As filed with the Securities and Exchange Commission on February 20, 2004
Registration No. 333-111742
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1 TO
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
ARMOR HOLDINGS, INC.
(Exact name of registrant as specified in charter)
DELAWARE 7381 59-3392443
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Numbers) Identification No.)
1400 Marsh Landing Parkway
Suite 112
Jacksonville, Florida 32250
(904) 741-5400
(Address, including zip code and telephone number, including area
code, of registrant's principal executive offices)
WARREN B. KANDERS
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
ARMOR HOLDINGS, INC.
1400 MARSH LANDING PARKWAY
SUITE 112
JACKSONVILLE, FLORIDA 32250
(904) 741-5400
(Name, Address, including zip code and telephone number, including
area code, of agent for service of process)
With copies to:
ROBERT L. LAWRENCE, ESQ.
KANE KESSLER, P.C.
1350 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019
(212) 541-6222
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after the effective date of this registration statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General instruction G, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration number for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
CALCULATION OF REGISTRATION FEE
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PROPOSED PROPOSED
TITLE OF EACH CLASS OF AMOUNT TO BE MAXIMUM MAXIMUM AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED OFFERING AGGREGATE REGISTRATION
PRICE PER OFFERING FEE
UNIT(1) PRICE(1)
8 1/4% Senior Subordinated
Notes due 2013 $150,000,000 100% $150,000,000 $12,135 (2)
Subsidiary Guarantees of
8 1/4% Senior Subordinated
Notes due 2013 - - - (3)
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(f) of the Securities Act of 1933, as amended (the
"Securities Act").
(2) Calculated pursuant to Rule 457(f)(2) of the Securities Act. The
registration fee was paid with the initial filing of this registration
statement.
(3) Pursuant to Rule 457(n) under the Securities Act, no separate fee is
payable for 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 the registration statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
TABLE OF ADDITIONAL REGISTRANTS
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STATE OR OTHER JURISDICTION ADDRESS, INCLUDING ZIP CODE
OF INCORPORATION OR I.R.S.EMPLOYER AND TELEPHONE NUMBER,
NAME ORGANIZATION IDENTIFICATION NUMBER INCLUDING AREA CODE
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911EP, Inc. Delaware 13-4213473 *
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AHI Bulletproof Acquisition Corp. Delaware 05-0592796 *
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STATE OR OTHER JURISDICTION ADDRESS, INCLUDING ZIP CODE
OF INCORPORATION OR I.R.S.EMPLOYER AND TELEPHONE NUMBER,
NAME ORGANIZATION IDENTIFICATION NUMBER INCLUDING AREA CODE
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AHI Properties I, Inc. Delaware 01-0718252 *
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AI Capital Corp. Arizona 86-0768865 *
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Armor Brands, Inc. Delaware 80-0051043 *
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ArmorGroup Services, LLC Delaware 52-2295786 *
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Armor Holdings Forensics, Inc. Delaware 59-3678749 *
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Armor Holdings GP, LLC Delaware 59-3678751 *
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Armor Holdings LP, LLC Delaware 59-3678750 *
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Armor Holdings Mobile Security, L.L.C. Delaware 59-3753134 *
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Armor Holdings Payroll Services, LLC Delaware 42-1563404 *
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Armor Holdings Products, Inc. Delaware 59-2044869 *
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Armor Holdings Properties, Inc. Delaware 59-3410197 *
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Armor Safety Products Company Delaware 43-1960312 *
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ASD Capital Corp. Arizona 86-0789385 *
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B-Square, Inc. Texas 75-2508507 *
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Break-Free Armor Corp. Delaware 05-0592799 *
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Break-Free, Inc. Delaware 33-0367696 *
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Casco International, Inc. New Hampshire 02-0361726 *
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CCEC Capital Corp. Arizona 86-0763929 *
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CDR International, Inc. Delaware 56-2010802 *
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Defense Technology Corporation of America Delaware 83-0318312 *
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Hatch Imports, Inc. California 95-2497492 *
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Identicator, Inc. Delaware 59-3756251 *
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International Center for Safety Education, Inc. Arizona 86-0787589 *
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Monadnock Lifetime Products, Inc. Delaware 02-0528875 *
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Monadnock Lifetime Products, Inc. New Hampshire 02-0303656 *
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Monadnock Police Training Council, Inc. New Hampshire 02-0423584 *
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NAP Properties, Ltd. California 95-4230863 *
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NAP Property Managers, LLC California 33-0755818 *
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Network Audit Systems, Inc. Delaware 16-1558713 *
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STATE OR OTHER JURISDICTION ADDRESS, INCLUDING ZIP CODE
OF INCORPORATION OR I.R.S.EMPLOYER AND TELEPHONE NUMBER,
NAME ORGANIZATION IDENTIFICATION NUMBER INCLUDING AREA CODE
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New Technologies Armor, Inc. Delaware 93-1221356 *
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O'Gara-Hess & Eisenhardt Armoring
Company, L.L.C. Delaware 31-1258139 *
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Pro-Tech Armored Products of
Massachusetts, Inc. Massachusetts 04-2989918 *
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Ramtech Development Corp. Delaware 05-0592801 *
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Safari Land Ltd., Inc. California 95-2291390 *
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Safariland Government Sales, Inc. California 33-0798807 *
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SAI Capital Corp. Arizona 86-0772587 *
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Simula Aerospace & Defense Group, Inc. Arizona 86-0742551 *
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Simula, Inc. Arizona 86-0320129 *
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Simula Polymers Systems, Inc. Arizona 86-0979231 *
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Simula Technologies, Inc. Arizona 86-0842935 *
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Simula Transportation Equipment Corporation Arizona 86-0742552 *
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Speedfeed Acquisition Corp. Delaware 03-0419829 *
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The O'Gara Company Ohio 31-1726886 *
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*The name, address, including zip code, and telephone number of the agent for
service of process is Warren B. Kanders at 1400 Marsh Landing Parkway, Suite
112, Jacksonville, Florida 32250, telephone number (904) 741-5400.
SUBJECT TO COMPLETION, DATED February 20, 2004.
PROSPECTUS
ARMOR HOLDINGS, INC.
OFFER TO EXCHANGE $150,000,000 PRINCIPAL AMOUNT OF OUR
8 1/4% SENIOR SUBORDINATED NOTES DUE 2013,
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
FOR ANY AND ALL OF OUR OUTSTANDING
8 1/4% SENIOR SUBORDINATED NOTES DUE 2013
UNCONDITIONALLY GUARANTEED BY THE SUBSIDIARY
GUARANTORS LISTED ON PAGE 5 OF THIS PROSPECTUS
---------------
MATERIAL TERMS OF THE EXCHANGE OFFER
o The exchange offer expires at 5:00 p.m., New York City time, on
___________, 2004, unless extended.
o We will exchange all outstanding old notes that are validly tendered and
not validly withdrawn for an equal principal amount of a new series of
notes which are registered under the Securities Act of 1933, as amended
(the "Securities Act"), subject to the satisfaction or waiver of specified
conditions.
o The terms of the new notes are substantially identical to those of the old
notes, except that the transfer restrictions applicable to the old notes
are not applicable to the new notes.
o You may withdraw tenders of old notes at any time before the exchange offer
expires.
o The exchange of new notes for outstanding old notes should not be a taxable
event for U.S. Federal income tax purposes.
o We will not receive any proceeds from the exchange offer.
o We do not intend to apply for listing of any of the new notes to be issued
on any securities exchange or to arrange for them to be quoted on any
quotation system.
o All of our current and future domestic subsidiaries, except USDS, Inc.,
will unconditionally guarantee in full, on a joint and several basis, our
obligation to pay the principal of, premium, if any, and interest on the
new notes. See "Risk Factors - Federal and state statutes allow courts,
under specific circumstances, to void guarantees and require noteholders to
return payments received from guarantors" and "Description of the New Notes
- Subsidiary Guarantees."
o Each broker-dealer that receives new notes for its own account pursuant to
the exchange offer must acknowledge that it will deliver a prospectus in
connection with any resale of such new notes. The Letter of Transmittal
states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter"
within the meaning of the
Securities Act. This prospectus, as it may be amended or supplemented from
time to time, may be used by a broker-dealer in connection with resales of
the new notes received in exchange for the old notes where such old notes
were acquired by such broker-dealer as a result of market-making activities
or other trading activities. We and our subsidiary guarantors have agreed
that we will make this prospectus available to any broker-dealer for use in
connection with any such resale. See "Plan of Distribution."
---------------
PLEASE REFER TO "RISK FACTORS" BEGINNING ON PAGE 14 FOR A DESCRIPTION
OF THE RISKS YOU SHOULD CONSIDER WHEN EVALUATING THIS INVESTMENT.
---------------
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US
A PROXY.
---------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE NEW NOTES TO BE ISSUED IN THE
EXCHANGE OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
WE MAY AMEND OR SUPPLEMENT THIS PROSPECTUS FROM TIME TO TIME BY FILING
AMENDMENTS OR SUPPLEMENTS AS REQUIRED. YOU SHOULD READ THIS ENTIRE PROSPECTUS
(AND THE ACCOMPANYING LETTER OF TRANSMITTAL AND RELATED DOCUMENTS) AND ANY
AMENDMENTS OR SUPPLEMENTS CAREFULLY BEFORE MAKING YOUR INVESTMENT DECISION.
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
THE DATE OF THIS PROSPECTUS IS __________ __, 2004.
2
TABLE OF CONTENTS
Page
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SUBSIDIARY GUARANTORS................................................................................................5
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE......................................................................6
SUMMARY..............................................................................................................8
RISK FACTORS........................................................................................................14
RISKS RELATING TO THE NEW NOTES..................................................................................14
If you fail to exchange properly your old notes for new notes, you will continue to hold old notes subject to
transfer restrictions..........................................................................................14
Our significant indebtedness could adversely affect our financial health, and prevent us from fulfilling our
obligations under the notes....................................................................................14
Your right to receive payments on the notes is junior to our existing senior indebtedness and possibly all of
our future borrowings. Further, the guarantees of the new notes are junior to all of the guarantors' existing
senior indebtedness and possibly to all their future borrowings................................................15
Since the notes are unsecured, your right to enforce remedies is limited by the rights of holders of secured
debt...........................................................................................................16
Not all of our subsidiaries will guarantee our obligations under the notes, and the assets of the non-guarantor
subsidiaries may not be available to make payments on the notes................................................16
We will require a significant amount of cash to service our indebtedness. Our ability to generate cash depends
on many factors beyond our control.............................................................................16
The indenture and our senior credit facility contain various covenants which limit our management's discretion
in the operation of our business...............................................................................17
We may not have the ability to raise the funds necessary to finance the change of control offer required by
the indenture. ................................................................................................17
A public market for the new notes may not develop..............................................................18
Federal and state statutes allow courts, under specific circumstances, to void guarantees and require
noteholders to return payments received from guarantors........................................................18
RISKS RELATED TO ARMOR HOLDINGS' INDUSTRY........................................................................19
The products we sell are inherently risky and could give rise to product liability and other claims............19
We are subject to extensive government regulation and our failure or inability to comply with these
regulations could materially restrict our operations and subject us to substantial penalties...................20
We have significant international operations and assets and are therefore subject to additional financial and
regulatory risks...............................................................................................21
RISKS RELATED TO ARMOR HOLDINGS' BUSINESS........................................................................22
Many of our customers have fluctuating budgets which may cause substantial fluctuations in our results of
operations.....................................................................................................22
The loss of, or a significant reduction in, U.S. military business would have a material adverse effect on us..22
We may lose money or generate less than expected profits on our fixed-price contracts..........................23
Our business is subject to various laws and regulations favoring the U.S. government's contractual position,
and our failure to comply with such laws and regulations could harm our operating results and prospects........23
Our markets are highly competitive and if we are unable to compete effectively, we will be adversely affected..23
3
There are limited sources for some of our raw materials which may significantly curtail our manufacturing
operations.....................................................................................................24
We may be unable to complete or integrate acquisitions effectively, if at all, and as a result may incur
unanticipated costs or liabilities or operational difficulties.................................................24
Our resources may be insufficient to manage the demands imposed by our growth..................................24
Armor Holdings is dependent on industry relationships..........................................................25
We may be unable to protect our proprietary technology, including the technologies we use to furnish the
up-armoring of HMMWVS..........................................................................................25
Technological advances, the introduction of new products, and new design and manufacturing techniques could
adversely affect our operations unless we are able to adapt to the resulting change in conditions..............25
We may be adversely affected by applicable environmental laws and regulations..................................26
THE COMPANY ........................................................................................................27
RECENT DEVELOPMENTS ................................................................................................28
FORWARD LOOKING STATEMENTS..........................................................................................30
USE OF PROCEEDS.....................................................................................................31
RATIO OF EARNINGS TO FIXED CHARGES..................................................................................31
CAPITALIZATION......................................................................................................33
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA OF ARMOR HOLDINGS, INC..............................................34
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA OF SIMULA, INC......................................................36
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.....................................................37
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS...............................45
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT......................................................74
THE EXCHANGE OFFER..................................................................................................76
DESCRIPTION OF THE NEW NOTES........................................................................................88
DESCRIPTION OF SENIOR INDEBTEDNESS.................................................................................145
FEDERAL INCOME TAX CONSIDERATIONS..................................................................................145
PLAN OF DISTRIBUTION...............................................................................................149
WHERE YOU CAN FIND MORE INFORMATION................................................................................152
EXPERTS ...........................................................................................................152
LEGAL MATTERS......................................................................................................153
INDEX TO FINANCIAL STATEMENTS .....................................................................................F-1
4
SUBSIDIARY GUARANTORS
Set forth below is a list of the subsidiary guarantors guarantying the
obligations of Armor Holdings, Inc. pursuant to the terms of the Indenture,
dated as of August 12, 2003, among Armor Holdings, Inc., the subsidiary
guarantors listed as signatories thereto and Wachovia Bank, National
Association, as trustee, as supplemented by the First Supplemental Indenture
dated as of September 30, 2003, as further supplemented by the Second
Supplemental Indenture dated as of December 9, 2003 and as further supplemented
by the Third Supplemental Indenture dated as of December 24, 2003.
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911EP, Inc.
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AHI Bulletproof Acquisition Corp.
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AHI Properties I, Inc.
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AI Capital Corp.
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Armor Brands, Inc.
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ArmorGroup Services, LLC
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Armor Holdings Forensics, Inc.
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Armor Holdings GP, LLC
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Armor Holdings LP, LLC
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Armor Holdings Mobile Security, L.L.C.
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Armor Holdings Payroll Services, LLC
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Armor Holdings Products, Inc.
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Armor Holdings Properties, Inc.
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Armor Safety Products Company
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ASD Capital Corp.
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B-Square, Inc.
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Break-Free Armor Corp.
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Break-Free, Inc.
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Casco International, Inc.
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CCEC Capital Corp.
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CDR International, Inc.
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Defense Technology Corporation of America
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Hatch Imports, Inc.
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Identicator, Inc.
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International Center for Safety Education, Inc.
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Monadnock Lifetime Products, Inc. (Delaware)
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Monadnock Lifetime Products, Inc. (New Hampshire)
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Monadnock Police Training Council, Inc.
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NAP Properties, Ltd.
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NAP Property Managers, LLC
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Network Audit Systems, Inc.
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New Technologies Armor, Inc.
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O'Gara-Hess & Eisenhardt Armoring Company, L.L.C.
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Pro-Tech Armored Products of Massachusetts, Inc.
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5
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Ramtech Development Corp.
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Safari Land Ltd., Inc.
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Safariland Government Sales, Inc.
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SAI Capital Corp.
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Simula Aerospace & Defense Group, Inc.
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Simula, Inc.
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Simula Polymers Systems, Inc.
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Simula Technologies, Inc.
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Simula Transportation Equipment Corporation
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Speedfeed Acquisition Corp.
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The O'Gara Company
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents heretofore filed by us with the Securities and
Exchange Commission (the "Commission") pursuant to the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), are hereby incorporated by reference
in this prospectus, except as superseded or modified herein:
(a) Our annual report on Form 10-K/A for the fiscal year ended December 31,
2002;
(b) Our annual report on Form 10-K for the fiscal year ended December 31, 2002;
(c) Our quarterly report on Form 10-Q for the period ended March 31, 2003;
(d) Our quarterly report on Form 10-Q for the period ended June 30, 2003;
(e) Our quarterly report on Form 10-Q for the period ended September 30, 2003;
(f) Our current report on Form 8-K, Date of Event - May 5, 2003, filed on May
5, 2003;
(g) Our current report on Form 8-K, Date of Event - July 23, 2003, filed on
July 24, 2003;
(h) Our current report on Form 8-K, Date of Event - July 26, 2003, filed on
August 8, 2003;
(i) Our current report on Form 8-K, Date of Event - August 12, 2003, filed on
August 13, 2003;
(j) Our current report on Form 8-K, Date of Event - November 4, 2003, filed on
November 5, 2003;
(k) Our current report on Form 8-K, Date of Event - November 26, 2003, filed on
December 11, 2003;
(l) Our current report on Form 8-K, Date of Event - December 9, 2003, filed on
December 23, 2003;
(m) Our definitive proxy statement on Schedule 14A filed on April 30, 2003;
(n) Our current report on Form 8-K/A, Date of Event - December 9, 2003, filed
on January 22, 2004;
(o) Our current report on Form 8-K, Date of Event - January 27, 2004, filed on
January 27, 2004; and
(p) Our current report on Form 8-K, Date of Event - February 12, 2004, filed on
February 12, 2004.
6
All of such documents are on file with the Commission. In addition, all
documents filed by Armor Holdings pursuant to Sections 13(a), 13(c), 14 and
15(d) of the Exchange Act, subsequent to the date of this prospectus and prior
to termination of the exchange offer are incorporated by reference in this
prospectus and are a part hereof from the date of filing of such documents. Any
statement 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
subsequently filed document that is also incorporated by reference herein
modifies or replaces such statement. Any statements so modified or superseded
shall not be deemed, except as so modified or superseded, to constitute a part
of this prospectus.
This prospectus incorporates herein by reference important business and
financial information about Armor Holdings that is not included in or delivered
with this prospectus. This information is available to you without charge upon
written or oral request. If you would like a copy of any of this information,
please submit your request to Armor Holdings, Inc., 1400 Marsh Landing Parkway,
Suite 112, Jacksonville, Florida 32250, Attention: Corporate Secretary, or call
(904) 741-5400. In addition, to obtain timely delivery of any information you
request, you must submit your request no later than _____________, 2004, which
is five business days before the date the exchange offer expires.
7
SUMMARY
This summary highlights material information from the prospectus. It
may not contain all of the information that is important to you. References in
this prospectus to "Armor Holdings," "we," "us" and "our" refer to Armor
Holdings, Inc., and references to Simula refer to Simula, Inc. We urge you to
read and review carefully this entire prospectus, and the other documents to
which it refers, to fully understand the terms of the new notes and the exchange
offer.
SUMMARY OF THE TERMS OF THE EXCHANGE OFFER
General..................................... On August 12, 2003, we completed
a private offering of the old
notes, which consisted of $150.0
million aggregate principal
amount of our 8 1/4% Senior
Subordinated Notes due 2013. In
connection with the private
offering, we entered into a
registration rights agreement in
which we agreed, among other
things, to deliver this
prospectus and to complete an
exchange offer for the old
notes.
The Exchange Offer.......................... We are offering to exchange
$1,000 principal amount of our
registered 8 1/4% Senior
Subordinated Notes due 2013,
which we refer to as the "new
notes," for each $1,000
principal amount of our
unregistered 8 1/4% Senior
Subordinated Notes due 2013,
which we refer to as the "old
notes."
We sometimes refer to the new
notes and the old notes together
as the "notes." Currently,
$150.0 million principal amount
of old notes are outstanding.
The terms of the new notes are
identical in all material
respects to the terms of the old
notes, except that the transfer
restrictions applicable to the
old notes are not applicable to
the new notes.
Old notes may be tendered only
in $1,000 increments. Subject to
the satisfaction or waiver of
specified conditions, we will
exchange the new notes for all
old notes that are validly
tendered and not withdrawn prior
to the expiration of the
exchange offer. See "The
Exchange Offer -- Terms of the
Exchange Offer."
Upon completion of the exchange
offer, there may be no market
for the old notes and you may
have difficulty selling them.
See "Risk Factors - If you fail
to exchange properly your old
notes for new notes, you will
continue to hold notes subject
to transfer restrictions."
Expiration Date............................. The exchange offer will expire
at 5:00 p.m., New York City
time, on _____________, 2004,
unless extended, in which case
the expiration date will mean
the latest date and time to
which we extend the exchange
offer.
8
Conditions to the Exchange Offer............ The exchange offer is not
subject to conditions other than
that:
o it shall not violate
applicable law or any
applicable interpretation of
the staff of the Commission,
o no action or proceeding
shall have been instituted
or threatened in any court
or by any governmental
agency which might
materially impair our
ability to proceed with the
exchange offer, or
o all governmental approvals
which we deem necessary for
the completion of the
exchange offer shall have
been obtained.
The exchange offer is not
conditioned upon any minimum
principal amount of old notes
being tendered for exchange.
Procedures for
Tendering Old Notes......................... If you wish to tender your old
notes for new notes pursuant to
the exchange offer, you must
transmit to Wachovia Bank,
National Association, as
exchange agent, on or before the
expiration date, either:
o a computer-generated message
transmitted through The
Depository Trust Company's
Automated Tender Offer
Program system and received
by the exchange agent and
forming a part of a
confirmation of book-entry
transfer in which you
acknowledge and agree to be
bound by the terms of the
letter of transmittal; or
o a properly completed and
duly executed letter of
transmittal, which
accompanies this prospectus,
or a facsimile of the letter
of transmittal, together
with your old notes and any
other required
documentation, to the
exchange agent at its
address listed in this
prospectus and on the front
cover of the letter of
transmittal.
If you cannot satisfy either of
these procedures on a timely
basis, then you should comply
with the guaranteed delivery
procedures described below. By
executing the letter of
transmittal, you will make the
representations to us described
under "The Exchange
Offer-Procedures for Tendering."
Special Procedures for
Beneficial Owners........................... If you are a beneficial owner
whose old notes are registered
in the name of a broker, dealer,
commercial bank, trust company
or other nominee and you wish to
tender your old notes in the
exchange offer, you should
contact the
9
registered holder promptly and
instruct the registered holder
to tender on your behalf. If you
wish to tender on your own
behalf, you must either:
o make appropriate
arrangements to register
ownership of the old notes
in your name; or
o obtain a properly completed
bond power from the
registered holder, before
completing and executing the
letter of transmittal and
delivering your old notes.
Guaranteed Delivery Procedures.............. If you wish to tender your old
notes and time will not permit
the documents required by the
letter of transmittal to reach
the exchange agent before the
expiration date, or the
procedure for book-entry
transfer cannot be completed on
a timely basis, you must tender
your old notes according to the
guaranteed delivery procedure
described in this prospectus
under "The Exchange
Offer-Guaranteed Delivery
Procedures."
Acceptance of Old Notes and
Delivery of New Notes....................... Subject to the satisfaction or
waiver of the conditions to the
exchange offer, we will accept
for exchange any and all old
notes which are validly tendered
in the exchange offer and not
withdrawn before 5:00 p.m., New
York City time, on the
expiration date.
Withdrawal Rights........................... You may withdraw the tender of
your old notes at any time
before 5:00 p.m., New York City
time, on the expiration date, by
complying with the procedures
for withdrawal described in this
prospectus under "The Exchange
Offer-Withdrawal of Tenders."
