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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 4, 1996
REGISTRATION NO. 33-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
SIMULA, INC.
(Exact name of Registrant as specified in its charter)
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<S> <C> <C>
ARIZONA 3728 86-0320129
(State of Incorporation) (Primary Standard Industrial (I.R.S. Employer
Classification Code Number) Identification No.)
</TABLE>
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2700 NORTH CENTRAL AVENUE, SUITE 1000
PHOENIX, ARIZONA 85004
(602) 631-4005
(Address, including zip code, and telephone number, including
area code, of Registrant's principal executive offices)
------------------------
BRADLEY P. FORST, ESQ.
VICE PRESIDENT AND GENERAL COUNSEL
2700 NORTH CENTRAL AVENUE, SUITE 1000
PHOENIX, ARIZONA 85004
(602) 631-4005
(Name, address including zip code, and telephone number,
including area code, of agent for service)
with copies to:
CHRISTIAN J. HOFFMANN, III, ESQ. ROBERT S. KANT, ESQ.
STREICH LANG, P.A. MICHELLE S. MONSEREZ, ESQ.
RENAISSANCE ONE O'CONNOR, CAVANAGH, ANDERSON,
TWO NORTH CENTRAL AVENUE KILLINGSWORTH & BESHEARS, P.A.
PHOENIX, ARIZONA 85004-2391 ONE EAST CAMELBACK ROAD, SUITE 1100
(602) 229-5200 PHOENIX, ARIZONA 85012-1656
(602) 263-2400
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
CALCULATION OF REGISTRATION FEE
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TITLE OF EACH CLASS PROPOSED PROPOSED
OF SECURITIES TO BE AMOUNT TO BE MAXIMUM OFFERING MAXIMUM AGGREGATE AMOUNT OF
REGISTERED REGISTERED PRICE PER SHARE(3) OFFERING PRICE REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------------
Convertible Preferred Stock,
par value $.05 per share(1). 1,380,000 shares $25.00 $34,500,000 $11,896
- ---------------------------------------------------------------------------------------------------------
Common Stock, par value $.01
per share(2)............... 2,300,000 shares -- -- (4)
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(1) Includes 180,000 shares that may be purchased pursuant to the Underwriters'
over-allotment option.
(2) This number is estimated on the date of this Registration Statement. The
actual number of shares of Common Stock issuable upon conversion will be
determined by the Conversion Rate on the date this Registration Statement
becomes effective.
(3) Estimated solely for purposes of calculating the registration fee.
(4) The shares of Common Stock being registered hereby are issuable upon
conversion of shares of Convertible Preferred Stock. Accordingly, no
additional filing fee is required pursuant to Rule 457(i) under the
Securities Act of 1933.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED OCTOBER 4, 1996
PROSPECTUS
1,200,000 SHARES
LOGO SIMULA, INC.
$ SERIES A CONVERTIBLE PREFERRED STOCK
Simula, Inc. (the "Company") is hereby offering 1,200,000 shares of its
$ Series A Convertible Preferred Stock, par value $.05 per share
("Convertible Preferred Stock"). Dividends on the Convertible Preferred Stock
are cumulative from the date of original issuance and payable quarterly
commencing January 30, 1997 at an annual rate of $ per share. Each share of
Convertible Preferred Stock is convertible at the option of the holder at any
time, unless previously redeemed, into shares of the Company's Common Stock, par
value $.01 per share ("Common Stock") at a rate of shares of Common
Stock for each share of Convertible Preferred Stock (the "Conversion Rate"),
equivalent to a conversion price of $ per share of Common Stock, subject to
adjustment in certain events.
The Convertible Preferred Stock is redeemable by the Company, in whole or
in part on a pro rata basis, at $ plus accrued dividends payable through the
redemption date, upon 30 days' written notice to the holders, mailed within 15
days after the closing price of the Company's Common Stock as quoted on the New
York Stock Exchange ("NYSE") has equaled or exceeded $ for any 10
consecutive trading days. The Convertible Preferred Stock is also redeemable at
the option of the holders of the Convertible Preferred Stock in the event of a
Change of Control of the Company.
The Common Stock of the Company is traded on the NYSE under the symbol
"SMU." On October 3, 1996, the closing price of the Common Stock on the NYSE was
$14.25. See "Price Range of Common Stock." The Convertible Preferred Stock will
be listed for trading on the NYSE under the symbol "SMU-pfA."
INVESTORS SHOULD CAREFULLY CONSIDER THE FACTORS SET FORTH UNDER "RISK
FACTORS," BEGINNING ON PAGE 7.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) DISCOUNT(2) COMPANY(1)(3)
- ----------------------------------------------------------------------------------------------------
Per Share..................................... $ $ $
- ----------------------------------------------------------------------------------------------------
Total(4)...................................... $ $ $
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</TABLE>
(1) Plus accrued dividends, if any, from the date of original issuance.
(2) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities arising under the Securities Act of 1933,
as amended. See "Underwriting."
(3) Before deducting expenses payable by the Company estimated at $ .
(4) The Company has granted to the Underwriters an option for 45 days to
purchase up to an additional 180,000 shares of Convertible Preferred Stock
at the Price to Public less the Underwriting Discount, solely to cover
overallotments, if any. If such option is exercised in full, the total Price
to Public, Underwriting Discount and Proceeds to Company will be
$ , $ , and $ , respectively. See "Underwriting."
The shares of Convertible Preferred Stock are being offered by the
Underwriters on a "firm commitment" basis, when, as and if delivered to and
accepted by them and subject to the right of the Underwriters to withdraw,
cancel, modify or reject any orders, in whole or in part, and subject to certain
other conditions. It is expected that delivery of the certificates representing
the shares will be made on or about , 1996.
HD BROUS & CO., INC.
The date of this Prospectus is October , 1996
<PAGE> 3
[ARTWORK]
------------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CONVERTIBLE
PREFERRED STOCK AND THE UNDERLYING COMMON STOCK AT A LEVEL ABOVE THAT WHICH
MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON
THE NEW YORK STOCK EXCHANGE OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
2
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PROSPECTUS SUMMARY
The following summary should be read in conjunction with, and is qualified
in its entirety by, the more detailed information and financial statements and
notes thereto appearing elsewhere in this Prospectus. Unless otherwise noted,
all information in this Prospectus assumes that the over-allotment option
granted to the Underwriters will not be exercised. All information in this
Prospectus gives retroactive effect to the Company's 3-for-2 stock split of its
Common Stock on September 28, 1995.
THE COMPANY
The Company is a market-focused developer of technologies and advanced
products and solutions to safety-related problems and is a recognized world
leader in energy absorption and related safety technologies. The Company designs
and manufactures occupant safety systems and devices engineered to safeguard
human life in a wide range of air, ground, and sea transportation vehicles and
provides seating systems for aircraft, rail, and other mass transit vehicles.
Through strategic acquisitions and successful application of its various
proprietary technologies in energy-absorbing seating systems, inflatable
restraints, and high-strength, lightweight advanced composite materials in a
variety of industries, the Company, in recent years, has expanded its market
focus and is introducing new products for commercial and military applications.
The Company's current principal products are aircraft, rail, and mass-transit
seating systems, and composite materials including armor. The Company plans to
enter full scale production for the roll-out of new products in 1997, including
its energy-absorbing seating systems for commercial aircraft, a side-impact
inflatable restraint system for automobiles, a bulkhead airbag system for
commercial aircraft, and two cockpit inflatable restraint systems for military
aircraft.
Energy-Absorbing and Other Seating Systems. For over 20 years, the Company
has been the world's leading provider of energy-absorbing, or "crashworthy,"
seating systems. The Company is the largest supplier of energy-absorbing
military helicopter and other military aircraft seats. As an outgrowth of this
core business, in late 1995 the Company commenced the manufacture and sale of
commercial airline seating systems that comply with stringent FAA safety
standards mandating seats designed to absorb 16 times the force of gravity upon
impact. Seating systems incorporating this crashworthy technology absorb shock
upon impact that would otherwise be absorbed by an occupant of the vehicle. This
is accomplished through engineering and utilization of the Company's proprietary
data bases regarding the properties of materials, failure characteristics, and
human body dynamics. The Company also is the leading North American provider of
seating systems for rail and other mass transit vehicles, with an approximate
80% market share. As a prominent provider of aircraft interior services, the
Company repairs and refurbishes commercial airline seats, overhauls and modifies
seat assemblies, and designs and integrates telephone and entertainment systems
into aircraft seats for several major airlines.
Armor and Other Composite Materials. The Company develops and manufactures
a variety of composite materials which are integrated into its products and the
products of third parties. The Company's principal composite products include
high-strength, ultra-lightweight armor systems for use in targeted applications,
such as surrounding crew seats in aircraft (V-22 Osprey, Apache, Blackhawk, and
CH-53 Sea Stallion), protecting vital components of aircraft (C-17 cockpits and
tank power units), and providing additional floor protection (multi-wheeled and
transport vehicles). Other new products utilizing the Company's composite
technology include portable transparent armor products for use in commercial
vehicles, such as police cars and executive vehicles.
Inflatable Restraint Systems. The Company has developed proprietary and
patented structures and systems that are used as inflatable restraints. The
first product for automobiles, the inflatable tubular structure ("ITS"), is
being introduced in certain 1997 BMW models to provide head and neck protection
in side-impact collisions. The Company has a variety of other inflatable
restraint applications and configurations for automobiles. The Company has also
developed and certified the first airbag systems for commercial and military
aircraft, which will be introduced in 1997. In addition to providing inflatable
restraint products directly to automobile and aircraft manufacturers, the
Company licenses its proprietary inflatable restraint technology and products to
first tier component suppliers.
3
<PAGE> 5
Introductory Stage Technologies. The Company has several technologies and
products in various phases of development that it believes will provide it with
new products over the next several years. These products include additional
applications of the Company's inflatable restraint technology, light-weight
transparent armor, advanced sensors with multi-axial sensing ability, a
vacuum-packed sealed parachute, and new polymers that may be used for
high-performance windows, lenses, visors, and a number of other applications.
The Company has experienced substantial growth since fiscal 1992 resulting
from the broader application of its technology, its strategic acquisitions, and
its development of new products. The Company's revenue increased from $18.8
million in 1992 to $59.1 million in 1995. During this time period, the
percentage of the Company's revenue derived from government contracts declined
from 100% in 1990 to approximately 30% in 1995, with the balance from commercial
customers. The Company's principal customers include America West Airlines,
Autoliv GmbH, BMW, Boeing, Continental Airlines, Matsushita, McDonnell Douglas,
Morton International, Sikorsky Aircraft, Southwest Airlines, metropolitan
transit authorities in major North American cities, and various branches of the
United States armed forces and agencies.
The Company incurred a loss before the cumulative effect of change in
accounting principle of $183,000 for the six months ended June 30, 1996,
principally as a result of expensing pre-contract costs and incurring plant
start-up costs and corporate and sales infrastructure expenses necessary to
support the production and shipment of its 16g seat ("16g Seat"), ITS, and
bulkhead airbag products. The Company's contracts for its ITS and bulkhead
airbag products provide for deliveries of commercial quantities beginning in
1997. Because of limited revenues from these products in 1996, the costs
associated with these products are expected to continue to negatively impact
1996 results and are anticipated to result in a loss for the third quarter and
possibly the fourth quarter of 1996. See "Risk Factors" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
The Company's strategy is to maintain its leading position in creating and
applying proprietary technologies and advanced solutions to safety related
problems and to develop its products for commercial sale to a wide range of
transportation customers. The key elements in executing this strategy are to (i)
develop and utilize technology to enhance current products and create new
products, (ii) focus on new product markets and regulatory requirements, (iii)
expand manufacturing capabilities and maximize internal synergies, and (iv)
pursue acquisitions and strategic alliances that complement existing businesses
or provide manufacturing or distribution opportunities.
The Company maintains its principal executive offices at 2700 North Central
Avenue, Suite 1000, Phoenix, Arizona 85004, and its telephone number is (602)
631-4005. Unless the context indicates otherwise, all references to the
"Company" or "Simula" refer to Simula, Inc. and its subsidiaries.
THE OFFERING
See "Description of Convertible Preferred Stock."
Securities Offered......... 1,200,000 shares of $ Convertible Preferred
Stock.
Capital Stock
Outstanding................ 8,977,623 shares of Common Stock and no shares of
Preferred Stock.
Capital Stock
Outstanding After
Offering................. 8,977,623 shares of Common Stock and 1,200,000
shares of Convertible Preferred Stock that is
convertible into an aggregate of shares of
Common Stock.
Liquidation Preference..... $25 per share of Convertible Preferred Stock, plus
accumulated and unpaid dividends.
Dividends.................. Cumulative annual dividends of $ per share
payable quarterly out of assets legally available
therefor on the 30th day of January, April, July,
and October of each year (or if such day is not a
business day, on the next succeeding business day),
commencing January 30, 1997, when, as,
4
<PAGE> 6
and if declared by the Board of Directors.
Dividends will cumulate from the date of issuance.
Conversion Rights.......... Each share of Convertible Preferred Stock is
convertible at the option of the holder at any
time, unless previously redeemed, into shares of
the Company's Common Stock (the "Conversion Rate"),
equivalent to a conversion price of $ per share
of Common Stock, subject to adjustment in certain
events.
Optional Redemption........ If not earlier converted or redeemed, the
Convertible Preferred Stock is redeemable at the
option of the Company in whole or in part on a pro
rata basis, at $ per share plus accrued dividends
payable through the redemption date, upon 30 days'
written notice to the holders, mailed within 15
days after the closing price of the Company's
Common Stock on the NYSE has equaled or exceeded
$ for any 10 consecutive trading days. Holders
will have the right to convert their shares at any
time until the close of business on the day prior
to the date fixed for redemption.
Change of Control
Redemption................. Within 30 days following the occurrence of any
Change of Control, as defined herein, the Company
will offer ("Change of Control Offer") to purchase
all outstanding Convertible Preferred Stock at a
purchase price of $25 per share plus accrued and
unpaid dividends to the date of the Change of
Control Offer.
Voting Rights.............. The holders of the Convertible Preferred Stock are
not entitled to vote, except as set forth below and
as provided by law. On matters subject to a vote by
holders of the Convertible Preferred Stock, the
holders are entitled to one vote per share. If the
equivalent of six consecutive quarterly dividends
payable on the Convertible Preferred Stock, or on
any other series of preferred stock ranking on a
parity with the Convertible Preferred Stock as to
dividends or liquidation rights and having similar
voting rights, are in arrears, the number of
directors of the Company will be increased by two
and the holders of all outstanding series of parity
preferred stock, voting as a single class without
regard to series, will be entitled to elect the
additional two directors until all dividends in
arrears have been paid or declared and set apart
for payment. Without the consent of the holders of
Convertible Preferred Stock, the Company may issue
other series of preferred stock that are pari passu
with, or junior to, the Convertible Preferred Stock
as to dividends and liquidation rights. Without the
approval of the holders of at least a majority of
the number of shares of Convertible Preferred
Stock, voting separately as a class, the Company
may not issue preferred stock that is senior to the
Convertible Preferred Stock as to dividends or
liquidation rights or amend, alter, or repeal any
of the voting rights, designations, preferences, or
other rights of the holders of the Convertible
Preferred Stock or amend the Company's Articles of
Incorporation so as to adversely affect such voting
rights, designations, preferences, or other rights.
Listing.................... The Convertible Preferred Stock will be listed for
trading on the NYSE under the symbol "SMU-pfA." The
Company's Common Stock is listed on the NYSE under
the symbol "SMU."
Use of Proceeds............ Establishment and expansion of manufacturing
facilities, working capital and other general
purposes, and potentially for acquisitions. See
"Use of Proceeds."
Risk Factors............... Prospective purchasers of shares of Convertible
Preferred Stock should consider carefully the
factors set forth under "Risk Factors."
5
<PAGE> 7
SUMMARY CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
-------------------------------------------------------------- -----------------------------
1991 1992 1993 1994 1995 1995 1996
---------- ---------- ---------- ---------- ---------- ---------- --------------
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INCOME STATEMENT DATA:
Revenue...................... $ 15,144 $ 18,833 $ 24,781 $ 41,158 $ 59,089 $ 28,802 $ 36,358
Operating income(1).......... 2,089 2,387 2,665 5,184 6,858 3,559 487
Earnings (loss) before
cumulative effect of a
change in accounting
principle(2)............... 1,732 1,270 1,121 2,114 4,102 1,553 (183)
Cumulative effect of change
in accounting
principle(2)............. -- -- -- -- -- -- (3,240)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net earnings (loss)(2)(3).... 1,732 1,270 1,121 2,114 4,102 1,553 (3,423)
========== ========== ========== ========== ========== ========== ==========
PER SHARE AMOUNTS:
Earnings (loss) before
cumulative effect of a
change in accounting
principle(2)(4)............ $ 0.31 $ 0.29 $ 0.22 $ 0.37 $ 0.48 $ 0.20 $ (0.02)
Cumulative effect of change
in accounting
principle(2)............... -- -- -- -- -- -- (.36)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net earnings (loss)(2)(5).... $ 0.31 $ 0.29 $ 0.22 $ 0.37 $ 0.48 $ 0.20 $ (0.38)
========== ========== ========== ========== ========== ========== ==========
Weighted average shares
outstanding(5)............. 3,571,940 4,608,825 5,024,679 5,704,926 8,576,817 7,748,819 8,916,287
Ratio of earnings to fixed
charges and preferred
dividends(6)............... 3.85x 5.86x 3.00x 2.67x 3.20x 2.97x --
OTHER DATA:
Research and development:
Funded by the Company...... $ 127 $ 240 $ 376 $ 688 $ 1,419 $ 729 $ 338
Funded through contracts... 1,161 4,529 1,813 3,165 4,722 2,023 1,958
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SIX MONTHS ENDED JUNE 30,
YEAR ENDED DECEMBER 31, 1996
-------------------------------------------------------------- -----------------------------
1991 1992 1993 1994 1995 PRO FORMA(7) AS ADJUSTED(8)
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BALANCE SHEET DATA:
Working capital............... $ 2,197 $ 4,049 $ 8,209 $ 5,236 $ 21,476 $ 33,885 $ 52,624
Total assets.............. 9,073 18,007 26,787 47,691 74,739 88,059 110,755
Long-term debt................ 1,456 4,839 12,794 15,339 11,261 23,725 20,964
Shareholders' equity.......... 2,800 7,232 8,078 16,649 47,532 44,892 72,392
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(1) Includes an unusual item to pay certain settlement costs of $919,000 for the
year ended December 31, 1993. See Note 13 to Consolidated Financial
Statements.
(2) During the second quarter of 1996, the Company adopted a new method of
accounting for pre-contract costs. These costs were previously deferred and
recovered over the revenue streams from the Company's customers. Effective
January 1, 1996, these costs have been expensed. As a result, periods prior
to January 1, 1996 are not comparable. Net earnings and earnings per share
for the year ended December 31, 1995 and the six-month period ended June 30,
1995 would have been $1,658,299, $.19, $1,116,402, and $.14, respectively,
if the new method of accounting had been adopted in such periods.
(3) Pro forma net earnings for 1991 and 1992, reflecting pro forma tax
provisions and the elimination of certain expenses related to the period
prior to the Company's initial public offering, were $1,123,000 and
$1,313,000, respectively.
(4) Amounts for 1991 and 1992 are pro forma earnings per share reflecting pro
forma income noted in (3) above.
(5) The Company effected a 3-for-2 split of its Common Stock on September 28,
1995. As a result, all shares and related references have been restated for
all prior periods and transactions.
(6) Ratio of earnings to fixed charges and preferred dividends is computed by
dividing (i) earnings (loss) before income taxes plus fixed charges and
preferred stock dividend requirements by (ii) fixed charges and preferred
stock dividend requirements. Fixed charges consist of interest on
indebtedness, amortization of debt issuance cost and the estimated interest
component (one-third) of rental and lease expense. There were no preferred
stock dividend requirements during the periods presented. Earnings were
insufficient to cover fixed charges by $304,000 for the six months ended
June 30, 1996.
(7) Pro forma reflects historical amounts adjusted to reflect the issuance of
$14,300,000 of Series C 10% Senior Subordinated Convertible Notes in
September 1996.
(8) Adjusted to reflect the issuance of the 1,200,000 shares of Convertible
Preferred Stock offered hereby and the application of the estimated net
proceeds of $27.5 million.
6
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RISK FACTORS
Prospective purchasers of the Convertible Preferred Stock offered hereby
should carefully consider the following factors in addition to the other
information in this Prospectus. This Prospectus contains certain forward-looking
statements and information. The cautionary statements made in this Prospectus
should be read as being applicable to all related forward-looking statements
wherever they appear in this Prospectus. The Company's actual results could
differ materially from those discussed herein. Factors that could cause or
contribute to such differences include those discussed below as well as those
discussed elsewhere herein.
RECENT AND ANTICIPATED LOSSES
In order to prepare for the production of the 16g Seat in commercial
quantities and the commercial introduction of the ITS and bulkhead airbag, the
Company has incurred significant pre-contract costs, which have been charged to
expense in 1996. In prior years, such costs were capitalized. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
Note 20 to the Consolidated Financial Statements. In order to support the
introduction and production of these products, the Company has incurred plant
start-up costs and has also significantly increased expenses applicable to its
corporate and sales infrastructure, which expenses were necessary to develop
markets and support the production of these products that are anticipated to
produce revenue in late 1996 and 1997. In addition, the Company has accelerated
research and development expenses applicable to potential new products related
to these technologies. The incurrence of these costs resulted in a loss before
the cumulative effect of the change in accounting principle of $183,000 for the
six months ended June 30, 1996 and are anticipated to result in a net loss in
the third quarter and possibly the fourth quarter of 1996. The Company is unable
to estimate the range of loss at this time. The Company's contracts for the ITS
and bulkhead air bag provide for deliveries of commercial quantities in 1997.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
ENTRY INTO NEW MARKETS
The Company plans to enter full scale production for new product roll-outs
in 1997 for its crashworthy seating systems for commercial aircraft, a
side-impact inflatable restraint system for automobiles, a bulkhead airbag
system for commercial aircraft, and two cockpit inflatable restraint systems for
military aircraft. There can be no assurance that the Company will be successful
in the introduction of its new products. Such success will depend on a variety
of factors, including successful product testing and acceptance by its potential
customers, particularly airlines and automobile manufacturers; the success of
the Company's sales and marketing efforts in markets not previously addressed by
the Company; successful and rapid expansion of the Company's manufacturing
capacity, including the expansion or establishment of additional manufacturing
facilities, particularly for inflatable restraints and aircraft seating systems;
the ability of the Company's products to provide their intended benefits; and
increasing government safety regulations and consumer safety concerns,
particularly for energy-absorbing seating systems and for inflatable restraints.
If the Company is unable to manufacture and market its new products
successfully, its business, results of operations, and financial condition will
be materially and adversely affected. See "Business."
PRODUCTION RISKS AND MANUFACTURING EXPERIENCE
The Company does not have experience in high-volume manufacturing and must
build capacity to meet anticipated demand for certain of its new products. The
Company is currently adding to its production capabilities through new plant and
equipment. The Company plans to use approximately $6.0 million of the net
proceeds of this offering to establish new and expand existing manufacturing
facilities, primarily for the manufacture of aircraft systems and components
related to the Company's automobile side-impact inflatable restraint system. See
"Use of Proceeds." While the Company has received initial purchase orders for
its new products, it is committing substantial resources to the manufacture of
such new products prior to the receipt of volume orders for any of them. The
Company could also incur significant start-up costs, expenses, and delays in
connection with its attempts to manufacture commercial quantities of its new
products. There can be no assurance that the anticipated level of demand will
occur or that the Company will not experience either
7
<PAGE> 9
overcapacity or undercapacity in its new production facilities. Further, there
can be no assurance that the Company will be successful in overcoming the
technological, engineering, and management challenges associated with the
production of commercial quantities of its new products, at any given volume, at
acceptable costs, or on a timely or profitable basis. Operating results could be
adversely affected if the expansion of the Company's manufacturing capacity is
delayed or inefficiently implemented. No assurance can be given that the Company
will not experience manufacturing inefficiencies or delivery problems in the
future in the event of fluctuations in demand. When and if the Company receives
volume orders for its products, it may determine to license or outsource the
manufacturing of certain of the components. There can be no assurance that the
Company will be able to identify manufacturers that will meet its requirements
as to quality, reliability, timeliness, and cost-effectiveness. Any such failure
will limit the Company's ability to satisfy customer orders and would have a
material adverse effect on the Company's business, results of operations, and
financial condition. See "Business -- Production, Manufacturing, and Licensing."
The Company believes that its products and components have passed, and will
continue to pass, certain product performance and reliability testing by its
customers; however, there can be no assurance that its products will continue to
pass such testing in the future, particularly as the Company moves toward higher
production volumes. If such problems occur, the Company could experience
increased costs, delays, reductions or cancellations of orders and shipments,
and warranty issues, any of which could adversely affect the Company's business,
results of operations, and financial condition.
ABILITY TO PAY CONVERTIBLE PREFERRED STOCK DIVIDENDS
The ability of the Company to pay dividends on the Convertible Preferred
Stock is limited by covenants contained in the Company's Indenture governing the
issuance of the Company's 12% Senior Subordinated Notes due 1998 (the "12%
Notes") and 10% Series C Senior Subordinated Convertible Notes due 1999 (the
"10% Notes"). The covenants restrict the Company from making certain payments,
including the payment of dividends, in the event the Company is in default in
the payment of principal or interest or fails to meet certain prescribed debt
coverage ratios. To date, the Company has never been in default under its debt
instruments or failed to comply with any covenants or debt coverage ratios in
the Indenture. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations," "Description of Convertible Preferred Stock," and
"Description of Other Capital Stock and Debt Securities."
INVESTMENT IN AND DEPENDENCE ON PROPRIETARY TECHNOLOGY
The Company's future success and competitive position depend to a
significant extent upon its proprietary technology. The Company must make
significant investments to continue to develop and refine its technologies.
Technological advances, the introduction of new products, and new design and
manufacturing techniques could adversely affect the Company's operations unless
the Company is able to adapt to the resulting change in conditions. As a result,
the Company will be required to expend substantial funds for and commit
significant resources to the conduct of continuing research and development
activities, the engagement of additional engineering and other technical
personnel, the purchase of advanced design, production, and test equipment, and
the enhancement of design and manufacturing processes and techniques. The
Company's future operating results will depend to a significant extent on its
ability to continue to provide design and manufacturing services for new
products that compare favorably on the basis of time to introduction, cost, and
performance with the design and manufacturing capabilities of aircraft and
automobile suppliers. The success of new design and manufacturing services
depends on various factors, including utilization of advances in technology,
innovative development of new solutions for customer products, efficient and
cost-effective services, timely completion and delivery of new product
solutions, and market acceptance of customers' end products. Because of the
complexity of the Company's products, the Company may experience delays from
time to time in completing the design and manufacture of new product solutions.
In addition, there can be no assurance that any new product solutions will
receive or maintain customer or market acceptance. If the Company were unable to
design and manufacture solutions for new products of its customers on a timely
and cost-effective basis, its future operating results would be adversely
affected.
8
<PAGE> 10
The Company relies in part on patent, trade secret, and copyright law to
protect its intellectual property. There can be no assurance that any patent
owned by the Company will not be invalidated or challenged, that the rights
granted thereunder will provide competitive advantages to the Company, or that
any of the Company's pending or future patent applications will be issued with
the scope of the claims sought by the Company, if at all. Furthermore, there can
be no assurance that others will not develop technologies that are similar or
superior to the Company's technology, duplicate the Company's technology, or
design around the patents owned by the Company. In addition, effective patent
and other intellectual property protection may be unavailable or limited in
certain foreign countries. There can be no assurance that the steps taken by the
Company will prevent misappropriation of its technology. Litigation may be
necessary in the future to enforce the Company's patents and other intellectual
property rights, to protect the Company's trade secrets, and to determine the
validity and scope of the proprietary rights of others. Similarly, there can be
no assurance that the Company's technologies will not be subject to claims that
they infringe the rights of others, which would require the Company to defend
such claims. Patent and trade secret litigation could result in substantial
costs and diversion of resources, which could have a material adverse effect on
the Company's operating results and financial condition. See
"Business -- Proprietary Technology."
DEPENDENCE ON INDUSTRY RELATIONSHIPS
A number of the Company's products are components in its customers' final
products. In particular, the Company's automobile and aircraft inflatable
restraint systems are intended for use as components in automobiles or aircraft.
Accordingly, to gain market acceptance, the Company must demonstrate that its
products will provide advantages to the manufacturers of final products,
including increasing the safety of their products, providing such manufacturers
with competitive advantages or assisting such manufacturers in complying with
existing or new government regulations affecting their products. There can be no
assurance that the Company's products will be able to achieve any of these
advantages for the products of its customers. Furthermore, even if the Company
is able to demonstrate such advantages, there can be no assurance that such
manufacturers will elect to incorporate the Company's products into their final
products, or if they do, that the Company's products will be able to meet such
customers' manufacturing requirements. Additionally, there can be no assurance
that the Company's relationships with its manufacturer customers will ultimately
lead to volume orders for the Company's products. The failure of manufacturers
to incorporate the Company's products into their final products would have a
material adverse effect on the Company's business, results of operations, and
financial condition. The Company also depends on its relationships with first
tier component suppliers to which it licenses its proprietary technology to
facilitate the marketing and distribution of its products, particularly its
inflatable restraint products. See "Business -- Operating and Growth Strategy --
Expanding Manufacturing Capabilities and Maximizing Internal Synergies."
SUBSTANTIAL RELIANCE UPON MAJOR CUSTOMERS
The Company's business has relied to a great extent on relatively few major
customers, although the mix of major customers has varied from year to year
depending on the status of then current contracts. During fiscal 1995 and to
date in fiscal 1996, no commercial customer accounted for more than 10% of the
Company's revenue. Although the Company has long-established relationships with
a number of its customers, the Company does not have long-term supply contracts
with any customers. The Company's customers also generally do not commit to
long-term production schedules and, as a result, customer orders generally can
be canceled and volume levels changed or delayed. The timely replacement of
canceled, delayed, or reduced orders cannot be assured. The loss or reduction in
sales to a major customer may have a more material adverse effect on the
Company's operations and financial condition than would be the case if the
Company's revenue were less concentrated by customer. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business -- Customers."
The Company believes that the United States Army and other branches of the
United States armed forces as well as prime defense contractors, to which the
Company has supplied products for approximately 20 years, will continue to be
major customers, although the percentage of the Company's revenue attributable
to them can be expected to decrease as a result of the Company's expanding
commercial operations. See
9
<PAGE> 11
"Business -- Customers" and "Business -- Backlog." Reliance upon defense
contracts involves certain inherent risks, including dependence on Congressional
appropriations, changes in governmental policies that reflect military and
political developments, and other factors characteristic of the defense
industry. The Company believes that the impact of reductions in military
expenditures have been and may continue to be less significant on the Company
than on many other military suppliers because completed and currently announced
reductions in military expenditures have tended to relate more to strategic
programs than to the types of tactical programs that the Company's products
address. There can be no assurance, however, that reductions in military
expenditures or the type of reductions instituted will not adversely affect the
Company's business, operating results, and financial condition. See
"Business -- Overview of Markets and Industry -- Safety Related Military
Products."
EFFECT OF GOVERNMENT CONTRACT PROVISIONS
As a contractor and subcontractor to the United States government, the
Company is subject to various laws and regulations that are more restrictive
than those applicable to non-government contractors. Sales of many of the
Company's products are governed by rules favoring the government's contractual
position. As a consequence, such contracts may be subject to protest or
challenge by unsuccessful bidders or to termination, reduction, or modification
in the event of changes in government requirements, reductions of federal
spending, or other factors. The Company's government-related revenue has
resulted almost exclusively from firm, fixed-price contracts. Fixed-price
contracts involve certain inherent risks to the Company, including
underestimating costs, problems with new technologies, and economic and other
changes that may occur over the contract period. The accuracy and
appropriateness of certain costs and expenses used to substantiate direct and
indirect costs of the Company for the United States government under both
cost-plus and fixed-price contracts are subject to extensive regulation and
audit by the Defense Contract Audit Agency ("DCAA"), an arm of the United States
Department of Defense. The DCAA has the right to challenge the Company's cost
estimates or allocations with respect to any such contract. If a DCAA audit
establishes overcharges or discrepancies in costs or accounting, it can seek the
repayment of such overcharges or seek other reconciliations. DCCA audits are
routine in the defense contracting industry, and the Company has been subject to
such audits from time to time. Since the inception of the Company's operations,
no DCAA audit has resulted in an adverse determination against the Company. In
September 1993, however, the Company agreed to pay $445,000 over a 12-month
period to resolve an overcharge dispute, without any admission of liability. The
investigation and settlement resulted in the review of virtually all of the
Company's government contracts entered into between April 1987 and June 1990.
The settlement agreement concluded any other potential defective pricing claims
on all of the Company's contracts with the United States Department of Defense
negotiated during that period. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and Note 13 to the Consolidated
Financial Statements.
NEED FOR ADDITIONAL CAPITAL
The Company must continue to make significant investments in research and
development, equipment, and facilities, including capital expenditures to
construct and equip the facilities it presently has under development in the
balance of fiscal 1996 and into fiscal 1997. The Company's operating results may
be adversely affected if its revenue does not increase sufficiently to offset
the increase in fixed costs and operating expenses relating to these capital
expenditures. The continued expansion of the Company's business may require it,
from time to time, to seek debt or equity financing in addition to the funds to
be provided by this offering. Such capital expenditures may be required to
maintain or expand the Company's engineering, design, and production facilities
and equipment as well as to otherwise finance the growth of its business. The
Company cannot predict the timing or amount of any such capital requirements.
The Company anticipates that such financing may include bank financing or the
issuance of debt or equity securities. The Company's ability to incur
indebtedness is limited by covenants and restrictions under the Company's loan
agreement with Wells Fargo Bank N.A. and the Indenture pursuant to which its 12%
Notes and 10% Notes were issued. See "Management's Discussions and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources." The ability of the Company to obtain bank financing or raise
additional debt or equity capital also will depend on its financial condition
and results of operations. In addition, there can be no
10
<PAGE> 12
assurance that additional financing will be available to the Company if and when
required and under terms acceptable to the Company.
ACQUISITIONS
The Company's acquisition strategy depends in large part on its continued
ability to successfully acquire, integrate, and operate additional companies
that have complementary businesses that can utilize or enhance the Company's
technologies or that can provide benefits in terms of manufacturing,
distribution, or availability of component parts. The Company has completed
three major acquisitions since August 1993. There can be no assurance that the
Company will be able to identify additional suitable acquisition candidates,
that it will be able to consummate or finance any such acquisitions, or that it
will be able to integrate any such acquisitions successfully into its
operations. See "Business -- Operating and Growth Strategy -- Exploring
Acquisition and Strategic Alliance Opportunities" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
QUARTERLY OPERATING RESULTS; CYCLICALITY
Since the beginning of 1993 the Company has experienced significant growth
in its revenue and net income as a result of internal growth and its
acquisitions. As a growth company, the Company's quarterly results may be
especially variable and historic results are not a reliable basis on which to
predict future operating results. Further, during the second quarter of 1996,
the Company adopted a new method of accounting for pre-contract costs under
which various costs are expensed as incurred rather than being deferred. The
effect of changing this accounting principle resulted in a restatement and
reduction of earnings per share previously reported for the first quarter of
1996. The Company's change in accounting method in 1996 will make year to year
and quarter to quarter comparisons of earnings difficult. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
The continued success of the Company will be impacted by the cyclical
nature of the airline, rail, and automobile industries as well as other markets
served by the Company's products; the level and makeup of military expenditures;
technological changes; competition and competitive pressures on pricing; new
government regulations; and economic conditions in the United States and
worldwide markets served by the Company and its customers. The Company's
products are incorporated into a variety of transportation vehicles. A slowdown
in demand for such new transportation vehicles or modification services to
existing transportation vehicles as a result of economic or other conditions in
the United States or in the worldwide markets served by the Company and its
customers or other broad-based factors could adversely affect the Company's
operating results and financial condition. Conversely, an increase in demand for
new transportation vehicles or modification services could strain the Company's
capacity, its manufacturing efficiency, and delivery schedules. See "Business."
POSSIBLE VOLATILITY OF STOCK PRICE
The trading price of the Company's Common Stock has been and in the future
may be subject to wide fluctuations in response to quarterly variations in
operating results of the Company or its competitors, actual or anticipated
announcements of technical innovations or new products by the Company or its
competitors, contracts with key customers, new agreement negotiations, changes
in analysts' estimates of the Company's financial performance, general industry
conditions, military expenditures, worldwide economic and financial conditions,
and other events or factors. In addition, the stock market has experienced
extreme price and volume fluctuations, which have particularly affected the
market price of many technology companies and which often have been unrelated to
the operating performance of such companies. These broad market fluctuations and
other factors may adversely affect the market price of the Company's Common
Stock. See "Price Range of Common Stock" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
11
<PAGE> 13
COMPETITION
The markets served by the Company's aircraft and rail seating and
inflatable restraint systems are intensely competitive. Most of the Company's
competitors have greater marketing capabilities and financial resources than the
Company. Although most of the Company's technology is proprietary, many
businesses are actively engaged in the research and development of new products
and in the manufacture and sale of products that may compete with the Company's
inflatable restraint systems, structures, and materials capabilities. The
Company's present or future products could be rendered obsolete by technological
advances by one or more of its competitors or by future entrants into its
markets. Competition for commercial contracts relates primarily to technical
know-how, cost, and marketing efforts. Competition for government contracts
relates primarily to the award of contracts for the development of proposed
products rather than for the supply of products that have been developed under
contracts. Numerous suppliers compete for government defense contracts as prime
contractors or subcontractors. The demand for aircraft seating, which is one of
the Company's target markets, currently exceeds supply; however, the Company's
competitors may seek to cover such undercapacity. As a result, there is no
assurance that such undercapacity in those markets will continue to exist in the
future. A substantial increase in the capacity of all manufacturers in those
markets may have an adverse impact on the Company's results of operations and
financial condition. See "Business -- Competition."
MANAGEMENT OF GROWTH
The Company currently is experiencing a period of significant growth. The
Company's ability to manage its growth effectively will require it to enhance
its operational, financial, and management information systems. In addition, the
Company must also effectively oversee operations of geographically dispersed
subsidiaries in diverse lines of business. The Company is increasing staffing
and other expenses as well as its expenditures on manufacturing plants, capital
equipment and leasehold improvements in order to meet the anticipated demand of
its customers for its new products. However, the Company's customers generally
do not commit to firm production schedules for other than a relatively short
time in advance. The Company's profitability would be adversely affected if the
Company increased its expenditures in anticipation of future orders that do not
materialize. Its customers may also require, from time to time, rapid increases
in design and production services, which place an excessive short-term burden on
the Company's resources. The failure of the Company to manage its growth
effectively could have a material adverse effect on the Company's business,
operating results, and financial condition.
PRODUCT LIABILITY
The Company will face increasing exposure to product liability claims as it
increases its presence in commercial markets. Product liability claims may be
particularly significant in connection with the Company's commercial aircraft
and automobile products. The Company maintains product liability insurance,
including general product liability, special aircraft product liability, and
product recall insurance. In connection with its government business, product
liability defense is available to some extent under the so-called "government
contractor defense." In addition, the Company's product liability insurance also
provides protection with respect to exposure, if any, under government contracts
and products. The Company believes its insurance is adequate.
GOVERNMENT SAFETY REGULATIONS
The Company regularly monitors regulations adopted or being considered by
the Federal Aviation Administration ("FAA") relating to airlines, particularly
those relating to seating and restraints, and by the National Highway Traffic
Safety Administration ("NHTSA"), particularly those relating to airbags and
other safety features in automobiles, rail, and other mass transit vehicles.
Administratively promulgated regulations are typically subject to industry
resistance, comment periods, and significant delays in implementation. To the
extent that proposed regulations are withdrawn or that new or existing
regulations are subsequently amended, rescinded, or deadlines for compliance
extended, the demand for improved safety systems, such as those provided by the
Company, could be adversely impacted. See "Business -- Overview,"
"Business -- Operating and Growth Strategy -- Market and Regulatory Focus,"
"Business -- Overview of Markets and Industry --
12
<PAGE> 14
Commercial Airliner Safety Systems," and "Business -- Overview of Markets and
Industry -- Automobile Safety Systems."
HOLDING COMPANY STRUCTURE
The Company is a holding company with no business operations of its own.
The Company's only material assets are the outstanding capital stock of its
subsidiaries, through which it conducts its operations. See
"Business -- Operating and Growth Strategy." As a holding company, the Company
depends on dividends from its subsidiaries to pay dividends on the Convertible
Preferred Stock.
ENVIRONMENTAL REGULATIONS
The Company is subject to a variety of federal, state, and local government
regulations related to the storage, use, discharge, and disposal of toxic,
volatile, or otherwise hazardous chemicals used in its manufacturing processes.
There can be no assurance that changes in environmental regulations will not
impose the need for additional capital equipment or other requirements. Any
failure by the Company to obtain required permits for, control the use of, or
adequately restrict the discharge of, hazardous substances under present or
future regulations could subject the Company to substantial liability or could
cause manufacturing operations to be suspended. Such liability or suspension of
manufacturing operations could have a material adverse effect on the Company's
operating results and financial condition. See "Business -- Environmental
Regulations."
