-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BiSduY4MLMIQFRVXecPgshSJ8fvVLSx0JXxdrDxtW4i2O0jpMZFXIY5eIYG2G2Uo tmv0SUhotQIvNOuVJcJtFA== 0000950153-97-000410.txt : 19970423 0000950153-97-000410.hdr.sgml : 19970423 ACCESSION NUMBER: 0000950153-97-000410 CONFORMED SUBMISSION TYPE: S-3/A PUBLIC DOCUMENT COUNT: 5 FILED AS OF DATE: 19970421 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SIMULA INC CENTRAL INDEX KEY: 0000885080 STANDARD INDUSTRIAL CLASSIFICATION: PUBLIC BUILDING AND RELATED FURNITURE [2531] IRS NUMBER: 860320129 STATE OF INCORPORATION: AZ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-3/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-13499 FILM NUMBER: 97583933 BUSINESS ADDRESS: STREET 1: 2700 NORTH CENTRAL AVE STREET 2: STE 1000 CITY: PHOENIX STATE: AZ ZIP: 85004 BUSINESS PHONE: 6027528918 MAIL ADDRESS: STREET 1: 2700 NORTH CENTRAL AVE STREET 2: STE 1000 CITY: PHOENIX STATE: AZ ZIP: 85004 S-3/A 1 AMENDMENT #3 TO THE FORM S-3 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 21, 1997 REGISTRATION NO. 333-13499 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ AMENDMENT NO. 3 TO FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ SIMULA, INC. ARIZONA 86-0320129 SIMULA HOLDINGS, INC. ARIZONA 86-0846951 SIMULA GOVERNMENT PRODUCTS, INC. ARIZONA 86-0742551 SIMULA TECHNOLOGIES, INC. ARIZONA 86-0842935 SAFETY EQUIPMENT, INC. ARIZONA 86-0505970 SEDONA SCIENTIFIC, INC. ARIZONA 86-0778600 INTERNATIONAL CENTER FOR SAFETY EDUCATION, ARIZONA 86-0787589 INC. SIMULA TRANSPORTATION EQUIPMENT CORPORATION ARIZONA 86-0742552 AIRLINE INTERIORS, INC. ARIZONA 86-0768865 COACH AND CAR EQUIPMENT CORPORATION ARIZONA 86-0763929 ARTCRAFT INDUSTRIES CORP. ARIZONA 86-0772587 INTAERO, LTD. ARIZONA PENDING SIMULA AUTOMOTIVE SAFETY DEVICES, INC. ARIZONA 86-0789385 VIATECH, INC. DELAWARE 86-0763930 SIMULA AUTOMOTIVE SAFETY DEVICES, LIMITED UNITED KINGDOM N/A (Exact name of Registrant (State of Incorporation) (I.R.S. Employer as specified in charter) Identification No.)
------------------------ 2700 NORTH CENTRAL AVENUE, SUITE 1000 BRADLEY P. FORST, ESQ. PHOENIX, ARIZONA 85004 VICE PRESIDENT AND GENERAL COUNSEL (602) 631-4005 2700 NORTH CENTRAL AVENUE, SUITE 1000 (Address, including zip code, and telephone number, PHOENIX, ARIZONA 85004 including area code, of Registrant's principal executive (602) 631-4005 offices) (Name, address including zip code, and telephone number, including area code, of agent for service)
with copies to: CHRISTIAN J. HOFFMANN, III, ESQ. ROBERT S. KANT, ESQ. STREICH LANG, P.A. MICHELLE S. MONSEREZ, ESQ. RENAISSANCE ONE O'CONNOR, CAVANAGH, ANDERSON, TWO NORTH CENTRAL AVENUE KILLINGSWORTH & BESHEARS, P.A. PHOENIX, ARIZONA 85004-2391 ONE EAST CAMELBACK ROAD, SUITE 1100 (602) 229-5200 PHOENIX, ARIZONA 85012-1656 (602) 263-2400
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after this Registration Statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [ ] CALCULATION OF REGISTRATION FEE - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PROPOSED TITLE OF EACH CLASS AMOUNT TO BE MAXIMUM AGGREGATE AMOUNT OF OF SECURITIES TO BE REGISTERED REGISTERED(1) OFFERING PRICE REGISTRATION FEE - ---------------------------------------------------------------------------------------------------------------------------------- % Senior Subordinated Convertible Notes............... $34,500,000 $34,500,000 $11,896 - ---------------------------------------------------------------------------------------------------------------------------------- Common Stock, par value $.01 per share(2)................. 2,300,000 shares -- (4) - ---------------------------------------------------------------------------------------------------------------------------------- Subsidiary Guarantees(5).................................. (6) (5) ==================================================================================================================================
(1) Includes $ aggregate principal amount that may be purchased pursuant to the Underwriters' over-allotment option. (2) This number is estimated on the date of this Registration Statement. The actual number of shares of Common Stock issuable upon conversion will be determined by the Conversion Price on the date this Registration Statement becomes effective. (3) Estimated solely for purposes of calculating the registration fee. (4) The shares of Common Stock being registered hereby are issuable upon conversion of % Senior Subordinated Convertible Notes. Accordingly, no additional filing fee is required pursuant to Rule 457(i) under the Securities Act of 1933. (5) Simula Holdings, Inc., Simula Government Products, Inc., Simula Technologies, Inc., Safety Equipment, Inc., Sedona Scientific, Inc., International Center for Safety Education, Inc., Simula Transportation Equipment Corporation, Airline Interiors, Inc., Coach and Car Equipment Corporation, Artcraft Industries Corp., Intaero, Ltd., Simula Automotive Safety Devices, Inc., ViaTech, Inc., and Simula Automotive Safety Devices Limited are all wholly-owned subsidiaries of Simula, Inc. and each is registering guarantees of payment of principal, premium, if any, and interest on the % Senior Subordinated Convertible Notes registered hereby. Pursuant to Rule 457(n) under the Securities Act of 1933, no registration fee is required with respect to the Subsidiary Guarantees. (6) No separate consideration will be received from the purchasers of the % Senior Subordinated Notes with respect to the Subsidiary Guarantees. ------------------------ THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. ================================================================================ 2 INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. SUBJECT TO COMPLETION, DATED APRIL 21, 1997 PROSPECTUS $30,000,000 SIMULA, INC. % SENIOR SUBORDINATED CONVERTIBLE NOTES DUE , 2004 SIMULA LOGO W/O NAME Simula, Inc. (the "Company") is offering hereby its % Senior Subordinated Convertible Notes due ,2004 (the "Notes"). Interest on the Notes is payable on January 30 and July 30 of each year commencing July 30, 1997. The Notes are convertible at the option of the holder at any time, unless previously redeemed, into shares of the Company's Common Stock, par value $.01 per share ("Common Stock") at a price of $ per share of Common Stock (the "Conversion Price"), subject to adjustment in certain events. The Notes may be redeemed at the Company's option, upon at least 30 days' notice, in whole or in part on a pro rata basis, on and after , 1999, at certain specified redemption prices plus accrued interest payable to the redemption date. However, on or after , 1999 and prior to , 2000, the Notes will not be redeemable unless the closing price of the Company's Common Stock as quoted on the New York Stock Exchange ("NYSE") has equaled or exceeded $ for 20 trading days within a period of 30 consecutive trading days. In the event of a Change of Control of the Company, the Company will offer to purchase all outstanding Notes. See "Description of Notes." The Notes will be general unsecured obligations of the Company and will be subordinated to all present and future Senior Indebtedness (as defined herein). The Notes will rank pari passu in right of payment with all Senior Subordinated Indebtedness (as defined herein) and senior in right of payment to any future Subordinated Indebtedness (as defined herein) of the Company. At February 28, 1997, the Company had approximately $19.4 million of Senior Indebtedness outstanding, of which $4.2 million was at the subsidiary level. In addition, the Company had $20.0 million of Senior Subordinated Indebtedness outstanding at February 28, 1997. The Common Stock of the Company is traded on the NYSE under the symbol "SMU." On April 18, 1997, the closing price of the Common Stock on the NYSE was $14.38 per share. See "Price Range of Common Stock." The Notes have been approved for listing on the NYSE, subject to official notice of issuance under the symbol . INVESTORS SHOULD CAREFULLY CONSIDER THE FACTORS SET FORTH UNDER "RISK FACTORS," BEGINNING ON PAGE 8. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PRICE TO UNDERWRITING PROCEEDS TO PUBLIC(1) DISCOUNT(2) COMPANY(1)(3) - ---------------------------------------------------------------------------------------------------- Per Note...................................... % % % - ---------------------------------------------------------------------------------------------------- Total(4)...................................... $30,000,000 $ $ ====================================================================================================
(1) Plus accrued interest, if any, from the date of original issuance. (2) The Company has agreed to indemnify the Underwriters against certain liabilities, including liabilities arising under the Securities Act of 1933, as amended. See "Underwriting." (3) Before deducting expenses payable by the Company estimated at $ . (4) The Company has granted to the Underwriters an option for 45 days to purchase up to an additional $ aggregate principal amount of the Notes at the Price to Public less the Underwriting Discount, solely to cover over-allotments, if any. If such option is exercised in full, the total Price to Public, Underwriting Discount, and Proceeds to Company will be $ , $ , and $ , respectively. See "Underwriting." The Notes are being offered by the Underwriters, when, as and if delivered to and accepted by them and subject to the right of the Underwriters to withdraw, cancel, modify, or reject any orders, in whole or in part, and subject to certain other conditions. It is expected that delivery of the Notes will be made against payment therefor in New York, New York, on or about , 1997. HD BROUS & CO., INC. BREAN MURRAY & CO., INC. L.H. FRIEND, WEINRESS, FRANKSON & PRESSON, INC. The date of this Prospectus is April , 1997 3 COMMERCIAL TRANSPORTATION SEATING [Photo of mass transit [Photo of rail seating] [Photo of 16g seat] 16g Seat designed seating] to absorb 16 times Rail Seating the force of Mass Transit Seating gravity upon impact.
AUTOMOBILE SAFETY PRODUCTS The Company's patented inflatable [Photo of ITS] tubular structure ("ITS") technology [Graphic of Inflatable Tubular incorporates a tube that becomes Cushion ("ITC")] ITS for side-impact head and neck shorter in length and wider in protection. diameter as it inflates. It forms a Inflatable Tubular Cushion ("ITC") rigid structure and does not vent like a conventional airbag. [Graphic of Inflatable Tubular Bolster ("ITB")] Inflatable Tubular Bolster ("ITB")
------------------------ IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SECURITIES OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. 2 4 PROSPECTUS SUMMARY The following summary should be read in conjunction with, and is qualified in its entirety by, the more detailed information and financial statements and notes thereto appearing elsewhere in this Prospectus. Unless otherwise noted, all information in this Prospectus assumes that the over-allotment option granted to the Underwriters will not be exercised. All information in this Prospectus gives retroactive effect to the Company's 3-for-2 stock split of its Common Stock on September 28, 1995. THE COMPANY The Company is a market-focused developer of technologies and advanced products and solutions addressing safety-related problems. A recognized world leader in energy absorption and related technologies, the Company designs and manufactures occupant seating, safety systems, and other devices engineered to safeguard human life in a wide range of air, ground, and sea transportation vehicles. Through strategic acquisitions and successful application of its various proprietary technologies in a variety of industries, the Company in recent years has expanded its market focus and is introducing new products for commercial and military applications. The Company currently conducts operations in three principal market segments including commercial transportation seating, government and defense contracting, and automobile safety systems. Products include commercial airliner seating systems, rail and mass-transit seating, helicopter and other military aircraft crashworthy seats, advanced composite materials including armor, and a side-impact head protection inflatable restraint system for automobiles. In late 1997 the Company will commence volume production for roll out of additional products including a bulkhead airbag system for commercial airliners and two cockpit inflatable restraint systems for military aircraft. Energy-Absorbing and Other Seating Systems. For over 20 years, the Company has been a leading provider of energy-absorbing, or "crashworthy," seating systems. As an outgrowth of this core business, in late 1995 the Company commenced the manufacture and sale of commercial airliner seating systems utilizing its technology to comply with stringent new FAA safety standards mandating seats designed to absorb 16 times the force of gravity upon impact ("16g"). Seating systems incorporating this crashworthy technology absorb shock upon impact that would otherwise be absorbed by an occupant of the vehicle. This is accomplished through engineering and utilization of the Company's proprietary data bases regarding the properties of materials, failure characteristics, and human body dynamics. Based on internal market surveys and data, management believes that the Company is the world's largest supplier of energy-absorbing military helicopter and other military aircraft seats and also is the leading North American provider of seating systems for rail and other mass transit vehicles. Inflatable Restraint Systems. The Company has developed proprietary and patented structures and systems that are used as inflatable restraints. The first product for automobiles, the inflatable tubular structure ("ITS"), is being introduced in certain BMW models to be delivered in 1997 to provide head and neck protection in side-impact collisions. The Company has a variety of other inflatable restraint applications and configurations for automobiles. The Company has also developed and certified the first airbag systems for commercial and military aircraft, which will be introduced in late 1997. In addition to providing inflatable restraint products directly to automobile and aircraft manufacturers, the Company licenses its proprietary inflatable restraint technology and products to first tier component suppliers. Armor and Other Composite Materials. The Company develops and manufactures a variety of composite materials which are integrated into its products and the products of third parties. The Company's principal composite products include high-strength, ultra-lightweight armor systems for use in targeted applications, such as surrounding crew seats in aircraft (V-22 Osprey, Apache, Blackhawk, and CH-53 Sea Stallion), protecting vital components of aircraft (C-17 cockpits and tank power units), and providing additional floor protection (multi-wheeled and transport vehicles). Other new products utilizing the Company's composite technology include portable transparent armor products for use in commercial vehicles, such as police cars and executive vehicles. 3 5 Introductory Stage Technologies. The Company has several technologies and products in various phases of development that it believes will provide it with new products over the next several years. These products include additional applications of the Company's inflatable restraint technology, light-weight transparent armor, advanced sensors with multi-axial sensing ability, a vacuum-packed sealed parachute, and new polymers that may be used for high-performance windows, lenses, visors, and a number of other applications. The Company has experienced substantial growth since fiscal 1992 resulting from the broader application of its technology, its strategic acquisitions, and its development of new products. The Company's revenue increased from $18.8 million in 1992 to $65.8 million in 1996. During this time period, the percentage of the Company's revenue derived from government and defense contracts declined from 100% in 1990 to approximately 49% in 1996, with the balance from commercial customers. The Company's principal customers include America West Airlines, Autoliv GmbH, BMW, Boeing, Continental Airlines, Matsushita, McDonnell Douglas, Morton International, Sikorsky Aircraft, Southwest Airlines, metropolitan transit authorities in major North American cities, and various branches of the United States armed forces and agencies. The Company's strategy is to maintain its leading position in creating and applying proprietary technologies and advanced solutions to safety related problems and to develop its products for commercial sale to a wide range of customers in each of its three market segments. The key elements in executing this strategy are to (i) develop and utilize technology to enhance current products and create new products, (ii) focus on new product markets and regulatory requirements, (iii) expand manufacturing capabilities and maximize internal synergies, and (iv) pursue acquisitions and strategic alliances that complement existing businesses or provide manufacturing or distribution opportunities. The Company maintains its principal executive offices at 2700 North Central Avenue, Suite 1000, Phoenix, Arizona 85004, and its telephone number is (602) 631-4005. Unless the context indicates otherwise, all references to the "Company" or "Simula" refer to Simula, Inc. and its subsidiaries. THE OFFERING See "Description of Notes." Securities Offered......... $30,000,000 aggregate principal amount of % Senior Subordinated Convertible Notes due, 2004. Seniority.................. The Notes will be general unsecured obligations of the Company and will be subordinated to all present and future Senior Indebtedness (as defined herein). The Notes will rank pari passu in right of payment with all Senior Subordinated Indebtedness (as defined herein) and senior in right of payment to any future Subordinated Indebtedness (as defined herein) of the Company. Interest Payments.......... The Notes will bear interest at % per annum, payable semiannually on January 30 and July 30, commencing July 30, 1997. Maturity................... If not earlier converted or redeemed, the Notes will be due and payable in full with all accrued interest on , 2004. Conversion Rights.......... The Notes and the accrued interest payable thereon are convertible into shares of the Company's Common Stock at a conversion price of $ per share (the "Conversion Price"), subject to adjustment in certain events to protect against dilution of the Conversion Price. Change of Control Redemption................. Within 30 days following the occurrence of any Change of Control (as defined herein), the Company will offer to purchase all outstanding Notes at a purchase price equal to 100% of the aggregate principal amount of the Notes plus accrued and unpaid interest to the date of purchase. No assurance can be given that upon such event the Company would have adequate resources to pay such redemption price. 4 6 Optional Redemption........ If not earlier converted or redeemed, the Notes may be redeemed at the Company's option, upon at least 30 days' notice, in whole or in part on a pro rata basis, on and after , 1999, at certain specified redemption prices (expressed in percentages of principal amount) together with accrued interest payable thereon to the redemption date. However, on or after , 1999 and prior to , 2000, the Notes will not be redeemable unless the closing price of the Company's Common Stock as quoted on the NYSE has equaled or exceeded $ for 20 trading days within a period of 30 consecutive trading days. Guarantees................. The Notes are fully and unconditionally guaranteed, jointly and severally, by all of the Company's subsidiaries. See "Description of Notes." Listing.................... The Notes have been approved for listing on the NYSE, upon official notice of issuance, under the symbol "SMU- ." The Company's Common Stock is listed on the NYSE under the symbol "SMU." Use of Proceeds............ Expansion of manufacturing facilities, working capital and other general purposes, and potentially for acquisitions. See "Use of Proceeds." Risk Factors............... Prospective purchasers of the Notes offered hereby should carefully consider certain risk factors as detailed in this Prospectus and contained in all documents incorporated by reference into this Prospectus. Included among such factors are the Company's recent and anticipated losses, subordination, leverage and liquidity, entry into new markets, production risks and manufacturing experience, investment in and dependence on proprietary technology, need for additional capital, quarterly operating results, cyclicality, possible volatility of stock price, and management of growth. See "Risk Factors." 5 7 SUMMARY CONSOLIDATED FINANCIAL DATA
YEAR ENDED DECEMBER 31, -------------------------------------------------------------- 1996 1995 1994 1993 1992 ---------- ---------- ---------- ---------- ---------- (Dollars in thousands, except per share data) INCOME STATEMENT DATA: Revenue............................ $ 65,762 $ 59,089 $ 41,158 $ 24,781 $ 18,833 Operating (loss) income(1)......... (9,226) 4,443 5,184 2,665 2,387 (Loss) earnings before cumulative effect of change in accounting principle....................... (6,810) 2,657 2,114 1,121 1,270 Cumulative effect of change in accounting principle(2)......... (3,240) ---------- ---------- ---------- ---------- ---------- Net (loss) earnings................ $ (10,050) $ 2,657 $ 2,114 $ 1,121 $ 1,270 ========== ========== ========== ========== ========== PER SHARE AMOUNTS: (Loss) earnings before cumulative effect of a change in accounting principle....................... $ (0.76) $ .31 $ .37 $ .22 Cumulative effect of change in accounting principle............ (0.36) ---------- ---------- ---------- ---------- Net (loss) earnings per share...... $ (1.12) $ .31 $ .37 $ .22 ========== ========== ========== ========== PRO FORMA AMOUNTS(2)(3): Net earnings....................... $ 194 $ 1,675 $ 947 $ 1,313 ========== ========== ========== ========== Net earnings per share............. $ .02 $ .29 $ .19 $ .29 ========== ========== ========== ========== WEIGHTED AVERAGE SHARES OUTSTANDING(4)..................... 8,947,060 8,576,817 5,704,926 5,024,679 4,608,825 ---------- ---------- ---------- ---------- ---------- OTHER DATA: Ratio of earnings to fixed charges and preferred dividends(5)......... -- 2.19x 2.67x 3.00x 5.86x Research and development: Funded by the Company.............. $ 1,916 $ 1,419 $ 688 $ 376 $ 240 Costs incurred on funded contracts....................... 8,588 4,722 3,165 1,813 4,529
DECEMBER 31, ------------------------------------------------------------- AS ADJUSTED ACTUAL 1996(6) 1996 1995 1994 1993 1992 ----------- ------- ------- ------- ------- ------- BALANCE SHEET DATA: Working capital...................... $50,706 $23,206 $21,069 $ 5,236 $ 8,209 $ 4,049 Total assets......................... 109,788 86,688 73,136 47,691 26,787 18,007 Long-term debt....................... 54,697 24,697 11,261 15,339 12,794 4,839 Shareholders' equity(7).............. 37,187 37,187 46,087 16,649 8,078 7,232
- --------------- (1) The operating loss for 1996 is primarily due to expenses attributable to pre-contract development costs, the start-up costs of the ITS manufacturing facilities in Phoenix, Arizona and the United Kingdom and 16g Seat manufacturing facilities in San Diego, California and Chicago, Illinois, losses arising from research and development contracts for which the Company anticipates profitable follow-on contracts, increased research and development and the expenses of the administrative and sales infrastructure that will be necessary in 1997 to support manufacturing and the generation of sales of the ITS and 16g Seat. See "Risk Factors -- Recent and Anticipated Losses." (2) During the second quarter of 1996, the Company adopted a new method of accounting for pre-contract costs. These costs were previously deferred and recovered over the revenue streams from the Company's 6 8 customers. Effective January 1, 1996, these costs have been expensed. Pro forma amounts for 1995, 1994 and 1993 assume the new accounting method is applied retroactively. The change in accounting would not have affected 1992. (3) Prior to the Company's April 1992 initial public offering, the Company was an S corporation for tax purposes. Pro forma net earnings and net earnings per share amounts for 1992 reflect pro forma tax provisions as if all income taxes for 1992 had been payable by the Company. (4) The Company effected a 3-for-2 split of its Common Stock on September 28, 1995. As a result, all shares and related references have been restated for all prior periods and transactions. (5) Ratio of earnings to fixed charges and preferred dividends is computed by dividing (i) earnings (loss) before income taxes plus fixed charges and preferred stock dividend requirements by (ii) fixed charges and preferred stock dividend requirements. Fixed charges consist of interest on indebtedness, amortization of debt issuance cost and the estimated interest component (one-third) of rental and lease expense. There were no preferred stock dividend requirements during the periods presented. Earnings were insufficient to cover fixed charges by approximately $11.6 million for the year ended December 31, 1996. (6) Adjusted to reflect the issuance of the Notes offered hereby and the application of the estimated net proceeds of $27.5 million. The actual 1996 balances are adjusted to reflect: (i) an increase in working capital of $27.5 million, reflecting the reduction of the revolving line of credit of $6.9 million and an increase in cash of $20.6 million, of which approximately $10.0 million is anticipated to be used for future expansion of manufacturing facilities; (ii) an increase in total assets of $23.1 million; and (iii) an increase in long-term debt of $30 million. (7) The Company has not paid any cash dividends since its April 1992 initial public offering. 7 9 RISK FACTORS Prospective purchasers of the Notes offered hereby should carefully consider the following factors in addition to the other information in this Prospectus. This Prospectus contains certain forward-looking statements and information. The cautionary statements made in this Prospectus should be read as being applicable to all related forward-looking statements wherever they appear in this Prospectus. Forward-looking statements, by their very nature, include risks and uncertainties. Accordingly, the Company's actual results could differ materially from those discussed herein. Factors that could cause or contribute to such differences include those discussed below as well as those discussed elsewhere herein. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." RECENT AND ANTICIPATED LOSSES In order to prepare for the production of the crashworthy seating systems for commercial airliners (the "16g Seat") in commercial quantities and the commercial introduction of the ITS and bulkhead airbag, the Company incurred significant pre-contract costs, which were charged to expense in 1996. In prior years, such costs were capitalized. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Note 2 to the Consolidated Financial Statements. In order to support the introduction and production of these products, the Company incurred plant start-up costs and significantly increased expenses applicable to its corporate and sales infrastructure, which expenses were necessary to develop markets and support the production of these products that are anticipated to produce revenue in 1997. In addition, the Company accelerated research and development expenses applicable to potential new products related to these technologies. The incurrence of these costs resulted in a loss before the cumulative effect of the change in accounting principle of $6.8 million for the year ended December 31, 1996, and will result in a net loss in the first quarter of 1997. The Company cannot estimate the amount of this loss at this time. The Company's contracts for the 16g Seat and ITS provide for deliveries of significant commercial quantities in 1997. In the first quarter of 1997, the Company received approximately $28 million in new 16g Seat orders and follow-on options primarily from two major U.S. carriers, and expects revenues therefrom to be recorded over a period of 18 months from the date of this Prospectus. As of April 1, 1997, the Company has in excess of $65 million in outstanding bid proposals to seat customers, and expects revenues from successful bids to be recorded over the next 24 months. The Company cannot predict what portion of these orders may ultimately be awarded to the Company, if any. The Company commenced production and started deliveries of the ITS in March 1997. The Company has an initial purchase order of approximately $3 million and anticipates additional orders and revenues in 1997. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." SUBORDINATION The Notes will be subordinated to the prior payment when due of the principal of, and premium, if any, and accrued and unpaid interest on, all existing and future Senior Indebtedness (as defined herein). The Indenture contains a covenant that limits the Company's ability to incur additional indebtedness including Senior Indebtedness. See "Description of Notes -- Certain Covenants." At February 28, 1997, the Company had approximately $19.4 million of Senior Indebtedness outstanding, of which $4.2 million was at the subsidiary level. By reason of such subordination of the Notes, in the event of insolvency, liquidation, reorganization, dissolution or winding up of the business of the Company or upon a default in payment with respect to any indebtedness of the Company or an event of default with respect to such indebtedness resulting in the acceleration thereof, the assets of the Company will be available to pay the amounts due on the Notes only after all Senior Indebtedness has been paid in full. The Notes will rank pari passu in all respects with all other Senior Subordinated Indebtedness of the Company. At February 28, 1997 the Company had approximately $20.0 million in Senior Subordinated Indebtedness outstanding. The Notes will be senior and unsecured subordinated obligations of the Company. The Company conducts a significant portion of its operations through its subsidiaries. Accordingly, the Company's ability to meet its cash obligations is dependent in part upon the ability of its subsidiaries to make cash distributions to the Company. Each Subsidiary Guarantor's Guarantee will be subordinate to Senior Indebtedness of such Subsidiary Guarantor, including such Subsidiary Guarantor's guarantees of Senior 8 10 Indebtedness of the Company, generally on the same basis as the Company's obligations under the Indenture and the Notes will be subordinate to Senior Indebtedness of the Company. The Guarantees will, however, rank at least on a parity with claims of all other unsecured creditors of the respective Subsidiary Guarantors. The obligations of each Subsidiary Guarantor are limited to the maximum amount as will, after giving effect to all other contingent and fixed liabilities of such Subsidiary Guarantor and after giving effect to any collections from or payments made by or on behalf of any other Subsidiary Guarantor in respect of the obligations of such other Subsidiary Guarantor under its Guarantee or pursuant to its contribution obligations under the Indenture, result in the obligations of such Subsidiary Guarantor under its Guarantee not constituting a fraudulent conveyance or fraudulent transfer under federal, state, or foreign law. LEVERAGE AND LIQUIDITY Upon completion of the offering, the Company's long-term indebtedness will be approximately $54.7 million (calculated using the Company's long-term indebtedness as of December 31, 1996 and assuming the issuance of $30,000,000 in principal amount of the Notes), representing approximately 57% of total capitalization. There can be no assurance that the Company will have adequate cash available to make required principal and interest payments. The Company's ability to pay interest and principal on the Notes and to satisfy its other debt obligations will depend upon its future operating performance, which will be affected by prevailing economic conditions and financial, business and other factors, certain of which are beyond its control. The Company anticipates that its operating cash flow, together with borrowings under the Senior Indebtedness, will be sufficient to meet its operating expenses and to service its debt requirements as they become due. However, if the Company is unable to service its indebtedness, whether upon acceleration of such indebtedness or in the ordinary course of business, the Company would be required to pursue one or more alternative strategies such as restructuring or refinancing its indebtedness, or seeking additional equity capital. There can be no assurance that any of these strategies could be effected on satisfactory terms, if at all. See "Management's Discussion and Analysis of Results of Operations and Financial Condition -- Liquidity and Capital Resources." ENTRY INTO NEW MARKETS In the first quarter of 1997 the Company commenced full scale production for its 16g Seats and ITS and plans to enter full scale production for new product roll-outs for a bulkhead airbag system for commercial aircraft and two cockpit inflatable restraint systems for military aircraft in late 1997. There can be no assurance that the Company will be successful in the introduction of its new products. Such success will depend on a variety of factors, including successful product testing and acceptance by its potential customers, particularly airlines and automobile manufacturers; the success of the Company's sales and marketing efforts in markets not previously addressed by the Company; successful and rapid expansion of the Company's manufacturing capacity, including the expansion or establishment of additional manufacturing facilities, particularly for inflatable restraints and aircraft seating systems; the ability of the Company's products to provide their intended benefits; and increasing government safety regulations and consumer safety concerns, particularly for energy-absorbing seating systems and for inflatable restraints. If the Company is unable to manufacture and market its new products successfully, its business, results of operations, and financial condition will be materially and adversely affected. See "Business." PRODUCTION RISKS AND MANUFACTURING EXPERIENCE The Company does not have experience in high-volume manufacturing and must build capacity to meet anticipated demand for certain of its new products. The Company is currently adding to its production capabilities through new plant and equipment. The Company plans to use approximately $10 million of the net proceeds of this offering to expand existing manufacturing facilities, primarily for the manufacture of aircraft inflatable restraint systems and components related to the ITS. See "Use of Proceeds." The Company has received purchase orders for the ITS and has invested substantial resources for its manufacture prior to receipt of additional orders. From January 1, 1995 to December 31, 1996, the Company invested approximately $14.4 million in the purchase of plant and equipment. The Company funded this investment with its bank credit facilities. The Company believes that it currently has sufficient capacity to meet 1997 delivery requirements. The Company could incur significant start-up 9 11 costs, expenses, and delays in connection with its attempts to manufacture commercial quantities of its new products. There can be no assurance that the anticipated level of demand will occur or that the Company will not experience either overcapacity or undercapacity in its new production facilities. Further, there can be no assurance that the Company will be successful in overcoming the technological, engineering, and management challenges associated with the production of commercial quantities of its new products, at any given volume, at acceptable costs, or on a timely or profitable basis. Operating results could be adversely affected if the expansion of the Company's manufacturing capacity is delayed or inefficiently implemented. No assurance can be given that the Company will not experience manufacturing inefficiencies or delivery problems in the future in the event of fluctuations in demand. When and if the Company receives volume orders for its products, it may determine to license or outsource the manufacturing of certain of the components. There can be no assurance that the Company will be able to identify manufacturers that will meet its requirements as to quality, reliability, timeliness, and cost-effectiveness. Any such failure will limit the Company's ability to satisfy customer orders and would have a material adverse effect on the Company's business, results of operations, and financial condition. See "Business -- Production, Manufacturing, and Licensing." The Company believes that its products and components have passed, and will continue to pass, certain product performance and reliability testing by its customers; however, there can be no assurance that its products will continue to pass such testing in the future, particularly as the Company moves toward higher production volumes. If such problems occur, the Company could experience increased costs, delays, reductions or cancellations of orders and shipments, and warranty issues, any of which could adversely affect the Company's business, results of operations, and financial condition. INVESTMENT IN AND DEPENDENCE ON PROPRIETARY TECHNOLOGY The Company's future success and competitive position depend to a significant extent upon its proprietary technology. The Company must make significant investments to continue to develop and refine its technologies. Technological advances, the introduction of new products, and new design and manufacturing techniques could adversely affect the Company's operations unless the Company is able to adapt to the resulting change in conditions. As a result, the Company will be required to expend substantial funds for and commit significant resources to the conduct of continuing research and development activities, the engagement of additional engineering and other technical personnel, the purchase of advanced design, production, and test equipment, and the enhancement of design and manufacturing processes and techniques. The Company's future operating results will depend to a significant extent on its ability to continue to provide design and manufacturing services for new products that compare favorably on the basis of time to introduction, cost, and performance with the design and manufacturing capabilities of aircraft, automobile, and other transportation vehicle suppliers. The success of new design and manufacturing services depends on various factors, including utilization of advances in technology, innovative development of new solutions for customer products, efficient and cost-effective services, timely completion and delivery of new product solutions, and market acceptance of customers' end products. Because of the complexity of the Company's products, the Company may experience delays from time to time in completing the design and manufacture of new product solutions. In addition, there can be no assurance that any new product solutions will receive or maintain customer or market acceptance. If the Company were unable to design and manufacture solutions for new products of its customers on a timely and cost-effective basis, its future operating results would be adversely affected. The Company relies in part on patent, trade secret, and copyright law to protect its intellectual property. There can be no assurance that any patent owned by the Company will not be invalidated or challenged, that the rights granted thereunder will provide competitive advantages to the Company, or that any of the Company's pending or future patent applications will be issued with the scope of the claims sought by the Company, if at all. Furthermore, there can be no assurance that others will not develop technologies that are similar or superior to the Company's technology, duplicate the Company's technology, or design around the patents owned by the Company. In addition, effective patent and other intellectual property protection may be unavailable or limited in certain foreign countries. There can be no assurance that the steps taken by the Company will prevent misappropriation of its technology. Litigation may be necessary in the future to enforce the Company's patents and other intellectual property rights, to protect the Company's trade secrets, and to 10 12 determine the validity and scope of the proprietary rights of others. Similarly, there can be no assurance that the Company's technologies will not be subject to claims that they infringe the rights of others, which would require the Company to defend such claims. Patent and trade secret litigation could result in substantial costs and diversion of resources, which could have a material adverse effect on the Company's operating results and financial condition. See "Business -- Proprietary Technology." DEPENDENCE ON INDUSTRY RELATIONSHIPS A number of the Company's products are components in its customers' final products. In particular, the Company's automobile and aircraft inflatable restraint systems are intended for use as components in automobiles or aircraft. Accordingly, to gain market acceptance, the Company must demonstrate that its products will provide advantages to the manufacturers of final products, including increasing the safety of their products, providing such manufacturers with competitive advantages, or assisting such manufacturers in complying with existing or new government regulations affecting their products. There can be no assurance that the Company's products will be able to achieve any of these advantages for the products of its customers. Furthermore, even if the Company is able to demonstrate such advantages, there can be no assurance that such manufacturers will elect to incorporate the Company's products into their final products, or if they do, that the Company's products will be able to meet such customers' manufacturing requirements. Additionally, there can be no assurance that the Company's relationships with its manufacturer customers will ultimately lead to volume orders for the Company's products. The failure of manufacturers to incorporate the Company's products into their final products would have a material adverse effect on the Company's business, results of operations, and financial condition. The Company also depends on its relationships with first tier component suppliers to which it licenses its proprietary technology to facilitate the marketing and distribution of its products, particularly its inflatable restraint products. See "Business -- Operating and Growth Strategy -- Expanding Manufacturing Capabilities and Maximizing Internal Synergies." SUBSTANTIAL RELIANCE UPON MAJOR CUSTOMERS The Company's business has relied to a great extent on relatively few major customers, although the mix of major customers has varied from year to year depending on the status of then current contracts. During fiscal 1995 and fiscal 1996, no commercial customer accounted for more than 10% of the Company's revenue. Although the Company has long-established relationships with a number of its customers, the Company does not have long-term supply contracts with any customers. The Company's customers also generally do not commit to long-term production schedules and, as a result, customer orders generally can be canceled and volume levels changed or delayed. The timely replacement of canceled, delayed, or reduced orders cannot be assured. The loss or reduction in sales to a major customer may have a more material adverse effect on the Company's operations and financial condition than would be the case if the Company's revenue were less concentrated by customer. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business -- Customers." The Company believes that the United States Army and other branches of the United States armed forces as well as prime defense contractors, to which the Company has supplied products for approximately 20 years, will continue to be major customers, although the percentage of the Company's revenue attributable to them can be expected to decrease as a result of the Company's expanding commercial operations. See "Business -- Customers" and "Business -- Backlog." For the year ended December 31, 1996, approximately 23%, 4%, and 9% of the Company's revenue was attributable to the Company's contracts with the United States Army, other branches of the United States armed forces, and prime defense contractors, respectively. Reliance upon defense contracts involves certain inherent risks, including dependence on Congressional appropriations, changes in governmental policies that reflect military and political developments, and other factors characteristic of the defense industry. The Company believes that the impact of reductions in military expenditures have been and may continue to be less significant on the Company than on many other military suppliers because completed and currently announced reductions in military expenditures have tended to relate more to strategic programs than to the types of tactical programs that the Company's products address. There can be no assurance, however, that reductions in military expenditures or the type of reductions 11 13 instituted will not adversely affect the Company's business, operating results, and financial condition. See "Business -- Overview of Market Segments and Industries -- Government and Defense." EFFECT OF GOVERNMENT CONTRACT PROVISIONS As a contractor and subcontractor to the United States government, the Company is subject to various laws and regulations that are more restrictive than those applicable to non-government contractors. Sales of many of the Company's products are governed by rules favoring the government's contractual position. As a consequence, such contracts may be subject to protest or challenge by unsuccessful bidders or to termination, reduction, or modification in the event of changes in government requirements, reductions of federal spending, or other factors. The Company's government-related revenue has resulted almost exclusively from firm, fixed-price contracts. Fixed-price contracts involve certain inherent risks to the Company, including underestimating costs, problems with new technologies, and economic and other changes that may occur over the contract period. The accuracy and appropriateness of certain costs and expenses used to substantiate direct and indirect costs of the Company for the United States government under both cost-plus and fixed-price contracts are subject to extensive regulation and audit by the Defense Contract Audit Agency ("DCAA"), an arm of the United States Department of Defense. The DCAA has the right to challenge the Company's cost estimates or allocations with respect to any such contract. If a DCAA audit establishes overcharges or discrepancies in costs or accounting, it can seek the repayment of such overcharges or seek other reconciliations. DCCA audits are routine in the defense contracting industry, and the Company has been subject to such audits from time to time. Since the inception of the Company's operations, no DCAA audit has resulted in an adverse determination against the Company. In September 1993, however, the Company agreed to pay $445,000 over a 12-month period to resolve an overcharge dispute, without any admission of liability. The investigation and settlement resulted in the review of virtually all of the Company's government contracts entered into between April 1987 and June 1990. The settlement agreement concluded any other potential defective pricing claims on all of the Company's contracts with the United States Department of Defense negotiated during that period. NEED FOR ADDITIONAL CAPITAL In order to meet the anticipated demand for its products in 1998 and beyond, the Company must continue to make significant investments in research and development, equipment, and facilities, including capital expenditures to construct and equip the facilities. The Company's operating results may be adversely affected if its revenue does not increase sufficiently to offset the increase in fixed costs and operating expenses relating to these capital expenditures. The continued expansion of the Company's business may require it, from time to time, to seek debt or equity financing in addition to the funds to be provided by this offering. Such capital expenditures may be required to maintain or expand the Company's engineering, design, and production facilities and equipment as well as to otherwise finance the growth of its business. The Company cannot predict the timing or amount of any such capital requirements. The Company anticipates that such financing may include bank financing or the issuance of debt or equity securities. The Company's ability to incur indebtedness is limited by covenants and restrictions under the Indenture and the Company's loan agreement with Wells Fargo Bank N.A. See "Management's Discussions and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." The ability of the Company to obtain bank financing or raise additional debt or equity capital also will depend on its financial condition and results of operations. In addition, there can be no assurance that additional financing will be available to the Company if and when required and under terms acceptable to the Company. ACQUISITIONS The Company's acquisition strategy depends in large part on its continued ability to successfully acquire, integrate, and operate additional companies that have complementary businesses that can utilize or enhance the Company's technologies or that can provide benefits in terms of manufacturing, distribution, or availability of component parts. The Company has completed three major acquisitions since August 1993. There can be no assurance that the Company will be able to identify additional suitable acquisition candidates, that it will be 12 14 able to consummate or finance any such acquisitions, or that it will be able to integrate any such acquisitions successfully into its operations. See "Business -- Operating and Growth Strategy -- Exploring Acquisition and Strategic Alliance Opportunities" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." QUARTERLY OPERATING RESULTS; CYCLICALITY Since the beginning of 1993, the Company has experienced significant growth in its revenue and net income as a result of internal growth and its acquisitions. As a growth company, the Company's quarterly results may be especially variable and historic results are not a reliable basis on which to predict future operating results. Further, during the second quarter of 1996, the Company adopted a new method of accounting for pre-contract costs under which various costs are expensed as incurred rather than being deferred. The effect of changing this accounting principle resulted in a restatement and reduction of earnings per share previously reported for the first quarter of 1996. The Company's change in accounting method in 1996 will make year to year and quarter to quarter comparisons of earnings difficult. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." The continued success of the Company will be impacted by the cyclical nature of the airline, rail, and automobile industries as well as other markets served by the Company's products; the level and makeup of military expenditures; technological changes; competition and competitive pressures on pricing; new government regulations; and economic conditions in the United States and worldwide markets served by the Company and its customers. The Company's products are incorporated into a variety of transportation vehicles. A slowdown in demand for such new transportation vehicles or modification services to existing transportation vehicles as a result of economic or other conditions in the United States or in the worldwide markets served by the Company and its customers or other broad-based factors could adversely affect the Company's operating results and financial condition. Conversely, an increase in demand for new transportation vehicles or modification services could strain the Company's capacity, its manufacturing efficiency, and delivery schedules. See "Business." POSSIBLE VOLATILITY OF STOCK PRICE The trading price of the Company's Common Stock has been and in the future may be subject to wide fluctuations in response to quarterly variations in operating results of the Company or its competitors, actual or anticipated announcements of technical innovations or new products by the Company or its competitors, contracts with key customers, new agreement negotiations, changes in analysts' estimates of the Company's financial performance, general industry conditions, military expenditures, worldwide economic and financial conditions, and other events or factors. In addition, the stock market has experienced extreme price and volume fluctuations, which have particularly affected the market price of many technology companies and which often have been unrelated to the operating performance of such companies. These broad market fluctuations and other factors may adversely affect the market price of the Company's Common Stock. See "Price Range of Common Stock" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." COMPETITION The markets served by the Company's aircraft and rail seating and inflatable restraint systems are intensely competitive. The Company's principal competitors in the military seating market are Martin Baker (U.K.) and Israel Aircraft Industries Ltd. (Israel). The Company does not have financial or market share data concerning these two competitors. However, based on internal market surveys and data, the Company believes that it is the supplier for a majority of the world's energy-absorbing seating programs under domestic and foreign military contracts. The Company has 10 principal competitors in the commercial airline seating market, dominated by BE Aerospace, Inc. The Company has four principal competitors in the North American rail and mass transit seating market. Most of the Company's competitors have greater marketing capabilities and financial resources than the Company. 13 15 Although most of the Company's technology is proprietary, many businesses are actively engaged in the research and development of new products and in the manufacture and sale of products that may compete with the Company's seating and inflatable restraint systems. The Company's present or future products could be rendered obsolete by technological advances by one or more of its competitors or by future entrants into its markets. Competition for commercial contracts relates primarily to technical know-how, cost, and marketing efforts. Competition for government contracts relates primarily to the award of contracts for the development of proposed products rather than for the supply of products that have been developed under contracts. Numerous suppliers compete for government defense contracts as prime contractors or subcontractors. The demand for aircraft seating, which is one of the Company's target markets, currently exceeds supply; however, the Company's competitors may seek to cover such undercapacity. As a result, there is no assurance that such undercapacity in those markets will continue to exist in the future. A substantial increase in the capacity of all manufacturers in those markets may have an adverse impact on the Company's results of operations and financial condition. See "Business -- Competition." MANAGEMENT OF GROWTH The Company currently is experiencing a period of significant growth. The Company's ability to manage its growth effectively will require it to enhance its operational, financial, and management information systems. In addition, the Company must also effectively oversee operations of geographically dispersed subsidiaries in diverse lines of business. The Company is increasing staffing and other expenses as well as its expenditures on manufacturing plants, capital equipment, and leasehold improvements in order to meet the anticipated demand of its customers for its new products. However, the Company's customers generally do not commit to firm production schedules for other than a relatively short time in advance. The Company's profitability would be adversely affected if the Company increased its expenditures in anticipation of future orders that do not materialize. Its customers may also require, from time to time, rapid increases in design and production services, which place an excessive short-term burden on the Company's resources. The failure of the Company to manage its growth effectively could have a material adverse effect on the Company's business, operating results, and financial condition. PRODUCT LIABILITY The Company will face increasing exposure to product liability claims as it increases its presence in commercial markets. Product liability claims may be particularly significant in connection with the Company's commercial aircraft and automobile products. The Company maintains product liability insurance, including general product liability, special aircraft product liability, and intends in the summer of 1997 to obtain product recall insurance. In connection with its government business, product liability defense is available to some extent under the so-called "government contractor defense." In addition, the Company's product liability insurance also provides protection with respect to exposure, if any, under government contracts and products. The Company believes its insurance is adequate. GOVERNMENT SAFETY REGULATIONS The Company regularly monitors regulations adopted or being considered by the Federal Aviation Administration ("FAA") relating to airlines, particularly those relating to seating and restraints, and by the National Highway Traffic Safety Administration ("NHTSA"), particularly those relating to airbags and other safety features in automobiles, rail, and other mass transit vehicles. Administratively promulgated regulations are typically subject to industry resistance, comment periods, and significant delays in implementation. To the extent that proposed regulations are withdrawn or that new or existing regulations are subsequently amended, rescinded, or deadlines for compliance extended, the demand for improved safety systems, such as those provided by the Company, could be adversely impacted. See "Business -- Overview," "Business -- Operating and Growth Strategy -- Market and Regulatory Focus," "Business -- Overview of Market Segments and Industries -- Commercial Transportation Seating," and "Business -- Overview of Market Segments and Industries -- Automobile Safety Systems." 14 16 HOLDING COMPANY STRUCTURE The Company is a holding company with no business operations of its own. The Company's only material assets are the outstanding capital stock of its subsidiaries, through which it conducts its operations. See "Business -- Operating and Growth Strategy." As a holding company, the Company depends on distributions from its subsidiaries to pay interest on the Notes. See "-- Subordination" and "Description of Notes -- Subsidiary Guarantees." ENVIRONMENTAL REGULATIONS The Company is subject to a variety of federal, state, and local government regulations related to the storage, use, discharge, and disposal of toxic, volatile, or otherwise hazardous chemicals used in its manufacturing processes. There can be no assurance that changes in environmental regulations will not impose the need for additional capital equipment or other requirements. Any failure by the Company to obtain required permits for, control the use of, or adequately restrict the discharge of, hazardous substances under present or future regulations could subject the Company to substantial liability or could cause manufacturing operations to be suspended. Such liability or suspension of manufacturing operations could have a material adverse effect on the Company's operating results and financial condition. See "Business -- Environmental Regulations." INTERNATIONAL TRADE AND CURRENCY EXCHANGE Approximately 24% of the Company's revenue in fiscal 1996 was derived from international customers, all of which is billed and recorded in U.S. dollars. The Company has acquired manufacturing facilities outside the United States in anticipation of an increased volume of business overseas, particularly with respect to its inflatable restraint systems for automobiles. Therefore, the Company purchases an increasing portion of its raw materials and equipment from foreign suppliers and incurs labor costs in foreign locations. The foreign sale of products and the purchase of raw materials and equipment from foreign suppliers may be adversely affected by political and economic conditions abroad. Protectionist trade legislation in either the United States or foreign countries, such as a change in current tariff structures, export compliance laws, or other trade policies, could adversely affect the Company's ability to sell its products in foreign markets and purchase materials or equipment from foreign suppliers. DEPENDENCE ON MANAGEMENT AND OTHER KEY PERSONNEL The Company's success depends upon the retention of key personnel, particularly Stanley P. Desjardins, its founder and Chairman, and Donald W. Townsend, its President. The Company has entered into five-year employment contracts with Messrs. Desjardins and Townsend through the year 2001. The loss of Messrs. Desjardins or Townsend or other existing key personnel or the failure to recruit and retain necessary additional personnel would adversely affect the Company's business prospects. Additionally, the covenants of one of the Company's credit facilities requires that the Company continue to employ Messrs. Desjardins and Townsend. There can be no assurance that the Company will be able to retain its current personnel or attract and retain necessary additional personnel. See "Business -- Employees" and "Management." CONTROL BY MANAGEMENT Following the completion of this offering and assuming the conversion of the Notes into Common Stock, the directors and executive officers of the Company will own an aggregate of 4,244,974 shares of Common Stock, or approximately 47% of the outstanding Common Stock of the Company, of which Stanley P. Desjardins owns 3,543,052 shares, or approximately 39% of the outstanding Common Stock of the Company. Through the ownership of such Common Stock, the ability to elect or otherwise designate members of the Board of Directors, as a practical matter, will continue to reside with the current management of the Company. The directors and executive officers have the right to acquire additional shares upon exercise of options granted under the Company's stock option plans, and the executive officers may acquire additional 15 17 shares under the Company's Employee Stock Purchase Plan. See "Principal Shareholders," "Management -- Stock Options," and "Management -- Employee Stock Purchase Plan." SHARES ELIGIBLE FOR FUTURE SALE As of April 17, 1997, the Company had 9,022,348 shares of Common Stock outstanding, of which 3,682,049 shares are "restricted securities" (the "Restricted Shares") as that term is defined in Rule 144 under the Securities Act of 1933, as amended (the "Act"). Such Restricted Shares may be subject to volume and other resale limitations described below. The directors and executive officers have agreed with the Company at the request of the Underwriters not to sell or otherwise dispose of any shares of Common Stock in the public market for a period of 90 days after the date of this Prospectus without the prior written consent of the Underwriters. In general, under Rule 144 as amended effective April 29, 1997, any person (or persons whose shares are aggregated for purposes of Rule 144) who beneficially owns restricted securities with respect to which at least one year has elapsed since the later of the date the shares were acquired from the Company or from an affiliate of the Company, is entitled to sell, within any three-month period, a number of shares that does not exceed the greater of (i) 1% of the then outstanding shares of Common Stock of the Company, or (ii) the average weekly trading volume in Common Stock during the four calendar weeks preceding such sale. Sales under Rule 144 also are subject to certain manner-of-sale provisions and notice requirements and to the availability of current public information about the Company. A person who is not an affiliate, has not been an affiliate within three months prior the sale, and who beneficially owns restricted securities with respect to which at least two years have elapsed since the later of the date the shares were acquired from the Company or from an affiliate of the Company, is entitled to sell such shares under Rule 144(k) without regard to any of the volume limitations or other requirements described above. See "Principal Shareholders -- Shares Eligible For Future Sale" and "Underwriting." RECENT REGISTRATION In September 1996, the Company issued $14.3 million principal amount of the 10% Notes in a private placement. Based upon the conversion prices fixed prior to December 31, 1996 and the average market price of the Company's Common Stock for the ten (10) days ended December 31, 1996 for the 10% Notes not yet fixed, the 10% Notes would be convertible into approximately 975,000 shares of the Company's Common Stock. See "Description of Other Capital Stock and Debt Securities" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." The Company's registration statement covering resales by the holders of the Common Stock issuable upon conversion of the 10% Notes became effective April 3, 1997. Sales of substantial amounts of Common Stock in the public market subsequent to the completion of this offering, and the possibility that such sales may be made, could adversely affect the prevailing market price of the Company's Common Stock into which the Notes may be converted. NO PRIOR PUBLIC MARKET There has been no public market for the Notes prior to this offering, and there can be no assurance that such market will develop or be sustained upon completion of this offering. Because of the conversion feature, the trading values of the Notes, if issued, will most likely be based on the market price of the Company's Common Stock and the value attributed to the interest rates and other priorities of the Notes. 16 18 USE OF PROCEEDS The net proceeds to the Company from the sale of the Notes offered hereby are estimated to be approximately $27.5 million, after deducting estimated underwriting discounts and offering expenses. The Company plans to use approximately $10.0 million of the net proceeds to expand existing manufacturing facilities, primarily for the manufacture of aircraft and rail seating systems and components related to the Company's automobile side-impact inflatable restraint system. The Company also intends to use approximately $6.9 million of the net proceeds for repayment of the outstanding balance of its revolving line of credit which bears interest at LIBOR plus 2% (7.5% at December 31, 1996) and matures June 1, 1998. The remaining net proceeds will be used for working capital and other general corporate purposes, including potential future acquisitions. The Company does not have any acquisitions pending at this time. Pending the uses described above, the Company will invest the net proceeds of this offering in high quality government and short-term investment grade, interest bearing securities. The foregoing represents the Company's best estimate of its allocation of the proceeds of this offering based upon its present plans and business conditions. However, there can be no assurance that unforeseen events or changed business conditions will not result in the application of the proceeds of this offering in a manner other than as described in this Prospectus. Any such reallocation of the net proceeds of this offering would be substantially limited to the categories set forth above. PRICE RANGE OF COMMON STOCK The Company's Common Stock has been listed on the NYSE under the symbol "SMU" since January 31, 1996. The Company's Common Stock traded on the American Stock Exchange from October 14, 1993 until January 30, 1996, and on the Nasdaq National Market System from April 14, 1992 until October 13, 1993. On September 28, 1995, the Company completed a 3-for-2 stock split for all holders of record of the Company's Common Stock as of September 15, 1995, thereby increasing the number of shares of the Company's Common Stock then issued and outstanding from 5,904,647 to 8,856,952. Giving effect to the stock split, the following table sets forth the quarterly high and low closing prices of the Company's Common Stock for each calendar quarter of the years indicated.
HIGH LOW ------ ------ 1995: First Quarter...................................... $14.92 $12.83 Second Quarter..................................... 16.42 13.50 Third Quarter...................................... 25.13 14.83 Fourth Quarter..................................... 24.13 16.50 1996: First Quarter...................................... $19.25 $12.75 Second Quarter..................................... 20.63 15.88 Third Quarter...................................... 18.38 15.75 Fourth Quarter..................................... 15.88 13.00 1997: First Quarter...................................... $18.38 $13.63 Second Quarter (through April 18, 1997)............ 15.50 14.00
The number of holders of the Common Stock of the Company, including beneficial holders of shares held in street name, is estimated to be in excess of 2,500. On April 18, 1997, the closing price of the Common Stock was $14.38 per share. 17 19 CAPITALIZATION The following table sets forth (i) the actual capitalization of the Company at December 31, 1996 and (ii) the capitalization as adjusted to give the effect to the estimated net proceeds of this offering of $27.5 million and the application of the net proceeds therefrom as described under "Use of Proceeds." See "Use of Proceeds" and Consolidated Financial Statements contained elsewhere in this Prospectus.
DECEMBER 31, 1996(1) ----------------------- ACTUAL AS ADJUSTED ------- ----------- (Dollars in thousands) Current portion of long-term debt...................................... $ 4,536 $ 4,536 ------- ------- 4,536 4,536 ------- ------- LONG-TERM DEBT: % Senior Subordinated Convertible Notes due 2004................... 30,000 12% Senior Subordinated Notes Due November 1998...................... 5,700 5,700 10% Senior Subordinated Convertible Notes due September 1999......... 14,300 14,300 Mortgage notes and other(2).......................................... 4,697 4,697 ------- ------- 24,697 54,697 ------- ------- SHAREHOLDERS' EQUITY: Common Stock, par value $.01 per share; 50,000,000 shares authorized; 8,992,598 shares issued........................................... 90 90 Additional paid-in capital........................................... 39,031 39,031 Retained deficit..................................................... (1,966) (1,966) Currency translation adjustment...................................... 32 32 ------- ------- 37,187 37,187 ------- ------- Total capitalization................................................... $66,420 $96,420 ======= =======
- --------------- (1) Excludes shares of Common Stock reserved for issuance under stock option plans, the Employee Stock Purchase Plan and an estimate of 975,000 shares of Common Stock reserved for issuance upon conversion of the 10% Notes. See "Management -- Stock Option Plans, "Management -- Employee Stock Purchase Plan" and "Description of Other Capital Stock and Debt Securities." (2) Consists of various loans payable, secured by property and equipment; unsecured installment notes; and obligations under capital leases. See Note 9 to Consolidated Financial Statements. DIVIDEND POLICY The Company has not paid any cash dividends since its April 1992 initial public offering and does not plan to pay cash dividends on its Common Stock in the foreseeable future. Instead, the Company intends to apply any earnings to the expansion and development of its business. Any payment of cash dividends on its Common Stock in the future will depend upon the Company's earnings, financial condition and capital requirements and other factors which the Board of Directors deems relevant. The Company may not pay dividends on Common Stock at any time that the Company's Credit Agreement with Wells Fargo Bank N.A. is in effect. 18 20 SELECTED CONSOLIDATED FINANCIAL DATA The Selected Consolidated Financial Data presented below has been derived from historical audited consolidated financial statements of the Company for each of the five years in the period ended December 31, 1996. The financial statements included elsewhere herein, at December 31, 1996 and 1995 and for the three years in the period ended December 31, 1996 have been audited by Deloitte & Touche LLP, independent auditors. The following data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Company's Consolidated Financial Statements and the Notes thereto.
YEAR ENDED DECEMBER 31, -------------------------------------------------------------- 1996 1995 1994 1993 1992 ---------- ---------- ---------- ---------- ---------- (Dollars in thousands, except per share data) INCOME STATEMENT DATA: Revenue............................ $ 65,762 $ 59,089 $ 41,158 $ 24,781 $ 18,833 Cost of revenue.................... 55,239 39,037 27,709 15,728 12,135 ---------- ---------- ---------- ---------- ---------- Gross margin....................... 10,523 20,052 13,449 9,053 6,698 Administrative expenses............ 19,749 15,609 8,265 5,469 4,311 Unusual item....................... 919 ---------- ---------- ---------- ---------- ---------- Operating (loss) income(1)......... (9,226) 4,443 5,184 2,665 2,387 Interest expense................... (2,377) (2,030) (1,832) (800) (209) Interest income.................... 52 440 22 57 ---------- ---------- ---------- ---------- ---------- (Loss) income before taxes......... (11,551) 2,853 3,374 1,865 2,235 Income tax benefit (expense)....... 4,741 (196) (1,260) (744) (965) ---------- ---------- ---------- ---------- ---------- (Loss) earnings before cumulative effect of change in accounting principle....................... (6,810) 2,657 2,114 1,121 1,270 Cumulative effect of change in accounting principle(2)......... (3,240) ---------- ---------- ---------- ---------- ---------- Net (loss) earnings................ $ (10,050) $ 2,657 $ 2,114 $ 1,121 $ 1,270 ========== ========== ========== ========== ========== PER SHARE AMOUNTS: (Loss) earnings before cumulative effect of a change in accounting principle....................... $ (0.76) $ .31 $ .37 $ .22 Cumulative effect of change in accounting principle............ (0.36) ---------- ---------- ---------- ---------- Net (loss) earnings per share...... $ (1.12) $ .31 $ .37 $ .22 ========== ========== ========== ========== PRO FORMA AMOUNTS(2)(3): Net earnings....................... $ 194 $ 1,675 $ 947 $ 1,313 ========== ========== ========== ========== Net earnings per share............. $ .02 $ .29 $ .19 $ .29 ========== ========== ========== ========== WEIGHTED AVERAGE SHARES OUTSTANDING(4)..................... 8,947,060 8,576,817 5,704,926 5,024,679 4,608,825 OTHER DATA: Ratio of earnings to fixed charges and preferred dividends(5)......... -- 2.19x 2.67x 3.00x 5.86x Research and development: Funded by the Company.............. $ 1,916 $ 1,419 $ 688 $ 376 $ 240 Costs incurred on funded contracts....................... $ 8,588 $ 4,722 $ 3,165 $ 1,813 $ 4,529
19 21
YEAR ENDED DECEMBER 31, -------------------------------------------------------------- 1996 1995 1994 1993 1992 ---------- ---------- ---------- ---------- ---------- (Dollars in thousands, except per share data) BALANCE SHEET DATA: Assets: Current assets..................... $ 48,010 $ 36,857 $ 20,594 $ 13,779 $ 9,616 Property and equipment............. 23,356 15,779 13,199 7,803 7,540 Deferred costs..................... 929 6,385 1,460 1,460 595 Intangibles........................ 10,964 11,455 12,164 3,517 169 Other.............................. 3,429 2,660 274 228 87 ---------- ---------- ---------- ---------- ---------- Total assets......................... $ 86,688 $ 73,136 $ 47,691 $ 26,787 $ 18,007 ========== ========== ========== ========== ========== Liabilities: Current liabilities................ $ 24,804 $ 15,788 $ 15,358 $ 5,570 $ 5,567 Long-term debt..................... 24,697 11,261 15,339 12,794 4,839 Other.............................. 345 345 369 ---------- ---------- ---------- ---------- ---------- Total liabilities.................... 49,501 27,049 31,042 18,709 10,775 Shareholders' equity(6).............. 37,187 46,087 16,649 8,078 7,232 ---------- ---------- ---------- ---------- ---------- Total liabilities and shareholders' equity............................. $ 86,688 $ 73,136 $ 47,691 $ 26,787 $ 18,007 ========== ========== ========== ========== ==========
- --------------- (1) The operating loss for 1996 is primarily due to expenses attributable to pre-contract development costs, the start-up costs of the ITS manufacturing facilities in Phoenix, Arizona and the United Kingdom and 16g Seat manufacturing facilities in San Diego, California and Chicago, Illinois, losses arising from research and development contracts for which the Company anticipates profitable follow-on contracts, increased research and development and the expenses of the administrative and sales infrastructure that will be necessary in 1997 to support manufacturing and the generation of sales of the ITS and 16g Seat. See "Risk Factors -- Recent and Anticipated Losses." (2) During the second quarter of 1996, the Company adopted a new method of accounting for pre-contract costs. These costs were previously deferred and recovered over the revenue streams from the Company's customers. Effective January 1, 1996, these costs have been expensed. Pro forma amounts for 1995, 1994 and 1993 assume the new accounting method is applied retroactively. The change in accounting would not have affected 1992. (3) Prior to the Company's April 1992 initial public offering, the Company was an S corporation for tax purposes. Pro forma net earnings and net earnings per share amounts for 1992 reflect pro forma tax provisions as if all income taxes for 1992 had been payable by the Company. (4) The Company effected a 3-for-2 split of its Common Stock on September 28, 1995. As a result, all shares and related references have been restated for all prior periods and transactions. (5) Ratio of earnings to fixed charges and preferred dividends is computed by dividing (i) earnings (loss) before income taxes plus fixed charges and preferred stock dividend requirements by (ii) fixed charges and preferred stock dividend requirements. Fixed charges consist of interest on indebtedness, amortization of debt issuance cost and the estimated interest component (one-third) of rental and lease expense. There were no preferred stock dividend requirements during the periods presented. Earnings were insufficient to cover fixed charges by approximately $11.6 million for the year ended December 31, 1996. (6) The Company has not paid any cash dividends since its April 1992 initial public offering. 20 22 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION GENERAL The following discussion and analysis provides information that the Company's management believes is relevant to an assessment and understanding of the Company's results of operations and financial condition for the three years ended December 31, 1996 compared to the same periods of the prior years. This discussion should be read in conjunction with the Consolidated Financial Statements and the Notes thereto included elsewhere in this Prospectus. This Prospectus contains certain forward-looking statements and information. The cautionary statements should be read as being applicable to all related forward-looking statements wherever they appear. The Company's actual future results could differ materially from those discussed herein. See "-- Forward Looking Information and Risks of the Business." OVERVIEW The Company designs and manufactures occupant safety systems and devices engineered to safeguard human life in a wide range of air, ground, and sea transportation vehicles. Utilizing its substantial proprietary technology in energy-absorbing seating, inflatable restraints, and composite materials, the Company focuses on reducing injury and increasing survivability in vehicle crashes. The Company's core historic business has been as a government contractor. Additionally, through recent acquisitions, the Company has become the largest North American-based supplier of seating systems for rail and other mass transit vehicles and a successful new entrant in the manufacture of new commercial airliner seating. Utilizing its proprietary safety technology, customer relationships, and manufacturing capacity expertise, recently enhanced through acquisitions, the Company has introduced crashworthy seating systems for a variety of aircraft, various inflatable restraint systems for automobiles, a bulkhead airbag system for commercial airliners, and two cockpit inflatable restraint systems for military aircraft. In 1993, management made a strategic decision to enter the commercial aircraft seating market to bring its proprietary energy-absorbing technologies to a new industry and take advantage of positive industry trends. To implement its decision the Company completed three acquisitions that allowed it to develop the necessary infrastructure to support future growth. In August 1993, the Company acquired Airline Interiors, Inc. (the "Airline Acquisition"), which was primarily involved with the refurbishment, reupholstery, reconditioning, and reconfiguring of existing passenger seats. The Airline Acquisition provided certain FAA certifications, enhanced the Company's management team and customer base, and provided substantial assembly capacity. During 1994, the Company acquired Coach and Car Equipment Corporation ("Coach and Car") and Artcraft Industries Corp. ("Artcraft"). The acquisitions of Coach and Car and Artcraft are collectively referred to as the 1994 Acquisitions. The 1994 Acquisitions' existing operations included providing a majority of all manufacturing and refurbishment of rail and mass transit seating systems in North America. The 1994 Acquisitions also provided the Company with substantial large-scale manufacturing capacity and synergies, which will be utilized in the production of its 16g Seat for airliners. The Company has taken advantage of the synergies between these three entities in the manufacture of rail and mass transit seating systems. The full strategic value of these businesses will not be realized until the Company begins large scale manufacturing of its 16g Seat. As a result of the size and timing of its acquisitions, the financial statements for the years 1996, 1995, and 1994 may not be directly comparable. Simula's revenue has historically been derived from three sources: sales of Company manufactured products; contract research and development for third parties; and technology sales and royalties. A substantial portion of its current revenue is accounted for under the percentage of completion method of accounting. Under this method, revenue is recorded as production progresses so that revenue less costs incurred to date yields the percentage of gross margin estimated for each contract. Overall gross margin percentages can increase or decrease based upon changes in estimated gross margin percentages over the lives of individual contracts. Note 18 of the Notes to Consolidated Financial Statements provides a break down of revenues for 21 23 each significant segment of the Company. Note 17 of the Notes to Consolidated Financial Statements provides the revenues and related costs associated with contract research and development for third parties. The Company is a holding company for wholly owned subsidiaries, including Simula Government Products, Inc., the principal entity conducting the Company's "Government and Defense" business, and Simula Transportation Equipment Corporation ("SimTec" -- formerly known as Intaero), an entity conducting the Company's commercial seating businesses. Other includes general corporate operations and subsidiaries engaged in technology development including Simula Automotive Safety Devices, Inc. ("Simula ASD") which was established in 1995 and conducts substantially all of the Company's operations encompassing inflatable restraints for automobiles. Through 1996, Simula ASD has not had significant revenue. RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, ------------------------------- 1996 1995 1994 ------- ------- ------- (Dollars in thousands) REVENUE: Government and Defense...................................... $32,312 $25,533 $22,034 SimTec...................................................... 32,603 29,609 18,093 Other....................................................... 847 3,947 1,031 ------- ------- ------- Total............................................... $65,762 $59,089 $41,158 ======= ======= ======= GROSS MARGIN: Government and Defense...................................... $ 9,253 $ 9,632 $ 8,652 SimTec...................................................... 3,740 7,537 4,944 Other....................................................... (2,470) 2,883 (147) ------- ------- ------- Total............................................... $10,523 $20,052 $13,449 ======= ======= ======= ADMINISTRATIVE EXPENSES: Government and Defense...................................... $ 7,897 $ 6,337 $ 5,114 SimTec...................................................... 10,068 6,885 2,775 Other....................................................... 1,784 2,387 376 ------- ------- ------- Total............................................... $19,749 $15,609 $ 8,265 ======= ======= ======= OPERATING (LOSS) INCOME: Government and Defense...................................... $ 1,356 $ 3,295 $ 3,038 SimTec...................................................... (6,328) 652 2,168 Other....................................................... (4,254) 496 (22) ------- ------- ------- Total............................................... $(9,226) $ 4,443 $ 5,184 ======= ======= =======
The following table sets forth, for the periods indicated, the components of the consolidated statements of income expressed as a percentage of revenues.
