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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996 COMMISSION FILE NO. 1-12410
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SIMULA, INC.
(Exact name of Registrant as specified in its charter)
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ARIZONA 86-0320129
(State of Incorporation) (I.R.S. Employer Identification No.)
2700 NORTH CENTRAL AVENUE, SUITE 1000
PHOENIX, ARIZONA 85004
(Address of principal executive offices) (Zip Code)
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REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (602) 631-4005
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Title of Class
Common Stock, par value $.01 per share
12% Senior Subordinated Notes Due 1998
(New York Stock Exchange)
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Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
Check if there is no disclosure of delinquent filings in this Form and
no disclosure will be contained in the definitive Proxy incorporated by
reference in Part III of this Form 10-K. /X/
Issuer's revenue for its fiscal year: $65,761,957
As of March 21, 1997, the number of shares of Common Stock outstanding
was 8,999,948, and the aggregate market value of the Common Stock (based on the
closing price as quoted on the New York Stock Exchange on that date) held by
non-affiliates of Registrant was approximately $85,123,663.
DOCUMENTS INCORPORATED BY REFERENCE:
Those sections of the Registrant's Proxy Statement to be filed with
the Commission in connection with its 1997 Annual Meeting of Shareholders to be
held June 12, 1997, identified in Part III hereof, are incorporated by reference
in this report.
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PART I
ITEM 1. BUSINESS
With the exception of historical information, the matters discussed or
incorporated by reference in this report on Form 10-K may be forward-looking
statements that describe matters that involve risks and uncertainties which
could cause the Company's actual results to differ materially from those
discussed herein. Such risks and uncertainties include, but are not limited to,
success in commercialization of new technologies, the Company's new
manufacturing capability and capacity, new product development, product
acceptance and demand, amount of investment needed to complete development and
commercialization and the time frame therefor, ability to enforce proprietary
data and information, the regulatory and trade environment, and general economic
conditions. Readers are cautioned not to place undue reliance on the Company's
forward-looking statements, which speak only as of the date hereof. The Company
undertakes no obligations to publicly release any revisions to these
forward-looking statements or reflect events or circumstances after the date
hereof.
OVERVIEW
The Company is a diversified technology and manufacturing company
which is recognized as a world leader in crash safety and related technologies.
The Company designs and manufactures occupant safety systems and devices for a
wide range of air, ground, and sea transportation vehicles. The Company's core
technologies are in biomechanics and advanced systems, structures, and materials
utilized in energy-absorbing seating, inflatable restraints, and composites.
As a result of the development of the Company's core technologies, the
Company, through its twelve (12) operating subsidiaries, currently operates in
three market segments: (a) commercial transportation seating, (b) government and
defense contracting, and (c) automobile safety systems. The Company's business
operations can generally be described as occurring 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.
The Company was organized in Arizona in 1975, and made its initial
public offering of Common Stock in April 1992. Following its initial public
offering, the Company has financed its growth primarily through public and
private offerings of securities. In December 1993, the Company completed a
public sale of $5.7 million of 12% Senior Subordinated Notes due in 1998. In
April 1995, the Company completed a secondary offering of Common Stock, with net
proceeds to the Company of approximately $25.6 million. In September 1996, the
Company completed a private placement of $14.3 million in aggregate principal
amount of 10% Senior Subordinated Convertible Notes. Proceeds have been utilized
for product research and development, to expand manufacturing facilities, repay
indebtedness, and for working capital. In September 1995, the Company completed
a 3-for-2 forward split on its Common Stock. All relevant figures contained
herein have been adjusted to reflect such stock split.
In its last five fiscal years, the Company has experienced substantial
growth resulting from strategic acquisitions, wider application of technologies,
and new product introductions. In addition to the
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businesses described above, operating subsidiaries' lines of business include an
aviation crash investigation school, advanced sensor technologies, and
artificial intelligence computer systems.
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. The Company through its subsidiaries operates facilities in
metropolitan Phoenix, Arizona; Chicago, Illinois; Milwaukee, Wisconsin; San
Diego, California; Asheville, North Carolina, Albany, New York, and
Northumberland County, England. Unless the context indicates otherwise, all
references to the "Company" or "Simula" refer to Simula, Inc. and its
subsidiaries.
OPERATING AND GROWTH STRATEGY
The Company's strategy is to maintain its leading position in creating
and applying proprietary technologies and advanced solutions addressing
safety-related problems, and to develop its products for commercial sale to a
wide range of 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 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 synergies.
OVERVIEW OF MARKETS AND INDUSTRY
The Company 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. The Company's business focuses on three primary market segments: (i)
commercial transportation seating, (ii) government and defense contracting, and
(iii) automotive safety systems.
COMMERCIAL TRANSPORTATION SEATING SYSTEMS
Commercial transportation seating includes airline, rail, and mass
transit new and refurbished seats. The Company has positioned five operating
subsidiaries in this segment.
At the end of 1995, there were approximately 11,000 passenger aircraft
in operation worldwide, most with in excess of 120 passenger seat placements. A
study conducted by the Boeing Commercial Airplane Group projects that the
worldwide passenger aircraft fleet will grow to approximately 16,000 by 2005.
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 airlines purchase and refurbish used aircraft.
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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 airbags on commercial
aircraft to improve the safety of passengers.
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
high-speed trains, safety, and comfort, as well as new laws and regulations,
such as proposed Federal Railroad Administration rules to improve safety
systems, and the Clean Air Act Amendments of 1990 and the Americans with
Disabilities Act, which require that transit authorities and rail operators
purchase new, upgrade or retrofit existing equipment.
The Company believes that between 1995 and 1998 U.S. railcar-purchasing
agencies will purchase up to 3,500 rail and mass transit cars. Rail and mass
transit seat manufacturers may also potentially benefit from the development of
lighter weight and high-speed rail systems in North America.
GOVERNMENT AND DEFENSE CONTRACTING
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 addition, the Company expects that pilot and
passenger safety will continue to be a critical part of these and other
programs, 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 those developed and manufactured by the Company, including advanced energy
absorbing seating, lightweight armor systems, and inflatable restraints. The
Company has positioned four operating subsidiaries in this segment.
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 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 and third leading cause of automobile fatalities,
accounting for approximately 51% of all injuries and 31% of all fatalities
which occur in automobile collisions.
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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 category of injury
accidents and leading category of fatal accidents, accounting for approximately
25% of all injuries and 34% of all fatalities which occur in automobile
collisions, 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 category of injury accidents
and second leading cause of fatalities, accounting for approximately 15% of all
automobile injuries and 33% of fatalities.
The Company's Inflatable Tubular Structure ("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. The Company has
positioned two operating subsidiaries in this segment.
THE COMPANY'S PRODUCTS AND EMERGING MARKETS
As of December 31, 1996, the following table shows each of the
Company's products in production, and each of the products the Company expects
to commence delivery of, on the rollout schedule indicated.
PRODUCT AND TECHNOLOGY STATUS
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PRODUCT/TECHNOLOGY Status Product Rollout
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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
New 16g Commercial Airliner Seats................ In Production Rollout 1996 --
Commercial Production
Increasing in 1997
Inflatable Tubular Structure..................... Volume Production 1997
Bulkhead Airbag System........................... Certified/Ready for 1997
Production
Cockpit Airbag System............................ Ready for Production 1997
Inflatable Body and Head Restraint
System......................................... Ready for Production 1997
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ENERGY ABSORBING SEATING SYSTEMS AND COMPONENTS FOR HELICOPTERS,
AIRLINERS, RAIL, AND MASS TRANSIT
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 internal market surveys and data, the Company believes that it
is the leading provider of crashworthy helicopter seats purchased by the United
States and foreign armed forces, and is the supplier for a majority of the
world's energy-absorbing helicopter seating system programs under domestic and
foreign military contracts. 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 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, Inc. ("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 Company's 16g seats ("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 major U.S. carriers.
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
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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 Equipment Corporation and Artcraft Industries Corp. 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, based on internal data, 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.
COMPOSITE MATERIALS INCLUDING ARMOR SYSTEMS
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 are 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
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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"). 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
sporting equipment such as archery bows and bicycle components, and 16g airliner
seat frames and 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 FOR AIRCRAFT AND AUTOMOBILES
The Company developed its core inflatable restraint technology in the
1980's under a contract with the United States government and has expanded and
developed such technology into numerous applications in various products and
industries. 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 inflatable tubular structure ("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 comprised two of the 36 finalists out of
4,000 technology entrants submitted for Discovery Magazine's 1996 "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 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.
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The Company has developed various additional applications for the ITS
technology. 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 side
protection system, the inflatable tubular bolster ("ITB"), an under-dash system
to protect knees and legs, and the inflatable tubular torso restraint ("ITTR"),
an inflatable restraint harness and seat belt application.
The Company through Autoliv GmbH, is currently manufacturing the ITS
for sale to BMW, a major European automobile manufacturer which is including it
in 1997 models of its automobiles. The Company also has agreements with a first
tier auto supplier to provide ITS to a second automobile manufacturer and to
provide a different application of the ITS technology to an automobile
manufacturer. The Company's high-volume manufacturing line is located in
Northumberland County in the northeast of England, and it is currently building
a second production line to be located in this facility.
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 auto part commodities as are most forms of traditional airbags.
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 inflatable body and
head restraint system ("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 thereby protects against mishaps caused by accidental deployment
during the normal operations of the aircraft. The Company anticipates that it
will complete the 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
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bulkhead and other cabin partitions in commercial aircraft certificated after
1988, which includes only complete new aircraft designs. 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 an agreement with
Jetstream Aircraft Ltd. ("Jetstream") 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. In addition, the Company
is 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 also exploring the development of smart
system sensors and software programs 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 will
commence initial production of its parachute in 1997 for Navy aircraft.
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 polymers and urethanes, possessing a wide variety of
potential product applications. Such materials are generally high-strength 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.
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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.
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 1995 and 1996 were approximately $6.1 million and $10.5 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.
The Company holds 13 patents, including those recently issued for its
ITS and 16g Seat technologies. In addition, the Company has 34 patent
applications pending for such items as its ITB and ITC technologies and various
of its advanced materials. The Company is also currently developing six
additional patent applications for filing. Patents protect inventions for a
period of 20 years after the application is first filed. All of the Company's
patents issued or applied for involving its principal products have been issued
or pending for three years or less. The Company does not presently own or
maintain any trademarks which are material to its business.
PRODUCTION AND MANUFACTURING
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.
In 1996 the Company consolidated certain operations, expanded and
upgraded certain of its existing manufacturing capabilities, and established a
new manufacturing facility in England for the production of inflatable
restraints. Consolidation principally placed sewing and upholstery operations in
a central location and placed airline and train seat parts manufacturing in a
central location. Such steps were taken for efficiency purposes and did not have
a material effect on the Company's financial condition or results of operations.
10
<PAGE> 12
MARKETING AND SALES
Depending upon the product, the Company typically employs one of four
methods for marketing: (i) direct sales, which, for example, 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 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 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.
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.
Approximately 24% of the Company's total revenue in 1996 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, commercial aircraft, and rail
seating systems in foreign markets and is conducting marketing efforts
internationally. Countries in which the Company is actively marketing include
Germany, France, the United Kingdom, Japan, India, Korea, Singapore, Australia,
Canada, Turkey, and China.
CUSTOMERS
Sales of the Company's products to all branches of the United States
armed forces represented approximately 27% of the Company's revenue in 1996. No
other customer accounted for more than 10% of the Company's revenue during 1996.
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
11
<PAGE> 13
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.
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, United Airlines, and the
metropolitan transit authorities in major North American cities.
COMPETITION
Based on internal market surveys and data, the Company believes that it
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.
The Company's principal competitors in the crashworthy military seating market
are Martin Baker (U.K.) and Israel Aircraft Industries, Ltd. (Israel). The
Company does not have financial or market share data concerning these two
competitors.
Based on internal market surveys and data, the Company believes that it
is the largest supplier of rail and mass transit seating systems in North
America, with an approximate 70% to 80% market share. The Company has four
principal competitors in the North American rail and mass transit seating
market, comprising in the aggregate 20% to 30% of such market.
Based on internal estimates, the Company believes that it achieved a
2.5% share of the worldwide commercial airline seating market in its first full
year of production in 1996. The Company has 10 principal competitors in the
commercial airline seating market, with BE Aerospace, Inc. having approximately
50% of the market.
The worldwide automobile airbag market is currently dominated by five
large suppliers, 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, 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
12
<PAGE> 14
technological advances by one or more of its competitors or by future entrants
into its markets.
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, 1995 and 1996 was approximately
$58 million and $63 million, respectively. The backlog at December 31, 1996
consisted of approximately $17 million under defense contracts and approximately
$46 million with commercial customers.
The backlog includes contracts for major current products as well as
for supplies and replacement components. Backlog includes only $3 million under
the Company's agreement to supply the ITS for certain of BMW models to be
delivered in 1997. 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 present date to December
31, 1998.
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. The Company believes that its continued success depends on its
ability to attract and retain highly qualified personnel.
PERSONNEL PROFILE
<TABLE>
<CAPTION>
Approximate Number
Classification of Employees
- -------------- ------------
<S> <C>
Research and Development; Scientists; Engineers; Technical
Support.......................................................... 150
Manufacturing...................................................... 310
Administration..................................................... 190
Other.............................................................. 65
</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
13
<PAGE> 15
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.
14
<PAGE> 16
ITEM 2. PROPERTIES
The Company is currently expanding its manufacturing and administrative
facilities in order to meet the expected demand for its products. Upon the
completion of such expansion, the Company believes that its manufacturing and
administrative facilities will be adequate for the foreseeable future. The
following table summarizes the properties which the Company leased or owned as
of December 31, 1996.
FACILITIES PROFILE
<TABLE>
<CAPTION>
SQUARE
COMPANY LOCATION FUNCTION FOOTAGE
- ------- -------- -------- -------
<S> <C> <C> <C>
Simula, Inc.................. Phoenix, AZ (1) Corporate Headquarters 11,000
Simula Government
Products, Inc.............. Tempe, AZ (2) Manufacturing and Administration 60,000
Tempe, AZ (2) Manufacturing and Administration 24,000
Tempe, AZ (1) Manufacturing and Administration 19,000
Tempe, AZ (1) Manufacturing and Administration 14,000
Tempe, AZ (1) Manufacturing and Administration 14,000
Simula Technologies, Inc..... Phoenix, AZ (2) Research and Development 25,000
Simula ASD, Inc.............. Phoenix, AZ (1) ITS Low Rate Production; 7,000
Testing; Administration
Phoenix, AZ (1) ITS Low Rate Production; Testing 20,000
Simula ASD, Ltd.............. Northumberland, ITS Volume Production 30,000
U.K. (1)
Airline Interiors, Inc....... San Diego, CA (1) Airliner Seat Refurbishment and 44,000
New Seat Assembly;
Administration
San Diego, CA (1) Upholstery and Sewing 17,000
San Diego, CA (1) Warehouse 6,000
Coach and Car Equipment
Corporation................ Chicago, IL (1) Airline, Rail and Transit Seat 71,000
Manufacturing; Administration
Albany, NY (1) Rail Seat Assembly 20,000
Artcraft Industries Corp..... Milwaukee, WI (1) Rail and Airline Seat 45,000
Refurbishment and Upholstery
</TABLE>
15
<PAGE> 17
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Milwaukee, WI (1) Warehouse 20,000
Milwaukee, WI (1) Warehouse 5,000
ViaTech, Inc................. Tempe, AZ (1) Composites Research; 16,000
Fabrication; Administration
Safety Equipment, Inc........ Asheville, NC (1) Research and Development; 5,000
Survival Equipment
Manufacturing; Parachute
Manufacturing
Sedona Scientific, Inc....... Sedona, AZ (1) Research and Development; 5,000
Sensors, Smart Systems, Fiber
Optics
Sedona, AZ (1) Warehouse 2,000
</TABLE>
- ----------
(1) Denotes leased facility
(2) Denotes Company-owned facility
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in litigation in the ordinary course of
business from time to time. The Company presently is not a party to any material
threatened or pending litigation, the negative outcome of which would be
material to the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted during the fourth quarter of fiscal 1996 to a
vote of security holders, through the solicitation of proxies, or otherwise.
16
<PAGE> 18
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock has been listed on the New York Stock
Exchange 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 forward 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>
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......................................................... 15.88 13.00
1997:
First Quarter (through March 26)....................................... $18.38 $13.63
</TABLE>
The number of holders of the Common Stock of the Company, including
beneficial holders of shares held in street name, as of the close of business on
March 26, 1997, is estimated to be greater than 2200. On March 26, 1997, the
closing price of the Common Stock was $15.75 per share.
