<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
------------------------
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, 1999
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)
<TABLE>
<CAPTION>
DELAWARE 57-0777018
<S> <C>
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
7340 MCGINNIS FERRY ROAD
SUWANEE, GEORGIA 30024
(Address of principal executive offices)
TELEPHONE NUMBER (770) 813-0180
(Registrants 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 [X] No [ ]
As of February 07, 2000, there were (1) 19,072,059 shares of the
Registrant's Class A Common Stock and (2) 1,694,569 shares of the Registrant's
Class B nonvoting Common Stock outstanding.
Page 1
<PAGE> 2
FIREARMS TRAINING SYSTEMS, INC.
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page No.
--------
<S> <C> <C>
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:
Condensed Consolidated Statements of Income
Three and nine months ended December 31, 1999 and 1998 3
Condensed Consolidated Balance Sheets
December 31, 1999 and March 31, 1999 4
Condensed Consolidated Statements of Cash Flows
Nine months ended December 31, 1999 and 1998 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 15
ITEM 5. OTHER INFORMATION 16
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 17
SIGNATURES 18
</TABLE>
Page 2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FIREARMS TRAINING SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
December 31, December 31,
--------------------- ---------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues $ 9,920 $ 16,314 $ 33,444 $ 40,690
Cost of revenues 7,505 9,735 24,067 25,347
-------- -------- -------- --------
Gross profit 2,415 6,579 9,377 15,343
-------- -------- -------- --------
Operating expenses:
Selling, general and administrative
expenses 2,294 3,115 8,443 8,418
Research and development expenses 1,115 823 2,641 3,195
Depreciation and amortization 605 434 1,725 1,418
Non-recurring restructuring charge -- -- -- 870
-------- -------- -------- --------
Total operating expenses 4,014 4,372 12,809 13,901
-------- -------- -------- --------
Operating income (loss) (1,599) 2,207 (3,432) 1,442
-------- -------- -------- --------
Other expense income, net:
Interest expense, net (1,866) (1,913) (5,586) (5,306)
Other expense income, net (60) (683) (407) (959)
-------- -------- -------- --------
Total other expense, net (1,926) (2,596) (5,993) (6,265)
-------- -------- -------- --------
Loss before income taxes (3,525) (389) (9,425) (4,823)
Benefit for income taxes (1,022) (149) (3,040) (1,739)
-------- -------- -------- --------
Net loss (2,503) $ (240) $ (6,385) $ (3,084)
======== ======== ======== ========
Accretion of Preferred Stock Dividend (64) (31) (189) (31)
-------- -------- -------- --------
Net Loss Applicable to common shareholders $ (2,567) $ (271) $ (6,574) $ (3,115)
======== ======== ======== ========
Basic loss per common share $ (0.12) $ (0.01) $ (0.32) $ (0.15)
======== ======== ======== ========
Diluted loss per common share $ (0.12) $ (0.01) $ (0.32) $ (0.15)
======== ======== ======== ========
Weighted average common shares outstanding -
basic 20,767 20,696 20,753 20,678
======== ======== ======== ========
Weighted average common and common
equivalent shares outstanding - diluted 20,767 20,696 20,753 20,678
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
statements.
Page 3
<PAGE> 4
FIREARMS TRAINING SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
December, 31, March 31,
1999 1999
------------- -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,032 $ 2,805
Restricted Cash (Note 5) 825 --
Accounts receivable, net 9,162 19,116
Unbilled Receivables 7,736 4,744
Inventories 16,884 17,854
Prepaid expenses and other current assets 893 702
Deferred income taxes, net 5,316 2,107
------------- -------------
Total current assets $ 42,848 $ 47,328
Property and equipment, net 5,373 5,306
Goodwill, net 4,139 4,496
Deferred financing costs, net 2,387 2,795
Deferred income taxes 243 225
------------- -------------
$ 54,990 $ 60,150
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,988 $ 5,384
Accrued liabilities 6,347 7,500
Income taxes payable, net 2,134 345
Deferred revenue 980 1,089
Current maturities of long-term debt 9,000 6,000
------------- -------------
Total current liabilities 22,449 20,318
------------- -------------
Long-term debt, less current maturities 64,682 66,200
------------- -------------
Other noncurrent liabilities 626 172
------------- -------------
Mandatory Redeemable Preferred Stock 3,282 3,093
Stockholders' equity:
Class A common stock -- --
Class B common stock -- --
Additional paid-in-capital 114,389 114,324
Accumulated (deficit) earnings (150,250) (143,676)
Cumulative foreign currency translation adjustment (188) (281)
------------- -------------
Total stockholders' (deficit) equity (36,049) (29,633)
------------- -------------
$ 54,990 $ 60,150
============= =============
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
statements.
Page 4
<PAGE> 5
FIREARMS TRAINING SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended
December 31,
-----------------------
1999 1998
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (6,574) $ (3,084)
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 2,427 1,951
Deferred income taxes (3,209) 2,389
Employee stock compensation plan 64 87
Non-cash compensation expense 189 71
Changes in assets and liabilities:
Accounts Receivable, net 10,011 1,720
Unbilled Receivable (2,878) (2,325)
Inventories 980 721
Prepaid expenses and other current assets (103) (28)
Income taxes receivable 1,992 (2,327)
Escrow and other deposits -- 24
Accounts payable (1,468) 741
Accrued liabilities (1,429) (3,934)
Income taxes payable -- (390)
Deferred revenue (110) (6,260)
Noncurrent liabilities 454 (209)
-------- --------
Total adjustments 6,920 (7,769)
-------- --------
Net cash (used in) provided by operating activities 346 (10,853)
-------- --------
Cash flows from investing activities:
Additions to property and equipment, net (1,344) (1,505)
Additions to restricted cash (825) --
Payments for business acquisitions, net of cash acquired -- (394)
Sale of business -- 200
-------- --------
Net cash used in investing activities (2,169) (1,699)
-------- --------
Cash flows from financing activities:
Borrowings of long-term debt 3,182 12,500
Repayments of long-term debt (1,700) (3,899)
Retirement of common stock -- (75)
Deferred financing costs (294) (520)
Proceeds from sale of preferred stock -- 3,000
-------- --------
Net cash provided by financing activities 1,188 11,006
-------- --------
Effect of changes in foreign exchange rates (138) (145)
-------- --------
Net (decrease) increase in cash (773) (1,691)
Cash, beginning of period 2,805 3,395
-------- --------
Cash, end of period $ 2,032 $ 1,704
======== ========
Supplemental disclosures of cash paid for:
Interest 4,330 $ 4,614
======== ========
Income taxes $ 0 $ (1,203)
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
statements.
Page 5
<PAGE> 6
FIREARMS TRAINING SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION.
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments, consisting of normal recurring adjustments considered
necessary for a fair presentation have been included. Operating results for
the three and nine months ended December 31, 1999 are not necessarily
indicative of the results that may be expected for the year ended March 31,
2000. For further information, refer to the company's consolidated financial
statements and footnotes thereto for the year ended March 31, 1999.