Return of Notes............................. If we do not accept any tendered
old notes for the reasons
described in the terms and
conditions of the exchange offer
or if you withdraw any tendered
old notes or submit old notes
for a greater principal amount
than you desire to exchange, we
will return the unaccepted,
withdrawn or non-exchanged old
notes without expense to you as
promptly as practicable after
the expiration or termination of
the exchange offer. See "The
Exchange Offer-Return of Notes."
Certain Federal Income
Tax Consequences............................ The exchange of old notes for
new notes should not be a
taxable event for United States
Federal income tax purposes. For
a discussion of the material
Federal income tax consequences
relating to the exchange of
notes, see "Federal Income Tax
Considerations."
10
Exchange Agent.............................. Wachovia Bank, National
Association, the trustee under
the indenture governing the old
notes, is serving as the
exchange agent.
Consequence of Failure to
Exchange Notes.............................. If you do not exchange your old
notes for new notes, you will
continue to be subject to the
restrictions on transfer
provided in the old notes and in
the indenture governing the old
notes. In general, the old notes
may not be offered or sold,
unless registered under the
Securities Act, except pursuant
to an exemption from, or in a
transaction not subject to, the
Securities Act and applicable
state securities laws. We do not
currently plan to register the
old notes under the Securities
Act.
11
SUMMARY OF THE TERMS OF THE NEW NOTES
The summary below describes the material terms of the new notes. Some
of the terms and conditions described below are subject to important limitations
and exceptions. The "Description of the New Notes" section of this prospectus
contains a more detailed description of the terms and conditions of the new
notes. The terms of the new notes are substantially identical to those of the
old notes, except that the transfer restrictions applicable to the old notes are
not applicable to the new notes. The new notes will evidence the same debt as
the old notes. The new notes and the old notes will be governed by the same
indenture.
Issuer...................................... Armor Holdings, Inc.
Securities.................................. $150.0 million in principal
amount of 8 1/4% Senior
Subordinated Notes due 2013.
Maturity.................................... August 15, 2013.
Interest.................................... Annual rate: 8 1/4%.
Payment frequency: every six
months on February 15 and August
15. First payment: February 15,
2004.
Guarantees.................................. The new notes will be
unconditionally guaranteed in
full on a senior subordinated
basis by all of our existing and
future domestic restricted
subsidiaries except USDS, Inc.
If we cannot make payments on
the new notes when they are due,
the guarantors must make them
instead. See "Risk Factors -
Federal and state statutes allow
courts, under specific
circumstances, to void
guarantees and require
noteholders to return payments
received from guarantors" and
"Description of the New Notes."
Ranking..................................... The new notes and the guarantees
will be unsecured senior
subordinated obligations.
Accordingly, they will rank:
o behind all of our and the
guarantors' existing and
future senior debt;
o equally with all our and the
guarantors' existing and
future unsecured senior
subordinated obligations
issued under the indenture
and which do not expressly
provide that they are
subordinated to the new
notes; and
o ahead of any of our and the
guarantors' future debt that
expressly provides that it
is subordinated to the new
notes.
On a pro forma basis as of
September 30, 2003, the notes
and the guarantees would have
been subordinated to
approximately $45.4 million of
senior debt. In addition, there
would have been approximately
$60.0 million of
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unused commitments under our
senior credit facility.
Optional Redemption......................... On or after August 15, 2008, we
may redeem some or all of the
notes at any time at the
redemption prices listed under
"Description of the New
Notes--Optional Redemption."
Prior to August 15, 2006, we may
redeem up to 35% of the new
notes with the proceeds from
certain public equity offerings
at the redemption price listed
under "Description of the New
Notes--Optional Redemption."
Mandatory Offer to Repurchase................ If we sell certain assets or
experience certain types of
changes of control, we must
offer to repurchase the new
notes at the prices listed in
the section "Description of the
New Notes--Repurchase at the
Option of Holders." There can be
no assurance that we will have
available funds sufficient to
repurchase all of the new notes
that might be tendered by
holders of the new notes seeking
to accept the repurchase offer.
See "Risk Factors-We may not
have the ability to raise the
funds necessary to finance the
change of control offer required
by the indenture."
Certain Covenants........................... The indenture governing the new
notes will, among other things,
limit our and the ability of
certain of our subsidiaries to:
o incur additional
indebtedness;
o pay dividends or
distributions on, or redeem
or repurchase, capital
stock;
o make investments;
o engage in certain
transactions with
affiliates;
o incur liens;
o transfer or sell assets; and
o consolidate, merge or
transfer all or
substantially all of our
assets.
For more details, see
"Description of the New Notes."
Use of Proceeds............................. We will not receive any proceeds
from the exchange offer.
YOU SHOULD REFER TO THE SECTION ENTITLED "RISK FACTORS" FOR AN
EXPLANATION OF MATERIAL RISKS OF INVESTING IN THE NEW NOTES.
13
RISK FACTORS
Our business, operations and financial condition are subject to various
risks. The material risks are described below, and you should take these risks
into account in evaluating us or any investment decision involving us or in
deciding whether to tender your old notes in exchange for new notes in this
exchange offer. This section does not describe all risks applicable to us, our
industry or our business, and it is intended only as a summary of the material
risk factors. The risk factors set forth below are generally applicable to the
old notes as well as the new notes.
RISKS RELATING TO THE NEW NOTES
IF YOU FAIL TO EXCHANGE PROPERLY YOUR OLD NOTES FOR NEW NOTES, YOU WILL CONTINUE
TO HOLD OLD NOTES SUBJECT TO TRANSFER RESTRICTIONS.
The new notes will be issued in exchange for old notes only after
timely receipt by the exchange agent of the old notes, a properly completed and
duly executed letter of transmittal and all other required documents. Therefore,
if you desire to tender your old notes in exchange for new notes, you should
allow sufficient time to ensure timely delivery. Your failure to follow these
procedures may result in delay in receiving new notes on a timely basis or in
your loss of the right to receive new notes. Neither we nor the exchange agent
is under any duty to give notification of defects or irregularities with respect
to tenders of old notes for exchange. If you tender old notes in the exchange
offer for the purpose of participating in a distribution of the new notes, you
will be required to comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale transaction.
See "The Exchange Offer-Procedures for Tendering" and "Plan of Distribution".
If you do not exchange your old notes for new notes pursuant to the
exchange offer, you will continue to be subject to the restrictions on transfer
of the old notes as set forth in the legend on the old notes. In general, the
old notes may not be offered or sold unless registered under the Securities Act,
or pursuant to an exemption from, or in a transaction not subject to, the
Securities Act and applicable state securities laws. We do not currently intend
to register the old notes under the Securities Act. To the extent that old notes
are tendered and accepted in the exchange offer, the trading market for
untendered and tendered but unaccepted old notes could be adversely affected.
OUR SIGNIFICANT INDEBTEDNESS COULD ADVERSELY AFFECT OUR FINANCIAL HEALTH, AND
PREVENT US FROM FULFILLING OUR OBLIGATIONS UNDER THE NOTES.
We have a significant amount of indebtedness. Our significant
indebtedness could:
o make it more difficult for us to satisfy our obligations with
respect to the new notes;
o increase our vulnerability to general adverse economic and
industry conditions;
o require us to dedicate a substantial portion of our cash flow from
operations to payments on our indebtedness, thereby reducing the
availability of our cash flow to fund working capital, capital
expenditures, acquisitions and investments and other general
corporate purposes;
o limit our flexibility in planning for, or reacting to, changes in
our business and the markets in which we operate;
14
o place us at a competitive disadvantage compared to our competitors
that have less debt; and
o limit, among other things, our ability to borrow additional funds.
The following table sets forth our total debt, total stockholders'
equity, total capitalization and ratio of debt to total capitalization:
September 30, 2003
(Unaudited)
(Dollars in Thousands)
Total debt $168,148
Total stockholders' equity $291,140
-------------------------
Total capitalization $459,288
=========================
Ratio of debt to total 36.6%
capitalization
The terms of the indenture governing the notes and the senior credit
facility allow us to issue and incur additional debt upon satisfaction of
certain conditions. See "Description of the New Notes" for a description of our
indenture and "Description of Senior Indebtedness" for a description of our
senior credit facility. If new debt is added to current debt levels, the related
risks described above could increase.
YOUR RIGHT TO RECEIVE PAYMENTS ON THE NOTES IS JUNIOR TO OUR EXISTING SENIOR
INDEBTEDNESS AND POSSIBLY ALL OF OUR FUTURE BORROWINGS. FURTHER, THE GUARANTEES
OF THE NEW NOTES ARE JUNIOR TO ALL OF THE GUARANTORS' EXISTING SENIOR
INDEBTEDNESS AND POSSIBLY TO ALL THEIR FUTURE BORROWINGS.
The notes and the guarantees rank behind all of our and the guarantors'
existing senior indebtedness and all of our and the guarantors' future senior
indebtedness. See "Description of Senior Indebtedness" for a description of our
senior credit facility. On a pro forma basis as of September 30, 2003, the notes
and the guarantees would have been subordinated to approximately $5.2 million of
senior debt. In addition, our senior credit facility would have permitted up to
approximately $60 million of additional borrowings, subject to compliance with
the covenants and conditions to borrowing under the senior credit facility,
which borrowings would be senior to the notes and the guarantees. We will be
permitted to borrow substantial additional indebtedness, including senior debt,
in the future.
As a result of this subordination, upon any distribution to our
creditors or the creditors of the guarantors in a bankruptcy, liquidation or
reorganization or similar proceedings relating to us or the guarantors or our or
the guarantors' property, the holders of our senior debt and the senior debt of
the guarantors will be entitled to be paid in full in cash before any payment
may be made with respect to the notes or the guarantees.
In addition, all payments on the new notes and the guarantees will be
blocked in the event of a payment default on senior debt and may be blocked for
up to 179 consecutive days in the event of certain non-payment defaults on
designated senior debt.
15
In the event of a bankruptcy, liquidation or reorganization or similar
proceeding relating to us or the guarantors, the indenture relating to the new
notes will require that amounts otherwise payable to holders of the new notes in
a bankruptcy or similar proceeding be paid to holders of senior debt instead
until the holders of senior debt are paid in full. As a result, holders of the
new notes may not receive all amounts owed to them and may receive less,
ratably, than holders of trade payables and other unsubordinated indebtedness in
any such proceeding.
SINCE THE NOTES ARE UNSECURED, YOUR RIGHT TO ENFORCE REMEDIES IS LIMITED BY THE
RIGHTS OF HOLDERS OF SECURED DEBT.
In addition to being contractually subordinated to all existing and
future senior indebtedness, our obligations under the new notes will be
unsecured while obligations under our senior credit facility will be secured by
substantially all of our assets and those of our subsidiaries. If we become
insolvent or are liquidated, or if payment under the senior credit facility is
accelerated, the lenders under the senior credit facility are entitled to
exercise the remedies available to a secured lender under applicable law. These
lenders have a claim on all assets securing the senior credit facility before
the holders of unsecured debt, including the notes.
NOT ALL OF OUR SUBSIDIARIES WILL GUARANTEE OUR OBLIGATIONS UNDER THE NOTES, AND
THE ASSETS OF THE NON-GUARANTOR SUBSIDIARIES MAY NOT BE AVAILABLE TO MAKE
PAYMENTS ON THE NOTES.
Our present and future domestic restricted subsidiaries will guarantee
the notes. Payments on the notes are only required to be made by us and the
subsidiary guarantors. As a result, no payments are required to be made from
assets of subsidiaries that do not guarantee the notes, unless those assets are
transferred by dividend or otherwise to us or a subsidiary guarantor. On a pro
forma basis, as of and for the year ended December 31, 2002, the aggregate total
assets and net sales of our non-guarantor subsidiaries were $100.3 million and
$75.4 million, respectively, or 27.3% and 24.7%, respectively, of our total
assets and net sales.
In the event of a bankruptcy, liquidation or reorganization of any of
the non-guarantor subsidiaries, holders of their liabilities, including their
trade creditors, will be entitled to payment of their claims from the assets of
those subsidiaries before any assets are made available for distribution to us.
As a result, the notes are effectively subordinated to all indebtedness and
other liabilities of the non-guarantor subsidiaries.
WE WILL REQUIRE A SIGNIFICANT AMOUNT OF CASH TO SERVICE OUR INDEBTEDNESS. OUR
ABILITY TO GENERATE CASH DEPENDS ON MANY FACTORS BEYOND OUR CONTROL.
Our ability to make payments on and to refinance our indebtedness,
including the notes and amounts borrowed under our senior credit facility, and
to fund planned capital expenditures and expansion efforts and strategic
acquisitions we may make in the future, if any, will depend on our ability to
generate cash in the future. This, to a certain extent, is subject to general
economic, financial, competitive and other factors that are beyond our control.
Based on our current level of operations, we believe our cash flow from
operations, together with available cash and available borrowings under our
senior credit facility, will be adequate to meet future liquidity needs for at
least the next twelve months. However, we cannot assure you that our business
will generate sufficient cash flow from operations in the future, that our
currently
16
anticipated growth in revenues and cash flow will be realized on schedule or
that future borrowings will be available to us under the senior credit facility
in an amount sufficient to enable us to service indebtedness, including the new
notes, or to fund other liquidity needs. We may need to refinance all or a
portion of our indebtedness, including the notes and our senior credit facility,
on or before maturity. We cannot assure you that we will be able to do so on
commercially reasonable terms or at all.
THE INDENTURE AND OUR SENIOR CREDIT FACILITY CONTAIN VARIOUS COVENANTS WHICH
LIMIT OUR MANAGEMENT'S DISCRETION IN THE OPERATION OF OUR BUSINESS.
Our senior credit facility and the indenture contain various provisions
that limit our management's discretion by restricting our and certain of our
subsidiaries' ability to, among other things:
o incur additional indebtedness;
o pay dividends or distributions on, or redeem or repurchase,
capital stock;
o make investments;
o engage in transactions with affiliates;
o incur liens;
o transfer or sell assets; and
o consolidate, merge or transfer all or substantially all of our
assets.
In addition, our senior credit facility requires us to meet certain
financial ratios. Any failure to comply with the restrictions of our senior
credit facility, the indenture or any other subsequent financing agreements may
result in an event of default. An event of default may allow the creditors, if
the agreements so provide, to accelerate the related debt as well as any other
debt to which a cross-acceleration or cross-default provision applies. In
addition, the lenders may be able to terminate any commitments they had made to
supply us with further funds.
WE MAY NOT HAVE THE ABILITY TO RAISE THE FUNDS NECESSARY TO FINANCE THE CHANGE
OF CONTROL OFFER REQUIRED BY THE INDENTURE.
Upon the occurrence of certain specific kinds of change of control
events, we will be required to offer to repurchase all outstanding new notes.
However, it is possible that we will not have sufficient funds at the time of
the change of control to make the required repurchase of new notes. In addition,
restrictions in our senior credit facility prohibit repurchases of the notes
unless a waiver is obtained from the lenders or our senior credit facility is
repaid in full. If we fail to repurchase the new notes following a change of
control, we will be in default under the indenture, which will result in a
cross-default under our senior credit facility. Any future debt which we incur
may also contain restrictions on repayment of the notes. In addition, certain
important corporate events, such as leveraged recapitalizations, that would
increase the level of our indebtedness would not constitute a change of control
under the indenture.
17
A PUBLIC MARKET FOR THE NEW NOTES MAY NOT DEVELOP.
There can be no assurance that a public market for the new notes will
develop or, if such a market develops, as to the liquidity of the market. If a
market were to develop, the new notes could trade at prices that may be higher
or lower than their principal amount. We do not intend to apply for listing of
the new notes on any securities exchange or for quotation of the new notes on
any automated quotation system. The initial purchaser, Wachovia Capital Markets,
LLC, has previously made a market in the old notes, and we have been advised
that the initial purchaser currently intends to make a market in the new notes,
as permitted by applicable laws and regulations, after consummation of the
exchange offer. The initial purchaser is not obligated, however, to make a
market in the old notes or the new notes, and any market-making activity may be
discontinued at any time without notice at the sole discretion of the initial
purchaser. If an active public market does not develop or continue, the market
price and liquidity of the new notes may be adversely affected.
In addition, the liquidity of the trading market in the new notes, and
the market price quoted for the new notes, may be adversely affected by changes
in the overall market for high-yield securities and by changes in our financial
performance or prospects or in the prospects for companies in our industry
generally. As a result, you cannot be sure that an active trading market will
develop for the new notes.
FEDERAL AND STATE STATUTES ALLOW COURTS, UNDER SPECIFIC CIRCUMSTANCES, TO VOID
GUARANTEES AND REQUIRE NOTEHOLDERS TO RETURN PAYMENTS RECEIVED FROM GUARANTORS.
If a bankruptcy case or lawsuit is initiated by unpaid creditors of any
guarantor, the debt represented by the guarantees entered into by the guarantors
may be reviewed under the Federal bankruptcy law and comparable provisions of
state fraudulent transfer laws. Under these laws, a guarantee could be voided,
or claims in respect of the guarantee could be subordinated to certain
obligations of a guarantor if, among other things, the guarantor, at the time it
entered into the guarantee:
o received less than reasonably equivalent value or fair
consideration for entering into the guarantee; and
o either:
o was insolvent or rendered insolvent by reason of entering
into a guarantee; or
o was engaged in a business or transaction for which the
guarantor's remaining assets constituted unreasonably small
capital; or
o intended to incur, or believed that it would incur, debts or
contingent liabilities beyond its ability to pay them as they
become due.
In addition, any payment by a guarantor could be voided and required to
be returned to the guarantor or to a fund for the benefit of the guarantor's
creditors under those circumstances.
If a guarantee of a subsidiary were voided as a fraudulent conveyance
or held unenforceable for any other reason, holders of the new notes would be
solely creditors of our company and creditors of our other subsidiaries that
have validly guaranteed the new notes. The new notes then would be effectively
subordinated to all liabilities of the subsidiary whose guarantee was voided.
18
The measures of insolvency for purposes of these fraudulent transfer
laws will vary depending upon the law applied in any proceeding to determine
whether a fraudulent transfer has occurred. Generally, however, a guarantor
would be considered insolvent if:
o the sum of its debts, including contingent liabilities, were
greater than the fair saleable value of all of its assets; or
o the present fair saleable value of its assets were less than the
amount that would be required to pay its probable liability on its
existing debts, including contingent liabilities, as they become
absolute and mature; or
o it could not pay its debts or contingent liabilities as they
become due.
If the claims of the holders of the new notes against any subsidiary
were subordinated in favor of other creditors of the subsidiary, the other
creditors would be entitled to be paid in full before any payment could be made
on the new notes. If one or more of the guarantees is voided or subordinated, we
cannot assure you that after providing for all prior claims there would be
sufficient assets remaining to satisfy the claims of the holders of the new
notes.
Based upon financial and other information, we believe that the
guarantees are being incurred for proper proposes and in good faith and that we,
and our subsidiaries that are guarantors, on a consolidated basis, are solvent
and will continue to be solvent after this offering is completed, will have
sufficient capital for carrying on our business after the issuance of the new
notes and will be able to pay our debts as they mature. We cannot assure you,
however, as to the standard a court would apply in making these determinations
or that a court would agree with our conclusions in this regard.
RISKS RELATED TO ARMOR HOLDINGS' INDUSTRY
THE PRODUCTS WE SELL ARE INHERENTLY RISKY AND COULD GIVE RISE TO PRODUCT
LIABILITY AND OTHER CLAIMS.
The products that we manufacture are typically used in applications and
situations that involve high levels of risk of personal injury. Failure to use
our products for their intended purposes, failure to use them properly, their
malfunction, or, in some limited circumstances, even correct use of our
products, could result in serious bodily injury or death. Our products include:
body armor designed to protect against ballistic and sharp instrument
penetration; less-lethal products such as less-lethal munitions, pepper sprays,
distraction devices and flameless expulsion grenades; various models of police
batons made of wood, alloy steel, acetate, aluminum and polycarbonate products;
vehicle and hard armoring systems; and police duty gear.
Claims have been made and are pending against certain of our
subsidiaries, involving permanent physical injury and death caused by
self-defense sprays and other munitions intended to be less-lethal. In addition,
the manufacture and sale of certain less-lethal products may be the subject of
product liability claims arising from the design, manufacture or sale of such
goods. If these claims are decided against us and we are found to be liable, we
may be required to pay substantial damages and our insurance costs may increase
significantly as a result. Also, a significant or extended lawsuit, such as a
class action, could also divert significant amounts of management's time and
attention. We cannot assure you that our insurance coverage would be sufficient
to cover the payment of any potential claim. In addition, we cannot assure you
that this or
19
any other insurance coverage will continue to be available or, if available,
that we will be able to obtain it at a reasonable cost. Our cost of obtaining
insurance coverage has risen substantially since September 11, 2001. Any
material uninsured loss could have a material adverse effect on our business,
financial condition and results of operations. In addition, the inability to
obtain product liability coverage would prohibit us from bidding for orders from
certain governmental customers since, at present, many bids from governmental
entities require such coverage, and any such inability would have a material
adverse effect on our business, financial condition and results of operations.
Both private claimants and State Attorneys General have already
commenced legal action against Second Chance Body Armor based upon its Ultima(R)
and Ultimax(R) model vests. Second Chance Body Armor licenses from Simula a
certain patented technology which is used in the body armor it manufactures, but
to our knowledge, no lawsuit has yet been brought against Second Chance Body
Armor based upon this licensed technology, although a letter was received by
Simula from an attorney representing a police officer who was injured while
wearing a Second Chance Body Armor vest alleging potential liability against
Simula. In addition, the U.S. Attorney General has asked the U.S. Department of
Justice to investigate the claims regarding the Zylon(R) vests. As Simula has
licensed its technology to Second Chance Body Armor, it may be impacted by the
pending claims against Second Chance Body Armor and the investigation being
conducted by the U.S. Department of Justice. If Simula is included in the claims
pending against Second Chance Body Armor and the investigation being conducted
by the U.S. Department of Justice, we cannot assure you that any judgment,
settlement or resolution against Simula will not have a material adverse effect
on Simula's business, financial condition and results of operations.
WE ARE SUBJECT TO EXTENSIVE GOVERNMENT REGULATION AND OUR FAILURE OR INABILITY
TO COMPLY WITH THESE REGULATIONS COULD MATERIALLY RESTRICT OUR OPERATIONS AND
SUBJECT US TO SUBSTANTIAL PENALTIES.
We are subject to federal licensing requirements with respect to the
sale in foreign countries of certain of our products. In addition, we are
obligated to comply with a variety of federal, state and local regulations
governing certain aspects of our operations and workplace, including regulations
promulgated by, among others, the U.S. Departments of Commerce, State and
Transportation, the U.S. Environmental Protection Agency and the U.S. Bureau of
Alcohol, Tobacco and Firearms. Additionally, the failure to obtain applicable
governmental approval and clearances could adversely affect our ability to
continue to service the government contracts we maintain. Furthermore, we have
material contracts with governmental entities and are subject to rules,
regulations and approvals applicable to government contractors. We are also
subject to routine audits to assure our compliance with these requirements. In
addition, a number of our employees involved with certain of our federal
government contracts are required to obtain specified levels of security
clearances. Our business may suffer if we or our employees are unable to obtain
the security clearances that are needed to perform services contracted for the
Department of Defense, one of our major customers. Our failure to comply with
these contract terms, rules or regulations could expose us to substantial
penalties, including the loss of these contracts and disqualification as a U.S.
government contractor.
Like other companies operating internationally, we are subject to the
Foreign Corrupt Practices Act and other laws which prohibit improper payments to
foreign governments and their officials by U.S. and other business entities. We
operate in countries known to experience endemic corruption. Our extensive
operations in such countries creates the risk of an unauthorized payment by one
of our employees or agents which would be in violation of various laws including
the Foreign Corrupt Practices Act. Violations of the Foreign Corrupt Practices
Act may result in severe criminal penalties which could have a material adverse
effect on our business, financial condition and results of operations.
