<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
/ X / Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended June 30, 1998 or
/ / Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ___________ to _________
Commission file number 1-12410
Simula, Inc.
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(Exact Name of Registrant as Specified in Its Charter)
Arizona 86-0320129
- ------------------------------- ------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
2700 North Central Avenue, Suite 1000, Phoenix, Arizona 85004
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(Address of Principal Executive Offices) (Zip Code)
(602) 631-4005
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(Registrant's Telephone Number, Including Area Code)
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(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Indicate by check mark whether the registrant:
(1) has filed all reports required to be filed by Section 13 or 15 (d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports)
Yes / X / No / /
(2) has been subject to such filing requirements for the past 90 days.
Yes / X / No / /
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Class Outstanding at June 30, 1998
---------------------------- ----------------------------
Common Stock, $.01 par value 9,877,103
<PAGE> 2
SIMULA, INC.
INDEX
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Item 1 - Financial Statements
Consolidated Balance Sheets
June 30, 1998 and December 31, 1997 ............................ 2
Consolidated Statements of Operations
Three and Six Months Ended June 30, 1998 and 1997 .............. 3
Consolidated Statement of Shareholders' Equity
Six Months Ended June 30, 1998 ................................. 4
Consolidated Statements of Cash Flows
Six Months Ended June 30, 1998 and 1997 ........................ 5
Notes to Interim Consolidated Financial Statements ................ 6 - 7
Item 2 - Management's Discussion and Analysis of
Results of Operations and Financial Condition .................. 8 - 12
PART II - OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security Holders ............ 13
Item 5 - Other - Discontinued Operations ................................ 13
Item 6 - Exhibits and Reports ........................................... 14
SIGNATURES .............................................................. 15
</TABLE>
1
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
SIMULA, INC.
CONSOLIDATED BALANCE SHEETS
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<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
------------- -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 6,289,127 $ 9,367,031
Contract and trade receivables - Net 26,577,922 22,897,091
Inventories 27,663,055 23,772,430
Deferred income taxes 4,750,000 3,763,000
Prepaid expenses and other 1,778,838 1,335,366
Net current assets of discontinued operations 9,511,606 12,274,200
------------- -------------
Total current assets 76,570,548 73,409,118
PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS - Net 19,974,381 18,666,140
DEFERRED INCOME TAXES 7,559,000 4,477,000
DEFERRED FINANCING COSTS 2,827,517 3,136,898
INTANGIBLES - Net 3,534,336 3,701,494
OTHER ASSETS 332,134 497,823
NET LONG-TERM ASSETS OF DISCONTINUED OPERATIONS 6,868,382 13,470,801
------------- -------------
TOTAL $ 117,666,298 $ 117,359,274
============= =============
LIABILITIES & SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Revolving line of credit $ 7,050,000
Trade accounts payable 7,877,746 $ 9,832,206
Other accrued liabilities 6,706,622 5,662,816
Advances on contracts 1,935,659 1,163,109
Current portion of long-term debt 7,975,539 8,096,207
------------- -------------
Total current liabilities 31,545,566 24,754,338
LONG-TERM DEBT - Less current portion 46,102,467 46,962,530
------------- -------------
Total liabilities 77,648,033 71,716,868
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SHAREHOLDERS' EQUITY
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 9,877,103 and 9,850,832 98,771 98,508
Additional paid-in capital 51,449,142 51,109,830
Accumulated deficit (11,610,555) (5,505,822)
Currency translation adjustment 80,907 (60,110)
------------- -------------
Total shareholders' equity 40,018,265 45,642,406
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TOTAL $ 117,666,298 $ 117,359,274
============= =============
</TABLE>
See notes to interim consolidated financial statements.
2
<PAGE> 4
SIMULA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
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<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
----------------------------- -----------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue $ 25,739,419 $ 13,006,130 $ 48,281,597 $ 24,317,606
Cost of revenue 19,067,593 8,284,746 35,683,586 16,164,703
------------ ------------ ------------ ------------
Gross margin 6,671,826 4,721,384 12,598,011 8,152,903
Administrative expenses 4,690,539 4,114,239 9,087,781 8,207,766
------------ ------------ ------------ ------------
Operating income (loss) 1,981,287 607,145 3,510,230 (54,863)
Interest expense (1,194,824) (1,210,503) (2,403,650) (2,000,683)
Interest income 52,513 173,327 115,075 173,327
------------ ------------ ------------ ------------
Earnings (loss) before taxes and discontinued operations 838,976 (430,031) 1,221,655 (1,882,219)
Income tax (expense) benefit (336,000) 186,000 (490,000) 768,000
------------ ------------ ------------ ------------
Earnings (loss) from continuing operations 502,976 (244,031) 731,655 (1,114,219)
Discontinued operations:
(Loss) earnings from discontinued operations, net of tax (1,932,410) 262,332 (2,156,388) 566,383
Estimated loss on disposal, net of tax (4,680,000) (4,680,000)
------------ ------------ ------------ ------------
Net (loss) earnings $ (6,109,434) $ 18,301 $ (6,104,733) $ (547,836)
============ ============ ============ ============
(Loss) earnings per common share - basic:
Earnings (loss) from continuing operations $ 0.05 $ (0.03) $ 0.07 $ (0.12)
Discontinued operations:
(Loss) earnings from discontinued operations, net of tax (0.20) 0.03 (0.22) 0.06
Estimated loss on disposal, net of tax (0.47) (0.47)
------------ ------------ ------------ ------------
Net (loss) earnings $ (0.62) $ -- $ (0.62) $ (0.06)
============ ============ ============ ============
(Loss) earnings per common share - assuming dilution:
Earnings (loss) from continuing operations $ 0.05 $ (0.03) $ 0.07
Discontinued operations:
(Loss) earnings from discontinued operations, net of tax (0.19) 0.03 (0.21)
Estimated loss on disposal, net of tax (0.46) (0.46)
------------ ------------ ------------
Net (loss) earnings $ (0.60) $ -- $ (0.60)
============ ============ ============
</TABLE>
See notes to interim consolidated financial statements.
3
<PAGE> 5
SIMULA, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 1998
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<TABLE>
<CAPTION>
Common Stock Additional Currency Total
----------------------- Paid-in Accumulated Translation Shareholders'
Shares Amount Capital Deficit Adjustment Equity
--------- ------- ----------- ------------ --------- ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, January 1, 1998 9,850,832 $98,508 $51,109,830 $ (5,505,822) $ (60,110) $ 45,642,406
Net loss (6,104,733) (6,104,733)
Issuance of common shares 26,271 263 339,312 339,575
Currency translation adjustment 141,017 141,017
--------- ------- ----------- ------------ --------- ------------
BALANCE, June 30, 1998 9,877,103 $98,771 $51,449,142 $(11,610,555) $ 80,907 $ 40,018,265
========= ======= =========== ============ ========= ============
</TABLE>
See notes to interim consolidated financial statements.
4
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SIMULA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
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<TABLE>
<CAPTION>
SIX MONTHS ENDED
--------------------------------
JUNE 30, 1998 JUNE 30, 1997
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<S> <C> <C>
Cash flows used for operating activities:
Net loss $ (6,104,733) $ (547,836)
Adjustment to reconcile net loss to net cash used by operating activities:
Estimated loss on disposal of discontinued operations 7,800,000
Depreciation and amortization 2,937,719 2,060,680
Deferred income taxes (4,069,000) (365,000)
Currency translation adjustment 141,017 5,294
Changes in net assets and liabilities:
Contract and trade receivables - net of advances (1,026,546) (3,183,319)
Inventories (4,538,861) (8,059,538)
Prepaid expenses and other (73,064) 930,601
Other assets (375,259) (487,180)
Trade accounts payable (1,743,117) 447,318
Other accrued liabilities 1,059,126 1,565,464
------------ ------------
Net cash used by operating activities (5,992,718) (7,633,516)
------------ ------------
Cash flows used by investing activities:
Purchase of property and equipment (3,403,054) (4,502,062)
Costs incurred to obtain intangibles (77,283) (144,396)
------------ ------------
Net cash used in investing activities (3,480,337) (4,646,458)
------------ ------------
Cash flows from financing activities:
Net borrowings (repayments) under line of credit 7,050,000 (6,900,000)
Issuance of 8% Notes - net of expenses 31,186,126
Principal payments under other debt arrangements (994,424) (934,107)
Issuance of common shares 339,575 744,458
------------ ------------
Net cash provided by financing activities 6,395,151 24,096,477
------------ ------------
Net (decrease) increase in cash and cash equivalents (3,077,904) 11,816,503
Cash and cash equivalents at beginning of period 9,367,031 1,298,741
------------ ------------
Cash and cash equivalents at end of period $ 6,289,127 $ 13,115,244
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 2,535,614 $ 1,702,788
============ ============
Taxes paid $ -- $ 110,900
============ ============
</TABLE>
See notes to interim consolidated financial statements.
5
<PAGE> 7
SIMULA, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION:
The accompanying interim consolidated financial statements of Simula,
Inc. (the "Company") have been prepared in accordance with generally
accepted accounting principles for interim financial information and
with the instructions to Form 10-Q. Accordingly, they do not include
all of the information and notes required by generally accepted
accounting principles for complete financial statements. In the opinion
of Management, all adjustments and reclassifications considered
necessary for a fair and comparable presentation have been included and
are of a normal recurring nature. Operating results for the three and
six months ended June 30, 1998 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1998.
NOTE 2 - INVENTORIES:
At June 30, 1998 and December 31, 1997, inventories consisted of the
following.
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
----------- -----------
<S> <C> <C>
Raw materials $14,139,816 $12,205,813
Work in process 12,327,932 10,652,149
Finished goods 1,195,307 914,468
----------- -----------
Total inventories $27,663,055 $23,772,430
=========== ===========
</TABLE>
Inventories included in net current assets of discontinued operations
at June 30, 1998 and December 31, 1997 were $4,371,087 and $3,733,664,
respectively, and consisted mainly of raw materials.
NOTE 3 - COMPREHENSIVE INCOME:
The Company adopted Financial Accounting Standards No. 130, Reporting
Comprehensive Income, on January 1, 1998. Comprehensive income includes
adjustments made for foreign currency translation. Comprehensive (loss)
income was ($6,130,704) and $53,567 for the three months ended June 30,
1998 and 1997, respectively, and ($6,020,123) and ($544,658) for the
six months ended June 30, 1998 and 1997, respectively.
NOTE 4 - DISCONTINUED OPERATIONS
In 1998, the Company's board of directors adopted a plan to dispose of
its rail and mass transit operations. Accordingly, the operating
results of these rail and mass transit operations, including a
provision for estimated loss upon disposition, have been segregated
from continuing operations and are reported as discontinued operations.
Interest expense has been allocated to discontinued operations based on
the ratio of the discontinued operations' net assets to consolidated
net assets. General corporate administrative expenses are not allocated
to discontinued operations. Due to the subjective nature of estimated
future operations and incremental costs of disposal, it is reasonably
possible that these estimates may change in the future. Future changes
in estimates will be included in the consolidated statement of
operations in the reporting period determined. Revenues for the rail
and mass transit operations were $3,271,808 and $7,059,234, for the
three months ended June 30, 1998 and 1997, respectively, and $8,733,332
and $13,573,581 for the six months ended June 30, 1998 and 1997,
respectively.
6
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SIMULA, INC.
NOTE 5 - EARNINGS PER SHARE:
The following is a reconciliation of the numerators and denominators of
basic and diluted per share computations. For the three and six month
periods ended June 30, 1998, the effects of 2,245,812 total shares to
be issued upon the conversion of the Company's 8% Senior Subordinated
Notes (the "8% Notes") and the Series C 10% Senior Subordinated
Convertible Notes (the "10% Notes") were not used for computing
dilutive earnings per share because the result would be anti-dilutive.
For the three months ended June 30, 1997, the effects of 2,925,445
total shares to be issued upon the conversion of the 8% Notes and the
10% Notes were not used for computing dilutive earnings per share
because the result would be anti-dilutive. Earnings per share amounts
for the six months ended June 30, 1997, is calculated using only
weighted average outstanding shares of 9,020,105. For the six month
period ended June 30, 1997, the effects of 3,158,153 total shares
related to options to purchase common stock and shares to be issued
upon conversion of the 8% Notes and the 10% Notes were not used for
computing dilutive earnings per share because the result would be
anti-dilutive.
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
-------------------------------- --------------------------------
1998 1997 1998 1997
-------------- ------------ -------------- ------------
<S> <C> <C> <C> <C>
Earnings (loss) from continuing operations $ 502,976 $ (244,031) $ 731,655 $ (1,114,219)
Discontinued operations:
(Loss) earnings from discontinued
operations, net of tax (1,932,410) 262,332 (2,156,388) 566,383
Estimated loss on disposal, net of tax (4,680,000) (4,680,000)
-------------- ------------ -------------- ------------
Net (loss) earnings $ (6,109,434) $ 18,301 $ (6,104,733) $ (547,836)
============== ============ ============== ============
Basic weighted average shares outstanding 9,873,668 9,044,186 9,862,449 9,020,105
============
Effect of dilutive securities 402,970 379,100 356,504
-------------- ------------ --------------
Diluted weighted average shares outstanding 10,276,638 9,423,286 10,218,953
============== ============ ==============
Basic per share amounts:
Earnings (loss) from continuing operations $ 0.05 $ (0.03) $ 0.07 $ (0.12)
Discontinued operations:
(Loss) earnings from discontinued
operations, net of tax (0.20) 0.03 (0.22) 0.06
Estimated loss on disposal, net of tax (0.47) (0.47)
-------------- ------------ -------------- ------------
Net (loss) earnings $ (0.62) $ -- $ (0.62) $ (0.06)
============== ============ ============== ============
Diluted per share amounts:
Earnings (loss) from continuing operations $ 0.05 $ (0.03) $ 0.07
Discontinued operations:
(Loss) earnings from discontinued
operations, net of tax (0.19) 0.03 (0.21)
Estimated loss on disposal, net of tax (0.46) (0.46)
-------------- ------------ --------------
Net (loss) earnings $ (0.60) $ -- $ (0.60)
============== ============ ==============
</TABLE>
7
<PAGE> 9
SIMULA, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION.
GENERAL - The following discussion and analysis provides information that
management of Simula, Inc. (the "Company") believes is relevant to an assessment
and understanding of the Company's results of operations and financial condition
for the three and six month periods ended June 30, 1998 compared to the same
periods in 1997. This discussion should be read in conjunction with the Interim
Consolidated Financial Statements and the Notes thereto included elsewhere in
this Form 10-Q. This Form 10-Q contains certain forward-looking statements and
information. The cautionary statements contained below should be read as being
applicable to all related forward-looking statements wherever they appear. 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 and
aircraft crashes.
Since its founding in 1975, the Company's historic business has been as a
government and defense contractor. Additionally, commencing with acquisitions
and commercial products development since 1993, 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 and inflatable restraints for automobiles. Utilizing
its proprietary safety technology, the Company has introduced crashworthy
systems for a variety of vehicles and aircraft including its 16g commercial
airliner passenger seat ("16g Seat") and various inflatable restraint systems
for automobiles including the Inflatable Tubular Structure ("ITS") (TM).
In 1994, the Company made a strategic decision to enter the inflatable
restraint market for automobiles utilizing its proprietary technology, the ITS.
Through 1996, the Company completed its development of this technology and
start-up of its manufacturing facilities. In 1997, the Company began
manufacturing the ITS for sale to BMW, a major European automobile manufacturer,
which began including it in certain models of its automobiles in 1997.
In 1993, the Company 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"). Coach and Car, and Artcraft's existing operations
included providing a majority of all manufacturing and refurbishment of rail and
mass transit seating systems in North America. These operations provided the
Company with the substantial large-scale manufacturing capacity and business
volume that were needed to establish the Company as a viable supplier of
commercial airliner seating systems.
To continue its strategic plan, in 1998, the Company adopted a plan to
sell its rail and mass transit seating operations at Coach and Car and Artcraft.
