<PAGE> 1
DRAFT OF: MARCH 30, 1997
THE INFORMATION CONTAINED
IN THIS DOCUMENT IS
------------------------------------------------------------------
CONFIDENTIAL
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(LOGO)
Bowne of Phoenix (602) 223-4455
FAX (602) 223-4456
<PAGE> 2
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 31, 1997
REGISTRATION NO. 333-13499
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
SIMULA, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
ARIZONA 3728 86-0320129
(State of Incorporation) (Primary Standard Industrial (I.R.S. Employer
Classification Code Number) Identification No.)
</TABLE>
------------------------
2700 NORTH CENTRAL AVENUE, SUITE 1000
PHOENIX, ARIZONA 85004
(602) 631-4005
(Address, including zip code, and telephone number, including
area code, of Registrant's principal executive offices)
------------------------
BRADLEY P. FORST, ESQ.
VICE PRESIDENT AND GENERAL COUNSEL
2700 NORTH CENTRAL AVENUE, SUITE 1000
PHOENIX, ARIZONA 85004
(602) 631-4005
(Name, address including zip code, and telephone number,
including area code, of agent for service)
with copies to:
<TABLE>
<S> <C>
CHRISTIAN J. HOFFMANN, III, ESQ. ROBERT S. KANT, ESQ.
STREICH LANG, P.A. MICHELLE S. MONSEREZ, ESQ.
RENAISSANCE ONE O'CONNOR, CAVANAGH, ANDERSON,
TWO NORTH CENTRAL AVENUE KILLINGSWORTH & BESHEARS, P.A.
PHOENIX, ARIZONA 85004-2391 ONE EAST CAMELBACK ROAD, SUITE 1100
(602) 229-5200 PHOENIX, ARIZONA 85012-1656
(602) 263-2400
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------
TITLE OF EACH CLASS PROPOSED PROPOSED
OF SECURITIES TO BE AMOUNT TO BE MAXIMUM OFFERING MAXIMUM AGGREGATE AMOUNT OF
REGISTERED REGISTERED PRICE PER SHARE(3) OFFERING PRICE REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------------
Convertible Exchangeable
Preferred Stock, par value
$.05 per share(1).......... 1,380,000 shares $25.00 $34,500,000 $11,896
- ---------------------------------------------------------------------------------------------------------
Common Stock, par value $.01
per share(2)............... 2,300,000 shares -- -- (4)
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% Senior Subordinated
Convertible Exchange
Notes...................... $34,500,000 (5)
=========================================================================================================
</TABLE>
(1) Includes 180,000 shares that may be purchased pursuant to the Underwriters'
over-allotment option.
(2) This number is estimated on the date of this Registration Statement. The
actual number of shares of Common Stock issuable upon conversion will be
determined by the Conversion Rate on the date this Registration Statement
becomes effective.
(3) Estimated solely for purposes of calculating the registration fee.
(4) The shares of Common Stock being registered hereby are issuable upon
conversion of shares of Convertible Exchangeable Preferred Stock or %
Senior Subordinated Convertible Exchange Notes. Accordingly, no additional
filing fee is required pursuant to Rule 457(i) under the Securities Act of
1933.
(5) The % Senior Subordinated Convertible Exchange Notes being registered
hereby are issuable upon exchange of shares of Convertible Exchangeable
Preferred Stock. Accordingly, no additional filing fee is required pursuant
to Rule 457(i) under the Securities Act of 1933.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 3
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED MARCH 31, 1997
PROSPECTUS
1,200,000 SHARES
SIMULA, INC.
$ SERIES A CONVERTIBLE EXCHANGEABLE PREFERRED STOCK
SIMULA LOGO W/O NAME
Simula, Inc. (the "Company") is hereby offering 1,200,000 shares of its
$ Series A Convertible Exchangeable Preferred Stock, par value $.05 per
share ("Preferred Stock"). Dividends on the Preferred Stock are cumulative from
the date of original issuance and payable quarterly commencing July 30, 1997 at
an annual rate of $ per share. Each share of Preferred Stock is convertible
at the option of the holder at any time, unless previously redeemed, into shares
of the Company's Common Stock, par value $.01 per share ("Common Stock") at a
rate of shares of Common Stock for each share of Preferred Stock (the
"Conversion Rate"), equivalent to a conversion price of $ per share of
Common Stock, subject to adjustment in certain events.
The Preferred Stock may be redeemed at the Company's option, upon at least
30 days' notice, in whole or in part on a pro rata basis, on and after
, 1999, at certain specified redemption prices per share plus accrued
dividends payable to the redemption date. However, on or after , 1999
and prior to , 2000, the Preferred Stock will not be redeemable unless
the closing price of the Company's Common Stock as quoted on the New York Stock
Exchange ("NYSE") has equaled or exceeded $ for 20 trading days within a
period of 30 consecutive trading days. The Preferred Stock is also redeemable at
the option of the holders of the Preferred Stock in the event of a Change of
Control of the Company. See "Description of Preferred Stock."
The Preferred Stock may be exchanged at the option of the Company, as a
whole only, on any dividend payment date commencing , for the
Company's % Senior Subordinated Convertible Exchange Notes due
("Exchange Notes") in a principal amount equal to $ per share of Preferred
Stock so exchanged. The Exchange Notes provide for conversion and redemption on
substantially the same terms and conditions as the Preferred Stock. See
"Description of Exchange Notes."
The Common Stock of the Company is traded on the NYSE under the symbol
"SMU." On March 27, 1997, the closing price of the Common Stock on the NYSE was
$15.88 per share. See "Price Range of Common Stock." The Preferred Stock will be
listed for trading on the NYSE under the symbol "SMU-pfA," and, if issued, the
Exchange Notes will also be listed for trading on the NYSE.
INVESTORS SHOULD CAREFULLY CONSIDER THE FACTORS SET FORTH UNDER "RISK
FACTORS," BEGINNING ON PAGE 8.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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<TABLE>
<S> <C> <C> <C>
- --------------------------------------------------------------------------------
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) DISCOUNT(2) COMPANY(1)(3)
- ----------------------------------------------------------------------------------------------------
Per Share..................................... $ $ $
- ----------------------------------------------------------------------------------------------------
Total(4)...................................... $ $ $
====================================================================================================
</TABLE>
(1) Plus accrued dividends, if any, from the date of original issuance.
(2) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities arising under the Securities Act of 1933,
as amended. See "Underwriting."
(3) Before deducting expenses payable by the Company estimated at $ .
(4) The Company has granted to the Underwriters an option for 45 days to
purchase up to an additional 180,000 shares of Preferred Stock at the Price
to Public less the Underwriting Discount, solely to cover over-allotments,
if any. If such option is exercised in full, the total Price to Public,
Underwriting Discount, and Proceeds to Company will be $ ,
$ , and $ , respectively. See "Underwriting."
The shares of Preferred Stock are being offered by the Underwriters, when,
as and if delivered to and accepted by them and subject to the right of the
Underwriters to withdraw, cancel, modify, or reject any orders, in whole or in
part, and subject to certain other conditions. It is expected that delivery of
the certificates representing the shares will be made against payment therefor
in New York, New York, on or about , 1997.
HD BROUS & CO., INC.
BREAN MURRAY & CO., INC.
L.H. FRIEND, WEINRESS, FRANKSON & PRESSON, INC.
The date of this Prospectus is April , 1997
<PAGE> 4
COMMERCIAL TRANSPORTATION SEATING
<TABLE>
<C> <C> <C> <S>
[Photo of mass transit [Photo of rail seating] [Photo of 16g seat] 16g Seat designed
seating] to absorb 16 times
Rail Seating the force of
Mass Transit Seating gravity upon
impact.
</TABLE>
AUTOMOBILE SAFETY PRODUCTS
<TABLE>
<S> <C> <C>
The Company's patented inflatable
[Photo of ITS] tubular structure ("ITS") technology [Graphic of Inflatable Tubular
incorporates a tube that becomes Cushion ("ITC")]
ITS for side-impact head and neck shorter in length and wider in
protection. diameter as it inflates. It forms a Inflatable Tubular Cushion ("ITC")
rigid structure and does not vent
like a conventional airbag.
[Graphic of Inflatable Tubular
Bolster ("ITB")]
Inflatable Tubular Bolster ("ITB")
</TABLE>
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IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE PREFERRED STOCK
AND THE UNDERLYING COMMON STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE
PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK
STOCK EXCHANGE OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED
AT ANY TIME.
2
<PAGE> 5
PROSPECTUS SUMMARY
The following summary should be read in conjunction with, and is qualified
in its entirety by, the more detailed information and financial statements and
notes thereto appearing elsewhere in this Prospectus. Unless otherwise noted,
all information in this Prospectus assumes that the over-allotment option
granted to the Underwriters will not be exercised. All information in this
Prospectus gives retroactive effect to the Company's 3-for-2 stock split of its
Common Stock on September 28, 1995.
THE COMPANY
The Company is a market-focused developer of technologies and advanced
products and solutions addressing safety-related problems. A recognized world
leader in energy absorption and related safety technologies, the Company designs
and manufactures occupant seating, safety systems, and other devices engineered
to safeguard human life in a wide range of air, ground, and sea transportation
vehicles. Through strategic acquisitions and successful application of its
various proprietary technologies in a variety of industries, the Company in
recent years has expanded its market focus and is introducing new products for
commercial and military applications. The Company currently conducts operations
in three principal market segments including commercial transportation seating,
government and defense seating and safety systems, and automobile safety
systems. Products include commercial airliner seating systems, rail and
mass-transit seating, helicopter and other military aircraft crashworthy seats,
advanced composite materials including armor, and a side-impact head protection
inflatable restraint system for automobiles. In late 1997 the Company will
commence volume production for roll out of additional products including a
bulkhead airbag system for commercial airliners and two cockpit inflatable
restraint systems for military aircraft.
Energy-Absorbing and Other Seating Systems. For over 20 years, the Company
has been a leading provider of energy-absorbing, or "crashworthy," seating
systems. As an outgrowth of this core business, in late 1995 the Company
commenced the manufacture and sale of commercial airliner seating systems
utilizing its technology to comply with stringent new FAA safety standards
mandating seats designed to absorb 16 times the force of gravity upon impact
("16g"). Seating systems incorporating this crashworthy technology absorb shock
upon impact that would otherwise be absorbed by an occupant of the vehicle. This
is accomplished through engineering and utilization of the Company's proprietary
data bases regarding the properties of materials, failure characteristics, and
human body dynamics. Based on internal market surveys and data, management
believes that the Company is the world's largest supplier of energy-absorbing
military helicopter and other military aircraft seats and also is the leading
North American provider of seating systems for rail and other mass transit
vehicles.
Inflatable Restraint Systems. The Company has developed proprietary and
patented structures and systems that are used as inflatable restraints. The
first product for automobiles, the inflatable tubular structure ("ITS"), is
being introduced in certain BMW models to be delivered in 1997 to provide head
and neck protection in side-impact collisions. The Company has a variety of
other inflatable restraint applications and configurations for automobiles. The
Company has also developed and certified the first airbag systems for commercial
and military aircraft, which will be introduced in late 1997. In addition to
providing inflatable restraint products directly to automobile and aircraft
manufacturers, the Company licenses its proprietary inflatable restraint
technology and products to first tier component suppliers.
Armor and Other Composite Materials. The Company develops and manufactures
a variety of composite materials which are integrated into its products and the
products of third parties. The Company's principal composite products include
high-strength, ultra-lightweight armor systems for use in targeted applications,
such as surrounding crew seats in aircraft (V-22 Osprey, Apache, Blackhawk, and
CH-53 Sea Stallion), protecting vital components of aircraft (C-17 cockpits and
tank power units), and providing additional floor protection (multi-wheeled and
transport vehicles). Other new products utilizing the Company's composite
technology include portable transparent armor products for use in commercial
vehicles, such as police cars and executive vehicles.
3
<PAGE> 6
Introductory Stage Technologies. The Company has several technologies and
products in various phases of development that it believes will provide it with
new products over the next several years. These products include additional
applications of the Company's inflatable restraint technology, light-weight
transparent armor, advanced sensors with multi-axial sensing ability, a
vacuum-packed sealed parachute, and new polymers that may be used for
high-performance windows, lenses, visors, and a number of other applications.
The Company has experienced substantial growth since fiscal 1992 resulting
from the broader application of its technology, its strategic acquisitions, and
its development of new products. The Company's revenue increased from $18.8
million in 1992 to $65.8 million in 1996. During this time period, the
percentage of the Company's revenue derived from government and defense
contracts declined from 100% in 1990 to approximately 49% in 1996, with the
balance from commercial customers. The Company's principal customers include
America West Airlines, Autoliv GmbH, BMW, Boeing, Continental Airlines,
Matsushita, McDonnell Douglas, Morton International, Sikorsky Aircraft,
Southwest Airlines, metropolitan transit authorities in major North American
cities, and various branches of the United States armed forces and agencies.
The Company's strategy is to maintain its leading position in creating and
applying proprietary technologies and advanced solutions to safety related
problems and to develop its products for commercial sale to a wide range of
customers in each of its three market segments. The key elements in executing
this strategy are to (i) develop and utilize technology to enhance current
products and create new products, (ii) focus on new product markets and
regulatory requirements, (iii) expand manufacturing capabilities and maximize
internal synergies, and (iv) pursue acquisitions and strategic alliances that
complement existing businesses or provide manufacturing or distribution
opportunities.
The Company maintains its principal executive offices at 2700 North Central
Avenue, Suite 1000, Phoenix, Arizona 85004, and its telephone number is (602)
631-4005. Unless the context indicates otherwise, all references to the
"Company" or "Simula" refer to Simula, Inc. and its subsidiaries.
THE OFFERING
See "Description of Preferred Stock."
Securities Offered......... 1,200,000 shares of $ Preferred Stock.
Capital Stock
Outstanding................ 8,999,948 shares of Common Stock and no shares of
any class of preferred stock.
Capital Stock Outstanding
After Offering............. 8,999,948 shares of Common Stock and 1,200,000
shares of Preferred Stock that are convertible into
an aggregate of shares of Common Stock.
Liquidation Preference..... $ per share of Preferred Stock, plus
accumulated and unpaid dividends.
Dividends.................. Cumulative annual dividends of $ per share
payable quarterly out of assets legally available
therefor on the 30th day of January, April, July,
and October of each year (or if such day is not a
business day, on the next succeeding business day),
commencing July 30, 1997 (each such date, a
"dividend payment date") when, as, and if declared
by the Board of Directors. Dividends will cumulate
from the date of issuance.
Conversion Rights.......... Each share of Preferred Stock is convertible at the
option of the holder at any time, unless previously
redeemed, into shares of the Company's Common
Stock (the "Conversion Rate"), equivalent to a
conversion price of $ per share of Common Stock,
subject to adjustment in certain events.
Exchangeability............ The Preferred Stock may be exchanged at the option
of the Company, as a whole only, on any dividend
payment date commencing , for the
Exchange Notes in a principal amount equal to
$ per share of Preferred Stock so
exchanged. The Exchange Notes provide for
conversion and redemption on substantially the same
terms and conditions as the Preferred Stock. See
"Description of Exchange Notes."
4
<PAGE> 7
Optional Redemption........ If not earlier converted, exchanged, or redeemed,
the Preferred Stock may be redeemed at the
Company's option, upon at least 30 days' notice, in
whole or in part on a pro rata basis, on and after
, 1999, at certain specified redemption
prices per share plus accrued dividends payable to
the redemption date. However on or after
, 1999 and prior to , 2000,
the Preferred Stock will not be redeemable unless
the closing price of the Company's Common Stock as
quoted on the New York Stock Exchange ("NYSE") has
equaled or exceeded $ for 20 trading days
within a period of 30 consecutive trading days.
Change of Control
Redemption................. Within 30 days following the occurrence of any
Change of Control, as defined herein, the Company
will offer ("Change of Control Offer") to purchase
all outstanding Preferred Stock at a purchase price
of $ per share plus accrued and unpaid dividends
to the date of the Change of Control Offer. No
assurance can be given that upon such event the
Company would have adequate or legally available
resources to pay such redemption price. Further,
redemption rights of preferred stockholders could
be subordinated to the rights of creditors.
Voting Rights.............. The holders of the Preferred Stock are not entitled
to vote, except as set forth below and as provided
by law. On matters subject to a vote by holders of
the Preferred Stock, the holders are entitled to
one vote per share. If the equivalent of six
consecutive quarterly dividends payable on the
Preferred Stock, or on any other series of
preferred stock ranking on a parity with the
Preferred Stock as to dividends or liquidation
rights and having similar voting rights, are in
arrears, the number of directors of the Company
will be increased by two and the holders of all
outstanding series of parity preferred stock,
voting as a single class without regard to series,
will be entitled to elect the additional two
directors until all dividends in arrears have been
paid or declared and set apart for payment. Without
the consent of the holders of Preferred Stock, the
Company may issue other series of preferred stock
that are pari passu with, or junior to, the
Preferred Stock as to dividends and liquidation
rights. Without the approval of the holders of at
least a majority of the number of shares of
Preferred Stock, voting separately as a class, the
Company may not issue preferred stock that is
senior to the Preferred Stock as to dividends or
liquidation rights or amend, alter, or repeal any
of the voting rights, designations, preferences, or
other rights of the holders of the Preferred Stock
or amend the Company's Articles of Incorporation so
as to adversely affect such voting rights,
designations, preferences, or other rights.
Listing.................... The Preferred Stock will be listed for trading on
the NYSE under the symbol "SMU-pfA" and, if issued,
the Exchange Notes will also be listed for trading
on the NYSE. The Company's Common Stock is listed
on the NYSE under the symbol "SMU."
Use of Proceeds............ Expansion of manufacturing facilities, working
capital and other general purposes, and potentially
for acquisitions. See "Use of Proceeds."
Risk Factors............... Prospective purchasers of the Preferred Stock
offered hereby should carefully consider certain
risk factors as detailed in this Prospectus and
contained in all documents incorporated by
reference into this Prospectus. Included among such
factors are the Company's: recent and anticipated
losses, entry into new markets, production risks
and manufacturing experience, investment in and
dependence on proprietary technology, need for
additional capital, quarterly operating results,
cyclicality, possible volatility of stock price,
and management of growth. See "Risk Factors."
5
<PAGE> 8
SUMMARY CONSOLIDATED FINANCIAL DATA
<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
Operating (loss) income(1)......... (9,226) 4,443 5,184 2,665 2,387
(Loss) earnings before cumulative
effect of change in accounting
principle....................... (6,810) 2,657 2,114 1,121 1,270
Cumulative effect of change in
accounting principle(2)......... (3,240)
---------- ---------- ---------- ---------- ----------
Net (loss) earnings................ $ (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(2)(3):
Net earnings....................... $ 194 $ 1,675 $ 947 $ 1,313
========== ========== ========== ==========
Net earnings per share............. $ .02 $ .29 $ .19 $ .29
========== ========== ========== ==========
WEIGHTED AVERAGE SHARES
OUTSTANDING(4)..................... 8,947,060 8,576,817 5,704,926 5,024,679 4,608,825
---------- ---------- ---------- ---------- ----------
OTHER DATA:
Ratio of earnings to fixed charges
and preferred dividends(5)......... -- 2.19x 2.67x 3.00x 5.86x
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>
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------------------
AS ADJUSTED ACTUAL
1996(6) 1996 1995 1994 1993 1992
----------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital...................... $50,706 $23,206 $21,069 $ 5,236 $ 8,209 $ 4,049
Total assets......................... 107,288 86,688 73,136 47,691 26,787 18,007
Long-term debt....................... 24,697 24,697 11,261 15,339 12,794 4,839
Shareholders' equity(7).............. 64,687 37,187 46,087 16,649 8,078 7,232
</TABLE>
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(1) The operating loss for 1996 is primarily due to expenses attributable to
pre-contract development costs, 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. See "Risk Factors -- Recent and
Anticipated Losses."
(2) During the second quarter of 1996, the Company adopted a new method of
accounting for pre-contract costs. These costs were previously deferred and
recovered over the revenue streams from the Company's customers. Effective
January 1, 1996, these costs have been expensed. 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.
6
<PAGE> 9
(3) 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.
(4) The Company effected a 3-for-2 split of its Common Stock on September 28,
1995. As a result, all shares and related references have been restated for
all prior periods and transactions.
(5) Ratio of earnings to fixed charges and preferred dividends is computed by
dividing (i) earnings (loss) before income taxes plus fixed charges and
preferred stock dividend requirements by (ii) fixed charges and preferred
stock dividend requirements. Fixed charges consist of interest on
indebtedness, amortization of debt issuance cost and the estimated interest
component (one-third) of rental and lease expense. There were no preferred
stock dividend requirements during the periods presented. Earnings were
insufficient to cover fixed charges by approximately $11.6 million for the
year ended December 31, 1996.
(6) Adjusted to reflect the issuance of the 1,200,000 shares of Preferred Stock
offered hereby and the application of the estimated net proceeds of $27.5
million, assuming an offering price of $25 per share. The actual 1996
balances are adjusted to reflect: (i) an increase in working capital of
$27.5 million, reflecting the reduction of the revolving line of credit of
$6.9 million and an increase in cash of $20.6 million; (ii) an increase in
total assets of $20.6 million; and (iii) an increase in shareholders' equity
of $27.5 million.
(7) The Company has not paid any cash dividends since its April 1992 initial
public offering.
7
<PAGE> 10
RISK FACTORS
Prospective purchasers of the Preferred Stock offered hereby should
carefully consider the following factors in addition to the other information in
this Prospectus. This Prospectus contains certain forward-looking statements and
information. The cautionary statements made in this Prospectus should be read as
being applicable to all related forward-looking statements wherever they appear
in this Prospectus. Forward-looking statements, by their very nature, include
risks and uncertainties. Accordingly, the Company's actual results could differ
materially from those discussed herein. Factors that could cause or contribute
to such differences include those discussed below as well as those discussed
elsewhere herein. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
RECENT AND ANTICIPATED LOSSES
In order to prepare for the production of the crashworthy seating systems
for commercial airliners (the "16g Seat") in commercial quantities and the
commercial introduction of the ITS and bulkhead airbag, the Company incurred
significant pre-contract costs, which were charged to expense in 1996. In prior
years, such costs were capitalized. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and Note 2 to the Consolidated
Financial Statements. In order to support the introduction and production of
these products, the Company incurred plant start-up costs and significantly
increased expenses applicable to its corporate and sales infrastructure, which
expenses were necessary to develop markets and support the production of these
products that are anticipated to produce revenue in 1997. In addition, the
Company accelerated research and development expenses applicable to potential
new products related to these technologies. The incurrence of these costs
resulted in a loss before the cumulative effect of the change in accounting
principle of $6.8 million for the year ended December 31, 1996, and will result
in a net loss in the first quarter of 1997. The Company cannot estimate the
amount of this loss at this time. The Company's contracts for the 16g Seat and
ITS provide for deliveries of significant commercial quantities in 1997. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
ENTRY INTO NEW MARKETS
The Company recently commenced full scale production for new product
roll-outs in 1997 for its 16g Seats and ITS and plans to enter full scale
production for new product roll-outs for a bulkhead airbag system for commercial
aircraft and two cockpit inflatable restraint systems for military aircraft.
There can be no assurance that the Company will be successful in the
introduction of its new products. Such success will depend on a variety of
factors, including successful product testing and acceptance by its potential
customers, particularly airlines and automobile manufacturers; the success of
the Company's sales and marketing efforts in markets not previously addressed by
the Company; successful and rapid expansion of the Company's manufacturing
capacity, including the expansion or establishment of additional manufacturing
facilities, particularly for inflatable restraints and aircraft seating systems;
the ability of the Company's products to provide their intended benefits; and
increasing government safety regulations and consumer safety concerns,
particularly for energy-absorbing seating systems and for inflatable restraints.
If the Company is unable to manufacture and market its new products
successfully, its business, results of operations, and financial condition will
be materially and adversely affected. See "Business."
PRODUCTION RISKS AND MANUFACTURING EXPERIENCE
The Company does not have experience in high-volume manufacturing and must
build capacity to meet anticipated demand for certain of its new products. The
Company is currently adding to its production capabilities through new plant and
equipment. The Company plans to use approximately $10 million of the net
proceeds of this offering to expand existing manufacturing facilities, primarily
for the manufacture of aircraft inflatable restraint systems and components
related to the ITS. See "Use of Proceeds." The Company has received initial
purchase orders for the ITS and has invested substantial resources for its
manufacture prior to receipt of volume orders. From January 1, 1995 to December
31, 1996 the Company invested approximately $14.4 million in the purchase of
plant and equipment. The Company funded this investment with its bank credit
facilities. The Company believes that it currently has sufficient capacity to
meet 1997 delivery requirements. The Company could incur significant start-up
costs, expenses, and delays in connection with its
8
<PAGE> 11
attempts to manufacture commercial quantities of its new products. There can be
no assurance that the anticipated level of demand will occur or that the Company
will not experience either overcapacity or undercapacity in its new production
facilities. Further, there can be no assurance that the Company will be
successful in overcoming the technological, engineering, and management
challenges associated with the production of commercial quantities of its new
products, at any given volume, at acceptable costs, or on a timely or profitable
basis. Operating results could be adversely affected if the expansion of the
Company's manufacturing capacity is delayed or inefficiently implemented. No
assurance can be given that the Company will not experience manufacturing
inefficiencies or delivery problems in the future in the event of fluctuations
in demand. When and if the Company receives volume orders for its products, it
may determine to license or outsource the manufacturing of certain of the
components. There can be no assurance that the Company will be able to identify
manufacturers that will meet its requirements as to quality, reliability,
timeliness, and cost-effectiveness. Any such failure will limit the Company's
ability to satisfy customer orders and would have a material adverse effect on
the Company's business, results of operations, and financial condition. See
"Business -- Production, Manufacturing, and Licensing."
The Company believes that its products and components have passed, and will
continue to pass, certain product performance and reliability testing by its
customers; however, there can be no assurance that its products will continue to
pass such testing in the future, particularly as the Company moves toward higher
production volumes. If such problems occur, the Company could experience
increased costs, delays, reductions or cancellations of orders and shipments,
and warranty issues, any of which could adversely affect the Company's business,
results of operations, and financial condition.
ABILITY TO PAY PREFERRED STOCK DIVIDENDS
Arizona law prohibits the payment of dividends or other distributions to
shareholders if, after giving effect to such distribution, the Company's total
assets are less than its total liabilities. Any dividends not paid will accrue.
No interest will be paid on any accrued but unpaid dividends. While the Company
has historically had a sufficient capital surplus, there can be no assurance
that the Company will in the future have sufficient surplus to pay dividends on
the Preferred Stock. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Description of Preferred Stock," and
"Description of Other Capital Stock and Debt Securities."
INVESTMENT IN AND DEPENDENCE ON PROPRIETARY TECHNOLOGY
The Company's future success and competitive position depend to a
significant extent upon its proprietary technology. The Company must make
significant investments to continue to develop and refine its technologies.
Technological advances, the introduction of new products, and new design and
manufacturing techniques could adversely affect the Company's operations unless
the Company is able to adapt to the resulting change in conditions. As a result,
the Company will be required to expend substantial funds for and commit
significant resources to the conduct of continuing research and development
activities, the engagement of additional engineering and other technical
personnel, the purchase of advanced design, production, and test equipment, and
the enhancement of design and manufacturing processes and techniques. The
Company's future operating results will depend to a significant extent on its
ability to continue to provide design and manufacturing services for new
products that compare favorably on the basis of time to introduction, cost, and
performance with the design and manufacturing capabilities of aircraft,
automobile, and other transportation vehicle suppliers. The success of new
design and manufacturing services depends on various factors, including
utilization of advances in technology, innovative development of new solutions
for customer products, efficient and cost-effective services, timely completion
and delivery of new product solutions, and market acceptance of customers' end
products. Because of the complexity of the Company's products, the Company may
experience delays from time to time in completing the design and manufacture of
new product solutions. In addition, there can be no assurance that any new
product solutions will receive or maintain customer or market acceptance. If the
Company were unable to design and manufacture solutions for new products of its
customers on a timely and cost-effective basis, its future operating results
would be adversely affected.
9
<PAGE> 12
The Company relies in part on patent, trade secret, and copyright law to
protect its intellectual property. There can be no assurance that any patent
owned by the Company will not be invalidated or challenged, that the rights
granted thereunder will provide competitive advantages to the Company, or that
any of the Company's pending or future patent applications will be issued with
the scope of the claims sought by the Company, if at all. Furthermore, there can
be no assurance that others will not develop technologies that are similar or
superior to the Company's technology, duplicate the Company's technology, or
design around the patents owned by the Company. In addition, effective patent
and other intellectual property protection may be unavailable or limited in
certain foreign countries. There can be no assurance that the steps taken by the
Company will prevent misappropriation of its technology. Litigation may be
necessary in the future to enforce the Company's patents and other intellectual
property rights, to protect the Company's trade secrets, and to determine the
validity and scope of the proprietary rights of others. Similarly, there can be
no assurance that the Company's technologies will not be subject to claims that
they infringe the rights of others, which would require the Company to defend
such claims. Patent and trade secret litigation could result in substantial
costs and diversion of resources, which could have a material adverse effect on
the Company's operating results and financial condition. See
"Business -- Proprietary Technology."
DEPENDENCE ON INDUSTRY RELATIONSHIPS
A number of the Company's products are components in its customers' final
products. In particular, the Company's automobile and aircraft inflatable
restraint systems are intended for use as components in automobiles or aircraft.
Accordingly, to gain market acceptance, the Company must demonstrate that its
products will provide advantages to the manufacturers of final products,
including increasing the safety of their products, providing such manufacturers
with competitive advantages, or assisting such manufacturers in complying with
existing or new government regulations affecting their products. There can be no
assurance that the Company's products will be able to achieve any of these
advantages for the products of its customers. Furthermore, even if the Company
is able to demonstrate such advantages, there can be no assurance that such
manufacturers will elect to incorporate the Company's products into their final
products, or if they do, that the Company's products will be able to meet such
customers' manufacturing requirements. Additionally, there can be no assurance
that the Company's relationships with its manufacturer customers will ultimately
lead to volume orders for the Company's products. The failure of manufacturers
to incorporate the Company's products into their final products would have a
material adverse effect on the Company's business, results of operations, and
financial condition. The Company also depends on its relationships with first
tier component suppliers to which it licenses its proprietary technology to
facilitate the marketing and distribution of its products, particularly its
inflatable restraint products. See "Business -- Operating and Growth Strategy --
Expanding Manufacturing Capabilities and Maximizing Internal Synergies."
SUBSTANTIAL RELIANCE UPON MAJOR CUSTOMERS
The Company's business has relied to a great extent on relatively few major
customers, although the mix of major customers has varied from year to year
depending on the status of then current contracts. During fiscal 1995 and fiscal
1996, no commercial customer accounted for more than 10% of the Company's
revenue. Although the Company has long-established relationships with a number
of its customers, the Company does not have long-term supply contracts with any
customers. The Company's customers also generally do not commit to long-term
production schedules and, as a result, customer orders generally can be canceled
and volume levels changed or delayed. The timely replacement of canceled,
delayed, or reduced orders cannot be assured. The loss or reduction in sales to
a major customer may have a more material adverse effect on the Company's
operations and financial condition than would be the case if the Company's
revenue were less concentrated by customer. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and
"Business -- Customers."
The Company believes that the United States Army and other branches of the
United States armed forces as well as prime defense contractors, to which the
Company has supplied products for approximately 20 years, will continue to be
major customers, although the percentage of the Company's revenue attributable
to them can be expected to decrease as a result of the Company's expanding
commercial operations. See
10
<PAGE> 13
"Business -- Customers" and "Business -- Backlog." For the year ended December
31, 1996, approximately 23%, 4% and 9% of the Company's revenue was attributable
to the Company's contracts with the United States Army, other branches of the
United States armed forces, and prime defense contractors, respectively.
Reliance upon defense contracts involves certain inherent risks, including
dependence on Congressional appropriations, changes in governmental policies
that reflect military and political developments, and other factors
characteristic of the defense industry. The Company believes that the impact of
reductions in military expenditures have been and may continue to be less
significant on the Company than on many other military suppliers because
completed and currently announced reductions in military expenditures have
tended to relate more to strategic programs than to the types of tactical
programs that the Company's products address. There can be no assurance,
however, that reductions in military expenditures or the type of reductions
instituted will not adversely affect the Company's business, operating results,
and financial condition. See "Business -- Overview of Market Segments and
Industries -- Government and Defense."
EFFECT OF GOVERNMENT CONTRACT PROVISIONS
As a contractor and subcontractor to the United States government, the
Company is subject to various laws and regulations that are more restrictive
than those applicable to non-government contractors. Sales of many of the
Company's products are governed by rules favoring the government's contractual
position. As a consequence, such contracts may be subject to protest or
challenge by unsuccessful bidders or to termination, reduction, or modification
in the event of changes in government requirements, reductions of federal
spending, or other factors. The Company's government-related revenue has
resulted almost exclusively from firm, fixed-price contracts. Fixed-price
contracts involve certain inherent risks to the Company, including
underestimating costs, problems with new technologies, and economic and other
changes that may occur over the contract period. The accuracy and
appropriateness of certain costs and expenses used to substantiate direct and
indirect costs of the Company for the United States government under both
cost-plus and fixed-price contracts are subject to extensive regulation and
audit by the Defense Contract Audit Agency ("DCAA"), an arm of the United States
Department of Defense. The DCAA has the right to challenge the Company's cost
estimates or allocations with respect to any such contract. If a DCAA audit
establishes overcharges or discrepancies in costs or accounting, it can seek the
repayment of such overcharges or seek other reconciliations. DCCA audits are
routine in the defense contracting industry, and the Company has been subject to
such audits from time to time. Since the inception of the Company's operations,
no DCAA audit has resulted in an adverse determination against the Company. In
September 1993, however, the Company agreed to pay $445,000 over a 12-month
period to resolve an overcharge dispute, without any admission of liability. The
investigation and settlement resulted in the review of virtually all of the
Company's government contracts entered into between April 1987 and June 1990.
The settlement agreement concluded any other potential defective pricing claims
on all of the Company's contracts with the United States Department of Defense
negotiated during that period.
NEED FOR ADDITIONAL CAPITAL
In order to meet the anticipated demand for its products in 1998 and
beyond, the Company must continue to make significant investments in research
and development, equipment, and facilities, including capital expenditures to
construct and equip the facilities. The Company's operating results may be
adversely affected if its revenue does not increase sufficiently to offset the
increase in fixed costs and operating expenses relating to these capital
expenditures. The continued expansion of the Company's business may require it,
from time to time, to seek debt or equity financing in addition to the funds to
be provided by this offering. Such capital expenditures may be required to
maintain or expand the Company's engineering, design, and production facilities
and equipment as well as to otherwise finance the growth of its business. The
Company cannot predict the timing or amount of any such capital requirements.
The Company anticipates that such financing may include bank financing or the
issuance of debt or equity securities. The Company's ability to incur
indebtedness is limited by covenants and restrictions under the Company's loan
agreement with Wells Fargo Bank N.A. See "Management's Discussions and Analysis
of Financial Condition and Results of Operations -- Liquidity and Capital
Resources." The ability of the Company to obtain bank financing or raise
additional debt or equity capital also will depend on its financial condition
and results of operations. In
11
<PAGE> 14
addition, there can be no assurance that additional financing will be available
to the Company if and when required and under terms acceptable to the Company.
ACQUISITIONS
The Company's acquisition strategy depends in large part on its continued
ability to successfully acquire, integrate, and operate additional companies
that have complementary businesses that can utilize or enhance the Company's
technologies or that can provide benefits in terms of manufacturing,
distribution, or availability of component parts. The Company has completed
three major acquisitions since August 1993. There can be no assurance that the
Company will be able to identify additional suitable acquisition candidates,
that it will be able to consummate or finance any such acquisitions, or that it
will be able to integrate any such acquisitions successfully into its
operations. See "Business -- Operating and Growth Strategy -- Exploring
Acquisition and Strategic Alliance Opportunities" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
QUARTERLY OPERATING RESULTS; CYCLICALITY
Since the beginning of 1993, the Company has experienced significant growth
in its revenue and net income as a result of internal growth and its
acquisitions. As a growth company, the Company's quarterly results may be
especially variable and historic results are not a reliable basis on which to
predict future operating results. Further, during the second quarter of 1996,
the Company adopted a new method of accounting for pre-contract costs under
which various costs are expensed as incurred rather than being deferred. The
effect of changing this accounting principle resulted in a restatement and
reduction of earnings per share previously reported for the first quarter of
1996. The Company's change in accounting method in 1996 will make year to year
and quarter to quarter comparisons of earnings difficult. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
The continued success of the Company will be impacted by the cyclical
nature of the airline, rail, and automobile industries as well as other markets
served by the Company's products; the level and makeup of military expenditures;
technological changes; competition and competitive pressures on pricing; new
government regulations; and economic conditions in the United States and
worldwide markets served by the Company and its customers. The Company's
products are incorporated into a variety of transportation vehicles. A slowdown
in demand for such new transportation vehicles or modification services to
existing transportation vehicles as a result of economic or other conditions in
the United States or in the worldwide markets served by the Company and its
customers or other broad-based factors could adversely affect the Company's
operating results and financial condition. Conversely, an increase in demand for
new transportation vehicles or modification services could strain the Company's
capacity, its manufacturing efficiency, and delivery schedules. See "Business."
POSSIBLE VOLATILITY OF STOCK PRICE
The trading price of the Company's Common Stock has been and in the future
may be subject to wide fluctuations in response to quarterly variations in
operating results of the Company or its competitors, actual or anticipated
announcements of technical innovations or new products by the Company or its
competitors, contracts with key customers, new agreement negotiations, changes
in analysts' estimates of the Company's financial performance, general industry
conditions, military expenditures, worldwide economic and financial conditions,
and other events or factors. In addition, the stock market has experienced
extreme price and volume fluctuations, which have particularly affected the
market price of many technology companies and which often have been unrelated to
the operating performance of such companies. These broad market fluctuations and
other factors may adversely affect the market price of the Company's Common
Stock. See "Price Range of Common Stock" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
12
<PAGE> 15
COMPETITION
The markets served by the Company's aircraft and rail seating and
inflatable restraint systems are intensely competitive. The Company's principal
competitors in the 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. However, based on internal market
surveys and data, the Company believes that it is the supplier for a majority of
the world's energy-absorbing seating programs under domestic and foreign
military contracts. The Company has 10 principal competitors in the commercial
airline seating market, dominated by BE Aerospace, Inc. The Company has four
principal competitors in the North American rail and mass transit seating
market. Most of the Company's competitors have greater marketing capabilities
and financial resources than the Company.
Although most of the Company's technology is proprietary, many businesses
are actively engaged in the research and development of new products and in the
manufacture and sale of products that may compete with the Company's seating and
inflatable restraint systems. The Company's present or future products could be
rendered obsolete by technological advances by one or more of its competitors or
by future entrants into its markets. Competition for commercial contracts
relates primarily to technical know-how, cost, and marketing efforts.
Competition for government contracts relates primarily to the award of contracts
for the development of proposed products rather than for the supply of products
that have been developed under contracts. Numerous suppliers compete for
government defense contracts as prime contractors or subcontractors. The demand
for aircraft seating, which is one of the Company's target markets, currently
exceeds supply; however, the Company's competitors may seek to cover such
undercapacity. As a result, there is no assurance that such undercapacity in
those markets will continue to exist in the future. A substantial increase in
the capacity of all manufacturers in those markets may have an adverse impact on
the Company's results of operations and financial condition. See
"Business -- Competition."
MANAGEMENT OF GROWTH
The Company currently is experiencing a period of significant growth. The
Company's ability to manage its growth effectively will require it to enhance
its operational, financial, and management information systems. In addition, the
Company must also effectively oversee operations of geographically dispersed
subsidiaries in diverse lines of business. The Company is increasing staffing
and other expenses as well as its expenditures on manufacturing plants, capital
equipment, and leasehold improvements in order to meet the anticipated demand of
its customers for its new products. However, the Company's customers generally
do not commit to firm production schedules for other than a relatively short
time in advance. The Company's profitability would be adversely affected if the
Company increased its expenditures in anticipation of future orders that do not
materialize. Its customers may also require, from time to time, rapid increases
in design and production services, which place an excessive short-term burden on
the Company's resources. The failure of the Company to manage its growth
effectively could have a material adverse effect on the Company's business,
operating results, and financial condition.
PRODUCT LIABILITY
The Company will face increasing exposure to product liability claims as it
increases its presence in commercial markets. Product liability claims may be
particularly significant in connection with the Company's commercial aircraft
and automobile products. The Company maintains product liability insurance,
including general product liability, special aircraft product liability, and
product recall insurance. In connection with its government business, product
liability defense is available to some extent under the so-called "government
contractor defense." In addition, the Company's product liability insurance also
provides protection with respect to exposure, if any, under government contracts
and products. The Company believes its insurance is adequate.
GOVERNMENT SAFETY REGULATIONS
The Company regularly monitors regulations adopted or being considered by
the Federal Aviation Administration ("FAA") relating to airlines, particularly
those relating to seating and restraints, and by the
13
<PAGE> 16
National Highway Traffic Safety Administration ("NHTSA"), particularly those
relating to airbags and other safety features in automobiles, rail, and other
mass transit vehicles. Administratively promulgated regulations are typically
subject to industry resistance, comment periods, and significant delays in
implementation. To the extent that proposed regulations are withdrawn or that
new or existing regulations are subsequently amended, rescinded, or deadlines
for compliance extended, the demand for improved safety systems, such as those
provided by the Company, could be adversely impacted. See
"Business -- Overview," "Business -- Operating and Growth Strategy -- Market and
Regulatory Focus," "Business -- Overview of Market Segments and
Industries -- Commercial Transportation Seating," and "Business -- Overview of
Market Segments and Industries -- Automobile Safety Systems."
HOLDING COMPANY STRUCTURE
The Company is a holding company with no business operations of its own.
The Company's only material assets are the outstanding capital stock of its
subsidiaries, through which it conducts its operations. See
"Business -- Operating and Growth Strategy." As a holding company, the Company
depends on dividends from its subsidiaries to pay dividends on the Preferred
Stock.
ENVIRONMENTAL REGULATIONS
The Company is subject to a variety of federal, state, and local government
regulations related to the storage, use, discharge, and disposal of toxic,
volatile, or otherwise hazardous chemicals used in its manufacturing processes.
There can be no assurance that changes in environmental regulations will not
impose the need for additional capital equipment or other requirements. Any
failure by the Company to obtain required permits for, control the use of, or
adequately restrict the discharge of, hazardous substances under present or
future regulations could subject the Company to substantial liability or could
cause manufacturing operations to be suspended. Such liability or suspension of
manufacturing operations could have a material adverse effect on the Company's
operating results and financial condition. See "Business -- Environmental
Regulations."
INTERNATIONAL TRADE AND CURRENCY EXCHANGE
Approximately 24% of the Company's revenue in fiscal 1996 was derived from
international customers, all of which is billed and recorded in U.S. dollars.
The Company has acquired manufacturing facilities outside the United States in
anticipation of an increased volume of business overseas, particularly with
respect to its inflatable restraint systems for automobiles. Therefore, the
Company purchases an increasing portion of its raw materials and equipment from
foreign suppliers and incurs labor costs in foreign locations. The foreign sale
of products and the purchase of raw materials and equipment from foreign
suppliers may be adversely affected by political and economic conditions abroad.
Protectionist trade legislation in either the United States or foreign
countries, such as a change in current tariff structures, export compliance
laws, or other trade policies, could adversely affect the Company's ability to
sell its products in foreign markets and purchase materials or equipment from
foreign suppliers.
DEPENDENCE ON MANAGEMENT AND OTHER KEY PERSONNEL
The Company's success depends upon the retention of key personnel,
particularly Stanley P. Desjardins, its founder and Chairman, and Donald W.
Townsend, its President. The Company has entered into five-year employment
contracts with Messrs. Desjardins and Townsend through the year 2001. The loss
of Messrs. Desjardins or Townsend or other existing key personnel or the failure
to recruit and retain necessary additional personnel would adversely affect the
Company's business prospects. Additionally, the covenants of one of the
Company's credit facilities requires that the Company continue to employ Messrs.
Desjardins and Townsend. There can be no assurance that the Company will be able
to retain its current personnel or attract and retain necessary additional
personnel. See "Business -- Employees" and "Management."
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<PAGE> 17
CONTROL BY MANAGEMENT
Following the completion of this offering and assuming the conversion of
the Preferred Stock (or Exchange Notes) into Common Stock, the directors and
executive officers of the Company will own an aggregate of 4,244,974 shares of
Common Stock, or approximately 47% of the outstanding Common Stock of the
Company, of which Stanley P. Desjardins owns 3,543,052 shares, or approximately
39% of the outstanding Common Stock of the Company. Through the ownership of
such Common Stock, the ability to elect or otherwise designate members of the
Board of Directors, as a practical matter, will continue to reside with the
current management of the Company. The directors and executive officers have the
right to acquire additional shares upon exercise of options granted under the
Company's stock option plans, and the executive officers may acquire additional
shares under the Company's Employee Stock Purchase Plan. See "Principal
Shareholders," "Management -- Stock Options," and "Management -- Employee Stock
Purchase Plan."
SHARES ELIGIBLE FOR FUTURE SALE
As of March 27, 1997, the Company had 8,999,948 shares of Common Stock
outstanding, of which 3,682,049 shares are "restricted securities" (the
"Restricted Shares") as that term is defined in Rule 144 under the Securities
Act of 1933, as amended (the "Act"). Such Restricted Shares may be subject to
volume and other resale limitations described below. The directors and executive
officers have agreed with the Company at the request of the Underwriters not to
sell or otherwise dispose of any shares of Common Stock in the public market for
a period of 90 days after the date of this Prospectus without the prior written
consent of the Underwriters. In general, under Rule 144 as amended effective
April 27, 1997, any person (or persons whose shares are aggregated for purposes
of Rule 144) who beneficially owns restricted securities with respect to which
at least one year has elapsed since the later of the date the shares were
acquired from the Company or from an affiliate of the Company, is entitled to
sell, within any three-month period, a number of shares that does not exceed the
greater of (i) 1% of the then outstanding shares of Common Stock of the Company,
or (ii) the average weekly trading volume in Common Stock during the four
calendar weeks preceding such sale. Sales under Rule 144 also are subject to
certain manner-of-sale provisions and notice requirements and to the
availability of current public information about the Company. A person who is
not an affiliate, has not been an affiliate within three months prior the sale,
and who beneficially owns restricted securities with respect to which at least
two years have elapsed since the later of the date the shares were acquired from
the Company or from an affiliate of the Company, is entitled to sell such shares
under Rule 144(k) without regard to any of the volume limitations or other
requirements described above. See "Principal Shareholders -- Shares Eligible For
Future Sale" and "Underwriting."
REGISTRATION RIGHTS
In September 1996, the Company issued $14.3 million principal amount of the
10% Notes in a private placement. Based on the average closing prices of the
Company's Common Stock for the 10 trading day period ending March 27, 1997, the
10% Notes are convertible into approximately 920,000 shares of Common Stock. See
"Description of Other Capital Stock and Debt Securities." As part of a
registration rights agreement, the Company has filed a registration statement
covering resales by the holders of the Common Stock issuable upon conversion of
the 10% Notes. Sales of substantial amounts of Common Stock in the public market
subsequent to the completion of this offering, and the possibility that such
sales may be made, could adversely affect the prevailing market price of the
Company's Common Stock into which the Preferred Stock may be converted.
NO PRIOR PUBLIC MARKET
There has been no public market for the Preferred Stock or the Exchange
Notes prior to this offering, and there can be no assurance that such market
will develop or be sustained upon completion of this offering. The trading
values of the Preferred Stock and the Exchange Notes, if issued, will most
likely be based on the market price of the Company's Common Stock and the value
attributed to the dividend or interest rights and other preferences of the
Preferred Stock and the Exchange Notes.
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<PAGE> 18
USE OF PROCEEDS
The net proceeds of the 1,200,000 shares being offered hereby, after
deducting underwriting discounts and offering expenses, are estimated to be
approximately $27.5 million, assuming an offering price of $25 per share. The
Company plans to use approximately $10.0 million of the net proceeds to expand
existing manufacturing facilities, primarily for the manufacture of aircraft and
rail seating systems and components related to the Company's automobile
side-impact inflatable restraint system. The Company also intends to use
approximately $6.9 million of the net proceeds for repayment of the outstanding
balance of its revolving line of credit which bears interest at LIBOR plus 2%
(7.5% at December 31, 1996) and matures June 1, 1998. The remaining net proceeds
will be used for working capital and other general corporate purposes, including
potential future acquisitions. The Company does not have any acquisitions
pending at this time.
Pending the uses described above, the Company will invest the net proceeds
of this offering in high quality government and short-term investment grade,
interest bearing securities.
The foregoing represents the Company's best estimate of its allocation of
the proceeds of this offering based upon its present plans and business
conditions. However, there can be no assurance that unforeseen events or changed
business conditions will not result in the application of the proceeds of this
offering in a manner other than as described in this Prospectus. Any such
reallocation of the net proceeds of this offering would be substantially limited
to the categories set forth above.
PRICE RANGE OF COMMON STOCK
The Company's Common Stock has been listed on the NYSE under the symbol
"SMU" since January 31, 1996. The Company's Common Stock traded on the American
Stock Exchange from October 14, 1993 until January 30, 1996, and on the Nasdaq
National Market System from April 14, 1992 until October 13, 1993.
On September 28, 1995, the Company completed a 3-for-2 stock split for all
holders of record of the Company's Common Stock as of September 15, 1995,
thereby increasing the number of shares of the Company's Common Stock then
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 27, 1997)............. $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, is estimated to be in excess
of 2,500. On March 27, 1997, the closing price of the Common Stock was $15.88
per share.
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<PAGE> 19
CAPITALIZATION
The following table sets forth (i) the actual capitalization of the Company
at December 31, 1996 and (ii) the capitalization as adjusted to give the effect
to the estimated net proceeds of this offering of $27.5 million, assuming an
offering price of $25 per share. See "Use of Proceeds" and Consolidated
Financial Statements contained elsewhere in this Prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1996(1)
-----------------------
ACTUAL AS ADJUSTED
------- -----------
(Dollars in thousands)
<S> <C> <C>
Current portion of long-term debt...................................... $ 4,536 $ 4,536
------- -------
4,536 4,536
------- -------
LONG-TERM DEBT:
12% Senior Subordinated Notes Due November 1998...................... 5,700 5,700
10% Senior Subordinated Convertible Notes due September 1999......... 14,300 14,300
Mortgage notes and other(2).......................................... 4,697 4,697
------- -------
24,697 24,697
------- -------
SHAREHOLDERS' EQUITY:
Preferred Stock, par value $.05 per share; 50,000,000 shares
authorized; no shares outstanding and 1,200,000 shares as
adjusted.......................................................... 60
Common Stock, par value $.01 per share; 50,000,000 shares authorized;
8,992,598 shares issued........................................... 90 90
Additional paid-in capital........................................... 39,031 66,471
Retained deficit..................................................... (1,966) (1,966)
Currency translation adjustment...................................... 32 32
------- -------
37,187 64,687
------- -------
Total capitalization................................................... $66,420 $93,920
======= =======
</TABLE>
- ---------------
(1) Excludes shares of Common Stock reserved for issuance under stock option
plans, the Employee Stock Purchase Plan and an estimate of 975,000 shares of
Common Stock reserved for issuance upon conversion of the 10% Notes. See
"Management -- Stock Option Plans, "Management -- Employee Stock Purchase
Plan" and "Description of Other Capital Stock and Debt Securities."
(2) Consists of various loans payable, secured by property and equipment;
unsecured installment notes; and obligations under capital leases. See Note
9 to Consolidated Financial Statements.
DIVIDEND POLICY
The Company has not paid any cash dividends since its April 1992 initial
public offering and does not plan to pay cash dividends on its Common Stock in
the foreseeable future. Instead, the Company intends to apply any earnings to
the expansion and development of its business. Any payment of cash dividends on
its Common Stock in the future will depend upon the Company's earnings,
financial condition and capital requirements and other factors which the Board
of Directors deems relevant. The Company may not pay dividends on Common Stock
at any time that the Company's Credit Agreement with Wells Fargo Bank N.A. is in
effect. For information relating to dividends on the Preferred Stock, see
"Description of Preferred Stock."
17
<PAGE> 20
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 financial
statements included elsewhere herein, at December 31, 1996 and 1995 and for the
three years in the period ended December 31, 1996 have been audited by Deloitte
& Touche LLP, independent auditors. 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(1)......... (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....................... (6,810) 2,657 2,114 1,121 1,270
Cumulative effect of change in
accounting principle(2)......... (3,240)
---------- ---------- ---------- ---------- ----------
Net (loss) earnings................ $ (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(2)(3):
Net earnings....................... $ 194 $ 1,675 $ 947 $ 1,313
========== ========== ========== ==========
Net earnings per share............. $ .02 $ .29 $ .19 $ .29
========== ========== ========== ==========
WEIGHTED AVERAGE SHARES
OUTSTANDING(4)..................... 8,947,060 8,576,817 5,704,926 5,024,679 4,608,825
OTHER DATA:
Ratio of earnings to fixed charges
and preferred dividends(5)......... -- 2.19x 2.67x 3.00x 5.86x
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> 21
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ----------
(Dollars in thousands, except per share data)
<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(6).............. 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) The operating loss for 1996 is primarily due to expenses attributable to
pre-contract development costs, 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. See "Risk Factors -- Recent and
Anticipated Losses."
(2) During the second quarter of 1996, the Company adopted a new method of
accounting for pre-contract costs. These costs were previously deferred and
recovered over the revenue streams from the Company's customers. Effective
January 1, 1996, these costs have been expensed. 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.
(3) 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.
(4) The Company effected a 3-for-2 split of its Common Stock on September 28,
1995. As a result, all shares and related references have been restated for
all prior periods and transactions.
(5) Ratio of earnings to fixed charges and preferred dividends is computed by
dividing (i) earnings (loss) before income taxes plus fixed charges and
preferred stock dividend requirements by (ii) fixed charges and preferred
stock dividend requirements. Fixed charges consist of interest on
indebtedness, amortization of debt issuance cost and the estimated interest
component (one-third) of rental and lease expense. There were no preferred
stock dividend requirements during the periods presented. Earnings were
insufficient to cover fixed charges by approximately $11.6 million for the
year ended December 31, 1996.
(6) The Company has not paid any cash dividends since its April 1992 initial
public offering.
19
<PAGE> 22
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 Prospectus. This
Prospectus contains certain forward-looking statements and information. The
cautionary statements should be read as being applicable to all related
forward-looking statements wherever they appear. The Company's actual future
results could differ materially from those discussed herein. See "-- Forward
Looking Information and Risks of the Business."
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 core historic 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 and Car Equipment Corporation ("Coach and Car") and Artcraft
Industries Corp. ("Artcraft"). The acquisitions of Coach and Car and Artcraft
are collectively referred to as the 1994 Acquisitions. The 1994 Acquisitions'
existing operations included providing a majority of all manufacturing and
refurbishment of rail and mass transit seating systems in North America. The
1994 Acquisitions also provided the Company with substantial large-scale
manufacturing capacity and synergies, which will be utilized in the production
of its 16g Seat 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.
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
20
<PAGE> 23
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
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1996 1995 1994
------- ------- -------
(Dollars in Thousands)
<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>
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>
21
<PAGE> 24
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%. See "Risk Factors -- Recent
and Anticipated Losses."
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 $2.0 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 by $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
precontract 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 and Car as it was
repositioned to begin high volume manufacturing of 16g Seat components; and 4)
lower individual gross margin percentages from the mix of contracts in process
or completed during the year at Coach and 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 for the
manufacture of the ITS which began shipments in 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
22
<PAGE> 25
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 for the year ended December 31, 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 million 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 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 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.
23
<PAGE> 26
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 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 12% 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. As of December 31, 1996 the Company was in
compliance with all covenants of the Indenture.
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
24
<PAGE> 27
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. The
Company was in compliance with all of the covenants on the effective date of the
amendment. 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 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
$45.0 million, a maximum leverage ratio, a minimum current ratio of 1.5 to 1 and
a minimum debt coverage ratio. As of December 31, 1996 the Company was in
compliance with all covenants.
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 and 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 $23.0 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 Common Stock for $26.4 million offset by
the net reduction of borrowings of $6.3 million.
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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. The Company believes that the net proceeds of this offering will
be sufficient to fund purchases of property and equipment and future working
capital requirements necessary to address the anticipated growth of demand and
markets for its new technologies and products for the next 18 months. The
Company may, however, seek 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. The net proceeds of this offering will be
used to 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.
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.
FORWARD LOOKING INFORMATION AND RISKS OF THE BUSINESS
During fiscal 1997 the Company will enter large scale production of the ITS
and 16g Seats and expects to complete roll-out of other new products, including
CABS, BABS, and IBAHRS. 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
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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.
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BUSINESS
OVERVIEW
The Company was formed in 1975 when its founder accepted a government
research contract to focus on engineering solutions that could be used to
protect the lives of American helicopter crews in crash situations. Because of
the rotary blade utilized by helicopters, helicopter pilots cannot eject in the
same manner as pilots in fixed-wing aircraft. The contract led to the Company's
development of a crashworthy seat, first introduced in the Army Blackhawk
helicopter.
The core technology developed under the Company's first contract was
energy-absorbing seating which, upon impact, absorbs shock that otherwise would
be directed onto the occupant. In the course of supplying the United States
armed forces and agencies with crashworthy seating, the Company performed years
of research and tests and developed proprietary databases with respect to how
materials stretch, bend, and break. Similarly, in an effort to provide
additional protection for pilots, the Company conducted extensive research and
development in the late 1970s on armor systems composed of a variety of
lightweight, high-strength composites and ceramics. Such lightweight armor
systems were eventually incorporated into most helicopter seating systems. This
armor technology has also led to the development of a variety of other armor and
occupant protection systems. In the 1980s, the Army asked the Company to develop
a solution to injuries suffered by pilots caused by contact with instrumentation
on hard landings or during crashes. From its extensive research, the Company
developed its inflatable restraint systems, which include harnesses, belts, and
other types of sophisticated airbags. The Company has leveraged this evolving
research and development into applications in a variety of technologies and
products.
Today, the Company, through its 11 operating subsidiaries, conducts
operations in three principal market segments: commercial transportation seating
systems, government and defense, and automobile safety systems. Operations can
be described in three phases: (i) providing contracted research and development
activities to third parties to solve specific safety related issues and
undertaking Company funded research to expand existing technologies to new
applications, (ii) leveraging such research into advanced, high-performance,
cost-efficient product solutions to influence market preferences in a wide range
of applications and industries, and (iii) manufacturing, selling, and marketing
such products.
OPERATING AND GROWTH STRATEGY
The Company's strategy is to maintain its leading position in creating and
applying proprietary technologies and advanced solutions to safety related
problems and to develop its products for commercial sale to a wide range of
customers. The key elements in executing this strategy are to (i) develop and
utilize technology to enhance current products and create new products, (ii)
focus on new product markets and regulatory requirements, (iii) expand
manufacturing capabilities and maximize internal synergies, and (iv) pursue
acquisitions and strategic alliances that complement existing businesses or
provide manufacturing or distribution opportunities.
TECHNOLOGY AND PRODUCT DEVELOPMENT
The Company focuses on the development of technologically advanced,
high-performance, cost-efficient solutions to influence existing markets to move
in new directions or create entirely new markets. The Company's growth strategy
is "engineering-driven," taking technologies learned, developed, and refined in
one arena, and applying them to another sector. Management's objective is to
selectively identify and manage engineering solutions to create market
opportunities rather than allow the Company's current product base to define the
Company's markets. The Company believes that its competitive advantage is
technology and innovation. The Company employs approximately 150 engineers and
scientists and maintains an active research and development program to enhance
its existing products and to develop new products and product applications. The
Company has a substantial data base, available to its biomechanical engineers,
based on which analysis is made regarding human body dynamics in crash
environments. Additionally, the Company's proprietary technologies are embodied
in numerous trade secrets, 13 patents, and 35 patents pending. The
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<PAGE> 31
Company enhances and supports products by the development of a compatible family
of products, such as its various inflatable restraint technologies designed into
four automobile applications and three aircraft applications. The Company seeks
to pursue a diverse technology and product base that minimizes dependence on one
or a few products and technologies. See "Risk Factors -- Investment in and
Dependence on Proprietary Technology."
MARKET AND REGULATORY FOCUS
The Company endeavors to demonstrate the technological feasibility of new
standards, provide the basis for new regulations, and utilize its technological
expertise to develop and introduce products that meet these new standards and
regulations ahead of its competitors. The Company seeks to remain at the
forefront of industry developments by being proactive in developing industry
trends and regulatory guidelines. The Company's long-standing involvement with
governmental departments and agencies facilitates its ability to anticipate
regulatory safety requirements and consumer safety issues and to develop
products that address these concerns. In this regard, the Company authors the
"Aircraft Crash Survival Design Guide," a five-volume text published by the
United States Army regarding crash survival technology, which is commonly used
worldwide as a guide in the design of crashworthy aircraft. The Company also
co-authored "The Transport Seat Performance and Cost Benefit Study," a study
commissioned by the FAA to analyze the performance of seats in commercial
airliner accidents. This study, which was first published in October 1986, was
cited as a principal consideration in the FAA's changes in commercial airliner
seat design specifications. The Company also owns and operates the International
Center for Safety Education ("ICSE"), a Phoenix-based training school
established in 1958 that sponsors courses which have been attended by more than
5,000 safety investigators from United States and foreign government agencies,
armed services, the aircraft industry, and the field of aviation medicine. The
function of ICSE is to teach the analysis of aircraft behavior in a crash, the
causes of injury or death to passengers and crew, and the design and structural
changes that can be made to improve survivability. See "Risk
Factors -- Government Safety Regulations."
EXPANDING MANUFACTURING CAPABILITIES AND MAXIMIZING INTERNAL SYNERGIES
The Company seeks to maintain integrated testing and manufacturing capacity
for its products; however, the Company may also subcontract certain
non-proprietary components of its products and provide its proprietary products
for integration and sale in the final products of customers. Over the last three
years, the Company has significantly expanded its manufacturing capabilities and
infrastructure, through both acquisitions and internal development, to support
the commercial production of several new product lines. In addition, the Company
has vertically integrated the manufacturing of several components used in its
seating systems, which has positively impacted overall profitability. The
Company expects to continue to expand its manufacturing capabilities, to develop
its infrastructure to support its new product development programs, and to enter
into licensing relationships to facilitate the distribution of its products. See
"Risk Factors -- Production Risks and Manufacturing Experience" and "Risk
Factors -- Dependence on Industry Relationships."