2. INVENTORY.
Inventories consist primarily of simulators, computer hardware, image
projectors, and component parts. Inventories are valued at the lower of cost
(on a moving weighted actual average) or market. Cost includes materials,
labor, and manufacturing overhead. Market is defined as net realizable value.
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31, March 31,
1999 1999
------------ ---------
<S> <C> <C>
Raw Materials $ 7,757 $ 8,810
Work in Progress 7,535 7,226
Finished Goods 1,592 1,818
------------ ---------
Total Inventory $ 16,884 $ 17,854
============ =========
</TABLE>
3. COMPREHENSIVE LOSS.
Comprehensive loss for the Company consists of net loss and foreign currency
translation adjustments. Total comprehensive loss (in thousands of dollars)
was $2,764 and $273 for the three months ended December 31, 1999 and 1998,
respectively. Total comprehensive loss (in thousands of dollars) was $6,481
and $3,260 for the nine months ended December 31, 1999 and 1998.
4. TERMINATION AGREEMENT.
In September 1996, the Company entered into an employment agreement with its
president and chief executive officer. In September 1999, the officer was
terminated and in accordance with the terms of the amended agreement will
receive severance payments totaling approximately $900,000 through March
2002. The amount has been accrued and is included in accrued liabilities and
other long-term liabilities on the accompanying consolidated balance sheet.
Also, the terms of all vested options held by the officer as of his
termination date were amended to extend the exercise period until December
29, 2001. However, due to the fact that the market value of the Company's
stock was below the exercise prices of the options as of the amendment date,
no compensation expense has been recognized by the Company.
5. RESTRICTED CASH
Restricted cash represents an escrow account which has been established to
ensure contract performance by the Company under certain contracts.
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
Company's most recently filed Form 10-K.
Page 6
<PAGE> 7
RESULTS OF OPERATIONS
Three Months Ended December 31, 1999 and 1998
Revenues. Revenues decreased $6.4 million, or 39.2%, to $9.9 million for the
three months ended December 31, 1999 as compared to $16.3 million for the three
months ended December 31, 1998. Sales to U.S. military customers for the three
months ended December 31, 1999, decreased by $2.2 million, or 71.6%, to $.9
million, primarily due to decreased sales to the U.S. Marine Corps as the
Company has substantially completed deliveries under its contract with this
customer coupled with delays in shipment to the U.S. Army by the Prime
Contractor for which the Company is a major subcontractor. Sales to U.S. law
enforcement customers for the three months ended December 31, 1999 decreased by
$.3 million, or 14.7%, to $1.5 million primarily attributable to a reduction in
market area coverage caused by fewer sales representatives as a result of
company budget constraints. Sales to International customers for the three
months ended December 31, 1999 decreased by $3.7 million, or 33.8%, to $7.3
million largely due to customer concerns over liquidity and the inability to
secure certain bank guarantees necessary to fulfill contractual requirements.
Sales to U.S. Hunter/Sports customers for the three months ended December 31,
1999 decreased $228,000, or 44.3%, to $287,000 primarily attributable to a
softness in sales of Dart systems.
Cost of Revenues. Cost of revenues decreased $2.2 million, or 22.9%, to $7.5
million for the three months ended December 31, 1999 as compared to $9.7 million
for the three months ended December 31, 1998. As a percentage of revenues, cost
of revenues increased to 75.7% for the three months ended December 31, 1999 as
compared to 59.7% for the three months ended December 31, 1998. The increase in
cost of revenues as a percentage of revenues is attributable to the lower volume
of revenues available to cover the fixed portion of cost of goods sold as well
as a reflection of the increased level of price competition in the simulation
marketplace.
Gross Profit. As a result of the foregoing, gross profit decreased $4.2 million,
or 63.3%, to $2.4 million, or 24.3% of revenues, for the three months ended
December 31, 1999 as compared to $6.6 million, or 40.3% of revenues, for the
three months ended December 31, 1998.
Total Operating Expenses. Total operating expenses decreased $.4 million, or
8.2%, to $4.0 million for the three months ended December 31, 1999 as compared
to $4.4 million for the three months ended December 31, 1998. Total operating
expenses as a percentage of revenues increased to 40.5% for the three months
ended December 31, 1999 from 26.8% for the three months ended December 31, 1998.
Selling, General & Administrative ("S, G & A") expenses decreased $.7 million,
or 18.3%, to $2.9 million for the three months ended December 31, 1999 as
compared to $3.5 million for the three months ended December 31, 1998, primarily
due to continued cost reductions effort reflecting lower revenue volume.
Operating Income/(Loss). As a result of the foregoing, operating income
decreased $3.8 million, or 172.5%, to an operating loss of $1.6 million, or
16.1% of revenues, for the three months ended December 31, 1999 as compared to
$2.2 million, or 13.5% of revenues, for the three months ended December 31,
1998.
Other (Expense) Income, net. Net interest expense totaled $1.9 million, or 18.8%
of revenues for the three months ended December 31, 1999 as compared to $1.9
million, or 11.7% for the three months ended December 31, 1998. The increase in
net interest expense as a percentage of revenue is a reflection of lower sales
volume in the quarter. Other expenses, net totaled $60,000, or .6 % of revenues
for the three months ended December 31, 1999 as compared to other expense, net
of $683,000, or 4.2% for the three months ended December 31, 1998. The decrease
in other expenses, net is primarily the result of foreign currency gains
incurred due to recent fluctuations in currency exchange rates.
Provision (Benefit) for Income Taxes. The effective tax rate decreased to 29.0%
of income before income taxes for the three months ended December 31, 1999 as
compared to 38.3% of income before taxes for the three months ended December 31,
1998. The overall effective tax rate for the nine months ended December 31, 1999
decreased to 32.3% of income before income taxes as compared to 36.1% of income
before taxes for the nine months ended December 31, 1998.
Net Loss. As a result of the foregoing, the net loss as reported increased $2.3
million to a net loss of $2.5 million ($0.12 per diluted share), or (25.2%) of
revenues for the three months ended December 31, 1999 as compared to $0.3
million ($0.01 per diluted share), or (1.5%) of revenues for the three months
ended December 31, 1998.
Accretion of Preferred Stock. The expense for the accretion of the preferred
stock issued in November 1998 was a total of $64,000 for the three months ended
December 31, 1999 as compared to $31,000 for the three months ended December 31,
1998.
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<PAGE> 8
Net Loss applicable to common shareholders. The loss applicable to common
shareholders increased $2.3 million or 847.2% to $2.6 million ($0.12) or (25.9)%
of revenue. This compares to the three months ended December 31, 1998 of a loss
of $0.3 million ($0.01 per share) or (1.7%) of revenue.
Nine Months Ended December 31, 1999 and 1998
Revenues. Revenues decreased $7.3 million, or 17.8%, to $33.4 million for the
nine months ended December 31, 1999 as compared to $40.7 million for the nine
months ended December 31, 1998. Sales to U.S. military customers for the nine
months ended December 31, 1999, decreased by $3.9 million, or 51.6%, to $3.6
million, primarily due to decreased sales to the U.S. Marine Corps and the U.S.
