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, 2006

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	89169
(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: Common Stock ($.10 par value)

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

Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act). o Yes     þ No

Indicate by check mark whether the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. o Yes     þ No

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. þ Yes     o No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in 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 a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act. o Large accelerate filer o  Accelerated filer þ Non-accelerated filer

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). o Yes     þ No

The aggregate market value of the voting stock held by non-affiliates of the registrant as of March 31, 2006, was approximately $62 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 December 31, 2006, was 7,324,171.

DOCUMENTS INCORPORATED BY REFERENCE

Part III Hereof

Definitive Proxy Statement for 2006 Annual Meeting of Stockholders to be filed not later than January 26, 2007.

PART I

Forward Looking Statements

This annual report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 which are subject to the safe harbor created by those sections. These forward-looking statements include, but are not limited to: statements about our business strategy, our expectations and estimates for our environmental remediation efforts, the effect of GAAP accounting pronouncements on our recognition of revenue, uncertainty regarding our future operating results and our profitability, anticipated sources of revenue and all plans, objectives, expectations and intentions contained in this report that are not historical facts. We usually use words such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “future,” “intend,” or “certain” or the negative of these terms or similar expressions to identify forward-looking statements. Discussions containing such forward-looking statements may be found throughout the document. These forward-looking statements involve certain risks and uncertainties that could cause actual results to differ materially from those in such forward-looking statements. We disclaim any obligation to update these forward-looking statements as a result of subsequent events. The business risks discussed later in this report, among other things, should be considered in evaluating our prospects and future financial performance.

The terms “Company”, “AMPAC”, “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.

Item 1. Business (Dollars in Thousands)

Our Company

We manufacture specialty and fine chemicals, as well as propulsion products sold to defense, aerospace and pharmaceutical end markets. Our products provide access to, and movement in, space via solid fuel and propulsion thrusters and represent the key active ingredient in drug applications such as HIV, epilepsy and cancer. We also produce specialty chemicals utilized in various applications such as agricultural and pesticide products and fire extinguishing systems, as well as manufacture water treatment equipment. Our products are designed to meet customer specifications and often must meet certain governmental and regulatory approvals. Our technical and manufacturing expertise and customer service focus has gained us a reputation for quality, reliability, technical performance and innovation. Given the mission critical nature of our products, we maintain long standing strategic customer relationships. We generally sell our products through long-term contracts where we are usually the sole source or dual source supplier. For our fiscal year ended September 30, 2006, we generated revenue of approximately $142,000.

We are the exclusive North American provider of Grade I ammonium perchlorate (“AP”), which is the most commonly used oxidizing agent for solid fuel rockets, booster motors and missiles used in space exploration, commercial satellite transportation and national defense programs. In order to diversify our business and leverage our strong technical and manufacturing capabilities, we have made two strategic acquisitions over the last two fiscal years. Each of these acquisitions provided long-term customer relationships with sole and dual source contracts as well as provided us a leadership position in a growing market. On October 1, 2004 we acquired Aerojet-General Corporation’s in-space propulsion business (“ISP”), which is one of only two manufacturers of in-space propulsion systems and propellant tanks in North America. On November 30, 2005, we acquired GenCorp, Inc.’s fine chemical business (the “AFC Business”), which is a leading manufacturer of certain active pharmaceutical ingredients (“APIs”) and registered intermediates for pharmaceutical and biotechnology companies. Both of these acquisitions have been substantially integrated.

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Our Business Segments

Our operations are comprised of four reportable business segments: (i) Specialty Chemicals, (ii) Fine Chemicals, (iii) Aerospace Equipment and (iv) Other Businesses. The following table reflects the revenue contribution percentage from our business segments and each of their major product lines for the years ended September 30:

	2006			2005			2004
Specialty Chemicals:
Perchlorates		28	%		65	%		85	%
Sodium azide		2	%		3	%		6	%
Halotron		3	%		6	%		5	%
Total specialty chemicals		33	%		74	%		96	%
Fine Chemicals		52	%		0	%		0	%
Aerospace Equipment		12	%		18	%		0	%
Other Businesses:
Real estate		1	%		5	%		1	%
Water treatment equipment		2	%		3	%		3	%
Total other businesses		3	%		8	%		4	%
Total revenues		100	%		100	%		100	%

Please see discussions in Note 12 to our consolidated financial statements attached to this Annual Report on Form 10-K for a discussion on financial information on our segments and financial information about geographic areas for the past three fiscal years.

Specialty Chemicals:  Our Specialty Chemicals business segment is principally engaged in the production of AP which is a type of Perchlorates. Perchlorates represented in excess of 80% of the segment’s revenues for fiscal year 2006. In addition, we produce and sell sodium azide, a chemical used in pharmaceutical manufacturing and historically the primary component of a gas generator 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.

We have supplied AP for use in space and defense programs for over 40 years and we have been the exclusive AP supplier in North America since 1998. A significant number of existing and planned launch vehicles providing access to space use solid fuel and thus depend, in part, upon our AP. Many of the rockets and missiles used in national defense programs are also powered by solid fuel. Currently, our largest programs are the Minuteman missile, the Standard missile and the Atlas family of commercial rockets.

We believe that over the next several years overall demand for AP will be relatively level as compared to our fiscal 2006 based on current U.S. Department of Defense production programs. In addition, AP demand could increase if there is a substantial increase in Space Shuttle flights or the development of several contemplated programs under the U.S. proposed long-term human and robotic program to explore the solar system, starting with a return to the Moon. Our Specialty Chemicals business segment generated a Segment Operating Profit Margin of 31.8% during our fiscal year 2006 and had less than $1,000 in capital expenditures.

Fine Chemicals:  Our Fine Chemicals business segment, representing the legacy AFC Business, is a manufacturer of active pharmaceutical ingredients and registered intermediates. The pharmaceutical ingredients that we manufacture are used by our customers in drugs with indications in three primary areas: anti-viral, oncology, and central nervous system. We generate nearly all of our Fine Chemicals sales from manufacturing chemical compounds that are proprietary to our customers. We operate in compliance with the U.S. Food and Drug Administration’s (“FDA”) current Good Manufacturing Practices (“cGMP”). Our Fine Chemicals segment focuses on high growth markets where our technology position, combined with our chemical process and development and engineering expertise, leads to strong customer allegiances and limited competition.

•   We have distinctive competencies and specialized engineering capabilities in chiral separation, highly potent/cytoxic compounds and energetic and nucleoside chemistries and have invested significant resources in our facilities and technology base. We are the leader in chiral compound production using the first commercial-scale simulated moving bed (“SMB”) technology in the United States and own and operate two of the largest SMB machines in the world. SMB is utilized to produce compounds used in drugs treating central nervous system disorders. We believe our distinctive competency in handling energetic and toxic chemicals and our specialized

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high containment facilities provides us a significant competitive advantage in competing for various opportunities associated with highly potent/cytoxic compounds, such as drugs used for oncology (i.e. anti-cancer drugs). Due to our significant experience and specially engineered facilities, we are one of the few companies in the world with the capability to use energetic chemistry on a commercial-scale under cGMP. We use this capability in development and production of HIV-related and influenza-combating drugs.

We have established long-term, sole source and dual source contracts, which help provide us with earnings stability and visibility. In addition, the inherent nature of custom pharmaceutical fine chemical manufacturing encourages stable, long-term customer relationships. Once a customer establishes a production process with us, there are several potential barriers that discourage transferring the manufacturing method to an alternative supplier, including the following:

•   Alternative Supply May Not Be Readily Available – we are the sole source supplier on a majority of our fine chemicals products.

•   Regulatory Approval – applications to and approvals from the FDA and other regulatory authorities generally requires the chemical contractor to be named. Switching contractors may require additional regulatory approval and could take as long as 18 months.

•   Significant Financial Costs – switching contractors can result in significant costs associated with technology transfer, process validation and re-filing with the FDA and other regulatory authorities.

We believe the pharmaceutical markets we serve are growing at a faster rate than the overall market. This growth is being driven by the increase in HIV-related drugs, a robust development pipeline for anti-cancer drugs, most of which will utilize high-potency compounds, and the FDA requiring more of these drugs to be chirally pure. As a result of this industry growth and our established customer relationships and long-term contracts, revenues from our Fine Chemicals business segment increased in excess of 50% during our fiscal 2006.

Aerospace Equipment:  Our Aerospace Equipment business segment, representing the legacy ISP business, is one of only two manufactures of in-space propulsion systems, thrusters (monopropellant or bipropellant) and propellant tanks in North America. We are one of the world’s major producers of bipropellant thrusters. Our products are utilized on various satellite and launch vehicle programs such as Space Systems/Loral’s 1300 series geostationary satellites.

The aerospace equipment market is expected to grow over the next several years. Growth areas include missile defense programs and the commercial satellite segment, which is expecting steady growth over the next four years as a result from broadband, HDTV and communications applications. As a result of this industry growth and our established customer relationships with all of the key prime manufacturers, revenues from our Aerospace Equipment business segment increased in excess of 40% during our fiscal 2006.

Other Businesses:  Our Other Businesses business segment includes the production of water treatment equipment, including equipment for odor control and disinfection of water, and real estate operations. In fiscal 2005, we completed the sale of all real estate assets that were targeted for sale and do not anticipate significant real estate sales activity in the future.

Discontinued Operations:  We also held a 50% ownership stake in Energetic Systems (“ESI”), an entity we consolidated under FIN 46(R) that manufactures and distributes commercial explosives. In June 2006, our board of directors approved and we committed to a plan to sell ESI, based on our determination that ESI’s product lines were no longer a strategic fit with our business strategies. Revenues and expenses associated with ESI’s operations are presented as discontinued operations for all periods presented. ESI was formerly reported within our Specialty Chemicals operating segment. Effective September 30, 2006, we completed the sale of our interest in ESI for $7,510, which, after deducting direct expenses, resulted in a gain on the sale before income taxes of $258.

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Our Strategy

With our competitive advantage of being the only manufacturer or one of a few manufacturers in industries with significant barriers to entry, our strong customer relationships, our special manufacturing capabilities, our significant revenue visibility through the long term contracts covering most of our products, our balanced portfolio of products and our experienced management team, we expect to grow our business focusing on the following strategies.

Leverage Our Leadership Positions within Existing Markets

We will continue to leverage our extensive technical and manufacturing expertise in order to maintain our leadership positions within our existing markets. We believe the characteristics of each of our segments, including long-term customer relationships with sole and dual source contracts, can lead to a higher level of profitability than many other chemicals companies.

Specialty Chemicals.  We intend to maintain our established leadership in AP production through continued performance on existing programs as well as the award of new programs utilizing AP. Current Department of Defense production programs and the benefits associated with our recently amended long-term pricing agreement with ATK Thiokol provide us a level of predictably regarding our AP revenues. In addition to these production programs, several Department of Defense and NASA programs that would utilize solid rocket propellants are under consideration. Examples of potential opportunities include the completion and operation of the International Space Station, refurbishment of defense missile systems through programs such as the Minuteman III Propulsion Replacement Program, increased defense and commercial satellite launch activity and the long-term development of the Crew Exploration Vehicle, NASA’s proposed replacement for the Space Shuttle. We believe we are well positioned to benefit from programs utilizing solid rocket propellant due to our status as the exclusive producer of AP in North America.

Fine Chemicals.  We are focusing on and building upon our core competencies in market segments of the pharmaceutical market that are expected to generate strong, sustained growth, which we believe will provide us growth opportunities from our existing customers as well as select new customers. Our focused market segments (oncology, antivirals and central nervous system) are expected to grow quicker than the overall pharmaceutical market. In addition to growing the sales of our existing products, we continue to pursue low-risk, cost-effective opportunities for partnering with our pharmaceutical and biotechnology customers to develop new products, applications, and end-markets for our fine chemicals compounds. We work very closely with these pharmaceutical and biotechnology companies in developing drugs in Phase I/II clinical trials. This allows us to introduce our technology into the process prior to commercialization. We currently have over 15 products in our development pipeline that are in various stages of clinical trials (Phase I – III) and are focusing our R&D efforts to further increase the number of products in our pipeline.

Aerospace Equipment.  We intend to continue to grow our revenues in this market through continued performance on existing programs as well as the award of new programs in expected growth areas such as commercial satellites and missile defense. With our focus on advanced products and our low cost emphasis, we intend to increase our market share with the three major satellite suppliers through our Platinum-Rhodium 5 lbf thruster. In addition, we continue to pursue new market opportunities for our products in the systems market. We have had a recent success in penetrating the National Missile Defense market with a contract award on the Low Cost Kill Vehicle program.

Preserve and Build Strong Customer Relationships

We will continue to build upon our existing customer relationships and develop select new customer relationships through our focus on technical expertise, manufacturing capabilities and customer service. Because of the custom nature of our products, we target select customers in which we can become a strategic partner and can help them solve their problems such as developing and implementing a special blend of AP, a critical process modification to satisfy a pharmaceutical requirement, or a thruster enhancement to satisfy the needs of a new satellite. By focusing on a select customer base where we can provide value-added, technical expertise, we believe we are able to generate relationships in which our products and manufacturing know how are imbedded within the final end-product. We believe this strategy has lead to our portfolio of sole and dual source contracts with significant barriers to entry as well as positions us to win additional business opportunities from existing customers.

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Develop New Products and Technologies

We continually search for opportunities to apply our core competencies and technologies to develop new revenue generating activities. In addition to our internal research and product development activities and our strong relationships with our customers, we maintain collaborative research relationships with some of the leading science and engineering universities in the country. We believe that pursuing these opportunities will result over the longer term in profitable growth as we leverage our technical expertise and existing asset base developed from our core product lines.

Pursue Growth Opportunities Organically and through Selective Acquisitions

We plan to selectively pursue expansion capital spending opportunities within our Fine Chemicals segment, thereby capitalizing on the expected growth within our core competencies. When evaluating capital investment opportunities we focus on projects that are either supported by long-term contracts or improve our profitability under existing contracts through increased efficiency. With regard to potential long-term contracts which require us to make significant upfront capital investments, our goal is to recover all or most of such investment through the pricing of products over the life of the contract We will also continue to evaluate select strategic acquisitions to complement our organic growth opportunities. Selective acquisitions enable us to gain manufacturing economies of scale, broaden our customer and product bases, and access complementary technologies. We typically target companies that are among the leaders in attractive growth markets, possess long-term customer relationships and sole and dual source contracts, and provide attractive rates of return on investment.

Our Specialty Chemicals Segment

Perchlorate Chemicals

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 became the sole commercial producer of perchlorate chemicals in North America.

Market

AP is the most commonly used 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. (“ATK”) for the Minuteman Program, 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 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.

Since the 1990’s, demand for perchlorate chemicals has been declining. The suspension of Space Shuttle missions after the Columbia disaster in February 2003 further reduced sales volume of our Grade I AP products.

We believe that over the next several years, overall demand for Grade I AP will be relatively level as compared to fiscal 2006 and largely driven by requirements for the Minuteman program which should provide a stable base for our Grade I AP revenues. Grade I AP demand could also be influenced if there is a substantial increase in Space Shuttle flights. However, it is our expectation that our customers’ Grade I AP inventories are currently sufficient to sustain nominal Space Shuttle activity for the next several years.

We have no ability to influence the demand for Grade I AP. In addition, demand for Grade I AP is program specific and dependent upon, among other things, governmental appropriations. Any decision to delay, reduce or cancel programs could have a significant adverse effect on our results of operations, cash flow and financial condition.

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The U.S. has proposed a long-term human and robotic program to explore the solar system, starting with a return to the Moon. This program will require the development of new space exploration vehicles that may likely stimulate the demand for Grade I AP. As a consequence of these new space initiatives, as well as other factors, including the completion and utilization of the International Space Station (“ISS”), the long-term demand for Grade I AP may be driven by the timing of the retirement of the Space Shuttle fleet, the development of the new crew launch vehicle (“CLV”) and the number of CLV launches, and the development and testing of the new heavy launch vehicle (“HLV”) used to transport materials and supplies to the ISS and the Moon, and the number of HLV launches.

We also produce and sell a number of other grades of AP and different types and grades of sodium and potassium perchlorates (collectively “other perchlorates”). Other perchlorates have a wide range of prices per pound, depending upon the type and grade of the product. 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 of the success of these initiatives.

Customers

Prospective purchasers of Grade I AP consist principally of contractors in programs of NASA and the DOD. 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.

In 1997, we entered into an agreement (“Thiokol Agreement”) with the Thiokol Propulsion Division of Alcoa (“Thiokol”) with respect to the supply of AP. The Thiokol Agreement, as amended, provides that during its term, we will maintain ready and qualified capacity and Thiokol will make all of its AP purchases from us, subject to certain conditions. The agreement established a pricing matrix under which Grade I AP unit prices varied inversely with the quantity of Grade I AP sold by us annually to all of our customers between 8 million and 28 million pounds per year.

Also in 1997, we entered into an agreement with Alliant Techsystems, Inc. (“ATK”) to extend an existing agreement through the year 2008 (“Bacchus Agreement”). The agreement establishes prices for any Grade I AP purchased by ATK from us during the term of the agreement as extended. Under this agreement, ATK agrees to use its efforts to cause our Grade I AP to be qualified on all new and current programs served by ATK’s Bacchus Works.

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

During fiscal 2006, ATK’s Grade I AP purchase projections, in combination with the Grade I AP purchase projections of our other customers, fell below the volumes provided for under the Thiokol Agreement. Based on these expectations of lower volumes and certain other factors, we negotiated an amendment to the Thiokol Agreement to obtain fair and reasonable pricing for volumes less than those that were provided in the existing Thiokol Agreement. Effective April 5, 2006, we entered into Modification #3 to the Thiokol Agreement (the “Amendment”). The Amendment extends the term of the Thiokol Agreement from 2008 to 2013, supersedes and replaces the Bacchus Agreement for the purchase of AP after the end of its term in 2008, establishes AP pricing at annual volumes of AP ranging from 3 million to 20 million pounds, and indicates certain circumstances under which the parties may terminate the contract. Under the Amendment, Grade I AP unit prices are more favorable to us at lower volumes and vary inversely with the quantity of Grade I AP sold by us annually to all of our customers between 3 million and 20 million pounds per year. Additionally, prices escalate each year for all volumes covered under the Amendment.

ATK (including Thiokol) accounted for 18%, 50%, and 51% of our consolidated revenues during the fiscal years 2006, 2005 and 2004, respectively.

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

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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, Pegasus 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 electricity) are salt, sodium chlorate, graphite, ammonia and hydrochloric acid. All of the raw materials used in the manufacturing process are available in commercial quantities.

Competition

Upon consummation of the Acquisition of certain assets and rights of Kerr-McGee in 1988, we 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 processes, 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.

Sodium Azide

In July 1990, we entered into agreements with Dynamit Nobel A.G. (“Dynamit Nobel”) under which it licensed to us its technology and know-how for the production of sodium azide, the principal component of a gas generator historically used in certain automotive airbag safety systems. Thereafter, commencing in 1992, we constructed a production facility for sodium azide adjacent to our perchlorate manufacturing facility, located in Iron County, Utah.

Market

Over the last 35 years, a number of firms have made efforts to develop automotive airbag safety systems. The initial airbag systems widely used sodium azide as the propellant in combination with other materials. The airbag market thereby became the largest consumer of sodium azide. Subsequently, a number of other non-azide based bag inflator technologies have been commercialized. These newer inflator systems have gained substantial market share so that there has been a substantial decline in the demand for sodium azide. Based upon market information received from inflator manufacturers in the last year, we expect that sodium azide use for this application will continue to decline significantly and that bag inflators using sodium azide will be phased out over a period of approximately two to three years.

We have an on-going program to evaluate and potentially commercialize the use of sodium azide in non-airbag applications. Currently, sodium azide made by the Company is sold for use as an intermediary in the manufacture of certain tetrazoles, pharmaceuticals, and other smaller niche markets

The methyl bromide pesticide replacement market is one such potentially new application for sodium azide manufactured by the Company. Methyl bromide has been a widely used pesticide to control insects, mites, rodents, weeds, and other pests in over 100 crops, however, it is being phased out globally due to its harmful effect on the stratospheric ozone layer. Historically, methyl bromide has been manufactured in large quantities by a number of companies and distributed widely around the world.

Our efforts to pursue sales of a sodium azide based pesticide resulted in an experimental product line called Soil Enhancement Product (“SEP”). SEP 100 has undergone extensive field trials on a variety of applications, including turf, cut flowers, and food crops. The results of these efficacy evaluations have been promising.

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Most of the development work for sodium azide based pesticides has been accomplished working with Auburn University and a series of patents and patent applications were exclusively licensed to the Company in exchange for research and development support and future royalties on sales, if any occur.

In June 2006, we entered into joint venture, license and supply agreements (collectively, the “Gowan Agreements”) with Gowan Company, LLC. The Gowan Agreements provide for:

•   The licensing to Gowan of our rights to intellectual property regarding azide-based pest management products, including the trademark SEP^tm 100,

•   Joint investment and efforts to further develop and obtain regulatory registration of azide-based pest management products,

•   Our supply of the products to Gowan, and

•   Gowan’s exclusive marketing and sales of the products worldwide.

We believe that azide-based pest management products present a strategic long-term opportunity to diversify the commercial uses of our azide products. Through our Gowan Agreements, we intend to invest in further development, regulatory approval and marketing of these products over the next several years.

As of September 30, 2006, SEP 100 was still under review by the U.S. EPA for approval as a pesticide in certain applications, initially non food use and then for food crop use. The EPA approval process has taken longer than expected. In fact, there is no assurance that EPA approval will be granted at all. Furthermore, there continues to be a variety of larger companies, including Dow Chemical and BASF, that are developing or have developed competing methyl bromide substitute products. Future sales of sodium azide based pesticides manufactured by the Company, including SEP, if any, will depend on factors beyond our control, including market acceptance of a new chemical that is handled differently than methyl bromide.

Customers

Historically, Autoliv ASP, Inc. (“Autoliv”) has been our primary customer for sodium azide for automotive airbag applications.

Competition

We believe that current competing sodium azide production capacity includes at least one producer in Japan and at least three producers in India. Products that compete with sodium azide in the automotive airbag market include inert gas based compressed gas systems that utilize, for example, argon gas.

Halotron

Halotron is a series of halocarbon based clean fire extinguishing agents that incorporate both proprietary and patented blends of chemicals and hardware. Conventional fire extinguishing agents, such as those based on sodium bicarbonate (“regular dry chemical”) and mono-ammonium phosphate (“ABC dry chemical”) consist of finely divided solid powders. These agents leave a coating upon discharge that is typically costly to remove after a fire event. In contrast to dry chemical, the Halotron clean agents add value to the user since they are discharged either as a rapidly evaporating liquid or a gas that leaves no residue which minimizes or eliminates possible moderate or severe damage to valuable assets (such as electronic equipment, machinery, motors and most materials of construction).

Halotron was designed to replace severe ozone depleting halon 1211 and 1301, which are brominated CFC chemicals that were widely used worldwide as clean fire extinguishing agents. In 1987 the Montreal Protocol on Substances that Deplete the Ozone Layer was signed by more than 50 countries, including the U.S., and it stipulated restrictions on the production (which ended in developed countries at the end of 1993) and use of halons.

Halon 1211 is a streaming agent (where the agent is discharged manually toward a target) used in hand-held fire extinguishers. Halon 1301 is used extensively in pre-engineered and engineered fixed total flooding systems (where discharges are made automatically to “flood” a space to a pre-determined concentration within a confined space) of the type found, for example, in computer rooms and engine compartments. Both halon 1211 and 1301 are still used in the U.S. and elsewhere on a much more limited basis than in the periods prior to 1994.

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The first commercialized Halotron clean agent is Halotron I. In 1993, Halotron I was approved by the U.S. EPA as a substitute for halon 1211. Our second commercialized clean agent is the hydrofluorocarbon (“HFC”) based Halotron II. Halotron II was approved by the U.S. EPA as a halon 1301 substitute in certain applications.

Customers and Market

Our largest Halotron customer is Amerex Corporation. Since 1998, Amerex has incorporated bulk Halotron I manufactured by us into a full line of Underwriters Laboratories Inc. (“UL”) listed portables, and since 2003, larger UL listed wheeled fire extinguishers.

The end-user market for clean fire extinguishing agents is generally divided into five application segments: (i) industrial, (ii) commercial, (iii) military, (iv) civil aviation and (v) maritime. The industrial segment includes manufacturing plants, computer component clean rooms, and telecommunications facilities. The commercial segment includes workplace environments such as office buildings, wholesale and retail sales facilities, art galleries, warehouses, and computer rooms. The military segment includes the activities, including aircraft fire protection, of the armed services including the Navy and Air Force. The civil aviation segment includes airport flightlines, gates, on-board aircraft, and aircraft manufacturing. The maritime segment includes commercial vessels, yachts, and pleasure boats.

In June, 1995 the Federal Aviation Administration (“FAA”) approved Halotron I as an acceptable airport ramp fire fighting agent alternative to halon 1211 based on a rigorous test program conducted at Tyndall Air Force Base, Florida prior to that date. In 2002, subsequent to testing at the FAA and at UL, the FAA approved a Halotron I portable fire extinguisher that met FAA requirements for use on civilian commercial transport aircraft. As of September 30, 2006, more than 60 domestic U.S. airports have installed 460-500 lb. Halotron I systems on their aircraft rescue and fire fighting (ARFF) vehicles

In 1992, we built, and to date maintain, the Southwest Regional Fire Training Center at our Cedar City, Utah facility and this Center serves as a valuable tool in the evaluation and improvement of the Halotron clean agents. This facility is capable of, and permitted for, full scale test fires with hydrocarbon fuels that range from the very small to large 400 square foot (37 m²) heptane steel pan fires that test a streaming agent’s capability. We also maintain a total flooding agent test chamber. We have utilized this unique facility as well as other tools to actively assist our customers in completing their UL listing process, which is a rigorous and time consuming set of tests to prove both fire fighting efficacy to a specified fire size as well as hardware durability and reliability over a range of conditions.

The first U.S. fire extinguisher manufacturer to complete the UL listing process for a series of Halotron I portables in 1996 was Buckeye Fire Equipment Company. Subsequently, we collaborated with Buckeye to add larger wheeled fire extinguishers to the Buckeye Halotron I line which occurred in 1999. In the period 1997-1999, we assisted Amerex, Badger Fire Protection, and Kidde to complete their own programs to list a series of UL listed Halotron I portables. In 2003, Amerex entered the Halotron I wheeled unit market with two UL listed units. At September 30, 2006, the Buckeye and Amerex UL listed Halotron I wheeled units are the only halocarbon (in kind) halon substitute listed agents in such hardware. UL listed Halotron I extinguishers range from class B rated 1.4 lbs (0.63 kg) to class ABC rated 150 lbs (68 kg). The aggregate distribution power of these four manufacturers is estimated to be at least 75% of the U.S. market distribution.

We also actively market Halotron I into foreign countries which include Indonesia, Brazil, Canada, Pakistan, the Philippines, and Singapore, among others. The primary market for Halotron II is Scandinavia.

Divisions of the U.S. military, including the Air Force and Navy, were historically, and still are, significant users of both halon 1211 and 1301 for key strategic programs, principally in aircraft rescue and fire fighting (ARFF) operations. In the 1992-1994 time frame, the military fire tested Halotron I along with other candidate halon 1211 replacement products. The test results for Halotron I were generally favorable. Essentially for economic reasons, the military has continued to use halon 1211 and 1301 for key programs relying upon halon in storage (the “halon bank”). Another extensive DOD wide halon 1211 replacement test program is planned for 2007.

Notwithstanding the fact that Halotron I has an excellent environmental profile, with an ozone depletion potential (“ODP”) that is near zero, future potential users of clean agents may eventually require a product with an absolute zero ODP. In addition, all halon substitutes are regulated under the EPA Significant New Alternatives Policy (“SNAP”) program mandated by the Clean Air Act Amendments of 1990. The regulations as well as interpretations thereof,

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change periodically. These regulations and interpretations thereof could conceivably affect the viability of the Halotron I agent in the future.

Competition

As of September 30, 2006, there are limited use restrictions on halons in the U.S. There are more stringent restrictions, or even bans, however, in other countries, notably across the European Union (“EU”). Despite this, recycled halon 1211 is a competitor to Halotron I. The other principal competitors in the conventional agent category (not clean agents) are dry chemical (mono ammonium phosphate) offered by all fire extinguisher manufacturers in the U.S. This agent is substantially less expensive than Halotron I. Carbon dioxide is a clean agent and competitor, however, it is much less effective than Halotron I. Water mist technology in portables is also a smaller competitor to Halotron I.

Clean agents compete based primarily on performance characteristics (including fire rating and throw range), toxicity, and price. The environmental and human health effects that are evaluated include ODP, global warming potential (“GWP”) and toxicity. Competitors producing alternative clean agents are larger than us with significantly more financial resources.

The primary halocarbon based competitor to Halotron I is HFC-236fa (“FE36^tm, an HFC based product manufactured by Dupont Fluoroproducts. This product is sold in UL listed extinguishers by one major manufacturer in the U.S. Novec 1230^tm is a clean agent product offered by 3M but as of September 30, 2006 is not offered in UL listed portables. FE36^tm and Novec 1230^tm are marketed as both streaming and total flooding clean agents. Chemtura (formerly Great Lakes Chemical prior to its merger with Crompton Corp), historically a significant producer of halon, sells the clean total flooding agent FM200^tm and this product has established a large market share as a halon 1301 replacement over the last ten years. Dupont offers the exact same product under a different name (FE227^tm). Inert gas blends (based on argon and/or nitrogen) and water mist based systems also compete in the clean agent total flooding market.

Our Fine Chemicals Segment

In July 2005, we entered into an agreement to acquire, and on November 30, 2005, we completed the acquisition of the AFC Business of GenCorp, Inc. (“GenCorp”) through the purchase of substantially all of the assets of Aerojet Fine Chemicals, LLC and the assumption of certain of its liabilities. The assets were acquired and liabilities assumed by our newly formed, wholly-owned subsidiary, Ampac Fine Chemicals or AFC. AFC is a manufacturer of active pharmaceutical ingredients and registered intermediates under cGMP guidelines for customers in the pharmaceutical industry. Its facilities in California offer specialized engineering capabilities including high containment for high potency compounds, energetic and nucleoside chemistries, and chiral separation using the first commercial-scale simulated moving bed in the U.S.

The estimated total consideration for the AFC Business acquisition is approximately $133,411. Each component of the consideration for the acquisition of the AFC Business is discussed in more detail in Note 2 to our consolidated financial statements. We funded the acquisition of the AFC Business with our new Credit Facilities, a Seller Subordinated Note, and existing cash (see Note 6 to our consolidated financial statements).

AFC is a custom manufacturer of Active Pharmaceutical Ingredients (“APIs”) and registered intermediates for commercial customers in the pharmaceutical industry. AFC generates nearly all of its sales from manufacturing chemical compounds that are proprietary to its customers. Most of the products AFC sells are used in existing drugs that are U.S. Food and Drug Administration (“FDA”) approved and currently on the market. AFC is a pharmaceutical fine chemicals manufacturer that operates in compliance with the FDA’s current Good Manufacturing Practices (“cGMP”). AFC has distinctive competencies in energetic chemistries, in production of highly potent/cytotoxic chemical compounds and in performing chiral separations.

Energetic and Nucleoside Chemistry – Energetic chemistry offers a higher purity, high-yield route to producing certain chemical compounds. This is an important attribute since purity specifications for pharmaceutical products are extremely stringent. At present, numerous drugs currently on the market employ energetic chemistry platforms similar to those offered by AFC. Safe and reliable operation of a facility that practices energetic chemistry requires a great deal of expertise and experience. AFC is one of a few companies in the world with the experience, facilities and the know-

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how to use energetic chemistry on a commercial-scale under cGMP. One of the fastest growing applications for energetic chemistry in pharmaceutical fine chemicals is anti-viral drugs. The majority of this growth has resulted from the increase of HIV-related. For fiscal 2006 (on a pro forma basis to include October and November of 2005), approximately 72% of AFC sales were derived from products that involved energetic and nucleoside chemistry.

High-Potency/Cytotoxic Chemical Compounds – We believe that high-potency chemical compounds are a growing segment of the pharmaceutical fine chemicals industry. High-potency compounds are toxic by nature, thus extremely hazardous to handle and produce. The manufacture of high-potency chemical compounds requires high-containment manufacturing facilities and a high degree of expertise to ensure safe and reliable production. AFC has the expertise and experience to design processes and facilities to minimize and control potential exposure. The most common high-potency compounds are used for oncology (i.e. anti-cancer). We believe that there are a large number of anti-cancer drugs in the drug development pipeline and most utilize high-potency chemical compounds.

There is currently limited competition in the market for manufacturing high-potency chemical compounds, as it requires a high level of expertise to safely and effectively manufacture these chemicals at commercial scale The need for such expertise has discouraged many firms from entering this market. Entry into this market also requires a capital investment for specialized facilities if the market entrant does not already have access to such facilities. For fiscal 2006 (on a pro forma basis to include October and November of 2005), approximately 16% of AFC sales were derived from sales of high-potency compounds.

Chiral Compounds – Many chemicals used in pharmaceutical industry are chiral in nature. Chiral chemicals exist in two different forms, or enantiomers, which are mirror images of each other (an analogy is the human hand where one hand is the mirror image of the other). The different enantiomers can have very different properties, including efficacy as a drug substance. As a result, the FDA encourages pharmaceutical companies to separate the enantiomers of a new drug and study their respective biological activities through clinical trials. If they are found to be different and especially if one is found to cause side effects, then the FDA approval may require that the desired enantiomer be chirally pure (i.e. separated from its counterpart). Several techniques are available to achieve this chiral purity. The desired single enantiomer can be isolated from the other one by techniques such as chromatography or it can be produced by more conventional means (i.e. chemical reactions) such as asymmetric synthesis.

Simulated Moving Bed (“SMB”) is a continuous separation technique based on the principle of chromatography. SMB technology was developed in the early 1960s for the petroleum industry and was applied to pharmaceutical manufacturing in the 1990s. Since SMB is a technique for separating binary mixtures, it is ideally suited for the separation of enantiomers. Use of SMB is expanding and SMB has been successfully used, and approved by the FDA, for the preparation of chirally-pure drugs. SMB technology allows the separation of two enantiomers with high purity and in high yield. In many cases, the use of SMB technology results in a reduction and a simplification of the synthesis resulting in an economic gain. Currently, the market for custom manufacturing using SMB technology is substantially covered by four companies: AFC at its California site, Groupe Novasep SAS through its subsidiary Finorga in France, Daicel Chemical Industries, Ltd. at its manufacturing site in Japan and Sigma Aldrich through its subsidiary SAFC in Ireland. For fiscal 2006 (on a pro forma basis to include October and November of 2005), approximately 12% of AFC sales were derived from products that rely on SMB technology.

The pharmaceutical ingredients that AFC manufactures are used by its customers in drugs with indications in three primary areas: Anti-viral, Oncology, and Central Nervous System (CNS),

Customers and Markets

AFC has established long-term relationships with key customers, the specific identity of which is contractually restricted as confidential. AFC had one customer that accounted for 28% of our consolidated revenues for the year ended September 30, 2006. Its current customers include both multi-national pharmaceutical companies and emerging biopharmaceutical companies. The top five customers of AFC accounted for approximately 97% of its revenues in its fiscal 2006. AFC maintains multiyear manufacturing agreements with several large pharmaceutical and several biopharmaceutical companies for annual supply of products which helps provide AFC with earnings stability. In addition, the inherent nature of custom pharmaceutical fine chemical manufacturing encourages stable, long-term

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customer relationships. Once a customer establishes a production process with AFC, there are several potential barriers that discourage transferring the manufacturing method to an alternative supplier, including the following:

•  Alternative Supply May Not Be Available – AFC is currently the sole-source supplier of a number of oncology products that involve handling highly toxic compounds.

•  Regulatory Approval – applications to and approvals from the FDA and other regulatory authorities generally require the chemical contractor to be named. Switching contractors requires additional regulatory approval and could take as long as 18 months.

•  Significant Financial Costs – switching contractors can result in significant costs associated with technology transfer, process validation and re-filing with the FDA and other regulatory authorities.

Competition

The pharmaceutical fine chemicals industry is fragmented. Based on available data, AFC believes the 20 largest manufacturers control approximately 40% to 50% of the market with the largest manufacturer holding less than 10% of market share. A number of other manufacturers, including AFC, constitute the remaining approximately 50% to 60% of the industry. Pharmaceutical fine chemical manufacturers generally compete based on their breadth of technology base, research and development and chemical expertise, flexibility and scheduling of manufacturing capabilities, safety record, regulatory compliance history and price.

To compete successfully in the pharmaceutical fine chemical manufacturing business, we believe that manufacturers must have a broad base of core technologies, world-class manufacturing capabilities and the ability to deliver products at competitive prices. They must also augment their capabilities with a complete line of complementary services, including process development and process improvement (from initial synthesis of a new drug candidate through market launch). As new projects and products have become increasingly complex and incorporate more challenging timelines, greater importance is being placed on the development of strong customer-supplier relationships.

Raw Materials

In fiscal 2006, raw material costs (including solvents and custom chemicals) and waste costs constituted approximately 27% of AFC sales. AFC maintains supply contracts with a small number of well-established bulk commodity chemical manufacturers and distributors. Although the contracts do not hedge against price increases, they do ensure a consistent supply of high-quality commodity chemicals. In addition, for chemicals that are not considered commodities or otherwise readily available in bulk form, AFC has supply agreements with multiple sources to ensure a constant and reliable supply of these chemicals. However, some customers require AFC to purchase only from the supplier designated by the customer. In at least one instance where a chemical is a key ingredient to a process and is only available from one or a very small number of suppliers, AFC itself is an alternative supply source and can manufacture the chemical in-house if necessary.

Our Aerospace Equipment Segment

On October 1, 2004 we acquired the former Atlantic Research Corporation in-space propulsion business from Aerojet-General Corporation. This acquisition provides us with a leading supplier of commercial and military propulsion products and one of the world’s largest producer of bipropellant thrusters. We renamed the acquired business Ampac-ISP (“ISP”). We believe that ISP will be able to develop new high value-added propulsion products.

Customers and Market

ISP is a leading supplier of propulsion products to the commercial and government satellite and launch vehicle market. ISP strives to develop products to meet our customers needs in the future. These needs can vary from high performance high cost items to lower performance inexpensive products. Some customers order thrusters and some order complete systems. Our customer base is primarily U.S. based with a few customers in Europe and Japan. Over the last few years our customer list has increased significantly opening doors to additional business.

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Competition

The U.S. suppliers for monopropellant and bipropellant thrusters is highly concentrated with ISP and GenCorp being the prime competitors for commercial, civil and defense customers in the U.S. Foreign suppliers of in-space propulsion thrusters are not significant competitors in the U.S. The foreign competitors provide a significant amount of competition for European opportunities. The primary competitors are EADS Astrium (formerly DASA), Rafael in Israel, IHI in Japan and smaller competitors in Eastern Europe. The dollar value against the Euro and Yen currently provides ISP with a competitive edge against competitors in Europe and Japan. The large installed capital base and heritage provide a significant barrier to entry into this market.

Our Other Businesses Segment

Water Treatment Equipment

PEPCON Systems^tm designs, manufactures and services equipment used to purify air or water in municipal, industrial and power generation applications. The systems are based on an electrochemical process to produce disinfection chemicals and are marketed under the ChlorMaster^tm and Odormaster^tm names. Disinfection chemicals are used by (i) municipalities and sewage plants for the disinfection of drinking water, effluent and waste water; (ii) 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) 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 a certification from the National Sanitation Foundation (“NSF^®”).

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 with companies that utilize other technologies and those that utilize technologies similar to ours. Most of these companies are substantially larger than we are. Our success depends principally upon our ability to be cost competitive and, at the same time, to provide a quality product. A significant portion of our Water Treatment Equipment sales are to overseas customers, specifically in the Middle and Far East.

Real Estate

Our real estate operations have been in a wind-down phase over the last several years. In fiscal 2005 we completed the sale of all our Nevada real estate assets that were targeted for sale. We did not have material sales of real estate in fiscal 2006 and we do not expect to have such sales in the future.

Regulatory Compliance

Federal Acquisition Regulations:  As a supplier to U. S. 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.

FDA and Similar Regulatory Agencies:  AFC produces pharmaceutical chemicals in accordance with cGMP. Its facilities are designed and operated to satisfy regulatory agencies such as FDA, European Medicines Agency (EMA), and Japan’s Pharmaceutical and Medical Devices Agency (“PMDA”). Its regulatory status is maintained via comprehensive 21 CFR Parts 210 and 211 compliant quality systems. Regulatory authorities mandate, by law, the use of cGMP throughout the production of APIs and registered intermediates. cGMP guidelines cover a broad range of quality systems including manufacturing and laboratory activities, quality control and assurance, facilities, equipment

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and materials management, production and in-process controls, storage and distribution, laboratory control, validation and change control, as well as the documentation and maintenance of records for each. All of these functions have a series of critical activities associated with them. In addition, manufacturing equipment, scientific instruments and software must be qualified, validated and their use documented.

Environmental Matters:  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.

Review of Perchlorate Toxicity by EPA – Perchlorate (the “anion”) is not currently included in the list of hazardous substances compiled by the EPA, but it is on the EPA’s Contaminant Candidate List. The EPA has conducted a risk assessment relating to perchlorate, two drafts of which were subject to formal peer reviews held in 1999 and 2002. Following the 2002 peer review, the EPA perchlorate risk assessment together with other perchlorate related science was reviewed by the National Academy of Sciences (“NAS”). This NAS report was released on January 11, 2005. The recommendations contained in this NAS report indicate that human health is protected in drinking water at a level of 24.5 parts per billion (“ppb”). Certain states have also conducted risk assessments and have set preliminary levels from 1 – 14 ppb. The EPA has established a reference dose for perchlorate of .0007 mg/kg/day which is equal to a Drinking Water Equivalent Level (“DWEL”) of 24.5 ppb. A decision as to whether or not to establish a Maximum Contaminate Level (“MCL”) is pending. The outcome of these federal EPA actions, as well as any similar state regulatory action, will influence the number, if any, of potential sites that may be subject to remediation action.

Perchlorate Remediation Project in Henderson, Nevada – We commercially manufactured perchlorate chemicals at a facility in Henderson, Nevada (the “Ampac Henderson Site”) from 1958 until the facility was destroyed in May 1988, after which we relocated our production to a new facility in Iron County, Utah. Kerr- McGee Chemical Corp (“KMCC”) also operated a perchlorate production facility in Henderson, Nevada from 1967 to 1998. Between 1956 to 1967, American Potash operated a perchlorate production facility at the same site. For many years prior to 1956, other entities also manufactured perchlorate chemicals at that site. In 1998, Kerr-McGee Chemical LLC became the operating entity and it ceased the production of perchlorate at the Kerr McGee Henderson Site. Thereafter, it continued to produce other chemicals at this site until it was recently sold. As a result of a longer production history at Henderson, KMCC and its predecessor operations have manufactured significantly greater amounts of perchlorate over time than we did at the Ampac Henderson Site.

In 1997, the Southern Nevada Water Authority (“SNWA”) detected trace amounts of the perchlorate anion in Lake Mead and the Las Vegas Wash. Lake Mead is a source of drinking water for Southern Nevada and areas of Southern California. Las Vegas Wash flows into Lake Mead from the Las Vegas valley.

In response to this discovery by SNWA, and at the request of the Nevada Division of Environmental Protection (“NDEP”), we engaged in an investigation of groundwater near the Ampac Henderson site and down gradient toward the Las Vegas Wash. That investigation and related characterization which lasted more than six years employed experts in the field of hydrogeology. This investigation concluded that, although there is perchlorate in the groundwater in the vicinity of the Ampac Henderson Site up to 700 ppm, perchlorate from this Site does not materially impact, if at all, water flowing in the Las Vegas Wash toward Lake Mead. It has been well established, however, by data generated by SNWA and NDEP, that perchlorate from the Kerr McGee Henderson Site did materially impact the Las Vegas Wash and Lake Mead. Kerr McGee’s successor, Tronox LLC, operates an ex situ perchlorate groundwater remediation facility at their Henderson site and this facility has had a significant effect on the load of perchlorate entering Lake Mead over the last 5 years. Recent measurements of perchlorate in Lake Mead made by SNWA have been less than 10 ppb.

Notwithstanding these facts, and at the direction of NDEP and EPA, we conducted an investigation of remediation technologies for perchlorate in groundwater with the intention of remediating groundwater near the

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Ampac Henderson Site. The technology that was chosen as most efficient and appropriate is in situ bioremediation (“ISB”). The technology reduces perchlorate in the groundwater by precise addition of an appropriate carbon source to the groundwater itself while it is still in the ground (as opposed to an above ground, more conventional, ex situ process). This induces naturally occurring organisms in the groundwater to reduce the perchlorate among other oxygen containing compounds.

In 2002, we conducted a pilot test in the field of the ISB technology and it was successful. On the basis of the successful test and other evaluations, in fiscal 2005 we submitted a Work Plan to NDEP for the construction of a Leading Edge Remediation Facility (“Athens System”) near the Ampac Henderson Site. The conditional approval of the Work Plan by NDEP in our third quarter of fiscal 2005 allowed us to generate estimated costs for the installation and operation of the Leading Edge and Source Remediation Facilities that will address perchlorate from the Ampac Henderson Site. We commenced construction of the Athens System in July, 2005. In June 2006, we began operations of an interim Athens System that is, as of July 2006, reducing perchlorate concentrations in system extracted groundwater in Henderson. The permanent Athens System plant began operation in December 2006. The permanent facility will increase remediation capacity over the temporary facility.

Henderson Site Environmental Remediation Reserve – During our fiscal 2005 third quarter, we recorded a charge for $22,400 representing our estimate of the probable costs of our remediation efforts at the Henderson Site, including the costs for equipment, operating and maintenance costs, and consultants. Key factors in determining the total estimated cost include an estimate of the speed of groundwater entering the treatment area, which was then used to estimate a project life of 45 years, as well as estimates for capital expenditures and annual operating and maintenance costs. The project consists of two primary phases; the initial construction of the remediation equipment and the operating and maintenance phase. We commenced the construction phase in late fiscal 2005, completed an interim system in June 2006, and completed the permanent facility in December 2006. During our fiscal 2006, we increased our total cost estimate for the construction phase by $3,600 due primarily to changes in the engineering designs, delays in receiving permits and the resulting extension of construction time. These estimates are based on information currently available to us and may be subject to material adjustment upward or downward in future periods as new facts or circumstances may indicate.

DTSC Matters:  The California Department of Toxic Substances Control (DTSC) contends that the AFC Business’ neutralization or stabilization of several liquid stream processes within a closed loop manufacturing system constitutes treatment of a hazardous waste without the required authorizations from DTSC. We disagree. On September 2, 2005, the DTSC Inspector issued an Inspection Report relevant to the DTSC’s June 2004 inspection of the AFC Business’ facility. The Inspection Report concluded that the referenced activities constitute treatment of hazardous waste and directed Aerojet Fine Chemicals to submit an application for a permit modification to treat hazardous waste.

On November 28, 2005, AFC and DTSC entered into a Consent Agreement (“Consent Agreement”) which, effective upon close of the sale of the AFC Business to us, authorizes AFC to continue operations for up to two years while the parties resolve whether the manufacturing processes are exempt from regulation by the DTSC. The Consent Agreement is deemed a full settlement of the DTSC Allegations and any other violations that could have been brought against AFC based upon information known to DTSC on the date of the Consent Agreement.

In September 2006, the Governor of California signed AB 2155, legislation sponsored by AFC, which specifically exempts the manufacturing operations described in the Consent Agreement from DTSC’s hazardous waste permitting requirements. The exemption for these operations will take affect on January 1, 2007.

Other AFC Environmental Matters:  AFC’s facility is located on land leased from Aerojet. The leased land is part of a tract of land owned by Aerojet designated as a “Superfund Site” under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA). The tract of land had been used by Aerojet and affiliated companies to manufacture and test rockets and related equipment since the 1950s. Although the chemicals identified as contaminants on the leased land were not used by Aerojet Fine Chemicals as part of its operations, CERCLA, among other things, provides for joint and severable liability for environmental liabilities including, for example, the environmental remediation expenses.

As part of the agreement to sell the AFC Business, an Environmental Indemnity Agreement was entered into whereby GenCorp agreed to indemnify us against any and all environmental costs and liabilities arising out of or resulting from

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any violation of environmental law prior to the effective date of the sale, or any release of hazardous substances by the AFC Business, Aerojet or GenCorp on the premises or Aerojet’s Sacramento site prior to the effective date of the sale.

On November 29, 2005, EPA Region IX provided us with a letter indicating that the EPA does not intend to pursue any clean up or enforcement actions under CERCLA against future lessees of the Aerojet Fine Chemicals property for existing contamination, provided that the lessees do not contribute to or do not exacerbate existing contamination on or under the Aerojet Superfund site.

It is our policy to conduct our businesses with a high regard for the safety of our personnel and for the preservation and protection of the environment. We devote significant resources and management attention to complying with environmental and safety laws and regulations. In view of our production and handling of specialty chemicals, such operations are regulated and monitored by governmental agencies (i.e. OSHA, EPA and other regulatory agencies). Accordingly, from time to time, we have been subject to compliance orders, including civil penalties, imposed by such regulatory agencies.

Other Matters

Backlog

Backlog includes amounts for which a purchase order has been received by a commercial customer and government contracts for which funding in contractually obligated by our customers. As of September 30, 2006, Fine Chemical segment backlog was approximately $100,000 and Aerospace Equipment segment backlog was approximately $14,000. Backlog is not a meaningful measure for our other business lines.

Intellectual Property

Most of our intellectual properties are tradesecrets and knowhow. We also own the following registered U.S. trademarks and service marks pursuant to applicable intellectual property laws: Halotron^®, SEP^tm, OdorMaster^®, ChlorMaster^®, PEPCON^®, Exceeding Customer Expectations^®, and Polyfox^®. In addition, we have various foreign registrations for Halotron.

We maintain U.S. and broad international trademark rights to the “Halotron” name. The widespread use and name recognition of “Halotron” has given other foreign companies that do not follow the trademark laws, motive to use the name without our authorization for products that we did not manufacture. This has occurred in several instances. Accordingly, we have found it necessary to protect those rights through litigation and other means. One such case is in Sweden where we filed and prevailed on a trademark infringement case in 2001 (American Pacific v. Bejaro Brandskyddsföretaget AB). It is now entering the damages phase. The extent of damages payable to us, and the timing of collection, if any, is unknown at this time. In addition, we have several U.S. and foreign patents and patent applications outstanding related to Halotron products. We are also continually looking for, and actively evaluating, other fire protection related product opportunities. Pursuant to this, we have licensed patent rights from other entities.

Raw materials and Manufacturing Costs

The principal elements comprising our cost of sales are raw materials, component parts, electric power, direct labor, manufacturing overhead (purchasing, receiving, inspection, warehousing, and facilities), depreciation and amortization. The major raw materials used in our production processes are graphite, sodium chlorate, ammonia, hydrochloric acid, sodium metal, nitrous oxide and HCFC-123. Our operations consume a significant amount of power (electricity and natural gas); the pricing of these power costs can be volatile. Significant increases in the cost of raw materials or component parts may have an adverse impact on margins if we are unable to pass along such increases to our customers.

All the raw materials used in our manufacturing processes typically are available in commercial quantities. A substantial portion of the total cash costs of operating our specialty and fine chemical plants, consisting mostly of labor and overhead, are largely fixed in nature.

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Profitability

Although our operating results 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:

•   as discussed in Note 11 to our consolidated financial statements, we may incur material legal and other costs associated with environmental remediation, litigation and other contingencies;

•   the volume and timing of sales in the future is uncertain;

•   certain products in our Fine Chemicals segment require multiple quarters to produce;

•   the results of periodic reviews for impairments of long-lived assets;

•   And the ability to pass on increases in raw material costs to our customers.

Government Contract Subject to Termination

U.S. government contracts are dependent on the continuing availability of Congressional appropriations. Congress usually appropriates funds for a given program on a fiscal year basis even though contract performance may take more than one year. As a result, at the outset of a major program, the contract is usually incrementally funded, and additional monies are normally committed to the contract by the procuring agency only as Congress makes appropriations for future fiscal years. In addition, most U.S. government contracts are subject to modification if funding is changed. Any failure by Congress to appropriate additional funds to any program in which we or our customers participate, or any contract modification as a result of funding changes, could materially delay or terminate the program for us or for our customers. Since our significant customers in our Specialty Chemicals and Aerospace Equipment segments are mainly U.S. government contractors subject to this yearly Congressional appropriations process, their purchase of our products are also dependent on their U.S. government contracts not being materially curtailed. In addition, we are subject to the risk that the U.S. government may terminate its contracts with its suppliers, either for its convenience or in the event of a default by the contractor. Furthermore, since our significant customers are U.S. government contractors, they may cease purchasing our products if their contracts are terminated, which may have a material adverse effect on our operating results, financial condition or cash flow.

Insurance

Our policy is to obtain liability and property insurance coverage that is currently available at what management determines to be a fair and reasonable price. We maintain public liability and property insurance coverage at amounts that management believes are sufficient to meet our anticipated needs in light of historical experience to cover future litigation and claims. There is no assurance, however, that we will not incur losses beyond the limits of, or outside the coverage of our insurance.

Employees

At September 30, 2006, we employed approximately 485 persons in executive, administrative, sales and manufacturing capacities. We consider our relationships with our employees to be satisfactory.

At September 30, 2006, 141 employees of our Fine Chemicals segment were covered by collective bargaining or similar agreements which expire in June 2007. We expect to renegotiate these agreements prior to their expiration.

Available Information

Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, proxy statements and amendments to those reports, are available free of charge on our Internet website at http://www.apfc.com as soon as reasonably practicable after such reports are filed with the Securities and Exchange Commission.

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Item 1A. Risk Factors

We can be adversely impacted by reductions or changes in NASA or U.S. government military spending.

Both our Specialty Chemicals and Aerospace Equipment segments conduct business, directly or indirectly, with NASA and the U.S. Government. Our perchlorate chemicals, as part of our Specialty Chemicals business, accounted for approximately 28%, 65% and 85% of our revenues during fiscal 2006, 2005 and 2004, respectively. Ammonium perchlorate, or AP, is the sole oxidizing agent for solid fuel rockets, booster motors and missiles used in space exploration. Our principal space customers are Alliant Techsystems, Inc., or ATK, 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. As a majority of our sales are to the U.S. government and its prime contractors, we depend heavily on the contracts underlying these programs. Also, significant portions of our sales come from a small number of customers. ATK accounted for 18%, 50% and 51% of our revenues during the fiscal years 2006, 2005 and 2004, respectively. We have supplied AP for use in space and defense programs for over 40 years. We have supplied AP to various foreign defense programs and commercial space programs, although AP is subject to strict export license controls.

Since the 1990’s, demand for perchlorate chemicals has been declining. The suspension of Space Shuttle missions after the Columbia disaster in February 2003 further reduced sales volume of our Grade I AP products. This reduced sales volume exceeded the actual consumption of Grade I AP product by our customers. As a result, our customers’ inventory of Space Shuttle Grade I AP increased.

We believe that over the next several years, overall demand for Grade I AP will be relatively level as compared to fiscal 2006 and largely driven by requirements for the Minuteman program which should provide a stable base for our Grade I AP revenues. Grade I AP demand could also be influenced if there is a substantial increase in Space Shuttle flights. However, it is our expectation that our customers’ Grade I AP inventories are currently sufficient to sustain nominal Space Shuttle activity for the next several years.

Our expectations of Grade I AP demands are based on information currently available to us. We have no ability to influence the demand for Grade I AP. In addition, demand for Grade I AP is program specific and dependent upon, among other things, governmental appropriations. Any decision to delay, reduce or cancel programs could have a significant adverse effect on our results of operations, cash flow and financial condition.

The U.S. has proposed a long-term human and robotic program to explore the solar system, starting with a return to the Moon. This program will require the development of new space exploration vehicles that may likely stimulate the demand for Grade I AP. As a consequence of the new space initiatives discussed above, as well as other factors, including the completion and utilization of the International Space Station (“ISS”), the long-term demand for Grade I AP may be driven by the timing of the retirement of the Space Shuttle fleet, the development of the new crew launch vehicle (“CLV”) and the number of CLV launches, and the development and testing of the new heavy launch vehicle (“HLV”) used to transport materials and supplies to the ISS and the Moon, and the number of HLV launches.

Our revenues, operating income and cash flows from operating activities are negatively impacted by these lower sales 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.

If the use of AP as the oxidizing agent for solid fuel rockets or the use of solid fuel rockets in NASA’s space exploration programs are discontinued or significantly reduced, it could have a material adverse effect on our operating results, financial condition, or cash flows.

We depend on a limited number of customers for most of our sales in our Specialty Chemicals and Aerospace Equipment segments and the loss of one or more of these customers could have a material adverse affect on our net sales.

Our perchlorate chemicals, as part of our Specialty Chemicals business, accounted for approximately 28%, 65% and 85% of our consolidated revenues during fiscal 2006, 2005 and 2004, respectively. ATK accounted for 18%, 50% and

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51% of our consolidated revenues during the fiscal years 2006, 2005 and 2004, respectively. Should our relationship with one or more of our major Specialty Chemicals or Aerospace Equipment customers change adversely, the resulting loss of business could have a material adverse effect on our financial position, results of operations or cash flows. In addition, if one or more of our major Specialty Chemicals or Aerospace Equipment customers substantially reduced their volume of purchases from us, it could have a material adverse effect on our financial position, results of operations or cash flows. Should one of our major Specialty Chemicals or Aerospace Equipment customers encounter financial difficulties, the exposure on uncollectible receivables and unusable inventory could have a material adverse effect on our financial position, results of operations or cash flows.

Our existing U.S. government contracts and contracts based on U.S. government contracts are subject to continued appropriations by congress and may be terminated if future funding is not made available.

U.S. government contracts are dependent on the continuing availability of Congressional appropriations. Congress usually appropriates funds for a given program on a fiscal year basis even though contract performance may take more than one year. As a result, at the outset of a major program, the contract is usually incrementally funded, and additional monies are normally committed to the contract by the procuring agency only as Congress makes appropriations for future fiscal years. In addition, most U.S. government contracts are subject to modification if funding is changed. Any failure by Congress to appropriate additional funds to any program in which we or our customers participate, or any contract modification as a result of funding changes, could materially delay or terminate the program for us or for our customers. Since our significant customers in the Specialty Chemicals segment are mainly U.S. government contractors subject to this yearly Congressional appropriations process, their purchase of our products are also dependent on their U.S. government contracts not being materially curtailed. U.S. government contracts or contracts based on U.S. government contracts in our Specialty Chemicals segment accounted for almost all of our revenues during fiscal 2006, 2005 and 2004, respectively.

Our U.S. government or U.S. government contractor contracts can be categorized as either “cost-plus” or “fixed-price.”

Cost-Plus Contracts:  Cost-plus contracts are cost-plus-fixed-fee, cost-plus-incentive-fee, or cost-plus-award-fee contracts. Cost-plus-fixed-fee contracts allow us to recover our approved costs plus a fixed fee. Cost-plus-incentive-fee contracts and cost-plus-award-fee contracts allow us to recover our approved costs plus a fee that can fluctuate based on actual results as compared to contractual targets for factors such as cost, quality, schedule, and performance.

Fixed-Price Contracts:  Fixed-price contracts are firm-fixed-price, fixed-price-incentive, or fixed-price-level-of-effort contracts. Under firm-fixed-price contracts, we agree to perform certain work for a fixed price and absorb any cost underruns or overruns. Fixed-price-incentive contracts are fixed-price contracts under which the final contract prices may be adjusted based on total final costs compared to total target cost, and may be affected by schedule and performance. Fixed price-level-of-effort contracts allow for a fixed price per labor hour, subject to a contract cap. All fixed-price contracts present the inherent risk of unreimbursed cost overruns, which could have a material adverse effect on our operating results, financial condition, or cash flows. The U.S. government also regulates the accounting methods under which costs are allocated to U.S. government contracts. As a result, all fixed-price contracts involve the inherent risk of un-reimbursed cost overruns. To the extent that we did not anticipate the increase in cost of producing our products which are subject to a fixed-price contract, our profitability would be adversely affected.

Our U.S. government contracts and our customer’s U.S. government contracts are subject to termination.

We are subject to the risk that the U.S. government may terminate its contracts with its suppliers, either for its convenience or in the event of a default by the contractor. If a cost-plus contract is terminated, the contractor is entitled to reimbursement of its approved costs. If the contractor would have incurred a loss had the entire contract been performed, then no profit is allowed by the U.S. government. If the termination is for convenience, the contractor is also entitled to receive payment of a total fee proportionate to the percentage of the work completed under the contract. If a fixed-price contract is terminated, the contractor is entitled to receive payment for items delivered to and accepted by the U.S. government. If the termination is for convenience, the contractor is also entitled to receive fair compensation

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for work performed plus the costs of settling and paying claims by terminated subcontractors, other settlement expenses, and a reasonable profit on the costs incurred or committed. If a contract termination is for default:

•   the contractor is paid an amount agreed upon for completed and partially completed products and services accepted by the U.S. government,

•   the U.S. government is not liable for the contractor’s costs for unaccepted items, and is entitled to repayment of any advance payments and progress payments related to the terminated portions of the contract, and

•   the contractor may be liable for excess costs incurred by the U.S. government in procuring undelivered items from another source.

In addition, since our significant customers are U.S. government contractors, they may cease purchasing our products if their contracts are terminated, which may have a material adverse effect on our operating results, financial condition or cash flow.

We are subject to procurement and other related laws and regulations, non-compliance with which may expose us to adverse consequences.

Our Specialty Chemicals and Aerospace Equipment segments are subject to extensive and complex U.S. government procurement laws and regulations, along with ongoing U.S. government audits and reviews of contract procurement, performance, and administration. We could suffer adverse consequences if we were to fail to comply, even inadvertently, with these laws and regulations or with laws governing the export of munitions and other controlled products and commodities; or commit a significant violation of any other federal law. These consequences could include contract termination; civil and criminal penalties; and, under certain circumstances, our suspension and debarment from future U.S. government contracts for a period of time. In addition, foreign sales are subject to greater variability and risk than our domestic sales. Foreign sales subject us to numerous stringent U.S. and foreign laws and regulations, including regulations relating to import-export control, repatriation of earnings, exchange controls, the Foreign Corrupt Practices Act, and the anti-boycott provisions of the U.S. Export Administration Act. Failure to comply with these laws and regulations could result in material adverse consequences to us.

These procurement laws and regulations also provide for ongoing audits and reviews of incurred costs as well as contract procurement, performance and administration. The U.S. government may, if appropriate, conduct an investigation into possible illegal or unethical activity in connection with these contracts. Investigations of this nature are common in the aerospace and defense industry, and lawsuits may result. In addition, the U.S. government and its principal prime contractors periodically investigate the financial viability of its contractors and subcontractors as part of its risk assessment process associated with the award of new contracts. If the U.S. government or one or more prime contractors were to determine that we were not financially viable, our ability to continue to act as a government contractor or subcontractor would be impaired.