EXPLORING ACQUISITION AND STRATEGIC ALLIANCE OPPORTUNITIES
The Company explores acquisition opportunities as they arise and enters
into strategic alliances when it believes such acquisitions or alliances will
enable the Company to introduce new products or enhance existing products, to
exploit its technologies or acquire complementary technologies, to improve its
manufacturing capabilities, to broaden its distribution channels, or to obtain
components or supplies necessary for its products. In its last three fiscal
years, the Company has experienced substantial growth resulting from strategic
acquisitions to maximize the market potential of new technologies, wider
application of technologies, and new product introductions. The Company has no
present commitments or agreements with respect to any additional acquisitions or
alliances. See "Risk Factors -- Acquisitions."
OVERVIEW OF MARKET SEGMENTS AND INDUSTRIES
The Company believes that the entire transportation market is poised for
transformation as society's awareness of safety issues increases. The Company
seeks to position itself to benefit from consumer demand
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and government regulations requiring progressive safety equipment on all forms
of transportation, from automobiles and aircraft, to school buses and high speed
trains.
COMMERCIAL TRANSPORTATION SEATING
Airliner Seating Systems. At the end of 1995, there were approximately
11,000 passenger aircraft in operation worldwide, representing over 2.0 million
passenger seats. A study conducted by the Boeing Commercial Airplane Group
projects that 3,142 new passenger aircraft will be put into service during the
next five years, replacing 1,532 older aircraft and adding 1,610 additional
aircraft to airline fleets. The study further projects that 14,054 aircraft will
be manufactured and put into service over the next 20 years, representing over
3.2 million passenger seats.
Historically, annual production of new aircraft seats has been between
120,000 and 130,000 worldwide, exclusive of repaired and refurbished seats. The
Company believes that the recent growth of the airline industry, with the
resulting increase in passenger miles flown and the recent trend toward
installation of communication and entertainment systems in aircraft seats, will
increase demand for new seats. Additionally, there has been a recent significant
consolidation in the new seat industry, which the Company believes will benefit
it because of the desire of airlines to have a broader supplier base. Although
the Boeing study did not include refurbished seats, the Company also believes
that the demand for refurbished aircraft seats will grow as the airline industry
expands and new airlines purchase used aircraft.
Additionally, demand for both new and refurbished aircraft passenger seats
may further increase as new regulations are adopted or enforced that raise the
standards for crashworthiness in light of recent heightened attention to airline
safety and FAA initiatives. For example, the continued phase-in of FAA standards
requiring airliner passenger seats to withstand the force of 16g's (16 times the
force of gravity) in a crash is expected to create increased demand for new
aircraft seating systems meeting such requirements. Similarly, in 1988, the FAA
adopted regulations requiring that all passengers on an aircraft have a certain
specified level of head injury protection, as measured by Head Injury Criteria
("HIC"). Presently, most commercial aircraft certificated since the adoption of
the FAA regulations are flying under waivers granted by the FAA because such
aircraft do not meet the HIC criteria for passengers sitting immediately behind
bulkheads and other cabin partitions. The Company believes that the FAA waiver
policy will be reviewed and updated, thus creating an increased demand for
installation of inflatable bulkhead restraints on commercial aircraft to improve
the safety of passengers. See "Risk Factors -- Government Safety Regulations."
The FAA initiatives, and the resulting products of the Company focusing on
16g seats and bulkhead HIC standards, are intended to address injuries in
"survivable" crashes. According to NTSB statistics, there were 2,211 aviation
accidents in the United States in 1995. Commercial airlines were involved in 145
of such accidents, 20% of which had some fatalities and 80% of which resulted
only in injuries. Of these injuries, approximately 80% were to passengers and
20% to the crew. Common causes of aircraft accidents include overruns, hard
landings, and ground collisions with objects. These survivable accidents, which
have historically resulted in injuries, are the type for which the Company's
products increase safety and reduce the risk or severity of injuries on
commercial airliners.
Rail and Mass Transit Seating. The rail and mass transit industries are
undergoing significant changes, including growth in ridership and upgrading of
fleets. Demand for rail and mass transit seating results from the traveling
public's desire for safety and comfort as well as new laws and regulations, such
as the new safety regulations recently proposed by the Federal Railroad
Administration, 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 the United States bus industry will purchase over
13,000 new buses between 1995 and 1998 and that railcar-purchasing agencies will
purchase up to 3,500 rail and mass transit cars during the same period. Rail and
mass transit seat manufacturers may also potentially benefit from the
development of lighter weight and high-speed rail systems in North America.
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GOVERNMENT AND DEFENSE
The Company believes that the United States government will continue to
fund a significant defense budget and will increasingly support high technology
and safety improvements. In part as a result of a shifting focus on tactical
weaponry designed to meet the needs of a military primarily adopting a
containment defense posture, certain strategic programs, such as the Stealth B-2
Bomber and the MX missile, have been cut or eliminated, while government
contract revenue for containment, mobile, and tactical programs has increased.
Certain technical military aircraft programs in which the Company is involved,
such as the Black Hawk helicopter, C-17 utility air transport, and Apache attack
helicopter, continue to be funded. The Company expects that pilot and passenger
safety will continue to be a critical part of these and other programs, although
no assurances can be offered in this regard. As part of the shifting focus of
the military, defense forces are more mobile than ever before, with the United
States and many foreign governments placing greater emphasis on transportation
safety. The United States is widely regarded as the world leader in military
safety and technology development, and expenditures in these areas are expected
to continue in the future as military forces become increasingly mobile. The
Company believes that there will be continued government spending on and demand
for military safety technology products, such as advanced energy-absorbing
seating, lightweight armor systems, and inflatable restraints. See "Risk
Factors -- Substantial Reliance Upon Major Customers."
The Company regards its reputation and relationship with various military
branches and regulatory agencies throughout the world, including the FAA,
National Highway Traffic and Safety Administration ("NHTSA"), National
Aeronautics and Space Administration ("NASA"), and the National Transportation
Safety Board ("NTSB") to be a significant asset and intends to continue to
pursue government-funded research and development when it can retain proprietary
rights. The Company intends to continue to expand its government business;
however, this segment's revenue has declined as a percentage of overall Company
revenue as demand for the Company's commercial products has steadily increased.
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 in
automobile collisions. See "Risk Factors -- Government Safety Regulations."
Consumer demand has outpaced regulation as the primary impetus for the
growth of the airbag market. According to publicly available automotive industry
data, in the 1989 model year, only 7% of the automobiles produced in the United
States included an airbag. This percentage increased to 28% in 1990, 42% in
1991, 59% in 1992, and 71% in 1993. Industry sources estimate that standard
driver's side airbags were installed in approximately 90% of 1995 model year
automobiles sold in the United States and, to a lesser extent, overseas. This
high degree of penetration has been achieved in advance of the regulatory
deadline as a result of consumer demand.
Side-impact collisions comprise the second leading cause of injury and the
leading cause of fatalities, 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 cause of injury and second leading cause
of fatalities, accounting for approximately 15% of all automobile injuries and
33% of fatalities. The Company's ITS is the only available product designed
specifically to protect the head and neck of vehicle occupants in side-impact
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collisions and potentially provide containment of occupants in rollover and
secondary impact collisions. See "Inflatable Restraint Systems -- Automobile
Inflatable Restraint Systems."
EMERGING TECHNOLOGIES
The Company believes that regulatory mandates and consumer demands will
continue to drive the demand for advanced safety products and technologies,
creating opportunities for the development of new technologies and products and
providing additional markets for existing technologies. The Company believes
that included among the products and technologies with significant present or
future market potential in which the Company is developing capabilities are (i)
sensor equipment for the deployment of airbags, (ii) remote sensing devices
programmed to analyze the failure characteristics of vehicles and structures,
(iii) advanced lightweight composite materials, and (iv) other advanced
materials, such as urethanes and polymers, with a wide variety of potential
product applications, including high-performance windows for aircraft and
automobiles, and protective lenses and visors.
THE COMPANY'S PRODUCTS AND EMERGING MARKETS
The Company's growth to date has resulted principally from its core
products and technologies involving energy-absorbing seating systems, armor, and
seat repair and refurbishment. More recently the Company has introduced new
products. The following table shows each of the Company's products currently in
production and each of the products the Company expects to commence delivery of
on the rollout schedule indicated.
PRODUCT AND TECHNOLOGY STATUS
<TABLE>
<CAPTION>
PRODUCT/TECHNOLOGY STATUS PRODUCT ROLLOUT
- ----------------------------------------- ------------------------------- ----------------------
<S> <C> <C>
Energy Absorbing Seating
Systems -- Military.................... In Production 1975 -- On-going
Composite Armor.......................... In Production 1985 -- On-going
Airliner Seat Repair and Refurbishment... In Production Acquired 1993 --
On-going
Rail and Transit Seating................. In Production Acquired 1994 --
On-going
New 16g Airliner Seats................... In Production 1996 -- On-going
Inflatable Tubular Structure............. In Production 1997
Bulkhead Airbag System................... Certified/Ready for Production 1997
Cockpit Airbag System.................... Ready for Production 1997
Inflatable Body and Head Restraint
System................................. Ready for Production 1997
</TABLE>
SEATING SYSTEMS AND COMPONENTS
Military Aircraft Seating Systems. The Company has been a major supplier
of energy-absorbing seating systems for military helicopters and other military
aircraft to various branches of the United States armed forces and their prime
defense contractors for more than 20 years. The seating systems focus on
reducing injury and increasing survivability in crashes involving aircraft.
These crashworthy seating systems contain proprietary energy-absorbing
components and devices that activate upon crash impact to absorb shock that
otherwise would be absorbed by the seat occupant.
Based on publicly available information and industry sources, the Company
believes that it is the leading provider of crashworthy helicopter seats
purchased by the United States armed forces, being the sole supplier for 11
helicopter programs. Military 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.
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Aircraft manufacturers in the Company's customer base include the Boeing
Company, McDonnell Douglas Corporation, and Sikorsky Aircraft.
Commercial Airliner Seating Systems. The Company, through its wholly owned
subsidiary Airline Interiors, manufactures and sells commercial airline seating
systems that comply with FAA-mandated 16g standards for airline seats ("16g
seats") and repairs, refurbishes and retrofits existing commercial aircraft
seats. With the acquisition of Airline Interiors in 1993, the Company obtained
FAA certifications and an established customer base of commercial airlines as
well as the operations to repair, refurbish, and retrofit commercial aircraft
seats. The Company's entrance into the airline seating market is an outgrowth of
both the Company's technologies and Airline Interiors' traditional core
business -- the repair, refurbishment, and retrofitting of commercial aircraft
seats.
The 16g Seats are designed to absorb 16 times the force of gravity upon
impact. The prices and features of the Company's new 16g Seats are competitive
with more established 16g seat suppliers, but exceed existing and currently
anticipated industry and regulatory standards for crashworthiness. The Company's
16g Seats have been tested, approved, and certified for use in numerous classes
of commercial aircraft. The Company's customer base for its 16g Seats includes
Air Transit, The Boeing Company, GATX Leasing, International Leasing Finance
Corp., Onur Air, Flying Colors Airlines, and two major U.S. carriers. In the
first quarter of 1997 the Company has received more than $25 million in orders
and follow-on options and currently has approximately $67.8 million in bid
proposals outstanding for proposed seating contracts with international,
national, and regional airlines. There can be no assurance, however, that the
Company will be awarded these or other outstanding bids. See "Risk
Factors -- Entry into New Markets," "Risk Factors -- Competition," and
"Business -- Overview of Markets and Industry -- Commercial Airliner Safety
Systems."
The Company also repairs, refurbishes, and retrofits existing commercial
aircraft seats. Its services include (i) the supply of seat components,
including upholstery, cushioning, and fiber blocking; (ii) the overhaul and
modification of seat assemblies, including arm rests and tray tables; and (iii)
the design and integration of communication and entertainment systems into
aircraft seats. Customers of Airline Interiors for such services include America
West Airlines, Continental Airlines, Southwest Airlines, and United Airlines.
The Company believes that various developments in the airline industry may
increase the demand for new energy-absorbing seats and for the repair,
refurbishment, and retrofitting of existing airliner seats. These factors
include the potential for increased federal regulation requiring improvements in
passenger seat crashworthiness, increased safety concerns by passengers, the
growth of airline travel, restructurings and reorganizations of air carriers,
the need to reconfigure and upgrade existing aircraft interiors, the delivery of
new aircraft, and the growth of demand for communications and entertainment
features in aircraft seats.
Rail and Other Mass Transit Seats. The Company's acquisition of Coach and
Car and Artcraft in 1994 brought to the Company an established seat
manufacturing identification, contract backlog, and additional manufacturing
capacity for airline seats. In addition to these synergies with Airline
Interiors and its seat technology, the Company became, and continues to be, the
leading North American provider of seating systems for rail and other mass
transit vehicles. Through an integrated design, development, and production
capability, the Company supplies seating in a variety of styles, materials,
colors, configurations, and optional features. The Company produces stainless
steel, plastic, and fiberglass seating systems for subways, cushioned and
upholstered seating for other mass transit vehicles, and deluxe recliners for
railroad cars. The seating systems feature lightweight construction; ease of
installation and maintenance; vandal resistant, durable, and long-lasting
components; reinforced structures for superior strength and support; fire and
smoke resistance; sound and energy absorption; and passenger safety and comfort.
Customers include Amtrak, ABB Traction, Inc., Bombardier, Inc., Amerail
(formerly Morrison Knudsen Corporation), Siemens Duewag Corporation, Kawasaki
Rail Car, Inc., and the metropolitan transit authorities in major North American
cities.
The Company believes that additional opportunities exist in its seating
business as a result of the need to expand and modernize mass transit systems
across the United States, the Company's pursuit of international business, and
potentially the application of various aspects of the Company's
energy-absorption and other safety technologies to rail and other mass transit
vehicles, including high-speed trains.
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INFLATABLE RESTRAINT SYSTEMS
The Company developed its core inflatable restraint technology in the 1980s
under a contract with the United States government and, commencing in late 1997,
will use this technology to manufacture an inflatable body and head restraining
system ("IBAHRS") for military helicopter crew members. As customary with
government contracts, the Company retained the proprietary commercial rights to
the IBAHRS technology and has expanded and developed such technology into
numerous other applications in various products and industries. As an outgrowth
of IBAHRS, the Company currently produces or is developing four types of
inflatable restraint systems for automobiles and three systems for commercial
and military aircraft.
Automobile Inflatable Restraint Systems. The Company developed, patented,
and is manufacturing an automobile inflatable restraint system known as the
inflatable tubular structure ("ITS"). 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.
The Company has developed various additional applications for the ITS.
Through different configurations, the ITS provides protection to other parts of
the body and in other types of collisions. Such applications include the
inflatable tubular cushion ("ITC"), a seat mounted torso protection system, the
inflatable tubular bolster ("ITB"), a system to protect knees and legs, and the
inflatable tubular torso restraint ("ITTR") which utilizes the ITS in an
inflatable restraint harness and seat belt application.
The Company, through Autoliv GmbH, is providing the ITS to BMW, a major
European automobile manufacturer, for inclusion in certain models of its
automobiles to be delivered in 1997. 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 has a low-volume production facility in Phoenix and a
high-volume European manufacturing plant, located in Northumberland County in
the northeast of England.
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.
34
<PAGE> 37
Although the first tier component suppliers produce airbag products, the ITS and
related technologies are unique proprietary products and not mere auto part
commodities as are most forms of traditional airbags. The distinction between
the ITS and traditional airbags recently has been highlighted by the increased
governmental and public scrutiny of the effectiveness and possible risks
associated with traditional airbags. There can be no assurance, however, that
the Company will be successful in its efforts to expand the markets for ITS and
other product applications. See "Risk Factors -- Entry into New Markets" and
"Risk Factors-- Dependence on Industry Relationships."
Aircraft Inflatable Restraint Systems. The Company has completed
development of and is marketing various inflatable restraint systems for
military and commercial aircraft. These systems include the IBAHRS for the
protection of military helicopter crew members, a cockpit airbag system ("CABS")
for the protection of the flight crew in military aircraft, and a bulkhead
airbag system ("BABS") for the protection of passengers sitting immediately
behind the bulkhead and other cabin partitions in commercial aircraft.
Under a contract with the United States Army, the Company served as the
prime contractor for the development of the IBAHRS. Following the completion of
the initial development, the Company was awarded a contract to serve as the
prime contractor to complete the development, perform production design, produce
hardware, and perform testing procedures for the IBAHRS. During a crash, the
airbags inflate between the aviator and the seat harness, causing the aviator to
be pushed back into the seat and providing support under the aviator's chin to
reduce the forward rotation of the head. The Company anticipates that it will
commence production of the IBAHRS in late 1997.
The Company is engaged in research and development efforts for CABS under a
contract with the United States Army. CABS incorporates airbags in a
configuration surrounding the aviator that inflate following sensor detection of
crash impact from a variety of directions. CABS then retracts following
deployment and thereby protects against mishaps caused by accidental deployment
during the normal operations of the aircraft. The Company anticipates that it
will complete the research and development project and commence production of
CABS in late 1997.
The Company developed BABS at its own expense to provide a product that
satisfies FAA regulations requiring protection against head injuries to
passengers sitting immediately behind the bulkhead and other cabin partitions in
commercial aircraft certificated after 1988, which includes only complete new
aircraft designs, representing a small percentage of aircraft currently in
service. Prior to BABS, no other company had introduced a product that satisfied
the FAA regulations, and newly certified aircraft have operated under FAA
waivers from the regulations. In addition, the regulations have not been
extended to aircraft certificated prior to 1988. Although the Company believes
that BABS satisfies the FAA regulations, the Company cannot assess whether 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. See "Inflatable Restraint Systems -- Aircraft Inflatable
Restraint."
The Company is also developing the related systems for sensors,
electronics, and other applications for its inflatable restraint technology.
COMPOSITE MATERIALS
As an outgrowth of its military aircraft seating systems, the Company
developed an expertise in armor, which comprises a significant portion of both
materials in and costs of such seating systems. In addition, the Company has
developed a variety of other composite materials for integration in its existing
and proposed products and for sale as raw material to customers. Composites are
structures, typically made of layered materials, glues, resins, metal alloys,
and ceramics, which provide advantages in terms of weight, flexibility, and
strength over traditional metal components. Composite materials 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
35
<PAGE> 38
structures to advanced, lightweight, protective ballistic armor systems.
Advanced composite materials with which the Company has expertise include
silicon carbide, aluminum, and ceramics matched with fiber reinforcements of
Kevlar, carbon, Spectra, S-glass, E-glass, and hybrid weaves. The Company also
has the capability to process thermoset resins including epoxies, polyesters,
and vinyl esters.
The Company's principal composite products are high-strength, lightweight
armor systems that have been incorporated into a variety of United States armed
forces vehicles, including aircraft, naval landing craft, and personnel
carriers. The Company is a principal supplier of such lightweight armor systems
in the United States. The Company develops and manufactures armor systems for
seats as well as for structural and other vital components of military aircraft.
Aircraft components incorporating armors developed or produced by the Company
include V-22 Osprey crew seats; C-17 cockpit components; AH-64A Apache crew
seats; Blackhawk crew seats and floor armor; CH-53 Sea Stallion crew seats;
United States Navy landing craft air cushion pilot station armor; and
high-mobility, multi-wheeled vehicles ("HMMWV") and transport vehicles
("HEMTT"). Other products include oil and cable armor and ballistic radomes. The
Company has an on-site ballistics firing range, enabling it to conduct tests on
armor products.
The Company has recently developed a number of commercial applications for
its composites technology, including high-strength transparent armors and
portable armor kits for use in police cars and other vehicles, high-performance
equipment such as archery bows, bicycle components, and 16g Seat backs. The
Company believes that composite materials will increasingly be incorporated in a
wide range of goods requiring strong, advanced, or lightweight components.
DEVELOPMENTAL STAGE TECHNOLOGIES
Smart Structures. The Company has recently combined its composite
technologies with its neural network computer capabilities as part of the
development of products known as "smart structures." Smart structures contain
sensors and fiber optics that communicate through computers to monitor the
integrity or status of a system or structure. As an example, military vehicles
equipped with sensors incorporating smart structure technology can be remotely
monitored for battlefield status. Similarly, structures such as bridges and
overpasses can be remotely monitored to detect early signs of deterioration in
structural integrity. The Company is exploring the development of smart system
sensors that have potential in a variety of product applications, including
crash sensors for airbag and other safety systems in both automobiles and
aircraft.
Parachutes. Under contract with the United States Navy, the Company
recently applied its technologies and overall knowledge of materials and
structures to develop a parachute that solves numerous functional problems
attendant to traditional military parachutes. Specifically, many parachutes
traditionally used by the military have (i) been large and heavy, (ii) been
unable to be worn during flight or by females, and (iii) had limited shelf life,
requiring the labor intensive process of unpacking and repacking parachutes
every six months. The parachute developed by the Company is small, lightweight,
unisex, capable of being worn during flight, and vacuum-packed so that it
maintains more than a five-year shelf life without repacking. The Company 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 proprietary materials, including 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.
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
36
<PAGE> 39
all of its technology to product applications. The Company's costs for research
and development in 1996, 1995, and 1994 were approximately $10.5 million, $6.1
million, and $3.9 million, respectively. These amounts include
government-funded, other customer-funded, and Company-funded research and
development contracts.
Since much of its research and development generates proprietary
technology, the Company has patent protection on certain products. The Company's
ability to compete effectively depends, in part, on its ability to maintain the
proprietary nature of its technologies. The Company also relies on unpatented
proprietary information and know-how, typically protecting such information as
trade secrets, but there can be no assurance that others will not develop such
information and know-how independently or otherwise obtain access to the
Company's technology. See "Risk Factors -- Dependence on Proprietary
Technology."
The Company holds 13 patents, including those recently issued for its ITS
and 16g Seat technologies. In addition, the Company has 35 patent applications
pending for such items as its ITB and ITC technologies and various of its
advanced materials. The Company is also currently developing five additional
patent applications for filing. Patents protect inventions for up to a period of
20 years after the application is first filed. All of the Company's patents
issued or applied for regarding its principal products, including ITS, ITC, ITB,
and 16g Seats, 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, MANUFACTURING, AND LICENSING
The Company intends to consolidate certain operations, expand and upgrade
its existing manufacturing capabilities, and establish new manufacturing
facilities in connection with the expansion of its 16g Seat and inflatable
restraint businesses. The Company began implementing its expansion plans in 1996
and has established a low-volume production facility in Phoenix and a
high-volume manufacturing plant in England for the production of inflatable
restraints. The Company currently is expanding its airline seat manufacturing
capacity in its Chicago and San Diego facilities. In addition, in 1996 the
Company consolidated its sewing and upholstery operations, 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 operation. If demand for the Company's
products grows faster than it is able to expand its manufacturing capacities,
the Company may consider entering into licensing arrangements with third-party
manufacturers of related products, pursuant to which it would receive a royalty
on all items manufactured. See "Risk Factors -- Entry Into New Markets," "Risk
Factors -- Management of Growth," and "Risk Factors -- Production Risks and
Manufacturing Experience."
The Company's production and manufacturing consist principally of the
bending and welding, molding, ceramic and composites composition and processing,
sewing, upholstery, component fabrication, and final assembly, along with airbag
and restraint assembly. After assembly, products are functionally tested on a
sample basis as required by applicable contracts. The Company's manufacturing
capability features computer-integrated manufacturing programs which, among
other things, schedule and track production, update inventories, and issue work
orders to the manufacturing floor. Products manufactured for government programs
must meet rigorous standards and specifications for workmanship, process, raw
materials, procedures, and testing. Customers, and in some cases the United
States government as the end user, perform periodic quality audits of the
manufacturing process. Certain customers, including the United States
government, periodically send representatives to the Company's facilities to
monitor quality assurance.
MARKETING AND SALES
Depending upon the product, the Company typically employs one of four
methods for marketing: (i) direct sales, which it utilizes in the marketing of
its 16g Seats, (ii) technical teams, typically comprised of a combination of
administrative personnel and development engineers, which it utilizes in the
marketing of inflatable restraints 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.
37
<PAGE> 40
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. See "Risk
Factors -- Dependence on Industry Relationships."
The Company's marketing and sales activities in the government sector focus
primarily upon identifying research and development and other contract
opportunities with various agencies of the United States government or with
others acting as prime contractors on government projects. Key members of the
Company's engineering, contracts, and project management staffs maintain close
working relationships with representatives of the United States armed forces and
their prime contractors. Through these relationships, the Company monitors
needs, trends, and opportunities within current or potential military product
lines.
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. These sales were predominantly to England, Germany, and Japan.
Historically, as United States government contracts are awarded and filled,
prime contractors have thereafter typically marketed their products to foreign
military allies, resulting in sales of the Company's products abroad. The
Company has also recently entered into development contracts directly with
foreign military organizations. Accordingly, the Company anticipates that its
international defense sales will continue to grow. The initial customer of the
ITS is BMW, a European automobile manufacturer. The Company believes that there
are opportunities for additional sales of the ITS, and for sales of commercial
aircraft and rail seating systems, in foreign markets and is conducting
marketing efforts internationally. Countries in which the Company is actively
marketing include Germany, France, England, and other EU countries, as well as
Japan, India, Korea, Italy, Singapore, Australia, Canada, and China. See "Risk
Factors -- International Trade and Currency Exchange."
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
supplied products for approximately 20 years, will continue to represent major
customers although the percentage of the Company's revenue attributable to them
can be expected to decrease as a result of the Company's expanding commercial
operations. Other historical customers of the Company include the Boeing
Company, McDonnell Douglas Corporation, and Sikorsky Aircraft. The loss of or
reduction in sales to a major customer may have a more adverse effect on the
Company's operations or financial condition than if the Company's revenue was
less concentrated by customer. See "Risk Factors -- Reliance Upon Major
Customers."
As the Company has applied its technologies to additional products and
markets and grown through strategic acquisitions, the list of customers for the
Company's commercial products has expanded rapidly in recent years. Current
customers of the Company include, in addition to its historical customers,
America West Airlines, Amtrak, Autoliv GmbH, BMW, Continental Airlines, Morton
International, Southwest Airlines, TRW, United Airlines, and the metropolitan
transit authorities in major North American cities. Auotliv GmbH, Morton
International, and TRW are first tier component suppliers. See "Risk
Factors -- Dependence on Industry Relationships."
38
<PAGE> 41
COMPETITION
The Company believes that it is the world's largest supplier of seating
systems for military helicopters. The Company's principal competitors in the
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; however, based on internal market surveys and
data, the Company believes that is it the supplier for a majority of the world's
energy-absorbing seating programs under domestic and foreign military contracts.
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.
Based on internal data, management believes that the Company also is the
leading North American provider of seating systems for rail and other mass
transit vehicles, 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 the market.
Management believes that the Company achieved a 2.5% share of the worldwide
commercial airline seating market in its full first year of production in 1996.
The Company has 10 principal competitors in the commercial airline seating
market, with BE Aerospace, Inc. having an approximate 70% to 80% market share.
The worldwide automobile airbag market is currently dominated by TRW,
Morton International, Inc., Allied Signal, Inc., Takata, Inc., and Autoliv GmbH,
all of which are producing airbag systems in commercial quantities. The market
served by the Company's inflatable restraint systems is intensely competitive.
As a result of the proprietary nature of the Company's ITS and related
technologies, the Company has entered into strategic alliances with a number of
the largest suppliers of conventional automotive airbags, including Morton,
Autoliv, and others, to market and produce the Company's products. Under these
arrangements, the Company acts as licensor and supplier and, thus, does not
compete with first tier automotive suppliers. The Company does not intend to
compete as a first tier supplier of a broad range of safety devices. Autoliv and
Morton recently announced a proposed business combination relating to their
respective airbag operations. The Company does not believe that any such
combination will adversely affect its business relationship with these
companies.
Most of the Company's competitors have greater marketing capabilities and
financial resources than the Company. The Company's present or future products
could be rendered obsolete by technological advances by one or more of its
competitors or by future entrants into its markets. See "Risk
Factors -- Competition."
RAW MATERIALS AND SUPPLIES
The Company purchases raw materials, components, devices, and subassemblies
from a wide variety of sources. Principal raw materials used by the Company
include urethanes, ceramics, Kevlar, aluminum, steel, upholstery and fabric
products, and fire blocking foam. Components include restraints, harnesses, and
gas generators for inflatable restraint products. The Company does not depend
upon any single supplier. Because of multiple sources of supply, the Company has
not experienced difficulties in obtaining components and raw materials for its
manufacturing and assembly processes. The Company is not party to any formal
contracts regarding the delivery of its supplies and components, but instead
generally purchases such items pursuant to individual or blanket purchase
orders. Blanket purchase orders usually provide for the purchase of a large
amount of items at fixed prices for delivery and payment on specific dates.
BACKLOG
The Company's backlog at December 31, 1996 and 1995 was approximately $63
million and $58 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's models to be
delivered in 1997. In the case of government contracts, backlog consists of
aggregate
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contract values for firm product orders, exclusive of the portion previously
included in operating revenue utilizing the percentage completion accounting
method. All orders included in the backlog are believed to be firm and are
expected to be filled over the period from the date of this Prospectus to
December 31, 1997.
EMPLOYEES
The Company has over 700 full-time employees at its locations in Arizona,
California, Illinois, New York, North Carolina, Wisconsin, and the United
Kingdom. This number includes engineers and research and development personnel,
manufacturing personnel, and administrative and other personnel. The Company
believes that its continued success depends on its ability to attract and retain
highly qualified personnel.
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 Company has never suffered a work stoppage and considers its relations with
employees to be excellent.
ENVIRONMENTAL REGULATIONS
The Company's operations are subject to a variety of federal, state, and
local environmental regulations, including laws regulating air and water quality
and hazardous materials and regulations implementing those laws. The Company's
principal environmental focus is the handling and disposal of paints, solvents,
and related materials in connection with product finishes, welding, and
composite fabrication. The Company contracts with a qualified waste disposal
company for services. The Company regards its business as being subject to
customary environmental regulations, but does not believe it faces unique or
special problems. The cost to the Company of complying with environmental
regulations is not significant. See "Risk Factors -- Environmental Regulations."
LITIGATION
The Company is not a party to any material threatened or pending
litigation. See Note 3 to the Consolidated Financial Statements regarding Coach
and Car.
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. See "Use of Proceeds."
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<PAGE> 43
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; Testing; 7,000
Administration
Phoenix, AZ (1) ITS Low Rate Production; Testing 20,000
Simula ASD, Ltd. ........ Northumberland, U.K. ITS Volume Production 30,000
(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
Milwaukee, WI (1) Warehouse 20,000
Milwaukee, WI (1) Warehouse 5,000
ViaTech, Inc. ........... Tempe, AZ (1) Composites Research; Fabrication; 16,000
Administration
Safety Equipment,
Inc. .................. Asheville, NC (1) Research and Development; Survival 5,000
Equipment Manufacturing; Parachute
Manufacturing
Sedona Scientific,
Inc. .................. Sedona, AZ (1) Research and Development; Sensors, 5,000
Smart Systems, Fiber Optics
Sedona, AZ (1) Warehouse 2,000
</TABLE>
- ---------------
(1) Denotes leased facility
(2) Denotes Company-owned facility
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<PAGE> 44
MANAGEMENT
The following sets forth certain information with respect to directors and
executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
----------------------- --- ---------------------------------------------------------
<S> <C> <C>
Stanley P.
Desjardins........... 66 Chief Executive Officer and Chairman of the Board of
Directors
Donald W. Townsend..... 57 President and Director
Bradley P. Forst....... 43 Vice President, General Counsel, Secretary, and Director
Sean K. Nolen.......... 34 Vice President of Finance, Treasurer, and Director
James C. Withers....... 62 Director
Robert D. Olliver...... 70 Director
Scott E. Miller........ 37 Director
</TABLE>
Stanley P. Desjardins founded the Company in 1975 and has served as its
Chief Executive Officer and Chairman since that time. He was President from 1975
until October 1994. Mr. Desjardins pioneered crashworthy seating technology for
the United States armed forces and continues to work on technology development
as a recognized world expert in the field. He has over 35 years of experience in
research and development of aerospace systems and components, including over 20
years in research and development of technology for improving survival in
vehicle crashes. Prior to forming the Company, Mr. Desjardins was Manager of
Aircraft Safety for a division of Ultrasystems, Inc., where he managed research
programs involving the crashworthiness of aircraft seating and restraint
systems. From 1958 to 1968, he held various positions in missile programs with
Thiokol Chemical Corporation. His work has resulted in several United States
patents related to energy-absorption and rocket nozzle design. He is the author
or co-author of 26 technical articles related to his research. Mr. Desjardins is
a member of the American Helicopter Society, the Survival and Flight Equipment
Association, the Arizona Innovation Network, the Center for Aerospace Safety
Education, and the Governor's Science and Technology Council (Arizona).
Donald W. Townsend has served as President since October 1994 and a
Director since 1989. He was Executive Vice President from 1989 to 1994 and
Treasurer and Secretary from 1986 until 1994. Prior to joining the Company in
1985, Mr. Townsend was employed by Walled Lake Door Company, a manufacturer of
wooden doors, in positions as Vice President of Finance, Chief Financial
Officer, Director, and Controller. Mr. Townsend also acted as President of
Pulsar Corporation, a research and development company affiliated with Walled
Lake Door Company, at the same time as he served as Vice President of Finance
for Walled Lake Door Company. Mr. Townsend is a Certified Public Accountant. Mr.
Townsend also currently serves on the Board of Directors of Meadow Valley
Corporation, a publicly held construction company specializing in highways,
bridges and overpasses.
Bradley P. Forst joined the Company as Vice President and General Counsel
in early 1995 and became Secretary and a Director in August 1995. From 1985
until joining the Company in 1995, Mr. Forst was engaged in the private practice
of law in Phoenix, Arizona. Included among his clients was the Company, for
which he provided corporate, finance, and securities legal services for a number
of years. Prior to entering private practice in Phoenix, Mr. Forst was an
attorney in the head office legal department of Shell Oil Company based in
Houston, Texas.
Sean K. Nolen joined the Company as Vice President of Finance, Chief
Financial Officer, Treasurer, and as a Director in April 1996. From 1984 until
joining the Company in 1996, Mr. Nolen was employed by Deloitte & Touche LLP,
most recently as an Audit Senior Manager, in which capacity Mr. Nolen provided
auditing, planning, and other assistance and consultation to numerous privately
and publicly held companies, including the Company. Mr. Nolen is a Certified
Public Accountant.
James C. Withers has served as a Director of the Company since 1992. Mr.
Withers is the President and Chief Executive Officer of Materials and
Electrochemical Research Corporation based in Tucson, Arizona.
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<PAGE> 45
He has served in that capacity since 1986. From 1986 to 1988, Mr. Withers was
President and Chief Executive Officer of Keramont Research Corporation, also
based in Tucson, Arizona.
Robert D. Olliver has served as a Director of the Company since 1992. Mr.
Olliver is the Director of Risk Management Services for Acordia of Arizona based
in Phoenix, Arizona. Mr. Olliver has over 46 years experience in the insurance
business. Mr. Olliver, through his affiliates, has been the general agent for
the Company's insurance program since 1987.
Scott E. Miller has served as a Director of the Company since January 1995.
Mr. Miller is a Director of Investment Banking of HD Brous & Co., Inc. From 1991
to 1994, Mr. Miller was Director of Investment Banking of W.B. McKee Securities,
Inc., Phoenix, Arizona, which was the managing underwriter of the Company's
initial public offering. From 1987 to 1991, Mr. Miller was the Director of
Investments of Bellmar Partners, an investment fund. Mr. Miller also currently
serves on the Board of Directors of Meadow Valley Corporation, a publicly held
construction company specializing in highways, bridges, and overpasses. See
"Certain Transactions."
All members of the Board of Directors hold office until the next annual
meeting of the shareholders of the Company or until their successors are duly
elected and qualified. All officers are elected annually and serve at the
discretion of the Board of Directors. The Board of Directors of the Company have
several standing committees. The Audit Committee presently consists of Messrs.
Withers, Miller and Olliver. The Audit Committee meets with appropriate Company
financial and legal personnel and independent public accountants and reviews the
internal controls of the Company and the objectivity of its financial reporting.
This Committee recommends to the Board the appointment of independent public
accountants to serve as auditors in examining the corporate accounts of the
Company. The independent public accountants periodically meet privately with the
Audit Committee and have access to the Committee at any time.
The Compensation Committee reviews and advises management, makes
recommendations to the Board, and reviews and approves proposals regarding the
establishment or change of benefit plans, salaries, and compensation afforded
the executive officers and other employees of the Company. Messrs. Miller,
Olliver, and Withers currently serve as members of the Committee.
The Company has identified James A. Saunders, Donald R. Rutter, Randall L.
Taylor, and Joseph W. Coltman as key employees.
James A. Saunders is a Vice President of the Company and President of its
subsidiary, Simula Automotive Safety Devices, Inc. From 1989 to 1995, Mr.
Saunders was Chief Executive Officer of SouthTech, Inc., a supplier of
high-purity silicon carbide ceramics to the electronics industry. SouthTech was
a subsidiary of the Company from 1994 to 1995.
Donald R. Rutter is President of the Company's subsidiary Simula
Transportation Equipment Corporation, a holding company for the Company's
commercial passenger seat operating subsidiaries, Airline Interiors, Inc., Coach
and Car Equipment Corporation, and Aircraft Industries Corp. From 1983 until
joining the Company in 1993, Mr. Rutter was Vice President and General Manager
for Burns Aerospace Corporation. From 1979 until 1982, Mr. Rutter was Vice
President and General Manager for PTC Aerospace, a B.E. Aerospace, Inc.
subsidiary. Mr. Rutter was also previously employed by United Airlines.
Randall L. Taylor joined the Company in 1977 and serves as Vice President.
He coordinates certain aspects of corporate development and international
programs. Prior to this position, Mr. Taylor held numerous positions with the
Company's subsidiary, Simula Government Products, Inc. Mr. Taylor's past
employment includes experience with Sperry Flight Systems, a division of Sperry
Rand, and The Boeing Company Defense & Space Group.
Joseph W. Coltman is President of the Company's subsidiary Simula
Technologies, Inc., which operates as the Company's research and technology
development organization. Mr. Coltman joined the Company in 1979 and prior to
his present position, held numerous management and technical positions within
the Company.
43
<PAGE> 46
EXECUTIVE COMPENSATION
The following table sets forth the total compensation received by the
Company's Chief Executive Officer and other most highly compensated executive
officers whose total remuneration exceeded $100,000 for services rendered in all
capacities to the Company during the last three fiscal years.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ---------------
----------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY(1) BONUS(2) COMPENSATION(3) OPTIONS/SARS(#)(6)
- ------------------------------ ---- --------- -------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
Stanley P. Desjardins......... 1996 $ 200,000
Chief Executive Officer and 1995 200,000
Chairman of the Board 1994 158,000
Donald W. Townsend............ 1996 200,000 Tax Assistance(3) 70,000
President 1995 180,000 $40,000 Tax Assistance(3) 60,000
1994 108,000 75,000
Bradley P. Forst.............. 1996 140,000 50,000
Vice President, General
Counsel, and Secretary(4) 1995 140,000 56,250
Sean K. Nolen................. 1996 120,000 25,000
Vice President of Finance,
Chief Financial Officer, and
Treasurer(5)
</TABLE>
- ---------------
(1) Included as salary are nominal amounts which the Company contributes to the
401(k) accounts of Messrs. Desjardins and Townsend. See
"Management -- 401(k) Profit Sharing Plan."
(2) The Compensation Committee declared a bonus for Mr. Townsend for services in
1994 and 1995, which was paid in late 1995.
(3) In 1995, the Compensation Committee adopted policies to encourage executive
management of the Company to exercise stock options and thereby become
equity owners of the Company. In order to exercise such options, members of
management were required to sell such underlying shares in the market to
provide the funds to pay for the option exercises. Because of the immediate
exercise and sale, incentive tax aspects of the options, under relevant IRS
rules, were eliminated. Accordingly, taxes on such sales were immediately
due and payable. As part of the policy, the Committee determined to pay such
taxes for the accounts of the executives. Such payments by the Company were
fully deductible as a compensation expense and such amounts did not accrue
to the individuals, but were paid to state and federal taxing authorities.
The amounts of such tax assistance on behalf of Mr. Townsend were $231,367
and $211,500 for the fiscal years 1995 and 1996, respectively.
(4) Mr. Forst was not employed by the Company for the entire fiscal year 1995.
The salary figure contained in the column for 1995 reflects the salary Mr.
Forst would have received had he been employed by the Company for the entire
year. Mr. Forst's actual salary compensation for 1995 was $60,000.
(5) Mr. Nolen was not employed by the Company for the entire fiscal year 1996.
The salary figure contained in the column for 1996 reflects the salary Mr.
Nolen would have received had he been employed by the Company for the entire
year. Mr. Nolen's actual salary compensation for 1996 was $80,000.
(6) Messrs. Townsend, Forst, and Nolen were granted 238,200, 93,750, and 150,000
additional options to purchase Common Stock, respectively, on January 1,
1997.
44
<PAGE> 47
EMPLOYMENT AGREEMENTS
The Company has a five-year employment agreement with Mr. Desjardins. The
agreement requires Mr. Desjardins to devote his full time to the Company and
provides for compensation of $200,000 annually, subject to annual increases upon
the agreement of Mr. Desjardins and the majority of the disinterested members of
the Board of Directors. The agreement is renewable annually for prospective
one-year terms. The agreement may not be terminated unilaterally by the Company
except for cause, which includes absence, disability, or failure of performance
as determined by the Board.
Mr. Desjardins' employment agreement provides that during the term thereof,
including renewals, in the event of his resignation or a termination of his
employment for any reason following a "change in control" of the Company, the
compensation required to be paid by the Company to him under the employment
agreement shall continue to be paid as though the agreement had not been
terminated. This provision does not apply however to an early termination of the
agreement upon Mr. Desjardins' death, termination following a conviction for the
willful and intentional commission of a crime, or retirement. A "change of
control" under the agreement is deemed to occur when any person acquires,
directly or indirectly, beneficial ownership of equity securities of the Company
representing in excess of 20% of the outstanding shares of any class, or when
any person who has acquired, directly or indirectly, beneficial ownership of
equity securities of the Company in excess of 10% of the outstanding shares of
any class seeks to nominate and cause to be elected to the Board of Directors
any person who has not been nominated for election of the board by the majority
of the then incumbent directors. If Mr. Desjardins dies during the term of his
employment, the Company under the agreement will pay to his estate compensation
including any bonus which would otherwise be payable to the time of death and
thereafter, for a period of three years.
The Company also has an agreement with Mr. Townsend, under which the
Company retains Mr. Townsend under the same terms as those contained in Mr.
Desjardins' employment agreement.
In addition to the foregoing, the Company has also entered into change in
control employment agreements with six members of executive management,
providing for severance pay, the immediate vesting of stock options, and tax
assistance payments, in the event of a change in control of the Company. See
"Executive Compensation -- Stock Options."
DIRECTOR COMPENSATION
Directors who are not executive officers receive $5,000 annual cash
compensation for their services in that capacity to cover expenses. Directors
who are executive officers do not receive such additional compensation for their
services as Directors. Directors are also awarded options to purchase 15,000
shares upon commencement of service on the Board and 1,500 additional shares on
an annual basis thereafter.
STOCK OPTIONS
STOCK OPTION PLANS
In 1992, the Company and its then sole shareholder adopted the 1992 Stock
Option Plan. The 1992 Plan provided for the issuance of up to 360,000 shares of
the Company's Common Stock pursuant to grants made under the 1992 Plan. As of
January 1, 1997, all 360,000 options had been granted pursuant to the 1992 Plan.
In August 1994, the Board of Directors adopted the 1994 Stock Option Plan, which
was subsequently approved by the shareholders of the Company at the annual
meeting in June 1995, and amended by the shareholders of the Company at the
annual meeting in June 1996. The 1994 Plan reserves up to 1,545,000 shares of
Common Stock for issuance under the Plan. Through December 31, 1996, 876,250
options had been granted pursuant to the 1994 Plan.
The 1992 Plan and the 1994 Plan (together hereafter referred to as the
"Plans") authorize the Company to grant to key employees of the Company (i)
incentive stock options to purchase shares of Common Stock, and (ii)
non-qualified stock options to purchase shares of Common Stock. The objectives
of the Plans are to provide incentives to key employees to achieve financial
results aimed at increasing shareholder value and attracting talented
individuals to the Company. Although the Plans do not specify what portion of
the shares
45
<PAGE> 48
may be awarded in the form of incentive stock options or non-statutory options,
a substantially greater number of incentive stock options have been awarded
under the Plans. The incentive stock options are qualified stock options under
the Internal Revenue Code. Persons eligible to participate in the Plans are
those employees and others of the Company whose performance can have significant
effect on the success of the Company.
The Plans are administered by the Compensation Committee of the Board of
Directors, which has the authority to interpret the Plans' provisions, to
establish and amend rules for their administration, to determine the types and
amounts of awards made pursuant to the Plans, subject to the Plans' limitations,
and to approve recommendations made by management of the Company as to who
should receive awards. The Compensation Committee of the Board of Directors must
consist of disinterested Directors.
Incentive stock options may be granted under the Plans for terms of up to
10 years and at an exercise price at least equal to 100% of the fair market
value of the Common Stock as of the date of grant, and 85% of the fair market
value in the case of non-statutory options, except that incentive options
granted to any person who owns stock possessing more than 10% of the combined
voting power of all classes of the Company's stock or of any parent or
subsidiary corporation must have an exercise price at least equal to 110% of the
fair market value of the Company's Common Stock on the date of grant. The
aggregate fair market value, determined as of the time an incentive stock option
is granted, of the Common Stock with respect to which incentive stock options
are exercisable by an employee for the first time during any calendar year may
not exceed $100,000. There is no aggregate dollar limitation on the amount of
non-statutory stock options which may be exercisable for the first time by an
employee during any calendar year. Payment of the exercise price is to be in
cash, although the Compensation Committee may, in its discretion, allow payment
in the form of shares of the Company's Common Stock under certain circumstances.
Any option granted under the Plans will expire at the time fixed by the
Committee, which will not be more than 10 years after the date it is granted.
Any employee receiving a grant must remain continuously employed by the Company
for a period of 12 months after the date of the grant, as a condition to the
exercise of the option. The Compensation Committee may also specify when all or
part of an option becomes exercisable, but in the absence of such specification,
the option will ordinarily be exercisable in whole or part at any time during
its term. In addition, optionees who are directors or executive officers of the
Company may not exercise any portion of an option within six months of the date
of grant. Subject to the foregoing, the Compensation Committee may accelerate
the exercisability of any option in its discretion.
The Plans presently provide that options granted under the Plans are not
assignable. Options may be exercised only while the optionee is employed by the
Company or within 12 months after termination by reason of death, within 12
months after the date of disability, or within 10 days after termination for any
other reason.
The Company may assist optionees in paying the exercise price of options
granted under the Plans by either the extension of a loan by the Company for
payment by the optionee of the exercise price in installments, or a guarantee by
the Company of a loan obtained by the optionee from a third party. The terms of
any loan, installment payments or guarantees, including the interest rate and
terms of repayment and collateral requirements, if any, will be determined by
the Compensation Committee in its sole discretion.
In addition to the foregoing, the 1994 Plan provides that in the event of a
change in control of the Company, that all issued but unvested options become
immediately vested and exercisable. The 1994 Plan also provides that in
connection with such immediate exercises made by executive officers of the
Company, the Company provide tax assistance to supply the funds necessary for
those individuals to pay taxes resulting from the loss of tax incentives due to
such accelerated exercises and sales. Any such payments by the Company would be
fully deductible as a compensation expense and such amounts would not accrue to
the individuals exercising the options, but would be paid to state and federal
taxing authorities. See "Management -- Employment Agreements."
1992 RESTRICTED STOCK PLAN
In February 1992, the Company adopted the 1992 Restricted Stock Plan
("Restricted Stock Plan") authorizing the Company to grant to key employees of
the Company and other individuals who provide
46
<PAGE> 49
services to the Company the right to purchase up to an aggregate of 19,500
shares of Common Stock at $.01 per share. The Restricted Stock Plan is intended
to allow the Company to provide awards of Common Stock to directors or long-term
employees who have provided valuable past services to the Company. The
Restricted Stock Plan authorizes disinterested members of the Board of Directors
to determine the persons to whom awards under the Restricted Stock Plan will be
granted and the terms and conditions and restrictions of such awards. To date,
4,500 shares have been awarded under the Restricted Stock Plan.
OPTIONS GRANTED UNDER PLANS
In March 1996, October 1996, and January 1997, the Board of Directors
approved recommendations of the Compensation Committee and granted certain
incentive stock options under the Plans to key employees. The options granted
are exercisable, or when vested will be exercisable, for a total of 1,875 shares
under the 1992 Plan and 1,030,075 shares under the 1994 Plan.
The following table sets forth information regarding options granted in
fiscal 1996 to executive officers named in the Summary Compensation Table:
OPTION/SAR GRANTS IN LAST FISCAL YEAR
(Individual Grants)
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
PERCENT OF VALUE AT ASSUMED
NUMBER OF TOTAL ANNUAL RATES
SECURITIES OPTIONS/ OF STOCK PRICE
UNDERLYING SARS EXERCISE APPRECIATION FOR
OPTIONS/ GRANTED TO OR BASE OPTION TERM(2)
SARS EMPLOYEES IN PRICE EXPIRATION -----------------------
NAME GRANTED(1) FISCAL YEAR ($/SH) DATE 5%($) 10%($)
- -------------------------------- ---------- ------------ -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Donald W. Townsend(3)........... 70,000 20% $12.75 2006 $1,453,883 $2,315,145
Bradley P. Forst(4)............. 50,000 14% 12.75 2006 1,038,488 1,653,675
Sean K. Nolen(5)................ 25,000 7% 16.13 2006 656,691 1,045,706
</TABLE>
- ---------------
(1) All options contained in the table which were granted to named executive
officers in 1996 become exercisable for the first time in March 1997. In
addition to the options shown in the table, 215,250 options were granted to
employees of the Company in 1996.
(2) Calculated from a base price equal to the exercise price of each option,
which was the fair market value of the Common Stock on the date of grant.
The amounts represent only certain assumed rates of appreciation. Actual
gains, if any, on stock option exercises and Common Stock holdings cannot be
predicted, and there can be no assurance that the gains set forth on the
table will be achieved. Further, the number shown is the gross dollar value
of the Common Stock, but does not give effect to the payment of the purchase
price to exercise the option, and thus does not represent the net value or
net gain. The amount also does not reflect the taxes payable on such gain.
(3) In addition to the 1996 option grant listed in the table, Mr. Townsend owns
334,800 options with various vesting periods.
(4) In addition to the 1996 option grant listed in the table, Mr. Forst owns
150,000 options with various vesting periods.
(5) In addition to the 1996 option grant listed in the table, Mr. Nolen owns
150,000 options with various vesting periods.
47
<PAGE> 50
FISCAL YEAR END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT FISCAL YEAR END OPTIONS/SARS AT FISCAL YEAR END
NAME (#) EXERCISABLE/UNEXERCISABLE ($)(1) EXERCISABLE/UNEXERCISABLE
- ------------------------------------ ------------------------------- ----------------------------------
<S> <C> <C>
Donald W. Townsend.................. 96,600/70,000 $ 240,938/52,500
Bradley P. Forst.................... 56,250/50,000 -0-/37,500
Sean K. Nolen....................... -0-/25,000 -0-/-0-
</TABLE>
- ---------------
(1) Calculated by multiplying the number of shares underlying outstanding
in-the-money options by the difference between the last sales price of the
Company's Common Stock on December 31, 1996 ($13.50 per share) and the
exercise prices for both exercisable and unexercisable shares. See also,
footnote (2) immediately above.
DEFINED BENEFIT PENSION PLAN
The Company adopted a non-contributory defined benefit pension plan as of
November 1, 1980. To be eligible, participants must have completed six months of
continuous service and have attained the age of 21. Benefits are based on the
length of service and the participants' final pay (averaged over the five
highest consecutive years of his last 10 years of participation). The Company
makes contributions to the plan based on actuarially determined amounts. Both
Mr. Desjardins and Mr. Townsend are participants in the plan consistent with the
normal terms and conditions of the plan.
The following table sets forth the estimated annual benefits payable on
retirement for specified earnings and years of service categories for
participants.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE(1)
-------------------------------------------------------
REMUNERATION 15 20 25 30 35
- ------------ ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
$ 50,000 $17,500 $17,500 $17,500 $17,500 $17,500
75,000 26,250 26,250 26,250 26,250 26,250
100,000 35,000 35,000 35,000 35,000 35,000
150,000 52,500 52,500 52,500 52,500 52,500
200,000 70,000 70,000 70,000 70,000 70,000
</TABLE>
- ---------------
(1) As of December 31, 1996, Mr. Desjardins' and Mr. Townsend's credited years
of service were 16 and 11, respectively.
(2) Benefits are calculated on a straight-life annuity basis. The compensation
covered by the retirement plan includes all wages and salaries but excludes
bonuses. Benefits under the retirement plan are not subject to deduction for
Social Security or other offset amounts.
401(k) PROFIT SHARING PLAN
The Company's 401(k) Profit Sharing Plan (the "PSP") is qualified under
Sections 401(a) and 401(k) of the Internal Revenue Code. The PSP was adopted
effective November 1, 1989. The PSP is administered under a trust, and the
Company's directors are currently serving as its trustees. All employees of the
Company who are 21 years or older, including its executive officers, are
eligible to participate in the PSP after six months of employment with the
Company.
Under the PSP, participating employees have the right to elect their
contributions to the PSP be made by reductions from compensation owed to them by
the Company. In addition, the Company at its discretion can make contributions
to the PSP of a percentage of a participant's annual compensation. Participating
employees are entitled to full distribution of their share of the Company's
contributions under the PSP upon death, disability or when they reach retirement
age. If their employment is terminated earlier, their share of
48
<PAGE> 51
the Company's contributions will depend on the number of years of employment
with the Company. All participating employees have the right to receive 100% of
their own contributions to the PSP upon any termination of employment. Apart
from the Company's and the employee's contributions, they may receive investment
earnings related to the funds in their account under this plan.
EMPLOYEE STOCK PURCHASE PLAN
At the 1996 Annual Meeting, the Company's Board of Directors and
shareholders adopted the Employee Stock Purchase Plan ("ESPP" or "Plan"). The
ESPP provides eligible employees with the opportunity to acquire a stock
ownership interest in the Company through periodic payroll deductions. The
purpose of the Plan is to provide incentive to employees of the Company to
perform in a manner which enhances the value of the Company's Common Stock by
providing a direct ownership stake in the Company's performance.
The ESPP reserves 400,000 shares of the Company's Common Stock to be issued
to employees eligible to participate in the Plan. Employees of the Company and
its subsidiaries are eligible to participate in the Plan following 30 days of
continuous service with the Company, provided that such employees work in excess
of 20 hours per week and greater than five months per calendar year. The
Company, at its discretion, need not include all of its operating subsidiaries
in the ESPP.
Eligible employees invest in the Plan through regular payroll deductions of
up to 10% of their gross earnings, deducted net of taxes, for each semi-annual
period of participation, provided that no employee may purchase greater than
$25,000 worth of the Company's Common Stock in any given calendar year. At each
semi-annual purchase date, payroll deductions are credited to an account
established in each participating employee's name and shares of the Company's
Common Stock are automatically purchased on behalf of participating employees on
the last business day of each semi-annual period of participation at the lesser
of (i) 85% of the market price per share of Common Stock on an individual's
entry date into the Plan (subject to certain limitations), or (ii) 85% of the
market price per share on the semi-annual purchase date.
The Company commenced operation of the ESPP on October 1, 1996. The Plan
provides for semi-annual purchase dates to occur on March 31 and September 30 of
each year.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Compensation Committee consists of Messrs. Miller, Olliver,
and Withers, all of whom are independent disinterested directors for purposes of
administering the stock option plans under SEC Rule 16b-3. These individuals do
not serve on the compensation committees of other corporations.
49
<PAGE> 52
CERTAIN TRANSACTIONS
In August 1996, Mr. Desjardins loaned $1.65 million to the Company pursuant
to two promissory notes. The notes contained arm's length terms and conditions
and were approved by the disinterested members of the Board of Directors. One
note bore interest at a rate of 8 3/4% per annum and the other bore interest at
the rate of 10% per annum. All principal and interest have been repaid in full
on the notes. Mr. Desjardins loaned the Company $2 million in 1994 on similar
terms which was repaid by the Company in 1995.
In 1995 it was determined by management that the regulatory burdens that
were imposed on its subsidiary, Comfab, Inc. ("Comfab") in connection with its
role as a government subcontractor, were not reasonable under a cost-benefit
analysis. In connection with this assessment, it was also determined that the
business of Comfab no longer was completely aligned with the Company's overall
strategic plan. Consequently, on November 1, 1995, Desjardins Engineering, a
proprietorship owned and operated by Mr. Desjardins, purchased the assets of
Comfab. The transaction was approved by the independent members of the Board of
Directors. In June 1996, Desjardins Engineering sold the assets of Comfab to an
unrelated third party for the price of approximately $1,050,000. No gain inured
to the benefit of Mr. Desjardins in connection with the sale of Comfab.
Mr. Miller, a director of the Company since 1995, is a Director of
Investment Banking of HD Brous & Co, Inc., headquartered in Great Neck, New
York. Mr. Miller is the principal in the office located in Phoenix, Arizona. HD
Brous & Co.,Inc. is an Underwriter of this offering. See "Underwriting." HD
Brous & Co., Inc. acted as an underwriter in the Company's offering of Common
Stock in April 1995 and as a placement agent in the private placement issuance
of $14.3 million principal amount of the Company's 10% Notes issued in September
1996. Prior to joining HD Brous & Co., Inc. in 1994, Mr. Miller was Director of
Investment Banking of W.B. McKee Securities, Inc., Phoenix, Arizona, which
served as the managing underwriter of the Company's initial public offering of
Common Stock in 1992. Since that date, Mr. Miller has consulted with the Company
as its investment banker in connection with equity and debt financing and
mergers and acquisitions. See "Management."
The Board of Directors has a policy that provides that all transactions
between the Company and its executive officers, directors, employees, and
affiliates are subject to the approval of a majority of disinterested directors
of the Board of Directors and will be on terms that are no less favorable to the
Company than those that could be negotiated with unaffiliated parties.
LIMITATION ON LIABILITY OF DIRECTORS
The General Corporation Law of Arizona, under which the Company is
incorporated, was amended in full effective January 1, 1996. Subsequent to such
modification of the Arizona Corporate Code, the Company's Board of Directors
recommended, and its shareholders approved, amended and restated Articles of
Incorporation of the Company providing for the limitation or elimination of
potential monetary liability of directors of the Company to the fullest extent
permitted by Arizona law.
The Arizona Corporate Code limits or eliminates the liability of a director
of a corporation for money damages for any action taken or not taken as a
director in all instances except (i) instances where a director receives
financial benefits to which he is not entitled; (ii) any intentional infliction
of harm on the corporation or its shareholders; (iii) the making of unlawful
distributions; and (iv) intentional violations of criminal law.
50
<PAGE> 53
PRINCIPAL SHAREHOLDERS
The following table sets forth information with respect to the number of
shares of Common Stock of the Company, as of March 27, 1997, beneficially owned
by individual directors of the Company, the named executive officers, all
directors and named executive officers of the Company as a group, as well as
information regarding the ownership of such shares after this offering assuming
the conversion of the Preferred Stock (or Exchange Notes).
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
SHARES BENEFICIALLY OWNED OWNED
PRIOR TO OFFERING AFTER OFFERING(10)
--------------------------- ---------------------
NAME OF BENEFICIAL OWNER NUMBER(1) PERCENTAGE(2) NUMBER PERCENT
--------------------------------- --------- ------------- --------- -------
<S> <C> <C> <C> <C>
Stanley P. Desjardins(3)......... 3,543,052 39% 3,543,052
Donald W. Townsend(4)............ 450,000 5% 450,000
Bradley P. Forst(5).............. 151,050 2% 151,050
Sean K. Nolen(6)................. 25,000 * 25,000
James C. Withers(7).............. 24,900 * 24,900
Robert D. Olliver(8)............. 24,922 * 24,922
Scott E. Miller(9)............... 26,050 * 26,050
All directors and executive
officers as a group (nine
persons)....................... 4,244,974 47% 4,244,974
</TABLE>
- ---------------
* Less than 1% of the outstanding Common Stock
(1) The number of shares shown in the table, including the notes thereto, have
been rounded to the nearest whole share. Includes, when applicable, shares
owned of record by such person's spouse and by other related individuals
and entities over whose shares of Common Stock such person has custody,
voting control, or power of disposition. Also includes shares of Common
Stock that the identified person had the right to acquire within 60 days of
March 27, 1997 by the exercise of stock options.
(2) The percentages shown include the shares of Common Stock that the person
will have the right to acquire within 60 days of March 27, 1997. In
calculating the percentage of ownership, all shares of Common Stock that
the identified person will have the right to acquire within 60 days of
March 27, 1997 upon the exercise of stock options are deemed to be
outstanding for the purpose of computing the percentage of shares of Common
Stock owned by such person, but are not deemed to be outstanding for the
purpose of computing the percentage of the shares of Common Stock owned by
any other person.
(3) The address of Mr. Desjardins and all other directors and executive
officers named in the table above is 2700 North Central Avenue, Suite 1000,
Phoenix, Arizona 85004.
(4) Includes options to purchase 404,800 shares of Common Stock, which are
presently exercisable, or which will be exercisable within 60 days of March
27, 1997.
(5) Includes options to purchase 150,000 shares of Common Stock, which are
presently exercisable, or which will be exercisable within 60 days of March
27, 1997, but does not include options to purchase 50,000 shares of Common
Stock, which are not exercisable before January 1998.
(6) Includes options to purchase 25,000 shares of Common Stock which are
exercisable within 60 days of March 27, 1997, but does not include options
to purchase 150,000 shares of Common Stock which have various vesting
periods starting January 1998.
(7) Includes options to purchase 24,000 shares of Common Stock, which are
presently exercisable, or which will be exercisable within 60 days of March
27, 1997. Does not include options for 1,500 shares not exercisable before
January 1998.
(8) Includes options to purchase 21,687 shares of Common Stock, which are
presently exercisable, or which will be exercisable within 60 days of March
27, 1997. Does not include options for 1,500 shares not exercisable before
January 1998.
51
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(9) Includes options to purchase 24,000 shares of Common Stock, which are
presently exercisable, or which will be exercisable within 60 days of March
27, 1997. Does not include options for 1,500 shares not exercisable before
January 1998.
(10) Does not include up to 180,000 shares of Preferred Stock which may be sold
by the Company upon exercise of the over-allotment option granted to the
Underwriters. See "Underwriting."
SHARES ELIGIBLE FOR FUTURE SALE
As of March 27, 1997, the Company had 8,999,948 outstanding shares of
Common Stock, of which 3,669,349 shares are "restricted securities" as that term
is defined in Rule 144 under the Act (the "Restricted Shares"). Such Restricted
Shares may be subject to volume and other resale limitations described below.