Army. Sales to U.S. law enforcement customers for the nine months ended December
31, 1999 decreased by $2.0 million, or 31.0%, to $4.4 million primarily
attributable to a reduction in market area coverage caused by fewer sales
representatives as a result of company budget constraints. Sales to
International customers for the nine months ended December 31, 1999 decreased by
$.7 million, or 2.8%, to $24.1 million reflecting the timing of certain customer
delayed contract awards. Sales to U.S. Hunter/Sports customers for the nine
months ended December 31, 1999 decreased $0.7 million, or 35.3%, to $1.3 million
primarily attributable to reduced sales by Dart brought on by further delays in
introduction of the new DVD format systems.
Cost of Revenues. Cost of revenues decreased $1.3 million, or 5.1%, to $24.1
million for the nine months ended December 31, 1999 as compared to $25.3 million
for the nine months ended December 31, 1998. As a percentage of revenues, cost
of revenues increased to 72.0% for the nine months ended December 31, 1999 as
compared to 62.3% for the nine months ended December 30, 1998. The increase in
cost of revenues as a percentage of revenues is primarily attributable to
product mix and higher price competition.
Gross Profit. As a result of the foregoing, gross profit decreased $5.9 million,
or 38.9% to $9.4 million, or 28.0% of revenues, for the nine months ended
December 31, 1999 as compared to $15.3 million, or 37.7% of the revenues, for
the nine months ended December 31, 1998.
Total Operating Expenses. Total operating expenses decreased $1.1 million, or
7.8% to $12.8 million for the nine months ended December 31, 1999 as compared to
$13.9 million for the nine months ended December 31, 1998. Total operating
expenses as a percentage of revenues increased to 38.3% for the nine months
ended December 31, 1999 from 34.2% for the nine months ended December 31, 1998.
S, G & A expenses increased $25,000, or .3%, as compared to the 17.8% decrease
in revenue. The increase in S, G & A expenses is a combination of expenses
related to the termination agreement of the former President and CEO of
approximately $900,000 which are included in these totals (see Note 4) in Notes
to Condensed Consolidated Financial Statements offset by $875,000 cost
reductions in operating expenses.
Operating (Loss) Income. As a result of the foregoing, operating income
decreased $4.9 million, to an operating loss of $3.4 million, or 10.3% of
revenues, for the nine months ended December 31, 1999 as compared to operating
income of $1.5 million, or 3.5% of revenues, for the nine months ended December
31, 1998.
Other Expense net. Net interest expense totaled $5.9 million, or 17.9% of
revenues for the nine months ended December 31, 1999 as compared to $5.3
million, or 13.0% of revenues for the nine months ended December 31, 1998. The
increase in net interest expense is primarily the result of various amendments
to the Bank of America Credit Agreement which increased interest rates on the
company's outstanding debt. Other expenses, net totaled $407,000, or 1.2% of
revenues for the nine months ended December 31, 1999 as compared to $959,000, or
2.4% of revenues for the nine months ended December 31, 1998. The reduction in
other expenses, net is primarily the result of foreign currency gains incurred
due to fluctuations in currency exchange rates.
Provision for Income Taxes. The effective tax rate decreased to 32.3% of income
before income taxes for the nine months ended December 31, 1999 as compared to
36.1% of income before taxes for the nine months ended December 31, 1998.
Net Loss. As a result of the foregoing, the net loss as reported increased $3.3
million to a net loss $6.4 million ($0.32 per diluted share), or (19.1%) of
revenues for the nine months ended December 31, 1999 as compared to a net loss
of $3.1 million ($0.15 per diluted share), or (7.6%) of revenues for the nine
months ended December 31, 1998.
Accretion of Preferred Stock. The expense for the accretion of the preferred
stock issued in November 1998 was a total of $189,000 for the nine months ended
December 31, 1999 as compared to $31,000 for the nine months ended December
31, 1998.
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<PAGE> 9
Net Loss applicable to common shareholders. The loss applicable to common
shareholders increased $3.5 million or 111.0% to $6.6 million ($0.32 per diluted
share) or (19.7)% of revenue. This compares to the nine months ended December
31, 1998 of a loss of $3.1 million ($0.15 per diluted share) or (7.7%) of
revenue.
BACKLOG
Backlog represents firm customer orders that have been contracted for future
delivery. Accordingly, these orders have not yet been recognized as revenue, but
represent future revenue. As of December 31, 1999, the Company had a backlog of
approximately $30.3 million, comprised of $27.9 million from FATS international
customers, $.4 from Simtran's Canadian customers, $1.1 million from U.S. Law
Enforcement and $.9 million from FATS U.S. military customers. Approximately
$9.5 million of the contracted orders are scheduled for delivery during fiscal
year 2000.
U.S. ARMY EST PROCUREMENT PROCESS
The Army Engagement Skills Trainer ("EST") program contract was awarded to ECC
International during fiscal year 1999. The Company was then awarded a contract
by ECC International to be the exclusive supplier of all weapons simulators for
the EST program. The Company has begun performing under this multi-year
contract, which will not have a material effect on revenues for the fiscal year
ending March 31, 2000.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal liquidity and capital needs currently and for the near
future are to fund working capital, debt service, and capital expenditures
necessary to support its business.
The Company's primary sources of liquidity and capital resources are cash
generated from operating activities, the senior bank debt and a revolving line
of credit in the amount of $3,000,000 (the "Subsidiary Line"). Net working
capital was $20.4 million at December 31, 1999 and $27.0 million at March 31,
1999. As of November 11, 1999 the Company has no borrowing capacity under the
senior bank revolving line of credit nor the Subsidiary Line.
The Company and the Lenders have agreed that (1) the Company will seek
additional sources of new capital from all potential sources; (2) subject to
successful achievement of these efforts and continued success in new business
generation, the Lenders will postpone two installment payments on the Tranche A
loan totaling $2.8 million until March 31, 2000 as well as interest payments on
outstanding loans totaling $1.4 million until February 29, 2000 and will forbear
exercising rights and remedies until March 1, 2000 and (3) interest rates will
be increased. These agreements establish a time table for consummating an
investment with a potential investor by March 31, 2000. The Company continues to
hold discussions with a number of potential investors, but no such transaction
has been agreed to date and the Company can provide no assurances that it will
successfully complete any transaction. While the Company believes that progress
continues to be made in such discussions, the Company will likely require a
further forbearance from its lenders as to the timing of any such investment as
well as amendments addressing the issues of deferred principal and interest
payments.
The Company is subject to several business and market risks. The risks are (1)
the Company has not generated sufficient revenue or cash flow from recent
operations to adequately service the debt and fund its working capital
requirements and the expectation of future revenues or cash flow from operations
cannot be assumed; (2) the Company must obtain additional sources of capital and
achieve satisfactory amendments to its Bank of America credit agreement in order
to adequately finance its future operations; and (3) the Company must receive a
substantial amount of new contracts for product to be delivered in the remaining
quarter of the current fiscal year to maintain adequate cash flow.