YEAR ENDED DECEMBER 31, ---------------------------------------- 1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- INCOME STATEMENT DATA Revenue................................................. 100% 100% 100% 100% 100% Cost of revenue......................................... 84 66 67 63 64 Gross margin............................................ 16 34 33 37 36 Administrative expenses................................. 30 26 20 22 23 Unusual item............................................ 4 --- --- --- --- --- Operating (loss) income................................. (14)% 8 % 13% 11% 13% === === === === ===
22 24 During the second quarter of 1996, the Company adopted a new method of accounting for pre-contract costs as more fully described in Note 2 of the Notes to Consolidated Financial Statements. Beginning in 1996, the Company now expenses these pre-contract costs as incurred rather than deferring these costs to be amortized over the revenue streams from the Company's customers. This change resulted in a cumulative catch-up adjustment for the effect of costs capitalized as of December 31, 1995. The effect of the change on the year ended December 31, 1996 was to increase cost of revenue by $5.3 million, resulting in an increase in the loss before cumulative effect of a change in accounting principle of $3.2 million ($.36 per share) net of the related income tax benefit. In addition, net income for year ended December 31, 1996 was reduced by $3.2 million ($.36 per share) for the cumulative effect on prior years (to December 31, 1995) of changing accounting for pre-contract costs. Assuming the change in accounting had been applied retroactively to the year ended December 31, 1995, cost of revenue would have increased $4.1 million to $43.2 million and gross margins would have decreased from 34% to 27%. See "Risk Factors -- Recent and Anticipated Losses." 1996 Compared to 1995 Revenue for the year ended December 31, 1996 increased 11% to $65.8 million from $59.1 million in 1995. Government and Defense revenue increased 27%, or $6.8 million as a result of increased contract activity principally resulting from an armor contract completed during the second quarter of 1996 and funded research and development. SimTec revenue increased 10%, or $3.0 million, primarily as a result of increased deliveries of the 16g Seats. Other revenue decreased principally as a result of a reduction of technology sales and royalties which approximated $2.0 million in 1995. Gross margin for the year ended December 31, 1996 decreased 48% to $10.5 million from $20.1 million for 1995. As a percent of sales, gross margin decreased to 16% from 34%. The effect of expensing pre-contract costs increased cost of revenue by $5.3 million for the year ended December 31, 1996. Excluding the effect of expensing pre-contract costs, the gross margin percentage for 1996 would have been 24%. Gross margin percentages of Government and Defense in 1996 decreased to 29% from 38%. The decrease in gross margin percentage at Government and Defense was primarily due to: 1) the expensing of pre-contract costs principally related to the bulkhead airbag ("BABS") which is anticipated to begin deliveries in 1997; 2) funding deficiencies incurred on funded research and development contracts which typically result in follow-on production contracts in future years; and 3) a decrease in royalties. The gross margin percentage at SimTec decreased to 11% from 25% in 1995. The decrease in gross margin percentage at SimTec was primarily due to: 1) the expensing of precontract costs principally related to the 16g Seat, including the related new "composite" seat back; 2) high material costs related to the low volume production of the 16g Seat; 3) reduced throughput at Coach and Car as it was repositioned to begin high volume manufacturing of 16g Seat components; and 4) lower individual gross margin percentages from the mix of contracts in process or completed during the year at Coach and Car and Artcraft. The negative gross margins of the Other category was primarily due to the expensing of pre-contract costs for the Inflatable Tubular Structure ("ITS") and certain start-up costs related to the production facilities in Arizona and the United Kingdom for the manufacture of the ITS which began shipments in March 1997. Administrative expenses for the year ended December 31, 1996 increased 27% to $19.7 million from $15.6 million for 1995. As a percent of sales, administrative expenses increased to 30% from 26%. Research and development expenses increased 35% to $1.9 million from $1.4 million as a result of the Company's increased investment in several products and developmental subsidiaries that are expected to begin generating revenue subsequent to 1996. Government and Defense administrative expenses increased 25% or $1.6 million primarily as a result of increased activity and increased research and development. SimTec's administrative expenses increased 46% or $3.2 million, primarily as a result of the corporate and sales infrastructure necessary to support the anticipated increase in activity related to the 16g Seat. Other administrative expenses decreased 25% or approximately $600,000, primarily as a result of the elimination or reduction of the supporting operations for certain technologies. For the year ended December 31, 1996, the Company incurred an operating loss of $9.2 million compared to operating income of $4.4 million in 1995. The reduction in operating income resulted primarily from the reduction in gross margins and increased administrative expenses noted above. Excluding the effect of expensing pre-contract costs during 1996, the operating loss would have been $3.9 million. This loss is 23 25 primarily due to the start-up costs of the ITS manufacturing facilities in Phoenix, Arizona and the United Kingdom and 16g Seat manufacturing facilities in San Diego, California and Chicago, Illinois, losses arising from research and development contracts for which the Company anticipates profitable follow-on contracts, increased research and development and the expenses of the administrative and sales infrastructure that will be necessary in 1997 to support manufacturing and the generation of sales of the ITS and 16g Seat. Interest expense for the year ended December 31, 1996 increased 17% to $2.4 million from $2.0 million for the year ended December 31, 1995. This increase is due to increased borrowings on the Company's bank credit facilities and the issuance of $14.3 million of Series C 10% Senior Subordinated Convertible Notes (the "10% Notes") in a private placement to accredited investors in September 1996. These borrowings were made to fund the growth in working capital and fixed assets necessary to support the anticipated growth in revenues in 1997. The effective income tax rate approximated the statutory rate of 40% in 1996. For 1995, the effective income tax rate was disproportionate at 7% primarily due to the realization of tax attributes of an acquired subsidiary. The effects of the tax attributes of this acquired subsidiary were substantially recognized in 1995. 1995 Compared to 1994 Revenue for the year ended December 31, 1995 increased 44% to $59.1 million from $41.2 million in 1994. Government and Defense increased 16%, or $3.5 million, as a result of increased contract activity including increases in funded research and development. SimTec revenue increased 64%, or $11.5 million, primarily as a result of the full year inclusion of the 1994 Acquisitions and the initial delivery of the 16g Seats. Other revenue increased principally as a result of technology sales and royalties of approximately $2.0 million in 1995. Gross margin for the year ended December 31, 1995 increased 50% to $20.1 million from $13.4 million in 1994. The increase is attributable to increased revenue noted above. As a percent of sales, gross margin increased to 34% from 33%. Gross margin percentages of Government and Defense in 1995 decreased to 38% from 39%. The gross margin percentage at SimTec decreased to 25% from 27% in 1994. The decrease for SimTec resulted from $2.4 million in losses recorded on contracts which were acquired in the acquisition of Artcraft. These losses were substantially offset by the full integration of the 1994 Acquisitions, which allowed the Company to increase its vertical integration, thereby eliminating several third party vendors. These benefits were offset to a certain extent by the acceleration of two low-margin contracts that were committed to by Coach and Car prior to its acquisition by the Company. The gross margin percentage of the Other category increased to 73% from a negative margin of (14%) in 1994 as a result of the technology sales and royalties. Administrative expenses for the year ended December 31, 1995 increased 89% to $15.6 million from $8.3 million in 1994. As a percent of sales, administrative expenses increased to 26% from 20%. Research and development expenses increased 106% to $1.4 million from approximately $700,000 as a result of the Company's increased investment in several products and developmental subsidiaries that are expected to begin generating revenue subsequent to 1996. Depreciation and amortization expenses increased 86% to $3.1 million from $1.7 million, primarily as a result of amortization relating to the 1994 Acquisitions. Government and Defense administrative expenses increased 24%, or $1.2 million, primarily as a result of increased activity and increased research and development. SimTec's administrative expenses increased 148% or $4.1 million, primarily as a result of the inclusion of the acquired companies for the entire 1995 period and the expansion of the corporate and sales infrastructure necessary to support the anticipated increase in activity related to the 16g Seat. Other administrative expenses increased 536%, or $2.0 million, primarily as a result of an increased investment in personnel and operations of the Company's developmental subsidiaries. Operating income for the year ended December 31, 1995 decreased 14% to $4.4 million from $5.2 million for the comparable period in 1994. Operating income decreased primarily due to the recording of losses on the contracts at Artcraft and increased administrative costs. These costs were substantially offset by the increased gross margins resulting from increased revenue. 24 26 Interest expense for the year ended December 31, 1995 increased by approximately $200,000 over the comparable period in 1994 as a result of a higher average debt balance in 1995. Additional debt was incurred to finance working capital requirements and assumed in connection with the 1994 Acquisitions. Approximately $8.2 million of debt was retired in the second quarter of 1995 with a portion of the proceeds of the Company's 1995 public offering. The effective income tax rate was approximately 7% for 1995 and 37% for 1994. The decrease in the effective tax rate in 1995 is attributable to the realization of tax attributes of an acquired subsidiary. The effects of the tax attributes of this acquired subsidiary were substantially recognized in 1995. Accordingly, management does not expect that the remaining tax attributes will have a significant impact on the Company's effective income tax rate in future periods. LIQUIDITY AND CAPITAL RESOURCES The Company has historically financed its operations through operating cash flow, lines of credit and debt and equity offerings. In August 1993, the Company began to acquire companies, primarily with borrowed funds. The Company issued $5.7 million of 12% Senior Subordinated Notes (the "12% Notes") in connection with the acquisition of Airline Interiors in August 1993; the Company issued approximately $6.5 million of 9% Senior Subordinated Convertible Notes (the "9% Notes") in connection with the acquisition of Coach and Car in June 1994; and the Company issued Common Stock and assumed a bank line of credit of $1.7 million, of which $650,000 was repaid simultaneously with the closing, in connection with the acquisition of Artcraft in September 1994. But for the acquisitions, the Company would have been able to satisfy its financial needs through operating cash flow. These acquisitions resulted in substantially increased working capital needs to fund the large vendor payable balances, contract advances of Coach and Car existing at the date of acquisition, and the increase in receivables and inventories of all the acquired companies after the respective dates of acquisition. In addition, restrictive covenants under the Company's then existing bank line of credit required the Company to seek alternative financing. In September 1994, prior to the closing of the Artcraft acquisition, the Company obtained an aggregate of $6.2 million of financing from three non-bank lenders, including $2.0 million from the Company's Chairman. The 9% Notes were converted into Common Stock during 1994. The Company completed a public offering of Common Stock, which closed and funded in April 1995. As a result of this offering, 2,328,750 shares were sold by the Company at $12 per share. Approximately $8.2 million of indebtedness was repaid at that time, including the $6.2 million described above. In September 1996, the Company issued $14.3 million of the 10% Notes in a private placement to accredited investors. The 10% Notes bear interest at 10% payable semi-annually and are due in September 1999. At the date of issuance, the 10% Notes were convertible into Common Stock of the Company at 103% of the average closing price of the Company's Common Stock as quoted on the New York Stock Exchange for the 10 consecutive trading days immediately preceding notice by the individual holder fixing the conversion price. Based upon the conversion prices fixed prior to December 31, 1996 and the average market price of the Company's Common Stock for the 10 days ended December 31, 1996 for the 10% Notes not yet fixed, the 10% Notes would be convertible into approximately 930,000 shares of the Company's Common Stock. At the date of issuance, the Company had the right to call the 10% Notes at par plus accrued interest through the date of redemption any time after June 15, 1997 and earlier under certain circumstances. The indenture relating to the 10% Notes and the 12% Notes contains certain covenants including limitations on the incurrence of additional indebtedness, limitation on sale of assets, transactions with affiliates, and restricted dividend payments. In accordance with the indenture, the Company may incur indebtedness based upon the specified ratio of cash flow, as defined, to interest expense. All of the Company's 1996 borrowings, including the availability under the Company's line of credit, are allowable borrowings under the terms of the indenture. As of December 31, 1996 the Company was in compliance with all covenants of the indenture. Subsequent to December 31, 1996, the Company undertook to obtain the consent of the holders of the 10% Notes and the 12% Notes to amend the indenture to eliminate the covenants limiting the incurrence of additional indebtedness and making certain dividend payments, to allow the Company greater flexibility with 25 27 future financings consistent with the Company's growth. Consistent with the procedures under the indenture, effective March 14, 1997, the Company obtained the consent of in excess of the majority of the principal amount of such Notes and by act of the Company and the trustee under the indenture, the amendments eliminating these covenants were adopted. The Company was in compliance with all of the covenants on the effective date of the amendment. In consideration for the consent of the holders of the 10% Notes, the 10% Notes were amended to change the conversion ratio from 103% to 98% or reduce the conversion price for the 10% Notes previously fixed by $.75 per share. In addition, the Company's optional redemption date was extended from June 15, 1997 to December 15, 1997 and certain fees to be paid to the holders of the 10% Notes were eliminated. Based on the revised terms of the 10% Notes and the average market price of the Company's Common Stock for the 10 days ended December 31, 1996, the 10% Notes would be convertible into approximately 975,000 shares of the Company's Common Stock. In 1996 and 1997, the Company entered into modifications of its existing loan agreement with Wells Fargo Bank, N.A. These modifications provided for an increase in the existing revolving line of credit to $20 million and $1.5 million of availability for equipment purchases. The modified agreement contains a covenant that limits the Company's ability to incur additional indebtedness. Specifically, the modified agreement allows the Company to incur up to $65.0 million of subordinated debt, a foreign loan facility of $5.0 million, computer equipment financing and certain refinancing indebtedness. In addition, the modified agreement contains certain covenants that require the maintenance of various financial ratios, including minimum tangible net worth, as defined, of $45.0 million, a maximum leverage ratio, a minimum current ratio of 1.5 to 1 and a minimum debt coverage ratio. As of December 31, 1996 the Company was in compliance with all covenants. The Company's liquidity is greatly impacted by the nature of the billing provisions under its government contracts. Generally, in the early period of contracts, cash expenditures and accrued profits are greater than allowed billings while contract completion results in billing previously unbilled costs and profits. Contract receivables increased $4.1 million for the year ended December 31, 1996 principally due to the timing of billings, increased volume at Coach and Car and the reduction of advances on contracts at Coach and Car and Artcraft. Operating activities required the use of $15.6 million of cash during the year ended December 31, 1996 compared to the use of $14.5 million of cash during 1995. This resulted primarily from significant investment in research and development expenses, pre-contract costs and plant start-up costs, including the associated general and administrative costs, all of which have been expensed, for products the Company will not begin to ship in substantial quantities until 1997, the working capital required for the reduction in advances on contracts noted above and the funding of the $7.0 million investment in inventories primarily at SimTec and Government and Defense. The increase in inventories at SimTec primarily represents the buildup necessary to support anticipated future deliveries of the 16g Seat. The increase in inventories at Government and Defense represents inventory necessary to support certain programs which require the buildup of components necessary to support rapid deliveries of various configurations of seats. In addition, both SimTec and Government and Defense have purchased inventory in larger quantities to reduce per unit costs. Investing activities required the use of $9.3 million of cash during the year ended December 31, 1996 primarily for the purchase of equipment for the Company's new ITS manufacturing facilities in Phoenix, Arizona and the United Kingdom, manufacturing equipment for the 16g Seat and computer and test equipment at Government and Defense. For 1995, cash used by investing activities was $3.4 million and was expended primarily for the acquisition of property and equipment. Financing activities provided $23.0 million of cash during the year ended December 31, 1996, of which $6.9 million resulted from borrowings on the revolving credit facility primarily for working capital needs and $3.2 million resulted from borrowings on the equipment credit facility for the financing of fixed assets. In addition, the Company issued the 10% Notes in September 1996. Cash provided by financing activities for 1995 was $20.1 million and primarily resulted from the sale of the Company's Common Stock for $26.4 million offset by the net reduction of borrowings of $6.3 million. 26 28 Included in current portion of long-term debt is a mortgage of $2.6 million on one of the Company's facilities that is due in March 1998. The Company is currently pursuing various alternatives for this property and believes it will be able to repay or refinance the mortgage on a long term basis prior to its maturity. The Company believes it has sufficient manufacturing capacity, at December 31, 1996, to meet its estimated 1997 delivery requirements. The Company anticipates cash provided by operating activities and the availability under its bank credit facilities will be sufficient to meet its current working capital requirements. The Company believes that the net proceeds of this offering will be sufficient to fund purchases of property and equipment and future working capital requirements necessary to address the anticipated growth of demand and markets for its new technologies and products for the next 18 months. The Company may, however, seek to obtain additional capital. The modification to the indenture noted above will allow the Company more flexibility in pursuing financing alternatives. The raising of additional capital in public markets will be primarily dependent upon prevailing market conditions and the demand for the Company's technologies and products. The net proceeds of this offering will be used to expand existing manufacturing facilities, primarily for the manufacture of aircraft and rail seating systems and components related to the Company's automobile inflatable restraint systems, working capital requirements attendant to growth in markets and revenues and other general corporate purposes, including potential future acquisitions. INFLATION The Company does not believe that it is significantly impacted by inflation. RESEARCH AND DEVELOPMENT The Company's research and development occurs primarily under fixed-price, government-funded contracts as well as Company-sponsored efforts. The revenue received under government-funded contracts is recorded under the percentage completion method of accounting, and the costs of independent research and development efforts are expensed as incurred. Historically, research and development efforts have fluctuated based upon available government-funded contracts. The Company anticipates that future fluctuations may also occur and that absent government funded research, the Company will directly fund research and development efforts to expand its inflatable restraint, commercial airliner seating, and rail seating technologies. As noted in Note 17 to the Consolidated Financial Statements, the Company's costs for research and development to advance its technologies were $10.5 million in 1996. SEASONALITY The Company's operations and financial results are affected by the seasonal variations in deliveries by suppliers. Historically, the Company has experienced its highest level of deliveries of materials in the fourth quarter and its lowest level of deliveries in the first quarter. Accordingly, for those contracts accounted for under the percentage of completion method, the Company has historically recorded its highest revenue in the fourth quarter and lower revenue in the first quarter. FORWARD LOOKING INFORMATION AND RISKS OF THE BUSINESS During fiscal 1997 the Company will enter large scale production of the ITS and 16g Seats and expects to complete roll-out of other new products, including CABS, BABS, and IBAHRS. The Company expects that in late 1997 and in 1998, it will begin to realize significant revenues from the introduction of these products. The other core businesses of the Company are expected to remain at current revenue and profit levels. Projected operating results and capital needs will be affected by a wide variety of factors which could adversely impact revenues, profitability and cash flows, many of which are beyond the control of the Company. The factors include the Company's ability to design and introduce new products on a timely basis; market acceptance and demand of both the Company's and its customers' products; success in building strategic alliances with large prime contractors and first tier suppliers; the level of orders which are received and can be 27 29 shipped and invoiced in a quarter; customer order patterns and seasonality; levels of accounts receivable; changes in product mix; product performance and reliability; product obsolescence; availability and utilization of manufacturing capacity; fluctuations in manufacturing yield; the availability and cost of raw materials, equipment, and other supplies; the cyclical nature of the airline, rail and automobile industries and other markets addressed by the Company's products; the level and makeup of military expenditures; technological changes; competition and competitive pressures on pricing; and economic conditions in the United States and worldwide markets served by the Company. The Company's products are incorporated into a variety of transportation vehicles. A slowdown in demand for new transportation vehicles or modifications services to transportation vehicles as a result of economic or other conditions in the United States or worldwide markets served by the Company and its customers or other broad-based factors could adversely affect the Company's operating results or financial condition. 28 30 BUSINESS OVERVIEW The Company was formed in 1975 when its founder accepted a government research contract to focus on engineering solutions that could be used to protect the lives of American helicopter crews in crash situations. Because of the rotary blade utilized by helicopters, helicopter pilots cannot eject in the same manner as pilots in fixed-wing aircraft. The contract led to the Company's development of a crashworthy seat, first introduced in the Army Blackhawk helicopter. The core technology developed under the Company's first contract was energy-absorbing seating which, upon impact, absorbs shock that otherwise would be directed onto the occupant. In the course of supplying the United States armed forces and agencies with crashworthy seating, the Company performed years of research and tests and developed proprietary databases with respect to how materials stretch, bend, and break. Similarly, in an effort to provide additional protection for pilots, the Company conducted extensive research and development in the late 1970s on armor systems composed of a variety of lightweight, high-strength composites and ceramics. Such lightweight armor systems were eventually incorporated into most helicopter seating systems. This armor technology has also led to the development of a variety of other armor and occupant protection systems. In the 1980s, the Army asked the Company to develop a solution to injuries suffered by pilots caused by contact with instrumentation on hard landings or during crashes. From its extensive research, the Company developed its inflatable restraint systems, which include harnesses, belts, and other types of sophisticated airbags. The Company has leveraged this evolving research and development into applications in a variety of technologies and products. The Company, through its 11 operating subsidiaries, conducts operations in three principal market segments: commercial transportation seating systems, government and defense, and automobile safety systems. Operations can be described in three phases: (i) providing contracted research and development activities to third parties to solve specific safety related issues and undertaking Company funded research to expand existing technologies to new applications, (ii) leveraging such research into advanced, high-performance, cost-efficient product solutions to influence market preferences in a wide range of applications and industries, and (iii) manufacturing, selling, and marketing such products. OPERATING AND GROWTH STRATEGY The Company's strategy is to maintain its leading position in creating and applying proprietary technologies and advanced solutions to safety related problems and to develop its products for commercial sale to a wide range of customers. The key elements in executing this strategy are to (i) develop and utilize technology to enhance current products and create new products, (ii) focus on new product markets and regulatory requirements, (iii) expand manufacturing capabilities and maximize internal synergies, and (iv) pursue acquisitions and strategic alliances that complement existing businesses or provide manufacturing or distribution opportunities. TECHNOLOGY AND PRODUCT DEVELOPMENT The Company focuses on the development of technologically advanced, high-performance, cost-efficient solutions to influence existing markets to move in new directions or create entirely new markets. The Company's growth strategy is "engineering-driven," taking technologies learned, developed, and refined in one arena, and applying them to another sector. Management's objective is to selectively identify and manage engineering solutions to create market opportunities rather than allow the Company's current product base to define the Company's markets. The Company believes that its competitive advantage is technology and innovation. The Company employs approximately 150 engineers and scientists and maintains an active research and development program to enhance its existing products and to develop new products and product applications. The Company has a substantial data base, available to its biomechanical engineers, based on which analysis is made regarding human body dynamics in crash environments. Additionally, the Company's proprietary technologies are embodied in numerous trade secrets, 13 patents, and 35 patents pending. The 29 31 Company enhances and supports products by the development of a compatible family of products, such as its various inflatable restraint technologies designed into four automobile applications and three aircraft applications. The Company seeks to pursue a diverse technology and product base that minimizes dependence on one or a few products and technologies. See "Risk Factors -- Investment in and Dependence on Proprietary Technology." MARKET AND REGULATORY FOCUS The Company endeavors to demonstrate the technological feasibility of new standards, provide the basis for new regulations, and utilize its technological expertise to develop and introduce products that meet these new standards and regulations ahead of its competitors. The Company seeks to remain at the forefront of industry developments by being proactive in developing industry trends and regulatory guidelines. The Company's long-standing involvement with governmental departments and agencies facilitates its ability to anticipate regulatory safety requirements and consumer safety issues and to develop products that address these concerns. In this regard, the Company authors the "Aircraft Crash Survival Design Guide," a five-volume text published by the United States Army regarding crash survival technology, which is commonly used worldwide as a guide in the design of crashworthy aircraft. The Company also co-authored "The Transport Seat Performance and Cost Benefit Study," a study commissioned by the FAA to analyze the performance of seats in commercial airliner accidents. This study, which was first published in October 1986, was cited as a principal consideration in the FAA's changes in commercial airliner seat design specifications. The Company also owns and operates the International Center for Safety Education ("ICSE"), a Phoenix-based training school established in 1958 that sponsors courses which have been attended by more than 5,000 safety investigators from United States and foreign government agencies, armed services, the aircraft industry, and the field of aviation medicine. The function of ICSE is to teach the analysis of aircraft behavior in a crash, the causes of injury or death to passengers and crew, and the design and structural changes that can be made to improve survivability. See "Risk Factors -- Government Safety Regulations." EXPANDING MANUFACTURING CAPABILITIES AND MAXIMIZING INTERNAL SYNERGIES The Company seeks to maintain integrated testing and manufacturing capacity for its products; however, the Company may also subcontract certain non-proprietary components of its products and provide its proprietary products for integration and sale in the final products of customers. Over the last three years, the Company has significantly expanded its manufacturing capabilities and infrastructure, through both acquisitions and internal development, to support the commercial production of several new product lines. In addition, the Company has vertically integrated the manufacturing of several components used in its seating systems, which has positively impacted overall profitability. The Company expects to continue to expand its manufacturing capabilities, to develop its infrastructure to support its new product development programs, and to enter into licensing relationships to facilitate the distribution of its products. See "Risk Factors -- Production Risks and Manufacturing Experience" and "Risk Factors -- Dependence on Industry Relationships." EXPLORING ACQUISITION AND STRATEGIC ALLIANCE OPPORTUNITIES The Company explores acquisition opportunities as they arise and enters into strategic alliances when it believes such acquisitions or alliances will enable the Company to introduce new products or enhance existing products, to exploit its technologies or acquire complementary technologies, to improve its manufacturing capabilities, to broaden its distribution channels, or to obtain components or supplies necessary for its products. In its last three fiscal years, the Company has experienced substantial growth resulting from strategic acquisitions to maximize the market potential of new technologies, wider application of technologies, and new product introductions. The Company has no present commitments or agreements with respect to any additional acquisitions or alliances. See "Risk Factors -- Acquisitions." OVERVIEW OF MARKET SEGMENTS AND INDUSTRIES The Company believes that the entire transportation market is poised for transformation as society's awareness of safety issues increases. The Company seeks to position itself to benefit from consumer demand 30 32 and government regulations requiring progressive safety equipment on all forms of transportation, from automobiles and aircraft, to school buses and high speed trains. COMMERCIAL TRANSPORTATION SEATING Airliner Seating Systems. At the end of 1995, there were approximately 11,000 passenger aircraft in operation worldwide, representing over 2.0 million passenger seats. A study conducted by the Boeing Commercial Airplane Group projects that 3,142 new passenger aircraft will be put into service during the next five years, replacing 1,532 older aircraft and adding 1,610 additional aircraft to airline fleets. The study further projects that 14,054 aircraft will be manufactured and put into service over the next 20 years, representing over 3.2 million passenger seats. Historically, annual production of new aircraft seats has been between 120,000 and 130,000 worldwide, exclusive of repaired and refurbished seats. The Company believes that the recent growth of the airline industry, with the resulting increase in passenger miles flown and the recent trend toward installation of communication and entertainment systems in aircraft seats, will increase demand for new seats. Additionally, there has been a recent significant consolidation in the new seat industry, which the Company believes will benefit it because of the desire of airlines to have a broader supplier base. Although the Boeing study did not include refurbished seats, the Company also believes that the demand for refurbished aircraft seats will grow as the airline industry expands and new airlines purchase used aircraft. Additionally, demand for both new and refurbished aircraft passenger seats may further increase as new regulations are adopted or enforced that raise the standards for crashworthiness in light of recent heightened attention to airline safety and FAA initiatives. For example, the continued phase-in of FAA standards requiring airliner passenger seats to withstand the force of 16g's (16 times the force of gravity) in a crash is expected to create increased demand for new aircraft seating systems meeting such requirements. Similarly, in 1988, the FAA adopted regulations requiring that all passengers on an aircraft have a certain specified level of head injury protection, as measured by Head Injury Criteria ("HIC"). Presently, most commercial aircraft certificated since the adoption of the FAA regulations are flying under waivers granted by the FAA because such aircraft do not meet the HIC criteria for passengers sitting immediately behind bulkheads and other cabin partitions. The Company believes that the FAA waiver policy will be reviewed and updated, thus creating an increased demand for installation of inflatable bulkhead restraints on commercial aircraft to improve the safety of passengers. See "Risk Factors -- Government Safety Regulations." The FAA initiatives, and the resulting products of the Company focusing on 16g seats and bulkhead HIC standards, are intended to address injuries in "survivable" crashes. According to NTSB statistics, there were 2,211 aviation accidents in the United States in 1995. Scheduled commercial, commuter, and charter airlines were involved in 145 of such accidents, 20% of which had some fatalities and 80% of which resulted only in injuries. Of these injuries, approximately 80% were to passengers and 20% to the crew. Common causes of aircraft accidents include overruns, hard landings, and ground collisions with objects. These survivable accidents, which have historically resulted in injuries, are the type for which the Company's products increase safety and reduce the risk or severity of injuries on commercial airliners. Rail and Mass Transit Seating. The rail and mass transit industries are undergoing significant changes, including growth in ridership and upgrading of fleets. Demand for rail and mass transit seating results from the traveling public's desire for safety and comfort as well as new laws and regulations, such as the new safety regulations recently proposed by the Federal Railroad Administration, the Clean Air Act Amendments of 1990 and the Americans with Disabilities Act, which require that transit authorities and rail operators purchase new, upgrade, or retrofit existing equipment. The Company believes that the United States bus industry will purchase over 13,000 new buses between 1995 and 1998 and that railcar-purchasing agencies will purchase up to 3,500 rail and mass transit cars during the same period. Rail and mass transit seat manufacturers may also potentially benefit from the development of lighter weight and high-speed rail systems in North America. 31 33 GOVERNMENT AND DEFENSE The Company believes that the United States government will continue to fund a significant defense budget and will increasingly support high technology and safety improvements. In part as a result of a shifting focus on tactical weaponry designed to meet the needs of a military primarily adopting a containment defense posture, certain strategic programs, such as the Stealth B-2 Bomber and the MX missile, have been cut or eliminated, while government contract revenue for containment, mobile, and tactical programs has increased. Certain technical military aircraft programs in which the Company is involved, such as the Black Hawk helicopter, C-17 utility air transport, and Apache attack helicopter, continue to be funded. The Company expects that pilot and passenger safety will continue to be a critical part of these and other programs, although no assurances can be offered in this regard. As part of the shifting focus of the military, defense forces are more mobile than ever before, with the United States and many foreign governments placing greater emphasis on transportation safety. The United States is widely regarded as the world leader in military safety and technology development, and expenditures in these areas are expected to continue in the future as military forces become increasingly mobile. The Company believes that there will be continued government spending on and demand for military safety technology products, such as advanced energy-absorbing seating, lightweight armor systems, and inflatable restraints. See "Risk Factors -- Substantial Reliance Upon Major Customers." The Company regards its reputation and relationship with various military branches and regulatory agencies throughout the world, including the FAA, National Highway Traffic and Safety Administration ("NHTSA"), National Aeronautics and Space Administration ("NASA"), and the National Transportation Safety Board ("NTSB") to be a significant asset and intends to continue to pursue government-funded research and development when it can retain proprietary rights. The Company intends to continue to expand its government business; however, this segment's revenue has declined as a percentage of overall Company revenue as demand for the Company's commercial products has steadily increased. AUTOMOBILE SAFETY SYSTEMS Demand for automobile safety products results primarily from government regulations and consumer demands. One regulation, adopted in 1984 by NHTSA, provided the impetus for the development of the airbag market in the United States by requiring installation of passive restraints in all new cars sold after 1989. Passive restraints typically consist of either frontal airbags or passive seat belt systems. Applicable 1991 regulations require the use of airbags for both sides of the front passenger compartment of all new cars sold in the United States by the 1998 model year. Frontal impact is the leading cause of automobile injuries and third leading cause of automobile fatalities, accounting for approximately 51% of all injuries and 31% of all fatalities in automobile collisions. See "Risk Factors -- Government Safety Regulations." Consumer demand has outpaced regulation as the primary impetus for the growth of the airbag market. According to publicly available automotive industry data, in the 1989 model year, only 7% of the automobiles produced in the United States included an airbag. This percentage increased to 28% in 1990, 42% in 1991, 59% in 1992, and 71% in 1993. Industry sources estimate that standard driver's side airbags were installed in approximately 90% of 1995 model year automobiles sold in the United States and, to a lesser extent, overseas. This high degree of penetration has been achieved in advance of the regulatory deadline as a result of consumer demand. Side-impact collisions comprise the second leading cause of injury and the leading cause of fatalities, accounting for approximately 25% of all injuries and 34% of all fatalities, which occur in automobile collisions, with a significant majority of such injuries caused by impact to the head and neck. Present United States side-impact safety standards address the use of foam padding and/or structural beams. However, NHTSA is currently examining head crash standards, measured in quantifiable HICs for side-impact collisions. Rollover injuries are the third leading cause of injury and second leading cause of fatalities, accounting for approximately 15% of all automobile injuries and 33% of fatalities. The Company's ITS is the only available product designed specifically to protect the head and neck of vehicle occupants in side-impact collisions and 32 34 potentially provide containment of occupants in rollover and secondary impact collisions. See "Inflatable Restraint Systems -- Automobile Inflatable Restraint Systems." EMERGING TECHNOLOGIES The Company believes that regulatory mandates and consumer demands will continue to drive the demand for advanced safety products and technologies, creating opportunities for the development of new technologies and products and providing additional markets for existing technologies. The Company believes that included among the products and technologies with significant present or future market potential in which the Company is developing capabilities are (i) sensor equipment for the deployment of airbags, (ii) remote sensing devices programmed to analyze the failure characteristics of vehicles and structures, (iii) advanced lightweight composite materials, and (iv) other advanced materials, such as urethanes and polymers, with a wide variety of potential product applications, including high-performance windows for aircraft and automobiles, and protective lenses and visors. THE COMPANY'S PRODUCTS AND EMERGING MARKETS The Company's growth to date has resulted principally from its core products and technologies involving energy-absorbing seating systems, armor, and seat repair and refurbishment. More recently the Company has introduced new products. The following table shows each of the Company's products currently in production and each of the products the Company expects to commence delivery of on the rollout schedule indicated. PRODUCT AND TECHNOLOGY STATUS
PRODUCT/TECHNOLOGY STATUS PRODUCT ROLLOUT - ----------------------------------------- ------------------------------- ---------------------- Energy Absorbing Seating Systems -- Military.................... In Production 1975 -- On-going Composite Armor.......................... In Production 1985 -- On-going Airliner Seat Repair and Refurbishment... In Production Acquired 1993 -- On-going Rail and Transit Seating................. In Production Acquired 1994 -- On-going New 16g Airliner Seats................... In Production 1996 -- On-going Inflatable Tubular Structure............. In Production 1997 Bulkhead Airbag System................... Certified/Ready for Production 1997 Cockpit Airbag System.................... Ready for Production 1997 Inflatable Body and Head Restraint System................................. Ready for Production 1997
SEATING SYSTEMS AND COMPONENTS Military Aircraft Seating Systems. The Company has been a major supplier of energy-absorbing seating systems for military helicopters and other military aircraft to various branches of the United States armed forces and their prime defense contractors for more than 20 years. The seating systems focus on reducing injury and increasing survivability in crashes involving aircraft. These crashworthy seating systems contain proprietary energy-absorbing components and devices that activate upon crash impact to absorb shock that otherwise would be absorbed by the seat occupant. Based on publicly available information and industry sources, the Company believes that it is the leading provider of crashworthy helicopter seats purchased by the United States armed forces, being the sole supplier for 11 helicopter programs. Military aircraft for which the Company has designed and manufactured seat assemblies for pilots, flight crews, troops, or SONAR operators include the AH-64A Apache attack helicopter; UH-60A Blackhawk transport and cargo helicopter; SH-60B Sea Hawk reconnaissance helicopter; SH-3 Sea King utility helicopter; CH-53 Sea Stallion transport and cargo helicopter; V-22 Osprey tilt-roar aircraft; Indian Hindustan Aeronautics, Ltd. ALH utility helicopter; and C-17 fixed wing utility aircraft. 33 35 Aircraft manufacturers in the Company's customer base include the Boeing Company, McDonnell Douglas Corporation, and Sikorsky Aircraft. Commercial Airliner Seating Systems. The Company, through its wholly owned subsidiary Airline Interiors, manufactures and sells commercial airline seating systems that comply with FAA-mandated 16g standards for airline seats ("16g seats") and repairs, refurbishes and retrofits existing commercial aircraft seats. With the acquisition of Airline Interiors in 1993, the Company obtained FAA certifications and an established customer base of commercial airlines as well as the operations to repair, refurbish, and retrofit commercial aircraft seats. The Company's entrance into the airline seating market is an outgrowth of both the Company's technologies and Airline Interiors' traditional core business -- the repair, refurbishment, and retrofitting of commercial aircraft seats. The 16g Seats are designed to absorb 16 times the force of gravity upon impact. The prices and features of the Company's new 16g Seats are competitive with more established 16g seat suppliers, but exceed existing and currently anticipated industry and regulatory standards for crashworthiness. The Company's 16g Seats have been tested, approved, and certified for use in numerous classes of commercial aircraft. The Company's customer base for its 16g Seats includes Air Transit, The Boeing Company, GATX Leasing, International Leasing Finance Corp., Onur Air, Flying Colors Airlines, and two major U.S. carriers. In the first quarter of 1997 the Company has received more than $25 million in orders and follow-on options and currently has in excess of $65 million in bid proposals outstanding for proposed seating contracts with international, national, and regional airlines. There can be no assurance, however, that the Company will be awarded these or other outstanding bids. See "Risk Factors -- Entry into New Markets," "Risk Factors -- Competition," and "Business -- Overview of Markets and Industry -- Commercial Airliner Safety Systems." The Company also repairs, refurbishes, and retrofits existing commercial aircraft seats. Its services include (i) the supply of seat components, including upholstery, cushioning, and fiber blocking; (ii) the overhaul and modification of seat assemblies, including arm rests and tray tables; and (iii) the design and integration of communication and entertainment systems into aircraft seats. Customers of Airline Interiors for such services include America West Airlines, Continental Airlines, Southwest Airlines, and United Airlines. The Company believes that various developments in the airline industry may increase the demand for new energy-absorbing seats and for the repair, refurbishment, and retrofitting of existing airliner seats. These factors include the potential for increased federal regulation requiring improvements in passenger seat crashworthiness, increased safety concerns by passengers, the growth of airline travel, restructurings and reorganizations of air carriers, the need to reconfigure and upgrade existing aircraft interiors, the delivery of new aircraft, and the growth of demand for communications and entertainment features in aircraft seats. Rail and Other Mass Transit Seats. The Company's acquisition of Coach and Car and Artcraft in 1994 brought to the Company an established seat manufacturing identification, contract backlog, and additional manufacturing capacity for airline seats. In addition to these synergies with Airline Interiors and its seat technology, the Company became, and continues to be, the leading North American provider of seating systems for rail and other mass transit vehicles. Through an integrated design, development, and production capability, the Company supplies seating in a variety of styles, materials, colors, configurations, and optional features. The Company produces stainless steel, plastic, and fiberglass seating systems for subways, cushioned and upholstered seating for other mass transit vehicles, and deluxe recliners for railroad cars. The seating systems feature lightweight construction; ease of installation and maintenance; vandal resistant, durable, and long-lasting components; reinforced structures for superior strength and support; fire and smoke resistance; sound and energy absorption; and passenger safety and comfort. Customers include Amtrak, ABB Traction, Inc., Bombardier, Inc., Amerail (formerly Morrison Knudsen Corporation), Siemens Duewag Corporation, Kawasaki Rail Car, Inc., and the metropolitan transit authorities in major North American cities. The Company believes that additional opportunities exist in its seating business as a result of the need to expand and modernize mass transit systems across the United States, the Company's pursuit of international business, and potentially the application of various aspects of the Company's energy-absorption and other safety technologies to rail and other mass transit vehicles, including high-speed trains. 34 36 INFLATABLE RESTRAINT SYSTEMS The Company developed its core inflatable restraint technology in the 1980s under a contract with the United States government and, commencing in late 1997, will use this technology to manufacture an inflatable body and head restraining system ("IBAHRS") for military helicopter crew members. As customary with government contracts, the Company retained the proprietary commercial rights to the IBAHRS technology and has expanded and developed such technology into numerous other applications in various products and industries. As an outgrowth of IBAHRS, the Company currently produces or is developing four types of inflatable restraint systems for automobiles and three systems for commercial and military aircraft. Automobile Inflatable Restraint Systems. The Company developed, patented, and is manufacturing an automobile inflatable restraint system known as the inflatable tubular structure ("ITS"). The ITS occupies a stored position above a side window and inflates upon impact to extend diagonally across the side window, which provides protection against head and neck injuries from side-impact collisions. An automobile may be equipped with an ITS at each side window. The Company's ITS technology comprised two of the 36 finalists out of 4,000 technology entrants submitted for Discovery Magazine's 1996 "Technology of the Year Award." The ITS provides protection in certain side-impact collisions beyond that provided by conventional airbags currently utilized in automobiles. Unlike a conventional airbag, which must be trapped by a structure such as a steering wheel, dashboard, or door, the ITS is attached to and supported by the structure of the vehicle frame and door pillars. During a side-impact crash, a tube located above the door inflates and becomes shorter in length, which causes it to drop out of its molding and form a tight diagonal structure across the side window. As a result, the ITS provides protection despite the window being open or breaking upon impact, while a conventional airbag would not have adequate support in these situations. Therefore, the ITS is able to substantially reduce head rotation to the side, preventing contact with vehicle components. Additionally, the diagonal arrangement of the activated ITS offers protection for occupants of different sizes, weights, and seating positions, and in different types of side-impact collisions, as well as in rollover, secondary impact, and ejection situations. Recent tests have shown that a side-impact collision at approximately 30 miles per hour with a combination of the most extensive safety protection systems available in 1996 model automobiles (consisting of a seat belt and shoulder harness along with conventional frontal and side impact airbags) results in a HIC of about 1500, which is an impact sufficient to cause a fatal injury to the vehicle occupant. Conversely, tests performed under the same conditions with the addition of an ITS resulted in a HIC of only approximately 560, which, barring injury to other parts of the anatomy not addressed by the ITS, would allow the occupant to survive the crash. The Company has developed various additional applications for the ITS. Through different configurations, the ITS provides protection to other parts of the body and in other types of collisions. Such applications include the inflatable tubular cushion ("ITC"), a seat mounted torso protection system, the inflatable tubular bolster ("ITB"), a system to protect knees and legs, and the inflatable tubular torso restraint ("ITTR") which utilizes the ITS in an inflatable restraint harness and seat belt application. The Company, through Autoliv GmbH, is providing the ITS to BMW, a major European automobile manufacturer, for inclusion in certain models of its automobiles to be delivered in 1997. The Company also has agreements with a first tier auto supplier to provide ITS to a second automobile manufacturer and to provide a different application of the ITS technology to an automobile manufacturer. The Company has a low-volume production facility in Phoenix and a high-volume European manufacturing plant, located in Northumberland County in the northeast of England. Alone and with Autoliv GmbH, Morton International, and other first tier component suppliers, the Company is actively pursuing ITS and other product applications with other automobile manufacturers. The Company has entered into strategic alliances with these first tier component suppliers because the Company is able to leverage off of the size and industry strength of such large manufacturers and benefit from their market contacts. Further, such relationships facilitate the marketing and distribution of the ITS and related products through the combined marketing and manufacturing efforts of the Company and the strategic partners. 35 37 Although the first tier component suppliers produce airbag products, the ITS and related technologies are unique proprietary products and not mere auto part commodities as are most forms of traditional airbags. The distinction between the ITS and traditional airbags recently has been highlighted by the increased governmental and public scrutiny of the effectiveness and possible risks associated with traditional airbags. There can be no assurance, however, that the Company will be successful in its efforts to expand the markets for ITS and other product applications. See "Risk Factors -- Entry into New Markets" and "Risk Factors-- Dependence on Industry Relationships." Aircraft Inflatable Restraint Systems. The Company has completed development of and is marketing various inflatable restraint systems for military and commercial aircraft. These systems include the IBAHRS for the protection of military helicopter crew members, a cockpit airbag system ("CABS") for the protection of the flight crew in military aircraft, and a bulkhead airbag system ("BABS") for the protection of passengers sitting immediately behind the bulkhead and other cabin partitions in commercial aircraft. Under a contract with the United States Army, the Company served as the prime contractor for the development of the IBAHRS. Following the completion of the initial development, the Company was awarded a contract to serve as the prime contractor to complete the development, perform production design, produce hardware, and perform testing procedures for the IBAHRS. During a crash, the airbags inflate between the aviator and the seat harness, causing the aviator to be pushed back into the seat and providing support under the aviator's chin to reduce the forward rotation of the head. The Company anticipates that it will commence production of the IBAHRS in late 1997. The Company is engaged in research and development efforts for CABS under a contract with the United States Army. CABS incorporates airbags in a configuration surrounding the aviator that inflate following sensor detection of crash impact from a variety of directions. CABS then retracts following deployment and thereby protects against mishaps caused by accidental deployment during the normal operations of the aircraft. The Company anticipates that it will complete the research and development project and commence production of CABS in late 1997. The Company developed BABS at its own expense to provide a product that satisfies FAA regulations requiring protection against head injuries to passengers sitting immediately behind the bulkhead and other cabin partitions in commercial aircraft certificated after 1988, which includes only complete new aircraft designs, representing a small percentage of aircraft currently in service. Prior to BABS, no other company had introduced a product that satisfied the FAA regulations, and newly certified aircraft have operated under FAA waivers from the regulations. In addition, the regulations have not been extended to aircraft certificated prior to 1988. Although the Company believes that BABS satisfies the FAA regulations, the Company cannot assess whether the FAA will withdraw its waivers as a result of the forthcoming availability of BABS and extend its regulations to apply to presently exempt commercial aircraft. The Company has an agreement with Jetstream Aircraft Ltd. ("Jetstream") to manufacture and sell BABS for implementation of the system in the Jetstream J-41. With its introduction of BABS in Jetstream aircraft in 1997, the Company believes that the FAA waiver policy will be reviewed by the agency. The Company is also discussing the introduction of BABS with other aircraft manufacturers. See "Inflatable Restraint Systems -- Aircraft Inflatable Restraint." The Company is also developing the related systems for sensors, electronics, and other applications for its inflatable restraint technology. COMPOSITE MATERIALS As an outgrowth of its military aircraft seating systems, the Company developed an expertise in armor, which comprises a significant portion of both materials in and costs of such seating systems. In addition, the Company has developed a variety of other composite materials for integration in its existing and proposed products and for sale as raw material to customers. Composites are structures, typically made of layered materials, glues, resins, metal alloys, and ceramics, which provide advantages in terms of weight, flexibility, and strength over traditional metal components. Composite materials are often much lighter than conventional materials such as basic metals, and by their complex nature are generally more expensive than such materials. Composite materials have a wide variety of product applications, ranging from shaped or molded plastic 36 38 structures to advanced, lightweight, protective ballistic armor systems. Advanced composite materials with which the Company has expertise include silicon carbide, aluminum, and ceramics matched with fiber reinforcements of Kevlar, carbon, Spectra, S-glass, E-glass, and hybrid weaves. The Company also has the capability to process thermoset resins including epoxies, polyesters, and vinyl esters. The Company's principal composite products are high-strength, lightweight armor systems that have been incorporated into a variety of United States armed forces vehicles, including aircraft, naval landing craft, and personnel carriers. The Company is a principal supplier of such lightweight armor systems in the United States. The Company develops and manufactures armor systems for seats as well as for structural and other vital components of military aircraft. Aircraft components incorporating armors developed or produced by the Company include V-22 Osprey crew seats; C-17 cockpit components; AH-64A Apache crew seats; Blackhawk crew seats and floor armor; CH-53 Sea Stallion crew seats; United States Navy landing craft air cushion pilot station armor; and high-mobility, multi-wheeled vehicles ("HMMWV") and transport vehicles ("HEMTT"). Other products include oil and cable armor and ballistic radomes. The Company has an on-site ballistics firing range, enabling it to conduct tests on armor products. The Company has recently developed a number of commercial applications for its composites technology, including high-strength transparent armors and portable armor kits for use in police cars and other vehicles, high-performance equipment such as archery bows, bicycle components, and 16g Seat backs. The Company believes that composite materials will increasingly be incorporated in a wide range of goods requiring strong, advanced, or lightweight components. DEVELOPMENTAL STAGE TECHNOLOGIES Smart Structures. The Company has recently combined its composite technologies with its neural network computer capabilities as part of the development of products known as "smart structures." Smart structures contain sensors and fiber optics that communicate through computers to monitor the integrity or status of a system or structure. As an example, military vehicles equipped with sensors incorporating smart structure technology can be remotely monitored for battlefield status. Similarly, structures such as bridges and overpasses can be remotely monitored to detect early signs of deterioration in structural integrity. The Company is exploring the development of smart system sensors that have potential in a variety of product applications, including crash sensors for airbag and other safety systems in both automobiles and aircraft. Parachutes. Under contract with the United States Navy, the Company recently applied its technologies and overall knowledge of materials and structures to develop a parachute that solves numerous functional problems attendant to traditional military parachutes. Specifically, many parachutes traditionally used by the military have (i) been large and heavy, (ii) been unable to be worn during flight or by females, and (iii) had limited shelf life, requiring the labor intensive process of unpacking and repacking parachutes every six months. The parachute developed by the Company is small, lightweight, unisex, capable of being worn during flight, and vacuum-packed so that it maintains more than a five-year shelf life without repacking. The Company will commence initial production of its parachute in 1997 for Navy aircraft. Other Advanced Materials. As an outgrowth of its development of a proprietary "bladder" for the ITS, the Company has recently developed and tested a number of advanced proprietary materials, including polymers and urethanes, possessing a wide variety of potential product applications. Such materials are generally high strength and lightweight and can be developed to withstand extreme temperatures. Potential uses for such materials include laser protective aircraft canopies, high-performance windows for aircraft and automobiles, and protective lenses and visors. PROPRIETARY TECHNOLOGY The Company maintains a design, development, research, testing, and engineering staff whose duties include the modification and improvement of existing products and the development of new products and applications. The Company regards its research, development, and engineering capabilities as a particular strength and intends to continue to emphasize this aspect of its business. 37 39 The Company retains proprietary rights in the products and services it develops, including those initially financed under government contracts. As an integral component of its strategy, the Company seeks to transfer all of its technology to product applications. The Company's costs for research and development in 1996, 1995, and 1994 were approximately $10.5 million, $6.1 million, and $3.9 million, respectively. These amounts include government-funded, other customer-funded, and Company-funded research and development contracts. Since much of its research and development generates proprietary technology, the Company has patent protection on certain products. The Company's ability to compete effectively depends, in part, on its ability to maintain the proprietary nature of its technologies. The Company also relies on unpatented proprietary information and know-how, typically protecting such information as trade secrets, but there can be no assurance that others will not develop such information and know-how independently or otherwise obtain access to the Company's technology. See "Risk Factors -- Dependence on Proprietary Technology." The Company holds 13 patents, including those recently issued for its ITS and 16g Seat technologies. In addition, the Company has 35 patent applications pending for such items as its ITB and ITC technologies and various of its advanced materials. The Company is also currently developing five additional patent applications for filing. Patents protect inventions for up to a period of 20 years after the application is first filed. All of the Company's patents issued or applied for regarding its principal products, including ITS, ITC, ITB, and 16g Seats, have been issued or pending for three years or less. The Company does not presently own or maintain any trademarks which are material to its business. PRODUCTION, MANUFACTURING, AND LICENSING The Company intends to consolidate certain operations, expand and upgrade its existing manufacturing capabilities, and establish new manufacturing facilities in connection with the expansion of its 16g Seat and inflatable restraint businesses. The Company began implementing its expansion plans in 1996 and has established a low-volume production facility in Phoenix and a high-volume manufacturing plant in England for the production of inflatable restraints. The Company currently is expanding its airline seat manufacturing capacity in its Chicago and San Diego facilities. In addition, in 1996 the Company consolidated its sewing and upholstery operations, and placed airline and train seat parts manufacturing in a central location. Such steps were taken for efficiency purposes and did not have a material effect on the Company's financial condition or results of operation. If demand for the Company's products grows faster than it is able to expand its manufacturing capacities, the Company may consider entering into licensing arrangements with third-party manufacturers of related products, pursuant to which it would receive a royalty on all items manufactured. See "Risk Factors -- Entry Into New Markets," "Risk Factors -- Management of Growth," and "Risk Factors -- Production Risks and Manufacturing Experience." The Company's production and manufacturing consist principally of the bending and welding, molding, ceramic and composites composition and processing, sewing, upholstery, component fabrication, and final assembly, along with airbag and restraint assembly. After assembly, products are functionally tested on a sample basis as required by applicable contracts. The Company's manufacturing capability features computer-integrated manufacturing programs which, among other things, schedule and track production, update inventories, and issue work orders to the manufacturing floor. Products manufactured for government programs must meet rigorous standards and specifications for workmanship, process, raw materials, procedures, and testing. Customers, and in some cases the United States government as the end user, perform periodic quality audits of the manufacturing process. Certain customers, including the United States government, periodically send representatives to the Company's facilities to monitor quality assurance. MARKETING AND SALES Depending upon the product, the Company typically employs one of four methods for marketing: (i) direct sales, which it utilizes in the marketing of its 16g Seats, (ii) technical teams, typically comprised of a combination of administrative personnel and development engineers, which it utilizes in the marketing of inflatable restraints and advanced materials, (iii) strategic alliances with first tier component suppliers, which 38 40 it utilizes in the marketing of inflatable restraints, and (iv) responses to formal requests for proposals in bidding for governmental contracts. In marketing its commercial seating and restraint products, the Company endeavors to maintain close relationships with existing customers and to establish new customer relationships. Ongoing relationships and repeat customers are an important source of business for the Company's current and new products. For example, the Company believes that its aircraft seat refurbishment customers are excellent prospects for its proposed new aircraft seats. Similarly, the Company will rely in part on forming strategic alliances to gain the established marketing capabilities of first tier component suppliers in connection with the distribution of the Company's automobile restraint systems. See "Risk Factors -- Dependence on Industry Relationships." The Company's marketing and sales activities in the government sector focus primarily upon identifying research and development and other contract opportunities with various agencies of the United States government or with others acting as prime contractors on government projects. Key members of the Company's engineering, contracts, and project management staffs maintain close working relationships with representatives of the United States armed forces and their prime contractors. Through these relationships, the Company monitors needs, trends, and opportunities within current or potential military product lines. Approximately 24% of the Company's total revenue in 1996 resulted from products sold internationally, either directly by the Company or indirectly through sales made to the United States government or domestic prime contractors for export. These sales were predominantly to England, Germany, and Japan. Historically, as United States government contracts are awarded and filled, prime contractors have thereafter typically marketed their products to foreign military allies, resulting in sales of the Company's products abroad. The Company has also recently entered into development contracts directly with foreign military organizations. Accordingly, the Company anticipates that its international defense sales will continue to grow. The initial customer of the ITS is BMW, a European automobile manufacturer. The Company believes that there are opportunities for additional sales of the ITS, and for sales of commercial aircraft and rail seating systems, in foreign markets and is conducting marketing efforts internationally. Countries in which the Company is actively marketing include Germany, France, England, and other EU countries, as well as Japan, India, Korea, Italy, Singapore, Australia, Canada, and China. See "Risk Factors -- International Trade and Currency Exchange." CUSTOMERS Sales of the Company's products to all branches of the United States armed forces represented approximately 27% of the Company's revenue in 1996. No other customer accounted for more than 10% of the Company's revenue during 1996. The Company's historical and acquired businesses have relied to a great extent on relatively few major customers, although the mix of major customers has varied from year to year depending on the status of then existing contracts. The Company believes that historical customers, such as the United States Army and other branches of the United States armed forces, to which the Company has supplied products for approximately 20 years, will continue to represent major customers although the percentage of the Company's revenue attributable to them can be expected to decrease as a result of the Company's expanding commercial operations. Other historical customers of the Company include the Boeing Company, McDonnell Douglas Corporation, and Sikorsky Aircraft. The loss of or reduction in sales to a major customer may have a more adverse effect on the Company's operations or financial condition than if the Company's revenue was less concentrated by customer. See "Risk Factors -- Reliance Upon Major Customers." As the Company has applied its technologies to additional products and markets and grown through strategic acquisitions, the list of customers for the Company's commercial products has expanded rapidly in recent years. Current customers of the Company include, in addition to its historical customers, America West Airlines, Amtrak, Autoliv GmbH, BMW, Continental Airlines, Morton International, Southwest Airlines, TRW, United Airlines, and the metropolitan transit authorities in major North American cities. Auotliv GmbH, Morton International, and TRW are first tier component suppliers. See "Risk Factors -- Dependence on Industry Relationships." 39 41 COMPETITION The Company believes that it is the world's largest supplier of seating systems for military helicopters. The Company's principal competitors in the military seating market are Martin Baker (U.K.) and Israel Aircraft Industries, Ltd. (Israel). The Company does not have financial or market share data concerning these two competitors; however, based on internal market surveys and data, the Company believes that is it the supplier for a majority of the world's energy-absorbing seating programs under domestic and foreign military contracts. Numerous suppliers compete for government defense contracts as prime contractors or subcontractors. Competition relates primarily to technical know-how, cost, and marketing efforts. The competition for government contracts relates primarily to the award of contracts for the development of proposed products rather than for the supply of products that have been developed under contracts. Based on internal data, management believes that the Company also is the leading North American provider of seating systems for rail and other mass transit vehicles, with an approximate 70% to 80% market share. The Company has four principal competitors in the North American rail and mass transit seating market, comprising in the aggregate 20% to 30% of the market. Management believes that the Company achieved a 2.5% share of the worldwide commercial airline seating market in its full first year of production in 1996. The Company has 10 principal competitors in the commercial airline seating market, with BE Aerospace, Inc. having an approximate 50% market share. The worldwide automobile airbag market is currently dominated by TRW, Morton International, Inc., Allied Signal, Inc., Takata, Inc., and Autoliv GmbH, all of which are producing airbag systems in commercial quantities. The market served by the Company's inflatable restraint systems is intensely competitive. As a result of the proprietary nature of the Company's ITS and related technologies, the Company has entered into strategic alliances with a number of the largest suppliers of conventional automotive airbags, including Morton, Autoliv, and others, to market and produce the Company's products. Under these arrangements, the Company acts as licensor and supplier and, thus, does not compete with first tier automotive suppliers. The Company does not intend to compete as a first tier supplier of a broad range of safety devices. Autoliv and Morton recently announced a proposed business combination relating to their respective airbag operations. The Company does not believe that any such combination will adversely affect its business relationship with these companies. Most of the Company's competitors have greater marketing capabilities and financial resources than the Company. The Company's present or future products could be rendered obsolete by technological advances by one or more of its competitors or by future entrants into its markets. See "Risk Factors -- Competition." RAW MATERIALS AND SUPPLIES The Company purchases raw materials, components, devices, and subassemblies from a wide variety of sources. Principal raw materials used by the Company include urethanes, ceramics, Kevlar, aluminum, steel, upholstery and fabric products, and fire blocking foam. Components include restraints, harnesses, and gas generators for inflatable restraint products. The Company does not depend upon any single supplier. Because of multiple sources of supply, the Company has not experienced difficulties in obtaining components and raw materials for its manufacturing and assembly processes. The Company is not party to any formal contracts regarding the delivery of its supplies and components, but instead generally purchases such items pursuant to individual or blanket purchase orders. Blanket purchase orders usually provide for the purchase of a large amount of items at fixed prices for delivery and payment on specific dates. BACKLOG The Company's backlog at December 31, 1996 and 1995 was approximately $63 million and $58 million, respectively. The backlog at December 31, 1996 consisted of approximately $17 million under defense contracts and approximately $46 million with commercial customers. The backlog includes contracts for major current products as well as for supplies and replacement components. Backlog includes only $3 million under the Company's agreement to supply the ITS for certain 40 42 of BMW's models to be delivered in 1997. In the case of government contracts, backlog consists of aggregate contract values for firm product orders, exclusive of the portion previously included in operating revenue utilizing the percentage completion accounting method. All orders included in the backlog are believed to be firm and are expected to be filled over the period from the date of this Prospectus to December 31, 1997. EMPLOYEES The Company has over 700 full-time employees at its locations in Arizona, California, Illinois, New York, North Carolina, Wisconsin, and the United Kingdom. This number includes engineers and research and development personnel, manufacturing personnel, and administrative and other personnel. The Company believes that its continued success depends on its ability to attract and retain highly qualified personnel. PERSONNEL PROFILE
APPROXIMATE NUMBER CLASSIFICATION OF EMPLOYEES ----------------------------------------------------------- ------------------ Research and Development; Scientists; Engineers; Technical Support.................................................. 150 Manufacturing.............................................. 310 Administration............................................. 190 Other...................................................... 65
In connection with its 1994 acquisition of Coach and Car, the Company executed a collective bargaining agreement with the United Electrical Workers. The predecessor corporation's work force was similarly represented by the collective bargaining unit. The Company's other employees are not represented by a labor union, and the Company has no knowledge of any organizing activities. The Company has never suffered a work stoppage and considers its relations with employees to be excellent. ENVIRONMENTAL REGULATIONS The Company's operations are subject to a variety of federal, state, and local environmental regulations, including laws regulating air and water quality and hazardous materials and regulations implementing those laws. The Company's principal environmental focus is the handling and disposal of paints, solvents, and related materials in connection with product finishes, welding, and composite fabrication. The Company contracts with a qualified waste disposal company for services. The Company regards its business as being subject to customary environmental regulations, but does not believe it faces unique or special problems. The cost to the Company of complying with environmental regulations is not significant. See "Risk Factors -- Environmental Regulations." LITIGATION The Company is not a party to any material threatened or pending litigation. See Note 3 to the Consolidated Financial Statements regarding Coach and Car. PROPERTIES The Company is currently expanding its manufacturing and administrative facilities in order to meet the expected demand for its products. Upon the completion of such expansion, the Company believes that its manufacturing and administrative facilities will be adequate for the foreseeable future. The following table summarizes the properties which the Company leased or owned as of December 31, 1996. See "Use of Proceeds." 41 43 FACILITIES PROFILE
SQUARE COMPANY LOCATION FUNCTION FOOTAGE - ------------------------- --------------------- ---------------------------------- ------- Simula, Inc. ............ Phoenix, AZ (1) Corporate Headquarters 11,000 Simula Government Products, Inc. ........ Tempe, AZ (2) Manufacturing and Administration 60,000 Tempe, AZ (2) Manufacturing and Administration 24,000 Tempe, AZ (1) Manufacturing and Administration 19,000 Tempe, AZ (1) Manufacturing and Administration 14,000 Tempe, AZ (1) Manufacturing and Administration 14,000 Simula Technologies, Inc. .................. Phoenix, AZ (2) Research and Development 25,000 Simula ASD, Inc. ........ Phoenix, AZ (1) ITS Low Rate Production; Testing; 7,000 Administration Phoenix, AZ (1) ITS Low Rate Production; Testing 20,000 Simula ASD, Ltd. ........ Northumberland, U.K. ITS Volume Production 30,000 (1) Airline Interiors, Inc. .................. San Diego, CA (1) Airliner Seat Refurbishment and 44,000 New Seat Assembly; Administration San Diego, CA (1) Upholstery and Sewing 17,000 San Diego, CA (1) Warehouse 6,000 Coach and Car Equipment Corporation............ Chicago, IL (1) Airline, Rail and Transit Seat 71,000 Manufacturing; Administration Albany, NY (1) Rail Seat Assembly 20,000 Artcraft Industries Corp. ................. Milwaukee, WI (1) Rail and Airline Seat 45,000 Refurbishment and Upholstery Milwaukee, WI (1) Warehouse 20,000 Milwaukee, WI (1) Warehouse 5,000 ViaTech, Inc. ........... Tempe, AZ (1) Composites Research; Fabrication; 16,000 Administration Safety Equipment, Inc. .................. Asheville, NC (1) Research and Development; Survival 5,000 Equipment Manufacturing; Parachute Manufacturing Sedona Scientific, Inc. .................. Sedona, AZ (1) Research and Development; Sensors, 5,000 Smart Systems, Fiber Optics Sedona, AZ (1) Warehouse 2,000
- --------------- (1) Denotes leased facility (2) Denotes Company-owned facility 42 44 MANAGEMENT The following sets forth certain information with respect to directors and executive officers of the Company.