Because the Company's commercial airliner seating operation moved into a new
significantly larger facility in July 1998 and has established an annual run
rate of approximately $40 million per year, the rail operations are no longer
required to demonstrate the Company's production capabilities to current and
potential airliner seating customers. The Company believes the sale of these
businesses will provide a significant amount of cash that will be used to repay
outstanding indebtedness and reinvest in its other businesses that have higher
current and projected growth rates and financial returns. In addition, the sale
will allow senior Company management to focus on these other businesses. The
Company has initiated an active marketing plan and anticipates it will sell
these operations as ongoing businesses within twelve months. These companies
will continue their marketing, sales and manufacturing activities as the Company
prepares them for sale. The Company's rail operations are reported as
discontinued operations.
8
<PAGE> 10
SIMULA, INC.
The Company is a holding company for wholly owned subsidiaries, which
operate in three primary business segments. The Commercial Airline Seating
segment includes operations which primarily manufacture and refurbish seating
systems for domestic and foreign passenger airlines. The Government and Defense
segment includes operations that design and manufacture crash resistant
components, energy absorbing devices, ballistic armor and composites principally
for sale to branches of the United States armed forces. The Automobile Safety
Systems segment includes operations encompassing inflatable restraints,
principally the ITS, and related technology for automobiles. In addition, the
Company maintains general corporate operations. The Company's rail seating
operations are reported as discontinued operations.
The Company's revenue has historically been derived principally from sales
of Company manufactured products. A substantial portion of its current revenue
is generated from long-term production contracts, which are 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.
RESULTS FROM CONTINUING OPERATIONS - Three and six Months Ended June 30, 1998
Compared to 1997:
Revenue for the three months ended June 30, 1998 increased 98% to $25.7
million from $13.0 million for the comparable period in 1997. Revenue for the
six months ended June 30, 1998 increased 99% to $48.3 million from $24.3 million
for the comparable period in 1997. These increases are due to increased sales of
16g Seats and the ITS.
Gross margin for the three months ended June 30, 1998 increased 41% to
$6.7 million from $4.7 million for the comparable period in 1997. For the six
months ended June 30, 1998, gross margin increased 55% to $12.6 million from
$8.2 million for the comparable period in 1997. The increase in gross margin was
due to the increase in revenue noted above. As a percent of sales, gross margin
for the three months ended June 30, 1998 decreased to 26% from 36%. For the six
months ended June 30, 1998, gross margins as a percent of sales decreased to 26%
from 34%, for the comparable period in 1997. The decrease in gross margin
percentage is principally due to the transition from airline refurbishment to
high volume manufacturing of the Company's new 16g Seat. Airline refurbishment,
which has historically achieved higher gross margin percentages at relatively
low volumes, constituted a greater proportion of the Company's business in the
three and six months ended June 30, 1997. Gross margin percentages were also
negatively impacted by certain Government and Defense developmental programs
initiated in the first six months of 1998. These negative impacts were partially
offset by significant improvement in the gross margin percentage for the ITS.
The Company did not recognize significant revenue from the ITS in the first six
months of 1997 while incurring pre-contract costs related to the final
pre-production development of the ITS and start-up costs related to its
manufacturing facilities in Arizona and the United Kingdom.
Administrative expenses for the three months ended June 30, 1998 increased
14% to $4.7 million from $4.1 million for the comparable period in 1997.
Administrative expenses for the six months ended June 30, 1998 increased 11% to
$9.1 million from $8.2 million for the comparable period in 1997. These
increases were primarily attributable to the expansion of the corporate and
sales infrastructure related to the commercial introduction of the ITS,
including resources being utilized for sales and administration versus
pre-contract activities, research and development related to the expansion of
ITS technologies and legal expenses.
Interest expense was $1.2 million for the three months ended June 30, 1998
and 1997. Interest expense for the six months ended June 30, 1998 increased 20%
to $2.4 million from $2.0 million for the comparable period in 1997. This
increase was principally due to the issuance of $34.5 million of the 8% Senior
Subordinated Convertible Notes (the "8% Notes") in April 1997. These borrowings
were made to fund the Company's growth in working capital and fixed assets
necessary to support the anticipated growth in revenues for 1997 and subsequent
years. The increase in interest expense due to the 8% Notes was partially offset
by lower net borrowings on the Company's line of credit and the conversion
during the third quarter of 1997 of $9.6 million of the Series C 10% Senior
Subordinated Convertible Notes (the "10% Notes") into common stock of the
Company.
9
<PAGE> 11
SIMULA, INC.
Interest income for the three and six months ended June 30, 1998
represents income from the investment by the Company of available cash in high
quality government and short-term investment grade, interest bearing securities.
The effective income tax rate for the three and six month periods ended
June 30, 1998 and 1997 approximated the Company's combined statutory rate of
40%.
DISCONTINUED OPERATIONS
The net loss from discontinued operations was ($6.6) million during the
second quarter of 1998. Included in this amount is a net loss from operations of
the discontinued segment of ($1.9) million primarily resulting from unabsorbed
overhead costs principally due to production delays. The remainder of the loss
from discontinued operations of ($4.7) million represents the write-down of the
remaining net assets of these businesses to their net realizable value based
upon an independent valuation. This write-down was principally comprised of the
write-off of intangible assets and represents a non-cash charge. Estimated costs
of disposal and projected operating results have been included in determining
the net realizable value of these businesses. Therefore, the Company does not
anticipate that these operations will have any significant impact on future
results of operations during the period prior to their sale. Due to the
subjective nature of estimated future operations and incremental costs of
disposal, it is reasonably possible that these estimates may change in the
future. Future changes in estimates will be included in the consolidated
statement of operations in the reporting period determined.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity is greatly impacted by the nature of the billing
provisions under its contracts. Generally, in the early period of contracts,
cash expenditures and accrued profits are greater than allowed billings while
contract completion results in billing previously unbilled costs and profits.
Contract and trade receivables, net of advances on contracts, increased
approximately $1.0 million for the six months ended June 30, 1998 due
principally to the throughput on certain Government and Defense contracts and
increased receivables from 16g Seat sales.
Operating activities required the use of $6.0 million of cash during the
six months ended June 30, 1998, compared to the use of $7.6 million of cash
during the same period in 1997. Cash used by operating activities in the 1998
period was primarily used to increase inventories $4.5 million and reduce
accounts payable by $1.7 million. The increase in inventories was primarily due
to an increase in 16g Seat inventory necessary to support anticipated future
deliveries. The reduction in accounts payable was principally made in connection
with price negotiations with suppliers of components for the Company's 16g Seat.
The Company negotiated certain material price reductions with these vendors in
exchange for reduced terms and increased volumes.
Investing activities required the use of $3.5 million of cash during the
six months ended June 30, 1998 primarily for the purchase of property and
equipment. These purchases included manufacturing equipment for the ITS located
at the Company's facilities in Arizona and the United Kingdom, certain
improvements to these facilities and equipment and improvements for the new 16g
Seat facility in San Diego.
Financing activities provided $6.4 million of cash during the six months
ended June 30, 1998 principally from $7.1 million in net borrowings under the
Company's $20 million revolving line of credit offset by principal payments
under other debt arrangements for scheduled maturities.
Included in current portion of long-term debt are the 12% Senior
Subordinated Notes (the "12% Notes"), which total $5.7 million and are due in
November 1998. The Company is currently evaluating various alternatives to repay
or refinance these notes on a long-term basis prior to their maturity.
10
<PAGE> 12
SIMULA, INC
The Company believes it has sufficient manufacturing capacity in place at
June 30, 1998 to meet its foreseeable delivery requirements. The Company
anticipates cash on hand, cash provided by operating activities once 16g Seat
and ITS production stabilize, cash to be generated from the sale of its rail and
mass transit operations and the availability under its bank credit facilities
will be sufficient to meet its current and foreseeable working capital
requirements. The Company may, however, seek to obtain additional capital should
demand for its products exceed current capacity. The raising of additional
capital in public markets will be primarily dependent upon prevailing market
conditions and demand for the Company's technologies and products.
INFLATION
The Company does not believe that it is significantly impacted by
inflation.
RESEARCH AND DEVELOPMENT
The Company's research and development occurs under fixed-price,
government-funded contracts and Company-sponsored efforts. Historically,
research and development efforts have fluctuated based upon available
government-funded contracts and available Company funding. The Company
anticipates that future fluctuations may also occur as a result of efforts to
expand its inflatable restraint, commercial airliner and helicopter seating, and
rail seating technologies.
SEASONALITY
The Company does not believe that it is currently significantly impacted
by seasonal factors.
YEAR 2000 MATTERS
The Year 2000 Issue is the result of computer programs being written using
two digits rather than four to define an applicable year. The Company's computer
programs that have time-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in a system failure
or miscalculations causing disruptions of operations, including among other
things, a temporary inability to process transactions, send invoices, or engage
in similar normal business activities.
In 1996, the Company initiated a plan for the conversion from existing
accounting software to new state of the art manufacturing and accounting systems
at each of its companies. The costs of this conversion are being expensed as
incurred and have not been and are not anticipated to be material to its
financial position or results of operations. As of June 30, 1998, the Company
has three subsidiaries using systems affected by the Year 2000 Issue. The new
systems are anticipated to be in place at these three subsidiaries in 1998 which
is prior to any anticipated impact on its operating systems. Management of the
Company believes that the Year 2000 Issue will not pose significant operational
problems for its computer systems.
The Company is cognizant of the U. S. Securities and Exchange Commission's
policy with respect to Year 2000 disclosure issues as outlined in SEC Release
Nos. 33-7558 and 34-40277 effective August 4, 1998. Accordingly, the Company
will continue to monitor its Year 2000 issues and update its disclosure, if
necessary, in subsequent filings.
FORWARD LOOKING INFORMATION AND RISKS OF THE BUSINESS
Commencing in fiscal 1997, the Company entered large scale production of
the ITS and 16g Seat. Significant investments to transition to high volume
manufacturing for these products were also made in 1997, which affected
earnings. The Company began to realize significant revenues from the
introduction of these products in 1997 which has continued in 1998 and is
anticipated to continue in 1999. The Company's current focus is on controlling
costs and eliminating inefficiencies resulting from the faster than anticipated
rate of growth in its new product lines, principally the 16g Seat, and this
focus should result in a positive impact on earnings.
11
<PAGE> 13
SIMULA, INC.
In 1997 and the first half of 1998, the Company experienced some parts and
raw materials shortages, vendor delays and quality problems that caused delays
in production and deliveries. The Company has addressed these issues and
believes that it has established an adequate multiple source supplier base that
is industry standard. However, certain components of the Company's products are
proprietary or highly regulated, including certain types of foam, hydrolocks and
woven materials, and shortages of these components could cause disruptions of
production from time to time. In 1998, the Company continues to focus on further
broadening it vendor base and reliability.
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. Factors and risks
that may affect results include those described in the Company's registration
statements and periodic reports filed with the U.S. Securities and Exchange
Commission. In addition, other factors include, but are not limited to, the
ultimate realizable value of assets held for sale, manufacturing capacity and
yield; costs of labor, raw materials, supplies, and equipment; reliability of
vendor base; contract mix and shifting production and delivery schedules; amount
of resources committed to independent research and development from time to
time; success in building strategic alliances with large prime contractors and
first tier suppliers to OEMs; the level of orders which are received and can be
shipped and invoiced in a quarter; customer order patterns and seasonality; the
cyclical nature of the industries and 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.
12
<PAGE> 14
SIMULA, INC.
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company's Annual Meeting of Shareholders was held on June 10, 1998.
Proxies were solicited for votes on matters proposed at such meeting pursuant to
Section 14 of the Securities Exchange Act of 1934. The Company's Proxy Statement
for the Annual Meeting was filed with the Securities and Exchange Commission on
May 14, 1998. April 11, 1998 was fixed as the record date for voting on matters
presented at the Annual Meeting. As of such date, 9,873,270 shares of Common
Stock were outstanding and eligible to be voted on all matters and 4,936,636
shares constituted a quorum for voting purposes.
The first matter submitted for vote was the ratification of the selection
of Deloitte & Touche, LLP as the independent public accountants for the
Company's fiscal year 1998. Shares voted on the matter were 8,766,940 and votes
tabulated were 8,719,770 for, 19,692 against, and 27,478 abstaining.
The second matter submitted for Shareholder vote was the election of
directors. Shares voted on the matter were 8,766,940 and votes for individual
directors were tabulated as follows:
<TABLE>
<CAPTION>
Name Votes For Votes Withheld
---- --------- --------------
<S> <C> <C>
Stanley P. Desjardins 8,689,200 77,740
Donald W. Townsend 8,689,701 77,239
Bradley P. Forst 8,689,701 77,239
Sean K. Nolen 8,689,401 77,539
James C. Withers 8,689,701 77,239
Robert D. Olliver 8,689,701 77,239
Scott E. Miller 8,689,676 77,264
John M. Leinonen 8,689,401 77,539
James F. Smith 8,689,701 77,239
</TABLE>
No other matters were voted upon at the meeting.
ITEM 5. OTHER - DISCONTINUED OPERATIONS:
In 1998, the Company's board of directors adopted a plan to dispose of its
rail and mass transit operations. Because the Company's commercial airliner
seating operation moved into a new significantly larger facility in July 1998
and has established an annual run rate of approximately $40 million per year,
the rail operations are no longer required to demonstrate the Company's
production capabilities to current and potential airliner seating customers. The
Company believes the sale of these businesses will provide a significant amount
of cash that will be used to repay outstanding indebtedness and reinvest in its
other businesses that have higher current and projected growth rates and
financial returns. In addition, the sale will allow senior Company management to
focus on these other businesses. The Company has initiated an active marketing
plan and anticipates it will sell these operations as ongoing businesses within
twelve months. These companies will continue their marketing, sales and
manufacturing activities as the Company prepares them for sale. Accordingly, the
operating results of these rail and mass transit operations, including a
provision for estimated loss upon disposition, have been segregated from
continuing operations and are reported as discontinued operations. Estimated
costs of disposal and projected operating results have been included in
determining the net realizable value of these businesses. Therefore, the Company
does not anticipate that these operations will have any significant impact on
future results of operations during the period prior to their sale. Due to the
subjective nature of estimated future operations and incremental costs of
disposal, it is reasonably possible that these estimates may change in the
future. Future changes in estimates will be included in the consolidated
statement of operations in the reporting period determined.
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<PAGE> 15
SIMULA, INC.
ITEM 6. EXHIBITS AND REPORTS.
(a) The following Exhibits are included pursuant to Item 601 of Regulation S-K.
<TABLE>
<CAPTION>
NO. DESCRIPTION REFERENCE
--- ----------- ---------
<S> <C> <C>
3.1 Articles of Incorporation of Simula, Inc., as amended and restated.......................... (4)
3.2 Bylaws of Simula, Inc., as amended and restated............................................. (1)
4.2 Indenture dated December 17, 1993, as amended............................................... (2)
4.5 Supplemental Indenture No. 2 dated September 12, 1996, entered into in connection with the
the Company's issuance of Series C 10% Senior Subordinated Convertible Notes................ (6)
4.6 Supplemental Indenture No.3, effective March 14, 1997, amending the Indenture of
Simula, Inc. dated December 17, 1993........................................................ (7)
4.7 Indenture dated April 1, 1997, in connection with the Company's issuance of the 8% Senior
Subordinated Convertible Notes due May 1, 2004.............................................. (7)
*10.11 1992 Stock Option Plan, as amended
10.12 1992 Restricted Stock Plan.................................................................. (1)
*10.21 1994 Stock Option Plan, as amended
*10.24 Loan Agreement with Wells Fargo Bank, N.A. dated June 30, 1998
10.26 Simula, Inc. Employee Stock Purchase Plan................................................... (4)
10.29 Form of Change of Control Agreements, as amended and restated, between the Company and
Donald W. Townsend, Bradley P. Forst, Sean K. Nolen, James A. Saunders, Donald Rutter, and
Randall L. Taylor .......................................................................... (9)
10.30 Form of Employment Agreements between the Company and Donald W. Townsend, Bradley P. Forst,
Sean K. Nolen, James A. Saunders, and Randall L. Taylor..................................... (8)
18. Preference Letter re: change in accounting principles....................................... (5)
24. Powers of Attorney - Directors.............................................................. (8)
*27. Financial Data Schedule
</TABLE>
- ----------
* Filed herewith.
