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As filed with the Securities and Exchange Commission on April 5, 2011

Registration No. 333-171547

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

AMENDMENT NO. 3 TO

Form S-4

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

COLT DEFENSE LLC

COLT FINANCE CORP.

(Exact Name of Registrant as Specified in Its Charter)


Delaware	3840	32-0031950
Delaware	3840	27-1237687
(State or Other Jurisdiction of	(Primary Standard Industrial	(I.R.S. Employer
Incorporation or Organization)	Classification Code Number)	Identification No.)


		Scott B. Flaherty
		Chief Financial Officer
547 New Park Avenue		547 New Park Avenue
West Hartford, Connecticut 06110		West Hartford, Connecticut 06110
(860) 232-4489		(860) 232-4489
(Address, Including Zip Code, and Telephone Number,		(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant’s Principal Executive Offices)		Including Area Code, of Agent for Service)

Copies of communications to:

Jeffrey Grody
General Counsel and Secretary
547 New Park Avenue
West Hartford, Connecticut 06110
(860) 232-4489

William J. Miller, Esq.
Cahill Gordon & Reindel llp
80 Pine Street
New York, New York 10005
Telephone No.: (212) 701-3000
Facsimile No.: (212) 269-5420

Approximate date of commencement of proposed sale of the securities to the public: As soon as practicable after this Registration Statement becomes effective.

If the securities being registered on this form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. o

If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

Indicate by a check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definition of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check one):


Large accelerated filer o	Accelerated filer o	Non-accelerated filer þ	Smaller reporting company o
	(Do not check if a smaller reporting company)

If applicable, place an X in the box to designate the appropriate rule provision relied upon in conducting this transaction:

Exchange Act Rule 13e-4(i) (Cross-Border Issuer Tender Offer) o

Exchange Act Rule 14d-1(d) (Cross-Border Third-Party Tender Offer) o

CALCULATION OF REGISTRATION FEE

Proposed

Maximum

Amount of

Title of Each Class

Amount

Offering Price

Aggregate

Registration

of Securities to be Registered

to be Registered

Per Unit(1)

Offering Price(1)

Fee(2)(3)

8.75% Senior Notes due 2017

$250,000,000

100.000%

$250,000,000

$29,025.00


(1)		Estimated solely for purposes of calculating the registration fee pursuant to Rule 457(f) of the Securities Act of 1933.

(2)		Calculated pursuant to Rule 457(f)(2) of the Securities Act of 1933. Paid by wire transfer on January 3, 2011.

(3)		No separate consideration will be received for the guarantees, and no separate fee is payable pursuant to Rule 457(n) of the Securities Act.

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment that specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

SUBJECT TO COMPLETION, DATED , 2011

PRELIMINARY PROSPECTUS

COLT DEFENSE LLC
COLT FINANCE CORP.

Offer to Exchange

Outstanding 8.75% Senior Notes due 2017
for
Registered 8.75% Senior Notes due 2017

We are offering to exchange up to $250,000,000 aggregate principal amount of our registered 8.75% senior notes due 2017, or the “registered notes,” for up to a like aggregate principal amount of our outstanding 8.75% senior notes due 2017, or the “outstanding notes.” As of the date of this prospectus, there is outstanding $250,000,000 aggregate principal amount of the outstanding notes. The terms of the registered notes are substantially identical to the terms of the outstanding notes, except that the registered notes are registered under the Securities Act of 1933, as amended, or the “Securities Act,” and the transfer restrictions and registration rights and related additional interest provisions applicable to the outstanding notes do not apply to the registered notes. The registered notes will represent the same debt as the outstanding notes and we will issue the registered notes under the same indenture.

The exchange offer will expire at 5:00 p.m., New York City time, on , 2011, unless extended.

Terms of the Exchange Offer


	•	All outstanding notes that are validly tendered and not validly withdrawn prior to the expiration of the exchange offer will be exchanged for the registered notes.

	•	You may withdraw tendered outstanding notes at any time before the exchange offer expires.

	•	The exchange of the outstanding notes for the registered notes will not be a taxable event for federal income tax purposes.

	•	We will not receive any proceeds from the exchange offer.

	•	The exchange offer is subject to customary conditions, including the conditions that the exchange offer not violate applicable law or any applicable interpretation of the staff of the Securities and Exchange Commission.

	•	We can amend or terminate the exchange offer.

The Registered Notes


	•	The registered notes are being offered in order to satisfy our obligations under the registration rights agreement entered in connection with the private offering of the outstanding notes.

	•	The registered notes will be our general senior unsecured obligations.

	•	No public market currently exists for the registered notes. We do not intend to apply for listing of the registered notes on any securities exchange or to arrange for them to be quoted on any quotation system.

Before participating in the exchange offer, please refer to the section in this prospectus entitled “Risk Factors” beginning on page 9.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the registered notes or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The date of this prospectus is , 2011

TABLE OF CONTENTS


	Page

Forward-Looking Statements		ii
Market and Industry Data and Forecasts		iii
Prospectus Summary		1
Risk Factors		9
Use of Proceeds		24
Ratio of Earnings to Fixed Charges		25
Capitalization		26
Selected Historical Consolidated Financial Data		27
Management’s Discussion and Analysis of Financial Condition and Results of Operations		29
Business		47
Management		63
Compensation Discussion and Analysis		66
Security Ownership of Certain Beneficial Owners and Management		76
Certain Relationships and Related Party Transactions		78
Description of Other Indebtedness		79
The Exchange Offer		80
Description of the Registered Notes		89
Material U.S. Federal Income Tax Considerations		146
Certain ERISA Considerations		147
Plan of Distribution		147
Legal Matters		148
Experts		148
Available Information		148
Index to Consolidated Financial Statements		F-2
EX-5.1
EX-23.1
EX-23.2

In making your investment decision, you should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with any other information. If you receive any other information, you should not rely on it. We are offering to sell the notes only in places where offers and sales are permitted. You should not assume that the information contained in this prospectus is accurate as of any date other than the date printed on the front of this prospectus.

In this prospectus, references to, unless otherwise indicated or the content otherwise requires:


	•	the terms “the Company,” “Colt,” “we,” “us” and “our,” collectively, refer to Colt Defense LLC, its subsidiaries and predecessors;

	•	“Colt Finance Corp.” or “Colt Finance” refers to Colt Finance Corp., a Delaware corporation and a wholly-owned subsidiary of the Company that was incorporated for the purpose of serving as a co-issuer of the notes in order to accommodate the issuance thereof by the Company, and (a) does not have any operations, assets or revenues of any kind other than as may be incidental to its activities as co-issuer of the notes and (b) has no obligations other than the notes; holders of the notes should not expect Colt Finance to participate in servicing the interest and principal obligations on the notes;

	•	the term “Colt’s Manufacturing” refers to Colt’s Manufacturing Company LLC, a Delaware limited liability company, an affiliate of one of our sponsors that we do not control;

	•	“notes” refers collectively to the outstanding notes and the registered notes; and

	•	“indenture” refers to the indenture that applies to both the outstanding notes and the registered notes.

FORWARD-LOOKING STATEMENTS

This prospectus includes statements that are or may be deemed to be “forward looking statements.” One can identify these forward-looking statements by the use of the words such as “expect,” “anticipate,” “plan,” “may,” “will,” “estimate” or other similar expressions. One should understand that many factors could cause actual results to differ from those expressed or implied in the forward-looking statements. These factors include those discussed below as well as inaccurate assumptions. Because these forward-looking statements involve risks and uncertainties, you should be aware that there are important factors that could cause our actual results, level of activity, performance or achievements to differ materially from the results, level of activity, performance or achievements expressed or implied by these forward-looking statements including, but not limited to:


	•	our dependence on sales to the U.S. Government;

	•	changes to U.S. Government spending priorities;

	•	our continued eligibility to contract with the U.S. Government or Department of Defense;


	•	the selection by the U.S. military of other arms manufacturers to manufacture the M4 carbine or any successor weapons;


	•	our inability to compete successfully for contracts that are the subject of competitive solicitations;

	•	the loss of any of our top international customers;

	•	the potential for a strike, other work stoppages or labor unrest at our manufacturing facilities;

	•	our ability to comply with complex procurement laws and regulations;

	•	our ability to implement effective business plans in the industries in which we operate;

	•	our ability to adapt to technological change;

	•	our ability to compete in the industries in which we operate;

	•	the potential for our backlog to be reduced or cancelled;

	•	the risks of doing business internationally, including conditions that may cause customers to delay placing orders;

	•	our ability to implement our acquisition strategy and integrate our acquired companies successfully;

	•	the availability and timely delivery of materials to us by our suppliers;

	•	our ability to manage costs under our fixed-price contracts effectively;

	•	our ability to attract and retain qualified personnel;

	•	the ability to protect our intellectual property rights;

	•	fluctuations in workers’ compensation and health care costs for our employees;

	•	our ability to comply with environmental, health and safety laws and regulations;

	•	our ability to maintain and upgrade our manufacturing capabilities to stay competitive;

	•	our ability to comply with covenants under our revolving credit facility; and

	•	the potential for a fire or other significant casualty to occur at either of our manufacturing facilities.

These factors should not be construed as exhaustive and should be read with other cautionary statements in this prospectus as well as the “Risk Factors” section of this prospectus.

Any forward-looking statements which we make in this prospectus speak only as of the date of such statement, and we undertake no obligation to update such statements. Comparisons of results for current and any prior periods are not intended to express any future trends or indications of future performance, unless expressed as such, and should only be viewed as historical data.

PROSPECTUS SUMMARY

This summary highlights selected information about our business and the exchange offer. It is not complete and may not contain all the information that may be important to you. We urge you to read and review the entire prospectus, including “Risk Factors,” together with the more detailed business information and consolidated financial statements and related notes that are included elsewhere in this prospectus before deciding to participate in the exchange offer. As used herein, “small arms weapons systems” refer to small arms, accessories and related systems that are designed to be carried and used by individual soldiers, government agents and law enforcement personnel; and “law enforcement,” or “LE,” refers to non-military personnel in domestic and foreign government agencies that are responsible for enforcing laws, keeping peace or providing domestic or international security, such as national guard units, foreign security services, corrections officers, the Department of Homeland Security, the U.S. Secret Service, police departments, SWAT teams and other emergency response units.

Overview

We are one of the world’s leading designers, developers and manufacturers of small arms weapons systems for individual soldiers and law enforcement personnel, and have been expanding our portfolio of products and services to meet evolving military and law enforcement requirements around the world. Our products have proven themselves under the most severe battle conditions, including the jungles of Vietnam, the deserts of the Middle East, the urban centers of Iraq and the mountains of Afghanistan.

We have supplied small arms weapons systems to more than 80 countries. We have been the U.S. military’s sole supplier of the M4 carbine, the U.S. Army’s standard issue rifle, and are the Canadian military’s exclusive supplier of the C8 carbine and C7 rifle. We also sell small arms weapons systems to U.S., Canadian and foreign law enforcement agencies. Furthermore, our development and sales of M4 carbines and the more than 45 years of sales of M16 rifles, have resulted in a global installed base of more than 7 million of these small arms weapons systems. Our expertise in developing small arms weapons systems enables us to integrate new technologies and features into the large installed base, and diversify our revenue sources by adding related products and services, investing in new technologies and seeking strategic acquisitions, co-production opportunities and other alliances. We have been a leading supplier of small arms weapons systems to the U.S. military since the Mexican-American War in 1847 and have supplied our products to international customers for nearly as long.

Our facilities in West Hartford, Connecticut and in Kitchener, Ontario, Canada manufacture and sell military rifles, carbines and related products and services as well as law enforcement model products in the United States and internationally.

On December 1, 2010, we ceased operating Colt Rapid Mat LLC, or “Colt Rapid Mat,” a non-core business with a manufacturing facility in Delhi, Louisiana engaged in the manufacture and sale of runway repair systems. No significant proceeds are expected from the liquidation of assets. In addition, there are no material costs or ongoing commitments associated with the closure. We dissolved Colt Rapid Mat as of December 31, 2010.

Substantially all of our operations are conducted through Colt Defense LLC, the co-issuer of the outstanding notes. Colt Finance Corp. was formed solely to be co-issuer of the notes and has no operations or independent sources of income. As of November 10, 2009, the issuance date of the notes, our domestic subsidiary Colt Rapid Mat was a guarantor of the outstanding notes. As discussed elsewhere in this prospectus, Colt Rapid Mat was dissolved as of December 31, 2010. As of the dissolution date, Colt Rapid Mat ceased being a guarantor of the outstanding notes. No other subsidiaries, domestic or foreign, guarantee the outstanding notes.

Additional Information

Colt Defense LLC is a Delaware limited liability company. Colt Finance Corp. is a Delaware corporation. Our principal executive offices are located at 547 New Park Avenue, West Hartford, Connecticut 06110. Our telephone number is (860) 232-4489.

Summary of the Terms of the Exchange Offer

The following is a summary of the terms of the exchange offer. For a more complete description of the exchange offer, see “The Exchange Offer.”


Background		On November 10, 2009, we completed a private placement of $250,000,000 aggregate principal amount of the outstanding notes. In connection with that private placement, we and the initial purchasers entered into a registration rights agreement for the benefit of the holders of the outstanding notes. As described below, under the registration rights agreement, we agreed to, among other things, deliver this prospectus to you and to consummate the exchange offer for the outstanding notes within 540 days following the issue date of the outstanding notes. If we do not consummate the exchange offer for the outstanding notes by such date, we will be required to pay additional interest on the outstanding notes until the exchange offer is completed.

The Exchange Offer		We are offering to exchange the registered notes which have been registered under the Securities Act for a like principal amount of the outstanding notes. You may only tender outstanding notes in minimal denominations of $2,000 principal amount and integral multiples of $1,000 in excess thereof. See “The Exchange Offer — Terms of the Exchange Offer.”

Registration Rights Agreement		On November 10, 2009, we and the initial purchasers entered into a registration rights agreement for the benefit of the holders of the outstanding notes. The registration rights agreement provides that if we do not consummate the exchange offer for the outstanding notes within 540 days following the issue date of the outstanding notes, we are required to pay additional interest on the outstanding notes at an initial rate of 0.25% per annum. The additional interest will increase by an additional 0.25% per annum with respect to each 90-day period until the exchange offer is consummated, up to a maximum of 1.00% per annum. After the exchange offer is complete, except as set forth in the next paragraph, you will no longer be entitled to any exchange or registration rights with respect to your outstanding notes. The registration rights agreement requires us to file a shelf registration statement for a continuous offering in accordance with Rule 415 under the Securities Act for your benefit if:

		• the exchange offer is not consummated within 540 days following the issue date of the outstanding notes;

		• we are not permitted to consummate the exchange offer because the exchange offer would violate applicable law or SEC policy; or


		• you are a broker-dealer and hold outstanding notes acquired directly from us or any of our affiliates.

Expiration Date		The exchange offer will expire at 5:00 p.m., New York City time, on , 2011, or a later date and time to which we may extend it. We do not currently intend to extend the expiration of the exchange offer.

		See “The Exchange Offer — Expiration Date; Extensions; Amendments.”

Withdrawal		You may withdraw your tender of outstanding notes in the exchange offer at any time before the expiration of the exchange offer. Any outstanding notes not accepted for exchange for any reason will be returned without expense to you promptly after the expiration or termination of the exchange offer. See “The Exchange Offer — Withdrawal of Tenders.”

Exchange Date		The date of acceptance for exchange of the outstanding notes is the exchange date, which will be as soon as practicable following the expiration date of the exchange offer. See “The Exchange Offer — Terms of the Exchange Offer.”

Issuance of Registered Notes		We will issue registered notes in exchange for outstanding notes tendered and accepted in the exchange offer promptly following the exchange date. See “The Exchange Offer — Terms of the Exchange Offer.”

Conditions to the Exchange Offer		The exchange offer is subject to customary conditions, which we may assert or waive. See “The Exchange Offer — Conditions to the Exchange Offer.”

Procedures for Tendering Outstanding Notes		We issued all of the outstanding notes as global securities in fully registered form without coupons. Beneficial interests in the outstanding notes which are held by direct or indirect participants in The Depository Trust Company through certificate less depositary interests are shown on, and transfers of the outstanding notes can be made only through, records maintained in book-entry form by DTC with respect to its participants.

		If you wish to participate in the exchange offer, you must complete, sign and date the accompanying letter of transmittal, or a facsimile of the letter of transmittal, according to the instructions contained in this prospectus and the letter of transmittal. You must then mail or otherwise deliver the letter of transmittal, or a facsimile of the letter of transmittal, together with the outstanding notes and any other required documents, to the exchange agent at the address set forth on the cover page of the letter of transmittal. See “The Exchange Offer — Procedures for Tendering.”

Special Procedures for Beneficial Owners		If you are a beneficial owner whose outstanding notes are registered in the name of a broker, dealer, commercial bank, trust company or other nominee, and you want to tender outstanding notes in the exchange offer, you should contact the registered owner promptly and instruct the registered holder to tender on your


		behalf. If you wish to tender in the exchange offer on your own behalf, you must, before completing and executing the letter of transmittal and delivering your outstanding notes, either make appropriate arrangements to register ownership of the outstanding notes in your name or obtain a properly completed bond power from the registered holder. The transfer of registered ownership may take considerable time. See “The Exchange Offer — Procedures for Tendering.”

Guaranteed Delivery Procedures		If you wish to tender your outstanding notes, and time will not permit your required documents to reach the exchange agent by the expiration date, or the procedure for book-entry transfer cannot be completed on time, you may tender your outstanding notes under the procedures described under “The Exchange Offer — Guaranteed Delivery Procedures.”

Resales		Under existing interpretations of the Securities Act by the staff of the SEC contained in several no-action letters to third parties, and subject to the immediately following sentence, we believe that the registered notes will generally be freely transferable by holders after the exchange offer without further compliance with the registration and prospectus delivery requirements of the Securities Act, if:

		• you are not one of our “affiliates” as defined in Rule 405 under the Securities Act;

		• you are acquiring the registered notes in the ordinary course of your business; and

		• you have not engaged in, do not intend to engage in and have no arrangement or understanding with any person to participate in a distribution of the registered notes.

		If you are our affiliate, or are engaging in, or intend to engage in, or have any arrangement or understanding with any person to participate in, a distribution of the registered notes, or are not acquiring the registered notes in the ordinary course of your business, you will not be able to rely on the interpretations of the staff of the SEC, will not be permitted to tender outstanding notes in the exchange offer and, in the absence of any exemption, you must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale of the registered notes.

		Our belief that transfers of registered notes would be permitted without registration or prospectus delivery under the conditions described above is based on SEC interpretations given to other, unrelated issuers in similar exchange offers. We cannot assure you that the SEC would make a similar interpretation with respect to our exchange offer. We will not be responsible for or indemnify you against any liability you may incur under the Securities Act.

		If you are a broker-dealer and receive registered notes for your own account in exchange for outstanding notes that you acquired as a result of market-making or other trading activity, you must acknowledge that you will deliver this prospectus in connection


		with any resale of the registered notes. See “Plan of Distribution.” We do not intend to list the registered notes on any securities exchange or for quotation on an automated dealer quotation system. Accordingly, there can be no assurance that an active market will develop for the registered notes upon completion of the exchange offer or, if developed, that such market will be sustained or as to the liquidity of any market.

Consequences of Failure to Exchange		Outstanding notes that are not tendered in the exchange offer or are not accepted for exchange will continue to bear legends restricting their transfer. You will not be able to offer or sell such outstanding notes:

		• except pursuant to an exemption from the requirements of the Securities Act;

		• unless the outstanding notes are registered under the Securities Act; or

		• if neither such registration nor such exemption is required by law.

Exchange Agent		Wilmington Trust FSB is serving as the exchange agent in connection with the exchange offer. The address and telephone number of the exchange agent are set forth in the section entitled “Exchange Offer — Exchange Agent.”

Use of Proceeds		We will not receive any cash proceeds from the issuance of the registered notes in the exchange offer. See “Use of Proceeds.”

Accounting Treatment		We will not recognize any gain or loss for accounting purposes upon completion of the exchange offer.

U.S. Federal Tax Considerations		The exchange of the outstanding notes will not be a taxable exchange for federal income tax purposes. See “Certain U.S. Federal Income Tax Considerations.”

Summary of the Terms of the Registered Notes

The following is a summary of the principal terms of the registered notes. Certain of the terms and conditions described below are subject to important limitations and exceptions. The “Description of the Registered Notes” section of this prospectus contains a more detailed description of the terms and conditions of the registered notes.


Co-Issuers		Colt Defense LLC and Colt Finance Corp.

Registered Notes Offered		$250.0 million aggregate principal amount of registered 8.75% senior notes due 2017. The registered notes will evidence the same debt as the outstanding notes and will be issued under, and entitled to the benefits of, the same indenture. The registered notes will be identical in all material respects to the outstanding notes for which they have been exchanged, except:

		• the registered notes have been registered under the Securities Act and thus generally will not be subject to restrictions on transfer applicable to the outstanding notes or bear restrictive legends;

		• the registered notes will bear a different CUSIP number from the outstanding notes;

		• registered notes will not be entitled to registration rights; and

		• registered notes will not have the right to earn additional interest under circumstances relating to our registration obligations.


Maturity		November 15, 2017.


Interest Payment Dates		May 15 and November 15 of each year.


Guarantees		Following the dissolution of Colt Rapid Mat, as discussed elsewhere in this prospectus and as of the date of this prospectus, none of our subsidiaries will guarantee the registered notes. Any subsidiaries that in the future guarantee our indebtedness, including indebtedness under our letter of credit facility, or indebtedness of any subsidiary guarantor, will guarantee the registered notes on a senior unsecured basis. Under certain circumstances, subsidiaries may be released from these guarantees without the consent of the holders of the registered notes. See “Description of the Registered Notes — Subsidiary guarantees.”


Ranking		The registered notes will constitute senior unsecured debt of the Company and will have the same ranking as the outstanding notes. The outstanding notes:

		• are our senior unsecured obligations;

		• effectively junior in right of payment to our secured debt to the extent of the value of the assets securing such debt;

		• rank equally in right of payment with all of our existing and future senior debt;

		• are senior in right of payment to all of our existing and future senior subordinated or subordinated debt; and


		• are structurally subordinated to all of the existing and future liabilities (including trade payables) of each of our subsidiaries that do not guarantee the notes.


		As of December 31, 2010,


		• we had approximately $249.2 million of total indebtedness (including the outstanding notes), of which $2.4 million ranked senior to the outstanding notes and none of which was subordinated to the notes;


		• we had $0.6 million of secured indebtedness represented by letters of credit under our letter of credit facility to which the outstanding notes were effectively subordinated, and had additional commitments under our letter of credit facility available to us of $9.4 million, all of which would be secured if borrowed and effectively senior to the outstanding notes to the extent of the collateral securing such facility; and


		• our non-guarantor subsidiaries had $16.1 million of total liabilities (including trade payables and deferred income, but excluding intercompany liabilities), all of which is structurally senior to the outstanding notes.


Optional Redemption		See also “Risk Factors — Risks related to our indebtedness and the notes.” The registered notes will be redeemable at our option, in whole or in part, at any time on or after November 15, 2013, at the redemption prices set forth in this prospectus, plus accrued and unpaid interest, if any, to the date of redemption.

		At any time prior to November 15, 2013, we may also redeem some or all of the registered notes at a price equal to 100% of the principal amount of the registered notes plus accrued and unpaid interest, if any, plus a make-whole premium.

		At any time prior to November 15, 2012, we may redeem up to 35% of the original principal amount of the registered notes with the proceeds of certain equity offerings at a redemption price of 108.75% of the principal amount of the registered notes, plus accrued and unpaid interest, if any, to the date of redemption.

Change of Control		The occurrence of a change of control will be a triggering event requiring us to offer to purchase from you all or a portion of your registered notes at a price equal to 101% of their principal amount, together with accrued and unpaid interest, if any, to the date of purchase.

Certain Covenants		The indenture governing the notes contains certain covenants limiting our ability and the ability of our restricted subsidiaries to, under certain circumstances:

		• incur, assume or guarantee additional indebtedness;

		• issue redeemable stock and preferred stock;

		• pay dividends or distributions or redeem or repurchase capital stock;


		• prepay, redeem or repurchase debt that is junior in right of payment to the notes;

		• make loans, investments and capital expenditures;

		• incur liens;

		• engage in sale/leaseback transactions;

		• restrict dividends, loans or asset transfers from our subsidiaries to unaffiliated third parties;

		• sell or otherwise dispose of assets, including capital stock of subsidiaries;

		• consolidate or merge with or into, or sell substantially all of our assets to, another person;

		• enter into transactions with affiliates; and

		• enter into new lines of business.

		These covenants are subject to a number of important exceptions and qualifications. For more details, see “Description of the Registered Notes.”

No Prior Public Market		The registered notes will generally be freely transferable but will be a new issue of securities for which there is currently no established market. Accordingly, there can be no assurance as to the development or liquidity of any market for the registered notes. We do not intend to make a trading market in the registered notes after the exchange offer. We do not intend to apply for a listing of the registered notes on any securities exchange or an automated dealer quotation system.

Risk Factors		You should carefully consider the information under “Risk Factors” and all other information included in this prospectus before exchanging your outstanding notes for registered notes.

RISK FACTORS

You should carefully consider the risks described below together with all of the other information included in this prospectus before you decide to participate in the exchange offer. These risks could have a material adverse effect on our business, financial position or results of operations. The following risk factors may not include all of the important factors that could affect our business or our industry or that could cause our future financial results to differ materially from historic or expected results. If any of the following risks occur, you could lose all or part of your investment in, and the expected return on, the notes.

