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- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
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FORM 10-Q
---------
(Mark One)
X Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
- --- Act of 1934
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1996
OR
Transition report pursuant to Section 13 or 15(d) of the
- --- Securities Exchange Act of 1934
COMMISSION FILE NUMBER: 0-21773
FIREARMS TRAINING SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 57-0777018
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7340 MCGINNIS FERRY ROAD
SUWANEE, GEORGIA 30174
(Address of principal executive offices)
TELEPHONE NUMBER (770) 813-0180
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes No X
--- ---
As of February 12, 1997, there were (1) 20,402,404 shares of the
Registrant's Class A Common Stock and (2) no shares of the Registrant's Class B
Common Stock outstanding.
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FIREARMS TRAINING SYSTEMS, INC.
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page No.
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<S> <C> <C>
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:
Condensed Consolidated Statements of Income
Three and nine months ended December 31, 1996 and 1995 ................................. 3
Condensed Consolidated Balance Sheets
December 31, 1996 and March 31, 1996 ................................................... 4
Condensed Consolidated Statements of Cash Flows
Nine months ended December 31, 1996 and 1995 ........................................... 5
Notes to Condensed Consolidated Financial Statements ................................... 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS ...............................................................8
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS ......................................................................13
ITEM 5. OTHER INFORMATION.......................................................................13
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K .......................................................14
SIGNATURES..............................................................................15
</TABLE>
2
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PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FIREARMS TRAINING SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
December 31, December 31,
------------------------ ----------------------
1996 1995 1996 1995
----------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
Revenues $ 25,667 $ 23,784 $ 64,805 $ 50,873
Cost of revenues 12,557 10,260 30,537 24,464
----------- ------------ ---------- ----------
Gross profit 13,110 13,524 34,268 26,409
----------- ------------ ---------- ----------
Operating expenses:
Selling, general and administrative expenses 3,842 3,499 11,355 8,866
Research and development expenses 944 643 2,775 1,885
Depreciation and amortization 124 95 327 291
----------- ------------ ---------- ----------
Total operating expenses 4,910 4,237 14,457 11,042
----------- ------------ ---------- ----------
Operating profit 8,200 9,287 19,811 15,367
----------- ------------ ---------- ----------
Other income (expense), net:
Interest income (expense), net (2,814) 37 (4,647) 72
Nonrecurring recapitalization expenses (61) - (1,181) -
Other income (expense), net 211 (33) 172 (60)
----------- ------------ ---------- ----------
Total other income (expense), net (2,664) 4 (5,656) 12
----------- ------------ ---------- ----------
Income before income taxes and extraordinary item 5,536 9,291 14,155 15,379
Provision for income taxes 2,023 3,180 5,304 5,306
----------- ------------ ---------- ----------
Net income before extraordinary item 3,513 6,111 8,851 10,073
Extraordinary item, net of income taxes (3,327) - (3,327) -
----------- ------------ ---------- ----------
Net income $ 186 $ 6,111 $ 5,524 $ 10,073
=========== ============ ========== ==========
Net income per common share $ 0.01 $ 0.38 $ 0.33 $ 0.63
=========== ============ ========== ==========
Weighted average common shares outstanding 18,244 16,029 16,770 16,029
=========== ============ ========== ==========
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated statements.
3
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FIREARMS TRAINING SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
December 31, March 31,
1996 1996
--------- --------
(Unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,479 $ 8,121
Accounts receivable, net 14,191 10,092
Inventories 13,869 12,836
Income tax receivable 1,912 --
Prepaid expenses and other current assets 949 655
Deferred income taxes 1,243 866
--------- --------
Total current assets 33,643 32,570
Property and equipment, net 1,866 1,144
Escrow and other deposits 36 106
Other assets 3,461 --
--------- --------
$ 39,006 $ 33,820
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,716 $ 3,619
Accrued liabilities 6,946 5,207
Income taxes payable 307 1,305
Deferred warranty revenue and reserves 3,069 2,223
Current maturities of long-term debt 794 --
--------- --------
Total current liabilities 14,832 12,354
--------- --------
Long-term debt, less current maturities 57,806 --
--------- --------
Other noncurrent liabilities 622 204
--------- --------
Stockholders' equity:
Class A common stock -- --
Additional paid-in-capital 112,975 1,931
Accumulated (deficit) earnings (147,291) 19,343
Cumulative foreign currency translation adjustment 62 (12)
--------- --------
Total stockholders' (deficit) equity (34,254) 21,262
--------- --------
$ 39,006 $ 33,820
========= ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
statements.
4
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FIREARMS TRAINING SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASHFLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended
December 31,
----------------------------
1996 1995
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 5,524 $ 10,073
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 710 293
Non cash portion of extraordinary item 3,871 -
Stock grant 120 -
Changes in assets and liabilities:
Accounts receivable, net (4,099) (4,974)
Inventories (1,033) (1,795)
Income tax receivable (1,912) -
Prepaid expenses and other current assets (294) (258)
Deferred tax benefit (377) 14
Non-current assets (355) 101
Accounts payable and accrued liabilities 1,836 2,887
Income taxes payable (998) 2,241
Deferred revenues and reserves 846 (5)
Noncurrent liabilities 418 (1,223)
------------- -------------
Total adjustments (1,267) (2,719)
------------- -------------
Net cash provided by operations 4,257 7,354
------------- -------------
Cash flows from investing activities:
Additions to property and equipment, net (1,049) (461)
------------- -------------
Cash flows from financing activities:
Repurchase of warrants (3,755) -
Borrowings of long-term debt 110,000 -
Repayments of long-term debt (51,400) -
Proceeds from sales of common stock 112,740 -
Repurchase of common stock (171,150) -
Other assets (6,359) -
------------- -------------
Net cash used in financing activities (9,924) -
------------- -------------
Effect of changes in foreign exchange rates 74 (8)
------------- -------------
Net (decrease) increase in cash (6,642) 6,885
Cash, beginning of period 8,121 2,328
============= =============
Cash, end of period $ 1,479 $ 9,213
============= =============
Supplemental disclosures of cash paid for:
Interest $ 3,419 $ 11
============= =============
Income taxes $ 6,355 $ 2,296
============= =============
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
statements.
5
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FIREARMS TRAINING SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION.
The condensed consolidated financial statements at December 31, 1996 and
for the three and nine month periods then ended are unaudited and reflect
all adjustments which are, in the opinion of management, necessary for a
fair presentation of financial position and operating results for the
interim periods. The condensed consolidated financial statements should be
read in conjunction with the consolidated financial statements for the
fiscal years ended March 31, 1995 and 1996, and notes thereto, together
with management=s discussion and analysis of financial condition and
results of operations, contained in the Prospectus (the "Prospectus") of
Firearms Training Systems, Inc. (the "Company") dated November 26, 1996, as
filed with the Securities and Exchange Commission (the "Commission")
pursuant to Rule 424 (b) promulgated under the Securities Act of 1933. The
results of operations for the three and nine months ended December 31, 1996
are not necessarily indicative of the results for the entire fiscal year
ending March 31, 1997.
2. INVENTORY.
Inventories consist primarily of projectors, computer hardware, simulators,
and component parts. Inventories are valued at the lower of cost (on a
first-in, first-out basis) or market. Cost includes materials, labor, and
manufacturing overhead. Market is defined as net realizable value.
Inventories consist of the following (in thousands):
December 31, March 31,
1996 1996
------- -------
Raw materials $ 8,101 $ 6,620
Work in progress 5,047 5,556
Finished Goods 721 660
------- -------
$13,869 $12,836
======= =======
3. INITIAL PUBLIC OFFERING.
In November 1996, the Company completed an initial public offering of
6,000,000 shares of its Class A Common Stock (the "Offering"). Net proceeds
to the Company were approximately $76.0 million, and were used to repay the
$40 million senior subordinated bridge notes (the "Bridge Notes") issued in
connection with a set of transactions (the "Recapitalization") consummated
on July 31, 1996, to reduce by $11.2 million the senior bank debt (the
"Senior Bank Debt") borrowed in connection with the Recapitalization under
the credit agreement (the "NationsBank Credit Agreement") with NationsBank,
N.A. (South) ("NationsBank") and certain other lenders, and to fund certain
nonrecurring obligations of the Company.
6
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FIREARMS TRAINING SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. EXTRAORDINARY ITEM.
A portion of the proceeds from the Offering was used to repay the $40
million Bridge Notes and reduce the Senior Bank Debt by $11.2 million. As a
result, an extraordinary loss occurred on the early extinguishment of debt.