20
WE HAVE SIGNIFICANT INTERNATIONAL OPERATIONS AND ASSETS AND ARE THEREFORE
SUBJECT TO ADDITIONAL FINANCIAL AND REGULATORY RISKS.
We sell our products and services in foreign countries and seek to
increase our level of international business activity. Our overseas operations
are subject to various risks, including: U.S.-imposed embargoes of sales to
specific countries (which could prohibit sales of our products there); foreign
import controls (which may be arbitrarily imposed and enforced and which could
interrupt our supplies or prohibit customers from purchasing our products);
exchange rate fluctuations; dividend remittance restrictions; expropriation of
assets; war, civil uprisings and riots; government instability; the necessity of
obtaining government approvals for both new and continuing operations; and legal
systems of decrees, laws, taxes, regulations, interpretations and court
decisions that are not always fully developed and that may be retroactively or
arbitrarily applied.
One component of our strategy is to expand our operations into selected
international markets. Military procurement, for example, has traditionally had
a large international base. Countries in which we are actively marketing include
Germany, Canada, France, Italy, the United Kingdom, Norway, Japan, India, Korea
and Australia. We, however, may be unable to execute our business model in these
markets or new markets. Further, foreign providers of competing products and
services may have a substantial advantage over us in attracting consumers and
businesses in their country due to earlier established businesses in that
country, greater knowledge with respect to the cultural differences of consumers
and businesses residing in that country and/or their focus on a single market.
We expect to continue to experience higher costs as a percentage of revenues in
connection with the development and maintenance of international products and
services. In pursuing our international expansion strategy, we face several
additional risks, including:
o foreign laws and regulations, which may vary country by country,
that may impact how we conduct our business;
o higher costs of doing business in foreign countries, including
different employment laws;
o potential adverse tax consequences if taxing authorities in
different jurisdictions worldwide disagree with their
interpretation of various tax laws or their determinations as to
the income and expenses attributable to specific jurisdictions,
which could result in our paying additional taxes, interest and
penalties;
o technological differences that vary by marketplace, which we may
not be able to support;
o longer payment cycles and foreign currency fluctuations;
o economic downturns; and
o revenue growth outside of the United States may not continue at
the same rate if it is determined that we have already launched
our products and services in the most significant markets.
We may also be subject to unanticipated income taxes, excise duties,
import taxes, export taxes or other governmental assessments. In addition, a
percentage of the payments to us in our international markets are often in local
currencies. Although most of these currencies are presently convertible into
U.S. dollars, we cannot be sure that convertibility will continue. Even if
currencies are convertible, the rate at which they convert is subject to
substantial fluctuation. Our ability to transfer currencies into or out of local
currencies may be restricted or limited. Any of these events could result in a
loss of business or other unexpected costs which could reduce revenue or profits
and have a material adverse effect on our business, financial condition and
results of operations.
21
We routinely operate in areas where local government policies regarding
foreign entities and the local tax and legal regimes are often uncertain, poorly
administered and in a state of flux. We cannot, therefore, be certain that we
are in compliance with, or will be protected by, all relevant local laws and
taxes at any given point in time. A subsequent determination that we failed to
comply with relevant local laws and taxes could have a material adverse effect
on our business, financial condition and results of operations.
One or more of these factors could adversely effect our future
international operations and, consequently, could have a material adverse effect
on our business, financial condition and results of operation.
RISKS RELATED TO ARMOR HOLDINGS' BUSINESS
MANY OF OUR CUSTOMERS HAVE FLUCTUATING BUDGETS WHICH MAY CAUSE SUBSTANTIAL
FLUCTUATIONS IN OUR RESULTS OF OPERATIONS.
Customers for our products include federal, state, municipal, foreign
and military, law enforcement and other governmental agencies. Government tax
revenues and budgetary constraints, which fluctuate from time to time, can
affect budgetary allocations for these customers. Many domestic and foreign
government agencies have in the past experienced budget deficits that have led
to decreased spending in defense, law enforcement and other military and
security areas. Our results of operations may be subject to substantial
period-to-period fluctuations because of these and other factors affecting
military, law enforcement and other governmental spending. For example, we
attribute part of the decline in our Products Division revenue during the first
quarter of 2001 with the timing of the Bulletproof Vest Partnership Act, which
provides federal matching funds to law enforcement agencies purchasing bullet
resistant vests. We believe that many agencies delayed their purchasing
decisions during the first quarter of 2001 until such federal funds were fully
allocated. A reduction of funding for federal, state, municipal, foreign and
other governmental agencies could have a material adverse effect on sales of our
products and our business, financial condition and results of operations.
THE LOSS OF, OR A SIGNIFICANT REDUCTION IN, U.S. MILITARY BUSINESS WOULD HAVE A
MATERIAL ADVERSE EFFECT ON US.
U.S. military contracts account for a significant portion of the
business of our Aerospace and Defense Group. The U.S. military funds these
contracts in annual increments. These contracts require subsequent authorization
and appropriation that may not occur or that may be greater than or less than
the total amount of the contract. Changes in the U.S. military's budget,
spending allocations, and the timing of such spending could adversely affect our
ability to receive future contracts. None of our contracts with the U.S.
military have a minimum purchase commitment and the U.S. military generally has
the right to cancel its contracts unilaterally without prior notice. Our
Aerospace and Defense Group is the sole-source provider to the U.S. military for
up-armoring of the U.S. military's High Mobility Multi-purpose Wheeled Vehicles
("HMMWV"). Up-Armored HMMWVs, and related programs such as maintenance, spare
parts and engineering services associated with Up-Armored HMMWVs, accounted for
approximately 47% of the sales of the Aerospace and Defense Group in 2003 on
a pro forma basis after giving effect to our acquisition of Simula. The HMMWVs
are manufactured by AM General Corporation under separate U.S. military
contracts. Should production or deliveries of HMMWVs be significantly
interrupted, or should other single source suppliers significantly interrupt
deliveries of our components for up-armoring the HMMWVs, we will not be able to
deliver such up-armoring systems for the HMMWVs to the U.S. military on
schedule, which could have a material adverse effect on our business, financial
condition and results of operations. Our Aerospace and Defense Group also
manufactures for the U.S. military helicopter seating systems, aircraft and
land vehicle armor systems, protective equipment for military personnel and
other technologies used to protect soldiers in a variety of life-threatening
or catastrophic situations. The Aerospace and Defense Group's products are
deployed on a wide range of high-profile military platforms such as the AH-64
Apache and the UH-60 Black Hawk helicopters, the C-17 Globemaster III Transport
Aircraft, the M1117 Guardian Armored Security Vehicle, the M998 High Mobility
Multipurpose Wheeled Vehicle, and body-worn equipment for personal protection
of the U.S. Army, Marine Corps, and Air Force Special Operations Forces. The
loss of, or a significant reduction in, U.S. military business for our
helicopter seating systems, aircraft and land vehicle armor systems and other
protective equipment could have a material adverse effect on our business,
financial condition and results of operations.
22
WE MAY LOSE MONEY OR GENERATE LESS THAN EXPECTED PROFITS ON OUR FIXED-PRICE
CONTRACTS.
Some of our government contracts provide for a predetermined, fixed
price for the products we make regardless of the costs we incur. Therefore,
fixed-price contracts require us to price our contracts by forecasting our
expenditures. When making proposals for fixed-price contracts, we rely on our
estimates of costs and timing for completing these projects. These estimates
reflect management's judgments regarding our capability to complete projects
efficiently and timely. Our production costs may, however, exceed forecasts due
to unanticipated delays or increased cost of materials, components, labor,
capital equipment or other factors. Therefore, we may incur losses on fixed
price contracts that we had expected to be profitable, or such contracts may be
less profitable than expected, which could have a material adverse effect on our
business, financial condition and results of operations.
OUR BUSINESS IS SUBJECT TO VARIOUS LAWS AND REGULATIONS FAVORING THE U.S.
GOVERNMENT'S CONTRACTUAL POSITION, AND OUR FAILURE TO COMPLY WITH SUCH LAWS AND
REGULATIONS COULD HARM OUR OPERATING RESULTS AND PROSPECTS.
As a contractor to the U.S. government, we must comply with laws and
regulations relating to the formation, administration and performance of the
federal government contracts that affect how we do business with our clients and
may impose added costs on our business. These rules generally favor the U.S.
government's contractual position. For example, these regulations and laws
include provisions that subject contracts we have been awarded to:
o protest or challenge by unsuccessful bidders; and
o unilateral termination, reduction or modification by the
government.
The accuracy and appropriateness of certain costs and expenses used to
substantiate our direct and indirect costs for the U.S. government under both
cost-plus and fixed-price contracts are subject to extensive regulation and
audit by the Defense Contract Audit Agency, an arm of the U.S. Department of
Defense. Responding to governmental audits, inquiries or investigations may
involve significant expense and divert management's attention. Our failure to
comply with these or other laws and regulations could result in contract
termination, suspension or debarment from contracting with the federal
government, civil fines and damages and criminal prosecution and penalties, any
of which could have a material adverse effect on our business, financial
condition and results of operations.
OUR MARKETS ARE HIGHLY COMPETITIVE AND IF WE ARE UNABLE TO COMPETE EFFECTIVELY,
WE WILL BE ADVERSELY AFFECTED.
The markets in which we operate include a large number of competitors
ranging from small businesses to multinational corporations and are highly
competitive. Competitors who are larger, better financed and better known than
us may compete more effectively than we can. In order to stay competitive in our
industry, we must keep pace with changing technologies and client preferences.
If we are unable to differentiate our services from those of our competitors,
our revenues may decline. In addition, our competitors have established
relationships among themselves or with third parties to increase their ability
to address client needs. As a result, new competitors or alliances among
competitors may emerge and compete more effectively than we can. There is also a
significant industry trend towards consolidation, which may result in the
emergence of companies which are better able to compete against us.
23
THERE ARE LIMITED SOURCES FOR SOME OF OUR RAW MATERIALS WHICH MAY SIGNIFICANTLY
CURTAIL OUR MANUFACTURING OPERATIONS.
The raw materials that we use in manufacturing ballistic resistant
garments and up-armored vehicles include: SpectraShield, a patented product of
Honeywell, Inc.; Z-Shield, a patented product of Honeywell, Inc.; Zylon, a
patented product of Toyobo Co., Ltd.; Kevlar, a patented product of E.I. du Pont
de Nemours Co., Inc., or DuPont; and Twaron, a patented product of Akzo-Nobel
Fibers, B.V. We purchase these materials in the form of woven cloth from five
independent weaving companies. In the event Du Pont or its licensee in Europe
cease, for any reason, to produce or sell Kevlar to us, we would utilize these
other ballistic resistant materials as a substitute. However, none of
SpectraShield, Twaron, Z-Shield or Zylon is expected to become a complete
substitute for Kevlar in the near future. We enjoy a good relationship with our
suppliers of Kevlar, SpectraShield, Twaron, Z-Shield and Zylon. The use of Zylon
and Z-Shield in the design of ballistic resistant vests is a recent
technological advancement that is subject to continuing development and study.
Toyobo is the only producer of Zylon, and Honeywell is the only producer of
Z-Shield. Should these materials become unavailable for any reason, we would be
unable to replace them with materials of like weight and strength. Thus, if our
supply of any of these materials were materially reduced or cut off or if there
were a material increase in the prices of these materials, our manufacturing
operations could be adversely affected and our costs increased, and our
business, financial condition and results of operations would be materially
adversely affected.
WE MAY BE UNABLE TO COMPLETE OR INTEGRATE ACQUISITIONS EFFECTIVELY, IF AT ALL,
AND AS A RESULT MAY INCUR UNANTICIPATED COSTS OR LIABILITIES OR OPERATIONAL
DIFFICULTIES.
We intend to grow through the acquisition of businesses and assets that
will complement our current businesses. We cannot be certain that we will be
able to identify attractive acquisition targets, obtain financing for
acquisitions on satisfactory terms or successfully acquire identified targets.
Furthermore, we may have to divert our management's attention and our financial
and other resources from other areas of our business. Our inability to implement
our acquisition strategy successfully may hinder the expansion of our business.
Because we depend in part on acquiring new businesses and assets to develop and
offer new products, failure to implement our acquisition strategy may also
adversely affect our ability to offer new products in line with industry trends.
We may not be successful in integrating acquired businesses into our
existing operations. Integration may result in unanticipated liabilities or
unforeseen operational difficulties, which may be material, or require a
disproportionate amount of management's attention. Acquisitions may result in us
incurring additional indebtedness or issuing preferred stock or additional
common stock. Competition for acquisition opportunities in the industry may
rise, thereby increasing our cost of making acquisitions or causing us to
refrain from making further acquisitions. In addition, the terms and conditions
of our secured revolving credit facility and the indenture governing our 8 1/4%
Senior Subordinated Notes impose restrictions on us that, among other things,
restrict our ability to make acquisitions.
OUR RESOURCES MAY BE INSUFFICIENT TO MANAGE THE DEMANDS IMPOSED BY OUR GROWTH.
We have rapidly expanded our operations, and this growth has placed
significant demands on our management, administrative, operating and financial
resources. The continued growth of our customer base, the types of services and
products offered and the geographic markets served can be expected to continue
to place a significant strain on our resources. In addition, we cannot easily
identify and hire personnel qualified both in the provision and marketing of our
security services and products. Our future performance and profitability will
depend in large part on our ability to
24
attract and retain additional management and other key personnel; our ability to
implement successful enhancements to our management, accounting and information
technology systems; and our ability to adapt those systems, as necessary, to
respond to growth in our business.
ARMOR HOLDINGS IS DEPENDENT ON INDUSTRY RELATIONSHIPS.
A number of our products are components in our customers' final
products. Accordingly, to gain market acceptance, we must demonstrate that our
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 our products will be able to achieve any of these advantages for
the products of our customers. Furthermore, even if we are able to demonstrate
such advantages, there can be no assurance that such manufacturers will elect to
incorporate our products into their final products, or if they do, that our
products will be able to meet such customers' manufacturing requirements.
Additionally, there can be no assurance that our relationships with our
manufacturer customers will ultimately lead to volume orders for our products.
The failure of manufacturers to incorporate our products into their final
products could have a material adverse effect on our business, financial
condition and results of operations.
WE MAY BE UNABLE TO PROTECT OUR PROPRIETARY TECHNOLOGY, INCLUDING THE
TECHNOLOGIES WE USE TO FURNISH THE UP-ARMORING OF HMMWVS.
We are dependent upon a variety of methods and techniques that we
regard as proprietary trade secrets. We are also dependent upon a variety of
trademarks, service marks and designs to promote brand name development and
recognition. We rely on a combination of trade secret, copyright, patent,
trademark, unfair competition and other intellectual property laws as well as
contractual agreements to protect our rights to such intellectual property. Due
to the difficulty of monitoring unauthorized use of and access to intellectual
property, however, such measures may not provide adequate protection. It is
possible that our competitors may access our intellectual property and
proprietary information and use it to their advantage. In addition, there can be
no assurance that courts will always uphold our intellectual property rights, or
enforce the contractual arrangements that we have entered into to protect our
proprietary technology. Any unenforceability or misappropriation of our
intellectual property could have a material adverse effect on our business,
financial condition and results of operations. Furthermore, we cannot assure you
that any pending patent application or trademark application made by us will
result in an issued patent or registered trademark, or that, if a patent is
issued, it will provide meaningful protection against competitors or competitor
technologies. In addition, if we bring or become subject to litigation to defend
against claimed infringement of our rights or of the rights of others or to
determine the scope and validity of our intellectual property rights, such
litigation could result in substantial costs and diversion of our resources
which could have a material adverse effect on our business, financial condition
and results of operations. Unfavorable results in such litigation could also
result in the loss or compromise of our proprietary rights, subject us to
significant liabilities, require us to seek licenses from third parties on
unfavorable terms, or prevent us from manufacturing or selling our products, any
of which could have a material adverse effect on our business, financial
condition and results of operations.
TECHNOLOGICAL ADVANCES, THE INTRODUCTION OF NEW PRODUCTS, AND NEW DESIGN AND
MANUFACTURING TECHNIQUES COULD ADVERSELY AFFECT OUR OPERATIONS UNLESS WE ARE
ABLE TO ADAPT TO THE RESULTING CHANGE IN CONDITIONS.
25
Our future success and competitive position depend to a significant
extent upon our proprietary technology. We must make significant investments to
continue to develop and refine our technologies. We 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. Our future operating results will depend to a
significant extent on our 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. 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 our
products, we 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 we were unable to design and manufacture solutions for new
products of our customers on a timely and cost-effective basis, such inability
could have a material adverse effect on our business, financial condition and
results of operations.
WE MAY BE ADVERSELY AFFECTED BY APPLICABLE ENVIRONMENTAL LAWS AND REGULATIONS.
We are subject to federal, state, local and foreign laws and
regulations governing the protection of the environment and human health,
including those regulating discharges to the air and water, the management of
wastes, and the control of noise and odors. We cannot assure you that we are at
all times in complete compliance with all such requirements. Like all companies
in our industry, we are subject to potentially significant fines or penalties if
we fail to comply with environmental requirements. Environmental requirements
are complex, change frequently, and could become more stringent in the future.
Accordingly, we cannot assure you that these requirements will not change in a
manner that will require material capital or operating expenditures or will
otherwise have a material adverse effect on us in the future. In addition, we
are also subject to environmental laws requiring the investigation and clean-up
of environmental contamination. We may be subject to liability, including
liability for clean-up costs, if contamination is discovered at one of our
current or former facilities, in some circumstances even if such contamination
was caused by a third party such as a prior owner. We also may be subject to
liability if contamination is discovered at a landfill or other location where
we have disposed of wastes, notwithstanding that its historic disposal practices
may have been in accordance with all applicable requirements. We use
Orthochlorabenzalmalononitrile and Chloroacetophenone chemical agents in
connection with our production of tear gas, and these chemicals are hazardous
and could cause environmental damage if not handled and disposed of properly.
Moreover, private parties may bring claims against us based on alleged adverse
health impacts or property damage caused by our operations. The amount of
liability for cleaning up contamination or defending against private party
claims could be material.
26
THE COMPANY
We are a leading manufacturer and provider of specialized security
products, training and support services related to these products, and vehicle
armor systems. Our products and systems are used domestically and
internationally by military, law enforcement, security and corrections
personnel, as well as governmental agencies, multinational corporations and
individuals. We are organized and operated under three business divisions: Armor
Holdings Products, also referred to as our Products Division, Armor Mobile
Security, also referred to as our Mobile Security Division, and Aerospace and
Defense Group.
Products. Our Products Division manufactures and sells a broad range of
high quality security products, equipment and related consumable items, such as
concealable and tactical body armor, hard armor, duty gear, less-lethal
munitions, anti-riot products, police batons, emergency lighting products,
forensic products, firearms accessories and weapon maintenance products. Our
products are marketed under brand names that are well established in the
military and law enforcement communities such as AMERICAN BODY ARMOR(TM),
B-SQUARE(R), BREAK FREE(R), CLP(R), DEFENSE TECHNOLOGY/FEDERAL LABORATORIES(R),
DEF-TEC PRODUCTS(R), DISTRACTION DEVICE(R), FEDERAL LABORATORIES(R), FERRET(R),
FIRST DEFENSE(R), IDENTICATOR(R), IDENTIDRUG(R), IMPAK(TM), LIGHTNING POWDER(R),
MONADNOCK(R), NIK(R), O'GARA-HESS & EISENHARDT ARMORING COMPANY(R), PROTECH(TM),
QUIKSTEP LADDERS(TM), SAFARILAND DESIGN(R), SPEEDFEED(R), and 911EP and
DESIGN(TM). We sell our products through a network of over 350 distributors and
sales agents, including approximately 200 in the United States. Our extensive
distribution capabilities and commitment to customer service and training have
enabled us to become a leading provider of security equipment to law enforcement
agencies.
Mobile Security. Our Mobile Security Division manufactures and installs
ballistic and blast protected armoring systems for privately owned vehicles. We
armor a variety of privately owned commercial vehicles, including limousines,
sedans, sport utility vehicles, commercial trucks and cash-in-transit vehicles,
to protect against varying degrees of ballistic and blast threats. Our customers
in this business include international corporations and high net worth
individuals.
Aerospace and Defense Group. We recently formed our Aerospace and Defense
Group after our acquisition of Simula, which we will be reporting prospectively,
commencing with fiscal year 2004. The Aerospace and Defense Group was formed by
combining Simula's operations with our military and government business that was
previously conducted through our Mobile Security Division. Under the brand name
O'Gara-Hess & Eisenhardt, we are the sole-source provider to the U.S. military
of the armor and blast protection systems for HMMWVs. We are also under contract
with the U.S. Army to provide spare parts, logistics and ongoing field support
services for the currently installed base of approximately 4,415 Up-Armored
HMMWVs. Additionally, the Aerospace and Defense Group has been subcontracted to
develop a ballistic and blast protected armored and sealed truck cab for the
HIMARS, a program recently transitioned by the U.S. Army and U.S. Marine Corps
from developmental to a low rate of initial production, deliveries of which
commenced in 2003. We also supply armor sub-systems for other tactical wheeled
vehicles. In addition, we supply ballistic and blast protected armoring systems
to U.S. federal law enforcement and intelligence agencies and foreign heads of
state. The Aerospace and Defense Group also supplies human safety and survival
systems to the U.S. military, and major aerospace and defense prime contractors.
Our core markets are military aviation safety, military personnel safety, and
land and marine safety. Through our Aerospace and Defense Group, we provide
military helicopter seating systems, aircraft and land vehicle armor systems,
protective equipment for military personnel and technologies used to protect
humans in a variety of life-threatening or catastrophic situations.
27
RECENT DEVELOPMENTS
ACQUISITIONS AND DIVESTITURES
Sale of Services Division
On November 26, 2003, we sold our Services Division to management and
a group of private investors led by Granville Baird Capital Partners. We
realized approximately $31.4 million in cash at the closing of the sale, and
expect to receive an additional $2.3 million in cash during the 12 month period
following the closing.
Simula, Inc. Acquisition
On December 9, 2003, we completed our acquisition of Simula, Inc., an
Arizona corporation, pursuant to the Agreement and Plan of Merger, dated as of
August 29, 2003, by and among Armor Holdings, AHI Bulletproof Acquisition Corp.,
a wholly-owned subsidiary of Armor Holdings, and Simula. The consummation of the
merger followed the Special Meeting of Shareholders of Simula held on December
5, 2003, at which the requisite shareholder approval was obtained. In the
merger, we acquired all of the outstanding common stock of Simula and retired a
majority of Simula's outstanding indebtedness for $110.5 million in cash. Of
this amount, approximately $31 million principal amount of 8% debentures will
remain outstanding for approximately 30 days at which time we will repay these
debentures, plus accrued interest, in their entirety. As of the date of this
prospectus, Simula's outstanding 8% debentures have been paid in full. After
payment of 100% of the outstanding indebtedness and transaction expenses, the
merger consideration payable to Simula shareholders at closing pursuant to the
merger agreement was approximately $43.5 million or approximately $3.21 per
share. The source of the funds used in the acquisition was our working capital,
which was derived from proceeds received from our private placement of $150
million aggregate principal amount of 8 1/4% Senior Subordinated Notes due 2013.
Hatch Imports, Inc. Acquisition
On December 16, 2003, we acquired all of the issued and outstanding
common stock of Hatch Imports, Inc. for $7.5 million dollars in cash. Hatch
designs, imports and distributes a variety of specialty gloves and accessories,
including goggles, hoods, riot gear and bags for law enforcement, military,
corrections, medical, safety and other markets.