Management's plans in response to the above risks are (1) the Company remains
focused on revenue maximization and has determined to place greater emphasis on
the domestic and international law enforcement business through release of new
products in this market sector; (2) the Company continues to take steps to
further reduce cost and reinforce cost control measures to assure operations are
conducted at the lowest cost possible; (3) the Company continues to aggressively
pursue third party relationships in order to obtain new sources of investment in
the company and to develop additional new revenue and cash generating
opportunities; and (4) the Company continues its
Page 9
<PAGE> 10
negotiation with the senior bank syndicate to restructure the credit facility to
allow for deferred principal and interest payments thereby redirecting cash to
fund working capital.
The Company believes that this business strategy may achieve positive operating
margins over time, provided the Company achieves the new business revenue
targets at a level necessary to meet its fixed cost obligations and continue to
service the debt. There can be no assurances that this strategy will be
successful or that the new business revenue targets can be achieved on a timely
basis.
As of December 31, 1999, the Company has borrowings of $20.7 million and had
outstanding letters of credit of approximately $1.2 million under the $22.0
million Bank of America revolving credit facility. The Company currently has
borrowings of $3.0 million under the $3.0 million Subsidiary Line. The Company
believes that the cash flow from operations may be sufficient to meet the
Company's presently anticipated working capital, capital expenditure and debt
service needs for the next fiscal year provided that the Company is able to
successfully restructure its current principal and interest payment schedule.
The Company's operating activities provided cash of $0.3 million in the nine
months ended December 31, 1999 and used cash of $10.9 million in the nine months
ended December 31, 1998. The $11.2 million increase in net cash provided by
operations was primarily due to receipt of payment of several significant
international receivables as compared to the nine months ended December 31,
1998. The increase in net cash provided by collection of receivables was also
partially offset by $2.2 million decrease in accounts payable attributable to
payments to vendors for outstanding invoices as compared to the nine months
ended December 31, 1998.
The Company's investing activities used cash of $2.2 million for the nine months
ended December 31, 1999 and $1.7 million for the nine months ended December 31,
1998. The Company's primary investing activity for the nine months ended
December 31, 1999 was capital expenditures that were for equipment used in
manufacturing, R&D, marketing demonstration activities, and to guarantee advance
payments secured by escrow accounts reflected as restricted cash on the balance
sheet.
The Company's financing activities generated cash of $1.2 million for the nine
months ended December 31, 1999. The Company's primary financing activity in the
nine month period ended December 31, 1999, was the net borrowing of $3.0 million
from its Subsidiary Line to finance the working capital needs of the Company's
operations offset by the pay down of its long term debt.
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 business purposes is likely to
be impaired; and (iii) the Company's level of indebtedness and having no further
borrowing capability under its existing credit facility could impede its ability
to perform on existing and new contracts.
Concentration of Credit Risk
At December 31, 1999, approximately $5.6 million in accounts receivable was due
from twenty-three international customers, of which approximately $0.8 million
was secured by performance letters of credit.
YEAR 2000
The Year 2000 issue, which is common to most businesses, concerns the inability
of information systems, primarily computer software programs, to properly
recognize and process date-sensitive information on and beyond January 1, 2000.
The Company believes that it has modified or replaced its affected systems. A
complete evaluation has been made on all internal systems, including items such
as voice mail, automated badge entry, email, payroll, accounting and
manufacturing. There are no known problems at this time. The Company has
completed the modifications to all of its information systems. All network
servers have been assessed and tested as Year 2000 compliant. In addition, the
Company has an ongoing policy of upgrading and testing for Year 2000 compliance,
as new software packages become available. The Company is satisfied that its
customer base is aware of the Year 2000 issue and is proactively working to
ensure that there are no problems associated with Year 2000. The Company expects
that its systems will continue to be fully operational and will not cause any
material disruptions because of Year 2000 issues. Because of the uncertainties
associated with assessing preparedness of suppliers and customers, there is a
risk of a material adverse effect on the Company's future results of operations
if these groups have not fully corrected their Year 2000 issues, if any. The
Company believes its supplier base to be fully operational and will not cause
any material disruption because of Year 2000 issues. The Company has an ongoing
process to continue evaluation of all critical systems, products, suppliers and
customers from now until the Year 2000 and beyond. The Company
Page 10
<PAGE> 11
does not expect to incur any additional costs for the Year 2000 issue. The Year
2000 issue resolution included a final re-verification test of all systems and a
contingency plan (manual backup) has been implemented and validated. The Company
does not expect the Year 2000 issue will have a material impact on the results
of operations, liquidity or consolidated financial position of the Company.
CERTAIN FORWARD LOOKING STATEMENTS
The foregoing forward-looking statements are subject to a number of factors
which could cause actual results to differ as described above and under Item 5
"Other Information". No assurance can be given that actual revenues, operating
income or net income will not be materially different than those anticipated
above.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On January 27, 1999, FATS, Inc. ("FATS"), a Company subsidiary, was sued by
Advanced Interactive Systems, Inc. for alleged infringement of a patent owned by
AIS, U.S. Patent No. 5,823,779 (the "779 Patent"). FATS filed its answer on May
21, 1999 denying infringement and counter claimed seeking declaratory judgement
that the 779 Patent is invalid , among other claims. Discovery has not yet begun
on this case. In the opinion of the Company's management, this proceeding will
not have a material adverse effect on the Company's financial position, or
results of operations.
The Company is involved in legal proceedings from time to time in the ordinary
course of its business which, in the opinion of management, will not have a
materially adverse effect on the Company's financial position, liquidity, or
results of operation.
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) the Company's ability to restructure
its credit facility and to secure additional sources of capital necessary to
support current and future operations; (ii) those described above including the
timing and size of, and the Company's success in competing for, new contracts
awarded by military and other government customers; (iii) 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; (iv) concentrations of revenues from a few large customers who
vary from one period to the next; (v) 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;
(vi) a significant proportion of international sales which may be subject to
political, monetary and economic risks; (vii) 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;
(viii) the potential for increased competition; (ix) the Company's ability to
attract and retain key personnel and adapt to changing technologies; and (x)
other factors described in the Company's Form 10-K for the fiscal year ended
March 31, 1999 under the caption Part I and in the Company's Prospectus under
the caption "Risk Factors".
Page 11
<PAGE> 12
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following documents are filed with this report as exhibits:
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -------------------------------------------------------------
<S> <C>
10.30 Sixth Amendment to the Amended and Restated Credit Agreement,
dated November 15, 1999, among the Company, Bank of America,
N.A., and the other Lenders named therein.
10.31 Seventh Amendment to the Amended and Restated Credit
Agreement, dated December 6, 1999, among the Company, Bank of
America, N.A., and the other Lenders named therein
10.32 Eighth Amendment to the Amended and Restated Credit
Agreement, dated December 31, 1999, among the Company, Bank
of America, N.A., and the other Lenders named therein
11.01 Statement regarding computation of net income per common
share.
27.01 Financial Data Schedule (For SEC use only).
</TABLE>
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 14, 2000
FIREARMS TRAINING SYSTEMS, INC.