Our operations and properties are currently the subject of numerous environmental and other government regulations, which may become more stringent in the future and may reduce our profitability and liquidity.

Our operations are subject to extensive Federal, State and local regulations governing, among other things, emissions to air, discharges to water and waste management. 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.

Review of Perchlorate Toxicity by EPA – Perchlorate (the “anion”) is not currently included in the list of hazardous substances compiled by the Environmental Protection Agency (“EPA”), but it is on the EPA’s Contaminant Candidate List. The EPA has conducted a risk assessment relating to perchlorate, two drafts of which were subject to formal peer reviews held in 1999 and 2002. Following the 2002 peer review, the EPA perchlorate risk assessment together with other perchlorate related science was reviewed by the National Academy of Sciences (“NAS”). This NAS report was released on January 11, 2005. The recommendations contained in this NAS report indicate that human health is protected in drinking water at a level of 24.5 parts per billion (“ppb”). Certain states have also conducted risk

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assessments and have set preliminary levels from 1 – 14 ppb. The EPA has established a reference dose for perchlorate of .0007 mg/kg/day which is equal to a Drinking Water Equivalent Level (“DWEL”) of 24.5 ppb. A decision as to whether or not to establish a Maximum Contaminate Level (“MCL”) is pending. The outcome of these federal EPA actions, as well as any similar state regulatory action, will influence the number, if any, of potential sites that may be subject to remediation action.

Perchlorate Remediation Project in Henderson, Nevada – We commercially manufactured perchlorate chemicals at a facility in Henderson, Nevada (the “Ampac Henderson Site”) from 1958 until the facility was destroyed in May 1988, after which we relocated our production to a new facility in Iron County, Utah. Kerr-McGee Chemical Corp (“KMCC”) also operated a perchlorate production facility in Henderson, Nevada from 1967 to 1998. Between 1956 to 1967, American Potash operated a perchlorate production facility at the same site. For many years prior to 1956, other entities also manufactured perchlorate chemicals at that site. In 1998, Kerr-McGee Chemical LLC became the operating entity and it ceased the production of perchlorate at the Kerr McGee Henderson Site. Thereafter, it continued to produce other chemicals at this site until it was recently sold. As a result of a longer production history at Henderson, KMCC and its predecessor operations have manufactured significantly greater amounts of perchlorate over time than we did at the Ampac Henderson Site.

In 1997, the Southern Nevada Water Authority (“SNWA”) detected trace amounts of the perchlorate anion in Lake Mead and the Las Vegas Wash. Lake Mead is a source of drinking water for Southern Nevada and areas of Southern California. Las Vegas Wash flows into Lake Mead from the Las Vegas valley.

In response to this discovery by SNWA, and at the request of the Nevada Division of Environmental Protection (“NDEP”), we engaged in an investigation of groundwater near the Ampac Henderson site and down gradient toward the Las Vegas Wash. That investigation and related characterization which lasted more than six years, employed experts in the field of hydrogeology. This investigation concluded that, although there is perchlorate in the groundwater in the vicinity of the Ampac Henderson Site up to 700 ppm, perchlorate from this Site does not materially impact, if at all, water flowing in the Las Vegas Wash toward Lake Mead. It has been well established, however, by data generated by SNWA and NDEP, that perchlorate from the Kerr McGee Henderson Site did materially impact the Las Vegas Wash and Lake Mead. Kerr McGee’s successor, Tronox LLC, operates an ex situ perchlorate groundwater remediation facility at their Henderson site and this facility has had a significant effect on the load of perchlorate entering Lake Mead over the last 5 years. Recent measurements of perchlorate in Lake Mead made by SNWA have been less than 10 ppb.

Notwithstanding these facts, and at the direction of NDEP and EPA, we conducted a investigation of remediation technologies for perchlorate in groundwater with the intention of remediating groundwater near the Ampac Henderson Site. The technology that was chosen as most efficient and appropriate is in situ bioremediation (“ISB”). The technology reduces perchlorate in the groundwater by precise addition of an appropriate carbon source to the groundwater itself while it is still in the ground (as opposed to an above ground, more conventional, ex situ process). This induces naturally occurring organisms in the groundwater to reduce the perchlorate among other oxygen containing compounds.

In 2002, we conducted a pilot test in the field of the ISB technology and it was successful. On the basis of the successful test and other evaluations, in fiscal 2005 we submitted a Work Plan to NDEP for the construction of a Leading Edge Remediation Facility (“Athens System”) near the Ampac Henderson Site. The conditional approval of the Work Plan by NDEP in our third quarter of fiscal 2005 allowed us to generate estimated costs for the installation and operation of the Leading Edge and Source Remediation Facilities that will address perchlorate from the Ampac Henderson Site. We commenced construction of the Athens System in July, 2005. In June 2006, we began operations of an interim Athens System that is, as of July 2006, reducing perchlorate concentrations in system extracted groundwater in Henderson. The permanent Athens System plant began operation in December 2006. The permanent facility will increase remediation capacity over the temporary facility.

Henderson Site Environmental Remediation Reserve – During our fiscal 2005 third quarter, we recorded a charge for $22,400 representing our estimate of the probable costs of our remediation efforts at the Henderson Site, including the costs for equipment, operating and maintenance costs, and consultants. Key factors in determining the total estimated cost include an estimate of the speed of groundwater entering the treatment area, which was then used to estimate a project life of 45 years, as well as estimates for capital expenditures and annual operating and maintenance costs. The

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project consists of two primary phases; the initial construction of the remediation equipment and the operating and maintenance phase. We commenced the construction phase in late fiscal 2005, completed an interim system in June 2006, and completed the permanent facility in December 2006. During our fiscal 2006, we increased our total cost estimate for the construction phase by $3,600 due primarily to changes in the engineering designs, delays in receiving permits and the resulting extension of construction time. These estimates are based on information currently available to us and may be subject to material adjustment upward or downward in future periods as new facts or circumstances may indicate.

The production of most of our Specialty Chemicals products is conducted in a single facility and our operations will be materially affected if production at that facility is disrupted.

Most of our Specialty Chemicals products are produced at our Iron County, Utah facility. A significant disruption at this facility, even on a short-term basis, could impair our ability to produce and ship our Specialty Chemicals products to the market on a timely basis, which could have a material adverse effect on our business, financial position and results of operations.

Disruptions in the supply of key raw materials and difficulties in the supplier qualification process, as well as increases in prices of raw materials, could adversely impact our operations.

Key raw materials used in our operations include salt, sodium chlorate, graphite, ammonia and hydrochloric acid. We closely monitor sources of supply to assure that adequate raw materials and other supplies needed in our manufacturing processes are available. In addition, as a U.S. government contractor, we are frequently limited to procuring materials and components from sources of supply that can meet rigorous customer and/or government specifications. In addition, as business conditions, the Department of Defense (DOD) budget, and Congressional allocations change, suppliers of specialty chemicals and materials sometimes consider dropping low volume items from their product lines, which may require, as it has in the past, qualification of new suppliers for raw materials on key programs. The qualification process may impact our profitability or ability to meet contract deliveries. We are also impacted by the cost of these raw materials used in production on fixed-price contracts. The increased cost of natural gas and electricity also has an impact on the cost of operating our Specialty Chemicals facilities.

Prolonged disruptions in the supply of any of our key raw materials, difficulty completing qualification of new sources of supply, implementing use of replacement materials or new sources of supply, or a continuing increase in the prices of raw materials and energy could have a material adverse effect on our operating results, financial condition or cash flows.

Our Fine Chemicals segment may be unable to comply with customer specifications and manufacturing instructions, experience schedule delays or other problems with existing or new products and systems, which could result in increased costs and loss of sales.

Our Fine Chemicals segment, which is operated by our Ampac Fine Chemicals LLC subsidiary, or AFC, produces chemical compounds that are difficult to manufacture, including highly energetic, highly toxic and high potency materials. These chemical compounds are manufactured to exacting specifications of our customers’ filings with the Food & Drug Administration, or FDA, and other regulatory authorities world-wide. The production of these chemicals requires a high degree of precision and strict adherence to safety and quality standards. Regulatory agencies, such as the FDA, and the European Agency for the Evaluation of Medical Products, or EMEA, have regulatory oversight over the production process for many of the products that AFC manufactures for its customers. AFC employs sophisticated and rigorous manufacturing and testing practices to ensure compliance with the FDA’s “cGMP” and the International Conference on Harmonization (ICH) Q7A. If AFC is unable to adhere to these standards and produce these chemical compounds to the standards required by our customers, its operating results and revenues will be negatively impacted.

Failure to meet strict timing or delivery requirements could cause AFC to be in breach of material customer contracts.

AFC is a capital intensive business. Certain major customers have agreed to reimburse AFC for all or a portion of the cost of acquiring or installing certain production equipment to insure sufficient supply of the customer’s product. AFC must meet strict timelines for installation and validation of the production equipment and the manufacturing processes.

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Failure to install and validate the production equipment and to validate the production process in a timely manner could result in delays in production or in breach of contract claims which could adversely impact revenues and operating results of AFC. In addition, the rate of utilization of AFC production capacity is currently very high. Therefore, AFC may experience significant delays in its production if its production capability experiences unscheduled reductions. This may in turn cause AFC to be in breach of its material customer contracts, which could adversely affect its revenues and operating results.

Because AFC currently manufactures a limited number of products for a small number of customers, a problem with any of its significant customers or the final products that our chemical compound is a part could materially adversely affect its results of operations and cash flow.

AFC’s success is largely dependent upon contract manufacturing of a limited number of intermediates or APIs for a limited number of key customers. Its top three products generated approximately 73% of our consolidated sales in fiscal 2006. Furthermore, the top five customers of AFC accounted for approximately 97% of its revenues in fiscal 2006. Any negative development in these customer contracts or relationships or in the customer’s business may have a material adverse effect on the results of operations of AFC. In addition, if the pharmaceutical products that AFC’s customers produce using its compounds experience any problems, including problems related to their safety or efficacy, filing with the FDA or is not successful in the market, these customers may substantially reduce or cease to purchase AFC’ compounds, which will have a material adverse effect on the revenues and results of operations of AFC. Finally, certain customers have agreed to reimburse AFC for all or a portion of the substantial cost of acquiring or installing certain production equipment. Due to the relative size of these customers, their contracts and the capital investment required, failure of the customer to reimburse AFC for these capital investments could have a material adverse effect on the our operating results.

AFC depends heavily on third parties for the supply of certain raw materials used in its production processes.

AFC uses substantial amounts of raw materials in its production processes. Increases in the prices of raw materials which AFC purchases from third party suppliers could adversely impact revenue and operating results. In certain cases, the customer provides some of the raw materials which are used by AFC to produce or manufacture the customer’s products. Failure to receive raw materials in a timely manner, whether from a third party supplier or a customer, could cause AFC to fail to meet production schedules and adversely impact revenues. Certain key raw materials are obtained from sources from outside the U.S. A delay in the arrival in the shipment of raw material from a third party supplier could have a significant impact on AFC’ ability to meet its contractual commitments to customers.

Successful commercialization of pharmaceutical products and product line extensions is very difficult and subject to many uncertainties. If a customer is not able to successfully commercialize its products for which AFC produces compounds, then the operating results of AFC may be negatively impacted.

Successful commercialization of products and product line extensions requires accurate anticipation of market and customer acceptance of particular products, customers’ needs, the sale of competitive products, and emerging technological trends, among other things. Additionally, for successful product development, the customers must complete many complex formulation and analytical testing requirements and timely obtain regulatory approvals from the FDA and other regulatory agencies. When developed, new or reformulated drugs may not exhibit desired characteristics or may not be accepted by the marketplace. Complications can also arise during production scale-up. In addition, these products may encounter unexpected, irresolvable patent conflicts or may not have enforceable intellectual property rights. If the customer is not able to successfully commercialize their products for which AFC produces compounds for, then the operating results of AFC may be negatively impacted.

AFC or its customers may be unable to obtain government approval for its products or comply with government regulations relating to its business.

The commercialization of pharmaceutical products is subject to extensive federal, state and local regulation in the U.S. and similar foreign regulation. We do not know the extent to which we may be affected by legislative and other regulatory actions and developments concerning various aspects of the operations and products of AFC or its

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customers and the health care field generally. We do not know what effect changes in governmental regulation and other actions or decisions by governmental agencies may have on AFC in the future. Any changes could impose on AFC or its customers changes to manufacturing methods or facilities, pharmaceutical importation, expanded or different labeling, new approvals, the recall, replacement or discontinuance of certain products, additional record keeping, testing, price or purchase controls or limitations, and expanded documentation of the properties of certain products and scientific substantiation. Any regulatory changes could have a material adverse effect on AFC, its financial condition and results of operations or its competitive position.

The manufacturing, processing, formulation, packaging, labeling, distribution, importation, pricing, reimbursement and advertising of these products, and disposal of waste products arising from these activities, are also subject to regulation by the U.S. Drug Enforcement Administration, the Federal Trade Commission, the U.S. Consumer Product Safety Commission, the Occupational Safety and Health Administration, the U.S. Environmental Protection Agency, and the U.S. Customs Service, as well as state, local and foreign governments.

Before marketing most drug products, AFC’s customers generally are required to obtain approval from the FDA based upon pre-clinical testing, clinical trials showing safety and efficacy, chemistry and manufacturing control data, and other data and information. The generation of these required data is regulated by the FDA and can be time-consuming and expensive, and the results might not justify approval. Even if AFC customers are successful in obtaining all required pre-marketing approvals, post-marketing requirements and any failure on either parties’ part to comply with other regulations could result in suspension or limitation of approvals or commercial activities pertaining to affected products. The FDA could also require reformulation of products during the post-marketing stage.

All of AFC’s products must be manufactured in conformance with cGMP regulations, as interpreted and enforced by the FDA, the International Conference on Harmonization ICH Q7A, and drug products subject to an FDA-approved application must be manufactured, processed, packaged, held and labeled in accordance with information contained in the regulations, current FDA guidance, current industry practice and application. Additionally, modifications, enhancements or changes in manufacturing sites of approved products are, in many circumstances, subject to FDA approval, which may be subject to a lengthy application process or which may not be obtainable. The facilities of AFC are periodically subject to inspection by the FDA and other governmental agencies, and operations at these facilities could be interrupted or halted if such inspections are unsatisfactory.

Failure to comply with FDA or other governmental regulations can result in fines, unanticipated compliance expenditures, recall or seizure of products, total or partial suspension of production or distribution, suspension of the FDA’s review of relevant product applications, termination of ongoing research, disqualification of data for submission to regulatory authorities, enforcement actions, injunctions and criminal prosecution. Under certain circumstances, the FDA also has the authority to revoke previously granted drug approvals. Although we have instituted internal compliance programs, if compliance is deficient in any significant way, it could have a material adverse effect on AFC.

Recall or withdrawal of a customer’s product from the market or the failure of the customer to obtain regulatory approval of its products will impact forecasted revenues.

A customer product that includes ingredients that are manufactured by AFC may be recalled or withdrawn from the market by the customer. The recall or withdrawal may be for reasons beyond the control of AFC. A recall or withdrawal of a product manufactured by AFC or that includes ingredients manufactured by AFC for its customers could have an adverse impact on its forecasted revenues and operating results. Failure of a customer to obtain regulatory approval for marketing a drug that utilizes an ingredient manufactured by AFC could have an adverse effect on AFC’s performance.

AFC involves hazardous and highly potent materials and if it is unable to comply with the environmental laws and regulations to which it is subject, its results may be adversely affected.

AFC involves the controlled storage, use and disposal of hazardous or highly potent materials. It is subject to numerous environmental laws and regulations in the jurisdictions in which it operates. Although we believe that our safety procedures for handling and disposing of these hazardous materials comply in all material respects with the standards prescribed by law and regulation, the risk of accidental contamination or injury from hazardous materials cannot be completely eliminated. In the event of an accident, we could be held liable to governmental authorities or

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private parties for any damages that result, and the liability could exceed our resources. In addition, we could be held liable for costs associated with contamination of properties occupied by AFC, or at other parties’ disposal sites where it disposes or have disposed of hazardous wastes, even though this contamination may have been caused by third parties or the disposal may have complied with the regulatory requirements then in place. Current or future environmental laws and regulations, or adverse changes in the way current laws and regulations are interpreted or enforced, may materially adversely affect the business, financial condition and results of operations of AFC.

Also as part of the acquisition of AFC by us, AFC leased approximately 230 acres of land on the Aerojet-General Corporation Superfund Site. The Superfund law (CERCLA) has very strict joint and several liability provisions that make any “owner or operator” on a Superfund site a “potentially responsible party” for remediation activities. AFC could be considered an “operator” for purposes of the Superfund law and, in theory, could be a potentially responsible party for purposes of contribution to the site remediation. Even though we have received indemnification from the seller of AFC for these potential liabilities and a “comfort letter” from the EPA indicating that it does not currently intend to pursue the Company or AFC as a potentially responsible party, there can be no assurance that AFC or the Company will be protected against any and all liabilities arising from these real properties under the Superfund law. In addition, pursuant to the EPA consent order governing remediation for this site, AFC will have to abide by certain limitations regarding construction and development of the site which may restrict AFC’ operational flexibility and require additional substantial capital expenditures that could negatively affect the results of operations for AFC.

A strike or other work stoppage, or the inability to renew collective bargaining agreements on favorable terms, could have a material adverse effect on the cost structure and operational capabilities of AFC.

As of September 30, 2006, AFC had approximately 141 employees that were covered by collective bargaining or similar agreements which expire in June 2007. If we are unable to negotiate acceptable new agreements with the unions representing these employees upon expiration of the existing contracts, we could experience strikes or work stoppages. Even if AFC is successful in negotiating new agreements, the new agreements could call for higher wages or benefits paid to union members, which would increase its operating costs and could adversely affect its profitability. If the unionized workers were to engage in a strike or other work stoppage, or other non-unionized operations were to become unionized, AFC could experience a significant disruption of operations at its facilities or higher ongoing labor costs. A strike or other work stoppage in the facilities of any of its major customers could also have similar effects on AFC.

The pharmaceutical fine chemicals industry is a capital-intensive industry and if AFC does not have enough capital to finance the necessary capital expenditures, its business and results of operations may be harmed.

The pharmaceutical fine chemicals industry is a capital-intensive industry that consumes cash from our Fine Chemicals segment and our other operations and borrowings. Upon further expansion of the operations of AFC, capital expenditures for AFC are expected to increase. Increases in expenditures may result in low levels of working capital or require us to finance working capital deficits. These factors could substantially increase AFC’ operating costs and negatively impact its operating results.

We have a substantial amount of debt, and the cost of servicing that debt could adversely affect our ability to take actions or our liquidity or financial condition.

In connection with the acquisition of our Fine Chemicals segment business, we have incurred a substantial amount of debt for which we are required to make interest and principal payments. As of September 30, 2006, we had total consolidated debt of approximately $107 million. Subject to the limits contained in some of the agreements governing our outstanding debt, we may incur additional debt in the future or we may refinance some or all of these debt.

Our level of debt places significant demands on our cash resources, which could:

•   make it more difficult for us to satisfy our outstanding debt obligations;

•   require us to dedicate a substantial portion of our cash flow from operations to payments on our debt, reducing the amount of our cash flow available for working capital, capital expenditures, acquisitions, developing our real estate assets and other general corporate purposes;

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•   limit our flexibility in planning for, or reacting to, changes in the industries in which we compete;

•   place us at a competitive disadvantage compared to our competitors, some of which have lower debt service obligations and greater financial resources than we do;

•   limit our ability to borrow additional funds; or

•   increase our vulnerability to general adverse economic and industry conditions.

If we are unable to generate sufficient cash flow to service our debt and fund our operating costs, our liquidity may be adversely affected.

We are obligated to comply with financial and other covenants in our debt that could restrict our operating activities, and the failure to comply could result in defaults that accelerate the payment under our debt.

Our outstanding debt generally contains various restrictive covenants. These covenants include provisions restricting our ability to, among other things:

•   incur additional debt, incur contingent obligations and issue additional preferred stock;

•   create liens;

•   pay dividends, distributions or make other specified restricted payments, and restrict the ability of certain of our subsidiaries to pay dividends or make other payments to us;

•   sell assets;

•   make certain capital expenditures, investments and acquisitions;

•   enter into certain transactions with affiliates;

•   enter into sale and leaseback transactions; and

•   merge or consolidate with any other person or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of our assets.

Any of the covenants described in this risk factor may restrict our operations and our ability to pursue potentially advantageous business opportunities. Our failure to comply with these covenants could also result in an event of default that, if not cured or waived, could result in the acceleration of all or a substantial portion of our debt.

Although we have established reserves for our environmental liabilities, given the many uncertainties involved in assessing liability for environmental claims, our reserves may not be sufficient.

As of September 30, 2006, we had established reserves of approximately $18 million, which we believe to be sufficient to cover our estimated environmental liabilities at that time. However, given the many uncertainties involved in assessing liability for environmental claims, our reserves may prove to be insufficient. We continually evaluate the adequacy of those reserves, and they could change. In addition, the reserves are based only on known sites and the known contamination at those sites. It is possible that additional remediation sites will be identified in the future or that unknown contamination at previously identified sites will be discovered. This could lead us to have additional expenditures for environmental remediation in the future and given the many uncertainties involved in assessing liability for environmental claims, our reserves may prove to be insufficient.

The release or explosion of dangerous materials used in our business could disrupt our operations and cause us to incur additional costs and liability.

Our operations involve the handling, production, storage, and disposal of potentially explosive or hazardous materials and other dangerous chemicals, including materials used in rocket propulsion. Despite our use of specialized facilities to handle dangerous materials and intensive employee training programs, the handling and production of hazardous materials could result in incidents that temporarily shut down or otherwise disrupt our manufacturing operations and could cause production delays. It is possible that a release of these chemicals or an explosion could result in death or significant injuries to employees and others. Material property damage to us and third parties could also occur. The use of these products in applications by our customers could also result in liability if an explosion or fire were to occur. Any release or explosion could expose us to adverse publicity or liability for damages or cause production delays, any of which could have a material adverse effect on our reputation and profitability.

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

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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. There can be no assurance that another incident would not interrupt some or all of the activities carried on at our current manufacturing site.

Our inability to adapt to rapid technological changes could impair our ability to remain competitive.

The aerospace and defense industry, the pharmaceutical fine chemicals industry and the other specialty chemicals, performance products and environmental protection equipment industries in which we participate have all undergone rapid and significant technological development over the last few years. Our competitors may implement new technologies before we are able to, allowing them to provide more effective products at more competitive prices. As an example, the automotive airbag market is currently the largest consumer of sodium azide. New automotive inflator systems that do not use sodium azide have gained substantial market share and, as a consequence, there has been a substantial decline in the demand for sodium azide. Based upon market information received from inflator manufacturers, we expect that sodium azide use will continue to decline and that bag inflators using sodium azide will be phased out over approximately five years. Currently, demand for sodium azide is substantially less than supply on a worldwide basis. Future technological developments could:

•   adversely impact our competitive position if we are unable to react to these developments in a timely or efficient manner;

•   require us to write-down obsolete facilities, equipment and technology;

•   require us to discontinue production of obsolete products before we can recover any or all of our related research, development and commercialization expenses; or

•   require significant capital expenditures for research, development and launch of new products or processes.

Our proprietary rights may be violated or compromised, which could damage our operations.

We own numerous patents, patent applications and unpatented trade secret technologies in the U.S. and certain foreign countries. There can be no assurance that the steps taken by us to protect our proprietary rights will be adequate to deter misappropriation of these rights. In addition, independent third parties may develop competitive or superior technologies. If we are unable to adequately protect and utilize our intellectual property or property rights, our results of operations may be adversely affected.

We are subject to intense competition in certain of the industries where we compete and therefore may not be able to compete successfully.

Other than the sale of AP, for which we are the sole supplier in the U.S., we face significant competition in all of the other industries that we participate in, including from competitors with greater resources than ours. Many of our competitors have financial, technical, production and other resources substantially greater than ours. Moreover, barriers to entry, other than capital availability, are low in some of the product segments of our business. Capacity additions or technological advances by existing or future competitors may also create greater competition, particularly in pricing. In particular, the pharmaceutical fine chemicals market is fragmented and competitive. Competition in the pharmaceutical fine chemicals market is based upon reputation, service, manufacturing capability and expertise, price and reliability of supply. AFC faces increasing competition against pharmaceutical contract manufacturers located in the People’s Republic of China and India, where production costs are significantly less. If AFC is unable to compete successfully, its results of operations may be materially adversely impacted. Furthermore, there is a worldwide over-supply of sodium azide, which creates significant price competition for that product. We may be unable to compete successfully with our competitors and our inability to do so could result in a decrease in revenues that we historically have generated from the sale of our products.

Due to the nature of our business, our sales levels may fluctuate causing our quarterly operating results to fluctuate.

Changes in our operating results from quarter to quarter could result in volatility in our common stock price. Our quarterly and annual sales are affected by a variety of factors that could lead to significant variability in our operating results. In our Specialty Chemicals segment, the need for our products are generally based on contractually defined

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milestones that our customers are bound by and these milestones may fluctuate from quarter to quarter. In our Fine Chemicals segment, some of our products require multiple steps of chemistries, the production of which can span multiple quarterly periods. Revenue is typically recognized after the final step and when the product has been shipped and accepted by the customer. As a result of this multi-quarter process, revenues and related profits can vary from quarter to quarter.

The cyclicality and volatility of the chemical industry affects our capacity utilization and causes fluctuations in our results of operations.

The operating rates at our facilities will impact the comparison of period-to-period results. Different facilities may have differing operating rates from period to period depending on many factors, such as transportation costs and supply and demand for the product produced at the facility during that period. As a result, individual facilities may be operated below or above rated capacities in any period. We may idle a facility for an extended period of time because an oversupply of a certain product or a lack of demand for that product makes production uneconomical. The expenses of the shutdown and restart of facilities may adversely affect quarterly results when these events occur. In addition, a temporary shutdown may become permanent, resulting in a write-down or write-off of the related assets.

A loss of key personnel or highly skilled employees could disrupt our operations.

Our executive officers are critical to the management and direction of our businesses. Our future success depends, in large part, on our ability to retain these officers and other capable management personnel. We have entered into employment agreements with two of our corporate executive officers that allow those officers to terminate their employment with certain levels of severance under particular circumstances, such as a change of control affecting our company. Although we believe that we will be able to attract and retain talented personnel and replace key personnel should the need arise, our inability to do so could disrupt the operations of the segment affected or our overall operations. Furthermore, our business is very technical and the technological and creative skills of our personnel are essential to establishing and maintaining our competitive advantage. For example, customers often turn to our AFC because very few companies have the specialized experience and capabilities required for energetic and high containment chemistry. Our operations could be disrupted by a shortage of available skilled employees or if we are unable to retain these highly skilled and experienced employees.

Our Shareholder Rights Plan, Certificate of Incorporation and Bylaws discourage unsolicited takeover proposals and could prevent stockholders from realizing a premium on their common stock.

We have a shareholder rights plan that may have the effect of discouraging unsolicited takeover proposals. The rights issued under the shareholder rights plan would cause substantial dilution to a person or group which attempts to acquire us on terms not approved in advance by our Board of Directors. In addition, our certificate of incorporation and bylaws contain provisions that may discourage unsolicited takeover proposals that stockholders may consider to be in their best interests. These provisions include:

•   a classified Board of Directors;

•   the ability of our Board of Directors to designate the terms of and issue new series of preferred stock;

•   advance notice requirements for nominations for election to our Board of Directors; and

•   special voting requirements for the amendment of our certificate of incorporation and bylaws.

We are also subject to anti-takeover provisions under Delaware laws, each of which could delay or prevent a change of control. Together these provisions and the rights plan may discourage transactions that otherwise could involve payment of a premium over prevailing market prices for our common stock.

We may continue to expand our operations through acquisitions, which could divert management’s attention and expose us to unanticipated liabilities and costs. We may experience difficulties integrating the acquired operations, and we may incur costs relating to acquisitions that are never consummated.

Our business strategy could include growth through future acquisitions. However, our ability to consummate and integrate effectively any future acquisitions on terms that are favorable to us may be limited by the number of attractive acquisition targets, internal demands on our resources and our ability to obtain financing. Our success in integrating

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newly acquired businesses will depend upon our ability to retain key personnel, avoid diversion of management’s attention from operational matters, integrate general and administrative services and key information processing systems and, where necessary, requalify our customer programs. In addition, future acquisitions could result in the incurrence of additional debt, costs and contingent liabilities. We may also incur costs and divert management attention to acquisitions that are never consummated. Integration of acquired operations may take longer, or be more costly or disruptive to our business, than originally anticipated. It is also possible that expected synergies from past or future acquisitions may not materialize.

Although we undertake a diligence investigation of each business that we acquire, there may be liabilities of the acquired companies that we fail to or are unable to discover during the diligence investigation and for which we, as a successor owner, may be responsible. In connection with acquisitions, we generally seek to minimize the impact of these types of potential liabilities through indemnities and warranties from the seller, which may in some instances be supported by deferring payment of a portion of the purchase price. However, these indemnities and warranties, if obtained, may not fully cover the liabilities due to limitations in scope, amount or duration, financial limitations of the indemnitor or warrantor or other reasons.

Item 1B. Unresolved Staff Comments

Not applicable.

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Item 2. Properties

The following table sets forth certain information regarding our properties at September 30, 2006:

		Approximate Area			Approximate
Location	Principal Use	or Floor Space	Status		Annual Rent
(a) Iron County, UT	Perchlorate and Water Treatment Equipment Manufacturing Facility	217 Acres		Owned	N/A
(b) Iron County, UT	Sodium Azide Manufacturing Facility	41 Acres		Owned	N/A
(c) Iron County, UT	Halotron Manufacturing Facility	6,720 sq. ft.		Owned	N/A
(d) Las Vegas, NV	Executive Offices	22,262 sq.ft.		Leased	$500,000
(e) Henderson, NV	Goundwater Remediation Site	1.75 Acres		Leased	$20,000
(f) Niagara Falls, NY	Aerospace Equipment Manufacturing Facility	81,425 sq. ft.		Leased	$165,000
(g) Westcott, Buckinghamshire, UK	Aerospace Equipment Manufacturing Facility	65 Acres		Leased	$320,000
(h) Rancho Cordova, CA	Fine Chemicals Manufacturing Facility	240 Acres		Leased	$10,000

(a)	This facility is shared by the Specialty Chemicals segment and our Other Businesses segment for the production of perchlorate products and water treatment equipment. Presently, this facility has significant remaining capacity.
(b)	This facility is used by the Specialty Chemicals segment for the production of sodium azide. Presently, this facility has significant remaining capacity.
(c)	This facility is used by the Specialty Chemicals segment for the production of Halotron. Presently, this facility has significant remaining capacity.
(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 has been extended through February 2009. Approximately 16% of this space is currently sublet at an annual rent of approximately $98,000.
(e)	This facility is used for the groundwater remediation activities of the Company.
(f)	This facility is used for the design, manufacture and test of our Aerospace Equipment segment products. Presently, this facility has adequate capacity available to support its operations and expand, as may be required, through the addition of multiple labor shifts.
(g)	This facility is used for the design, manufacture and test of our Aerospace Equipment segment products. Presently, this facility has significant remaining capacity.
(h)	This facility is used by the Fine Chemicals segment for the production of active pharmaceutical ingredients and registered intermediates. Presently, this facility is at near capacity.

We consider our facilities to be adequate for our present needs and suitable for their current use.

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Item 3. Legal Proceedings

We are from time to time subject to claims and lawsuits. Although it is not possible to predict or determine the outcome of legal actions brought against us or the ultimate cost of these actions, we believe the costs associated with all such actions in the aggregate will not have a material adverse effect on our consolidated financial position, cash flows or results of operations.

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

No matters were submitted to a vote of our security holders during the fourth quarter of our fiscal year ended September 30, 2006.

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PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Stock Listing:  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 in our fiscal years ending September 30.

	2006				2005
	High		Low		High		Low
First Quarter	$	8.12	$	4.11	$	8.78	$	7.30
Second Quarter		9.98		4.79		8.99		7.03
Third Quarter		9.63		6.78		8.52		7.00
Fourth Quarter		8.45		6.05		8.79		5.90

At November 30, 2006, there were approximately 958 stockholders of record of our Common Stock. The closing price of our stock on November 30, 2006 was $7.40.

Dividend Policy:  In January 2003, we adopted our Dividend and Stock Repurchase program. By reason of the application of the program formula which is based on cash flow, no dividends were declared for fiscal years 2006 and 2005.

Beginning November 2005, our Credit Facilities significantly limit our ability to use cash to repurchase shares or issue dividends under the program. See discussion of our Credit Facilities under the heading “Liquidity and Capital Resources” of this annual report.

Transfer Agent:  Our stock transfer agent is American Stock Transfer & Trust Company, 59 Maiden Lane, New York, New York, 10007, (800) 937-5449.

Securities Authorized for Issuance Under Equity Compensation Plans:  The information under the caption “Equity Compensation Plan Information” in fiscal 2006 Proxy Statement is incorporated herein by reference.

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Item 6. Selected Financial Data

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

(Dollars in Thousands, Except per Share Amounts)

	2006			2005			2004			2003		2002
STATEMENT OF OPERATIONS DATA(a)(b):
Revenues	$	141,904		$	67,813		$	51,458		$	68,866	$	73,588
Cost of revenues		97,043			43,916			34,402			37,349		43,529
Gross profit		44,861			23,897			17,056			31,517		30,059
Operating expenses		38,202			21,805			18,980			14,480		13,776
Environmental remediation charges		3,600			22,400			-			-		-
Operating income (loss)		3,059			(20,308	)		(1,924	)		17,037		16,283
Interest and other expense (income), net		10,362			(1,398	)		(693	)		1,544		3,235
Loss on debt extinguishments		-			-			-			984		149
Income (loss) from continuing operations before income tax		(7,303	)		(18,910	)		(1,231	)		14,509		12,899
Income tax provision (benefit)		(4,300	)		(8,367	)		(2,160	)		4,958		4,257
Income (loss) from continuing operations	$	(3,003	)	$	(10,543	)	$	929		$	9,551	$	8,642
Earnings (loss) per share from continuing operations:
Basic	$	(0.41	)	$	(1.45	)	$	0.13		$	1.32	$	1.21
Diluted	$	(0.41	)	$	(1.45	)	$	0.13		$	1.30	$	1.18
Dividends declared per share	$	-		$	-		$	-		$	0.42	$	-
BALANCE SHEET DATA:
Cash and cash equivalents	$	6,872		$	37,213		$	23,777		$	27,140	$	65,826
Inventories and accounts receivable		59,229			26,390			30,058			22,885		21,156
Property, plant and equipment, net		119,746			15,646			16,573			9,223		7,918
Intangible assets, net		14,237			9,763			13,679			17,579		21,297
Total assets		239,455			115,000			101,576			101,685		131,971
Working capital		33,421			49,235			45,741			42,599		81,783
Long-term debt(c)		97,771			-			-			-		40,600

(a)	As discussed in Note 2 to our consolidated financial statements, we acquired the AFC Business effective November 30, 2005 and ISP effective October 1, 2004.
(b)	As discussed in Note 1 to our consolidated financial statements, the consolidation of the ESI joint venture as of March 31, 2004 significantly changes various line items of our balance sheet, statement of operations and cash flow presentations as compared to financial presentations in earlier reports. As discussed in Note 14 to our consolidated financial statements, effective September 30, 2006, we sold our interest in ESI. Revenues and expenses associated with ESI’s operations are classified as discontinued operations for all periods presented.
(c)	As discussed in Note 6 to our consolidated financial statements, we entered into debt agreements regarding the Credit Facilities and Seller Subordinated Note in connection with our acquisition of the AFC Business in November 2005.

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Dollars in Thousands)

The following discussion and analysis is intended to provide a narrative discussion of our financial results and an evaluation of our financial condition and results of operations. The discussion should be read in conjunction with our consolidated financial statements and notes thereto. A summary of our significant accounting policies is included in Note 1 to our consolidated financial statements.

Our Company

We manufacture specialty and fine chemicals, as well as propulsion products sold to defense, aerospace and pharmaceutical end markets. Our products provide access to, and movement in, space via solid fuel and propulsion thrusters and represent the key active ingredient in drug applications such as HIV, epilepsy and cancer. We also produce specialty chemicals utilized in various applications such as agricultural and pesticide products and fire extinguishing systems, as well as manufacture water treatment equipment. Our products are designed to meet customer specifications and often must meet certain governmental and regulatory approvals. Our technical and manufacturing expertise and customer service focus has gained us a reputation for quality, reliability, technical performance and innovation. Given the mission critical nature of our products, we maintain long standing strategic customer relationships. We generally sell our products through long-term contracts where we are usually the sole source or dual source supplier. For our fiscal year ended September 30, 2006, we generated revenue of approximately $142.

We are the exclusive provider of Grade I ammonium perchlorate (“AP”), which is the most commonly used oxidizing agent for solid fuel rockets, booster motors and missiles used in space exploration, commercial satellite transportation and national defense programs. In order to diversify our business and leverage our strong technical and manufacturing capabilities, we have made two strategic acquisitions over the last two fiscal years. Each of these acquisitions provided long-term customer relationships with sole and dual source contracts as well as provided us a leadership position in a growing market. On October 1, 2004 we acquired Aerojet-General Corporation’s in-space propulsion business (“ISP”), which is one of only two manufacturers of in-space propulsion systems and propellant tanks in North America. On November 30, 2005, we acquired GenCorp, Inc.’s fine chemical business (the “AFC Business”), which is a leading manufacturer of certain active pharmaceutical ingredients (“APIs”) and registered intermediates for pharmaceutical and biotechnology companies. Both of these acquisitions have been substantially integrated.

Our Business Segments

Our operations are comprised of four reportable business segments: (i) Specialty Chemicals, (ii) Fine Chemicals, (iii) Aerospace Equipment and (iv) Other Businesses. The following table reflects the revenue contribution percentage from our business segments and each of their major product lines for the years ended September 30:

	2006	2005	2004
Specialty Chemicals:
Perchlorates	28%	65%	85%
Sodium azide	2%	3%	6%
Halotron	3%	6%	5%
Total specialty chemicals	33%	74%	96%
Fine Chemicals	52%	0%	0%
Aerospace Equipment	12%	18%	0%
Other Businesses:
Real estate	1%	5%	1%
Water treatment equipment	2%	3%	3%
Total other businesses	3%	8%	4%
Total revenues	100%	100%	100%

Specialty Chemicals:.  Our Specialty Chemicals business segment is principally engaged in the production of AP which is a type of Perchlorates. Perchlorates represented in excess of 80% of the segment’s revenues for fiscal year 2006. In addition, we produce and sell sodium azide, a chemical used in pharmaceutical manufacturing and historically

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the primary component of a gas generator 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.

We have supplied AP for use in space and defense programs for over 40 years and we have been the exclusive AP supplier in North America since 1998. A significant number of existing and planned launch vehicles providing access to space use solid fuel and thus depend, in part, upon our AP. Many of the rockets and missiles used in national defense programs are also powered by solid fuel. Currently, our largest programs are the Minuteman missile, the Standard missile and the Atlas family of commercial rockets.

We believe that over the next several years overall demand for AP will be relatively level as compared to our fiscal 2006 based on current U.S. Department of Defense production programs. In addition, AP demand could increase if there is a substantial increase in Space Shuttle flights or the development of several contemplated programs under the U.S. proposed long-term human and robotic program to explore the solar system, starting with a return to the Moon. Our Specialty Chemicals business segment generated a Segment Operating Profit Margin of 31.8% during our fiscal year 2006 and had less than $1 million in capital expenditures.

Fine Chemicals.  November 30, 2005, we acquired the AFC Business through our newly-formed, wholly-owned subsidiary Ampac Fine Chemicals (“AFC”). Our Fine Chemicals business segment is a manufacturer of active pharmaceutical ingredients and registered intermediates. The pharmaceutical ingredients that we manufacture are used by our customers in drugs with indications in three primary areas: anti-viral, oncology, and central nervous system. We generate nearly all of our Fine Chemicals sales from manufacturing chemical compounds that are proprietary to our customers. We operate in compliance with the U.S. Food and Drug Administration’s (“FDA”) current Good Manufacturing Practices (“cGMP”). Our Fine Chemicals segment focuses on high growth markets where our technology position, combined with our chemical process and development and engineering expertise, leads to strong customer allegiances and limited competition.

We have distinctive competencies and specialized engineering capabilities in chiral separation, highly potent/cytoxic compounds and energetic and nucleoside chemistries and have invested significant resources in our facilities and technology base. We are the leader in chiral compound production using the first commercial-scale simulated moving bed (“SMB”) technology in the United States and own and operate two of the largest SMB machines in the world. SMB is utilized to produce compounds used in drugs treating central nervous system disorders. We believe our distinctive competency in handling energetic and toxic chemicals and our specialized high containment facilities provides us a significant competitive advantage in competing for various opportunities associated with highly potent/cytoxic compounds, such as drugs used for oncology (i.e. anti-cancer drugs). Due to our significant experience and specially engineered facilities, we are one of the few companies in the world with the capability to use energetic chemistry on a commercial-scale under cGMP. We use this capability in development and production of HIV-related and influenza-combating drugs.

We have established long-term, sole source and dual source contracts, which help provide us with earnings stability and visibility. In addition, the inherent nature of custom pharmaceutical fine chemical manufacturing encourages stable, long-term customer relationships. Once a customer establishes a production process with us, there are several potential barriers that discourage transferring the manufacturing method to an alternative supplier, including the following:

•   Alternative Supply May Not Be Readily Available – we are the sole source supplier on a majority of our fine chemicals products.

•   Regulatory Approval – applications to and approvals from the FDA and other regulatory authorities generally requires the chemical contractor to be named. Switching contractors may require additional regulatory approval and could take as long as 18 months.

•   Significant Financial Costs – switching contractors can result in significant costs associated with technology transfer, process validation and re-filing with the FDA and other regulatory authorities.

We believe the pharmaceutical markets we serve are growing at a faster rate than the overall market. This growth is being driven by the increase in HIV-related drugs, a robust development pipeline for anti-cancer drugs, most of which will utilize high-potency compounds, and the FDA requiring more of these drugs to be chirally pure. As a result of this industry growth and our established customer relationships and long-term contracts, revenues from our Fine Chemicals business segment increased in excess of 50% during our fiscal 2006.

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Aerospace Equipment.  On October 1, 2004, we acquired Aerojet-General Corporation’s in-space propulsion business (“ISP”). ISP has been included in our consolidated financial statements since the first quarter of fiscal 2005. Our Aerospace Equipment business segment is one of only two manufactures of in-space propulsion systems, thrusters (monopropellant or bipropellant) and propellant tanks in North America. We are one of the world’s major producers of bipropellant thrusters. Our products are utilized on various satellite and launch vehicle programs such as Space Systems/Loral’s 1300 series geostationary satellites.

The aerospace equipment market is expected to grow over the next several years. Growth areas include missile defense programs and the commercial satellite segment, which is expecting steady growth over the next four years as a result from broadband, HDTV and communications applications. As a result of this industry growth and our established customer relationships with all of the key prime manufacturers, revenues from our Aerospace Equipment business segment increased in excess of 40% during our fiscal 2006.

Other Businesses.  Our Other Businesses business segment includes the production of water treatment equipment, including equipment for odor control and disinfection of water, and real estate operations. In fiscal 2005, we completed the sale of all real estate assets that were targeted for sale and do not anticipate significant real estate sales activity in the future.

Discontinued Operations:  We also held a 50% ownership stake in Energetic Systems (“ESI”), an entity we consolidated under FIN 46(R) that manufactures and distributes commercial explosives. In June 2006, our board of directors approved and we committed to a plan to sell ESI, based on our determination that ESI’s product lines were no longer a strategic fit with our business strategies. Revenues and expenses associated with ESI’s operations are presented as discontinued operations for all periods presented. ESI was formerly reported within our Specialty Chemicals operating segment. Effective September 30, 2006, we completed the sale of our interest in ESI for $7,510, which, after deducting direct expenses, resulted in a gain on the sale before income taxes of $258.

Results of Operations

Revenues

	Year Ended September 30,						Percentage Change
	2006		2005		2004		06 vs. 05	05 vs. 04
Specialty Chemicals	$	46,450	$	49,936	$	49,459	(7%)	1%
Fine Chemicals		74,026		-		-	-	-
Aerospace Equipment		17,394		12,429		-	40%	-
Other Businesses		4,034		5,448		1,999	(26%)	173%
Total Revenues	$	141,904	$	67,813	$	51,458	109%	32%

Specialty Chemicals segment revenues include revenues from our perchlorate, sodium azide and Halotron product lines. The year over year variances in revenues reflect the following factors:

•   A 45% decline in Grade I AP volume in fiscal 2006 compared to the prior fiscal year, substantially offset by more favorable pricing for Grade 1 AP under the Amendment to the Thiokol Agreement. Grade I AP volume and pricing for fiscal 2005 was consistent with fiscal 2004. We expect demand over the next several years to be consistent with demand in fiscal 2006.

•   A increase in sodium azide sales in fiscal 2006 compared to the prior fiscal year due to additional demand for pharmaceutical applications

•   Consistent year over year sales of Halotron products.

Fine Chemicals segment revenues represents AFC, which was acquired effective November 30, 2005.

Aerospace Equipment segment revenues increased $4,965 for fiscal 2006 compared to the prior year due to an increase in its sales volume resulting from success in new contract awards for both commercial and government satellite applications.

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Other Businesses segment revenues include PEPCON Systems water treatment equipment sales and real estate sales. The year over year variances in revenues reflect the following factors:

•   Fiscal 2005 included a significant real estate sale of $3,190. There were no significant real estate sales in fiscal 2004 or 2006 and we do not expect significant real estate sales in the future.

•   Water treatment equipment sales increased $1,291 in fiscal 2006 compared to fiscal 2005 and decreased $194 in fiscal 2005 compared to fiscal 2004. The revenue variances are largely due to the timing of new system sales which are relatively infrequent and can vary from year to year.

Cost of Revenues and Gross Margin

	Year Ended September 30,						Percentage Change
	2006		2005		2004		06 vs. 05	05 vs. 04
Revenues	$	141,904	$	67,813	$	51,458	109%	32%
Cost of Revenues		97,043		43,916		34,402	121%	28%
Gross Margin	$	44,861	$	23,897	$	17,056	88%	40%
Gross Margin Percentage		32%		35%		33%	(10%)	6%

Cost of revenues increased $53,127, or 121%, during fiscal 2006 from fiscal 2005 primarily due to the related 109% increase in revenues. The gross margin percentage declined to 32% in fiscal 2006 compared to fiscal 2005 due to the following factors:

•   Gross margin percentage for our Specialty Chemicals and Aerospace Equipment segments improved in fiscal 2006 compared to the prior year period primarily due to more favorable pricing of Specialty Chemicals products and better manufacturing overhead absorption for our Aerospace Equipment segment.

•   While AFC contributes significant gross margin dollars, its gross margin percentage is less than that of our Specialty Chemicals segment. Thus, the effect of including AFC in fiscal 2006 is a reduction in the consolidated gross margin percentage due to the change in product mix.

•   Gross margin from our Other Businesses segment declined in fiscal 2006. Fiscal 2005 includes a significant real estate sale which contributed approximately 2 margin points to the prior year consolidated gross margin percentage.

Cost of revenues increased $9,514, or 28%, during fiscal 2005 from fiscal 2004 primarily due to the related 32% increase in revenues. The percentage increase in cost of sales was at a lower rate than the percentage increase in revenues, and as a result, gross margin percentage improved during fiscal 2005. The consolidated gross margin for fiscal 2005 reflects offsetting factors:

•   Fiscal 2005 was the first year to include our Aerospace Equipment segment products, which carry lower gross margin percentages than our Specialty Chemicals products. Thus, the effect of including Aerospace Equipment in fiscal 2006 is a reduction in the consolidated gross margin percentage due to the change in product mix.

•   Fiscal 2005 gross margins benefited from the aforementioned real estate sale.

Operating Expenses

	Year Ended September 30,						Percentage Change
	2006		2005		2004		06 vs. 05	05 vs. 04
Operating Expenses	$	38,202	$	21,805	$	18,980	75%	15%
Percentage of Revenues		27%		32%		37%	(16%)	(13%)

Operating expenses (selling, general and administrative) increased $16,397 in fiscal 2006 compared to fiscal 2005 primarily due to the addition of AFC and its divisional selling, general and administrative expenses beginning November 30, 2005, and increases in corporate expenses discussed in “Segment Operating Profit and Operating Income (Loss) below.

Operating expenses increased $2,825 during fiscal 2005 compared to the prior fiscal year primarily due to the addition of the ISP business into the newly formed Aerospace Equipment segment on October 1, 2004, and changes in corporate expenses discussed in “Segment Operating Profit and Operating Income (Loss)” below.

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Environmental Charge

During our fiscal 2005 third quarter, we recorded a charge for $22,400 representing our estimate of the probable costs of our remediation efforts at the Henderson Site, including the costs for equipment, operating and maintenance costs, and consultants. Key factors in determining the total estimated cost include an estimate of the speed of groundwater entering the treatment area, which was then used to estimate a project life of 45 years, as well as estimates for capital expenditures and annual operating and maintenance costs. The project consists of two primary phases; the initial construction of the remediation equipment and the operating and maintenance phase. We commenced the construction phase in late fiscal 2005, completed an interim system in June 2006, and completed the permanent facility in December 2006. During our fiscal 2006, we increased our total cost estimate for the construction phase by $3,600 due primarily to changes in the engineering designs, delays in receiving permits and the resulting extension of construction time. These estimates are based on information currently available to us and may be subject to material adjustment upward or downward in future periods as new facts or circumstances may indicate.

Segment Operating Profit and Operating Income (Loss)

	Year Ended September 30,									Percentage Change
	2006			2005			2004			06 vs. 05	05 vs. 04
Specialty Chemicals	$	14,755		$	12,504		$	12,232		18%	2%
Fine Chemicals		7,245			-			-		-	-
Aerospace Equipment		802			95			-		744%	-
Other Businesses		264			3,300			316		(92%)	944%
Total Segment Operating Profit		23,066			15,899			12,548		45%	27%
Corporate Expenses		(16,407	)		(13,807	)		(14,472	)	19%	(5%)
Environmental Remediation Charges		(3,600	)		(22,400	)		-		(84%)	-
Operating Income (Loss)	$	3,059		$	(20,308	)	$	(1,924	)	(115%)	956%

Segment operating profit includes all sales and expenses directly associated with each segment. Environmental remediation charges, corporate general and administrative costs, which consist primarily of executive, investor relations, accounting, human resources and information technology expenses, and interest are not allocated to segment operating results.

During fiscal 2006, we revised our method to measure segment operating results to a method management believes is a more meaningful measure of segment performance. Effective January 1, 2006, general corporate expenses are not allocated to our operating segments. Effective April 1, 2006, environmental remediation charges are not allocated to our operating segments. Other environmental related costs, such as evaluation and on-going compliance at our various facilities continue to be allocated to segment results. Prior to these effective dates, we had included an allocation of corporate expenses to our operating segments and environmental remediation charges were allocated to our Specialty Chemicals segment. All periods presented have been reclassified to reflect our current method to measure segment operating results.

The increase in Specialty Chemicals segment operating profit in fiscal 2006 compared to fiscal 2005 reflects:

•   Higher gross margins on our perchlorate products due to favorable pricing.

•   A reduction in environmental evaluation costs that were incurred prior to the inception of our remediation project in June 2005.

•   A decrease in operating losses generated by our azide products due to greater volume to cover fixed costs in fiscal 2006.

Aerospace Equipment segment operating profit improved in fiscal 2006 compared to fiscal 2005 due to successes in both commercial and government new orders, which improved the segments overall profitability by adding more volume to cover fixed manufacturing expenses. Although not material to this segments overall results, the U.K. location continues to experience losses.

Other Businesses segment operating profit for fiscal 2005 include significant margin from the aforementioned real estate sale. Fiscal 2006 and 2004 did not include similar transactions.

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Corporate expenses increased in fiscal 2006 compared to fiscal 2005 primarily due to:

•   Higher insurance costs associated with the increase in the size of the Company as a result of the AFC acquisition.

•   Higher legal fees associated with the renegotiation of our contract with ATK.

•   A charge for $600 recorded in fiscal 2006 related to a settlement with our former chief financial officer (see Note 11 to our consolidated financial statements)

Corporate expenses decreased in fiscal 2005 compared to fiscal 2004 primarily because fiscal 2004 included a charge for severance expense of $2,000 that did not reoccur in fiscal 2005. The reduction in severance expense was partially offset by higher costs associated with corporate strategic development activities.

Interest and Other Income / Interest Expense

	Year Ended September 30,						Percentage Change
	2006		2005		2004		06 vs. 05	05 vs. 04
Interest and Other Income:
Interest Income	$	459	$	636	$	623	(28%)	2%
Real Estate Partnership Income		580		762		-	(24%)	-
Other Income		30		-		70	-	(100%)
Total	$	1,069	$	1,398	$	693	(24%)	102%
Interest Expense	$	11,431	$	-	$	-	-	-

We earn interest income on our cash and cash equivalents balances. Interest income varies with these balances.

We owned a 70% interest as general and limited partner in Gibson Business Park Associates 1986-I (the “Partnership”), a real estate development limited partnership. The remaining 30% limited partners include certain current and former members of our Board of Directors. The Partnership, in turn, owned a 33% limited partner interest in 3770 Hughes Parkway Associates Limited Partnership, a Nevada limited partnership (“Hughes Parkway”). Hughes Parkway owns the building in which we lease office space in Las Vegas, Nevada.

During the year ended September 30, 2005, we received a cash distribution of $762 from the Partnership which is recorded as other income.

In October 2005, the Partnership sold its interest in Hughes Parkway, which resulted in a net gain and cash distribution to us of $2,395. Concurrent with, and as a condition of, the sale of the Partnership’s interest in Hughes Parkway, we renewed our office space lease through February 2009. We accounted for the transaction as a sale leaseback. Accordingly, we deferred a gain totaling $1,815 representing the present value of future lease payments. We amortize the deferred gain (as a reduction of rental expense), using the straight-line method over the term of the lease. We recognized the remaining gain of $580, which is reported in interest and other income for the year ended September 30, 2006.

In fiscal 2006 interest expense is related to our Credit Facilities, Seller Subordinated Note and amortization of debt issuance costs. See the discussion of these items below under the heading “Liquidity and Capital Resources”

Income Taxes

Our income tax provision (benefit) rate differs from the federal statutory rate due to state income taxes, amounts that were expensed for book purposes that are not deductible for income tax purposes, changes in our valuation allowances, and other adjustments to our estimates of tax liabilities.

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A reconciliation of the federal statutory rate to our effective tax (benefit) rate is as follows for the years ended September 30:

	2006	2005	2004
Federal income tax at the statutory rate	(35.0%)	(35.0%)	(35.0%)
State income tax, net of federal benefit	(3.1%)	(2.5%)	(4.1%)
Nondeductible expenses	1.0%	0.6%	3.7%
Valuation allowance	1.8%	1.3%	40.0%
Change in state income tax rate	(13.7%)	0.0%	0.0%
Basis differences in partnerships	(5.6%)	0.0%	0.0%
Change in deferred tax liability estimate	0.0%	0.0%	(168.7%)
Other	(4.3%)	(8.6%)	(11.4%)
Effective tax rate	(58.9%)	(44.2%)	(175.5%)

The change in deferred tax liability estimate for the year ended September 30, 2004, represents an amount previously recorded for tax contingency reserves. During the fourth quarter of fiscal 2004, we concluded that these tax contingency reserves were no longer required and were reversed. Based on the analysis of deferred income taxes, we revised our estimate for deferred tax liability by approximately $2,100.

As of September 30, 2006 and 2005, respectively, we have aggregate operating loss carryforwards of $6,413 and $6,398 for certain U.S. states and $1,649 and $619 for the U.K. We do not anticipate future taxable income in these states or the U.K., and accordingly provided valuation allowances of $785 and $431 as of September 30, 2006 and 2005, respectively.

Extraordinary Gain

In October 2004, we acquired ISP. The fair value of the current assets acquired and current liabilities assumed exceeded the purchase price. Accordingly, non-current assets were recorded at zero, and an extraordinary gain of $1,554 (net of approximately $913 income tax expense) was recorded based on the excess fair value of net assets over the purchase price.

Cumulative Effect of Accounting Change

As discussed in Note 1 to our consolidated financial statements, we consolidated our ES joint venture as of March 31, 2004. We reported a cumulative effect of an accounting change of $769 (net of tax benefit of $414) in our 2004 second quarter statement of operations to reflect the loss that we would have incurred had the ES joint venture been consolidated since its inception.

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Liquidity and Capital Resources

Cash Flows

Operating Activities:  Significant components of cash provided from operations for the years ended September 30 include:

	Year Ended September 30,									Percentage Change
	2006			2005			2004			06 vs. 05	05 vs. 04
Net Loss	$	(3,894	)	$	(9,691	)	$	(397	)	(60%)	2,341%
Depreciation and Amortization		20,181			5,639			5,424		258%	4%
Non-cash Interest Expense		3,967			-			-		-	-
Stock-based Compensation		359			-			-		-	-
Additions to remediation reserves		3,600			22,400			-		(84%)	-
Expenditures against remediation reserves		(6,676	)		(1,813	)		-		268%	-
Deferred taxes		(3,442	)		(8,241	)		(1,598	)	(58%)	416%
Extraordinary gain, net		-			(1,554	)		-		(100%)	-
Cumulative effect of accounting change, net		-			-			769		-	(100%)
Changes in Operating Assets and Liabilities		-			-			-		-	-
Accounts Receivable		(1,135	)		9,437			(4,070	)	(112%)	(332%)
Inventories		(11,821	)		2,156			1,331		(648%)	62%
Accounts Payable and Accrued Expenses		6,860			41			(1,025	)	16,632%	(104%)
Other		204			810			(71	)	(75%)	(1,241%)
Discontinued Operations, Net		1,287			(31	)		1,037		(4,252%)	(103%)
Cash Provided by Operating Activities	$	9,490		$	19,153		$	1,400		(50%)	1,268%

Cash flows provided by operating activities decreased by $9,663 during fiscal 2006 from fiscal 2005 reflecting the following:

•   Operating cash flow was increased by significant improvement in operating income before depreciation, amortization and remediation charges during fiscal 2006 compared to fiscal 2005.

•   Operating cash flow was decreased by cash used for changes in accounts receivable, inventories, accounts payable and accrued expenses increased by $17,730 during fiscal 2006 compared to fiscal 2005. Uses of cash for these items in fiscal 2006 relate primarily to funding post-acquisition working capital growth at AFC.

•   Operating cash flow was decreased in fiscal 2006 by increases in expenditures for environmental remediation activities of $4,863. Our Henderson remediation project includes a capital construction phase followed by an operation and maintenance phase. A substantial portion of the capital construction phase occurred during fiscal 2006. See further discussion under the heading “Environmental Remediation – Henderson Site” below.

•   Operating cash flow was decreased in fiscal 2006 by cash paid for interest expense of $7,376.

Cash flows provided by operating activities increased $17,753 during fiscal 2005, compared to the prior fiscal year, principally due to fluctuations in our accounts receivable balances. Our accounts receivable balances fluctuate based primarily on the timing of shipments of our Specialty Chemicals products. We do not grant significant extended payment terms and we have no material balances that have aged significantly past their due dates.

Investing Activities:  Significant components of cash used for investing activities for the years ended September 30 include:

	Year Ended September 30,									Percentage Change
	2006			2005			2004			06 vs. 05	05 vs. 04
Acquisition of Businesses	$	(108,011	)	$	(4,505	)	$	-		2,298%	-
Capital Expenditures		(15,018	)		(1,686	)		(470	)	791%	259%
Proceeds from Sale of Assets		2,395								-	-
Discontinued Operations, Net		(411	)		212			(998	)	(294%)	(121%)
Cash Used in Investing Activities	$	(121,045	)	$	(5,979	)	$	(1,468	)	1,925%	307%

Cash used for acquisitions during the fiscal 2006 period relates to the acquisition of the AFC Business on November 30, 2005. The total cash of $108,011 was provided by net proceeds from debt issuances of $81,881 and existing cash balances. See Note 2 to the consolidated financial statements for a more detail discussion. Cash used for acquisitions in fiscal 2005 relates to our acquisition of our Aerospace Equipment segment.

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Capital expenditures increased in fiscal 2006 primarily due to the inclusion of AFC. Historically, our capital expenditures relate primarily to our Specialty Chemicals segment. With our acquisition of the AFC Business in November 2005, we expect our capital expenditures to increase significantly compared to pre-AFC acquisition periods.

Proceeds from the sale of assets relates to the sale of our interest in a real estate partnership. This transaction is discussed in more detail in Note 13 to our consolidated financial statements.

Financing Activities:  Significant components of cash provided (used) for financing activities for the years ended September 30 include:

	Year Ended September 30,								Percentage Change
	2006			2005		2004			06 vs. 05	05 vs. 04
Proceeds from Issuance of Long-term Debt	$	85,000		$	-	$	-		-	-
Payments of Long-term Debt		(678	)		-		-		-	-
Debt Issuance Costs		(3,119	)		-		-		-	-
Issuance of Common Stock		158			24		2,291		558%	(99%)
Treasury Stock Acquired		-			-		(2,752	)	-	(100%)
Dividends		-			-		(3,080	)	-	(100%)
Discontinued Operations, Net		(147	)		238		246		(162%)	(3%)
Cash Provided (Used) in Financing Activities	$	81,214		$	262	$	(3,295	)	30,898%	(108%)

•   Cash flows for long-term debt and debt issuances cost relate to our Credit Facilities established in fiscal 2006 which are discussed in detail below.

•   Cash provided by the issuance of common stock decreased due to a significantly lower level of stock option exercises in fiscal 2006 and 2005 compared fiscal 2004.

•   During fiscal 2003, our Board of Directors declared a cash dividend of $0.42 per share. The total cash dividend of $3,080 was paid in January 2004.

Liquidity and Capital Resources

As of September 30, 2006, we had cash of $6,872. Our primary source of working capital is cash flow from our operations and our revolving credit line which had availability of approximately $8,300 as of September 30, 2006. In addition, we may incur additional debt to fund capital projects, strategic initiatives or for other general corporate purposes, subject to our existing leverage, the value of our unencumbered assets and borrowing limitations imposed by our lenders. The availability of our cash inflows is affected by the timing, pricing and magnitude of orders for our products. From time to time, we may explore options to refinance our material borrowings.