(1) Filed with Registration Statement on Form S-18, No. 33-46152-LA,
under the Securities Act of 1933, effective April 13, 1992.
(2) Filed with Registration Statement on Form SB-2, No. 33-61028 under
the Securities Act of 1933, effective December 10, 1993.
(3) Filed with Registration Statement on Form SB-2, No. 33-87582, under
the Securities Act of 1933, effective December 28, 1994.
(4) Filed with Definitive Proxy on May 14, 1996, for the Company's
Annual Meeting of Shareholders held on June 20, 1996.
(5) Filed with Report on Form 10-Q/A for the quarter ended June 30,
1996.
(6) Filed with Report on Form 10-K for the year ended December 31, 1996.
(7) Filed with Registration Statement on Form S-3, No. 333-13499, under
the Securities Act of 1993, effective April 24, 1997.
(8) Filed with Report on Form 10-K for the year ended December 31, 1997.
(9) Filed with Report on Form 10-Q for the quarter ended March 31, 1998.
(b) No reports on Form 8-K have been filed during the reporting period.
14
<PAGE> 16
SIMULA, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report on Form 10-Q for the quarter ended June
30, 1998 to be signed on its behalf by the undersigned thereunto duly
authorized.
SIMULA, INC.
DATE: August 14, 1998 /s/ Donald W. Townsend
--------------------------
DONALD W. TOWNSEND
President
Chief Operating Officer
/s/ Sean K. Nolen
--------------------------
SEAN K. NOLEN
Vice President of Finance
Chief Financial Officer
15
<PAGE> 1
EXHIBIT 10.11
SIMULA, INC.
1992 STOCK OPTION PLAN
1. Purposes of the Plan. The purposes of this Stock Option Plan are
to attract and retain the best available personnel for positions of
responsibility within the Company, to provide additional incentive to Employees
of the Company, and to promote the success of the Company's business through the
grant to Employees, directors, and others, of options to purchase shares of the
Company's Common Stock.
Options granted hereunder may be either Incentive Stock or
Non-Statutory Stock Options, at the discretion of the Committee. The type of
options granted shall be reflected in the terms of written Stock Option
agreements.
2. Definitions. As used herein, the following definitions shall
apply:
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Code" shall mean the Internal Revenue Code of 1986, as
amended, and the rules and regulations promulgated thereunder.
(c) "Common Stock" shall mean the common stock of the Company
described in the Company's Certificate of Incorporation, as amended.
(d) "Company" shall mean SIMULA, INC., an Arizona corporation, and
shall include any parent or subsidiary corporation of the Company as
defined in Sections 424(e) and (f), respectively, of the Code.
(e) "Committee" shall mean the Compensation Committee appointed by
the Board in accordance with paragraph (a) of Section 4 below to
administer the Plan.
(f) "Employee" shall mean any person, including salaried officers
and directors, employed by the Company. The payment of a director's fee
by the Company shall not be sufficient to constitute "employment" by
the Company.
(g) "Exchange Act" shall mean the Securities and Exchange Act of
1934, as amended.
(h) "Fair Market Value" shall mean, with respect to the date a
given Option is granted or exercised, the closing price of Common Stock
as listed on any public securities exchange, or, in the event the
Common Stock is not listed on any public securities exchange, such
value as determined by the Committee consistent with applicable rules
under Section 422 of the Code.
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<PAGE> 2
(i) "Incentive Stock Option" shall mean an Option which is
intended to qualify as an incentive stock option within the meaning of
Section 422 of the Code.
(j) "Option" shall mean a stock option granted under the Plan.
(k) "Optioned Stock" shall mean the Common Stock subject to an
Option.
(l) "Optionee" shall mean an Employee of the Company who has been
granted one or more Options.
(m) "Non-Statutory Stock Option" shall mean an Option which is not
an Incentive Stock Option.
(n) "Parent" shall mean a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(o) "Plan" shall mean this 1992 Stock Option Plan, as amended.
(p) "Reload Option" shall mean an Option granted pursuant to
Section 9(e) hereof.
(q) "Share" shall mean a share of the Common Stock, as adjusted in
accordance with Section 10 of the Plan.
(r) "Stock Option Agreement" shall mean the written agreement
between the Company and the Optionee relating to the grant of an
Option.
(s) "Subsidiary" shall mean a "subsidiary corporation," whether
now or hereafter existing, as defined in Section 424(f) of the Code.
(t) "Tax Date" shall mean the date an Optionee is required to pay
the Company an amount with respect to tax withholding obligations in
connection with the exercise of an option.
3. Common Stock Subject to the Plan. Subject to the provisions of
Section 10 of the Plan, the maximum aggregate number of Shares which may be
optioned and sold under the Plan is three hundred sixty thousand (360,000)
Shares, as adjusted from time to time pursuant to the terms of the Plan and
applicable law. The Shares may be authorized, but unissued, or previously issued
Shares acquired by the Company and held in treasury. No fractional Shares shall
be issued and the Committee or executive officers on behalf of the Committee
shall determine the manner in which fractional Share value shall be treated.
If an Option should expire or become unexercisable for any reason
without having been exercised in full, or if an exercise pursuant to Section
8(b)(iv) results in the issuance of a reduced number of Shares in satisfaction
of an Option exercise, the Shares not issued to the Optionee covered by such
Option shall, unless the Plan shall have been terminated, be available for
future grants of Options.
2
<PAGE> 3
Subject to the provisions of Section 10 of the Plan, no Employee shall
be granted within any fiscal year of the Company Options which in the aggregate
cover more than five hundred thousand (500,000) Shares (the "Section 162(m)
Grant Limit").
4. Administration of the Plan.
(a) Procedure.
i) The Plan shall be administered by a Committee of the
Board consisting solely of two or more outside directors (the
"Committee"). No member of the Committee shall, during service as
an administrator, be granted or awarded options, rights, or
equity securities under the Plan or under any other plan of the
Company or its affiliates except as permitted under Section 8(d)
of the Plan or Rule 16b-3 ("Rule 16b-3") under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). A quorum of
such Committee shall consist of a majority of the members of such
Committee, or as may be otherwise provided in the Company's
bylaws. The Plan shall be administered by the Committee in
accordance with Rule 16b-3.
ii) The Committee shall continue to serve until otherwise
directed by the Board. From time to time the Board may increase
the size of the Committee and appoint additional members thereof,
remove members (with or without cause), appoint new members in
substitution therefor, and fill vacancies however caused;
provided, however, that at no time may any person serve on the
Committee if that person's membership would cause the Committee
not to satisfy the "disinterested administration" requirements of
Rule 16b-3.
(b) Powers of the Committee. Subject to the provisions of the
Plan, the Committee shall have the authority, in its discretion: (i) to
grant Incentive Stock Options and Non-Statutory Stock Options in their
discretion, or pursuant to one or more formulae; (ii) to determine,
upon review of relevant information and in accordance with Section 2 of
the Plan, the Fair Market Value of the Common Stock; (iii) to determine
the exercise price per Share of Options to be granted, which exercise
price shall be determined in accordance with Section 8(a) of the Plan;
(iv) to determine the Employees and others to whom, and the time or
times at which, Options shall be granted and the number of Shares to be
represented by each Option; (v) to interpret the Plan; (vi) to amend
the Plan to the extent that such amendment does not require the
approval of Shareholders and to prescribe, amend and rescind rules and
regulations relating to the Plan, including modifications to conform
the Plan to the requirements of the Code and state and federal
securities laws, as the same may be amended from time to time; (vii) to
determine the terms and provisions of each Option granted (which need
not be identical), including pursuant to Section 8(d) and, with the
consent of the Optionee thereof, modify or amend each Option; (viii) to
accelerate or defer (with the consent of the Optionee) the exercise
date of any Option; (ix) to authorize any person to execute on behalf
of the Company any instrument required to effectuate the grant of an
Option previously granted by the Committee; (x) to accept or reject the
election made by an Optionee pursuant to Section
3
<PAGE> 4
16 of the Plan; and (xi) to make all other determinations deemed
necessary or advisable for the administration of the Plan.
(c) Effect of Committee's Decision. All decisions, determinations
and interpretations of the Committee shall be final and binding on all
Optionees and any other holders of any Options granted under the Plan.
5. Eligibility.
(a) Consistent with the Plan's purposes, Options may be granted
only to persons as determined by the Committee or executive officers of
the Company on behalf of the Committee. An individual who has been
granted an Option may, if he is otherwise eligible, be granted
additional Options. Incentive Stock Options may be granted only to
those Employees who meet the requirements applicable under Section 422
of the Code.
(b) Incentive Stock Options and Non-Statutory Stock Options
granted to Employees and Directors of the Company under the Plan,
unless specifically provided otherwise in the Stock Option Agreement,
will be subject to forfeiture until such time as the Optionee has been
continuously employed by the Company for one year after the date of the
grant of the Options (or in the case of a Director, served one year
thereafter), and may not be exercised prior to such time. Reload
Options will be subject to forfeiture until such time as the Optionee
has been continuously employed by the Company for six (6) months after
the date of the grant of the Reload Options, or such greater period
specified in the Stock Option Agreement, and may not be exercised prior
to such time. At such time as the Optionee has been continuously
employed or engaged by the Company for the applicable period, the
foregoing restrictions shall lapse and the Optionee may exercise the
Options at any time otherwise consistent with the Plan and the Stock
Option Agreement. Notwithstanding the foregoing, Employees or directors
of the Company who become disabled, as described in Section 9(c), or
who die while employed by the Company or within three (3) months
thereof, may exercise immediately upon such disability or death
themselves or through their estates or heirs.
(c) To the extent that the aggregate Fair Market Value of Shares
with respect to which Incentive Stock Options granted under the Plan
and all other plans of the Company and the Parents and Subsidiaries of
the Company are exercisable for the first time by an Optionee during
any calendar year exceeds one hundred thousand dollars ($100,000), such
Options shall be treated for federal income tax purposes as
Non-Statutory Stock Options.
6. Shareholder Approval and Effective Date. This Plan was adopted and
became effective on February 26,1992 and grants may be made hereunder as of the
adoption of the Plan. No Option may be granted under the Plan after February 26,
2002 (ten (10) years from the adoption of the Plan); provided, however that the
Plan and all outstanding Options shall remain in effect until such Options have
expired or until such Options are canceled.
7. Term of Option. Unless otherwise provided in the Stock Option
Agreement, the term of each Option shall be ten (10) years from the date of
grant thereof. In no case shall the
4
<PAGE> 5
term of any Option exceed ten (10) years from the date of grant thereof.
Notwithstanding the above, in the case of an Incentive Stock Option granted to
an Employee who, at the time the Incentive Stock Option is granted, owns ten
percent (10%) or more of the Common Stock as such amount is calculated under
Section 422(b)(6) of the Code ("Ten Percent Shareholder"), the term of the
Incentive Stock Option shall be five (5) years from the date of grant thereof or
such shorter time as may be provided in the Stock Option Agreement.
8. Terms and Conditions.
(a) Exercise Price. The per Share exercise price for
the Shares to be issued pursuant to exercise of an Option shall be
determined by the Committee, but in the case of an Incentive Stock
Option shall be no less than one hundred percent (100%) of the Fair
Market Value per share on the date of grant, and in the case of a
Non-Statutory Stock Option shall be no less than eighty-five percent
(85%) of the Fair Market Value per share on the date of grant.
Notwithstanding the foregoing, in the case of an Incentive Stock Option
granted to an Employee who, at the time of the grant of such Incentive
Stock Option, is a Ten Percent Shareholder, the per Share exercise
price shall be no less than one hundred ten percent (110%) of the Fair
Market Value per Share on the date of grant.
(b) Payment. The price of an exercised Option and the Employee's
portion of any taxes attributable to the delivery of Common Stock under
the Plan, or portion thereof, shall be paid:
i) In United States dollars in cash or by check, bank
draft or money order payable to the order of the Company; or
ii) At the discretion of the Committee, through the
delivery of shares of Common Stock with an aggregate Fair Market
Value equal to the option price and withholding taxes, if any; or
iii) In accordance with applicable Company procedures
regarding customary "broker" or "cashless" exercises, by directing
a third party to sell Shares acquired upon exercise of the Option
and to remit to the Company a sufficient portion of the sale
proceeds to pay the entire exercise price; or
iv) In accordance with applicable Company procedures, by
reducing the number of Shares issuable upon such exercise based on
the Fair Market Value on the date of exercise; or
v) At the election of the Optionee pursuant to Section 16
and with the consent of the Committee pursuant to Section 4(b)(x),
by the Company's retention of such number of shares of Common
Stock subject to the exercised Option which have an aggregate Fair
Market Value on the exercise date equal to the Employee's portion
of the Company's aggregate federal, state, local and foreign tax
withholding and FICA and FUTA obligations with respect to income
generated by the exercise of the Option by Optionee;
5
<PAGE> 6
vi) At the election of the Optionee and with the consent of
the Committee, by the Company's retention of such number of shares
of Common Stock subject to the exercised Option which have an
aggregate Fair Market Value on the exercise date equal to the
Optionee's expected aggregate federal, state, local and foreign
tax liability, as determined by the Optionee and approved by the
Committee, with respect to income generated by the exercise of the
Option by the Optionee;
vii) By a combination of (i), (ii), (iii), (iv), (v) and
(vi) above; or
viii) In the manner provided in subsection (c) below.
The Committee shall determine acceptable methods for tendering
Common Stock as payment upon exercise of an Option and may impose such
limitations and prohibitions on the use of Common Stock to exercise an
Option as it deems appropriate.
(c) Financial Assistance to Optionees. The Committee may assist
Optionees in paying the exercise price of Options granted under this
Plan in the following manner:
i) The extension of a loan to the Optionee by the Company;
or
ii) Payment by the Optionee of the exercise price in
installments; or
iii) A guaranty by the Company of a loan obtained by the
Optionee from a third party.
The terms of any loans, installment payments or guarantees,
including the interest rate and terms of repayment, and collateral
requirements, if any, shall be determined by the Committee, in its sole
discretion. Subject to applicable margin requirements, any loans,
installment payments or guarantees authorized by the Committee pursuant
to the Plan may be granted without security, but the maximum credit
available shall not exceed the exercise price for the Shares for which
the Option is to be exercised, plus any federal and state income tax
liability incurred in connection with the exercise of the Option.
(d) Outside Directors Options. Each outside director of the
Company (that is, each director who is not also an Employee of the
Company and is not affiliated with any entity directly or indirectly
owning five percent (5%) or more of any class of stock of the Company)
shall be automatically granted Non-Statutory Stock Options for (i)
fifteen thousand (15,000) Shares as of the effective date of this Plan
(or, as of the date of their appointment or election to the Board for
individuals that are not members as of the effective date of the Plan)
and, (ii) one thousand five hundred (1,500) Shares on or about the date
of each successive Annual Meeting of the Shareholders of the Company,
commencing with the Annual Meeting in 1996. Such initial and annually
awarded Options shall be granted on the terms and conditions and
limitations applicable generally to the grant of Non-Statutory Options
under this Plan. The exercise price of such Options shall be one
hundred percent (100%) of the Fair Market Value on the date of grant.
The provisions of this Plan regarding formula awards to outside
directors shall not be
6
<PAGE> 7
amended more than once every six (6) months, other then to comport with
changes in the Internal Revenue Code, the Employee Retirement Income
Security Act, or the rules thereunder.
9. Exercise of Option.
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
granted hereunder shall be exercisable at such times and under such
conditions as determined by the Committee, including performance
criteria with respect to the Company and/or the Optionee, and as shall
be permissible under the terms of the Plan. Unless otherwise determined
by the Committee at the time of grant, an Option may be exercised in
whole or in part. An Option may not be exercised for a fraction of a
Share.