(Registrant)
/s/ Robert F. Mecredy
-----------------------------------------------
Robert F. Mecredy
President and Chief Executive Officer
/s/ John A. Morelli
-----------------------------------------------
John A. Morelli
Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)
Page 12
<PAGE> 1
EX-10.30
SIXTH AMENDMENT TO CREDIT AGREEMENT
SIXTH AMENDMENT dated as of November 15, 1999 (this "Sixth
Amendment"), to the Amended and Restated Credit Agreement dated as of
October 15, 1997, (as amended by the First Amendment dated as of June
26, 1998, the Second Amendment dated as of November 13, 1998, the Third
Amendment dated as of March 31, 1999, the Fourth Amendment dated as of
April 30, 1999, the Fifth Amendment dated as of September 30, 1999 and
the Amended and Restated Credit Agreement as so amended being referred
to herein as the "Credit Agreement"), among Firearms Training Systems,
Inc., as Parent (the "Parent"), FATS, Inc., as Borrower (the
"Borrower"), the lenders listed on the signature pages thereto (the
"Lenders"), Bank of America, N.A., as Agent, (in such capacity, the
"Agent"), Swingline Lender and Issuing Bank.
The parties hereto have agreed, subject to the terms and conditions
hereof, to further 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 Sixth 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. Amendment to Section 2.12 (a). Section 2.12(a) of the
Credit Agreement is hereby amended by (a) inserting the following after "third
quarter, 1999" and before the comma in Section 2.12(a)(i):
"and fourth quarter, 1999"
(b) The chart in Section 2.12(a)(ii) is hereby amended by (i)
deleting the installments due on November 30, 1999 and December 31, 1999 and
(ii) deleting the amount of "$1,400,000" due on March 31, 2000 and inserting the
amount "$4,200,000" in lieu thereof.
SECTION 1.02. Forbearance. The Lenders have agreed to forebear
exercising their rights and remedies, which rights and remedies may arise as a
result of an Event of Default under the provisions of Section 7(c) of the Credit
Agreement with respect to Section 6.15 of the Credit Agreement (the "Financial
Covenants") (any such prospective Event of Default, a "Financial Covenants
Default"), against assets of the Borrower and its Subsidiaries that, pursuant to
the terms of the Loan Documents, secure the Obligations of the Borrower to the
Agent and the Lenders under the Credit Agreement and the other Loan Documents
until March 31, 2000 (the period from the Sixth Amendment Effective Date (as
defined below) to March 31, 2000 is hereafter referred to as the "Forbearance
Period") in order to give the Borrower the opportunity to negotiate in good
faith with the Lenders to achieve a modification of the Financial Covenants or a
waiver of any Financial Covenants Default or other arrangement, in any case
satisfactory to the Lenders in their sole discretion. It is understood that no
Letters of Credit shall be issued under the Credit Agreement during the
Forbearance Period. Nothing in this Section 1.02 shall imply any waiver or
release by the Agent or the Lenders of any rights or remedies to which they are
entitled under the Credit Agreement or other Loan Documents, or of the benefit
of any other terms and conditions of the Credit Agreement or other Loan
Documents other than as expressly set forth in this Section 1.02 during the
Forbearance Period. If as of March 31, 2000, each Financial Covenants Default,
if any, has not been waived in accordance with the Credit Agreement or the
Financial Covenants have not been modified to the satisfaction of Lenders in
their sole discretion, the Forbearance Period shall terminate, and the Lenders
may exercise all of their rights and remedies under the Credit Agreement and
other Loan Documents.
SECTION 1.03. Representations and Warranties. The Borrower hereby
represents and warrants to the Agents 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, including
any Schedules thereto, are true and correct in all material respects on
and as of the date hereof and on and as of the Sixth Amendment
Effective Date (as defined below) with the same effect as if made on
and as of the date hereof or the
Page 13
<PAGE> 2
Sixth 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
including, without limitation, the obligation to pay all principal and
interest due on and prior to the date hereof and no Default or Event of
Default has occurred or is continuing under the Amended Agreement,
other than the Defaults or Events of Default described in Section 1.02
hereof.
(c) The execution, delivery and performance by the Borrower of
this Sixth Amendment have been duly authorized by the Borrower.
(d) This Sixth Amendment constitutes the legal, valid and
binding obligation of the Borrower, enforceable against the Borrower in
accordance with its terms, subject to the effect of bankruptcy,
insolvency, reorganization, arrangement, moratorium, fraudulent
conveyance, voidable preference or similar laws and the application of
equitable principles generally.
(e) The execution, delivery and performance by the Borrower of
this Sixth Amendment (i) does not conflict with or violate (A) any
provision of law, statute, rule or regulation, or of the articles 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) does not require any consents
under, 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 instrument.
SECTION 1.04. Effectiveness. This Sixth 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 "Sixth Amendment Effective Date"):
(a) The Agent shall have received duly executed counterparts of
this Sixth Amendment which, when taken together, bear the authorized
signatures of the Parent, the Borrower and all the Lenders.
(b) The Lenders shall be satisfied that the representations and
warranties set forth in Section 1.03 hereof are true and correct on and
as of the Sixth Amendment Effective Date.
(c) There shall not be any action pending or any judgment,
order or decree in effect which, in the judgment of the 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 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 Sixth 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.
(e) The Agent shall have received payment of and all fees and
expenses set forth in Section 1.06.
SECTION 1.05. APPLICABLE LAW. THIS SIXTH 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 1.06. Fees and 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 Sixth
Amendment, including, but not limited to, the reasonable fees and disbursements
of counsel.
SECTION 1.07. Reporting Requirements. The Borrower will provide the
Agent, for distribution to the Lenders, with a written bi-weekly status report
on its efforts to sell the Borrower, including a list of potential acquirers,
offers made to date, pending offers and scheduled meetings relating to such
sale, except that to the extent that the Borrower has entered into
confidentiality agreements prohibiting it from disclosing to the Lenders the
name of the potential acquirer such name may be withheld from the Lenders. Any
such confidential information supplied to the Agent and Lenders will be held in
confidence by the Agent and the Lenders, except to the extent that the Agent
Page 14
<PAGE> 3
or any Lender is required by any law, regulation, legal process, legal duty or
regulatory authority to disclose such confidential information. Nothing in this
Section 1.07 shall imply any waiver or consent to sale of the Borrower or that
Lenders will consent to such sale.
SECTION 1.08. Counterparts. This Sixth 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. Delivery by
facsimile by any of the parties hereto of an executed counterpart of this Sixth
Amendment shall be as effective as an original executed counterpart hereof and
shall be deemed a representation that an original executed counterpart hereof
will be delivered, but the failure to deliver a manually executed counterpart
shall not affect the validity, enforceability or binding effect of this Sixth
Amendment.
SECTION 1.09. 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.
IN WITNESS WHEREOF, the parties hereto have caused this Sixth Amendment
to be duly executed by their duly authorized officers, all as of the date first
above written.
