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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997 COMMISSION FILE NO. 1-12410
SIMULA, INC.
(Exact name of Registrant as specified in its charter)
ARIZONA 86-0320129
(State of Incorporation) (I.R.S. Employer Identification No.)
2700 NORTH CENTRAL AVENUE, SUITE 1000
PHOENIX, ARIZONA 85004
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (602) 631-4005
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
Common Stock, par value $.01 per share New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in the definitive Proxy incorporated by
reference in Part III of this Form 10-K. [X]
As of March 26, 1998, the number of shares of Common Stock outstanding
was 9,851,832 and the aggregate market value of the Common Stock (based on the
closing price as quoted on the New York Stock Exchange on that date) held by
non-affiliates of Registrant was $100,582,476.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Registrant's Proxy Statement to be filed with the
Commission in connection with its Annual Meeting of Shareholders to be held June
10, 1998 are incorporated by reference in Part III of this report.
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PART I
FORWARD-LOOKING STATEMENTS
With the exception of historical information, the matters discussed in
this report on Form 10-K may be estimates or constitute forward-looking
statements that describe matters that involve risks and uncertainties which
could cause the Company's actual results to differ materially from those
discussed herein. Estimates are based on reliable information and past
experience. However, forward-looking information and operating results are
affected by a wide variety of factors, many of which are beyond the control of
the Company. The factors include, but are not limited to, the levels of orders
which are received and can be shipped in a quarter; whether and when order
options are exercised; customer order patterns and seasonality; contract mix
among the Company's three business segments and shifting production and delivery
schedules; manufacturing capacity and yield, costs of labor, raw materials,
supplies and equipment; reliability of vendor base; amount of resources
committed to research and development from time to time; technological changes;
competition and competitive pressures on pricing; fluctuation of foreign
currency rates; levels of government and defense spending; economic trends in
the airline and automobile business; and economic conditions in the United
States and worldwide. Readers are cautioned not to place undue reliance on the
Company's forward-looking statements, which speak only as of the date hereof.
The Company undertakes no obligation to publicly release any revisions to these
forward-looking statements or reflect events or circumstances after the date
hereof.
ITEM 1. BUSINESS
OVERVIEW
Simula, Inc. was incorporated in July 1975 under the laws of the State
of Arizona. As used herein, the terms "Company" or "Simula" refer collectively
to Simula, Inc. and its consolidated subsidiaries.
Simula, Inc. is an acknowledged world leader in providing crash
resistant and energy absorption technologies that safeguard human lives. Simula
invents, manufactures, and markets advanced occupant seating and restraint
systems installed in air, ground, and sea transport vehicles for the military,
commercial airline, rail, mass transit, and automotive industries. In its last
five fiscal years, the Company has experienced substantial growth resulting from
strategic acquisitions, wider application of technologies, and new product
introductions.
OPERATING AND GROWTH STRATEGY
The Company's strategy is to maintain its leading position in
technologies that address safety problems and develop products for sale to a
wide range of customers. The key elements in executing this strategy are to: (i)
develop and utilize technology to enhance current products and create new
products, (ii) monitor and influence regulatory requirements, (iii) expand and
optimize manufacturing capabilities, and (iv) pursue additional growth through
acquisitions and strategic alliances that complement existing operations.
OVERVIEW OF MARKETS AND INDUSTRIES
The Company's business focuses on three primary market segments: (i)
Commercial Transportation Seating, (ii) Government and Defense contracting, and
(iii) Automotive Safety Systems.
COMMERCIAL TRANSPORTATION SEATING SEGMENT
Through four of its operating subsidiaries, the Company manufactures
commercial seating for airlines, rail, and other mass transit vehicles. The
Company provides both new and refurbished seats.
The worldwide aircraft seat market (including spare parts) is presently
between $400-$500 million dollars annually. Approximately 10 companies worldwide
supply aircraft seats, and three major competitors represent a collective 90%
market share.
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Simula entered the commercial airliner seating business in 1996. In 1997, the
Company made a substantial investment in ramping up the sales and marketing
infrastructure as well as production and assembly capabilities. The Company
received $72 million in booked orders and options for new airliner seats
during 1997. The Company's efforts represent the first successful entry into
this market in 25 years. The Company's 1997 market share was approximately 5%.
The three distribution channels for airliner seats include airframe
manufacturers such as Boeing and Airbus; leasing companies (that purchase new or
used aircraft and lease them to airlines); and airline companies including,
domestic and foreign, regional, national and worldwide carriers. The Company has
customers in each of these distribution channels and will continue to target all
three categories of customers.
According to industry reports, the prospects for growth in this segment
of the Company's business are significant due to three factors:
Installed Base. At the end of 1995, the existing installed
seat base included approximately 11,000 aircraft in service, most with
in excess of 120 passenger placements. This base provides on-going
revenues from replacements, upgrades and repairs. The total worldwide
installed base represents up to approximately $3 billion dollars at
replacement prices. This installed base, which is the largest source of
business for seat makers, should generate continued retrofit,
refurbishment and spare parts revenue in connection with deterioration
of existing interiors.
Expanding Worldwide Fleet. Worldwide air traffic has grown
every year since 1946 and is projected to grow at a compounded average
rate of approximately 5% through 2015. According to Boeing, the
worldwide fleet of commercial aircraft is expected to expand from
11,000 at the end of 1995 to approximately 16,000 by the end of 2005.
Both Boeing and Airbus have projected significant growth in new
airframe manufacturing through 2005. An expanding worldwide fleet
should generate additional revenue from both new seat programs and an
increase in the size of the installed base, which in turn should
generate additional and continual retrofit and refurbishment.
Wide Body Aircraft Orders. The trend in the industry is for
disproportionate growth in the wide body aircraft category. Wide body
aircraft carry up to three times the number of seats as narrow body,
and have multiple classes of services and configurations which increase
the average revenue per seat. Further, video-on-demand systems are
installed principally on wide body aircraft.
Boeing states that there is currently insufficient seat manufacturing
capacity in the world for the airframe deliveries scheduled over the next five
years.
In addition to market demand, the Company focuses on two other
competitive advantages. First, the consolidation in the seat industry due to the
merger of the two largest United States based suppliers has left domestic
airframers interested in an alternative source of supply. The Company's entry
has been timely in providing such an alternative source. Second, new public and
regulatory attention to airline safety could allow the Company to benefit from
the safety features offered in the Company's patented "load limiting-16G seat".
Currently, there are no competitors offering comparable technology. Further, the
FAA is examining retrofit rules which would apply certain safety criteria not
solely to newly certificated aircraft, but also the entire existing fleet. If a
retrofit rule were to be phased in, the market for airliner seating systems
could expand significantly.
The success of the new airliner seating business conducted by the
Company's subsidiary, Airline Interiors, Inc., is highly dependent on support by
another subsidiary, Coach and Car Equipment Corporation ("Coach and Car"), which
serves as a modernized and high quality manufacturing center for seat parts, and
a third subsidiary, Artcraft Industries Corp. ("Artcraft"), which provides soft
goods including sewing and upholstery. Additionally, Coach and Car and Artcraft
traditionally have been suppliers to the rail and mass transit seating markets
and currently maintain an approximate 70% market share in this industry. Thus,
in addition to their support of Airline Interiors, Coach and Car and Artcraft
represent a significant economic opportunity for the Company on a stand-alone
basis.
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The estimated market size for rail and mass transit seating is
approximately $30 million annually. Because this business relies on government
funding, long term predictions are difficult because some planned programs are
canceled when funds are reallocated, and some unfunded programs find new life
and government appropriations. In addition to this core business, the Company
believes that the opportunity exists to incorporate Simula experience and
technology into the design and engineering of high speed and next generation
rail seats. This could create barriers to entry that may result in higher
margins and market share.
GOVERNMENT AND DEFENSE CONTRACTING SEGMENT
Through one operating subsidiary organized in five divisions, the
Company manufactures a number of military safety systems. The Company is the
world's leading supplier of energy-absorbing seating systems for military
helicopters. In addition, the Company produces lightweight advanced armor
systems, inflatable restraints for aircraft, lightweight vacuum-packed
parachutes, and related safety systems and products.
The market for government and defense contracts is healthy.
Nevertheless, there are two significant trends in the business. First, shrinking
military procurement budgets are a reality. This is the trend regardless of the
number of trouble spots in the world or regardless of the political party in
power. Accordingly, businesses are competing for fewer defense dollars. The
second significant change is the consolidation in the defense industry. As a
result of mergers and acquisitions in the last three years, there remain only
six US Government mega-contractors. This consolidation also has caused a
consolidation and shake-up at the subcontractor and component supplier levels.
Defense contractors are bringing increasingly significant pressure on margins
and profitability of subcontractors while reducing the number of suppliers.
The size of the market is difficult to predict beyond an analysis of
currently funded programs and is based on specific programs that are subject to
need assessments and funding issues by the Government.
The Company's products include crashworthy crew seats and troop seats,
standard troop seats, and other seats, for US and foreign customers. The largest
revenue producing product is crashworthy seating systems for the military. This
market is estimated to be $20 million annually. Over the next several years the
largest area of growth is likely to be in crashworthy civil helicopter seating
including pilot/co-pilot, passenger and medical attendant seats. The Company's
second market is in armor products including aircraft, wheeled vehicles and boat
armor, vehicle retrofit armor "kits," lightweight inserts for vests, and "soft"
armor for law enforcement vehicles. The size of the total market is
approximately $30 million annually. A third market of the Company is inflatable
restraint systems for aircraft including the cockpit airbag system ("CABS") and
bulkhead airbag system ("BABS").
The Company's newest market is aircrew rescue and safety products,
including advanced parachutes. The size of this market is particularly dependent
on military budgets and appropriations. The Company's new technology in this
area has enabled it to capture development programs with follow-on production
contracts.
AUTOMOBILE SAFETY SYSTEMS SEGMENT
Through two of its operating subsidiaries, the Company designs and
manufactures inflatable restraint systems for automobiles. In general, the
demand for automobile safety products results primarily from government
regulations, such as mandatory frontal airbags in all new cars, and consumer
demand for increased safety.
Side-impact collisions comprise the second leading category of injury
accidents and leading category of fatal accidents, accounting for approximately
25% of all injuries and 34% of all fatalities which occur in automobile
collisions, with a significant majority of such injuries caused by impact to the
head and neck. Rollover injuries are the third leading category of injury
accidents and second leading cause of fatalities, accounting for approximately
15% of all automobile injuries and 33% of fatalities. The Company's Inflatable
Tubular Structure ("ITS") is the only available product designed specifically to
protect the head and neck of vehicle occupants in side-impact collisions and
potentially provide containment of occupants in rollover and secondary impact
collisions. Present United States side-impact safety standards address the use
of foam padding and structural beams. However, the National Highway Traffic and
Safety Administration ("NHTSA") is currently examining head crash standards,
measured in quantifiable head injury criteria ("HIC") for side-impact
collisions.
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The worldwide market in 1998 for driver and passenger frontal and
thoracic side-impact airbags is estimated to be in excess of 100 million units.
The Company seeks to be a niche component supplier in the automotive
industry by maintaining market leadership in a defensible niche; technological
superiority; global presence; and strong customer relationships with car
manufacturers and first tier suppliers.
CURRENT PRODUCTS AND TECHNOLOGIES
Commercial Airliner Seating Systems and Components. The Company,
through its wholly-owned subsidiary Airline Interiors, manufactures and sells
commercial airline seating systems that comply with FAA-mandated 16g standards
for airline seats. Airline Interiors also repairs, refurbishes, and retrofits
existing commercial aircraft seats. With the acquisition of Airline Interiors in
1993, the Company obtained FAA certifications and an established customer base
of commercial airlines as well as the operations to repair, refurbish, and
retrofit commercial aircraft seats. The Company's entrance into the airline
seating market is an outgrowth of both the Company's technologies and Airline
Interiors' traditional core business.
The Company's 16g seats ("16g Seats") are designed to absorb 16 times
the force of gravity upon impact. The prices and features of the Company's new
16g Seats are competitive with more established 16g seat suppliers, but exceed
existing and currently anticipated industry and regulatory standards for
crashworthiness. The Company's 16g Seats have been tested, approved, and
certified for use in numerous classes of commercial aircraft. The Company's
customers include Boeing, British Airways, Trans World Airlines and Continental
Airlines.
The Company also repairs, refurbishes, and retrofits existing
commercial aircraft seats. Its services include (i) the supply of seat
components, including upholstery, cushioning, and fire blocking; (ii) the
overhaul and modification of seat assemblies, including arm rests and tray
tables; and (iii) the design and integration of communication and entertainment
systems into aircraft seats. Customers for such services include America West
Airlines, Continental Airlines, American Airlines, and Delta Airlines.
Rail and Other Mass Transit Seats. The acquisitions of Coach and Car
and Artcraft in 1994 brought to the Company an established seat manufacturing
identification, contract backlog, and additional manufacturing capacity for
airline seats. In addition to these synergies with Airline Interiors and its
seat technology, the Company is the leading North American provider of seating
systems for rail and other mass transit vehicles. The Company supplies seating
in a variety of styles, materials, colors, configurations, and optional
features, and has recently designed and developed a state-of-the-art seat for
use on high speed railways. The Company produces stainless steel, plastic, and
fiberglass seating systems for subways, cushioned and upholstered seating for
other mass transit vehicles, and deluxe recliners for railroad cars. The seating
systems feature lightweight construction; ease of installation and maintenance;
vandal resistant, durable, and long-lasting components; reinforced structures
for superior strength and support; fire and smoke resistance; sound and energy
absorption; and passenger safety and comfort. Customers include Amtrak,
Bombardier, Inc., Amerail, Siemens Duewag Corporation and Kawasaki Rail Car,
Inc.
Military Aircraft Seating Systems. The Company has been a major
supplier of energy-absorbing seating systems for military helicopters and other
military aircraft to various branches of the United States armed forces and
their prime defense contractors for over 20 years. The seating systems focus on
reducing injury and increasing survivability in aircraft crashes. These
crashworthy seating systems contain proprietary energy-absorbing devices that
activate upon crash impact to absorb shock that otherwise would be absorbed by
the seat occupant.
Based on internal market surveys and data, the Company believes that it
is the leading provider of energy-absorbing helicopter seats purchased by the
United States and foreign armed forces. Aircraft for which the Company has
designed and manufactured seat assemblies for pilots, flight crews, troops, or
SONAR operators include the AH-64A Apache attack helicopter; UH-60A Blackhawk
transport and cargo helicopter; SH-60B Sea Hawk reconnaissance helicopter; SH-3
Sea King utility helicopter; CH-53 Sea Stallion transport and cargo helicopter;
V-22 Osprey tilt-roar aircraft; India's Hindustan Aeronautics, Ltd. ALH utility
helicopter; and C-17 fixed wing utility aircraft. Aircraft manufacturers in the
Company's customer base include The Boeing Company and Sikorsky Aircraft
Corporation, Bell Helicopters Textron, Inc. and GKN Westland Helicopters Ltd.
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Composite Materials Including Armor Systems. As an outgrowth of its
military aircraft seating systems the Company has developed an expertise in
armor, which makes up a significant portion of both materials in, and costs of,
such seating systems. In addition, the Company has developed a variety of other
composite materials for integration in its existing and proposed products and
for sale as raw material to customers. Composites are structures, typically made
of layered materials, glues, resins, metal alloys, and ceramics, which provide
advantages in terms of weight, flexibility, and strength over traditional metal
components. Composite materials are often much lighter than conventional
materials such as basic metals, and by their complex nature are generally more
expensive than such materials. Composite materials have a wide variety of
product applications, ranging from shaped or molded fiber reinforced plastic
structures to advanced, lightweight, protective ballistic armor systems.
Advanced composite materials with which the Company has expertise include fiber
reinforcements of Kevlar, carbon, Spectra, S-glass, E-glass, and hybrid weaves
matched with boron carbide, aluminum oxide, and other ceramics. The Company also
has the capability to process thermoset resins including epoxies, polyesters,
and vinyl esters.
The Company's principal composite products are high-strength,
lightweight armor systems that have been incorporated into a variety of United
States armed forces vehicles. The Company is a principal supplier of such
lightweight armor systems in the United States. The Company develops and
manufactures armor systems for seats as well as for structural and other
components of military aircraft. Aircraft components incorporating armors
developed or produced by the Company include V-22 Osprey crew seats; C-17
cockpit components; AH-64A Apache crew seats; Blackhawk crew seats and floor
armor; CH-53 Sea Stallion crew seats; United States Navy landing craft air
cushion pilot station armor; and high-mobility, multi-wheeled vehicles ("HMMWV")
and transport vehicles ("HEMTT"). The Company has an on-site ballistics range,
enabling it to conduct tests on armor products.
Automobile Inflatable Restraint Systems. The Company developed,
patented and manufactures the ITS, which occupies a stored position above a side
window and inflates upon impact to extend diagonally across the side window to
provide protection against head and neck injuries from side-impact collisions.
An automobile may be equipped with an ITS at each side window. The Company's
high-volume manufacturing lines are located in England and Arizona.
The ITS provides protection beyond that provided by conventional
airbags currently utilized in automobiles. Unlike a conventional airbag, which
must be backed by a structure such as a steering wheel, dashboard, or door, the
ITS is attached to and supported by the structure of the vehicle frame and door
pillars. During a side-impact crash, a tube located above the door inflates and
becomes shorter in length, which causes it to drop out of its molding and form a
tight diagonal structure across the side window. As a result, the ITS provides
protection despite the window being open or breaking upon impact, while a
conventional airbag would not have adequate support in these situations.
Therefore, the ITS is able to substantially reduce head rotation to the side and
prevent contact with vehicle components. Additionally, the diagonal arrangement
of the activated ITS offers protection for occupants of different sizes and
seating positions, and in different types of side-impact collisions, as well as
in rollover, secondary impact, and ejection situations. The ITS is not an
"aggressive" airbag and thus does not pose some of the threats to smaller, or
out of position vehicle occupants, as do conventional airbags.