FORMATION OF THE AEROSPACE AND DEFENSE GROUP
In connection with our acquisition of Simula, we formed our Aerospace
and Defense Group, which we will be reporting prospectively, commencing with
fiscal year 2004, to consolidate our military and government business. The
Aerospace and Defense Group is comprised of the recently acquired Simula
business and our military and government business that was previously conducted
through our Mobile Security Division. For more information regarding the
Aerospace and Defense Group, please see the section entitled "The Company"
included in this prospectus.
ZYLON(R) INVESTIGATION
Second Chance Body Armor, Inc., a body armor manufacturer and
competitor to Armor Holdings, has notified its customers of a potential safety
issue with its Ultima(R) and Ultimax(R) models. Second Chance Body Armor has
claimed that Zylon(R) fiber, which is made by Toyobo, a Japanese
28
corporation, and used in the ballistic fabric construction of those two models,
degraded more rapidly than originally anticipated. Second Chance Body Armor has
also stated that the Zylon(R) degradation problem affects the entire body armor
industry, not just its products. Both private claimants and State Attorneys
General have already commenced legal action against Second Chance Body Armor
based upon its Ultima(R) and Ultimax(R) model vests. Second Chance Body Armor
licenses from Simula a certain patented technology which is used in the body
armor it manufactures, but to our knowledge, no lawsuit has yet been brought
against Second Chance Body Armor based upon this licensed technology,
although a letter was received by Simula from an attorney representing a police
officer who was injured while wearing a Second Chance Body Armor vest alleging
potential liability against Simula.
We use Zylon(R) fiber in a number of concealable body armor models for
law enforcement, but our design and construction are very different. We have
been testing our Zylon(R)-based vests since their 2000 introduction and to date
these tests of our Zylon(R)-based vests show no unanticipated degradation in
ballistic performance. In addition, to our knowledge, no other body armor
manufacturer has reported or experienced similar problems as those cited by
Second Chance Body Armor. Finally, the National Institute of Justice tests and
certifies each of our body armor designs before we begin to produce or sell any
particular model.
Following the Second Chance Body Armor assertions, several key law
enforcement associations have raised the issue to the U.S. Department of Justice
and Attorney General's Office. The U.S. Attorney General has asked the U.S.
Department of Justice to investigate the concerns and produce information to
clarify the issues. We support the Attorney General's directive and the
investigation.
As Simula has licensed its technology to Second Chance Body Armor, it
may be impacted by the pending claims against Second Chance Body Armor and the
investigation being conducted by the U.S. Department of Justice.
29
FORWARD LOOKING STATEMENTS
Certain statements we make in this prospectus, and other written or
oral statements by us or our authorized officers on our behalf, may constitute
"forward looking statements" within the meaning of the Federal securities laws.
Forward-looking statements include statements concerning our plans, objectives,
goals, strategies, future events, future revenues or performance, capital
expenditures, financing needs, plans or intentions relating to acquisitions, our
competitive strengths and weaknesses, our business strategy and the trends we
anticipate in the industry and economies in which we operate and other
information that is not historical information. Words or phrases such as
30
"estimates," "expects," "anticipates," "projects," "plans," "intends,"
"believes" and variations of such words or similar expressions are intended to
identify forward-looking statements. All forward-looking statements, including,
without limitation, our examination of historical operating trends, are based
upon our current expectations and various assumptions. Our expectations, beliefs
and projections are expressed in good faith, and we believe there is a
reasonable basis for them, but we cannot assure you that our expectations,
beliefs and projections will be realized.
Before you invest in the new notes, you should be aware that the
occurrence of the events described in the immediately above section captioned
"Risk Factors" and otherwise discussed elsewhere in this prospectus or in
materials incorporated in this prospectus by reference to our other filings with
the Commission, could have a material adverse affect on our business, financial
condition and results of operation.
The data included in this prospectus regarding markets and ranking,
including the size of certain markets and our position and the position of our
competitors within these markets, are based on independent industry
publications, reports of government agencies or other published industry sources
or our estimates based on management's knowledge and experience in the markets
in which we operate. Our estimates have been based on information provided by
customers, suppliers, trade and business organizations and other contacts in the
markets in which we operate. We believe these estimates to be accurate as of the
date of this prospectus. However, this information may prove to be inaccurate
because of the method by which we obtained some of the data for our estimates or
because this information cannot always be verified with complete certainty due
to the limits on the availability and reliability of raw data, the voluntary
nature of the data gathering process and other limitations and uncertainties
inherent in a survey of market size. As a result, you should be aware that
market, ranking and other similar data included in this prospectus, and
estimates and beliefs based on that data, may not be reliable.
USE OF PROCEEDS
This exchange offer is intended to satisfy our obligations under the
registration rights agreement that we entered into relating to the old notes. We
will not receive any proceeds from the exchange offer. You will receive, in
exchange for old notes tendered by you in the exchange offer, new notes in like
principal amount. The old notes surrendered in exchange for the new notes will
be retired and cancelled and cannot be reissued. Accordingly, the issuance of
the new notes will not result in any increase of our outstanding debt.
We received approximately $147.5 million of net proceeds from the sale
of the old notes. We used $15.0 million of the net proceeds to repay all of the
outstanding amounts under our Amended and Restated Credit Agreement, dated as of
August 22, 2001, $110.5 million of the net proceeds to acquire Simula, Inc. and
retire Simula's outstanding indebtedness, and $7.5 million of the net proceeds
to acquire Hatch Imports, Inc. The remainder of the net proceeds from the
offering of the old notes are being used for general working capital purposes.
RATIO OF EARNINGS TO FIXED CHARGES
Our ratio of earnings to fixed charges for the five years ended
December 31, 2002 and for the nine months ended September 30, 2003 are set forth
below:
31
------------------------------------------------------------------------------------------
FOR THE NINE MONTHS
FOR THE YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
------------------------------------------------------------------------------------------
1998 1999 2000 2001 2002 2003
------------------------------------------------------------------------------------------
Ratio of earnings to
fixed charges 27.4 23.8 7.6 5.7 14.9 9.1
==========================================================================================
The ratios of earnings to fixed charges are calculated as follows:
(income before income taxes and minority interest) + (fixed charges) - (capitalized interest)
- ---------------------------------------------------------------------------------------------
(fixed charges)
32
CAPITALIZATION
The following table sets forth our cash and cash equivalents and
capitalization as of September 30, 2003 on an actual basis.
This table should be read in conjunction with "Use of Proceeds" and
"Selected Consolidated Historical Financial Data of Armor Holdings, Inc." The
table should also be read in conjunction with our unaudited pro forma condensed
consolidated financial statements and our audited and unaudited financial
statements, including the related notes thereto, included in and incorporated by
reference into this prospectus.
As of September 30, 2003
(Unaudited)
(in thousands)
Cash and cash equivalents $154,766
Debt including current installments
Revolving credit facility (1) --
Other senior debt 5,780
Fair value of interest rate swap 7,976
Senior subordinated notes due 2013 (net of unamortized discount) 147,538
Debt of discontinued operations 6,854
--------
Total debt 168,148
--------
Total stockholders' equity 291,140
--------
Total capitalization $459,288
========
(1) We have the ability to borrow up to $60 million under our secured
revolving credit facility, all of which will be senior debt.
33
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA
OF ARMOR HOLDINGS, INC.
The following selected consolidated financial data is derived from our
audited consolidated financial statements as of December 31, 2002 and December
31, 2001, and for each of the three years ended December 31, 2000, which are
audited by PricewaterhouseCoopers LLP. The information as of December 31, 2000,
December 31, 1999 and December 31, 1998, and for each of the two years ended
December 31, 1999 was derived from our consolidated financial statements audited
by PricewaterhouseCoopers LLP and subsequently adjusted by management on an
unaudited basis to reflect the presentation required for discontinued operations
as a result of our decision in July of 2002 to sell our Services Division. The
selected consolidated financial information as of, and for each of the nine
months ended September 30, 2003 and September 30, 2002 are derived from our
unaudited consolidated financial statements. The unaudited consolidated
financial statements include all adjustments, consisting of normal recurring
accruals, which we consider necessary for a fair presentation of our financial
position and the results of operations for these periods.
Operating results for the nine months ended September 30, 2003 and the year
ended December 31, 2002 are not necessarily indicative of the results that may
be expected for the entire year ending December 31, 2003 or for any other future
period.
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
----------------------- -------------------------------------------------------------------
2003 2002 2002 2001 2000 1999 1998
---------- --------- ------------ --------- ---------- --------- ----------
(UNAUDITED) (DOLLARS IN THOUSANDS)
INCOME STATEMENT DATA:
Revenues:
Products.............. $144,140 $131,049 $179,946 $149,868 $139,904 $96,706 $45,644
Mobile Security....... 108,875 90,717 125,171 47,232 -- -- --
---------- --------- ------------ --------- ---------- --------- ----------
Total Revenues........ 253,015 221,766 305,117 197,100 139,904 96,706 45,644
Costs and Expenses:
Cost of sales......... 176,396 152,481 210,745 126,330 85,457 56,304 28,064
Operating expenses.... 44,505 37,046 49,836 38,659 30,286 21,933 10,760
Amortization (1)...... 201 213 245 2,142 1,704 1,329 494
Integration and other
non-recurring
charges (3)......... 4,565 4,476 5,926 3,296 2,588 2,014 --
---------- --------- ------------ --------- ---------- --------- ----------
Operating Income: 27,348 27,550 38,365 26,673 19,869 15,126 6,326
Interest expense 2,291 669 923 3,864 1,849 137 (274)
Other expense (income),
net................... 181 (77) 51 (82) (67) (811) (13)
---------- --------- ------------ --------- ---------- --------- ----------
Income from continuing
operations before
provision for income
taxes................. 24,876 26,958 37,391 22,891 18,087 15,800 6,613
Provision for income taxes 10,044 13,603 16,054 8,207 7,240 6,472 2,674
---------- --------- ------------ --------- ---------- --------- ----------
Income from continuing
operations............ 14,832 13,355 21,337 14,684 10,847 9,328 3,939
---------- --------- ------------ --------- ---------- --------- ----------
Income (loss) from
discontinued
operations before
provision (benefit)
for income taxes (2).. 3,593 (17,606) (41,468) (7,066) 8,303 5,399 7,060
Provision (benefit) for
income taxes.......... 2,610 421 (2,442) (2,510) 2,102 1,531 2,403
---------- --------- ------------ --------- ---------- --------- ----------
Income (loss) from
discontinued
operations (2)........ 983 (18,027) (39,026) (4,556) 6,201 3,868 4,657
---------- --------- ------------ --------- ---------- --------- ----------
Net income (loss)........ $15,815 $ (4,672) $(17,689) $10,128 $17,048 $13,196 $8,596
========== ========= ============ ========= ========== ========= ==========
Basic income from
continuing operations
per share............. $0.52 $0.44 $0.70 $0.61 $0.48 $0.44 $0.24
Diluted income from $0.52 $0.43 $0.69 $0.59 $0.46 $0.43 $0.23
Basic Earnings per share. $0.56 $(0.15) $(0.58) $0.42 $0.75 $0.63 $0.53
Diluted Earnings per share $0.56 $(0.15) $(0.57) $0.41 $0.73 $0.61 $0.50
34
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
----------------------- -------------------------------------------------------------------
2003 2002 2002 2001 2000 1999 1998
---------- --------- ------------ --------- ---------- --------- ----------
(UNAUDITED) (DOLLARS IN THOUSANDS)
BALANCE SHEET DATA (AT END
OF PERIOD):
Cash and cash equivalents $159,817 $21,403 $16,551 $53,719 $7,257 $13,246 $6,789
Working capital....... $254,209 $114,756 $100,591 $142,723 $67,937 $53,993 $24,366
Total assets.......... $541,393 $381,627 $367,753 $388,057 $225,957 $178,922 $94,353
Long-term obligations. $160,046 $10,990 $5,240 $4,640 $38,288 $2,453 $344
Stockholders' equity.. $291,140 $298,592 $288,077 $326,019 $166,771 $157,883 $75,102
- -------------
(1) Effective January 1, 2002, we adopted Statement of Financial Accounting
Standard No. 142, "Goodwill and Other Intangible Assets" (SFAS 142).
Amortization of goodwill, including goodwill recorded in past business
combinations, ceased upon adoption of this statement. In addition, this
statement requires that goodwill be tested for impairment at least annually
at the reporting unit level.
(2) As described in Note 2 of our fiscal 2002 audited financial statements, we
recorded an impairment charge of $30.3 million for the Services Division in
fiscal 2002. This impairment charge consisted of approximately $6.1 million
in estimated disposal costs and a $24.2 million non-cash goodwill
reduction. In fiscal 2001, we recorded a pre-tax restructuring charge of
$10.3 million for the Services Division as a result of an approved
restructuring plan to close its U.S. investigations businesses, realign the
Division's organization, eliminate excess facilities and reduce overhead in
our businesses worldwide. Operating results for 1998 through the first nine
months of fiscal 2003 ended September 30, 2003 reflect the reclassification
of the Services Division as discontinued operations. USDS, Inc., a
subsidiary providing certain training services, formerly reported as a part
of the Services Division, is not included in the amounts classified as
assets held for sale. The assets and liabilities as well as the operating
results of USDS, Inc. have been reclassified to the Armor Holdings Products
Division where management oversight currently resides.
(3) Includes one-time non-recurring charges and certain non-capitalized
expenses relating to the acquisition and integration of acquired
businesses. Acquisition and integration expenses include but are not
limited to severance, integration of sales, marketing, distribution and
manufacturing operations, as well as relocation and lease termination
expenses, as well as one-time non-recurring charges and direct expenses
associated with acquisition and due diligence efforts for acquisitions not
completed.
35
SELECTED CONSOLIDATED HISTORICAL FINANCIAL
DATA OF SIMULA, INC.
The selected consolidated financial data presented below has been derived
from Simula's historical audited consolidated financial statements for each of
the five years ended December 31, 2002, as adjusted by management on an
unaudited basis to reflect the presentation required for discontinued operations
as a result of Simula's decision to sell its automotive safety business. The
selected consolidated financial data as of and for each of the nine months ended
September 30, 2003 and September 30, 2002 are derived from Simula's unaudited
consolidated financial statements. The unaudited consolidated financial
statements include all adjustments, consisting of normal recurring accruals,
which Simula considers necessary for a fair presentation of its financial
position and the results of operations for these periods. Operating results for
the nine months ended September 30, 2003 and the year ended December 31, 2002
are not necessarily indicative of the results that may be expected for the
entire year ending December 31, 2003 or for any other future period.
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
----------------- --------------------------------------------------
2003 2002 2002 2001 2000 1999 1998
---- ---- ---- ---- ---- ---- ----
(UNAUDITED) (DOLLARS IN THOUSANDS)
INCOME STATEMENT DATA:
Total revenues........................... $50,615 $60,291 $75,556 $69,937 $60,318 $98,875 $72,652
Costs and expenses:
Cost of sales....................... 32,228 39,496 48,168 46,550 43,801 84,483 70,339
Administrative expenses............. 10,892 10,120 14,791 13,956 17,286 21,677 17,306
Research & development.............. 1,722 1,311 1,864 1,549 1,865 -- --
Restructuring & other costs......... 599 762 322 408 2,156 18,403 --
Operating income (loss).................. 5,174 8,602 10,411 7,474 (4,790) (25,688) (14,993)
Interest expense, net............... 8,277 7,738 10,411 10,231 9,803 7,079 4,861
Gain (loss) on early retirement of debt -- -- -- (3,815)(1) 1,524(1) (232)(1) --
Other expense (income), net......... 1,000 -- 81 -- -- -- --
Income (loss) from continuing operations
before income taxes................. (4,103) 864 (81) (6,572) (13,069) (32,999) (19,854)
Income tax (expense) benefit............. (17) 402 (37,960) 2,091 3,547 11,619 7,092
Income (loss) before discontinued operations
and extraordinary expenses.......... (4,120) 462 (38,041) (4,481) (9,522) (21,380) (12,762)
Income (loss) from discontinued operations (752) (320) 4,006 3,448 4,602 (1,466) (14,947)
Net income (loss)........................ (4,872) 142 (34,035) (1,033) (4,920) (22,846) (27,709)
Dividends on preferred stock............. -- -- -- -- 1,083 280 --
Net income (loss) available for common
shareholders....................... $(4,872) $142 $(34,035) $(1,033) $(6,003) $(23,126) $(27,709)
Basic income (loss) from continuing
operations per share............... $ (0.32) $0.04 $ (2.94) $(0.36) $(0.93) $(2.12) $(1.29)
Diluted income (loss) from continuing
operations per share............... $ (0.32) $0.04 $ (2.94) $(0.36) $(0.93) $(2.12) $(1.29)
Basic income (loss) per share............ $ (0.37) $0.01 $ (2.64) $(0.09) $(0.52) $(2.26) $(2.80)
Diluted income (loss) per share.......... $ (0.37) $0.01 $ (2.64) $(0.08) $(0.52) $(2.26) $(2.80)
BALANCE SHEET DATA (AT END OF PERIOD):
Cash and cash equivalents................ $12 $462 $212 $362 $746 $5,223 $933
Working capital.......................... $(48,879) $1,730 $(24,631) $4,946 $(11,385) $5,012 $13,047
Total assets............................. $31,576 $90,785 $54,879 $92,653 $85,899 $107,340 $119,589
Long-term obligations.................... $1,764 $59,736 $33,609 $62,540 $39,526 $53,820 $47,244
Stockholders' (deficit) equity........... $(41,930) $(2,698) $(38,428) $(2,640) $(661) $3,375 $18,570
(1) In accordance with Financial Accounting Standards No. 145, the gains or
losses on extinguishment of debt that had been recorded as an extraordinary
item within the historical financial statements totaling ($2,183), $1,109
and ($151) for the years ended December 31, 2001, 2000 and 1999,
respectively, have been tax effected and reclassified into continuing
operations.
36
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The unaudited pro forma condensed consolidated financial statements for the
periods indicated below show the effect of the acquisition of Simula. The
unaudited pro forma condensed consolidated balance sheet presents the financial
position of Armor Holdings at September 30, 2003 giving effect to the
acquisition of Simula as if it had occurred on such date. The unaudited pro
forma condensed consolidated statements of continuing operations for the nine
months ended September 30, 2003 and for the year ended December 31, 2002 give
effect to the acquisition of Simula as if it had occurred on January 1, 2002.
The unaudited pro forma balance sheet as of September 30, 2003 has been
prepared by combining the historical condensed consolidated balance sheet of
Armor Holdings with the historical condensed consolidated balance sheet of
Simula as of September 30, 2003. The unaudited pro forma condensed consolidated
statements of continuing operations for the year ended December 31, 2002 have
been prepared by combining Armor Holdings' historical condensed consolidated
statement of continuing operations for the year ended December 31, 2002 with the
historical condensed consolidated statement of continuing operations of Simula
for the year ended December 31, 2002. The interim unaudited pro forma condensed
consolidated statements of continuing operations for the nine months ended
September 30, 2003 have been prepared by combining Armor Holdings' historical
condensed consolidated statement of continuing operations for the nine months
ended September 30, 2003 with Simula's historical condensed consolidated
statement of continuing operations for the nine months ended September 30, 2003.
Appropriate pro forma adjustments have been applied to the historical accounts.
The unaudited pro forma condensed consolidated financial information is
presented for informational purposes only and it is not necessarily indicative
of the financial position and results of operations that would have been
achieved had the acquisition been completed as of the dates indicated and is not
necessarily indicative of our future financial position or results of
operations.
The acquisition of Simula was structured as a merger, pursuant to which a
wholly-owned subsidiary of Armor Holdings was merged with and into Simula, with
Simula surviving the merger and becoming a wholly-owned subsidiary of Armor
Holdings. The acquisition is accounted for under the purchase method of
accounting with the assets acquired and liabilities assumed recorded at their
estimated fair values. Goodwill is generated to the extent that the merger
consideration, including transaction and closing costs, exceeds the fair value
of net assets acquired. We are in the process of determining the purchase price
allocation, which will allocate the excess of purchase price, including
transaction costs, over the fair value of the tangible and identifiable
intangible assets to be acquired to goodwill. We have not finished this purchase
price allocation. As a result, the final allocation of the excess purchase price
over the fair value of the assets to be acquired could differ from what is
presented herein.
The unaudited pro forma condensed consolidated financial statements should
be read in conjunction with the historical consolidated financial statements of
Armor Holdings and Simula, respectively, including related notes thereto, which
are included or referenced elsewhere in this prospectus.
On December 9, 2003, we completed our acquisition of Simula for $110.5
million in cash, subject to adjustment, including adjustments for certain
transaction fees and costs. A portion of the $110.5 million was used to retire a
majority of Simula's outstanding indebtedness. Approximately $31 million
principal amount of 8% debentures will remain outstanding for approximately 30
days at which time we will repay these debentures, plus accrued interest, in
their entirety. As of the date of this prospectus, Simula's outstanding 8%
debentures have been paid in full. After payment of 100% of the outstanding
indebtedness and transaction expenses, the merger consideration paid to
37
Simula's shareholders at closing pursuant to the merger agreement was
approximately $43.5 million.
38
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF
CONTINUING OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2002
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
100% CASH PAID TO SIMULA
SHAREHOLDERS
-----------------------------------
HISTORICAL HISTORICAL PRO FORMA
ARMOR SIMULA(1) ADJUSTMENTS PRO FORMA
------------ ----------- -------------- --------------
Revenues
Products $179,946 $ -- $ -- $ 179,946
Mobile Security 125,171 -- -- 125,171
Simula -- 75,556 (1,152)(2) 74,404
------------ ----------- -------------- -------------
Total revenues 305,117 75,556 (1,152) 379,521
Costs and expenses
Cost of sales 210,745 48,168 2,572(2) 261,485
Operating expenses 50,081 16,977 1,632(3)(4)(5) 68,690
Integration and other
non-recurring charges 5,926 -- -- 5,926
------------ ----------- -------------- -------------
Operating income 38,365 10,411 (5,356) 43,420
Interest expense, net 923 10,411 (3,240)(6) 8,094
Other expense, net 51 81 -- 132
------------ ----------- -------------- -------------
Income (loss) from continuing
operations before provision
for income taxes 37,391 (81) (2,116) 35,194
Provision for income taxes 16,054 37,960 (38,754)(7) 15,260
------------ ----------- -------------- -------------
Income (loss) from continuing
operations $21,337 $ (38,041) $ 36,638 $19,934
============ =========== ============== =============
Earnings per common share for
continuing operations:
Basic $0.70 (8) $0.66
Diluted $0.69 (8) $0.64
Weighted average common shares
outstanding:
Basic 30,341 30,341
Diluted 30,957 30,957
39
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF CONTINUING
OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2002
(1) Simula's condensed consolidated statement of continuing operations as
adjusted for the sale of its automotive safety business is presented for
the year ended December 31, 2002.
(2) Reflects a change of Simula's revenue recognition policy to conform to
accounting policy used by Armor Holdings on long-term contracts from
percentage completion based on the cost incurred basis to Armor Holdings'
policy of percentage completion based on the units completed basis. For the
year ended December 31, 2002, this change in revenue recognition would have
resulted in a decrease in revenues of approximately $1.2 million and an
increase in cost of sales of approximately $2.6 million including reduction
in margin for opening in-process inventory.
(3) Reflects a reduction to depreciation expense of $168,000 due to an increase
in the weighted average estimated useful lives of property and equipment to
six years and leasehold improvements to 12 years, which exceeds the
remaining useful life on a historical basis.