This extraordinary item includes legal fees, unamortized deferred financing
costs, unamortized basis of certain warrants issued in connection with the
Bridge Notes (the "Warrants") and a fee paid in connection with the
repayment of the Bridge Notes.
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This Management's Discussion and Analysis of Financial Condition and Results of
Operations should be read in conjunction with the Management's Discussion and
Analysis of Financial Condition and Results of Operations contained in the
Prospectus.
RESULTS OF OPERATIONS
Three Months Ended December 31, 1996 and 1995
Net Revenues. Revenues increased $1.9 million, or 7.9%, to $25.7 million for the
three months ended December 31, 1996 as compared to $23.8 million for the three
months ended December 31, 1995. The $23.8 million in revenues for the three
months ended December 31, 1996, accounted for 36.3% of fiscal 1996 revenues, as
compared to average revenues of $13.9 million for the other three quarters of
fiscal 1996. Sales to U.S. military customers for the three months ended
December 31, 1996, increased by $8.8 million, or 95.1%, primarily due to
increased sales to the U.S. Marine Corps. This increase was partially offset by
a $5.5 million, or 48.7%, decrease in international sales, primarily due to
decreased deliveries under the Netherlands Army contract and decreased sales to
Italian law enforcement agencies. Sales to U.S. law enforcement customers
declined by $1.5 million, or 51.4%, primarily due to a large order delivered to
a federal law enforcement agency in the third quarter of fiscal 1996.
Cost of Revenues. Cost of revenues increased $2.3 million, or 22.4%, to $12.6
million for the three months ended December 31, 1996 as compared to $10.3
million for the three months ended December 31, 1995. As a percentage of
revenues, cost of revenues increased to 48.9% for the three months ended
December 31, 1996 as compared to 43.1% for the three months ended December 31,
1995. The lower cost of sales percentage in the third quarter of fiscal 1996 was
partially attributable to the volume of revenues in that quarter and was also
due to the fact that the Company had not yet increased its infrastructure to the
extent necessary to handle quarterly revenues of that volume on an ongoing
basis. In addition, materials as a percentage of revenues increased due to
customer and product mix changes.
Gross Profit. As a result of the foregoing, gross profit decreased $0.4 million,
or 3.1%, to $13.1 million, or 51.1% of revenues, for the three months ended
December 31, 1996 as compared to $13.5 million, or 56.9% of the revenues, for
the three months ended December 31, 1995.
Total Operating Expenses. Total operating expenses increased $0.7 million, or
15.9%, to $4.9 million for the three months ended December 31, 1996 as compared
to $4.2 million for the three months ended December 31, 1995. Total operating
expenses as a percentage of revenues increased to 19.1% for the three months
ended December 31, 1996 from 17.8% for the three months ended December 31, 1995
due in part to a $0.3 million, or 46.8%, increase in research and development
("R&D") costs as part of continued efforts in developing new and improving
existing products.
Operating Income. As a result of the foregoing, operating income decreased $1.1
million, or
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11.7%, to $8.2 million, or 31.9% of revenues, for the three months
ended December 31, 1996 as compared to $9.3 million, or 39.0% of revenues, for
the three months ended December 31, 1995.
Other Income (Expense), net. Net interest expense totaled $2.8 million, or 11.0%
of revenues for the three months ended December 31, 1996 as compared to net
interest income of $37,000 for the three months ended December 31, 1995. The
increase in net interest expense is a result of interest expense and
amortization of deferred financing costs related to debt incurred in connection
with the Recapitalization.
Provision for Income Taxes. The effective tax rate increased to 36.5% of income
before income taxes for the three months ended December 31, 1996 as compared to
34.2% of income before taxes for the three months ended December 31, 1995. This
increase was primarily attributable to certain nonrecurring expenses incurred in
connection with the Recapitalization which are not deductible for income tax
purposes.
Net Income Before Extraordinary Item. As a result of the foregoing, net income
before extraordinary item decreased $2.6 million, or 42.5%, to $3.5 million, or
13.7% of revenues for the three months ended December 31, 1996 as compared to
$6.1 million, or 25.7% of revenues for the three months ended December 31, 1995.
Extraordinary Item. A portion of the proceeds from the Offering was used to
repay the $40 million Bridge Notes and reduce the Senior Bank Debt by $11.2
million. As a result, an extraordinary loss occurred on the early extinguishment
of debt in the three months ended December 31, 1996. This extraordinary item
includes legal fees, unamortized deferred financing costs, unamortized basis of
the Warrants and a fee paid in connection with the repayment of the Bridge
Notes.
Net Income. As a result of the foregoing, net income as reported decreased $5.9
million, or 97.0%, to $0.2 million ($0.01 per share), or 0.7% of revenues for
the three months ended December 31, 1996 as compared to $6.1 million ($0.38 per
share), or 25.7% of revenues for the three months ended December 31, 1995.
Pro Forma Results. The following pro forma results give effect to the
Recapitalization and the Offering as if each occurred at the beginning of the
respective periods. The pro forma results exclude the nonrecurring expenses
incurred in connection with the Recapitalization and the extraordinary loss
related to the early extinguishment of debt and reflect interest expense for all
periods presented, based on the Senior Bank Debt of $58.6 million outstanding
after the Offering. The pro forma net income for the three months ended December
31, 1996 was $4.4 million ($0.20 per share), or 17.0% of revenues, a decrease of
$0.8 million from the $5.2 million ($0.24 per share) pro forma net income for
three months ended December 31, 1995.
Nine Months Ended December 31, 1996 and 1995
Revenues. Revenues increased $13.9 million, or 27.4%, to $64.8 million for the
nine months ended December 31, 1996 as compared to $50.9 million for the nine
months ended December 31, 1995. This increase was attributable to a $16.4
million increase in sales to the U.S. military. Deliveries to the U. S. Marine
Corps accounted for a majority of the increase. This increase was
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partially offset by a decrease of $2.6 million, or 11.9%, in international
sales, primarily due to fewer deliveries under the Netherlands Army and the
British Ministry of Defense contracts. The nine months ended December 31, 1996
also included approximately $1.0 million in sales to hunter and sports
customers as compared to $503,000 for the nine months ended December 31, 1995.
Cost of Revenues. Cost of revenues increased $6.1 million, or 24.8%, to $30.5
million for the nine months ended December 31, 1996 as compared to $24.4 million
for the nine months ended December 31, 1995. As a percentage of revenues, cost
of revenues decreased to 47.1% for the nine months ended December 31, 1996 as
compared to 48.1% for the nine months ended December 31, 1995. This decrease was
primarily due to a decrease in materials as a percentage of revenues due to
customer and product mix changes.
Gross Profit. As a result of the foregoing, gross profit increased $7.9 million,
or 29.8% to $34.3 million, or 52.9% of revenues, for the nine months ended
December 31, 1996 as compared to $26.4 million, or 51.9% of the revenues, for
the nine months ended December 31, 1995.
Total Operating Expenses. Total operating expenses increased $3.4 million, or
30.9% to $14.4 million for the nine months ended December 31, 1996 as compared
to $11.0 million for the nine months ended December 31, 1995. Total operating
expenses as a percentage of revenues increased to 22.3% for the nine months
ended December 31, 1996 from 21.7% for the nine months ended December 31, 1995.
Selling, general and administrative expenses increased $2.5 million, or 28.1%,
as compared to the 27.4% increase in revenue. R&D costs, however, increased $0.9
million, or 47.2%, from the nine months ended December 31, 1995 to the nine
months ended December 31, 1996 due to continued efforts in developing new and
improving existing products.
Operating Income. As a result of the foregoing, operating income increased $4.4
million, or 28.9%, to $19.8 million, or 30.6% of revenues, for the nine months
ended December 31, 1996 as compared to $15.4 million, or 30.2% of revenues, for
the nine months ended December 31, 1995.
Other Income (Expense), net. Net interest expense totaled $4.6 million, or 7.2%
of revenues for the nine months ended December 31, 1996 as compared to net
interest income of $72,000 for the nine months ended December 31, 1995. The
increase in net interest expense is a result of interest expense and
amortization of deferred financing costs related to debt incurred in connection
with the Recapitalization. Other income (expense), net also includes a
nonrecurring charge of $1.2 million for expenses incurred in connection with the
Recapitalization.