The Company has developed various additional applications for the ITS
technology. Such applications include the inflatable tubular cushion ("ITC"), a
seat mounted torso side protection system; the inflatable tubular bolster
("ITB"), an under-dash system to protect knees and legs; and the inflatable
tubular torso restraint ("ITTR"), an inflatable restraint harness and seat belt
application.
Under a 1995 agreement, the Company, through Autoliv, Inc., is
currently manufacturing the ITS for sale to BMW, a major European automobile
manufacturer. In addition, in March 1998 the Company entered into a teaming
agreement with Delphi Automotive Systems, a major first tier automotive
component supplier and subsidiary of General Motors. Under the agreement, Delphi
will market the Company's ITS worldwide and integrate it into Delphi's portfolio
of advanced automobile interior safety technologies. The Company is also
actively pursuing arrangements with other first tier suppliers for the marketing
and production of the ITS and related product applications. The Company enters
into strategic alliances with first tier component suppliers to leverage off of
the size and industry strength of such large manufacturers and benefit from
their market access to OEMs. See "Legal Proceedings" regarding the Company's
relationship with Autoliv, Inc.
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Aircraft Inflatable Restraint Systems. The Company is in final
development stage and plans to market various inflatable restraint systems for
military and commercial aircraft. These systems include CABS for the protection
of the flight crew in military aircraft; and BABS for the protection of
passengers sitting immediately behind the bulkhead and other cabin partitions in
commercial aircraft.
The Company developed CABS under a contract with the United States
Army. CABS incorporates airbags in a configuration surrounding the aviator that
inflate following sensor detection of crash impact from a variety of directions.
CABS then retracts following deployment and thereby protects against mishaps
caused by accidental deployment during the normal operations of the aircraft.
The Company anticipates that it will complete development and commence
production of CABS in 1998.
The Company developed BABS to provide a product that satisfies FAA
regulations requiring protection against head injuries to passengers sitting
immediately behind the bulkhead and other cabin partitions in commercial
aircraft certificated after 1988, which includes only complete new aircraft
designs. Prior to BABS, no other company had introduced a product that satisfied
the FAA regulations, and newly certificated aircraft have operated under FAA
waivers from the regulations. In addition, the regulations have not been
extended to aircraft certificated prior to 1988. Although the Company believes
that BABS satisfies the FAA regulations, the Company cannot assess whether the
FAA will withdraw its waivers as a result of the forthcoming availability of
BABS and extend its regulations to apply to presently exempt commercial
aircraft. The Company has an agreement with British Aerospace Regional Aircraft,
formerly Jetstream Aircraft Ltd. ("Jetstream"), to manufacture and sell BABS for
implementation of the system in future aircraft. Anticipated production of the
system in 1997 was delayed due to customer requests. Jetstream has recently
renewed efforts to utilize the system. Production dates remain unscheduled. The
Company is also discussing the introduction of BABS with other aircraft
manufacturers. In addition, the Company is developing the related systems for
sensors, electronics, and other applications for this inflatable restraint
technology.
DEVELOPMENTAL STAGE AND NEW TECHNOLOGIES
Sensors. The Company is exploring the development of sensors and
software programs that have potential in a variety of product applications,
including crash sensors for airbag and other safety systems in both automobiles
and aircraft.
Parachutes. Under contract with the United States Navy, the Company has
applied its technologies and overall knowledge of materials and structures to
develop a parachute that solves numerous functional problems attendant to
traditional military parachutes. Specifically, many parachutes traditionally
used by the military have (i) been large and heavy, (ii) been unable to be worn
during flight or by females, and (iii) had limited shelf life, requiring the
labor intensive process of unpacking and repacking parachutes every six months.
The parachute developed by the Company is small, lightweight, unisex, capable of
being worn during flight, and vacuum-packed so that it maintains a long-term
shelf life without repacking. The Company anticipates it will commence
production of parachutes in 1998 for certain Navy aircraft. The Company also has
another development program with the U.S. Army that is investigating the use of
Simula technologies for tactical paratrooper parachutes.
Advanced Materials. The Company has recently developed and tested a
number of advanced polymers and polyurethanes, possessing a wide variety of
potential product applications. Such materials are generally high-strength and
lightweight and can be developed to withstand extreme temperatures. Potential
uses for such materials include laser protective aircraft canopies,
high-performance windows for aircraft and automobiles, and industrial and
protective lenses and visors.
PROPRIETARY TECHNOLOGY
The Company maintains a design, development, research, testing, and
engineering staff whose duties include the modification and improvement of
existing products and the development of new technologies, products and
applications. The Company regards its research, development, and engineering
capabilities as a particular strength and intends to continue to emphasize this
aspect of its business.
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The Company retains proprietary rights in the products and services it
develops, including those initially financed under government contracts. As an
integral component of its strategy, the Company seeks to transfer all of its
technology to product applications. The Company's costs for research and
development in 1997, 1996 and 1995 were approximately $11.8 million, $10.5
million and $6.1 million, respectively. These amounts include government-funded,
other customer-funded, and Company-funded research and development contracts.
Since much of its research and development generates proprietary
technology, the Company has patent protection on certain products. The Company's
ability to compete effectively depends, in part, on its ability to maintain the
proprietary nature of its technologies. The Company also relies on unpatented
proprietary information and know-how, typically protecting such information as
trade secrets.
The Company holds 16 patents, including for the ITS and 16g Seat
technologies. In addition, the Company has 13 patent applications pending for
technologies and various advanced materials. The Company is also currently
developing 10 additional patent applications for filing. Patents protect
inventions for a period of 20 years after the application is first filed. The
Company does not presently own or maintain any trademarks which are material to
its business.
PRODUCTION AND MANUFACTURING
The Company's production and manufacturing consist principally of the
machining, bending and welding of metals, molding of composite materials,
processing, sewing, upholstery, component fabrication, and final assembly. After
assembly, products are functionally tested on a sample basis as required by
applicable contracts. The Company's manufacturing capability features
computer-integrated manufacturing programs which, among other things, schedule
and track production, update inventories, and issue work orders to the
manufacturing floor. All products manufactured must meet rigorous standards and
specifications for workmanship, process, raw materials, procedures, and testing,
and in some cases regulatory requirements. Customers, and in some cases the
United States government as the end user, perform periodic quality audits of the
manufacturing process. Certain customers, including the United States
government, periodically send representatives to the Company's facilities to
monitor quality assurance.
In 1997 and 1996 the Company consolidated certain operations, and
expanded and upgraded certain of its existing manufacturing capabilities. This
will continue in 1998. See, "Item 2. Properties."
MARKETING AND SALES
Depending upon the product, the Company typically employs one of four
methods for marketing: (i) direct sales, which, for example, it utilizes in the
marketing of its 16g Seats, (ii) technical teams, typically comprised of a
combination of administrative personnel and development engineers, which it
utilizes in the marketing of inflatable restraints and advanced materials, (iii)
strategic alliances with first tier component suppliers, which it utilizes in
the marketing of inflatable restraints, and (iv) responses to formal requests
for proposals in bidding for commercial and governmental contracts.
In marketing its commercial seating and inflatable restraint products,
the Company endeavors to maintain close relationships with existing customers
and to establish new customer relationships. Ongoing relationships and repeat
customers are an important source of business for the Company's current and new
products. For example, the Company believes that its aircraft seat refurbishment
customers are excellent prospects for its new aircraft seats. Similarly, the
Company will rely in part on forming strategic alliances to gain the established
marketing capabilities of first tier component suppliers in connection with the
distribution of the Company's automobile inflatable restraint systems.
The Company's marketing and sales activities in the government sector
focus primarily upon identifying research and development and other contract
opportunities with various agencies of the United States government or with
others acting as prime contractors on government projects. Key members of the
Company's engineering, contracts, and project management staffs maintain close
working relationships with representatives of the United States armed forces and
their prime contractors. Through these relationships, the Company monitors
needs, trends, and opportunities within current or potential military product
lines.
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Approximately 25% of the Company's total revenue in 1997 resulted from
products sold internationally. The Company anticipates that its international
sales will continue to grow. The initial customer of the ITS is Autoliv, a
European first tier automobile supplier that is supplying to BMW. The Company
believes that there are opportunities for additional sales of the ITS, and
commercial aircraft and rail seating systems in foreign markets and is
conducting marketing efforts internationally. Countries in which the Company is
actively marketing include Germany, Canada, Italy, the United Kingdom, Ireland,
Japan, India, Korea, Australia, Canada, and China.
CUSTOMERS
Sales of the Company's products to all branches of the United States
armed forces represented approximately 15%, 27% and 18% of the Company's revenue
in 1997, 1996 and 1995, respectively. Sales of 16g Seats and refurbishment to
Continental Airlines accounted for approximately 16% of the Company's revenue in
1997. No other customers accounted for more than 10% of the Company's revenue
during 1997, 1996 and 1995. The Company has performed work for the United States
armed forces since 1975 and has no reason to believe that there will be any
change in these customer relationships. The Company anticipates that it will
fulfill current delivery requirements to Continental Airlines in early 1998 and
it will not represent as significant of a customer in 1998 and following years.
The Company believes that in the ordinary course of its airline seating
business, the programs with Continental Airlines will be replaced by programs
with other customers.
The Company's historical and acquired businesses have relied to a great
extent on relatively few major customers, although the mix of major customers
has varied from year to year depending on the status of then existing contracts.
The Company believes that historical customers, such as the United States Army
and other branches of the United States armed forces and their prime
contractors, to which the Company has supplied products for over 20 years, will
continue to represent major customers although the percentage of the Company's
revenue attributable to them can be expected to decrease as a result of the
Company's expanding commercial operations. The loss of or reduction in sales to
a major customer may have a more adverse effect on the Company's operations or
financial condition than if the Company's revenue was less concentrated by
customer.
COMPETITION
Based on internal estimates, the Company believes that in two years of
production it has attained a 5% share of the worldwide commercial airline
seating market. See, "Overview of Markets and Industries."
Based on internal market surveys and data, the Company believes that it
is the largest supplier of rail and mass transit seating systems in North
America, with an approximate 70% market share. The Company has four principal
competitors in the North American rail and mass transit seating market,
comprising in the aggregate 20% to 30% of such market. See, "Overview of Markets
and Industries."
Based on internal market surveys and data, the Company believes that it
is the largest worldwide supplier of seating systems for military helicopters.
Numerous suppliers compete for government defense contracts as prime contractors
or subcontractors. Competition relates primarily to technical know-how, cost,
and marketing efforts. The competition for government contracts relates
primarily to the award of contracts for the development of proposed products
rather than for the supply of products that have been developed under contracts.
The Company's principal competitors in the crashworthy military seating market
are Martin Baker (England) and Israel Aircraft Industries, Ltd. The Company does
not have financial or market share data concerning these two competitors.
The worldwide automobile airbag market is currently dominated by a
number of large suppliers, all of which are producing airbag systems in
commercial quantities. The market served by the Company's inflatable restraint
systems is intensely competitive. As a result of the proprietary nature of the
Company's ITS and related technologies, the Company has entered into strategic
alliances with a number of the largest suppliers of conventional automotive
airbags, including Delphi, Autoliv, and others, to market and produce the
Company's products. The Company does not intend to compete as a first tier
supplier of a broad range of safety devices. See, "Overview of Markets and
Industries."
Most of the Company's competitors have greater marketing capabilities
and financial resources than the Company. The Company's present or future
products could be rendered obsolete by technological advances by one or more of
its competitors or by future entrants into its markets.
8
<PAGE> 10
RAW MATERIALS AND SUPPLIES
The Company purchases raw materials, components, devices, and
subassemblies from a wide variety of sources. Principal raw materials used by
the Company include plastics, urethanes, ceramics, Kevlar, aluminum, steel,
airbag materials, hoses, woven materials, upholstery and fabric products, and
foam. Components include restraints and related hardware, harnesses, and gas
generators for inflatable restraint products. The Company generally purchases
supplies and components pursuant to individual or blanket purchase orders.
Blanket purchase orders usually provide for the purchase of a large amount of
items at fixed prices for delivery and payment on specific dates. Most of the
raw materials used by the Company are widely available. Certain components
utilized in the 16g Seat have been subject to vendor delays or vendor quality
problems. 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.
BACKLOG
The Company's backlog at December 31, 1997 and 1996 was approximately
$104 million and $63 million, respectively. The backlog at December 31, 1997 and
1996 consisted of approximately $51 million and $17 million, respectively, under
defense contracts and approximately $53 million and $46 million, respectively,
with commercial customers.
The backlog includes contracts for major current products as well as
for supplies and replacement components. In the case of government contracts,
backlog consists of aggregate contract values for firm product orders, exclusive
of the portion previously included in operating revenue utilizing the percentage
completion accounting method. All orders included in the backlog are believed to
be firm and are expected to be filled over the next 5 years.
EMPLOYEES
The Company has approximately 1,000 full-time employees at its
locations in Arizona, California, Illinois, New York, North Carolina, Georgia,
Wisconsin, and Ashington, England. The Company believes that its continued
success depends on its ability to attract and retain highly qualified personnel.
In connection with its 1994 acquisition of Coach and Car, the Company
executed a collective bargaining agreement with the United Electrical Workers.
That agreement is effective through August 1998. Negotiations on the new
contract are expected to commence in Summer 1998. The Company's other employees
are not represented by a labor union, and the Company has no knowledge of any
organizing activities. The Company has never suffered a work stoppage and
considers its relations with employees to be excellent.
ENVIRONMENTAL REGULATIONS
The Company's operations are subject to a variety of federal, state,
and local environmental regulations, including laws regulating air and water
quality and hazardous materials and regulations implementing those laws. The
Company's principal environmental focus is the handling and disposal of paints,
solvents, and related materials in connection with product finishes, welding,
and composite fabrication. The Company contracts with qualified waste disposal
companies for services. The Company regards its business as being subject to
customary environmental regulations, but does not believe it faces unique or
special problems. The cost to the Company of complying with environmental
regulations is not significant.
ITEM 2. PROPERTIES
The Company's corporate headquarters are located in Phoenix, Arizona.
The Company conducts operations in seven U.S. states and in the United Kingdom.
Manufacturing facilities are located in Tempe, Arizona; San Diego, California;
Elk Grove Village, Illinois; Milwaukee, Wisconsin; Atlanta, Georgia and
Ashington, England. In addition, the Company maintains extensive research and
development labs and testing facilities in Phoenix. The Company leases most of
its facilities.
9
<PAGE> 11
Management believes that its facilities are suitable and adequate for
their various purposes. It is presently anticipated that some operations in
Tempe, San Diego and Milwaukee will be relocated in 1998 and 1999 within their
local areas to facilities providing room for expansion and providing additional
production efficiencies.
ITEM 3. LEGAL PROCEEDINGS
In February 1998 the Company filed a complaint in United States
District Court for the District of Arizona against Autoliv, Inc., seeking
injunctive relief from alleged anti-competitive acts and practices by Autoliv.
The complaint alleges numerous unlawful actions taken by Autoliv in connection
with a license from the Company to market and distribute the Company's ITS. The
legal action asserts that Autoliv has suppressed technology and is unlawfully
interfering with the Company's rights to market the ITS and related products to
other first tier automotive safety equipment suppliers and to automobile
manufacturers. The Company is unable to predict at the present time what, if
any, material impact this lawsuit might have on the Company.
In addition, the Company is involved in other litigation in the
ordinary course of business from time to time. The Company presently is not a
party to any threatened or pending litigation, the negative outcome of which
would be material to the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted during the fourth quarter of fiscal 1997 to a
vote of security holders, through the solicitation of proxies, or otherwise.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's Common Stock is listed on the New York Stock Exchange
under the symbol "SMU." The following table sets forth the high and low closing
prices of the Company's Common Stock for each calendar quarter of the year
indicated.
<TABLE>
<CAPTION>
1996:
<S> <C> <C>
First Quarter........................................................ $19.25 $12.75
Second Quarter....................................................... 20.63 15.88
Third Quarter........................................................ 18.38 15.75
Fourth Quarter....................................................... 15.88 13.00
1997:
First Quarter........................................................ $18.38 $13.63
Second Quarter....................................................... 20.00 14.00
Third Quarter........................................................ 24.56 18.94
Fourth Quarter....................................................... 19.88 14.31
1998:
First Quarter........................................................ $17.13 $13.50
</TABLE>
The number of holders of the Common Stock of the Company, including
beneficial holders of shares held in street name, as of the close of business on
March 26, 1998, is estimated to be greater than 2,000. On March 26, 1998, the
closing price of the Common Stock was $15.56 per share.