The directors and executive officers have agreed with the Company at the
request of the Underwriters not to sell or otherwise dispose of any shares of
Common Stock in the public market for a period of 90 days after the date of this
Prospectus without the prior written consent of the Underwriters.
In general, under Rule 144 as amended effective April 27, 1997, any person
(or persons whose shares are aggregated for purposes of Rule 144) who
beneficially owns restricted securities with respect to which at least one year
has elapsed since the later of the date the shares were acquired from the
Company or from an affiliate of the Company, is entitled to sell, within any
three-month period, a number of shares that does not exceed the greater of (i)
1% of the then outstanding shares of Common Stock of the Company or (ii) the
average weekly trading volume in Common Stock during the four calendar weeks
preceding such sale. Sales under Rule 144 also are subject to certain
manner-of-sale provisions and notice requirements and to the availability of
current public information about the Company. A person who is not an affiliate,
has not been an affiliate within three months prior the sale, and who
beneficially owns restricted securities with respect to which at least two years
have elapsed since the later of the date the shares were acquired from the
Company or from an affiliate of the Company, is entitled to sell such shares
under Rule 144(k) without regard to any of the volume limitations or other
requirements described above.
In September 1996, the Company issued $14.3 million principal amount of 10%
Notes in a private placement. Based on the ten (10) day average of the closing
prices for the Company's Common Stock ending March 27, 1997, the 10% Notes are
convertible into approximately 930,000 shares of Common Stock. The Company filed
a registration statement, which is currently pending before the Securities and
Exchange Commission, in November 1996 covering resales by the holders of the
Common Stock issuable upon conversion of the 10% Notes. In addition, for the
term of the 10% Notes, the holders of at least 25% of the 10% Notes, or Common
Stock if converted, may require the Company to file, on more than one occasion,
a registration statement under the Act with respect to the Common Stock
underlying the 10% Notes. The Company also committed to use its best efforts to
cause such registration statement to become effective and will bear the expenses
associated with the registration.
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DESCRIPTION OF PREFERRED STOCK
GENERAL
Under the Company's Amended and Restated Articles of Incorporation, the
Company's Board of Directors is authorized, without further shareholder action,
to provide for the issuance of up to 50 million shares of preferred stock, $.05
par value, in one or more series, with such voting powers or without voting
powers, and with such designations, powers, preferences and relative,
participating, optional or other special rights, and qualifications, limitations
or restrictions, as shall be set forth in the resolutions providing therefor. As
of the date of this Prospectus, the Company has no shares of preferred stock
outstanding.
Set forth below is a summary of the material provisions of the Preferred
Stock. Further details are available by reference to the provisions of the
Statement Pursuant to Arizona Revised Statutes sec.10-602 (the "Certificate of
Designations") relating to the Preferred Stock, a copy of which has been filed
as an exhibit to the Registration Statement of which this Prospectus constitutes
a part.
The Preferred Stock will, when issued, be fully paid and nonassessable. The
transfer agent, registrar, redemption agent, and conversion agent for shares of
the Preferred Stock will be American Stock Transfer & Trust Company, New York,
New York.
DIVIDENDS
Holders of shares of Preferred Stock will be entitled to receive, when and
as declared by the Board of Directors of the Company out of assets of the
Company legally available for payment, a cumulative annual cash dividend of
$ per share. Dividends accrue from the date of original issuance and
are payable quarterly on the 30th day of January, April, July, and October (or
if such day is not a business day, on the business day immediately succeeding
such 30th day), commencing July 30, 1997, to the person in whose name the
Preferred Stock is registered at the close of business on the 15th day of the
month next preceding such dividend payment date, or if any such date is not a
business day, on the next succeeding day that is a business day.
Dividends will be computed on the basis of a 360-day year of twelve 30-day
months, with each dividend payment to be rounded to the nearest whole cent.
Dividends on the Preferred Stock will accumulate to the extent they are not paid
on the dividend payment date for the period for which they accrued whether or
not the Company has earnings, whether or not there are funds legally available
for the payment of such dividends, and whether or not such dividends are
declared. Dividends on the Preferred Stock will be cumulative from the date
issued. Such dividends will be payable when and as declared by the Board of
Directors of the Company out of assets of the Company legally available for
payment. Accrued dividends, whether current or in arrears, are payable on
Preferred Stock that is converted into Common Stock only if such dividend has
been declared and is payable as of a record date prior to the Conversion Date
(as hereinafter defined).
No dividends shall be declared, paid, or set apart for payment on Common
Stock, or the preferred stock of any series ranking, as to dividends, junior to
the Preferred Stock, for any period unless full cumulative dividends have been
or contemporaneously are declared and paid (or declared and a sum sufficient for
the payment thereof set apart for payment) on the Preferred Stock for all
dividend payment periods terminating on or prior to the date of payment of such
dividends. When dividends are not paid in full upon the Preferred Stock and any
other preferred stock ranking on a parity as to dividends with the Preferred
Stock, all dividends declared upon shares of Preferred Stock and any other
preferred stock ranking on a parity as to dividends will be declared pro rata so
that in all cases the amount of dividends declared per share on the Preferred
Stock and such other preferred stock shall bear to each other the same ratio
that accumulated dividends per share on the shares of Preferred Stock and such
other preferred stock bear to each other.
LIQUIDATION RIGHTS
In the event of any involuntary liquidation, dissolution, or winding up of
the Company, the holders of shares of Preferred Stock are entitled to receive
out of assets of the Company available for distribution to the
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shareholders, before any distribution of assets is made to holders of Common
Stock or other stock of the Company ranking junior to the Preferred Stock,
liquidating distributions in the amount of $ per share plus accrued and
unpaid dividends. If upon any voluntary or involuntary liquidation, dissolution,
or winding up of the Company, the amounts payable with respect to the Preferred
Stock and any other shares of stock of the Company ranking as to any such
distribution on a parity with the Preferred Stock are not paid in full, the
holders of the Preferred Stock and of such other shares will share ratably in
any such distribution of assets of the Company in proportion to the full
respective preferential amounts to which they are entitled. After payment of the
full amount of the liquidating distribution to which they are entitled, the
holders of shares of Preferred Stock will not be entitled to any further
participation in any distribution of assets of the Company. Such liquidation
rights are not triggered by (i) any consolidation or merger of the Company with
or into any other corporations, (ii) any dissolution, liquidation, winding up or
reorganization of the Company immediately followed by reincorporation of another
corporation or creation of a partnership, or (iii) a sale or other disposition
of all or substantially all of the Company's assets to another corporation or a
partnership, provided that in each case effective provision is made in the
certificate of incorporation of the resulting and surviving corporation or the
articles of partnership, or otherwise, for the protections of the rights of the
holders of Preferred Stock.
CONVERSION RIGHTS
Each share of the Preferred Stock is convertible at any time after the date
of issuance, unless previously redeemed, at the option of the holder thereof
into shares of the Company's Common Stock, equivalent to a conversion
price of $ per share of Common Stock, subject to adjustment as set
forth below. A holder of Preferred Stock may convert his shares by surrendering
to the conversion agent each certificate covering shares to be converted
together with a statement of the name or names in which the shares of Common
Stock shall be registered upon issuance (the date of such surrender, the
"Conversion Date"). Every such notice of election to convert will constitute a
contract between the holder giving such notice and the Company whereby such
holder will be deemed to subscribe for the shares of Common Stock he will be
entitled to receive upon such conversion and, in payment and satisfaction of
such subscription, to surrender the shares of Preferred Stock to be converted
and to release the Company from all further obligation thereon and whereby the
Company will be deemed to accept the surrender of such shares of Preferred Stock
in full payment of the shares of Common Stock so subscribed for and to be issued
upon such conversion. As promptly as practicable after the Conversion Date, the
Company shall issue and deliver to the converting holder of the Preferred Stock
a certificate representing the number of shares of Common Stock into which the
Preferred Stock was converted together with dividends, if any, payable on the
Preferred Stock so converted as may be declared and made payable to holders of
record of Preferred Stock on the record date immediately preceding the
Conversion Date. If a holder of Preferred Stock elects to convert only a portion
of his Preferred Stock, upon such conversion the Company shall also deliver to
the holder of the Preferred Stock a new Preferred Stock certificate representing
his unconverted Preferred Stock. In lieu of fractional shares of Common Stock,
there will be paid to the holder of the Preferred Stock at the time of
conversion an amount in cash equal to the same fraction of the current market
value of a share of Common Stock of the Company. This current market value will
be deemed the closing price of the Common Stock on the NYSE on the last trading
day preceding the Conversion Date.
The Conversion Rate is subject to adjustment upon the issuance of shares of
Common Stock or other securities of the Company as a dividend or distribution on
shares of Common Stock of the Company to the holders of all of its outstanding
shares of Common Stock; subdivisions, combinations, or certain reclassifications
of shares of Common Stock of the Company; the issuance of shares of Common Stock
of the Company or of rights, options, or warrants to subscribe for or purchase
shares of Common Stock of the Company at less than the effective Conversion
Price of the Preferred Stock; or the distribution to the holders of shares of
Common Stock of the Company generally of evidences of indebtedness or assets
(excluding cash dividends and distributions made out of current or retained
earnings) or rights, options, or warrants to subscribe for securities of the
Company other than those mentioned above. No adjustment in the Conversion Rate
will be required to be made with respect to the Preferred Stock until cumulative
adjustments amount to 1% or more; however, any such adjustment not required to
be made will be carried forward and taken into account in any
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subsequent adjustment. No accrued and unpaid cumulative dividends will be paid
upon conversion of the Preferred Stock unless the conversion occurs after the
record date for such dividend.
In the event of any consolidation with or merger of the Company into
another corporation, or sale of all or substantially all of the properties and
assets of the Company to any other corporation, or in case of any reorganization
of the Company, each share of Preferred Stock would thereupon become convertible
only into the number of shares of stock or other securities, assets, or cash to
which a holder of the number of shares or Common Stock of the Company issuable
(at the time of such consolidation, merger, sale, or reorganization) upon
conversion of such share of Preferred Stock would have been entitled upon such
consolidation, merger, sale or reorganization.
EXCHANGEABILITY
At the Company's option, all, but not less than all, of the then
outstanding shares of the Preferred Stock may be exchanged on any dividend
payment date commencing , subject to certain conditions stated below,
for the Company's % Senior Subordinated Convertible Exchange Notes due
(the "Exchange Notes") on not less than 30 days nor more than 60 days
notice preceding the dividend payment date, at an exchange rate of $
principal amount of Exchange Notes for each share of the Preferred Stock.
Concurrent with such notice of the Company's exercise of its exchange option,
the Company will provide information regarding the procedure for tendering
shares to the Company or Trustee in exchange for Exchange Notes. Such exchange
may be made only if, at the time of exchange (i) the Exchange Indenture (as
defined under "Description of Exchange Notes") shall have been qualified under
the Trust Indenture Act of 1939, (ii) there shall be no dividend arrearage on
the Preferred Stock (including the dividend payable on the date of exchange),
and (iii) no Event of Default under the Exchange Indenture shall have occurred
and be continuing. The form of the Exchange Indenture may not be amended or
supplemented before the date of exchange without the affirmative vote or consent
of the holders of two-thirds of outstanding shares of the Preferred Stock,
except for those changes which would not adversely affect the legal rights of
such holders. In the event such exchange would result in the issuance of an
Exchange Note in a principal amount which is not an integral multiple of $25,
the difference between such principal amount and the highest integral multiple
of $25 shall be paid to the holder in cash. On the date of the issuance of the
Exchange Notes (the "Exchange Date"), the rights of holders of the Preferred
Stock shall cease and the person or persons entitled to receive Exchange Notes
issuable upon such exchange shall be treated as the registered holder or holders
of such Exchange Notes. Interest will accrue on the Exchange Notes from the date
of exchange. See "Description of Exchange Notes."
VOTING RIGHTS
The holders of the Preferred Stock are not entitled to vote, except as set
forth below and as provided by law. On matters subject to a vote by holders of
the Preferred Stock, the holders are entitled to one vote per share.
If the equivalent of six consecutive quarterly dividends payable on the
Preferred Stock, or on any other series of preferred stock ranking on a parity
with the Preferred Stock as to dividends or liquidation rights and having
similar voting rights, are in arrears, the number of directors of the Company
will be increased by two and the holders of all outstanding series of parity
preferred stock, voting as a single class without regard to series, will be
entitled to elect the additional two directors until all dividends in arrears
have been paid or declared and set apart for payment.
Without the consent of the holders of Preferred Stock, the Company may
issue other series of preferred stock which are pari passu with, or junior to,
the Preferred Stock as to dividends and liquidation rights. Without the approval
of the holders of at least a majority of the number of shares of Preferred Stock
then outstanding, voting or consenting separately as a class, the Company may
not issue preferred stock which is senior to the Preferred Stock as to dividends
or liquidation rights, or amend, alter or repeal any of the voting rights,
designations, preferences or other rights of the holders of the Preferred Stock
so as adversely to affect such voting rights, designations, preferences or other
rights.
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OPTIONAL REDEMPTION
If not earlier converted, exchanged, or redeemed, the Preferred Stock may
be redeemed at the Company's option, upon at least 30 days' notice, in whole or
in part on a pro rata basis, on and after , 1999, at the
following redemption prices if redeemed during the twelve-month period beginning
of the year indicated below, in each case together with accrued
dividends payable thereon to the redemption date:
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE PER SHARE
-------------------------------------- --------------------------
<S> <C>
1999..................................
2000..................................
2001..................................
2002..................................
2003..................................
</TABLE>
However, on or after ,1999 and prior to ,
2000, the Preferred Stock will not be redeemable unless the closing price of the
Company's Common Stock as quoted on the NYSE has equaled or exceeded $
for 20 trading days within a period of 30 consecutive trading days.
Concurrently with the notice of redemption provided by the Company, the
Company will provide instructions as to the procedure to be followed to execute
such redemption. If less than all of the shares of Preferred Stock are to be
redeemed, the Trustee shall select the shares of Preferred Stock to be redeemed
on a pro rata basis.
CHANGE OF CONTROL REDEMPTION
Within 30 days following the occurrence of any Change of Control, the
Company shall offer ("Change of Control Offer") to purchase all outstanding
Preferred Stock at a purchase price of $ per share plus accrued and unpaid
dividends to the date of the Change of Control Offer. The Change of Control
Offer shall be deemed to have commenced upon mailing of notice to the holders of
Preferred Stock and shall terminate 20 business days after its commencement,
unless a longer offering period is then required by law. Promptly after the
termination of the Change of Control Offer ("Change of Control Payment Date"),
the Company shall purchase and mail or deliver payment for all shares tendered
in response to the Change of Control Offer. If the Change of Control Payment
Date is on or after a dividend payment record date and on or before the related
dividend payment date, any accrued and unpaid dividends will be paid to the
Person in whose name a share is registered at the close of business on such
record date, and no additional dividends will be payable to holders who tender
shares pursuant to the Change of Control Offer.
Change of Control means any event or series of events by which (i) any
Person as such term is used in Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended is or becomes the "beneficial owner" (as
defined in Rules 13d-3 and 13d-5 under the Exchange Act) of 50% of more of the
total voting power of the voting stock of the Company; (ii) the Company
consolidates with or merges or amalgamates with or into another Person or
conveys, transfers, or leases all or substantially all of its assets to any
Person, or any Person consolidates with, or merges or amalgamates with or into
the Company, in any such event pursuant to the transaction in which the
outstanding voting stock of the Company is changed into or exchanged for cash,
securities or other property, other than any such transaction where (A) the
outstanding voting stock of the Company is changed or exchanged for voting stock
of the surviving corporation and (B) the holders of the Voting Stock of the
Company immediately prior to such transaction own, directly or indirectly, not
less than a majority of the Voting Stock of the surviving corporation
immediately after such transaction; or (iii) the shareholders of the Company
approve any plan of liquidation or dissolution of the Company.
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DESCRIPTION OF EXCHANGE NOTES
The following statements with respect to the % Senior Subordinated
Convertible Exchange Notes are not complete and are qualified in all respects by
the provisions of the Company's Amended and Restated Articles of Incorporation,
Bylaws and the Exchange Indenture, which are included in, or are incorporated by
reference into, the Registration Statement of which this Prospectus forms a
part.
GENERAL
The Exchange Notes will, if and when issued, be issued under an Exchange
Indenture (the "Exchange Indenture") to be dated as of the Exchange Date,
between the Company and Bank One Trust Company, NA (the "Trustee"). A copy of
the proposed form of the Exchange Indenture has been filed as an exhibit to the
Registration Statement of which this Prospectus is a part. The form of Exchange
Indenture may not be amended or supplemented before the Exchange Date without
the affirmative vote or consent of the holders of two-thirds of the outstanding
shares of the Preferred Stock, except for those changes which would not
adversely affect the legal rights of the holders. The summaries of certain
provisions of the Exchange Indenture hereunder do not purport to be complete and
are subject to, and are qualified in their entirety by reference to, all of the
provisions of the Exchange Indenture including the definitions therein of
certain terms and those terms made part of the Exchange Indenture by reference
to the Trust Exchange Indenture Act of 1939 as in effect on the Exchange Date.
The definitions of certain capitalized terms are set forth under "-- Certain
Definitions" and throughout this description. Capitalized terms that are used
but not oherwise defined herein have the meanings assigned to them in the
Exchange Indenture and such definitions are incorporated herein by reference.
The Exchange Indenture authorizes an aggregate principal amount of
$150,000,000 of notes. The initial issuance of notes thereunder will consist of
the Exchange Notes which will bear interest from the Exchange Date at the rate
of % per annum payable semiannually commencing on the dividend payment date
occurring six months after the Exchange Date and continuing semiannually
thereafter until paid in full (each such date an "interest payment date") to
holders of record at the close of business on the first day of the month of such
interest payment date.
The Exchange Notes will be due on , will be issued in
registered form, without coupons, only in denominations of $25 and integral
multiples thereof and will be unsecured obligations of the Company which will be
subordinated to the Senior Indebtedness of the Company. The Exchange Notes may
be presented for transfer and exchange at the office of the Trustee maintained
for that purpose, provided that payment of interest may, at the option of the
Company, be made by check mailed to the registered address of the person
entitled thereto. No service charge will be made for any transfer or exchange of
Exchange Notes, but the Company may require payment of a sum sufficient to cover
any tax or other governmental charge payable in connection therewith.
DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
covenants contained in the Indenture. Reference is made to the Indenture for the
full definition of all such terms.
"Asset Sale" means any sale, lease, transfer, exchange or other disposition
(or series of related sales, leases, transfers, exchanges or dispositions) of
shares of capital stock of a Subsidiary (other than directors' qualifying
shares), or of property or assets or any interests therein by the Company or any
of its Subsidiaries, including any disposition by means of a merger,
consolidation or similar transaction (other than (A) by the Company to a wholly
owned subsidiary or by a Subsidiary to the Company or a wholly owned subsidiary,
(B) a sale of products, services, inventories and assets in the ordinary course
of business of the Company's operations, and (C) the disposition of all or
substantially all of the assets of the Company in compliance with the covenant
captioned "Limitations on Mergers and Consolidations").
"Indebtedness" means, without duplication, with respect to any person, (a)
all obligations of such person (i) in respect of borrowed money (whether or not
the recourse of the lender is to the whole of the assets of
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such person or only to a portion thereof), (ii) evidenced by bonds, Exchange
Notes, debentures or similar instruments, (iii) representing the balance
deferred and unpaid of the purchase price of any property or services (other
than accounts payable or other obligations arising in the ordinary course of
business), (iv) evidenced by bankers' acceptances or similar instruments issued
or accepted by banks, (v) for the payment of money relating to a capitalized
lease obligation, or (vi) evidenced by a letter of credit or a reimbursement
obligation of such person with respect to any letter of credit; (b) all net
obligations of such person under interest rate swap obligations and foreign
currency hedges; (c) all liabilities of others of the kind described in the
preceding clauses (a) or (b) that such person has guaranteed or that are
otherwise its legal liability; (d) with respect to such person, the liquidation
preference or any mandatory redemption payment obligations in respect to
disqualified stock; and (e) any and all deferrals, renewals, extensions,
refinancings and refundings (whether direct or indirect) of, or amendments,
modifications or supplements to, any liability of the kind described in any of
the preceding clauses (a), (b), (c) and (d).
"Net Available Proceeds" means, with respect to any Asset Sale of any
person, cash proceeds received (including any cash proceeds received by way of
deferred payment of principal pursuant to a note or installment receivable or
otherwise, but only as and when received, and excluding any other consideration
until such time as such consideration is converted into cash) therefrom, in each
case net of all legal, title and recording tax expenses, commissions and other
fees and expenses incurred, and all federal, state or local taxes required to be
accrued as a liability as a consequence of such Asset Sale, and in each case net
of all Indebtedness which was secured by such assets, in accordance with the
terms of any lien upon or with respect to such assets, or which must, by its
terms or in order to obtain a necessary consent to such Asset Sale or by
applicable law, be repaid out of the proceeds from such Asset Sale and which is
actually so repaid.
"Senior Indebtedness" means any Indebtedness of the Company (whether
outstanding on the Exchange Date or thereafter incurred), unless such
Indebtedness is pari passu with or contractually subordinate or junior in right
of payment to the Exchange Notes, except Indebtedness to any affiliate of the
Company which shall be junior and subordinate to the Exchange Notes, and except
Indebtedness evidenced by any series of notes authorized to be issued under the
Exchange Indenture in addition to and on parity with the Exchange Notes.
"Subordinated Indebtedness" means any Indebtedness of the Company (whether
outstanding on the Exchange Date or thereafter incurred) which is contractually
subordinate or junior in right of payment to the Exchange Notes.
SUBORDINATED INDEBTEDNESS
The Indebtedness evidenced by the Exchange Notes will be subordinated to
the prior payment when due of the principal of, and premium, if any, and accrued
and unpaid interest on, all existing and future Senior Indebtedness of the
Company. The Exchange Notes will be senior to, in right of payment of principal
of, premium, if any, and accrued and unpaid interest on, any other and future
Subordinated Indebtedness of the Company.
The Exchange Notes and the Exchange Indenture provide that, upon any
distribution of assets of the Company in any dissolution, winding up,
liquidation, or reorganization of the Company, all holders of Senior
Indebtedness of the Company must be paid in full before any payment or
distribution is made with respect to the Exchange Notes. Because of these
subordination provisions, unless sufficient sums are available to pay the
holders of the Exchange Notes and the holders of Senior Indebtedness of the
Company in full, holders of Senior Indebtedness of the Company, including
certain creditors of the Company who are not holders of Senior Indebtedness of
the Company, may recover more, ratably, than the holders of the Exchange Notes.
The Exchange Indenture provides that, upon the maturity of any Senior
Indebtedness of the Company by lapse of time, acceleration or otherwise, unless
and until all principal thereof, premium, if any, and interest thereon and other
amounts due thereon shall first be paid in full, no payment shall be made by or
on behalf of the Company with respect to the principal of, premium, if any, or
interest on the Exchange Notes. Upon the happening of any default in the payment
of any principal of or interest on or other amounts due on any Senior
Indebtedness of the Company, unless and until such default shall have been cured
or waived or have ceased to
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exist, no payment shall be made by or on behalf of the Company with respect to
the principal of or interest on the Exchange Notes.
SUBSIDIARY GUARANTEES
Each of the Company's subsidiaries (the "Subsidiaries") will
unconditionally guarantee (the "Guarantees") on a joint and several basis the
Company's obligations to pay principal of, premium, if any, and interest on the
Exchange Notes. The Exchange Indenture also provides that each person that
becomes a Subsidiary after the Exchange Date shall guarantee the payment of the
Exchange Notes. Under the terms of the Exchange Indenture, a Subsidiary
Guarantor may be released from its Guarantee if such Subsidiary Guarantor is
sold or disposed of by the Company, or sells or disposes of substantially all of
its assets, to another person in accordance with the Exchange Indenture, as
described below.
Each Subsidiary Guarantor's Guarantee will be subordinate to Senior
Indebtedness of such Subsidiary Guarantor including such Subsidiary Guarantor's
guarantees of Senior Indebtedness of the Company, generally on the same basis as
the Company's obligations under the Exchange Indenture and the Exchange Notes
will be subordinate to Senior Indebtedness of the Company. The Guarantees will,
however, rank at least on a parity with claims of all other unsecured creditors
of the respective Subsidiary Guarantors. However, because of the subordination
provisions, unless sufficient sums are available to pay the full amounts
required under the Guarantees and to pay the unsecured creditors of the
respective Subsidiary Guarantors, such other unsecured creditors of the
Subsidiary Guarantors may recover more, ratably, than the holders of the
Exchange Notes would recover with respect to the Guarantees. Each Subsidiary
Guarantor will be prohibited from making payments under its Guarantee if
defaults and certain other events with respect to Senior Indebtedness of a
Subsidiary Guarantor have occurred that prohibit the Subsidiary Guarantor from
making payments on the Exchange Notes pursuant to the Guarantee.
The obligations of each Subsidiary Guarantor are limited to the maximum
amount as will, after giving effect to all other contingent and fixed
liabilities of such Subsidiary Guarantor and after giving effect to any
collections from or payments made by or on behalf of any other Subsidiary
Guarantor in respect of the obligations of such other Subsidiary Guarantor under
its Guarantee or pursuant to its contribution obligations under the Exchange
Indenture, result in the obligations of such Subsidiary Guarantor under its
Guarantee not constituting a fraudulent conveyance or fraudulent transfer under
federal, state, or foreign law.
Each Subsidiary Guarantor may consolidate with or merge into or sell its
assets to the Company or another Subsidiary Guarantor without limitation. Each
Subsidiary Guarantor may consolidate with or merge into or sell its assets to a
corporation other than the Company or another Subsidiary Guarantor (whether or
not affiliated with the Subsidiary Guarantor), provided, that (a) if the
surviving corporation is not the Subsidiary Guarantor, the surviving corporation
agrees to assume such Subsidiary Guarantor's Guarantee and all its obligations
pursuant to the Exchange Indenture and (b) such transaction does not (i) violate
any covenants under the Exchange Indenture or (ii) result in a Default or Event
of Default immediately thereafter that is continuing. A Subsidiary Guarantor may
be released from its Guarantee only if such Subsidiary Guarantor consolidates
with, merges into or sells substantially all of its assets to, another person in
accordance with the requirements of the Exchange Indenture. Except as provided
in the preceding sentence, a Subsidiary Guarantor may not otherwise be released
from its Guarantee.
CHANGE OF CONTROL
Within 30 days following the occurrence of any Change of Control, the
Company will offer (a "Change of Control Offer") to purchase all outstanding
Exchange Notes at a purchase price equal to % of the aggregate principal
amount of the Exchange Notes, plus accrued and unpaid interest to the date of
purchase. The Change of Control Offer shall be deemed to have commenced upon
mailing of the notice described in the next succeeding paragraph and shall
terminate 20 business days after its commencement, unless a longer offering
period is required by law. Promptly after the termination of the Change of
Control Offer (the "Change of Control Payment Date"), the Company shall purchase
and mail or deliver payment for all Exchange Notes tendered in response to the
Change of Control Offer.
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It is expected that any bank credit facility or other Senior Indebtedness
that the Company is a party to would prohibit the repurchase of Indebtedness
subordinated to Indebtedness thereunder, which would include the Exchange Notes.
Failure of the Company to repurchase the Exchange Notes in the event of a Change
of Control would create an Event of Default with respect to the Exchange Notes.
In addition, the subordination provisions of the Exchange Indenture prohibit,
subject to certain conditions, the repurchase or repayment of the Exchange Notes
if there is a default under Senior Indebtedness. As a result, the Company may be
prohibited from making payment upon a Change of Control.
The Company, to the extent applicable and if required by law, will comply
with Section 14 of the Exchange Act and the provisions of Regulation 14E and any
other tender offer rules under the Exchange Act and any other federal and state
securities laws, rules and regulations which may then be applicable to any offer
by the Company to purchase the Exchange Notes at the option of the holders of
the Exchange Notes upon a Change of Control.
CONVERSION
The Exchange Notes and the accrued interest payable thereon are convertible
into shares of the Company's Common Stock, par value $.01 per share, at a
conversion price of $ per share (the "Conversion Price"), subject to
adjustment as set forth below. No accrued and unpaid interest will be
convertible into Common Stock unless the conversion occurs after the record date
for such accrued and unpaid interest. No fractional shares will be issued. In
lieu of fractional shares, the Company will pay to the holder of the Exchange
Notes at the time of conversion an amount in cash equal to the same fraction of
the current market value of a share of Common Stock of the Company. This current
market value will be deemed the closing price of the Common Stock on the NYSE on
the last trading day preceding the Conversion Date.
A holder of Exchange Notes may convert his Notes by surrendering to the
conversion agent each Note covering Notes to be converted together with a
statement of the name or names in which the shares of Common Stock shall be
registered upon issuance (the date of such surrender, the "Conversion Date").
Every such notice of election to convert will constitute a contract between the
holder giving such notice and the Company whereby such holder will be deemed to
subscribe for the shares of Common Stock he will be entitled to receive upon
such conversion and, in payment and satisfaction of such subscription, to
surrender the Exchange Notes to be converted and to release the Company from all
further obligation thereon and whereby the Company will be deemed to accept the
surrender of such Exchange Notes in full payment of the shares of Common Stock
so subscribed for and to be issued upon such conversion. As promptly as
practicable after the Conversion Date, the Company shall issue and deliver to
the converting holder of the Exchange Notes a certificate representing the
number of shares of Common Stock into which the Exchange Notes was converted
together with interest payments, if any, payable on the Exchange Notes so
converted as may be due and made payable to holders of record of Exchange Notes
on the record date immediately preceding the Conversion Date. If a holder of
Exchange Notes elects to convert only a portion of his Exchange Notes, upon such
conversion the Company shall also deliver to the holder of the Exchange Notes a
new Exchange Note representing his unconverted Exchange Notes.
The Conversion Price is subject to adjustment upon the occurrence of
certain events, including the issuance of shares of Common Stock or other
securities of the Company as a dividend or distribution on shares of Common
Stock of the Company to the holders of all of its outstanding shares of Common
Stock; subdivisions, combinations, or certain reclassifications of shares of
Common Stock of the Company; the issuance of shares of Common Stock of the
Company or of rights, options, or warrants to subscribe for or purchase shares
of Common Stock of the Company at less than the effective Conversion Price of
the Exchange Notes; or the distribution to the holders of shares of Common Stock
of the Company generally of evidences of indebtedness or assets (excluding cash
dividends and distributions made out of current or retained earnings) or rights,
options, or warrants to subscribe for securities of the Company other than those
mentioned above. No adjustment in the Conversion Price will be required to be
made with respect to the Exchange Notes until cumulative adjustments amount to
1% or more; however, any such adjustment not required to be made will be carried
forward and taken into account in any subsequent adjustment.
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In the event of any consolidation with or merger of the Company into
another corporation, or sale of all or substantially all of the properties and
assets of the Company to any other corporation, or in case of any reorganization
of the Company, Exchange Notes would thereupon become convertible only into the
number of shares of stock or other securities, assets, or cash to which a holder
of the number of shares or Common Stock of the Company issuable (at the time of
such consolidation, merger, sale, or reorganization) upon conversion of such
Exchange Notes would have been entitled upon such consolidation, merger, sale or
reorganization.
REDEMPTION
If not earlier converted or redeemed, the Exchange Notes may be redeemed
upon at least 30 days' notice, at the Company's option, in whole or in part on a
pro rata basis, on and after , 1999, at the following redemption
prices (expressed in percentages of the principal amount) if redeemed during the
twelve-month period beginning of the year indicated below, in each
case together with accrued interest payable thereon to the redemption date:
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
- ----- ----------------------------------------------
<S> <C>
1999
2000
2001
2002
2003
</TABLE>
However, on or after , 1999 and prior to , 2000, the
Exchange Notes will not be redeemable unless the closing price of the Company's
Common Stock as quoted on the NYSE has equaled or exceeded $ for 20
trading days within a period of 30 consecutive trading days.
Concurrently with the notice of redemption provided by the Company, the
Company will provide instructions as to the procedure to be followed to execute
such redemption. If less than all of the Exchange Notes are to be redeemed, the
Trustee shall select the Exchange Notes or the portion thereof to be redeemed on
a pro rata basis.
CERTAIN COVENANTS
Limitation on Incurrence of Indebtedness. The Exchange Indenture provides
that the Company will not, and will not permit any of its subsidiaries, directly
or indirectly, to issue, incur, guarantee, become liable, contingently or
otherwise, or otherwise become responsible for the payment of any Indebtedness;
provided, however, that if no Default or Event of Default with respect to the
Exchange Notes shall have occurred and be continuing at the time of such
incurrence, the Company or its Subsidiaries may incur Indebtedness if, on a pro
forma basis, after giving effect to such incurrence and the application of the
proceeds therefrom, the Consolidated Coverage Ratio would have been equal to or
greater than 1.0 to 1.0 with respect to Indebtedness incurred thereafter.
However, such Consolidated Coverage Ratio covenant shall not apply until on and
after January 1, 1998. Notwithstanding the foregoing, (i) the Company may incur
Indebtedness consisting of the Exchange Notes, and (ii) the Subsidiary
Guarantors may incur Indebtedness consisting of the Guarantees of the Exchange
Notes.
The foregoing limitations will not apply to Indebtedness incurred or
assumed in connection with any acquisition as long as the historic coverage
ratio for the acquired company or the pro forma. The foregoing limitations also
will not apply to, nor include the effect of, $50 million aggregate principal
amount of Indebtedness pursuant to senior credit facilities. Consolidated
Coverage Ratio for the Company and the acquired company is equal to or greater
than 1.0 to 1.0.
For purposes of this covenant, "Consolidated Coverage Ratio" shall mean,
for the preceding four quarter period, the ratio on a pro forma basis of (i)
consolidated earnings before interest, taxes, depreciation and amortization, (as
those terms are defined by GAAP) for such period, to (ii) consolidated interest
expense (as that term is defined by GAAP) for such period.
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Limitation on Sale of Assets. The Exchange Indenture provides that the
Company will not, and will not permit any Subsidiary to, make any Asset Sales
which, in the aggregate, have a fair market value of $5 million or more in any
12-month period unless:
(i) the Company (or its Subsidiaries, as the case may be) receives
consideration at the time of such sale or other disposition at least equal
to the fair market value thereof (as determined in good faith by the
Company's Board of Directors and evidenced by a resolution of such Board in
the case of any Asset Sales or series of related Asset Sales having a fair
market value of $20 million or more); and
(ii) not less than 35% of the proceeds received by the Company (or its
Subsidiaries, as the case may be) from such Asset Sale consists of cash,
cash equivalents, publicly traded stock of a person primarily engaged in
the Company's principal business; or any combination of the foregoing; and
(iii) the Net Available Proceeds received by the Company (or its
Subsidiaries, as the case may be) from such Asset Sale are applied as
described below.
Notwithstanding the limitation on any Asset Sale, the Company and its
Subsidiaries may dispose of property and assets of the Company or its
Subsidiaries in exchange for capital property and capital assets (i) which are
directly related to the Company's principal business; (ii) which are of the same
type of property or assets, or which have the same function, as the properties
or assets being disposed of; and (iii) which have an aggregate fair market value
equal to or greater than the aggregate fair market value of the property and
assets being disposed of; provided, however, that (A) in no event may the
Company and its Subsidiaries, in any 12-month period, dispose of property or
assets pursuant to this paragraph having an aggregate fair market value of $30
million or more and (B) with respect to any property or assets being disposed of
having a fair market value of $20 million or more, the Board of Directors of the
Company shall have determined in good faith that the aggregate fair market value
of the property and assets being received by the Company and its Subsidiaries is
equal to or greater than the aggregate fair market value of the property and
assets being disposed of.
The Company shall, within 270 days following the receipt of Net Available
Proceeds from any Asset Sale, apply such Net Available Proceeds to: (i) the
repayment of Indebtedness of the Company under the Company's bank credit
facility or other Senior Indebtedness of the Company, or Senior Indebtedness of
any Subsidiary Guarantor, provided that any such repayment shall result in a
permanent reduction in the principal amount of such Senior Indebtedness in an
amount equal to the principal amount so repaid; or (ii) make an investment in
capital assets used in the principal business of the Company. If, upon
completion of the 270-day period, any portion of the Net Available Proceeds of
any Asset Sale shall not have been applied by the Company as described in the
preceding sentence and such remaining Net Available Proceeds, together with any
remaining net cash proceeds from any prior Asset Sale (such aggregate
constituting "Excess Proceeds") exceeds $30 million, then the Company will be
obligated to make an offer (the "Net Proceeds Offer") to purchase Exchange Notes
having an aggregate principal amount equal to the Excess Proceeds (such purchase
to be made pro rata or by lot if the amount available for such repurchase is
less than the principal amount of the Exchange Notes tendered in such Net
Proceeds Offer) at a purchase price of 100% of the principal amount thereof plus
accrued interest, if any, to the date of repurchase (the "Net Proceeds Payment
Date"). The paying agent will promptly mail or deliver to holders whose Exchange
Notes have been accepted for repurchase payment in an amount equal to the
purchase price, and the Company will execute and the Trustee will promptly
authenticate and mail or make available for delivery to such holders a new Note
equal in principal amount to any unpurchased portion of the Exchange Notes
surrendered. Any Exchange Notes not so accepted will be promptly mailed or
delivered to the holder thereof. Upon the completion of a Net Proceeds Offer,
the amount of Excess Proceeds will be reset to zero.
Notice of a Net Proceeds Offer to purchase the Exchange Notes will be made
on behalf of the Company not less than 25 business days nor more than 60
business days before the Net Proceeds Payment Date. Exchange Notes tendered to
the Company pursuant to a Net Proceeds Offer will cease to accrue interest after
the Net Proceeds Payment Date. For purposes of this covenant, the term "Net
Proceeds Offer Amount" means the principal of outstanding Exchange Notes in an
aggregate principal amount equal to any remaining Net Available Proceeds
(rounded to the next lowest $25). If the Net Proceeds Payment Date is on or
after an
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interest payment record date and on or before the related interest payment date,
any accrued interest will be paid to the person in whose name an Exchange Note
is registered at the close of business on such record date, and no additional
interest will be payable to holders who tender Exchange Notes pursuant to the
Net Proceeds Offer.
Limitation on Liens Securing Indebtedness. The Exchange Indenture provides
that the Company will not, and will not permit any of its Subsidiaries to,
create, incur, assume or suffer to exist any liens (other than as permitted)
upon any of their respective properties securing (i) any Indebtedness of the
Company (other than Senior Indebtedness of the Company), unless the Exchange
Notes are equally and ratably secured or (ii) any Indebtedness of any Subsidiary
Guarantor (other than Senior Indebtedness of such Subsidiary Guarantor) unless
the Guarantors are equally and ratably secured; provided, that if such
Indebtedness is expressly subordinated to the Exchange Notes or Guarantees, the
lien securing such Indebtedness will be subordinated and junior to any lien
securing the Exchange Notes or Guarantees, with the same relative priority as
such Subordinated Indebtedness of the Company or Subordinated Indebtedness of a
Subsidiary Guarantor will have with respect to the Exchange Notes or Guarantees.
The terms and conditions of any lien securing the Exchange Notes must be
acceptable to the Trustee and the Trustee is not required to foreclose on or
realize on any such lien, if in the judgment of the Trustee, to do so would
expose the Trustee to liability for which the Trustee would not be adequately
indemnified.
Limitation on Payment Restrictions Affecting Subsidiaries. The Exchange
Indenture provides that the Company will not, and will not permit any of its
Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any consensual encumbrance or consensual restriction
on the ability of any Subsidiary of the Company to (i) pay dividends or make any
other distributions on its capital stock or on any other interest or
participation in the Company or a Subsidiary, (ii) pay any Indebtedness owed to
the Company or a Subsidiary of the Company; (iii) make loans or advances to the
Company or a Subsidiary of the Company; or (iv) transfer any of its properties
or assets to the Company or a Subsidiary of the Company, except for (a)
encumbrances or restrictions with respect to Senior Indebtedness; (b) consensual
encumbrances or consensual restrictions binding upon any person at the time such
person becomes a Subsidiary of the Company (unless the agreement creating such
consensual encumbrance or consensual restriction was entered into in connection
with, or in contemplation of, such entity becoming a Subsidiary); (c) customary
provisions restricting subletting or assignment of any lease governing a
leasehold interest of any Subsidiary; (d) customary restrictions in security
agreements or mortgages securing Indebtedness of a Subsidiary to the extent such
restrictions restrict the transfer of the property subject to such security
agreements and mortgages; (e) customary restrictions in purchase money
obligations for property acquired in the ordinary course of business restricting
the transfer of the property acquired thereby; (f) consensual encumbrances or
restrictions under any agreement that refinances or replaces any agreement
described in clauses (a), (b) (c), (d) or (e) above, provided that the terms and
conditions of any such restrictions are no less favorable to the holders of the
Exchange Notes than those under the agreement so refinanced or replaced; and (g)
customary non-assignment provision in leases, purchase money financings and any
encumbrance or restriction due to applicable law.
Limitation on Transactions with Affiliates. The Exchange Indenture
provides that neither the Company nor any of its Subsidiaries shall (i) sell,
lease, transfer or otherwise dispose of any of its properties, assets or
securities to, (ii) purchase or lease any property, assets or securities from,
(iii) make any investment in, or (iv) enter into or amend any contract or
agreement with or for the benefit of, either an (A) affiliate of any of them,
(B) any person or person who is a member of a group (as such term is used for
purposes of Sections 13(d) and 14(d) of the Exchange Act, whether or not
applicable) that, directly or indirectly, is the beneficial holder of 5% or more
of any class of equity securities of the Company, (C) any person who is an
affiliate of any such holder, or (D) any officers, directors, or employees of
any of the above (each case under (A), (B), (C) and (D), an "Affiliate
Transaction"), in one or a series of related transactions (to either party) per
Affiliate Transaction in excess of $2,000,000, except for transactions evidenced
by an officers' certificate addressed and delivered to the Trustee stating that
such Affiliate Transaction is made in good faith, the terms of which are fair
and reasonable to the Company and such Subsidiary, as the case may be, or, with
respect to Affiliate Transactions between the Company and its Subsidiaries, to
the Company; provided, that
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(x) transactions between or among the Company and its Subsidiaries shall not be
deemed to constitute Affiliate Transactions and (y) with respect to any
Affiliate Transaction with an aggregate value (to either party) in excess of
$4,000,000, the Company must, prior to the consummation thereof, obtain a
written favorable opinion as to the fairness of such transaction to itself from
a financial point of view from an investment banking firm.
Limitation on Future Senior Subordinated Indebtedness. The Exchange
Indenture provides that the Company and its Subsidiaries will not incur any
Indebtedness (other than the Exchange Notes) that is subordinated in right of
payment to any other Indebtedness of the Company unless such Indebtedness, by
its terms, is pari passu with or subordinated to the Exchange Notes. No
Subsidiary Guarantor shall incur any Indebtedness other than the Guarantee that
is subordinated in right of payment to any other Indebtedness of such Subsidiary
Guarantor unless such Indebtedness, by its terms, is pari passu with or
subordinated to the Guarantee of such Subsidiary Guarantor.
Line of Business. For so long as the Exchange Notes are outstanding, the
Company shall not, and shall not permit any of its Subsidiaries to, engage in
any business or activity other than the principal business of the Company.
Principal business of the Company means the business of crash resistant
technology including seating systems and restraint systems for transportation
vehicles, civilian and military aircraft components and services and any
activity or business that is a reasonable extension, development or expansion
thereof.
Limitations on Mergers and Consolidations. The Company shall not
consolidate with or merge into any other corporation or convey or transfer or
lease its properties and assets substantially as an entirety to any person,
unless: (1) the corporation formed by such consolidation or into which the
Company is merged or the person which acquires by conveyance, transfer or lease
the properties or assets of the Company substantially as an entirety shall be a
corporation organized and existing under the laws of the United States of
America or any State or the District of Columbia, and shall expressly assume the
due and punctual payment of the principal of (and premium, if any) and interest
on all Exchange Notes and the performance of every covenant of the Exchange
Indenture on the part of the Company to be performed or observed; and (2)
immediately before and after giving effect to such transaction, no Event of
Default, and no event which, after notice or lapse of time, or both, would
become an Event of Default, shall have happened and be continuing.
Upon any consolidation or merger, or any conveyance, transfer or lease of
the properties and assets of the Company substantially as an entirety in
accordance with the above, the successor corporation formed by such
consolidation or into which the Company is merged or into which such conveyance,
transfer or lease is made shall succeed to, and be substituted for, and may
exercise every right and power of, the Company under the Exchange Indenture with
the same effect as if such successor corporation had been named as the Company
herein and thereafter (except in the case of a lease) the predecessor
corporation will be relieved of all further obligations and covenants under the
Exchange Indenture and the Exchange Notes.
EVENTS OF DEFAULT
An Event of Default is defined in the Exchange Indenture as being: (i)
default by the Company or any Subsidiary Guarantor in the payment of principal
of, or premium, if any, on the Exchange Notes when due and payable at maturity,
upon repurchase pursuant to a Change of Control Offer or a Net Proceeds Offer;
(ii) default by the Company or any Subsidiary Guarantor for 30 days in payment
of any interest on the Exchange Notes; (iii) the acceleration of the maturity of
any other Indebtedness of the Company or any Subsidiary Guarantor having an
outstanding principal amount of $10,000,000 or more individually or in the
aggregate; (iv) default by the Company or any Subsidiary Guarantor in
performance or breach of any other covenant or agreement in the Exchange Notes
or the Exchange Indenture or Guarantees which shall not have been remedied
within 60 days after written notice by the Trustee or by the holders of at least
25% in principal amount of the Exchange Notes then outstanding; (v) judgments or
orders for the payment of money in an aggregate amount in excess of $10,000,000
(net of applicable insurance coverage which is acknowledged in writing by the
insurer) having been rendered against the Company or any Subsidiary Guarantor
and such judgments or orders shall continue unsatisfied and unstayed for a
period of 60 days from the entry thereof; (vi) a guarantee of a Subsidiary
Guarantor shall cease to be in full force or effect or any Subsidiary Guarantor
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shall deny or disaffirm its obligations with respect thereto; or (vii) certain
events involving bankruptcy, insolvency or reorganization of the Company or any
Subsidiary Guarantor. The Exchange Indenture provides that the Trustee may
withhold notice to the holders of the Exchange Notes of any default (except in
payment of principal of, or premium, if any, or interest on the Exchange Notes)
if the Trustee considers it in the interest of the holders of the Exchange Notes
to do so.
The Exchange Indenture provides that if an Event of Default occurs and is
continuing with respect to the Exchange Indenture, the Trustee or the holders of
not less than 25% in principal amount of the Exchange Notes outstanding may
declare the unpaid principal of and premium, if any, and accrued but unpaid
interest on all Exchange Notes to be due and payable immediately by notice in
writing to the Company (and to the Trustee if given by the holders). Upon such a
declaration, such principal, premium, if any, and interest will be due and
payable immediately. If an Event of Default relating to certain events of
bankruptcy, insolvency or reorganization of the Company or any Subsidiary occurs
and is continuing, the principal of and premium, if any, and interest on all the
Exchange Notes will become and be immediately due and payable without any
declaration or other act on the part of the Trustee or any holders of the
Exchange Notes. Under certain circumstances, the holders of a majority in
principal amount of the outstanding Exchange Notes may rescind any such
acceleration with respect to the Exchange Notes and its consequences.
The Exchange Indenture provides that no holder of an Exchange Note may
pursue any remedy under the Exchange Indenture unless (i) the Trustee shall have
received written notice of a continuing Event of Default from the holder, (ii)
the Trustee shall have received a request from holders of at least 25% in
principal amount of the Exchange Notes to pursue such remedy, (iii) the Trustee
shall have been offered indemnity reasonably satisfactory to it and (iv) the
Trustee shall have failed to act for a period of 60 days after receipt of such
notice and offer of indemnity; however, such provision does not affect the right
of a holder of an Exchange Note to sue for enforcement of any overdue payment
thereon.
The Exchange Notes and the Exchange Indenture provide that if an Event of
Default occurs as defined above, a default rate of interest in the amount of 15%
per annum shall accrue on the indebtedness evidenced by the Exchange Notes from
such date for such period of time until the default is cured.
The holders of a majority in principal amount of the Exchange Notes then
outstanding have the right to direct the time, method and place of conducting
any proceeding for exercising any remedy available to the Trustee under the
Exchange Indenture, subject to certain limitations specified in the Exchange
Indenture. The Exchange Indenture requires the annual filing by the Company with
the Trustee of a written statement as to compliance with the covenants contained
in the Exchange Indenture.
MODIFICATION AND WAIVER
The Exchange Indenture provides that modifications and amendments to the
Exchange Indenture may be made by the Company and the Trustee with the consents
of the holders of a majority in principal amount of the Exchange Notes then
outstanding; provided that no such modification or amendment may, without the
consent of the holder of each Exchange Note then outstanding affected thereby,
(i) reduce the percentage of principal amount of Exchange Notes whose holders
may consent to an amendment, supplement or waiver; (ii) reduce the rate or
change the time for payment of interest, including default interest, on any
Exchange Note; (iii) reduce the principal amount of any Exchange Note or change
the maturity date of the Exchange Notes; or (iv) reduce the redemption price,
including premium, if any, payable upon redemption of any Exchange Note or
change the time at which any Exchange Note may or shall be redeemed; (v) reduce
the repurchase price, including premium, if any, payable upon the repurchase of
any Exchange Note or change the time at which any Exchange Note may or shall be
repurchased; (vi) increase the Conversion Price; (vii) make any Exchange Note
payable in money other than that stated in the Exchange Note; (vii) impair the
right to institute suit for the enforcement of any payment of principal of, or
premium, if any, or interest on, any Exchange Note; (viii) make any change in
the percentage of principal amount of Exchange Notes necessary to waive
compliance with certain provisions of the Exchange Indenture; or (ix) waive a
continuing Default or Event of Default in the payment of principal of, premium,
if any, or interest on the Exchange Notes. The Exchange Indenture provides that
modifications and amendments of the Exchange Indenture may
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be made by the Company and the Trustee without the consent of any holders of
Exchange Notes in certain limited circumstances, including (a) to cure any
ambiguity, omission, defect or inconsistency, (b) to provide for the assumption
of the obligations of the Company under the Exchange Indenture upon the merger,
consolidation or sale or other disposition of all or substantially all of the
assets of the Company, (c) to comply with, and maintain the qualification of the
Exchange Indenture under the Trust Exchange Indenture Act of 1939 or (d) to make
any change that does not adversely affect the rights of any holder of Exchange
Notes.
The Exchange Indenture provides that the holders of a majority in aggregate
principal amount of the Exchange Notes then outstanding may waive any past
default under the Exchange Indenture, except a default in the payment of
principal, premium, if any, or interest.
DISCHARGE AND TERMINATION
The Company may at any time terminate its obligations under the Exchange
Notes and the Exchange Indenture, with certain exceptions specified in the
Exchange Indenture, by irrevocably depositing in trust cash or obligations of
the United States government and its agencies for payment of principal of,
premium, if any, and interest on, the Exchange Notes to redemption or maturity,
subject to the satisfaction of certain conditions.
Subject to the conditions described below, at the Company's option, either
(a) the Company will be deemed to have been discharged from its obligation with
respect to the Exchange Notes on the 31st day after the applicable conditions
set forth below have been satisfied or (b) the Company will cease to be under
any obligation to comply with certain restrictive covenants, including those
described under "Certain Covenants," at any time after the applicable conditions
set forth below have been satisfied: (1) the Company has deposited or cause to
be deposited irrevocably with the Trustee as trust funds in trust, specifically
pledged as security for, and dedicated solely to, the benefit of the holders of
(i) U.S. legal tender or (ii) United States government obligations, which
through the payment of interest and principal in respect thereof in accordance
with their terms will provide (without any reinvestment of such interest or
principal), not later than one day before the due date of any payment, U.S.
legal tender or (iii) a combination of (i) and (ii), in an amount sufficient, in
the opinion (with respect to (ii) and (iii)) of a nationally recognized firm of
independent public accountants expressed in a written certification thereof
delivered to the Trustee at or prior to the time of such deposit, to pay and
discharge each installment of principal of, premium, if any, and interest on,
the outstanding Exchange Notes on the date such installments are due; (2) the
Company has delivered to the Trustee an officers' certificate certifying whether
the Exchange Notes are then listed on a national securities exchange; (3) if the
Exchange Notes are then listed on a national securities exchange, the Company
has delivered to the Trustee an officers' certificate to the effect that the
Company's exercise of its option described above would not cause the Exchange
Notes to be delisted; (4) no Default or Event of Default has occurred and is
continuing on the date of such deposit or will occur as a result of such deposit
and such deposit will not result in a breach or violation of, or constitute a
default under, any other instrument to which the Company or Subsidiary or
Subsidiary Guarantor is a party or by which any of them is bound, as evidenced
to the Trustee in an officers' certificate delivered to the Trustee concurrently
with such deposit; (5) the Company has delivered to the Trustee an opinion of
counsel to the effect that holders will not recognize income, gain or loss for
federal income tax purposes as a result of the Company's exercise of its option
described above and will be subject to federal income tax on the same amount and
in the same manner and at the same time as would have been the case if such
option had not been exercised, and, in the case of the Exchange Notes being
discharged, accompanied by a ruling to that effect received from or published by
the Internal Revenue Service; (6) the Company has delivered to the Trustee an
opinion of counsel to the effect that the Company's exercise of its option
described above will not result in any of the Company, the Trustee or the trust
created by the Company's deposit of funds hereunder becoming or being deemed to
be an "investment company" under the Investment Company Act of 1940, as amended;
(7) the Company has paid or duly provided for payment of all amounts then due to
the Trustee pursuant to the terms of the Exchange Indenture; and (8) the Company
has delivered to the Trustee an officers' certificate and an opinion of counsel,
each stating that all conditions precedent provided for in the Exchange
Indenture relating to the satisfaction and discharge of the Exchange Indenture
have been complied with.
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THE TRUSTEE
Bank One Trust Company, NA is the Trustee under the Exchange Indenture. Its
address is Corporate Trust Client Service Group, 100 East Broad Street,
Columbus, Ohio 43271-0181. The Company has also appointed the Trustee as the
initial registrar and paying agent under the Exchange Indenture.
The Exchange Indenture contains certain limitations on the right of the
Trustee, should it become a creditor of the Company, to obtain payment of claims
in certain cases, or to realize on certain property received in respect of any
such claim as security or otherwise. The Trustee will be permitted to engage in
other transactions; however, if it acquires any conflicting interest (as defined
in the Trust Exchange Indenture Act of 1939), it must eliminate such conflict or
resign.
The Exchange Indenture provides that in case an Event of Default shall
occur (and be continuing), the Trustee is required to use the degree of care and
skill of a prudent man in the conduct of his own affairs. The Trustee is under
no obligation to exercise any of its powers under the Exchange Indenture at the
request of any of the holders of the Exchange Notes, unless such holders shall
have offered the Trustee indemnity reasonably satisfactory to it.
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<PAGE> 70
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The federal income tax discussion set forth below is a brief description of
certain federal income tax aspects of this offering. It is for general
information only, and does not consider the federal income tax consequences of
the offering that may be relevant to individuals in various circumstances
related to their personal financial situation, or to all classes of taxpayers,
such as banks, insurance companies and foreign individuals and entities.
Purchasers of the Preferred Stock offered hereby should consult their own tax
advisors as to the income tax consequences to them of an investment therein,
including the applicability and effect of state, local and other tax laws.
DIVIDENDS ON PREFERRED STOCK
Dividends paid on the Preferred Stock will be taxable as ordinary income to
the extent that the Company has either current or accumulated earnings and
profits as determined for federal income tax purposes. Preferred shareholders
should be aware that a dividend may be taxable as ordinary income if the Company
has current earnings and profits for federal income tax purposes even though the
current earnings and profits are insufficient to eliminate an accumulated
deficit in earnings and profits and even if the Company has a net loss for the
year for financial reporting purposes. Subject to Sections 243, 246 (relating to
certain holding period requirements), and 246A (relating to debt financed
portfolio stock) of the Internal Revenue Code of 1986, as amended (the "Code"),
to the extent of current or accumulated earnings and profits, a dividend payment
will be eligible for the 70% dividends-received deduction allowable to corporate
shareholders (for corporate shareholders owning less than 20% of the Company).
To the extent any dividends paid on the Preferred Stock exceed the
Company's current or accumulated earnings and profits, the amount received will
be a return of capital. Any such distributions will reduce, on a share-by-share
basis, the shareholder's adjusted basis in his Preferred Stock and, to the
extent in excess of the shareholder's adjusted basis, will be treated as gain
from the sale or exchange of property. Such gain will be capital gain if the
Preferred Stock is held as a capital asset, and will be long-term capital gain
if the holding period for the Preferred Stock were to exceed one year.
INTEREST ON EXCHANGE NOTES
Interest payments on the Exchange Notes will be treated as ordinary income
to a holder and will be reported under the holder's method of accounting. In
addition, if a debt instrument is issued with original issue discount, a holder
is required to report interest income with respect to such debt instrument using
the accrual method of accounting even if the holder does not otherwise employ
such method of accounting. Under the accrual method of accounting for interest
income, amounts are included in income as they accrue and not as they are
received. Accordingly, in general, a cash method taxpayer who holds a debt
instrument issued with original issue discount will include interest in his
income in advance of the time that he would have recognized such income under
the cash method of accounting.
A debt instrument is considered to be issued with original issue discount
if its issue price is less than its stated redemption price at maturity by more
than a de minimis amount. The issue price of publicly-traded debt instruments
issued for property is the price at which such debt instruments trade on their
issue date. In general, in the case of debt instruments that provide for
qualified stated interest, the stated redemption price at maturity is the
principal amount of the debt instrument.
The Company cannot predict whether the Exchange Notes will be considered to
be issued with original issue discount for federal income tax purposes. Each
holder of Preferred Stock who participates in an exchange of Preferred Stock for
Exchange Notes is urged to consult his tax advisor as to tax consequences of
holding the Exchange Notes after such exchange. See "Exchange of Preferred
Stock" for the federal income tax consequences of participating in an exchange
of Preferred Stock for Exchange Notes.
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<PAGE> 71
REDEMPTION OF PREFERRED STOCK OR EXCHANGE NOTES
A redemption of the Preferred Stock for cash will constitute a taxable
transaction for federal income tax purposes to the shareholders. A redemption of
Preferred Stock for cash will be treated (subject to Code Section 1059, relating
to certain extraordinary dividends on preferred stock), under Section 302 of the
Code, as a distribution that is taxable as a dividend (to the extent of the
Company's current and accumulated earnings and profits), unless the redemption
(a) results in a "complete termination" of the shareholder's stock interest in
the Company under Section 302(b)(3) of the Code; (b) is a "substantially
disproportionate" distribution with respect to the shareholder under Section
302(b)(2) of the Code; or (c) is "not essentially equivalent to a dividend" with
respect to the shareholder under Section 302(b)(1) of the Code. In determining
whether any of these tests has been met, each share of Preferred Stock and
Common Stock considered to be owned by the shareholder by reason of certain
constructive ownership rules set forth in Section 318 of the Code, as well as
shares actually owned, must generally be taken into account. If any of these
tests are met with respect to a particular shareholder, the redemption of
Preferred Stock for cash would result, as to that shareholder, and subject to
Code Section 1059, in taxable gain or loss equal to the difference between the
amount of cash received and the shareholder's adjusted basis in the Preferred
Stock redeemed. Any gain or loss realized by the shareholder will be recognized
in the shareholder's current taxable year. Such gain or loss would be long-term
capital gain or loss if the holding period for the Preferred Stock exceeds one
year.
Any gain or loss on the redemption of the Exchange Notes will be capital
gain or loss if the Exchange Notes are held as a capital asset, except ordinary
income may be recognized to the extent the market discount rules referenced
below require recognition of ordinary income. Any capital gain or loss will be
long-term capital gain or loss if the holding period for the Exchange Notes
exceeds one year.
EXTRAORDINARY DIVIDENDS TREATMENT
Under Section 1059(a) of the Code, a corporate holder of the Preferred
Stock that receives an "extraordinary dividend" will be required, if the
Preferred Stock has not been held for more than two years as of the date the
dividend was announced, to reduce the corporate holder's adjusted basis at the
time the corporate holder disposes of the Preferred Stock by the portion of the
extraordinary dividend that was not taxed because of the dividends received
deduction. The primary definition of an "extraordinary dividend" is found in
Section 1059(c) of the Code. The definition is complex and subject to numerous
exceptions, which are not described herein. However, in general, an
"extraordinary dividend" means any preferred stock dividend that exceeds a rate
of 5% of the shareholder's adjusted basis in such stock. In general, all
dividends with ex-dividend dates within the same 85-day period are aggregated
for purposes of this threshold. In addition, all dividends with ex-dividend
dates within the same 365-day period that exceed 20% of a corporate
shareholder's adjusted basis in the Preferred Stock also are aggregated. Thus,
accrued dividends paid in arrears on the Preferred Stock may be treated as
"extraordinary dividends," depending upon the amount and timing of the payment
of the dividend arrearages and also depending upon a Preferred Shareholder's
adjusted basis in the Preferred Stock.
CONVERSION OF PREFERRED STOCK OR EXCHANGE NOTES
Generally, no gain or loss will be recognized for federal income tax
purposes on the conversion of Preferred Stock or Exchange Notes into Common
Stock of the Company. Taxable gain will be realized upon the receipt of cash
paid in lieu of fractional share of Common Stock. Taxable gain also may be
realized in the amount of any unpaid dividend arrearages at the time of the
conversion. In general, the tax basis for Common Stock received on conversion
will be equal to the tax basis of the Preferred Stock or Exchange Notes
converted and, provided that such Preferred Stock or Exchange Notes was held as
a capital asset, the holding period of the shares of Common Stock will include
the holding period of such Preferred Stock or Exchange Notes.
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<PAGE> 72
REDEMPTION PREMIUM
The Preferred Stock and Exchange Notes are subject to redemption at the
option of the Company in the event of a Change of Control and also under
circumstances where the price of the Company's Common Stock has attained certain
thresholds. See "Description of Preferred Stock -- Optional Redemption and
Change in Control Redemption" and "Description of Exchange Notes -- Change of
Control." Under Section 305 of the Code, a redemption premium payable with
respect to optionally redeemable preferred stock or notes may be treated as a
"constructive dividend" reportable over time as taxable income by the holder of
the preferred stock or notes. The application of Section 305 under new Treasury
regulations is uncertain; however, for the reasons stated below, the Company
intends to take the position that "constructive dividend" treatment is not
applicable.