The timing of our cash outflows is affected by payments and expenses related to the manufacture of our products, capital projects, interest on our debt obligations and environmental remediation or other contingencies discussed in Note 11 to our consolidated financial statements, which may place demands on our short-term liquidity. As a result of the litigation and contingencies, 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. If such costs are material, to the extent not recovered by insurance, they would adversely affect our liquidity.

We currently believe that our cash flows from operations, existing cash balances and existing or future debt arrangements will be adequate for the foreseeable future to satisfy the needs of our operations.

In connection with our acquisition of the AFC Business, discussed in Note 2 to our consolidated financial statements, we incurred substantial debt including a $65,000 First Lien Term Loan, a $20,000 Second Lien Term Loan, and a $25,500 Seller Subordinated Note, each discussed below. Our acquisition of the AFC Business was funded with net proceeds from the Credit Facilities of $81,881 (after debt issuance costs), the Seller Subordinated Note of $25,500 and existing cash.

Credit Facilities and Seller Subordinated Note

Credit Facilities:  In connection with our acquisition of the AFC Business, discussed in Note 2, on November 30, 2005, we entered into a $75,000 first lien credit agreement (the “First Lien Credit Facility”) with Wachovia Capital Markets, LLC and other lenders. We also entered into a $20,000 second lien credit agreement (the “Second Lien Credit Facility,” and together with the First Lien Credit Facility, the “Credit Facilities”) with Wachovia Capital Markets,

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LLC, and certain other lenders. The Credit Facilities are collateralized by substantially all of our assets and the assets of our domestic subsidiaries.

The First Lien Credit Facility provides for term loans in the aggregate principal amount of $65,000. The term loans will be repaid in twenty consecutive quarterly payments in increasing amounts, with the final payment due and payable on November 30, 2010. The First Lien Credit Facility also provides for a revolving credit line in an aggregate principal amount of up to $10,000 at any time outstanding, which includes a letter of credit sub-facility in the aggregate principal amount of up to $5,000 and a swing-line sub-facility in the aggregate principal amount of up to $2,000. The initial scheduled maturity of the revolving credit line is November 30, 2010. The revolving credit line may be increased by an amount of up to $5,000 within three years from the date of the Credit Facilities.

The Second Lien Credit Facility provides for term loans in the aggregate principal amount of $20,000 with all principal and accrued payment-in-kind (“PIK”) interest due on November 30, 2011. We are required to pay a premium for certain prepayments, if any, of the Second Lien Credit Facility made before November 30, 2008.

The interest rates per annum applicable to loans under the Credit Facilities are, at our option, the Alternate Base Rate (as defined in the Credit Facilities) or LIBOR Rate (as defined in the Credit Facilities) plus, in each case, an applicable margin. Under the First Lien Credit Facility such margin is tied to our total leverage ratio. A portion of the interest payment due under the Second Lien Credit Facility will accrue as PIK interest and is added to the then outstanding principal. In addition, under the revolving credit facility, we will be required to pay (i) a commitment fee in an amount equal to the applicable percentage per annum on the average daily unused amount of the revolving commitments and (ii) other fees related to the issuance and maintenance of the letters of credit issued pursuant to the letters of credit sub-facility. Additionally, we will be required to pay to the administrative agent certain agency fees.

Certain events, including asset sales, excess cash flow, recovery events in respect of property, and debt and equity issuances will require us to make payments on the outstanding obligations under the Credit Facilities. These prepayments are separate from the events of default and any related acceleration described below.

The Credit Facilities include certain negative covenants restricting or limiting our ability to, among other things:

•   incur debt, incur contingent obligations and issue certain types of preferred stock;

•   create liens;

•   pay dividends, distributions or make other specified restricted payments;

•   make certain investments and acquisitions;

•   enter into certain transactions with affiliates;

•   enter into sale and leaseback transactions; and

•   merge or consolidate with any other entity or sell, assign, transfer, lease, convey or otherwise dispose of assets.

Financial covenants under the Credit Facilities include quarterly requirements (which vary from period to period as defined in the Credit Facilities) for Total Leverage Ratio, First Lien Coverage Ratio, Fixed Charge Coverage Ratio, Consolidated Capital Expenditures and minimum Consolidated EBITDA. As of September 30, 2006, the most restrictive covenants, which are under the First Lien Credit Facility, were Total Leverage Ratio of 3.75:1.0 and First Lien Coverage Ratio of 2.75:1.0. The Credit Facilities also contain usual and customary events of default (subject to certain threshold amounts and grace periods). If an event of default occurs and is continuing, we may be required to repay the obligations under the Credit Facilities prior to their stated maturity and the commitments under the First Lien Credit Facility may be terminated.

On November 30, 2005, we borrowed $65,000 under the First Lien Credit Facility term loan and $20,000 under the Second Lien Credit Facility. Net proceeds of $81,881, after debt issuance costs of $3,119, were used to fund a portion of the AFC Business acquisition price. Debt issue costs are classified as other assets and are amortized over the term of the Credit Facilities using the interest method.

As of September 30, 2006, we had no outstanding borrowings under the First Lien revolving credit line. As of September 30, 2006, we were in compliance with the various covenants contained in the Credit Facilities.

Seller Subordinated Note:  In connection with our acquisition of the AFC Business, discussed in Note 2, we issued an unsecured seller subordinated note in the principal amount of $25,500 to Aerojet-General Corporation, a subsidiary of GenCorp. The note accrues PIK Interest at a rate equal to the three – month U.S. dollar LIBOR as from time to time

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in effect plus a margin equal to the weighted average of the interest rate margin for the loans outstanding under the Credit Facilities, including certain changes in interest rates due to subsequent amendments or refinancing of the Credit Facilities. All principal and accrued and unpaid PIK Interest will be due on November 30, 2012. Subject to the terms of the Credit Facilities, we may be required to repay up to $6,500 of the note and accrued PIK Interest thereon after September 30, 2007. The note is subordinated to the senior debt under or related to the Credit Facilities, our other indebtedness in respect to any working capital, revolving credit or term loans, or any other extension of credit by a bank or insurance company or other financial institution, other indebtedness relating to leases, indebtedness in connection with the acquisition of businesses or assets, and the guarantees of each of the previously listed items, provided that the aggregate principal amount of obligations of the Company or any of our Subsidiaries shall not exceed the greater of (i) the sum of (A) the aggregate principal amount of the outstanding First Lien Obligations (as such term is defined in the Intercreditor Agreement referred to in the Credit Facilities) not in excess of $95,000 plus (B) the aggregate principal amount of the outstanding Second Lien Obligations (as defined in the Intercreditor Agreement) not in excess of $20,000, and (ii) an aggregate principal balance of Senior Debt (as defined in the note) which would not cause the Company to exceed as of the end of any fiscal quarter a Total Leverage Ratio of 4.50 to 1.00 (as such term is defined in, and as such ratio is determined under, the First Lien Credit Facility) (disregarding any obligations in respect of Hedging Agreements (as defined in the First Lien Credit Facility) constituting First Lien Obligations or Second Lien Obligations or any increase in the amount of the Senior Debt resulting from any payment-in-kind interest added to principal each to be disregarded in calculating the aggregate principal amount of such obligations).

Environmental Remediation – Henderson Site

During our fiscal 2005 third quarter, we recorded a charge for $22,400 representing our estimate of the probable costs of our remediation efforts at the Henderson Site, including the costs for equipment, operating and maintenance costs, and consultants. Key factors in determining the total estimated cost include an estimate of the speed of groundwater entering the treatment area, which was then used to estimate a project life of 45 years, as well as estimates for capital expenditures and annual operating and maintenance costs. The project consists of two primary phases; the initial construction of the remediation equipment and the operating and maintenance phase. We commenced the construction phase in late fiscal 2005, completed an interim system in June 2006, and completed the permanent facility in December 2006. During our fiscal 2006, we increased our total cost estimate for the construction phase by $3,600 due primarily to changes in the engineering designs, delays in receiving permits and the resulting extension of construction time. These estimates are based on information currently available to us and may be subject to material adjustment upward or downward in future periods as new facts or circumstances may indicate.

Dividend and Stock Repurchase Program

In January 2003, our Board of Directors approved a Dividend and Stock Repurchase Program (the “Program”) which 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. 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 to stockholders of record on December 29, 2003 for fiscal 2003. The total amount of the cash dividend paid in January 2004 was $3,080. By reason of the application of the program formula, no dividends were paid for fiscal 2004 and 2005. In November 2005, we entered into First and Second Lien Credit Facilities which substantially limits our ability to pay dividends after that date and while borrowings are outstanding under these facilities. In compliance with the Credit Facilities, no dividends were paid in fiscal 2006.

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Contractual Obligations

The following table summarizes our fiscal year contractual obligations and commitments as of September 30, 2006.

	Payments Due by Year Ending September 30,
	2007		2008-09		2010-11		Thereafter		Total
First Lien Term Loan(a)	$	9,422	$	11,686	$	32,431	$	10,811	$	64,350
Interest on First Lien Term Loan(b)		5,385		9,335		2,531		252		17,503
Second Lien Term Loan		-		-		-		20,000		20,000
Interest in Second Lien Term Loan(b)		2,149		3,851		3,929		1,399		11,328
Seller Subordinated Note		-		6,500		-		19,000		25,500
Interest on Seller Subordinated Note(b)		-		1,470		-		19,963		21,433
Capital Leases		171		369		-		-		540
Interest on Capital Leases		36		15		-		-		51
Operating Leases		637		1,202		284		-		2,123
Total	$	17,800	$	34,428	$	39,175	$	71,425	$	162,828

(a)

In connection with our sale of ESI, we repaid $6,500 of our First Lien term Loan in October 2006. This amount has been included in the payments due for fiscal year ending September 30, 2007.

(b)

Our First Lien Term Loan, Second Lien Term Loan, and Seller Subordinated Note each bear variable interest at the three month Libor rate plus an applicable fixed spread. At September 30, 2006, the interest rates on these obligations were 9.37%, 14.37%, and 10.42%, respectively. The September 30, 2006 rates were used for the purpose of estimating the future variable interest payments. Actual future interest payments may be higher or lower than these estimates depending on the then current three month Libor rate.

In addition to the contractual obligations listed in the table above, at September 30, 2006, we have recorded an estimated liability for environmental remediation of $17,511 (see Note 11 to the consolidated financial statements) and aggregate defined benefit pension plan and supplemental executive retirement plan (“SERP”) obligations of $6,566 (see Note 10 to the consolidated financial statements). We expect to spend approximately $1,600 for environmental remediation during fiscal 2007. We expect to contribute $3,746 to our defined benefit pension plans and SERP during fiscal 2007.

Off-Balance Sheet Arrangements

Letters of Credit:  As of September 30, 2006, we had $2,531 outstanding in outstanding standby letters of credit which mature through May 2012. 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.

Employee Agreements:  We have entered into employment contracts with our Chief Executive Officer and Chief Financial Officer, each with initial durations of three years. Significant contract provisions include annual base salaries, health care benefits, and non-compete provisions. These contracts are primarily “at will” employment agreements, under which we may terminate employment. If we terminate these officers without cause, then we are obligated to pay severance benefits specified in the contracts. In addition, certain other key divisional executives are eligible for severance benefits. Estimated minimum aggregate severance benefits under these agreements are $4,108.

Interest Rate Swap Agreements:  In May 2006, we entered into two interest rate swap agreements, expiring on June 30, 2008, for the purpose of hedging a portion of our exposure to changes in variable rate interest on our Credit Facilities. Under the terms of the swap agreements, which have an aggregate notional amount of $42,175 at September 30, 2006, we pay fixed rate interest and receive variable rate interest based on a specific spread over three-month LIBOR. The differential to be paid or received is recorded as an adjustment to interest expense. The swap agreements do not qualify for hedge accounting treatment. We record an asset or liability for the fair value of the swap agreements, with the effect of marking these contracts to fair value being recorded as an adjustment to interest expense.

We do not have any other material off-balance sheet arrangements.

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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, 2006.

Critical Accounting Policies

The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America requires that we adopt accounting policies and 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.

Application of the critical accounting policies discussed below requires significant judgments, often as the result of the need to make estimates of matters that are inherently uncertain. If actual results were to differ materially from the estimates made, the reported results could be materially affected. However, we are not currently aware of any reasonably likely events or circumstances that would result in materially different results.

Sales and Revenue Recognition

Revenue Recognition – Revenues for Specialty Chemicals, Fine Chemicals, and water treatment equipment are recognized when persuasive evidence of an arrangement exists, shipment has been made, title passes, the price is fixed or determinable and collectibility is reasonably assured. Certain products shipped by our Fine Chemicals segment are subject to customer acceptance periods. We record deferred revenues upon shipment of the product and recognize these revenues in the period when the acceptance period lapses or acceptance has occurred. Some of our perchlorate and fine chemical products customers have requested that we store materials purchased from us in our facilities (“Bill and Hold” transactions). We recognize the revenue from these Bill and Hold transactions at the point at which title and risk of ownership transfer to our customers. These customers have specifically requested in writing, pursuant to a contract, that we invoice for the finished product and hold the finished product until a later date.

Revenues from our Aerospace Equipment segment are derived from contracts that are accounted for in conformity with the American Institute of Certified Public Accountants (“AICPA”) audit and accounting guide, “Audits of Federal Government Contracts” and the AICPA’s Statement of Position No. 81-1, “Accounting for Performance of Construction-Type and Certain Production Type Contracts.” We account for these contracts using the percentage-of-completion method and measure progress on a cost-to-cost basis. The percentage-of-completion method recognizes revenue as work on a contract progresses. Revenues are calculated based on the percentage of total costs incurred in relation to total estimated costs at completion of the contract. For fixed-price and fixed-price-incentive contracts, if at any time expected costs exceed the value of the contract, the loss is recognized immediately.

Depreciable or Amortizable Lives of Long-Lived Assets

Our depreciable or amortizable long-lived assets include property, plant and equipment and intangible assets, which are recorded at cost. Depreciation or amortization is recorded using the straight-line method over the asset’s estimated economic useful life. Economic useful life is the duration of time that we expect the asset to be productively employed by us, which may be less than its physical life. Significant assumptions that affect the determination of estimated economic useful life include: wear and tear, obsolescence, technical standards, contract life, and changes in market demand for products.

The estimated economic useful life of an asset is monitored to determine its appropriateness, especially in light of changed business circumstances. For example, changes in technological advances, changes in the estimated future demand for products, or excessive wear and tear may result in a shorter estimated useful life than originally anticipated. In these cases, we would depreciate the remaining net book value over the new estimated remaining life, thereby increasing depreciation expense per year on a prospective basis. Likewise, if the estimated useful life is increased, the adjustment to the useful life decreases depreciation expense per year on a prospective basis.

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Impairment of Long-Lived Assets

We test our property, plant and equipment and amortizable intangible assets for recoverability when events or changes in circumstances indicate that their carrying amounts may not be recoverable. Examples of such circumstances include, but are not limited to, operating or cash flow losses from the use of such assets or changes in our intended uses of such assets. The carrying amount of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. If we determine that an asset is not recoverable, then we would record an impairment charge if the carrying value of the asset exceeds its fair value.

Fair value is based on estimated discounted future cash flows expected to be generated by the asset or asset group. The assumptions underlying cash flow projections represent management’s best estimates at the time of the impairment review. Factors that management must estimate include: industry and market conditions, sales volume and prices, costs to produce and inflation. Changes in key assumptions or actual conditions which differ from estimates could result in an impairment charge. We use reasonable and supportable assumptions when performing impairment reviews but cannot predict the occurrence of future events and circumstances that could result in impairment charges.

Environmental Costs

We are subject to environmental regulations that relate to our past and current operations. We record liabilities for environmental remediation costs when our assessments indicate that remediation efforts are probable and the costs can be reasonably estimated. When the available information is sufficient to estimate the amount of the liability, that estimate is used. When the information is only sufficient to estimate a range of probable liability, and no amount within the range is more likely than the other, the low end of the range is used. Estimates of liabilities are based on currently available facts, existing technologies and presently enacted laws and regulations. These estimates are subject to revision in future periods based on actual costs or new circumstances. Accrued environmental remediation costs include the undiscounted cost of equipment, operating and maintenance costs, and fees to outside law firms or consultants, for the estimated duration of the remediation activity. Estimating environmental costs requires us to exercise substantial judgment regarding the cost, effectiveness and duration of our remediation activities. Actual future expenditures could differ materially to our current estimates.

We evaluate potential claims for recoveries from other parties separately from our estimated liabilities. We record an asset for expected recoveries when recovery of the amounts are probable.

Income Taxes

We account for income taxes using the asset and liability approach, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. This method also requires the recognition of future tax benefits such as net operating loss carryforwards and other tax credits. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to reverse. Valuation allowances are provided to reduce deferred tax assets to an amount that is more likely than not to be realized. We evaluate the likelihood of realizing our deferred tax assets by estimating sources of future taxable income and the impact of tax planning strategies. The effect of a change in the valuation allowance is reported in the current period tax provision.

Actual income taxes paid may vary from estimates depending upon changes in income tax laws, actual results of operations, and the final audit of tax returns by taxing authorities. Tax assessments may arise several years after tax returns have been filed.

Pension Benefits

We sponsor defined benefit pension plans in various forms for employees who meet eligibility requirements. Several assumptions and statistical variables are used in actuarial models to calculate the pension expense and liability related to the various plans. We determine the assumptions about the discount rate, the expected rate of return on plan assets and the future rate of compensation increases based on consultation with investment advisors and historical plan data. The actuarial models also use assumptions on demographic factors such as retirement, mortality and turnover.

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Depending on the assumptions selected, pension expense could vary significantly and could have a material effect on reported earnings. The assumptions used can also materially affect the measurement of benefit obligations.

Application of the critical accounting policies discussed above requires significant judgments, often as the result of the need to make estimates of matters that are inherently uncertain. If actual results were to differ materially from the estimates made, the reported results could be materially affected. However, we are not currently aware of any reasonably likely events or circumstances that would result in materially different results.

Recently Issued or Adopted Accounting Standards

In November 2004, the FASB issued SFAS 151, “Inventory Costs – an amendment of ARB No. 43, Chapter 4”. The statement clarifies that abnormal amounts of idle facility expense, freight, handling costs, and wasted materials (spoilage) should be recognized as current-period charges and requires the allocation of fixed production overheads to inventory based on the normal capacity of the production facilities. The statement was effective for us on October 1, 2005 and had no material impact on our consolidated financial statements.

In December 2004, the FASB issued SFAS No. 123R (revised 2004), “Share-Based Payment” which requires all entities to recognize compensation expense in an amount equal to the fair value of share-based payments granted to employees and directors. This statement was effective for us on October 1, 2005; see Note 3 to our consolidated financial statements for additional information.

In July 2006, the FASB issued Interpretation No. 48 (“FIN 48”), “Accounting for Uncertainty in Income Taxes”, which clarifies the accounting for uncertainty in income taxes recognized in the financial statements in accordance with FASB Statement No. 109, “Accounting for Income Taxes”. FIN 48 provides guidance on the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosures, and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. We are currently evaluating the impact of this standard on our consolidated financial statements.

In September 2006, the Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin No. 108 (“SAB 108”), which documents the SEC staff’s views regarding the process of quantifying financial statement misstatements. Under SAB 108, we must evaluate the materiality of an identified unadjusted error by considering the impact of both the current year error and the cumulative error, if applicable. This also means that both the impact on the current period income statement and the period-end balance sheet must be considered. SAB 108 is effective for fiscal years ending after November 15, 2006. Any past adjustments required to be recorded as a result of adopting SAB 108 will be recorded as a cumulative effect adjustment to the opening balance of retained earnings. We do not believe the adoption of SAB 108 will have a material impact on our consolidated financial statements.

In September 2006, FASB issued Statement No. 158 (SFAS 158) “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and 132(R)”, which requires companies to recognize the overfunded or underfunded status of a defined benefit postretirement plan as an asset or liability in its balance sheet and to recognize changes in that funded status in the year in which the changes occur through comprehensive income, which is effective at the end fiscal years ending after December 15, 2006. SFAS 158 also requires companies to measure the funded status of the plan as of the date of its fiscal year-end, with limited exceptions, which is effective for the Company as of November 30, 2009. We are currently evaluating the impact the adoption of SFAS 158 will have on our consolidated financial statements.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk (Dollars in Thousands)

We are exposed to interest rate risk primarily due to changes in interest rates for our variable-rate long-term debt. We manage a portion of our exposure to changes in interest rates through the use of interest rate swap agreements.

As of September 30, 2006, our outstanding debt of $107,364 is comprised primarily of variable rate borrowings under our Credit Facilities and Seller Subordinated Note. The interest rate on these borrowings varies with changes in the LIBOR rate.

We estimate interest rate risk as the potential change in fair value of our debt or earnings resulting from a hypothetical 100 basis points adverse change in interest rates. We estimate that a hypothetical increase in the LIBOR rate of 100 basis points would have the effect of increasing our estimated annual interest expense by $1,110, excluding the effect of our interest rate swap agreements.

In addition, we have two interest rate swap agreements that expire in June 2008. Under the terms of the swap agreements, which have an aggregate notional amount of $42,175 at September 30, 2006, we pay fixed rate interest and receive variable rate interest based on a specific spread over the three-month LIBOR rate. The differential to be paid or received is an adjustment to our interest expense. The aggregate fair value of the swap agreements at September 30, 2006, which is recorded as other long-term liabilities, was $314.

Item 8. Financial Statements and Supplementary Data

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

	Page
Report of Independent Registered Public Accounting Firm		F-1
Consolidated Balance Sheets		F-2
Consolidated Statements of Operations		F-3
Consolidated Statements of Changes in Stockholders’ Equity		F-4
Consolidated Statements of Cash Flows		F-5
Notes to Consolidated Financial Statements		F-7

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

	Quarters For Fiscal Year 2006(a)
	1st (b)			2nd			3rd			4th		Total
Revenues	$	16,485		$	39,777		$	42,840		$	42,802	$	141,904
Gross Profit		4,346			12,559			11,909			16,047		44,861
Income (Loss) from Continuing Operations		(790	)		(2,606	)		(861	)		1,254		(3,003	)
Net Income (Loss)		(1,305	)		(2,338	)		(1,053	)		802		(3,894	)
Diluted Earnings (Loss) Per Share:
Income (Loss) from Continuing Operations	$	(0.11	)	$	(0.36	)	$	(0.12	)	$	0.17	$	(0.41	)
Net Income (Loss)	$	(0.18	)	$	(0.32	)	$	(0.14	)	$	0.11	$	(0.53	)

	Quarters For Fiscal Year 2005(a)
	1st			2nd			3rd			4th		Total
Revenues	$	14,700		$	14,354		$	12,580		$	26,179	$	67,813
Gross Profit		4,819			5,395			3,063			10,620		23,897
Income (Loss) from Continuing Operations		(373	)		(367	)		(15,713	)		5,910		(10,543	)
Net Income (Loss)		1,028			(303	)		(15,792	)		5,376		(9,691	)
Diluted Earnings (Loss) Per Share:
Income (Loss) from Continuing Operations	$	(0.05	)	$	(0.05	)	$	(2.15	)	$	0.81	$	(1.45	)
Net Income (Loss)	$	0.14		$	(0.04	)	$	(2.16	)	$	0.74	$	(1.33	)

(a)	Effective September 30, 2006, we completed the sale of our interest in ESI. Revenues and expenses associated with ESI’s operations are presented as discontinued operations for all periods presented. See Note 14 to our consolidated financial statements.
(b)	On November 30, 2005, we completed the acquisition of the fine chemical business (the “AFC Business”) of GenCorp, Inc. (“GenCorp”). See Note 2 to our consolidated financial statements.

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

Not Applicable.

Item 9A. Controls and Procedures

(a) Evaluation of disclosure controls and procedures

Based on their evaluation as of September 30, 2006, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) were effective as of such date to ensure that information required to be disclosed in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

(b) Changes in internal controls

There were no changes in our internal controls over financial reporting that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Item 9B. Other Information

Not applicable.

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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 2007 Annual Meeting of Stockholders, to be filed with the Securities and Exchange Commission not later than January 26, 2007. 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 2007 Annual Meeting of Stockholders, to be filed with the Securities and Exchange Commission not later than January 26, 2007.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The required information regarding security ownership of certain beneficial owners and management is incorporated herein by reference from our definitive proxy statement for the 2007 Annual Meeting of Stockholders, to be filed with the Securities and Exchange Commission not later than January 26, 2007.

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 2007 Annual Meeting of Stockholders, to be filed with the Securities and Exchange Commission not later than January 26, 2007.

Item 14. Principal Accounting Fees and Services

The required information regarding principal accountant fees and services is incorporated herein by reference from our definitive proxy statement for the 2007 Annual Meeting of Stockholders, to be filed with the Securities and Exchange Commission not later than January 26, 2007.

PART IV

Item 15. Exhibits and Financial Statement Schedules

(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.

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(3)  Exhibits

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

2.1	Purchase Agreement, dated as of July 12, 2005, by and among Aerojet Fine Chemicals LLC, Aerojet-General Corporation and American Pacific Corporation, incorporated by reference to exhibit 2.1 of the Registrant’s Current Report on Form 8-K dated July 12, 2005.
2.2	First Amendment to Purchase Agreement, dated November 30, 2005, by and among American Pacific Corporation, Aerojet Fine Chemicals LLC and Aerojet-General Corporation, incorporated by reference to Exhibit 2.2 of the Registrant’s Current Report on Form 8-K dated November 30, 2005 (the “2005 November 8-K”).
2.3	Assignment and Assumption Agreement, dated October 22, 2005, by and between American Pacific Corporation and Ampac Fine Chemicals LLC, incorporated by reference to Exhibit 2.3 of the 2005 November 8-K.
2.4	Amended and Restated Assignment and Assumption Agreement, dated November 30, 2005, by and between American Pacific Corporation and Ampac Fine Chemicals LLC, incorporated by reference to Exhibit 2.4 of the 2005 November 8-K.
2.5	Unconditional Guaranty of Payment and Performance, dated November 30, 2005, for the benefit of Aerojet-General Corporation and Aerojet Fine Chemicals, LLC, incorporated by reference to Exhibit 2.5 of the 2005 November 8-K.
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	Certificate of Amendment of the By-Laws, incorporated by Reference to the Registrant’s Current Report on Form 8-K dated September 12, 2006.
3.5	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”).
3.6	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.
4.1	American Pacific Corporation 1997 Stock Option Plan (the “1997 Plan”), incorporated by reference to Exhibit 4.1 to Registrant’s Registration Statement on 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 Registration Statement on 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 Amended and Restated 2002 Directors Stock Option Plan (the “2002 Plan”), incorporated by reference to Exhibit 99.1 in the Registrant’s Current Report on Form 8-K dated September 13, 2005.
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	Employment agreement dated December 1, 2005, between the Registrant and Seth Van Voorhees, incorporated by reference to Exhibit 10.6 to the Registrant’s Current Report on Form 8-K/A dated September 13, 2006 (the “2006 8-K/A”).

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10.4	Interim employment agreement dated March 27, 2006, between the Registration and Dana M. Kelley, incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q for the fiscal quarter ended March 30, 2006 (the “2006 March 10-Q”).
*10.5	Employment agreement dated October 15, 2006, between the Registrant and Joseph Carleone.
10.6	Amended and Restated American Pacific Corporation Defined Benefit Pension Plan, incorporated by reference to Exhibit 10.4 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended September 30, 1999 (the “1999 10-K”).
*10.7	Ampac Fine Chemicals LLC Pension Plan for Bargaining Employees.
*10.8	Ampac Fine Chemicals LLC Pension Plan for Salaried Employees.
10.9	The Ampac Fine Chemicals LLC Bargaining Unit 401(k) Plan, incorporated by reference to Exhibit 4.6 to Registrant’s Registration Statement on Form S-8 (File No. 333-131945).
10.10	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.
10.11	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.
10.12	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”).
10.13	Limited Partnership Agreement of 3770 Hughes Parkway Associates, Limited Partnership, incorporated by reference to Exhibit 10.23 to the 1990 S-2.
10.14	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.
10.15	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”).
10.16	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 Registrant’s Annual Report on Form 10-K for the fiscal year ended September 30, 2000 (the “2000 10-K”).
10.17	Modification No. 3 dated April 5, 2006, to Long-Term Pricing Agreement between Alliant Techsystems Incorporated (“ATK”) (formerly known as Thiokol Propulsion) and the Registrant, incorporated by reference to Exhibit 10.1 to the 2006 March 10-Q.
10.18	Partnershipping Agreement between ATK and Western Electrochemical Company and letter dated November 24, 1997, from the Registrant to ATK and revised Exhibit B with respect thereto, incorporated by reference to Exhibit 10.2 to the 1998 March 10-Q.
10.19	Articles of Organization of Energetic Systems Inc., LLC, incorporated by reference to Exhibit 10.12 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended September 30, 2003 (the “2003 10-K”).
10.20	Operating Agreement of Energetic Systems Inc., LLC, incorporated by reference to Exhibit 10.13 to the 2003 10-K.
10.21	First Lien Credit Agreement, dated November 30, 2005, by and among American Pacific Corporation as borrower, the domestic subsidiaries of American Pacific Corporation as guarantors, Wachovia Bank, National Association, as administrative agent, Bank of America, N.A., as syndication agent, and certain lending parties specified therein, incorporated by reference to Exhibit 10.1 of the 2005 November 8-K.
10.22	Second Lien Credit Agreement, dated November 30, 2005, by and among American Pacific Corporation as borrower, the domestic subsidiaries of American Pacific Corporation as guarantors, Wachovia Bank, National Association, as administrative agent, Bank of America, N.A., as syndication agent, and certain lending parties specified therein, incorporated by reference to Exhibit 10.2 of the 2005 November 8-K.
10.23	The Intercreditor Agreement, dated as of November 30, 2005, by and among American Pacific Corporation, the domestic subsidiaries of American Pacific Corporation as may time to time party become a party therein and Wachovia Bank, National Association, in its capacity as administrative agent for the First Lien Obligations, Wachovia Bank, National Association, in its capacity as administrative agent for the Second Lien Obligations and Wachovia Bank, National Association, in its capacity as control agent for the First Lien Administrative Agent and the Second Lien Administrative Agent, incorporated by reference to Exhibit 10.3 of the 2005 November 8-K.
10.24	American Pacific Corporation Subordinated Promissory Note, dated November 30, 2005, in the principal amount of $25,500,000, incorporated by reference to Exhibit 10.4 of the 2005 November 8-K.

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10.25	Ground Lease, dated November 30, 2005, by and between Aerojet-General Corporation and Ampac Fine Chemicals LLC, incorporated by reference to Exhibit 10.5 of the 2005 November 8-K.
10.26	Master International Swaps and Derivatives Association (“ISDA”) Agreement, between the Registrant and Bank of America, N.A., incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2006, (the “2006 June 10-Q”).
10.27	Schedule No. 1 to Master ISDA Agreement, between the Registrant and Bank of America, N.S., incorporated by reference to the 2006 June 10-Q.
10.28	Schedule No. 2 to Master ISDA Agreement, between the Registrant and Bank of America, N.S., incorporated by reference to the 2006 June 10-Q.
10.29	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 2000 10-K.
*14	Standards of Business Conduct dated May 9, 2006.
*21	Subsidiaries of the Registrant.
*23	Consent of Deloitte & Touche LLP.
*24	Power of Attorney, included on signature page.
*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)	See (a)(3) above.
(c)	None applicable.

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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:  January 10, 2007

AMERICAN PACIFIC CORPORATION

(Registrant)                    

By:  /s/  JOHN R. GIBSON                    

John R. Gibson

President & Chief Executive Officer

By:  /s/  DANA M. KELLEY                    

Dana M. Kelley

Vice President, Chief Financial

Officer, and Treasurer, Principal

Financial and Accounting Officer

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POWER OF ATTORNEY

American Pacific Corporation and each of the undersigned do hereby appoint John R. Gibson and Dana M. Kelley 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 by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

/s/  JOHN R. GIBSON John R. Gibson, Chief Executive Officer, President, and Director	Date: January 10, 2007
/s/  DANA M. KELLEY Dana M. Kelley, Vice President, Chief Financial Officer, and Treasurer; Principal Financial and Accounting Officer	Date: January 10, 2007
/s/  JOSEPH CARLEONE Joseph Carleone, Director	Date: January 10, 2007
/s/  FRED D. GIBSON, JR. Fred D. Gibson, Jr., Director	Date: January 10, 2007
/s/  JAN H. LOEB Jan H. Loeb, Director	Date: January 10, 2007
/s/  BERLYN D. MILLER Berlyn D. Miller, Director	Date: January 10, 2007
/s/  NORVAL F. POHL Norval F. Pohl, Ph.D., Director	Date: January 10, 2007
/s/  C. KEITH ROOKER C. Keith Rooker, Director	Date: January 10, 2007
/s/  DEAN M. WILLARD Dean M. Willard, Director	Date: January 10, 2007
/s/  JANE L. WILLIAMS Jane L. Williams, Director	Date: January 10, 2007

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

American Pacific Corporation:

We have audited the accompanying consolidated balance sheets of American Pacific Corporation and subsidiaries (the “Company”) as of September 30, 2006 and 2005, and the related consolidated statements of operations, changes in stockholders’ equity, and cash flows for each of the three years in the period ended September 30, 2006. 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 the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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 American Pacific Corporation and subsidiaries as of September 30, 2006 and 2005, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 2006, in conformity with accounting principles generally accepted in the United States of America.

As discussed in Notes 1 and 3 to the consolidated financial statements, on October 1, 2005, the Company adopted Statement of Financial Accounting Standards No. 123 (Revised), Share-Based Payment, which changed its method of accounting for share-based compensation.

As discussed in Note 1 to the consolidated financial statements, on March 31, 2004, the Company adopted Financial Accounting Standards Board Interpretation No. 46 (Revised), Consolidation of Variable Interest Entities, which changed its method of accounting for its 50% equity interest in Energetic Systems, Inc.

/s/  DELOITTE & TOUCHE LLP

Las Vegas, Nevada

January 6, 2007

F-1

AMERICAN PACIFIC CORPORATION
Consolidated Balance Sheets
September 30, 2006 and 2005
(Dollars in Thousands)

	2006			2005
ASSETS
Current Assets:
Cash and Cash Equivalents	$	6,872		$	37,213
Accounts Receivable		19,474			12,572
Notes Receivable		7,510			-
Inventories		39,755			13,818
Prepaid Expenses and Other Assets		1,845			1,365
Deferred Income Taxes		1,887			834
Total Current Assets		77,343			65,802
Property, Plant and Equipment, Net		119,746			15,646
Intangible Assets, Net		14,237			9,763
Deferred Income Taxes		21,701			19,312
Other Assets		6,428			4,477
TOTAL ASSETS	$	239,455		$	115,000
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts Payable	$	11,158		$	5,231
Accrued Liabilities		11,257			2,786
Employee Related Liabilities		4,600			2,023
Environmental Remediation Reserves		1,631			4,967
Deferred Revenues		5,683			792
Current Portion of Debt		9,593			768
Total Current Liabilities		43,922			16,567
Long-Term Debt		97,771			-
Environmental Remediation Reserves		15,880			15,620
Pension Obligations and Other Long-Term Liabilities		9,998			8,144
Total Liabilities		167,571			40,331
Commitments and Contingencies
Stockholders’ Equity
Preferred Stock - No par value; 3,000,000 authorized; none outstanding		-			-
Common Stock - $.10 par value; 20,000,000 shares authorized, 9,359,041 and 9,331,787 issued		933			932
Capital in Excess of Par Value		86,724			86,187
Retained Earnings		2,312			6,206
Treasury Stock - 2,034,870 shares		(16,982	)		(16,982	)
Accumulated Other Comprehensive Loss		(1,103	)		(1,674	)
Total Shareholders’ Equity		71,884			74,669
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	239,455		$	115,000

See Notes to Consolidated Financial Statements

F-2

AMERICAN PACIFIC CORPORATION
Consolidated Statements of Operations
For the Years Ended September 30, 2006, 2005, and 2004
(Dollars in Thousands, Except per Share Amounts)

	2006			2005			2004
Revenues	$	141,904		$	67,813		$	51,458
Cost of Revenues		97,043			43,916			34,402
Gross Profit		44,861			23,897			17,056
Operating Expenses		38,202			21,805			18,980
Environmental Remediation Charges		3,600			22,400			-
Operating Income (Loss)		3,059			(20,308	)		(1,924	)
Interest and Other Income		1,069			1,398			693
Interest Expense		11,431			-			-
Loss from Continuing Operations before Income Tax		(7,303	)		(18,910	)		(1,231	)
Income Tax Benefit		(4,300	)		(8,367	)		(2,160	)
Income (Loss) from Continuing Operations		(3,003	)		(10,543	)		929
Loss from Discontinued Operations, Net of Tax		(891	)		(702	)		(557	)
Extraordinary Gain, Net of Tax		-			1,554			-
Cumulative Effect of Accounting Change, Net of Tax		-			-			(769	)
Net Loss	$	(3,894	)	$	(9,691	)	$	(397	)
Basic Earnings (Loss) Per Share:
Income (Loss) from Continuing Operations	$	(0.41	)	$	(1.45	)	$	0.13
Loss from Discontinued Operations, Net of Tax		(0.12	)		(0.09	)		(0.08	)
Extraordinary Gain, Net of Tax		-			0.21			-
Cumulative Effect of Accounting Change, Net of Tax		-			-			(0.10	)
Net Loss	$	(0.53	)	$	(1.33	)	$	(0.05	)
Diluted Earnings (Loss) Per Share:
Income (Loss) from Continuing Operations	$	(0.41	)	$	(1.45	)	$	0.13
Loss from Discontinued Operations, Net of Tax		(0.12	)		(0.09	)		(0.08	)
Extraordinary Gain, Net of Tax		-			0.21			-
Cumulative Effect of Accounting Change, Net of Tax		-			-			(0.10	)
Net Loss	$	(0.53	)	$	(1.33	)	$	(0.05	)
Weighted Average Shares Outstanding:
Basic		7,305,000			7,294,000			7,281,000
Diluted		7,305,000			7,294,000			7,328,000

See Notes to Consolidated Financial Statements

F-3

AMERICAN PACIFIC CORPORATION
Consolidated Statements of Changes in Stockholders’ Equity
For the Years Ended September 30, 2006, 2005 and 2004
(Dollars in Thousands)

	Common
	Shares
	Outstanding,		Par										Accumulated			Total
	Net of		Value of		Capital in								Other			Stock-
	Treasury		Common		Excess of		Retained			Treasury			Comprehensive			holders’
	Shares		Stock		Par Value		Earnings			Stock			Loss			Equity
BALANCES, October 1, 2003		7,242,829	$	898	$	83,554	$	16,180		$	(14,230	)	$	(1,568	)	$	84,834
																	-
Comprehensive Income (Loss):
Net Loss								(397	)								(397	)
Additional Minimum Pension
Liability, Net of Tax														373			373
Total Comprehensive Loss																	(24	)
Issuance of Common Stock		49,088		34		2,257											2,291
Reclassification of Warrants								3,569									3,569
Dividends								(3,080	)								(3,080	)
Equity Investment Consolidation								(375	)								(375	)
Tax Benefit From Stock Options						337											337
Treasury Stock Acquired											(2,752	)					(2,752	)
BALANCES, September 30, 2004		7,291,917		932		86,148		15,897			(16,982	)		(1,195	)		84,800
Comprehensive Income (Loss):
Net Loss								(9,691	)								(9,691	)
Currency Translation														7			7
Additional Minimum Pension
Liability, Net of Tax														(486	)		(486	)
Total Comprehensive Loss																	(10,177	)
Issuance of Common Stock		5,000				24											24
Tax Benefit From Stock Options						15											15
BALANCES, September 30, 2005		7,296,917		932		86,187		6,206			(16,982	)		(1,674	)		74,669
Comprehensive Income (Loss):
Net Loss								(3,894	)								(3,894	)
Currency Translation														15			15
Additional Minimum Pension
Liability, Net of Tax														556			556
Total Comprehensive Loss																	(3,338	)
Issuance of Common Stock		27,254		1		157											158
Tax Benefit From Stock Options						21											21
Share-based Compensation						359											359
BALANCES, September 30, 2006		7,324,171	$	933	$	86,724	$	2,312		$	(16,982	)	$	(1,103	)	$	71,884

See Notes to Consolidated Financial Statements

F-4

AMERICAN PACIFIC CORPORATION
Consolidated Statements of Cash Flows
For the Years Ended September 30, 2006, 2005 and 2004
(Dollars in Thousands)

	2006			2005			2004
Cash Flows from Operating Activities:
Net Loss	$	(3,894	)	$	(9,691	)	$	(397	)
Adjustments to Reconcile Net Loss to Net Cash Provided by Operating Activities:
Depreciation and amortization		20,181			5,639			5,424
Non-cash interest expense		3,967			-			-
Share-based compensation		359			-			-
Deferred income taxes		(3,442	)		(8,241	)		(1,598	)
Tax benefit from stock option exercises		21			15			337
Gain on sale of assets		(610	)		-			-
Extraordinary gain, net		-			(1,554	)		-
Cumulative effect of accounting change, net		-			-			769
Changes in operating assets and liabilities:
Accounts receivable		(1,135	)		9,437			(4,070	)
Inventories		(11,821	)		2,156			1,331
Prepaid expenses		(1,131	)		-			-
Accounts payable and accrued liabilities		6,860			41			(1,025	)
Deferred revenues		975			-			-
Environmental remediation reserves		(3,076	)		20,587			-
Pension obligations, net		650			926			(384	)
Discontinued operations, net		1,287			(31	)		1,037
Other		299			(131	)		(24	)
Net Cash Provided by Operating Activities		9,490			19,153			1,400
Cash Flows from Investing Activities:
Acquisition of businesses		(108,011	)		(4,505	)		-
Capital expenditures		(15,018	)		(1,686	)		(470	)
Proceeds from sale of assets		2,395			-			-
Discontinued operations, net		(411	)		212			(998	)
Net Cash Used in Investing Activities		(121,045	)		(5,979	)		(1,468	)
Cash Flows from Financing Activities:
Proceeds from the issuance of long-term debt		85,000			-			-
Payments of long-term debt		(678	)		-			-
Debt issuance costs		(3,119	)		-			-
Issuance of common stock		158			24			2,291
Treasury stock acquired		-			-			(2,752	)
Dividends		-			-			(3,080	)
Discontinued operations, net		(147	)		238			246
Net Cash Provided (Used) by Financing Activities		81,214			262			(3,295	)
Net Change in Cash and Cash Equivalents		(30,341	)		13,436			(3,363	)
Cash and Cash Equivalents, Beginning of Year		37,213			23,777			27,140
Cash and Cash Equivalents, End of Year	$	6,872		$	37,213		$	23,777

See Notes to Consolidated Financial Statements

F-5

AMERICAN PACIFIC CORPORATION
Consolidated Statements of Cash Flows (Continued)
For the Years Ended September 30, 2006, 2005 and 2004
(Dollars in Thousands)

	2006		2005		2004
Cash Paid (Refunded) For:
Interest	$	7,376	$	-	$	-
Income taxes		407		-		551
Non-Cash Transactions:
Issuance of Seller Subordinated Note, net of discount	$	19,400	$	-	$	-
AFC Earnout Payment due seller (included in accrued liabilities)		6,000		-		-
Capital leases originated		527		-		-
Initial consolidation of ESI under FIN 46(R) -
Fair value of assets		-		-		11,958
Fair value of liabilities		-		-		3,231
Reclassification of warrants		-		-		3,569

See Notes to Consolidated Financial Statements

F-6

AMERICAN PACIFIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 2006, 2005 AND 2004
(Dollars in Thousands, Except Per Share Amounts)

1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation:  Our consolidated financial statements include the accounts of American Pacific Corporation, our wholly-owned subsidiaries, and variable interest entities. In connection with our acquisition of the fine chemicals business (the “AFC Business”) of GenCorp, Inc. (“GenCorp”), through the purchase of substantially all the assets of Aerojet Fine Chemicals LLC and the assumption of certain of its liabilities, we began consolidating our newly-formed, wholly-owned subsidiary, Ampac Fine Chemicals (“AFC”) on November 30, 2005 (see Note 2). All significant intercompany accounts have been eliminated.

In January 2003, the Financial Accounting Standards Board (“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. In December 2003, FASB Interpretation No. 46 (Revised December 2003), “Consolidation of Variable Interest Entities” (“FIN 46(R)”), was issued to clarify the application of Accounting Research Bulletin No. 51, “Consolidated Financial Statements”, as amended by FASB Statement No. 94, “Consolidation of All Majority-Owned Subsidiaries.”

Prior to March 31, 2004, we treated our 50% equity interest in the Energetic System (“ESI”) joint venture as an unconsolidated operation whose financial performance was accounted for using the equity method and disclosed, but not consolidated in our financial results. However under FIN 46(R), we are required to consolidate the ESI joint venture due to a number of factors including our majority ownership of the joint venture’s debt securities.

We consolidated the ESI joint venture as of March 31, 2004. We reported a cumulative effect of an accounting change of $769 (net of tax benefit of $414) on our 2004 second quarter statement of operations to reflect the loss that we would have incurred had the ESI joint venture been consolidated since its inception. The consolidation of the ESI joint venture significantly changed various line items of our balance sheet, statement of operations and cash flow presentations as compared to financial presentations in earlier reports.

In June 2006, our board of directors approved and we committed to a plan to sell ESI, based on our determination that ESI’s product lines were no longer a strategic fit with our business strategies. Revenues and expenses associated with ESI’s operations are presented as discontinued operations for all periods presented. ESI was formerly reported within our Specialty Chemicals operating segment. Effective September 30, 2006, we completed the sale of our interest in ESI. (See Note 14).

Use of Estimates:  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, 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 may differ from estimates on which our consolidated financial statements were prepared.

Revenue Recognition:  Revenues for Specialty Chemicals, Fine Chemicals, and water treatment equipment are recognized when persuasive evidence of an arrangement exists, shipment has been made, title passes, the price is fixed or determinable and collectibility is reasonably assured. Certain products shipped by our Fine Chemicals segment are subject to customer acceptance periods. We record deferred revenues upon shipment of the product and recognize these revenues in the period when the acceptance period lapses or acceptance has occurred. Some of our perchlorate and fine chemical products customers have requested that we store materials

F-7

purchased from us in our facilities (“Bill and Hold” transactions). We recognize the revenue from these Bill and Hold transactions at the point at which title and risk of ownership transfer to our customers. These customers have specifically requested in writing, pursuant to a contract, that we invoice for the finished product and hold the finished product until a later date.

Revenues from our Aerospace Equipment segment are derived from contracts that are accounted for in conformity with the American Institute of Certified Public Accountants (“AICPA”) audit and accounting guide, “Audits of Federal Government Contracts” and the AICPA’s Statement of Position No. 81-1, “Accounting for Performance of Construction-Type and Certain Production Type Contracts.” We account for these contracts using the percentage-of-completion method and measure progress on a cost-to-cost basis. The percentage-of-completion method recognizes revenue as work on a contract progresses. Revenues are calculated based on the percentage of total costs incurred in relation to total estimated costs at completion of the contract. For fixed-price and fixed-price-incentive contracts, if at any time expected costs exceed the value of the contract, the loss is recognized immediately.

Environmental Remediation:  We are subject to environmental regulations that relate to our past and current operations. We record liabilities for environmental remediation costs when our assessments indicate that remediation efforts are probable and the costs can be reasonably estimated. When the available information is sufficient to estimate the amount of the liability, that estimate is used. When the information is only sufficient to estimate a range of probable liability, and no amount within the range is more likely than the other, the low end of the range is used. Estimates of liabilities are based on currently available facts, existing technologies and presently enacted laws and regulations. These estimates are subject to revision in future periods based on actual costs or new circumstances. Accrued environmental remediation costs include the undiscounted cost of equipment, operating and maintenance costs, and fees to outside law firms or consultants, for the estimated duration of the remediation activity. Estimating environmental cost requires us to exercise substantial judgment regarding the cost, effectiveness and duration of our remediation activities. Actual future expenditures could differ materially from our current estimates.

We evaluate potential claims for recoveries from other parties separately from our estimated liabilities. We record an asset for expected recoveries when recovery of the amounts are probable.

Related Party Transactions:  Accounts Receivable at September 30, 2004, includes $45 related to an interest bearing demand note from our former Chairman (see Note 4). Our other related party transactions generally fall into the following categories; payments of professional fees to firms affiliated with certain members of our Board, and payments to certain directors for consulting services outside of the scope of their duties as directors. For the years ended September 30, 2006, 2005 and 2004, such transactions totaled approximately $83, $97, and $200.

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. We maintain cash balances that exceed federally insured limits; however, we have incurred no losses on such accounts.

Fair Value Disclosure of Financial Instruments:  We estimate the fair value of cash and cash equivalents, accounts and notes receivable, accounts payable and accrued liabilities approximates their carrying value due to their short-term nature. We estimate that the fair value of our long-term debt approximates its carrying value because these debt instrument bear interest at a variable rate which resets quarterly based on the then market rate.

Concentration of Credit Risk:  Financial instruments that have potential concentrations of credit risk include cash and cash equivalents and accounts receivable. We place our cash and cash equivalents with high quality credit institutions. Our accounts receivable have concentration risk because significant amounts relate to customers in the aerospace and defense or pharmaceutical industries. From time to time we make sales to a customer that exceeds 10% of our then outstanding accounts receivable balance. At September 30, 2006, one Aerospace Equipment customer accounted for 13% and three separate Fine Chemicals customers accounted for 23%, 13% and 12% of our consolidated trade accounts receivable. At September 30, 2005, no single customer exceeded 10% of our consolidated trade accounts receivable.

F-8

Inventories:  Inventories are stated at the lower of cost or market. Inventoried costs include materials, labor and manufacturing overhead. General and administrative costs are expensed as incurred. Raw materials cost of the specialty chemicals segment inventories is determined on a moving average basis. We provide reserves for obsolete inventories if inventory quantities exceed our estimates of future demand. At September 30, 2006 and 2005, we had no reserve for obsolete inventories.

Property, Plant and Equipment:  Property, plant and equipment are carried at cost less accumulated depreciation. Depreciation is computed on the straight-line method over the estimated productive lives of the assets of 3 to 10 years for machinery and equipment, 8 to 31 years for buildings and improvements, and 5 to 14 years for land improvements.

Intangible Assets:  Intangible assets are recorded at cost and are amortized using the straight-line method over their estimated period of benefit of 1 to 10 years. We evaluate the recoverability of intangible assets periodically and take into account events or circumstances that warrant revised estimates of useful lives or that indicate that impairment exists. All of our intangible assets are subject to amortization. No impairments of intangible assets have been identified during any of the periods presented.

Impairment of Long-Lived Assets:  We test our property, plant and equipment and amortizable intangible assets for recoverability when events or changes in circumstances indicate that their carrying amounts may not be recoverable. Examples of such circumstances include, but are not limited to, operating or cash flow losses from the use of such assets or changes in our intended uses of such assets. The carrying amount of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. If we determine that an asset is not recoverable, then we would record an impairment charge if the carrying value of the assets exceeds its fair value.

Earnings (Loss) Per Share:  Basic earnings (loss) per share is calculated by dividing net income (loss) by the weighted average shares outstanding during the year. Diluted earnings (loss) per share is calculated by dividing net income by the weighted average shares outstanding plus the dilutive effect of common share equivalents, which is computed using the treasury stock method.

Foreign Currency:  We acquired foreign operations in the United Kingdom (“U.K.”) with our ISP Acquisition in October 2004 (See Note 2). We translate our foreign subsidiary’s assets and liabilities into U.S. dollars using the year-end exchange rate. Revenue and expense amounts are translated at the average exchange rate for the year. Foreign currency translation gains or loss are reported as cumulative currency translation adjustments as a component of stockholders’ equity. Gains or losses resulting from transactions in foreign currencies are reported as other expenses and are not material for all years presented.

Recently Issued or Adopted Accounting Standards:  In November 2004, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 151, “Inventory Costs – an amendment of ARB No. 43, Chapter 4”. The statement clarifies that abnormal amounts of idle facility expense, freight, handling costs, and wasted materials (spoilage) should be recognized as current-period charges and requires the allocation of fixed production overheads to inventory based on the normal capacity of the production facilities. The statement was effective for us on October 1, 2005 and had no material impact on our consolidated financial statements.

In December 2004, the FASB issued SFAS No. 123R (revised 2004), “Share-Based Payment” which requires all entities to recognize compensation expense in an amount equal to the fair value of share-based payments granted to employees and directors. This statement was effective for us on October 1, 2005; see Note 3 for additional information.

In July 2006, the FASB issued Interpretation No. 48 (“FIN 48”), “Accounting for Uncertainty in Income Taxes”, which clarifies the accounting for uncertainty in income taxes recognized in the financial statements in accordance with FASB Statement No. 109, “Accounting for Income Taxes”. FIN 48 provides guidance on the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosures, and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. We are currently evaluating the impact of this standard on our consolidated financial statements.

F-9

In September 2006, the Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin No. 108 (“SAB 108”), which documents the SEC staff’s views regarding the process of quantifying financial statement misstatements. Under SAB 108, we must evaluate the materiality of an identified unadjusted error by considering the impact of both the current year error and the cumulative error, if applicable. This also means that both the impact on the current period income statement and the period-end balance sheet must be considered. SAB 108 is effective for fiscal years ending after November 15, 2006. Any past adjustments required to be recorded as a result of adopting SAB 108 will be recorded as a cumulative effect adjustment to the opening balance of retained earnings. We do not believe the adoption of SAB 108 will have a material impact on our consolidated financial statements.

In September 2006, FASB issued Statement No. 158 (SFAS 158) “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and 132(R)”, which requires companies to recognize the overfunded or underfunded status of a defined benefit postretirement plan as an asset or liability in its balance sheet and to recognize changes in that funded status in the year in which the changes occur through comprehensive income, which is effective for the Company as of November 30, 2007. SFAS 158 also requires companies to measure the funded status of the plan as of the date of its fiscal year-end, with limited exceptions, which is effective at the end of fiscal years ending after December 15, 2006. We are currently evaluating the impact the adoption of SFAS 158 will have on our consolidated financial statements.

2.   ACQUISITIONS

AFC Business Acquisition:  In July 2005, we entered into an agreement to acquire, and on November 30, 2005, we completed the acquisition of the AFC Business of GenCorp through the purchase of substantially all of the assets of Aerojet Fine Chemicals, LLC and the assumption of certain of its liabilities. The assets were acquired and liabilities assumed by our newly formed, wholly-owned subsidiary, Ampac Fine Chemicals or AFC. AFC is a manufacturer of active pharmaceutical ingredients and registered intermediates under cGMP guidelines for customers in the pharmaceutical industry. Its facilities in California offer specialized engineering capabilities including high containment for high potency compounds, energetic and nucleoside chemistries, and chiral separation using the first commercial-scale simulated moving bed in the United States.

The total consideration for the AFC Business acquisition is comprised of the following:

Cash	$	88,500
Fair value of Seller Subordinated Note (Face value $25,500)		19,400
Capital expenditures adjustment		17,431
Working capital adjustment		(1,268	)
Earnout Adjustment		5,000
Other direct acquisition costs		4,348
Total purchase price	$	133,411

Subordinated Seller Note – The fair value of the Seller Subordinated Note was determined by discounting the required principal and interest payments at a rate of 15%, which the Company believes is appropriate for instruments with comparable terms.

Capital Expenditures Adjustment – The capital expenditures adjustment represents net reimbursements to GenCorp for their cash capital investments, as defined in the acquisition agreements, during the period July 2005 through the closing date on November 30, 2005.

Working Capital Adjustment – The working capital adjustment represents a net adjustment to the purchase price based on actual working capital as of the closing date compared to a target working capital amount specified in the acquisition agreements.

Earnout and EBITDAP Adjustments – The acquisition agreements include a reduction of the purchase price if AFC did not achieve a specified level of earnings before interest, taxes, depreciation, amortization, and pension expense (“EBITDAP”) for the three months ended December 31, 2005, equal to four times the difference between the targeted EBITDAP and the actual EBITDAP achieved, not to exceed $1,000. This target was not met, and accordingly, we received $1,000 from GenCorp. In addition to the amounts paid at closing, the purchase price was subject to an additional contingent cash payment of up to $5,000 based on targeted financial performance of AFC

F-10

during the year ending September 30, 2006. If the full Earnout Adjustment became payable to GenCorp, the EBITDAP Adjustment also became refundable to GenCorp. During the year ended September 30, 2006, the AFC financial performance target was exceeded. Accordingly, we recorded a $6,000 payable to GenCorp as of September 30, 2006 (classified as accrued liabilities) comprised of the $5,000 Earnout Payment and the $1,000 refund of the EBITDAP Adjustment.

Direct Acquisition Costs – The Company estimates its total direct acquisition costs, consisting primarily of legal and due diligence fees, to be approximately $4,348.

In connection with the AFC Business acquisition, we entered into Credit Facilities and a Seller Subordinated Note, each discussed in Note 6. The total purchase price was funded with net proceeds from the Credit Facilities of $81,881, the Seller Subordinated Note of $25,500 and existing cash.

This acquisition is being accounted for using the purchase method of accounting, under which the total purchase price is allocated to the fair values of the assets acquired and liabilities assumed. The allocation of the purchase price and the related determination of the useful lives of acquired assets are preliminary and subject to change based on a final valuation of the assets acquired and liabilities assumed. The allocation is preliminary pending completion of fixed asset and intangible asset appraisals and the actuarial calculation of the defined benefit pension plan obligation. We have engaged outside consultants to assist in the allocation of the purchase price. We have received a draft of the valuation report from the consultants and are in the process of reviewing the report and the related assumptions. We expect that the purchase price allocations will be completed during our first quarter of fiscal 2007. Changes, if any, to our preliminary allocations would result in reclassifications between property, plant and equipment and intangibles or adjustments to the related expected remaining useful lives.

The preliminary allocation of the purchase price is comprised of the following:

Historical book value of Aerojet Fine Chemicals as of November 30, 2005	$	93,181
Less liabilities not acquired
Payable to GenCorp		24,916
Cash overdraft		3,761
Adjusted historical book value of Aerojet Fine Chemicals as of November 30, 2005		121,858
Estimated fair value adjustments relating to:
Inventories		(84	)
Prepaid expenses		(29	)
Property, plant and equipment		(353	)
Customer relationships, average life of 5.5 years		9,930
Backlog, average life of 1.5 years		3,300
Accrued liabilities		651
Pension assets / liabilities		(1,823	)
Other		(39	)
	$	133,411

Intangible assets, consisting of customer relationships and existing customer backlog, have definite lives and will be amortized over their estimated useful lives using the straight-line method.

The following pro forma information has been prepared from our historical financial statements and those of the AFC Business. The unaudited pro forma information gives effect to the combination as if it had occurred on October 1, 2004.

	2006			2005
Revenues	$	160,146		$	132,257
Loss from Continuing Operations		(4,814	)		(20,283	)
Net Loss		(5,705	)		(19,431	)
Basic and Diluted Loss per Share:
Loss from continuing Operations	$	(0.66	)	$	(2.78	)
Net Loss		(0.78	)		(2.66	)

The pro forma financial information is not necessarily indicative of what the financial position or results of operations would have been if the combination had occurred on the above-mentioned dates. Additionally, it is not indicative of future results of operations and does not reflect any additional costs, synergies or other changes that may occur as a result of the acquisition.

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ISP Acquisition:  October 1, 2004, we acquired the former Atlantic Research Corporation’s in-space propulsion business (“ISP” or “ISP Acquisition”) from Aerojet-General Corporation for $4,505.

We accounted for this acquisition using the purchase method of accounting. The fair value of the current assets acquired and current liabilities assumed was approximately $6,972. Since the purchase price was less than the fair value of the net current assets acquired, non-current assets were recorded at zero and an after-tax extraordinary gain of $1,554 was recognized (net of approximately $913 of income tax expense).

3.   SHARE-BASED COMPENSATION

On October 1, 2005, we adopted SFAS No. 123R, “Share-Based Payment” (“SFAS No. 123R”) which requires us to measure the cost of employee services received in exchange for an award of equity instruments based on the grant date fair value of the award. We have elected to use the Modified Prospective Transition method such that SFAS No. 123R applies to the unvested portion of previously issued awards, new awards and to awards modified, repurchased or canceled after the effective date. Accordingly, commencing October 1, 2005, we recognized share-based compensation for all current award grants and for the unvested portion of previous award grants based on grant date fair values. Prior to fiscal 2006, we accounted for share-based awards under the Accounting Principles Board Opinion No. 25 intrinsic value method, under which no compensation expense was recognized because all historical options granted were at an exercise price equal to the market value of our stock on the grant date. Prior period financial statements have not been adjusted to reflect fair value share-based compensation expense under SFAS No. 123R.

Our share-based payment arrangements are designed to attract and retain employees and directors. The amount, frequency, and terms of share-based awards may vary based on competitive practices, our operating results, and government regulations. New shares are issued upon option exercise or restricted share grants. We do not settle equity instruments in cash. We maintain two share based plans, each as discussed below.

The American Pacific Corporation 2001 Stock Option Plan, as amended (the “2001 Plan”), permits the granting of incentive stock options meeting the requirements of Section 422 of the Internal Revenue Code and nonqualified options that do not meet the requirements of Section 422 to employees, officers, directors and consultants. Options granted under the 2001 Plan generally vest 50% at the grant date and 50% on the one-year anniversary of the grant date, and expire in ten years. As of September 30, 2006, there were 39,000 shares available for grant under the 2001 Plan. This plan was approved by our stockholders.

The American Pacific Corporation 2002 Directors Stock Option Plan (the “2002 Directors Plan”) compensates outside Directors with annual grants of stock options or upon other discretionary events. Options are granted to each eligible director at a price equal to the fair market value of our common stock on the date of the grant. Options granted under the 2002 Directors Plan generally vest 50% at the grant date and 50% on the one-year anniversary of the grant date, and expire in ten years. As of September 30, 2006, there were 25,000 shares available for grant under the 2002 Directors Plan. This plan was approved by our stockholders.

A summary of our outstanding and vested stock option activity for the year ended September 30, 2006 is as follows:

	Total Outstanding					Non Vested
				Weighted					Weighted
				Average					Average
				Exercise					Fair
				Price					Value
	Shares			Per Share		Shares			Per Share
Balance, October 1, 2005		523,500		$	7.08		143,750		$	3.06
Granted		37,500			4.21		37,500			2.00
Vested		-			-		(142,500	)		2.95
Exercised		(25,500	)		6.17		-			-
Expired / Cancelled		(20,000	)		6.34		(20,000	)		2.90
Balance, September 30, 2006		515,500			6.95		18,750			1.95

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A summary of our exercisable stock options as of September 30, 2006 is as follows:

Number of vested stock options		496,750
Weighted average exercise price per share	$	7.47
Aggregate intrinsic value	$	344
Weighted average remaining contractual term in years		7.34

We determine the fair value of share-based awards at their grant date, using a Black-Scholes option-pricing model applying the assumptions in the following table. Actual compensation, if any, ultimately realized by optionees may differ significantly from the amount estimated using an option valuation model.