(4) Reflects an increase to amortization expense of $3.1 million due to an
increase from purchase accounting in the fair value of identifiable
intangible assets over their estimated useful lives. See Note 5 to the Pro
Forma Condensed Consolidated Balance Sheet.
(5) Reflects a reduction for transactions costs of approximately $1.3 million
related to the costs to sell Simula.
(6) Reflects interest expense of $7.2 million related to the acquisition debt
used to fund the acquisition of Simula, net of the elimination of Simula's
historical interest expense of $10.4 million. If interest rates were to
increase or decrease by 1/8%, pro forma income from continuing operations
would be $19.7 million and $20.1 million, respectively. The acquisition
debt was issued by Armor Holdings in August of 2003 and matures in August
of 2013. The acquisition debt carries a current variable interest rate of
six-month LIBOR, set in arrears, plus a spread ranging from 2.735% to 2.75%
as a result of interest rate hedge transactions. Pro forma interest expense
for the acquisition debt was based on historical six-month LIBOR rates of
2.07%, or 4.82%, for the two-month period ended February 2002, 1.82%, or
4.57%, for the six-month period ended August 2002 and 1.37%, or 4.12%, for
the four-month period ended December 31, 2002.
(7) Reflects the adjustment to the provision for taxes by applying Armor
Holdings' statutory tax rate of approximately 37.7% to the pro forma
adjustments and eliminating the provision of $37.9 million that Simula
recognized in 2002, which principally related to providing a valuation
allowance for deferred tax assets resulting from net operating loss
carry-forward deductions.
(8) Basic earnings per common share for continuing operations is computed as
follows: Income from continuing operations divided by basic weighted
average common shares outstanding. Diluted earnings per common share for
continuing operations is computed as follows: Income from continuing
operations divided by diluted weighted average common shares outstanding.
40
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF
CONTINUING OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
100% CASH PAID TO SIMULA
SHAREHOLDERS
-----------------------------------
HISTORICAL HISTORICAL PRO FORMA
ARMOR SIMULA(1) ADJUSTMENTS PRO FORMA
------------- -------------- ----------------- --------------
Revenues
Products $144,140 $ -- $ -- $ 144,140
Mobile Security 108,875 -- -- 108,875
Simula -- 50,615 8,165(2) 58,780
------------- -------------- ----------------- --------------
Total revenues 253,015 50,615 8,165 311,795
Costs and expenses
Cost of sales 176,396 32,228 5,661(2) 214,285
Operating expenses 44,706 12,614 860(3)(4)(5) 58,180
Integration and other
non--recurring charges 4,565 599 -- 5,164
------------- -------------- ----------------- --------------
Operating income 27,348 5,174 1,644 34,166
Interest expense, net 2,291 8,277 (4,691)(6) 5,877
Other expense, net 181 1,000 (1,000)(7) 181
------------- -------------- ----------------- --------------
Income (loss) from continuing
operations before provision for
income taxes 24,876 (4,103) 7,335 28,108
Provision for income taxes 10,044 17 1,256(8) 11,317
------------- -------------- ----------------- --------------
Income (loss) from continuing
operations $14,832 $(4,120) $6,079 $16,791
============= ============== ================= ==============
Earnings per common share for
continuing operations:
Basic $0.52 (9) $0.60
Diluted $0.52 (9) $0.59
Weighted average common shares
outstanding:
Basic 28,106 28,106
Diluted 28,438 28,438
41
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF CONTINUING
OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003
(1) Simula's condensed consolidated statement of continuing operations as
adjusted for the sale of its automotive safety division is presented for
the nine months ended September 30, 2003.
(2) Reflects a change of Simula's revenue recognition policy to conform to the
accounting policy used by Armor Holdings on long-term contracts from
percentage completion based on the cost incurred basis to Armor Holding's
policy of percentage completion based on the units completed basis. For the
nine-months ended September 30, 2003, this change in revenue recognition
would have resulted in an increase in revenues of approximately $8.2
million and an increase in cost of sales of approximately $5.7 million.
(3) Reflects a reduction to depreciation expense of $137,000 due to an increase
in the weighted average estimated useful lives of property and equipment to
six years and leasehold improvements to 12 years, which exceeds the
remaining useful life on a historical basis.
(4) Reflects an increase to amortization expense of $2.4 million from purchase
accounting due to an increase in the fair value of identifiable intangible
assets over their estimated useful lives. See Note 5 to the Pro forma
Condensed Consolidated Balance Sheet.
(5) Reflects a reduction for transactions costs of approximately $1.4 million
related to the sale of Simula's automotive safety division and costs to
sell Simula.
(6) Reflects interest expense of $4.9 million (net of $1.3 million previously
recognized in Armor Holding's historical financial statements) related to
the acquisition debt used to fund the acquisition of Simula, net of the
elimination of Simula's allocated interest expense of $8.3 million. If
interest rates were to increase or decrease by 1/8%, pro forma income from
continuing operations would be $16.7 million and $16.9 million,
respectively. The acquisition debt was issued by Armor Holdings in August
of 2003 and matures in August of 2013. The acquisition debt carries a
current variable interest rate of six-month LIBOR, set in arrears, plus a
spread ranging from 2.735% to 2.75% as a result of interest rate hedge
transactions. Pro forma interest expense for the acquisition debt was based
on historical six-month LIBOR rates of 1.37%, or 4.12%, for the two-month
period ended February 2003 and 1.19%, or 3.94%, for the seven-month period
ended August 2003.
(7) Reflects the elimination of the $1.0 million performance fee paid related
to Simula's default on a certain non-monetary financial covenant under
their Senior Secured Note.
(8) Reflects the adjustment to the provision for taxes by applying Armor
Holdings' statutory tax rate of approximately 37.7% to the pro forma
adjustments and to Simula's historical losses.
(9) Basic earnings per common share for continuing operations is computed as
follows: Income from continuing operations divided by basic weighted
average common shares outstanding. Diluted earnings per common share for
continuing operations is computed as follows: Income from continuing
operations divided by diluted weighted average common shares outstanding.
42
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 2003
(AMOUNTS IN THOUSANDS)
100% CASH PAID TO SIMULA SHAREHOLDERS
--------------------------------------
HISTORICAL HISTORICAL PRO FORMA
ARMOR SIMULA(1) ADJUSTMENTS PRO FORMA
------------- -------------- ----------------- -----------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $154,766 $12 $(81,259)(2) $73,519
Accounts receivable (net of
allowance for doubtful
accounts) 59,215 8,836 -- 68,051
Costs and earned gross profit 1,088 10,324 (10,324)(3) 1,088
Inventories 60,068 2,491 8,583(3) 71,142
Prepaid expenses and other
current assets 21,321 1,199 (1,036)(7) 21,484
Current assets of
discontinued operations 47,958 -- -- 47,958
------------- -------------- ----------------- -----------------
Total Current Assets 344,416 22,862 (84,036) 283,242
Property and Equipment (net of
accumulated depreciation) 49,531 6,151 -- 55,682
Goodwill (net of accumulated 98,934 -- 66,323(4) 165,257
Patents, Licenses & Trademarks
(net of accumulated
amortization) 7,419 1,388 35,654(5) 44,461
Other Assets 21,048 1,175 (704)(7) 21,519
Long--Term Assets of Discontinued
Operations 20,045 -- -- 20,045
------------- -------------- ----------------- -----------------
TOTAL ASSETS $541,393 $31,576 $17,237 $590,206
============= ============== ================= =================
LIABILITIES AND STOCKHOLDERS'
EQUITY
CURRENT LIABILITIES
Current portion of long--term
debt $765 $56,086 (24,898)(8) $31,953
Short--term debt 608 3,543 (3,543)(8) 608
Accounts payable 22,013 5,010 -- 27,023
Accrued expenses and other 38,965 7,102 3,892(3)(6) 49,959
Income taxes payable 3,914 -- -- 3,914
Current liabilities of
discontinued operations 23,942 -- -- 23,942
------------- -------------- ----------------- -----------------
Total current liabilities 90,207 71,741 (24,549) 137,399
LONG--TERM DEBT, LESS CURRENT
PORTION 159,921 1,765 (144)(8) 161,542
LONG--TERM LIABILITIES OF
DISCONTINUED OPERATIONS 125 -- -- 125
------------- -------------- ----------------- -----------------
Total Liabilities 250,253 73,506 (24,693) 299,066
STOCKHOLDERS' EQUITY
Common stock 342 132 (132)(9) 342
Additional paid--in capital 315,148 63,015 (63,015)(9) 315,148
Retained earnings 49,871 (102,285) 102,285(9)
Accumulated other
comprehensive loss (1,904) (2,792) 2,792(9) (1,904)
Treasury stock (72,317) -- -- (72,317)
------------- -------------- ----------------- -----------------
Total stockholders' equity 291,140 (41,930) 41,930 291,140
------------- -------------- ----------------- -----------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $541,393 $31,576 $17,237 $ 590,206
============= ============== ================= =================
43
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEETS AS OF
SEPTEMBER 30, 2003
(1) Simula's condensed consolidated balance sheet as of
September 30, 2003.
(2) The estimated total purchase price is $112.8 million, including $2.3
million of estimated transaction costs for Armor Holdings. The cash
proceeds from the issuance of $147.5 million in debt were used as follows:
Repayment of Simula debt and purchase adjustments $ 31,747
Cash paid for Simula's transaction costs 4,262
Cash paid to Simula's common shareholders 42,950
Armor Holdings' transaction costs 2,300
---------------
Total pro-forma adjustment 81,259
8% Senior Subordinated Bonds to be redeemed in January 2004 32,214
Other non-cash purchase price adjustments (673)
---------------
Total purchase price $ 112,800
===============
(3) Reflects the adjustment of Simula's historical costs in excess of billings
and inventory resulting from a change in Simula's revenue recognition
policy to conform to the accounting policy used by Armor Holdings on
long-term contracts from percentage completion based on the cost incurred
basis to Armor Holdings' policy of percentage completion on the units
completed basis. This change in revenue recognition results in a decrease
in costs in excess of billings of $10.3 million, increase in inventory of
$8.6 million (includes $630,000 related to the application of purchase
accounting), increase of accrued expenses and other current liabilities of
$3.0 million and a decrease in retained earnings of $4.7 million.
(4) The excess of the amount paid to acquire 100% of Simula, Inc. common stock
over the fair value of the net tangible and identifiable intangible assets
(see note 5) of $66.3 million is reported as goodwill.
(5) Reflects the estimated fair value of identifiable intangible assets
acquired of $35.7 million. These assets consist of $25.2 million in
customer relationships, $8.8 million in technology and $1.7 million in
licensing agreements. We estimate these identifiable intangible asset
categories have weighted average useful lives of 14, 8 and 10 years,
respectively.
(6) Reflects an increase of $915,000 in Simula's pension obligation to adjust
the obligation to the difference between the fair market value of the plan
assets and the projected benefit obligation.
(7) Other long-term assets were reduced by the elimination of Simula's
capitalized debt issuance costs of $704,000 related to the Revolving Line
of Credit, 9.5% Senior Subordinated Notes, and other long-term debt.
(8) Reflects Simula's repayment of $144,000 of outstanding debt under the
Revolving Line of Credit, 9.5% Senior Subordinated Notes, as well as other
long-term debt upon completion of the acquisition.
(9) Reflects the elimination of the historical shareholders' equity of Simula.
44
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
COMPANY OVERVIEW
We are a leading manufacturer and provider of security products, vehicle armor
systems and security risk management services. Our products and services are
used by military, law enforcement, security and corrections personnel throughout
the world, as well as governmental agencies, multinational corporations and
non-governmental organizations. Our company is organized and operated under
three business segments: Armor Holdings Products; Armor Mobile Security; and
ArmorGroup, which is accounted for as a discontinued operation.
CONTINUING OPERATIONS
Armor Holdings Products. Our Armor Holdings Products Division manufactures and
sells a broad range of high quality, branded law enforcement equipment, such as
concealable and tactical body armor, hard armor, duty gear, less-lethal
munitions, anti-riot products, police batons, emergency lighting products,
forensic products, firearms accessories and weapon maintenance products. Our
products are marketed under brand names that are well-known and respected in the
military and law enforcement communities such as American Body Armor(TM),
Safariland(R), B-Square(TM), Break-Free(R), Defense Technology/Federal
Laboratories(TM), MACE(R), PROTECH(TM), NIK(R)Public Safety, Monadnock(TM)
Lifetime Products, Identicator(TM), Lightning Powder(R), SpeedFeed(TM), and
911EP(R). We sell our manufactured products primarily to law enforcement
agencies through a worldwide network of over 350 distributors and sales agents,
including approximately 200 in the United States. Our extensive distribution
capabilities and commitment to customer service and training have enabled us to
become a leading provider of security equipment to law enforcement agencies.
Armor Mobile Security. Our Armor Mobile Security Division manufactures and
installs ballistic and blast protected armoring systems for military vehicles,
commercial vehicles, military aircraft, and missile components. Under the brand
name O'Gara-Hess & Eisenhardt, we are the sole-source provider to the U.S.
military for the supply of armoring and blast protection systems for the High
Mobility Multi-purpose Wheeled Vehicle (the "HMMWV"). We are also under contract
with the U.S. Army to provide systems technical support for the installed base
of approximately 3,500 up-armored HMMWV's. We provide spare parts and
maintenance services for the HMMWV's in use and we expect that our maintenance
services may increase if the U.S. military substantially increases its HMMWV
purchases or substantially increases its use of the current installed base.
Additionally, the Armor Mobile Security Division has been subcontracted to
develop a ballistic and blast protected armored and sealed truck cab for the
High Mobility Artillery Rocket System ("HIMARS"), a U.S. Army and Marine Corps
program recently transitioned from developmental to low rate initial production
with deliveries scheduled in late 2003. The Division also markets armor
sub-systems for other tactical wheeled vehicles. We armor a variety of
commercial vehicles, including limousines, sedans, sport utility vehicles,
commercial trucks and cash-in-transit vehicles, to protect against varying
degrees of ballistic and blast threats.
DISCONTINUED OPERATIONS
Services Division. Our Services Division provides a broad range of sophisticated
security risk management solutions to multinational corporations in diverse
industries such as natural resources, financial services and consumer products,
and to governmental and non-governmental agencies such as the U.S. Departments
of State and Defense, the United Nations, United States Agency for International
Development ("USAID") and Britain's Department for International Development.
Our clients typically have personnel and other investments in unstable and often
more risky areas of the world. Through our offices on five continents, we
provide our multinational clients with a diversified portfolio of security
solutions to assist them in mitigating risks to their operations around the
world. Our highly trained, multilingual, and experienced security personnel work
closely with our clients to create and implement solutions to complex security
problems. These services include security planning, advice and management,
security systems integration, intellectual property asset protection, due
diligence investigations and training programs in counterintelligence,
counter-surveillance, advanced driving techniques and ballistics. We believe
that many of our security services, while often representing a small portion of
our clients' overall cost of doing business, are critical to our clients'
success. We believe that this creates a consistent demand for our premium
services at attractive margins.
CRITICAL ACCOUNTING POLICIES
We believe our most critical accounting policies include revenue recognition,
the use of estimates, income taxes and impairment.
Revenue Recognition. We record products revenue at the time of shipment. Returns
are minimal and do not materially affect the financial statements.
We record revenue from our Mobile Security Division when the vehicle is shipped,
except for larger commercial contracts typically longer than four months in
length and the contract for the delivery of HMMWVs to the U.S. Government, which
continues through 2005. Revenue from such larger contracts is recognized on the
percentage of completion, units-of-work performed method. HMMWV units sold to
the U.S. Government are considered complete when the onsite Department of
Defense officer finishes the inspection of the HMMWV and approves it for
delivery. Should such contracts be in a loss position, the entire estimated loss
would be recognized for the balance of the contract at such time. We believe
that our current contracts are profitable.
We record service revenue as services are provided on a contract-by-contract
basis. Revenues from service contracts are recognized over the term of the
contract.
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Comprehensive income and foreign currency translation. In accordance
with Statement of Financial Accounting Standard No. 130, "Reporting
Comprehensive Income" (SFAS 130), assets and liabilities denominated in a
foreign currency are translated into U.S. dollars at the current rate of
exchange existing at period-end and revenues and expenses are translated at the
average monthly exchange rates. The cumulative translation adjustment, net of
tax, which represents the effect of translating assets and liabilities of our
foreign operations is recorded as a reduction of equity of $1,904,000 and
$4,169,000 as of September 30, 2003 and December 31, 2002, respectively, and is
classified as accumulated other comprehensive loss. The current year change in
the accumulated amount, net of tax, is included as a component of comprehensive
income.
Stock options and Grants. Statement of Financial Accounting Standard
No. 123, "Accounting for Stock-Based Compensation" (SFAS 123), as amended by
SFAS 148, "Accounting for Stock-Based Compensation - Transition and Disclosure,"
establishes a fair value based method of accounting for stock-based employee
compensation plans; however, it also allows an entity to continue to measure
compensation cost for those plans using the intrinsic value based method of
accounting prescribed by Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" (APB 25). Under the fair value based method,
compensation cost is measured at the grant date based on the value of the award
and is recognized over the service period, which is usually the vesting period.
Under the intrinsic value based method, compensation costs is the excess, if
any, of the quoted market price of the stock at the grant date or other
measurement date over the amount an employee must pay to acquire the stock. We
have elected to continue to account for our employee stock compensation plans
under APB 25 with pro forma disclosures of net earnings and earnings per share,
as if the fair value based method of accounting defined in SFAS 123 had been
applied. If compensation cost for stock option grants had been determined based
on the fair value on the grant dates for September 30, 2003 and 2002 consistent
with the method prescribed by SFAS 123, our net earnings and earnings per share
would have been adjusted to the pro forma amounts indicated below:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 2003 SEPTEMBER 30, 2002 SEPTEMBER 30, 2003 SEPTEMBER 30, 2002
------------------ ------------------ ------------------ ------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Net income (loss) as reported: $ 6,115 $ (14,707) $ 15,815 $ (4,672)
Deduct: Total stock-based employee
compensation expense determined under
fair value based method for all awards,
net of related tax effects (671) (1,699) (2,985) (3,434)
---------------- -------------------- --------------------- --------------------
Pro-forma net income (loss) $ 5,444 $ (16,406) $ 12,830 $ (8,106)
================ ==================== ===================== ====================
Earnings (loss) per share:
Basic - as reported $ 0.22 $ (0.50) $ 0.56 $ (0.15)
================ ==================== ===================== ====================
Basic - pro-forma $ 0.20 $ (0.55) $ 0.46 $ (0.26)
================ ==================== ===================== ====================
Diluted - as reported $ 0.22 $ (0.49) $ 0.56 $ (0.15)
================ ==================== ===================== ====================
Diluted - pro-forma $ 0.19 $ (0.55) $ 0.45 $ (0.26)
================ ==================== ===================== ====================
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 in the financial statements and
accompanying notes. Significant estimates inherent in the preparation of the
accompanying consolidated financial statements include periodic testing of the
carrying value of long-lived assets for impairment, valuation allowances for
receivables, inventories and deferred income tax assets, liabilities for
potential litigation claims and settlements; and contract contingencies and
obligations. Actual results could differ from those estimates.
Income taxes. We account for income taxes pursuant to Statement of Financial
Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes". Under the
asset and liability method specified thereunder, deferred taxes are determined
based on the difference between the financial reporting and tax bases of assets
and liabilities. Deferred tax liabilities are offset by deferred tax assets
relating to net operating loss carryforwards and deductible temporary
differences. Future benefits obtained either from utilization of net operating
loss carryforwards or from the reduction in the income tax asset valuation
allowance existing on September 20, 1993 have been and will be applied to reduce
reorganization value in excess of amounts allocable to identifiable assets. At
December 31, 2002 and 2001, our consolidated foreign subsidiaries have
unremitted earnings of approximately $3.0 million and $1.3 million, respectively
on which Armor Holdings has not recorded a provision for United States Federal
income taxes since these earnings are considered to be permanently reinvested.
Such foreign earnings have been taxed according to the regulations existing in
the countries in which they were earned.
Impairment. Long-lived assets including certain identifiable intangibles, and
the goodwill related to those assets, are reviewed annually for impairment
whenever events or changes in circumstances indicate that the carrying amount of
the asset in question may not be recoverable including, but not limited to, a
deterioration of profits for a business segment that has long-lived assets, and
when other changes occur which might impair recovery of long-lived assets.
Management has reviewed Armor Holdings' long-lived assets and has taken an
impairment charge of $31.2 million to reduce the carrying value of the Services
Division to estimated realizable value. The method used to determine the
existence of an impairment would be discounted operating cash flows estimated
over the remaining useful lives of the related long-lived assets for continuing
operations in accordance with SFAS No. 142, "Goodwill and Other Intangible
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Assets." Impairment is measured as the difference between fair value and
unamortized cost at the date impairment is determined.
Discontinued Operations. In accordance with Statement of Financial Accounting
Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets" (SFAS 144), a component classified as held for sale is reported in
discontinued operations when the following conditions are met: (a) the
operations and cash flows of the component have been (or will be) eliminated
from the ongoing operations of the entity as a result of the disposal
transaction and (b) the entity will not have any significant continuing
involvement in the operations of the component after the disposal transaction.
In a period in which a component of an entity either has been disposed of or is
classified as held for sale, the income statement for current and prior periods
reports the results of operations of the component, including any estimated
impairment gain or loss recognized in accordance with SFAS 144 paragraph 37, in
discontinued operations. The results of discontinued operations, less applicable
income taxes (benefit), is reported as a separate component of income before
extraordinary items and the cumulative effect of accounting changes (if
applicable). The assets and liabilities of a disposal group classified as held
for sale is presented separately in the asset and liability sections,
respectively, of the statement of financial position.
Derivative Instruments and Hedging Activities. We account for
derivative instruments and hedging activities in accordance with Statement of
Financial Accounting Standard No. 133, "Accounting for Derivative Instruments
and Hedge Activities" (SFAS 133) as amended. All derivative instruments are
recorded on the balance sheet at fair value. Changes in the fair value of
derivatives are recorded each period in current earnings or other comprehensive
income, depending on whether a derivative is designated as part of a hedge
transaction and, if it is, depending on the type of hedge transaction. For
fair-value hedge transactions in which we hedge changes in an asset's,
liability's, or firm commitment's fair value, changes in the fair value of the
derivative instrument will generally be offset in the income statement by
changes in the hedged item's fair value. We adopted SFAS 133 in the first
quarter of 2001. However, we had no derivatives to be measured at the time of
adoption. We do not hold or issue interest rate swap agreements or other
derivative instruments for trading purposes.
Changes in the fair value of the interest rate swap agreements offset
changes in the fair value of the fixed rate debt due to changes in the market
interest rate. Accordingly, the other assets on the Condensed Consolidated
Balance Sheets as of September 30, 2003 increased by $8.0 million, which
reflected an increase in the fair value of the interest rate swap agreements.
The corresponding increase in the hedge liability was recorded in long-term
debt. The agreements are deemed to be a perfectly effective fair value hedge and
therefore qualify for the short-cut method of accounting under SFAS 133. As a
result, no ineffectiveness is expected to be recognized in our earnings
associated with the interest rate swap agreements.
NEW ACCOUNTING PRONOUNCEMENTS:
In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS No.
141, "Business Combinations." SFAS No. 141 requires that the purchase method of
accounting be used for all business combinations initiated after June 30, 2001.
This statement specifies that certain acquired intangible assets in a business
combination be recognized as assets separately from goodwill and that existing
intangible assets and goodwill be evaluated for these new separation
requirements. The adoption of this statement did not have a material impact on
our consolidated financial statements.