Under the Treasury regulations, a redemption premium will be treated as a
"constructive dividend" only if, based upon all of the facts and circumstances,
the redemption of the Preferred Stock or Exchange Notes is more likely than not
to occur. Because it is speculation to predict the probability of either event
that would trigger an optional redemption, the Company believes that it is not
at this time more likely than not that an optional redemption will occur in the
future. Furthermore, even if either or both of such events were viewed by the
Internal Revenue Service as more likely than not to occur, "constructive
dividend" treatment under the Treasury regulations should not result if the
redemption premium is solely in the nature of a penalty for a premature
redemption of the Preferred Stock or Exchange Notes. The Company intends to take
the position that the redemption premium is such a penalty because the Treasury
regulations generally provide for such treatment if a redemption premium is
payable as a result of changes in economic or market conditions over which
neither the Company nor any holder of the Preferred Stock or Exchange Notes has
any legal or practical control.
ADJUSTMENT OF CONVERSION PRICE
As noted above, Section 305 of the Code treats as a taxable dividend
certain actual or constructive distributions of stock. Treasury regulations
treat holders of convertible preferred stock and notes as having received such a
constructive distribution where the conversion price is adjusted to reflect
certain taxable distributions with respect to the stock into which such
preferred stock or notes is convertible. Thus, under certain circumstances an
adjustment in the conversion price of the Preferred Stock or Exchange Notes may
be taxable to the holders thereof as a dividend.
BACKUP WITHHOLDING
Under Section 3406 of the Code and applicable Treasury regulations, a
holder of Preferred Stock or Exchange Notes may be subject to backup withholding
at the rate of 31% with respect to dividends paid, or the proceeds of a sale,
exchange or redemption of, Preferred Stock or Exchange Notes, unless such holder
(a) is a corporation or is otherwise exempt from backup withholding or (b)
provides a taxpayer identification number, certifies that such number is correct
and otherwise complies with applicable requirements of the backup withholding
rules.
EXCHANGE OF PREFERRED STOCK
A redemption of Preferred Stock by exchange for Exchange Notes will be
subject to the same general rules contained above under "Redemption of Preferred
Stock or Exchange Notes" as a redemption for cash. However, because the Exchange
Notes will be convertible into Common Stock, which a holder of the Exchange
Notes will be deemed to own under the constructive ownership rules of the Code,
it is unlikely that the receipt of Exchange Notes in exchange for the Preferred
Stock would qualify as a sale or exchange under the "complete termination" or
"substantially disproportionate" tests under the Code. The redemption would be
treated as a distribution to the extent of the issue price of the Exchange Notes
and be taxable as a dividend (to the extent of the Company's current or
accumulated earnings and profits) unless it satisfied the "not essentially
equivalent to a dividend" test. This test requires that the distribution result
in a "meaningful reduction" of the shareholder's stock interest in the Company
in order for the distribution to qualify as a sale
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<PAGE> 73
or exchange. In general, under certain applicable tax authorities, if a holder
of Preferred Stock owns (actually and constructively) only a small uninfluential
amount of voting stock, an exchange of Preferred Stock for Exchange Notes may be
treated as not essentially equivalent to a dividend and, hence, would be taxable
as a sale or exchange. Because the provisions of Section 302(b) of the Code are
separately applied to each shareholder based upon the particular facts and
circumstances at the time of the redemption, and because a holder generally will
be deemed, for purposes of Section 302(b) of the Code, to own shares of Common
Stock into which Exchange Notes are convertible, no assurance can be given that
an exchange of Preferred Stock for Exchange Notes will be treated as a sale or
exchange. Therefore, each holder is urged to consult his own tax advisor with
respect to the question of whether a redemption of Preferred Stock will satisfy
any of the tests in Section 302(b) of the Code. If the test were met, dividend
treatment would not apply and such shareholder would recognize gain or loss
equal to the difference between the issue price of the Exchange Notes and the
shareholder's adjusted tax basis in the Preferred Stock. Such gain or loss would
be capital gain or loss and would be long-term capital gain or loss if the
holding period for the Preferred Stock exceeded one year. The installment method
would not be available for reporting such gain, assuming that either the
Preferred Stock or the Exchange Notes are traded or readily tradable on an
established securities market.
MARKET DISCOUNT
Investors should note that in the event they acquire Exchange Notes other
than pursuant to an exchange of Preferred Stock for such Exchange Notes, that
the market discount provisions of Sections 1276 through 1278 of the Code may
apply. Under the market discount rules, if a holder of an Exchange Note receives
or purchases it at a market discount (i.e., at a price below its stated
redemption price at maturity) in excess of a statutorily-defined de minimis
amount and thereafter recognizes gain upon a disposition or retirement of the
Exchange Note, then the lesser of the gain recognized or the portion of the
market discount that accrued on a ratable basis (or, if elected, on a constant
interest rate basis) generally will be treated as ordinary income at the time of
the disposition. Moreover, any market discount on an Exchange Note may be
taxable to an investor to the extent of appreciation at the time of certain
otherwise non-taxable transactions (e.g. gifts). Any accrued market discount not
previously taken into income prior to a conversion of an Exchange Note, however,
should carry over to the Common Stock received on conversion and be treated as
ordinary income upon a subsequent disposition of such Common Stock to the extent
of any gain recognized on such disposition. In addition, absent an election to
include market discount in income as it accrues, a holder of a market discount
debt instrument may be required to defer a portion of any interest expense that
otherwise may be deductible on any indebtedness incurred or maintained to
purchase or carry such debt instrument until the holder disposes of the debt
instrument in a taxable transaction.
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<PAGE> 74
DESCRIPTION OF OTHER CAPITAL STOCK AND DEBT SECURITIES
COMMON STOCK
The Company is authorized to issue 50,000,000 shares of Common Stock, par
value $.01 per share, of which 8,999,948 shares were issued and outstanding as
of March 27, 1997.
Holders of the Common Stock are entitled to one vote for each share owned
for all matters to be voted on by the Common Stock shareholders. As required
under Arizona law, there is cumulative voting in the election of directors.
Accordingly, each shareholder is entitled to vote the number of shares owned by
him for as many persons as there are directors to be elected, or to cumulate his
votes by giving one candidate as many votes as the number of such directors
multiplied by the number of his shares, or by distributing votes on the same
principle among any number of candidates. Holders of Common Stock are entitled
to receive such dividends as may be declared from time to time by the Board of
Directors out of funds legally available therefor and, in the event of
liquidation, dissolution, or winding up of the Company, to share ratably in all
assets remaining after payment of liabilities. The holders of Common Stock have
no preemptive or conversion rights. The holders of Common Stock are not subject
to further calls or assessments. There are no redemption or sinking fund
provisions applicable to the Common Stock. The rights of the holders of the
Common Stock are subject to any rights that may be fixed for holders of
preferred stock. The Common Stock currently outstanding is, and the Common Stock
underlying the Preferred Stock offered by the Company hereby will, when issued,
be validly issued, fully paid, and nonassessable.
PREFERRED STOCK
The Company is authorized to issue 50,000,000 shares of preferred stock,
par value $.05 per share. No preferred stock is issued or outstanding. The
preferred stock may, without action by the shareholders of the Company, be
issued by the Board of Directors from time to time in one or more series for
such consideration and with such relative rights, privileges, and preferences as
the Board may determine. Accordingly, the Board has the power to fix the
dividend rate and to establish the provisions, if any, relating to voting
rights, redemption rate, sinking fund, liquidation, preferences, and conversion
rights for any series of preferred stock issued in the future. See "Description
of Preferred Stock."
SENIOR SUBORDINATED NOTES
In December 1993, the Company issued $5.7 million principal amount of 12%
Notes. The 12% Notes were issued pursuant to an Indenture dated December 17,
1993. The 12% Notes are not convertible and are non-callable. The 12% Notes are
listed on the NYSE. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations." In September 1996, the Company issued, in
a private placement, $14.3 million principal amount of 10% Notes. The 10% Notes
were issued pursuant to the Company's Indenture dated December 17, 1993 and a
supplemental indenture dated September 12, 1996. The 10% Notes were sold
pursuant to exemptions from registration under the Securities Act, Section 4(2),
and Regulation D in reliance on Rule 506 thereunder, and comparable provisions
of states' securities laws. The 10% Notes were sold solely to accredited
investors as defined in Regulation D. The proceeds were used to repay
indebtedness under the Company's bank line of credit, and for working capital.
The 10% Notes are convertible into Common Stock of the Company at a conversion
price which may be fixed by each Noteholder at the equivalent of 98% of the
average closing price of the Company's Common Stock on the NYSE for the 10 day
period immediately preceding notice to the Company of such an election to fix
the conversion price. If not earlier converted, the 10% Notes are redeemable by
the Company in whole or in part on a pro rata basis, at par value plus all
accrued interest payable through the date of redemption, at any time upon 30
days written notice to the Noteholders in accordance with the following: (i)
from September 12, 1996 until December 15, 1997, the 10% Notes may be redeemed
by the Company after the closing price of the Company's Common Stock as quoted
on the NYSE has equaled or exceeded $25.00 for any 10 consecutive trading days
and (ii) after December 15, 1997, the Company may redeem the 10% Notes at any
time at par value plus all accrued interest payable through the date of
redemption. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources." As of the date of
this Prospectus, no 10% Notes have been converted into Common Stock.
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ARIZONA ANTI-TAKEOVER STATUTE
The Arizona Corporate Takeover Act (the "Takeover Act") was adopted in
1987. The policy of the Takeover Act is to prevent unfriendly corporate takeover
attempts by third parties. Article I of the Takeover Act deals with, among other
things, the prohibition of "green mail." Article II deals with limitation on
voting rights of certain individuals acquiring shares in the market, and Article
III regulates certain business combinations respecting corporate transactions
proposed by insiders and as part of a takeover plan. Arizona corporations may
elect to not be governed by Articles II or III of the Takeover Act and by doing
so may elect to not be subject to the considerable restrictions on a possible
tender offer or other takeovers. Pursuant to a 1995 amendment to the Company's
Articles of Incorporation, the Company affirmatively approved its coverage under
Articles II and III of the Takeover Act.
TRANSFER AGENT AND REGISTRAR
The Company's Transfer Agent and Registrar for the Common Stock and the
Preferred Stock is American Stock Transfer & Trust Company, New York, New York.
LISTING
The Common Stock is currently listed and traded on the NYSE under the
symbol "SMU". The Preferred Stock will be listed on the NYSE under the symbol
"SMU-PfA" and if issued, the Exchange Notes will also be listed for trading on
the NYSE.
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UNDERWRITING
The Underwriters named below (the "Underwriters"), have severally agreed,
subject to the terms and conditions set forth in the underwriting agreement (the
form of which is filed as an exhibit to the Company's Registration Statement of
which this Prospectus is a part) among the Company and the Underwriters (the
"Underwriting Agreement"), to purchase from the Company and the Company has
agreed to sell to the Underwriters, the respective number of shares of Preferred
Stock set forth opposite their names below:
<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME TO BE PURCHASED
- ------------------------------------------------------------------ ----------------
<S> <C>
HD Brous & Co., Inc...............................................
Brean Murray & Co., Inc...........................................
L.H. Friend, Weinress, Frankson & Presson, Inc....................
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters to purchase the shares of Preferred Stock are subject to certain
conditions. The Underwriters are committed to purchase all of the shares of
Preferred Stock offered hereby (other than the shares covered by the
over-allotment option described below) if any are purchased.
The Company has been advised that the Underwriters propose to offer the
shares of Preferred Stock to the public at the public offering price set forth
on the cover page of this Prospectus, and to certain securities dealers at such
price less a concession not in excess of $ per share. The Underwriters
may allow and such dealers may re-allow to other dealers, including any
Underwriter, a discount not in excess of $ per share. After the
public offering, the public offering price and concessions and discounts may be
changed by the Underwriters.
The Company has agreed to indemnify the Underwriters and their controlling
persons against certain liabilities in connection with the offer and sale of the
shares of Preferred Stock, including liabilities under the Securities Act and to
contribute to payments the Underwriters may be required to make in respect
thereof.
The Underwriters have obtained an option from the Company, exercisable
during the 45-day period after the date of this Prospectus, under which they may
purchase up to 180,000 additional shares of Preferred Stock at the same price
per share which the Company will receive for the shares being purchased by the
Underwriters. The Underwriters may exercise the option only to cover
over-allotments to the extent that the Underwriters exercise such option, each
of the Underwriters will be committed, subject to certain conditions, to
purchase a number of option shares proportionate to such Underwriter's initial
commitment as indicated in the preceding table.
The Underwriters have informed the Company that the Underwriters do not
intend to confirm sales of shares of Preferred Stock offered hereby to accounts
over which they exercise discretionary authority.
The Company, its directors, and executive officers have agreed not to
offer, issue, sell, grant any option for the sale of or otherwise dispose of (or
announce any offer, issuance, sale, grant of option to purchase or other
disposition) of any shares of Common Stock, or any securities convertible into
an exercisable or exchangeable for shares of Common Stock shares for the 90 day
period from the date of this Prospectus unless released earlier by the
Underwriters.
Mr. Miller, a director of the Company since 1995, is a Director of
Investment Banking of HD Brous & Co, Inc. headquartered in Great Neck, New York.
Mr. Miller is the principal in the office located in Phoenix, Arizona. HD Brous
& Co., Inc. is an Underwriter of this offering. See "Certain Transactions."
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LEGAL OPINIONS
The validity of the shares being offered hereby has been passed upon for
the Company by Streich Lang, P.A., Phoenix, Arizona and for the Underwriters by
O'Connor, Cavanagh, Anderson, Killingsworth & Beshears, P.A., Phoenix, Arizona.
EXPERTS
The consolidated financial statements as of December 31, 1996 and 1995 and
for each of the three years in the period ended December 31, 1996 included and
incorporated by reference in this Prospectus have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their reports, which are included
and incorporated by reference herein and have been so included and incorporated
by reference in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission are
incorporated herein by reference: (1) the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1996; and (2) the Company's Registration
Statement on Form 8-A under the Securities Exchange Act of 1934 with respect to
the Common Stock, including any amendment or reports filed for the purpose of
updating such description.
All documents filed by the Company with the Commission (the "Commission")
pursuant to Section 13(a), 13(c), 14 or 15(d) (the "Exchange Act") of the
Exchange Act subsequent to the date hereof and prior to the termination of the
offering of the Preferred Stock registered hereby shall be deemed to be
incorporated by reference into this Prospectus and to be a part hereof from the
date of filing such documents. Any statements contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein or in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statements. Any statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
The Company will provide without charge to each person to whom this
Prospectus is delivered, upon a written request of such person, a copy of any or
all of the foregoing documents incorporated by reference into this Prospectus
(other than exhibits to such documents, unless such exhibits are specifically
incorporated by reference into such documents). Requests for such copies should
be delivered to the Simula, Inc. Investor Relations Department, 2700 North
Central Avenue, Suite 1000, Phoenix, Arizona 85004, phone number (602) 631-4005.
ADDITIONAL INFORMATION
The Company is subject to the informational requirements of the Securities
and Exchange Act of 1934, as amended, and in accordance therewith files reports,
proxy statements and other information with the Securities and Exchange
Commission. Such reports, proxy and information statements and other information
may be inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
following Regional Offices of the Commission: New York Regional Office, Seven
World Trade Center, New York, New York 10048, and Chicago Regional Office, 500
West Madison Street, Chicago, Illinois 60661. Copies of such material can be
obtained from the Public Reference Section of the Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549 upon payment of the prescribed fees. The Commission
also maintains a Web site that contains reports, proxy and information
statements and other materials that are filed through the Commission's
Electronic Data Gathering Analysis, and Retrieval system. This Web site can be
accessed at http://www.sec.gov. The Common Stock is listed on the NYSE. The
foregoing information concerning the Company may be inspected at the NYSE at 20
Broad Street, New York, New York 10005.
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The Company will distribute to holders of the securities being offered
hereby, annual reports containing audited financial statements and quarterly
reports containing unaudited summary financial information for each of the first
three fiscal quarters of each fiscal year.
This Prospectus constitutes a part of a Registration Statement on Form S-3
(herein, together with all amendments and exhibits, referred to as the
"Registration Statement") filed by the Company with the Commission under the
Securities Act of 1933. This Prospectus does not contain all of the information
set forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. For further
information with respect to the Company and the securities offered hereby,
reference is hereby made to the Registration Statement. Statements contained
herein concerning the provisions of any document are not necessarily complete,
and each such statement is qualified in its entirety by reference to the copy of
such document filed with the Commission.
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SIMULA, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Independent Auditors' Report...................................................... F-2
Consolidated Balance Sheets as of December 31, 1996 and 1995...................... F-3
Consolidated Statements of Operations for the three years ended December 31,
1996............................................................................ F-4
Consolidated Statements of Shareholders' Equity for the three years ended December
31, 1996........................................................................ F-5
Consolidated Statements of Cash Flows for the three years ended December 31,
1996............................................................................ F-6-F-7
Notes to Consolidated Financial Statements........................................ F-8-F-23
</TABLE>
F-1
<PAGE> 80
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
F-2
<PAGE> 81
SIMULA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1996 1995
----------- -----------
<S> <C> <C>
ASSETS
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.
F-3
<PAGE> 82
SIMULA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------
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
============ ============ ============
Pro forma amounts (Note 2):
Net earnings......................................... $ 193,735 $ 1,675,722
============ ============
Net earnings per share............................... $ .02 $ .29
============ ============
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 83
SIMULA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
THREE YEARS ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
CLASS A
COMMON STOCK ADDITIONAL RETAINED CURRENCY TOTAL
------------------ PAID-IN (DEFICIT) TRANSLATION TREASURY SHAREHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS ADJUSTMENT STOCK EQUITY
--------- ------- ----------- ------------ ---------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, January 1, 1994............. 5,073,440 $50,735 $ 4,100,086 $ 4,207,178 $(279,838) $ 8,078,161
Net earnings....................... 2,114,423 2,114,423
Conversion of Series B 9% Senior
Subordinated Convertible Notes... 967,236 9,672 5,721,578 5,731,250
Issuance of common shares for
warrants and options............. 158,525 1,585 610,361 611,946
Issuance of common shares in
connection with:
Acquisition of SOUTHtech......... 178,582 1,786 44,388 (683,526) (637,352)
Acquisition of Artcraft.......... 67,228 672 464,328 465,000
Acquisition of Sedona Scientific,
Inc............................ 23,834 238 285,762 286,000
--------- ------- ----------- ----------- ------- -------- ------------
BALANCE, December 31, 1994........... 6,468,845 64,688 11,226,503 5,638,075 (279,838) 16,649,428
Net earnings....................... 2,657,359 2,657,359
Secondary offering of common
shares........................... 2,328,750 23,288 25,544,534 25,567,822
Issuance of common shares for
warrants and options............. 173,032 1,730 847,256 848,986
Tax benefit from exercise of stock
options.......................... 363,466 363,466
--------- ------- ----------- ----------- ------- -------- ------------
BALANCE, December 31, 1995........... 8,970,627 89,706 37,981,759 8,295,434 (279,838) 46,087,061
Net loss........................... (10,049,914) (10,049,914)
Issuance of common shares for
options.......................... 104,471 1,045 953,891 954,936
Tax benefit from exercise of stock
options.......................... 163,000 163,000
Currency translation adjustment.... 32,414 32,414
Retirement of treasury stock....... (82,500) (825) (67,197) (211,816) 279,838
--------- ------- ----------- ----------- ------- -------- ------------
BALANCE, December 31, 1996........... 8,992,598 $89,926 $39,031,453 $ (1,966,296) $ 32,414 $ $ 37,187,497
========= ======= =========== =========== ======= ======== ============
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 84
SIMULA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------
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 and 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..... 0 0 (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>
F-6
<PAGE> 85
SIMULA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
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 and 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 and 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 and 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.
F-7
<PAGE> 86
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.
F-8
<PAGE> 87
SIMULA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1996 -- (CONTINUED)
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>
<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).
F-9
<PAGE> 88
SIMULA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1996 -- (CONTINUED)
The effect of the change on the first quarter of 1996 was as follows:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31, 1996
--------------
<S> <C>
Net income as originally reported...................................... $ 685,179
Effect of change in accounting for pre-contract costs.................. (563,247)
-----------
Income before cumulative effect of a change in accounting principle.... 121,932
Cumulative effect on prior years (to December 31, 1995) (3,239,948)
of changing accounting for pre-contract costs........................
-----------
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 0.01
principle.........................................................
Cumulative effect on prior years (to December 31, 1995) (0.36)
of changing accounting for pre-contract costs.....................
-----------
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
and Car") for cash, an installment seller carryback note and the assumption of
substantially all of the Coach and Car liabilities. Coach and 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 and Car has been accounted for using the purchase method of accounting,
and the results of operations of Coach and Car have been included in the
consolidated financial statements subsequent to the acquisition. The excess of
purchase price over the fair value of net assets acquired of $5,281,038 is being
amortized over 25 years, and covenants not to compete of $2,500,000 are being
amortized over 10 years.
F-10
<PAGE> 89
SIMULA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1996 -- (CONTINUED)
Consideration for this transaction consisted of the following:
<TABLE>
<S> <C>
Cash paid............................................................... $ 3,000,000
Seller note............................................................. 1,500,000
Liabilities assumed -- including $2,352,982 of bank debt paid at
closing............................................................... 9,422,148
-----------
Total......................................................... $13,922,148
===========
</TABLE>
The assets acquired have been recorded as follows:
<TABLE>
<S> <C>
Current assets.......................................................... $ 2,923,585
Intangibles............................................................. 7,781,038
Property and equipment.................................................. 3,217,525
-----------
Total......................................................... $13,922,148
===========
</TABLE>
On July 1, 1994, the Company purchased SOUTHtech, Inc. ("SOUTHtech") which
was a corporation owned by the Company's Chairman (the "Chairman") (96%), and
two unrelated minority shareholders (4%). SOUTHtech is a ceramics manufacturer
that provides parts for silicon wafer manufacturing by the semiconductor
industry. In determining the acquisition consideration, the Company obtained a
valuation opinion from an independent investment banker and the transaction was
approved by the disinterested members of the board of directors of the Company.
The acquisition consideration consisted of 178,582 shares of the Company's
common stock, of which 171,472 shares were issued to the Chairman and 7,110
shares were issued to one of the unrelated minority shareholders, and $4,606
cash, in lieu of stock, to the other unrelated minority shareholder. Because the
Company and SOUTHtech were entities under the common control of the Chairman,
the shares issued to the Chairman 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>
<S> <C>
Assets acquired......................................................... $ 378,014
Liabilities assumed..................................................... (1,010,760)
-----------
Net liabilities assumed....................................... $ (632,746)
===========
</TABLE>
Consideration was recorded as follows:
<TABLE>
<S> <C>
Shares issued to the Chairman........................................... $ (682,383)
Shares issued to minority shareholders.................................. 45,031
Cash issued to minority shareholders.................................... 4,606
---------
Total......................................................... $ (632,746)
=========
</TABLE>
During 1995, the ceramics technology used in the semiconductor industry and
associated assets of SOUTHtech were sold to a third party effective August 31,
1995. As a result, the Company received cash of $1,328,720 and is entitled to
guaranteed payments of $1,500,000 and contingent payments up to a maximum of
$1,750,000 based upon the future sales of the SOUTHtech ceramic product within
the semiconductor industry. The Company retained the ceramics technology and
assets associated with 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.
F-11
<PAGE> 90
SIMULA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1996 -- (CONTINUED)
On September 30, 1994, the Company purchased all of the operating assets of
Artcraft Industries Corp. ("Artcraft") for 67,228 shares of common stock valued
at $465,000 and the assumption of certain liabilities. Artcraft is engaged in
the manufacture, assembly and sale of railway and mass transit seating systems.
The acquisition has been accounted for using the purchase method of accounting,
and results of operations of Artcraft have been included in the consolidated
financial statements subsequent to the acquisition. The excess of the purchase
price over the fair value of net assets acquired of $734,531 is being amortized
over 25 years.
Consideration for the transaction consisted of the following:
<TABLE>
<S> <C>
67,228 shares of common stock............................................ $ 465,000
Liabilities assumed -- including $650,000 bank debt paid at closing...... 3,638,924
-----------
Total.......................................................... $4,103,924
===========
</TABLE>
The assets acquired have been recorded as follows:
<TABLE>
<S> <C>
Current assets.......................................................... $ 1,669,393
Intangibles............................................................. 734,531
Property and equipment.................................................. 1,700,000
----------
Total......................................................... $ 4,103,924
==========
</TABLE>
In addition, the Company acquired another small company for $93,000 in cash
and 23,833 shares of common stock.
During 1995, the Company completed its identification and quantification of
certain preacquisition contingencies related to its acquisition of Coach and
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 and 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.
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>
F-12
<PAGE> 91
SIMULA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1996 -- (CONTINUED)
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>
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>
F-13
<PAGE> 92
SIMULA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1996 -- (CONTINUED)
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.
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 2,918,243 2,990,329
by land and buildings with a carrying amount of
$6,172,885, due through 2017............................
Various loans payable, secured by property and 4,951,898 3,020,703
equipment...............................................
Obligations under capital leases, interest at 10% (Note 1,362,876 917,520
13).....................................................
----------- -----------
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
F-14
<PAGE> 93
SIMULA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1996 -- (CONTINUED)
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.
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>
<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.
F-15
<PAGE> 94
SIMULA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1996 -- (CONTINUED)
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>
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>
F-16
<PAGE> 95
SIMULA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1996 -- (CONTINUED)
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 realizable, 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>
F-17
<PAGE> 96
SIMULA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1996 -- (CONTINUED)
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.
F-18
<PAGE> 97
SIMULA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1996 -- (CONTINUED)
The following is a schedule, by year, of minimum rental payments due under
the leases described above and for other operating leases for the years ending
December 31:
<TABLE>
<CAPTION>
CAPITAL LEASES OPERATING LEASES
-------------- ----------------
<S> <C> <C>
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>
F-19
<PAGE> 98
SIMULA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1996 -- (CONTINUED)
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>
<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 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.
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
F-20
<PAGE> 99
SIMULA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1996 -- (CONTINUED)
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.
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
F-21
<PAGE> 100
SIMULA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1996 -- (CONTINUED)
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>
<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.
F-22
<PAGE> 101
SIMULA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1996 -- (CONTINUED)
19. UNAUDITED QUARTERLY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
1996
-----------------------------------------------------------
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>
<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>
F-23
<PAGE> 102
GOVERNMENT AND DEFENSE PRODUCTS
<TABLE>
<S> <C> <C>
Photo of crashworthy Photo of cockpit airbag system Photo of crashworthy
armored CH-53 Sea Stallion ("CABS") for military helicopters. energy- absorbing Osprey
helicopter seat. Photo of inflatable body and head tilt-rotor aircraft seat.
restraint system ("IBAHRS") for
military helicopters.
</TABLE>
TECHNOLOGY DEVELOPMENT
Photo of drop tower test facility and two computer animations of crash dummies.
Through the use of crash tests conducted at the Company's facilities and
computer simulations of crash events, the Company's biomechanical engineers
study human body dynamics in crash situations in order to develop safety
technologies and products.
<PAGE> 103
======================================================
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY THE SHARES BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION WOULD BE UNLAWFUL OR TO ANY PERSON TO WHOM IT IS UNLAWFUL. UNDER NO
CIRCUMSTANCES SHALL THE DELIVERY OF THIS PROSPECTUS OR ANY SALE MADE PURSUANT TO
THIS PROSPECTUS CREATE ANY IMPLICATION THAT INFORMATION CONTAINED IN THIS
PROSPECTUS IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF THIS PROSPECTUS.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 8
Use of Proceeds....................... 16
Price Range of Common Stock........... 16
Capitalization........................ 17
Dividend Policy....................... 17
Selected Consolidated Financial
Data................................ 18
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 20
Business.............................. 28
Management............................ 42
Certain Transactions.................. 50
Principal Shareholders................ 51
Description of Preferred Stock........ 53
Description of Exchange Notes......... 57
Certain Federal Income Tax
Considerations...................... 68
Description of Other Capital Stock and
Debt Securities..................... 72
Underwriting.......................... 74
Legal Opinions........................ 75
Experts............................... 75
Incorporation of Certain Documents by
Reference........................... 75
Additional Information................ 75
Index to Financial Statements......... F-1
</TABLE>
======================================================
======================================================
1,200,000 SHARES
Simula Logo w/o Name
SIMULA, INC.
$ SERIES A CONVERTIBLE
EXCHANGEABLE PREFERRED STOCK
--------------------
PROSPECTUS
--------------------
HD BROUS & CO., INC.
BREAN MURRAY & CO., INC.
L.H. FRIEND, WEINRESS,
FRANKSON & PRESSON, INC.
, 1997
======================================================
<PAGE> 104
SIMULA, INC.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is an itemized statement of all expenses in connection with
the issuance and distribution of the securities to be registered. These expenses
will be deducted from the gross proceeds of the offering. The information
contained below is subject to future contingencies. An asterisk to the right of
a dollar figure denotes that the figure is an estimate and the exact amount to
be expended for that category is not yet known.
<TABLE>
<S> <C>
Registration Fee.................................................. $ 12,000
Transfer Agent's Fee.............................................. 10,000
Legal Fees........................................................ 150,000
New York Stock Exchange Listing Fee............................... 30,000
Accounting Fees................................................... 75,000
Printing and Engraving Costs...................................... 90,000
Other............................................................. 33,000
--------
Total................................................... $400,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
ARTICLE 10 of the Company's Amended and Restated Articles of Incorporation
provides that the personal liability of the directors to the Company and its
shareholders for monetary damages by reason of their conduct as directors shall
be limited or eliminated to the fullest extent permitted by Arizona law. In
A.R.S. Sec. 10-202(B) (1), Arizona corporate law limits or eliminates the
liability of a director of a corporation for money damages for any action taken
or not taken as a director in all instances except: (i) where a director
receives financial benefits to which he is not entitled; (ii) any intentional
infliction of harm on the corporation or its shareholders; (iii) the making of
unlawful distributions; and (iv) intentional violations of criminal law.
Section 12.01 of the Company's Bylaws further provides that the Company
shall indemnify and pay the expenses of directors, officers, employees, trustees
or agents of or for the Company to the fullest extent permitted by Arizona law.
In A.R.S. Sec. 10-850 et seq., Arizona corporate law provides that a corporation
may provide indemnification if: (i) the director's conduct was in good faith;
(ii) the director reasonably believed: (x) in the case of conduct in an official
capacity with the corporation, that the conduct was in its best interests, or
(y) in all other cases, that the conduct was at least not opposed to its best
interests; and (iii) in the case of criminal proceedings, the director had no
reasonable cause to believe the conduct was unlawful.
Directors may not be indemnified in connection with proceedings brought by
or in the right of the Company in which the director was adjudged liable to the
Company or in connection with any other proceeding charging improper personal
benefit to the director, whether or not involving action in the director's
official capacity, in which the director was adjudged liable on the basis that
personal benefit was improperly received by the director. Under Arizona law,
indemnification in connection with a proceeding by or in the right of the
Company is limited to reasonable expenses incurred in connection with the
proceeding.
Arizona law also provides for mandatory and court-ordered indemnification
in certain instances, including on behalf of officers, employees and agents of
the Company who are not also directors.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In June 1994, the Company sold $6.5 million in aggregate principal amount
of its Series B 9% Senior Subordinated Convertible Notes ("Convertible Notes").
The Convertible Notes were sold pursuant to exemptions from registration under
the Securities Act of 1933 (" '33 Act"), Section 4(2), and Regulation D
thereunder, and comparable provisions of states' securities laws. The
Convertible Notes were convertible to
II-1
<PAGE> 105
Common Stock, and 947,562 shares of the Company's Common Stock were registered
and offered pursuant to a Prospectus dated July 26, 1994 for shares of Common
Stock issuable upon the conversion of the Convertible Notes. In addition, 19,674
shares of the Company's Common Stock were registered and offered pursuant to a
Prospectus dated December 28, 1994 for remaining shares of Common Stock issuable
for accrued interest. As of the date of this Registration Statement, all
Convertible Notes have been converted into Common Stock.
In September 1996, the Company sold $14.3 million in aggregate principal
amount of its Series C 10% Senior Subordinated Convertible Notes ("10% Notes").
The 10% Notes were issued pursuant to the Company's Indenture dated December 17,
1993 and Supplemental Indenture dated September 12, 1996. The private placement
was made through HD Brous & Co., Inc., a NASD member firm, and other selected
dealers. The 10% Notes were sold pursuant to exemptions from registration under
the '33 Act, Section 4(2), and Regulation D in reliance on Rule 506 thereunder,
and comparable provisions of states' securities laws. The 10% Notes are
convertible to Common Stock of the Company at a conversion price which may be
fixed by each Noteholder at the equivalent of 98% of the average closing price
of the Company's Common Stock on the NYSE for the 10 day period immediately
preceding notice to the Company of such an election to fix the conversion price.
If not earlier converted, the 10% Notes are redeemable by the Company in whole
or in part on a pro rata basis, at par value plus all accrued interest payable
through the date of redemption, at any time upon 30 days written notice to the
Noteholders in accordance with the following: (i) from September 12, 1996 until
December 15, 1997, the 10% Notes may be redeemed by the Company after the
closing price of the Company's Common Stock as quoted on the NYSE has equaled or
exceeded $25.00 for any 10 consecutive trading days and (ii) after December 15,
1997, the Company may redeem the 10% Notes at any time at par value plus all
accrued interest payable through the date of redemption. Of the 1,931,140 shares
of the Company's Common Stock being registered pursuant to this Registration
Statement, 1,430,000 shares are being registered to account for the prospective
issuance of Common Stock in the full amount of principal and interest on the 10%
Notes outstanding at any given time upon notice of the Noteholders of such
holders' election to convert their 10% Notes into Common Stock at 98% of the
prices which they may have fixed for conversion. As of the date of this
Registration Statement, no 10% Notes have been converted into Common Stock.
Other than the foregoing transactions, the Registrant has not offered or
sold any unregistered securities within the last three years.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
a. Exhibits. The following Exhibits are included pursuant to Regulation
S-K.
<TABLE>
<CAPTION>
NO. DESCRIPTION REFERENCE
- ------- --------------------------------------------------------------------------- ---------
<C> <S> <C>
*1 Form of Underwriting Agreement
++3.1 Articles of Incorporation of Simula, Inc., as amended and restated
3.2 Bylaws of Simula, Inc., as amended and restated............................ (1)
++4.1 Specimen of Common Stock Certificate
4.2 Indenture dated December 17, 1993 (including cross-reference sheet to Trust
Indenture Act), as amended................................................. (3)
*4.3 Certificate of Designations and Preferences (entitled "Statement Pursuant
to Arizona Revised Statutes sec.10-602")
+4.4 Specimen of Preferred Stock Certificate
++4.5 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
4.6 Form of Supplemental Indenture No. 3, effective March 14, 1997, amending
the Indenture of Simula, Inc. dated December 17, 1993...................... (11)
*4.7 Form of Indenture to be utilized in connection with the issuance of the %
Senior Subordinated Convertible Exchange Notes
</TABLE>
II-2
<PAGE> 106
<TABLE>
<CAPTION>
NO. DESCRIPTION REFERENCE
- ------- --------------------------------------------------------------------------- ---------
<C> <S> <C>
++5.1 Opinion of Counsel
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)
10.24 Amended Loan Agreement with Wells Fargo Bank, N.A. dated December 20,
1996....................................................................... (11)
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
++10.28 Promissory Note representing $1,000,000 loan from Stanley P. Desjardins
dated August 14, 1996
10.29 Form of Change of Control Agreements Between the Company and Key Management
Personnel.................................................................. (11)
*11. Earnings Per Share
*12. Ratio of Earnings to Fixed Charges
18. Preference Letter re: change in accounting principles...................... (10)
*21. Subsidiaries of Registrant
*23. Consent of Independent Auditors
24. Powers of Attorney -- Directors............................................ (11)
25. Statement of Eligibility of Trustee on Form T-1 for Indenture dated
December 17, 1993 (without Indenture) (bound separately)................... (3)
</TABLE>
- ---------------
* Filed herewith.
+ To be filed by amendment.
++ Filed with original Registration Statement on Form S-3, dated October 4,
1996.
(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.
II-3
<PAGE> 107
(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 Definitive Proxy on May 14, 1996, for the Company's Annual
Meeting of Shareholders held on June 20, 1996.
(10) Filed with Report on Form 10-Q/A for the quarter ended June 30, 1996.
(11) Filed with Report on Form 10-K for the year ended December 31, 1996.
b.1. Financial Statements. The financial statements of the Company are
included in the Prospectus beginning at page F-1.
b.2. Financial Statement Schedules. All schedules are included in the
financial statements of the Company or are included in Part II of the
Registration Statement.
ITEM 17. UNDERTAKINGS
RULE 415
a. The undersigned registrant hereby undertakes:
a.1. To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement. Notwithstanding the foregoing, any
increase or decrease in volume of Securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change
in the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration Statement
or any material change to such information in the Registration
Statement;
a.2. That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new Registration Statement relating to the Securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
a.3. To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
II-4
<PAGE> 108
e. Incorporated Annual and Quarterly Reports.
The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is
sent or given, the latest annual report to security holders that is
incorporated by reference in the prospectus and furnished pursuant to and
meeting the requirements of Rule 14a-3 or Rule 14c-3 under the Securities
Exchange Act of 1934; and, where interim financial information required to
be presented by Article 3 of Regulation S-X are not set forth in the
prospectus, to deliver, or cause to be delivered to each person to whom the
prospectus is sent or given, the latest quarterly report that is
specifically incorporated by reference in the prospectus to provide such
interim financial information.
h. Request for acceleration of effective date.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions,
or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
II-5
<PAGE> 109
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of Phoenix, State of Arizona
on March 28, 1997.
SIMULA, INC.
By /s/ DONALD W. TOWNSEND
------------------------------------
Donald W. Townsend, President
Pursuant to the requirements of the Securities Act of 1933, the
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE AND TITLE DATE
- -------------------------------------------- --------------------------------------------
<S> <C>
/s/ DONALD W. TOWNSEND March 28, 1997
- --------------------------------------------
Donald W. Townsend, President, Chief
Operating Officer, and Director
/s/ BRADLEY P. FORST March 28, 1997
- --------------------------------------------
Bradley P. Forst, Vice President, General
Counsel, Secretary and Director
/s/ SEAN K. NOLEN March 28, 1997
- --------------------------------------------
Sean K. Nolen, Vice President, Treasurer,
Chief Financial Officer, and Director
- --------------------------------------------
Stanley P. Desjardins, Chairman
- --------------------------------------------
James C. Withers, Director
- --------------------------------------------
Robert D. Olliver, Director
- --------------------------------------------
Scott E. Miller, Director
*By: /s/ BRADLEY P. FORST March 28, 1997
---------------------------------------
Bradley P. Forst,
Attorney-in-Fact
</TABLE>
II-6
<PAGE> 1
1,200,000 Shares(1)
SIMULA, INC.
$________ Series A Convertible Exchangeable Preferred Stock
UNDERWRITING AGREEMENT
March ____, 1997
H.D. BROUS & CO., INC.
BREAN MURRAY & CO., INC.
L.H. FRIEND, WEINRESS, FRANKSON & PRESSON, INC.
as Representatives of the
several Underwriters
2700 N. Central Avenue, Ste. 1250
Phoenix, Arizona 85004
Dear Sirs:
Simula, Inc., an Arizona corporation (the "Company") hereby confirms
its agreement with the several underwriters named in Schedule 1 hereto (the
"Underwriters"), for whom you have been duly authorized to act as representative
(in such capacity, the "Representatives"), as set forth below. If you are the
only Underwriters, all references herein to the Representatives shall be deemed
to be to the Underwriters.
1. Securities. Subject to the terms and conditions herein contained,
the Company proposes to issue and sell to the several Underwriters an aggregate
of _________ shares (the "Firm Securities") of the Company's $______ Series A
Convertible Exchangeable Preferred Stock (par value $.05 per share)
("Convertible Exchangeable Preferred Stock"). The Company also proposes to sell
to the several Underwriters not more than _________ additional shares of
Convertible Exchangeable Preferred Stock if requested by the Representatives as
provided in Section 3(b) of this Agreement. Any and all shares of Convertible
Exchangeable Preferred Stock to be purchased by the Underwriters pursuant to
such option are referred to herein as the "Option Securities," and the Firm
Securities and any Option Securities are collectively referred to herein as the
"Securities."
2. Representations and Warranties of the Company. The Company
represents and warrants to, and agrees with, each of the several Underwriters
that:
(a) A registration statement on Form S-3 under the Securities
Act of 1933, as amended (the "Act") (File No. 333-13499) with respect to the
Securities, including a prospectus
- --------
(1) Plus an option to purchase from the Company up to 180,000 additional shares
to cover over-allotments.
<PAGE> 2
subject to completion, has been filed by the Company with the Securities and
Exchange Commission (the "Commission") under the Act and one or more amendments
to such registration statement may have been so filed. Copies of such
registration statement and any amendments, and all forms of the related
prospectuses contained therein, have been delivered to you. After the execution
of this Agreement, the Company will file with the Commission either (i) if such
registration statement, as it may have been amended, has been declared by the
Commission to be effective under the Act, a prospectus in the form most recently
included in an amendment to such registration statement (or, if no such
amendment shall have been filed, in such registration statement), with such
changes or insertions as are required by Rule 430A under the Act or permitted by
Rule 424(b) under the Act and as have been provided to and approved by the
Representatives prior to the execution of this Agreement, or (ii) if such
registration statement, as it may have been amended, has not been declared by
the Commission to be effective under the Act, an amendment to such registration
statement, including a form of prospectus, a copy of which amendment has been
furnished to and approved by the Representatives prior to the execution of this
Agreement. As used in this Agreement, the term "Registration Statement" means
such registration statement, as amended at the time when it was or is declared
effective, including all exhibits and financial schedules thereto, each
Preliminary Prospectus contained therein, and any information omitted therefrom
pursuant to Rule 430A under the Act and included in the Prospectus (as
hereinafter defined); the term "Preliminary Prospectus" means each prospectus
subject to completion filed with such registration statement or any amendment
thereto (including the prospectus subject to completion, if any, included in the
Registration Statement or any amendment thereto at the time it was or is
declared effective); and the term "Prospectus" means the prospectus first filed
with the Commission pursuant to Rule 424(b) and Rule 430A under the Act or, if
no prospectus is required to be filed pursuant to said Rule 424(b), such term
means the prospectus included in the Registration Statement.
(b) The Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus. When the Registration
Statement or any amendment thereto was or is declared effective, and when the
Prospectus or any amendment or supplement thereto is filed with the Commission
pursuant to Rule 424(b), on the date when the Prospectus is otherwise amended or
supplemented and on the Firm Closing Date and any Option Closing Date (both as
hereinafter defined), both the Registration Statement and the Prospectus, as
amended or supplemented at any such time, (i) contained or will contain all
statements required to be stated therein in accordance with, and complied or
will comply in all material respects with the requirements of, the Act and the
rules and regulations of the Commission thereunder and (ii) did not or will not
include any untrue statement of a material fact or omit to state any material
fact necessary to make the statements therein not misleading. The foregoing
provisions of this paragraph (b) do not apply to statements or omissions made in
any Preliminary Prospectus, the Registration Statement or any amendment thereto
or the Prospectus or any amendment or supplement thereto in reliance upon and in
conformity with written information furnished to the Company by any Underwriter
through the Representatives specifically for use therein.
(c) The Company and each of its subsidiaries have been duly
incorporated and are validly existing as corporations in good standing under the
laws of their respective jurisdictions of incorporation and are duly qualified
to transact business as foreign corporations and are in good standing under the
laws of all other jurisdictions where the ownership or leasing of their
respective properties or the conduct of their respective businesses requires
such qualification, except where the failure to be so qualified does not amount
to a material liability or disability to the Company and
2
<PAGE> 3
its subsidiaries, taken as a whole; and each of the Company and its subsidiaries
holds all licenses, certificates and permits from governmental authorities
necessary for the conduct of their respective businesses. The Company's only
subsidiaries are Simula Government Products, Inc., Intaero, Inc., Airline
Interiors, Inc., Coach and Car Equipment Corporation, Artcraft Industries Corp.,
Southtech, Inc., ViaTech, Inc., Comfab, Inc., S.E.I. Limited, ICSE, Inc., and
Sedona Scientific, Inc. (collectively, the "Subsidiaries"). Complete and correct
copies of the articles of incorporation and the bylaws of the Company and each
of its subsidiaries, and all amendments thereto, have been delivered to you, and
no changes therein will be made subsequent to the date hereof and prior to the
Firm Closing Date or the Option Closing Date.
(d) The Company and each of its subsidiaries have full power
(corporate and other) to own or lease their respective properties and conduct
their respective businesses as described in the Registration Statement and the
Prospectus; and the Company has full power (corporate and other) to enter into
this Agreement and to carry out all the terms and provisions hereof to be
carried out by it.
(e) The issued shares of capital stock of each of the
Company's subsidiaries have been duly authorized and validly issued, are fully
paid and nonassessable and, except as described in the Registration Statement
and the Prospectus, are owned, directly or indirectly by wholly owned
subsidiaries, of record and beneficially by the Company, free and clear of any
security interests, liens, encumbrances, equities or claims whatsoever.
(f) The Company has an authorized, issued and outstanding
capitalization as set forth in the Registration Statement and the Prospectus.
All of the issued shares of capital stock of the Company have been duly
authorized and validly issued and are fully paid and nonassessable. The Firm
Securities and the Option Securities have been duly authorized and at the Firm
Closing Date or the related Option Closing Date (as the case may be), after
payment therefor in accordance herewith, will be validly issued, fully paid and
nonassessable. At the Firm Closing Date or the related Option Closing Date (as
the case may be), the Firm Securities or the Option Securities (as the case may
be) will be listed, together with all other outstanding shares of Common Stock,
on the New York Stock Exchange ("NYSE"). No holders of outstanding shares of
capital stock of the Company are entitled as such to any preemptive or other
rights to subscribe for or to purchase any of the Securities, there are no
restrictions upon the voting or transfer of the Securities or any of the capital
stock of the Company (other than the applicable provisions of Rule 144), and no
holder of securities of the Company has the right to require the Company (now or
in the future) to register such holder's securities under the Act, except as
waived by such holder or as described in the Registration Statement and the
Prospectus.
(g) The capital stock of the Company and its subsidiaries
conforms in all material respects to the description thereof contained in the
Prospectus.
(h) The consolidated financial statements and schedules of the
Company and its consolidated subsidiaries, Airline Interiors, Inc., Coach and
Car Equipment Corporation, and Artcraft Industries Corp. (including the notes
thereto) included in the Registration Statement and the Prospectus fairly
present in all material respects the financial position of the Company and its
consolidated subsidiaries and their results of operation and changes in
financial condition as of the dates and periods therein specified. Such
financial statements and schedules have been prepared
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<PAGE> 4
in accordance with generally accepted accounting principles consistently applied
throughout the periods involved (except as otherwise noted therein). The
supporting schedules and summary financial data set forth in the Registration
Statement or the Prospectus fairly present in all material respects, on the
basis stated in the Registration Statement or the Prospectus, the information
included therein. The pro forma financial information included in the
Registration Statement or the Prospectus has been prepared in accordance with
SEC rules and guidelines with respect to pro forma financial information, has
been properly compiled on the pro forma basis described therein and, in the
opinion of the Company, the assumptions used in the preparation thereof are
reasonable and the adjustments used therein are appropriate to give effect to
the transactions or circumstances referred to therein.
(i) Deloitte & Touche LLP, KPMG Peat Marwick LLP and Mesick,
Steffes & Krueger, S.C. have certified certain financial statements of the
Company and its consolidated subsidiaries and delivered their reports with
respect to the audited consolidated financial statements and schedules included
or incorporated by reference in the Registration Statement and the Prospectus,
and each of them are independent public accountants as required by the Act, the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and the related
rules and regulations thereunder.
(j) The Company has corporate power and corporate authority to
enter into this Agreement and to carry out all the terms and provisions of this
Agreement to be carried out by it. The execution and delivery of this Agreement
have been duly authorized by all necessary corporate action of the Company, and
this Agreement has been duly executed and delivered by the Company, and is a
valid and binding agreement of the Company, enforceable against the Company in
accordance with its terms, subject to (i) bankruptcy, insolvency or similar laws
generally affecting the enforcement of creditors' rights, (ii) equitable
principles limiting the right to obtain specific performance or similar
equitable relief, and (iii) limitations imposed by applicable laws regarding
rights to indemnity and contribution.
(k) No legal or governmental proceedings are pending to which
the Company or any of its subsidiaries is a party or to which the property of
the Company or any of its subsidiaries is subject that are required to be
described in the Registration Statement or the Prospectus and are not described
therein, and no such proceedings have been threatened against the Company or any
of its subsidiaries or with respect to any of their respective properties; and
no contract or other document is required to be described in the Registration
Statement or the Prospectus or to be filed as an exhibit to the Registration
Statement that is not described therein or has not been filed as required.
(l) The issuance, offering and sale of the Securities to the
Underwriters by the Company pursuant to this Agreement, the compliance by the
Company with the other provisions of this Agreement applicable to it and the
consummation of the other transactions herein contemplated do not (i) require
the consent, approval, authorization, registration or qualification of or with
any governmental authority, except such as have been obtained and such as may be
required under state securities or blue sky laws and applicable regulations of
the National Association of Securities Dealers, Inc. (the "NASD") and the NYSE
or (ii) conflict with or result in a breach or violation of any of the terms and
provisions of, or constitute a default under, (A) any indenture, mortgage, deed
of trust, lease or other agreement or instrument to which the Company
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<PAGE> 5
or any of its subsidiaries is a party or by which the Company or any of its
subsidiaries or any of their respective properties are bound, (B) the articles
of incorporation or bylaws of the Company or any of its subsidiaries, (C) any
statute, rule or regulation or (D) any judgment, decree or order of any court or
other governmental authority or any arbitrator to which the Company or any of
its subsidiaries is a party or is subject, or to which their respective
properties are subject.
(m) The Company and its subsidiaries own, possess or have the
right to use pursuant to valid license agreements all patents, trademarks,
service marks, trade names, licenses, copyrights and proprietary or other
confidential information currently employed by them in connection with, and that
are material to the conduct of, their respective businesses, and neither the
Company nor any such subsidiary has received, or has reason to believe that it
may receive, any notice of infringement of or conflict with asserted rights of
any third party with respect to any of the foregoing which, singly or in the
aggregate, if the subject of an unfavorable decision, ruling or finding, would
result in a material adverse change in the condition (financial or otherwise),
business prospects, net worth or results of operations of the Company and its
subsidiaries, taken as a whole, except as described in the Registration
Statement or the Prospectus.
(n) The Company and its subsidiaries possess all certificates,
authorizations and permits issued by the appropriate federal, state, local or
foreign regulatory authorities necessary to conduct their respective businesses
(except where the failure to possess any such certificate, authorization or
permit would not, singly or in the aggregate, have a material adverse effect
upon the Company and its subsidiaries, taken as a whole), and neither the
Company nor any such subsidiary has received any notice of proceedings relating
to the revocation or modification of any such certificate, authorization or
permit which, singly or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, would result in a material adverse change in the
condition (financial or otherwise), business prospects, net worth or results of
operations of the Company and its subsidiaries, taken as a whole, except as
described in the Registration Statement and the Prospectus.
(o) Subsequent to the respective dates as of which information
is given in the Registration Statement and the Prospectus, (i) the Company and
its subsidiaries have not incurred any material liability or obligation, direct
or contingent, nor entered into any material transaction not in the ordinary
course of business; (ii) there has been no material adverse change in the
condition (financial or otherwise) of the Company or any of its subsidiaries,
taken as a whole, or in the earnings, business affairs or business prospects of
the Company or any of its subsidiaries, whether or not arising in the ordinary
course of business; (iii) the Company has not purchased any of its outstanding
capital stock, nor declared, paid or otherwise made any dividend or distribution
of any kind on its capital stock; and (iv) there has not been any material
change in the capital stock, short-term debt or long-term debt of the Company
and its consolidated subsidiaries, taken as a whole, except in each case as
described in the Registration Statement and the Prospectus.
(p) The Company and each of its subsidiaries have good and
marketable title in fee simple to all items of real property and marketable
title to all personal property owned by each of them, in each case free and
clear of any security interests, liens, encumbrances, equities, claims and other
defects, except such as are described in the Prospectus or such as do not
materially and adversely affect the value of such property and do not interfere
with the use made or proposed to be made of such property by the Company or such
subsidiary, and any real property and buildings
5
<PAGE> 6
held under lease by the Company or any such subsidiary are held under valid,
subsisting and enforceable leases, with such exceptions as are not material and
do not interfere in any material respect with the use made or proposed to be
made of such property and buildings by the Company or such subsidiary, in each
case except as described in the Registration Statement and the Prospectus.
(q) The Company and each of its subsidiaries have filed all
foreign, federal, state and local income tax returns that are required to be
filed and have paid all taxes required to be paid by them and any other
assessment, fine or penalty levied against them, to the extent that any of the
foregoing is due and payable, except, in all cases, for any such assessment,
fine or penalty that is currently being contested in good faith or as described
in the Registration Statement and the Prospectus.
(r) Except for the shares of capital stock of each of the
subsidiaries owned by the Company, neither the Company nor any such subsidiary
owns any material amount of any shares of stock or any other equity securities
of any corporation or has any equity interest in any firm, partnership, joint
venture, association or other entity, except as described in the Registration
Statement and the Prospectus.
(s) No default exists, and no event has occurred which, with
notice or lapse of time or both, would constitute a default in the due
performance and observance of any term, covenant or condition of any indenture,
mortgage, deed of trust, lease or other agreement or instrument to which the
Company or any of its subsidiaries is a party or by which the Company or any of
its subsidiaries or any of their respective properties is bound or may be
affected, in each case in any material adverse respect with regard to property,
business or operations of the Company and its subsidiaries taken as a whole
(except for any default which would not, singly or in the aggregate, have a
material adverse effect upon the Company and its subsidiaries, taken as a
whole). Neither the Company nor any of its Subsidiaries is in violation of any
law, ordinance, governmental rule or regulation or court decree to which any of
them or their respective properties may be subject which violation might have a
material adverse effect on the condition (financial or other), properties,
prospective results of operations or net worth of the Company and its
subsidiaries, taken as a whole.
(t) The Company and each of its subsidiaries are insured by
insurers of recognized financial responsibility against such losses and risks
and in such amounts as the Company believes are prudent in the businesses in
which they are engaged; neither the Company nor any such subsidiary has been
refused any insurance coverage sought or applied for; and neither the Company
nor any such subsidiary has any reason to believe that it will not be able to
renew its existing insurance coverage as and when such coverage expires or to
obtain similar coverage from similar insurers as may be necessary to continue
its business at a cost that would not materially and adversely affect the
condition (financial or otherwise), business prospects, net worth or results of
operations of the Company and its subsidiaries, taken as a whole, except as
described in the Registration Statement and the Prospectus.
(u) The Company has not (i) taken, directly or indirectly, any
action designed to cause or to result in, or that has constituted or might
reasonably be expected to constitute, the stabilization or manipulation of the
price of any security of the Company to facilitate the sale or resale of the
Securities or (ii) since the filing of the Registration Statement, (A) sold, bid
for,
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<PAGE> 7
purchased, attempted to induce any person to purchase, or paid anyone any
compensation for soliciting purchases of, the Securities or (B) paid or agreed
to pay to any person any compensation for soliciting another to purchase any
other securities of the Company (except for the sale of Securities by the
Company under this Agreement).
(v) No labor dispute with the employees of the Company or any
of its subsidiaries exists or is threatened or imminent that could result in a
material adverse change in the condition (financial or otherwise), business
prospects, net worth or results of operations of the Company and its
subsidiaries, taken as a whole, except as described in the Registration
Statement and the Prospectus.
(w) No subsidiary of the Company is currently prohibited,
directly or indirectly, from paying any dividends to the Company, from making
any other distribution on such subsidiary's capital stock, from repaying to the
Company any loans or advances to such subsidiary from the Company or from
transferring any of such subsidiary's property or assets to the Company or any
other subsidiary of the Company, except as described in the Registration
Statement and the Prospectus.
(x) Neither the Company nor any of its subsidiaries is in
violation of any federal or state law or regulation relating to occupational
safety and health or to the storage, handling or transportation of hazardous or
toxic materials, and the Company and its subsidiaries have received all permits,
licenses or other approvals required of them under applicable federal and state
occupational safety and health and environmental laws and regulations to conduct
their respective businesses, and the Company and each such subsidiary is in
compliance with all terms and conditions of any such permit, license or
approval, except, in each case, where any such violation of law or regulation,
failure to receive required permits, licenses or other approvals or failure to
comply with the terms and conditions of such permits, licenses or approvals
which would not, singly or in the aggregate, result in a material adverse change
in the condition (financial or otherwise), business prospects, net worth or
results of operations of the Company and its subsidiaries, taken as a whole,
except as described in the Registration Statement and the Prospectus.
(y) The Company and each of its subsidiaries maintain a system
of internal accounting controls sufficient to provide reasonable assurance, in
all material respects, that (i) transactions are executed in accordance with
management's general or specific authorizations; (ii) transactions are recorded
as necessary to permit preparation of financial statements in conformity with
generally accepted accounting principles and to maintain asset accountability;
(iii) access to assets is permitted only in accordance with management's general
or specific authorization; and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences.
(z) There are no business relationships or related party
transactions of the nature described in Item 404 of Regulation S-K under the Act
involving the Company and any person referred to in Item 401 of Regulation S-K
under the Act, except as required to be described in the Registration Statement
and the Prospectus and as so described.
(aa) Neither the Company nor any of its subsidiaries has a
defined benefit pension plan or other pension benefit plan which is subject to
the minimum funding standards of Section 302
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<PAGE> 8
of the Employee Retirement Income Security Act of 1974, as amended from time to
time, except as described in the Registration Statement and the Prospectus; and
any such plans so described are in full compliance with such Section .
(bb) No person is entitled, directly or indirectly, to
compensation from the Company or any of its subsidiaries for services as a
finder in connection with the transactions contemplated by this Agreement.
3. Purchase, Sale and Delivery of the Securities.
(a) On the basis of the representations, warranties,
agreements and covenants herein contained and subject to the terms and
conditions herein set forth, (i) the Company agrees to issue and sell
to each of the Underwriters, and each of the Underwriters, severally
and not jointly, agrees to purchase from the Company, at a purchase
price of $_______ per share less the Underwriter's discount of 7% of
the purchase price, the number of Firm Securities set forth opposite
the name of such Underwriter in Schedule 1 hereto. One or more
certificates in definitive form for the Firm Securities that the
several Underwriters have agreed to purchase hereunder, all in such
denomination or denominations and registered in such name or names as
the Representatives requests upon notice to the Company at least 48
hours prior to the Firm Closing Date, shall be delivered by or on
behalf of the Company to the Representatives for the respective
accounts of the Underwriters, against payment by or on behalf of the
Underwriters of the purchase price therefor by certified or official
bank check or checks drawn upon or by a Chicago Clearing House bank and
payable in next-day funds or, at the option of the Representatives, by
wire transfer and payable in same-day funds (in which case the Company
shall reimburse to the Underwriters the one day's interest that would
have accrued on such purchase price had the purchase price been paid in
next-day funds, such interest based on the broker call rate as reported
in the Wall Street Journal) to the order of the Company. Such delivery
of and payment for the Firm Securities shall be made at the offices of
H.D. Brous & Co., Inc., 2700 N. Central Avenue, Suite 1250, Phoenix,
Arizona 85004, at 9:30 A.M., local time, on __________________, 1997,
or at such other place, time or date as the Representatives and the
Company may agree upon or as the Representatives may determine pursuant
to Section 9 hereof, such time and date of delivery against payment
being herein referred to as the "Firm Closing Date." The Company will
make such certificate or certificates for the Firm Securities available
for checking and packaging by the Representatives at the offices in New
York, New York or Chicago, Illinois of the Company's transfer agent or
registrar or their correspondent at least 24 hours prior to the Firm
Closing Date.
(b) For the purpose of covering any over-allotments in
connection with the distribution and sale of the Firm Securities as
contemplated by the Prospectus, the Company hereby grants to the
several Underwriters an option to purchase, severally and not jointly,
the Option Securities. The purchase price to be paid for any Option
Securities shall be the same price per share as the price per share for
the Firm Securities set forth above in paragraph (a) of this Section 3,
plus if the purchase and sale of any Option Securities takes place
after the Firm Closing Date and after the Firm Securities are trading
"ex-dividend," an amount equal to the dividend payable on such Option
Securities. The option granted hereby may be exercised as to all or any
part of the Option Securities from time to time within
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<PAGE> 9
thirty days after the date of the Prospectus. It is understood that no
Option Securities shall be sold and delivered unless the Firm
Securities previously have been, or simultaneously are, sold and
delivered. The Underwriters shall not be under any obligation to
purchase any of the Option Securities prior to the exercise of such
option. The Representatives may from time to time exercise the option
granted hereby by giving notice in writing or by telephone (confirmed
in writing) to the Company setting forth the aggregate number of shares
of Option Securities as to which the several Underwriters are then
exercising the option and the date and time for delivery of and payment
for such Option Securities. Any such date of delivery shall be
determined by the Representatives but shall not be earlier than two
business days or later than seven business days after such exercise of
the option and, in any event, shall not be earlier than the Firm
Closing Date. The time and date set forth in such notice, or such other
time on such other date as the Representatives and the Company may
agree upon or as the Representatives may determine pursuant to Section
9 hereof, is herein called the "Option Closing Date" with respect to
such Option Securities. Upon exercise of the option as provided herein,
the Company shall become obligated to sell to each of the several
Underwriters, and, subject to the terms and conditions herein set
forth, each of the Underwriters (severally and not jointly) shall
become obligated to purchase from the Company, the same percentage of
the total number of the Option Securities as to which the several
Underwriters are then exercising the option as such Underwriter is
obligated to purchase of the aggregate number of Firm Securities, as
adjusted by the Representatives in such manner as the Representatives
deems advisable to avoid fractional shares. If the option is exercised
as to all or any portion of the Option Securities, one or more
certificates in definitive form for such Option Securities, and payment
therefor, shall be delivered on the related Option Closing Date in the
manner, and upon the terms and conditions, set forth in paragraph (a)
of this Section 3.
(c) It is understood that you, individually and not as the
Representatives, may (but shall not be obligated to) make payment on
behalf of any Underwriter or Underwriters for any of the Securities to
be purchased by such Underwriter or Underwriters. No such payment shall
relieve such Underwriter or Underwriters from any of its or their
obligations hereunder.
4. Offering by the Underwriters. Upon your authorization of the release
of the Firm Securities, the several Underwriters propose to offer the Firm
Securities for sale to the public upon the terms set forth in the Prospectus.
The Representatives shall promptly advise the Company of the commencement of the
public offering.
5. Covenants of the Company. The Company covenants and agrees with each
of the Underwriters that:
(a) Subject to the next sentence, the Company will file the
Prospectus with the Commission pursuant to Rule 424 under the Act.