10
<PAGE> 12
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The Selected Consolidated Financial Data presented below has been
derived from historical audited consolidated financial statements of the Company
for each of the five years in the period ended December 31, 1997. The following
data should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Company's Consolidated
Financial Statements and the Notes thereto.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenue $ 90,422 $ 65,762 $ 59,089 $ 41,158 $ 24,781
Cost of revenue 69,862 55,239 39,037 27,709 15,728
-------- -------- -------- -------- --------
Gross margin 20,560 10,523 20,052 13,449 9,053
Administrative expenses 22,584 19,749 15,609 8,265 6,388
-------- -------- -------- -------- --------
Operating (loss) income (2,024) (9,226) 4,443 5,184 2,665
Interest expense (5,390) (2,377) (2,030) (1,832) (800)
Interest income 313 52 440 22
Other 1,298
-------- -------- -------- -------- --------
(Loss) income before taxes (5,803) (11,551) 2,853 3,374 1,865
Income tax benefit (expense) 2,264 4,741 (196) (1,260) (744)
-------- -------- -------- -------- --------
(Loss) earnings before cumulative effect
of change in accounting principle (1) (3,539) (6,810) 2,657 2,114 1,121
Cumulative effect of change in
accounting principle (1) -- (3,240)
-------- -------- -------- -------- --------
Net (loss) earnings (1) $ (3,539) $(10,050) $ 2,657 $ 2,114 $ 1,121
======== ======== ======== ======== ========
PER SHARE AMOUNTS (2):
Earnings per common share - basic:
(Loss) earnings before accounting change $ (0.38) $ (0.76) $ 0.33 $ 0.39 $ 0.22
Cumulative effect of accounting change (0.36)
-------- -------- -------- -------- --------
Net (loss) earnings $ (0.38) $ (1.12) $ 0.33 $ 0.39 $ 0.22
======== ======== ======== ======== ========
Earnings per common share - assuming dilution:
(Loss) earnings before accounting change $ (0.38) $ (0.76) $ 0.31 $ 0.37 $ 0.22
Cumulative effect of accounting change (0.36)
-------- -------- -------- -------- --------
Net (loss) earnings $ (0.38) $ (1.12) $ 0.31 $ 0.37 $ 0.22
======== ======== ======== ======== ========
PRO FORMA AMOUNTS (1) (2):
Net earnings $ 194 $ 1,675 $ 947
======== ======== ========
Earnings per share - basic $ 0.02 $ 0.31 $ 0.19
======== ======== ========
Earnings per share - assuming dilution $ 0.02 $ 0.29 $ 0.19
======== ======== ========
OTHER DATA:
Research and development
Funded by the Company $ 4,394 $ 1,916 $ 1,419 $ 688 $ 376
Costs incurred on funded contracts $ 7,382 $ 8,588 $ 4,722 $ 3,165 $ 1,813
</TABLE>
11
<PAGE> 13
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Assets:
Current assets $ 76,303 $48,010 $36,857 $20,594 $13,779
Property and equipment 24,854 23,356 15,779 13,199 7,803
Deferred costs 3,137 929 6,385 1,460 1,460
Intangibles 10,526 10,964 11,455 12,164 3,517
Other 5,458 3,429 2,660 274 228
-------- ------- ------- ------- -------
Total assets $120,278 $86,688 $73,136 $47,691 $26,787
======== ======= ======= ======= =======
Liabilities:
Current liabilities $ 27,648 $24,804 $15,788 $15,358 $ 5,570
Long-term debt 46,988 24,697 11,261 15,339 12,794
Other 345 345
-------- ------- ------- ------- -------
Total liabilities 74,636 49,501 27,049 31,042 18,709
Shareholders' equity (3) 45,642 37,187 46,087 16,649 8,078
-------- ------- ------- ------- -------
Total liabilities and shareholders' equity $120,278 $86,688 $73,136 $47,691 $26,787
======== ======= ======= ======= =======
</TABLE>
(1) During 1996, the Company adopted a new method of accounting for
pre-contract costs. These costs were previously deferred and recovered
over the revenue streams from the Company's customers. Effective
January 1, 1996, these costs have been expensed. Pro forma amounts for
1995, 1994 and 1993 assume the new accounting method is applied
retroactively.
(2) In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, Earnings Per share, ("SFAS No.
128"). Per share amounts previously reported have been restated to
conform with the requirements of SFAS No. 128. SFAS No. 128 requires
the dual presentation of basic and diluted earnings per share and
requires a reconciliation of the numerators and denominators of basic
and diluted earnings per share calculations. See Note 10 of Notes to
Consolidated Financial Statements. Earnings per share amounts for the
years ended December 31, 1997 and 1996 are calculated using only
weighted average outstanding shares of 9,288,416 and 8,947,060,
respectively. Options to purchase common stock and shares to be issued
upon conversion of the 8% Senior Subordinated Convertible Notes and the
Series C 10% Senior Subordinated Convertible Notes totaling 3,896,966
and 1,881,562 for the years ended December 31, 1997 and 1996,
respectively, were not used for computing diluted earnings per share
because the result would be anti-dilutive. Basic earnings per share for
the year ended December 31, 1994 is calculated using weighted average
shares outstanding of 5,461,095 and earnings per share assuming
dilution is calculated including 243,831 additional shares for stock
options and warrants.
(3) The Company has not paid any cash dividends since its April 1992
initial public offering.
12
<PAGE> 14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
GENERAL
The following discussion and analysis provides information that the
Company's management believes is relevant to an assessment and understanding of
the Company's results of operations and financial condition for the three years
ended December 31, 1997 compared to the same periods of the prior years. This
discussion should be read in conjunction with the Consolidated Financial
Statements and the Notes thereto included elsewhere in this Form 10-K.
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 core 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. Utilizing its proprietary safety technology,
the Company has introduced crashworthy systems for a variety of vehicles and
aircraft and various inflatable restraint systems for automobiles including the
Inflatable Tubular Structure ("ITS").
In 1993, management made a strategic decision to enter the commercial
aircraft seating market to bring its proprietary energy-absorbing technologies
to a new industry and take advantage of positive industry trends. To implement
its decision, the Company completed three acquisitions that allowed it to
develop the necessary infrastructure to support future growth. In August 1993,
the Company acquired Airline Interiors, Inc. (the "Airline Acquisition"), which
was primarily involved with the refurbishment, reupholstery, reconditioning, and
reconfiguring of existing passenger seats. The Airline Acquisition provided
certain FAA certifications, enhanced the Company's management team and customer
base, and provided substantial assembly capacity. During 1994, the Company
acquired Coach & Car Equipment Corporation ("Coach and Car") and Artcraft
Industries Corp. ("Artcraft"). The acquisitions of Coach and Car and Artcraft
are collectively referred to as the 1994 Acquisitions. The 1994 Acquisitions'
existing operations included providing a majority of all manufacturing and
refurbishment of rail and mass transit seating systems in North America. The
1994 Acquisitions also provided the Company with substantial large-scale
manufacturing capacity and synergies, which are being utilized in the production
of its 16g Seat for airliners.
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.
Simula's revenue has historically been derived from three sources:
sales of Company manufactured products; contract research and development for
third parties; and, technology sales and royalties. A substantial portion of its
current revenue is accounted for under the percentage of completion method of
accounting. Under this method, revenue is recorded as production progresses so
that revenue less costs incurred to date yields the percentage of gross margin
estimated for each contract. Overall gross margin percentages can increase or
decrease based upon changes in estimated gross margin percentages over the lives
of individual contracts. Note 17 of the Notes to Consolidated Financial
Statements provides a break down of revenues for each significant segment of the
Company. Note 16 of the Notes to Consolidated Financial Statements provides the
revenues and related costs associated with contract research and development for
third parties.
13
<PAGE> 15
The Company is a holding company for wholly owned subsidiaries which
operate in three primary business segments. The Commercial Transportation
Seating segment includes operations which primarily manufacture seating systems
for domestic and foreign passenger airlines, rail and other mass transit. The
Government and Defense segment includes operations that design and manufacture
crash resistant components, energy absorbing devices, ballistic armor and
composites principally in connection with branches of the United States armed
forces procurement. The Automobile Safety Systems segment includes operations
encompassing inflatable restraints and related technology for automobiles. The
remaining segment, entitled Other, represents general corporate operations.
<TABLE>
<CAPTION>
RESULTS OF OPERATIONS YEAR ENDED DECEMBER 31,
1997 1996 1995
---- ---- ----
(Dollars in Thousands)
REVENUE:
<S> <C> <C> <C>
Commercial Transportation Seating $ 51,176 $ 32,603 $29,609
Government and Defense 30,295 32,312 25,533
Automobile Safety Systems 8,880 470
Other 71 377 3,947
-------- -------- -------
Total $ 90,422 $ 65,762 $59,089
======== ======== =======
GROSS MARGIN:
Commercial Transportation Seating $ 5,997 $ 3,740 $ 7,537
Government and Defense 10,767 9,253 9,632
Automobile Safety Systems 3,763 (2,702)
Other 33 232 2,883
-------- -------- -------
Total $ 20,560 $ 10,523 $20,052
======== ======== =======
ADMINISTRATIVE EXPENSES:
Commercial Transportation Seating $ 8,581 $ 10,068 $ 6,885
Government and Defense 10,066 7,897 6,337
Automobile Safety Systems 2,827 158
Other 1,110 1,626 2,387
-------- -------- -------
Total $ 22,584 $ 19,749 $15,609
======== ======== =======
OPERATING (LOSS) INCOME:
Commercial Transportation Seating $ (2,584) $ (6,328) $ 652
Government and Defense 701 1,356 3,295
Automobile Safety Systems 936 (2,860)
Other (1,077) (1,394) 496
-------- -------- -------
Total $ (2,024) $ (9,226) $ 4,443
======== ======== =======
</TABLE>
The following table sets forth, for the periods indicated, the components
of the consolidated statements of income expressed as a percentage of revenues.
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Income Statement Data
Revenue 100% 100% 100%
Cost of revenue 77 84 66
Gross margin 23 16 34
Administrative expenses 25 30 26
--- --- ---
Operating (loss) income (2)% (14)% 8%
=== === ===
</TABLE>
14
<PAGE> 16
1997 Compared to 1996
Revenue for the year ended December 31, 1997 increased 37% to $90.4
million from $65.8 million for the comparable period in 1996. Commercial
Transportation Seating revenue increased 57% or $18.6 million principally as a
result of increased deliveries of 16g Seats. Government and Defense revenue
decreased 6% or $2.0 million due to approximately $4.6 million in incremental
revenue in 1996 from a government armor contract which represented non-recurring
business. Excluding this contract from the year ended December 31, 1996,
revenues increased 9% for the 1997 period versus the 1996 period due to a
general increase in ongoing government contracts. Automobile Safety Systems
began volume deliveries of the ITS in 1997 and generated significant revenues
for the first time.
For the year ended December 31, 1997, gross margin increased 95% to
$20.6 million from $10.5 million for the comparable period in 1996. As a percent
of sales, gross margins increased to 23% from 16%. Gross margins for Commercial
Transportation Seating increased 60% or $2.3 million and the gross margin
percentage increased to 12% from 11% in 1996. The increase in gross margins
resulted from the significant increase in deliveries of the 16g Seat and the
increase in gross margin percentage was due primarily to a decrease in
pre-contract and start-up costs. The improvements in gross margin percentage
were offset by cost inefficiencies resulting from the significant increase in
16g Seat deliveries. Production bottlenecks caused by parts shortages, overtime
costs, learning costs related to adding a second production shift and other
production related expenses for the Company's tourist class 16g Seats resulted
in reduced gross margins. In addition, the initial production costs of the
larger than expected volume for Company's new first class 16g Seat were higher
than anticipated. Gross margin percentages of Government and Defense increased
to 36% from 29%. The increase in gross margin percentages at Government and
Defense was primarily due to lower funding deficiencies incurred on research and
development contracts. Gross margins for Automobile Safety Systems increased
$6.5 million and resulted in a gross margin percentage of 42% for the year ended
December 31, 1997. Automobile Safety Systems did not have significant revenue in
1996 while incurring significant pre-contract costs related to the ITS and
start-up costs related to its manufacturing facilities in Arizona and the United
Kingdom which did not begin production until 1997.
Administrative expenses for the year ended December 31, 1997 increased
14% to $22.6 million from $19.7 million for the comparable period in 1996. As a
percent of sales, administrative expenses decreased to 25% from 30% due to the
increase in revenue noted above. Internally funded research and development
expenses increased 129% to $4.4 million from $1.9 million. This increase was
primarily attributable to increased Government and Defense and new technology
research, development, bid and proposal costs. The increased research and
development expenses were partially attributable to a delay in certain
Government and Defense production contracts which resulted in production
resources being assigned to available work. Commercial Transportation Seating's
administrative expenses decreased $1.4 million or 15% due primarily to resources
being utilized for production versus sales and administration. Administrative
expenses for Automobile Safety Systems increased in 1997 due 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, and research and development related to expansion of
ITS related technologies. Other administrative expenses decreased 32% or
approximately $516,000, primarily as a result of the elimination or reduction of
the supporting operations for certain technologies.
Interest expense for the year ended December 31, 1997 increased 127% to
$5.4 million from approximately $2.4 million for the comparable period in 1996.
These increases were due to increased borrowings on the Company's bank credit
facilities, the issuance of $34.5 million of the 8% Senior Subordinated
Convertible Notes (the "8% Notes") in April 1997 and the issuance of $14.3
million of the Series C 10% Senior Subordinated Convertible Notes (the "10%
Notes) in September 1996. These borrowings were made to fund its growth in
working capital and fixed assets necessary to support the growth in revenues for
1997 and subsequent years. During the third quarter of 1997, $9,550,000 of the
10% Notes and $475,548 of accrued interest were converted into 679,633 shares of
the Company's common stock. Annual interest expense on the 10% Notes converted
would be approximately $1.1 million.
Interest income for the year ended December 31, 1997, was approximately
$313,000. This income results from the investment by the Company of the excess
proceeds received upon the issuance of the 8% Notes. These excess proceeds have
been invested in high quality government and short-term investment grade,
interest bearing securities.
15
<PAGE> 17
Other income for the year ended December 31, 1997 was $1.3 million and
represented the net gain on various real estate transactions. During 1997, the
Company determined it would be necessary to move the majority of its operations
to accommodate current and anticipated growth. As a result, the Company sold
certain facilities and entered into leases for new facilities for its 16g Seat
and ITS manufacturing operations.
The effective income tax rate for the years ended December 31, 1997 and
1996 approximated the Company's combined statutory rate of 40%.
1996 Compared to 1995
During 1996, the Company adopted a new method of accounting for
pre-contract costs as more fully described in Note 2 of the Notes to
Consolidated Financial Statements. Beginning in 1996, the Company now expenses
these pre-contract costs as incurred rather than deferring these costs to be
amortized over the revenue streams from the Company's customers. This change
resulted in a cumulative catch-up adjustment for the effect of costs capitalized
as of December 31, 1995. The effect of the change on the year ended December 31,
1996 was to increase cost of revenue by $5.3 million, resulting in an increase
in the loss before cumulative effect of a change in accounting principle of $3.2
million ($.36 per share) net of the related income tax benefit. In addition, net
income for the year ended December 31, 1996 was reduced by $3.2 million ($.36
per share) for the cumulative effect on prior years (to December 31, 1995) of
changing accounting for pre-contract costs. Assuming the change in accounting
had been applied retroactively to the year ended December 31, 1995, cost of
revenue would have increased $4.1 million to $43.2 million and gross margins
would have decreased from 34% to 27%.
Revenue for the year ended December 31, 1996 increased 11% to $65.8
million from $59.1 million in 1995. Commercial Transportation Seating revenue
increased 10%, or $3.0 million, primarily as a result of increased deliveries of
the 16g Seats. Government and Defense revenue increased 27%, or $6.8 million as
a result of increased contract activity principally resulting from an armor
contract completed during the second quarter of 1996 and funded research and
development. Automobile Safety Systems revenue in 1996 represented
pre-production sales of the ITS. Other revenue decreased principally as a result
of a reduction of technology sales and royalties which approximated $2.0 million
in 1995.
Gross margin for the year ended December 31, 1996 decreased 48% to
$10.5 million from $20.1 million for 1995. As a percent of sales, gross margin
decreased to 16% from 34%. The effect of expensing pre-contract costs increased
cost of revenue $5.3 million for the year ended December 31, 1996. Excluding the
effect of expensing pre-contract costs, the gross margin percentage for 1996
would have been 24%. The gross margin percentage at Commercial Transportation
Seating decreased to 11% from 25% in 1995. The decrease in gross margin
percentage at Commercial Transportation Seating was primarily due to: 1) The
expensing of pre-contract costs principally related to the 16g Seat, including
the related new "composite" seat back; 2) High material costs related to the low
volume production of the 16g Seat; 3) Reduced throughput at Coach & Car as it
was repositioned to begin high volume manufacturing of 16g Seat components; and
4) Lower individual gross margin percentages from the mix of contracts in
process or completed during the year at Coach & Car and Artcraft. Gross margin
percentages of Government and Defense in 1996 decreased to 29% from 38%. The
decrease in gross margin percentage at Government and Defense was primarily due
to: 1) The expensing of pre-contract costs principally related to the bulkhead
airbag; 2) Funding deficiencies incurred on funded research and development
contracts which typically result in follow-on production contracts in future
years; and 3) A decrease in royalties. The negative gross margins for Automobile
Safety Systems was primarily due to the expensing of pre-contract costs for the
ITS and start-up costs related to the production facilities in Arizona and the
United Kingdom which did not begin production until 1997. Other gross margins
decreased principally as a result of a reduction of technology sales and
royalties which approximated $2.0 million in 1995.
Administrative expenses for the year ended December 31, 1996 increased
27% to $19.7 million from $15.6 million for 1995. As a percent of sales,
administrative expenses increased to 30% from 26%. Internally funded research
and development expenses increased 35% to $1.9 million from $1.4 million as a
result of the Company's increased investment in several products and
developmental subsidiaries that are expected to begin generating revenue
subsequent to 1996. Commercial Transportation Seating's administrative expenses
increased 46% or $3.2 million, primarily as a result of the corporate and sales
infrastructure necessary to support the anticipated increase in activity related
to the 16g Seat. Government and Defense administrative expenses increased 25% or
$1.6 million
16
<PAGE> 18
primarily as a result of increased activity and increased research and
development. Other administrative expenses decreased 32% or approximately
$761,000, primarily as a result of the elimination or reduction of the
supporting operations for certain technologies.
For the year ended December 31, 1996, the Company incurred an operating
loss of $9.2 million compared to operating income of $4.4 million in 1995. The
reduction in operating income resulted primarily from the reduction in gross
margins and increased administrative expenses noted above. Excluding the effect
of expensing pre-contract costs during 1996, the operating loss would have been
$3.9 million. This loss is primarily due to the start-up costs of the ITS
manufacturing facilities in Arizona and the United Kingdom and 16g Seat
manufacturing facilities in San Diego, California and Chicago, Illinois, losses
arising from research and development contracts for which the Company
anticipates profitable follow-on contracts, increased research and development
and the expenses of the administrative and sales infrastructure that will be
necessary in 1997 to support manufacturing and the generation of sales of the
ITS and 16g Seat.
Interest expense for the year ended December 31, 1996 increased 17% to
$2.4 million from $2.0 million in 1995. This increase is due to increased
borrowings on the Company's bank credit facilities and the issuance of $14.3
million of the 10% Notes in a private placement to accredited investors in
September 1996. These borrowings were made to fund the growth in working capital
and fixed assets necessary to support the anticipated growth in revenues in
1997.