NAME AGE POSITION ----------------------- --- --------------------------------------------------------- Stanley P. Desjardins........... 66 Chief Executive Officer and Chairman of the Board of Directors Donald W. Townsend..... 57 President and Director Bradley P. Forst....... 44 Vice President, General Counsel, Secretary, and Director Sean K. Nolen.......... 34 Vice President of Finance, Treasurer, and Director James C. Withers....... 63 Director Robert D. Olliver...... 70 Director Scott E. Miller........ 37 Director
Stanley P. Desjardins founded the Company in 1975 and has served as its Chief Executive Officer and Chairman since that time. He was President from 1975 until October 1994. Mr. Desjardins pioneered crashworthy seating technology for the United States armed forces and continues to work on technology development as a recognized world expert in the field. He has over 38 years of experience in research and development of aerospace systems and components, including over 29 years in research and development of technology for improving survival in vehicle crashes. Prior to forming the Company, Mr. Desjardins was Manager of Aircraft Safety for a division of Ultrasystems, Inc., where he managed research programs involving the crashworthiness of aircraft seating and restraint systems. From 1958 to 1968, he held various positions in missile programs with Thiokol Chemical Corporation. His work has resulted in several United States patents related to energy-absorption and rocket nozzle design. He is the author or co-author of 26 technical articles related to his research. Mr. Desjardins is a member of the American Helicopter Society, the Survival and Flight Equipment Association, the Arizona Innovation Network, the Center for Aerospace Safety Education, and the Governor's Science and Technology Council (Arizona). Donald W. Townsend has served as President since October 1994 and a Director since 1989. He was Executive Vice President from 1989 to 1994 and Treasurer and Secretary from 1986 until 1994. Prior to joining the Company in 1985, Mr. Townsend was employed by Walled Lake Door Company, a manufacturer of wooden doors, in positions as Vice President of Finance, Chief Financial Officer, Director, and Controller. Mr. Townsend also acted as President of Pulsar Corporation, a research and development company affiliated with Walled Lake Door Company, at the same time as he served as Vice President of Finance for Walled Lake Door Company. Mr. Townsend is a Certified Public Accountant. Mr. Townsend also currently serves on the Board of Directors of Meadow Valley Corporation, a publicly held construction company specializing in highways, bridges and overpasses. Bradley P. Forst joined the Company as Vice President and General Counsel in early 1995 and became Secretary and a Director in August 1995. From 1985 until joining the Company in 1995, Mr. Forst was engaged in the private practice of law in Phoenix, Arizona. Included among his clients was the Company, for which he provided corporate, finance, and securities legal services for a number of years. Prior to entering private practice in Phoenix, Mr. Forst was an attorney in the head office legal department of Shell Oil Company based in Houston, Texas. Sean K. Nolen joined the Company as Vice President of Finance, Chief Financial Officer, Treasurer, and as a Director in April 1996. From 1984 until joining the Company in 1996, Mr. Nolen was employed by Deloitte & Touche LLP, most recently as an Audit Senior Manager, in which capacity Mr. Nolen provided auditing, planning, and other assistance and consultation to numerous privately and publicly held companies, including the Company. Mr. Nolen is a Certified Public Accountant. James C. Withers has served as a Director of the Company since 1992. Mr. Withers is the Chief Executive Officer of Materials and Electrochemical Research Corporation based in Tucson, Arizona. He has 43 45 served in that capacity since 1985. From 1986 to 1988, Mr. Withers was President and Chief Executive Officer of Keramont Research Corporation, also based in Tucson, Arizona. Robert D. Olliver has served as a Director of the Company since 1992. Mr. Olliver is the Director of Risk Management Services for Acordia of Arizona based in Phoenix, Arizona. Mr. Olliver has over 47 years experience in the insurance business. Mr. Olliver, through his affiliates, has been the general agent for the Company's insurance program since 1987. Scott E. Miller has served as a Director of the Company since January 1995. Mr. Miller is a Director of Investment Banking of HD Brous & Co., Inc. From 1991 to 1994, Mr. Miller was Director of Investment Banking of W.B. McKee Securities, Inc., Phoenix, Arizona, which was the managing underwriter of the Company's initial public offering. From 1987 to 1991, Mr. Miller was the Director of Investments of Bellmar Partners, an investment fund. Mr. Miller also currently serves on the Board of Directors of Meadow Valley Corporation, a publicly held construction company specializing in highways, bridges, and overpasses. See "Certain Transactions." All members of the Board of Directors hold office until the next annual meeting of the shareholders of the Company or until their successors are duly elected and qualified. All officers are elected annually and serve at the discretion of the Board of Directors. The Board of Directors of the Company have several standing committees. The Audit Committee presently consists of Messrs. Withers, Miller and Olliver. The Audit Committee meets with appropriate Company financial and legal personnel and independent public accountants and reviews the internal controls of the Company and the objectivity of its financial reporting. This Committee recommends to the Board the appointment of independent public accountants to serve as auditors in examining the corporate accounts of the Company. The independent public accountants periodically meet privately with the Audit Committee and have access to the Committee at any time. The Compensation Committee reviews and advises management, makes recommendations to the Board, and reviews and approves proposals regarding the establishment or change of benefit plans, salaries, and compensation afforded the executive officers and other employees of the Company. Messrs. Miller, Olliver, and Withers currently serve as members of the Committee. The Company has identified James A. Saunders, Donald R. Rutter, Randall L. Taylor, and Joseph W. Coltman as key employees. James A. Saunders is a Vice President of the Company and President of its subsidiary, Simula Automotive Safety Devices, Inc. From 1989 to 1995, Mr. Saunders was Chief Executive Officer of SouthTech, Inc., a supplier of high-purity silicon carbide ceramics to the electronics industry. SouthTech was a subsidiary of the Company from 1994 to 1995. Donald R. Rutter is President of the Company's subsidiary Simula Transportation Equipment Corporation, a holding company for the Company's commercial passenger seat operating subsidiaries, Airline Interiors, Inc., Coach and Car Equipment Corporation, and Aircraft Industries Corp. From 1983 until joining the Company in 1993, Mr. Rutter was Vice President and General Manager for Burns Aerospace Corporation. From 1979 until 1982, Mr. Rutter was Vice President and General Manager for PTC Aerospace, a B.E. Aerospace, Inc. subsidiary. Mr. Rutter was also previously employed by United Airlines. Randall L. Taylor joined the Company in 1977 and serves as a Vice President. He coordinates certain aspects of corporate development and international programs. Prior to this position, Mr. Taylor held numerous positions with the Company's subsidiary, Simula Government Products, Inc. Mr. Taylor's past employment includes experience with Sperry Flight Systems, a division of Sperry Rand, and The Boeing Company Defense & Space Group. Joseph W. Coltman is President of the Company's subsidiary Simula Technologies, Inc., which operates as the Company's research and technology development organization. Mr. Coltman joined the Company in 1979 and prior to his present position, held numerous management and technical positions within the Company. 44 46 EXECUTIVE COMPENSATION The following table sets forth the total compensation received by the Company's Chief Executive Officer and other most highly compensated executive officers whose total remuneration exceeded $100,000 for services rendered in all capacities to the Company during the last three fiscal years. SUMMARY COMPENSATION TABLE
LONG TERM COMPENSATION AWARDS ANNUAL COMPENSATION --------------- ----------------------------------------- SECURITIES OTHER ANNUAL UNDERLYING NAME AND PRINCIPAL POSITION YEAR SALARY(1) BONUS(2) COMPENSATION(3) OPTIONS/SARS(#)(6) - ------------------------------ ---- --------- -------- -------------- --------------- Stanley P. Desjardins......... 1996 $ 200,000 Chief Executive Officer and 1995 200,000 Chairman of the Board 1994 158,000 Donald W. Townsend............ 1996 200,000 Tax Assistance(3) 70,000 President 1995 180,000 $40,000 Tax Assistance(3) 60,000 1994 108,000 75,000 Bradley P. Forst.............. 1996 140,000 50,000 Vice President, General 1995 140,000 56,250 Counsel, and Secretary(4) Sean K. Nolen................. 1996 120,000 25,000 Vice President of Finance, Chief Financial Officer, and Treasurer(5)
- --------------- (1) Included as salary are nominal amounts which the Company contributes to the 401(k) accounts of Messrs. Desjardins and Townsend. See "Management -- 401(k) Profit Sharing Plan." (2) The Compensation Committee declared a bonus for Mr. Townsend for services in 1994 and 1995, which was paid in late 1995. (3) In 1995, the Compensation Committee adopted policies to encourage executive management of the Company to exercise stock options and thereby become equity owners of the Company. In order to exercise such options, members of management were required to sell such underlying shares in the market to provide the funds to pay for the option exercises. Because of the immediate exercise and sale, incentive tax aspects of the options, under relevant IRS rules, were eliminated. Accordingly, taxes on such sales were immediately due and payable. As part of the policy, the Committee determined to pay such taxes for the accounts of the executives. Such payments by the Company were fully deductible as a compensation expense and such amounts did not accrue to the individuals, but were paid to state and federal taxing authorities. The amounts of such tax assistance on behalf of Mr. Townsend were $231,367 and $211,500 for the fiscal years 1995 and 1996, respectively. (4) Mr. Forst was not employed by the Company for the entire fiscal year 1995. The salary figure contained in the column for 1995 reflects the salary Mr. Forst would have received had he been employed by the Company for the entire year. Mr. Forst's actual salary compensation for 1995 was $60,000. (5) Mr. Nolen was not employed by the Company for the entire fiscal year 1996. The salary figure contained in the column for 1996 reflects the salary Mr. Nolen would have received had he been employed by the Company for the entire year. Mr. Nolen's actual salary compensation for 1996 was $80,000. (6) Messrs. Townsend, Forst, and Nolen were granted 238,200, 93,750, and 150,000 additional options to purchase Common Stock, respectively, on January 1, 1997. 45 47 EMPLOYMENT AGREEMENTS The Company has a five-year employment agreement with Mr. Desjardins. The agreement requires Mr. Desjardins to devote his full time to the Company and provides for compensation of $200,000 annually, subject to annual increases upon the agreement of Mr. Desjardins and the majority of the disinterested members of the Board of Directors. The agreement is renewable annually for prospective one-year terms. The agreement may not be terminated unilaterally by the Company except for cause, which includes absence, disability, or failure of performance as determined by the Board. Mr. Desjardins' employment agreement provides that during the term thereof, including renewals, in the event of his resignation or a termination of his employment for any reason following a "change in control" of the Company, the compensation required to be paid by the Company to him under the employment agreement shall continue to be paid as though the agreement had not been terminated. This provision does not apply however to an early termination of the agreement upon Mr. Desjardins' death, termination following a conviction for the willful and intentional commission of a crime, or retirement. A "change of control" under the agreement is deemed to occur when any person acquires, directly or indirectly, beneficial ownership of equity securities of the Company representing in excess of 20% of the outstanding shares of any class, or when any person who has acquired, directly or indirectly, beneficial ownership of equity securities of the Company in excess of 10% of the outstanding shares of any class seeks to nominate and cause to be elected to the Board of Directors any person who has not been nominated for election of the board by the majority of the then incumbent directors. If Mr. Desjardins dies during the term of his employment, the Company under the agreement will pay to his estate compensation including any bonus which would otherwise be payable to the time of death and thereafter, for a period of three years. The Company also has an agreement with Mr. Townsend, under which the Company retains Mr. Townsend under the same terms as those contained in Mr. Desjardins' employment agreement. In addition to the foregoing, the Company has also entered into change in control employment agreements with six members of executive management, providing for severance pay, the immediate vesting of stock options, and tax assistance payments, in the event of a change in control of the Company. See "Executive Compensation -- Stock Options." DIRECTOR COMPENSATION Directors who are not executive officers receive $5,000 annual cash compensation for their services in that capacity to cover expenses. Directors who are executive officers do not receive such additional compensation for their services as Directors. Directors are also awarded options to purchase 15,000 shares upon commencement of service on the Board and 1,500 additional shares on an annual basis thereafter. STOCK OPTIONS STOCK OPTION PLANS In 1992, the Company and its then sole shareholder adopted the 1992 Stock Option Plan. The 1992 Plan provided for the issuance of up to 360,000 shares of the Company's Common Stock pursuant to grants made under the 1992 Plan. As of January 1, 1997, all 360,000 options had been granted pursuant to the 1992 Plan. In August 1994, the Board of Directors adopted the 1994 Stock Option Plan, which was subsequently approved by the shareholders of the Company at the annual meeting in June 1995, and amended by the shareholders of the Company at the annual meeting in June 1996. The 1994 Plan reserves up to 1,545,000 shares of Common Stock for issuance under the Plan. Through December 31, 1996, 876,250 options had been granted pursuant to the 1994 Plan. The 1992 Plan and the 1994 Plan (together hereafter referred to as the "Plans") authorize the Company to grant to key employees of the Company (i) incentive stock options to purchase shares of Common Stock, and (ii) non-qualified stock options to purchase shares of Common Stock. The objectives of the Plans are to provide incentives to key employees to achieve financial results aimed at increasing shareholder value and attracting talented individuals to the Company. Although the Plans do not specify what portion of the shares 46 48 may be awarded in the form of incentive stock options or non-statutory options, a substantially greater number of incentive stock options have been awarded under the Plans. The incentive stock options are qualified stock options under the Internal Revenue Code. Persons eligible to participate in the Plans are those employees and others of the Company whose performance can have significant effect on the success of the Company. The Plans are administered by the Compensation Committee of the Board of Directors, which has the authority to interpret the Plans' provisions, to establish and amend rules for their administration, to determine the types and amounts of awards made pursuant to the Plans, subject to the Plans' limitations, and to approve recommendations made by management of the Company as to who should receive awards. The Compensation Committee of the Board of Directors must consist of disinterested Directors. Incentive stock options may be granted under the Plans for terms of up to 10 years and at an exercise price at least equal to 100% of the fair market value of the Common Stock as of the date of grant, and 85% of the fair market value in the case of non-statutory options, except that incentive options granted to any person who owns stock possessing more than 10% of the combined voting power of all classes of the Company's stock or of any parent or subsidiary corporation must have an exercise price at least equal to 110% of the fair market value of the Company's Common Stock on the date of grant. The aggregate fair market value, determined as of the time an incentive stock option is granted, of the Common Stock with respect to which incentive stock options are exercisable by an employee for the first time during any calendar year may not exceed $100,000. There is no aggregate dollar limitation on the amount of non-statutory stock options which may be exercisable for the first time by an employee during any calendar year. Payment of the exercise price is to be in cash, although the Compensation Committee may, in its discretion, allow payment in the form of shares of the Company's Common Stock under certain circumstances. Any option granted under the Plans will expire at the time fixed by the Committee, which will not be more than 10 years after the date it is granted. Any employee receiving a grant must remain continuously employed by the Company for a period of 12 months after the date of the grant, as a condition to the exercise of the option. The Compensation Committee may also specify when all or part of an option becomes exercisable, but in the absence of such specification, the option will ordinarily be exercisable in whole or part at any time during its term. In addition, optionees who are directors or executive officers of the Company may not exercise any portion of an option within six months of the date of grant. Subject to the foregoing, the Compensation Committee may accelerate the exercisability of any option in its discretion. The Plans presently provide that options granted under the Plans are not assignable. Options may be exercised only while the optionee is employed by the Company or within 12 months after termination by reason of death, within 12 months after the date of disability, or within 10 days after termination for any other reason. The Company may assist optionees in paying the exercise price of options granted under the Plans by either the extension of a loan by the Company for payment by the optionee of the exercise price in installments, or a guarantee by the Company of a loan obtained by the optionee from a third party. The terms of any loan, installment payments or guarantees, including the interest rate and terms of repayment and collateral requirements, if any, will be determined by the Compensation Committee in its sole discretion. In addition to the foregoing, the 1994 Plan provides that in the event of a change in control of the Company, that all issued but unvested options become immediately vested and exercisable. The 1994 Plan also provides that in connection with such immediate exercises made by executive officers of the Company, the Company provide tax assistance to supply the funds necessary for those individuals to pay taxes resulting from the loss of tax incentives due to such accelerated exercises and sales. Any such payments by the Company would be fully deductible as a compensation expense and such amounts would not accrue to the individuals exercising the options, but would be paid to state and federal taxing authorities. See "Management -- Employment Agreements." 1992 RESTRICTED STOCK PLAN In February 1992, the Company adopted the 1992 Restricted Stock Plan ("Restricted Stock Plan") authorizing the Company to grant to key employees of the Company and other individuals who provide 47 49 services to the Company the right to purchase up to an aggregate of 19,500 shares of Common Stock at $.01 per share. The Restricted Stock Plan is intended to allow the Company to provide awards of Common Stock to directors or long-term employees who have provided valuable past services to the Company. The Restricted Stock Plan authorizes disinterested members of the Board of Directors to determine the persons to whom awards under the Restricted Stock Plan will be granted and the terms and conditions and restrictions of such awards. To date, 4,500 shares have been awarded under the Restricted Stock Plan. OPTIONS GRANTED UNDER PLANS In March 1996, October 1996, and January 1997, the Board of Directors approved recommendations of the Compensation Committee and granted certain incentive stock options under the Plans to key employees. The options granted are exercisable, or when vested will be exercisable, for a total of 1,875 shares under the 1992 Plan and 1,030,075 shares under the 1994 Plan. The following table sets forth information regarding options granted in fiscal 1996 to executive officers named in the Summary Compensation Table: OPTION/SAR GRANTS IN LAST FISCAL YEAR (Individual Grants)
POTENTIAL REALIZABLE PERCENT OF VALUE AT ASSUMED NUMBER OF TOTAL ANNUAL RATES SECURITIES OPTIONS/ OF STOCK PRICE UNDERLYING SARS EXERCISE APPRECIATION FOR OPTIONS/ GRANTED TO OR BASE OPTION TERM(2) SARS EMPLOYEES IN PRICE EXPIRATION ----------------------- NAME GRANTED(1) FISCAL YEAR ($/SH) DATE 5%($) 10%($) - -------------------------------- ---------- ------------ -------- ---------- ---------- ---------- Donald W. Townsend(3)........... 70,000 20% $12.75 2006 $1,453,883 $2,315,145 Bradley P. Forst(4)............. 50,000 14% 12.75 2006 1,038,488 1,653,675 Sean K. Nolen(5)................ 25,000 7% 16.13 2006 656,691 1,045,706
- --------------- (1) All options contained in the table which were granted to named executive officers in 1996 become exercisable for the first time in March 1997. In addition to the options shown in the table, 215,250 options were granted to employees of the Company in 1996. (2) Calculated from a base price equal to the exercise price of each option, which was the fair market value of the Common Stock on the date of grant. The amounts represent only certain assumed rates of appreciation. Actual gains, if any, on stock option exercises and Common Stock holdings cannot be predicted, and there can be no assurance that the gains set forth on the table will be achieved. Further, the number shown is the gross dollar value of the Common Stock, but does not give effect to the payment of the purchase price to exercise the option, and thus does not represent the net value or net gain. The amount also does not reflect the taxes payable on such gain. (3) In addition to the 1996 option grant listed in the table, Mr. Townsend owns 334,800 options with various vesting periods. (4) In addition to the 1996 option grant listed in the table, Mr. Forst owns 150,000 options with various vesting periods. (5) In addition to the 1996 option grant listed in the table, Mr. Nolen owns 150,000 options with various vesting periods. 48 50 FISCAL YEAR END OPTION/SAR VALUES
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED IN-THE-MONEY OPTIONS/SARS AT FISCAL YEAR END OPTIONS/SARS AT FISCAL YEAR END NAME (#) EXERCISABLE/UNEXERCISABLE ($)(1) EXERCISABLE/UNEXERCISABLE - ------------------------------------ ------------------------------- ---------------------------------- Donald W. Townsend.................. 96,600/70,000 $ 240,938/52,500 Bradley P. Forst.................... 56,250/50,000 -0-/37,500 Sean K. Nolen....................... -0-/25,000 -0-/-0-
- --------------- (1) Calculated by multiplying the number of shares underlying outstanding in-the-money options by the difference between the last sales price of the Company's Common Stock on December 31, 1996 ($13.50 per share) and the exercise prices for both exercisable and unexercisable shares. See also footnote (2) immediately above. DEFINED BENEFIT PENSION PLAN The Company adopted a non-contributory defined benefit pension plan as of November 1, 1980. To be eligible, participants must have completed six months of continuous service and have attained the age of 21. Benefits are based on the length of service and the participants' final pay (averaged over the five highest consecutive years of his last 10 years of participation). The Company makes contributions to the plan based on actuarially determined amounts. Both Mr. Desjardins and Mr. Townsend are participants in the plan consistent with the normal terms and conditions of the plan. The following table sets forth the estimated annual benefits payable on retirement for specified earnings and years of service categories for participants. PENSION PLAN TABLE
YEARS OF SERVICE(1) ------------------------------------------------------- REMUNERATION 15 20 25 30 35 - ------------ ------- ------- ------- ------- ------- $ 50,000 $17,500 $17,500 $17,500 $17,500 $17,500 75,000 26,250 26,250 26,250 26,250 26,250 100,000 35,000 35,000 35,000 35,000 35,000 150,000 52,500 52,500 52,500 52,500 52,500 200,000 70,000 70,000 70,000 70,000 70,000
- --------------- (1) As of December 31, 1996, Mr. Desjardins' and Mr. Townsend's credited years of service were 16 and 11, respectively. (2) Benefits are calculated on a straight-life annuity basis. The compensation covered by the retirement plan includes all wages and salaries but excludes bonuses. Benefits under the retirement plan are not subject to deduction for Social Security or other offset amounts. 401(k) PROFIT SHARING PLAN The Company's 401(k) Profit Sharing Plan (the "PSP") is qualified under Sections 401(a) and 401(k) of the Internal Revenue Code. The PSP was adopted effective November 1, 1989. The PSP is administered under a trust, and the Company's directors are currently serving as its trustees. All employees of the Company who are 21 years or older, including its executive officers, are eligible to participate in the PSP after six months of employment with the Company. Under the PSP, participating employees have the right to elect their contributions to the PSP be made by reductions from compensation owed to them by the Company. In addition, the Company at its discretion can make contributions to the PSP of a percentage of a participant's annual compensation. Participating employees are entitled to full distribution of their share of the Company's contributions under the PSP upon death, disability or when they reach retirement age. If their employment is terminated earlier, their share of 49 51 the Company's contributions will depend on the number of years of employment with the Company. All participating employees have the right to receive 100% of their own contributions to the PSP upon any termination of employment. Apart from the Company's and the employee's contributions, they may receive investment earnings related to the funds in their account under this plan. EMPLOYEE STOCK PURCHASE PLAN At the 1996 Annual Meeting, the Company's Board of Directors and shareholders adopted the Employee Stock Purchase Plan ("ESPP" or "Plan"). The ESPP provides eligible employees with the opportunity to acquire a stock ownership interest in the Company through periodic payroll deductions. The purpose of the Plan is to provide incentive to employees of the Company to perform in a manner which enhances the value of the Company's Common Stock by providing a direct ownership stake in the Company's performance. The ESPP reserves 400,000 shares of the Company's Common Stock to be issued to employees eligible to participate in the Plan. Employees of the Company and its subsidiaries are eligible to participate in the Plan following 30 days of continuous service with the Company, provided that such employees work in excess of 20 hours per week and greater than five months per calendar year. The Company, at its discretion, need not include all of its operating subsidiaries in the ESPP. Eligible employees invest in the Plan through regular payroll deductions of up to 10% of their gross earnings, deducted net of taxes, for each semi-annual period of participation, provided that no employee may purchase greater than $25,000 worth of the Company's Common Stock in any given calendar year. At each semi-annual purchase date, payroll deductions are credited to an account established in each participating employee's name and shares of the Company's Common Stock are automatically purchased on behalf of participating employees on the last business day of each semi-annual period of participation at the lesser of (i) 85% of the market price per share of Common Stock on an individual's entry date into the Plan (subject to certain limitations), or (ii) 85% of the market price per share on the semi-annual purchase date. The Company commenced operation of the ESPP on October 1, 1996. The Plan provides for semi-annual purchase dates to occur on March 31 and September 30 of each year. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The Company's Compensation Committee consists of Messrs. Miller, Olliver, and Withers, all of whom are non-employee directors for purposes of administering the stock option plans under SEC Rule 16b-3. These individuals do not serve on the compensation committees of other corporations. 50 52 CERTAIN TRANSACTIONS In August 1996, Mr. Desjardins loaned $1.65 million to the Company pursuant to two promissory notes. The notes contained arm's length terms and conditions and were approved by the disinterested members of the Board of Directors. One note bore interest at a rate of 8 3/4% per annum and the other bore interest at the rate of 10% per annum. All principal and interest have been repaid in full on the notes. Mr. Desjardins loaned the Company $2 million in 1994 on similar terms which was repaid by the Company in 1995. In 1995 it was determined by management that the regulatory burdens that were imposed on its subsidiary Comfab, Inc. ("Comfab") in connection with its role as a government subcontractor, were not reasonable under a cost-benefit analysis. In connection with this assessment, it was also determined that the business of Comfab no longer was completely aligned with the Company's overall strategic plan. Consequently, on November 1, 1995, Desjardins Engineering, a proprietorship owned and operated by Mr. Desjardins, purchased the assets of Comfab. The transaction was approved by the independent members of the Board of Directors. In June 1996, Desjardins Engineering sold the assets of Comfab to an unrelated third party for the price of approximately $1,050,000. No gain inured to the benefit of Mr. Desjardins in connection with the sale of Comfab. Mr. Miller, a director of the Company since 1995, is a Director of Investment Banking of HD Brous & Co, Inc., headquartered in Great Neck, New York. Mr. Miller is the principal in the office located in Phoenix, Arizona. HD Brous & Co.,Inc. is an Underwriter of this offering. See "Underwriting." HD Brous & Co., Inc. acted as an underwriter in the Company's offering of Common Stock in April 1995 and as a placement agent in the private placement issuance of $14.3 million principal amount of the Company's 10% Notes issued in September 1996. Prior to joining HD Brous & Co., Inc. in 1994, Mr. Miller was Director of Investment Banking of W.B. McKee Securities, Inc., Phoenix, Arizona, which served as the managing underwriter of the Company's initial public offering of Common Stock in 1992. Since that date, Mr. Miller has consulted with the Company as its investment banker in connection with equity and debt financing and mergers and acquisitions. See "Management." The Board of Directors has a policy that provides that all transactions between the Company and its executive officers, directors, employees, and affiliates are subject to the approval of a majority of disinterested directors of the Board of Directors and will be on terms that are no less favorable to the Company than those that could be negotiated with unaffiliated parties. LIMITATION ON LIABILITY OF DIRECTORS The General Corporation Law of Arizona, under which the Company is incorporated, was amended in full effective January 1, 1996. Subsequent to such modification of the Arizona Corporate Code, the Company's Board of Directors recommended, and its shareholders approved, amended and restated Articles of Incorporation of the Company providing for the limitation or elimination of potential monetary liability of directors of the Company to the fullest extent permitted by Arizona law. The Arizona Corporate Code limits or eliminates the liability of a director of a corporation for money damages for any action taken or not taken as a director in all instances except (i) instances where a director receives financial benefits to which he is not entitled; (ii) any intentional infliction of harm on the corporation or its shareholders; (iii) the making of unlawful distributions; and (iv) intentional violations of criminal law. 51 53 PRINCIPAL SHAREHOLDERS The following table sets forth information with respect to the number of shares of Common Stock of the Company, as of April 17, 1997, beneficially owned by individual directors of the Company, the named executive officers, all directors and named executive officers of the Company as a group, as well as information regarding the ownership of such shares after this offering assuming the conversion of the Notes.
SHARES BENEFICIALLY SHARES BENEFICIALLY OWNED OWNED PRIOR TO OFFERING AFTER OFFERING(10) --------------------------- --------------------- NAME OF BENEFICIAL OWNER NUMBER(1) PERCENTAGE(2) NUMBER PERCENT --------------------------------- --------- ------------- --------- ------- Stanley P. Desjardins(3)......... 3,543,052 39% 3,543,052 Donald W. Townsend(4)............ 450,000 5% 450,000 Bradley P. Forst(5).............. 151,050 2% 151,050 Sean K. Nolen(6)................. 25,000 * 25,000 James C. Withers(7).............. 24,900 * 24,900 Robert D. Olliver(8)............. 24,922 * 24,922 Scott E. Miller(9)............... 26,050 * 26,050 All directors and executive officers as a group (nine persons)....................... 4,244,974 47% 4,244,974
- --------------- * Less than 1% of the outstanding Common Stock (1) The number of shares shown in the table, including the notes thereto, have been rounded to the nearest whole share. Includes, when applicable, shares owned of record by such person's spouse and by other related individuals and entities over whose shares of Common Stock such person has custody, voting control, or power of disposition. Also includes shares of Common Stock that the identified person had the right to acquire within 60 days of April 17, 1997 by the exercise of stock options. (2) The percentages shown include the shares of Common Stock that the person will have the right to acquire within 60 days of April 17, 1997. In calculating the percentage of ownership, all shares of Common Stock that the identified person will have the right to acquire within 60 days of April 17, 1997 upon the exercise of stock options are deemed to be outstanding for the purpose of computing the percentage of shares of Common Stock owned by such person, but are not deemed to be outstanding for the purpose of computing the percentage of the shares of Common Stock owned by any other person. (3) The address of Mr. Desjardins and all other directors and executive officers named in the table above is 2700 North Central Avenue, Suite 1000, Phoenix, Arizona 85004. (4) Includes options to purchase 404,800 shares of Common Stock, which are presently exercisable, or which will be exercisable within 60 days of April 17, 1997. (5) Includes options to purchase 150,000 shares of Common Stock, which are presently exercisable, or which will be exercisable within 60 days of April 17, 1997, but does not include options to purchase 50,000 shares of Common Stock, which are not exercisable before January 1998. (6) Includes options to purchase 25,000 shares of Common Stock which are exercisable within 60 days of April 17, 1997, but does not include options to purchase 150,000 shares of Common Stock which have various vesting periods starting January 1998. (7) Includes options to purchase 24,000 shares of Common Stock, which are presently exercisable, or which will be exercisable within 60 days of April 17, 1997. Does not include options for 1,500 shares not exercisable before January 1998. (8) Includes options to purchase 21,687 shares of Common Stock, which are presently exercisable, or which will be exercisable within 60 days of April 17, 1997. Does not include options for 1,500 shares not exercisable before January 1998. 52 54 (9) Includes options to purchase 24,000 shares of Common Stock, which are presently exercisable, or which will be exercisable within 60 days of April 17, 1997. Does not include options for 1,500 shares not exercisable before January 1998. (10) Does not include up to 180,000 shares of Common Stock into which Notes may be converted if the over-allotment option is exercised in full. See "Underwriting." SHARES ELIGIBLE FOR FUTURE SALE As of April 17, 1997, the Company had 9,022,348 outstanding shares of Common Stock, of which 3,669,349 shares are "restricted securities," as that term is defined in Rule 144 under the Act (the "Restricted Shares"). Such Restricted Shares may be subject to volume and other resale limitations described below. The directors and executive officers have agreed with the Company at the request of the Underwriters not to sell or otherwise dispose of any shares of Common Stock in the public market for a period of 90 days after the date of this Prospectus without the prior written consent of the Underwriters. In general, under Rule 144 as amended effective April 29, 1997, any person (or persons whose shares are aggregated for purposes of Rule 144) who beneficially owns restricted securities with respect to which at least one year has elapsed since the later of the date the shares were acquired from the Company or from an affiliate of the Company, is entitled to sell, within any three-month period, a number of shares that does not exceed the greater of (i) 1% of the then outstanding shares of Common Stock of the Company or (ii) the average weekly trading volume in Common Stock during the four calendar weeks preceding such sale. Sales under Rule 144 also are subject to certain manner-of-sale provisions and notice requirements and to the availability of current public information about the Company. A person who is not an affiliate, has not been an affiliate within three months prior the sale, and who beneficially owns restricted securities with respect to which at least two years have elapsed since the later of the date the shares were acquired from the Company or from an affiliate of the Company, is entitled to sell such shares under Rule 144(k) without regard to any of the volume limitations or other requirements described above. In September 1996, the Company issued $14.3 million principal amount of 10% Notes in a private placement. Based upon the conversion prices for the 10% Notes fixed prior to December 31, 1996 and the average market price of the Company's Common Stock for the 10 days ended December 31, 1996 for the 10% Notes not yet fixed, the 10% Notes would be convertible into approximately 975,000 shares of the Company's Common Stock. The Company's registration statement covering resales by the holders of the Common Stock issuable upon conversion of the 10% Notes became effective on April 3, 1997. See "Risk Factors -- Recent Registration" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." 53 55 DESCRIPTION OF NOTES The following statements with respect to the % Senior Subordinated Convertible Notes are not complete and are qualified in all respects by the provisions of the Company's Amended and Restated Articles of Incorporation, Bylaws and the Indenture, which are included in, or are incorporated by reference into, the Registration Statement of which this Prospectus forms a part. GENERAL The Notes will be issued under an Indenture (the "Indenture") to be dated as of April 1, 1997, between the Company and Bank One Trust Company, NA (the "Trustee"). A copy of the proposed form of the Indenture has been filed as an exhibit to the Registration Statement of which this Prospectus is a part. The summaries of certain provisions of the Indenture hereunder do not purport to be complete and are subject to, and are qualified in their entirety by reference to, all of the provisions of the Indenture including the definitions therein of certain terms and those terms made part of the Indenture by reference to the Trust Indenture Act of 1939 as in effect on the date hereof. The definitions of certain capitalized terms are set forth under "-- Certain Definitions" and throughout this description. Capitalized terms that are used but not otherwise defined herein have the meanings assigned to them in the Indenture and such definitions are incorporated herein by reference. The Indenture authorizes an aggregate principal amount of $150,000,000 of notes. The initial issuance of notes thereunder will consist of the Notes which will bear interest from the date of original issuance at the rate of % per annum payable semiannually on the 30th day of January and July commencing on July 30, 1997 and continuing semiannually thereafter until paid in full (each such date an "interest payment date") to holders of record at the close of business on the first day of the month of such interest payment date. The Notes will be due on , 2004, will be issued in registered form, without coupons, only in denominations of $1,000 and integral multiples thereof and will be unsecured obligations of the Company which will be subordinated to the Senior Indebtedness of the Company. The Notes may be presented for transfer and exchange at the office of the Trustee maintained for that purpose, provided that payment of interest may, at the option of the Company, be made by check mailed to the registered address of the person entitled thereto. No service charge will be made for any transfer or exchange of Notes, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. DEFINITIONS Set forth below is a summary of certain of the defined terms used in the covenants contained in the Indenture. Reference is made to the Indenture for the full definition of all such terms. "Asset Sale" means any sale, lease, transfer, exchange or other disposition (or series of related sales, leases, transfers, exchanges or dispositions) of shares of capital stock of a Subsidiary (other than directors' qualifying shares), or of property or assets or any interests therein by the Company or any of its Subsidiaries, including any disposition by means of a merger, consolidation or similar transaction (other than (A) by the Company to a wholly owned subsidiary or by a Subsidiary to the Company or a wholly owned subsidiary, (B) a sale of products, services, inventories and assets in the ordinary course of business of the Company's operations, and (C) the disposition of all or substantially all of the assets of the Company in compliance with the covenant captioned "Limitations on Mergers and Consolidations"). "Change of Control" means any event or series of events by which (i) any person as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended is or becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act) of 50% of more of the total voting power of the voting stock of the Company; (ii) the Company consolidates with or merges or amalgamates with or into another person or conveys, transfers, or leases all or substantially all of its assets to any person, or any person consolidates with, or merges or amalgamates with or into the Company, in any such event pursuant to the transaction in which the outstanding voting stock of the Company is changed into or exchanged for cash, securities or other property, other than any such transaction where (A) the outstanding voting stock of the 54 56 Company is changed or exchanged for voting stock of the surviving corporation and (B) the holders of the Voting Stock of the Company immediately prior to such transaction own, directly or indirectly, not less than a majority of the Voting Stock of the surviving corporation immediately after such transaction; or (iii) the shareholders of the Company approve any plan of liquidation or dissolution of the Company. "Indebtedness" means, without duplication, with respect to any person, (a) all obligations of such person (i) in respect of borrowed money (whether or not the recourse of the lender is to the whole of the assets of such person or only to a portion thereof), (ii) evidenced by bonds, notes, debentures or similar instruments, (iii) representing the balance deferred and unpaid of the purchase price of any property or services (other than accounts payable or other obligations arising in the ordinary course of business), (iv) evidenced by bankers' acceptances or similar instruments issued or accepted by banks, (v) for the payment of money relating to a capitalized lease obligation, or (vi) evidenced by a letter of credit or a reimbursement obligation of such person with respect to any letter of credit; (b) all net obligations of such person under interest rate swap obligations and foreign currency hedges; (c) all liabilities of others of the kind described in the preceding clauses (a) or (b) that such person has guaranteed or that are otherwise its legal liability; (d) with respect to such person, the liquidation preference or any mandatory redemption payment obligations in respect to disqualified stock; and (e) any and all deferrals, renewals, extensions, refinancings and refundings (whether direct or indirect) of, or amendments, modifications or supplements to, any liability of the kind described in any of the preceding clauses (a), (b), (c) and (d). "Net Available Proceeds" means, with respect to any Asset Sale of any person, cash proceeds received (including any cash proceeds received by way of deferred payment of principal pursuant to a note or installment receivable or otherwise, but only as and when received, and excluding any other consideration until such time as such consideration is converted into cash) therefrom, in each case net of all legal, title and recording tax expenses, commissions and other fees and expenses incurred, and all federal, state or local taxes required to be accrued as a liability as a consequence of such Asset Sale, and in each case net of all Indebtedness which was secured by such assets, in accordance with the terms of any lien upon or with respect to such assets, or which must, by its terms or in order to obtain a necessary consent to such Asset Sale or by applicable law, be repaid out of the proceeds from such Asset Sale and which is actually so repaid. "Senior Indebtedness" means any Indebtedness of the Company (whether outstanding on the date of issuance of the Notes or thereafter incurred), unless such Indebtedness is pari passu with or contractually subordinate or junior in right of payment to the Notes, except Indebtedness to any affiliate of the Company which shall be junior and subordinate to the Notes, and except Indebtedness evidenced by any series of notes authorized to be issued under the Indenture in addition to and on parity with the Notes. "Subordinated Indebtedness" means any Indebtedness of the Company (whether outstanding on the date of issuance of the Notes or thereafter incurred) which is contractually subordinate or junior in right of payment to the Notes. SUBORDINATED INDEBTEDNESS The Indebtedness evidenced by the Notes will be subordinated to the prior payment when due of the principal of, and premium, if any, and accrued and unpaid interest on, all existing and future Senior Indebtedness of the Company. The Notes will be senior to, in right of payment of principal of, premium, if any, and accrued and unpaid interest on, any other and future Subordinated Indebtedness of the Company. The Notes and the Indenture provide that, upon any distribution of assets of the Company in any dissolution, winding up, liquidation, or reorganization of the Company, all holders of Senior Indebtedness of the Company must be paid in full before any payment or distribution is made with respect to the Notes. Because of these subordination provisions, unless sufficient sums are available to pay the holders of the Notes and the holders of Senior Indebtedness of the Company in full, holders of Senior Indebtedness of the Company, including certain creditors of the Company who are not holders of Senior Indebtedness of the Company, may recover more, ratably, than the holders of the Notes. 55 57 The Indenture provides that, upon the maturity of any Senior Indebtedness of the Company by lapse of time, acceleration or otherwise, unless and until all principal thereof, premium, if any, and interest thereon and other amounts due thereon shall first be paid in full, no payment shall be made by or on behalf of the Company with respect to the principal of, premium, if any, or interest on the Notes. Upon the happening of any default in the payment of any principal of or interest on or other amounts due on any Senior Indebtedness of the Company, unless and until such default shall have been cured or waived or have ceased to exist, no payment shall be made by or on behalf of the Company with respect to the principal of or interest on the Notes. SUBSIDIARY GUARANTEES Each of the Company's subsidiaries (the "Subsidiaries") will unconditionally and fully guarantee (the "Guarantees"), on a joint and several basis, the Company's obligations to pay principal of, premium, if any, and interest on the Notes. The Indenture also provides that each person that becomes a Subsidiary after the date of original issuance of the Notes shall guarantee the payment of the Notes. Under the terms of the Indenture, a Subsidiary Guarantor may be released from its Guarantee if such Subsidiary Guarantor is sold or disposed of by the Company, or sells or disposes of substantially all of its assets, to another person in accordance with the Indenture, as described below. Each Subsidiary Guarantor's Guarantee will be subordinate to Senior Indebtedness of such Subsidiary Guarantor, including such Subsidiary Guarantor's guarantees of Senior Indebtedness of the Company, generally on the same basis as the Company's obligations under the Indenture and the Notes will be subordinate to Senior Indebtedness of the Company. The Guarantees will, however, rank at least on a parity with claims of all other unsecured creditors of the respective Subsidiary Guarantors. However, because of the subordination provisions, unless sufficient sums are available to pay the full amounts required under the Guarantees and to pay the unsecured creditors of the respective Subsidiary Guarantors, such other unsecured creditors of the Subsidiary Guarantors may recover more, ratably, than the holders of the Notes would recover with respect to the Guarantees. Each Subsidiary Guarantor will be prohibited from making payments under its Guarantee if defaults and certain other events with respect to Senior Indebtedness of a Subsidiary Guarantor have occurred that prohibit the Subsidiary Guarantor from making payments on the Notes pursuant to the Guarantee. The obligations of each Subsidiary Guarantor are limited to the maximum amount as will, after giving effect to all other contingent and fixed liabilities of such Subsidiary Guarantor and after giving effect to any collections from or payments made by or on behalf of any other Subsidiary Guarantor in respect of the obligations of such other Subsidiary Guarantor under its Guarantee or pursuant to its contribution obligations under the Indenture, result in the obligations of such Subsidiary Guarantor under its Guarantee not constituting a fraudulent conveyance or fraudulent transfer under federal, state, or foreign law. Each Subsidiary Guarantor may consolidate with or merge into or sell its assets to the Company or another Subsidiary Guarantor without limitation. Each Subsidiary Guarantor may consolidate with or merge into or sell its assets to a corporation other than the Company or another Subsidiary Guarantor (whether or not affiliated with the Subsidiary Guarantor), provided, that (a) if the surviving corporation is not the Subsidiary Guarantor, the surviving corporation agrees to assume such Subsidiary Guarantor's Guarantee and all its obligations pursuant to the Indenture and (b) such transaction does not (i) violate any covenants under the Indenture or (ii) result in a Default or Event of Default immediately thereafter that is continuing. A Subsidiary Guarantor may be released from its Guarantee only if such Subsidiary Guarantor consolidates with, merges into or sells substantially all of its assets to, another person in accordance with the requirements of the Indenture. Except as provided in the preceding sentence, a Subsidiary Guarantor may not otherwise be released from its Guarantee. CHANGE OF CONTROL Within 30 days following the occurrence of any Change of Control, the Company will offer (a "Change of Control Offer") to purchase all outstanding Notes at a purchase price equal to 100% of the aggregate principal 56 58 amount of the Notes, plus accrued and unpaid interest to the date of purchase. The Change of Control Offer shall be deemed to have commenced upon mailing of the notice described in the next succeeding paragraph and shall terminate 20 business days after its commencement, unless a longer offering period is required by law. Promptly after the termination of the Change of Control Offer (the "Change of Control Payment Date"), the Company shall purchase and mail or deliver payment for all Notes tendered in response to the Change of Control Offer. It is expected that any bank credit facility or other Senior Indebtedness that the Company is a party to would prohibit the repurchase of Indebtedness subordinated to Indebtedness thereunder, which would include the Notes. Failure of the Company to repurchase the Notes in the event of a Change of Control would create an Event of Default with respect to the Notes. In addition, the subordination provisions of the Indenture prohibit, subject to certain conditions, the repurchase or repayment of the Notes if there is a default under Senior Indebtedness. As a result, the Company may be prohibited from making payment upon a Change of Control. The Company, to the extent applicable and if required by law, will comply with Section 14 of the Exchange Act and the provisions of Regulation 14E and any other tender offer rules under the Exchange Act and any other federal and state securities laws, rules and regulations which may then be applicable to any offer by the Company to purchase the Notes at the option of the holders of the Notes upon a Change of Control. CONVERSION The Notes and the accrued interest payable thereon are convertible into shares of the Company's Common Stock, par value $.01 per share, at a conversion price of $ per share (the "Conversion Price"), subject to adjustment on the Conversion Date as set forth below to protect against dilution of the Conversion Price. No accrued and unpaid interest will be convertible into Common Stock unless the conversion occurs after the record date for such accrued and unpaid interest. No other payment or adjustment will be made on conversion of any Note for interest accrued thereon or for dividends declared on the Common Stock. No fractional shares will be issued. In lieu of fractional shares, the Company will pay to the holder of the Notes at the time of conversion an amount in cash equal to the same fraction of the current market value of a share of Common Stock of the Company. This current market value will be deemed the closing price of the Common Stock on the NYSE on the last trading day preceding the Conversion Date. In the case of Notes called for redemption, conversion rights will expire at the close of business on the redemption date. A holder of Notes may convert his Notes by surrendering to the conversion agent each Note covering Notes to be converted together with a statement of the name or names in which the shares of Common Stock shall be registered upon issuance (the date of such surrender, the "Conversion Date"). Every such notice of election to convert will constitute a contract between the holder giving such notice and the Company whereby such holder will be deemed to subscribe for the shares of Common Stock he will be entitled to receive upon such conversion and, in payment and satisfaction of such subscription, to surrender the Notes to be converted and to release the Company from all further obligation thereon and whereby the Company will be deemed to accept the surrender of such Notes in full payment of the shares of Common Stock so subscribed for and to be issued upon such conversion. As promptly as practicable after the Conversion Date, the Company shall issue and deliver to the converting holder of the Notes a certificate representing the number of shares of Common Stock into which the Notes was converted together with cash in lieu of fractional shares, if any. If a holder of Notes elects to convert only a portion of his Notes, upon such conversion the Company shall also deliver to the holder of the Notes a new Note representing his unconverted Notes. To protect against dilution of the Conversion Price, the Conversion Price is subject to adjustment upon the occurrence of certain events, including the issuance of shares of Common Stock or other securities of the Company as a dividend or distribution on shares of Common Stock of the Company to the holders of all of its outstanding shares of Common Stock; subdivisions, combinations, or certain reclassifications of shares of Common Stock of the Company; the issuance of shares of Common Stock of the Company or of rights, options, or warrants to subscribe for or purchase shares of Common Stock of the Company at less than the effective Conversion Price of the Notes; or the distribution to the holders of shares of Common Stock of the Company generally of evidences of indebtedness or assets (excluding cash dividends and distributions made 57 59 out of current or retained earnings) or rights, options, or warrants to subscribe for securities of the Company other than those mentioned above. No adjustment in the Conversion Price will be required to be made with respect to the Notes until cumulative adjustments amount to 1% or more; however, any such adjustment not required to be made will be carried forward and taken into account in any subsequent adjustment. In the event of any consolidation with or merger of the Company into another corporation, or sale of all or substantially all of the properties and assets of the Company to any other corporation, or in case of any reorganization of the Company, the Notes would thereupon become convertible only into the number of shares of stock or other securities, assets, or cash to which a holder of the number of shares or Common Stock of the Company issuable (at the time of such consolidation, merger, sale, or reorganization) upon conversion of such Notes would have been entitled upon such consolidation, merger, sale or reorganization. REDEMPTION If not earlier converted or redeemed, the Notes may be redeemed upon at least 30 days' notice, at the Company's option, in whole or in part on a pro rata basis, on and after , 1999, at the following redemption prices (expressed in percentages of the principal amount) if redeemed during the twelve-month period beginning of the year indicated below, in each case together with accrued interest payable thereon to the redemption date:
YEAR REDEMPTION PRICE - ----- ---------------------------------------------- 1999 2000 2001 2002 2003
However, on or after , 1999 and prior to , 2000, the Notes will not be redeemable unless the closing price of the Company's Common Stock as quoted on the NYSE has equaled or exceeded $ for 20 trading days within a period of 30 consecutive trading days. Concurrently with the notice of redemption provided by the Company, the Company will provide instructions as to the procedure to be followed to execute such redemption. If less than all of the Notes are to be redeemed, the Trustee shall select the Notes or the portion thereof to be redeemed on a pro rata basis. CERTAIN COVENANTS Limitation on Incurrence of Indebtedness. The Indenture provides that the Company will not, and will not permit any of its subsidiaries, directly or indirectly, to issue, incur, guarantee, become liable, contingently or otherwise, or otherwise become responsible for the payment of any Indebtedness; provided, however, that if no Default or Event of Default with respect to the Notes shall have occurred and be continuing at the time of such incurrence, the Company or its Subsidiaries may incur Indebtedness if, on a pro forma basis, after giving effect to such incurrence and the application of the proceeds therefrom, the Consolidated Coverage Ratio would have been equal to or greater than 1.0 to 1.0 with respect to Indebtedness incurred thereafter. However, such Consolidated Coverage Ratio covenant shall not apply until on and after January 1, 1998. Notwithstanding the foregoing, (i) the Company may incur Indebtedness consisting of the Notes, and (ii) the Subsidiary Guarantors may incur Indebtedness consisting of the Guarantees of the Notes. The foregoing limitations will not apply to Indebtedness incurred or assumed in connection with any acquisition as long as the historic coverage ratio for the acquired company or the pro forma Consolidated Coverage Ratio for the Company and the acquired company is equal to or greater than 1.0 to 1.0. The foregoing limitations also will not apply to, nor include the effect of, $50 million aggregate principal amount of Indebtedness pursuant to senior credit facilities. For purposes of this covenant, "Consolidated Coverage Ratio" shall mean, for the preceding four quarter period, the ratio on a pro forma basis of (i) consolidated earnings before interest, taxes, depreciation and 58 60 amortization, (as those terms are defined by GAAP) for such period, to (ii) consolidated interest expense (as that term is defined by GAAP) for such period. Limitation on Sale of Assets. The Indenture provides that the Company will not, and will not permit any Subsidiary to, make any Asset Sales which, in the aggregate, have a fair market value of $5 million or more in any 12-month period unless: (i) the Company (or its Subsidiaries, as the case may be) receives consideration at the time of such sale or other disposition at least equal to the fair market value thereof (as determined in good faith by the Company's Board of Directors and evidenced by a resolution of such Board in the case of any Asset Sales or series of related Asset Sales having a fair market value of $20 million or more); and (ii) not less than 35% of the proceeds received by the Company (or its Subsidiaries, as the case may be) from such Asset Sale consists of cash, cash equivalents, publicly traded stock of a person primarily engaged in the Company's principal business; or any combination of the foregoing; and (iii) the Net Available Proceeds received by the Company (or its Subsidiaries, as the case may be) from such Asset Sale are applied as described below. Notwithstanding the limitation on any Asset Sale, the Company and its Subsidiaries may dispose of property and assets of the Company or its Subsidiaries in exchange for capital property and capital assets (i) which are directly related to the Company's principal business; (ii) which are of the same type of property or assets, or which have the same function, as the properties or assets being disposed of; and (iii) which have an aggregate fair market value equal to or greater than the aggregate fair market value of the property and assets being disposed of; provided, however, that (A) in no event may the Company and its Subsidiaries, in any 12-month period, dispose of property or assets pursuant to this paragraph having an aggregate fair market value of $30 million or more and (B) with respect to any property or assets being disposed of having a fair market value of $20 million or more, the Board of Directors of the Company shall have determined in good faith that the aggregate fair market value of the property and assets being received by the Company and its Subsidiaries is equal to or greater than the aggregate fair market value of the property and assets being disposed of. The Company shall, within 270 days following the receipt of Net Available Proceeds from any Asset Sale, apply such Net Available Proceeds to: (i) the repayment of Indebtedness of the Company under the Company's bank credit facility or other Senior Indebtedness of the Company, or Senior Indebtedness of any Subsidiary Guarantor, provided that any such repayment shall result in a permanent reduction in the principal amount of such Senior Indebtedness in an amount equal to the principal amount so repaid; or (ii) make an investment in capital assets used in the principal business of the Company. If, upon completion of the 270-day period, any portion of the Net Available Proceeds of any Asset Sale shall not have been applied by the Company as described in the preceding sentence and such remaining Net Available Proceeds, together with any remaining net cash proceeds from any prior Asset Sale (such aggregate constituting "Excess Proceeds") exceeds $30 million, then the Company will be obligated to make an offer (the "Net Proceeds Offer") to purchase Notes having an aggregate principal amount equal to the Excess Proceeds (such purchase to be made pro rata or by lot if the amount available for such repurchase is less than the principal amount of the Notes tendered in such Net Proceeds Offer) at a purchase price of 100% of the principal amount thereof plus accrued interest, if any, to the date of repurchase (the "Net Proceeds Payment Date"). The paying agent will promptly mail or deliver to holders whose Notes have been accepted for repurchase payment in an amount equal to the purchase price, and the Company will execute and the Trustee will promptly authenticate and mail or make available for delivery to such holders a new Note equal in principal amount to any unpurchased portion of the Notes surrendered. Any Notes not so accepted will be promptly mailed or delivered to the holder thereof. Upon the completion of a Net Proceeds Offer, the amount of Excess Proceeds will be reset to zero. Notice of a Net Proceeds Offer to purchase the Notes will be made on behalf of the Company not less than 25 business days nor more than 60 business days before the Net Proceeds Payment Date. Notes tendered to the Company pursuant to a Net Proceeds Offer will cease to accrue interest after the Net Proceeds 59 61 Payment Date. For purposes of this covenant, the term "Net Proceeds Offer Amount" means the principal of outstanding Notes in an aggregate principal amount equal to any remaining Net Available Proceeds (rounded to the next lowest $1,000). If the Net Proceeds Payment Date is on or after an interest payment record date and on or before the related interest payment date, any accrued interest will be paid to the person in whose name an Exchange Note is registered at the close of business on such record date, and no additional interest will be payable to holders who tender Notes pursuant to the Net Proceeds Offer. Limitation on Liens Securing Indebtedness. The Indenture provides that the Company will not, and will not permit any of its Subsidiaries to, create, incur, assume or suffer to exist any liens (other than as permitted) upon any of their respective properties securing (i) any Indebtedness of the Company (other than Senior Indebtedness of the Company), unless the Notes are equally and ratably secured or (ii) any Indebtedness of any Subsidiary Guarantor (other than Senior Indebtedness of such Subsidiary Guarantor) unless the Guarantors are equally and ratably secured; provided, that if such Indebtedness is expressly subordinated to the Notes or Guarantees, the lien securing such Indebtedness will be subordinated and junior to any lien securing the Notes or Guarantees, with the same relative priority as such Subordinated Indebtedness of the Company or Subordinated Indebtedness of a Subsidiary Guarantor will have with respect to the Notes or Guarantees. The terms and conditions of any lien securing the Notes must be acceptable to the Trustee and the Trustee is not required to foreclose on or realize on any such lien, if in the judgment of the Trustee, to do so would expose the Trustee to liability for which the Trustee would not be adequately indemnified. Limitation on Payment Restrictions Affecting Subsidiaries. The Indenture provides that the Company will not, and will not permit any of its Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any consensual encumbrance or consensual restriction on the ability of any Subsidiary of the Company to (i) pay dividends or make any other distributions on its capital stock or on any other interest or participation in the Company or a Subsidiary; (ii) pay any Indebtedness owed to the Company or a Subsidiary of the Company; (iii) make loans or advances to the Company or a Subsidiary of the Company; or (iv) transfer any of its properties or assets to the Company or a Subsidiary of the Company, except for (a) encumbrances or restrictions with respect to Senior Indebtedness; (b) consensual encumbrances or consensual restrictions binding upon any person at the time such person becomes a Subsidiary of the Company (unless the agreement creating such consensual encumbrance or consensual restriction was entered into in connection with, or in contemplation of, such entity becoming a Subsidiary); (c) customary provisions restricting subletting or assignment of any lease governing a leasehold interest of any Subsidiary; (d) customary restrictions in security agreements or mortgages securing Indebtedness of a Subsidiary to the extent such restrictions restrict the transfer of the property subject to such security agreements and mortgages; (e) customary restrictions in purchase money obligations for property acquired in the ordinary course of business restricting the transfer of the property acquired thereby; (f) consensual encumbrances or restrictions under any agreement that refinances or replaces any agreement described in clauses (a), (b) (c), (d) or (e) above, provided that the terms and conditions of any such restrictions are no less favorable to the holders of the Notes than those under the agreement so refinanced or replaced; and (g) customary non-assignment provision in leases, purchase money financings and any encumbrance or restriction due to applicable law. Limitation on Transactions with Affiliates. The Indenture provides that neither the Company nor any of its Subsidiaries shall (i) sell, lease, transfer or otherwise dispose of any of its properties, assets or securities to, (ii) purchase or lease any property, assets or securities from, (iii) make any investment in, or (iv) enter into or amend any contract or agreement with or for the benefit of, either an (A) affiliate of any of them, (B) any person or person who is a member of a group (as such term is used for purposes of Sections 13(d) and 14(d) of the Exchange Act, whether or not applicable) that, directly or indirectly, is the beneficial holder of 5% or more of any class of equity securities of the Company, (C) any person who is an affiliate of any such holder, or (D) any officers, directors, or employees of any of the above (each case under (A), (B), (C) and (D), an "Affiliate Transaction"), in one or a series of related transactions (to either party) per Affiliate Transaction in excess of $2,000,000, except for transactions evidenced by an officers' certificate addressed and delivered to the Trustee stating that such Affiliate Transaction is made in good faith, the terms of which are fair and reasonable to the Company and such Subsidiary, as the case may be, or, with respect to Affiliate Transactions between the Company and its Subsidiaries, to the Company; provided, that (x) transactions between or 60 62 among the Company and its Subsidiaries shall not be deemed to constitute Affiliate Transactions and (y) with respect to any Affiliate Transaction with an aggregate value (to either party) in excess of $4,000,000, the Company must, prior to the consummation thereof, obtain a written favorable opinion as to the fairness of such transaction to itself from a financial point of view from an investment banking firm. Limitation on Future Senior Subordinated Indebtedness. The Indenture provides that the Company and its Subsidiaries will not incur any Indebtedness (other than the Notes) that is subordinated in right of payment to any other Indebtedness of the Company unless such Indebtedness, by its terms, is pari passu with or subordinated to the Notes. No Subsidiary Guarantor shall incur any Indebtedness other than the Guarantee that is subordinated in right of payment to any other Indebtedness of such Subsidiary Guarantor unless such Indebtedness, by its terms, is pari passu with or subordinated to the Guarantee of such Subsidiary Guarantor. Line of Business. For so long as the Notes are outstanding, the Company shall not, and shall not permit any of its Subsidiaries to, engage in any business or activity other than the principal business of the Company. Principal business of the Company means the business of crash resistant technology including seating systems and restraint systems for transportation vehicles, civilian and military aircraft components and services and any activity or business that is a reasonable extension, development or expansion thereof. Limitations on Mergers and Consolidations. The Company shall not consolidate with or merge into any other corporation or convey or transfer or lease its properties and assets substantially as an entirety to any person, unless: (1) the corporation formed by such consolidation or into which the Company is merged or the person which acquires by conveyance, transfer or lease the properties or assets of the Company substantially as an entirety shall be a corporation organized and existing under the laws of the United States of America or any State or the District of Columbia, and shall expressly assume the due and punctual payment of the principal of (and premium, if any) and interest on all Notes and the performance of every covenant of the Indenture on the part of the Company to be performed or observed; and (2) immediately before and after giving effect to such transaction, no Event of Default, and no event which, after notice or lapse of time, or both, would become an Event of Default, shall have happened and be continuing. Upon any consolidation or merger, or any conveyance, transfer or lease of the properties and assets of the Company substantially as an entirety in accordance with the above, the successor corporation formed by such consolidation or into which the Company is merged or into which such conveyance, transfer or lease is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under the Indenture with the same effect as if such successor corporation had been named as the Company herein and thereafter (except in the case of a lease) the predecessor corporation will be relieved of all further obligations and covenants under the Indenture and the Notes. EVENTS OF DEFAULT An Event of Default is defined in the Indenture as being: (i) default by the Company or any Subsidiary Guarantor in the payment of principal of, or premium, if any, on the Notes when due and payable at maturity, upon repurchase pursuant to a Change of Control Offer or a Net Proceeds Offer; (ii) default by the Company or any Subsidiary Guarantor for 30 days in payment of any interest on the Notes; (iii) the acceleration of the maturity of any other Indebtedness of the Company or any Subsidiary Guarantor having an outstanding principal amount of $10,000,000 or more individually or in the aggregate; (iv) default by the Company or any Subsidiary Guarantor in performance or breach of any other covenant or agreement in the Notes or the Indenture or Guarantees which shall not have been remedied within 60 days after written notice by the Trustee or by the holders of at least 25% in principal amount of the Notes then outstanding; (v) judgments or orders for the payment of money in an aggregate amount in excess of $10,000,000 (net of applicable insurance coverage which is acknowledged in writing by the insurer) having been rendered against the Company or any Subsidiary Guarantor and such judgments or orders shall continue unsatisfied and unstayed for a period of 60 days from the entry thereof; (vi) a guarantee of a Subsidiary Guarantor shall cease to be in full force or effect or any Subsidiary Guarantor shall deny or disaffirm its obligations with respect thereto; or (vii) certain events involving bankruptcy, insolvency or reorganization of the Company or any Subsidiary Guarantor. The Indenture provides that the Trustee may withhold notice to the holders of the Notes of any default (except in 61 63 payment of principal of, or premium, if any, or interest on the Notes) if the Trustee considers it in the interest of the holders of the Notes to do so. The Indenture provides that if an Event of Default occurs and is continuing with respect to the Indenture, the Trustee or the holders of not less than 25% in principal amount of the Notes outstanding may declare the unpaid principal of and premium, if any, and accrued but unpaid interest on all Notes to be due and payable immediately by notice in writing to the Company (and to the Trustee if given by the holders). Upon such a declaration, such principal, premium, if any, and interest will be due and payable immediately. If an Event of Default relating to certain events of bankruptcy, insolvency or reorganization of the Company or any Subsidiary occurs and is continuing, the principal of and premium, if any, and interest on all the Notes will become and be immediately due and payable without any declaration or other act on the part of the Trustee or any holders of the Notes. Under certain circumstances, the holders of a majority in principal amount of the outstanding Notes may rescind any such acceleration with respect to the Notes and its consequences. The Indenture provides that no holder of a Note may pursue any remedy under the Indenture unless (i) the Trustee shall have received written notice of a continuing Event of Default from the holder, (ii) the Trustee shall have received a request from holders of at least 25% in principal amount of the Notes to pursue such remedy, (iii) the Trustee shall have been offered indemnity reasonably satisfactory to it and (iv) the Trustee shall have failed to act for a period of 60 days after receipt of such notice and offer of indemnity; however, such provision does not affect the right of a holder of a Note to sue for enforcement of any overdue payment thereon. The Notes and the Indenture provide that if an Event of Default occurs as defined above, a default rate of interest in the amount of 15% per annum shall accrue on the indebtedness evidenced by the Notes from such date for such period of time until the default is cured. The holders of a majority in principal amount of the Notes then outstanding have the right to direct the time, method and place of conducting any proceeding for exercising any remedy available to the Trustee under the Indenture, subject to certain limitations specified in the Indenture. The Indenture requires the annual filing by the Company with the Trustee of a written statement as to compliance with the covenants contained in the Indenture. MODIFICATION AND WAIVER The Indenture provides that modifications and amendments to the Indenture may be made by the Company and the Trustee with the consents of the holders of a majority in principal amount of the Notes then outstanding; provided that no such modification or amendment may, without the consent of the holder of each Note then outstanding affected thereby, (i) reduce the percentage of principal amount of Notes whose holders may consent to an amendment, supplement or waiver; (ii) reduce the rate or change the time for payment of interest, including default interest, on any Note; (iii) reduce the principal amount of any Exchange Note or change the maturity date of the Notes; or (iv) reduce the redemption price, including premium, if any, payable upon redemption of any Note or change the time at which any Note may or shall be redeemed; (v) reduce the repurchase price, including premium, if any, payable upon the repurchase of any Note or change the time at which any Note may or shall be repurchased; (vi) increase the Conversion Price; (vii) make any Note payable in money other than that stated in the Note; (vii) impair the right to institute suit for the enforcement of any payment of principal of, or premium, if any, or interest on, any Note; (viii) make any change in the percentage of principal amount of Notes necessary to waive compliance with certain provisions of the Indenture; or (ix) waive a continuing Default or Event of Default in the payment of principal of, premium, if any, or interest on the Notes. The Indenture provides that modifications and amendments of the Indenture may be made by the Company and the Trustee without the consent of any holders of Notes in certain limited circumstances, including (a) to cure any ambiguity, omission, defect or inconsistency, (b) to provide for the assumption of the obligations of the Company under the Indenture upon the merger, consolidation or sale or other disposition of all or substantially all of the assets of the Company, (c) to comply with, and maintain the qualification of the Indenture under the Trust Indenture Act of 1939 or (d) to make any change that does not adversely affect the rights of any holder of Notes. 62 64 The Indenture provides that the holders of a majority in aggregate principal amount of the Notes then outstanding may waive any past default under the Indenture, except a default in the payment of principal, premium, if any, or interest. DISCHARGE AND TERMINATION The Company may at any time terminate its obligations under the Notes and the Indenture, with certain exceptions specified in the Indenture, by irrevocably depositing in trust cash or obligations of the United States government and its agencies for payment of principal of, premium, if any, and interest on, the Notes to redemption or maturity, subject to the satisfaction of certain conditions. Subject to the conditions described below, at the Company's option, either (a) the Company will be deemed to have been discharged from its obligation with respect to the Notes on the 31st day after the applicable conditions set forth below have been satisfied or (b) the Company will cease to be under any obligation to comply with certain restrictive covenants, including those described under "Certain Covenants," at any time after the applicable conditions set forth below have been satisfied: (1) the Company has deposited or cause to be deposited irrevocably with the Trustee as trust funds in trust, specifically pledged as security for, and dedicated solely to, the benefit of the holders of (i) U.S. legal tender or (ii) United States government obligations, which through the payment of interest and principal in respect thereof in accordance with their terms will provide (without any reinvestment of such interest or principal), not later than one day before the due date of any payment, U.S. legal tender or (iii) a combination of (i) and (ii), in an amount sufficient, in the opinion (with respect to (ii) and (iii)) of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee at or prior to the time of such deposit, to pay and discharge each installment of principal of, premium, if any, and interest on, the outstanding Notes on the date such installments are due; (2) the Company has delivered to the Trustee an officers' certificate certifying whether the Notes are then listed on a national securities exchange; (3) if the Notes are then listed on a national securities exchange, the Company has delivered to the Trustee an officers' certificate to the effect that the Company's exercise of its option described above would not cause the Notes to be delisted; (4) no Default or Event of Default has occurred and is continuing on the date of such deposit or will occur as a result of such deposit and such deposit will not result in a breach or violation of, or constitute a default under, any other instrument to which the Company or Subsidiary or Subsidiary Guarantor is a party or by which any of them is bound, as evidenced to the Trustee in an officers' certificate delivered to the Trustee concurrently with such deposit; (5) the Company has delivered to the Trustee an opinion of counsel to the effect that holders will not recognize income, gain or loss for federal income tax purposes as a result of the Company's exercise of its option described above and will be subject to federal income tax on the same amount and in the same manner and at the same time as would have been the case if such option had not been exercised, and, in the case of the Notes being discharged, accompanied by a ruling to that effect received from or published by the Internal Revenue Service; (6) the Company has delivered to the Trustee an opinion of counsel to the effect that the Company's exercise of its option described above will not result in any of the Company, the Trustee or the trust created by the Company's deposit of funds hereunder becoming or being deemed to be an "investment company" under the Investment Company Act of 1940, as amended; (7) the Company has paid or duly provided for payment of all amounts then due to the Trustee pursuant to the terms of the Indenture; and (8) the Company has delivered to the Trustee an officers' certificate and an opinion of counsel, each stating that all conditions precedent provided for in the Indenture relating to the satisfaction and discharge of the Indenture have been complied with. THE TRUSTEE Bank One Trust Company, NA is the Trustee under the Indenture. Its address is Corporate Trust Client Service Group, 100 East Broad Street, Columbus, Ohio 43271-0181. The Company has also appointed the Trustee as the initial registrar and paying agent under the Indenture. The Indenture contains certain limitations on the right of the Trustee, should it become a creditor of the Company, to obtain payment of claims in certain cases, or to realize on certain property received in respect of any such claim as security or otherwise. The Trustee will be permitted to engage in other transactions; 63 65 however, if it acquires any conflicting interest (as defined in the Trust Indenture Act of 1939), it must eliminate such conflict or resign. The Indenture provides that in case an Event of Default shall occur (and be continuing), the Trustee is required to use the degree of care and skill of a prudent man in the conduct of his own affairs. The Trustee is under no obligation to exercise any of its powers under the Indenture at the request of any of the holders of the Notes, unless such holders shall have offered the Trustee indemnity reasonably satisfactory to it. 64 66 CERTAIN FEDERAL INCOME TAX CONSIDERATIONS The following discussion is a summary of certain federal income tax considerations relevant to the purchase, ownership, and disposition of the Notes by holders acquiring such Notes on original issue, but does not purport to be a complete analysis of all potential tax effects. The following discussion is based on the provisions of the Internal Revenue Code of 1986, as amended ("Code"), Treasury regulations, Internal Revenue Service ("Service") rulings and pronouncements, and judicial decisions now in effect, all of which are subject to change. Any such changes may be retroactively applied in a manner that could adversely affect a holder of the Notes. The succeeding discussion, except as otherwise stated therein, represents the opinion of Streich Lang, a professional association formed under the laws of the State of Arizona ("Counsel"). In the opinion of such Counsel, the succeeding discussion accurately describes the material federal income tax consequences that can be determined at the time of the acquisition of a Note on original issue by a person who will hold the Note as a "capital asset," within the meaning of Section 1221 of the Code. While the opinions described herein are based on Counsel's best judgment, they are not binding on the Service or the courts and do not guarantee a particular tax treatment. The Company has not sought and will not seek any rulings from the Service with respect to the tax reporting positions of the Company described below. The tax treatment of certain aspects of the Notes is uncertain, and there can be no assurance that the Service will not take positions that are different from those described herein. No assurances can be given that the positions adopted by the Company will be sustained, if challenged by the Service. The tax treatment of a holder of Notes may vary depending on the taxpayer's particular situation. Certain holders (including S corporations, insurance companies, tax-exempt organizations, financial institutions, broker-dealers, and others who do not hold the Notes as "capital assets," taxpayers subject to alternative minimum tax, foreign corporations and persons who are not citizens or residents of the United States) may be subject to special rules not discussed below. In addition, the description does not consider the effect of any applicable foreign, state, local, or other tax laws or any estate or gift tax considerations. CHARACTERIZATION OF NOTES The federal income tax treatment of the holder of a Note, will depend upon the characterization of the Note for tax purposes. Under Section 385 of the Code, the characterization of a financial instrument by its issuer at the time of issuance is binding upon both the issuer and all holders of such instrument, but is not binding upon the Service. The Company will take the position that the Notes will be treated as debt for federal income tax purposes. The determination of the tax classification of an instrument depends upon factors, including the issuer's financial condition, the ratio of the issuer's debt to equity, the issuer's earning power, whether the debt is subordinated to other creditors or convertible into stock, and other factors affecting the likelihood that the principal and interest on the instrument will be paid when due. The Notes will possess certain equity-like features, including the feature permitting the conversion of the Notes into Common Stock of the Company, subordination of the claims of holders of Notes to other creditors and the unsecured nature of the Notes. However, the Notes have a fixed term of approximately seven (7) years, payment of the Notes is guaranteed by the Company's subsidiaries, the Company expects to pay interest on the Notes currently and the principal on maturity. It is Counsel's opinion that it is more likely than not that the Notes will be recognized as debt for federal income tax purposes. If it were determined that any or all of the Notes constitute stock, some of the consequences would be that (a) the Company would not be entitled to deduct amounts characterized herein as interest; (b) payments of interest would be treated as dividends to the extent of the Company's current and/or accumulated earnings and profits; (c) the principal payment to be made on the maturity of the Notes would be tested for "sale or exchange" treatment under Section 302 of the Code; and (d) corporate holders would be entitled to the dividends received deduction with respect to payments of interest to the extent of the Company's current and/or accumulated earnings and profits and provided the eligibility requirements for such deduction are otherwise met. The inability of the Company to deduct amounts paid or accrued with respect to the Notes that are designated as interest may impair the Company's ability to make payments on the Notes or 65 67 to service its debt generally. The remainder of the discussion assumes that the Notes will be treated as debt for federal income tax purposes. INTEREST ON NOTES Interest payments on the Notes will be treated as ordinary income to a holder and will be reported under the holder's method of accounting. The Company does not intend to issue the Notes with any discount. Consequently, the Notes will be issued without original issue discount. GAIN OR LOSS ON SALE OR MATURITY OF NOTES Any gain or loss realized on the sale of Notes or upon retirement of the Notes at maturity will be capital gain or loss if the Notes are held as a capital asset, except ordinary income may be recognized to the extent the market discount rules discussed below require recognition of ordinary income. Any capital gain or loss will be long-term capital gain or loss if the holding period for the Notes exceeds one year. Gain or loss will be measured by the difference between the amount realized and the holder's adjusted basis in the Notes. Currently, net capital gains and ordinary income of corporations are taxable at the same maximum rate (35%), whereas net long-term capital gains of individuals are taxable at a maximum rate (28%) that is lower than the maximum rate applicable to ordinary income (39.6%). In the case of both individuals and corporations, capital losses generally may be used to offset only capital gains, subject to a de minimis $3,000 per annum exception in the case of individuals. AMORTIZABLE BOND PREMIUM In the case of a holder of Notes who acquires such Notes at a cost that exceeds the stated redemption price at maturity of such Notes, such excess amount may be treated as "amortizable bond premium," within the meaning of Section 171 of the Code. In that event and except as otherwise may be provided in final Treasury regulations, such amortizable bond premium will be allocated among the interest payments on the Notes on a constant interest rate basis over the remaining term of the Notes (based upon circumstances existing on the date the Notes are acquired and not on the issue date), and the amount allocated to each such interest payment will be applied against and reduce the amount of such interest payment that is required to be included in the income of the holder. The interest offset will be available only if an election under Section 171 of the Code is made or is in effect. This election, once made, would apply to all debt instruments held by the electing holder on, or acquired after, the first day of the first taxable year to which the election applies, and may not be revoked without the consent of the Service. CONVERSION OF NOTES INTO COMMON STOCK The Notes are convertible into Common Stock on the basis described in "Description of Notes -- Conversion" above. Generally, no gain or loss will be recognized for federal income tax purposes on the conversion of or a Note solely into Common Stock of the Company. Taxable gain will be realized upon the receipt of cash paid in lieu of a fractional share of Common Stock. Taxable gain also may be realized in the amount of any unpaid interest at the time of the conversion. In general, the tax basis for Common Stock received on conversion will be equal to the tax basis of the Notes converted and, provided that such Notes were held as a capital asset, the holding period of the shares of Common Stock received will include the holding period of such Notes. BACKUP WITHHOLDING Under Section 3406 of the Code and applicable Treasury regulations, a holder of Notes may be subject to backup withholding at the rate of 31% with respect to interest paid and with respect to the proceeds of certain sales, exchanges or redemptions, unless such holder (a) is a corporation or is otherwise exempt from backup withholding or (b) provides a taxpayer identification number, certifies that such number is correct and otherwise complies with applicable requirements of the backup withholding rules. 66 68 MARKET DISCOUNT Investors should note that in the event they acquire Notes other than upon original issue, that the market discount provisions of Sections 1276 through 1278 of the Code may apply. Under the market discount rules, if a holder of a Note receives or purchases it at a market discount (i.e., at a price below its stated redemption price at maturity) in excess of a statutorily-defined de minimis amount and thereafter recognizes gain upon a disposition or retirement of the Note, then the lesser of the gain recognized or the portion of the market discount that accrued on a ratable basis (or, if elected, on a constant interest rate basis) generally will be treated as ordinary income at the time of the disposition, including its redemption. Moreover, any market discount on a Note may be taxable to an investor to the extent of appreciation at the time of certain otherwise non-taxable transactions (e.g. gifts). Any accrued market discount not previously taken into income prior to a conversion of a Note, however, should carry over to the Common Stock received on conversion and be treated as ordinary income upon a subsequent disposition of such Common Stock to the extent of any gain recognized on such disposition. In addition, absent an election to include market discount in income as it accrues, a holder of a market discount debt instrument may be required to defer a portion of any interest expense that otherwise may be deductible on any indebtedness incurred or maintained to purchase or carry such debt instrument until the holder disposes of the debt instrument in a taxable transaction. 67 69 DESCRIPTION OF OTHER CAPITAL STOCK AND DEBT SECURITIES COMMON STOCK The Company is authorized to issue 50,000,000 shares of Common Stock, par value $.01 per share, of which 9,022,348 shares were issued and outstanding as of April 17, 1997. Holders of the Common Stock are entitled to one vote for each share owned for all matters to be voted on by the Common Stock shareholders. As required under Arizona law, there is cumulative voting in the election of directors. Accordingly, each shareholder is entitled to vote the number of shares owned by him for as many persons as there are directors to be elected, or to cumulate his votes by giving one candidate as many votes as the number of such directors multiplied by the number of his shares, or by distributing votes on the same principle among any number of candidates. Holders of Common Stock are entitled to receive such dividends as may be declared from time to time by the Board of Directors out of funds legally available therefor and, in the event of liquidation, dissolution, or winding up of the Company, to share ratably in all assets remaining after payment of liabilities. The holders of Common Stock have no preemptive or conversion rights. The holders of Common Stock are not subject to further calls or assessments. There are no redemption or sinking fund provisions applicable to the Common Stock. The rights of the holders of the Common Stock are subject to any rights that may be fixed for holders of preferred stock. The Common Stock currently outstanding is, and the Common Stock underlying the Notes offered by the Company hereby will, when issued, be validly issued, fully paid, and nonassessable. PREFERRED STOCK The Company is authorized to issue 50,000,000 shares of preferred stock, par value $.05 per share. No preferred stock is issued or outstanding. The preferred stock may, without action by the shareholders of the Company, be issued by the Board of Directors from time to time in one or more series for such consideration and with such relative rights, privileges, and preferences as the Board may determine. Accordingly, the Board has the power to fix the dividend rate and to establish the provisions, if any, relating to voting rights, redemption rate, sinking fund, liquidation, preferences, and conversion rights for any series of preferred stock issued in the future. SENIOR SUBORDINATED NOTES In December 1993, the Company issued $5.7 million principal amount of 12% Notes. The 12% Notes were issued pursuant to an Indenture dated December 17, 1993. The 12% Notes are not convertible and are non-callable. The 12% Notes are listed on the NYSE. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." In September 1996, the Company issued, in a private placement, $14.3 million principal amount of 10% Notes. The 10% Notes were issued pursuant to the Company's Indenture dated December 17, 1993 and a supplemental indenture dated September 12, 1996. The 10% Notes were sold pursuant to exemptions from registration under the Securities Act, Section 4(2), and Regulation D in reliance on Rule 506 thereunder, and comparable provisions of states' securities laws. The 10% Notes were sold solely to accredited investors as defined in Regulation D. The proceeds were used to repay indebtedness under the Company's bank line of credit, and for working capital. The 10% Notes are convertible into Common Stock of the Company at a conversion price which may be fixed by each Noteholder at the equivalent of 98% of the average closing price of the Company's Common Stock on the NYSE for the 10 day period immediately preceding notice to the Company of such an election to fix the conversion price. If not earlier converted, the 10% Notes are redeemable by the Company in whole or in part on a pro rata basis, at par value plus all accrued interest payable through the date of redemption, at any time upon 30 days written notice to the Noteholders in accordance with the following: (i) from September 12, 1996 until December 15, 1997, the 10% Notes may be redeemed by the Company after the closing price of the Company's Common Stock as quoted on the NYSE has equaled or exceeded $25.00 for any 10 consecutive trading days and (ii) after December 15, 1997, the Company may redeem the 10% Notes at any time at par value plus all accrued interest payable through the date of redemption. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." As of the date of this Prospectus, no 10% Notes have been converted into Common Stock. 68 70 ARIZONA ANTI-TAKEOVER STATUTE The Arizona Corporate Takeover Act (the "Takeover Act") was adopted in 1987. The policy of the Takeover Act is to prevent unfriendly corporate takeover attempts by third parties. Article I of the Takeover Act deals with, among other things, the prohibition of "green mail." Article II deals with limitation on voting rights of certain individuals acquiring shares in the market, and Article III regulates certain business combinations respecting corporate transactions proposed by insiders and as part of a takeover plan. Arizona corporations may elect to not be governed by Articles II or III of the Takeover Act and by doing so may elect to not be subject to the considerable restrictions on a possible tender offer or other takeovers. Pursuant to a 1995 amendment to the Company's Articles of Incorporation, the Company affirmatively approved its coverage under Articles II and III of the Takeover Act. TRANSFER AGENT AND REGISTRAR The Company's Transfer Agent and Registrar for the Common Stock is American Stock Transfer & Trust Company, New York, New York. LISTING The Common Stock is currently listed and traded on the NYSE under the symbol "SMU". The Notes have been approved for listing on the NYSE, subject to official notice of issuance, under the symbol "SMU- ". 69 71 UNDERWRITING The Underwriters named below (the "Underwriters"), have severally agreed, subject to the terms and conditions set forth in the underwriting agreement (the form of which is filed as an exhibit to the Company's Registration Statement of which this Prospectus is a part) among the Company and the Underwriters (the "Underwriting Agreement"), to purchase from the Company and the Company has agreed to sell to the Underwriters, the principal amount of Notes set forth opposite their names below:
PRINCIPAL AMOUNT NAME OF NOTES - ------------------------------------------------------------------- ---------------- HD Brous & Co., Inc................................................ $ Brean Murray & Co., Inc............................................ L.H. Friend, Weinress, Frankson & Presson, Inc.....................