In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets." SFAS No. 142 changes the accounting for goodwill from an amortization
method to an impairment-only approach. Amortization of goodwill, including
goodwill recorded in past business combinations, ceased upon adoption of this
statement. In addition, this statement requires that goodwill be tested for
impairment at least annually at the reporting unit level. We implemented SFAS
No. 142 on January 1, 2002. In connection with the adoption of SFAS 142, we
completed in the second quarter the transitional goodwill impairment test that
compared the fair value of each reporting unit to its carrying value and
determined that no impairment existed. The goodwill resulting from acquisitions
made by us subsequent to June 30, 2001 was immediately subject to the
non-amortization provisions of SFAS 142. Had we been accounting for goodwill
under SFAS 142 for all periods presented, our net income and earnings per share
would have been as follows:
DECEMBER 31,2002 DECEMBER 31, 2001 DECEMBER 31, 2000
------------------ -------------------- --------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Reported net (loss) income $(17,689) $10,128 $17,048
Add back goodwill amortization, net of tax - 3,044 2,943
------------------ -------------------- --------------------
Actual/pro forma adjusted net (loss) income $(17,689) $13,172 $19,991
Basic earnings per share
Reported basic (loss) income per share $ (0.58) $ 0.42 $ 0.75
Goodwill amortization, net of tax - 0.13 0.13
------------------ -------------------- --------------------
Actual/pro forma basic (loss) income per share $ (0.58) $ 0.55 $ 0.88
================= =================== ===================
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Diluted earnings per share
Reported diluted (loss) income per share $ (0.57) $ 0.41 $ 0.73
Goodwill amortization, net of tax - 0.12 0.13
------------------ -------------------- --------------------
Actual/pro forma diluted (loss) income per share $ (0.57) $ 0.53 $ 0.86
================= =================== ===================
In August 2001, the FASB issued Statement of Financial Accounting Standards No.
143, "Accounting for Asset Retirement Obligations" (SFAS 143). SFAS 143
establishes accounting standards for recognition and measurement of a liability
for an asset retirement obligation and the associated asset retirement cost.
SFAS 143 requires the recognition of the fair value of a liability for an asset
retirement obligation in the period in which it is incurred if a reasonable
estimate of fair value can be made. If a reasonable estimate of fair value
cannot be made in the period the asset retirement obligation is incurred, the
liability shall be recognized when a reasonable estimate of fair value can be
made. The fair value of a liability for an asset retirement obligation is the
amount at which that liability could be settled in a current transaction between
willing parties, that is, other than in a forced or liquidation transaction.
SFAS 143 is effective for financial statements issued for fiscal years beginning
after June 15, 2002. The provisions of SFAS 143 became effective for us on
January 1, 2003. The effects of adopting this standard will not have a material
effect on us.
In October 2001, the FASB issued Statement of Financial Accounting Standards No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets" (SFAS
144). SFAS 144 establishes a "primary-asset" approach to determine the cash flow
estimation period for a group of assets and liabilities that represents the unit
of accounting for a long-lived asset to be held and used. SFAS 144 requires that
a long-lived asset to be (1) abandoned, (2) exchanged for a similar productive
asset, or (3) distributed to owners in a spin-off be considered held and used
until it is abandoned, exchanged, or distributed. SFAS 144 requires (1) that
spin-offs and exchanges of similar productive assets be recorded at the lower of
carrying value or fair value, and that such assets be classified as held and
used until disposed of and (2) that any impairment loss resulting from a
spin-off or exchange of similar productive assets be recognized upon asset
disposition. SFAS 144 provides for total assets and total liabilities of
discontinued business segments to be presented in separate captions in assets
and liabilities and also provides that future losses, if any, of discontinued
business segments shall be reported as incurred. We adopted SFAS 144 effective
January 1, 2002. The reclassification of the Services Division to discontinued
operations and subsequent reduction in its carrying value was in accordance with
the provisions of SFAS 144.
In April 2002, the FASB issued Statement of Financial Accounting Standards No.
145, "Rescission on FASB 4, 44 and 64, Amendment of FASB Statement No. 13 and
Technical Corrections" (SFAS 145). Under SFAS 145, gains and losses related to
the extinguishment of debt should no longer be segregated on the income
statement from continuing operations. The provisions of SFAS 145 are effective
for fiscal years beginning after May 15, 2002.
In June 2002, the FASB issued Statement of Financial Accounting Standard 146,
"Accounting for Costs Associated with Exit or Disposal Activities" (SFAS 146).
SFAS 146 addresses financial accounting and reporting for costs associated with
exit or disposal activities and nullifies Emerging Issues Task Force Issue No.
94-3, "Liability Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring)." SFAS 146 is effective for exit or disposal activities initiated
on or after December 31, 2002. The effects of adopting this standard will not
have a material effect on us.
In December 2002, the FASB issued Statement of Financial Accounting Standard
148, "Accounting for Stock-Based Compensation - Transition and Disclosure" (SFAS
148). SFAS 148 provides alternative methods of transition for a voluntary change
to the fair value based method of accounting for stock-based employee
compensation. In addition, SFAS 148 amends the disclosure requirements of
Statement of Financial Accounting Standard 123, "Accounting for Stock-Based
Compensation" (SFAS 123), to require prominent disclosures in both annual and
interim financial statements about the method of accounting for stock-based
employee compensation and the effect of the method used on reported results. The
disclosures required by SFAS 148 are included in this document.
In November 2002, the FASB issued FASB Interpretation No. 45
Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others, an Interpretation of FASB
Statements No. 5, 57, and 107 and Rescission of FASB Interpretation No. 34 ("FIN
45"). FIN 45 elaborates on the disclosures to be made by a guarantor in its
interim and annual financial statements about its obligations under certain
guarantees that it has issued. It also clarifies that a guarantor is required to
recognize, at the inception of a guarantee, a liability for the fair value of
the obligation undertaken in issuing the guarantee. The initial recognition and
initial measurement provisions of FIN 45 are applicable on a prospective basis
to guarantees issued or modified after December 31, 2002, irrespective of the
guarantor's fiscal year-end. We adopted the provisions of this Statement on
January 1, 2003, which did not have a significant impact on our consolidated
financial statements.
In January 2003, the FASB issued FASB Interpretation No. 46,
Consolidation of Variable-Interest Entities - an Interpretation of ARB No. 51
("FIN 46"). FIN 46 addresses consolidation by business enterprises of variable
interest entities, which have one or both of the following characteristics: (1)
the equity investment at risk is not sufficient to permit the entity to finance
its activities without additional subordinated financial support from other
parties, which is provided through other interests that will absorb some or all
of the expected losses of the entity and (2) the equity investors lack one or
more of the following essential characteristics of a controlling financial
interest:
o The direct or indirect ability to make decisions about the entity's
activities through voting rights or similar rights
o The obligation to absorb the expected losses of the entity if they
occur, which makes it possible for the entity to finance its activities
48
o The right to receive the expected residual returns of the entity if
they occur, which is the compensation for the risk of absorbing the
expected losses.
This Interpretation applies immediately to variable interest entities
created after January 31, 2003, and to variable interest entities in which an
enterprise obtains an interest after that date. It applies in the first fiscal
year or interim period beginning after June 15, 2003, to variable interest
entities in which an enterprise holds a variable interest that it acquired
before February 1, 2003. The adoption of FIN 46 did not have a significant
impact on our consolidated financial statements.
In April 2003, the FASB issued Statement of Financial Accounting
Standard No. 149, "Amendment of Statement 133 on Derivative Instruments and
Hedging Activities" (SFAS 149). SFAS 149 amends and clarifies financial
accounting and reporting for derivative instruments, including certain
derivative instruments embedded in other contracts and for hedging activities
under Statement of Financial Accounting Standard No. 133, "Accounting for
Derivative Instruments and Hedging Activities" (SFAS 133). SFAS 149 is effective
for contracts entered into or modified and hedging relationships designated
after June 30, 2003, except for the provisions of SFAS 149 that relate to SFAS
133 Implementation Issues that have been effective for fiscal quarters that
began prior to June 15, 2003, which should continue to be applied in accordance
with their respective effective dates. Adoption of this standard had no effect
on us.
In May 2003, the FASB issued Statement of Financial Accounting
Standard No. 150, "Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity" (SFAS 150). SFAS 150 establishes
standards for how an issuer classifies and measures certain financial
instruments with characteristics of both liabilities and equity. It requires
that an issuer classify a financial instrument that is within its scope as a
liability (or an asset in some circumstances). Many of those instruments were
previously classified as equity. SFAS 150 is effective for financial instruments
entered into or modified after May 310, 2003, and otherwise is effective at
the beginning of the first interim period beginning after June 15, 2003.
Adoption of this standard had no effect on us.
In September 2003, the FASB issued FASB Staff Position No. 146-1,
Determining Whether a One-Time Termination Benefit Offered in Connection with
an Exit or Disposal Activity Is, in Substance, an Enhancement to an Ongoing
Benefit Arrangement. This Staff Position states that in order to be
considered an enhancement to an ongoing benefit arrangement, the additional
termination benefits must represent a revision to the ongoing arrangement that
is not limited to a specified termination event or a specified future period.
Otherwise the additional termination benefits should be considered one-time
termination benefits and accounted for under SFAS 146. The guidance in this
Staff Position is effective for exit or disposal activities initiated in
interim or annual reporting periods beginning after September 15, 2003. The
adoption of this Staff Position is not expected to have a material impact on our
consolidated financial statements.
In October 2003, the FASB issued Staff Position No. FIN 48-6,
Effective Date of FASB Interpretation No. 46, Consolidation of Variable
Interest Entities. This Staff Position defers the effective date for applying
the provisions of FIN 46 for interests held by public entities in variable
interest entities or potential variable interest entities created before
February 1, 2003 and non-registered investment companies. This adoption of this
Staff Position is not expected to have a material impact on our consolidated
financial statements.
Fiscal Quarter Ended September 30, 2003
The following is a discussion of the results of operations and analysis
of financial condition for the three months and nine months ended September 30,
2003 and a comparison to the three months and nine months ended September 30,
2002. The results of operations for purchase business combinations are included
since their effective acquisition dates. The following discussion may be
understood more fully by reference to the consolidated financial statements and
notes to the consolidated financial statements included in this prospectus.
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RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2003 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 2002.
Net income (loss). Net income (loss) increased $20.8 million to net
income of $6.1 million for the three months ended September 30, 2003 compared to
a net loss of ($14.7) million for the three months ended September 30, 2002. Net
income for the three months ended September 30, 2003 includes income from
continuing operations of $6.1 million and income from discontinued operations of
$6,000, compared to income from continuing operations of $3.0 million and a loss
from discontinued operations of ($17.7) million for the three months ended
September 30, 2002.
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CONTINUING OPERATIONS
Products revenues. Products Division revenues increased $1.7 million,
or 3.5%, to $50.8 million in the three months ended September 30, 2003, compared
to $49.0 million in the three months ended September 30, 2002. For the three
months ended September 30, 2003, Products Division revenue increased 2.1%
internally, including year over year changes in acquired businesses, and 1.4%
due to the acquisitions of Evi-Paq, Inc., B-Square, Inc. and 911 Emergency
Products, Inc., all of which were completed during or subsequent to the third
quarter of 2002.
Mobile Security revenues. Mobile Security Division revenues increased
$8.6 million, or 27.2%, to $40.1 million in the three months ended September 30,
2003, compared to $31.5 million in the three months ended September 30, 2002.
Mobile Security Division revenues for the three months ended September 30, 2003,
increased $6.3 million due to the acquisition of substantially all of the assets
of Trasco-Bremen on September 24, 2002. Excluding the $6.3 million of 2003
revenue increase relating to Trasco-Bremen, Mobile Security Division revenues
increased $2.3 million, or 7.3%, in the three months ended September 30, 2003,
compared to the three months ended September 30, 2002. The majority of the $2.3
million revenue increase relates to increased sales of up-armored Humvees and
armored cars to the US military and US government.
Cost of sales. Cost of sales increased $6.0 million, or 10.7%, to $62.0
million for the three months ended September 30, 2003 compared to $55.9 million
for the three months ended September 30, 2002. As a percentage of total
revenues, cost of sales decreased to 68.2% of total revenues for the three
months ended September 30, 2003 from 69.5% for the three months ended September
30, 2002.
Gross margins in the Products Division were 36.1% for the three months
ended September 30, 2003, compared to 36.7% for the three-months ended September
30, 2002. The small drop in Products Division gross margins resulted primarily
from a negative change in product mix within our hard armor and less lethal
businesses. Excluding USDS, Inc., our Products Division training subsidiary, the
Products Division gross margins were 38.4%, compared to 39.3% reported in the
same period last year.
Gross margins in the Mobile Security Division were 26.4% in the
three-months ended September 30, 2003, compared to 21.0% for the three-months
ended September 30, 2002. The increase in the Mobile Security Division gross
margin is primarily attributable to: 1) favorable manufacturing overhead cost
absorption relating to increased manufacturing volumes in our Cincinnati
manufacturing facility; and 2) operational efficiencies in our Cincinnati
manufacturing facility as the plant continues to reduce its per vehicle labor
and material costs.
Operating expenses. Operating expenses increased $3.1 million, or
24.3%, to $16.0 million (17.6% of total revenues) for the three months ended
September 30, 2003 compared to $12.9 million (16.0% of total revenues) for the
three months ended September 30, 2002.
Products Division operating expenses increased $0.2 million, or 2.1%,
to $8.2 million (16.1% of Products Division revenues) for the three months ended
September 30, 2003 compared to $8.0 million (16.3% of Products Division
revenues) for the three months ended September 30, 2002. This increase is due
primarily to the incremental operating expenses associated with acquired
businesses completed during or subsequent to the third quarter of 2002.
Mobile Security Division operating expenses increased $925,000, or
28.8%, to $4.1 million (10.3% of Mobile Security Division revenues) for the
three months ended September 30, 2003,
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compared to $3.2 million (10.2% of Mobile Security Division revenues) for the
three months ended September 30, 2002. Excluding the increase in 2003 operating
expenses resulting from the acquisition of substantially all of the assets of
Trasco-Bremen on September 24, 2002, the operating expenses for the three months
ended September 30, 2003, increased $0.3 million to $3.5 million (10.5% of
Mobile Security Division revenues) versus $3.2 million (10.2% of Mobile Security
Division revenues) in the same period in the prior year.
Corporate operating expenses increased $2.0 million, or 125.2%, to $3.7
million (4.0% of total revenues) for the three months ended September 30, 2003
compared to $1.6 million (2.0% of total revenues) for the three months ended
September 30, 2002. This increase is due primarily to increased insurance costs,
increased internal audit costs necessary to comply with Sarbanes-Oxley
requirements, increased legal provisions, and increased bonus provisions.
Amortization. Amortization expense increased $10,000, or 16.1%, to
$72,000 for the three months ended September 30, 2003 compared to $62,000 for
the three months ended September 30, 2002. SFAS 142, which we adopted on January
1, 2002, eliminated amortization of intangible assets with indefinite lives and
goodwill for all acquisitions completed after July 1, 2001, as well as for all
fiscal years ending after January 1, 2002. Remaining amortization expense is
related to patents and trademarks with finite lives.
Integration and other non-recurring charges. Integration and other
non-recurring charges for the three months ended September 30, 2003, totaled
$368,000, compared to $1.4 million in the same period last year. The decrease in
integration and other non-recurring items is primarily related to the
elimination of expense associated with the 2001 acquisitions of O'Gara-Hess &
Eisenhardt and Identicator. The integration and other non-recurring charges for
the three months ended September 30, 2003 primarily related to the integration
of Evi-Paq, B-Square, 911 Emergency Products, and Trasco-Bremen all of which
were completed during or subsequent to the third quarter of 2002.
Operating income. Operating income from continuing operations increased
$2.2 million to $12.5 million for the three months ended September 30, 2003
compared to $10.3 million in the three months ended September 30, 2002 due to
the factors discussed above.
Interest expense, net. Interest expense, net increased $1.1 million, or
330.0%, to $1.5 million for the three months ended September 30, 2003 compared
to $343,000 for the three months ended September 30, 2002. This increase was due
primarily to interest expense associated with the $150 million aggregate
principal amount of 8.25% senior subordinated notes due 2013. On September 2,
2003, we entered into interest rate swap agreements that effectively exchanged
the 8.25% fixed rate for a variable rate of six-month LIBOR (1.18% at September
30, 2003), set in arrears, plus a spread of 2.735% to 2.75%.
Other expense (income), net. Other expense (income), net, was $96,000
for the three months ended September 30, 2003, compared to other expense
(income), net, of ($13,000) for the three months ended September 30, 2002.
Income from continuing operations before provision for income taxes.
Income from continuing operations before provision for income taxes increased by
$934,000 to $10.9 million for the three months ended September 30, 2003 compared
to $10.0 million for the three months ended September 30, 2002 due to the
reasons discussed above.
52
Provision for income taxes. Provision for income taxes was $4.8 million
for the three months ended September 30, 2003, compared to $7.0 million for the
three months ended September 30, 2002. The effective tax rate was 44.2% for the
three months ended September 30, 2003, compared to 70.4% for the three months
ended September 30, 2002. Our income tax rate for the full year 2003 is now
estimated at 40.4%. This is an increase from the 37.4% tax rate that was
utilized in the three months ended March 31, 2003, and June 30, 2003.
Accordingly, we had to record an additional tax expense in the three months
ended September 30, 2003. The increase in estimated tax rate was due to, among
other things, the revaluation of certain intellectual property utilized in our
discontinued operations to comply with tax code provisions. The increased tax
expense associated with the revaluation is recorded in continuing operations as
required by generally accepted accounting principles and resulted in an
incremental non-cash tax expense of $635,000, for which foreign tax credits are
available to offset the tax otherwise payable.
Income from continuing operations. Income from continuing operations
increased $3.1 million to $6.1 million for the three months ended September 30,
2003 compared to $3.0 million for the three months ended September 30, 2002 due
to the factors discussed above.
DISCONTINUED OPERATIONS
Services revenues. Services Division revenue increased $2.3 million, or
9.7%, to $26.0 million for the three months ended September 30, 2003 compared to
$23.7 million for the three months ended September 30, 2002. Exclusive of
ArmorGroup Integrated Systems, which we sold on April 17, 2003, revenue
increased $6.2 million, or 31.5% to $26.0 million for the three months ended
September 30, 2003 compared to $19.8 million for the three months ended
September 30, 2002. This increase is due to strong performance primarily in the
Middle East with strong growth coming from Iraq along with ongoing strong
training revenues from the Athens Olympics build up. These are tempered by weak
revenues in mine action business, investigations business and the Latin American
business.
Cost of sales. Cost of sales decreased $1.7 million, or 8.4%, to $18.1
million for the three months ended September 30, 2003 compared to $19.7 million
for the three months ended September 30, 2002. This decrease is a result of the
sale of the ArmorGroup Integrated Systems business. Exclusive of ArmorGroup
Integrated Systems, cost of sales increased $3.5 million, or 24.0% to $18.1
million for the three months ended September 30, 2003 compared to $14.6 million
for the three months ended September 30, 2002.
As a percentage of total revenue, cost of sales decreased to 69.4% of
total revenues for the three months ended September 30, 2003 from 83.1% for the
three months ended September 30, 2002. This decease in cost of sales as a
percentage of total revenue was primarily a result of the proportion of the
revenue growth coming from expatriate intensive security contracts in Iraq and
continued high margin training contracts.
Operating expenses. Operating expenses decreased $3.1 million, or
39.1%, to $4.9 million (18.8% of Services revenues) for the three months ended
September 30, 2003 compared to $8.0 million (33.8% of Services revenues) for the
three months ended September 30, 2002. This decrease was partly due to the sale
of the ArmorGroup Integrated Systems business. Exclusive of ArmorGroup
Integrated Systems, operating expenses decreased $1.2 million, or 19.9% to $4.9
million for the three months ended September 30, 2003 compared to $6.1 million
for the three months ended September 30, 2002. This decrease was due to reduced
foreign currency expenses and a reduction in salary costs as a result of
restructuring last year.
53
Charge for impairment of long-lived asset. The net charge for
impairment of long-lived asset was $1.3 million for the three months ended
September 30, 2003, compared to $11.9 million for the three months ended
September 30, 2002. The $1.3 million net non-recurring charge was recorded to
maintain the proper carrying value of our discontinued operations at $43.4
million as of September 30, 2003, which amount reflects management's continued
best estimate of fair value.
Integration and other non-recurring charges. Integration and other
non-recurring charges decreased $732,000, or 87.6%, to $104,000 for the three
months ended September 30, 2003 compared to $836,000 for the three months ended
September 30, 2002. This decrease is primarily due to severance payments to
certain personnel in the prior year.
Operating income (loss). Operating income was $1.7 million for the
three months ended September 30, 2003, compared to operating loss of ($16.7)
million for the three months ended September 30, 2002 due to the factors
discussed above. Operating loss from the ArmorGroup Integrated Systems business
was ($15.0) million for the three months ended September 30, 2002 primarily due
to the $11.9 million charge for impairment of long-lived assets. Excluding the
ArmorGroup Integrated Systems business, the balance of the assets held for sale
generated an operating income of $1.7 million for the three months ended
September 30, 2003 compared to an operating loss of ($1.7) million for the three
months ended September 30, 2002.
Interest expense, net. Interest expense, net, decreased $16,000, or
47.1%, to $18,000 for the three months ended September 30, 2003 compared to
$34,000 for the three months ended September 30, 2002. This decrease was due to
reduced utilization of the Services Division's line of credit.
Other expense, net. Other expense, net, decreased $236,000, or 92.2%,
to $20,000 for the three months ended September 30, 2003, compared to other
expense, net, of $256,000 for the three months ended September 30, 2002. This
decrease is due to reduced losses on disposal of fixed assets and other asset
write-offs.
Income (loss) from discontinued operations before provision for income
taxes. Income from discontinued operations before provision for income taxes was
$1.7 million for the three months ended September 30, 2003 and a loss of ($17.0)
million for the three months ended September 30, 2002, due to the reasons
discussed above.
Provision for income taxes. Provision for income taxes was $1.7 million
for the three months ended September 30, 2003 compared to a provision of
$639,000 for the three months ended September 30, 2002. The effective tax rate
for the three months ended September 30, 2003 was a provision of 99.6% compared
to a provision of 3.8% for the three months ended September 30, 2002. The
provision of 99.6% for the three months ended September 30, 2003 is due to
unrecognized potential deferred tax assets associated with foreign subsidiaries,
which recorded pretax losses in the three months of 2003. These potential tax
benefits were not recognized due to the uncertainty regarding the specific
subsidiary's ability to utilize the net operating loss carry-forwards in future
periods. The provision for the three months ended September 30, 2003 also
relates to the net impairment charge of $1.3 million, $1.1 million of which was
non-deductible goodwill write-offs.
Income (Loss) from discontinued operations. Income from discontinued
operations was $6,000 for the three months ended September 30, 2003 compared to
a loss from discontinued operations of ($17.7) million for the three months
ended September 30, 2002 due to the factors discussed above.
54
NINE MONTHS ENDED SEPTEMBER 30, 2003 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
2002.
Net income (loss). Net income (loss) increased $20.5 million to net
income of $15.8 million for the nine months ended September 30, 2003 compared to
a net loss of ($4.7) million for the nine months ended September 30, 2002. Net
income for the nine months ended September 30, 2003 includes income from
continuing operations of $14.8 million and income from discontinued operations
of $983,000, compared to income from continuing operations of $13.4 million and
a loss from discontinued operations of ($18.0) million for the nine months ended
September 30, 2002.