17
<PAGE> 19
ITEM 6. SELECTED CONSOLIDATED FINANCIAL 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, 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>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenue.......................................... $ 65,762 $ 59,089 $ 41,158 $ 24,781 $ 18,833
Cost of revenue.................................. 55,239 39,037 27,709 15,728 12,135
---------- ---------- ---------- ---------- ----------
Gross margin..................................... 10,523 20,052 13,449 9,053 6,698
Administrative expenses.......................... 19,749 15,609 8,265 5,469 4,311
Unusual item..................................... 919
---------- ---------- ---------- ---------- ----------
Operating (loss) income.......................... (9,226) 4,443 5,184 2,665 2,387
Interest expense................................. (2,377) (2,030) (1,832) (800) (209)
Interest income.................................. 52 440 22 57
---------- ---------- ---------- ---------- ----------
(Loss) income before taxes....................... (11,551) 2,853 3,374 1,865 2,235
Income tax benefit (expense)..................... 4,741 (196) (1,260) (744) (965)
---------- ---------- ---------- ---------- ----------
(Loss) earnings before cumulative effect
of change in accounting principle (1) ......... (6,810) 2,657 2,114 1,121 1,270
Cumulative effect of change in
accounting principle (1)....................... (3,240)
---------- ---------- ---------- ---------- ----------
Net (loss) earnings (1) (2)...................... ($10,050) $ 2,657 $ 2,114 $ 1,121 $1,270
========== ========== ========== ========== ==========
PER SHARE AMOUNTS:
(Loss) earnings before cumulative
effect of a change in accounting
principle..................................... ($0.76) $.31 $.37 $.22
Cumulative effect of change in
accounting principle.......................... (0.36)
---------- ---------- ---------- ----------
Net (loss) earnings per share.................... ($1.12) $.31 $.37 $.22
========== ========== ========== ==========
PRO FORMA AMOUNTS (1) (2):
Net earnings................................... $194 $1,675 $947 $1,313
========== ========== ========== =========
Net earnings per share......................... $.02 $.29 $.19 $.29
========== ========== ========== =========
Weighted average shares outstanding (3).......... 8,947,060 8,576,817 5,704,926 5,024,679 4,608,825
OTHER DATA:
Research and development:
Funded by the Company.......................... $ 1,916 $ 1,419 $ 688 $ 376 $ 240
Costs incurred on funded contracts............. $ 8,588 $ 4,722 $ 3,165 $ 1,813 $ 4,529
</TABLE>
18
<PAGE> 20
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Assets:
Current assets ......................... $48,010 $36,857 $20,594 $13,779 $ 9,616
Property and equipment ................. 23,356 15,779 13,199 7,803 7,540
Deferred costs ......................... 929 6,385 1,460 1,460 595
Intangibles ............................ 10,964 11,455 12,164 3,517 169
Other .................................. 3,429 2,660 274 228 87
------- ------- ------- ------- -------
Total assets ............................. $86,688 $73,136 $47,691 $26,787 $18,007
======= ======= ======= ======= =======
Liabilities:
Current liabilities .................... $24,804 $15,788 $15,358 $ 5,570 $ 5,567
Long-term debt ......................... 24,697 11,261 15,339 12,794 4,839
Other .................................. 345 345 369
------- ------- ------- ------- -------
Total liabilities ........................ 49,501 27,049 31,042 18,709 10,775
Shareholders' equity (4) ................. 37,187 46,087 16,649 8,078 7,232
------- ------- ------- ------- -------
Total liabilities and shareholders'
equity .................................. $86,688 $73,136 $47,691 $26,787 $18,007
======= ======= ======= ======= =======
</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. Pro forma amounts for
1995, 1994 and 1993 assume the new accounting method is applied
retroactively. The change in accounting would not have affected 1992.
(2) Prior to the Company's April 1992 initial public offering, the Company was
an S Corporation for tax purposes. Pro forma net earnings and net earnings
per share amounts for 1992 reflect pro forma tax provisions as if all
income taxes for 1992 had been payable by the Company.
(3) 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.
(4) The Company has not paid any cash dividends since its April 1992 initial
public offering.
19
<PAGE> 21
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
GENERAL
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, 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 Form 10-K. This Form
10-K contains certain forward-looking statements and information. The cautionary
statements made in this Form 10-K should be read as being applicable to all
related forward-looking statements wherever they appear in this Form 10-K. The
Company's actual future results could differ materially from those discussed
herein.
OVERVIEW
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. Utilizing its substantial proprietary technology in
energy-absorbing seating, inflatable restraints, and composite materials, the
Company focuses on reducing injury and increasing survivability in vehicle
crashes.
The Company's historic core business has been as a government
contractor. Additionally, through recent acquisitions, the Company has become
the largest North American-based supplier of seating systems for rail and other
mass transit vehicles and a successful new entrant in the manufacture of new
commercial airliner seating. Utilizing its proprietary safety technology,
customer relationships, and manufacturing capacity expertise, recently enhanced
through acquisitions, the Company has introduced crashworthy seating systems for
a variety of aircraft, various inflatable restraint systems for automobiles, a
bulkhead airbag system for commercial airliners, and two cockpit inflatable
restraint systems for military aircraft.
In 1993, management made a strategic decision to enter the commercial
aircraft seating market to bring its proprietary energy-absorbing 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 & 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 for airliners. The Company has taken advantage of the synergies
between these three entities in the manufacture of rail and mass transit seating
systems. The full strategic value of these businesses 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
1996, 1995, and 1994 may not be directly comparable.
20
<PAGE> 22
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. Note 18 of the Notes to Consolidated Financial
Statements provides a break down of revenues for each significant segment of the
Company. Note 17 of the Notes to Consolidated Financial Statements provides the
revenues and related costs associated with contract research and development for
third parties.
The Company is a holding company for wholly owned subsidiaries,
including Simula Government Products, Inc., the principal entity conducting the
Company's "Government and Defense" business, and Simula Transportation Equipment
Corporation ("SimTec" - formerly known as Intaero), an entity conducting the
Company's commercial seating businesses. Other includes general corporate
operations and subsidiaries engaged in technology development including Simula
Automotive Safety Devices, Inc. ("Simula ASD") which was established in 1995 and
conducts substantially all of the Company's operations encompassing inflatable
restraints for automobiles. Through 1996, Simula ASD has not had significant
revenue.
RESULTS OF OPERATIONS (Dollars in Thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
REVENUE:
Government and Defense.............. $32,312 $25,533 $22,034
SimTec.............................. 32,603 29,609 18,093
Other............................... 847 3,947 1,031
------- ------- -------
Total.................. $65,762 $59,089 $41,158
======= ======= =======
GROSS MARGIN:
Government and Defense.............. $ 9,253 $ 9,632 $ 8,652
SimTec.............................. 3,740 7,537 4,944
Other............................... ( 2,470) 2,883 (147)
------- ------- -------
Total.................. $10,523 $20,052 $13,449
======= ======= =======
ADMINISTRATIVE EXPENSES:
Government and Defense.............. $ 7,897 $ 6,337 $ 5,114
SimTec.............................. 10,068 6,885 2,775
Other............................... 1,784 2,387 376
------- ------- -------
Total.................. $19,749 $15,609 $ 8,265
======= ======= =======
OPERATING (LOSS) INCOME:
Government and Defense.............. $ 1,356 $ 3,295 $ 3,038
SimTec.............................. (6,328) 652 2,168
Other............................... (4,254) 496 (22)
------- ------- -------
Total.................. ($9,226) $ 4,443 $ 5,184
======= ======= =======
</TABLE>
21
<PAGE> 23
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>
Year Ended December 31,
-----------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Revenue 100% 100% 100% 100% 100%
Cost of revenue 84 66 67 63 64
Gross margin 16 34 33 37 36
Administrative expenses 30 26 20 22 23
Unusual item 4
---- ---- ---- ---- ----
Operating (loss) income (14%) 8% 13% 11% 13%
==== ===== ===== ===== =====
</TABLE>
During the second quarter of 1996, the Company adopted a new method of
accounting for pre-contract costs as more fully described in Note 2 of the Notes
to Consolidated Financial Statements. Beginning in 1996, the Company now
expenses these 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 year ended
December 31, 1996 was to increase cost of revenue by $5.3 million, resulting in
an increase in the loss before cumulative effect of a change in accounting
principle of $3.2 million ($.36 per share) net of the related income tax
benefit. In addition, net income for year ended December 31, 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 year ended December
31, 1995, cost of revenue would have increased $4.1 million to $43.2 million and
gross margins would have decreased from 34% to 27%.
1996 Compared to 1995
Revenue for the year ended December 31, 1996 increased 11% to $65.8
million from $59.1 million in 1995. Government and Defense revenue increased
27%, or $6.8 million as a result of increased contract activity principally
resulting from an armor contract completed during the second quarter of 1996 and
funded research and development. SimTec revenue increased 10%, or $3.0 million,
primarily as a result of increased deliveries of the 16g Seats. Other revenue
decreased principally as a result of a reduction of technology sales and
royalties which approximated $2 million in 1995.
Gross margin for the year ended December 31, 1996 decreased 48% to
$10.5 million from $20.1 million for 1995. As a percent of sales, gross margin
decreased to 16% from 34%. The effect of expensing pre-contract costs increased
cost of revenue $5.3 million for the year ended December 31, 1996. Excluding the
effect of expensing pre-contract costs, the gross margin percentage for 1996
would have been 24%. Gross margin percentages of Government and Defense in 1996
decreased to 29% from 38%. The decrease in gross margin percentage at Government
and Defense was primarily due to: 1) The expensing of pre-contract costs
principally related to the bulkhead airbag ("BABS") which is anticipated to
begin deliveries in 1997; 2) Funding deficiencies incurred on funded research
and development contracts which typically result in follow-on production
contracts in future years; and 3) a decrease in royalties. The gross margin
percentage at SimTec decreased to 11% from 25% in 1995. The decrease in gross
margin percentage at SimTec was primarily due to: 1) The expensing of
pre-contract costs principally related to the 16g seat, including the related
new "composite" seat back; 2) High material costs related to the low volume
production of the 16g seat; 3) Reduced throughput at Coach & Car as it was
repositioned to begin high volume manufacturing of
22
<PAGE> 24
16g seat components; and 4) Lower individual gross margin percentages from the
mix of contracts in process or completed during the year at Coach & Car and
Artcraft. The negative gross margins of the Other category was primarily due to
the expensing of pre-contract costs for the Inflatable Tubular Structure ("ITS")
and certain start-up costs related to the production facilities in Arizona and
the United Kingdom which are not anticipated to begin production until March
1997.
Administrative expenses for the year ended December 31, 1996 increased
27% to $19.7 million from $15.6 million for 1995. As a percent of sales,
administrative expenses increased to 30% from 26%. Research and development
expenses increased 35% to $1.9 million from $1.4 million 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.
Government and Defense administrative expenses increased 25% or $1.6 million
primarily as a result of increased activity and increased research and
development. SimTec's administrative expenses increased 46% or $3.2 million,
primarily as a result of the corporate and sales infrastructure necessary to
support the anticipated increase in activity related to the 16g Seat. Other
administrative expenses decreased 25% or approximately $600,000, primarily as a
result of the elimination or reduction of the supporting operations for certain
technologies.
For the year ended December 31, 1996, the Company incurred an operating
loss of $9.2 million compared to operating income of $4.4 million in 1995. The
reduction in operating income resulted primarily from the reduction in gross
margins and increased administrative expenses noted above. Excluding the effect
of expensing pre-contract costs during 1996, the operating loss would have been
$3.9 million. This loss is primarily due to the start-up costs of the ITS
manufacturing facilities in Phoenix, Arizona and the United Kingdom and 16g
Seat manufacturing facilities in San Diego, California and Chicago, Illinois,
losses arising from research and development contracts for which the Company
anticipates profitable follow-on contracts, increased research and development
and the expenses of the administrative and sales infrastructure that will be
necessary in 1997 to support manufacturing and the generation of sales of the
ITS and 16g Seat.
Interest expense for the year ended December 31, 1996 increased 17% to
$2.4 million from $2.0 million in 1995. This increase is due to increased
borrowings on the Company's bank credit facilities and the issuance of $14.3
million of Series C 10% Senior Subordinated Convertible Notes (the "10% Notes")
in a private placement to accredited investors in September 1996. These
borrowings were made to fund the growth in working capital and fixed assets
necessary to support the anticipated growth in revenues in 1997.
The effective income tax rate approximated the statutory rate of 40% in
1996. For 1995, the effective income tax rate was disproportionate at 7%
primarily due 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.
1995 Compared to 1994
Revenue for the year ended December 31, 1995 increased 44% to $59.1
million from $41.2 million in 1994. Government and Defense increased 16%, or
$3.5 million as a result of increased contract activity including increases in
funded research and development. SimTec 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 50% to
$20.1 million from $13.4 in 1994. The increase is attributable to increased
revenue noted above. As a percent of sales, gross margin increased to 34% from
33%. Gross margin percentages of Government and Defense in 1995 decreased to
23
<PAGE> 25
38% from 39%. The gross margin percentage at SimTec decreased to 25% from 27% in
1994. The decrease for SimTec resulted from $2.4 million in losses recorded on
contracts which were acquired in the acquisition of Artcraft. These losses were
substantially offset by 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 periods 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. Government and Defense administrative expenses increased 24%
or $1.2 million, primarily as a result of increased activity and increased
research and development. SimTec'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.
Operating income for the year ended December 31, 1995 decreased 14% to
$4.4 million from $5.2 million for the comparable period in 1994. Operating
income decreased primarily due to the recording of losses on the contracts at
Artcraft and increased administrative costs. These costs were substantially
offset by the increased gross margins resulting from increased revenue.
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 7% 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.
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 12% Senior Subordinated Notes (the "12% Notes) in
connection with the acquisition of Airline Interiors in August 1993; the Company
issued approximately $6.5 million of 9% Senior Subordinated Convertible Notes
(the "9% Notes") in connection with the acquisition of Coach and Car in June
1994; and the Company issued Common Stock and assumed a bank
24
<PAGE> 26
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 needs to fund the large vendor payable
balances, contract advances of Coach and Car existing at the date of
acquisition, and the increase in receivables and inventories of all 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, prior to the closing
of the Artcraft acquisition, 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 this 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.
In September 1996, the Company issued $14.3 million of the 10% Notes in
a private placement to accredited investors. The 10% Notes bear interest at 10%
payable semi-annually and are due in September 1999. At the date of issuance,
the 10% Notes were convertible into common stock of the Company at 103% of the
average closing price of the Company's common stock as quoted on the New York
Stock Exchange for the 10 consecutive trading days immediately preceding notice
by the individual holder fixing the conversion price. Based upon the conversion
prices fixed prior to December 31, 1996 and the average market price of the
Company's common stock for the 10 days ended December 31, 1996 for the 10% Notes
not yet fixed, the 10% Notes would be convertible into approximately 930,000
shares of the Company's common stock. At the date of issuance, the Company had
the right to call the 10% Notes at par plus accrued interest through the date of
redemption any time after June 15, 1997 and earlier under certain circumstances.
The Indenture relating to the 10% Notes and the Company's 12% Senior
Subordinated Notes, contains certain covenants including limitations on the
incurrence of additional indebtedness, limitation on sale of assets,
transactions with affiliates, and restricted dividend payments. In accordance
with the Indenture, the Company may incur indebtedness based upon the specified
ratio of cash flow, as defined, to interest expense. All of the Company's 1996
borrowings, including the availability under the Company's line of credit are
allowable borrowings under the terms of the Indenture. The Company was in
compliance with all covenants of the Indenture at December 31, 1996.
Subsequent to December 31, 1996, the Company undertook to obtain the
consent of the holders of the 10% Notes and the 12% Notes to amend the Indenture
to eliminate the covenants limiting the incurrence of additional indebtedness
and making certain dividend payments, to allow the Company greater flexibility
with future financings consistent with the Company's growth. Consistent with the
procedures under the Indenture, effective March 14, 1997, the Company obtained
the consent of in excess of the majority of the principal amount of such notes
and by act of the Company and the Trustee under the Indenture, the amendments
eliminating these covenants were adopted. In consideration for the consent of
the holders of the 10% Notes, the 10% Notes were amended to change the
conversion ratio from 103% to 98% or reduce the conversion price for the 10%
Notes previously fixed by $.75 per share. In addition, the Company's optional
redemption date was extended from June 15, 1997 to December 15, 1997 and certain
fees to be paid to the holders of the 10% Notes were eliminated. Based on the
revised terms of the 10% Notes and the average market price of the Company's
common stock for the 10 days ended December 31, 1996, the 10% Notes would be
convertible into approximately 975,000 shares of the Company's common stock.
In 1996, the Company entered into a modification of its existing loan
agreement with Wells Fargo Bank, N.A. This modification provided for an increase
in the existing revolving line of credit to $20 million
25
<PAGE> 27
and $1.5 million of availability for equipment purchases. The modified agreement
contains a covenant that limits the Company's ability to incur additional
indebtedness. Specifically, the modified agreement allows the Company to incur
up to $30.7 million of subordinated debt, a foreign loan facility of $5.0
million, computer equipment financing and certain refinancing indebtedness. In
addition, the modified agreement contains certain covenants that require the
maintenance of various financial ratios, including minimum tangible net worth,
as defined, of $45 million, a maximum leverage ratio, a minimum current ratio of
1.5 to 1 and a minimum debt coverage ratio. The Company was in compliance with
all covenants at December 31, 1996.