Risks related to our business

We make a significant portion of our sales to a limited number of customers, and a decrease in sales to these customers could have a material adverse effect on our business.

A significant portion of our net sales is derived from a limited number of customers. For the year ended December 31, 2010, our top ten customers represented approximately 91% of our net sales. Our two largest customers accounted for approximately 64% of our net sales for the year ended December 31, 2010. Although we expect sales to our top two customers to decrease as a percentage of total net sales for the year ending December 31, 2011 and thereafter, we expect we will continue to derive a significant portion of our business from sales to these customers. If we were to lose one or more of our top customers, or if one or more of these customers significantly decreased orders for our products, our business would be materially and adversely affected.

We are subject to risks related to a lack of product revenue diversification.

We derive a substantial percentage of our net sales from a limited number of products, especially our M4 carbine and related small arms weapons systems, and we expect these products to continue to account for a large percentage of our net sales in the near term. Continued market acceptance of these products is, therefore, critical to our future success. We cannot predict how long the M4 carbine and related products will continue to be the primary small arms weapons system of choice for the U.S. Government and certain of our other customers. Our business, operating results, financial condition, and cash flows could be adversely affected by:


	•	a decline in demand for the M4 carbine and related small arms weapons systems;

	•	a failure to achieve continued market acceptance of our key products;

	•	export restrictions or other regulatory, legislative or multinational actions which could limit our ability to sell those products to key customers or market segments, especially existing and potential international customers;

	•	improved competitive alternatives to our products gaining acceptance in the markets in which we participate;

	•	increased pressure from competitors that offer broader product lines;

	•	technological change that we are unable to address with our products; or

	•	a failure to release new or enhanced versions of our products to our military or other customers on a timely basis.

Any of the above events could impact our ability to maintain or expand our business with certain customers.

In addition, a contractual requirement that the U.S. Army purchase the M4 carbine and critical spare parts exclusively from us expired on June 30, 2009 and our IDIQ contract with the U.S. Army for the M4 carbine expired on December 31, 2010. The Army has recently awarded contracts for spare parts to a competitor following a competitive solicitation. We can give no assurance that the U.S. military will not select other small arms manufacturers to supply the M4 carbine, or spare parts, for use by U.S. military personnel in the future or that such competing manufacturers will not be able to leverage that position to compete with us in other

markets. In addition, we can give no assurance that the U.S. military will not purchase other small arms weapons systems, supplied by other manufacturers, in lieu of the M4 carbine.

Our long-term growth plan includes the expansion of our global operations. Such global expansion may not prove successful, and may divert significant capital, resources and management time and attention and could adversely affect our ongoing operations.

Net direct sales to customers outside the United States accounted for approximately 38.6% of our net sales for the year ended December 31, 2010. We intend to continue expanding our international presence, which we expect to grow at a faster rate than our U.S. sales. Expanding our international presence will require our management’s time and attention and may detract from our efforts in the United States and our other existing markets and adversely affect our operating results in these markets. Our products and overall marketing approach may not be accepted in other markets to the extent needed to continue the profitability of our international operations. Any further international expansion will likely intensify our risks associated with conducting international operations, including:


	•	difficulty in predicting the timing of international orders and shipments;

	•	increased liquidity requirements as a result of bonding or letters of credit requirements;

	•	unexpected changes in regulatory requirements;

	•	changes in foreign legislation;

	•	multinational agreements restricting international trade in small arms weapons systems;

	•	possible foreign currency controls, currency exchange rate fluctuations or devaluations;

	•	tariffs;

	•	difficulties in staffing and managing foreign operations;

	•	difficulties in obtaining and managing vendors and distributors;

	•	potential negative tax consequences;

	•	greater difficulties in protecting intellectual property rights;

	•	greater potential for violation of U.S. and foreign anti-bribery and export-import laws; and

	•	difficulties collecting or managing accounts receivable.

General economic and political conditions in these foreign markets may also impact our international net sales, as such conditions may cause customers to delay placing orders or to deploy capital to other governmental priorities. These and other factors may have a material adverse effect on our future international net sales.

While part of our strategy is to pursue strategic acquisitions, we may not be able to identify businesses that we can acquire on acceptable terms, we may not be able to obtain necessary financing or may face risks due to additional indebtedness, and our acquisition strategy may incur significant costs or expose us to substantial risks inherent in the acquired business’s operations.

Our strategy of pursuing strategic acquisitions may be negatively impacted by several risks, including the following:


	•	We may not successfully identify companies that have complementary product lines or technological competencies or that can diversify our revenue or enhance our ability to implement our business strategy.

	•	We may not successfully acquire companies if we fail to obtain financing, or to negotiate the acquisition on acceptable terms, or for other related reasons.


	•	We may incur additional expenses due to acquisition due diligence, including legal, accounting, consulting and other professional fees and disbursements. Such additional expenses may be material, will likely not be reimbursed and would increase the aggregate investment cost of any acquisition.

	•	Any acquired business will expose us to the acquired company’s liabilities and to risks inherent to its industry. We may not be able to ascertain or assess all of the significant risks.

	•	We may require additional financing in connection with any future acquisition. Such financing may adversely impact, or be restricted by, our capital structure and our ability to pay amounts owed under the notes when due and payable. Increasing our indebtedness could increase the risk of a default that would entitle the holder to declare all of such indebtedness due and payable, as well as the risk of cross-defaults under other debt facilities.

	•	Achieving the anticipated potential benefits of a strategic acquisition will depend in part on the successful integration of the operations, administrative infrastructures and personnel of the acquired company or companies in a timely and efficient manner. Some of the challenges involved in such an integration include:


	•	demonstrating to the customers of the acquired company that the consolidation will not result in adverse changes in quality, customer service standards or business focus;

	•	preserving important relationships of the acquired company;

	•	coordinating sales and marketing efforts to effectively communicate the expanded capabilities of the combined company; and

	•	coordinating the supply chains.

Any integration is expected to be complex, time-consuming and expensive and may harm the newly-consolidated company’s business, financial condition and results of operations.

Our dependence on government customers, including foreign governments, could result in significant fluctuations in our period-to-period performance.

Our operating results and cash flow are materially dependent upon the timing of securing government contracts and manufacturing and delivering products according to our customers’ timetables. For example, in March 2010, we were notified of a delay in a large potential contract with an international customer that would delay shipments until 2011 that we had expected to make in 2010. Similar uncertainty and volatility in the timing of orders is likely to continue to affect our net sales. We do not recognize sales until delivery of the product or service has occurred and title and risk of loss have passed to the customer, which may be in a non-U.S. location. This may extend the period of time during which we carry inventory and may result in an uneven distribution of net sales from these contracts between periods. As a result, our period-to-period performance may fluctuate significantly, and you should not consider our performance during any particular period as indicative of longer-term results.

Our intellectual property rights are valuable, and any inability to protect them could reduce the value of our products, services and brand.

We license the Colt trademarks and service marks from New Colt Holding Corp. (“New Colt”), an affiliate of one of our sponsors that we do not control. There are events that are outside of our control that pose a risk to these intellectual property rights, including the bankruptcy of New Colt, or the licensing of the trademarks and service marks to manufacturers that tarnish the quality, reputation and goodwill of these marks, actions or omissions by New Colt that abandon or forfeit some or all of its rights to these marks or that diminish the value of the marks, failure by New Colt to take appropriate action to deter infringement of these marks, and certain breaches by New Colt of the agreement governing our license to these marks. Any of the foregoing acts or omissions could impair our use of the Colt trademarks or their value and harm our business.

Despite our efforts to protect our proprietary technology, unauthorized persons may be able to copy, reverse engineer or otherwise use some of our proprietary technology. It also is possible that others will develop and market similar or better technology to compete with us. Furthermore, existing intellectual property laws may afford only limited protection, and the laws of certain countries do not protect proprietary technology as well as United States law. For these reasons, we may have difficulty protecting our proprietary technology against unauthorized copying or use, and the efforts we have taken or may take to protect our proprietary rights may not be sufficient or effective. Significant impairment of our intellectual property rights could harm our business or our ability to compete. Protecting our intellectual property rights is costly and time consuming and we may not prevail. In addition, prosecuting certain claims could depend, in part, on the participation of New Colt, and any delay or refusal to cooperate in such dispute could adversely prejudice our rights. Our intellectual property rights are valuable, and any inability to protect them could reduce the value of our products, services and brand.

Government contracts are subject to competitive bidding, and bidding for such contracts may require us to incur additional costs.

We expect to obtain a greater portion of our U.S. Government and other government contracts in the future through a competitive bidding process than has been the case in the recent past due to the expiration on June 30, 2009 of the U.S. Army’s contractual obligation to purchase the M4 carbine exclusively from us. We may not win all of the contracts for which we compete and, even if we do, these contracts may not result in a profit. We are also subject to risks associated with the substantial expense, time and effort required to prepare bids and proposals for competitively awarded contracts that may not be awarded to us. In addition, our customers may require terms and conditions that require us to reduce our price or provide more favorable terms if we provide a better price or terms under any other contract for the same product. Such “most favored nation” clauses could restrict our ability to profitably compete for government and other contracts.

We may lose money on our fixed unit price contracts, and our contract prices may be adjusted to reflect price reductions or discounts that are requested by our customers.

We provide our products and services primarily through fixed unit price contracts. In a fixed unit price contract, we provide our products and services at a predetermined price, regardless of the costs we incur. Accordingly, we must fully absorb any increases in our costs that occur during the life of the contract, notwithstanding the difficulty of estimating all of the costs we will incur in performing these contracts and in projecting the ultimate level of sales that we may achieve. Our failure to estimate costs accurately, including as a result of price volatility relating to raw materials, or to anticipate technical problems of a fixed unit price contract may reduce our profitability or cause a loss. From time to time, we have also accommodated our customers’ requests for price reductions or discounts in the past, and customers may continue to make such requests in the future.

We may not receive the full amount of orders authorized under indefinite delivery, indefinite quantity contracts.

Our contracts with the U.S. Government are ordinarily indefinite delivery, indefinite quantity (“IDIQ”) contracts under which the U.S. Government may order up to a maximum quantity specified in the contract but is only obligated to order a minimum quantity. We may incur capital or other expenses in order to be prepared to manufacture the maximum quantity that may not be fully recouped if the U.S. Government orders a smaller amount. The U.S. Government may order less than the maximum quantity for any number of reasons, including a decision to purchase the same product from others despite the existence of an IDIQ contract. Our failure to realize anticipated revenues from IDIQ contracts could negatively affect the results of our operations.

We intend to incur additional costs to develop new products and variations that diversify our product portfolio, and we may not be able to recover these additional costs.

The development of additional products and product variations is speculative and may require additional and, in some cases, significant expenditures for marketing, research, development and manufacturing equipment. The new products or product variations that we introduce may not be successful, or they may not generate an amount of net sales that is sufficient to fully recover the additional costs incurred for their development. In addition, we may not successfully develop technical data packages (“TDPs”) for new products or product variations with proprietary intellectual property rights that are superior to products offered by other companies.

If we lose key management or are unable to attract and retain qualified individuals required for our business, our operating results and growth may suffer.

Our ability to operate our business is dependent on our ability to hire and retain qualified senior management. Our senior management is intimately familiar with our small arms weapons systems and those offered by our competitors, as well as the situations in which small arms weapons systems are utilized in combat and law enforcement activities. Our senior management also brings an array of other important talents and experience to the Company, including managerial, financial, governmental contracts, sales, legal and compliance. We believe their backgrounds, experience and knowledge gives us expertise that is important to our success. Losing the services of these or other members of our management team, particularly if they depart the Company to join a competitor’s business, could harm our business and expansion efforts. The Company’s success also is dependent on its ability to hire and retain technically skilled workers. Competition for some qualified employees, such as engineering professionals, is intense and may become even more competitive in the future. If we are unable to attract and retain qualified employees, our operating results, growth and ability to obtain future contracts could suffer.

Our manufacturing facilities may experience disruptions adversely affecting our financial position and results of operations.

We currently manufacture our products primarily at our facilities in West Hartford, Connecticut and Kitchener, Ontario, Canada. Any natural disaster or other serious disruption at these facilities due to a fire, electrical outage or any other calamity could damage our capital equipment or supporting infrastructure or disrupt our ability to ship our products from, or receive our supplies at, either of these facilities. Any such event could materially impair our ability to manufacture and deliver our products. Even a short disruption in our production output could delay shipments and cause damage to relationships with customers, causing them to reduce or eliminate the amount of products they purchase from us. Any such disruption could result in lost net sales, increased costs and reduced profits.

We lease our West Hartford facility from an affiliate of one of our sponsors. The term of this lease expires October 25, 2012. This lease does not provide for renewal of the term and after the stated lease maturity we may not be able to continue to occupy that property on acceptable terms or be able to find suitable replacement manufacturing facilities on satisfactory terms and conditions. If we must find new facilities, we may be required to incur construction and similar costs, including architect, legal and other costs, which may be significant, and to remediate environmental conditions, which might require us to provide indemnifications and post bonds or other collateral, among other measures. In addition, if we were to relocate a substantial distance from our current facility, we might lose the services of administrative and factory personnel who are familiar with our operations and could experience difficulty attracting qualified replacements on a timely basis or at all. Any disruption in our business or manufacturing operations resulting from the relocation of our West Hartford facility or otherwise could result in lost net sales, increased costs (including increased rent payments) and reduced profits.

Some of our contracts with foreign governments are or will be subject to the fulfillment of offset commitments or industrial cooperation agreements that could impose additional costs on us and that we might not be able to timely satisfy, possibly resulting in the assessment of penalties or even debarment from doing further business with that government.

Some countries that we are or are planning on doing business with impose offset purchase commitments, or industrial cooperation commitments in return for purchasing our products and services. These commitments vary from country to country and generally stipulate us to commit to make direct or indirect purchases, investments or other satisfaction methods of an investment in the local economy. The gross amount of the offset purchase commitment is typically the gross value of the related sales contract to date. Although certain approved purchases qualify for a multiplier of satisfaction, failure to timely satisfy the purchase commitment also can lead to a penalty of additional offset purchase requirements based on a multiplier. Each offset program is measured against a schedule that requires performance within a specified period. Some countries we may do business with require a direct investment in the country, often by in-country manufacture of part or all of the products sold, the transfer of manufacturing technology or both. Others allow for offsets to be satisfied indirectly by our purchasing unrelated products manufactured in-country. Sometimes, offset purchase commitments can be traded to other parties holding credits, but doing so incurs a transaction cost that is typically 3% of the commitment. For certain countries we may do business with in the future, the commitment cannot be traded and must be fulfilled with direct or indirect purchases. Failure to satisfy offset purchase commitments can result in penalties or blacklisting against awards of future contracts. We have paid penalties that were assessed by foreign governments and incurred transaction costs to trade credits to satisfy offset purchase commitments in the past. We may be subject to future penalties or transaction costs or even disbarment from doing business with a government.

Our U.S. and Canadian Government contracts are generally multi-year contracts that are funded by government appropriations annually. A reduction in the defense budget of our government customers would have a material adverse effect on our business.

Our primary contracts with the U.S. Government are indefinite delivery, indefinite quantity contracts under which the customer places orders at its discretion. Although these contracts generally have a four- or five-year term, they are funded annually by government appropriations. Furthermore, our primary contracts with the Canadian Government are funded annually by Canadian Government appropriations. Agreements with other foreign governments may also have similar conditions or may otherwise be dependent on initial or continued funding by such governments. Accordingly, our net sales from year to year with respect to such customers are dependent on annual appropriations and subject to uncertainty. The U.S. or Canadian Government, or a foreign government, may decide to reduce government defense spending in the programs in which we participate. The loss of, or significant reduction in, government funding, for any program in which we participate, could have a material adverse effect on our sales and earnings and thus negatively affect our business. Our most recent IDIQ contract for the M4 carbine expired on December 31, 2010.

In order for us to sell our products overseas, we are required to obtain certain licenses or authorizations, which we may not be able to receive or retain.

Export licenses are required for us to export our products from the United States and Canada and issuance of an export license lies within the discretion of the issuing government. In the United States, substantially all of our export licenses are processed and issued by the Department of Defense Trade Controls (“DDTC”) within the U.S. Department of State. In the case of large transactions, DDTC is required to notify Congress before it issues an export license. Congress may take action to block the proposed sale. As a result, we may not be able to obtain export licenses or to complete profitable contracts due to domestic political or other reasons that are outside of our control. We cannot be sure, therefore, of our ability to obtain the governmental authorizations required to export our products. Furthermore, our export licenses, once obtained, may be terminated or suspended by the U.S. or Canadian Government at any time. Failure to receive required licenses or authorizations or any termination or suspension of our export privileges could have a material adverse effect on our financial condition, results of operations and cash flow.

Our government contracts are subject to audit and our business could suffer as a result of a negative audit by government agencies.

As a U.S. and Canadian Government contractor, we are subject to financial audits and other reviews by the U.S. and Canadian Governments of our costs, performance, accounting and other business practices relating to certain of our significant U.S. and Canadian Government contracts. We are audited and reviewed on a continual basis. Based on the results of their audits, the U.S. and Canadian Governments may challenge the prices we have negotiated for our products, our procurement practices and other aspects of our business practices. Although adjustments arising from government audits and reviews have not caused a material decline in our results of operations in the past, future audits and reviews may have such effects. In addition, under U.S. and Canadian Government purchasing regulations, some of our costs, including most financing costs, amortization of intangible assets, portions of our research and development costs, and some marketing expenses may not be reimbursable or allowed in our negotiation of fixed-price contracts. Further, as a U.S. and Canadian Government contractor, we are subject to a higher risk of investigations, criminal prosecution, civil fraud, whistleblower lawsuits and other legal actions and liabilities than purely private sector companies, the results of which could cause our results of operations to suffer.

Failure to comply with applicable firearms laws and regulations in the U.S. and Canada could have a material adverse effect on our business.

As a firearms manufacturer doing business in the U.S. and Canada, we are subject to the National Firearms Act and the Gun Control Act in the U.S. and the Firearms Act in Canada, together with other federal, state or provincial, and local laws and regulations that pertain to the manufacture, sale and distribution of firearms in and from the U.S. and Canada. In the U.S., we are issued a Federal Firearms License by, and pay Special Occupational Taxes, to the Bureau of Alcohol, Tobacco, Firearms and Explosives of the U.S. Department of Justice to be able to manufacture firearms and destructive devices in the U.S. Similarly, in Canada, we are issued a Business Firearms License by the Chief Provincial Firearms Officer of Ontario, to enable us to manufacture firearms and destructive devices in Canada. These federal agencies also require the serialization of receivers or frames of our firearm products and recordkeeping of our production and sales. Our places of business are subject to compliance inspections by these agencies. Compliance failures, which constitute violations of law and regulation, could result in the assessment of fines and penalties by these agencies, including license revocation. Any curtailment of our privileges to manufacture, sell, or distribute our products could have a material adverse effect on our business.

Third parties may assert that we are infringing their intellectual property rights.

Although we do not believe our business activities infringe upon the rights of others, nor are we aware of any pending or contemplated actions to such effect, it is possible that one or more of our products infringe, or any of our products in development will infringe, upon the intellectual property rights of others. We may also be subject to claims of alleged infringement of intellectual property rights asserted by third parties whose products or services we use or combine with our own intellectual property and for which we may have no right to intellectual property indemnification. Our competitors may also assert that our products infringe intellectual property rights held by them. Moreover, as the number of competitors in our markets grows, the possibility of an intellectual property infringement claim against us may increase. In addition, because patent applications are maintained under conditions of confidentiality and can take many years to issue, our products may potentially infringe upon patent applications that are currently pending of which we are unaware and which may later result in issued patents. If that were to occur and we were not successful in obtaining a license or redesigning our products, we could be subject to litigation.

Regardless of the merits of any infringement claims, intellectual property litigation can be time-consuming and costly. Determining whether a product infringes a patent involves complex legal and factual issues that may require the determination of a court of law. An adverse finding by a court of law may require us to pay substantial damages or prohibit us from using technologies essential to our products covered by third-party intellectual property, or we may be required to enter into royalty or licensing agreements that may

not be available on terms acceptable to us, if at all. Inability to use technologies or processes essential to our products could have a material adverse effect on our financial condition, results of operations and cash flow.

Labor disruptions by our employees could adversely affect our business.

The United Automobile, Aerospace & Agricultural Implement Workers of America (“UAW”) represents our West Hartford work force pursuant to a collective bargaining agreement that expires on March 31, 2011. It is possible that a new agreement to replace the expiring agreement will not be reached without a work stoppage or strike or will not be reached on terms satisfactory to us. Labor organizing activities could result in additional employees becoming unionized. Any prolonged work stoppage or strike at either of our manufacturing facilities or unexpected increases in labor costs could materially harm our results of operations. Additionally, the workforce of Colt’s Manufacturing Company LLC (“Colt’s Manufacturing”), an affiliate of one of our sponsors that we do not control, shares space with us at our West Hartford manufacturing facility, and is subject to the same UAW collective bargaining agreement as our West Hartford employees. Labor stoppages may occur in the future. Union action asserted against Colt’s Manufacturing could also adversely affect our operations.

Significant risks are inherent in the day-to-day operations in our business.

The day-to-day activities of our business involve the operation of machinery and other operating hazards, including worker exposure to lead and other hazardous substances. As a result, our operations can cause personal injury or loss of life, severe damage to and destruction of property and equipment, and interruption of our business. In addition, our weapon systems are designed to kill and therefore can cause accidental damage, injury or death or can potentially be used in incidents of workplace violence.

We could be named as a defendant in a lawsuit asserting substantial claims upon the occurrence of any of these events. Although we maintain insurance protection in amounts we consider to be adequate, this insurance could be insufficient in coverage and may not be effective under all circumstances or against all hazards to which we may be subject. If we are not fully insured against a successful claim, there could be a material adverse effect on our financial condition and result of operations.

Our West Hartford, Connecticut facility is inspected from time to time by the U.S. Occupational Safety and Health Administration and similar agencies. We have been cited for violation of U.S. occupational safety and health regulations in the past and could be cited again in the future. A violation of these regulations can result in substantial fines and penalties. We are subject to similar regulations at our Canadian manufacturing facility.

Environmental laws and regulations may subject us to significant costs and liabilities.

We are subject to various U.S. and Canadian environmental, health and safety laws and regulations, including those related to the discharge of hazardous materials into the air, water or soil and the generation, storage, treatment, handling, transportation, disposal, investigation and remediation of hazardous materials. Certain of these laws and regulations require our facilities to obtain and operate under permits or licenses that are subject to periodic renewal or modification. These laws, regulations or permits can require the installation of pollution control equipment or operational changes to limit actual or potential impacts to the environment. A violation of these laws, regulations or permit conditions can result in substantial fines or penalties.

Certain environmental laws impose strict as well as joint and several liability for the investigation and remediation of spills and releases of hazardous materials and damage to natural resources, without regard to negligence or fault on the part of the person being held responsible. In addition, certain laws require and we have incurred costs for, the investigation and remediation of contamination upon the occurrence of certain property transfers or corporate transactions. We are potentially liable under these and other environmental laws and regulations for the investigation and remediation of contamination at properties we currently or have formerly owned, operated or leased and at off-site locations where we may be alleged to have sent hazardous materials for treatment, storage or disposal. We may also be subject to related claims by private parties alleging property damage or personal injury as a result of exposure to hazardous materials at or in the vicinity

of these properties. Environmental litigation or remediation, new laws and regulations, stricter or more vigorous enforcement of existing laws and regulations, the discovery of unknown contamination or the imposition of new or more stringent clean-up requirements may require us to incur substantial costs in the future. As such, we may incur material costs or liabilities in the future.

As a U.S. and Canadian Government contractor, we are subject to a number of procurement rules and regulations.

We must comply with and are affected by laws and regulations relating to the award, administration, and performance of our U.S. and Canadian Government contracts. Government contract laws and regulations affect how we do business with our customers and vendors and, in some instances, impose added costs on our business. In many instances, we are required to self-report to the responsible agency if we become aware of a violation of applicable regulations. In addition, we have been, and expect to continue to be, subjected to audits and investigations by government agencies regarding our compliance with applicable regulations. A violation of specific laws and regulations could result in the imposition of fines and penalties or the termination of our contracts or debarment from bidding on future contracts. These fines and penalties could be imposed for failing to follow procurement integrity and bidding rules, employing improper billing practices or otherwise failing to follow cost accounting standards, receiving or paying kickbacks, filing false claims, or failing to comply with other applicable procurement regulations. Additionally, the failure to comply with the terms of our government contracts also could harm our business reputation. It also could result in payments to us being withheld. If we violate specific laws and regulations, it could result in the imposition of fines and penalties or the termination of our contracts or debarment from bidding on contracts, which could have a material adverse effect on our net sales and results of operations.

Our contracts with foreign governments often contain ethics and other requirements that subject us to some of the same risks. Violation of those contractual terms could interfere with our ability to collect payment under the contract. Also, we and our representatives are required to comply with numerous regulations, including the U.S. Foreign Corrupt Practices Act and similar anti-bribery laws in other jurisdictions.

The defense industry is highly competitive, and this competitiveness may limit our ability to win and retain government contracts.

We face significant domestic and international competition for government contracts. Some competitors have greater financial, technical, marketing, manufacturing and distribution resources than we do, or may have broader product lines. Our ability to compete for government contracts depends on our ability to offer better product performance than our competitors at a lower cost and on the readiness and capacity of our facilities, equipment and personnel to produce quality products on a consistent and timely basis. In addition, some of our competitors may operate in less regulated countries or environments and therefore have advantages over us in certain situations.

Our government and other contracts contain termination provisions such that they can be cancelled at any time at the government’s sole discretion.