CONTINUING OPERATIONS
Products revenues. Products Division revenues increased $13.1 million,
or 10.0%, to $144.1 million in the nine months ended September 30, 2003,
compared to $131.0 million in the nine months ended September 30, 2002. For the
nine months ended September 30, 2003, Products Division revenue increased 6.2%
internally, including year over year changes in acquired businesses, and 3.8%
due to the acquisitions of Speedfeed, Inc., the Foldable Products Group,
Evi-Paq, Inc., B-Square, Inc. and 911 Emergency Products, Inc., all of which
were completed during 2002.
Mobile Security revenues. Mobile Security Division revenues increased
$18.2 million, or 20.0% to $108.9 million in the nine months ended September 30,
2003, compared to $90.7 million in the nine months ended September 30, 2002.
Mobile Security Division revenues for the nine months ended September 30, 2003,
increased $15.2 million due to the acquisition of substantially all of the
assets of Trasco-Bremen on September 24, 2002. Excluding the $15.2 million of
2003 revenue increase relating to Trasco-Bremen, Mobile Security Division
revenues increased $3.0 million, or 3.3%, in the nine months ended September 30,
2003, compared to the nine months ended September 30, 2002.
Cost of sales. Cost of sales increased $23.9 million, or 15.7%, to
$176.4 million for the nine months ended September 30, 2003 compared to $152.5
million for the nine months ended September 30, 2002. As a percentage of total
revenues, cost of sales increased to 69.7% of total revenues for the nine months
ended September 30, 2003 from 68.8% for the nine months ended September 30,
2002.
Gross margins in the Products Division were 34.5% for the nine months
ended September 30, 2003, compared to 37.5% for the nine months ended September
30, 2002. The decline in Products Division's gross margins resulted primarily
from: (1) an increase in "low margin" training revenues; (2) an increase in low
margin gas mask sales; (3) an increase in lower margin international body armor
sales produced overseas at Armor Products International; (4) lower production
volumes within our less lethal, automotive, and hard armor product lines, which
resulted in reduced fixed cost absorption and certain labor inefficiencies; and
(5) moving costs and labor inefficiencies at Protech associated with the
relocation of its manufacturing facility. Excluding our Products training
division subsidiary, the Products Division gross margins were 36.8%, compared to
39.9% reported in the same period last year.
Gross margins in the Mobile Security Division were 24.7% in the nine
months ended September 30, 2003, compared to 22.2% for the nine months ended
September 30, 2002. The increase in the Mobile Security Division gross margin is
primarily attributable to: 1) favorable manufacturing overhead cost absorption
relating to increased manufacturing volumes at our
55
Cincinnati manufacturing facility; and 2) operational efficiencies in our
Cincinnati manufacturing facility.
Operating expenses. Operating expenses increased $7.5 million, or
20.1%, to $44.5 million (17.6% of total revenues) for the nine months ended
September 30, 2003 compared to $37.0 million (16.7% of total revenues) for the
nine months ended September 30, 2002.
Products Division operating expenses increased $1.4 million, or 6.0%,
to $24.2 million (16.8% of Products Division revenues) for the nine months ended
September 30, 2003 compared to $22.8 million (17.4% of Products Division
revenues) for the nine months ended September 30, 2002. This increase is due
primarily to the incremental operating expenses associated with acquired
businesses completed during or subsequent to the third quarter of 2002.
Mobile Security Division operating expenses increased $2.4 million, or
25.7%, to $11.6 million (10.7% of Mobile Security Division revenues) for the
nine months ended September 30, 2003, compared to $9.2 million (10.2% of Mobile
Security Division revenues) for the nine months ended September 30, 2002.
Excluding the increase in 2003 operating expenses resulting from the acquisition
of substantially all of the assets of Trasco-Bremen on September 24, 2002, the
operating expenses for the nine months ended September 30, 2003, increased less
than $0.4 million, versus the same period in the prior year. The increase in
operating expenses was primarily due to: (1) increased expenses associated with
the start-up of operations in Caracas, Venezuela in late 2002; and (2) increased
insurance costs.
Corporate operating expenses increased $3.7 million, or 74.4%, to $8.7
million (3.4% of total revenues) for the nine months ended September 30, 2003
compared to $5.0 million (2.2% of total revenues) for the nine months ended
September 30, 2002. This increase is due primarily to increased insurance costs,
increased internal audit costs necessary to comply with Sarbanes-Oxley
requirements, increased legal provisions, and increased bonus provisions.
Amortization. Amortization expense decreased $12,000, or 5.6%, to
$201,000 for the nine months ended September 30, 2003 compared to $213,000 for
the nine months ended September 30, 2002. SFAS 142, which we adopted on January
1, 2002, eliminated amortization of intangible assets with indefinite lives and
goodwill for all acquisitions completed after July 1, 2001, as well as for all
fiscal years ending after January 1, 2002. Remaining amortization expense is
related to patents and trademarks with finite lives.
Integration and other non-recurring charges. Integration and other
non-recurring charges for the nine months ended September 30, 2003, totaled $4.6
million, compared to $4.5 million for the nine months ended September 30, 2002.
The increase in integration and other non-recurring items is primarily related
to a $3.3 million (including a $2.1 million non-cash charge) severance charge
related to the recent departure of our former Chief Executive Officer. Excluding
this $3.3 million severance charge, integration and other non-recurring charges
were $1.3 million for the nine months ended September 30, 2003, a decrease of
$3.2 million from the nine months ended September 30, 2002. This decrease was
primarily due to the elimination of expense associated with the 2001
acquisitions of O'Gara-Hess & Eisenhardt and Identicator.
Operating income. Operating income from continuing operations decreased
$202,000 to $27.3 million for the nine months ended September 30, 2003 compared
to $27.6 million in the nine months ended September 30, 2002 due to the factors
discussed above.
56
Interest expense, net. Interest expense, net increased $1.6 million, or
242.5% to $2.3 million for the nine months ended September 30, 2003 compared to
$669,000 for the nine months ended September 30, 2002. This increase was due
primarily to interest expense associated with the $150 million aggregate
principal amount of 8 1/4% senior subordinated notes due 2013. On September 2,
2003, we entered into interest rate swap agreements that effectively exchanged
the 8 1/4% fixed rate for a variable rate of six-month LIBOR, set in arrears,
plus a spread of 2.735% to 2.75%.
Other expense (income), net. Other expense, net, was $181,000 for the
nine months ended September 30, 2003, compared to other income, net, of
($77,000) for the nine months ended September 30, 2002.
Income from continuing operations before provision for income taxes.
Income from continuing operations before provision for income taxes decreased by
$2.1 million to $24.9 million for the nine months ended September 30, 2003
compared to $27.0 million for the nine months ended September 30, 2002 due to
the reasons discussed above.
Provision for income taxes. Provision for income taxes was $10.0
million for the nine months ended September 30, 2003, compared to $13.6 million
for the nine months ended September 30, 2002. The effective tax rate was 40.4%
for the nine months ended September 30, 2003, compared to 50.5% for the nine
months ended September 30, 2002 based on our current expectations of annual
income amounts and jurisdictions in which such amounts are expected to be
taxable. The estimated 2003 income tax rate of 40.4% is higher than the 37.4%
estimated income tax rate that was utilized in the first half of 2003 due to,
among other things, a taxable gain that was realized in the third quarter when
certain intellectual property utilized in our discontinued operations was
revalued in order to comply with tax code provisions. The impact of the
incremental tax is recorded in continuing operations as required by generally
accepted accounting principles, and resulted in an incremental non-cash tax
expense, for which foreign tax credits are available to offset the tax otherwise
payable.
Income from continuing operations. Income from continuing operations
increased $1.5 million to $14.8 million for the nine months ended September 30,
2003 compared to $13.4 million for the nine months ended September 30, 2002 due
to the factors discussed above.
DISCONTINUED OPERATIONS
Services revenues. Services Division revenue increased $1.5 million, or
2.0%, to $75.7 million for the nine months ended September 30, 2003 compared to
$74.3 million for the nine months ended September 30, 2002. Exclusive of
ArmorGroup Integrated Systems, which we sold on April 17, 2003, revenue
increased $9.5 million, or 15.5% to $71.0 million for the nine months ended
September 30, 2003 compared to $61.5 million for the nine months ended September
30, 2002. This increase is due to strong performance in the Middle East with
equally strong performance by the ArmorGroup training division, which increased
as a result of the Athens Olympics contract. These strong performances were
tempered by weak revenues in mine action business, investigations business and
the Latin American business due to a weak economy and the completion of a BP
security contract in Colombia in the second quarter of 2002.
Cost of sales. Cost of sales decreased $2.4 million, or 4.3%, to $53.4
million for the nine months ended September 30, 2003 compared to $55.8 million
for the nine months ended September 30, 2002. This decrease is a result of the
sale of the ArmorGroup Integrated Systems business. Exclusive of ArmorGroup
Integrated Systems, cost of sales increased $5.2 million, or 12.1%, to
57
$48.3 million for the nine months ended September 30, 2003 compared to $43.1
million for the nine months ended September 30, 2002.
As a percentage of total revenue, cost of sales decreased to 70.6% of
total revenues for the nine months ended September 30, 2003 from 75.2% for the
nine months ended September 30, 2002. This decrease in cost of sales as a
percentage of total revenue was primarily due to (1) the sale of the Integrated
Systems Division, which operates on lower margins than the rest of the Services
Division; (2) high margins achieved by the Training Division; and (3) new
contracts in the Middle East at higher than average margins.
Operating expenses. Operating expenses decreased $6.3 million, or
27.8%, to $16.3 million (21.5% of total revenues) for the nine months ended
September 30, 2003 compared to $22.6 million (30.4% of total revenues) for the
nine months ended September 30, 2002. This decrease was primarily due to the
sale of the ArmorGroup Integrated Systems business. Exclusive of ArmorGroup
Integrated Systems, operating expenses decreased $3.1 million, or 16.6%, to
$15.8 million for the nine months ended September 30, 2003 compared to $18.9
million for the nine months ended September 30, 2002. The nine months ended
September 30, 2003 has benefited from no depreciation being charged as a result
of the assets being held out for sale in accordance with SFAS 144 " Accounting
for Impairment or Disposal of Long-Lived Assets," currency movement costs being
less than prior year, and a reduction in salary costs as result of restructuring
taken last year.
Charge for impairment of long-lived asset. The net charge for
impairment of long-lived asset was $1.3 million for the nine months ended
September 30, 2003 compared to $11.9 million for the nine months ended September
30, 2002. The $1.3 million net non-recurring charge was recorded to maintain the
proper carrying value of our discontinued operations at $43.4 million as of
September 30, 2003, which amount reflects management's continued best estimate
of fair value.
Integration and other non-recurring charges. Integration and other
non-recurring charges decreased $627,000, or 51.2%, to $598,000 for the nine
months ended September 30, 2003 compared to $1.2 million for the nine months
ended September 30, 2002. This decrease is primarily due to severance payments
to certain personnel in the prior year.
Operating income (loss). Operating income (loss) was $4.1 million for
the nine months ended September 30, 2003, compared to operating loss of ($17.3)
million for the nine months ended September 30, 2002 due to the factors
discussed above. Operating loss from the ArmorGroup Integrated Systems business,
which was sold on April 17, 2003, was ($987,000) for the period ended April 17,
2003, compared to an operating loss of ($15.6) million for the nine months ended
September 30, 2002 due to the factors discussed above. Excluding the ArmorGroup
Integrated Systems business, the balance of the assets held for sale generated
an operating income of $5.1 million for the nine months ended September 30, 2003
compared to an operating loss of ($1.7) million for the nine months ended
September 30, 2002.
Interest expense, net. Interest expense, net decreased $56,000, or
44.1%, to $71,000 for the nine months ended September 30, 2003 compared to
$127,000 for the nine months ended September 30, 2002. This decrease was due to
reduced utilization of the Services Division's line of credit.
58
Other expense (income), net. Other expense (income), net, was $472,000
for the nine months ended September 30, 2003, compared to other expense
(income), net of $200,000 for the nine months ended September 30, 2002. The net
increase in expense was a result of a pre-tax loss of $366,000 on the sale of
our ArmorGroup Integrated System business on April 17, 2003.
Income (loss) from discontinued operations before provision for income
taxes. Income (loss) from discontinued operations before provision for income
taxes was $3.6 million for the nine months ended September 30, 2003 and ($17.6)
million for the nine months ended September 30, 2002, due to the reasons
discussed above.
Provision for income taxes. Provision for income taxes was $2.6 million
for the nine months ended September 30, 2003 compared to a provision of $421,000
for the nine months ended September 30, 2002. The effective tax rate for the
nine months ended September 30, 2003 was a provision of 72.6% compared to a
provision of 2.4% for the nine months ended September 30, 2002. The provision of
72.6% for the nine months ended September 30, 2003, is due to unrecognized
potential deferred tax assets associated with foreign subsidiaries, which
recorded pretax losses in the nine months of 2003. These potential tax benefits
were not recognized due to the uncertainty regarding the specific subsidiary's
ability to utilize the net operating loss carry-forwards in future periods. The
provision for the nine months ended September 30, 2003 also relates to the net
impairment charge of $1.3 million, $1.1 million of which was non-deductible
goodwill write-offs.
Income (loss) from discontinued operations. Income (loss) from
discontinued operations was $983,000 for the nine months ended September 30,
2003 compared to a loss from discontinued operations of ($18.0) million for the
nine months ended September 30, 2002 due to the factors discussed above.
59
Fiscal Year Ended December 31, 2002
The following is a discussion of the results of operations and analysis
of financial condition for the twelve months ended December 31, 2002 as compared
to the twelve months ended December 31, 2001 and the twelve months ended
December 31, 2001 as compared to the twelve months ended December 31, 2000. The
results of operations for purchase business combinations are included since
their effective acquisition dates. The following discussion may be understood
more fully by reference to the consolidated financial statements and notes to
the consolidated financial statements included in this prospectus.
RESULTS OF OPERATIONS
Effective June 30, 2002, we decided to sell the ArmorGroup Services Division
through an organized and formal auction managed by outside advisors. In
accordance with Statement of Accounting Standards 144, Accounting for Impairment
or Disposal of Long-Lived Assets, the assets and liabilities of the Services
Division are classified as held for sale, with its operating results reported as
discontinued operations in our statement of operations for all periods. Our US
based training subsidiary, USDS, Inc. previously reported under the Services
Division but not included for sale has been reclassified to the Products
Division.
The following table sets forth selected statement of operations data as a
percentage of total revenues for the periods indicated:
60
FISCAL YEAR
2002 2001 2000
---- ---- ----
Revenue from continuing operations
Products 59.0% 76.0% 100.0%
Mobile Security 41.0% 24.0% 0.0%
Total revenues from continuing operations 100.0% 100.0% 100.0%
Cost of sales 69.1% 64.1% 61.1%
Operating expenses 16.3% 19.6% 21.6%
Amortization 0.1% 1.1% 1.2%
Integration and other non-recurring charges 1.9% 1.7% 1.8%
Operating income 12.6% 13.5% 14.2%
Interest expense, net 0.3% 2.0% 1.3%
Other income, net 0.0% 0.0% 0.0%
Income from continuing operations before
provision for income taxes 12.3% 11.6% 12.9%
Provision for income taxes 5.3% 4.2% 5.2%
Income from continuing operations 7.0% 7.5% 7.8%
(Loss) Income from discontinued operations
before provision for income taxes (13.9)% (3.6)% 5.9%
Provision (benefit) for income taxes (1.1)% (1.3)% 1.5%
(Loss) Income from discontinued operations (12.8)% (2.3)% 4.4%
Net (Loss) Income (5.8)% 5.1% 12.2%
FISCAL 2002 AS COMPARED TO FISCAL 2001
Net (loss) income. Net income decreased $27.8 million to a net loss of $17.7
million for the year ended December 31, 2002 ("fiscal 2002") compared to net
income of $10.1 million for the year ended December 31, 2001 ("fiscal 2001").
Income from continuing operations and the loss from discontinued operations was
$21.3 million and $39.0 million respectively for fiscal 2002, compared to income
from continuing operations of $14.7 million and a loss from discontinued
operations of $4.6 million for fiscal 2001. The increase in income from
continuing operations relates primarily to the inclusion of the Mobile Security
Division for a full year in 2002 versus four months in 2001
61
CONTINUING OPERATIONS
Armor Holdings Products revenues. Our Armor Holdings Products Division revenues
increased $30 million, or 20.1%, to $179.9 million in fiscal 2002, compared to
$149.9 million in fiscal 2001. For fiscal 2002, Products Division revenue
increased 14.4% internally, including year over year changes in acquired
businesses, and 5.7% due to a series of small strategic "tuck-in" acquisitions
including Identicator, Inc. ("Identicator"), Guardian Personal Security
Products, Inc. ("Guardian"), Speedfeed, Inc. ("Speedfeed"), the Foldable
Products Group ("Foldable"), Evi-Paq, Inc. ("Evi-Paq") B-Square, Inc.
("B-Square") and 911 Emergency Products ("911"). Products Division revenues
include $16.8 million and $7.2 million from USDS, Inc., our US based training
company, for the years ended fiscal 2002 and fiscal 2001, respectively. In our
filings prior to June 30, 2002, we reported USDS, Inc. as a part of our Services
Division.
Mobile Security Division revenues. Our Armor Mobile Security Division revenues
increased $77.9 million, or 165.0% to $125.2 million in fiscal 2002, compared to
$47.2 million in fiscal 2001. Revenues for fiscal 2001, included only four
months of operations after the acquisitions of O'Gara-Hess & Eisenhardt Armoring
Company, The O'Gara Company, and O'Gara Security Associates, Inc. in August,
2001. Revenues in fiscal 2002 includes $3.3 million related to the acquisition
of Trasco Bremen in September 2002. Including the eight months of operations
prior to our ownership and excluding all revenue associated with assets that we
either did not purchase or sell, Mobile Security Division revenue increased
17.7% internally from approximately $106.3 million during fiscal 2001.
Cost of sales. Cost of sales increased $84.4 million, or 66.8%, to $210.7
million for fiscal 2002 compared to $126.3 million for fiscal 2001. This
increase was due primarily to the acquisition of the Armor Mobile Security
Division as well as overall revenue growth for fiscal 2002 compared to fiscal
2001. As a percentage of total revenues, cost of sales increased to 69.1% of
total revenues for fiscal 2002 from 64.1% for fiscal 2001. This increase as a
percentage of total revenues was partially due to the full year inclusion in
2002 of the Mobile Security Division, which operates at lower average gross
margins than the Products Division and partially to reduced Products Division
margins as discussed below.
For fiscal 2002, gross margins in the Products Division were 36.4% compared to
39.3% reported in the same period last year, while the gross margins in the
Mobile Security Division were 23.0% in fiscal 2002, compared to 25.1% for the
four months of the December 31, 2001 fiscal year after the acquisition date. The
Products Division consists of a portfolio of law enforcement products, each of
which is manufactured and sold at different margins. In any given period, the
Products Division weighted average gross margins will fluctuate based upon the
relative volume of products sold during the period. Lower gross margins during
fiscal 2002 in the Products Division were partially attributable to product mix,
as well as to short term increases in manufacturing costs and a raw material
supply issues in the division's body armor operations during the first half of
2002.
During late 2001 and 2002, the Products Division combined its Jacksonville,
Florida based body armor operation into its body armor manufacturing facility in
Ontario, California. During 2002, the Division experienced difficulty in this
combination resulting in capacity constraints and increased manufacturing costs.
We believe that these capacity constraints have been alleviated and that certain
of our body armor manufacturing costs will decrease during the first half of
2003. However, during this time, we also experienced interruptions in the supply
of Zylon Shield, a certain ballistic fiber used in our leading concealable
ballistic vest. This particular supply problem was related to the ballistic
integrity of the fiber we received and not the actual availability of the
material. Nevertheless, our inability to receive quality Zylon Shield during
this period exacerbated our
62
capacity constraints. As of December 31, 2002, the Products Division is
currently receiving adequate supplies of Zylon Shield and is currently working
to decrease its body armor manufacturing costs.
The Products Division gross margins also decreased because it realized higher
proportional revenue increases from its training division, which operates at
significantly lower overall gross margins than its manufacturing segment. The
decrease in gross margins in the Mobile Security Division was primarily due to a
less favorable mix of commercial vehicle sales compared to the same period the
prior year, a heavier mix of "lower margin" cash-in-transit vehicles in 2002
compared to 2001, and a larger number of base unit sales included in revenue in
the 2002 period.
Operating expenses. Operating expenses increased $11.2 million, or 28.9%, to
$49.8 million (16.3% of total revenues) for fiscal 2002 compared to $38.7
million (19.6% of total revenues) for fiscal 2001. This increase was primarily
due to the operating expenses associated with the operations of the Mobile
Security Division, acquired in August 2001, which were not included for the full
year ended December 31, 2001. Operating expenses also increased in the Products
Division primarily due to operating expenses associated with acquired companies
and from internal growth of the business. Operating expenses as a percent of
sales decreased because the Mobile Security Division operates with a lower level
of operating expenses as a percentage of sales than does the Products Division.
We expect to see an increase in corporate operating expense during 2003 because
we will incur significant increases in insurance expenses, government affairs
and lobbying efforts, internal audit, information technology and increased legal
and accounting costs associated with legal compliance.
Amortization. Amortization expense decreased $1.9 million, or 88.6%, to $0.2
million for fiscal 2002 compared to $2.1 million for fiscal 2001. This decrease
results from the implementation of SFAS 142, which eliminated goodwill
amortization for all acquisitions completed after July 1, 2001, as well as for
all fiscal years ending after January 1, 2002. Remaining amortization expense is
related to patents and trademarks with finite lives.
Integration and other non-recurring charges. Integration and other non-recurring
charges increased $2.6 million, or 79.8%, to $5.9 million for fiscal 2002
compared to $3.3 million in fiscal 2001. These charges relate primarily to the
integration of the Mobile Security Division, as well as other acquisitions
completed in 2001 and 2002. 2002 integration and other non-recurring charges
also included certain expenses related to the integration of our body armor
operations, as well as direct costs and expenses associated with potential
acquisitions that did not close.
Operating income. Operating income from continuing operations increased $11.7
million to $38.4 million for fiscal 2002 compared to $ 26.7 million in fiscal
2001 due to the factors discussed above. USDS, Inc. contributed operating income
that was previously reported as a part of the Services Division of $1.7 million
and $1.2 million for the years ended December 31, 2002 and 2001, respectively.
Interest expense, net. Interest expense, net decreased $2.9 million, or 76.1% to
$0.9 million for fiscal 2002 compared to $3.9 million for fiscal 2001. This
decrease was due primarily to the repayment of long-term debt under our
revolving credit facility with the net proceeds of the secondary common stock
offering completed in December 2001.
Other expense (income), net. Other expense (income), net, was $51,000 for fiscal
2002, compared to ($82,000) for fiscal 2001 due to a gain on sale of fixed
assets during 2001.
63
Income from continuing operations before provision for income taxes. Income from
continuing operations before provision for income taxes increased by $14.5
million to $37.4 million for fiscal 2002 compared to $22.9 million for fiscal
2001 due to the reasons discussed above.
Provision for income taxes. Provision for income taxes was $16.1 million for
fiscal 2002 compared to $8.2 million for fiscal 2001. The provision for income
taxes for fiscal 2002 included charges of approximately $1.5 million related to
the establishment of valuation allowances for certain foreign deferred tax
assets of our discontinued operations. The effect of these charges was to
increase our effective tax rate for fiscal 2002 to 42.9% compared to 35.9% for
fiscal 2001. Without these charges, our effective tax rate for fiscal 2002 would
have been 39%. The increase in what our effective tax rate would have been
without the tax charges related to our discontinued operations is due primarily
to the higher percentage of income earned in the United States and the impact of
state income taxes on this income. Our expected effective tax rate is not
necessarily indicative of what our actual effective rate will be due to the
changing concentration and mix of income in the various countries in which we
continue to operate.