The following stock option information is as of September 30:

	2006		2005		2004
Weighted average grant date fair value per share of options granted	$	2.00	$	3.00	$	4.18
Significant fair value assumptions:
Expected term in years		5.25		4.50		4.50
Expected volatility		47.0%		50.0%		50.0%
Expected dividends		0.0%		0.0%		0.0%
Risk-free interest rates		4.4%		3.9%		3.0%
Total intrinsic value of options exercised	$	54	$	12	$	908
Aggregate cash received for option exercises	$	158	$	24	$	2,291
Total compensation cost (included in operating expenses)	$	359	$	-	$	-
Tax benefit recognized		141		-		-
Net compensation cost	$	218	$	-	$	-
As of period end date:
Total compensation cost for non-vested awards not yet recognized	$	6
Weighted-average years to be recognized		0.2

SFAS No. 123R requires us to present pro forma information for periods prior to the adoption as if we had accounted for all stock-based compensation under the fair value method. Had share-based compensation costs been recorded prior to the year ended September 30, 2006, the effect on our net income and earnings per share would have been as follows for the years ended September 30:

	2005			2004
Net loss, as reported	$	(9,691	)	$	(397	)
Pro forma compensation, net of tax		(324	)		(167	)
Pro forma net loss	$	(10,015	)	$	(564	)
Basic loss per share:
As reported	$	(1.33	)	$	(0.05	)
Pro Forma	$	(1.37	)	$	(0.08	)
Diluted loss per share
As reported	$	(1.33	)	$	(0.05	)
Pro forma	$	(1.37	)	$	(0.08	)

4.   BALANCE SHEET DATA

The following tables provide additional disclosure for accounts receivable, inventories and property, plant and equipment at September 30:

	2006		2005
Accounts Receivable:
Trade Receivables	$	17,438	$	8,001
Unbilled Receivables		1,985		4,300
Employee and Other Receivables		51		271
Total	$	19,474	$	12,572

Unbilled receivables represent unbilled costs and accrued profits related to revenues recognized on contracts that we account for using the percentage-of-completion method. Substantially all of these amounts are expected to be billed or invoiced within the next 12 months. We assess the collectibility of our accounts receivable based on historical collection experience and provide allowances for estimated credit losses. Typically, our customers

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consist of large corporations, many of which are government contractors procuring products from us on behalf of or for the benefit of government agencies. At September 30, 2006, and 2005, we recorded no bad debt allowance.

	2006			2005
Inventories:
Finished goods	$	7,170		$	2,475
Work-in-progress		20,196			2,940
Raw materials and supplies		12,664			8,403
Allowance for obsolete inventory		(275	)		-
Total	$	39,755		$	13,818
Property, Plant and Equipment:
Land	$	3,116		$	391
Buildings and improvements		39,566			4,803
Machinery and equipment		99,097			25,317
Construction in progress		3,517			1,152
Total Cost		145,296			31,663
Less: accumulated depreciation		(25,550	)		(16,017	)
Total	$	119,746		$	15,646

Depreciation expense for continuing operations was approximately $11,525, $1,739, and $1,524 for the years ended September 30, 2006, 2005 and 2004, respectively.

5.   INTANGIBLE ASSETS

We account for our intangible assets in accordance with SFAS No. 142, “Goodwill and Other Intangible Assets.” Intangible assets consist of the following as of September 30:

	2006			2005
Perchlorate customer list	$	38,697		$	38,697
Less accumulated amortization		(33,280	)		(29,380	)
		5,417			9,317
Customer relationships and backlog		13,230			-
Less accumulated amortization		(4,756	)		-
		8,474			-
Pension-related intangible		346			446
Total	$	14,237		$	9,763

The perchlorate customer list is an asset of our Specialty Chemicals segment and is subject to amortization. Amortization expense was $3,900 for each of the three years ended September 30, 2006, 2005 and 2004.

The pension-related intangible is an actuarially calculated amount related to unrecognized prior service cost for our defined benefit pension plan and supplemental executive retirement plan.

In connection with our acquisition of the AFC Business, we acquired intangible assets with preliminary estimated fair values of $9,930 for customer relationships and $3,300 for existing customer backlog. These assets have definite lives and are assigned to our Fine Chemicals segment. Amortization expense for the year ended September 30, 2006 was $4,756.

Estimated future amortization expense for our intangible assets, excluding the pension-related intangible is as follows:

Years ending September 30:
2007	$	8,541
2008		4,024
2009		2,507
2010		2,507
2011		1,182
Total	$	18,761

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6.   DEBT

Our outstanding debt balances consist of the following as of September 30:

	2006			2005
Credit Facilities:
First Lien Term Loan, 9.37%	$	64,350		$	-
First Lien Revolving Credit, 9.37%		-			-
Second Lien Term Loan plus accrued PIK Interest of $170, 14.37%		20,170			-
Subordinated Seller Note plus accrued PIK Interest of $2,226, 10.42%,
Net of Discount of $5,424		22,304			-
Capital Leases		540			-
ESI Debt - Discontinued Operations		-			768
Total Debt		107,364			768
Less Current Portion		(9,593	)		(768	)
Total Long-term Debt	$	97,771		$	-

Credit Facilities:  In connection with our acquisition of the AFC Business, discussed in Note 2, on November 30, 2005, we entered into a $75,000 first lien credit agreement (the “First Lien Credit Facility”) with Wachovia Capital Markets, LLC and other lenders. We also entered into a $20,000 second lien credit agreement (the “Second Lien Credit Facility,” and together with the First Lien Credit Facility, the “Credit Facilities”) with Wachovia Capital Markets, LLC, and certain other lenders. The Credit Facilities are collateralized by substantially all of our assets and the assets of our domestic subsidiaries.

The First Lien Credit Facility provides for term loans in the aggregate principal amount of $65,000. The term loans will be repaid in twenty consecutive quarterly payments in increasing amounts, with the final payment due and payable on November 30, 2010. The First Lien Credit Facility also provides for a revolving credit line in an aggregate principal amount of up to $10,000 at any time outstanding, which includes a letter of credit sub-facility in the aggregate principal amount of up to $5,000 and a swing-line sub-facility in the aggregate principal amount of up to $2,000. The initial scheduled maturity of the revolving credit line is November 30, 2010. The revolving credit line may be increased by an amount of up to $5,000 within three years from the date of the Credit Facilities.

The Second Lien Credit Facility provides for term loans in the aggregate principal amount of $20,000 with all principal and accrued payment-in-kind (“PIK”) interest due on November 30, 2011. We are required to pay a premium for certain prepayments, if any, of the Second Lien Credit Facility made before November 30, 2008.

The interest rates per annum applicable to loans under the Credit Facilities are, at our option, the Alternate Base Rate (as defined in the Credit Facilities) or LIBOR Rate (as defined in the Credit Facilities) plus, in each case, an applicable margin. Under the First Lien Credit Facility such margin is tied to our total leverage ratio. A portion of the interest payment due under the Second Lien Credit Facility will accrue as PIK interest and is added to the then outstanding principal. In addition, under the revolving credit facility, we will be required to pay (i) a commitment fee in an amount equal to the applicable percentage per annum on the average daily unused amount of the revolving commitments and (ii) other fees related to the issuance and maintenance of the letters of credit issued pursuant to the letters of credit sub-facility. Additionally, we will be required to pay to the administrative agent certain agency fees.

Certain events, including asset sales, excess cash flow, recovery events in respect of property, and debt and equity issuances will require us to make payments on the outstanding obligations under the Credit Facilities. These prepayments are separate from the events of default and any related acceleration described below.

The Credit Facilities include certain negative covenants restricting or limiting our ability to, among other things:

•   incur debt, incur contingent obligations and issue certain types of preferred stock;

•   create liens;

•   pay dividends, distributions or make other specified restricted payments;

•   make certain investments and acquisitions;

•   enter into certain transactions with affiliates;

F-15

•   enter into sale and leaseback transactions; and

•   merge or consolidate with any other entity or sell, assign, transfer, lease, convey or otherwise dispose of assets.

Financial covenants under the Credit Facilities include quarterly requirements (which vary from period to period as defined in the Credit Facilities) for Total Leverage Ratio, First Lien Coverage Ratio, Fixed Charge Coverage Ratio, Consolidated Capital Expenditures and minimum Consolidated EBITDA. As of September 30, 2006, the most restrictive covenants, which are under the First Lien Credit Facility, were Total Leverage Ratio of 3.75:1.0 and First Lien Coverage Ratio of 2.75:1.0. The Credit Facilities also contain usual and customary events of default (subject to certain threshold amounts and grace periods). If an event of default occurs and is continuing, we may be required to repay the obligations under the Credit Facilities prior to their stated maturity and the commitments under the First Lien Credit Facility may be terminated.

On November 30, 2005, we borrowed $65,000 under the First Lien Credit Facility term loan and $20,000 under the Second Lien Credit Facility. Net proceeds of $81,881, after debt issuance costs of $3,119, were used to fund a portion of the AFC Business acquisition price. Debt issue costs are classified as other assets and are amortized over the term of the Credit Facilities using the interest method.

As of September 30, 2006, we had no outstanding borrowings under the First Lien revolving credit line. As of September 30, 2006, we were in compliance with the various covenants contained in the Credit Facilities.

Seller Subordinated Note:  In connection with our acquisition of the AFC Business, discussed in Note 2, we issued an unsecured seller subordinated note in the principal amount of $25,500 to Aerojet-General Corporation, a subsidiary of GenCorp. The note accrues PIK Interest at a rate equal to the three – month U.S. dollar LIBOR as from time to time in effect plus a margin equal to the weighted average of the interest rate margin for the loans outstanding under the Credit Facilities, including certain changes in interest rates due to subsequent amendments or refinancing of the Credit Facilities. All principal and accrued and unpaid PIK Interest will be due on November 30, 2012. Subject to the terms of the Credit Facilities, we may be required to repay up to $6,500 of the note and accrued PIK Interest thereon after September 30, 2007. The note is subordinated to the senior debt under or related to the Credit Facilities, our other indebtedness in respect to any working capital, revolving credit or term loans, or any other extension of credit by a bank or insurance company or other financial institution, other indebtedness relating to leases, indebtedness in connection with the acquisition of businesses or assets, and the guarantees of each of the previously listed items, provided that the aggregate principal amount of obligations of the Company or any of our Subsidiaries shall not exceed the greater of (i) the sum of (A) the aggregate principal amount of the outstanding First Lien Obligations (as such term is defined in the Intercreditor Agreement referred to in the Credit Facilities) not in excess of $95,000 plus (B) the aggregate principal amount of the outstanding Second Lien Obligations (as defined in the Intercreditor Agreement) not in excess of $20,000, and (ii) an aggregate principal balance of Senior Debt (as defined in the note) which would not cause the Company to exceed as of the end of any fiscal quarter a Total Leverage Ratio of 4.50 to 1.00 (as such term is defined in, and as such ratio is determined under, the First Lien Credit Facility) (disregarding any obligations in respect of Hedging Agreements (as defined in the First Lien Credit Facility) constituting First Lien Obligations or Second Lien Obligations or any increase in the amount of the Senior Debt resulting from any payment-in-kind interest added to principal each to be disregarded in calculating the aggregate principal amount of such obligations).

Principal maturities (excluding accrued PIK interest and the discount recorded for the Seller Subordinated Note) for term loans under the Credit Facilities and the Seller Subordinated Note are as follows:

Years ending September 30:
2007	$	9,595
2008		12,712
2009		5,843
2010		32,431
2011		10,811
Thereafter		39,000
Total	$	110,392

F-16

Letters of Credit:  As of September 30, 2006, we had $2,531 in outstanding standby letters of credit which mature through May 2012. 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.

Interest Rate Swap Agreements:  In May 2006, we entered into two interest rate swap agreements, expiring on June 30, 2008, for the purpose of hedging a portion of our exposure to changes in variable rate interest on our Credit Facilities. Under the terms of the swap agreements, which have an aggregate notional amount of $42,175 at September 30, 2006, we pay fixed rate interest and receive variable rate interest based on a specific spread over three-month LIBOR. The differential to be paid or received is recorded as an adjustment to interest expense. The swap agreements do not qualify for hedge accounting treatment. We record an asset or liability for the fair value of the swap agreements, with the effect of marking these contracts to fair value being recorded as an adjustment to interest expense. The aggregate fair value of the swap agreements at September 30, 2006, which is recorded as other long-term liabilities was $314.

7.   EARNINGS (LOSS) PER SHARE

Shares used to compute earnings (loss) per share from continuing operations are as follows for the years ending September 30:

	2006			2005			2004
Income (Loss) from Continuing Operations	$	(3,003	)	$	(10,543	)	$	929
Basic:
Weighted Average Shares		7,305,000			7,294,000			7,281,000
Diluted:
Weighted Average Shares, Basic		7,305,000			7,294,000			7,281,000
Dilutive Effect of Stock Options		-			-			47,000
Weighted Average Shares, Diluted		7,305,000			7,294,000			7,328,000
Basic Earnings (Loss) per Share from Continuing Operations	$	(0.41	)	$	(1.45	)	$	0.13
Diluted Earnings (Loss) per Share from Continuing Operations	$	(0.41	)	$	(1.45	)	$	0.13

As of September 30, 2006 and 2005, we had 515,500 and 523,500, respectively, antidilutive options outstanding. The stock options are antidilutive because we are reporting a loss from continuing operations and the exercise price of certain options exceeds the average fair market value of our stock for the period. These options could be dilutive in future periods if our operations are profitable and our stock price increases.

8.   STOCKHOLDERS’ EQUITY

Preferred Stock and Purchase Rights:  We have authorized 3,000,000 shares of preferred stock, of which 125,000 shares have been designated as Series A, and 125,000 shares have been designated as Series B. At September 30, 2006 and 2005, no shares of preferred stock are issued and outstanding.

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 $0.10 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 $0.001 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.

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Warrants:  In February 1992, we issued $40,000 in Azide Notes with Warrants. The remaining principal balance of the outstanding Azide Notes was repurchased in 1998. The Warrants granted the right to purchase a maximum of 2,857,000 shares of Common Stock at an exercise price of $14.00 per share. We accounted for the proceeds of the financing applicable to the Warrants as temporary capital. 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. The Warrants expired on December 31, 2003 and the amount of the Warrants was transferred to retained earnings on their expiration.

Dividend and Share Repurchase Program:  In January 2003, our Board of Directors approved a Dividend and Stock Repurchase Program (the “Program”) which 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. 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 to stockholders of record on December 29, 2003 for fiscal 2003. The total amount of the cash dividend paid in January 2004 was $3,080. By reason of the application of the program formula, no dividends were paid for fiscal 2004 and 2005. In November 2005, we entered into First and Second Lien Credit Facilities which substantially limits our ability to pay dividends after that date and while borrowings are outstanding under these facilities. In compliance with the Credit Facilities, no dividends were paid in fiscal 2006.

9.   INCOME TAXES

The components of the income tax benefit for continuing operations are as follows for the years ended September 30:

	2006			2005			2004
Current	$	(1,179	)	$	(507	)	$	(526	)
Deferred		(3,121	)		(7,860	)		(1,634	)
Income tax benefit	$	(4,300	)	$	(8,367	)	$	(2,160	)

Deferred tax assets are comprised of the following at September 30:

	2006			2005
Deferred tax assets:
Property	$	3,546		$	5,763
Intangible assets		6,216			3,951
Pension obligations		2,167			2,095
Environmental remediation reserves		9,613			7,707
Tax credits and carryforwards		785			842
Accrued expenses		1,284			596
Inventory capitalization		652			477
Other		803			-
Subtotal		25,066			21,431
Valuation allowance		(785	)		(431	)
Deferred tax assets		24,281			21,000
Deferred tax liabilities:
Prepaid expenses		(586	)		(239	)
Other		(107	)		(615	)
Deferred tax liabilities		(693	)		(854	)
Net deferred tax assets	$	23,588		$	20,146

As of September 30, 2006 and 2005, respectively, we have aggregate operating loss carryforwards of $6,413 and $6,398 for certain U.S. states and $1,649 and $619 for the U.K. We do not anticipate future taxable income in these states or the U.K., and accordingly have provided valuation allowances of $785 and $431 as of September 30, 2006 and 2005, respectively. We have not provided U.S. federal income benefit for the U.K. because we intend to permanently reinvest any earnings from the U.K.

F-18

A reconciliation of the federal statutory rate to our effective tax (benefit) rate from continuing operations is as follows for the years ended September 30:

	2006	2005	2004
Federal income tax at the statutory rate	(35.0%)	(35.0%)	(35.0%)
State income tax, net of federal benefit	(3.1%)	(2.5%)	(4.1%)
Nondeductible expenses	1.0%	0.6%	3.7%
Valuation allowance	1.8%	1.3%	40.0%
Change in state income tax rate	(13.7%)	0.0%	0.0%
Basis differences in partnerships	(5.6%)	0.0%	0.0%
Change in deferred tax liability estimate	0.0%	0.0%	(168.7%)
Other	(4.3%)	(8.6%)	(11.4%)
Effective tax rate	(58.9%)	(44.2%)	(175.5%)

The change in deferred tax liability estimate for the year ended September 30, 2004, represents an amount previously recorded for tax contingency reserves. During the fourth quarter of fiscal 2004, we concluded that these tax contingency reserves were no longer required and were reversed. Based on the analysis of deferred income taxes, we revised our estimate for deferred tax liability by approximately $2,100.

10.   EMPLOYEE BENEFIT PLANS

We maintain three defined benefit pension plans which cover substantially all of our U.S. employees, excluding employees of our Aerospace Equipment Segment; the American Pacific Corporation Defined Benefit Pension Plan (“Ampac Plan”), the Ampac Fine Chemical LLC Pension Plan for Salaried Employees (“AFC Salaried Plan”), and the Ampac Fine Chemical LLC Pension Plan for Bargaining Unit Employees (“AFC Bargaining Plan”). Collectively, these three plans are referred to as the “Pension Plan”. The AFC Salaried Plan and the AFC Bargaining Plan were established in connection with our acquisition of the AFC business and include the assumed liabilities for pension benefits to existing employees at the acquisition date. Pension Plan benefits are paid based on an average of earnings, retirement age, and length of service, among other factors. In addition, we have a supplemental executive retirement plan (“SERP”) that includes our former and current Chief Executive Officer. We use a measurement date of September 30 to account for our Pension Plans and SERP.

We maintain two 401(k) plans in which participating employees may make contributions. One covers substantially all U.S. employees except AFC bargaining unit employees and the other covers AFC bargaining unit employees (collectively, the “401(k) Plans”). We make matching contributions for AFC and Aerospace Equipment U.S. employees. In addition, we make a profit sharing contribution for Aerospace Equipment U.S. employees. We made total contributions of $678 and $204 to the 401(k) Plans during the years ended September 30, 2006 and 2005, respectively.

We provide healthcare and life insurance benefits to substantially all of our employees.

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

	Pension Plan						SERP
	2006			2005			2006			2005
Change in Benefit Obligation:
Benefit obligation, beginning of year	$	31,249		$	27,099		$	2,498		$	2,540
Business acquired, AFC		4,464			-			-			-
Service cost		1,863			1,072			-			-
Interest cost		2,024			1,653			140			148
Actuarial (gains) losses		(312	)		2,263			(148	)		(64	)
Benefits paid		(874	)		(838	)		(126	)		(126	)
Benefit obligation, end of year		38,414			31,249			2,364			2,498
Change in Plan Assets:
Fair value of plan assets, beginning of year		18,658			16,654			-			-
Business acquired, AFC		3,889			-			-			-
Actual return on plan assets		1,516			1,251			-			-
Employer contributions		1,835			1,591			126			126
Benefits paid		(874	)		(838	)		(126	)		(126	)
Fair value of plan assets, end of year		25,024			18,658			-			-
Reconciliation of Funded Status:
Funded status		(13,390	)		(12,591	)		(2,364	)		(2,498	)
Unrecognized net actuarial losses		8,477			9,098			365			537
Unrecognized prior service costs		289			347			57			99
Net amount recognized	$	(4,624	)	$	(3,146	)	$	(1,942	)	$	(1,862	)
Amounts Recognized:
Accrued benefit liabilities	$	(6,558	)	$	(5,646	)	$	(2,364	)	$	(2,498	)
Prepaid benefit costs		209			-			-			-
Intangible assets		289			347			57			99
Accumulated other comprehensive loss before tax		1,436			2,153			365			537
Net amount recognized	$	(4,624	)	$	(3,146	)	$	(1,942	)	$	(1,862	)

The table below provides data for our defined benefit plans as of September 30:

	2006		2005
Plan Assets:
Ampac Plan	$	21,112	$	18,657
AFC Salaried Plan		2,354		-
AFC Bargaining Plan		1,558		-
Accumulated Benefit Obligation:
Ampac Plan		26,261		24,304
AFC Salaried Plan		2,628		-
AFC Bargaining Plan		1,372		-
Projected Benefit Obligation:
Ampac Plan		33,340		31,249
AFC Salaried Plan		3,702		-
AFC Bargaining Plan		1,372		-

Pension Plan assets include no shares of our common stock. Through consultation with investment advisors, expected long-term returns for each of the plans’ targeted asset classes were developed. Several factors were considered, including current market data such as yields/price-earnings ratios, and historical market returns over long periods. Using policy target allocation percentages and the asset class expected returns, a weighted average expected return was calculated. The actual and target asset allocation for the Pension Plan is as follows at September 30:

	Target	Actual
	2006	2006	2005
Equity securities	70%	62%	62%
Debt securities	30%	27%	14%
Other	0%	11%	24%
Total	100%	100%	100%

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Net periodic pension expense is comprised of the following for the years ended September 30:

				Pension Plan									SERP
	2006			2005			2004			2006			2005			2004
Net Periodic Pension Cost:
Service cost	$	1,863		$	1,072		$	944		$	-		$	-		$	18
Interest cost		2,024			1,653			1,466			140			148			183
Expected return on plan assets		(1,791	)		(1,364	)		(1,165	)		-			-			-
Recognized actuarial losses		584			464			474			24			30			29
Amortization of prior service costs		58			58			58			43			43			43
Net periodic pension cost	$	2,738		$	1,883		$	1,777		$	207		$	221		$	273
Actuarial Assumptions:
Discount rate		6.00	%		5.75	%		6.00	%		6.00	%		5.75	%		6.00	%
Rate of compensation increase		4.50	%		4.50	%		4.50	%		4.50	%		4.50	%		4.50	%
Expected return on plan assets		8.00	%		8.00	%		8.00	%		8.00	%		8.00	%		8.00	%

During the year ending September 30, 2007, we expect to contribute $3,620 to the Pension Plan and $126 to the SERP. The table below sets forth expected future benefit payments for the years ending September 30:

	Pension Plan		SERP
Years ending September 30:
2007	$	1,214	$	126
2008		1,268		307
2009		1,304		307
20010		1,358		307
2011		1,403		307
2012-2016		7,833		1,533

11.   COMMITMENTS AND CONTINGENCIES

Operating Leases:  We lease our corporate offices and production facilities for our Aerospace Equipment segment under operating leases with lease periods extending through 2011. Total rental expense under operating leases was $981, $741, and $570 for the years ended September 30, 2006, 2005, and 2004, respectively.

Estimated future minimum lease payments under operating leases as of September 30, 2006, are as follows:

Years ending September 30:
2007	$	1,013
2008		904
2009		526
2010		76
2011		4
Thereafter		-
Total	$	2,523

Purchase Commitments:  Purchase commitments represent obligations under agreements which are not unilaterally cancelable by us, are legally enforceable, and specify fixed or minimum amounts or quantities of goods or services at fixed or minimum prices. As of September 30, 2006, we had no material purchase commitments.

Employee Agreements:  We have entered into employment contracts with our Chief Executive Officer and Chief Financial Officer, each with initial durations of three years. Significant contract provisions include annual base salaries, health care benefits, and non-compete provisions. These contracts are primarily “at will” employment agreements, under which we may terminate employment. If we terminate these officers without cause, then we are obligated to pay severance benefits specified in the contracts. In addition, certain other key divisional executives are eligible for severance benefits. Estimated minimum aggregate severance benefits under these agreements are $4,108.

Effective March 25, 2006, the employment of Dr. Seth Van Voorhees, as our Chief Financial Officer, Vice President and Treasurer, terminated. Dr. Van Voorhees was employed by us pursuant to an employment agreement dated December 1, 2005. Under the employment agreement, if we terminated Dr. Van Voorhees without cause or if Dr. Van Voorhees terminated his employment for good reason, Dr. Van Voorhees was entitled

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to receive severance payments in the form of salary continuation for three years. In addition, all unvested stock options granted to Dr. Van Voorhees would become fully vested. These severance benefits were not available to him if employment was terminated by us for cause, or if Dr. Van Voorhees terminated his employment without good reason. On December 6, 2006, we reached a settlement with Dr. Van Voorhees under which we will pay Dr. Van Voorhees $600 and the parties shall enter into a standard mutual release. In addition, we shall enter into a consulting agreement with Dr. Van Voorhees, for a period of two years, whereby Dr. Van Voorhees may act as a financial advisor to the Company under customary industry terms.

During the second quarter of 2004, we recorded a charge of $2,000, which is included in operating expenses, for estimated costs relating to the separation from us of our then Chief Financial Officer. The separation charge includes: (i) salary and benefits owed under the terms of an employment agreement and other severance costs, (ii) the present value of the estimated amount payable under the terms of the SERP, and (iii) compensation paid in lieu of compensation that would have been payable to him as a Director.

Environmental Matters:

Review of Perchlorate Toxicity by EPA –

Perchlorate (the “anion”) is not currently included in the list of hazardous substances compiled by the Environmental Protection Agency (“EPA”), but it is on the EPA’s Contaminant Candidate List. The EPA has conducted a risk assessment relating to perchlorate, two drafts of which were subject to formal peer reviews held in 1999 and 2002. Following the 2002 peer review, the EPA perchlorate risk assessment together with other perchlorate related science was reviewed by the National Academy of Sciences (“NAS”). This NAS report was released on January 11, 2005. The recommendations contained in this NAS report indicate that human health is protected in drinking water at a level of 24.5 parts per billion (“ppb”). Certain states have also conducted risk assessments and have set preliminary levels from 1 – 14 ppb. The EPA has established a reference dose for perchlorate of .0007 mg/kg/day which is equal to a Drinking Water Equivalent Level (“DWEL”) of 24.5 ppb. A decision as to whether or not to establish a Maximum Contaminate Level (“MCL”) is pending. The outcome of these federal EPA actions, as well as any similar state regulatory action, will influence the number, if any, of potential sites that may be subject to remediation action.

Perchlorate Remediation Project in Henderson, Nevada –

We commercially manufactured perchlorate chemicals at a facility in Henderson, Nevada (the “Ampac Henderson Site”) from 1958 until the facility was destroyed in May 1988, after which we relocated our production to a new facility in Iron County, Utah. Kerr-McGee Chemical Corp (“KMCC”) also operated a perchlorate production facility in Henderson, Nevada from 1967 to 1998. Between 1956 to 1967, American Potash operated a perchlorate production facility at the same site. For many years prior to 1956, other entities also manufactured perchlorate chemicals at that site. In 1998, Kerr-McGee Chemical LLC became the operating entity and it ceased the production of perchlorate at the Kerr McGee Henderson Site. Thereafter, it continued to produce other chemicals at this site until it was recently sold. As a result of a longer production history at Henderson, KMCC and its predecessor operations have manufactured significantly greater amounts of perchlorate over time than we did at the Ampac Henderson Site.

In 1997, the Southern Nevada Water Authority (“SNWA”) detected trace amounts of the perchlorate anion in Lake Mead and the Las Vegas Wash. Lake Mead is a source of drinking water for Southern Nevada and areas of Southern California. Las Vegas Wash flows into Lake Mead from the Las Vegas valley.

In response to this discovery by SNWA, and at the request of the Nevada Division of Environmental Protection (“NDEP”), we engaged in an investigation of groundwater near the Ampac Henderson site and down gradient toward the Las Vegas Wash. That investigation and related characterization which lasted more than six years employed experts in the field of hydrogeology. This investigation concluded that, although there is perchlorate in the groundwater in the vicinity of the Ampac Henderson Site up to 700 ppm, perchlorate from this Site does not materially impact, if at all, water flowing in the Las Vegas Wash toward Lake Mead. It has been well established, however, by data generated by SNWA and NDEP, that perchlorate from the Kerr McGee Henderson Site did materially impact the Las Vegas Wash and Lake Mead. Kerr McGee’s successor, Tronox LLC, operates an ex situ

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perchlorate groundwater remediation facility at their Henderson site and this facility has had a significant effect on the load of perchlorate entering Lake Mead over the last 5 years. Recent measurements of perchlorate in Lake Mead made by SNWA have been less than 10 ppb.

Notwithstanding these facts, and at the direction of NDEP and EPA, we conducted investigation of remediation technologies for perchlorate in groundwater with the intention of remediating groundwater near the Ampac Henderson Site. The technology that was chosen as most efficient and appropriate is in situ bioremediation (“ISB”). The technology reduces perchlorate in the groundwater by precise addition of an appropriate carbon source to the groundwater itself while it is still in the ground (as opposed to an above ground, more conventional, ex situ process). This induces naturally occurring organisms in the groundwater to reduce the perchlorate among other oxygen containing compounds.

In 2002, we conducted a pilot test in the field of the ISB technology and it was successful. On the basis of the successful test and other evaluations, in fiscal 2005 we submitted a Work Plan to NDEP for the construction of a Leading Edge Remediation Facility (“Athens System”) near the Ampac Henderson Site. The conditional approval of the Work Plan by NDEP in our third quarter of fiscal 2005 allowed us to generate estimated costs for the installation and operation of the Leading Edge and Source Remediation Facilities that will address perchlorate from the Ampac Henderson Site. We commenced construction of the Athens System in July 2005. In June 2006, we began operations of an interim Athens System that is, as of July 2006, reducing perchlorate concentrations in system extracted groundwater in Henderson. The permanent Athens System plant began operation in December 2006. The permanent facility will increase remediation capacity over the temporary facility.

Henderson Site Environmental Remediation Reserve  –

During our fiscal 2005 third quarter, we recorded a charge for $22,400 representing our estimate of the probable costs of our remediation efforts at the Henderson Site, including the costs for equipment, operating and maintenance costs, and consultants. Key factors in determining the total estimated cost include an estimate of the speed of groundwater entering the treatment area, which was then used to estimate a project life of 45 years, as well as estimates for capital expenditures and annual operating and maintenance costs. The project consists of two primary phases; the initial construction of the remediation equipment and the operating and maintenance phase. We commenced the construction phase in late fiscal 2005, completed an interim system in June 2006, and completed the permanent facility in December 2006. During our fiscal 2006, we increased our total cost estimate for the construction phase by $3,600 due primarily to changes in the engineering designs, delays in receiving permits and the resulting extension of construction time. These estimates are based on information currently available to us and may be subject to material adjustment upward or downward in future periods as new facts or circumstances may indicate.

A summary of our environmental reserve activity for the year ended September 30, 2006 is shown below:

Balance, September 30, 2005	$	20,587
Additions or adjustments		3,600
Expenditures		(6,676	)
Balance, September 30, 2006	$	17,511

DTSC Matters  –

The California Department of Toxic Substances Control (DTSC) contended that the AFC Business’ neutralization or stabilization of several liquid stream processes within a closed loop manufacturing system constitutes treatment of a hazardous waste without the required authorizations from DTSC. We disagree. On September 2, 2005, the DTSC Inspector issued an Inspection Report relevant to the DTSC’s June 2004 inspection of the AFC Business’ facility. The Inspection Report concluded that the referenced activities constitute treatment of hazardous waste and directed Aerojet Fine Chemicals to submit an application for a permit modification to treat hazardous waste.

On November 28, 2005, AFC and DTSC entered into a Consent Agreement (“Consent Agreement”) which, effective upon close of the sale of the AFC Business to us, authorizes AFC to continue operations for up to two years while the parties resolve whether the manufacturing processes are exempt from regulation by the DTSC.

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The Consent Agreement is deemed a full settlement of the DTSC Allegations and any other violations that could have been brought against AFC based upon information known to DTSC on the date of the Consent Agreement.

In September 2006, the Governor of California signed AB 2155, legislation sponsored by AFC, which specifically exempts the manufacturing operations described in the Consent Agreement from DTSC’s hazardous waste permitting requirements. The exemption for these operations will take affect on January 1, 2007.

Other AFC Environmental Matters –

AFC’s facility is located on land leased from Aerojet. The leased land is part of a tract of land owned by Aerojet designated as a “Superfund Site” under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA). The tract of land had been used by Aerojet and affiliated companies to manufacture and test rockets and related equipment since the 1950s. Although the chemicals identified as contaminants on the leased land were not used by Aerojet Fine Chemicals as part of its operations, CERCLA, among other things, provides for joint and severable liability for environmental liabilities including, for example, the environmental remediation expenses.

As part of the agreement to sell the AFC Business, an Environmental Indemnity Agreement was entered into whereby GenCorp agreed to indemnify us against any and all environmental costs and liabilities arising out of or resulting from any violation of environmental law prior to the effective date of the sale, or any release of hazardous substances by the AFC Business, Aerojet or GenCorp on the AFC premises or Aerojet’s Sacramento site prior to the effective date of the sale.

On November 29, 2005, EPA Region IX provided us with a letter indicating that the EPA does not intend to pursue any clean up or enforcement actions under CERCLA against future lessees of the Aerojet Fine Chemicals property for existing contamination, provided that the lessees do not contribute to or do not exacerbate existing contamination on or under the Aerojet Superfund site.

Other Matters:

We are from time to time involved in other claims or lawsuits. We believe that current claims or lawsuits against us, individually and in the aggregate, will not have a material adverse effect on our financial condition, cash flows or results of operations.

12.   SEGMENT INFORMATION

We report our business in four operating segments: Specialty Chemicals, Fine Chemicals, Aerospace Equipment and Other Businesses. These segments are based upon business units that offer distinct products and services, are operationally managed separately and produce products using different production methods. Segment operating profit includes all sales and expenses directly associated with each segment. Environmental remediation charges, corporate general and administrative costs, which consist primarily of executive, investor relations, accounting, human resources and information technology expenses, and interest are not allocated to segment operating results.

During fiscal 2006, we revised our method to measure segment operating results to a method management believes is a more meaningful measure of segment performance. Effective January 1, 2006, general corporate expenses are not allocated to our operating segments. Effective April 1, 2006, environmental remediation charges are not charged to our operating segments. Other environmental related costs, such as evaluation and on-going compliance at our various facilities continue to be allocated to segment results. Prior to the effective dates, we had included an allocation of corporate expenses to our operating segments and environmental remediation charges were allocated to our Specialty Chemicals segment. All periods presented have been reclassified to reflect our current method to measure segment operating results.

Specialty Chemicals:  Our Specialty Chemicals segment manufactures and sells: (i) perchlorate chemicals, used principally in solid rocket propellants for the space shuttle and defense programs, (ii) sodium azide, a chemical used in pharmaceutical manufacturing and historically used principally in the inflation of certain automotive airbag systems, and (iii) Halotron^®, clean gas fire extinguishing agents designed to replace halons.

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In June 2006, our board of directors approved and we committed to a plan to sell ESI, based on our determination that ESI’s product lines were no longer a strategic fit with our business strategies. The sale was completed effective September 30, 2006. Revenues and expenses associated with ESI’s operations are presented as discontinued operations for all periods presented. ESI, which manufactures and distributes packaged explosives, was formerly reported within our Specialty Chemicals segment (See Note 14).

One perchlorates customer accounted for 18%, 50% and 51% of our consolidated revenues for the years ending September 30, 2006, 2005, and 2004, respectively.

Fine Chemicals:  On November 30, 2005, we created a new operating segment, Fine Chemicals, to report the financial performance of AFC (See Note 2). AFC is a manufacturer of active pharmaceutical ingredients and registered intermediates under cGMP guidelines for commercial customers in the pharmaceutical industry, involving high potency compounds, energetic and nucleoside chemistries, and chiral separation.

We had one Fine Chemicals customer that accounted for 28% of our consolidated revenues for the year ended September 30, 2006.

Aerospace Equipment:  On October 1, 2004, we created a new operating segment, Aerospace Equipment, to report the financial performance of our ISP business (see Note 2). The ISP business manufactures and sells in-space propulsion systems, thrusters (monopropellant or bipropellant) and propellant tanks.

Other Businesses:  Our Other Businesses segment contains our water treatment equipment and real estate activities. Our water treatment equipment business designs, manufactures and markets systems for the control of noxious odors, the disinfection of water streams and the treatment of seawater. As of our fiscal year 2005, we had completed all planned sales of our improved land in the Gibson Business Park (near Las Vegas, Nevada) and we do not anticipate significant real estate sales activity in future financial reporting periods.

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The following provides financial information about our segment operations for the years ended September 30:

	2006			2005			2004
Revenues:
Specialty Chemicals	$	46,450		$	49,936		$	49,459
Fine Chemicals		74,026			-			-
Aerospace Equipment		17,394			12,429			-
Other Businesses		4,034			5,448			1,999
Total Revenues	$	141,904		$	67,813		$	51,458
Segment Operating Income (Loss):
Specialty Chemicals	$	14,755		$	12,504		$	12,232
Fine Chemicals		7,245			-			-
Aerospace Equipment		802			95			-
Other Businesses		264			3,300			316
Total Segment Operating Income (Loss)		23,066			15,899			12,548
Corporate Expenses		(16,407	)		(13,807	)		(14,472	)
Environmental Remediation Charges		(3,600	)		(22,400	)		-
Interest and Other Income (Expense), Net		(10,362	)		1,398			693
Loss from Continuing Operations before Tax	$	(7,303	)	$	(18,910	)	$	(1,231	)
Depreciation and Amortization:
Specialty Chemicals	$	5,149		$	5,080		$	4,908
Fine Chemicals		14,379			-			-
Aerospace Equipment		93			16			-
Other Businesses		11			20			-
Corporate		549			523			516
Total	$	20,181		$	5,639		$	5,424
Capital Expenditures:
Specialty Chemicals	$	816		$	1,351		$	127
Fine Chemicals		13,486			-			-
Aerospace Equipment		414			236			-
Other Businesses		2			-			-
Corporate		300			99			343
Total	$	15,018		$	1,686		$	470
Assets, at year end:
Specialty Chemicals	$	23,934		$	29,183		$	42,985
Fine Chemicals		158,151			-			-
Aerospace Equipment		9,411			9,865			-
Other Businesses		4			3,850			3,316
Corporate		47,955			72,102			55,275
Total	$	239,455		$	115,000		$	101,576

Substantially all of our operations are located in the United States. Our operations in the U.K. are not material in terms of both operating results and assets. Export sales, consisting mostly of fine chemical and water treatment equipment sales, represent 19% of our consolidated revenues for the year ended September 30, 2006, with no single country accounting for more than 10% of our consolidated revenues. Export sales for the years ended September 30, 2005 and 2004 were less than 10% of consolidated revenues.

13.   INTEREST AND OTHER INCOME

Interest and other income consists of the following:

	2006		2005		2004
Interest Income	$	459	$	636	$	623
Real Estate Partnership Income		580		762		-
Other		30		-		70
	$	1,069	$	1,398	$	693

We owned a 70% interest as general and limited partner in Gibson Business Park Associates 1986-I (the “Partnership”), a real estate development limited partnership. The remaining 30% limited partners include certain current and former members of our Board of Directors. The Partnership, in turn, owned a 33% limited partner

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interest in 3770 Hughes Parkway Associates Limited Partnership, a Nevada limited partnership (“Hughes Parkway”). Hughes Parkway owns the building in which we lease office space in Las Vegas, Nevada.

During the year ended September 30, 2005, we received a cash distribution of $762 from the Partnership which is recorded as other income.

In October 2005, the Partnership sold its interest in Hughes Parkway, which resulted in a net gain and cash distribution to us of $2,395. Concurrent with, and as a condition of, the sale of the Partnership’s interest in Hughes Parkway, we renewed our office space lease through February 2009. We accounted for the transaction as a sale leaseback. Accordingly, we deferred a gain totaling $1,815 representing the present value of future lease payments. We amortize the deferred gain (as a reduction of rental expense), using the straight-line method over the term of the lease. We recognized the remaining gain of $580, which is reported in interest and other income for the year ended September 30, 2006.

14.   DISCONTINUED OPERATIONS

In June 2006, our board of directors approved and we committed to a plan to sell ESI, based on our determination that ESI’s product lines were no longer a strategic fit with our business strategies. Revenues and expenses associated with ESI’s operations are presented as discontinued operations for all periods presented. ESI was formerly reported within our Specialty Chemicals segment.

Effective September 30, 2006, we completed the sale of our interest in ESI for $7,510, which, after deducting direct expenses, resulted in a gain on the sale before income taxes of $258. The ESI sale proceeds are reflected as a note receivable as of September 30, 2006 and we collected the amount in full in October 2006.

Summarized financial information for ESI is as follows:

	2006			2005			2004
Revenues	$	13,285		$	15,534		$	8,031
Discontinued Operations:
Operating loss before tax		(813	)		(1,008	)		(899	)
Benefit for income tax		(258	)		(306	)		(342	)
Net loss from discontinued operations		(555	)		(702	)		(557	)
Gain (Loss) on Sale of Discontinued Operations:
Gain on sale of discontinued operations before tax		258			-			-
Income tax expense		594			-			-
Net loss on sale of discontinued operations		(336	)		-			-
	$	(891	)	$	(702	)	$	(557	)

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EXHIBIT INDEX

2.1	Purchase Agreement, dated as of July 12, 2005, by and among Aerojet Fine Chemicals LLC, Aerojet-General Corporation and American Pacific Corporation, incorporated by reference to exhibit 2.1 of the Registrant’s Current Report on Form 8-K dated July 12, 2005.
2.2	First Amendment to Purchase Agreement, dated November 30, 2005, by and among American Pacific Corporation, Aerojet Fine Chemicals LLC and Aerojet-General Corporation, incorporated by reference to Exhibit 2.2 of the Registrant’s Current Report on Form 8-K dated November 30, 2005 (the “2005 November 8-K”).
2.3	Assignment and Assumption Agreement, dated October 22, 2005, by and between American Pacific Corporation and Ampac Fine Chemicals LLC, incorporated by reference to Exhibit 2.3 of the 2005 November 8-K.
2.4	Amended and Restated Assignment and Assumption Agreement, dated November 30, 2005, by and between American Pacific Corporation and Ampac Fine Chemicals LLC, incorporated by reference to Exhibit 2.4 of the 2005 November 8-K.
2.5	Unconditional Guaranty of Payment and Performance, dated November 30, 2005, for the benefit of Aerojet-General Corporation and Aerojet Fine Chemicals, LLC, incorporated by reference to Exhibit 2.5 of the 2005 November 8-K.
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	Certificate of Amendment of the By-Laws, incorporated by Reference to the Registrant’s Current Report on Form 8-K dated September 12, 2006.
3.5	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”).
3.6	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.
4.1	American Pacific Corporation 1997 Stock Option Plan (the ‘‘1997 Plan”), incorporated by reference to Exhibit 4.1 to Registrant’s Registration Statement on 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 Registration Statement on 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 Amended and Restated 2002 Directors Stock Option Plan (the “2002 Plan”), incorporated by reference to Exhibit 99.1 in the Registrant’s Current Report on Form 8-K dated September 13, 2005.
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	Employment agreement dated December 1, 2005, between the Registrant and Seth Van Voorhees, incorporated by reference to Exhibit 10.6 to the Registrant’s Current Report on Form 8-K/A dated September 13, 2006 (the “2006 8-K/A”).
10.4	Interim employment agreement dated March 27, 2006, between the Registration and Dana M. Kelley, incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q for the fiscal quarter ended March 30, 2006 (the “2006 March 10-Q”).

F-28

*10.5	Employment agreement dated October 15, 2006, between the Registrant and Joseph Carleone.
10.6	Amended and Restated American Pacific Corporation Defined Benefit Pension Plan, incorporated by reference to Exhibit 10.4 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended September 30, 1999 (the “1999 10-K”).
*10.7	Ampac Fine Chemicals LLC Pension Plan for Bargaining Employees.
*10.8	Ampac Fine Chemicals LLC Pension Plan for Salaried Employees.
10.9	The Ampac Fine Chemicals LLC Bargaining Unit 401(k) Plan, incorporated by reference to Exhibit 4.6 to Registrant’s Registration Statement on Form S-8 (File No. 333-131945).
10.10	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.
10.11	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.
10.12	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”).
10.13	Limited Partnership Agreement of 3770 Hughes Parkway Associates, Limited Partnership, incorporated by reference to Exhibit 10.23 to the 1990 S-2.
10.14	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.
10.15	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”).
10.16	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 Registrant’s Annual Report on Form 10-K for the fiscal year ended September 30, 2000 (the “2000 10-K”).
10.17	Modification No. 3 dated April 5, 2006, to Long-Term Pricing Agreement between Alliant Techsystems Incorporated (“ATK”) (formerly known as Thiokol Propulsion) and the Registrant, incorporated by reference to Exhibit 10.1 to the 2006 March 10-Q.
10.18	Partnershipping Agreement between ATK and Western Electrochemical Company and letter dated November 24, 1997, from the Registrant to ATK and revised Exhibit B with respect thereto, incorporated by reference to Exhibit 10.2 to the 1998 March 10-Q.
10.19	Articles of Organization of Energetic Systems Inc., LLC, incorporated by reference to Exhibit 10.12 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended September 30, 2003 (the “2003 10-K”).
10.20	Operating Agreement of Energetic Systems Inc., LLC, incorporated by reference to Exhibit 10.13 to the 2003 10-K.
10.21	First Lien Credit Agreement, dated November 30, 2005, by and among American Pacific Corporation as borrower, the domestic subsidiaries of American Pacific Corporation as guarantors, Wachovia Bank, National Association, as administrative agent, Bank of America, N.A., as syndication agent, and certain lending parties specified therein, incorporated by reference to Exhibit 10.1 of the 2005 November 8-K.
10.22	Second Lien Credit Agreement, dated November 30, 2005, by and among American Pacific Corporation as borrower, the domestic subsidiaries of American Pacific Corporation as guarantors, Wachovia Bank, National Association, as administrative agent, Bank of America, N.A., as syndication agent, and certain lending parties specified therein, incorporated by reference to Exhibit 10.2 of the 2005 November 8-K.
10.23	The Intercreditor Agreement, dated as of November 30, 2005, by and among American Pacific Corporation, the domestic subsidiaries of American Pacific Corporation as may time to time party become a party therein and Wachovia Bank, National Association, in its capacity as administrative agent for the First Lien Obligations, Wachovia Bank, National Association, in its capacity as administrative agent for the Second Lien Obligations and Wachovia Bank, National Association, in its capacity as control agent for the First Lien Administrative Agent and the Second Lien Administrative Agent, incorporated by reference to Exhibit 10.3 of the 2005 November 8-K.
10.24	American Pacific Corporation Subordinated Promissory Note, dated November 30, 2005, in the principal amount of $25,500,000, incorporated by reference to Exhibit 10.4 of the 2005 November 8-K.
10.25	Ground Lease, dated November 30, 2005, by and between Aerojet-General Corporation and Ampac Fine Chemicals LLC, incorporated by reference to Exhibit 10.5 of the 2005 November 8-K.

F-29

10.26	Master International Swaps and Derivatives Association (“ISDA”) Agreement, between the Registrant and Bank of America, N.A., incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2006, (the “2006 June 10-Q”).
10.27	Schedule No. 1 to Master ISDA Agreement, between the Registrant and Bank of America, N.S., incorporated by reference to the 2006 June 10-Q.
10.28	Schedule No. 2 to Master ISDA Agreement, between the Registrant and Bank of America, N.S., incorporated by reference to the 2006 June 10-Q.
10.29	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 2000 10-K.
*14	Standards of Business Conduct dated May 9, 2006.
*21	Subsidiaries of the Registrant.
*23	Consent of Deloitte & Touche LLP.
*24	Power of Attorney, included on signature page.
*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)	See (a)(3) above.
(c)	None applicable.

F-30

EX-10.5

Exhibit 10.5

EMPLOYMENT AGREEMENT

     This Employment Agreement (“Agreement”), entered into effective October 15, 2006, is between American Pacific Corporation, a Delaware corporation having its principal place of business at 3770 Howard Hughes Parkway, Suite 300, Las Vegas, Nevada 89109 (the “Company”), and Joseph Carleone, an individual residing at the address set forth below his signature at the end of this Agreement (the “Executive”) (collectively, “the parties”).

1. The Company’s Business

     The Company is engaged in the manufacture of specialty chemicals, including perchlorate chemicals, sodium azide and HalotronTM fire suppression agents, the design and manufacture of environmental protection products and other products as may be acquired or developed over time, active pharmaceutical ingredients and registered intermediates for commercial customers in the pharmaceutical industry, and real estate development.

2. Period of Employment

               (a) Basic Term. The Company shall employ Executive to render services to the Company as Executive Vice President and Chief Operating Officer (“COO”), to perform such duties and responsibilities as may be assigned by the Board of Directors and the Chief Executive Officer from the effective date of this Agreement through September 30, 2009 (the “Term Date”), unless Executive’s employment relationship with the Company terminates sooner as provided in Section 5 below.

               (b) Annual Renewal. Each year the term and provisions of this Agreement shall automatically extend for a total three-year period and unless either party notified the other in writing to the contrary at least 30 days prior to the applicable October date that it, or he, does not want the term to so extend.

3. Position, Duties, Responsibilities

               (a) Service by Executive as a director on the Board of any organization other than the Company, its subsidiaries or affiliates shall be subject to the written consent of the CEO and AMPAC’s Board of Directors; and such consent may be withdrawn should the CEO or AMPAC’s Board of Directors, in its sole discretion determine Executive’s status as a member of such Board of Directors is not in the best interests of the Company.

               (b) During his employment by the Company, except upon the prior written consent of the Company, Executive will not (i) accept any other employment, or (ii) engage, directly or indirectly, in any other business activity (whether or not pursued for pecuniary advantage) that is or may be in conflict with, or that might place Executive in a conflicting position to that of, the Company. Without limitation, the Executive shall not act in any advisory or other capacity for any individual, firm, association or corporation other than the Company and its subsidiary corporations in matters in any way pertaining to any business or undertaking in any

way similar to or competitive with the business or activities of the Company and its subsidiary or affiliated corporations or other business, (whatever the form, LLC, LLP, etc.).

               (c) Other Activities. Executive represents and warrants that by accepting employment with the Company he is not violating the terms of any agreement, legal obligation, contractual, regulatory or statutory, including but not limited to fiduciary duty implied expressly or by law; and to the extent a contract or contracts exist between Executive and prior employees that contain restrictions on future employment by Executive, such contracts or related documents have been provided to the Company for its review.

               (d) Proprietary Information. “Proprietary Information” is all information and any idea in whatever form, tangible or intangible, pertaining in any manner to the business of the Company and its subsidiary corporations, or its employees, clients, consultants, or business associates, which was produced by any employee of the Company or its subsidiary corporations, in the course of his or her employment or otherwise produced or acquired by or on behalf of the Company or its subsidiary corporations. All Proprietary Information not generally known outside of the Company’s organization, and all Proprietary Information so known only through improper means, shall be deemed “Confidential Information.” Without limiting the foregoing definition, Proprietary and Confidential Information shall include, but not be limited to: (i) formulas, teaching and development techniques, processes, trade secrets, computer programs, electronic codes, inventions, improvements, and research projects; (ii) information about costs, profits, markets, sales, and lists of customers or clients; (iii) business, marketing, and strategic plans; and (iv) employee personnel files and compensation information. Executive should consult any Company procedures instituted to identify and protect certain types of Confidential Information, which are considered by the Company to be safeguards in addition to the protection provided by this Agreement. Nothing contained in those procedures or in this Agreement is intended to limit the effect of the other.

               (e) General Restrictions on Use. During the Period of Employment, Executive shall use Proprietary Information, and shall disclose Confidential Information, only for the benefit of the Company and as is necessary to carry out his responsibilities under this Agreement. Following termination, Executive shall neither, directly or indirectly, use any Proprietary Information nor disclose any Confidential Information, except as expressly and specifically authorized in writing by the Company. The disclosure or publication to anyone who does not have a need to know, whether employed by the Company or not, of any Proprietary Information through literature, speeches or discussion must be approved in advance in writing by the Company.

4. Compensation.

               In consideration of the services to be rendered under this Agreement, Executive shall be entitled to the following:

               (a) The Company shall pay Executive as compensation for services a base salary at the annual rate of $306,800 (Three Hundred Six Thousand Eight Hundred Dollars) (which includes an automobile allowance of $16,800), or at such rate as the Compensation

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Committee of the Board of Directors may determine from time to time, should automobile cost and operation fluctuate. Such salary shall be payable in accordance with the standard payroll procedures of the Corporation. Once the Corporation’s Compensation Committee of the Board of Directors has increased such salary, it thereafter shall not be reduced. The annual compensation specified in this Section 3, together with any increases in such compensation that the Compensation Committee of the Board of Directors may grant from time to time, is referred to in this Agreement as “Base Compensation.”

               (b) The Company shall review the Base Compensation the anniversary each year of employment by Executive or at different intervals at the discretion of the Board of Directors. Any increase in Executive’s Base Compensation shall be made effective as soon as practicable after.

               (c) Executive shall be eligible (i) to participate in all of the Company’s benefit plans made available to all employees generally, (ii) to participate in all benefit plans made available to Company officers holding the office of Vice President, Senior Vice President, Executive Vice President, President, Chief Operating Officer, and Chief Executive Officer generally (to the extent there are such generally-applicable benefit plans made available to such company officers), and (iii) to receive perquisites of employment, as established by the Company with the approval of the Board of Directors from time to time.

5. Termination of Employment

               (a) Termination By Death. Executive’s employment shall terminate upon the death of Executive. Company shall pay to Executive’s beneficiaries or estate, as appropriate, compensation then due and owing as of the date of death, and shall continue to pay Executive’s salary and benefits, through the second full month after Executive’s death. As of the date of death, all stock options available to Executive through the Term Date shall be deemed accelerated and vested, and may be exercised by the appropriate representative of Executive’s estate. Thereafter, all obligations of Company under this Agreement shall cease. Nothing in this Section shall affect any entitlement of Executive’s heirs to the benefits of any Life insurance, vested funds in Plans governed by provisions of State or Federal laws, including but not limited to 401(K), deferred compensation, pension, etc.

               (b) Termination By Disability. If, in the sole opinion of the Company, Executive shall be prevented from properly performing his duties hereunder by reason of any physical or mental incapacity for a period of more than ninety (90) days in the aggregate in any twelve-month period, then, to the extent permitted by law, Company may terminate Executive’s employment. Company shall pay to Executive all compensation to which Executive is entitled through the last day of the month in which the 90th day of incapacity occurs, and thereafter, all of Company’s obligations under this Agreement shall cease. Nothing in this Section shall affect Executive’s rights under any disability plan in which he is a participant.

               (c) Termination For Convenience. The Company may terminate Executive’s employment for its convenience prior to the Term Date. Should the Company exercise that right:

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                    (i) The Company in an attempt to ease the Executive’s transition, and upon receipt of a mutually satisfactory release, shall continue to pay to Executive a sum of money equal to the Base Compensation (less the amount allocated to the Automobile Allowance) for a period of three (3) years from the date the employment relationship with the Company terminates (the “Termination Date”). Provided, however, such payments by the Company shall be offset, during the third year following the Termination Date, by earned income realized by Executive from all sources other than directors’ fees paid by the Company. In addition, the Company will pay the Executive a monthly amount equal to the cost of COBRA under the medical plans offered by the Company for a period of eighteen (18) months.

                    (ii) All shares of stock granted to Executive and all unexercised options to purchase Company stock that are unvested at the time of the termination of employment shall become fully vested and exercisable.

                    (iii) The payments described in this Section 5.c shall be conditioned upon Executive’s continued compliance with the material obligations described in this Agreement. Should Executive violate any such obligations, in the good faith belief of the Company all payments shall cease

               (d) Termination By Company For Cause. At any time, and without prior notice, the Company may terminate Executive’s employment For Cause (as defined below). The Company shall pay Executive all compensation then due and owing; thereafter, all of the Company’s obligations under this Agreement shall cease. Termination for “Cause” shall mean termination of Executive’s employment because of Executive’s (i) involvement in fraud, misappropriation or embezzlement related to the business or property of the company; (ii) conviction for, or guilty or “no contest” plea to, a felony; (iii) material breach of this Agreement; (iv) a pattern of failure to substantially perform his duties under this Agreement, provided, however, that if such Cause is reasonably curable, the company shall not terminate Executive’s employment hereunder unless the Company first gives notice of its intention to terminate and the grounds of such termination, and the Executive has not, within thirty (30) days following receipt of this notice, cured such Cause, to the satisfaction of the Company.

               (e) By Executive For His Convenience. At any time, Executive may terminate the Period of Employment for any reason, with or without cause, by providing Company thirty (30) days’ advance written notice. Company shall have the option, in its complete discretion, to make termination of the Period of Employment effective at any time prior to the end of such notice period, provided Company pays Executive all compensation due and owing through the last day actually worked, plus an amount equal to the base salary Executive would have earned through the balance of the above notice period, thereafter, all of Company’s obligations under this Agreement shall cease.

               (f) By Executive Following Change in Leadership. Executive may terminate, without liability, the Period of Employment if another individual, other than Executive, succeeds the current incumbent as President and Chief Executive Officer of the Company, provided Executive gives Employer ninety (90) days advance written notice of this

4

reason for termination of his employment. If Executive resigns for this reason, he will receive the benefits owed him upon occurrence of a “corporate transition,” as set forth in Section 5(g) below.

               (g) Corporate Transition.

                    (i) Corporate Transition Defined. For purposes of this Agreement, a “Corporate Transition” shall include any of the following transactions to which the Company is a party: (A) a merger or consolidation in which the Company is not the surviving entity and securities representing more than fifty percent (50%) of the total combined voting power of the Company’s outstanding securities are transferred to a holder different from those who held such securities immediately prior to such merger; (B) the sale, transfer or other disposition of all or substantially all of the assets of the Company in liquidation or dissolution of the Company; (C) any reverse merger in which the Company is the surviving entity but in which securities representing more than fifty percent (50%) of the total combined voting power of the Company’s outstanding securities are transferred to holder different from those who held such securities immediately prior to such merger; or (D) any cash dividend paid by the Company that, in the aggregate with all other dividends paid in any twelve month period, is greater than the combined earnings of the Company for the Company’s two fiscal years prior to such dividend payment date. In addition, a Corporate Transaction shall also include a “Change of Control” as such term is defined in the Company’s 2001 Stock Option Plan, a “Capital Change of the Company” as such term is defined in the Company’s 1997 Stock Option Plan or a “Corporate Capital Transaction” as such term is defined in the Company’s 1991 Stock Option Plan.

                    (ii) Acceleration of vesting at time of Corporate Transition. Should a Corporate Transition take place, all shares of stock granted to Executive and all unexercised options to purchase Company stock granted to the Executive that are unvested at the time of the Corporate Transition shall become fully vested and exerciseable.

                    (iii) Benefits Upon Occurrence of Corporate Transition. Upon the occurrence of a Corporate Transition and subject to the obligations in Section 6.d.-e. below, Executive shall be entitled to the benefits described in Section 5.c above, regardless of whether the Executive’s employment is terminated in connection with such Corporate Transition.

6. Termination Obligations

               (a) Return of Company’s Property. Executive hereby acknowledges and agrees that all personal property, including, without limitation, all books, manuals, records, reports, notes, contracts, lists, blueprints, and other documents, or materials, or copies thereof, and equipment furnished to or prepared by Executive in the course of or incident to Executive’s employment, belong to Company and shall be promptly returned to Company upon termination of Executive’s employment.

               (b) Representations and Warranties Survive Termination of Employment. The representations and warranties contained herein shall survive termination of Executive’s employment and expiration of this Agreement.

5

               (c) Cooperation in Pending Work. Following termination of Executive’s employment for any reason, Executive shall fully cooperate with Company in all matters relating to the winding up of pending work on behalf of Company and the orderly transfer of work to other employees of Company. Executive shall also cooperate in the defense of any litigation, judicial or administrative, brought by any third party against Company that relates in any way to Executive’s knowledge, acts or omissions or duties while employed by Company. If Executive’s cooperation in the defense of any such action requires more than ten (10) hours of Executive’s time, the Executive and Company shall agree on appropriate remuneration for Executive’s time and expenses.

               (d) Noncompetition. Executive acknowledges and agrees that during his employment with the Company, he has had access to confidential information and the activities forbidden by this subsection would necessarily involve the improper use and disclosure of this confidential information. To forestall this use or disclosure, Executive agrees that during the Period described in Section 5.c when payments to Executive are being made, or for two years after the termination of Executive for reasons other than for Company’s, the Executive shall not, directly or indirectly, (i) divert or attempt to divert from the Company (or any Affiliate) any business of any kind in which it is engaged; (ii) employ or recommend for employment any person employed by the Company (or any Affiliate); or (iii) engage in any business activity that is competitive with the Company (or any Affiliate) in any state where the Company can demonstrate its intention to conduct business, unless Executive can prove that any of the above actions was done without the use of confidential information. In addition to the above restrictions on competitive activity, and regardless of whether any use of confidential information is involved, Executive agrees that during the Payment Period referred to in Section 5(c)(ii) shall not, directly or indirectly, (i) solicit any customer of the Company (or any Affiliate) known to Executive (while he was employed by the Company) to have been a customer with respect to products or services competitive with products or services offered by the Company; or (ii) solicit for employment any person employed by the Company (or any Affiliate).

               (e) Confidential Information.

                    (i) The Executive shall never, either during the Term of the Executive’s Employment by the Company or thereafter, use or employ for any purpose or disclose to any other individual or entity any Confidential Information. The Executive acknowledges and agrees that all Confidential Information is proprietary to the Company, is extremely important to the Company’s business, and that the use by or disclosure of such Confidential Information to a Competitor could materially and adversely affect the Company, its business and its customers.

                    (ii) For purposes of this Agreement, the term “Company” shall refer to the Company and subsidiary corporations, and any other corporation or entity that is owned, controlled or affiliated, directly or indirectly, by the Company or that is under common ownership or control with the Company.

                    (iii) For purposes of this Agreement, the term “Confidential Information” shall mean information in any form that is not generally known to the public that relates to the Company’s past, present or future operations, processes, products or services, or to

6

any research, development, manufacture, purchasing, accounting, engineering, marketing, merchandising, advertising, selling, leasing, financing or business methods or techniques (including without limitation customer lists, records of customer services, usages and requirements, sketches and diagrams of Company or customer facilities and like and similar information relating to actual or prospective customers) that is or may be related thereto. All information disclosed to the Executive or to which the Executive obtains access during any Term of the Executive’s Employment with the Company, whether pursuant to this Agreement or otherwise, or to which the Executive obtains access by reason of his employment by the Company, that the Executive has a reasonable basis to believe is or may be Confidential Information, shall be presumed for purposes of this Agreement to be Confidential Information.