The effective income tax rate approximated the statutory rate of 40% in
1996. For 1995, the effective income tax rate was disproportionate at 7%
primarily due to the realization of tax attributes of an acquired subsidiary.
The effects of the tax attributes of this acquired subsidiary were substantially
recognized in 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically financed its operations through operating
cash flow, lines of credit and debt and equity offerings. In August 1993, the
Company began to acquire companies, primarily with borrowed funds. The Company
issued $5.7 million of 12% Senior Subordinated Notes (the "12% Notes") in
connection with the acquisition of Airline Interiors in August 1993. In 1994,
the Company issued approximately $6.5 million of 9% Senior Subordinated
Convertible Notes (the "9% Notes") in connection with the acquisition of Coach
and Car. The 9% Notes were converted into Common Stock during 1994. The Company
issued Common Stock and assumed a bank line of credit of $1.7 million, of which
$650,000 was repaid simultaneously with the closing, in connection with the
acquisition of Artcraft in September 1994. But for the acquisitions, the Company
would have been able to satisfy its financial needs through operating cash flow.
These acquisitions resulted in substantially increased working capital needs to
fund the large vendor payable balances, contract advances of Coach and Car
existing at the date of acquisition, and the increase in receivables and
inventories of all the acquired companies after the respective dates of
acquisition.
The Company completed a public offering of Common Stock, which closed
and funded in April 1995. As a result of this offering, 2,328,750 shares were
sold by the Company at $12 per share. Approximately $8.2 million of indebtedness
was repaid at that time.
In September 1996, the Company issued $14.3 million of the 10% Notes in
a private placement to accredited investors. During 1997, $9,550,000 of the 10%
Notes and $475,548 of accrued interest were converted into 679,633 shares of the
Company's common stock. The 10% Notes outstanding at December 31, 1997 bear
interest at 10% payable semi-annually and are due in September 1999. These
remaining 10% Notes are convertible into approximately 280,000 shares of the
Company's common stock. The Company has the right to call the remaining 10%
Notes at par plus accrued interest. The Indenture relating to the 10% Notes and
the 12% Notes contains certain covenants including limitations on sale of assets
and transactions with affiliates. The Company was in compliance with all of the
covenants of this indenture at December 31, 1997.
During the second quarter of 1997, the Company completed the public
offering of $34.5 million of the 8% Notes. The 8% Notes are due May 1, 2004 and
bear interest at 8% per annum, payable semi-annually. The 8% Notes are
convertible into shares of the Company's common stock at a price of $17.55 per
share of common stock. The 8% Notes may be redeemed at the Company's option in
whole or in part on a pro rata basis, on and after May 1, 1999, at certain
specified redemption prices plus accrued interest payable to the redemption
date. However, on or after May 1,
17
<PAGE> 19
1999 and prior to April 30, 2000, the 8% Notes will not be redeemable unless the
closing price of the Company's common stock has equaled or exceeded $23.625 for
20 trading days within a period of 30 consecutive trading days. The indenture
relating to the 8% Notes contains certain covenants including limitations on the
incurrence of additional indebtedness, the sale of assets, liens securing
indebtedness other than senior indebtedness, payment restrictions affecting
subsidiaries, transactions with affiliates, future senior subordinated
indebtedness and mergers and consolidations. In accordance with the indenture,
the Company may incur indebtedness under senior credit facilities up to $50
million and may incur other indebtedness based upon a specified ratio of cash
flow, as defined, to interest expense.
During 1997 and 1996, the Company entered into modifications of its
existing loan agreement with Wells Fargo Bank, N.A. These modifications have
provided for an increase in the existing revolving line of credit to $20 million
and $5 million for equipment purchases. The modified agreement contains a
covenant that limits the Company's ability to incur additional indebtedness.
Specifically, the modified agreement allows the Company to incur up to $65
million of subordinated debt, a foreign loan facility of $5.0 million, computer
equipment financing and certain refinancing indebtedness. In addition, the
modified agreement contains certain covenants that require the maintenance of
various financial ratios, including minimum tangible net worth, as defined, of
$65 million, a maximum leverage ratio, a minimum current ratio of 1.5 to 1 and a
minimum debt coverage ratio. The Company was in compliance with all covenants at
December 31, 1997.
The Company's liquidity is greatly impacted by the nature of the
billing provisions under its contracts. Generally, in the early period of
contracts, cash expenditures and accrued profits are greater than allowed
billings while contract completion results in billing previously unbilled costs
and profits. Contract receivables, net of contract advances, increased $1.6
million for the year ended December 31, 1997 principally due to the timing of
work performed and the billing provisions of the related contracts. In addition,
trade receivables increased $6.2 million for the year ended December 31, 1997
due to increased sales of the 16g Seat and the ITS.
Operating activities required the use of $15.2 million of cash during
the year ended December 31, 1997, compared to the use of $15.6 million of cash
during the same period in 1996. Cash used by operating activities in 1997 was
primarily used to fund an increase in inventories of $11.9 million and the
increase in contract and trade receivables noted above. The increase in
inventories was primarily related to the 16g Seat and ITS and represents the
buildup necessary to support current and anticipated future deliveries. This
buildup includes increases in purchased components and raw materials to be used
in manufacturing and assembly processes for the ITS and 16g Seat, raw materials
to be used in the manufacture of 16g Seat components by Coach and Car and
composite seat backs produced by the Company's subsidiary, Viatech.
Investing activities required the use of $3.6 million of cash during
the year ended December 31, 1997. Approximately $9.2 million was used for the
purchase of manufacturing equipment for the ITS located at the Company's
operation in Arizona and the United Kingdom, a new facility for the manufacture
of parachutes in North Carolina, computer hardware and software for system
upgrades throughout all of its subsidiaries and tooling fixtures for future rail
programs and certain enhancements to its 16g Seat machining cell at Coach and
Car. The use of cash for equipment purchases was partially offset by $6.1
million of proceeds received from the sale of property.
Financing activities provided $26.8 million of cash during the year
ended December 31, 1997 principally from approximately $31.2 million in net
proceeds received from the issuance of the 8% Notes and $2.1 million in proceeds
from the issuance of common stock for option exercises offset by the net
repayment of $6.9 million under the Company's revolving line of credit. In
addition, the Company incurred $4.9 million of additional borrowings during 1997
principally to fund property and equipment purchases and repaid $4.5 million
under other debt arrangements resulting from scheduled maturities and the sale
of certain properties.
Included in current portion of long-term debt are 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.
The Company believes it has sufficient manufacturing capacity, at
December 31, 1997, to meet its anticipated future delivery requirements. The
Company anticipates cash on hand, cash provided by operating activities and the
availability under its bank credit facilities will be sufficient to meet its
current and foreseeable working capital
18
<PAGE> 20
requirements. The Company may, however, seek to obtain additional capital should
demand for its products exceed current capacity. The raising of capital in
public markets will be primarily dependent upon prevailing market conditions and
the demand for the Company's products and technologies.
INFLATION
The Company does not believe that it is significantly impacted by
inflation.
RESEARCH AND DEVELOPMENT
The Company's research and development occurs primarily under
fixed-price, government-funded contracts as well as Company-sponsored efforts.
The revenue received under government-funded contracts is recorded under the
percentage completion method of accounting, and the costs of independent
research and development efforts are expensed as incurred.
Historically, research and development efforts have fluctuated based
upon available government-funded contracts. The Company anticipates that future
fluctuations may also occur and that absent government funded research, the
Company will directly fund research and development efforts to expand its
inflatable restraint, commercial airliner seating, and rail seating
technologies. As noted in Note 16 to the Consolidated Financial Statements, the
Company's costs for research and development to advance its technologies were
$11.8 million in 1997, of which $4.4 million was internally funded.
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 December 31, 1997, the
Company has three subsidiaries using systems affected by the Year 2000 Issue.
The new systems will 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.
FORWARD LOOKING INFORMATION AND TRENDS AND UNCERTAINTIES IN 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 and anticipates continued growth in 1998
and 1999. During this period, the other core businesses of the Company are
expected to remain at current revenue levels. 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.
In 1997, 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 will focus on further broadening it vendor base and
reliability.
19
<PAGE> 21
In 1997, one customer, Continental Airlines, accounted for 16% of the
Company's revenue. The Company anticipates that it will fulfill current delivery
requirements to Continental Airlines in early 1998 and it will not represent as
significant of a customer in 1998 and following years. The Company believes that
in the ordinary course of its airline seating business, the programs with
Continental Airlines will be replaced by programs with other customers. Because
of the significant growth in its airline seat business, management believes that
in 1998, the Company can focus on broadening its customer base and scheduling
production slots across a wider range of customers.
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. In addition to
the factors described above, the other factors include manufacturing capacity
and yield; costs of labor, raw materials, supplies, and equipment; reliability
of vendor base; contract mix and shifting production and delivery schedules
among the Company's three business segments; 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
airline, rail and automobile industries and other markets addressed by the
Company's products; the level and makeup of military expenditures; technological
changes; competition and competitive pressures on pricing; and economic
conditions in the United States and worldwide markets served by the Company. The
Company's products are incorporated into a variety of transportation vehicles. A
slowdown in demand for new transportation vehicles or modifications services to
transportation vehicles as a result of economic or other conditions in the
United States or worldwide markets served by the Company and its customers or
other broad-based factors could adversely affect the Company's operating results
or financial condition.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data are set forth in this
report on Form 10-K commencing on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
In accordance with Instruction G(3) to Form 10-K, Items 10, 11, 12 and
13 of Form 10-K are incorporated herein by reference from the Company's
definitive proxy statement to be filed pursuant to Regulation 14A under the
Securities Exchange Act of 1934.
20
<PAGE> 22
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
a. Financial Statements. Financial Statements appear beginning at
page F-1.
b. Reports on Form 8-K. None.
c. Exhibits. The following Exhibits are included pursuant to Item
601 of Regulation S-K.
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...................................................................... (1)
10.12 1992 Restricted Stock Plan.................................................................. (1)
10.21 1994 Stock Option Plan...................................................................... (3)
10.24 Amended Loan Agreement with Wells Fargo Bank, N.A. dated December 20, 1996................. (6)
10.26 Simula, Inc. Employee Stock Purchase Plan................................................... (4)
10.29 Form of Change of Control Agreements, between the Company and Donald W. Townsend, Bradley
P. Forst, Sean K. Nolen, James A. Saunders, and Randall L. Taylor .......................... (6)
*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
18. Preference Letter re: change in accounting principles....................................... (5)
*21. Subsidiaries of the Company
*24. Powers of Attorney - Directors.............................................................. (6)
*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.
(b) No reports on Form 8-K have been filed during the reporting period.
21
<PAGE> 23
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) the Securities
Exchange Act of 1934, as amended, the registrant has duly caused this Report on
Form 10-K to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of Phoenix, State of Arizona, on March 26, 1998.
SIMULA, INC.
By /s/ Donald W. Townsend
--------------------------------------
Donald W. Townsend, President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Form 10K has been signed by the following persons in the capacities and on
the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Donald W. Townsend President and Director March 26, 1998
- -------------------------------------------- (Principal Executive Officer)
Donald W. Townsend
/s/ Sean K. Nolen Vice President, Chief Financial March 26, 1998
- -------------------------------------------- Officer, Treasurer and Director
Sean K. Nolen (Principal Financial and
Accounting Officer)
/s/ Bradley P. Forst Vice President, General Counsel, March 26, 1998
- --------------------------------------------- Secretary and Director
Bradley P. Forst
* Chairman of the Board of Directors March 26, 1998
- --------------------------------------------
Stanley P. Desjardins
* Director March 26, 1998
- --------------------------------------------
James C. Withers
* Director March 26, 1998
- --------------------------------------------
Robert D. Olliver
* Director March 26, 1998
- --------------------------------------------
Scott E. Miller
* Director March 26, 1998
- --------------------------------------------
John M. Leinonen
</TABLE>
*By: /s/ Bradley P. Forst
---------------------------------------
Bradley P. Forst
Attorney-in-Fact
22
<PAGE> 24
SIMULA, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
Independent Auditors' Report.........................................................................F-3
Consolidated Balance Sheets as of December 31, 1997 and 1996.........................................F-4
Consolidated Statements of Operations for the three years ended December 31, 1997....................F-5
Consolidated Statements of Shareholders' Equity for the three years ended December 31, 1997..........F-6
Consolidated Statements of Cash Flows for the three years ended December 31, 1997....................F-7 to F-8
Notes to Consolidated Financial Statements...........................................................F-9 to F-20
</TABLE>
F-1
<PAGE> 25
SIMULA, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995, AND
INDEPENDENT AUDITORS' REPORT
F-2
<PAGE> 26
INDEPENDENT AUDITORS' REPORT
Directors and Shareholders
Simula, Inc. and Subsidiaries
Phoenix, Arizona
We have audited the accompanying consolidated balance sheets of Simula, Inc. and
subsidiaries (the "Company") as of December 31, 1997 and 1996, and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the three years in the period ended December 31, 1997. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Simula, Inc. and subsidiaries at
December 31, 1997 and 1996, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1997 in
conformity with generally accepted accounting principles.
As discussed in Note 2, during 1996, the Company changed its method of
accounting for pre-contract costs.
Deloitte & Touche LLP
March 13, 1998
Phoenix, Arizona
F-3
<PAGE> 27
SIMULA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 9,367,031 $ 1,298,741
Contract and trade receivables - Net 34,025,485 25,164,350
Inventories 27,506,094 15,644,157
Income taxes receivable 146,899 1,089,564
Deferred income taxes 3,763,000 3,763,000
Prepaid expenses and other 1,494,182 1,050,215
------------- ------------
Total current assets 76,302,691 48,010,027
PROPERTY, EQUIPMENT and LEASEHOLD IMPROVEMENTS - Net 24,854,227 23,356,025
DEFERRED INCOME TAXES 4,477,000 1,782,000
DEFERRED FINANCING COSTS 3,136,898 928,728
INTANGIBLES - Net 10,525,533 10,964,139
OTHER ASSETS 981,827 1,647,537
------------- ------------
TOTAL $ 120,278,176 $ 86,688,456
============= ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Revolving line of credit $ 6,900,000
Trade accounts payable $ 12,007,287 9,200,214
Other accrued liabilities 6,380,273 4,019,534
Advances on contracts 1,163,109 148,194
Current portion of long-term debt 8,097,242 4,536,508
------------- ------------
Total current liabilities 27,647,911 24,804,450
LONG-TERM DEBT - Less current portion 46,987,859 24,696,509
------------- ------------
Total liabilities 74,635,770 49,500,959
COMMITMENTS AND CONTINGENCIES (Note 13)
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 and outstanding, 9,850,832 and 8,992,598 shares 98,508 89,926
Additional paid-in capital 51,109,830 39,031,453
Retained deficit (5,505,822) (1,966,296)
Currency translation adjustment (60,110) 32,414
------------- ------------
Total shareholders' equity 45,642,406 37,187,497
------------- ------------
TOTAL $ 120,278,176 $ 86,688,456
============= ============
</TABLE>
See notes to consolidated financial statements
F-4
<PAGE> 28
SIMULA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE YEARS ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Revenue $ 90,421,984 $ 65,761,957 $ 59,088,613
Cost of revenue 69,861,625 55,239,176 39,036,471
---------- ---------- ----------
Gross margin 20,560,359 10,522,781 20,052,142
Administrative expenses 22,584,690 19,748,851 15,609,005
---------- ---------- ----------
Operating (loss) income (2,024,331) (9,226,070) 4,443,137
Interest expense (5,390,339) (2,376,607) (2,029,854)
Interest income 313,118 51,711 440,076
Other income 1,298,026
--------- ----------- ----------
(Loss) income before taxes (5,803,526) (11,550,966) 2,853,359
Income tax benefit (expense) 2,264,000 4,741,000 (196,000)
--------- --------- --------
(Loss) earnings before cumulative effect of a change in
accounting principle (3,539,526) (6,809,966) 2,657,359
Cumulative effect on prior years (to December 31, 1995)
of changing accounting for pre-contract costs - Net
of the related income tax benefit of $2,160,000 (3,239,948)
------------ ------------ ------------
Net (loss) earnings $ (3,539,526) $(10,049,914) $ 2,657,359
============ ============ ============
(Loss) earnings per common share - basic:
(Loss) earnings before accounting change $ (0.38) $ (0.76) $ 0.33
Cumulative effect of a change in accounting principle (0.36)
----------- ------------ ------------
Net (loss) earnings $ (0.38) $ (1.12) $ 0.33
=========== ============ ============
(Loss) earnings per common share - assuming dilution :
(Loss) earnings before accounting change $ (0.38) $ (0.76) $ 0.31
Cumulative effect of a change in accounting principle (0.36)
----------- ------------ ------------
Net (loss) earnings $ (0.38) $ (1.12) $ 0.31
=========== ============ ============
</TABLE>
See notes to consolidated financial statements
F-5
<PAGE> 29
SIMULA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
THREE YEARS ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
Additional Retained
Common Stock Paid-In (Deficit)
------------------------------
Shares Amount Capital Earnings
--------------- ------------- --------------------- ---------------------
<S> <C> <C> <C> <C>
BALANCE, January 1, 1995 6,468,845 $ 64,688 $ 11,226,503 $ 5,638,075
Net earnings 2,657,359
Offering of common shares 2,328,750 23,288 25,544,534
Issuance of common shares 173,032 1,730 847,256
Tax benefit from option exercises 363,466
------------ ------------ ------------ ------------
BALANCE, December 31, 1995 8,970,627 89,706 37,981,759 8,295,434
Net loss (10,049,914)
Issuance of common shares 104,471 1,045 953,891
Tax benefit from option exercises 163,000
Currency translation adjustment
Retirement of treasury stock (82,500) (825) (67,197) (211,816)
------------ ------------ ------------ ------------
BALANCE, December 31, 1996 8,992,598 89,926 39,031,453 (1,966,296)
Net loss (3,539,526)
Conversion of Series C 10% Senior
Subordinated Convertible Notes 679,633 6,796 9,586,245
Issuance of common shares 178,601 1,786 2,059,132
Tax benefit from option exercises 433,000
Currency translation adjustment
------------ ------------ ------------ ------------
BALANCE, December 31, 1997 9,850,832 $ 98,508 $ 51,109,830 $ (5,505,822)
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Currency Total
Translation Treasury Shareholders'
Adjustment Stock Equity
--------------- ---------------- ------------------
<S> <C> <C> <C>
BALANCE, January 1, 1995 $(279,838) $ 16,649,428
Net earnings 2,657,359
Offering of common shares 25,567,822
Issuance of common shares 848,986
Tax benefit from option exercises 363,466
--------- ------------ -----------
BALANCE, December 31, 1995 -- (279,838) 46,087,061
Net loss (10,049,914)
Issuance of common shares 954,936
Tax benefit from option exercises 163,000
Currency translation adjustment $ 32,414 32,414
Retirement of treasury stock 279,838 --
--------- ------------ -----------
BALANCE, December 31, 1996 32,414 -- 37,187,497
Net loss (3,539,526)
Conversion of Series C 10% Senior
Subordinated Convertible Notes 9,593,041
Issuance of common shares 2,060,918
Tax benefit from option exercises 433,000
Currency translation adjustment (92,524) (92,524)
========= ============ ===========
BALANCE, December 31, 1997 $ (60,110) $ -- $45,642,406
========= ============ ===========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE> 30
SIMULA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE YEARS ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Cash flows used for operating activities:
Net (loss) earnings $ (3,539,526) $(10,049,914) $ 2,657,359
Adjustments to reconcile net (loss) earnings to net
cash used by operating activities:
Depreciation and amortization 4,890,913 3,278,433 3,064,833
Deferred income taxes (2,262,000) (4,578,000) (1,126,000)
Currency translation adjustment (92,524) 32,414
Cumulative effect of change in accounting 5,399,948
Gain on sale of property (1,298,026)
Changes in net assets and liabilities:
Contract and trade receivables, net of advances (7,846,220) (4,121,935) (12,859,956)
Inventories (11,876,353) (7,042,562) (1,372,151)
Income taxes receivable 942,665 (1,089,564)
Prepaid expenses and other 219,033 (287,379) (363,817)
Deferred costs (5,572,295)
Other assets 665,710 168,598 (1,089,933)
Trade accounts payable 2,807,073 1,316,073 1,769,254
Other accrued liabilities 2,236,287 1,411,685 378,526
------------ ------------ ------------
Net cash used by operating activities (15,152,968) (15,562,203) (14,514,180)
------------ ------------ ------------
Cash flows used for investing activities:
Purchase of property and equipment (9,175,513) (8,770,586) (3,843,133)
Proceeds from sale of property and equipment 6,100,000 743,671
Costs incurred to obtain intangibles (503,996) (522,909) (342,528)
------------ ------------ ------------
Net cash used by investing activities (3,579,509) (9,293,495) (3,441,990)
------------ ------------ ------------
Cash flows from financing activities:
Net (repayments) borrowings under line of credit (6,900,000) 6,900,000 (3,050,000)
Issuance of 8% notes - net of expenses 31,186,226
Issuance of 10% notes - net of expenses 13,656,500
Borrowings under other debt arrangements 4,915,217 3,153,296 4,407,628
Principle payments under other debt arrangements (4,461,594) (1,685,465) (7,694,271)
Issuance of common shares - net of expenses 2,060,918 954,936 26,416,808
------------ ------------ ------------
Net cash provided by financing activities 26,800,767 22,979,267 20,080,165
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents 8,068,290 (1,876,431) 2,123,995
Cash and cash equivalents at beginning of year 1,298,741 3,175,172 1,051,177
------------ ------------ ------------
Cash and cash equivalents at end of year $ 9,367,031 $ 1,298,741 $ 3,175,172
============ ============ ============
</TABLE>
(Continued)
F-7
<PAGE> 31
SIMULA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
THREE YEARS ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
<S> <C> <C> <C>
Interest paid $3,292,162 $1,657,995 $1,691,712
========== ========== ==========
Taxes paid $ 125,900 $ 352,575 $1,365,826
========== ========== ==========
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Conversion of notes:
Conversion of $9,550,000 Series C 10% Senior
Subordinated Convertible Notes and accrued
interest of $475,548 less deferred note issuance
costs of $432,507 for 679,633 shares of common stock $9,593,041
==========
Property and equipment acquired under capital leases $ 396,411 $ 836,634 $ 924,324
========== ========== ==========
Tax benefits from exercise of stock options $ 433,000 $ 163,000 $ 363,466
========== ========== ==========
Purchase accounting adjustments related to the
acquisition of Coach & Car - Additional liabilities
offset against seller note payable $1,438,000
===========
</TABLE>
See notes to consolidated financial statements.