The Company's liquidity is greatly impacted by the nature of the
billing provisions under its government 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 increased $4.1 million for the
year ended December 31, 1996 principally due to the timing of billings,
increased volume at Coach and Car the reduction of advances on contracts at
Coach and Car and Artcraft.
Operating activities required the use of $15.6 million of cash during
the year ended December 31, 1996, compared to the use of $14.5 million of cash
during 1995. This resulted primarily from significant investment in research and
development expenses, pre-contract costs and plant start-up costs, including the
associated general and administrative costs, all of which have been expensed,
for products the Company will not begin to ship in substantial quantities until
1997, the working capital required for the reduction in advances on contracts
noted above and the funding of the $7.0 million investment in inventories
primarily at SimTec and Government and Defense. The increase in inventories at
SimTec primarily represents the buildup necessary to support anticipated future
deliveries of the 16g Seat. The increase in inventories at Government and
Defense represents inventory necessary to support certain programs which require
the buildup of components necessary to support rapid deliveries of various
configurations of seats. In addition, both SimTec and Government and Defense
have purchased inventory in larger quantities to reduce per unit costs.
Investing activities required the use of $9.3 million of cash during
the year ended December 31, 1996 primarily for the purchase of equipment for the
Company's new ITS manufacturing facilities in Phoenix, Arizona and the United
Kingdom, manufacturing equipment for the 16g seat and computer and test
equipment at Government and Defense. For 1995, cash used by investing activities
was $3.4 million and was expended primarily for the acquisition of property and
equipment.
Financing activities provided $23 million of cash during the year ended
December 31, 1996, of which $6.9 million resulted from borrowings on the
revolving credit facility primarily for working capital needs and $3.2 million
resulted from borrowings on the equipment credit facility for the financing of
fixed assets. In addition, the Company issued the 10% Notes in September 1996.
Cash provided by financing activities for 1995 was $20.1 million and primarily
resulted from the sale of the Company's stock for $26.4 million offset by the
net reduction of borrowings of $6.3 million.
Included in current portion of long-term debt is a mortgage of $2.6
million on one of the Company's facilities that is due in March 1998. The
Company is currently pursuing various alternatives for this property and
believes it will be able to repay or refinance the mortgage on a long term basis
prior to its maturity.
The Company believes it has sufficient manufacturing capacity, at
December 31, 1996, to meet its estimated 1997 delivery requirements. The Company
anticipates cash provided by operating activities and the availability under its
bank credit facilities will be sufficient to meet its current working capital
requirements. However, to fund purchases of property and equipment and future
working capital
26
<PAGE> 28
requirements necessary to address the anticipated growth of demand and markets
for its new technologies and products, the Company will look to obtain
additional capital. The modification to the Indenture noted above will allow the
Company more flexibility in pursuing financing alternatives. The raising of
additional capital in public markets will be primarily dependent upon prevailing
market conditions and the demand for the Company's technologies and products. In
relation to this, the Company filed a registration statement on October 4, 1996
for 1,200,000 shares of Convertible Preferred Stock. The terms, conditions,
preferences and pricing of the Convertible Preferred Stock will depend on market
conditions and have not been set. This filing was made to enable the Company to
more efficiently and timely pursue public capital sources should the market
become favorable. The proceeds to be raised will be used 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 inflatable restraint systems, working capital requirements attendant
to growth in markets and revenues and other general corporate purposes,
including potential future acquisitions. In the event the Company does not
complete the Preferred Stock offering, and it has capital requirements, the
Company may look to bank lines of credit, equipment financing arrangements, and
private offerings of debt or equity securities.
INFLATION
The Company does not believe that it is significantly impacted by
inflation.
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. The Company anticipates that future
fluctuations may also occur and that absent government funded research, the
Company will directly fund research and development efforts to expand its
inflatable restraint, commercial airliner seating, and rail seating
technologies. As noted in Note 17 to the Consolidated Financial Statements, the
Company's costs for research and development to advance its technologies were
$10.5 million in 1996.
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, for those
contracts accounted for under the percentage of completion method, the Company
has historically recorded its highest revenue in the fourth quarter and lower
revenue in the first quarter.
27
<PAGE> 29
FORWARD LOOKING INFORMATION AND RISKS OF THE BUSINESS
The Company expects that during fiscal 1997, it will complete roll-out
and enter large scale production of new products, including, ITS, CABS, BABS,
IBAHRS, and 16g airliner seats. The Company expects that in late 1997 and in
1998, it will begin to realize significant revenues from the introduction of
these products. The other core businesses of the Company are expected to remain
at current revenue and profit levels.
Projected operating results and capital needs will be affected by a
wide variety of factors which could adversely impact revenues, profitability and
cash flows, many of which are beyond the control of the Company. The factors
include the Company's ability to design and introduce new products on a timely
basis; market acceptance and demand of both the Company's and its customers'
products; success in building strategic alliances with large prime contractors
and first tier suppliers; the level of orders which are received and can be
shipped and invoiced in a quarter; customer order patterns and seasonality;
levels of accounts receivable; changes in product mix; product performance and
reliability; product obsolescence; availability and utilization of manufacturing
capacity; fluctuations in manufacturing yield; the availability and cost of raw
materials, equipment, and other supplies; the cyclical nature of the airline,
rail and automobile industries and other markets addressed by the Company's
products; the level and makeup of military expenditures; technological changes;
competition and competitive pressures on pricing; and economic conditions in the
United States and worldwide markets served by the Company. The Company's
products are incorporated into a variety of transportation vehicles. A slowdown
in demand for new transportation vehicles or modifications services to
transportation vehicles as a result of economic or other conditions in the
United States or worldwide markets served by the Company and its customers or
other broad-based factors could adversely affect the Company's operating results
or financial condition.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data are set forth in this
report on Form 10-K commencing on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
28
<PAGE> 30
PART III
In accordance with Instruction G(3) to Form 10-K, Items 10, 11, 12 and
13 of Form 10-K are incorporated herein by reference from the Company's
definitive proxy statement to be filed pursuant to Regulation 14A under the
Securities Exchange Act of 1934.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K
a. Financial Statements. Financial Statements appear beginning at
page F-1.
b. Reports on Form 8-K. None.
c. Exhibits. The following Exhibits are included pursuant to Item 601
of Regulation S-K.
<TABLE>
<CAPTION>
NO. DESCRIPTION REFERENCE
--- ----------- ---------
<S> <C> <C>
3.1 Articles of Incorporation of Simula, Inc., as amended and restated.......................... (11)
3.2 Bylaws of Simula, Inc., as amended and restated............................................. (1)
4.1 Specimen of Common Stock Certificate........................................................ (11)
4.2 Indenture dated December 17, 1993 (including cross-reference sheet to Trust
Indenture Act), as amended.................................................................. (3)
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....................................................... (11)
*4.6 Form of Supplemental Indenture No. 3, effective March 14, 1997, amending the
Indenture of Simula, Inc. dated December 17, 1993
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...................................................................... (2)
10.16 Asset Purchase Agreement dated June 14, 1994, among Simula, Inc., CCEC
Acquisition Corp. and Coach and Car Equipment Corporation................................... (4)
10.18 Asset Purchase Agreement dated September 30, 1994, among Simula, Inc.,
Artcraft Acquisition Corp., and Artcraft Industries Corp.................................... (5)
10.21 1994 Stock Option Plan...................................................................... (6)
10.22 Agreements dated January 27, 1995 with Autoliv AB, including license
agreement, frame supply agreement and joint development agreement........................... (7)
10.23 Agreement with Jetstream Aircraft Limited................................................... (7)
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............................................. (8)
10.26 Simula, Inc. Employee Stock Purchase Plan................................................... (9)
10.27 Promissory Note representing $650,000 loan from Stanley P. Desjardins dated
August 12, 1996............................................................................. (11)
10.28 Promissory Note representing $1,000,000 loan from Stanley P. Desjardins
dated August 14, 1996....................................................................... (11)
</TABLE>
29
<PAGE> 31
<TABLE>
<CAPTION>
<S> <C> <C>
*10.29 Form of Change of Control Agreements Between the Company and Key Management Personnel
*11. Earnings Per Share
18. Preference Letter re: change in accounting principles....................................... (10)
*21. Subsidiaries of Registrant.................................................................. (11)
*23. Consent of Independent Auditors
*24. Powers of Attorney - Directors
25. Statement of Eligibility of Trustee on Form T-1 (without Indenture)
(bound separately).......................................................................... (3)
</TABLE>
- ----------
* Filed herewith.
(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 current Report on Form 8-K, dated August 2, 1993.
(3) Filed with Registration Statement on Form SB-2, No. 33-61028 under the
Securities Act of 1933, effective December 10, 1993.
(4) Filed with current Report on Form 8-K, dated June 14, 1994.
(5) Filed with current Report on Form 8-K, dated September 30, 1994.
(6) Filed with Registration Statement on Form SB-2, No. 33-87582, under
the Securities Act of 1933, effective December 28, 1994.
(7) 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.
(8) Filed with Report on Form 10-K for the year ended December 31, 1995.
(9) Filed with Report on Form 10-Q for the quarter ended March 31, 1996.
(10) Filed with Report on Form 10-Q/A for the quarter ended June 30, 1996.
(11) Filed with Registration Statement on Form S-3, No. 333-13499, under
the Securities Act of 1933, dated October 4, 1996.
30
<PAGE> 32
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) the Securities
Exchange Act of 1934, as amended, the registrant has duly caused this Report on
Form 10-K to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of Phoenix, State of Arizona, on March 27, 1997.
SIMULA, INC.
By /s/ Donald W. Townsend
-------------------------------------
Donald W. Townsend, President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Form 10-K has been signed by the following persons in the capacities and on
the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Donald W. Townsend President and Director March 27, 1997
- ------------------------------------------ (Principal Executive Officer)
Donald W. Townsend
/s/ Sean K. Nolen Vice President, Chief Financial March 27, 1997
- ------------------------------------------ Officer, Treasurer and Director
Sean K. Nolen (Principal
Financial and Accounting Officer)
/s/ Bradley P. Forst Vice President, General Counsel, March 27, 1997
- ------------------------------------------ Secretary and Director
Bradley P. Forst
* Chairman of the Board of Directors March 27, 1997
- ------------------------------------------
Stanley P. Desjardins
* Director March 27, 1997
- ------------------------------------------
James C. Withers
* Director March 27, 1997
- ------------------------------------------
Robert D. Olliver
* Director March 27, 1997
- ------------------------------------------
Scott E. Miller
*By: /s/ Bradley P. Forst
----------------------------------------
Bradley P. Forst,
Attorney-in-Fact
</TABLE>
<PAGE> 33
SIMULA, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
Independent Auditors' Report ....................................................................... 1
Consolidated Balance Sheets as of December 31, 1995 and 1996 ....................................... 2
Consolidated Statements of Operations for the three years ended December 31, 1996 .................. 3
Consolidated Statements of Shareholders' Equity for the three years ended December 31, 1996 ........ 4
Consolidated Statements of Cash Flows for the three years ended December 31, 1996 .................. 5-6
Notes to Consolidated Financial Statements.......................................................... 7-24
</TABLE>
<PAGE> 34
SIMULA, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994, AND
INDEPENDENT AUDITORS' REPORT
<PAGE> 35
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, 1996 and 1995, and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the three years in the period ended December 31, 1996. 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, 1996 and 1995, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1996 in
conformity with generally accepted accounting principles.
Deloitte & Touche LLP
March 20, 1997
Phoenix, Arizona
<PAGE> 36
<TABLE>
<CAPTION>
SIMULA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
- ----------------------------------------------------------------------------------------------
ASSETS 1996 1995
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,298,741 $ 3,175,172
Contract and trade receivables - Net (Notes 4 and 16) 25,164,350 24,814,754
Inventories (Note 5) 15,644,157 8,104,194
Income taxes receivable (Note 10) 1,089,564
Deferred income taxes (Note 10) 3,763,000
Prepaid expenses and other 1,050,215 762,836
------------ -----------
Total current assets 48,010,027 36,856,956
PROPERTY, EQUIPMENT AND LEASEHOLD
IMPROVEMENTS - Net (Notes 6 and 9) 23,356,025 15,778,819
DEFERRED INCOME TAXES (Note 10) 1,782,000 812,000
DEFERRED COSTS (Notes 2 and 7) 928,728 6,385,328
INTANGIBLES - Net (Notes 3 and 7) 10,964,139 11,455,005
OTHER ASSETS 1,647,537 1,848,028
------------ -----------
TOTAL $ 86,688,456 $73,136,136
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Revolving line of credit (Note 8) $ 6,900,000
Trade accounts payable 9,200,214 $ 7,884,141
Other accrued liabilities 4,019,534 2,607,849
Advances on contracts 148,194 3,920,533
Deferred income taxes (Note 10) 8,000
Current portion of long-term debt (Note 9) 4,536,508 1,367,187
------------ -----------
Total current liabilities 24,804,450 15,787,710
LONG-TERM DEBT - Less current portion (Notes 9 and 14) 24,696,509 11,261,365
------------ -----------
Total liabilities 49,500,959 27,049,075
COMMITMENTS AND CONTINGENCIES (Note 14)
SHAREHOLDERS' EQUITY (Notes 11 and 15)
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, 8,992,598 and 8,970,627 shares 89,926 89,706
Additional paid-in capital 39,031,453 37,981,759
Retained (deficit) earnings (1,966,296) 8,295,434
Currency translation adjustment 32,414
Treasury stock - at cost, 82,500 shares (279,838)
------------ -----------
Total shareholders' equity 37,187,497 46,087,061
------------ -----------
TOTAL $ 86,688,456 $73,136,136
============ ===========
</TABLE>
See notes to consolidated financial statements.
-2-
<PAGE> 37
<TABLE>
<CAPTION>
SIMULA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE YEARS ENDED DECEMBER 31, 1996
- -----------------------------------------------------------------------------------------------
1996 1995 1994
<S> <C> <C> <C>
Revenue (Notes 3, 16 and 18) $ 65,761,957 $ 59,088,613 $ 41,157,794
Cost of revenue 55,239,176 39,036,471 27,708,610
------------ ------------ ------------
Gross margin 10,522,781 20,052,142 13,449,184
Administrative expenses (Note 17) 19,748,851 15,609,005 8,264,864
------------ ------------ ------------
Operating (loss) income (9,226,070) 4,443,137 5,184,320
Interest expense (Notes 8 and 9) (2,376,607) (2,029,854) (1,831,505)
Interest income 51,711 440,076 21,608
------------ ------------ ------------
(Loss) income before taxes (11,550,966) 2,853,359 3,374,423
Income tax benefit (expense) (Note 10) 4,741,000 (196,000) (1,260,000)
------------ ------------ ------------
(Loss) earnings before cumulative effect
of a change in accounting principle (6,809,966) 2,657,359 2,114,423
Cumulative effect on prior years (to
December 31, 1995) of changing accounting
for pre-contract costs - Net of the
related income tax benefit of
$2,160,000 (Note 2) (3,239,948)
------------ ------------ ------------
Net (loss) earnings $(10,049,914) $ 2,657,359 $ 2,114,423
============ ============ ============
Per share amounts:
(Loss) earnings before cumulative effect
of a change in accounting principle $ (0.76) $ 0.31 $ 0.37
Cumulative effect on prior years (to
December 31, 1995) of changing
accounting for pre-contract
costs (Note 2) (0.36)
------------ ------------ ------------
Net (loss) earnings $ (1.12) $ 0.31 $ 0.37
============ ============ ============
Weighted Average shares outstanding 8,947,060 8,576,817 5,704,926
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
- 3 -
<PAGE> 38
<TABLE>
<CAPTION>
SIMULA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
THREE YEARS ENDED DECEMBER 31, 1996
- ----------------------------------------------------------------------------------------------------------------------------
CLASS A
COMMON STOCK ADDITIONAL RETAINED CURRENCY
-------------------- PAID-IN (DEFICIT) TRANSLATION
SHARES AMOUNT CAPITAL EARNINGS ADJUSTMENT
<S> <C> <C> <C> <C> <C>
BALANCE, January 1, 1994 5,073,440 $50,735 $4,100,086 $4,207,178
Net earnings 2,114,423
Conversion of Series B 9%
Senior Subordinated
Convertible Notes 967,236 9,672 5,721,578
Issuance of common shares
for warrants and options 158,525 1,585 610,361
Issuance of common shares in connection with:
Acquisition of SOUTHtech 178,582 1,786 44,388 (683,526)
Acquisition of Artcraft 67,228 672 464,328
Acquisition of Sedona
Scientific, Inc. 23,834 238 285,762
--------- ------- ----------- ----------- -------
BALANCE, December 31, 1994 6,468,845 64,688 11,226,503 5,638,075
Net earnings 2,657,359
Secondary offering of
common shares 2,328,750 23,288 25,544,534
Issuance of common shares
for warrants and options 173,032 1,730 847,256
Tax benefit from exercise
of stock options 363,466
--------- ------- ----------- ----------- -------
BALANCE, December 31, 1995 8,970,627 89,706 37,981,759 8,295,434
Net loss (10,049,914)
Issuance of common shares
for options 104,471 1,045 953,891
Tax benefit from exercise
of stock options 163,000
Currency translation adjustment 32,414
Retirement of treasury stock (82,500) (825) (67,197) (211,816)
--------- ------- ----------- ----------- -------
BALANCE, December 31, 1996 8,992,598 $89,926 $39,031,453 $(1,966,296) $32,414
========= ======= =========== =========== =======
<CAPTION>
TOTAL
TREASURY SHAREHOLDERS'
STOCK EQUITY
<S> <C> <C>
BALANCE, January 1, 1994 $(279,838) $8,078,161
Net earnings 2,114,423
Conversion of Series B 9%
Senior Subordinated
Convertible Notes 5,731,250
Issuance of common shares
for warrants and options 611,946
Issuance of common shares in connection with:
Acquisition of SOUTHtech (637,352)
Acquisition of Artcraft 465,000
Acquisition of Sedona
Scientific, Inc. 286,000
-------- -----------
BALANCE, December 31, 1994 (279,838) 16,649,428
Net earnings 2,657,359
Secondary offering of
common shares 25,567,822
Issuance of common shares
for warrants and options 848,986
Tax benefit from exercise
of stock options 363,466
-------- -----------
BALANCE, December 31, 1995 (279,838) 46,087,061
Net loss (10,049,914)
Issuance of common shares
for options 954,936
Tax benefit from exercise
of stock options 163,000
Currency translation adjustment 32,414
Retirement of treasury stock 279,838
-------- -----------
BALANCE, December 31, 1996 $ $37,187,497
======== ===========
</TABLE>
See notes to consolidated financial statements.