The Underwriting Agreement provides that the obligations of the Underwriters to purchase the Notes are subject to certain conditions. The Underwriters are committed to purchase all of the Notes offered hereby (other than the principal amount of Notes covered by the over-allotment option described below) if any are purchased. The Company has been advised that the Underwriters propose to offer the Notes to the public at the public offering price set forth on the cover page of this Prospectus, and to certain securities dealers at such price less a concession not in excess of % of the principal amount of the Notes. The Underwriters may allow and such dealers may re-allow to other dealers, including any Underwriter, a discount not in excess of % of the principal amount of the Notes. After the public offering, the public offering price and concessions and discounts may be changed by the Underwriters. The Company has agreed to indemnify the Underwriters and their controlling persons against certain liabilities in connection with the offer and sale of the Notes, including liabilities under the Securities Act and to contribute to payments the Underwriters may be required to make in respect thereof. The Underwriters have obtained an option from the Company, exercisable during the 45-day period after the date of this Prospectus, under which they may purchase up to $ in principal amount of additional Notes at the same public offering price, less the underwriting discount set forth on the cover page of this Prospectus. The Underwriters may exercise the option only to cover over-allotments. To the extent that the Underwriters exercise such option, each of the Underwriters will be committed, subject to certain conditions, to purchase approximately the same percentage thereof as the principal amount of Notes to be purchased by it shown in the above table bears to the total offering. The Underwriters have informed the Company that the Underwriters do not intend to confirm sales of Notes offered hereby to accounts over which they exercise discretionary authority. The Company, its directors, and executive officers have agreed not to offer, issue, sell, grant any option for the sale of or otherwise dispose of (or announce any offer, issuance, sale, grant of option to purchase or other disposition) of any shares of Common Stock, or any securities convertible into an exercisable or exchangeable for shares of Common Stock shares for the 90 day period from the date of this Prospectus unless released earlier by the Underwriters. Mr. Miller, a director of the Company since 1995, is a Director of Investment Banking of HD Brous & Co, Inc. headquartered in Great Neck, New York. Mr. Miller is the principal in the office located in Phoenix, Arizona. HD Brous & Co., Inc. is an Underwriter of this offering. See "Certain Transactions." 70 72 LEGAL OPINIONS The validity of the shares being offered hereby has been passed upon for the Company by Streich Lang, a professional association, Phoenix, Arizona and for the Underwriters by O'Connor, Cavanagh, Anderson, Killingsworth & Beshears, a professional association, Phoenix, Arizona. EXPERTS The consolidated financial statements as of December 31, 1996 and 1995 and for each of the three years in the period ended December 31, 1996 included and incorporated by reference in this Prospectus have been audited by Deloitte & Touche LLP, independent auditors, as stated in their reports, which are included and incorporated by reference herein and have been so included and incorporated by reference in reliance upon the reports of such firm given upon their authority as experts in accounting and auditing. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The following documents filed by the Company with the Commission are incorporated herein by reference: (1) the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996; and (2) the Company's Registration Statement on Form 8-A under the Securities Exchange Act of 1934 with respect to the Common Stock, including any amendment or reports filed for the purpose of updating such description. All documents filed by the Company with the Commission (the "Commission") pursuant to Section 13(a), 13(c), 14 or 15(d) (the "Exchange Act") of the Exchange Act subsequent to the date hereof and prior to the termination of the offering of the Notes registered hereby shall be deemed to be incorporated by reference into this Prospectus and to be a part hereof from the date of filing such documents. Any statements contained in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Prospectus to the extent that a statement contained herein or in any other subsequently filed document which also is or is deemed to be incorporated by reference herein modifies or supersedes such statements. Any statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus. The Company will provide without charge to each person to whom this Prospectus is delivered, upon a written request of such person, a copy of any or all of the foregoing documents incorporated by reference into this Prospectus (other than exhibits to such documents, unless such exhibits are specifically incorporated by reference into such documents). Requests for such copies should be delivered to the Simula, Inc. Investor Relations Department, 2700 North Central Avenue, Suite 1000, Phoenix, Arizona 85004, phone number (602) 631-4005. ADDITIONAL INFORMATION The Company is subject to the informational requirements of the Securities and Exchange Act of 1934, as amended, and in accordance therewith files reports, proxy statements and other information with the Securities and Exchange Commission. Such reports, proxy and information statements and other information may be inspected and copied at the public reference facilities maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the following Regional Offices of the Commission: New York Regional Office, Seven World Trade Center, New York, New York 10048, and Chicago Regional Office, 500 West Madison Street, Chicago, Illinois 60661. Copies of such material can be obtained from the Public Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549 upon payment of the prescribed fees. The Commission also maintains a Web site that contains reports, proxy and information statements and other materials that are filed through the Commission's Electronic Data Gathering Analysis, and Retrieval system. This Web site can be accessed at http://www.sec.gov. The Common Stock is listed on the NYSE. The foregoing information concerning the Company may be inspected at the NYSE at 20 Broad Street, New York, New York 10005. 71 73 The Company will distribute to holders of the securities being offered hereby, annual reports containing audited financial statements and quarterly reports containing unaudited summary financial information for each of the first three fiscal quarters of each fiscal year. This Prospectus constitutes a part of a Registration Statement on Form S-3 (herein, together with all amendments and exhibits, referred to as the "Registration Statement") filed by the Company with the Commission under the Securities Act of 1933. This Prospectus does not contain all of the information set forth in the Registration Statement, certain parts of which are omitted in accordance with the rules and regulations of the Commission. For further information with respect to the Company and the securities offered hereby, reference is hereby made to the Registration Statement. Statements contained herein concerning the provisions of any document are not necessarily complete, and each such statement is qualified in its entirety by reference to the copy of such document filed with the Commission. 72 74 SIMULA, INC. INDEX TO FINANCIAL STATEMENTS Independent Auditors' Report...................................................... F-2 Consolidated Balance Sheets as of December 31, 1996 and 1995...................... F-3 Consolidated Statements of Operations for the three years ended December 31, 1996............................................................................ F-4 Consolidated Statements of Shareholders' Equity for the three years ended December 31, 1996........................................................................ F-5 Consolidated Statements of Cash Flows for the three years ended December 31, 1996............................................................................ F-6-F-7 Notes to Consolidated Financial Statements........................................ F-8-F-24
F-1 75 INDEPENDENT AUDITORS' REPORT Directors and Shareholders Simula, Inc. and Subsidiaries Phoenix, Arizona We have audited the accompanying consolidated balance sheets of Simula, Inc. and subsidiaries (the "Company") as of December 31, 1996 and 1995, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1996. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Simula, Inc. and subsidiaries at December 31, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1996 in conformity with generally accepted accounting principles. Deloitte & Touche LLP March 20, 1997 Phoenix, Arizona F-2 76 SIMULA, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
DECEMBER 31, ------------------------- 1996 1995 ----------- ----------- ASSETS CURRENT ASSETS: Cash and cash equivalents......................................... $ 1,298,741 $ 3,175,172 Contract and trade receivables -- Net (Notes 4 and 16)............ 25,164,350 24,814,754 Inventories (Note 5).............................................. 15,644,157 8,104,194 Income taxes receivable (Note 10)................................. 1,089,564 Deferred income taxes (Note 10)................................... 3,763,000 Prepaid expenses and other........................................ 1,050,215 762,836 ----------- ----------- Total current assets...................................... 48,010,027 36,856,956 PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS -- Net (Notes 6 and 9)................................................................ 23,356,025 15,778,819 DEFERRED INCOME TAXES (Note 10)..................................... 1,782,000 812,000 DEFERRED COSTS (Notes 2 and 7)...................................... 928,728 6,385,328 INTANGIBLES -- Net (Notes 3 and 7).................................. 10,964,139 11,455,005 OTHER ASSETS........................................................ 1,647,537 1,848,028 ----------- ----------- TOTAL..................................................... $86,688,456 $73,136,136 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Revolving line of credit (Note 8)................................. $ 6,900,000 Trade accounts payable............................................ 9,200,214 $ 7,884,141 Other accrued liabilities......................................... 4,019,534 2,607,849 Advances on contracts............................................. 148,194 3,920,533 Deferred income taxes (Note 10)................................... 8,000 Current portion of long-term debt (Note 9)........................ 4,536,508 1,367,187 ----------- ----------- Total current liabilities................................. 24,804,450 15,787,710 LONG-TERM DEBT -- Less current portion (Notes 9 and 14)............. 24,696,509 11,261,365 ----------- ----------- Total liabilities......................................... 49,500,959 27,049,075 COMMITMENTS AND CONTINGENCIES (Note 14) SHAREHOLDERS' EQUITY (Notes 11 and 15) Preferred stock, $.05 par value -- authorized, 50,000,000 shares; no shares issued or outstanding................................ Common stock, $.01 par value -- authorized, 50,000,000 shares; issued, 8,992,598 and 8,970,627 shares......................... 89,926 89,706 Additional paid-in capital........................................ 39,031,453 37,981,759 Retained (deficit) earnings....................................... (1,966,296) 8,295,434 Currency translation adjustment................................... 32,414 Treasury stock -- at cost, 82,500 shares.......................... (279,838) ----------- ----------- Total shareholders' equity................................ 37,187,497 46,087,061 ----------- ----------- TOTAL..................................................... $86,688,456 $73,136,136 =========== ===========
See notes to consolidated financial statements. F-3 77 SIMULA, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, ---------------------------------------- 1996 1995 1994 ------------ ----------- ----------- Revenue (Notes 3, 16 and 18)........................... $ 65,761,957 $59,088,613 $41,157,794 Cost of revenue........................................ 55,239,176 39,036,471 27,708,610 ------------ ------------ ------------ Gross margin........................................... 10,522,781 20,052,142 13,449,184 Administrative expenses (Note 17)...................... 19,748,851 15,609,005 8,264,864 ------------ ------------ ------------ Operating (loss) income................................ (9,226,070) 4,443,137 5,184,320 Interest expense (Notes 8 and 9)....................... (2,376,607) (2,029,854) (1,831,505) Interest income........................................ 51,711 440,076 21,608 ------------ ------------ ------------ (Loss) income before taxes............................. (11,550,966) 2,853,359 3,374,423 Income tax benefit (expense) (Note 10)................. 4,741,000 (196,000) (1,260,000) ------------ ------------ ------------ (Loss) earnings before cumulative effect of a change in accounting principle................................. (6,809,966) 2,657,359 2,114,423 Cumulative effect on prior years (to December 31, 1995) of changing accounting for pre-contract costs -- Net of the related income tax benefit of $2,160,000 (Note 2)................................................... (3,239,948) ------------ ------------ ------------ Net (loss) earnings.................................... $(10,049,914) $ 2,657,359 $ 2,114,423 ============ ============ ============ Per share amounts: (Loss) earnings before cumulative effect of a change in accounting principle........................... $ (0.76) $ 0.31 $ 0.37 Cumulative effect on prior years (to December 31, 1995) of changing accounting for pre-contract costs (Note 2).................................... (0.36) ------------ ------------ ------------ Net (loss) earnings.................................. $ (1.12) $ 0.31 $ 0.37 ============ ============ ============ Weighted average shares outstanding.................... 8,947,060 8,576,817 5,704,926 ============ ============ ============ Pro forma amounts (Note 2): Net earnings......................................... $ 193,735 $ 1,675,722 ============ ============ Net earnings per share............................... $ .02 $ .29 ============ ============
See notes to consolidated financial statements. F-4 78 SIMULA, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY THREE YEARS ENDED DECEMBER 31, 1996
CLASS A COMMON STOCK ADDITIONAL RETAINED CURRENCY TOTAL ------------------ PAID-IN (DEFICIT) TRANSLATION TREASURY SHAREHOLDERS' SHARES AMOUNT CAPITAL EARNINGS ADJUSTMENT STOCK EQUITY --------- ------- ----------- ------------ ---------- --------- ------------ BALANCE, January 1, 1994............. 5,073,440 $50,735 $ 4,100,086 $ 4,207,178 $(279,838) $ 8,078,161 Net earnings....................... 2,114,423 2,114,423 Conversion of Series B 9% Senior Subordinated Convertible Notes... 967,236 9,672 5,721,578 5,731,250 Issuance of common shares for warrants and options............. 158,525 1,585 610,361 611,946 Issuance of common shares in connection with: Acquisition of SOUTHtech......... 178,582 1,786 44,388 (683,526) (637,352) Acquisition of Artcraft.......... 67,228 672 464,328 465,000 Acquisition of Sedona Scientific, Inc............................ 23,834 238 285,762 286,000 --------- ------- ----------- ----------- ------- -------- ------------ BALANCE, December 31, 1994........... 6,468,845 64,688 11,226,503 5,638,075 (279,838) 16,649,428 Net earnings....................... 2,657,359 2,657,359 Secondary offering of common shares........................... 2,328,750 23,288 25,544,534 25,567,822 Issuance of common shares for warrants and options............. 173,032 1,730 847,256 848,986 Tax benefit from exercise of stock options.......................... 363,466 363,466 --------- ------- ----------- ----------- ------- -------- ------------ BALANCE, December 31, 1995........... 8,970,627 89,706 37,981,759 8,295,434 (279,838) 46,087,061 Net loss........................... (10,049,914) (10,049,914) Issuance of common shares for options.......................... 104,471 1,045 953,891 954,936 Tax benefit from exercise of stock options.......................... 163,000 163,000 Currency translation adjustment.... 32,414 32,414 Retirement of treasury stock....... (82,500) (825) (67,197) (211,816) 279,838 --------- ------- ----------- ----------- ------- -------- ------------ BALANCE, December 31, 1996........... 8,992,598 $89,926 $39,031,453 $ (1,966,296) $ 32,414 $ $ 37,187,497 ========= ======= =========== =========== ======= ======== ============
See notes to consolidated financial statements. F-5 79 SIMULA, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, --------------------------------------------- 1996 1995 1994 ------------ ------------ ----------- OPERATING ACTIVITIES: Net (loss) earnings............................. $(10,049,914) $ 2,657,359 $ 2,114,423 Adjustments to reconcile net (loss) earnings to net cash used by operating activities: Depreciation and amortization................ 3,278,433 3,064,833 1,651,118 Deferred income taxes........................ (4,578,000) (1,126,000) 256,000 Currency translation adjustment.............. 32,414 Cumulative effect of change in accounting.... 5,399,948 Changes in net assets and liabilities -- net of effects from acquisitions: Contract and trade receivables, net of advances................................... (4,121,935) (12,859,956) (1,358,328) Inventories.................................. (7,042,562) (1,372,151) (2,681,370) Income taxes receivable...................... (1,089,564) Prepaid expenses and other................... (287,379) (363,817) 94,635 Deferred costs............................... (5,572,295) (1,083,476) Other assets................................. 168,598 (1,089,933) 40,035 Trade accounts payable....................... 1,316,073 1,769,254 (146,991) Other accrued liabilities.................... 1,411,685 378,526 (1,538,783) ------------ ------------ ----------- Net cash used by operating activities... (15,562,203) (14,514,180) (2,652,737) ------------ ------------ ----------- INVESTING ACTIVITIES: Purchase of property and equipment.............. (8,770,586) (3,843,133) (1,256,852) Proceeds from sale of property and equipment.... 743,671 Costs incurred to obtain intangibles............ (522,909) (342,528) (271,212) Cash paid to acquire Coach and Car.............. (5,352,982) Cash paid to acquire SOUTHtech.................. (4,606) Cash paid to acquire Artcraft -- net of cash acquired..................................... (628,948) Cash paid to acquire Sedona Scientific, Inc..... 0 0 (93,000) ------------ ------------ ----------- Net cash used in investing activities... (9,293,495) (3,441,990) (7,607,600) ------------ ------------ ----------- FINANCING ACTIVITIES: Net borrowings (repayments) under short-term debt and line of credit agreement............ 6,900,000 (3,050,000) 2,000,000 Borrowings under other debt arrangements........ 3,153,296 4,407,628 10,799,940 Principal payments under other debt arrangements................................. (1,685,465) (7,694,271) (3,611,047) Issuance of Series C Notes -- net of expenses... 13,656,500 Issuance of common shares -- net of expenses.... 954,936 26,416,808 611,946 ------------ ------------ ----------- Net cash provided by financing activities.... 22,979,267 20,080,165 9,800,839 ------------ ------------ ----------- NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS..................................... (1,876,431) 2,123,995 (459,498) CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR...... 3,175,172 1,051,177 1,510,675 ------------ ------------ ----------- CASH AND CASH EQUIVALENTS, END OF YEAR............ $ 1,298,741 $ 3,175,172 $ 1,051,177 ============ ============ ===========
F-6 80 SIMULA, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1996 1995 1994 ------------ ------------ ----------- SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Interest paid................................... $ 1,657,995 $ 1,691,712 $ 1,515,844 ============ ============ =========== Taxes paid...................................... $ 352,575 $ 1,365,826 $ 441,700 ============ ============ =========== SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES: Property and equipment acquired under capital leases....................................... $ 836,634 $ 924,324 ============ ============ Tax benefits from exercise of stock options..... $ 163,000 $ 363,466 ============ ============ Purchase accounting adjustments related to the acquisitions of Coach and Car: Additional liabilities offset against seller note payable............................... $ 1,438,000 ============ Conversion of notes: Conversion of $6,475,000 Series B 9% Senior Subordinated Convertible Notes and accrued interest of $136,600 less deferred note issuance costs of $880,350 for 967,236 shares..................................... $ 5,731,250 =========== Coach and Car acquisition: Fair value of assets acquired................ $11,422,148 Liabilities assumed.......................... (7,069,166) Seller note payable.......................... (1,500,000) Covenants not to compete..................... 2,500,000 ----------- Cash paid to acquire Coach and Car.............. $ 5,352,982 =========== SOUTHtech acquisition: Fair value of assets acquired................ $ 378,014 Liabilities assumed.......................... (1,010,760) Common stock issued.......................... 637,352 ----------- Cash paid to acquire SOUTHtech.................. $ 4,606 =========== Aircraft acquisition: Fair value of assets acquired................ $ 4,103,924 Liabilities assumed.......................... (2,988,924) Common stock issued.......................... (465,000) Cash acquired................................ (21,052) ----------- Cash paid to acquire Artcraft -- net of cash acquired..................................... $ 628,948 =========== Sedona Scientific, Inc. acquisition: Fair value of assets acquired................ $ 471,277 Liabilities assumed.......................... (92,277) Common stock issued.......................... (286,000) ----------- Cash paid to acquire Sedona Scientific, Inc..... $ 93,000 ===========
See notes to consolidated financial statements. F-7 81 SIMULA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS THREE YEARS ENDED DECEMBER 31, 1996 1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION -- The consolidated financial statements include the accounts of Simula, Inc. ("Simula") and its subsidiaries (collectively the "Company"). All of the subsidiaries are wholly owned. All intercompany transactions are eliminated in consolidation. The Company announced a 3 for 2 split of its common stock to shareholders of record as of September 15, 1995; which shares were issued on September 28, 1995. As a result, all shares and related references have been restated for all prior periods and transactions. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- These consolidated financial statements are prepared in accordance with generally accepted accounting principles. Described below are those accounting principles particularly significant to the Company, including those selected from acceptable alternatives. a. Use of Estimates -- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. b. Revenue related to government contracts and most commercial contracts results principally from long-term fixed price contracts and is recognized on the percentage-of-completion method calculated utilizing the cost-to-cost approach. The percent deemed to be complete is calculated by comparing the costs incurred to date to estimated total costs for each contract. This method is used because management considers costs incurred to be the best available measure of progress on these contracts. However, adjustments to this measurement are made when management believes that costs incurred materially exceed effort expended. Contract costs include all direct material and labor costs, along with certain overhead costs related to contract production. Provisions for any estimated total contract losses on uncompleted contracts are recorded in the period in which it is concluded that such losses will occur. Changes in estimated total contract costs will result in revisions to contract revenue. These revisions are recognized when determined. Revenue derived from sales of some commercial products is recognized at contractual amounts when the product is shipped. c. Inventories include raw materials, work-in-process and finished goods applicable to commercial products. Inventories are recorded at cost and are carried at the lower of cost or net realizable value. Amounts are removed from inventory using the estimated average cost per unit. d. Property, equipment and leasehold improvements are stated at cost. Amortization of capital leases and leasehold improvements is calculated on a straight-line basis over the life of the asset or term of the lease, whichever is shorter. Depreciation on equipment and buildings is calculated on a straight-line basis over the estimated useful lives of three to thirty years. F-8 82 SIMULA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS THREE YEARS ENDED DECEMBER 31, 1996 -- (CONTINUED) e. Intangibles are recorded at cost. The Company acquires intangible assets in the normal course of business and in business combinations. The Company periodically reviews for changes in circumstances to determine whether there are conditions that indicate that the carrying amount of such assets may not be recoverable. If such conditions are deemed to exist, the Company will determine whether estimated future undiscounted cash flows are less than the carrying amount of such assets, in which case the Company will calculate an impairment loss. Impairment losses, if any, will be recorded as a component of operating earnings. Intangibles are amortized on a straight-line basis over the following periods: Goodwill........................................................ 10-25 years Covenants not to compete........................................ 10 years Other........................................................... 7-17 years
f. Net (loss) earnings per common and equivalent share has been computed using the weighted average number of common shares and common share equivalents outstanding during each period. Stock options and warrants have been included in the computations as common equivalent shares utilizing the treasury stock method only when their effect is dilutive. Weighted average shares used to compute per share amounts for the year ended December 31, 1996 do not include common stock equivalents because their effect would be anti-dilutive. In addition, fully diluted earnings per share reflecting the effect of the convertible notes discussed in Note 9 is not presented because the effect would also be anti-dilutive. g. Foreign currency assets and liabilities are translated into United States dollars using the exchange rates in effect at the balance sheet date. The effects of exchange rate fluctuations on translation of assets and liabilities are reported as a separate component of equity. h. Statements of Cash Flows -- Cash and cash equivalents presented in the statements of cash flows consist of cash on hand and highly liquid investments with an original maturity of three months or less. 2. ACCOUNTING CHANGE During the second quarter of 1996, the Company adopted a new method of accounting for pre-contract costs. Pre-contract costs represent amounts applicable to products and technologies which represent adaptations of existing capabilities to the particular requirements of the Company's customers. These costs were previously deferred and recovered over the revenue streams from these customers. The Company will now expense these costs as they are incurred. Due to current industry trends and anticipated accounting changes, the new policy is considered preferable to the previous policy. Both policies are currently in accordance with generally accepted accounting principles. The $3.2 million cumulative effect of the change on prior years (after reduction for income taxes of $2.2 million) is included in operations of the year ended December 31, 1996. The effect of the change on the year ended December 31, 1996 was to decrease earnings before cumulative effect of a change in accounting principle $3.2 million ($.36 per share) and net earnings by $6.4 million ($.72 per share). F-9 83 SIMULA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS THREE YEARS ENDED DECEMBER 31, 1996 -- (CONTINUED) The effect of the change on the first quarter of 1996 was as follows:
THREE MONTHS ENDED MARCH 31, 1996 -------------- Net income as originally reported...................................... $ 685,179 Effect of change in accounting for pre-contract costs.................. (563,247) ----------- Income before cumulative effect of a change in accounting principle.... 121,932 Cumulative effect on prior years (to December 31, 1995) (3,239,948) of changing accounting for pre-contract costs........................ ----------- Net loss as restated................................................... $ (3,118,016) =========== Per share amounts: Net income as originally reported.................................... $ 0.08 Effect of change in accounting for pre-contract costs................ (0.07) ----------- Income before cumulative effect of a change in accounting 0.01 principle......................................................... Cumulative effect on prior years (to December 31, 1995) (0.36) of changing accounting for pre-contract costs..................... ----------- Net loss as restated................................................. $ (0.35) ===========
The pro forma amounts reflect the effect of retroactive application on pre-contract costs, net of amortization, and the related income tax benefits. Pro forma amounts for the years ended December 31, 1995 and 1994 assuming the change in accounting had been applied retroactively are as follows. Actual net earnings per share amounts are presented for comparative purposes.
1995 1994 -------- ---------- Pro forma: Net earnings............................................... $193,735 $1,675,722 Net earnings per share..................................... $ 0.02 $ 0.29 Actual: Net earnings per share..................................... $ 0.31 $ 0.37
3. ACQUISITIONS On June 14, 1994, the Company purchased covenants not to compete and substantially all of the assets of Coach and Car Equipment Corporation ("Coach and Car") for cash, an installment seller carryback note and the assumption of substantially all of the Coach and Car liabilities. Coach and Car is a manufacturer of seats for trains, subways, mass transit and other vehicles which are principally operated by local government authorities. The acquisition of Coach and Car has been accounted for using the purchase method of accounting, and the results of operations of Coach and Car have been included in the consolidated financial statements subsequent to the acquisition. The excess of purchase price over the fair value of net assets acquired of $5,281,038 is being amortized over 25 years, and covenants not to compete of $2,500,000 are being amortized over 10 years. F-10 84 SIMULA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS THREE YEARS ENDED DECEMBER 31, 1996 -- (CONTINUED) Consideration for this transaction consisted of the following: Cash paid............................................................... $ 3,000,000 Seller note............................................................. 1,500,000 Liabilities assumed -- including $2,352,982 of bank debt paid at closing............................................................... 9,422,148 ----------- Total......................................................... $13,922,148 ===========
The assets acquired have been recorded as follows: Current assets.......................................................... $ 2,923,585 Intangibles............................................................. 7,781,038 Property and equipment.................................................. 3,217,525 ----------- Total......................................................... $13,922,148 ===========
On July 1, 1994, the Company purchased SOUTHtech, Inc. ("SOUTHtech") which was a corporation owned by the Company's Chairman (the "Chairman") (96%), and two unrelated minority shareholders (4%). SOUTHtech is a ceramics manufacturer that provides parts for silicon wafer manufacturing by the semiconductor industry. In determining the acquisition consideration, the Company obtained a valuation opinion from an independent investment banker and the transaction was approved by the disinterested members of the board of directors of the Company. The acquisition consideration consisted of 178,582 shares of the Company's common stock, of which 171,472 shares were issued to the Chairman and 7,110 shares were issued to one of the unrelated minority shareholders, and $4,606 cash, in lieu of stock, to the other unrelated minority shareholder. Because the Company and SOUTHtech were entities under the common control of the Chairman, the shares issued to the Chairman were recorded at the basis of his investment in SOUTHtech and the shares issued to minority shareholders were recorded at fair value. The excess of the Chairman's basis over his proportionate share of SOUTHtech's net assets of $683,526 was recorded as a reduction in retained earnings. The accounts of SOUTHtech have been included in the consolidated financial statements subsequent to the acquisition. Assets acquired and liabilities assumed in connection with the SOUTHtech transaction were as follows: Assets acquired......................................................... $ 378,014 Liabilities assumed..................................................... (1,010,760) ----------- Net liabilities assumed....................................... $ (632,746) ===========
Consideration was recorded as follows: Shares issued to the Chairman........................................... $ (682,383) Shares issued to minority shareholders.................................. 45,031 Cash issued to minority shareholders.................................... 4,606 --------- Total......................................................... $ (632,746) =========
During 1995, the ceramics technology used in the semiconductor industry and associated assets of SOUTHtech were sold to a third party effective August 31, 1995. As a result, the Company received cash of $1,328,720 and is entitled to guaranteed payments of $1,500,000 and contingent payments up to a maximum of $1,750,000 based upon the future sales of the SOUTHtech ceramic product within the semiconductor industry. The Company retained the ceramics technology and assets associated with government and defense applications, and certain key employees. In connection with this transaction, the Company reported $1,977,000 of technology sales and royalty revenue in 1995. F-11 85 SIMULA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS THREE YEARS ENDED DECEMBER 31, 1996 -- (CONTINUED) On September 30, 1994, the Company purchased all of the operating assets of Artcraft Industries Corp. ("Artcraft") for 67,228 shares of common stock valued at $465,000 and the assumption of certain liabilities. Artcraft is engaged in the manufacture, assembly and sale of railway and mass transit seating systems. The acquisition has been accounted for using the purchase method of accounting, and results of operations of Artcraft have been included in the consolidated financial statements subsequent to the acquisition. The excess of the purchase price over the fair value of net assets acquired of $734,531 is being amortized over 25 years. Consideration for the transaction consisted of the following: 67,228 shares of common stock............................................ $ 465,000 Liabilities assumed -- including $650,000 bank debt paid at closing...... 3,638,924 ----------- Total.......................................................... $4,103,924 ===========
The assets acquired have been recorded as follows: Current assets.......................................................... $ 1,669,393 Intangibles............................................................. 734,531 Property and equipment.................................................. 1,700,000 ---------- Total......................................................... $ 4,103,924 ==========
In addition, the Company acquired another small company for $93,000 in cash and 23,833 shares of common stock. During 1995, the Company completed its identification and quantification of certain preacquisition contingencies related to its acquisition of Coach and Car. As a result, the Company adjusted the original purchase allocation of this acquisition resulting in a net increase in accrued liabilities and advances on contracts and a decrease in debt owed to seller of $1,438,000. The Coach and Car Asset Purchase Agreement ("Agreement") specifically provided to the Company the right to offset against the purchase price any losses resulting from the failure of seller to specifically disclose a liability. The Company has asserted an offset for an undisclosed indemnifiable liability of $2.4 million. The Company has continued to make the required payments pursuant to the terms of the seller carryback note payable into an escrow account. As of December 31, 1996, the payments made into this escrow account were $866,000. This amount is included in other assets because the Company believes that the possibility is remote that the seller will overturn the offset and believes that it is probable the funds will be returned to the Company. The Agreement provides for arbitration to settle disputes. During the fourth quarter of 1996, the seller completed the formal procedures to dispute the Company's offset and seek arbitration, however, the steps necessary to invoke arbitration proceedings have not been taken. The following summarizes unaudited pro forma operating results for the Company for the year ended December 31, 1994, assuming the acquisitions had occurred on January 1, 1994.
1994 ----------- Revenues................................................................ $55,512,000 =========== Net earnings............................................................ $ 2,362,000 =========== Net earnings per share.................................................. $ .37 ===========
F-12 86 SIMULA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS THREE YEARS ENDED DECEMBER 31, 1996 -- (CONTINUED) 4. RECEIVABLES At December 31, receivables include the following:
1996 1995 ----------- ----------- United States Government: Billed receivables...................................... $ 1,627,288 $ 2,926,891 Costs and estimated earnings in excess of billings...... 3,448,055 4,541,878 ----------- ----------- Total United States Government............................ 5,075,343 7,468,769 ----------- ----------- Other contracts: Billed receivables...................................... 5,405,940 2,942,647 Costs and estimated earnings in excess of billings...... 11,732,859 10,244,769 ----------- ----------- Total other contracts..................................... 17,138,799 13,187,416 Other trade receivable.................................... 3,113,208 4,301,569 Less allowance for doubtful accounts...................... (163,000) (143,000) ----------- ----------- Contract and trade receivables -- net..................... $25,164,350 $24,814,754 =========== ===========
Costs and estimated earnings in excess of billings on uncompleted contracts represent revenue recognized on long-term contracts in excess of billings because amounts were not billable at the balance sheet date. Amounts receivable from the United States Government or receivable under United States Government related subcontracts will generally be billed in the following month or when the contract and all options thereunder are completed. Amounts due on other contracts are generally billed as shipments are made, subject to retainages. It is estimated that substantially all of such amounts will be billed and collected within one year, although contract extensions may delay certain collections beyond one year. 5. INVENTORIES At December 31, inventories consisted of the following:
1996 1995 ----------- ---------- Raw materials............................................. $ 4,959,810 $3,319,958 Work-in-process........................................... 9,822,859 4,711,256 Finished goods............................................ 861,488 72,980 ----------- ---------- Total inventories............................... $15,644,157 $8,104,194 =========== ==========
6. PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS At December 31, property, equipment and leasehold improvements consisted of the following:
1996 1995 ----------- ----------- Land...................................................... $ 3,022,819 $ 3,022,819 Buildings and leasehold improvements...................... 5,533,291 4,467,697 Equipment................................................. 21,934,491 13,408,041 ----------- ----------- Total..................................................... 30,490,601 20,898,557 Less accumulated depreciation............................. (7,134,576) (5,119,738) ----------- ----------- Property, equipment and leasehold improvements -- net........................... $23,356,025 $15,778,819 =========== ===========
F-13 87 SIMULA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS THREE YEARS ENDED DECEMBER 31, 1996 -- (CONTINUED) 7. INTANGIBLES AND DEFERRED COSTS At December 31, intangibles consisted of the following:
1996 1995 ----------- ----------- Covenants not to compete.................................. $ 4,989,356 $ 4,989,356 Excess of cost over net assets acquired................... 7,125,110 7,125,110 Patents and licenses...................................... 661,696 518,644 Other..................................................... 783,963 435,163 ----------- ----------- Total..................................................... 13,560,125 13,068,273 Less accumulated amortization............................. (2,595,986) (1,613,268) ----------- ----------- Intangibles -- net.............................. $10,964,139 $11,455,005 =========== ===========
At December 31, deferred costs included the following:
1996 1995 -------- ----------- Deferred financing costs -- net............................ $928,728 $ 487,980 Deferred product and bid costs............................. 5,897,348 -------- ---------- Total deferred costs............................. $928,728 $ 6,385,328 ======== ==========
8. REVOLVING LINE OF CREDIT The Company has a $20,000,000 unsecured Revolving Line of Credit with a bank, interest at LIBOR plus 2% or prime. There was $6,900,000 outstanding on this line of credit as of December 31, 1996. The loan agreement encompassing this line of credit and the $5,000,000 amortizing term loan (Note 9) contains certain covenants that require the maintenance of a minimum tangible net worth and certain defined financial ratios. The Company was in compliance with all of the covenants of this loan agreement at December 31, 1996. 9. DEBT Long-term debt at December 31 consisted of the following:
1996 1995 ----------- ----------- 10% Senior Subordinated Convertible Notes................. $14,300,000 12% Senior Subordinated Notes............................. 5,700,000 $ 5,700,000 Mortgage notes payable, interest at 9% and 10.4%, secured 2,918,243 2,990,329 by land and buildings with a carrying amount of $6,172,885, due through 2017............................ Various loans payable, secured by property and 4,951,898 3,020,703 equipment............................................... Obligations under capital leases, interest at 10% (Note 1,362,876 917,520 13)..................................................... ----------- ----------- Total........................................... 29,233,017 12,628,552 Less current portion...................................... (4,536,508) (1,367,187) ----------- ----------- Long-term debt............................................ $24,696,509 $11,261,365 =========== ===========
In September 1996, the Company issued $14.3 million of Series C 10% Senior Subordinated Convertible Notes (the "10% Notes") in a private placement to accredited investors. The 10% Notes bear interest at 10% payable semi-annually and are due in September 1999. The notes are convertible into common stock of the Company at 103% of the average closing price of the Company's common stock as quoted on the New York Stock Exchange for the 10 consecutive trading days immediately preceding notice by the individual holder F-14 88 SIMULA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS THREE YEARS ENDED DECEMBER 31, 1996 -- (CONTINUED) fixing the conversion price. Based upon the conversion prices fixed prior to December 31, 1996 and the average market price of the Company's common stock for the 10 days ended December 31, 1996 for the 10% Notes not yet fixed, the 10% Notes would be convertible into approximately 930,000 shares of the Company's common stock. The Company has the right to call the 10% Notes at par plus accrued interest through the date of redemption any time after June 15, 1997 and earlier under certain circumstances. In December 1993, the Company issued $5.7 million of 12% Senior Subordinated Notes ("12% Notes"), due in 1998. The 12% Notes are not subject to redemption prior to maturity. The Indenture relating to the 10% Notes and the 12% Notes contains certain covenants including limitations on incurrence of additional indebtedness, limitation on sale of assets, transactions with affiliates and payment of dividends. In accordance with the Indenture, the Company may incur indebtedness based upon the specified ratio of cash flow, as defined, to interest expense. The Company was in compliance with all of the covenants of the Indenture at December 31, 1996. Subsequent to December 31, 1996, the Indenture was amended to eliminate the covenants limiting additional indebtedness and restricted dividend payments. In consideration for the consent of the holders of the 10% Notes, the 10% Notes were amended to change the conversion ratio from 103% to 98% or reduce the conversion price for the 10% Notes previously fixed by $.75 per share. In addition, the Company's optional redemption date was extended from June 15, 1997 to December 15, 1997 and certain fees to be paid to the holders of the 10% Notes were eliminated. Based on the revised terms of the 10% Notes and the average market price for the Company's common stock for the 10 days ended December 31, 1996, the 10% Notes would be convertible into approximately 975,000 shares of the Company's common stock. The Company has a $5,000,000 amortizing term loan under the same loan agreement encompassing the revolving line of credit (Note 8) for the financing of U.S. based equipment with an outstanding balance at December 31, 1996 of $3,682,479. Interest is payable at the LIBOR rate in effect at the time of the drawdown plus 2%. The average interest rate on the outstanding balance at December 31, 1996 is 7.8%. The aggregate principal payments required for the five years subsequent to December 31, 1996 are: 1997.................................................. $ 4,536,508 1998.................................................. 7,368,178 1999.................................................. 15,506,173 2000.................................................. 804,617 2001.................................................. 766,973 Thereafter............................................ 250,568 ----------- Total....................................... $29,233,017 ===========
Interest expense for the years ended December 31 is comprised of the following:
1996 1995 1994 ---------- ---------- ---------- Interest....................................... $2,141,963 $1,679,086 $1,651,881 Amortization of deferred financing costs....... 234,644 350,768 179,624 ---------- ---------- ---------- Interest expense..................... $2,376,607 $2,029,854 $1,831,505 ========== ========== ==========
Based on borrowing rates currently available to the Company and the quoted market price for the 12% Notes, the fair value of long-term debt at December 31, 1996 is approximately $29,500,000. F-15 89 SIMULA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS THREE YEARS ENDED DECEMBER 31, 1996 -- (CONTINUED) 10. INCOME TAXES The income tax (benefit) provision for the years ended December 31 are as follows:
1996 1995 1994 ----------- ----------- ---------- Current...................................... $(2,160,000) $ 1,322,000 $1,004,000 Deferred..................................... (4,741,000) (1,126,000) 256,000 ----------- ----------- ---------- (Benefit) provision for income taxes............................ $(6,901,000) $ 196,000 $1,260,000 =========== =========== ==========
The Company's effective income tax rate differs from the federal statutory tax rate at December 31 as follows:
1996 1995 1994 ---- ---- ---- Federal statutory income tax rate.............................. 34.0% 34.0% 34.0% State income taxes............................................. 5.3 6.0 4.6 Tax credits and other.......................................... 1.4 0.7 (1.2) Utilization of tax losses...................................... 0 (33.8) 0 ---- ---- ---- Effective rate................................................. 40.7% 6.9% 37.4% ==== ==== ====
The provision for deferred income taxes consists of the following:
1996 1995 1994 ----------- ----------- -------- Accruals and reserves.............................. $(1,157,000) $ (946,000) $216,000 Depreciation and amortization expense.............. 560,000 268,000 40,000 Net operating loss carryforwards................... (3,867,000) Minimum tax credit carryforwards................... (277,000) Change in valuation allowance for tax loss carryforwards.................................... (448,000) ----------- ----------- -------- Total.................................... $(4,741,000) $(1,126,000) $256,000 =========== =========== ========
The significant tax effected temporary differences comprising deferred taxes at December 31 are as follows:
1996 1995 ---------- --------- Current: Net operating loss carryforwards............................ $2,970,000 Accrued vacation and self insurance......................... 324,000 $ 177,000 Inventory and warranty reserves............................. 334,000 Other....................................................... 135,000 (185,000) ---------- --------- Total current deferred tax asset (liability)........ 3,763,000 (8,000) ---------- --------- Long-term: Excess of tax over book depreciation and amortization....... (906,000) (346,000) Recognition of contract revenue............................. 970,000 804,000 Net operating loss carryforwards............................ 1,345,000 448,000 Minimum tax credit carryforward............................. 287,000 Deferred start-up costs..................................... 352,000 Other....................................................... (266,000) (94,000) ---------- --------- Total long-term deferred tax asset.................. 1,782,000 812,000 ---------- --------- Net deferred tax asset.............................. $5,545,000 $ 804,000 ========== =========
F-16 90 SIMULA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS THREE YEARS ENDED DECEMBER 31, 1996 -- (CONTINUED) The valuation allowances associated with tax loss carryforwards as of December 31 are as follows:
1996 1995 ---------- --------- Tax asset for loss carryforward............................... $4,536,000 $ 669,000 Valuation allowance........................................... (221,000) (221,000) ---------- --------- Net deferred tax asset.............................. $4,315,000 $ 448,000 ========== =========
At December 31, 1996, the Company had approximately $10,600,000 of net operating loss carryforwards including $1,500,000 of net operating loss carryforwards of an acquired subsidiary which expires through 2008. The Company believes based on historical operating results and expectations for the future that taxable income will more likely than not be sufficient to utilize all of its recorded net operating loss carryforwards prior to their expiration. The amount of the deferred tax asset considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carryforward period are reduced. The income tax receivable at December 31, 1996 represents estimated refunds of income taxes paid in 1992 through 1995. The Company is in the process of amending prior tax returns for the change in accounting (Note 2) and preparing applications for net operating loss carrybacks. 11. SHAREHOLDERS' EQUITY During 1996, the Company retired 82,500 shares of treasury stock which had been acquired for a cost of $279,838. The Company completed a secondary offering of common stock which closed and was funded the second quarter of 1995. As a result of this offering, 2,328,750 shares were sold by the Company at $12 per share. The net proceeds from the offering totaled $25,567,822. 12. BENEFIT PLANS The Company has a noncontributory defined benefit pension plan (the "Plan") for employees. To be eligible to participate, employees must have completed six months of continuous employment and have attained the age of 21. Benefits are based on length of service and the employee's final pay (averaged over the five highest consecutive years of the last ten years of participation). The Company makes contributions to the Plan based upon actuarially determined amounts. Net periodic pension cost includes the following:
1996 1995 1994 --------- --------- -------- Service cost -- benefit earned during the year....... $ 235,167 $ 169,835 $205,195 Interest cost on projected benefit obligation........ 147,852 116,660 113,496 Actual return on Plan assets......................... (262,676) (257,497) (70,053) Net amortization and deferral........................ 159,328 172,970 15,907 --------- --------- -------- Net periodic pension cost.................. $ 279,671 $ 201,968 $264,545 ========= ========= ========
F-17 91 SIMULA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS THREE YEARS ENDED DECEMBER 31, 1996 -- (CONTINUED) The Plan's funded status and amounts recognized in the Company's balance sheet at December 31 are as follows:
1996 1995 ---------- ---------- Actuarial present value of benefit obligation: Vested benefits........................................... $1,503,283 $1,310,868 Nonvested benefits........................................ 243,064 237,163 ---------- ---------- Accumulated benefit obligation.............................. 1,746,347 1,548,031 Effect of projected future compensation increases........... 453,626 364,997 ---------- ---------- Projected benefit obligation................................ 2,199,973 1,913,028 Plan assets at fair value................................... 1,729,919 1,375,252 ---------- ---------- Plan assets less than projected benefit obligation.......... 470,054 537,776 Unrecognized prior service cost............................. 19,811 24,383 Unrecognized loss........................................... (185,107) (293,362) Unrecognized transition liability........................... 90,442 96,094 ---------- ---------- Accrued pension cost...................................... $ 395,200 $ 364,891 ========== ==========
Assumptions at December 31 used in the accounting for the Plan were as follows:
1996 1995 1994 ---- ---- ---- Discount or settlement rate.................................... 7.50% 7.25% 8.25% Rate of increase in compensation levels........................ 3.50% 3.50% 4.00% Expected long-term rate of return on Plan assets............... 8.00% 8.00% 8.00%
The Plan's assets consist of money market accounts and investments in common stocks, mutual funds, and corporate bonds. In addition, the Company has 401(k) plans for substantially all employees and one subsidiary has a union sponsored pension plan for union employees to which the Company makes contractual contributions. 13. RELATED PARTY TRANSACTIONS The Company has entered into various transactions with the Chairman. These transactions are further described as follows: a. The Company acquired SOUTHtech from the Chairman in 1994 as described in Note 3. b. The Chairman loaned the Company $1,650,000 in 1996 that was repaid by the Company in 1996 and $2,000,000 in 1994 which was repaid by the Company in 1995. 14. COMMITMENTS AND CONTINGENCIES The Company leases certain equipment under capital lease agreements and certain facilities under noncancellable operating leases with various renewal options. Leased assets totaling $2,274,565 and $1,042,604 (net of accumulated depreciation of $681,283 and $248,683) are included in property and equipment as of December 31, 1996 and 1995, respectively. F-18 92 SIMULA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS THREE YEARS ENDED DECEMBER 31, 1996 -- (CONTINUED) The following is a schedule, by year, of minimum rental payments due under the leases described above and for other operating leases for the years ending December 31:
CAPITAL LEASES OPERATING LEASES -------------- ---------------- 1997.................................................... $ 633,610 $1,933,506 1998.................................................... 551,616 1,329,296 1999.................................................... 362,399 1,287,976 2000.................................................... 31,947 1,075,645 2001.................................................... 2,340 862,872 Thereafter.............................................. 2,786,158 ---------- ---------- Total minimum lease payments............................ 1,581,912 $9,275,453 ========== Less amounts representing interest...................... (219,036) ---------- Present value of net minimum lease payments............. $1,362,876 ==========
Rent expense was $1,966,271, $1,109,402, and $578,079 for the years ended December 31, 1996, 1995 and 1994, respectively. In connection with its decision to establish a facility in the United Kingdom for the production of inflatable restraints for automobiles, the Company negotiated certain grants with local and national authorities in the United Kingdom. The total grant of approximately $3 million is anticipated to be received through January 1999 as certain levels of capital expenditures and the creation of jobs are met. These grants will be recognized as income in accordance with the purpose of the grants in the periods in which such grants are received. 15. STOCK OPTIONS In 1992, the Company adopted the 1992 Stock Option Plan which provided for the issuance of up to 360,000 shares of common stock. All options available under the 1992 Plan have been granted. In August 1994, the Company adopted the 1994 Stock Option Plan which reserves up to 1,545,000 shares of common stock for issuance under the Plan. In accordance with the terms of the 1994 Plan, 876,250 options have been granted. Information with respect to the Plans is as follows:
OPTION WEIGHTED AVERAGE SHARES OPTION PRICE -------- ---------------- Outstanding at January 1, 1994............................ 245,250 $ 3.25 Granted................................................. 161,250 $ 7.70 Exercised............................................... (24,075) $ 3.25 Canceled................................................ (1,500) $ 3.25 -------- Outstanding at December 31, 1994.......................... 380,925 $ 5.22 Granted................................................. 478,125 $13.62 Exercised............................................... (135,500) $ 4.93 Canceled................................................ (6,300) $ 3.25 -------- Outstanding at December 31, 1995.......................... 717,250 $10.85 Granted................................................. 360,550 $12.99 Exercised............................................... (104,471) $ 9.14 Canceled................................................ (51,400) $12.77 -------- Outstanding at December 31, 1996.......................... 921,929 $11.78 ========
F-19 93 SIMULA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS THREE YEARS ENDED DECEMBER 31, 1996 -- (CONTINUED) Options are exercisable after one year from the date of grant for up to ten years at a price equal to 100% of the fair market value at the date of grant or 85% of fair market value in the case of non-statutory options. As of December 31, 1996, 1995,and 1994, exercisable options were 612,179, 239,125, and 219,675, respectively. The following information, aggregated by option price ranges, is applicable to those shares outstanding at December 31, 1996: Range of exercise prices.............................. $3.25 - $6.92 $12.50 - $16.13 Shares outstanding in range........................... 170,354 751,575 Weighted-average exercise price....................... $ 4.92 $ 13.34 Weighted-average remaining contractual life........... 5.7 years 4 years Shares currently exercisable.......................... 170,354 441,825 Weighted-average exercise price of shares currently exercisable......................................... $ 4.92 $ 13.56
The estimated fair value of options granted during 1996 was $5.27 per share. The Company applies Accounting Principles Board Opinion No. 25 and related Interpretations in accounting for its stock option plans. Accordingly, no compensation cost has been recognized for its fixed stock option plans. Had compensation cost for the Company's stock option plans been recognized based on the fair value at the grant dates for awards under those plans consistent with the method of Statement of Financial Accounting Standards No. 123, the Company's net (loss) earnings and net (loss) earnings per share for the years ended December 31, 1996 and 1995 would have been reduced to the pro forma amounts indicated below:
1996 1995 ------------ ---------- Net (loss) income -- as reported.......................... $(10,049,914) $2,657,359 ============ ========== Net (loss) income -- pro forma............................ $(12,074,645) $ 293,848 ============ ========== (Loss) income per share -- as reported.................... $ (1.12) $ .31 ============ ========== (Loss) income per share -- pro forma...................... $ (1.35) $ .03 ============ ==========
The fair value of each option grant is estimated on the date of grant using the Black-Scholes options pricing model with the following weighted-average assumptions used for grants: no dividend yield; expected volatility of 36%, risk-free interest rate of 7%; and expected lives of five years. In 1992, the Company adopted the 1992 Restricted Stock Plan authorizing the Company to grant to key employees of the Company the right to purchase up to an aggregate of 19,500 shares of common stock at $.01 per share. The Company has reserved 19,500 shares of common stock for issuance pursuant to the Restricted Stock Plan, of which 4,500 shares have been awarded. Employee Stock Purchase Plan On June 20, 1996, the Company adopted the Employee Stock Purchase Plan (Purchase Plan) to allow eligible employees of the Company to acquire shares of the Company's common stock at periodic intervals, paid for with accumulated payroll deductions over a six month offering period. A total of 400,000 shares of the Company's common stock have been reserved for issuance under the Purchase Plan. The first offering period under the Purchase Plan began October 1, 1996. 16. MAJOR CUSTOMERS Revenue from four major customers accounted for approximately 48%, 29%, and 66% of total revenue for the years ended December 31, 1996, 1995 and 1994. Contract and trade receivables from these customers F-20 94 SIMULA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS THREE YEARS ENDED DECEMBER 31, 1996 -- (CONTINUED) accounted for approximately 15%, 29%, and 39% of the total contract and trade receivables at December 31, 1996, 1995 and 1994. The major customers included all branches of the United States armed forces which accounted for 27%, 18% and 24% of total revenue for the years ended December 31, 1996, 1995 and 1994, respectively. The Company has performed work for these customers since 1975 and has no reason to believe that there will be any change in these customer relationships. For the years ended December 31, 1996 and 1995 export sales were $15,826,109 and $6,760,819, respectively. For 1996, the export sales were principally comprised of sales to customers in Canada, the United Kingdom, Japan, and Turkey of $9,124,647, $2,278,212, $1,191,468, and $721,180. For 1995, the export sales were principally comprised of sales to customers in Japan, Canada, the United Kingdom and Korea of $2,522,419, $2,091,965, $1,105,558 and $775,091. For the year ended December 31, 1994, export sales were less than 10% of consolidated revenue. 17. OTHER The Company's research and development efforts arise from funded development contracts and proprietary research and development. Amounts arising from such efforts for the years ended December 31 were as follows:
1996 1995 1994 ----------- ----------- ----------- Research and development expenses classified as general and administrative expenses.... $ 1,915,649 $ 1,419,340 $ 687,686 =========== =========== =========== Funded contracts: Revenues funded by customers.............. $ 6,518,818 $ 3,901,662 $ 3,290,146 Research and development expenses classified as cost of such revenue..... (8,587,658) (4,721,858) (3,165,130) ----------- ----------- ----------- Funded contract (deficiency) margin......... $(2,068,840) $ (820,196) $ 125,016 =========== =========== ===========
The above amounts do not include pre-contract costs which the Company began expensing in 1996 (See Note 2). Pre-contract costs expended for the years ended December 31, 1996, 1995 and 1994 were approximately $6,420,000, $4,438,000 and $645,000, respectively. 18. SEGMENT REPORTING During 1996, 1995 and 1994, the Company operated in three industry segments. The Government and Defense segment, principally comprised of Simula Government Products, Inc., includes the design and manufacture of crash resistant components, energy absorbing devices, ballistics and composites principally in connection with branches of the United States armed forces procurement. The Simula Transportation Equipment Corporation ("SimTec" -- formerly known as Intaero) segment includes operations which primarily manufacture seating systems for domestic and foreign passenger airlines, rail other mass transit. The remaining segment, entitled Other, includes general corporate operations and other subsidiaries engaged in technology development and sales. Included in Other is Simula Automotive Safety Devices, Inc. ("Simula ASD"), the entity which conducts substantially all of the Company's operations encompassing inflatable F-21 95 SIMULA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS THREE YEARS ENDED DECEMBER 31, 1996 -- (CONTINUED) restraints for automobiles. Through 1996, Simula ASD has not had any significant revenue. Segment disclosures are as follows:
1996 ----------------------------------------------------------- GOVERNMENT AND DEFENSE SIMTEC OTHER TOTAL ----------- ----------- ----------- ----------- Revenue: Contract revenue.................... $31,372,051 $23,636,852 $55,008,903 Product sales....................... 685,218 8,965,719 $ 847,467 10,498,404 Technology sales and royalties...... 254,650 254,650 ----------- ----------- ----------- ----------- Total revenue............... $32,311,919 $32,602,571 $ 847,467 $65,761,957 =========== =========== =========== =========== Operating (loss) income............... $ 1,355,917 $(6,327,689) $(4,254,298) $(9,226,070) Identifiable assets................... 28,217,854 43,971,150 14,499,452 86,688,456 Depreciation and amortization......... 909,619 1,967,959 400,855 3,278,433 Capital expenditures.................. 2,916,342 2,470,336 4,220,542 9,607,220
1995 ----------------------------------------------------------- GOVERNMENT AND DEFENSE SIMTEC OTHER TOTAL ----------- ----------- ----------- ----------- Revenue: Contract revenue.................... $24,753,600 $23,936,070 $48,689,670 Product sales....................... 5,673,264 $ 1,968,879 7,642,143 Technology sales and royalties...... 779,347 1,977,453 2,756,800 ----------- ----------- ----------- ----------- Total revenue............... $25,532,947 $29,609,334 $ 3,946,332 $59,088,613 =========== =========== =========== =========== Operating income...................... $ 3,294,791 $ 651,695 $ 496,651 $ 4,443,137 Identifiable assets................... 26,629,708 36,273,362 10,233,066 73,136,136 Depreciation and amortization......... 564,842 1,899,899 600,142 3,064,833 Capital expenditures.................. 1,829,664 1,459,651 1,478,142 4,767,457
1994 ---------------------------------------------------------- GOVERNMENT AND DEFENSE SIMTEC OTHER TOTAL ----------- ----------- ---------- ----------- Revenue: Contract revenue..................... $21,587,963 $12,126,010 $33,713,973 Product sales........................ 5,966,839 $1,031,379 6,998,218 Technology sales and royalties....... 445,603 445,603 ----------- ----------- ---------- ----------- Total revenue................ $22,033,566 $18,092,849 $1,031,379 $41,157,794 =========== =========== ========== =========== Operating income....................... $ 3,037,566 $ 2,168,567 $ (21,813) $ 5,184,320 Identifiable assets.................... 19,761,764 24,654,688 3,274,511 47,690,963 Depreciation and amortization.......... 516,510 763,418 371,190 1,651,118 Capital expenditures................... 586,178 0 670,674 1,256,852
For the years ended December 31, 1996 and 1995, inter-segment sales were insignificant and total intercompany sales of $7,547,039 and $4,065,201, respectively, have been eliminated. All revenue in 1994 was generated from sales to unaffiliated customers. F-22 96 SIMULA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS THREE YEARS ENDED DECEMBER 31, 1996 -- (CONTINUED) 19. UNAUDITED QUARTERLY FINANCIAL INFORMATION
1996 ----------------------------------------------------------- FIRST SECOND THIRD FOURTH ----------- ----------- ----------- ----------- Revenue............................... $16,742,512 $19,615,830 $12,914,643 $16,488,972 Cost of revenue....................... 12,316,453 15,478,516 10,765,168 16,679,039 Gross margin.......................... 4,426,059 4,137,314 2,149,475 (190,067) (Loss) earnings before cumulative effect of an accounting change...... 121,932 (305,428) (2,087,492) (4,538,978) Cumulative effect of an accounting change.............................. (3,239,948) Net (loss)............................ (3,118,016) (305,428) (2,087,492) (4,538,978) Net (loss) per common and equivalent share............................... $ (.35) $ (.03) $ (.23) $ (.51)
1995 ----------------------------------------------------------- FIRST SECOND THIRD FOURTH ----------- ----------- ----------- ----------- Revenue............................... $13,580,842 $15,030,715 $14,694,204 $15,782,852 Cost of revenue....................... 8,954,807 9,632,276 11,811,431 8,637,957 Gross margin.......................... 4,626,035 5,398,439 2,882,773 7,144,895 Net earnings (loss)................... 616,077 936,995 (305,818) 1,410,105 Net earnings (loss) per common and equivalent share.................... $ .09 $ .11 $ (.04) $ .15
1994 ---------------------------------------------------------- FIRST SECOND THIRD FOURTH ----------- ---------- ----------- ----------- Revenue................................ $ 6,900,072 $7,558,741 $12,875,330 $13,823,651 Cost of revenue........................ 4,370,264 4,667,947 9,157,490 9,512,909 Gross margin........................... 2,529,808 2,890,794 3,717,840 4,310,742 Net earnings........................... 334,798 513,707 603,372 662,546 Net earnings per common and equivalent share................................ $ .07 $ .10 $ .10 $ .10
20. SUBSIDIARY SUMMARY COMBINED FINANCIAL INFORMATION
DECEMBER 31, --------------------------- 1996 1995 ----------- ----------- Balance Sheet Data: Current assets.................................................... $42,633,627 $33,549,956 Noncurrent assets................................................. 35,303,018 35,133,898 Current liabilities............................................... 65,076,973 43,931,292 Noncurrent liabilities............................................ 861,634 4,183,615 Subsidiary equity................................................. 11,998,038 20,568,947
F-23 97 SIMULA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS THREE YEARS ENDED DECEMBER 31, 1996 -- (CONTINUED)
YEAR ENDED DECEMBER 31, ------------------------------------------- 1996 1995 1994 ----------- ----------- ----------- Income Statement Data: Revenue............................................. $65,761,957 $59,088,613 $41,059,321 Gross margin........................................ 10,522,781 19,731,851 13,851,527 (Loss) earnings before cumulative effect of change in accounting principle........................... (5,066,920) 3,626,339 3,148,581 Net (loss) earnings................................. (8,289,385) 3,626,339 3,148,581
The above summary combined financial information ("the Combined Financial Information") of Simula's subsidiaries ("the Subsidiaries") are presented because the Subsidiaries have guaranteed the Notes contemplated to be issued as set forth in this Registration Statement. The Subsidiaries included in the Combined Financial Information presented above are all wholly-owned and constitute all of the Company's direct and indirect subsidiaries. The guarantees of the Subsidiaries of the Notes are full, unconditional, and joint and several. Separate financial statements of the Subsidiaries are not presented because management has determined that they would not be material to investors. There are no significant restrictions on the Company's ability to obtain funds from the Subsidiaries by dividend or loan. F-24 98 GOVERNMENT AND DEFENSE PRODUCTS Photo of crashworthy Photo of cockpit airbag system Photo of crashworthy armored CH-53 Sea Stallion ("CABS") for military helicopters. energy- absorbing Osprey helicopter seat. Photo of inflatable body and head tilt-rotor aircraft seat. restraint system ("IBAHRS") for military helicopters.
TECHNOLOGY DEVELOPMENT Photo of drop tower test facility and two computer animations of crash dummies. Through the use of crash tests conducted at the Company's facilities and computer simulations of crash events, the Company's biomechanical engineers study human body dynamics in crash situations in order to develop safety technologies and products. 99 ====================================================== NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE SHARES BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL OR TO ANY PERSON TO WHOM IT IS UNLAWFUL. UNDER NO CIRCUMSTANCES SHALL THE DELIVERY OF THIS PROSPECTUS OR ANY SALE MADE PURSUANT TO THIS PROSPECTUS CREATE ANY IMPLICATION THAT INFORMATION CONTAINED IN THIS PROSPECTUS IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF THIS PROSPECTUS. ------------------------ TABLE OF CONTENTS
PAGE ---- Prospectus Summary.................... 3 Risk Factors.......................... 8 Use of Proceeds....................... 17 Price Range of Common Stock........... 17 Capitalization........................ 18 Dividend Policy....................... 18 Selected Consolidated Financial Data................................ 19 Management's Discussion and Analysis of Financial Condition and Results of Operations....................... 21 Business.............................. 29 Management............................ 43 Certain Transactions.................. 51 Principal Shareholders................ 52 Description of Notes.................. 54 Certain Federal Income Tax Considerations...................... 65 Description of Other Capital Stock and Debt Securities..................... 68 Underwriting.......................... 70 Legal Opinions........................ 71 Experts............................... 71 Incorporation of Certain Documents by Reference........................... 71 Additional Information................ 71 Index to Financial Statements......... F-1
====================================================== ====================================================== $30,000,000 SIMULA LOGO W/O NAME SIMULA, INC. % SENIOR SUBORDINATED CONVERTIBLE NOTES DUE , 2004 -------------------- PROSPECTUS -------------------- HD BROUS & CO., INC. BREAN MURRAY & CO., INC. L.H. FRIEND, WEINRESS, FRANKSON & PRESSON, INC. , 1997 ====================================================== 100 SIMULA, INC. PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following is an itemized statement of all expenses in connection with the issuance and distribution of the securities to be registered. These expenses will be deducted from the gross proceeds of the offering. The information contained below is subject to future contingencies. An asterisk to the right of a dollar figure denotes that the figure is an estimate and the exact amount to be expended for that category is not yet known. Registration Fee.................................................. $ 12,000 Transfer Agent's Fee.............................................. 10,000 Legal Fees........................................................ 150,000 New York Stock Exchange Listing Fee............................... 30,000 Accounting Fees................................................... 75,000 Printing and Engraving Costs...................................... 90,000 Other............................................................. 33,000 -------- Total................................................... $400,000 ========
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS ARTICLE 10 of the Company's Amended and Restated Articles of Incorporation provides that the personal liability of the directors to the Company and its shareholders for monetary damages by reason of their conduct as directors shall be limited or eliminated to the fullest extent permitted by Arizona law. In A.R.S. Sec. 10-202(B) (1), Arizona corporate law limits or eliminates the liability of a director of a corporation for money damages for any action taken or not taken as a director in all instances except: (i) where a director receives financial benefits to which he is not entitled; (ii) any intentional infliction of harm on the corporation or its shareholders; (iii) the making of unlawful distributions; and (iv) intentional violations of criminal law. Section 12.01 of the Company's Bylaws further provides that the Company shall indemnify and pay the expenses of directors, officers, employees, trustees or agents of or for the Company to the fullest extent permitted by Arizona law. In A.R.S. Sec. 10-850 et seq., Arizona corporate law provides that a corporation may provide indemnification if: (i) the director's conduct was in good faith; (ii) the director reasonably believed: (x) in the case of conduct in an official capacity with the corporation, that the conduct was in its best interests, or (y) in all other cases, that the conduct was at least not opposed to its best interests; and (iii) in the case of criminal proceedings, the director had no reasonable cause to believe the conduct was unlawful. Directors may not be indemnified in connection with proceedings brought by or in the right of the Company in which the director was adjudged liable to the Company or in connection with any other proceeding charging improper personal benefit to the director, whether or not involving action in the director's official capacity, in which the director was adjudged liable on the basis that personal benefit was improperly received by the director. Under Arizona law, indemnification in connection with a proceeding by or in the right of the Company is limited to reasonable expenses incurred in connection with the proceeding. Arizona law also provides for mandatory and court-ordered indemnification in certain instances, including on behalf of officers, employees and agents of the Company who are not also directors. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES In June 1994, the Company sold $6.5 million in aggregate principal amount of its Series B 9% Senior Subordinated Convertible Notes ("Convertible Notes"). The Convertible Notes were sold pursuant to exemptions from registration under the Securities Act of 1933 (" '33 Act"), Section 4(2), and Regulation D thereunder, and comparable provisions of states' securities laws. The Convertible Notes were convertible to II-1 101 Common Stock, and 947,562 shares of the Company's Common Stock were registered and offered pursuant to a Prospectus dated July 26, 1994 for shares of Common Stock issuable upon the conversion of the Convertible Notes. In addition, 19,674 shares of the Company's Common Stock were registered and offered pursuant to a Prospectus dated December 28, 1994 for remaining shares of Common Stock issuable for accrued interest. As of the date of this Registration Statement, all Convertible Notes have been converted into Common Stock. In September 1996, the Company sold $14.3 million in aggregate principal amount of its Series C 10% Senior Subordinated Convertible Notes ("10% Notes"). The 10% Notes were issued pursuant to the Company's Indenture dated December 17, 1993 and Supplemental Indenture dated September 12, 1996. The private placement was made through HD Brous & Co., Inc., a NASD member firm, and other selected dealers. The 10% Notes were sold pursuant to exemptions from registration under the '33 Act, Section 4(2), and Regulation D in reliance on Rule 506 thereunder, and comparable provisions of states' securities laws. The 10% Notes are convertible to Common Stock of the Company at a conversion price which may be fixed by each Noteholder at the equivalent of 98% of the average closing price of the Company's Common Stock on the NYSE for the 10 day period immediately preceding notice to the Company of such an election to fix the conversion price. If not earlier converted, the 10% Notes are redeemable by the Company in whole or in part on a pro rata basis, at par value plus all accrued interest payable through the date of redemption, at any time upon 30 days written notice to the Noteholders in accordance with the following: (i) from September 12, 1996 until December 15, 1997, the 10% Notes may be redeemed by the Company after the closing price of the Company's Common Stock as quoted on the NYSE has equaled or exceeded $25.00 for any 10 consecutive trading days and (ii) after December 15, 1997, the Company may redeem the 10% Notes at any time at par value plus all accrued interest payable through the date of redemption. Of the 1,931,140 shares of the Company's Common Stock being registered pursuant to this Registration Statement, 1,430,000 shares are being registered to account for the prospective issuance of Common Stock in the full amount of principal and interest on the 10% Notes outstanding at any given time upon notice of the Noteholders of such holders' election to convert their 10% Notes into Common Stock at 98% of the prices which they may have fixed for conversion. As of the date of this Registration Statement, no 10% Notes have been converted into Common Stock. Other than the foregoing transactions, the Registrant has not offered or sold any unregistered securities within the last three years. ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES a. Exhibits. The following Exhibits are included pursuant to Regulation S-K.