7. Notices

               All notices or other communications required or permitted hereunder shall be made in writing and shall be deemed to have been duly given if delivered by hand or mailed, postage prepaid, by certified or registered mail, return receipt requested, and addressed to the Company:

American Pacific Corporation
3770 Howard Hughes Parkway, Suite 300
Las Vegas, NV 89109

and to Executive at:

               The Executive’s address as set forth on the signature page to this Agreement.

     Executive and the Company shall be obligated to notify the other party of any change in address. Notice of change of address shall be effective only when made in accordance with this Section.

8. Entire Agreement

               This Agreement is intended to be the final, complete, and exclusive statement of the terms of Executive’s employment by The Company. Except for any stock option agreements and other agreements independently evidencing a loan or other obligation, to or by the parties hereto, this Agreement supersedes all other prior and contemporaneous agreements and statements pertaining in any manner to the employment of Executive and it may not be contradicted by evidence of any prior or contemporaneous statements or agreements. To the extent that the practices, policies, or procedures of Company, now or in the future, apply to Executive and are inconsistent with the terms of this Agreement, the provisions of this Agreement shall control.

9. Amendments, Waivers

               This Agreement may not be modified, amended, or terminated except by an instrument in writing, signed by Executive and by the CEO pursuant to authorization signed by

7

the CEO. No failure to exercise and no delay in exercising any right, remedy, or power under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy, or power under this Agreement preclude any other or further exercise thereof, or the exercise of any other right, remedy, or power provided herein or by law or in equity.

10. Assignment; Successors and Assigns

               Executive agrees that he will not assign, sell, transfer, delegate or otherwise dispose of, whether voluntarily or involuntarily, or by operation of law, any rights or obligations under this Agreement, nor shall Executive’s rights be subject to encumbrance or the claims of creditors. Any purported assignment, transfer, or delegation shall be null and void. Nothing in this Agreement shall prevent the consolidation of the Company with, or its merger into, any other corporation, or the sale by the Company of all or substantially all of its properties or assets, or the assignment by the Company of this Agreement and the performance of its obligations hereunder to any successor in interest. In the event of a change in ownership or control of the Company, the terms of this Agreement will remain in effect and shall be binding upon any successor in interest. Notwithstanding and subject to the foregoing, this Agreement shall be binding upon and shall inure to the benefit of the parties and their respective heirs, legal representatives, successors, and permitted assigns, and shall not benefit any person or entity other than those enumerated above.

11. Severability; Enforcement

               If any provision of this Agreement, or the application thereof to any person, place, or circumstance, shall be held by a court of competent jurisdiction to be invalid, unenforceable, or void, the remainder of this Agreement and such provisions as applied to other persons, places, and circumstances shall remain in full force and effect.

12. Governing Law

               The validity, interpretation, enforceability, and performance of this Agreement shall be governed by and construed in accordance with the law of the State of Nevada.

13. Arbitration

               Any claim or controversy between Executive and Company or its successor arising under or in connection with this Agreement shall be settled by arbitration in accordance with the then current Employment Dispute Resolution Rules of the American Arbitration Association and shall be the exclusive remedy for all Arbitrable Claims. Company and Executive agree that arbitration shall be held in or near Clark County, Nevada, before an arbitrator licensed to practice law in the State of Nevada. The arbitrator shall have authority to award or grant legal, equitable, and declaratory relief. Such arbitration shall be final and binding on the parties. The Federal Arbitration Act shall govern the interpretation and enforcement of this section pertaining to Arbitration.

               This Agreement to arbitrate survives termination of Executive’s employment.

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               In any dispute arising under or in connection with this Agreement, the prevailing party shall be entitled to recover all costs and reasonable attorney’s fees.

               In the event Executive elects to file suit over a dispute covered by this Section, the Company shall have the option to seek an order from any court of competent jurisdiction, or proceed to defend the case filed by the Executive who agrees herein to waive trial by jury and proceed to a trial by judge without jury.

14. Acknowledgment of Parties

               The parties acknowledge (a) that they have consulted with or have had the opportunity to consult with independent counsel of their own choice concerning this Agreement, and (b) that they have read and understand the Agreement, are fully aware of its legal effect, and have entered into it freely based on their own judgment and not on any representations or promises other than those contained in this Agreement, with the exception of the Offer Letter dated September 5, 2006 which is incorporated herein by reference and attached hereto.

15. Date of Agreement

     IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.

“Company”

AMERICAN PACIFIC CORPORATION

/s/ John R. Gibson

By: John R. Gibson

Title: Chairman, President and CEO

“Executive”

/s/ Joseph Carleone

Joseph Carleone

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EX-10.7

Exhibit 10.7

AMPAC FINE CHEMICALS LLC PENSION PLAN

FOR BARGAINING UNIT EMPLOYEES

AMPAC FINE CHEMICALS LLC PENSION PLAN
FOR BARGAINING UNIT EMPLOYEES

TABLE OF CONTENTS

		Page
ARTICLE I	GENERAL MATTERS AND PURPOSE		1
1.1	General		1
1.2	Purpose of Plan		1
ARTICLE II	EFFECTIVE DATE		2
ARTICLE III	DEFINITIONS		3
3.1	Actuarial Equivalent		3
3.2	Aerojet Plan		4
3.3	AFC Plan		4
3.4	Affiliated Company		4
3.5	Annuity Starting Date		4
3.6	Beneficiary		4
3.7	Board of Directors		5
3.8	Break in Service		5
3.9	Company		6
3.10	Credited Service		7
3.11	Cumulative Service		8
3.12	Early Retirement Date		10
3.13	Employee		10
3.14	Hour of Service		11
3.15	Investment Manager		13
3.16	Joint Annuitant		13
3.17	Labor Agreement		13
3.18	Leave of Absence		13
3.19	Leased Employee		13
3.20	Member Company		14
3.21	Normal Retirement Date		14
3.22	Participant		14
3.23	Pension Plan Committee		14
3.24	Plan		14
3.25	Plan Administrator		15
3.26	Plan Year		15

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		Page
3.27	Program C		15
3.28	Qualified Election		15
3.29	Sponsor		16
3.30	Spouse		16
3.31	Trust Agreement		17
3.32	Trust Fund		17
3.33	Trustee		17
ARTICLE IV	PARTICIPATION		18
ARTICLE V	CONTRIBUTIONS		19
ARTICLE VI	RETIREMENT		20
6.1	Normal Retirement Date		20
6.2	Early Retirement Date		20
6.3	Late Retirement Date		20
ARTICLE VII	DETERMINATION OF RETIREMENT INCOME		21
7.1	Retirement at Normal Retirement Date		21
7.2	Retirement at Early Retirement Date		22
7.3	Limitation on Benefits		23
7.4	Retirement on Late Retirement Date		23
ARTICLE VIII	DISABILITY BENEFIT		24
8.1	Eligibility		24
8.2	Total and Permanent Disability		24
8.3	Medical Examinations		25
8.4	Disability Benefits		25
8.5	Deduction from Disability Benefits		27
ARTICLE IX	VESTING AND VESTED TERMINATION		28
9.1	Vesting		28
9.2	Vested Termination of Employment		28
9.3	Form and Amount of Vested Termination Benefits		28
ARTICLE X	PAYMENT OF BENEFITS		30
10.1	Normal Form of Payment		30
10.2	Optional Form of Payment		30
10.3	Election Not to Take Joint & Survivor Annuity	32

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		Page
10.4	Designation of Joint Annuitant		33
10.5	Conditions of Qualified Election		33
10.6	Limitations on Distribution of Benefits		33
10.7	Direct Rollover		37
10.8	Consent to Certain Distribution of Benefits		39
ARTICLE XI	NO PAYMENT OF BENEFITS DURING EMPLOYMENT		42
11.1	No Commencement of Benefits
	During Employment		42
11.2	Suspension of Benefits		42
ARTICLE XII	SPOUSAL DEATH BENEFIT		43
12.1	Spousal Death Benefit		43
12.2	Marriage Requirement		44
12.3	Certain Elections		44
12.4	Cost of Benefit		45
ARTICLE XIII	TRANSFER OF EMPLOYMENT		47
ARTICLE XIV	AFFILIATED SERVICE		48
14.1	Definitions		48
14.2	Credited Service		48
14.3	Cumulative Service		48
14.4	Limitation on Affiliated Service		49
ARTICLE XV	APPLICATION FOR BENEFITS		50
15.1	Application for Benefits		50
15.2	Action on Application		52
15.3	Claim Review Procedure		53
ARTICLE XVI	ADMINISTRATION		57
16.1	The Pension Plan Committee		57
16.2	Pension Plan Committee Procedure		57
16.3	Pension Plan Committee Powers		57
16.4	Allocation and Delegation of Duties		59
16.5	Expenses		59
16.6	Accrued Benefits		59
16.7	Periodic Review		59

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		Page
16.8	Investment Administration		59
16.9	Compensation and Expenses of Fiduciaries		60
ARTICLE XVII	AMENDMENT		61
ARTICLE XVIII	RIGHT TO DISCONTINUE OR TERMINATE; ALLOCATION OF ASSETS UPON TERMINATION		63
18.1	No Contractual Obligation		63
18.2	Vesting Upon Termination of Plan		63
18.3	Allocation of Assets Upon Plan Termination		63
18.4	Distribution of Residual Assets		64
ARTICLE XIX	GENERAL MATTERS		65
19.1	No Enlargement of Employee Rights		65
19.2	Benefits from Trust Fund		65
19.3	No Alienation		65
19.4	Facility of Payment		66
19.5	Location of Payee		67
19.6	Payment of Small Benefits		67
19.7	The Trust Agreement		69
19.8	Application of Forfeitures		69
19.9	Irrevocability		69
19.10	Merger Restriction		70
19.11	Article Headings		71
19.12	Gender		71
19.13	Amendments		71
19.14	Applicable Law		71
19.15	Veterans’ Reemployment Rights		71
ARTICLE XX	LIMITATIONS ON BENEFITS		72
20.1	Basic Limitation		72
20.2	Membership in Other Plans		73
20.3	Payment Prior to Age Sixty-Two or After Age Sixty-Five		73
20.4	Exception		74
20.5	Adjustment of Limitation		74
20.6	Adjustment		74
20.7	Special Affiliation Rule		74
20.8	Compensation		75

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		Page
ARTICLE XXI	SPECIAL QUALIFICATION PROVISION		76
APPENDIX
SCHEDULES (A, B, C, D)

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AMPAC FINE CHEMICALS LLC PENSION PLAN
FOR BARGAINING UNIT EMPLOYEES

ARTICLE I

GENERAL MATTERS AND PURPOSE

     1.1 General. This document sets forth the provisions of the Ampac Fine Chemicals LLC Pension Plan for Bargaining Unit Employees (“Plan”) as in effect from and after December 1, 2005. This document reflects provisions of the Plan applicable to hourly-paid employees at Ampac Fine Chemicals LLC.

     This Plan was established on December 1, 2005 and received a transfer of assets and liabilities from the GenCorp Consolidated Pension Plan (Program “C”) with respect to certain participants therein who become bargaining employees of Ampac Fine Chemicals LLC on December 1, 2005.

     1.2 Purpose of Plan. The purpose of the Plan is to provide retirement benefits for certain Employees of the Member Companies, as defined herein.

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ARTICLE II

EFFECTIVE DATE

     The effective date of the Ampac Fine Chemicals LLC Pension Plan for Bargaining Employees is December 1, 2005.

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ARTICLE III

DEFINITIONS

     The following words and phrases as used in this instrument shall have the meaning stated in this Article III unless it shall appear from the context that they have a plainly different meaning:

     3.1 Actuarial Equivalent. “Actuarial Equivalent” means an amount which, at the date of determination, is actuarially equivalent to any benefit required to be calculated hereunder, computed using the interest rate and the mortality table specified below:

     (a) Except as provided in subsection (b), the interest rate shall be 8 1/2% and the mortality table shall be the Group Annuity Table for 1983, set back by two years for a Participant and four years for a spouse or other joint participant.

     (b) For determinations of actuarial equivalents of benefits in the form of lump sum payments, the interest rate shall be determined using whichever of the factors described below results in the largest value: (i) the factors specified in subsection (a); (ii) the mortality table specified in subsection (a) and the interest rate published by the Pension Benefit Guaranty Corporation (as of the first day of the Plan Year in which such determination is made) for the purpose of determining the present value of benefits for terminating single-employer plans; or (iii) the applicable mortality table and the applicable interest rate, as defined below:

     (A) The term “applicable mortality table” shall mean the table prescribed by the Secretary of the Treasury under Code Section 417(e)(3). As of December 1, 2005, the applicable mortality table is the table prescribed in Rev. Rul. 2001-62.

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     (B) The term “applicable interest rate shall mean the annual rate of interest on 30-year Treasury securities as specified by the Commissioner of Internal Revenue for the month preceding the Plan Year in which falls the Annuity Starting Date for the distribution.

     3.2 Aerojet Plan. “Aerojet Plan” shall mean the Aerojet-General Corporation Consolidated Pension Plan.

     3.3 AFC Plan. “AFC Plan” shall mean the “Aerojet Fine Chemicals LLC Consolidated Pension Plan.”

     3.4 Affiliated Company. “Affiliated Company” shall mean (a) any corporation which is included in a controlled group of corporations (within the meaning of Section 414(b) of the Internal Revenue Code), which group also includes the Company, (b) any trade or business which is under common control with the Company (within the meaning of Section 414(c) of the Internal Revenue Code), and (c) any member of an affiliated service group (within the meaning of Section 414(m) of the Internal Revenue Code) which includes the Company.

     3.5 Annuity Starting Date. “Annuity Starting Date” shall mean the first day of the first period for which an amount is payable as an annuity, or in the case of a benefit not payable as an annuity, the first day on which all events have occurred which entitle the Participant to such benefit.

     3.6 Beneficiary. “Beneficiary” shall mean the person (other than a Joint Annuitant) designated by a Participant pursuant to a Qualified Election, to receive any benefits payable in the event of the death of the Participant, his Spouse, and his designated Joint Annuitant, as the case may be.

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     Wherever provision is made hereunder for the payment of any death benefit to the Beneficiary of a Participant and there shall be no properly designated Beneficiary surviving such Participant, such benefit shall be paid to the Participant’s Spouse, if any, or if there is no spouse, to the executor or administrator of the estate of such Participant, or, if no executor or administrator has been duly designated and qualified, then such benefit shall be paid to the survivors of the Participant in the following order of priority:

(a)	Children;
(b)	Parents;
(c)	Brothers and sisters;
(d)	Heirs at law.

     3.7 Board of Directors. “Board of Directors” shall mean the Board of Directors of American Pacific Corporation.

     3.8 Break in Service. “Break in Service” or “Break” shall mean a Plan Year during which a Participant completes fewer than five hundred (500) Hours of Service. Solely for purposes of determining whether a Participant has sustained a Break in Service, an Employee’s Hours of Service shall also include the following (to the extent not included in the definition of Hours of Service in this Article III):

     (a) Any period of layoff, provided that the Employee is recalled and returns to the employ of a Member Company or Affiliated Company within the period of time provided under a Labor Agreement applicable to him or under the practice of the company if no Labor Agreement is applicable to him;

     (b) Any period of absence (other than an absence described in subsection (c) below) pursuant to a Leave of Absence (not in excess of one year), provided that the

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Employee returns to the employ of a Member Company or an Affiliated Company immediately upon expiration of such Leave of Absence, and

     (c) Any period of absence, by reason of the pregnancy of the Employee, by reason of the birth of a child of the Employee, by reason of the placement of a child with the Employee in connection with the adoption of such child by the Employee, or for purposes of caring for such child for a period beginning immediately following the birth or placement of such child.

     The number of additional Hours of Service deemed completed pursuant to subsections (a) and (b) above, shall be in accordance with the Employee’s customary schedule of employment. The number of additional Hours of Service deemed completed pursuant to subsection (c) above, shall be in accordance with the Employee’s customary schedule of employment, provided, however that no more than five hundred and one (501) Hours of Service shall be deemed to have been completed with respect to absences with respect to a single pregnancy, birth or placement described in subsection (c). Hours deemed completed pursuant to subsection (c) shall be credited to the Plan Year in which the absence from work begins if the Employee would be prevented from incurring a Break in Service in such Plan Year solely because of such additional Hours, and in any other case, in the immediately following Plan Year. The Pension Plan Committee may require, as a condition of recognizing any Hours pursuant to subsection (c), that the Employee provide such information as the Pension Plan Committee reasonably requests to establish the reason for the absence and the number of days for which there was such an absence.

     3.9 Company. “Company” shall mean Ampac Fine Chemicals LLC.

     3.10 Credited Service. “Credited Service” shall mean the number of years of Credited Service of a Participant determined in accordance with this Section, which shall be considered in

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determining a Participant’s benefits under this Plan. A Participant shall be deemed to accrue a full year of Credited Service in each Plan Year in which he completes at least one thousand eight hundred (1,800) Hours of Service. In addition, in any Plan Year in which the Participant completes less than one thousand eight hundred (1,800) Hours of Service, a Participant shall be deemed to complete one-twelfth (1/12th) of a year of Credited Service for each one hundred fifty (150) Hours of Service completed during such Plan Year. With respect to employees who became Participants on December 1, 2005, as the result of the transfer of assets and liabilities to this Plan from Program C, “Credited Service” shall also include “Credited Service” as of November 30, 2005 as that term was defined in Program C as in effect on that date and as set forth in Schedule D. For purposes of determining a Participant’s Credited Service the following rules shall apply:

     (a) Except as provided above with respect to credited service recognized under Program C prior to December 1, 2005, Hours of Service shall not be taken into account which are accrued by a Participant for service other than as an Employee, as defined in this instrument;

     (b) Hours of Service shall not be taken into account which are accrued by any person during any period of time during which he is covered under any other pension or retirement plan to which a Member Company contributes, except a federal or state, social security or similar welfare program;

     (c) Hours of Service shall not be taken into account which are accrued by a Participant while on Leave of Absence or during lay-off, provided, however, that the period of a Leave of Absence to conduct local Union activities approved by the Company shall be part of such Employee’s Credited Service;

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     (d) In the case of any Participant who has a Break in Service and who, immediately preceding such Break does not have a vested right to Benefits under this Plan, the Credited Service of such Participant accrued under this Plan prior to such Break shall not be taken into account if the number of consecutive Breaks in Service exceeds the greater of (i) five (5) or (ii) the aggregate number of years of Cumulative Service (including Cumulative Service deemed to be earned by reason of service for a Member Company or an Affiliated Company pursuant to Article XIII) prior to such Break. Such aggregate number of years of Cumulative Service prior to such Break shall not include any years of Cumulative Service not required to be taken into account under this subsection (d) by reason of any prior Break in Service;

     (e) In the case of any Participant who has a Break in Service and who, immediately preceding such Break does not have a vested right to Benefits under this Plan, the Credited Service of such Participant prior to such Break shall not be taken into account until the end of a twelve (12) consecutive month period commencing after such Break in which the Participant completes at least one thousand (1,000) Hours of Service.

     (f) A Participant who was employed by Aerojet Fine Chemicals LLC on June 1, 2000 shall have included in his Credited Service, for the purpose of determining his Pension Benefit, all service which is counted as Credited Service under the Aerojet Plan or the Non-Contributory Pension Plan of GenCorp Inc. as indicated on Schedule D.

A Participant shall in no event be deemed to accrue more than one (1) full year of Credited Service with respect to any Plan Year.

     3.11 Cumulative Service. “Cumulative Service” shall mean the number of years of Cumulative Service of an Employee determined in accordance with this Section and Article XIII,

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which shall be considered in determining an Employee’s vesting in benefits under this Plan. An Employee shall be deemed to accrue a full year of Cumulative Service in each Plan Year in which he completes at least one thousand (1,000) Hours of Service. In addition, in any Plan Year in which the Employee completes less than one thousand (1000) Hours of Service, an Employee shall be deemed to complete one-twelfth (1/12) of a year of Cumulative Service for each one hundred fifty (150) Hours of Service completed during such Plan Year. With respect to employees who became Participants on December 1, 2005 as the result of the transfer of assets and liabilities to this Plan from Program C, “Cumulative Service” shall also include “Cumulative Service” as of November 30, 2005 as that term was defined in Program C as in effect on that date and as set forth in Schedule D.

     For purposes of determining an Employee’s Cumulative Service, the following rules apply:

     (a) In the case of any Employee who has a Break in Service and who, immediately preceding such Break does not have a vested right to benefits under this Plan, the Cumulative Service of such Employee prior to such Break shall not be taken into account if the number of consecutive Breaks in Service exceeds the greater of (i) five (5) or (ii) the aggregate number of years of Cumulative Service (including Cumulative Service deemed to be earned by reason of service for a Member Company or an Affiliated Company pursuant to Article XIII) prior to such Break. Such aggregate number of years of Cumulative Service prior to such Break shall be deemed not to include any years of Cumulative Service not required to be taken into account under this subsection (a) by reason of any prior Break in Service.

9

     (b) In the case of any Employee who has a Break in Service and who, immediately preceding such Break does not have a vested right to benefits under this Plan, the Cumulative Service of such Employee prior to such Break shall not be taken into account until the end of a twelve (12) consecutive month period commencing after such Break in which the Employee completes at least one thousand (1,000) Hours of Service.

     An Employee shall in no event be deemed to accrue more than one (1) full year of Cumulative Service with respect to any Plan Year.

     Solely for purposes of determining a Participant’s vested benefits pursuant to Section 9.1, the Participant’s Cumulative Service shall include any period during which the Participant was performing services for a Member Company pursuant to an arrangement between the Member Company and a leasing organization, whether or not the Participant was a Leased Employee during such period.

     Employment with any Affiliated Company or any other entity required to be aggregated with the Company pursuant Code Section 414(o), will be treated as employment with the Company solely for purposes of determining a Participant’s Cumulative Service for vesting purposes under this Plan; provided, however, that unless otherwise specifically provided under the Plan, any individual receiving credited Hours of Service under this provision shall not be eligible to participate in the Plan or eligible to accrue benefits under the Plan unless the individual is an Employee of a Member Company.

     3.12 Early Retirement Date. “Early Retirement Date” shall mean the Early Retirement Date determined in accordance with Section 6.2.

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     3.13 Employee. “Employee” shall mean any person employed on an hourly basis by a Member Company and may, with the approval of the Pension Plan Committee, include any Employee who is loaned to another organization or entity for a period of time; provided in each case that the Member Company is required by applicable law to deduct federal income tax and social security tax amounts. However, unless otherwise designated by the Board of Directors, “Employee” does not include a person who becomes employed by a Member Company through the:

     (a) Legal dissolution and winding up of an Affiliated Company which was not a Member Company; or

     (b) Merger into a Member Company of any other corporation or Affiliated Company which is not a Member Company; or

     (c) Transfer of all or part of the assets to a Member Company by another company together with a group of the transferor’s employees.

     3.14 Hour of Service. “Hour of Service” shall mean (a) each hour for which an Employee is directly or indirectly paid, or entitled to payment, by a Member Company for the performance of duties as an Employee, (b) each hour for which an Employee is paid or entitled to payment by the Member Company on account of a period during which no duties are performed, and (c) each hour for which back pay, irrespective of mitigation of damages, is either awarded or agreed to by the Member Company. Overtime work shall be credited as straight time. The determination of an Employee’s “Hours of Service” shall be governed by the following rules:

     (1) Hours of Service to be recognized during any period of time during which no duties are performed by the Employee shall be determined and credited pursuant to

11

Department of Labor Regulations Sections 2530.200b-2(b) and (c), 29 C.F.R. §§ 2530.200b-2(b) and (c), with the following special provisions:

     (i) An Employee shall be deemed to complete eight (8) Hours of Service for each paid holiday not worked;

     (ii) An Employee shall be deemed to complete forty (40) Hours of Service for each week of paid vacation or week of paid sick leave not worked;

     (iii) An Employee shall be deemed to complete forty (40) Hours of Service for each week of military service with respect to which he is entitled to credit for such Hours of Service under applicable federal law (but only for such purposes as credit is required to be given under such law);

     (iv) An Employee shall be deemed to complete forty (40) Hours of Service for each week absent from work due to illness or accident and for which he is entitled to Workers’ Compensation benefits, subject to a maximum of six (6) months for each such accident or illness.

     (v) No more than five hundred and one (501) Hours of Service shall be credited to an Employee on account of any single continuous period during which the Employee performs no duties.

     (2) No Employee shall be deemed to earn Hours of Service solely by reason of receiving payments pursuant to a plan maintained for the purpose of complying with applicable worker’s compensation, unemployment compensation or disability insurance laws, nor shall an Employee be deemed to earn Hours of Service by reason of the receipt of payments which reimburse such Employee for medical or medically related expenses incurred by the Employee.

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     (3) With respect to any period of service, an Employee shall not receive credit for Hours of Service pursuant to more than one provision of this definition.

     3.15 Investment Manager. “Investment Manager” shall mean any person who the Pension Plan Committee designates pursuant to Section 16.8 and is either a registered investment advisor, bank or insurance company as described in ERISA Section 3(38).

     3.16 Joint Annuitant. “Joint Annuitant” shall mean the person designated by a Participant, pursuant to the options provided by Section 10.2, to receive an annuity for life upon the death of the Participant after his retirement.

     3.17 Labor Agreement. “Labor Agreement” shall mean an agreement between the Company and a recognized collective bargaining agent.

     3.18 Leave of Absence. “Leave of Absence” shall mean a period of absence from regular employment which is approved by a Member Company. The employment of an Employee whose approved Leave of Absence is terminated without his returning to regular employment with the Company shall be terminated effective at the commencement of such approved Leave of Absence.

     3.19 Leased Employee. “Leased Employee” means any person (other than an Employee of a Member Company) who has performed services for a Member Company (or for a Member Company and related persons as determined under Code Section 414(n)(6) which services (i) are performed under an agreement between a Member Company and a leasing organization on a substantially full-time basis for a period of at least one (1) year, and (ii) are performed under the direction and control of the Member Company.

     Any Leased Employee will not be treated as an Employee of a Member Company for purposes of eligibility to participate in the Plan or for purposes of accrual of benefits under the

13

Plan. However, a Leased Employee will be treated as an Employee of a Member Company for purposes of Code Sections 401(a), 410, 411, 415, and 416; provided, however, that a Leased Employee will not be treated as employed by the Member Company if (i) the Leased Employee is covered by a money purchase pension plan maintained by the leasing organization that provides (A) a nonintegrated employer contribution of at least 10% of compensation, as defined in Code Section 415(c)(3), including amounts contributed pursuant to a salary reduction agreement that are excludible from the employee’s gross income under Code Sections 125, 402(e)(3), 401(h)(1)(B) or 403(b); (B) immediate participation; and (C) full and immediate vesting, and (ii) Leased Employees do not constitute more than twenty percent (20%) of the leasing organization’s nonhighly compensated employees, as that term is defined under Code Section 414(q).

     3.20 Member Company. “Member Company” shall mean the Company, any Affiliated Company, or any division or unit of the Company or of an Affiliated Company which may be included in this Plan by designation of the Board of Directors, and in the case of an Affiliated Company, by adoption of this Plan by such Affiliated Company.

     3.21 Normal Retirement Date. “Normal Retirement Date” shall mean the Normal Retirement Date determined in accordance with Section 6.1.

     3.22 Participant. “Participant” shall mean a person who has become eligible to participate in Plan in accordance with the provisions of Article IV, and who has not yet been paid in full any benefits to which he is entitled under the terms of this Plan.

     3.23 Pension Plan Committee. “Pension Plan Committee” shall mean the Committee described in Section 16.1.

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     3.24 Plan. ” Plan “ shall mean the Ampac Fine Chemicals LLC Pension Plan for Bargaining Unit Employees.

     3.25 Plan Administrator. “Plan Administrator” shall mean the Sponsor or such other entity or person the Board of Directors may designate.

     3.26 Plan Year. “Plan Year” shall mean the fiscal year of the Plan. The Plan Year shall be the twelve (12) month period commencing each October 1 and ending the following September 30. The first Plan year will be the period beginning December 1, 2005 and ending on September 30, 2006.

     3.27 Program C. “Program C” shall mean the GenCorp Consolidated Pension Plan (Program C).

     3.28 Qualified Election. “Qualified Election” shall mean a Participant’s election, designation or waiver made under this Plan in accordance with the requirements of this Section and in the manner and form as prescribed by the Pension Plan Committee.

     (a) To the extent required under Section 417 of the Internal Revenue Code, no election, designation or waiver shall be deemed to be a Qualified Election unless the Spouse, if any, of the Participant consents in writing to such election, designation or waiver and acknowledges the effect of such election, designation or waiver. The Spouse’s consent to an election, designation or a waiver must be witnessed by a notary public.

     (b) Notwithstanding this consent requirement, if the Participant warrants to the Pension Plan Committee that such written consent may not be obtained because there is no Spouse or the Spouse cannot be located or for any other reason as the Pension Plan Committee determines to be consistent with the requirements of Section 417 of the Code,

15

a related election, designation or waiver without spousal consent may be deemed a Qualified Election; provided, however, that the Pension Plan Committee may require the Participant in such case to produce such evidence of the Spouse’s unavailability or other circumstances as the Pension Plan Committee deems to be appropriate.

     (c) A Qualified Election under this provision will be valid only with respect to the Spouse who consented to the Qualified Election, or in the event of a Qualified Election in which the Spouse’s consent has not been obtained, with respect to a designated Spouse (e.g., that Spouse who cannot be located).

     (d) A revocation of a prior election, designation or waiver may be made by a Participant without the consent of the Spouse at any time before the commencement of benefits, but any subsequent election, designation or waiver shall again be subject to the foregoing rules. Subject to the foregoing (relating to a change by a Participant), the consent by a Spouse to an election, designation or waiver shall be irrevocable. The number of revocations and subsequent elections, designations or waivers shall not be limited during any applicable election period.

     (e) An election, designation or waiver which, by reason of a failure to obtain required spousal consent could not be given effect when made, may later be given effect if at the relevant date the Participant has no Spouse or is not then otherwise required to have spousal consent.

     3.29 Sponsor. “Sponsor” shall mean the American Pacific Corporation.

     3.30 Spouse. “Spouse” shall mean, as required by the context of specific provisions of this instrument, the person to whom the Participant is lawfully married on the date on which

16

payment of benefits commences or for purposes of the spousal death benefit under Article XII, the person to whom such deceased Participant is married on the date of such Participant’s death.

     3.31 Trust Agreement. “Trust Agreement” shall mean the trust agreement effective as of December 1, 2005, by and between Ampac Fine Chemicals LLC and/or American Pacific Corporation and the trustee designated therein, or such other trust agreement or agreements that may be established from time to time hereunder and as the same may from time to time be amended and/or restated.

     3.32 Trust Fund. “Trust Fund” shall mean all cash and securities and all other assets of whatever nature deposited with or acquired by the Trustee or Trustees in the capacity of Trustee of this Plan and all accumulated income thereon.

     3.33 Trustee. “Trustee” shall mean the individual and/or entity designated in the Trust Agreement or any successor named as provided in the Trust Agreement and which executes a Trust Agreement as Trustee, or any other Trustee or Trustees designated in any trust agreement or trust agreements which may be established to carry out the purposes of this Plan.

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ARTICLE IV

PARTICIPATION

     Every Employee who was a participant in Program C on November 30, 2005 and who became an Employee on December 1, 2005 shall become a Participant in this Plan and become eligible to accrue benefits under this Plan on December 1, 2005.

     Every other Employee, as defined herein, shall become a Participant in this Plan on the date on which he becomes an Employee. No person shall be eligible to be a Participant in and accrue benefits under this Plan during any period of time during which he is covered under any other pension or retirement plan to which the Company contributes (including the Ampac Fine Chemicals Pension Plan for Salaried Employees), except a federal or state, social security or similar welfare program; nor shall any person be eligible to accrue benefits under this Plan during any period of time that such person is not an Employee, as defined in Article III.

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ARTICLE V

CONTRIBUTIONS

     The Member Companies will from time to time contribute such amounts as are required under the provisions of the Employee Retirement Income Security Act of 1974, and at their option may contribute additional amounts as they deem desirable. No Participant shall make any contribution under the Plan. All Member Company contributions made hereunder shall be deposited with the Trustee and held as part of the Trust Fund.

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ARTICLE VI

RETIREMENT

     6.1 Normal Retirement Date. The Normal Retirement Date of any Participant shall be the first day of the month coinciding with or next following his sixty-fifth (65th) birthday. Normal Retirement Age is age sixty-five (65).

     6.2 Early Retirement Date. Any Participant who is an Employee or in the active employment of an Affiliated Company, and who has attained age fifty-five (55) and completed at least ten (10) years of Cumulative Service may elect to retire on an Early Retirement Date. Such Early Retirement Date shall be the first day of any month selected by the Participant which occurs before his Normal Retirement Date and after his satisfaction of the age and service requirements set forth in the first sentence of this Section 6.2

     6.3 Late Retirement Date. A Participant who remains employed by the Company or an Affiliated Company beyond the date which would have been his Normal Retirement Date may retire as of the first day of any month thereafter, and the date of such subsequent retirement shall be his Late Retirement Date.

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ARTICLE VII

DETERMINATION OF RETIREMENT INCOME

     7.1 Retirement at Normal Retirement Date. The retirement income payable on Normal Retirement Date shall be payable as provided in Article X. The monthly amount of retirement income commencing on Normal Retirement Date and payable as a single life annuity for the life of a Participant who retires on his Normal Retirement Date shall be equal to the “Benefit Factor” (as set forth in the Appendix attached to this Plan) multiplied by the number of years of Credited Service recognized under this Plan.

     The Pension Benefit to which any Participant, who was employed by Aerojet Fine Chemicals LLC on June 1, 2000, is entitled under this Plan shall be offset and reduced by the amount of Pension Benefit such Participant is entitled to receive under the Aerojet Plan, assuming that payment of such Pension Benefit under the Aerojet Plan commences at the same time the Participant commences to receive his Pension Benefit under this Plan

     As of December 1, 2005, the Accrued Benefit of each Participant who became an Employee on that date in connection with the purchase of assets of Aerojet Fine Chemicals LLC is indicated on Schedule D of this Plan.

     For purposes of this Section 7.1, the following special rules shall apply:

     (a) The applicable Benefit Factor to be applied with respect to a period of participation at any employee unit of a Member Company shall be the Benefit Factor applicable to Participants terminating employment from such employee unit on the date of the Participant’s termination of employment from the Company and all Affiliated Companies;

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     (b) If a Participant’s retirement income is determined with respect to periods of participation at more than one employee unit of a Member Company, and, if on the effective date of such Participant’s termination of employment from the Company and all Affiliated Companies the Appendices attached to this instrument provide for special rules for the determination of retirement benefits (including but not limited to special benefit limitations or special factors to be used in computing adjustments for benefits commencing prior to age sixty-five (65)), such special rules shall apply, but only to the increment of retirement income determined for participation at the employee unit covered by such Appendix;

     7.2 Retirement at Early Retirement Date.

     (a) The retirement income payable on or after Early Retirement Date shall be payable as provided in Article X. A Participant who elects an Early Retirement Date may elect to have his retirement income commence either as of his Normal Retirement Date, or as of the first day of any month selected by him which is after his Early Retirement Date and prior to his Normal Retirement Date. The monthly amount of retirement income commencing on Normal Retirement Date and payable as a single life annuity for the life of a Participant electing an Early Retirement Date shall be determined as provided in Section 7.1 and 7.5, based, however, upon the Participant’s years of Credited Service as of his Early Retirement Date. If a Participant (other than a Participant described in subsection (b) below) elects to have his retirement income commence prior to his Normal Retirement Date, as provided above, the monthly amount of retirement income otherwise payable shall be reduced by four-tenths of one percent (0.4%) for each month that the

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commencement of such person’s retirement income precedes the first day of the month coinciding or next following his sixty-second (62nd) birthday.

     (b) In the case of a person whose employment terminates prior to Early Retirement Date with a vested right to a retirement income and who elects to receive such retirement income commencing on the first day of any month coinciding with or following his fifty-fifth (55th) birthday as provided in Section 9.2, the monthly amount of such retirement income shall be a reduced percentage of the retirement income otherwise payable. Such reduced percentage shall be determined in accordance with Schedule A attached hereto and not in accordance with the percentage reduction set forth in the preceding Section 7.2(a).

     7.3 Limitation on Benefits. In no event shall the annual benefit payable to any Participant hereunder exceed the limitation on benefits provided in Article XX.

     7.4 Retirement On Late Retirement Date. If a Participant retires on a date which is subsequent to his Normal Retirement Date, the benefits to which he may be entitled shall commence as of the first day of the month coinciding with or next following the date of his actual retirement as though such date were his Normal Retirement Date; provided, however, in the case of a Participant who is a Five Percent Owner, as defined in Section 22.2(b), benefits shall commence no later than the April 1 following the calendar year in which the Participant attains age seventy and one-half (70-1/2) even if he has not actually retired. Except as provided in Section 10.6(d), the amount of benefit payable shall not be actuarially or otherwise increased to reflect that benefits have commenced subsequent to Normal Retirement Date.

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ARTICLE VIII

DISABILITY BENEFIT

     8.1 Eligibility. A Participant employed by a Member Company or an Affiliated Company, who ceases active work due to total and permanent disability, (1) with at least ten (10) years of Cumulative Service, and (2) who at the commencement of disability has not attained the age of sixty-five (65), and (3) who shall have remained totally and permanently disabled for a period of six (6) consecutive months shall be eligible for a disability benefit upon termination of employment and submission of proof as provided herein. In order to be valid, all claims for disability benefits must be made within one (1) year from the last day of active employment.

     8.2 Total and Permanent Disability. A Participant shall be deemed to be totally and permanently disabled when, on the basis of proof satisfactory to the Pension Plan Committee, the Pension Plan Committee determines that as a result of any physical or mental condition he is wholly prevented from engaging in any regular occupation or employment for wage or profit (except such employment as is found by the Pension Plan Committee to be for purposes of rehabilitation) and the condition will, in the opinion of the physician or physicians, clinic or hospital who make the examination provided herein, be permanent, total and continuous for the remainder of his life. To the extent permitted by law, a Participant shall not be deemed disabled for the purposes of this Article, if, on the basis of proof satisfactory to it, the Pension Plan Committee determines that his disability arose from any intentionally self-inflicted injury or injury resulting from participation in any criminal undertaking or from service in the armed forces of any country, or consists of chronic alcoholism or addiction to narcotics (or injury or disease resulting there from).

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     8.3 Medical Examinations. A Participant applying for a disability benefit hereunder shall be required to submit to a medical examination and shall be required to submit to such reexamination as the Pension Plan Committee shall deem necessary from time to time in order to make a determination concerning his mental or physical condition. An individual who shall be receiving disability benefits hereunder may be required to submit to a medical examination at any time, but not more often than once every six (6) months, to determine whether he is eligible for continuance of the disability benefit. If, on the basis of such reexamination, it is determined by the Pension Plan Committee that such individual prior to attaining age sixty-five (65) has sufficiently recovered to engage in any regular occupation or employment for wage or profit, or if it is determined by the Pension Plan Committee that such individual has engaged in any regular occupation or employment subsequent to his disability (except such employment as is found by the Pension Plan Committee to be for purposes of rehabilitation), payment of his disability benefit shall cease. In the event that such individual shall fail within thirty (30) days after notice to submit to medical examination, his disability benefit will be discontinued until he has submitted to such examination after which his continued eligibility may be determined as provided above. The medical examinations provided herein shall be made by a competent physician or physicians or clinic or hospital selected by the Pension Plan Committee, at no cost to the Participant.

     8.4 Disability Benefit. A monthly disability benefit to such a disabled Participant shall commence as of the first day of the month following the receipt by the Pension Plan Committee of satisfactory proof of such disability or the first day of the month following the completion of a period of six (6) months from the date on which the injury or disease was incurred, whichever is later; provided, however, that in those cases where timely submission of

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such proof was prevented by unavoidable and extreme circumstances, the six (6) month period shall be used.

     An eligible Participant shall receive a monthly disability benefit payment computed in accordance with Sections 7.1 and 7.5 without actuarial reduction as if he has become eligible for a normal retirement benefit under this Plan on the date of his termination due to permanent and total disability. The disability benefit payable under this Article VIII shall be payable in accordance with the provisions of Article X.

     The disability benefit payable under this Article VIII shall continue (unless sooner discontinued or terminated as provided in Section 8.3 or by the disabled Participant’s death) until the month in which the disabled Participant attains age sixty-five (65). From and after attainment of age sixty-five (65) benefits shall be payable to a Participant under this Plan only in accordance with the provisions of Article IX (governing the benefits payable to a Participant whose employment terminates when he has a vested right to benefits) and in the case of such benefits the applicable form of benefit shall be as provided in Article X and the Benefit Factor(s) applicable to the Participant shall be the same Benefit Factor(s) applicable to calculation of the Participant’s disability benefit.

     A Participant whose termination of employment by reason of total and permanent disability occurs prior to his eligibility to retire on an Early Retirement Date may, at any time after attainment of age fifty-five (55) elect, in such manner as the Pension Plan Committee may prescribe (but only if he is then receiving a disability benefit), to have his benefits thereafter payable as retirement income in accordance with Article X, in lieu of receiving any further disability benefits under this Article VIII. In the event of such an election, such Participant’s retirement income shall be reduced to the extent provided in Section 7.2(a) if the payment of

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such retirement income pursuant to Article X commences prior to age sixty-five (65). For purposes of determining the amount of reduction, if any, provided by Section 7.2(a), the date of commencement of retirement income shall be the date payments commence pursuant to Article X (without regard to the date benefits commenced under this Article VIII).

     8.5 Deduction from Disability Benefits. In determining the amount of the disability benefit a deduction shall be made from the amount provided by Section 8.4 equal to (1) any Workers’ Compensation benefits, (2) disability payments received from the United States or a foreign country by reason of service in the armed forces of the United States or such other country, and (3) any other disability benefits (other than social security disability benefits) from time to time payable if such benefits have been provided in whole or in part by premiums, taxes or other payments paid by or at the expense of the Company or an Affiliated Company. If the Workers’ Compensation benefit is paid on a lump sum basis, whether pursuant to an award or a settlement, the amount of such lump sum payment shall be deducted from the monthly disability benefits as determined by Section 8.4 until the entire amount of the lump sum payment will have been liquidated.

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ARTICLE IX

VESTING AND VESTED TERMINATION

     9.1 Vesting. All benefits to which a Participant may be entitled under this Plan shall be vested in the Participant upon such Participant’s completion of five (5) years of Cumulative Service, or upon such Participant’s sixty-fifth (65th) birthday if he is then employed by the Company or an Affiliated Company, whichever event shall occur first. Vested benefits shall be nonforfeitable and a Participant shall be entitled to receive such benefits in accordance with the provisions of this Plan.

     9.2 Vested Termination of Employment. If for any reason other than death, or retirement in accordance with the provisions of this Plan, the employment of the Participant is terminated and at the time of such termination such Participant has a vested right to benefits hereunder, the Participant shall be entitled to receive a monthly retirement income (determined and payable in accordance with Section 9.3) commencing on Normal Retirement Date, or, if the Participant so elects on or after his attainment of age fifty-five (55), commencing as of the first day of any month selected by him which is after his fifty-fifth (55th) birthday and prior to his Normal Retirement Date.

     9.3 Form and Amount of Vested Termination Benefits. The retirement income hereunder shall be payable as provided in Article X. The monthly amount of retirement income commencing on Normal Retirement Date shall be determined in accordance with Sections 7.1 and 7.5, based, however, on the Participants years of Credited Service and the Benefit Factor(s) as of the date of his termination of employment. The monthly amount of retirement income commencing prior to Normal Retirement Date shall be a reduced percentage of the retirement income otherwise payable. Such reduced percentage shall be determined in accordance with Schedule A attached hereto and the percentage reduction specified in Section 7.2(a) shall not apply.

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ARTICLE X

PAYMENT OF BENEFITS

     10.1 Normal Form of Payment. Unless a Participant elects an optional form of benefits as provided in this Article X, the retirement income to which a Participant may be entitled, commencing at his Normal Retirement Date (or on a date which is on or after his Early Retirement Date as provided in Section 7.2), shall be payable in equal monthly installments, as follows:

     (a) The retirement income payable to a Participant who has a Spouse on his Annuity Starting Date shall be a reduced benefit payable for the lifetime of the Participant, with fifty percent (50%) of the amount payable to the Participant continued thereafter to the Spouse of the Participant, for the lifetime of such Spouse. The reduced monthly amount payable to a Participant during his lifetime (as provided in this Section 10.1(a)), shall be a percentage of the amount otherwise payable in the form described in Section 10.1(b) below, and such percentage shall be determined in accordance with Schedule B, attached hereto. In no event, however, shall the value of the joint and survivor annuity payable under this Section 10.1(a) be less than the value of any optional form of payment payable under the Plan at the same time;

     (b) The retirement income payable to any Participant who does not have a Spouse on his Annuity Starting Date shall be a single life annuity, payable for the lifetime of the Participant, which is the amount provided in Article VII, VIII or IX, as appropriate.

     10.2 Optional Form of Payment. Subject to the provisions of Section 10.3, below, a Participant (including a former Employee with a vested interest as provided in Article IX) may make an election, at any time prior to the date with respect to which his retirement income

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commences, to receive the retirement income otherwise payable to him in an optional form described in either Section 10.2(a), Section 10.2(b) or Section 10.2(c) below:

     (a) A single life annuity, as described in Section 10.1(b), payable to the Participant for his lifetime.

     (b) A joint and survivor annuity, with reduced monthly payments to the Participant for his lifetime, with the percentage of such monthly amount continued thereafter to the Participant’s designated Joint Annuitant, to be paid monthly for the lifetime of such Joint Annuitant, ending with the last payment made prior to the death of such Joint Annuitant. Subject to the provisions of Section 10.6, the applicable Joint Annuitant’s percentage shall be specified by the Participant at the time of electing the joint and survivor annuity described in this Section 10.2(b), and shall be either fifty percent (50%) or one hundred percent (100%). The reduced monthly amount payable to a Participant during his lifetime (as provided in this Section 10.2(b)), shall be a percentage of the amount otherwise payable in the form described in Section 10.1(b) above, and such percentage shall be determined in accordance with Schedule B (where fifty percent (50%) is payable to the Joint Annuitant) or Schedule C (where one hundred percent (100%) is payable to the Joint Annuitant).

     (c) A reduced pension, which shall be the Actuarial Equivalent of the amount otherwise payable in the form described in Section 11.1(b), payable during the Participant’s life, but for a term certain of 5, 10, 15 or 20 years (as the Participant shall so elect provided the period specified shall not exceed the maximum period permitted under Section 10.6, with the payment to his Beneficiary of any pension payments remaining to be paid after the Participant’s death, or if such Beneficiary shall have predeceased him,

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with the commuted value of such remaining pension payments to be paid to his estate in one lump sum, and with the payment to the estate of the Beneficiary in one lump sum of the commuted value of any pension payments remaining to be paid at the death of the Beneficiary.

Except in the case of an election of a joint and survivor annuity where (i) the designated Joint Annuitant is the Participant’s Spouse, and (ii) the Joint Annuitant will receive 100% of the monthly pension benefit paid to the Participant during his lifetime, such election must be a Qualified Election.

     10.3 Election Not to Take Joint and Survivor Annuity. At least thirty (30) and no more than ninety (90) days before the date with respect to which a Participant’s benefit under this Plan commences to be paid in the form of a joint and survivor annuity described in Section 10.1(a), such Participant shall be furnished, in writing, (a) a general description of such joint and survivor annuity, (b) a general description of the circumstances in which it will be provided, (c) notice of the Participant’s right, prior to the commencement of benefits, to make an election to receive his benefits in an optional form described in Section 10.2 (and the right to revoke such election, together with an explanation of the effect of such revocation), (d) a general description of the relative financial effect on a Participant’s benefits of an election to receive benefits in a form other than the joint and survivor annuity provided in Section 10.1(a), and (e) a general description of the rights of the Participant’s Spouse under applicable provisions of the Internal Revenue Code pertaining to a Qualified Election. At the same time the Participant also shall be furnished, or be advised of the availability of, a written explanation of the terms and conditions of the joint and survivor annuity described in Section 10.1(a) and the financial effect upon the particular Participant’s annuity of making an election to receive benefits in an optional form.

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     Subject to Section 10.8, an election (including a Qualified Election) under this Section 10.3 may be made by a Participant hereunder at any time prior to the commencement of benefits. Except in the case of an election of a joint and survivor annuity where (i) the designated Joint Annuitant is the Participant’s Spouse, and (ii) the Joint Annuitant will receive 100% of the monthly pension benefit paid to the Participant during his lifetime, such election must be a Qualified Election which is in writing and clearly indicates that the Participant is making a Qualified Election to receive benefits in a form other than that of the joint and survivor annuity provided under Section 10.1(a).

     10.4 Designation of Joint Annuitant. Whenever a Participant may be permitted to designate a Joint Annuitant pursuant to this Article X, such designation shall be made in the form of an election (including, where required, a Qualified Election) by the execution and delivery to the Pension Plan Committee of an instrument in form satisfactory to the Pension Plan Committee. An election of an optional form of benefit under this Article X may be revoked or a different Joint Annuitant may be named before payment of the Participant’s retirement income commences, with the written consent of the Pension Plan Committee in accordance with rules of uniform application for all Participants similarly situated.

     10.5 Conditions of Qualified Election. Except as provided in Article XII, in the event that a Participant has made an election (including, where required, a Qualified Election) to receive an optional form of benefit under this Article X, and either the Participant or the Joint Annuitant designated to receive such payments dies before payment of the Participant’s Retirement Income commences, such election of an optional form shall not become effective.

     10.6 Limitations on Distribution of Benefits.

     (a) Required Beginning Date: Distribution of Benefits must commence not

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later than a Participant’s Required Beginning Date. The Required Beginning Date for payment of a pension to a Participant is the first day of April of the calendar year following the calendar year in which the Participant attains age 70-1/2.

     (b) The provisions of this Section will apply to any distribution of a Participant’s interest and will take precedence over any inconsistent provisions of this Plan. However, this Section is not intended to provide an optional form of distribution or commencement date not otherwise allowed under the Plan unless the timing or amount of payments to be made under the applicable provisions of the Plan, without regard to this Section, would be later than the Required Beginning Date or less than the required minimum provided under this Section.

     (c) All distributions required under this Section shall be determined and made in accordance with Section 401(a)(9) of the Code and the regulations thereunder, including the incidental death benefit requirements of Code Section 401(a)(9)(G) and Treas. Reg. 1.401(a)(9)-6, Q & A-2. The Plan shall apply the minimum distribution requirements of Code Section 401(a)(9) in accordance with the Final Treasury Regulations issued June 15, 2004 thereunder.

     (d) Distribution of benefits, if not made in a single sum, shall be made over one of the following periods (or a combination thereof): 1) the life of the Participant; 2) the lives of the Participant and a designated Beneficiary; 3) a period not extending beyond the life expectancy of the Participant or 4) a period not extending beyond the life expectancy of the Participant and a designated Beneficiary.

     (e) If the distribution of the Participant’s interest has begun in accordance with the preceding paragraph and the Participant dies before his entire interest has been

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distributed to him, the remaining portion of such interest shall be distributed at least as rapidly as under the method of distribution used as of his date of death.

     (f) If the Participant dies before distribution commences, his or her entire interest will be distributed no later than the date specified below:

     (1) Payments of any portion of such interest to the Participant’s surviving Spouse shall be made over the life or life expectancy of such surviving Spouse commencing no later than December 31 of the calendar year in which the Participant would have attained age seventy and one half (701/2) or, if later, December 31 of the calendar year containing the first anniversary of the Participant’s death except to the extent an election is made to receive a distribution of the surviving Spouse’s entire interest no later than December 31 of the calendar year containing the fifth anniversary of the Participant’s death.

     (2) Distribution of the entire interest of a Beneficiary other than the Participant’s surviving Spouse shall be made no later than December 31 of the calendar year containing the fifth anniversary of the Participant’s death except to the extent an election is made to receive distributions over the life or life expectancy of such designated Beneficiary commencing no later than December 31 of the calendar year containing the first anniversary of the Participant’s death;

     Such election must be made by the Participant (or his designated Beneficiary or surviving Spouse, if the Participant dies without having made such an election) on or before the earlier of the date by which distribution must commence absent such election and the date distribution must commence assuming such election has been made.

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     If the Spouse dies before payments begin, subsequent distributions are required under this subsection (except for subsection (f)(2)) as if the surviving Spouse was the Participant.

     (g) For the purpose of this Section, distribution of a Participant’s interest is considered to begin on the Participant’s required beginning date (or, if the last sentence of subsection (f) applies, the date distribution is required to begin to the surviving Spouse pursuant to subsection (f)). If distribution in the form of an annuity irrevocably commences to the Participant before the required beginning date, distribution is considered to commence on the date it actually commences.

     (h) Any amount paid to a child shall be treated as if it had been paid to the surviving Spouse if such amount will become payable to the surviving Spouse when the child reaches the age of majority.

     (i) For purposes of this Section, any distribution required under the incidental death benefit requirements of Section 401(a) of the Code shall be treated as a distribution required under Section 401(a)(9) of the Code.

     (j) Required Actuarial Increase.

     (i) Except with respect to a Five-Percent Owner, a Participant’s accrued benefit must be actuarially increased to take into account the period after age 70¹/2 in which the Participant does not receive any benefits under the Plan. The actuarial increase begins on the April 1 following the calendar year in which the Participant attains age 70¹/2 and ends on the date on which benefits commence after retirement in an amount sufficient to satisfy Code section 401(a)(9).

     (ii) The amount of actuarial increase payable as of the end of the period

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of actuarial increases must be no less than the actuarial equivalent of the Participant’s retirement benefits that would have been payable as of the date the actuarial increase must commence plus the actuarial equivalent of additional benefits accrued after that date, reduced by the actuarial equivalent of any distributions made after that date.

     10.7 Direct Rollovers.

     (a) Notwithstanding any provision of the Plan to the contrary that would otherwise limit a Distributee’s election under this section, a Distributee may elect, at the time and in the manner prescribed by the Pension Plan Committee, to have any portion of an Eligible Rollover Distribution paid directly to an Eligible Retirement Plan specified by the Distributee in a Direct Rollover.

     (b) Definitions. For purposes of this Section, the following terms shall have the meanings set forth in this subsection:

     (1) “Eligible Rollover Distribution” means any distribution of all or any portion of the balance to the credit of the Distributee, except that an Eligible Rollover Distribution does not include: (i) any distribution of less than Two Hundred Dollars; (ii) any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the Distributee or the joint lives (or joint life expectancies) of the Distributee and the Distributee’s designated Beneficiary, or for a specified period of ten years or more; (iii) any distribution to the extent such distribution is required under Code section 401(a)(9); and (iv) the portion of any distribution that is not includible in gross income (determined without regard to the exclusion for

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net unrealized appreciation with respect to employer securities).

     (2) “Eligible Retirement Plan” means an individual retirement account described in Code section 408(a), an individual retirement annuity described in Code section 408(b), an annuity plan described in Code section 403(a), or a qualified trust described in Code section 401(a) that accepts the Distributee’s Eligible Rollover Distribution. However, in the case of an Eligible Rollover Distribution to the surviving spouse, an Eligible Retirement Plan is an individual retirement account or individual retirement annuity. An Eligible Retirement Plan shall also mean an annuity contract described in section 403(b) of the Code and an eligible plan under section 457(b) of the Code which is maintained by a state, political subdivision of a state, or any agency or instrumentality of a state or political subdivision of a state and which agrees to separately account for amounts transferred into such plan from this Plan. The definition of Eligible Retirement Plan shall also apply in the case of a distribution to a surviving Spouse, or to a Spouse or former Spouse who is the alternate payee under a qualified domestic relation order, as defined in section 414(p) of the Code.

     (3) “Distributee” means any Participant who is or was an Employee, and any Beneficiary who is or was a Participant’s Spouse (including any former Spouse who is an alternate payee under a qualified domestic relations order, as defined in Code section 414(p) with regard to any spousal interests recognized or created under the Plan.

     (4) “Direct Rollover” means a payment by the Plan to the Eligible Retirement Plan specified by the Distributee. A portion of a distribution shall not

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fail to be an eligible rollover distribution merely because the portion consists of after-tax employee contributions which are not includible in gross income. However, such portion may be paid only to an individual retirement account or annuity described in section 408(a) or (b) of the Code, or to a qualified defined contribution plan described in section 401(a) or 403(a) of the Code that agrees to separately account for amounts so transferred, including separately accounting for the portion of such distribution which is includible in gross income and the portion of such distribution which is not so includible.

     10.8 Consent to Certain Distribution of Benefits. Notwithstanding any provision of the Plan to the contrary, if the Actuarial Equivalent present value of a Participant’s vested accrued benefit exceeds (or at the time of any prior distribution exceeded) $5,000, and the Participant’s vested accrued benefit is immediately distributable, the Participant and the Participant’s Spouse (if the Participant elects a Retroactive Annuity Starting Date pursuant to Section 15.1 or a form of payment other than a Qualified Joint and Survivor Annuity) must consent to any distribution of such accrued benefit. Except as provided in Section 15.1 with respect to a Retroactive Annuity Starting Date, the consent of the Participant and the Participant’s Spouse (if required) must be obtained in writing within the 90-day period ending on the Annuity Starting Date. The Pension Plan Committee will notify the Participant and the Participant’s Spouse of the right to defer any distribution until the Participant’s Normal Retirement Date. Such notification will include a general description of the material features and an explanation of the relative value of the optional forms of benefit available under the Plan in a manner that would satisfy the notice requirements of Code Section 417(a)(3), and will be provided no fewer than 30 days nor more than 90 days prior to the Participant’s Annuity Starting Date.

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          If the Participant, after having received the written explanation described above, affirmatively elects a form of distribution and the spouse consents to that form of distribution (if necessary), the Annuity Starting Date may be less than thirty (30) days after the written explanation was provided to the Participant, provided that the following requirements are met:

     (1) The Pension Plan Committee provides information to the Participant clearly indicating that the Participant has a right to at least thirty (30) days to consider whether to waive the Qualified Joint and Survivor Annuity and consent to another form of distribution;

     (2) The Participant is permitted to revoke an affirmative distribution election until the later of the Annuity Starting Date or the eighth day following the date the foregoing explanation is provided to the Participant;

     (3) Except as provided in Section 16.1 with respect to Retroactive Annuity Starting Dates, the Annuity Starting Date is after the date the foregoing explanation is provided to the Participant; and

     (4) Distribution in accordance with the affirmative election does not commence before the eighth day after the foregoing explanation is provided to the Participant.

     Notwithstanding the foregoing paragraph, only the Participant is required to consent to the commencement of a distribution in the form of a qualified joint and survivor annuity described in Section 10.1(a). Neither the consent of the Participant nor the Participant’s Spouse is required to the extent that a distribution is required to satisfy Code Section 401(a)(9) or 415.

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     An accrued benefit is immediately distributable if any part of the accrued benefit could be distributed to the Participant or the Participant’s Spouse before the Participant attains (or would have attained, if the Participant had not died) age sixty-five (65).

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ARTICLE XI

NO PAYMENTS OF BENEFITS DURING EMPLOYMENT

     11.1 No Commencement of Benefits During Employment. Except as provided in Section 10.6, no benefits shall commence to be paid under this Plan to a Participant while he is employed by a Member Company or an Affiliated Company.

     11.2 Suspension of Benefits. In the event that a Participant whose benefits have commenced is re-employed by a Member Company or an Affiliated Company, payment of his benefits shall cease upon such re-employment. Upon retirement thereafter, such Participant shall be entitled to benefits computed in accordance with Article VII, giving effect to his Credited Service before and after such re-employment (up to Normal Retirement Date), adjusted, however, to reflect the amount of benefits (excluding disability benefits under Article VIII) paid before re-employment. The Pension Plan Committee shall from time to time adopt written procedures regarding the suspension of benefits, which procedures shall comply with the requirements of Section 203(a)(3)(B) of the Employee Retirement Income Security Act of 1974 and such applicable regulations as may be promulgated thereunder.

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ARTICLE XII

SPOUSAL DEATH BENEFIT

     12.1 Spousal Death Benefit. Subject to the provisions of this Article XII, if a Participant dies (1) after having completed at least ten (10) years of Cumulative Service, or after acquiring a vested right to benefits hereunder by reason of having completed a lesser number of years of Cumulative Service if so provided in any Appendix applicable to the Participant, or after having attained Normal Retirement Date (whether or not he has actually retired) and (2) before payment of his retirement income commences, a monthly benefit, based on his accrued benefit under this Plan, will be payable to the Spouse to whom such Participant is lawfully married on the date of his death. Such monthly benefit for such Spouse shall commence on the later of (a) the first day of the first month following the Participant’s death or (b) the first day of the month coinciding with or next following the date on which the Participant would have attained age 55 had his death not occurred. Such monthly benefit shall end upon such Spouse’s death. The monthly amount of such benefit shall be equal to the monthly amount which would have been payable to such Spouse after the Participant’s death had the Participant’s employment terminated on the date of his death, and had payments commenced to be paid to such Participant on the later of (a) such date or (b) the first day of the month coinciding with or next following the date on which he would have attained age 55 had his death not occurred, in the form of the joint and survivor annuity provided in Section 10.1(a). However, if the Participant elects a 100% joint and survivor annuity with his surviving spouse as his joint annuitant within 90 days prior to his death, and the Participant dies prior to benefit commencement, the benefit under this Section shall be calculated by substituting such payment form for the joint and survivor annuity provided in Section 10.1(a). For purposes of determining the appropriate reduction factor in the case of

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benefits commencing prior to the date on which the Participant would have attained age 65, the provisions of Section 7.2(a) shall apply in the case of a Participant whose death occurs on or after attainment of age fifty-five (55) and the factors set forth in Schedule A attached hereto shall apply in all other cases.

     12.2 Marriage Requirement. No benefit shall be payable under this Article XII other than to the Spouse of a Participant who (a) is lawfully married to the Participant on the date of the Participant’s death, and (b) in the case of a Participant who as of the date of his death had not attained age fifty-five (55), had been lawfully married to the Participant throughout the one (1) year period ending on the date of the Participant’s death.

     12.3 Certain Elections. A Participant whose employment for the Company and all Affiliated Companies terminates, may make a Qualified Election at any time prior to the date of his death not to have such coverage apply.

     Within the applicable period each Participant described in the preceding provisions of this Section shall be furnished a written explanation with respect to the pre-retirement survivor annuity described in Section 12.1. Such explanation shall be comparable to the explanation described in Section 10.3 hereof. If a Participant enters the Plan after the first day of the Plan Year in which the Participant attains age thirty-five (35) such written explanation shall be furnished no later than the start of the second Plan Year commencing after the Plan Year in which such participation begins.