During any time when a prospectus relating to the Securities is
required to be delivered under the Act, the Company (i) will comply
with all requirements imposed upon it by the Act and the Exchange Act
and the respective rules and regulations of the Commission thereunder
to the extent necessary to permit the continuance of sales of or
dealings in the Securities in accordance with the provisions hereof and
of the Prospectus, as then amended or supplemented, and (ii) will not
9
<PAGE> 10
file with the Commission the Prospectus, any amendment or supplement to
the Prospectus, or any amendment to the Registration Statement, of
which the Representatives shall not previously have been advised and
furnished with a copy a reasonable period of time prior to the proposed
filing and as to which filing the Representatives shall not have given
their consent, which consent will not be unreasonably withheld. The
Company will advise the Representatives, promptly after receiving
notice thereof, of the time when (i) the Prospectus has been filed with
the Commission and (ii) any amendment to the Registration Statement has
been filed or declared effective or any amendment or supplement to the
Prospectus has been filed and will provide evidence satisfactory to the
Representatives of each such filing or effectiveness.
(b) The Company will advise the Representatives, promptly
after receiving notice or obtaining knowledge thereof, of (i) the
issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or any post-effective
amendment thereto or any order directed at any document incorporated by
reference in the Registration Statement or the Prospectus or any
amendment or supplement thereto or any order preventing or suspending
the use of the Prospectus, (ii) the suspension of the qualification of
the Securities for offering or sale in any jurisdiction, (iii) the
institution, threatening or contemplation of any proceeding for any
such purpose or (iv) any request made by the Commission for amending
the Registration Statement, for amending or supplementing the
Prospectus or for additional information. The Company will use its best
efforts to prevent the issuance of any such stop order and, if any such
stop order is issued, to obtain the withdrawal thereof as promptly as
possible.
(c) The Company will cooperate with the Representatives in
connection with the registration or qualification of the Securities for
offering and sale under the securities or blue sky laws of such
jurisdictions as the Representatives may designate and will continue
such qualifications in effect for as long as may be reasonably
necessary to complete the distribution of the Securities, provided,
however, that in connection therewith the Company shall not be required
to qualify as a foreign corporation or to execute a general consent to
service of process in any jurisdiction.
(d) If, at any time when a prospectus relating to the
Securities is required to be delivered under the Act, any event occurs
as a result of which the Prospectus, as then amended or supplemented,
would include any untrue statement of a material fact or omit to state
a material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not
misleading, or if for any other reason it is necessary at any time to
amend or supplement the Prospectus to comply with the Act, the Exchange
Act or the respective rules or regulations of the Commission
thereunder, the Company will promptly notify the Representatives
thereof and, subject to Section 5(a) hereof, will prepare and file with
the Commission, at the Company's expense, an amendment to the
Registration Statement or an amendment or supplement to the Prospectus
that corrects such statement or omission or effects such compliance.
(e) The Company will, without charge, provide to the
Representatives and to counsel for the Underwriters a signed copy of
the Registration Statement originally filed with respect to the
Securities and each amendment thereto (in each case including exhibits
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<PAGE> 11
thereto), (ii) to each Underwriter, a conformed copy of such
Registration Statement and each amendment thereto (in each case without
exhibits thereto) and (iii) as long as a prospectus relating to the
Securities is required to be delivered under the Act, as many copies of
each Preliminary Prospectus or the Prospectus or any amendment or
supplement thereto as the Representatives may reasonably request.
(f) The Company, as soon as practicable, will make generally
available to its security holders and to the Representatives a
consolidated earnings statement of the Company and its subsidiaries
covering a period of at least 12 months after the effective date of the
Registration Statement (but in no event commencing later than 90 days
after such date), which statement shall satisfy the provisions of
Section 11(a) of the Act and Rule 158 thereunder.
(g) The Company will apply the net proceeds from the sale of
the Company's Securities as set forth under "Use of Proceeds" in the
Prospectus.
(h) The Company, its directors and executive officers will
not, directly or indirectly, without the prior written consent of the
Representatives, on behalf of the Underwriters, offer, issue, sell,
contract to sell, grant any option to purchase or otherwise dispose of
(or announce any offer, issuance, sale, grant of any option to purchase
or other disposition of) any shares of Common Stock or any securities
convertible into, or exchangeable or exercisable for, shares of Common
Stock for a period of 90 days from the date of the Prospectus, except
pursuant to this Agreement and except grants of option under stock
option plans described in the Prospectus and issuances of shares of
Common Stock (x) pursuant to the exercise of stock options under stock
options plans or compensation contracts described in the Prospectus or
(y) in connection with the acquisition of assets by the Company or its
subsidiaries as described in the Prospectus.
(i) For a period of 60 days after the effective date of the
Registration Statement, the Company will not (i) take, directly or
indirectly, any action designed to cause or to result in, or that might
reasonably be expected to constitute, the stabilization or manipulation
of the price of any security of the Company to facilitate the sale or
resale of the Securities or (ii) bid for, purchase, attempt to induce
any person to purchase, or pay anyone any compensation for soliciting
purchases of, the Securities or (iii) pay or agree to pay to any person
any compensation for soliciting another to purchase any other
securities of the Company.
(j) The Company will file with the NYSE, as long as its
securities are quoted thereon, all documents and notices required by
the NYSE of companies that have issued securities that are traded on
the NYSE.
(k) If at any time during the 25-day period after the
Registration Statement becomes effective, any rumor, publication or
event relating to or affecting the Company shall occur as a result of
which in your opinion the market price of the Common Stock has been or
is likely to be materially affected (regardless of whether such rumor,
publication or event necessitates a supplement to or amendment to the
Prospectus), the Company will, after written notice from you advising
the Company to the effect set forth above, forthwith
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<PAGE> 12
prepare, consult with you concerning the substance of, and disseminate
a press release or other public statement, reasonably satisfactory to
you, responding to or commenting on such rumor, publication or event.
(l) For five years after the date hereof, the Company will
mail as soon as practicable to the holders of its Common Stock and
Convertible Exchangeable Preferred Stock substantially all of the
following documents, which documents shall be in compliance with this
Section if they are in the form prescribed by the Exchange Act:
(i) within 75 days after the end of the
first three quarters of each fiscal year, copies of
the quarterly unaudited condensed consolidated
statements of operations and quarterly unaudited
condensed consolidated balance sheets of the Company
and any material subsidiaries; and
(ii) within 120 days after the close of each
fiscal year, appropriate consolidated financial
statements as of the close of such fiscal year for
the Company and any material subsidiary which shall
be opined to by a nationally recognized firm of
independent public accountants in such form as to
disclose the Company's consolidated financial
condition and the consolidated results of its
operations for such fiscal year.
(m) For five years after the date hereof, the Company will
furnish to the Representatives (i) concurrently with furnishing such
reports to its shareholders, the reports described in Section 5(l)
hereof; (ii) as soon as they are available, copies of all other reports
(financial or otherwise) mailed to security holders generally; and
(iii) as soon as they are available, copies of all reports and
financial statements furnished to, or filed with, the Commission, the
NASD, any securities exchange or any state securities commission by the
Company. During such period, the foregoing financial statements shall
be on a consolidated basis to the extent that the accounts of the
Company and any subsidiary or subsidiaries are consolidated and shall
be accompanied by similar financial statements for any significant
subsidiary which is not so consolidated.
(n) For a period of at least three years after the effective
date of the Registration Statement, the Company will continue to file
with the Commission all reports and other documents as may be required
by Section 13 or 15(d) of the Exchange Act.
6. Expenses. The Company will pay all costs and expenses incident to
the performance of the obligations of the Company under this Agreement, whether
or not the transactions contemplated herein are consummated or this Agreement is
terminated pursuant to Section 11 hereof, including all costs and expenses
incident to (i) the printing or other reproduction of documents with respect to
the transactions, including any costs of printing the registration statement
originally filed with respect to the Securities and any amendment thereto, any
Preliminary Prospectus and the Prospectus and any amendment or supplement
thereto, this Agreement, the Agreement Among Underwriters, Selected Dealers
Agreement, Underwriter's Questionnaire and Underwriter's Power of Attorney and
any blue sky memoranda, (ii) all arrangements relating to the delivery to the
Underwriters of copies of the foregoing documents, (iii) the fees and
disbursements of the counsel, accountants and any other experts or advisors
retained by the Company, (iv)
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preparation, issuance and delivery to the Underwriters of any certificates
evidencing the Securities, including transfer agent's and registrar's fees, (v)
the qualification of the Securities under state securities and blue sky laws,
including filing fees and fees and disbursements of counsel for the Underwriters
relating thereto, (vi) the filing fees of the Commission, the NYSE and the NASD
relating to the Securities, (vii) the quotation of the Securities on the NYSE,
and (viii) expenses of Company personnel in connection with their attendance at
meetings with prospective investors in the Securities. If the sale of the
Securities provided for herein is not consummated because any condition to the
obligations of the Underwriters set forth in Section 9 hereof is not satisfied,
because this Agreement is terminated pursuant to Section 13(a)(i) or 13(a)(ii)
hereof or because of any failure, refusal or inability on the part of the
Company to perform all obligations and satisfy all conditions on its part to be
performed or satisfied hereunder other than by reason of a default by any of the
Underwriters, the Company will reimburse the Representatives upon demand for all
out-of-pocket expenses (including reasonable fees and reasonable disbursements
of counsel) that shall have been incurred by the Representatives in connection
with the proposed purchase and sale of the Securities. The Company shall not in
any event be liable to any of the Underwriters for the loss of anticipated
profits from the transactions covered by this Agreement.
7. Conditions of the Underwriters' Obligations. The obligations of the
several Underwriters to purchase and pay for the Firm Securities shall be
subject, in the Representatives' sole discretion, to the accuracy of the
representations and warranties of the Company contained herein as of the date
hereof and as of the Firm Closing Date as if made on and as of the Firm Closing
Date, to the accuracy of the statements of the Company's officers made pursuant
to the provisions hereof, to the performance by the Company of its covenants and
agreements hereunder and to the following additional conditions:
(a) The Prospectus and any amendment or supplement thereto
approved by the Underwriters pursuant to Section 5(a) hereof shall have
been filed with the Commission in the manner and within the time period
required by Rule 424(b) under the Act; no stop order suspending the
effectiveness of the Registration Statement or any post-effective
amendment thereto and no order directed at any document incorporated by
reference in the Registration Statement or the Prospectus or any
amendment or supplement thereto shall have been issued and no
proceedings for that purpose shall have been instituted or threatened
or, to the knowledge of the Company or the Representatives, shall be
contemplated by the Commission; and the Company shall have complied
with any request of the Commission for additional information (to be
included in the Registration Statement or the Prospectus or otherwise).
(b) The Representatives shall have received an opinion, dated
the Firm Closing Date, of Streich Lang, P.A., counsel for the Company,
to the effect that:
(i) the Company and each of its subsidiaries have
been incorporated and are validly existing as corporations in
good standing under the laws of their respective jurisdictions
of incorporation and are duly qualified to transact business
as foreign corporations and are in good standing under the
laws of all other jurisdictions where they own or lease real
property, maintain an office or otherwise transact business,
except where the failure to be so qualified does not amount to
a material liability or disability to the Company and its
subsidiaries, taken as a whole;
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<PAGE> 14
(ii) the Company and each of its subsidiaries have
the corporate power and authority to own or lease their
respective properties and conduct their respective businesses
as described in the Registration Statement and the Prospectus,
and the Company has the corporate power and authority to enter
into this Agreement and to carry out all the terms and
provisions hereof to be carried out by it;
(iii) the issued shares of capital stock of each
subsidiary have been duly authorized and validly issued, are
fully paid and nonassessable and, except as described in the
Registration Statement and the Prospectus, are owned of
record, and, to such counsel's knowledge (relying upon a
certificate of an officer of the Company and a review of the
stock transfer ledger of each such subsidiary), beneficially,
by the Company, free and clear of any perfected security
interests or, to the knowledge of such counsel, any other
security interests, liens, encumbrances, equities or claims
and no options, warrants or other rights to purchase,
agreements or other obligations to issue or other rights to
convert any obligations into any shares of capital stock or
ownership interests in any such subsidiary are outstanding;
(iv) the Company has an authorized capitalization as
set forth in the Prospectus and the Securities to be issued by
the Company have been duly authorized by all necessary
corporate action of the Company and, when issued and delivered
to and paid for by the Underwriters pursuant to this
Agreement, will be validly issued, fully paid and
nonassessable; the certificates for the Securities are in due
and proper form under Arizona law and the pertinent rules of
the NYSE; the Securities have been duly authorized for
quotation on the NYSE; no holders of outstanding shares of
capital stock of the Company are entitled as such to any
preemptive or other rights to subscribe for or purchase any of
the Securities; and to the knowledge of such counsel, no
holders of securities of the Company are entitled to have such
securities registered under the Registration Statement or, by
reason of the filing of the Registration Statement, have the
right to request the Company to register their securities
under the Act, except as waived by the holder or described in
the Registration Statement and the Prospectus;
(v) the statements set forth under the headings
["Business-Defense Contracts,"] "Management-Stock Options,"
["Certain Relationships and Related Transactions-Limitation on
Liability of Directors,]" and "Description of Securities" in
the Prospectus are accurate summaries and fairly and correctly
in all material respects present the information called for
with respect to such matters;
(vi) the execution, delivery and performance of this
Agreement have been duly authorized by all necessary corporate
action of the Company, and this Agreement has been duly
executed and delivered by the Company; and this Agreement
constitutes a valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms
(such opinion may be rendered subject to the effect of
bankruptcy and other laws of general application affecting the
rights and remedies of creditors and to general principles of
equity, and no opinion need be given as to the availability of
equitable remedies or as to the enforceability of the
provisions of Section 8 hereof);
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<PAGE> 15
(vii) other than as disclosed in the Registration
Statement or Prospectus, in the course of such counsel's
engagement to represent the Company and any of its
subsidiaries professionally, such counsel has not become aware
of any pending legal or governmental proceedings to which the
Company or any of its subsidiaries is a party or to which any
property of any of them is subject that, if determined
adversely to the Company or any subsidiary, would have a
material adverse effect on the Company and its subsidiaries
taken as a whole, nor has such counsel become aware of a
threat of any such proceedings by governmental authorities or
others, nor is such counsel aware of any contracts or
documents of a character required to be described in the
Registration Statement or the Prospectus or to be filed as
exhibits to the Registration Statement that are not described
and filed as required (except that such counsel need not
express any belief, comment or opinion as to the financial
statements, notes or schedules or other financial or
statistical data or information in the Registration Statement
or the Prospectus), and such contracts and documents as are
summarized in the Registration Statement or the Prospectus are
fairly summarized in all material respects;
(viii) the compliance by the Company with the
provisions of this Agreement and the consummation of the
transactions herein contemplated do not (A) require the
consent, approval, authorization, registration or
qualification of or with any governmental authority, except
such as have been obtained and such as may be required under
state securities or blue sky laws or applicable regulations of
the NASD or (B) conflict with or result in a material breach
or violation of any of the terms and provisions of, or
constitute a default under, (1) any indenture, mortgage, deed
of trust, lease or other agreement or instrument, known to
such counsel, to which the Company or any of its subsidiaries
is a party or by which the Company or any of its subsidiaries
or any of their respective properties are bound, (2) the
articles of incorporation or bylaws of the Company or any of
the Subsidiaries, (3) any statute, rule or regulation or (4)
any judgment, decree or order of any court or other
governmental authority or any arbitrator known to such counsel
and applicable to the Company or any of its subsidiaries;
(ix) other than as described in the Registration
Statement or the Prospectus, in the course of such counsel's
engagement to represent the Company and any of its
subsidiaries professionally, such counsel has not become aware
that any subsidiary of the Company is currently prohibited,
directly or indirectly, from paying any dividends to the
Company, from making any other distribution on such
subsidiary's capital stock, from repaying to the Company any
loans or advances to such subsidiary from the Company, or from
transferring any of such subsidiary's property or assets to
the Company or any other subsidiary of the Company;
(x) other than as disclosed in the Registration
Statement or the Prospectus, in the course of such counsel's
engagement to represent the Company and any of its
subsidiaries professionally, such counsel has not become aware
that the Company or any of its subsidiaries are in default, or
that any event has occurred which with the giving of notice or
the lapse of time or both would constitute such a default,
with respect to any statute, order, rule, regulation,
indenture, mortgage, deed of trust,
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<PAGE> 16
note agreement or other agreement or instrument certified by
the Company to such counsel as material to the Company (and
such counsel advises the Representatives that they are not
aware of any other material agreements or instruments to which
the Company or any of its subsidiaries is a party or by which
any of them is bound) and where such default would expose the
Company and the subsidiaries, taken as a whole, to substantial
monetary damages or penalties or would otherwise have a
material adverse effect on the Company and its subsidiaries,
taken as a whole;
(xi) the Registration Statement has become effective
under the Act; any required filing of the Prospectus and any
Preliminary Prospectus pursuant to Rule 424(b) has been made
in the manner and within the time period required by Rule
424(b); and no stop order suspending the effectiveness of the
Registration Statement or any post-effective amendment thereto
has been issued, and to such counsel's best knowledge no
proceedings for that purpose have been instituted or
threatened or are contemplated by the Commission; and
(xii) the registration statement originally filed
with respect to the Securities and each amendment thereto and
the Prospectus (not including the financial statements, notes,
schedules or other financial and statistical data or
information contained therein, as to which such counsel need
express no opinion), as of its respective effective or issue
date, as applicable, on its face complied as to form in all
material respects with the applicable requirements of the Act
and the Exchange Act and the respective rules and regulations
of the Commission thereunder.
(xiii) the Company has filed with the Commission a
Registration Statement on Form 8-A which has become effective
under the Exchange Act with respect to the Common Stock.
Such counsel shall also state that they have participated in conferences with
officers of the Company, the independent accountants for the Company, and
counsel for and the Representatives of the Underwriters in connection with the
preparation of the Registration Statement and Prospectus and have considered the
matters required to be stated therein and the statements contained or
incorporated by reference therein, although such counsel shall not be required
to have independently verified the accuracy, completeness or fairness of such
statements. Such counsel shall advise the Representatives that, on the basis of
the foregoing, no facts have come to such counsel's attention that have caused
such counsel to believe that the Registration Statement (exclusive of the
financial statements, notes and schedules and other financial and statistical
information or data included therein, as to which such counsel need express no
belief or comment), at the time it became effective or at the time of any
post-effective amendment thereto, contained an untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, or that the Prospectus (exclusive of the
financial statements, notes and schedules and other financial and statistical
information or data included therein, as to which such counsel need express no
belief or comment), on the date thereof or as of the Firm Closing Date,
contained or contains an untrue statement of material fact or omitted or omits
to state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
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<PAGE> 17
In rendering such opinion, such counsel may rely (A) as to matters of
fact, to the extent such counsel deems proper, on certificates of executive
officers of the Company and public officials, and (B) as to matters involving
the application of laws of any jurisdiction other than the State of Arizona and
the United States, to the extent satisfactory in form and scope to counsel for
the Underwriters, upon the opinion of local counsel for the Company.
References to the Registration Statement and the Prospectus in this
paragraph (b) shall include any amendment or supplement thereto at the date of
such opinion.
(c) The Representatives shall have received an opinion, dated
the Firm Closing Date, of O'Connor, Cavanagh, Anderson, Killingsworth &
Beshears, a professional association, counsel for the Underwriters,
with respect to the issuance and sale of the Firm Securities, the
Registration Statement and the Prospectus, and such other related
matters as the Representatives may reasonably require, and the Company
shall have furnished to such counsel such documents as they may
reasonably request for the purpose of enabling them to pass upon such
matters.
(d) The Representatives shall have received from Deloitte &
Touche LLP a letter or letters dated, respectively, the date hereof and
the Firm Closing Date, in form and substance satisfactory to the
Representatives, to the effect that:
(i) they are independent accountants with respect to
the Company and its subsidiaries within the meaning of the
Act, the Exchange Act and the applicable rules and regulations
thereunder;
(ii) in their opinion, the audited consolidated
financial statements and schedules examined by them and
included and incorporated by reference in the Registration
Statement and the Prospectus comply in form in all material
respects with the applicable accounting requirements of the
Act and the related published rules and regulations
thereunder;
(iii) on the basis of a reading of the latest
available unaudited consolidated financial statements of the
Company and its consolidated subsidiaries, carrying out
certain specified procedures (which do not constitute an
examination made in accordance with generally accepted
auditing standards) that would not necessarily reveal matters
of significance with respect to the comments set forth in this
paragraph (iii), a reading of the minute books of the
shareholders, the board of directors and any committees
thereof of the Company and each of its consolidated
subsidiaries, and inquiries of certain officials of the
Company and its consolidated subsidiaries who have
responsibility for financial and accounting matters, nothing
came to their attention that caused them to believe that:
(A) the unaudited consolidated financial
statements of the Company and its subsidiaries
included and incorporated by reference in the
Registration Statement and the Prospectus do not
comply in form in all material respects with the
applicable accounting requirements of the Act, the
Exchange Act and the related published rules and
regulations thereunder, or
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<PAGE> 18
are not in conformity with generally accepted
accounting principles applied on a basis
substantially consistent with that of the audited
consolidated financial statements included and
incorporated by reference in the Registration
Statement and the Prospectus; and
(B) at a specific date not more than five
business days prior to the date of such letter, there
were any changes in the capital stock or long-term
debt of the Company and its consolidated subsidiaries
or any decreases in total assets, net current assets
or shareholders' equity of the Company and its
consolidated subsidiaries, in each case compared with
amounts shown on the December 31, 1996 audited
consolidated balance sheet included and incorporated
by reference in the Registration Statement and the
Prospectus, or for the period from January 1, 1997 to
such specified date there were any decreases, as
compared with the comparable period commencing
January 1, 1996, in revenues, income from operations,
net income or net income per common share, of the
Company and its consolidated subsidiaries, except in
all instances for changes, decreases or increases set
forth in such letter or in the Registration
Statement; and
(iv) they have carried out certain specified
procedures, not constituting an audit, with respect
to certain amounts, percentages and financial
information that are derived from the general
accounting records of the Company and its
consolidated subsidiaries and are included in the
Registration Statement and the Prospectus under the
captions "Prospectus Summary," "Use of Proceeds,"
"Capitalization," "Selected Consolidated Financial
Data," "Management's Discussion and Analysis of
Financial Condition and Results of Operations,"
"Business," "Management," "Principal Shareholders,"
"Description of Securities" and "Shares Eligible for
Future Sale," and have compared such amounts,
percentages and financial information with such
records of the Company and its consolidated
subsidiaries and with information derived from such
records and have found them to be in agreement,
excluding any questions of legal interpretation;
(v) although they are unable to and do not
express an opinion on the unaudited pro forma
condensed earnings information (the "Pro Forma
Earnings Information") included in the Registration
Statement or the Prospectus, they have (A) read the
Pro Forma Earnings Information, (B) made inquiries of
certain officials of the Company who have
responsibility for financial and accounting matters
about the basis for their determination of the pro
forma adjustments to the historical amounts in the
Pro Forma Earnings Information and whether the Pro
Forma Earnings Information comply in form in all
material respects with the applicable accounting
requirements of Rule 11-02 of Regulation S-X; and (C)
proved the arithmetic accuracy of the application of
the pro forma adjustments to the historical amounts
in the Pro Forma Earnings Information; on the basis
of such procedures, and such other inquiries and
procedures as may be specified in such letter,
nothing came to their attention that caused them to
believe that
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<PAGE> 19
the Pro Forma Earnings Information do not comply in
form in all material respects with the applicable
requirements of Rule 11-02 of Regulation S-X and that
the pro forma adjustments have not been properly
applied to the historical amounts in the compilation
of such statements.
In the event that the letters referred to above set forth any such
changes, decreases or increases, it shall be a further condition to the
obligations of the Underwriters that (A) such letters shall be accompanied by a
written explanation of the Company as to the significance thereof, unless the
Representatives deem such explanation unnecessary, and (B) such changes,
decreases or increases do not, in the sole judgment of the Representatives, make
it impractical or inadvisable to proceed with the purchase and delivery of the
Securities as contemplated by the Registration Statement, as amended as of the
date hereof.
References to the Registration Statement and the Prospectus in
this paragraph (d) with respect to either letter referred to above
shall include any amendment or supplement thereto at the date of such
letter.
(e) The Representatives shall have received a certificate,
dated the Firm Closing Date, of the President and the Chief Financial
Officer of the Company to the effect that:
(i) the representations and warranties of the Company
in this Agreement are true and correct as if made on and as of
the Firm Closing Date; the Registration Statement, as amended
as of the Firm Closing Date, does not include any untrue
statement of a material fact or omit to state any material
fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, and
the Prospectus, as amended or supplemented as of the Firm
Closing Date, does not include any untrue statement of a
material fact or omit to state any material fact necessary in
order to make the statements therein, in light of the
circumstances under which they were made, not misleading; and
the Company has performed all covenants and agreements and
satisfied all conditions on its part to be performed or
satisfied under this Agreement at or prior to the Firm Closing
Date;
(ii) no stop order suspending the effectiveness of
the Registration Statement or any post-effective amendment
thereto and no order directed at any document incorporated by
reference in the Registration Statement or the Prospectus, has
been issued, and no proceedings for that purpose have been
instituted or threatened or, to the best of the Company's
knowledge, are contemplated by the Commission; and
(iii) subsequent to the respective dates as of which
information is given in the Registration Statement and the
Prospectus, the Company and its subsidiaries, taken as a
whole, have not sustained any material loss or interference
with their respective businesses or properties from fire,
flood, hurricane, accident or other calamity, whether or not
covered by insurance, or from any labor dispute or any legal
or governmental proceeding, and there has not been any
material adverse change, or any development reasonably likely
to result in a material adverse change, in the condition
(financial or otherwise), business prospects, net worth or
results of operations of the Company and its subsidiaries,
except in each case as described in
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or contemplated by the Prospectus (exclusive of any amendment
or supplement thereto after the date hereof).
(f) The Representatives shall have received from each
executive officer and each director of the Company an agreement to the
effect that such person will not, directly or indirectly without the
prior written consent of the Representatives of the Underwriters,
offer, sell contract to sell, grant any option to purchase or otherwise
dispose of (or announce any offer, sale, grant of an option to purchase
or other disposition of) any shares of Common Stock or any securities
convertible into, or exchangeable or exercisable for shares of Common
Stock prior to 90 days from the date of the Prospectus.
(g) On or before the Firm Closing Date, the Representatives
and counsel for the Underwriters shall have received such further
certificates, documents or other information as they may have
reasonably requested from the Company.
All opinions, certificates, letters and documents delivered pursuant to
this Agreement will comply with the provisions hereof only if they are
reasonably satisfactory in all material respects to the Representatives and
counsel for the Underwriters. The Company shall furnish to the Representatives
such conformed copies of such opinions, certificates, letters and documents in
such quantities as the Representatives and counsel for the Underwriters shall
reasonably request.
The respective obligations of the several Underwriters to purchase and
pay for any Option Securities shall be subject, in their discretion, to each of
the foregoing conditions to purchase the Firm Securities, except that all
references to (i) the Firm Securities and (ii) the Firm Closing Date shall be
deemed to refer to (i) such Option Securities and (ii) the related Option
Closing Date, respectively.
8. Indemnification and Contribution.
(a) The Company agrees to indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter
within the meaning of the Act against any losses, claims, damages or
liabilities to which such Underwriter or such controlling person may
become subject under the Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions or proceedings in respect
thereof) arise out of or are based upon (i) any untrue statement or
alleged untrue statement of any material fact contained in the
Registration Statement, any Preliminary Prospectus, the Prospectus or
any amendment or supplement thereto or any application or other
document (or amendment or supplement thereto) executed by the Company
filed in any jurisdiction to qualify the Securities under the
securities or blue sky laws thereof or filed with the Commission or any
securities association or exchange, or (ii) the omission or alleged
omission to state in the Registration Statement, any Preliminary
Prospectus, the Prospectus or any amendment or supplement thereto, a
material fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse, as incurred,
each Underwriter and each such controlling person for any legal or
other expenses reasonably incurred by such Underwriter or such
controlling person in connection with investigating, defending or
appearing as a third party witness in connection with any such loss,
claim, damage, liability, action or proceeding; provided, however, that
the Company will not be liable in any such case to the extent that
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<PAGE> 21
any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement, or omission or
alleged omission made in the Registration Statement, any Preliminary
Prospectus, the Prospectus, or such amendment or supplement, in
reliance upon and in conformity with written information furnished to
the Company by or through the Representatives specifically for use in
the preparation thereof. This indemnity agreement will be in addition
to any liability which the Company may otherwise have.
(b) Each Underwriter will indemnify and hold harmless the
Company, each of its directors, each of its officers who signed the
Registration Statement, and each person, if any, who controls the
Company within the meaning of Section 15 of the Act or Section 20 of
the Exchange Act against any losses, claims, damages or liabilities to
which the Company, any such director or officer of the Company, or any
such controlling person of the Company may become subject under the
Act, the Exchange Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or
are based upon (i) any untrue statement or alleged untrue statement of
any material fact contained in the Registration Statement or any
amendment thereto, any Preliminary Prospectus or the Prospectus or any
amendment or supplement thereto, or any Application or (ii) the
omission or the alleged omission to state therein a material fact
required to be stated in the Registration Statement or any amendment
thereto, any Preliminary Prospectus or the Prospectus or any amendment
or supplement thereto, or any Application or necessary to make the
statements therein not misleading, in each case to the extent, but only
to the extent, that such untrue statement or alleged untrue statement
or omission or alleged omission was made in reliance upon and in
conformity with written information furnished to the Company by any
Underwriter through the Representatives specifically for use therein;
and, subject to the limitation set forth immediately preceding this
clause, will reimburse, as incurred, any legal or other expenses
reasonably incurred by the Company, any such director, officer or
controlling person in connection with investigating or defending or
appearing as a third party witness in connection with any such loss,
claim, damage, liability or any action in respect thereof. This
indemnity agreement will be in addition to any liability which such
Underwriter may otherwise have.
(c) Promptly after receipt by an indemnified party under this
Section 8 of notice of the commencement of any action, such indemnified
party will, if a claim in respect thereof is to be made against the
indemnifying party under this Section notify the indemnifying party of
the commencement thereof; but the omission so to notify the
indemnifying party will not relieve the indemnifying party from any
liability which it may have to any indemnified party otherwise than
under this Section 8. In case any such action is brought against any
indemnified party, and it notifies the indemnifying party of the
commencement thereof, the indemnifying party will be entitled to
participate therein and, to the extent that it may wish, jointly with
any other indemnifying party similarly notified, to assume the defense
thereof, with counsel reasonably satisfactory to such indemnified
party; provided, however, that if the defendants in any such action
include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be one
or more legal defenses available to it and/or other indemnified parties
which are different from or additional to those available to the
indemnifying party, the indemnifying party shall not have the right to
direct the defense of such action on behalf of such indemnified party
or parties
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and such indemnified party or parties shall have the right to select
separate counsel, reasonably acceptable to the indemnifying party, to
defend such action on behalf of such indemnified party or parties.
After notice from the indemnifying party to such indemnified party of
its election so to assume the defense thereof and approval by such
indemnified party of counsel appointed to defend such action, the
indemnifying party will not be liable to such indemnified party under
this Section 8 for any legal or other expenses, other than reasonable
costs of investigation, subsequently incurred by such indemnified party
in connection with the defense thereof, unless (i) the indemnified
party shall have employed separate counsel in accordance with the
proviso to the next preceding sentence (it being understood, however,
that in connection with such action the indemnifying party shall not be
liable for the expenses of more than one separate counsel (in addition
to local counsel) in any one action or separate but substantially
similar actions in the same jurisdiction arising out of the same
general allegations or circumstances, designated by the Representatives
in the case of paragraph (a) of this Section 8 representing the
indemnified parties under such paragraph (a) who are parties to such
action or actions) or (ii) the indemnifying party has authorized in
writing the employment of counsel for the indemnified party at the
expense of the indemnifying party. After such notice from the
indemnifying party to such indemnified party, the indemnifying party
will not be liable for the costs and expenses of any settlement of such
action effected by such indemnified party without the consent of the
indemnifying party, unless such indemnified party waived its rights
under this Section 8 in writing in which case the indemnified party may
effect such a settlement without such consent.
(d) Only in circumstances in which the indemnity agreement
provided for in the preceding paragraphs of this Section 8 is
unavailable or insufficient to hold harmless an indemnified party in
respect of any losses, claims, damages or liabilities (or actions in
respect thereof), each indemnifying party, in order to provide for just
and equitable contribution, shall contribute to the amount paid or
payable to such indemnified party as a result of such losses, claims,
damages or liabilities (or actions in respect thereof) in such
proportion as is appropriate to reflect (i) the relative benefits
received by the indemnifying party or parties on the one hand and the
indemnified party on the other from the offering of the Securities or
(ii) if the allocation provided by the foregoing clause (i) is not
permitted by applicable law, not only such relative benefits but also
the relative fault of the indemnifying party or parties on the one hand
and the indemnified party on the other in connection with the
statements or omissions or alleged statements or omissions that
resulted in such losses, claims, damages or liabilities (or actions in
respect thereof). The relative benefits received by the Company on the
one hand and the Underwriters on the other shall be deemed to be in the
same proportion as the total proceeds from the offering (before
deducting expenses) received by the Company bear to the total
underwriting discounts and commissions received by the Underwriters.
The relative fault of the parties shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material
fact relates to information supplied by the Company or the
Underwriters, the parties' relative intents, knowledge, access to
information and opportunity to correct or prevent such statement or
omission, and any other equitable considerations appropriate in the
circumstances. The Company and the Underwriters agree that it would not
be equitable if the amount of such contribution were determined by pro
rata or per capita allocation (even if the Underwriters were treated as
one entity for such purpose) or by any other method of allocation that
does not take into account the equitable
22
<PAGE> 23
considerations referred to in the first sentence of this paragraph (d).
Notwithstanding any other provision of this paragraph (d), no
Underwriter shall be obligated to make contributions hereunder that in
the aggregate exceed the total public offering price of the Securities
purchased by such Underwriter under this Agreement under this Agreement
less the aggregate amount of any damages that such Underwriter has
otherwise been required to pay in respect of the same or any
substantially similar claim, and no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation. The Underwriters' obligations to
contribute hereunder are several in proportion to their respective
underwriting obligations and not joint, and contributions among
Underwriters shall be governed by the provisions of the Agreement Among
Underwriters dated the date hereof among the Representatives and the
other Underwriters. For purposes of this paragraph (d), each person, if
any, who controls an Underwriter within the meaning of Section 15 of
the Act or Section 20 of the Exchange Act shall have the same rights to
contribution as such Underwriter, and each director of the Company,
each officer of the Company who signed the Registration Statement and
each person, if any, who controls the Company within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act, shall have the
same rights to contribution as the Company.
9. Default of Underwriters. If one or more Underwriters default in
their obligations to purchase Firm Securities or Option Securities hereunder and
the aggregate number of such Securities that such defaulting Underwriter or
Underwriters agreed but failed to purchase is ten percent or less of the
aggregate number of Firm Securities or Option Securities to be purchased by all
of the Underwriters at such time hereunder, the other Underwriters may make
arrangements satisfactory to the Representatives for the purchase of such
Securities by other persons (who may include one or more of the nondefaulting
Underwriters, including the Representatives), but if no such arrangements are
made by the Firm Closing Date or the related Option Closing Date, as the case
may be, the other Underwriters shall be obligated severally in proportion to
their respective commitments hereunder to purchase the Firm Securities or Option
Securities that such defaulting Underwriter or Underwriters agreed but failed to
purchase. If one or more Underwriters so default with respect to an aggregate
number of Securities that is more than ten percent of the aggregate number of
Firm Securities or Option Securities, as the case may be, to be purchased by all
of the Underwriters at such time hereunder, and if arrangements satisfactory to
the Representatives are not made within 36 hours after such default for the
purchase by other persons (who may include one or more of the non-defaulting
Underwriters, including the Representatives) of the Securities with respect to
which such default occurs, this Agreement will terminate without liability on
the part of any non-defaulting Underwriter, the Company other than as provided
in Section 10 hereof. In the event of any default by one or more Underwriters as
described in this Section 9, the Representatives shall have the right to
postpone the Firm Closing Date or the Option Closing Date, as the case may be,
established as provided in Section 3 hereof for not more than seven business
days in order that any necessary changes may be made in the arrangements or
documents for the purchase and delivery of the Firm Securities or Option
Securities, as the case may be. As used in this Agreement, the term
"Underwriter" includes any person substituted for an Underwriter under this
Section 9. Nothing herein shall relieve any defaulting Underwriter from
liability for its default.
10. Survival. The respective representations, warranties, agreements,
covenants, indemnities and other statements of the Company, its officers, and
the several Underwriters set forth
23
<PAGE> 24
in this Agreement or made by or on behalf of them, respectively, pursuant to
this Agreement shall remain in full force and effect, regardless of (i) any
investigation made by or on behalf of the Company, any of its officers or
directors, any Underwriter or any controlling person referred to in Section 8
hereof and (ii) delivery of and payment for the Securities. The respective
agreements, covenants, indemnities and other statements set forth in Sections 6
and 8 hereof shall remain in full force and effect, regardless of any
termination or cancellation of this Agreement.
11. Termination.
(a) This Agreement may be terminated with respect to the Firm
Securities or any Option Securities in the sole discretion of the
Representatives by notice to the Company and (in the case of a
termination with respect to the Firm Securities) the Attorney-in-Fact
given prior to the Firm Closing Date or the related Option Closing
Date, respectively, in the event that the Company shall have failed,
refused or been unable to perform all obligations and satisfy all
conditions on their part to be performed or satisfied hereunder at or
prior thereto or, if at or prior to the Firm Closing Date or such
Option Closing Date, respectively,
(i) the Company or any of its subsidiaries shall have
sustained any material loss or interference with their
respective businesses or properties from fire, flood,
hurricane, accident or other calamity, whether or not covered
by insurance, or from any labor dispute or any legal or
governmental proceeding or there shall have been any material
adverse change, or any development involving a prospective
material adverse change (including without limitation a change
in control of the Company), in the condition (financial or
otherwise), business prospects, net worth or results of
operations of the Company and its subsidiaries, taken as a
whole, except in each case as described in or contemplated by
the Prospectus (exclusive of any amendment or supplement
thereto after the date hereof), which, in the sole judgment of
the Representatives, makes it impractical to offer or deliver
the Firm Securities or the Option Securities, as applicable,
on the terms contemplated by the Prospectus;
(ii) trading in the Common Stock shall have been
suspended by the Commission or the NYSE;
(iii) trading in securities generally on the NYSE
shall have been suspended or minimum or maximum prices shall
have been established on such exchange or market system;
(iv) a banking moratorium shall have been declared by
New York or United States authorities; or
(v) there shall have been (A) an outbreak or
escalation of hostilities between the United States and any
foreign country, (B) an outbreak or escalation of any other
insurrection or armed conflict involving the United States or
(C) any other calamity or crisis having an effect on the
financial markets that, in any case referred to in this clause
(v), in the sole judgment of the Representatives, makes it
impracticable or inadvisable to proceed with the public
offering or the delivery of the
24
<PAGE> 25
Securities as contemplated by the Registration Statement, as
amended as of the date hereof.
(b) Termination of this Agreement pursuant to this Section 11
shall be without liability of any party to any other party except as
provided in Section 10 hereof.
12. Information Supplied by Underwriters. The statements set forth in
the last paragraph on the front cover page and under the heading "Underwriting'
in any Preliminary Prospectus or the Prospectus (to the extent such statements
relate to the Underwriters) constitute the only information furnished by any
Underwriter through the Representatives to the Company for the purposes of
Sections 2(b), 8(a), and 8(b) hereof. The Underwriters confirm that such
statements (to such extent) are correct.
13. Notices. All communications hereunder shall be in writing and, if
sent to any of the Underwriters, shall be mailed or delivered or telegraphed and
confirmed in writing to H.D. Brous & Co., Inc., 2700 No. Central Avenue, Suite
1250, Phoenix, Arizona 85004, Attention: Scott Miller, Syndicate Department; and
if sent to the Company, shall be mailed, delivered or telegraphed and confirmed
in writing to the Company at 2700 No. Central Avenue, Suite 1000, Phoenix,
Arizona 85004, Attention: Donald W. Townsend, President.
14. Successors. This Agreement shall inure to the benefit of and shall
be binding upon the several Underwriters, the Company and their respective
successors and legal representatives, and nothing expressed or mentioned in this
Agreement is intended or shall be construed to give any other person any legal
or equitable right, remedy or claim under or in respect of this Agreement, or
any provisions herein contained, this Agreement and all conditions and
provisions hereof being intended to be and being for the sole and exclusive
benefit of such persons and for the benefit of no other person except that (i)
the indemnities of the Company contained in Section 8 of this Agreement shall
also be for the benefit of any person or persons who control any Underwriter
within the meaning of Section 15 of the Act or Section 20 of the Exchange Act
and (ii) the indemnities of the Underwriters contained in Section 8 of this
Agreement shall also be for the benefit of the directors of the Company, the
officers of the Company who have signed the Registration Statement, and any
person or persons who control the Company within the meaning of Section 15 of
the Act or Section 20 of the Exchange Act. No purchaser of Securities from any
Underwriter shall be deemed a successor because of such purchase.
15. APPLICABLE LAW. THE VALIDITY AND INTERPRETATION OF THIS AGREEMENT,
AND THE TERMS AND CONDITIONS SET FORTH HEREIN, SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT
TO ANY PROVISIONS RELATING TO CONFLICTS OF LAWS.
16. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
25
<PAGE> 26
If the foregoing correctly sets forth our understanding, please
indicate your acceptance thereof in the space provided below for that purpose,
whereupon this letter shall constitute an agreement binding the Company, and
each of the several Underwriters.
Very truly yours,
SIMULA, INC.
By_______________________
Title: President
The foregoing Agreement is hereby
confirmed and accepted as of the date
first above written.
H.D. BROUS & CO., INC.
BREAN MURRAY & CO., INC.
L.H. FRIEND, WEINRESS, FRANKSON & PRESSON, INC.
By: H.D. BROUS & CO., INC.
By:_____________________________
Title:
As Representatives of the Underwriters
26
<PAGE> 27
SCHEDULE 1
UNDERWRITERS
<TABLE>
<CAPTION>
Number of
Firm
Securities
to Be
Underwriters Purchased
- ------------ ---------
<S> <C>
H.D. Brous & Co., Inc...........................................................................
Brean Murray & Co, Inc.. .......................................................................
L.H. Friend, Weinress, Frankson & Presson, Inc. . ..............................................
Total................................................................................... ==========
</TABLE>
27
<PAGE> 28
LOCK-UP AGREEMENT
September ___, 1996
H.D. Brous & Co., Inc.
As Representatives of the
Several Underwriters
2700 No. Central Avenue
Suite 1250
Phoenix, Arizona 85004
Proposed Issuance of 6 1/2% Series A Convertible Exchangeable Preferred Stock
of Simula, Inc.
Dear Sirs:
I am a shareholder of Simula, Inc., an Arizona corporation (the "Company").
In consideration of your acting as underwriters for the proposed public offering
of 6 1/2% Series A Convertible Exchangeable Preferred Stock of the Company, I
hereby agree that for a period of 90 days from the date of the Prospectus
included in of the registration statement on Form S-1 relating to the public
offering, I will not, directly or indirectly, offer, issue, sell, contract to
sell, grant any options to purchase or otherwise dispose of (or announce any
offer, issuance, sale, grant of an option to purchase or other disposition of)
any shares of Company Common Stock or any securities convertible into, or
exchangeable or exercisable for, share of Company Common Stock, without your
prior written consent.
This agreement shall be binding on the undersigned and his respective
successors, heirs, personal representatives and assigns.
Very truly yours,
Officers/Directors/5% Shareholders
28
<PAGE> 1
Exhibit 4.3
STATEMENT PURSUANT TO ARIZONA REVISED STATUTES SECTION 10-602
FOR
$_____________ SERIES A
CONVERTIBLE PREFERRED STOCK
PAR VALUE $.05 PER SHARE
OF
SIMULA, INC.
AN ARIZONA CORPORATION
SIMULA, INC., a corporation organized and existing under the laws of
the State of Arizona, does hereby submit this Certificate of Simula, Inc.
pursuant to Arizona Revised Statutes, Section 10-602 as follows:
1. NAME: The name of this Company is:
SIMULA, INC.
2. THE RESOLUTION ESTABLISHING AND DESIGNATING A SERIES OF PREFERRED
STOCK AND FIXING AND DETERMINING THE RELATIVE POWERS, DESIGNATIONS,
PREFERENCES AND PRIVILEGES OF THE SHARES OF PREFERRED STOCK AND THE
QUALIFICATIONS, LIMITATIONS AND RESTRICTIONS THEREOF:
Attached hereto as Exhibit A and by this reference incorporated herein.
3. DATE OF THE RESOLUTION: The Resolution was duly adopted by
unanimous consent of all the Directors of the Company effective ______________,
1996.
4. ADOPTION OF RESOLUTION: The Resolution has been duly adopted by the
Company's Board of Directors and has not been amended, modified, rescinded or
superseded and remains in full force and effect.
IN WITNESS WHEREOF, the Company has caused this Certificate to be
executed, delivered and filed this ____ day of ____________, 1997.
______________________________________
DONALD W. TOWNSEND, President
______________________________________
BRADLEY P. FORST, Secretary
<PAGE> 2
ACKNOWLEDGEMENT
STATE OF ARIZONA )
) SS.
COUNTY OF MARICOPA )
On this date, before me, a Notary Public, personally appeared DONALD W.
TOWNSEND, known to me or satisfactorily proven to be the person whose name is
subscribed to this instrument, and acknowledged that he executed the same in
the capacity indicated.
---------------------------------------
Notary Public
My Commission Expires:
- ----------------------
STATE OF ARIZONA )
) SS.
COUNTY OF MARICOPA )
On this date, before me, a Notary Public, personally appeared BRADLEY
P. FORST, known to me or satisfactorily proven to be the person whose name is
subscribed to this instrument, and acknowledged that he executed the same in
the capacity indicated.
---------------------------------------
Notary Public
My Commission Expires:
- ----------------------
- 2 -
<PAGE> 3
EXHIBIT A
RESOLUTION OF BOARD OF DIRECTORS OF SIMULA, INC.
PURSUANT TO ARIZONA REVISED STATUTES, SECTION 10-602
BE IT RESOLVED, that pursuant to the authority expressly granted and
vested in the Board of Directors of Simula, Inc. ("Company") by the Articles of
Incorporation, a series of serial Preferred Stock of the Company be and hereby
is created, as to which the terms of issuance and the powers, designations,
preferences and relative, participating, optional or other rights, and the
qualifications, limitations or restrictions thereof shall be as follows:
A. DESIGNATION
The distinctive serial designation of the series is $ Series A
Convertible Exchangeable Preferred Stock, par value $.05 per share
("Convertible Preferred Stock").
B. NUMBER OF SHARES IN SERIES
The number of authorized shares of Convertible Preferred Stock created
hereby shall be 1,380,000 shares.
C. CONSIDERATION FOR ISSUANCE
The Convertible Preferred Stock shall be issued by the Company from
time to time, in the discretion of the Board of Directors. The Convertible
Preferred Stock shall be offered and sold by the Company for a price of $
per share, payable as determined by the Board of Directors of the Company from
time to time in its sole discretion. Upon the issuance of the shares of
Convertible Preferred Stock, such shares shall be fully paid and
non-assessable.
D. DIVIDENDS
Holders of shares of Convertible Preferred Stock will be entitled to
receive, when and as declared by the Board of Directors of the Company out of
assets of the Company legally available for payment, a cumulative cash dividend
equal to $ per share. Dividends accrue from the date of original
issuance and are payable quarterly on the 30th day of January, April, July, and
October of each year (or if such day is not a business day, on the next
succeeding business day), commencing July 30, 1997, to the person in whose name
the Convertible Preferred Stock is registered at the close of business on the
15th day of the month of such dividend payment date.
Dividends will be computed on the basis of a 360-day year of twelve
30-day months, with each dividend payment to be rounded to the nearest whole
cent. Dividends on the Convertible Preferred Stock will cumulate to the extent
they are not paid on the dividend payment date for the period for which they
- 1 -
<PAGE> 4
accrued whether or not the Company has earnings, whether or not there are funds
legally available for the payment of such dividends and whether or not such
dividends are declared. Dividends will be cumulative from the issue date.
Accrued dividends, whether current or in arrears, are payable on Convertible
Preferred Stock that is converted into Common Stock only if such dividend has
been declared and is payable as of a record date prior to the Conversion Date,
as hereinafter defined.
No dividends shall be declared or paid or set apart for payment on
Common Stock, or the preferred stock of any series ranking, as to dividends,
junior to the Convertible Preferred Stock for any period unless full cumulative
dividends have been or contemporaneously are declared and paid (or declared and
a sum sufficient for the payment thereof set apart for payment) on the
Convertible Preferred Stock for all dividend payment periods terminating on or
prior to the date of payment of such dividends. When dividends are not paid in
full upon the Convertible Preferred Stock and any other preferred stock ranking
on a parity as to dividends with the Convertible Preferred Stock, all dividends
declared upon such shares of Convertible Preferred Stock and other stock
ranking on a parity shall be declared pro rata so that in all cases the amount
of dividends declared per share on the Convertible Preferred Stock and such
other preferred stock shall bear to each other the same ratio that accumulated
dividends per share on the shares of Convertible Preferred Stock and such other
preferred stock bear to each other.
E. REDEMPTION
If not earlier converted, exchanged, or redeemed, the Preferred Stock
may be redeemed upon at least 30 days' notice, at the Company's option, in
whole or in part on a pro rata basis, on and after , 1999, at
the following redemption prices if redeemed during the twelve-month period
beginning of the year indicated below, in each case together
with accrued dividends payable thereon to the redemption date:
YEAR PRICE PER SHARE
---- ---------------
1999..........................
2000..........................
2001..........................
2002..........................
2003..........................
However, on or after , 1999 and prior to ,
2000, the Preferred Stock will not be redeemable unless the last reported sale
price of the Company's Common Stock as quoted on the NYSE has equaled or
exceeded $ for 20 trading days within a period of 30 consecutive trading
days.
Within 30 days following the occurrence of any Change of Control, as
hereinafter defined, the Company shall offer ("Change of Control Offer") to
purchase all outstanding Convertible Preferred Stock at a purchase price of
$________ per share plus accrued and unpaid dividends to the date of the
Change of Control Offer. The Change of Control Offer shall be deemed to have
commenced upon mailing of notice to the holders of Convertible Preferred Stock
and shall terminate twenty (20) business days after its
-2-
<PAGE> 5
commencement, unless a longer offering period is then required by law. Promptly
after the termination of the Change of Control Offer ("Change of Control
Payment Date"), the Company shall purchase and mail or deliver payment for all
shares tendered in response to the Change of Control Offer. If the Change of
Control Payment Date is on or after a dividend payment record date and on or
before the related dividend payment date, any accrued and unpaid dividends will
be paid to the Person in whose name a share is registered at the close of
business on such record date, and no additional dividends will be payable to
holders who tender shares pursuant to the Change of Control Offer.
Change of Control means any event or series of events by which (i) any
Person as such term is used in Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended ("Exchange Act") is or becomes the "beneficial
owner," as defined in Rules 13d-3 and 13d-5 under the Exchange Act of 50% of
more of the total voting power of the voting stock of the Company; (ii) the
Company consolidates with or merges or amalgamates with or into another Person
or conveys, transfers, or leases all or substantially all of its assets to any
Person, or any Person consolidates with, or merges or amalgamates with or into
the Company, in any such event pursuant to the transaction in which the
outstanding voting stock of the Company is changed into or exchanged for cash,
securities or other property, other than any such transaction where (A) the
outstanding voting stock of the Company is changed or exchanged for voting
stock of the surviving corporation and (B) the holders of the voting stock of
the Company immediately prior to such transaction own, directly or indirectly,
not less than a majority of the voting stock of the surviving corporation
immediately after such transaction; or (iii) the shareholders of the Company
approve any plan of liquidation or dissolution of the Company.
The Convertible Preferred Stock may not be redeemed when the capital of
the Company is impaired or such redemption would cause an impairment of capital,
except that the Company may purchase or redeem out of capital any shares of
Convertible Preferred Stock which are entitled upon any distribution of its
assets, whether by dividend or in liquidation, to a preference over another
class or series of its stock if such shares of Convertible Preferred Stock are
retired upon their acquisition and the capital of the Company is reduced. In
addition, in the event that any quarterly dividend due on the Convertible
Preferred Stock is in default, and until all such defaults are cured, the
Company may not redeem any shares of Convertible Preferred Stock unless all
outstanding shares of such series are simultaneously redeemed and may not
purchase or acquire any shares of Convertible Preferred Stock, except in
accordance with a purchase offer made by the Company on the same terms to all
holders of such series.
- 3 -
<PAGE> 6
If fewer than all shares of Convertible Preferred Stock are to be
redeemed, the Company will select those to be redeemed pro rata, as nearly as
practicable, or by lot. The Company may, in its sole discretion, chose to
redeem all or a portion of those shares of Convertible Preferred Stock
evidenced by certificates for less than 100 shares before redeeming any shares
evidenced by certificates of 100 shares or more. The Convertible Preferred
Stock is not subject to any mandatory redemption, sinking fund or similar
provisions. Any shares of Convertible Preferred Stock which are redeemed shall
assume the status of authorized but unissued Convertible Preferred Stock.
F. CONVERSION
Each share of the Convertible Preferred Stock is convertible at any
time after the date of its issue, unless previously redeemed, at the option of
the holder thereof, into ______ shares of the Company's Common Stock
("Conversion Rate"), equivalent to a conversion price of $______ per share of
Common Stock, subject to adjustment upon the occurrence of certain events set
forth below. A holder of Convertible Preferred Stock may convert his shares by
surrendering to the conversion agent designated by the Company each certificate
covering shares to be converted together with a statement of the name or names
in which the shares of Common Stock shall be registered upon issuance (the date
of such surrender, "Conversion Date"). Every such notice of election to convert
shall constitute a contract between the holder giving such notice and the
Company whereby such holder shall be deemed to subscribe for the shares of
Common Stock he will be entitled to receive upon such conversion and, in
payment and satisfaction of such subscription, to surrender the shares of
Convertible Preferred Stock to be converted and to release the Company from all
further obligation thereon and whereby the Company shall be deemed to accept
the surrender of such shares of Convertible Preferred Stock in full payment of
the shares of Common Stock so subscribed for and to be issued upon such
conversion. As promptly as practicable after the Conversion Date, the Company
shall issue and deliver to the converting holder of the Convertible Preferred
Stock a certificate representing the number of shares of Common Stock into which
the Convertible Preferred Stock was converted together with dividends, if any,
payable on the Convertible Preferred Stock so converted as may be declared and
made payable to holders of record of Convertible Preferred Stock on the record
date immediately preceding the Conversion Date. If a holder of Convertible
Preferred Stock elects to convert only a portion of his Convertible Preferred
Stock, upon such conversion the Company shall also deliver to the holder of the
Convertible Preferred Stock, a new Convertible Preferred Stock certificate
representing his unconverted Convertible Preferred Stock. All dividends
accumulated and unpaid up to the dividend payment date immediately preceding
the date of conversion shall constitute a debt of the Company to the converting
holder and must be paid in full, by payment in cash, to the holder prior to the
declaration and payment of any other dividend or distribution by the Company
with respect to its Common Stock or distribution by the Company with respect to
any other series of preferred stock ranking on a parity with the Convertible
Preferred Stock.
- 4 -
<PAGE> 7
Fractional Shares will not be issued upon conversion. In lieu of
fractional shares, holders of Convertible Preferred Stock will be paid, at the
time of conversion, an amount of cash equal to the same fraction of the current
market value of a share of Common Stock on the Conversion Date. The current
market value will be deemed the closing price of the Common Stock on the NYSE
on the last trading day preceding the Conversion Date.
The Conversion Rate is subject to adjustment upon the occurrence of
certain events, including the issuance of shares of Common Stock or other
securities of the Company as a dividend or distribution on shares of Common
Stock of the Company to the holders of all of its outstanding shares of Common
Stock; subdivisions, combinations, or certain reclassifications of shares of
Common Stock of the Company (in which case, the holder of each share of
Convertible Preferred Stock shall thereafter be entitled to receive upon the
conversion of such share the number of shares of Common Stock or other class or
series of shares of the Company as he would have been entitled to receive had
shares of Convertible Preferred Stock held by him been converted immediately
prior to the record date applicable to such event described above, such
adjustment to become effective immediately after the opening of business
following such record date or the day upon which such subdivision, combination,
recapitalization or reclassification becomes effective); the issuance of shares
of Common Stock of the Company or of rights, options, or warrants to
subscribe for or purchase shares of Common Stock of the Company at less than the
effective conversion price of the Convertible Preferred Stock, exclusive of the
Company's shares of Common Stock, options, rights, or warrants issued to
employees, officers, and directors; or the distribution to the holders of shares
of Common Stock of the Company generally of evidences of indebtedness or assets
(excluding cash dividends and distributions made out of current or retained
earnings) or rights, options, or warrants to subscribe for securities of the
Company other than those mentioned above. No adjustment in the Conversion Rate
will be required to be made with respect to the Convertible Preferred Stock
until cumulative adjustments amount to one percent (1%) or more; however, any
such adjustment not required to be made will be carried forward and taken into
account in any subsequent adjustment. No accrued and unpaid cumulative dividends
will be paid upon conversion of the Convertible Preferred Stock unless the
conversion occurs after the record date for such dividend.
In the event of any consolidation with or merger of the Company into
another corporation, or sale of all or substantially all of the properties and
assets of the Company to any other corporation or person, or in case of any
reorganization of the Company, each share of Convertible Preferred Stock shall
thereupon become convertible only into the number of shares of stock or other
securities, assets or cash to which a holder of the number of shares of Common
Stock of the Company issuable (at the time of such consolidation, merger, sale
or reorganization) upon conversion of such share of Convertible Preferred
Stock would have been entitled upon such consolidation, merger, sale or
reorganization and shall have no other conversion rights; in any such event,
effective provision shall be made, in the articles of incorporation of the
resulting or surviving corporation or otherwise, so that the provisions set
forth herein for the protection of the conversion rights of the Convertible
Preferred Stock shall thereafter be applicable to any such other shares of
stock, other securities, cash or property deliverable upon conversion of the
shares of the Convertible Preferred Stock remaining outstanding or other
convertible stock or securities received by the holders in place thereof, and
any such resulting or surviving corporation shall expressly assume the
obligation to deliver, upon the exercise of the conversion privilege, such
shares, other securities, cash or property as the holders of the Convertible
Preferred Stock remaining outstanding, or other convertible stock or securities
received by the holders in place thereof, shall be entitled to receive
pursuant to the provisions hereof, and to make provision for the protection of
the conversion right as above provided.
The Company shall at all times reserve and keep available free from
preemptive rights, out of its authorized but unissued Common Stock, for the
purpose of effecting the conversion of shares of
- 5-
<PAGE> 8
Convertible Preferred Stock, the full number of shares of Common Stock then
deliverable upon the conversion of all shares of Convertible Preferred Stock
then outstanding.
In the event the Company determines (i) to pay a dividend or make a
distribution to holders of its Common Stock in assets other than cash, shares of
Common Stock or a security convertible into shares of Common Stock; (ii) to
declare a cash dividend upon its Common Stock, or (iii) to offer for
subscription to the holders of its Common Stock any additional shares of its
capital stock of any class or any rights, the Company shall advise the holders
of the Convertible Preferred Stock of the record date applicable to such event
not less than 30 days prior to such record date.
G. EXCHANGE
At the Company's option, all, but not less than all, of the then
outstanding shares of the Preferred Stock may be exchanged on any dividend
payment date commencing , subject to certain conditions stated below, for
the Company's % Senior Subordinated Convertible Exchange Notes due
"Exchange Notes") on not less than 30 days nor more than 60 days notice
preceding the dividend payment date, at an exchange rate of $ principal
amount of Exchange Notes for each share of the Preferred Stock. Concurrent with
such notice of the Company's exercise of its exchange option, the Company will
provide information regarding the procedure for tendering shares to the Company
or Trustee in exchange for Exchange Notes. Such exchange may be made only if, at
the time of exchange (i) the Company's Exchange Indenture shall have been
qualified under the Trust Indenture Act of 1939 (ii) there shall be no dividend
arrearage on the Preferred Stock (including the dividend payable on the date of
exchange), and (iii) no Event of Default under the Exchange Indenture shall have
occurred and be continuing. The form of the Exchange Indenture may not be
amended or supplemented before the date of exchange without the affirmative vote
or consent of the holders of two-thirds of outstanding shares of the Preferred
Stock, except for those changes which would not adversely affect the legal
rights of such holders. In the event such exchange would result in the issuance
of an Exchange Note in a principal amount which is not an integral multiple of
$25, the difference between such principal amount and the highest integral
multiple of $25 shall be paid to the holder in cash. At the exchange date, the
rights of holders of the Preferred Stock shall cease and the person or persons
entitled to receive Exchange Notes issuable upon such exchange shall be treated
as the registered holder or holders of such Exchange Notes. Interest will accrue
on the Exchange Notes from the date of exchange.
H. LIQUIDATION PREFERENCE
In the event of any voluntary or involuntary liquidation, dissolution or
winding up of the Company, the holders of Convertible Preferred Stock will be
entitled to receive out of the assets of the Company available for distribution
to shareholders, before any distribution of assets is made to holders of Common
Stock or other stock of the Company ranking junior to the Convertible Preferred
Stock, liquidating distributions in the amount of $__ per share plus all accrued
and unpaid Dividends. If upon any voluntary or involuntary liquidation,
dissolution or winding up of the Company, the amounts payable with respect to
the Convertible Preferred Stock and any other shares of stock of the Company
ranking as to any such distribution on a parity with the Convertible Preferred
Stock are not paid in full, the holders of the Convertible Preferred Stock and
of such other shares will share ratably in any such distribution of assets of
the Company in proportion to the full respective preferential amounts to which
they are entitled. After payment of the full amount of the liquidating
distribution to which they are entitled, the holders of shares of Convertible
Preferred Stock will not be entitled to any further participation in any
distribution of assets of the Company. The foregoing liquidation rights shall
not be operative in the event of (i) any consolidation or merger of the Company
with or into any other corporation, (ii) any dissolution, liquidation, winding
up or reorganization of the Company immediately followed by reincorporation of a
successor corporation or creation of a successor partnership, or (iii) a sale or
other disposition of all or substantially all of the Company's assets to another
corporation or a partnership if, in each case, effective provision is made in
the articles of incorporation of the resulting or surviving corporation or the
certificate of partnership of the resulting partnership or otherwise, for the
protection of the rights of the holders of the Convertible Preferred Stock.
I. VOTING
The holders of the Convertible Preferred Stock are not entitled to vote,
except as set forth below and as provided by law. On matters subject to a vote
by the holders of the Convertible Preferred Stock, the holders are entitled to
one vote per share.