NO. DESCRIPTION REFERENCE - ------- --------------------------------------------------------------------------- --------- *1 Form of Underwriting Agreement ++3.1 Articles of Incorporation of Simula, Inc., as amended and restated 3.2 Bylaws of Simula, Inc., as amended and restated............................ (1) ++4.1 Specimen of Common Stock Certificate 4.2 Indenture dated December 17, 1993 (including cross-reference sheet to Trust Indenture Act), as amended................................................. (3) ++4.5 Supplemental Indenture No. 2 dated September 12, 1996, entered into in connection with the Registrant's issuance of Series C 10% Senior Subordinated Convertible Notes 4.6 Form of Supplemental Indenture No. 3, effective March 14, 1997, amending the Indenture of Simula, Inc. dated December 17, 1993...................... (11) *4.7 Form of Indenture in connection with the issuance of the % Senior Subordinated Convertible Notes *5.1 Opinion of Counsel 8. Re tax matters, see 5.1 above 10.8 Employment Agreement between Registrant and Stanley P. Desjardins.......... (1)
II-2 102
NO. DESCRIPTION REFERENCE - ------- --------------------------------------------------------------------------- --------- 10.9 Employment Agreement between Registrant and Donald W. Townsend............. (1) 10.11 1992 Stock Option Plan..................................................... (1) 10.12 1992 Restricted Stock Plan................................................. (1) 10.15 Asset Purchase Agreement dated August 2, 1993 between Simula, Inc. and Airline Interiors, Inc..................................................... (2) 10.16 Asset Purchase Agreement dated June 14, 1994, among Simula, Inc., CCEC Acquisition Corp. and Coach and Car Equipment Corporation.................. (4) 10.18 Asset Purchase Agreement dated September 30, 1994, among Simula, Inc., Artcraft Acquisition Corp., and Artcraft Industries Corp. ................. (5) 10.21 1994 Stock Option Plan..................................................... (6) 10.22 Agreements dated January 27, 1995 with Autoliv AB, including license agreement, frame supply agreement and joint development agreement.......... (7) 10.23 Agreement with Jetstream Aircraft Limited.................................. (7) 10.24 Amended Loan Agreement with Wells Fargo Bank, N.A. dated December 20, 1996....................................................................... (11) 10.25 Asset Purchase Agreement dated November 1, 1995, between Comfab, Inc. and Stanley P. Desjardins, d/b/a Desjardins Engineering; Services Agreement dated November 1, 1995, between Simula, Inc. and Comfab, Inc.; Promissory Note of Stanley P. Desjardins, d/b/a Desjardins Engineering, dated November 1, 1995, for the purchase price of Comfab, Inc. ........................... (8) 10.26 Simula, Inc. Employee Stock Purchase Plan.................................. (9) ++10.27 Promissory Note representing $650,000 loan from Stanley P. Desjardins dated August 12, 1996 ++10.28 Promissory Note representing $1,000,000 loan from Stanley P. Desjardins dated August 14, 1996 10.29 Form of Change of Control Agreements Between the Company and Key Management Personnel.................................................................. (11) @11. Earnings Per Share @12. Ratio of Earnings to Fixed Charges 18. Preference Letter re: change in accounting principles...................... (10) @21. Subsidiaries of Registrant *23. Consent of Independent Auditors 24. Powers of Attorney -- Directors............................................ (11) 25. Statement of Eligibility of Trustee on Form T-1 for Indenture dated December 17, 1993 (without Indenture) (bound separately)................... (3)
- --------------- * Filed herewith. + To be filed by amendment. ++ Filed with original Registration Statement on Form S-3, dated October 4, 1996. @ Filed with Amendment No. 2 to Registration Statement on Form S-3, dated March 31, 1997. (1) Filed with Registration Statement on Form S-18, No. 33-46152-LA, under the Securities Act of 1933, effective April 13, 1992. (2) Filed with current Report on Form 8-K, dated August 2, 1993. II-3 103 (3) Filed with Registration Statement on Form SB-2, No. 33-61028 under the Securities Act of 1933, effective December 10, 1993. (4) Filed with current Report on Form 8-K, dated June 14, 1994. (5) Filed with current Report on Form 8-K, dated September 30, 1994. (6) Filed with Registration Statement on Form SB-2, No. 33-87582, under the Securities Act of 1933, effective December 28, 1994. (7) Filed with Registration Statement on Form S-1, No. 33-89186, under the Securities Act of 1933, effective March 28, 1995, as amended by Post-Effective Amendment No. 1, effective March 31, 1995. (8) Filed with Report on Form 10-K for the year ended December 31, 1995. (9) Filed with Definitive Proxy on May 14, 1996, for the Company's Annual Meeting of Shareholders held on June 20, 1996. (10) Filed with Report on Form 10-Q/A for the quarter ended June 30, 1996. (11) Filed with Report on Form 10-K for the year ended December 31, 1996. b.1. Financial Statements. The financial statements of the Company are included in the Prospectus beginning at page F-1. b.2. Financial Statement Schedules. All schedules are included in the financial statements of the Company or are included in Part II of the Registration Statement. ITEM 17. UNDERTAKINGS RULE 415 a. The undersigned registrant hereby undertakes: a.1. To file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement: (i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) To reflect in the prospectus any facts or events arising after the effective date of the Registration Statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the Registration Statement. Notwithstanding the foregoing, any increase or decrease in volume of Securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20 percent change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement; (iii) To include any material information with respect to the plan of distribution not previously disclosed in the Registration Statement or any material change to such information in the Registration Statement; a.2. That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new Registration Statement relating to the Securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. a.3. To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. II-4 104 e. Incorporated Annual and Quarterly Reports. The undersigned registrant hereby undertakes to deliver or cause to be delivered with the prospectus, to each person to whom the prospectus is sent or given, the latest annual report to security holders that is incorporated by reference in the prospectus and furnished pursuant to and meeting the requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of 1934; and, where interim financial information required to be presented by Article 3 of Regulation S-X are not set forth in the prospectus, to deliver, or cause to be delivered to each person to whom the prospectus is sent or given, the latest quarterly report that is specifically incorporated by reference in the prospectus to provide such interim financial information. h. Request for acceleration of effective date. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. II-5 105 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Phoenix, State of Arizona on April 18, 1997. SIMULA, INC. By /s/ DONALD W. TOWNSEND ------------------------------------ Donald W. Townsend, President Pursuant to the requirements of the Securities Act of 1933, the Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE AND TITLE DATE - -------------------------------------------- -------------------------------------------- /s/ DONALD W. TOWNSEND April 18, 1997 - -------------------------------------------- Donald W. Townsend, President, Chief Operating Officer, and Director /s/ BRADLEY P. FORST April 18, 1997 - -------------------------------------------- Bradley P. Forst, Vice President, General Counsel, Secretary and Director /s/ SEAN K. NOLEN April 18, 1997 - -------------------------------------------- Sean K. Nolen, Vice President, Treasurer, Chief Financial Officer, and Director * April 18, 1997 - -------------------------------------------- Stanley P. Desjardins, Chairman * April 18, 1997 - -------------------------------------------- James C. Withers, Director * April 18, 1997 - -------------------------------------------- Robert D. Olliver, Director * April 18, 1997 - -------------------------------------------- Scott E. Miller, Director *By: /s/ BRADLEY P. FORST April 18, 1997 --------------------------------------- Bradley P. Forst, Attorney-in-Fact
II-6 106 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Phoenix, State of Arizona on April 18, 1997. SIMULA HOLDINGS, INC. By /s/ STANLEY P. DESJARDINS ------------------------------------ Stanley R. Desjardins, President POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Bradley P. Forst or Sean K. Nolen, or either of them, as his attorney-in-fact, each with full power of substitution, for him in any and all capacities, to sign any and all amendments to this Registration Statement, including post-effective amendments and any and all new registration statements filed pursuant to Rule 462 under the Securities Act in connection with or related to the offering contemplated by this Registration Statement, as amended, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each said attorney-in-fact or his substitute or substitutes may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, the Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE AND TITLE DATE - -------------------------------------------- -------------------------------------------- /s/ STANLEY P. DESJARDINS April 18, 1997 - -------------------------------------------- Stanley P. Desjardins, President, and Director /s/ BRADLEY P. FORST April 18, 1997 - -------------------------------------------- Bradley P. Forst, Assistant Secretary and Director /s/ SEAN K. NOLEN April 18, 1997 - -------------------------------------------- Sean K. Nolen, Secretary, Treasurer and Director /s/ DONALD W. TOWNSEND April 18, 1997 - -------------------------------------------- Donald W. Townsend, Director
II-7 107 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Phoenix, State of Arizona on April 18, 1997. SIMULA GOVERNMENT PRODUCTS, INC. By /s/ STANLEY P. DESJARDINS ------------------------------------ Stanley P. Desjardins, President POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Bradley P. Forst or Sean K. Nolen, or either of them, as his attorney-in-fact, each with full power of substitution, for him in any and all capacities, to sign any and all amendments to this Registration Statement, including post-effective amendments and any and all new registration statements filed pursuant to Rule 462 under the Securities Act in connection with or related to the offering contemplated by this Registration Statement, as amended, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each said attorney-in-fact or his substitute or substitutes may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, the Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE AND TITLE DATE - -------------------------------------------- -------------------------------------------- /s/ STANLEY P. DESJARDINS April 18, 1997 - -------------------------------------------- Stanley P. Desjardins, President, Chief Operating Officer, and Director /s/ MIKE HAERLE April 18, 1997 - -------------------------------------------- Mike Haerle, Secretary and Tresurer, and Chief Financial Officer /s/ BRADLEY P. FORST April 18, 1997 - -------------------------------------------- Bradley P. Forst, Assistant Secretary /s/ SEAN K. NOLEN April 18, 1997 - -------------------------------------------- Sean K. Nolen, Assistant Treasurer /s/ DONALD W. TOWNSEND April 18, 1997 - -------------------------------------------- Donald W. Townsend, Director
II-8 108 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Phoenix, State of Arizona on April 18, 1997. SIMULA TECHNOLOGIES, INC. By /s/ JOSEPH COLTMAN ------------------------------------ Joseph Coltman, President POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Bradley P. Forst or Sean K. Nolen, or either of them, as his attorney-in-fact, each with full power of substitution, for him in any and all capacities, to sign any and all amendments to this Registration Statement, including post-effective amendments and any and all new registration statements filed pursuant to Rule 462 under the Securities Act in connection with or related to the offering contemplated by this Registration Statement, as amended, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each said attorney-in-fact or his substitute or substitutes may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, the Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE AND TITLE DATE - -------------------------------------------- -------------------------------------------- /s/ JOSEPH COLTMAN April 18, 1997 - -------------------------------------------- Joseph Coltman, President and Director /s/ BRADLEY P. FORST April 18, 1997 - -------------------------------------------- Bradley P. Forst, Assistant Secretary and Director /s/ SEAN K. NOLEN April 18, 1997 - -------------------------------------------- Sean K. Nolen, Secretary, Treasurer and Director /s/ STANLEY P. DESJARDINS April 18, 1997 - -------------------------------------------- Stanley P. Desjardins, Director /s/ DONALD W. TOWNSEND April 18, 1997 - -------------------------------------------- Donald Townsend, Director
II-9 109 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Phoenix, State of Arizona on April 18, 1997. SAFETY EQUIPMENT, INC. (SEI) By /s/ STANLEY P. DESJARDINS ------------------------------------ Stanley P. Desjardins, President POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Bradley P. Forst or Sean K. Nolen, or either of them, as his attorney-in-fact, each with full power of substitution, for him in any and all capacities, to sign any and all amendments to this Registration Statement, including post-effective amendments and any and all new registration statements filed pursuant to Rule 462 under the Securities Act in connection with or related to the offering contemplated by this Registration Statement, as amended, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each said attorney-in-fact or his substitute or substitutes may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, the Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE AND TITLE DATE - -------------------------------------------- -------------------------------------------- /s/ STANLEY P. DESJARDINS April 18, 1997 - -------------------------------------------- Stanley P. Desjardins, President and Director /s/ BARRY SHOPE April 18, 1997 - -------------------------------------------- Barry Shope, Secretary and Director /s/ BRADLEY P. FORST April 18, 1997 - -------------------------------------------- Bradley P. Forst, Assistant Secretary /s/ SEAN K. NOLEN April 18, 1997 - -------------------------------------------- Sean K. Nolen, Treasurer /s/ DONALD W. TOWNSEND APRIL 18, 1997 - -------------------------------------------- DONALD W. TOWNSEND, DIRECTOR
II-10 110 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Phoenix, State of Arizona on April 18, 1997. SEDONA SCIENTIFIC, INC. By /s/ VERN DORRELL ------------------------------------ Vern Dorrell, President POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Bradley P. Forst or Sean K. Nolen, or either of them, as his attorney-in-fact, each with full power of substitution, for him in any and all capacities, to sign any and all amendments to this Registration Statement, including post-effective amendments and any and all new registration statements filed pursuant to Rule 462 under the Securities Act in connection with or related to the offering contemplated by this Registration Statement, as amended, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each said attorney-in-fact or his substitute or substitutes may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, the Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE AND TITLE DATE - -------------------------------------------- -------------------------------------------- /s/ VERN DORRELL April 18, 1997 - -------------------------------------------- Vern Dorrell, President and Director /s/ BRADLEY P. FORST April 18, 1997 - -------------------------------------------- Bradley P. Forst, Assistant Secretary /s/ SEAN K. NOLEN April 18, 1997 - -------------------------------------------- Sean K. Nolen, Treasurer /s/ DONALD W. TOWNSEND April 18, 1997 - -------------------------------------------- Donald W. Townsend, Director /s/ RANDALL TAYLOR April 18, 1997 - -------------------------------------------- Randall Taylor, Director
II-11 111 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Phoenix, State of Arizona on April 18, 1997. INTERNATIONAL CENTER FOR SAFETY EDUCATION By /s/ STANLEY P. DESJARDINS ------------------------------------ Stanley P. Desjardins, President POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Bradley P. Forst or Sean K. Nolen, or either of them, as his attorney-in-fact, each with full power of substitution, for him in any and all capacities, to sign any and all amendments to this Registration Statement, including post-effective amendments and any and all new registration statements filed pursuant to Rule 462 under the Securities Act in connection with or related to the offering contemplated by this Registration Statement, as amended, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each said attorney-in-fact or his substitute or substitutes may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, the Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE AND TITLE DATE - -------------------------------------------- -------------------------------------------- /s/ STANLEY P. DESJARDINS April 18, 1997 - -------------------------------------------- Stanley P. Desjardins, President and Director /s/ BRADLEY P. FORST April 18, 1997 - -------------------------------------------- Bradley P. Forst, Secretary /s/ SEAN K. NOLEN April 18, 1997 - -------------------------------------------- Sean K. Nolen, Treasurer /s/ DONALD W. TOWNSEND April 18, 1997 - -------------------------------------------- Donald W. Townsend, Director
II-12 112 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Phoenix, State of Arizona on April 18, 1997. SIMULA TRANSPORTATION EQUIPMENT CORPORATION By /s/ DONALD RUTTER ------------------------------------ Donald Rutter, President POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Bradley P. Forst or Sean K. Nolen, or either of them, as his attorney-in-fact, each with full power of substitution, for him in any and all capacities, to sign any and all amendments to this Registration Statement, including post-effective amendments and any and all new registration statements filed pursuant to Rule 462 under the Securities Act in connection with or related to the offering contemplated by this Registration Statement, as amended, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each said attorney-in-fact or his substitute or substitutes may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, the Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE AND TITLE DATE - -------------------------------------------- -------------------------------------------- /s/ DONALD RUTTER April 18, 1997 - -------------------------------------------- Donald Rutter, President and Director /s/ INAM KHAN April 18, 1997 - -------------------------------------------- Inam Khan, Secretary, Treasurer /s/ BRADLEY P. FORST April 18, 1997 - -------------------------------------------- Bradley P. Forst, Assistant Secretary and Director /s/ SEAN K. NOLEN April 18, 1997 - -------------------------------------------- Sean K. Nolen, Vice President, Assistant Treasurer /s/ DONALD W. TOWNSEND April 18, 1997 - -------------------------------------------- Donald W. Townsend, Director
II-13 113 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Phoenix, State of Arizona on April 18, 1997. AIRLINE INTERIORS, INC. By /s/ WILLIAM BEASLEY ------------------------------------ William Beasley, President POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Bradley P. Forst or Sean K. Nolen, or either of them, as his attorney-in-fact, each with full power of substitution, for him in any and all capacities, to sign any and all amendments to this Registration Statement, including post-effective amendments and any and all new registration statements filed pursuant to Rule 462 under the Securities Act in connection with or related to the offering contemplated by this Registration Statement, as amended, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each said attorney-in-fact or his substitute or substitutes may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, the Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE AND TITLE DATE - -------------------------------------------- -------------------------------------------- /s/ WILLIAM BEASLEY April 18, 1997 - -------------------------------------------- William Beasley, Chief Operating Officer and Director /s/ BRUCE MERATI April 18, 1997 - -------------------------------------------- Bruce Merati, Secretary, Treasurer /s/ BRADLEY P. FORST April 18, 1997 - -------------------------------------------- Bradley P. Forst, Assistant Secretary /s/ SEAN K. NOLEN April 18, 1997 - -------------------------------------------- Sean K. Nolen, Assistant Treasurer /s/ DONALD RUTTER April 18, 1997 - -------------------------------------------- Donald Rutter, Director /s/ RANDALL TAYLOR APRIL 18, 1997 - -------------------------------------------- RANDALL TAYLOR, DIRECTOR
II-14 114 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Phoenix, State of Arizona on April 18, 1997. COACH & CAR EQUIPMENT CORPORATION By /s/ EUGENE GERMAINE ------------------------------------ Eugene Germaine, President POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Bradley P. Forst or Sean K. Nolen, or either of them, as his attorney-in-fact, each with full power of substitution, for him in any and all capacities, to sign any and all amendments to this Registration Statement, including post-effective amendments and any and all new registration statements filed pursuant to Rule 462 under the Securities Act in connection with or related to the offering contemplated by this Registration Statement, as amended, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each said attorney-in-fact or his substitute or substitutes may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, the Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE AND TITLE DATE - -------------------------------------------- -------------------------------------------- /s/ EUGENE GERMAINE April 18, 1997 - -------------------------------------------- Eugene Germaine, President and Secretary /s/ BRADLEY P. FORST April 18, 1997 - -------------------------------------------- Bradley P. Forst, Assistant Secretary /s/ SEAN K. NOLEN April 18, 1997 - -------------------------------------------- Sean K. Nolen, Treasurer /s/ DONALD RUTTER April 18, 1997 - -------------------------------------------- Donald Rutter, Director /s/ RANDALL TAYLOR April 18, 1997 - -------------------------------------------- Randall Taylor, Director /s/ DONALD W. TOWNSEND April 18, 1997 - -------------------------------------------- Donald W. Townsend, Director
II-15 115 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Phoenix, State of Arizona on April 18, 1997. AIRCRAFT INDUSTRIES CORPORATION By /s/ DONALD RUTTER ------------------------------------ Donald Rutter, President POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Bradley P. Forst or Sean K. Nolen, or either of them, as his attorney-in-fact, each with full power of substitution, for him in any and all capacities, to sign any and all amendments to this Registration Statement, including post-effective amendments and any and all new registration statements filed pursuant to Rule 462 under the Securities Act in connection with or related to the offering contemplated by this Registration Statement, as amended, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each said attorney-in-fact or his substitute or substitutes may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, the Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE AND TITLE DATE - -------------------------------------------- -------------------------------------------- /s/ DONALD RUTTER April 18, 1997 - -------------------------------------------- Donald Rutter, Chief Operating Officer and Director /s/ CAROL SANCHEZ April 18, 1997 - -------------------------------------------- Carol Sanchez, Secretary, Treasurer /s/ JOSEPH APPELMAN April 18, 1997 - -------------------------------------------- Joseph Appelman, General Manager /s/ BRADLEY P. FORST April 18, 1997 - -------------------------------------------- Bradley P. Forst, Assistant Secretary /s/ SEAN K. NOLEN April 18, 1997 - -------------------------------------------- Sean K. Nolen, Assistant Treasurer and Director /s/ DONALD W. TOWNSEND April 18, 1997 - -------------------------------------------- Donald W. Townsend, Director
II-16 116 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Phoenix, State of Arizona on April 18, 1997. INTAERO, LTD. By /s/ DONALD RUTTER ------------------------------------ Donald Rutter, President POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Bradley P. Forst or Sean K. Nolen, or either of them, as his attorney-in-fact, each with full power of substitution, for him in any and all capacities, to sign any and all amendments to this Registration Statement, including post-effective amendments and any and all new registration statements filed pursuant to Rule 462 under the Securities Act in connection with or related to the offering contemplated by this Registration Statement, as amended, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each said attorney-in-fact or his substitute or substitutes may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, the Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE AND TITLE DATE - -------------------------------------------- -------------------------------------------- /s/ DONALD RUTTER April 18, 1997 - -------------------------------------------- Donald Rutter, President and Director /s/ INAM KHAN April 18, 1997 - -------------------------------------------- Inam Khan, Secretary, Treasurer /s/ JAMES CAIN April 18, 1997 - -------------------------------------------- James Cain, General Manager /s/ BRADLEY P. FORST April 18, 1997 - -------------------------------------------- Bradley P. Forst, Assistant Secretary and Director /s/ SEAN K. NOLEN April 18, 1997 - -------------------------------------------- Sean K. Nolen, Assistant Treasurer and Director /s/ DONALD W. TOWNSEND April 18, 1997 - -------------------------------------------- Donald W. Townsend, Director
II-17 117 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Phoenix, State of Arizona on April 18, 1997. VIATECH, INC. By /s/ HARRY JONES ------------------------------------ Harry Jones, President POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Bradley P. Forst or Sean K. Nolen, or either of them, as his attorney-in-fact, each with full power of substitution, for him in any and all capacities, to sign any and all amendments to this Registration Statement, including post-effective amendments and any and all new registration statements filed pursuant to Rule 462 under the Securities Act in connection with or related to the offering contemplated by this Registration Statement, as amended, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each said attorney-in-fact or his substitute or substitutes may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, the Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE AND TITLE DATE - -------------------------------------------- -------------------------------------------- /s/ HARRY JONES April 18, 1997 - -------------------------------------------- Harry Jones, President, and Chief Operating Officer /s/ DONALD W. TOWNSEND April 18, 1997 - -------------------------------------------- Donald W. Townsend, Secretary, Treasurer and Director /s/ BRADLEY P. FORST April 18, 1997 - -------------------------------------------- Bradley P. Forst, Assistant Secretary /s/ SEAN K. NOLEN April 18, 1997 - -------------------------------------------- Sean K. Nolen, Assistant Treasurer /s/ STANLEY P. DESJARDINS April 18, 1997 - -------------------------------------------- Stanley P. Desjardins, Director
II-18 118 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Phoenix, State of Arizona on April 18, 1997. SIMULA AUTOMOTIVE SAFETY DEVICES (ASD-Simula), INC. By /s/ JAMES SAUNDERS ------------------------------------ James Saunders, President POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Bradley P. Forst or Sean K. Nolen, or either of them, as his attorney-in-fact, each with full power of substitution, for him in any and all capacities, to sign any and all amendments to this Registration Statement, including post-effective amendments and any and all new registration statements filed pursuant to Rule 462 under the Securities Act in connection with or related to the offering contemplated by this Registration Statement, as amended, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each said attorney-in-fact or his substitute or substitutes may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, the Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE AND TITLE DATE - -------------------------------------------- -------------------------------------------- /s/ JAMES SAUNDERS April 18, 1997 - -------------------------------------------- James Saunders, President, Chief Operating Officer, and Director /s/ BRADLEY P. FORST April 18, 1997 - -------------------------------------------- Bradley P. Forst, Secretary /s/ SEAN K. NOLEN April 18, 1997 - -------------------------------------------- Sean K. Nolen, Treasurer and Director /s/ DONALD W. TOWNSEND April 18, 1997 - -------------------------------------------- Donald W. Townsend, Director /s/ RANDALL TAYLOR April 18, 1997 - -------------------------------------------- Randall Taylor, Director
II-19 119 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Phoenix, State of Arizona on April 18, 1997. SIMULA AUTOMOTIVE SAFETY DEVICES LIMITED By /s/ ALAN DORWARD ------------------------------------ Alan Dorward, General Manager, Operating Officer POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Bradley P. Forst or Sean K. Nolen, or either of them, as his attorney-in-fact, each with full power of substitution, for him in any and all capacities, to sign any and all amendments to this Registration Statement, including post-effective amendments and any and all new registration statements filed pursuant to Rule 462 under the Securities Act in connection with or related to the offering contemplated by this Registration Statement, as amended, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each said attorney-in-fact or his substitute or substitutes may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, the Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE AND TITLE DATE - -------------------------------------------- -------------------------------------------- /s/ ALAN DORWARD April 18, 1997 - -------------------------------------------- Alan Dorward, General Manager, Operating Officer and Director /s/ DAVID LINKLATER April 18, 1997 - -------------------------------------------- David Linklater, Finance Manager, Financial Officer /s/ DONALD W. TOWNSEND April 18, 1997 - -------------------------------------------- Donald W. Townsend, Director /s/ RANDALL TAYLOR April 18, 1997 - -------------------------------------------- Randall Taylor, Director /s/ JAMES SAUNDERS April 18, 1997 - -------------------------------------------- James Saunders, Director /s/ BRADLEY FORST April 18, 1997 - -------------------------------------------- Bradley Forst, Secretary
II-20 EX-1 2 FORM OF UNDERWRITING AGREEMENT 1 $30,000,000(1) SIMULA, INC. ___ % Senior Subordinated Convertible Notes Due _______________ UNDERWRITING AGREEMENT April ____, 1997 H.D. BROUS & CO., INC. BREAN MURRAY & CO., INC. L.H. FRIEND, WEINRESS, FRANKSON & PRESSON, INC. as Representatives of the several Underwriters 2700 N. Central Avenue, Ste. 1250 Phoenix, Arizona 85004 Dear Sirs: Simula, Inc., an Arizona corporation (the "Company") hereby confirms its agreement with the several underwriters named in Schedule 1 hereto (the "Underwriters"), for whom you have been duly authorized to act as representative (in such capacity, the "Representatives"), as set forth below. If you are the only Underwriters, all references herein to the Representatives shall be deemed to be to the Underwriters. 1. Securities. Subject to the terms and conditions herein contained, the Company proposes to issue and sell to the several Underwriters an aggregate of $30,000,000 in aggregate principal amount of the Company's ___% Senior Subordinated Convertible Notes Due ____________, 2004 (the "Firm Securities"). The Company also proposes to sell to the several Underwriters not more than $_________ additional aggregate principal amount of ___% Senior Subordinated Convertible Notes Due ___________, 2004 if requested by the Representatives as provided in Section 3(b) of this Agreement. (Such Notes are referred to herein as the "Option Securities," and the Firm Securities and any Option Securities are collectively referred to herein as the "Securities.") 2. Representations and Warranties of the Company. The Company represents and warrants to, and agrees with, each of the several Underwriters that: (a) A registration statement on Form S-3 under the Securities Act of 1933, as amended (the "Act") (File No. 333-13499) with respect to the Securities, including a prospectus - -------- (1) Plus an option to purchase from the Company up to 180,000 additional shares to cover over-allotments. 2 subject to completion, has been filed by the Company with the Securities and Exchange Commission (the "Commission") under the Act and one or more amendments to such registration statement may have been so filed. Copies of such registration statement and any amendments, and all forms of the related prospectuses contained therein, have been delivered to you. After the execution of this Agreement, the Company will file with the Commission either (i) if such registration statement, as it may have been amended, has been declared by the Commission to be effective under the Act, a prospectus in the form most recently included in an amendment to such registration statement (or, if no such amendment shall have been filed, in such registration statement), with such changes or insertions as are required by Rule 430A under the Act or permitted by Rule 424(b) under the Act and as have been provided to and approved by the Representatives prior to the execution of this Agreement, or (ii) if such registration statement, as it may have been amended, has not been declared by the Commission to be effective under the Act, an amendment to such registration statement, including a form of prospectus, a copy of which amendment has been furnished to and approved by the Representatives prior to the execution of this Agreement. As used in this Agreement, the term "Registration Statement" means such registration statement, as amended at the time when it was or is declared effective, including all exhibits and financial schedules thereto, each Preliminary Prospectus contained therein, and any information omitted therefrom pursuant to Rule 430A under the Act and included in the Prospectus (as hereinafter defined); the term "Preliminary Prospectus" means each prospectus subject to completion filed with such registration statement or any amendment thereto (including the prospectus subject to completion, if any, included in the Registration Statement or any amendment thereto at the time it was or is declared effective); and the term "Prospectus" means the prospectus first filed with the Commission pursuant to Rule 424(b) and Rule 430A under the Act or, if no prospectus is required to be filed pursuant to said Rule 424(b), such term means the prospectus included in the Registration Statement. (b) The Commission has not issued any order preventing or suspending the use of any Preliminary Prospectus. When the Registration Statement or any amendment thereto was or is declared effective, and when the Prospectus or any amendment or supplement thereto is filed with the Commission pursuant to Rule 424(b), on the date when the Prospectus is otherwise amended or supplemented and on the Firm Closing Date and any Option Closing Date (both as hereinafter defined), both the Registration Statement and the Prospectus, as amended or supplemented at any such time, (i) contained or will contain all statements required to be stated therein in accordance with, and complied or will comply in all material respects with the requirements of, the Act and the rules and regulations of the Commission thereunder and (ii) did not or will not include any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein not misleading. The foregoing provisions of this paragraph (b) do not apply to statements or omissions made in any Preliminary Prospectus, the Registration Statement or any amendment thereto or the Prospectus or any amendment or supplement thereto in reliance upon and in conformity with written information furnished to the Company by any Underwriter through the Representatives specifically for use therein. (c) The Company and each of its subsidiaries have been duly incorporated and are validly existing as corporations in good standing under the laws of their respective jurisdictions of incorporation and are duly qualified to transact business as foreign corporations and are in good standing under the laws of all other jurisdictions where the ownership or leasing of their respective properties or the conduct of their respective businesses requires such qualification, except where the failure to be so qualified does not amount to a material liability or disability to the Company and 2 3 its subsidiaries, taken as a whole; and each of the Company and its subsidiaries holds all material licenses, certificates and permits from governmental authorities necessary for the conduct of their respective businesses. The Company's only subsidiaries are Simula Technologies, Inc., Simula Government Products, Inc., Simula Transportation Equipment Corporation (fka Intaero, Inc.), Airline Interiors, Inc., Coach and Car Equipment Corporation, Artcraft Industries Corp., Southtech, Inc., ViaTech, Inc., Safety Equipment, Inc., ICSE, Inc., Simula Automotive Safety Devices, Inc., Simula Automotive Safety Devices, Limited, Intaero, Ltd., and Sedona Scientific, Inc. (collectively, the "Subsidiaries"). Complete and correct copies of the articles of incorporation and the bylaws of the Company and each of its subsidiaries, and all amendments thereto, have been delivered to you, and no changes therein will be made subsequent to the date hereof and prior to the Firm Closing Date or the Option Closing Date. (d) The Company and each of its subsidiaries have full power (corporate and other) to own or lease their respective properties and conduct their respective businesses as described in the Registration Statement and the Prospectus; and the Company has full power (corporate and other) to enter into this Agreement and to carry out all the terms and provisions hereof to be carried out by it. (e) The issued shares of capital stock of each of the Company's subsidiaries have been duly authorized and validly issued, are fully paid and nonassessable and, except as described in the Registration Statement and the Prospectus, are owned, directly or indirectly by wholly owned subsidiaries, of record and beneficially by the Company, free and clear of any security interests, liens, encumbrances, equities or claims whatsoever. (f) The Company has an authorized, issued and outstanding capitalization as set forth in the Registration Statement and the Prospectus. All of the issued shares of capital stock of the Company have been duly authorized and validly issued and are fully paid and nonassessable. The Firm Securities and the Option Securities have been duly authorized and at the Firm Closing Date or the related Option Closing Date (as the case may be), after payment therefor in accordance herewith, will be validly issued, fully paid and nonassessable. At the Firm Closing Date or the related Option Closing Date (as the case may be), the Firm Securities or the Option Securities (as the case may be) will be listed, together with all other outstanding shares of Common Stock, on the New York Stock Exchange ("NYSE"). No holders of outstanding shares of capital stock of the Company are entitled as such to any preemptive or other rights to subscribe for or to purchase any of the Securities, there are no restrictions upon the voting or transfer of the Securities or any of the capital stock of the Company (other than the applicable provisions of Rule 144), and no holder of securities of the Company has the right to require the Company (now or in the future) to register such holder's securities under the Act, except as waived by such holder or as described in the Registration Statement and the Prospectus. (g) The capital stock of the Company and its subsidiaries conforms in all material respects to the description thereof contained in the Prospectus. (h) The consolidated financial statements and schedules of the Company and its consolidated subsidiaries, Airline Interiors, Inc., Coach and Car Equipment Corporation, and Artcraft Industries Corp. (including the notes thereto) included in the Registration Statement and the Prospectus fairly present in all material respects the financial position of the Company and its consolidated subsidiaries and their results of operation and changes in financial condition as of the dates and periods therein specified. Such financial statements and schedules have been prepared 3 4 in accordance with generally accepted accounting principles consistently applied throughout the periods involved (except as otherwise noted therein). The supporting schedules and summary financial data set forth in the Registration Statement or the Prospectus fairly present in all material respects, on the basis stated in the Registration Statement or the Prospectus, the information included therein. The pro forma financial information included in the Registration Statement or the Prospectus has been prepared in accordance with SEC rules and guidelines with respect to pro forma financial information, has been properly compiled on the pro forma basis described therein and, in the opinion of the Company, the assumptions used in the preparation thereof are reasonable and the adjustments used therein are appropriate to give effect to the transactions or circumstances referred to therein. (i) Deloitte & Touche LLP has certified certain financial statements of the Company and its consolidated subsidiaries and delivered its report with respect to the audited consolidated financial statements and schedules included or incorporated by reference in the Registration Statement and the Prospectus, and is an independent public accountant as required by the Act, the Securities Exchange Act of 1934, as amended (the "Exchange Act") and the related rules and regulations thereunder. (j) The Company has corporate power and corporate authority to enter into this Agreement and to carry out all the terms and provisions of this Agreement to be carried out by it. The execution and delivery of this Agreement have been duly authorized by all necessary corporate action of the Company, and this Agreement has been duly executed and delivered by the Company, and is a valid and binding agreement of the Company, enforceable against the Company in accordance with its terms, subject to (i) bankruptcy, insolvency or similar laws generally affecting the enforcement of creditors' rights, (ii) equitable principles limiting the right to obtain specific performance or similar equitable relief, and (iii) limitations imposed by applicable laws regarding rights to indemnity and contribution. (k) No legal or governmental proceedings are pending to which the Company or any of its subsidiaries is a party or to which the property of the Company or any of its subsidiaries is subject that are required to be described in the Registration Statement or the Prospectus and are not described therein, and no such proceedings have been threatened against the Company or any of its subsidiaries or with respect to any of their respective properties; and no contract or other document is required to be described in the Registration Statement or the Prospectus or to be filed as an exhibit to the Registration Statement that is not described therein or has not been filed as required. (l) The issuance, offering and sale of the Securities to the Underwriters by the Company pursuant to this Agreement, the compliance by the Company with the other provisions of this Agreement applicable to it and the consummation of the other transactions herein contemplated do not (i) require the consent, approval, authorization, registration or qualification of or with any governmental authority, except such as have been obtained and such as may be required under state securities or blue sky laws and applicable regulations of the National Association of Securities Dealers, Inc. (the "NASD") and the NYSE or (ii) conflict with or result in a breach or violation of any of the terms and provisions of, or constitute a default under, (A) any indenture, mortgage, deed of trust, lease or other agreement or instrument to which the Company 4 5 or any of its subsidiaries is a party or by which the Company or any of its subsidiaries or any of their respective properties are bound, (B) the articles of incorporation or bylaws of the Company or any of its subsidiaries, (C) any statute, rule or regulation or (D) any judgment, decree or order of any court or other governmental authority or any arbitrator to which the Company or any of its subsidiaries is a party or is subject, or to which their respective properties are subject. (m) The Company and its subsidiaries own, possess or have the right to use pursuant to valid license agreements all patents, trademarks, service marks, trade names, licenses, copyrights and proprietary or other confidential information currently employed by them in connection with, and that are material to the conduct of, their respective businesses, and neither the Company nor any such subsidiary has received, or has reason to believe that it may receive, any notice of infringement of or conflict with asserted rights of any third party with respect to any of the foregoing which, singly or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would result in a material adverse change in the condition (financial or otherwise), business prospects, net worth or results of operations of the Company and its subsidiaries, taken as a whole, except as described in the Registration Statement or the Prospectus. (n) The Company and its subsidiaries possess all certificates, authorizations and permits issued by the appropriate federal, state, local or foreign regulatory authorities necessary to conduct their respective businesses (except where the failure to possess any such certificate, authorization or permit would not, singly or in the aggregate, have a material adverse effect upon the Company and its subsidiaries, taken as a whole), and neither the Company nor any such subsidiary has received any notice of proceedings relating to the revocation or modification of any such certificate, authorization or permit which, singly or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would result in a material adverse change in the condition (financial or otherwise), business prospects, net worth or results of operations of the Company and its subsidiaries, taken as a whole, except as described in the Registration Statement and the Prospectus. (o) Subsequent to the respective dates as of which information is given in the Registration Statement and the Prospectus, (i) the Company and its subsidiaries have not incurred any material liability or obligation, direct or contingent, nor entered into any material transaction not in the ordinary course of business; (ii) there has been no material adverse change in the condition (financial or otherwise) of the Company or any of its subsidiaries, taken as a whole, or in the earnings, business affairs or business prospects of the Company or any of its subsidiaries, whether or not arising in the ordinary course of business; (iii) the Company has not purchased any of its outstanding capital stock, nor declared, paid or otherwise made any dividend or distribution of any kind on its capital stock; and (iv) there has not been any material change in the capital stock, short-term debt or long-term debt of the Company and its consolidated subsidiaries, taken as a whole, except in each case as described in the Registration Statement and the Prospectus. (p) The Company and each of its subsidiaries have good and marketable title in fee simple to all items of real property and marketable title to all personal property owned by each of them, in each case free and clear of any security interests, liens, encumbrances, equities, claims and other defects, except such as are described in the Prospectus or such as do not materially and adversely affect the value of such property and do not interfere with the use made or proposed to be made of such property by the Company or such subsidiary, and any real property and buildings 5 6 held under lease by the Company or any such subsidiary are held under valid, subsisting and enforceable leases, with such exceptions as are not material and do not interfere in any material respect with the use made or proposed to be made of such property and buildings by the Company or such subsidiary, in each case except as described in the Registration Statement and the Prospectus. (q) The Company and each of its subsidiaries have filed all foreign, federal, state and local income tax returns that are required to be filed and have paid all taxes required to be paid by them and any other assessment, fine or penalty levied against them, to the extent that any of the foregoing is due and payable, except, in all cases, for any such assessment, fine or penalty that is currently being contested in good faith or as described in the Registration Statement and the Prospectus. (r) Except for the shares of capital stock of each of the subsidiaries owned by the Company, neither the Company nor any such subsidiary owns any material amount of any shares of stock or any other equity securities of any corporation or has any equity interest in any firm, partnership, joint venture, association or other entity, except as described in the Registration Statement and the Prospectus. (s) No default exists, and no event has occurred which, with notice or lapse of time or both, would constitute a default in the due performance and observance of any term, covenant or condition of any indenture, mortgage, deed of trust, lease or other agreement or instrument to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries or any of their respective properties is bound or may be affected, in each case in any material adverse respect with regard to property, business or operations of the Company and its subsidiaries taken as a whole (except for any default which would not, singly or in the aggregate, have a material adverse effect upon the Company and its subsidiaries, taken as a whole). Neither the Company nor any of its Subsidiaries is in violation of any law, ordinance, governmental rule or regulation or court decree to which any of them or their respective properties may be subject which violation might have a material adverse effect on the condition (financial or other), properties, prospective results of operations or net worth of the Company and its subsidiaries, taken as a whole. (t) The Company and each of its subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as the Company believes are prudent in the businesses in which they are engaged; neither the Company nor any such subsidiary has been refused any insurance coverage sought or applied for; and neither the Company nor any such subsidiary has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business at a cost that would not materially and adversely affect the condition (financial or otherwise), business prospects, net worth or results of operations of the Company and its subsidiaries, taken as a whole, except as described in the Registration Statement and the Prospectus. (u) The Company has not (i) taken, directly or indirectly, any action designed to cause or to result in, or that has constituted or might reasonably be expected to constitute, the stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Securities or (ii) since the filing of the Registration Statement, (A) sold, bid for, 6 7 purchased, attempted to induce any person to purchase, or paid anyone any compensation for soliciting purchases of, the Securities or (B) paid or agreed to pay to any person any compensation for soliciting another to purchase any other securities of the Company (except for the sale of Securities by the Company under this Agreement). (v) No labor dispute with the employees of the Company or any of its subsidiaries exists or is threatened or imminent that could result in a material adverse change in the condition (financial or otherwise), business prospects, net worth or results of operations of the Company and its subsidiaries, taken as a whole, except as described in the Registration Statement and the Prospectus. (w) No subsidiary of the Company is currently prohibited, directly or indirectly, from paying any dividends to the Company, from making any other distribution on such subsidiary's capital stock, from repaying to the Company any loans or advances to such subsidiary from the Company or from transferring any of such subsidiary's property or assets to the Company or any other subsidiary of the Company, except as described in the Registration Statement and the Prospectus. (x) Neither the Company nor any of its subsidiaries is in violation of any federal or state law or regulation relating to occupational safety and health or to the storage, handling or transportation of hazardous or toxic materials, and the Company and its subsidiaries have received all permits, licenses or other approvals required of them under applicable federal and state occupational safety and health and environmental laws and regulations to conduct their respective businesses, and the Company and each such subsidiary is in compliance with all terms and conditions of any such permit, license or approval, except, in each case, where any such violation of law or regulation, failure to receive required permits, licenses or other approvals or failure to comply with the terms and conditions of such permits, licenses or approvals which would not, singly or in the aggregate, result in a material adverse change in the condition (financial or otherwise), business prospects, net worth or results of operations of the Company and its subsidiaries, taken as a whole, except as described in the Registration Statement and the Prospectus. (y) The Company and each of its subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance, in all material respects, that (i) transactions are executed in accordance with management's general or specific authorizations; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain asset accountability; (iii) access to assets is permitted only in accordance with management's general or specific authorization; and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. (z) There are no business relationships or related party transactions of the nature described in Item 404 of Regulation S-K under the Act involving the Company and any person referred to in Item 401 of Regulation S-K under the Act, except as required to be described in the Registration Statement and the Prospectus and as so described. (aa) Neither the Company nor any of its subsidiaries has a defined benefit pension plan or other pension benefit plan which is subject to the minimum funding standards of Section 302 7 8 of the Employee Retirement Income Security Act of 1974, as amended from time to time, except as described in the Registration Statement and the Prospectus; and any such plans so described are in full compliance with such Section . (bb) No person is entitled, directly or indirectly, to compensation from the Company or any of its subsidiaries for services as a finder in connection with the transactions contemplated by this Agreement. 3. Purchase, Sale and Delivery of the Securities. (a) On the basis of the representations, warranties, agreements and covenants herein contained and subject to the terms and conditions herein set forth, (i) the Company agrees to issue and sell to each of the Underwriters, and each of the Underwriters, severally and not jointly, agrees to purchase from the Company, at a purchase price of $_______ per share less the Underwriter's discount of 7% of the purchase price, the number of Firm Securities set forth opposite the name of such Underwriter in Schedule 1 hereto. One or more certificates in definitive form for the Firm Securities that the several Underwriters have agreed to purchase hereunder, all in such denomination or denominations and registered in such name or names as the Representatives requests upon notice to the Company at least 48 hours prior to the Firm Closing Date, shall be delivered by or on behalf of the Company to the Representatives for the respective accounts of the Underwriters, against payment by or on behalf of the Underwriters of the purchase price therefor by certified or official bank check or checks drawn upon or by a Chicago Clearing House bank and payable in next-day funds or, at the option of the Representatives, by wire transfer and payable in same-day funds (in which case the Company shall reimburse to the Underwriters the one day's interest that would have accrued on such purchase price had the purchase price been paid in next-day funds, such interest based on the broker call rate as reported in the Wall Street Journal) to the order of the Company. Such delivery of and payment for the Firm Securities shall be made at the offices of H.D. Brous & Co., Inc., 2700 N. Central Avenue, Suite 1250, Phoenix, Arizona 85004, at 9:30 A.M., local time, on __________________, 1997, or at such other place, time or date as the Representatives and the Company may agree upon or as the Representatives may determine pursuant to Section 9 hereof, such time and date of delivery against payment being herein referred to as the "Firm Closing Date." The Company will make such certificate or certificates for the Firm Securities available for checking and packaging by the Representatives at the offices in New York, New York or Chicago, Illinois of the Company's transfer agent or registrar or their correspondent at least 24 hours prior to the Firm Closing Date. (b) For the purpose of covering any over-allotments in connection with the distribution and sale of the Firm Securities as contemplated by the Prospectus, the Company hereby grants to the several Underwriters an option to purchase, severally and not jointly, the Option Securities. The purchase price to be paid for any Option Securities shall be the same price per share as the price per share for the Firm Securities set forth above in paragraph (a) of this Section 3, plus if the purchase and sale of any Option Securities takes place after the Firm Closing Date and after the Firm Securities are trading "ex-dividend," an amount equal to the dividend payable on such Option Securities. The option granted hereby may be exercised as to all or any part of the Option Securities from time to time within 8 9 thirty days after the date of the Prospectus. It is understood that no Option Securities shall be sold and delivered unless the Firm Securities previously have been, or simultaneously are, sold and delivered. The Underwriters shall not be under any obligation to purchase any of the Option Securities prior to the exercise of such option. The Representatives may from time to time exercise the option granted hereby by giving notice in writing or by telephone (confirmed in writing) to the Company setting forth the aggregate number of shares of Option Securities as to which the several Underwriters are then exercising the option and the date and time for delivery of and payment for such Option Securities. Any such date of delivery shall be determined by the Representatives but shall not be earlier than two business days or later than seven business days after such exercise of the option and, in any event, shall not be earlier than the Firm Closing Date. The time and date set forth in such notice, or such other time on such other date as the Representatives and the Company may agree upon or as the Representatives may determine pursuant to Section 9 hereof, is herein called the "Option Closing Date" with respect to such Option Securities. Upon exercise of the option as provided herein, the Company shall become obligated to sell to each of the several Underwriters, and, subject to the terms and conditions herein set forth, each of the Underwriters (severally and not jointly) shall become obligated to purchase from the Company, the same percentage of the total number of the Option Securities as to which the several Underwriters are then exercising the option as such Underwriter is obligated to purchase of the aggregate number of Firm Securities, as adjusted by the Representatives in such manner as the Representatives deems advisable to avoid fractional shares. If the option is exercised as to all or any portion of the Option Securities, one or more certificates in definitive form for such Option Securities, and payment therefor, shall be delivered on the related Option Closing Date in the manner, and upon the terms and conditions, set forth in paragraph (a) of this Section 3. (c) It is understood that you, individually and not as the Representatives, may (but shall not be obligated to) make payment on behalf of any Underwriter or Underwriters for any of the Securities to be purchased by such Underwriter or Underwriters. No such payment shall relieve such Underwriter or Underwriters from any of its or their obligations hereunder. 4. Offering by the Underwriters. Upon your authorization of the release of the Firm Securities, the several Underwriters propose to offer the Firm Securities for sale to the public upon the terms set forth in the Prospectus. The Representatives shall promptly advise the Company of the commencement of the public offering. 5. Covenants of the Company. The Company covenants and agrees with each of the Underwriters that: (a) Subject to the next sentence, the Company will file the Prospectus with the Commission pursuant to Rule 424 under the Act. During any time when a prospectus relating to the Securities is required to be delivered under the Act, the Company (i) will comply with all requirements imposed upon it by the Act and the Exchange Act and the respective rules and regulations of the Commission thereunder to the extent necessary to permit the continuance of sales of or dealings in the Securities in accordance with the provisions hereof and of the Prospectus, as then amended or supplemented, and (ii) will not 9 10 file with the Commission the Prospectus, any amendment or supplement to the Prospectus, or any amendment to the Registration Statement, of which the Representatives shall not previously have been advised and furnished with a copy a reasonable period of time prior to the proposed filing and as to which filing the Representatives shall not have given their consent, which consent will not be unreasonably withheld. The Company will advise the Representatives, promptly after receiving notice thereof, of the time when (i) the Prospectus has been filed with the Commission and (ii) any amendment to the Registration Statement has been filed or declared effective or any amendment or supplement to the Prospectus has been filed and will provide evidence satisfactory to the Representatives of each such filing or effectiveness. (b) The Company will advise the Representatives, promptly after receiving notice or obtaining knowledge thereof, of (i) the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or any post-effective amendment thereto or any order directed at any document incorporated by reference in the Registration Statement or the Prospectus or any amendment or supplement thereto or any order preventing or suspending the use of the Prospectus, (ii) the suspension of the qualification of the Securities for offering or sale in any jurisdiction, (iii) the institution, threatening or contemplation of any proceeding for any such purpose or (iv) any request made by the Commission for amending the Registration Statement, for amending or supplementing the Prospectus or for additional information. The Company will use its best efforts to prevent the issuance of any such stop order and, if any such stop order is issued, to obtain the withdrawal thereof as promptly as possible. (c) The Company will cooperate with the Representatives in connection with the registration or qualification of the Securities for offering and sale under the securities or blue sky laws of such jurisdictions as the Representatives may designate and will continue such qualifications in effect for as long as may be reasonably necessary to complete the distribution of the Securities, provided, however, that in connection therewith the Company shall not be required to qualify as a foreign corporation or to execute a general consent to service of process in any jurisdiction. (d) If, at any time when a prospectus relating to the Securities is required to be delivered under the Act, any event occurs as a result of which the Prospectus, as then amended or supplemented, would include any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, or if for any other reason it is necessary at any time to amend or supplement the Prospectus to comply with the Act, the Exchange Act or the respective rules or regulations of the Commission thereunder, the Company will promptly notify the Representatives thereof and, subject to Section 5(a) hereof, will prepare and file with the Commission, at the Company's expense, an amendment to the Registration Statement or an amendment or supplement to the Prospectus that corrects such statement or omission or effects such compliance. (e) The Company will, without charge, provide to the Representatives and to counsel for the Underwriters a signed copy of the Registration Statement originally filed with respect to the Securities and each amendment thereto (in each case including exhibits 10 11 thereto), (ii) to each Underwriter, a conformed copy of such Registration Statement and each amendment thereto (in each case without exhibits thereto) and (iii) as long as a prospectus relating to the Securities is required to be delivered under the Act, as many copies of each Preliminary Prospectus or the Prospectus or any amendment or supplement thereto as the Representatives may reasonably request. (f) The Company, as soon as practicable, will make generally available to its security holders and to the Representatives a consolidated earnings statement of the Company and its subsidiaries covering a period of at least 12 months after the effective date of the Registration Statement (but in no event commencing later than 90 days after such date), which statement shall satisfy the provisions of Section 11(a) of the Act and Rule 158 thereunder. (g) The Company will apply the net proceeds from the sale of the Company's Securities as set forth under "Use of Proceeds" in the Prospectus. (h) The Company, its directors and executive officers will not, directly or indirectly, without the prior written consent of the Representatives, on behalf of the Underwriters, offer, issue, sell, contract to sell, grant any option to purchase or otherwise dispose of (or announce any offer, issuance, sale, grant of any option to purchase or other disposition of) any shares of Common Stock or any securities convertible into, or exchangeable or exercisable for, shares of Common Stock for a period of 90 days from the date of the Prospectus, except pursuant to this Agreement and except grants of option under stock option plans described in the Prospectus and issuances of shares of Common Stock (x) pursuant to the exercise of stock options under stock options plans or compensation contracts described in the Prospectus or (y) in connection with the acquisition of assets by the Company or its subsidiaries as described in the Prospectus. (i) For a period of 60 days after the effective date of the Registration Statement, the Company will not (i) take, directly or indirectly, any action designed to cause or to result in, or that might reasonably be expected to constitute, the stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Securities or (ii) bid for, purchase, attempt to induce any person to purchase, or pay anyone any compensation for soliciting purchases of, the Securities or (iii) pay or agree to pay to any person any compensation for soliciting another to purchase any other securities of the Company. (j) The Company will file with the NYSE, as long as its securities are quoted thereon, all documents and notices required by the NYSE of companies that have issued securities that are traded on the NYSE. (k) If at any time during the 25-day period after the Registration Statement becomes effective, any rumor, publication or event relating to or affecting the Company shall occur as a result of which in your opinion the market price of the Common Stock has been or is likely to be materially affected (regardless of whether such rumor, publication or event necessitates a supplement to or amendment to the Prospectus), the Company will, after written notice from you advising the Company to the effect set forth above, forthwith 11 12 prepare, consult with you concerning the substance of, and disseminate a press release or other public statement, reasonably satisfactory to you, responding to or commenting on such rumor, publication or event. (l) For five years after the date hereof, the Company will mail as soon as practicable to the holders of its Common Stock and Convertible Exchangeable Preferred Stock substantially all of the following documents, which documents shall be in compliance with this Section if they are in the form prescribed by the Exchange Act: (i) within 75 days after the end of the first three quarters of each fiscal year, copies of the quarterly unaudited condensed consolidated statements of operations and quarterly unaudited condensed consolidated balance sheets of the Company and any material subsidiaries; and (ii) within 120 days after the close of each fiscal year, appropriate consolidated financial statements as of the close of such fiscal year for the Company and any material subsidiary which shall be opined to by a nationally recognized firm of independent public accountants in such form as to disclose the Company's consolidated financial condition and the consolidated results of its operations for such fiscal year. (m) For five years after the date hereof, the Company will furnish to the Representatives (i) concurrently with furnishing such reports to its shareholders, the reports described in Section 5(l) hereof; (ii) as soon as they are available, copies of all other reports (financial or otherwise) mailed to security holders generally; and (iii) as soon as they are available, copies of all reports and financial statements furnished to, or filed with, the Commission, the NASD, any securities exchange or any state securities commission by the Company. During such period, the foregoing financial statements shall be on a consolidated basis to the extent that the accounts of the Company and any subsidiary or subsidiaries are consolidated and shall be accompanied by similar financial statements for any significant subsidiary which is not so consolidated. (n) For a period of at least three years after the effective date of the Registration Statement, the Company will continue to file with the Commission all reports and other documents as may be required by Section 13 or 15(d) of the Exchange Act. 6. Expenses. The Company will pay all costs and expenses incident to the performance of the obligations of the Company under this Agreement, whether or not the transactions contemplated herein are consummated or this Agreement is terminated pursuant to Section 11 hereof, including all costs and expenses incident to (i) the printing or other reproduction of documents with respect to the transactions, including any costs of printing the registration statement originally filed with respect to the Securities and any amendment thereto, any Preliminary Prospectus and the Prospectus and any amendment or supplement thereto, this Agreement, the Agreement Among Underwriters, Selected Dealers Agreement, Underwriter's Questionnaire and Underwriter's Power of Attorney and any blue sky memoranda, (ii) all arrangements relating to the delivery to the Underwriters of copies of the foregoing documents, (iii) the fees and disbursements of the counsel, accountants and any other experts or advisors retained by the Company, (iv) 12 13 preparation, issuance and delivery to the Underwriters of any certificates evidencing the Securities, including transfer agent's and registrar's fees, (v) the qualification of the Securities under state securities and blue sky laws, including filing fees and fees and disbursements of counsel for the Underwriters relating thereto, (vi) the filing fees of the Commission, the NYSE and the NASD relating to the Securities, (vii) the quotation of the Securities on the NYSE, and (viii) expenses of Company personnel in connection with their attendance at meetings with prospective investors in the Securities. If the sale of the Securities provided for herein is not consummated because any condition to the obligations of the Underwriters set forth in Section 9 hereof is not satisfied, because this Agreement is terminated pursuant to Section 13(a)(i) or 13(a)(ii) hereof or because of any failure, refusal or inability on the part of the Company to perform all obligations and satisfy all conditions on its part to be performed or satisfied hereunder other than by reason of a default by any of the Underwriters, the Company will reimburse the Representatives upon demand for all out-of-pocket expenses (including reasonable fees and reasonable disbursements of counsel) that shall have been incurred by the Representatives in connection with the proposed purchase and sale of the Securities. The Company shall not in any event be liable to any of the Underwriters for the loss of anticipated profits from the transactions covered by this Agreement. 7. Conditions of the Underwriters' Obligations. The obligations of the several Underwriters to purchase and pay for the Firm Securities shall be subject, in the Representatives' sole discretion, to the accuracy of the representations and warranties of the Company contained herein as of the date hereof and as of the Firm Closing Date as if made on and as of the Firm Closing Date, to the accuracy of the statements of the Company's officers made pursuant to the provisions hereof, to the performance by the Company of its covenants and agreements hereunder and to the following additional conditions: (a) The Prospectus and any amendment or supplement thereto approved by the Underwriters pursuant to Section 5(a) hereof shall have been filed with the Commission in the manner and within the time period required by Rule 424(b) under the Act; no stop order suspending the effectiveness of the Registration Statement or any post-effective amendment thereto and no order directed at any document incorporated by reference in the Registration Statement or the Prospectus or any amendment or supplement thereto shall have been issued and no proceedings for that purpose shall have been instituted or threatened or, to the knowledge of the Company or the Representatives, shall be contemplated by the Commission; and the Company shall have complied with any request of the Commission for additional information (to be included in the Registration Statement or the Prospectus or otherwise). (b) The Representatives shall have received an opinion, dated the Firm Closing Date, of Streich Lang, P.A., counsel for the Company, to the effect that: (i) the Company and each of its subsidiaries have been incorporated and are validly existing as corporations in good standing under the laws of their respective jurisdictions of incorporation and are duly qualified to transact business as foreign corporations and are in good standing under the laws of all other jurisdictions where they own or lease real property, maintain an office or otherwise transact business, except where the failure to be so qualified does not amount to a material liability or disability to the Company and its subsidiaries, taken as a whole; 13 14 (ii) the Company and each of its subsidiaries have the corporate power and authority to own or lease their respective properties and conduct their respective businesses as described in the Registration Statement and the Prospectus, and the Company has the corporate power and authority to enter into this Agreement and to carry out all the terms and provisions hereof to be carried out by it; (iii) the issued shares of capital stock of each subsidiary have been duly authorized and validly issued, are fully paid and nonassessable and, except as described in the Registration Statement and the Prospectus, are owned of record, and, to such counsel's knowledge (relying upon a certificate of an officer of the Company and a review of the stock transfer ledger of each such subsidiary), beneficially, by the Company, free and clear of any perfected security interests or, to the knowledge of such counsel, any other security interests, liens, encumbrances, equities or claims and no options, warrants or other rights to purchase, agreements or other obligations to issue or other rights to convert any obligations into any shares of capital stock or ownership interests in any such subsidiary are outstanding; (iv) the Company has an authorized capitalization as set forth in the Prospectus and the Securities to be issued by the Company have been duly authorized by all necessary corporate action of the Company and, when issued and delivered to and paid for by the Underwriters pursuant to this Agreement, will be validly issued, fully paid and nonassessable; the certificates for the Securities are in due and proper form under Arizona law and the pertinent rules of the NYSE; the Securities have been duly authorized for quotation on the NYSE; no holders of outstanding shares of capital stock of the Company are entitled as such to any preemptive or other rights to subscribe for or purchase any of the Securities; and to the knowledge of such counsel, no holders of securities of the Company are entitled to have such securities registered under the Registration Statement or, by reason of the filing of the Registration Statement, have the right to request the Company to register their securities under the Act, except as waived by the holder or described in the Registration Statement and the Prospectus; (v) the statements set forth under the headings ["Business-Defense Contracts,"] "Management-Stock Options," ["Certain Relationships and Related Transactions-Limitation on Liability of Directors,]" and "Description of Securities" in the Prospectus are accurate summaries and fairly and correctly in all material respects present the information called for with respect to such matters; (vi) the execution, delivery and performance of this Agreement have been duly authorized by all necessary corporate action of the Company, and this Agreement has been duly executed and delivered by the Company; and this Agreement constitutes a valid and binding obligation of the Company, enforceable against the Company in accordance with its terms (such opinion may be rendered subject to the effect of bankruptcy and other laws of general application affecting the rights and remedies of creditors and to general principles of equity, and no opinion need be given as to the availability of equitable remedies or as to the enforceability of the provisions of Section 8 hereof); 14 15 (vii) other than as disclosed in the Registration Statement or Prospectus, in the course of such counsel's engagement to represent the Company and any of its subsidiaries professionally, such counsel has not become aware of any pending legal or governmental proceedings to which the Company or any of its subsidiaries is a party or to which any property of any of them is subject that, if determined adversely to the Company or any subsidiary, would have a material adverse effect on the Company and its subsidiaries taken as a whole, nor has such counsel become aware of a threat of any such proceedings by governmental authorities or others, nor is such counsel aware of any contracts or documents of a character required to be described in the Registration Statement or the Prospectus or to be filed as exhibits to the Registration Statement that are not described and filed as required (except that such counsel need not express any belief, comment or opinion as to the financial statements, notes or schedules or other financial or statistical data or information in the Registration Statement or the Prospectus), and such contracts and documents as are summarized in the Registration Statement or the Prospectus are fairly summarized in all material respects; (viii) the compliance by the Company with the provisions of this Agreement and the consummation of the transactions herein contemplated do not (A) require the consent, approval, authorization, registration or qualification of or with any governmental authority, except such as have been obtained and such as may be required under state securities or blue sky laws or applicable regulations of the NASD or (B) conflict with or result in a material breach or violation of any of the terms and provisions of, or constitute a default under, (1) any indenture, mortgage, deed of trust, lease or other agreement or instrument, known to such counsel, to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries or any of their respective properties are bound, (2) the articles of incorporation or bylaws of the Company or any of the Subsidiaries, (3) any statute, rule or regulation or (4) any judgment, decree or order of any court or other governmental authority or any arbitrator known to such counsel and applicable to the Company or any of its subsidiaries; (ix) other than as described in the Registration Statement or the Prospectus, in the course of such counsel's engagement to represent the Company and any of its subsidiaries professionally, such counsel has not become aware that any subsidiary of the Company is currently prohibited, directly or indirectly, from paying any dividends to the Company, from making any other distribution on such subsidiary's capital stock, from repaying to the Company any loans or advances to such subsidiary from the Company, or from transferring any of such subsidiary's property or assets to the Company or any other subsidiary of the Company; (x) other than as disclosed in the Registration Statement or the Prospectus, in the course of such counsel's engagement to represent the Company and any of its subsidiaries professionally, such counsel has not become aware that the Company or any of its subsidiaries are in default, or that any event has occurred which with the giving of notice or the lapse of time or both would constitute such a default, with respect to any statute, order, rule, regulation, indenture, mortgage, deed of trust, 15 16 note agreement or other agreement or instrument certified by the Company to such counsel as material to the Company (and such counsel advises the Representatives that they are not aware of any other material agreements or instruments to which the Company or any of its subsidiaries is a party or by which any of them is bound) and where such default would expose the Company and the subsidiaries, taken as a whole, to substantial monetary damages or penalties or would otherwise have a material adverse effect on the Company and its subsidiaries, taken as a whole; (xi) the Registration Statement has become effective under the Act; any required filing of the Prospectus and any Preliminary Prospectus pursuant to Rule 424(b) has been made in the manner and within the time period required by Rule 424(b); and no stop order suspending the effectiveness of the Registration Statement or any post-effective amendment thereto has been issued, and to such counsel's best knowledge no proceedings for that purpose have been instituted or threatened or are contemplated by the Commission; and (xii) the registration statement originally filed with respect to the Securities and each amendment thereto and the Prospectus (not including the financial statements, notes, schedules or other financial and statistical data or information contained therein, as to which such counsel need express no opinion), as of its respective effective or issue date, as applicable, on its face complied as to form in all material respects with the applicable requirements of the Act and the Exchange Act and the respective rules and regulations of the Commission thereunder. (xiii) the Company has filed with the Commission a Registration Statement on Form 8-A which has become effective under the Exchange Act with respect to the Common Stock. Such counsel shall also state that they have participated in conferences with officers of the Company, the independent accountants for the Company, and counsel for and the Representatives of the Underwriters in connection with the preparation of the Registration Statement and Prospectus and have considered the matters required to be stated therein and the statements contained or incorporated by reference therein, although such counsel shall not be required to have independently verified the accuracy, completeness or fairness of such statements. Such counsel shall advise the Representatives that, on the basis of the foregoing, no facts have come to such counsel's attention that have caused such counsel to believe that the Registration Statement (exclusive of the financial statements, notes and schedules and other financial and statistical information or data included therein, as to which such counsel need express no belief or comment), at the time it became effective or at the time of any post-effective amendment thereto, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, or that the Prospectus (exclusive of the financial statements, notes and schedules and other financial and statistical information or data included therein, as to which such counsel need express no belief or comment), on the date thereof or as of the Firm Closing Date, contained or contains an untrue statement of material fact or omitted or omits to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. 