We are subject to business risks specific to companies engaged in supplying defense-related equipment and services to the U.S. Government and other governments. These risks include the ability of the U.S. Government and other government counterparties to suspend or permanently prevent us from receiving new contracts or from extending existing contracts based on violations or suspected violations of procurement laws or regulations, terminate our existing contracts or not purchase the full agreed-upon number of small arms weapons systems or other products to be delivered by us.

U.S. Government and other government counterparties may terminate contracts with us either for their convenience or if we default by failing to perform. Termination for convenience provisions generally would enable us to recover only our costs incurred or committed, and settlement expenses and profit on the work completed, prior to termination. Termination for default provisions do not permit these recoveries and make us liable for excess costs incurred by the U.S. Government or other government counterparties in procuring

undelivered items from another source. In addition, a termination arising out of our default could expose us to liability and have a material adverse effect on our ability to compete for future contracts and orders.

Misconduct by employees or agents could harm us and is difficult to detect and deter.

Our employees or agents may engage in misconduct, fraud or other improper activities that could have adverse consequences on our prospects and results of operations, including engaging in violations of the U.S. Arms Export Control Act or Foreign Corrupt Practices Act or numerous other state and federal laws and regulations, as well as the corresponding laws and regulations in the foreign jurisdictions into which we sell products. Misconduct by employees or agents, including foreign sales representatives, could include the export of defense articles or technical data without an export license, the payment of bribes in order to obtain business, failures to comply with applicable U.S. or Canadian Government or other foreign government procurement regulations, violation of government requirements concerning the protection of classified information and misappropriation of government or third-party property and information. The occurrence of any such activity could result in our suspension or debarment from contracting with the government procurement agency, as well as the imposition of fines and penalties, which would cause material harm to our business. It is not always possible to deter misconduct by agents and employees and the precautions we take to detect and prevent this activity may not be effective in all cases.

Our sponsors control us and may have conflicts of interest with us or you now or in the future.

Through their respective affiliates Sciens Capital Management LLC and funds managed by an affiliate of The Blackstone Group, L.P., beneficially own a substantial portion of the Company’s limited liability company interests. Under the terms of the Company’s limited liability company agreement, our sponsors and our union have the right to appoint our Governing Board and our sponsors, subject to maintaining certain equity ownership levels, have specified veto or approval rights which may be exercised in their discretion. As such, our sponsors have the ability to prevent specified transactions that might be in the best interests of the noteholders or to cause the Company to engage in transactions in which the sponsors have interests that might conflict with the interests of the noteholders. Members of the Company’s Governing Board are not required to abide by the same standard of care under the Delaware Limited Liability Company Act as the standard of care required of directors of a Delaware corporation. Additionally, Sciens Capital and The Blackstone Group are in the business of making investments in companies and may from time to time acquire and hold interests in businesses that may directly or indirectly compete with or otherwise be adverse to us. They may also pursue acquisition opportunities that may be complementary to our business and, as a result, those acquisition opportunities may not be available to us.

We may have to utilize significant cash to meet our unfunded pension obligations, and post-retirement health care liabilities and these obligations are subject to increase.

Our union employees at our West Hartford facility participate in our defined benefit pension plan. We also have a salaried pension plan, the benefits of which were frozen on January 1, 2009. At December 31, 2010, our aggregate unfunded pension liability totaled $2.0 million. Declines in interest rates or the market values of the securities held by the plans, or other adverse changes, could materially increase the underfunded status of our plans and affect the level and timing of required cash contributions. To the extent we use cash to reduce these unfunded liabilities, the amount of cash available for our working capital needs would be reduced. Under the Employee Retirement Income Security Act of 1974, as amended, or ERISA, the Pension Benefit Guaranty Corporation, or PBGC, has the authority to terminate an underfunded tax-qualified pension plan under limited circumstances. In the event our tax-qualified pension plans are terminated by the PBGC, we could be liable to the PBGC for the underfunded amount and, under certain circumstances, the liability could be senior to the notes.

We also have a post-retirement health plan for our union employees. The post-retirement health plan is unfunded. We derive post-retirement benefit expense from an actuarial calculation based on the provisions of the plan and a number of assumptions provided by us including information about employee demographics, retirement age, future health care costs, turnover, mortality, discount rate, amount and timing of claims, and a

health care inflation trend rate. In connection with the renewal of our collective bargaining agreement in 2004, we capped the monthly cost of providing retiree health care benefits at approximately $206 (not in thousands) per employee per month. In connection with the renegotiation of our union contract effective April 2007, the cap was raised to approximately $250 (not in thousands) per employee per month. For the year ended December 31, 2010, the cost per employee per month was $212 (not in thousands). The unfunded post-retirement health care benefit obligation was $12.2 million at December 31, 2010.

Because we are not currently subject to the reporting requirements of the Securities Exchange Act of 1934 or the Sarbanes-Oxley Act of 2002, we have not, either alone or with our auditors, performed an evaluation or an audit of our internal controls over financial reporting

Section 404 of the Sarbanes-Oxley Act requires annual management assessments of the effectiveness of our internal control over financial reporting. The Company is not currently required to comply with Section 404 but will be required to do so prior to the filing of our annual report on Form 10-K for the year ended 2012. In preparation for compliance with Section 404 and the rules promulgated thereunder, we may identify deficiencies with respect to our internal controls over financial reporting, and any such deficiencies may be material.

We face risks associated with international currency exchange.

While we transact business primarily in U.S. dollars and bill and collect most of our sales in U.S. dollars, a portion of our net sales results from goods that are purchased, in whole or in part, from foreign customers, primarily in Canadian dollars and Euros, thereby exposing us to some foreign exchange fluctuations. In the future, customers may make or require payments in non-U.S. currencies, such as the Canadian dollar and the Euro or other currencies.

Fluctuations in foreign currency exchange rates could affect the sale of our products or the cost of goods and operating margins and could result in exchange losses. In addition, currency devaluation can result in a loss to us if we hold deposits of that currency. Hedging foreign currencies can be difficult, especially if the currency is not freely traded. We do not enter into any market risk sensitive instruments for trading purposes. We cannot predict the impact of future exchange rate fluctuations on our operating results.

Risks related to our indebtedness and the notes

If you fail to exchange outstanding notes, existing transfer restrictions will remain in effect and the notes may be more difficult to sell.

If you fail to exchange outstanding notes for registered notes under the exchange offer, then you will continue to be subject to the existing transfer restrictions on the outstanding notes. In general, the outstanding notes may not be offered or sold unless they are registered or exempt from registration under the Securities Act and applicable state securities laws. Except in connection with this exchange offer or as required by the registration rights agreement, we do not intend to register resales of the outstanding notes.

We have a substantial amount of indebtedness, which could have a material adverse effect on our financial health and our ability to obtain financing in the future and to react to changes in our business.

We now have, and will continue to have, a substantial amount of indebtedness, which requires significant principal and interest payments. As of December 31, 2010, we had approximately $249.2 million of debt outstanding. Such amounts do not include $9.4 million of borrowings available under our letter of credit as of December 31, 2010. As of December 31, 2010, we had a total deficit of approximately $144.3 million.

Our significant amount of indebtedness could have important consequences to holders of the notes. For example, it could:


	•	make it more difficult for us to pay our debts, including payment on the notes, as they become due, especially during general negative economic and market industry conditions because if our net sales


		decrease due to general economic or industry conditions, we may not have sufficient cash flow from operations to make our scheduled debt payments;


	•	increase our vulnerability to adverse economic, regulatory and general industry conditions;

	•	require us to dedicate a substantial portion of our cash flow from operations to payments on our debt, which would reduce the availability of our cash flow from operations to fund working capital, capital expenditures, acquisitions or other general corporate purposes;

	•	limit our flexibility in planning for, or reacting to, changes in our business and industry in which we operate and, consequently, place us at a competitive disadvantage to our competitors with less debt;

	•	limit our ability to obtain additional debt or equity financing, particularly in the current economic environment; and

	•	increase our cost of borrowing.

Despite our current levels of debt, we may still incur substantially more debt. This could further exacerbate the risks described above.

We and our subsidiaries may be able to incur substantial additional indebtedness in the future. The terms of the indenture and our letter of credit facility do not fully prohibit us or our subsidiaries from doing so. If we incur any additional indebtedness that ranks equally with the notes, the holders of that debt will be entitled to share ratably with you in any proceeds distributed in connection with any insolvency, liquidation, reorganization, dissolution or other winding-up of us. This may have the effect of reducing the amount of proceeds paid to you. For example, we have up to $9.4 million of availability under our letter of credit facility. All of those borrowings are secured indebtedness.

Although covenants under the indenture governing the notes and the letter of credit facility limit our ability to incur certain additional indebtedness, these restrictions are subject to a number of qualifications and exceptions, and the indebtedness incurred in compliance with these restrictions could be substantial. If we add new debt to our current debt levels, the related risks that we now face could intensify, making it less likely that we will be able to fulfill our obligations to holders of the notes. The subsidiaries that guarantee the notes are also guarantors under the letter of credit facility.

We may not be able to generate enough cash to service our indebtedness and may be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful.

Our ability to make scheduled payments on, or to refinance, our debt and to fund planned capital expenditures and pursue our acquisition strategy will depend on our ability to generate cash. This is subject, in part, to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. Accordingly, our business may not generate sufficient cash flows from operations to enable us to pay our indebtedness, including the notes, or to fund our other liquidity needs. In addition, we will be permitted to make certain distributions to our members, including distributions in amounts based on their allocated taxable income and gains. Any such payments may reduce our ability to make payments on our debt, including the notes.

If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay capital expenditures, sell assets or operations, seek additional capital or restructure or refinance our indebtedness, including the notes. We may not be able to take any of these actions, these actions may not be successful enough to permit us to meet our scheduled debt service obligations or these actions may not be permitted under the terms of our existing or future debt agreements, including the letter of credit facility or the indenture that will govern the notes. In the absence of such operating results and resources, we could face substantial liquidity problems and might be required to dispose of material assets or operations to meet our debt service and other obligations. The letter of credit facility and the indenture that govern the notes restrict our ability to dispose of assets and use the proceeds from the disposition. We may not

be able to consummate those dispositions or to obtain the proceeds that we could realize from them, and these proceeds may not be adequate to meet any debt service obligations then due.

If we cannot make scheduled payments on our debt, we will be in default and, as a result:


	•	our debt holders could declare all outstanding principal and interest to be due and payable;

	•	the lenders under our letter of credit facility could terminate their commitments to lend us money and foreclose against the assets securing their borrowings; and

	•	we could be forced into bankruptcy or liquidation, which could result in you losing your investment in the notes.

Covenant restrictions under our indenture and the letter of credit facility may limit our ability to operate our business.

The letter of credit facility and the indenture governing the notes contain, among other things, covenants that may restrict our and the guarantors’ ability to finance future operations or capital needs or to engage in other business activities. The letter of credit facility and the indenture restrict, among other things, our ability and the ability of the guarantors to:


	•	pay dividends or distributions, redeem or repurchase equity, prepay, redeem or repurchase subordinated debt;

	•	make certain loans, investments or capital expenditures;

	•	incur or assume additional debt or provide guarantees in respect of obligations of other persons or issue certain disqualified stock;

	•	incur liens on assets;

	•	merge or consolidate with or into, or sell all or substantially all of our assets to, another person;

	•	sell or otherwise dispose of assets, including capital stock of subsidiaries;

	•	enter into transactions with affiliates; and

	•	restrict dividends, loans or asset transfers from our subsidiaries to unaffiliated third parties

A breach of any of these covenants would result in a default under our indenture. If an event of default under the indenture occurs, the trustee under the indenture could elect to declare all amounts outstanding, together with accrued interest, to be immediately due and payable. If an event of default under the letter of credit facility occurs, our issuing banks could elect to declare all amounts outstanding thereunder, together with accrued interest, to be immediately due and payable.

The notes are effectively subordinated to our and our subsidiary guarantors’ indebtedness under our letter of credit facility and letters of credit under such facility to the extent of the value of the assets securing such indebtedness.

The notes will not be secured by any of our or our subsidiary guarantors’ assets. As a result, the notes and the subsidiary guarantees, if any, will be effectively subordinated to our and our subsidiary guarantors’ indebtedness under our letter of credit facility, and any letters of credit, to the extent of the collateral securing such indebtedness. As of December 31, 2010, we had $0.6 million in letters of credit outstanding under our letter of credit facility, resulting in total unused credit availability of approximately $9.4 million. In addition, we may incur additional secured debt in the future. The effect of this is that upon a default in payment on, or the acceleration of, any of our secured indebtedness, or in the event of our, or our subsidiary guarantors’ bankruptcy, insolvency, liquidation, dissolution, reorganization or similar proceeding, the proceeds from the sale of the collateral that secures our secured indebtedness will be available to pay obligations on the notes offered hereby only after all indebtedness under our letter of credit facility and related letters of credit, as applicable, has been paid in full. As a result, the holders of the notes may receive less, ratably, than the

holders of secured debt in the event of our or our subsidiary guarantors’ bankruptcy, insolvency, liquidation, dissolution, reorganization or similar proceeding.

The notes are structurally subordinated to the obligations of our non-guarantor subsidiaries. Your right to receive payment on the notes could be adversely affected if any of our non-guarantor subsidiaries declares bankruptcy, liquidates or reorganizes.

Following the dissolution of Colt Rapid Mat, and as of the date of this prospectus, none of our subsidiaries will guarantee the notes. In the event that any non-guarantor subsidiary becomes insolvent, liquidates, reorganizes, dissolves or otherwise winds up, holders of its indebtedness and its trade creditors generally will be entitled to payment on their claims from the assets of that subsidiary before any of those assets are made available to us. Consequently, your claims in respect of the notes are effectively subordinated to all of the liabilities of our non-guarantor subsidiaries, including trade payables, and any claims of third party holders of preferred equity interests, if any, in our non-guarantor subsidiaries.

As of December 31, 2010, the non-guarantor subsidiaries represented approximately 52% of our operating income and 26% of the Company’s assets and had approximately $16 million of outstanding total liabilities, including trade payables, but excluding intercompany liabilities, all of which is structurally senior to the notes.

In addition, the indenture governing the notes, subject to some limitations, permits our non-guarantor subsidiaries to incur additional indebtedness and does contain any limitation on the amount of other liabilities, such as trade payables, that may be incurred by such subsidiaries.

We may not be able to finance a change of control offer required by the indenture.

If we were to experience specific kinds of change of control events, we are required to offer to purchase all of the notes then outstanding at 101% of their principal amount, plus accrued and unpaid interest to the date of repurchase. If a change of control were to occur, we may not have sufficient funds to purchase the notes. In fact, we expect that we would require third-party debt or equity financing to purchase all of such notes, but we may not be able to obtain that financing on favorable terms or at all. Further, our ability to repurchase the notes may be limited by law.

Any of our future senior secured indebtedness, including our letter of credit facility, would likely restrict our ability to repurchase the notes, even when we are required to do so by the indenture in connection with a change of control. A change of control could therefore result in a default under such senior secured indebtedness and could cause the acceleration of our debt. The inability to repay such debt, if accelerated, and to purchase all of the tendered notes, would constitute an event of default under the indenture.

Holders of the notes may not be able to determine when a change of control giving rise to their right to have the notes repurchased has occurred following a sale that potentially constitutes a sale of “substantially all” of our assets.

The definition of change of control in the indenture governing the notes includes a phrase relating to the sale of “all or substantially all” of our assets. There is no precise established definition of the phrase “substantially all” under applicable law. Accordingly, the ability of a holder of notes to require us to repurchase its notes as a result of a sale of less than all of our assets to another person may be uncertain.

The guarantees may not be enforceable because of fraudulent conveyance laws.

Under the federal bankruptcy laws and comparable provisions of state fraudulent transfer laws, a court may avoid or otherwise decline to enforce the notes or a subsidiary guarantor’s guarantee, or may subordinate

the notes or such guarantee, if any, to our or the applicable subsidiary guarantor’s existing and future indebtedness. While the relevant laws may vary from state to state, a court might do so if it found that when the notes were issued, or when the applicable subsidiary guarantor entered into its guarantee, or, in some states, when payments became due under the notes or such guarantee, the issuer or the applicable subsidiary guarantor received less than reasonably equivalent value or fair consideration and:


	•	was insolvent or rendered insolvent by reason of such incurrence;

	•	was engaged in a business or transaction for which its remaining assets constituted unreasonably small capital; or

	•	intended to incur, or believed that it would incur, debts beyond its ability to pay such debts as they mature.

A court would likely find that we or a subsidiary guarantor did not receive reasonably equivalent value or fair consideration for the notes or such guarantee if we or such subsidiary guarantor did not substantially benefit directly or indirectly from the issuance of the notes. The measures of insolvency for purposes of these fraudulent transfer laws vary depending upon the law applied in any proceeding to determine whether a fraudulent transfer has occurred. Generally, however, an issuer or a subsidiary guarantor, as applicable, would be considered insolvent if:


	•	the sum of its debts, including contingent liabilities, was greater than the fair saleable value of its assets;

	•	the present fair saleable value of its assets was less than the amount that would be required to pay its probable liability on its existing debts, including contingent liabilities, as they become absolute and mature; or

	•	it could not pay its debts as they become due.

A court might also avoid the notes or a guarantee, without regard to the above factors, if the court found that the notes were issued or the applicable subsidiary guarantor entered into its guarantee with actual intent to hinder, delay or defraud its creditors. In addition, any payment by us or a subsidiary guarantor pursuant to the notes or its guarantee could be avoided and required to be returned to us or such subsidiary guarantor or to a fund for the benefit of our or such guarantor’s creditors, and accordingly the court might direct you to repay any amounts that you had already received from us or such subsidiary guarantor.

To the extent a court avoids the notes or any of the guarantees as fraudulent transfers or holds the notes or any of the guarantees unenforceable for any other reason, holders of notes would cease to have any direct claim against us or the applicable subsidiary guarantor. If a court were to take this action, our or the applicable guarantor’s assets would be applied first to satisfy our or the applicable guarantor’s other liabilities, if any, and might not be applied to the payment of the notes. Sufficient funds to repay the notes may not be available from other sources, including the remaining guarantors, if any.

Each subsidiary guarantee will contain a provision intended to limit the guarantor’s liability to the maximum amount that it could incur without causing the incurrence of obligations under its guarantee to be a fraudulent transfer. This provision may not be effective to protect the guarantees from being avoided under applicable fraudulent transfer laws or may reduce the guarantor’s obligation to an amount that effectively makes the guarantee worthless.

Because each guarantor’s liability under its guarantees may be reduced to zero, avoided or released under certain circumstances, you may not receive any payments from some or all of the guarantors.

In the future, you will have the benefit of any guarantees of the subsidiary guarantors. However, any such guarantees by the guarantors will be limited to the maximum amount that the guarantors are permitted to guarantee under applicable law. As a result, a guarantor’s liability under its guarantee could be reduced to zero, depending upon the amount of other obligations of such guarantor. Further, under the circumstances discussed more fully above, a court under federal and state fraudulent conveyance and transfer statutes could void the obligations under a guarantee or further subordinate it to all other obligations of the guarantor. See

“— The guarantees may not be enforceable because of fraudulent conveyance laws.” In addition, you will lose the benefit of a particular guarantee if it is released under certain circumstances described under “Description of the Registered Notes — Subsidiary guarantees.”

The registered notes may not have an active trading market and the price may be volatile, so you may be unable to sell your registered notes at the price you desire or at all.

We cannot ensure that a liquid market will develop for the registered notes, that you will be able to sell any of the registered notes at a particular time, if at all, or that the prices that you receive when you sell will be favorable. Prior to this offering, there has been no public market for the outstanding notes. We do not intend to apply (and are not obligated to apply) for listing of the registered notes on any securities exchange or any automated quotation system. Therefore, we cannot assure you as to the liquidity of any trading market for the registered notes. Future trading prices of the registered notes will depend on many factors, including our operating performance and financial condition, prevailing interest rates and the market for similar securities.

Broker-dealers may become subject to the registration and prospectus delivery requirements of the Securities Act and any profit on the resale of the registered notes may be deemed to be underwriting compensation under the Securities Act.

Any broker-dealer that acquires registered notes in the exchange offer for its own account in exchange for outstanding notes which it acquired through market-making or other trading activities must acknowledge that it will comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction by that broker-dealer. Any profit on the resale of the registered notes and any commission or concessions received by a broker-dealer may be deemed to be underwriting compensation under the Securities Act.

A lowering or withdrawal of the ratings assigned to our debt securities by rating agencies may increase our future borrowing costs and reduce our access to capital.

Our credit ratings are an assessment by rating agencies of our ability to pay our debts when due. Consequently, real or anticipated changes in our credit ratings will generally affect the market value of the notes. Credit ratings are not recommendations to purchase, hold or sell the notes, and may be revised or withdrawn at any time. Additionally, credit ratings may not reflect the potential effect of risks relating to the structure or marketing of the notes.

Any future lowering of our ratings likely would make it more difficult or more expensive for us to obtain additional debt financing. If any credit rating initially assigned to the notes is subsequently lowered or withdrawn for any reason, you may not be able to resell your notes without a substantial discount.

USE OF PROCEEDS

We will not receive any proceeds from the exchange offer. In consideration for issuing the registered notes as contemplated by this prospectus, we will receive from you the outstanding notes in like principal amount. The outstanding notes surrendered in exchange for the registered notes will be retired and cancelled and cannot be reissued. The issuance of the registered notes will not result in any change in our indebtedness.

CAPITALIZATION

The following table sets forth our cash and cash equivalents and our capitalization on a consolidated basis as of December 31, 2010.

You should read this table in conjunction with “Management’s discussion and analysis of financial condition and results of operations” and our consolidated financial statements and related notes appearing elsewhere in this prospectus.


	December 31, 2010
	($ in thousands)

Cash and cash equivalents:	$	61,444

Debt:
Letter of credit facility(a)		—
Capital leases		2,377
Equipment indebtedness		—
Senior notes(b)		246,838

Total debt		249,215

Total deficit		(143,559	)

Total capitalization	$	105,656


(a)		This letter of credit facility provides for up to $10 million of letter of credit availability. For a more complete description of our letter of credit facility see “Description of Other Indebtedness.” As of December 31, 2010, $0.6 million in letters of credit were issued and undrawn.


(b)		The notes were issued at a price of 98.591% of the principal amount thereof, resulting in approximately $246.5 million of gross proceeds. The approximately $3.5 million discount will accrete over the life of the notes and be amortized into interest expense.

SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA

The following table sets forth historical consolidated financial data as of and for the dates indicated. We have derived the historical consolidated statement of operations data for the years ended December 31, 2010, 2009 and 2008 and the historical consolidated balance sheet data as of December 31, 2010 and 2009 from our audited consolidated financial statements, which are included elsewhere in this prospectus. We have derived the historical consolidated statement of operations data for the years ended December 31, 2007 and 2006 and the historical consolidated balance sheet data as of December 31, 2008, 2007 and 2006 from our audited historical consolidated financial statements that are not included in this prospectus. You should read this selected consolidated financial information together with our consolidated financial statements and notes hereto, “Management’s discussion and analysis of financial condition and results of operations” and other financial information included elsewhere herein.


	For the Year Ended December 31,
	2010			2009		2008			2007			2006
	($ in thousands)

Statement of operations data:
Net sales	$	175,805		$	270,163	$	269,119		$	177,447		$	133,436
Cost of sales		131,383			183,765		179,797			125,780			87,544

Gross profit		44,422			86,398		89,322			51,667			45,892

Selling and commissions		9,344			8,653		5,142			4,751			3,711
General and administrative		16,157			13,359		13,162			10,886			9,562
Amortization of purchased intangibles		548			525		593			600			624
Common Unit compensation expense (benefit)(a)		—			—		45			25,157			(683	)

Operating income		18,373			63,861		70,380			10,273			32,678

Other expense (income):
Interest expense		24,598			18,845		19,266			14,064			6,088
Other expenses, net		1,657			13,466		872			717			137

		26,255			32,311		20,138			14,781			6,225

(Loss) income from continuing operations before provision for foreign income taxes		(7,882	)		31,550		50,242			(4,508	)		26,453

Provision for foreign income taxes(b)		2,659			2,320		1,097			1,538			111

(Loss) income from continuing operations (b)		(10,541	)		29,230		49,145			(6,046	)		26,342

Discontinued Operations:
(Loss) from discontinued operations		(665	)		243		(4,914	)		(699	)		(1,115	)
(Loss) on disposal of discontinued operations		(208	)		—		—			—			—
Net (loss) income		(11,414	)		29,473		44,231			(6,745	)		25,227

Less: net (loss) income attributable to non-controlling interest		(84	)		75		(47	)		(47	)		(49	)

Net income (loss) attributable to Colt Defense LLC members	$	(11,330	)	$	29,398	$	44,278			(6,698	)		25,276


	For the Year Ended December 31,
	2010			2009			2008			2007			2006
	($ in thousands)

Balance sheet data (at period ended):
Cash and cash equivalents	$	61,444		$	72,705		$	29,248		$	270		$	233
Accounts receivable, net		15,218			20,328			7,735			15,115			7,562
Inventories		31,641			35,448			26,997			21,062			13,211
Property and equipment, net		21,741			17,919			13,736			13,844			8,575
Total assets		164,259			184,102			107,120			86,697			59,316
Total debt and capital lease obligations		249,215			250,058			195,100			197,558			87,791
Total deficit		(143,559	)		(113,887	)		(133,260	)		(149,646	)		(61,332	)


(a)		Such non-cash charge relates to the adjustment required to record a compensation charge related to an increase from our 2006 valuation of the fair market value of our Common Units to our 2007 valuation of the fair market value of our Common Units.