INTERNATIONAL TRADE AND CURRENCY EXCHANGE
Approximately 11% of the Company's revenue in fiscal 1995 was derived from
international customers. The Company has acquired manufacturing facilities
outside the United States in anticipation of an increased volume of business
overseas, particularly with respect to its inflatable restraint systems for
automobiles. Therefore, the Company may purchase an increasing portion of its
raw materials and equipment from foreign suppliers and incur labor costs in
foreign locations. The foreign sale of products and the purchase of raw
materials and equipment from foreign suppliers may be adversely affected by
political and economic conditions abroad. Protectionist trade legislation in
either the United States or foreign countries, such as a change in current
tariff structures, export compliance laws, or other trade policies, could
adversely affect the Company's ability to sell its products in foreign markets
and purchase materials or equipment from foreign suppliers.
DEPENDENCE ON MANAGEMENT AND OTHER KEY PERSONNEL
The Company's success depends upon the retention of key personnel,
particularly Stanley P. Desjardins, its founder and Chairman, and Donald W.
Townsend, its President. The Company has entered into five-year employment
contracts with Messrs. Desjardins and Townsend through the year 2001. The loss
of Messrs. Desjardins or Townsend or other existing key personnel or the failure
to recruit and retain necessary additional personnel would adversely affect the
Company's business prospects. Additionally, the covenants of one of the
Company's credit facilities requires that the Company continue to employ Messrs.
Desjardins and Townsend. There can be no assurance that the Company will be able
to retain its current personnel or attract and retain necessary additional
personnel. See "Business -- Employees" and "Management."
CONTROL BY MANAGEMENT
Following the completion of this offering and assuming the conversion of
the Convertible Preferred Stock into Common Stock, the directors and executive
officers of the Company will own an aggregate of 3,901,474 shares of Common
Stock, or approximately % of the outstanding Common Stock of the Company,
of which Stanley P. Desjardins owns 3,555,752 shares. Through the ownership of
such Common Stock, the ability to elect or otherwise designate members of the
Board of Directors, as a practical matter, will continue to reside with the
current management of the Company. The directors and executive officers have the
right to acquire additional shares upon exercise of options granted under the
Company's stock option plans, and the
13
<PAGE> 15
executive officers may acquire additional shares under the Company's Employee
Stock Purchase Plan. See "Principal Shareholders," "Management -- Stock
Options," and "Management -- Employee Stock Purchase Plan."
SHARES ELIGIBLE FOR FUTURE SALE
As of September 30, 1996, the Company had 8,977,623 shares of Common Stock
outstanding, of which 3,682,049 shares are "restricted securities" (the
"Restricted Shares") as that term is defined in Rule 144 under the Securities
Act of 1933, as amended (the "Act"). Such Restricted Shares may be subject to
volume and other resale limitations described below. The directors and executive
officers have agreed with the Company at the request of the Representative not
to sell or otherwise dispose of any shares of Common Stock in the public market
for a period of 90 days after the date of this Prospectus without the prior
written consent of the Representative. In general, under Rule 144 as currently
in effect, any person (or persons whose shares are aggregated for purposes of
Rule 144) who beneficially owns restricted securities with respect to which at
least two years have elapsed since the later of the date the shares were
acquired from the Company or from an affiliate of the Company, is entitled to
sell, within any three-month period, a number of shares that does not exceed the
greater of (i) 1% of the then outstanding shares of Common Stock of the Company,
or (ii) the average weekly trading volume in Common Stock during the four
calendar weeks preceding such sale. Sales under Rule 144 also are subject to
certain manner-of-sale provisions and notice requirements and to the
availability of current public information about the Company. A person who is
not an affiliate, has not been an affiliate within three months prior the sale,
and who beneficially owns restricted securities with respect to which at least
three years have elapsed since the later of the date the shares were acquired
from the Company or from an affiliate of the Company, is entitled to sell such
shares under Rule 144(k) without regard to any of the volume limitations or
other requirements described above. See "Principal Shareholders -- Shares
Eligible For Future Sale" and "Underwriting."
REGISTRATION RIGHTS
In September 1996, the Company issued $14.3 million principal amount of the
10% Notes in a private placement. The 10% Notes are convertible into
approximately 850,000 shares of Common Stock. The Company committed to use its
best efforts to file a registration statement in November 1996 covering resales
by the holders of the Common Stock issuable upon conversion of the 10% Notes. In
addition, for the term of the 10% Notes, the holders of at least 25% of the 10%
Notes, or Common Stock if converted, may require the Company to file a
registration statement under the Act with respect to the Common Stock underlying
the Notes. The Company also committed to use its best efforts to cause such
registration statement to become effective and will bear the expenses associated
with the registration. Sales of substantial amounts of Common Stock in the
public market subsequent to the completion of this offering, and the possibility
that such sales may be made, could adversely affect the prevailing market price
of the Company's Common Stock into which the Convertible Preferred Stock may be
converted. See "Description of Other Capital Stock and Debt Securities."
NO PRIOR PUBLIC MARKET
There has been no public market for the Convertible Preferred Stock prior
to this offering, and there can be no assurance that such market will develop or
be sustained upon completion of this offering.
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<PAGE> 16
USE OF PROCEEDS
The net proceeds of the 1,200,000 shares being offered hereby, after
deducting underwriting discounts and offering expenses, are estimated to be
approximately $27.5 million. The Company plans to use approximately $6.0 million
of the net proceeds to establish new and expand existing manufacturing
facilities, primarily for the manufacture of aircraft and rail seating systems
and components related to the Company's automobile side-impact inflatable
restraint system. The Company also intends to use approximately $4.8 million of
the net proceeds for repayment of various debt obligations, of which
approximately $2.0 million was included in the current portion of long-term debt
at June 30, 1996. The indebtedness to be repaid was incurred primarily to fund
equipment purchases. The remaining net proceeds will be used for working capital
and other general corporate purposes, including potential future acquisitions.
The Company does not have any acquisitions pending at this time.
Pending the uses described above, the Company will invest the net proceeds
of this offering in high quality government and short-term investment grade,
interest bearing securities.
The foregoing represents the Company's best estimate of its allocation of
the proceeds of this offering based upon its present plans and business
conditions. However, there can be no assurance that unforeseen events or changed
business conditions will not result in the application of the proceeds of this
offering in a manner other than as described in this Prospectus. Any such
reallocation of the net proceeds of this offering would be substantially limited
to the categories set forth above.
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<PAGE> 17
CAPITALIZATION
The following table sets forth (i) the actual capitalization of the Company
at June 30, 1996; (ii) the pro forma capitalization giving effect to the
issuance of $14.3 million long-term debt; and (iii) the capitalization as
adjusted to give the effect to the estimated net proceeds of this offering of
$27.5 million. See "Use of Proceeds" and Consolidated Financial Statements
contained elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1996(1)
------------------------------------------
ACTUAL PRO FORMA(3) AS ADJUSTED
--------- ------------ -----------
(Dollars in thousands)
<S> <C> <C> <C>
SHORT-TERM DEBT:
Revolving line of credit............................. $ 6,700 $ -- $ --
Current portion of long-term debt.................... 4,891 4,891 2,848
------- ------- -------
11,591 4,891 2,848
------- ------- -------
LONG-TERM DEBT:
12% Senior Subordinated Notes Due December 1998...... 5,700 5,700 5,700
10% Senior Subordinated Convertible Notes due
September 1999.................................... 14,300 14,300
Mortgage notes and other(2).......................... 3,725 3,725 964
------- ------- -------
9,425 23,725 20,964
------- ------- -------
SHAREHOLDERS' EQUITY:
Preferred Stock, par value $.05 per share; 50,000,000
shares authorized; no shares outstanding and
1,200,000 shares as adjusted...................... -- -- 60
Common stock, par value $.01 per share; 50,000,000
shares authorized; 8,966,442 shares issued........ 90 90 90
Additional paid-in capital........................... 38,697 38,697 66,137
Retained earnings.................................... 6,105 6,105 6,105
------- ------- -------
44,892 44,892 72,392
Total capitalization................................... $ 65,908 $ 73,508 $96,204
======= ======= =======
</TABLE>
- ---------------
(1) Excludes shares of Common Stock reserved for issuance under stock option
plans, the Employee Stock Purchase Plan and an estimate of 850,000 shares of
Common Stock reserved for issuance upon conversion of the 10% Notes. See
"Management -- Stock Option Plans, "Management -- Employee Stock Purchase
Plan" and "Description of Other Capital Stock and Debt Securities."
(2) Consists of various loans payable, secured by property and equipment;
unsecured installment notes; and obligations under capital leases. See Note
8 to Consolidated Financial Statements.
(3) Actual June 30, 1996 amounts adjusted to reflect the issuance of $14.3
million of the 10% Notes in September 1996 and the use of proceeds to repay
the June 30, 1996 balance of the revolving line of credit.
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<PAGE> 18
PRICE RANGE OF COMMON STOCK
The Company's Common Stock has been listed on the NYSE under the symbol
"SMU" since January 31, 1996. From October 14, 1993 until January 30, 1996, the
Company's Common Stock traded on the American Stock Exchange, and from April 14,
1992 until October 13, 1993, the Company's Common Stock traded on the Nasdaq
National Market System.
On September 28, 1995, the Company completed a 3-for-2 stock split for all
holders of record of the Company's Common Stock as of September 15, 1995,
thereby increasing the number of shares of the Company's Common Stock issued and
outstanding from 5,904,647 to 8,856,952.
Giving effect to the stock split, the following table sets forth the
quarterly high and low closing prices of the Company's Common Stock for each
calendar quarter of the years indicated.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
1994:
First Quarter...................................... $ 6.25 $ 3.58
Second Quarter..................................... 7.67 5.17
Third Quarter...................................... 12.50 6.67
Fourth Quarter..................................... 16.67 11.58
1995:
First Quarter...................................... $14.92 $12.83
Second Quarter..................................... 16.42 13.50
Third Quarter...................................... 25.13 14.83
Fourth Quarter..................................... 24.13 16.50
1996:
First Quarter...................................... $19.25 $12.75
Second Quarter..................................... 20.63 15.88
Third Quarter...................................... 18.38 15.75
Fourth Quarter (through October 3, 1996)........... 15.75 14.25
</TABLE>
The number of holders of the Common Stock of the Company, including
beneficial holders of shares held in street name, is estimated to be in excess
of 2,500. On October 3, 1996, the closing price of the Common Stock was $14.25
per share.
DIVIDEND POLICY
The Company has never paid any cash dividends and does not plan to pay cash
dividends on its Common Stock in the foreseeable future. Instead, the Company
intends to apply any earnings to the expansion and development of its business.
Any payment of cash dividends on its Common Stock in the future will depend upon
the Company's earnings, financial condition, capital requirements, restrictions
imposed by creditors of the Company, including restrictions in the loan
agreement pertaining to the Company's Credit Agreement with Wells Fargo Bank
N.A. and in the Indenture governing the 12% Notes and the 10% Notes, and other
factors which the Board of Directors deems relevant.
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<PAGE> 19
SELECTED CONSOLIDATED FINANCIAL DATA
(Dollars in thousands, except per share data)
The Selected Consolidated Financial Data presented below has been derived
from historical audited consolidated financial statements of the Company for
each of the five years in the period ended December 31, 1995 and the unaudited
interim consolidated financial statements of the Company for the six-month
periods ended June 30, 1995 and 1996. The financial statements included
elsewhere herein at December 31, 1994 and 1995 and for the three years in the
period ended December 31, 1995 have been audited by Deloitte & Touche LLP,
independent auditors. The interim consolidated financial statements for the
six-month periods ended June 30, 1995 and 1996 are unaudited, but in the opinion
of management of the Company, reflect all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of the consolidated
financial data for such periods. Operating results for the six months ended June
30, 1996 are not necessarily indicative of the results that may be expected for
the year ending December 31, 1996. The following data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Company's Consolidated Financial Statements
and the Notes thereto.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------------------- -------------------
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenue.................................... $15,144 $18,833 $24,781 $41,158 $59,089 $28,802 $36,358
Cost of revenue............................ 9,967 12,135 15,728 27,709 36,622 18,587 27,795
------- ------- ------- ------- ------- ------- -------
Gross margin............................... 5,177 6,698 9,053 13,449 22,467 10,215 8,563
Administrative expenses.................... 3,088 4,311 5,469 8,265 15,609 6,656 8,076
Unusual item............................... -- -- 919 -- -- -- --
------- ------- ------- ------- ------- ------- -------
Operating income........................... 2,089 2,387 2,665 5,184 6,858 3,559 487
Interest income............................ -- 57 -- 22 440 191 --
Interest expense........................... 357 209 800 1,832 2,030 1,162 791
------- ------- ------- ------- ------- ------- -------
Income (loss) before taxes................. 1,732 2,235 1,865 3,374 5,268 2,588 (304)
Income tax expense (benefit)............... 965 744 1,260 1,166 1,035 (121)
------- ------- ------- ------- ------- ------- -------
Earning (loss) before cumulative effect of
change in accounting principle(1)........ 1,732 1,270 1,121 2,114 4,102 1,553 (183)
Cumulative effect of change in accounting
principle(1)............................. -- -- -- -- -- -- (3,240)
------- ------- ------- ------- ------- ------- -------
Net earnings (loss)(1)(2).................. $ 1,732 $ 1,270 $ 1,121 $ 2,114 $ 4,102 $ 1,553 $(3,423)
======= ======= ======= ======= ======= ======= =======
PER SHARE AMOUNTS:
Earnings (loss) before cumulative effect of
a change in accounting principle(1)(3)... $ .31 $ .29 $ .22 $ .37 $ .48 $ .20 $ (.02)
Cumulative effect of change in accounting
principle(1)............................. -- -- -- -- -- -- (.36)
------- ------- ------- ------- ------- ------- -------
Net earnings (loss)(1)(2).................. $ .31 $ .29 $ .22 $ .37 $ .48 $ .20 $ (.38)
======= ======= ======= ======= ======= ======= =======
Weighted Average shares outstanding(4)..... 3,571,940 4,608,825 5,024,679 5,704,926 8,576,817 7,748,819 8,916,287
Ratio of Earnings to Fixed Charges and
Preferred Dividends(5)................... 3.85x 5.86x 3.00x 2.67x 3.20x 2.97x --
OTHER DATA:
Research and development:
Funded by the Company.................... $ 127 $ 240 $ 376 $ 688 $ 1,419 $ 729 $ 338
Funded through contracts................. 1,161 4,529 1,813 3,165 4,722 2,023 1,958
</TABLE>
18
<PAGE> 20
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------- JUNE 30,
1991 1992 1993 1994 1995 1996
------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Assets:
Current assets..................................... $ 7,014 $ 9,616 $13,779 $20,594 $37,264 $46,467
Property and equipment............................. 1,330 7,540 7,803 13,199 15,779 18,445
Deferred costs..................................... 542 595 1,460 1,460 6,385 406
Intangibles, patents and licenses.................. -- 169 3,517 12,164 13,870 13,715
Other.............................................. 187 87 228 274 1,441 1,426
------- ------- ------- ------- ------- -------
Total assets......................................... $ 9,073 $18,007 $26,787 $47,691 $74,739 $80,459
======= ======= ======= ======= ======= =======
Liabilities:
Current liabilities................................ $ 4,817 $ 5,567 $ 5,570 $15,358 $15,788 $25,984
Long-term debt..................................... 1,456 4,839 12,794 15,339 11,261 9,425
Other.............................................. -- 369 345 345 158 158
------- ------- ------- ------- ------- -------
Total liabilities.................................... 6,273 10,775 18,709 31,042 27,207 35,567
Shareholders' equity................................. 2,800 7,232 8,078 16,649 47,532 44,892
------- ------- ------- ------- ------- -------
$ 9,073 $18,007 $26,787 $47,691 $74,739 $80,459
======= ======= ======= ======= ======= =======
</TABLE>
- ---------------
(1) During the second quarter of 1996, the Company adopted a new method of
accounting for pre-contract costs. These costs were previously deferred and
recovered over the revenue streams from the Company's customers. Effective
January 1, 1996, these costs have been expensed. As a result, periods prior
to January 1, 1996 are not comparable. Net earnings and earnings per share
for the year ended December 31, 1995 and the six month period ended June 30,
1995 would have been $1,658,299, $.19, $1,116,402, and $.14, respectively,
if the new method of accounting had been adopted in such periods.
(2) Prior to the Company's April 1992 initial public offering, the Company was
an S corporation for tax purposes. Pro forma net earnings for 1991 and 1992,
reflecting pro forma tax provisions and the elimination of certain expenses,
were $1,123,000, and $1,313,000, respectively.
(3) Amounts for 1991 and 1992 are pro forma earnings per share reflecting pro
forma income noted in (2) above.
(4) The Company effected a 3-for-2 split of its Common Stock on September 28,
1995. As a result, all shares and related references have been restated for
all prior periods and transactions.
(5) Ratio of earnings to fixed charges and preferred dividends is computed by
dividing (i) earnings (loss) before income taxes plus fixed charges and
preferred stock dividend requirements by (ii) fixed charges and preferred
stock dividend requirements. Fixed charges consist of interest on
indebtedness, amortization of debt issuance cost, and the estimated interest
component (one-third) of rental and lease expense. There were no preferred
stock dividend requirements during the periods presented. Earnings were
insufficient to cover fixed charges by $304,000 for the six months ended
June 30, 1996.
19
<PAGE> 21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis provides information that the
Company's management believes is relevant to an assessment and understanding of
the Company's results of operations and financial condition for the three years
ended December 31, 1995 and the six months ended June 30, 1996 compared to the
same periods of the prior years. This discussion should be read in conjunction
with the Consolidated Financial Statements and the Notes thereto included
elsewhere in this Prospectus. This Prospectus contains certain forward-looking
statements and information. The cautionary statements made in this Prospectus
should be read as being applicable to all related forward-looking statements
wherever they appear in this Prospectus. The Company's actual results could
differ materially from those discussed herein. Factors that could cause or
contribute to such differences include those discussed under "Risk Factors," as
well as those discussed elsewhere herein. See "Business."
OVERVIEW
In 1993, management made a strategic decision to enter the commercial
aircraft seating market to bring its proprietary energy-absorption technologies
to a new industry and take advantage of positive industry trends. To implement
its decision, the Company completed three acquisitions that allowed it to
develop the necessary infrastructure to support future growth. In August 1993,
the Company acquired Airline Interiors, Inc. (the "Airline Acquisition"), which
was primarily involved with the refurbishment, reupholstery, reconditioning, and
reconfiguring of existing passenger seats. The Airline Acquisition provided
certain FAA certifications, enhanced the Company's management team and customer
base, and provided substantial assembly capacity. During 1994, the Company
acquired Coach and Car Equipment Corporation ("Coach and Car") and Artcraft
Industries Corp. ("Artcraft"). The acquisitions of Coach and Car and Artcraft
are collectively referred to as the 1994 Acquisitions. The 1994 Acquisitions'
existing operations included providing a majority of all manufacturing and
refurbishment of rail and mass transit seating systems in North America. The
1994 Acquisitions also provided the Company with substantial large-scale
manufacturing capacity and synergies, which will be utilized in the production
of its 16g Seat. The Company has taken advantage of the synergies between these
three entities in the manufacture of rail and mass transit seating systems.
While each of these businesses individually contribute to the consolidated
earnings of the Company, their full strategic value will not be realized until
the Company begins large scale manufacturing of its 16g Seat. As a result of the
size and timing of its acquisitions, the financial statements for the years
1993, 1994, and 1995 may not be directly comparable.
Simula's revenue has historically been derived from three sources: sales of
Company manufactured products; contract research and development for third
parties; and technology sales and royalties. A substantial portion of its
current revenue is accounted for under the percentage of completion method of
accounting. Under this method, revenue is recorded as production progresses so
that revenue less costs incurred to date yields the percentage of gross margin
estimated for each contract. Overall gross margin percentages can increase or
decrease based upon changes in estimated gross margin percentages over the lives
of individual contracts. During 1993, 1994, and 1995, the Company incurred costs
related to third-party contract research of $1.8 million, $3.2 million and $4.7
million, respectively. Technology sales and royalties in 1993, 1994, and 1995
totaled $100,000, $400,000 and $2,800,000, respectively.
The Company is a holding company for wholly owned subsidiaries, principally
including Simula Government Products, Inc. ("Simula Government Products"), an
entity conducting the Company's defense business, and Intaero, Inc. ("Intaero"),
an entity conducting the Company's commercial seating businesses. The Company
has established several developmental stage companies that engage primarily in
research and development activities, with only minimal current revenue. In 1995,
the Company established Simula Automotive Safety Devices, Inc. ("Simula ASD"),
an entity which conducts substantially all of the Company's operations
encompassing inflatable restraints for automobiles. Simula ASD will not have
significant operations until 1997.
20
<PAGE> 22
In order to prepare for the production of the 16g Seat in commercial
quantities and the commercial introduction of the ITS and bulkhead airbag, the
Company has incurred significant pre-contract costs, which have been charged to
expense in 1996. In prior years, such costs were capitalized. See Note 20 to the
Consolidated Financial Statements. In order to support the introduction and
production of these products, the Company has incurred plant start-up costs and
has also significantly increased expenses applicable to its corporate and sales
infrastructure, which expenses were necessary to develop markets and support the
production of these products that are anticipated to produce revenue in late
1996 and 1997. In addition, the Company has accelerated research and development
expenses applicable to potential new products related to these technologies. The
incurrence of all of these costs resulted in a loss before the cumulative effect
of the change in accounting principle of $183,000 for the six months ended June
30, 1996 and are anticipated to result in a net loss in the third quarter and
possibly the fourth quarter of 1996. The Company is unable to estimate the range
of loss at this time. The Company's contracts for the ITS and bulkhead airbag
provide for deliveries of commercial quantities in 1997.
RESULTS OF OPERATIONS (DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------- -------------------
1993 1994 1995 1995 1996
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
REVENUE
Simula Government Products............. $21,344 $22,034 $25,533 $12,055 $18,752
Intaero................................ 3,437 18,093 29,609 15,051 16,702
Other.................................. 0 1,031 3,947 1,696 904
------- ------- ------- ------- -------
Total.......................... 24,781 41,158 59,089 28,802 36,358
======= ======= ======= ======= =======
GROSS MARGIN
Simula Government Products............. 8,210 8,652 9,632 4,914 5,399
Intaero................................ 843 4,944 9,952 4,464 3,879
Other.................................. 0 (147) 2,883 837 (715)
------- ------- ------- ------- -------
Total.......................... 9,053 13,449 22,467 10,215 8,563
======= ======= ======= ======= =======
ADMINISTRATIVE EXPENSES
Simula Government Products............. 4,760 5,114 6,337 2,852 3,186
Intaero................................ 709 2,775 6,885 2,544 3,763
Other.................................. 0 376 2,387 1,260 1,127
------- ------- ------- ------- -------
Total.......................... 5,469 8,265 15,609 6,656 8,076
======= ======= ======= ======= =======
OPERATING INCOME
Simula Government Products............. 2,448 3,038 3,295 2,062 2,213
Intaero................................ 217 2,168 3,067 1,920 116
Other.................................. 0 (22) 496 (423) (1,842)
------- ------- ------- ------- -------
Total.......................... 2,665 5,184 6,858 3,559 487
======= ======= ======= ======= =======
</TABLE>
21
<PAGE> 23
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the components
of the consolidated statements of income expressed as a percentage of revenues.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------------- ---------------
1991 1992 1993 1994 1995 1995 1996
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Revenue.................................. 100 % 100 % 100 % 100 % 100 % 100 % 100 %
Cost of revenue.......................... 66 64 63 67 62 65 76
Gross margin............................. 34 36 37 33 38 35 24
Administrative expenses.................. 20 23 22 20 26 23 22
Unusual item............................. 4
--- --- --- --- --- --- ---
Operating income......................... 14 13 11 13 12 12 2
=== === === === === === ===
</TABLE>
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1995
During the second quarter of 1996, the Company adopted a new method of
accounting for pre-contract costs as more fully described in Note 20 to the
Consolidated Financial Statements. Beginning in 1996, the Company now expenses
pre-contract costs as incurred rather than deferring these costs to be amortized
over the revenue streams from the Company's customers. This change resulted in a
cumulative catch-up adjustment for the effect of costs capitalized as of
December 31, 1995. The effect of the change on the six months ended June 30,
1996 was to increase cost of revenue by $3.1 million, resulting in a reduction
in net earnings before the cumulative effect of a change in accounting principle
of $1.8 million ($.21 per share) net of the related income tax benefit. In
addition, net income for the six months ended June 30, 1996 was reduced by $3.2
million ($.36 per share) for the cumulative effect on prior years (to December
31, 1995) of changing accounting for pre-contract costs. Assuming the change in
accounting had been applied retroactively to the six months ended June 30, 1995,
cost of revenue would have increased approximately $728,000 to $19.3 million and
gross margins would have decreased from 35% to 33%.
Revenue for the six months ended June 30, 1996 increased 26% to $36.4
million from $28.8 million for the comparable period in 1995. Revenue for Simula
Government Products increased 56%, or $6.7 million, primarily as a result of
increased contract activity, principally resulting from an armor contract
completed during the second quarter of 1996. Revenue for Intaero increased 11%,
or $1.6 million, primarily as a result of increased sales of the 16g Seat. Other
revenue decreased approximately $800,000, primarily as a result of the sale of
certain non-strategic assets in 1995.
Gross margins for the six months ended June 30, 1996 decreased 16% to $8.6
million from $10.2 million for the comparable period in 1995. As a percent of
sales, gross margin decreased to 24% from 35% for the comparable period in 1995.
As noted above, cost of revenue for the six-month period ended June 30, 1996
includes $3.1 million for pre-contract costs. This amount was significantly
greater than the pre-contract costs of approximately $728,000 incurred and
capitalized in the six months ended June 30, 1995. These costs primarily relate
to adaptations of the existing capabilities of the ITS and bulkhead airbag
products, which are not yet in production, and the 16g Seat, which is in the
initial phase of production. The inclusion of these costs is in part offset by
increased margins attributable to the increased revenue at Simula Government
Products. Excluding the effect of expensing pre-contract costs, the gross margin
percentage for the six months ended June 30, 1996 would have been 32%. The gross
margin percentage at Simula Government Products decreased from 41% to 29%,
primarily as a result of the expensing of pre-contract costs and the lower gross
margin percentages from the mix of contracts in process or completed during the
period including the armor contract completed in the second quarter of 1996,
which had lower than anticipated margins due to the accelerated delivery
requirements. The gross margin percentage at Intaero decreased from 30% to 23%,
primarily as a result of the expensing of pre-contract costs. Such decrease in
the gross margin percentage at Intaero also resulted from the lower gross margin
from the initial deliveries of the 16g Seat compared to the
22
<PAGE> 24
historic margins from aircraft seat refurbishment services, and the accelerated
completion of two lower-margin rail seating contracts that were committed to by
Coach and Car prior to its acquisition by the Company. The negative gross
margins in "Other" are the result of pre-contract and related product costs,
principally related to the ITS and 16g Seat, incurred by the Company's
subsidiaries that are not yet generating significant revenue.
Administrative expenses for the six months ended June 30, 1996 increased
21% to $8.1 million from $6.7 million for the comparable period in 1995. These
increases are primarily attributable to the continued expansion of the corporate
and sales infrastructure related to the commercial introduction of the Company's
technologies, principally the 16g Seat by Intaero. Administrative expenses also
include research and development costs related to the development of sensors. In
addition, general administrative expenses increased as a result of increased
activity.
Operating income for the six months ended June 30, 1996 decreased $3.1
million to $500,000. The reduction in operating income resulted primarily from
the reduction in gross margins attributable to the expensing of pre-contract
costs and increased administrative expenses noted above.
Interest expense net of interest income for the six months ended June 30,
1996 decreased 18% to approximately $800,000 from $1.0 million for the
comparable period in 1995 as a result of the higher level of debt outstanding in
1995 prior to the Company's public offering in April 1995, offset by interest
income earned on the proceeds from such offering in 1995.
The effective income tax rate approximates 40% for both the 1996 and 1995
periods.
1995 COMPARED TO 1994
Revenue for the year ended December 31, 1995 increased 44% to $59.1 million
from $41.2 million in 1994. Simula Government Products revenue increased 16%, or
$3.5 million, as a result of increased contract activity including increases in
funded research and development. Intaero revenue increased 64%, or $11.5
million, primarily as a result of the full year inclusion of the 1994
Acquisitions and the initial delivery of the 16g Seats. Other revenue increased
principally as a result of technology sales and royalties of approximately $2.0
million in 1995.
Gross margin for the year ended December 31, 1995 increased 67% to $22.5
million from $13.4 million for the comparable period in 1994. The increase is
attributable to increased revenue noted above. As a percent of sales, gross
margin increased to 38% from 33%. Gross margin percentages of Simula Government
Products in 1995 decreased to 38% from 39%. The gross margin percentage at
Intaero increased to 34% from 27% in 1994, primarily as a result of the full
integration of the 1994 Acquisitions, which allowed the Company to increase its
vertical integration, thereby eliminating several third-party vendors. These
benefits were offset to a certain extent by the acceleration of two low-margin
contracts that were committed to by Coach and Car prior to its acquisition by
the Company. The gross margin percentage of the Other category increased to 73%
from a negative margin of (14%) in 1994 as a result of the technology sales and
royalties.
Administrative expenses for the year ended December 31, 1995 increased 89%
to $15.6 million from $8.3 million for the comparable period in 1994. As a
percent of sales, administrative expenses increased to 26% from 20%. Research
and development expenses increased 106% to $1.4 million from approximately
$700,000 as a result of the Company's increased investment in several products
and developmental subsidiaries that are expected to begin generating revenue
subsequent to 1996. Depreciation and amortization expenses increased 86% to $3.1
million from $1.7 million, primarily as a result of amortization relating to the
1994 Acquisitions. Simula Government Products administrative expenses increased
24% or $1.2 million, primarily as a result of increased activity and increased
research and development. Intaero's administrative expenses increased 148% or
$4.1 million, primarily as a result of the inclusion of the acquired companies
for the entire 1995 period and the expansion of the corporate and sales
infrastructure necessary to support the anticipated increase in activity related
to the 16g Seat. Other administrative expenses increased 536% or $2.0 million,
primarily as a result of an increased investment in personnel and operations of
the Company's developmental subsidiaries.
23
<PAGE> 25
Operating income for the year ended December 31, 1995 increased 32% to $6.9
million from $5.2 million for the comparable period in 1994. Operating income
increased as a result of the increase in revenue and gross margin percentage,
partially offset by the increase in administrative costs.
Interest expense for the year ended December 31, 1995 increased by
approximately $200,000 over the comparable period in 1994 as a result of a
higher average debt balance in 1995. Additional debt was incurred to finance
working capital requirements and assumed in connection with the 1994
Acquisitions. Approximately $8.2 million of debt was retired in the second
quarter of 1995 with a portion of the proceeds of the Company's 1995 public
offering.
The effective income tax rate was approximately 22% for 1995 and 37% for
1994. The decrease in the effective tax rate in 1995 is attributable to the
realization of tax attributes of an acquired subsidiary. The effects of the tax
attributes of this acquired subsidiary were substantially recognized in 1995.
Accordingly, management does not expect that the remaining tax attributes will
have a significant impact on the Company's effective income tax rate in future
periods. See Note 10 to the Consolidated Financial Statements.
1994 COMPARED TO 1993
Revenue for the year ended December 31, 1994 increased 66% to $41.2 million
from $24.8 million for the comparable period in 1993. Revenue for Simula
Government Products increased approximately 3% or $700,000, primarily as of
result of increased activity in research and development contracts. Revenue for
Intaero increased 426%, or $14.7 million as a result of a full year's inclusion
of the Airline Acquisition and a partial year's inclusion of the 1994
Acquisitions. Other revenue increased $1.0 million as a result of the
establishment of several early-stage companies in 1994.
Gross margins for the year ended December 31, 1994 increased 49% to $13.4
million from $9.1 million for the comparable period in 1993. The increase was a
result of the increase in revenue noted above. As a percentage of sales, gross
margin decreased to 33% in 1994 from 37% in 1993. Gross margin percentage of
Simula Government Products in 1994 and 1993 was relatively constant at 39%. The
gross margin percentage at Intaero increased to 27% in 1994 from 25% in 1993,
primarily as a result of the partial year inclusion of the 1994 Acquisitions
which had a higher gross margin percentage.
Administrative expenses for the year ended December 31, 1994 increased 51%
to $8.3 million from $5.5 million in 1993. Research and development expense
increased 83% to $700,000 from $400,000 in 1993. Depreciation and amortization
expense increased $900,000 to $1.7 million from $800,000 as a result of the
Airline Interiors acquisition. Administrative expenses for Simula Government
Products increased 7% for 1994 from amounts for 1993 as a result of normal cost
increases. Administrative expenses for Intaero increased 291% or $2.1 million as
a result of the inclusion of administrative expenses of the acquired companies,
including amortization of intangibles resulting from their respective
acquisitions.
The unusual item in 1993 resulted from the Company's obligation to pay
certain settlement costs incurred in connection with a DCAA audit and the
related Settlement Agreement and Release dated and effective on September 17,
1993.
Operating income of the Company increased 95% in 1994 as compared to 1993.
Operating income of Simula Government Products increased in 1994 compared to
1993, primarily as a result of the absence of an unusual item in 1994. Operating
income of Intaero increased as a result of the incremental income recorded by
Intaero.
Interest expense for 1994 increased from 1993 as a result of the issuance
of the 12% Notes, the Series B 9% Convertible Notes (the "9% Notes"), and debt
incurred to finance the working capital of Intaero. The increase in interest
expense of Intaero represents the cost associated with debt incurred and assumed
in the Airline Acquisition and the 1994 Acquisitions.
The effective income tax rate approximated 40% for both such periods.
24
<PAGE> 26
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically financed its operations through operating cash
flow, lines of credit, and debt and equity offerings. In August 1993, the
Company began to acquire companies, primarily with borrowed funds. The Company
issued $5.7 million of the 12% Notes in connection with the acquisition of
Airline Interiors in August 1993; the Company issued approximately $6.5 million
of the 9% Notes in connection with the acquisition of Coach and Car in June
1994; and the Company issued 67,228 shares Common Stock and assumed a bank line
of credit of $1.7 million, of which $650,000 was repaid simultaneously with the
closing, in connection with the acquisition of Artcraft in September 1994. But
for the acquisitions, the Company would have been able to satisfy its financial
needs through operating cash flow. These acquisitions resulted in substantially
increased working capital requirements to fund the large vendor payable balances
at the date of acquisition and to increase receivables and inventories for all
of the acquired companies after the respective dates of acquisition. In
addition, restrictive covenants under the Company's then existing bank line of
credit required the Company to seek alternative financing. In September 1994,
the Company obtained an aggregate of $6.2 million of financing from three
non-bank lenders, including $2.0 million from the Company's Chairman.
The 9% Notes were converted into Common Stock during 1994. The Company
completed a public offering of Common Stock, which closed and funded in April
1995. As a result of that offering, 2,328,750 shares were sold by the Company at
$12 per share. Approximately $8.2 million of indebtedness was repaid at that
time, including the $6.2 million described above.
On October 20, 1995, the Company executed a loan agreement with First
Interstate Bank, N.A. (now Wells Fargo Bank) to provide up to $15 million of
credit. Ten million dollars of the facility is available under a revolving
credit arrangement to finance working capital requirements and $5 million is
available under a five-year amortizing term loan for the financing of U.S. based
equipment. The outstanding balances of the revolving credit facility and
equipment facility at June 30, 1996 were $6.7 million and $3.1 million,
respectively. In September 1996, the Company issued $14.3 million of the 10%
Notes in a private placement. Proceeds from the 10% Notes were used to repay the
balance outstanding under the revolving line of credit at June 30, 1996.
The Company's liquidity is greatly impacted by the nature of the billing
provisions under its contracts. Generally, in the early period of contracts,
cash expenditures and accrued profits are greater than allowed billings, while
contract completion results in billing previously unbilled costs and profits.
Contract receivables, net of advances on contracts, increased $6.1 million for
the six months ended June 30, 1996 and $15.1 million for the year ended December
31, 1995, principally due to the timing of billings and increased volume at
Coach and Car and Simula Government Products.
Operating activities required the use of $8.1 million of cash during the
six months ended June 30, 1996 compared to the use of $7.3 million of cash
during the same period in 1995. This resulted primarily from the working capital
required for growth in contract activity and receivables noted above, the
funding of the $4.9 million investment in inventories, primarily at Simula
Government Products for upcoming contracts, and Airline Interiors for the 16g
Seat and pre-contract costs. Operating activities required the use of $14.5
million of cash during 1995 compared to $2.7 million of cash in 1994. This
resulted primarily from the working capital required for the growth in contract
activity and receivables noted above and from the funding of the pre-contract
costs for technologies being adapted to meet customers' requirements. The
majority of the pre-contract costs incurred in 1995 and 1996 related to the ITS,
16g Seat, and bulkhead airbag. See "Business" for a discussion of such products.
For the six months ended June 30, 1996, cash used in investing activities
was $3.9 million, which was expended primarily for the purchase of manufacturing
equipment for the ITS and computer and test equipment at Simula Government
Products. For 1995, cash used in investing activities was $3.4 million and was
expended primarily for the acquisition of fixed assets.
Cash provided by financing activities was $9.2 million for the six months
ended June 30, 1996, of which $6.7 million resulted from borrowings on the
revolving credit facility primarily for working capital needs. The
25
<PAGE> 27
Company also borrowed $2.4 million under other borrowing arrangements, primarily
for the financing of fixed assets. Cash provided by financing activities for the
year ended December 31, 1995 was $20.1 million and primarily resulted from the
sale of the Company's Common Stock for $26.4 million offset by the net reduction
of borrowings of $6.3 million.
The Company believes that it will invest approximately $6.0 million in
property and equipment for the production of the l6g Seat and ITS over the next
year. In addition, the Company will invest approximately $17 million in working
capital related to the production and sales of such products. It is anticipated
that the cash flow from operations, borrowings under its bank credit facilities,
and the proceeds from this offering will be adequate to satisfy the Company's
capital requirements through 1997.
RESEARCH AND DEVELOPMENT
The Company's research and development occurs primarily under fixed-price,
government-funded contracts as well as Company-sponsored efforts. The revenue
received under government-funded contracts is recorded under the percentage
completion method of accounting, and the costs of independent research and
development efforts are expensed as incurred.
Historically, research and development efforts have fluctuated based upon
available government-funded contracts. As noted in Note 16 to the Consolidated
Financial Statements, the Company expended $2.2 million in unfunded research and
development in 1995 to advance its primary new commercial technologies.
SEASONALITY
The Company's operations and financial results are affected by the seasonal
variations in deliveries by suppliers. Historically, the Company has experienced
its highest level of deliveries of materials in the fourth quarter and its
lowest level of deliveries in the first quarter. Accordingly, the Company has
historically recorded its highest revenue in the fourth quarter and lowest
revenue in the first quarter.
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BUSINESS
OVERVIEW
The Company was formed in 1975 when its founder accepted a government
research contract to focus on engineering solutions that could be used to
protect the lives of American helicopter crews in crash situations. Because of
the rotary blade utilized by helicopters, helicopter pilots cannot eject in the
same manner as pilots in fixed-wing aircraft. The contract led to the Company's
development of a crashworthy seat, first introduced in the Army Blackhawk
helicopter.
The core technology developed under the Company's first contract was
energy-absorbing seating which, upon impact, absorbs shock that otherwise would
be directed onto the occupant. In the course of supplying the United States
armed forces and agencies with crashworthy seating, the Company performed years
of research and tests and developed proprietary databases with respect to how
materials stretch, bend, and break. Similarly, in an effort to provide
additional protection for pilots, the Company conducted extensive research and
development in the late 1970s on armor systems composed of a variety of
lightweight, high-strength composites and ceramics. Such lightweight armor
systems were eventually incorporated into most helicopter seating systems. This
armor technology has also led to the development of a variety of other armor and
occupant protection systems. In the 1980s, the Army asked the Company to develop
a solution to injuries suffered by pilots caused by contact with instrumentation
on hard landings or during crashes. From its extensive research, the Company
developed its inflatable restraint systems, which include harnesses, belts, and
other types of sophisticated airbags. The Company leveraged this evolving
research and development into applications in a variety of technologies and
products.
The Company's operations can be described in three phases: (i) providing
contracted research and development activities to third parties to solve
specific safety related issues and undertaking Company funded research to expand
existing technologies to new applications, (ii) leveraging such research into
advanced, high-performance, cost-efficient product solutions to influence market
preferences in a wide range of applications and industries, and (iii)
manufacturing, selling, and marketing such products. As a result of the
development of the Company's core technologies, the Company, through its 10
operating subsidiaries, currently operates in four principal areas: (a) the
commercial airliner and rail business, (b) government and defense contracts, (c)
inflatable restraints for automobiles and aircraft, and (d) contracted research
and testing services.
The Company regards its reputation and relationship with various military
branches and regulatory agencies throughout the world, including the FAA, NHTSA,
National Aeronautics and Space Administration ("NASA"), and the National
Transportation Safety Board ("NTSB") to be a significant asset and intends to
continue to pursue government-funded research and development when it can retain
proprietary rights. The Company intends to continue to expand its government
business; however, this segment's revenue has declined as a percentage of
overall Company revenue as demand for the Company's commercial products has
steadily increased.