An Option shall be deemed to be exercised when written notice of
such exercise has been given to the Company in accordance with the
terms of the Option by the person entitled to exercise the Option and
full payment for the Shares with respect to which the Option is
exercised has been received by the company. Full payment may, as
authorized by the Committee, consist of any consideration and method of
payment allowable under Section 8(b) of the Plan. Until the issuance
(as evidenced by the appropriate entry on the books of the Company or
of a duly authorized transfer agent of the Company) of the stock
certificate evidencing such Shares, no right to vote or receive
dividends or any other rights as a stockholder shall exist with respect
to the Optioned Stock, notwithstanding the exercise of the Option. No
adjustment will be made for a dividend or other right for which the
record date is prior to the date the stock certificate is issued,
except as provided in Section 10 of the Plan.
Except with respect to Shares not issued to an Optionee pursuant
to Section 8(b)(iv), the exercise of an Option in any manner shall
result in a decrease in the number of Shares which thereafter may be
available, both for purposes of the Plan and for sale under the Option,
by the number of Shares to which the Option is exercised.
(b) Termination of Status as an Employee. If an Employee's
employment by the Company is terminated for cause, then any Option held
by the Employee shall be immediately canceled upon termination of
employment and the Employee shall have no further rights with respect
to such Option. Unless otherwise provided in the Stock Option
Agreement, if an Employee's employment by the Company is terminated for
reasons other than cause, and does not occur due to death or
disability, then the Employee may exercise his Option at any time
during the term of the Option to the extent that he was entitled to
exercise it at the date of such termination, provided that any exercise
of an Incentive Stock Option after the period ending three (3) months
following an Employee's termination shall be treated as the exercise of
a Non-Statutory Stock Option. To the extent that he was not entitled to
exercise the Option at the date of such termination, or if he does not
exercise such Option (which he was entitled to exercise) within the
time specified in the Plan or the Stock Option Agreement, the Option
shall terminate.
(c) Disability. In the event an Employee is unable to continue his
employment with the Company as a result of his permanent and total
disability (as defined
7
<PAGE> 8
in Section 22(e)(3) of the Code), he may exercise his Option at any
time during the term of the Option to the extent he was entitled to
exercise it at the date of such termination, provided that any exercise
of an Incentive Stock Option after the period ending one (1) year
following an Employee's termination shall be treated as the exercise of
a Non-Statutory Stock Option. To the extent that he was not entitled to
exercise the Option at the date of termination, the Option shall
terminate.
(d) Death. If an Employee dies during the term of the Option and
is at the time of his death, or was within three months prior to his
death, an Employee of the Company who shall have been in continuous
status as an Employee since the date of grant of the Option, the Option
may be exercised at any time following the date of death during the
term of the Option by the Employee's estate or by a person who acquired
the right to exercise the Option by bequest or inheritance, but only to
the extent that an Employee was entitled to exercise the Option on the
date of death. To the extent the Employee was not entitled to exercise
the Option on the date of death, the Option shall terminate.
(e) Reload Options. Pursuant to applicable Company procedures, if
an Employee exercises an Option and pays all or a portion of the
exercise price pursuant to Section 8(b)(ii), (iii) or (iv), such
Employee (either pursuant to the terms of a Stock Option Agreement or
pursuant to the exercise of Committee discretion) may be granted a new
Option to purchase additional Shares equal to the number of Shares
retained by the Company or Shares not issued to the Optionee pursuant
to Section 8(b)(iii) in such payment. Such new Option: (i) shall have
an exercise price equal to the Fair Market Value per Share on the date
it is granted; (ii) shall first be exercisable six (6) months from its
date of grant; and (iii) shall terminate on the same date as the
termination date of the Options so exercised.
10. Adjustments Upon Changes in Capitalization or Merger. Subject to
any required action by the stockholders of the Company, the number of Shares
covered by each outstanding Option, the Section 162(m) Grant Limit, and the
number of Shares which have been authorized for issuance under the Plan but as
to which no Options have yet been granted or which have been returned to the
Plan upon cancellation or expiration of an Option, as well as the price per
Share covered by each such outstanding Option, shall be proportionately adjusted
for any increase or decrease in the number of issued Shares resulting from a
stock split, reverse stock split, stock dividend, combination or
reclassification of the Common Stock, or any other increase or decrease in the
number of issued Shares effected without receipt of consideration by the
Company; provided, however, that conversion of any convertible securities of the
Company shall not be deemed to have been "effected without receipt of
consideration." Such adjustment shall be made by the Committee, whose
determination in that respect shall be final, binding and conclusive. Except as
expressly provided herein, no issuance by the Company of shares of stock of any
class, or securities convertible into shares of stock of any class, shall
affect, and no adjustment by reason thereof shall be made, with respect to the
number or price of Shares subject to an Option.
In the event of the proposed dissolution or liquidation of the Company,
the Option will terminate immediately prior to the consummation of such proposed
action, unless otherwise provided by the Committee. The Committee may, in the
exercise of its sole discretion in such instances, declare that any Option shall
terminate as of a date fixed by the Committee and give
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each Optionee the right to exercise his Option as to all or any part of the
Optioned Stock, including Shares as to which the Option would not otherwise be
exercisable.
In the event of a proposed sale of all or substantially all of the
assets of the Company, or the merger of the Company with or into another
corporation, the Option shall be assumed or an equivalent option shall be
substituted by such successor corporation or a parent or subsidiary of such
successor corporation, unless the Committee determines, in the exercise of its
sole discretion and in lieu of such assumption or substitution, that the
Optionee shall have the right to exercise the option as to all of the Optioned
Stock, including Shares as to which the Option would not otherwise be
exercisable.
If the Committee makes an Option fully exercisable in lieu of
assumption or substitution in the event of a merger of sale of assets, the
Committee shall notify the Optionee that the Option shall be fully exercisable
for a period of sixty (60) days from the date of such notice (but not later than
the expiration of the term of the Option under the Option Agreement), and the
Option will terminate upon the expiration of such period.
11. Time of Granting Options. The date of grant of an Option shall,
for all purposes, be the date on which the Committee (or the executive office
administrator) makes the determination granting such Option. Notice of the
determination shall be given to each Employee to whom an Option is so granted
within a reasonable time after the date of such grant.
12. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Committee may amend or
terminate the Plan from time to time in such respects as the Committee
may deem advisable; provided, however, that without further shareholder
approval, the Committee's authority hereunder shall be subject to such
restrictions as may be required to comply with Section 16(b) of the
Exchange Act and Section 162(m) of the Code; provided further that the
following revisions or amendments shall require approval of the
Shareholders of the Company, to the extent required by law, rule or
regulation:
i) Any material increase in the number of Shares subject to
the Plan, other than in connection with an adjustment under
Section 10 of the Plan; or
ii) Any material change in the designation of the Employees
eligible to be granted Options.
(b) Effect of Amendment or Termination. Any such amendment or
termination of the Plan shall confer the terms and benefits of the
amendment on Options already granted; provided that any termination or
amendment adverse to holders of previously granted Options under the
Plan shall not affect such previously granted Options, and such Options
shall remain in full force and effect as if this Plan had not been
amended or terminated; provided further that any amendment constituting
a "modification" under Section 422 of the Code and the regulations
promulgated thereunder shall not apply to Incentive Stock Options
previously granted.
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<PAGE> 10
13. Conditions Upon Issuance of Shares. Shares shall not be issued
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, and the requirements of any stock exchange upon which the Shares may
then be listed, and shall be further subject to the approval of counsel for the
Company with respect to such compliance.
As a condition to the exercise of an Option, the Company may require
the person exercising such Option to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the company, such a representation is required by any of
the aforementioned relevant provisions of law.
Inability of the Company to obtain authority from any regulatory body
having jurisdiction, which authority is deemed by the Company's counsel to be
necessary to the lawful issuance and sale of any Shares hereunder, shall relieve
the Company of any liability in respect of the failure to issue or sell such
Shares as to which such requisite authority shall not have been obtained.
In the case of an Incentive Stock Option, any Optionee who disposes of
Shares of Common Stock acquired upon the exercise of an Option by sale or
exchange (a) either within two (2) years after the date of the grant of the
Option under which the Common Stock was acquired or (b) within one (1) year
after the acquisition of such Shares of Common Stock shall notify the Company of
such disposition and of the amount realized upon such disposition.
14. Reservation of Shares. The Company will at all times reserve and
keep available such number of Shares as shall be sufficient to satisfy the
requirements of the Plan.
15. Option Agreement. Options shall be evidenced by Stock Option
Agreements in such form as the Committee shall approve.
16. Withholding Taxes. The Committee, or Company executives on behalf
of the Committee, may, in its discretion, condition an Optionee's exercise of an
Option on the Optionee's payment to the Company of the Company's federal, state,
local and foreign tax withholding obligations and FICA and FUTA obligations with
respect to the exercise of such Option by the Optionee (the "Company's
Withholding Obligations"). Subject to Section 4(b)(x) of the Plan and prior to
the Tax Date, the Optionee may make an irrevocable election to have the Company
withhold from those Shares that would otherwise be received upon the exercise of
any Option, a number of Shares having a Fair Market Value equal to the minimum
amount necessary to satisfy the Company's Withholding Obligations.
An Optionee who is also an officer of the Company must make the above
described election:
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(a) at least six months after the date of grant of the Option
(except in the event of death or disability); and
(b) either:
i) six months prior to the Tax Date, or
ii) prior to the Tax Date and during the period beginning on
the third business day following the date the Company releases its
quarterly or annual statement of sales and earnings and ending on
the twelfth business day following such date.
17. Miscellaneous Provisions.
(a) Plan Expense. Any expense of administering this Plan shall be
borne by the Company.
(b) Use of Exercise Proceeds. The payment received from Optionees
from the exercise of Options shall be used for the general corporate
purposes of the Company.
(c) Construction of Plan. The place of administration of the Plan
shall be in the State of Arizona, and the validity, construction,
interpretation, administration and effect of the Plan and of its rules
and regulations, and rights relating to the Plan, shall be determined
in accordance with the laws of the State of Arizona without regard to
conflict of law principles and, where applicable, in accordance with
the Code.
(d) Taxes. The Company shall be entitled if necessary or
desirable to pay or withhold the amount of any tax attributable to the
delivery of Common Stock under the Plan from other amounts payable to
the Employee after giving the person entitled to receive such Common
Stock notice as far in advance as practical, and the Company may defer
making delivery of such Common Stock if any such tax may be pending
unless and until indemnified to its satisfaction.
(e) Indemnification. In addition to such other rights of
indemnification as they may have as members of the Board, the members
of the Committee shall be indemnified by the Company against all costs
and expenses reasonably incurred by them in connection with any action,
suit or proceeding to which they or any of them may be party by reason
of any action taken or failure to act under or in connection with the
Plan or any Option, and against all amounts paid by them in settlement
thereof (provided such settlement is approved by independent legal
counsel selected by the Company) or paid by them in satisfaction of a
judgment in any such action, suite or proceeding, except a judgment
based upon a finding of bad faith; provided that upon the institution
of any such action, suit or proceeding a Committee member shall, in
writing, give the Company notice thereof and an opportunity, at its own
expense, to handle and defend the same before such Committee member
undertakes to handle and defend it on her or his own behalf.
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(f) Gender. For purposes of this Plan, words used in the
masculine gender shall include the feminine and neuter, and the
singular shall include the plural and vice versa, as appropriate.
(g) No Employment Agreement. The Plan shall not confer upon any
Optionee any right with respect to continuation of employment with the
Company, nor shall it interfere in any way with his right or the
Company's right to terminate his employment at any time.
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<PAGE> 1
EXHIBIT 10.21
SIMULA, INC.
1994 STOCK OPTION PLAN
1. Purposes of the Plan. The purposes of this Stock Option Plan are
to attract and retain the best available personnel for positions of
responsibility within the Company, to provide additional incentive to Employees
of the Company, and to promote the success of the Company's business through the
grant to Employees, directors, and others, of options to purchase shares of the
Company's Common Stock.
Options granted hereunder may be either Incentive Stock or
Non-Statutory Stock Options, at the discretion of the Committee. The type of
options granted shall be reflected in the terms of written Stock Option
agreements.
2. Definitions. As used herein, the following definitions shall
apply:
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Code" shall mean the Internal Revenue Code of 1986, as
amended, and the rules and regulations promulgated thereunder.
(c) "Common Stock" shall mean the common stock of the Company
described in the Company's Certificate of Incorporation, as amended.
(d) "Company" shall mean SIMULA, INC., an Arizona corporation, and
shall include any parent or subsidiary corporation of the Company as
defined in Sections 424(e) and (f), respectively, of the Code.
(e) "Committee" shall mean the Compensation Committee appointed by
the Board in accordance with paragraph (a) of Section 4 below to
administer the Plan.
(f) "Employee" shall mean any person, including salaried officers
and directors, employed by the Company. The payment of a director's fee
by the Company shall not be sufficient to constitute "employment" by
the Company.
(g) "Exchange Act" shall mean the Securities and Exchange Act of
1934, as amended.
(h) "Fair Market Value" shall mean, with respect to the date a
given Option is granted or exercised, the closing price of Common Stock
as listed on any public securities exchange, or, in the event the
Common Stock is not listed on any public securities exchange, such
value as determined by the Committee consistent with applicable rules
under Section 422 of the Code.
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(i) "Incentive Stock Option" shall mean an Option which is
intended to qualify as an incentive stock option within the meaning of
Section 422 of the Code.
(j) "Option" shall mean a stock option granted under the Plan.
(k) "Optioned Stock" shall mean the Common Stock subject to an
Option.
(l) "Optionee" shall mean an Employee of the Company who has been
granted one or more Options.
(m) "Non-Statutory Stock Option" shall mean an Option which is not
an Incentive Stock Option.
(n) "Parent" shall mean a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(o) "Plan" shall mean this 1994 Stock Option Plan, as amended.
(p) "Reload Option" shall mean an Option granted pursuant to
Section 9(e) hereof.
(q) "Share" shall mean a share of the Common Stock, as adjusted in
accordance with Section 10 of the Plan.
(r) "Stock Option Agreement" shall mean the written agreement
between the Company and the Optionee relating to the grant of an
Option.
(s) "Subsidiary" shall mean a "subsidiary corporation," whether
now or hereafter existing, as defined in Section 424(f) of the Code.
(t) "Tax Date" shall mean the date an Optionee is required to pay
the Company an amount with respect to tax withholding obligations in
connection with the exercise of an option.
3. Common Stock Subject to the Plan. Subject to the provisions of
Section 10 of the Plan, the maximum aggregate number of Shares which may be
optioned and sold under the Plan is two million five hundred thousand
(2,500,000) Shares, as adjusted from time to time pursuant to the terms of the
Plan and applicable law. The Shares may be authorized, but unissued, or
previously issued Shares acquired by the Company and held in treasury. No
fractional Shares shall be issued and the Committee or executive officers on
behalf of the Committee shall determine the manner in which fractional Share
value shall be treated.
If an Option should expire or become unexercisable for any reason
without having been exercised in full, or if an exercise pursuant to Section
8(b)(iv) results in the issuance of a reduced number of Shares in satisfaction
of an Option exercise, the Shares not issued to the Optionee covered by such
Option shall, unless the Plan shall have been terminated, be available for
future grants of Options.
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Subject to the provisions of Section 10 of the Plan, no Employee shall
be granted within any fiscal year of the Company Options which in the aggregate
cover more than five hundred thousand (500,000) Shares (the "Section 162(m)
Grant Limit").
4. Administration of the Plan.
(a) Procedure.
i) The Plan shall be administered by a Committee of the
Board consisting solely of two or more outside directors (the
"Committee"). No member of the Committee shall, during service as
an administrator, be granted or awarded options, rights, or equity
securities under the Plan or under any other plan of the Company
or its affiliates except as permitted under Section 8(d) of the
Plan or Rule 16b-3 ("Rule 16b-3") under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"). A quorum of such
Committee shall consist of a majority of the members of such
Committee, or as may be otherwise provided in the Company's
bylaws. The Plan shall be administered by the Committee in
accordance with Rule 16b-3.
ii) The Committee shall continue to serve until otherwise
directed by the Board. From time to time the Board may increase
the size of the Committee and appoint additional members thereof,
remove members (with or without cause), appoint new members in
substitution therefor, and fill vacancies however caused;
provided, however, that at no time may any person serve on the
Committee if that person's membership would cause the Committee
not to satisfy the "disinterested administration" requirements of
Rule 16b-3.
