the substituted product is equal to or better than the one called for by the specification. No deviation is permissible except as authorized by written waiver or other contractually permitted procedure.

ENTERTAINMENT, GIFTS, AND GRATUITIES: Each of the agencies of the United States Government which the Company transacts business has regulations prohibiting, with only minor exceptions, agency personnel from accepting any entertainment, gifts, gratuities, payment or other business courtesies which may be acceptable in the commercial sector. The letter and spirit of all such regulations must be compiled by the Company and all of its employees.

SECURITY: It is important, both from the standpoint of national security and that of assuring compliance with applicable laws, regulations and contractual requirements, that all employees deal with United States Government classified and proprietary material in the proper manner. Unauthorized access, dissemination, acceptance or handling of that material is prohibited and may constitute a violation of the law.

MARKET INTELLIGENCE: In order to safeguard the integrity of the federal procurement process, all employees must respect the confidentiality of proprietary and competition-sensitive information whether prepared by the company, it’s consultants, other companies or the federal government. Employees should neither seek to obtain solicit nor accept classified, confidential, proprietary or competition-sensitive information prepared by or for the United States Government or another company or concerning a procurement process, in a manner not permitted by law or regulation or the authorized government procurement process. Information subject to this provision includes, without limitation, trade secrets and other proprietary technical data, information concerning a competitor’s costs, prices or proposals, procurement plans and technical or price evaluations concerning a particular procurement prepared by or for the procuring agency.

V. GRATUITIES

A. Gifts, entertainment, favors and gratuities of more than nominal value from the Company’s customers, subcontractors or suppliers may not be accepted by any employee.

VI. POLITICAL CONTRIBUTIONS

A. All contributions, direct or indirect, to any political party or candidate for political office or regarding any ballot measure by any organizational component of the Company are prohibited unless such contribution has been approved in writing by the Chief Executive Officer.

Page 3 of Exhibit 14

VII. FOREIGN GRATUITIES AND PAYMENTS

A. The law of the United States and the laws of most foreign countries prohibit most payments and gifts to individuals associated with foreign governments, agencies, political parties and instrumentalities of foreign governments for the following purposes:

	1.	To obtain or retain business;

	2.	To influence an official governmental act or decision; and

	3.	To persuade an individual to act or not act in violation of his official duties.

B. All employees whose duties involve contacts, directly or indirectly, with individuals associated with foreign governments, governmental instrumentalities or political parties must first obtain the written authorization of the Chief Executive Officer before making or authorizing any gift or payment of more than nominal value.

VIII. CASH PAYMENTS

A. No payment by or on behalf of any organizational component of the Company may be in cash, except under the following circumstances:

	1.	The payment is for routine services or supplies;

	2.	The total payment does not exceed $500.00;

	3.	The payment is properly documented; and

	4.	The payment has been previously approved by the responsible financial officer.

IX. CONFLICTS OF INTEREST

A. All employees must conduct themselves with the highest standards of integrity, honesty and fair dealings, to preclude conflict between the interests of the company and the personal interests of employees. Employees shall avoid any actions or relationships that could adversely affect or have the appearance of adversely affecting their judgment or actions in performing their duties.

B. No employee shall have any interest, direct or indirect, in any outside concern or competing concern. Further, no employee shall render any service to or represent or undertake to act for any outside concern or competing concern.

C. The terms “concern”, “competing concern”, and “outside concern”, are defined as follows:

CONCERN: Any individual or entity, regardless or whether its form is a corporation, partnership, trust, joint venture or government entity, having interest in conflict with the Company’s interest;

Page 4 of Exhibit 14

	2.	COMPETING CONCERN: Any type of concern which competes with the Company or which competes with anyone or any entity who sells any product manufactured, distributed, developed or sold by the Company;

	3.	OUTSIDE CONCERN: Any type of concern with which the Company does business or to which the Company provides business, whether directly or indirectly.

D. Only the Corporate Governance Committee of the Board of Directors of the Company may authorize an employee to engage in a conflicting or competing concern, provided all facts and circumstances surrounding the conflict are first disclosed in writing.

E. Failure or refusal to comply with this policy shall result in the immediate dismissal of the employee and will subject that employee to all appropriate legal proceedings.

X. PROCUREMENT POLICY

A. It is the policy of the Company to make all its purchases on the basis of quality, delivery and price. The only other considerations permitted are the requirements of a customer or the interests of National Security. Employees must be guided at all times by the highest standard of integrity and personal conduct in their business contacts to enable the Company to deal fairly and impartially with its suppliers.

B. The Company will foster competition among responsible suppliers through the development of efficient and low-cost sources. The Company will maintain as broad a base of suppliers as is consistent with efficient administrative practices.

C. It is also the policy of the Company that small business concerns, including those owned and controlled by socially and economically disadvantaged individuals, shall have the maximum practicable opportunity to participate in the performance of the Company’s purchase orders and subcontracts for materials, supplies and services, consistent with the efficient and economic performance of the Company’s contracts.

RESERVED

XII. DISCLOSURE OF MATERIAL INFORMATION

See Insider Trading Policy.

XIII. COMPLIANCE

A. It is the responsibility of an employee having knowledge of any activity that is or may be in violation of these Standards promptly to disclose such activity to the responsible supervisor, or if the employee prefers, to the Chief Executive Officer or his designated representative. Activities to be reported include the following:

Violations of these Standards;

Page 5 of Exhibit 14

	2.	Any request which the employee believes would violate these Standards; and

	3.	Any information that gives the employee reason to believe any other employee, person or firm representing the Company has or intends to violate these Standards.