     For purposes of this Section the term “applicable period” means, with respect to a Participant, whichever of the following periods end last:

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     (a) the period beginning with the first day of the Plan Year on which the Participant attains age thirty-two (32) and ending with the close of the Plan Year preceding the Plan Year in which the Participant attains age thirty-five (35),

     (b) a reasonable period after the individual becomes a Participant,

     (c) a reasonable period ending after the Plan ceases to fully subsidize the cost of pre-retirement survivor annuities,

     (d) a reasonable period ending after Section 401(a)(11) of the Code applies to a Participant, and

     (e) a reasonable period after separation from service in case of a Participant who separated before attaining age thirty-five (35).

     12.4 Cost of Benefit. Effective December 1, 1977 the spousal death benefit annuity provisions of the predecessor of this Plan did not impose a charge for benefits commencing on or after that date and prior to August 23, 1984.

     Commencing August 23, 1984, the predecessor of this Plan reinstated a charge for spousal death benefits.

     If spousal death benefit coverage applies to a Participant during any period of time, prior to the Participant’s death, that the Participant is not employed by the Company or an Affiliated Company, a charge shall be imposed. Likewise a charge shall be imposed for any period of time prior to December 1, 2005 with respect to which Program C as in effect on November 30, 2005 would have imposed such a charge. Such charge shall be a reduction of any benefits payable to or with respect to the Participant, and shall be expressed as a percentage of such benefits for each Plan Year or portion of a Plan Year during which coverage is in effect, as follows:

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Youngest Age During Plan Year	Percentage Reduction
of Coverage	for such Year
Under 35	No reduction
35 through 44	.1% (one tenth of one percent)
45 through 54	.3% (three tenths of one percent)
55 and over	.6% (six tenths of one percent)

     Such charge shall be imposed when coverage is provided automatically, subject to a right to make a Qualified Election to waive coverage (as described in Section 12.3).

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ARTICLE XIII

TRANSFER OF EMPLOYMENT

     If any Participant transfers (a) to a position with a Member Company, other than as an Employee as defined in this Plan, or (b) to an Affiliated Company as an hourly paid employee or a salaried employee of such organization or entity, such Participant for the period of such service shall continue to accumulate Cumulative Service in accordance with Article XIV of this Plan, but shall not earn Credited Service for the period of such service. Such Participant shall retain all other rights as provided by this Plan.

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ARTICLE XIV

AFFILIATED SERVICE

     14.1 Definitions. For purposes of this Article XIV only, the following definitions shall apply:

     (a) “Related Employee” means an employee (including a person deemed to be an employee pursuant to Section 414(n) of the Internal Revenue Code) of a Member Company or of an Affiliated Company who is not an Employee as defined in this Plan.

     (b) “Related Plan” means the Ampac Fine Chemicals Pension Plan for Salaried Employees, and any employee pension benefit plan (within the meaning of Section 3(2) of the Employee Retirement Income Security Act of 1974) which is maintained by a Member Company or an Affiliated Company, other than this Plan.

     14.2 Credited Service. No Employee or former Employee shall accrue Credited Service for purposes of this Plan for any period during which he is not an Employee, as defined in this Plan

     14.3 Cumulative Service. In the case of an Employee or former Employee who has rendered service as a Related Employee to a Member Company or an Affiliated Company, Cumulative Service, for purposes of this Plan, shall include:

     (a) Full years of service credit for vesting purposes deemed to be earned as a Related Employee under a Related Plan (but not including any such credit with respect to service as an Employee, as defined herein, for which credit for vesting purposes is deemed earned under Section 3.6), and

     (b) For any period of service rendered as a Related Employee during which such Employee or former Employee is not covered by a Related Plan, any Plan Year

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during which the Related Employee completes at least one hour for which he is paid or indirectly paid or entitled to payment for the performance of duties as a Related Employee, provided, however, that no such Plan Year shall be taken into account if service rendered during such Plan Year is included in service credit described in Section 14.3(a), above.

For purposes of applying the rules of this Plan respecting Breaks in Service, a Related Employee who sustains a Break in Service under a Related Plan shall be deemed to have sustained a Break in Service for purposes of this Plan.

     14.4 Limitation on Affiliated Service. Unless otherwise provided by the Board of Directors of the Company, no credit shall be recognized for any purpose under this Plan with respect to service rendered to an Affiliated Company prior to such Affiliated Company becoming an Affiliated Company.

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ARTICLE XV

APPLICATION FOR BENEFITS

     15.1 Application for Benefits.

     (a) Any person claiming benefits under this Plan (hereinafter referred to as “Claimant”) shall submit an application therefor to the Pension Plan Committee, together with such documents and information as the Pension Plan Committee may require. Except as provided below, a Participant’s Annuity Starting Date shall not precede the later of the date the notice described in Section 10.3 is provided to the Participant and the date an application for benefits based on such notice is filed with the Pension Plan Committee.

     (b) If (i) circumstances exist under which the Participant’s Annuity Starting Date is permitted under subsection (c) to precede the distribution notice required by Code section 417(a)(3); (ii) the desired Annuity Starting Date is permissible under the terms of the Plan; (iii) the Participant and his or her Spouse consent in writing on forms provided by the Pension Plan Committee; and (iv) the Participant properly completes his or her benefit election forms and returns them to the Pension Plan Committee on a timely basis in accordance with rules established by the Pension Plan Committee, the Participant’s benefits will commence in the form elected by the Participant as of the first day of the month affirmatively elected by the Participant in accordance with the terms of the Plan and the Plan’s Administrative rules, provided that the requirements of subsection (d) are satisfied. Such first day of the month shall be his or her Retroactive Annuity Starting Date.

     (c) A Retroactive Annuity Starting Date is permitted in the following circumstances:

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     (1) Through no fault of the Participant, the Pension Plan Committee delays providing the distribution notice until after the date designated as the Participant’s desired Annuity Starting Date; or

     (2) The distribution notice is not provided prior to the Normal Retirement Date because the Participant’s whereabouts are unknown and the Participant later comes forward and requests a benefit commencing at the Normal Retirement Date.

     (d) The benefit payable as of such Retroactive Annuity Starting Date is subject to the following:

     (1) Amount of Payment: The amount payable as of the date the Participant’s benefit begins shall be the Participant’s Accrued Benefit, determined as of the Retroactive Annuity Starting Date, plus a catch-up payment increased by interest accrued at a reasonable rate for the period commencing as of the Retroactive Annuity Starting Date or the due date of any periodic payment owed under the relevant annuity option and ending on the on the date benefits begin to be paid.

     (2) Consent: A Participant’s spouse shall be required to consent to the designation of a Retroactive Annuity Starting Date hereunder; provided, however, that the Participant’s spouse shall not be required to consent if the survivor annuity payments under the form of benefit payable hereunder equal or exceed the survivor annuity payments payable under a Qualified Joint and Survivor Annuity calculated as of the date benefit payments to the Participant actually commence and not as of the Retroactive Annuity Starting Date.

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     (3) Other Limitations. In no event shall any amount paid hereunder exceed the limitations imposed under Section IX hereof, determined as of the date the Participant’s benefits begin to be paid.

     (4) Form of Payment. The Participant receives his benefit in an annuity form of payment.

     15.2 Action on Application. The Pension Plan Committee shall respond within a reasonable period of time but not later than ninety (90) days (45 days in the case of a claim for a Disability Retirement Benefit) of receipt of the claim. However, upon written notification to the Claimant, the response period may be extended, for an additional ninety (90) days (two additional 30 day periods in the case of a claim for a Disability Retirement Benefit). The extension notice shall indicate the special circumstances requiring an extension of time and the date by which the Plan expects to render the determination. In the case of a claim for a Disability Retirement Benefit, the notice of an extension shall specifically explain the standards on which entitlement to a benefit is based, the unresolved issues that prevent a decision on the claim, and the additional information needed to resolve those issues, and the claimant shall be afforded at least 45 days within which to provide the specified information. If the claim is denied in whole or in part, the Claimant shall be provided with a written opinion using nontechnical language calculated to be understood by the Participant setting forth:

     (1) The specific reason or reasons for denial;

     (2) The specific references to pertinent Plan provisions on which the denial is based;

     (3) A description of any additional material or information necessary for the Claimant to perfect the claim and an explanation of why such material or

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such information is necessary;

     (4) Appropriate information as to the steps to be taken if the Claimant wishes to submit the claim for review;

     (5) The time limits for requesting a review; and

     (6) A statement of the Claimant’s right to bring a civil action under ERISA Section 502(a) following the adverse benefit determination on review.

     15.3 Claim Review Procedure. A claimant who does not agree with the decision rendered with respect to his application, may appeal such decision to the Pension Plan Committee. Such appeal shall be made in accordance with the following procedures:

     (a) Within sixty (60) days (180 days in the case of a claim for a Disability Retirement Benefit) after the receipt by the Claimant of the written opinion described above, the Claimant may request in writing that the Pension Plan Committee review the determination.

     The Claimant or his duly authorized representative may review the pertinent documents and submit written comments, documents, records, and other information for consideration by the Pension Plan Committee. The Claimant shall be provided, upon request and free of charge, reasonable access to and copies of, all documents, records, and other information relevant to the Claimant’s claim for benefits. If the Claimant does not request a review of the Pension Plan Committee’s determination within such sixty- (60) day period (180 days in the case of a claim for a Disability Retirement Benefit), he shall be barred and stopped from challenging the Pension Plan Committee’s determination.

     The Pension Plan Committee shall review the determination within sixty (60) days (45 days in the case of a claim for a Disability Retirement Benefit) after receipt of a

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Claimant’s request for review; provided, however, that for reasonable cause such period may be extended due to special circumstances for an additional sixty (60) days (45 days in the case of a Claim for a Disability Retirement Benefit). In the case of a claim for a Disability Retirement Benefit, the notice of an extension shall specifically explain the standards on which entitlement to a benefit is based, the unresolved issues that prevent a decision on the claim, and the additional information needed to resolve those issues, and the claimant shall be afforded at least 45 days within which to provide the specified information. In the case of a committee that meets at least on a regular quarterly basis, the committee shall make a benefit determination no later than the meeting date that immediately follows the Plan’s receipt of the request for a review, unless the request for review is filed within 30 days before the meeting date. In such case, the benefit determination may be made no later than the date of the second meeting following the Plan’s receipt of the request for review. If, after considering all materials and information presented by the Claimant (whether or not such materials or information were submitted or considered in the initial benefit determination), the claim is denied in whole or in part, the Claimant shall be provided with a written opinion using nontechnical language setting forth:

     (1) The specific reason or reasons for denial;

     (2) The specific references to pertinent Plan provisions on which the denial is based;

     (3) A statement that the Claimant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to the claimant’s claim for benefits;

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     (4) A statement describing any voluntary appeal procedures offered by the Plan and the Claimant’s right to obtain the information about such procedures; and

     (5) A statement of the Claimant’s right to bring an action under ERISA Section 502(a).

     (b) Procedures (General). The following procedures shall apply to any claim filed or reviewed pursuant to this Section:

     (1) Any Claimant may be represented by an authorized representative; however, the Pension Plan Committee may determine reasonable procedures to determine whether any individual is authorized to act on behalf of another individual.

     (2) The Pension Plan Committee or any other person or persons acting as a named fiduciary for this purpose shall determine administrative safeguards designed to ensure and verify that all determinations are made in accordance with governing Plan documents and that all Plan provisions are applied consistently with respect to similarly situated Claimants.

     (3) The response periods described in subsections 16.2 and 16.3(a) shall be tolled for periods during which the Claimant is responding to a request for additional information that the Pension Plan Committee or other named fiduciary has determined is necessary to process the Claimant’s claim. The Claimant shall have not less than 45 days to provide the requested information. The response periods described in subsections 16.2 and 16.3(a) shall recommence when the Claimant provides the requested information.

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     (c) Procedures (Disability). In the case of a claim that relates to a Disability Retirement pension, the following additional procedures shall apply.

     (1) An individual or committee designated by the Board of Directors, but not the person or persons responsible for the initial review under Section 16.2, shall be the named fiduciary responsible for determining the appeal. Such individual or committee may not make such determination if the individual or committee (or a subordinate thereof) was consulted in connection with the initial claim for benefits.

     The review shall not afford deference to the initial adverse benefit determination.

     When the appeal is based on a medical judgment, the named fiduciary shall consult with a health care professional who has appropriate experience and training in the field involved in determining the Claimant’s disability and shall identify all medical and vocational experts whose advice was obtained in connection with the appeal. A health care professional may not be consulted under this subsection if the health care professional (or a subordinate of such individual) was consulted in connection with the initial claim for benefits.

     If the named fiduciary makes an adverse benefit determination on review, the named fiduciary shall provide the Claimant with a statement that the Claimant is entitled to receive or request reasonable access to, and copies of, all information relevant to the claim for benefits, including internal rules, guidelines, and protocols (to the extent relied upon) and a statement regarding voluntary alternative dispute resolution options.

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ARTICLE XVI

ADMINISTRATION

     16.1 The Pension Plan Committee. Authority to control and manage the operation and administration of the Plan shall, except as hereafter provided, be vested in the Pension Plan Committee of the Board of Directors of American Pacific Corporation. The members of the Pension Plan Committee will be the persons appointed by the Board of Directors. Each member of the Pension Plan Committee shall constitute a “Named Fiduciary” within the meaning of Section 402(a)(2) of the Employee Retirement Income Security Act of 1974. Members of the Pension Plan Committee shall be bonded within the limits provided by the Employee Retirement Income Security Act of 1974, and shall serve without compensation for their services as members.

     16.2 Pension Plan Committee Procedure. The Pension Plan Committee shall elect a Chairman and one of its members as Secretary (provided, however, that the Pension Plan Committee may appoint a Secretary who need not be a member of the Pension Plan Committee) and such other officers as the Pension Plan Committee deems appropriate. The Pension Plan Committee shall hold meetings upon such notice, at such place, and at such time as it may from time to time determine. A majority of the members of the Pension Plan Committee shall constitute a quorum for the transaction of business. Any action taken by the Pension Plan Committee shall be by vote of a majority of the members present at a meeting, or in writing and signed by all the members without a meeting.

     16.3 Pension Plan Committee Powers. The Pension Plan Committee shall have full authority to control and manage the operation and administration of the Plan (other than authority with respect to management and direction of Plan investments unless the Board of

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Directors shall otherwise determine) and to construe and apply all of its provisions. Any action taken in good faith by the Pension Plan Committee in the exercise of authority conferred upon it by this instrument shall be conclusive and binding upon the Participants and their beneficiaries. The authority of the Pension Plan Committee shall include, but not by way of limitation, the following:

     (a) Authority to decide all questions relating to the eligibility of employees to become Participants, the amount of service of any Employee or Participant, and the amount of benefits to which any Participant may be entitled;

     (b) Authority to compile and maintain all records it determines to be necessary, appropriate or convenient in connection with the Plan;

     (c) Authority to approve the payment of all benefits as they become payable under the Plan, which payments shall be made by the Trustee upon written instructions from the Pension Plan Committee;

     (d) Authority to engage such legal, actuarial, accounting and other professional service as it may deem proper, including authority to employ one or more persons to render advice with regard to any responsibility any Named Fiduciary or persons designated under Section 16.4 may have under the Plan;

     (e) Authority to order valuations and appraisals of the assets held in the Trust Fund, to retain an actuary to determine the liabilities of the Plan, and to maintain or cause to be maintained any or all appropriate records pertaining to the Plan or this the Plan;

     (f) Authority to perform or cause to be performed such further acts as it may deem to be necessary, appropriate or convenient in the efficient administration of the Plan.

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     16.4 Allocation and Delegation of Duties. The Pension Plan Committee may allocate its fiduciary responsibilities among its members and may designate other persons to carry out fiduciary and other responsibilities under the Plan. Pursuant to the authority conferred by this Section 16.4, the Pension Plan Committee may designate one or more Pension Benefits Representatives to perform such functions as the Pension Plan Committee may prescribe.

     16.5 Expenses. All expenses of the Plan, including those incurred by the Pension Plan Committee, shall be borne by the Plan, and paid out of the Trust Fund, unless the Company, Member Company or Sponsor pays such expenses.

     16.6 Accrued Benefits. The Pension Plan Committee shall keep records of each Participant’s accrued benefit under the Plan and shall notify each Participant annually of the then current amount of such Participant’s accrued benefit. The Pension Plan Committee, in its discretion, may delegate to another person or persons, including the Trustee, the duty to keep such records and so notify such Participants subject to the control and supervision of the Pension Plan Committee.

     16.7 Periodic Review. At periodic intervals, not less frequently than annually, the Pension Plan Committee shall establish and review a funding policy and method consistent with the objectives of the Plan and the requirements of the Employee Retirement Income Security Act of 1974, and shall formulate guidelines for the carrying out of such funding policy and method.

     16.8 Investment Administration.

     (a) Pension Plan Committee. The Pension Plan Committee will have general responsibility for maintaining relationships with the Trustee and Investment Managers; selection and removal of the Trustee and Investment Managers; establishing and reviewing general investment guidelines and policies; monitoring and evaluating the

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performance of the Trustee and Investment Managers; establishing and implementing policies and methods for funding the Plan consistent with the objectives of the Plan and the requirements of law; and informing the Trustee about projected short-term and long-term financial requirements and need for cash to make distributions.

     (b) Investment Managers. All contributions to the Trust Fund and earnings thereon will be invested (a) by the Trustee alone or (b) pursuant to the instructions of an Investment Manager. The Sponsor may enter into, or direct the Trustee to enter into, a written agreement with one or more Investment Managers designated by the Pension Plan Committee to manage the investments of specified portions of the Trust Fund. The Pension Plan Committee may remove any such Investment Manager or any successor Investment Manager, or direct the Trustee to do so, and any such Investment Manager may resign, upon giving appropriate written notice thereof. Upon removal or resignation of an Investment Manager, the Pension Plan Committee may appoint a successor Investment Manager.

     16.9 Compensation and Expenses of Fiduciaries. A fiduciary will be entitled to receive any reasonable compensation for services rendered or for the reimbursement of expenses properly and actually incurred in the performance of his or her duties under the Plan. However, a fiduciary who already receives full-time pay from the Company or an Affiliated Company will receive no compensation from the Plan, except for reimbursement of expenses properly and actually incurred.

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ARTICLE XVII

AMENDMENT

     The Plan or any portion of the Plan may be amended at any time by action of the Board of Directors. However, no amendment shall be made at any time, the effect of which would be:

     (a) To cause any assets of the Trust Fund, at any time prior to the satisfaction of all liabilities with respect to participants and their beneficiaries in the Plan, to be used for or diverted to purposes other than for the exclusive benefit of such participants and their beneficiaries;

     (b) To increase the duties and liabilities of the Trustee without it’s written consent.

     (c) No amendment to the Plan shall have the effect of decreasing a Participant’s accrued benefit (within the meaning of Section 411(d)(6) of the Code) with respect to service performed prior to the effective date of the amendment.

     (d) No amendment to the Plan shall have the effect of eliminating or reducing an early retirement benefit or a subsidy that continues after retirement, or eliminating an optional form of benefit.

     Notwithstanding anything herein to the contrary, the Plan or any portion thereof may be amended at any time, if necessary, to conform to the provisions of the Employee Retirement Income Security Act of 1974 and the Internal Revenue Code or any amendment thereto or regulations issued pursuant thereto. The Board of Directors may delegate its authority to amend the Plan, as set forth herein, to any person, committee, or other entity, subject to such terms or limitations which the Board, in its complete discretion, may impose.

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     If the Plan’s vesting schedule is amended or the Plan is amended in any way that directly or indirectly affects the computation of a Participant’s nonforfeitable benefit, each Participant with at least three (3) years of Cumulative Service with the Company may elect, within a reasonable period after the adoption of the amendment or change, to have his nonforfeitable benefit computed under the Plan without regard to such amendment or change. The period during which the election may be made shall commence at the date the amendment is adopted or deemed to be made, and shall end on the latest of:

     (A) sixty (60) days after the amendment is adopted,

     (B) sixty (60) days after the amendment becomes effective, or

     (C) sixty (60) days after the Participant is issued written notice of amendment by the Company.

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ARTICLE XVIII

RIGHT TO DISCONTINUE OR TERMINATE;
ALLOCATION OF ASSETS UPON TERMINATION

     18.1 No Contractual Obligation. It is the expectation of the Member Companies that they will continue the Plan indefinitely, but the continuance thereof is not assumed as a contractual obligation by any Member Company or any Affiliated Company. The Plan or any portion thereof may be discontinued or terminated at any time by action of the Board of Directors of the Sponsor and any Member Company may discontinue or terminate its participation in the Plan. Discontinuance or termination of the Plan or any portion thereof shall not have the effect of revesting in any Member Company any part of the funds of the Trust Fund, except as provided in Section 18.4.

     18.2 Vesting Upon Termination of Plan. In the event of a termination of the Plan within the meaning of Section 411 of the Internal Revenue Code, the rights of all Plan participants to benefits accrued, to the extent then funded (but subject to allocation and reallocation in accordance with the provisions of Title IV of the Employee Retirement Income Security Act of 1974), shall become fully vested. In the event of a partial termination of the Plan within the meaning of Section 411 of the Internal Revenue Code, the rights of all affected Participants to benefits accrued, to the extent then funded (but subject to allocation and reallocation, if required, pursuant to the provisions of Title IV of the Employee Retirement Income Security Act of 1974) shall become fully vested.

     18.3 Allocation of Assets Upon Plan Termination. Upon termination of the Plan, the assets of the Plan, to the extent that they are sufficient after the payment of and reasonable reserves for expenses of administration or liquidation of the Trust, shall be allocated for the

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purpose of paying benefits to participants and their beneficiaries of the Plan in an order of precedence consistent with the provisions of Section 4044 of the Employee Retirement Income Security Act of 1974.

     18.4 Distribution of Residual Assets. Following termination, any residual assets of the Plan shall be distributed to the Member Companies after all liabilities of the Plan to participants and their beneficiaries of the Plan have been satisfied.

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ARTICLE XIX

GENERAL MATTERS

     19.1 No Enlargement of Employee Rights. This Plan shall not be deemed to constitute a contract between any Member Company and any Employee, or to be consideration for, or an inducement to, or a condition of, the employment of any Employee. Nothing contained in this instrument or otherwise in the Plan shall be deemed to give any Employee the right to be retained in the employ of any Member Company or to interfere with the right of any Member Company to discharge or retire any Employee at any time. No Employee, prior to his retirement under conditions of eligibility for retirement income benefits or prior to his acquiring vested rights in benefits as provided in this Plan shall have any right to or interest in any portion of any fund, other than as herein specifically provided. No person shall have any right to retirement income benefits, except to the extent provided herein.

     19.2 Benefits From Trust Fund. Any benefits payable under this Plan shall be paid or provided for solely from the Trust Fund and the Member Companies assume no liability or responsibility therefor. The Member Companies’ obligations hereunder are limited solely to the making of contributions to the Trust Fund as provided for in this Plan. Member Companies may suspend or discontinue contributions at any time whether or not benefits for service to the date of suspension or discontinuance have been fully funded.

     19.3 No Alienation. None of the benefits, payments, proceeds, claims or rights of any Participant, Joint Annuitant or Beneficiary hereunder shall be subject to any claims of any creditor of any Participant, Joint Annuitant or Beneficiary and in particular the same shall not be subject to attachment or garnishment or other legal process by any creditor of any Participant, Joint Annuitant or Beneficiary nor shall any such Participant, Joint Annuitant or Beneficiary

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have any right to alienate, anticipate, commute, pledge, encumber, or assign any claim or right hereunder or any of the benefits or payments or proceeds which he may expect to receive, contingent or otherwise, under the provisions hereof. The foregoing shall not apply to judgments, orders and decrees, and settlement agreements to the extent permitted by Code Section 401(a)(13)(C) and (D). In the event any person attempts to take any action contrary to this Section such action shall be null and void and of no effect, and the Company, the Sponsor, the Pension Plan Committee, the Trustee and all Participants, Joint Annuitants and beneficiaries shall disregard such action and are not in any manner bound thereby, and they, and each of them, shall suffer no liability for any such disregard thereof, and shall be reimbursed on demand out of the Trust Fund for the amount of any loss, cost or expense incurred as a result of disregarding or of acting in disregard of such action. Neither the provisions of this Section nor any other provision of this Plan (including but not limited to provisions conferring rights on a Spouse) shall prohibit observance of a qualified domestic relations order (as defined in Section 206(d) of the Employee Retirement Income Security Act of 1974).

     19.4 Facility of Payment. If any payee under the Plan is a minor, or if the Pension Plan Committee believes that any payee is legally incapable of giving a valid receipt of discharge for any payment due him, the Pension Plan Committee may have such payment or any part thereof made to the person (or persons or institution) whom it reasonably believes is caring for or supporting such payee, unless it has received due notice of claim therefor from a duly appointed guardian or committee of such payee. Any such payment shall be a payment for the account of such payee and shall, to the extent thereof, be a complete discharge of any liability under the Plan of such payee.

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     19.5 Location of Payee. Benefits shall not be paid under this Plan until the Participant or other person entitled to benefits hereunder shall have made application for such benefits as provided in this instrument. If any such person, having so applied for benefits, shall fail thereafter to give the Pension Plan Committee evidence satisfactory to the Pension Plan Committee of his continued life and address, payment of benefits shall cease as of the last payment, if any, known to have been received by the payee, and benefits shall not again commence to be paid until application for benefits is again made in accordance with the provisions of this Plan as then in effect. In no event shall a Participant or other person be entitled to receive any amount with respect to any period prior to application for benefits in accordance with this Plan, or with respect to any period between cessation of benefits and reapplication therefor, as provided herein.

     19.6 Payment of Small Benefits.

     (a) Notwithstanding any provision in this instrument for the payment of monthly benefits, if the monthly benefit which would be paid to any person under this Plan is less than forty dollars ($40.00) and the present value of such benefit is not in excess of five thousand dollars ($5,000), the Pension Plan Committee will pay one lump sum no later than the close of the Plan Year following the Plan Year in which the termination or retirement occurs, in lieu of monthly payments. No other benefits shall be payable to such person.

     (b) Notwithstanding subsection (a), if, at the distribution date, the present value of the Accrued Benefit of a Participant (or a spouse or former spouse who is an alternate payee under a qualified domestic relations order) exceeds $1,000 but does not exceed $5,000, such present value shall not be distributed prior to the Participant reaching

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age 65 without the consent of the distributee.

          The Participant or Beneficiary shall be given a notice of his or her right to receive the present value of the vested benefit in a lump sum. The Participant or Beneficiary may choose to have such distribution paid directly to an Eligible Retirement Plan (as defined in Section 10.7) specified by the Participant or Beneficiary, no later than the close of the Plan Year following the Plan Year in which the termination or retirement occurs. The Participant or Beneficiary shall have at least thirty (30) but not more than ninety (90) days from the date of such notice to elect to receive his benefit in a lump sum or a direct rollover, and if so elected and paid, no other benefits shall be payable to such former Participant or to his or her Beneficiaries.

          In the event that the distribute does not make an affirmative election to receive his or her benefit in a lump sum or to have the benefit paid in a direct rollover pursuant to Section 10.7:

     (1) If the Participant has not yet reached Normal Retirement Age, the Participant’s benefit will remain in the Plan until the Participant makes an affirmative election in accordance with the terms of the Plan or reaches Normal Retirement Age or dies.

     (2) If the Beneficiary is the surviving spouse or a former spouse who is an alternate payee under a qualified domestic relations order, the alternate payee’s benefit will remain in the Plan until the alternate payee makes an affirmative election in accordance with the terms of the Plan or the date the Participant reaches Normal Retirement Age or dies.

     (3) If the Participant has reached Normal Retirement Age, the Plan the

67

benefit will remain in accordance with subsection (a).

     (4) If the Participant dies prior to receiving or commencing distribution of his or her benefits, benefits will be paid as otherwise provided in this Plan, subsection (a), and to the extent benefits are payable to a spouse or former spouse who is an alternate payee under a qualified domestic relations order, subsection (b).

     (c) For purposes of this Section, the present value of a benefit and the amount of a lump sum payment shall be determined in accordance with Section 3.1(b).

     19.7 The Trust Agreement. All assets of the Plan shall be held in a Trust Fund or Trust Funds by a Trustee or Trustees appointed by the Pension Plan Committee pursuant to a Trust Agreement or Trust Agreements creating such Trust Fund or Trust Funds entered into between the Pension Plan Committee and/or Sponsor and the Trustee or Trustees.

     19.8 Application of Forfeitures. Any forfeiture of benefits arising from termination of employment, death, or otherwise prior to the termination of the Plan or the complete discontinuance of contributions will be used to reduce Member Company contributions otherwise payable under the Plan, and will not be used to increase Participants’ benefits.

     19.9 Irrevocability. The Member Companies shall have no right or title to, nor interest in the contributions made to the Trust hereunder, nor shall any part of any funds held in trust revert to the Member Companies except as follows:

     (a) If an amount is contributed under the Plan by the Member Companies pursuant to a mistake of fact, the amount so contributed (subject to any depreciation or loss in the Trust Fund attributable to such contribution) may be returned to the Member Companies within one year of the date of such contribution, or

68

     (b) If any contribution which the Member Companies make under the Plan is conditioned on initial qualification of the Plan under Code Section 401(a) and if initial qualification of the Plan is denied, such contribution (subject to any depreciation or loss in the Trust Fund attributable to such contribution) may be returned to the Member Companies within one year after the date of denial of the Plan’s initial qualification provided the application for qualification is made by the time prescribed by law for filing the Member Companies’ tax return for the taxable year in which the Plan is adopted, or such later date as the Secretary of the Treasury may prescribe, or

     (c) Any contribution which the Member Companies make under the Plan is conditioned upon the deductibility of such contribution under Section 404 of the Code and, to the extent a deduction therefor is disallowed, such contribution (subject to any depreciation or loss in the Trust Fund attributable to such contribution) may be returned to the Member Companies within one year after such disallowance, or

     (d) In the case of any residual assets remaining after satisfaction of all liabilities of the Plan, a distribution may be made of such residual assets in accordance with the provisions of Section 18.4.

     19.10 Merger Restriction. This Plan shall not in whole or in part merge or consolidate with, or transfer its assets or liabilities to any other plan unless each affected Participant in this Plan would (if the plan then terminated) be entitled to receive a benefit immediately after the merger, consolidation, or transfer which is equal to or greater than the benefit he would have been entitled to receive immediately before the merger, consolidation, or transfer (if the Plan had then terminated).

69

     19.11 Article Headings. Article headings are for convenient reference only and shall not be deemed to be a part of the substance of this instrument or in any way to enlarge or limit the contents of any Article.

     19.12 Gender. Masculine gender shall include the feminine and the singular shall include the plural unless the context clearly indicates otherwise.

     19.13 Amendments. All amendments to the Plan are effective only on the date on which such amendments are adopted, unless a different effective date is expressly provided by resolution of the Board of Directors of the Sponsor, or unless any such amendment shall by its own express terms become effective at another date. Further, unless and to the extent expressly provided to the contrary in the terms of any such amendment, such amendment shall not be construed to enlarge the rights of any Participant or other person with respect to a Participant whose employment terminated prior to the effective date of such amendment.

     19.14 Applicable Law. All legal questions pertaining to the Plan shall be determined in accordance with applicable federal law and the laws of the State of Nevada to the extent not preempted by federal law. All contributions made hereunder shall be deemed to have been made in Nevada.

     19.15. Veterans’ Reemployment Rights. Notwithstanding any other provision in the Plan to the contrary, contributions, benefits, and service credit with respect to qualified military service shall be provided in accordance with Code section 414(u). The Sponsor shall notify the Trustee of any Participant with respect to whom additional contributions are made because of qualified military service.

70

ARTICLE XX

LIMITATIONS ON BENEFITS

     20.1 Basic Limitation. Subject to the adjustments hereinafter set forth, the maximum annual amount of retirement income payable to a Participant under this Plan shall not exceed the lesser of:

     (a) One hundred sixty thousand dollars ($160,000); or

     (b) One hundred percent (100%) of the Participant’s average compensation for the three consecutive calendar years during which he was a Participant and had the greatest aggregate compensation.

Except as provided below, a benefit payable in a form other than a straight life annuity must be adjusted to an actuarial equivalent straight life annuity before applying the limitations of this Article. The actuarial factors used to determine actuarial equivalence; will be either the factors specified in Section 3.1 or the Applicable Mortality Table (as defined in Section 3.1(b)(A)) and 5%, whichever produces the highest benefit. The Applicable Interest Rate (as defined in Section 3.1(b)(B) is substituted for 5% for forms of benefit subject to Code section 417(e). Notwithstanding the foregoing, for the short Plan Year beginning December 1, 2005, for purposes of adjusting any benefit under this paragraph for any form of benefit subject to Code Section 417(e)(3), the interest rate assumption shall be 5.5% or the rate specified by the Plan in Section 3.1(b), whichever produces the higher benefit. The annual benefit does not include any benefits attributable to employee contributions or rollover contributions, or the assets transferred from a qualified plan that was not maintained by the Company or an Affiliated Company. No actuarial adjustment to the benefit is required for (i) the value of a qualified joint and survivor annuity, (ii) the value of benefits that are not directly related to retirement benefits, and (iii) the

71

value of post-retirement cost-of-living increases made in accordance with Code Section 415(d) and Treasury Regulation section 1.415-3(c)(2)(iii).

     For purposes of this Section, the limitation year shall be the same as the Plan Year.

     20.2 Membership in Other Defined Benefit Plans. The limitations of this Article XX with respect to any Participant who at any time has been a participant in any other defined benefit plan (as defined in Section 414(j) of the Internal Revenue Code) maintained by the Company or an Affiliated Company shall apply as if the total benefits payable under all such defined benefit plans in which the Participant has been a participant were payable from one plan.

     20.3 Payment Prior to Age Sixty-Two or After Age Sixty-Five. If the annual benefit of a Participant commences prior to age sixty-two (62), the reduced age dollar limit is the lesser of the actuarial equivalent amount computed using the plan rate and plan mortality table used for actuarial equivalence of early retirement benefits and the actuarial equivalent of the amount at age 62 computed using a 5% interest rate and the applicable mortality table. Any decrease in the defined benefit dollar limitation determined in accordance with this provision shall not reflect the mortality decrement to the extent that benefits will not be forfeited upon the death of the Participant.

     If the annual benefit of a Participant commences after age 65, the limitation referred to in subsection (a) of Section 20.1, if necessary, will be adjusted so that it is the actuarial equivalent of an annual benefit of such dollar limitation beginning at age 65. To determine actuarial equivalence, the dollar limitation shall be the lesser of the limitation determined using the Plan rate and the Plan mortality table used for late retirement benefits or 5% interest and the Applicable Mortality Table. For these purposes mortality between age 65 and the age at which benefits commence shall be ignored.

72

     20.4 Exception. The provisions of this Article XX shall not apply to any Participant who has not at any time participated in any defined benefit plan (as defined in Section 415(k) of the Internal Revenue Code) maintained by the Company or any Affiliated Company if his total annual benefit computed in accordance with this Article XX in any year is not in excess of ten thousand dollars ($10,000).

     20.5 Adjustment of Limitation. The maximum annual retirement benefit payable under this Article XX to any Participant who has completed less than ten (10) years of service with the Company and all Affiliated Companies shall be the amount otherwise permitted to be paid under this Article XX or, as the case may be, multiplied by a fraction, the numerator of which is the number of the Participant’s years of service and the denominator of which is ten (10). Application of this provision to the dollar limit of Section 20.1(a) shall be based upon years of Plan participation rather than years of service. Application of this provision to the percentage of compensation limit of Section 20.1(b) shall be based upon years of service.

     20.6 Adjustment. The dollar limitation on the maximum amount of annual retirement benefit prescribed by Section 20.1 shall be deemed to be adjusted annually, without the necessity of formal amendment of this Plan, for increases in the cost of living, in accordance with Regulations issued by the Secretary of the Treasury pursuant to the provisions of Section 415(d) of the Internal Revenue Code.

     20.7 Special Affiliation Rule. For purposes of this Article XX, the determination of whether a company is an Affiliated Company shall be made after applying the modifications required by Internal Revenue Code Section 415(h) to the percentage tests of Internal Revenue Code Sections 414(b) and (c) of the Internal Revenue Code.

73

     20.8 Compensation. For the limited purpose of applying the provisions of Article XX and Article XXII, “compensation” means all wages, salaries, and fees for professional services and other amounts received for personal services actually rendered in the course of employment with the Company or an Affiliated Company (including, but not limited to commissions paid salesmen, compensation for services on the basis of a percentage of profits, commissions on insurance premiums, tips and bonuses), and excluding the following:

     (a) Contributions to a plan of deferred compensation which are not includable in the Employee’s gross income for the taxable year in which contributed, or contributions under a simplified employee pension plan to the extent such contributions are deductible by the Employee, or any distributions from a plan of deferred compensation;

     (b) Amounts realized from the exercise of a non-qualified stock option, or when restricted stock (or property) held by the Employee either becomes freely transferable or is no longer subject to a substantial risk of forfeiture;

     (c) Amounts realized from the sale, exchange or other disposition of stock acquired under a qualified stock option; and

Compensation shall include elective deferrals during the Limitation Year under Code sections 125, 132(f)(4), 401(k), 403(b) and 457.

74

ARTICLE XXI

SPECIAL QUALIFICATION PROVISION

     (a) In the event of termination of this Plan, the benefit of any highly compensated employee (as defined under Code Section 414(q)) and of any highly compensated former employee is limited to a benefit that is nondiscriminatory under Code Section 401(a)(4).

     (b) In order to comply with this Section, the annual payments to a Participant described in paragraph (c) below will be restricted to an amount equal in each year to—

     (i) The accrued benefit and other benefits to which the Participant is entitled under the Plan (other than a social security supplement), and

     (ii) The amount of the payments that the Participant is entitled to receive under a social security supplement.

The restrictions in this paragraph (b) do not apply, however, if any one of the following requirements is satisfied—

     (iii) After payment to a Participant described in subsection (c) hereof of all benefits payable to the Participant under the Plan, the value of Plan assets equals or exceeds 110 percent of the value of current liabilities, as defined in Code Section 412(1)(7)),

     (iv) The value of the benefits payable to the Participant under the Plan for a Participant described in subsection (c) hereof is less than one percent (1%) of the value of current liabilities before distribution, or

75

     (v) The value of the benefits payable to the Participant under the Plan for a Participant described in subsection (c) hereof does not exceed the amount described in Code Section 411(a)(11)(A).

     (c) The Participants whose benefits are restricted on distribution under this subsection include all highly compensated employees and highly compensated former employees; provided, however, that in any one (1) year, the total number of Participants whose benefits are subject to restrictions under this subsection is limited to the twenty-five (25) highly compensated employees and highly compensated former employees with the greatest compensation in the current or any prior Plan Year.

     (d) For purposes of this subsection, the term “benefit” includes, among other benefits, any periodic income and any death benefits not provided by insurance on the Participant’s life.

     (e) If it is determined that the provisions of this subsection are no longer necessary to qualify this Plan under the Code, this Section shall automatically become inoperative and of no effect.

     EXECUTED pursuant to the                      adopting resolution of the Sponsor’s Board of Directors.

	American Pacific Corporation
	By
Date

76

AMPAC FINE CHEMICALS LLC PENSION PLAN
FOR BARGAINING UNIT EMPLOYEES

APPENDIX A

EMPLOYEE UNIT:	Ampac Fine Chemicals LLC
	Sacramento, California
	International Association of Machinists &
	Aerospace Workers, Local #946
BENEFIT FACTOR:

Date of Last Employment
in Employee Unit	Benefit Factor
On or after December 1, 2005	$	53.00

77

SCHEDULE A-1

     Except as otherwise expressly provided in the Plan, if a Participant’s retirement income commences prior to Normal Retirement Date the amount of retirement income otherwise payable shall be reduced in accordance with this Schedule A, taking into account the number of years and full calendar months by which the date of commencement of benefits precedes the Participant’s Normal Retirement Date. The percentages shown in the table below represent the reduced percentage of the monthly amount which would have been payable commencing at Normal Retirement Date. If a Participant’s retirement income is to be paid in a form other than the form of a single life annuity, the reduced percentage of retirement income determined from this Schedule A shall be subject to further reduction as provided in this Plan.

78

SCHEDULE A-2

Yr.	Mo.		%		Yr.		Mo.		%		Yr.		Mo.		%		Yr.		Mo.		%
0		1		99.4				7		82.6		5		1		69.3				7		58.9
		2		98.8				8		82.1				2		69.0				8		58.6
		3		98.2				9		81.6				3		68.6				9		58.2
		4		97.6				10		81.1				4		68.2				10		57.9
		5		97.0				11		80.6				5		67.8				11		57.6
		6		96.3				12		80.1				6		67.4				12		57.3
		7		95.7		3		1		79.6				7		67.1		8		1		57.0
		8		95.1				2		79.2				8		66.7				2		56.7
		9		94.5				3		78.7				9		66.3				3		56.4
		10		93.9				4		78.3				10		66.0				4		56.1
		11		93.3				5		77.8				11		65.6				5		55.8
		12		92.7				6		77.3				12		65.2				6		55.5
1		1		92.2				7		76.9		6		1		64.9				7		55.3
		2		91.6				8		76.4				2		64.5				8		55.0
		3		91.0				9		76.0				3		64.2				9		54.7
		4		90.5				10		75.5				4		63.8				10		54.4
		5		90.0				11		75.1				5		63.5				11		54.1
		6		89.4				12		74.6				6		63.1				12		53.8
		7		88.8		4		1		74.2				7		62.8		9		1		53.5
		8		88.3				2		73.8				8		62.5				2		53.3
		9		87.8				3		73.4				9		62.1				3		53.0
		10		87.2				4		73.0				10		61.8				4		52.7
		11		86.6				5		72.6				11		61.4				5		52.5
		12		86.1				6		72.1				12		61.1				6		52.2
2		1		85.6				7		71.7		7		1		60.8				7		51.9
		2		85.1				8		71.3				2		60.5				8		51.7
		3		84.6				9		70.9				3		60.1				9		51.4
		4		84.1				10		70.5				4		59.8				10		51.1
		5		83.6				11		70.1				5		59.5				11		50.9
		6		83.1				12		69.7				6		59.2				12		50.6

79

SCHEDULE B -1

     If a Participant’s benefit is payable in the form of a joint and survivor annuity providing for a “reduced” monthly benefit to the Participant for his lifetime, with fifty percent (50%) of such amount to continue to be paid to another person after his death for such other person’s lifetime, the “reduced” monthly amount shall be determined from the table below, taking into account (a) the age of the Participant upon commencement of benefits, and (b) the age of the spouse or other contingent annuitant when benefits commence for the Participant. The percentages shown in the table below represent the percentage of the monthly amount which would have been payable in single life annuity form (after any reduction required by the Plan to reflect the commencement of benefits prior to Normal Retirement Date).

80

SCHEDULE B -2

Age of Participant

	55		56		57		58		59		60		61		62		63		64		65		66		67		68		69		70
40		90.7		90.0		89.3		88.6		87.9		87.1		86.2		85.3		84.4		83.4		82.4		81.3		80.2		79.1		77.9		76.7
41		91.0		90.4		89.6		89.0		88.2		87.5		86.6		85.7		84.8		83.9		82.8		81.8		80.7		79.6		78.4		77.2
42		91.3		90.7		90.1		89.3		88.6		87.8		87.0		86.2		85.2		84.3		83.3		82.2		81.2		80.1		78.9		77.7
43		91.6		91.1		90.4		89.8		89.0		88.2		87.4		86.6		85.7		84.7		83.7		82.7		81.6		80.6		79.4		78.2
44		92.0		91.4		90.8		90.1		89.4		88.6		87.9		87.0		86.2		85.2		84.2		83.2		82.2		81.0		79.9		78.8
45		92.4		91.8		91.1		90.5		89.8		89.1		88.3		87.5		86.6		85.7		84.8		83.7		82.6		81.6		80.4		79.3
46		92.7		92.1		91.6		90.9		90.3		89.5		88.8		87.9		87.1		86.1		85.3		84.3		83.1		82.1		81.0		79.8
47		93.1		92.5		91.9		91.3		90.6		90.0		89.2		88.4		87.5		86.6		85.7		84.8		83.7		82.6		81.5		80.4
48		93.5		92.9		92.3		91.7		91.1		90.3		89.7		88.9		88.1		87.1		86.2		85.2		84.3		83.2		82.1		81.0
49		93.8		93.3		92.7		92.1		91.5		90.8		90.0		89.3		88.5		87.7		86.7		85.8		84.7		83.8		82.7		81.5
50		94.1		93.6		93.1		92.5		91.9		91.2		90.5		89.7		89.0		88.2		87.3		86.3		85.3		84.3		83.3		82.2
51		94.4		93.9		93.4		92.9		92.3		91.6		90.9		90.2		89.4		88.6		87.8		86.9		85.8		84.9		83.8		82.9
52		94.8		94.3		93.8		93.2		92.7		92.0		91.4		90.7		89.9		89.1		88.3		87.4		86.5		85.4		84.4		83.4
53		95.0		94.6		94.1		93.6		93.0		92.5		91.8		91.1		90.4		89.6		88.7		87.9		87.0		86.1		85.0		84.0
54		95.3		94.9		94.5		94.0		93.4		92.8		92.3		91.5		90.8		90.1		89.3		88.4		87.6		86.6		85.7		84.6
55		95.6		95.2		94.8		94.3		93.8		93.2		92.6		92.0		91.3		90.5		89.8		89.0		88.0		87.2		86.3		85.3
56		95.9		95.5		95.1		94.6		94.2		93.6		93.0		92.4		91.8		91.0		90.3		89.5		88.7		87.7		86.9		86.0
57		96.1		95.8		95.4		94.9		94.5		94.0		93.4		92.8		92.2		91.5		90.8		90.0		89.2		88.4		87.4		86.6
58		96.4		96.0		95.7		95.2		94.8		94.3		93.8		93.2		92.6		92.0		91.3		90.5		89.7		88.9		88.1		87.2
59		96.6		96.3		95.9		95.6		95.1		94.6		94.2		93.7		93.0		92.4		91.8		91.1		90.3		89.5		88.7		87.9
60		96.9		96.6		96.2		95.8		95.5		95.0		94.5		94.0		93.5		92.9		92.3		91.6		90.9		90.1		89.3		88.5
61		97.0		96.8		96.5		96.2		95.7		95.4		94.9		94.4		93.9		93.4		92.7		92.1		91.4		90.8		90.0		89.2
62		97.3		97.0		96.8		96.4		96.1		95.6		95.3		94.8		94.3		93.8		93.3		92.6		92.0		91.3		90.7		89.9
63		97.5		97.3		96.9		96.7		96.4		96.0		95.6		95.2		94.7		94.3		93.7		93.2		92.6		91.9		91.3		90.6
64		97.8		97.5		97.2		96.9		96.7		96.4		96.0		95.6		95.2		94.7		94.2		93.7		93.2		92.5		91.9		91.2
65		98.0		97.8		97.5		97.3		96.9		96.7		96.4		96.0		95.6		95.2		94.7		94.2		93.7		93.2		92.5		91.9
66		98.1		98.0		97.8		97.5		97.3		97.0		96.8		96.4		96.1		95.6		95.2		94.7		94.2		93.7		93.2		92.5
67		98.3		98.1		98.1		97.9		97.5		97.3		97.0		96.8		96.4		96.1		95.8		95.2		94.7		94.3		93.7		93.3
68		98.6		98.3		98.2		98.1		97.9		97.6		97.3		97.0		96.8		96.5		96.1		95.6		95.3		94.8		94.3		93.8
69		98.7		98.6		98.4		98.2		98.1		97.9		97.6		97.4		97.1		96.8		96.5		96.1		95.7		95.3		94.9		94.4
70		98.9		98.7		98.6		98.4		98.2		98.2		98.0		97.6		97.4		97.1		96.9		96.5		96.2		95.8		95.4		95.0

81

SCHEDULE C-1

     If a Participant’s benefit is payable in the form of a joint and survivor annuity providing for a “reduced” monthly benefit to the Participant for his lifetime, with one hundred percent (100%) of such amount to continue to be paid to another person after his death for such other person’s lifetime, the “reduced” monthly amount shall be determined from the table below, taking into account (a) the age of the Participant upon commencement of benefits, and (b) the age of the spouse or other contingent annuitant when benefits commence for the Participant. The percentages shown in the table below represent the percentage of the monthly amount which would have been payable in single life annuity form (after any reduction required by this Plan to reflect the commencement of benefits prior to Normal Retirement Date).

82

SCHEDULE C-2

Age of Participant

	55		56		57		58		59		60		61		62		63		64		65		66		67		68		69		70
40		82.8		81.4		80.3		79.0		77.9		76.6		75.1		73.8		72.4		70.9		69.4		67.8		66.2		64.6		63.0		61.3
41		83.2		82.1		80.8		79.7		78.4		77.2		75.9		74.4		73.0		71.5		70.0		68.5		66.9		65.2		63.6		61.9
42		83.7		82.6		81.5		80.2		79.0		77.7		76.5		75.1		73.6		72.1		70.7		69.0		67.5		65.9		64.2		62.5
43		84.2		83.2		82.1		81.0		79.6		78.4		77.1		75.8		74.4		72.8		71.3		69.8		68.1		66.6		64.9		63.2
44		84.9		83.8		82.7		81.6		80.4		79.0		77.8		76.4		75.1		73.6		72.0		70.4		68.9		67.2		65.6		63.9
45		85.5		84.5		83.3		82.2		81.0		79.8		78.4		77.1		75.7		74.3		72.8		71.1		69.5		68.0		66.3		64.7
46		86.1		85.0		84.0		82.8		81.7		80.5		79.2		77.8		76.4		74.9		73.5		72.0		70.3		68.6		67.1		65.3
47		86.7		85.7		84.6		83.6		82.3		81.2		79.9		78.6		77.1		75.7		74.2		72.7		71.1		69.4		67.8		66.2
48		87.4		86.3		85.3		84.2		83.1		81.8		80.8		79.3		78.0		76.4		75.0		73.4		71.9		70.3		68.5		66.9
49		87.9		87.0		85.9		84.8		83.7		82.6		81.3		80.1		78.7		77.3		75.7		74.2		72.6		71.1		69.5		67.7
50		88.5		87.5		86.6		85.5		84.4		83.2		82.1		80.7		79.4		78.0		76.6		75.0		73.4		71.8		70.3		68.6
51		89.0		88.1		87.2		86.2		85.1		83.9		82.7		81.5		80.1		78.8		77.4		75.9		74.2		72.7		71.0		69.5
52		89.7		88.7		87.8		86.8		85.8		84.6		83.5		82.2		80.9		79.5		78.2		76.7		75.2		73.5		71.9		70.2
53		90.1		89.4		88.4		87.4		86.4		85.4		84.2		82.9		81.7		80.4		78.9		77.5		76.0		74.4		72.7		71.2
54		90.6		89.8		89.1		88.1		87.1		86.0		85.0		83.7		82.4		81.1		79.7		78.2		76.8		75.3		73.7		72.0
55		91.1		90.4		89.5		88.7		87.7		86.7		85.6		84.5		83.2		81.9		80.5		79.1		77.6		76.2		74.6		73.1
56		91.7		90.9		90.1		89.2		88.4		87.3		86.2		85.1		84.0		82.6		81.3		79.9		78.5		77.0		75.5		74.0
57		92.1		91.4		90.6		89.8		88.9		88.0		86.9		85.8		84.7		83.5		82.1		80.8		79.4		78.0		76.4		74.9
58		92.6		91.8		91.2		90.3		89.5		88.6		87.7		86.5		85.4		84.2		83.0		81.6		80.2		78.8		77.4		75.8
59		93.1		92.4		91.6		90.9		90.0		89.2		88.2		87.3		86.1		85.0		83.8		82.6		81.1		79.8		78.3		76.9
60		93.5		92.9		92.2		91.4		90.7		89.8		88.9		87.9		87.0		85.8		84.6		83.4		82.2		80.7		79.3		77.9
61		93.8		93.4		92.7		92.0		91.1		90.4		89.5		88.6		87.6		86.7		85.4		84.3		83.0		81.8		80.3		78.9
62		94.3		93.7		93.2		92.5		91.8		91.0		90.2		89.3		88.3		87.3		86.4		85.2		84.0		82.7		81.5		80.0
63		94.6		94.2		93.5		93.1		92.4		91.7		90.8		90.0		89.1		88.1		87.1		86.2		84.9		83.7		82.4		81.2
64		95.2		94.6		94.1		93.5		93.0		92.3		91.6		90.7		89.9		89.0		88.0		86.9		86.0		84.7		83.5		82.2
65		95.6		95.2		94.5		94.0		93.4		92.9		92.2		91.5		90.6		89.8		88.8		87.8		86.8		85.8		84.5		83.3
66		95.8		95.6		95.2		94.5		94.0		93.4		92.9		92.2		91.4		90.5		89.7		88.7		87.7		86.6		85.7		84.4
67		96.2		95.8		95.6		95.2		94.5		94.0		93.4		92.9		92.1		91.4		90.4		89.6		88.6		87.6		86.5		85.6
68		96.7		96.2		95.8		95.6		95.2		94.5		94.0		93.3		92.8		92.1		91.3		90.4		89.6		88.5		87.5		86.5
69		96.9		96.7		96.2		95.8		95.6		95.2		94.5		93.9		93.3		92.8		92.0		91.2		90.3		89.5		88.5		87.5
70		97.3		96.9		96.7		96.2		95.8		95.6		95.1		94.4		93.9		93.3		92.8		92.0		91.2		90.3		89.5		88.5

83

EX-10.8

Exhibit 10.8

AMPAC FINE CHEMICALS LLC PENSION PLAN
FOR SALARIED EMPLOYEES

AMPAC FINE CHEMICALS LLC PENSION PLAN
FOR SALARIED EMPLOYEES

TABLE OF CONTENTS

		Page
ARTICLE I	GENERAL MATTERS AND PURPOSE		1
1.1	General		1
1.2	Purpose of Plan		1
ARTICLE II	EFFECTIVE DATE		2
ARTICLE III	DEFINITIONS		3
3.1	Actuarial Equivalent		3
3.2	Aerojet Plan		4
3.3	AFC Plan		4
3.4	Affiliated Company		4
3.5	Annual Earnings		4
3.6	Annuity Starting Date		5
3.7	Average Annual Earnings		5
3.8	Average Social Security Wage Base		6
3.9	Beneficiary		6
3.10	Board of Directors		6
3.11	Break in Service		6
3.12	Company		7
3.13	Credited Service		7
3.14	Cumulative Service		9
3.15	Disabled Participant		11
3.16	Employee		12
3.17	Hour of Service		12
3.18	Joint Annuitant		14
3.19	Leased Employee		14
3.20	Leave of Absence		15
3.21	Member Company		15
3.22	Minimum Benefit		15
3.23	Normal Monthly Pension Benefit		15
3.24	Participant		16
3.25	Pension Benefit		16
3.26	Pension Plan Committee		16

iv 

		Page
3.27	Plan		16
3.28	Plan Administrator		16
3.29	Plan Year		16
3.30	Program D		16
3.31	Qualified Election		16
3.32	Retired Participant		18
3.33	Sponsor		18
3.34	Spouse		18
3.35	Trust Agreement		18
3.36	Trustee		18
3.37	Trust Fund		18
3.38	Vested Percentage		19
ARTICLE IV	PARTICIPATION IN PROGRAM “D”		20
ARTICLE V	MEMBER COMPANY CONTRIBUTIONS		21
ARTICLE VI	RETIREMENT		22
6.1	Normal Retirement Date		22
6.2	Early Retirement Date		22
6.3	Late Retirement Date		22
ARTICLE VII	DETERMINATION OF PENSION INCOME		23
7.1	General		23
7.2	Normal Monthly Pension Benefit		24
7.3	Minimum Benefit		24
7.4	Early Retirement		28
7.5	Retirement on Late Retirement Date		28
7.6	Maximum Benefit Limitations		28
ARTICLE VIII	DISABILITY PROVISION		31
8.1	Disability Provision		31
8.2	Determination of Total and Permanent Disability		31
8.3	Early Commencement of Benefits		32
8.4	Verification of Disability		32
ARTICLE IX	VESTING AND VESTED TERMINATION		34
9.1	Vesting and Vested Percentage		34
9.2	Early Commencement of Benefits		34

v 

		Page
ARTICLE X	PAYMENT OF BENEFITS		35
10.1	Normal Form of Payment		35
10.2	Optional Forms of Payment		35
10.3	Qualified Election Not to Take Joint and Survivor Annuity		37
10.4	Designation of Joint Annuitant		38
10.5	Conditions of Qualified Election		38
10.6	Limitations on Distribution of Benefits		38
10.7	Direct Rollovers		42
10.8	Consent to Certain Distribution of Benefits		44
ARTICLE XI	NO PAYMENT OF BENEFITS DURING EMPLOYMENT		47
11.1	No Commencement of Benefits During Employment		47
11.2	Suspension of Benefits		47
ARTICLE XII	SPOUSAL DEATH BENEFIT		48
12.1	Spousal Death Benefit		48
12.2	Marriage Requirement		49
12.3	Certain Elections		49
12.4	Cost of Benefit		50
ARTICLE XIII	DESIGNATION OF BENEFICIARY		51
13.1	Designation of Beneficiary		51
13.2	Failure of Designation		51
ARTICLE XIV	TRANSFER OF EMPLOYMENT		52
ARTICLE XV	AFFILIATED SERVICE		53
15.1	Definitions		53
15.2	Credited Service		53
15.3	Cumulative Service		53
ARTICLE XVI	APPLICATION FOR BENEFITS		55
16.1	Application for Benefits		55
16.2	Action on Application		57
16.3	Claim Review Procedure		58

vi 

		Page
ARTICLE XVII	ADMINISTRATION		63
17.1	The Pension Plan Committee		63
17.2	Pension Plan Committee Procedure		63
17.3	Pension Plan Committee Powers		63
17.4	Allocation and Delegation of Duties		65
17.5	Expenses		65
17.6	Accounts		65
17.7	Periodic Review		65
17.8	Investment Administration		66
17.9	Compensation and Expenses of Fiduciaries		66
ARTICLE XVIII	AMENDMENT		68
ARTICLE XIX	RIGHT TO DISCONTINUE OR TERMINATE; ALLOCATION OF ASSETS UPON TERMINATION		70
19.1	No Contractual Obligation		70
19.2	Vesting Upon Termination of Plan		70
19.3	Allocation of Assets Upon Plan Termination		70
19.4	Distribution of Residual Assets		71
ARTICLE XX	GENERAL MATTERS		72
20.1	No Enlargement of Employee Rights		72
20.2	Benefits from Trust Fund		72
20.3	No Alienation		72
20.4	Facility of Payment		73
20.5	Location of Payee		74
20.6	Payment of Small Benefits		75
20.7	The Trust Agreement		76
20.8	Application of Forfeitures		76
20.9	Irrevocability		76
20.10	Merger Restriction		77
20.11	Article Headings		78
20.12	Gender		78
20.13	Amendments		78
20.14	Applicable Law		78
20.15	Veterans’ Reemployment Rights		78
ARTICLE XXI	LIMITATIONS ON BENEFITS		79
21.1	Basic Limitation		79

vii 

		Page
21.2	Membership in Other Plans		80
21.3	Payment Prior to Age Sixty-Two or After Age Sixty-Five		80
21.4	Exception		81
21.5	Adjustment in the Limitation		81
21.6	Adjustment		81
21.7	Special Affiliation Rule		81
21.8	Compensation		82
ARTICLE XXII	SPECIAL QUALIFICATION PROVISION		83
ARTICLE XXIII	TOP-HEAVY PLAN RULES		85
23.1	Applicability		85
23.2	Definitions		85
23.3	Top-Heavy Status		86
23.4	Minimum Benefits		89
23.5	Vesting Rules		91
23.6	Non-Eligible Employees		91

SCHEDULES (A, B, C, D)

viii 

AMPAC FINE CHEMICALS LLC PENSION PLAN

FOR SALARIED EMPLOYEES

ARTICLE I

GENERAL MATTERS AND PURPOSE

     1.1 General. This document sets forth the provisions of the Ampac Fine Chemicals LLC Pension Plan for Salaried Employees (“Plan”) as in effect from and after December 1, 2005. This document reflects provisions of the Plan applicable to salaried employees at Ampac Fine Chemicals LLC.

     This Plan was established on December 1, 2005 and received a transfer of assets and liabilities from the GenCorp Consolidated Pension Plan with respect to certain participants therein who became salaried employees of Ampac Fine Chemicals LLC on December 1, 2005.

     1.2 Purpose of Plan. The purpose of the Plan is to provide pension benefits for eligible salaried employees of Ampac Fine Chemicals LLC and for eligible salaried employees of Member Companies, as defined herein.

9 

ARTICLE II

EFFECTIVE DATE

     The effective date of the Ampac Fine Chemicals LLC Pension Plan for Salaried Employees is December 1, 2005.

10

ARTICLE III

DEFINITIONS

     The following words and phrases as used in this instrument shall have the meaning stated in this Article III unless it shall appear from the context that they have a plainly different meaning:

     3.1 Actuarial Equivalent. “Actuarial Equivalent” means an amount which, at the date of determination, is actuarially equivalent to the Pension Benefit or any other benefit required to be calculated hereunder, computed using the interest rate and the mortality table specified below:

     (a) Except as provided in subsection (b), the interest rate shall be 8 1/2% and the mortality table shall be the Group Annuity Table for 1983, set back by two years for a Participant and four years for a spouse or other joint participant.

     (b) For determinations of actuarial equivalents in the form of lump sum payments, the actuarial factors shall be determined using whichever of the factors described below results in the largest value: (i) the factors specified in subsection (a); or (ii) the mortality table specified in subsection (a) and the interest rate published by the Pension Benefit Guaranty Corporation (as of the first day of the Plan Year in which such determination is made) for the purpose of determining the present value of benefits for terminating single-employer plans; or (iii) the applicable mortality table and the applicable interest rate, as defined below:

     (A) The term “applicable mortality table” shall mean the table prescribed by the Secretary of the Treasury under Code Section 417(e)(3). As of

11

December 1, 2005, the applicable mortality table is the table prescribed in Rev. Rul. 2001-62.

     (B) The term “applicable interest rate” mean the annual rate of interest on 30-year Treasury securities as specified by the Commissions of Internal Revenue for the month preceding the Plan Year in which falls the Annuity Starting Date for the distribution.