16 17 In rendering such opinion, such counsel may rely (A) as to matters of fact, to the extent such counsel deems proper, on certificates of executive officers of the Company and public officials, and (B) as to matters involving the application of laws of any jurisdiction other than the State of Arizona and the United States, to the extent satisfactory in form and scope to counsel for the Underwriters, upon the opinion of local counsel for the Company. References to the Registration Statement and the Prospectus in this paragraph (b) shall include any amendment or supplement thereto at the date of such opinion. (c) The Representatives shall have received an opinion, dated the Firm Closing Date, of O'Connor, Cavanagh, Anderson, Killingsworth & Beshears, a professional association, counsel for the Underwriters, with respect to the issuance and sale of the Firm Securities, the Registration Statement and the Prospectus, and such other related matters as the Representatives may reasonably require, and the Company shall have furnished to such counsel such documents as they may reasonably request for the purpose of enabling them to pass upon such matters. (d) The Representatives shall have received from Deloitte & Touche LLP a letter or letters dated, respectively, the date hereof and the Firm Closing Date, in form and substance satisfactory to the Representatives, to the effect that: (i) they are independent accountants with respect to the Company and its subsidiaries within the meaning of the Act, the Exchange Act and the applicable rules and regulations thereunder; (ii) in their opinion, the audited consolidated financial statements and schedules examined by them and included and incorporated by reference in the Registration Statement and the Prospectus comply in form in all material respects with the applicable accounting requirements of the Act and the related published rules and regulations thereunder; (iii) on the basis of a reading of the latest available unaudited consolidated financial statements of the Company and its consolidated subsidiaries, carrying out certain specified procedures (which do not constitute an examination made in accordance with generally accepted auditing standards) that would not necessarily reveal matters of significance with respect to the comments set forth in this paragraph (iii), a reading of the minute books of the shareholders, the board of directors and any committees thereof of the Company and each of its consolidated subsidiaries, and inquiries of certain officials of the Company and its consolidated subsidiaries who have responsibility for financial and accounting matters, nothing came to their attention that caused them to believe that: (A) the unaudited consolidated financial statements of the Company and its subsidiaries included and incorporated by reference in the Registration Statement and the Prospectus do not comply in form in all material respects with the applicable accounting requirements of the Act, the Exchange Act and the related published rules and regulations thereunder, or 17 18 are not in conformity with generally accepted accounting principles applied on a basis substantially consistent with that of the audited consolidated financial statements included and incorporated by reference in the Registration Statement and the Prospectus; and (B) at a specific date not more than five business days prior to the date of such letter, there were any changes in the capital stock or long-term debt of the Company and its consolidated subsidiaries or any decreases in total assets, net current assets or shareholders' equity of the Company and its consolidated subsidiaries, in each case compared with amounts shown on the December 31, 1996 audited consolidated balance sheet included and incorporated by reference in the Registration Statement and the Prospectus, or for the period from January 1, 1997 to such specified date there were any decreases, as compared with the comparable period commencing January 1, 1996, in revenues, income from operations, net income or net income per common share, of the Company and its consolidated subsidiaries, except in all instances for changes, decreases or increases set forth in such letter or in the Registration Statement; and (iv) they have carried out certain specified procedures, not constituting an audit, with respect to certain amounts, percentages and financial information that are derived from the general accounting records of the Company and its consolidated subsidiaries and are included in the Registration Statement and the Prospectus under the captions "Prospectus Summary," "Use of Proceeds," "Capitalization," "Selected Consolidated Financial Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Business," "Management," "Principal Shareholders," "Description of Securities" and "Shares Eligible for Future Sale," and have compared such amounts, percentages and financial information with such records of the Company and its consolidated subsidiaries and with information derived from such records and have found them to be in agreement, excluding any questions of legal interpretation; (v) although they are unable to and do not express an opinion on the unaudited pro forma condensed earnings information (the "Pro Forma Earnings Information") included in the Registration Statement or the Prospectus, they have (A) read the Pro Forma Earnings Information, (B) made inquiries of certain officials of the Company who have responsibility for financial and accounting matters about the basis for their determination of the pro forma adjustments to the historical amounts in the Pro Forma Earnings Information and whether the Pro Forma Earnings Information comply in form in all material respects with the applicable accounting requirements of Rule 11-02 of Regulation S-X; and (C) proved the arithmetic accuracy of the application of the pro forma adjustments to the historical amounts in the Pro Forma Earnings Information; on the basis of such procedures, and such other inquiries and procedures as may be specified in such letter, nothing came to their attention that caused them to believe that 18 19 the Pro Forma Earnings Information do not comply in form in all material respects with the applicable requirements of Rule 11-02 of Regulation S-X and that the pro forma adjustments have not been properly applied to the historical amounts in the compilation of such statements. In the event that the letters referred to above set forth any such changes, decreases or increases, it shall be a further condition to the obligations of the Underwriters that (A) such letters shall be accompanied by a written explanation of the Company as to the significance thereof, unless the Representatives deem such explanation unnecessary, and (B) such changes, decreases or increases do not, in the sole judgment of the Representatives, make it impractical or inadvisable to proceed with the purchase and delivery of the Securities as contemplated by the Registration Statement, as amended as of the date hereof. References to the Registration Statement and the Prospectus in this paragraph (d) with respect to either letter referred to above shall include any amendment or supplement thereto at the date of such letter. (e) The Representatives shall have received a certificate, dated the Firm Closing Date, of the President and the Chief Financial Officer of the Company to the effect that: (i) the representations and warranties of the Company in this Agreement are true and correct as if made on and as of the Firm Closing Date; the Registration Statement, as amended as of the Firm Closing Date, does not include any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, and the Prospectus, as amended or supplemented as of the Firm Closing Date, does not include any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading; and the Company has performed all covenants and agreements and satisfied all conditions on its part to be performed or satisfied under this Agreement at or prior to the Firm Closing Date; (ii) no stop order suspending the effectiveness of the Registration Statement or any post-effective amendment thereto and no order directed at any document incorporated by reference in the Registration Statement or the Prospectus, has been issued, and no proceedings for that purpose have been instituted or threatened or, to the best of the Company's knowledge, are contemplated by the Commission; and (iii) subsequent to the respective dates as of which information is given in the Registration Statement and the Prospectus, the Company and its subsidiaries, taken as a whole, have not sustained any material loss or interference with their respective businesses or properties from fire, flood, hurricane, accident or other calamity, whether or not covered by insurance, or from any labor dispute or any legal or governmental proceeding, and there has not been any material adverse change, or any development reasonably likely to result in a material adverse change, in the condition (financial or otherwise), business prospects, net worth or results of operations of the Company and its subsidiaries, except in each case as described in 19 20 or contemplated by the Prospectus (exclusive of any amendment or supplement thereto after the date hereof). (f) The Representatives shall have received from each executive officer and each director of the Company an agreement to the effect that such person will not, directly or indirectly without the prior written consent of the Representatives of the Underwriters, offer, sell contract to sell, grant any option to purchase or otherwise dispose of (or announce any offer, sale, grant of an option to purchase or other disposition of) any shares of Common Stock or any securities convertible into, or exchangeable or exercisable for shares of Common Stock prior to 90 days from the date of the Prospectus. (g) On or before the Firm Closing Date, the Representatives and counsel for the Underwriters shall have received such further certificates, documents or other information as they may have reasonably requested from the Company. All opinions, certificates, letters and documents delivered pursuant to this Agreement will comply with the provisions hereof only if they are reasonably satisfactory in all material respects to the Representatives and counsel for the Underwriters. The Company shall furnish to the Representatives such conformed copies of such opinions, certificates, letters and documents in such quantities as the Representatives and counsel for the Underwriters shall reasonably request. The respective obligations of the several Underwriters to purchase and pay for any Option Securities shall be subject, in their discretion, to each of the foregoing conditions to purchase the Firm Securities, except that all references to (i) the Firm Securities and (ii) the Firm Closing Date shall be deemed to refer to (i) such Option Securities and (ii) the related Option Closing Date, respectively. 8. Indemnification and Contribution. (a) The Company agrees to indemnify and hold harmless each Underwriter and each person, if any, who controls any Underwriter within the meaning of the Act against any losses, claims, damages or liabilities to which such Underwriter or such controlling person may become subject under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions or proceedings in respect thereof) arise out of or are based upon (i) any untrue statement or alleged untrue statement of any material fact contained in the Registration Statement, any Preliminary Prospectus, the Prospectus or any amendment or supplement thereto or any application or other document (or amendment or supplement thereto) executed by the Company filed in any jurisdiction to qualify the Securities under the securities or blue sky laws thereof or filed with the Commission or any securities association or exchange, or (ii) the omission or alleged omission to state in the Registration Statement, any Preliminary Prospectus, the Prospectus or any amendment or supplement thereto, a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse, as incurred, each Underwriter and each such controlling person for any legal or other expenses reasonably incurred by such Underwriter or such controlling person in connection with investigating, defending or appearing as a third party witness in connection with any such loss, claim, damage, liability, action or proceeding; provided, however, that the Company will not be liable in any such case to the extent that 20 21 any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement, or omission or alleged omission made in the Registration Statement, any Preliminary Prospectus, the Prospectus, or such amendment or supplement, in reliance upon and in conformity with written information furnished to the Company by or through the Representatives specifically for use in the preparation thereof. This indemnity agreement will be in addition to any liability which the Company may otherwise have. (b) Each Underwriter will indemnify and hold harmless the Company, each of its directors, each of its officers who signed the Registration Statement, and each person, if any, who controls the Company within the meaning of Section 15 of the Act or Section 20 of the Exchange Act against any losses, claims, damages or liabilities to which the Company, any such director or officer of the Company, or any such controlling person of the Company may become subject under the Act, the Exchange Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon (i) any untrue statement or alleged untrue statement of any material fact contained in the Registration Statement or any amendment thereto, any Preliminary Prospectus or the Prospectus or any amendment or supplement thereto, or any Application or (ii) the omission or the alleged omission to state therein a material fact required to be stated in the Registration Statement or any amendment thereto, any Preliminary Prospectus or the Prospectus or any amendment or supplement thereto, or any Application or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with written information furnished to the Company by any Underwriter through the Representatives specifically for use therein; and, subject to the limitation set forth immediately preceding this clause, will reimburse, as incurred, any legal or other expenses reasonably incurred by the Company, any such director, officer or controlling person in connection with investigating or defending or appearing as a third party witness in connection with any such loss, claim, damage, liability or any action in respect thereof. This indemnity agreement will be in addition to any liability which such Underwriter may otherwise have. (c) Promptly after receipt by an indemnified party under this Section 8 of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against the indemnifying party under this Section notify the indemnifying party of the commencement thereof; but the omission so to notify the indemnifying party will not relieve the indemnifying party from any liability which it may have to any indemnified party otherwise than under this Section 8. In case any such action is brought against any indemnified party, and it notifies the indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate therein and, to the extent that it may wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel reasonably satisfactory to such indemnified party; provided, however, that if the defendants in any such action include both the indemnified party and the indemnifying party and the indemnified party shall have reasonably concluded that there may be one or more legal defenses available to it and/or other indemnified parties which are different from or additional to those available to the indemnifying party, the indemnifying party shall not have the right to direct the defense of such action on behalf of such indemnified party or parties 21 22 and such indemnified party or parties shall have the right to select separate counsel, reasonably acceptable to the indemnifying party, to defend such action on behalf of such indemnified party or parties. After notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof and approval by such indemnified party of counsel appointed to defend such action, the indemnifying party will not be liable to such indemnified party under this Section 8 for any legal or other expenses, other than reasonable costs of investigation, subsequently incurred by such indemnified party in connection with the defense thereof, unless (i) the indemnified party shall have employed separate counsel in accordance with the proviso to the next preceding sentence (it being understood, however, that in connection with such action the indemnifying party shall not be liable for the expenses of more than one separate counsel (in addition to local counsel) in any one action or separate but substantially similar actions in the same jurisdiction arising out of the same general allegations or circumstances, designated by the Representatives in the case of paragraph (a) of this Section 8 representing the indemnified parties under such paragraph (a) who are parties to such action or actions) or (ii) the indemnifying party has authorized in writing the employment of counsel for the indemnified party at the expense of the indemnifying party. After such notice from the indemnifying party to such indemnified party, the indemnifying party will not be liable for the costs and expenses of any settlement of such action effected by such indemnified party without the consent of the indemnifying party, unless such indemnified party waived its rights under this Section 8 in writing in which case the indemnified party may effect such a settlement without such consent. (d) Only in circumstances in which the indemnity agreement provided for in the preceding paragraphs of this Section 8 is unavailable or insufficient to hold harmless an indemnified party in respect of any losses, claims, damages or liabilities (or actions in respect thereof), each indemnifying party, in order to provide for just and equitable contribution, shall contribute to the amount paid or payable to such indemnified party as a result of such losses, claims, damages or liabilities (or actions in respect thereof) in such proportion as is appropriate to reflect (i) the relative benefits received by the indemnifying party or parties on the one hand and the indemnified party on the other from the offering of the Securities or (ii) if the allocation provided by the foregoing clause (i) is not permitted by applicable law, not only such relative benefits but also the relative fault of the indemnifying party or parties on the one hand and the indemnified party on the other in connection with the statements or omissions or alleged statements or omissions that resulted in such losses, claims, damages or liabilities (or actions in respect thereof). The relative benefits received by the Company on the one hand and the Underwriters on the other shall be deemed to be in the same proportion as the total proceeds from the offering (before deducting expenses) received by the Company bear to the total underwriting discounts and commissions received by the Underwriters. The relative fault of the parties shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or the Underwriters, the parties' relative intents, knowledge, access to information and opportunity to correct or prevent such statement or omission, and any other equitable considerations appropriate in the circumstances. The Company and the Underwriters agree that it would not be equitable if the amount of such contribution were determined by pro rata or per capita allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation that does not take into account the equitable 22 23 considerations referred to in the first sentence of this paragraph (d). Notwithstanding any other provision of this paragraph (d), no Underwriter shall be obligated to make contributions hereunder that in the aggregate exceed the total public offering price of the Securities purchased by such Underwriter under this Agreement under this Agreement less the aggregate amount of any damages that such Underwriter has otherwise been required to pay in respect of the same or any substantially similar claim, and no person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Underwriters' obligations to contribute hereunder are several in proportion to their respective underwriting obligations and not joint, and contributions among Underwriters shall be governed by the provisions of the Agreement Among Underwriters dated the date hereof among the Representatives and the other Underwriters. For purposes of this paragraph (d), each person, if any, who controls an Underwriter within the meaning of Section 15 of the Act or Section 20 of the Exchange Act shall have the same rights to contribution as such Underwriter, and each director of the Company, each officer of the Company who signed the Registration Statement and each person, if any, who controls the Company within the meaning of Section 15 of the Act or Section 20 of the Exchange Act, shall have the same rights to contribution as the Company. 9. Default of Underwriters. If one or more Underwriters default in their obligations to purchase Firm Securities or Option Securities hereunder and the aggregate number of such Securities that such defaulting Underwriter or Underwriters agreed but failed to purchase is ten percent or less of the aggregate number of Firm Securities or Option Securities to be purchased by all of the Underwriters at such time hereunder, the other Underwriters may make arrangements satisfactory to the Representatives for the purchase of such Securities by other persons (who may include one or more of the nondefaulting Underwriters, including the Representatives), but if no such arrangements are made by the Firm Closing Date or the related Option Closing Date, as the case may be, the other Underwriters shall be obligated severally in proportion to their respective commitments hereunder to purchase the Firm Securities or Option Securities that such defaulting Underwriter or Underwriters agreed but failed to purchase. If one or more Underwriters so default with respect to an aggregate number of Securities that is more than ten percent of the aggregate number of Firm Securities or Option Securities, as the case may be, to be purchased by all of the Underwriters at such time hereunder, and if arrangements satisfactory to the Representatives are not made within 36 hours after such default for the purchase by other persons (who may include one or more of the non-defaulting Underwriters, including the Representatives) of the Securities with respect to which such default occurs, this Agreement will terminate without liability on the part of any non-defaulting Underwriter, the Company other than as provided in Section 10 hereof. In the event of any default by one or more Underwriters as described in this Section 9, the Representatives shall have the right to postpone the Firm Closing Date or the Option Closing Date, as the case may be, established as provided in Section 3 hereof for not more than seven business days in order that any necessary changes may be made in the arrangements or documents for the purchase and delivery of the Firm Securities or Option Securities, as the case may be. As used in this Agreement, the term "Underwriter" includes any person substituted for an Underwriter under this Section 9. Nothing herein shall relieve any defaulting Underwriter from liability for its default. 10. Survival. The respective representations, warranties, agreements, covenants, indemnities and other statements of the Company, its officers, and the several Underwriters set forth 23 24 in this Agreement or made by or on behalf of them, respectively, pursuant to this Agreement shall remain in full force and effect, regardless of (i) any investigation made by or on behalf of the Company, any of its officers or directors, any Underwriter or any controlling person referred to in Section 8 hereof and (ii) delivery of and payment for the Securities. The respective agreements, covenants, indemnities and other statements set forth in Sections 6 and 8 hereof shall remain in full force and effect, regardless of any termination or cancellation of this Agreement. 11. Termination. (a) This Agreement may be terminated with respect to the Firm Securities or any Option Securities in the sole discretion of the Representatives by notice to the Company and (in the case of a termination with respect to the Firm Securities) the Attorney-in-Fact given prior to the Firm Closing Date or the related Option Closing Date, respectively, in the event that the Company shall have failed, refused or been unable to perform all obligations and satisfy all conditions on their part to be performed or satisfied hereunder at or prior thereto or, if at or prior to the Firm Closing Date or such Option Closing Date, respectively, (i) the Company or any of its subsidiaries shall have sustained any material loss or interference with their respective businesses or properties from fire, flood, hurricane, accident or other calamity, whether or not covered by insurance, or from any labor dispute or any legal or governmental proceeding or there shall have been any material adverse change, or any development involving a prospective material adverse change (including without limitation a change in control of the Company), in the condition (financial or otherwise), business prospects, net worth or results of operations of the Company and its subsidiaries, taken as a whole, except in each case as described in or contemplated by the Prospectus (exclusive of any amendment or supplement thereto after the date hereof), which, in the sole judgment of the Representatives, makes it impractical to offer or deliver the Firm Securities or the Option Securities, as applicable, on the terms contemplated by the Prospectus; (ii) trading in the Common Stock shall have been suspended by the Commission or the NYSE; (iii) trading in securities generally on the NYSE shall have been suspended or minimum or maximum prices shall have been established on such exchange or market system; (iv) a banking moratorium shall have been declared by New York or United States authorities; or (v) there shall have been (A) an outbreak or escalation of hostilities between the United States and any foreign country, (B) an outbreak or escalation of any other insurrection or armed conflict involving the United States or (C) any other calamity or crisis having an effect on the financial markets that, in any case referred to in this clause (v), in the sole judgment of the Representatives, makes it impracticable or inadvisable to proceed with the public offering or the delivery of the 24 25 Securities as contemplated by the Registration Statement, as amended as of the date hereof. (b) Termination of this Agreement pursuant to this Section 11 shall be without liability of any party to any other party except as provided in Section 10 hereof. 12. Information Supplied by Underwriters. The statements set forth in the last paragraph on the front cover page and under the heading "Underwriting' in any Preliminary Prospectus or the Prospectus (to the extent such statements relate to the Underwriters) constitute the only information furnished by any Underwriter through the Representatives to the Company for the purposes of Sections 2(b), 8(a), and 8(b) hereof. The Underwriters confirm that such statements (to such extent) are correct. 13. Notices. All communications hereunder shall be in writing and, if sent to any of the Underwriters, shall be mailed or delivered or telegraphed and confirmed in writing to H.D. Brous & Co., Inc., 2700 No. Central Avenue, Suite 1250, Phoenix, Arizona 85004, Attention: Scott Miller, Syndicate Department; and if sent to the Company, shall be mailed, delivered or telegraphed and confirmed in writing to the Company at 2700 No. Central Avenue, Suite 1000, Phoenix, Arizona 85004, Attention: Donald W. Townsend, President. 14. Successors. This Agreement shall inure to the benefit of and shall be binding upon the several Underwriters, the Company and their respective successors and legal representatives, and nothing expressed or mentioned in this Agreement is intended or shall be construed to give any other person any legal or equitable right, remedy or claim under or in respect of this Agreement, or any provisions herein contained, this Agreement and all conditions and provisions hereof being intended to be and being for the sole and exclusive benefit of such persons and for the benefit of no other person except that (i) the indemnities of the Company contained in Section 8 of this Agreement shall also be for the benefit of any person or persons who control any Underwriter within the meaning of Section 15 of the Act or Section 20 of the Exchange Act and (ii) the indemnities of the Underwriters contained in Section 8 of this Agreement shall also be for the benefit of the directors of the Company, the officers of the Company who have signed the Registration Statement, and any person or persons who control the Company within the meaning of Section 15 of the Act or Section 20 of the Exchange Act. No purchaser of Securities from any Underwriter shall be deemed a successor because of such purchase. 15. APPLICABLE LAW. THE VALIDITY AND INTERPRETATION OF THIS AGREEMENT, AND THE TERMS AND CONDITIONS SET FORTH HEREIN, SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO ANY PROVISIONS RELATING TO CONFLICTS OF LAWS. 16. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 25 26 If the foregoing correctly sets forth our understanding, please indicate your acceptance thereof in the space provided below for that purpose, whereupon this letter shall constitute an agreement binding the Company, and each of the several Underwriters. Very truly yours, SIMULA, INC. By_______________________ Title: President The foregoing Agreement is hereby confirmed and accepted as of the date first above written. H.D. BROUS & CO., INC. BREAN MURRAY & CO., INC. L.H. FRIEND, WEINRESS, FRANKSON & PRESSON, INC. By: H.D. BROUS & CO., INC. By:_____________________________ Title: As Representatives of the Underwriters 26 27 SCHEDULE 1 UNDERWRITERS
Number of Firm Securities to Be Underwriters Purchased - ------------ --------- H.D. Brous & Co., Inc........................................................................... Brean Murray & Co, Inc.. ....................................................................... L.H. Friend, Weinress, Frankson & Presson, Inc. . .............................................. Total................................................................................... ==========
27 28 LOCK-UP AGREEMENT September ___, 1996 H.D. Brous & Co., Inc. As Representatives of the Several Underwriters 2700 No. Central Avenue Suite 1250 Phoenix, Arizona 85004 Proposed Issuance of 6 1/2% Series A Convertible Exchangeable Preferred Stock of Simula, Inc. Dear Sirs: I am a shareholder of Simula, Inc., an Arizona corporation (the "Company"). In consideration of your acting as underwriters for the proposed public offering of 6 1/2% Series A Convertible Exchangeable Preferred Stock of the Company, I hereby agree that for a period of 90 days from the date of the Prospectus included in of the registration statement on Form S-1 relating to the public offering, I will not, directly or indirectly, offer, issue, sell, contract to sell, grant any options to purchase or otherwise dispose of (or announce any offer, issuance, sale, grant of an option to purchase or other disposition of) any shares of Company Common Stock or any securities convertible into, or exchangeable or exercisable for, share of Company Common Stock, without your prior written consent. This agreement shall be binding on the undersigned and his respective successors, heirs, personal representatives and assigns. Very truly yours, Officers/Directors/5% Shareholders 28 EX-4.7 3 FORM OF INDENTURE 1 Exhibit 4.7 Form of Indenture 2 SIMULA, INC. RECONCILIATION BETWEEN INDENTURE DATED AS OF APRIL 1, 1997 AND TRUST INDENTURE ACT OF 1939
Trust Indenture Act Section Indenture Section - --------------------------- ----------------- Section 310 (a)(1)........................................ 6.9 (a)(2)........................................ 6.9 (a)(3)........................................ Not Applicable (a)(4)........................................ Not Applicable (a)(5)........................................ 6.7 (b)........................................... 6.7, 6.9 (c)........................................... Not Applicable Section 311 (a)........................................... 6.10 (b)........................................... 6.10 (c)........................................... Not Applicable Section 312 (a)........................................... 7.1, 7.2(a) (b)........................................... 7.2(b) (c)........................................... 7.2(c) Section 313 (a)........................................... 7.3 (b)(1)........................................ Not Applicable (b)(2)........................................ 7.3 (c)........................................... 7.3 (d)........................................... 7.3 Section 314 (a)........................................... 7.4, 10.2, 10.3 (b)........................................... Not Applicable (c)(1)........................................ 1.2 (c)(2)........................................ 1.2 (c)(3)........................................ Not Applicable (d)........................................... Not Applicable (e)........................................... 1.2 (f)........................................... Not Applicable Section 315 (a)........................................... 6.1(b) (b)........................................... 6.5 (c)........................................... 6.1(a) (d)(1)........................................ 6.1(c) (d)(2)........................................ 6.1(c)(2) (d)(3)........................................ 6.1(c)(3) (e)........................................... 5.15 Section 316 (a)(1)(A)..................................... 5.3, 5.13 (a)(1)(B)..................................... 5.14 (a)(2)........................................ Not Applicable (b)........................................... 5.4 (c)........................................... Not Applicable Section 317 (a)(1)........................................ 5.4 (a)(2)........................................ 5.5 (b)........................................... 3.10 Section 318 (a)........................................... 1.7 (c)........................................... 1.7
NOTE: This reconciliation shall not, for any purpose, be deemed to be a part of the Indenture. 3 TABLE OF CONTENTS
Page ---- ARTICLE 1 Definitions and Other Provisions of General Application ................. 1 Section 1.1. Definitions. ................................................ 1 Section 1.2. Compliance Certificate and Opinions. ........................ 9 Section 1.3. Form of Documents Delivered to Trustee. ..................... 9 Section 1.4. Acts of Holders. ............................................ 10 Section 1.5. Notices, etc. to Trustee and Company. ....................... 10 Section 1.6. Notices to Holders; Waiver. ................................. 11 Section 1.7. Conflict with Trust Indenture Act. .......................... 11 Section 1.8. Effect of Headings and Tables of Contents. .................. 11 Section 1.9. Successors and Assigns. ..................................... 11 Section 1.10. Separability Clause. ........................................ 11 Section 1.11. Benefits of Indenture. ...................................... 11 Section 1.12. Governing Law. .............................................. 11 ARTICLE 2 Note Form ............................................................... 12 Section 2.1 Form Generally .............................................. 12 Section 2.2. Form of Face of Note. ....................................... 12 Section 2.3. Form of Reverse of Note. .................................... 13 Section 2.4 Form of Trustee's Certificate of Authentication ............. 18 ARTICLE 3 The Notes ............................................................... 18 Section 3.1. Title and Terms. ............................................ 18 Section 3.2. Denominations. .............................................. 20 Section 3.3. Execution, Authentication and Delivery. ..................... 20 Section 3.4. Temporary Notes. ............................................ 21 Section 3.5. Transfer and Exchange. ...................................... 21 Section 3.6. Mutilated, Destroyed, Lost or Stolen Notes. ................. 22 Section 3.7. Persons Deemed Owners. ...................................... 22 Section 3.8. Cancellation. ............................................... 22 Section 3.9. Authentication and delivery of Notes. ....................... 22 Section 3.10. Paying Agent to Hold Money in Trust. ........................ 23 ARTICLE 4 Discharge Of Indenture .................................................. 23 Section 4.1. Termination of Company's Obligations. ....................... 23 Section 4.2. Application of Trust Money. ................................. 24 Section 4.3. Repayment to Company. ....................................... 24 Section 4.4. Reinstatement. .............................................. 25 Section 4.5. Survival of Certain Obligations. ............................ 25 ARTICLE 5 Remedies ................................................................ 25 Section 5.1. Events of Default. .......................................... 25 Section 5.2. Interest Rate Upon Default. ................................. 26 Section 5.3. Acceleration of Maturity; Rescission and Annulment. ......... 26 Section 5.4. Collection of Indebtedness and Suits for Enforcement by Trustee. .................................................... 27 Section 5.5. Trustee May File Proofs of Claim. ........................... 28 Section 5.6. Trustee May Enforce Claims Without Possession of Notes. ..... 28 Section 5.7. Application of Money Collected. ............................. 28 Section 5.8. Limitation on Suits. ........................................ 29 Section 5.9. Unconditional Right of Holders to Receive Principal, Premium and
(i) 4 Interest. ................................................... 29 Section 5.10. Restoration of Rights and Remedies. ......................... 29 Section 5.11. Rights and Remedies Cumulative. ............................. 29 Section 5.12. Delay or Omission Not Waiver. ............................... 30 Section 5.13. Control by Holders. ......................................... 30 Section 5.14. Waiver of Past Defaults. .................................... 30 Section 5.15. Undertaking for Costs. ...................................... 30 Section 5.16. Waiver of Stay or Extension Laws. ........................... 30 ARTICLE 6 The Trustee ............................................................. 31 Section 6.1. Duties of Trustee. .......................................... 31 Section 6.2. Rights of Trustee ........................................... 31 Section 6.3. Individual Rights of Trustee ................................ 32 Section 6.4. Trustee's Disclaimer. ....................................... 32 Section 6.5. Notice of Defaults. ......................................... 32 Section 6.6. Compensation and Indemnity. ................................. 32 Section 6.7. Replacement of Trustee. ..................................... 33 Section 6.8. Successor Trustee by Merger, etc. ........................... 34 Section 6.9. Eligibility; Disqualification ............................... 34 Section 6.10. Preferential Collection of Claims Against Company. .......... 34 ARTICLE 7 Holders' Lists and Reports by Trustee and Company ....................... 34 Section 7.1. Company to Furnish Trustee Names and Addresses of Holders. .................................................... 34 Section 7.2. Preservation of Information: Communications to Holders ...... 35 Section 7.3. Reports by Trustee. ......................................... 35 Section 7.4. Reports by Company. ......................................... 36 ARTICLE 8 Consolidation, Merger, Conveyance or Transfer ........................... 36 Section 8.1. Company May Consolidate, etc. ............................... 36 Section 8.2. Successor Corporation Substituted. .......................... 37 ARTICLE 9 Supplemental Indentures ................................................. 37 Section 9.1. Supplemental Indentures Without Consent of Holders. ......... 37 Section 9.2. Supplemental Indentures with Consent of Holders. ............ 38 Section 9.3. Execution of Supplemental Indentures. ....................... 38 Section 9.4. Effect of Supplemental Indentures. .......................... 38 Section 9.5. Conformity with Trust Indenture Act. ........................ 38 Section 9.6. Reference in Notes to Supplemental Indentures. .............. 38 ARTICLE 10 Covenants ............................................................... 39 Section 10.1. Payment of Notes. ........................................... 39 Section 10.2. Commission Reports. ......................................... 39 Section 10.3. Compliance Certificates. .................................... 40 Section 10.4. Maintenance of Office or Agency. ............................ 40 Section 10.5. Corporate Existence. ........................................ 41 Section 10.6. Waiver of Stay, Extension or Usury Laws. .................... 41 Section 10.7. Payment of Taxes and Other Claims. .......................... 41 Section 10.8. Maintenance of Properties and Insurance; Line of Business. ................................................... 41 Section 10.9. Limitation on Sale of Assets ................................ 42 Section 10.10. Limitation on Liens Securing Indebtedness. .................. 43 Section 10.11. Limitation on Payment Restrictions Affecting Subsidiaries. ............................................... 44 Section 10.12. Limitation on Transactions with Affiliates. ................. 44 Section 10.13. Limitation on Future Senior Subordinated Indebtedness. ...... 44
(ii) 5 Section 10.14. Change of Control. .......................................... 44 Section 10.15. Limitation on Incurrence of Additional Indebtendess ......... 45 ARTICLE 11 Subordination of Notes .................................................. 46 Section 11.1. Notes Subordinated to Senior Indebtedness; Notes Pari Passu with other Series of the Notes issued by the Company ..................................................... 46 Section 11.2. No Payment on Notes in Certain Circumstances. ............... 46 Section 11.3. Notes Subordinated to Prior Payment of All Senior Indebtedness on Dissolution, Liquidation or Reorganization of the Company. .............................. 47 Section 11.4. Holders to Be Subrogated to Rights of Holders of Senior Indebtedness. ............................................... 47 Section 11.5. Obligations of the Company Unconditional. ................... 48 Section 11.6. Trustee Entitled to Assume Payments Not Prohibited in Absence of Notice. .......................................... 48 Section 11.7. Application by Trustee of Assets Deposited With It. ......... 48 Section 11.8. Subordination Rights Not Impaired by Acts or Omissions of the Company or Holders of Senior Indebtedness. ........... 49 Section 11.9. Holders Authorize Trustee to Effectuate Subordination of .... 49 Section 11.10. Right of Trustee to Hold Senior Indebtedness. ............... 49 Section 11.11. Article 11 Not to Prevent Events of Default. ................ 49 Section 11.12. Payment. .................................................... 49 ARTICLE 12 Guarantees .............................................................. 50 Section 12.1 Unconditional Guarantees. ................................... 50 Section 12.2 Subsidiary Guarantors May Consolidate, etc., on Certain Terms. ...................................................... 51 Section 12.3 Addition of Subsidiary Guarantors. .......................... 51 Section 12.4 Release of a Subsidiary Guarantor. .......................... 51 Section 12.5 Limitation of Subsidiary Guarantor's Liability. ............. 51 Section 12.6 Contribution. ............................................... 51 Section 12.7 Execution and Delivery. ..................................... 52 Section 12.8 Severability. ............................................... 52 ARTICLE 13 Subordination of Guarantees ............................................. 52 Section 13.1. Guarantees Subordinated to Senior Indebtedness. ............. 52 Section 13.2. No Payment on Guarantees in Certain Circumstances. .......... 52 Section 13.3. Guarantees Subordinated to Prior Payment of all Senior Indebtedness on Dissolution, Liquidation or Reorganization of a Subsidiary Guarantor. ................... 53 Section 13.4. Holders to be Subrogated to Rights of Holders of Senior Indebtedness. ............................................... 54 Section 13.5. Guarantees Unconditional. ................................... 54 Section 13.6. Trustee Entitled to Assume Payments Not Prohibited in Absence of Notice. .......................................... 54 Section 13.7. Application by Trustee of Assets Deposited With It. ......... 55 Section 13.8. Subordination Rights Not Impaired by Acts or Omissions of the Subsidiary Guarantors or Holders of Senior Indebtedness. ............................................... 55 Section 13.9. Holders Authorize Trustee to Effectuate Subordination of Notes. ...................................................... 55 Section 13.10. Right of Trustee to Hold Senior Indebtedness. ............... 55 Section 13.11 Payment ..................................................... 55 ARTICLE 14 Additional Series of Notes .............................................. 56 Section 14.1. Authorization and delivery of additional series of Notes ..... 56
(iii) 6 INDENTURE INDENTURE dated as of April 1, 1997 among SIMULA, INC., an Arizona corporation (hereinafter the "Company"), having its principal office at 2700 North Central Avenue, Suite 1000, Phoenix, Arizona 85004, and each of the Company's wholly-owned subsidiaries designated at the conclusion of this Indenture (hereinafter collectively the "Subsidiary Guarantors"), and BANK ONE COLUMBUS, NA, having its principal office at 100 East Broad Street, Columbus, Ohio 43271-0181, as Trustee (hereinafter the "Trustee"). RECITALS OF THE COMPANY: The Company has duly authorized the creation of an issue of senior subordinated convertible notes to be known as its ____% Senior Subordinated Convertible Notes of the nature and amount hereinafter set forth, and to provide therefor the Company has duly authorized the execution and delivery of this Indenture. All things necessary to make the Notes, when issued by the Company and authenticated and delivered by the Trustee the valid obligations of the Company, and to make this Indenture a valid agreement of the Company have been done. The Notes created by this Indenture (as defined hereafter) are to consist of Notes in fully registered form only, in a total principal amount of up to $150,000,000, issuable in one or more subseries as provided herein. NOW, THEREFORE, THIS INDENTURE WITNESSETH: For and in consideration of the premises and the purchase of the Notes by the Holders thereof, it is mutually covenanted and agreed, for the equal and proportionate benefit of all Holders of the Notes, as follows: ARTICLE 1 DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION SECTION 1.1. DEFINITIONS. For all purposes of this Indenture, except as otherwise expressly provided or unless the context otherwise requires: (1) the terms defined in this Article have the meanings assigned to them in this Article, and include the plural as well as the singular; (2) all other terms used herein which are defined in the Trust Indenture Act, either directly or 7 by reference therein, have the meanings assigned to them therein; (3) all accounting terms not otherwise defined herein have the meanings assigned to them in accordance with generally accepted accounting principles; and (4) the words "herein," "hereof" and "hereunder" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision. "Adjusted Net Assets" of a Subsidiary Guarantor at any date shall mean the lesser of (i) the amount by which the fair value of the property of such Subsidiary Guarantor exceeds the total amount of liabilities, including, without limitation, contingent liabilities (after giving effect to all other fixed and contingent liabilities incurred or assumed on such date), but excluding liabilities under the Guarantee of such Subsidiary Guarantor at such date and (ii) the amount by which the present fair saleable value of the assets of such Subsidiary Guarantor at such date exceeds the amount that will be required to pay the probable liability of such Subsidiary Guarantor on its debts (after giving effect to all other fixed and contingent liabilities incurred or assumed on such date and after giving effect to any collection from any Subsidiary of such Subsidiary Guarantor in respect of the obligations of such Subsidiary under the Guarantee), excluding debt in respect of the Guarantee, as they become absolute and matured. "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, "control" when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Asset Sale" means any sale, lease, transfer, exchange or other disposition (or series of related sales, leases, transfers, exchanges or dispositions) of shares of Capital Stock of a Subsidiary (other than directors' qualifying shares), or of property or assets or any interests therein (each referred to for purposes of this definition as a "disposition") by the Company or any of its Subsidiaries, including any disposition by means of a merger, consolidation or similar transaction (other than (i) by the Company to a Wholly Owned Subsidiary or by a Subsidiary to the Company or a Wholly Owned Subsidiary, (ii) a sale of products, services, inventories and assets in the ordinary course of business of the Company's operations, and (iii) the disposition of all or substantially all of the assets of the Company in compliance with the covenant captioned "Limitations on Mergers and Consolidations"). "Average Life" means, as of the date of determination, with respect to any Indebtedness, the quotient obtained by dividing (i) the sum of the products of (x) the number of years from such date to the date of each successive scheduled principal payment of such Indebtedness multiplied by (y) the amount of such principal payment by (ii) the sum of all such principal payments. "Bank Credit Facility" means a revolving credit and/or letter of credit facility, the proceeds of which are used for working capital, equipment financing, and other general corporate purposes entered into by one or more of the Company and/or its Subsidiaries and certain financial institutions, as amended, extended or refinanced from time to time. "Board of Directors" means either the board of directors of the Company or any duly authorized committee of that board. "Board Resolution" means a copy of a resolution certified by the Secretary or an Assistant Secretary -2- 8 of the Company to have been duly adopted by the Board of Directors and to be in full force and effect on the date of such certification, and delivered to the Trustee. "Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday which is not a legal holiday for banking institutions in Phoenix, Arizona. "Capital Stock" means, with respect to any Person, any and all shares, interests, participations or other equivalents (however designated) of corporate stock or partnership interests and any and all warrants, options and rights with respect thereto (whether or not currently exercisable), including each class of common stock and preferred stock of such Person. "Change of Control" means any event or series of events by which (i) any "Person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act) of 50% or more of the total voting power of the Voting Stock of the Company; (ii) the Company consolidates with or merges or amalgamates with or into another Person or conveys, transfers, or leases all or substantially all of its assets to any Person, or any Person consolidates with, or merges or amalgamates with or into the Company, in any such event pursuant to a transaction in which the outstanding Voting Stock of the Company is changed into or exchanged for cash, securities or other property, other than any such transaction where (A) the outstanding Voting Stock of the Company is changed into or exchanged for Voting Stock of the surviving corporation which is not Disqualified Stock and (B) the holders of the Voting Stock of the Company immediately prior to such transaction own, directly or indirectly, not less than a majority of the Voting Stock of the surviving corporation immediately after such transaction; or (iii) the shareholders of the Company approve any plan of liquidation or dissolution of the Company. "Closing Price" when used with reference to the Common Stock, means the last sale price, regular way, of the Common Stock on the day in question or, if no sale price is quoted on that day, the closing price of the Common Stock on that day, in each case as reported by the New York Stock Exchange ("NYSE") or any other national securities exchange. In the event the Common Stock is not listed on the NYSE, another national securities exchange or on Nasdaq, the Closing Price shall be the last or closing bid price quoted on the principal mechanism then used to report transactions in the Common Stock. "Commission" means the Securities and Exchange Commission, as from time to time constituted, created under the Securities Exchange Act of 1934, or if at any time after the execution of this instrument such Commission is not existing and performing the duties now assigned to it under the Trust Indenture Act, then the body performing such duties on such date. "Common Stock" means the Company's Common Stock, $.01 par value, and shares of any class or classes resulting from any reclassification or reclassifications thereof which have no preference in respect of dividends or of amounts payable in the event of any voluntary or involuntary liquidation, dissolution or winding-up of the Company, and which are not subject to redemption by the Company, and also shall include stock of the Company of any other class, whether now or hereafter authorized which generally ranks, or is entitled to a participation, as to assets or dividends, substantially on a parity with such Common Stock or other class of stock into which such Common Stock may have been changed; provided, however, that warrants or other rights to purchase Common Stock will not be deemed to be Common Stock. "Company" means the Person named as the "Company" in the first paragraph of this instrument until a corporation shall have become a successor corporation pursuant to the applicable provisions of this Indenture, and thereafter "Company" shall mean such successor corporation. -3- 9 "Company Request" and "Company Order" mean, respectively, a written request or order signed in the name of the Company by its Chairman of the Board, President or a Vice President, and, by the Chief Financial Officer, Treasurer, an Assistant Treasurer, Secretary, or an Assistant Secretary, and delivered to the Trustee. "Consolidated Coverage Ratio" means, for the preceding four quarter period, the ratio on a pro forma basis of (i) the Company's consolidated earnings before interest, taxes, depreciation and amortization (as those terms are defined by Generally Accepted Accounting Principles, or "GAAP") for such period, to (ii) the Company's consolidated interest expense (as that term is defined by GAAP) for such period. "Corporate Trust Office" means the principal office of the Trustee at which at any particular time its corporate trust business shall be administered, which office at the date of the execution of this Indenture is located at 100 East Broad Street, Columbus, Ohio 43271-0181. "Disinterested Director" means, with respect to an Affiliate Transaction or series of related Affiliate Transactions, a member of the Board of Directors of the Company who has no financial interest, and whose employer has no financial interest, in such Affiliate Transaction or series of related Affiliate Transactions. "Disqualified Stock" means any Capital Stock of the Company or any Subsidiary of the Company which, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable), or upon the happening of any event or with the passage of time, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable at the option of the holder thereof, in whole or in part, on or prior to the Maturity Date or which is exchangeable or convertible into debt securities of the Company or any Subsidiary of the Company, except to the extent that such exchange or conversion rights cannot be exercised prior to the Maturity Date. "Exchange Act" means the Securities and Exchange Act of 1934, as amended, and the rules and regulations of the SEC thereunder. "GAAP" means generally accepted accounting principles as in effect in the United States of America as of the Issue Date. "Guarantee" means, individually and collectively, the guarantees given by the Subsidiary Guarantors pursuant to Article 12 hereof, including a notation on the Notes substantially in the form attached hereto as Exhibit A-1. "Holder" means a Person in whose name a Note is registered on the Note Register. "Indebtedness" means, without duplication, with respect to any Person, (i) all obligations of such Person (A) in respect of borrowed money (whether or not the recourse of the lender is to the whole of the assets of such person or only to a portion thereof), (B) evidenced by bonds, notes, debentures or similar instruments, (C) representing the balance deferred and unpaid of the purchase price of any property or services (other than accounts payable or other obligations arising in the ordinary course of business), (D) evidenced by bankers' acceptances or similar instruments issued or accepted by banks, (E) for the payment of money relating to a Capitalized Lease Obligation, or (F) evidenced by a letter of credit or a reimbursement obligation of such Person with respect to any letter of credit; (ii) all net obligations of such Person under interest rate swap obligations and foreign currency hedges; (iii) all liabilities of others of the kind described in the preceding clauses (i) or (ii) that such Person has guaranteed or that are otherwise its legal liability; (iv) with respect to such Person, the liquidation preference or any mandatory redemption payment obligations with respect to Disqualified Stock; and (v) any and all deferrals, renewals, extensions, refinancings and refundings (whether direct or indirect) of, or amendments, modifications or supplements -4- 10 to, any liability of the kind described in any of the preceding clauses (i), (ii), (iii), (iv), (v). "Initial Notes" means $ principal amount of % Senior Subordinated Convertible Notes due 2004. "Investment" of any Person means (i) all investments by such Person in any other Person in the form of loans, advances or capital contributions (excluding advances to employees in the ordinary course of business), and (ii) all guarantees of Indebtedness or other obligations of any other Person by such Person, (iii) all purchases (or other acquisitions for consideration) by such Person of Indebtedness, Capital Stock or other securities of any other Person and (iv) all other items that would be classified as investments (including, without limitation, purchases of assets outside the ordinary course of business) or advances on a balance sheet of such Person prepared in accordance with GAAP. "Indenture" means this instrument as originally executed or as it may from time to time be supplemented or amended by one or more indentures supplemental hereto entered into pursuant to the applicable provisions hereof. "Insolvency or Liquidation Proceeding" means, with respect to any Person, (i) an insolvency or bankruptcy case or proceeding, or any receivership, liquidation, reorganization proceeding or other similar case or proceeding, relative to such Person or to its creditors, as such, or its assets, or (ii) any liquidation, dissolution, reorganization proceeding or winding up of such Person (other than any reincorporation of such Person in another jurisdiction), whether voluntary or involuntary and whether or not involving insolvency or bankruptcy, or (iii) any assignment for the benefit of creditors or any other marshalling of assets and liabilities of such Person. "Interest Payment Date" means the Stated Maturity of an installment of interest on the Notes. "Issue Date" means the date on which the Notes are originally issued under the Indenture. "Lien" means, with respect to any Person, any mortgage, pledge, lien, encumbrance, easement, restriction, covenant, right-of-way, charge or adverse claim affecting title or resulting in an encumbrance against real or personal property of such Person, or a security interest of any kind (including any conditional sale or other title retention agreement, any lease in the nature thereof, any option, right of first refusal or other similar agreement to sell, in each case securing obligations of such Person, and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statute or statutes) of any jurisdiction). "Maturity" when used with respect to the Notes means the date on which the principal of such Note becomes due and payable as therein or herein provided, whether at the Stated Maturity or by declaration of acceleration or otherwise. "Net Available Proceeds" means, with respect to any Asset Sale of any Person, cash proceeds received (including any cash proceeds received by way of deferred payment of principal pursuant to a note or installment receivable or otherwise, but only as and when received, and excluding any other consideration until such time as such consideration is converted into cash) therefrom, in each case net of all legal, title and recording tax expenses, commissions and other fees and expenses incurred, and all federal, state or local taxes required to be accrued as a liability as a consequence of such Asset Sale, and in each case net of all Indebtedness which was secured by such assets, in accordance with the terms of any Lien upon or with respect to such assets, or which must, by its terms or in order to obtain a necessary consent to such Asset Sale or by applicable law, be repaid out of the proceeds from such Asset Sale and which is actually so repaid. "Notes" means up to $150,000,000 principal amount of Senior Subordinated Notes of the Company -5- 11 under this Indenture, including the Initial Notes. "Offering" means a public offering or private placement of the Notes. "Officers' Certificate" means a certificate signed by the Chairman of the Board, the President or a Vice President, and by the Chief Financial Officer, Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary of the Company, and delivered to the Trustee. "Opinion of Counsel" means a written opinion of counsel, who may (except as otherwise expressly provided in this Indenture) be counsel for the Company, acceptable to the Trustee. "Outstanding" when used with respect to the Notes means, as of the date of determination, all Notes theretofore authenticated and delivered under this Indenture, except: (i) Notes theretofore cancelled and delivered to the Trustee or delivered to the Trustee for cancellation; (ii) Notes for whose payment in the necessary amount has been theretofore deposited with the Trustee or any Paying Agent (other than the Company) in trust or set aside and segregated in trust by the Company (if the Company shall act as its own Paying Agent) for the Holders of such Notes; and (iii) Notes in exchange for or in lieu of which other Notes have been authenticated and delivered pursuant to this Indenture; provided, however, that in determining whether the Holders of the requisite principal amount of Notes Outstanding have given any request, demand, authorization, direction, notice, consent or waiver hereunder, Notes owned by the Company or any other obligor upon the Notes or any Affiliate of the Company or such other obligor shall be disregarded and deemed not to be Outstanding, except that, in determining whether the Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Notes which the Trustee actually knows to be so owned shall be so disregarded. Notes so owned which have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Trustee the pledgee's right so to act with respect to such Notes and that the pledgee is not the Company or any other obligor upon the Notes or any Affiliate of the Company or such other obligor. "Paying Agent" means any Person authorized by the Company to pay the principal of (and premium, if any) or interest on any Notes on behalf of the Company. "Permitted Business Investments" means (i) Investments by the Company or any other Wholly Owned Subsidiary in any Person which immediately prior to the making of such Investment is a Wholly-Owned Subsidiary; (ii) Investments in the Company by any Wholly Owned Subsidiary; and (iii) Investments by the Company or any Subsidiary of the Company in a Person, if as a result of such Investment (i) such Person becomes a Wholly Owned Subsidiary of the Company or (ii) such Person is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of its assets to, or is liquidated into, the Company or a Wholly Owned Subsidiary of the Company. "Permitted Company Refinancing Indebtedness" means Indebtedness of the Company, the net proceeds of which are used to renew, extend, refinance, refund or repurchase outstanding Indebtedness of the Company, provided that (i) if the Indebtedness (including the Notes) being renewed, extended, -6- 12 refinanced, refunded or repurchased is pari passu with or subordinated in right of payment to the Notes, then such Indebtedness is pari passu with or subordinated in right of payment to, as the case may be, the Notes, at least to the same extent as the Indebtedness being renewed, extended, refinanced, refunded or repurchased, (ii) such Indebtedness is scheduled to mature no earlier than the Indebtedness being renewed, extended, refinanced, refunded or repurchased, and (iii) such Indebtedness has an Average Life at the time such Indebtedness is incurred that is equal to or greater than the remaining Average Life of the Indebtedness being renewed, extended, refinanced, refunded or repurchased; provided, further, that such Indebtedness (to the extent that such Indebtedness constitutes Permitted Company Refinancing Indebtedness) is in an aggregate principal amount (or, if such Indebtedness is issued at a price less than the principal amount thereof, the aggregate amount of gross proceeds therefrom is not in excess of the aggregate principal amount) then outstanding of the Indebtedness being renewed, extended, refinanced, refunded or repurchased (or if the Indebtedness being renewed, extended, refinanced, refunded or repurchased was issued at a price less than the principal amount thereof, then not in excess of the amount of liability in respect thereof determined in accordance with GAAP). "Permitted Investments" means Permitted Business Investments and Permitted Financial Investments. "Permitted Liens" means (i) Liens existing on the Issue Date; (ii) Liens now or hereafter securing Senior Indebtedness; (iii) Liens now or hereafter securing any interest rate hedging obligations (A) that the Company is required to enter into with respect to a Bank Credit Facility or (B) that are entered into for the purpose of managing interest rate risk with respect to Indebtedness of the Company and its Subsidiaries; (iv) Liens securing Indebtedness, the proceeds of which are used to refinance secured Indebtedness of the Company or its Subsidiaries; provided, that such Liens extend to or cover only the property or assets currently securing the Indebtedness being refinanced; (v) Liens for taxes, assessments and governmental charges not yet delinquent or being contested in good faith and for which adequate reserves have been established to the extent required by GAAP, (vi) mechanics', workmen's materialmen's, operator's or similar Liens arising in the ordinary course of business, (vii) Liens in connection with workmen's compensation, unemployment insurance or other social security, old age pension or public liability obligations, (viii) Liens, deposits or pledges to secure the performance of bids, tenders, contracts (other than contracts for the payment of money), leases, public or statutory obligations, surety, stay, appeal, indemnity, performance or other similar bonds, or other similar obligations arising in the ordinary course of business; (ix) survey exceptions, encumbrances, easements or reservations of, or rights of others for, rights or way, zoning or other restrictions as to the use of real properties, and minor defects in title which, in the case of any of the foregoing, were not incurred or created to secure the payment of borrowed money or the deferred purchase price of property or services, and in the aggregate do not materially adversely affect the value of such properties or materially impair use for the purposes of which such properties are held by the Company or any Subsidiaries, (x) judgment and attachment Liens not giving rise to an Event of Default or Liens created by or existing from any litigation or legal proceeding that are currently being contested in good faith by appropriate proceedings and for which adequate reserves have been made, (xi) (A) Liens upon any property of any Person existing at the time of acquisition thereof by the Company or a Subsidiary, (B) Liens upon any property of a person existing at the time such Person is merged or consolidated with the Company or any Subsidiary or existing at the time of the sale or transfer of any such property of such Person to the Company or any Subsidiary, or (C) Liens upon any property of a Person existing at the time such Person becomes a Subsidiary; provided, that in each case such Lien has not been created in contemplation of such sale, merger, consolidation, transfer or acquisition, and provided further that in each such case no such Lien shall extend to or cover any property of the Company or any Subsidiary other than the property being acquired and improvements thereon, (xii) Liens on deposits to secure public or statutory obligations or in lieu or surety or appeal bonds entered into in the ordinary course of business, (xiii) Liens in favor of collecting or payor banks having a right of setoff, revocation, refund or chargeback with respect to money or -7- 13 instruments of the Company or any Subsidiary on deposit with or in possession of such bank, (xiv) purchase money security interests granted in connection with the acquisition of fixed assets in the ordinary course of business and consistent with past practices, provided, that (A) such Liens attach only to the property so acquired with the purchase money indebtedness secured thereby and (B) such Liens secure only Indebtedness that is not in excess of 100% of the purchase price of such fixed assets, and (xv) Liens or mortgages secured by real property. "Permitted Subsidiary Refinancing Indebtedness" means Indebtedness of any Subsidiary, the net proceeds of which are used to renew, extend, refinance, refund or repurchase outstanding Indebtedness of such Subsidiary, provided that (i) if the Indebtedness (including any guarantee thereof) being renewed, extended, refinanced, refunded or repurchased is pari passu with or subordinated in right of payment to the Guarantees, then such Indebtedness is pari passu with or subordinated in right of payment to, as the case may be, the Guarantees at least to the same extent as the Indebtedness being renewed, extended, refinanced, refunded or repurchased, (ii) such Indebtedness is scheduled to mature no earlier than the Indebtedness being renewed, extended, refinanced, refunded or repurchased, and (iii) such Indebtedness has an Average Life at the time such Indebtedness is incurred that is equal to or greater than the remaining Average Life of the Indebtedness being renewed, extended, refinanced, refunded or repurchased; provided further, that such Indebtedness (to the extent that such Indebtedness constitutes Permitted Subsidiary Refinancing Indebtedness) is in an aggregate principal amount (or, if such Indebtedness is issued at a price less than the principal amount thereof, the aggregate amount of gross proceeds therefrom is) not in excess of the aggregate principal amount then outstanding under the Indebtedness being renewed, extended, refinanced, refunded or repurchased (or if the Indebtedness being renewed, extended, refinanced, refunded or repurchased was issued at a price less than the principal amount thereof, then not in excess of the amount of liability in respect thereof determined in accordance with GAAP). "Person" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. "Post-Commencement Interest" means all interest accrued or accruing after the commencement of any Insolvency or Liquidation Proceeding in accordance with and at the contract rate (including, without limitation, any rate applicable upon default) specified in the agreement or instrument creating, evidencing, or governing any Senior Indebtedness, whether or not, pursuant to applicable law or otherwise, the claim for such interest is allowed as a claim in such Insolvency or Liquidation Proceeding. "Principal Business" means the business of safety-related technologies and products, including seating systems and restraint systems for transportation vehicles, civilian and military aircraft components, and services and any activity or business that is a reasonable extension, development or expansion thereof. "Qualified Stock" means any Capital Stock that is not Disqualified Stock. "Reference Period" means, with respect to any Person, the four full fiscal quarters ended immediately preceding any date upon which any determination is to be made pursuant to the terms of the Notes or the Indenture. "Representative" means the indenture trustee or other trustee, agent or representative of holders of any Senior Indebtedness. "Responsible Officer" when used with respect to the Trustee means the chairman or vice-chairman of the board of directors, the chairman or vice-chairman of any executive committee of the board of directors, the president, any vice president (whether or not designated by a number or a word or words -8- 14 added before or after the title "vice president"), the secretary, any assistant secretary, the chief financial officer, treasurer, any assistant treasurer, the cashier, any assistant cashier, any trust officer or assistant trust officer, the controller or any assistant controller or any other officer of the Trustee customarily performing functions similar to those performed by any of the above designated officers and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his knowledge of and familiarity with the particular subject. "Senior Indebtedness" means any Indebtedness of the Company (whether outstanding on the date hereof or hereafter incurred), unless such Indebtedness is pari passu with or contractually subordinate or junior in right of payment to the Notes, except Indebtedness to any Affiliate of the Company which shall be junior and subordinate to the Notes, and except Indebtedness evidenced by any series of Notes authorized to be issued hereunder in addition to and on parity with the Initial Notes. "Stated Maturity" when used with respect to any Note or any installment of interest thereon means the date specified in such Note as the fixed date on which the principal of such Note or such installment of interest is due and payable. "Subordinated Indebtedness of the Company" means any Indebtedness of the Company (whether outstanding on the date hereof or hereafter incurred) which is contractually subordinate or junior in right of payment to the Notes. A "subsidiary" of any Person means (i) a corporation a majority of whose Voting Stock is at the time, directly or indirectly, owned by such person, by one or more subsidiaries of such Person or by such Person and one or more subsidiaries of such Person, (ii) a partnership in which such Person or a subsidiary of such Person is, at the date of determination, a general or limited partner of such partnership, but only if such person or its subsidiary is entitled to receive more than fifty percent of the assets of such partnership upon its dissolution, or (iii) any other Person (other than a corporation or partnership) in which such Person, directly or indirectly, at the date of determination thereof, has (x) at least a majority ownership interest or (y) the power to elect or direct the election of a majority of directors or other governing body of such Person. "Subsidiary" means any subsidiary of the Company. "Subsidiary Guarantor" means (i) each of the Company's Subsidiaries in existence on the Issue Date, (ii) each of the Subsidiaries that becomes a guarantor of the Notes in compliance with the provisions of Article 12 hereof and (iii) each of the Subsidiaries executing a supplemental indenture in which such Subsidiary agrees to be bound by the terms of this Indenture. "Trading Day" means a day on which a quote for the Common Stock is published on the principal exchange or other market mechanism used to report transactions in or prices of the Common Stock. "Trust Indenture Act" or "TIA" means the Trust Indenture Act of 1939 (15 U.S. Code Sections 77a and 77b) as in effect on the date of this Indenture and as thereafter amended from time to time, except as provided in Section 9.5. "Trustee" means the Person named as the "Trustee" in the first paragraph of this instrument until a successor Trustee shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Trustee" shall mean such successor Trustee. "U.S. Government Obligations" means securities that are direct obligations of the United States. -9- 15 of America for the payment of which its full faith and credit is pledged or (ii) obligations of a Person controlled or supervised by and acting as an agency or instrumentality of the United States of America and payment of which is unconditionally guaranteed as a full faith and credit obligation by the United States of America, which, in either case under clauses (i) or (ii) are not callable or redeemable at the option of the issuer thereof. "U.S. Legal Tender" means such coin or currency of the United States as at the time of payment shall be legal tender for the payment of public and private debts. "Voting Stock" means, with respect to any Person, securities of any class or classes of Capital Stock in such Person entitling the holders thereof (whether at all times or only so long as no senior class of stock has voting power by reason of any contingency) to vote in the election of members of the Board of Directors or other governing body of such Person. "Wholly Owned Subsidiary" means a Subsidiary, all the Capital Stock (other than directors' qualifying shares, if applicable) of which is owned by the Company or another Wholly Owned Subsidiary. SECTION 1.2. COMPLIANCE CERTIFICATE AND OPINIONS. (a) Upon any application or request by the Company to the Trustee to take any action under any provision of this Indenture, the Company shall furnish to the Trustee an Officers' Certificate stating that all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with and an Opinion of Counsel stating that in the opinion of such counsel all such conditions precedent, if any, have been complied with, except that in the case of any such application or request as to which the furnishing of such documents is specifically required by any provision of this Indenture relating to such particular application or request, no additional certificate or opinion need be furnished. Every certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture shall include: (1) a statement that each individual signing such certificate or opinion has read such covenant or condition and the definitions herein relating thereto; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (3) a statement that, in the opinion of each such individual, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (4) a statement as to whether, in the opinion of each such individual, such condition or covenant has been complied with. SECTION 1.3. FORM OF DOCUMENTS DELIVERED TO TRUSTEE. (a) In any case where several matters are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such Persons as to other matters, and any such Person may certify or give an opinion as to such matters in one or several documents. -10- 16 (b) Any certificate or opinion of an officer of the Company may be based, insofar as it relates to legal matters, upon a certificate or opinion of, or representations by, counsel, unless such officer knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to the matters upon which his certificate or opinion is based are erroneous. Any certificate or Opinion of Counsel may be based, insofar as it relates to factual matters, upon a certificate or opinion of, or representations by, an officer or officers of the Company stating that the information with respect to such factual matters is in the possession of the Company, unless such counsel knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to such matters are erroneous. (c) Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Indenture, they may, but need not, be consolidated and form one instrument. SECTION 1.4. ACTS OF HOLDERS. (a) Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given or taken by Holders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Holders in person or by an agent duly appointed in writing; and, except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments are delivered to the Trustee, and, where it is hereby expressly required, to the Company. Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "Act" of the Holders signing such instrument or instruments. Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Indenture and (subject to Section 6.1) conclusive in favor of the Trustee and the Company, if made in the manner provided in this Section. (b) Proof of the fact and date of the execution by any Person of any such instrument or writing shall be sufficient for any purposes of this Indenture if made in accordance with such reasonable rules and regulations as may be prescribed by the Trustee or in such manner as shall be satisfactory to the Trustee. (c) The ownership of Notes shall be proved by the Note Register. (d) Any request, demand, authorization, direction, notice, consent, waiver or other action by the Holder of any Note shall bind every future Holder of the same Note and the Holder of every Note issued upon the transfer thereof or in exchange therefor or in lieu thereof, in respect of anything done or suffered to be done by the Trustee or the Company in reliance thereon, whether or not notation of such action is made upon such Note. SECTION 1.5. NOTICES, ETC. TO TRUSTEE AND COMPANY. Any request, demand, authorization, direction, notice, consent, waiver or Act of Holders or other document provided or permitted by this Indenture to be made upon, given or furnished to, or filed with, (1) the Trustee by any Holder or by the Company shall be sufficient for every purpose hereunder if made, given, furnished or filed in writing to or with the Trustee at its Corporate Trust Office, or (2) the Company by the Trustee or by any Holder shall be sufficient for every purpose hereunder if in writing and mailed, first-class postage prepaid, to the Company addressed -11- 17 to it at the address of its principal office specified in the first paragraph of this instrument or at any other address previously furnished in writing to the Trustee by the Company. (3) any Subsidiary Guarantor by the Trustee or by any Holder shall be sufficient for every purpose hereunder if in writing and mailed, first-class postage prepaid, to any such Subsidiary Guarantor addressed to it at the address of its principal office specified in the first paragraph of this instrument or at any other address previously furnished in writing to the Trustee by any such Subsidiary Guarantor. SECTION 1.6. NOTICES TO HOLDERS; WAIVER. Where this Indenture provides for notice to Holders, such notice shall be sufficiently given (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to each Holder of such Notes, at his address as it appears on the Note Register, not later than the latest date, and not earlier than the earliest date, prescribed for the giving of such notice, with a copy thereof to the Trustee. Where this Indenture provides for notice in any manner, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by Holders shall be filed with the Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. In any case where notice to Holders is given by mail, neither the failure to mail such notice, nor any defect in any notice so mailed to any particular Holder shall affect the sufficiency of such notice with respect to other Holders, and any notice which is mailed in the manner herein provided shall be conclusively presumed to have been duly given. SECTION 1.7. CONFLICT WITH TRUST INDENTURE ACT. If any provision hereof limits, qualifies or conflicts with another provision which is required to be included in this Indenture by any of the provisions of the TIA, such required provision shall control. SECTION 1.8. EFFECT OF HEADINGS AND TABLES OF CONTENTS. The Articles and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof. SECTION 1.9. SUCCESSORS AND ASSIGNS. All covenants and agreements in this Indenture by the Company shall bind its successors and assigns, whether so expressed or not. SECTION 1.10. SEPARABILITY CLAUSE. In case any provision in this Indenture or in the Notes shall be invalid, illegal or unenforceable, the validity, legality or enforceability of the remaining provisions shall not in any way be affected or impaired thereby. SECTION 1.11. BENEFITS OF INDENTURE. Nothing in this Indenture or in the Notes, express or implied, shall give to any Person, other than the parties hereto and their successors hereunder and the Holders of Notes, any benefit or any legal or equitable right, remedy or claim under this Indenture. -12- 18 SECTION 1.12. GOVERNING LAW. This Indenture shall be construed in accordance with and governed by the laws of the State of Arizona applicable to contracts made and to be performed entirely in that state. ARTICLE 2 NOTE FORM SECTION 2.1. FORM GENERALLY. (a) The Notes, which shall be registered Notes without coupons, and the Trustee's certificate of authentication shall be in substantially the forms set forth in this Article, with such appropriate insertions, omissions, substitutions and other variations as are required or permitted by this Indenture (including such variations as may be required to reflect the terms of any subseries of Notes) and may have such letters, numbers or other marks of identification and such legends or endorsements placed thereon, as may be required to comply with the rules of any securities exchange, or as may, consistently herewith, be determined by the officers executing such Notes, as evidenced by their signing of the Notes. (b) If listed on a securities exchange, the definitive Notes shall be printed, lithographed, engraved or produced by any combination of these methods on steel engraved borders or may be produced in any other manner permitted by the rules of any securities exchange, all as determined by the officers executing such Notes, as evidenced by their signing of such Notes. -13- 19 SECTION 2.2. FORM OF FACE OF NOTE. SIMULA, INC. % SENIOR SUBORDINATED CONVERTIBLE NOTE DUE_________________ $_______________ No. _____________ SIMULA, INC., a corporation duly organized and existing under the laws of the State of Arizona (herein called the "Company," which term includes any successor corporation under the Indenture hereinafter referred to), for value received, hereby promises to pay to _______________________________, or registered assigns, the principal sum of ___________________ DOLLARS on ____________, and to pay interest thereon from the later of the Date of Issue or the most recent Interest Payment Date to which interest has been paid or duly provided for, as the case may be, semiannually on______ and______ in each year, commencing______ , at the rate of % per annum, until the principal hereof is paid or duly provided for. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will, subject to certain exceptions as provided in the Indenture hereinafter referred to, be paid to the person in whose name this Note is registered at the close of business on______ or______ (or if such day is not a Business Day then at the close of business on the Business Day next preceding such day) next preceding such Interest Payment Date. Payments of the principal of (and premium, if any) and interest on this Note will be made at the office or agency of the Company maintained for that purpose, or in such other office or agency as may be established by the Company pursuant to said Indenture, in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts; provided, however, that at the option of the Company payment of interest may be made (subject to collection) by check mailed to the address of the person entitled thereto as such address shall appear on the Note Register. Reference is hereby made to the further provisions of this Note set forth on the reverse side hereof which further provisions shall for all purposes have the same effect as though fully set forth at this place. This Note shall not be valid or become obligatory for any purpose until the certificate of authentication hereof shall have been manually signed by the Trustee under the Indenture. IN WITNESS WHEREOF, SIMULA, INC. has caused this Note to be signed in its name by the manual or facsimile signature of its President and attested by the manual or facsimile signature of its Secretary. Dated: _________________________ -14- 20 SIMULA, INC. By: --------------------------------- ATTEST: - --------------------------------- Secretary SECTION 2.3. FORM OF REVERSE OF NOTE. SIMULA, INC. % SENIOR SUBORDINATED CONVERTIBLE NOTE DUE_______________ This Note is one of a duly authorized issue of the Notes of the Company designated as its % Senior Subordinated Convertible Notes due (herein called the "Notes"), limited in aggregate principal amount to $ issued and to be issued under an Indenture dated as of (hereinafter called the "Indenture"), between the Company and Bank One Columbus, NA, as Trustee (herein called the "Trustee," which term includes any successor Trustee under the Indenture), to which Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights thereunder of the Company, the Trustee and the Holders of the Notes, and the terms upon which the Notes are, and are to be, authenticated and delivered. The Indenture permits, with certain exceptions, as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the rights of the Holders of the Notes under the Indenture at any time by the Company with the consent of the Holders of a majority in aggregate principal amount of the Notes at the time Outstanding, as defined in the Indenture. The Indenture also contains provisions permitting the Holders of a majority in aggregate principal amount of the Notes at the time Outstanding, as defined in the Indenture, on behalf of the Holders of all the Notes, to waive compliance by the Company with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Note shall be conclusive and binding upon such Holder and upon all future Holders of this Note and of any Note issued upon the registration or transfer hereof or in exchange therefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Note. No reference herein to the Indenture and no provisions of this Note or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of (and premium if any) and interest on this Note at the times, places and rate, and in the coin and currency, herein prescribed. As provided in the Indenture and subject to certain limitations therein set forth, this Note -15- 21 is transferable on the Note Register of the Company, upon surrender of this Note for registration of transfer at the office or agency of the Company to be maintained for that purpose, or at such other office or agency as may be established by the Company for such purpose pursuant to the Indenture, duly endorsed by, or accompanied by written instrument of transfer in form satisfactory to the Company and the Note Registrar duly executed by the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Notes, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees. The Company has appointed the Trustee as the initial Note Registrar and Paying Agent for the Notes. The Notes and the accrued interest payable thereon are convertible into shares of the Company's Common Stock, par value $.01 per share, at a conversion price of $ per share, subject to adjustment as set forth below. No fractional shares will be issued. In lieu thereof, the Company will pay cash for fractional share amounts equal to the fair market value of the Common Stock as quoted as the closing price on the New York Stock Exchange ("NYSE") on the date of conversion. A holder of Notes may convert his Notes by surrendering to the conversion agent each Note covering Notes to be converted together with a statement of the name or names in which the shares of Common Stock shall be registered upon issuance (the date of such surrender, the "Conversion Date"). Every such notice of election to convert will constitute a contract between the holder giving such notice and the Company whereby such holder will be deemed to subscribe for the shares of Common Stock he will be entitled to receive upon such conversion and, in payment and satisfaction of such subscription, to surrender the Notes to be converted and to release the Company from all further obligation thereon and whereby the Company will be deemed to accept the surrender of such Notes in full payment of the shares of Common Stock so subscribed for and to be issued upon such conversion. As promptly as practicable after the Conversion Date, the Company shall issue and deliver to the converting holder of the Notes a certificate representing the number of shares of Common Stock into which the Notes was converted together with interest payments, if any, payable on the Notes so converted as may be due and made payable to holders of record of Notes on the record date immediately preceding the Conversion Date. If a holder of Notes elects to convert only a portion of his Notes, upon such conversion the Company shall also deliver to the holder of the Notes a new Note representing his unconverted Notes. In lieu of fractional shares of Common Stock, there will be paid to the holder of the Notes at the time of conversion an amount in cash equal to the same fraction of the current market value of a share of Common Stock of the Company. This current market value will be deemed the closing price of the Common Stock on the NYSE on the last trading day preceding the Conversion Date. The Conversion Rate is subject to adjustment upon the occurrence of certain events, including the issuance of shares of Common Stock or other securities of the Company as a dividend or distribution on shares of Common Stock of the Company to the holders of all of its outstanding shares of Common Stock; subdivisions, combinations, or certain reclassifications of shares of Common Stock of the Company; the issuance of shares of Common Stock of the Company or of rights, options, or warrants to subscribe for or purchase shares of Common Stock of the Company at less than the effective Conversion Price of the Notes; or the distribution to the holders of shares of Common Stock of the Company generally of evidences of indebtedness or assets (excluding cash dividends and distributions made out of current or retained earnings) or rights, options, or warrants to subscribe for securities of the Company other than those mentioned above. No adjustment in the Conversion Rate will be required to be made with respect to the Notes until cumulative adjustments amount to 1% or more; however, any such adjustment not required to be made will be carried forward and taken into account in any subsequent adjustment. No accrued and unpaid interest payments will be paid upon conversion of the -16- 22 Notes unless the conversion occurs after the record date for such payments. In the event of any consolidation with or merger of the Company into another corporation, or sale of all or substantially all of the properties and assets of the Company to any other corporation, or in case of any reorganization of the Company, Notes would thereupon become convertible only into the number of shares of stock or other securities, assets, or cash to which a holder of the number of shares or Common Stock of the Company issuable (at the time of such consolidation, merger, sale, or reorganization) upon conversion of such Notes would have been entitled upon such consolidation, merger, sale or reorganization. If not earlier converted, the Notes may be redeemed upon at least 30 days' notice, at the Company's option, in whole or in part on a pro rata basis, on and after _________________, 1999, at the following redemption prices (expressed in percentages of the principal amount) if redeemed during the twelve-month period beginning _____________ of the year indicated below, in each case together with accrued interest payable thereon to the redemption date:
Year Redemption Price ---- ---------------- 1999 2000 2001 2002 2003
However, on or after _______________, 1999 and prior to _________________, 2000, the Notes will not be redeemable unless the last reported sale price of the Company's Common Stock as quoted on the NYSE has equaled or exceeded $ ___________ for 20 trading days within a period of 30 consecutive trading days. Upon a Change of Control (as defined in Section 10.14 of the Indenture), the Company will be required to offer to purchase all of the Notes at ____% of the principal amount thereof, plus accrued interest, if any, to the date of purchase. In addition, in the event that the Company sells assets, under certain circumstances, as described in Section 10.9 of the Indenture, the Company will be required to make an offer to purchase a certain principal amount of the Notes, on a pro rata basis of all Notes tendered, at 100% of the principal amount thereof, plus accrued interest, if any, to the date of purchase. If an Event of Default as defined in the Indenture shall occur and be continuing, the principal of all or a portion of the Notes may become or be declared due and payable in the manner and with the effect provided in the Indenture. If an Event of Default on the Notes shall occur, a default rate of interest in the amount of 15% per annum shall accrue on the indebtedness evidenced by the Notes from such date for such period of time until the default is cured. The Notes are issuable only in registered form, without coupons, in denominations of $25 and any integral multiple thereof, as provided in the Indenture and subject to certain limitations therein set forth. Notes are exchangeable for a like aggregate principal amount of Notes of a different authorized denomination, as requested by the Holder surrendering the same. No service charge shall be made for any such transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. -17- 23 The Company, the Trustee and any agent of the Company or the Trustee may treat the person in whose name this Note is registered as the owner hereof for all purposes, whether or not this Note be overdue, and neither the Company, the Trustee, nor any such agent shall be affected by notice to the contrary. ASSIGNMENT FORM To assign this Note fill in the form below: I or we assign and transfer this Note to: - -------------------------------------------------------------------------------- (Insert assignee's social security or tax identification no.) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (Print or type assignee's name, address and zip code) and irrevocably appoint as agent to ------------------------------------- transfer this Note on the books of the Company. The agent may substitute another to act for him. Date: Your Signature: ------------------------- ---------------------------- (Sign exactly as your name appears on the other side of this Note) Signature Guarantee: ---------------------------------------------------------- -18- 24 FORM OF OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have this Note purchased by the Company pursuant to Section 10.9 or Section 10.14 of the Indenture, check the appropriate box: Section 10.9 [ ] Section 10.14 [ ] If you want to have only part of this Note purchased by the Company pursuant to Section 10.9 or Section 10.14 of the Indenture, state the amount (in integral multiples of $25): $ -------------------------- Date: Your Signature: ---------------------- ----------------------------- (Sign exactly as your name appears on the other side of this Note) Signature Guarantee: ----------------------------------------------------------- -19- 25 SECTION 2.4. FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION. This is one of the Notes referred to in the within mentioned Indenture. BANK ONE COLUMBUS, NA, as Trustee By: --------------------------------------- AUTHORIZED SIGNATURE ARTICLE 3 THE NOTES SECTION 3.1. TITLE AND TERMS. (a) The aggregate principal amount of Notes which may be authenticated and delivered under this Indenture is limited to $150,000,000, except for Notes authenticated and delivered upon transfer of, or in exchange for, or in lieu of other Notes pursuant to Sections 3.4, 3.5, 3.6 and 9.6. The Company may issue subseries of the Notes, which will be on substantially similar terms except with regard to maturity, interest rate, and interest payment date. Any such subseries will be issued pursuant to a supplemental indenture requiring only the consent of the Trustee, so long as the aggregate principal amount does not exceed $150,000,000. The Initial Notes issued hereunder shall consist of $_______ of ______% Senior Subordinated Convertible Notes due 2004. Forthwith upon the execution and delivery of this Indenture, or from time to time thereafter, Initial Notes up to a maximum aggregate principal amount of $___________ may be executed by the Company and delivered to the Trustee for authentication, and shall thereupon be authenticated and delivered by the Trustee upon Company order, without any further action by the Company. The Initial Notes issued hereunder will rank pari passu with any Notes under this Indenture issued by the Company in the future up to $________ additional principal amount. (b) The Initial Notes shall be known and designated as the "______% Senior Subordinated Convertible Initial Notes due 2004" of the Company. Their Stated Maturity shall be ________, 2000 and they shall bear interest at the rate of __% per annum from their Date of Issue or from the most recent Interest Payment Date to which interest has been paid or duly provided for, as the case may be, payable semiannually on July 30 and January 30, commencing July 30, 1997 until the principal thereof is paid or duly provided for. The Initial Notes are subject to tender for purchase as provided in Sections 10.9 and 10.14 hereof. The Holder of any Initial Note at the close of business on any record date (as hereinafter defined) with respect to any Interest Payment Date shall be entitled to receive the interest payable thereon on such Interest Payment Date notwithstanding the cancellation of such Note upon any transfer or exchange thereof subsequent to such record date and prior to such Interest Payment Date, in which case such defaulted interest shall be paid to the Person in whose name such Note is registered (a) on the date of payment of such defaulted interest or (b) at the election of the Company, on a special record date, which shall be not less than five Business Days preceding the date of payment of such defaulted interest, established for such purpose by notice given by or on behalf of the Company to the Holders not less than ten Business Days preceding the date so established. The term "record date" as used herein with respect to any Interest Payment Date (other than any date on which defaulted interest is paid) shall mean the _____________ or ____________ (or if that day is not a Business Day, the next preceding Business -20- 26 Day) next preceding such Interest Payment Date. (c) The Initial Notes and the accrued interest payable thereon are convertible into shares of the Company's Common Stock, par value $.01 per share, at a conversion price of $__________ per share, subject to adjustment as set forth below. No fractional shares will be issued. In lieu thereof, the Company will pay cash for fractional share amounts equal to the fair market value of the Common Stock as quoted as the closing price on the New York Stock Exchange ("NYSE") on the date of conversion. A holder of Initial Notes may convert his Notes by surrendering to the conversion agent each Note covering Initial Notes to be converted together with a statement of the name or names in which the shares of Common Stock shall be registered upon issuance (the date of such surrender, the "Conversion Date"). Every such notice of election to convert will constitute a contract between the holder giving such notice and the Company whereby such holder will be deemed to subscribe for the shares of Common Stock he will be entitled to receive upon such conversion and, in payment and satisfaction of such subscription, to surrender the Initial Notes to be converted and to release the Company from all further obligation thereon and whereby the Company will be deemed to accept the surrender of such Initial Notes in full payment of the shares of Common Stock so subscribed for and to be issued upon such conversion. As promptly as practicable after the Conversion Date, the Company shall issue and deliver to the converting holder of the Initial Notes a certificate representing the number of shares of Common Stock into which the Initial Notes was converted together with interest payments, if any, payable on the Initial Notes so converted as may be due and made payable to holders of record of Initial Notes on the record date immediately preceding the Conversion Date. If a holder of Initial Notes elects to convert only a portion of his Initial Notes, upon such conversion the Company shall also deliver to the holder of the Initial Notes a new Initial Note representing his unconverted Initial Notes. In lieu of fractional shares of Common Stock, there will be paid to the holder of the Initial Notes at the time of conversion an amount in cash equal to the same fraction of the current market value of a share of Common Stock of the Company. This current market value will be deemed the closing price of the Common Stock on the NYSE on the last trading day preceding the Conversion Date. The Conversion Rate is subject to adjustment upon the occurrence of certain events, including the issuance of shares of Common Stock or other securities of the Company as a dividend or distribution on shares of Common Stock of the Company to the holders of all of its outstanding shares of Common Stock; subdivisions, combinations, or certain reclassifications of shares of Common Stock of the Company; the issuance of shares of Common Stock of the Company or of rights, options, or warrants to subscribe for or purchase shares of Common Stock of the Company at less than the effective Conversion Price of the Initial Notes; or the distribution to the holders of shares of Common Stock of the Company generally of evidences of indebtedness or assets (excluding cash dividends and distributions made out of current or retained earnings) or rights, options, or warrants to subscribe for securities of the Company other than those mentioned above. No adjustment in the Conversion Rate will be required to be made with respect to the Initial Notes until cumulative adjustments amount to 1% or more; however, any such adjustment not required to be made will be carried forward and taken into account in any subsequent adjustment. No accrued and unpaid interest payments will be paid upon conversion of the Initial Notes unless the conversion occurs after the record date for such payments. In the event of any consolidation with or merger of the Company into another corporation, or sale of all or substantially all of the properties and assets of the Company to any other corporation, or in case of any reorganization of the Company, Initial Notes would thereupon become convertible only into the number of shares of stock or other securities, assets, or cash to which a holder of the number of shares or Common Stock of the Company issuable (at the time of such consolidation, merger, sale, or -21- 27 reorganization) upon conversion of such Intial Notes would have been entitled upon such consolidation, merger, sale or reorganization. (d) If not earlier converted, the Initial Notes may be redeemed upon at least 30 days' notice, at the Company's option, in whole or in part on a pro rata basis, on and after ________________, 1999, at the following redemption prices (expressed in percentages of the principal amount) if redeemed during the twelve-month period beginning _________________________ of the year indicated below, in each case together with accrued interest payable thereon to the redemption date: -22- 28
Year Redemption Price ---- ---------------- 1999 2000 2001 2002 2003
However, on or after ______________, 1999 and prior to ____________________ , 2000, the Initial Notes will not be redeemable unless the closing price of the Company's Common Stock as quoted on the NYSE has equaled or exceeded $_______________ 20 trading days within a period of 30 consecutive trading days. (e) The principal (and premium, if any) of and interest on the Notes shall be payable at the office or agency of the Company; provided, however, that interest may be payable at the option of the Company by check mailed to the address of the person entitled thereto as such address shall appear on the Note Register. (f) The Notes shall be subordinated in right of payment to Senior Indebtedness of the Company as provided in Article 11. SECTION 3.2. DENOMINATIONS. The Initial Notes may be issued in denominations of $1,000 and any integral multiple thereof. SECTION 3.3. EXECUTION, AUTHENTICATION AND DELIVERY. (a) The Notes shall be executed on behalf of the Company by its President or one if its Vice Presidents under its corporate seal reproduced thereon and attested by its Secretary or one of its Assistant Secretaries. The President of each Subsidiary Guarantor shall sign the Guarantee of such Subsidiary Guarantor on behalf of such Subsidiary Guarantor. The signature of any of these officers on the Notes may be manual or facsimile. (b) Notes bearing the manual or facsimile signatures of individuals who were at any time the proper officers of the Company or a Subsidiary Guarantor, as the case may be, shall bind the Company and such Subsidiary Guarantor, respectively, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such Notes or did not hold such offices at the date of such Notes. (c) At any time and from time to time after the execution and delivery of this Indenture, the Company may deliver Notes executed by the Company to the Trustee, together with a Company Order for the authentication and delivery of such Notes; and the Trustee in accordance with such Order shall authenticate and deliver such Notes as in this Indenture provided and not otherwise. (d) Each Note shall be dated the date of its authentication. (e) No Note shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose, unless there appears on such Note a certificate of authentication substantially in the form provided for herein executed by the Trustee by the manual signature of one of its authorized officers, and such certificate upon any Note shall be conclusive evidence, and the only evidence, that such Note has been duly authenticated and delivered hereunder. -23- 29 SECTION 3.4. TEMPORARY NOTES. (a) Pending the preparation of definitive Notes, the Company may execute, and upon Company Order the Trustee shall authenticate and deliver, temporary Notes which are printed, lithographed, typewritten, mimeographed or otherwise produced in any denomination, substantially of the tenor of the definitive Notes in lieu of which they are issued, with such appropriate insertions, omissions, substitutions and other variations as the officers executing such Notes may determine, as evidenced by their signing of such Notes. (b) If temporary Notes are issued, the Company will cause definitive Notes to be prepared without unreasonable delay. After the preparation of definitive Notes, the temporary Notes shall be exchangeable for definitive Notes upon surrender of the temporary Notes at the office or agency of the Company, without charge to the Holder. Upon surrender for cancellation of any one or more temporary Notes the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a like principal amount of definitive Notes of authorized denominations. Until so exchanged the temporary Notes shall in all respects be entitled to the same benefits under this Indenture as definitive Notes. SECTION 3.5. TRANSFER AND EXCHANGE. (a) The Company shall cause to be kept at the Corporate Trust Office of the Trustee a register (herein sometimes referred to as the "Note Register") in which, subject to such reasonable regulations as it may prescribe, the Company shall provide for the registration of and registration of transfers of Notes as herein provided. The Trustee is hereby appointed the Note Registrar and Paying Agent for the purpose of registering Notes and transfers of Notes as herein provided. (b) Upon surrender for registration of transfer of any Note at the office or agency of the Company, the Company shall execute, and the Trustee shall authenticate and deliver, in the name of the designated transferee or transferees, one or more of new Notes of a like aggregate principal amount, all as requested by the transferor. (c) At the option of the Holder, Notes may be exchanged for other Notes of any authorized denominations, of a like aggregate principal amount, upon surrender of the Notes to be exchanged at such office or agency, and upon payment, if the Company shall so require, of the charges hereinafter provided. Whenever any Notes are so surrendered for exchange, the Company shall execute, and the Trustee shall authenticate and deliver, the Notes which the Holder making the exchange is entitled to receive. (d) All Notes surrendered upon any exchange or transfer provided for in this Indenture shall be promptly canceled by the Trustee and thereafter disposed of as directed by a Company Order. (e) All Notes issued in exchange for or upon transfer of Notes shall be the valid obligations of the Company, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Notes surrendered for such exchange or transfer. (f) Every Note presented or surrendered for transfer or exchange shall (if so required by the Company or the Trustee) be duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to the Company and the Note Registrar duly executed, by the Holder thereof or his attorney duly authorized in writing. (g) The Company may require payment of a sum sufficient to cover any tax or other -24- 30 governmental charge that may be imposed in connection with any transfer or exchange of Notes, other than exchanges expressly provided in this Indenture to be made at the Company's own expense or without expense or without charge to Holders. SECTION 3.6. MUTILATED, DESTROYED, LOST OR STOLEN NOTES. (a) A mutilated Note may be surrendered and thereupon the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a new Note of like tenor and principal amount and bearing a number not contemporaneously outstanding. If there be delivered to the Company and to the Trustee: (i) evidence to their satisfaction of the destruction, loss or theft of any Note, and (ii) such security or indemnity as may be required by them to save each of them harmless, then, in the absence of notice to the Company or the Trustee that such Note has been acquired by a bona fide purchaser, the Company shall execute and upon its request the Trustee shall authenticate and deliver in lieu of any such destroyed, lost or stolen Note, a new Note of like tenor and principal amount and bearing a number not contemporaneously outstanding. (b) In case any such mutilated, destroyed, lost or stolen Note has become or is about to become due and payable, the Company in its discretion may, instead of issuing a new Note, pay such Note. (c) Upon the issuance of any new Note under this Section , the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee) connected therewith. (d) Every new Note issued pursuant to this Section in lieu of any destroyed, lost or stolen Note shall constitute an original additional contractual obligation of the Company, whether or not the destroyed, lost or stolen Note shall be at any time enforceable by anyone, and shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Notes duly issued hereunder. (e) The provisions of this Section are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Notes. SECTION 3.7. PERSONS DEEMED OWNERS. The Company, the Trustee and any agent of the Company may treat the Person in whose name any Note is registered as the owner of such Note for the purpose of receiving payment of principal of (and premium, if any) and interest on such Note and for all other purposes whatsoever whether or not such Note be overdue, and neither the Company, the Trustee nor any agent of the Company shall be affected by notice to the contrary. SECTION 3.8. CANCELLATION. All Notes surrendered for payment, registration of transfer or exchange shall, if surrendered to the Company or any agent of the Company, be delivered to the Trustee and, if not already cancelled, shall be promptly cancelled by it. The Company may at any time deliver to the Trustee for cancellation any Notes -25- 31 previously authenticated and delivered hereunder which the Company may have acquired in any manner whatsoever, and all Notes so delivered shall be promptly cancelled by the Trustee. No Notes shall be authenticated in lieu of or in exchange for any Notes cancelled as provided in this Section , except as expressly permitted by this Indenture. All cancelled Notes held by the Trustee shall be disposed of as directed by a Company Order. SECTION 3.9. AUTHENTICATION AND DELIVERY OF INITIAL NOTES. Forthwith upon the execution and delivery of this Indenture, or from time to time thereafter, the Initial Notes may be executed by the Company and delivered to the Trustee for authentication, and shall thereupon be authenticated and delivered by the Trustee upon Company Order, without any further action by the Company. SECTION 3.10. PAYING AGENT TO HOLD MONEY IN TRUST. The Company shall require each Paying Agent other than the Trustee to hold in trust for the benefit of Holders or the Trustee all money held by such Paying Agent for the payment of principal of, premium, if any, or interest on the Notes (whether such money shall have been paid to it by the Company or any Subsidiary Guarantor), and to notify the Trustee of any Default by the Company or any Subsidiary Guarantor in making any such payment. While any such Default continues, the Trustee may require the Paying Agent to pay all money held by it to the Trustee. Except as provided in the immediately preceding sentence, the Company at any time may require a Paying Agent to pay all money held by it to the Trustee and to account for any funds disbursed. Upon such payment over to the Trustee and accounting for any funds disbursed, such Paying Agent (if other than the Company or a Subsidiary) shall have no further liability for the money. If the Company or a Subsidiary acts as Paying Agent, it shall segregate and hold as separate trust funds for the benefit of the Holders all money held by it as Paying Agent. ARTICLE 4 DISCHARGE OF INDENTURE SECTION 4.1. TERMINATION OF COMPANY'S OBLIGATIONS. (a) This Indenture shall cease to be of further effect (subject to Section 4.5) when all outstanding Notes theretofore authenticated and issued hereunder have been delivered (other than any Notes which shall have been destroyed, lost or stolen and which shall have been replaced or paid as provided in Section 3.6) to the Trustee for cancellation and the Company or the Subsidiary Guarantors have paid all sums payable hereunder and under the Notes. (b) In addition to the provisions of Section 4.1(a), at the Company's option, either (i) the Company shall be deemed to have been discharged from its obligations with respect to the Notes and the provisions of this Indenture (subject to Section 4.5) on the 31st day after the applicable conditions set forth below have been satisfied or (ii) the Company shall cease to be under any obligation to comply with any term, provision or condition set forth in Sections 8.1, 10.2, 10.3 and 10.7 through 10.14 with respect to the Notes at any time after the applicable conditions set forth below have been satisfied: (1) the Company or any Subsidiary Guarantor shall have deposited or caused to be deposited irrevocably with the Trustee in trust, specifically pledged as security for, and dedicated -26- 32 solely to, the benefit of the Holders (i) U.S. Legal Tender or (ii) U.S. Government Obligations, which through the payment of interest and principal in respect thereof in accordance with their terms will provide (without any reinvestment of such interest or principal), not later than one day before the due date of any payment, U.S. Legal Tender or (iii) a combination of (i) and (ii), in an amount sufficient, in the opinion (with respect to (ii) and (iii)) of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee at or prior to the time of such deposit, to pay and discharge each installment of principal of, premium, if any, and interest on the outstanding Notes on the dates such installments are due; (2) the Company shall have delivered to the Trustee an Officers' Certificate certifying as to whether the Notes are then listed on a national securities exchange; (3) if the Notes are then listed on a national securities exchange, the Company shall have delivered to the Trustee an Officers' Certificate to the effect that the Company's exercise of its option under this Section would not cause the Notes to be delisted; (4) no Default or Event of Default shall have occurred and be continuing on the date of such deposit which is not cured by such deposit or shall occur as a result of such deposit and such deposit will not result in a breach or violation of, or constitute a default under, any other instrument to which the Company or a Subsidiary Guarantor or any Subsidiary is a party or by which any of them is bound, as evidenced to the Trustee in an Officers' Certificate delivered to the Trustee concurrently with such deposit; (5) The Company shall have delivered to the Trustee an Opinion of Counsel to the effect that Holders will not recognize income, gain or loss for federal income tax purposes as a result of the Company's exercise of its option under this Section and will be subject to federal income tax on the same amount and in the same manner and at the same time as would have been the case if such option had not been exercised, and, in the case of the Notes being discharged, accompanied by a ruling to that effect received from or published by the Internal Revenue Service (it being understood that (A) such Opinion of Counsel shall also state that such ruling is consistent with the conclusions reached in such Opinion of Counsel and (B) the Trustee shall be under no obligation to investigate the basis of correctness of such ruling); (6) the Company shall have delivered to the Trustee an Opinion of Counsel to the effect that the Company's exercise of its option under this Section will not result in any of the Company, the Trustee or the trust created by the Company's deposit of funds hereunder becoming or being deemed to be an "investment company" under the Investment Company Act of 1940, as amended; (7) the Company or any Subsidiary Guarantor shall have paid or duly provided for payment of all amounts then due to the Trustee pursuant to Section 6.6; and (8) the Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent provided for in this Section relating to the satisfaction and discharge of this Indenture have been complied with. -27- 33 SECTION 4.2. APPLICATION OF TRUST MONEY. The Trustee shall hold in trust money or U.S. Government Obligations deposited with it pursuant to Section 4.1. It shall apply the deposited money and the money from U.S. Government Obligations through the Paying Agent and in accordance with the provisions of the Notes and this Indenture to the payment of principal of, premium, if any, and interest on the Notes as and when due. SECTION 4.3. REPAYMENT TO COMPANY. The Trustee and the Paying Agent shall promptly pay to the Company, upon the written request of the Company, accompanied by a certificate of independent accountants, acceptable to the Trustee, indicating the amount of the excess, any money or securities held by them at any time in excess of amounts required to pay principal of or interest on the Notes and to pay the expenses of the Trustee as set forth in Section 6.6. The Trustee and the Paying Agent shall pay to the Company upon request any money held by them for the payment of principal or interest that remains unclaimed for two years after the payment was due on the Notes; provided, however, that the Trustee or Paying Agent before being required to make any such repayment, may at the expense of the Company cause to be published once in a newspaper of general circulation in the City of Phoenix or mail to each such Holder notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such publication or mailing any unclaimed balance of such money then remaining will be paid to the Company. After repayment to the Company, any Holder entitled to such money shall thereafter, as an unsecured general creditor, look (unless an applicable abandoned property law designates another Person) only to the Company for payment, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease. -28- 34 SECTION 4.4. REINSTATEMENT. If the Trustee or Paying Agent is unable to apply any money or U.S. Government Obligations in accordance with Section 4.1 by reason of any legal proceeding or by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, the Company's and the Subsidiary Guarantors' obligations under this Indenture and the Notes shall be revived and reinstated as though no deposit had occurred pursuant to Section 4.1 until such time as the Trustee or Paying Agent is permitted to apply all such money or U.S. Government Obligations in accordance with Section 4.1; provided, however, that if the Company or any Subsidiary Guarantor has made any payment of interest on or principal of any Notes because of the reinstatement of its obligations, the Company or such Subsidiary Guarantor shall be subrogated to the rights of the Holders of such Notes to receive such payment from the money or U.S. Government Obligations held by the Trustee or Paying Agent. SECTION 4.5. SURVIVAL OF CERTAIN OBLIGATIONS. Notwithstanding the satisfaction and discharge of this Indenture and of the Notes referred to in Section 4.1(a) and (b), the respective obligations of the Company, the Subsidiary Guarantors and the Trustee under Sections 4.2, 4.3, 4.4, 6.6, 10.1 and 10.4 shall survive until the Notes are no longer outstanding, and thereafter the obligations of the Company and the Trustee under Sections 4.2, 4.3, 4.4 and 6.6 shall survive. Nothing contained in this Article shall abrogate any of the obligations or duties of the Trustee under this Indenture. ARTICLE 5 REMEDIES SECTION 5.1. EVENTS OF DEFAULT. An "Event of Default" occurs upon: (1) default by the Company or any Subsidiary Guarantor in the payment of principal of, or premium, if any, on the Notes when due and payable at Maturity, or upon repurchase pursuant to Section 10.9 or 10.14 (whether or not such payment shall be prohibited by the provisions of Articles 11 or 13); (2) default by the Company or any Subsidiary Guarantor in the payment of any installment of interest on the Notes when due and payable and continuance of such default for 30 days (whether or not such payment shall be prohibited by the provisions of Articles 11 or 13); (3) default on any other Indebtedness of the Company or any Subsidiary Guarantor if such default results in the acceleration of the maturity of any such Indebtedness having a principal amount of $10,000,000 or more individually or, taken together with the principal amount of any other such Indebtedness in default or the maturity of which has been so accelerated, in the aggregate; (4) default in the performance, or breach, of any other covenant or agreement of the Company or any Subsidiary Guarantor in this Indenture, the Notes or the Guarantees and failure to remedy such default within a period of 60 days after written notice thereof from the Trustee or Holders of 25% in principal amount of the then outstanding Notes; (5) the entry by a court of one or more judgments or orders against the Company or any -29- 35 Subsidiary Guarantor in an aggregate amount in excess of $10,000,000 (net of applicable insurance coverage by a third party insurer which is acknowledged in writing by such insurer) that has not been vacated, discharged, satisfied or stayed pending appeal within 60 days from the entry thereof; (6) a Guarantee of a Subsidiary Guarantor shall cease to be in full force or effect (other than a release of a Guarantee in accordance with Section 12.4) or any Subsidiary Guarantor shall deny or disaffirm its obligation with respect thereto; (7) the Company or any Subsidiary Guarantor pursuant to or within the meaning of any bankruptcy law: (A) commences a voluntary case or proceeding, (B) consents to the entry of an order for relief against it in an involuntary case or proceeding, (C) consents to the appointment of a custodian of it or for all or substantially all of its property, (D) makes a general assignment for the benefit of its creditors, or (E) admits in writing that it generally is unable to pay its debts as the same become due; or (8) a court of competent jurisdiction enters an order or decree under any bankruptcy law that: (A) is for relief (with respect to the petition commencing such case) against the Company or any Subsidiary Guarantor in an involuntary case or proceeding, (B) appoints a custodian of the Company or any Subsidiary Guarantor for all or substantially all of its respective property, or (C) orders the liquidation of the Company or any Subsidiary Guarantor, and the order or decree remains unstayed and in effect for 90 days. The term "bankruptcy law" means Title 11, U.S. Code or any similar federal or state law for the relief of debtors. The term "custodian" means any receiver, trustee, assignee, liquidator or similar official under any bankruptcy law. SECTION 5.2. INTEREST RATE UPON DEFAULT. If an Event of Default on the Notes shall occur, a default rate of interest in the amount of 15% per annum shall accrue on the indebtedness evidenced by the Notes from such date for such period of time until the default is cured. SECTION 5.3. ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT. (a) If an Event of Default occurs and is continuing, subject to applicable cure periods, then and in every such case the Trustee or the Holders of not less than 25% in principal amount of the Notes Outstanding may declare the unpaid principal, premium, if any, and accrued and unpaid interest of all the Notes to be due and payable immediately, by a notice in writing to the Company (and to the Trustee if given -30- 36 by Holders), and upon any such declaration such principal, premium, if any, and accrued and unpaid interest shall become immediately due and payable, notwithstanding anything contained in this Indenture or the Notes or Guarantees to the contrary. If an Event of Default specified in Section 5.1(7) or 5.1(8) above occurs, all unpaid principal of, and accrued interest on, the Notes then outstanding will become due and payable, without any declaration or other act on the part of the Trustee or any Holder. (b) At any time after such a declaration of acceleration has been made and before a judgment or decree for payment of the money due has been obtained by the Trustee as hereinafter in this Article provided, the Holders of a majority in principal amount of the Notes Outstanding, by written notice to the Company and the Trustee, may rescind and annul such declaration and its consequences if (1) the Company has paid or deposited with the Trustee a sum sufficient to pay (A) all overdue installments of interest on all Notes, (B) the principal of (and premium, if any, on) any Notes which have become due otherwise than by such declaration of acceleration and interest thereon at the rate borne by the Notes, (C) to the extent that payment of such interest is lawful, interest upon overdue installments of interest at the rate borne by the Notes, and (D) all sums paid or advanced by the Trustee hereunder and the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel; and (2) all Events of Default, other than the nonpayment of the principal of Notes which have become due solely by such acceleration, have been cured or waived as provided in Section 5.14. No such rescission shall affect any subsequent default or impair any right consequent thereon. SECTION 5.4. COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY TRUSTEE. (a) The Company covenants that if (1) default is made in the payment of any installment of interest on any Note when such interest becomes due and payable and such default continues for a period of 30 days, or (2) default is made on the payment of the principal of (or premium, if any, on) any Note at the Maturity thereof, or upon repurchase pursuant to Section 10.9 or 10.14 (whether or not such payment shall be prohibited by the provisions of Articles 11 or 13), the Company will, upon demand of the Trustee, pay to it, for the benefit of the Holders of such Notes, the whole amount then due and payable on such Notes for principal (and premium, if any) and interest, with interest upon the overdue principal (and premium, if any) and, to the extent that payment of such interest shall be legally enforceable, upon overdue installments of interest, at the rate borne by the Notes; and, in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. (b) If the Company fails to pay such amounts forthwith upon such demand, the Trustee, in its -31- 37 own name and as trustee of an express trust, may institute a judicial proceeding for the collection of the sums so due and unpaid, and may prosecute such proceeding to judgment or final decree, and may enforce the same against the Company, the Subsidiary Guarantors, or any other obligor upon the Notes and collect the moneys adjudged or decreed to be payable in the manner provided by law out of the property of the Company, the Subsidiary Guarantors, or any other obligor upon the Notes, wherever situated. (c) If an Event of Default occurs and is continuing, the Trustee may in its discretion proceed to protect and enforce its rights and the rights of the Holders by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any such rights, whether for the specific enforcement of any covenant or agreement in this Indenture or in aid of the exercise of any power granted herein, or to enforce any other proper remedy. SECTION 5.5. TRUSTEE MAY FILE PROOFS OF CLAIM. (a) In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to the Company, the Subsidiary Guarantors, or any other obligor upon the Notes or the property of the Company, the Subsidiary Guarantors, or of such other obligor or their creditors, the Trustee (irrespective of whether the principal of the Notes shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Trustee shall have made any demand on the Company for the payment of overdue principal or interest) shall be entitled and empowered, by intervention in such proceeding or otherwise, (i) to file and prove a claim for the amount of principal (and premium, if any) and interest owing and unpaid in respect of the Notes and to file such other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and of the Holders allowed in such judicial proceeding, and (ii) to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same; and any receiver, assignee, trustee, liquidator, sequestrator (or other similar official) in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee, and in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 6.6. (b) The Trustee shall not be required to join the Holders as necessary parties to any such judicial proceeding, provided, however, that nothing herein contained shall be deemed to authorize the Trustee to authorize and consent to or accept, or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Notes or the rights of any Holder thereof, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding. -32- 38 SECTION 5.6. TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION OF NOTES. All rights of action and claims under this Indenture, the Notes or the Guarantees may be prosecuted and enforced by the Trustee without the possession of any of the Notes or the Guarantees or the production thereof in any proceeding relating thereto, and any such proceeding instituted by the Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment shall, after provision for the payment of the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, be for the ratable benefit of the Holders of the Notes in respect of which such judgment has been recovered. SECTION 5.7. APPLICATION OF MONEY COLLECTED. Any money collected by the Trustee pursuant to this Article shall be applied in the following order, at the date or dates fixed by the Trustee and, in case of the distribution of such money on account of principal (or premium, if any) or interest, upon presentation of the Notes and the notation thereon of the payment if only partially paid and upon surrender thereof if fully paid; FIRST: To the payment of all amounts due the Trustee under Section 6.6; SECOND: To the payment of the amounts then due and unpaid upon the Notes for principal (and premium, if any) and interest, in respect of which or for the benefit of which such money has been collected, ratably, without preference or priority of any kind, according to the amounts due and payable on such Notes, for principal (and premium, if any) and interest; and THIRD: To the Company. SECTION 5.8. LIMITATION ON SUITS. Except as provided in Section 5.9, no Holder of any Note shall have any right to institute any proceeding, judicial or otherwise, with respect to this Indenture, or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless (1) such Holder has previously given written notice to the Trustee of a continuing Event of Default; and (2) the Holders of not less than 25% of the principal amount of the Outstanding Notes shall have made written request to the Trustee to institute proceedings in respect of such Event of Default in its own name as Trustee hereunder; and (3) such Holder or Holders have offered to the Trustee reasonable indemnity against the costs, expenses and liabilities to be incurred in compliance with such request; and (4) the Trustee for 60 days after its receipt of such notice, request and offer of indemnity has failed to institute any such proceeding; and (5) no direction inconsistent with such written request has been given to the Trustee during such 60-day period by the Holders of a majority in principal amount of the Outstanding Notes; it being understood and intended that no one or more Holders of Notes shall have any right in any manner whatever by virtue of, or by availing of, any provision of this Indenture to affect, disturb or prejudice the -33- 39 rights of any Holders of Notes, or to obtain or to seek to obtain priority or preference over any other Holders or to enforce any right under this Indenture, except in the manner herein provided and for the equal and ratable benefit of all the Holders of Notes. SECTION 5.9. UNCONDITIONAL RIGHT OF HOLDERS TO RECEIVE PRINCIPAL, PREMIUM AND INTEREST. Notwithstanding any other provision in this Indenture, the Holder of any Note shall have the right which is absolute and unconditional to receive payment of the principal of (and premium, if any) and interest on such Note on the Stated Maturity expressed in such Note and to institute suit for the enforcement of any such payment, and such right shall not be impaired without the consent of such Holder. SECTION 5.10. RESTORATION OF RIGHTS AND REMEDIES. If the Trustee or any Holder has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee or to such Holder, then and in every such case the Company, the Trustee and the Holders shall, subject to any determination in such proceeding, be restored severally and respectively to their former positions hereunder, and thereafter all rights and remedies of the Trustee and the Holders shall continue as though no such proceeding had been instituted. SECTION 5.11. RIGHTS AND REMEDIES CUMULATIVE. No right or remedy herein conferred upon or reserved to the Trustee or to the Holders is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder or otherwise shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. -34- 40 SECTION 5.12. DELAY OR OMISSION NOT WAIVER. No delay or omission of the Trustee or of any Holder to exercise any right or remedy occurring upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein. Every right and remedy given by this Article or by law to the Trustee or to Holders may be exercised from time to time and as often as may be deemed expedient by the Trustee or by the Holders, as the case may be. SECTION 5.13. CONTROL BY HOLDERS. The Holders of a majority in principal amount of the Outstanding Notes shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee, provided that (1) such direction shall not be in conflict with any rule of law or with this Indenture; and (2) the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction. SECTION 5.14. WAIVER OF PAST DEFAULTS. The Holders of not less than a majority in principal amount of the Outstanding Notes may on behalf of the Holders of all the Notes waive any past default hereunder and its consequences, except a default (1) in the payment of the principal of (or premium, if any) or interest on any Note, or (2) in respect of a covenant or provision hereof which under Article 9 cannot be modified or amended without the consent of the Holder of each Outstanding Note affected. Upon any such waiver, such default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other default or impair any right consequent thereon. SECTION 5.15. UNDERTAKING FOR COSTS. All parties to this Indenture agree, and each Holder of any Note by his acceptance thereof shall be deemed to have agreed, that any court may in its discretion require, in any suit for the enforcement of any right or remedy under this Indenture, or in any suit against the Trustee for any action taken or omitted by it as Trustee, the filing by any party litigant in such suit of an undertaking to pay the costs of such suit, and that such court may in its discretion assess reasonable costs, including reasonable attorneys' fees, against any party litigant in such suit, having due regard to the merits and good faith of the claims or defenses made by such party litigant; but the provisions of this Section shall not apply to any suit instituted by the Trustee or any Holder for the enforcement of the payment of the principal of (or premium, if any) or interest on any Note on or after the Stated Maturity expressed in such Note, or any suit by a Holder pursuant to Section 5.9 or any suit by Holders of more than 10% in principal amount of the then Outstanding Notes. SECTION 5.16. WAIVER OF STAY OR EXTENSION LAWS. The Company and the Subsidiary Guarantors each covenant (to the extent that it or they may -35- 41 lawfully do so) that it or they will not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law wherever enacted, now or at any time hereafter in force, which may affect the covenants or the performance of this Indenture; and the Company and the Subsidiary Guarantors each (to the extent that it or they may lawfully do so) hereby expressly waive all benefit or advantage of any such law, and covenants that it or they will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. ARTICLE 6 THE TRUSTEE SECTION 6.1. DUTIES OF TRUSTEE. (a) If an Event of Default has occurred and is continuing, the Trustee shall exercise such rights and powers vested in it by this Indenture and use the same degree of care and skill in such exercise as a prudent person would exercise or use under the circumstances in the conduct of such person's own affairs. (b) Except during the continuance of an Event of Default: (1) The Trustee need perform only those duties that are specifically set forth (or incorporated by reference) in this Indenture and no others. (2) In the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture. However, the Trustee shall examine such certificates and opinions to determine whether or not they conform to the requirements of this Indenture. (c) The Trustee may not be relieved from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: (1) This paragraph (c) does not limit the effect of paragraph (b) of this Section. (2) The Trustee shall not be liable for any error of judgment made in good faith by an officer of the Trustee, unless it is proved that the Trustee was negligent in ascertaining the pertinent facts. (3) The Trustee shall not be liable with respect to action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 5.13, and the Trustee shall be entitled from time to time to request such a direction. (d) Every provision of this Indenture that in any way relates to the Trustee is subject to this Section. (e) The Trustee shall be under no obligation and may refuse to perform any duty or exercise any right or power unless it receives indemnity satisfactory to it against any loss, liability or expense. -36- 42 (f) The Trustee shall not be liable for interest on any money received by it except as the Trustee may agree in writing with the Company. Money held in trust by the Trustee need not be segregated from other funds except to the extent required by law. SECTION 6.2. RIGHTS OF TRUSTEE. Subject to Section 6.1: (a) The Trustee may rely on and shall be protected in acting or refraining from acting upon any document believed by it to be genuine and to have been signed or presented by the proper person. The Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture or other paper or document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it determines to be necessary, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of the Company, personally or by agent or attorney, to the extent reasonably required by such inquiry or investigation. (b) Before the Trustee acts or refrains from acting, it may require an Officers' Certificate or an Opinion of Counsel. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on such certificate or opinion if the certificate or opinion conforms to the requirements of this Indenture. (c) The Trustee may act through agents and shall not be responsible for the misconduct or negligence of any agent appointed with due care. (d) The Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer of the Trustee, unless it shall be proved that the Trustee was negligent in ascertaining the pertinent facts. (e) The Trustee shall not be charged with knowledge of an Event of Default unless a Responsible Officer of the Trustee obtains written notice of such Event of Default. (f) The recitals contained herein and in the Notes, except the Trustee's certificates of authentication, shall be taken as the statements of the Company and the Subsidiary Guarantors, and the Trustee assumes no responsibility for the correctness of the same. The Trustee makes no representation as to the validity or sufficiency of this Indenture, the Guarantees or the Notes. The Trustee shall not be accountable for the use or application by the Company of any of the Notes or the proceeds thereof. SECTION 6.3. INDIVIDUAL RIGHTS OF TRUSTEE. The Trustee in its individual or any other capacity may become the owner or pledgee of Notes and may otherwise deal with the Company or the Subsidiary Guarantors with the same rights it would have if it were not Trustee. Any Note Registrar or Paying Agent may do the same with like rights. However, the Trustee must comply with Section 6.9 and 6.10. -37- 43 SECTION 6.4. TRUSTEE'S DISCLAIMER. The Trustee makes no representation as to the validity or adequacy of this Indenture or the Notes, it shall not be accountable for the Company's use of the proceeds from the Notes, and it shall not be responsible for any statement in the Notes other than its certificate of authentication. SECTION 6.5. NOTICE OF DEFAULTS. If a Default occurs and is continuing and if it is known to the Trustee, the Trustee shall mail to each Holder pursuant to Section 1.6 a notice of the Default within 90 days after it occurs. Except in the case of a Default in any payment on any Note, the Trustee may withhold the notice if and so long as the board of directors, executive committee or a trust committee of its directors and/or officers in good faith determines that withholding the notice is in the interests of Holders. SECTION 6.6. COMPENSATION AND INDEMNITY. (a) The Company and the Subsidiary Guarantors jointly and severally agree to pay the Trustee from time to time reasonable compensation for its services (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust). The Company and the Subsidiary Guarantors jointly and severally agree to reimburse the Trustee upon request for all reasonable out-of-pocket expenses, disbursements and advances incurred by it. Such expenses may include the reasonable compensation and expenses of the Trustee's agents and counsel. (b) The Trustee shall not be under any obligation to institute any suit, or take any remedial action under this Indenture, or to enter any appearance or in any way defend any suit in which it may be a defendant, or to take any steps in the execution of the trusts created hereby or thereby or in the enforcement of any rights and powers under this Indenture, unless it shall be indemnified to its satisfaction against any and all reasonable expenses, disbursements and advances incurred or made by the Trustee in accordance with any provisions of this Indenture, including compensation for services, costs, expenses, outlays, counsel fees and other disbursements, and against all liability not due to its negligence or willful misconduct. The Company and the Subsidiary Guarantors jointly and severally agree to indemnify the Trustee against any loss or liability incurred by it in connection with the acceptance and administration of the trust and its duties hereunder as Trustee, Note Registrar and/or Paying Agent, including the costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder. The Trustee shall notify the Company and the Subsidiary Guarantors of any claim for which it may seek indemnity; however, unless the position of the Company is prejudiced by such failure, the failure of the Trustee to promptly notify the Company shall not limit its right to indemnification. The Company shall defend each such claim and the Trustee shall cooperate in the defense. The Trustee may retain separate counsel and the Company shall reimburse the Trustee for the reasonable fees and expenses of such counsel. The Company need not pay for any settlement made without its consent. (c) Neither the Company nor the Subsidiary Guarantors shall be obligated to reimburse any expense or indemnify against any loss or liability incurred by the Trustee through the Trustee's negligence or willful misconduct. (d) To secure the payment obligations of the Company and the Subsidiary Guarantors in this Section , the Trustee shall have a claim prior to that of the Holders of the Notes on all money or property held or collected by the Trustee, except that held in trust to pay principal of and interest on particular Notes. (e) When the Trustee incurs expenses or renders services after the occurrence of any Event of -38- 44 Default specified in Sections 5.1(7) or (8), the expenses and the compensation for the services are intended to constitute expenses of administration under any Bankruptcy Law. SECTION 6.7. REPLACEMENT OF TRUSTEE. (a) The Trustee may resign by so notifying the Company and the Subsidiary Guarantors. The Holders of a majority in principal amount of the Notes may remove the Trustee by so notifying the Trustee, in writing. The Company may remove the Trustee if: (1) the Trustee fails to comply with Section 6.9; (2) the Trustee is adjudged a bankrupt or an insolvent; (3) a receiver or other public officer takes charge of the Trustee or its property; or (4) the Trustee becomes incapable of acting as Trustee hereunder. (b) If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason, the Company shall promptly appoint a successor Trustee. Within one year after the successor Trustee takes office, the Holders of a majority in principal amount of the Notes may appoint a successor Trustee to replace the successor Trustee appointed by the Company. (c) A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company and the Subsidiary Guarantors. Immediately after that, the retiring Trustee shall transfer all property held by it as Trustee to the successor Trustee, subject to the lien provided for in Section 6.6, the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture. A successor Trustee shall mail notice of its succession to each Holder. (d) If a successor Trustee does not take office within 30 days after the retiring Trustee resigns or is removed, the retiring Trustee, the Company or the Holders of majority in principal amount of the Notes may petition any court of competent jurisdiction for the appointment of a successor Trustee. (e) If the Trustee fails to comply with Section 6.9, any Holder may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. Any successor Trustee shall comply with TIA Section 310(a)(1), (2) and (5) and the requirements of Section 6.9 hereof. SECTION 6.8. SUCCESSOR TRUSTEE BY MERGER, ETC. If the Trustee consolidates, merges or converts into, or transfers all or substantially all of its corporate trust assets to, another corporation, the successor corporation without any further act shall be the successor Trustee; provided such corporation or association shall be otherwise eligible and qualified under this Article. -39- 45 SECTION 6.9. ELIGIBILITY; DISQUALIFICATION. This Indenture shall always have a Trustee who satisfies the requirements of TIA Section 310(a)(1). The Trustee shall always have a combined capital and surplus of at least $100,000,000 as set forth in its most recent published annual report of condition. The Trustee shall also comply with TIA Section 310(b). SECTION 6.10. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY. The Trustee shall comply with TIA Section 311(a), excluding any creDitor relationship listed in TIA Section 311(b). A Trustee who has resigned or been removed shall be subject to TIA Section 311(a) to the extent indicated therein. ARTICLE 7 HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY SECTION 7.1. COMPANY TO FURNISH TRUSTEE NAMES AND ADDRESSES OF HOLDERS. The Company will furnish or cause to be furnished to the Trustee semi-annually, not less than 45 days nor more than 60 days after each Interest Payment Date, and at such other times as the Trustee may request in writing, within 30 days after receipt by the Company of any such request, a list in such form as the Trustee may reasonably require containing all the information in the possession or control of the Company, or any of its Paying Agents other than the Trustee, as to the name and addresses of the Holders, obtained since the date of which the next previous list, if any, was furnished; provided, however, that no such list need be furnished so long as the Trustee is the Note Registrar. Any such list may be dated as of a date not more than 15 days prior to the time such information is furnished or caused to be furnished and need not include information received after such date. SECTION 7.2. PRESERVATION OF INFORMATION: COMMUNICATIONS TO HOLDERS (a) The Trustee shall preserve, in as current a form as is reasonably practicable, all information as to the names and addresses of Holders (A) contained in the most recent list furnished to it as provided in Section 7.1, and (B) received by it in the capacity of Paying Agent or Note Registrar (if so acting) hereunder. The Trustee may (i) destroy any list furnished to it as provided in Section 7.1 upon receipt of a new list so furnished, (ii) destroy any information received by it as Paying Agent or Note Registrar (if so acting) hereunder upon delivering to itself as Trustee, not earlier than 45 days after an Interest Payment Date of the Notes, a list containing the names and addresses of the Holders obtained from such information since the delivery of the next previous list, if any, and (iii) destroy any list delivered to itself as Trustee which was compiled from information received by it as Paying Agent or Note Registrar (if so acting) hereunder upon the receipt of a new list so delivered. (b) If five or more Holders owning in the aggregate $1,000,000 or more in principal amount of Notes (hereinafter referred to as "applicants") apply in writing to the Trustee, and furnish to the Trustee reasonable proof that each such applicant has owned a Note for a period of at least six months preceding the date of such application, and such application states that the applicants desire to communicate with other Holders with respect to their rights under this Indenture or under the Notes and is accompanied by a copy of the form of proxy or other communication which such applicants propose to transmit, then the Trustee shall, within five Business Days after the receipt of such application, at its election, either -40- 46 (i) afford such applicants access to the information preserved at the time by the Trustee in accordance with Section 7.2(a), or (ii) inform such applicants as to the approximate number of Holders whose names and addresses appear in the information preserved at the time by the Trustee in accordance with Section 7.2(a), and as to the approximate cost of mailing to such Holders the form of proxy or other communication, if any, specified in such application. (c) If the Trustee shall elect not to afford such applicants access to such information, the Trustee shall, upon the written request of such applicants, mail to each Holder whose name and address appear in the information preserved at the time by the Trustee in accordance with Section 7.2(a), a copy of the form of proxy or other communication which is specified in such request, with reasonable promptness after a tender to the Trustee of the material to be mailed and of payment, or provision for the payment, of the reasonable expenses of mailing, unless within five days after such tender, the Trustee shall mail to such applicants and file with the Commission, together with a copy of the material to be mailed, a written statement to the effect that, in the opinion of the Trustee, such mailing would be contrary to the best interests of the Holders or would be in violation of applicable law. Such written statement shall specify the basis of such opinion. If the Commission, after opportunity for a hearing upon the objections specified in the written statement so filed, shall enter an order refusing to sustain any of such objections or if, after the entry of an order sustaining one or more of such objections, the Commission shall find, after notice and opportunity for hearing, that all the objections so sustained have been met and shall enter an order so declaring, the Trustee shall mail copies of such material to all such Holders with reasonable promptness after the entry of such order and the renewal of such tender; otherwise the Trustee shall be relived of any obligation or duty to such applicants respecting their application. (d) Each and every Holder of the Notes, by receiving and holding the same, agrees with the Company and the Trustee that neither the Company nor the Trustee nor any Paying Agent nor any Note Registrar shall be held accountable by reason of the disclosure of any such information as to the names and addresses of the Holders in accordance with Section 7.2(b). SECTION 7.3. REPORTS BY TRUSTEE. Within 60 days after each _____________, beginning with ________, the Trustee shall mail to each Holder a brief report dated as of such_________________ that complies with TIA Section 313(a), but only if such report is required in any year under TIA Section 313(a). The Trustee also shall comply with TIA Section 313(b), Section 313(c) and Section 313(d). A copy of each report at the time of its mailing to Holders shall be filed with the SEC and each stock exchange on which the Notes are listed. The Company shall notify the Trustee in writing if the Notes become listed on any national securities exchange or of any delisting thereof. SECTION 7.4. REPORTS BY COMPANY. The Company will (1) file with the Trustee, within 15 days after the Company is required to file the same with the Commission, copies of the annual reports and of the information, documents, and other reports (or copies of such portions of any of the foregoing as the Commission may from time to time by rules and regulations prescribe) which the Company may be required to file with the Commission pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934 (herein the "Exchange Act"); or, if the Company is not required to file information, documents or reports pursuant to either of said Sections, then it will file -41- 47 with the Trustee and the Commission in accordance with rules and regulations prescribed from time to time by the Commission, such of the supplementary and periodic information, documents and reports which may be required pursuant to Section 13 of the Securities Exchange Act of 1934 in respect of a security listed and registered on a National Securities Exchange as may be prescribed from time to time in such rules and regulations; (2) file with the Trustee and the Commission in accordance with rules and regulations prescribed from time to time by the Commission, such additional information, documents and reports with respect to compliance by the Company with the conditions and covenants of this Indenture as may be required from time to time by such rules and regulations; and (3) transmit to the Holders, within 30 days after the filing thereof with the Trustee, in the manner and to the extent provided in Section 7.3(c), such summaries of any information, documents and reports required to be filed by the Company pursuant to paragraphs (1) and (2) of this Section as may be required by rules and regulations prescribed from time to time by the Commission. ARTICLE 8 CONSOLIDATION, MERGER, CONVEYANCE OR TRANSFER SECTION 8.1. COMPANY MAY CONSOLIDATE, ETC., ONLY ON CERTAIN TERMS. The Company shall not consolidate with or merge into any other corporation or convey or transfer or lease its properties and assets substantially as an entirety to any Person, unless: (1) the corporation formed by such consolidation or into which the Company is merged or the Person which acquires by conveyance, transfer or lease the properties or assets of the Company substantially as an entirety shall be a corporation organized and existing under the laws of the United States of America or any State or the District of Columbia, and shall, by an indenture supplemental hereto, executed and delivered to the Trustee, in form satisfactory to the Trustee, expressly assume the due and punctual payment of the principal of (and premium, if any) and interest on all Notes and the performance of every covenant of this Indenture on the part of the Company to be performed or observed; (2) immediately before and after giving effect to such transaction, no Event of Default, and no event which, after notice or lapse of time, or both, would become an Event of Default, shall have happened and be continuing; and (3) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel each stating that such consolidation, merger, conveyance or transfer and such supplemental indenture comply with this Article and such supplemental indenture is binding and enforceable against the surviving or transferee entity and that all conditions precedent herein provided for relating to such transaction have been complied with. -42- 48 SECTION 8.2. SUCCESSOR CORPORATION SUBSTITUTED. Upon any consolidation or merger, or any conveyance, transfer or lease of the properties and assets of the Company substantially as an entirety in accordance with Section 8.1, the successor corporation formed by such consolidation or into which the Company is merged or into which such conveyance, transfer or lease is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture with the same effect as if such successor corporation had been named as the Company herein and thereafter (except in the case of a lease) the predecessor corporation will be relieved of all further obligations and covenants under this Indenture and the Notes. ARTICLE 9 SUPPLEMENTAL INDENTURES SECTION 9.1. SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF HOLDERS. Without the consent of any Holders, the Company, when authorized by a Board Resolution, the Trustee, and the Subsidiary Guarantors, any time and from time to time, may enter into one or more indentures supplemental hereto, in form satisfactory to the Trustee, for any of the following purposes: (1) to evidence the succession of another corporation to the Company, and the assumption by any such successor of the covenants of the Company herein and in the Notes contained; or (2) to add to the covenants of the Company, for the benefit of the Holders, or to surrender any right or power herein conferred upon the Company; or (3) to cure any ambiguity, to correct or supplement any provision herein which may be inconsistent with any other provision herein, or to make any other provisions with respect to matters or questions arising under this Indenture which shall not be inconsistent with the provisions of this Indenture, provided such action shall not adversely affect the interest of the Holders; or (4) to add to the conditions, limitations, and restrictions on the authorized amount, terms, or purposes of issue, authentication, and delivery of Notes, as herein set forth, additional conditions, limitations, and restrictions thereafter to be observed; or (5) to reflect the addition or release of any Subsidiary Guarantor, as provided for by this Indenture; or (6) to modify, eliminate, or add to the provisions of this Indenture to such extent as shall be necessary to effect the qualifications of this Indenture under the TIA, or under any similar federal statute hereafter enacted, and to add to this Indenture such other provisions as may be expressly permitted by the TIA, excluding, however, the provisions referred to in Section 316(a)(2) of the Trust Indenture Act or any corresponding provision in any similar federal statute hereafter enacted. -43- 49 SECTION 9.2. SUPPLEMENTAL INDENTURES WITH CONSENT OF HOLDERS. With the consent of Holders of not less than a majority in principal amount of the Outstanding Notes by Act of said Holders delivered to the Company and the Trustee, the Company, when authorized by a Board Resolution, the Trustee and the Subsidiary Guarantors may enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of modifying in any manner the rights of the Holders under this Indenture; provided, however, that no such supplemental indenture shall, without the consent of the Holder of each Outstanding Note affected thereby; (1) change the Stated Maturity of the principal of, or any installment of interest on, any Note, or reduce the principal amount thereof or the interest thereon, or change any place of payment where, or the coin or currency in which, any Note or the interest thereon is payable, or impair the right to institute suit for the enforcement of any such payment on or after the Stated Maturity thereof; (2) reduce the percentage in principal amount of the Outstanding Notes, the consent of whose Holders is required for any such supplemental Indenture, or the consent of whose Holders is required for any waiver (of compliance with certain provisions of this Indenture or certain defaults hereunder or their consequences) provided for in this Indenture; (3) modify any of the provisions of this Section or Section 5.14 except to increase any such percentage or to provide that certain other provisions of this Indenture cannot be modified or waived without the consent of the Holder of each Note affected thereby; (4) subordinate the Indebtedness evidenced by the Notes or any Indebtedness of the Company other than Senior Indebtedness, as provided in Article 11; or (5) reduce the redemption price, including premium, if any, payable upon the repurchase of any Note pursuant to Section 10.9 or 10.14 or change the time at which any Note may or shall be repurchased thereunder. SECTION 9.3. EXECUTION OF SUPPLEMENTAL INDENTURES. In executing, or accepting the additional trusts created by, any supplemental indenture permitted by this Article or the modifications thereby of the trusts created by this Indenture the Trustee shall be entitled to receive, and (subject to Section 6.1) shall be fully protected in relying upon, an Opinion of Counsel stating that the execution of such supplemental indenture is authorized or permitted by this Indenture. The Trustee may, but shall not be obligated to, enter into any such supplemental indenture which affects the Trustee's own rights, duties or immunities under this Indenture or otherwise. SECTION 9.4. EFFECT OF SUPPLEMENTAL INDENTURES. Upon the execution of any supplemental indenture under this Article, this Indenture shall be modified in accordance therewith as of the date of modification by the Company and the Holders, if applicable, and such supplemental indenture shall form a part of this Indenture for all purposes; and every Holder of Notes theretofore or thereafter authenticated and delivered hereunder shall be bound thereby. -44- 50 SECTION 9.5. CONFORMITY WITH TRUST INDENTURE ACT. Every supplemental indenture executed pursuant to this Article shall conform to the requirements of the TIA as then in effect. SECTION 9.6. REFERENCE IN NOTES TO SUPPLEMENTAL INDENTURES. Notes authenticated and delivered after the execution of any supplemental indenture pursuant to this Article may, and shall if required by the Trustee, bear a notation in form approved by the Trustee as to any matter provided for in such supplemental indenture. If the Company shall so determine, new Notes so modified as to conform, in the opinion of the Trustee and the Board of Directors, to any such supplemental indenture may be prepared and executed by the Company and authenticated and delivered by the Trustee in exchange for Outstanding Notes. ARTICLE 10 COVENANTS SECTION 10.1. PAYMENT OF NOTES. (a) The Company shall pay the principal of, premium, if any, and interest on, the Notes on the dates and in the manner provided in the Notes and this Indenture. Principal, premium and interest shall be considered paid on the date due if the Trustee or Paying Agent holds on that date money deposited by the Company designated for and sufficient to pay all principal, premium and interest then due. (b) The Company shall pay interest (including post-petition interest in any proceeding under any bankruptcy law) on overdue principal, and premium, if any, at the rate borne by the Notes to the extent lawful; and it shall pay interest (including post-petition interest in any proceeding under any bankruptcy law) on overdue installments of interest (without regard to any applicable grace period) at the same rate to the extent lawful. SECTION 10.2. COMMISSION REPORTS. (a) The Company shall file with the Trustee within 15 days after it files the same with the Commission, copies of the annual reports and the information, documents and other reports (or copies of any such portions of any of the foregoing as the Commission may by rules and regulations prescribe) that the Company is required to file with the Commission pursuant to Section 13 or 15(d) of the Exchange Act. If the Company is not subject to the requirements of such Section 13 or 15(d), the Company shall file with the Trustee within 15 days after it would have been required to file the same with the Commission, financial statements, including any notes thereto (and with respect to annual reports, an auditors' report by a firm of established national reputation), and a "Management's Discussion and Analysis of Financial Condition and Results of Operations," both comparable to that which the Company would have been required to include in such annual reports, information, documents or other reports if the Company had been subject to the requirements of such Section 13 or 15(d). The Company and each Subsidiary Guarantor shall also comply with the provisions of TIA Section 314(a). (b) If the Company is required to furnish annual or quarterly reports to its stockholders pursuant to the Exchange Act, the Company shall cause any annual report furnished to its stockholders -45- 51 generally and any quarterly or other financial reports furnished by it to its stockholders generally to be filed with the Trustee and mailed to the Holders at their addresses appearing in the register of Notes maintained by the Note Registrar at the address set forth herein. If the Company is not required to furnish annual or quarterly reports to its stockholders pursuant to the Exchange Act, the Company shall cause its financial statements referred to in Section 10.3(b), including any notes thereto (and with respect to annual reports, an auditors' report by a firm of established national reputation), and a "Management's Discussion and Analysis of Financial Condition and Results of Operations" to be so mailed to the Holders at their addresses set forth herein within 90 days after the end of each of the Company's fiscal years and within 60 days after the end of each of the Company's first three fiscal quarters. (c) The Company shall provide the Trustee with a sufficient number of copies of all reports and other documents and information that the Company or the Trustee may be required to deliver to Holders under this Section. -46- 52 SECTION 10.3. COMPLIANCE CERTIFICATES. (a) The Company shall deliver to the Trustee, within 90 days after the end of each fiscal year of the Company, an Officers' Certificate stating that a review of the activities of the Company and the Subsidiaries during the preceding fiscal year has been made under the supervision of the signing Officers with a view to determining whether the Company has kept, observed, performed and fulfilled its obligations under this Indenture, and further stating, as to each such Officer signing such certificate, that, to the best of such Officer's knowledge, the Company and each Subsidiary Guarantor has kept, observed, performed and fulfilled each and every covenant contained in this Indenture and is not in default in the performance or observance of any of the terms, provisions and conditions hereof (or, if a Default or Event of Default shall have occurred, describing all such Defaults or Events of Default of which such Officer may have knowledge and what action the Company is taking or proposes to take with respect thereto) and that to the best of such Officer's knowledge no event has occurred and remains in existence by reason of which payments on account of the principal of, premium, if any, or interest, if any, on the Notes are prohibited or, if such event has occurred, a description of the event and what action the Company and each Subsidiary Guarantor are taking or propose to take with respect thereto. Such Officers' Certificate shall comply with TIA Section 314(a)(4). (b) So long as not contrary to the then current recommendations of the American Institute of Certified Public Accountants, the year-end financial statements delivered pursuant to Section 10.2 shall be accompanied by a written statement of the Company's independent public accountants (which shall be a firm of established national reputation) that in making the examination necessary for certification of such financial statements nothing has come to their attention that would lead them to believe that the Company has violated any provisions of Articles 8 or 10 of this Indenture (to the extent such provisions relate to accounting matters) or, if any such violation has occurred, specifying the nature and period of existence thereof, it being understood that such accountants shall not be liable directly or indirectly to any Person for any failure to obtain knowledge of any such violation. (c) The Company and the Subsidiary Guarantors will, so long as any of the Notes are outstanding, deliver to the Trustee forthwith upon any Officer becoming aware of any Default or Event of Default or default in the performance of any covenant, agreement or condition contained in this Indenture, an Officer's Certificate specifying such Default or Event of Default and what action the Company or any Subsidiary Guarantor proposes to take with respect thereto. SECTION 10.4. MAINTENANCE OF OFFICE OR AGENCY. (a) The Company will maintain an office or agency where Notes may be surrendered for registration of transfer or exchange or for presentation for payment and where notices and demands to or upon the Company in respect of the Notes and this Indenture may be served. The Company will give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Company shall fail to maintain any required office or agency or shall fail to furnish the Trustee with the address thereof, such surrenders, presentations, notices and demands may be made or served at the Corporate Trust Office of the Trustee. (b) The Company may also from time to time designate one or more other offices or agencies where the Notes may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency for such purposes. The Company will give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency. -47- 53 SECTION 10.5. CORPORATE EXISTENCE. The Company will do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence and the corporate, partnership or other existence of each Subsidiary and all rights (charter and statutory) and franchises of the Company and the Subsidiaries; provided, that the Company shall not be required to preserve the corporate existence of any Subsidiary which is not a Subsidiary Guarantor, or any such right or franchise, if the Board of Directors of the Company shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and that the loss thereof is not disadvantageous in any material respect to the Holders. SECTION 10.6. WAIVER OF STAY, EXTENSION OR USURY LAWS. The Company and each Subsidiary Guarantor covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension, or usury law or other law, which would prohibit or forgive the Company or any Subsidiary Guarantor from paying all or any portion of the principal of, premium, if any, or interest on the Notes as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this Indenture; and (to the extent that it may lawfully do so) the Company and each Subsidiary Guarantor hereby expressly waives all benefit or advantage of any such law, and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. SECTION 10.7. PAYMENT OF TAXES AND OTHER CLAIMS. The Company shall pay or discharge or cause to be paid or discharged, before the same shall become delinquent, (a) all taxes, assessments and governmental charges levied or imposed upon the Company or any Subsidiary or upon the income, profits or property of the Company or any Subsidiary and (b) all lawful claims for labor, materials and supplies which, if unpaid, might by law become a Lien upon the property of the Company or any Subsidiary; provided, however, that the Company shall not be required to pay or discharge or cause to be paid or discharged any such tax, assessment, charge or claim whose amount, applicability or validity is being contested in good faith by appropriate proceedings. SECTION 10.8. MAINTENANCE OF PROPERTIES AND INSURANCE; LINE OF BUSINESS. (a) The Company shall cause all properties used or held for use in the conduct of its business or the business of any Subsidiary to be maintained and kept in good condition, repair and working order (ordinary wear and tear excepted) and supplied with all necessary equipment and shall cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, all as in the judgment of the Company may be necessary so that the