B. Any supervisor receiving an employee’s report will forward that report to higher management and the Chief Executive Officer or his designated representative, and take such action as higher management or the Chief Executive Officer may direct.

C. Every employee shall cooperate fully with any investigation of any alleged violation of these standards.

D. Any employee who has a concern about the Company’s accounting, internal controls or auditing matters, may communicate those concerns to the Audit Committee. The Communications may be confidential or anonymous and may be submitted in writing, by phone or by email. Information on how to report such concerns is contained in a separate policy entitled “How to Report Certain Concerns to the Audit Committee.”

E. Retribution against any employee for any of the above such reporting is prohibited and will not be tolerated.

XIV. COMPLIANCE OVERSIGHT

A. The Chief Executive Officer or his designated representative shall exercise principal responsibility to direct and administer inquiries into reports of violations and monitor enforcement of this policy.

B. The Chief Executive Officer or his designated representative shall be advised promptly by the manager of every organizational component of the Company of the following:

	1.	Any allegation by a non-employee that there has been any fraud, false statement, false claim or other violation of law, regulation, or procedure, in connection with any contract of the company with the United States Government;

	2.	Any employee’s report received in any organizational component of the Company of any actual or potential violation of these standards; and

	3.	Any other actual or potential violation of these standards which the manager regards as significant.

C. Any waivers, changes, amendments or modifications of these Standards must be approved by the Corporate Governance Committee of the Board of Directors of the Company.

D. Amendments to and waivers from these Standards will be disclosed as required by applicable securities laws and the rules of the Nasdaq Stock Exchange.

Page 6 of Exhibit 14

XV. SANCTIONS

A. Any employee who violates these Standards is subject to strict disciplinary action which may include, without limitation, dismissal, demotion, suspension without pay, written reprimand, reduction in salary or delay or reduction or any pay increase that might otherwise be granted.

B. All employees should be aware that certain matters prohibited by these Standards may give rise to civil remedies independent of employment or criminal prosecution that will, upon conviction, result in significant fines and imprisonment for an extended period of time.

Effective: 3/30/90

Message

Policy VI-12

Rev. 02

11/12/03

Page 7 of Exhibit 14

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EXHIBIT 21

SUBSIDIARIES OF THE REGISTRANT

Subsidiaries of the Registrant	Jurisdiction of Incorporation or Organization	Percent Ownership

American Azide Corporation	Nevada	100%

American Pacific Corporation	Nevada	100%

AMPAC Farms, Inc.	Nevada	100%

Energetic Additives Inc., LLC	Nevada	100%

EX-23 8 ap906056ex23.htm EXHIBIT 23

EXHIBIT 23

INDEPENDENT AUDITORS’ CONSENT

We consent to the incorporation by reference in Registration Statement No. 333-62566 on Form S-8, Registration Statement No. 333-53449 on Form S-8, Amendment No. 2 to Registration Statement No. 33-52196 on Form S-3 and Registration Statement No. 333-104732 on Form S-8 of American Pacific Corporation of our report dated December 18, 2003 appearing in this Annual Report on Form 10-K of American Pacific Corporation for the year ended September 30, 2003.

/s/ DELOITTE & TOUCHE LLP

Las Vegas, Nevada

December 18, 2003

EX-31.1 9 ap906056ex311.htm EXHIBIT 31.1

EXHIBIT 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
Section 302 Certification

I, John R. Gibson, certify that:

1.	I have reviewed this annual report on Form 10-K of American Pacific Corporation, a Delaware corporation (the “registrant’’);

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

	(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

	(b)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

	(c)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

	(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely effect the registrant’s ability to record, process, summarize and report financial information; and

	(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: December 18, 2003	By:	/s/ JOHN R. GIBSON

		John R. Gibson, Principal Executive Officer

EX-31.2 10 ap906056ex312.htm EXHIBIT 31.2

EXHIBIT 31.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
Section 302 Certification

I, David N. Keys, certify that:

1.	I have reviewed this annual report on Form 10-K of American Pacific Corporation, a Delaware corporation (the “registrant’’);

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

	(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

	(b)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

	(c)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

	(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely effect the registrant’s ability to record, process, summarize and report financial information; and

	(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: December 18, 2003	By:	/s/ DAVID N. KEYS

		David N. Keys, Principal Financial Officer

EX-32.1 11 ap906056ex321.htm EXHIBIT 32.1

EXHIBIT 32.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. §1350)

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. §1350), the undersigned, John R. Gibson, Chairman of the Board of Directors, President and Chief Executive Officer of American Pacific Corporation, a Delaware corporation (the “Company”), does hereby certify, to his knowledge, that:

The Annual Report on Form 10-K for the year ended September 30, 2003 of the Company (the “Report”) fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, and the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

	/s/ JOHN R. GIBSON

	John R. Gibson Chairman of the Board of Directors, President & Chief Executive Officer

	December 18, 2003

EX-32.2 12 ap906056ex322.htm EXHIBIT 32.2

EXHIBIT 32.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. §1350)

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. §1350), the undersigned, David N. Keys, Executive Vice President, Chief Financial Officer, Secretary and Treasurer of American Pacific Corporation, a Delaware corporation (the “Company”), does hereby certify, to his knowledge, that:

The Annual Report on Form 10-K for the year ended September 30, 2003 of the Company (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

	/s/ DAVID N. KEYS

	David N. Keys Executive Vice President, Chief Financial Officer, Secretary and Treasurer

	December 18, 2003

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