OPERATING AND GROWTH STRATEGY
The Company's strategy is to maintain its leading position in creating and
applying proprietary technologies and advanced solutions to safety related
problems and to develop its products for commercial sale to a wide range of
transportation customers. The key elements in executing this strategy are to (i)
develop and utilize technology to enhance current products and create new
products, (ii) focus on new product markets and regulatory requirements, (iii)
expand manufacturing capabilities and maximize internal synergies, and (iv)
pursue acquisitions and strategic alliances that complement existing businesses
or provide manufacturing or distribution opportunities.
INNOVATION, ENGINEERING, AND TECHNOLOGY DEVELOPMENT
The Company focuses on the development of technologically advanced,
high-performance, cost-efficient solutions to influence existing markets to move
in new directions or create entirely new markets. The
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Company's growth strategy is "engineering-driven," taking technologies learned,
developed, and refined in one arena, and applying them to another sector.
Management's objective is to selectively identify and manage engineering
solutions to create market opportunities rather than allow the Company's current
product base to define the Company's markets. The Company believes that its
competitive advantage is technology and innovation. The Company employs
approximately 120 engineers and scientists and maintains an active research and
development program to enhance its existing products and to develop new products
and product applications. The Company has a substantial base of proprietary
technologies embodied in numerous trade secrets, 13 patents, and 35 patents
pending. The Company enhances and supports products by the development of a
compatible family of products, such as its various inflatable restraint
technologies designed into four automobile applications and three aircraft
applications. The Company seeks to pursue a diverse technology and product base
that minimizes dependence on one or a few products and technologies.
MARKET AND REGULATORY FOCUS
The Company endeavors to demonstrate the technological feasibility of new
standards, provide the basis for new regulations, and utilize its technological
expertise to develop and introduce products that meet these new standards and
regulations ahead of its competitors. The Company seeks to remain at the
forefront of industry developments by being proactive in developing industry
trends and regulatory guidelines. The Company's long-standing involvement with
governmental departments and agencies facilitates its ability to anticipate
regulatory safety requirements and consumer safety issues and to develop
products that address these concerns. In this regard, the Company authors the
"Aircraft Crash Survival Design Guide," a five-volume text published by the
United States Army regarding crash survival technology, which is commonly used
worldwide as a guide in the design of crashworthy aircraft. The Company also
co-authored "The Transport Seat Performance and Cost Benefit Study," a study
commissioned by the FAA to analyze the performance of seats in commercial
airliner accidents. This study, which was first published in October 1986, was
cited as a principal consideration in the FAA's changes in commercial airliner
seat design specifications. The Company also owns and operates the International
Center for Safety Education ("ICSE"), a Phoenix-based training school
established in 1958 that sponsors courses which have been attended by more than
5,000 safety investigators from United States and foreign government agencies,
armed services, the aircraft industry, and the field of aviation medicine. The
function of ICSE is to teach the analysis of aircraft behavior in a crash, the
causes of injury or death to passengers and crew, and the design and structural
changes that can be made to improve survivability. See "Risk
Factors -- Government Safety Regulations."
EXPANDING MANUFACTURING CAPABILITIES AND MAXIMIZING INTERNAL SYNERGIES
The Company seeks to maintain integrated testing and manufacturing capacity
for its products; however, the Company may also subcontract certain
non-proprietary components of its products and provide its proprietary products
for integration and sale in the final products of customers. Over the last two
years, the Company has significantly expanded its manufacturing capabilities and
infrastructure, through both acquisitions and internal development, to support
the commercial production of several new product lines. In addition, the Company
has vertically integrated the manufacturing of several components used in its
seating systems, which has positively impacted overall profitability. The
Company expects to continue to expand its manufacturing capabilities, to develop
its infrastructure to support its new product development programs, and to enter
into licensing relationships to facilitate the distribution of its products. See
"Risk Factors -- Dependence on Industry Relationships."
EXPLORING ACQUISITION AND STRATEGIC ALLIANCE OPPORTUNITIES
The Company explores acquisition opportunities as they arise and enters
into strategic alliances when it believes such acquisitions or alliances will
enable the Company to introduce new products or enhance existing products, to
exploit its technologies or acquire complementary technologies, to improve its
manufacturing capabilities, to broaden its distribution channels, or to obtain
components or supplies necessary for its products. In its last three fiscal
years, the Company has experienced substantial growth resulting from strategic
acquisitions to maximize the market potential of new technologies, wider
application of technologies, and new
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product introductions. The Company has no present commitments or agreements with
respect to any additional acquisitions or alliances. See "Risk
Factors -- Acquisitions."
OVERVIEW OF MARKETS AND INDUSTRY
The Company believes that the entire transportation market is poised for
transformation as society's awareness of safety issues increases. Simula seeks
to position itself to benefit from consumer demand and government regulations
requiring progressive safety equipment on all forms of transportation, from
automobiles and aircraft, to school buses and high speed trains.
COMMERCIAL AIRLINER SAFETY SYSTEMS
At the end of 1995, there were approximately 11,000 passenger aircraft in
operation worldwide, representing over 2.0 million passenger seats. A study
conducted by the Boeing Commercial Airplane Group projects that 3,142 new
passenger aircraft will be put into service during the next five years,
replacing 1,532 older aircraft and adding 1,610 additional aircraft to airline
fleets. The study further projects that 14,054 aircraft will be manufactured and
put into service over the next 20 years, representing over 3.2 million passenger
seats.
Historically, annual production of new aircraft seats has been between
120,000 and 130,000 worldwide, exclusive of repaired and refurbished seats. The
Company believes that the recent growth of the airline industry, with the
resulting increase in passenger miles flown and the recent trend toward
installation of communication and entertainment systems in aircraft seats, will
increase demand for new seats. Additionally, there has been a recent significant
consolidation in the new seat industry, which the Company believes will benefit
it because of the desire of airlines to have a broader supplier base. Although
the Boeing study did not include refurbished seats, the Company also believes
that the demand for refurbished aircraft seats will grow as the airline industry
expands and new airlines purchase used aircraft.
Additionally, demand for both new and refurbished aircraft passenger seats
may further increase as new regulations are adopted or enforced that raise the
standards for crashworthiness in light of recent heightened attention to airline
safety and FAA initiatives. For example, the continued phase-in of FAA standards
requiring airliner passenger seats to withstand the force of 16g's (16 times the
force of gravity) in a crash is expected to create increased demand for new
aircraft seating systems meeting such requirements. Similarly, in 1988, the FAA
adopted regulations requiring that all passengers on an aircraft have a certain
specified level of head injury protection, as measured by Head Injury Criteria
("HIC"). Presently, most commercial aircraft certificated since the adoption of
the FAA regulations are flying under waivers granted by the FAA because such
aircraft do not meet the HIC criteria for passengers sitting immediately behind
bulkheads and other cabin partitions. The Company believes that the FAA waiver
policy will be reviewed and updated, thus creating an increased demand for
installation of inflatable bulkhead restraints on commercial aircraft to improve
the safety of passengers. See "Risk Factors -- Government Safety Regulations."
The FAA initiatives, and the resulting products of the Company focusing on
16g seats and bulkhead HIC standards, are intended to address injuries in
"survivable" crashes. According to NTSB statistics, there were 2,211 aviation
accidents in the United States in 1995. Commercial airlines were involved in 145
of such accidents, 20% of which had some fatalities and 80% of which resulted
only in injuries. Of these injuries, approximately 80% were to passengers and
20% to the crew. Common causes of aircraft accidents include overruns, hard
landings, and ground collisions with objects. These survivable accidents, which
have historically resulted in injuries, are the type for which the Company's
products increase safety and reduce the risk or severity of injuries on
commercial airliners.
AUTOMOBILE SAFETY SYSTEMS
Demand for automobile safety products results primarily from government
regulations and consumer demands. One regulation, adopted in 1984 by NHTSA,
provided the impetus for the development of the airbag market in the United
States by requiring installation of passive restraints in all new cars sold
after 1989. Passive restraints typically consist of either frontal airbags or
passive seat belt systems. Applicable 1991
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regulations require the use of airbags for both sides of the front passenger
compartment of all new cars sold in the United States by the 1998 model year.
Frontal impact is the leading cause of automobile injuries, accounting for
approximately 51% of fatal and injury automobile collisions. See "Risk
Factors -- Government Safety Regulations."
Consumer demand has outpaced regulation as the primary impetus for the
growth of the airbag market. According to publicly available automotive industry
data, in the 1989 model year, only 7% of the automobiles produced in the United
States included an airbag. This percentage increased to 28% in 1990, 42% in
1991, 59% in 1992, and 71% in 1993. Industry sources estimate that standard
driver's side airbags were installed in approximately 90% of 1995 model year
autos sold in the United States and, to a lesser extent, overseas. This high
degree of penetration has been achieved in advance of the regulatory deadline as
a result of consumer demand.
Side-impact collisions comprise the second leading cause of injury,
accounting for approximately 30% of all serious and fatal automobile injuries,
with a significant majority of such injuries caused by impact to the head and
neck. Present United States side-impact safety standards address the use of foam
padding and/or structural beams. However, NHTSA is currently examining head
crash standards, measured in quantifiable HICs for side-impact collisions.
Rollover injuries are the third leading cause of injury, accounting for
approximately 15% of all automobile injuries. The Company's ITS is the only
available product designed specifically to protect the head and neck of vehicle
occupants in side-impact collisions and potentially provide containment of
occupants in rollover and secondary impact collisions. See "Inflatable Restraint
Systems -- Automobile Inflatable Restraint Systems."
RAIL AND MASS TRANSIT SEATING SYSTEMS
The rail and mass transit industries are undergoing significant changes,
including growth in ridership and upgrading of fleets. Demand for rail and mass
transit seating results from the traveling public's desire for safety and
comfort as well as new laws and regulations, such as the Clean Air Act
Amendments of 1990 and the Americans with Disabilities Act, which require that
transit authorities and rail operators purchase new or retrofit existing
equipment.
The Company believes that the United States bus industry will purchase over
13,000 new buses between 1995 and 1998 and that railcar-purchasing agencies will
purchase up to 3,500 rail and mass transit cars during the same period. Rail and
mass transit seat manufacturers may also potentially benefit from the
development of lighter weight and high-speed rail systems in North America.
SAFETY RELATED MILITARY PRODUCTS
The Company believes that the United States government will continue to
fund a significant defense budget and will increasingly support high technology
and safety improvements. In part as a result of a shifting focus on tactical
weaponry designed to meet the needs of a military primarily adopting a
containment defense posture, certain strategic programs, such as the Stealth B-2
Bomber and the MX missile, have been cut or eliminated, while government
contract revenue for containment, mobile, and tactical programs has increased.
Certain technical military aircraft programs in which the Company is involved,
such as the Black Hawk helicopter, C-17 utility air transport, and Apache attack
helicopter, continue to be funded. The Company expects that pilot and passenger
safety will continue to be a critical part of these and other programs, although
no assurances can be offered in this regard. As part of the shifting focus of
the military, defense forces are more mobile than ever before, with the United
States and many foreign governments placing greater emphasis on transportation
safety. The United States is widely regarded as the world leader in military
safety and technology development, and expenditures in these areas are expected
to continue in the future as military forces become increasingly mobile. The
Company believes that there will be continued government spending on and demand
for military safety technology products, such as advanced energy absorbing
seating, lightweight armor systems, and inflatable restraints. See "Risk
Factors -- Substantial Reliance Upon Major Customers."
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EMERGING TECHNOLOGIES
The Company believes that regulatory mandates and consumer demands will
continue to drive the demand for advanced safety products and technologies,
creating opportunities for the development of new technologies and products and
providing additional markets for existing technologies. The Company believes
that included among the products and technologies with significant present or
future market potential in which the Company is developing capabilities are (i)
sensor equipment for the deployment of airbags, (ii) remote sensing devices
programmed to analyze the failure characteristics of vehicles and structures,
(iii) advanced lightweight composite materials, and (iv) other advanced
materials, such as urethanes and polymers, with a wide variety of potential
product applications, including high-performance windows for aircraft and
automobiles, and protective lenses and visors.
THE COMPANY'S PRODUCTS, SERVICES, AND EMERGING MARKETS
The Company's growth to date has resulted principally from its core
products and technologies involving energy-absorbing seating systems, armor, and
seat repair and refurbishment. The Company develops and markets these products
and technologies in four principal business areas: (i) the commercial airliner
and rail business, (ii) government and defense contracts, (iii) inflatable
restraints for automobiles and aircraft, and (iv) contracted research and
testing services. The following table shows each of the Company's products
currently in production and each of the products the Company expects to commence
delivery of on the rollout schedule indicated.
PRODUCT AND TECHNOLOGY STATUS
<TABLE>
<CAPTION>
PRODUCT/TECHNOLOGY STATUS PRODUCT ROLLOUT
- ----------------------------------------- ------------------------------- ----------------------
<S> <C> <C>
Energy Absorbing Seating
Systems -- Military.................... In Production 1975 -- On-going
Composite Armor.......................... In Production 1985 -- On-going
Airliner Seat Repair and Refurbishment... In Production Acquired 1993 -- On-
going
Rail and Transit Seating................. In Production Acquired 1994 -- On-
going
16g Seats................................ In Production Rollout Late 1995 --
Commercial Production
Late 1996
Inflatable Tubular Structure............. Low Volume Production 1997
Bulkhead Airbag System................... Certified/Ready for Production 1997
Cockpit Airbag System.................... Ready for Production 1997
Inflatable Body and Head Restraint
System................................. Ready for Production 1997
</TABLE>
ENERGY ABSORBING SEATING SYSTEMS AND COMPONENTS
Military Aircraft Seating Systems. The Company has been a major supplier
of energy-absorbing seating systems for military helicopters and other military
aircraft to various branches of the United States armed forces and their prime
defense contractors for approximately 20 years. The seating systems focus on
reducing injury and increasing survivability in crashes involving aircraft.
These crashworthy seating systems contain proprietary energy-absorbing
components and devices that activate upon crash impact to absorb shock that
otherwise would be absorbed by the seat occupant.
Based on publicly available information and industry sources, the Company
believes that it is the leading provider of crashworthy helicopter seats
purchased by the United States armed forces, being the sole supplier for 11
helicopter programs. Aircraft for which the Company has designed and
manufactured seat assemblies for pilots, flight crews, troops, or SONAR
operators include the AH-64A Apache attack helicopter; UH-60A Blackhawk
transport and cargo helicopter; SH-60B Sea Hawk reconnaissance helicopter; SH-3
Sea King utility helicopter; CH-53 Sea Stallion transport and cargo helicopter;
V-22 Osprey tilt-roar aircraft; Indian
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Hindustan Aeronautics, Ltd. ALH utility helicopter; and C-17 fixed wing utility
aircraft. Aircraft manufacturers in the Company's customer base include the
Boeing Company, McDonnell Douglas Corporation, and Sikorsky Aircraft.
Commercial Airliner Seating Systems and Components. The Company, through
its wholly owned subsidiary Airline Interiors, manufactures and sells commercial
airline seating systems that comply with FAA-mandated 16g standards for airline
seats and repairs, refurbishes, and retrofits commercial aircraft seats. With
the acquisition of Airline Interiors in 1993, the Company obtained FAA
certifications and an established customer base of commercial airlines as well
as the operations to repair, refurbish, and retrofit commercial aircraft seats.
The Company's entrance into the airline seating market is an outgrowth of both
the Company's technologies and Airline Interiors' traditional core
business -- the repair, refurbishment, and retrofitting of commercial aircraft
seats.
The 16g Seats are designed to absorb 16 times the force of gravity upon
impact. The prices and features of the Company's new 16g Seats are competitive
with more established 16g seat suppliers, but exceed existing and currently
anticipated industry and regulatory standards for crashworthiness. The Company's
16g Seats have been tested, approved, and certified for use in numerous classes
of commercial aircraft. The Company's customer base for its 16g Seats includes
Air Transit, The Boeing Company, GATX Leasing, International Leasing Finance
Corp., Onur Air, Flying Colors Airlines, and two other major U.S. carriers. The
Company currently has more than $40 million in bid proposals outstanding for
proposed seating contracts with international, national, and regional airlines.
There can be no assurance, however, that the Company will be awarded these or
other seating contracts. See "Risk Factors -- Entry into New Markets," "Risk
Factors -- Competition," and "Business -- Overview of Markets and
Industry -- Commercial Airliner Safety Systems.")
The Company also repairs, refurbishes, and retrofits existing commercial
aircraft seats. Its services include (i) the supply of seat components,
including upholstery, cushioning, and fiber blocking; (ii) the overhaul and
modification of seat assemblies, including arm rests and tray tables; and (iii)
the design and integration of communication and entertainment systems into
aircraft seats. Customers of Airline Interiors for such services include America
West Airlines, Continental Airlines, Southwest Airlines, and United Airlines.
The Company believes that various developments in the airline industry may
increase the demand for new energy-absorbing seats and for the repair,
refurbishment, and retrofitting of existing airliner seats. These factors
include the potential for increased federal regulation requiring improvements in
passenger seat crashworthiness, increased safety concerns by passengers, the
growth of airline travel, restructurings and reorganizations of air carriers,
the need to reconfigure and upgrade existing aircraft interiors, the delivery of
new aircraft, and the growth of demand for communications and entertainment
features in aircraft seats.
Rail and Other Mass Transit Seats. The Company's acquisition of Coach and
Car and Artcraft in 1994 brought to the Company an established seat
manufacturing identification, contract backlog, and additional manufacturing
capacity for airline seats. In addition to these synergies with Airline
Interiors and its seat technology, the Company became, and continues to be, the
leading North American provider of seating systems for rail and other mass
transit vehicles. Through an integrated design, development, and production
capability, the Company supplies seating in a variety of styles, materials,
colors, configurations, and optional features. The Company produces stainless
steel, plastic, and fiberglass seating systems for subways, cushioned and
upholstered seating for other mass transit vehicles, and deluxe recliners for
railroad cars. The seating systems feature lightweight construction; ease of
installation and maintenance; vandal resistant, durable, and long-lasting
components; reinforced structures for superior strength and support; fire and
smoke resistance; sound and energy absorption; and passenger safety and comfort.
Customers include Amtrak, ABB Traction, Inc., Bombardier, Inc., Amerail
(formerly Morrison Knudsen Corporation), Siemens Duewag Corporation, Kawasaki
Rail Car, Inc., and the metropolitan transit authorities in major North American
cities.
The Company believes that additional opportunities exist in its seating
business as a result of the need to expand and modernize mass transit systems
across the United States, the Company's pursuit of international business, and
potentially the application of various aspects of the Company's
energy-absorption and other safety technologies to rail and other mass transit
vehicles, including high-speed trains.
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COMPOSITE MATERIALS
As an outgrowth of its military aircraft seating systems, the Company
developed an expertise in armor, which comprises a significant portion of both
materials in and costs of such seating systems. In addition, the Company has
developed a variety of other composite materials for integration in its existing
and proposed products and for sale as raw material to customers. Composites are
structures, typically made of layered materials, glues, resins, metal alloys,
and ceramics, which provide advantages in terms of weight, flexibility, and
strength over traditional metal components. Composite materials often much
lighter than conventional materials such as basic metals, and by their complex
nature are generally more expensive than such materials. Composite materials
have a wide variety of product applications, ranging from shaped or molded
plastic structures to advanced, lightweight, protective ballistic armor systems.
Advanced composite materials with which the Company has expertise include
silicon carbide, aluminum, and ceramics matched with fiber reinforcements of
Kevlar, carbon, Spectra, S-glass, E-glass, and hybrid weaves. The Company also
has the capability to process thermoset resins including epoxies, polyesters,
and vinyl esters.
The Company's principal composite products are high-strength, lightweight
armor systems that have been incorporated into a variety of United States armed
forces vehicles, including aircraft, naval landing craft, and personnel
carriers. The Company is a principal supplier of such lightweight armor systems
in the United States. The Company develops and manufactures armor systems for
seats as well as for structural and other vital components of military aircraft.
Aircraft components incorporating armors developed or produced by the Company
include V-22 Osprey crew seats; C-17 cockpit components; AH-64A Apache crew
seats; Blackhawk crew seats and floor armor; CH-53 Sea Stallion crew seats;
United States Navy landing craft air cushion pilot station armor; and
high-mobility, multi-wheeled vehicles ("HMMWV") and transport vehicles
("HEMTT"). Other products include oil and cable armor and ballistic radomes. The
Company has an on-site ballistics firing range, enabling it to conduct tests on
armor products.
The Company has recently developed a number of commercial applications for
its composites technology, including high-strength transparent armors and
portable armor kits for use in police cars and other vehicles, high-performance
equipment such as archery bows, bicycle components, and 16g Seat backs. The
Company believes that composite materials will increasingly be incorporated in a
wide range of goods requiring strong, advanced, or lightweight components.
INFLATABLE RESTRAINT SYSTEMS
The Company developed its core inflatable restraint technology under a
contract with the United States government and, commencing in late 1997, will
use this technology to manufacture an inflatable body and head restraining
system ("IBAHRS") for military helicopter crew members. As customary with
government contracts, the Company retained the proprietary commercial rights to
the IBAHRS technology and has expanded and developed such technology into
numerous other applications in various products and industries. As an outgrowth
of IBAHRS, the Company currently produces or is developing four types of
inflatable restraint systems for automobiles and three systems for commercial
and military aircraft.
Automobile Inflatable Restraint Systems. The Company developed, patented,
and is manufacturing the ITS, which is an automobile inflatable restraint
system. The ITS occupies a stored position above a side window and inflates upon
impact to extend diagonally across the side window, which provides protection
against head and neck injuries from side-impact collisions. An automobile may be
equipped with an ITS at each side window. The Company's ITS technology recently
comprised two of the 36 finalists out of 4,000 technology entrants submitted for
Discovery Magazine's "Technology of the Year Award."
The ITS provides protection in certain side-impact collisions beyond that
provided by conventional airbags currently utilized in automobiles. Unlike a
conventional airbag, which must be trapped by a structure such as a steering
wheel, dashboard, or door, the ITS is attached to and supported by the structure
of the vehicle frame and door pillars. During a side-impact crash, a tube
located above the door inflates and becomes shorter in length, which causes it
to drop out of its molding and form a tight diagonal structure across the side
window. As a result, the ITS provides protection despite the window being open
or breaking upon impact, while a conventional airbag would not have adequate
support in these situations. Therefore, the ITS is able to
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substantially reduce head rotation to the side, preventing contact with vehicle
components. Additionally, the diagonal arrangement of the activated ITS offers
protection for occupants of different sizes, weights, and seating positions, and
in different types of side-impact collisions, as well as in rollover, secondary
impact, and ejection situations.
Recent tests have shown that a side-impact collision at approximately 30
miles per hour with a combination of the most extensive safety protection
systems available in 1996 model automobiles (consisting of a seat belt and
shoulder harness along with conventional frontal and side impact airbags)
results in a HIC of about 1500, which is an impact sufficient to cause a fatal
injury to the vehicle occupant. Conversely, tests performed under the same
conditions with the addition of an ITS resulted in a HIC of only approximately
560, which, barring injury to other parts of the anatomy not addressed by the
ITS, would allow the occupant to survive the crash.
The Company has developed various additional applications for the ITS.
Through different configurations, the ITS provides protection to other parts of
the body and in other types of collisions. Such applications include the
inflatable tubular cushion ("ITC"), a seat mounted torso protection system, and
the inflatable tubular bolster ("ITB"), a system to protect knees and legs, and
various inflatable restraint harness and belt applications.
The Company, through Autoliv GmbH, is currently preparing to provide the
ITS to BMW, a major European automobile manufacturer, for inclusion in certain
1997 models of its automobiles. The Company also has agreements with another
first tier auto supplier to provide ITS to a second automobile manufacturer and
to provide a different application of the ITS technology to another automobile
manufacturer. The Company has a low-volume production facility in Phoenix and is
presently establishing a European manufacturing plant, to be located in
Northumberland County in the northeast of England, to manufacture the ITS in
high volume.
Alone and with Autoliv GmbH, Morton International, and other first tier
component suppliers, the Company is actively pursuing ITS and other product
applications with other automobile manufacturers. The Company has entered into
strategic alliances with these first tier component suppliers because the
Company is able to leverage off of the size and industry strength of such large
manufacturers and benefit from their market contacts. Further, such
relationships facilitate the marketing and distribution of the ITS and related
products through the combined marketing and manufacturing efforts of the Company
and the strategic partners. Although the first tier component suppliers produce
airbag products, the ITS and related technologies are unique proprietary
products and not mere auto part commodities as are most forms of traditional
airbags. There can be no assurance, however, that the Company will be successful
in its efforts to expand the markets for ITS and other product applications. See
"Risk Factors -- Entry into New Markets" and "Risk Factors-- Dependence on
Industry Relationships."
Aircraft Inflatable Restraint Systems. The Company has completed
development of and plans to market various inflatable restraint systems for
military and commercial aircraft. These systems include the IBAHRS for the
protection of military helicopter crew members, a cockpit airbag system ("CABS")
for the protection of the flight crew in military aircraft, and a bulkhead
airbag system ("BABS") for the protection of passengers sitting immediately
behind the bulkhead and other cabin partitions in commercial aircraft.
Under a contract with the United States Army, the Company served as the
prime contractor for the development of the IBAHRS. Following the completion of
the initial development, the Company was awarded a contract to serve as the
prime contractor to complete the development, perform production design, produce
hardware, and perform testing procedures for the IBAHRS. During a crash, the
airbags inflate between the aviator and the seat harness, causing the aviator to
be pushed back into the seat and providing support under the aviator's chin to
reduce the forward rotation of the head. The Company anticipates that it will
commence production of the IBAHRS in late 1997.
The Company is engaged in research and development efforts for CABS under a
contract with the United States Army. CABS incorporates airbags in a
configuration surrounding the aviator that inflate following sensor detection of
crash impact from a variety of directions. CABS then retracts following
deployment and
34
<PAGE> 36
thereby protects against mishaps caused by accidental deployment during the
normal operations of the aircraft. The Company anticipates that it will complete
the research and development project and commence production of CABS in late
1997.
The Company developed BABS at its own expense to provide a product that
satisfies FAA regulations requiring protection against head injuries to
passengers sitting immediately behind the bulkhead and other cabin partitions in
commercial aircraft certificated after 1988, which includes only complete new
aircraft designs, representing a small percentage of aircraft currently in
service. Prior to BABS, no other company had introduced a product that satisfied
the FAA regulations, and newly certified aircraft have operated under FAA
waivers from the regulations. In addition, the regulations have not been
extended to aircraft certificated prior to 1988. Although the Company believes
that BABS satisfies the FAA regulations, the Company cannot assess weather the
FAA will withdraw its waivers as a result of the forthcoming availability of
BABS and extend its regulations to apply to presently exempt commercial
aircraft. The Company has a contract with Jetstream Aircraft Ltd. ("Jetstream"),
a subsidiary of British Aerospace PLC, to manufacture and sell BABS for
implementation of the system in the Jetstream J.-41. With its introduction of
BABS in Jetstream aircraft in 1997, the Company believes that the FAA waiver
policy will be reviewed by the agency. The Company is also discussing the
introduction of BABS with other aircraft manufacturers. See "Inflatable
Restraint Systems -- Aircraft Inflatable Restraint."
The Company is also developing the related systems for sensors,
electronics, and other applications for its inflatable restraint technology.
DEVELOPMENTAL STAGE TECHNOLOGIES
Smart Structures. The Company has recently combined its composite
technologies with its neural network computer capabilities as part of the
development of products known as "smart structures." Smart structures contain
sensors and fiber optics that communicate through computers to monitor the
integrity or status of a system or structure. As an example, military vehicles
equipped with sensors incorporating smart structure technology can be remotely
monitored for battlefield status. Similarly, structures such as bridges and
overpasses can be remotely monitored to detect early signs of deterioration in
structural integrity. The Company is exploring the development of smart system
sensors that have potential in a variety of product applications, including
crash sensors for airbag and other safety systems in both automobiles and
aircraft.
Parachutes. Under contract with the United States Navy, the Company
recently applied its technologies and overall knowledge of materials and
structures to develop a parachute that solves numerous functional problems
attendant to traditional military parachutes. Specifically, many parachutes
traditionally used by the military have (i) been large and heavy, (ii) been
unable to be worn during flight or by females, and (iii) had limited shelf life,
requiring the labor intensive process of unpacking and repacking parachutes
every six months. The parachute developed by the Company is small, lightweight,
unisex, capable of being worn during flight, and vacuum-packed so that it
maintains more than a five-year shelf life without repacking. The Company plans
to commence initial production of its parachute in 1997.
Other Advanced Materials. As an outgrowth of its development of a
proprietary "bladder" for the ITS, the Company has recently developed and tested
a number of advanced materials, including polymers and urethanes, possessing a
wide variety of potential product applications. Such materials are generally
highstrength and lightweight and can be developed to withstand extreme
temperatures. Potential uses for such materials include laser protective
aircraft canopies, high-performance windows for aircraft and automobiles, and
protective lenses and visors.
PROPRIETARY TECHNOLOGY
The Company maintains a design, development, research, testing, and
engineering staff whose duties include the modification and improvement of
existing products and the development of new products and applications. The
Company regards its research, development, and engineering capabilities as a
particular strength and intends to continue to emphasize this aspect of its
business.
35
<PAGE> 37
The Company retains proprietary rights in the products and services it
develops, including those initially financed under government contracts. As an
integral component of its strategy, the Company seeks to transfer all of its
technology to product applications. The Company's costs for research and
development in 1994 and 1995 were approximately $3.9 million and $6.1 million,
respectively. These amounts include government-funded, other customer-funded,
and Company-funded research and development contracts.
Since much of its research and development generates proprietary
technology, the Company has patent protection on certain products. The Company's
ability to compete effectively depends, in part, on its ability to maintain the
proprietary nature of its technologies. The Company also relies on unpatented
proprietary information and know-how, typically protecting such information as
trade secrets, but there can be no assurance that others will not develop such
information and know-how independently or otherwise obtain access to the
Company's technology. See "Risk Factors -- Dependence on Proprietary
Technology."
The Company holds 13 patents, including those recently issued for its ITS
and 16g Seat technologies. In addition, the Company has 35 patent applications
pending for such items as its ITB and ITC technologies and various of its
advanced materials. The Company is also currently developing five additional
patent applications for filing.
PRODUCTION, MANUFACTURING, AND LICENSING
The Company intends to consolidate certain operations, expand and upgrade
its existing manufacturing capabilities, and establish new manufacturing
facilities in connection with the expansion of its 16g Seating and inflatable
restraint businesses. The Company has begun implementing its expansion plans and
is presently establishing a high-volume manufacturing plant for the production
of inflatable restraints in England. Employees have been hired to work at the UK
plant, and it is anticipated that such facility will be operational in late
1996, with production of inflatable restraints commencing in 1997. One
additional inflatable restraint manufacturing facility is planned in Wickenberg,
Arizona. The Company currently is expanding its airline seat manufacturing
capacity in its Chicago and San Diego facilities and may establish an additional
new facility in California in late 1997. If demand for the Company's products
grows faster than it is able to expand its manufacturing capacities, the Company
may consider entering into licensing arrangements with third-party manufacturers
of related products, pursuant to which it would receive a royalty on all items
manufactured. See "Risk Factors -- Entry Into New Markets," "Risk
Factors -- Management of Growth," and "Risk Factors -- Production Risks and
Manufacturing Experience."
The Company's production and manufacturing consist principally of the
bending and welding, molding, ceramic and composites composition and processing,
sewing, upholstery, component fabrication, and final assembly, along with airbag
and restraint assembly. After assembly, products are functionally tested on a
sample basis as required by applicable contracts. The Company's manufacturing
capability features computer-integrated manufacturing programs which, among
other things, schedule and track production, update inventories, and issue work
orders to the manufacturing floor. Products manufactured for government programs
must meet rigorous standards and specifications for workmanship, process, raw
materials, procedures, and testing. Customers, and in some cases the United
States government as the end user, perform periodic quality audits of the
manufacturing process. Certain customers, including the United States
government, periodically send representatives to the Company's facilities to
monitor quality assurance.
MARKETING AND SALES
Depending upon the product, the Company typically employs one of four
methods for marketing: (i) direct sales, which it utilizes in the marketing of
its 16g Seats, (ii) technical teams, typically comprised of a combination of
administrative personnel and development engineers, which it utilizes in the
marketing of inflatable restraints, rail and mass transit seating, and advanced
materials, (iii) strategic alliances with first tier component suppliers, which
it utilizes in the marketing of inflatable restraints and (iv) responses to
formal requests for proposals in bidding for governmental contracts.
In marketing its commercial seating and restraint products, the Company
endeavors to maintain close relationships with existing customers and to
establish new customer relationships. Ongoing relationships and
36
<PAGE> 38
repeat customers are an important source of business for the Company's current
and new products. For example, the Company believes that its aircraft seat
refurbishment customers are excellent prospects for its proposed new aircraft
seats. Similarly, the Company will rely in part on forming strategic alliances
to gain the established marketing capabilities of first tier component suppliers
in connection with the distribution of the Company's automobile restraint
systems. See "Risk Factors -- Dependence on Industry Relationships."
The Company's marketing and sales activities in the government sector focus
primarily upon identifying research and development and other contract
opportunities with various agencies of the United States government or with
others acting as prime contractors on government projects. Key members of the
Company's engineering, contracts, and project management staffs maintain close
working relationships with representatives of the United States armed forces and
their prime contractors. Through these relationships, the Company monitors
needs, trends, and opportunities within current or potential military product
lines.
The Company estimates that approximately 11% of its total revenue in 1995
resulted from products sold internationally, either directly by the Company or
indirectly through sales made to the United States government or domestic prime
contractors for export. Historically, as United States government contracts are
awarded and filled, prime contractors have thereafter typically marketed their
products to foreign military allies, resulting in sales of the Company's
products abroad. The Company has also recently entered into development
contracts directly with foreign military organizations. Accordingly, the Company
anticipates that its international defense sales will continue to grow. The
initial customer of the ITS is BMW, a European automobile manufacturer. The
Company believes that there are opportunities for additional sales of the ITS,
and for sales of commercial aircraft and rail seating systems, in foreign
markets and is conducting marketing efforts internationally. See "Risk
Factors -- International Trade and Currency Exchange."
CUSTOMERS
Sales of the Company's products to the United States government represented
approximately 18% of the Company's revenue in 1995. No other customer accounted
for more than 10% of the Company's revenue during 1995.
The Company's historical and acquired businesses have relied to a great
extent on relatively few major customers, although the mix of major customers
has varied from year to year depending on the status of then existing contracts.
The Company believes that historical customers, such as the United States Army
and other branches of the United States armed forces, to which the Company has
supplied products for approximately 20 years, will continue to represent major
customers although the percentage of the Company's revenue attributable to them
can be expected to decrease as a result of the Company's expanding commercial
operations. Other historical customers of the Company include the Boeing
Company, McDonnell Douglas Corporation, and Sikorsky Aircraft. The loss of or
reduction in sales to a major customer may have a more adverse effect on the
Company's operations or financial condition than if the Company's revenue was
less concentrated by customer. See "Risk Factors -- Reliance Upon Major
Customers."
As the Company has applied its technologies to additional products and
markets and grown through strategic acquisitions, the list of customers for the
Company's commercial products has expanded rapidly in recent years. Among
current customers of the Company include, in addition to its historical
customers, America West Airlines, Amtrak, Autoliv GmbH, BMW, Continental
Airlines, Morton International, Southwest Airlines, TRW, United Airlines, and
the metropolitan transit authorities in major North American cities. Auotliv
GmbH, Morton International, and TRW are first tier component suppliers. See
"Risk Factors -- Dependence on Industry Relationships."
COMPETITION
The Company is the largest worldwide supplier of seating systems for
military helicopters. Numerous suppliers compete for government defense
contracts as prime contractors or subcontractors. Competition relates primarily
to technical know-how, cost, and marketing efforts. The competition for
government contracts relates primarily to the award of contracts for the
development of proposed products rather than for the supply of products that
have been developed under contracts.
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<PAGE> 39
The Company also is the largest supplier of transit and rail seating
systems in North America and a prominent provider of airline seat refurbishment.
The commercial airliner seat market is highly concentrated and currently is
dominated by Weber Aircraft, Inc., the newly merged Burns Aerospace Corporation
and B.E. Aerospace, Inc., and Sicma Aero.
The worldwide automobile airbag market is currently dominated by TRW,
Morton International, Inc., Allied Signal, Inc., Takata, Inc., and Autoliv GmbH,
all of which are producing airbag systems in commercial quantities. The market
served by the Company's inflatable restraint systems is intensely competitive.
As a result of the proprietary nature of the Company's ITS and related
technologies, the Company has entered into strategic alliances with a number of
the largest suppliers of conventional automotive airbags, including Morton, TRW,
Autoliv, and others, to market and produce the Company's products. Under these
arrangements, the Company acts as licensor and supplier and, thus, does not
compete with first tier automotive suppliers. The Company does not intend to
compete as a first tier supplier of a broad range of safety devices. Autoliv and
Morton recently announced a proposed business combination relating to their
respective airbag operations. The Company does not believe that any such
combination will adversely affect its business relationship with these
companies.
Most of the Company's competitors have greater marketing capabilities and
financial resources than the Company. The Company's present or future products
could be rendered obsolete by technological advances by one or more of its
competitors or by future entrants into its markets. See "Risk
Factors -- Competition."
RAW MATERIALS AND SUPPLIES
The Company purchases raw materials, components, devices, and subassemblies
from a wide variety of sources. Principal raw materials used by the Company
include urethanes, ceramics, Kevlar, aluminum, steel, upholstery and fabric
products, and fire blocking foam. Components include restraints, harnesses, and
gas generators for inflatable restraint products. The Company does not depend
upon any single supplier. Because of multiple sources of supply, the Company has
not experienced difficulties in obtaining components and raw materials for its
manufacturing and assembly processes. The Company is not party to any formal
contracts regarding the delivery of its supplies and components, but instead
generally purchases such items pursuant to individual or blanket purchase
orders. Blanket purchase orders usually provide for the purchase of a large
amount of items at fixed prices for delivery and payment on specific dates.
BACKLOG
The Company's backlog at December 31, 1994 and 1995 was approximately $53
million and $58 million, respectively. The backlog at December 31, 1995
consisted of approximately $24 million under defense contracts and approximately
$34 million with commercial customers. At August 31, 1996, the Company's backlog
was approximately $52 million.
The backlog includes contracts for major current products as well as for
supplies and replacement components. Backlog does not include any agreements for
the sale of ITS or related inflatable restraint technologies, including the
Company's agreement to supply the ITS for certain of BMW's 1997 models. In the
case of government contracts, backlog consists of aggregate contract values for
firm product orders, exclusive of the portion previously included in operating
revenue utilizing the percentage completion accounting method. All orders
included in the backlog are believed to be firm and are expected to be filled
over the period from the date of this Prospectus to December 31, 1997.
EMPLOYEES
The Company has over 700 full-time employees at its locations in Arizona,
California, Illinois, New York, North Carolina, Wisconsin, and the United
Kingdom. This number includes engineers and research and development personnel,
manufacturing personnel, and administrative and other personnel. The Company
believes that its continued success depends on its ability to attract and retain
highly qualified personnel.
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<PAGE> 40
PERSONNEL PROFILE
<TABLE>
<CAPTION>
APPROXIMATE NUMBER
CLASSIFICATION OF EMPLOYEES
----------------------------------------------------------- ------------------
<S> <C>
Research and Development; Scientists; Engineers; Technical
Support.................................................. 149
Manufacturing.............................................. 310
Administration............................................. 190
Other...................................................... 64
</TABLE>
In connection with its 1994 acquisition of Coach and Car, the Company
executed a collective bargaining agreement with the United Electrical Workers.
The predecessor corporation's work force was similarly represented by the
collective bargaining unit. The Company's other employees are not represented by
a labor union, and the Company has no knowledge of any organizing activities.
The Company has never suffered a work stoppage and considers its relations with
employees to be excellent.
ENVIRONMENTAL REGULATIONS
The Company's operations are subject to a variety of federal, state, and
local environmental regulations, including laws regulating air and water quality
and hazardous materials and regulations implementing those laws. The Company's
principal environmental focus is the handling and disposal of paints, solvents,
and related materials in connection with product finishes, welding, and
composite fabrication. The Company contracts with a qualified waste disposal
company for services. The Company regards its business as being subject to
customary environmental regulations, but does not believe it faces unique or
special problems. The cost to the Company of complying with environmental
regulations is not significant. See "Risk Factors -- Environmental Regulations."
LITIGATION
The Company is not a party to any material threatened or pending
litigation.
PROPERTIES
The Company is currently expanding its manufacturing and administrative
facilities in order to meet the expected demand for its products. The Company is
presently establishing a high-volume production facility in England for the
manufacture of inflatable restraints and intends to expand existing or establish
new manufacturing facilities for certain of its other products, such as
commercial airline seating systems. The Company is also studying the acquisition
of land and construction of a building northwest of Phoenix for production of
aircraft inflatable restraint products and armor products. Upon the completion
of such expansion, the Company believes that its manufacturing and
administrative facilities will be adequate for the foreseeable future. See "Use
of Proceeds."