(b)		As a limited liability company, the Company is treated as a partnership for U.S. federal and state income tax reporting purposes and, therefore, is not subject to U.S. federal or state income taxes. The taxable income (loss) of the Company is reported to the members for inclusion in their individual tax returns. Colt Canada files separate income tax returns in Canada. Distributions to members equal to 45 percent of taxable income are made in any year in which U.S. taxable income is allocated to the Company’s members and to the extent the Company’s Governing Board determines that sufficient funds are available.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our results of operations and financial condition together with “Selected Historical Consolidated Financial Data” and the audited and historical consolidated financial statements and related notes included elsewhere in this prospectus. Actual results may differ materially from those contained in any forward-looking statements. Certain monetary amounts, percentages and other figures included in this section have been subject to rounding adjustments. Accordingly, figures shown as totals in certain tables may not be the arithmetic aggregation of the figures that precede them and figures expressed as percentages in the text may not total 100% or, as applicable, when aggregated may not be the arithmetic aggregation of the percentages that precede them.

2010 Highlights

Our 2010 net sales of $175.8 million represented a 35% decline from 2009. Adjusted EBITDA from continuing operations declined by 66% from $67.6 million to $22.9 million and net income decreased from profit of $29.5 million to a loss of $11.4 million. Sales and net income were affected by a number of factors, including a $70.8 million decrease in sales of carbines to the U.S. Government from the comparable period in 2009, as the U.S. Government continued to evaluate its carbine procurement strategy. Also contributing to this decline from 2009 was a $32.4 million decrease in sales of law enforcement model carbines, including sales of Match Target(R) rifles to Colts Manufacturing, an affiliated entity. These declines were partially mitigated by a $7.7 million increase in international weapon systems sales. The 2009 surge in demand for law enforcement model carbines, which was influenced by the anticipated change in the U.S. Government’s regulation of firearms ownership, was not sustained in the market.

Overview of Our Business

We have supplied small arms weapons systems to more than 80 countries. We are currently the U.S. military’s sole supplier of the M4 carbine, the U.S. Army’s standard issue rifle, the Canadian military’s exclusive supplier of the C8 carbine and C7 rifle, and have supplied small arms weapons systems to U.S., Canadian and international law enforcement agencies. Furthermore, our development and sales of M4 carbines and the more than 45 years of sales of M16 rifles, have resulted in a global installed base of more than 7 million of these small arms weapons systems. Our expertise in developing small arms weapons systems enables us to integrate new technologies and features into the large installed base, and diversify our revenue sources by adding related products and services, investing in new technologies and seeking strategic acquisitions, co-production opportunities and other alliances. Widely recognized brand name loyalty and weapons already in stock play a significant role in the selection process of our customers. We have been a leading supplier of small arms weapons systems to the U.S. military since the Mexican-American War in 1847 and have supplied our products to international customers for nearly as long.

On December 1, 2010, we ceased operating Colt Rapid Mat, a non-core business with a manufacturing facility in Delhi, Louisiana engaged in the manufacture and sale of runway repair systems. No significant proceeds are expected from the liquidation of assets. In addition, there are no material costs or ongoing commitments associated with the closure. We dissolved Colt Rapid Mat as of December 31, 2010.

Substantially all of our operations are conducted through Colt Defense LLC, the co-issuer of the outstanding notes. Colt Finance Corp. was formed solely as a finance company to be co-issuer of the notes and has no operations or independent sources of income. As of November 10, 2009, the issuance date of the notes, our domestic subsidiary Colt Rapid Mat was a guarantor of the outstanding notes. As discussed elsewhere in this prospectus, Colt Rapid Mat was dissolved as of December 31, 2010. As of the dissolution date, Colt Rapid Mat ceased being a guarantor of the outstanding notes. No other subsidiaries, domestic or foreign, guarantee the outstanding notes.

Overview of Our Operations

In reading our financial statements, you should be aware of the following factors that we believe are important in understanding our financial performance.

Net Sales

Net sales are gross sales net of discounts. Our revenues are derived primarily from sales of our products. We are primarily dependent on sales to the U.S. Government. Our net sales to the U.S. Government, which includes foreign military sales through the U.S. Government, accounted for 55% of net sales in 2010, 61% of net sales in 2009 and 75% of net sales in 2008. For products sold directly to foreign countries, we generally receive a higher comparable price than the price paid by the U.S. Government. In addition, we generally have greater selling and commission expenses attributable to direct foreign sales. We provide our products on an exclusive basis to the Canadian Government. Sales to our direct foreign customers represented 39% of total sales in 2010, 22% in 2009 and 18% in 2008. No sales to any one direct foreign customer exceeded 10% of consolidated net sales in 2010, 2009 and 2008.

Cost of Sales

Our cost of sales consists of direct labor and benefits, materials, subcontractor costs and manufacturing overhead, including depreciation and amortization, utilities cost, and maintenance and repairs.

Selling and Commissions Expense

Selling expense consists of primarily commissions, salaries, travel, trade shows, marketing materials, and customer training. In addition, we pay commissions to independent foreign sales representatives on most direct foreign sales, which generally are a percentage of the selling price. Foreign sales usually yield higher gross profit percentages, which offset the higher cost of commissions.

General and Administrative Expense

General and administrative expense consists of research and development (“R&D”), payroll and related costs as well as general office administration expenses. These costs do not increase proportionately with increases in sales.

Impairment of Goodwill

We review goodwill annually as well as whenever indicators of impairment are deemed to exist. We measure for potential impairment using comparable industry operating metric multipliers. During the fourth quarter of 2008, we determined that the goodwill associated with the acquisition of Colt Rapid Mat had been impaired due to declining sales and failure to obtain any commitments for significant sales contracts. Accordingly, we wrote-off $2,631 which represented all of the goodwill associated with the acquisition. This impairment is included in loss from discontinued operations. There were no impairment indicators of any other goodwill during 2010, 2009 or 2008.

Income Taxes

As a limited liability company, we are treated as a partnership for U.S. federal and state income tax reporting purpose and therefore, we are not subject to U.S. federal or state income taxes. Our taxable income (loss) is reported to our members for inclusion in their individual tax returns. Colt files separate income tax returns in Canada. Any year in which U.S. taxable income is allocated to the members and to the extent the Governing Board determines that sufficient funds are available; pro rata distributions to members equal to 45% of the highest taxable income allocated to any one unit shall be made. Any such distribution is subject to the discretion of our Governing Board.

Certain Significant Transactions and Events

Senior Note Offering

On November 10, 2009, we issued the outstanding notes. These notes were issued at a discount of $3.5 million from their principal value. Concurrently with the issuance of the outstanding notes we entered into the senior secured credit facility. This senior secured credit facility was converted into a $10.0 million letter of credit facility on November 1, 2010. Proceeds from the offering of the outstanding notes were used to repay the then outstanding balances of our prior senior secured credit facility and senior subordinated notes ($189.3 million), settle outstanding interest rate swap agreements ($5.4 million), pay a prepayment premium on our senior subordinated notes ($0.6 million) and pay financing costs ($12.8 million). The balance of the proceeds was available for general corporate purposes. As of December 31, 2010, we had letters of credit outstanding under our letter of credit facility of $0.6 million.

Exchange Offer

This prospectus relates to our offer to exchange registered notes, which have been registered under the Securities Act for a like principal amount of the outstanding notes. Under the registration rights agreement, we are obligated to, among other things, consummate an exchange offer for the outstanding notes within 540 days following the issue date of the outstanding notes.

Leveraged Recapitalization

On July 9, 2007, we completed a leveraged recapitalization (the “Leveraged Recapitalization”), during which we entered into a $150 million senior secured credit facility (the “Existing Senior Secured Credit Facility”), consisting of a $15 million revolving credit facility (the “Revolving Credit Facility”) and a $135 million term loan facility (the “Term Loan Facility”); issued $56 million of unsecured senior subordinated debt; sold Common Unit limited liability company interests of the Company (the “Common Units”) for $29.9 million in cash; and made a special distribution of $131.2 million to our Common Unit holders. The Existing Senior Secured Credit Facility was amended on September 2, 2008 whereby the Revolving Credit Facility was increased from $15 million to $20 million. All amounts under the Existing Senior Secured Credit Facility were repaid in November 2009.

Employee Union Matters

In February 2010, we extended our collective bargaining agreements, which were scheduled to expire in March 2010, by one year to March 2011. This agreement applies to 62% of our U.S. work force. The contract and contract extension provided for percentage increases in labor rates of 2.5% in 2010 3.5% in 2009 and 3.25% in 2008 as well as increases in employee pension benefits per year of service of $0.50 (not in thousands) in 2008, 2009 and 2010. In addition, the monthly cap on post retirement healthcare benefits was increased from approximately $206 (not in thousands) per retiree per month to approximately $250 (not in thousands) per retiree per month. Any renewal or extension of our current contract that is not on similar terms could adversely affect our labor costs.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition, results of operations, liquidity and capital resources is based on our financial statements, which have been prepared in accordance with U.S. GAAP. The application of GAAP requires that we make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and the related disclosure of contingent assets and liabilities. We base these estimates on historical experience and on various other assumptions that we consider reasonable under the circumstances. Note 2 of our financial statements contain a summary of our significant accounting policies, many of which require the use of estimates and assumptions. We believe that of our significant accounting policies, the following are noteworthy because they are based on estimates and assumptions that require more complex, subjective judgments by management, and can materially affect reported results. Changes in these estimates or assumptions could materially affect our financial condition and results of operations.

Revenue Recognition and Allowance for Doubtful Accounts

Net sales are gross sales net of discounts. Our revenues are derived primarily from sales of our products. We recognize revenue when evidence of an arrangement exists, delivery of the product or service has occurred, title and risk of loss have passed to the customer, the sales price is fixed or determinable, and collectability of the resulting receivable is reasonably assured.

Our contracts with the U.S. Government to produce the M4 carbine have been multi-year sole source negotiated contracts in which we have provided cost and pricing data to support our prices. In developing our contract estimates, we consider our current manufacturing costs (consisting primarily of material, labor and overhead), plus as applicable, our estimates of future cost increases over the life of the contract. These contracts are subject to post-award audit and the imposition of retroactive price adjustments and penalties in the event we failed to disclose material events or made errors in the calculation of our costs. Historically, we have not experienced such adjustments.

These contracts are not subject to price adjustment for subsequent changes in our cost of materials, labor or overhead. Contracts with the U.S. Government for other rifles and spare parts are subject to firm fixed pricing. Sales of law enforcement model rifles are based on purchase orders.

The majority of our contracts with the Canadian Government are sole source contracts because of our Canadian operation’s status as Canada’s strategic source of small arms. We provide full cost backup to the Canadian Government using negotiated labor and overhead rates to support our pricing. In developing our contract estimates, we consider our current manufacturing costs (consisting primarily of material, labor and overhead), plus as applicable, our estimates of future cost increases over the life of the contract. These contracts are not subject to price adjustment for subsequent changes in our costs. However, they may be subject to re-pricing resulting from changes in negotiated labor and overhead rates. Contracts won competitively with the Canadian Government are firm fixed and are not subject to adjustment. All contracts contain discretionary audit clauses, which allow the Canadian Government to recover monies where extraordinary profits have been realized. Canadian sales of law enforcement model rifles are based on contracts that are competitively bid using firm, fixed prices, which are not subject to adjustment. Contracts received through the Canadian Commercial Corporation are subject to discretionary audit. We review the revenue recognition on all of these contracts on a quarterly basis and if necessary provide reserves against our contracts; however, we have not incurred any such contract losses for any period presented.

Extension of credit is based on an evaluation of each customer’s financial condition and, generally, collateral is not required. We regularly monitor credit risk exposure related to our customers other than the U.S. and Canadian governments and take steps to mitigate the likelihood of such exposure resulting in a loss. Direct sales to international customers are often secured by a letter of credit. Our collection experience has been very good historically. We maintained an allowance for doubtful accounts of $0.02 million at December 31, 2010 and $0.5 million at December 31, 2009. At least quarterly, we perform detailed reviews of our receivables to determine if impairment has occurred and to assess the adequacy of the allowance for credit losses, based on historical and anticipated trends and other factors affecting credit quality. Credit losses are provided for in the financial statements, primarily on a specific identification basis.

Goodwill and Intangible Assets Valuation (Possible Impairment)

At December 31, 2010, we had goodwill of $11.6 million and intellectual property (intangible assets) deemed to have finite lives with a net carrying value of $7.5 million, which are amortized over 15-30 year lives. We test goodwill for impairments annually during the fourth quarter, or immediately if conditions indicate that either a goodwill or intellectual property impairment could exist. Goodwill is tested for impairment using a two-step process. In the first step, the fair value of the reporting unit is compared to its carrying value. We determine the fair value of each of our reporting units based on a market approach. Using this approach, we select public companies that are comparable to ours and review their revenue and EBITDA to determine comparable multiples which we use to value our business. The three sets of comparable companies consist of small capitalization arms manufactures, U.S. prime contractors and European defense contractors. If the fair value of the reporting unit exceeds the carrying value of its net assets, goodwill is considered not impaired and no further testing is required. If the carrying value of the net assets exceeds the fair value of the reporting unit, a second step of the impairment test is performed in order to determine the implied fair value of a reporting unit’s goodwill. Determining the implied fair value of goodwill requires a valuation of the reporting unit’s tangible and intangible assets and liabilities in a manner similar to the allocation of purchase price in a business combination. If the carrying value of the reporting unit’s goodwill exceeds the implied fair value of its goodwill, goodwill is deemed impaired and is written down to the extent of the difference. The estimate of our fair value requires an evaluation of an appropriate capitalization rate based on the price earnings ratios of similar companies that are public and transactions involving public and nonpublic companies that are similar and prevailing conditions in the equity and debt markets.

For definite-lived assets, impairment testing is performed whenever events or changes in circumstances (“Triggering Events”) indicate that the carrying amount may not be recoverable. We will recognize an impairment loss if the carrying value exceeds its fair value. As of December 31, 2010, we have not had a Triggering Event.

Determining the fair value of a reporting unit is judgmental in nature and involves the use of significant estimates and assumptions. These estimates and assumptions include risk-adjusted discount rates and a determination of appropriate market comparables. We base our fair value estimates on assumptions we believe to be reasonable but that are also unpredictable in nature and inherently uncertain. Actual future results may differ from those estimates.

As of December 31, 2010, the fair value of our reporting units was substantially in excess of carrying value.

During 2008, we wrote-off $2.6 million, which represented all of the goodwill of Colt Rapid Mat associated with its acquisition after determining the goodwill had been impaired due to declining sales and failure to obtain any commitments for significant sales contracts. The impairment charge of $2.6 million is included in loss from discontinued operations. Any change in the remaining useful lives of the intangible assets could have a significant impact on our reported results of operations.

Common Unit Compensation Expense (Benefit)

We have incurred expense for financial reporting purposes related to (1) options to purchase Common Units granted to employees and directors and (2) members’ Common Units held by employees from the exercise of options using non-recourse notes. Common Units held by employees from the exercise of options using non-recourse notes are “in substance options” and are therefore subject to variable accounting. Compensation expense is based on the fair value of Common Units on the date the options were granted. Compensation expense is recognized ratably over the period during which the employee is required to provide service in exchange for the award. However, we may record additional stock-based compensation expense on certain option grants using variable accounting when a re-pricing or change in terms of the option occurs. Additionally, we are required to record as stock based compensation for dividends paid to employees related to members’ units when the consideration is in non-recourse notes.

In 2007, substantially all options to purchase Common Units outstanding were exercised and all non-recourse notes held by employees were repaid. The only remaining outstanding options to purchase Common Units became fully vested in 2008. Accordingly, no further option-related compensation expense was recorded in 2009 or 2010. We did not grant any options in 2009 or 2010.

Fair Value Measurements

We adopted the authoritative guidance for fair value measurements and the fair value option for financial assets and financial liabilities as of January 1, 2008. To date, our financial instrument impacted by this guidance has been limited to our long-term debt interest rate swaps. Prior to 2009, we entered into cash flow hedge transactions designated to eliminate the variability of cash flows related to interest payments on our then existing LIBOR based Term Loan Facility. In connection with the refinancing of our credit facilities in November 2009, all of our interest rate swap agreements were terminated prior to their maturity. Settlement costs of $5.4 million were incurred in connection with this termination and the losses in accumulated comprehensive income were related to debt prepayment expense. We had no derivative type instruments outstanding at December 31, 2010.

As of December 31, 2010, we did not have any significant non-recurring measurements of nonfinancial assets and nonfinancial liabilities. The carrying values for cash, accounts receivable, accounts payable, accrued liabilities and other current assets and liabilities approximate their fair values due to their short maturities.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The inputs used to measure fair value fall into the following hierarchy:

Level 1: Unadjusted quoted prices in active markets for identical assets or liabilities.

Level 2: Unadjusted quoted prices in active markets for similar assets or liabilities, or unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that were observable for the asset or liability.

Level 3: Unobservable inputs for the asset or liability.

During 2010 and 2009, we did not have any financial assets and liabilities reported at fair value and measured on a recurring basis or any significant non recurring measurements of nonfinancial assets and nonfinancial liabilities.

Retirement Benefits

Our pension and other post-retirement benefit costs and obligations are dependent on various assumptions. Our major assumptions relate primarily to discount rates, salary growth, long-term return on plan assets and medical cost trend rates. We base the discount rate assumption on current investment yields of high quality fixed income investments during the retirement benefits maturity period. The salary growth assumptions reflect our long-term actual experience and future and near-term outlook. Long-term return on plan assets is determined based on historical portfolio results and management’s expectation of the future economic environment, as well as target asset allocations.

Our medical cost trend assumptions are developed based on historical cost data, the near-term outlook and an assessment of likely long-term trends. Actual results that differ from our assumptions are accumulated and are amortized generally over the estimated future working life of the plan participants.

Our major assumptions vary by plan and the weighted-average rates used. Each assumption has different sensitivity characteristics, and, in general, changes, if any, have moved in the same direction over the last several years. For fiscal 2011, changes in the weighted-average rates for the benefit plans would have the following impact on our net periodic benefit cost:


	•	A decrease of 25 basis points in the long-term rate of return on assets would have increased our net 2011 benefit cost by approximately $0.05 million; and


	•	A decrease of 25 basis points in the liability discount rate would have increased our 2011 net benefit cost by approximately $0.06 million.

Material Industry Trends and Uncertainties and Company Outlook

We believe the competitive and evolving nature of the small arms weapons systems industry for military and law enforcement personnel provides both challenges to, and opportunities for, the continued growth of our business. We constantly review our financial results and strive to find ways to curtail expenses. For example, in February 2010, we instituted a one-week a month “furlough” program at our West Hartford production facility that lasted through August, and in June we executed a 135 salaried and bargaining unit employee headcount reduction. To the extent that production requirements increase, we believe that we will be able to respond quickly to any such changes.

Our right to receive all orders for M4 carbines on a sole-source, non-competitive basis expired in July 2009. Since then, the U.S. Government has continued to purchase M4 carbines from Colt under the terms of an indefinite delivery, indefinite quantity, or “IDIQ” contract that expired on December 31, 2010. During 2010, 83% of our net sales to the U.S. Government were conducted through our M4 carbine IDIQ contract compared to 92% in 2009 and 74% in 2008. U.S. Government procurement of the M4 carbine in 2011 and beyond, including spare parts is expected to be on a competitive basis. We expect to see reduced U.S. Government procurement of M4 carbines over the next few fiscal years as the U.S. Army conducts a competitive evaluation of offerings for a new carbine to potentially replace the M4. In addition, budget pressures and a reduced war effort could further limit demand for our M4 carbine. The U.S. Government’s purchasing decisions with respect to the M4 carbine will influence our revenues and cash flows.

As a result of the competitive and evolving nature of this industry, our revenue growth, profitability and backlog have been or may be negatively impacted, or we may be impacted in multiple ways, including but not limited to the following:


	•	if we lose one or more of our top customers (including the U.S. Government, our largest current customer) or if one or more of these customers significantly decreases orders for our products;

	•	if the U.S. military selects other small arms manufacturers to supply the M4 carbine for use by U.S. military personnel or we are not able to continue to successfully compete in international sales;

	•	general economic and political conditions in the foreign markets where we currently, or may seek to, do business may impact our international net sales, as such conditions may cause customers to delay placing orders or to deploy capital to other governmental priorities;

	•	we may not be able to identify businesses that we can acquire on acceptable terms; we may not be able to obtain necessary financing or may face risks due to indebtedness; and our acquisition strategy may incur significant costs or expose us to numerous risks inherent in the acquired business’s operations; and

	•	other factors, including those that may impact our prospective industry trends and uncertainties, that are described in “Risk Factors” elsewhere in this prospectus.

Any of the foregoing may negatively impact our backlog, which we view as a key indicator of our future performance. At December 31, 2010 our backlog was $165.7 million compared to $153.6 million as of December 31, 2009. Our backlog includes only orders for which funding is authorized by the customer. Backlog does not include the portion of an IDIQ contract for which a specific, contractually binding purchase order has not been received, or unexercised options associated with existing firm contracts. Because the value of these arrangements is subject to the customer’s future exercise of an indeterminate quantity of delivery orders, we recognize these contracts in backlog only when specific, contractually binding purchase orders are received.

At December 31, 2010, we had $61 million of cash and cash equivalents. We believe we currently have sufficient cash reserves to meet our working capital needs for fiscal 2011.

Key Performance Measures

Our management reviews and analyzes several key performance indicators in order to manage our business and assess the quality and potential variability of our earnings and cash flows. These key performance indicators include:


	•	Net sales;

	•	Net sales growth;

	•	Gross profit as a percentage of net sales;

	•	Operating income as a percentage of net sales;


	•	Adjusted EBITDA from continuing operations (Adjusted EBITDA); and


	•	Adjusted EBITDA from continuing operations as a percentage of net sales (Adjusted EBITDA margin).

For the years ended December 31, 2010, 2009 and 2008, these key performance measures were ($ in thousands):


	Year Ended December 31,
	2010		2009		2008

Net sales	$	175,805	$	270,163	$	269,119
Net sales growth		(34.9)%		0.4%		51.7%
Gross profit as a percentage of net sales		25.3%		32.0%		33.2%
Operating income as a percentage of net sales		10.5%		23.6%		26.2%
Adjusted EBITDA(a)	$	22,935	$	67,600	$	74,155
Adjusted EBITDA margin(b)		13.0%		25.0%		27.6%


(a)		Adjusted EBITDA is used by management as the primary measure of the operating performance of our segments. Adjusted EBITDA consists of net income (loss) from continuing operations before interest, income taxes depreciation and amortization of intangible assets and other income or expenses. See “Item 8 — Financial Statements — Notes to the Audited Consolidated Financial Statements — Note 13 — Segment Information and Notes to the Audited Condensed Consolidated Financial Statements” for discussion of our operating segments and a reconciliation of Adjusted EBITDA to net loss/income.

(b) Adjusted EBITDA margin is Adjusted EBITDA as a percentage of sales.

Results of Operations

The following table sets forth our results of operations in dollars and as a percentage of total net sales for the periods presented ($ in thousands): 86,3988,653


	Year Ended December 31,
	2010			%			2009		%			2008			%

Statement of Operations Data:
Net sales	$	175,805			100.0	%	$	270,163		100.0	%	$	269,119			100.0	%
Cost of sales		131,383			74.7			183,765		68.0			179,797			66.8

Gross profit		44,422			25.3			86,398		32.0			89,322			33.2

Selling and commissions		9,344			5.3			8,653		3.2			5,142			1.9
General and administrative		16,157			9.2			13,359		4.9			13,162			4.9
Amortization of purchased intangibles		548			0.3			525		0.2			593			0.2
Common unit compensation expense		—			0.0			—		0.0			45			0.0

		26,049			14.8			22,537		8.3			18,942			7.0

Operating income		18,373			10.4			63,861		23.7			70,380			26.2

Other expense (income):
Interest expense		24,598			14.0			18,845		7.0			19,266			7.2
Other expenses, net		1,657			0.9			13,466		5.0			872			0.3

		26,255			14.9			32,311		12.0			20,138			7.5

(Loss) income from continuing operations before provision for foreign income taxes		(7,882	)		(4.5	)		31,550		11.7			50,242			18.7

Provision for foreign income taxes		2,659			1.5			2,320		0.9			1,097			0.4

(Loss) income from continuing operations		(10,541	)		(6.0	)		29,230		10.8			49,145			18.3
Discontinued Operations:
(Loss) from discontinued operations		(665	)		(0.4	)		243		0.1			(4,914	)		(1.9	)
(Loss) on disposal of discontinued operations		(208	)		(0.1	)		—		0.0			—			0.0
Net (loss) income	$	(11,414	)		(6.5	)%	$	29,473		10.9	%	$	44,231			16.4	%

Less: net (loss) income attributable to non-controlling interest		(84	)					75					(47	)

Net (loss) income attributable to Colt Defense LLC members	$	(11,330	)				$	29,398				$	44,278

Year Ended December 31, 2010 Compared to the Year Ended December 31, 2009

Net Sales

Sales

The following table shows net sales for the year ended December 31, 2010 and December 31, 2009 by product category ($ in thousands):


	Year Ended December 31,
					%
	2010		2009		Change

Weapon systems	$	120,737	$	215,393		(43.9	)%
Spares / other		55,068		54,770		(.5	)%

Total	$	175,805	$	270,163		(34.9	)%

Net sales for 2010 were $175.8 million, a decrease of $94.4 million, or 34.9%, from $270.2 million in 2009.

Weapon system sales declined in 2010 compared to the same period in 2009 by $94.7 million.