(b) Powers of the Committee. Subject to the provisions of the
Plan, the Committee shall have the authority, in its discretion: (i) to
grant Incentive Stock Options and Non-Statutory Stock Options in their
discretion, or pursuant to one or more formulae; (ii) to determine,
upon review of relevant information and in accordance with Section 2 of
the Plan, the Fair Market Value of the Common Stock; (iii) to determine
the exercise price per Share of Options to be granted, which exercise
price shall be determined in accordance with Section 8(a) of the Plan;
(iv) to determine the Employees and others to whom, and the time or
times at which, Options shall be granted and the number of Shares to be
represented by each Option; (v) to interpret the Plan; (vi) to amend
the Plan to the extent that such amendment does not require the
approval of Shareholders and to prescribe, amend and rescind rules and
regulations relating to the Plan, including modifications to conform
the Plan to the requirements of the Code and state and federal
securities laws, as the same may be amended from time to time; (vii) to
determine the terms and provisions of each Option granted (which need
not be identical), including pursuant to Section 8(d) and, with the
consent of the Optionee thereof, modify or amend each Option; (viii) to
accelerate or defer (with the consent of the Optionee) the exercise
date of any Option; (ix) to authorize any person to execute on behalf
of the Company any instrument required to effectuate the grant of an
Option previously granted by the Committee; (x) to accept or reject the
election made by an Optionee pursuant to Section
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16 of the Plan; and (xi) to make all other determinations deemed
necessary or advisable for the administration of the Plan.
(c) Effect of Committee's Decision. All decisions, determinations
and interpretations of the Committee shall be final and binding on all
Optionees and any other holders of any Options granted under the Plan.
5. Eligibility.
(a) Consistent with the Plan's purposes, Options may be granted
only to persons as determined by the Committee or executive officers of
the Company on behalf of the Committee. An individual who has been
granted an Option may, if he is otherwise eligible, be granted
additional Options. Incentive Stock Options may be granted only to
those Employees who meet the requirements applicable under Section 422
of the Code.
(b) Incentive Stock Options and Non-Statutory Stock Options
granted to Employees and Directors of the Company under the Plan,
unless specifically provided otherwise in the Stock Option Agreement,
will be subject to forfeiture until such time as the Optionee has been
continuously employed by the Company for one year after the date of the
grant of the Options (or in the case of a Director, served one year
thereafter), and may not be exercised prior to such time. Reload
Options will be subject to forfeiture until such time as the Optionee
has been continuously employed by the Company for six (6) months after
the date of the grant of the Reload Options, or such greater period
specified in the Stock Option Agreement, and may not be exercised prior
to such time. At such time as the Optionee has been continuously
employed or engaged by the Company for the applicable period, the
foregoing restrictions shall lapse and the Optionee may exercise the
Options at any time otherwise consistent with the Plan and the Stock
Option Agreement. Notwithstanding the foregoing, Employees or directors
of the Company who become disabled, as described in Section 9(c), or
who die while employed by the Company or within three (3) months
thereof, may exercise immediately upon such disability or death
themselves or through their estates or heirs.
(c) To the extent that the aggregate Fair Market Value of Shares
with respect to which Incentive Stock Options granted under the Plan
and all other plans of the Company and the Parents and Subsidiaries of
the Company are exercisable for the first time by an Optionee during
any calendar year exceeds one hundred thousand dollars ($100,000), such
Options shall be treated for federal income tax purposes as
Non-Statutory Stock Options.
6. Shareholder Approval and Effective Date. This Plan was first
adopted in June of 1994 and was last materially amended by Company shareholders
on June 12, 1997, and grants may be made hereunder as of the initial adoption of
the Plan. No Option may be granted under the Plan after June 12, 2007 (ten (10)
years from the last shareholder approval of a material amendment to the Plan);
provided, however that the Plan and all outstanding Options shall remain in
effect until such Options have expired or until such Options are canceled.
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<PAGE> 5
7. Term of Option. Unless otherwise provided in the Stock Option
Agreement, the term of each Option shall be ten (10) years from the date of
grant thereof. In no case shall the term of any Option exceed ten (10) years
from the date of grant thereof. Notwithstanding the above, in the case of an
Incentive Stock Option granted to an Employee who, at the time the Incentive
Stock Option is granted, owns ten percent (10%) or more of the Common Stock as
such amount is calculated under Section 422(b)(6) of the Code ("Ten Percent
Shareholder"), the term of the Incentive Stock Option shall be five (5) years
from the date of grant thereof or such shorter time as may be provided in the
Stock Option Agreement.
8. Terms and Conditions.
(a) Exercise Price. The per Share exercise price for
the Shares to be issued pursuant to exercise of an Option shall be
determined by the Committee, but in the case of an Incentive Stock
Option shall be no less than one hundred percent (100%) of the Fair
Market Value per share on the date of grant, and in the case of a
Non-Statutory Stock Option shall be no less than eighty-five percent
(85%) of the Fair Market Value per share on the date of grant.
Notwithstanding the foregoing, in the case of an Incentive Stock Option
granted to an Employee who, at the time of the grant of such Incentive
Stock Option, is a Ten Percent Shareholder, the per Share exercise
price shall be no less than one hundred ten percent (110%) of the Fair
Market Value per Share on the date of grant.
(b) Payment. The price of an exercised Option and
the Employee's portion of any taxes attributable to the delivery of
Common Stock under the Plan, or portion thereof, shall be paid:
i) In United States dollars in cash or by check, bank
draft or money order payable to the order of the Company; or
ii) At the discretion of the Committee, through the
delivery of shares of Common Stock with an aggregate Fair Market
Value equal to the option price and withholding taxes, if any; or
iii) In accordance with applicable Company procedures
regarding customary "broker" or "cashless" exercises, by directing
a third party to sell Shares acquired upon exercise of the Option
and to remit to the Company a sufficient portion of the sale
proceeds to pay the entire exercise price; or
iv) In accordance with applicable Company procedures, by
reducing the number of Shares issuable upon such exercise based on
the Fair Market Value on the date of exercise; or
v) At the election of the Optionee pursuant to Section 16
and with the consent of the Committee pursuant to Section 4(b)(x),
by the Company's retention of such number of shares of Common
Stock subject to the exercised Option which have an aggregate Fair
Market Value on the exercise date equal to the Employee's portion
of the Company's aggregate federal, state, local and
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<PAGE> 6
foreign tax withholding and FICA and FUTA obligations with respect
to income generated by the exercise of the Option by Optionee;
vi) At the election of the Optionee and with the consent of
the Committee, by the Company's retention of such number of shares
of Common Stock subject to the exercised Option which have an
aggregate Fair Market Value on the exercise date equal to the
Optionee's expected aggregate federal, state, local and foreign
tax liability, as determined by the Optionee and approved by the
Committee, with respect to income generated by the exercise of the
Option by the Optionee;
vii) By a combination of (i), (ii), (iii), (iv), (v) and
(vi) above; or
viii) In the manner provided in subsection (c) below.
The Committee shall determine acceptable methods for tendering
Common Stock as payment upon exercise of an Option and may impose such
limitations and prohibitions on the use of Common Stock to exercise an
Option as it deems appropriate.
(c) Financial Assistance to Optionees. The Committee may assist
Optionees in paying the exercise price of Options granted under this
Plan in the following manner:
i) The extension of a loan to the Optionee by the Company;
or
ii) Payment by the Optionee of the exercise price in
installments; or
iii) A guaranty by the Company of a loan obtained by the
Optionee from a third party.
The terms of any loans, installment payments or guarantees,
including the interest rate and terms of repayment, and collateral
requirements, if any, shall be determined by the Committee, in its sole
discretion. Subject to applicable margin requirements, any loans,
installment payments or guarantees authorized by the Committee pursuant
to the Plan may be granted without security, but the maximum credit
available shall not exceed the exercise price for the Shares for which
the Option is to be exercised, plus any federal and state income tax
liability incurred in connection with the exercise of the Option.
(d) Outside Directors Options. Each outside director of the
Company (that is, each director who is not also an Employee of the
Company and is not affiliated with any entity directly or indirectly
owning five percent (5%) or more of any class of stock of the Company)
shall be automatically granted Non-Statutory Stock Options for (i)
fifteen thousand (15,000) Shares as of the effective date of this Plan
(or, as of the date of their appointment or election to the Board for
individuals that are not members as of the effective date of the Plan)
and, (ii) one thousand five hundred (1,500) Shares on or about the date
of each successive Annual Meeting of the Shareholders of the Company,
commencing with the Annual Meeting in 1996. Such initial and annually
awarded Options shall be granted on the terms and conditions and
limitations applicable generally
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to the grant of Non-Statutory Options under this Plan. The exercise
price of such Options shall be one hundred percent (100%) of the Fair
Market Value on the date of grant. The provisions of this Plan
regarding formula awards to outside directors shall not be amended more
than once every six (6) months, other then to comport with changes in
the Internal Revenue Code, the Employee Retirement Income Security Act,
or the rules thereunder.
9. Exercise of Option.
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
granted hereunder shall be exercisable at such times and under such
conditions as determined by the Committee, including performance
criteria with respect to the Company and/or the Optionee, and as shall
be permissible under the terms of the Plan. Unless otherwise determined
by the Committee at the time of grant, an Option may be exercised in
whole or in part. An Option may not be exercised for a fraction of a
Share.
An Option shall be deemed to be exercised when written notice of
such exercise has been given to the Company in accordance with the
terms of the Option by the person entitled to exercise the Option and
full payment for the Shares with respect to which the Option is
exercised has been received by the company. Full payment may, as
authorized by the Committee, consist of any consideration and method of
payment allowable under Section 8(b) of the Plan. Until the issuance
(as evidenced by the appropriate entry on the books of the Company or
of a duly authorized transfer agent of the Company) of the stock
certificate evidencing such Shares, no right to vote or receive
dividends or any other rights as a stockholder shall exist with respect
to the Optioned Stock, notwithstanding the exercise of the Option. No
adjustment will be made for a dividend or other right for which the
record date is prior to the date the stock certificate is issued,
except as provided in Section 10 of the Plan.
Except with respect to Shares not issued to an Optionee pursuant
to Section 8(b)(iv), the exercise of an Option in any manner shall
result in a decrease in the number of Shares which thereafter may be
available, both for purposes of the Plan and for sale under the Option,
by the number of Shares to which the Option is exercised.
(b) Termination of Status as an Employee. If an Employee's
employment by the Company is terminated for cause, then any Option held
by the Employee shall be immediately canceled upon termination of
employment and the Employee shall have no further rights with respect
to such Option. Unless otherwise provided in the Stock Option
Agreement, if an Employee's employment by the Company is terminated for
reasons other than cause, and does not occur due to death or
disability, then the Employee may exercise his Option at any time
during the term of the Option to the extent that he was entitled to
exercise it at the date of such termination, provided that any exercise
of an Incentive Stock Option after the period ending three (3) months
following an Employee's termination shall be treated as the exercise of
a Non-Statutory Stock Option. To the extent that he was not entitled to
exercise the Option at the date of such termination, or if he does not
exercise such Option (which he was entitled to exercise) within the
time specified in the Plan or the Stock Option Agreement, the Option
shall terminate.
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(c) Disability. In the event an Employee is unable to continue his
employment with the Company as a result of his permanent and total
disability (as defined in Section 22(e)(3) of the Code), he may
exercise his Option at any time during the term of the Option to the
extent he was entitled to exercise it at the date of such termination,
provided that any exercise of an Incentive Stock Option after the
period ending one (1) year following an Employee's termination shall be
treated as the exercise of a Non-Statutory Stock Option. To the extent
that he was not entitled to exercise the Option at the date of
termination, the Option shall terminate.
(d) Death. If an Employee dies during the term of the Option and
is at the time of his death, or was within three months prior to his
death, an Employee of the Company who shall have been in continuous
status as an Employee since the date of grant of the Option, the Option
may be exercised at any time following the date of death during the
term of the Option by the Employee's estate or by a person who acquired
the right to exercise the Option by bequest or inheritance, but only to
the extent that an Employee was entitled to exercise the Option on the
date of death. To the extent the Employee was not entitled to exercise
the Option on the date of death, the Option shall terminate.
(e) Reload Options. Pursuant to applicable Company procedures, if
an Employee exercises an Option and pays all or a portion of the
exercise price pursuant to Section 8(b)(ii), (iii) or (iv), such
Employee (either pursuant to the terms of a Stock Option Agreement or
pursuant to the exercise of Committee discretion) may be granted a new
Option to purchase additional Shares equal to the number of Shares
retained by the Company or Shares not issued to the Optionee pursuant
to Section 8(b)(iii) in such payment. Such new Option: (i) shall have
an exercise price equal to the Fair Market Value per Share on the date
it is granted; (ii) shall first be exercisable six (6) months from its
date of grant; and (iii) shall terminate on the same date as the
termination date of the Options so exercised.
10. Adjustments Upon Changes in Capitalization or Merger. Subject to
any required action by the stockholders of the Company, the number of Shares
covered by each outstanding Option, the Section 162(m) Grant Limit, and the
number of Shares which have been authorized for issuance under the Plan but as
to which no Options have yet been granted or which have been returned to the
Plan upon cancellation or expiration of an Option, as well as the price per
Share covered by each such outstanding Option, shall be proportionately adjusted
for any increase or decrease in the number of issued Shares resulting from a
stock split, reverse stock split, stock dividend, combination or
reclassification of the Common Stock, or any other increase or decrease in the
number of issued Shares effected without receipt of consideration by the
Company; provided, however, that conversion of any convertible securities of the
Company shall not be deemed to have been "effected without receipt of
consideration." Such adjustment shall be made by the Committee, whose
determination in that respect shall be final, binding and conclusive. Except as
expressly provided herein, no issuance by the Company of shares of stock of any
class, or securities convertible into shares of stock of any class, shall
affect, and no adjustment by reason thereof shall be made, with respect to the
number or price of Shares subject to an Option.
8
<PAGE> 9
In the event of the proposed dissolution or liquidation of the Company,
the Option will terminate immediately prior to the consummation of such proposed
action, unless otherwise provided by the Committee. The Committee may, in the
exercise of its sole discretion in such instances, declare that any Option shall
terminate as of a date fixed by the Committee and give each Optionee the right
to exercise his Option as to all or any part of the Optioned Stock, including
Shares as to which the Option would not otherwise be exercisable.
In the event of a proposed sale of all or substantially all of the
assets of the Company, or the merger of the Company with or into another
corporation, the Option shall be assumed or an equivalent option shall be
substituted by such successor corporation or a parent or subsidiary of such
successor corporation, unless the Committee determines, in the exercise of its
sole discretion and in lieu of such assumption or substitution, that the
Optionee shall have the right to exercise the option as to all of the Optioned
Stock, including Shares as to which the Option would not otherwise be
exercisable.
If the Committee makes an Option fully exercisable in lieu of
assumption or substitution in the event of a merger of sale of assets, the
Committee shall notify the Optionee that the Option shall be fully exercisable
for a period of sixty (60) days from the date of such notice (but not later than
the expiration of the term of the Option under the Option Agreement), and the
Option will terminate upon the expiration of such period.
11. Time of Granting Options. The date of grant of an Option shall,
for all purposes, be the date on which the Committee (or the executive office
administrator) makes the determination granting such Option. Notice of the
determination shall be given to each Employee to whom an Option is so granted
within a reasonable time after the date of such grant.
12. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Committee may amend or
terminate the Plan from time to time in such respects as the Committee
may deem advisable; provided, however, that without further shareholder
approval, the Committee's authority hereunder shall be subject to such
restrictions as may be required to comply with Section 16(b) of the
Exchange Act and Section 162(m) of the Code; provided further that the
following revisions or amendments shall require approval of the
Shareholders of the Company, to the extent required by law, rule or
regulation:
i) Any material increase in the number of Shares subject to
the Plan, other than in connection with an adjustment under
Section 10 of the Plan; or
ii) Any material change in the designation of the Employees
eligible to be granted Options.