If the equivalent of six consecutive quarterly dividends payable on the
Convertible Preferred Stock, or on any other series of preferred stock ranking
on a parity with the Convertible Preferred Stock as to dividends or liquidation
rights and having similar voting rights, are in arrears, the number of directors
of the Company will be increased by two and the holders of all outstanding
series of parity preferred stock, voting as a single class without regard to
series, will be entitled to elect the additional two directors until all
dividends in arrears have been paid or declared and set apart for payment.
Without the consent of the holders of Convertible Preferred Stock, the
Company may issue other series of preferred stock which are pari passu with, or
junior to, the Convertible Preferred Stock as to dividends and liquidation
rights. Without the vote or consent of the holders of at least a majority of
number of shares of Convertible Preferred Stock then outstanding, voting or
consenting separately as a class, the
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<PAGE> 9
Company shall not issue preferred stock which is senior to the Convertible
Preferred Stock as to dividends or liquidation rights, or amend, alter or
repeal any of the voting rights, designations, preferences or other rights of
the holders of the Convertible Preferred Stock so as to adversely affect such
voting rights, designations, preferences or other rights.
J. PRIORITY PAYMENTS
The Company shall, and hereby covenants to, (i) prevent, to the extent
legally permitted, its Subsidiaries from entering into any agreements or
otherwise agreeing to be bound by any covenant or similar restriction with any
third party, including but not limited to, suppliers and lending or credit
institutions of any sort, which would prohibit or restrict such subsidiaries'
ability to make payments or otherwise release cash through dividends or
distributions to the Company, and (ii) cause, to the extent legally permitted,
its Subsidiaries to make payments or otherwise release cash through dividends
or distributions to the Company as necessary to satisfy the Company's
obligations to the holders of the Convertible Preferred Stock.
K. MISCELLANEOUS
Holders of Convertible Preferred Stock shall have no pre-emptive right
to purchase any securities of the Company.
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Form of Indenture
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
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ARTICLE 1 Definitions and Other Provisions of General Application .................
Section 1.1. Definitions. ................................................
Section 1.2. Compliance Certificate and Opinions. ........................
Section 1.3. Form of Documents Delivered to Trustee. .....................
Section 1.4. Acts of Holders. ............................................
Section 1.5. Notices, etc. to Trustee and Company. .......................
Section 1.6. Notices to Holders; Waiver. .................................
Section 1.7. Conflict with Trust Indenture Act. ..........................
Section 1.8. Effect of Headings and Tables of Contents. ..................
Section 1.9. Successors and Assigns. .....................................
Section 1.10. Separability Clause. ........................................
Section 1.11. Benefits of Indenture. ......................................
Section 1.12. Governing Law. ..............................................
ARTICLE 2 Note Form ...............................................................
Section 2.1 Form Generally ..............................................
Section 2.2. Form of Face of Note. .......................................
Section 2.3. Form of Reverse of Note. ....................................
Section 2.4 Form of Trustee's Certificate of Authentication .............
ARTICLE 3 The Notes ...............................................................
Section 3.1. Title and Terms. ............................................
Section 3.2. Denominations. ..............................................
Section 3.3. Execution, Authentication and Delivery. .....................
Section 3.4. Temporary Notes. ............................................
Section 3.5. Transfer and Exchange. ......................................
Section 3.6. Mutilated, Destroyed, Lost or Stolen Notes. .................
Section 3.7. Persons Deemed Owners. ......................................
Section 3.8. Cancellation. ...............................................
Section 3.9. Authentication and delivery of Exchange Notes. ..............
Section 3.10. Paying Agent to Hold Money in Trust. ........................
ARTICLE 4 Discharge Of Indenture ..................................................
Section 4.1. Termination of Company's Obligations. .......................
Section 4.2. Application of Trust Money. .................................
Section 4.3. Repayment to Company. .......................................
Section 4.4. Reinstatement. ..............................................
Section 4.5. Survival of Certain Obligations. ............................
ARTICLE 5 Remedies ................................................................
Section 5.1. Events of Default. ..........................................
Section 5.2. Interest Rate Upon Default. .................................
Section 5.3. Acceleration of Maturity; Rescission and Annulment. .........
Section 5.4. Collection of Indebtedness and Suits for Enforcement by
Trustee. ....................................................
Section 5.5. Trustee May File Proofs of Claim. ...........................
Section 5.6. Trustee May Enforce Claims Without Possession of Notes. .....
Section 5.7. Application of Money Collected. .............................
Section 5.8. Limitation on Suits. ........................................
Section 5.9. Unconditional Right of Holders to Receive Principal,
Premium and
</TABLE>
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<TABLE>
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Interest. ...................................................
Section 5.10. Restoration of Rights and Remedies. .........................
Section 5.11. Rights and Remedies Cumulative. .............................
Section 5.12. Delay or Omission Not Waiver. ...............................
Section 5.13. Control by Holders. .........................................
Section 5.14. Waiver of Past Defaults. ....................................
Section 5.15. Undertaking for Costs. ......................................
Section 5.16. Waiver of Stay or Extension Laws. ...........................
ARTICLE 6 The Trustee .............................................................
Section 6.1. Duties of Trustee. ..........................................
Section 6.2. Rights of Trustee ...........................................
Section 6.3. Individual Rights of Trustee ................................
Section 6.4. Trustee's Disclaimer. .......................................
Section 6.5. Notice of Defaults. .........................................
Section 6.6. Compensation and Indemnity. .................................
Section 6.7. Replacement of Trustee. .....................................
Section 6.8. Successor Trustee by Merger, etc. ...........................
Section 6.9. Eligibility; Disqualification ...............................
Section 6.10. Preferential Collection of Claims Against Company. ..........
ARTICLE 7 Holders' Lists and Reports by Trustee and Company .......................
Section 7.1. Company to Furnish Trustee Names and Addresses of
Holders. ....................................................
Section 7.2. Preservation of Information: Communications to Holders ......
Section 7.3. Reports by Trustee. .........................................
Section 7.4. Reports by Company. .........................................
ARTICLE 8 Consolidation, Merger, Conveyance or Transfer ...........................
Section 8.1. Company May Consolidate, etc. ...............................
Section 8.2. Successor Corporation Substituted. ..........................
ARTICLE 9 Supplemental Indentures .................................................
Section 9.1. Supplemental Indentures Without Consent of Holders. .........
Section 9.2. Supplemental Indentures with Consent of Holders. ............
Section 9.3. Execution of Supplemental Indentures. .......................
Section 9.4. Effect of Supplemental Indentures. ..........................
Section 9.5. Conformity with Trust Indenture Act. ........................
Section 9.6. Reference in Notes to Supplemental Indentures. ..............
ARTICLE 10 Covenants ...............................................................
Section 10.1. Payment of Notes. ...........................................
Section 10.2. Commission Reports. .........................................
Section 10.3. Compliance Certificates. ....................................
Section 10.4. Maintenance of Office or Agency. ............................
Section 10.5. Corporate Existence. ........................................
Section 10.6. Waiver of Stay, Extension or Usury Laws. ....................
Section 10.7. Payment of Taxes and Other Claims. ..........................
Section 10.8. Maintenance of Properties and Insurance; Line of
Business. ...................................................
Section 10.9. Limitation on Sale of Assets ................................
Section 10.10. Limitation on Liens Securing Indebtedness. ..................
Section 10.11. Limitation on Payment Restrictions Affecting
Subsidiaries. ...............................................
Section 10.12. Limitation on Transactions with Affiliates. .................
Section 10.13. Limitation on Future Senior Subordinated Indebtedness. ......
</TABLE>
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<TABLE>
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Section 10.14. Change of Control. ..........................................
ARTICLE 11 Subordination of Notes ..................................................
Section 11.1. Notes Subordinated to Senior Indebtedness; Exchange .........
Notes Pari Passu with other Series of the Notes issued
by the Company ..............................................
Section 11.2. No Payment on Notes in Certain Circumstances. ...............
Section 11.3. Notes Subordinated to Prior Payment of All Senior
Indebtedness on Dissolution, Liquidation or
Reorganization of the Company. ..............................
Section 11.4. Holders to Be Subrogated to Rights of Holders of Senior
Indebtedness. ...............................................
Section 11.5. Obligations of the Company Unconditional. ...................
Section 11.6. Trustee Entitled to Assume Payments Not Prohibited in
Absence of Notice. ..........................................
Section 11.7. Application by Trustee of Assets Deposited With It. .........
Section 11.8. Subordination Rights Not Impaired by Acts or Omissions
of the Company or Holders of Senior Indebtedness. ...........
Section 11.9. Holders Authorize Trustee to Effectuate Subordination of ....
Section 11.10. Right of Trustee to Hold Senior Indebtedness. ...............
Section 11.11. Article 11 Not to Prevent Events of Default. ................
Section 11.12. Payment. ....................................................
ARTICLE 12 Guarantees ..............................................................
Section 12.1 Unconditional Guarantees. ...................................
Section 12.2 Subsidiary Guarantors May Consolidate, etc., on Certain
Terms. ......................................................
Section 12.3 Addition of Subsidiary Guarantors. ..........................
Section 12.4 Release of a Subsidiary Guarantor. ..........................
Section 12.5 Limitation of Subsidiary Guarantor's Liability. .............
Section 12.6 Contribution. ...............................................
Section 12.7 Execution and Delivery. .....................................
Section 12.8 Severability. ...............................................
ARTICLE 13 Subordination of Guarantees .............................................
Section 13.1. Guarantees Subordinated to Senior Indebtedness. .............
Section 13.2. No Payment on Guarantees in Certain Circumstances. ..........
Section 13.3. Guarantees Subordinated to Prior Payment of all Senior
Indebtedness on Dissolution, Liquidation or
Reorganization of a Subsidiary Guarantor. ...................
Section 13.4. Holders to be Subrogated to Rights of Holders of Senior
Indebtedness. ...............................................
Section 13.5. Guarantees Unconditional. ...................................
Section 13.6. Trustee Entitled to Assume Payments Not Prohibited in
Absence of Notice. ..........................................
Section 13.7. Application by Trustee of Assets Deposited With It. .........
Section 13.8. Subordination Rights Not Impaired by Acts or Omissions
of the Subsidiary Guarantors or Holders of Senior
Indebtedness. ...............................................
Section 13.9. Holders Authorize Trustee to Effectuate Subordination of
Notes. ......................................................
Section 13.10. Right of Trustee to Hold Senior Indebtedness. ...............
Section 13.11 Payment .....................................................
ARTICLE 14 Additional Series of Notes ..............................................
Section 14.1. Authorization and delivery of additional series of Notes ....
</TABLE>
(iii)
<PAGE> 5
INDENTURE
INDENTURE dated as of ________, 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 the
Company's wholly-owned subsidiaries designated at the conclusion of this
Indenture (hereinafter collectively the "Subsidiary Guarantors"), and BANK ONE
TRUST COMPANY, NA, having its principal office at Corporate Trust Client Service
Group, 100 East Broad Street, Columbus, Ohio 43271-0181, as Trustee (hereinafter
the "Trustee").
RECITALS OF THE COMPANY:
The Company has duly authorized the creation of an issue of convertible
exchangeable preferred stock which, under certain circumstances, may be
exchanged for the Company's notes to be known as its ____% Senior Subordinated
Exchange Notes (hereinafter the "Exchange Notes") of the nature and amount
hereinafter set forth, and to provide therefor the Company has duly authorized
the execution and delivery of this Indenture.
All things necessary to make the Notes, when issued by the Company and
authenticated and delivered by the Trustee the valid obligations of the Company,
and to make this Indenture a valid agreement of the Company have been done.
The Notes created by this Indenture (as defined hereafter) are to consist
of Notes in fully registered form only, in a total principal amount of up to
$150,000,000, issuable in one or more subseries as provided herein.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the Notes by
the Holders thereof, it is mutually covenanted and agreed, for the equal and
proportionate benefit of all Holders of the Notes, as follows:
ARTICLE 1
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
SECTION 1.1. DEFINITIONS.
For all purposes of this Indenture, except as otherwise expressly provided
or unless the context otherwise requires:
(1) the terms defined in this Article have the meanings assigned to them
in this Article, and include the plural as well as the singular;
(2) all other terms used herein which are defined in the Trust Indenture
Act, either directly or
<PAGE> 6
by reference therein, have the meanings assigned to them therein;
(3) all accounting terms not otherwise defined herein have the meanings
assigned to them in accordance with generally accepted accounting principles;
and
(4) the words "herein," "hereof" and "hereunder" and other words of
similar import refer to this Indenture as a whole and not to any particular
Article, Section or other subdivision.
"Adjusted Net Assets" of a Subsidiary Guarantor at any date shall mean the
lesser of (i) the amount by which the fair value of the property of such
Subsidiary Guarantor exceeds the total amount of liabilities, including, without
limitation, contingent liabilities (after giving effect to all other fixed and
contingent liabilities incurred or assumed on such date), but excluding
liabilities under the Guarantee of such Subsidiary Guarantor at such date and
(ii) the amount by which the present fair saleable value of the assets of such
Subsidiary Guarantor at such date exceeds the amount that will be required to
pay the probable liability of such Subsidiary Guarantor on its debts (after
giving effect to all other fixed and contingent liabilities incurred or assumed
on such date and after giving effect to any collection from any Subsidiary of
such Subsidiary Guarantor in respect of the obligations of such Subsidiary under
the Guarantee), excluding debt in respect of the Guarantee, as they become
absolute and matured.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Asset Sale" means any sale, lease, transfer, exchange or other
disposition (or series of related sales, leases, transfers, exchanges or
dispositions) of shares of Capital Stock of a Subsidiary (other than directors'
qualifying shares), or of property or assets or any interests therein (each
referred to for purposes of this definition as a "disposition") by the Company
or any of its Subsidiaries, including any disposition by means of a merger,
consolidation or similar transaction (other than (i) by the Company to a Wholly
Owned Subsidiary or by a Subsidiary to the Company or a Wholly Owned Subsidiary,
(ii) a sale of products, services, inventories and assets in the ordinary course
of business of the Company's operations, and (iii) the disposition of all or
substantially all of the assets of the Company in compliance with the covenant
captioned "Limitations on Mergers and Consolidations").
"Average Life" means, as of the date of determination, with respect to any
Indebtedness, the quotient obtained by dividing (i) the sum of the products of
(x) the number of years from such date to the date of each successive scheduled
principal payment of such Indebtedness multiplied by (y) the amount of such
principal payment by (ii) the sum of all such principal payments.
"Bank Credit Facility" means a revolving credit and/or letter of credit
facility, the proceeds of which are used for working capital, equipment
financing, and other general corporate purposes entered into by one or more of
the Company and/or its Subsidiaries and certain financial institutions, as
amended, extended or refinanced from time to time.
"Board of Directors" means either the board of directors of the Company or
any duly authorized committee of that board.
"Board Resolution" means a copy of a resolution certified by the Secretary
or an Assistant Secretary
-2-
<PAGE> 7
of the Company to have been duly adopted by the Board of Directors and to be in
full force and effect on the date of such certification, and delivered to the
Trustee.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday
which is not a legal holiday for banking institutions in Phoenix, Arizona.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated) of corporate
stock or partnership interests and any and all warrants, options and rights with
respect thereto (whether or not currently exercisable), including each class of
common stock and preferred stock of such Person.
"Change of Control" means any event or series of events by which (i) any
"Person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act)
is or becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under
the Exchange Act) of 50% or more of the total voting power of the Voting Stock
of the Company; (ii) the Company consolidates with or merges or amalgamates with
or into another Person or conveys, transfers, or leases all or substantially all
of its assets to any Person, or any Person consolidates with, or merges or
amalgamates with or into the Company, in any such event pursuant to a
transaction in which the outstanding Voting Stock of the Company is changed into
or exchanged for cash, securities or other property, other than any such
transaction where (A) the outstanding Voting Stock of the Company is changed
into or exchanged for Voting Stock of the surviving corporation which is not
Disqualified Stock and (B) the holders of the Voting Stock of the Company
immediately prior to such transaction own, directly or indirectly, not less than
a majority of the Voting Stock of the surviving corporation immediately after
such transaction; or (iii) the shareholders of the Company approve any plan of
liquidation or dissolution of the Company.
"Closing Price" when used with reference to the Common Stock, means the
last sale price, regular way, of the Common Stock on the day in question or, if
no sale price is quoted on that day, the closing price of the Common Stock on
that day, in each case as reported by the New York Stock Exchange ("NYSE") or
any other national securities exchange. In the event the Common Stock is not
listed on the NYSE, another national securities exchange or on Nasdaq, the
Closing Price shall be the last or closing bid price quoted on the principal
mechanism then used to report transactions in the Common Stock.
"Commission" means the Securities and Exchange Commission, as from time to
time constituted, created under the Securities Exchange Act of 1934, or if at
any time after the execution of this instrument such Commission is not existing
and performing the duties now assigned to it under the Trust Indenture Act, then
the body performing such duties on such date.
"Common Stock" means the Company's Common Stock, $.01 par value, and
shares of any class or classes resulting from any reclassification or
reclassifications thereof which have no preference in respect of dividends or of
amounts payable in the event of any voluntary or involuntary liquidation,
dissolution or winding-up of the Company, and which are not subject to
redemption by the Company, and also shall include stock of the Company of any
other class, whether now or hereafter authorized which generally ranks, or is
entitled to a participation, as to assets or dividends, substantially on a
parity with such Common Stock or other class of stock into which such Common
Stock may have been changed; provided, however, that warrants or other rights to
purchase Common Stock will not be deemed to be Common Stock.
"Company" means the Person named as the "Company" in the first paragraph
of this instrument until a corporation shall have become a successor corporation
pursuant to the applicable provisions of this Indenture, and thereafter
"Company" shall mean such successor corporation.
-3-
<PAGE> 8
"Company Request" and "Company Order" mean, respectively, a written
request or order signed in the name of the Company by its Chairman of the Board,
President or a Vice President, and, by the Chief Financial Officer, Treasurer,
an Assistant Treasurer, Secretary, or an Assistant Secretary, and delivered to
the Trustee.
"Corporate Trust Office" means the principal office of the Trustee at
which at any particular time its corporate trust business shall be administered,
which office at the date of the execution of this Indenture is located at
Corporate Trust Client Service Group, 100 East Broad Street, Columbus, Ohio
43271-0181.
"Disinterested Director" means, with respect to an Affiliate Transaction
or series of related Affiliate Transactions, a member of the Board of Directors
of the Company who has no financial interest, and whose employer has no
financial interest, in such Affiliate Transaction or series of related Affiliate
Transactions.
"Disqualified Stock" means any Capital Stock, excepting the Series A
Convertible Exchangeable Preferred Stock, of the Company or any Subsidiary of
the Company which, by its terms (or by the terms of any security into which it
is convertible or for which it is exchangeable), or upon the happening of any
event or with the passage of time, matures or is mandatorily redeemable,
pursuant to a sinking fund obligation or otherwise, or is redeemable at the
option of the holder thereof, in whole or in part, on or prior to the Maturity
Date or which is exchangeable or convertible into debt securities of the Company
or any Subsidiary of the Company, except to the extent that such exchange or
conversion rights cannot be exercised prior to the Maturity Date.
"Exchange Act" means the Securities and Exchange Act of 1934, as amended,
and the rules and regulations of the SEC thereunder.
"Exchange Notes" means $ principal amount of %
Senior Subordinated Convertible Exchange Notes due .
"GAAP" means generally accepted accounting principles as in effect in the
United States of America as of the Issue Date.
"Guarantee" means, individually and collectively, the guarantees given by
the Subsidiary Guarantors pursuant to Article 12 hereof, including a notation on
the Notes substantially in the form attached hereto as Exhibit A-1.
"Holder" means a Person in whose name a Note is registered on the Note
Register.
"Indebtedness" means, without duplication, with respect to any Person, (i)
all obligations of such Person (A) in respect of borrowed money (whether or not
the recourse of the lender is to the whole of the assets of such person or only
to a portion thereof), (B) evidenced by bonds, notes, debentures or similar
instruments, (C) representing the balance deferred and unpaid of the purchase
price of any property or services (other than accounts payable or other
obligations arising in the ordinary course of business), (D) evidenced by
bankers' acceptances or similar instruments issued or accepted by banks, (E) for
the payment of money relating to a Capitalized Lease Obligation, or (F)
evidenced by a letter of credit or a reimbursement obligation of such Person
with respect to any letter of credit; (ii) all net obligations of such Person
under interest rate swap obligations and foreign currency hedges; (iii) all
liabilities of others of the kind described in the preceding clauses (i) or (ii)
that such Person has guaranteed or that are otherwise its legal liability; (iv)
with respect to such Person, the liquidation preference or any mandatory
redemption payment obligations with respect to Disqualified Stock; and (v) any
and all deferrals, renewals, extensions, refinancings and refundings (whether
direct or indirect) of, or amendments, modifications or supplements
-4-
<PAGE> 9
to, any liability of the kind described in any of the preceding clauses (i),
(ii), (iii), (iv), (v).
"Investment" of any Person means (i) all investments by such Person in any
other Person in the form of loans, advances or capital contributions (excluding
advances to employees in the ordinary course of business), and (ii) all
guarantees of Indebtedness or other obligations of any other Person by such
Person, (iii) all purchases (or other acquisitions for consideration) by such
Person of Indebtedness, Capital Stock or other securities of any other Person
and (iv) all other items that would be classified as investments (including,
without limitation, purchases of assets outside the ordinary course of business)
or advances on a balance sheet of such Person prepared in accordance with GAAP.
"Indenture" means this instrument as originally executed or as it may from
time to time be supplemented or amended by one or more indentures supplemental
hereto entered into pursuant to the applicable provisions hereof.
"Insolvency or Liquidation Proceeding" means, with respect to any Person,
(i) an insolvency or bankruptcy case or proceeding, or any receivership,
liquidation, reorganization proceeding or other similar case or proceeding,
relative to such Person or to its creditors, as such, or its assets, or (ii) any
liquidation, dissolution, reorganization proceeding or winding up of such Person
(other than any reincorporation of such Person in another jurisdiction), whether
voluntary or involuntary and whether or not involving insolvency or bankruptcy,
or (iii) any assignment for the benefit of creditors or any other marshalling of
assets and liabilities of such Person.
"Interest Payment Date" means the Stated Maturity of an installment of
interest on the Notes.
"Issue Date" means the date on which the Notes are originally issued under
the Indenture.
"Lien" means, with respect to any Person, any mortgage, pledge, lien,
encumbrance, easement, restriction, covenant, right-of-way, charge or adverse
claim affecting title or resulting in an encumbrance against real or personal
property of such Person, or a security interest of any kind (including any
conditional sale or other title retention agreement, any lease in the nature
thereof, any option, right of first refusal or other similar agreement to sell,
in each case securing obligations of such Person, and any filing of or agreement
to give any financing statement under the Uniform Commercial Code (or equivalent
statute or statutes) of any jurisdiction).
"Maturity" when used with respect to the Notes means the date on which the
principal of such Note becomes due and payable as therein or herein provided,
whether at the Stated Maturity or by declaration of acceleration or otherwise.
"Net Available Proceeds" means, with respect to any Asset Sale of any
Person, cash proceeds received (including any cash proceeds received by way of
deferred payment of principal pursuant to a note or installment receivable or
otherwise, but only as and when received, and excluding any other consideration
until such time as such consideration is converted into cash) therefrom, in each
case net of all legal, title and recording tax expenses, commissions and other
fees and expenses incurred, and all federal, state or local taxes required to be
accrued as a liability as a consequence of such Asset Sale, and in each case net
of all Indebtedness which was secured by such assets, in accordance with the
terms of any Lien upon or with respect to such assets, or which must, by its
terms or in order to obtain a necessary consent to such Asset Sale or by
applicable law, be repaid out of the proceeds from such Asset Sale and which is
actually so repaid.
"Notes" means up to $150,000,000 principal amount of Senior Subordinated
Notes of the Company
-5-
<PAGE> 10
under this Indenture, including the Exchange Notes.
"Offering" means a public offering or private placement of the Notes.
"Officers' Certificate" means a certificate signed by the Chairman of the
Board, the President or a Vice President, and by the Chief Financial Officer,
Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary of
the Company, and delivered to the Trustee.
"Opinion of Counsel" means a written opinion of counsel, who may (except
as otherwise expressly provided in this Indenture) be counsel for the Company,
acceptable to the Trustee.
"Outstanding" when used with respect to the Notes means, as of the date of
determination, all Notes theretofore authenticated and delivered under this
Indenture, except:
(i) Notes theretofore cancelled and delivered to the Trustee or
delivered to the Trustee for cancellation;
(ii) Notes for whose payment in the necessary amount has been
theretofore deposited with the Trustee or any Paying Agent (other than the
Company) in trust or set aside and segregated in trust by the Company (if
the Company shall act as its own Paying Agent) for the Holders of such
Notes; and
(iii) Notes in exchange for or in lieu of which other Notes have
been authenticated and delivered pursuant to this Indenture;
provided, however, that in determining whether the Holders of the requisite
principal amount of Notes Outstanding have given any request, demand,
authorization, direction, notice, consent or waiver hereunder, Notes owned by
the Company or any other obligor upon the Notes or any Affiliate of the Company
or such other obligor shall be disregarded and deemed not to be Outstanding,
except that, in determining whether the Trustee shall be protected in relying
upon any such request, demand, authorization, direction, notice, consent or
waiver, only Notes which the Trustee actually knows to be so owned shall be so
disregarded. Notes so owned which have been pledged in good faith may be
regarded as Outstanding if the pledgee establishes to the satisfaction of the
Trustee the pledgee's right so to act with respect to such Notes and that the
pledgee is not the Company or any other obligor upon the Notes or any Affiliate
of the Company or such other obligor.
"Paying Agent" means any Person authorized by the Company to pay the
principal of (and premium, if any) or interest on any Notes on behalf of the
Company.
"Permitted Business Investments" means (i) Investments by the Company or
any other Wholly Owned Subsidiary in any Person which immediately prior to the
making of such Investment is a Wholly-Owned Subsidiary; (ii) Investments in the
Company by any Wholly Owned Subsidiary; and (iii) Investments by the Company or
any Subsidiary of the Company in a Person, if as a result of such Investment (i)
such Person becomes a Wholly Owned Subsidiary of the Company or (ii) such Person
is merged, consolidated or amalgamated with or into, or transfers or conveys
substantially all of its assets to, or is liquidated into, the Company or a
Wholly Owned Subsidiary of the Company.
"Permitted Company Refinancing Indebtedness" means Indebtedness of the
Company, the net proceeds of which are used to renew, extend, refinance, refund
or repurchase outstanding Indebtedness of the Company, provided that (i) if the
Indebtedness (including the Notes) being renewed, extended,
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<PAGE> 11
refinanced, refunded or repurchased is pari passu with or subordinated in right
of payment to the Notes, then such Indebtedness is pari passu with or
subordinated in right of payment to, as the case may be, the Notes, at least to
the same extent as the Indebtedness being renewed, extended, refinanced,
refunded or repurchased, (ii) such Indebtedness is scheduled to mature no
earlier than the Indebtedness being renewed, extended, refinanced, refunded or
repurchased, and (iii) such Indebtedness has an Average Life at the time such
Indebtedness is incurred that is equal to or greater than the remaining Average
Life of the Indebtedness being renewed, extended, refinanced, refunded or
repurchased; provided, further, that such Indebtedness (to the extent that such
Indebtedness constitutes Permitted Company Refinancing Indebtedness) is in an
aggregate principal amount (or, if such Indebtedness is issued at a price less
than the principal amount thereof, the aggregate amount of gross proceeds
therefrom is not in excess of the aggregate principal amount) then outstanding
of the Indebtedness being renewed, extended, refinanced, refunded or repurchased
(or if the Indebtedness being renewed, extended, refinanced, refunded or
repurchased was issued at a price less than the principal amount thereof, then
not in excess of the amount of liability in respect thereof determined in
accordance with GAAP).
"Permitted Investments" means Permitted Business Investments and
Permitted Financial Investments.
"Permitted Liens" means (i) Liens existing on the Issue Date; (ii) Liens
now or hereafter securing Senior Indebtedness; (iii) Liens now or hereafter
securing any interest rate hedging obligations (A) that the Company is required
to enter into with respect to a Bank Credit Facility or (B) that are entered
into for the purpose of managing interest rate risk with respect to Indebtedness
of the Company and its Subsidiaries; (iv) Liens securing Indebtedness, the
proceeds of which are used to refinance secured Indebtedness of the Company or
its Subsidiaries; provided, that such Liens extend to or cover only the property
or assets currently securing the Indebtedness being refinanced; (v) Liens for
taxes, assessments and governmental charges not yet delinquent or being
contested in good faith and for which adequate reserves have been established to
the extent required by GAAP, (vi) mechanics', workmen's materialmen's,
operator's or similar Liens arising in the ordinary course of business, (vii)
Liens in connection with workmen's compensation, unemployment insurance or other
social security, old age pension or public liability obligations, (viii) Liens,
deposits or pledges to secure the performance of bids, tenders, contracts (other
than contracts for the payment of money), leases, public or statutory
obligations, surety, stay, appeal, indemnity, performance or other similar
bonds, or other similar obligations arising in the ordinary course of business;
(ix) survey exceptions, encumbrances, easements or reservations of, or rights of
others for, rights or way, zoning or other restrictions as to the use of real
properties, and minor defects in title which, in the case of any of the
foregoing, were not incurred or created to secure the payment of borrowed money
or the deferred purchase price of property or services, and in the aggregate do
not materially adversely affect the value of such properties or materially
impair use for the purposes of which such properties are held by the Company or
any Subsidiaries, (x) judgment and attachment Liens not giving rise to an Event
of Default or Liens created by or existing from any litigation or legal
proceeding that are currently being contested in good faith by appropriate
proceedings and for which adequate reserves have been made, (xi) (A) Liens upon
any property of any Person existing at the time of acquisition thereof by the
Company or a Subsidiary, (B) Liens upon any property of a person existing at the
time such Person is merged or consolidated with the Company or any Subsidiary or
existing at the time of the sale or transfer of any such property of such Person
to the Company or any Subsidiary, or (C) Liens upon any property of a Person
existing at the time such Person becomes a Subsidiary; provided, that in each
case such Lien has not been created in contemplation of such sale, merger,
consolidation, transfer or acquisition, and provided further that in each such
case no such Lien shall extend to or cover any property of the Company or any
Subsidiary other than the property being acquired and improvements thereon,
(xii) Liens on deposits to secure public or statutory obligations or in lieu or
surety or appeal bonds entered into in the ordinary course of business, (xiii)
Liens in favor of collecting or payor banks having a right of setoff,
revocation, refund or chargeback with respect to money or
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<PAGE> 12
instruments of the Company or any Subsidiary on deposit with or in possession of
such bank, (xiv) purchase money security interests granted in connection with
the acquisition of fixed assets in the ordinary course of business and
consistent with past practices, provided, that (A) such Liens attach only to the
property so acquired with the purchase money indebtedness secured thereby and
(B) such Liens secure only Indebtedness that is not in excess of 100% of the
purchase price of such fixed assets, and (xv) Liens or mortgages secured by real
property.
"Permitted Subsidiary Refinancing Indebtedness" means Indebtedness of any
Subsidiary, the net proceeds of which are used to renew, extend, refinance,
refund or repurchase outstanding Indebtedness of such Subsidiary, provided that
(i) if the Indebtedness (including any guarantee thereof) being renewed,
extended, refinanced, refunded or repurchased is pari passu with or subordinated
in right of payment to the Guarantees, then such Indebtedness is pari passu with
or subordinated in right of payment to, as the case may be, the Guarantees at
least to the same extent as the Indebtedness being renewed, extended,
refinanced, refunded or repurchased, (ii) such Indebtedness is scheduled to
mature no earlier than the Indebtedness being renewed, extended, refinanced,
refunded or repurchased, and (iii) such Indebtedness has an Average Life at the
time such Indebtedness is incurred that is equal to or greater than the
remaining Average Life of the Indebtedness being renewed, extended, refinanced,
refunded or repurchased; provided further, that such Indebtedness (to the extent
that such Indebtedness constitutes Permitted Subsidiary Refinancing
Indebtedness) is in an aggregate principal amount (or, if such Indebtedness is
issued at a price less than the principal amount thereof, the aggregate amount
of gross proceeds therefrom is) not in excess of the aggregate principal amount
then outstanding under the Indebtedness being renewed, extended, refinanced,
refunded or repurchased (or if the Indebtedness being renewed, extended,
refinanced, refunded or repurchased was issued at a price less than the
principal amount thereof, then not in excess of the amount of liability in
respect thereof determined in accordance with GAAP).
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"Post-Commencement Interest" means all interest accrued or accruing after
the commencement of any Insolvency or Liquidation Proceeding in accordance with
and at the contract rate (including, without limitation, any rate applicable
upon default) specified in the agreement or instrument creating, evidencing, or
governing any Senior Indebtedness, whether or not, pursuant to applicable law or
otherwise, the claim for such interest is allowed as a claim in such Insolvency
or Liquidation Proceeding.
"Principal Business" means the business of safety-related technologies and
products, including seating systems and restraint systems for transportation
vehicles, civilian and military aircraft components, and services and any
activity or business that is a reasonable extension, development or expansion
thereof.
"Qualified Stock" means any Capital Stock that is not Disqualified
Stock.
"Reference Period" means, with respect to any Person, the four full fiscal
quarters ended immediately preceding any date upon which any determination is to
be made pursuant to the terms of the Notes or the Indenture.
"Representative" means the indenture trustee or other trustee, agent or
representative of holders of any Senior Indebtedness.
"Responsible Officer" when used with respect to the Trustee means the
chairman or vice-chairman of the board of directors, the chairman or
vice-chairman of any executive committee of the board of directors, the
president, any vice president (whether or not designated by a number or a word
or words
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<PAGE> 13
added before or after the title "vice president"), the secretary, any assistant
secretary, the chief financial officer, treasurer, any assistant treasurer, the
cashier, any assistant cashier, any trust officer or assistant trust officer,
the controller or any assistant controller or any other officer of the Trustee
customarily performing functions similar to those performed by any of the above
designated officers and also means, with respect to a particular corporate trust
matter, any other officer to whom such matter is referred because of his
knowledge of and familiarity with the particular subject.
"Senior Indebtedness" means any Indebtedness of the Company (whether
outstanding on the date hereof or hereafter incurred), unless such Indebtedness
is pari passu with or contractually subordinate or junior in right of payment to
the Notes, except Indebtedness to any Affiliate of the Company which shall be
junior and subordinate to the Notes, and except Indebtedness evidenced by any
series of Notes authorized to be issued hereunder in addition to and on parity
with the Exchange Notes.
"Stated Maturity" when used with respect to any Note or any installment of
interest thereon means the date specified in such Note as the fixed date on
which the principal of such Note or such installment of interest is due and
payable.
"Subordinated Indebtedness of the Company" means any Indebtedness of the
Company (whether outstanding on the date hereof or hereafter incurred) which is
contractually subordinate or junior in right of payment to the Notes.
A "subsidiary" of any Person means (i) a corporation a majority of whose
Voting Stock is at the time, directly or indirectly, owned by such person, by
one or more subsidiaries of such Person or by such Person and one or more
subsidiaries of such Person, (ii) a partnership in which such Person or a
subsidiary of such Person is, at the date of determination, a general or limited
partner of such partnership, but only if such person or its subsidiary is
entitled to receive more than fifty percent of the assets of such partnership
upon its dissolution, or (iii) any other Person (other than a corporation or
partnership) in which such Person, directly or indirectly, at the date of
determination thereof, has (x) at least a majority ownership interest or (y) the
power to elect or direct the election of a majority of directors or other
governing body of such Person.
"Subsidiary" means any subsidiary of the Company.
"Subsidiary Guarantor" means (i) each of the Company's Subsidiaries in
existence on the Issue Date, (ii) each of the Subsidiaries that becomes a
guarantor of the Notes in compliance with the provisions of Article 12 hereof
and (iii) each of the Subsidiaries executing a supplemental indenture in which
such Subsidiary agrees to be bound by the terms of this Indenture.
"Trading Day" means a day on which a quote for the Common Stock is
published on the principal exchange or other market mechanism used to report
transactions in or prices of the Common Stock.
"Trust Indenture Act" or "TIA" means the Trust Indenture Act of 1939 (15
U.S. Code Sections 77a and 77b) as in effect on the date of this Indenture
and as thereafter amended from time to time, except as provided in Section 9.5.
"Trustee" means the Person named as the "Trustee" in the first paragraph
of this instrument until a successor Trustee shall have become such pursuant to
the applicable provisions of this Indenture, and thereafter "Trustee" shall mean
such successor Trustee.
"U.S. Government Obligations" means securities that are (i) direct
obligations of the United States
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<PAGE> 14
of America for the payment of which its full faith and credit is pledged or (ii)
obligations of a Person controlled or supervised by and acting as an agency or
instrumentality of the United States of America and payment of which is
unconditionally guaranteed as a full faith and credit obligation by the United
States of America, which, in either case under clauses (i) or (ii) are not
callable or redeemable at the option of the issuer thereof.
"U.S. Legal Tender" means such coin or currency of the United States as
at the time of payment shall be legal tender for the payment of public and
private debts.
"Voting Stock" means, with respect to any Person, securities of any class
or classes of Capital Stock in such Person entitling the holders thereof
(whether at all times or only so long as no senior class of stock has voting
power by reason of any contingency) to vote in the election of members of the
Board of Directors or other governing body of such Person.
"Wholly Owned Subsidiary" means a Subsidiary, all the Capital Stock (other
than directors' qualifying shares, if applicable) of which is owned by the
Company or another Wholly Owned Subsidiary.
SECTION 1.2. COMPLIANCE CERTIFICATE AND OPINIONS.
(a) Upon any application or request by the Company to the Trustee to take
any action under any provision of this Indenture, the Company shall furnish to
the Trustee an Officers' Certificate stating that all conditions precedent, if
any, provided for in this Indenture relating to the proposed action have been
complied with and an Opinion of Counsel stating that in the opinion of such
counsel all such conditions precedent, if any, have been complied with, except
that in the case of any such application or request as to which the furnishing
of such documents is specifically required by any provision of this Indenture
relating to such particular application or request, no additional certificate or
opinion need be furnished.
Every certificate or opinion with respect to compliance with a condition
or covenant provided for in this Indenture shall include:
(1) a statement that each individual signing such certificate or opinion
has read such covenant or condition and the definitions herein relating thereto;
(2) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of each such individual, he has made
such examination or investigation as is necessary to enable him to express an
informed opinion as to whether or not such covenant or condition has been
complied with; and
(4) a statement as to whether, in the opinion of each such individual,
such condition or covenant has been complied with.
SECTION 1.3. FORM OF DOCUMENTS DELIVERED TO TRUSTEE.
(a) In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
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<PAGE> 15
(b) Any certificate or opinion of an officer of the Company may be based,
insofar as it relates to legal matters, upon a certificate or opinion of, or
representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to the matters upon which his certificate or opinion is based are
erroneous. Any certificate or Opinion of Counsel may be based, insofar as it
relates to factual matters, upon a certificate or opinion of, or representations
by, an officer or officers of the Company stating that the information with
respect to such factual matters is in the possession of the Company, unless such
counsel knows, or in the exercise of reasonable care should know, that the
certificate or opinion or representations with respect to such matters are
erroneous.
(c) Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
SECTION 1.4. ACTS OF HOLDERS.
(a) Any request, demand, authorization, direction, notice, consent, waiver
or other action provided by this Indenture to be given or taken by Holders may
be embodied in and evidenced by one or more instruments of substantially similar
tenor signed by such Holders in person or by an agent duly appointed in writing;
and, except as herein otherwise expressly provided, such action shall become
effective when such instrument or instruments are delivered to the Trustee, and,
where it is hereby expressly required, to the Company. Such instrument or
instruments (and the action embodied therein and evidenced thereby) are herein
sometimes referred to as the "Act" of the Holders signing such instrument or
instruments. Proof of execution of any such instrument or of a writing
appointing any such agent shall be sufficient for any purpose of this Indenture
and (subject to Section 6.1) conclusive in favor of the Trustee and the Company,
if made in the manner provided in this Section.
(b) Proof of the fact and date of the execution by any Person of any such
instrument or writing shall be sufficient for any purposes of this Indenture if
made in accordance with such reasonable rules and regulations as may be
prescribed by the Trustee or in such manner as shall be satisfactory to the
Trustee.
(c) The ownership of Notes shall be proved by the Note Register.
(d) Any request, demand, authorization, direction, notice, consent, waiver
or other action by the Holder of any Note shall bind every future Holder of the
same Note and the Holder of every Note issued upon the transfer thereof or in
exchange therefor or in lieu thereof, in respect of anything done or suffered to
be done by the Trustee or the Company in reliance thereon, whether or not
notation of such action is made upon such Note.
SECTION 1.5. NOTICES, ETC. TO TRUSTEE AND COMPANY.
Any request, demand, authorization, direction, notice, consent, waiver or
Act of Holders or other document provided or permitted by this Indenture to be
made upon, given or furnished to, or filed with,
(1) the Trustee by any Holder or by the Company shall be sufficient for
every purpose hereunder if made, given, furnished or filed in writing to or with
the Trustee at its Corporate Trust Office, or
(2) the Company by the Trustee or by any Holder shall be sufficient for
every purpose hereunder if in writing and mailed, first-class postage prepaid,
to the Company addressed
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<PAGE> 16
to it at the address of its principal office specified in the first paragraph of
this instrument or at any other address previously furnished in writing to the
Trustee by the Company.
(3) any Subsidiary Guarantor by the Trustee or by any Holder shall be
sufficient for every purpose hereunder if in writing and mailed, first-class
postage prepaid, to any such Subsidiary Guarantor addressed to it at the address
of its principal office specified in the first paragraph of this instrument or
at any other address previously furnished in writing to the Trustee by any such
Subsidiary Guarantor.
SECTION 1.6. NOTICES TO HOLDERS; WAIVER.
Where this Indenture provides for notice to Holders, such notice shall be
sufficiently given (unless otherwise herein expressly provided) if in writing
and mailed, first-class postage prepaid, to each Holder of such Notes, at his
address as it appears on the Note Register, not later than the latest date, and
not earlier than the earliest date, prescribed for the giving of such notice,
with a copy thereof to the Trustee. Where this Indenture provides for notice in
any manner, such notice may be waived in writing by the Person entitled to
receive such notice, either before or after the event, and such waiver shall be
the equivalent of such notice. Waivers of notice by Holders shall be filed with
the Trustee, but such filing shall not be a condition precedent to the validity
of any action taken in reliance upon such waiver. In any case where notice to
Holders is given by mail, neither the failure to mail such notice, nor any
defect in any notice so mailed to any particular Holder shall affect the
sufficiency of such notice with respect to other Holders, and any notice which
is mailed in the manner herein provided shall be conclusively presumed to have
been duly given.
SECTION 1.7. CONFLICT WITH TRUST INDENTURE ACT.
If any provision hereof limits, qualifies or conflicts with another
provision which is required to be included in this Indenture by any of the
provisions of the TIA, such required provision shall control.
SECTION 1.8. EFFECT OF HEADINGS AND TABLES OF CONTENTS.
The Articles and Section headings herein and the Table of Contents are for
convenience only and shall not affect the construction hereof.
SECTION 1.9. SUCCESSORS AND ASSIGNS.
All covenants and agreements in this Indenture by the Company shall bind
its successors and assigns, whether so expressed or not.
SECTION 1.10. SEPARABILITY CLAUSE.
In case any provision in this Indenture or in the Notes shall be invalid,
illegal or unenforceable, the validity, legality or enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.
SECTION 1.11. BENEFITS OF INDENTURE.
Nothing in this Indenture or in the Notes, express or implied, shall give
to any Person, other than the parties hereto and their successors hereunder and
the Holders of Notes, any benefit or any legal or equitable right, remedy or
claim under this Indenture.
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<PAGE> 17
SECTION 1.12. GOVERNING LAW.
This Indenture shall be construed in accordance with and governed by the
laws of the State of Arizona applicable to contracts made and to be performed
entirely in that state.
ARTICLE 2
NOTE FORM
SECTION 2.1. FORM GENERALLY.
(a) The Notes, which shall be registered Notes without coupons, and the
Trustee's certificate of authentication shall be in substantially the forms set
forth in this Article, with such appropriate insertions, omissions,
substitutions and other variations as are required or permitted by this
Indenture (including such variations as may be required to reflect the terms of
any subseries of Notes) and may have such letters, numbers or other marks of
identification and such legends or endorsements placed thereon, as may be
required to comply with the rules of any securities exchange, or as may,
consistently herewith, be determined by the officers executing such Notes, as
evidenced by their signing of the Notes.
(b) If listed on a securities exchange, the definitive Notes shall be
printed, lithographed, engraved or produced by any combination of these methods
on steel engraved borders or may be produced in any other manner permitted by
the rules of any securities exchange, all as determined by the officers
executing such Notes, as evidenced by their signing of such Notes.
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<PAGE> 18
SECTION 2.2. FORM OF FACE OF NOTE.
SIMULA, INC.
% SENIOR SUBORDINATED CONVERTIBLE EXCHANGE NOTE
DUE_________________
$_______________ No. _____________
SIMULA, INC., a corporation duly organized and existing under the laws of
the State of Arizona (herein called the "Company," which term includes any
successor corporation under the Indenture hereinafter referred to), for value
received, hereby promises to pay to _______________________________, or
registered assigns, the principal sum of ___________________ DOLLARS on
____________, and to pay interest thereon from the later of the Date of Issue or
the most recent Interest Payment Date to which interest has been paid or duly
provided for, as the case may be, semiannually on______ and______ in each year,
commencing______ , at the rate of % per annum, until the principal hereof is
paid or duly provided for. The interest so payable, and punctually paid or duly
provided for, on any Interest Payment Date will, subject to certain exceptions
as provided in the Indenture hereinafter referred to, be paid to the person in
whose name this Exchange Note is registered at the close of business on______
or______ (or if such day is not a Business Day then at the close of business on
the Business Day next preceding such day) next preceding such Interest Payment
Date. Payments of the principal of (and premium, if any) and interest on this
Note will be made at the office or agency of the Company maintained for that
purpose, or in such other office or agency as may be established by the Company
pursuant to said Indenture, in such coin or currency of the United States of
America as at the time of payment is legal tender for payment of public and
private debts; provided, however, that at the option of the Company payment of
interest may be made (subject to collection) by check mailed to the address of
the person entitled thereto as such address shall appear on the Note Register.
Reference is hereby made to the further provisions of this Exchange Note
set forth on the reverse side hereof which further provisions shall for all
purposes have the same effect as though fully set forth at this place.
This Exchange Note shall not be valid or become obligatory for any purpose
until the certificate of authentication hereof shall have been manually signed
by the Trustee under the Indenture.
IN WITNESS WHEREOF, SIMULA, INC. has caused this Exchange Note to be
signed in its name by the manual or facsimile signature of its President and
attested by the manual or facsimile signature of its Secretary.
Dated: _________________________
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<PAGE> 19
SIMULA, INC.
By:
---------------------------------
ATTEST:
- ---------------------------------
Secretary
SECTION 2.3. FORM OF REVERSE OF NOTE.
SIMULA, INC.
% SENIOR SUBORDINATED CONVERTIBLE EXCHANGE NOTE
DUE_______________
This Note is one of a duly authorized issue of the Notes of the Company
designated as its % Senior Subordinated Convertible Exchange Notes due
(herein called the "Exchange Notes"), limited in aggregate principal amount
to $ issued and to be issued under an Indenture dated as of
(hereinafter called the "Indenture"), between the Company and Bank One Trust
Company, NA, as Trustee (herein called the "Trustee," which term includes any
successor Trustee under the Indenture), to which Indenture and all indentures
supplemental thereto reference is hereby made for a statement of the respective
rights thereunder of the Company, the Trustee and the Holders of the Exchange
Notes, and the terms upon which the Exchange Notes are, and are to be,
authenticated and delivered.
The Indenture permits, with certain exceptions, as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Exchange Notes under the Indenture
at any time by the Company with the consent of the Holders of a majority in
aggregate principal amount of the Exchange Notes at the time Outstanding, as
defined in the Indenture. The Indenture also contains provisions permitting the
Holders of a majority in aggregate principal amount of the Exchange Notes at the
time Outstanding, as defined in the Indenture, on behalf of the Holders of all
the Exchange Notes, to waive compliance by the Company with certain provisions
of the Indenture and certain past defaults under the Indenture and their
consequences. Any such consent or waiver by the Holder of this Exchange Note
shall be conclusive and binding upon such Holder and upon all future Holders of
this Exchange Note and of any Exchange Note issued upon the registration or
transfer hereof or in exchange therefor or in lieu hereof, whether or not
notation of such consent or waiver is made upon this Exchange Note.
No reference herein to the Indenture and no provisions of this Exchange
Note or of the Indenture shall alter or impair the obligation of the Company,
which is absolute and unconditional, to pay the principal of (and premium if
any) and interest on this Exchange Note at the times, places and rate, and in
the coin and currency, herein prescribed.
As provided in the Indenture and subject to certain limitations therein
set forth, this Exchange Note
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<PAGE> 20
is transferable on the Note Register of the Company, upon surrender of this
Exchange Note for registration of transfer at the office or agency of the
Company to be maintained for that purpose, or at such other office or agency as
may be established by the Company for such purpose pursuant to the Indenture,
duly endorsed by, or accompanied by written instrument of transfer in form
satisfactory to the Company and the Note Registrar duly executed by the Holder
hereof or his attorney duly authorized in writing, and thereupon one or more new
Notes, of authorized denominations and for the same aggregate principal amount,
will be issued to the designated transferee or transferees. The Company has
appointed the Trustee as the initial Note Registrar and Paying Agent for the
Exchange Notes.
The Exchange Notes and the accrued interest payable thereon are
convertible into shares of the Company's Common Stock, par value $.01 per share,
at a conversion price of $ per share, subject to adjustment as set forth below.
No fractional shares will be issued. In lieu thereof, the Company will pay cash
for fractional share amounts equal to the fair market value of the Common Stock
as quoted as the closing price on the New York Stock Exchange ("NYSE") on the
date of conversion.
A holder of Exchange Notes may convert his Notes by surrendering to the
conversion agent each Note covering Exchange Notes to be converted together with
a statement of the name or names in which the shares of Common Stock shall be
registered upon issuance (the date of such surrender, the "Conversion Date").
Every such notice of election to convert will constitute a contract between the
holder giving such notice and the Company whereby such holder will be deemed to
subscribe for the shares of Common Stock he will be entitled to receive upon
such conversion and, in payment and satisfaction of such subscription, to
surrender the Exchange Notes to be converted and to release the Company from all
further obligation thereon and whereby the Company will be deemed to accept the
surrender of such Exchange Notes in full payment of the shares of Common Stock
so subscribed for and to be issued upon such conversion. As promptly as
practicable after the Conversion Date, the Company shall issue and deliver to
the converting holder of the Exchange Notes a certificate representing the
number of shares of Common Stock into which the Exchange Notes was converted
together with interest payments, if any, payable on the Exchange Notes so
converted as may be due and made payable to holders of record of Exchange Notes
on the record date immediately preceding the Conversion Date. If a holder of
Exchange Notes elects to convert only a portion of his Exchange Notes, upon such
conversion the Company shall also deliver to the holder of the Exchange Notes a
new Exchange Note representing his unconverted Exchange Notes. In lieu of
fractional shares of Common Stock, there will be paid to the holder of the
Exchange Notes at the time of conversion an amount in cash equal to the same
fraction of the current market value of a share of Common Stock of the Company.
This current market value will be deemed the closing price of the Common Stock
on the NYSE on the last trading day preceding the Conversion Date.
The Conversion Rate is subject to adjustment upon the occurrence of
certain events, including the issuance of shares of Common Stock or other
securities of the Company as a dividend or distribution on shares of Common
Stock of the Company to the holders of all of its outstanding shares of Common
Stock; subdivisions, combinations, or certain reclassifications of shares of
Common Stock of the Company; the issuance of shares of Common Stock of the
Company or of rights, options, or warrants to subscribe for or purchase shares
of Common Stock of the Company at less than the effective Conversion Price of
the Exchange Notes; or the distribution to the holders of shares of Common Stock
of the Company generally of evidences of indebtedness or assets (excluding cash
dividends and distributions made out of current or retained earnings) or rights,
options, or warrants to subscribe for securities of the Company other than those
mentioned above. No adjustment in the Conversion Rate will be required to be
made with respect to the Exchange Notes until cumulative adjustments amount to
1% or more; however, any such adjustment not required to be made will be carried
forward and taken into account in any subsequent adjustment. No accrued and
unpaid interest payments will be paid upon conversion of the
-16-
<PAGE> 21
Exchange Notes unless the conversion occurs after the record date for such
payments.
In the event of any consolidation with or merger of the Company into
another corporation, or sale of all or substantially all of the properties and
assets of the Company to any other corporation, or in case of any reorganization
of the Company, Exchange Notes would thereupon become convertible only into the
number of shares of stock or other securities, assets, or cash to which a holder
of the number of shares or Common Stock of the Company issuable (at the time of
such consolidation, merger, sale, or reorganization) upon conversion of such
Exchange Notes would have been entitled upon such consolidation, merger, sale or
reorganization.
If not earlier converted, the Exchange Notes may be redeemed upon at least
30 days' notice, at the Company's option, in whole or in part on a pro rata
basis, on and after _________________, 1999, at the following redemption prices
(expressed in percentages of the principal amount) if redeemed during the
twelve-month period beginning _____________ of the year indicated below, in each
case together with accrued interest payable thereon to the redemption date:
<TABLE>
<CAPTION>
Year Redemption Price
---- ----------------
<S> <C>
1999
2000
2001
2002
2003
</TABLE>
However, on or after _______________, 1999 and prior to _________________,
2000, the Exchange Notes will not be redeemable unless the last reported sale
price of the Company's Common Stock as quoted on the NYSE has equaled or
exceeded $ ___________ for 20 trading days within a period of 30 consecutive
trading days.
Upon a Change of Control (as defined in Section 10.14 of the Indenture),
the Company will be required to offer to purchase all of the Exchange Notes at
____% of the principal amount thereof, plus accrued interest, if any, to the
date of purchase. In addition, in the event that the Company sells assets, under
certain circumstances, as described in Section 10.9 of the Indenture, the
Company will be required to make an offer to purchase a certain principal amount
of the Exchange Notes, on a pro rata basis of all Exchange Notes tendered, at
100% of the principal amount thereof, plus accrued interest, if any, to the date
of purchase.
If an Event of Default as defined in the Indenture shall occur and be
continuing, the principal of all or a portion of the Exchange Notes may become
or be declared due and payable in the manner and with the effect provided in the
Indenture. If an Event of Default on the Exchange Notes shall occur, a default
rate of interest in the amount of 15% per annum shall accrue on the indebtedness
evidenced by the Exchange Notes from such date for such period of time until the
default is cured.
The Exchange Notes are issuable only in registered form, without coupons,
in denominations of $25 and any integral multiple thereof, as provided in the
Indenture and subject to certain limitations therein set forth. Exchange Notes
are exchangeable for a like aggregate principal amount of Exchange Notes of a
different authorized denomination, as requested by the Holder surrendering the
same.
No service charge shall be made for any such transfer or exchange, but the
Company may require payment of a sum sufficient to cover any tax or other
governmental charge payable in connection therewith.
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<PAGE> 22
The Company, the Trustee and any agent of the Company or the Trustee may
treat the person in whose name this Exchange Note is registered as the owner
hereof for all purposes, whether or not this Exchange Note be overdue, and
neither the Company, the Trustee, nor any such agent shall be affected by notice
to the contrary.
ASSIGNMENT FORM
To assign this Exchange Note fill in the form below:
I or we assign and transfer this Exchange Note to:
- --------------------------------------------------------------------------------
(Insert assignee's social security or tax identification no.)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint as agent to
-------------------------------------
transfer this Exchange Note on the books of the Company. The agent may
substitute another to act for him.
Date: Your Signature:
------------------------- ----------------------------
(Sign exactly as your name
appears on the other side of
this Note)
Signature Guarantee:
----------------------------------------------------------
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<PAGE> 23
FORM OF OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Exchange Note purchased by the Company
pursuant to Section 10.9 or Section 10.14 of the Indenture, check the
appropriate box:
Section 10.9 [ ] Section 10.14 [ ]
If you want to have only part of this Exchange Note purchased by the
Company pursuant to Section 10.9 or Section 10.14 of the Indenture, state the
amount (in integral multiples of $25):
$
--------------------------
Date: Your Signature:
---------------------- -----------------------------
(Sign exactly as your name
appears on the other side of
this Note)
Signature Guarantee:
-----------------------------------------------------------
-19-
<PAGE> 24
SECTION 2.4. FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION.
This is one of the Exchange Notes referred to in the within mentioned
Indenture.
BANK ONE TRUST COMPANY, NA, as Trustee
By:
---------------------------------------
AUTHORIZED SIGNATURE
ARTICLE 3
THE NOTES
SECTION 3.1. TITLE AND TERMS.
(a) The aggregate principal amount of Notes which may be authenticated and
delivered under this Indenture is limited to $150,000,000, except for Notes
authenticated and delivered upon transfer of, or in exchange for, or in lieu of
other Notes pursuant to Sections 3.4, 3.5, 3.6 and 9.6. The Company may issue
subseries of the Notes, which will be on substantially similar terms except with
regard to maturity, interest rate, and interest payment date. Any such subseries
will be issued pursuant to a supplemental indenture requiring only the consent
of the Trustee, so long as the aggregate principal amount does not exceed
$150,000,000. The Exchange Notes issued hereunder shall consist of $_______ of
______% Senior Subordinated Convertible Exchange Notes due__________ (Series ).
Forthwith upon the execution and delivery of this Indenture, or from time to
time thereafter, Notes up to a maximum aggregate principal amount of
$___________ may be executed by the Company and delivered to the Trustee for
authentication, and shall thereupon be authenticated and delivered by the
Trustee upon Company order, without any further action by the Company. The Notes
issued hereunder will rank pari passu with any Notes under this Indenture issued
by the Company in the future up to $________ additional principal amount.
(b) The Exchange Notes shall be known and designated as the "______%
Senior Subordinated Convertible Exchange Notes due __________(Series )" of the
Company. Their Stated Maturity shall be ______________ and they shall bear
interest at the rate of __% per annum from their Date of Issue or from the most
recent Interest Payment Date to which interest has been paid or duly provided
for, as the case may be, payable semiannually on _____________ and
___________________, commencing ______________ until the principal thereof is
paid or duly provided for. The Exchange Notes are subject to tender for purchase
as provided in Sections 10.9 and 10.14 hereof. The Holder of any Exchange Note
at the close of business on any record date (as hereinafter defined) with
respect to any Interest Payment Date shall be entitled to receive the interest
payable thereon on such Interest Payment Date notwithstanding the cancellation
of such Note upon any transfer or exchange thereof subsequent to such record
date and prior to such Interest Payment Date, in which case such defaulted
interest shall be paid to the Person in whose name such Note is registered (a)
on the date of payment of such defaulted interest or (b) at the election of the
Company, on a special record date, which shall be not less than five Business
Days preceding the date of payment of such defaulted interest, established for
such purpose by notice given by or on behalf of the Company to the Holders not
less than ten Business Days preceding the date so established. The term "record
date" as used herein with respect to any Interest Payment Date (other than any
date on which defaulted interest is paid) shall mean the _____________ or
____________ (or if that day is not a Business Day, the next preceding Business
-20-
<PAGE> 25
Day) next preceding such Interest Payment Date.
(c) The Exchange Notes and the accrued interest payable thereon are
convertible into shares of the Company's Common Stock, par value $.01 per share,
at a conversion price of $__________ per share, subject to adjustment as set
forth below. No fractional shares will be issued. In lieu thereof, the Company
will pay cash for fractional share amounts equal to the fair market value of the
Common Stock as quoted as the closing price on the New York Stock Exchange
("NYSE") on the date of conversion.
A holder of Exchange Notes may convert his Notes by surrendering to the
conversion agent each Note covering Exchange Notes to be converted together with
a statement of the name or names in which the shares of Common Stock shall be
registered upon issuance (the date of such surrender, the "Conversion Date").
Every such notice of election to convert will constitute a contract between the
holder giving such notice and the Company whereby such holder will be deemed to
subscribe for the shares of Common Stock he will be entitled to receive upon
such conversion and, in payment and satisfaction of such subscription, to
surrender the Exchange Notes to be converted and to release the Company from all
further obligation thereon and whereby the Company will be deemed to accept the
surrender of such Exchange Notes in full payment of the shares of Common Stock
so subscribed for and to be issued upon such conversion. As promptly as
practicable after the Conversion Date, the Company shall issue and deliver to
the converting holder of the Exchange Notes a certificate representing the
number of shares of Common Stock into which the Exchange Notes was converted
together with interest payments, if any, payable on the Exchange Notes so
converted as may be due and made payable to holders of record of Exchange Notes
on the record date immediately preceding the Conversion Date. If a holder of
Exchange Notes elects to convert only a portion of his Exchange Notes, upon such
conversion the Company shall also deliver to the holder of the Exchange Notes a
new Exchange Note representing his unconverted Exchange Notes. In lieu of
fractional shares of Common Stock, there will be paid to the holder of the
Exchange Notes at the time of conversion an amount in cash equal to the same
fraction of the current market value of a share of Common Stock of the Company.
This current market value will be deemed the closing price of the Common Stock
on the NYSE on the last trading day preceding the Conversion Date.
The Conversion Rate is subject to adjustment upon the occurrence of
certain events, including the issuance of shares of Common Stock or other
securities of the Company as a dividend or distribution on shares of Common
Stock of the Company to the holders of all of its outstanding shares of Common
Stock; subdivisions, combinations, or certain reclassifications of shares of
Common Stock of the Company; the issuance of shares of Common Stock of the
Company or of rights, options, or warrants to subscribe for or purchase shares
of Common Stock of the Company at less than the effective Conversion Price of
the Exchange Notes; or the distribution to the holders of shares of Common Stock
of the Company generally of evidences of indebtedness or assets (excluding cash
dividends and distributions made out of current or retained earnings) or rights,
options, or warrants to subscribe for securities of the Company other than those
mentioned above. No adjustment in the Conversion Rate will be required to be
made with respect to the Exchange Notes until cumulative adjustments amount to
1% or more; however, any such adjustment not required to be made will be carried
forward and taken into account in any subsequent adjustment. No accrued and
unpaid interest payments will be paid upon conversion of the Exchange Notes
unless the conversion occurs after the record date for such payments.
In the event of any consolidation with or merger of the Company into
another corporation, or sale of all or substantially all of the properties and
assets of the Company to any other corporation, or in case of any reorganization
of the Company, Exchange Notes would thereupon become convertible only into the
number of shares of stock or other securities, assets, or cash to which a holder
of the number of shares or Common Stock of the Company issuable (at the time of
such consolidation, merger, sale, or
-21-
<PAGE> 26
reorganization) upon conversion of such Exchange Notes would have been entitled
upon such consolidation, merger, sale or reorganization.