Contributing to this decline was a $70.8 million decrease in sales of carbines to the U.S. Government from the comparable period in 2009, as the U.S. Government continued to evaluate its carbine procurement strategy. Also contributing to this decline from 2009 was a $32.4 million decrease in sales of law enforcement

model carbines, including sales of Match Target^® rifles to Colt’s Manufacturing, an affiliated entity. These declines were partially mitigated by a $7.7 million increase in international weapon systems sales. The 2009 surge in demand for law enforcement model carbines, which was influenced by the anticipated change in the U.S. Government’s regulation of firearms ownership, was not sustained.

Cost of Sales/Gross Profit

Gross margin in 2010 decreased to 25.3% from 32.0% in 2009. This margin erosion was primarily due to the slowdown of volume and related production in our West Hartford plant which negatively impacted overall gross margin resulting in higher per unit manufacturing costs. Commencing in February, we instituted a one-week a month “furlough” program at our West Hartford production facility. In June we executed a 135 salaried and bargaining unit employee headcount reduction. Starting in September, substantially all furloughs at the West Hartford facility ended. The full year impact of the aforementioned slowdown in volume and production was $11.9 million.

Selling and Commissions Expense

During 2010, selling and commission expenses increased by $0.7 million to $9.3 million primarily due to a rise of $0.6 in selling expenses attributed to a headcount increase in our sales force. In addition, commission expense was $0.1 higher in 2010 compared to 2009.

General and Administrative Expense

During 2010, general and administrative costs, increased by $2.8 million over 2009. This increase was principally driven by R&D initiatives associated with new product enhancements and development projects. In addition, our legal and accounting fees increased year over year as result of our initial regulatory filings, increased patent work and an audit performed by the Internal Revenue Service.

Interest Expense

Our interest expense in 2010 was $24.6 million, an increase of $5.8 million from $18.8 million in 2009. The average borrowings were $250 million for the year 2010 as compared to $203.4 million for the same period a year ago. The average effective rate of interest for 2010 was 10.4% compared to 9.3% for 2009. Higher borrowings and interest expense are the result of the issuance of our senior notes, which occurred in the fourth quarter of 2009.

Other Expense, net

Net other expenses of $1.7 million in 2010 were $11.8 million lower than 2009. During 2009, we incurred $11.7 million of debt prepayment expenses compared to $1.2 million in 2010 related to the revolver amendment on November 1, 2010.

Income Taxes

We are not subject to U.S. federal or state income taxes. For 2010, we had foreign income tax expense of $2.7 million compared to $2.3 million for 2009. The effective tax rate for 2010 was 33.7% compared to an effective tax rate of 7.4% for 2009. The income tax we incurred results from Canadian federal and provisional income taxes as well as withholding tax required on the royalty and interest income received from our Canadian subsidiary. The difference between our consolidated effective tax rate and the U.S. Federal statutory tax rate, results primarily from U.S. income (loss) being taxable to our members, the difference between the U.S. and Canadian statutory rates, Canadian non-deductible expenses, and withholding taxes on Canadian interest and royalty expenses.

Discontinued Operations

We dissolved Colt Rapid Mat as of December 31, 2010. In 2010, we recognized a loss from this discontinued operation of $665 thousand and a loss on disposal of $208 thousand. The loss on disposal is primarily due to the disposal of our non-controlling interest and the liquidation of our assets. During 2009, we recognized income from this discontinued operations of $243 thousand.

Year Ended December 31, 2009 Compared to the Year Ended December 31, 2008

Net Sales

The following table shows net sales for the year ended December 31, 2009 and December 31, 2008 by product category ($ in thousands):


	Year Ended December 31,
					%
	2009		2008		Change

Weapon systems	$	215,393	$	229,779		(6.3	)%
Spares / other		54,770		39,340		39.2	%

Total	$	270,163	$	269,119		0.4	%

Net sales for 2009 were $270.2 million, an increase of $1.1 million, or 0.4%, from $269.1 million in 2008.

The $14.4 million decline in weapon systems sales in 2009 as compared to 2008 was primarily driven by a $31.6 million decline in sales of carbines to the U.S. Government partially offset by a $24.8 million increase in sales of law enforcement model carbines, including sales of Match Target^® rifles to Colt’s Manufacturing, an affiliated entity. The $15.4 million increase in spares / other sales in 2009 as compared to 2008 was primarily influenced by an $18.5 million increase in accessory sales which were partially offset by a $4.3 million decline in spare part sales to the U.S. Government.

Cost of Sales/Gross Profit

Cost of sales was $183.8 million for 2009, an increase of $4.0 million, or 2.2%, compared to $179.8 million for 2008. Gross profit in 2009 was $86.4 million, which was lower by $2.9 million, or 3.2%, compared to $89.3 million for 2008. As a percentage of net sales, gross profit decreased to 32.0% for 2009 from 33.2% for 2008. Gross margin for 2009 was slightly lower than gross margin for 2008, primarily as a result of the change in sales mix.

Selling and Commissions Expense

Selling and commissions expense of $8.7 million, during 2009, increased by $3.6 million, or 70.6%, from $5.1 million in 2008. In the first quarter of 2008, we shipped a large non-commissionable, international order. In 2009, there were no comparable non-commissionable orders shipped. In addition, $0.5 million is attributable to increased travel in connection with international sales and industry trade shows. As a percentage of net sales, selling and commission expenses were 3.2% for 2009, compared to 1.9% for 2008.

General and Administrative Expense

General and administrative expense for 2009 was $13.4 million, an increase of $0.2 million from $13.2 million in 2008. This increase was attributable to higher payroll costs and higher R&D costs associated with new product enhancement and development projects.

Interest Expense

Interest expense for 2009 was $18.8 million, a decrease of $0.5 million, or 2.6%, from $19.3 million for 2008. The average borrowings were $203.4 million for 2009 as compared to $196.7 million for 2008. The average

effective rate of interest for 2009 was 9.3% compared to 9.8% for 2008. A lower average rate in 2009 was primarily responsible for the decrease in interest expense and partially offset by the impact of higher outstanding indebtedness during the last two months of 2009 attributable to the issuance of the outstanding notes.

Other Expense, net

Other expense, net was $13.5 million for 2009, compared to $0.9 million for the comparable period in 2008. Debt prepayment expense for 2009 was $11.7 million. This expense was incurred in connection with repayment of our then Existing Senior Secured Credit Facility and Senior Subordinated Notes with proceeds from our Senior Note Offering. Debt prepayment expenses consisted of costs incurred to settle outstanding interest rate swaps, pay a prepayment premium on our Senior Subordinated Notes and write off deferred financing costs associated with the debt paid off. There was no debt prepayment expense in 2008.

In addition during 2009, we incurred $2.1 million of costs in connection with contemplated merger and acquisition activities which were not consummated. The largest item in 2008 consisted of a $1.0 million charitable contribution.

Income Taxes

We are not subject to U.S. federal or state income taxes. For 2009, we had foreign income tax expense of $2.3 million compared to $1.1 million for 2008. The effective tax rate for 2009 was 7.4% which was slightly higher than the effective tax rate of 2.2% for 2008. The income tax we incurred results from Canadian federal and provisional income taxes as well as withholding tax required on the royalty and interest income received from our Canadian subsidiary. The difference between our consolidated effective tax rate and the U.S. Federal statutory tax rate, results primarily from U.S. income being taxable to our members, the difference between the U.S. and Canadian statutory rates, Canadian non-deductible expenses, and withholding taxes on Canadian interest and royalty expenses.

Discontinued Operations

In 2010, we dissolved Colt Rapid Mat. During 2009, we recognized income from this discontinued operations of $243 thousand. In 2008, we recognized a loss from this discontinued operation of $4.9 million, which included a goodwill impairment charge of $2.6 million.

Liquidity and Capital Resources

Our primary liquidity requirements are for debt service, capital expenditures and working capital. We have historically funded these requirements through internally-generated operating cash flow. Our cash requirements for working capital are principally to fund accounts receivable and inventory. U.S. Government receivables, which historically constitute the majority of our accounts receivable, are generally collected within 20 days as compared with 30 to 50 days for direct foreign sales receivables. We have not experienced any significant credit losses. We generally ship our inventory upon the completion of manufacturing and testing and normally have minimal finished products in inventory at any given time. Accordingly, our cash generated from operating activities is generally a reflection of our operating results adjusted for non-cash charges or credits such as depreciation and Common Unit compensation and the timing of the collection of accounts receivable and our investment in inventory. Historically, tax distributions to our members have been made in amounts equal to 45% of our taxable income, as defined, for the applicable period. Our Governing Board may also from time to time declare special distributions to our members. In addition, our cash requirements and liquidity could be impacted by potential acquisitions.

On November 1, 2010, the senior secured credit facility was amended to provide for a $10.0 million letter of credit facility. The letter of credit facility exists for the sole purpose of supporting the Company’s letter of credit requirements. The letter of credit facility contains no financial condition covenants. Under the letter of credit facility, we continue to be subject to a covenant limiting our maximum capital expenditures made in the ordinary course of business in any year to $10.0 million, with provisions to carryover up to $5.0 million of the

unused amount to the succeeding year. As of December 31, 2010, we are in compliance with this covenant. The letter of credit facility matures on January 31, 2014.

In March 2010, we learned that a large potential contract with an international customer had been delayed and that shipments on that order would not begin before 2011. We have subsequently received a purchase order from this customer and expect to make deliveries under this contract in 2011 and 2012. We believe our existing cash balances and forecasted operating cash flows are sufficient to meet our obligations for 2011.

Cash Flows

The following table sets forth our consolidated cash flows for the years ended December 31, 2010, 2009 and 2008 ($ in thousands):


	Year Ended December 31,
	2010			2009			2008

Cash provided by operating activities	$	1,672		$	34,150		$	52,092
Cash used in investing activities		(6,961	)		(7,369	)		(3,166	)
Cash (used in) provided by financing activities		(6,212	)		(16,353	)		(20,251	)

Cash Flows Provided by Operating Activities

Net cash provided by operating activities for 2010 was $1.7 million, compared to $34.2 million in 2009. This unfavorable variance was driven primarily by a net loss of $11.4 million in 2010 compared to net income of $29.5 million in 2009. Working capital in 2010 decreased generating cash of $5.1 million as opposed to a $12.6 million working capital increase during in 2009. The principal cause for this variance was the result of the decline in sales together with the impact of the semi-annual interest payment on the note.

Net cash provided by operating activities for 2009 was $34.2 million, compared to net cash provided by operating activities for 2008 of $52.1 million. Net income was $14.8 million less in 2009 than in 2008 and accounts receivable were significantly higher at the end of 2009 as compared to 2008. The increase in operating cash flow in 2008 was due to a significant increase in 2008 sales and related gross profit as compared to 2007 and timing of accounts receivables billing and collection resulting in unusually low levels of accounts receivable at December 31, 2008 due primarily to the early receipt of U.S. Government receivables in December 2008.

Cash Flows Used in Investing Activities

Net cash used in investing activities for all periods presented are principally for capital expenditures. These capital expenditures reflect our ongoing initiative to upgrade our machinery and equipment, expand our manufacturing capacity and improve our overall manufacturing efficiency.

Capital Expenditures

We have purchased or acquired under capitalized leases state-of-the-art machinery and equipment primarily to modernize our West Hartford, Connecticut manufacturing facility. Such expenditures are as follows ($ in thousands):


Year	Capital Expenditures

2008		3,200
2009		6,768
2010		7,440

Total capital expenditures for 2010, which were $0.7 million over the prior year, included $4.6 million for the purchase of equipment associated with contracts awarded for new products including the M240 machine gun and M249 barrel. The balance of our planned capital expenditures is for maintaining existing manufacturing capabilities.

Cash Flows Used in Financing Activities

Net cash used in financing activities in 2010 was ($6.2) million as compared to $16.4 million of cash provided by financing activities in 2009. Tax distributions paid to members accounted for the principal use of cash used in financing activities in 2010 and 2009.

Net cash provided by financing activities for 2009 was $16.4 million as compared to $20.3 million of cash used in financing activities for 2008. Tax distributions paid to members accounted for the principal use of cash used in financing activities. The decline in distributions was due to lower taxable income in 2009 as compared to 2008.

Net cash provided by (used in) financing activities consisted of the following ($ in millions):


	Year Ended December 31,
	2010			2009			2008

Net borrowings (repayments)(a)	$	(1.1	)	$	54.9		$	(3.4	)
Tax distributions to members(b)		(5.0	)		(14.7	)		(16.2	)
Deferred financing costs(a)		—			(12.8	)		(0.3	)
Debt prepayment expense(a)		—			(6.0	)		—
Purchase of Common Units(c)		—			(5.0	)		—
Debt issuance costs		(0.1	)		—			—
Net repayments from discontinued operations		—			—			(0.4	)

Total	$	(6.2	)	$	16.4		$	(20.3	)


(a)		During 2009, we completed a refinancing of our debt by issuing new outstanding notes and entering into the senior secured credit facility.


(b)		Tax distributions were made to our members equal to 45% of our taxable income.

(c)		During 2009, we purchased $5 million of Common Units from an officer of our company.

On November 10, 2009, we issued $250 million of the outstanding notes. Concurrently with the issuance of the outstanding notes we entered into the senior secured credit facility. This senior secured credit facility was converted into a $10.0 million letter of credit facility on November 1, 2010. Proceeds from the 2009 offering of outstanding notes were used to repay the outstanding balances of our then outstanding senior secured credit facility and senior subordinated notes ($189.3 million), settle outstanding interest rate swap agreements ($5.4 million), pay a prepayment premium on our senior subordinated notes ($0.6 million) and pay financing costs ($12.8 million). The balances of the proceeds were available for general corporate purposes.

At December 31, 2010, we had cash and cash equivalents balance of $61.4 million. This credit facility required us to maintain on-going covenant compliance measured on a quarterly basis. During 2010, we amended the senior secured credit facility to increase the maximum permitted quarterly consolidated leverage ratio from 4.5 to 1 to 5.5 to 1 through the first three quarters of 2010. On November 1, 2010, the senior secured credit facility was amended and became a $10.0 million letter of credit facility. The letter of credit facility exists for the sole purpose of supporting the Company’s letter of credit requirements. The letter of credit facility contains no financial condition covenants. Under the letter of credit facility, we continue to be subject to a covenant limiting our maximum capital expenditures made in the ordinary course of business in any year to $10.0 million, with provisions to carryover up to $5.0 million of the unused amount to the succeeding year. As of December 31, 2010, we are in compliance with this covenant. The letter of credit facility matures on January 31, 2014. See “— Senior secured credit facility and Letter of credit facility” below.

At December 31, 2010, we had backlog of $165.7 million compared to a backlog of $153.6 million as of December 31, 2009. We believe we currently have sufficient cash reserves to meet our working capital needs for 2011.

Outstanding Notes

The $250 million senior unsecured outstanding notes bear interest at 8.75% and mature November 15, 2017. Interest is payable semi-annually in arrears on May 15 and November 15, commencing on May 15, 2010. We issued the outstanding notes at a discount of $3.5 million from their principal value. This discount will be amortized as additional interest expense over the life of the indebtedness.

No principal repayments are required until maturity. However, in the case of a change in control of our company, we are required to offer to purchase the outstanding notes at a price equal to 101% of their principal amount, together with accrued and unpaid interest. In addition, the outstanding notes may be redeemed at our option under certain conditions as follows:


	•	at any time prior to November 15, 2012, we may redeem up to 35% of the notes with the proceeds of certain equity offerings at a redemption price equal to 108.75% of their principal amount together with accrued unpaid interest to the date of redemption; and

	•	at any time prior to November 15, 2013, we may redeem some or all of the notes at a price equal to 100% of the principal amount of the notes together with accrued and unpaid interest plus a make whole premium, as defined in the indenture; and

	•	on and after November 15, 2013, we may redeem all or, from time to time, a part of the notes at the following redemption process (expressed as a percentage of principal amount of the notes to be redeemed) plus accrued and unpaid interest, including additional interest, if any on the notes to the applicable redemption date if redeemed during the twelve month period beginning on November 15 of the years indicated below:


Year	Percentage

2013		104.375	%
2014		102.187	%
2015 and thereafter		100.000	%

The outstanding notes do not have any financial condition covenants which require us to maintain compliance with any financial ratios or measurements, however, there are cross default provisions with our senior secured credit facility. The outstanding notes do contain covenants that, among other things, limit our ability to incur additional indebtedness, enter into certain mergers or consolidations, incur certain liens and engage in certain transactions with our affiliates. Under certain circumstances, we are required to make an offer to purchase our notes offered hereby at a price equal to 100% of the principal amount thereof, plus accrued and unpaid interest to the date of purchase with the proceeds of certain asset dispositions. In addition, the indenture restricts our ability to pay dividends or make other restricted payments (as defined in the indenture) to our members, subject to certain exceptions, unless certain conditions are met, including that (1) no default under the indenture shall have occurred and be continuing, (2) we shall be permitted by the indenture to incur additional indebtedness and (3) the amount of the dividend or payment may not exceed a certain amount based on, among other things, our consolidated net income. Such restrictions are not expected to affect our ability to meet our cash obligations for the next 12 months.

Letter of Credit Facility

From November 10, 2009 through October 31, 2010, the Company was party to a $50.0 million senior secured revolving credit facility. On November 1, 2010, the senior secured credit facility was amended to provide for a $10.0 million letter of credit facility. The letter of credit facility exists for the sole purpose of supporting the Company’s letter of credit requirements. Loans under the letter of credit facility bear interest at our option at a rate equal to LIBOR plus 3.75% or an alternate base rate plus 2.75% (with the base rate defined as the higher of (a) the prime rate or (b) the Federal funds rate plus 0.50% or (c) the one-month LIBOR rate plus 1.00%). The letter of credit facility matures January 31, 2014. Obligations under this facility are secured by substantially all of our assets.

At December 31, 2010, we had $0.6 million of standby letters of credit outstanding against the letters of credit facility.

In addition, the amendment to the senior secured credit facility limited the Company’s ability to borrow term loans or obtain revolving loans, other than to reimburse the amount of any draft paid under any letter of credit without lender agreement and eliminated all financial maintenance covenants.

Contractual Obligations and Commitments

We have contractual obligations and commercial commitments that may affect our financial condition. The following table identifies material obligations and commitments as of December 31, 2010 ($ in thousands):


			Payments Due by Period
			Less than		13-35		36-60		More than
	Total		1 Year		Months		Months		5 Years

Long-term debt principal payments(a)	$	250,000	$	—	$	—	$	—	$	250,000
Interest payments		151,655		21,950		43,900		43,756		42,049
Capital lease obligations, including interest		2,569		1,374		1,195		—		—
Operating leases		2,063		1,068		995		—		—
Payments to pension trust(b)		14,538		1,325		2,948		3,312		6,953
Postretirement healthcare payments(b)		9,573		893		1,905		1,957		4,818
Purchase obligations(c)		950		950		—		—		—

Total contractual obligations	$	431,348	$	27,560	$	50,943	$	49,025	$	303,820


(a)		Includes $250 million of outstanding notes which were issued at a discount of $3.5 million.

(b)		Payments to the pension trust and post retirement plan are required pursuant to our plan.

(c)		We had unconditional purchase obligations related to capital expenditures for machinery.

We have certain Industrial Cooperation Agreements, which stipulate terms of cooperation for commitment of offsetting business over five to six years for the foreign governments that are party to the related sales contracts. We generally settle our offset purchase commitments under Industrial Cooperation Agreements through on-going business and/or cooperating with other contractors on their spending during the related period. Additionally, we identify future purchases and other satisfaction plans for the remainder of the offset purchase commitment period and should there be a projected net purchase commitment after such consideration, we accrue the estimated cost to settle the offset purchase commitment.

Our remaining gross offset purchase commitment is the total amount of offset purchase commitments reduced for claims submitted and approved by the governing agencies. At December 31, 2010 and 2009, our remaining gross offset purchase commitments totaled $25.8 million and $23.2 million, respectively. We have evaluated our settlement of our remaining gross offset purchase commitments through probable planned spending and other probable satisfaction plans to determine our net offset purchase commitment. We have accrued $412 and $0 as of December 31, 2010 and 2009, respectively, based on our estimated cost of settling the remaining net offset purchase commitment.

Off-balance Sheet Arrangements

As of December 31, 2010, our only off-balance sheet arrangements were our operating leases, standby letters of credit, and Industrial Cooperation Agreements. None of our operating leases have any contingent rents. At December 31, 2010, remaining gross offset commitments under the Industrial Cooperation Agreements totaled $25.8 million.

Pension Plans and Post-retirement Health Care Obligations

We have two domestic defined benefit plans that cover a significant portion of our salaried and hourly paid employees. As a result of an amendment to the benefit plan for salaried employees, future accrued benefits for all salaried employees were frozen as of January 1, 2009. We derive pension benefit expense from an actuarial calculation based on the defined benefit plans’ provisions and management’s assumptions regarding discount rate, rate of increase in compensation levels and expected long-term rate of return on assets. Management determines the expected long-term rate of return on plan assets based upon historical actual asset returns and the expectations of asset returns over the expected period to fund participant benefits based on the current investment mix of our plans. Management sets the discount rate based on the yield of high quality fixed income investments expected to be available in the future when cash flows are paid. The rate of increase in compensation levels is established based on management’s expectations of current and foreseeable future increases in compensation. In addition, management also consults with independent actuaries in determining these assumptions. The excess of the projected benefit obligations over assets of the plans is $2.0 million at December 31, 2010. We anticipate we will make a contribution of approximately $1.3 million to our pension plan in 2011.

We also have a post-retirement health plan for our domestic union employees. The post-retirement health plan is unfunded. We derive post-retirement benefit expense from an actuarial calculation based on the provisions of the plan and a number of assumptions provided by us including information about employee demographics, retirement age, future health care costs, turnover, mortality, discount rate, amount and timing of claims, and a health care inflation trend rate. In connection with the renewal of our collective bargaining agreement in 2004, we capped the monthly cost of providing retiree health care benefits at approximately $206 (not in thousands) per employee per month. In connection with the renegotiation of our union contract effective April 2007, the cap was raised to approximately $250 (not in thousands) per employee per month. For the year ended December 31, 2010, the cost per employee per month was $212 (not in thousands). The unfunded post-retirement health care benefit obligation was $12.2 million at December 31, 2010. We anticipate we will make a contribution of approximately $0.9 million to our post-retirement health plan in 2011.

401K Plan

We have a domestic contributory savings plan (the 401K Plan) under Section 401(k) of the Internal Revenue Code covering substantially all U.S. employees. The 401K Plan allows participants to make voluntary contributions of up to 15% of their annual compensation, on a pretax basis, subject to IRS limitations. We match 50% of elective deferrals up to the first 6% of eligible deferred compensation. The employer match contribution in 2010 was $0.3 million.

In addition, we have a defined contribution pension plan (the Canadian Plan) for our employees in Canada, whereby the employees must make a minimum of 1% contribution but can contribute up to 2.5% of their gross earnings. The Canadian Plan requires employer matching. There is a 700 hours worked eligibility requirement. There is no vesting period. In Canada, we also have a profit sharing plan, which provides for a contribution calculated at up to 7% of the net operating earnings, minus the employer contributions to the Canadian Plan. The funds are distributed proportionately based on annual remuneration. We incurred expenses related to these plans of $0.5 million in 2010.

Impact of Inflation

Although inflationary increases in certain costs, particularly labor, outsourced parts and raw materials, could potentially have an impact on our operating results, inflation has not significantly impacted our overall operations in the last three years. Our collective bargaining agreement that became effective April 1, 2007 provided for labor rate increases of 3.25% in 2008 and 3.5% in 2009 and 2.5% in 2010. We monitor the other components of our product cost, including outsourced parts and raw materials on a continuous basis.

Quantitative and Qualitative Disclosures About Market Risk

We are exposed to fluctuation in foreign currency exchange rates and interest rates.

Foreign Currency Exposure

We are subject to foreign currency exchange risks relating to receipts from customers, payments to suppliers and some intercompany transactions. As a matter of policy, we do not engage in currency speculation and therefore, we have no derivative financial instruments to hedge this exposure. In our Statements of Operations, we have foreign currency losses of $0.7 million in 2010, $0.3 million in 2009 and $0.7 million in 2008. Our Statements of Changes in Deficit have a foreign currency translation gain of $1.3 million in 2010, a foreign currency translation gain of $2.7 million in 2009 and a foreign currency translation loss of $3.2 million in 2008. The foreign currency amounts reported in the Statement of Operations and Statement of Changes in Deficit may change materially should our international business continue to grow or if changes in the Canadian dollar or Euro versus the U.S. dollar fluctuate materially.

Interest Rate Exposures

We have no variable rate debt outstanding at December 31, 2010.

Recently Issued Accounting Standards

Milestone Method of Revenue Recognition — In April 2010, the FASB issued authoritative guidance which allows entities to make a policy election to use the milestone method of revenue recognition and provides guidance on defining a milestone and the criteria that should be met for applying the milestone method. The scope, of this guidance, is limited to the transactions involving milestones relating to research and development deliverables. The guidance includes enhanced disclosure requirements about each arrangement, individual milestones and related contingent consideration, substantive milestones and factors considered in that determination. The amendments are effective prospectively to milestones achieved in fiscal years, and interim periods within those years, beginning after June 15, 2010. Early application and retrospective application are permitted. We have evaluated this guidance and have determined that it will not have an impact on the determination or reporting of our financial results.