     3.2 Aerojet Plan. “Aerojet Plan” shall mean the Aerojet-General Corporation Consolidated Pension Plan.

     3.3 AFC Plan. “AFC Plan” shall mean the Aerojet Fine Chemical LLC Consolidated Pension Plan.

     3.4 Affiliated Company. “Affiliated Company” shall mean (a) any corporation which is included in a controlled group of corporations (within the meaning of Section 414(b) of the Internal Revenue Code), which group also includes the Company, (b) any trade or business which is under common control with the Company (within the meaning of Section 414(c) of the Internal Revenue Code), and (c) any member of an affiliated service group (within the meaning of Section 414(m) or the Internal Revenue Code) which includes the Company.

     3.5 Annual Earnings.

     (a) “Annual Earnings” shall mean the actual salary paid to a Participant during a Plan Year by a Member Company (including bonuses, commissions and overtime payments paid by a Member Company to the Participant during the Plan Year) plus amounts which would have been paid to the Participant during the Plan Year but for his elections to defer such amounts to be contributed on a pre-tax basis to an Ampac Fine Chemicals LLC employee benefit plan under Code sections 125, 132(f)(4), 401(k), 403(b)

12

and 457. The term “Annual Earnings” shall not include payments with respect to any period during which the individual is not eligible, as provided in Article IV, to accrue benefits hereunder. The amount of a Participant’s Annual Earnings shall be annualized to represent a full Plan Year. For the purpose of calculating Annual Earnings for a period prior to December 1, 2005, Annual Earnings shall include amounts earned as compensation for services performed in the employment of a “Member Company” to the extent such amounts are included in “Annual Earnings” as those terms were defined in Program D as in effect on November 30, 2005.

     (b) The Annual Earnings of a Participant for a Plan Year, which is taken into account for any purpose, shall not exceed $200,000, as adjusted for cost-of-living increases in accordance with Section 401(a)(17) of the Code. The cost-of-living adjustment in effect for a calendar year applies to annual compensation for the Plan Year that begins within such calendar year. For purposes of determining benefit accruals under this Plan, compensation or earnings for any prior determination period under a predecessor plan will be subject to the limitations of this Subsection.

     3.6 Annuity Starting Date. “Annuity Starting Date” shall mean the first day of the first period for which an amount is payable as an annuity, or in the case of a benefit not payable as an annuity, the first day on which all events have occurred which entitle the Participant to such benefit.

     3.7 Average Annual Earnings. “Average Annual Earnings” shall mean the average of a Participant’s Annual Earnings (in all cases annualized to represent a full Plan Year) for the five (5) Plan Years immediately preceding the date of the Participant’s termination of employment with a Member Company.

13

     3.8 Average Social Security Wage Base. For purposes of Section 7.3, “Average Social Security Wage Base” means, for each Plan Year, the average, rounded to the nearest whole multiple of $600.00, of the Social Security taxable wage bases for the 35 consecutive calendar years ending with the calendar year in which such Plan Year begins.

     3.9 Beneficiary. “Beneficiary” shall mean the person (other than a Joint Annuitant) designated by a Participant, in accordance with Article XIII and pursuant to a Qualified Election, to receive any benefits payable in the event of the death of the Participant, his Spouse, and his designated Joint Annuitant, as the case may be.

     3.10 Board of Directors. “Board of Directors” shall mean the Board of Directors of American Pacific Corporation.

     3.11 Break in Service. “Break in Service” or “Break” shall mean a Plan Year during which a Participant completes fewer than five hundred (500) Hours of Service. Solely for purposes of determining whether a Participant has sustained a Break in Service, an Employee’s Hours of Service shall also include the following (to the extent not included in the definition of Hours of Service in this Article III):

     (a) Any period of layoff (not exceeding twenty-four (24) months) provided that the Employee returns to the employ of a Member Company or Affiliated Company within such twenty-four (24) month period;

     (b) Any period of absence (other than an absence described in subsection (c) below) pursuant to a Leave of Absence, provided that the Employee returns to the employ of a Member Company or an Affiliated Company immediately upon expiration of such Leave of Absence, and

14

     (c) Any period of absence, by reason of the pregnancy of the Employee, by reason of the birth of a child of the Employee, by reason of the placement of a child with the Employee in connection with the adoption of such child by the Employee, or for purposes of caring for such child for a period beginning immediately following the birth or placement of such child.

     The number of additional Hours of Service deemed completed pursuant to subsections (a) and (b) above, shall be in accordance with the Employee’s customary schedule of employment. The number of additional Hours of Service deemed completed pursuant to subsection (c) above, shall be in accordance with the Employee’s customary schedule of employment, provided, however that no more than five hundred and one (501) Hours of Service shall be deemed to have been completed with respect to absences with respect to a single pregnancy, birth or placement described in subsection (c). Hours deemed completed pursuant to subsection (c) shall be credited to the Plan Year in which the absence from work begins if the Employee would be prevented from incurring a Break in Service in such Plan Year solely because of such additional Hours, and in any other case, in the immediately following Plan Year. The Pension Plan Committee may require, as a condition of recognizing any Hours pursuant to subsection (c), that the Employee provide such information as the Pension Plan Committee reasonably requests to establish the reason for the absence and the number of days for which there was such an absence.

     3.12 Company. “Company” shall mean Ampac Fine Chemicals LLC.

     3.13 Credited Service. “Credited Service” shall mean the number of years of Credited Service of a Participant determined in accordance with this Section, which shall be considered in determining a Participant’s benefits under this Plan. A Participant shall be deemed to accrue a

15

full year of Credited Service in each Plan Year in which he completes at least two thousand eighty (2,080) Hours of Service. In addition, in any Plan Year in which the Participant completes less than two thousand eighty (2,080) Hours of Service, a Participant shall be deemed to complete one-twelfth (1/12) of a year of Credited Service for each one hundred seventy-three (173) Hours of Service completed during such Plan Year. With respect to employees who were employed by Aerojet Fine Chemicals LLC on June 1, 2000 and who became Participants on December 1, 2005 as the result of the transfer of assets and liabilities to this Plan from Program D, “Credited Service” shall also include “Credited Service” as of November 30, 2005 as that term was defined in Program D as in effect on that date as set forth in Schedule D. In the case of an employee who became an employee of Aerojet Fine Chemicals LLC after June 1, 2000 and who became a Participant on December 1, 2005 as the result of a transfer of assets and liabilities to this Plan from Program D, “Credited Service” shall also include “Credited Service” earned after becoming an employee of Aerojet Fine Chemicals LLC, as that term was defined in Program D as in effect on November 30, 2005 as set forth in Schedule D but shall not include any prior service that may have been recognized under the Aerojet Plan or the Pension Plan for Salaried Employees of GenCorp Inc. (subsequently known as the GenCorp Consolidated Pension Plan (Program “B”). Credited Service shall also include Credited Service accrued in the case of certain total and permanent disability as provided in Section 8.1. For purposes of determining a Participant’s Credited Service the following rules shall apply:

     (a) Hours of Service shall not be taken into account which are accrued by a Participant for service other than as an Employee, as defined in this instrument, or which are accrued during any period that the Employee is covered under any other pension or

16

retirement plan to which the Company contributes, except a federal, state, social security or similar welfare program;

     (b) In the case of any Participant who has a Break in Service and who, immediately preceding such Break does not have a vested right to Pension Benefits under this Plan, the Credited Service of such Participant accrued under this Plan prior to such Break shall not be taken into account if the number of consecutive Breaks in Service exceeds the greater of (i) five (5) or (ii) the aggregate number of years of Cumulative Service (including Cumulative Service deemed to be earned by reason of service for a Member Company or an Affiliated Company pursuant to Article XVI) prior to such Break. Such aggregate number of years of Cumulative Service prior to such Break shall not include any years of Cumulative Service not required to be taken into account under this subsection (d) by reason of any prior Break in Service.

     (c) In the case of any Participant who has a Break in Service and who, immediately preceding such Break does not have a vested right to Pension Benefits under this Plan, the Credited Service of such Participant prior to such Break shall not be taken into account until the end of a twelve (12) consecutive month period commencing after such Break in which the Participant completes at least one thousand (1,000) Hours of Service.

     (d) A Participant shall be eligible to accrue Credited Service as provided in this Section 3.10 for periods of employment after the Participant’s Normal Retirement Date.

     A Participant shall in no event be deemed to accrue more than one (1) full year of Credited Service with respect to any Plan Year.

17

     3.14 Cumulative Service. “Cumulative Service” shall mean the number of years of Cumulative Service of an Employee determined in accordance with this Section and Article XVI, which shall be considered in determining an Employee’s vesting in benefits under this Plan. An Employee shall be deemed to accrue a full year of Cumulative Service in each Plan Year in which he completes at least one thousand (1,000) Hours of Service. In addition, in any Plan Year in which the Employee completes less than one thousand (1,000) Hours of Service, an Employee shall be deemed to complete one-twelfth (1/12th) of a year of Cumulative Service for each one hundred seventy-three (173) Hours of Service completed during such Plan Year. With respect to employees who became Participants on December 1, 2005 as the result of the transfer of assets and liabilities to this Plan from Program D “Cumulative Service” shall also include “Cumulative Service” as of November 30, 2005 as that term was defined in Program D as in effect on that date and as set forth in Schedule D.

     For purposes of determining an Employee’s Cumulative Service, the following rules shall apply:

     (a) In the case of any Employee who has a Break in Service and who, immediately preceding such Break does not have a vested right to benefits under this Plan, the Cumulative Service of such Employee prior to such Break shall not be taken into account if the number of consecutive Breaks in Service exceeds the greater of (i) five (5) or (ii) the aggregate number of years of Cumulative Service (including Cumulative Service deemed to be earned by reason of service for a Member Company or an Affiliated Company pursuant to Article XVI) prior to such Break. Such aggregate number of years of Cumulative Service prior to such Break shall be deemed not to include any years of

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Cumulative Service not required to be taken into account under this subsection (a) by reason of any prior Break in Service; and

     (b) In the case of any Employee who has a Break in Service and who, immediately preceding such Break does not have a vested right to benefits under this Plan, the Cumulative Service of such Employee prior to such Break shall not be taken into account until the end of a twelve (12) consecutive month period commencing after such Break in which the Employee completes at least one thousand (1,000) Hours of Service.

     An Employee shall in no event be deemed to accrue more than one (1) full year of Cumulative Service with respect to any Plan Year.

     Solely for purposes of determining a Participant’s Vested Percentage, the Participant’s Cumulative Service shall include any period during which the Participant was performing services for a Member Company pursuant to an arrangement between the Member Company and a leasing organization, whether or not the Participant was a Leased Employee during such period.

     Employment with any Affiliated Company or any other entity required to be aggregated with the Company pursuant to Code Section 414(o), will be treated as employment with the Company solely for purposes of determining a Participant’s Cumulative Service for vesting purposes under this Plan; provided, however, that unless otherwise specifically provided under the Plan, any individual receiving credited Hours of Service under this provision shall not be eligible to participate in the Plan or eligible to accrue benefits under the Plan unless the individual is an Employee of a Member Company.

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     3.15 Disabled Participant. “Disabled Participant” shall mean a Participant whom the Pension Plan Committee determines has suffered a total and permanent disability within the meaning of Section 8.2 while he is a Participant in Employee status.

     3.16 Employee. “Employee” shall mean any person who is employed by a Member Company and who is compensated upon a salaried basis; provided in each case that the Member Company is required by applicable law to deduct federal income tax and social security tax amounts. The term “Employee” may, with the approval of the Pension Plan Committee, include any Employee who is loaned to another organization or entity for a period of time. However, unless otherwise designated by the Board of Directors, “Employee” does not include an individual who becomes employed by a Member Company through the:

     (a) Legal dissolution and winding up of an Affiliated Company which was not a Member Company; or

     (b) Merger into a Member Company of any other corporation or Affiliated Company which is not a Member Company; or

     (c) Transfer of all or part of the assets to a Member Company by another company together with a group of the transferor’s employees.

     3.17 Hour of Service. “Hour of Service” shall mean (a) each hour for which an Employee is paid, or entitled to payment, by the Company for the performance of duties as an Employee, (b) each hour for which an Employee is paid or entitled to payment by the Company on account of a period of time during which no duties are performed, and (c) each hour for which back pay, irrespective of mitigation of damages, is either awarded or agreed to by the Company. Overtime work shall be credited as straight time.

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          The determination of an Employee’s “Hours of Service” shall be governed by the following rules:

     (1) Hours of Service to be recognized during any period of time during which no duties are performed by the Employee shall be determined and credited pursuant to Department of Labor Regulations Sections 2530.200b-2(b) and (c), 29 C.F.R. §§ 2530.200b-2(b) and (c), with the following special provisions:

     (i) An Employee shall be deemed to complete eight (8) Hours of Service for each paid holiday not worked;

     (ii) An Employee shall be deemed to complete forty (40) Hours of Service for each week of paid vacation or week of paid sick leave not worked;

     (iii) An Employee shall be deemed to complete forty (40) Hours of Service for each week of military service with respect to which he is entitled to credit for such Hours of Service under applicable federal law (but only for such purposes as credit is required to be given under such law);

     (iv) An Employee shall be deemed to complete forty (40) Hours of Service for each week absent from work due to illness or accident and for which he is entitled to Workers’ Compensation benefits, subject to a maximum of six (6) months for each accident or illness.

     (v) No more than five hundred and one (501) Hours of Service shall be credited to an Employee on account of any single continuous period during which the Employee performs no duties.

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     (2) No Employee shall be deemed to earn Hours of Service solely by reason of receiving payments pursuant to a plan maintained for the purpose of complying with applicable worker’s compensation, unemployment compensation or disability insurance laws, nor shall an Employee be deemed to earn Hours of Service by reason of the receipt of payments which reimburse such Employee for medical or medically related expenses incurred by the Employee.

     (3) With respect to any period of service, an Employee shall not receive credit for Hours of Service pursuant to more than one provision of this definition.

     (4) An Employee who is not paid on the basis of a specified amount for each hour worked, shall, in lieu of any other method of computing Hours of Service (but subject to the limitations set forth in paragraph (1), above) be credited with forty-five (45) Hours of Service for each week or portion thereof during which such Employee performs one or more Hours of Service as an Employee.

     3.18 Joint Annuitant. “Joint Annuitant” shall mean the person designated by a Participant, pursuant to an election (including, where required, a Qualified Election) of an option provided by Section 11.2, to receive an annuity for life upon the death of the Participant after his retirement.

     3.19 Leased Employee. “Leased Employee” means any person (other than an Employee of a Member Company) who has performed services for a Member Company (or for a Member Company and related persons as determined under Code Section 414(n)(6) which services (i) are performed under an agreement between a Member Company and a leasing

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organization on a substantially full-time basis for a period of at least one (1) year, and (ii) are performed under the direction and control of the Member Company.

     Any Leased Employee will not be treated as an Employee of a Member Company for purposes of eligibility to participate in the Plan or for purposes of accrual of benefits under the Plan. However, a Leased Employee will be treated as an Employee of a Member Company for purposes of Code Sections 401(a), 410, 411, 415, and 416; provided, however, that a Leased Employee will not be treated as employed by the Member Company if (i) the Leased Employee is covered by a money purchase pension plan maintained by the leasing organization that provides (A) a nonintegrated employer contribution of at least 10% of compensation, as defined in Code Section 415(c)(3), including amounts contributed pursuant to a salary reduction agreement that are excludible from the employee’s gross income under Code Sections 125, 402(e)(3), 401(h)(1)(B) or 403(b); (B) immediate participation; and (C) full and immediate vesting, and (ii) Leased Employees do not constitute more than twenty percent (20%) of the leasing organization’s nonhighly compensated employees, as that term is defined under Code Section 414(q).

     3.20 Leave of Absence. “Leave of Absence” shall mean a period of absence from regular employment which is approved by a Member Company. The employment of an Employee whose approved Leave of Absence is terminated without his returning to regular employment with the Company shall be terminated effective at the commencement of such Leave of Absence.

     3.21 Member Company. “Member Company” shall mean the Company, any Affiliated Company, or any division or unit of the Company or of an Affiliated Company which

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may be included in this Plan by designation by the Board of Directors, and in the case of an Affiliated Company, by adoption of this Plan by such Affiliated Company.

     3.22 Minimum Benefit. “Minimum Benefit” shall mean the monthly Minimum Benefit determined in accordance with Section 7.3.

     3.23 Normal Monthly Pension Benefit. “Normal Monthly Pension Benefit” shall mean the benefit described in Section 7.1.

     3.24 Participant. “Participant” shall mean a person who has become eligible to participate in this Plan in accordance with the provisions of Article IV, and who has not yet been paid in full any benefits to which he is entitled under the terms of this Plan.

     3.25 Pension Benefit. “Pension Benefit” shall mean the Normal Monthly Pension Benefit or the Minimum Benefit, whichever is applicable.

     3.26 Pension Plan Committee. “Pension Plan Committee” shall mean the Committee described in Section 17.1.

     3.27 Plan. “Plan” shall mean the Ampac Fine Chemicals LLC Pension Plan for Salaried Employees.

     3.28 Plan Administrator. “Plan Administrator” shall mean the Sponsor or such other entity or person the Board of Directors may designate.

     3.29 Plan Year. “Plan Year” shall mean the fiscal year of the Plan. The Plan Year shall be the twelve (12) month period commencing each October 1 and ending the following September 30. The first Plan year will be the period beginning December 1, 2005 and ending on September 30, 2006.

     3.30 Program D. “Program D” shall mean the GenCorp Consolidated Pension Plan (Program D).

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     3.31 Qualified Election. “Qualified Election” shall mean a Participant’s election, designation or waiver made under this Plan in accordance with the requirements of this Section and in the manner and form as prescribed by the Pension Plan Committee.

     (a) To the extent required under Section 417 of the Internal Revenue Code, no election, designation or waiver shall be deemed to be a Qualified Election unless the Spouse, if any, of the Participant consents in writing to such election, designation or waiver and acknowledges the effect of such election, designation or waiver. The Spouse’s consent to an election, designation or a waiver must be witnessed by a notary public.

     (b) Notwithstanding this consent requirement, if the Participant warrants to the Pension Plan Committee that such written consent may not be obtained because there is no Spouse or the Spouse cannot be located or for any other reason as the Pension Plan Committee determines to be consistent with the requirements of Section 417 of the Code, a related election, designation or waiver without spousal consent may be deemed a Qualified Election; provided, however, that the Pension Plan Committee may require the Participant in such case to produce such evidence of the Spouse’s unavailability or other circumstances as the Pension Plan Committee deems to be appropriate.

     (c) A Qualified Election under this provision will be valid only with respect to the Spouse who consented to the Qualified Election, or in the event of a Qualified Election in which the Spouse’s consent has not been obtained, with respect to a designated Spouse (e.g., that Spouse who cannot be located).

     (d) A revocation of a prior election, designation or waiver may be made by a Participant without the consent of the Spouse at any time before the commencement of benefits, but any subsequent election, designation or waiver shall again be subject to the

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foregoing rules. Subject to the foregoing (relating to a change by a Participant), the consent by a Spouse to an election, designation or waiver shall be irrevocable. The number of revocations and subsequent elections, designations or waivers shall not be limited during any applicable election period.

     (e) An election, designation or waiver which, by reason of a failure to obtain required spousal consent could not be given effect when made, may later be given effect if at the relevant date the Participant has no Spouse or is not then otherwise required to have spousal consent.

     3.32 Retired Participant. “Retired Participant” shall mean a Participant who has retired and who is receiving benefits under this Plan.

     3.33 Sponsor “Sponsor” shall mean American Pacific Corporation.

     3.34 Spouse. “Spouse” shall mean, as required by the context of specific provisions of this instrument, the person to whom the Participant is lawfully married on the date on which payment of benefits commences or for purposes of the spousal death benefit under Article XIII, the person to whom such deceased Participant is married on the date of such Participant’s death.

     3.35 Trust Agreement. “Trust Agreement” shall mean the trust agreement effective as of December 1, 2005, by and between the Ampac Fine Chemicals LLC and/or American Pacific Corporation and the trustee designated therein, or such other trust agreement or agreements that may be established from time to time hereunder and as the same may from time to time be amended and/or restated.

     3.36 Trustee. “Trustee” shall mean the individuals and/or entity designated in the Trust Agreement, any successor named as provided in the Trust Agreement, and which executes a

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Trust Agreement as Trustee, or any other Trustee or Trustees designated in any trust agreement or trust agreements which may be established to carry out the purposes of this Plan.

     3.37 Trust Fund. “Trust Fund” shall mean all cash and securities and all other assets of whatever nature deposited with or acquired by the Trustee or Trustees in the capacity of Trustee of this Plan and all accumulated income thereon.

     3.38 Vested Percentage. “Vested Percentage” shall mean the percentage of a Participant’s accrued Pension Benefit which is vested and nonforfeitable, determined according to Article X.

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ARTICLE IV

PARTICIPATION IN PROGRAM “D”

     Every Employee who was a participant in Program D on November 30, 2005 and who became an Employee on December 1, 2005 shall become a Participant in this Plan and become eligible to accrue benefits under this Plan on December 1, 2005.

     Every other Employee shall become a Participant in this Plan and become eligible to accrue benefits hereunder, as of the first day of the month coinciding with or next following his most recent date of hire. No person shall be eligible to accrue benefits under this Plan during any period of time during which he is accruing benefits under any other pension or retirement plan to which the Company contributes (including the Ampac Fine Chemicals Pension Plan for Bargaining Employees), except a federal or state, social security or similar welfare program; nor shall any person be eligible to accrue benefits under this Plan during any period of time that such person is not an Employee, as defined in Article II, except as expressly provided in Article IX (relating to total and permanent disability).

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ARTICLE V

MEMBER COMPANY CONTRIBUTIONS

     The Member Companies will from time to time contribute such amounts as are required under the provisions of the Employee Retirement Income Security Act of 1974, and at their option may contribute additional amounts as they deem desirable. All Member Company Contributions made hereunder shall be deposited with the Trustee and held as part of the Trust Fund.

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ARTICLE VI

RETIREMENT

     6.1 Normal Retirement Date. The Normal Retirement Date of any Participant shall be the first day of the month coinciding with or next following his sixty-fifth (65th) birthday. Normal Retirement Age is age sixty-five (65).

     6.2 Early Retirement Date. Any Participant who is an Employee, who was credited with an hour of service under Program D for services before December 1, 1992, and who, on or after December 1, 1974, has attained age 55 and completed at least 5 years of Cumulative Service may elect to retire on an Early Retirement Date. A Participant who was not credited with an hour of service under Program D for services before December 1, 1992 may not elect to retire on an Early Retirement Date until he has attained age 55 and completed at least 10 years of Cumulative Service. Such Early Retirement Date shall be the first day of any month selected by the Participant which occurs before his Normal Retirement Date and after his satisfaction of the applicable age and service requirements set forth in this Section 6.2

     6.3 Late Retirement Date. A Participant who remains employed by the Company or an Affiliated Company beyond the date which would have been his Normal Retirement Date may retire as of the first day of any month thereafter, and the date of such subsequent retirement shall be his Late Retirement Date.

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ARTICLE VII

DETERMINATION OF PENSION INCOME

     7.1 General. Upon his Normal Retirement Date each Participant shall be entitled to a Pension Benefit. The Normal Monthly Pension Benefit shall be determined as set forth in Section 7.2. The Pension Benefit to which a Participant shall be entitled will be the Normal Monthly Pension Benefit, or the Minimum Benefit determined as set forth in Section 7.3, whichever is greater plus, in the case of a Participant who became an employee of Aerojet Fine Chemicals LLC after June 1, 2000 and who became a Participant on December 1, 2005, the amount of the normal monthly pension benefit accrued to the Participant as of November 30, 2005 under the provisions of the GenCorp Consolidated Pension Plan (without regard to Programs C and D) in effect on that date and as set forth in Schedule D.

     The Pension Benefit to which any Participant, who was employed by the Aerojet Fine Chemicals LLC on June 1, 2000, is entitled under this Plan shall be offset and reduced by the amount of Pension Benefit such Participant is entitled to receive under the Aerojet Plan, assuming that payment of such Pension Benefit under the Aerojet Plan commences at the same time the Participant commences to receive his Pension Benefit under this Plan; provided, however, that for this purpose the value of that part of any Participant’s Pension Benefit under the Aerojet Plan that is attributable to Variable Benefit units shall be fixed as of December 1, 1999.

     The form in which benefits are payable is provided in Article X. The amount of benefits described below in Sections 7.2 through 7.5 is the amount of benefits payable in the form of a single life annuity.

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     7.2 Normal Monthly Pension Benefit. The Normal Monthly Pension Benefit which a Participant accrues during a Plan Year shall be credited to him as of each such Plan Year. The total Normal Monthly Pension Benefit of a Participant shall be equal to the sum of the following:

     (a) The amount of the normal monthly pension benefit accrued to the Participant as of November 30, 2005, under the provisions of Program D as in effect on that date and as set forth in Schedule D.

     (b) A monthly amount equal to the sum of:

     (i) 1/12 of 1.625% of the lesser of his Annual Earnings and the Average Social Security Wage Base for such Plan Year, multiplied by the number of months of his Credited Service in such Plan Year from December 1, 2005 through the month in which he attains 35 years of Credited Service;

     (ii) 1/12 of 2.0% of the excess, if any, of his Annual Earnings over the Average Social Security Wage Base for such Plan Year, multiplied by the number of months of his Credited Service in such Plan Year from December 1, 2005 through the month in which he attains 35 years of Credited Service;

     (iii) 1/12 of 2.0% of his Annual Earnings for such Plan Year, multiplied by the number of months of his Credited Service in such Plan Year following the month in which he attains 35 years of Credited Service.

     7.3 Minimum Benefit. A Participant’s Minimum Benefit shall be the benefit calculated in accordance with subsection (a), (b), or (c), below, whichever is greatest. For this purpose, if the formula refers to a “plan year” prior to December 1, 2005, such “plan year” shall be the period beginning December 1, and ending the following November 30.

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     (a) A monthly benefit equal to forty-four dollars ($44.00) per year of Credited Service.

     (b) 1/12 of the sum of (i), (ii) and (iii) where

     (i) equals the Participant’s years and twelfths of years of Credited Service not in excess of 35 years, multiplied by 1.125% of that portion of his Average Annual Earnings not in excess of the Average Social Security Wage Base,

     (ii) equals the Participant’s years and twelfths of years of Credited Service, not in excess of 35 years, multiplied by 1.5% of that portion, if any, of his Average Annual Earnings in excess of the Average Social Security Wage Base, and

     (iii) equals the Participant’s years and twelfths of years of Credited Service in excess of 35 years, multiplied by 1.5% of his Average Annual Earnings.

     (c) A monthly benefit equal to the sum of (i) and (ii) where

     (i) equals the sum of (A) and (B) where

     (A) equals 1/12 of 1.2% of the Participant’s Annual Earnings not in excess of $15,000 during each Plan Year prior to December 1, 1989 for which he was credited with Credited Service, and

     (B) equals 1/12 of 2.0% of the Participant’s Annual Earnings in excess of $15,000 during each Plan Year prior to December 1, 1989 for which he was credited with Credited Service, and

     (ii) equals the sum of (A) and (B) and (C) where

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     (A) equals 1/12 of 1.625% of the lesser of his Annual Earnings and the Average Social Security Wage Base for each Plan Year commencing after November 30, 1989, multiplied by the number of months of his Credited Service in such Plan Year through the month in which he attains 35 years of Credited Service.

     (B) equals 1/12 of 2.0% of the excess, if any, of his Annual Earnings over the Average Social Security Wage Base for each Plan Year commencing after November 30, 1989, multiplied by the number of months of his Credited Service in such Plan Year through the month in which he attains 35 years of Credited Service; and

     (C) equals 1/12 of 2.0% of his Annual Earnings for each Plan Year commencing after November 30, 1989, multiplied by the number of months of his Credited Service in such Plan Year following the month in which he attains 35 years of Credited Service.

     If a Participant whose employment terminates is subsequently rehired, the determination of his Pension Benefit made on or after the time of his prior termination will be disregarded and a subsequent determination will be made on or after his later termination or later retirement at Retirement Date taking into account all service until such time, and such later determination shall be controlling.

As of each October 1, the benefits being paid to any person shall be compared to the benefits that would be paid to such person if such person’s benefits were based on a Minimum Benefit applicable to such person. For the Plan Year commencing as of such October 1, benefits shall be based on the applicable Minimum Benefit if an increase in benefits would thereby result. For

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purposes of applying the provisions of the two preceding sentences, unless expressly provided to the contrary in resolutions of the Board of Directors, no adopted change in any of the pension benefit calculations shall apply to or with respect to a Participant whose employment for the Company and all Affiliated Companies has terminated prior to the effective date of such change.

     7.4 Early Retirement.

     (a) If a person employed by a Member Company or an Affiliated Company elects to receive his Pension Benefit by retiring at an Early Retirement Date he shall receive his Vested Percentage of his Pension Benefit commencing on his Early Retirement Date or on such later date prior to his Normal Retirement Date which he shall designate. Such Pension Benefit shall be determined in the same manner as the Pension Benefit (whether Normal Monthly Pension Benefit or Minimum Benefit) payable on Normal Retirement Date, but shall be reduced by reason of the commencement of such benefits prior to Normal Retirement Date. Such reduction shall be in the amount of four-tenths of one percent (0.4%) for each month that the commencement of such Participant’s Pension Benefit precedes the first day of the month coinciding with or next following his sixty-second (62nd) birthday, with no reduction by virtue of its commencement on or after such a person’s sixty-second (62nd) birthday.

     (b) In the case of a person whose employment for the Company and all Affiliated Companies terminates with a vested right to a Pension Benefit (but who at the time of such termination is not eligible to retire on an Early Retirement Date) and who elects to receive such Pension Benefit commencing on the first day of any month coinciding with or following his fifty-fifth (55th) birthday, as provided in Section 9.2, the monthly amount of Pension Benefit (whether Normal Monthly Pension Benefit or

35

Minimum Benefit) shall be a reduced percentage of the Pension Benefit otherwise payable. Such reduced percentage shall be determined in accordance with Schedule A attached hereto and not in accordance with the percentage reduction set forth in the preceding subsection (a) of this Section 7.4.

     (c) A Participant who has a Spouse shall not be required to furnish the written consent of his Spouse to any election regarding the commencement of benefits prior to age sixty-five (65) provided such benefits are payable in the normal form under Section 10.1(a) or pursuant to the Participant’s Qualified Election to receive payment in an optional form under Section 10.2.

     7.5 Retirement On Late Retirement Date. If a Participant retires on a date which is subsequent to his Normal Retirement Date, the benefit to which he may be entitled shall commence as of the first day of the month coinciding with or next following the date of his actual retirement as though such date were his Normal Retirement Date; provided, however, in the case of a Participant who is a Five Percent Owner, as defined in Section 23.2(b), benefits shall commence no later than the April 1 following the calendar year in which the Participant attains age seventy and one-half (70-1/2) even if he has not actually retired.

     7.6 Maximum Benefit Limitations. The maximum annual amount of Pension Benefits payable as a single life annuity described in Article X to a Participant under this Plan in any Plan Year (determined without regard to the special rule applicable to Participants who transferred from GenCorp Inc. to Aerojet Fine Chemicals LLC after June 1, 2000 and before December 1, 2005), shall be the lesser of:

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     (a) Two and one-half percent (2-1/2%) multiplied by such Participant’s Credited Service (determined in the manner applicable to determining the Minimum Benefit) and further multiplied by his average Annual Earnings during his three (3) consecutive Plan Years which produces the highest annual average; and

     (b) One hundred twenty percent (120%) of his average Annual Earnings during his three (3) consecutive Plan Years which produces the highest annual average minus fifty percent (50%) of the annual primary social security benefit which such Participant is eligible to receive. In the case of a Participant retiring on or after Normal Retirement Date the annual primary social security benefit shall be the benefit which such Participant is eligible to receive upon retirement based upon social security benefit levels in effect at his Normal Retirement Date. In the case of a Participant terminating employment before Normal Retirement Date, the annual primary social security benefit shall be the benefit which such Participant would receive at Normal Retirement Date if he did not earn any further compensation until that date from any source and based upon social security benefit levels in effect on the date of his termination of employment.

     The primary social security benefit shall be determined for purposes of this Section 7.6 by the Pension Plan Committee. In making this determination, the Pension Plan Committee may estimate a Participant’s pre-separation salary history by applying a salary scale, projected backwards, to the Participant’s compensation as of the date on which his employment terminated. At the election of the Pension Plan Committee, said salary scale shall be either (a) the actual change in the average wages from year to year as determined by the Social Security Administration or (b) a level annual percentage in the amount of six percent (6%). Notwithstanding the foregoing, if the Pension Plan

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Committee elects to estimate a Participant’s pre-separation salary history, in determining the primary social security benefit the Pension Plan Committee shall consider competent evidence supplied by a Participant of such Participant’s prior earnings history for social security purposes if such evidence is presented by the Participant not later than twelve (12) months after termination of employment with the Company and all Affiliated Companies, or the date the Participant is notified of the benefit under the Plan to which he is entitled.

     In no event, however, shall the total annual amount of Pension Benefits payable to a Participant exceed the limitation on benefits as provided in Article XXI.

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ARTICLE VIII

DISABILITY PROVISION

     8.1 Disability Provision. A Participant in Employee status who through some unavoidable cause becomes totally and permanently disabled, as defined in Section 8.2, shall be eligible to accrue Cumulative and Credited Service in accordance with this Article VIII. Such accrual of Cumulative and Credited Service shall commence on the date that the Pension Plan Committee determines the Participant to be totally and permanently disabled, but not sooner than six (6) months following the cessation of active performance of duties by reason of disability. In the case of any Disabled Participant, for purposes of determining Pension Benefits with respect to Credited Service accrued in accordance with this Article VIII, the Annual Earnings of such Participant shall be deemed to include only the salary (excluding bonuses, commissions and overtime) of such Participant as in effect at the time of cessation of active performance of duties by reason of disability. The accrual of Cumulative Service and Credited Service provided herein shall continue until the earliest of the date (1) such total and permanent disability ceases (including but not limited to a cessation of such disability by reason of the cessation of Social Security disability benefits), (2) the Participant reaches Normal Retirement Date, (3) payment of his Pension Benefit commences, (4) the Participant fails to comply with examination requirements as provided in Section 8.4, or (5) the Participant engages in any regular occupation or employment subsequent to his disability as provided in Section 8.4.

     8.2 Determination of Total and Permanent Disability. A Participant shall be deemed to be totally and permanently disabled when (a) he is entitled to receive Social Security disability benefits and (b) on the basis of proof satisfactory to the Pension Plan Committee, the Pension Plan Committee determines that as a result of any physical or mental condition he is

39

totally prevented from engaging in any regular occupation or employment for wage or profit (except such employment as is found by the Pension Plan Committee to be for purposes of rehabilitation) and the condition will, in the opinion of the physician or physicians, clinic or hospital who make the examination or examinations provided herein, be permanent, total and continuous for the remainder of his life. To the extent permitted by law, a Participant shall not be deemed disabled for the purposes of this section if, on the basis of proof satisfactory to it, the Pension Plan Committee determines that his disability arose from any intentionally self-inflicted injury or injury resulting from participation in any criminal undertaking or from service in the armed forces of any country, or consists of chronic alcoholism or addiction to narcotics (or injury or disease resulting there from). Application for Disability Benefits must be received no later than one year after your last date of active employment

     8.3 Early Commencement of Benefits. A Participant who is totally and permanently disabled and who has accrued Cumulative Service and Credited Service pursuant to Section 8.1, may, on or after attaining age fifty-five (55) and completing at least five (5) years of Cumulative Service, elect to have his accrued Pension Benefit commence on the first day of a month designated by the Participant coinciding with or after his fifty-fifth (55th) birthday and before his Normal Retirement Date. In such event the Pension Benefit to which he would otherwise be entitled shall be reduced by reason of the commencement of payments prior to Normal Retirement Date, in accordance with Section 7.4(a). If the Pension Benefit is paid in a form other than a single life annuity, the Pension Benefit also will be subject to such further reductions as are provided in Article X.

     8.4 Verification of Disability. A Participant who becomes totally and permanently disabled shall be required to submit to a medical examination and to such reexamination as the

40

Pension Plan Committee shall deem necessary in order to make a determination concerning his mental or physical condition. An individual who is accruing Cumulative and Credited Service pursuant to this Article VIII may be required to submit to a medical examination at any time, but not more often than once every six (6) months, to determine whether he is eligible to continue accruing such Cumulative and Credited Service. If on the basis of such examination it is determined by the Pension Plan Committee that such individual prior to attaining age sixty-five (65), has sufficiently recovered to engage in any regular occupation or employment for wage or profit, or if it is determined by the Pension Plan Committee that such individual has engaged in any regular occupation or employment subsequent to his disability (except such employment as is found by the Pension Plan Committee to be for purposes of rehabilitation), continued accrual of Cumulative and Credited Service shall cease as of the date determined by the Pension Plan Committee. In the event that such individual shall fail within thirty (30) days after notice to submit to medical examination, his accrual of Cumulative and Credited Service shall cease until he has submitted to such examination after which his continued eligibility to accrue Cumulative and Credited Service may be determined as provided above. The medical examinations provided herein shall be made by a competent physician or physicians or clinic or hospital selected by the Pension Plan Committee at no cost to the Participant.

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ARTICLE IX

VESTING AND VESTED TERMINATION

     9.1 Vesting and Vested Percentage. A Participant shall become fully vested in his accrued Pension Benefits upon his sixty-fifth (65th) birthday (if he is then employed by the Company or an Affiliated Company), or upon completion of five (5) years of Cumulative Service, whichever shall occur first.

     9.2 Early Commencement of Benefits. A Participant whose employment terminates after completion of five (5) or more years of Cumulative Service but before becoming eligible for and entitled to retirement on an Early Retirement Date in accordance with Section 6.2 may, upon attaining age fifty-five (55) elect to receive his Vested Percentage of his Pension Benefit, commencing on the first day of any month designated by the Participant coinciding with or after his fifty-fifth (55th) birthday and before his Normal Retirement Date. If the Participant was credited with an hour of service under Program D before December 1, 1992, the amount actually payable on such early commencement date shall be a reduced percentage, determined in accordance with Schedule A attached hereto, of his vested Pension Benefit payable at Normal Retirement Date. If the Participant was not credited with an hour of service under Program D before December 1, 1992, the amount actually payable on such early commencement date shall be the Actuarial Equivalent of his vested Pension Benefit payable at Normal Retirement Date. The percentage reduction specified in Section 7.4(a) for early retirement shall not apply.

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ARTICLE X

PAYMENT OF BENEFITS

     10.1 Normal Form of Payment.

     (a) The Pension Benefit payable to a Participant who has a Spouse on his Annuity Starting Date shall be a reduced benefit payable for the lifetime of the Participant, and upon his death fifty percent (50%) of the amount payable to the Participant will be paid to the Spouse of the Participant, for the lifetime of such Spouse. The reduced monthly amount payable to a Participant during his lifetime (as provided in this Section 10.1(a)), shall be a percentage of the amount otherwise payable in the form described in Section 10.1(b) below, and such percentage shall be determined in accordance with Schedule B, attached hereto.

     (b) The Pension Benefit payable to any Participant who does not have a Spouse on his Annuity Starting Date shall be a single life annuity, payable for the lifetime of the Participant, which is the amount provided in Article VII, VIII or IX, as appropriate.

     10.2 Optional Form of Payment. Subject to the provisions of Section 10.3, below, a Participant (including a former Employee with a vested interest as provided in Article IX) may make an election, at any time prior to the date with respect to which his retirement income commences, to receive the retirement income otherwise payable to him in an optional form described in either Section 10.2(a), Section 10.2(b) or Section 10.2(c) below:

     (a) A single life annuity, as described in Section 10.1(b), payable to the Participant for his lifetime.

     (b) A joint and survivor annuity, with reduced monthly payments to the Participant for his lifetime, with the percentage of such monthly amount continued

43

thereafter to the Participant’s designated Joint Annuitant, to be paid monthly for the lifetime of such Joint Annuitant, ending with the last payment made prior to the death of such Joint Annuitant. Subject to the provisions of Section 10.6, the applicable Joint Annuitant’s percentage shall be specified by the Participant at the time of electing the joint and survivor annuity described in this Section 10.2(b), and shall be either fifty percent (50%) or one hundred percent (100%). The reduced monthly amount payable to a Participant during his lifetime (as provided in this Section 10.2(b)), shall be a percentage of the amount otherwise payable in the form described in Section 10.1(b) above, and such percentage shall be determined in accordance with Schedule B (where fifty percent (50%) is payable to the Joint Annuitant) or Schedule C (where one hundred percent (100%) is payable to the Joint Annuitant).

     (c) A reduced pension, which shall be the Actuarial Equivalent of the amount otherwise payable in the form described in Section 11.1(b), payable during the Participant’s life, but for a term certain of 5, 10, 15 or 20 years (as the Participant shall so elect provided the period specified shall not exceed the maximum period permitted under Section 10.6, with the payment to his Beneficiary of any pension payments remaining to be paid after the Participant’s death, or if such Beneficiary shall have predeceased him, with the commuted value of such remaining pension payments to be paid to his estate in one lump sum, and with the payment to the estate of the Beneficiary in one lump sum of the commuted value of any pension payments remaining to be paid at the death of the Beneficiary.

Except in the case of an election of a joint and survivor annuity where (i) the designated Joint Annuitant is the Participant’s Spouse, and (ii) the Joint Annuitant will receive 100% of the

44

monthly pension benefit paid to the Participant during his lifetime, such election must be a Qualified Election.

     10.3 Election Not to Take Joint and Survivor Annuity. At least thirty (30) and no more than ninety (90) days before the date with respect to which a Participant’s benefit under this Plan commences to be paid in the form of a joint and survivor annuity described in Section 10.1(a), such Participant shall be furnished, in writing, (a) a general description of such joint and survivor annuity, (b) a general description of the circumstances in which it will be provided, (c) notice of the Participant’s right, prior to the commencement of benefits, to make an election to receive his benefits in an optional form described in Section 10.2 (and the right to revoke such election, together with an explanation of the effect of such revocation), (d) a general description of the relative financial effect on a Participant’s benefits of an election to receive benefits in a form other than the joint and survivor annuity provided in Section 10.1(a), and (e) a general description of the rights of the Participant’s Spouse under applicable provisions of the Internal Revenue Code pertaining to a Qualified Election. At the same time the Participant also shall be furnished, or be advised of the availability of, a written explanation of the terms and conditions of the joint and survivor annuity described in Section 10.1(a) and the financial effect upon the particular Participant’s annuity of making an election to receive benefits in an optional form.

     Subject to Section 10.8, an election (including a Qualified Election) under this Section 10.3 may be made by a Participant hereunder at any time prior to the commencement of benefits. Except in the case of an election of a joint and survivor annuity where (i) the designated Joint Annuitant is the Participant’s Spouse, and (ii) the Joint Annuitant will receive 100% of the monthly pension benefit paid to the Participant during his lifetime, such election must be a Qualified Election which is in writing and clearly indicates that the Participant is making a

45

Qualified Election to receive benefits in a form other than that of the joint and survivor annuity provided under Section 10.1(a).

     10.4 Designation of Joint Annuitant. Whenever a Participant may be permitted to designate a Joint Annuitant pursuant to this Article X, such designation shall be made in the form of an election (including, where required, a Qualified Election) by the execution and delivery to the Pension Plan Committee of an instrument in form satisfactory to the Pension Plan Committee. An election of an optional form of benefit under this Article X may be revoked or a different Joint Annuitant may be named before payment of the Participant’s retirement income commences, with the written consent of the Pension Plan Committee in accordance with rules of uniform application for all Participants similarly situated.

     10.5 Conditions of Qualified Election. Except as provided in Article XII, in the event that a Participant has made an election (including, where required, a Qualified Election) to receive an optional form of benefit under this Article X, and either the Participant or the Joint Annuitant designated to receive such payments dies before payment of the Participant’s Retirement Income commences, such election of an optional form shall not become effective.

     10.6 Limitations on Distribution of Benefits.

     (a) Required Beginning Date: Distribution of Benefits must commence not later than a Participant’s Required Beginning Date. The Required Beginning Date for payment of a pension to a Participant is the first day of April of the calendar year following the calendar year in which the Participant attains age 70-1/2. If the provisions of this Section require the payment of benefits to a Participant who has not yet terminated employment, the Participant’s Normal Monthly Pension Benefit earned during each subsequent accrual period and determined as of the end of such period shall be actuarially

46

reduced to reflect distributions made during the period to which the additional Accrued Benefit relates.

     (b) The provisions of this Section will apply to any distribution of a Participant’s interest and will take precedence over any inconsistent provisions of this Plan. However, this Section is not intended to provide an optional form of distribution or commencement date not otherwise allowed under the Plan unless the timing or amount of payments to be made under the applicable provisions of the Plan, without regard to this Section, would be later than the Required Beginning Date or less than the required minimum provided under this Section.

     (c) All distributions required under this Section shall be determined and made in accordance with Section 401(a)(9) of the Code and the regulations thereunder, including the incidental death benefit requirements of Code Section 401(a)(9)(G) and Treas. Reg. 1.401(a)(9)-6, Q & A-2. The Plan shall apply the minimum distribution requirements of Code Section 401(a)(9) in accordance with the Final Treasury Regulations issued June 15, 2004 thereunder.

     (d) Distribution of benefits, if not made in a single sum, shall be made over one of the following periods (or a combination thereof): 1) the life of the Participant; 2) the lives of the Participant and a designated Beneficiary; 3) a period not extending beyond the life expectancy of the Participant or 4) a period not extending beyond the life expectancy of the Participant and a designated Beneficiary.

     (e) If the distribution of the Participant’s interest has begun in accordance with the preceding paragraph and the Participant dies before his entire interest has been

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distributed to him, the remaining portion of such interest shall be distributed at least as rapidly as under the method of distribution used as of his date of death.

     (f) If the Participant dies before distribution commences, his or her entire interest will be distributed no later than the date specified below:

     (1) Payments of any portion of such interest to the Participant’s surviving Spouse shall be made over the life or life expectancy of such surviving Spouse commencing no later than December 31 of the calendar year in which the Participant would have attained age seventy and one half (701/2) or, if later, December 31 of the calendar year containing the first anniversary of the Participant’s death except to the extent an election is made to receive a distribution of the surviving Spouse’s entire interest no later than December 31 of the calendar year containing the fifth anniversary of the Participant’s death.

     (2) Distribution of the entire interest of a Beneficiary other than the Participant’s surviving Spouse shall be made no later than December 31 of the calendar year containing the fifth anniversary of the Participant’s death except to the extent an election is made to receive distributions over the life or life expectancy of such designated Beneficiary commencing no later than December 31 of the calendar year containing the first anniversary of the Participant’s death;

     Such election must be made by the Participant (or his designated Beneficiary or surviving Spouse, if the Participant dies without having made such an election) on or before the earlier of the date by which distribution must commence absent such election and the date distribution must commence assuming such election has been made.

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     If the Spouse dies before payments begin, subsequent distributions are required under this subsection (except for subsection (f)(2)) as if the surviving Spouse was the Participant.

     (g) For the purpose of this Section, distribution of a Participant’s interest is considered to begin on the Participant’s required beginning date (or, if the last sentence of subsection (f) applies, the date distribution is required to begin to the surviving Spouse pursuant to subsection (f)). If distribution in the form of an annuity irrevocably commences to the Participant before the required beginning date, distribution is considered to commence on the date it actually commences.

     (h) Any amount paid to a child shall be treated as if it had been paid to the surviving Spouse if such amount will become payable to the surviving Spouse when the child reaches the age of majority.

     (i) For purposes of this Section, any distribution required under the incidental death benefit requirements of Section 401(a) of the Code shall be treated as a distribution required under Section 401(a)(9) of the Code.

     (j) Required Actuarial Increase.

     (i) Except with respect to a Five-Percent Owner, a Participant’s accrued benefit must be actuarially increased to take into account the period after age 70¹/2 in which the Participant does not receive any benefits under the Plan. The actuarial increase begins on the April 1 following the calendar year in which the Participant attains age 70¹/2 and ends on the date on which benefits commence after retirement in an amount sufficient to satisfy Code section 401(a)(9).

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     (ii) The amount of actuarial increase payable as of the end of the period of actuarial increases must be no less than the actuarial equivalent of the Participant’s retirement benefits that would have been payable as of the date the actuarial increase must commence plus the actuarial equivalent of additional benefits accrued after that date, reduced by the actuarial equivalent of any distributions made after that date.

     10.7 Direct Rollovers.

     (a) Notwithstanding any provision of the Plan to the contrary that would otherwise limit a Distributee’s election under this section, a Distributee may elect, at the time and in the manner prescribed by the Pension Plan Committee, to have any portion of an Eligible Rollover Distribution paid directly to an Eligible Retirement Plan specified by the Distributee in a Direct Rollover.

     (b) Definitions. For purposes of this Section, the following terms shall have the meanings set forth in this subsection:

     (1) “Eligible Rollover Distribution” means any distribution of all or any portion of the balance to the credit of the Distributee, except that an Eligible Rollover Distribution does not include: (i) any distribution of less than Two Hundred Dollars; (ii) any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the Distributee or the joint lives (or joint life expectancies) of the Distributee and the Distributee’s designated Beneficiary, or for a specified period of ten years or more; (iii) any distribution to the extent such distribution is required under Code section 401(a)(9); and (iv) the portion of any distribution that

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is not includible in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to employer securities).

     (2) “Eligible Retirement Plan” means an individual retirement account described in Code section 408(a), an individual retirement annuity described in Code section 408(b), an annuity plan described in Code section 403(a), or a qualified trust described in Code section 401(a) that accepts the Distributee’s Eligible Rollover Distribution. However, in the case of an Eligible Rollover Distribution to the surviving spouse, an Eligible Retirement Plan is an individual retirement account or individual retirement annuity. An Eligible Retirement Plan shall also mean an annuity contract described in section 403(b) of the Code and an eligible plan under section 457(b) of the Code which is maintained by a state, political subdivision of a state, or any agency or instrumentality of a state or political subdivision of a state and which agrees to separately account for amounts transferred into such plan from this Plan. The definition of Eligible Retirement Plan shall also apply in the case of a distribution to a surviving Spouse, or to a Spouse or former Spouse who is the alternate payee under a qualified domestic relation order, as defined in section 414(p) of the Code.

     (3) “Distributee” means any Participant who is or was an Employee, and any Beneficiary who is or was a Participant’s Spouse (including any former Spouse who is an alternate payee under a qualified domestic relations order, as defined in Code section 414(p) with regard to any spousal interests recognized or created under the Plan.

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     (4) “Direct Rollover” means a payment by the Plan to the Eligible Retirement Plan specified by the Distributee. A portion of a distribution shall not fail to be an eligible rollover distribution merely because the portion consists of after-tax employee contributions which are not includible in gross income. However, such portion may be paid only to an individual retirement account or annuity described in section 408(a) or (b) of the Code, or to a qualified defined contribution plan described in section 401(a) or 403(a) of the Code that agrees to separately account for amounts so transferred, including separately accounting for the portion of such distribution which is includible in gross income and the portion of such distribution which is not so includible.

     10.8 Consent to Certain Distribution of Benefits. Notwithstanding any provision of the Plan to the contrary, if the Actuarial Equivalent present value of a Participant’s vested accrued benefit exceeds (or at the time of any prior distribution exceeded) $5,000, and the Participant’s vested accrued benefit is immediately distributable, the Participant and the Participant’s Spouse (if the Participant elects as Retroactive Annuity Starting Date pursuant to Section 16.1 or a form of payment other than a Qualified Joint and Survivor Annuity) must consent to any distribution of such accrued benefit. Except as provided in Section 16.1 with respect to Retroactive Annuity Starting Date, the consent of the Participant and the Participant’s Spouse (if required) must be obtained in writing within the 90-day period ending on the Annuity Starting Date. The Pension Plan Committee will notify the Participant and the Participant’s Spouse of the right to defer any distribution until the Participant’s Normal Retirement Date. Such notification will include a general description of the material features and an explanation of the relative value of the optional forms of benefit available under the Plan in a manner that would satisfy the notice

52

requirements of Code Section 417(a)(3), and will be provided no fewer than 30 days nor more than 90 days prior to the Participant’s Annuity Starting Date.

     If the Participant, after having received the written explanation described above, affirmatively elects a form of distribution and the spouse consents to that form of distribution (if necessary), the Annuity Starting Date may be less than thirty (30) days after the written explanation was provided to the Participant, provided that the following requirements are met:

     (1) The Pension Plan Committee provides information to the Participant clearly indicating that the Participant has a right to at least thirty (30) days to consider whether to waive the Qualified Joint and Survivor Annuity and consent to another form of distribution;

     (2) The Participant is permitted to revoke an affirmative distribution election until the later of the Annuity Starting Date or the eighth day following the date the foregoing explanation is provided to the Participant;

     (3) Except as provided in Section 16.1 with respect to Retroactive Annuity Starting Dates, the Annuity Starting Date is after the date the foregoing explanation is provided to the Participant; and

     (4) Distribution in accordance with the affirmative election does not commence before the eighth day after the foregoing explanation is provided to the Participant.

     Notwithstanding the foregoing, only the Participant is required to consent to the commencement of a distribution in the form of a qualified joint and survivor annuity described in Section 10.1(a). Neither the consent of the Participant nor the Participant’s Spouse is required to the extent that a distribution is required to satisfy Code Section 401(a)(9) or 415.

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     An accrued benefit is immediately distributable if any part of the accrued benefit could be distributed to the Participant or the Participant’s Spouse before the Participant attains (or would have attained, if the Participant had not died) age sixty-five (65).

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ARTICLE XI

NO PAYMENTS OF BENEFITS DURING EMPLOYMENT

     11.1 No Commencement of Benefits During Employment. Except as provided in Section 10.6, no benefits shall commence to be paid under this Plan to a Participant while he is employed by a Member Company or an Affiliated Company.

     11.2 Suspension of Benefits. If a Member Company or an Affiliated Company rehires a Participant who has retired and to whom payment of a Pension Benefit has commenced, or if a Participant continues to be employed by a Member Company or Affiliated Company after his Normal Retirement Date, payment of his Pension Benefit shall (i) commence or continue during the subsequent period of reemployment if he is scheduled to be employed, and is so employed, for no more than 40 Hours of Service in any month or 173 Hours of Service in a Plan Year, whichever occurs first, and (ii) cease either upon such re-employment in all other cases or when the Participant’s Hours of Service exceed 40 Hours of Service in a month or 172 Hours of Service in a Plan Year, whichever occurs last. If payment of benefits ceases in accordance with the foregoing sentence, then upon termination of employment thereafter, the Participant shall be entitled to benefits computed in accordance with Article VII, giving effect to his credited Service before and after such re-employment and adjusted to reflect the payment of benefits before and after such re-employment. From time to time, the Pension Plan Committee shall adopt written procedures regarding the suspension of benefits payable to Participants during a subsequent period of employment, which comply with the requirements of Section 203(a)(3)(B) of the Employee Retirement Income Security Act of 1974 and any applicable regulation promulgated thereunder.

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ARTICLE XII

SPOUSAL DEATH BENEFIT

     12.1 Spousal Death Benefit. Subject to the provisions of this Article XII, if a Participant dies (1) after having completed at least five (5) years of Cumulative Service or after having attained Normal Retirement Date (whether or not he has actually retired) and (2) before payment of his Pension Benefit commences, a monthly benefit, based on his accrued benefit under this Plan to the extent vested, will be payable to the Spouse to whom such Participant is lawfully married on the date of his death. Such monthly benefit for such Spouse shall commence on the later of (a) first day of the first month following the Participant’s death or (b) the first day of the month coinciding with or next following the date on which the Participant would have attained age 55 had his death not occurred. Such monthly benefit shall end upon such Spouse’s death. The monthly amount of such benefit shall be equal to the monthly amount which would have been payable to such Spouse after the Participant’s death had the Participant’s employment terminated on the date of his death, and had payments commenced to be paid to such Participant on the later of (a) such date or (b) the first day of the month coinciding with or next following the date on which he would have attained age 55 had his death not occurred, in the form of the joint and survivor annuity provided in Section 10.1(a). However, if the Participant elected a 100% joint and survivor annuity with his surviving Spouse as his joint annuitant within 90 days prior to his death and the Participant dies prior to benefit commencement, the benefit under this Section shall be calculated by substituting such payment form for the joint and survivor annuity provided in Section 10.1(a). For purposes of determining the appropriate reduction factor in the case of benefits commencing prior to the date on which the Participant would have attained age 65, the provisions of Section 7.4(a) shall apply in the case of a Participant whose death occurs on or after

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attainment of age fifty-five (55) and the factors set forth in Schedule A attached hereto shall apply in all other cases.

     12.2 Marriage Requirement. No benefit shall be payable under this Article XII other than to the Spouse of a Participant who (a) is lawfully married to the Participant on the date of the Participant’s death, and (b) in the case of a Participant who as of the date of his death had not attained age fifty-five (55), had been lawfully married to the Participant throughout the one (1) year period ending on the date of the Participant’s death.

     12.3 Certain Elections. A Participant whose employment for the Company and all Affiliated Companies terminates, may make a Qualified Election at any time prior to the date of his death not to have such coverage apply.

     Within the applicable period, each Participant described in the preceding provisions of this Section shall be furnished a written explanation with respect to the pre-retirement survivor annuity described in Section 12.1. Such explanation shall be comparable to the explanation described in Section 10.3 hereof. If a Participant enters the Plan after the first day of the Plan Year in which the Participant attains age thirty-five (35) such written explanation shall be furnished no later than the start of the second Plan Year commencing after the Plan Year in which such participation begins.

     For purposes of this Section the term “applicable period” means, with respect to a Participant, whichever of the following periods end last:

     (a) the period beginning with the first day of the Plan Year on which the Participant attains age thirty-two (32) and ending with the close of the Plan Year preceding the Plan Year in which the Participant attains thirty-five (35),

     (b) a reasonable period after the individual becomes a Participant,

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     (c) a reasonable period ending after the Plan ceases to fully subsidize the cost of pre-retirement survivor annuities,

     (d) a reasonable period ending after Section 401(a)(11) of the Code applies to a Participant, and

     (e) a reasonable period after separation from service in case of a Participant who separated before attaining age thirty-five (35).

     12.4 Cost of Benefit. If spousal death benefit coverage applies to a Participant during any period of time, prior to the Participant’s death, that the Participant is not employed by the Company or an Affiliated Company, a charge shall be imposed. Likewise, a charge shall be imposed for any period of time prior to December 1, 2005 with respect to which Part D as in effect on November 30, 2005 would have imposed such a charge. Such charge shall be a reduction of any benefits payable to or with respect to the Participant, and shall be expressed as a percentage of such benefits for each Plan Year or portion of a Plan Year during which coverage is in effect, as follows:

Youngest Age During	Percentage Reduction
Plan Year of Coverage	for such year
Under 35	No reduction
35 through 44	.1% (one tenth of one percent)
45 through 54	.3% (three tenths of one percent)
55 and over	.6% (six tenths of one percent)

     Such charge shall be imposed when coverage is provided automatically, subject to a right to make a Qualified Election to waive coverage (as described in Section 12.3).

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ARTICLE XIII

DESIGNATION OF BENEFICIARY

     13.1 Designation of Beneficiary. Whenever a Participant is entitled to designate a Beneficiary to receive all amounts payable under this Plan in the event of the Participant’s death, then such designation of a Beneficiary other than the Participant’s Spouse shall be made pursuant to a Qualified Election.

     13.2 Failure of Designation. Wherever provision is made hereunder for the payment of any death benefit to the Beneficiary of a Participant and there shall be no properly designated Beneficiary surviving such Participant, such benefit shall be paid to the Participant’s Spouse, if any, or if there is no spouse, to the executor or administrator of the estate of such Participant, or, if no executor or administrator has been duly designated and qualified, then such benefit shall be paid to the survivors of the Participant in the following order of priority:

     (a) Children;

     (b) Parents;

     (c) Brothers and sisters;

     (d) Heirs at law.

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ARTICLE XIV

TRANSFER OF EMPLOYMENT

     If any Participant transfers (a) to a position with a Member Company, other than as an Employee as defined in this Plan, or (b) to an Affiliated Company as a salaried employee or an hourly paid employee of such organization or entity, such Participant for the period of such service shall continue to accumulate Cumulative Service in accordance with Article XV of this Plan, but shall not earn Credited Service for the period of such service. Such Participant shall retain all other rights as provided by this Plan.

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ARTICLE XV

AFFILIATED SERVICE

     15.1 Definitions. For purposes of this Article XV, only the following definition shall apply:

     (a) “Related Employee” means an employee (including a person deemed to be an employee pursuant to Section 414(n) of the Internal Revenue Code) of a Member Company or of an Affiliated Company who is not an Employee as defined in this Plan.

     (b) “Related Plan” means the Ampac Fine Chemicals Pension Plan for Bargaining Employees, and any employee pension benefit plan (within the meaning of Section 3(2) of the Employee Retirement Income Security Act of 1974) which is maintained by a Member Company or an Affiliated Company, other than this Plan.

     15.2 Credited Service. No Employee or former Employee shall accrue Credited Service for purposes of this Plan for any period during which he is not an Employee, as defined in this Plan, except as provided in Article VIII.

     15.3 Cumulative Service. In the case of an Employee or former Employee who has rendered service as a Related Employee to a Member Company or an Affiliated Company, Cumulative Service, for purposes of this Plan, shall include:

     (a) Full years of service credit for vesting purposes deemed to be earned as a Related Employee under a Related Plan (but not including any such credit with respect to service as an Employee, as defined herein, for which credit for vesting purposes is deemed earned under Section 3.10), and

     (b) For any period of service rendered as a Related Employee during which such Employee or former Employee is not covered by a Related Plan, any Plan Year

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during which the Related Employee completes at least one hour for which he is paid or indirectly paid or entitled to payment for the performance of duties as a Related Employee, provided, however, that no such Plan Year shall be taken into account if service rendered during such Plan Year is included in service credit described in Section 15.3(a), above.

     For purposes of applying the rules of this Plan respecting Breaks in Service, a Related Employee who sustains a Break in Service under a Related Plan shall be deemed to have sustained a Break in Service for purposes of this Plan.

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ARTICLE XVI

APPLICATION FOR BENEFITS

     16.1 Application for Benefits.

     (a) Any person claiming benefits under this Plan (hereinafter referred to as “Claimant”) shall submit an application therefor to the Pension Plan Committee, together with such documents and information as the Pension Plan Committee may require. Except as provided below, a Participant’s Annuity Starting Date shall not precede the later of the date the notice described in Section 10.3 is provided to the Participant and the date an application for benefits based on such notice is filed with the Pension Plan Committee.

     (b) If (i) circumstances exist under which the Participant’s Annuity Starting Date is permitted under subsection (c) to precede the distribution notice required by Code section 417(a)(3); (ii) the desired Annuity Starting Date is permissible under the terms of the Plan; (iii) the Participant and his or her Spouse consent in writing on forms provided by the Pension Plan Committee; and (iv) the Participant properly completes his or her benefit election forms and returns them to the Pension Plan Committee on a timely basis in accordance with rules established by the Pension Plan Committee, the Participant’s benefits will commence in the form elected by the Participant as of the first day of the month affirmatively elected by the Participant in accordance with the terms of the Plan and the Plan’s Administrative rules, provided that the requirements of subsection (d) are satisfied. Such first day of the month shall be his or her Retroactive Annuity Starting Date.