- 4 -
<PAGE> 39
<TABLE>
<CAPTION>
SIMULA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE YEARS ENDED DECEMBER 31, 1996
- -------------------------------------------------------------------------------------------------------------
1996 1995 1994
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net (loss) earnings $(10,049,914) $ 2,657,359 $ 2,114,423
Adjustments to reconcile net (loss) earnings to net
cash used by operating activities:
Depreciation and amortization 3,278,433 3,064,833 1,651,118
Deferred income taxes (4,578,000) (1,126,000) 256,000
Currency translation adjustment 32,414
Cumulative effect of change in accounting 5,399,948
Changes in net assets and liabilities - net of effects
from acquisitions:
Contract and trade receivables, net of advances (4,121,935) (12,859,956) (1,358,328)
Inventories (7,042,562) (1,372,151) (2,681,370)
Income taxes receivable (1,089,564)
Prepaid expenses and other (287,379) (363,817) 94,635
Deferred costs (5,572,295) (1,083,476)
Other assets 168,598 (1,089,933) 40,035
Trade accounts payable 1,316,073 1,769,254 (146,991)
Other accrued liabilities 1,411,685 378,526 (1,538,783)
------------ ------------ ------------
Net cash used by operating activities (15,562,203) (14,514,180) (2,652,737)
------------ ------------ ------------
INVESTING ACTIVITIES:
Purchase of property and equipment (8,770,586) (3,843,133) (1,256,852)
Proceeds from sale of property and equipment 743,671
Costs incurred to obtain intangibles (522,909) (342,528) (271,212)
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)
------------ ------------ ------------
Net cash used in investing activities (9,293,495) (3,441,990) (7,607,600)
------------ ------------ ------------
FINANCING ACTIVITIES:
Net borrowings (repayments) under short-term debt
and line of credit agreement 6,900,000 (3,050,000) 2,000,000
Borrowings under other debt arrangements 3,153,296 4,407,628 10,799,940
Principal payments under other debt arrangements (1,685,465) (7,694,271) (3,611,047)
Issuance of Series C Notes - net of expenses 13,656,500
Issuance of common shares - net of expenses 954,936 26,416,808 611,946
------------ ------------ ------------
Net cash provided by financing activities 22,979,267 20,080,165 9,800,839
------------ ------------ ------------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (1,876,431) 2,123,995 (459,498)
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 3,175,172 1,051,177 1,510,675
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 1,298,741 $ 3,175,172 $ 1,051,177
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
- 5 -
<PAGE> 40
<TABLE>
<CAPTION>
SIMULA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE YEARS ENDED DECEMBER 31, 1996
- -----------------------------------------------------------------------------------------------------------------------
1996 1995 1994
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Interest paid $ 1,657,995 $1,691,712 $ 1,515,844
============ ========== ==-========
Taxes paid $ 352,575 $1,365,826 $ 441,700
============ ========== ===========
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Property and equipment acquired under capital leases $ 836,634 $ 924,324
============ ==========
Tax benefits from exercise of stock options $ 163,000 $ 363,466
============ ==========
Purchase accounting adjustments related to the
acquisitions of Coach & Car:
Additional liabilities offset against
seller note payable $1,438,000
==========
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
===========
Aircraft 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
===========
</TABLE>
See notes to consolidated financial statements.
- 6 -
<PAGE> 41
SIMULA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1996
- --------------------------------------------------------------------------------
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, work-in-process and finished goods
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.
- 7 -
<PAGE> 42
e) 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.
Impairment losses, if any, will be recorded as a component of operating
earnings. Intangibles are amortized on a straight-line basis over the
following periods:
<TABLE>
<CAPTION>
<S> <C>
Goodwill 10 - 25 years
Covenants not to compete 10 years
Other 7 - 17 years
</TABLE>
f) Net (loss) earnings 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.
Weighted average shares used to compute per share amounts for the year
ended December 31, 1996 do not include common stock equivalents because
their effect would be anti-dilutive. In addition, fully diluted
earnings per share reflecting the effect of the convertible notes
discussed in Note 9 is not presented because the effect would also be
anti-dilutive.
g) Foreign currency assets and liabilities are translated into United
States dollars using the exchange rates in effect at the balance sheet
date. The effects of exchange rate fluctuations on translation of
assets and liabilities are reported as a separate component of equity.
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 an original maturity of three months or less.
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
year ended December 31, 1996. The effect of the change on the year ended
December 31, 1996 was to decrease earnings before cumulative effect of a
change in accounting principle $3.2 million ($.36 per share) and net
earnings by $6.4 million ($.72 per share).
- 8 -
<PAGE> 43
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 $ 0.08
Effect of change in accounting for pre-contract costs (0.07)
-----------
Income before cumulative effect of a change in accounting
principle 0.01
Cumulative effect on prior years (to December 31, 1995)
of changing accounting for pre-contract costs (0.36)
-----------
Net loss as restated $ (0.35)
===========
</TABLE>
The pro forma amounts reflect the effect of retroactive application on
pre-contract costs, net of amortization, and the related income tax
benefits.
Pro forma amounts for the years ended December 31, 1995 and 1994 assuming
the change in accounting had been applied retroactively are as follows.
Actual net earnings per share amounts are presented for comparative
purposes.
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Pro forma:
Net earnings $193,735 $1,675,722
Net earnings per share $ 0.02 $ 0.29
Actual:
Net earnings per share $ 0.31 $ 0.37
</TABLE>
3. ACQUISITIONS
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 seller carryback 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
- 9 -
<PAGE> 44
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.
Consideration for this transaction consisted of the following:
<TABLE>
<CAPTION>
<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>
<CAPTION>
<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 were recorded at the basis of his investment in SOUTHtech and the
shares issued to minority shareholders were recorded at fair value. The
excess of the Chairman's basis over his proportionate share of SOUTHtech's
net assets of $683,526 was 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>
<CAPTION>
<S> <C>
Assets acquired $ 378,014
Liabilities assumed (1,010,760)
-----------
Net liabilities assumed $ (632,746)
===========
</TABLE>
Consideration was recorded as follows:
<TABLE>
<CAPTION>
<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>
- 10 -
<PAGE> 45
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 government and defense applications,
and certain key employees. In connection with this transaction, the Company
reported $1,977,000 of technology sales and royalty revenue in 1995.
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>
<CAPTION>
<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>
<CAPTION>
<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 acquisition of Coach &
Car. As a result, the Company adjusted the original purchase allocation of
this acquisition resulting in a net increase in accrued liabilities and
advances on contracts and a decrease in debt owed to seller of $1,438,000.
The Coach & Car Asset Purchase Agreement ("Agreement") specifically provided
to the Company the right to offset against the purchase price any losses
resulting from the failure of seller to specifically disclose a liability.
The Company has asserted an offset for an undisclosed indemnifiable
liability of $2.4 million. The Company has continued to make the required
payments pursuant to the terms of the seller carryback note payable into an
escrow account. As of December 31, 1996, the payments made into this escrow
account were $866,000. This amount is included in other assets because the
Company believes that the possibility is remote that the seller will
overturn the offset and believes that it is probable the funds will be
returned to the Company. The Agreement provides for arbitration to settle
disputes. During the fourth quarter of 1996, the seller completed the formal
procedures to dispute the Company's offset and seek arbitration, however,
the steps necessary to invoke arbitration proceedings have not been taken.
- 11-
<PAGE> 46
The following summarizes unaudited pro forma operating results for the
Company for the year ended December 31, 1994, assuming the acquisitions had
occurred on January 1, 1994.
<TABLE>
<CAPTION>
1994
<S> <C>
Revenues $55,512,000
===========
Net earnings $ 2,362,000
===========
Net earnings per share $ .37
===========
</TABLE>
4. RECEIVABLES
At December 31, receivables include the following:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
United States Government:
Billed receivables $ 1,627,288 $ 2,926,891
Costs and estimated earnings in excess of billings 3,448,055 4,541,878
----------- -----------
Total United States Government 5,075,343 7,468,769
----------- -----------
Other contracts:
Billed receivables 5,405,940 2,942,647
Costs and estimated earnings in excess of billings 11,732,859 10,244,769
----------- -----------
Total other contracts 17,138,799 13,187,416
Other trade receivable 3,113,208 4,301,569
Less allowance for doubtful accounts (163,000) (143,000)
----------- -----------
Contract and trade receivables - net $25,164,350 $24,814,754
=========== ===========
</TABLE>
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.
5. INVENTORIES
At December 31, inventories consisted of the following:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Raw materials $ 4,959,810 $3,319,958
Work-in-process 9,822,859 4,711,256
Finished goods 861,488 72,980
----------- ----------
Total inventories $15,644,157 $8,104,194
=========== ==========
</TABLE>
-12 -
<PAGE> 47
6. PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
At December 31, property, equipment and leasehold improvements consisted of
the following:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Land $ 3,022,819 $ 3,022,819
Buildings and leasehold improvements 5,533,291 4,467,697
Equipment 21,934,491 13,408,041
------------ ------------
Total 30,490,601 20,898,557
Less accumulated depreciation (7,134,576) (5,119,738)
------------ ------------
Property, equipment and leasehold improvements - net $ 23,356,025 $ 15,778,819
============ ============
</TABLE>
7. INTANGIBLES AND DEFERRED COSTS
At December 31, intangibles consisted of the following:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Covenants not to compete $ 4,989,356 $ 4,989,356
Excess of cost over net assets acquired 7,125,110 7,125,110
Patents and licenses 661,696 518,644
Other 783,963 435,163
------------ ------------
Total 13,560,125 13,068,273
Less accumulated amortization (2,595,986) (1,613,268)
------------ ------------
Intangibles - net $ 10,964,139 $ 11,455,005
============ ============
</TABLE>
At December 31, deferred costs included the following:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Deferred financing costs - net $ 928,728 $ 487,980
Deferred product and bid costs 5,897,348
---------- ----------
Total deferred costs $ 928,728 $6,385,328
========== ==========
</TABLE>
8. REVOLVING LINE OF CREDIT
The Company has a $20,000,000 unsecured Revolving Line of Credit with a
bank, interest at LIBOR plus 2% or prime. There was $6,900,000 outstanding
on this line of credit as of December 31, 1996. The loan agreement
encompassing this line of credit and the $5,000,000 amortizing term loan
(Note 9) contains certain covenants that require the maintenance of a
minimum tangible net worth and certain defined financial ratios. The Company
was in compliance with all of the covenants of this loan agreement at
December 31, 1996.
- 13 -
<PAGE> 48
9. DEBT
Long-term debt at December 31 consisted of the following:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
10% Senior Subordinated Convertible Notes $ 14,300,000
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 $6,172,885,
due through 2017 2,918,243 2,990,329
Various loans payable, secured by property and equipment 4,951,898 3,020,703
Obligations under capital leases, interest at 10% (Note 13) 1,362,876 917,520
------------ ------------
Total 29,233,017 12,628,552
Less current portion (4,536,508) (1,367,187)
------------ ------------
Long-term debt $ 24,696,509 $ 11,261,365
============ ============
</TABLE>
In September 1996, the Company issued $14.3 million of Series C 10% Senior
Subordinated Convertible Notes (the "10% Notes") in a private placement to
accredited investors. The 10% Notes bear interest at 10% payable
semi-annually and are due in September 1999. The notes are convertible into
common stock of the Company at 103% of the average closing price of the
Company's common stock as quoted on the New York Stock Exchange for the 10
consecutive trading days immediately preceding notice by the individual
holder fixing the conversion price. Based upon the conversion prices fixed
prior to December 31, 1996 and the average market price of the Company's
common stock for the 10 days ended December 31, 1996 for the 10% Notes not
yet fixed, the 10% Notes would be convertible into approximately 930,000
shares of the Company's common stock. The Company has the right to call the
10% Notes at par plus accrued interest through the date of redemption any
time after June 15, 1997 and earlier under certain circumstances.
In December 1993, the Company issued $5.7 million 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 10% Notes and the 12% Notes contains certain
covenants including limitations on incurrence of additional indebtedness,
limitation on sale of assets, transactions with affiliates and payment of
dividends. In accordance with the Indenture, the Company may incur
indebtedness based upon the specified ratio of cash flow, as defined, to
interest expense. The Company was in compliance with all of the covenants of
the Indenture at December 31, 1996.
- 14 -
<PAGE> 49
Subsequent to December 31, 1996, the Indenture was amended to eliminate the
covenants limiting additional indebtedness and restricted dividend payments.
In consideration for the consent of the holders of the 10% Notes, the 10%
Notes were amended to change the conversion ratio from 103% to 98% or reduce
the conversion price for the 10% Notes previously fixed by $.75 per share.
In addition, the Company's optional redemption date was extended from June
15, 1997 to December 15, 1997 and certain fees to be paid to the holders of
the 10% Notes were eliminated. Based on the revised terms of the 10% Notes
and the average market price for the Company's common stock for the 10 days
ended December 31, 1996, the 10% Notes would be convertible into
approximately 975,000 shares of the Company's common stock.
The Company has a $5,000,000 amortizing term loan under the same loan
agreement encompassing the revolving line of credit (Note 8) for the
financing of U.S. based equipment with an outstanding balance at December
31, 1996 of $3,682,479. Interest is payable at the LIBOR rate in effect at
the time of the drawdown plus 2%. The average interest rate on the
outstanding balance at December 31, 1996 is 7.8%.
The aggregate principal payments required for the five years subsequent to
December 31, 1996 are:
<TABLE>
<CAPTION>
<S> <C>
1997 $ 4,536,508
1998 7,368,178
1999 15,506,173
2000 804,617
2001 766,973
Thereafter 250,568
-----------
Total $29,233,017
===========
</TABLE>
Interest expense for the years ended December 31 is comprised of the
following:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Interest $2,141,963 $1,679,086 $1,651,881
Amortization of deferred financing costs 234,644 350,768 179,624
---------- ---------- ----------
Interest expense $2,376,607 $2,029,854 $1,831,505
========== ========== ==========
</TABLE>
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, 1996 is approximately $29,500,000.