Improving Disclosures about Fair Value Measurements — In January 2010, the FASB issued new guidance to enhance disclosure requirements related to fair value measurements by requiring certain new disclosures and clarifying certain existing disclosures. This new guidance requires disclosure of the amounts of significant transfers in and out of Level 1 and Level 2 recurring fair value measurements and the reasons for the transfers. In addition,the new guidance requires additional information related to activities in the reconciliation of Level 3 fair value measurements. The new guidance also expands the disclosures related to the disaggregation of assets and liabilities and information about inputs and valuation techniques. The new guidance related to Level 1 and Level 2 fair value measurements was effective for interim and annual reporting periods beginning after December 15, 2009 and the new guidance related to Level 3 fair value measurements was effective for fiscal years beginning after December 15,2010 and interim periods during those fiscal years. The adoption of these changes had no impact on the consolidated financial statements.

Revenue Arrangements with Multiple Deliverables — In September 2009, the accounting standard for the allocation of revenue in arrangements involving multiple deliverables was amended. Current accounting standards require companies to allocate revenue based on the fair value of each deliverable, even though such deliverables may not be sold separately either by the company itself or other vendors. The new accounting standard eliminates i)the residual method of revenue allocation and ii) the requirement that all undelivered elements must have objective and reliable evidence of fair value before a company can recognize the portion of the overall arrangement fee that is attributable to items that already have been delivered. This revised accounting standard will be effective for us beginning January 1, 2011 via prospective transition. Early adoption and retrospective transition are permitted. The adoption of this guidance will not have an impact on our consolidated financial statements.

BUSINESS

Company overview

Our current core product line includes:


	•	proprietary military products, including the M4 and C8 carbines, M16 and C7 rifles and new products such as our IAR, CM901TM, SCW and APC;

	•	military products manufactured under license such as M249 machine gun barrels and the M240 machine gun;

	•	the M203 and Eagle grenade launcher;

	•	proprietary products designed for law enforcement uses, including our LE 6920 and LE 6940 Law Enforcement Carbines, AR-15A2 Government Carbine, AR-15A3 Tactical Carbine, Colt Accurized Rifle and 9mm Submachine Gun; and

	•	conversion and upgrade kits, spare parts and accessories, such as rail systems and sights.

Industry overview

We compete in the global market for small arms weapons systems designed for military and law enforcement personnel. Our end customers include U.S. and foreign militaries, as well as law enforcement and security agencies. The funding for our core products is primarily linked to spending trends of U.S. and foreign militaries, and national and border security and law enforcement agencies. We believe global spending for small arms weapons systems and other related soldier-centric products will continue to grow over the next several years in large part due to upgrades and modernizations by foreign militaries and a continued emphasis on national security and anti-terrorism initiatives. Internationally, we believe the cooperative effort to combat terrorism and other illegal activities will cause governments and militaries to continue to enhance and modernize their military and law enforcement capabilities. We also believe that the proliferation of asymmetric, non-conventional warfare, such as that taking place in Iraq and Afghanistan, will keep the focus on enhanced capabilities for the individual service member, and will likely assist in the health of our markets in the U.S. and worldwide. This growth trend is likely to be tempered by continued downward pressure on global military budgets.

Competitive strengths

We believe that the following strengths contribute to our competitive position within the market for small arms weapons systems:

Global brand name with strong recognition, reputation and affinity. The Colt name, the Colt logo and the Rampant Colt logo are among the world’s most recognized trademarks associated with firearms. These marks, when used with our products and services, connote quality, value, reliability, performance and integrity, particularly within the military and law enforcement markets. Our brand is enhanced by our extensive use of these trademarks in the U.S. and around the world for nearly 175 years, which has fostered brand affinity and awareness among our customer base. As a result, we have preserved a strong brand image that has succeeded in distinguishing our products from the competition on a global basis and that, we believe, represents a significant competitive advantage.

We expect our strong brand and long standing association with the military and law enforcement market for small arms weapon systems will also facilitate the implementation of our growth strategy. We believe we will be able to leverage our brand and the global acceptance of our products to continue to expand our sales of small arms weapons systems in U.S. and foreign military and law enforcement markets. A strong brand will also assist us in selling complementary product lines, technologies and services that we may acquire or develop internally or with others.

Leading global supplier of small arms weapons systems. We have been the sole supplier of the M4 carbine to the U.S. military and are the exclusive supplier of military rifles and carbines to the Canadian Department of National Defense. We have sold more than 700,000 M4 carbines to the U.S. military, illustrating the U.S. Government’s commitment to, and satisfaction with, this battlefield-proven weapons system. Our strategic source relationships with the Canadian Government and the global installed base of more than 7 million M4, M16 and related small arms weapons systems provide us with an opportunity to:


	•	further penetrate the global military and law enforcement related markets with our advanced M4, M16 and C7 and C8 family of weapons;

	•	provide related after-market products and accessories, including upgrades, spare parts, replacement kits and logistic support and remanufacture, refurbishment and conversion of small arms weapons systems;

	•	acquire knowledge of combat force requirements and the performance of weapons on the battlefield to develop additional advanced soldier-centric small arms weapons systems; and

	•	use our U.S. and foreign government relationships and knowledge to market additional products and related services that better equip, train and deploy individual forces.

The M4 is a modular weapon platform that can be deployed in multiple configurations and with a variety of accessories, including:


	•	war-fighting variants such as a marksman rifle or close quarter battle carbine, featuring situation-optimized barrel lengths;

	•	electronic accessories such as lasers, illuminators or a combination of laser and optics;

	•	optical accessories such as infrared and thermal sights;

	•	firepower enhancements such as grenade launchers or sound suppression systems; and

	•	other accessories such as flashlights, slings, bipods or bayonets.

Proprietary technology. We use our proprietary intellectual property, consisting of patents, manufacturing processes, proprietary know-how and other trade secrets and confidential information to develop a technical data package (“TDP”), which is a blueprint for manufacturing our small arms products. Our ownership of, and ability to incorporate and further develop, the intellectual property in our TDPs provide us with competitive advantages in maintaining the high quality standard of our existing products, realizing additional manufacturing efficiencies, developing upgrades and improvements for our existing products and

developing the next generation of products. Although the U.S. military is no longer obligated to purchase the M4 carbine solely from us, we continue to own the TDP for the M4 carbine.

Any competitor seeking to supply the M4 carbine to the U.S. Government will be required to demonstrate that it is able to reliably and consistently manufacture these products to exacting military specifications, which we believe is a significant barrier to entry for most small arms manufacturers. We believe that few small arms manufacturers have our extensive knowledge base and engineering and product development capabilities to develop variations and incorporate other products or improvements for the M4 carbine. Furthermore, any alternative manufacturer supplying the M4 carbine to the U.S. military will be required to fund a 5% royalty to us that is payable with respect to certain components of each M4 carbine supplied to the U.S. military, which we believe represents a pricing advantage for us and an additional barrier to entry by competitors.

Engineering and product development excellence. We believe that our focus on engineering excellence and our investment in research and development, including innovative technologies is critical to our ability to maintain an industry leadership position in the design and development of small arms weapons systems. Our track record of engineering expertise has recently resulted in the award to us of three contracts from the U.S. Army for three products that previously had been exclusively manufactured by one of our key competitors: in 2008, an $11 million contract for M240 machine gun barrels, a $126 million contract for the M240B machine gun, and in 2009 a $25 million contract for M249 machine gun barrels. Contracts do not become backlog until specific purchase orders are received by the Company.

Well-positioned to benefit from international market opportunities. We are favorably positioned to increase our market share in the multi-billion dollar foreign military and law enforcement markets, as numerous countries have announced plans to upgrade their small arms weapons systems. We believe our strong competitive position is due in large part to the following:


	•	the large installed base of our battlefield-proven products, their quality and reliability, and our ability to offer related products and services;

	•	our more than 150 years of experience with the customs, practices and logistical and legal frameworks associated with supplying small arms weapons systems to the international market;

	•	our manufacturing, logistics, research and design capabilities enable us to customize our existing product line to effectively address specific international customer requirements;

	•	our familiarity with U.S. foreign military sales (“FMS”) procedures;

	•	our willingness and ability to support the increasing desire of international customers to establish in-country manufacturing license and similar co-production arrangements; and

	•	our network of foreign sales representatives that provides us with effective presence, marketing and after-market support capabilities.

Superior manufacturing capability and quality. Our facilities satisfy the high manufacturing standards demanded by the U.S. Department of Defense, the Canadian Department of National Defense and other foreign governments, and have been registered under the internationally recognized ISO 9001:2008 standards. Our products are manufactured using proprietary manufacturing processes and are subject to stringent quality assurance and endurance testing requirements, including on-site quality control by U.S. Department of Defense representatives. We believe that other manufacturers’ products are not made with the same regard to our rigorous quality of materials, processes and testing.

We have nearly completed a comprehensive modernization of our manufacturing processes by installing capital equipment that relies on computerized, numerically controlled (CNC) machining and turning equipment. We believe that our ongoing capital improvement program has yielded significant benefits, including:


	•	increasing the consistently superior quality of our products;

	•	increasing our production capacity and ability to efficiently produce our existing product line; and


	•	expeditiously introducing additional product lines, such as the M240 and M249 machine gun barrels and the M240 machine gun, while maintaining superior levels of quality control.

Strong customer relationships. We maintain senior level relationships with the U.S. Department of Defense, one of the largest purchasers of small arms weapons systems in the world, Canada and other foreign customers, as well as domestic and international law enforcement agencies. Since 1976, we have served as Canada’s Small Arms Center for Excellence, the Canadian Government’s center to test, improve and develop small arms, and its representative at NATO small arms conferences, giving us unique knowledge of the current trends, challenges and issues facing our foreign military customer base.

Business strategy

The major elements of our strategy that take advantage of our competitive strengths are:

Continuing our leadership in small arms weapons systems. We intend to continue to address the existing and changing needs of the individual members of the military and law enforcement agencies by:


	•	producing and delivering a broad range of quality proprietary small arms such as our M4 carbine and its variations, and our C7 and C8 family of weapons;

	•	continuing our leadership in the research and development of small arms weapons systems;

	•	diversifying our product line by developing new products, including the next generation of small arms weapons systems, by incorporating our TDPs and developing other technologies;

	•	diversifying our product line through offering accessories and related components, such as replacement barrels, rail systems, sights and other products that enhance the capability and functionality of our existing core product lines, including contract manufacturing of third parties’ proprietary products; and

	•	providing superior aftermarket service.

Pursuing international opportunities. We continue to increase our sales to the foreign military and law enforcement markets. In 2010, we have shipped our products to nearly 40 countries. We intend to leverage the global installed base of more than 7 million M4 carbines and M16 rifles and the battlefield-proven reliability and visibility afforded by the prominent role that our small arms weapons systems have played in the multi-national engagements in Iraq and Afghanistan, to capitalize on global small arms replacement and upgrade programs. Our implementation of this strategy has yielded significant positive results for us in Europe, Southeast Asia, the Americas and the Middle East.

Continuing to pursue opportunities with U.S. law enforcement agencies. We believe that U.S. law enforcement agencies, which tend to look to U.S. military products when determining their weapons of choice, represent a growth opportunity for our products. We believe that law enforcement agencies benefit by acquiring small arms weapons systems that are similar to small arms weapons systems deployed by the U.S. military due to several factors, including the following:


	•	familiarity with the M4 weapons systems, including the components and accessories, weight and functionality lessens required training and maintenance resources;

	•	use of similar systems provides synergy for skill training as the individual completes courses and training in his or her military and civilian positions;

	•	use of our weapon systems in actual battle conditions provides independent evidence about the quality and functionality of our weapon systems; and

	•	highly-customizable modular weapon platform provides access to a wide selection of components and accessories, from more value-oriented offerings to battlefield-proven high-end products.

We believe that the proven quality, capability and reliability of our small arms weapons systems position us to increase sales of law enforcement model products and services, including upgrades and spare parts,

especially as law enforcement agencies continue to replace shotguns and older model rifles with newer soldier-centric styled semi-automatic weapons. We have sold our products, including the M4 carbine and its variations, to law enforcement agencies around the country, including the Federal Bureau of Investigation, the Bureau of Alcohol, Tobacco, Firearms and Explosives, the New York City Police Department and the New Jersey and Pennsylvania State Police Departments.

Pursuing strategic acquisitions. We intend to seek select domestic and international acquisition opportunities. Our acquisition focus will be on companies that have complementary product lines or technological competencies or that serve the same end users.

Improving manufacturing efficiencies. We initiated a capital improvement program pursuant to which we have made aggregate capital expenditures of $29.9 million from 2005 through 2010. This capital improvement program and our manufacturing and engineering expertise enable us to continue to reduce our production costs and increase our manufacturing capabilities. Our capital improvement program has allowed us to achieve a four-year compound annual growth rate (CAGR) through 2009 in the number of rifles and carbines manufactured at our West Hartford facility of approximately 25%, while during the same period, the number of direct manufacturing employees at that facility increased at a CAGR of less than 7%.

History

We trace our history to Colonel Sam Colt, who launched a company that is part of American folklore. A post-Civil War slogan stated, “Abe Lincoln may have freed all men, but Sam Colt made them equal.” Sam Colt’s success story began with the issuance of a U.S. patent in 1836 for the Colt small arms, which was equipped with a revolving cylinder containing five or six bullets. Colt’s revolver provided its user with greatly increased firepower, since prior to his invention, only one- and two-barrel flintlock pistols were available. As a direct result of his invention and the marketing and sales success that followed, Sam Colt and his small arms played a prominent role in the history of a developing America. So popular was the Colt revolver during the latter half of the 1800s, that it was perhaps the best-known small arm, not only in this country, but also in Canada, Mexico, and many European countries. To this day, we believe the name Colt suggests small arms to most Americans.

Products

Our name, products and services connote quality, value, reliability, performance and integrity in the U.S., Canada and around the world. We believe these strengths will facilitate the implementation of our growth strategy and allow us to continue to expand our sales of small arms weapons systems and related products.

Our product line includes:


	•	military and law enforcement small arms weapons systems such as rifles, carbines, grenade launchers, and submachine guns; and

	•	a range of weapons-related products and accessories.

Below is a brief description of some of our significant products.

Military products

M4 5.56mm carbine. The M4 carbine, first approved for use by the U.S. military in 1993 due to its size and performance, is not only well suited for special operations and elite battle units of the U.S. military and similar units of other militaries but for general purpose forces as well. The M4 is a fully/semi-automatic, air-cooled, magazine-fed, gas-operated carbine. The M4 carbine is based on simplicity of operation, maximum interchangeability of parts and ease of maintenance. This combination of favorable characteristics has contributed to a durable, high performance system with low life cycle maintenance costs. The M4 carbine features a four-position sliding butt stock allowing it to adapt to soldiers of different sizes and physical characteristics as well as various firing positions. The M4 carbine is the first military weapon to fully utilize the flat top upper receiver, which provides the user flexibility in accessorizing.

Variations of this carbine offered include the C8 carbine, and the C8SFW. Additionally, we offer a variation that is fully automatic.

M4 Commando. The M4 Commando, a derivative of the M4 carbine, is a more compact form of our 5.56mm family of weapons, and we believe it is particularly useful for close-quarters combat, where lightness and ease of handling are of greater concern. We offer variations of this carbine including the C8CQB (Close Quarter Battle) carbine.

Infantry Automatic Rifle. The IAR is a newly designed weapon system. The IAR is a gas-operated, air-cooled, magazine-fed, fully automatic weapon with a firing rate of 700-1000 rounds per minute. The new, heavier barrel design along with an integrated heat sink increases stability, accuracy and heat dissipation. The IAR shares common features with the M4 carbine and the M16 rifle, and is immediately familiar to soldiers trained in operating the M4 and M16 family of weapons. It uses the same wide variety of ammunition and shares the same magazine and certain other parts with the M4 and M16 family of weapons, thereby reducing training and logistics requirements. We also offer a variation of this rifle through Colt Canada known as the Light Support Weapon rifle.

CM901 Multi-caliber, Modular Weapon System. The CM901TM is a newly designed weapon system that can change calibers from 5.56mm up to and including 7.62 x 51mm NATO. By simply disengaging the take-down and pivot pins on the universal lower receiver, the user can quickly change from a 5.56mm Close Quarter Battle short barrel configuration to a full length 7.62 x 51mm Extended Range Carbine configuration in seconds. The CM901TM has a free-floating barrel system to improve operator accuracy and hit probability. The CM901TM is designed to accept all legacy M4/M16 Colt upper receiver assemblies and therefore is compatible with a large portion of the U.S. Government’s inventory and familiar in functionality to the soldier.

Sub Compact Weapon (SCW). The new Colt Sub Compact Weapon (SCW) is the most compact of Colt’s 5.56mm family of weapons. The SCW features Colt’s patented one-piece monolithic upper receiver and a Colt collapsible folding buttstock for maneuverability in confined spaces such as vehicles and aircraft. The SCW has been engineered to provide the same dependable reliability and effectiveness as the Colt M4 in a more compact design.

Advanced Piston Carbine (APC). The new Colt P0923 is an advanced modular, 5.56mm, piston-operated, lightweight, one-piece upper receiver, magazine fed carbine capable of firing in automatic and semi-automatic modes. The Colt P0923 incorporates a unique articulating link piston (ALP) operating system that reduces the inherent stress in the piston stroke by allowing for deflection and thermal expansion. The P0923 is specifically designed for ease of cleaning, disassembly, and assembly of parts.

9mm Submachine Gun. The 9mm Submachine Gun (“SMG”) is a lightweight, compact weapon encompassing the same straight-line construction and design as the M4 carbine. This straight-line construction, coupled with the low recoil associated with 9mm ammunition provides highly accurate fire with less muzzle climb, especially in full automatic fire.

The operation and training for the SMG is similar to that of the M4 carbine and M16 rifle family of weapons, thus reducing training and logistics requirements. The SMG is well-suited for military organizations that require a lightweight, compact weapon required to turn out sustained and controlled fire in close confrontations. The SMG is also well-suited in military and law enforcement situations where maximum concealability and lower velocity are required. Furthermore, due to its lack of over-penetration, its use is desirable in urban environments, on boats and ships, in and around buildings, and in airfields.

M16 5.56mm Rifle. The M16 is a fully/semi-automatic, air-cooled, magazine-fed, gas-operated rifle. This rifle has been produced since the 1960s, and until the transition to the M4 carbine, was the standard weapon of issue for the U.S. Army. The M16A4 Rifle version features a removable carrying handle with an integral rail-mounting system. When the carrying handle is removed, any accessory device with a rail grabber, such as an optical sight, can be mounted on the weapon. We also offer the C7 Rifle which a variation of the Colt M16.

M203 Grenade Launcher. The M203 grenade launcher is a lightweight, single-shot, breech-loaded 40mm weapon designed for attachment to M4 carbines, M16 rifles and law enforcement model rifles, creating a versatile combination weapon system capable of firing 5.56mm rifle ammunition as well as a whole range of 40mm high explosive and special purpose ammunition (including non-lethal ammunition). It has a maximum effective range of 400 meters with low recoil. We also offer the M203A1 grenade launcher, which can be attached to the C8 carbine and the C7 rifle as a variation of this product.

EAGLE 40mm Grenade Launcher. The EAGLE grenade launcher is a lightweight, single-shot, 40mm weapon designed specifically to work with the new generation of weapons equipped with one piece upper receivers, including the CM901. The EAGLE is a side opening launcher that will accommodate the whole range of 40mm high explosive and special purpose ammunition (including non-lethal ammunition). The launcher can be configured for left or right-handed shooters. It has a maximum effective range of 400 meters with low recoil. It is also available as a stand-alone unit.

Military products under license

M240 Machine Gun. The M240 is a belt-fed, gas operated medium machine gun that utilizes the 7.62 x 51mm NATO cartridge. Colt manufactures the M240 under license for sales exclusively to the U.S. Government.

Law enforcement model rifles

AR-15A2 Government Carbine. The AR-15A2 Government Carbine is a lightweight, compact, semi-automatic rifle that offers 5.56mm semi-automatic firepower with high mobility. We believe it is particularly suited to law enforcement requirements outside the range and accuracy of handguns.

Law Enforcement Model Carbines. The LE6940 and LE6920 are specially designed law enforcement model weapons that feature many of the combat proven advantages of the military M4 carbine and are designed for tactical deployment and traditional patrol. They are produced for law enforcement in a semi-automatic only mode. The Law Enforcement Model Carbines come with a step-cut barrel that allows them to accept the M203 grenade launcher for nonlethal options for crowd control and criminal apprehension such as through the use of tear gas, rubber munitions and bean bags.

Colt Accurized Rifle. The Colt Accurized Rifle features a free-floating, 24” (61 cm) stainless steel barrel that delivers increased accuracy in a semiautomatic platform. Included, as part of the design, is an all-aluminum tubular handguard with twin sling swivel studs that allows for easy target sling and bipod attachment. Also, the Colt Accurized Rifle utilizes an enhanced trigger grip for smoother and more consistent trigger pull. We believe the Colt Accurized Rifle delivers the highest industry standard for rapid, accurate and multiple shot deployment.

Spare parts, replacement kits and components

We produce and provide spare parts and replacement kits for our small arms weapon systems. We believe this market will increase as weapons usage increases in part due to the heightened state of alert and activity surrounding the support of homeland defense initiatives. We believe this activity translates to near-term higher weapons usage both domestically and abroad, resulting in increased deliveries of our spare parts and kits business.

Accessories

Due to the flexibility of our small arms weapons systems, we offer our customers procurement services whereby we will accessorize to the customer’s specifications the small arms we sell, thus offering a vehicle to leverage our core product platforms. The M4 carbines and M16 rifles are the platform for the U.S. military’s current generation modular weapon system, which incorporates a rail adapter system into the weapons. These rail systems provide multiple mounting surfaces for the M4 carbines and M16 rifles to mount various accessory devices, including flashlights, optical sights, thermal sights, backup iron sights, laser sighting and targeting devices. Accordingly, there is a large base of components using the rail adapter system and a significant investment by the U.S. military and foreign countries in these components.

Other products and services

Law enforcement sales and training. We provide assorted tactical and firearms training for the law enforcement community. Some of the training courses currently being offered include “Armorer for Pistol and Tactical Rifle,” “Tactical Pistol and Tactical Rifle (Live Fire),” “Tactical Movement/High Risk Entries” and “Covert Movement,” among others.

Match Target^®. We supply Match Target^® rifles, a commercial version of our military and law enforcement model rifles, to Colt’s Manufacturing at a price that is intended to permit us and Colt’s Manufacturing to share the profit margin that would ordinarily be generated by a sale from manufacturer to distributor.

Colt Rapid Mat

Research and development

We are dedicated to developing new products and enhancing existing products. We work closely with military ground troops and those to whom they report to continuously improve our weapon systems in order to meet their requirements. Our ability to compete for new contracts depends, to a large extent, on the success of our research and development programs at creating innovations and improvements. Our product engineering department consists of a design group that supports existing products and also designs new products; a model shop equipped with sophisticated multi-axis equipment and software to enable three dimensional models to be imported from the design group to be quickly converted into hardware; a test and support group that is responsible for engineering support of current products as well as planning and carrying out developmental testing and testing of competitive products; and an engineering services group that is responsible for

developing and maintaining all drawings and bills of material. This group also is responsible for ongoing independent research and development activities. This group includes engineers, technicians, technologists, CAD draftsmen, designers and support personnel.

We believe our research and development expertise will enable us to compete for new contracts based on the success and innovation of our research and development programs.

We believe our weapons expertise is transferable to cooperative research and development projects that involve fine element analysis, metallurgy, ballistics, testing and quality, which can be used to complement the development of new soldier system products.

Research and development expenditures for our continuing operations were approximately $4.5 million in 2010, $2.6 million in 2009 and $2.5 million in 2008.

Co-production programs

We have in the past entered into co-production transactions with partners in foreign countries, such as the Canadian Government, and we continue to be willing to enter into new relationships. We believe that our experience with co-production relationships and our willingness to consider new arrangements of this type favorably position us for product sales to foreign governments that wish to develop in-country manufacturing capability as part of a contract to purchase small arms weapons systems. All manufacturing license agreements that we might enter into require approval by the U.S. State Department.

Acquisitions

We intend to seek select domestic and international acquisition opportunities. Our acquisition focus is expected to:


	•	include companies that have complementary product lines or technological competencies and are in related or adjacent areas;

	•	respond to the needs of our core customers; and

	•	utilize our expertise in government procurement to field new technologies and understand the needs of the war-fighting forces.

Customer and customer concentration

We provide small arms weapons systems to a customer base that we divide into the following categories:


	•	U.S. Government (including FMS sales by the U.S. Government);

	•	direct sales to foreign governments; and

	•	domestic law enforcement agencies and select distributors of law enforcement model weapons systems.

Our customers are sophisticated users of our products. Our sales process often responds to government requests for proposals where the product, price and terms are evaluated. Sales to our domestic and foreign government customers are often dependent on the amount of governmental budget allocations for sufficient spending.

A significant portion of our net sales is derived from a limited number of customers. For the year ended December 31, 2010, our top ten customers represented approximately 91% of our net sales. Our two largest customers accounted for approximately 64% of our net sales for the year ended December 31, 2010. Although we expect sales to our top two customers to decrease as a percentage of total net sales for the year ending December 31, 2011, we expect we will continue to derive a significant portion of our business from sales to these customers.

As stated above, a significant amount of our net sales is derived from contracts with the Department of Defense or other agencies of the U.S. Government. U.S. Government business is performed under fixed-price

contracts. Our primary contracts with the U.S. Government are indefinite delivery, indefinite quantity contracts under which the customer places orders at its discretion. Although these contracts generally have a four-year term, they are funded annually by government appropriations and are subject to annual price negotiations. We are not a party to any cost-plus contracts. Under U.S. Government regulations, certain costs, including certain financing costs, portions of research and development costs, lobbying expenses, certain types of legal expenses, and certain marketing expenses related to the preparation of bids and proposals, are not allowed for pricing purposes.