(b) Effect of Amendment or Termination. Any such amendment or
termination of the Plan shall confer the terms and benefits of the
amendment on Options already granted, provided that any termination or
amendment adverse to holders of previously granted Options under the
Plan shall not affect such previously granted
9
<PAGE> 10
Options, and such Options shall remain in full force and effect as if
this Plan had not been amended or terminated; provided further that any
amendment constituting a "modification" under Section 422 of the Code
and the regulations promulgated thereunder shall not apply to Incentive
Stock Options previously granted.
13. Conditions Upon Issuance of Shares. Shares shall not be issued
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, and the requirements of any stock exchange upon which the Shares may
then be listed, and shall be further subject to the approval of counsel for the
Company with respect to such compliance.
As a condition to the exercise of an Option, the Company may require
the person exercising such Option to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the company, such a representation is required by any of
the aforementioned relevant provisions of law.
Inability of the Company to obtain authority from any regulatory body
having jurisdiction, which authority is deemed by the Company's counsel to be
necessary to the lawful issuance and sale of any Shares hereunder, shall relieve
the Company of any liability in respect of the failure to issue or sell such
Shares as to which such requisite authority shall not have been obtained.
In the case of an Incentive Stock Option, any Optionee who disposes of
Shares of Common Stock acquired upon the exercise of an Option by sale or
exchange (a) either within two (2) years after the date of the grant of the
Option under which the Common Stock was acquired or (b) within one (1) year
after the acquisition of such Shares of Common Stock shall notify the Company of
such disposition and of the amount realized upon such disposition.
14. Reservation of Shares. The Company will at all times reserve and
keep available such number of Shares as shall be sufficient to satisfy the
requirements of the Plan.
15. Option Agreement. Options shall be evidenced by Stock Option
Agreements in such form as the Committee shall approve.
16. Withholding Taxes. The Committee, or Company executives on behalf
of the Committee, may, in its discretion, condition an Optionee's exercise of an
Option on the Optionee's payment to the Company of the Company's federal, state,
local and foreign tax withholding obligations and FICA and FUTA obligations with
respect to the exercise of such Option by the Optionee (the "Company's
Withholding Obligations"). Subject to Section 4(b)(x) of the Plan and prior to
the Tax Date, the Optionee may make an irrevocable election to have the Company
withhold from those Shares that would otherwise be received upon the exercise of
any Option, a number of Shares having a Fair Market Value equal to the minimum
amount necessary to satisfy the Company's Withholding Obligations.
10
<PAGE> 11
An Optionee who is also an officer of the Company must make the above
described election:
(a) at least six months after the date of grant of the Option
(except in the event of death or disability); and
(b) either:
i) six months prior to the Tax Date, or
ii) prior to the Tax Date and during the period beginning on
the third business day following the date the Company releases its
quarterly or annual statement of sales and earnings and ending on
the twelfth business day following such date.
17. Miscellaneous Provisions.
(a) Plan Expense. Any expense of administering this Plan shall be
borne by the Company.
(b) Use of Exercise Proceeds. The payment received from Optionees
from the exercise of Options shall be used for the general corporate
purposes of the Company.
(c) Construction of Plan. The place of administration of the Plan
shall be in the State of Arizona, and the validity, construction,
interpretation, administration and effect of the Plan and of its rules
and regulations, and rights relating to the Plan, shall be determined
in accordance with the laws of the State of Arizona without regard to
conflict of law principles and, where applicable, in accordance with
the Code.
(d) Taxes. The Company shall be entitled if necessary or
desirable to pay or withhold the amount of any tax attributable to the
delivery of Common Stock under the Plan from other amounts payable to
the Employee after giving the person entitled to receive such Common
Stock notice as far in advance as practical, and the Company may defer
making delivery of such Common Stock if any such tax may be pending
unless and until indemnified to its satisfaction.
(e) Indemnification. In addition to such other rights of
indemnification as they may have as members of the Board, the members
of the Committee shall be indemnified by the Company against all costs
and expenses reasonably incurred by them in connection with any action,
suit or proceeding to which they or any of them may be party by reason
of any action taken or failure to act under or in connection with the
Plan or any Option, and against all amounts paid by them in settlement
thereof (provided such settlement is approved by independent legal
counsel selected by the Company) or paid by them in satisfaction of a
judgment in any such action, suite or proceeding, except a judgment
based upon a finding of bad faith; provided that upon the institution
of any such action, suit or proceeding a Committee member shall, in
writing, give the Company notice thereof and an opportunity, at its own
expense, to handle and defend the same
11
<PAGE> 12
before such Committee member undertakes to handle and defend it on her
or his own behalf.
(f) Gender. For purposes of this Plan, words used in the
masculine gender shall include the feminine and neuter, and the
singular shall include the plural and vice versa, as appropriate.
(g) No Employment Agreement. The Plan shall not confer upon any
Optionee any right with respect to continuation of employment with the
Company, nor shall it interfere in any way with his right or the
Company's right to terminate his employment at any time.
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<PAGE> 1
Exhibit 10.24
CREDIT AGREEMENT
THIS AGREEMENT is entered into as of June 30, 1998, by and between
SIMULA, INC., an Arizona corporation ("Borrower"), and WELLS FARGO BANK,
NATIONAL ASSOCIATION ("Bank").
RECITAL
Borrower has requested from Bank the credit accommodations described
below (each, a "Credit" and collectively, the "Credits"), and Bank has agreed to
provide the Credits to Borrower on the terms and conditions contained herein.
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, Bank and Borrower hereby agree as follows:
ARTICLE I
THE CREDITS
SECTION 1.1. LINE OF CREDIT.
(a) Line of Credit. Subject to the terms and conditions of this
Agreement, Bank hereby agrees to make advances to Borrower from time to time up
to and including June 1, 1999, not to exceed at any time the aggregate principal
amount of Twenty Million Dollars ($20,000,000.00) ("Line of Credit"), the
proceeds of which shall be used to finance Borrower's working capital
requirements. Borrower's obligation to repay advances under the Line of Credit
shall be evidenced by a promissory note substantially in the form of Exhibit A
attached hereto ("Line of Credit Note"), all terms of which are incorporated
herein by this reference.
(b) Letter of Credit Subfeature. As a subfeature under the Line of
Credit, Bank agrees from time to time during the term thereof to issue standby
and/or sight commercial letters of credit for the account of Borrower (each, a
"Letter of Credit" and collectively, "Letters of Credit"); provided however,
that the form and substance of each Letter of Credit shall be subject to
approval by Bank, in its sole discretion; and provided further, that the
aggregate undrawn amount of all outstanding Letters of Credit shall not at any
time exceed Two Million Dollars ($2,000,000.00). No Letter of Credit shall have
an expiration date subsequent to the maturity date of the Line of Credit. The
undrawn amount of all Letters of Credit shall be reserved under the Line of
Credit and shall not be available for borrowings thereunder. Each Letter of
Credit shall be subject to
<PAGE> 2
the additional terms and conditions of the Letter of Credit Agreement and
related documents, if any, required by Bank in connection with the issuance
thereof (each, a "Letter of Credit Agreement" and collectively, "Letter of
Credit Agreements"). Each draft paid by Bank under a Letter of Credit shall be
deemed an advance under the Line of Credit and shall be repaid by Borrower in
accordance with the terms and conditions of this Agreement applicable to such
advances; provided however, that if advances under the Line of Credit are not
available, for any reason, at the time any draft is paid by Bank, then Borrower
shall immediately pay to Bank the full amount of such draft, together with
interest thereon from the date such amount is paid by Bank to the date such
amount is fully repaid by Borrower, at the rate of interest applicable to
advances under the Line of Credit. In such event Borrower agrees that Bank, in
its sole discretion, may debit any demand deposit account maintained by Borrower
with Bank for the amount of any such draft.
(c) Borrowing and Repayment. Borrower may from time to time during the
term of the Line of Credit borrow, partially or wholly repay its outstanding
borrowings, and reborrow, subject to all of the limitations, terms and
conditions contained herein or in the Line of Credit Note; provided however,
that the total outstanding borrowings under the Line of Credit shall not at any
time exceed the maximum principal amount available thereunder, as set forth
above.
SECTION 1.2. TERM LOAN.
(a) Term Loan. Subject to the terms and conditions of this Agreement,
Bank hereby agrees to make a loan to Borrower in the principal amount of Three
Million Five Hundred Seventy-Nine Thousand Four Hundred Fifty Dollars
($3,579,450.00) ("Term Loan"), the proceeds of which shall be used to refinance
Borrower's existing debt with Bank. Borrower's obligation to repay Term Loan
shall be evidenced by a promissory note substantially in the form of Exhibit B
attached hereto ("Term Note"), all terms of which are incorporated herein by
this reference.
(b) Repayment. The principal amount of Term Loan shall be repaid in
accordance with the provisions of the Term Note.
(c) Prepayment. Borrower may prepay principal on Term Loan solely in
accordance with the provisions of the Term Note.
SECTION 1.4. INTEREST/FEES.
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(a) Interest. The outstanding principal balance of the Line of Credit
and the Term Loan shall bear interest at the rate of interest set forth in the
Line of Credit Note and the Term Note.
(b) Computation and Payment. Interest shall be computed on the basis of
a 360-day year, actual days elapsed. Interest shall be payable at the times and
place set forth in the Line of Credit Note and the Term Note (collectively, the
"Notes").
(c) Commitment Fee. Borrower shall pay to Bank a non-refundable
commitment fee for the Line of Credit equal to $50,000.00, which fee shall be
due and payable in full on the date of this Agreement.
(d) Unused Commitment Fee. Borrower shall pay to Bank a fee equal to
one-half percent (.50%) per annum (computed on the basis of a 360-day year,
actual days elapsed) on the average daily unused amount of the Line of Credit,
which fee shall be calculated on a quarterly basis by Bank and shall be due and
payable by Borrower in arrears on each June 30, September 30, December 31 and
March 31.
(e) Letter of Credit Fees. Borrower shall pay to Bank fees upon the
issuance of each Letter of Credit, upon the payment or negotiation by Bank of
each draft under any Letter of Credit and upon the occurrence of any other
activity with respect to any Letter of Credit (including without limitation, the
transfer, amendment or cancellation of any Letter of Credit) determined in
accordance with Bank's standard fees and charges then in effect for such
activity.
SECTION 1.5. COLLECTION OF PAYMENTS. If not paid when and as due,
Borrower authorizes Bank to collect all principal, interest and fees due under
each Credit by charging Borrower's demand deposit account number 4159-541416
with Bank, or any other demand deposit account maintained by Borrower with Bank,
for the full amount thereof. Should there be insufficient funds in any such
demand deposit account to pay all such sums when due, the full amount of such
deficiency shall be immediately due and payable by Borrower.
SECTION 1.6. COLLATERAL.
As security for all indebtedness of Borrower to Bank under the Term
Loan, Borrower hereby grants to Bank security interests of first priority in all
Borrower's equipment, and Borrower shall cause its U.S.Subsidiaries to grant to
Bank security interests of first priority in all their equipment.
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<PAGE> 4
All of the foregoing shall be evidenced by and subject to the terms of
such security agreements, financing statements and other documents as Bank shall
reasonably require, all in form and substance satisfactory to Bank. Borrower
shall reimburse Bank immediately upon demand for all costs and expenses incurred
by Bank in connection with any of the foregoing security, including without
limitation, filing and recording fees and costs of appraisals.
For purposes of this Agreement, "Subsidiaries" shall mean all business
associations directly or indirectly controlled by Borrower. As of the date
hereof, Borrower's Subsidiaries located in the United States (collectively, the
"U.S. Subsidiaries", are: Simula Transportation Equipment Corporation, Airline
Interiors, Inc., Coach and Car Equipment Corporation, Artcraft Industries Corp.,
Viatech, Inc., Intaero, Ltd., Simula Automotive Safety Devices,
Inc.("ASD-Simula"), Simula Safety Systems, Inc., Simula Technologies, Inc. and
International Center for Safety Education, Inc. As of the date hereof,
Borrower's Subsidiaries located outside of the United States (collectively, the
"Foreign Subsidiaries") are: Simula Protective Systems, U.K. and Simula ASD
Limited U.K.
SECTION 1.7. GUARANTIES. All indebtedness of Borrower to Bank shall be
guaranteed by Borrower's U.S. Subsidiaries in the principal amount of
Twenty-Five Million Dollars ($25,000,000.00) each, as evidenced by and subject
to the terms of guaranties in form and substance satisfactory to Bank.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Borrower makes the following representations and warranties to Bank,
which representations and warranties shall survive the execution of this
Agreement and shall continue in full force and effect until the full and final
payment, and satisfaction and discharge, of all obligations of Borrower to Bank
subject to this Agreement.
SECTION 2.1. LEGAL STATUS. Borrower and its Subsidiaries are
corporations, duly organized and existing and in good standing under the laws of
the state of their incorporation, and are qualified or licensed to do business
(and in good standing as a foreign corporation, if applicable) in all
jurisdictions in which such qualification or licensing is required or in which
the failure to so qualify or to be so licensed could have a material adverse
effect on Borrower or its Subsidiaries.
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<PAGE> 5
SECTION 2.2. AUTHORIZATION AND VALIDITY. This Agreement, the Notes, and
each other document, contract and instrument required hereby or at any time
hereafter delivered to Bank in connection herewith (collectively, the "Loan
Documents") have been duly authorized, and upon their execution and delivery in
accordance with the provisions hereof will constitute legal, valid and binding
agreements and obligations of Borrower or the party which executes the same,
enforceable in accordance with their respective terms.
SECTION 2.3. NO VIOLATION. The execution, delivery and performance by
Borrower or its Subsidiaries of each of the applicable Loan Documents do not
violate any provision of any law or regulation, or contravene any provision of
the Articles of Incorporation or By-Laws of Borrower or its Subsidiaries, or
result in any breach of or default under any contract, obligation, indenture or
other instrument to which Borrower or its Subsidiaries is a party or by which
Borrower or its Subsidiaries may be bound.
SECTION 2.4. LITIGATION. There are no pending, or to the best of
Borrower's knowledge threatened, actions, claims, investigations, suits or
proceedings by or before any governmental authority, arbitrator, court or
administrative agency which could have a material adverse effect on the
financial condition or operation of Borrower or any of its Subsidiaries other
than those disclosed by Borrower to Bank in writing prior to the date hereof.
SECTION 2.5. CORRECTNESS OF FINANCIAL STATEMENT. The consolidated
financial statements of Borrower dated December 31, 1997 and March 31, 1998, a
true copy of which has been delivered by Borrower to Bank prior to the date
hereof, (a) is complete and correct and presents fairly the financial condition
of Borrower and its Subsidiaries, (b) discloses all liabilities of Borrower and
its Subsidiaries that are required to be reflected or reserved against under
generally accepted accounting principles, whether liquidated or unliquidated,
fixed or contingent, and (c) has been prepared in accordance with generally
accepted accounting principles consistently applied. Since the date of such
financial statement there has been no material adverse change in the financial
condition of Borrower or its Subsidiaries, nor has Borrower or its Subsidiaries
mortgaged, pledged, granted a security interest in or otherwise encumbered any
of its assets or properties except in favor of Bank or as otherwise permitted by
Bank in writing.
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<PAGE> 6
SECTION 2.6. INCOME TAX RETURNS. Borrower has no knowledge of any
pending assessments or adjustments of Borrower's or its Subsidiaries' income tax
payable with respect to any year.
SECTION 2.7. NO SUBORDINATION. There is no agreement, indenture,
contract or instrument to which Borrower or any of its Subsidiaries is a party
or by which Borrower or any its Subsidiaries may be bound that requires the
subordination in right of payment of any of Borrower's or its Subsidiaries'
obligations subject to this Agreement to any other obligation of Borrower or its
Subsidiaries.