Provision for Income Taxes. The effective tax rate increased to 37.5% of income
before income taxes for the nine months ended December 31, 1996 compared to
34.5% of income before taxes for the nine months ended December 31, 1995. This
increase was primarily attributable to certain of the nonrecurring expenses
incurred in connection with the Recapitalization which are not deductible for
income tax purposes
Net Income Before Extraordinary Item. As a result of the foregoing, net income
before extraordinary item decreased $1.2 million, or 12.1%, to $8.9 million, or
13.7% of revenues for the nine months ended December 31, 1996 as compared to
$10.1 million, or 19.8% of revenues for the nine months ended December 31, 1995.
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Extraordinary Item. A portion of the proceeds from the Offering was used to
repay the $40 million Bridge Notes and reduce the Senior Bank Debt by $11.2
million. As a result, an extraordinary loss occurred on the early extinguishment
of debt in the nine months ended December 31, 1996. This extraordinary item
includes legal fees, unamortized deferred financing costs, unamortized basis of
the Warrants and a fee paid in connection with the repayment of the Bridge
Notes.
Net Income. As a result of the foregoing, net income as reported decreased $4.6
million, or 45.2%, to $5.5 million ($0.33 per share), or 8.5% of revenues for
the nine months ended December 31, 1996 as compared to $10.1 million ($0.63 per
share), or 19.8% of revenues for the nine months ended December 31, 1995.
Pro Forma Results. The following pro forma results give effect to the
Recapitalization and the Offering as if each occurred at the beginning of the
respective periods. The pro forma results exclude the nonrecurring expenses
incurred in connection with the Recapitalization and the extraordinary loss
related to the early extinguishment of debt and also reflect interest expense
for all periods presented, based on the Senior Bank Debt of $58.6 million
outstanding after the Offering. The pro forma net income for the nine months
ended December 31, 1996 was $10.1 million ($0.46 per share), or 15.5% of
revenues, an increase of $2.8 million, or 38.9%, over the $7.3 million ($0.34
per share) pro forma net income for nine months ended December 31, 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal liquidity and capital needs are to fund debt service,
working capital and capital expenditures necessary to support its growth. Net
working capital was $18.8 million at December 31, 1996 and $20.2 million at
March 31, 1996.
The Company's operating activities generated cash of $4.3 million in the nine
months ended December 31, 1996 and $7.4 million in the nine months ended
December 31, 1995. The $3.1 million decrease in net cash provided by operations
was primarily due to interest expense and the nonrecurring expenses incurred in
connection with the Recapitalization. Cash generated from operations in the nine
months ended December 31, 1996 and 1995 was further affected by increases in
inventories and receivables.
The Company's investing activities used cash of $1.0 million for the nine months
ended December 31, 1996 and $461,000 for the nine months ended December 31,
1995. The Company's use of cash for investing activities in those periods was
due to capital expenditures, which were primarily for manufacturing equipment,
commercial vehicles, demonstration equipment and certain computer equipment used
in R&D and general administration.
As part of the Recapitalization the Company borrowed $116 million from
NationsBank and certain other lenders under the NationsBank Credit Agreement.
The Company used the net proceeds from the Offering of approximately $76.0
million to repay the $40 million Bridge Notes, reduce Senior Bank Debt by $11.2
million and to fund certain nonrecurring obligations of the Company. In
connection with the Recapitalization, on July 31, 1996, the Company (i)
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repurchased certain shares of Common Stock owned by its sole shareholder for
$151.9 million and agreed to make a further payment in connection therewith of
$19.3 million which was satisfied with proceeds of the Offering, and (ii) issued
shares of Class A Common Stock for $36 million to certain additional investors
in exchange for a 79% interest in the Common Stock. The Company's financing
activities used cash of $9.9 million for the nine months ended December 31,
1996, which was the net result of the Recapitalization and the Offering.
The Company's indebtedness and the related covenants will have several important
effects on its future operations, including, but not limited to, the following:
(i) a portion of the Company's cash flow from operations must be dedicated to
the payment of interest on and principal of its indebtedness and will not be
available for other purposes; (ii) the Company's ability to obtain additional
financing in the future for working capital, capital expenditures, R&D,
acquisitions, general corporate purposes or other purposes may be limited; and
(iii) the Company's level of indebtedness could limit its flexibility in
reacting to business developments and changes in its industry and economic
conditions generally.
The Company believes that cash flow from operations and borrowings under the
NationsBank Credit Agreement will be sufficient to meet the Company's presently
anticipated working capital, capital expenditure and debt service needs for at
least the next 12 months.
12
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is involved in legal proceedings from time to time in the ordinary
course of its business. As of the date of this filing, there are no legal
proceedings pending against the Company which management believes are material.
As described under the caption "Certain Legal Proceedings" in the Company's
Prospectus, the Company voluntarily disclosed to the Federal Election Commission
(the "FEC") that violations of the Federal Election Campaign Act may have
occurred with respect to a total of $8,500 in political contributions made in
the period 1990 to 1993 by a former officer of the Company on behalf of
candidates for Congressional election. In January 1997, this matter was settled
with the FEC by payment of a civil penalty which did not have a material adverse
effect on the results of operations or the financial condition of the Company.
ITEM 5. OTHER INFORMATION
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995:
Certain statements in this filing, and elsewhere (such as in other filings by
the Company with the Commission, press releases, presentations by the Company or
its management and oral statements) constitute "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors which may cause the actual results, performance or achievements of
the Company to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. Such
factors include, among other things, (i) significant variability in the
Company's quarterly revenues and results of operations as a result of variations
in the number and size of the Company's shipments in a particular quarter while
a significant percentage of its operating expenses are fixed in advance; (ii)
concentrations of revenues from a few large customers who vary from one period
to the next; (iii) the high percentage of sales to military and law enforcement
authorities whose orders are subject to extensive government regulations,
termination for a variety of factors and budgetary constraints; (iv) a
significant proportion of international sales which may be subject to political,
monetary and economic risks; (v) the relatively undeveloped nature of the market
for small and supporting arms training simulators and the need for continued
adoption of simulation training systems if the market is to expand; (vi) the
potential for increased competition; (vii) the Company's ability to attract and
retain key personnel and adapt to changing technologies; and (viii) other
factors described in the Company's Prospectus under the caption "Risk Factors".
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following documents are filed with this report as exhibits:
Exhibit
Number Description
- ------- -----------
3.01 Certificate of Elimination of Certificate of Designations of Senior
Preferred Stock of the Company dated December 20, 1996.
3.02 Certificate of Elimination of Certificate of Designations of Junior
Preferred Stock of the Company dated December 20, 1996.
3.03 Restated Certificate of Incorporation of the Company dated December 23,
1996.
10.01 Second Amendment, dated as of December 23, 1996, to Credit Agreement,
dated as of July 31, 1996, among the Company, NationsBank, N.A. (South)
and the other Lenders named therein.
10.02 Third Amendment, dated as of January 27, 1997, to Credit Agreement,
dated as of July 31, 1996, among the Company, NationsBank, N.A. (South)
and the other Lenders named therein.
10.03 Third Amendment to Lease Agreement dated January 31, 1997, between the
Company and Schneider Atlanta, L.P. (amending the Lease filed as
Exhibit 10.08 to the Registration Statement on Form S-1, No. 333-13105,
filed by the Company with the Commission under the Securities Act of
1933).
11.01 Statement regarding computation of net income per common share.
27.01 Financial Data Schedule.
(b) No reports on Form 8-K were filed during the quarter ended December 31,
1996.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DATED: February 13, 1997
FIREARMS TRAINING SYSTEMS, INC.
(Registrant)
\s\ Peter A. Marino
-------------------------------------------
Peter A. Marino
President and Chief Executive Officer
\s\ David A. Apseloff
-------------------------------------------
David A. Apseloff
Chief Financial Officer, Treasurer and
Assistant Secretary (Principal Financial
and Accounting Officer)
15
<PAGE> 16
EXHIBIT INDEX
Exhibit
Number Description
- ------- -----------
3.01 Certificate of Elimination of Certificate of Designations of Senior
Preferred Stock of the Company dated December 20, 1996.
3.02 Certificate of Elimination of Certificate of Designations of Junior
Preferred Stock of the Company dated December 20, 1996.
3.03 Restated Certificate of Incorporation of the Company dated December 23,
1996.
10.01 Second Amendment, dated as of December 23, 1996, to Credit Agreement,
dated as of July 31, 1996, among the Company, NationsBank, N.A. (South)
and the other Lenders named therein.
10.02 Third Amendment, dated as of January 27, 1997, to Credit Agreement,
dated as of July 31, 1996, among the Company, NationsBank, N.A. (South)
and the other Lenders named therein.