39
<PAGE> 41
FACILITIES PROFILE
<TABLE>
<CAPTION>
SQUARE
COMPANY LOCATION FUNCTION FOOTAGE
- ------------------------- --------------------- ---------------------------------- -------
<S> <C> <C> <C>
Simula, Inc.............. Phoenix, AZ (1) Corporate Headquarters 10,000
Simula Government
Products, Inc.......... Phoenix, AZ (2) Research and Development 5,000
Tempe, AZ (2) Manufacturing and Administration 60,000
Tempe, AZ (1) Manufacturing and Administration 30,000
Tempe, AZ (1) Manufacturing and Administration 8,000
Tempe, AZ (1) Manufacturing and Administration 14,000
Simula ASD, Inc. ........ Phoenix, AZ (1) ITS Low Rate Production; Testing; 7,000
Administration
Simula ASD, Ltd. ........ Northumberland, U.K. ITS Volume Production 30,000
(1)
Airline Interiors,
Inc.................... San Diego, CA (1) Airliner Seat Refurbishment and 50,000
New Seat Assembly; Administration
Coach and Car Equipment
Corporation............ Chicago, IL (1) Airline, Rail and Transit Seat 110,000
Manufacturing; Administration
Albany, NY (1) Rail Seat Assembly 20,000
Aircraft Industries
Corp................... Milwaukee, WI (1) Rail and Airline Seat 45,000
Refurbishment and Upholstery
ViaTech, Inc............. Tempe, AZ (1) Composites Research; Fabrication 14,000
for Commercial Products;
Administration
Safety Equipment, Inc.... Asheville, NC (1) Research and Development; Survival 3,000
Equipment Manufacturing;
Potentially Parachute
Manufacturing
Sedona Scientific,
Inc.................... Sedona, AZ (1) Research and Development; Sensors, 2,000
Smart Systems, Fiber Optics
</TABLE>
- ---------------
(1) Denotes leased facility
(2) Denotes Company-owned facility
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<PAGE> 42
MANAGEMENT
The following sets forth certain information with respect to directors and
executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
----------------------- --- ---------------------------------------------------------
<S> <C> <C>
Stanley P.
Desjardins........... 65 Chairman of the Board of Directors
Donald W. Townsend..... 56 President and Director
Bradley P. Forst....... 42 Vice President, General Counsel, Secretary, and Director
Sean K. Nolen.......... 34 Vice President of Finance, Treasurer, and Director
James C. Withers....... 62 Director
Robert D. Olliver...... 70 Director
Scott E. Miller........ 36 Director
Ian Grant.............. 61 Director
</TABLE>
Stanley P. Desjardins founded the Company in 1975 and has served as its
Chairman since that time. He was President from 1975 until October 1994. Mr.
Desjardins pioneered crashworthy seating technology for the United States armed
forces and continues to work on technology development as a recognized world
expert in the field. He has over 35 years of experience in research and
development of aerospace systems and components, including over 20 years in
research and development of technology for improving survival in vehicle
crashes. Prior to forming the Company, Mr. Desjardins was Manager of Aircraft
Safety for a division of Ultrasystems, Inc., where he managed research programs
involving the crashworthiness of aircraft seating and restraint systems. From
1958 to 1968, he held various positions in missile programs with Thiokol
Chemical Corporation. His work has resulted in several United States patents
related to energy-absorption and rocket nozzle design. He is the author or
co-author of 26 technical articles related to his research. Mr. Desjardins is a
member of the American Helicopter Society, the Survival and Flight Equipment
Association, the Arizona Innovation Network, the Center for Aerospace Safety
Education, and the Governor's Science and Technology Council (Arizona).
Donald W. Townsend has served as President since October 1994 and a
Director since 1989. He was Executive Vice President from 1989 to 1994 and
Treasurer and Secretary from 1986 until 1994. Prior to joining the Company in
1985, Mr. Townsend was employed by Walled Lake Door Company, a manufacturer of
wooden doors, in positions as Vice President of Finance, Chief Financial
Officer, Director, and Controller. Mr. Townsend also acted as President of
Pulsar Corporation, a research and development company affiliated with Walled
Lake Door Company, at the same time as he served as Vice President of Finance
for Walled Lake Door Company. Mr. Townsend is a Certified Public Accountant. Mr.
Townsend also currently serves on the Board of Directors of Meadow Valley
Corporation, a publicly held construction company specializing in highways,
bridges and overpasses.
Bradley P. Forst joined the Company as Vice President and General Counsel
in early 1995 and became Secretary and a Director in August 1995. From 1985
until joining the Company in 1995, Mr. Forst was engaged in the private practice
of law in Phoenix, Arizona. Included among his clients was the Company, for
which he provided corporate, finance, and securities legal services for a number
of years. Prior to entering private practice, Mr. Forst was an attorney in the
head office legal department of Shell Oil Company based in Houston, Texas. Mr.
Forst received his J.D. from the University of Tulsa College of Law in 1978, and
his LL.M. from Columbia University School of Law in 1981.
Sean K. Nolen joined the Company as Vice President of Finance, Chief
Financial Officer, Treasurer, and as a Director in April 1996. From 1984 until
joining the Company in 1996, Mr. Nolen was employed by Deloitte & Touche LLP,
most recently as an Audit Senior Manager, in which capacity Mr. Nolen provided
auditing, planning, and other assistance and consultation to numerous privately
and publicly held companies, including the Company. Mr. Nolen is a Certified
Public Accountant.
James C. Withers has served as a Director of the Company since 1992. Mr.
Withers is the President and Chief Executive Officer of Materials and
Electrochemical Research Corporation based in Tucson, Arizona.
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<PAGE> 43
He has served in that capacity since 1986. From 1986 to 1988, Mr. Withers was
President and Chief Executive Officer of Keramont Research Corporation, also
based in Tucson, Arizona.
Robert D. Olliver has served as a Director of the Company since 1992. Mr.
Olliver is the Director of Risk Management Services for Acordia of Arizona based
in Phoenix, Arizona. Mr. Olliver has over 46 years experience in the insurance
business. Mr. Olliver, through his affiliates, has been the general agent for
the Company's insurance program since 1987.
Scott E. Miller has served as a Director of the Company since January 1995.
Mr. Miller is a Director of Investment Banking of HD Brous & Co., Inc. From 1991
to 1994, Mr. Miller was Director of Investment Banking of W.B. McKee Securities,
Inc., Phoenix, Arizona, which was the managing underwriter of the Company's
initial public offering. From 1987 to 1991, Mr. Miller was the Director of
Investments of Bellmar Partners, an investment fund. Mr. Miller also currently
serves on the Board of Directors of Meadow Valley Corporation, a publicly held
construction company specializing in highways, bridges, and overpasses. See
"Certain Transactions."
Ian Grant has served as a Director of the Company since January 1995. Mr.
Grant is a private business consultant. From 1986 to 1990, Mr. Grant was
Director of Planning and Development for a unit of ICI Americas, Inc. ("ICI"),
the United States subsidiary of ICI, PLC, headquartered in the U.K. Prior to
1986, Mr. Grant held a number of positions over the course of 26 years with ICI.
All members of the Board of Directors hold office until the next annual
meeting of the shareholders of the Company or until their successors are duly
elected and qualified. All officers are elected annually and serve at the
discretion of the Board of Directors. The Board of Directors of the Company have
several standing committees. The Audit Committee presently consists of Messrs.
Grant, Miller and Olliver. The Audit Committee meets with appropriate Company
financial and legal personnel and independent public accountants and reviews the
internal controls of the Company and the objectivity of its financial reporting.
This Committee recommends to the Board the appointment of independent public
accountants to serve as auditors in examining the corporate accounts of the
Company. The independent public accountants periodically meet privately with the
Audit Committee and have access to the Committee at any time.
The Compensation Committee reviews and advises management, makes
recommendations to the Board, and reviews and approves proposals regarding the
establishment or change of benefit plans, salaries, and compensation afforded
the executive officers and other employees of the Company. Messrs. Grant,
Miller, Olliver, and Withers currently serve as members of the Committee.
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<PAGE> 44
EXECUTIVE COMPENSATION
The following table sets forth the total compensation received by the
Company's most highly compensated executive officers and key employees whose
total remuneration exceeded $100,000 for services rendered in all capacities to
the Company and its subsidiaries during the last three fiscal years.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ---------------
----------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY(1) BONUS(2) COMPENSATION(3) OPTIONS/SARS(#)
- ------------------------------ ---- --------- -------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
Stanley P. Desjardins......... 1995 $ 201,275
Chairman of the Board 1994 157,656
1993 150,871
Donald W. Townsend............ 1995 179,454 40,000 Tax Assistance(3) 60,000
President 1994 108,378 75,000
1993 100,626 30,000
Donald D. Rutter.............. 1995 121,001 45,750
President of Intaero, Inc. 1994 109,990 7,500
1993 14,806
</TABLE>
- ---------------
(1) Included as salary are nominal amounts which the Company contributes to the
401(k) accounts of Messrs. Desjardins and Townsend. See
"Management -- 401(k) Profit Sharing Plan."
(2) The Compensation Committee declared a bonus for Mr. Townsend for services in
1994 and 1995, which was paid in late 1995.
(3) In 1995, the Compensation Committee adopted policies to encourage executive
management of the Company to exercise stock options and thereby become
equity owners of the Company. In order to exercise such options, members of
management were required to sell such underlying shares in the market to
provide the funds to pay for the option exercises. Because of the immediate
exercise and sale, incentive tax aspects of the options, under relevant IRS
rules, were eliminated. Accordingly, taxes on such sales were immediately
due and payable. As part of the policy, the Committee determined to pay such
taxes for the accounts of the executives. Such payments by the Company were
fully deductible as a compensation expense and such amounts did not accrue
to the individuals, but were paid to state and federal taxing authorities.
In fiscal 1995, the amount of such tax assistance on behalf of Mr. Townsend
was $231,367.
OTHER EXECUTIVE COMPENSATION
Messrs. Taylor, Forst, and Nolen, who are executive officers of the
Company, did not receive compensation in fiscal 1995 in excess of $100,000;
however, the annualized compensation of each of these individuals will exceed
$100,000 in fiscal 1996.
EMPLOYMENT AGREEMENTS
The Company has a five-year employment agreement with Mr. Townsend. The
agreement requires Mr. Townsend to devote his full time to the Company and
provides for compensation of $200,000 annually, subject to annual increases upon
the agreement of Mr. Townsend and the majority of the disinterested members of
the Board of Directors. The agreement is renewable annually for prospective
one-year terms. The agreement may not be terminated unilaterally by the Company
except for cause, which includes absence, disability, or failure of performance
as determined by the Board.
43
<PAGE> 45
Mr. Townsend's employment agreement provides that during the term thereof,
including renewals, in the event of his resignation or a termination of his
employment for any reason following a "change in control" of the Company, the
compensation required to be paid by the Company to him under the employment
agreement shall continue to be paid as though the agreement had not been
terminated. This provision does not apply however to an early termination of the
agreement upon Mr. Townsend's death, termination following a conviction for the
willful and intentional commission of a crime, or retirement. A "change of
control" under the agreement is deemed to occur when any person acquires,
directly or indirectly, beneficial ownership of equity securities of the Company
representing in excess of 20% of the outstanding shares of any class, or when
any person who has acquired, directly or indirectly, beneficial ownership of
equity securities of the Company in excess of 10% of the outstanding shares of
any class seeks to nominate and cause to be elected to the Board of Directors
any person who has not been nominated for election of the board by the majority
of the then incumbent directors. If Mr. Townsend dies during the term of his
employment, the Company under the agreement will pay to his estate compensation
including any bonus which would otherwise be payable to the time of death and
thereafter, for a period of three years.
The Company also has an agreement with Mr. Desjardins, under which the
Company retains Mr. Desjardins under terms similar to those contained in Mr.
Townsend's employment agreement. Under the agreement, Mr. Desjardins' annual
compensation is $200,000.
In addition to the foregoing, the Company has also entered into change in
control employment agreements with six members of executive management,
providing for severance pay, the immediate vesting of stock options, and tax
assistance payments, in the event of a change in control of the Company. See
"Executive Compensation -- Stock Options."
DIRECTOR COMPENSATION
Directors who are not executive officers receive $5,000 annual cash
compensation for their services in that capacity to cover expenses. Directors
who are executive officers do not receive such additional compensation for their
services as Directors. Directors are also awarded options to purchase 15,000
shares upon commencement of service on the Board and 1,500 additional shares on
an annual basis thereafter.
STOCK OPTIONS
STOCK OPTION PLANS
In 1992, the Company and its then sole shareholder adopted the 1992 Stock
Option Plan. The 1992 Plan provided for the issuance of up to 360,000 shares of
the Company's Common Stock pursuant to grants made under the 1992 Plan. Through
September 30, 1996, 358,125 options had been granted pursuant to the 1992 Plan.
In August 1994, the Board of Directors adopted the 1994 Stock Option Plan, which
was subsequently approved by the shareholders of the Company at the annual
meeting in June 1995. The 1994 Plan reserves up to 1,545,000 shares of Common
Stock for issuance under the Plan. Through September 30, 1996, 941,100 options
had been granted pursuant to the 1994 Plan.
The 1992 Plan and the 1994 Plan (together hereafter referred to as the
"Plans") authorize the Company to grant to key employees of the Company (i)
incentive stock options to purchase shares of Common Stock, and (ii)
non-qualified stock options to purchase shares of Common Stock. The objectives
of the Plans are to provide incentives to key employees to achieve financial
results aimed at increasing shareholder value and attracting talented
individuals to the Company. Although the Plans do not specify what portion of
the shares may be awarded in the form of incentive stock options or
non-statutory options, a substantially greater number of incentive stock options
were awarded under the 1992 Plan, and it is anticipated that a substantially
greater number of incentive stock options will be awarded under the 1994 Plan.
The incentive stock options are qualified stock options under the Internal
Revenue Code. Persons eligible to participate in the Plans are those employees
and others of the Company whose performance can have significant effect on the
success of the Company.
44
<PAGE> 46
The Plans are administered by the Compensation Committee of the Board of
Directors, which has the authority to interpret the Plans' provisions, to
establish and amend rules for their administration, to determine the types and
amounts of awards made pursuant to the Plans, subject to the Plans' limitations,
and to approve recommendations made by management of the Company as to who
should receive awards. The Compensation Committee of the Board of Directors must
consist of disinterested Directors.
Incentive stock options may be granted under the Plans for terms of up to
10 years and at an exercise price at least equal to 100% of the fair market
value of the Common Stock as of the date of grant, and 85% of the fair market
value in the case of non-statutory options, except that incentive options
granted to any person who owns stock possessing more than 10% of the combined
voting power of all classes of the Company's stock or of any parent or
subsidiary corporation must have an exercise price at least equal to 110% of the
fair market value of the Company's Common Stock on the date of grant. The
aggregate fair market value, determined as of the time an incentive stock option
is granted, of the Common Stock with respect to which incentive stock options
are exercisable by an employee for the first time during any calendar year may
not exceed $100,000. There is no aggregate dollar limitation on the amount of
non-statutory stock options which may be exercisable for the first time by an
employee during any calendar year. Payment of the exercise price is to be in
cash, although the Compensation Committee may, in its discretion, allow payment
in the form of shares of the Company's Common Stock under certain circumstances.
Any option granted under the Plans will expire at the time fixed by the
Committee, which will not be more than 10 years after the date it is granted.
Any employee receiving a grant must remain continuously employed by the Company
for a period of 12 months after the date of the grant, as a condition to the
exercise of the option. The Compensation Committee may also specify when all or
part of an option becomes exercisable, but in the absence of such specification,
the option will ordinarily be exercisable in whole or part at any time during
its term. In addition, optionees who are directors or executive officers of the
Company may not exercise any portion of an option within six months of the date
of grant. Subject to the foregoing, the Compensation Committee may accelerate
the exercisability of any option in its discretion.
Options granted under the Plans are not assignable. Options may be
exercised only while the optionee is employed by the Company or within 12 months
after termination by reason of death, within 12 months after the date of
disability, or within 10 days after termination for any other reason.
The Company may assist optionees in paying the exercise price of options
granted under the Plans by either the extension of a loan by the Company for
payment by the optionee of the exercise price in installments, or a guarantee by
the Company of a loan obtained by the optionee from a third party. The terms of
any loan, installment payments or guarantees, including the interest rate and
terms of repayment and collateral requirements, if any, will be determined by
the Compensation Committee in its sole discretion.
In addition to the foregoing, the 1994 Plan provides that in the event of a
change in control of the Company, that all issued but unvested options become
immediately vested and exercisable. The 1994 Plan also provides that in
connection with such immediate exercises made by executive officers of the
Company, the Company provide tax assistance to supply the funds necessary for
those individuals to pay taxes resulting from the loss of tax incentives due to
such accelerated exercises and sales. Any such payments by the Company would be
fully deductible as a compensation expense and such amounts would not accrue to
the individuals exercising the options, but would be paid to state and federal
taxing authorities. See "Management -- Employment Agreements."
1992 RESTRICTED STOCK PLAN
In February 1992, the Company adopted the 1992 Restricted Stock Plan
("Restricted Stock Plan") authorizing the Company to grant to key employees of
the Company and other individuals who provide services to the Company the right
to purchase up to an aggregate of 19,500 shares of Common Stock at $.01 per
share. The Restricted Stock Plan is intended to allow the Company to provide
awards of Common Stock to directors or long-term employees who have provided
valuable past services to the Company. The Restricted Stock Plan authorizes
disinterested members of the Board of Directors to determine the persons to whom
45
<PAGE> 47
awards under the Restricted Stock Plan will be granted and the terms and
conditions and restrictions of such awards. To date, 4,500 shares have been
awarded under the Restricted Stock Plan.
OPTIONS GRANTED UNDER PLANS
In April 1995 and March 1996, the Board of Directors approved
recommendations of the Compensation Committee and granted certain incentive
stock options under the Plans to key employees. The options granted are
exercisable, or when vested will be exercisable, for a total of 7,875 shares
under the 1992 Plan and 877,000 shares under the 1994 Plan.
The following table sets forth information regarding options granted in
fiscal 1995 to executive officers named in the Summary Compensation Table:
OPTION/SAR GRANTS IN LAST FISCAL YEAR
(Individual Grants)(1)
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
PERCENT OF VALUE AT ASSUMED
NUMBER OF TOTAL ANNUAL RATES
SECURITIES OPTIONS/ OF STOCK PRICE
UNDERLYING SARS EXERCISE APPRECIATION FOR
OPTIONS/ GRANTED TO OR BASE OPTION TERM(3)
SARS EMPLOYEES IN PRICE EXPIRATION -----------------------
NAME GRANTED(2) FISCAL YEAR ($/SH) DATE 5%($) 10%($)
- -------------------------------- ---------- ------------ -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Donald W. Townsend.............. 60,000 14% 13.67 2005 $1,335,780 $2,127,080
Donald D. Rutter................ 45,750 11% 13.67 2005 1,018,532 1,621,899
</TABLE>
- ---------------
(1) The table does not reflect options granted to certain executive officers
including Messrs. Taylor, Forst and Nolen, who did not serve in that
capacity for the entire year. See "Summary Compensation Table -- Other
Executive Compensation."
(2) All options contained in the table which were granted to named executive
officers in 1995 became exercisable for the first time in April 1996.
(3) Calculated from a base price equal to the exercise price of each option,
which was the fair market value of the Common Stock on the date of grant.
The amounts represent only certain assumed rates of appreciation. Actual
gains, if any, on stock option exercises and Common Stock holdings cannot be
predicted, and there can be no assurance that the gains set forth on the
table will be achieved. Further, the number shown is the gross dollar value
of the Common Stock, but does not give effect to the payment of the purchase
price to exercise the option, and thus does not represent the net value or
net gain. The amount also does not reflect the taxes payable on such gain.
FISCAL YEAR END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT FISCAL YEAR END OPTIONS/SARS AT FISCAL YEAR END
NAME (#) EXERCISABLE/UNEXERCISABLE ($)(1) EXERCISABLE/UNEXERCISABLE
- ------------------------------------ ------------------------------- ----------------------------------
<S> <C> <C>
Donald W. Townsend.................. 36,600/60,000 $433,088/304,980
Donald D. Rutter.................... 7,500/45,750 88,748/232,547
</TABLE>
- ---------------
(1) Calculated by multiplying the number of shares underlying outstanding
in-the-money options by the difference between the last sales price of the
Common Stock on December 29, 1995 ($18.75 per share) and the exercise prices
for both exercisable and unexercisable shares. See also, footnotes (1) and
(3) immediately above.
DEFINED BENEFIT PENSION PLAN
The Company adopted a non-contributory defined benefit pension plan as of
November 1, 1980. To be eligible, participants must have completed six months of
continuous service and have attained the age of 21. Benefits are based on the
length of service and the participants' final pay (averaged over the five
highest
46
<PAGE> 48
consecutive years of his last 10 years of participation). The Company makes
contributions to the plan based on actuarially determined amounts. Both Mr.
Desjardins and Mr. Townsend are participants in the plan consistent with the
normal terms and conditions of the plan.
The following table sets forth the estimated annual benefits payable on
retirement for specified earnings and years of service categories for
participants.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE(1)
-------------------------------------------------------
REMUNERATION 15 20 25 30 35
- ------------ ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
$ 50,000 $17,500 $17,500 $17,500 $17,500 $17,500
75,000 26,250 26,250 26,250 26,250 26,250
100,000 35,000 35,000 35,000 35,000 35,000
150,000 52,500 52,500 52,500 52,500 52,500
200,000 70,000 70,000 70,000 70,000 70,000
</TABLE>
- ---------------
(1) As of December 31, 1995, Mr. Desjardins' and Mr. Townsend's credited years
of service were 15 and 10, respectively.
(2) Benefits are calculated on a straight-life annuity basis. The compensation
covered by the retirement plan includes all wages and salaries but excludes
bonuses. Benefits under the retirement plan are not subject to deduction for
Social Security or other offset amounts.
401(K) PROFIT SHARING PLAN
The Company's 401(k) Profit Sharing Plan (the "PSP") is qualified under
Sections 401(a) and 401(k) of the Internal Revenue Code. The PSP was adopted
effective November 1, 1989. The PSP is administered under a trust, and the
Company's directors are currently serving as its trustees. All employees of the
Company who are 21 years or older, including its executive officers, are
eligible to participate in the PSP after six months of employment with the
Company.
Under the PSP, participating employees have the right to elect their
contributions to the PSP be made by reductions from compensation owed to them by
the Company. In addition, the Company at its discretion can make contributions
to the PSP of a percentage of a participant's annual compensation. Participating
employees are entitled to full distribution of their share of the Company's
contributions under the PSP upon death, disability or when they reach retirement
age. If their employment is terminated earlier, their share of the Company's
contributions will depend on the number of years of employment with the Company.
All participating employees have the right to receive 100% of their own
contributions to the PSP upon any termination of employment. Apart from the
Company's and the employee's contributions, they may receive investment earnings
related to the funds in their account under this plan.
EMPLOYEE STOCK PURCHASE PLAN
At the 1996 Annual Meeting, the Company's Board of Directors and
shareholders adopted the Employee Stock Purchase Plan ("ESPP" or "Plan"). The
ESPP provides eligible employees with the opportunity to acquire a stock
ownership interest in the Company through periodic payroll deductions. The
purpose of the Plan is to provide incentive to employees of the Company to
perform in a manner which enhances the value of the Company's Common Stock by
providing a direct ownership stake in the Company's performance.
The ESPP reserves 400,000 shares of the Company's Common Stock to be issued
to employees eligible to participate in the Plan. Employees of the Company and
its subsidiaries are eligible to participate in the Plan following 30 days of
continuous service with the Company, provided that such employees work in excess
of 20 hours per week and greater than five months per calendar year. The
Company, at its discretion, need not include all of its operating subsidiaries
in the ESPP.
47
<PAGE> 49
Eligible employees invest in the Plan through regular payroll deductions of
up to 10% of their gross earnings, deducted net of taxes, for each semi-annual
period of participation, provided that no employee may purchase greater than
$25,000 worth of the Company's Common Stock in any given calendar year. Payroll
deductions will be credited to an account established in each participating
employee's name and shares of the Company's Common Stock will automatically be
purchased on behalf of participating employees on the last business day of each
semi-annual period of participation at the lesser of (i) 85% of the market price
per share of Common Stock on an individual's entry date into the Plan (subject
to certain limitations), or (ii) 85% of the market price per share on the
semi-annual purchase date.
The Company currently plans to commence operation of the ESPP on October 1,
1996, with semi-annual purchase dates to occur on March 31 and September 30 of
each year.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Compensation Committee consists of Messrs. Grant, Miller,
Olliver and Withers, all of whom are independent disinterested directors for
purposes of administering the stock option plans under SEC Rule 16b-3. These
individuals do not serve on the Compensation Committees of other corporations.
CERTAIN TRANSACTIONS
In September 1994, Mr. Desjardins lent $2.0 million to the Company
evidenced by two promissory notes. The notes were unsecured and matured in
September 1995. The annual interest rate was prime plus 3% (11.5% at December
31, 1994). The loan was approved by the disinterested members of the Board of
Directors. These notes were repaid in April 1995. Since that date, Mr.
Desjardins from time to time has made similar loans on similar terms to the
Company totaling approximately $1,650,000. As of the date of this Prospectus,
the Company had no loans outstanding to Mr. Desjardins. Approximately $20,000
was paid to Mr. Desjardins by the Company in fiscal 1996 to date for points and
interest.
In 1995 it was determined by management that the regulatory burdens that
were imposed on its subsidiary, Comfab, Inc. ("Comfab") in connection with its
role as a government subcontractor, were not reasonable under a cost-benefit
analysis. In connection with this assessment, it was also determined that the
business of Comfab no longer was completely aligned with the Company's overall
strategic plan. Consequently, on November 1, 1995, Desjardins Engineering, a
proprietorship owned and operated by Mr. Desjardins, purchased the assets of
Comfab. The transaction was approved by the independent members of the Board of
Directors. In June 1996, Desjardins Engineering sold the assets of Comfab to an
unrelated third party for the price of approximately $1,050,000. No gain inured
to the benefit of Mr. Desjardins in connection with the sale of Comfab.
Mr. Miller, a director of the Company since 1995, is a Director of
Investment Banking of HD Brous & Co, Inc., headquartered in Great Neck, New
York. Mr. Miller is the principal in the office located in Phoenix, Arizona. HD
Brous & Co.,Inc. is the Underwriter of this offering. See "Underwriting." HD
Brous & Co., Inc. acted as an underwriter in the Company's offering of Common
Stock in April 1995 and as a placement agent in the private placement issuance
of $14.3 million principal amount of the Company's 10% Notes issued in September
1996. Prior to joining HD Brous & Co., Inc. in 1994, Mr. Miller was Director of
Investment Banking of W.B. McKee Securities, Inc., Phoenix, Arizona, which
served as the managing underwriter of the Company's initial public offering of
Common Stock in 1992. Since that date, Mr. Miller has consulted with the Company
as its investment banker in connection with equity and debt financing and
mergers and acquisitions. See "Management."
The Board of Directors has a policy that provides that all transactions
between the Company and its executive officers, directors, employees, and
affiliates are subject to the approval of a majority of disinterested directors
of the Board of Directors and will be on terms that are no less favorable to the
Company than those that could be negotiated with unaffiliated parties.
48
<PAGE> 50
LIMITATION ON LIABILITY OF DIRECTORS
The General Corporation Law of Arizona, under which the Company is
incorporated, was amended in full effective January 1, 1996. Subsequent to such
modification of the Arizona Corporate Code, the Company's Board of Directors
recommended, and its shareholders approved, amended and restated Articles of
Incorporation of the Company providing for the limitation or elimination of
potential monetary liability of directors of the Company to the fullest extent
permitted by Arizona law.
The Arizona Corporate Code limits or eliminates the liability of a director
of a corporation for money damages for any action taken or not taken as a
director in all instances except (i) instances where a director receives
financial benefits to which he is not entitled; (ii) any intentional infliction
of harm on the corporation or its shareholders; (iii) the making of unlawful
distributions; and (iv) intentional violations of criminal law.
49
<PAGE> 51
PRINCIPAL SHAREHOLDERS
The following table sets forth information with respect to the number of
shares of Common Stock of the Company, as of September 30, 1996, beneficially
owned by individual directors of the Company, certain named executive officers,
all directors and executive officers of the Company as a group, and persons
known by the Company to own more than 5% of the Company's Common Stock as well
as information regarding the ownership of such shares after this offering
assuming the conversion of the Convertible Preferred Stock.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED SHARES BENEFICIALLY OWNED
PRIOR TO OFFERING AFTER OFFERING(12)
-------------------------- --------------------------
NAME OF BENEFICIAL OWNER NUMBER(1) PERCENTAGE(2) NUMBER PERCENT
- ------------------------------------ --------- ------------- --------- -------------
<S> <C> <C> <C> <C>
Stanley P. Desjardins(3)............ 3,555,752 40% 3,555,752
Donald W. Townsend(4)............... 141,800 2% 141,800
Bradley P. Forst(5)................. 57,300 * 57,300
Sean K. Nolen(6).................... -0- * -0-
James C. Withers(7)................. 23,100 * 23,100
Robert D. Olliver(8)................ 23,422 * 23,422
Scott E. Miller(9).................. 24,350 * 24,350
Ian Grant(10)....................... 22,500 * 22,500
Donald D. Rutter(11)................ 53,250 * 53,250
All directors and executive officers
as a group (nine persons)......... 3,901,474 44% 3,901,474
</TABLE>
- ---------------
* Less than 1% of the outstanding Common Stock
(1) The number of shares shown in the table, including the notes thereto, have
been rounded to the nearest whole share. Includes, when applicable, shares
owned of record by such person's spouse and by other related individuals
and entities over whose shares of Common Stock such person has custody,
voting control, or power of disposition. Also includes shares of Common
Stock that the identified person had the right to acquire within 60 days of
September 30, 1996 by the exercise of stock options.
(2) The percentages shown include the shares of Common Stock that the person
will have the right to acquire within 60 days of September 30, 1996. In
calculating the percentage of ownership, all shares of Common Stock that
the identified person will have the right to acquire within 60 days of
September 30, 1996 upon the exercise of stock options are deemed to be
outstanding for the purpose of computing the percentage of shares of Common
Stock owned by such person, but are not deemed to be outstanding for the
purpose of computing the percentage of the shares of Common Stock owned by
any other person.
(3) The address of Mr. Desjardins and all other beneficial owners is 2700 North
Central Avenue, Suite 1000, Phoenix, Arizona 85004.
(4) Includes options to purchase 96,600 shares of Common Stock, which are
presently exercisable, but does not include options to purchase 70,000
shares of Common Stock, which are not exercisable before March 1997.
(5) Includes options to purchase 56,250 shares of Common Stock, which are
presently exercisable, but does not include options to purchase 50,000
shares of Common Stock, which are not exercisable before March 1997.
(6) Does not include options to purchase 25,000 shares of Common Stock, which
are not exercisable before April 1997.
(7) Includes options to purchase 22,500 shares of Common Stock, which are
presently exercisable. Does not include options for 1,500 shares not
exercisable before March 1997.
(8) Includes options to purchase 20,619 shares of Common Stock, which are
presently exercisable. Does not include options for 1,500 shares not
exercisable before March 1997.
50
<PAGE> 52
(9) Includes options to purchase 22,500 shares of Common Stock, which are
presently exercisable. Does not include options for 1,500 shares not
exercisable before March 1997.
(10) Includes options to purchase 22,500 shares of Common Stock, which are
presently exercisable. Does not include options for 1,500 shares not
exercisable before March 1997.
(11) Includes options to purchase 53,250 shares of Common Stock, which are
presently exercisable, but does not include options to purchase 20,000
shares of Common Stock which are not exercisable before March 1997.
(12) Does not include up to 180,000 shares of Convertible Preferred Stock which
may be sold by the Company upon exercise of the over-allotment option
granted to the Underwriters. See "Underwriting".
SHARES ELIGIBLE FOR FUTURE SALE
As of September 30, 1996, the Company had 8,977,632 outstanding shares of
Common Stock, of which 3,682,049 shares are "restricted securities" as that term
is defined in Rule 144 under the Act (the "Restricted Shares"). Such Restricted
Shares may be subject to volume and other resale limitations described below.
The directors and executive officers have agreed with the Company at the
request of the Representative not to sell or otherwise dispose of any shares of
Common Stock in the public market for a period of 90 days after the date of this
Prospectus without the prior written consent of the Representative.
In general, under Rule 144 as currently in effect, any person (or persons
whose shares are aggregated for purposes of Rule 144) who beneficially owns
restricted securities with respect to which at least two years have elapsed
since the later of the date the shares were acquired from the Company or from an
affiliate of the Company, is entitled to sell, within any three-month period, a
number of shares that does not exceed the greater of (i) 1% of the then
outstanding shares of Common Stock of the Company or (ii) the average weekly
trading volume in Common Stock during the four calendar weeks preceding such
sale. Sales under Rule 144 also are subject to certain manner-of-sale provisions
and notice requirements and to the availability of current public information
about the Company. A person who is not an affiliate, has not been an affiliate
within three months prior the sale, and who beneficially owns restricted
securities with respect to which at least three years have elapsed since the
later of the date the shares were acquired from the Company or from an affiliate
of the Company, is entitled to sell such shares under Rule 144(k) without regard
to any of the volume limitations or other requirements described above.
In September 1996, the Company issued $14.3 million principal amount of 10%
Notes in a private placement. The 10% Notes are convertible into approximately
850,000 shares of Common Stock. The Company committed to use its best efforts to
file a registration statement in November 1996 covering resales by the holders
of the Common Stock issuable upon conversion of the 10% Notes. In addition, for
the term of the 10% Notes, the holders of at least 25% of the 10% Notes, or
Common Stock if converted, may require the Company to file, on more than one
occasion, a registration statement under the Act with respect to the Common
Stock underlying the Notes. The Company also committed to use its best efforts
to cause such registration statement to become effective and will bear the
expenses associated with the registration.
51
<PAGE> 53
DESCRIPTION OF CONVERTIBLE PREFERRED STOCK
GENERAL
Under the Company's Amended and Restated Articles of Incorporation, the
Company's Board of Directors is authorized, without further shareholder action,
to provide for the issuance of up to 50 million shares of preferred stock, $.05
par value, in one or more series, with such voting powers or without voting
powers, and with such designations, powers, preferences and relative,
participating, optional or other special rights, and qualifications, limitations
or restrictions, as shall be set forth in the resolutions providing therefor. As
of the date of this Prospectus, the Company has no shares of preferred stock
outstanding.
Set forth below is a summary of certain provisions of the Convertible
Preferred Stock. The summary does not purport to be complete and is subject to,
and qualified in its entirety by reference to, the provisions of the Statement
Pursuant to Arizona Revised Statutes sec.10-602 (the "Certificate of
Designations") relating to the Convertible Preferred Stock, a copy of which has
been filed as an exhibit to the Registration Statement of which this Prospectus
constitutes a part.
The Convertible Preferred Stock will, when issued, be fully paid and
nonassessable. The transfer agent, registrar, redemption agent, and conversion
agent for shares of the Convertible Preferred Stock will be American Stock
Transfer & Trust Company, New York, New York.
DIVIDENDS
Holders of shares of Convertible Preferred Stock will be entitled to
receive, when and as declared by the Board of Directors of the Company out of
assets of the Company legally available for payment, a cumulative annual cash
dividend of $ per share. Dividends accrue from the date of original
issuance and are payable quarterly on the 30th day of January, April, July, and
October (or if such day is not a business day, on the business day immediately
succeeding such 30th day), commencing January 30, 1997, to the person in whose
name the Convertible Preferred Stock is registered at the close of business on
the 15th day of the month next preceding such dividend payment date, or if any
such date is not a business day, on the next succeeding day that is a business
day.
Dividends will be computed on the basis of a 360-day year of twelve 30-day
months, with each dividend payment to be rounded to the nearest whole cent.
Dividends on the Convertible Preferred Stock will accumulate to the extent they
are not paid on the dividend payment date for the period for which they accrued
whether or not the Company has earnings, whether or not there are funds legally
available for the payment of such dividends, and whether or not such dividends
are declared. Dividends on the Convertible Preferred Stock will be cumulative
from the date issued. Such dividends will be payable when and as declared by the
Board of Directors of the Company out of assets of the Company legally available
for payment. Accrued dividends, whether current or in arrears, are payable on
Convertible Preferred Stock that is converted into Common Stock only if such
dividend has been declared and is payable as of a record date prior to the
Conversion Date (as hereinafter defined).
No dividends shall be declared, paid, or set apart for payment on Common
Stock, or the preferred stock of any series ranking, as to dividends, junior to
the Convertible Preferred Stock, for any period unless full cumulative dividends
have been or contemporaneously are declared and paid (or declared and a sum
sufficient for the payment thereof set apart for payment) on the Convertible
Preferred Stock for all dividend payment periods terminating on or prior to the
date of payment of such dividends. When dividends are not paid in full upon the
Convertible Preferred Stock and any other preferred stock ranking on a parity as
to dividends with the Convertible Preferred Stock, all dividends declared upon
shares of Convertible Preferred Stock and any other preferred stock ranking on a
parity as to dividends will be declared pro rata so that in all cases the amount
of dividends declared per share on the Convertible Preferred Stock and such
other preferred stock shall bear to each other the same ratio that accumulated
dividends per share on the shares of Convertible Preferred Stock and such other
preferred stock bear to each other.
52
<PAGE> 54
No dividends on the Convertible Preferred Stock can be paid if at the time
of payment or immediately after giving effect to such payment the Company is in
default under, including the maintenance of certain prescribed debt coverage
ratios, the loan agreement pertaining to the Company's credit facilities with
Wells Fargo Bank, N.A. and its Indenture dated December 17, 1993 governing the
issuance of the 12% due and the 10% Notes due 1999. To date, the Company has
never been in default under its debt instruments or failed to comply with any
prescribed debt coverage ratios. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
LIQUIDATION RIGHTS
In the event of any involuntary liquidation, dissolution, or winding up of
the Company, the holders of shares of Convertible Preferred Stock are entitled
to receive out of assets of the Company available for distribution to the
shareholders, before any distribution of assets is made to holders of Common
Stock or other stock of the Company ranking junior to the Convertible Preferred
Stock, liquidating distributions in the amount of $25 per share plus accrued and
unpaid dividends. If upon any voluntary or involuntary liquidation, dissolution,
or winding up of the Company, the amounts payable with respect to the
Convertible Preferred Stock and any other shares of stock of the Company ranking
as to any such distribution on a parity with the Convertible Preferred Stock are
not paid in full, the holders of the Convertible Preferred Stock and of such
other shares will share ratably in any such distribution of assets of the
Company in proportion to the full respective preferential amounts to which they
are entitled. After payment of the full amount of the liquidating distribution
to which they are entitled, the holders of shares of Convertible Preferred Stock
will not be entitled to any further participation in any distribution of assets
of the Company. Such liquidation rights are not triggered by (i) any
consolidation or merger of the Company with or into any other corporations, (ii)
any dissolution, liquidation, winding up or reorganization of the Company
immediately followed by reincorporation of another corporation or creation of a
partnership, or (iii) a sale or other disposition of all or substantially all of
the Company's assets to another corporation or a partnership, provided that in
each case effective provision is made in the certificate of incorporation of the
resulting and surviving corporation or the articles of partnership, or
otherwise, for the protections of the rights of the holders of Convertible
Preferred Stock.
CONVERSION RIGHTS
Each share of the Convertible Preferred Stock is convertible at any time
after the date of this Prospectus, unless previously redeemed, at the option of
the holder thereof into shares of the Company's Common Stock,
equivalent to a conversion price of $ per share of Common Stock,
subject to adjustment as set forth below. A holder of Convertible Preferred
Stock may convert his shares by surrendering to the conversion agent each
certificate covering shares to be converted together with a statement of the
name or names in which the shares of Common Stock shall be registered upon
issuance (the date of such surrender, the "Conversion Date"). Every such notice
of election to convert will constitute a contract between the holder giving such
notice and the Company whereby such holder will be deemed to subscribe for the
shares of Common Stock he will be entitled to receive upon such conversion and,
in payment and satisfaction of such subscription, to surrender the shares of
Convertible Preferred Stock to be converted and to release the Company from all
further obligation thereon and whereby the Company will be deemed to accept the
surrender of such shares of Convertible Preferred Stock in full payment of the
shares of Common Stock so subscribed for and to be issued upon such conversion.
As promptly as practicable after the Conversion Date, the Company shall issue
and deliver to the converting holder of the Convertible Preferred Stock a
certificate representing the number of shares of Common Stock into which the
Convertible Preferred Stock was converted together with dividends, if any,
payable on the Convertible Preferred Stock so converted as may be declared and
made payable to holders of record of Convertible Preferred Stock on the record
date immediately preceding the Conversion Date. If a holder of Convertible
Preferred Stock elects to convert only a portion of his Convertible Preferred
Stock, upon such conversion the Company shall also deliver to the holder of the
Convertible Preferred Stock a new Convertible Preferred Stock certificate
representing his unconverted Convertible Preferred Stock. In lieu of fractional
shares of Common Stock, there will be paid to the holder of the Convertible
Preferred Stock at the time of conversion an amount in cash equal to the same
fraction of the
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current market value of a share of Common Stock of the Company. This current
market value will be deemed the closing price of the Common Stock on the NYSE on
the last trading day preceding the Conversion Date.