10. INCOME TAXES
The income tax (benefit) provision for the years ended December 31 are as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Current $(2,160,000) $ 1,322,000 $1,004,000
Deferred (4,741,000) (1,126,000) 256,000
----------- ----------- ----------
(Benefit) provision for income taxes $(6,901,000) $ 196,000 $1,260,000
=========== =========== ==========
</TABLE>
- 15 -
<PAGE> 50
The Company's effective income tax rate differs from the federal statutory
tax rate at December 31 as follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Federal statutory income tax rate 34.0% 34.0% 34.0%
State income taxes 5.3 6.0 4.6
Tax credits and other 1.4 0.7 (1.2)
Utilization of tax losses 0 (33.8) 0
---- ---- ----
Effective rate 40.7% 6.9% 37.4%
==== ==== ====
</TABLE>
The provision for deferred income taxes consists of the following:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Accruals and reserves $(1,157,000) $ (946,000) $216,000
Depreciation and amortization expense 560,000 268,000 40,000
Net operating loss carryforwards (3,867,000)
Minimum tax credit carryforwards (277,000)
Change in valuation allowance for tax loss
carryforwards (448,000)
----------- ----------- --------
Total $(4,741,000) $(1,126,000) $256,000
=========== =========== ========
</TABLE>
The significant tax effected temporary differences comprising deferred taxes
at December 31 are as follows:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Current:
Net operating loss carryforwards $ 2,970,000
Accrued vacation and self insurance 324,000 $ 177,000
Inventory and warranty reserves 334,000
Other 135,000 (185,000)
----------- ---------
Total current deferred tax asset (liability) 3,763,000 (8,000)
----------- ---------
Long-term:
Excess of tax over book depreciation and amortization (906,000) (346,000)
Recognition of contract revenue 970,000 804,000
Net operating loss carryforwards 1,345,000 448,000
Minimum tax credit carryforward 287,000
Deferred start-up costs 352,000
Other (266,000) (94,000)
----------- ---------
Total long-term deferred tax asset 1,782,000 812,000
----------- ---------
Net deferred tax asset $ 5,545,000 $ 804,000
=========== =========
</TABLE>
- 16 -
<PAGE> 51
The valuation allowances associated with tax loss carryforwards as of
December 31 are as follows:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Tax asset for loss carryforward $ 4,536,000 $ 669,000
Valuation allowance (221,000) (221,000)
----------- ---------
Net deferred tax asset $ 4,315,000 $ 448,000
=========== =========
</TABLE>
At December 31, 1996, the Company had approximately $10,600,000 of net
operating loss carryforwards including $1,500,000 of net operating loss
carryforwards of an acquired subsidiary which expires through 2008.
The Company believes based on historical operating results and expectations
for the future that taxable income will more likely than not be sufficient
to utilize all of its recorded net operating loss carryforwards prior to
their expiration. The amount of the deferred tax asset considered
realizeable, however, could be reduced in the near term if estimates of
future taxable income during the carryforward period are reduced.
The income tax receivable at December 31, 1996 represents estimated refunds
of income taxes paid in 1992 through 1995. The Company is in the process of
amending prior tax returns for the change in accounting (Note 2) and
preparing applications for net operating loss carrybacks.
11. SHAREHOLDERS' EQUITY
During 1996, the Company retired 82,500 shares of treasury stock which had
been acquired for a cost of $279,838.
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.
12. 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 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>
1996 1995 1994
<S> <C> <C> <C>
Service cost - benefit earned during the year $ 235,167 $ 169,835 $ 205,195
Interest cost on projected benefit obligation 147,852 116,660 113,496
Actual return on Plan assets (262,676) (257,497) (70,053)
Net amortization and deferral 159,328 172,970 15,907
--------- --------- ---------
Net periodic pension cost $ 279,671 $ 201,968 $ 264,545
========= ========= =========
</TABLE>
- 17 -
<PAGE> 52
The Plan's funded status and amounts recognized in the Company's balance
sheet at December 31 are as follows:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Actuarial present value of benefit obligation:
Vested benefits $ 1,503,283 $ 1,310,868
Nonvested benefits 243,064 237,163
----------- -----------
Accumulated benefit obligation 1,746,347 1,548,031
Effect of projected future compensation increases 453,626 364,997
----------- -----------
Projected benefit obligation 2,199,973 1,913,028
Plan assets at fair value 1,729,919 1,375,252
----------- -----------
Plan assets less than projected benefit obligation 470,054 537,776
Unrecognized prior service cost 19,811 24,383
Unrecognized loss (185,107) (293,362)
Unrecognized transition liability 90,442 96,094
----------- -----------
Accrued pension cost $ 395,200 $ 364,891
=========== ===========
</TABLE>
Assumptions at December 31 used in the accounting for the Plan were as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Discount or settlement rate 7.50% 7.25% 8.25%
Rate of increase in compensation levels 3.50% 3.50% 4.00%
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.
13. 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 $1,650,000 in 1996 that was repaid by
the Company in 1996 and $2,000,000 in 1994 which was repaid by the
Company in 1995.
14. 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 $2,274,565 and $1,042,604 (net of
accumulated depreciation of $681,283 and $248,683) are included in property
and equipment as of December 31, 1996 and 1995, respectively.
- 18 -
<PAGE> 53
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
<C> <C> <C>
1997 $ 633,610 $1,933,506
1998 551,616 1,329,296
1999 362,399 1,287,976
2000 31,947 1,075,645
2001 2,340 862,872
Thereafter 2,786,158
--------- ---------
Total minimum lease payments 1,581,912 $9,275,453
==========
Less amounts representing interest (219,036)
---------
Present value of net minimum lease payments $1,362,876
==========
</TABLE>
Rent expense was $1,966,271, $1,109,402, and $578,079 for the years ended
December 31, 1996, 1995 and 1994, respectively.
In connection with its decision to establish a facility in the United
Kingdom for the production of inflatable restraints for automobiles, the
Company negotiated certain grants with local and national authorities in the
United Kingdom. The total grant of approximately $3 million is anticipated
to be received through January 1999 as certain levels of capital
expenditures and the creation of jobs are met. These grants will be
recognized as income in accordance with the purpose of the grants in the
periods in which such grants are received.
15. 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 August 1994, the Company adopted
the 1994 Stock Option Plan which reserves up to 1,545,000 shares of common
stock for issuance under the Plan. In accordance with the terms of the 1994
Plan, 876,250 options have been granted. Information with respect to the
Plans is as follows:
<TABLE>
<CAPTION>
OPTION WEIGHTED AVERAGE
SHARES OPTION PRICE
------ ------------
<S> <C> <C>
Outstanding at January 1, 1994 245,250 $3.25
Granted 161,250 $7.70
Exercised (24,075) $3.25
Canceled (1,500) $3.25
---------
Outstanding at December 31, 1994 380,925 $5.22
Granted 478,125 $13.62
Exercised (135,500) $4.93
Canceled (6,300) $3.25
---------
Outstanding at December 31, 1995 717,250 $10.85
Granted 360,550 $12.99
Exercised (104,471) $9.14
Canceled (51,400) $12.77
---------
Outstanding at December 31, 1996 921,929 $11.78
=========
</TABLE>
- 19 -
<PAGE> 54
Options are exercisable after one year from the date of grant for up to ten
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. As of
December 31, 1996, 1995,and 1994, exercisable options were 612,179, 239,125,
and 219,675, respectively.
The following information, aggregated by option price ranges, is applicable
to those shares outstanding at December 31, 1996:
<TABLE>
<CAPTION>
<S> <C> <C>
Range of exercise prices $3.25-$6.92 $12.50-$16.13
Shares outstanding in range 170,354 751,575
Weighted-average exercise price $4.92 $13.34
Weighted-average remaining contractual life 5.7 years 4 years
Shares currently exercisable 170,354 441,825
Weighted-average exercise price of shares
currently exercisable $4.92 $13.56
</TABLE>
The estimated fair value of options granted at during 1996 was $5.27 per
share. The Company applies Accounting Principles Board Opinion No. 25 and
related Interpretations in accounting for its stock option plans.
Accordingly, no compensation cost has been recognized for its fixed stock
option plans. Had compensation cost for the Company's stock option plans
been recognized been determined based on the fair value at the grant dates
for awards under those plans consistent with the method of Statement of
Financial Accounting Standards No. 123, the Company's net (loss) earnings
and net (loss) earnings per share for the years ended December 31, 1996 and
1995 would have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Net (loss) income - as reported $(10,049,914) $ 2,657,359
============ =============
Net (loss) income - pro forma $(12,074,645) $ 293,848
============ =============
(Loss) income per share - as reported $ (1.12) $ .31
============ =============
(Loss) income per share - pro forma $ (1.35) $ .03
============ =============
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes options pricing model with the following weighted-average
assumptions used for grants: no dividend yield; expected volatility of 36%,
risk-free interest rate of 7%; and expected lives of five years.
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.
- 20 -
<PAGE> 55
EMPLOYEE STOCK PURCHASE PLAN
On June 20, 1996, the Company adopted the Employee Stock Purchase Plan
(Purchase Plan) to allow eligible employees of the Company to acquire shares
of the Company's common stock at periodic intervals, paid for with
accumulated payroll deductions over a six month offering period. A total of
400,000 shares of the Company's common stock have been reserved for issuance
under the Purchase Plan. The first offering period under the Purchase Plan
began October 1, 1996.
16. MAJOR CUSTOMERS
Revenue from four major customers accounted for approximately 48%, 29%, and
66% of total revenue for the years ended December 31, 1996, 1995 and 1994.
Contract and trade receivables from these customers accounted for
approximately 15%, 29%, and 39% of the total contract and trade receivables
at December 31, 1996, 1995 and 1994. The major customers included all
branches of the United States armed forces which accounted for 27%, 18% and
24% of total revenue for the years ended December 31, 1996, 1995 and 1994,
respectively. 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 years ended December 31, 1996 and 1995 export sales were $15,826,109
and $6,760,819, respectively. For 1996, the export sales were principally
comprised of sales to customers in Canada, the United Kingdom, Japan, and
Turkey of $9,124,647, $2,278,212, $1,191,468, and $721,180. For 1995, the
export sales were principally comprised of sales to customers in Japan,
Canada, the United Kingdom and Korea of $2,522,419, $2,091,965, $1,105,558
and $775,091. For the year ended December 31, 1994, export sales were less
than 10% of consolidated revenue.
17. 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>
1996 1995 1994
<S> <C> <C> <C>
Research and development expenses classified
as general and administrative expenses $ 1,915,649 $ 1,419,340 $ 687,686
=========== =========== ===========
Funded contracts:
Revenues funded by customers $ 6,518,818 $ 3,901,662 $ 3,290,146
Research and development expenses classified
as cost of such revenue (8,587,658) (4,721,858) (3,165,130)
----------- ----------- -----------
Funded contract (deficiency) margin $(2,068,840) $ (820,196) $ 125,016
=========== =========== ===========
</TABLE>
The above amounts do not include pre-contract costs which the Company began
expensing in 1996 (See Note 2). Pre-contract costs expended for the years
ended December 31, 1996, 1995 and 1994 were approximately $6,420,000,
$4,438,000 and $645,000, respectively.
- 21 -
<PAGE> 56
18. SEGMENT REPORTING
During 1996, 1995 and 1994, the Company operated in three industry segments.
The Government and Defense segment, principally comprised of Simula
Government Products, Inc., 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 Simula Transportation Equipment Corporation ("SimTec"-
formerly known as Intaero) segment includes operations which primarily
manufacture seating systems for domestic and foreign passenger airlines,
rail other mass transit. The remaining segment, entitled Other, includes
general corporate operations and other subsidiaries engaged in technology
development and sales. Included in Other is Simula Automotive Safety
Devices, Inc. ("Simula ASD"), the entity which conducts substantially all of
the Company's operations encompassing inflatable restraints for automobiles.
Through 1996, Simula ASD has not had any significant revenue. Segment
disclosures are as follows:
<TABLE>
<CAPTION>
1996
----------------------------------------------------------------
GOVERNMENT
AND
DEFENSE SIMTEC OTHER TOTAL
<S> <C> <C> <C> <C>
Revenue:
Contract revenue $31,372,051 $ 23,636,852 $ $ 55,008,903
Product sales 685,218 8,965,719 $ 847,467 10,498,404
Technology sales and royalties 254,650 254,650
----------- ----------- ------------ ------------
Total revenue $32,311,919 $ 32,602,571 $ 847,467 $ 65,761,957
=========== ============ ============ ============
Operating (loss) income $ 1,355,917 $ (6,327,689) $ (4,254,298) $ (9,226,070)
Identifiable assets 28,217,854 43,971,150 14,499,452 86,688,456
Depreciation and amortization 909,619 1,967,959 400,855 3,278,433
Capital expenditures 2,916,342 2,470,336 4,220,542 9,607,220
</TABLE>
<TABLE>
<CAPTION>
1995
-----------------------------------------------------------
GOVERNMENT
AND
DEFENSE SIMTEC 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 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 $ 651,695 $ 496,651 $ 4,443,137
Identifiable assets 26,629,708 36,273,362 10,233,066 73,136,136
Depreciation and amortization 564,842 1,899,899 600,142 3,064,833
Capital expenditures 1,829,664 1,459,651 1,478,142 4,767,457
</TABLE>
- 22 -
<PAGE> 57
<TABLE>
<CAPTION>
1994
------------------------------------------------------------------
GOVERNMENT
AND
DEFENSE SIMTEC 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 445,603 445,603
----------- ----------- ------------ -----------
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>
For the years ended December 31, 1996 and 1995, inter-segment sales were
insignificant and total intercompany sales of $7,547,039 and $4,065,201,
respectively, have been eliminated. All revenue in 1994 was generated from
sales to unaffiliated customers.
19. UNAUDITED QUARTERLY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
<S> <C> <C> <C> <C>
Revenue $ 16,742,512 $ 19,615,830 $ 12,914,643 $ 16,488,972
Cost of revenue 12,316,453 15,478,516 10,765,168 16,679,039
Gross margin 4,426,059 4,137,314 2,149,475 (190,067)
(Loss) earnings before
cumulative effect of an
accounting change 121,932 (305,428) (2,087,492) (4,538,978)
Cumulative effect of an
accounting change (3,239,948)
Net (loss) (3,118,016) (305,428) (2,087,492) (4,538,978)
Net (loss) per common
and equivalent share $ (.35) $ (.03) $ (.23) $ (.51)
</TABLE>
<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 11,811,431 8,637,957
Gross margin 4,626,035 5,398,439 2,882,773 7,144,895
Net earnings (loss) 616,077 936,995 (305,818) 1,410,105
Net earnings (loss) per common
and equivalent share $.09 $.11 $(.04) $.15
</TABLE>
- 23 -
<PAGE> 58
<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>
* * * * * *
- 24 -
<PAGE> 1
Exhibit 4.6
SUPPLEMENT NO. 3
MODIFICATION AND AMENDMENT
DATED AS OF MARCH 14, 1997
AMENDING
TRUST INDENTURE
DATED AS OF DECEMBER 17, 1993 AND SUPPLEMENTED SEPTEMBER 12, 1996
BY AND AMONG
SIMULA, INC.
AS ISSUER,
THE SUBSIDIARY GUARANTORS
AS GUARANTORS
AND
BANK ONE TRUST COMPANY, NA
AS TRUSTEE
12% SENIOR SUBORDINATED NOTES DUE 1998
SERIES C 10% SENIOR SUBORDINATED NOTES
<PAGE> 2
NOTE MODIFICATION
SUPPLEMENT
DATED MARCH 14, 1997
This Indenture Note Modification and Amendment ("Supplement") is dated as
of March 14, 1997, among Simula, Inc., an Arizona corporation (hereinafter the
"Company"), having its principal office at 2700 North Central Avenue, Suite
1000, Phoenix, Arizona 85004, and each of its subsidiaries appearing hereafter
(hereinafter the "Subsidiary Guarantors"), having the same principal office as
the Company, and Bank One Trust Company NA, having its principal office at 100
East Broad Street, Columbus, Ohio 43271.
RECITALS
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
December 17, 1993, (the "Indenture"). The capitalized terms herein have the same
meaning as provided in the Indenture.
Pursuant to the Indenture, the Company authorized and issued its 12%
Senior Subordinated Notes and Series C 10% Senior Subordinated Notes
(collectively the "Notes").
This Supplement sets forth a modification to the covenants of the Company
respecting incurrence of additional Indebtedness and the making of Restricted
Payments. The Indenture, pursuant to Article 9 thereof, provides for the
execution and delivery, upon the consent of holders of not less than a majority
in principal amount of Notes, of one or more supplemental indentures in
connection with adding, changing or modifying the provisions of the Indenture.
In accordance therewith, the Company, Subsidiary Guarantors and Trustee hereby
enter into this Supplement No. 3 dated March 14, 1997.
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:
<PAGE> 3
ARTICLE 10
COVENANTS
SECTION 10.9 The covenant regarding Incurrence of Additional Indebtedness
in Section 10.9 is amended to read as follows:
SECTION 10.9 Limitation on Incurrence of Additional Indebtedness. -
Entire Section Deleted.
SECTION 10.10 The covenant regarding limitation of Restricted Payments in
section 10.10 is amended to read as follows:
SECTION 10.10 Limitation on Restricted Payments. - Entire Section
Deleted.
MISCELLANEOUS
No Other Changes. No other changes to the Indenture are hereby made.
Governing Law. This Supplement No. 3 shall be deemed to be a contract
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.
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.