10.03 Third Amendment to Lease Agreement dated January 31, 1997, between the
Company and Schneider Atlanta, L.P. (amending the Lease filed as
Exhibit 10.08 to the Registration Statement on Form S-1, No. 333-13105,
filed by the Company with the Commission under the Securities Act of
1933).
11.01 Statement regarding computation of net income per common share.
27.01 Financial Data Schedule.
<PAGE> 1
EXHIBIT 3.01
CERTIFICATE OF ELIMINATION
OF
CERTIFICATE OF DESIGNATIONS
OF
SENIOR PREFERRED STOCK
OF
FIREARMS TRAINING SYSTEMS, INC.
Pursuant to Section 151 of the General
Corporation Law of the State of Delaware
Firearms Training Systems, Inc. (the "Corporation"), a corporation
organized and existing under the General Corporation Law of the State of
Delaware (the "DCGL"), hereby certifies as follows:
FIRST: The Certificate of Incorporation, as amended, of the Corporation
authorizes the issuance of up to 200,000 shares of Preferred Stock, par value
$.10 per share (the "Preferred Stock") in one or more series pursuant to a
resolution or resolutions providing for such issuance adopted by the Board of
Directors, and further authorized the Board of Directors of the Corporation to
(i) determine or alter the voting powers, full or limited, and other rights,
preferences, privileges and restrictions granted to or imposed upon any wholly
unissued series of Preferred Stock, (ii) fix the number of shares of any series
of Preferred Stock and the designation of any such series of Preferred Stock and
(iii) within the limits and restrictions stated in any resolution or resolutions
of the Board of Directors of the Corporation originally fixing the number of
shares constituting any wholly unissued series of Preferred Stock, increase or
decrease (but not below the number of shares of any such series then
outstanding) the number of shares of any such series then outstanding) the
number of shares of any such series subsequent to the issuance of shares of such
series.
SECOND: On July 31, 1996, the Board of Directors of the Corporation
adopted a resolution authorizing the creation and issuance of a series of said
Preferred Stock to be known as Senior Preferred Stock.
THIRD: On December 13, 1996, the Board of Directors of the Corporation
adopted the following resolution, eliminating from the Certificate of
Incorporation the resolution
<PAGE> 2
previously adopted by the Board of Directors on July 31, 1996, which authorized
the creation and issuance of a series of said Preferred Stock to be known as
Senior Preferred Stock, as follows:
RESOLVED, that pursuant to the authority vested in the Board of
Directors of the Corporation in accordance with the provisions of its
Certificate of Incorporation, as amended, the series of Preferred Stock of the
Corporation, known as Senior Preferred Stock, be, and hereby is, eliminated, and
that the designation and amount thereof and the voting powers, full or limited,
and other rights, preferences, privileges and restrictions granted to or imposed
upon such series of Preferred Stock be eliminated accordingly;
RESOLVED, that no shares of the Senior Preferred Stock have been issued
and therefore none of the authorized shares of Senior Preferred Stock are
presently outstanding;
RESOLVED, that none of such shares shall be issued subject to the
Certificate of Designations filed on August 5, 1996 by the Company with respect
to such Senior Preferred Shares; and
RESOLVED, that in accordance with Section 151 of the General
Corporation Law of the State of Delaware, the Certificate of Incorporation be
amended to eliminate all reference to the Series of Preferred Stock known as
Senior Preferred Stock.
IN WITNESS WHERE OF, the Corporation has caused this Certificate to be
signed in its name and on its behalf and attested on this 13th day of December,
1996 by duly authorized officers of the Corporation.
FIREARMS TRAINING SYSTEMS, INC.
By: /s/ Peter A. Marino
-------------------------------------
Name: Peter A. Marino
Title: President and Chief Executive Officer
ATTEST:
By: /s/ David A. Apseloff
-------------------------------------
Name: David A. Apseloff
Title: Assistant Secretary
-2-
<PAGE> 1
EXHIBIT 3.02
CERTIFICATE OF ELIMINATION
OF
CERTIFICATE OF DESIGNATIONS
OF
SENIOR PREFERRED STOCK
OF
FIREARMS TRAINING SYSTEMS, INC.
Pursuant to Section 151 of the General
Corporation Law of the State of Delaware
Firearms Training Systems, Inc. (the "Corporation"), a corporation
organized and existing under the General Corporation Law of the State of
Delaware (the "DCGL"), hereby certifies as follows:
FIRST: The Certificate of Incorporation, as amended, of the Corporation
authorizes the issuance of up to 200,000 shares of Preferred Stock, par value
$.10 per share (the "Preferred Stock") in one or more series pursuant to a
resolution or resolutions providing for such issuance adopted by the Board of
Directors, and further authorized the Board of Directors of the Corporation to
(i) determine or alter the voting powers, full or limited, and other rights,
preferences, privileges and restrictions granted to or imposed upon any wholly
unissued series of Preferred Stock, (ii) fix the number of shares of any series
of Preferred Stock and the designation of any such series of Preferred Stock and
(iii) within the limits and restrictions stated in any resolution or resolutions
of the Board of Directors of the Corporation originally fixing the number of
shares constituting any wholly unissued series of Preferred Stock, increase or
decrease (but not below the number of shares of any such series then
outstanding) the number of shares of any such series then outstanding) the
number of shares of any such series subsequent to the issuance of shares of such
series.
SECOND: On July 31, 1996, the Board of Directors of the Corporation
adopted a resolution authorizing the creation and issuance of a series of said
Preferred Stock to be known as Senior Preferred Stock.
THIRD: On December 13, 1996, the Board of Directors of the Corporation
adopted the following resolution, eliminating from the Certificate of
Incorporation the resolution previously
<PAGE> 2
adopted by the Board of Directors on July 31, 1996, which authorized the
creation and issuance of a series of said Preferred Stock to be known as Senior
Preferred Stock, as follows:
RESOLVED, that pursuant to the authority vested in the Board of
Directors of the Corporation in accordance with the provisions of its
Certificate of Incorporation, as amended, the series of Preferred Stock of the
Corporation, known as Senior Preferred Stock, be, and hereby is, eliminated, and
that the designation and amount thereof and the voting powers, full or limited,
and other rights, preferences, privileges and restrictions granted to or imposed
upon such series of Preferred Stock be eliminated accordingly;
RESOLVED, that no shares of the Senior Preferred Stock have been issued
and therefore none of the authorized shares of Senior Preferred Stock are
presently outstanding;
RESOLVED, that none of such shares shall be issued subject to the
Certificate of Designations filed on August 5, 1996 by the Company with respect
to such Senior Preferred Shares; and
RESOLVED, that in accordance with Section 151 of the General
Corporation Law of the State of Delaware, the Certificate of Incorporation be
amended to eliminate all reference to the Series of Preferred Stock known as
Senior Preferred Stock.
IN WITNESS WHERE OF, the Corporation has caused this Certificate to be
signed in its name and on its behalf and attested on this 13th day of December,
1996 by duly authorized officers of the Corporation.
FIREARMS TRAINING SYSTEMS, INC.
By: /s/ Peter A. Marino
--------------------------------------
Name: Peter A. Marino
Title: President and Chief Executive Officer
ATTEST:
By: /s/ David A. Apseloff
--------------------------------
Name: David A. Apseloff
Title: Assistant Secretary
-2-
<PAGE> 1
EXHIBIT 3.03
RESTATED
CERTIFICATE OF INCORPORATION
OF
FIREARMS TRAINING SYSTEMS, INC.
PURSUANT TO SECTION 245(C) OF THE GENERAL
CORPORATION LAW OF THE STATE OF DELAWARE
FIREARMS TRAINING SYSTEMS, INC., (the "Corporation"), a corporation
organized and existing under the General Corporation Law of the State of
Delaware, does hereby cause this Restated Certificate of Incorporation to be
filed, which certificate restates and integrates and does not further amend the
provisions of the Corporation's Certificate of Incorporation as heretofore
amended or supplemented, and says that there is no discrepancy between those
provisions and the provisions of the restated certificate.
FIRST: The name of the corporation (hereinafter called the
"corporation") is FIREARMS TRAINING SYSTEMS, INC.
SECOND: The address, including street, number, city and county of the
registered office of the corporation in the state of Delaware is 100 West Tenth
Street, City of Wilmington, County of New Castle; and the name of the registered
agent of the corporation in the State of Delaware at such address is the
Corporation Trust Company.
THIRD: The nature of the business and of the purposes to be conducted
and promoted by the corporation is to engage in any lawful act or activity for
which corporations may be organized under the General Corporation Law of the
State of Delaware.