FIREARMS TRAINING SYSTEMS, INC.
as Parent
By:
------------------------------------------
Name:
Title:
FATS, INC.
as Borrower
By:
------------------------------------------
Name:
Title:
BANK OF AMERICA, N.A., as Agent, Swingline
Lender and Issuing Bank and individually as
a Lender
By:
------------------------------------------
Name:
Title:
U.S. BANK NATIONAL ASSOCIATION
By:
------------------------------------------
Name:
Title:
Page 15
<PAGE> 4
FIRST SOURCE FINANCIAL LLP, by First Source
Financial, Inc., as Agent/Manager
By:
-----------------------------------------
Name:
Title:
BHF (USA) CAPITAL CORPORATION
By:
-----------------------------------------
Name:
Title
BANK AUSTRIA CREDITANSTALT
CORPORATE FINANCE, INC. (FKA
CREDITANSTALT CORPORATE FINANCE, INC.)
By:
-----------------------------------------
Name:
Title:
By:
-----------------------------------------
Name:
Title:
AGREED and CONSENTED,
as of the date first above written:
DART INTERNATIONAL, INC.
By:
--------------------------------
Name:
Title:
FIREARMS TRAINING SYSTEMS, INC.
By:
-------------------------------
Name:
Title:
Page 16
<PAGE> 1
EX-10.31
SEVENTH AMENDMENT TO CREDIT AGREEMENT
SEVENTH AMENDMENT dated as of December 6, 1999 (the
"Seventh Amendment"), to the Amended and Restated Credit
Agreement dated as of October 15, 1997, (as amended by the
First Amendment dated as of June 26, 1998, the Second
Amendment dated as of November 13, 1998, the Third Amendment
dated as of March 31, 1999, the Fourth Amendment dated as of
April 30, 1999, the Fifth Amendment dated as of September 30,
1999, Sixth Amendment dated as of November 15, 1999 and the
Amended and Restated Credit Agreement as so amended being
referred to herein as the "Credit Agreement"), among Firearms
Training Systems, Inc., as Parent (the "Parent"), FATS, Inc.,
as Borrower (the "Borrower"), the lenders listed on the
signature pages thereto (the "Lenders"), Bank of America,
N.A., as Agent, (in such capacity, the "Agent"), Swingline
Lender and Issuing Bank.
The Borrower has advised the Agent that it does not have sufficient
funds to pay interest on the Loans that is due and payable on December 3, 1999
and that the failure to pay such interest would constitute an Event of Default
under the Credit Agreement. The Parent and the Borrower have requested that the
payment of past due interest on the Loans be deferred. The parties hereto have
agreed, subject to the terms and conditions hereof, to further 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 Seventh 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. Amendment to Article V. Article V of the Credit Agreement
is hereby amended by the insertion of a new Section 5.15 as follows:
SECTION 5.15. Best Efforts to Obtain New Capital. The Parent
and the Borrower shall use their best efforts to consider and evaluate
all potential sources of obtaining substantial amounts of new capital
(including, without limitation, current equity holders, private
investors, merger partners and public markets) and to negotiate with
all such sources in good faith.
SECTION 1.02. Amendment to Article VII (c). Article VII (c) of the
Credit Agreement is deleted and the following inserted in lieu thereof:
(c) default shall be made in the due observance by the
Borrower or any other Loan Party of any covenant, condition, or
agreement contained in Section 5.04, 5.05, 5.08, 5.11 or 5.15 hereof or
in Article VI;
SECTION 1.03. Amendment to Article VII. Article VII of the Credit
Agreement is hereby amended by deleting the "or" at the end of sub-Article (p),
inserting new sub-Articles (r) and (s) as follows:
(r) the Parent shall fail to enter into a binding agreement
with a third party on or before December 31, 1999, relating to the
infusion of new capital from investors or merger partners containing
terms and conditions acceptable to the Lenders in their sole and
absolute discretion; or
(s) any agreement described in sub-Article (r) above is not
consummated on or before March 15, 2000.
SECTION 1.04. Deferral of Payment of Interest Due. Notwithstanding
anything contained in the Amended Agreement or any of the other Loan Documents
to the contrary, the Deferred Payments (hereinafter defined) shall be due and
payable in full on December 31, 1999. For purposes of this Section 1.04,
"Deferred Payments" shall mean all interest and other amounts due on the Loans
which became due and payable on or before December 6, 1999 (without regard to
any period of grace, if any) and which has not been paid to the Lenders as of
the date hereof.
SECTION 1.05. Representations and Warranties. The Borrower hereby
represents and warrants to the Agents and the Lenders, as follows:
Page 17
<PAGE> 2
(a) The representations and warranties set forth in Article
III of the Amended Agreement, and in each other Loan Document,
including any Schedules thereto, are true and correct in all material
respects on and as of the date hereof and on and as of the Seventh
Amendment Effective Date (as defined below) with the same effect as if
made on and as of the date hereof or the Seventh 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
including, without limitation, the obligation to pay all principal and
interest due on and prior to the date hereof and no Default or Event of
Default has occurred or is continuing under the Amended Agreement,
other than the Defaults or Events of Default described in Section 1.02
of the Sixth Amendment.
(c) The execution, delivery and performance by the Borrower
and the Parent of this Seventh Amendment have been duly authorized by
the Borrower.
(d) This Seventh Amendment constitutes the legal, valid and
binding obligation of the Borrower, enforceable against the Borrower in
accordance with its terms, subject to the effect of bankruptcy,
insolvency, reorganization, arrangement, moratorium, fraudulent
conveyance, voidable preference or similar laws and the application of
equitable principles generally.
(e) The execution, delivery and performance by the Borrower of
this Seventh Amendment (i) does not conflict with or violate (A) any
provision of law, statute, rule or regulation, or of the articles 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) does not require any consents
under, 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 instrument.
SECTION 1.06. Effectiveness. This Seventh Amendment shall become
effective as of December 6, 1999 (the "Seventh Amendment Effective Date") upon
satisfaction of the following conditions precedent:
(a) The Agent shall have received duly executed counterparts
of this Seventh Amendment which, when taken together, bear the
authorized signatures of the Parent, the Borrower and all the Lenders.
(b) The Lenders shall be satisfied that the representations
and warranties set forth in Section 1.05 hereof are true and correct on
and as of the Seventh Amendment Effective Date.
(c) There shall not be any action pending or any judgment,
order or decree in effect which, in the judgment of the 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 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 Seventh 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.
(e) The Agent shall have received payment of and all fees and
expenses set forth in Section 1.08.
SECTION 1.07. APPLICABLE LAW. THIS SEVENTH 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 1.08. Fees and 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
Seventh Amendment, including, but not limited to, the reasonable fees and
disbursements of counsel.
Page 18
<PAGE> 3
SECTION 1.09. Counterparts. This Seventh 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. Delivery by
facsimile by any of the parties hereto of an executed counterpart of this
Seventh Amendment shall be as effective as an original executed counterpart
hereof and shall be deemed a representation that an original executed
counterpart hereof will be delivered, but the failure to deliver a manually
executed counterpart shall not affect the validity, enforceability or binding
effect of this Seventh Amendment.