The U.S. Government also regulates the methods under which costs are allocated to U.S. Government contracts. We are subject to a variety of audits performed by U.S. Government agencies. These include pre-award audits that are performed upon the submission of a proposal to the U.S. Government. During the performance of certain contracts, the U.S. Government has the right to request and to examine labor charges, material purchases and overhead charges to any active contract. Upon a contract’s completion, the U.S. Government may perform a post-award audit of all aspects of contract performance to ensure that we have performed the contract in a manner consistent with our proposal.

U.S. Government contracts are, by their terms, subject to termination by the U.S. Government for either its convenience or default by the contractor. Termination for convenience is at the U.S. Government’s discretion and occurs when there is a determination that termination of the contract is in the U.S. Government’s interest, such as when there is a change in the U.S. Government’s needs. Fixed-price contracts provide for payment upon termination for items delivered to and accepted by the U.S. Government and, if the termination is for convenience, for payment of fair compensation of work performed plus the costs of settling and paying claims by terminated subcontractors, other settlement expenses, and a reasonable profit on the costs incurred. If a contract termination is for default, however, the contractor is paid an amount agreed upon for completed and partially completed products and services accepted by the U.S. Government. In these circumstances, the U.S. Government is not liable for the contractor’s costs with respect to unaccepted items, and is entitled to repayment of advance payments and progress payments, if any, related to the terminated portion of the contract. The contractor may be liable for excess re-procurement costs incurred by the U.S. Government in procuring undelivered items from another source and/or damages.

We are a designated strategic source of supply for small arms in Canada and have a significant volume of recurring business, including the sale of new small arms, upgrades of small arms already in service, conversion programs, repair and overhaul, engineering support, technical publication support and spare parts. We supply our products to Canada on a sole source basis to the Canadian Department of National Defense and other agencies. Since 1976, our Canadian subsidiary and its predecessor has served as the Government of Canada’s Strategic Source for Small Arms Work, which requires it to work closely and cooperate with the Department of National Defense and Canadian Forces regarding its strategic source of supply for the design, development, manufacture, testing and overhaul of small arms, including but not limited to the C7 and C8 family of weapons, as well as maintain the Small Arms Center for Excellence, the Canadian Government’s center to test, improve and develop small arms.

Marketing and distribution

Our marketing strategy is a customer-based approach that takes advantage of direct interaction with the end user. This enables us to respond to the feedback and guidance of weapon operators on a real-time basis. We continuously analyze the defense and law enforcement markets to anticipate the needs of our existing users.

Our current position as the sole supplier of the M4 weapon system to the U.S. military provides us with product information and feedback to be able to satisfy U.S. Government requirements and also the requirements of law enforcement and international customers. The prevailing strategy to counter insurgent/terrorist activity is the use of mobile military units with lightweight weapons that can be deployed and maneuvered quickly. The M4 carbine and its derivatives are lightweight weapons that are well accepted by our customers. Domestic sales of law enforcement model rifles are made and distributed either directly to the end

user, such as the FBI, the Bureau of Alcohol, Tobacco, Firearms and Explosives, the New York City Police Department and the New Jersey and Pennsylvania State Police Departments, or to our distributors.

The contracting process with our customers often takes anywhere from six to twelve months to complete and sometimes longer; however our enhanced delivery capabilities allow us to deliver law enforcement models of our weapons to our customers within 60 to 90 days. Widely recognized brand name loyalty and weapons already in stock, play a significant role in the selection process of our customers. For a description of international sales, see “— Export sales” below.

Export sales

Our products are sold into the international marketplace through two distribution channels, direct foreign sales and FMS sales.

Direct foreign sales are sales transactions that we initiate, negotiate and fulfill directly with the customer in question, which is almost always a military or law enforcement unit of a foreign government. We maintain an international network of commission-based sales representatives who assist us with direct foreign sales by promoting our products in their assigned territories, locating sales opportunities, submitting bids and quotes, finalizing sales contracts and associated paperwork and providing delivery and after-sale support. Before we engage new sales representatives, we vet them to assure that their names do not appear on lists of parties engaged in unauthorized or illegal activity. Direct foreign sales also are analyzed for compliance with the U.S. Foreign Corrupt Practices Act (“FCPA”). Additionally, all of our relevant personnel are trained in applicable export laws and regulations, particularly the International Traffic in Arms Regulations (“ITAR”), to assure that all direct foreign sales and all exports of technical data and defense services occur in conformity with all legal requirements.

Our products also enter the international market via the U.S. Government FMS program. FMS sales are sales negotiated between the U.S. Government and the foreign customer. In an FMS sale, product is purchased from us by the U.S. Government and resold by it to the foreign customer. Accordingly, our sale is to the U.S. Government, not to the end customer, and these sales are made at the same price at which we sell to the U.S. Government. We and our sales representatives ordinarily play no role in creating FMS sales or in immediate after-sale customer support. Our foreign sales representatives do not earn commissions on FMS sales.

Manufacturing; capital expenditures program

Our facilities operate on production plans that are intended to maximize our output and efficiency. In addition, our facilities organize manufacturing operations around production work cells to maximize productivity and minimize bottlenecks. Production work cells are supported by dedicated machinery, which eliminates long set-up and change-over times.

We have two manufacturing facilities for the production of small arms weapons systems at which we can produce small arms efficiently and effectively to meet the needs and requirements of our customers. Our primary manufacturing facility is located in West Hartford, Connecticut. This factory was the first defense manufacturer in Connecticut to achieve the revised ISO 9001:2000 Standard. Our other manufacturing facility for the production of small arms weapons systems is located in Kitchener, Ontario. Both of these facilities are certified and registered ISO 9001:2008.

On December 1, 2010, we ceased operating Colt Rapid Mat, a non-core business with a manufacturing facility located in Delhi, Louisiana engaged in the manufacture and sale of runway repair systems. There was no buyer for this business and no significant proceeds are expected from the sale of assets. In addition, there were no material costs or on going commitments associated with the closure.

In 2005, we commenced the implementation of our capital improvement program to upgrade our West Hartford manufacturing facility. From January 1, 2005 through December 31, 2010, we have spent approximately $29.9 million to fund capital expenditures, including the purchase of significant new manufacturing

equipment. We intend to continue to fund capital expenditures relating to our manufacturing equipment, among other things, particularly as we diversify our product lines.

Quality assurance

Total quality assurance is integral to our manufacturing process and we believe that our quality assurance system differentiates us from our competitors and us. Our on-site metallurgical laboratory ensures the grade and quality of the materials that are identified for a specific process and plays an important role in our ability to assure consistent quality. Since proper heat treating and chemical finishes are critical to the battlefield performance of military grade small arms, we continuously monitor our manufacturing processes within the strict guidelines of our ISO 9001:2008 quality management system. After assembly, we test every rifle and carbine for reliability, durability and accuracy in our on-site range. Workstations in the test range are equipped with computers to measure and rate each weapon as it is tested. Our quality assurance system has enabled us to produce large volumes of consistently high-quality product.

Raw materials

The raw materials in our products consist primarily of metals, principally steel and aluminum, and polymers. We purchase bar steel and aluminum forgings for machining operations that we conduct at our facilities but most of our purchased inventory consists of parts that are already fully or partially machined or processed. The critical machined and processed purchased parts are manufactured pursuant to the proprietary specifications contained in the TDPs for our products. We have more than one source of supply for all inputs into our manufacturing process, except for government specified accessories that are available only from sole sources. We have not experienced any significant delays in obtaining timely deliveries of essential raw materials, and have not been materially adversely affected by price fluctuations relating to essential raw materials.

Backlog

As of December 31, 2010, we had a backlog of $165.7 million, of which we expect to deliver approximately 76% within the next twelve months. This backlog provides management with a useful tool to project sales and plan its business on an ongoing basis. Our total backlog represents the estimated remaining sales value of work to be performed under firm, funded contracts. For additional discussion on backlog, see “Management Discussion and Analysis of Financial Condition and Results of Operations — Material Industry Trends and Uncertainties and Company Outlook” appearing elsewhere in this prospectus.

Competition

The market for small arms is highly competitive and we face a different array of competitors.

Our principal competitor for U.S. Government legacy business is FN Manufacturing LLC, the U.S. subsidiary of FN Herstal, S.A., which historically has supplied the M240 Machine Gun and M249 SAW to the Government and which has been the Government’s principal supplier of the M16 rifle in recent years. We also face competition for legacy U.S. Government business from smaller companies that compete for small business set-aside contracts. For new U.S. weapons systems, we compete against FN Manufacturing, Heckler & Koch, General Dynamics and also against various domestic commercial “black rifle” manufacturers that have not yet been awarded significant U.S. military contracts. Although we anticipate that robust competition for U.S. military contracts will continue to exist, entrance barriers are high due to rigorous production and quality standards to which defense contractors are subject. Accordingly, we believe that our ability to ship large quantities of high-quality product on time and consistently, provides us with a competitive advantage over potential new entrants into this market.

Prior to June 30, 2009, we were by contract the exclusive supplier of the M4 carbine to the U.S. Armed Forces. Although the U.S. Government has been free to purchase the M4 carbine from another manufacturer since June 30, 2009, it continued to place orders with us under existing contracts. Any alternative manufacturer supplying the M4 carbine to the U.S. Armed Forces would have to pay a 5% royalty to us on a portion of each M4 carbine supplied to the U.S. Armed Forces. In addition, under its agreement with us, the

U.S. Government remains obligated to purchase its FMS requirements for M4 carbines exclusively from us until 2037, subject to certain exceptions.

In Canada, we are the exclusive supplier of the C7 rifle and C8 carbine to the Canadian Department of National Defense and are a center of excellence with respect to other small arms projects for the Canadian Government.

Outside Canada and the United States, our principal competitors for foreign military and law enforcement sales are foreign small arms manufacturers. In addition to FN Herstal, S.A. and Heckler & Koch, we compete for rifle and carbine sales against Israel Weapon Industries Ltd (IWI), Singapore Technologies Kinetics (STK), various manufacturers of the Russian Kalashnikov rifle and, in many countries, a legacy indigenous manufacturer, which is often government owned or sponsored.

Our primary competition in the U.S. for sales of law enforcement model rifles and carbines is domestic rifle manufacturers that have carved out niches for themselves in the commercial “black rifle” market. The most significant of these are the Freedom Group and Smith & Wesson

Intellectual property

We own or license common law and registered trademarks that are used to identify our products and services. Certain of our trademarks are registered in the United States and/or in certain foreign jurisdictions. We license the right to use the Colt trademark and related marks from New Colt, as described below.

Our technology is protected as patents, know-how, trade secrets and other intellectual property rights. This technology is used to develop a TDP, which is a blueprint for manufacturing our small arms products. We own the TDP to manufacture the M16 rifle and a separate TDP to manufacture the M4 carbine. We have made improvements to our M4 and M16 designs, and we make significant efforts to acquire and protect our intellectual property rights in these and other products, including without limitation their designs and technical data. We also develop and maintain a TDP for each of the other weapon types and models that we develop for production, including the IAR, CM901, M4 Commando, 9mm SMG, SCW, ACP, C7 5.56mm Rifle, C8 5.56mm Carbine, CQB and SFW rifles, and support weapons such as the M203 40mm GL, Eagle 40mm LVGL, Light Support Weapon (LSW) and 7.62mm Chain Gun.

Although we own the TDPs for the M16 rifle and the M4 carbine, the U.S. Government has been granted certain rights to use these TDPs for its own requirements. In the case of the M16 rifle, we have granted the U.S. Government a non-exclusive, royalty-free license to use the TDP directly or through others to make M16 rifles and repair parts in the United States for certain Government uses, and to use and sell those items throughout the world for military use (including the right to make FMS sales of M16 rifles). In the case of the M4 carbine, we have granted the U.S. Government a non-exclusive license to use the TDP to make or have M4 carbines and repair parts made for it in the United States for military use after June 30, 2009, but the U.S. Government remains obligated to make FMS purchases of the M4 carbine from us, subject to certain exceptions, until 2037. The M4 license requires payment of a 5% royalty on a portion of the purchase price of the M4 carbine if it is made by another manufacturer.

We are party to a manufacturing license agreement with the Canadian government that grants the Canadian government an exclusive license to use the M16 and M4 TDPs to make various rifles, including the C7 rifle and C8 carbine, and repair parts in Canada, or to have them made in Canada, solely for use by the Canadian military, and a corresponding nonexclusive license permitting sales of Canadian-made product to other nations. This license agreement expires in 2014. Royalties of between 5% and 7% (depending on the countries to which applicable products are shipped) on the purchase price of these products are payable on certain rifles, carbines and repair parts manufactured by the Canadian government under the license agreement.

We have an exclusive, worldwide, license right from New Colt to use the widely recognized Colt^® brand name for the sale of small arms, spare parts and other products and services for military use and to use the Colt^® brand name for the sale of firearms, except handguns, plus spare parts and related products, for law

enforcement use. This license also includes the use of the (Rampant Colt Logo) and the Colt Logo trademarks. The trademark license is fully paid up for its initial 20-year term, and may be extended indefinitely at our option for successive five-year periods upon payment of $250,000 for each additional five-year period.

We maintain and protect our intellectual property rights through the prosecution of patents and trademarks, the protection of our know-how and trade secrets and other measures. From time to time, we pursue litigation or other legal means to enforce or protect our intellectual property rights.

Environmental laws and regulations

We are subject to various federal, state, local, provincial and foreign laws and regulations governing the protection of human health and the environment, including those regulating releases and discharges to the air, water or soil, the management of wastes, the control of noise and odors, and the generation, storage, handling, use, transportation and disposal of hazardous materials. Certain of these laws and regulations require us to obtain and operate under permits that are subject to periodic renewal or modification. While we strive to operate in compliance with the requirements of these laws and permits, we cannot assure you that we are or have been at all times in the past in complete compliance with all such requirements. We are subject to potentially significant fines or penalties if we fail to comply with the requirements and conditions of such laws and permits and we are not insured for costs arising from such noncompliance events. These laws and permits can require the installation of pollution control equipment or operational changes to limit actual or potential impacts to the environment. Although we have made and will continue to make capital expenditures in order to comply with the requirements of environmental laws and permits, we do not expect material capital expenditures for environmental controls for the remainder of 2010. However, environmental requirements are complex, change frequently, and could become more stringent in the future. Accordingly, we cannot assure you that these requirements will not change in a manner that will require material capital or operating expenditures or will otherwise have a material adverse effect on us in the future.

We are also subject to environmental laws requiring the investigation and cleanup of environmental contamination. Certain of these laws impose strict as well as joint and several liability, including liability for investigation and cleanup costs and natural resources damage, associated with contamination at our current or former facilities, in some circumstances even if such contamination was caused by a third party, such as a prior owner or operator. We may be subject to liability if contamination is discovered at a landfill or other off-site disposal location where we have disposed of wastes, notwithstanding that our historic disposal practices may have been in accordance with all applicable requirements. We can also be subject to related claims by private parties alleging property damage and personal injury due to exposure to hazardous materials located at or released from such properties. While we have not incurred material costs for environmental compliance, environmental litigation or remediation in the past, new laws and regulations, stricter or more vigorous enforcement of existing laws and regulations, the discovery of unknown contamination or the imposition of new or more stringent clean-up requirements may require us to incur substantial costs in the future. As such, there is no assurance that we will not incur material costs in the future.

Employees

As of December 31, 2010, we had approximately 457 employees, of which 353 employees are located in the U.S. and 104 employees are located in Canada. In the U.S., approximately 62% of our workforce is represented by a union and are covered by a collective bargaining agreement that expires on March 31, 2011. None of our Canadian employees are subject to collective bargaining agreements. Of our total workforce, 368 were directly or indirectly involved in the production process.

We believe that our relations with our employees are good. The union has the right to designate up to two members of our Governing Board, with a single vote between them. There are currently two union designated representatives on our Governing Board.

Our union employees at our West Hartford, Connecticut facility are members of a single bargaining unit with the employees of Colt’s Manufacturing, an affiliated entity. Seniority, “bumping” and other rights and obligations continue to treat union employees of the two companies in essentially the same manner as was the

case prior to 2003, when the companies were not separate. The impact of cross-company seniority and bumping rights causes layoffs and recalls at one company to affect the other company. In addition, due to the existence of a single bargaining unit and a single collective bargaining agreement with Colt’s Manufacturing, we have exposure to labor relations issues at Colt’s Manufacturing.

Our properties

Our principal properties include the facility housing our corporate headquarters in West Hartford, Connecticut and our facility in Kitchener, Ontario, Canada. The West Hartford location is also our primary engineering, manufacturing and research and development facility. We lease this approximately 310,000 square foot facility pursuant to a lease expiring October 25, 2012. See “Certain Relationships and Related Party Transactions.” Our Kitchener, Ontario, Canada facility is approximately 43,000 square feet in size and is utilized for manufacturing, engineering and research and development.

On December 1, 2010, we terminated the lease of the manufacturing facility in Delhi, Louisiana that had been operated by Colt Rapid Mat.

We believe that our properties, both owned and leased, are in good condition and are suitable and adequate for our operations, and our manufacturing facilities have the capacity to meet existing and planned production requirements.

Legal proceedings

From time to time we are involved in legal proceedings arising in the ordinary course of our business. We believe that we have adequately reserved for these liabilities. There is no litigation pending that is likely to substantially negatively affect our financial condition, results of operations and cash flows.

As a U.S. and Canadian government contractor, we are subject to numerous regulatory and contractual requirements pertaining to nearly every aspect of our operations, including purchasing, accounting, employment, and subcontracting among others. Many of the agencies with regulatory or contractual authority over particular aspects of our government contracting activities are permitted or required to audit our operations as part of their responsibilities. As a result, we are routinely audited by U.S. and Canadian government agencies in the ordinary course of our business. In addition, our government contracts, or the regulations that are incorporated into them, often require that we voluntarily report violations of law that come to our attention and it is our policy to do so whenever required. There are no material proceedings pending in connection with our activities as a contractor to the U.S. and Canadian governments.

As a company that manufactures and sells military and law enforcement products domestically and overseas, we are subject to numerous U.S., Canadian and foreign statutes and regulations, including in particular regulations administered by the U.S. Bureau of Alcohol, Tobacco, Firearms and Explosives, and the ITAR and FCPA. We employ attorneys and other individuals whose responsibilities include legal compliance to advise us on our compliance obligations on a continuous basis. Those individuals attend external educational programs as required in order to stay current in the respective fields and they conduct internal training of relevant employees. In addition, we have written policies in place in every area with respect to which a written policy is required or, in our view, appropriate. There are no material proceedings pending with regard to our compliance with applicable statutes and regulations.

MANAGEMENT

Officers and members of Governing Board

Set forth below is information concerning our executive officers and members of our Governing Board as of December 31, 2010.


Name	Age		Position

Gerald R. Dinkel		64	Chief Executive Officer and Manager
Maj. Gen. James R. Battaglini, USMC (ret.)		60	Executive Vice President, Business Development
Scott B. Flaherty		45	Chief Financial Officer
J. Michael Magouirk		49	Chief Operating Officer
Jeffrey G. Grody		55	General Counsel and Secretary
Cynthia J. McNickle		44	Chief Accounting Officer
Marc C. Baliotti		40	Manager
Gen. the Lord Guthrie of Craigiebank		71	Manager
Michael Holmes		45	Manager
Lt. Gen. William M. Keys, USMC (ret.)		73	Manager
Vincent Lu		46	Manager
John P. Rigas		47	Manager
Daniel J. Standen		42	Manager
Gen. Gordon R. Sullivan, USA (ret.)		73	Manager
Philip A. Wheeler		68	Manager

Gerald R. Dinkel has been our Chief Executive Officer since October 2010 and a Manager since November 2010. Prior to joining our company, Mr. Dinkel served until April 2010 as President and Chief Executive Officer of White Electronic Designs Corporation, a Nasdaq-listed defense technology company acquired by Microsemi Corporation in April 2010. Prior to his service at White Electronics, Mr. Dinkel was a Senior Adviser with Washington DC-based Renaissance Strategic Advisors. From 2000 to 2007, he was President and Chief Executive Officer of Cubic Corporation’s defense segment. Before joining Cubic Corporation, Mr. Dinkel was an executive at Westinghouse Electronic Systems. Mr. Dinkel holds a Bachelor of Science degree in electrical engineering from the Rose-Hulman Institute of Technology in Indiana. Mr. Dinkel is qualified to serve as a Manager and member of our Governing Board due to his extensive experience working for defense contractors.

James R. Battaglini, Major General, United States Marine Corps (ret.), has been our Executive Vice President, Business Development since November 2008, before which he served as our Chief Operating Officer since August 2004. Prior to joining our company, he held various staff and leadership positions as an infantry officer in the United States Marine Corps for over 33 years, before retiring from active service in 2004. His leadership positions in the United States Marine Corps included: Commanding General, Third Marine Division in Okinawa, Japan from July 2001 until June 2002; Commanding General, 1st Marine Expeditionary Brigade/Deputy Commanding General, I Marine Expeditionary Force from July 1999 until July 2001; and Commanding General, Marine Corps Recruit Depot, Parris Island, South Carolina, from September 1997 until June 1999. In his last active duty assignment from June 2002 until August 2004, he served as Director, Expeditionary Warfare Division, Warfighting Requirements and Programs (N7), Navy Staff, Pentagon. Maj. General Battaglini is also a highly decorated Marine Officer whose awards include the Defense Superior Service Medal, the Legion of Merit with Gold Star, Bronze Star with Combat “V,” Meritorious Service Medal with three gold stars, Navy and Marine Corps Commendation Medal, Combat Action Ribbon, and various unit awards. Maj. General Battaglini received his BS degree from Mount Saint Mary’s College, Emmitsburg, Maryland in 1971 where he majored in accounting. He also earned Masters degrees in

Management from Salve Regina Newport College in 1990 and in National Security and Strategic Studies from the Naval War College in 1991.

Scott B. Flaherty has been our Chief Financial Officer since October 2010. He served as our Chief Corporate Development Officer from May 2009 to October 2010. Prior to joining our company in 2009, Mr. Flaherty was a Managing Director at Banc of America Securities LLC where he ran the origination effort, within the equity capital markets group for various industry verticals. Prior to joining Banc of America Securities in 2001, Mr. Flaherty was an investment banker at Credit Suisse First Boston. He worked as an engineer at the Pratt and Whitney division of the United Technologies Corporation from 1987 to 1995. Mr. Flaherty received a BS from Worcester Polytechnic Institute and an MBA from the Leonard N. Stern School of Business at New York University.

J. Michael Magouirk has been our Senior Vice President, Operations and Chief Operating Officer since November 2008. He is responsible for the day-to-day operation of the Company, including maintaining quality and delivery performance. He joined Colt’s Manufacturing Company in April 2000 following his retirement from the U.S. Marine Corps, and joined Colt Defense upon the reorganization of our predecessor company in 2002. Mr. Magouirk’s initial position at our Company was as Executive Director of Human Resources and Labor Relations. In 2008, he was selected as an Industry Fellow by the Industrial College of the Armed Forces, a school for Senior Military Officers and other Executive Branch executives. Mr. Magouirk graduated from that program as a Distinguished Graduate with an M.S. in National Resource Strategy. Mr. Magouirk enlisted in the U.S. Marine Corps in February 1980 and was commissioned a Warrant Officer in 1989 until his retirement in 2000. Mr. Magouirk also holds a BS/BA in Management from East Carolina University and an MS/BA from Boston University.

Jeffrey G. Grody has been our General Counsel since September 2005 and our Secretary since November 2010. Prior to joining our company in 2005, Mr. Grody was a partner at the law firm of Day, Berry & Howard LLP, where he chaired the 35-lawyer Business Law Department. Mr. Grody began practicing law in Hartford, Connecticut after graduating from Columbia Law School in 1980 and Princeton University, magna cum laude, in 1977. He is a member of the Connecticut bar.

Cynthia J, McNickle has been our Chief Accounting Officer since November 2010. Prior to joining our Company, Ms. McNickle was the Corporate Controller and Secretary of Axsys Technologies, Inc., a Nasdaq-listed defense technology company which was acquired by General Dynamics. Prior to joining Axsys Technologies in 2000, Ms. McNickle held various positions at The Hartford Life Company, Aetna Insurance, Black & Decker and Kostin, Ruffkess & Co, CPAs. Ms. McNickle is a Certified Public Account and received her Bachelor of Science and her Masters of Business Administration from the University of Connecticut.

Marc C. Baliotti has been a Manager of Colt since 2009. He is a Managing Director of GSO Capital Partners, the credit investment business of The Blackstone Group, and focuses on investing in middle market private equity and private debt. Mr. Baliotti joined GSO Capital in 2005 and, prior to that, he was a Principal of AIG Highstar Capital. Before he joined AIG Highstar, Mr. Baliotti worked at DLJ Merchant Banking Partners and for one of its portfolio companies, Advanstar Communications. Mr. Baliotti graduated, With Distinction, from the U.S. Naval Academy with a BS in Economics. He received an MBA from Villanova University while on active duty in the U.S. Navy. Mr. Baliotti is qualified to serve as a Manager and member of our Governing Board due to his experience with private equity backed middle market companies and the credit markets.

Lord Guthrie of Craigiebank, General (ret.), has been a Manager of Colt since December 2004. In addition to serving on our Governing Board, he also serves as a nonexecutive Director of N.M. Rothschild & Sons, a merchant bank, and Favermead, Ltd., a property management company, both headquartered in London, England. He is currently Colonel of the Life Guards, Gold Stick to Her Majesty Queen Elizabeth II and Colonel Commandant of the Special Air Service, or SAS. He served the Welsh Guard and the SAS throughout Europe, Malaysia and East Africa for over 40 years. Apart from holding several senior staff appointments and commanderships, he was Chief of the Defense Staff and the Principal Military Advisor to two U.K. prime ministers and three U.K. Secretaries of State for Defense. He retired from the British Army in 2001.