FOURTH: The corporation is authorized to issue three classes of shares
to be designated respectively as Preferred Stock, Class A Common Stock and Class
B Nonvoting Common Stock. The total number of shares of Preferred Stock the
corporation shall have authority to issue shall be 200,000, $.10 par value, and
the total number of shares of Class A Common Stock the corporation shall have
the authority to issue shall be 68,060,000, $.000006 par value, and the total
number of shares of Class B Non-voting Common Stock the corporation shall have
the authority to issue shall be 2,200,000, $.000006 par value.
Each holder of Class A Common Stock shall be entitled to one vote for
each share held of record on all matters on which stockholders generally are
entitled to vote, and holders of Class B Non-voting Common Stock shall have and
possess no voting rights whatsoever except as may be explicitly imposed by
statute in particular situations.
Each and every share of Class A Common Stock and Class B Non-voting
Common Stock shall be in every respect identical and entitled to share and share
alike without preference or discrimination in all rights, advantages, benefits,
privileges, dividends, rights on distribution and winding up except as to voting
powers which as aforementioned shall be vested in the holders of the Class A
Common Stock.
Each holder of Class B Non-voting Common Stock is entitled to convert
at the holder's election and at any time any or all of such holder's Class B
Non-voting Common
<PAGE> 2
Stock into shares of Class A Common Stock at the rate of one share of Class B
Non-voting Common Stock for one share of Class A Common Stock.
The Preferred Stock may be issued from time to time in one or more
series pursuant to a resolution or resolutions providing for such issue duly
adopted by the Board of Directors (authority to do so being hereby expressly
vested in the Board). The Board of Directors is further authorized to determine
or alter the voting powers, full or limited, and other rights, preferences,
privileges and restrictions granted to or imposed upon any wholly unissued
series of Preferred Stock and to fix the number of shares of any series of
Preferred Stock and the designation of any such series of Preferred Stock. The
Board of Directors, within the limits and restrictions stated in any resolution
or resolutions of the Board of Directors originally fixing the number of shares
constituting any series of Preferred Stock, may increase or decrease (but not
below the number of shares of any such series then outstanding) the number of
shares of any such series subsequent to the issuance of shares of such series.
On November 1, 1996, (i) each share of Class A Common Stock, par value
$.00001 per share ("Existing Common Stock"), issued and outstanding at such time
shall be changed into and become, without further stockholder action, 1.66
shares of Class A Common Stock, par value $.000006 per share ("New Class A
Common Stock") and (ii) existing certificates representing shares of Existing
Common Stock shall thereupon and thereafter represent the same number of shares
of New Class A Common Stock and certificates evidencing additional shares of the
New Class A Common Stock reflecting the additional whole shares of New Class A
Common Stock issuable as a result of the 1.66 for one stock split and cash in
lieu of any fractional shares resulting from such split at the rate of $3.25 per
share shall be distributed as promptly as practicable to the stockholders of
record after the close of business on November 1, 1996.
FIFTH: The name and mailing address of the incorporator are as follows:
John W. Roberts
Roberts & Cousins, P.C.
3001 Summer Street
P.O. Box 3860
Stamford, CT 06905
SIXTH: The corporation shall have perpetual existence.
SEVENTH: After the adoption of the initial by-laws of the corporation
by the incorporator, and thereafter, the Board of Directors is expressly
authorized to make, alter and repeal the by-laws, which authorization shall not
divest or limit the power of the stockholders to adopt, amend or repeal the
by-laws.
EIGHTH: The Board of Directors of the corporation is hereby divided
into three (3) classes designated Class I, Class II and Class III, with every
director initially designated to a class. The terms of office of the directors
of each class shall expire in successive years, and thereafter directors in each
class shall be elected for a term of three
<PAGE> 3
years, so that in each year the term of office of the directors of one class
shall expire. The initial term of each office of each Class I director shall
expire on the day of the next annual meeting of stockholders at which Directors
are elected to this Board, the initial term of office of each Class II director
shall expire at the annual meeting of stockholders held one year thereafter, and
the initial term of office of each Class III director shall expire at the annual
meeting of stockholders held two years thereafter. If the number of directors is
changed, any increase or decrease shall be apportioned among the classes so as
to maintain or attain, if possible an equal number of directors in each class,
but in no case will a decrease in the number of directors shorten the term of
any incumbent director. If such equality is not possible, the increase or
decrease shall be apportioned among the classes in such a way that the
difference in the number of directors in any two classes shall not exceed one.
Elections of directors need not be by written ballot unless the by-laws of the
corporation shall so provide.
NINTH: The books of the corporation may be kept outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the by-laws of the corporation.
TENTH: The corporation reserves the right to amend, alter, change or
repeal any provision contained in this certificate of incorporation in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
ELEVENTH: No director shall be personally liable to the corporation or
any of its stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability (a) for any breach of the director's duty of
loyalty to the corporation or its stockholders, (b) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (c) pursuant to Section 174 of the Delaware General Corporation Law, or (d)
for any transaction from which the director derived an improper personal
benefit. Any repeal or modification of this Article ELEVENTH by the stockholders
of the corporation shall not adversely affect any right or protection of a
director of the corporation existing at the time of such repeal or modification
with respect to acts or omissions occurring prior to such repeal or
modification.
The corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative, by
reason of the fact that he or she is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts in connection with such action, suit or
proceeding, in accordance with the laws of the State of Delaware, and to the
full extent permitted by such laws except as the by-laws of the corporation may
otherwise provide. Such indemnification shall not be deemed exclusive of any
other rights to which those seeking indemnification may be entitled under any
by-law, agreement, vote of stockholders or disinterested directors or otherwise,
including insurance purchased and maintained by the corporation, both as to
action in his or her official capacity and as to action in another capacity
while holding such office, and shall continue as to a person who has ceased to
be a
<PAGE> 4
director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.
TWELFTH: In accordance with Section 203(b)(3) of the General
Corporation Law of Delaware, the restrictions of Section 203 of the General
Corporation Law of Delaware, which pertain to business combinations with
interested stockholders and related matters, shall not apply to the corporation
or to its interested stockholders (as defined in the General Corporation Law of
Delaware).
IN WITNESS WHEREOF, Firearms Training Systems, Inc. has caused this
Certificate to be signed by Peter A. Marino, its President and Chief Executive
Officer and attested to by David A. Apseloff, its Assistant Secretary, this
23rd day of December, 1996.
Firearms Training Systems, Inc.
By: /s/ Peter A. Marino
---------------------------------
Name: Peter A. Marino
Title: President and Chief
Executive Officer
ATTEST:
By: /s/ David A. Apseloff
---------------------------------
Name: David A. Apseloff
Title: Assistant Secretary
<PAGE> 1
EXHIBIT 10.01
EXECUTION COPY
SECOND AMENDMENT dated as of December 23, 1996 (this
"Second Amendment"), to the Credit Agreement dated as of July
31, 1996 (the "Credit Agreement"), among Firearms Training
Systems, Inc., a Delaware corporation ("FATS"), the Lenders
(as defined therein) and NationsBank, N.A. (South), as Agent,
Swingline Lender and Issuing Bank (each as defined therein).
The parties hereto have agreed, subject to the terms and conditions
hereof, to amend the Credit Agreement as provided herein.
Capitalized terms used and not otherwise defined herein shall have the
meanings assigned to such terms in the Credit Agreement (the Credit Agreement,
as amended by, and together with, this Second Amendment, and as hereinafter
amended, modified, extended or restated from time to time, being called the
"Amended Agreement").
Accordingly, the parties hereto hereby agree as follows:
SECTION 1.01. Amendments to Section 1.01. (a) The definition of
"Additional Drop Down Margin" in Section 1.01 of the Credit Agreement is hereby
amended by deleting the date "January 1, 1997" in the second line thereof and
substituting the date "February 15, 1997" in lieu thereof.
(b) The definition of "Borrower" in Section 1.01 of the Credit
Agreement is hereby amended by inserting the following phrase in the first line
thereof between the word "the" and the word "Permitted": "contribution of
substantially all of the assets and liabilities of FATS to the Drop Down
Subsidiary in connection with the".
(c) The definition of "Excess Cash Flow" in Section 1.01 is hereby
amended by inserting the following phrase in the next to last line thereof
between the word "redrawn" and the comma immediately following such word: "and,
in the case of any mandatory prepayment made during such period, only to the
extent that the Net Cash Proceeds of the Prepayment Event giving rise to such
prepayment are included in EBITDA for such period".