SECTION 1.10. 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.
IN WITNESS WHEREOF, the parties hereto have caused this Seventh
Amendment to be duly executed by their duly authorized officers, all as of the
date first above written.
FIREARMS TRAINING SYSTEMS, INC.
as Parent
By:
------------------------------------------
Name:
Title:
FATS, INC.
as Borrower
By:
------------------------------------------
Name:
Title:
BANK OF AMERICA, N.A., as Agent, Swingline
Lender and Issuing Bank and individually as
a Lender
By:
------------------------------------------
Name:
Title:
U.S. BANK NATIONAL ASSOCIATION
By:
------------------------------------------
Name:
Title:
Page 19
<PAGE> 4
FIRST SOURCE FINANCIAL LLP, by First Source
Financial, Inc., as Agent/Manager
By:
------------------------------------------
Name:
Title:
BHF (USA) CAPITAL CORPORATION
By:
------------------------------------------
Name:
Title
BANK AUSTRIA CREDITANSTALT CORPORATE
FINANCE, INC. (FKA CREDITANSTALT CORPORATE
FINANCE, INC.)
By:
------------------------------------------
Name:
Title:
By:
------------------------------------------
Name:
Title:
AGREED and CONSENTED,
as of the date first above written:
DART INTERNATIONAL, INC.
By:
---------------------------------
Name:
Title:
FIREARMS TRAINING SYSTEMS, INC.
By:
---------------------------------
Name:
Title:
Page 20
<PAGE> 1
EX-10.32
EIGHTH AMENDMENT TO CREDIT FACILITY
EIGHTH AMENDMENT dated as of December 31, 1999 (the
"Eighth Amendment"), to the Amended and Restated Credit
Agreement dated as of October 15, 1997, (as amended by the
First Amendment dated as of June 26, 1998, the Second
Amendment dated as of November 13, 1998, the Third Amendment
dated as of March 31, 1999, the Fourth Amendment dated as of
April 30, 1999, the Fifth Amendment dated as of September 30,
1999, Sixth Amendment dated as of November 15, 1999, and
Seventh Amendment dated as of December 6, 1999 (the Amended
and Restated Credit Agreement as so amended being referred to
herein as the "Credit Agreement"), among Firearms Training
Systems, Inc., as Parent (the "Parent"), FATS, Inc., as
Borrower (the "Borrower"), the lenders listed on the signature
pages thereto (the "Lenders"), Bank of America, N.A., as
Agent, (in such capacity, the "Agent"), Swingline Lender and
Issuing Bank.
The Borrower has advised the Agent that it does not have sufficient
funds to pay all of the interest on the Loans that is due and payable on
December 31, 1999, including without limitation, the Deferred Interest (as
defined in the Seventh Amendment) and interest which has become due since
December 6, 1999. The failure to pay all of such interest would constitute an
Event of Default under the Credit Agreement. The Borrower also has advised the
Agent that it has used its best efforts to comply with Article VII, subsection
(r) of the Credit Agreement, but has failed to comply therewith. The Parent and
the Borrower have requested that a portion of interest on the Loans on December
31, 1999 in the aggregate amount of $1,402,395.89 be deferred and that relief
from Article VII, subsection (r) be granted. The parties hereto have agreed,
subject to the terms and conditions hereof, to further 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 Eighth 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. Amendment to Section 5.15. Section 5.15 of the Credit
Agreement is hereby deleted and replaced by the insertion of a new Section 5.15
as follows:
SECTION 5.15. Obtain New Capital. The Parent and the Borrower
shall:
(a) use their best efforts to consider, evaluate and
pursue all potential sources of obtaining substantial amounts
of new capital (including, without limitation, current equity
holders, private investors, merger partners and public
markets) and to negotiate with all such potential sources of
capital (the "Potential Investors") in good faith;
(b) by January 27, 2000, present term sheet(s) from
Potential Investors setting forth the available alternatives
to the Parent's Board of Directors to be approved; and
(c) by January 27, 2000, obtain the approval of the
Parent's Board of Directors to enter into a letter of intent
with the one of the Potential Investors and obtain the
commitment of the Parent's principal shareholder to support
the transaction so approved.
(d) by January 31, 2000, enter into a letter of
intent (the "Letter of Intent") with a Potential Investor to
make an investment in the Parent/Borrower on terms approved by
the Parent's Board of Directors and acceptable to the Lenders
which shall be in form and substance acceptable to the Lenders
in their sole and absolute discretion; and
(e) by February 15, 2000, enter into a binding
agreement with such Potential Investor pursuant to the Letter
of Intent, subject to normal and usual contingencies, such as
due diligence and shareholder votes, but such agreement shall
be in all respects acceptable to the Lenders in their sole and
absolute discretion.
SECTION 1.02. Amendment to Article VII. Article VII of the Credit
Agreement is hereby amended by deleting sub-Articles VII (r) and (s), inserting
the following in lieu thereof:
Page 21
<PAGE> 2
(r) the Borrower (x) receives information that the Russian
Contract has been preliminarily awarded to another bidder, or (y)
receives notification that it will not be, or likely will not be,
awarded the Russian Contract; or
(s) the agreement described in Section 5.15 (e) above is not
consummated and the investment provided thereunder made on or before
March 31, 2000.
For purposes of Sub-Article (r) above, "Russian Contract" means the
Russian Defense Force/ Defense Threat Reduction Agency RFP and the
Borrower's submission with respect thereto submitted on December 3,
1999.
SECTION 1.03. Amendment to Section 1.04 of the Seventh Amendment.
Section 1.04 of the Seventh Amendment is hereby amended to read as follows in
its entirety:
SECTION 1.04. Deferred Payments. (a) Notwithstanding anything
contained in the Amended Agreement or any of the other Loan Documents
to the contrary, the Deferred Interest Payments (hereinafter defined)
shall, subject to subsection (b) hereof, be due and payable in full on
February 29, 2000. For purposes of this Section 1.04, "Deferred
Interest Payments" shall mean all interest and other amounts due on the
Loans as listed on Schedule A-8 attached hereto.
(b) If the Borrower fails to comply with any provision of
Section 5.15 of the Amended Agreement, then, notwithstanding section
(a) above or Section 1.01 (b) of the Sixth Amendment (which amendment
deferred payment of certain principal payments of $1,400,000 each
originally due on November 30, 1999 and December 31, 1999, respectively
(the "Deferred Principal Payments")), and without prejudice to or
waiver of the Lenders rights under sub-Article (c) of Article VII of
the Amended Agreement, each of the Deferred Interest Payments and the
Deferred Principal Payments shall be due and payable on a date which is
three (3) business days after the date such compliance should have
occurred, without further notice or action of the Lenders.
SECTION 1.04. Representations and Warranties. The Borrower hereby
represents and warrants to the Agents 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,
including any Schedules thereto, are true and correct in all material
respects on and as of the date hereof and on and as of the Eighth
Amendment Effective Date (as defined below) with the same effect as if
made on and as of the date hereof or the Eighth 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
including, without limitation, the obligation to pay all principal and
interest due on and prior to the date hereof and no Default or Event of
Default has occurred or is continuing under the Amended Agreement,
other than the Defaults or Events of Default described in Section 1.02
of the Sixth Amendment.