F-8
<PAGE> 32
SIMULA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1997
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION -- The consolidated financial statements include
the accounts of Simula, Inc. ("Simula") and its subsidiaries (collectively the
"Company"). All of the subsidiaries are wholly owned. All intercompany
transactions are eliminated in consolidation.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- Described below are those
generally accepted accounting principles particularly significant to the
Company, including those selected from acceptable alternatives.
a. Use of Estimates -- The preparation of financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could
differ from those estimates.
b. Revenue related to government contracts and commercial rail
contracts results principally from long-term fixed price
contracts and is recognized on the percentage-of-completion
method calculated utilizing the cost-to-cost approach. The
percent deemed to be complete is calculated by comparing the
costs incurred to date to estimated total costs for each
contract. This method is used because management considers
costs incurred to be the best available measure of progress on
these contracts. However, adjustments to this measurement are
made when management believes that costs incurred materially
exceed effort expended. Contract costs include all direct
material and labor costs, along with certain overhead costs
related to contract production. Provisions for any estimated
total contract losses on uncompleted contracts are recorded in
the period in which it is concluded that such losses will
occur.
Revenue derived from sales of airline and automotive
commercial products is recognized at contractual amounts when
the product is shipped.
c. Inventories include raw materials not yet applied to contracts
and raw materials, work-in-process and finished goods
applicable to commercial products. Inventories are recorded at
cost and are carried at the lower of cost or net realizable
value. Amounts are removed from inventory using the first-in
first-out method.
d. Property, equipment and leasehold improvements are stated at
cost. Amortization of capital leases and leasehold
improvements is calculated on a straight-line basis over the
life of the asset or term of the lease, whichever is shorter.
Depreciation on equipment is calculated on a straight-line
basis over estimated useful lives of three to twelve years and
buildings are depreciated on a straight-line basis over
estimated useful lives of thirty years.
e. Deferred financing costs are amortized over the life of the
related debt using the effective interest method.
f. Intangibles are recorded at cost. The Company acquires
intangible assets in the normal course of business and in
business combinations. The Company periodically reviews for
changes in circumstances to determine whether there are
conditions that indicate that the carrying amount of such
assets may not be recoverable. If such conditions are deemed
to exist, the Company will determine whether estimated future
undiscounted cash flows are less than the carrying amount of
such assets, in which case the Company will calculate an
impairment loss. Impairment losses, if any, will be recorded
as a component of operating earnings. Intangibles are
amortized on a straight-line basis over the following periods:
Goodwill.......................................... 10-25 years
Covenants not to compete.......................... 10 years
Other ............................................ 7-20 years
F-9
<PAGE> 33
g. Foreign currency assets and liabilities are translated into
United States dollars using the exchange rates in effect at
the balance sheet date. The effects of exchange rate
fluctuations on translation of assets and liabilities are
reported as a separate component of shareholders' equity.
h. Statements of Cash Flows - Cash and cash equivalents presented
in the statements of cash flows consist of cash on hand and
highly liquid investments with an original maturity of three
months or less.
i. (Loss) earnings per common share - In 1997, the Financial
Accounting Standards Board (the "FASB") issued Statement of
Financial Accounting Standards No. 128, Earnings Per share,
("SFAS No. 128"). Per share amounts previously reported have
been restated to conform with the requirements of SFAS No.
128. SFAS No. 128 requires the dual presentation of basic and
diluted earnings per share on the face of the income statement
and requires a reconciliation of the numerators and
denominators of basic and diluted earnings per share
calculations. See Note 10 of Notes to Consolidated Financial
Statements.
j. New accounting pronouncements -In June 1997, the FASB issued
SFAS No. 130, Reporting Comprehensive Income, and SFAS No.
131, Disclosures About Segments of an Enterprise and Related
Information. SFAS No. 130 requires that an enterprise (a)
classify items of other comprehensive income by their nature
in a financial statement and (b) display the accumulated
earnings and additional capital in the equity section of a
statement of financial position. SFAS No. 131 establishes
standards for the way that public enterprises report
information about operating segments in annual financial
statements and requires that those enterprises report selected
information about operating segments in interim financial
reports issued to shareholders. It also establishes standards
for disclosures about products and services, geographic area
and major customers. Both statements are effective for fiscal
year 1998. The Company has not completed evaluating the
effects these statements will have on its financial reporting
and disclosures. These statements will have no effect on the
Company's financial position or results of operations.
2. ACCOUNTING CHANGE
During 1996, the Company adopted a new method of accounting for
pre-contract costs. Pre-contract costs represent amounts applicable to products
and technologies which represent adaptations of existing capabilities to the
particular requirements of the Company's customers. These costs were previously
deferred and recovered over the revenue streams from these customers. The
Company will now expense these costs as they are incurred. Due to current
industry trends and anticipated accounting changes, the new policy is considered
preferable to the previous policy. Both policies are currently in accordance
with generally accepted accounting principles.
The $3.2 million cumulative effect of the change on prior years (after
reduction for income taxes of $2.2 million) is included in operations of the
year ended December 31, 1996. The effect of the change on the year ended
December 31, 1996 was to decrease earnings before cumulative effect of a change
in accounting principle $3.2 million ($.36 per share) and net earnings by $6.4
million ($.72 per share).
Pro forma amounts for the year ended December 31, 1995 assuming
retroactive application on pre-contract costs, net of amortization and the
related income tax benefits, would have been pro forma net earnings of $193,735
and pro forma net earnings per share of $.02. Actual net earnings per share for
the year ended December 31, 1995 were $.33 for basic and $.31 assuming dilution.
3. RECEIVABLES
Costs and estimated earnings in excess of billings on uncompleted
contracts represent revenue recognized on long-term contracts in excess of
billings because amounts were not billable at the balance sheet date. Amounts
receivable from the United States Government or receivable under United States
Government related subcontracts will generally be billed in the following month
or when the contract and all options thereunder are completed. Amounts due on
other contracts are generally billed as shipments are made, subject to
retainages. It is estimated that substantially all of such amounts will be
billed and collected within one year, although contract extensions may delay
certain collections beyond one year.
F-10
<PAGE> 34
At December 31, receivables include the following:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
United States Government:
Billed receivables $ 2,499,842 $ 1,627,288
Costs and estimated earnings in excess of billings 5,740,542 3,448,055
------------ ------------
Total United States Government 8,240,384 5,075,343
------------ ------------
Other contracts:
Billed receivables 3,191,989 5,405,940
Costs and estimated earnings in excess of billings 13,379,546 11,732,859
------------ ------------
Total other contracts 16,571,535 17,138,799
------------ ------------
Other trade receivables 9,483,566 3,113,208
Less allowance for doubtful accounts (270,000) (163,000)
------------ ------------
Contract and trade receivables - net $ 34,025,485 $ 25,164,350
============ ============
</TABLE>
4. INVENTORIES
At December 31, inventories consisted of the following:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Raw materials $15,193,271 $ 4,959,810
Work-in-process 11,195,128 9,822,859
Finished goods 1,117,695 861,488
----------- -----------
Total inventories $27,506,094 $15,644,157
=========== ===========
</TABLE>
5. PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
At December 31, property, equipment and leasehold improvements consisted of the
following:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Land $ 1,603,870 $ 3,022,819
Buildings and leasehold improvements 3,454,989 5,533,291
Equipment 29,304,270 21,934,491
------------ ------------
Total 34,363,129 30,490,601
Less accumulated depreciation and amortization (9,508,902) (7,134,576)
------------ ------------
Property, equipment and leasehold improvements - net $ 24,854,227 $ 23,356,025
============ ============
</TABLE>
6. INTANGIBLES
At December 31, intangibles consisted of the following:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Covenant not to compete $ 4,989,356 $ 4,989,356
Excess of cost over net assets acquired 7,125,110 7,125,110
Patents and licenses 1,015,905 661,696
Other 783,963 783,963
------------ ------------
Total 13,914,334 13,560,125
Less accumulated amortization (3,388,801) (2,595,986)
------------ ------------
Intangibles - net $ 10,525,533 $ 10,964,139
============ ============
</TABLE>
F-11
<PAGE> 35
7. REVOLVING LINE OF CREDIT
The Company has a $20,000,000 unsecured Revolving Line of Credit with a
bank with interest at LIBOR plus 2% or prime. There was $0 outstanding on this
line of credit as of December 31, 1997. The loan agreement encompassing this
line of credit and the $5,000,000 amortizing term loan (Note 8) contains certain
covenants that require the maintenance of a minimum tangible net worth and
certain defined financial ratios. The Company was in compliance with all of the
covenants of this loan agreement at December 31, 1997.
8. DEBT
Long-term debt at December 31 consisted of the following:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
8% Senior Subordinated Convertible Notes $ 34,500,000
10% Senior Subordinated Convertible Notes 4,750,000 $ 14,300,000
12% Senior Subordinated Notes 5,700,000 5,700,000
Various loans payable, secured by property and equipment 7,578,987 4,951,898
Various mortgage notes payable, secured by land and buildings 1,381,357 2,918,243
Obligations under capital leases, interest at 10% (Note 13) 1,174,757 1,362,876
------------ ------------
Total 55,085,101 29,233,017
Less current portion (8,097,242) (4,536,508)
------------ ------------
Long-term debt $ 46,987,859 $ 24,696,509
============ ============
</TABLE>
During 1997, the Company completed the public offering of $34.5 million of
its 8% Senior Subordinated Convertible Notes (the "8% Notes"). The 8% Notes are
due May 1, 2004 and bear interest at 8% per annum, payable semi-annually. The 8%
Notes are convertible into shares of the Company's common stock at a price of
$17.55 per share of common stock. The 8% Notes may be redeemed at the Company's
option in whole or in part on a pro rata basis, on and after May 1, 1999, at
certain specified redemption prices plus accrued interest payable to the
redemption date. However, on or after May 1, 1999 and prior to April 30, 2000,
the 8% Notes will not be redeemable unless the closing price of the Company's
common stock has equaled or exceeded $23.625 for 20 trading days within a period
of 30 consecutive trading days. The indenture relating to the 8% Notes contains
certain covenants including limitations on the incurrence of additional
indebtedness, the sale of assets, liens securing indebtedness other than senior
indebtedness, payment restrictions affecting subsidiaries, transactions with
affiliates, future senior subordinated indebtedness and mergers and
consolidations. In accordance with the indenture, the Company may incur
indebtedness under senior credit facilities up to $50 million and may incur
other indebtedness based upon a specified ratio of cash flow, as defined, to
interest expense. The Company was in compliance with all of the covenants of
this indenture at December 31, 1997.
In September 1996, the Company issued $14.3 million of Series C 10% Senior
Subordinated Convertible Notes (the "10% Notes") in a private placement to
accredited investors. During 1997, $9,550,000 of the 10% Notes and $475,548 of
accrued interest were converted into 679,633 shares of the Company's common
stock. The 10% Notes outstanding at December 31, 1997 bear interest at 10%
payable semi-annually and are due in September 1999. These remaining 10% Notes
are convertible into approximately 280,000 shares of the Company's common stock.
The Company has the right to call the remaining 10% Notes at par plus accrued
interest.
In December 1993, the Company issued $5.7 million of 12% Senior
Subordinated Notes ("12% Notes"), due in November of 1998. The 12% Notes are not
subject to redemption prior to maturity.
The Indenture relating to the 10% Notes and the 12% Notes contains certain
covenants including limitations on sale of assets and transactions with
affiliates. The Company was in compliance with all of the covenants of this
indenture at December 31, 1997.
F-12
<PAGE> 36
The Company has a $5,000,000 amortizing term loan under the same loan
agreement encompassing the revolving line of credit (Note 7) for the financing
of U.S. based equipment with an outstanding balance at December 31, 1997 of
$4,105,759. Interest is payable at the LIBOR rate in effect at the time of the
drawdown plus 2%. The average interest rate on the outstanding balance at
December 31, 1997 is approximately 8%.
The aggregate principle payments required for the five years subsequent to
December 31, 1997 are:
1998 $ 8,097,242
1999 7,031,685
2000 1,755,828
2001 1,665,242
2002 869,506
Thereafter 35,665,598
------------
Total $ 55,085,101
============
Interest expense for the years ended December 31 is comprised of the
following:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Interest $4,665,192 $2,141,963 $1,679,086
Amortization of deferred financing costs 725,147 234,644 350,768
---------- ---------- ----------
Interest expense $5,390,339 $2,376,607 $2,029,854
========== ========== ==========
</TABLE>
Based on borrowing rates currently available to the Company and the quoted
market prices for the 8% Notes and the 12% Notes, the fair value of long-term
debt at December 31, 1997 is approximately $57,000,000.