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     (c) A Retroactive Annuity Starting Date is permitted in the following circumstances:

     (1) Through no fault of the Participant, the Pension Plan Committee delays providing the distribution notice until after the date designated as the Participant’s desired Annuity Starting Date; or

     (2) The distribution notice is not provided prior to the Normal Retirement Date because the Participant’s whereabouts are unknown and the Participant later comes forward and requests a benefit commencing at the Normal Retirement Date.

     (d) The benefit payable as of such Retroactive Annuity Starting Date is subject to the following:

     (1) Amount of Payment: The amount payable as of the date the Participant’s benefit begins shall be the Participant’s Accrued Benefit, determined as of the Retroactive Annuity Starting Date, plus a catch-up payment increased by interest accrued at a reasonable rate for the period commencing as of the Retroactive Annuity Starting Date or the due date of any periodic payment owed under the relevant annuity option and ending on the on the date benefits begin to be paid.

     (2) Consent: A Participant’s spouse shall be required to consent to the designation of a Retroactive Annuity Starting Date hereunder; provided, however, that the Participant’s spouse shall not be required to consent if the survivor annuity payments under the form of benefit payable hereunder equal or exceed the survivor annuity payments payable under a Qualified Joint and Survivor Annuity

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calculated as of the date benefit payments to the Participant actually commence and not as of the Retroactive Annuity Starting Date.

     (3) Other Limitations. In no event shall any amount paid hereunder exceed the limitations imposed under Section IX hereof, determined as of the date the Participant’s benefits begin to be paid.

     (4) Form of Payment. The Participant receives his benefit in an annuity form of payment.

     16.2 Action on Application. The Pension Plan Committee shall respond within a reasonable period of time but not later than ninety (90) days (45 days in the case of a claim for a Disability Retirement Benefit) of receipt of the claim. However, upon written notification to the Claimant, the response period may be extended, for an additional ninety (90) days (two additional 30 day periods in the case of a claim for a Disability Retirement Benefit). The extension notice shall indicate the special circumstances requiring an extension of time and the date by which the Plan expects to render the determination. In the case of a claim for a Disability Retirement Benefit, the notice of an extension shall specifically explain the standards on which entitlement to a benefit is based, the unresolved issues that prevent a decision on the claim, and the additional information needed to resolve those issues, and the claimant shall be afforded at least 45 days within which to provide the specified information. If the claim is denied in whole or in part, the Claimant shall be provided with a written opinion using nontechnical language calculated to be understood by the Participant setting forth:

     (1) The specific reason or reasons for denial;

     (2) The specific references to pertinent Plan provisions on which the denial is based;

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     (3) A description of any additional material or information necessary for the Claimant to perfect the claim and an explanation of why such material or such information is necessary;

     (4) Appropriate information as to the steps to be taken if the Claimant wishes to submit the claim for review;

     (5) The time limits for requesting a review; and

     (6) A statement of the Claimant’s right to bring a civil action under ERISA Section 502(a) following the adverse benefit determination on review.

     16.3 Claim Review Procedure. A claimant who does not agree with the decision rendered with respect to his application, may appeal such decision to the Pension Plan Committee. Such appeal shall be made in accordance with the following procedures:

     (a) Within sixty (60) days (180 days in the case of a claim for a Disability Retirement Benefit) after the receipt by the Claimant of the written opinion described above, the Claimant may request in writing that the Pension Plan Committee review the determination.

     The Claimant or his duly authorized representative may review the pertinent documents and submit written comments, documents, records, and other information for consideration by the Pension Plan Committee. The Claimant shall be provided, upon request and free of charge, reasonable access to and copies of, all documents, records, and other information relevant to the Claimant’s claim for benefits. If the Claimant does not request a review of the Pension Plan Committee’s determination within such sixty- (60) day period (180 days in the case of a claim for a Disability Retirement Benefit), he shall be barred and stopped from challenging the Pension Plan Committee’s determination.

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     The Pension Plan Committee shall review the determination within sixty (60) days (45 days in the case of a claim for a Disability Retirement Benefit) after receipt of a Claimant’s request for review; provided, however, that for reasonable cause such period may be extended due to special circumstances for an additional sixty (60) days (45 days in the case of a Claim for a Disability Retirement Benefit). In the case of a claim for a Disability Retirement Benefit, the notice of an extension shall specifically explain the standards on which entitlement to a benefit is based, the unresolved issues that prevent a decision on the claim, and the additional information needed to resolve those issues, and the claimant shall be afforded at least 45 days within which to provide the specified information. In the case of a committee that meets at least on a regular quarterly basis, the committee shall make a benefit determination no later than the meeting date that immediately follows the Plan’s receipt of the request for a review, unless the request for review is filed within 30 days before the meeting date. In such case, the benefit determination may be made no later than the date of the second meeting following the Plan’s receipt of the request for review. If, after considering all materials and information presented by the Claimant (whether or not such materials or information were submitted or considered in the initial benefit determination), the claim is denied in whole or in part, the Claimant shall be provided with a written opinion using nontechnical language setting forth:

     (1) The specific reason or reasons for denial;

     (2) The specific references to pertinent Plan provisions on which the denial is based;

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     (3) A statement that the Claimant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to the claimant’s claim for benefits;

     (4) A statement describing any voluntary appeal procedures offered by the Plan and the Claimant’s right to obtain the information about such procedures; and

     (5) A statement of the Claimant’s right to bring an action under ERISA Section 502(a).

     (b) Procedures (General). The following procedures shall apply to any claim filed or reviewed pursuant to this Section:

     (1) Any Claimant may be represented by an authorized representative; however, the Pension Plan Committee may determine reasonable procedures to determine whether any individual is authorized to act on behalf of another individual.

     (2) The Pension Plan Committee or any other person or persons acting as a named fiduciary for this purpose shall determine administrative safeguards designed to ensure and verify that all determinations are made in accordance with governing Plan documents and that all Plan provisions are applied consistently with respect to similarly situated Claimants.

     (3) The response periods described in subsections 16.2 and 16.3(a) shall be tolled for periods during which the Claimant is responding to a request for additional information that the Pension Plan Committee or other named fiduciary has determined is necessary to process the Claimant’s claim. The Claimant shall

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have not less than 45 days to provide the requested information. The response periods described in subsections 16.2 and 16.3(a) shall recommence when the Claimant provides the requested information.

     (c) Procedures (Disability). In the case of a claim that relates to a Disability Retirement pension, the following additional procedures shall apply.

     (1) An individual or committee designated by the Board of Directors, but not the person or persons responsible for the initial review under Section 16.2, shall be the named fiduciary responsible for determining the appeal. Such individual or committee may not make such determination if the individual or committee (or a subordinate thereof) was consulted in connection with the initial claim for benefits.

     (2) The review shall not afford deference to the initial adverse benefit determination.

     (3) When the appeal is based on a medical judgment, the named fiduciary shall consult with a health care professional who has appropriate experience and training in the field involved in determining the Claimant’s disability and shall identify all medical and vocational experts whose advice was obtained in connection with the appeal. A health care professional may not be consulted under this subsection if the health care professional (or a subordinate of such individual) was consulted in connection with the initial claim for benefits.

     (4) If the named fiduciary makes an adverse benefit determination on review, the named fiduciary shall provide the Claimant with a statement that the Claimant is entitled to receive or request reasonable access to, and copies of, all

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information relevant to the claim for benefits, including internal rules, guidelines, and protocols (to the extent relied upon) and a statement regarding voluntary alternative dispute resolution options.

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ARTICLE XVII

ADMINISTRATION

     17.1 The Pension Plan Committee. Authority to control and manage the operation and administration of Plan shall, except as hereafter provided, be vested in the Pension Plan Committee of the Board of Directors of American Pacific Corporation. The members of the Pension Plan Committee will be the persons appointed by the Board of Directors. Each member of the Pension Plan Committee shall constitute a “Named Fiduciary” within the meaning of Section 402(a)(2) of the Employee Retirement Income Security Act of 1974. Members of the Pension Plan Committee shall be bonded within the limits provided by the Employee Retirement Income Security Act of 1974, and shall serve without compensation for their services as members.

     17.2 Pension Plan Committee Procedure. The Pension Plan Committee shall elect a Chairman and one of its members as Secretary (provided, however, that the Pension Plan Committee may appoint a Secretary who need not be a member of the Pension Plan Committee) and such other officers as the Pension Plan Committee deems appropriate. The Pension Plan Committee shall hold meetings upon such notice, at such place, and at such time as it may from time to time determine. A majority of the members of the Pension Plan Committee shall constitute a quorum for the transaction of business. Any action taken by the Pension Plan Committee shall be by vote of a majority of the members present at a meeting, or in writing and signed by all the members without a meeting.

     17.3 Pension Plan Committee Powers. The Pension Plan Committee shall have full authority to control and manage the operation and administration of the Plan (other than authority with respect to management and direction of Plan investments unless the Board of Directors shall

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otherwise determine) and to construe and apply all of its provisions. Any action taken in good faith by the Pension Plan Committee in the exercise of authority conferred upon it by this instrument shall be conclusive and binding upon the Participants and their beneficiaries. The authority of the Pension Plan Committee shall include, but not by way of limitation, the following:

     (a) Authority to decide all questions relating to the eligibility of employees to become Participants, the amount of service of any Employee or Participant, and the amount of benefits to which any Participant may be entitled;

     (b) Authority to compile and maintain all records it determines to be necessary, appropriate or convenient in connection with the Plan;

     (c) Authority to approve the payment of all benefits as they become payable under the Plan, which payments shall be made by the Trustee upon written instructions from the Pension Plan Committee.

     (d) Authority to engage such legal, actuarial, accounting and other professional service as it may deem proper, including authority to employ one or more persons to render advice with regard to any responsibility any Named Fiduciary or persons designated under Section 17.4 may have under the Plan;

     (e) Authority to order valuations and appraisals of the assets held in the Trust Fund, to retain an actuary to determine the liabilities of the Plan, and to maintain or cause to be maintained any or all appropriate records pertaining to the Plan, including but not limited to an accounting of the value of certain assets identified by the Pension Plan Committee (and gains or losses with respect thereto) which shall be known as the Variable Benefit Fund;

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     (f) Authority to fix the rates of interest to be credited to Participant contributions (subject to requirements of Section 411 of the Internal Revenue Code and regulations thereunder);

     (g) Authority to perform or cause to be performed such further acts as it may deem to be necessary, appropriate or convenient in the efficient administration of the Plan.

     17.4 Allocation and Delegation of Duties. The Pension Plan Committee may allocate its fiduciary responsibilities among its members and may designate other persons to carry out fiduciary and other responsibilities under the Plan. Pursuant to the authority conferred by this Section 17.4, the Pension Plan Committee may designate one or more Pension Benefits Representatives to perform such functions as the Pension Plan Committee may prescribe.

     17.5 Expenses. All expenses of the Plan, including those incurred by the Pension Plan Committee, shall be borne by the Plan, and paid out of the Trust Fund, unless the Company, Member Company, or Sponsor pays such expenses.

     17.6 Accounts. The Pension Plan Committee shall keep records of each Participant’s accounts under the Plan and shall notify each Participant annually of the then current amount of such Participant’s accounts. The Pension Plan Committee, in its discretion, may delegate to another person or persons, including the Trustee, the duty to keep such records and so notify such Participants subject to the control and supervision of the Pension Plan Committee.

     17.7 Periodic Review. At periodic intervals, not less frequently than annually, the Pension Plan Committee shall establish and review a funding policy and method consistent with the objectives of the Plan and the requirements of the Employee Retirement Income Security Act of 1974, and shall formulate guidelines for the carrying out of such funding policy and method.

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     17.8 Investment Administration.

     (a) Pension Plan Committee. The Pension Plan Committee will have general responsibility for maintaining relationships with the Trustee and Investment Managers; selection and removal of the Trustee and Investment Managers; establishing and reviewing general investment guidelines and policies; monitoring and evaluating the performance of the Trustee and Investment Managers; establishing and implementing policies and methods for funding the Plan consistent with the objectives of the Plan and the requirements of law; and informing the Trustee about projected short-term and long-term financial requirements and need for cash to make distributions.

     (b) Investment Managers. All contributions to the Trust Fund and earnings thereon will be invested (a) by the Trustee alone or (b) pursuant to the instructions of an Investment Manager. The Sponsor may enter into, or direct the Trustee to enter into, a written agreement with one or more Investment Managers designated by the Pension Plan Committee to manage the investments of specified portions of the Trust Fund. The Pension Plan Committee may remove any such Investment Manager or any successor Investment Manager, or direct the Trustee to do so, and any such Investment Manager may resign, upon giving appropriate written notice thereof. Upon removal or resignation of an Investment Manager, the Pension Plan Committee may appoint a successor Investment Manager.

     17.9 Compensation and Expenses of Fiduciaries. A fiduciary will be entitled to receive any reasonable compensation for services rendered or for the reimbursement of expenses properly and actually incurred in the performance of his or her duties under the Plan. However, a fiduciary who already receives full-time pay from the Company or an Affiliated Company will receive no compensation from the Plan, except for reimbursement of expenses properly and actually incurred.

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ARTICLE XVIII

AMENDMENT

     The Plan or any portion of the Plan may be amended at any time by action of the Board of Directors. However, no amendment shall be made at any time, the effect of which would be:

     (a) To cause any assets of the Trust Fund, at any time prior to the satisfaction of all liabilities with respect to participants and their beneficiaries in the Plan, to be used for or diverted to purposes other than for the exclusive benefit of such participants and their beneficiaries;

     (b) To increase the duties and liabilities of the Trustee without its written consent.

     (c) No amendment to the Plan shall have the effect of decreasing a Participant’s accrued benefit (within the meaning of Section 411(d)(6) of the Code) with respect to service performed prior to the effective date of the amendment.

     (d) No amendment to the Plan shall have the effect of eliminating or reducing an early retirement benefit or a subsidy that continues after retirement, or eliminating an optional form of benefit.

Notwithstanding anything herein to the contrary, the Plan or any portion thereof may be amended at any time, if necessary, to conform to the provisions of the Employee Retirement Income Security Act of 1974 and the Internal Revenue Code or any amendment thereto or regulations issued pursuant thereto. The Board of Directors may delegate its authority to amend the Plan, as set forth herein, to any person, committee or other entity, subject to such terms or limitations which the Board, in its complete discretion, may impose.

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     If the Plan’s vesting schedule is amended or the Plan is amended in any way that directly or indirectly affects the computation of a Participant’s nonforfeitable benefit, each Participant with at least three (3) years of Cumulative Service with the Company may elect, within a reasonable period after the adoption of the amendment or change, to have his nonforfeitable benefit computed under the Plan without regard to such amendment or change. The period during which the election may be made shall commence at the date the amendment is adopted or deemed to be made, and shall end on the latest of:

     (A) sixty (60) days after the amendment is adopted,

     (B) sixty (60) days after the amendment becomes effective, or

     (C) sixty (60) days after the Participant is issued written notice of amendment by the Company.

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ARTICLE XIX

RIGHT TO DISCONTINUE OR TERMINATE;

ALLOCATION OF ASSETS UPON TERMINATION

     19.1 No Contractual Obligation. It is the expectation of the Member Companies that they will continue the Plan indefinitely, but the continuance thereof is not assumed as a contractual obligation by any Member Company or any Affiliated Company. The Plan or any portion thereof may be discontinued or terminated at any time by action of the Board of Directors of the Sponsor, and any Member Company may discontinue or terminate its participation in the Plan. Discontinuance or termination of the Plan or any portion thereof shall not have the effect of revesting in any Member Company any part of the funds of the Trust Fund, except as provided in Section 19.4.

     19.2 Vesting Upon Termination of Plan. In the event of a termination of the Plan within the meaning of Section 411 of the Internal Revenue Code, the rights of all Plan participants to benefits accrued, to the extent then funded (but subject to allocation and reallocation in accordance with the provisions of Title IV of the Employee Retirement Income Security Act of 1974), shall become fully vested. In the event of a partial termination of the Plan within the meaning of Section 411 of the Internal Revenue Code, the rights of all affected Participants to benefits accrued, to the extent then funded (but subject to allocation and reallocation, if required, pursuant to the provisions of Title IV of the Employee Retirement Income Security Act of 1974) shall become fully vested.

     19.3 Allocation of Assets Upon Plan Termination. Upon termination of the Plan, the assets of the Plan, to the extent that they are sufficient after the payment of and reasonable reserves for expenses of administration or liquidation of the Trust, shall be allocated for the

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purpose of paying benefits to participants and their beneficiaries of the Plan in an order of precedence consistent with the provisions of Section 4044 of the Employee Retirement Income Security Act of 1974.

     19.4 Distribution of Residual Assets. Following termination, any residual assets of the Plan shall be distributed to the Member Companies after all liabilities of the Plan to participants and their beneficiaries of the Plan have been satisfied.

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ARTICLE XX

GENERAL MATTERS

     20.1 No Enlargement of Employee Rights. This Plan shall not be deemed to constitute a contract between any Member Company and any Employee, or to be consideration for, or an inducement to, or a condition of, the employment of any Employee. Nothing contained in this instrument or otherwise in the Plan shall be deemed to give any Employee the right to be retained in the employ of any Member Company or to interfere with the right of any Member Company to discharge or retire any Employee at any time. No Employee, prior to his retirement under conditions of eligibility for pension income benefits or prior to his acquiring vested rights in benefits as provided in this Plan shall have any right to or interest in any portion of any fund, other than as herein specifically provided. No person shall have any right to pension income benefits, except to the extent provided herein.

     20.2 Benefits From Trust Fund. Any benefits payable under this Plan shall be paid or provided for solely from the Trust Fund and the Member Companies assume no liability or responsibility therefor. The Member Companies’ obligations hereunder are limited solely to the making of contributions to the Trust Fund as provided for in this Plan. Member Companies may suspend or discontinue contributions at any time whether or not benefits for service to the date of suspension or discontinuance have been fully funded.

     20.3 No Alienation. None of the benefits, payments, proceeds, claims or rights of any Participant, Joint Annuitant or Beneficiary hereunder shall be subject to any claims of any creditor of any Participant, Joint Annuitant or Beneficiary and in particular the same shall not be subject to attachment or garnishment or other legal process by any creditor of any Participant, Joint Annuitant or Beneficiary nor shall any such Participant, Joint Annuitant or Beneficiary have

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any right to alienate, anticipate, commute, pledge, encumber, or assign any claim or right hereunder or any of the benefits or payments or proceeds which he may expect to receive, contingent or otherwise, under the provisions hereof. The foregoing shall not apply to judgments, orders and decrees, and settlement agreements to the extent permitted by Code Section 401(a)(13)(C) and (D). In the event any person attempts to take any action contrary to this Section such action shall be null and void and of no effect, and the Company, the Sponsor, the Pension Plan Committee, the Trustee and all Participants, Joint Annuitants and Beneficiaries shall disregard such action and are not in any manner bound thereby, and they, and each of them, shall suffer no liability for any such disregard thereof, and shall be reimbursed on demand out of the Trust Fund for the amount of any loss, cost or expense incurred as a result of disregarding or of acting in disregard of such action. Neither the provisions of this Section nor any other provision of this Plan (including but not limited to provisions conferring rights on a Spouse) shall prohibit observance of a qualified domestic relations order (as defined in Section 206(d) of the Employee Retirement Income Security Act of 1974).

     20.4 Facility of Payment. If any payee under the Plan is a minor, or if the Pension Plan Committee believes that any payee is legally incapable of giving a valid receipt or discharge for any payment due him, the Pension Plan Committee may have such payment or any part thereof made to the person (or persons or institution) whom it reasonably believes is caring for or supporting such payee, unless it has received due notice of claim therefor from a duly appointed guardian or committee of such payee. Any such payment shall be a payment for the account of such payee and shall, to the extent thereof, be a complete discharge of any liability under the Plan of such payee.

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     20.5 Location of Payee. Benefits shall not be paid under this Plan until the Participant or other person entitled to benefits hereunder shall have made application for such benefits as provided in this instrument. If any such person, having so applied for benefits, shall fail thereafter to give the Pension Plan Committee evidence satisfactory to the Pension Plan Committee of his continued life and address, payment of benefits shall cease as of the last payment, if any, known to have been received by the payee, and benefits shall not again commence to be paid until application for benefits is again made in accordance with the provisions of this Plan as then in effect. In no event shall a Participant or other person be entitled to receive any amount with respect to any period prior to application for benefits in accordance with this Plan, or with respect to any period between cessation of benefits and reapplication therefor, as provided herein.

     20.6 Payment of Small Benefits.

     (a) Notwithstanding any provision in this instrument for the payment of monthly benefits, if the monthly benefit which would be paid to any person under this Plan is less than forty dollars ($40.00) and the present value of such benefit is not in excess of five thousand dollars ($5,000), the Pension Plan Committee will pay one lump sum no later than the close of the Plan Year following the Plan Year in which the termination or retirement occurs, in lieu of monthly payments. No other benefits shall be payable to such person.

     (b) Notwithstanding subsection (a), if, at the distribution date, the present value of the Accrued Benefit of a Participant (or a spouse or former spouse who is an alternate payee under a qualified domestic relations order) exceeds $1,000 but does not

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exceed $5,000, such present value shall not be distributed prior to the Participant reaching age 65 without the consent of the distributee.

          The Participant or Beneficiary shall be given a notice of his or her right to receive the present value of the vested benefit in a lump sum. The Participant or Beneficiary may choose to have such distribution paid directly to an Eligible Retirement Plan (as defined in Section 10.7) specified by the Participant or Beneficiary, no later than the close of the Plan Year following the Plan Year in which the termination or retirement occurs. The Participant or Beneficiary shall have at least thirty (30) but not more than ninety (90) days from the date of such notice to elect to receive his benefit in a lump sum or a direct rollover, and if so elected and paid, no other benefits shall be payable to such former Participant or to his or her Beneficiaries.

          In the event that the distribute does not make an affirmative election to receive his or her benefit in a lump sum or to have the benefit paid in a direct rollover pursuant to Section 10.7:

     (1) If the Participant has not yet reached Normal Retirement Age, the Participant’s benefit will remain in the Plan until the Participant makes an affirmative election in accordance with the terms of the Plan or reaches Normal Retirement Age or dies.

     (2) If the Beneficiary is the surviving spouse or a former spouse who is an alternate payee under a qualified domestic relations order, the alternate payee’s benefit will remain in the Plan until the alternate payee makes an affirmative election in accordance with the terms of the Plan or the date the Participant reaches Normal Retirement Age or dies.

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     (3) If the Participant has reached Normal Retirement Age, the Plan the benefit will remain in accordance with subsection (a).

     (4) If the Participant dies prior to receiving or commencing distribution of his or her benefits, benefits will be paid as otherwise provided in this Plan, subsection (a), and to the extent benefits are payable to a spouse or former spouse who is an alternate payee under a qualified domestic relations order, subsection (b).

     (c) For purposes of this Section, the present value of a benefit and the amount of a lump sum payment shall be determined in accordance with Section 3.1(b).

     20.7 The Trust Agreement. All assets of the Plan shall be held in a Trust Fund or Trust Funds by a Trustee or Trustees appointed by the Pension Plan Committee and/or Sponsor pursuant to a Trust Agreement or Trust Agreements creating such Trust Fund or Trust Funds entered into between the Pension Plan Committee and/or Sponsor and the Trustee or Trustees.

     20.8 Application of Forfeitures. Any forfeiture of benefits arising from termination of employment, death, or otherwise prior to the termination of the Plan or the complete discontinuance of contributions will be used to reduce Member Company contributions otherwise payable under the Plan, and will not be used to increase Participants’ benefits.

     20.9 Irrevocability. The Member Companies shall have no right or title to, nor interest in the contributions made to the Trust hereunder, nor shall any part of any funds held in trust revert to the Member Companies except as follows:

     (a) If an amount is contributed under the Plan by the Member Companies pursuant to a mistake of fact, the amount so contributed (subject to any depreciation or

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loss in the Trust Fund attributable to such contribution) may be returned to the Member Companies within one year of the date of such contribution, or

     (b) If any contribution which the Member Companies make under the Plan is conditioned on initial qualification of the Plan under Code Section 401(a) and if initial qualification of the Plan is denied, such contribution (subject to any depreciation or loss in the Trust Fund attributable to such contribution) may be returned to the Member Companies within one year after the date of denial of the Plan’s initial qualification provided the application for qualification is made by the time prescribed by law for filing the Member Companies’ tax return for the taxable year in which the Plan is adopted, or such later date as the Secretary of the Treasury may prescribe, or

     (c) Any contribution which the Member Companies make under the Plan is conditioned upon the deductibility of such contribution under Section 404 of the Code and, to the extent a deduction therefor is disallowed, such contribution (subject to any depreciation or loss in the Trust Fund attributable to such contribution) may be returned to the Member Companies within one year after such disallowance, or

     (d) In the case of any residual assets remaining after satisfaction of all liabilities of the Plan, a distribution may be made of such residual assets in accordance with the provisions of Section 18.4.

     20.10 Merger Restriction. This Plan shall not in whole or in part merge or consolidate with, or transfer its assets or liabilities to any other plan unless each affected Participant in this Plan would (if the plan then terminated) be entitled to receive a benefit immediately after the merger, consolidation, or transfer which is equal to or greater than the benefit he would have been

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entitled to receive immediately before the merger, consolidation, or transfer (if the Plan had then terminated).

     20.11 Article Headings. Article headings are for convenient reference only and shall not be deemed to be a part of the substance of this instrument or in any way to enlarge or limit the contents of any Article.

     20.12 Gender. Masculine gender shall include the feminine and the singular shall include the plural unless the context clearly indicates otherwise.

     20.13 Amendments. All amendments to the Plan are effective only on the date on which such amendments are adopted, unless a different effective date is expressly provided by resolution of the Board of Directors of the Sponsor, or unless any such amendment shall by its own express terms become effective at another date. Further, unless and to the extent expressly provided to the contrary in the terms of any amendment, such amendment shall not be construed to enlarge the rights of any Participant or other person with respect to a Participant whose employment terminated prior to the effective date of such amendment.

     20.14 Applicable Law. All legal questions pertaining to the Plan shall be determined in accordance with applicable federal law and the laws of the State of Nevada, to the extent not preempted by federal law.

     20.15 Veterans’ Reemployment Rights. Notwithstanding any other provision in the Plan to the contrary, contributions, benefits, and service credit with respect to qualified military service shall be provided in accordance with Code section 414(u). The Sponsor shall notify the Trustee of any Participant with respect to whom additional contributions are made because of qualified military service.

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ARTICLE XXI

LIMITATIONS ON BENEFITS

     21.1 Basic Limitation. Subject to the adjustments hereinafter set forth, the maximum annual amount of retirement income payable to a Participant under this Plan shall not exceed the lesser of:

     (a) One hundred sixty thousand dollars ($160,000); or

     (b) One hundred percent (100%) of the Participant’s average compensation for the three consecutive calendar years during which he was a Participant and had the greatest aggregate compensation.

     Except as provided below, a benefit payable in a form other than a straight life annuity must be adjusted to an actuarial equivalent straight life annuity before applying the limitations of this Article. The actuarial factors used to determine actuarial equivalence will be either the factors specified in Section 3.1 or the Applicable Mortality Table (as defined in Section 3.1(b)(A)) and 5%, whichever produces the higher benefit. The Applicable Interest Rate (as defined in Section 3.1(b)(B)) is substituted for 5% for forms of benefit subject to Code Section 417(e). Notwithstanding the foregoing, for the short Plan Year beginning December 1, 2005, for purposes of adjusting any benefit under this paragraph for any form of benefit subject to Code Section 417(e)(3), the interest rate assumption shall be 5.5% or the rate specified by the Plan in Section 3.1(b), whichever produces the higher benefit. The annual benefit does not include any benefits attributable to employee contributions or rollover contributions, or the assets transferred from a qualified plan that was not maintained by the Company or an Affiliated Company. No actuarial adjustment to the benefit is required for (i) the value of a qualified joint and survivor annuity, (ii) the value of benefits that are not directly related to retirement benefits, and (iii) the

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value of post-retirement cost-of-living increases made in accordance with Code Section 415(d) and Treasury Regulation 1.415-3(c)(2)(iii).

For purposes of this Section, the limitation year shall be the same as the Plan Year.

     21.2 Membership in Other Defined Benefit Plans. The limitations of this Article XXI with respect to any Participant who at any time has been a participant in any other defined benefit plan (as defined in Section 414(j) of the Internal Revenue Code) maintained by the Company or an Affiliated Company shall apply as if the total benefits payable under all such defined benefit plans in which the Participant has been a participant were payable from one plan.

     21.3 Payment Prior to Age Sixty-Two or After Age Sixty-Five. If the annual benefit of a Participant commences prior to age sixty-two (62), the reduced age dollar limit is the lesser of the actuarial equivalent amount computed using the plan rate and plan mortality table used for actuarial equivalence of early retirement benefits and the actuarial equivalent of the amount at age 62 computed using a 5% interest rate and the applicable mortality table. Any decrease in the defined benefit dollar limitation determined in accordance with this provision shall not reflect the mortality decrement to the extent that benefits will not be forfeited upon the death of the Participant.

If the annual benefit of a Participant commences after age 65, the limitation referred to in subsection (a) of Section 21.1, if necessary, will be adjusted so that it is the actuarial equivalent of an annual benefit of such dollar limitation beginning at age 65. To determine actuarial equivalence, the dollar limitation shall be the lesser of the limitation determined using the Plan rate and Plan mortality table used for late retirement benefits or 5% interest and the Applicable Mortality Table. For these purposes mortality between age 65 and the age at which benefits commence shall be ignored.

     21.4 Exception. The provisions of this Article XXI shall not apply to any Participant who has not at any time participated in any defined benefit plan (as defined in Section 415(k) of

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the Internal Revenue Code) maintained by the Company or any Affiliated Company if his total annual benefit computed in accordance with this Article XXI in any year is not in excess of ten thousand dollars ($10,000).

     21.5 Adjustment of Limitation. The maximum annual retirement benefit payable under this Article XXI to any Participant who has completed less than ten (10) years of service with the Company and all Affiliated Companies shall be the amount otherwise permitted to be paid under this Article XXI or, as the case may be, multiplied by a fraction, the numerator of which is the number of the Participant’s years of service and the denominator of which is ten (10). Application of this provision to the dollar limit of Section 21.1(a) shall be based upon years of Plan participation rather than years of service. Application of this provision to the percentage of compensation limit of Section 21.1(b) shall be based upon years of service.

     21.6 Adjustment. The dollar limitation on the maximum amount of annual retirement benefit prescribed by Section 21.1 shall be deemed to be adjusted annually, without the necessity of formal amendment of this Plan, for increases in the cost of living, in accordance with Regulations issued by the Secretary of the Treasury pursuant to the provisions of Section 415(d) of the Internal Revenue Code.

     21.7 Special Affiliation Rule. For purposes of this Article XXI, the determination of whether a company is an Affiliated Company shall be made after applying the modifications required by Internal Revenue Code Section 415(h) to the percentage tests of Internal Revenue Code Sections 414(b) and (c).

     21.8 Compensation. For the limited purpose of applying the provisions of Article XXI and Article XXIII, “compensation” means all wages, salaries, and fees for professional services actually rendered in the course of employment with the Company or an Affiliated Company

88

(including, but not limited to commissions paid salesmen, compensation for services on the basis of a percentage of profits, commissions on insurance premiums, tips and bonuses), and excluding the following:

     (a) Contributions to a plan of deferred compensation which are not includable in the Employee’s gross income for the taxable year in which contributed, or contributions under a simplified employee pension plan to the extent such contributions are deductible by the Employee, or any distributions from a plan of deferred compensation;

     (b) Amounts realized from the exercise of a non-qualified stock option, or when restricted stock (or property) held by the Employee either becomes freely transferable or is no longer subject to a substantial risk of forfeiture;

     (c) Amounts realized from the sale, exchange or other disposition of stock acquired under a qualified stock option; and Compensation shall include elective deferrals during the Limitation Year under Code sections 125, 132(f)(4), 401(k), 403(b) and 457.

89

ARTICLE XXII

SPECIAL QUALIFICATION PROVISION

     (a) In the event of termination of this Plan, the benefit of any highly compensated employee (as defined under Code Section 414(q)) and of any highly compensated former employee is limited to a benefit that is nondiscriminatory under Code Section 401(a)(4).

     (b) In order to comply with this Section, the annual payments to a Participant described in paragraph (c) below will be restricted to an amount equal in each year to—

     (i) The accrued benefit and other benefits to which the Participant is entitled under the Plan (other than a social security supplement), and

     (ii) The amount of the payments that the Participant is entitled to receive under a social security supplement.

     The restrictions in this paragraph (b) do not apply, however, if any one of the following requirements is satisfied—

     (iii) After payment to a Participant described in subsection (c) hereof of all benefits payable to the Participant under the Plan, the value of Plan assets equals or exceeds 110 percent of the value of current liabilities, as defined in Code Section 412(1)(7)),

     (iv) The value of the benefits payable to the Participant under the Plan for a Participant described in subsection (c) hereof is less than one percent (1%) of the value of current liabilities before distribution, or

90

     (v) The value of the benefits payable to the Participant under the Plan for a Participant described in subsection (c) hereof does not exceed the amount described in Code Section 411(a)(11)(A).

     (c) The Participants whose benefits are restricted on distribution under this subsection include all highly compensated employees and highly compensated former employees; provided, however, that in any one (1) year, the total number of Participants whose benefits are subject to restrictions under this subsection is limited to the twenty-five (25) highly compensated employees and highly compensated former employees with the greatest compensation in the current or any prior Plan Year.

     (d) For purposes of this subsection, the term “benefit” includes, among other benefits, any periodic income and any death benefits not provided by insurance on the Participant’s life.

     (e) If it is determined that the provisions of this subsection are no longer necessary to qualify this Plan under the Code, this Section shall automatically become inoperative and of no effect.

91

ARTICLE XXIII

TOP-HEAVY PLAN RULES

     23.1 Applicability. Notwithstanding any provision in this Plan to the contrary, the provisions of this Article XXIII shall apply in the case of any Plan Year in which the Plan is determined to be a Top-Heavy Plan under the rules of Section 23.3.

     23.2 Definitions.

     (a) For purposes of this Article XXIII, the term “Key Employee” shall mean any employee, or former employee, who, at any time during the Plan Year, is or was —

     (i) An officer of the Company or an Affiliated Company having an annual compensation greater than one hundred thirty thousand dollars ($130,000) as adjusted under Section 416(i)(1) of the Code. However, no more than fifty (50) employees (or, if lesser, the greater of three (3) or ten percent (10%) of the employees) shall be treated as officers;

     (ii) A Five Percent Owner of the Company or an Affiliated Company; or

     (iii) A One Percent Owner of the Company or an Affiliated Company having an annual compensation from the Company or an Affiliated Company of more than One Hundred Fifty Thousand Dollars ($150,000).

     (b) For purposes of this Section 23.2, the term “Five Percent Owner” means any person who owns (or is considered as owning within the meaning of Code Section 318) more than five percent (5%) of the outstanding stock of the Company or an Affiliated Company or stock possessing more than five percent (5%) of the total combined voting power of all stock of the Company or an Affiliated Company. The rules

92

of subsections (b), (c), and (m) of Section 414 shall not apply for purposes of applying these ownership rules. Thus, this ownership test shall be applied separately with respect to every Affiliated Company.

     (c) For purposes of this Section 23.2, the term “One Percent Owner” means any person who would be described in Paragraph (b) if “one percent (1%)” were substituted for “five percent (5%)” each place where it appears therein.

     (d) For purposes of this Section 23.2, the rules of Code Section 318(a)(2)(C) shall be applied by substituting “five percent (5%)” for “fifty percent (50%).”

     (e) For purposes of this Article XXIII, the term “Non-Key Employee” shall mean any employee who is not a Key Employee.

     (f) For purposes of this Article XXIII, the terms “Key Employee” and “Non-Key Employee” include their Beneficiaries.

     23.3 Top-Heavy Status.

     (a) The term “Top-Heavy Plan” means, with respect to any Plan Year —

     (i) Any defined benefit plan if, as of the Determination Date, the present value of the cumulative accrued benefits under the Plan for Key Employees exceeds sixty percent (60%) of the present value (determined on the basis of the 1983 Group Annuity Mortality Table (5%) and including non-proportional subsidies, but excluding proportional subsidies) of the cumulative accrued benefits under the plan for all employees, and

     (ii) Any defined contribution plan if, as of the Determination Date, the aggregate of the account balances of Key Employees under the Plan exceeds sixty

93

percent (60%) of the present value of the aggregate of the account balances of all employees under the plan.

     For purposes of this Paragraph (a), the term “Determination Date” means, with respect to any plan year, the last day of the preceding plan year. In the case of the first plan year of any plan, the term “Determination Date” shall mean the last day of that plan year. The present value of account balances under a defined contribution plan shall be determined as of the most recent valuation date that falls within or ends with the 12-month period ending on the Determination Date. The present value of cumulative accrued benefits under a defined benefit plan shall be determined as of the same valuation date used for computing plan costs for minimum funding.

     (b) Each plan maintained by the Company or an Affiliated Company required to be included in an Aggregation Group shall be treated as a Top-Heavy Plan if the Aggregation Group is a Top-Heavy Group. If a Plan maintained by the Company or an Affiliated Company is part of an Aggregation Group which is not a Top-Heavy Group, then notwithstanding anything to the contrary in this paragraph (b), no plan of the Company or an Affiliated Company shall be treated as a Top-Heavy Plan.

     (i) The term “Aggregation Group” means —

     (A) Each plan of the Company or an Affiliated Company in which a Key Employee is a Participant or participated at any time during the five-year period preceding the Determination Date (regardless of whether the plan has terminated), and

94

     (B) Each other plan of the Company or an Affiliated Company which enables any plan described in Subdivision (A) to meet the requirements of Code Sections 401(a)(4) or 410.

     Also, any Plan not required to be included in an Aggregation Group under the preceding rules may be treated as being part of such group if the group would continue to meet the requirements of Code Sections 401(a)(4) and 410 with the plan being taken into account.

     (ii) The term “Top-Heavy Group” means any Aggregation Group if the sum (as of the Determination Date) of —

     (A) The present value of the cumulative accrued benefits for Key Employees under all defined benefit plans included in the group, and

     (B) The aggregate of the account balances of Key Employees under all defined contribution plans included in the group exceeds sixty percent (60%) of a similar sum determined for all employees.

     (iii) For purposes of determining —

     (A) The present value of the cumulative accrued benefit of any employee, or

     (B) The amount of the account balance of any employee, such present value or amount shall be increased by the aggregate distributions made with respect to the employee under the plan during the one (1) year period ending on the Determination Date. The preceding rule shall also apply to distributions under a terminated plan that, if it had not been terminated, would have been required to be included in an Aggregation

95

Group. In the case of a distribution made for a reason other than separation from service, death, or disability, this provision shall be applied by substituting “five (5) year period” for “one (1) year period”. Also, any rollover contribution or similar transfer initiated by the employee to a plan shall not be taken into account with respect to the transferee plan for purposes of determining whether such plan is a Top-Heavy Plan (or whether any Aggregation Group which includes such plan is a Top-Heavy Group).

     (c) If any individual is a Non-Key Employee with respect to any plan for any plan year, but the individual was a Key Employee with respect to the plan for any prior plan year, any accrued benefit for the individual (and the account balance of the individual) shall not be taken into account for purposes of this Section 23.3.

     (d) If any individual has not received any compensation from the Company or an Affiliated Company (other than benefits under the Plan) at any time during the one (1) year period ending on the Determination Date, any accrued benefit for such individual (and the account balance of the individual) shall not be taken into account for purposes of this Section 23.3.

     (e) For purposes of establishing the present value of a Participant’s accrued benefit in any defined benefit plan maintained or ever maintained by the Company or an Affiliated Company being tested for top-heavy status under Code Section 416, the actuarial assumptions will be identical and will be based on the interest rate and mortality assumptions described in Section 23.3(a)(i).

     23.4 Minimum Benefits.

96

     (a) The Plan shall provide a minimum benefit for each Plan Year in which this Plan is a top Heavy Plan for each Participant who is not classified as a “Key Employee”. This minimum benefit, when expressed as an annual retirement benefit payable in the form of a single life annuity beginning at the Participant’s Normal Retirement Age, shall not be less than the Participant’s average annual compensation during the testing period (which shall consist of the five (5) consecutive Plan Years in which the Participant completed at least 1,000 Hours of Service and had the highest compensation) multiplied by the lesser of:

     (i) Two percent (2%) multiplied by the number of his Years of Service; or

     (ii) Twenty percent (20%).

     (b) For purposes of this Section 23.4, Years of Service shall be determined under subsections (4), (5), and (6) of Code Section 411(a), but excluding:

     (i) Any year of Credited Service if the Plan was not a Top-Heavy Plan for the Plan Year ending during such Year of Service;

     (ii) Any Year of Service which was completed in a Plan Year beginning before January 1, 1984;

     (iii) Any Year of Service occurring during a Plan Year in which the Plan benefits no Key Employee or former Key Employee.

     (c) The Participant’s minimum benefit determined under this Section 23.4 shall be calculated without regard to any Social Security benefits payable to the Participant.

97

     (d) In the event a Participant is covered by both a defined contribution and a defined benefit plan maintained by the Company or an Affiliated Company, both of which are determined to be top-heavy, the defined benefit minimum will be provided under the defined benefit plan, offset by benefits provided under the defined contribution plan, in accordance with regulations issued under Code Section 416(f).

     (e) In no instance may the Plan take into account an employee’s compensation in excess of the first two hundred thousand dollars ($200,000) (or such greater amount as may be permitted pursuant to Section 416(d)(2) of the Code). For purposes of this Section 23.4, an employee’s compensation shall be determined in accordance with the rules of Code Section 415, as set forth in Section 21.8.

     23.5 Vesting Rules. In the event that the Plan is determined to be Top-Heavy in accordance with the rules of Section 21.3, then the vesting schedule set forth below shall apply automatically to all benefits accrued before the Plan became a Top-Heavy Plan and all benefits which accrue during any Plan Year in which the Plan is a Top-Heavy Plan:

Years of Service	Nonforfeitable Percentage
2	20%
3	40%
4	60%
5	80%
6 or more	100%

     If a Participant’s nonforfeitable percentage under the terms of the Plan determined without regard to this Section at any time exceeds the percentage determined above, such Participant shall be entitled to the greater percentage.

98

     23.6 Non-Eligible Employees. The rules of this Article XXIII shall not apply to any employee included in a unit of employees covered by an agreement which the Secretary of Labor finds to be a collective bargaining agreement between employee representatives and one or more employers if there is evidence that retirement benefits were the subject of good faith bargaining between such employee representatives and the employer or employers.

     EXECUTED pursuant to the                      adopting resolution of the Sponsor’s Board of Directors.

	American Pacific Corporation
	By
Date

99

SCHEDULE A

     Except as otherwise expressly provided in this Plan, if a Participant’s Pension Benefit commences prior to Normal Retirement Date the amount of Pension Benefit otherwise payable shall be reduced in accordance with this Schedule A, taking into account the number of years and full calendar months by which the date of commencement of benefits precedes the Participant’s Normal Retirement Date. The percentages shown in the table below represent the reduced percentage of the monthly amount which would have been payable commencing at Normal Retirement Date. If a Participants Pension Benefit is to be paid in a form other than the form of a single life annuity, the reduced percentage of pension income determined from this Schedule A shall be subject to further reduction as provided in this Plan.

A-1

SCHEDULE A

Yr.	Mo.		%		Yr.		Mo.		%		Yr.		Mo.		%		Yr.		Mo.		%
0		1		99.4				7		82.6		5		1		69.3				7		58.9
		2		98.8				8		82.1				2		69.0				8		58.6
		3		98.2				9		81.6				3		68.6				9		58.2
		4		97.6				10		81.1				4		68.2				10		57.9
		5		97.0				11		80.6				5		67.8				11		57.6
		6		96.3				12		80.1				6		67.4				12		57.3
		7		95.7		3		1		79.6				7		67.1		8		1		57.0
		8		95.1				2		79.2				8		66.7				2		56.7
		9		94.5				3		78.7				9		66.3				3		56.4
		10		93.9				4		78.3				10		66.0				4		56.1
		11		93.3				5		77.8				11		65.6				5		55.8
		12		92.7				6		77.3				12		65.2				6		55.5
1		1		92.2				7		76.9		6		1		64.9				7		55.3
		2		91.6				8		76.4				2		64.5				8		55.0
		3		91.0				9		76.0				3		64.2				9		54.7
		4		90.5				10		75.5				4		63.8				10		54.4
		5		90.0				11		75.1				5		63.5				11		54.1
		6		89.4				12		74.6				6		63.1				12		53.8
		7		88.8		4		1		74.2				7		62.8		9		1		53.5
		8		88.3				2		73.8				8		62.5				2		53.3
		9		87.8				3		73.4				9		62.1				3		53.0
		10		87.2				4		73.0				10		61.8				4		52.7
		11		86.6				5		72.6				11		61.4				5		52.5
		12		86.1				6		72.1				12		61.1				6		52.2
2		1		85.6				7		71.7		7		1		60.8				7		51.9
		2		85.1				8		71.3				2		60.5				8		51.7
		3		84.6				9		70.9				3		60.1				9		51.4
		4		84.1				10		70.5				4		59.8				10		51.1
		5		83.6				11		70.1				5		59.5				11		50.9
		6		83.1				12		69.7				6		59.2				12		50.6

A-2

SCHEDULE B

     If a Participant’s benefit is payable in the form of a joint and survivor annuity providing for a “reduced” monthly benefit to the Participant for his lifetime, with fifty percent (50%) of such amount to continue to be paid to another person after his death for such other person’s lifetime, the “reduced” monthly amount shall be determined from the table below, taking into account (a) the age of the Participant upon commencement of benefits, and (b) the age of the spouse or other contingent annuitant when benefits commence for the Participant. The percentages shown in the table below represent the percentage of the monthly amount which would have been payable in single life annuity form (after any reduction required by this Plan to reflect the commencement of benefits prior to Normal Retirement Date).

B-1

SCHEDULE B

Age of Participant

Age of
Spouse
or C.A.	55		56		57		58		59		60		61		62		63		64		65		66		67		68		69		70
40		90.7		90.0		89.3		88.6		87.9		87.1		86.2		85.3		84.4		83.4		82.4		81.3		80.2		79.1		77.9		76.7
41		91.0		90.4		89.6		89.0		88.2		87.5		86.6		85.7		84.8		83.9		82.8		81.8		80.7		79.6		78.4		77.2
42		91.3		90.7		90.1		89.3		88.6		87.8		87.0		86.2		85.2		84.3		83.3		82.2		81.2		80.1		78.9		77.7
43		91.6		91.1		90.4		89.8		89.0		88.2		87.4		86.6		85.7		84.7		83.7		82.7		81.6		80.6		79.4		78.2
44		92.0		91.4		90.8		90.1		89.4		88.6		87.9		87.0		86.2		85.2		84.2		83.2		82.2		81.0		79.9		78.8
45		92.4		91.8		91.1		90.5		89.8		89.1		88.3		87.5		86.6		85.7		84.8		83.7		82.6		81.6		80.4		79.3
46		92.7		92.1		91.6		90.9		90.3		89.5		88.8		87.9		87.1		86.1		85.3		84.3		83.1		82.1		81.0		79.8
47		93.1		92.5		91.9		91.3		90.6		90.0		89.2		88.4		87.5		86.6		85.7		84.8		83.7		82.6		81.5		80.4
48		93.5		92.9		92.3		91.7		91.1		90.3		89.7		88.9		88.1		87.1		86.2		85.2		84.3		83.2		82.1		81.0
49		93.8		93.3		92.7		92.1		91.5		90.8		90.0		89.3		88.5		87.7		86.7		85.8		84.7		83.8		82.7		81.5
50		94.1		93.6		93.1		92.5		91.9		91.2		90.5		89.7		89.0		88.2		87.3		86.3		85.3		84.3		83.3		82.2
51		94.4		93.9		93.4		92.9		92.3		91.6		90.9		90.2		89.4		88.6		87.8		86.9		85.8		84.9		83.8		82.9
52		94.8		94.3		93.8		93.2		92.7		92.0		91.4		90.7		89.9		89.1		88.3		87.4		86.5		85.4		84.4		83.4
53		95.0		94.6		94.1		93.6		93.0		92.5		91.8		91.1		90.4		89.6		88.7		87.9		87.0		86.1		85.0		84.0
54		95.3		94.9		94.5		94.0		93.4		92.8		92.3		91.5		90.8		90.1		89.3		88.4		87.6		86.6		85.7		84.6
55		95.6		95.2		94.8		94.3		93.8		93.2		92.6		92.0		91.3		90.5		89.8		89.0		88.0		87.2		86.3		85.3
56		95.9		95.5		95.1		94.6		94.2		93.6		93.0		92.4		91.8		91.0		90.3		89.5		88.7		87.7		86.9		86.0
57		96.1		95.8		95.4		94.9		94.5		94.0		93.4		92.8		92.2		91.5		90.8		90.0		89.2		88.4		87.4		86.6
58		96.4		96.0		95.7		95.2		94.8		94.3		93.8		93.2		92.6		92.0		91.3		90.5		89.7		88.9		88.1		87.2
59		96.6		96.3		95.9		95.6		95.1		94.6		94.2		93.7		93.0		92.4		91.8		91.1		90.3		89.5		88.7		87.9
60		96.9		96.6		96.2		95.8		95.5		95.0		94.5		94.0		93.5		92.9		92.3		91.6		90.9		90.1		89.3		88.5
61		97.0		96.8		96.5		96.2		95.7		95.4		94.9		94.4		93.9		93.4		92.7		92.1		91.4		90.8		90.0		89.2
62		97.3		97.0		96.8		96.4		96.1		95.6		95.3		94.8		94.3		93.8		93.3		92.6		92.0		91.3		90.7		89.9
63		97.5		97.3		96.9		96.7		96.4		96.0		95.6		95.2		94.7		94.3		93.7		93.2		92.6		91.9		91.3		90.6
64		97.8		97.5		97.2		96.9		96.7		96.4		96.0		95.6		95.2		94.7		94.2		93.7		93.2		92.5		91.9		91.2
65		98.0		97.8		97.5		97.3		96.9		96.7		96.4		96.0		95.6		95.2		94.7		94.2		93.7		93.2		92.5		91.9
66		98.1		98.0		97.8		97.5		97.3		97.0		96.8		96.4		96.1		95.6		95.2		94.7		94.2		93.7		93.2		92.5
67		98.3		98.1		98.1		97.9		97.5		97.3		97.0		96.8		96.4		96.1		95.8		95.2		94.7		94.3		93.7		93.3
68		98.6		98.3		98.2		98.1		97.9		97.6		97.3		97.0		96.8		96.5		96.1		95.6		95.3		94.8		94.3		93.8
69		98.7		98.6		98.4		98.2		98.1		97.9		97.6		97.4		97.1		96.8		96.5		96.1		95.7		95.3		94.9		94.4
70		98.9		98.7		98.6		98.4		98.2		98.2		98.0		97.6		97.4		97.1		96.9		96.5		96.2		95.8		95.4		95.0

B-2

SCHEDULE C

     If a Participant’s benefit is payable in the form of a joint and survivor annuity providing for a “reduced” monthly benefit to the Participant for his lifetime, with one hundred percent (100%) of such amount to continue to be paid to another person after his death for such other person’s lifetime, the “reduced” monthly amount shall be determined from the table below, taking into account (a) the age of the Participant upon commencement of benefits, and (b) the age of the spouse or other contingent annuitant when benefits commence for the Participant. The percentages shown in the table below represent the percentage of the monthly amount which would have been payable in single life annuity form (after any reduction required by this Plan to reflect the commencement of benefits prior to Normal Retirement Date).

C-1

SCHEDULE C

Age of Participant

Age of
Spouse
or C.A.	55		56		57		58		59		60		61		62		63		64		65		66		67		68		69		70
40		82.8		81.4		80.3		79.0		77.9		76.6		75.1		73.8		72.4		70.9		69.4		67.8		66.2		64.6		63.0		61.3
41		83.2		82.1		80.8		79.7		78.4		77.2		75.9		74.4		73.0		71.5		70.0		68.5		66.9		65.2		63.6		61.9
42		83.7		82.6		81.5		80.2		79.0		77.7		76.5		75.1		73.6		72.1		70.7		69.0		67.5		65.9		64.2		62.5
43		84.2		83.2		82.1		81.0		79.6		78.4		77.1		75.8		74.4		72.8		71.3		69.8		68.1		66.6		64.9		63.2
44		84.9		83.8		82.7		81.6		80.4		79.0		77.8		76.4		75.1		73.6		72.0		70.4		68.9		67.2		65.6		63.9
45		85.5		84.5		83.3		82.2		81.0		79.8		78.4		77.1		75.7		74.3		72.8		71.1		69.5		68.0		66.3		64.7
46		86.1		85.0		84.0		82.8		81.7		80.5		79.2		77.8		76.4		74.9		73.5		72.0		70.3		68.6		67.1		65.3
47		86.7		85.7		84.6		83.6		82.3		81.2		79.9		78.6		77.1		75.7		74.2		72.7		71.1		69.4		67.8		66.2
48		87.4		86.3		85.3		84.2		83.1		81.8		80.8		79.3		78.0		76.4		75.0		73.4		71.9		70.3		68.5		66.9
49		87.9		87.0		85.9		84.8		83.7		82.6		81.3		80.1		78.7		77.3		75.7		74.2		72.6		71.1		69.5		67.7
50		88.5		87.5		86.6		85.5		84.4		83.2		82.1		80.7		79.4		78.0		76.6		75.0		73.4		71.8		70.3		68.6
51		89.0		88.1		87.2		86.2		85.1		83.9		82.7		81.5		80.1		78.8		77.4		75.9		74.2		72.7		71.0		69.5
52		89.7		88.7		87.8		86.8		85.8		84.6		83.5		82.2		80.9		79.5		78.2		76.7		75.2		73.5		71.9		70.2
53		90.1		89.4		88.4		87.4		86.4		85.4		84.2		82.9		81.7		80.4		78.9		77.5		76.0		74.4		72.7		71.2
54		90.6		89.8		89.1		88.1		87.1		86.0		85.0		83.7		82.4		81.1		79.7		78.2		76.8		75.3		73.7		72.0
55		91.1		90.4		89.5		88.7		87.7		86.7		85.6		84.5		83.2		81.9		80.5		79.1		77.6		76.2		74.6		73.1
56		91.7		90.9		90.1		89.2		88.4		87.3		86.2		85.1		84.0		82.6		81.3		79.9		78.5		77.0		75.5		74.0
57		92.1		91.4		90.6		89.8		88.9		88.0		86.9		85.8		84.7		83.5		82.1		80.8		79.4		78.0		76.4		74.9
58		92.6		91.8		91.2		90.3		89.5		88.6		87.7		86.5		85.4		84.2		83.0		81.6		80.2		78.8		77.4		75.8
59		93.1		92.4		91.6		90.9		90.0		89.2		88.2		87.3		86.1		85.0		83.8		82.6		81.1		79.8		78.3		76.9
60		93.5		92.9		92.2		91.4		90.7		89.8		88.9		87.9		87.0		85.8		84.6		83.4		82.2		80.7		79.3		77.9
61		93.8		93.4		92.7		92.0		91.1		90.4		89.5		88.6		87.6		86.7		85.4		84.3		83.0		81.8		80.3		78.9
62		94.3		93.7		93.2		92.5		91.8		91.0		90.2		89.3		88.3		87.3		86.4		85.2		84.0		82.7		81.5		80.0
63		94.6		94.2		93.5		93.1		92.4		91.7		90.8		90.0		89.1		88.1		87.1		86.2		84.9		83.7		82.4		81.2
64		95.2		94.6		94.1		93.5		93.0		92.3		91.6		90.7		89.9		89.0		88.0		86.9		86.0		84.7		83.5		82.2
65		95.6		95.2		94.5		94.0		93.4		92.9		92.2		91.5		90.6		89.8		88.8		87.8		86.8		85.8		84.5		83.3
66		95.8		95.6		95.2		94.5		94.0		93.4		92.9		92.2		91.4		90.5		89.7		88.7		87.7		86.6		85.7		84.4
67		96.2		95.8		95.6		95.2		94.5		94.0		93.4		92.9		92.1		91.4		90.4		89.6		88.6		87.6		86.5		85.6
68		96.7		96.2		95.8		95.6		95.2		94.5		94.0		93.3		92.8		92.1		91.3		90.4		89.6		88.5		87.5		86.5
69		96.9		96.7		96.2		95.8		95.6		95.2		94.5		93.9		93.3		92.8		92.0		91.2		90.3		89.5		88.5		87.5
70		97.3		96.9		96.7		96.2		95.8		95.6		95.1		94.4		93.9		93.3		92.8		92.0		91.2		90.3		89.5		88.5

C-2

EX-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 American Pacific Corporation and its affiliates (collectively referred to hereinafter as 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 directors and employees of the Company and consultants retained by the Company (collectively referred to hereinafter as “directors and employees”), shall adhere strictly to this Policy.

II. GENERAL MATTERS

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

B. It is the personal responsibility of each director and 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 a director’s and an employee’s direct conduct as well as conduct done indirectly through his or her 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 these 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 directors and 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. Directors and 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. Directors and 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 its 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 its 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 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 directors and 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 directors and 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 directors and employees must respect the confidentiality of proprietary and competition-sensitive information whether prepared by the Company, its consultants, other companies or the federal government. Directors and 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 director or 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.

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 directors and 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

All directors and 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 directors and employees. Directors and 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.

OUTSIDE INTERESTS, COMPETITION, AND OUTSIDE EMPLOYMENT:

A. No director or employee of the Company shall have any outside business or financial interest, direct or indirect, in any Outside Concern or Competing Concern, which conflicts with the interests of the Company, or which interferes with his or her ability to fully perform his or her job responsibilities. For example, and not by limitation, if an employee’s job responsibilities include purchasing, or an employee is in a position to influence the Company’s purchases, he or she should have no proprietary or financial interest in any business that furnishes products, materials, or services to the Company or in any related transaction.

B. Directors and employees may not compete with the Company or advance a Competing Concern’s interests in any way during a director’s tenure or an employee’s employment with the Company. Further, directors and employees must disclose to the Board of Directors or the Corporate Governance Committee any significant financial interest or relationship with a Competing Concern or potential Competing Concern of the Company in any of its lines of business.

C. No director or employee shall serve as an officer, director, employee, partner, trustee, or consultant of or receive salary, fees, dividends or other income (except dividends and interest from publicly traded securities or other similar passive investments) from any Outside Concern or Competing Concern, unless that relationship has been fully disclosed to and approved by the Company’s Board of Directors or its Corporate Governance Committee and the activity would not unduly divert the director’s or employee’s time and talents from their duties as a director or an employee of the Company.

D. Only the Corporate Governance Committee or the Board of Directors may authorize deviation from the policies described in A through C above.

E. The terms “Concern”, “Competing Concern”, and “Outside Concern”, are defined as follows:

     1. CONCERN: Any individual or entity, regardless or whether its form as a corporation, partnership, trust, joint venture or government entity.

     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.

USE OF COMPANY RESOURCES: All Company assets should be used for legitimate business purposes. Directors and employees may not perform non-Company work or solicit such business on Company premises or while working on Company time. Further, directors and employees are not permitted to use Company property, equipment, telephones, materials, resources or proprietary information (collectively, “Company Resources”) for any outside work. Minimal personal use of Company Resources is permitted so long as it does not interfere with a director’s or an employee’s duties and does not result in pecuniary gain.

CORPORATE OPPORTUNITIES: Directors and employees have a duty to advance the legitimate business interests of the Company when an opportunity to do so arises. Thus, directors and employees must not exploit, for their personal gain or benefit (or for the gain or benefit of their relatives, friends, or other business interests) opportunities in which the Company might be interested that they discovered through the use of Company Resources, or through their position with the Company, unless the opportunity is fully disclosed in writing to the Company’s Board of Directors or Corporate Governance Committee and the Company declines to pursue the opportunity.

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

XI. DISCLOSURE OF MATERIAL INFORMATION

See Insider Trading Policy.

XII. COMPLIANCE

A. It is the responsibility of a director or 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 director or employee prefers, to the Chief Executive Officer or his designated representative. Activities to be reported include the following:

     1. Violations of these Standards;

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

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

B. Any officer receiving a director or 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 director and employee shall cooperate fully with any investigation of any alleged violation of these standards.

D. Any director or 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 director or employee for any of the above 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-director or 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 director’s or 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 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.

XV. SANCTIONS

A. Any director or 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 directors and 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

/s/ John R. Gibson

John R. Gibson

Policy VI-12 Rev.03 5/9/06

EX-21

EXHIBIT 21

SUBSIDIARIES OF THE REGISTRANT

	Jurisdiction of Incorporation	Percent
Subsidiaries of the Registrant	or Organization	Ownership
American Azide Corporation	Nevada	100%
American Pacific Corporation	Nevada	100%
Ampac Farms, Inc.	Nevada	100%
Ampac-ISP Corp., LLC	Delaware	100%
Energetic Additives Inc., LLC	Nevada	100%
Ampac-ISP (UK) Limited	England & Wales	100%
Ampac Fine Chemicals, LLC	California	100%

EX-23

EXHIBIT 23

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Registration Statement Nos. 333-131945, 333-108790, 333-104732, 333-62566, and 333-53449 on the respective Forms S-8 of our report dated January 6, 2007, relating to the consolidated financial statements of American Pacific Corporation (which report expresses an unqualified opinion and includes an explanatory paragraph relating to the adoption of Statement of Financial Accounting Standards No. 123 (Revised), Share-Based Payment, and an explanatory paragraph relating to the adoption of Financial Accounting Standards Board Interpretation No. 46 (Revised), Consolidation of Variable Interest Entities), appearing in this Annual Report on Form 10-K of American Pacific Corporation for the year ended September 30, 2006.

/s/  DELOITTE & TOUCHE LLP

Las Vegas, Nevada

January 6, 2007

EX-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:  January 10, 2007	By:   /s/  JOHN R. GIBSON
	John R. Gibson, Principal Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
Section 302 Certification

I, Dana M. Kelley, 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:  January 10, 2007	By:  /s/  DANA M. KELLEY
	Dana M. Kelley, Principal Financial Officer

EX-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, 2006 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

January 10, 2007

EX-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, Seth L. Van Voorhees, 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, 2006 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/  DANA M. KELLEY

Dana M. Kelley

vice President, Chief Financial Officer,

and Treasurer

January 10, 2007