The Conversion Rate is subject to adjustment upon the occurrence of certain
events, including the issuance of shares of Common Stock or other securities of
the Company as a dividend or distribution on shares of Common Stock of the
Company to the holders of all of its outstanding shares of Common Stock;
subdivisions, combinations, or certain reclassifications of shares of Common
Stock of the Company; the issuance of shares of Common Stock of the Company or
of rights, options, or warrants to subscribe for or purchase shares of Common
Stock of the Company at less than the effective Conversion Price of the
Convertible Preferred Stock; or the distribution to the holders of shares of
Common Stock of the Company generally of evidences of indebtedness or assets
(excluding cash dividends and distributions made out of current or retained
earnings) or rights, options, or warrants to subscribe for securities of the
Company other than those mentioned above. No adjustment in the Conversion Rate
will be required to be made with respect to the Convertible Preferred Stock
until cumulative adjustments amount to 1% or more; however, any such adjustment
not required to be made will be carried forward and taken into account in any
subsequent adjustment. No accrued and unpaid cumulative dividends will be paid
upon conversion of the Convertible Preferred Stock unless the conversion occurs
after the record date for such dividend.
In the event of any consolidation with or merger of the Company into
another corporation, or sale of all or substantially all of the properties and
assets of the Company to any other corporation, or in case of any reorganization
of the Company, each share of Convertible Preferred Stock would thereupon become
convertible only into the number of shares of stock or other securities, assets,
or cash to which a holder of the number of shares or Common Stock of the Company
issuable (at the time of such consolidation, merger, sale, or reorganization)
upon conversion of such share of Convertible Preferred Stock would have been
entitled upon such consolidation, merger, sale or reorganization.
VOTING RIGHTS
The holders of the Convertible Preferred Stock are not entitled to vote,
except as set forth below and as provided by law. On matters subject to a vote
by holders of the Convertible Preferred Stock, the holders are entitled to one
vote per share.
If the equivalent of six consecutive quarterly dividends payable on the
Convertible Preferred Stock, or on any other series of preferred stock ranking
on a parity with the Convertible Preferred Stock as to dividends or liquidation
rights and having similar voting rights, are in arrears, the number of directors
of the Company will be increased by two and the holders of all outstanding
series of parity preferred stock, voting as a single class without regard to
series, will be entitled to elect the additional two directors until all
dividends in arrears have been paid or declared and set apart for payment.
Without the consent of the holders of Convertible Preferred Stock, the
Company may issue other series of preferred stock which are pari passu with, or
junior to, the Convertible Preferred Stock as to dividends and liquidation
rights. Without the approval of the holders of at least a majority of the number
of shares of Convertible Preferred Stock then outstanding, voting or consenting
separately as a class, the Company may not issue preferred stock which is senior
to the Convertible Preferred Stock as to dividends or liquidation rights, or
amend, alter or repeal any of the voting rights, designations, preferences or
other rights of the holders of the Convertible Preferred Stock so as adversely
to affect such voting rights, designations, preferences or other rights.
OPTIONAL REDEMPTION
If not earlier converted or redeemed, the Convertible Preferred Stock is
redeemable by the Company in whole or in part on a pro rata basis at $ per
share plus accrued dividends payable through the redemption date, upon 30 days
written notice to the holders, mailed within 15 days after the closing price of
the Company's Common Stock as quoted on the NYSE has equaled or exceeded
$ for any 10 consecutive trading days. Holders will have the right to
convert their shares at any time until the close of business on
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the day prior to the date fixed for redemption. The redemption price will be
paid within 45 days of the redemption date.
CHANGE OF CONTROL REDEMPTION
Within 30 days following the occurrence of any Change of Control, the
Company shall offer ("Change of Control Offer") to purchase all outstanding
Convertible Preferred Stock at a purchase price of $25 per share plus accrued
and unpaid dividends to the date of the Change of Control Offer. The Change of
Control Offer shall be deemed to have commenced upon mailing of notice to the
shareholders and shall terminate 30 business days after its commencement, unless
a longer offering period is then required by law. Promptly after the termination
of the Change of Control Offer ("Change of Control Payment Date"), the Company
shall purchase and mail or deliver payment for all shares tendered in response
to the Change of Control Offer. If the Change of Control Payment Date is on or
after a dividend payment record date and on or before the related dividend
payment date, any accrued and unpaid dividends will be paid to the Person in
whose name a share is registered at the close of business on such record date,
and no additional dividends will be payable to holders who tender shares
pursuant to the Change of Control Offer.
Change of Control means any event or series of events by which (i) any
Person as such term is used in Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended is or becomes the "beneficial owner" (as
defined in Rules 13d-3 and 13d-5 under the exchange Act) of 50% of more of the
total voting power of the voting stock of the Company; (ii) the Company
consolidates with or merges or amalgamates with or into another Person or
conveys, transfers, or leases all or substantially all of its assets to any
Person, or any Person consolidates with, or merges or amalgamates with or into
the Company, in any such event pursuant to the transaction in which the
outstanding voting stock of the Company is changed into or exchanged for cash,
securities or other property, other than any such transaction where (A) the
outstanding voting stock of the Company is changed or exchanged for voting stock
of the surviving corporation and (B) the holders of the Voting Stock of the
Company immediately prior to such transaction own, directly or indirectly, not
less than a majority of the Voting Stock of the surviving corporation
immediately after such transaction; or (iii) the shareholders of the Company
approve any plan of liquidation or dissolution of the Company.
CERTAIN RESTRICTIONS UPON REDEMPTION AND PAYMENT OF DIVIDENDS
The Company's ability to pay dividends on and to redeem the Convertible
Preferred Stock is subject to the terms of the Indenture relating to its
issuance of the 12% Notes, and the 10% Notes, which is filed as an Exhibit to
the Registration Statement of which this Prospectus is a part. The Indenture
provides that the Company may not (i) pay any dividends or distributions on its
capital stock (other than those payable in capital stock) or (ii) purchase,
redeem, or otherwise acquire or retire for value any of its capital stock if at
the time of such action an Event of Default shall have occurred and be
continuing. An Event of Default, as defined in the Indenture, includes (a)
default by the Company in the payment of principal or interest on Notes issued
under the Indenture, (b) defaults on other indebtedness of the Company, if any,
having an individual or aggregate minimum principal amount of $900,000 or
greater, (c) default or breach of covenants and agreements contained in the
Indenture upon notice thereof and failure to remedy such default or breach
within 60 days, (d) entry against the Company of judgments in excess of $500,000
net of insurance, (e) unauthorized terminations of subsidiary guarantees, and
(f) certain specified bankruptcy proceedings. Within 30 days following the
occurrence of any change of control, as defined in the Indenture, the Company is
required to offer to purchase all the 12% Notes and the 10% Notes at a purchase
price equal to 101% of the aggregate principal amount of such Notes, plus
accrued and unpaid interest to the date of purchase.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The federal income tax discussion set forth below is a brief description of
certain federal income tax aspects of this offering. It is for general
information only, and does not consider the federal income tax consequences of
the offering that may be relevant to particular classes of taxpayers, such as
banks, insurance companies and foreign individuals and entities. Purchasers of
the Convertible Preferred Stock offered hereby should consult their own tax
advisors as to the income tax consequences to them of an investment therein,
including the applicability and effect of state, local and other tax laws.
DIVIDENDS ON CONVERTIBLE PREFERRED STOCK
Dividends paid on the Convertible Preferred Stock will be taxable as
ordinary income to the extent that the Company has either current or accumulated
earnings and profits as determined for federal income tax purposes. Preferred
Shareholders should be aware that a dividend may be taxable as ordinary income
because the Company has current earnings and profits for federal income tax
purposes even though the current earnings and profits are insufficient to
eliminate an accumulated deficit in earnings and profits and even if the Company
has a net loss for the year for financial reporting purposes. Subject to
Sections 243, 246 (relating to certain holding period requirements), and 246A
(relating to debt financed portfolio stock) of the Internal Revenue Code of
1986, as amended (the "Code"), to the extent of current or accumulated earnings
and profits, a dividend payment will be eligible for the 70% dividends-received
deduction allowable to corporate shareholders (for corporate shareholders owning
less than 20% of the Company).
To the extent any dividends paid on the Convertible Preferred Stock exceed
the Company's current or accumulated earnings and profits, the amount received
will be a return of capital. Any such distributions will reduce, on a
share-by-share basis, the shareholder's adjusted basis in his Convertible
Preferred Stock and, to the extent in excess of the shareholder's adjusted
basis, will be treated as gain from the sale or exchange of property. Such gain
will be capital gain if the Convertible Preferred Stock is held as a capital
asset, and will be long-term capital gain if the holding period for the
Convertible Preferred Stock were to exceed one year.
REDEMPTION OF CONVERTIBLE PREFERRED STOCK
A redemption of the Convertible Preferred Stock for cash will constitute a
taxable transaction for federal income tax purposes to the shareholders. A
redemption of Convertible Preferred Stock for cash will be treated (subject to
Code Section 1059, relating to certain extraordinary dividends on preferred
stock), under Section 302 of the Code, as a distribution that is taxable as a
dividend (to the extent of the Company's current and accumulated earnings and
profits), unless the redemption (a) results in a "complete termination" of the
shareholder's stock interest in the Company under Section 302(b)(3) of the Code;
(b) is a "substantially disproportionate" distribution with respect to the
shareholder under Section 302(b)(2) of the Code; or (c) is "not essentially
equivalent to a dividend" with respect to the shareholder under Section
302(b)(1) of the Code. In determining whether any of these tests has been met,
each share of Convertible Preferred Stock and Common Stock considered to be
owned by the shareholder by reason of certain constructive ownership rules set
forth in Section 318 of the Code, as well as shares actually owned, must
generally be taken into account. If any of these tests are met with respect to a
particular shareholder, the redemption of Convertible Preferred Stock for cash
would result, as to that shareholder, and subject to Code Section 1059, in
taxable gain or loss equal to the difference between the amount of cash received
and the shareholder's adjusted basis in the Convertible Preferred Stock
redeemed. Any gain or loss realized by the shareholder will be recognized in the
shareholder's current taxable year. Such gain or loss would be capital gain or
loss if the holding period for the Convertible Preferred Stock exceeds one year.
EXTRAORDINARY DIVIDENDS TREATMENT
Under Section 1059(a) of the Code, a corporate holder of the Convertible
Preferred Stock that receives an "extraordinary dividend" will be required, if
the Convertible Preferred Stock has not been held for more than two years as of
the date the dividend was announced, to reduce the corporate holder's adjusted
basis at
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the time the corporate holder disposes of the Convertible Preferred Stock by the
portion of the extraordinary dividend that was not taxed because of the
dividends received deduction. The primary definition of an "extraordinary
dividend" is found in Section 1059(c) of the Code. The definition is complex and
subject to numerous exceptions, which are not described herein. However, in
general, an "extraordinary dividend" means any preferred stock dividend that
exceeds a rate of 5% of the shareholder's adjusted basis in such stock. In
general, all dividends with ex-dividend dates within the same 85-day period are
aggregated for purposes of this threshold. In addition, all dividends with
ex-dividend dates within the same 365-day period that exceed 20% of a corporate
shareholder's adjusted basis in the preferred stock also are aggregated. Thus,
accrued dividends paid in arrears on the Convertible Preferred Stock may be
treated as "extraordinary dividends," depending upon the amount and timing of
the payment of the dividend arrearages and also depending upon a Preferred
Shareholder's adjusted basis in the Convertible Preferred Stock.
CONVERSION OF CONVERTIBLE PREFERRED STOCK
Generally, no gain or loss will be recognized for federal income tax
purposes on the conversion of Convertible Preferred Stock into Common Stock of
the Company. Taxable gain will be realized upon the receipt of cash paid in lieu
of fractional share of Common Stock. Taxable gain also may be realized in the
amount of any unpaid dividend arrearages at the time of the conversion. In
general, the tax basis for Common Stock received on conversion will be equal to
the tax basis of the Convertible Preferred Stock converted and, provided that
such Convertible Preferred Stock was held as a capital asset, the holding period
of the shares of Common Stock will include the holding period of such
Convertible Preferred Stock.
REDEMPTION PREMIUM
The Convertible Preferred Stock is subject to redemption at the option of
the Company in the event of a Change of Control and also under circumstances
where the price of the Company's Common Stock has attained certain thresholds.
See "Description of Convertible Preferred Stock -- Optional Redemption and
Change in Control Redemption." Under Section 305 of the Code, a redemption
premium payable with respect to optionally redeemable preferred stock may be
treated as a "constructive dividend" reportable over time as taxable income by
the holder of the preferred stock. The application of Section 305 under new
Treasury regulations is uncertain; however, for the reasons stated below, the
Company intends to take the position that "constructive dividend" treatment is
not applicable.
Under the Treasury regulations, a redemption premium will be treated as a
"constructive dividend" only if, based upon all of the facts and circumstances,
the redemption of the Convertible Preferred Stock is more likely than not to
occur. Because it is speculation to predict the probability of either event that
would trigger an optional redemption, the Company believes that it is not at
this time more likely than not that an optional redemption will occur in the
future. Furthermore, even if either or both of such events were viewed by the
Internal Revenue Service as more likely than not to occur, "constructive
dividend" treatment under the Treasury regulations should not result if the
redemption premium is solely in the nature of a penalty for a premature
redemption of the Convertible Preferred Stock. The Company intends to take the
position that the redemption premium is such a penalty because the Treasury
regulations generally provide for such treatment if a redemption premium is
payable as a result of changes in economic or market conditions over which
neither the Company nor any holder of the Convertible Preferred Stock has any
legal or practical control.
ADJUSTMENT OF CONVERSION PRICE
As noted above, Section 305 of the Code treats as a taxable dividend
certain actual or constructive distributions of stock. Treasury regulations
treat holders of convertible preferred stock as having received such a
constructive distribution where the conversion price is adjusted to reflect
certain taxable distributions with respect to the stock into which such
preferred stock is convertible. Thus, under certain circumstances an adjustment
in the conversion price of the Convertible Preferred Stock may be taxable to the
holders thereof as a dividend.
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BACKUP WITHHOLDING
Under Section 3406 of the Code and applicable Treasury regulations, a
holder of Convertible Preferred Stock may be subject to backup withholding at
the rate of 31% with respect to dividends paid, or the proceeds of a sale,
exchange or redemption of, Convertible Preferred Stock, unless such holder (a)
is a corporation or is otherwise exempt from backup withholding or (b) provides
a taxpayer identification number, certifies that such number is correct and
otherwise complies with applicable requirements of the backup withholding rules.
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DESCRIPTION OF OTHER CAPITAL STOCK AND DEBT SECURITIES
COMMON STOCK
The Company is authorized to issue 50,000,000 shares of Common Stock, par
value $.01 per share, of which 8,977,623 shares were issued and outstanding as
of September 30, 1996.
Holders of the Common Stock are entitled to one vote for each share owned
for all matters to be voted on by the Preferred Shareholders. As required under
Arizona law, there is cumulative voting in the election of directors.
Accordingly, each shareholder is entitled to vote the number of shares owned by
him for as many persons as there are directors to be elected, or to cumulate his
votes by giving one candidate as many votes as the number of such directors
multiplied by the number of his shares, or by distributing votes on the same
principle among any number of candidates. Holders of Common Stock are entitled
to receive such dividends as may be declared from time to time by the Board of
Directors out of funds legally available therefor and, in the event of
liquidation, dissolution, or winding up of the Company, to share ratably in all
assets remaining after payment of liabilities. The holders of Common Stock have
no preemptive or conversion rights. The holders of Common Stock are not subject
to further calls or assessments. There are no redemption or sinking fund
provisions applicable to the Common Stock. The rights of the holders of the
Common Stock are subject to any rights that may be fixed for holders of
preferred stock. The Common Stock currently outstanding is, and the Common Stock
underlying the Convertible Preferred Stock offered by the Company hereby will,
when issued, be validly issued, fully paid, and nonassessable.
PREFERRED STOCK
The Company is authorized to issue 50,000,000 shares of preferred stock,
par value $.05 per share. No preferred stock is issued or outstanding. The
preferred stock may, without action by the shareholders of the Company, be
issued by the Board of Directors from time to time in one or more series for
such consideration and with such relative rights, privileges, and preferences as
the Board may determine. Accordingly, the Board has the power to fix the
dividend rate and to establish the provisions, if any, relating to voting
rights, redemption rate, sinking fund, liquidation, preferences, and conversion
rights for any series of preferred stock issued in the future.
12% SENIOR SUBORDINATED NOTES DUE 1998
In December 1993, the Company issued $5.7 million principal amount of 12%
Notes. The 12% Notes were issued pursuant to an Indenture dated December 17,
1993. The 12% Notes are listed on the NYSE. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
SERIES C 10% SENIOR SUBORDINATED CONVERTIBLE NOTES DUE 1999
In September, 1996, the Company issued, in a private placement, $14.3
million principal amount of 10% Notes. The 10% Notes were issued pursuant to the
Company's Indenture dated December 17, 1993 and a supplemental indenture dated
September, 1996. See Management's Discussion and Analysis of Financial Condition
and Results of Operations."
ARIZONA ANTI-TAKEOVER STATUTE
The Arizona Corporate Takeover Act (the "Act") was adopted in 1987. The
policy of the Act is to prevent unfriendly corporate takeover attempts by third
parties. Article I of the Act deals with, among other things, the prohibition of
"green mail." Article II deals with limitation on voting rights of certain
individuals acquiring shares in the market, and Article III regulates certain
business combinations respecting corporate transactions proposed by insiders and
as part of a takeover plan. Arizona corporations may elect to not be governed by
Articles II or III of the Act and by doing so may elect to not be subject to the
considerable restrictions on a possible tender offer or other takeovers.
Pursuant to a 1995 amendment to the Company's
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Articles of Incorporation, the Company affirmatively approved its coverage under
Articles II and III of the Act.
TRANSFER AGENT AND REGISTRAR
The Company's Transfer Agent and Registrar for the Common Stock and the
Convertible Preferred Stock is American Securities Transfer & Trust Company, New
York, New York.
LISTING
The Common Stock is currently listed and traded on the NYSE under the
symbol "SMU". The Convertible Preferred Stock will be listed on the NYSE under
the symbol "SMU-PfA."
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UNDERWRITING
The Underwriters named below (the "Underwriters"), for whom HD Brous & Co.,
Inc. is acting as representative (the "Representative"), have severally agreed,
subject to the terms and conditions set forth in the underwriting agreement (the
form of which is filed as an exhibit to the Company's Registration Statement of
which this Prospectus is a part) among the Company and the Representative (the
"Underwriting Agreement"), to purchase from the Company and the Company has
agreed to sell to the Underwriters, the respective number of shares of
Convertible Preferred Stock set forth opposite their names below:
<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME TO BE PURCHASED
---------------------------------------------------------- ----------------
<S> <C>
HD Brous & Co., Inc.......................................
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters to purchase the shares of Convertible Preferred Stock are subject
to certain conditions. The Underwriters are committed to purchase all of the
shares of Convertible Preferred Stock offered hereby (other than the shares
covered by the over-allotment option described below) if any are purchased.
The Company has been advised by the Representative that the Underwriters
propose to offer the shares of Convertible Preferred Stock to the public at the
public offering price set forth on the cover page of this Prospectus, and to
certain securities dealers at such price less a concession not in excess of
$ per share. The Underwriters may allow and such dealers may re-allow
to other dealers, including any Underwriter, a discount not in excess of
$ per share. After the public offering, the public offering price and
concessions and discounts may be changed by the Representative.
The Company has agreed to indemnify the Underwriters and their controlling
persons against certain liabilities in connection with the offer and sale of the
shares of Convertible Preferred Stock, including liabilities under the
Securities Act and to contribute to payments the Underwriters may be required to
make in respect thereof.
The Underwriters have obtained an option from the Company, exercisable
during the 45-day period after the date of this Prospectus, under which they may
purchase up to 180,000 additional shares of Convertible Preferred Stock at the
same price per share which the Company will receive for the shares being
purchased by the Underwriters. The Underwriters may exercise the option only to
cover over-allotments to the extent that the Underwriters exercise such option,
each of the Underwriters will be committed, subject to certain conditions, to
purchase a number of option shares proportionate to such Underwriter's initial
commitment as indicated in the preceding table.
The Representative has informed the Company that the Underwriters do not
intend to confirm sales of shares of Convertible Preferred Stock offered hereby
to accounts over which they exercise discretionary authority.
The Company, its directors, and executive officers have agreed not to
offer, issue, sell, grant any option for the sale of or otherwise dispose of (or
announce any offer, issuance, sale, grant of option to purchase or other
disposition) of any shares of Common Stock, or any securities convertible into
an exercisable or exchangeable for shares of Common Stock shares for the 90 day
period from the date of this Prospectus unless released earlier by the
Representative.
Mr. Miller, a director of the Company since 1995, is a Director of
Investment Banking of HD Brous & Co, Inc. headquartered in Great Neck, New York.
Mr. Miller is the principal in the office located in Phoenix, Arizona. HD Brous
& Co., Inc. is the Representative of this offering. See "Certain Transactions."
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LEGAL OPINIONS
The validity of the shares being offered hereby has been passed upon for
the Company by Streich Lang, P.A., Phoenix, Arizona and for the Underwriters by
O'Connor, Cavanagh, Anderson, Killingsworth & Beshears, P.A., Phoenix, Arizona.
EXPERTS
The consolidated financial statements of Simula, Inc. as of December 31,
1994 and 1995 and for each of the three years in the period ended December 31,
1995 included in this Prospectus have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their reports appearing herein and elsewhere
in the Registration Statement and have been so included in reliance upon the
reports of such firm given upon their authority as experts in accounting and
auditing.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission are
incorporated herein by reference: (1) the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1995; and (2) the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended June 30, 1996. All documents
filed by the Company with the Commission pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date hereof and prior to the
termination of the offering of the Convertible Preferred Stock registered hereby
shall be deemed to be incorporated by reference into this Prospectus and to be a
part hereof from the date of filing such documents. Any statements contained in
a document incorporated or deemed to be incorporated by reference herein shall
be deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statements. Any statement so modified or superseded
shall not be deemed, except as so modified or superseded, to constitute a part
of this Prospectus. The Company will provide without charge to each person to
whom this Prospectus is delivered, upon a written request of such person, a copy
of any or all of the foregoing documents incorporated by reference into this
Prospectus (other than exhibits to such documents, unless such exhibits are
specifically incorporated by reference into such documents). Requests for such
copies should be delivered to the Simula, Inc. Investor Relations Department,
2700 North Central Avenue, Suite 1000, Phoenix, Arizona 85004.
ADDITIONAL INFORMATION
The Company is subject to the informational requirements of the Securities
and Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy and
information statements and other information may be inspected and copied at the
public reference facilities maintained by the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the following Regional Offices of the
Commission: New York Regional Office, Seven World Trade Center, New York, New
York 10048, and Chicago Regional Office, 500 West Madison Street, Chicago,
Illinois 60661. Copies of such material can be obtained from the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549 upon payment of the prescribed fees. The Commission also maintains a Web
site that contains reports, proxy and information statements and other materials
that are filed through the Commission's Electronic Data Gathering Analysis, and
Retrieval system. This Web site can be accessed at http://www.sec.gov. The
Common Stock is listed on the NYSE. The foregoing information concerning the
Company may be inspected at the NYSE at 20 Broad Street, New York, New York
10005.
The Company will distribute to holders of the shares of Convertible
Preferred Stock being offered hereby, annual reports containing audited
financial statements and quarterly reports containing unaudited summary
financial information for each of the first three fiscal quarters of each fiscal
year.
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This Prospectus constitutes a part of a Registration Statement on Form S-3
(herein, together with all amendments and exhibits, referred to as the
"Registration Statement") filed by the Company with the Commission under the
Securities Act of 1933. This Prospectus does not contain all of the information
set forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. For further
information with respect to the Company and the shares of Convertible Preferred
Stock offered hereby, reference is hereby made to the Registration Statement.
Statements contained herein concerning the provisions of any document are not
necessarily complete, and each such statement is qualified in its entirety by
reference to the copy of such document filed with the Commission.
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SIMULA, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Independent Auditors' Report.......................................................... F-2
Consolidated Balance Sheets as of December 31, 1995 and 1994 and Unaudited June 30,
1996................................................................................ F-3
Consolidated Statements of Earnings for the years ended December 31, 1995, 1994 and
1993 and Unaudited for the six months ended June 30, 1996 and 1995.................. F-4
Consolidated Statements of Shareholders' Equity for the years ended December 31, 1995,
1994 and 1993 and Unaudited for the six months ended June 30, 1996.................. F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1995, 1994 and
1993 and Unaudited for the six months ended June 30, 1996 and 1995.................. F-6
Notes to Consolidated Financial Statements............................................ F-8
</TABLE>
F-1
<PAGE> 66
INDEPENDENT AUDITORS' REPORT
Directors and Shareholders
Simula, Inc. and Subsidiaries
Phoenix, Arizona
We have audited the accompanying consolidated balance sheets of Simula, Inc. and
subsidiaries (the "Company") as of December 31, 1995 and 1994, and the related
consolidated statements of earnings, shareholders' equity and cash flows for
each of the three years in the period ended December 31, 1995. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Simula, Inc. and subsidiaries at
December 31, 1995 and 1994, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1995 in
conformity with generally accepted accounting principles.
Deloitte & Touche LLP
March 21, 1996
Phoenix, Arizona
F-2
<PAGE> 67
SIMULA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- JUNE 30,
1994 1995 1996
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................. $ 1,051,177 $ 3,175,172 $ 375,404
Contract and trade receivables -- net (Notes 9 and
15)................................................ 12,389,003 25,221,504 28,872,320
Income taxes receivable............................... 2,281,000
Inventories (Note 4).................................. 6,732,043 8,104,194 13,607,759
Deferred income taxes (Note 10)....................... 23,000
Prepaid expenses and other............................ 399,019 762,836 1,330,161
----------- ----------- -----------
Total current assets.......................... 20,594,242 37,263,706 46,466,644
PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS -- Net
(Notes 5 and 8)....................................... 13,198,567 15,778,819 18,445,477
DEFERRED COSTS (Note 6)................................. 1,460,382 6,385,328 405,689
PATENTS AND LICENSES.................................... 187,518 518,644 593,179
INTANGIBLES -- Net (Notes 3 and 6)...................... 11,976,773 13,351,361 13,121,898
OTHER ASSETS............................................ 273,481 1,441,278 1,426,525
----------- ----------- -----------
TOTAL......................................... $47,690,963 $74,739,136 $80,459,412
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Revolving line of credit.............................. $ 6,700,000
Trade accounts payable................................ $ 6,114,887 $ 7,884,141 8,505,490
Other accrued liabilities (Note 11)................... 2,572,789 2,607,849 4,417,381
Advances on contracts................................. 2,529,988 3,920,533 1,463,051
Deferred income taxes (Note 10)....................... 8,000 8,000
Current portion of long-term debt (Note 8)............ 1,089,665 1,367,187 4,891,402
Short-term debt (Note 12)............................. 3,050,000 0 0
----------- ----------- -----------
Total current liabilities..................... 15,357,329 15,787,710 25,985,324
LONG-TERM DEBT -- Less current portion
(Notes 8 and 13)...................................... 15,339,206 11,261,365 9,424,615
DEFERRED INCOME TAXES (Note 10)......................... 345,000 158,000 158,000
----------- ----------- -----------
Total liabilities............................. 31,041,535 27,207,075 35,567,939
----------- ----------- -----------
COMMITMENTS AND CONTINGENCIES (Note 13)
SHAREHOLDERS' EQUITY (Notes 2 and 14)
Preferred stock, $.05 par value -- authorized,
50,000,000 shares; no shares issued or
outstanding........................................
Common stock, $.01 par value -- authorized, 50,000,000
shares; issued, 6,468,845, 8,970,627 and 8,966,442
shares............................................. 64,688 89,706 89,664
Additional paid-in capital............................ 11,226,503 37,981,759 38,696,635
Retained earnings..................................... 5,638,075 9,740,434 6,105,174
Treasury stock -- at cost, 82,500 shares.............. (279,838) (279,838) 0
----------- ----------- -----------
Total shareholders' equity.................... 16,649,428 47,532,061 44,891,473
----------- ----------- -----------
TOTAL......................................... $47,690,963 $74,739,136 $80,459,412
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 68
SIMULA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
--------------------------------------- -------------------------
1993 1994 1995 1995
----------- ----------- ----------- -----------
(UNAUDITED) 1996
-----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue (Notes 3, 15 and 17).... $24,780,591 $41,157,794 $59,088,613 $28,801,970 $36,358,342
Cost of Revenue................. 15,728,061 27,708,610 36,621,471 18,587,083 27,794,969
----------- ----------- ----------- ----------- -----------
Gross margin.................. 9,052,530 13,449,184 22,467,142 10,214,887 8,563,373
Administrative Expenses (Notes
11, 13 and 16)................ 5,468,586 8,264,864 15,609,005 6,656,088 8,076,618
Unusual Item (Note 13).......... 919,389 0 0 0 0
----------- ----------- ----------- ----------- -----------
Operating Income................ 2,664,555 5,184,320 6,858,137 3,558,799 486,755
Interest Expense (Note 8)....... (800,255) (1,831,505) (2,029,854) (1,161,874) (791,251)
Interest Income................. 0 21,608 440,076 191,447 0
----------- ----------- ----------- ----------- -----------
Income (Loss) Before Taxes...... 1,864,300 3,374,423 5,268,359 2,588,372 (304,496)
Income Tax Expense (Benefit)
(Note 10)..................... 743,500 1,260,000 1,166,000 1,035,300 (121,000)
----------- ----------- ----------- ----------- -----------
Earnings (Loss) before
cumulative effect of a change
in accounting principle....... 1,120,800 2,114,423 4,102,359 1,553,072 (183,496)
----------- ----------- ----------- ----------- -----------
Cumulative effect on prior years
(to December 31, 1995) of
changing accounting for
pre-contract costs -- Net of
related income tax benefit of
$2,160,000.................... 0 0 0 0 3,239,948
----------- ----------- ----------- ----------- -----------
Net Earnings (Loss)............. $ 1,120,800 $ 2,114,423 $ 4,102,359 $ 1,553,072 $(3,423,444)
=========== =========== =========== =========== ===========
Per share amounts:
Earnings (loss) before
cumulative effect of a
change in accounting
principle.................. $ .22 $ .37 $ .48 $ .20 $ (.02)
Cumulative effect on prior years
(to December 31, 1995) of
changing accounting for
pre-contract costs............ 0 0 0 0 (.36)
----------- ----------- ----------- ----------- -----------
Net Earnings (Loss)............. $ .22 $ .37 $ .48 $ .20 $ (.38)
=========== =========== =========== =========== ===========
Average Shares Outstanding...... 5,024,679 5,704,926 8,576,817 7,748,819 8,916,287
=========== =========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 69
SIMULA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
THREE YEARS ENDED DECEMBER 31, 1995 AND UNAUDITED SIX MONTH PERIOD
ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
CLASS A
COMMON STOCK ADDITIONAL TOTAL
------------------- PAID-IN RETAINED TREASURY SHAREHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS STOCK EQUITY
--------- ------- ----------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1993............ 5,071,940 $50,720 $ 4,094,851 $ 3,086,378 $ 7,231,949
Net earnings...................... 1,120,800 1,120,800
Common shares issued.............. 1,500 15 5,235 5,250
Purchase of common shares for
treasury....................... 0 0 0 0 $(279,838) (279,838)
--------- ------- ----------- ---------- --------- -----------
BALANCE, DECEMBER 31, 1993.......... 5,073,440 50,735 4,100,086 4,207,178 (279,838) 8,078,161
Net earnings...................... 2,114,423 2,114,423
Conversion of Series B 9% Senior
Subordinated Convertible Notes
for common shares.............. 967,236 9,672 5,721,578 5,731,250
Issuance of common shares for
warrants and options........... 158,525 1,585 610,361 611,946
Issuance of common shares in
connection with:
Acquisition of SOUTHtech....... 178,582 1,786 44,388 (683,526) (637,352)
Acquisition of Artcraft........ 67,228 672 464,328 465,000
Acquisition of Sedona
Scientific, Inc.............. 23,834 238 285,762 0 0 286,000
--------- ------- ----------- ---------- --------- -----------
BALANCE, DECEMBER 31, 1994.......... 6,468,845 64,688 11,226,503 5,638,075 (279,838) 16,649,428
Net earnings........................ 4,102,359 4,102,359
Secondary offering of common
shares............................ 2,328,750 23,288 25,544,534 25,567,822
Issuance of common shares for
warrants and options.............. 173,032 1,730 847,256 848,986
Tax benefit from exercise of
stock options..................... 0 0 363,466 0 0 363,466
--------- ------- ----------- ---------- --------- -----------
BALANCE, DECEMBER 31, 1995.......... 8,970,627 $89,706 $37,981,759 $ 9,740,434 $(279,838) $47,532,061
Issuance of common shares for
options........................... 78,315 783 782,073 782,856
Net loss............................ (3,423,444) (3,423,444)
Retirement of treasury stock........ (82,500) (825) (67,197) (211,816) 279,838 0
--------- ------- ----------- ---------- --------- -----------
BALANCE, JUNE 30, 1996
(Unaudited)....................... 8,966,442 $89,664 $38,696,635 $ 6,105,174 $ 0 $44,891,473
========= ======= =========== ========== ========= ===========
</TABLE>
See note to consolidated financial statements.
F-5
<PAGE> 70
SIMULA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
YEARS ENDED DECEMBER 31,
-------------------------------------------- ---------------------------
1993 1994 1995 1995 1996
----------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net earnings (loss)........................ $ 1,120,800 $ 2,114,423 $ 4,102,359 $ 1,553,072 $(3,423,444)
Adjustments to reconcile net earnings
(loss) to net cash (used) provided by
operating activities:
Depreciation and amortization............ 798,754 1,651,118 3,064,833 1,227,819 1,375,119
Deferred income taxes.................... (171,000) 256,000 (156,000)
Cumulative effect of change in
accounting............................. 5,399,948
Changes in net assets and
liabilities -- net of effects from
acquisitions:
Contract and trade receivables........... (272,393) (1,358,328) (15,059,956) (6,871,545) (6,108,298)
Income tax receivable.................... (2,281,000)
Inventories.............................. (330,623) (2,681,370) (1,372,151) (533,615) (4,944,680)
Prepaid expenses and other............... 81,473 94,635 (363,817) (426,401) (567,325)
Deferred costs........................... (114,538) (1,083,476) (5,572,295) (727,784)
Other assets............................. 40,035 (1,089,933) (275,072) 14,753
Trade accounts payable................... (385,990) (146,991) 1,769,254 (2,356,748) 621,349
Other accrued liabilities................ 525,975 (1,538,783) 163,526 1,156,684 1,809,532
----------- ----------- ------------ ----------- -----------
Net cash (used) provided by operating
activities........................... 1,252,458 (2,652,737) (14,514,180) (7,253,590) (8,104,046)
----------- ----------- ------------ ----------- -----------
INVESTING ACTIVITIES:
Purchase of property and equipment......... (564,752) (1,256,852) (3,843,133) (1,419,194) (3,481,464)
Proceeds from sale of property and
equipment................................ 743,671
Costs incurred to obtain patents, licenses
and intangibles.......................... (115,000) (271,212) (342,528) (867,951) (384,579)
Cash paid to acquire Coach & Car........... (5,352,982)
Cash paid to acquire SOUTHtech............. (4,606)
Cash paid to acquire Artcraft -- net of
cash acquired............................ (628,948)
Cash paid to acquire Sedona Scientific,
Inc...................................... (93,000)
Cash paid to acquire Airline
Interiors -- net of cash acquired........ (1,835,251) 0 0 0 0
----------- ----------- ------------ ----------- -----------
Net cash used in investing
activities........................... (2,515,003) (7,607,600) (3,441,990) (2,287,145) (3,866,043)
----------- ----------- ------------ ----------- -----------
FINANCING ACTIVITIES:
Net borrowings (repayments) under
short-term debt and line of credit
agreement................................ (797,035) 2,000,000 (3,050,000) 6,700,000
Borrowings under other debt arrangements... 1,173,401 10,799,940 4,407,628 2,627,473 2,444,200
Principal payments under other debt
arrangements............................. (1,952,102) (3,611,047) (7,694,271) (8,246,890) (756,735)
Issuance of common shares -- net of
expenses................................. 611,946 26,416,808 11,685 782,856
Prepaid offering costs..................... 25,615,949
Issuance of 12% Notes -- net of issuance
costs.................................... 4,934,332
Advances to the Chairman -- net............ (303,427)
Purchases of treasury stock................ (279,838)
Real estate -- net of payment to the
Chairman................................. (266,639)
Dividends paid to the Chairman............. (28,758) 0 0 0 0
----------- ----------- ------------ ----------- -----------
Net cash provided by financing
activities........................... 2,479,934 9,800,839 20,080,165 20,008,217 9,170,321
----------- ----------- ------------ ----------- -----------
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS................................ 1,217,389 (459,498) 2,123,995 10,467,482 (2,799,768)
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD..................................... 293,286 1,510,675 1,051,177 1,051,177 3,175,172
----------- ----------- ------------ ----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD..... $ 1,510,675 $ 1,051,177 $ 3,175,172 $11,518,659 $ 375,404
=========== =========== ============ =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Interest paid............................ $ 758,666 $ 1,515,844 $ 1,691,712 $ 1,078,599 $ 437,081
=========== =========== ============ =========== ===========
Taxes paid............................... $ 804,000 $ 441,700 $ 1,365,826 $ 852,500 $ 277,700
=========== =========== ============ =========== ===========
</TABLE>
F-6
<PAGE> 71
SIMULA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------
1993 1994 1995
----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
Property and equipment acquired under
capital leases........................... $ 924,324
============
Tax benefits from exercise of stock
options.................................. $ 363,466
============
Purchase accounting adjustments related to
the acquisitions of Coach & Car and
Artcraft:
Additional liabilities offset against
seller note payable.................... $ 1,438,000
============
Additional liabilities recognized upon
final allocation of purchase price..... $ 2,415,000
============
Conversion of notes:
Conversion of $6,475,000 Series B 9%
Senior Subordinated Convertible Notes
and accrued interest of $136,600 less
deferred note issuance costs of
$880,350 for
967,236 shares......................... $ 5,731,250
===========
Coach & Car acquisition:
Fair value of assets acquired............ $11,422,148
Liabilities assumed...................... (7,069,166)
Seller note payable...................... (1,500,000)
Covenants not to compete................. 2,500,000
-----------
Cash paid to acquire Coach & Car........... $ 5,352,982
===========
SOUTHtech acquisition:
Fair value of assets acquired............ $ 378,014
Liabilities assumed...................... (1,010,760)
Common stock issued...................... 637,352
-----------
Cash paid to acquire SOUTHtech............. $ 4,606
===========
Artcraft acquisition:
Fair value of assets acquired............ $ 4,103,924
Liabilities assumed...................... (2,988,924)
Common stock issued...................... (465,000)
Cash acquired............................ (21,052)
-----------
Cash paid to acquire Artcraft -- net of
cash acquired............................ $ 628,948
===========
Sedona Scientific, Inc. acquisition:
Fair value of assets acquired............ $ 471,277
Liabilities assumed...................... (92,277)
Common stock issued...................... (286,000)
-----------
Cash paid to acquire Sedona Scientific,
Inc...................................... $ 93,000
===========
Airline Interiors acquisition:
Fair value of assets acquired............ $ 3,270,480
Liabilities assumed...................... (2,106,318)
Covenants not to compete................. 2,700,000
Liability for covenants not to compete... (1,864,162)
Cash acquired............................ (164,749)
-----------
Cash paid to acquire Airline
Interiors -- net of cash................. $ 1,835,251
===========
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE> 72
SIMULA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 AND
UNAUDITED SIX MONTH PERIODS ENDED JUNE 30, 1996 AND 1995
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION -- The consolidated financial statements include the
accounts of Simula, Inc. ("Simula") and its subsidiaries (collectively the
"Company"). All of the subsidiaries are wholly owned. All intercompany
transactions are eliminated in consolidation.
The Company announced a 3 for 2 split of its common stock to shareholders
of record as of September 15, 1995; which shares were issued on September 28,
1995. As a result, all shares and related references have been restated for all
prior periods and transactions.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- These consolidated financial
statements are prepared in accordance with generally accepted accounting
principles. Described below are those accounting principles particularly
significant to the Company, including those selected from acceptable
alternatives.
a. Use of Estimates -- The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
b. Revenue related to government contracts and most commercial contracts
results principally from long-term fixed price contracts and is recognized on
the percentage-of-completion method calculated utilizing the cost-to-cost
approach. The percent deemed to be complete is calculated by comparing the costs
incurred to date to estimated total costs for each contract. This method is used
because management considers costs incurred to be the best available measure of
progress on these contracts. However, adjustments to this measurement are made
when management believes that costs incurred materially exceed effort expended.
Contract costs include all direct material and labor costs, along with certain
overhead costs related to contract production.
Provisions for any estimated total contract losses on uncompleted contracts
are recorded in the period in which it is concluded that such losses will occur.