IN WITNESS WHEREOF, Simula, Inc. and each of its Subsidiaries have 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____________________________________________
Sean K. Nolen
Vice President and Chief Financial Officer
BANK ONE TRUST COMPANY, NA,
as Trustee
By____________________________________________
Trust Officer
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<PAGE> 4
SUBSIDIARY GUARANTORS:
SIMULA GOVERNMENT PRODUCTS, INC.,
an Arizona corporation
By__________________________________________
Sean K. Nolen, Assistant Treasurer
INTAERO, INC., an Arizona corporation
By__________________________________________
Sean K. Nolen, Assistant Treasurer
AIRLINE INTERIORS, INC., an Arizona
corporation
By__________________________________________
Sean K. Nolen, Assistant Treasurer
COACH AND CAR EQUIPMENT CORPORATION,
an Arizona corporation
By__________________________________________
Sean K. Nolen, Assistant Treasurer
ARTCRAFT INDUSTRIES CORP.,
an Arizona corporation
By__________________________________________
Sean K. Nolen, Assistant Treasurer
-3-
<PAGE> 5
SIMULA AUTOMOTIVE SAFETY DEVICES, INC.
an Arizona corporation
By_____________________________________________
Sean K. Nolen, Assistant Treasurer
SAFETY EQUIPMENT, INC., an Arizona corporation
By_____________________________________________
Sean K. Nolen, Assistant Treasurer
SEDONA SCIENTIFIC, INC., an Arizona corporation
By_____________________________________________
Sean K. Nolen, Assistant Treasurer
INTERNATIONAL CENTER FOR SAFETY
EDUCATION, INC., an Arizona corporation
By_____________________________________________
Sean K. Nolen, Assistant Treasurer
VIATECH, INC., a Delaware corporation
By_____________________________________________
Sean K. Nolen, Assistant Treasurer
-4-
<PAGE> 6
STATE OF )
) ss.
County of )
On this _____ day of ______________________, 1997, 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 Vice President and Chief Financial Officer 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
____________ day of _______________________________, 1996.
____________________________________________
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)
-5-
<PAGE> 7
STATE OF )
) ss.
County of )
On this _____ day of ______________________, 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
_____________ day of ____________________________ 1996.
____________________________________________
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 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
_____________ day of ____________________________ 1996.
____________________________________________
Notary Public
(Seal)
-6-
<PAGE> 8
STATE OF )
) ss.
County of )
On this _____ day of ______________________, 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
_____________ day of ____________________________ 1996.
____________________________________________
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 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
_____________ day of ____________________________ 1996.
____________________________________________
Notary Public
(Seal)
-7-
<PAGE> 9
STATE OF )
) ss.
County of )
On this _____ day of ______________________, 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
_____________ day of ____________________________ 1996.
____________________________________________
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 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
_____________ day of ____________________________ 1996.
____________________________________________
Notary Public
(Seal)
-8-
<PAGE> 10
STATE OF )
) ss.
County of )
On this _____ day of ______________________, 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
_____________ day of ____________________________ 1996.
____________________________________________
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 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
_____________ day of ____________________________ 1996.
____________________________________________
Notary Public
(Seal)
-9-
<PAGE> 11
STATE OF )
) ss.
County of )
On this _____ day of ______________________, 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
_____________ day of ____________________________ 1996.
____________________________________________
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 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
_____________ day of ____________________________ 1996.
____________________________________________
Notary Public
(Seal)
-10-
<PAGE> 1
EXHIBIT 10.24
THIRD MODIFICATION AGREEMENT
BY THIS THIRD MODIFICATION AGREEMENT (the "Agreement"), made and entered
into as of the 20th day of December, 1996, WELLS FARGO BANK, N.A., as successor
in interest to FIRST INTERSTATE BANK OF ARIZONA, N.A., whose address is Post
Office Box 29742, Phoenix, Arizona 85038-9742 (hereinafter called "Lender"), and
SIMULA, INC., an Arizona corporation, whose address is 2700 North Central
Avenue, Phoenix, Suite 1000, Arizona 85004 (hereinafter called "Company"), in
consideration of the mutual covenants herein contained and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, hereby confirm and agree as follows:
SECTION 1. RECITALS.
1.1 Company and Lender entered into a Loan Agreement dated October 20,
1995 (the "Loan Agreement"), which provided for, among other things, (i) a
revolving line of credit (the "RLC") in the amount of $10,000,000.00, evidenced
by a Revolving Promissory Note dated October 20, 1995 executed by the Company
(the "RLC Note") and (ii) a line of credit (the "Equipment Loan") in the amount
of $5,000,000.00 evidenced by a Promissory Note dated October 20, 1995 executed
by the Company (the "Equipment Note"), all upon the terms and conditions
contained therein. All undefined capitalized terms used herein shall have the
meaning given them in the Loan Agreement.
1.2 As of the date hereof, prior to the effect of the modifications
contained herein, the outstanding principal balance of the RLC is $6,600,000.00
and the outstanding principal balance of the Equipment Loan is $3,335,897.80.
1.3 The Loan Agreement and the other Loan Documents were previously
modified by that Modification Agreement dated April 8, 1996 and that Second
Modification Agreement dated October 11, 1996 (together, the "Modifications").
(Hereinafter the Loan Agreement and the other Loan Documents shall mean the Loan
Agreement and the other Loan Documents as modified by the Modifications.)
1.4 Company and Lender desire to modify the Loan Documents as set forth
herein.
SECTION 2. LOAN AGREEMENT.
2.1 The following definitions in Section 2.1 of the Loan Agreement are
hereby amended to read as follows:
"Advance" means a RLC Advance, an Equipment Advance or a New Equipment
Advance.
<PAGE> 2
"Co-Borrower" means each Subsidiary that owns Equipment against which
Equipment Advances or New Equipment Advances are made.
"Collateral" means (i) all of the equipment of Company and its
Subsidiaries located in the State of Arizona, and (ii) all of the
equipment financed with the proceeds of the Equipment Loan or the New
Equipment Loan.
"Equipment Advance Maturity Date" means sixty (60) months after the Third
Modification Date.
"Equipment Maturity Date" means sixty (60) months after the Third
Modification Date.
"Equipment Termination Date" means the Third Modification Date.
"Fixed Rate" means an interest rate per annum equal to two hundred basis
points (2.0%) in excess of the TCM Rate for a maturity date equal to or
next largest to (i) the applicable Equipment Advance Maturity Date with
respect to an Equipment Advance, and (ii) a five year maturity with
respect to the New Equipment Loan.
"LIBOR Rate Factor" means two percent (2.0%).
"Loans" means the RLC, the Equipment Loan and the New Equipment Loan.
"Notes" means the RLC Note, the Equipment Note and the New Equipment Note
as each may be amended from time to time.
"RLC Commitment Amount" means $20,000,000.00.
"RLC Maturity Date" means June 1, 1998.
"RLC Payment Date" means the last day of each month.
"RLC Service Fee Factor" means 25 basis points.
2.2 Section 2.1 of the Loan Agreement is hereby amended by the addition
of the following definitions:
"Conversion Date": See Section 4A.7(a).
"LIBOR Rate New Equipment Advance" means a New Equipment Advance that
bears interest at the applicable LIBOR Rate.
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<PAGE> 3
"New Equipment Advance" means Advances made pursuant to Section 4A.4 and
includes a Prime Rate New Equipment Advance or a LIBOR Rate New
Equipment Advance (each of which shall be a "Type" of New Equipment
Advance).
"New Equipment Commitment Amount" means $1,500,000.00.
"New Equipment Loan" means a line of credit established by Lender for the
benefit of the Company and the Co-Borrowers under which line of credit
Lender shall enter into Capitalized Leases with, or make New Equipment
Advances to, Company and the Co-Borrowers to finance a portion of the
cost of new capital equipment.
"New Equipment Maturity Date" means the date sixty months after the
Conversion Date, which date shall not exceed June 1, 2003, at which time
the entire outstanding principal balance of the New Equipment Loan, all
accrued and unpaid interest thereon and all other sums which may have
become payable thereunder shall be due and payable in full.
"New Equipment Note" means that Promissory Note of even date with the
Third Modification Date, in the face amount equal to the New Equipment
Commitment Amount, from Company and each Subsidiary, evidencing the New
Equipment Loan.
"New Equipment Payment Date" means the last day of each month, commencing
the month after the first New Equipment Advance.
"New Equipment Termination Date" means June 1, 1998.
"New Equipment Term Out Election": See Section 4A.7(a).
"New Equipment Term Out Notice": See Section 4A.7(a).
"Prime Rate New Equipment Advance" means a New Equipment Advance that
bears interest at the Prime Rate.
"Third Modification Date" means December 20, 1996.
2.3 Section 4.8 of the Loan Agreement is hereby amended to read as
follows:
Section 4.8 Principal Payments. Effective on the first Equipment Payment
Date after the Third Modification Date, in addition to the interest
installments provided above, Company hereby promises and agrees to repay
the principal of the
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<PAGE> 4
Equipment Note in the amount of $55,598.30 on each Equipment Payment
Date, with any outstanding principal balance of the Equipment Note due
and payable on the Equipment Maturity Date.
2.4 The Loan Agreement is hereby amended by the addition of the following
Article 4A:
ARTICLE 4A
NEW EQUIPMENT LOAN
Section 4A.1 New Equipment Commitment Amount. Subject to the
conditions set forth herein, Lender, from time to time, shall make New
Equipment Advances as Company may request, as provided below, provided
that the outstanding principal balance shall not exceed the New Equipment
Commitment Amount. Until the New Equipment Termination Date, the New
Equipment Loan shall be a line of credit, against which New Equipment
Advances, including without limitation Capitalized Leases, may be made to
Company, provided that (i) Company is not in default under any provision
of this Agreement, and (ii) no advance shall be made that would cause the
outstanding principal balance of the New Equipment Loan to exceed the New
Equipment Commitment Amount. On and after the New Equipment Termination
Date, no further New Equipment Advances shall be made to Company under
the New Equipment Loan.
Section 4A.2 New Equipment Note. The New Equipment Loan shall be
evidenced by the New Equipment Note, in the form approved by Lender,
payable to the order of Lender upon the terms and conditions therein
contained and executed and delivered on the Third Modification Date.
Section 4A.3 Purpose of New Equipment Advances.
(a) Unless otherwise specifically approved in writing by
Lender, the proceeds of the New Equipment Loan shall be used only in the
manner specified below and, subject to the conditions contained herein.
shall be disbursed by Lender in the following manner:
(i) New Equipment Advances not in excess of (y) ninety
percent (90%) of the purchase price of any new Equipment and (z)
eighty percent (80%) of the purchase price of any used Equipment,
each as acquired by Company or a Subsidiary after the delivery of
this Agreement, shall be disbursed By Lender upon presentation of
a voucher (A) evidencing the purchase price paid or
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<PAGE> 5
to be paid by Company or said Subsidiary for the Equipment, and
(B) describing the Equipment in such detail as may reasonably be
required by Lender, including without limitation the manufacturer,
the model number and the identification number thereof, and
identifying which Subsidiary, if not the Company, is to be the
owner thereof.
(b) All Equipment against which New Equipment Advances
described in Section 4A.3(a) are to be made shall:
(i) Be subject to a Security Agreement.
(ii) Be subject to a UCC-1 Financing Statement filed as
necessary to perfect Lender's security interest in such Equipment.
(iii) Not be subject to any other liens prior and
superior to that of Lender.
(iv) Be located in the United States.
(v) Not be affixed to real property in any way so as to
become a "fixture" as defined in Arizona Revised Statutes Section
47-9313.
(vi) Have been approved by Lender in its sole discretion
as acceptable for financing under the New Equipment Loan.
(v) Not be stand-alone computer equipment.
(c) New Equipment Advances may be made to Company or the
Subsidiary or to their order, or at Lender's election directly to the
parties from whom Company or the Subsidiary is acquiring the Equipment.
Lender shall have no obligation to see that New Equipment Advances made
by it to Company or to any designee of Company are actually used by said
party to pay for the Equipment. Company understands that such payment is
its responsibility and assumes all risks in connection with any
disbursement to any such designee.
(d) New Equipment Advances may be made at Company's request
to purchase Equipment that is to be owned by a Subsidiary. Once it owns
Equipment against which New Equipment Advances described in
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<PAGE> 6
Section 4A.3(a)(ii) are made, a Subsidiary shall be deemed to be a
Co-Borrower. The term "Co-Borrower" shall mean that such Subsidiary
shall be jointly, severally and unconditionally liable for the full
payment and satisfaction of the New Equipment Loan as evidenced by the
New Equipment Note to the extent of the amount of New Equipment Advances
used to finance the Equipment owned by it.
Section 4A.4 New Equipment Advances.
(a) Lender may from time to time make New Equipment Advances
of the New Equipment Loan in such sums as Company shall request. Each
such New Equipment Advance shall be in the minimum amount of $250,000.00
except for the last New Equipment Advance.
(b) The Company shall give Lender written notice, or
telephonic notice confirmed immediately in writing, of the request for
any New Equipment Advances under this Agreement, which notice (the
"Notice of New Equipment Advance") shall be received by Lender not later
than 11:00 A.M. (Phoenix, Arizona local time) on the same Business Day in
the case of a Prime Rate New Equipment Advance, and in the case of a
LIBOR Rate New Equipment Advance not later than 2:00 P.M. (Phoenix,
Arizona local time) on the third Business Day before the date of the
proposed New Equipment Advance. Each such Notice of New Equipment Advance
shall specify: (i) the date of the proposed New Equipment Advance, (ii)
the amount of such New Equipment Advance, (iii) the Type of New Equipment
Advance, and (iv) in the case of a LIBOR Rate New Equipment Advance, the
Interest Period. Each Notice of New Equipment Advance shall be
irrevocable and binding on the Company. Anything herein to the contrary
notwithstanding, no LIBOR Rate New Equipment Advance shall be less than
$250,000.00 except for the last New Equipment Advance.
(c) In the case of any New Equipment Advance which the related
Notice of New Equipment Advance specifies is to be a LIBOR Rate New
Equipment Advance, the Company shall indemnify Lender on demand for,
from, and against any loss, or expense incurred by Lender as a result of
any failure by Company to fulfill on or before the date specified in such
Notice of New Equipment Advance for such New Equipment Advance the
applicable conditions set forth in Section 6.2, including, without
limitation, any loss, including, among other losses, costs, and expenses
incurred by Lender by reason of liquidation or reemployment of deposits
or other funds acquired by Lender to fund the LIBOR Rate New Equipment
Advance to be made by Lender when such LIBOR Rate New Equipment Advance,
as a result of such failure, is not made on such date.
-6-
<PAGE> 7
Section 4A.5 Conversion of New Equipment Advances.
(a) The Company may, upon written notice to and received by the
Lender (i) not later than 2:00 P.M. (Phoenix, Arizona local time) on the third
Business Day before the requested Conversion, in the case of any Conversion of
Prime Rate New Equipment Advances into LIBOR Rate New Equipment Advances, and
(ii) not later than 11:00 A.M. (Phoenix. Arizona local time) on the same
Business Day as the Conversion, in the case of any Conversion of LIBOR Rate New
Equipment Advances into Prime Rate New Equipment Advances, subject to the
provisions of this Section 4A.5, Convert any New Equipment Advances of one Type
into New Equipment Advances of another Type; provided, however, that any
Conversion of LIBOR Rate New Equipment Advances made on other than the last day
of said New Equipment Advance's Interest Period shall be made only on condition
that Company pays all amounts specified in connection therewith in Section
4A.8(e). Each such notice of a Conversion shall be irrevocable and binding on
the Company. Each such notice of a Conversion shall, within the restrictions
specified above, specify (w) the date of such Conversion, (x) the New Equipment
Advances to be Converted, (y) the Type of New Equipment Advances into which the
New Equipment Advances are to be Converted, and (z) if such Conversion is into
LIBOR Rate New Equipment Advances, the duration of the Interest Period for each
such New Equipment Advance.
(b) If the Company should fail to give the Lender any notice of
Conversion upon the termination of the Interest Period for a LIBOR Rate New
Equipment Advance, such New Equipment Advance, upon the termination of the
Interest Period, shall automatically become a Prime Rate New Equipment Advance.
Section 4A.6 Interest Payments.
(a) Interest shall accrue on the principal balance of the New
Equipment Loan from time to time outstanding under the New Equipment Note as
follows:
(i) At the Prime Rate if it is a Prime Rate New Equipment
Advance.
(ii) At the applicable LIBOR Rate if it is a LIBOR Rate New
Equipment Advance.
(iii) At the Fixed Rate if elected by Company with respect to
the New Equipment Loan.
-7-
<PAGE> 8
(b) If the New Equipment Loan is subject to a New Equipment Term
Out Election, Company may elect by written notice to Lender that interest shall
accrue, commencing on the second Business Day thereafter, at the Fixed Rate.
(c) All accrued interest shall be due and payable on the New
Equipment Payment Date.
Section 4A.7 Principal Payments. In addition to the interest installments
provided above, Company hereby promises and agrees to repay the principal of the
New Equipment Note as follows:
(a) On or before the New Equipment Termination Date, Company may
elect to deliver to Lender not later than 11:00 a.m. (Phoenix, Arizona local
time) on such date a written notice ("New Equipment Term Out Notice") to Lender
with respect to the outstanding principal balance of the New Equipment Loan,
stating that Company elects that the New Equipment Loan shall be either (i) (the
"Lease Election") converted to a Capitalized Lease on terms proposed to Company
by Lender in its sole discretion and accepted in writing by Company, or (ii)
(the "New Equipment Term Out Election") termed out over a maturity period of
five (5) years; with respect to the New Equipment Term Out Election, on each New
Equipment Payment Date beginning on the New Equipment Payment Date after the
date of the New Equipment Term Out Notice (the "Conversion Date") principal
payments shall be due and payable in an amount sufficient to fully amortize the
New Equipment Loan in equal monthly payments over sixty months.