Lord Guthrie is qualified to serve as a Manager and member of our Governing Board due to his extensive experience with the British Armed Services.

Michael Holmes has been a Manager of Colt since 2008 and has been a Colt employee since 1991. Currently, Mr. Holmes is the Shop Chairman of the UAW, which represents our West Hartford workforce. Mr. Holmes has been an active member of the UAW throughout his career at our Company and has served the UAW in several capacities, including two terms as a “top committee” member and service on the Joint Training, and Sub-Contracting Committees. He has also served as a Department Steward and has participated in past negotiations over UAW’s collective bargaining agreement. Mr. Holmes is qualified to serve as a Manager and member of our Governing Board due to his leadership position with the Company’s union and by virtue of his designation by the union as its representative on the Company’s Governing Board pursuant to the Company’s limited liability company agreement.

William M. Keys, Lieutenant General, United States Marine Corps (ret.), was our President and Chief Executive Officer and Manager from 2002 to October 2010, when he retired as President and Chief Executive Officer, and has served since December 1999 as President, Chief Executive Officer and Director of Colt’s Manufacturing. During his 34-year career as a U.S. Marine Corps Infantry officer, he served two tours in Vietnam and commanded at every level of operational command from platoon to division. Lt. General Keys is a highly decorated Marine officer who was awarded numerous medals and citations, including the Navy Cross, Distinguished Service Medal/1*, Defense Distinguished Service Medal, Silver Star Medal, Legion of Merit with Combat, Bronze Star with Combat “V,” Defense Meritorious Service Medal, Combat Action Ribbon, Presidential Unit Citation, Navy Unit Commendation, Meritorious Unit Commendation, National Defense Service Medal, Vietnam Service Medal with four bronze stars, Republic of Vietnam Cross of Gallantry with Palm and Silver Star, Republic of Vietnam Armed Forces Honor Medal (First Class), Republic of Vietnam Meritorious Unit Citation (Gallantry Cross Color), Republic of Vietnam Meritorious Unit Citation (Civil Actions Color), and the Republic of Vietnam Campaign Medal. He served as the Commanding General, 2d Marine Division, during Desert Storm. His last active duty assignment was as the Commanding General, Marine Forces Atlantic with Command of all Operational Forces of Fleet Marine Forces Atlantic, II Marine Expeditionary Force, Camp Lejeune, North Carolina and the Component Commander of all Marine forces in Europe and Central and South America. Lt. General Keys graduated from the U.S. Naval Academy with a BS degree in June 1960. He also earned an MS degree in Management/Business from American University in 1972 and received an Honorary Doctorate for his service in Desert Storm from Washington and Jefferson College in 1991. Mr. Keys is qualified to serve as a Manager and member of our Governing Board due to his lengthy experience in the United States Marine Corps and his tenure as the Company’s Chief Executive Officer.

Vincent Lu has been a Manager of Colt since 2009. He is a Managing Director of GSO Capital Partners, the credit investment business of The Blackstone Group. Mr. Lu joined Blackstone in 2001 and prior to that, worked in the investment banking and leveraged finance groups at J.P. Morgan and Warburg Dillon Read. Mr. Lu received a joint BS/BA degree from Duke University, where he graduated magna cum laude and was elected to Phi Beta Kappa, and received an MBA from the Wharton School of the University of Pennsylvania, where he graduated as a Palmer Scholar. Mr. Lu is qualified to serve as a Manager and member of our Governing Board due to his experience with private equity backed middle market companies and the credit markets.

John P. Rigas has been a Manager of Colt since 2003. He is the Chairman and Chief Executive Officer of Sciens Capital Management, an alternative asset management firm headquartered in New York City. He has been employed as an executive of Sciens Capital Management or its predecessors since 1988. Prior to 1988, he was an analyst at E.F. Hutton & Company. Mr. Rigas is qualified to serve as a Manager and member of our Governing Board due to his seventeen years of experience with the Company as an owner and director and his experience with the private equity and debt markets, particularly for companies in the defense industry.

Daniel J. Standen has been a Manager of Colt since 2007. He has been a partner of Sciens Capital Management, an alternative asset management firm headquartered in New York City, since 2000. He has been employed as an executive of Sciens Capital Management or its predecessors since 1999. Prior to 1999, he was

an associate in the Mergers & Acquisition/Capital Markets group of Clifford Chance LLP. Mr. Standen received JD and LLM degrees from Duke University School of Law and a BA from New York University. Mr. Standen is qualified to serve as a Manager and member of our Governing Board due to his fifteen years of experience with the Company and his experience with the private equity and debt markets.

Gordon R. Sullivan, General, United States Army (ret.), has been a Manager of Colt since April 2005. He has been President of the Association of the United States Army since 1998. He has also served as a Director of Newell Rubbermaid Inc., a manufacturer of consumer products, since March 2005, Shell Oil Company U.S., a petroleum company, from 1995 to March 2005, Electronic Warfare Associates, Inc., an information technology company, since November 2002, and the Institute for Defense Analyses, an institute providing analysis on national security issues, since October 2001. From 1995 through 1997, he served as President of Coleman Federal, a division of Coleman Research Corporation (a subsidiary of Thermo Electron Corporation), a systems engineering company. From 1991 through 1995, he served as the 32nd Chief of Staff of the United States Army and as a member of the Joint Chiefs of Staff. Prior thereto, he served as Vice Chief of Staff and Deputy Chief of Staff for Operations and Plans of the United States Army. General Sullivan is a highly decorated Army officer who was awarded numerous medals and citations, including the Purple Heart, the Legion of Merit, the Distinguished Service Medal, the Defense Distinguished Service Medal, the Combat Infantryman Badge, the Bronze Star, the Army Commendation Medal, and the Army Achievement Medal. General Sullivan graduated from Norwich University with a BA degree in 1959. He also earned an MA degree in Political Science in 1974 from the University of New Hampshire. Mr. Sullivan is qualified to serve as a Manager and member of our Governing Board due to his extensive background in the United States Army and his experience on other boards of directors.

Philip A. Wheeler has been a Manager of Colt since 2003. A Colt employee from 1964 until 2006, Mr. Wheeler has been active in union affairs throughout his career, starting as a steward in Local 376 of the United Auto Workers. He was elected shop chairman from 1967 and President of Local 376 in 1969. In 1986, he was appointed assistant director of Region 9A of the UAW, which covers New England, part of New York (including New York City) and Puerto Rico. From 1989 until 2006, he served as a Director of Region 9A of the UAW. He currently serves as President of Citizens for Economic Opportunity and volunteers on the campaign for Universal Health Care. Mr. Wheeler is qualified to serve as a Manager and member of our Governing Board due to his extensive history with the Company, as an employee and director, and by virtue of his designation by the union pursuant to our limited liability company agreement.

COMPENSATION DISCUSSION AND ANALYSIS

Introduction

The following discusses the executive compensation programs of Colt Defense, and the compensation of the Named Executive Officers for 2010. As used herein, the term “Named Executive Officers” refers to:


	•	Gerald R. Dinkel, President and Chief Executive Office since October 2010 (1)


	•	Lt. General William M. Keys, USMC (ret.), President and Chief Executive Officer from 2002 through October 2010(1)


	•	Scott B. Flaherty, Sr. VP and Chief Financial Officer since October 2010 (2)


	•	John A. Krichavsky, Sr. VP and Chief Financial Officer from May 3, 2007 through April 2010 (2)

	•	David A. Almeida, Chief Financial Officer from April 2010 through October 2010(2)

	•	Jeffrey G. Grody, Sr. VP and General Counsel since September 6, 2005

	•	Maj. General James R. Battaglini (ret.), Executive VP, Business Development since November 2008

	•	J. Michael Magouirk, Sr. VP of Operations and COO since November 2008


(1)		Lt. General Keys served as CEO until October 11, 2010 when Gerald R. Dinkel was appointed President and Chief Executive Officer. Lt. General Keys remained with Colt Defense in an advisory capacity until December 31, 2010 and he continues as a Manager.

(2)		Mr. Krichavsky served as the Chief Financial Officer of Colt Defense until April 28, 2010 and voluntarily terminated his employment with Colt Defense on July 2, 2010. From April 28, 2010 until the termination of employment on July 2, 2010, Mr. Krichavsky was employed by Colt Defense as an advisor. David Almeida was hired on April 28, 2010 as the new Chief Financial Officer of Colt Defense. Mr. Almeida voluntarily terminated his employment with Colt Defense on October 15, 2010 and upon his resignation, the duties of Chief Financial Officer were assumed by Scott Flaherty on an interim basis. Mr. Flaherty was subsequently appointed Chief Financial Officer by the Governing Board of Directors in October 2010.

Compensation Program Objectives and Philosophy

The primary objective of the management compensation program has been to attract and retain highly qualified executive officers with the backgrounds, experience and skills necessary to successfully manage our business and to present our company and its products credibly to military and law enforcement customers worldwide. In support of these objectives, we:


	•	have sought to provide a total compensation package that is competitive with other companies in our industry and other companies of a similar size, based on institutional knowledge of our industry and informal research regarding the compensation practices typical of our industry and companies of similar size;

	•	evaluate and reward executive officers based on dynamic factors such as whether they are willing and able to accept and meet challenges and to work as a team to achieve corporate objectives; and

	•	reward all employees with cash bonuses when warranted by the company’s annual performance in order to more completely align individual performance with shareholders’ objectives.

Compensation-Setting Process

The compensation committee of Colt Defense (the “Compensation Committee”) annually determines the compensation of the Chief Executive Officer and, upon hiring, the initial compensation of the Chief Financial Officer. Currently, annual increases of the Chief Financial Officer and our other Named Officers are at the discretion of the Chief Executive Officer. The Compensation Committee consists of non-independent Directors.

In 2011, the Compensation Committee will evaluate the percentage mix of compensation components that they believe are appropriate for each of the executive officers, using their judgment and experience. The Compensation Committee will have responsibility for oversight and review of our total compensation strategy, taking into consideration existing company-wide benefit plans, and will have responsibility for certain executive benefit plans, including administering the annual cash bonus incentive compensation plan; determining the compensation for the Chief Executive Officer and reviewing and approving the compensation for the Chief Financial Officer and others including the Named Executive Officers.

The Compensation Committee will review, on at least an annual basis, the appropriateness and effectiveness of the compensation processes and programs. The Compensation Committee will approve, on an annual basis, target award opportunities and performance criteria to be utilized in the annual cash bonus incentive compensation plan. In addition, the Compensation Committee will consider, on an annual basis and subject to periodic review, discretionary bonuses, equity-based awards and long-term incentive plans. The Compensation Committee will informally consider competitive market practices with respect to the compensation of our executive officers. It will review the market practices by speaking, as warranted, to compensation professionals and recruitment agencies and by reviewing annual reports and other available information of other companies within our industry and companies of a similar size. In addition, the Compensation Committee will have the authority to engage outside compensation and benefits consultants to make recommendations relating to the overall compensation philosophy, comparable base salary levels, short-term and long-term incentive compensation plans, appropriate performance parameters for such plans, and related compensation matters.

Components of Compensation

The compensation programs consist of the following components, each of which are summarized below (although individuals may not be eligible for each component):


	•	Annual base salary

	•	Annual cash bonus incentive compensation

	•	Equity incentive awards

	•	Pension and retirement benefits

	•	Severance benefits

	•	Perquisites and other benefits

Annual Base Salary

Base salary is used to attract and retain highly qualified executive officers. Base salary is designed to be competitive by position relative to the marketplace and to recognize the experience, skills, knowledge and responsibilities required of the executive officers in their roles. When establishing base salaries for the Named Executive Officers, the Compensation Committee and/or the Chief Executive Officer (other than for himself) consider a number of factors including the seniority of the individual, the individual’s prior salary, the functional role of the position, and the level of the Named Executive Officer’s responsibility. Base salaries are reviewed on an annual basis, as well as at the time of promotion or other changes in responsibilities. The leading factors in determining increases in base salary include the employment market for senior executives with similar levels of experience and skills, attainment of corporate and individual goals and objectives for the prior year, and our ability to replace the Named Executive Officer with an individual with similar skills and experience.

Annual Cash Bonus Incentive Compensation

During 2010, the annual cash bonus incentive compensation plan was discretionary in nature. Commencing with fiscal year 2011, each year, the Compensation Committee will consider whether to adopt an annual cash bonus incentive compensation plan for executive officers, including the Named Executive Officers, and certain other employees based on the budgeted performance and other financial and non-financial targets of Colt Defense. The annual cash bonus incentive compensation plan is designed as a retention tool and to reward participating individuals for outstanding individual and corporate achievement for the year. For the fiscal year ending December 31, 2010, Mr. Magouirk was the only Named Executive Officer to receive a discretionary bonus. Mr. Magouirk received his bonus due to his efforts during the year to minimize effects of the downturn in M4 production during 2010 while also leading the production transition of new products, specifically the M240 and M249 barrel projects.

Equity Incentive Awards

At the time of our formation as an independent company in 2003, we issued options to the Chief Executive Officer and certain other members of management to better align their personal interests with the creation of enterprise value for members. Our membership interests have been relatively illiquid and liquidity events have occurred irregularly, so we have viewed management equity incentives as one of our tools for retaining key management, particularly the chief executive officer. We also have issued options in connection with certain management hires in order to recruit the individuals in question. All options we have issued to management have been exercised or have lapsed. As of December 31, 2010, there were no outstanding options. The Compensation Committee is in the process of developing a new Long Term Incentive Award Plan as a retention tool, to use as an additional incentive during the recruiting process and to better align the interests of management with the creation of long-term value for members.

Pension and Retirement Benefits

Defined Benefit Plans

The Colt Defense Retirement Plan (the “Retirement Plan”) was established effective November 4, 2002 to provide retirement income and survivor benefits to Colt Defense’s employees and their beneficiaries through a tax-qualified program. Pension benefits under the Retirement Plan are limited in accordance with the provisions of the Internal Revenue Code of 1986, as amended (the “Code”), governing tax-qualified pension plans. Colt Defense approved an amendment to freeze benefit accruals under the Pension Plans as of December 31, 2008 (the “Freeze Date”). Years of Credited Service (as defined in the Retirement Plan) for benefit accrual will not be considered after the Freeze Date. However, Interest Credits will continue to accumulate on each Participant’s Account Balance (as defined in the Retirement Plan) after the Freeze Date. Executive Officers participating in the Plan are Lt. General Keys, Maj. General Battaglini, Mr. Grody, Mr. Krichavsky and Mr. Magouirk.

Defined Contribution Plan

Colt Defense maintains the Colt Defense 401(k) Plan (the “401K Plan”), a qualified defined contribution plan for non-union employees, pursuant to which employees may contribute pre-tax dollars to a qualified plan where employer will match 50% of tax-deferred contributions up to 6% of eligible compensation.

Severance Benefits

Colt Defense has entered into employment or severance agreements with the Named Executive Officers. The agreements provide for the payment of severance benefits to the Named Executive Officers under specified circumstances. In entering into these agreements, the company considered (1) the benefit of receiving confidentiality, non-competition and non-solicitation protections post-termination for a reasonable and measurable cost and (2) an estimated length of time for an individual to find comparable employment at a similar level. The amount and type of benefits under the agreements are described below under “— Potential Payments upon Termination or Change in Control.”

Perquisites and Other Benefits

Living and Commuting Expenses Reimbursement

Colt Defense provided basic living and commuting expenses and income tax gross-ups with respect to such expenses for Mr. Dinkel, Lt. General Keys and Maj. General Battaglini. The expenses for Mr. Dinkel, Lt. General Keys and Maj. General Battaglini were incurred in connection with their fulfillment of duties and responsibilities, primarily with respect to the corporate offices in West Hartford, Connecticut. The primary residence for Mr. Dinkel and Lt. General Keys are outside of the state of Connecticut. They were required to commute to the corporate office in West Hartford, Connecticut in connection with the fulfillment of their duties and responsibilities as Chief Executive Officer. At the time of hire, the primary residence for Maj. General Battaglini was outside of the state of Connecticut. He was required to maintain a residence near the corporate office in Connecticut in connection with the fulfillment of his duties and responsibilities as Executive Vice President. Living and Commuting Expense Reimbursement were utilized as an incentive during the recruiting and hiring process for Mr. Dinkel, Lt. General Keys and Maj. General Battaglini.

Mr. Magouirk received Living and Commuting Expense Reimbursement in 2008 while attending the Industrial College of the Armed Forces. Mr. Magouirk was selected as an Industry Fellow and attended the course at the direction of Colt Defense. While his primary residence remained near the corporate office, he was required to attain suitable housing while attending the course of instruction in Washington DC.

See the footnotes in the “Summary Compensation Table” for the amounts, including tax gross-up amounts, of these costs for Executive Officers listed above receiving these benefits.

Role of Executive Officers in Executive Compensation

The Compensation Committee will recommend and approve the final determination of total compensation for our Chief Executive Officer. Starting in 2011, the Compensation Committee also will evaluate the total compensation of our Chief Financial Officer, in consultation with our Chief Executive Officer. Although the Compensation Committee utilizes and considers comments, advice and recommendations of our Chief Executive Officer and Chief Financial Officer, the final decision with respect to compensation levels and components of the Chief Executive Officer and Chief Financial Officer will remain with the Compensation Committee.

Compensation Tables

The following table summarizes the compensation paid by Colt Defense to the Named Executive Officers for services rendered in December 31, 2010.

2010 Summary Compensation Table


							Change in
							Pension
					Annual		Value and
					Cash		NQDC		All Other
			Salary		Bonus		Earnings		Comp.			Total
Names & Principal Position	Year		($)(1)		($)(2)		($)(3)		($)			($)

Gerald R. Dinkel		2010	$	103,846	$	—	$	—	$	2,673	(4)	$	106,519
Chief Executive Officer
Lt. General William M. Keys,		2010	$	774,208	$	—	$	8,791	$	200,752	(5)	$	983,751
Former Chief Executive Officer
Scott B. Flaherty		2010	$	—	$	—	$	—	$	477,932	(6)	$	477,932
Sr. VP and Chief Financial Officer
John A. Krichavsky,		2010	$	197,370	$	—	$	1,809	$	53,346	(7)	$	252,525
Former Chief Financial Officer
David Almeida,		2010	$	184,500	$	—	$	—	$	3,600	(8)	$	188,100
Former Chief Financial Officer
Jeffrey Grody,		2010	$	426,097	$	—	$	4,172	$	7,350	(9)	$	437,619
Sr. VP and General Counsel
James R. Battaglini,		2010	$	320,038	$	—	$	4,595	$	46,316	(10)	$	370,949
Executive VP, Business Development
J. Michael Magouirk,		2010	$	288,802	$	50,000	$	11,123	$	7,350	(11)	$	357,275
Sr. VP of Operations and COO


(1)		Figures represent compensation received from January 1, 2010 through December 31, 2010. Compensation for Mr. Krichavsky is for the period January 1, 2010 through July 2, 2010 when he was an employee of Colt Defense. Compensation for Mr. Almeida was for the period from April 28, 2010 through October 15, 2010 when he was the Chief Financial Officer.


(2)		Mr. Magouirk received a discretionary bonus during 2010.


(3)		Plan values are calculated annually as of December 31.


(4)		Amount reflects living and commuting expenses and a tax gross-up on living and commuting expenses in the amounts of $1,545 and $1,128 respectively.


(5)		Amount reflects living and commuting expenses, a tax gross-up on living and commuting expenses and Company matching contributions to the 401K Plan in the amounts of $111,786, $81,616 and $7,350, respectively.


(6)		Amount reflects consulting fees during 2010.


(7)		Amount reflects consulting fees of $47,425 paid from July 2, 2010 through December 31, 2010 for services rendered after his voluntary termination of employment and Company matching contributions to his 401K Plan.


(8)		Amount reflects Company matching contributions to his 401K Plan.


(9)		Amount reflects Company matching contributions to his 401K Plan.


(10)		Amount reflects living and commuting expenses, a tax gross-up on living and commuting expenses and Company matching contributions to the 401K Plan in the amounts of $21,819, $17,147 and $7,350, respectively.


(11)		Amount reflects Company matching contributions to his 401K Plan.

Grants of Plan-Based Awards

No Grants of Plan-Based Awards were made to Named Executive Officers in 2010.

Mr. Dinkel’s Employment Agreement

Pursuant to his employment agreement, Mr. Dinkel will serve as Chief Executive Officer of the Company, reporting to the Governing Board or its designee. Mr. Dinkel’s employment agreement provides for (i) a base salary of $450,000, (ii) a performance bonus, pursuant to the Company’s Management Incentive Plan, (iii) reimbursement of certain reasonable business expenses, (iv) temporary living expenses of $5,000 per month, on an after-tax basis, for up to 24 months while Mr. Dinkel relocates his residence, (v) the right to participate in such employee benefit programs for which senior executives of the Company generally are eligible and a leased car for business and personal use, and (vi) options to purchase 6,957 common units of the Company at an exercise price of $100.00 per common unit, which will vest beginning on the first anniversary of the employment agreement and continuing through the fifth anniversary if specified performance goals are met. The common unit option award will be issued during 2011.

In the event of a public offering or change of control within the first eighteen months of Mr. Dinkel’s employment, pursuant to either of which the Company’s units are valued at or above $1,000.00 per common unit, all unvested options will immediately vest upon the date of the public offering or change of control. In the event of a public offering or change of control after the first eighteen months of Mr. Dinkel’s employment, all unvested options will immediately vest upon the date of the public offering or change of control.

In the event that Mr. Dinkel’s employment is terminated for any reason other than cause, within ninety days before or eighteen months after a public offering or change of control (or, if earlier, the signing of a purchase and sale agreement that results in a change of control), pursuant to which Mr. Dinkel’s then-unvested options did not immediately vest, all unvested options will immediately vest upon such employment termination.

In the event that, within eighteen months after a public offering or change of control, pursuant to which Mr. Dinkel’s then-unvested options did not immediately vest, Mr. Dinkel is not the Chief Executive Officer of the Company or its successor, or reporting to the Governing Board of the Company or its successor, or his responsibilities are materially diminished, Mr. Dinkel may resign and a resignation under such circumstances will entitle him to be treated as if he had been terminated by the Company without cause. If, at any time during Mr. Dinkel’s employment, the Company materially breaches the employment agreement and does not cure such breach within 30 days after the Company’s receipt of written notice thereof in reasonable detail from Mr. Dinkel, he may resign and will be treated as if he had been terminated by the Company without cause.

Mr. Flaherty’s Employment Agreement

Pursuant to his employment agreement, Mr. Flaherty will serve as Chief Financial Officer and Senior Vice President of Finance of the Company, reporting to the Chief Executive Officer. Mr. Flaherty’s employment agreement provides for (i) a base salary of $400,000, (ii) a performance bonus, pursuant to the Company’s Management Incentive Plan, (iii) reimbursement of certain reasonable business expenses, (iv) the right to participate in such employee benefit programs for which senior executives of the Company generally

are eligible, and (v) options to purchase 2,854 common units of the Company at an exercise price of $100.00 per common unit, of which half will vest on October 15, 2020 and the other half of which will vest 25% per year, over a four year period, beginning on October 15, 2011 and ending on October 15, 2014.

In the event of a public offering or change of control prior to April 15, 2012, pursuant to either of which the Company’s units are valued at or above $1,000.00 per common unit, all unvested options will immediately vest upon the date of the public offering or change of control. In the event of a public offering or change of control from and after April 15, 2012, all unvested options will immediately vest upon the date of the public offering or change of control.

In the event that Mr. Flaherty’s employment is terminated for any reason other than cause, within ninety days before or eighteen months after a public offering or change of control (or, if earlier, the signing of a purchase and sale agreement that results in a change of control), pursuant to which Mr. Flaherty’s then-unvested options did not immediately vest, all unvested options will immediately vest upon such employment termination.

In the event that, within eighteen months after a public offering or change of control, pursuant to which Mr. Flaherty’s then-unvested options did not immediately vest, Mr. Flaherty is not the Chief Financial Officer of the Company or its successor, or his responsibilities are materially diminished, Mr. Flaherty may resign and a resignation under such circumstances will entitle him to be treated as if he had been terminated by the Company without cause. If, at any time during Mr. Flaherty’s employment, the Company materially breaches the employment agreement and does not cure such breach within 30 days after the Company’s receipt of written notice thereof in reasonable detail from Mr. Flaherty, he may resign and will be treated as if he had been terminated by the Company without cause.

Outstanding Equity Awards at Fiscal Year End

As of December 31, 2010, there were no outstanding equity awards.

Option Exercises and Stock Vested Table

There were no stock options exercised by the Named Executives and no restricted shares held by Named Executive Officers vested in 2010.

Pension and Retirement Benefits

The following Pension Benefits table shows each Named Executive’s number of Years of Credited Service, present value of accumulated benefit and payments during the last fiscal year under the Retirement Plan. The Retirement Plan is a defined benefit pension plan. Accrual of future benefits under the Retirement Plan Ceased on December 31, 2008. Accordingly, a participant’s pension benefit does not credit service after December 31, 2008 and does not consider pay earned after December 31, 2008, but Interest Credits, as described below, continue to be made on the accumulated benefits.

Number of Years

Present Value of

Payments

of Credited

Accumulated

During Last

Name

Plan Name

Service (#)

Benefit ($)

Fiscal Year ($)

Gerald R. Dinkel