9. INCOME TAXES
The income tax (benefit) provision for the years ended December 31 are as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Current $ 431,000 $(2,160,000) $ 1,322,000
Deferred (2,695,000) (4,741,000) (1,126,000)
----------- ----------- -----------
(Benefit) provision for income taxes $(2,264,000) $(6,901,000) $ 196,000
=========== =========== ===========
</TABLE>
1997 1996 1995
---- ---- ----
Federal statutory income tax rate 34.0% 34.0% 34.0%
State income taxes 5.3 5.3 6.0
Tax credits and other (.3) 1.4 0.7
Utilization of tax losses (33.8)
---- ----- ----
Effective rate 39.0% 40.7% 6.9%
==== ===== ====
F-13
<PAGE> 37
The provision for deferred income taxes consists of the following:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Accruals and reserves $ (448,000) $(1,157,000) $ (946,000)
Depreciation and amortization expense 554,000 560,000 268,000
Net operating loss carryforward (2,425,000) (3,867,000)
Minimum tax credit carryforwards (376,000) (277,000)
Change in valuation allowance for tax
loss carryforward (448,000)
----------- ----------- -----------
Total $(2,695,000) $(4,741,000) $(1,126,000)
=========== =========== ===========
</TABLE>
The significant tax effected temporary differences comprising deferred
taxes at December 31 are as follows:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Current:
Net operating loss carryforwards $ 2,900,000 $ 2,970,000
Accrued vacation and self insurance 294,000 324,000
Inventory and warranty reserves 371,000 334,000
Other 198,000 135,000
----------- -----------
Total current deferred tax asset 3,763,000 3,763,000
----------- -----------
Long-term:
Excess of tax over book depreciation and amortization (490,000) 64,000
Net operating loss carryforwards 3,840,000 1,345,000
Minimum tax credit carryforward 663,000 287,000
Deferred start-up costs 348,000 352,000
Other 116,000 (266,000)
----------- -----------
Total long-term deferred tax asset 4,477,000 1,782,000
----------- -----------
Net deferred tax asset $ 8,240,000 $ 5,545,000
=========== ===========
</TABLE>
The valuation allowances associated with tax loss carryforwards as of
December 31 are as follows:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Tax asset for loss carryforward $ 6,961,000 $ 4,536,000
Valuation allowance (221,000) (221,000)
----------- -----------
Net deferred tax asset $ 6,740,000 $ 4,315,000
=========== ===========
</TABLE>
At December 31, 1997, the Company had approximately $17,300,000 of net
operating loss carryforwards which expire through 2012.
F-14
<PAGE> 38
10. EARNINGS PER SHARE
As discussed in Note 1 of Notes to Consolidated Financial Statements, the
following is a reconciliation of the numerators and denominators of basic and
diluted per share computations for income from continuing operations for the
year ended December 31, 1995 as required by SFAS No. 128. Earnings per share
amounts for the years ended December 31, 1997 and 1996 are calculated using only
weighted average outstanding shares of 9,288,416 and 8,947,060, respectively.
Options to purchase common stock and shares to be issued upon conversion of the
8% Notes and 10% Notes (Note 8) totaling 3,896,966 and 1,881,562 for the years
ended December 31, 1997 and 1996, respectively were not used for computing
diluted earnings per share because the result would be anti-dilutive.
FOR THE YEAR ENDED DECEMBER 31, 1995
---------------------------------------------
INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNTS
---------- --------- -----------
Basic Earnings Per Share
Net earnings $2,657,359 8,175,300 $ 0.33
===========
Effect of Dilutive Securities
Options and warrants 401,517
---------- ----------
Diluted Earnings Per Share $2,657,359 8,576,817 $ 0.31
========== ========== ===========
11. BENEFIT PLANS
The Company has a noncontributory defined benefit pension plan (the "Plan")
for employees. To be eligible to participate, employees must have completed six
months of continuous employment and have attained the age of 21. Benefits are
based on length of service and the employee's final pay (averaged over the five
highest consecutive years of the last ten years of participation). The Company
makes contributions to the Plan based upon actuarially determined amounts.
Net periodic pension cost includes the following:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Service cost- benefit earned during the year $ 307,249 $ 235,167 $ 169,835
Interest cost on projected benefit obligation 175,039 147,852 116,660
Actual return on Plan assets (62,874) (262,676) (257,497)
Net amortization and deferral (78,635) 159,328 172,970
--------- --------- ---------
Net periodic pension cost $ 340,779 $ 279,671 $ 201,968
========= ========= =========
</TABLE>
The Plan's funded status and amounts recognized in the Company's balance sheet
at December 31 are as follows:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Actuarial present value of benefit obligation:
Vested $ 1,949,265 $ 1,503,283
Nonvested benefits 382,815 243,064
----------- -----------
Accumulated benefit obligation 2,332,080 1,746,347
Effect of projected future compensation increases 582,128 453,626
----------- -----------
Projected benefit obligation 2,914,208 2,199,973
Plan assets at fair value 2,034,500 1,729,919
----------- -----------
Plan assets less than projected benefit obligation 879,708 470,054
Unrecognized prior service costs 15,239 19,811
Unrecognized loss (524,607) (185,107)
Unrecognized transition liability 135,029 90,442
----------- -----------
Accrued pension costs $ 505,369 $ 395,200
=========== ===========
</TABLE>
F-15
<PAGE> 39
Assumptions at December 31 used in the accounting for the Plan were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Discount or settlement rate 7.25% 7.50% 7.25%
Rate of increase in compensation levels 3.25% 3.50% 3.50%
Expected long-term rate of return on Plan assets 8.00% 8.00% 8.00%
</TABLE>
The Plan's assets consist of money market accounts and investments in
common stocks, mutual funds, and bonds.
In addition, the Company has a 401(k) plan for substantially all employees
and one subsidiary has a union sponsored pension plan for union employees to
which the Company makes contractual contributions. Company contributions to the
401(k) plan were $38,355, $29,065 and $28,155 for the years ended December 31,
1997, 1996 and 1995, respectively.
12. OTHER INCOME
Other income for the year ended December 31, 1997 represents the net gain on
real estate transactions.
13. COMMITMENTS AND CONTINGENCIES
The Company leases certain equipment under capital lease agreements and
certain facilities under noncancellable operating leases with various renewal
options. Leased assets of $2,015,324 and $2,274,565 (net of accumulated
depreciation of $782,644 and $681,283) are included in property and equipment as
of December 31, 1997 and 1996, respectively.
The following is a schedule, by years, of minimum rental payments due under
the leases described above and for other operating leases for the years ending
December 31:
<TABLE>
<CAPTION>
Capital Leases Operating Leases
------------ --------------
<S> <C> <C>
1998 $ 696,250 $ 2,915,682
1999 514,352 3,078,814
2000 148,182 2,729,117
2001 6,786 2,230,188
2002 2,050,383
Thereafter 7,455,598
------------ --------------
Total minimum lease payments 1,365,570 $ 20,459,782
==============
Less amounts representing interest (190,813)
------------
Present value of net minimum lease payments $ 1,174,757
============
</TABLE>
Rent expense was $2,757,991, $1,966,271 and $1,109,402 for the years ended
December 31, 1997, 1996 and 1995, respectively.
In connection with its decision to establish a facility in the United
Kingdom for the production of inflatable restraints for automobiles, the Company
negotiated certain grants with local and national authorities in the United
Kingdom. The total grant of approximately $3 million is anticipated to be
received through January 1999 as certain levels of capital expenditures and the
creation of jobs are met. These grants will be recognized as a reduction of cost
of revenue in accordance with the purpose of the grants in the periods in which
such grants are received.
14. STOCK OPTIONS AND STOCK PLANS
In 1992, the Company adopted the 1992 Stock Option Plan which provided for
the issuance of up to 360,000 shares of common stock. All options available
under the 1992 Plan have been granted. In August 1994, the Company adopted the
F-16
<PAGE> 40
1994 Stock Option Plan which reserves up to 2,500,000 shares of common stock for
issuance under the Plan. In accordance with the terms of the 1994 Plan,
1,681,775 options have been granted. Information with respect to the Plans is as
follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE OPTION
OPTION SHARES PRICE
--------- ---------
<S> <C> <C>
Outstanding at January 1, 1995 380,925 $ 5.22
Granted 478,125 $ 13.62
Exercised (135,500) $ 4.93
Canceled (6,300) $ 3.25
---------
Outstanding at December 31, 1995 717,250 $ 10.85
Granted 360,550 $ 12.99
Exercised (104,471) $ 9.14
Canceled (51,400) $ 12.77
---------
Outstanding at December 31, 1996 921,929 $ 11.78
Granted 858,900 $ 13.84
Exercised (126,575) $ 10.51
Canceled (3,100) $ 13.91
---------
Outstanding at December 31, 1997 1,651,154
=========
</TABLE>
Options are generally exercisable one year from the date of grant for up to
ten years at a price equal to 100% of the fair market value at the date of grant
or 85% of fair market value in the case of non-statutory options. As of December
31, 1997, 1996,and 1995, exercisable options were 1,127,304, 612,179, and
239,125, respectively.
The following information, aggregated by option price ranges, is applicable to
options outstanding at December 31, 1997:
<TABLE>
<S> <C> <C>
Range of exercise prices ........................................... $3.25 - $6.92 $12.50 - $20.50
Shares outstanding in range......................................... 136,779 1,514,375
Weighted-average exercise price .................................... $5.28 $13.63
Weighted-average remaining contractual life ........................ 6 years 8 years
Shares currently exercisable ....................................... 136,779 990,525
Weighted-average exercise price of shares currently exercisable..... $5.28 $13.41
</TABLE>
The estimated fair value of options granted during 1997 was $5.47 per
share. The Company applies Accounting Principles Board Opinion No. 25 and
related Interpretations in accounting for its stock option plans. Accordingly,
no compensation cost has been recognized for its fixed stock option plans. Had
compensation cost for the Company's stock option plans been recognized based on
the fair value at the grant dates for awards under those plans consistent with
the method of Statement of Financial Accounting Standards No. 123, the Company's
net (loss) earnings and net (loss) earnings per share for the three years ended
December 31, 1997 would have been reduced to the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ------------ -------------
<S> <C> <C> <C>
Net (loss) income - as reported $(3,539,526) $(10,049,914) $ 2,657,359
=========== ============ =============
Net (loss) income - pro forma $(6,222,900) $(12,074,645) $ 293,848
=========== ============ =============
(Loss) income per share - basic - as reported $ (0.38) $ (1.12) $ 0.33
=========== ============ =============
(Loss) income per share - basic - pro forma $ (0.67) $ (1.35) $ 0.04
=========== ============ =============
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes options pricing model. For the year ended December 31, 1997,
the assumptions used for grants were no dividend yield, an expected volatility
of 46%, a risk-free interest rate of 5.5% and expected lives of three years. For
the years ended December 31, 1996 and 1995, the assumptions used for grants were
no dividend yield, an expected volatility of 36%, a risk-free interest rate of
7% and expected lives of five years.
F-17
<PAGE> 41
Restricted Stock Plan -- In 1992, the Company adopted the 1992 Restricted
Stock Plan authorizing the Company to grant to key employees of the Company the
right to purchase up to an aggregate of 19,500 shares of common stock at $.01
per share. The Company has reserved 19,500 shares of common stock for issuance
pursuant to the Restricted Stock Plan, of which 4,500 shares have been awarded.
Employee Stock Purchase Plan -- On June 20, 1996, the Company adopted the
Employee Stock Purchase Plan (the "ESPP") to allow eligible employees of the
Company to acquire shares of the Company's common stock at periodic intervals,
paid for with accumulated payroll deductions over a six month offering period. A
total of 400,000 shares of the Company's common stock have been reserved for
issuance under the ESPP. The first offering period under the ESPP began October
1, 1996.
15. EXPORT SALES
Export sales for the years ended December 31 were as follows:
1997 1996 1995
----------- ----------- -----------
Germany $ 8,879,713
Canada 4,006,302 $ 9,124,647 $ 2,091,965
United Kingdom 2,571,566 2,278,212 1,105,558
Ireland 2,279,659
Japan 1,167,752 1,191,468 2,522,419
Other 3,311,925 3,231,782 1,040,877
----------- ----------- -----------
Total export sales $22,216,917 $15,826,109 $ 6,760,819
=========== =========== ===========
16. OTHER
The Company's research and development efforts arise from funded
development contracts and proprietary research and development. Amounts arising
from such efforts for the years ended December 31, were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Research and development expenses classified
as general and administrative expenses $ 4,394,359 $ 1,915,649 $ 1,419,340
=========== =========== ===========
Funded contracts:
Revenues funded by customers $ 6,933,661 $ 6,518,818 $ 3,901,662
Research and development expenses classified
as cost of such revenue (7,382,734) (8,587,658) (4,721,858)
----------- ----------- -----------
Funded contract deficiency $ (449,073) $(2,068,840) $ (820,196)
=========== =========== ===========
</TABLE>
The above amounts do not include pre-contract costs which the Company began
expensing in 1996 (See Note 2). Pre-contract costs expended for the years ended
December 31, 1997, 1996 and 1995 were approximately $2,200,000, $6,420,000 and
$4,438,000, respectively.
17. SEGMENT REPORTING
The Company is a holding company for wholly owned subsidiaries which
operate in three primary business segments. The Commercial Transportation
Seating segment includes operations which primarily manufacture seating systems
for domestic and foreign passenger airlines, rail and other mass transit. The
Government and Defense segment includes operations that design and manufacture
crash resistant components, energy absorbing devices, ballistic armor and
composites principally in connection with branches of the United States armed
forces procurement. The Automobile Safety Systems segment includes operations
encompassing inflatable restraints and related technology for automobiles. The
remaining segment, entitled Other, represents general corporate operations.
F-18
<PAGE> 42
For the years ended December 31, 1997, 1996 and 1995, inter-segment sales
were insignificant and total intercompany sales of $10,085,025, $7,547,039 and
$4,065,201, respectively, have been eliminated.
<TABLE>
<CAPTION>
1997
-----------------------------------------------------------------------------------------------
Commercial Automobile
Transportation Government Safety
Seating and Defense Systems Other Total
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Revenue:
Contract Revenue $ 23,491,089 $ 29,104,203 $ 52,595,292
Product Sales 27,685,352 1,191,077 $ 8,599,667 $ 70,550 37,546,646
Technology sales and royalties 280,046 280,046
------------- ------------- ------------- ------------- -------------
Total Revenue $ 51,176,441 $ 30,295,280 $ 8,879,713 $ 70,550 $ 90,421,984
============= ============= ============= ============= =============
Operating (loss) income $ (2,583,656) $ 701,324 $ 936,142 $ (1,078,141) $ (2,024,331)
Identifiable assets 57,067,905 28,306,613 16,641,150 18,262,508 120,278,176
Depreciation and amortization 2,296,974 1,183,521 561,808 848,610 4,890,913
Capital expenditures 2,556,983 2,742,032 4,202,247 70,662 9,571,924
</TABLE>
Revenue from three major customers accounted for approximately 41% of total
revenue for the year ended December 31, 1997. Contract and trade receivables
from these customers accounted for approximately 27% of the total contract and
trade receivables at December 31, 1997. The Government and Defense segment
recognized revenue from all branches of the United States armed forces which
accounted for approximately 15% of total revenue for the year ended December 31,
1997. The Commercial Transportation Seating segment recognized revenue from
Continental Airlines that accounted for approximately 16% of total revenue for
the year ended December 31, 1997.
The Company has performed work for the United States armed forces since
1975 and has no reason to believe that there will be any change in these
customer relationships. The Company anticipates that it will fulfill current
delivery requirements to Continental Airlines in early 1998 and it will not
represent as significant of a customer in 1998 and following years. The Company
believes that in the ordinary course of its airline seating business, the
programs with Continental Airlines will be replaced by programs with other
customers.
<TABLE>
<CAPTION>
1996
-----------------------------------------------------------------------
Commercial
Transportation Government
Seating and Defense Other Total
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue:
Contract revenue $ 23,636,852 $31,372,051 $ 55,008,903
Product sales 8,965,719 685,218 $ 847,467 10,498,404
Technology sales and royalties 254,650 254,650
------------ ------------ ------------ ------------
Total revenue $ 32,602,571 $ 32,311,919 $ 847,467 $ 65,761,957
============ ============ ============ ============
Operating (loss) income $ (6,327,689) $ 1,355,917 $ (4,254,298) $ (9,226,070)
Identifiable assets 43,971,150 28,217,854 14,499,452 86,688,456
Depreciation and amortization 1,967,959 909,619 400,855 3,278,433
Capital expenditures 2,470,336 2,916,342 4,220,542 9,607,220
</TABLE>
Revenue from two major customers accounted for approximately 37% of total
revenue for the year ended December 31, 1996. Contract and trade receivables
from these customers accounted for approximately 11% of the total contract and
trade receivables at December 31, 1996. The Government and Defense segment
recognized revenue from all branches of the United States armed forces which
accounted for approximately 27% of total revenue for the year ended December 31,
1996.
F-19
<PAGE> 43
<TABLE>
<CAPTION>
1995
-----------------------------------------------------------------
Commercial
Transportation Government
Seating and Defense Other Total
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue:
Contract revenue $23,936,070 $24,753,600 $48,689,670
Product sales 5,673,264 $ 1,968,879 7,642,143
Technology sales and royalties 779,347 1,977,453 2,756,800
----------- ----------- ----------- -----------
Total revenue $29,609,334 $25,532,947 $ 3,946,332 $59,088,613
=========== =========== =========== ===========
Operating income $ 651,695 $ 3,294,791 $ 496,651 $ 4,443,137
Identifiable assets 36,273,362 26,629,708 10,233,066 73,136,136
Depreciation and amortization 1,899,899 564,842 600,092 3,064,833
Capital expenditures 1,459,651 1,829,664 1,478,142 4,767,457
</TABLE>
The Government and Defense segment recognized revenue from all branches of
the United States armed forces which accounted for approximately 18% of total
revenue for the year ended December 31, 1995. Contract and trade receivables
from this customer accounted for approximately 17% of the total contract and
trade receivables at December 31, 1995.