Changes in estimated total contract costs will result in revisions to contract
revenue. These revisions are recognized when determined.
Revenue derived from sales of some commercial products is recognized at
contractual amounts when the product is shipped.
c. Inventories include raw materials and work-in-process applicable to
commercial products. Inventories are recorded at cost and are carried at the
lower of cost or net realizable value. Amounts are removed from inventory using
the estimated average cost per unit.
d. Property, equipment and leasehold improvements are stated at cost.
Amortization of capital leases and leasehold improvements is calculated on a
straight-line basis over the life of the asset or term of the lease, whichever
is shorter. Depreciation on equipment and buildings is calculated on a
straight-line basis over the estimated useful lives of three to thirty years.
e. Deferred costs include amounts applicable to products and technologies
which represent adaptations of existing capabilities to the particular
requirements of the Company's customers. These costs are recovered over the
specific or estimated revenue streams from these customers. Deferred costs also
include costs applicable to bids in process. These costs are deferred when
management believes that it is probable that future contracts will be obtained
and are transferred to contract costs when contracts are awarded or are expensed
when the contract award is no longer considered probable.
F-8
<PAGE> 73
SIMULA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
f. Intangibles are recorded at cost. The Company acquires intangible assets
in the normal course of business and in business combinations. The Company
periodically reviews for changes in circumstances to determine whether there are
conditions that indicate that the carrying amount of such assets may not be
recoverable. If such conditions are deemed to exist, the Company will determine
whether estimated future undiscounted cash flows are less than the carrying
amount of such assets, in which case the Company will calculate an impairment
loss. Any impairment loss will be recorded as a component of operating earnings.
Intangibles are amortized on a straight-line basis over the following periods:
<TABLE>
<S> <C>
Goodwill....................................................... 10 - 25 years
Covenants not to compete....................................... 10 years
Other.......................................................... 7 years
</TABLE>
g. Net income per common and equivalent share has been computed using the
weighted average number of common shares and common share equivalents
outstanding during each period. Stock options and warrants have been included in
the computations as common equivalent shares utilizing the treasury stock method
only when their effect is dilutive.
h. Statements of Cash Flows -- Cash and cash equivalents presented in the
statements of cash flows consist of cash on hand and highly liquid investments
with a maturity of six months or less.
i. Reclassifications -- Certain reclassifications have been made to the
1994 and 1993 financial statements to conform to the 1995 presentation.
2. SHAREHOLDERS' EQUITY
The Company completed a secondary offering of common stock which closed and
was funded the second quarter of 1995. As a result of this offering, 2,328,750
shares were sold by the Company at $12 per share. The net proceeds from the
offering totaled $25,567,822.
3. ACQUISITIONS
On August 2, 1993, the Company acquired certain assets and covenants not to
compete from Airline Interiors, Inc. ("Airline Interiors") for cash, a long-term
note and the assumption of certain liabilities. Airline Interiors remodels and
refurbishes airline interiors. This acquisition of Airline Interiors has been
accounted for using the purchase method of accounting, and the results of
operations of Airline Interiors have been included in the consolidated financial
statements subsequent to the acquisition. The excess of the purchase price over
the fair value of net assets acquired of $1,059,554 and covenants not to compete
of $2,489,356 are being amortized over 10 years.
On June 14, 1994, the Company purchased covenants not to compete and
substantially all of the assets of Coach and Car Equipment Corporation ("Coach &
Car") for cash, an installment note and the assumption of substantially all of
the Coach & Car liabilities. Coach & Car is a manufacturer of seats for trains,
subways, mass transit and other vehicles which are principally operated by local
government authorities. The acquisition of Coach & Car has been accounted for
using the purchase method of accounting, and the results of operations of Coach
& Car have been included in the consolidated financial statements subsequent to
the acquisition. The excess of purchase price over the fair value of net assets
acquired of $5,281,038 is being amortized over 25 years, and covenants not to
compete of $2,500,000 are being amortized over 10 years.
F-9
<PAGE> 74
SIMULA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Consideration for this transaction consisted of the following:
<TABLE>
<S> <C>
Cash paid............................................................... $ 3,000,000
Seller note............................................................. 1,500,000
Liabilities assumed -- including $2,352,982 of bank debt paid at
closing............................................................... 9,422,148
-----------
Total......................................................... $13,922,148
===========
</TABLE>
The assets acquired have been recorded as follows:
<TABLE>
<S> <C>
Current assets.......................................................... $ 2,923,585
Intangibles............................................................. 7,781,038
Property and equipment.................................................. 3,217,525
-----------
Total......................................................... $13,922,148
===========
</TABLE>
On July 1, 1994, the Company purchased SOUTHtech, Inc. ("SOUTHtech") which
was a corporation owned by the Company's Chairman (the "Chairman") (96%), and
two unrelated minority shareholders (4%). SOUTHtech is a ceramics manufacturer
that provides parts for silicon wafer manufacturing by the semiconductor
industry. In determining the acquisition consideration, the Company obtained a
valuation opinion from an independent investment banker and the transaction was
approved by the disinterested members of the board of directors of the Company.
The acquisition consideration consisted of 178,582 shares of the Company's
common stock, of which 171,472 shares were issued to the Chairman and 7,110
shares were issued to one of the unrelated minority shareholders, and $4,606
cash, in lieu of stock, to the other unrelated minority shareholder. Because the
Company and SOUTHtech were entities under the common control of the Chairman,
the shares issued to the Chairman have been recorded at the basis of his
investment in SOUTHtech and the shares issued to minority shareholders have been
recorded at fair value. The excess of the Chairman's basis over his
proportionate share of SOUTHtech's net assets of $683,526 has been recorded as a
reduction in retained earnings. The accounts of SOUTHtech have been included in
the consolidated financial statements subsequent to the acquisition.
Assets acquired and liabilities assumed in connection with the SOUTHtech
transaction were as follows:
<TABLE>
<S> <C>
Assets acquired......................................................... $ 378,014
Liabilities assumed..................................................... (1,010,760)
-----------
Net liabilities assumed....................................... $ (632,746)
===========
</TABLE>
Consideration was recorded as follows:
<TABLE>
<S> <C>
Shares issued to the Chairman............................................ $(682,383)
Shares issued to minority shareholders................................... 45,031
Cash issued to minority shareholders..................................... 4,606
---------
Total.......................................................... $(632,746)
=========
</TABLE>
During 1995, the ceramics technology used in the semiconductor industry and
associated assets of SOUTHtech were sold to a third party effective August 31,
1995. As a result, the Company received cash of $1,328,720 and is entitled to
guaranteed payments of $1,500,000 and contingent payments up to a maximum of
$1,750,000 based upon the future sales of the SOUTHtech ceramic product within
the semiconductor industry. The Company retained the ceramics technology and
assets associated with armor products and certain key employees. In connection
with this transaction, the Company reported $1,977,000 of technology sales and
royalty revenue in 1995.
F-10
<PAGE> 75
SIMULA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On September 30, 1994, the Company purchased all of the operating assets of
Artcraft Industries Corp. ("Artcraft") for 67,228 shares of common stock valued
at $465,000 and the assumption of certain liabilities. Artcraft is engaged in
the manufacture, assembly and sale of railway and mass transit seating systems.
The acquisition has been accounted for using the purchase method of accounting,
and results of operations of Artcraft have been included in the consolidated
financial statements subsequent to the acquisition. The excess of the purchase
price over the fair value of net assets acquired of $734,531 is being amortized
over 25 years.
Consideration for the transaction consisted of the following:
<TABLE>
<S> <C>
67,228 shares of common stock............................................ $ 465,000
Liabilities assumed -- including $650,000 bank debt paid at closing...... 3,638,924
----------
Total.......................................................... $4,103,924
==========
</TABLE>
The assets acquired have been recorded as follows:
<TABLE>
<S> <C>
Current assets........................................................... $1,669,393
Intangibles.............................................................. 734,531
Property and equipment................................................... 1,700,000
----------
Total.......................................................... $4,103,924
==========
</TABLE>
In addition, the Company acquired another small company for $93,000 in cash and
23,833 shares of common stock.
During 1995, the Company completed its identification and quantification of
certain preacquisition contingencies related to its acquisitions of Artcraft and
Coach & Car. As a result, the Company adjusted the original purchase allocation
of these acquisitions resulting in an increase in goodwill of $2,415,000, a net
increase in accrued liabilities and advances on contracts of $3,853,000 and a
decrease in debt owed to seller of $1,438,000.
The following summarizes unaudited pro forma operating results for the
Company for the two years ended December 31, 1994, assuming the acquisitions had
occurred at the beginning of the immediately preceding year.
<TABLE>
<CAPTION>
1993 1994
----------- -----------
<S> <C> <C>
Revenues................................................ $50,559,000 $55,512,000
=========== ===========
Net earnings............................................ $ 1,188,000 $ 2,362,000
=========== ===========
Net earnings per share.................................. $ .20 $ .37
=========== ===========
</TABLE>
4. INVENTORIES
At December 31 inventories consisted of the following:
<TABLE>
<CAPTION>
1994 1995
----------- -----------
<S> <C> <C>
Raw materials........................................... $ 3,544,116 $ 3,319,958
Work in process......................................... 3,187,927 4,711,256
Finished goods.......................................... 0 72,980
----------- -----------
Total inventories............................. $ 6,732,043 $ 8,104,194
=========== ===========
</TABLE>
F-11
<PAGE> 76
SIMULA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
At December 31 property, equipment and leasehold improvements consisted of
the following:
<TABLE>
<CAPTION>
1994 1995
----------- -----------
<S> <C> <C>
Land.................................................... $ 3,022,819 $ 3,022,819
Buildings and leasehold improvements.................... 4,193,622 4,467,697
Equipment............................................... 10,717,234 13,408,041
----------- -----------
Total................................................... 17,933,675 20,898,557
Less accumulated depreciation........................... 4,735,108 5,119,738
----------- -----------
Property, equipment and leasehold
improvements -- net......................... $13,198,567 $15,778,819
=========== ===========
</TABLE>
6. INTANGIBLES AND DEFERRED COSTS
At December 31, intangibles consisted of the following:
<TABLE>
<CAPTION>
1994 1995
----------- -----------
<S> <C> <C>
Covenants not to compete (Note 2)....................... $ 5,178,655 $ 4,989,356
Excess of cost over net assets acquired (Note 2)........ 7,124,760 9,540,110
Other................................................... 407,347 435,163
----------- -----------
Total................................................... 12,710,762 14,964,629
Less accumulated amortization........................... 733,989 1,613,268
----------- -----------
Intangibles -- net............................ $11,976,773 $13,351,361
=========== ===========
</TABLE>
At December 31, deferred costs included the following:
<TABLE>
<CAPTION>
1994 1995
----------- -----------
<S> <C> <C>
Deferred product costs -- net........................... $ 5,430,179
Deferred financing costs -- net......................... $ 794,033 487,980
Deferred bid costs...................................... 666,349 467,169
----------- -----------
Total deferred costs.......................... $ 1,460,382 $ 6,385,328
=========== ===========
</TABLE>
7. REVOLVING LINE OF CREDIT
The Company has a $10,000,000 unsecured Revolving Line of Credit with a
bank, interest at prime or LIBOR plus 1.75%. There was no outstanding balance on
this line of credit as of December 31, 1995. The loan agreement encompassing
this line of credit and the $5,000,000 amortizing term loan (Note 8) contains
certain covenants that require the maintenance of a minimum tangible net worth
and certain defined financial ratios.
F-12
<PAGE> 77
SIMULA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. DEBT
Long-term debt at December 31 consisted of the following:
<TABLE>
<CAPTION>
1994 1995
----------- -----------
<S> <C> <C>
12% Senior Subordinated Notes........................... $ 5,700,000 $ 5,700,000
Mortgage notes payable, interest at 9% and 10.4%,
secured by land and buildings with a carrying amount
of $6,034,442, due through 2017....................... 3,049,242 2,990,329
Various loans payable, secured by property and
equipment............................................. 3,121,151 3,020,703
Obligations under capital leases, interest at 4% to
14.5% (Note 13)....................................... 358,478 917,520
Long-term debt repaid in 1995........................... 4,200,000 0
----------- -----------
Total................................................... 16,428,871 12,628,552
Less current portion.................................... 1,089,665 1,367,187
----------- -----------
Long-term debt................................ $15,339,206 $11,261,365
=========== ===========
</TABLE>
In December 1993, the Company completed the sale of $5,700,000 of 12%
Senior Subordinated Notes ("12% Notes"), due in 1998. The 12% Notes are not
subject to redemption prior to maturity. The Indenture relating to the 12% Notes
contains certain covenants including limitations on incurrence of additional
indebtedness, limitation on sale of assets, transactions with affiliates and
payment of all dividends.
The Company has a $5,000,000 amortizing term loan under the same loan
agreement encompassing the line of credit (Note 7) for the financing of U.S.
based equipment with an outstanding balance at December 31, 1995 of $1,946,780.
Interest is payable at the LIBOR rate in effect at the time of the drawdown plus
1.75%. The average interest rate on the outstanding balance at December 31, 1995
is 7.8%.
In June 1994, the Company completed the private placement of $6,475,000
principal amount of 9% Senior Subordinated Convertible Notes (the "Convertible
Notes"), due in 2001, convertible into common stock at $6.83 per share. The
proceeds from the placement were used to acquire Coach & Car and for working
capital. During 1994, all of the Convertible Notes and $136,600 of accrued
interest were converted into 967,236 shares of the Company's common stock.
The aggregate principal payments required for the five years subsequent to
December 31, 1995 are:
<TABLE>
<S> <C>
1996.................................................... $ 1,367,187
1997.................................................... 1,393,212
1998.................................................... 6,742,969
1999.................................................... 417,595
2000.................................................... 122,469
Thereafter.............................................. 2,585,120
-----------
Total......................................... $12,628,552
===========
</TABLE>
Interest expense for the years ended December 31 is comprised of the
following:
<TABLE>
<CAPTION>
1993 1994 1995
-------- ---------- ----------
<S> <C> <C> <C>
Interest........................................ $788,405 $1,651,881 $1,679,086
Amortization of deferred finance cost........... 11,850 179,624 350,768
-------- ---------- ----------
Interest expense...................... $800,255 $1,831,505 $2,029,854
======== ========== ==========
</TABLE>
F-13
<PAGE> 78
SIMULA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Based on borrowing rates currently available to the Company and the quoted
market price for the 12% Notes, the fair value of long-term debt at December 31,
1995 is approximately $12,800,000.
9. RECEIVABLES
At December 31, receivables include the following:
<TABLE>
<CAPTION>
1994 1995
----------- -----------
<S> <C> <C>
United States Government:
Billed receivables...................................... $ 2,247,270 $ 2,926,891
Costs and estimated earnings in excess of billings...... 4,592,286 4,541,878
----------- -----------
Total United States Government............................ 6,839,556 7,468,769
----------- -----------
Other contracts:
Billed receivables...................................... 3,262,514 2,942,647
Costs and estimated earnings in excess of billings...... 1,652,121 10,244,769
----------- -----------
Total other contracts..................................... 4,914,635 13,187,416
----------- -----------
Other trade receivables................................... 871,812 4,708,319
----------- -----------
Less allowance for doubtful accounts...................... (237,000) (143,000)
----------- -----------
Contract and trade receivables -- net........... $12,389,003 $25,221,504
=========== ===========
</TABLE>
Costs and estimated earnings in excess of billings are net of $23,659,464
and $40,396,365 of progress billings for United States Government and other
governmental agencies at December 31, 1995 and 1994, respectively.
Costs and estimated earnings in excess of billings on uncompleted contracts
represent revenue recognized on long-term contracts in excess of billings
because amounts were not billable at the balance sheet date. Amounts receivable
from the United States Government or receivable under United States Government
related subcontracts will generally be billed in the following month or when the
contract and all options thereunder are completed. Amounts due on other
contracts are generally billed as shipments are made, subject to retainages. It
is estimated that substantially all of such amounts will be billed and collected
within one year, although contract extensions may delay certain collections
beyond one year.
10. INCOME TAXES
The provisions for income taxes for the years ended December 31 are as
follows:
<TABLE>
<CAPTION>
1993 1994 1995
--------- ---------- ----------
<S> <C> <C> <C>
Current........................................ $ 914,500 $1,004,000 $1,322,000
Deferred....................................... (171,000) 256,000 (156,000)
--------- ---------- ----------
Provision for income taxes........... $ 743,500 $1,260,000 $1,166,000
========= ========== ==========
</TABLE>
F-14
<PAGE> 79
SIMULA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company's effective income tax rate differs from the federal statutory
tax rate at December 31 as follows:
<TABLE>
<CAPTION>
1993 1994 1995
---- ---- -----
<S> <C> <C> <C>
Federal statutory income tax rate............................ 34.0% 34.0% 34.0%
State income taxes........................................... 6.0 4.6 6.0
Tax credits and other........................................ (0.1) (1.2) 0.7
Utilization of tax losses.................................... 0 0 (18.6)
---- ---- -----
Effective rate............................................... 39.9% 37.4% 22.1%
==== ==== =====
</TABLE>
The provision for deferred income taxes consists of the following:
<TABLE>
<CAPTION>
1993 1994 1995
--------- -------- ---------
<S> <C> <C> <C>
Accruals......................................... $ (41,000) $216,000 $ 24,000
Depreciation expense............................. (130,000) 40,000 268,000
Change in valuation allowance for
tax loss carryforwards......................... 0 0 (448,000)
--------- -------- ---------
Total.................................. $(171,000) $256,000 $(156,000)
========= ======== =========
</TABLE>
The significant tax effected temporary differences comprising deferred
taxes at December 31 are as follows:
<TABLE>
<CAPTION>
1994 1995
--------- ---------
<S> <C> <C>
Current:
Accrued vacation and pension costs......................... $ 149,000 $ 177,000
Other...................................................... (126,000) (185,000)
--------- ---------
Total current deferred tax asset (liability)................. 23,000 (8,000)
--------- ---------
Long-term:
Excess of tax over book depreciation....................... (50,000) (346,000)
Recognition of contract revenue............................ (289,000) (166,000)
Utilization of tax loss carryforwards...................... 448,000
Other...................................................... (6,000) (94,000)
--------- ---------
Total long-term deferred tax liability....................... (345,000) (158,000)
--------- ---------
Net deferred tax liability......................... $(322,000) $(166,000)
========= =========
</TABLE>
The valuation allowances associated with tax loss carryforwards as of
December 31 are as follows:
<TABLE>
<CAPTION>
1994 1995
----------- ---------
<S> <C> <C>
Tax asset for loss carryforward............................ $ 1,200,000 $ 669,000
Valuation allowance........................................ (1,200,000) (221,000)
----------- ---------
Net long-term deferred tax asset................. $ 0 $ 448,000
=========== =========
</TABLE>
At December 31, 1995, the Company had approximately $1.6 million of net
operating loss carryforward of an acquired subsidiary which expires through
2008.
11. BENEFIT PLANS
The Company has a noncontributory defined benefit pension plan (the "Plan")
for employees. To be eligible to participate, employees must have completed six
months of continuous employment and have
F-15
<PAGE> 80
SIMULA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
attained the age of 21. Benefits are based on length of service and the
employee's final pay (averaged over the five highest consecutive years of the
last ten years of participation). The Company makes contributions to the Plan
based upon actuarially determined amounts.
Net periodic pension cost includes the following:
<TABLE>
<CAPTION>
1993 1994 1995
-------- -------- ---------
<S> <C> <C> <C>
Service cost -- benefit earned during the year.... $120,147 $205,195 $ 169,835
Interest cost on projected benefit obligation..... 75,001 113,496 116,660
Actual return on Plan assets...................... (54,024) (70,053) (257,497)
Net amortization and deferral..................... (14,529) 15,907 172,970
-------- -------- ---------
Net periodic pension cost............... $126,595 $264,545 $ 201,968
======== ======== =========
</TABLE>
The Plan's funded status and amounts recognized in the Company's balance
sheet at December 31 are as follows:
<TABLE>
<CAPTION>
1994 1995
--------- ----------
<S> <C> <C>
Actuarial present value of benefit obligation:
Vested benefits............................................. $ 856,257 $1,310,868
Nonvested benefits.......................................... 79,747 237,163
--------- ----------
Accumulated benefit obligation................................ 936,004 1,548,031
Effect of projected future compensation increases............. 436,713 364,997
--------- ----------
Projected benefit obligation.................................. 1,372,717 1,913,028
Plan assets at fair value..................................... 891,304 1,375,252
--------- ----------
Plan assets less than projected benefit obligation............ 481,413 537,776
Unrecognized prior service cost............................... 15,028 24,383
Unrecognized loss............................................. (381,331) (293,362)
Unrecognized transition liability............................. 101,746 96,094
--------- ----------
Accrued pension cost........................................ $ 216,856 $ 364,891
========= ==========
</TABLE>
Assumptions at December 31 used in the accounting for the Plan were as
follows:
<TABLE>
<CAPTION>
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Discount or settlement rate.................................... 7.25% 8.25% 7.25%
Rate of increase in compensation levels........................ 3.00% 4.00% 3.50%
Expected long-term rate of return on Plan assets............... 8.00% 8.00% 8.00%
</TABLE>
The Plan's assets consist of money market accounts and investments in
common stocks, mutual funds, and corporate bonds.
In addition, the Company has 401(k) plans for substantially all employees
and one subsidiary has a union sponsored pension plan for union employees to
which the Company makes contractual contributions.
F-16
<PAGE> 81
SIMULA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. RELATED PARTY TRANSACTIONS
The Company has entered into various transactions with the Chairman. These
transactions are further described as follows:
a. The Company acquired SOUTHtech from the Chairman in 1994 as
described in Note 3.
b. The Chairman loaned the Company $2,000,000 in 1994 which was repaid
by the Company in 1995.
13. COMMITMENTS AND CONTINGENCIES
The Company leases certain equipment under capital lease agreements and
certain facilities under noncancellable operating leases with various renewal
options. Leased assets totaling $1,042,604 and $510,810 (net of accumulated
depreciation of $248,683 and $162,830) are included in furniture and equipment
as of December 31, 1995 and 1994, respectively.
The following is a schedule, by year, of minimum rental payments due under
the leases described above and for other operating leases for the years ending
December 31:
<TABLE>
<CAPTION>
CAPITAL LEASES OPERATING LEASES
-------------- ----------------
<S> <C> <C>
1996...................................................... $ 365,319 $1,284,645
1997...................................................... 317,274 1,219,306
1998...................................................... 230,234 667,451
1999...................................................... 143,163 571,994
2000...................................................... 23,604 360,847
Thereafter................................................ 774 1,582,000
---------- ----------
Total minimum lease payments.............................. 1,080,368 $5,686,243
==========
Less amounts representing interest........................ 162,848
----------
Present value of net minimum lease payments............... $ 917,520
==========
</TABLE>
Rent expense was $1,109,402, $578,079 and $399,167 for the years ended
December 31, 1995, 1994 and 1993, respectively.
GOVERNMENT CONTRACT SETTLEMENT -- Pursuant to a Settlement Agreement and
Release effective September 17, 1993, the Company agreed with the United States
of America (the "Government") to a compromise and settlement relating to a claim
by the Government for alleged violations of the Truth in Negotiations Act
("TINA"). The Agreement resolved the dispute between the parties without any
admission of liability or wrongdoing on the part of the Company. Under the terms
of the Agreement, the Company paid the Government $445,000 in three
installments. Such amount and related legal fees of $474,000 have been recorded
in the income statement as an unusual item.
14. STOCK OPTIONS
In 1992, the Company adopted the 1992 Stock Option Plan which provided for
the issuance of up to 360,000 shares of common stock. All options available
under the 1992 Plan have been granted. In 1992, the Company adopted the 1992
Restricted Stock Plan authorizing the Company to grant to key employees of the
Company the right to purchase up to an aggregate of 19,500 shares of common
stock at $.01 per share. The Company has reserved 19,500 shares of common stock
for issuance pursuant to the Restricted Stock Plan, of which 4,500 shares have
been awarded. In August 1994, the Company adopted the 1994 Stock Option Plan
which reserves up to 945,000 shares of common stock for issuance under the Plan.
In accordance with the terms of the 1994 Plan, the Board of Directors has
awarded 492,750 options under the 1994 Plan. Options are
F-17
<PAGE> 82
SIMULA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
exercisable for up to 10 years at a price equal to 100% of the fair market value
at the date of grant or 85% of fair market value in the case of non-statutory
options.
Information with respect to the Plans is as follows:
<TABLE>
<CAPTION>
OPTION OPTION PRICE
SHARES RANGE FOR SHARES
------- ----------------
<S> <C> <C>
Outstanding at January 1, 1993........................... 0 0 -- 0
Granted................................................ 245,250 $ 3.25
-------
Outstanding at December 31, 1993......................... 245,250 $ 3.25
Granted................................................ 161,250 $ 6.92 -- $12.50
Exercised.............................................. 24,075 $ 3.25
Cancelled.............................................. (1,500)
-------
Outstanding at December 31, 1994......................... 380,925 $ 3.25 -- $12.50
Granted................................................ 478,125 $13.17 -- $13.67
Exercised.............................................. 135,500 $ 3.25 -- $ 6.92
Cancelled.............................................. (6,300)
-------
Outstanding at December 31, 1995......................... 717,250
=======
Exercisable at December 31, 1995......................... 239,125
=======
</TABLE>
15. MAJOR CUSTOMERS
Sales to four major customers accounted for approximately 29%, 66% and 77%
of total sales for the years ended December 31, 1995, 1994 and 1993. Contract
receivables from these customers accounted for approximately 29%, 39% and 59% of
the total contract receivables at December 31, 1995, 1994 and 1993. These major
customers include all branches of the United States armed forces which accounted
for 18%, 24% and 46% of total sales for the years ended December 31, 1995, 1994
and 1993. The Company has performed work for these customers since 1975 and has
no reason to believe that there will be any change in these customer
relationships.
For the year ended December 31, 1995 export sales were $6,760,819. For the
years ended December 31, 1994 and 1993, export sales were less than 10% of
consolidated revenue.
16. OTHER
The Company's research and development efforts arise from funded
development contracts and proprietary research and development.
Amounts arising from such efforts for the years ended December 31 were as
follows:
<TABLE>
<CAPTION>
1993 1994 1995
---------- ---------- ----------
<S> <C> <C> <C>
Research and development expenses, classifed as
general and administrative expenses.......... $ 375,592 $ 687,686 $1,419,340
========== ========== ==========
Funded contracts:
Revenues..................................... $1,685,745 $3,290,146 $3,901,662
Cost of revenue earned....................... 1,813,120 3,165,130 4,721,858
---------- ---------- ----------
Funded contract -- net............... $ (127,375) $ 125,016 $ (820,196)
========== ========== ==========
</TABLE>
F-18
<PAGE> 83
SIMULA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
17. SEGMENT REPORTING
During 1995, 1994 and 1993, the Company operated in three industry
segments. The Simula Government Products, Inc. segment includes the design and
manufacture of crash resistant components, energy absorbing devices, ballistics
and composites principally in connection with branches of the United States
armed forces procurement. The Intaero segment includes operations which
manufacture products for the interiors of domestic and foreign passenger
airlines and seating systems for rail and other mass transit. The remaining
segment, entitled Other, includes general corporate operations and other
subsidiaries engaged in technology development and sales (Note 3). Segment
disclosures are as follows:
<TABLE>
<CAPTION>
1995
-------------------------------------------------------------
SIMULA
GOVERNMENT
PRODUCTS, INC. INTAERO OTHER TOTAL
-------------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Revenue:
Contract revenue..................... $ 24,753,600 $23,936,070 $48,689,670
Product sales........................ 5,673,264 $1,968,879 7,642,143
Technology sales and royalties....... 779,347 0 1,977,453 2,756,800
----------- ----------- ---------- -----------
Total revenue................ $ 25,532,947 $29,609,334 $3,946,332 $59,088,613
=========== =========== ========== ===========
Operating income....................... $ 3,294,791 $ 3,066,695 $ 496,651 $ 6,858,137
Identifiable assets.................... 26,629,708 38,688,362 9,421,066 74,739,136
Depreciation and amortization.......... 564,842 1,899,849 600,142 3,064,833
Capital expenditures................... 1,829,664 1,459,651 1,478,142 4,767,457
</TABLE>
<TABLE>
<CAPTION>
1994
-------------------------------------------------------------
SIMULA
GOVERNMENT
PRODUCTS, INC. INTAERO OTHER TOTAL
-------------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Revenue:
Contract revenue..................... $ 21,587,963 $12,126,010 $33,713,973
Product sales........................ 5,966,839 $1,031,379 6,998,218
Technology sales and royalties....... 445,603 0 0 445,603
----------- ----------- ---------- -----------
Total revenue................ $ 22,033,566 $18,092,849 $1,031,379 $41,157,794
=========== =========== ========== ===========
Operating income....................... $ 3,037,566 $ 2,168,567 $ (21,813) $ 5,184,320
Identifiable assets.................... 19,761,764 24,654,688 3,274,511 47,690,963
Depreciation and amortization.......... 516,510 763,418 371,190 1,651,118
Capital expenditures................... 586,178 0 670,674 1,256,852
</TABLE>
F-19
<PAGE> 84
SIMULA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1993
-------------------------------------------------
SIMULA
GOVERNMENT
PRODUCTS, INC. INTAERO TOTAL
-------------- ---------- -----------
<S> <C> <C> <C>
Revenue:
Contract revenue............................... $ 21,252,203 $21,252,203
Product sales.................................. $3,436,797 3,436,797
Technology sales and royalties................. 91,591 0 91,591
----------- ---------- -----------
Total revenue.......................... $ 21,343,794 $3,436,797 $24,780,591
=========== ========== ===========
Operating income................................. $ 2,447,656 $ 216,899 $ 2,664,555
Identifiable assets.............................. 20,784,764 6,002,468 26,787,232
Depreciation and amortization.................... 638,764 159,990 798,754
Capital expenditures............................. 550,752 14,000 564,752
</TABLE>
For the year ended December 31, 1995, inter-segment sales were
insignificant and total intercompany sales of $4,065,201 have been eliminated.
All revenue in 1994 and 1993 was generated from sales to unaffiliated customers.
Operating income for Simula Government Products for 1993 included an unusual
item of $919,389 relating to a government contract settlement as discussed in
Note 13.
18. NEW ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,"
effective for fiscal years beginning after December 15, 1995. This statement
establishes accounting standards for the impairment of long-lived assets,
certain identifiable intangibles and goodwill related to those assets to be held
and used and long-lived assets and certain identifiable intangibles to be
disposed of. The statement requires that long-lived assets and certain
identifiable intangibles to be held and used by an entity be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. In addition, the statement
requires that certain long-lived assets and intangibles to be disposed of be
reported at the lower of carrying amount or fair value less cost to sell. The
Company adopted this accounting standard effective January 1, 1995. The adoption
of this accounting standard had no impact on the Company's results of operations
or financial position.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation," effective for transactions entered into in fiscal years that
begin after December 15, 1995. This statement establishes financial accounting
and reporting for stock-based employee compensation plans, including stock
purchase plans, stock option plans, restricted stock and stock appreciation
rights. The Statement requires a fair value based method of accounting for
employee stock options or similar instruments and encourages a similar method
for all employee stock compensation plans. This method measures compensation
cost at the grant date based on the value of an award and recognizes it over the
service period, usually the vesting period. However, the Statement also allows
an entity to continue measuring compensation cost for such plans using the
intrinsic value method of accounting prescribed by Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees," provided pro forma
disclosures are made. The Company expects to continue to account for its
stock-based employee compensation plans using the method of accounting
proscribed by APB No. 25 and does not expect this accounting standard will
materially impact its results of operations or financial position.
F-20
<PAGE> 85
SIMULA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
19. UNAUDITED QUARTERLY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
1995
-----------------------------------------------------------------
FIRST SECOND THIRD FOURTH
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue......................... $13,580,842 $15,030,715 $14,694,204 $15,782,852
Cost of revenue................. 8,954,807 9,632,276 9,396,431 8,637,957
Gross margin.................... 4,626,035 5,398,439 5,297,773 7,144,895
Net earnings.................... 616,077 936,995 1,139,182 1,410,105
Net earnings per common and
equivalent share.............. $ .09 $ .11 $ .13 $ .15
</TABLE>
<TABLE>
<CAPTION>
1994
-----------------------------------------------------------------
FIRST SECOND THIRD FOURTH
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue......................... $ 6,900,072 $ 7,558,741 $12,875,330 $13,823,651
Cost of revenue................. 4,370,264 4,667,947 9,157,490 9,512,909
Gross margin.................... 2,529,808 2,890,794 3,717,840 4,310,742
Net earnings.................... 334,798 513,707 603,372 662,546
Net earnings per common and
equivalent share.............. $ .07 $ .10 $ .10 $ .10
</TABLE>
20. UNAUDITED NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
NOTE 1 -- BASIS OF PRESENTATION
The accompanying interim financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information. Accordingly, they do not include all of the information and
disclosures required by generally accepted accounting principles for complete
financial statements. In the opinion of Management, all adjustments and
reclassifications considered necessary for a fair and comparable presentation
have been included and are of a normal recurring nature. Operating results for
the six months ended June 30, 1996 are not necessarily indicative of the results
that may be expected for the year ending December 31, 1996.
NOTE 2 -- ACCOUNTING CHANGE
During the second quarter of 1996, the Company adopted a new method of
accounting for pre-contract costs. Pre-contract costs represent amounts
applicable to products and technologies which represent adaptations of existing
capabilities to the particular requirements of the Company's customers. These
costs were previously deferred and recovered over the revenue streams from these
customers. The Company will now expense these costs as they are incurred. Due to
current industry trends and anticipated accounting changes, the new policy is
considered preferable to the previous policy. Both policies are currently in
accordance with generally accepted accounting principles.
The $3.2 million cumulative effect of the change on prior years (after
reduction for income taxes of $2.2 million) is included in operations of the six
months ended June 30, 1996. The effect of the change on the six months ended
June 30, 1996 was to decrease earnings before cumulative effect of a change in
accounting principle $1.8 million ($.21 per share) and net earnings by $5.0
million ($.57 per share). The pro forma amounts reflect the effect of
retroactive application on pre-contract costs, net of amortization, and the
related income tax benefits.
F-21
<PAGE> 86
SIMULA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The effect of the change on the first quarter of 1996 was as follows:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31, 1996
--------------
<S> <C>
Net income as originally reported...................................... $ 685,179
Effect of change in accounting for pre-contract costs.................. (563,247)
-----------
Income before cumulative effect of a change in accounting principle.... 121,932
Cumulative effect on prior years (to December 31, 1995) of changing
accounting for pre-contract costs.................................... (3,239,948)
-----------
Net loss as restated................................................... $ (3,118,016)
===========
Per share amounts:
Net income as originally reported.................................... $ .08
Effect of change in accounting for pre-contract costs................ (.07)
-----------
Income before cumulative effect of a change in accounting
principle......................................................... .01
Cumulative effect on prior years (to December 31, 1995) of changing
accounting for pre-contract costs................................. (.36)
-----------
Net loss as restated................................................. $ (.35)
-----------
</TABLE>
Pro forma amounts assuming the change in accounting had been applied
retroactively are as follows:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, 1995 DECEMBER 31, 1995
------------- -----------------
<S> <C> <C>
Net earnings............................. $ 1,116,402 $ 1,658,299
Net earnings per share................... $ .14 $ .19
</TABLE>
NOTE 3 -- INCOME TAXES
The tax provision for the three and six month periods ended June 30, 1996
and 1995 is proportionate to the Federal and State combined rate of
approximately 40%.
NOTE 4 -- SHAREHOLDERS' EQUITY
During the second quarter of 1996, the Company retired 82,500 shares of
treasury stock which had been acquired for a cost of $279,838.
Weighted average shares used to compute per share amounts for the three and
six month periods ended June 30, 1996 do not include common stock equivalents
because their effect would be anti-dilutive.
F-22
<PAGE> 87
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY THE SHARES BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION WOULD BE UNLAWFUL OR TO ANY PERSON TO WHOM IT IS UNLAWFUL. UNDER NO
CIRCUMSTANCES SHALL THE DELIVERY OF THIS PROSPECTUS OR ANY SALE MADE PURSUANT TO
THIS PROSPECTUS CREATE ANY IMPLICATION THAT INFORMATION CONTAINED IN THIS
PROSPECTUS IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF THIS PROSPECTUS.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
The Company........................... 3
Risk Factors.......................... 7
Use of Proceeds....................... 15
Capitalization........................ 16
Price Range of Common Stock........... 17
Dividend Policy....................... 17
Selected Consolidated Financial
Data................................ 18
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 20
Business.............................. 27
Properties............................ 39
Management............................ 41
Certain Transactions.................. 48
Principal Shareholders................ 50
Description of Convertible Preferred
Stock............................... 52
Certain Federal Tax Consequences...... 56
Description of Other Capital Stock and
Securities.......................... 59
Underwriting.......................... 61
Legal Opinions........................ 62
Experts............................... 62
Incorporation of Certain Documents by
Reference........................... 62
Additional Information................ 62
Index to Financial Statements......... F-1
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
1,200,000 SHARES
LOGO
SIMULA, INC.
$ SERIES A CONVERTIBLE
PREFERRED STOCK
--------------------
PROSPECTUS
--------------------
HD BROUS & CO., INC.
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 88
SIMULA, INC.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is an itemized statement of all expenses in connection with
the issuance and distribution of the securities to be registered. These expenses
will be deducted from the gross proceeds of the offering. The information
contained below is subject to future contingencies. An asterisk to the right of
a dollar figure denotes that the figure is an estimate and the exact amount to
be expended for that category is not yet known.
<TABLE>
<S> <C>
Registration Fee.................................................. $ 12,000
Transfer Agent's Fee.............................................. 10,000
Legal Fees........................................................ 150,000
New York Stock Exchange Listing Fee............................... 30,000
Accounting Fees................................................... 75,000
Printing and Engraving Costs...................................... 90,000
Other............................................................. 33,000
--------
Total................................................... $400,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
ARTICLE 10 of the Articles of Incorporation of the Registrant provides as
follows:
The personal liability of the directors to the Corporation and its
shareholders for monetary damages by reason of their conduct as directors shall
be limited or eliminated to the fullest extent permitted by Arizona law.
Section 12.01 of the Bylaws of the Registrant provides as follows:
12.01 INDEMNIFICATION. To the full extent permitted by Arizona law,
the Corporation shall indemnify and pay the expenses of any person who is
or was made, or threatened to be made, a party to an action or proceeding
(whether civil, criminal, administrative or investigative) by reason of the
fact that he is or was a director, officer, employee, trustee or agent of
or for the Corporation or is or was serving at the request or with the
prior approval of the Corporation as a director, officer, employee, trustee
or agent of another corporation, trust or enterprise, against any liability
asserted against him and incurred by him in any capacity or arising out of
his status as such, whether or not the Corporation would have the power to
indemnify him against such liability under the provisions of these Bylaws.
Section 10-202(B)(1) and Chapter 8, Article 5 (sec.10-850 et seq.) of the
General Corporation Law of Arizona, as amended, apply to registrant and provide
as follows:
Section 10-202(B). The articles of incorporation shall set forth:
1. If elected by the incorporators, a provision eliminating or limiting the
liability of a director to the corporation or its shareholders for money damages
for any action taken or any failure to take any action as a director, except for
any of the following:
(a) The amount of any financial benefit received by a director to
which the director is not entitled.
(b) An intentional infliction of harm on the corporation or the
shareholders.
(c) A violation of sec. 10-833.
(d) An intentional violation of criminal law.
As indicated above, the Registrant has included in its Articles of
Incorporation a provision limiting director liability in accordance with the
statute.
II-1
<PAGE> 89
Chapter 8 -- Directors and Officers, Article 5 -- Indemnification.
Section 10-850. Definitions
1. "Corporation" includes any domestic or foreign predecessor entity of a
corporation in a merger or other transaction in which the predecessor's
existence ceased on consummation of the transaction.
2. "Director" means an individual who is or was a director of a corporation
or an individual who, while a director of a corporation, is or was serving at
the corporation's request as a director, officer, partner, trustee, employee or
agent of another foreign or domestic corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise. A director is considered to be
serving an employee benefit plan at the corporation's request if his duties to
the corporation also impose duties on or otherwise involve services by him to
the plan or to participants in or beneficiaries of the plan. Director includes
the estate or personal representative of a director.
3. "Expenses" includes attorney fees and all other costs and expenses
reasonably related to a proceeding.
4. "Liability" means the obligation to pay a judgment, settlement, penalty
or fine, including an excise tax assessed with respect to an employee benefit
plan, or reasonable expenses incurred with respect to a proceeding and includes
obligations and expenses than have not yet been paid by the indemnified person
but that have been or may be incurred.
5. "Official capacity" means, if used with respect to a director, the
office of director in a corporation and, if used with respect to an individual
other than a director, as contemplated in sec.10-856, the office in a
corporation held by the officer or the employment or agency relationship
undertaken by the employee or agent on behalf of the corporation. Official
capacity does not include service for any other foreign or domestic corporation
or any partnership, joint venture, trust, employee benefit plan or other
enterprise.
6. "Outside director" means a director who, when serving as a director, was
not an officer, employee or holder of more than five per cent of the outstanding
shares of any class of stock of the corporation.
7. "Party" includes an individual who was, is or is threatened to be made a
named defendant or respondent in a proceeding.