(b) The entire outstanding principal balance, all accrued and
unpaid interest and all other sums which may have become payable under the New
Equipment Note shall be due and payable in full on the New Equipment Termination
Date unless Company shall have provided a New Equipment Term Out Election, in
which case it shall be due and payable in full on the New Equipment Maturity
Date.
Section 4A.8 Additional Provisions for LIBOR Rate New Equipment Advances.
(a) Unavailability of Deposits or Inability to Ascertain the
Rates. Notwithstanding any other provision of this Agreement, if prior to the
commencement of any Interest Period, Lender shall determine (i) that United
States dollar deposits in the amount of any LIBOR Rate New Equipment Advance to
be outstanding during such Interest Period are not readily available to Lender
in the
-8-
<PAGE> 9
London interbank market, or (ii) by reason of circumstances affecting the London
interbank market, adequate and reasonable means do not exist for ascertaining
the LIBOR Base Rate, then Lender shall promptly give notice thereof to the
Company and the obligation of Lender to create, or effect by conversion any
LIBOR Rate New Equipment Advance in such amount and for such Interest Period
shall terminate until United States dollar deposits in such amount and for the
Interest Period selected by the Company shall again be readily available in the
market and adequate and reasonable means exist for ascertaining the LIBOR Base
Rate.
(b) Increased Costs. (i) If, due to any Regulatory Change, there
shall be any increase in the cost to Lender of agreeing to make or making,
funding or maintaining LIBOR Rate New Equipment Advances (including, without
limitation, any increase in any applicable reserve requirement), or of issuing
or maintaining Letters of Credit, then the Company shall from time to time,
upon demand by Lender, pay to Lender such amounts as Lender may reasonably
determine to be necessary to compensate Lender for any additional costs which it
reasonably determines are attributable to such Regulatory Change; (ii) if Lender
determines (in its reasonable discretion) that, as a result of any Regulatory
Change, the amount of capital required or expected to be maintained by Lender is
increased by or based upon the existence of Lender's commitment to lend
hereunder, then, upon demand by Lender, the Company shall immediately pay to
Lender such amounts as Lender may reasonably determine to be necessary to
compensate Lender for any additional costs which it reasonably determines are
attributable to the maintenance by Lender of capital in respect of Lender's
commitment to lend hereunder: and (iii) Lender will notify the Company of any
Regulatory Change that will entitle Lender to compensation pursuant to this
Section 4A.8(b) as promptly as practicable, but in any event within 90 days
after Lender obtains knowledge thereof; provided, however, that if Lender fails
to give such notice within 90 days after it obtains knowledge of such a
Regulatory Change. Lender shall, with respect to compensation payable in respect
of any costs resulting from such Regulatory Change, only be entitled to payment
for costs incurred from and after the date that Lender has given such notice.
Lender will furnish to Company a certificate setting forth in reasonable detail
the basis for the amount of each request by Lender for compensation.
Determinations by Lender of the amounts required to compensate Lender shall be
made on a reasonable basis. Lender shall be entitled to compensation in
connection with any Regulatory Change only for costs actually incurred By such
Lender. Upon receipt of notice of any such Regulatory Change from Lender,
Company shall have the option to prepay or Convert any New Equipment Advances
adversely affected by any Regulatory Change within seven (7) days of receipt of
such notice, without the obligation to pay to Lender with respect to such
prepayment or Conversion any amount or amounts otherwise payable to Lender by
Company pursuant to Section 4A.8(e).
-9-
<PAGE> 10
(c) Illegality. Notwithstanding any other provision of this
Agreement, if Lender shall notify the Company that as a result of a Regulatory
Change it is unlawful for Lender to perform its obligations hereunder to make
LIBOR Rate New Equipment Advances or to fund or maintain LIBOR Rate New
Equipment Advances hereunder (i) the obligation of Lender to make, or to Convert
New Equipment Advances into, LIBOR Rate New Equipment Advances shall be
suspended until Lender shall notify Company that the circumstances causing such
suspension no longer exist and (ii) in the event such Regulatory Change makes
the maintenance of LIBOR Rate New Equipment Advances hereunder unlawful, the
Company shall forthwith prepay in full all LIBOR Rate New Equipment Advances
then outstanding, together with interest accrued thereon and all amounts in
connection with such prepayments specified in Section 4A.8(e), unless the
Company, within five (5) Business Days of notice from Lender, Converts all LIBOR
Rate New Equipment Advances then outstanding into Prime Rate New Equipment
Advances in accordance with Section 4A.5 and pays all amounts in connection with
such prepayments specified in Section 4A.8(e).
(d) Discretion of Lender as to Manner of Funding. Notwithstanding
any provision of this Agreement to the contrary. Lender shall be entitled to
fund and maintain its funding of all or any part of any New Equipment Advance in
any manner it sees fit: provided, however, that for the purposes of this
Agreement, all determinations hereunder shall be made as if Lender had actually
funded and maintained each LIBOR Rate New Equipment Advance during the Interest
Period therefor through the purchase of deposits having a maturity corresponding
to the last day of the Interest Period and bearing an interest rate equal to the
LIBOR Rate for such Interest Period.
(e) Funding Loss Indemnification. Company shall pay to Lender such
amount or amounts as shall be sufficient to compensate for any losses (including
without limitations loss of reasonable anticipated profit), costs or expenses
which Lender may reasonably incur as a result of payment or Conversion of any
LIBOR Rate New Equipment Advance other than on the last Business Day of the
Interest Period for such New Equipment Advance, whether due to prepayment,
Conversion, illegality (pursuant to Section 4A.8(c) above), acceleration of the
New Equipment Maturity Date or for any other reason.
Section 4A.9 New Equipment Loan Prepayment. All prepayments of the New
Equipment Loan should it bear interest at the Fixed Rate shall be made with a
prepayment premium computed as follows: 1% of the outstanding principal balance
of the New Equipment Loan if the outstanding principal balance thereof is less
than $50,000.00, and if the outstanding principal balance thereof is equal to or
more than $50,000.00, an amount equal to the present value of the remaining
-10-
<PAGE> 11
cash flows discounted at the Treasury Constant Yield (TCY) + 200 basis
points - outstanding principal. The TCY is calculated as the interpolated
constant maturity Treasury rate with a maturity matching the remaining
average term of the New Equipment Loan to the New Equipment Maturity
Date. Rate data is obtained, at the time of prepayment, from the most
recent Federal Reserve statistical release H.15(519), using data from
the most recent week ending column.
2.5 Section 5.1 of the Loan Agreement is hereby amended to read as
follows:
Section 5.1 Security Agreement. Company shall cause the Equipment
Loan and the New Equipment Loan to be secured by the execution and
delivery to Lender of the following documents:
(a) Security Agreements from Company and each Subsidiary, granting
Lender a first and prior lien on all Collateral; and
(b) UCC-1 Financing Statements filed in the State of Arizona, in
each state in which Company and its Subsidiaries have their respective
chief executive offices and in each state where Collateral is located.
2.6 Section 8.5(c) of the Loan Agreement is hereby amended by changing
"ninety (90) days" to "one hundred twenty (120) days."
2.7 Section 9.6(b) of the Loan Agreement is hereby amended to read as
follows:
(b) mortgages held by Confederated Life securing debt not in
excess of $3,500,000.00 and any refinancing thereof;
2.8 Section 9.7 of the Loan Agreement is hereby amended to read as
follows:
Section 9.7 No Dividends. Company shall not declare or pay any
dividend on its common stock.
2.9 Section 9.8 of the Loan Agreement is hereby amended to read as
follows:
Section 9.8 Tangible Net Worth. Company shall not permit its Tangible
Net Worth at the end of any fiscal quarter of Company, beginning December
31, 1996 to be less than the sum of (i) $45,000,000.00, plus (ii) one
hundred percent (100%) of any new equity contributions, plus (iii)
seventy-five percent (75%) of Company's consolidated positive net income
for said fiscal quarter, beginning with the net income of the first
fiscal quarter of 1997. "Tangible Net Worth" is defined as "net capital"
less the book value of all intangible assets, including without
-11-
<PAGE> 12
limitation deferred financing costs. The term "net capital" is defined as
owner's equity plus Subordinated Debt. "Subordinated Debt" is defined as
all loans that are fully subordinated to the Loans under subordination
terms and provisions acceptable to Lender. (All undefined accounting
determinations hereunder shall be made in accordance with generally
accepted accounting principles.)
2.10 Section 9.10 of the Loan Agreement is hereby amended to read as
follows:
Section 9.10 Current Ratio. Company shall not permit the current
ratio, i.e., the ratio of Company's Consolidated Current Assets to
Consolidated Current Liabilities, at the end of any fiscal quarter of
Company to be less than 1.50 to 1. In the ratio, Consolidated Current
Assets is defined as current assets. In the ratio, Consolidated Current
Liabilities is defined as current liabilities plus the outstanding
balance of the RLC. (All undefined accounting determinations hereunder
shall be made in accordance with generally accepted accounting
principles.)
2.11 Section 9.11 of the Loan Agreement is hereby amended to read as
follows:
Section 9.11 Debt Coverage Ratio. Company shall not permit its
Debt Coverage Ratio, calculated as of March 31, 1997 to be less than
1.00, as of June 30, 1997 to be less than 1.25 and at the end of any
subsequent fiscal quarter, to be less than 1.50 to 1, where "Debt
Coverage Ratio" is defined as the ratio of "cash flow" to "debt service
requirement" year to date and beginning December 31, 1997 for the
previous rolling four (4) fiscal quarters. In the ratio, the numerator
"cash flow" is defined as the sum for the relevant period of Company's
net income before tax, depreciation expense, amortization of intangibles
expense and the interest expense, as the case may be. In the ratio, the
denominator "debt service requirement" is defined as the sum of the
following that are due within the relevant period: all current maturities
of long-term debt, interest expense and preferred dividends paid. (All
undefined accounting determinations hereunder shall be made in accordance
with generally accepted accounting principles.)
2.12 Section 9.12 of the Loan Agreement is hereby amended to read as
follows:
Section 9.12 No Losses. Commencing with the fiscal quarter ending
June 30, 1997. Company shall not permit a consolidated net loss either on
a fixed year basis or for two consecutive fiscal quarters.
2.13 Exhibit "B" to the Loan Agreement is hereby amended to read as
attached hereto as Exhibit "B".
-12-
<PAGE> 13
2.14 Exhibit "E" to the Loan Agreement and each Subsidiary Acknowledgment
executed to date is hereby amended to read as attached hereto as Exhibit "E".
2.15 All references in the RLC Note to $10,000,000.00 are hereby amended
to read $20,000,000.00.
2.16 Paragraph B of the first page of the Equipment Note is hereby
amended to read as follows:
B. Principal Payments. In addition to the interest installments
provided above, Maker hereby promises and agrees to repay the principal
of this Note as follows:
1. Effective on the first Equipment Payment Date after the Third
Modification Date, principal payments shall be due and payable in the
amount of $55,598.30 on each Equipment Payment Date.
2. All outstanding principal shall be due and payable on the
Equipment Maturity Date.
2.17 Section 2.2(a) of each Security Agreement as well as of Exhibit "D"
of the Loan Agreement is hereby amended to read as follows:
(a) Payment of the sum of $3,335,897.80 with interest thereon,
extension and other fees, late charges, prepayment premiums and
attorneys' fees, according to the terms of that Promissory Note of even
date herewith, made by Company and the Co-Borrowers, and payment of the
sum of $1,500,000.00 with interest thereon, extension and other fees,
late charges, prepayment premiums and attorneys' fees according to the
terms of that Promissory Note dated as of the Third Modification Date,
made by Company and the Co-Borrowers, payable to the order of Secured
Party, and all extensions, modifications, renewals or replacements
thereof (hereinafter together called the "Note):
SECTION 3. OTHER MODIFICATIONS, RATIFICATIONS AND AGREEMENTS.
3.1 All references to the Loan Agreement in the Loan Documents are hereby
amended to refer to the Loan Agreement as hereby amended.
3.2 Company acknowledges that the indebtedness evidenced by the Notes is
just and owing, that the balance thereof is correctly shown in the records of
Lender as of the date hereof, and Company agrees to pay the indebtedness
evidenced by the Notes according to the terms thereof, as herein modified.
-13-
<PAGE> 14
3.3 Company hereby reaffirms to Lender each of the representations,
warranties, covenants and agreements of Company set forth in the Notes and the
Loan Agreement, with the same force and effect as if each were separately stated
herein and made as of the date hereof.
3.4 Company hereby ratifies, reaffirms, acknowledges, and agrees that the
Notes and the Loan Agreement, represent valid, enforceable and collectible
obligations of Company, and that there are no existing claims, defenses,
personal or otherwise, or rights of setoff whatsoever with respect to any of
these documents or instruments. In addition, Company hereby expressly waives,
releases and absolutely and forever discharges Lender and its present and former
shareholders, directors, officers, employees and agents, and their separate and
respective heirs, personal representatives, successors and assigns, from any and
all liabilities, claims, demands, damages, action and causes of action, whether
known or unknown and whether contingent or matured, that Company may now have,
or has had prior to the date hereof, or that may hereafter arise with respect to
acts, omissions or events occurring prior to the date hereof and, without
limiting the generality of the foregoing, from any and all liabilities, claims,
demands, damages, actions and causes of action, known or unknown, contingent or
matured, arising out of, or in any way connected with, the Loans. Company
further acknowledges and represents that no event has occurred and no condition
exists that, after notice or lapse of time, or both, would constitute a default
under this Agreement, the Notes or the Loan Agreement.
3.5 All terms, conditions and provisions of the Notes and the Loan
Agreement are continued in full force and effect and shall remain unaffected and
unchanged except as specifically amended hereby. The Notes and the Loan
Agreement, as amended hereby, are hereby ratified and reaffirmed by Company, and
Company specifically acknowledges the validity and enforceability thereof.
SECTION 4. GENERAL.
4.1 This Agreement in no way acts as a release or relinquishment of those
rights securing payment of the Loans. Such rights are hereby ratified,
confirmed, renewed and extended by Company in all respects.
4.2 The modifications contained herein shall not be binding upon Lender
until Lender shall have received all of the following:
(a) An original of this Agreement fully executed by the Company,
the Co-Borrowers and the Guarantors.
(b) Such resolutions or authorizations and such other documents as
Lender may reasonably require relating to the existence and good standing
of the Company and the authority of any person executing this Agreement
or other documents on behalf of the Company.
-14-
<PAGE> 15
(c) A Facility Fee of $15,000.00, which is equal to 7.5 basis points
of the RLC Commitment Amount.
(d) The New Equipment Note fully executed by the Company and each
Subsidiary.
4.3 Company shall execute and deliver such additional documents and do
such other acts as Lender may reasonably require to fully implement the intent
of this Agreement.
4.4 Company shall pay all costs and expenses, including, but not limited
to, reasonable, itemized attorneys' fees incurred by Lender in connection
herewith not to exceed $3,000.00, whether or not all of the conditions described
in Paragraph 4.2 above are satisfied. Lender, at its option, but without any
obligation to do so, may advance funds to pay any such costs and expenses that
are the obligation of the Company, and all such funds advanced shall bear
interest at the highest rate provided in the Notes and shall be due and payable
upon demand.
4.5 Notwithstanding anything to the contrary contained herein or in any
other instrument executed by Company or Lender, or in any other action or
conduct undertaken by Company or Lender on or before the date hereof, the
agreements, covenants and provisions contained herein shall constitute the only
evidence of Lender's consent to modify the terms and provisions of the Loan
Agreement. Accordingly, no express or implied consent to any further
modifications involving any of the matters set forth in this Agreement or
otherwise shall be inferred or implied by Lender's execution of this Agreement.
Further, Lender's execution of this Agreement shall not constitute a waiver
(either express or implied) of the requirement that any further modification of
the Loans or of the Notes or the Loan Agreement, shall require the express
written approval of Lender; no such approval (either express or implied) has
been given as of the date hereof.
4.6 Time is hereby declared to be of the essence hereof of the Loans, of
the Notes and of the Loan Agreement, and Lender requires, and Company agrees to,
strict performance of each and every covenant, condition, provision and
agreement hereof, of the Notes and the Loan Agreement.
4.7 This Agreement shall be binding upon, and shall inure to the benefit
of, the parties hereto and their heirs, personal representatives, successors and
assigns.
4.8 This Agreement is made for the sole protection and benefit of the
parties hereto, and no other person or entity shall have any right of action
hereon.
-15-
<PAGE> 16
4.9 This Agreement shall be governed by and construed according to the
laws of the State of Arizona.