(c) The execution, delivery and performance by the Borrower
and the Parent of this Eighth Amendment have been duly authorized by
the Borrower.
(d) This Eighth Amendment constitutes the legal, valid and
binding obligation of the Borrower, enforceable against the Borrower in
accordance with its terms, subject to the effect of bankruptcy,
insolvency, reorganization, arrangement, moratorium, fraudulent
conveyance, voidable preference or similar laws and the application of
equitable principles generally.
(e) The execution, delivery and performance by the Borrower of
this Eighth Amendment (i) does not conflict with or violate (A) any
provision of law, statute, rule or regulation, or of the articles 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) does not require any consents
under, 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 instrument.
Page 22
<PAGE> 3
SECTION 1.05. Effectiveness. This Eighth Amendment shall become
effective as of December 31, 1999 (the "Eighth Amendment Effective Date") upon
satisfaction of the following conditions precedent:
(a) The Agent shall have received duly executed counterparts
of this Eighth Amendment which, when taken together, bear the
authorized signatures of the Parent, the Borrower and all the Lenders.
(b) The Lenders shall be satisfied that the representations
and warranties set forth in Section 1.04 hereof are true and correct on
and as of the Eighth Amendment Effective Date.
(c) There shall not be any action pending or any judgment,
order or decree in effect which, in the judgment of the 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 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 Eighth 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.
(e) The Agent shall have received payment of and all fees and
expenses set forth in Section 1.07.
SECTION 1.06. APPLICABLE LAW. THIS EIGHTH 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 1.07. Fees and 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 Eighth
Amendment, including, but not limited to, the reasonable fees and disbursements
of counsel.
SECTION 1.08. Counterparts. This Eighth 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. Delivery by
facsimile by any of the parties hereto of an executed counterpart of this Eighth
Amendment shall be as effective as an original executed counterpart hereof and
shall be deemed a representation that an original executed counterpart hereof
will be delivered, but the failure to deliver a manually executed counterpart
shall not affect the validity, enforceability or binding effect of this Eighth
Amendment.
SECTION 1.09. Financial Consultant and Advisor to the Lenders. The
Lenders and/or their counsel have decided to engage a financial
consultant/adviser to provide advice and other services with respect to the
Loans and the financial and other condition of the Parent and the Borrower and
their affiliates. The Parent and the Borrower agree (a) that all cost and
expenses of such financial adviser/consultant shall be paid by the Borrower and
(b) that such consultant/adviser be given reasonable access upon reasonable
request to the Parent and the Borrower, their premises, their and their
affiliates' books and records, and their and their affiliates' employees and
officers. The Agent may, but shall not be obligated to, provide the Borrower
with certain of one or more of the following: the name of such consultant, an
estimate of costs and expense of such engagement, and the scope of such
engagement, provided, however, that none of the foregoing shall limit or
diminish the Agent's right to choose such consultant or the actual cost, scope
and terms and conditions of such engagement or prevent the Agent from expanding
the costs and scope of such engagement, at its sole discretion.
SECTION 1.10. 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.
Page 23
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have caused this Eighth
Amendment to be duly executed by their duly authorized officers, all as of the
date first above written.
FIREARMS TRAINING SYSTEMS, INC.
as Parent
By:
-------------------------------------------
Name:
Title:
FATS, INC.
as Borrower
By:
-------------------------------------------
Name:
Title:
BANK OF AMERICA, N.A., as Agent, Swingline
Lender and Issuing Bank and individually as
a Lender
By:
-------------------------------------------
Name:
Title:
U.S. BANK NATIONAL ASSOCIATION
By:
-------------------------------------------
Name:
Title:
FIRST SOURCE FINANCIAL LLP, by First Source
Financial, Inc., as Agent/Manager
By:
-------------------------------------------
Name:
Title:
BHF (USA) CAPITAL CORPORATION
By:
-------------------------------------------
Name:
Title
Page 24
<PAGE> 5
BANK AUSTRIA CREDITANSTALT CORPORATE
FINANCE, INC. (FKA CREDITANSTALT CORPORATE
FINANCE, INC.)
By:
-------------------------------------------
Name:
Title:
By:
-------------------------------------------
Name:
Title:
AGREED and CONSENTED,
as of the date first above written:
DART INTERNATIONAL, INC.
By:
---------------------------------
Name:
Title:
FIREARMS TRAINING SYSTEMS, INC.
By:
---------------------------------
Name:
Title:
Page 25
<PAGE> 6
SCHEDULE A-8
REVOLVER:
Base Rate Interest Due on 12/31/99 $240,505.36
TERM A:
Libor Interest Due on 12/1/99 $372,576.75
TERM B:
LiborInterest Due on 12/1/99 $789,313.78
Page 26
<PAGE> 1
EX-11.01
COMPUTATION OF NET INCOME
FIREARMS TRAINING SYSTEMS, INC.
STATEMENT REGARDING COMPUTATION OF EARNINGS PER COMMON SHARE
(In thousands, except per share data)
<TABLE>
<CAPTION>
Basic Earnings Per Share(1) Diluted Earnings Per Share(1)
Nine Months Ended Nine Months Ended
December 31, December 31,
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Weighted average number of common
shares outstanding 20,753 20,678 20,753 20,678
Shares issued upon assumed exercise of
outstanding options -- -- -- --
-------- -------- -------- --------
Weighted average common and common
equivalent shares outstanding 20,753 20,678 20,753 20,678
======== ======== ======== ========
Net income $ (6,574) $ (3,115) $ (6,574) $ (3,115)
======== ======== ======== ========
Earnings per share $ (0.32) $ (0.15) $ (0.32) $ (0.15)
======== ======== ======== ========
</TABLE>
(1) Shares reflect a 100,000-for-one stock split in July 1996 in connection with
the recapitalization and a split of 1,66-for-one in October 1996.
Page 27
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF THE FIREARMS TRAINING SYSTEMS FOR THE NINE MONTHS ENDED
DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> APR-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 2,857
<SECURITIES> 0
<RECEIVABLES> 17,108
<ALLOWANCES> 210
<INVENTORY> 16,884
<CURRENT-ASSETS> 42,848
<PP&E> 9,866
<DEPRECIATION> 4,493
<TOTAL-ASSETS> 54,991
<CURRENT-LIABILITIES> 22,449
<BONDS> 65,309
3,282
0
<COMMON> 114,389
<OTHER-SE> (150,438)
<TOTAL-LIABILITY-AND-EQUITY> 54,991
<SALES> 33,444
<TOTAL-REVENUES> 33,444
<CGS> 24,066
<TOTAL-COSTS> 24,066
<OTHER-EXPENSES> 12,810
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,585
<INCOME-PRETAX> (9,425)
<INCOME-TAX> (3,040)
<INCOME-CONTINUING> (6,385)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,574)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