(d) The definition of "Permitted Drop Down Transaction" in Section 1.01
of the Credit Agreement is hereby amended by deleting clause (i) of the proviso
thereto and substituting therefor the following:
"(i)(A) prior to such contribution of assets and liabilities to the
Drop Down Subsidiary, the Agent shall be satisfied that the U.S.
Government Department of Defense is willing to enter into a novation
agreement with FATS and the Drop Down Subsidiary with respect to any
Material Contracts for which such novation is necessary or desirable
and (B) after such contribution of assets and liabilities but prior to
February 15, 1997, such novation agreement shall be entered into and
delivered by FATS and the U.S. Government Department of Defense,".
<PAGE> 2
SECTION 1.02. Department of Defense Novation. Based on the memorandum
to the Agent dated December 13, 1996, from Venable, Baetjer, Howard & Civiletti,
counsel to the Company, a copy of which is attached hereto as Annex A, the Agent
hereby advises the Borrower that the Agent is satisfied that the U.S. Government
Department of Defense is willing to enter into a novation agreement with FATS
and the Drop Down Subsidiary with respect to any Material Contracts for which
such novation is necessary or desirable, and the Lenders hereby authorize the
Agent to so advise the Borrower.
SECTION 1.03. Representations and Warranties. The Borrower hereby
represents and warrants to the Agent and the Lenders, as follows:
(a) The representations and warranties set forth in Article
III of the Amended Agreement and the representations and warranties of
the Borrower and the other Loan Parties set forth in the other Loan
Documents are true and correct in all material respects on and as of
the date hereof and on and as of the Second Amendment Effective Date
(as defined below) with the same effect as though made on and as of the
date hereof or the Second Amendment Effective Date, as the case may be,
except to the extent such representations and warranties expressly
relate to an earlier date (in which case such representations and
warranties are true and correct in all material respects on and as of
such earlier date).
(b) On the date hereof and on the Second Amendment Effective
Date, no Default or Event of Default has occurred and is continuing.
(c) The execution, delivery and performance by the Borrower of
this Second Amendment have been duly authorized by the Borrower.
(d) This Second Amendment constitutes the legal, valid and
binding obligation of the Borrower, enforceable against it in
accordance with its terms.
(e) The execution, delivery and performance by the Borrower of
this Second Amendment will not (i) violate, (A) any provision of law,
statute, rule or regulation, (B) any provision of the certificate of
incorporation or by-laws of the Borrower, (C) any order of any
Governmental Authority or (D) any provision of any indenture, agreement
or other instrument to which the Borrower or any of the Loan Parties is
a party or by which any of them or any of their property is or may be
bound, (ii) be in conflict with, result in a breach of or constitute
(alone or with notice or lapse of time or both) a default or give rise
to increased, additional, accelerated or guaranteed rights of any
person under any such indenture, agreement or other instrument or (iii)
result in the creation or imposition of any Lien upon or with respect
to any property or assets now owned or hereafter acquired by the
Borrower or any of the other Loan Parties.
SECTION 1.04. Effectiveness. This Second Amendment shall become
effective as to the Lenders only upon satisfaction of the following conditions
precedent (the first date upon which each such condition has been satisfied
being herein called the "Second Amendment Effective Date"):
2
<PAGE> 3
(a) The Agent shall have received duly executed counterparts
of this Second Amendment which, when taken together, bear the
authorized signatures of the Borrower and the Lenders.
(b) The representations and warranties set forth in Section
1.03 shall be true and correct on and as of the Second Amendment
Effective Date.
(c) The Lenders shall have received such other documents,
legal opinions, instruments and certificates as they shall reasonably
request and such other documents, legal opinions, instruments and
certificates shall be satisfactory in form and substance to the Lenders
and their counsel. All corporate and other proceedings taken or to be
taken in connection with this Second Amendment and all documents
incidental thereto, whether or not referred to herein, shall be
satisfactory in form and substance to the Lenders and their counsel.
SECTION 1.05. APPLICABLE LAW. THIS SECOND AMENDMENT SHALL BE CONSTRUED
IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.
SECTION 1.06. Expenses. The Borrower shall pay all reasonable
out-of-pocket expenses incurred by the Agent and the Lenders in connection with
the preparation, negotiation, execution, delivery and enforcement of this Second
Amendment, including, but not limited to, the reasonable fees and disbursements
of counsel. The agreement set forth in this Section 1.06 shall survive the
termination of this Second Amendment and the Amended Agreement.
SECTION 1.07. Counterparts. This Second Amendment may be executed in
any number of counterparts, each of which shall constitute an original but all
of which when taken together shall constitute but one agreement.
SECTION 1.08. Credit Agreement. Except as expressly set forth herein,
the amendments provided herein shall not by implication or otherwise limit,
constitute a waiver of, or otherwise affect the rights and remedies of the
Lenders, the Agent or the other Secured Parties under the Amended Agreement or
any other Loan Document, nor shall they constitute a waiver of any Default or
Event of Default, nor shall they alter, modify, amend or in any way affect any
of the terms, conditions, obligations, covenants or agreements contained in the
Amended Agreement or any other Loan Document. Each of the amendments provided
herein shall apply and be effective only with respect to the provisions of the
Amended Agreement specifically referred to by such amendment. Except as
expressly amended herein, the Amended Agreement shall continue in full force and
effect in accordance with the provisions thereof. As used in the Amended
Agreement, the terms "Agreement", "herein", "hereinafter", "hereunder", "hereto"
and words of similar import shall mean, from and after the date hereof, the
Amended Agreement.
3
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have caused this Second
Amendment to be duly executed by their duly authorized officers, all as of the
date first above written.
FIREARMS TRAINING SYSTEMS, INC.
By: /s/ David A. Apseloff
----------------------------------------
Name: David A. Apseloff
Title: Chief Financial Officer
NATIONSBANK, N.A. (SOUTH), as Agent, Issuing
Bank and Swingline Lender and as a Lender
By: /s/ Greg McCrery
----------------------------------------
Name: Greg McCrery
Title: Vice President
FIRST BANK NATIONAL ASSOCIATION
By: /s/ Mark R. Olman
----------------------------------------
Name: Mark R. Olman
Title: Vice President
FIRST SOURCE FINANCIAL LLP,
by First Source Financial, Inc., as
Agent/Manager
By: /s/ Gary L. Francis
----------------------------------------
Name: Gary L. Francis
Title: Senior Vice President
BHF-BANK AKTIENGESELLSCHAFT
By: /s/ Perry Forrest
----------------------------------------
Name: Perry Forrest
Title: Vice President
By: /s/ Thomas J. Scifo
----------------------------------------
Name: Thomas J. Scifo
Title: Assist. Vice President
CREDITANSTALT CORPORATE FINANCE, INC.
By: /s/ Carl G. Drake
----------------------------------------
Name: Carl G. Drake
Title: Senior Associate
By: /s/ Robert M. Biringer
----------------------------------------
Name: Robert M. Biringer
Title: Executive Vice President
<PAGE> 1
EXHIBIT 10.02
EXECUTION COPY
THIRD AMENDMENT dated as of January 27, 1997 (this "Third
Amendment"), to the Credit Agreement dated as of July 31, 1996, as
amended (the "Credit Agreement"), among Firearms Training Systems,
Inc. (the "Borrower"), the lenders listed on the signature pages
thereto (the "Lenders") and NationsBank, N.A. (South), as agent for
the Lenders (in such capacity, the "Agent") and as issuing bank (in
such capacity, the "Issuing Bank").
The parties hereto have agreed, subject to the terms and conditions
hereof, to amend the Credit Agreement as provided herein.
Capitalized terms used and not otherwise defined herein shall have the
meanings assigned to such terms in the Credit Agreement (the Credit Agreement,
as amended by, and together with, this Third Amendment, and as hereinafter
amended, modified, extended or restated from time to time, being called the
"Amended Agreement").
Accordingly, the parties hereto hereby agree as follows:
SECTION 1.01. Amendments to Section 5.09. (a) The number "180" in the
first line of Section 5.09 is hereby deleted and the number "210" is hereby
substituted in lieu thereof.
(b) The principal amount of "$30,000,000" in the sixth line of Section
5.09 is hereby deleted and the principal amount of "$20,000,000" is hereby
substituted in lieu thereof.
SECTION 1.02. Representations and Warranties. The Borrower hereby
represents and warrants to the Agent and the Lenders, as follows:
(a) The representations and warranties set forth in Article III
of the Amended Agreement, and in each other Loan Document,
are true and correct in all material respects on and as of
the date hereof and on and as of the Third Amendment
Effective Date (as defined below) with the same effect as
if made on and as of the date hereof or the Third
Amendment Effective Date, as the case may be, except to the
extent such representations and warranties expressly relate
solely to an earlier date.