SECTION 2.8. PERMITS, FRANCHISES. Borrower and its Subsidiaries
possess, and will hereafter possess, all permits, consents, approvals,
franchises and licenses required and rights to all trademarks, trade names,
patents, and fictitious names, if any, necessary to enable Borrower and its
Subsidiaries to conduct the business in which they are now engaged in compliance
with applicable law.
SECTION 2.9. ERISA. Borrower and its Subsidiaries are in compliance in
all material respects with all applicable provisions of the Employee Retirement
Income Security Act of 1974, as amended or recodified from time to time
("ERISA"); Borrower and its Subsidiaries have not violated any provision of any
defined employee pension benefit plan (as defined in ERISA) maintained or
contributed to by Borrower or its Subsidiaries (each, a "Plan"); no Reportable
Event as defined in ERISA has occurred and is continuing with respect to any
Plan initiated by Borrower or its Subsidiaries; Borrower and its Subsidiaries
have met its minimum funding requirements under ERISA with respect to each Plan;
and each Plan will be able to fulfill its benefit obligations as they come due
in accordance with the Plan documents and under generally accepted accounting
principles.
SECTION 2.10. OTHER OBLIGATIONS. Borrower and its Subsidiaries are not
in default on any obligation for borrowed money, any purchase money obligation
or any other material lease, commitment, contract, instrument or obligation.
SECTION 2.11. ENVIRONMENTAL MATTERS. Except as disclosed by Borrower to
Bank in writing prior to the date hereof, Borrower and its Subsidiaries are in
compliance in all material respects with all applicable federal or state
environmental, hazardous waste, health and safety statutes, and any rules or
regulations adopted pursuant thereto, which govern or affect any of Borrower's
or its Subsidiaries' operations and/or properties, including without limitation,
the Comprehensive Environmental Response, Compensation and Liability Act of
1980, the Superfund Amendments and Reauthorization Act of 1986, the Federal
Resource
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<PAGE> 7
Conservation and Recovery Act of 1976, and the Federal Toxic Substances Control
Act, as any of the same may be amended, modified or supplemented from time to
time. None of the operations of Borrower or its Subsidiaries are the subject of
any federal or state investigation evaluating whether any remedial action
involving a material expenditure is needed to respond to a release of any toxic
or hazardous waste or substance into the environment. Borrower and its
Subsidiaries have no material contingent liability in connection with any
release of any toxic or hazardous waste or substance into the environment.
2.12. ACTIVE SUBSIDIARIES. Except for the U.S. Subsidiaries and Foreign
Subsidiaries listed in Section 1.6, there are no other existing Subsidiaries.
ARTICLE III
CONDITIONS
SECTION 3.1. CONDITIONS OF INITIAL EXTENSION OF CREDIT. The obligation
of Bank to grant any of the Credits is subject to the fulfillment to Bank's
satisfaction of all of the following conditions:
(a) Approval of Bank Counsel. All legal matters incidental to the
granting of each of the Credits shall be satisfactory to Bank's counsel.
(b) Documentation. Bank shall have received, in form and substance
satisfactory to Bank, each of the following, duly executed:
(i) This Agreement and the Notes.
(ii) Corporate Borrowing Resolution.
(iii) Certificate of Incumbency.
(iv) Articles of Incorporation.
(v) Continuing Guaranties from all guarantors listed in Section
1.7.
(vi) Security Agreement: Equipment.
(vii) Third Party Security Agreement.
(viii) UCC Financing Statement.
(ix) Such other documents as Bank may require under any other
Section of this Agreement.
(c) Financial Condition. There shall have been no material adverse
change, as determined by Bank, in the financial condition or business of
Borrower or any guarantor hereunder, nor any material decline, as determined by
Bank, in the market value of any collateral required hereunder or a substantial
or material portion of the assets of Borrower or any such guarantor.
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<PAGE> 8
(d) Insurance. Borrower shall have delivered to Bank evidence of
insurance coverage on all Borrower's and Borrower's Subsidiaries property, in
form, substance, amounts, covering risks and issued by companies satisfactory to
Bank, and where required by Bank, with loss payable endorsements in favor of
Bank.
SECTION 3.2. CONDITIONS OF EACH EXTENSION OF CREDIT. The obligation of
Bank to make each extension of credit requested by Borrower hereunder shall be
subject to the fulfillment to Bank's satisfaction of each of the following
conditions:
(a) Compliance. The representations and warranties contained herein and
in each of the other Loan Documents shall be true on and as of the date of the
signing of this Agreement and on the date of each extension of credit by Bank
pursuant hereto, with the same effect as though such representations and
warranties had been made on and as of each such date, and on each such date, no
Event of Default as defined herein, and no condition, event or act which with
the giving of notice or the passage of time or both would constitute such an
Event of Default, shall have occurred and be continuing or shall exist.
(b) Documentation. Bank shall have received all additional documents
which may be required in connection with such extension of credit.
ARTICLE IV
AFFIRMATIVE COVENANTS
Borrower covenants that so long as Bank remains committed to extend
credit to Borrower pursuant hereto, or any liabilities (whether direct or
contingent, liquidated or unliquidated) of Borrower to Bank under any of the
Loan Documents remain outstanding, and until payment in full of all obligations
of Borrower subject hereto, Borrower shall, unless Bank otherwise consents in
writing:
SECTION 4.1. PUNCTUAL PAYMENTS. Punctually pay all principal, interest,
fees or other liabilities due under any of the Loan Documents at the times and
place and in the manner specified therein.
SECTION 4.2. ACCOUNTING RECORDS. Maintain and cause its Subsidiaries to
maintain, adequate books and records in accordance with generally accepted
accounting principles consistently applied, and permit, and cause its
Subsidiaries to permit, any representative of Bank, at any reasonable time, to
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<PAGE> 9
inspect, audit and examine such books and records, to make copies of the same,
and to inspect the properties of Borrower and its Subsidiaries.
SECTION 4.3. FINANCIAL STATEMENTS. Provide to Bank all of the
following, in form and detail satisfactory to Bank:
(a) not later than 120 days after and as of the end of each fiscal
year, a unqualified consolidated and consolidating financial statement on Form
10-k of Borrower and its Subsidiaries, audited by a certified public accountant
acceptable to Bank, to include a balance sheet and income statement;
(b) not later than 45 days after and as of the end of each fiscal
quarter, a consolidated and consolidating financial statement of Borrower and
its Subsidiaries on Form 10-Q, prepared by Borrower, to include a balance sheet
and income statement;
(c) contemporaneously with each annual and quarterly financial
statement of Borrower required hereby, a certificate of the president or chief
financial officer of Borrower that said financial statements are accurate and
that there exists no Event of Default nor any condition, act or event which with
the giving of notice or the passage of time or both would constitute an Event of
Default;
(d) from time to time such other information as Bank may reasonably
request.
SECTION 4.4. COMPLIANCE. Preserve and maintain and cause its
Subsidiaries to preserve and maintain, all material licenses, permits,
governmental approvals, rights, privileges and franchises necessary for the
conduct of business; and comply with the provisions of all documents pursuant to
which Borrower or its Subsidiaries are organized and/or which govern Borrower's
or its Subsidiaries' continued existence and with the requirements of all laws,
rules, regulations and orders of any governmental authority applicable to
Borrower and its Subsidiaries and/or their business.
SECTION 4.5. INSURANCE. Maintain and keep in force, and cause its
Subsidiaries to maintain and keep in force, insurance of the types and in
amounts customarily carried in lines of business similar to that of Borrower or
its Subsidiaries, including but not limited to fire, extended coverage, public
liability, flood, property damage and workers' compensation, with all such
insurance carried with companies and in amounts satisfactory to Bank, and
deliver to Bank from time to time at Bank's request schedules setting forth all
insurance then in effect.
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<PAGE> 10
SECTION 4.6. FACILITIES. Keep, and cause its Subsidiaries to keep, all
properties useful or necessary to Borrower's and its Subsidiaries' business in
good repair and condition, and from time to time make necessary repairs,
renewals and replacements thereto so that such properties shall be fully and
efficiently preserved and maintained.
SECTION 4.7. TAXES AND OTHER LIABILITIES. Pay and discharge when due,
and cause its Subsidiaries to pay and discharge when due, any and all
indebtedness, obligations, assessments and taxes, both real or personal,
including without limitation federal and state income taxes and state and local
property taxes and assessments, except such (a) as Borrower or its Subsidiaries
may in good faith contest or as to which a bona fide dispute may arise, and (b)
for which Borrower or its Subsidiaries have made provision, to Bank's
satisfaction, for eventual payment thereof in the event obligated to make such
payment.
SECTION 4.8. LITIGATION. Promptly give notice in writing to Bank of any
litigation pending or threatened against Borrower or any of its Subsidiaries
with a claim in excess of $500,000.00.
SECTION 4.9. FINANCIAL CONDITION. Maintain Borrower's and its
Subsidiaries' financial condition as follows using generally accepted accounting
principles consistently applied and used consistently with prior practices
(except to the extent modified by the definitions herein), with compliance
determined commencing with Borrower's consolidated financial statements for the
period ending June 30, 1998:
(a) Current Ratio not at any time less than 2.0 to 1.0 measured on a
rolling four quarter, with "Current Ratio" defined as total current assets
divided by total current liabilities less current maturities of Subordinated
Debt, with "Subordinated Debt" defined as all loans that are fully subordinated
to all indebtedness of Borrower and its Subsidiaries to Bank pursuant to
subordination terms and provisions acceptable to Bank.
(b) Total Liabilities divided by Tangible Net Worth not at any time
greater than 1.0 to 1.0, with "Total Liabilities" defined as the aggregate of
current liabilities and non-current liabilities less Subordinated Debt, and with
"Tangible Net Worth" defined as the aggregate of total stockholders' equity plus
Subordinated Debt less any intangible assets (including deferred financing
costs).
(c) Net income after taxes not less than $1.00 on an annual basis,
determined as of each fiscal year end, and pre-tax profit
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<PAGE> 11
not less than $1.00 for any two consecutive fiscal quarters, determined as of
the end of each fiscal quarter.
(d) EBITDA Coverage Ratio, on a year-to-date basis not less than 1.25
to 1.0 for the quarters ending March 31, 1998; June 30, 1998 and September 30,
1998, and 1.50 to 1.0 as of fiscal year ending December 31, 1998; and 1.50 to
1.0 as of the end of each fiscal quarter thereafter measured on a rolling
four-quarter basis, with "EBITDA" defined as net profit before tax plus interest
expense, depreciation expense and amortization expense, and with "EBITDA
Coverage Ratio" defined as EBITDA divided by the aggregate of total interest
expense plus the prior period current maturity of long-term debt excluding the
prior period current maturity of subordinated debt.
SECTION 4.10. NOTICE TO BANK. Promptly (but in no event more than five
(5) days after the occurrence of each such event or matter) give written notice
to Bank in reasonable detail of: (a) the occurrence of any Event of Default, or
any condition, event or act which with the giving of notice or the passage of
time or both would constitute an Event of Default; (b) any change in the name or
the organizational structure of Borrower or any of its Subsidiaries; (c) the
occurrence and nature of any Reportable Event or Prohibited Transaction, each as
defined in ERISA, or any funding deficiency with respect to any Plan; or (d) any
termination or cancellation of any insurance policy which Borrower or its
Subsidiaries are required to maintain, or any uninsured or partially uninsured
loss through liability or property damage, or through fire, theft or any other
cause affecting Borrower's or its Subsidiaries' property in excess of an
aggregate of $1,000,000.00.
SECTION 4.11. YEAR 2000 COMPLIANCE. Perform all acts reasonably
necessary to ensure that (a) Borrower and its Subsidiaries and any business in
which Borrower or any of its Subsidiaries holds a substantial interest, and (b)
all customers, suppliers and vendors that are material to Borrower's or its
Subsidiaries' business, become Year 2000 Compliant in a timely manner. Such acts
shall include, without limitation, performing a comprehensive review and
assessment of all of Borrower's and its Subsidiaries's systems and adopting a
detailed plan, with itemized budget, for the remediation, monitoring and testing
of such systems. As used herein, "Year 2000 Compliant" shall mean, in regard to
any entity, that all software, hardware, firmware, equipment, goods or systems
utilized by or material to the business operations or financial condition of
such entity, will properly perform date sensitive functions before, during and
after the year 2000. Borrower shall, and shall cause its Subsidiaries to,
immediately upon request, provide to Bank such certifications or other evidence
of Borrower's and its
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<PAGE> 12
Subsidiaries' compliance with the terms hereof as Bank may from time to time
require.
Section 4.12. MANAGEMENT. Continue to employ on a full-time basis Mr.
Donald Townsend.
ARTICLE V
NEGATIVE COVENANTS
Borrower further covenants that so long as Bank remains committed to
extend credit to Borrower pursuant hereto, or any liabilities (whether direct or
contingent, liquidated or unliquidated) of Borrower to Bank under any of the
Loan Documents remain outstanding, and until payment in full of all obligations
of Borrower subject hereto, Borrower will not without Bank's prior written
consent:
SECTION 5.1. USE OF FUNDS. Use any of the proceeds of any of the
Credits except for the purposes stated in Article I hereof.
SECTION 5.2. OTHER INDEBTEDNESS. Create, incur, assume or permit to
exist, nor permit any of its Subsidiaries to create, incur, assume or permit to
exist, any indebtedness or liabilities resulting from borrowings, loans or
advances, whether secured or unsecured, matured or unmatured, liquidated or
unliquidated, joint or several, except the liabilities of Borrower or its
Subsidiaries to Bank, and any other liabilities of Borrower or its Subsidiaries
existing as of, and disclosed to Bank prior to, the date hereof, and:
(a) unsecured trade, utility or accounts payable in the ordinary course
of business;
(b) off-balance sheet leases;
(c) liabilities permitted pursuant to Section 5.7;
(d) unsecured notes of Borrower to its Subsidiaries;
(e) Simula ASD Limited U.K. may enter into a loan with a lender outside
of the United States for the purpose of establishing a European manufacturing
plant as long as such indebtedness does not exceed $3,000,000.00; and
(f) Subordinated Debt [as defined in Section 4.9(a)] so long as such
Subordinated Debt does not exceed in the aggregate $65,000,000.00 and the
proceeds thereof are used for working
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<PAGE> 13
capital purposes, capital expenditures and/or the reduction of any other
existing indebtedness.
SECTION 5.3. MERGER, CONSOLIDATION, TRANSFER OF ASSETS. Merge into or
consolidate, nor permit any of its Subsidiaries to merge into or consolidate
with any other entity except intercompany consolidations; make any substantial
change in the nature of Borrower's or any of its Subsidiaries' businesses as
conducted as of the date hereof; acquire, nor permit any of its Subsidiaries to
acquire, all or substantially all of the assets of any other entity; nor sell,
lease, transfer or otherwise dispose of, nor permit any of its Subsidiaries to
sell, lease, transfer or otherwise dispose of, all or a substantial or material
portion of its assets except in the ordinary course of its business.
SECTION 5.4. GUARANTIES. Guarantee or become liable, nor permit any of
its Subsidiaries to guarantee or become liable, in any way as surety, endorser
(other than as endorser of negotiable instruments for deposit or collection in
the ordinary course of business), accommodation endorser or otherwise for, nor
pledge or hypothecate any assets of Borrower, nor permit any of its Subsidiaries
to pledge or hypothecate any assets, as security for, any liabilities or
obligations of any other person or entity, except any of the foregoing in favor
of Bank and the guaranty of any permitted Subordinated Debt [as defined in
Section 4.9 (a)] provided such guaranty is junior to all obligations and
indebtedness of Borrower and any of its Subsidiaries to Bank, pursuant to an
Intercreditor Agreement in form and substance satisfactory to Bank.
SECTION 5.5. LOANS, ADVANCES, INVESTMENTS. Make any loans or advances
to or investments in any person or entity, nor permit any of its Subsidiaries to
make any loans or advances to or investments in any person or entity, except any
of the foregoing existing as of, and disclosed to Bank prior to, the date
hereof, or as may otherwise be authorized under this Agreement, and additional
loans or advances in amounts not to exceed an aggregate of $500,000.00
outstanding or committed at any one time.