18. UNAUDITED QUARTERLY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
1997
-----------------------------------------------------------------------
First Second Third Fourth
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue $ 17,825,823 $ 20,065,365 $ 23,642,745 $ 28,888,051
Cost of Revenue 12,764,105 13,663,941 20,255,231 23,178,348
------------ ------------ ------------ ------------
Gross margin $ 5,061,718 $ 6,401,424 $ 3,387,514 $ 5,709,703
============ ============ ============ ============
Net (loss) earnings $ (566,137) $ 18,301 $ (2,385,010) $ (606,680)
Net earnings per common share - basic
and assuming dilution $ (0.06) $ -- $ (0.26) $ (0.06)
</TABLE>
<TABLE>
<CAPTION>
1996
------------------------------------------------------------------------
First Second Third Fourth
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue $ 16,742,512 $ 19,615,830 $ 12,914,643 $ 16,488,972
Cost of Revenue 12,316,453 15,478,516 10,765,168 16,679,039
------------ ------------ ------------ ------------
Gross margin $ 4,426,059 $ 4,137,314 $ 2,149,475 $ (190,067)
============ ============ ============ ============
(Loss) earnings before cumulative effect of
an accounting change $ 121,932 $ (305,428) $ (2,087,492) $ (4,538,978)
Cumulative effect of an accounting change (3,239,948)
------------ ------------ ------------ ------------
Net loss $ (3,118,016) $ (305,428) $ (2,087,492) $ (4,538,978)
============ ============ ============ ============
Net earnings per common share - basic
and assuming dilution $ (0.35) $ (0.03) $ (0.23) $ (0.51)
</TABLE>
F-20
<PAGE> 44
Exhibit Index
<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...................................................................... (1)
10.12 1992 Restricted Stock Plan.................................................................. (1)
10.21 1994 Stock Option Plan...................................................................... (3)
10.24 Amended Loan Agreement with Wells Fargo Bank, N.A. dated December 20, 1996................. (6)
10.26 Simula, Inc. Employee Stock Purchase Plan................................................... (4)
10.29 Form of Change of Control Agreements, between the Company and Donald W. Townsend, Bradley
P. Forst, Sean K. Nolen, James A. Saunders, and Randall L. Taylor .......................... (6)
*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
18. Preference Letter re: change in accounting principles....................................... (5)
*21. Subsidiaries of the Company
*24. Powers of Attorney - Directors.............................................................. (6)
*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.
(b) No reports on Form 8-K have been filed during the reporting period.
<PAGE> 1
EMPLOYMENT AGREEMENT
THIS AGREEMENT is by and between Simula, Inc., an Arizona corporation
(the "Company") and _____________________________ (the "Executive"), dated
effective as of January 1 ,1998 (the "Effective Date").
BACKGROUND
The Board of Directors of the Company (the "Board"), has determined
that it is in the best interests of the Company and its shareholders to assure
that the Company will have the continued employment and dedication of the
Executive.
The Board has further determined that it is desirable to provide the
Executive with compensation and benefits terms which adequately compensate the
Executive for the services he renders to the Company, and, to ensure that such
compensation and benefits are consistent with those of like executives of other
public companies.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
AGREEMENT
1. EMPLOYMENT PERIOD. The Company hereby agrees to continue the
Executive in its employ, and the Executive hereby agrees to remain in the employ
of the Company subject to the terms and conditions of this Agreement, for the
period commencing on the Effective Date and ending on the fifth anniversary of
such date (the "Employment Period"). Unless terminated by the Company for Cause
(as defined in Section 3.2 below) or by the Executive for Good Reason (as
defined in Section 3.3 below), prior to or on the last day of each successive
one year anniversary date, commencing one year after the Effective Date, this
Agreement shall be automatically renewed, under the same terms and conditions,
for continuous successive five year terms.
2. TERMS OF EMPLOYMENT.
2.1 Position and Duties.
(a) During the Employment Period, the Executive shall
be employed in an executive capacity in the positions of
President and Chief Executive Officer of the Company at
Company headquarters in Phoenix, Arizona;
(b) During the Employment Period, and excluding any
periods of vacation and sick leave to which the Executive is
entitled, the Executive
<PAGE> 2
agrees to devote full attention and time during normal
business hours to the business and affairs of the Company and
to use the Executive's best efforts to perform faithfully and
efficiently such responsibilities.
2.2 Compensation.
(a) Base Salary. The Executive shall receive an
initial annual base salary ("Initial Base Salary") of
___________________ ($_______). Thereafter, the Executive's
salary and total compensation shall be reviewed on a periodic
basis by the Compensation Committee of the Board to determine
what, if any, increases shall be made thereto. The base salary
payable to the Executive in any given year, including the
Initial Base Salary, is hereafter referred to as the "Annual
Base Salary." Any increase in Annual Base Salary shall not
serve to limit or reduce any other obligation to the Executive
under this Agreement. Annual Base Salary shall not be reduced
after any increase and the term Annual Base Salary as utilized
in this Agreement shall refer to Annual Base Salary as
increased. The Annual Base Salary shall in all instances be
payable in twenty-six (26) equal bi-weekly installments.
(b) Annual Bonus or Option Plans. In addition to
Annual Base Salary, the Executive shall be eligible to
participate in any applicable Company bonus plan or program or
stock option plan or program in effect immediately prior to
the Effective Date, or put into effect by the Board at any
time thereafter.
(c) Incentive, Savings and Retirement Plans. During
the Employment Period, the Executive shall be entitled to
participate in all incentive, savings and retirement plans,
practices, policies and programs applicable generally to other
executives of the Company, but in no event shall such plans,
practices, policies and programs provide the Executive with
incentive opportunities, savings opportunities and retirement
benefit opportunities, in each case, less favorable, in the
aggregate, than the most favorable of those provided by the
Company to other executives of the Company; provided however,
the dollar value awarded Executive in the reasonable
discretion of management need not be equal to that awarded to
all other executives.
(d) Welfare Benefit Plans. During the Employment
Period, the Executive and/or the Executive's family, as the
case may be, shall be eligible for participation in and shall
receive all benefits under welfare benefit plans, practices,
policies and programs provided by the Company (including,
without limitation, medical, prescription, dental, disability,
salary continuance, employee life, group life, accidental
death and travel accident insurance plans and programs) to the
extent applicable generally to other executives of the
Company, but in no event shall such plans, practices,
2
<PAGE> 3
policies and programs provide the Executive with benefits
which are less favorable, in the aggregate, than the most
favorable of such plans, practices, policies and programs
provided generally at any time after the Effective Date to
other executives of the Company.
(e) Expenses. During the Employment Period, the
Executive shall be entitled to receive prompt reimbursement
for all reasonable expenses incurred by the Executive in the
conduct of Company business.
(f) Vacation. During the Employment Period, the
Executive shall be entitled to paid vacation in accordance
with the plans, policies, programs and practices of the
Company in all respects as in effect for the Executive during
the 120-day period immediately preceding the Effective Date
or, if more favorable to the Executive, as in effect generally
at any time thereafter with respect to other executives of the
Company.
3. TERMINATION OF EMPLOYMENT.
3.1 Death or Disability. The Executive's employment shall
terminate automatically upon the Executive's death during the
Employment Period. If the Company determines in good faith that any
Disability of the Executive has occurred during the Employment Period
(pursuant to the definition of Disability set forth below), it may give
to the Executive written notice in accordance with Section 10.2 of this
Agreement of its intention to terminate the Executive's employment. In
such event, the Executive's employment with the Company shall terminate
effective on the 30th day after receipt of such notice by the Executive
(the "Disability Effective Date"), provided that, within the 30 days
after such receipt, the Executive shall not have returned to full-time
performance of the Executive's duties. For purposes of this Agreement,
"Disability" shall mean the absence of the Executive from the
Executive's duties with the Company on a full-time basis for 180
consecutive business days as a result of incapacity due to mental or
physical illness certified by a physician selected by the Company or
its insurers and acceptable to the Executive or the Executive's legal
representative.
3.2 Cause. The Company may terminate the Executive's
employment during the Employment Period for Cause. For purposes of this
Agreement, "Cause" shall mean: (i) the willful and continued failure of
the Executive to perform substantially the Executive's duties with the
Company or its affiliates (other than any such failure resulting from
incapacity due to physical or mental illness), after a written demand
for substantial performance is delivered to the Executive by the Board
which specifically identifies the manner in which the Board believes
that the Executive has not substantially performed the Executive's
duties, or (ii) the willful engaging by the Executive in illegal
conduct or gross misconduct which is materially and demonstrably
injurious to the Company. For purposes of this
3
<PAGE> 4
provision, no act or failure to act, on the part of the Executive,
shall be considered "willful" unless it is done, or omitted to be done,
by the Executive in bad faith.
3.3 Good Reason. The Executive's employment may be terminated
by the Executive for Good Reason at any time within 90 days after the
Executive first has actual knowledge of the occurrence of such Good
Reason. For purposes of this Agreement, "Good Reason" shall mean:
(a) the assignment to the Executive of any duties
that are not of an executive nature, or any other action by
the Company which results in a material diminution in the
Executive's position, authority, duties or responsibilities,
excluding for this purpose an isolated, insubstantial and
inadvertent action not taken in bad faith and which is
remedied by the Company promptly after receipt of notice
thereof given by the Executive;
(b) any failure by the Company to comply with any of
the provisions of Section 2.2 of this Agreement, other than an
isolated, insubstantial and inadvertent failure not occurring
in bad faith and which is remedied by the Company promptly
after receipt of notice thereof given by the Executive;
(c) the Company's requiring the Executive, without
the Executive's consent and full agreement, to be based at any
office or position other than as provided in Section 2.1(a)
hereof;
(d) any purported termination by the Company of the
Executive's employment otherwise than as expressly permitted
by this Agreement; or
(e) any failure by the Company to comply with and
satisfy Section 9.3 of this Agreement.
3.4 Notice of Termination. Any termination by the Company for
Cause, or by the Executive for Good Reason, shall be communicated by
Notice of Termination to the other party hereto given in accordance
with Section 10.2 of this Agreement. For purposes of this Agreement, a
"Notice of Termination" means a written notice which:
(a) indicates the specific termination provision in
this Agreement relied upon;
(b) to the extent applicable, sets forth in
reasonable detail the facts and circumstances claimed to
provide a basis for termination of the Executive's employment
under the provision so indicated; and
(c) if the Date of Termination (as defined below) is
other than the date of receipt of such notice, specifies the
termination date (which date
4
<PAGE> 5
shall be not more than thirty days after the giving of such
notice). The failure by the Executive or the Company to set
forth in the Notice of Termination any fact or circumstance
which contributes to a showing of Good Reason or Cause shall
not waive any right of the Executive or the Company,
respectively, hereunder or preclude the Executive or the
Company, respectively, from asserting such fact or
circumstance in enforcing the Executive's or the Company's
rights hereunder.
3.5 Date of Termination. "Date of Termination" means:
(a) if the Executive's employment is terminated by
the Company for Cause, or by the Executive for Good Reason,
the date of receipt of the Notice of Termination or any later
date specified therein, as the case may be;
(b) if the Executive's employment is terminated by
the Company other than for Cause or Disability, the date on
which the Company notifies the Executive of such termination;
and
(c) if the Executive's employment is terminated by
reason of death or Disability, the date of death of the
Executive or the Disability Effective Date, as the case may
be.
4. OBLIGATIONS OF THE COMPANY UPON TERMINATION.
4.1 Good Reason, Other Than for Cause, Death or Disability.
If, during the Employment Period, the Company shall terminate the
Executive's employment other than for Cause or Disability or the
Executive shall terminate employment for Good Reason, the Company shall
pay to the Executive in a lump sum in cash within thirty (30) days
after the Date of Termination the aggregate of the following amounts:
(a) The amount of Annual Base Salary compensation
which would have been payable to the Executive over the period
then remaining under this Agreement, as it may have been
renewed as provided for in Section 1 hereof;
(b) Any declared and accrued, but as of then unpaid,
bonus or stock options grant (whether or not vested) to which
the Execute would have received but for such termination.
Additionally, any stock options owned or granted shall be
deemed immediately vested, not forfeitable, and shall be the
property of Executive, exerciseable according to their terms
for the balance of the term of years of the options;
(c) Any accrued vacation pay;
5
<PAGE> 6
(d) Any amounts payable pursuant to the Company's
Defined Benefit Pension Plan, 401(k) plan, including such
amounts which would have accrued (whether or not vested) if
the Executive's employment had continued after the Date of
Termination for the period then remaining under this
Agreement, as it may have been renewed as provided for in
Section 1 hereof;
(e) Any other amounts or benefits required to be paid
or provided or which the Executive is eligible to receive
under any plan, program, policy or practice or contract or
agreement of the Company (such other amounts and benefits
shall be hereinafter referred to as the "Other Benefits");
(f) For the remaining term of this Agreement, as it
may have been renewed pursuant to Section 1 hereof, or such
longer period as may be provided by the terms of the
appropriate plan, program, practice or policy, the Company
shall continue benefits to the Executive and/or the
Executive's family at least equal to those which would have
been provided to them in accordance with the plans, programs,
practices and policies described in Section 2.2(d) of this
Agreement if the Executive's employment had not been
terminated or, if more favorable to the Executive, as in
effect generally at any time thereafter with respect to other
executives of the Company and their families, provided,
however, that if the Executive becomes re-employed with
another employer and is eligible to receive medical or other
welfare benefits under another employer-provided plan, the
medical and other welfare benefits described herein shall be
secondary to those provided under such other plan during such
applicable period of eligibility, and for purposes of
determining eligibility (but not the time of commencement of
benefits) of the Executive for retiree benefits pursuant to
such plans, practices, programs and policies, the Executive
shall be considered to have remained employed for the
remaining term of this Agreement, as it may have been renewed
pursuant to Section 1 hereof, and to have retired on the last
day of such period; and
(g) The Company shall, at its sole expense as
incurred, provide the Executive with out-placement services,
the scope and provider of which shall be selected by the
Executive in the Executive's sole discretion (but the total
cost thereof shall not exceed $50,000).
4.2 Death. If the Executive's employment is terminated by
reason of the Executive's death during the Employment Period, this
Agreement shall terminate without further obligations to the
Executive's legal representatives under this Agreement, other than for
payment of Death Benefit Compensation under other contracts, if any,
full vesting and non-forfeiture of stock options granted to Executive,
and the timely payment or provision of Other Benefits. Such amounts
shall be paid to the Executive's estate or beneficiary, as applicable,
in a lump sum
6
<PAGE> 7
in cash within 30 days of the Date of Termination. With respect to the
provision of Other Benefits, the term Other Benefits as utilized in
this Section 4.2 shall include, without limitation, and the Executive's
estate and/or beneficiaries shall be entitled to receive, benefits at
least equal to the most favorable benefits provided by the Company to
the estates and beneficiaries of other executives of the Company under
such plans, programs, practices and policies relating to death
benefits, if any, as in effect with respect to other executives and
their beneficiaries at any time during the 120-day period immediately
preceding the Effective Date or, if more favorable to the Executive's
estate and/or the Executive's beneficiaries, as in effect on the date
of the Executive's death with respect to other executives of the
Company and their beneficiaries.
4.3 Disability. If the Executive's employment is terminated by
reason of the Executive's Disability under Section 3.1 during the
Employment Period, this Agreement shall terminate without further
obligations to the Executive, other than for the timely payment or
provision of (i) Base Salary and, (ii) accrued bonus through the
Termination Date, (iii) payment of pension, 401(k), and Other Benefits,
(iv) full vesting and non-forfeiture of stock options, and, (v) the
receipt of fully-paid Welfare Benefit Plans under Section 2.2(d) for
the balance of the term of this Agreement. In addition, Executive shall
be paid for the term of this Agreement at regular pay periods that
amount equal to the difference between his Annual Base Salary and the
disability insurance payment received by the disabled Executive under
the Company's disability insurance program. With respect to the
provision of Other Benefits, the term Other Benefits as utilized in
this Section 4.3 shall include, and the Executive shall be entitled
after the Disability Effective Date to receive, disability and other
benefits at least equal to the most favorable of those generally
provided by the Company to disabled executives and/or their families in
accordance with such plans, programs, practices and policies relating
to disability, if any, as in effect generally with respect to other
executives and their families at any time during the 120-day period
immediately preceding the Effective Date or, if more favorable to the
Executive and/or the Executive's family, as in effect at any time
thereafter generally with respect to other executives of the Company
and their families.
4.4 Cause; Other than for Good Reason. If the Executive's
employment shall be terminated for Cause during the Employment Period,
this Agreement shall terminate without further obligations to the
Executive other than the obligation to pay to the Executive: (x) the
Annual Base Salary through the Date of Termination, (y) the amount of
any compensation previously deferred by the Executive, and (z) Other
Benefits, in each case to the extent therefore unpaid. If the Executive
voluntarily terminates employment during the Employment Period,
excluding a termination for Good Reason, this Agreement shall terminate
without further obligations to the Executive, other than for items (x),
(y) and (z) of this paragraph, accrued but unpaid vacation leave, and
the timely payment or provision of Other
7
<PAGE> 8
Benefits. In such case, all Accrued Obligations shall be paid to the
Executive in a lump sum in cash within 30 days of the Date of
Termination.
5. NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall prevent
or limit the Executive's continuing or future participation in any plan,
program, policy or practice provided by the Company and for which the Executive
may qualify, nor, subject to Section 10.6, shall anything herein limit or
otherwise affect such rights as the Executive may have under any other contract
or agreement with the Company. Amounts which are vested benefits or which the
Executive is otherwise entitled to receive under any plan, policy, practice or
program of or any contract or agreement with the Company at or subsequent to the
Date of Termination shall be payable in accordance with such plan, policy,
practice or program or contract or agreement except as explicitly modified by
this Agreement. Executive is currently a party to, and in the future may be a
party to other, employment arrangements, agreements, and incentive plans,
including but not limited to, a death benefit plan, stock option agreements, and
a change of control agreement. This Agreement shall not supersede any of the
terms or conditions of such other agreements. To the extent of any inconsistency
in these agreements, the agreements shall be interpreted and applied in the way
to confer upon the employee the greatest benefits. The agreements shall be read
and applied consistent with each other, but in the event of a conflict, the
terms most favorable to the employee will be applied from the various provisions
of the agreements in the aggregate.
6. FULL SETTLEMENT; LEGAL FEES. The Company's obligation to make the
payments provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which the Company may have against the
Executive or others. In no event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation of the amounts payable
to the Executive under any of the provisions of this Agreement and except as
specifically provided in Section 4.1(f), such amounts shall not be reduced
whether or not the Executive obtains other employment. The Company agrees to pay
promptly as incurred, to the full extent permitted by law, all legal fees and
expenses which the Executive may reasonably incur as a result of any contest
(regardless of the outcome thereof) by the Company, the Executive or others of
the validity or enforceability of, or liability or entitlement under, any
provision of this Agreement or any guarantee of performance thereof (whether
such contest is between the Company and the Executive or between either of them
and any third party, and including as a result of any contest by the Executive
about the amount of any payment pursuant to this Agreement), plus in each case
interest on any delayed payment at the applicable Federal rate ("Applicable
Federal Rate") provided for in Section 7872(f)(2)(A) of the Internal Revenue
Code of 1986, as amended (the "Code").