(d) If not earlier converted, the Exchange Notes may be redeemed upon at
least 30 days' notice, at the Company's option, in whole or in part on a pro
rata basis, on and after ________________, 1999, at the following redemption
prices (expressed in percentages of the principal amount) if redeemed during the
twelve-month period beginning _________________________ of the year indicated
below, in each case together with accrued interest payable thereon to the
redemption date:
-22-
<PAGE> 27
<TABLE>
<CAPTION>
Year Redemption Price
---- ----------------
<S> <C>
1999
2000
2001
2002
2003
</TABLE>
However, on or after ______________, 1999 and prior to
____________________ , 2000, the Exchange Notes will not be redeemable unless
the last reported sale price of the Company's Common Stock as quoted on the NYSE
has equaled or exceeded $_______________ 20 trading days within a period of 30
consecutive trading days.
(e) The principal (and premium, if any) of and interest on the Notes shall
be payable at the office or agency of the Company; provided, however, that
interest may be payable at the option of the Company by check mailed to the
address of the person entitled thereto as such address shall appear on the Note
Register.
(f) The Notes shall be subordinated in right of payment to Senior
Indebtedness of the Company as provided in Article 11.
SECTION 3.2. DENOMINATIONS.
The Notes may be issued in denominations of $25 and any integral multiple
thereof.
SECTION 3.3. EXECUTION, AUTHENTICATION AND DELIVERY.
(a) The Notes shall be executed on behalf of the Company by its President
or one if its Vice Presidents under its corporate seal reproduced thereon and
attested by its Secretary or one of its Assistant Secretaries. The President of
each Subsidiary Guarantor shall sign the Guarantee of such Subsidiary Guarantor
on behalf of such Subsidiary Guarantor. The signature of any of these officers
on the Notes may be manual or facsimile.
(b) Notes bearing the manual or facsimile signatures of individuals who
were at any time the proper officers of the Company or a Subsidiary Guarantor,
as the case may be, shall bind the Company and such Subsidiary Guarantor,
respectively, notwithstanding that such individuals or any of them have ceased
to hold such offices prior to the authentication and delivery of such Notes or
did not hold such offices at the date of such Notes.
(c) At any time and from time to time after the execution and delivery of
this Indenture, the Company may deliver Notes executed by the Company to the
Trustee, together with a Company Order for the authentication and delivery of
such Notes; and the Trustee in accordance with such Order shall authenticate and
deliver such Notes as in this Indenture provided and not otherwise.
(d) Each Note shall be dated the date of its authentication.
(e) No Note shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose, unless there appears on such Note a
certificate of authentication substantially in the form provided for herein
executed by the Trustee by the manual signature of one of its authorized
officers, and such certificate upon any Note shall be conclusive evidence, and
the only evidence, that such Note has been duly authenticated and delivered
hereunder.
-23-
<PAGE> 28
SECTION 3.4. TEMPORARY NOTES.
(a) Pending the preparation of definitive Notes, the Company may execute,
and upon Company Order the Trustee shall authenticate and deliver, temporary
Notes which are printed, lithographed, typewritten, mimeographed or otherwise
produced in any denomination, substantially of the tenor of the definitive Notes
in lieu of which they are issued, with such appropriate insertions, omissions,
substitutions and other variations as the officers executing such Notes may
determine, as evidenced by their signing of such Notes.
(b) If temporary Notes are issued, the Company will cause definitive Notes
to be prepared without unreasonable delay. After the preparation of definitive
Notes, the temporary Notes shall be exchangeable for definitive Notes upon
surrender of the temporary Notes at the office or agency of the Company, without
charge to the Holder. Upon surrender for cancellation of any one or more
temporary Notes the Company shall execute and the Trustee shall authenticate and
deliver in exchange therefor a like principal amount of definitive Notes of
authorized denominations. Until so exchanged the temporary Notes shall in all
respects be entitled to the same benefits under this Indenture as definitive
Notes.
SECTION 3.5. TRANSFER AND EXCHANGE.
(a) The Company shall cause to be kept at the Corporate Trust Office of
the Trustee a register (herein sometimes referred to as the "Note Register") in
which, subject to such reasonable regulations as it may prescribe, the Company
shall provide for the registration of and registration of transfers of Notes as
herein provided. The Trustee is hereby appointed the Note Registrar and Paying
Agent for the purpose of registering Notes and transfers of Notes as herein
provided.
(b) Upon surrender for registration of transfer of any Note at the office
or agency of the Company, the Company shall execute, and the Trustee shall
authenticate and deliver, in the name of the designated transferee or
transferees, one or more of new Notes of a like aggregate principal amount, all
as requested by the transferor.
(c) At the option of the Holder, Notes may be exchanged for other Notes of
any authorized denominations, of a like aggregate principal amount, upon
surrender of the Notes to be exchanged at such office or agency, and upon
payment, if the Company shall so require, of the charges hereinafter provided.
Whenever any Notes are so surrendered for exchange, the Company shall execute,
and the Trustee shall authenticate and deliver, the Notes which the Holder
making the exchange is entitled to receive.
(d) All Notes surrendered upon any exchange or transfer provided for in
this Indenture shall be promptly canceled by the Trustee and thereafter disposed
of as directed by a Company Order.
(e) All Notes issued in exchange for or upon transfer of Notes shall be
the valid obligations of the Company, evidencing the same debt, and entitled to
the same benefits under this Indenture, as the Notes surrendered for such
exchange or transfer.
(f) Every Note presented or surrendered for transfer or exchange shall (if
so required by the Company or the Trustee) be duly endorsed, or be accompanied
by a written instrument of transfer in form satisfactory to the Company and the
Note Registrar duly executed, by the Holder thereof or his attorney duly
authorized in writing.
(g) The Company may require payment of a sum sufficient to cover any tax
or other
-24-
<PAGE> 29
governmental charge that may be imposed in connection with any transfer or
exchange of Notes, other than exchanges expressly provided in this Indenture to
be made at the Company's own expense or without expense or without charge to
Holders.
SECTION 3.6. MUTILATED, DESTROYED, LOST OR STOLEN NOTES.
(a) A mutilated Note may be surrendered and thereupon the Company shall
execute and the Trustee shall authenticate and deliver in exchange therefor a
new Note of like tenor and principal amount and bearing a number not
contemporaneously outstanding. If there be delivered to the Company and to the
Trustee:
(i) evidence to their satisfaction of the destruction, loss or
theft of any Note, and
(ii) such security or indemnity as may be required by them to save
each of them harmless,
then, in the absence of notice to the Company or the Trustee that such Note has
been acquired by a bona fide purchaser, the Company shall execute and upon its
request the Trustee shall authenticate and deliver in lieu of any such
destroyed, lost or stolen Note, a new Note of like tenor and principal amount
and bearing a number not contemporaneously outstanding.
(b) In case any such mutilated, destroyed, lost or stolen Note has become
or is about to become due and payable, the Company in its discretion may,
instead of issuing a new Note, pay such Note.
(c) Upon the issuance of any new Note under this Section , the Company may
require the payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in relation thereto and any other expenses (including
the fees and expenses of the Trustee) connected therewith.
(d) Every new Note issued pursuant to this Section in lieu of any
destroyed, lost or stolen Note shall constitute an original additional
contractual obligation of the Company, whether or not the destroyed, lost or
stolen Note shall be at any time enforceable by anyone, and shall be entitled to
all the benefits of this Indenture equally and proportionately with any and all
other Notes duly issued hereunder.
(e) The provisions of this Section are exclusive and shall preclude (to
the extent lawful) all other rights and remedies with respect to the replacement
or payment of mutilated, destroyed, lost or stolen Notes.
SECTION 3.7. PERSONS DEEMED OWNERS.
The Company, the Trustee and any agent of the Company may treat the Person
in whose name any Note is registered as the owner of such Note for the purpose
of receiving payment of principal of (and premium, if any) and interest on such
Note and for all other purposes whatsoever whether or not such Note be overdue,
and neither the Company, the Trustee nor any agent of the Company shall be
affected by notice to the contrary.
SECTION 3.8. CANCELLATION.
All Notes surrendered for payment, registration of transfer or exchange
shall, if surrendered to the Company or any agent of the Company, be delivered
to the Trustee and, if not already cancelled, shall be promptly cancelled by it.
The Company may at any time deliver to the Trustee for cancellation any Notes
-25-
<PAGE> 30
previously authenticated and delivered hereunder which the Company may have
acquired in any manner whatsoever, and all Notes so delivered shall be promptly
cancelled by the Trustee. No Notes shall be authenticated in lieu of or in
exchange for any Notes cancelled as provided in this Section , except as
expressly permitted by this Indenture. All cancelled Notes held by the Trustee
shall be disposed of as directed by a Company Order.
SECTION 3.9. AUTHENTICATION AND DELIVERY OF EXCHANGE NOTES.
Forthwith upon the execution and delivery of this Indenture, or from time
to time thereafter, the EXCHANGE Notes may be executed by the Company and
delivered to the Trustee for authentication, and shall thereupon be
authenticated and delivered by the Trustee upon Company Order, without any
further action by the Company.
SECTION 3.10. PAYING AGENT TO HOLD MONEY IN TRUST.
The Company shall require each Paying Agent other than the Trustee to hold
in trust for the benefit of Holders or the Trustee all money held by such Paying
Agent for the payment of principal of, premium, if any, or interest on the Notes
(whether such money shall have been paid to it by the Company or any Subsidiary
Guarantor), and to notify the Trustee of any Default by the Company or any
Subsidiary Guarantor in making any such payment. While any such Default
continues, the Trustee may require the Paying Agent to pay all money held by it
to the Trustee. Except as provided in the immediately preceding sentence, the
Company at any time may require a Paying Agent to pay all money held by it to
the Trustee and to account for any funds disbursed. Upon such payment over to
the Trustee and accounting for any funds disbursed, such Paying Agent (if other
than the Company or a Subsidiary) shall have no further liability for the money.
If the Company or a Subsidiary acts as Paying Agent, it shall segregate and hold
as separate trust funds for the benefit of the Holders all money held by it as
Paying Agent.
ARTICLE 4
DISCHARGE OF INDENTURE
SECTION 4.1. TERMINATION OF COMPANY'S OBLIGATIONS.
(a) This Indenture shall cease to be of further effect (subject to Section
4.5) when all outstanding Notes theretofore authenticated and issued hereunder
have been delivered (other than any Notes which shall have been destroyed, lost
or stolen and which shall have been replaced or paid as provided in Section 3.6)
to the Trustee for cancellation and the Company or the Subsidiary Guarantors
have paid all sums payable hereunder and under the Notes.
(b) In addition to the provisions of Section 4.1(a), at the Company's
option, either (i) the Company shall be deemed to have been discharged from its
obligations with respect to the Notes and the provisions of this Indenture
(subject to Section 4.5) on the 31st day after the applicable conditions set
forth below have been satisfied or (ii) the Company shall cease to be under any
obligation to comply with any term, provision or condition set forth in Sections
8.1, 10.2, 10.3 and 10.7 through 10.14 with respect to the Notes at any time
after the applicable conditions set forth below have been satisfied:
(1) the Company or any Subsidiary Guarantor shall have deposited or
caused to be deposited irrevocably with the Trustee in trust, specifically
pledged as security for, and dedicated
-26-
<PAGE> 31
solely to, the benefit of the Holders (i) U.S. Legal Tender or (ii) U.S.
Government Obligations, which through the payment of interest and
principal in respect thereof in accordance with their terms will provide
(without any reinvestment of such interest or principal), not later than
one day before the due date of any payment, U.S. Legal Tender or (iii) a
combination of (i) and (ii), in an amount sufficient, in the opinion (with
respect to (ii) and (iii)) of a nationally recognized firm of independent
public accountants expressed in a written certification thereof delivered
to the Trustee at or prior to the time of such deposit, to pay and
discharge each installment of principal of, premium, if any, and interest
on the outstanding Notes on the dates such installments are due;
(2) the Company shall have delivered to the Trustee an Officers'
Certificate certifying as to whether the Notes are then listed on a
national securities exchange;
(3) if the Notes are then listed on a national securities exchange,
the Company shall have delivered to the Trustee an Officers' Certificate
to the effect that the Company's exercise of its option under this Section
would not cause the Notes to be delisted;
(4) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit which is not cured by such deposit
or shall occur as a result of such deposit and such deposit will not
result in a breach or violation of, or constitute a default under, any
other instrument to which the Company or a Subsidiary Guarantor or any
Subsidiary is a party or by which any of them is bound, as evidenced to
the Trustee in an Officers' Certificate delivered to the Trustee
concurrently with such deposit;
(5) The Company shall have delivered to the Trustee an Opinion of
Counsel to the effect that Holders will not recognize income, gain or loss
for federal income tax purposes as a result of the Company's exercise of
its option under this Section and will be subject to federal income tax on
the same amount and in the same manner and at the same time as would have
been the case if such option had not been exercised, and, in the case of
the Notes being discharged, accompanied by a ruling to that effect
received from or published by the Internal Revenue Service (it being
understood that (A) such Opinion of Counsel shall also state that such
ruling is consistent with the conclusions reached in such Opinion of
Counsel and (B) the Trustee shall be under no obligation to investigate
the basis of correctness of such ruling);
(6) the Company shall have delivered to the Trustee an Opinion of
Counsel to the effect that the Company's exercise of its option under this
Section will not result in any of the Company, the Trustee or the trust
created by the Company's deposit of funds hereunder becoming or being
deemed to be an "investment company" under the Investment Company Act of
1940, as amended;
(7) the Company or any Subsidiary Guarantor shall have paid or duly
provided for payment of all amounts then due to the Trustee pursuant to
Section 6.6; and
(8) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent provided for in this Section relating to the satisfaction and
discharge of this Indenture have been complied with.
-27-
<PAGE> 32
SECTION 4.2. APPLICATION OF TRUST MONEY.
The Trustee shall hold in trust money or U.S. Government Obligations
deposited with it pursuant to Section 4.1. It shall apply the deposited money
and the money from U.S. Government Obligations through the Paying Agent and in
accordance with the provisions of the Notes and this Indenture to the payment of
principal of, premium, if any, and interest on the Notes as and when due.
SECTION 4.3. REPAYMENT TO COMPANY.
The Trustee and the Paying Agent shall promptly pay to the Company, upon
the written request of the Company, accompanied by a certificate of independent
accountants, acceptable to the Trustee, indicating the amount of the excess, any
money or securities held by them at any time in excess of amounts required to
pay principal of or interest on the Notes and to pay the expenses of the Trustee
as set forth in Section 6.6. The Trustee and the Paying Agent shall pay to the
Company upon request any money held by them for the payment of principal or
interest that remains unclaimed for two years after the payment was due on the
Notes; provided, however, that the Trustee or Paying Agent before being required
to make any such repayment, may at the expense of the Company cause to be
published once in a newspaper of general circulation in the City of Phoenix or
mail to each such Holder notice that such money remains unclaimed and that,
after a date specified therein, which shall not be less than 30 days from the
date of such publication or mailing any unclaimed balance of such money then
remaining will be paid to the Company. After repayment to the Company, any
Holder entitled to such money shall thereafter, as an unsecured general
creditor, look (unless an applicable abandoned property law designates another
Person) only to the Company for payment, and all liability of the Trustee or
such Paying Agent with respect to such trust money, and all liability of the
Company as trustee thereof, shall thereupon cease.
-28-
<PAGE> 33
SECTION 4.4. REINSTATEMENT.
If the Trustee or Paying Agent is unable to apply any money or U.S.
Government Obligations in accordance with Section 4.1 by reason of any legal
proceeding or by reason of any order or judgment of any court or governmental
authority enjoining, restraining or otherwise prohibiting such application, the
Company's and the Subsidiary Guarantors' obligations under this Indenture and
the Notes shall be revived and reinstated as though no deposit had occurred
pursuant to Section 4.1 until such time as the Trustee or Paying Agent is
permitted to apply all such money or U.S. Government Obligations in accordance
with Section 4.1; provided, however, that if the Company or any Subsidiary
Guarantor has made any payment of interest on or principal of any Notes because
of the reinstatement of its obligations, the Company or such Subsidiary
Guarantor shall be subrogated to the rights of the Holders of such Notes to
receive such payment from the money or U.S. Government Obligations held by the
Trustee or Paying Agent.
SECTION 4.5. SURVIVAL OF CERTAIN OBLIGATIONS.
Notwithstanding the satisfaction and discharge of this Indenture and of
the Notes referred to in Section 4.1(a) and (b), the respective obligations of
the Company, the Subsidiary Guarantors and the Trustee under Sections 4.2, 4.3,
4.4, 6.6, 10.1 and 10.4 shall survive until the Notes are no longer outstanding,
and thereafter the obligations of the Company and the Trustee under Sections
4.2, 4.3, 4.4 and 6.6 shall survive. Nothing contained in this Article shall
abrogate any of the obligations or duties of the Trustee under this Indenture.
ARTICLE 5
REMEDIES
SECTION 5.1. EVENTS OF DEFAULT.
An "Event of Default" occurs upon:
(1) default by the Company or any Subsidiary Guarantor in the payment of
principal of, or premium, if any, on the Notes when due and payable at Maturity,
or upon repurchase pursuant to Section 10.9 or 10.14 (whether or not such
payment shall be prohibited by the provisions of Articles 11 or 13);
(2) default by the Company or any Subsidiary Guarantor in the payment of
any installment of interest on the Notes when due and payable and continuance of
such default for 30 days (whether or not such payment shall be prohibited by the
provisions of Articles 11 or 13);
(3) default on any other Indebtedness of the Company or any Subsidiary
Guarantor if such default results in the acceleration of the maturity of any
such Indebtedness having a principal amount of $10,000,000 or more individually
or, taken together with the principal amount of any other such Indebtedness in
default or the maturity of which has been so accelerated, in the aggregate;
(4) default in the performance, or breach, of any other covenant or
agreement of the Company or any Subsidiary Guarantor in this Indenture, the
Notes or the Guarantees and failure to remedy such default within a period of 60
days after written notice thereof from the Trustee or Holders of 25% in
principal amount of the then outstanding Notes;
(5) the entry by a court of one or more judgments or orders against the
Company or any
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Subsidiary Guarantor in an aggregate amount in excess of $10,000,000 (net of
applicable insurance coverage by a third party insurer which is acknowledged in
writing by such insurer) that has not been vacated, discharged, satisfied or
stayed pending appeal within 60 days from the entry thereof;
(6) a Guarantee of a Subsidiary Guarantor shall cease to be in full force
or effect (other than a release of a Guarantee in accordance with Section 12.4)
or any Subsidiary Guarantor shall deny or disaffirm its obligation with respect
thereto;
(7) the Company or any Subsidiary Guarantor pursuant to or within the
meaning of any bankruptcy law:
(A) commences a voluntary case or proceeding,
(B) consents to the entry of an order for relief against it in
an involuntary case or proceeding,
(C) consents to the appointment of a custodian of it or for all
or substantially all of its property,
(D) makes a general assignment for the benefit of its
creditors, or
(E) admits in writing that it generally is unable to pay its
debts as the same become due; or
(8) a court of competent jurisdiction enters an order or decree under any
bankruptcy law that:
(A) is for relief (with respect to the petition commencing such
case) against the Company or any Subsidiary Guarantor in an involuntary case or
proceeding,
(B) appoints a custodian of the Company or any Subsidiary
Guarantor for all or substantially all of its respective property, or
(C) orders the liquidation of the Company or any Subsidiary
Guarantor,
and the order or decree remains unstayed and in effect for 90 days.
The term "bankruptcy law" means Title 11, U.S. Code or any similar federal
or state law for the relief of debtors. The term "custodian" means any receiver,
trustee, assignee, liquidator or similar official under any bankruptcy law.
SECTION 5.2. INTEREST RATE UPON DEFAULT. If an Event of Default on the
Notes shall occur, a default rate of interest in the amount of 15% per annum
shall accrue on the indebtedness evidenced by the Notes from such date for such
period of time until the default is cured.
SECTION 5.3. ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT.
(a) If an Event of Default occurs and is continuing, subject to applicable
cure periods, then and in every such case the Trustee or the Holders of not less
than 25% in principal amount of the Notes Outstanding may declare the unpaid
principal, premium, if any, and accrued and unpaid interest of all the Notes to
be due and payable immediately, by a notice in writing to the Company (and to
the Trustee if given
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by Holders), and upon any such declaration such principal, premium, if any, and
accrued and unpaid interest shall become immediately due and payable,
notwithstanding anything contained in this Indenture or the Notes or Guarantees
to the contrary. If an Event of Default specified in Section 5.1(7) or 5.1(8)
above occurs, all unpaid principal of, and accrued interest on, the Notes then
outstanding will become due and payable, without any declaration or other act on
the part of the Trustee or any Holder.
(b) At any time after such a declaration of acceleration has been made and
before a judgment or decree for payment of the money due has been obtained by
the Trustee as hereinafter in this Article provided, the Holders of a majority
in principal amount of the Notes Outstanding, by written notice to the Company
and the Trustee, may rescind and annul such declaration and its consequences if
(1) the Company has paid or deposited with the Trustee a sum
sufficient to pay
(A) all overdue installments of interest on all Notes,
(B) the principal of (and premium, if any, on) any Notes which have
become due otherwise than by such declaration of acceleration and interest
thereon at the rate borne by the Notes,
(C) to the extent that payment of such interest is lawful, interest
upon overdue installments of interest at the rate borne by the Notes, and
(D) all sums paid or advanced by the Trustee hereunder and the
reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel; and
(2) all Events of Default, other than the nonpayment of the principal of
Notes which have become due solely by such acceleration, have been cured or
waived as provided in Section 5.14.
No such rescission shall affect any subsequent default or impair any right
consequent thereon.
SECTION 5.4. COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT
BY TRUSTEE.
(a) The Company covenants that if
(1) default is made in the payment of any installment of interest on any
Note when such interest becomes due and payable and such default continues for a
period of 30 days, or
(2) default is made on the payment of the principal of (or premium, if
any, on) any Note at the Maturity thereof, or upon repurchase pursuant to
Section 10.9 or 10.14 (whether or not such payment shall be prohibited by the
provisions of Articles 11 or 13),
the Company will, upon demand of the Trustee, pay to it, for the benefit of the
Holders of such Notes, the whole amount then due and payable on such Notes for
principal (and premium, if any) and interest, with interest upon the overdue
principal (and premium, if any) and, to the extent that payment of such interest
shall be legally enforceable, upon overdue installments of interest, at the rate
borne by the Notes; and, in addition thereto, such further amount as shall be
sufficient to cover the costs and expenses of collection, including the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel.
(b) If the Company fails to pay such amounts forthwith upon such demand,
the Trustee, in its
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own name and as trustee of an express trust, may institute a judicial proceeding
for the collection of the sums so due and unpaid, and may prosecute such
proceeding to judgment or final decree, and may enforce the same against the
Company, the Subsidiary Guarantors, or any other obligor upon the Notes and
collect the moneys adjudged or decreed to be payable in the manner provided by
law out of the property of the Company, the Subsidiary Guarantors, or any other
obligor upon the Notes, wherever situated.
(c) If an Event of Default occurs and is continuing, the Trustee may in
its discretion proceed to protect and enforce its rights and the rights of the
Holders by such appropriate judicial proceedings as the Trustee shall deem most
effectual to protect and enforce any such rights, whether for the specific
enforcement of any covenant or agreement in this Indenture or in aid of the
exercise of any power granted herein, or to enforce any other proper remedy.
SECTION 5.5. TRUSTEE MAY FILE PROOFS OF CLAIM.
(a) In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relative to the Company, the Subsidiary Guarantors, or any
other obligor upon the Notes or the property of the Company, the Subsidiary
Guarantors, or of such other obligor or their creditors, the Trustee
(irrespective of whether the principal of the Notes shall then be due and
payable as therein expressed or by declaration or otherwise and irrespective of
whether the Trustee shall have made any demand on the Company for the payment of
overdue principal or interest) shall be entitled and empowered, by intervention
in such proceeding or otherwise,
(i) to file and prove a claim for the amount of principal (and
premium, if any) and interest owing and unpaid in respect of the Notes and
to file such other papers or documents as may be necessary or advisable in
order to have the claims of the Trustee (including any claim for the
reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel) and of the Holders allowed in such
judicial proceeding, and
(ii) to collect and receive any moneys or other property payable
or deliverable on any such claims and to distribute the same;
and any receiver, assignee, trustee, liquidator, sequestrator (or other similar
official) in any such judicial proceeding is hereby authorized by each Holder to
make such payments to the Trustee, and in the event that the Trustee shall
consent to the making of such payments directly to the Holders, to pay to the
Trustee any amount due to it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any other
amounts due the Trustee under Section 6.6.
(b) The Trustee shall not be required to join the Holders as necessary
parties to any such judicial proceeding, provided, however, that nothing herein
contained shall be deemed to authorize the Trustee to authorize and consent to
or accept, or adopt on behalf of any Holder any plan of reorganization,
arrangement, adjustment or composition affecting the Notes or the rights of any
Holder thereof, or to authorize the Trustee to vote in respect of the claim of
any Holder in any such proceeding.
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SECTION 5.6. TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION OF
NOTES.
All rights of action and claims under this Indenture, the Notes or the
Guarantees may be prosecuted and enforced by the Trustee without the possession
of any of the Notes or the Guarantees or the production thereof in any
proceeding relating thereto, and any such proceeding instituted by the Trustee
shall be brought in its own name as trustee of an express trust, and any
recovery of judgment shall, after provision for the payment of the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, be for the ratable benefit of the Holders of the Notes in respect
of which such judgment has been recovered.
SECTION 5.7. APPLICATION OF MONEY COLLECTED.
Any money collected by the Trustee pursuant to this Article shall be
applied in the following order, at the date or dates fixed by the Trustee and,
in case of the distribution of such money on account of principal (or premium,
if any) or interest, upon presentation of the Notes and the notation thereon of
the payment if only partially paid and upon surrender thereof if fully paid;
FIRST: To the payment of all amounts due the Trustee under Section 6.6;
SECOND: To the payment of the amounts then due and unpaid upon the Notes
for principal (and premium, if any) and interest, in respect of which or for the
benefit of which such money has been collected, ratably, without preference or
priority of any kind, according to the amounts due and payable on such Notes,
for principal (and premium, if any) and interest; and
THIRD: To the Company.
SECTION 5.8. LIMITATION ON SUITS.
Except as provided in Section 5.9, no Holder of any Note shall have any
right to institute any proceeding, judicial or otherwise, with respect to this
Indenture, or for the appointment of a receiver or trustee, or for any other
remedy hereunder, unless
(1) such Holder has previously given written notice to the Trustee of
a continuing Event of Default; and
(2) the Holders of not less than 25% of the principal amount of the
Outstanding Notes shall have made written request to the Trustee to institute
proceedings in respect of such Event of Default in its own name as Trustee
hereunder; and
(3) such Holder or Holders have offered to the Trustee reasonable
indemnity against the costs, expenses and liabilities to be incurred in
compliance with such request; and
(4) the Trustee for 60 days after its receipt of such notice, request and
offer of indemnity has failed to institute any such proceeding; and
(5) no direction inconsistent with such written request has been given to
the Trustee during such 60-day period by the Holders of a majority in principal
amount of the Outstanding Notes;
it being understood and intended that no one or more Holders of Notes shall have
any right in any manner whatever by virtue of, or by availing of, any provision
of this Indenture to affect, disturb or prejudice the
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rights of any Holders of Notes, or to obtain or to seek to obtain priority or
preference over any other Holders or to enforce any right under this Indenture,
except in the manner herein provided and for the equal and ratable benefit of
all the Holders of Notes.
SECTION 5.9. UNCONDITIONAL RIGHT OF HOLDERS TO RECEIVE PRINCIPAL,
PREMIUM AND INTEREST.
Notwithstanding any other provision in this Indenture, the Holder of any
Note shall have the right which is absolute and unconditional to receive payment
of the principal of (and premium, if any) and interest on such Note on the
Stated Maturity expressed in such Note and to institute suit for the enforcement
of any such payment, and such right shall not be impaired without the consent of
such Holder.
SECTION 5.10. RESTORATION OF RIGHTS AND REMEDIES.
If the Trustee or any Holder has instituted any proceeding to enforce any
right or remedy under this Indenture and such proceeding has been discontinued
or abandoned for any reason, or has been determined adversely to the Trustee or
to such Holder, then and in every such case the Company, the Trustee and the
Holders shall, subject to any determination in such proceeding, be restored
severally and respectively to their former positions hereunder, and thereafter
all rights and remedies of the Trustee and the Holders shall continue as though
no such proceeding had been instituted.
SECTION 5.11. RIGHTS AND REMEDIES CUMULATIVE.
No right or remedy herein conferred upon or reserved to the Trustee or to
the Holders is intended to be exclusive of any other right or remedy, and every
right and remedy shall, to the extent permitted by law, be cumulative and in
addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder or otherwise shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
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SECTION 5.12. DELAY OR OMISSION NOT WAIVER.
No delay or omission of the Trustee or of any Holder to exercise any right
or remedy occurring upon any Event of Default shall impair any such right or
remedy or constitute a waiver of any such Event of Default or an acquiescence
therein. Every right and remedy given by this Article or by law to the Trustee
or to Holders may be exercised from time to time and as often as may be deemed
expedient by the Trustee or by the Holders, as the case may be.
SECTION 5.13. CONTROL BY HOLDERS.
The Holders of a majority in principal amount of the Outstanding Notes
shall have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on the Trustee, provided that
(1) such direction shall not be in conflict with any rule of law or
with this Indenture; and
(2) the Trustee may take any other action deemed proper by the Trustee
which is not inconsistent with such direction.
SECTION 5.14. WAIVER OF PAST DEFAULTS.
The Holders of not less than a majority in principal amount of the
Outstanding Notes may on behalf of the Holders of all the Notes waive any past
default hereunder and its consequences, except a default
(1) in the payment of the principal of (or premium, if any) or
interest on any Note, or
(2) in respect of a covenant or provision hereof which under Article 9
cannot be modified or amended without the consent of the Holder of each
Outstanding Note affected.
Upon any such waiver, such default shall cease to exist, and any Event of
Default arising therefrom shall be deemed to have been cured, for every purpose
of this Indenture; but no such waiver shall extend to any subsequent or other
default or impair any right consequent thereon.
SECTION 5.15. UNDERTAKING FOR COSTS.
All parties to this Indenture agree, and each Holder of any Note by his
acceptance thereof shall be deemed to have agreed, that any court may in its
discretion require, in any suit for the enforcement of any right or remedy under
this Indenture, or in any suit against the Trustee for any action taken or
omitted by it as Trustee, the filing by any party litigant in such suit of an
undertaking to pay the costs of such suit, and that such court may in its
discretion assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in such suit, having due regard to the merits and
good faith of the claims or defenses made by such party litigant; but the
provisions of this Section shall not apply to any suit instituted by the Trustee
or any Holder for the enforcement of the payment of the principal of (or
premium, if any) or interest on any Note on or after the Stated Maturity
expressed in such Note, or any suit by a Holder pursuant to Section 5.9 or any
suit by Holders of more than 10% in principal amount of the then Outstanding
Notes.
SECTION 5.16. WAIVER OF STAY OR EXTENSION LAWS.
The Company and the Subsidiary Guarantors each covenant (to the extent
that it or they may
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lawfully do so) that it or they will not at any time insist upon, or plead, or
in any manner whatsoever claim or take the benefit or advantage of, any stay or
extension law wherever enacted, now or at any time hereafter in force, which may
affect the covenants or the performance of this Indenture; and the Company and
the Subsidiary Guarantors each (to the extent that it or they may lawfully do
so) hereby expressly waive all benefit or advantage of any such law, and
covenants that it or they will not hinder, delay or impede the execution of any
power herein granted to the Trustee, but will suffer and permit the execution of
every such power as though no such law had been enacted.
ARTICLE 6
THE TRUSTEE
SECTION 6.1. DUTIES OF TRUSTEE.
(a) If an Event of Default has occurred and is continuing, the Trustee
shall exercise such rights and powers vested in it by this Indenture and use the
same degree of care and skill in such exercise as a prudent person would
exercise or use under the circumstances in the conduct of such person's own
affairs.
(b) Except during the continuance of an Event of Default:
(1) The Trustee need perform only those duties that are specifically
set forth (or incorporated by reference) in this Indenture and no others.
(2) In the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness
of the opinions expressed therein, upon certificates or opinions furnished
to the Trustee and conforming to the requirements of this Indenture.
However, the Trustee shall examine such certificates and opinions to
determine whether or not they conform to the requirements of this
Indenture.
(c) The Trustee may not be relieved from liability for its own negligent
action, its own negligent failure to act, or its own willful misconduct, except
that:
(1) This paragraph (c) does not limit the effect of
paragraph (b) of this Section.
(2) The Trustee shall not be liable for any error of judgment made
in good faith by an officer of the Trustee, unless it is proved that the
Trustee was negligent in ascertaining the pertinent facts.
(3) The Trustee shall not be liable with respect to action it takes
or omits to take in good faith in accordance with a direction received by
it pursuant to Section 5.13, and the Trustee shall be entitled from time
to time to request such a direction.
(d) Every provision of this Indenture that in any way relates to the
Trustee is subject to this Section.
(e) The Trustee shall be under no obligation and may refuse to perform any
duty or exercise any right or power unless it receives indemnity satisfactory to
it against any loss, liability or expense.
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(f) The Trustee shall not be liable for interest on any money received by
it except as the Trustee may agree in writing with the Company. Money held in
trust by the Trustee need not be segregated from other funds except to the
extent required by law.
SECTION 6.2. RIGHTS OF TRUSTEE.
Subject to Section 6.1:
(a) The Trustee may rely on and shall be protected in acting or refraining
from acting upon any document believed by it to be genuine and to have been
signed or presented by the proper person. The Trustee shall not be bound to make
any investigation into the facts or matters stated in any resolution,
certificate, statement, instrument, opinion, report, notice, request, direction,
consent, order, bond, debenture or other paper or document, but the Trustee, in
its discretion, may make such further inquiry or investigation into such facts
or matters as it determines to be necessary, and, if the Trustee shall determine
to make such further inquiry or investigation, it shall be entitled to examine
the books, records and premises of the Company, personally or by agent or
attorney, to the extent reasonably required by such inquiry or investigation.
(b) Before the Trustee acts or refrains from acting, it may require an
Officers' Certificate or an Opinion of Counsel. The Trustee shall not be liable
for any action it takes or omits to take in good faith in reliance on such
certificate or opinion if the certificate or opinion conforms to the
requirements of this Indenture.
(c) The Trustee may act through agents and shall not be responsible for
the misconduct or negligence of any agent appointed with due care.
(d) The Trustee shall not be liable for any error of judgment made in good
faith by a Responsible Officer of the Trustee, unless it shall be proved that
the Trustee was negligent in ascertaining the pertinent facts.
(e) The Trustee shall not be charged with knowledge of an Event of Default
unless a Responsible Officer of the Trustee obtains written notice of such Event
of Default.
(f) The recitals contained herein and in the Notes, except the Trustee's
certificates of authentication, shall be taken as the statements of the Company
and the Subsidiary Guarantors, and the Trustee assumes no responsibility for the
correctness of the same. The Trustee makes no representation as to the validity
or sufficiency of this Indenture, the Guarantees or the Notes. The Trustee shall
not be accountable for the use or application by the Company of any of the Notes
or the proceeds thereof.
SECTION 6.3. INDIVIDUAL RIGHTS OF TRUSTEE.
The Trustee in its individual or any other capacity may become the owner
or pledgee of Notes and may otherwise deal with the Company or the Subsidiary
Guarantors with the same rights it would have if it were not Trustee. Any Note
Registrar or Paying Agent may do the same with like rights. However, the Trustee
must comply with Section 6.9 and 6.10.
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SECTION 6.4. TRUSTEE'S DISCLAIMER.
The Trustee makes no representation as to the validity or adequacy of this
Indenture or the Notes, it shall not be accountable for the Company's use of the
proceeds from the Notes, and it shall not be responsible for any statement in
the Notes other than its certificate of authentication.
SECTION 6.5. NOTICE OF DEFAULTS.
If a Default occurs and is continuing and if it is known to the Trustee,
the Trustee shall mail to each Holder pursuant to Section 1.6 a notice of the
Default within 90 days after it occurs. Except in the case of a Default in any
payment on any Note, the Trustee may withhold the notice if and so long as the
board of directors, executive committee or a trust committee of its directors
and/or officers in good faith determines that withholding the notice is in the
interests of Holders.
SECTION 6.6. COMPENSATION AND INDEMNITY.
(a) The Company and the Subsidiary Guarantors jointly and severally agree
to pay the Trustee from time to time reasonable compensation for its services
(which compensation shall not be limited by any provision of law in regard to
the compensation of a trustee of an express trust). The Company and the
Subsidiary Guarantors jointly and severally agree to reimburse the Trustee upon
request for all reasonable out-of-pocket expenses, disbursements and advances
incurred by it. Such expenses may include the reasonable compensation and
expenses of the Trustee's agents and counsel.
(b) The Trustee shall not be under any obligation to institute any suit,
or take any remedial action under this Indenture, or to enter any appearance or
in any way defend any suit in which it may be a defendant, or to take any steps
in the execution of the trusts created hereby or thereby or in the enforcement
of any rights and powers under this Indenture, unless it shall be indemnified to
its satisfaction against any and all reasonable expenses, disbursements and
advances incurred or made by the Trustee in accordance with any provisions of
this Indenture, including compensation for services, costs, expenses, outlays,
counsel fees and other disbursements, and against all liability not due to its
negligence or willful misconduct. The Company and the Subsidiary Guarantors
jointly and severally agree to indemnify the Trustee against any loss or
liability incurred by it in connection with the acceptance and administration of
the trust and its duties hereunder as Trustee, Note Registrar and/or Paying
Agent, including the costs and expenses of defending itself against any claim or
liability in connection with the exercise or performance of any of its powers or
duties hereunder. The Trustee shall notify the Company and the Subsidiary
Guarantors of any claim for which it may seek indemnity; however, unless the
position of the Company is prejudiced by such failure, the failure of the
Trustee to promptly notify the Company shall not limit its right to
indemnification. The Company shall defend each such claim and the Trustee shall
cooperate in the defense. The Trustee may retain separate counsel and the
Company shall reimburse the Trustee for the reasonable fees and expenses of such
counsel. The Company need not pay for any settlement made without its consent.
(c) Neither the Company nor the Subsidiary Guarantors shall be obligated
to reimburse any expense or indemnify against any loss or liability incurred by
the Trustee through the Trustee's negligence or willful misconduct.
(d) To secure the payment obligations of the Company and the Subsidiary
Guarantors in this Section , the Trustee shall have a claim prior to that of the
Holders of the Notes on all money or property held or collected by the Trustee,
except that held in trust to pay principal of and interest on particular Notes.
(e) When the Trustee incurs expenses or renders services after the
occurrence of any Event of
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Default specified in Sections 5.1(7) or (8), the expenses and the compensation
for the services are intended to constitute expenses of administration under any
Bankruptcy Law.
SECTION 6.7. REPLACEMENT OF TRUSTEE.
(a) The Trustee may resign by so notifying the Company and the
Subsidiary Guarantors. The Holders of a majority in principal amount of the
Notes may remove the Trustee by so notifying the Trustee, in writing. The
Company may remove the Trustee if:
(1) the Trustee fails to comply with Section 6.9;
(2) the Trustee is adjudged a bankrupt or an insolvent;
(3) a receiver or other public officer takes charge of
the Trustee or its property; or
(4) the Trustee becomes incapable of acting as Trustee
hereunder.
(b) If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Company shall promptly appoint a successor
Trustee. Within one year after the successor Trustee takes office, the Holders
of a majority in principal amount of the Notes may appoint a successor Trustee
to replace the successor Trustee appointed by the Company.
(c) A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company and the Subsidiary
Guarantors. Immediately after that, the retiring Trustee shall transfer all
property held by it as Trustee to the successor Trustee, subject to the lien
provided for in Section 6.6, the resignation or removal of the retiring Trustee
shall become effective, and the successor Trustee shall have all the rights,
powers and duties of the Trustee under this Indenture. A successor Trustee shall
mail notice of its succession to each Holder.
(d) If a successor Trustee does not take office within 30 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company or the
Holders of majority in principal amount of the Notes may petition any court of
competent jurisdiction for the appointment of a successor Trustee.
(e) If the Trustee fails to comply with Section 6.9, any Holder may
petition any court of competent jurisdiction for the removal of the Trustee and
the appointment of a successor Trustee. Any successor Trustee shall comply with
TIA Section 310(a)(1), (2) and (5) and the requirements of Section 6.9 hereof.
SECTION 6.8. SUCCESSOR TRUSTEE BY MERGER, ETC.
If the Trustee consolidates, merges or converts into, or transfers all or
substantially all of its corporate trust assets to, another corporation, the
successor corporation without any further act shall be the successor Trustee;
provided such corporation or association shall be otherwise eligible and
qualified under this Article.
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SECTION 6.9. ELIGIBILITY; DISQUALIFICATION.
This Indenture shall always have a Trustee who satisfies the requirements
of TIA Section 310(a)(1). The Trustee shall always have a combined capital and
surplus of at least $100,000,000 as set forth in its most recent published
annual report of condition. The Trustee shall also comply with TIA Section
310(b).
SECTION 6.10. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY.
The Trustee shall comply with TIA Section 311(a), excluding any creDitor
relationship listed in TIA Section 311(b). A Trustee who has resigned or been
removed shall be subject to TIA Section 311(a) to the extent indicated therein.
ARTICLE 7
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
SECTION 7.1. COMPANY TO FURNISH TRUSTEE NAMES AND ADDRESSES OF
HOLDERS.
The Company will furnish or cause to be furnished to the Trustee
semi-annually, not less than 45 days nor more than 60 days after each Interest
Payment Date, and at such other times as the Trustee may request in writing,
within 30 days after receipt by the Company of any such request, a list in such
form as the Trustee may reasonably require containing all the information in the
possession or control of the Company, or any of its Paying Agents other than the
Trustee, as to the name and addresses of the Holders, obtained since the date of
which the next previous list, if any, was furnished; provided, however, that no
such list need be furnished so long as the Trustee is the Note Registrar. Any
such list may be dated as of a date not more than 15 days prior to the time such
information is furnished or caused to be furnished and need not include
information received after such date.
SECTION 7.2. PRESERVATION OF INFORMATION: COMMUNICATIONS TO
HOLDERS
(a) The Trustee shall preserve, in as current a form as is reasonably
practicable, all information as to the names and addresses of Holders (A)
contained in the most recent list furnished to it as provided in Section 7.1,
and (B) received by it in the capacity of Paying Agent or Note Registrar (if so
acting) hereunder. The Trustee may (i) destroy any list furnished to it as
provided in Section 7.1 upon receipt of a new list so furnished, (ii) destroy
any information received by it as Paying Agent or Note Registrar (if so acting)
hereunder upon delivering to itself as Trustee, not earlier than 45 days after
an Interest Payment Date of the Notes, a list containing the names and addresses
of the Holders obtained from such information since the delivery of the next
previous list, if any, and (iii) destroy any list delivered to itself as Trustee
which was compiled from information received by it as Paying Agent or Note
Registrar (if so acting) hereunder upon the receipt of a new list so delivered.
(b) If five or more Holders owning in the aggregate $1,000,000 or more in
principal amount of Notes (hereinafter referred to as "applicants") apply in
writing to the Trustee, and furnish to the Trustee reasonable proof that each
such applicant has owned a Note for a period of at least six months preceding
the date of such application, and such application states that the applicants
desire to communicate with other Holders with respect to their rights under this
Indenture or under the Notes and is accompanied by a copy of the form of proxy
or other communication which such applicants propose to transmit, then the
Trustee shall, within five Business Days after the receipt of such application,
at its election, either
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(i) afford such applicants access to the information preserved
at the time by the Trustee in accordance with Section 7.2(a), or
(ii) inform such applicants as to the approximate number of Holders
whose names and addresses appear in the information preserved at the time
by the Trustee in accordance with Section 7.2(a), and as to the
approximate cost of mailing to such Holders the form of proxy or other
communication, if any, specified in such application.
(c) If the Trustee shall elect not to afford such applicants access to
such information, the Trustee shall, upon the written request of such
applicants, mail to each Holder whose name and address appear in the information
preserved at the time by the Trustee in accordance with Section 7.2(a), a copy
of the form of proxy or other communication which is specified in such request,
with reasonable promptness after a tender to the Trustee of the material to be
mailed and of payment, or provision for the payment, of the reasonable expenses
of mailing, unless within five days after such tender, the Trustee shall mail to
such applicants and file with the Commission, together with a copy of the
material to be mailed, a written statement to the effect that, in the opinion of
the Trustee, such mailing would be contrary to the best interests of the Holders
or would be in violation of applicable law. Such written statement shall specify
the basis of such opinion. If the Commission, after opportunity for a hearing
upon the objections specified in the written statement so filed, shall enter an
order refusing to sustain any of such objections or if, after the entry of an
order sustaining one or more of such objections, the Commission shall find,
after notice and opportunity for hearing, that all the objections so sustained
have been met and shall enter an order so declaring, the Trustee shall mail
copies of such material to all such Holders with reasonable promptness after the
entry of such order and the renewal of such tender; otherwise the Trustee shall
be relived of any obligation or duty to such applicants respecting their
application.
(d) Each and every Holder of the Notes, by receiving and holding the same,
agrees with the Company and the Trustee that neither the Company nor the Trustee
nor any Paying Agent nor any Note Registrar shall be held accountable by reason
of the disclosure of any such information as to the names and addresses of the
Holders in accordance with Section 7.2(b).
SECTION 7.3. REPORTS BY TRUSTEE.
Within 60 days after each _____________, beginning with ________, the
Trustee shall mail to each Holder a brief report dated as of
such_________________ that complies with TIA Section 313(a), but only if such
report is required in any year under TIA Section 313(a). The Trustee also shall
comply with TIA Section 313(b), Section 313(c) and Section 313(d). A copy of
each report at the time of its mailing to Holders shall be filed with the SEC
and each stock exchange on which the Notes are listed. The Company shall notify
the Trustee in writing if the Notes become listed on any national securities
exchange or of any delisting thereof.
SECTION 7.4. REPORTS BY COMPANY.
The Company will
(1) file with the Trustee, within 15 days after the Company is required to
file the same with the Commission, copies of the annual reports and of the
information, documents, and other reports (or copies of such portions of any of
the foregoing as the Commission may from time to time by rules and regulations
prescribe) which the Company may be required to file with the Commission
pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934
(herein the "Exchange Act"); or, if the Company is not required to file
information, documents or reports pursuant to either of said Sections, then it
will file
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with the Trustee and the Commission in accordance with rules and regulations
prescribed from time to time by the Commission, such of the supplementary and
periodic information, documents and reports which may be required pursuant to
Section 13 of the Securities Exchange Act of 1934 in respect of a security
listed and registered on a National Securities Exchange as may be prescribed
from time to time in such rules and regulations;
(2) file with the Trustee and the Commission in accordance with rules and
regulations prescribed from time to time by the Commission, such additional
information, documents and reports with respect to compliance by the Company
with the conditions and covenants of this Indenture as may be required from time
to time by such rules and regulations; and
(3) transmit to the Holders, within 30 days after the filing thereof with
the Trustee, in the manner and to the extent provided in Section 7.3(c), such
summaries of any information, documents and reports required to be filed by the
Company pursuant to paragraphs (1) and (2) of this Section as may be required by
rules and regulations prescribed from time to time by the Commission.
ARTICLE 8
CONSOLIDATION, MERGER, CONVEYANCE OR TRANSFER
SECTION 8.1. COMPANY MAY CONSOLIDATE, ETC., ONLY ON CERTAIN TERMS.
The Company shall not consolidate with or merge into any other corporation
or convey or transfer or lease its properties and assets substantially as an
entirety to any Person, unless:
(1) the corporation formed by such consolidation or into which the Company
is merged or the Person which acquires by conveyance, transfer or lease the
properties or assets of the Company substantially as an entirety shall be a
corporation organized and existing under the laws of the United States of
America or any State or the District of Columbia, and shall, by an indenture
supplemental hereto, executed and delivered to the Trustee, in form satisfactory
to the Trustee, expressly assume the due and punctual payment of the principal
of (and premium, if any) and interest on all Notes and the performance of every
covenant of this Indenture on the part of the Company to be performed or
observed;
(2) immediately before and after giving effect to such transaction, no
Event of Default, and no event which, after notice or lapse of time, or both,
would become an Event of Default, shall have happened and be continuing; and
(3) the Company has delivered to the Trustee an Officers' Certificate and
an Opinion of Counsel each stating that such consolidation, merger, conveyance
or transfer and such supplemental indenture comply with this Article and such
supplemental indenture is binding and enforceable against the surviving or
transferee entity and that all conditions precedent herein provided for relating
to such transaction have been complied with.
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SECTION 8.2. SUCCESSOR CORPORATION SUBSTITUTED.
Upon any consolidation or merger, or any conveyance, transfer or lease of
the properties and assets of the Company substantially as an entirety in
accordance with Section 8.1, the successor corporation formed by such
consolidation or into which the Company is merged or into which such conveyance,
transfer or lease is made shall succeed to, and be substituted for, and may
exercise every right and power of, the Company under this Indenture with the
same effect as if such successor corporation had been named as the Company
herein and thereafter (except in the case of a lease) the predecessor
corporation will be relieved of all further obligations and covenants under this
Indenture and the Notes.
ARTICLE 9
SUPPLEMENTAL INDENTURES
SECTION 9.1. SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF HOLDERS.
Without the consent of any Holders, the Company, when authorized by a
Board Resolution, the Trustee, and the Subsidiary Guarantors, any time and from
time to time, may enter into one or more indentures supplemental hereto, in form
satisfactory to the Trustee, for any of the following purposes:
(1) to evidence the succession of another corporation to the Company, and
the assumption by any such successor of the covenants of the Company herein and
in the Notes contained; or
(2) to add to the covenants of the Company, for the benefit of the
Holders, or to surrender any right or power herein conferred upon the
Company; or
(3) to cure any ambiguity, to correct or supplement any provision herein
which may be inconsistent with any other provision herein, or to make any other
provisions with respect to matters or questions arising under this Indenture
which shall not be inconsistent with the provisions of this Indenture, provided
such action shall not adversely affect the interest of the Holders; or
(4) to add to the conditions, limitations, and restrictions on the
authorized amount, terms, or purposes of issue, authentication, and delivery of
Notes, as herein set forth, additional conditions, limitations, and restrictions
thereafter to be observed; or
(5) to reflect the addition or release of any Subsidiary Guarantor, as
provided for by this Indenture; or
(6) to modify, eliminate, or add to the provisions of this Indenture to
such extent as shall be necessary to effect the qualifications of this Indenture
under the TIA, or under any similar federal statute hereafter enacted, and to
add to this Indenture such other provisions as may be expressly permitted by the
TIA, excluding, however, the provisions referred to in Section 316(a)(2) of the
Trust Indenture Act or any corresponding provision in any similar federal
statute hereafter enacted.
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SECTION 9.2. SUPPLEMENTAL INDENTURES WITH CONSENT OF HOLDERS.
With the consent of Holders of not less than a majority in principal
amount of the Outstanding Notes by Act of said Holders delivered to the Company
and the Trustee, the Company, when authorized by a Board Resolution, the Trustee
and the Subsidiary Guarantors may enter into an indenture or indentures
supplemental hereto for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions of this Indenture or of
modifying in any manner the rights of the Holders under this Indenture;
provided, however, that no such supplemental indenture shall, without the
consent of the Holder of each Outstanding Note affected thereby;
(1) change the Stated Maturity of the principal of, or any installment of
interest on, any Note, or reduce the principal amount thereof or the interest
thereon, or change any place of payment where, or the coin or currency in which,
any Note or the interest thereon is payable, or impair the right to institute
suit for the enforcement of any such payment on or after the Stated Maturity
thereof;
(2) reduce the percentage in principal amount of the Outstanding Notes,
the consent of whose Holders is required for any such supplemental Indenture, or
the consent of whose Holders is required for any waiver (of compliance with
certain provisions of this Indenture or certain defaults hereunder or their
consequences) provided for in this Indenture;
(3) modify any of the provisions of this Section or Section 5.14 except to
increase any such percentage or to provide that certain other provisions of this
Indenture cannot be modified or waived without the consent of the Holder of each
Note affected thereby;
(4) subordinate the Indebtedness evidenced by the Notes or any
Indebtedness of the Company other than Senior Indebtedness, as provided in
Article 11; or
(5) reduce the redemption price, including premium, if any, payable upon
the repurchase of any Note pursuant to Section 10.9 or 10.14 or change the time
at which any Note may or shall be repurchased thereunder.
SECTION 9.3. EXECUTION OF SUPPLEMENTAL INDENTURES.
In executing, or accepting the additional trusts created by, any
supplemental indenture permitted by this Article or the modifications thereby of
the trusts created by this Indenture the Trustee shall be entitled to receive,
and (subject to Section 6.1) shall be fully protected in relying upon, an
Opinion of Counsel stating that the execution of such supplemental indenture is
authorized or permitted by this Indenture. The Trustee may, but shall not be
obligated to, enter into any such supplemental indenture which affects the
Trustee's own rights, duties or immunities under this Indenture or otherwise.
SECTION 9.4. EFFECT OF SUPPLEMENTAL INDENTURES.
Upon the execution of any supplemental indenture under this Article, this
Indenture shall be modified in accordance therewith as of the date of
modification by the Company and the Holders, if applicable, and such
supplemental indenture shall form a part of this Indenture for all purposes; and
every Holder of Notes theretofore or thereafter authenticated and delivered
hereunder shall be bound thereby.
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SECTION 9.5. CONFORMITY WITH TRUST INDENTURE ACT.
Every supplemental indenture executed pursuant to this Article shall
conform to the requirements of the TIA as then in effect.
SECTION 9.6. REFERENCE IN NOTES TO SUPPLEMENTAL INDENTURES.
Notes authenticated and delivered after the execution of any supplemental
indenture pursuant to this Article may, and shall if required by the Trustee,
bear a notation in form approved by the Trustee as to any matter provided for in
such supplemental indenture. If the Company shall so determine, new Notes so
modified as to conform, in the opinion of the Trustee and the Board of
Directors, to any such supplemental indenture may be prepared and executed by
the Company and authenticated and delivered by the Trustee in exchange for
Outstanding Notes.
ARTICLE 10
COVENANTS
SECTION 10.1. PAYMENT OF NOTES.
(a) The Company shall pay the principal of, premium, if any, and interest
on, the Notes on the dates and in the manner provided in the Notes and this
Indenture. Principal, premium and interest shall be considered paid on the date
due if the Trustee or Paying Agent holds on that date money deposited by the
Company designated for and sufficient to pay all principal, premium and interest
then due.
(b) The Company shall pay interest (including post-petition interest in
any proceeding under any bankruptcy law) on overdue principal, and premium, if
any, at the rate borne by the Notes to the extent lawful; and it shall pay
interest (including post-petition interest in any proceeding under any
bankruptcy law) on overdue installments of interest (without regard to any
applicable grace period) at the same rate to the extent lawful.
SECTION 10.2. COMMISSION REPORTS.
(a) The Company shall file with the Trustee within 15 days after it files
the same with the Commission, copies of the annual reports and the information,
documents and other reports (or copies of any such portions of any of the
foregoing as the Commission may by rules and regulations prescribe) that the
Company is required to file with the Commission pursuant to Section 13 or 15(d)
of the Exchange Act. If the Company is not subject to the requirements of such
Section 13 or 15(d), the Company shall file with the Trustee within 15 days
after it would have been required to file the same with the Commission,
financial statements, including any notes thereto (and with respect to annual
reports, an auditors' report by a firm of established national reputation), and
a "Management's Discussion and Analysis of Financial Condition and Results of
Operations," both comparable to that which the Company would have been required
to include in such annual reports, information, documents or other reports if
the Company had been subject to the requirements of such Section 13 or 15(d).
The Company and each Subsidiary Guarantor shall also comply with the provisions
of TIA Section 314(a).
(b) If the Company is required to furnish annual or quarterly reports to
its stockholders pursuant to the Exchange Act, the Company shall cause any
annual report furnished to its stockholders
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generally and any quarterly or other financial reports furnished by it to its
stockholders generally to be filed with the Trustee and mailed to the Holders at
their addresses appearing in the register of Notes maintained by the Note
Registrar at the address set forth herein. If the Company is not required to
furnish annual or quarterly reports to its stockholders pursuant to the Exchange
Act, the Company shall cause its financial statements referred to in Section
10.3(b), including any notes thereto (and with respect to annual reports, an
auditors' report by a firm of established national reputation), and a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" to be so mailed to the Holders at their addresses set forth herein
within 90 days after the end of each of the Company's fiscal years and within 60
days after the end of each of the Company's first three fiscal quarters.
(c) The Company shall provide the Trustee with a sufficient number of
copies of all reports and other documents and information that the Company or
the Trustee may be required to deliver to Holders under this Section.
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SECTION 10.3. COMPLIANCE CERTIFICATES.
(a) The Company shall deliver to the Trustee, within 90 days after the end
of each fiscal year of the Company, an Officers' Certificate stating that a
review of the activities of the Company and the Subsidiaries during the
preceding fiscal year has been made under the supervision of the signing
Officers with a view to determining whether the Company has kept, observed,
performed and fulfilled its obligations under this Indenture, and further
stating, as to each such Officer signing such certificate, that, to the best of
such Officer's knowledge, the Company and each Subsidiary Guarantor has kept,
observed, performed and fulfilled each and every covenant contained in this
Indenture and is not in default in the performance or observance of any of the
terms, provisions and conditions hereof (or, if a Default or Event of Default
shall have occurred, describing all such Defaults or Events of Default of which
such Officer may have knowledge and what action the Company is taking or
proposes to take with respect thereto) and that to the best of such Officer's
knowledge no event has occurred and remains in existence by reason of which
payments on account of the principal of, premium, if any, or interest, if any,
on the Notes are prohibited or, if such event has occurred, a description of the
event and what action the Company and each Subsidiary Guarantor are taking or
propose to take with respect thereto. Such Officers' Certificate shall comply
with TIA Section 314(a)(4).
(b) So long as not contrary to the then current recommendations of the
American Institute of Certified Public Accountants, the year-end financial
statements delivered pursuant to Section 10.2 shall be accompanied by a written
statement of the Company's independent public accountants (which shall be a firm
of established national reputation) that in making the examination necessary for
certification of such financial statements nothing has come to their attention
that would lead them to believe that the Company has violated any provisions of
Articles 8 or 10 of this Indenture (to the extent such provisions relate to
accounting matters) or, if any such violation has occurred, specifying the
nature and period of existence thereof, it being understood that such
accountants shall not be liable directly or indirectly to any Person for any
failure to obtain knowledge of any such violation.
(c) The Company and the Subsidiary Guarantors will, so long as any of the
Notes are outstanding, deliver to the Trustee forthwith upon any Officer
becoming aware of any Default or Event of Default or default in the performance
of any covenant, agreement or condition contained in this Indenture, an
Officer's Certificate specifying such Default or Event of Default and what
action the Company or any Subsidiary Guarantor proposes to take with respect
thereto.
SECTION 10.4. MAINTENANCE OF OFFICE OR AGENCY.
(a) The Company will maintain an office or agency where Notes may be
surrendered for registration of transfer or exchange or for presentation for
payment and where notices and demands to or upon the Company in respect of the
Notes and this Indenture may be served. The Company will give prompt written
notice to the Trustee of the location, and any change in the location, of such
office or agency. If at any time the Company shall fail to maintain any required
office or agency or shall fail to furnish the Trustee with the address thereof,
such surrenders, presentations, notices and demands may be made or served at the
Corporate Trust Office of the Trustee.
(b) The Company may also from time to time designate one or more other
offices or agencies where the Notes may be presented or surrendered for any or
all such purposes and may from time to time rescind such designations; provided,
that no such designation or rescission shall in any manner relieve the Company
of its obligation to maintain an office or agency for such purposes. The Company
will give prompt written notice to the Trustee of any such designation or
rescission and of any change in the location of any such other office or agency.
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SECTION 10.5. CORPORATE EXISTENCE.
The Company will do or cause to be done all things necessary to preserve
and keep in full force and effect its corporate existence and the corporate,
partnership or other existence of each Subsidiary and all rights (charter and
statutory) and franchises of the Company and the Subsidiaries; provided, that
the Company shall not be required to preserve the corporate existence of any
Subsidiary which is not a Subsidiary Guarantor, or any such right or franchise,
if the Board of Directors of the Company shall determine that the preservation
thereof is no longer desirable in the conduct of the business of the Company and
that the loss thereof is not disadvantageous in any material respect to the
Holders.
SECTION 10.6. WAIVER OF STAY, EXTENSION OR USURY LAWS.
The Company and each Subsidiary Guarantor covenants (to the extent that it
may lawfully do so) that it will not at any time insist upon, plead, or in any
manner whatsoever claim or take the benefit or advantage of, any stay,
extension, or usury law or other law, which would prohibit or forgive the
Company or any Subsidiary Guarantor from paying all or any portion of the
principal of, premium, if any, or interest on the Notes as contemplated herein,
wherever enacted, now or at any time hereafter in force, or which may affect the
covenants or the performance of this Indenture; and (to the extent that it may
lawfully do so) the Company and each Subsidiary Guarantor hereby expressly
waives all benefit or advantage of any such law, and covenants that it will not
hinder, delay or impede the execution of any power herein granted to the
Trustee, but will suffer and permit the execution of every such power as though
no such law had been enacted.
SECTION 10.7. PAYMENT OF TAXES AND OTHER CLAIMS.
The Company shall pay or discharge or cause to be paid or discharged,
before the same shall become delinquent, (a) all taxes, assessments and
governmental charges levied or imposed upon the Company or any Subsidiary or
upon the income, profits or property of the Company or any Subsidiary and (b)
all lawful claims for labor, materials and supplies which, if unpaid, might by
law become a Lien upon the property of the Company or any Subsidiary; provided,
however, that the Company shall not be required to pay or discharge or cause to
be paid or discharged any such tax, assessment, charge or claim whose amount,
applicability or validity is being contested in good faith by appropriate
proceedings.
SECTION 10.8. MAINTENANCE OF PROPERTIES AND INSURANCE; LINE OF
BUSINESS.
(a) The Company shall cause all properties used or held for use in the
conduct of its business or the business of any Subsidiary to be maintained and
kept in good condition, repair and working order (ordinary wear and tear
excepted) and supplied with all necessary equipment and shall cause to be made
all necessary repairs, renewals, replacements, betterments and improvements
thereof, all as in the judgment of the Company may be necessary so that the
business carried on in connection therewith may be properly and advantageously
conducted at all times; provided, however, that nothing in this Section shall
prevent the Company from discontinuing the operation or maintenance of any such
property, or disposing of it, if such discontinuance or disposal is, in the
judgment of the Company, desirable in the conduct of its business and not
disadvantageous in any material respect to the Holders.