8. "Proceeding" means any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative and whether
formal or informal.
Section 10-851. Authority to indemnify
A. Except as provided in subsection D of this section and in 10-854, a
corporation may indemnify an individual made a party to a proceeding because the
individual is or was a director against liability incurred in the proceeding if
all of the following conditions exist:
1. The individual's conduct was in good faith
2. The individual reasonably believed:
(a) In the case of conduct in an official capacity with the
corporation, that the conduct was in its best interests.
(b) In all other cases, that the conduct was at least not opposed
to its best interests.
3. In the case of any criminal proceedings, the individual had no
reasonable cause to believe the conduct was unlawful
B. A director's conduct with respect to an employee benefit plan for a
purpose reasonably believed to be in the interests of the participants in and
beneficiaries of the plan is conduct that satisfies the requirements of
subsection A, paragraph 2, subdivision (a) of this section.
II-2
<PAGE> 90
C. The termination of a proceeding by judgment, order, settlement or
conviction or on a plea of no contest or its equivalent is not of itself
determinative that the director did not meet the standard of conduct described
in this section.
D. A corporation may not indemnify a director under this section either:
1. In connection with a proceeding by or in the right of corporation
in which the director was adjudged liable to the corporation.
2. In connection with any other proceeding charging improper personal
benefit to the director, whether or not involving action in the director's
official capacity, in which the director was adjudged liable on the basis
that personal benefit was improperly received by the director.
E. Indemnification permitted under this section in connection with a
proceeding by or in right of the corporation is limited to reasonable expenses
incurred during the proceeding.
Section 10-852. Mandatory indemnification
A. Unless limited by its articles of incorporation, a corporation shall
indemnify a director who was the prevailing party, on the merits or otherwise,
in the defense of any proceeding to which the director was a party because the
director is or was a director of the corporation against reasonable expenses
incurred by the director in connection with the proceeding.
B. Unless limited by its articles of incorporation, sec.10-851, subsection
D or subsection C of this section, a corporation shall indemnify an outside
director against liability. Unless limited by its articles of incorporation or
subsection C of this section, a corporation shall pay an outside director's
expenses in advance of a final disposition of the proceeding, if the director
furnishes the corporation with a written affirmation of the director's good
faith belief that the director met the standard of conduct described in
sec.10-851, subsection A and the director furnishes the corporation with a
written undertaking executed personally, or on the director's behalf, to repay
the advance if it is ultimately determined that the director did not meet the
standard of conduct. The undertaking required by this subsection is an unlimited
general obligation of the director but need not be secured and shall be accepted
without reference to the director's financial ability to make repayment.
C. A corporation shall not provide the indemnification or advance payment
of expenses described in subsection B if this section if a court of competent
jurisdiction has determined before payment that the outside director failed to
meet the standards described in sec.10-851, subsection A, and a court of
competent jurisdiction does not otherwise authorize payment of indemnification
or expenses under subsection B of this section for more than sixty days after a
request is made unless ordered to do so by a court of competent jurisdiction.
Section 10-853. Advance for expenses
A. A corporation may pay for or reimburse the reasonable expenses incurred
by a director who is a party to a proceeding in advance of final disposition of
the proceeding if the following conditions exist:
1. The director furnishes the corporation with a written affirmation
of the director's good faith belief that the director met the standard of
conduct described in sec.10-851.
2. The director furnishes the corporation with a written undertaking
executed personally, or on the director's behalf, to repay the advance if
it is ultimately determined that the director did not meet the standard of
conduct.
3. A determination is made that the facts then known to those making
the determination would not preclude indemnification under this article.
B. The undertaking required by subsection A, paragraph 2 of this section is
an unlimited general obligation of the director but need not be secured and
shall be accepted without reference to the director's financial ability to make
repayment.
II-3
<PAGE> 91
C. Determinations and authorizations of payments under this section shall
be made in the manner specified in sec.10-855.
D. This section does not apply to the advancement of expenses to or for the
benefit of an outside director. Advances to outside directors shall be made
pursuant to sec.10-852.
Section 10-854. Court ordered indemnification
Unless the corporation's articles of incorporation provide otherwise, a
director of the corporation who is a party to a proceeding may apply for
indemnification to the court conducting the proceeding or to another court of
competent jurisdiction. On receipt of an application, the court after giving
notice the court considers necessary may order indemnification if it determines
either:
1. The director is entitled to mandatory indemnification under
sec.10-852, in which case the court shall also order the corporation to pay
the director's reasonable expenses incurred to obtain court ordered
indemnification.
2. The director is fairly and reasonably entitled to indemnification
in view of all the relevant circumstances, whether or not the director met
the standard of conduct set forth in sec.10-851 or was adjudged liable as
described in sec.10-851, subsection D, but if the director was adjudged
liable under sec.10-851, subsection D, indemnification is limited to
reasonable expenses incurred.
Section 10-855. Determination and authorization of indemnification
A. A corporation may not indemnify a director under sec.10-851 unless
authorized in the specific case after determination has been made that
indemnification of the director is permissible in the circumstances because the
director has met the standard of conduct set forth in sec.10-851.
B. The determination shall be made either:
1. By the board of directors by a majority vote of the directors not
at the time parties to the proceeding.
2. By special legal counsel:
(a) Selected by majority vote of the disinterested directors.
(b) If there are no disinterested directors, selected by majority
vote of the board.
3. By the shareholders, but shares owned by or voted under the control
of directors who are at the time parties to the proceeding shall not be
voted on the determination.
C. Neither special legal counsel nor any shareholder has any liability
whatsoever for the determination made pursuant to this section. In voting
pursuant to subsection B of this section, directors shall discharge their duty
in accordance with sec.10-830.
D. Authorization of indemnification and evaluation as to reasonableness of
expenses shall be made in the same manner as the determination that
indemnification is permissible, except that if the determination is made by
special legal counsel, authorization of indemnification and evaluation as to
reasonableness of expenses shall be made by those entitled under subsection B,
paragraph 2 of this section to select counsel.
Section 10-856. Indemnification of officers, employees and agents
Unless a corporation's articles of incorporation provide otherwise:
1. An officer of the corporation who is not a director is entitled to
mandatory indemnification against liability under sec.10-852 and is
entitled to apply for court ordered indemnification against liability under
sec.10-854, in each case to the same extent as a director.
2. The corporation may indemnify against liability and advance
expenses under this article to an officer, employee or agent of the
corporation who is not a director to the same extent as to a director.
II-4
<PAGE> 92
3. A corporation may also indemnify against liability and advance
expenses to an officer, employee or agent to the extent, consistent with
public policy, that indemnification may be provided by its articles of
incorporation, bylaws, general or specific action of its board of directors
or contract, provided that if the officer, employee or agent is also a
director, indemnification against liability arising from serving as a
director is limited to the other provisions of chapters 1 through 17 of
this title.
Section 10-857. Insurance
A corporation may purchase and maintain insurance on behalf of an
individual who is or was a director, officer, employee or agent of the
corporation or who, while a director, officer, employee or agent of the
corporation, is or was serving at the request of the corporation as a director,
officer, partner, trustee, employee or agent of another foreign or domestic
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise, against liability asserted against or incurred by the individual in
that capacity or arising from the individual's status as a director, officer,
employee or agent, whether or not the corporation would have power to indemnify
the individual against the same liability under sec.10-851 or sec.10-852.
Section 10-858. Application of article
A. A provision that treats a corporation's indemnification of or advance
for expenses to directors and that is contained in its articles of
incorporation, its bylaws, a resolution of its shareholders or board of
directors or a contract or otherwise is valid only if and to the extent the
provision is consistent with this article. If the articles of incorporation
limit indemnification or advances for expenses, indemnification and advances for
expenses are valid only to the extent consistent with the articles.
B. This article does not limit a corporation's power to pay or reimburse
expenses incurred by a director in connection with the director's appearance as
a witness in a proceeding at a time when the director has not been made a named
defendant or respondent to the proceeding.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In June 1994, the Company sold $6.5 million in aggregate principal amount
of its Series B 9% Senior Subordinated Convertible Notes ("Convertible Notes").
The Convertible Notes were sold pursuant to exemptions from registration under
the Securities Act of 1933 (" '33 Act"), Sections 4(2) and 4(6), and Regulation
D thereunder, and comparable provisions of states' securities laws. The
Convertible Notes were convertible to Common Stock, and 631,708 shares of the
Company's Common Stock were registered and offered pursuant to a Prospectus
dated July 26, 1994 for shares of Common Stock issuable upon the conversion of
the Convertible Notes. In addition, 13,116 shares of the Company's Common Stock
were registered and offered pursuant to a Prospectus dated December 28, 1994 for
remaining shares of Common Stock issuable for accrued interest. As of the date
of this Registration Statement, all Convertible Notes have been converted into
Common Stock.
In September 1996, the Company sold $14.3 million in aggregate principal
amount of its Series C 10% Senior Subordinated Convertible Notes ("10% Notes").
The 10% Notes were issued pursuant to the Company's Indenture dated December 17,
1993 and Supplemental Indenture dated September 12, 1996. The private placement
was made through HD Brous & Co., Inc., a NASD member firm, and other selected
dealers. The 10% Notes were sold pursuant to exemptions from registration under
the '33 Act, Sections 4(2) and 4(6), and Regulation D thereunder, and comparable
provisions of states' securities laws. The 10% Notes are convertible to Common
Stock of the Company at a conversion price which may be fixed by each Noteholder
at the equivalent of 103% of the average closing price of the Company's Common
II-5
<PAGE> 93
Stock on the NYSE for the 10 day period immediately preceding notice to the
Company of such an election to fix the conversion price. If not earlier
converted, the Notes are redeemable by the Company in whole or in part on a pro
rata basis, at par value plus all accrued interest payable through the date of
redemption, at any time upon 30 days written notice to the Noteholders in
accordance with the following: (i) from September 12, 1996 until June 15, 1997,
the Notes may be redeemed by the Company after the closing price of the
Company's Common Stock as quoted on the NYSE has equaled or exceeded $25.00 for
any 10 consecutive trading days and (ii) after June 15, 1997, the Company may
redeem the Notes at any time at par value plus all accrued interest payable
through the date of redemption. As of the date of this Registration Statement,
no 10% Notes have been converted into Common Stock.
Other than the foregoing transactions, the Registrant has not offered or
sold any unregistered securities within the last three years.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
a. Exhibits. The following Exhibits are included pursuant to Regulation
S-K.
<TABLE>
<CAPTION>
NO. DESCRIPTION REFERENCE
- ------- ---------------------------------------------------------------------------- ---------
<C> <S> <C>
+1. Underwriting Agreement......................................................
*3.1 Articles of Incorporation of Simula, Inc., as amended and restated..........
3.2 Bylaws of Simula, Inc., as amended and restated............................. (1)
*4.1 Specimen of Common Stock Certificate........................................
4.2 Indenture dated December 17, 1993 (including cross-reference sheet to Trust
Indenture Act), as amended.................................................. (4)
+4.3 Certificate of Designations and Preferences (entitled "Statement Pursuant to
Arizona Revised Statutes sec.10-602").......................................
+4.4 Specimen of Preferred Stock Certificate.....................................
*4.5 Amended and Restated Supplemental Indenture No. 2 dated September 12, 1996,
entered into in connection with the Registrant's issuance of Series C 10%
Senior Subordinated Convertible Notes.......................................
*5.1 Opinion of Streich Lang, P.A. (includes Consent)............................
10.4 Contract dated December 16, 1991, between Registrant and the United States
Army Aviation Systems Command with respect to the IBAHRS project ........... (1)
10.8 Employment Agreement between Registrant and Stanley P. Desjardins........... (1)
10.9 Employment Agreement between Registrant and Donald W. Townsend.............. (1)
10.11 1992 Stock Option Plan...................................................... (1)
10.12 1992 Restricted Stock Plan.................................................. (1)
10.15 Asset Purchase Agreement dated August 2, 1993 between Simula, Inc. and
Airline Interiors, Inc...................................................... (3)
10.16 Asset Purchase Agreement dated June 14, 1994, among Simula, Inc., CCEC
Acquisition Corp. and Coach and Car Equipment Corporation................... (5)
10.17 Stock Purchase Agreement between Simula, Inc. and Southtech, Inc. and
shareholders dated July 1, 1994............................................. (7)
10.18 Asset Purchase Agreement dated September 30, 1994, among Simula, Inc.,
Artcraft Acquisition Corp., and Artcraft Industries Corp.................... (6)
10.21 1994 Stock Option Plan...................................................... (7)
10.22 Agreements dated January 27, 1995 with Autoliv AB, including license
agreement, frame supply agreement and joint development agreement........... (8)
10.23 Agreement with Jetstream Aircraft Limited................................... (8)
</TABLE>
II-6
<PAGE> 94
<TABLE>
<CAPTION>
NO. DESCRIPTION REFERENCE
- ------- ---------------------------------------------------------------------------- ---------
<S> <C> <C>
10.24 Loan Agreement with First Interstate Bank, N.A. dated October 20, 1995...... (9)
10.25 Asset Purchase Agreement dated November 1, 1995, between Comfab, Inc. and
Stanley P. Desjardins, d/b/a Desjardins Engineering; Services Agreement
dated November 1, 1995, between Simula, Inc. and Comfab, Inc.; Promissory
Note of Stanley P. Desjardins, d/b/a Desjardins Engineering, dated November
1, 1995, for the purchase price of Comfab, Inc.............................. (10)
10.26 Simula, Inc. Employee Stock Purchase Plan................................... (11)
*10.27 Promissory Note representing $650,000 loan from Stanley P. Desjardins dated
August 12, 1996.............................................................
*10.28 Promissory Note representing $1,000,000 loan from Stanley P. Desjardins
dated August 14, 1996.......................................................
11. Earnings Per Share..........................................................
*12. Ratio of earnings to Fixed Charges..........................................
18. Preference Letter re change in accounting principles........................ (13)
*21. Subsidiaries of Registrant..................................................
*23. Consents of Independent Auditors............................................
24. Powers of Attorney -- Directors............................................. (10)
25. Statement of Eligibility of Trustee on Form T-1 (without Indenture)
(bound separately).......................................................... (4)
</TABLE>
- ---------------
* Filed herewith.
+ To be filed by amendment.
(1) Filed with Registration Statement on Form S-18, No. 33-46152-LA, under the
Securities Act of 1933, effective April 13, 1992.
(2) Filed with Form 10-KSB for the year ended December 31, 1992.
(3) Filed with current Report on Form 8-K, dated August 2, 1993.
(4) Filed with Registration Statement on Form SB-2, No. 33-61028 under the
Securities Act of 1933, effective December 10, 1993.
(5) Filed with current Report on Form 8-K, dated June 14, 1994.
(6) Filed with current Report on Form 8-K, dated September 30, 1994.
(7) Filed with Registration Statement on Form SB-2, No. 33-87582, under the
Securities Act of 1933, effective December 28, 1994.
(8) Filed with Registration Statement on Form S-1, No. 33-89186, under the
Securities Act of 1933, effective March 28, 1995, as amended by
Post-Effective Amendment No. 1, effective March 31, 1995.
(9) Filed with Report on Form 10-Q for the quarter ended September 30, 1995.
(10) Filed with Report on Form 10-K for the year ended December 31, 1995.
(11) Filed with Definitive Proxy on May 14, 1996, for the Company's Annual
Meeting of Shareholders held on June 20, 1996.
(12) Filed with Report on Form 10-Q for the quarter ended June 30, 1996.
(13) Filed with Report on Form 10-Q/A dated October 3, 1996, amending Report on
Form 10-Q for the quarter ended June 30, 1996.
b.1. Financial Statements. The financial statements of the Company are
included in the Prospectus beginning at page F-1.
II-7
<PAGE> 95
b.2. Financial Statement Schedules. All schedules are included in the
financial statements of the Company or are included in Part II of the
Registration Statement.
ITEM 17. UNDERTAKINGS
RULE 415
a. The undersigned registrant hereby undertakes:
a.1. To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement. Notwithstanding the foregoing, any
increase or decrease in volume of Securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change
in the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration Statement
or any material change to such information in the Registration
Statement;
a.2. That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new Registration Statement relating to the Securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
a.3. To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
e. Incorporated Annual and Quarterly Reports.
The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is
sent or given, the latest annual report to security holders that is
incorporated by reference in the prospectus and furnished pursuant to and
meeting the requirements of Rule 14a-3 or Rule 14c-3 under the Securities
Exchange Act of 1934; and, where interim financial information required to
be presented by Article 3 of Regulation S-X are not set forth in the
prospectus, to deliver, or cause to be delivered to each person to whom the
prospectus is sent or given, the latest quarterly report that is
specifically incorporated by reference in the prospectus to provide such
interim financial information.
h. Request for acceleration of effective date.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions,
or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction
II-8
<PAGE> 96
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
i. The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of a registration statement in reliance upon Rule 430A and contained in the
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-9
<PAGE> 97
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of Phoenix, State of Arizona
on October 3, 1996.
SIMULA, INC.
By /s/ DONALD W. TOWNSEND
------------------------------------
Donald W. Townsend, President
Pursuant to the requirements of the Securities Act of 1933, the
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE AND TITLE DATE
- -------------------------------------------- --------------------------------------------
<S> <C>
/s/ DONALD W. TOWNSEND October 3, 1996
- --------------------------------------------
Donald W. Townsend, President, Chief
Operating Officer, and Director
/s/ BRADLEY P. FORST October 3, 1996
- --------------------------------------------
Bradley P. Forst, Vice President, General
Counsel, Secretary and Director
/s/ SEAN K. NOLEN October 3, 1996
- --------------------------------------------
Sean K. Nolen, Vice President, Treasurer,
Chief Financial Officer, and Director
*
- --------------------------------------------
Stanley P. Desjardins, Chairman
*
- --------------------------------------------
James C. Withers, Director
*
- --------------------------------------------
Robert D. Olliver, Director
*
- --------------------------------------------
Scott E. Miller, Director
*
- --------------------------------------------
Ian Grant, Director
*By: /s/ BRADLEY P. FORST October 3, 1996
---------------------------------------
Bradley P. Forst,
Attorney-in-Fact
</TABLE>
II-10
<PAGE> 98
The Company Logo consists of a drawing of the world with
a bird in flight over it with the Company name.
DESCRIPTION OF PHOTOS ON INSIDE
FRONT AND BACK COVERS OF PROSPECTUS
INSIDE FRONT COVER:
upper left photo:
Inflatable Tubular Structure ("ITS") side impact head protection device.
upper right photo:
AI-1000 "16 g" Tourist class seat.
lower left photo:
AMTRAK Coach Class Seat.
lower right photo:
Cockpit Air Bag System (CABS) for helicopters.
INSIDE BACK COVER:
upper left photo:
Commuter Rail Seat.
upper right photo:
Aircraft Crash Sensor Module.
lower left photo:
Drop Tower for Crash Simulation Testing.
lower right photo:
AH-64 Apache Attack Helicopter Armored, Energy Absorbing Crewseat.
<PAGE> 1
Exhibit 3.1
STATE OF ARIZONA
ARTICLES OF AMENDMENT
TO THE ARTICLES OF INCORPORATION
OF
SIMULA, INC.,
an Arizona corporation
Pursuant to Sections 10-1001 et seq., including Section 10-1006, of the
Arizona General Corporation Law, Simula Inc., an Arizona corporation, which was
incorporated on July 23, 1975, and amended its Articles of Incorporation on
October 15, 1981, March 11, 1983, September 3, 1987, March 2, 1992, and June 23,
1995, hereby adopts the following sixth Articles of Amendment as follows:
FIRST: The name of the Corporation is SIMULA, INC.
SECOND: The Articles of Incorporation of Simula, Inc., as amended, are
amended and restated in their entirety as set forth on Exhibit
A hereto.
THIRD: Pursuant to Sections 10-1001 et seq. of the Arizona General
Corporation Law, this amendment was adopted by the board of
directors of Simula, Inc. on March 12, 1996, and approved by
its shareholders on June 20, 1996.
FOURTH: The shares outstanding and entitled to vote on the amendment
were 8,943,127 shares of Common Stock, and no other shares
were entitled to vote as a class or series.
FIFTH: The number of shares voted for the amendment was 8,090,102,
the number of shares voted against was 3,480 and the number of
shares that abstained from voting was 849,545.
SIXTH: The amendment does not provide for an exchange,
reclassification or cancellation of issued shares of Simula,
Inc.
IN WITNESS WHEREOF, the undersigned officers hereby certify this 1st
day of July, 1996 that the foregoing amendment has been duly adopted in
accordance with Sections 10-1001 et seq. of the Arizona General Corporation Law.
/s/ Bradley Forst
-----------------------------------
Bradley P. Forst
Vice President and Corporate Secretary
<PAGE> 2
STATE OF ARIZONA )
) ss. ACKNOWLEDGMENT
County of Maricopa )
On this 1st day of July, 1996, before
me, the undersigned Notary Public, personally appeared Bradley P. Forst, Vice
President and Corporate Secretary, known to me or satisfactorily proven to be
the person whose name is subscribed to the foregoing instrument, and
acknowledged that he executed the same for the purposes therein contained.
IN WITNESS WHEREOF, I have hereunto set may hand and official
seal on the day and year first above written.
/s/
-----------------------------------
Notary Public
My Commission Expires:
11/97
- -------------------------
<PAGE> 3
EXHIBIT A
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
of
SIMULA, INC.
AN ARIZONA CORPORATION
The undersigned persons have associated themselves for the
purpose of continuing a corporation under the laws of Arizona and adopt the
following Amended and Restated Articles of Incorporation. These Amended and
Restated Articles of Incorporation supersede the original Articles of
Incorporation filed on July 14, 1975, as amended by the Articles of Amendment
filed on October 15, 1981, as amended by the Articles of Amendment filed on
March 11, 1983, as amended by the Articles of Amendment filed on September 3,
1987, as amended by the Amended and Restated Articles of Incorporation filed on
March 2, 1992, and as amended by the Articles of Amendment filed on June 23,
1995.
1. NAME. The name of this Corporation is:
SIMULA, INC.
2. STATUTORY PLACE OF BUSINESS. The statutory place of business of the
Corporation shall be 2700 North Central Avenue, Suite 1000, Phoenix, Arizona
85004.
3. PURPOSE AND POWERS. This Corporation is organized for the
transaction of any and all lawful business for which corporations may be
incorporated under the laws of the State of Arizona, as they may be amended from
time to time.
4. INITIAL BUSINESS. The general nature of the business initially
transacted by the Corporation was the research, development and manufacturing of
crashworthy aircraft components and related structural products. The general
nature of the business presently transacted by the Corporation is the design and
manufacturing of occupant safety systems and devices for a wide range of air,
ground, and sea transportation vehicles.
5. CAPITAL STOCK. The aggregate number of shares of capital stock that
the Corporation shall be authorized to issue is One Hundred Million
(100,000,000) shares, which shall consist of the following:
a) Common Stock. The authorized common stock of the
Corporation shall be fifty million (50,000,000) shares of Common Stock,
par value $.01 per share.
(i) Consideration. Stock shall be issued when paid
for in cash, past services, real property or personal property and
shall, when issued, be fully paid for and forever nonassessable. The
judgment of the Board of Directors as to the value of any property
contributed or services rendered in exchange for stock shall be
conclusive.
1
<PAGE> 4
(ii) Voting Rights. Except with respect to the
election of directors, where cumulative voting is required, the holders
of the Common Stock shall be entitled to one vote for each share held
by them of record on the books of the Corporation.
b) SERIAL PREFERRED STOCK. The authorized preferred stock of
the Corporation shall be Fifty Million (50,000,000) shares of serial
preferred stock, par value $.05 per share. Subject to the terms and
provisions of this Article 5, the Board of Directors of the Corporation
is authorized to provide, from time to time, for the issuance of shares
of serial preferred stock in series and to fix from time to time before
issuance the designation, preferences, privileges and voting powers of
the shares of each series of serial preferred stock and the
restrictions or qualifications thereof, including, without limiting the
generality of the foregoing, the following:
(i) The serial designation and authorized number of
shares;
(ii) The dividend rate, the date or dates on which
such dividends will be payable, and the extent to which such
dividends may be cumulative;
(iii) The amount or amounts to be received by the
holders in the event of voluntary or involuntary dissolution
or liquidation of the Corporation;
(iv) The voting rights, if any, of the holders;
(v) The price or prices at which shares may be
redeemed and any terms, conditions and limitations upon such
redemption;
(vi) Any sinking fund provisions for redemption or
purchase of shares of such series; and
(vii) The terms and conditions, if any, on which
shares may be converted at the election of the holders
thereof into shares of other capital stock, or of other
series of serial preferred stock of the Corporation.
Each series of serial preferred stock, in preference to the common
stock, will be entitled to dividends, from funds or other assets legally
available therefor, at such rates, payable at such times and cumulative to such
extent as may be fixed by the Board of Directors of the Corporation pursuant to
the authority herein conferred upon it. In the event of dissolution or
liquidation of the Corporation, voluntary or involuntary, the holders of the
serial preferred stock, in preference to the common stock, will be entitled to
receive such amount or amounts as may be fixed by the Board of Directors of the
Corporation pursuant to the authority herein conferred upon it. Preference stock
of any series redeemed, converted, exchanged, purchased or otherwise acquired by
the Corporation shall be canceled by the Corporation and returned to the status
of authorized but unused preference stock. All shares of any series of serial
preferred stock, as between themselves, shall rank equally and be identical; and
all series of serial preferred stock, as between themselves shall rank equally
and be identical except as set forth in resolutions of the Board of Directors
authorizing the issuance of the series.
2
<PAGE> 5
6. STATUTORY AGENT. The Corporation appoints Bradley P. Forst, 2700
North Central Avenue, Suite 1000, Phoenix, Arizona 85004, its statutory agent in
and for the State of Arizona. This appointment may be revoked at any time by the
Board of Directors authorizing and directing the filing with the Arizona
Corporation Commission of a statement in accordance with A.R.S. Section 10-502.
7. BOARD OF DIRECTORS. The number of directors of the Corporation shall
be not less than two (2) nor more then fifteen (15) and may be altered from time
to time as may be provided in the Bylaws. In case of any increase in the number
of directors, the additional directors may be elected by the directors or by the
shareholders at any annual or special meeting, as shall be provided in the
Bylaws. If the board of directors shall consist of nine or more members as
determined pursuant to the Bylaws and by the board of directors, in lieu of
electing the whole number of directors annually, the directors shall be divided
into two or three classes, the number in each class to be fixed nearly as equal
in number as possible. The term of office of directors of the first class shall
expire at the first annual meeting of the shareholders after their election,
that of the second class shall expire at the second annual meeting after their
election, and that of the third class, if any, shall expire at the third annual
meeting after their election. At each annual meeting after such classification,
the number of directors equal to the number of the class whose term expires at
the time of such meeting shall be elected to hold office until the second
succeeding annual meeting, if their are two classes, or until the third
succeeding annual meeting, if there are three classes.
The initial Board of Directors shall consist of two (2) persons, who
shall serve until their successors are qualified according to the Bylaws, and
whose names and addresses are:
Name Mailing Address
Stanley P. Desjardins 8307 East Buena Terra Way
Scottsdale, Arizona 85253
Frederick E. Arndt 14628 North 38th Avenue
Phoenix, Arizona 85023
8. INCORPORATORS. The names and addresses of the original incorporators
are:
Name Mailing Address
Stanley P. Desjardins 8307 East Buena Terra Way
Scottsdale, Arizona 85253
Frederick E. Arndt 14628 North 38th Avenue
Phoenix, Arizona 85023
3
<PAGE> 6
9. DIRECTOR CONFLICTS OF INTEREST. To the extent permitted and in
accordance with A.R.S. Section 10-860, et seq., no contract or other transaction
between the Corporation and one or more of its directors or any other
corporation, firm, association or entity in which one or more of its directors
are directors or officers or are financially interested, shall be either void or
voidable because of such relationship or interest or because such director or
directors are present at the meeting of the Board of Directors or a committee
thereof which authorizes, approves or ratifies such contract or transaction or
because his or their votes are counted for such purpose.
10. ELIMINATION OF DIRECTOR LIABILITY. The personal liability of the
directors to the Corporation and its shareholders for monetary damages by reason
of their conduct as directors shall be limited or eliminated to the fullest
extent permitted by Arizona law.
11. POWERS OF THE BOARD OF DIRECTORS. All of the powers of this
Corporation, insofar as the same may lawfully be vested by these Articles of
Incorporation in the Board of Directors, are hereby conferred upon the Board of
Directors of this Corporation.
12. ARIZONA TAKEOVER ACT. The Corporation elects to be governed by
Article 2 (Control Share Acquisitions), and Article 3 (Business Combinations),
of the Arizona Takeover Act, Arizona Revised Statutes Section 10-2701 et seq.
4
<PAGE> 1
COMMON STOCK COMMON STOCK
$.01 PAR VALUE $.01 PAR VALUE
SHARES
NUMBER INCORPORATED UNDER THE LAWS SEE REVERSE FOR
$ OF THE STATE OF ARIZONA CERTAIN DEFINITIONS
[LOGO]
SIMULA, INC.
THIS CERTIFIES THAT CUSIP 829206 10 1
IS THE RECORD HOLDER OF
FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK OF
Simula, Inc. transferable on the books of the Corporation by the holder hereof
in person or by duly authorized attorney upon surrender of this certificate
properly endorsed. This certificate is not valid until countersigned by the
Transfer Agent and registered by the Registrar.
Witness the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.
Dated:
/s/ Bradley Forst /s/ Donald Townsend
- ----------------------- ---------------------------
SECRETARY PRESIDENT
[CORPORATE SEAL]
COUNTERSIGNED AND REGISTERED:
AMERICAN STOCK TRANSFER & TRUST COMPANY
(NEW YORK, NEW YORK)
TRANSFER AGENT AND REGISTRAR,
BY
AUTHORIZED SIGNATURE.
<PAGE> 2
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<CAPTION>
<S> <C>
TEN COM--as tenants in common UNIF GIFT MIN ACT-- _______ Custodian _______
TEN ENT--as tenants by the entireties (Cust) (Minor)
JT TEN --as joint tenants with right under Uniform Gifts to Minors
of survivorship and not as Act _________________________
tenants in common (State)
UNIF TRF MIN ACT-- _______ Custodian (until age ___)
(Cust)
________ under Uniform Transfers
(Minor)
to Minors Act__________________
(State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, ____________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- ------------------------------------
- ------------------------------------
_______________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
_______________________________________________________________________________
_______________________________________________________________________________
________________________________________________________________________ Shares
of the common stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
______________________________________________________________________ Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated ________________________
X ___________________________________________
X ___________________________________________
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME(S) AS
WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT
OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed
By ______________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY
AN ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS
AND CREDIT UNIONS WITH MEMBERSHIP IN AN
APPROVED SIGNATURE GUARANTEE MEDALLION
PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.
<PAGE> 1
EXHIBIT 4.5
===============================================================================
AMENDED AND RESTATED
SUPPLEMENT
No. 2
Effective as of September 12, 1996
to
INDENTURE
Dated as of December 17, 1993
by and among
SIMULA, INC.
as Issuer
THE SUBSIDIARY GUARANTORS
as Guarantors
and
BANK ONE TRUST COMPANY, NA
as Trustee
-----------------------------
Series C 10% Senior Subordinated Convertible Notes
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE 1 DEFINITIONS......................................................................................... 1
SECTION 1.1 Terms Defined in Original Indenture....................................................... 1
SECTION 1.2 Other Definitions......................................................................... 2
ARTICLE 2 SERIES C 10% SENIOR SUBORDINATED CONVERTIBLE NOTES DUE 1999......................................... 2
SECTION 2.1 Designation................................................................................ 2
SECTION 2.2 Authentication............................................................................. 2
SECTION 2.3 Form of Series C Notes..................................................................... 2
SECTION 2.4 Terms...................................................................................... 2
SECTION 2.5 Denominations.............................................................................. 4
SECTION 2.6 Form of Series C Note...................................................................... 4
SECTION 2.7 Interest Rate Calculation................................................................. 10
SECTION 2.8 Supplemental Indentures Without Consent of Holders........................................ 10
ARTICLE 3 COVENANTS........................................................................................... 10
SECTION 3.1 Subsidiary Guarantors..................................................................... 10
ARTICLE 4 MISCELLANEOUS....................................................................................... 10
SECTION 4.1 Governing Law............................................................................. 10
SECTION 4.2 Counterparts.............................................................................. 10
</TABLE>
<PAGE> 3
SUPPLEMENT NO. 2
DATED SEPTEMBER 12, 1996
This supplemental indenture ("Supplement") is dated as of September 12,
1996, among Simula, Inc., an Arizona corporation (hereinafter the "Company"),
having its principal office at 2700 North Central Avenue, Suite 1000, Phoenix,
Arizona 85004; and Simula Government Products, Inc., Intaero, Inc., Airline
Interiors, Inc., Coach and Car Equipment Corporation, Artcraft Industries Corp.,
Simula Automotive Safety Devices, Inc., Safety Equipment, Inc., Sedona
Scientific, Inc., International Center for Safety Education, Inc., all Arizona
corporations, and ViaTech, Inc., a Delaware corporation (hereinafter the
"Subsidiary Guarantors"), having the same principal office as the Company; and
Bank One Trust Company, NA, having its principal office at Corporate Trust
Client Service Group, 100 East Broad Street, Columbus, Ohio 43271-0181, as
trustee (hereinafter the "Trustee").
R E C I T A L S
The Company has duly authorized the creation of an issue of one or more
series of its Notes of the tenor and amount set forth in its indenture dated as
of December 17, 1993 ("Indenture"). The Indenture, pursuant to Article 9 and
Article 14 thereof, provides for the execution and delivery of one or more
supplemental indentures in connection with one or more series of Notes. In
accordance therewith, the Company, Subsidiary Guarantors and Trustee entered
into a Supplement dated as of September 12, 1996.
Subsequent to the execution of the Supplement dated September 12, 1996,
and prior to the issuance of any Series C Notes as defined herein, the Company,
its Subsidiary Guarantors and the Trustee, pursuant to authority granted in
Article 9 and Article 14 of the Indenture, hereby enter into this Amended and
Restated Supplement No. 2 to the Indenture, effective as of September 12, 1996.
The Indenture requires that all Subsidiaries formed or acquired
subsequent to the date of the Indenture become Subsidiary Guarantors. The
above-listed entities are subsidiaries of the Company and therefore are
executing this Supplement in order to guarantee the obligations of the Company
under the Series C Notes, and any additional Notes issued under the Indenture.
The Notes created by this Supplement are to consist of Series C 10%
Senior Subordinated Convertible Notes Due 1999 in fully registered form only, in
a total principal amount of up to $14,300,000 as provided herein.
All things necessary to make the Series C 10% Senior Subordinated
Convertible Notes Due 1999, when executed by the Company, authenticated and
delivered by the Trustee hereunder, and duly issued by the Company, the valid
obligations of the Company, and to make this Supplement a valid agreement of the
Company and the Subsidiary Guarantors, in accordance with their and its terms,
have been done.
NOW THEREFORE, for and in consideration of the foregoing, it is
mutually covenanted and agreed, for the benefit of the holders of the Notes, as
follows:
1
DEFINITIONS
1.1 Terms Defined in Original Indenture. Except as otherwise set forth
in this Supplement, terms defined in the Indenture shall have the same meanings
when used in this Supplement.
<PAGE> 4
1.2 Other Definitions.
"Series C Notes" shall mean any one or some or all, as the
case may be, of the securities designated in Section 2.1 of this Supplement and
authenticated and delivered under Section 2.2 of this Supplement.
2
SERIES C 10% SENIOR SUBORDINATED CONVERTIBLE NOTES DUE 1999
2.1 Designation. There is hereby authorized to be issued, and shall be
issued under the Indenture, a series of Notes in an aggregate principal amount
not to exceed $14,300,000, which shall bear the title Series C 10% Senior
Subordinated Convertible Notes Due 1999. Such Series C Notes shall be subject to
and secured by the Indenture, this Supplement and the Guarantees.
2.2 Authentication. The Trustee, upon the execution and delivery of
this Supplement, the execution and delivery to it by the Company of the Series C
Notes, as hereinabove provided, and compliance with Articles 9 and 14 of the
Indenture and without any further action on the part of the Company, shall from
time to time authenticate Series C Notes which shall not, in the aggregate,
exceed the principal amount of $14,300,000, and shall deliver them to or upon
the written order of the Company.
2.3 Form of Series C Notes. The Series C Notes, which shall be
registered Notes and the Trustee's certificate of authentication shall be in
substantially the forms set forth in this Article, with such appropriate
insertions, omissions, substitutions and other variations as are required or
permitted by the Indenture (including such variations as may be required to
reflect the terms of any subseries of Notes) and may have such letters, numbers
or other marks of identification and such legends or endorsements placed
thereon, as may be required to comply with the rules of any securities exchange,
or as may, consistently herewith, be determined by the officers executing the
Series C Notes, as evidenced by their execution of the Series C Notes.
The definitive Series C Notes shall be printed, lithographed, engraved
or produced by any combination of these methods on steel engraved borders or may
be produced in any other manner permitted by the rules of any securities
exchange, all as determined by the officers executing the Series C Notes, as
evidenced by their execution of the Series C Notes.
2.4 Terms. Forthwith upon the execution and delivery of this
Supplement, or from time to time thereafter, Series C Notes up to a maximum
aggregate principal amount of $14,300,000 may be executed by the Company and
delivered to the Trustee for authentication, and shall thereupon be
authenticated and delivered by the Trustee upon Company order and compliance
with Articles 9 and 14 of the Indenture, without any further action by the
Company. The Series C Notes issued hereunder will rank pari passu with the
Initial Notes and any Notes issued by the Company in the future.
The Series C Notes Stated Maturity shall be September 15, 1999 and they
shall bear interest at the rate of 10% per annum from their Date of Issue or
from the most recent Interest Payment Date to which interest has been paid or
duly provided for, as the case may be, payable semiannually on September 15 and
March 15, commencing March 15, 1997, until the principal thereof is paid or duly
provided for. The Holder of any Series C Note at the close of business on any
record date (as hereinafter defined) with respect to any Interest Payment Date
shall be entitled to receive the interest payable thereon on such Interest
Payment Date notwithstanding the cancellation of such Note upon any transfer or
exchange thereof subsequent to such record date and prior to such Interest
Payment Date. With respect to the payment of interest in default, interest shall
be paid to the Person in whose name the Series C Note is registered, on a
special record date, established at the
-2-
<PAGE> 5
election of the Company and which shall be not less than five Business Days
preceding the date of payment of such defaulted interest, established for such
purpose by notice given by, or on behalf of, the Company to the Holders not less
than ten Business Days preceding the date so established. The term "record date"
as used herein with respect to any Interest Payment Date (other than any date on
which defaulted interest is paid) shall mean the September 1 or March 1 (or if
that day is not a Business Day, the next preceding Business Day) next preceding
such Interest Payment Date.
The principal (and premium, if any) of and interest on the Series C
Notes shall be payable at the office or agency of the Company in Phoenix,
Arizona; provided, however, that interest may be payable at the option of the
Company by check mailed to the address of the person entitled thereto as such
address shall appear on the Note Register.
The Series C Notes shall be subordinated in right of payment to Senior
Indebtedness of the Company as provided in the Indenture.
The Series C Notes shall be senior in right of payment to all
Subordinated Indebtedness of the Company.
Each individual holder of Series C Notes will be entitled, at such
holder's option, at any time following the issuance of the Series C Notes
through the close of business on the final maturity date of the Series C Notes,
subject to prior redemption, to fix a conversion price equal to 103% of the
average closing price of the Common Stock as quoted on the New York Stock
Exchange ("NYSE") for the ten (10) consecutive trading days preceding the date
on which the conversion price is fixed by notice to the Company from the
Noteholder (the "Conversion Price"). Notice fixing the Conversion Price must be
given to the Company in writing, by fax and/or registered letter.
Subsequent to fixing the Conversion Price as outlined above, each
individual holder of Series C Notes will be entitled, at such holder's option,
at any time through the close of business on the final maturity date of the
Series C Notes, subject to prior redemption, to convert the Series C Notes in
whole, and all accrued interest payable thereon, into Common Stock of the
Company, at the Conversion Price. Notice of the conversion must be given in
writing to the Company and the holder's Series C Note must be tendered to the
Company with the information completed as provided on the form attached to the
Series C Note.
No fractional shares will be issued. In lieu thereof, the Company will
pay cash for fractional share amounts equal to the fair market value of the
Common Stock as quoted as the closing price on the NYSE on the date of
conversion.
If any Notes not called for redemption are converted after a record
date for the payment of interest and prior to the next succeeding interest
payment date, such Notes must be accompanied by funds equal to the interest
payable on such succeeding interest payment date on the principal amount so
converted. No such payment will be required if the Company exercises its right
to such Notes on a redemption date that is an interest payment date.
In the case of Notes called for redemption, conversion rights will
expire at the close of business on the business day preceding the day fixed for
redemption unless the Company defaults in payment of the redemption price.
The Conversion Price is subject to adjustment upon the occurrence of
certain events, including: (i) the issuance of Common Stock as a dividend or
distribution on Common Stock of the Company; (ii) the issuance of Common Stock
pursuant to a stock split; (iii) the issuance to all holders of Common Stock of
-3-
<PAGE> 6
rights or warrants to purchase Common Stock; and (iv) other subdivisions and
combinations of the Common Stock, or other changes affecting the outstanding
Common Stock of the Company as a class without the Company's receipt of
consideration.