(b) Each of the Borrower and the other Loan Parties is in
compliance with all the terms and conditions of the
Amended Agreement and the other Loan Documents on its part
to be observed or performed and no Default or Event of
Default has occurred or is continuing under the Amended
Agreement.
(c) The execution, delivery and performance by the Borrower of
this Third Amendment have been duly authorized by the
Borrower.
<PAGE> 2
(d) This Third Amendment constitutes the legal, valid and
binding obligation of the Borrower, enforceable against it
in accordance with its terms.
(e) The execution, delivery and performance by the Borrower
of this Third Amendment (i) do not conflict with or
violate (A) any provision of law, statute, rule or
regulation, or of the certificate of incorporation or
by-laws of the Borrower, (B) any order of any Governmental
Authority or (C) any provision of any indenture, agreement
or other instrument to which the Borrower is a party or by
which it or any of its property may be bound and (ii) do
not require any consents under, result in a breach of or
constitute (with notice or lapse of time or both) a
default under any such indenture, agreement or instrument.
SECTION 1.03. Effectiveness. This Third Amendment shall become
effective only upon satisfaction of the following conditions precedent (the
first date upon which each such condition has been satisfied being herein called
the "Third Amendment Effective Date"):
(a) The Agent shall have received duly executed counterparts of
this Third Amendment which, when taken together, bear the
authorized signatures of the Borrower and the Required
Lenders.
(b) The Required Lenders shall be satisfied that the
representations and warranties set forth in Section 1.02
are true and correct on and as of the Third Amendment
Effective Date and that no Default or Event of Default has
occurred or is continuing.
(c) There shall not be any action pending or any judgment,
order or decree in effect which, in the judgment of the
Required Lenders or their counsel, is likely to restrain,
prevent or impose materially adverse conditions upon
performance by the Borrower or any other Loan Party of its
obligations under the Loan Documents.
(d) The Required Lenders shall have received such other
documents, legal opinions, instruments and certificates as
they shall reasonably request and such other documents,
legal opinions, instruments and certificates shall be
satisfactory in form and substance to the Required Lenders
and their counsel. All corporate and other proceedings
taken or to be taken in connection with this Third
Amendment and all documents incidental thereto, whether or
not referred to herein, shall be satisfactory in form and
substance to the Required Lenders and their counsel.
SECTION 1.04. APPLICABLE LAW. THIS THIRD AMENDMENT SHALL BE GOVERNED
BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, EXCEPT
TO THE EXTENT THAT THE FEDERAL LAWS OF THE UNITED STATES OF AMERICA MAY APPLY.
SECTION 1.05. Expenses. The Borrower shall pay all reasonable
out-of-pocket expenses incurred by the Agent and the Required Lenders in
connection with the preparation, negotiation, execution, delivery and
enforcement of this Third Amendment, including, but not limited to, the
reasonable fees and disbursements of counsel. The agreement set forth in this
Section 1.05 shall survive the termination of this Third Amendment and the
Amended Agreement.
<PAGE> 3
SECTION 1.06. Counterparts. This Third Amendment may be executed in any
number of counterparts, each of which shall constitute an original but all of
which when taken together shall constitute but one agreement.
SECTION 1.07. Credit Agreement. Except as expressly set forth herein,
the amendments provided herein shall not by implication or otherwise limit,
constitute a waiver of, or otherwise affect the rights and remedies of the
Lenders, the Agent or the other Secured Parties under the Amended Agreement or
any other Loan Document, nor shall they constitute a waiver of any Default or
Event of Default, nor shall they alter, modify, amend or in any way affect any
of the terms, conditions, obligations, covenants or agreements contained in the
Amended Agreement or any other Loan Document. Each of the amendments provided
herein shall apply and be effective only with respect to the provisions of the
Amended Agreement specifically referred to by such amendment. Except as
expressly amended herein, the Amended Agreement shall continue in full force and
effect in accordance with the provisions thereof. As used in the Amended
Agreement, the terms "Agreement", "herein", "hereinafter", "hereunder", "hereto"
and words of similar import shall mean, from and after the date hereof, the
Amended Agreement.
- 3 -
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have caused this Third Amendment
to be duly executed by their duly authorized officers, all as of the date first
above written.
FIREARMS TRAINING SYSTEMS, INC.,
as Borrower
By: /s/ David A. Apseloff
--------------------------------
Name: David A. Apseloff
Title: Chief Financial Officer
NATIONSBANK, N.A. (SOUTH), as Issuing
Bank, Swingline Lender and individually
as a Lender
By: /s/ Greg McCrery
--------------------------------
Name: Greg McCrery
Title: Vice President
FIRST BANK NATIONAL ASSOCIATION, as a
Lender
By: /s/ Mark R. Olman
--------------------------------
Name: Mark R. Olman
Title: Vice President
FIRST SOURCE FINANCIAL LLP, as a Lender,
by First Source Financial, Inc., as
Agent/Manager
By: /s/ Gary L. Francis
--------------------------------
Name: Gary L. Francis
Title: Senior Vice President
BHF-BANK AKTIENGESELLSCHAFT, as a
Lender
By: /s/ Thomas J. Leissl
--------------------------------
Name: Thomas J. Leissl
Title: Vice President
By: /s/ Robert Svelzvhotz
--------------------------------
- 4 -
<PAGE> 5
Name: Robert Svelzvhotz
Title: Senior Vice President
CREDITANSTALT CORPORATE FINANCE,
INC., as a Lender
By: /s/ Carl G. Drake
--------------------------------
Name: Carl G. Drake
Title: Senior Associate
By: /s/ Craig Stamm
--------------------------------
Name: Craig Stamm
Title: Senior Associate
- 5 -
<PAGE> 1
EXHIBIT 10.03
THIRD AMENDMENT TO LEASE AGREEMENT
THIS THIRD AMENDMENT TO LEASE AGREEMENT (herein called the "Third
Amendment") is made and entered into this 31th day of December, 1996, but
effective as of July 1, 1996, by and between SCHNEIDER ATLANTA, L.P., a Georgia
limited partnership having an office at 3520 Piedmont Road, Suite 410, Atlanta,
Georgia 30305 (herein called "Lessor"), and FIREARMS TRAINING SYSTEMS, INC., a
Delaware corporation having an office at 7340 McGinnis Ferry Road, Suwanee,
Georgia 30174 (herein called "Lessee");
W I T N E S S E T H:
WHEREAS, Lessee and Technology Park/Atlanta, Inc. ("Original Lessor"),
a Georgia corporation and the predecessor-in-interest to Lessor, entered into
that certain Lease dated May 4, 1993 ("Original Lease"), as amended by (i) First
Amendment to Lease Agreement dated December 21, 1993 ("First Amendment"), (ii)
letter amendment from Lessee to Original Lessor dated January 6, 1995, accepted
and agreed to by Original Lessor January 24, 1995 ("Letter Amendment") and (iii)
Second Amendment to Lease Agreement dated December 21, 1995 ("Second Amendment";
the Original Lease, as amended by the First Amendment, the Letter Amendment and
the Second Amendment, hereinafter called the "Lease"), providing for the leasing
of approximately 92,792 rentable square feet within the Building (as defined in
the Original Lease) and the Building Expansion (as defined in the Second
Amendment; all terms used but not defined in this Amendment shall have the
meaning ascribed thereto in the Lease); and
WHEREAS, the Building Expansion adjoining the Building and the Interior
Improvements to the Building, contemplated by the Second Amendment, have been
substantially completed, and Lessor and Lessee desire to amend the Lease to
confirm certain particulars with respect thereto as hereinafter provided;
NOW, THEREFORE, for and in consideration of the premises, TEN DOLLARS
($10.00) paid by Lessee to Lessor and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto do
hereby agree as follows:
1. Amendments. The Lease has been and hereby is amended as follows:
<PAGE> 2
1.1 Section 2.3. In accordance with Section 45.3 of the Lease, Section
2.3 of the Lease hereby is amended to read in its entirety as follows:
2.3 Interior Improvements Reimbursement Rental
The annual interior improvements reimbursement rental (herein
called "Annual Interior Improvements Reimbursement Rental") shall be payable in
one hundred forty-two (142) monthly installments (herein called "Interior
Improvements Monthly Reimbursement Rent") payable in advance on the first day
of each and every calendar month commencing on the first day of the calendar
month in which the Interior Improvements Acceptance Date (as hereinafter
defined in Section 45.7) occurs and continuing through such one hundred
forty-second (142nd) month. For Interior Improvements Rental Lease Year 1, the
Interior Improvements Monthly Reimbursement Rent is $4,811.50 and shall be
payable monthly commencing July 1, 1996 and continuing through and including
May 1, 1997. For Interior Improvements Rental Lease Year 2, the Annual
Improvements Reimbursement Rental is $58,315.32 and the Interior Improvements
Monthly Reimbursement Rent is $4,859.61 and shall be payable monthly commencing
June 1, 1997 and continuing through and including May 1, 1998. Thereafter, the
Annual Interior Improvements Reimbursement Rental for each Interior
Improvements Rental Lease year shall be an amount equal to 101% of the Annual
Interior Improvements Reimbursement Rental for the immediately preceding
Interior Improvements Rental Lease Year, such increases being effective
commencing with the June 1 payment for each such lease year; provided, however,
that the Annual Interior Improvements Reimbursement Rental for the Interior
Improvements Rental Lease Year in which the one hundred forty-second (142nd)
payment of Interior Improvements Monthly Reimbursement Rent is due shall be
prorated by the fraction 11/12 and paid over the first eleven full calendar
months of such lease year. As used in this Section 2.3, the term "Interior
Improvements Rental Lease Year" shall mean a period of time beginning and
ending at such times as hereinafter provided, and the term "Interior
Improvements Reimbursement Rental Lease Year 1" shall mean a period of time
commencing on the Interior Improvements Acceptance Date (as hereinafter
defined) and ending on the last day of Rental lease Year 3 (as provided in
Section 2.1 above). Each succeeding Interior Improvements Rental Lease Year
shall commence on the day immediately following the last day of the immediately
preceding Interior Improvements Rental Lease Year and shall end on the day that
is the anniversary of the date on which the previous Interior Improvements
Rental Lease Year ended; provided, however, that the Interior Improvements
Rental Lease Year in which the one hundred forty-second (142nd) payment of
Interior Improvements Monthly Reimbursement Rent is due shall terminate on the
<PAGE> 3
Expiration Date. Interior Improvements Monthly Reimbursement Rent shall not be
prorated for partial months.