8
<PAGE> 9
7. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
7.1 Anything in this Agreement to the contrary
notwithstanding, in the event it shall be determined that any payment
or distribution by the Company to or for the benefit of the Executive
(whether paid or payable or distributed or distributable pursuant to
the terms of this Agreement or otherwise, but determined without regard
to any additional payments required under this Section 7) (a "Payment")
would be subject to the excise tax imposed by Section 4999 of the Code
or any corresponding provisions of state or local tax laws, or any
interest or penalties are incurred by the Executive with respect to
such excise tax (such excise tax, together with any such interest and
penalties, are hereinafter collectively referred to as the "Excise
Tax"), then the Executive shall be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by
the Executive of all taxes (including any interest or penalties imposed
with respect to such taxes), including, without limitation, any income
or employment taxes (and any interest and penalties imposed with
respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the
Executive retains an amount of the Gross-Up Payment equal to the Excise
Tax imposed upon the Payments.
7.2 Subject to the provisions of Section 7.3, all
determinations required to be made under this Section 7, including
whether and when a Gross-Up Payment is required and the amount of such
Gross-Up Payment and the assumptions to be utilized in arriving at such
determination, shall be made by Deloitte & Touche LLP or such other
certified public accounting firm as may be designated by the Executive
(the "Accounting Firm"), which shall provide detailed supporting
calculations both to the Company and the Executive within 15 business
days of the receipt of notice from the Executive that there has been a
Payment, or such earlier time as is requested by the Company.
7.3 The Executive shall notify the Company in writing of any
claim by the Internal Revenue Service that, if successful, would
require the payment by the Company of the Gross-Up Payment. Such
notification shall be given as soon as practicable but no later than
ten business days after the Executive is informed in writing of such
claim.
7.4 If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 7.3, the Executive becomes
entitled to receive any refund with respect to such claim, the
Executive shall (subject to the Company's complying with the
requirements of Section 7.3) promptly pay to the Company the amount of
such refund (together with any interest paid or credited thereon after
taxes applicable thereto).
9
<PAGE> 10
8. CONFIDENTIAL INFORMATION; NONCOMPETITION.
8.1 Nondisclosure. The Executive shall hold in fiduciary
capacity for the benefit of the Company all secret, proprietary or
confidential information, knowledge or data relating to the Company and
its businesses, which shall have been obtained by the Executive during
the Executive's employment by the Company. During the period the
Executive is employed with the Company, and after termination of the
Executive's employment with the Company, the Executive shall not,
without the prior written consent of the Company or as may otherwise be
required by law or legal process, communicate or divulge any such
information, knowledge or data to anyone other than the Company and
those designated by it. The restrictions set forth in this Section 8
will not apply to information which is generally known to the public or
in the trade, unless such knowledge results from an unauthorized
disclosure by the Executive or representatives of the Executive in
violation of this Agreement. This exception will not affect the
application of any other provisions of this Agreement to such
information in accordance with the terms of such provision. All
documents and tangible things embodying or containing confidential
information are the Company's exclusive property. The Executive will
protect the confidentiality of their content and will return all
copies, facsimiles and specimens of them and any other form of
confidential information in the Executive's possession, custody or
control to the Company before leaving the employment with the Company.
8.2 Competition. During the term of the Executive's employment
with the Company, and for a period of _________ (__) months thereafter
(equal to one-half of the total months of the term of this Agreement),
the Executive will not, directly or indirectly, engage, participate or
invest in or be employed by any business anywhere in the world which:
(a) Develops or manufactures products which are
competitive with or similar to products developed or
manufactured by the Company;
(b) Distributes, markets or otherwise sells products
manufactured by others which are competitive with or similar
to products distributed, marketed or sold by the Company; or
(c) Provides services which are competitive with or
similar to services provided by the Company, including, in
each case, any products or services the Company has under
development or which are the subject of active planning at any
time during the term of the Executive's employment. The
foregoing restriction shall apply regardless of the capacity
in which the Executive engages or engaged, participates or
participated, or invests or invested in or is employed by a
given business, whether as owner, partner,
10
<PAGE> 11
shareholder, consultant, agent, employee, co-venturer or
otherwise. In addition, during the term of the Executive's
employment with the Company, and for a period of __________
(__) months thereafter, the Executive will not, directly or
indirectly, without the prior written consent of the Company,
hire or solicit for hire with any business any person who is
employed by the Company at such time or was employed by the
Company within the preceding _________ (__) months. The
provisions of this Section 8 shall not prevent the Executive
from acquiring or holding publicly traded stock or other
publicly traded securities of a business, so long as the
Executive's ownership does not exceed ten percent (10%) of the
outstanding securities of such company of the same class as
those held by the Executive or from engaging in any activity
or having an ownership interest in any business that is
reviewed by the Board of Directors. The Executive understands
that the restrictions set out in this Section 8 are intended
to protect the Company's interest in its secret, proprietary
or confidential information and established customer
relationships and goodwill, and agrees that such restrictions
are reasonable and appropriate for this purpose.
8.3 Damages. The Executive agrees that it would be difficult
to measure any damages caused to the Company which might result from
any breach by the Executive of the promises set forth in this
Agreement, and that in any event money damages would be an inadequate
remedy for any such breach. Accordingly, the Executive agrees that in
the case of breach, or proposed breach, of any portion of this
Agreement, the Company shall be entitled, in addition to all other
remedies that it may have, to an injunction or other appropriate
equitable relief to restrain any such breach without showing or proving
any actual damage to the Company. However, in no event shall an
asserted violation of the provisions of this Section 8 constitute a
basis for deferring or withholding any amounts otherwise payable to the
Executive under this Agreement.
9. SUCCESSORS.
9.1 This Agreement is personal to the Executive and without
the prior written consent of the Company shall not be assigned by the
Executive otherwise than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be
enforceable by the Executive's legal representatives.
9.2 This Agreement shall inure to the benefit of and be
binding upon the Company and its successors and assigns.
9.3 The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to
assume expressly and agree to perform this Agreement in the same manner
and to the same extent that the Company would
11
<PAGE> 12
be required to perform it if no such succession had taken
place. As used in this Agreement, "Company" shall mean the
Company as hereinbefore defined and any successor to its
business and/or assets as aforesaid which assumes and agrees
to perform this Agreement by operation of law, or otherwise.
10. MISCELLANEOUS.
10.1 This Agreement shall be governed by and construed in
accordance with the laws of the State of Arizona, without reference to
principles of conflict of laws. The captions of this Agreement are set
forth for convenience only and shall have no separate force or effect.
This Agreement may not be amended or modified otherwise than by a
written agreement executed by the parties hereto or their respective
successors and legal representatives.
10.2 All notices and other communications hereunder shall be
in writing and shall be given by hand delivery to the other party or by
registered or certified mail, return receipt requested, postage
prepaid, addressed as follows:
If to the Executive: ___________________________
___________________________
___________________________
If to the Company: Simula, Inc.
ATTN: Corporate Secretary
2700 North Central Avenue, Suite 1000
Phoenix, Arizona 85004
or to such other address as either party shall have furnished to the
other in writing in accordance herewith. Notice and communications
shall be effective when actually received by the addressee.
10.3 The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any
other provision of this Agreement.
10.4 The Company may withhold from any amounts payable under
this Agreement such Federal, state, local or foreign taxes as shall be
required to be withheld pursuant to any applicable law or regulation.
10.5 The Executive's or the Company's failure to insist upon
strict compliance with any provision hereof or any other provision of
this Agreement or
12
<PAGE> 13
the failure to assert any right the Executive or the Company may have
hereunder, including, without limitation, the right of the Executive to
terminate employment for Good Reason pursuant to Section 3.3 of this
Agreement, shall not be deemed to be a waiver of such provision or
right or any other provision or right of this Agreement.
IN WITNESS WHEREOF, pursuant to the authorization from its Compensation
Committee and Board of Directors, the Company has caused this Agreement to be
executed in its name on its behalf, as of the day and year first above written.
SIMULA, INC.
By
------------------------------------
Title
---------------------------------
--------------------------------------
Executive
13
<PAGE> 1
EXHIBIT 21
<PAGE> 2
SUBSIDIARIES OF SIMULA, INC.
Simula Transportation Equipment Corporation
Airline Interiors, Inc.
Artcraft Industries Corp.
Coach and Car Equipment Corporation
Simula Safety Systems, Inc.
Simula Technologies, Inc.
Simula Automotive Safety Devices, Inc.
Simula Automotive Safety Devices, Limited
International Center for Safety Education, Inc.
Viatech, Inc.
Intaero, Ltd.
Simula Protective Systems, Limited
<PAGE> 1
EXHIBIT 24
<PAGE> 2
POWER OF ATTORNEY
The undersigned officer and/or director of SIMULA, INC. (the "Company")
does hereby constitute and appoint Bradley P. Forst and Sean K. Nolen with full
power of substitution, my true and lawful attorney and agent, to do any and all
acts and things in my name in the capacity indicated below, and to execute any
and all instruments for me and in my name in the capacities indicated below
that he may deem necessary or advisable to enable the Company to register
securities and comply with the Securities Act of 1933, the Securities Exchange
Act of 1934, and any rules, regulations and requirements of the Securities and
Exchange Commission in connection with periodic reports on Form 3, Form 4, Form
5, and Form 144, covering such shares of preferred stock, common stock,
options, warrants, or other securities of the Company that I may acquire or
dispose of, including specifically, but not limited to, the power and authority
to sign for me in the capacity indicated below any and all amendments thereto;
and I do hereby ratify and confirm all that Bradley P. Forst or Sean K. Nolen
shall do or cause to be done by virtue hereof.
Dated this 3rd day of March, 1998.
/s/ Donald W. Townsend
-------------------------------
DONALD W. TOWNSEND
PRESIDENT AND DIRECTOR
<PAGE> 3
POWER OF ATTORNEY
The undersigned officer and/or director of SIMULA, INC. (the "Company")
does hereby constitute and appoint Sean K. Nolen with full power of
substitution, my true and lawful attorney and agent, to do any and all acts and
things in my name in the capacity indicated below, and to execute any and all
instruments for me and in my name in the capacities indicated below that he may
deem necessary or advisable to enable the Company to register securities and
comply with the Securities Act of 1933, the Securities Exchange Act of 1934, and
any rules, regulations and requirements of the Securities and Exchange
Commission in connection with periodic reports on Form 3, Form 4, Form 5, and
Form 144, covering such shares of preferred stock, common stock, options,
warrants, or other securities of the Company that I may acquire or dispose of,
including specifically, but not limited to, the power and authority to sign for
me in the capacity indicated below any and all amendments thereto; and I do
hereby ratify and confirm all that Sean K. Nolen shall do or cause to be done by
virtue hereof.
Dated this 3rd day of March, 1998.
/s/ Bradley P. Forst
-------------------------------
BRADLEY P. FORST
VICE PRESIDENT, GENERAL COUNSEL,
CORPORATE SECRETARY, AND DIRECTOR
<PAGE> 4
POWER OF ATTORNEY
The undersigned officer and/or director of SIMULA, INC. (the "Company")
does hereby constitute and appoint Bradley P. Forst with full power of
substitution, my true and lawful attorney and agent, to do any and all acts and
things in my name in the capacity indicated below, and to execute any and all
instruments for me and in my name in the capacities indicated below that he may
deem necessary or advisable to enable the Company to register securities and
comply with the Securities Act of 1933, the Securities Exchange Act of 1934, and
any rules, regulations and requirements of the Securities and Exchange
Commission in connection with periodic reports on Form 3, Form 4, Form 5, and
Form 144, covering such shares of preferred stock, common stock, options,
warrants, or other securities of the Company that I may acquire or dispose of,
including specifically, but not limited to, the power and authority to sign for
me in the capacity indicated below any and all amendments thereto; and I do
hereby ratify and confirm all that Bradley P. Forst shall do or cause to be done
by virtue hereof.
Dated this 3rd day of March, 1998.
/s/ Sean K. Nolen
-------------------------------
SEAN K. NOLEN
VICE PRESIDENT, CHIEF FINANCIAL
OFFICER, TREASURER, AND DIRECTOR
<PAGE> 5
POWER OF ATTORNEY
The undersigned officer and/or director of SIMULA, INC. (the "Company")
does hereby constitute and appoint Bradley P. Forst and Sean K. Nolen with full
power of substitution, my true and lawful attorney and agent, to do any and all
acts and things in my name in the capacity indicated below, and to execute any
and all instruments for me and in my name in the capacities indicated below
that he may deem necessary or advisable to enable the Company to register
securities and comply with the Securities Act of 1933, the Securities Exchange
Act of 1934, and any rules, regulations and requirements of the Securities and
Exchange Commission in connection with periodic reports on Form 3, Form 4, Form
5, and Form 144, covering such shares of preferred stock, common stock,
options, warrants, or other securities of the Company that I may acquire or
dispose of, including specifically, but not limited to, the power and authority
to sign for me in the capacity indicated below any and all amendments thereto;
and I do hereby ratify and confirm all that Bradley P. Forst or Sean K. Nolen
shall do or cause to be done by virtue hereof.
Dated this 3rd day of March, 1998.
/s/ Stanley P. Desjardins
-------------------------------
S.P. DESJARDINS
CHAIRMAN
<PAGE> 6
POWER OF ATTORNEY
The undersigned officer and/or director of SIMULA, INC. (the "Company")
does hereby constitute and appoint Bradley P. Forst and Sean K. Nolen with full
power of substitution, my true and lawful attorney and agent, to do any and all
acts and things in my name in the capacity indicated below, and to execute any
and all instruments for me and in my name in the capacities indicated below
that he may deem necessary or advisable to enable the Company to register
securities and comply with the Securities Act of 1933, the Securities Exchange
Act of 1934, and any rules, regulations and requirements of the Securities and
Exchange Commission in connection with periodic reports on Form 3, Form 4, Form
5, and Form 144, covering such shares of preferred stock, common stock,
options, warrants, or other securities of the Company that I may acquire or
dispose of, including specifically, but not limited to, the power and authority
to sign for me in the capacity indicated below any and all amendments thereto;
and I do hereby ratify and confirm all that Bradley P. Forst or Sean K. Nolen
shall do or cause to be done by virtue hereof.
Dated this 3rd day of March, 1998.
/s/ John M. Leinonen
-------------------------------
JOHN M. LEINONEN
DIRECTOR
<PAGE> 7
POWER OF ATTORNEY
The undersigned officer and/or director of SIMULA, INC. (the "Company")
does hereby constitute and appoint Bradley P. Forst and Sean K. Nolen with full
power of substitution, my true and lawful attorney and agent, to do any and all
acts and things in my name in the capacity indicated below, and to execute any
and all instruments for me and in my name in the capacities indicated below
that he may deem necessary or advisable to enable the Company to register
securities and comply with the Securities Act of 1933, the Securities Exchange
Act of 1934, and any rules, regulations and requirements of the Securities and
Exchange Commission in connection with periodic reports on Form 3, Form 4, Form
5, and Form 144, covering such shares of preferred stock, common stock,
options, warrants, or other securities of the Company that I may acquire or
dispose of, including specifically, but not limited to, the power and authority
to sign for me in the capacity indicated below any and all amendments thereto;
and I do hereby ratify and confirm all that Bradley P. Forst or Sean K. Nolen
shall do or cause to be done by virtue hereof.
Dated this 3rd day of March, 1998.
/s/ Robert D. Olliver
-------------------------------
ROBERT D. OLLIVER
DIRECTOR
<PAGE> 8
POWER OF ATTORNEY
The undersigned officer and/or director of SIMULA, INC. (the "Company")
does hereby constitute and appoint Bradley P. Forst and Sean K. Nolen with full
power of substitution, my true and lawful attorney and agent, to do any and all
acts and things in my name in the capacity indicated below, and to execute any
and all instruments for me and in my name in the capacities indicated below
that he may deem necessary or advisable to enable the Company to register
securities and comply with the Securities Act of 1933, the Securities Exchange
Act of 1934, and any rules, regulations and requirements of the Securities and
Exchange Commission in connection with periodic reports on Form 3, Form 4, Form
5, and Form 144, covering such shares of preferred stock, common stock,
options, warrants, or other securities of the Company that I may acquire or
dispose of, including specifically, but not limited to, the power and authority
to sign for me in the capacity indicated below any and all amendments thereto;
and I do hereby ratify and confirm all that Bradley P. Forst or Sean K. Nolen
shall do or cause to be done by virtue hereof.
Dated this 3rd day of March, 1998.
/s/ Scott E. Miller
-------------------------------
SCOTT E. MILLER
DIRECTOR
<PAGE> 9
POWER OF ATTORNEY
The undersigned officer and/or director of SIMULA, INC. (the "Company")
does hereby constitute and appoint Bradley P. Forst and Sean K. Nolen with full
power of substitution, my true and lawful attorney and agent, to do any and all
acts and things in my name in the capacity indicated below, and to execute any
and all instruments for me and in my name in the capacities indicated below
that he may deem necessary or advisable to enable the Company to register
securities and comply with the Securities Act of 1933, the Securities Exchange
Act of 1934, and any rules, regulations and requirements of the Securities and
Exchange Commission in connection with periodic reports on Form 3, Form 4, Form
5, and Form 144, covering such shares of preferred stock, common stock,
options, warrants, or other securities of the Company that I may acquire or
dispose of, including specifically, but not limited to, the power and authority
to sign for me in the capacity indicated below any and all amendments thereto;
and I do hereby ratify and confirm all that Bradley P. Forst or Sean K. Nolen
shall do or cause to be done by virtue hereof.
Dated this 3rd day of March, 1998.
/s/ James C. Withers
-------------------------------
JAMES C. WITHERS
DIRECTOR
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