(b) The Company shall provide or cause to be provided, for itself and each
of its Subsidiaries, insurance (including appropriate self-insurance) against
loss or damage of the kinds that, in the reasonable, good faith opinion of the
Company are adequate and appropriate for the conduct of the business of the
Company and such Subsidiaries in a prudent manner, with reputable insurers or
with the government of the
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United States or an agency or instrumentality thereof, in such amounts, with
such deductibles, and by such methods as shall be customary, in the reasonable
good faith opinion of the Company, for corporations similarly situated in the
industry.
(c) For as long as any Notes are outstanding, the Company shall not, and
shall not permit any of its Subsidiaries to, engage in any business or activity
other than the Principal Business.
SECTION 10.9. LIMITATION ON SALE OF ASSETS.
(a) The Company will not, and will not permit any Subsidiary to, make any
Asset Sales which, in the aggregate, have a fair market value of $10,000,000 or
more in any 12-month period unless:
(i) the Company (or its Subsidiaries, as the case may be) receives
consideration at the time of such sale or other disposition at least equal
to the fair market value thereof (as determined in good faith by the
Company's Board of Directors and evidenced by a resolution of such Board
in the case of any Asset Sales or series of related Asset Sales having a
fair market value of $20,000,000 or more);
(ii) not less than 10% of the proceeds received by the Company (or
its Subsidiaries, as the case may be) from such Asset Sale consists of (A)
cash, (B) cash equivalents, (C) publicly traded stock of a Person
primarily engaged in the Principal Business or (D) any combination of the
foregoing; and
(iii) the Net Available Proceeds received by the Company (or its
Subsidiaries, as the case may be) from such Asset Sale are applied in
accordance with paragraph (c) or (d) hereof.
(b) Notwithstanding the foregoing, the Company and its Subsidiaries may
dispose of property and assets of the Company or its Subsidiaries in exchange
for capital property and capital assets (i) which are directly related to the
Principal Business; (ii) which are of the same type of property or assets, or
which have the same function, as the properties or assets being disposed of; and
(iii) which have an aggregate fair market value equal to or greater than the
aggregate fair market value of the property and assets being disposed of,
provided, however, that (A) in no event may the Company and its Subsidiaries, in
any 12-month period, dispose of property or assets pursuant to this paragraph
having an aggregate fair market value of $100,000,000 or more and (B) with
respect to any property or assets being disposed of having a fair market value
of $10,000,000 or more, the Board of Directors of the Company shall have
determined in good faith and evidenced a resolution of such Board, that the
aggregate fair market value of the property and assets being received by the
Company and its Subsidiaries is equal to or greater than the aggregate fair
market value of the property and assets being disposed of.
(c) The Company shall, within 270 days following the receipt of Net
Available Proceeds from any Asset Sale, apply such Net Available Proceeds to:
(i) the repayment of Indebtedness of the Company under the Bank Credit Facility
or other Senior Indebtedness of the Company, or Senior Indebtedness of any
Subsidiary Guarantor, provided that any such repayment shall result in a
permanent reduction in the principal amount of such Senior Indebtedness in an
amount equal to the principal amount so repaid; or (ii) make an investment in
capital assets used in the Principal Business.
(d) If, upon completion of the 270-day period, any portion of the Net
Available Proceeds of any Asset Sale shall not have been applied by the Company
as described in clauses 10.9(b)(i) or (ii) and such remaining Net Available
Proceeds, together with any remaining net cash proceeds from any prior Asset
Sale (such aggregate constituting "Excess Proceeds"), exceeds $100,000,000, then
the Company will be
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obligated to make an offer (the "Net Proceeds Offer") to purchase Notes having
an aggregate principal amount equal to the Excess Proceeds (such purchase to be
made pro rata or by lot if the amount available for such repurchase is less than
the principal amount of the Notes tendered in such Net Proceeds Offer) at a
purchase price of 100% of the principal amount thereof plus accrued interest, if
any, to the date of repurchase (the "Net Proceeds Payment Date"). Upon the
completion of Net Proceeds Offer, the amount of Excess Proceeds will be reset to
zero.
(e) Notice of a Net Proceeds Offer to purchase the Notes will be made on
behalf of the Company not less than 25 Business Days nor more than 60 Business
Days before the Net Proceeds Payment Date. Notes tendered to the Company
pursuant to a Net Proceeds Offer will cease to accrue interest after the Net
Proceeds Payment Date. For purposes of this covenant, the term "Net Proceeds
Offer Amount" means the principal of outstanding Notes in an aggregate principal
amount equal to any remaining Net Available Proceeds (rounded to the next lowest
$25). If the Net Proceeds Payment Date is on or after an interest payment record
date and on or before the related interest payment date, any accrued interest
will be paid to the person in whose name a Note is registered at the close of
business on such record date, and no additional interest will be payable to
Holders who tender Notes pursuant to the Net Proceeds Offer.
(f) On the Net Proceeds Payment Date, the Company will (i) accept for
payment Notes or portions thereof pursuant to the Net Proceeds Offer in an
aggregate principal amount equal to the Net Proceeds Offer Amount or such lesser
amount of Notes as has been tendered, (ii) deposit with the Paying Agent money
sufficient to pay the purchase price of all Notes or portions thereof so
tendered in an aggregate principal amount equal to the Net Proceeds Offer Amount
or such lesser amount of Notes as has been tendered, and (iii) deliver, or cause
to be delivered to the Trustee, the Notes so accepted together with an Officers'
Certificate identifying the Notes or portions thereof tendered to and accepted
by the Company. If the aggregate principal amount of Notes tendered exceeds the
Net Proceeds Offer Amount, the Trustee will select the Notes to be purchased (in
integral multiples of $1,000) pro rata or by lot based on the principal amount
of Notes so tendered. The Paying Agent will promptly mail or deliver to Holders
so accepted payment in an amount equal to the purchase price, and the Company
will execute and the Trustee will promptly authenticate and mail or make
available for delivery to such Holders a new Note equal in principal amount to
any unpurchased portion of the Notes surrendered. Any Notes not so accepted will
be promptly mailed or delivered to the Holder thereof. For purposes of this
Section , the Trustee will act as the Paying Agent.
SECTION 10.10. LIMITATION ON LIENS SECURING INDEBTEDNESS.
The Company will not, and will not permit any Subsidiary to, create,
incur, assume or suffer to exist any Liens (other than Permitted Liens) upon any
of their respective properties securing (i) any Indebtedness of the Company
(other than Senior Indebtedness of the Company), unless the Notes are equally
and ratably secured or (ii) any Indebtedness of any Subsidiary Guarantor (other
than Senior Indebtedness of such Subsidiary Guarantor) unless the Guarantors are
equally and ratably secured; provided, however, that if such Indebtedness is
expressly subordinated to the Notes or the Guarantees, the Lien securing such
Indebtedness will be subordinated and junior to the Lien securing the Notes or
the Guarantees, with the same relative priority as such Subordinated
Indebtedness of the Company or a Subsidiary Guarantor will have with respect to
the Notes or the Guarantees, as the case may be, and provided further that the
terms and conditions of any Lien securing the Notes shall be acceptable to the
Trustee. The Trustee shall not be required to foreclose or realize on any Lien
securing the Notes if in the judgment of the Trustee, to do so would expose the
Trustee to liability for which the Trustee believes it would not be adequately
indemnified.
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SECTION 10.11. LIMITATION ON PAYMENT RESTRICTIONS AFFECTING
SUBSIDIARIES.
The Company shall not, and shall not permit any of its Subsidiaries to,
directly or indirectly, create or otherwise cause or suffer to exist or become
effective any consensual encumbrance or restriction on the ability of any
Subsidiary to (i) pay dividends or make any other distributions on its Capital
Stock, or any other interest or participation in [or measured by its profits
owned by] the Company or a Subsidiary, (ii) pay any Indebtedness owed to the
Company or a Subsidiary of the Company; (iii) make loans or advances to the
Company or a Subsidiary of the Company; or (iv) transfer any of its properties
or assets to the Company or a Subsidiary of the Company, except for (A)
encumbrances or restrictions with respect to Senior Indebtedness; (B) consensual
encumbrances or consensual restrictions binding upon any Person at the time such
Person becomes a Subsidiary of the Company (unless the agreement creating such
consensual encumbrance or consensual restrictions was entered into in connection
with, or in contemplation of, such entity becoming a Subsidiary); (C) customary
provisions restricting subletting or assignment of any lease governing a
leasehold interest of any Subsidiary; (D) customary restrictions in security
agreements or mortgages securing Indebtedness of a Subsidiary to the extent such
restrictions restrict the transfer of the property subject to such security
agreements and mortgages; (E) customary restrictions in purchase money
obligations for property acquired in the ordinary course of business restricting
the transfer of the property acquired thereby; (F) consensual encumbrances or
restrictions under any agreement that refinances or replaces any agreement
described in clauses (A), (B), (C), (D) or (E) above, provided that the terms
and conditions of any such restrictions are no less favorable to the holders of
the Notes than those under the agreement so refinanced or replaced; and (G)
customary non-assignment provision in leases, purchase money financings and any
encumbrance or restriction due to applicable law.
SECTION 10.12. LIMITATION ON TRANSACTIONS WITH AFFILIATES.
The Company will not, and will not permit any of its Subsidiaries to,
directly or indirectly, (i) sell, lease, transfer or otherwise dispose of any of
its property, assets or securities to, (ii) purchase or lease any property,
assets or securities from, (iii) make any Investment in, or (iv) enter into or
amend any contract or agreement with or for the benefit of, either (A) an
Affiliate of any of them, (B) any Person or Persons who is a member of a group
(as such term is used for purposes of Sections 13(d) and 14(d) of the Exchange
Act, whether or not applicable) that, directly or indirectly, is the beneficial
holder of 5% or more of any class of equity securities of the Company, (C) any
Person who is an Affiliate of any such holder, or (D) any officers, directors,
or employees of any of the above (each case under (A), (B), (C) and (D), an
"Affiliate Transaction"), in one or a series of related transactions (to either
party) in excess of $5,000,000 per Affiliate Transaction, except for
transactions evidenced by an Officers' Certificate addressed and delivered to
the Trustee stating that such Affiliate Transaction is made in good faith, the
terms of which are fair and reasonable to the Company and such Subsidiary, as
the case may be, or, with respect to Affiliate Transactions between the Company
and its Subsidiaries, to the Company; provided, that (x) transactions between or
among the Company and its Subsidiaries shall not be deemed to constitute
Affiliate Transactions and (y) with respect to any Affiliate Transaction with an
aggregate value (to either party) in excess of $7,500,000, the Company must,
prior to the consummation thereof, obtain a written favorable opinion as to the
fairness of such transaction to itself from a financial point of view from an
independent investment banking firm.
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SECTION 10.13. LIMITATION ON FUTURE SENIOR SUBORDINATED INDEBTEDNESS.
The Company and its Subsidiaries shall not incur any Indebtedness other
than the Notes that is subordinated in right of payment to any other
Indebtedness of the Company unless such Indebtedness, by its terms, is pari
passu with or subordinated to the Notes. No Subsidiary Guarantor shall incur any
Indebtedness other than the Guarantee of such Subsidiary Guarantor that is
subordinated in right of payment to any other Indebtedness of such Subsidiary
Guarantor unless such Indebtedness, by its terms, is pari passu with or
subordinated to the Guarantee of such Subsidiary Guarantor.
SECTION 10.14. CHANGE OF CONTROL.
(a) Within 30 days following the occurrence of any Change of Control, the
Company shall offer (a "Change of Control Offer") to purchase all outstanding
Notes at a purchase price equal to % of the aggregate principal amount of the
Notes, plus accrued and unpaid interest to the date of purchase. The Change of
Control Offer shall be deemed to have commenced upon mailing of the notice
described in the next succeeding paragraph and shall terminate 20 Business Days
after its commencement, unless a longer offering period is then required by law.
Promptly after the termination of the Change of Control Offer (the "Change of
Control Payment Date"), the Company shall purchase and mail or deliver payment
for all Notes tendered in response to the Change of Control Offer. If the Change
of Control Payment Date is on or after an interest payment record date and on or
before the related interest payment date, any accrued interest will be paid to
the Person in whose name a Note is registered at the close of business on such
record date, and no additional interest will be payable to Holders who tender
Notes pursuant to the Change of Control Offer.
(b) Within 30 days after any Change of Control, the Company (with notice
to the Trustee), or the Trustee at the Company's request, will mail or cause to
be mailed to all Holders on the date of the Change of Control a notice (the
"Change of Control Notice") of the occurrence of such Change of Control and of
the Holders' rights arising as a result thereof. The Change of Control Notice
will contain all instructions and materials necessary to enable Holders to
tender their Notes to the Company. The Change of Control Notice, which shall
govern the terms of the Change of Control Offer, shall state: (1) that the
Change of Control Offer is being made pursuant to this Section ; (2) the
purchase price and the Change of Control Payment Date; (3) that any Note not
tendered will continue to accrue interest; (4) that any Note accepted for
payment pursuant to the Change of Control Offer shall cease to accrue interest
on the Change of Control Payment Date; (5) that Holders electing to have a Note
purchased pursuant to any Change of Control Offer will be required to surrender
the Note, with the form entitled "Option of Holder to Elect Purchase" on the
reverse of the Note completed, to the Company, a depositary, if appointed by the
Company, or a Paying Agent at the address specified in the notice prior to
termination of the Change of Control Offer; (6) that Holders will be entitled to
withdraw their election if the Company, depositary or Paying Agent, as the case
may be, receives, not later than the expiration of the Change of Control Offer,
or such longer period as may be required by law, a telegram, telex, facsimile
transmission or letter setting forth the name of the Holder, the principal
amount of the Note the Holder delivered for purchase and a statement that such
Holder is withdrawing his election to have the Note purchased; and (7) that
Holders whose Notes are purchased only in part will be issued Notes equal in
principal amount to the unpurchased portion of the Notes surrendered.
(c) On the Change of Control Payment Date, the Company shall (i) accept
for payment Notes or portions thereof tendered pursuant to the Change of Control
Notice, (ii) if the Company appoints a depository or Paying Agent, deposit with
such depository or Paying Agent money sufficient to pay the purchase price of
all Notes or portions thereof so tendered and (iii) deliver to the Trustee the
Notes so accepted together with an Officers' Certificate identifying the Notes
or portions thereof tendered to and accepted by the Company. The depository, the
Company or the Paying Agent, as the case may be, shall
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promptly mail to the Holder of Notes so accepted payment in an amount equal to
the purchase price, and the Trustee shall promptly authenticate and mail to such
Holders a new Note equal in principal amount to any unpurchased portion of the
Note surrendered. For purposes of this Section, the Trustee shall act as the
Paying Agent.
(d) The Company, to the extent applicable and if required by law, will
comply with Section 14 of the Exchange Act and the provisions of Regulation 14E
and any other tender offer rules under the Exchange Act and any other federal
and state securities laws, rules and regulations which may then be applicable to
any offer by the Company to purchase the Notes at the option of the Holders upon
a Change of Control.
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ARTICLE 11
SUBORDINATION OF NOTES
SECTION 11.1. NOTES SUBORDINATED TO SENIOR INDEBTEDNESS; EXCHANGE
NOTES PARI PASSU WITH OTHER SERIES OF THE NOTES ISSUED
BY THE COMPANY UP TO $_____________ ADDITIONAL PRINCIPAL
AMOUNT AND NOTES PURSUANT TO OTHER INDENTURES.
(a) The Company, for itself and its successors, and each Holder, by his
acceptance of Notes, agrees that the payment of the principal of and interest on
the Notes is subordinated, to the extent and in the manner provided in this
Article, to the prior payment in full of all Senior Indebtedness of the Company
(hereinafter in this Article referred to as "Senior Indebtedness") and that the
payment of the principal of and interest on the Exchange Notes is pari passu
with any other series of the Notes issued by the Company in the future or Notes
under any other indenture.
(b) This Article shall constitute a continuing offer of all Persons who,
in reliance upon such provisions, become holders of, or continue to hold, Senior
Indebtedness, and such provisions are made for the benefit of the holders of
Senior Indebtedness, and such holders are made obligees hereunder and any one or
more of them may enforce such provisions.
SECTION 11.2. NO PAYMENT ON NOTES IN CERTAIN CIRCUMSTANCES.
(a) Upon the Maturity of any Senior Indebtedness by lapse of time,
acceleration or otherwise, unless and until all principal thereof, premium, if
any, interest thereon and other amounts due thereon shall first be paid in full,
no payment shall be made by or on behalf of the Company with respect to the
principal of, premium, if any, or interest on the Notes.
(b) Upon the happening of any default in the payment of any principal of
or interest on or other amounts due on any Senior Indebtedness (a "Payment
Default"), then, unless and until such default shall have been cured or waived
or shall have ceased to exist, no payment shall be made by or on behalf of the
Company with respect to the principal of, premium, if any or interest on the
Notes.
(c) The provisions of this Section shall not modify or limit in any way
the application of the following Section.
(d) The Company shall give prompt written notice to the Trustee of any
default in the payment of any Senior Indebtedness or any acceleration under any
Senior Indebtedness or under any agreement pursuant to which Senior Indebtedness
may have been issued. Failure to give such notice shall not affect the
subordination of the Notes to the Senior Indebtedness or the application of the
other provisions provided in this Article.
SECTION 11.3. NOTES SUBORDINATED TO PRIOR PAYMENT OF ALL SENIOR
INDEBTEDNESS ON DISSOLUTION, LIQUIDATION OR
REORGANIZATION OF THE COMPANY.
(a) In the event of any Insolvency or Liquidation Proceeding with respect
to the Company, all amounts payable in respect of any Senior Indebtedness shall
first be paid in full before the Holders are entitled to receive any direct or
indirect payment or distribution of any cash, property or securities on account
of principal of or interest on the Notes or any other payment with respect to
the Notes.
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(b) The holders of Senior Indebtedness shall be entitled to receive
directly, for application to the payment of Senior Indebtedness (to the extent
necessary to pay in full all Senior Indebtedness, whether or not due, including
specifically, without limitation, all Post-Commencement Interest, whether or not
allowed as a claim in such Insolvency or Liquidation Proceeding, after giving
effect to any substantially concurrent payment or distribution to the holders of
Senior Indebtedness on account of Senior Indebtedness), any payment or
distribution of any kind or character, whether in cash, property or securities,
including any payment or distribution which may be payable or deliverable by
reason of the payment of any other Indebtedness of the Company being
subordinated to the payment of the Notes which may be payable or deliverable in
respect of the Notes in any such Insolvency or Liquidation Proceeding.
(c) In the event that, notwithstanding the foregoing provisions of this
Section , the Trustee or any Paying Agent or the Holder of any Note shall have
received any payment from or distribution of assets of the Company or the estate
created by the commencement of any such Insolvency or Liquidation Proceeding, of
any kind or character in respect of the Notes, whether in cash, property or
securities, including any payment or distribution which may be payable or
deliverable by reasons of the payment of any other Indebtedness of the Company
being subordinated to the payment of the Notes, before all Senior Indebtedness
(whether or not due including specifically, without limitation, all
Post-Commencement Interest, whether or not allowed as a claim in such Insolvency
or Liquidation Proceeding) is paid in full, then and in such event such payment
or distribution shall be received and held in trust by the Trustee, any such
Paying Agent or Holder for and shall be paid over to the holders of Senior
Indebtedness (to the extent necessary to pay in full all such Senior
Indebtedness, whether or not due, including specifically, without limitation,
all Post-Commencement Interest thereon, whether or not allowed as a claim in
such Insolvency or Liquidation Proceeding), after giving effect to any
substantially concurrent payment or distribution to the holders of Senior
Indebtedness on account of Senior Indebtedness, for application to the payment
in full of such Senior Indebtedness.
(d) The Company shall give prompt written notice to the Trustee of any
Insolvency or Liquidation Proceeding with respect to it.
SECTION 11.4. HOLDERS TO BE SUBROGATED TO RIGHTS OF HOLDERS OF
SENIOR INDEBTEDNESS.
After all amounts payable under or in respect of Senior Indebtedness
(whether or not due) are paid in full, the Holders shall be subrogated (without
any duty on the part of the holders of Senior Indebtedness to warrant, create,
effectuate, preserve or protect such subrogation), to the extent of the payments
or distributions made to the holders of Senior Indebtedness pursuant to the
provisions of this Article (equally and ratably with the holders of all other
indebtedness of the Company which by its express terms is subordinate and
subject in right of payment to Senior Indebtedness to substantially the same
extent as the Notes are so subordinate and subject in right of payment and which
is entitled to like rights and subrogation), to the rights of the holders of
Senior Indebtedness to receive payments and distributions of cash, property and
securities applicable to the Senior Indebtedness, until the principal of and
interest on the Notes shall be paid in full. For the purpose of such subrogation
no such payments or distributions to the holders of Senior Indebtedness by or on
behalf of the Company, or by or on behalf of the Holders by virtue of this
Article, which otherwise would have been made to the Holders shall, as between
the Company and the Holders, be deemed to be payment by the Company to or on
account of the Senior Indebtedness, it being understood that the provisions of
this Article are and are intended solely for the purpose of defining the
relative rights of the Holders, on the one hand, and the holders of Senior
Indebtedness, on the other hand.
SECTION 11.5. OBLIGATIONS OF THE COMPANY UNCONDITIONAL.
Nothing contained in this Article or elsewhere in this Indenture or in any
Note is intended to or
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shall impair, as between the Company and the Holders, the obligations of the
Company, which are absolute and unconditional, to pay to the Holders the
principal of and interest on the Notes as and when the same shall become due and
payable in accordance with their terms, or is intended to or shall affect the
relative rights of the Holders and creditors of the Company, other than the
holders of the Senior Indebtedness, nor shall anything herein or therein prevent
the Trustee or any Holder from exercising all remedies otherwise permitted by
applicable law upon default under this Indenture, subject to the rights, if any,
under this Article, of the holders of Senior Indebtedness in respect of cash,
property or securities of the Company received upon the exercise of any such
remedy. Upon any distribution of assets of the Company referred to in this
Article, the Trustee, subject to the provisions of Section 6.1, and the Holders
shall be entitled to rely upon any order or decree made by any court of
competent jurisdiction in which such Insolvency or Liquidation Proceeding is
pending, or a certificate of the liquidating trustee or agent or other Person
making any distribution to the Trustee or to the Holders for the purpose of
ascertaining the Persons entitled to participate in such distribution, the
holders of the Senior Indebtedness and other indebtedness of the Company, the
amount thereof or payable thereon, the amount or amounts paid or distributed
thereon and all other facts pertinent thereto or to this Article.
SECTION 11.6. TRUSTEE ENTITLED TO ASSUME PAYMENTS NOT PROHIBITED IN
ABSENCE OF NOTICE.
The Trustee shall not at any time be charged with knowledge of the
existence of any facts which would prohibit the making of any payment to or by
the Trustee unless and until the Trustee or any Paying Agent shall have received
written notice thereof from the Company or from one or more holders of Senior
Indebtedness or from any Representative therefor and, prior to the receipt of
any such written notice, the Trustee, subject to the provisions of Section 6.1,
shall be entitled in all respects conclusively to assume that no such fact
exists. Nothing in this Section is intended to or shall relieve any Holder from
the obligations imposed under Sections 11.2 and 11.3 with respect to money or
other distributions received in violation of the provisions thereof.
SECTION 11.7. APPLICATION BY TRUSTEE OF ASSETS DEPOSITED WITH IT.
All money and U.S. Government Obligations deposited in trust with the
Trustee pursuant to and in accordance with Section 4.1 shall be for the sole
benefit of the Holders and shall not be subject to this Article. Otherwise, any
deposit of assets by the Company with the Trustee or any Paying Agent (whether
or not in trust) for the payment of principal of or interest on any Notes shall
be subject to the provisions of this Article; provided that, if prior to the
second Business Day preceding the date on which by the terms of this Indenture
any such assets may become distributable for any purpose (including without
limitation, the payment of either principal of or interest on any Note) the
Trustee or such Paying Agent shall not have received with respect to such assets
the written notice provided for in Section 11.6, then the Trustee or such Paying
Agent shall have full power and authority to receive such assets and to apply
the same to the purpose for which they were received, and shall not be affected
by any notice to the contrary which may be received by it on or after such date.
The preceding sentence shall be construed solely for the benefit of the Trustee
and each Paying Agent and shall not otherwise affect the rights of holders of
Senior Indebtedness.
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SECTION 11.8. SUBORDINATION RIGHTS NOT IMPAIRED BY ACTS OR OMISSIONS
OF THE COMPANY OR HOLDERS OF SENIOR INDEBTEDNESS.
No right of any present or future holder of any Senior Indebtedness to
enforce the subordination provisions in this Article shall at any time in any
way be prejudiced or impaired by any act or failure to act on the part of the
Company or by any act or failure to act by any such holder, or by any
noncompliance by the Company with the terms of this Indenture, regardless of any
knowledge thereof which any such holder may have or be otherwise charged with.
The holders of Senior Indebtedness may extend, renew, modify or amend the terms
of the Senior Indebtedness or any security therefor and release, sell or
exchange such security and otherwise deal freely with the Company, all without
affecting the liabilities and obligations of the parties to this Indenture or
the Holders.
SECTION 11.9. HOLDERS AUTHORIZE TRUSTEE TO EFFECTUATE SUBORDINATION OF
NOTES.
Each Holder of Notes by his acceptance thereof (i) authorizes and
expressly directs the Trustee on his behalf to take such action as may be
necessary or appropriate to effectuate the subordination provided in this
Article and to protect the rights of the Holders pursuant to this Indenture, and
(ii) appoints the Trustee his attorney-in-fact for such purpose, including in
the event of any Insolvency or Liquidation Proceeding with respect to the
Company, the timely filing of a claim for the unpaid balance of his Notes in the
form required in said proceeding and the causing of such claim to be approved.
If the Trustee shall not file a proper claim or proof of debt in the form
required in such proceeding prior to 30 days before the expiration of the time
to file such claim or claims, then the holders of the Senior Indebtedness or
their Representative shall have the right to file an appropriate claim for and
on behalf of the Holders. Nothing herein contained shall be deemed to authorize
the Trustee or any holder of Senior Indebtedness or their Representative to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Notes or
the rights of any Holder, or to authorize the Trustee or any holder of Senior
Indebtedness or their Representative to vote in respect of the claim of any
Holder in any such proceeding.
SECTION 11.10. RIGHT OF TRUSTEE TO HOLD SENIOR INDEBTEDNESS.
The Trustee shall be entitled to all of the rights set forth in this
Article in respect of any Senior Indebtedness at any time held by it to the same
extent as any other holder of Senior Indebtedness, and nothing in this Indenture
shall be construed to deprive the Trustee of any of its rights as such holder.
SECTION 11.11. ARTICLE 11 NOT TO PREVENT EVENTS OF DEFAULT.
The failure to make a payment of principal of or interest on the Notes by
reason of any provision of this Article shall not be construed as preventing the
occurrence of a Default or an Event of Default.
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SECTION 11.12. PAYMENT.
A payment with respect to a Note or with respect to principal of or
interest on a Note shall include, without limitation, payment of principal of
(and premium, if any) and interest on any Note, any depositing of funds under
Article 4, any payment on account of any mandatory or optional repurchase or
redemption of any Note (including payments pursuant to Section 10.9 or Section
10.14) and any payment or recovery on any claim (whether for rescission or
damages and whether based on contract, tort, duty imposed by law, or any other
theory of liability) relating to or arising out of the offer, sale or purchase
of any Note, provided that any such payment, deposit, other payment or recovery
(i) not prohibited pursuant to this Article at the time actually made shall not
be subject to any recovery by any holder of Senior Indebtedness or
Representative therefor or other Person pursuant to this Article at any time
thereafter and (ii) made by or from any person other than the Company shall not
be subject to any recovery by any holder of Senior Indebtedness or
Representative therefor or other Person pursuant to this Article at any time
thereafter except to the extent such Person recovers any such amount paid from
the Company, whether pursuant to rights of indemnity, rescission or otherwise.
ARTICLE 12
GUARANTEES
SECTION 12.1 UNCONDITIONAL GUARANTEES.
(a) Each Subsidiary Guarantor hereby, jointly and severally,
unconditionally guarantees (such guarantee to be referred as the "Guarantee") to
each Holder and to the Trustee the due and punctual payment of the principal of,
premium, if any, and interest on the Notes and all other amounts due and payable
under this Indenture and the Notes by the Company whether at maturity, by
acceleration, redemption, repurchase or otherwise, including, without
limitation, interest on the overdue principal of, premium, if any, and interest
on the Notes, to the extent lawful, all in accordance with the terms hereof and
thereof; subject, however, to the limitations set forth in Section 12.5.
(b) Failing payment when due of any amount so guaranteed for whatever
reason, the Subsidiary Guarantors will be jointly and severally obligated to pay
the same immediately. Each Subsidiary Guarantor hereby agrees that its
obligations hereunder shall be unconditional, irrespective of the validity,
regularity or enforceability of the Notes or this Indenture, the absence of any
action to enforce the same, any waiver or consent by any Holder of the Notes
with respect to any provisions hereof or thereof, the recovery of any judgment
against the Company, any action to enforce the same or any other circumstance
which might otherwise constitute a legal or equitable discharge or defense of a
guarantor. Each Subsidiary Guarantor hereby waives diligence, presentment,
demand of payment, filing of claims with a court in the event of insolvency or
bankruptcy of the Company, any right to require a proceeding first against the
Company, protest, notice and all demands whatsoever and covenants that this
Guarantee will not be discharged except by complete performance of the
obligations contained in the Notes, this Indenture and in this Guarantee. If any
Holder or the Trustee is required by any court or otherwise to return to the
Company, any Subsidiary Guarantor, or any custodian, trustee, liquidator or
other similar official acting in relation to the Company or any Subsidiary
Guarantor, any amount paid by the Company or any Subsidiary Guarantor to the
Trustee or such Holder, this Guarantee, to the extent theretofore discharged,
shall be reinstated in full force and effect. Each Subsidiary Guarantor agrees
it shall not be entitled to any right of subrogation in relation to the Holders
in respect of any obligations guaranteed hereby until payment in full of all
obligations guaranteed hereby. Each Subsidiary Guarantor further agrees that, as
between each Subsidiary Guarantor, on the one hand, and the Holders and the
Trustee, on the other hand, (x) the maturity of the obligations guaranteed
hereby may be accelerated as provided in Article 5 for the purposes of this
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Guarantee, notwithstanding any stay, injunction or other prohibition preventing
such acceleration in respect of the obligations guaranteed hereby, and (y) in
the event of any acceleration of such obligations as provided in Article 5, such
obligations (whether or not due and payable) shall forthwith become due and
payable by each Subsidiary Guarantor for the purpose of this Guarantee.
(c) Failing payment of the Guarantees, for whatever reason, the Company
will be obligated to pay, or to perform or cause the performance of, the same
immediately. The Company hereby agrees that its obligation on the Notes shall be
full, unconditional and absolute, irrespective of the validity, regularity or
enforceability of the Notes, the Guarantees or this Indenture, the absence of
any action to enforce the same, any waiver or consent by any Holder of the Notes
with respect to any provisions hereof or thereof, the recovery or any judgment
against the Company or any Guarantor, any action to enforce the same or any
other circumstance which might otherwise constitute a legal or equitable
discharge or defense of the Company.
(d) The Guarantee of each Subsidiary Guarantor and the obligations of the
Company herein shall be, in the manner and to the extent set forth in Article
13, subordinated in right of payment to the prior payment when due of the
principal of, premium, if any, and accrued and unpaid interest on all existing
and future Senior Indebtedness of such Subsidiary Guarantor and of the Company,
as the case may be, and senior to the right of payment of principal of, premium,
if any, and accrued and unpaid interest on all existing and future Subordinated
Indebtedness of such Subsidiary Guarantor and of the Company, as the case may
be.
SECTION 12.2 SUBSIDIARY GUARANTORS MAY CONSOLIDATE, ETC., ON
CERTAIN TERMS.
Except as set forth in Article 4 and 5, nothing contained in this
Indenture or in any of the Notes shall prevent any consolidation or merger of a
Subsidiary Guarantor with a Person or with or into the Company or another
Subsidiary Guarantor or shall prevent any sale or conveyance of all or
substantially all of its assets, to a Person or to the Company or another
Subsidiary Guarantor.
SECTION 12.3 ADDITION OF SUBSIDIARY GUARANTORS.
(a) The Company agrees to cause each Subsidiary that shall become a
Subsidiary after the Issue Date to execute and deliver a supplemental indenture
pursuant to which such Subsidiary shall guarantee the payment of the Notes
pursuant to the terms hereof.
(b) Any Person that was not a Subsidiary Guarantor on the Issue Date may
become a Guarantor by executing and delivering to the Trustee (i) a supplemental
indenture in form and substance satisfactory to the Trustee, which subjects such
Person to the provisions (including the representations and warranties) of this
Indenture as a Subsidiary Guarantor and (ii) an opinion of Counsel and Officers'
Certificate to the effect that such supplemental indenture has been duly
authorized and executed by such Person and constitutes the legal, valid, binding
and enforceable obligation of such Person (subject to such customary exceptions
concerning creditors' rights and equitable principles as may be acceptable to
the Trustee in its discretion and provided that no opinion need be rendered
concerning the enforceability of the Guarantee).
SECTION 12.4 RELEASE OF A SUBSIDIARY GUARANTOR.
By undertaking all of the actions required in compliance with the terms of
this Indenture, including but not limited to the provisions of Section 12.2(b),
a Subsidiary Guarantor shall be deemed released from all of its Guarantee and
related obligations in this Indenture. The Trustee shall deliver an appropriate
instrument evidencing such release upon receipt of a request by the Company
accompanied by an Officers'
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Certificate and an Opinion of Counsel certifying that all conditions specified
in this Indenture for such release have been satisfied in accordance with the
provisions of this Indenture. Any Subsidiary Guarantor not so released remains
liable for the full amount of principal of and interest on the Notes as provided
in this Article.
SECTION 12.5 LIMITATION OF SUBSIDIARY GUARANTOR'S LIABILITY.
Each Subsidiary Guarantor and by its acceptance hereof each Holder hereby
confirms that it is the intention of all such parties that the Guarantee by such
Subsidiary Guarantor pursuant to its Guarantee not constitute a fraudulent
transfer or conveyance for purposes of any federal or state law. To effectuate
the foregoing intention, the Holders and each Subsidiary Guarantor hereby
irrevocably agree that the obligations of each Subsidiary Guarantor under the
Guarantee shall be limited to the maximum amount as will, after giving effect to
all other contingent and fixed liabilities of such Subsidiary Guarantor and
after giving effect to any collections from or payments made by or on behalf of
any other Subsidiary Guarantor in respect of the obligations of such other
Subsidiary Guarantor under its Guarantee or pursuant to Section 12.6, result in
the obligations of such Subsidiary Guarantor under the Guarantee not
constituting a fraudulent conveyance or fraudulent transfer under federal, state
or foreign law.
SECTION 12.6 CONTRIBUTION.
In order to provide for just and equitable contribution among the
Subsidiary Guarantors, the Subsidiary Guarantors agree, inter se, that in the
event any payment or distribution is made by any Subsidiary Guarantor (a
"Funding Guarantor") under the Guarantee, such Funding Guarantor shall be
entitled to a contribution from each other Subsidiary Guarantor in a pro rata
amount based on the adjusted Net Assets of each Subsidiary Guarantor (including
the Funding Guarantor) for all payments, damages and expenses incurred by the
Funding Guarantor in discharging the Company's obligations with respect to the
Notes or any other Subsidiary Guarantor's obligations with respect to the
Guarantee; provided, however, that the liability of each Subsidiary Guarantor
under the Guarantee shall not be limited in any manner by the foregoing.
SECTION 12.7 EXECUTION AND DELIVERY.
(a) To further evidence the Guarantees set forth in Section 12.1, each
Subsidiary Guarantor hereby agrees that a notation relating to such Guarantee,
in substantially the form of Exhibit A-1, shall be endorsed on each Note
authenticated and delivered by the Trustee and executed by either manual or
facsimile signature of two Officers of each Subsidiary Guarantor.
(b) Each of the Subsidiary Guarantors hereby agrees that its Guarantee set
forth in Section 12.1 shall remain in full force and effect notwithstanding any
failure to endorse on each Note a notation relating to such Guarantee.
(c) If an Officer of a Guarantor whose signature is on this Indenture or a
Note no longer holds that office at the time the Trustee authenticates such Note
or at any time thereafter, such Subsidiary Guarantor's Guarantee of such Note
shall be valid nevertheless.
(d) The delivery of any Note by the Trustee, after the authentication
thereof hereunder, shall constitute due delivery of any Guarantee set forth in
this Indenture on behalf of the Subsidiary Guarantor.
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SECTION 12.8 SEVERABILITY.
In case any provision of this Guarantee shall be invalid, illegal or
unenforceable, that portion of such provision that is not invalid, illegal or
unenforceable shall remain in effect, and the validity, legality, and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
ARTICLE 13
SUBORDINATION OF GUARANTEES
SECTION 13.1. GUARANTEES SUBORDINATED TO SENIOR INDEBTEDNESS.
Each Subsidiary Guarantor, for itself and its successors, and each Holder,
by his acceptance of Notes, agrees that the Guarantees of such Subsidiary
Guarantor are subordinated, to the extent and in the manner provided in this
Article, to the prior payment in full of all Senior Indebtedness of such
Subsidiary Guarantor (hereinafter in this Article referred to as "Senior
Indebtedness"). This Article shall constitute a continuing offer of all Persons
who, in reliance upon such provisions, become holders of, or continue to hold,
Senior Indebtedness, and such provisions are made for the benefit of the holders
of Senior Indebtedness, and such holders are made obligees hereunder and any one
or more of them may enforce such provisions.
SECTION 13.2. NO PAYMENT ON GUARANTEES IN CERTAIN CIRCUMSTANCES.
(a) Upon the Maturity of any Senior Indebtedness by lapse of time,
acceleration or otherwise, unless and until all principal thereof, interest
thereon and other amounts due thereon shall first be paid in full, no payment
shall be made by or on behalf of any Subsidiary Guarantor pursuant to the
Guarantees with respect to the principal of or interest on the Notes.
(b) Upon the happening of any default in the payment of any principal of
or interest on or other amounts due on any Senior Indebtedness (a "Payment
Default"), then, unless and until such default shall have been cured or waived
or shall have ceased to exist, no payment shall be made by or on behalf of any
Subsidiary Guarantor pursuant to the Guarantees with respect to the principal of
or interest on the Notes.
(c) In furtherance of the provisions of Section 13.1, in the event that,
notwithstanding the foregoing provisions of this Section, any payment with
respect to the principal of or interest on the Notes shall be made by or on
behalf of any Subsidiary Guarantor, and received by the Trustee, by any Holder
or by any Paying Agent (or, if the Company is acting as its own Paying Agent,
money for any such payment shall be segregated and held in trust), at a time
when such payment was prohibited by the provisions of this Section, then,
unless and until such payment is no longer prohibited by this Section, such
payment (subject to the provisions of Sections 13.6 and 13.7) shall be received
and held in trust by the Trustee or such Holder or Paying Agent for the benefit
of and shall be immediately paid over to the holders of Senior Indebtedness or
their Representative, ratably according to the aggregate amounts remaining
unpaid on account of the principal of and interest on the Senior Indebtedness
held or represented by each, for application to the payment of all Senior
Indebtedness in accordance with its terms, after giving effect to any concurrent
payment or distribution to or for the benefit of the holders of Senior
Indebtedness.
(d) The provisions of this Section shall not modify or limit in any way
the application of Section 13.3.
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(e) Each Subsidiary Guarantor shall give prompt written notice to the
Trustee of any default in the payment of any Senior Indebtedness of such
Subsidiary Guarantor or any acceleration under any such Senior Indebtedness or
under any agreement pursuant to which such Senior Indebtedness may have been
issued. Failure to give such notice shall not affect the subordination of the
Guarantees to the Senior Indebtedness or the application of the other provisions
provided in this Article.
SECTION 13.3. GUARANTEES SUBORDINATED TO PRIOR PAYMENT OF ALL SENIOR
INDEBTEDNESS ON DISSOLUTION, LIQUIDATION OR
REORGANIZATION OF A SUBSIDIARY GUARANTOR.
(a) In the event of any Insolvency or Liquidation Proceeding with respect
to any Subsidiary Guarantor, all amounts payable in respect of any Senior
Indebtedness of such Subsidiary Guarantor shall first be paid in full before the
Holders are entitled to receive any direct or indirect payment or distribution
of any cash, property or securities pursuant to the Guarantees on account of
principal of or interest on the Notes or any other payment with respect to the
Notes.
(b) The holders of Senior Indebtedness shall be entitled to receive
directly, for application to the payment of Senior Indebtedness (to the extent
necessary to pay in full all Senior Indebtedness, whether or not due, including
specifically, without limitation, all Post-Commencement Interest, whether or not
allowed as a claim in such Insolvency or Liquidation Proceeding, after giving
effect to any substantially concurrent payment or distribution to the holders of
Senior Indebtedness on account of Senior Indebtedness), any payment or
distribution of any kind or character, (whether in cash, property or securities,
including any payment or distribution which may be payable or deliverable by
reason of the payment of any other indebtedness of such Subsidiary Guarantor
being subordinated to the payment of the Guarantees) which may be payable or
deliverable in respect of the Guarantees in any such Insolvency or Liquidation
Proceeding.
(c) In the event that, notwithstanding the foregoing provisions of this
Section , the Trustee or any Paying Agent or the Holder of any Note shall have
received any payment from or distribution of assets of such Subsidiary Guarantor
or the estate created by the commencement of any such Insolvency or Liquidation
Proceeding, of any kind or character in respect of the Guarantees, whether in
cash, property or securities, including any payment or distribution which may be
payable or deliverable by reason of the payment of any other indebtedness of
such Subsidiary Guarantor being subordinated to the payment of the Guarantees,
before all Senior Indebtedness (whether or not due including specifically,
without limitation, all Post-Commencement Interest, whether or not allowed as a
claim in such Insolvency or Liquidation Proceeding) is paid in full, then and in
such event such payment or distribution shall be received and held in trust by
the Trustee, any such Paying Agent or Holder for and shall be paid over to the
holders of Senior Indebtedness (to the extent necessary to pay in full all such
Senior Indebtedness, whether or not due, including specifically, without
limitation, all Post Commencement Interest thereon, whether or not allowed as a
claim in such Insolvency or Liquidation Proceeding), after giving effect to any
substantially concurrent payment or distribution to the holders of Senior
Indebtedness on account of Senior Indebtedness, for application to the payment
in full of such Senior Indebtedness.
(d) The Company and each Subsidiary Guarantor shall give prompt written
notice to the Trustee of any Insolvency or Liquidation Proceeding with respect
to such Subsidiary Guarantor.
SECTION 13.4. HOLDERS TO BE SUBROGATED TO RIGHTS OF HOLDERS OF
SENIOR INDEBTEDNESS.
After all amounts payable under or in respect of Senior Indebtedness
(whether or not due) are paid in full, the Holders shall be subrogated (without
any duty on the part of the holders of Senior Indebtedness to warrant, create,
effectuate, preserve or protect such subrogation), to the extent of the payment
or
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distributions made to the holders of Senior Indebtedness pursuant to the
provisions of this Article (equally and ratably with the holders of all other
indebtedness of any Subsidiary Guarantor which by its express terms is
subordinate and subject in right of payment to Senior Indebtedness to
substantially the same extent as the Guarantees are so subordinated and subject
in right of payment and which is entitled to like rights and subrogation), to
the rights of the holders of Senior Indebtedness to receive payments and
distributions of cash, property and securities applicable to the Senior
Indebtedness, until the principal of and interest on the Notes shall be paid in
full. For the purpose of such subrogation no such payments or distributions to
the holders of Senior Indebtedness by or on behalf of the Company, or by or on
behalf of the Holders by virtue of this Article, which otherwise would have been
made to the Holders shall, as between any Subsidiary Guarantor and the Holders,
be deemed to be payment by such Subsidiary Guarantor to or on account of the
Senior Indebtedness, it being understood that the provisions of this Article are
and are intended solely for the purpose of defining the relative rights of the
Holders, on the one hand, and the holders of Senior Indebtedness, on the other
hand.
SECTION 13.5. GUARANTEES UNCONDITIONAL.
Nothing contained in this Article or elsewhere in this Indenture or in any
Subsidiary Guarantee is intended to or shall impair, as between the Subsidiary
Guarantors and the Holders, the Guarantees, which are absolute and
unconditional, as and when the same shall become due and payable in accordance
with their terms, or is intended to or shall affect the relative rights of the
Holders and creditors of the Subsidiary Guarantors, other than the holders of
the Senior Indebtedness, nor shall anything herein or therein prevent the
Trustee or any Holder from exercising all remedies otherwise permitted by
applicable law upon default under this Indenture, subject to the rights, if any,
under this Article, of the holders of Senior Indebtedness in respect of cash,
property or securities of any Subsidiary Guarantor received upon the exercise of
any such remedy. Upon any distribution of assets of any Subsidiary Guarantor
referred to in this Article, the Trustee, subject to the provisions of Section
6.1, and the Holders shall be entitled to rely upon any order or decree made by
any court of competent jurisdiction in which such Insolvency or Liquidation
Proceedings is pending, or a certificate of the liquidating trustee or agent or
other Person making any distribution to the Trustee or to the Holders for the
purpose of ascertaining the Persons entitled to participate in such
distribution, the holders of the Senior Indebtedness and other indebtedness of
such Subsidiary Guarantor, the amount thereof or payable thereon, the amount or
amounts paid or distributed thereon and all other facts pertinent thereto or to
this Article.
SECTION 13.6. TRUSTEE ENTITLED TO ASSUME PAYMENTS NOT PROHIBITED IN
ABSENCE OF NOTICE.
The Trustee shall not at any time be charged with knowledge of the
existence of any facts which would prohibit the making of any payment to or by
the Trustee unless and until the Trustee or any Paying Agent shall have received
written notice thereof from the Company or a Subsidiary Guarantor or from one or
more holders of Senior Indebtedness or from any Representative therefor and,
prior to the receipt of any such written notice, the Trustee, subject to the
provisions of Section 6.1, shall be entitled in all respects conclusively to
assume that no such fact exists. Nothing in this Section is intended to or shall
relieve any Holder from the obligations imposed under Sections 13.2 and 13.3
with respect to money or other distributions received in violation of the
provisions thereof.
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SECTION 13.7. APPLICATION BY TRUSTEE OF ASSETS DEPOSITED WITH IT.
All money and U.S. Government Guarantees deposited in trust with the
Trustee pursuant to and in accordance with Section 4.1 shall be for the sole
benefit of the Holder and shall not be subject to this Article. Otherwise, any
deposit of assets by any Subsidiary Guarantor pursuant to the Guarantees with
the Trustee or any Paying Agent (whether or not in trust) for the payment of
principal of or interest on any Notes shall be subject to the provisions of this
Article; provided that, if prior to the second Business Day preceding the date
on which by the terms of this Indenture any such assets may become distributable
for any purpose (including without limitation, the payment of either principal
of or interest on any Note) the Trustee or such Paying Agent shall not have
received with respect to such assets the written notice provided for in Section
13.6, then the Trustee or such Paying Agent shall have full power and authority
to receive such assets and to apply the same to the purpose for which they were
received, and shall not be affected by any notice to the contrary which may be
received by it on or after such date. The preceding sentence shall be construed
solely for the benefit of the Trustee and each Paying Agent and shall not
otherwise affect the rights of holders of Senior Indebtedness.
SECTION 13.8. SUBORDINATION RIGHTS NOT IMPAIRED BY ACTS OR OMISSIONS
OF THE SUBSIDIARY GUARANTORS OR HOLDERS OF SENIOR
INDEBTEDNESS.
No right of any present or future holder of any Senior Indebtedness to
enforce the subordination provisions in this Article shall at any time in any
way be prejudiced or impaired by any act or failure to act on the part of any
Subsidiary Guarantor or by any act or failure to act by any such holder, or by
any noncompliance by the Company with the terms of this Indenture, regardless of
any knowledge thereof which any such holder may have or be otherwise charged
with. The holders of Senior Indebtedness may extend, renew, modify or amend the
terms of the Senior Indebtedness or any security therefor and release, sell or
exchange such security and otherwise deal freely with the Subsidiary Guarantors,
all without affecting the liabilities and obligations of the parties to this
Indenture or the Holders.
SECTION 13.9. HOLDERS AUTHORIZE TRUSTEE TO EFFECTUATE SUBORDINATION
OF NOTES.
Each Holder of Notes by his acceptance thereof (i) authorizes and
expressly directs the Trustee on his behalf to take such action as may be
necessary or appropriate to effectuate the subordination provided in this
Article and to protect the rights of the Holders pursuant to this Indenture, and
(ii) appoints the Trustee his attorney-in-fact for such purpose, including in
the event of any Insolvency or Liquidation Proceeding with respect to any
Subsidiary Guarantor, the timely filing of a claim of the unpaid balance of his
Notes pursuant to Guarantees in the form required in said proceeding and the
causing of such claim to be approved. If the Trustee shall not file a proper
claim or proof of debt in the form required in such proceeding prior to 30 days
before the expiration of the time to file such claim or claims, then the holders
of the Senior Indebtedness or their Representative shall have the right to file
an appropriate claim for and on behalf of the Holders. Nothing herein contained
shall be deemed to authorize the Trustee or any Holder of Senior Indebtedness or
their Representative to authorize or consent to or accept or adopt on behalf of
any Holder any plan of reorganization, arrangement, adjustment or composition
affecting the Notes, the Guarantees or the rights of any Holder, or to authorize
the Trustee or any holder of Senior Indebtedness or their Representative to vote
in respect of the claim of any Holder in any such proceeding.
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SECTION 13.10. RIGHT OF TRUSTEE TO HOLD SENIOR INDEBTEDNESS.
The Trustee shall be entitled to all of the rights set forth in this
Article in respect of any Senior Indebtedness at any time held by it to the same
extent as any other holder of Senior Indebtedness, and nothing in this Indenture
shall be construed to deprive the Trustee of any of its rights as such holder.
SECTION 13.11. PAYMENT.
A payment pursuant to the Guarantees with respect to a Note or with
respect to principal of or interest on a Note shall include, without limitation,
payment of principal of (and premium, if any) and interest on any Note, any
depositing of funds under Article 10, any payment on account of any mandatory or
optional repurchase or redemption of any Note (including payments pursuant to
Section 10.9 or Section 10.14) and any payment or recovery on any claim (whether
for rescission or damages and whether based on contract, tort, duty imposed by
law, or any other theory of liability) relating to or arising out of the offer,
sale or purchase of any Note, provided that any such payment, deposit, other
payment or recovery (i) not prohibited pursuant to this Article at the time
actually made shall not be subject to any recovery by any holder of Senior
Indebtedness or Representative therefor or other Person pursuant to this Article
at any time thereafter and (ii) made by or from any Persons other than any
Subsidiary Guarantor shall not be subject to any recovery by any holder of
Senior Indebtedness or Representative therefor or other Person pursuant to this
Article at any time thereafter except to the extent such Person recovers any
such amount paid from such Subsidiary Guarantor whether pursuant to rights of
indemnity, rescission or otherwise.
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ARTICLE 14
ADDITIONAL SERIES OF NOTES
SECTION 14.1. AUTHORIZATION AND DELIVERY OF ADDITIONAL SERIES OF NOTES.
From time to time after the execution of this Indenture, the Company may
authorize one or more series of Notes in addition to the Exchange Notes. If the
Company shall determine to authorize any such additional series of Notes, it
shall file with the Trustee:
(a) a Certified Resolution creating or authorizing the creation of such
series of Notes and approving or authorizing an officer of the Company to
approve and to execute the Supplemental Indenture referred to in Section 14.1(b)
hereof;
(b) a Supplemental Indenture creating such additional series of Notes and
containing provisions setting forth an appropriate series designation, the form
or forms of the Notes of such series, the date of stated maturity thereof, the
rate of interest or the manner of determining such rate, the interest payment
date or dates, the redemption provisions (if any), the sinking fund provisions
(if any), the conversion provisions (if any), the limitation of the aggregate
principal amount of the Notes of such series and other terms not inconsistent
with the provisions of this Indenture as the Company may elect to include in
such Supplemental Indenture; and
(c) an Opinion of Counsel, stating that all conditions precedent to the
creation of such series of Notes and to the execution of such Supplemental
Indenture have been complied with and that such Supplemental Indenture is in
proper form for execution by the Trustee.
(d) thereupon, the Trustee shall join with the Company in the execution of
such Supplemental Indenture, but the Trustee shall not be obligated to enter
into any such Supplemental Indenture which in the Trustee's opinion adversely
affects the Trustee's own rights, duties or immunities under this Indenture or
otherwise.
(e) Notes of any series other than the Exchange Notes shall be issued only
upon receipt by the Trustee of:
(i) a Certified Resolution authorizing the authentication and
delivery to or upon the written order of the Company of the Notes of such
series in an aggregate principal amount specified therein;
(ii) an Officers' Certificate stating that no Event of Default, or
event which with the giving of notice or passage of time or both would
become an Event of Default, exists under the Indenture; that all payments
required to be made by the Company under the Indenture and the outstanding
Notes are current, and that upon the issuance of the additional Notes, no
Event of Default, or event which with the giving of notice or passage of
time or both would become an Event of Default will exist under the
Indenture;
(iii) an Opinion or Opinions of Counsel stating that the
Supplemental Indenture and the Notes issued pursuant thereto are legal,
valid and binding obligations of the Company enforceable against the
Company in accordance with their terms and that all conditions precedent
to the execution and delivery of the Supplemental Indenture and the
issuance, authentication and delivery of the Notes pursuant thereto have
been fulfilled; and
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(iv) such other closing documents as the Trustee may specify.
SIGNATURES
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed, and their respective corporate seals to be hereunto affixed and
attested, all as of the day and year first above written.
SIMULA, INC., an Arizona corporation
By
-------------------------------------
Donald Townsend, President
BANK ONE TRUST COMPANY, NA,
as Trustee
By
-------------------------------------
Trust Officer
SUBSIDIARY GUARANTORS:
SIMULA GOVERNMENT PRODUCTS, INC., an
Arizona corporation
By
-------------------------------------
Sean K. Nolen, Assistant
Treasurer
SIMULA TRANSPORTATION EQUIPMENT
CORPORATION, an Arizona corporation
By
-------------------------------------
Sean K. Nolen, Assistant Treasurer
AIRLINE INTERIORS, INC., an Arizona
corporation
By
-------------------------------------
Sean K. Nolen, Assistant Treasurer
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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
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<PAGE> 73
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
SIMULA HOLDINGS, INC., an Arizona
corporation
By
-------------------------------------
Sean K. Nolen, Assistant Treasurer
SIMULA TECHNOLOGIES, INC.,
an Arizona corporation
By
-------------------------------------
Sean K. Nolen, Assistant Treasurer
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INTAERO, LIMITED, an Arizona corporation
By
-------------------------------------
Sean K. Nolen, Assistant Treasurer
VIATECH, INC., a Delaware corporation
By
-------------------------------------
Sean K. Nolen, Assistant Treasurer
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<PAGE> 75
STATE OF )
) ss.
County of )
On this _____ day of ______________________, 1997, before me, a Notary
Public in and for said county and state, personally appeared Donald Townsend, 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 President 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 _______________________________, 1997.
-------------------------------------
Notary Public
(Seal)
STATE OF )
) ss.
County of )
On this _____ day of ______________________, 1997, 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 _______________________________, 1997.
-------------------------------------
Notary Public
(Seal)
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<PAGE> 76
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 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 ____________________________ 1997.
-------------------------------------
Notary Public
(Seal)
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 Assistant Treasurer of SIMULA TRANSPORTATION 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 ____________________________ 1997.
-------------------------------------
Notary Public
(Seal)
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<PAGE> 77
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 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 ____________________________ 1997.
-------------------------------------
Notary Public
(Seal)
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 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 ____________________________ 1997.
-------------------------------------
Notary Public
(Seal)
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<PAGE> 78
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 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 ____________________________ 1997.
-------------------------------------
Notary Public
(Seal)
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 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 ____________________________ 1997.
-------------------------------------
Notary Public
(Seal)
-74-
<PAGE> 79
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 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 ____________________________ 1997.
-------------------------------------
Notary Public
(Seal)
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 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 ____________________________ 1997.
-------------------------------------
Notary Public
(Seal)
-75-
<PAGE> 80
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 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 ____________________________ 1997.
-------------------------------------
Notary Public
(Seal)
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 Assistant Treasurer of SIMULA HOLDINGS, INC., one of the
corporations described in and which executed the foregoing instrument; that said
instrument was signed 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 _________, 1997.
-------------------------------------
Notary Public
(Seal)
-76-
<PAGE> 81
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 Assistant Treasurer of SIMULA TECHNOLOGIES, INC., one of
the corporations described in and which executed the foregoing instrument; that
said instrument was signed 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 _________, 1997.
-------------------------------------
Notary Public
(Seal)
-77-
<PAGE> 82
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 Assistant Treasurer of INTAERO, LIMITED, one of the
corporations described in and which executed the foregoing instrument; that said
instrument was signed 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 _________, 1997.
-------------------------------------
Notary Public
(Seal)
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 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 ____________________________ 1997.
-------------------------------------
Notary Public
-78-
<PAGE> 83
SIMULA, INC.
RECONCILIATION BETWEEN INDENTURE
DATED AS OF DECEMBER 17, 1993 AND TRUST INDENTURE ACT OF 1939
<TABLE>
<CAPTION>
Trust Indenture Act Section Indenture Section
<S> <C>
Section 310 (a)(1).......................................... 6.9
(a)(2).......................................... 6.9
(a)(3).......................................... Not Applicable
(a)(4).......................................... Not Applicable
(a)(5).......................................... 6.7
(b)............................................. 6.7, 6.9
(c)............................................. Not Applicable
Section 311 (a)............................................. 6.10
(b)............................................. 6.10
(c)............................................. Not Applicable
Section 312 (a)............................................. 7.1, 7.2(a)
(b)............................................. 7.2(b)
(c)............................................. 7.2(c)
Section 313 (a)............................................. 7.3
(b)(1).......................................... Not Applicable
(b)(2).......................................... 7.3
(c)............................................. 7.3
(d)............................................. 7.3
Section 314 (a)............................................. 7.4, 10.2, 10.3
(b)............................................. Not Applicable
(c)(1).......................................... 1.2
(c)(2).......................................... 1.2
(c)(3).......................................... Not Applicable
(d)............................................. Not Applicable
(e)............................................. 1.2
(f)............................................. Not Applicable
Section 315 (a)............................................. 6.1(b)
(b)............................................. 6.5
(c)............................................. 6.1(a)
(d)(1).......................................... 6.1(c)
(d)(2).......................................... 6.1(c)(2)
(d)(3).......................................... 6.1(c)(3)
(e)............................................. 5.15
Section 316 (a)............................................. 1.1
(a)(1)(A)....................................... 5.3, 5.13
(a)(1)(B)....................................... 5.14
(a)(2).......................................... Not Applicable
(b)............................................. 5.4
(c)............................................. Not Applicable
Section 317 (a)(1).......................................... 5.4
(a)(2).......................................... 5.5
(b)............................................. 3.10
Section 318 (a)............................................. 1.7
(c)............................................. 1.7
</TABLE>
NOTE: This reconciliation shall not, for any purpose, be deemed to be a part
of the Indenture.
<PAGE> 1
EXHIBIT 11
SIMULA, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1996 1995 1994 1993 1992
------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
(Loss) earnings before cumulative
effect of a change in accounting
principle $ (6,809,966) $2,657,359 $2,114,423 $1,120,800 $1,269,324
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 $1,120,800 $1,269,324
============= ========== ========== ========== ==========
PRO FORMA(1)
Net earnings 1,269,324
Pro forma tax credit 43,473
----------
Pro forma net earnings 1,312,797
==========
Number of shares:
Weighted average shares outstanding 8,947,060 8,175,300 5,461,095 5,024,679 4,608,825
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 5,024,679 4,608,825
============= ========== ========== ========== ==========
Per share amounts:
(Loss) earnings before cumulative
effect of a change in accounting
principle $ (0.76) $ 0.31 $ 0.37 $ 0.22
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 $ 0.22
============= ========== ========== ==========
Pro forma earnings per share(1) $ 0.29
===========
</TABLE>
(1) Prior to the Company's April 1992 initial public offering, the Company
was an S Corporation for income tax purposes. Pro forma net earnings and net
earnings per share amounts for 1992 reflect pro forma income tax provisions as
if all income taxes had been payable by the Company for 1992.
<PAGE> 1
Exhibit 12
SIMULA, INC.
RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
YEARS ENDED DECEMBER 31,
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Consolidated net
(loss) earnings (1) $(6,810) $2,657 $2,114 $1,121 $1,270
(Benefit) provision for
income taxes (4,741) 196 1,260 744 965
------ ------- ------ ------ ------
Consolidated (loss) income
before income taxes (11,551) 2,853 3,374 1,865 2,235
Fixed Charges:
Interest expense and
amortization of debt issue
cost 2,377 2,030 1,832 800 209
Portion of rentals
representative of the
interest factor 655 370 193 133 251
------ ----- ----- ----- ------
Total Fixed Charges 3,032 2,400 2,025 933 460
------ ----- ----- ----- ------
Earnings available
for fixed charges $(8,519) $5,253 $5,399 $2,798 2,695
------ ------ ------ ------ ------
Ratio of earnings
to fixed charges (2) -- 2.19 2.67 3.00 5.86
====== ===== ===== ===== ======
</TABLE>
(1) Before cumulative effect of change in accounting principle of
approximately $3,240,000 million in 1996.
(2) Earnings were insufficient to cover fixed charges by approximately
$11,551,000 for the year ended December 31, 1996.
<PAGE> 1
EXHIBIT 21
SIMULA, INC.
SUBSIDIARY LIST
1. Simula Holdings, Inc.
2. Simula Transportation Equipment Corporation
3. Simula Government Products, Inc.
4. Simula Technologies, Inc.
5. Airline Interiors, Inc.
6. Coach & Car Equipment Corporation
7. Artcraft Industries Corp.
8. Safety Equipment, Inc.
9. Sedona Scientific, Inc.
10. International Center for Safety Education, Inc.
11. ViaTech, Inc.
12. Intaero, Limited
13. Simula Automotive Safety Devices, Inc.
14. Simula Automotive Safety Devices, Limited
15. Simula Protective Systems, Limited
<PAGE> 1
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Amendment No. 2 of
Registration Statement No. 333-13499 of Simula, Inc. on Form S-3 of our report
dated March 20, 1997, appearing and incorporated by reference in the Form 10-K
of Simula, Inc. for the year ended December 31, 1996, and to the reference to us
under the heading "Experts" in the Prospectus, which is part of this
Registration Statement.
DELOITTE & TOUCHE LLP
Phoenix, Arizona
March 31, 1997