IN WITNESS WHEREOF, these presents are executed as of the date indicated
above.
WELLS FARGO BANK, N.A., as successor in
interest to FIRST INTERSTATE BANK OF
ARIZONA, N.A.
By:
--------------------------------------
Name:
------------------------------------
Its:
-------------------------------------
LENDER
SIMULA, INC., an Arizona corporation
By: /s/ Sean K. Nolen
--------------------------------------
Name: Sean K. Nolen
------------------------------------
Its: Chief Financial Officer
-------------------------------------
COMPANY
-16-
<PAGE> 1
Exhibit 10.29
SIMULA, INC.
CHANGE OF CONTROL
EMPLOYMENT AGREEMENT
- --------------------------------------------------------------------------------
Name of Employee (herein "Employee"): ((Name))
Position: ((Job Title))
Date: June 20, 1996
Termination Date: [Termination of Employment]
- --------------------------------------------------------------------------------
THIS AGREEMENT is entered into between Simula, Inc. and its controlled
affiliates ("Company" or "Employer"), and Employee for the following purposes
and upon the following conditions:
1. PURPOSE. The purpose of this Agreement is to provide for
compensation to Employee in the event of a Change in Control of the Company. In
order to attract and retain key employees, the Company believes it is necessary
to provide for the fulfillment of the expectation of long-term employment with
the Company by providing a financial benefit to Employee in the case of a Change
of Control of the Company.
2. TERM. This Agreement shall be effective as of the date stated above
and shall terminate concurrently with the Employee's termination from employment
with the Company. This Agreement creates no obligation on behalf of the Company
other than as specified herein. In the event Employee terminates voluntarily or
involuntarily from the Company under any circumstances other than a Change of
Control, this Agreement shall confer no rights upon Employee.
3. CHANGE OF CONTROL. For purposes of this Agreement "Change of
Control" shall be deemed to have occurred when any of the following events
occur:
(i) any person shall acquire, directly or indirectly, beneficial
ownership of equity securities of Employer representing in excess of
20% of the outstanding shares of any class of equity securities of
Employer (for purposes hereof, "beneficial ownership" shall be the
meaning prescribed in Rule 13d-3 promulgated under the Securities
Exchange Act of 1934); or
(ii) any person who has acquired, directly or indirectly,
beneficial ownership of equity securities of Employer (as defined in
the preceding clause) representing in excess of 10% of the outstanding
shares of any class of equity securities of Employer
<PAGE> 2
shall seek to nominate or seek to cause to be elected to the board of
directors, any person who has not been nominated for election to the
board by a majority of the then incumbent directors of Employer.
The foregoing shall not pertain to the Employer's public or private
offering of securities in any financing arranged at request by the Company's
investment bankers.
4. COMPENSATION. Severance compensation ("Compensation") will be paid
to Employee in the event of a Change of Control where:
(i) Employee is terminated by the acquiring person within one
year of the effective date of the Change of Control; or
(ii) Employee voluntarily resigns from his position within a
period of 180 days after the effective date of the Change of Control.
Notwithstanding any other provision in this Agreement, or unless the
operation of this paragraph shall expressly and voluntarily be waived or
modified by the Employee in a written instrument signed by the Employee
specifically for that purpose, the Compensation required to be paid by Employer
to Employee under this Agreement shall be paid by the Employer or by the
acquiring person as a condition to the acquisition.
Compensation shall be calculated and paid as follows:
(i) Employee's then current annual base salary, plus the
equivalent dollar value for one year of all benefits (including
insurance, defined benefit plan contributions by the Company in
qualified and unqualified plans, and similar benefits) multiplied by
((Years));
(ii) the equivalent dollar amount necessary for payment of all
taxes on such Compensation including, without limitation, all
employment taxes, income taxes and alternative minimum income taxes, if
any, payable with respect to a lump sum payment in that year, grossed
up by an amount necessary to pay all such taxes on the amounts paid
under this subparagraph (ii); and
(iii) the Compensation shall be paid in a lump sum within ten (10)
days of the termination of employment.
5. STOCK OPTIONS. In the event of a Change of Control, in addition to
the Compensation set forth above:
(i) all unexercised options in the name of Employee on the
effective date of the Change of Control shall be subject to accelerated
vesting and shall thereupon be deemed fully exercisable and shall be
exercised and paid for by the Employer or acquiring person on behalf of
Employee and the total number of shares of Common
2
<PAGE> 3
Stock represented by the total number of options shall be issued to the
Employee, without payment of monetary consideration by Employee;
(ii) in connection with Employee's receipt of the foregoing option
shares, Employer will pay full tax assistance to keep Employee whole
due to this immediate income, including all relevant employment taxes,
income taxes, and alternative minimum income taxes, grossed up by an
amount necessary to pay all such taxes on the amounts paid under this
subparagraph (ii); and
(iii) in the event of a Change of Control of the Company by the
exchange or issuance of stock in a merger or otherwise, Employer and
the acquiring person shall extend to Employee the opportunity to sell
or exchange the option shares under provisions (i) and (ii) in a manner
and at a time that will allow Employee to benefit, at his election,
from the exchange or issuance of stock by merger or otherwise.
6. EFFECT ON OTHER AGREEMENTS. This Change of Control Agreement shall
be supplemental to and will modify a written employment contract between
Employer and Employee, if any. Except as otherwise provided by written contract,
Employee shall remain "at will," and this Change of Control Agreement shall not
confer upon Employee any contractual rights to employment, except as described
in an employment agreement, if any, and as provided in this Change of Control
Agreement.
7. RETURN OF BOOKS AND PAPERS. Upon the termination of Employee's
employment with Employer for any reason, Employee shall deliver promptly to
Employer all manuals and memoranda; all cost, pricing and other financial data;
all customer information; all other written or printed materials which are the
property of the Company (and any copies of them); and all other materials which
may contain confidential information relating to the business of Employer, which
Employee may then have in his possession whether prepared by Employee or not.
8. NOTICES. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing, and if sent by registered mail to
his residence in the case of Employee, or to its principal office in the case of
Employer.
9. WAIVER OF BREACH. The waiver of Employer of a breach of any
provision of this Agreement by Employee shall not operate or be construed as a
waiver of any subsequent breach by Employee.
10. ASSIGNMENT. The rights and obligations of Employer under this
Agreement shall inure to the benefit of and shall be binding upon the successors
and assigns of Employer. Employee may not sell, assign, transfer, or delegate
any duties, rights or interests created under this Agreement without the express
written consent of the Employer.
11. ENTIRE AGREEMENT. This instrument contains the entire agreement of
the parties. It may not be changed orally but only by an agreement in writing
signed by the party
3
<PAGE> 4
against whom enforcement of any waiver, change, modification, extension or
discharge is sought.
IN WITNESS WHEREOF, the parties have executed this Agreement effective
on the 20th day of June, 1996.
SIMULA, INC.
By_______________________________________
Donald W. Townsend, President
"EMPLOYER"
_________________________________________
((Name))
"EMPLOYEE"
4
<PAGE> 1
EXHIBIT 11
SIMULA, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------------
1996 1995 1994
--------------------- ---------------------------- -------------------------
<S> <C> <C> <C>
(Loss) earnings before cumulative
effect of a change in
accounting principle ($6,809,966) $2,657,359 $2,114,423
Cumulative effect on prior years
(to December 31, 1995) of
changing accounting for
pre-contract costs (3,239,948)
------------ ---------- ----------
Net (loss) earnings ($10,049,914) $2,657,359 $2,114,423
============ ========== ==========
Number of shares:
Weighted average shares
outstanding 8,947,060 8,175,300 5,461,095
Incremental shares for
outstanding stock
options 380,670 169,403
Incremental shares for
outstanding stock
warrants 20,847 74,428
------------ --------- ----------
8,947,060 8,576,817 5,704,926
============ ========= ==========
Per share amounts:
(Loss) earnings before
cumulative effect of a
change in accounting
principle ($0.76) $0.31 $0.37
Cumulative effect on
prior years (to
December 31, 1995)
of changing accounting
for pre-contract costs (0.36)
------------ ---------- ----------
Net (loss) earnings ($1.12) $0.31 $0.37
============ ========== ==========
</TABLE>
<PAGE> 1
EXHIBIT 21
SIMULA, INC.
SUBSIDIARY LIST
1. Simula Holdings, Inc.
2. Simula Transportation Equipment Corporation (formerly Intaero, Inc.)
3. Simula Government Products, Inc.
4. Simula Technologies, Inc.
5. Airline Interiors, Inc.
6. Coach and Car Equipment Corporation
7. Artcraft Industries Corp.
8. Simula Automotive Safety Devices, Inc.
9. Simula Automotive Safety Devices, Limited
10. Simula Protective Systems, Limited
11. International Center for Safety Education, Inc.
12. Safety Equipment, Inc.
13. Sedona Scientific, Inc.
14. Intaero, Limited
15. ViaTech, Inc.
<PAGE> 1
Exhibit 24
POWER OF ATTORNEY
The undersigned officer and/or director of SIMULA, INC. (the "Company")
does hereby constitute and appoint Bradley P. Forst and Sean K. Nolen with full
power of substitution, my true and lawful attorney and agent, to do any and all
acts and things in my name in the capacity indicated below, and to execute any
and all instruments for me and in my name in the capacities indicated below that
he may deem necessary or advisable to enable the Company to register securities
and comply with the Securities Act of 1933, the Securities Exchange Act of 1934,
and any rules, regulations and requirements of the Securities and Exchange
Commission in connection with periodic reports on Form 3, Form 4, Form 5, or
Form 144, covering such shares of preferred stock, common stock, options,
warrants, or other securities of the Company that I may acquire or dispose of,
including specifically, but not limited to, the power and authority to sign for
me in the capacity indicated below any and all amendments thereto; and I do
hereby ratify and confirm all that Bradley P. Forst or Sean K. Nolen shall do or
cause to be done by virtue hereof.
Dated this 20th day of February, 1997.
/s/ Stanley P. Desjardins
-----------------------------------------
S. P. DESJARDINS
CHAIRMAN AND CHIEF EXECUTIVE
OFFICER
<PAGE> 2
POWER OF ATTORNEY
The undersigned officer and/or director of SIMULA, INC. (the "Company")
does hereby constitute and appoint Bradley P. Forst and Sean K. Nolen with full
power of substitution, my true and lawful attorney and agent, to do any and all
acts and things in my name in the capacity indicated below, and to execute any
and all instruments for me and in my name in the capacities indicated below that
he may deem necessary or advisable to enable the Company to register securities
and comply with the Securities Act of 1933, the Securities Exchange Act of 1934,
and any rules, regulations and requirements of the Securities and Exchange
Commission in connection with periodic reports on Form 3, Form 4, Form 5, or
Form 144, covering such shares of preferred stock, common stock, options,
warrants, or other securities of the Company that I may acquire or dispose of,
including specifically, but not limited to, the power and authority to sign for
me in the capacity indicated below any and all amendments thereto; and I do
hereby ratify and confirm all that Bradley P. Forst or Sean K. Nolen shall do or
cause to be done by virtue hereof.
Dated this 20th day of February, 1997.
/s/ Donald W. Townsend
-----------------------------------------
DONALD W. TOWNSEND
PRESIDENT AND DIRECTOR
<PAGE> 3
POWER OF ATTORNEY
The undersigned officer and/or director of SIMULA, INC. (the "Company")
does hereby constitute and appoint Sean K. Nolen with full power of
substitution, my true and lawful attorney and agent, to do any and all acts and
things in my name in the capacity indicated below, and to execute any and all
instruments for me and in my name in the capacities indicated below that he may
deem necessary or advisable to enable the Company to register securities and
comply with the Securities Act of 1933, the Securities Exchange Act of 1934, and
any rules, regulations and requirements of the Securities and Exchange
Commission in connection with periodic reports on Form 3, Form 4, Form 5, or
Form 144, covering such shares of preferred stock, common stock, options,
warrants, or other securities of the Company that I may acquire or dispose of,
including specifically, but not limited to, the power and authority to sign for
me in the capacity indicated below any and all amendments thereto; and I do
hereby ratify and confirm all that Sean K. Nolen shall do or cause to be done by
virtue hereof.
Dated this 20th day of February, 1997.
/s/ Bradley P. Forst
-----------------------------------------
BRADLEY P. FORST
VICE PRESIDENT, GENERAL COUNSEL,
CORPORATE SECRETARY, AND DIRECTOR
<PAGE> 4
POWER OF ATTORNEY
The undersigned officer and/or director of SIMULA, INC. (the "Company")
does hereby constitute and appoint Bradley P. Forst with full power of
substitution, my true and lawful attorney and agent, to do any and all acts and
things in my name in the capacity indicated below, and to execute any and all
instruments for me and in my name in the capacities indicated below that he may
deem necessary or advisable to enable the Company to register securities and
comply with the Securities Act of 1933, the Securities Exchange Act of 1934, and
any rules, regulations and requirements of the Securities and Exchange
Commission in connection with periodic reports on Form 3, Form 4, Form 5, or
Form 144, covering such shares of preferred stock, common stock, options,
warrants, or other securities of the Company that I may acquire or dispose of,
including specifically, but not limited to, the power and authority to sign for
me in the capacity indicated below any and all amendments thereto; and I do
hereby ratify and confirm all that Bradley P. Forst shall do or cause to be done
by virtue hereof.
Dated this 20th day of February, 1997.
/s/ Sean K. Nolen
-----------------------------------------
SEAN K. NOLEN
VICE PRESIDENT, CHIEF FINANCIAL
OFFICER, TREASURER, AND DIRECTOR
<PAGE> 5
POWER OF ATTORNEY
The undersigned officer and/or director of SIMULA, INC. (the "Company")
does hereby constitute and appoint Bradley P. Forst and Sean K. Nolen with full
power of substitution, my true and lawful attorney and agent, to do any and all
acts and things in my name in the capacity indicated below, and to execute any
and all instruments for me and in my name in the capacities indicated below that
he may deem necessary or advisable to enable the Company to register securities
and comply with the Securities Act of 1933, the Securities Exchange Act of 1934,
and any rules, regulations and requirements of the Securities and Exchange
Commission in connection with periodic reports on Form 3, Form 4, Form 5, or
Form 144, covering such shares of preferred stock, common stock, options,
warrants, or other securities of the Company that I may acquire or dispose of,
including specifically, but not limited to, the power and authority to sign for
me in the capacity indicated below any and all amendments thereto; and I do
hereby ratify and confirm all that Bradley P. Forst or Sean K. Nolen shall do or
cause to be done by virtue hereof.
Dated this 20th day of February, 1997.
/s/ Robert D. Olliver
-----------------------------------------
ROBERT D. OLLIVER
DIRECTOR
<PAGE> 6
POWER OF ATTORNEY
The undersigned officer and/or director of SIMULA, INC. (the "Company")
does hereby constitute and appoint Bradley P. Forst and Sean K. Nolen with full
power of substitution, my true and lawful attorney and agent, to do any and all
acts and things in my name in the capacity indicated below, and to execute any
and all instruments for me and in my name in the capacities indicated below that
he may deem necessary or advisable to enable the Company to register securities
and comply with the Securities Act of 1933, the Securities Exchange Act of 1934,
and any rules, regulations and requirements of the Securities and Exchange
Commission in connection with periodic reports on Form 3, Form 4, Form 5, or
Form 144, covering such shares of preferred stock, common stock, options,
warrants, or other securities of the Company that I may acquire or dispose of,
including specifically, but not limited to, the power and authority to sign for
me in the capacity indicated below any and all amendments thereto; and I do
hereby ratify and confirm all that Bradley P. Forst or Sean K. Nolen shall do or
cause to be done by virtue hereof.
Dated this 20th day of February, 1997.
/s/ James C. Withers
-----------------------------------------
JAMES C. WITHERS
DIRECTOR
<PAGE> 7
POWER OF ATTORNEY
The undersigned officer and/or director of SIMULA, INC. (the "Company")
does hereby constitute and appoint Bradley P. Forst and Sean K. Nolen with full
power of substitution, my true and lawful attorney and agent, to do any and all
acts and things in my name in the capacity indicated below, and to execute any
and all instruments for me and in my name in the capacities indicated below that
he may deem necessary or advisable to enable the Company to register securities
and comply with the Securities Act of 1933, the Securities Exchange Act of 1934,
and any rules, regulations and requirements of the Securities and Exchange
Commission in connection with periodic reports on Form 3, Form 4, Form 5, or
Form 144, covering such shares of preferred stock, common stock, options,
warrants, or other securities of the Company that I may acquire or dispose of,
including specifically, but not limited to, the power and authority to sign for
me in the capacity indicated below any and all amendments thereto; and I do
hereby ratify and confirm all that Bradley P. Forst or Sean K. Nolen shall do or
cause to be done by virtue hereof.
Dated this 20th day of February, 1997.
/s/ Scott E. Miller
-----------------------------------------
SCOTT E. MILLER
DIRECTOR
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