business carried on in connection therewith may be properly and advantageously conducted at all times; provided, however, that nothing in this Section shall prevent the Company from discontinuing the operation or maintenance of any such property, or disposing of it, if such discontinuance or disposal is, in the judgment of the Company, desirable in the conduct of its business and not disadvantageous in any material respect to the Holders. (b) The Company shall provide or cause to be provided, for itself and each of its Subsidiaries, insurance (including appropriate self-insurance) against loss or damage of the kinds that, in the reasonable, good faith opinion of the Company are adequate and appropriate for the conduct of the business of the Company and such Subsidiaries in a prudent manner, with reputable insurers or with the government of the -48- 54 United States or an agency or instrumentality thereof, in such amounts, with such deductibles, and by such methods as shall be customary, in the reasonable good faith opinion of the Company, for corporations similarly situated in the industry. (c) For as long as any Notes are outstanding, the Company shall not, and shall not permit any of its Subsidiaries to, engage in any business or activity other than the Principal Business. SECTION 10.9. LIMITATION ON SALE OF ASSETS. (a) The Company will not, and will not permit any Subsidiary to, make any Asset Sales which, in the aggregate, have a fair market value of $10,000,000 or more in any 12-month period unless: (i) the Company (or its Subsidiaries, as the case may be) receives consideration at the time of such sale or other disposition at least equal to the fair market value thereof (as determined in good faith by the Company's Board of Directors and evidenced by a resolution of such Board in the case of any Asset Sales or series of related Asset Sales having a fair market value of $20,000,000 or more); (ii) not less than 10% of the proceeds received by the Company (or its Subsidiaries, as the case may be) from such Asset Sale consists of (A) cash, (B) cash equivalents, (C) publicly traded stock of a Person primarily engaged in the Principal Business or (D) any combination of the foregoing; and (iii) the Net Available Proceeds received by the Company (or its Subsidiaries, as the case may be) from such Asset Sale are applied in accordance with paragraph (c) or (d) hereof. (b) Notwithstanding the foregoing, the Company and its Subsidiaries may dispose of property and assets of the Company or its Subsidiaries in exchange for capital property and capital assets (i) which are directly related to the Principal Business; (ii) which are of the same type of property or assets, or which have the same function, as the properties or assets being disposed of; and (iii) which have an aggregate fair market value equal to or greater than the aggregate fair market value of the property and assets being disposed of, provided, however, that (A) in no event may the Company and its Subsidiaries, in any 12-month period, dispose of property or assets pursuant to this paragraph having an aggregate fair market value of $100,000,000 or more and (B) with respect to any property or assets being disposed of having a fair market value of $10,000,000 or more, the Board of Directors of the Company shall have determined in good faith and evidenced a resolution of such Board, that the aggregate fair market value of the property and assets being received by the Company and its Subsidiaries is equal to or greater than the aggregate fair market value of the property and assets being disposed of. (c) The Company shall, within 270 days following the receipt of Net Available Proceeds from any Asset Sale, apply such Net Available Proceeds to: (i) the repayment of Indebtedness of the Company under the Bank Credit Facility or other Senior Indebtedness of the Company, or Senior Indebtedness of any Subsidiary Guarantor, provided that any such repayment shall result in a permanent reduction in the principal amount of such Senior Indebtedness in an amount equal to the principal amount so repaid; or (ii) make an investment in capital assets used in the Principal Business. (d) If, upon completion of the 270-day period, any portion of the Net Available Proceeds of any Asset Sale shall not have been applied by the Company as described in clauses 10.9(b)(i) or (ii) and such remaining Net Available Proceeds, together with any remaining net cash proceeds from any prior Asset Sale (such aggregate constituting "Excess Proceeds"), exceeds $100,000,000, then the Company will be -49- 55 obligated to make an offer (the "Net Proceeds Offer") to purchase Notes having an aggregate principal amount equal to the Excess Proceeds (such purchase to be made pro rata or by lot if the amount available for such repurchase is less than the principal amount of the Notes tendered in such Net Proceeds Offer) at a purchase price of 100% of the principal amount thereof plus accrued interest, if any, to the date of repurchase (the "Net Proceeds Payment Date"). Upon the completion of Net Proceeds Offer, the amount of Excess Proceeds will be reset to zero. (e) Notice of a Net Proceeds Offer to purchase the Notes will be made on behalf of the Company not less than 25 Business Days nor more than 60 Business Days before the Net Proceeds Payment Date. Notes tendered to the Company pursuant to a Net Proceeds Offer will cease to accrue interest after the Net Proceeds Payment Date. For purposes of this covenant, the term "Net Proceeds Offer Amount" means the principal of outstanding Notes in an aggregate principal amount equal to any remaining Net Available Proceeds (rounded to the next lowest $25). If the Net Proceeds Payment Date is on or after an interest payment record date and on or before the related interest payment date, any accrued interest will be paid to the person in whose name a Note is registered at the close of business on such record date, and no additional interest will be payable to Holders who tender Notes pursuant to the Net Proceeds Offer. (f) On the Net Proceeds Payment Date, the Company will (i) accept for payment Notes or portions thereof pursuant to the Net Proceeds Offer in an aggregate principal amount equal to the Net Proceeds Offer Amount or such lesser amount of Notes as has been tendered, (ii) deposit with the Paying Agent money sufficient to pay the purchase price of all Notes or portions thereof so tendered in an aggregate principal amount equal to the Net Proceeds Offer Amount or such lesser amount of Notes as has been tendered, and (iii) deliver, or cause to be delivered to the Trustee, the Notes so accepted together with an Officers' Certificate identifying the Notes or portions thereof tendered to and accepted by the Company. If the aggregate principal amount of Notes tendered exceeds the Net Proceeds Offer Amount, the Trustee will select the Notes to be purchased (in integral multiples of $1,000) pro rata or by lot based on the principal amount of Notes so tendered. The Paying Agent will promptly mail or deliver to Holders so accepted payment in an amount equal to the purchase price, and the Company will execute and the Trustee will promptly authenticate and mail or make available for delivery to such Holders a new Note equal in principal amount to any unpurchased portion of the Notes surrendered. Any Notes not so accepted will be promptly mailed or delivered to the Holder thereof. For purposes of this Section , the Trustee will act as the Paying Agent. SECTION 10.10. LIMITATION ON LIENS SECURING INDEBTEDNESS. The Company will not, and will not permit any Subsidiary to, create, incur, assume or suffer to exist any Liens (other than Permitted Liens) upon any of their respective properties securing (i) any Indebtedness of the Company (other than Senior Indebtedness of the Company), unless the Notes are equally and ratably secured or (ii) any Indebtedness of any Subsidiary Guarantor (other than Senior Indebtedness of such Subsidiary Guarantor) unless the Guarantors are equally and ratably secured; provided, however, that if such Indebtedness is expressly subordinated to the Notes or the Guarantees, the Lien securing such Indebtedness will be subordinated and junior to the Lien securing the Notes or the Guarantees, with the same relative priority as such Subordinated Indebtedness of the Company or a Subsidiary Guarantor will have with respect to the Notes or the Guarantees, as the case may be, and provided further that the terms and conditions of any Lien securing the Notes shall be acceptable to the Trustee. The Trustee shall not be required to foreclose or realize on any Lien securing the Notes if in the judgment of the Trustee, to do so would expose the Trustee to liability for which the Trustee believes it would not be adequately indemnified. -50- 56 SECTION 10.11. LIMITATION ON PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES. The Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any consensual encumbrance or restriction on the ability of any Subsidiary to (i) pay dividends or make any other distributions on its Capital Stock, or any other interest or participation in [or measured by its profits owned by] the Company or a Subsidiary, (ii) pay any Indebtedness owed to the Company or a Subsidiary of the Company; (iii) make loans or advances to the Company or a Subsidiary of the Company; or (iv) transfer any of its properties or assets to the Company or a Subsidiary of the Company, except for (A) encumbrances or restrictions with respect to Senior Indebtedness; (B) consensual encumbrances or consensual restrictions binding upon any Person at the time such Person becomes a Subsidiary of the Company (unless the agreement creating such consensual encumbrance or consensual restrictions was entered into in connection with, or in contemplation of, such entity becoming a Subsidiary); (C) customary provisions restricting subletting or assignment of any lease governing a leasehold interest of any Subsidiary; (D) customary restrictions in security agreements or mortgages securing Indebtedness of a Subsidiary to the extent such restrictions restrict the transfer of the property subject to such security agreements and mortgages; (E) customary restrictions in purchase money obligations for property acquired in the ordinary course of business restricting the transfer of the property acquired thereby; (F) consensual encumbrances or restrictions under any agreement that refinances or replaces any agreement described in clauses (A), (B), (C), (D) or (E) above, provided that the terms and conditions of any such restrictions are no less favorable to the holders of the Notes than those under the agreement so refinanced or replaced; and (G) customary non-assignment provision in leases, purchase money financings and any encumbrance or restriction due to applicable law. SECTION 10.12. LIMITATION ON TRANSACTIONS WITH AFFILIATES. The Company will not, and will not permit any of its Subsidiaries to, directly or indirectly, (i) sell, lease, transfer or otherwise dispose of any of its property, assets or securities to, (ii) purchase or lease any property, assets or securities from, (iii) make any Investment in, or (iv) enter into or amend any contract or agreement with or for the benefit of, either (A) an Affiliate of any of them, (B) any Person or Persons who is a member of a group (as such term is used for purposes of Sections 13(d) and 14(d) of the Exchange Act, whether or not applicable) that, directly or indirectly, is the beneficial holder of 5% or more of any class of equity securities of the Company, (C) any Person who is an Affiliate of any such holder, or (D) any officers, directors, or employees of any of the above (each case under (A), (B), (C) and (D), an "Affiliate Transaction"), in one or a series of related transactions (to either party) in excess of $2,000,000 per Affiliate Transaction, except for transactions evidenced by an Officers' Certificate addressed and delivered to the Trustee stating that such Affiliate Transaction is made in good faith, the terms of which are fair and reasonable to the Company and such Subsidiary, as the case may be, or, with respect to Affiliate Transactions between the Company and its Subsidiaries, to the Company; provided, that (x) transactions between or among the Company and its Subsidiaries shall not be deemed to constitute Affiliate Transactions and (y) with respect to any Affiliate Transaction with an aggregate value (to either party) in excess of $4,000,000, the Company must, prior to the consummation thereof, obtain a written favorable opinion as to the fairness of such transaction to itself from a financial point of view from an independent investment banking firm. -51- 57 SECTION 10.13. LIMITATION ON FUTURE SENIOR SUBORDINATED INDEBTEDNESS. The Company and its Subsidiaries shall not incur any Indebtedness other than the Notes that is subordinated in right of payment to any other Indebtedness of the Company unless such Indebtedness, by its terms, is pari passu with or subordinated to the Notes. No Subsidiary Guarantor shall incur any Indebtedness other than the Guarantee of such Subsidiary Guarantor that is subordinated in right of payment to any other Indebtedness of such Subsidiary Guarantor unless such Indebtedness, by its terms, is pari passu with or subordinated to the Guarantee of such Subsidiary Guarantor. SECTION 10.14. CHANGE OF CONTROL. (a) Within 30 days following the occurrence of any Change of Control, the Company shall offer (a "Change of Control Offer") to purchase all outstanding Notes at a purchase price equal to % of the aggregate principal amount of the Notes, plus accrued and unpaid interest to the date of purchase. The Change of Control Offer shall be deemed to have commenced upon mailing of the notice described in the next succeeding paragraph and shall terminate 20 Business Days after its commencement, unless a longer offering period is then required by law. Promptly after the termination of the Change of Control Offer (the "Change of Control Payment Date"), the Company shall purchase and mail or deliver payment for all Notes tendered in response to the Change of Control Offer. If the Change of Control Payment Date is on or after an interest payment record date and on or before the related interest payment date, any accrued interest will be paid to the Person in whose name a Note is registered at the close of business on such record date, and no additional interest will be payable to Holders who tender Notes pursuant to the Change of Control Offer. (b) Within 30 days after any Change of Control, the Company (with notice to the Trustee), or the Trustee at the Company's request, will mail or cause to be mailed to all Holders on the date of the Change of Control a notice (the "Change of Control Notice") of the occurrence of such Change of Control and of the Holders' rights arising as a result thereof. The Change of Control Notice will contain all instructions and materials necessary to enable Holders to tender their Notes to the Company. The Change of Control Notice, which shall govern the terms of the Change of Control Offer, shall state: (1) that the Change of Control Offer is being made pursuant to this Section ; (2) the purchase price and the Change of Control Payment Date; (3) that any Note not tendered will continue to accrue interest; (4) that any Note accepted for payment pursuant to the Change of Control Offer shall cease to accrue interest on the Change of Control Payment Date; (5) that Holders electing to have a Note purchased pursuant to any Change of Control Offer will be required to surrender the Note, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Note completed, to the Company, a depositary, if appointed by the Company, or a Paying Agent at the address specified in the notice prior to termination of the Change of Control Offer; (6) that Holders will be entitled to withdraw their election if the Company, depositary or Paying Agent, as the case may be, receives, not later than the expiration of the Change of Control Offer, or such longer period as may be required by law, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Note the Holder delivered for purchase and a statement that such Holder is withdrawing his election to have the Note purchased; and (7) that Holders whose Notes are purchased only in part will be issued Notes equal in principal amount to the unpurchased portion of the Notes surrendered. (c) On the Change of Control Payment Date, the Company shall (i) accept for payment Notes or portions thereof tendered pursuant to the Change of Control Notice, (ii) if the Company appoints a depository or Paying Agent, deposit with such depository or Paying Agent money sufficient to pay the purchase price of all Notes or portions thereof so tendered and (iii) deliver to the Trustee the Notes so accepted together with an Officers' Certificate identifying the Notes or portions thereof tendered to and accepted by the Company. The depository, the Company or the Paying Agent, as the case may be, shall -52- 58 promptly mail to the Holder of Notes so accepted payment in an amount equal to the purchase price, and the Trustee shall promptly authenticate and mail to such Holders a new Note equal in principal amount to any unpurchased portion of the Note surrendered. For purposes of this Section, the Trustee shall act as the Paying Agent. (d) The Company, to the extent applicable and if required by law, will comply with Section 14 of the Exchange Act and the provisions of Regulation 14E and any other tender offer rules under the Exchange Act and any other federal and state securities laws, rules and regulations which may then be applicable to any offer by the Company to purchase the Notes at the option of the Holders upon a Change of Control. SECTION 10.15. LIMITATION ON INCURRENCE OF INDEBTEDNESS. (a) The Company will not, and will not permit any of its subsidiaries, directly or indirectly, to issue, incur, guarantee, become liable, contingently or otherwise, or otherwise become responsible for the payment of any Indebtedness; provided, however, that if no Default or Event of Default with respect to the Initial Notes shall have occurred and be continuing at the time of such incurrence, the Company or its Subsidiaries may incur Indebtedness if, on a pro forma basis, after giving effect to such incurrence and the application of the proceeds therefrom, the Consolidated Coverage Ratio would have been equal to or greater than 1.0 to 1.0 with respect to Indebtedness incurred thereafter. However, such Consolidated Coverage Ratio covenant shall not apply until on and after January 1, 1998. Notwithstanding the foregoing, (i) the Company may incur Indebtedness consisting of the Initial Notes, and (ii) the Company may incur Indebtedness consisting of the Guarantees of the Initial Notes. (b) The foregoing limitations will not apply to Indebtedness incurred or assumed in connection with any acquisition as long as the historic coverage ratio for the acquired company or the pro forma Consolidated Coverage Ratio for the Company and the acquired company is equal to or greater than 1.0 to 1.0. The foregoing limitations also will not apply to, nor include the effect of, $50 million aggregate principal amount of Indebtedness pursuant to senior credit facilities. -53- 59 ARTICLE 11 SUBORDINATION OF NOTES SECTION 11.1. NOTES SUBORDINATED TO SENIOR INDEBTEDNESS; INITIAL NOTES PARI PASSU WITH OTHER SERIES OF THE NOTES ISSUED BY THE COMPANY UP TO $_____________ ADDITIONAL PRINCIPAL AMOUNT AND NOTES PURSUANT TO OTHER INDENTURES. (a) The Company, for itself and its successors, and each Holder, by his acceptance of Notes, agrees that the payment of the principal of and interest on the Notes is subordinated, to the extent and in the manner provided in this Article, to the prior payment in full of all Senior Indebtedness of the Company (hereinafter in this Article referred to as "Senior Indebtedness") and that the payment of the principal of and interest on the Initial Notes is pari passu with any other series of the Notes issued by the Company in the future or Notes under any other indenture. (b) This Article shall constitute a continuing offer of all Persons who, in reliance upon such provisions, become holders of, or continue to hold, Senior Indebtedness, and such provisions are made for the benefit of the holders of Senior Indebtedness, and such holders are made obligees hereunder and any one or more of them may enforce such provisions. SECTION 11.2. NO PAYMENT ON NOTES IN CERTAIN CIRCUMSTANCES. (a) Upon the Maturity of any Senior Indebtedness by lapse of time, acceleration or otherwise, unless and until all principal thereof, premium, if any, interest thereon and other amounts due thereon shall first be paid in full, no payment shall be made by or on behalf of the Company with respect to the principal of, premium, if any, or interest on the Notes. (b) Upon the happening of any default in the payment of any principal of or interest on or other amounts due on any Senior Indebtedness (a "Payment Default"), then, unless and until such default shall have been cured or waived or shall have ceased to exist, no payment shall be made by or on behalf of the Company with respect to the principal of, premium, if any or interest on the Notes. (c) The provisions of this Section shall not modify or limit in any way the application of the following Section. (d) The Company shall give prompt written notice to the Trustee of any default in the payment of any Senior Indebtedness or any acceleration under any Senior Indebtedness or under any agreement pursuant to which Senior Indebtedness may have been issued. Failure to give such notice shall not affect the subordination of the Notes to the Senior Indebtedness or the application of the other provisions provided in this Article. SECTION 11.3. NOTES SUBORDINATED TO PRIOR PAYMENT OF ALL SENIOR INDEBTEDNESS ON DISSOLUTION, LIQUIDATION OR REORGANIZATION OF THE COMPANY. (a) In the event of any Insolvency or Liquidation Proceeding with respect to the Company, all amounts payable in respect of any Senior Indebtedness shall first be paid in full before the Holders are entitled to receive any direct or indirect payment or distribution of any cash, property or securities on account of principal of or interest on the Notes or any other payment with respect to the Notes. -54- 60 (b) The holders of Senior Indebtedness shall be entitled to receive directly, for application to the payment of Senior Indebtedness (to the extent necessary to pay in full all Senior Indebtedness, whether or not due, including specifically, without limitation, all Post-Commencement Interest, whether or not allowed as a claim in such Insolvency or Liquidation Proceeding, after giving effect to any substantially concurrent payment or distribution to the holders of Senior Indebtedness on account of Senior Indebtedness), any payment or distribution of any kind or character, whether in cash, property or securities, including any payment or distribution which may be payable or deliverable by reason of the payment of any other Indebtedness of the Company being subordinated to the payment of the Notes which may be payable or deliverable in respect of the Notes in any such Insolvency or Liquidation Proceeding. (c) In the event that, notwithstanding the foregoing provisions of this Section, the Trustee or any Paying Agent or the Holder of any Note shall have received any payment from or distribution of assets of the Company or the estate created by the commencement of any such Insolvency or Liquidation Proceeding, of any kind or character in respect of the Notes, whether in cash, property or securities, including any payment or distribution which may be payable or deliverable by reasons of the payment of any other Indebtedness of the Company being subordinated to the payment of the Notes, before all Senior Indebtedness (whether or not due including specifically, without limitation, all Post-Commencement Interest, whether or not allowed as a claim in such Insolvency or Liquidation Proceeding) is paid in full, then and in such event such payment or distribution shall be received and held in trust by the Trustee, any such Paying Agent or Holder for and shall be paid over to the holders of Senior Indebtedness (to the extent necessary to pay in full all such Senior Indebtedness, whether or not due, including specifically, without limitation, all Post-Commencement Interest thereon, whether or not allowed as a claim in such Insolvency or Liquidation Proceeding), after giving effect to any substantially concurrent payment or distribution to the holders of Senior Indebtedness on account of Senior Indebtedness, for application to the payment in full of such Senior Indebtedness. (d) The Company shall give prompt written notice to the Trustee of any Insolvency or Liquidation Proceeding with respect to it. SECTION 11.4. HOLDERS TO BE SUBROGATED TO RIGHTS OF HOLDERS OF SENIOR INDEBTEDNESS. After all amounts payable under or in respect of Senior Indebtedness (whether or not due) are paid in full, the Holders shall be subrogated (without any duty on the part of the holders of Senior Indebtedness to warrant, create, effectuate, preserve or protect such subrogation), to the extent of the payments or distributions made to the holders of Senior Indebtedness pursuant to the provisions of this Article (equally and ratably with the holders of all other indebtedness of the Company which by its express terms is subordinate and subject in right of payment to Senior Indebtedness to substantially the same extent as the Notes are so subordinate and subject in right of payment and which is entitled to like rights and subrogation), to the rights of the holders of Senior Indebtedness to receive payments and distributions of cash, property and securities applicable to the Senior Indebtedness, until the principal of and interest on the Notes shall be paid in full. For the purpose of such subrogation no such payments or distributions to the holders of Senior Indebtedness by or on behalf of the Company, or by or on behalf of the Holders by virtue of this Article, which otherwise would have been made to the Holders shall, as between the Company and the Holders, be deemed to be payment by the Company to or on account of the Senior Indebtedness, it being understood that the provisions of this Article are and are intended solely for the purpose of defining the relative rights of the Holders, on the one hand, and the holders of Senior Indebtedness, on the other hand. SECTION 11.5. OBLIGATIONS OF THE COMPANY UNCONDITIONAL. Nothing contained in this Article or elsewhere in this Indenture or in any Note is intended to or -55- 61 shall impair, as between the Company and the Holders, the obligations of the Company, which are absolute and unconditional, to pay to the Holders the principal of and interest on the Notes as and when the same shall become due and payable in accordance with their terms, or is intended to or shall affect the relative rights of the Holders and creditors of the Company, other than the holders of the Senior Indebtedness, nor shall anything herein or therein prevent the Trustee or any Holder from exercising all remedies otherwise permitted by applicable law upon default under this Indenture, subject to the rights, if any, under this Article, of the holders of Senior Indebtedness in respect of cash, property or securities of the Company received upon the exercise of any such remedy. Upon any distribution of assets of the Company referred to in this Article, the Trustee, subject to the provisions of Section 6.1, and the Holders shall be entitled to rely upon any order or decree made by any court of competent jurisdiction in which such Insolvency or Liquidation Proceeding is pending, or a certificate of the liquidating trustee or agent or other Person making any distribution to the Trustee or to the Holders for the purpose of ascertaining the Persons entitled to participate in such distribution, the holders of the Senior Indebtedness and other indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article. SECTION 11.6. TRUSTEE ENTITLED TO ASSUME PAYMENTS NOT PROHIBITED IN ABSENCE OF NOTICE. The Trustee shall not at any time be charged with knowledge of the existence of any facts which would prohibit the making of any payment to or by the Trustee unless and until the Trustee or any Paying Agent shall have received written notice thereof from the Company or from one or more holders of Senior Indebtedness or from any Representative therefor and, prior to the receipt of any such written notice, the Trustee, subject to the provisions of Section 6.1, shall be entitled in all respects conclusively to assume that no such fact exists. Nothing in this Section is intended to or shall relieve any Holder from the obligations imposed under Sections 11.2 and 11.3 with respect to money or other distributions received in violation of the provisions thereof. SECTION 11.7. APPLICATION BY TRUSTEE OF ASSETS DEPOSITED WITH IT. All money and U.S. Government Obligations deposited in trust with the Trustee pursuant to and in accordance with Section 4.1 shall be for the sole benefit of the Holders and shall not be subject to this Article. Otherwise, any deposit of assets by the Company with the Trustee or any Paying Agent (whether or not in trust) for the payment of principal of or interest on any Notes shall be subject to the provisions of this Article; provided that, if prior to the second Business Day preceding the date on which by the terms of this Indenture any such assets may become distributable for any purpose (including without limitation, the payment of either principal of or interest on any Note) the Trustee or such Paying Agent shall not have received with respect to such assets the written notice provided for in Section 11.6, then the Trustee or such Paying Agent shall have full power and authority to receive such assets and to apply the same to the purpose for which they were received, and shall not be affected by any notice to the contrary which may be received by it on or after such date. The preceding sentence shall be construed solely for the benefit of the Trustee and each Paying Agent and shall not otherwise affect the rights of holders of Senior Indebtedness. -56- 62 SECTION 11.8. SUBORDINATION RIGHTS NOT IMPAIRED BY ACTS OR OMISSIONS OF THE COMPANY OR HOLDERS OF SENIOR INDEBTEDNESS. No right of any present or future holder of any Senior Indebtedness to enforce the subordination provisions in this Article shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of the Company or by any act or failure to act by any such holder, or by any noncompliance by the Company with the terms of this Indenture, regardless of any knowledge thereof which any such holder may have or be otherwise charged with. The holders of Senior Indebtedness may extend, renew, modify or amend the terms of the Senior Indebtedness or any security therefor and release, sell or exchange such security and otherwise deal freely with the Company, all without affecting the liabilities and obligations of the parties to this Indenture or the Holders. SECTION 11.9. HOLDERS AUTHORIZE TRUSTEE TO EFFECTUATE SUBORDINATION OF NOTES. Each Holder of Notes by his acceptance thereof (i) authorizes and expressly directs the Trustee on his behalf to take such action as may be necessary or appropriate to effectuate the subordination provided in this Article and to protect the rights of the Holders pursuant to this Indenture, and (ii) appoints the Trustee his attorney-in-fact for such purpose, including in the event of any Insolvency or Liquidation Proceeding with respect to the Company, the timely filing of a claim for the unpaid balance of his Notes in the form required in said proceeding and the causing of such claim to be approved. If the Trustee shall not file a proper claim or proof of debt in the form required in such proceeding prior to 30 days before the expiration of the time to file such claim or claims, then the holders of the Senior Indebtedness or their Representative shall have the right to file an appropriate claim for and on behalf of the Holders. Nothing herein contained shall be deemed to authorize the Trustee or any holder of Senior Indebtedness or their Representative to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Notes or the rights of any Holder, or to authorize the Trustee or any holder of Senior Indebtedness or their Representative to vote in respect of the claim of any Holder in any such proceeding. SECTION 11.10. RIGHT OF TRUSTEE TO HOLD SENIOR INDEBTEDNESS. The Trustee shall be entitled to all of the rights set forth in this Article in respect of any Senior Indebtedness at any time held by it to the same extent as any other holder of Senior Indebtedness, and nothing in this Indenture shall be construed to deprive the Trustee of any of its rights as such holder. SECTION 11.11. ARTICLE 11 NOT TO PREVENT EVENTS OF DEFAULT. The failure to make a payment of principal of or interest on the Notes by reason of any provision of this Article shall not be construed as preventing the occurrence of a Default or an Event of Default. -57- 63 SECTION 11.12. PAYMENT. A payment with respect to a Note or with respect to principal of or interest on a Note shall include, without limitation, payment of principal of (and premium, if any) and interest on any Note, any depositing of funds under Article 4, any payment on account of any mandatory or optional repurchase or redemption of any Note (including payments pursuant to Section 10.9 or Section 10.14) and any payment or recovery on any claim (whether for rescission or damages and whether based on contract, tort, duty imposed by law, or any other theory of liability) relating to or arising out of the offer, sale or purchase of any Note, provided that any such payment, deposit, other payment or recovery (i) not prohibited pursuant to this Article at the time actually made shall not be subject to any recovery by any holder of Senior Indebtedness or Representative therefor or other Person pursuant to this Article at any time thereafter and (ii) made by or from any person other than the Company shall not be subject to any recovery by any holder of Senior Indebtedness or Representative therefor or other Person pursuant to this Article at any time thereafter except to the extent such Person recovers any such amount paid from the Company, whether pursuant to rights of indemnity, rescission or otherwise. ARTICLE 12 GUARANTEES SECTION 12.1 UNCONDITIONAL GUARANTEES. (a) Each Subsidiary Guarantor hereby, jointly and severally, unconditionally guarantees (such guarantee to be referred as the "Guarantee") to each Holder and to the Trustee the due and punctual payment of the principal of, premium, if any, and interest on the Notes and all other amounts due and payable under this Indenture and the Notes by the Company whether at maturity, by acceleration, redemption, repurchase or otherwise, including, without limitation, interest on the overdue principal of, premium, if any, and interest on the Notes, to the extent lawful, all in accordance with the terms hereof and thereof; subject, however, to the limitations set forth in Section 12.5. (b) Failing payment when due of any amount so guaranteed for whatever reason, the Subsidiary Guarantors will be jointly and severally obligated to pay the same immediately. Each Subsidiary Guarantor hereby agrees that its obligations hereunder shall be unconditional, irrespective of the validity, regularity or enforceability of the Notes or this Indenture, the absence of any action to enforce the same, any waiver or consent by any Holder of the Notes with respect to any provisions hereof or thereof, the recovery of any judgment against the Company, any action to enforce the same or any other circumstance which might otherwise constitute a legal or equitable discharge or defense of a guarantor. Each Subsidiary Guarantor hereby waives diligence, presentment, demand of payment, filing of claims with a court in the event of insolvency or bankruptcy of the Company, any right to require a proceeding first against the Company, protest, notice and all demands whatsoever and covenants that this Guarantee will not be discharged except by complete performance of the obligations contained in the Notes, this Indenture and in this Guarantee. If any Holder or the Trustee is required by any court or otherwise to return to the Company, any Subsidiary Guarantor, or any custodian, trustee, liquidator or other similar official acting in relation to the Company or any Subsidiary Guarantor, any amount paid by the Company or any Subsidiary Guarantor to the Trustee or such Holder, this Guarantee, to the extent theretofore discharged, shall be reinstated in full force and effect. Each Subsidiary Guarantor agrees it shall not be entitled to any right of subrogation in relation to the Holders in respect of any obligations guaranteed hereby until payment in full of all obligations guaranteed hereby. Each Subsidiary Guarantor further agrees that, as between each Subsidiary Guarantor, on the one hand, and the Holders and the Trustee, on the other hand, (x) the maturity of the obligations guaranteed hereby may be accelerated as provided in Article 5 for the purposes of this -58- 64 Guarantee, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the obligations guaranteed hereby, and (y) in the event of any acceleration of such obligations as provided in Article 5, such obligations (whether or not due and payable) shall forthwith become due and payable by each Subsidiary Guarantor for the purpose of this Guarantee. (c) Failing payment of the Guarantees, for whatever reason, the Company will be obligated to pay, or to perform or cause the performance of, the same immediately. The Company hereby agrees that its obligation on the Notes shall be full, unconditional and absolute, irrespective of the validity, regularity or enforceability of the Notes, the Guarantees or this Indenture, the absence of any action to enforce the same, any waiver or consent by any Holder of the Notes with respect to any provisions hereof or thereof, the recovery or any judgment against the Company or any Guarantor, any action to enforce the same or any other circumstance which might otherwise constitute a legal or equitable discharge or defense of the Company. (d) The Guarantee of each Subsidiary Guarantor and the obligations of the Company herein shall be, in the manner and to the extent set forth in Article 13, subordinated in right of payment to the prior payment when due of the principal of, premium, if any, and accrued and unpaid interest on all existing and future Senior Indebtedness of such Subsidiary Guarantor and of the Company, as the case may be, and senior to the right of payment of principal of, premium, if any, and accrued and unpaid interest on all existing and future Subordinated Indebtedness of such Subsidiary Guarantor and of the Company, as the case may be. SECTION 12.2 SUBSIDIARY GUARANTORS MAY CONSOLIDATE, ETC., ON CERTAIN TERMS. Except as set forth in Article 4 and 5, nothing contained in this Indenture or in any of the Notes shall prevent any consolidation or merger of a Subsidiary Guarantor with a Person or with or into the Company or another Subsidiary Guarantor or shall prevent any sale or conveyance of all or substantially all of its assets, to a Person or to the Company or another Subsidiary Guarantor. SECTION 12.3 ADDITION OF SUBSIDIARY GUARANTORS. (a) The Company agrees to cause each Subsidiary that shall become a Subsidiary after the Issue Date to execute and deliver a supplemental indenture pursuant to which such Subsidiary shall guarantee the payment of the Notes pursuant to the terms hereof. (b) Any Person that was not a Subsidiary Guarantor on the Issue Date may become a Guarantor by executing and delivering to the Trustee (i) a supplemental indenture in form and substance satisfactory to the Trustee, which subjects such Person to the provisions (including the representations and warranties) of this Indenture as a Subsidiary Guarantor and (ii) an opinion of Counsel and Officers' Certificate to the effect that such supplemental indenture has been duly authorized and executed by such Person and constitutes the legal, valid, binding and enforceable obligation of such Person (subject to such customary exceptions concerning creditors' rights and equitable principles as may be acceptable to the Trustee in its discretion and provided that no opinion need be rendered concerning the enforceability of the Guarantee). SECTION 12.4 RELEASE OF A SUBSIDIARY GUARANTOR. By undertaking all of the actions required in compliance with the terms of this Indenture, including but not limited to the provisions of Section 12.2(b), a Subsidiary Guarantor shall be deemed released from all of its Guarantee and related obligations in this Indenture. The Trustee shall deliver an appropriate instrument evidencing such release upon receipt of a request by the Company accompanied by an Officers' -59- 65 Certificate and an Opinion of Counsel certifying that all conditions specified in this Indenture for such release have been satisfied in accordance with the provisions of this Indenture. Any Subsidiary Guarantor not so released remains liable for the full amount of principal of and interest on the Notes as provided in this Article. SECTION 12.5 LIMITATION OF SUBSIDIARY GUARANTOR'S LIABILITY. Each Subsidiary Guarantor and by its acceptance hereof each Holder hereby confirms that it is the intention of all such parties that the Guarantee by such Subsidiary Guarantor pursuant to its Guarantee not constitute a fraudulent transfer or conveyance for purposes of any federal or state law. To effectuate the foregoing intention, the Holders and each Subsidiary Guarantor hereby irrevocably agree that the obligations of each Subsidiary Guarantor under the Guarantee shall be limited to the maximum amount as will, after giving effect to all other contingent and fixed liabilities of such Subsidiary Guarantor and after giving effect to any collections from or payments made by or on behalf of any other Subsidiary Guarantor in respect of the obligations of such other Subsidiary Guarantor under its Guarantee or pursuant to Section 12.6, result in the obligations of such Subsidiary Guarantor under the Guarantee not constituting a fraudulent conveyance or fraudulent transfer under federal, state or foreign law. SECTION 12.6 CONTRIBUTION. In order to provide for just and equitable contribution among the Subsidiary Guarantors, the Subsidiary Guarantors agree, inter se, that in the event any payment or distribution is made by any Subsidiary Guarantor (a "Funding Guarantor") under the Guarantee, such Funding Guarantor shall be entitled to a contribution from each other Subsidiary Guarantor in a pro rata amount based on the adjusted Net Assets of each Subsidiary Guarantor (including the Funding Guarantor) for all payments, damages and expenses incurred by the Funding Guarantor in discharging the Company's obligations with respect to the Notes or any other Subsidiary Guarantor's obligations with respect to the Guarantee; provided, however, that the liability of each Subsidiary Guarantor under the Guarantee shall not be limited in any manner by the foregoing. SECTION 12.7 EXECUTION AND DELIVERY. (a) To further evidence the Guarantees set forth in Section 12.1, each Subsidiary Guarantor hereby agrees that a notation relating to such Guarantee, in substantially the form of Exhibit A-1, shall be endorsed on each Note authenticated and delivered by the Trustee and executed by either manual or facsimile signature of two Officers of each Subsidiary Guarantor. (b) Each of the Subsidiary Guarantors hereby agrees that its Guarantee set forth in Section 12.1 shall remain in full force and effect notwithstanding any failure to endorse on each Note a notation relating to such Guarantee. (c) If an Officer of a Guarantor whose signature is on this Indenture or a Note no longer holds that office at the time the Trustee authenticates such Note or at any time thereafter, such Subsidiary Guarantor's Guarantee of such Note shall be valid nevertheless. (d) The delivery of any Note by the Trustee, after the authentication thereof hereunder, shall constitute due delivery of any Guarantee set forth in this Indenture on behalf of the Subsidiary Guarantor. -60- 66 SECTION 12.8 SEVERABILITY. In case any provision of this Guarantee shall be invalid, illegal or unenforceable, that portion of such provision that is not invalid, illegal or unenforceable shall remain in effect, and the validity, legality, and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. ARTICLE 13 SUBORDINATION OF GUARANTEES SECTION 13.1. GUARANTEES SUBORDINATED TO SENIOR INDEBTEDNESS. Each Subsidiary Guarantor, for itself and its successors, and each Holder, by his acceptance of Notes, agrees that the Guarantees of such Subsidiary Guarantor are subordinated, to the extent and in the manner provided in this Article, to the prior payment in full of all Senior Indebtedness of such Subsidiary Guarantor (hereinafter in this Article referred to as "Senior Indebtedness"). This Article shall constitute a continuing offer of all Persons who, in reliance upon such provisions, become holders of, or continue to hold, Senior Indebtedness, and such provisions are made for the benefit of the holders of Senior Indebtedness, and such holders are made obligees hereunder and any one or more of them may enforce such provisions. SECTION 13.2. NO PAYMENT ON GUARANTEES IN CERTAIN CIRCUMSTANCES. (a) Upon the Maturity of any Senior Indebtedness by lapse of time, acceleration or otherwise, unless and until all principal thereof, interest thereon and other amounts due thereon shall first be paid in full, no payment shall be made by or on behalf of any Subsidiary Guarantor pursuant to the Guarantees with respect to the principal of or interest on the Notes. (b) Upon the happening of any default in the payment of any principal of or interest on or other amounts due on any Senior Indebtedness (a "Payment Default"), then, unless and until such default shall have been cured or waived or shall have ceased to exist, no payment shall be made by or on behalf of any Subsidiary Guarantor pursuant to the Guarantees with respect to the principal of or interest on the Notes. (c) In furtherance of the provisions of Section 13.1, in the event that, notwithstanding the foregoing provisions of this Section, any payment with respect to the principal of or interest on the Notes shall be made by or on behalf of any Subsidiary Guarantor, and received by the Trustee, by any Holder or by any Paying Agent (or, if the Company is acting as its own Paying Agent, money for any such payment shall be segregated and held in trust), at a time when such payment was prohibited by the provisions of this Section, then, unless and until such payment is no longer prohibited by this Section, such payment (subject to the provisions of Sections 13.6 and 13.7) shall be received and held in trust by the Trustee or such Holder or Paying Agent for the benefit of and shall be immediately paid over to the holders of Senior Indebtedness or their Representative, ratably according to the aggregate amounts remaining unpaid on account of the principal of and interest on the Senior Indebtedness held or represented by each, for application to the payment of all Senior Indebtedness in accordance with its terms, after giving effect to any concurrent payment or distribution to or for the benefit of the holders of Senior Indebtedness. (d) The provisions of this Section shall not modify or limit in any way the application of Section 13.3. -61- 67 (e) Each Subsidiary Guarantor shall give prompt written notice to the Trustee of any default in the payment of any Senior Indebtedness of such Subsidiary Guarantor or any acceleration under any such Senior Indebtedness or under any agreement pursuant to which such Senior Indebtedness may have been issued. Failure to give such notice shall not affect the subordination of the Guarantees to the Senior Indebtedness or the application of the other provisions provided in this Article. SECTION 13.3. GUARANTEES SUBORDINATED TO PRIOR PAYMENT OF ALL SENIOR INDEBTEDNESS ON DISSOLUTION, LIQUIDATION OR REORGANIZATION OF A SUBSIDIARY GUARANTOR. (a) In the event of any Insolvency or Liquidation Proceeding with respect to any Subsidiary Guarantor, all amounts payable in respect of any Senior Indebtedness of such Subsidiary Guarantor shall first be paid in full before the Holders are entitled to receive any direct or indirect payment or distribution of any cash, property or securities pursuant to the Guarantees on account of principal of or interest on the Notes or any other payment with respect to the Notes. (b) The holders of Senior Indebtedness shall be entitled to receive directly, for application to the payment of Senior Indebtedness (to the extent necessary to pay in full all Senior Indebtedness, whether or not due, including specifically, without limitation, all Post-Commencement Interest, whether or not allowed as a claim in such Insolvency or Liquidation Proceeding, after giving effect to any substantially concurrent payment or distribution to the holders of Senior Indebtedness on account of Senior Indebtedness), any payment or distribution of any kind or character, (whether in cash, property or securities, including any payment or distribution which may be payable or deliverable by reason of the payment of any other indebtedness of such Subsidiary Guarantor being subordinated to the payment of the Guarantees) which may be payable or deliverable in respect of the Guarantees in any such Insolvency or Liquidation Proceeding. (c) In the event that, notwithstanding the foregoing provisions of this Section , the Trustee or any Paying Agent or the Holder of any Note shall have received any payment from or distribution of assets of such Subsidiary Guarantor or the estate created by the commencement of any such Insolvency or Liquidation Proceeding, of any kind or character in respect of the Guarantees, whether in cash, property or securities, including any payment or distribution which may be payable or deliverable by reason of the payment of any other indebtedness of such Subsidiary Guarantor being subordinated to the payment of the Guarantees, before all Senior Indebtedness (whether or not due including specifically, without limitation, all Post-Commencement Interest, whether or not allowed as a claim in such Insolvency or Liquidation Proceeding) is paid in full, then and in such event such payment or distribution shall be received and held in trust by the Trustee, any such Paying Agent or Holder for and shall be paid over to the holders of Senior Indebtedness (to the extent necessary to pay in full all such Senior Indebtedness, whether or not due, including specifically, without limitation, all Post Commencement Interest thereon, whether or not allowed as a claim in such Insolvency or Liquidation Proceeding), after giving effect to any substantially concurrent payment or distribution to the holders of Senior Indebtedness on account of Senior Indebtedness, for application to the payment in full of such Senior Indebtedness. (d) The Company and each Subsidiary Guarantor shall give prompt written notice to the Trustee of any Insolvency or Liquidation Proceeding with respect to such Subsidiary Guarantor. SECTION 13.4. HOLDERS TO BE SUBROGATED TO RIGHTS OF HOLDERS OF SENIOR INDEBTEDNESS. After all amounts payable under or in respect of Senior Indebtedness (whether or not due) are paid in full, the Holders shall be subrogated (without any duty on the part of the holders of Senior Indebtedness to warrant, create, effectuate, preserve or protect such subrogation), to the extent of the payment or -62- 68 distributions made to the holders of Senior Indebtedness pursuant to the provisions of this Article (equally and ratably with the holders of all other indebtedness of any Subsidiary Guarantor which by its express terms is subordinate and subject in right of payment to Senior Indebtedness to substantially the same extent as the Guarantees are so subordinated and subject in right of payment and which is entitled to like rights and subrogation), to the rights of the holders of Senior Indebtedness to receive payments and distributions of cash, property and securities applicable to the Senior Indebtedness, until the principal of and interest on the Notes shall be paid in full. For the purpose of such subrogation no such payments or distributions to the holders of Senior Indebtedness by or on behalf of the Company, or by or on behalf of the Holders by virtue of this Article, which otherwise would have been made to the Holders shall, as between any Subsidiary Guarantor and the Holders, be deemed to be payment by such Subsidiary Guarantor to or on account of the Senior Indebtedness, it being understood that the provisions of this Article are and are intended solely for the purpose of defining the relative rights of the Holders, on the one hand, and the holders of Senior Indebtedness, on the other hand. SECTION 13.5. GUARANTEES UNCONDITIONAL. Nothing contained in this Article or elsewhere in this Indenture or in any Subsidiary Guarantee is intended to or shall impair, as between the Subsidiary Guarantors and the Holders, the Guarantees, which are absolute and unconditional, as and when the same shall become due and payable in accordance with their terms, or is intended to or shall affect the relative rights of the Holders and creditors of the Subsidiary Guarantors, other than the holders of the Senior Indebtedness, nor shall anything herein or therein prevent the Trustee or any Holder from exercising all remedies otherwise permitted by applicable law upon default under this Indenture, subject to the rights, if any, under this Article, of the holders of Senior Indebtedness in respect of cash, property or securities of any Subsidiary Guarantor received upon the exercise of any such remedy. Upon any distribution of assets of any Subsidiary Guarantor referred to in this Article, the Trustee, subject to the provisions of Section 6.1, and the Holders shall be entitled to rely upon any order or decree made by any court of competent jurisdiction in which such Insolvency or Liquidation Proceedings is pending, or a certificate of the liquidating trustee or agent or other Person making any distribution to the Trustee or to the Holders for the purpose of ascertaining the Persons entitled to participate in such distribution, the holders of the Senior Indebtedness and other indebtedness of such Subsidiary Guarantor, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article. SECTION 13.6. TRUSTEE ENTITLED TO ASSUME PAYMENTS NOT PROHIBITED IN ABSENCE OF NOTICE. The Trustee shall not at any time be charged with knowledge of the existence of any facts which would prohibit the making of any payment to or by the Trustee unless and until the Trustee or any Paying Agent shall have received written notice thereof from the Company or a Subsidiary Guarantor or from one or more holders of Senior Indebtedness or from any Representative therefor and, prior to the receipt of any such written notice, the Trustee, subject to the provisions of Section 6.1, shall be entitled in all respects conclusively to assume that no such fact exists. Nothing in this Section is intended to or shall relieve any Holder from the obligations imposed under Sections 13.2 and 13.3 with respect to money or other distributions received in violation of the provisions thereof. -63- 69 SECTION 13.7. APPLICATION BY TRUSTEE OF ASSETS DEPOSITED WITH IT. All money and U.S. Government Guarantees deposited in trust with the Trustee pursuant to and in accordance with Section 4.1 shall be for the sole benefit of the Holder and shall not be subject to this Article. Otherwise, any deposit of assets by any Subsidiary Guarantor pursuant to the Guarantees with the Trustee or any Paying Agent (whether or not in trust) for the payment of principal of or interest on any Notes shall be subject to the provisions of this Article; provided that, if prior to the second Business Day preceding the date on which by the terms of this Indenture any such assets may become distributable for any purpose (including without limitation, the payment of either principal of or interest on any Note) the Trustee or such Paying Agent shall not have received with respect to such assets the written notice provided for in Section 13.6, then the Trustee or such Paying Agent shall have full power and authority to receive such assets and to apply the same to the purpose for which they were received, and shall not be affected by any notice to the contrary which may be received by it on or after such date. The preceding sentence shall be construed solely for the benefit of the Trustee and each Paying Agent and shall not otherwise affect the rights of holders of Senior Indebtedness. SECTION 13.8. SUBORDINATION RIGHTS NOT IMPAIRED BY ACTS OR OMISSIONS OF THE SUBSIDIARY GUARANTORS OR HOLDERS OF SENIOR INDEBTEDNESS. No right of any present or future holder of any Senior Indebtedness to enforce the subordination provisions in this Article shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of any Subsidiary Guarantor or by any act or failure to act by any such holder, or by any noncompliance by the Company with the terms of this Indenture, regardless of any knowledge thereof which any such holder may have or be otherwise charged with. The holders of Senior Indebtedness may extend, renew, modify or amend the terms of the Senior Indebtedness or any security therefor and release, sell or exchange such security and otherwise deal freely with the Subsidiary Guarantors, all without affecting the liabilities and obligations of the parties to this Indenture or the Holders. SECTION 13.9. HOLDERS AUTHORIZE TRUSTEE TO EFFECTUATE SUBORDINATION OF NOTES. Each Holder of Notes by his acceptance thereof (i) authorizes and expressly directs the Trustee on his behalf to take such action as may be necessary or appropriate to effectuate the subordination provided in this Article and to protect the rights of the Holders pursuant to this Indenture, and (ii) appoints the Trustee his attorney-in-fact for such purpose, including in the event of any Insolvency or Liquidation Proceeding with respect to any Subsidiary Guarantor, the timely filing of a claim of the unpaid balance of his Notes pursuant to Guarantees in the form required in said proceeding and the causing of such claim to be approved. If the Trustee shall not file a proper claim or proof of debt in the form required in such proceeding prior to 30 days before the expiration of the time to file such claim or claims, then the holders of the Senior Indebtedness or their Representative shall have the right to file an appropriate claim for and on behalf of the Holders. Nothing herein contained shall be deemed to authorize the Trustee or any Holder of Senior Indebtedness or their Representative to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Notes, the Guarantees or the rights of any Holder, or to authorize the Trustee or any holder of Senior Indebtedness or their Representative to vote in respect of the claim of any Holder in any such proceeding. -64- 70 SECTION 13.10. RIGHT OF TRUSTEE TO HOLD SENIOR INDEBTEDNESS. The Trustee shall be entitled to all of the rights set forth in this Article in respect of any Senior Indebtedness at any time held by it to the same extent as any other holder of Senior Indebtedness, and nothing in this Indenture shall be construed to deprive the Trustee of any of its rights as such holder. SECTION 13.11. PAYMENT. A payment pursuant to the Guarantees with respect to a Note or with respect to principal of or interest on a Note shall include, without limitation, payment of principal of (and premium, if any) and interest on any Note, any depositing of funds under Article 10, any payment on account of any mandatory or optional repurchase or redemption of any Note (including payments pursuant to Section 10.9 or Section 10.14) and any payment or recovery on any claim (whether for rescission or damages and whether based on contract, tort, duty imposed by law, or any other theory of liability) relating to or arising out of the offer, sale or purchase of any Note, provided that any such payment, deposit, other payment or recovery (i) not prohibited pursuant to this Article at the time actually made shall not be subject to any recovery by any holder of Senior Indebtedness or Representative therefor or other Person pursuant to this Article at any time thereafter and (ii) made by or from any Persons other than any Subsidiary Guarantor shall not be subject to any recovery by any holder of Senior Indebtedness or Representative therefor or other Person pursuant to this Article at any time thereafter except to the extent such Person recovers any such amount paid from such Subsidiary Guarantor whether pursuant to rights of indemnity, rescission or otherwise. -65- 71 ARTICLE 14 ADDITIONAL SERIES OF NOTES SECTION 14.1. AUTHORIZATION AND DELIVERY OF ADDITIONAL SERIES OF NOTES. From time to time after the execution of this Indenture, the Company may authorize one or more series of Notes in addition to the Initial Notes. If the Company shall determine to authorize any such additional series of Notes, it shall file with the Trustee: (a) a Certified Resolution creating or authorizing the creation of such series of Notes and approving or authorizing an officer of the Company to approve and to execute the Supplemental Indenture referred to in Section 14.1(b) hereof; (b) a Supplemental Indenture creating such additional series of Notes and containing provisions setting forth an appropriate series designation, the form or forms of the Notes of such series, the date of stated maturity thereof, the rate of interest or the manner of determining such rate, the interest payment date or dates, the redemption provisions (if any), the sinking fund provisions (if any), the conversion provisions (if any), the limitation of the aggregate principal amount of the Notes of such series and other terms not inconsistent with the provisions of this Indenture as the Company may elect to include in such Supplemental Indenture; and (c) an Opinion of Counsel, stating that all conditions precedent to the creation of such series of Notes and to the execution of such Supplemental Indenture have been complied with and that such Supplemental Indenture is in proper form for execution by the Trustee. (d) thereupon, the Trustee shall join with the Company in the execution of such Supplemental Indenture, but the Trustee shall not be obligated to enter into any such Supplemental Indenture which in the Trustee's opinion adversely affects the Trustee's own rights, duties or immunities under this Indenture or otherwise. (e) Notes of any series other than the Initial Notes shall be issued only upon receipt by the Trustee of: (i) a Certified Resolution authorizing the authentication and delivery to or upon the written order of the Company of the Notes of such series in an aggregate principal amount specified therein; (ii) an Officers' Certificate stating that no Event of Default, or event which with the giving of notice or passage of time or both would become an Event of Default, exists under the Indenture; that all payments required to be made by the Company under the Indenture and the outstanding Notes are current, and that upon the issuance of the additional Notes, no Event of Default, or event which with the giving of notice or passage of time or both would become an Event of Default will exist under the Indenture; (iii) an Opinion or Opinions of Counsel stating that the Supplemental Indenture and the Notes issued pursuant thereto are legal, valid and binding obligations of the Company enforceable against the Company in accordance with their terms and that all conditions precedent to the execution and delivery of the Supplemental Indenture and the issuance, authentication and delivery of the Notes pursuant thereto have been fulfilled; and -66- 72 (iv) such other closing documents as the Trustee may specify. SIGNATURES IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed, and their respective corporate seals to be hereunto affixed and attested, all as of the day and year first above written. SIMULA, INC., an Arizona corporation By ------------------------------------- Donald Townsend, President BANK ONE COLUMBUS, NA, as Trustee By ------------------------------------- Trust Officer SUBSIDIARY GUARANTORS: SIMULA GOVERNMENT PRODUCTS, INC., an Arizona corporation By ------------------------------------- Sean K. Nolen, Assistant Treasurer SIMULA TRANSPORTATION EQUIPMENT CORPORATION, an Arizona corporation By ------------------------------------- Sean K. Nolen, Assistant Treasurer AIRLINE INTERIORS, INC., an Arizona corporation By ------------------------------------- Sean K. Nolen, Assistant Treasurer -67- 73 COACH AND CAR EQUIPMENT CORPORATION, an Arizona corporation By ------------------------------------- Sean K. Nolen, Assistant Treasurer ARTCRAFT INDUSTRIES CORP., an Arizona corporation By ------------------------------------- Sean K. Nolen, Assistant Treasurer -68- 74 SIMULA AUTOMOTIVE SAFETY DEVICES, INC. an Arizona corporation By ------------------------------------- Sean K. Nolen, Assistant Treasurer SAFETY EQUIPMENT, INC., an Arizona corporation By ------------------------------------- Sean K. Nolen, Assistant Treasurer SEDONA SCIENTIFIC, INC., an Arizona corporation By ------------------------------------- Sean K. Nolen, Assistant Treasurer INTERNATIONAL CENTER FOR SAFETY EDUCATION, INC., an Arizona corporation By ------------------------------------- Sean K. Nolen, Assistant Treasurer SIMULA HOLDINGS, INC., an Arizona corporation By ------------------------------------- Sean K. Nolen, Assistant Treasurer SIMULA TECHNOLOGIES, INC., an Arizona corporation By ------------------------------------- Sean K. Nolen, Assistant Treasurer -69- 75 INTAERO, LTD., an Arizona corporation By ------------------------------------- Sean K. Nolen, Assistant Treasurer VIATECH, INC., a Delaware corporation By ------------------------------------- Sean K. Nolen, Assistant Treasurer -70- 76 STATE OF ) ) ss. County of ) On this _____ day of ______________________, 1997, before me, a Notary Public in and for said county and state, personally appeared Donald Townsend, to me personally known and known to me to be the same person who executed the within and foregoing instrument, who, being by me duly sworn, did depose, acknowledge and say that he is the President of SIMULA, INC., one of the corporations described in and which executed the foregoing instrument; that said instrument was executed on behalf of said corporation by authority of its Board of Directors; and he acknowledged the execution of said instrument to be the voluntary act and deed of said corporation by it voluntarily executed. IN WITNESS WHEREOF, I have hereunto set my hand and official seal this ____________ day of _______________________________, 1997. ------------------------------------- Notary Public (Seal) STATE OF ) ) ss. County of ) On this _____ day of ______________________, 1997, before me, a Notary Public in and for said county and state, personally appeared ___________________________ to me personally known and known to me to be the same person who executed the within and foregoing instrument, who, being by me duly sworn, did depose, acknowledge and say: That he/she is a Trust Officer of BANK ONE COLUMBUS, NA, one of the corporations described in and which executed the foregoing instrument; that said instrument was executed on behalf of said corporation by authority of its Board of Directors; and he/she acknowledged the execution of said instrument to be the voluntary act and deed of said corporation by it voluntarily executed. IN WITNESS WHEREOF, I have hereunto set my hand and official seal this ____________ day of _______________________________, 1997. ------------------------------------- Notary Public (Seal) -71- 77 STATE OF ) ) ss. County of ) On this _____ day of ______________________, 1997, before me, a Notary Public in and for said county and state, personally appeared Sean K. Nolen to me personally known and known to me to be the same person who executed the within and foregoing instrument, who, being by me duly sworn, did depose, acknowledge and say that he is the Assistant Treasurer of SIMULA GOVERNMENT PRODUCTS, INC., one of the corporations described in and which executed the foregoing instrument; that said instrument was executed on behalf of said corporation by authority of its Board of Directors; and he acknowledged the execution of said instrument to be the voluntary act and deed of said corporation by it voluntarily executed. IN WITNESS WHEREOF, I have hereunto set my hand and official seal this _____________ day of ____________________________ 1997. ------------------------------------- Notary Public (Seal) STATE OF ) ) ss. County of ) On this _____ day of ______________________, 1997, before me, a Notary Public in and for said county and state, personally appeared Sean K. Nolen to me personally known and known to me to be the same person who executed the within and foregoing instrument, who, being by me duly sworn, did depose, acknowledge and say that he is the Assistant Treasurer of SIMULA TRANSPORTATION EQUIPMENT CORPORATION, one of the corporations described in and which executed the foregoing instrument; that said instrument was executed on behalf of said corporation by authority of its Board of Directors; and he acknowledged the execution of said instrument to be the voluntary act and deed of said corporation by it voluntarily executed. IN WITNESS WHEREOF, I have hereunto set my hand and official seal this _____________ day of ____________________________ 1997. ------------------------------------- Notary Public (Seal) -72- 78 STATE OF ) ) ss. County of ) On this _____ day of ______________________, 1997, before me, a Notary Public in and for said county and state, personally appeared Sean K. Nolen to me personally known and known to me to be the same person who executed the within and foregoing instrument, who, being by me duly sworn, did depose, acknowledge and say that he is the Assistant Treasurer of AIRLINE INTERIORS, INC., one of the corporations described in and which executed the foregoing instrument; that said instrument was executed on behalf of said corporation by authority of its Board of Directors; and he acknowledged the execution of said instrument to be the voluntary act and deed of said corporation by it voluntarily executed. IN WITNESS WHEREOF, I have hereunto set my hand and official seal this _____________ day of ____________________________ 1997. ------------------------------------- Notary Public (Seal) STATE OF ) ) ss. County of ) On this _____ day of ______________________, 1997, before me, a Notary Public in and for said county and state, personally appeared Sean K. Nolen to me personally known and known to me to be the same person who executed the within and foregoing instrument, who, being by me duly sworn, did depose, acknowledge and say that he is the Assistant Treasurer of COACH AND CAR EQUIPMENT CORPORATION, one of the corporations described in and which executed the foregoing instrument; that said instrument was executed on behalf of said corporation by authority of its Board of Directors; and he acknowledged the execution of said instrument to be the voluntary act and deed of said corporation by it voluntarily executed. IN WITNESS WHEREOF, I have hereunto set my hand and official seal this _____________ day of ____________________________ 1997. ------------------------------------- Notary Public (Seal) -73- 79 STATE OF ) ) ss. County of ) On this _____ day of ______________________, 1997, before me, a Notary Public in and for said county and state, personally appeared Sean K. Nolen to me personally known and known to me to be the same person who executed the within and foregoing instrument, who, being by me duly sworn, did depose, acknowledge and say that he is the Assistant Treasurer of ARTCRAFT INDUSTRIES CORP., one of the corporations described in and which executed the foregoing instrument; that said instrument was executed on behalf of said corporation by authority of its Board of Directors; and he acknowledged the execution of said instrument to be the voluntary act and deed of said corporation by it voluntarily executed. IN WITNESS WHEREOF, I have hereunto set my hand and official seal this _____________ day of ____________________________ 1997. ------------------------------------- Notary Public (Seal) STATE OF ) ) ss. County of ) On this _____ day of ______________________, 1997, before me, a Notary Public in and for said county and state, personally appeared Sean K. Nolen to me personally known and known to me to be the same person who executed the within and foregoing instrument, who, being by me duly sworn, did depose, acknowledge and say that he is the Assistant Treasurer of SIMULA AUTOMOTIVE SAFETY DEVICES, INC., one of the corporations described in and which executed the foregoing instrument; that said instrument was executed on behalf of said corporation by authority of its Board of Directors; and he acknowledged the execution of said instrument to be the voluntary act and deed of said corporation by it voluntarily executed. IN WITNESS WHEREOF, I have hereunto set my hand and official seal this _____________ day of ____________________________ 1997. ------------------------------------- Notary Public (Seal) -74- 80 STATE OF ) ) ss. County of ) On this _____ day of ______________________, 1997, before me, a Notary Public in and for said county and state, personally appeared Sean K. Nolen to me personally known and known to me to be the same person who executed the within and foregoing instrument, who, being by me duly sworn, did depose, acknowledge and say that he is the Assistant Treasurer of SAFETY EQUIPMENT, INC., one of the corporations described in and which executed the foregoing instrument; that said instrument was executed on behalf of said corporation by authority of its Board of Directors; and he acknowledged the execution of said instrument to be the voluntary act and deed of said corporation by it voluntarily executed. IN WITNESS WHEREOF, I have hereunto set my hand and official seal this _____________ day of ____________________________ 1997. ------------------------------------- Notary Public (Seal) STATE OF ) ) ss. County of ) On this _____ day of ______________________, 1997, before me, a Notary Public in and for said county and state, personally appeared Sean K. Nolen to me personally known and known to me to be the same person who executed the within and foregoing instrument, who, being by me duly sworn, did depose, acknowledge and say that he is the Assistant Treasurer of SEDONA SCIENTIFIC, INC., one of the corporations described in and which executed the foregoing instrument; that said instrument was executed on behalf of said corporation by authority of its Board of Directors; and he acknowledged the execution of said instrument to be the voluntary act and deed of said corporation by it voluntarily executed. IN WITNESS WHEREOF, I have hereunto set my hand and official seal this _____________ day of ____________________________ 1997. ------------------------------------- Notary Public (Seal) -75- 81 STATE OF ) ) ss. County of ) On this _____ day of ______________________, 1997, before me, a Notary Public in and for said county and state, personally appeared Sean K. Nolen to me personally known and known to me to be the same person who executed the within and foregoing instrument, who, being by me duly sworn, did depose, acknowledge and say that he is the Assistant Treasurer of INTERNATIONAL CENTER FOR SAFETY EDUCATION, INC., one of the corporations described in and which executed the foregoing instrument; that said instrument was executed on behalf of said corporation by authority of its Board of Directors; and he acknowledged the execution of said instrument to be the voluntary act and deed of said corporation by it voluntarily executed. IN WITNESS WHEREOF, I have hereunto set my hand and official seal this _____________ day of ____________________________ 1997. ------------------------------------- Notary Public (Seal) STATE OF ) ) ss. County of ) On this _____ day of ______________________, 1997, before me, a Notary Public in and for said county and state, personally appeared Sean K. Nolen to me personally known and known to me to be the same person who executed the within and foregoing instrument, who, being by me duly sworn, did depose, acknowledge and say that he is the Assistant Treasurer of SIMULA HOLDINGS, INC., one of the corporations described in and which executed the foregoing instrument; that said instrument was signed on behalf of said corporation by authority of its Board of Directors; and he acknowledged the execution of said instrument to be the voluntary act and deed of said corporation by it voluntarily executed. IN WITNESS WHEREOF, I have hereunto set my hand and official seal this _____ day of _________, 1997. ------------------------------------- Notary Public (Seal) -76- 82 STATE OF ) ) ss. County of ) On this _____ day of ______________________, 1997, before me, a Notary Public in and for said county and state, personally appeared Sean K. Nolen to me personally known and known to me to be the same person who executed the within and foregoing instrument, who, being by me duly sworn, did depose, acknowledge and say that he is the Assistant Treasurer of SIMULA TECHNOLOGIES, INC., one of the corporations described in and which executed the foregoing instrument; that said instrument was signed on behalf of said corporation by authority of its Board of Directors; and he acknowledged the execution of said instrument to be the voluntary act and deed of said corporation by it voluntarily executed. IN WITNESS WHEREOF, I have hereunto set my hand and official seal this _____ day of _________, 1997. ------------------------------------- Notary Public (Seal) -77- 83 STATE OF ) ) ss. County of ) On this _____ day of ______________________, 1997, before me, a Notary Public in and for said county and state, personally appeared Sean K. Nolen to me personally known and known to me to be the same person who executed the within and foregoing instrument, who, being by me duly sworn, did depose, acknowledge and say that he is the Assistant Treasurer of INTAERO, LTD., one of the corporations described in and which executed the foregoing instrument; that said instrument was signed on behalf of said corporation by authority of its Board of Directors; and he acknowledged the execution of said instrument to be the voluntary act and deed of said corporation by it voluntarily executed. IN WITNESS WHEREOF, I have hereunto set my hand and official seal this _____ day of _________, 1997. ------------------------------------- Notary Public (Seal) STATE OF ) ) ss. County of ) On this _____ day of ______________________, 1997, before me, a Notary Public in and for said county and state, personally appeared Sean K. Nolen to me personally known and known to me to be the same person who executed the within and foregoing instrument, who, being by me duly sworn, did depose, acknowledge and say that he is the Assistant Treasurer of VIATECH, INC., one of the corporations described in and which executed the foregoing instrument; that said instrument was executed on behalf of said corporation by authority of its Board of Directors; and he acknowledged the execution of said instrument to be the voluntary act and deed of said corporation by it voluntarily executed. IN WITNESS WHEREOF, I have hereunto set my hand and official seal this _____________ day of ____________________________ 1997. ------------------------------------- Notary Public -78- EX-5.1 4 OPINION OF COUNSEL 1 [STREICH LANG LETTERHEAD] April __, 1997 EXHIBIT 5.1 Simula, Inc. 2700 North Central Avenue, Suite 1000 Phoenix, Arizona 85004 Re: Simula, Inc. Amendment No. 3 to Registration Statement on Form S-3 (Reg. No. 333-13499) Ladies and Gentlemen: We have acted as special counsel to Simula, Inc., an Arizona corporation (the "Company"), and Simula, Inc., an Arizona corporation, Simula Holdings, Inc., an Arizona corporation, Simula Government Products, Inc., an Arizona corporation, Simula Technologies, Inc., an Arizona corporation, Safety Equipment, Inc., an Arizona corporation, Sedona Scientific, Inc., an Arizona corporation, International Center for Safety Education, Inc., an Arizona corporation, Simula Transportation Equipment Corporation, an Arizona corporation, Airline Interiors, Inc., an Arizona corporation, Coach and Car Equipment Corporation, an Arizona corporation, Artcraft Industries Corp., an Arizona corporation, Intaero, Ltd., an Arizona corporation, Simula Automotive Safety Devices, Inc., an Arizona corporation, ViaTech, Inc., a Delaware corporation, and Simula Automotive Safety Devices, Limited, a corporation formed in the United Kingdom (collectively the "Subsidiary Guarantors"), in connection with the public offering of $30,000,000 aggregate principal amount of the Company's __% Senior Subordinated Convertible Notes due 2004 (the "Notes") which are to be guaranteed fully and unconditionally, jointly and severally, by the Subsidiary Guarantors (the guarantees of the Subsidiary Guarantors are collectively referred to herein as the "Subsidiary Guarantees") pursuant to an Indenture, as defined below. The Notes and the Subsidiary Guarantees are collectively referred to herein as the "Securities." The Securities are to be issued pursuant to an indenture (the "Indenture") to be entered into among the Company, the Subsidiary Guarantors, and Bank One Trust Company, NA as Trustee (the "Trustee"). This opinion is being furnished in accordance with the requirements of Item 601(b)(5) of Regulation S-K under the Securities Act of 1933, as amended (the "Act"). In connection with this opinion, we have examined originals or copies, certified or otherwise identified to our satisfaction, of (i) the Registration Statement on Form S-3 (Reg. No. 333-13499) as filed with the Securities and Exchange Commission (the "Commission") on October 4, 1996 under the Act (the "Registration Statement"); (ii) the form of Amendment No. 3 to the Registration Statement ("Amendment No. 3") as proposed to be filed with the Commission on April 21, 1997; (iii) the form of the Underwriting Agreement (the "Underwriting Agreement") proposed to be entered into among the Company, as issuer, the Subsidiary Guarantors, and HD Brous & Co., Inc., Brean Murray & Co., Inc., and L.H. Friend, Weinress, Frankson & Presson, Inc., as underwriters (the "Underwriters"), being filed as an exhibit to Amendment No. 3; (iv) the form of the Indenture being filed as an exhibit to Amendment No. 3; (v) the form of the Securities; (vi) the Articles of Incorporation of the Company and the Articles and Certificate of Incorporation of the Subsidiary Guarantors, as currently in effect; (vii) the By-Laws of the Company and the Subsidiary Guarantors, as currently in effect; and (viii) certain resolutions of the Board of Directors of the Company and the Subsidiary Guarantors, in each case, relating to the issuance and sale of the Securities, the issuance of the Subsidiary Guarantees and issuance of shares (the "Shares") of Common Stock, par value $.01 per share, of the Company upon conversion of the Notes into the Shares and related matters. We have also examined originals or copies, certified or otherwise identified to our satisfaction, of such records of the Company and the Subsidiary Guarantors and such agreements, certificates of public officials, certificates of officers or other representatives of the Company, the Subsidiary Guarantors and others, and such other documents, certificates and records as we have deemed necessary or appropriate as a basis for the opinions set forth herein. 2 Based upon and subject to the foregoing and further subject to the qualifications, assumptions and exceptions set forth below, we are of the opinion that (i) the issuance and sale of the Securities and issuance of the Shares upon conversion of the Notes will have been duly authorized by the Company and the Subsidiary Guarantors; (ii) the Shares, when issued upon conversion of the Notes, will be validly issued, fully paid and nonassessable; (iii) the description of the material federal income tax consequences of the Company's issuance of the Notes contained under the caption "Certain Federal Income Tax Considerations" in the Registration Statement is accurate; and (iv) the Securities will be valid and binding obligations of the Company and the Subsidiary Guarantors entitled to the benefits of the Indenture and enforceable against the Company and the Subsidiary Guarantors in accordance with their terms, except to the extent that (a) enforcement thereof may be limited by (1) bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or other similar laws now or hereafter in effect relating to creditors' rights generally, and (2) general principles of equity, regardless of whether enforceability is considered in a proceeding at law or in equity, and (b) the indemnity provisions contained in the Indenture may be deemed unenforceable. Certain of the remedial provisions in the Indenture may be further limited or rendered unenforceable by applicable law, but such law does not in our opinion make the remedies provided in the Indenture inadequate for the practical realization of the benefits provided thereby. The foregoing opinions are subject to the following assumptions, receptions and qualifications: (i) We have assumed (a) the legal capacity of all natural persons; (b) the genuineness of all signatures; (c) the authenticity of all documents submitted to us as originals; (d) the conformity to original documents of all documents submitted to us as certified, conformed or photostatic copies; and (e) the authenticity of the originals of such latter documents. (ii) In making our examination of documents executed or to be executed by parties other than the Company and the Subsidiary Guarantors, we have assumed that such parties had or will have the power, corporate or other, to enter into and perform all obligations thereunder and have also assumed the due authorization by all requisite action, corporate or other, and execution and delivery by such parties of such documents and the validity and binding effect thereof. (iii) As to any facts material to the opinions expressed in this letter which we have not independently established or verified, we have relied upon statements and representations of officers and other representatives of the Company, the Subsidiary Guarantors and others. (iv) Members of our firm are admitted to the bar in the State of Arizona, and we do not express any opinion as to the laws of any other jurisdiction, other than the laws of the United States of America to the extent specifically referred to in this letter. (v) The opinions expressed in this letter are based upon the law in effect on the date hereof. In rendering these opinions, we undertake no obligation to revise or supplement them if the present laws of Arizona, the present applicable laws of the United States, or the present laws of any other jurisdiction referred to herein are changed by legislative action, judicial decision or otherwise. (vi) We have assumed that (a) the Registration Statement has become effective and the Indenture has been qualified under the Trust Indenture Act of 1939, as amended; (b) the interest rate, maturity, redemption and other terms of the Securities as well as the price at which the Securities are to be sold to the Underwriters pursuant to the Underwriting Agreement and other matters relating to the issuance and sale of the Securities have been approved by the Board of Directors of the Company and the Subsidiary Guarantors; (c) the issuance of the Shares upon conversion of the Notes has been approved by the Board of Directors of the Company; (d) the Indenture and the Underwriting Agreement have been duly executed and delivered; (e) the certificates representing the Shares have been duly executed, countersigned, registered and delivered upon the conversion of the Notes into Shares in accordance with the provisions of the Notes and the Indenture; and (f) the Securities have been duly executed and authenticated in accordance with the terms of the Indenture and delivered to and paid for by the Underwriters as contemplated by the Underwriting Agreement. We hereby consent to the filing of this opinion with the Commission as an exhibit to the Registration Statement. We also consent to the reference to our firm under the caption "Legal Matters" in the Registration Statement. In giving this consent, we do not hereby admit that we are included in the category of persons whose consent is required under Section 7 of the Act or the rules and regulations of the Commission. Sincerely yours, /s/ STREICH LANG, a professional association EX-23 5 CONSENT OF INDEPENDENT AUDITORS 1 EXHIBIT 23 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in this Amendment No. 3 of Registration Statement No. 333-13499 of Simula, Inc. on Form S-3 of our report dated March 20, 1997, appearing and incorporated by reference in the Form 10-K of Simula, Inc. for the year ended December 31, 1996, and to the reference to us under the heading "Experts" in the Prospectus, which is part of this Registration Statement. DELOITTE & TOUCHE LLP Phoenix, Arizona April 21, 1997 -----END PRIVACY-ENHANCED MESSAGE-----