1.2 Section 45.7. Section 45.7 of the Lease hereby is amended to
confirm that the Expansion Commencement Date was July 1, 1996 and the Interior
Improvements Acceptance Date was July 12, 1996. All references in the Lease to
the Expansion Commencement Date shall hereafter mean and be a reference to July
1, 1996 and all references in the Lease to the Interior Improvements Acceptance
Date shall hereafter mean and be a reference to July 12, 1996.
2. Notices. The notice address for Lessor for any notices required
or permitted under the Lease shall be 3520 Piedmont Road, Suite 410, Atlanta,
Georgia 30305.
3. Ratification. Both Lessor and Lessee acknowledge and confirm that
the Lease, as amended hereby, is in full force and effect and the other party is
not in default under the Lease. This Third Amendment shall inure to the benefit
of and be binding upon the parties hereto and their respective successors and
assigns. This Third Amendment shall be governed by and construed under the laws
of the State of Georgia.
4. Counterparts. This Third Amendment may be executed in
counterparts which shall be construed together as one instrument.
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands
and seals the day and year first above written.
LESSOR:
SCHNEIDER ATLANTA, L.P., a Georgia
limited partnership
By: SA Management, Inc., a Georgia
corporation, sole general partner
By: /s/ Ralph G. Edwards, Jr.
------------------------------
Ralph G. Edwards, Jr.
Secretary
[CORPORATE SEAL]
[SIGNATURES CONTINUED ON FOLLOWING PAGE]
<PAGE> 4
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
LESSEE:
FIREARMS TRAINING SYSTEMS, INC., a
Delaware corporation
By: David Apseloff
-------------------------------
Its: Chief Financial Officer
-----------------------------
[CORPORATE SEAL]
<PAGE> 5
CONSENT OF MORTGAGEE
The undersigned, being the holder of a certain Deed to Secure Debt and
Security Agreement (the "Security Deed"), dated March 22, 1995 recorded in Deed
Book 841, page 416, Forsyth County, Georgia Records, and a certain Assignment of
Leases and Rents (the "Assignment") dated March 22, 1995, recorded in Deed Book
841, page 446, aforesaid Records, which Security Deed and Assignment encumber
and affect, inter alia, the Land and the Expansion Land (as defined in the
Lease), does hereby consent to and approve of the Third Amendment to which this
Consent is attached for all purposes under the Security Deed and the Assignment.
The undersigned hereby evidences such consent by causing its duly authorized
officers to sign, seal and deliver this Consent this 28th day of January, 1997.
Signed, sealed and delivered Landesbank Hessen - Thuringen
in the presence of: Girozentrale
____________________________ By:___________________________
Unofficial Witness Name:_________________________
Title:________________________
____________________________
Notary Public
My Commission Expires: [SEAL]
____________________________
[NOTARIAL SEAL]
<PAGE> 1
EXHIBIT 11.01
FIREARMS TRAINING SYSTEMS, INC.
STATEMENT REGARDING COMPUTATION OF NET INCOME PER COMMON SHARE
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
1996 1995 1996 1995
---- ---- ---- ----
PRIMARY AND FULLY DILUTED (1):
<S> <C> <C> <C> <C>
Weighted average number of common
shares outstanding (2) 52,148 49,800 50,585 49,800
Shares repurchased in conjunction with
the Recapitalization (3) (46,832) (46,832) (46,832) (46,832)
Shares issued in conjunction with the
Recapitalization (4) 11,165 11,165 11,165 11,165
Shares granted to management (5) 37 37 37 37
Shares purchased by management (5) 232 232 232 232
Shares issued upon assumed exercise of
outstanding warrants (6) 176 288 251 288
Shares issued upon assumed exercise of
outstanding options (7) 1,318 1,339 1,332 1,339
Weighted average common and common -------- -------- -------- --------
equivalent shares outstanding 18,244 16,029 16,770 16,029
======== ======== ======== ========
Net income $ 186 $ 6,111 $ 5,524 $ 10,073
======== ======== ======== ========
Net income per common share $ 0.01 $ 0.38 $ 0.33 $ 0.63
======== ======== ======== ========
</TABLE>
- --------
(1) Shares reflect a 100,000-for-one stock split effected in connection with
the Recapitalization and a split of 1.66-for- one in October 1996.
(2) Shares reflect the weighted average shares prior to the Recapitalization
of 49,800,000 shares and the weighted average shares from the initial
public offering in November 1996 of 6,000,000 shares.
(3) Shares were repurchased from THIN International for $171.2 million in
connection with the Recapitalization and are assumed to be outstanding
for all periods presented.
(4) Shares were issued for $36 million in connection with the
Recapitalization and are assumed to be outstanding for all periods
presented.
(5) Shares purchased by or granted to management for approximately $3.25 per
share which are assumed to be outstanding for all periods presented.
(6) Represents warrants attached to the Bridge Notes, at approximately
$0.0006 per warrant, which are assumed to be outstanding for all periods
presented through the date of the Offering, using the treasury stock
method at the initial offering price of $14 per share. These Warrants
were repurchased and retired by the Company with proceeds from the
Offering.
(7) Represents 1,738,270 stock options exercisable at approximately $3.25 per
option, which are assumed to be outstanding for all periods presented,
using the treasury stock method.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 1,479
<SECURITIES> 0
<RECEIVABLES> 14,282
<ALLOWANCES> 91
<INVENTORY> 13,869
<CURRENT-ASSETS> 33,643
<PP&E> 3,953
<DEPRECIATION> 2,087
<TOTAL-ASSETS> 39,006
<CURRENT-LIABILITIES> 14,832
<BONDS> 0
0
0
<COMMON> 112,975
<OTHER-SE> (147,229)
<TOTAL-LIABILITY-AND-EQUITY> 39,006
<SALES> 64,805
<TOTAL-REVENUES> 64,805
<CGS> 30,537
<TOTAL-COSTS> 30,537
<OTHER-EXPENSES> 15,466
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,647
<INCOME-PRETAX> 14,155
<INCOME-TAX> 5,304
<INCOME-CONTINUING> 8,851
<DISCONTINUED> 0
<EXTRAORDINARY> (3,327)
<CHANGES> 0
<NET-INCOME> 5,524
<EPS-PRIMARY> .33
<EPS-DILUTED> .33
</TABLE>