SECTION 5.6. DIVIDENDS, DISTRIBUTIONS. Declare or pay any dividend or
distribution either in cash, stock or any other property on Borrower's stock now
or hereafter outstanding, nor redeem, retire, repurchase or otherwise acquire
any shares of any class of Borrower's stock now or hereafter outstanding.
SECTION 5.7. PLEDGE OF ASSETS. Mortgage, pledge, grant or permit to
exist a security interest in, or lien upon, nor permit any of its Subsidiaries
to mortgage, pledge, grant or permit to
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<PAGE> 14
exist a security interest in, or lien upon, all or any portion of Borrower's or
any of its Subsidiaries' assets now owned or hereafter acquired, located in the
United States, except any of the foregoing in favor of Bank or which is existing
as of, and disclosed to Bank in writing prior to, the date hereof, and:
(a) security interests held by the United States Small Business
Administration securing debt not in excess of $400,000.00;
(b) existing non-computer capital leases not in excess of $350,000.00
and any consolidation of any existing capital leases so long as no additional
assets of the Borrower or any of its Subsidiaries are taken as security;
(c) security interests on the real and personal property located at,
and associated with, the European manufacturing facility financed by Simula ASD
Limited U.K.;
(d) future purchase money security interests for computer equipment, or
capital leases or direct loans for computer equipment, not to exceed $500,000.00
in the aggregate at any time; and
(e) a mortgage on real property to be purchased in North Carolina in
support of its SEI Division (aka Safety Equipment International) to secure
indebtedness in an amount not exceeding $1,100,000.00.
ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.1. The occurrence of any of the following shall constitute an
"Event of Default" under this Agreement:
(a) Borrower shall fail to pay when due any principal, interest, fees
or other amounts payable under any of the Loan Documents.
(b) Any financial statement or certificate furnished to Bank in
connection with, or any representation or warranty made by Borrower or any other
party under this Agreement or any other Loan Document shall prove to be
incorrect, false or misleading in any material respect when furnished or made.
(c) Any default in the performance of or compliance with any
obligation, agreement or other provision contained herein or in any other Loan
Document (other than those referred to in subsections (a) and (b) above), and
with respect to any such
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<PAGE> 15
default which by its nature can be cured, such default shall continue for a
period of twenty (20) days from its occurrence.
(d) Any default in the payment or performance of any obligation, or any
defined event of default, under the terms of any contract or instrument (other
than any of the Loan Documents) pursuant to which Borrower or any guarantor
hereunder has incurred any debt or other liability to any person or entity,
including Bank, in excess of $500,000.00 in outstanding principal.
(e) The filing of a notice of judgment lien against Borrower or any
guarantor hereunder; or the recording of any abstract of judgment against
Borrower or any guarantor hereunder in any county in which Borrower or such
guarantor has an interest in real property; or the service of a notice of levy
and/or of a writ of attachment or execution, or other like process, against the
assets of Borrower or any guarantor hereunder; or the entry of a judgment
against Borrower or any guarantor hereunder; and with respect to all of the
foregoing, there is no dismissal within sixty days thereof.
(f) Borrower or any guarantor hereunder shall become insolvent, or
shall suffer or consent to or apply for the appointment of a receiver, trustee,
custodian or liquidator of itself or any of its property, or shall generally
fail to pay its debts as they become due, or shall make a general assignment for
the benefit of creditors; Borrower or any guarantor hereunder shall file a
voluntary petition in bankruptcy, or seeking reorganization, in order to effect
a plan or other arrangement with creditors or any other relief under the
Bankruptcy Reform Act, Title 11 of the United States Code, as amended or
recodified from time to time ("Bankruptcy Code"), or under any state or federal
law granting relief to debtors, whether now or hereafter in effect; or any
involuntary petition or proceeding pursuant to the Bankruptcy Code or any other
applicable state or federal law relating to bankruptcy, reorganization or other
relief for debtors is filed or commenced against Borrower or any guarantor
hereunder which is not dismissed within forty-five days of the filing thereof,
or Borrower or any such guarantor shall file an answer admitting the
jurisdiction of the court and the material allegations of any involuntary
petition; or Borrower or any such guarantor shall be adjudicated a bankrupt, or
an order for relief shall be entered against Borrower or any such guarantor by
any court of competent jurisdiction under the Bankruptcy Code or any other
applicable state or federal law relating to bankruptcy, reorganization or other
relief for debtors.
(g) The occurrence of any adverse change in the financial condition of
Borrower, or any of its Subsidiaries, that Bank, in
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<PAGE> 16
its reasonable discretion, deems material, or if Bank, in good faith shall
believe that the prospect of payment or performance by Borrower of its
obligations under any of the Loan Documents is impaired.
(h) The dissolution or liquidation of Borrower or any guarantor
hereunder; or Borrower or any such guarantor, or any of its directors,
stockholders or members, shall take action seeking to effect the dissolution or
liquidation of Borrower or such guarantor.
SECTION 6.2. REMEDIES. Upon the occurrence of any Event of Default: (a)
all indebtedness of Borrower under each of the Loan Documents, any term thereof
to the contrary notwithstanding, shall at Bank's option and without notice
become immediately due and payable without presentment, demand, protest or
notice of dishonor, all of which are hereby expressly waived by each Borrower;
(b) the obligation, if any, of Bank to extend any further credit under any of
the Loan Documents shall immediately cease and terminate; and (c) Bank shall
have all rights, powers and remedies available under each of the Loan Documents,
or accorded by law, including without limitation the right to resort to any or
all security for any of the Credits and to exercise any or all of the rights of
a beneficiary or secured party pursuant to applicable law. All rights, powers
and remedies of Bank may be exercised at any time by Bank and from time to time
after the occurrence of an Event of Default, are cumulative and not exclusive,
and shall be in addition to any other rights, powers or remedies provided by law
or equity.
ARTICLE VII
MISCELLANEOUS
SECTION 7.1. NO WAIVER. No delay, failure or discontinuance of Bank in
exercising any right, power or remedy under any of the Loan Documents shall
affect or operate as a waiver of such right, power or remedy; nor shall any
single or partial exercise of any such right, power or remedy preclude, waive or
otherwise affect any other or further exercise thereof or the exercise of any
other right, power or remedy. Any waiver, permit, consent or approval of any
kind by Bank of any breach of or default under any of the Loan Documents must be
in writing and shall be effective only to the extent set forth in such writing.
SECTION 7.2. NOTICES. All notices, requests and demands which any party
is required or may desire to give to any other party under any provision of this
Agreement must be in writing delivered to each party at the following address:
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<PAGE> 17
BORROWER: SIMULA, INC.
2700 N Central Avenue, Suite 1000
Phoenix, AZ 85004
BANK: WELLS FARGO BANK, NATIONAL ASSOCIATION
Arizona RCBO #3839
100 West Washington, 25th Fl.
Phoenix, AZ 85003
or to such other address as any party may designate by written notice to all
other parties. Each such notice, request and demand shall be deemed given or
made as follows: (a) if sent by hand delivery, upon delivery; (b) if sent by
mail, upon the earlier of the date of receipt or three (3) days after deposit in
the U.S. mail, first class and postage prepaid; and (c) if sent by telecopy,
upon receipt.
SECTION 7.3. COSTS, EXPENSES AND ATTORNEYS' FEES. Borrower shall pay to
Bank immediately upon demand the full amount of all payments, advances, charges,
costs and expenses, including reasonable attorneys' fees (to include outside
counsel fees and all allocated costs of Bank's in-house counsel), expended or
incurred by Bank in connection with (a) the negotiation and preparation of this
Agreement and the other Loan Documents (up to a maximum amount of $5,000.00 with
respect to attorney fees), Bank's continued administration hereof and thereof,
and the preparation of any amendments and waivers hereto and thereto, (b) the
enforcement of Bank's rights and/or the collection of any amounts which become
due to Bank under any of the Loan Documents, and (c) the prosecution or defense
of any action in any way related to any of the Loan Documents, including without
limitation, any action for declaratory relief, whether incurred at the trial or
appellate level, in an arbitration proceeding or otherwise, and including any of
the foregoing incurred in connection with any bankruptcy proceeding (including
without limitation, any adversary proceeding, contested matter or motion brought
by Bank or any other person) relating to any Borrower or any other person or
entity.
SECTION 7.4. SUCCESSORS, ASSIGNMENT. This Agreement shall be binding
upon and inure to the benefit of the heirs, executors, administrators, legal
representatives, successors and assigns of the parties; provided however, that
Borrower may not assign or transfer its interest hereunder without Bank's prior
written consent. Bank reserves the right to sell, assign, transfer, negotiate or
grant participations in all or any part of, or any interest in, Bank's rights
and benefits under each of the Loan Documents. In connection therewith, Bank may
disclose all documents and information which Bank now has or may hereafter
acquire relating to any of the Credits (provided that, absent the
-17-
<PAGE> 18
occurrence and continuation of an Event of Default, the recipient has accepted
the information subject to a confidentiality agreement with respect to
non-public information), Borrower or its business, any guarantor hereunder or
the business of such guarantor, or any collateral required hereunder.
SECTION 7.5. ENTIRE AGREEMENT; AMENDMENT. This Agreement and the other
Loan Documents constitute the entire agreement between Borrower and Bank with
respect to the Credits and supersede all prior negotiations, communications,
discussions and correspondence concerning the subject matter hereof. This
Agreement may be amended or modified only in writing signed by each party
hereto.
SECTION 7.6. NO THIRD PARTY BENEFICIARIES. This Agreement is made and
entered into for the sole protection and benefit of the parties hereto and their
respective permitted successors and assigns, and no other person or entity shall
be a third party beneficiary of, or have any direct or indirect cause of action
or claim in connection with, this Agreement or any other of the Loan Documents
to which it is not a party.
SECTION 7.7. TIME. Time is of the essence of each and every provision
of this Agreement and each other of the Loan Documents.
SECTION 7.8. SEVERABILITY OF PROVISIONS. If any provision of this
Agreement shall be prohibited by or invalid under applicable law, such provision
shall be ineffective only to the extent of such prohibition or invalidity
without invalidating the remainder of such provision or any remaining provisions
of this Agreement.
SECTION 7.9. COUNTERPARTS. This Agreement may be executed in any number
of counterparts, each of which when executed and delivered shall be deemed to be
an original, and all of which when taken together shall constitute one and the
same Agreement.
SECTION 7.10. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Arizona.
SECTION 7.11. ARBITRATION.
(a) Arbitration. Upon the demand of any party, any Dispute shall be
resolved by binding arbitration (except as set forth in (e) below) in accordance
with the terms of this Agreement. A "Dispute" shall mean any action, dispute,
claim or controversy of any kind, whether in contract or tort, statutory or
common law, legal or equitable, now existing or hereafter arising under or in
connection with, or in any way pertaining to, any of the Loan
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<PAGE> 19
Documents, or any past, present or future extensions of credit and other
activities, transactions or obligations of any kind related directly or
indirectly to any of the Loan Documents, including without limitation, any of
the foregoing arising in connection with the exercise of any self-help,
ancillary or other remedies pursuant to any of the Loan Documents. Any party may
by summary proceedings bring an action in court to compel arbitration of a
Dispute. Any party who fails or refuses to submit to arbitration following a
lawful demand by any other party shall bear all costs and expenses incurred by
such other party in compelling arbitration of any Dispute.
(b) Governing Rules. Arbitration proceedings shall be administered by
the American Arbitration Association ("AAA") or such other administrator as the
parties shall mutually agree upon in accordance with the AAA Commercial
Arbitration Rules. All Disputes submitted to arbitration shall be resolved in
accordance with the Federal Arbitration Act (Title 9 of the United States Code),
notwithstanding any conflicting choice of law provision in any of the Loan
Documents. The arbitration shall be conducted at a location in Arizona selected
by the AAA or other administrator. If there is any inconsistency between the
terms hereof and any such rules, the terms and procedures set forth herein shall
control. All statutes of limitation applicable to any Dispute shall apply to any
arbitration proceeding. All discovery activities shall be expressly limited to
matters directly relevant to the Dispute being arbitrated. Judgment upon any
award rendered in an arbitration may be entered in any court having
jurisdiction; provided however, that nothing contained herein shall be deemed to
be a waiver by any party that is a bank of the protections afforded to it under
12 U.S.C. Section 91 or any similar applicable state law.
(c) No Waiver; Provisional Remedies, Self-Help and Foreclosure. No
provision hereof shall limit the right of any party to exercise self-help
remedies such as setoff, foreclosure against or sale of any real or personal
property collateral or security, or to obtain provisional or ancillary remedies,
including without limitation injunctive relief, sequestration, attachment,
garnishment or the appointment of a receiver, from a court of competent
jurisdiction before, after or during the pendency of any arbitration or other
proceeding. The exercise of any such remedy shall not waive the right of any
party to compel arbitration hereunder.
(d) Arbitrator Qualifications and Powers; Awards. Arbitrators must be
active members of the Arizona State Bar or retired judges of the state or
federal judiciary of Arizona with expertise in the substantive law applicable to
the subject matter of the Dispute. Arbitrators are empowered to resolve Disputes
by
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<PAGE> 20
summary rulings in response to motions filed prior to the final arbitration
hearing. Arbitrators (i) shall resolve all Disputes in accordance with the
substantive law of the state of Arizona, (ii) may grant any remedy or relief
that a court of the state of Arizona could order or grant within the scope
hereof and such ancillary relief as is necessary to make effective any award,
and (iii) shall have the power to award recovery of all costs and fees, to
impose sanctions and to take such other actions as they deem necessary to the
same extent a judge could pursuant to the Federal Rules of Civil Procedure, the
Arizona Rules of Civil Procedure or other applicable law. Any Dispute in which
the amount in controversy is $5,000,000 or less shall be decided by a single
arbitrator who shall not render an award of greater than $5,000,000 (including
damages, costs, fees and expenses). By submission to a single arbitrator, each
party expressly waives any right or claim to recover more than $5,000,000. Any
Dispute in which the amount in controversy exceeds $5,000,000 shall be decided
by majority vote of a panel of three arbitrators; provided however, that all
three arbitrators must actively participate in all hearings and deliberations.
(e) Judicial Review. Notwithstanding anything herein to the contrary,
in any arbitration in which the amount in controversy exceeds $25,000,000, the
arbitrators shall be required to make specific, written findings of fact and
conclusions of law. In such arbitrations (i) the arbitrators shall not have the
power to make any award which is not supported by substantial evidence or which
is based on legal error, (ii) an award shall not be binding upon the parties
unless the findings of fact are supported by substantial evidence and the
conclusions of law are not erroneous under the substantive law of the state of
Arizona, and (iii) the parties shall have in addition to the grounds referred to
in the Federal Arbitration Act for vacating, modifying or correcting an award
the right to judicial review of (A) whether the findings of fact rendered by the
arbitrators are supported by substantial evidence, and (B) whether the
conclusions of law are erroneous under the substantive law of the state of
Arizona. Judgment confirming an award in such a proceeding may be entered only
if a court determines the award is supported by substantial evidence and not
based on legal error under the substantive law of the state of Arizona.
(f) Miscellaneous. To the maximum extent practicable, the AAA, the
arbitrators and the parties shall take all action required to conclude any
arbitration proceeding within 180 days of the filing of the Dispute with the
AAA. No arbitrator or other party to an arbitration proceeding may disclose the
existence, content or results thereof, except for disclosures of information by
a party required in the ordinary course of its business, by applicable law or
regulation, or to the extent
-20-
<PAGE> 21
necessary to exercise any judicial review rights set forth herein. If more than
one agreement for arbitration by or between the parties potentially applies to a
Dispute, the arbitration provision most directly related to the Loan Documents
or the subject matter of the Dispute shall control. This arbitration provision
shall survive termination, amendment or expiration of any of the Loan Documents
or any relationship between the parties.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first written above.
WELLS FARGO BANK,
SIMULA, INC. NATIONAL ASSOCIATION
By: ______________________ By: _______________________
Timothy Dillingham
Title: ___________________ Vice President
-21-
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