If not earlier converted, the Notes are redeemable at the option of the
Company in whole or in part on a pro rata basis, at par value plus accrued
interest payable through the redemption date, upon thirty (30) days' written
notice to the Noteholders in accordance with the following: (i) from September
12, 1996 until June 15, 1997, the Notes may be redeemed by the Company after the
closing price of the Company's Common Stock as quoted on the NYSE has equaled or
exceeded $25.00 for any ten (10) consecutive trading days, and (ii) after June
15, 1997, the Notes may be redeemed by the Company at any time at par value plus
all accrued interest payable through the date of redemption.
The Noteholders will have the right to convert their Notes at any time
until the close of business on the date fixed for redemption. The redemption
price will be paid within forty-eight (48) hours of the redemption date. If less
than all of the Notes are to be redeemed in the case of any redemption by the
Company, the Trustee shall select the Notes or the portion thereof to be
redeemed, by lot or by any other method the Trustee shall deem fair and
reasonable.
2.5 Denominations. The Series C Notes may be issued in denominations of
$1,000 and any multiple thereof.
2.6 Form of Series C Note.
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD, PLEDGED, HYPOTHECATED
OR OTHERWISE TRANSFERRED, EXCEPT UPON DELIVERY TO THE COMPANY OF AN OPINION OF
COUNSEL, SATISFACTORY TO THE COMPANY, THAT AN EXEMPTION FROM SUCH REGISTRATION
IS AVAILABLE AND THAT SUCH TRANSFER WILL NOT RESULT IN ANY VIOLATION OF THE LAW.
SIMULA, INC.
SERIES C 10% SENIOR SUBORDINATED CONVERTIBLE NOTE
DUE 1999
$_____________ No._____________
SIMULA, INC., a corporation duly organized and existing under the laws
of the State of Arizona (herein called the "Company," which term includes any
successor corporation under the Indenture hereinafter referred to), for value
received, hereby promises to pay to ______________, or registered assigns, the
principal sum of ____________________ DOLLARS on September 15, 1999, and to pay
interest thereon from the later of the date of authentication and issuance of
this Series C Note under the Supplement ("Date of Issue") or the most recent
Interest Payment Date to which interest has been paid or duly provided for, as
the case may be, semiannually on September 15 and March 15 in each year,
commencing March 15, 1997 at the rate of 10% per annum, until the principal
hereof is paid or duly provided for. Interest will be calculated on the basis of
a 360-day year comprised of twelve (12) 30-day months, using the actual number
of days elapsed. The interest so payable, and punctually paid or duly provided
for, on any Interest Payment Date will, subject to certain exceptions as
provided in the Indenture hereinafter referred to, be paid to the person in
whose name this Series C Note is registered at the close of business on
September 1 or March 1 (or if such day is not a Business Day then at the close
of business on the Business Day next preceding such day) next preceding such
Interest
-4-
<PAGE> 7
Payment Date. Payments of the principal of (and premium, if any) and interest on
this Series C Note will be made at the office or agency of the Company
maintained for that purpose in Phoenix, Arizona, or in such other office or
agency as may be established by the Company pursuant to said Indenture, in such
coin or currency of the United States of America as at the time of payment is
legal tender for payment of public and private debts; provided, however, that at
the option of the Company payment of interest may be made (subject to
collection) by check mailed to the address of the person entitled thereto as
such address shall appear on the Note Register.
This Series C Note is one of a duly authorized issue of the Series C
Notes of the Company designated as its Series C 10% Senior Subordinated
Convertible Notes Due 1999 (herein called the "Series C Notes"), limited in
aggregate principal amount to $14,300,000 issued and to be issued under an
Indenture, dated as of December 17, 1993, and Supplement, dated as of September
12, 1996 (hereinafter together called the "Indenture"), between the Company and
Bank One Trust Company, NA, as Trustee (herein called the "Trustee," which term
includes any successor Trustee under the Indenture), to which Indenture and all
indentures supplemental thereto reference is hereby made for a statement of the
respective rights thereunder of the Company, the Trustee and the Holders of the
Notes, and the terms upon which the Notes are, and are to be, authenticated and
delivered. The term "Note" or "Notes" as used herein shall refer to the Series C
Notes, the Initial Notes and Notes hereafter issued pursuant to the Indenture.
The Indenture permits, with certain exceptions, as therein provided,
the amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Notes under the Indenture at any
time by the Company with the consent of the Holders of a majority in aggregate
principal amount of the Notes at the time Outstanding (as defined in the
Indenture). The Indenture also contains provisions permitting the Holders of a
majority in aggregate principal amount of the Notes at the time outstanding, on
behalf of the Holders of all the Notes, to waive compliance by the Company with
certain provisions of the Indenture and certain past defaults under the
Indenture and their consequences. Any such consent or waiver by the Holder of
this Series C Note shall be conclusive and binding upon such Holder and upon all
future Holders of this Series C Note and of any Series C Note issued upon the
registration of transfer hereof or in exchange therefor or in lieu hereof,
whether or not notation of such consent or waiver is made upon this Series C
Note.
No reference herein to the Indenture and no provisions of this Series C
Note or of the Indenture shall alter or impair the obligation of the Company,
which is absolute and unconditional, to pay the principal of (and premium, if
any) and interest on this Series C Note at the times, places and rate, and in
the coin and currency, herein prescribed.
As provided in the Indenture, and subject to certain limitations
therein set forth, this Series C Note is transferable on the Note Register of
the Company, upon surrender of this Series C Note for registration of transfer
at the office or agency of the Company to be maintained for that purpose in
Columbus, Ohio, or at such other office or agency as may be established by the
Company for such purpose pursuant to the Indenture, duly endorsed by, or
accompanied by written instrument of transfer in form satisfactory to the
Company and the Note Registrar duly executed by the Holder hereof or his
attorney duly authorized in writing, and thereupon one or more new Series C
Notes, of authorized denominations and for the same aggregate principal amount,
will be issued to the designated transferee or transferees. The Company has
appointed the Trustee as the initial Note Registrar and Paying Agent for the
Series C Notes.
Each individual holder of Notes will be entitled, at such holder's
option, at any time following the issuance of the Notes through the close of
business on the final maturity date of the Notes, subject to prior redemption,
to fix a conversion price equal to 103% of the average closing price of the
Common Stock as quoted on the New York Stock Exchange ("NYSE") for the ten (10)
consecutive trading days preceding the date on which the conversion price is
fixed by notice to the Company from the Noteholder (the "Conversion
-5-
<PAGE> 8
Price"). Notice fixing the Conversion Price must be given to the Company in
writing, by fax and/or registered letter.
Subsequent to fixing the Conversion Price as outlined above, each
individual holder of Notes will be entitled, at such holder's option, at any
time through the close of business on the final maturity date of the Notes,
subject to prior redemption, to convert the Notes in whole, and all accrued
interest payable thereon, into Common Stock of the Company, at the Conversion
Price. Notice of the conversion must be given in writing to the Company and this
Note must be tendered to the Company with the information completed as provided
on the form attached to this Note.
No fractional shares will be issued. In lieu thereof, the Company will
pay cash for fractional share amounts equal to the fair market value of the
Common Stock as quoted as the closing bid price on the NYSE on the date of
conversion.
If any Notes not called for redemption are converted after a record
date for the payment of interest and prior to the next succeeding interest
payment date, such Notes must be accompanied by funds equal to the interest
payable on such succeeding interest payment date on the principal amount so
converted. No such payment will be required if the Company exercises its right
to such Notes on a redemption date that is an interest payment date.
In the case of Notes called for redemption, conversion rights will
expire at the close of business on the business day preceding the day fixed for
redemption unless the Company defaults in payment of the redemption price.
The Conversion Price is subject to adjustment in order to preserve the
economics of the original conversion rights upon the occurrence of certain
events, including: (i) the issuance of Common Stock as a dividend or
distribution on Common Stock of the Company; (ii) the issuance of Common Stock
pursuant to a stock split; (iii) the issuance to all holders of Common Stock of
rights or warrants to purchase Common Stock; and (iv) other subdivisions and
combinations of the Common Stock, or other changes affecting the outstanding
Common Stock of the Company as a class without the Company's receipt of
consideration.
If not earlier converted, the Notes are redeemable at the option of the
Company in whole or in part on a pro rata basis, at par value plus accrued
interest payable through the redemption date, upon thirty (30) days written
notice to the Noteholders in accordance with the following: (i) from the date of
this Note until June 15, 1997, the Notes may be redeemed by the Company after
the closing price of the Company's Common Stock as quoted on the NYSE has
equaled or exceeded $25.00 for any ten (10) consecutive trading days, and (ii)
on or after June 15, 1997, the Company may redeem the Notes at any time at par
value plus all accrued interest payable through the date of redemption.
The Noteholders will have the right to convert their Notes at any time
until the close of business on the date fixed for redemption. The redemption
price will be paid within forty-eight (48) hours of the redemption date. If less
than all of the Series C Notes are to be redeemed in the case of any redemption
by the Company, the Trustee shall select Series C Notes or the portion thereof
to be redeemed, by lot or by any other method the Trustee shall deem fair and
reasonable.
Upon a Change of Control (as defined in Section 10.16 of the
Indenture), the Company will be required to offer to purchase all of the Notes
at 101% of the principal amount thereof, plus accrued interest, if any, to the
date of purchase. In addition, in the event that the Company sells assets, under
certain circumstances, as described in Section 10.11 of the Indenture, the
Company will be required to make an offer to purchase a certain principal amount
of the Notes, on a pro rata basis of all Notes tendered, at 100% of the
principal amount thereof, plus accrued interest, if any, to the date of
purchase.
-6-
<PAGE> 9
If an Event of Default as defined in the Indenture shall occur and be
continuing, the principal of all or a portion of the Notes may become or be
declared due and payable in the manner and with the effect provided in the
Indenture. If an Event of Default on the Notes shall occur, a default rate of
interest in the amount of 15% per annum shall accrue on the indebtedness
evidenced by the Notes from such date for such period of time until the default
is cured.
The Series C Notes are issuable only in registered form, without
coupons, in denominations of $1,000. Series C Notes are exchangeable for a like
aggregate principal amount of Series C Notes of a different authorized
denomination, as requested by the Holder surrendering the same.
No service charge shall be made for any such transfer or exchange, but
the Company may require payment of a sum sufficient to cover any tax or other
governmental charge payable in connection therewith.
The Company, the Trustee and any agent of the Company or the Trustee
may treat the person in whose name this Series C Note is registered as the owner
hereof for all purposes, whether or not this Series C Note be overdue, and
neither the Company, the Trustee, nor any such agent shall be affected by notice
to the contrary.
This Series C Note shall not be valid or become obligatory for any
purpose until the certificate of authentication hereof shall have been manually
signed by the Trustee under the Indenture.
IN WITNESS WHEREOF, SIMULA, INC. has caused this Series C Note to be
signed in its name by the manual or facsimile signature of its President and
attested by the manual or facsimile signature of its Secretary.
Dated: September 12, 1996 (Issue Date)
SIMULA, INC.
By:/s/Donald Townsend
--------------------------
Donald Townsend, President
ATTEST:
/s/Sean K. Nolen
- ---------------------------------
Sean K. Nolen, Treasurer
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Series C Notes referred to within the mentioned Indenture.
BANK ONE TRUST COMPANY, NA
as Trustee
By:
------------------------------
Authorized Representative
Noteholder's Address:
Tax ID Number:
-7-
<PAGE> 10
GUARANTEE
The Subsidiary Guarantors (as defined in the Indenture), jointly and
severally, have unconditionally guaranteed the due and punctual payment of the
principal of, premium, if any, and interest on the Notes, and all other amounts
due and payable under the Indenture and the Notes by the Company, whether at
maturity, acceleration, redemption, repurchase or otherwise, including, without
limitation, the due and punctual payment of interest on the overdue principal
of, premium, if any, and interest on the Notes, to the extent lawful.
The obligations of the Subsidiary Guarantors pursuant to the Guarantee
are subject to the terms and limitations set forth in Article 12 of the
Indenture, and reference is made thereto for the precise terms of the Guarantee.
SUBSIDIARY GUARANTORS
<TABLE>
<S> <C>
SIMULA GOVERNMENT PRODUCTS, INC., an Arizona corporation INTAERO, INC., an Arizona corporation
By: /s/Sean K. Nolen By: /s/Sean K. Nolen
Its Assistant Treasurer Its Assistant Treasurer
AIRLINE INTERIORS, INC., an Arizona corporation COACH AND CAR EQUIPMENT CORPORATION,
an Arizona corporation
By: /s/Sean K. Nolen By: /s/Sean K. Nolen
Its Assistant Treasurer Its Assistant Treasurer
ARTCRAFT INDUSTRIES CORP., an Arizona corporation SIMULA AUTOMOTIVE SAFETY DEVICES, INC.,
an Arizona corporation
By: /s/Sean K. Nolen By: /s/Sean K. Nolen
Its Assistant Treasurer Its Assistant Treasurer
SAFETY EQUIPMENT, INC., an Arizona corporation SEDONA SCIENTIFIC, INC., an Arizona corporation
By: /s/Sean K. Nolen By: /s/Sean K. Nolen
Its Assistant Treasurer Its Assistant Treasurer
INTERNATIONAL CENTER FOR SAFETY EDUCATION, INC., VIATECH, INC., a Delaware corporation
an Arizona corporation
By: /s/Sean K. Nolen By: /s/Sean K. Nolen
Its Assistant Treasurer Its Assistant Treasurer
</TABLE>
The following abbreviations when used in the inscription of the face of
this certificate shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT ______________________ Custodian ___________________
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right of Act ________________________________________________
survivorship and not as tenants (State)
in common
COM PROP - as community property UNIF TRF MIN ACT _______________________ Custodian (until age ________)
_______________________ under Uniform Transfers
(Minor)
to Minors Act _______________________________________
(State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
<PAGE> 11
ASSIGNMENT FORM
To assign this Series C Note, fill in the form below:
I or we assign and transfer this Series C Note to:
(INSERT ASSIGNEE'S SOCIAL SECURITY OR TAX IDENTIFICATION NO.)
________________________________________________________________________________
________________________________________________________________________________
(Print or type assignee's name, address and zip code)
and irrevocably appoint ____________________________________ as agent to
transfer this Series C Note on the books of the Company. The agent may
substitute another to act for him.
Date:________________________ Your Signature:______________________________
(Sign exactly as your name appears on the other side of this Note)
Signature Guarantee:____________________________________________________________
By___________________________________
The signature should be guaranteed by an eligible guarantor institution (a bank,
stockbroker, savings and loan association or credit union with membership in an
approved signature guarantee medallion program) pursuant to Rule 17AD-15 of the
Securities Exchange Act of 1934.
OPTION OF HOLDER TO ELECT PURCHASE OR CONVERSION
If you want to elect to have this Series C Note purchased by the
Company pursuant to Section 10.11 or Section 10.16 of the Indenture or convert
this Note to Common Stock pursuant to the Series C Supplemental Indenture, check
the appropriate box:
Section 10.11 [ ] Section 10.16 [ ]
Conversion [ ]
If you want to have only part of this Series C Note purchased or
converted by the Company, state the amount (in multiples of $1,000):
$__________________________
Date:________________________ Your Signature:__________________________________
(Sign exactly as your name appears on the other side of this Note)
9
<PAGE> 12
2.7 Interest Rate Calculation. Pursuant to Section 9.1 of the
Indenture, the following sentence is added to the end of the second paragraph of
Section 3.1 of the Indenture: "Interest will be calculated on the basis of a
360-day year comprised of twelve (12) 30-day months, using the actual number of
days elapsed.
2.8 Supplemental Indentures Without Consent of Holders. Section 9.1 of
the Indenture is hereby amended to correct an ambiguity with respect to the
issuance of Additional Series of Notes pursuant to Article 14 of the Indenture.
A new subparagraph 9.1(7) shall be added to read: "(7) to provide for the
issuance of additional Notes pursuant to Article 14 and to set the condition,
limitations, and restrictions on the authorized amount, terms or purposes of
issue, authentication and delivery of those Notes."
3
COVENANTS
3.1 Subsidiary Guarantors. Each Subsidiary represents that it was
incorporated and became a Subsidiary on or after December 17, 1993. Each
Subsidiary is entering into this Supplement to affirm and agree to being
Subsidiary Guarantors with respect to the Series C Notes and this Supplement,
pursuant to Article 12 of the Indenture. By their execution of this Supplement,
each Subsidiary:
(a) Covenants and agrees to, and shall comply with, all the terms
and conditions of the Indenture, as supplemented by this Supplement, pertaining
to Subsidiary Guarantors.
(b) Covenants and agrees, jointly and severally, to guarantee all
Notes, including, but not limited to, the Series C Notes, in accordance with,
and to the extent provided in, Articles 12 and 13 of the Indenture and this
Supplement.
(c) Covenants and agrees to perform all obligations required of a
Subsidiary Guarantor, as provided in the Indenture and this Supplement.
4
MISCELLANEOUS
4.1 Governing Law. This Supplement and each Series C Note shall be
deemed to be contracts made under the internal laws of the State of Arizona and
for all purposes shall be construed in accordance with the internal laws of said
State.
4.2 Counterparts. This Supplement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and all such counterparts shall together constitute but one and
the same instrument.
10
<PAGE> 13
IN WITNESS WHEREOF, SIMULA, INC., SIMULA GOVERNMENT PRODUCTS, INC.
INTAERO, INC., AIRLINE INTERIORS, INC., COACH AND CAR EQUIPMENT CORPORATION,
ARTCRAFT INDUSTRIES CORP., SIMULA AUTOMOTIVE SAFETY DEVICES, INC., SAFETY
EQUIPMENT, INC., SEDONA SCIENTIFIC, INC., INTERNATIONAL CENTER FOR SAFETY
EDUCATION, INC. and VIATECH, INC. have each caused this Supplement to be signed
in their respective corporate names by their respective authorized officers and
Bank One Trust Company, NA, Trustee, has caused this Supplemental Indenture to
be executed in its corporate name by one of its authorized officers, all as of
the date and year first above written.
SIMULA, INC., an Arizona corporation
By /s/Bradley P. Forst
----------------------------------------------
Bradley P. Forst, Vice President and Secretary
BANK ONE TRUST COMPANY, NA
as Trustee
By /s/Ted Kravits
----------------------------------------------
Trust Officer
11
<PAGE> 14
SUBSIDIARY GUARANTORS:
SIMULA GOVERNMENT PRODUCTS, INC.,
an Arizona corporation
By /s/Sean K. Nolen
---------------------------------------------------
Sean K. Nolen, Assistant Treasurer
INTAERO, INC., an Arizona corporation
By /s/Sean K. Nolen
---------------------------------------------------
Sean K. Nolen, Assistant Treasurer
AIRLINE INTERIORS, INC., an Arizona corporation
By /s/Sean K. Nolen
---------------------------------------------------
Sean K. Nolen, Assistant Treasurer
COACH AND CAR EQUIPMENT CORPORATION,
an Arizona corporation
By /s/Sean K. Nolen
---------------------------------------------------
Sean K. Nolen, Assistant Treasurer
ARTCRAFT INDUSTRIES CORP.,
an Arizona corporation
By /s/Sean K. Nolen
---------------------------------------------------
Sean K. Nolen, Assistant Treasurer
12
<PAGE> 15
SIMULA AUTOMOTIVE SAFETY DEVICES, INC.
an Arizona corporation
By /s/ Sean K. Nolen
---------------------------------------------------
Sean K. Nolen, Assistant Treasurer
SAFETY EQUIPMENT, INC., an Arizona corporation
By /s/ Sean K. Nolen
---------------------------------------------------
Sean K. Nolen, Assistant Treasurer
SEDONA SCIENTIFIC, INC., an Arizona corporation
By /s/ Sean K. Nolen
---------------------------------------------------
Sean K. Nolen, Assistant Treasurer
INTERNATIONAL CENTER FOR SAFETY
EDUCATION, INC., an Arizona corporation
By /s/ Sean K. Nolen
---------------------------------------------------
Sean K. Nolen, Assistant Treasurer
VIATECH, INC., a Delaware corporation
By /s/ Sean K. Nolen
---------------------------------------------------
Sean K. Nolen, Assistant Treasurer
13
<PAGE> 16
STATE OF ARIZONA )
) ss.
County of MARICOPA )
On this 12th day of September, 1996, before me, a Notary Public in and
for said county and state, personally appeared Bradley P. Forst, to me
personally known and known to me to be the same person who executed the within
and foregoing instrument, who, being by me duly sworn, did depose, acknowledge
and say that he is the Vice President and Secretary of SIMULA, INC., one of the
corporations described in and which executed the foregoing instrument; that said
instrument was executed on behalf of said corporation by authority of its Board
of Directors; and he acknowledged the execution of said instrument to be the
voluntary act and deed of said corporation by it voluntarily executed.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal this
12th day of September, 1996.
/s/
-------------------
Notary Public
(Seal)
STATE OF )
) ss.
County of )
On this _____ day of ______________________, 1996, before me, a Notary
Public in and for said county and state, personally appeared
___________________________ to me personally known and known to me to be the
same person who executed the within and foregoing instrument, who, being by me
duly sworn, did depose, acknowledge and say: That he/she is a Trust Officer of
BANK ONE TRUST COMPANY, NA, one of the corporations described in and which
executed the foregoing instrument; that said instrument was executed on behalf
of said corporation by authority of its Board of Directors; and he/she
acknowledged the execution of said instrument to be the voluntary act and deed
of said corporation by it voluntarily executed.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal this
____________ day of _______________________________, 1996.
___________________________
Notary Public
(Seal)
14
<PAGE> 17
STATE OF ARIZONA )
) ss.
County of MARICOPA )
On this 12th day of September, 1996, before me, a Notary Public in and
for said county and state, personally appeared Sean K. Nolen to me personally
known and known to me to be the same person who executed the within and
foregoing instrument, who, being by me duly sworn, did depose, acknowledge and
say that he is the Assistant Treasurer of SIMULA GOVERNMENT PRODUCTS, INC., one
of the corporations described in and which executed the foregoing instrument;
that said instrument was executed on behalf of said corporation by authority of
its Board of Directors; and he acknowledged the execution of said instrument to
be the voluntary act and deed of said corporation by it voluntarily executed.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal this
12th day of September, 1996.
/s/
-------------------
Notary Public
(Seal)
STATE OF ARIZONA )
) ss.
County of MARICOPA )
On this 12th day of September, 1996, before me, a Notary Public in and
for said county and state, personally appeared Sean K. Nolen to me personally
known and known to me to be the same person who executed the within and
foregoing instrument, who, being by me duly sworn, did depose, acknowledge and
say that he is the Assistant Treasurer of INTAERO, INC., one of the corporations
described in and which executed the foregoing instrument; that said instrument
was executed on behalf of said corporation by authority of its Board of
Directors; and he acknowledged the execution of said instrument to be the
voluntary act and deed of said corporation by it voluntarily executed.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal this
12th day of September, 1996.
/s/
-------------------
Notary Public
(Seal)
15
<PAGE> 18
STATE OF ARIZONA )
) ss.
County of MARICOPA )
On this 12th day of September, 1996, before me, a Notary Public in and
for said county and state, personally appeared Sean K. Nolen to me personally
known and known to me to be the same person who executed the within and
foregoing instrument, who, being by me duly sworn, did depose, acknowledge and
say that he is the Assistant Treasurer of AIRLINE INTERIORS, INC., one of the
corporations described in and which executed the foregoing instrument; that said
instrument was executed on behalf of said corporation by authority of its Board
of Directors; and he acknowledged the execution of said instrument to be the
voluntary act and deed of said corporation by it voluntarily executed.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal this
12th day of September, 1996.
/s/
-------------------
Notary Public
(Seal)
STATE OF ARIZONA )
) ss.
County of MARICOPA )
On this 12th day of September, 1996, before me, a Notary Public in and
for said county and state, personally appeared Sean K. Nolen to me personally
known and known to me to be the same person who executed the within and
foregoing instrument, who, being by me duly sworn, did depose, acknowledge and
say that he is the Assistant Treasurer of COACH AND CAR EQUIPMENT CORPORATION,
one of the corporations described in and which executed the foregoing
instrument; that said instrument was executed on behalf of said corporation by
authority of its Board of Directors; and he acknowledged the execution of said
instrument to be the voluntary act and deed of said corporation by it
voluntarily executed.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal this
12th day of September, 1996.
/s/
-------------------
Notary Public
(Seal)
16
<PAGE> 19
STATE OF ARIZONA )
) ss.
County of MARICOPA )
On this 12th day of September, 1996, before me, a Notary Public in and
for said county and state, personally appeared Sean K. Nolen to me personally
known and known to me to be the same person who executed the within and
foregoing instrument, who, being by me duly sworn, did depose, acknowledge and
say that he is the Assistant Treasurer of ARTCRAFT INDUSTRIES CORP., one of the
corporations described in and which executed the foregoing instrument; that said
instrument was executed on behalf of said corporation by authority of its Board
of Directors; and he acknowledged the execution of said instrument to be the
voluntary act and deed of said corporation by it voluntarily executed.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal this
12th day of September, 1996.
/s/
-------------------
Notary Public
(Seal)
STATE OF ARIZONA )
) ss.
County of MARICOPA )
On this 12th day of September, 1996, before me, a Notary Public in and
for said county and state, personally appeared Sean K. Nolen to me personally
known and known to me to be the same person who executed the within and
foregoing instrument, who, being by me duly sworn, did depose, acknowledge and
say that he is the Assistant Treasurer of SIMULA AUTOMOTIVE SAFETY DEVICES,
INC., one of the corporations described in and which executed the foregoing
instrument; that said instrument was executed on behalf of said corporation by
authority of its Board of Directors; and he acknowledged the execution of said
instrument to be the voluntary act and deed of said corporation by it
voluntarily executed.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal this
12th day of September, 1996.
/s/
-------------------
Notary Public
(Seal)
17
<PAGE> 20
STATE OF ARIZONA )
) ss.
County of MARICOPA )
On this 12th day of September, 1996, before me, a Notary Public in and
for said county and state, personally appeared Sean K. Nolen to me personally
known and known to me to be the same person who executed the within and
foregoing instrument, who, being by me duly sworn, did depose, acknowledge and
say that he is the Assistant Treasurer of SAFETY EQUIPMENT, INC., one of the
corporations described in and which executed the foregoing instrument; that said
instrument was executed on behalf of said corporation by authority of its Board
of Directors; and he acknowledged the execution of said instrument to be the
voluntary act and deed of said corporation by it voluntarily executed.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal this
12th day of September, 1996.
/s/
-------------------
Notary Public
(Seal)
STATE OF ARIZONA )
) ss.
County of MARICOPA )
On this 12th day of September, 1996, before me, a Notary Public in and
for said county and state, personally appeared Sean K. Nolen to me personally
known and known to me to be the same person who executed the within and
foregoing instrument, who, being by me duly sworn, did depose, acknowledge and
say that he is the Assistant Treasurer of SEDONA SCIENTIFIC, INC., one of the
corporations described in and which executed the foregoing instrument; that said
instrument was executed on behalf of said corporation by authority of its Board
of Directors; and he acknowledged the execution of said instrument to be the
voluntary act and deed of said corporation by it voluntarily executed.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal this
12th day of September, 1996.
/s/
-------------------
Notary Public
(Seal)
18
<PAGE> 21
STATE OF ARIZONA )
) ss.
County of MARICOPA )
On this 12th day of September, 1996, before me, a Notary Public in and
for said county and state, personally appeared Sean K. Nolen to me personally
known and known to me to be the same person who executed the within and
foregoing instrument, who, being by me duly sworn, did depose, acknowledge and
say that he is the Assistant Treasurer of INTERNATIONAL CENTER FOR SAFETY
EDUCATION, INC., one of the corporations described in and which executed the
foregoing instrument; that said instrument was executed on behalf of said
corporation by authority of its Board of Directors; and he acknowledged the
execution of said instrument to be the voluntary act and deed of said
corporation by it voluntarily executed.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal this
12th day of September, 1996.
/s/
-------------------
Notary Public
(Seal)
STATE OF ARIZONA )
) ss.
County of MARICOPA )
On this 12th day of September, 1996, before me, a Notary Public in and
for said county and state, personally appeared Sean K. Nolen to me personally
known and known to me to be the same person who executed the within and
foregoing instrument, who, being by me duly sworn, did depose, acknowledge and
say that he is the Assistant Treasurer of VIATECH, INC., one of the corporations
described in and which executed the foregoing instrument; that said instrument
was executed on behalf of said corporation by authority of its Board of
Directors; and he acknowledged the execution of said instrument to be the
voluntary act and deed of said corporation by it voluntarily executed.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal this
12th day of September, 1996.
/s/
-------------------
Notary Public
(Seal)
19
<PAGE> 1
Exhibit 5.1
October 4, 1996
Simula, Inc.
2700 North Central Avenue, Suite 1000
Phoenix, Arizona 85004
RE: REGISTRATION STATEMENT ON FORM S-3 (FILE NO. 33- )
Ladies and Gentlemen:
In connection with the Registration Statement on Form S-3 (File No.
33- ), including amendments and exhibits thereto (the "Registration
Statement"), for the proposed offer and sale by Simula, Inc. (the "Company"), of
up to 1,380,000 shares of Series A Convertible Preferred Stock of the
Company, including 180,000 of such shares which may be sold pursuant to an
underwriters' over-allotment option (the "Shares"), we are of the opinion that:
At such time as (a) the pertinent provisions of the Securities Act of
1933, as amended, and such "Blue Sky" and securities laws as may be applicable
have been complied with, (b) the proposed form of Underwriting Agreement is duly
executed and delivered by the parties thereto, and (c) the certificates
representing the Shares have been duly executed, countersigned, registered, and
delivered against payment therefor as contemplated in the Registration Statement
and in accordance with the terms of the Underwriting Agreement, the Shares will
be validly issued, fully paid, and nonassessable.
In rendering this opinion, we have reviewed and relied upon such
documents and records of the Company as we have deemed necessary and have
assumed the following:
(i) the genuineness of all signatures and the authenticity
of documents submitted to us as originals, and the conformity to originals of
all documents submitted to us as copies:
(ii) the accuracy, completeness, and genuineness of all
representations and certifications, with respect to factual matters, made to us
by officers of the Company and public officials; and
(iii) the accuracy and completeness of Company records.
<PAGE> 2
The opinions expressed herein are limited solely to the laws of the
State of Arizona. We express no opinion on the laws of any other jurisdiction or
principles of conflicts of law and can assume no responsibility for the
applicability or effect of any such laws or principles.
The opinions expressed herein are based upon the law and other matters
in effect on the date hereof, and we assume no obligation to revise or
supplement this opinion should such law be changed by legislative action,
judicial decision, or otherwise, or should any facts or other matters upon which
we have relied be changed.
We hereby consent to the filing of this opinion with the Securities and
Exchange Commission as an exhibit to the Registration Statement, and further
consent to the use of our name under the heading "Legal Matters" in the related
Prospectus filed as part of the Registration Statement.
Sincerely yours,
/s/ Streich Lang, P.A.
<PAGE> 1
EXHIBIT 10.27
PROMISSORY NOTE
$650,000 August 12, 1996
For value received, the undersigned, Simula, Inc., an Arizona
corporation ("Maker") promises to pay to the order of Stanley P. Desjardins
("Lender"), at the office of Maker in Phoenix, Arizona, the sum of Six Hundred
Fifty Thousand Dollars ($650,000).
This Note is due and payable in full together with any interest thereon
on November 10, 1996 ("Maturity Date").
1. INTEREST. This Note shall bear, and Maker shall be required to pay,
interest ("Interest") at a per annum rate of eight and three-quarter percent ("8
- -3/4%"). Interest shall be paid on the first day of each month commencing the
first day of the next month following the date of funding.
2. DEFAULT. The following provisions shall apply upon failure of the
Maker to perform its obligations under this Note.
(a) Event of Default. Any of the following events shall
constitute an "Event of Default" hereunder:
(i) Nonpayment of interest upon notice of failure to
pay within ten (10) days of notice from Lender; or
(ii) Failure to pay the full principal amount due on
the Maturity Date.
(b) Acceleration. Upon any Event of Default (in addition to
any other rights or remedies provided for under this Note), at the option of the
Lender, all sums evidenced hereby, including all principal, Interest, fees and
all other amounts due hereunder shall become immediately due and payable.
(c) No Waiver. Failure of the Lender to exercise any option
hereunder shall not constitute a waiver of the right to exercise the same in the
event of any subsequent default, or in the event of continuance of any existing
default after demand or performance thereof.
(d) Default Penalty. A Default Penalty will accrue at the rate
of $1,000 per month or portion thereof upon the occurrence of any Event of
Default and during any month or portion thereof that an Event of Default is
continuing.
3. SUBORDINATED INDEBTEDNESS. This Note shall be deemed to be
subordinated indebtedness of the Maker with respect to:
(i) All Senior Indebtedness of Maker. Senior
Indebtedness shall mean any Indebtedness of the Company (whether
outstanding on the date hereof or hereafter incurred), unless such
Indebtedness is pari passu with or contractually subordinate or junior
in right of payment to the Notes, except Indebtedness to any Affiliate
of the Company which shall be junior and subordinate to the Notes, and
except Indebtedness evidenced by any series of Notes authorized to be
issued hereunder in addition to and on parity with the Initial Notes.;
and
(ii) All Senior Subordinated Notes of the Company
issued under that certain Indenture dated December 17, 1993, as it may
be supplemented from time to time to create new series of Senior
Subordinated Notes.
-1-
<PAGE> 2
4. BINDING EFFECT. This Note shall be binding upon the parties hereto
and their respective heirs, executors, administrators, representatives,
successors and permitted assigns.
5. MISCELLANEOUS. Except as otherwise provided herein, the Maker waives
demand, diligence, presentment for payment and protest, notice of extension,
dishonor, maturity and protest.
This Note shall be governed by and construed and enforced in accordance
with the laws of the State of Arizona.
SIMULA, INC.
By /s/ SEAN K. NOLEN
---------------------------------
Its C.F.O.
---------------------------------
-2-
<PAGE> 1
EXHIBIT 10.28
PROMISSORY NOTE
$1,000,000 August 14, 1996
For value received, the undersigned, Simula, Inc., an Arizona
corporation ("Maker") promises to pay to the order of Stanley P. Desjardins
("Lender"), at the office of Maker in Phoenix, Arizona, the sum of One Million
Dollars ($1,000,000).
This Note is due and payable in full together with any interest thereon
on November 12, 1996 ("Maturity Date").
1. LOAN FEE. Maker shall pay to Lender the sum of $10,000 as a Loan
Fee. This sum shall be retained by Lender at funding and the balance of $990,000
deposited with Maker.
2. INTEREST. This Note shall bear, and Maker shall be required to pay,
interest ("Interest") at a per annum rate of ten percent (10%). Interest shall
be paid on the first day of each month commencing the first day of the next
month following the date of funding.
3. DEFAULT. The following provisions shall apply upon failure of the
Maker to perform its obligations under this Note.
(a) Event of Default. Any of the following events shall
constitute an "Event of Default" hereunder:
(i) Nonpayment of interest upon notice of failure to
pay within ten (10) days of notice from Lender; or
(ii) Failure to pay the full principal amount due on
the Maturity Date.
(b) Acceleration. Upon any Event of Default (in addition to
any other rights or remedies provided for under this Note), at the option of the
Lender, all sums evidenced hereby, including all principal, Interest, fees and
all other amounts due hereunder shall become immediately due and payable.
(c) No Waiver. Failure of the Lender to exercise any option
hereunder shall not constitute a waiver of the right to exercise the same in the
event of any subsequent default, or in the event of continuance of any existing
default after demand or performance thereof.
(d) Default Penalty. A Default Penalty will accrue at the rate
of $1,000 per month or portion thereof upon the occurrence of any Event of
Default and during any month or portion thereof that an Event of Default is
continuing.
4. SUBORDINATED INDEBTEDNESS. This Note shall be deemed to be
subordinated indebtedness of the Maker with respect to:
(i) All Senior Indebtedness of Maker. Senior
Indebtedness shall mean any Indebtedness of the Company (whether
outstanding on the date hereof or hereafter incurred), unless such
Indebtedness is pari passu with or contractually subordinate or junior
in right of payment to the Notes, except Indebtedness to any Affiliate
of the Company which shall be junior and subordinate to the Notes, and
except Indebtedness evidenced by any series of Notes authorized to be
issued hereunder in addition to and on parity with the Initial Notes.;
and
(ii) All Senior Subordinated Notes of the Company
issued under that certain Indenture dated December 17, 1993, as it may
be supplemented from time to time to create new series of Senior
Subordinated Notes..
-1-
<PAGE> 2
5. BINDING EFFECT. This Note shall be binding upon the parties hereto
and their respective heirs, executors, administrators, representatives,
successors and permitted assigns.
6. MISCELLANEOUS. Except as otherwise provided herein, the Maker waives
demand, diligence, presentment for payment and protest, notice of extension,
dishonor, maturity and protest.
This Note shall be governed by and construed and enforced in accordance
with the laws of the State of Arizona.
SIMULA, INC.
By /s/ SEAN K. NOLEN
-----------------------------
Its C.F.O.
-----------------------------
-2-
<PAGE> 1
EXHIBIT 11
SIMULA, INC.
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
--------------------------------------------------------- -------------------------
1991 1992 1993 1994 1995 1995 1996
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Income:
Net (Loss) Earnings...................... $1,732,281 $1,269,324 $1,120,800 $2,114,423 $4,102,359 $1,553,072 $(3,423,444)
========== ========== ========== ========== ========== ========== ==========
PRO FORMA
Net earnings............................. 1,732,281 1,269,324
Pro forma adjustment to:
Eliminate certain compensation to
Desjardins............................. 76,500
Adjust for certain investments
distributed to Desjardins.............. 3,085
--------- ---------
Pro forma earnings before income taxes... 1,811,866 1,269,324
Pro forma income tax (credit) provision.. 689,000 (43,473)
--------- ---------
Pro forma net earnings................... $1,122,866 $1,312,797
========== ==========
Number of shares:
Weighted average shares outstanding...... 3,571,940 4,608,825 5,024,679 5,461,095 8,175,300 7,457,964 8,916,287
Incremental shares for outstanding stock
options................................ 74,428 20,847 261,233
Incremental shares for outstanding stock
warrants............................... 169,403 380,670 29,622
--------- --------- --------- --------- --------- --------- ---------
3,571,940 4,608,825 5,024,679 5,704,926 8,576,817 7,748,819 8,916,287
========= ========= ========= ========= ========= ========= =========
Earnings (Loss) per share.................. $0.22 $0.37 $0.48 $0.20 ($0.38)
===== ===== ===== ===== =====
Pro forma earnings per share............... $0.31 $0.29
===== =====
</TABLE>
<PAGE> 1
Exhibit 12
SIMULA, INC.
RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
SIX MONTHS ENDED
FOR THE YEARS ENDED DECEMBER 31 JUNE 30
1991 1992 1993 1994 1995 1995 1996
---- ---- ---- ---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated net
earnings (loss) (1) $1,732 $1,270 $1,121 $2,114 $4,102 $1,553 $ (183)
Provision (benefit) for
income taxes -- 965 744 1,260 1,166 1,035 (121)
------ ------ ------ ------ ------ ------ ------
Consolidated income (loss)
before income taxes 1,732 2,235 1,865 3,374 5,268 2,588 (304)
Fixed Charges:
Interest expense and
amortization of debt issue
cost 357 209 800 1,832 2,030 1,162 791
Portion of rentals
representative of the
interest factor 251 251 133 193 370 153 274
------ ----- ----- ----- ----- ----- -----
Total Fixed Charges 608 460 933 2,025 2,400 1,315 1,065
------ ----- ----- ----- ----- ----- -----
Earnings available
for fixed charges $2,340 $2,695 $2,798 $5,399 $7,668 $3,903 $ 761
------ ------ ------ ------ ------ ------ -----
Ratio of earnings
to fixed charges (2) 3.85 5.86 3.00 2.67 3.20 2.97 --
====== ===== ===== ===== ===== ===== =====
</TABLE>
(1) Before cumulative effect of change in accounting principle of ($3.24)
million in the second quarter ended June 30, 1996.
(2) Earnings were insufficient to cover fixed charges by $304,000 for the
six month period ended June 30, 1996.
<PAGE> 1
EXHIBIT 21
SIMULA, INC.
SUBSIDIARY LIST
1. Simula Government Products, Inc.
2. Airline Interiors, Inc.
3. Intaero, Inc.
4. Coach & Car Equipment Corporation
5. ViaTech, Inc.
6. Artcraft Industries Corp.
7. Sedona Scientific, Inc.
8. International Center for Safety Education, Inc.
9. Safety Equipment, Inc.
10. Simula Automotive Safety Devices, Inc.
11. Simula Automotive Safety Devices, Limited
12. Simula Protective Systems, Limited
<PAGE> 1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Simula, Inc. on
Form S-3 of our report dated March 21, 1996, appearing in the Prospectus, which
is a part of this Registration Statement.
We also consent to the reference to us under the headings "Selected
Financial Data" and "Experts" in such Prospectus.
October 4, 1996