Income from continuing operations. Income from continuing operations increased
$6.6 million to $21.3 million for fiscal 2002 compared to $14.7 million for
fiscal 2001 due to the factors discussed above.
DISCONTINUED OPERATIONS
Many of the items listed below involve accounting estimates. The loss and
amounts below will be revaluated in the future for any changes which might be
appropriate.
Our ArmorGroup Services Division revenues increased $3.3 million, or 3.5%, to
$98.3 million for fiscal 2002 compared to $94.9 million for fiscal 2001. For
fiscal 2002, revenue increased 6.7% due to the acquisition of International
Training, Inc. ("ITI"), which was acquired as part of the acquisition of our
Mobile Security Division and is included in the Services Division from the date
of acquisition. The 3.4% reduction in revenue exclusive of the ITI acquisition
was a result of lower revenues in the Integrated Systems business in the United
States and the Security consulting business both in Latin America and Russia due
to the completion of several large contracts.
Cost of sales. Cost of sales increased $10.8 million, or 16.5%, to $75.8 million
for fiscal 2002 compared to $65 million for fiscal 2001. This increase was due
primarily to the acquisition of ITI. As a percentage of total revenue, cost of
sales increased to 77.1% of total revenues for fiscal 2002 from 68.5% for fiscal
2001. This increase in cost of sales as a percentage of total revenue was
primarily due to the weakness in our Integrated Systems business resulting in
poor margins from increased inventory reserves, the loss of high margin oil
industry security consulting work in Latin America and the scaling down of
business in the Democratic Republic of Congo.
Operating expenses. Operating expenses increased $6.1 million, or 24.9%, to
$30.6 million (31.1% of total revenues) for fiscal 2002 compared to $24.5
million (25.8% of total revenues) for fiscal 2001. This increase was due
primarily to increased accounts receivable reserves, other asset write-downs,
and other charges in the Integrated Systems and Security consulting businesses,
as well as additional operating expenses associated with ITI's operations,
acquired in August 2001.
Amortization. Amortization expense decreased $1.5 million, or 100%, to $0 for
fiscal 2002 compared to $1.5 million for fiscal 2001. This decrease was a result
of the implementation of SFAS 142, which eliminated goodwill amortization for
acquisitions completed after July 1, 2001 and for fiscal years beginning on or
after January 1, 2002.
64
Charge for impairment of long-lived assets. Charges for impairment of long-lived
assets was $30.3 million for fiscal 2002 compared to $0 for fiscal 2001. The
impairment charge is the result of the $24.2 million reduction in carrying value
of the Services Division to the estimated realizable value as required by SFAS
144.
Restructuring and related charges. In January 2001, our Board of Directors
approved a restructuring plan to close the Services Division's U.S.
investigative businesses, realign the Service Division's organization, eliminate
excess facilities and reduce overhead in its business worldwide. In connection
with this restructuring charge, the Services Division performed a review of its
long-lived assets to identify potential impairments. Pursuant to this
restructuring plan, we a) eliminated 26 employees, primarily from the Services
Division investigative business; b) eliminated an additional 24 employees from
its security consulting business; c) incurred lease and other exit costs as a
result of the closure of the investigative businesses; and d) wrote-down the
value of both tangible and intangible assets as a result of the impairment
review.
As a result of the restructuring plan, we recorded a pre-tax charge of $10.3
million. At December 31, 2002 we had a restructuring accrual of $270,000
compared to $354,000 at December 31, 2001 relating to lease termination and
other exit costs. This liability has been classified in accrued expenses and
other current liabilities on our discontinued operations balance sheet and will
be funded through cash provided by operating activities and our credit facility.
Integration and other non-recurring charges. Integration and other non-recurring
charges increased $1.8 million, or 238.0%, to $2.6 million for fiscal 2002
compared to $776,000 for fiscal 2001. These charges reflect certain severance
expenses, software write-off costs and other expenses associated with preparing
the division for sale, as well as the expenses associated with integrating ITI
into the Services Division.
Operating loss. Operating losses were $41.9 million for fiscal 2002, compared to
an operating loss of $7.1 million for fiscal 2001 due to the factors discussed
above.
Interest expense, net. Interest expense, net increased $203,000 or 142%, to
$346,000 for fiscal 2002 compared to $143,000 for fiscal 2001. This increase was
due to increased utilization of the Services Division's line of credit.
Other (income) expense, net. Other expense, net, was $99,000 for fiscal 2002,
compared to other income, net of $218,000 for fiscal 2001. The increase expense
in fiscal 2002 was a result of losses on the disposal of fixed assets and other
asset write-offs.
Loss from discontinued operations before provision for income taxes (benefit).
Loss from discontinued operations before provision for income taxes (benefit)
was $41.5 million for fiscal 2002 and $7.1 million for fiscal 2001 due to the
reasons discussed above.
Provision for income taxes (benefit). Income tax benefit was $2.4 million for
fiscal 2002 compared to a benefit of $2.5 million for fiscal 2001. The effective
tax rate for fiscal 2002 was a benefit of 5.9% compared to a benefit of 35.5%
for fiscal 2001. The decrease in percentage benefit is primarily due to the
inclusion in taxable income of certain expenses not deductible for tax purposes,
including a $31.2 million charge for the impairment of long-lived assets.
65
Loss from discontinued operations. Loss from discontinued operations was $39.0
million for fiscal 2002 compared to a loss from discontinued operations of $4.6
million for fiscal 2001 due to the factors discussed above.
FISCAL 2001 AS COMPARED TO FISCAL 2000
Net (loss) income. Net income decreased $6.9 million to a net income of $10.1
million for fiscal 2001 compared to net income of $17.0 million for the year
ended December 31, 2000 ("fiscal 2000"). Net income for fiscal 2001 includes
income from continuing operations of $14.7 million and a loss from discontinued
operations of $4.6 million, compared to income from continuing operations of
$10.8 million and income from discontinued operations of $6.2 million for fiscal
2000.
CONTINUING OPERATIONS
Armor Holdings Products Division Revenues. Armor Holdings Products Division
revenues increased $10 million, or 7.1% to $149.9 million in for fiscal 2001
("fiscal 2001"), compared to $139.9 million for fiscal 2000. Revenue increased
during the year due to the acquisitions completed in fiscal 2000 and additional
fiscal 2001 acquisitions. All of these acquisitions were accounted for as
purchases and accordingly the results of their operations are included only from
the date of acquisition. Products Division revenues include $7.2 million and
$4.6 million from USDS, Inc. for the years ended December 31, 2001 and December
31, 2000, respectively. In our filings prior to June 30, 2002, we reported USDS,
Inc. as a part of the Service Division. Not including these acquisitions, the
Armor Holdings Products Division revenue decreased during fiscal 2001, due in
part to shipping interruptions and order cancellations that resulted from the
September 11 terrorist attacks against the World Trade Center and the Pentagon
and to a slowdown in purchasing during the first quarter of 2001. We attribute a
portion of the first quarter slowdown with the Bulletproof Vest Partnership Act
(the "BVP Money") that provides federal matching funds to law enforcement
agencies purchasing bullet resistant vests. We believe that agencies delayed
their purchasing decisions during the first quarter of 2001 until such time as
the BVP Money was fully allocated.
Mobile Security revenues. Mobile Security Division revenues were $47.2 million,
in fiscal 2001, compared to $0 in fiscal 2000. The Mobile Security Division was
created through the acquisition of O'Gara-Hess & Eisenhardt Armoring Company,
The O'Gara Company, and O'Gara Security Associates, Inc., which was completed on
August 22, 2001, and only included in our financial statements from the date of
acquisition. Revenues for the year ended 2001 included only four months of
operations, from the date of acquisition.
Cost of sales. Cost of sales increased $40.9 million, or 47.8%, to $126.3
million for fiscal 2001 compared to $85.5 million for fiscal 2000. This increase
was due primarily to the acquisition of the Mobile Security Division as well as
overall revenue growth for the fiscal 2001 compared to fiscal 2000. As a
percentage of total revenues, cost of sales increased to 64.1% of total revenues
for fiscal 2001 from 61.1% for fiscal 2000. This increase as a percentage of
total revenues was primarily due to the inclusion of the Mobile Security
Division, which operates at lower average gross margins than the Products
Division.
For fiscal 2001, gross margins in the Products Division were 39.3% compared to
39.8% reported in fiscal 2000, while the gross margins in the Mobile Security
Division were 25.1% for the four-month stub portion for fiscal 2001. The
decrease in the Products Division gross margins is attributable to the impact of
higher proportional revenue of USDS, Inc., which operates at margins, which are
66
significantly lower than the gross margins experienced within the other Products
Division companies.
Operating expenses. Operating expenses increased $8.4 million, or 27.6%, to
$38.7 million, or 19.6% of total revenues for fiscal 2001 compared to $30.3
million, or 21.7% of total revenues for fiscal 2000. This increase was primarily
due to the operating expenses associated with the operations of the Mobile
Security Division, acquired in August 2001, which were not included at all for
the year ended December 31, 2000. Operating expenses also increased due to
acquisitions in the Products Division including Monadnock and Lightning Powder,
as well as general internal growth of the business. Operating expenses as a
percent of sales decreased because the Mobile Security Division operates with a
lower level of operating expenses as a percentage of sales than does the
Products Division.
Amortization. Amortization expense increased $438,000, or 25.7%, to $2.1 million
for fiscal 2001 compared to $1.7 million for fiscal 2000. Amortization expense
increased during the year due to amortization of intangible assets acquired
during fiscal 2000 through the acquisitions of Monadnock and Lightning Powder.
In accordance with SFAS 142, we did not amortize goodwill from the O'Gara
acquisition, which occurred subsequent to June 30, 2001.
Integration and other non-recurring charges. Integration and other non-recurring
charges increased $.7 million, or 27.4%, to $3.3 million for fiscal 2001
compared to $2.6 million in fiscal 2000.
Fiscal 2001 integration expenses represent costs associated with the
acquisitions and integration of the Mobile Security Division, Monadnock and
Lightning Powder, as well as costs associated with our international tax
minimization program. Fiscal 2000 integration expenses included costs associated
with the acquisitions of Safariland, and Break-Free, as well as, costs
associated with our international tax minimization program and other one time
expenses incurred in the third quarter of 2000.
Operating income. Operating income from continuing operations increased $6.8
million, or 34.2%, to $26.7 million for fiscal 2001 compared to $19.9 million in
fiscal 2000 due to the factors discussed above. USDS, Inc. contributed operating
income that was previously reported as a part of the Services Division of $1.2
million and $889,000 for fiscal 2001 and 2000, respectively.
Interest expense, net. Interest expense, net increased $2.0 million, or 109% to
$3.9 million for fiscal 2001 compared to $1.8 million for fiscal 2000. Interest
expense, net increased during fiscal 2001 primarily due to interest on debt
incurred to fund the acquisitions of Monadnock, Lightning Powder and the Mobile
Security Division, which were each funded in part with cash from our revolving
credit facility. Increased borrowings under the revolving credit facility were
offset by lower interest rates on that debt. Interest expense, net includes
interest on and amortization of the fees associated with our debt obligations,
including our revolving credit facility, and the amortization of the discount on
certain long-term liabilities acquired as part of the Safariland acquisition.
Other (income) expense, net. Other income, net, was $82,000 for fiscal 2001,
compared to $67,000 for fiscal 2000.
Income from continuing operations before provision for income taxes. Income from
continuing operations before provision for income taxes increased by $4.8
million to $22.9 million for fiscal 2001 compared to $18.1 million for fiscal
2000 due to the reasons discussed above.
67
Provision for income taxes. Provision for income taxes was $8.2 million for
fiscal 2001 compared to $7.2 million for fiscal 2000.
Income from continuing operations. Income from continuing operations increased
$3.9 million to $14.7 million for fiscal 2001 compared to $10.8 million for
fiscal 2000 due to the factors discussed above.
DISCONTINUED OPERATIONS
ArmorGroup Services Division revenues. Our ArmorGroup Services Division revenues
increased $13.9 million, or 17.1%, to $94.9 million for fiscal 2001 compared to
$81.1 million for fiscal 2000. For fiscal 2001, revenue increased due to the
acquisition of International Training, Inc. ("ITI"), which was acquired as part
of the acquisition of O'Gara and is included in the Services Division from the
date of acquisition.
Cost of sales. Cost of sales increased $13.0 million, or 24.9%, to $65.0 million
for fiscal 2001 compared to $52 million for fiscal 2000. This increase was due
primarily to the acquisition of ITI. As a percentage of total revenue, cost of
sales increased to 68.5% of total revenues for fiscal 2001 from 64.2% for fiscal
2000. Increased cost of sales is directly related to revenue increases
associated with the ITI acquisition and internal revenue growth in our
ArmorGroup Services Division. Increasing cost of sales as a percentage of total
revenue reflects a shift in revenue mix in the ArmorGroup Service Division from
investigations to security services which has lower margins. During 2001,
ArmorGroup abandoned its US Investigations strategy by closing several higher
margin business units while replacing this revenue with growth in lower margin
security consulting service revenue.
Operating expenses. Operating expenses increased $4.4 million, or 22.1%, to
$24.5 million (25.8% of total revenues) for fiscal 2001 compared to $20.1
million (24.7% of total revenues) for fiscal 2000. This increase was due to
additional operating expenses associated with ITI's operations, acquired in
August 2001 as well as internal revenue growth.
Amortization. Amortization expense decreased $206,000, or 11.9%, to $1.5 million
for fiscal 2001 compared to $1.7 million for fiscal 2000. The reduction in
amortization expense resulted from goodwill write-offs contained in our
restructuring charge in the first quarter of 2001. In accordance with SFAS 142,
we did not amortize the goodwill from acquisitions in the Services Division,
which occurred after June 30, 2001.
Restructuring and related charges. In January 2001, our Board of Directors
approved a restructuring plan to close its Services Division's U.S.
investigative businesses, realign the division's organization, eliminate excess
facilities and reduce overhead in its business worldwide. In connection with
this restructuring charge, the Services Division performed a review of its
long-lived assets to identify potential impairments. Pursuant to this
restructuring plan, the Company a) eliminated 26 employees, primarily from its
investigative business; b) eliminated an additional 24 employees from its
security consulting business; c) incurred lease and other exit costs as a result
of the closure of its investigative businesses; and d) wrote-down the value of
both tangible and intangible assets as a result of the impairment review. Most
of the significant actions contemplated by the restructuring plan have been
completed during fiscal 2001.
As a result of the restructuring plan, we recorded a pre-tax charge of $10.3
million. As of December 31, 2001, we had a remaining liability of $354,000
relating to lease termination and other exit costs. This liability has been
classified in accrued expenses and other current liabilities on our
68
consolidated balance sheet and will be funded through cash provided by operating
activities and our credit facility.
Equity in earnings of investees. Equity in earnings of investee was $87,000 in
fiscal 2000 and relates to our 20% investment in Jardine Securicor Gurkha
Services Limited, a Hong Kong joint venture company ("JSGS"), which we sold
during fiscal 2000.
Integration and other non-recurring charges. Integration and other non-recurring
charges increased $74,000, or 10.5% to $776,000 for fiscal 2001 compared to
$702,000 for fiscal 2000. Fiscal 2001 integration expenses represent costs
associated with the acquisitions and integration of ITI. Fiscal 2000 integration
expenses included costs associated with the acquisitions of OVG/Traquair and
Special Clearance Services and other one time expenses incurred in the third
quarter of 2000.
Operating (loss) income. Operating loss was $7.1 million for fiscal 2001,
compared to operating income of $6.6 million for fiscal 2000 due to the factors
discussed above.
Interest expense (income), net. Interest expense (income), net increased
$96,000, or 204.3%, to $143,000 for fiscal 2001 compared to $47,000 for fiscal
2000. This increase was due to increased utilization of the Services Division's
overdraft line of credit.
Other (income) expense, net. Other income, net decreased $1.5 million, or 87.4%
to $218,000 in fiscal 2001, compared to $1.7 million in fiscal 2000 which
includes a gain related to the sale of our investment in JSGS in fiscal 2000.
(Loss) income from discontinued operations before provision for income taxes
(benefit). Loss from discontinued operations before provision for income taxes
(benefit) was $7.1 million for fiscal 2001 compared to income of $8.3 million
for fiscal 2000 due to the reasons discussed above.
(Benefit) provision for income taxes. (Benefit) provision for income taxes was
($2.5) million for fiscal 2001 compared to $2.1 million for fiscal 2000. The
effective tax rate for fiscal 2001 was 35.5% compared to 25.3% for fiscal 2000.
The decrease in benefit is primarily due to the inclusion in taxable income of
certain expenses not deductible for tax purposes, including an $11.9 million
charge for the impairment of long-lived assets.
(Loss) income from discontinued operations. Loss from discontinued operations
was $4.6 million for fiscal 2001 compared to income from discontinued operations
of $6.2 million for fiscal 2000 due to the factors discussed above.
69
QUARTERLY RESULTS
Set forth below are certain unaudited quarterly financial data for each of our
last eight quarters and certain such data expressed as a percentage of our
revenue for the respective quarters. The information has been derived from
unaudited financial statements that, in the opinion of management, include all
adjustments (consisting only of normal recurring adjustments) necessary to
fairly present such quarterly information in accordance with generally accepted
accounting principles. The operating results for any quarter are not necessarily
indicative of the results to be expected for any future period.
QUARTER ENDED
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Dec 31, Sept 30, Jun 30, Mar 31, Dec 31, Sept 30, Jun 30, Mar 31,
2002 2002 2002 2002 2001 2001 2001 2001
------------ ----------- ------------ ------------ ----------- ------------ ------------ ----------
Revenues
Products $ 48,897 $ 49,047 $ 43,057 $ 38,945 $ 42,285 $ 39,315 $ 38,100 $ 30,168
Mobile Security 34,454 31,510 28,548 30,659 37,883 9,349 - -
------------ ----------- ---------- ------------ ----------- ------------ ------------ ----------
Total Revenue 83,351 80,557 71,605 69,604 80,168 48,664 38,100 30,168
Operating income 10,815 10,337 8,168 9,045 10,590 5,328 7,127 3,628
Interest expense, net 254 343 284 42 1,334 1,102 775 653
Other expense (income), net 128 (13) - (64) (228) 146 - -
------------ ----------- ---------- ------------ ----------- ------------ ------------ ----------
Income from continuing
operations before taxes 10,433 10,007 7,884 9,067 9,484 4,080 6,352 2,975
Provision for income taxes 2,451 7,043 3,060 3,500 2,925 1,607 2,503 1,172
------------ ----------- ---------- ------------ ----------- ------------ ------------ ----------
Income from continuing
operations 7,982 2,964 4,824 5,567 6,559 2,473 3,849 1,803
(Loss) income from
discontinuing operations
before taxes (23,862) (17,032) (817) 244 (1,042) 1,058 362 (7,443)
(Benefit) provision for income
taxes (2,863) 639 (68) (149) 114 (292) (87) (2,244)
------------ ----------- ---------- ------------ ----------- ------------ ------------ ----------
(Loss) income from
discontinuing operations (20,999) (17,671) (749) 393 (1,156) 1,350 449 (5,199)
------------ ----------- ---------- ------------ ----------- ------------ ------------ ----------
Net (loss) income $ (13,017) $(14,707) $ 4,075 $5,960 $5,403 $3,823 $4,298 $ (3,396)
============ =========== ========== ============ =========== ============ ============ ==========
Net income/(loss) per common
Income from continuing $ 0.27 $ 0.10 $ 0.15 $ 0.18 $ 0.25 $ 0.10 $ 0.17 $ 0.08
Loss from discontinuing
operations (0.71) (0.60) (0.02) 0.01 (0.04) 0.06 0.02 (0.23)
------------ ----------- ---------- ------------ ----------- ------------ ------------ ----------
Basic (loss) earnings per share $ (0.44) $ (0.50) $ 0.13 $ 0.19 $ 0.21 $ 0.16 $ 0.19 $ (0.15)
============ =========== ========== ============ =========== ============ ============ ==========
Net income/(loss) per common
share - Diluted
Income from continuing $ 0.27 $ 0.10 $ 0.15 $ 0.17 $ 0.24 $ 0.10 $ 0.16 $ 0.08
operations
Loss from discontinuing
operations (0.71) (0.59) (0.02) 0.02 (0.04) 0.06 0.02 (0.22)
------------ ----------- ---------- ------------ ----------- ------------ ------------ ----------
Diluted (loss) earnings per
share $ (0.44) $ (0.49) $ 0.13 $0.19 $ 0.20 $ 0.16 $ 0.18 $ (0.14)
============ =========== ========== ============ =========== ============ ============ ==========
Weighted average common shares
outstanding
Basic 29,456 29,708 31,193 31,030 26,138 23,645 23,007 22,861
Diluted 29,623 30,637 32,110 31,986 27,206 24,317 23,682 23,650
Revenues
Products 58.7% 60.9% 60.1% 56.0% 52.7% 80.8% 100.0% 100.0%
Mobile Security 41.3% 39.1% 39.9% 44.0% 47.3% 19.2% 0.0% 0.0%
------------ ----------- ---------- ------------ ----------- ------------ ------------ ----------
Total revenue 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Operating income 13.0% 12.8% 11.4% 13.0% 13.2% 10.9% 18.7% 12.0%
Interest expense, net 0.3% 0.4% 0.4% 0.1% 1.7% 2.3% 2.0% 2.2%
Other expense (income), net 0.2% 0.0% 0.0% (0.1%) (0.3%) 0.3% 0.0% 0.0%
------------ ----------- ---------- ------------ ----------- ------------ ------------ ----------
Income from continuing
operations before taxes 12.5% 12.4% 11.0% 13.0% 11.8% 8.4% 16.7% 9.9%
Provision for income taxes 2.9% 8.7% 4.3% 5.0% 3.6% 3.3% 6.6% 3.9%
------------ ----------- ---------- ------------ ----------- ------------ ------------ ----------
Income from continuing
operations 9.6% 3.7% 6.7% 8.0% 8.2% 5.1% 10.1% 6.0%
Income from discontinuing
operations before taxes (28.6%) (21.1%) (1.1%) 0.4% (1.3%) 2.2% 1.0% (24.7%)
(Benefit) provision for income
taxes (3.4%) 0.8% (0.1%) (0.2%) (0.1%) (0.6%) (0.2%) (7.4%)
------------ ----------- ---------- ------------ ----------- ------------ ------------ ----------
Loss from discontinuing
operations (25.2%) (21.9%) (1.0%) 0.6% (1.4%) 2.8% 1.2% (17.2%)
------------ ----------- ---------- ------------ ----------- ------------ ------------ ----------
Net income (15.6%) (18.3%) 5.7% 8.6% 6.7% 7.9% 11.3% (11.3%)
============ =========== ========== ============ =========== ============ ============ ==========
70
LIQUIDITY AND CAPITAL RESOURCES
On August 12, 2003, we terminated our prior credit facility and enter
into a new secured revolving credit facility (the "Credit Facility") with Bank
of America N.A., Wachovia Bank, National Association and a syndicate of other
financial institutions arranged by Bank of America Securities LLC. The Credit
Facility consists of a five-year revolving credit facility and, among other
things, provides for (i) total maximum borrowings of $60 million, (ii) a $25
million sub-limit for the issuances of standby and commercial letters of credit,
(iii) a $5 million sub-limit for swing-line loans, and (iv) a $5 million
sub-limit for multi-currency borrowings. All borrowings under the Credit
Facility will bear interest at either (i) a rate equal to LIBOR, plus an
applicable margin ranging from 1.125% to 1.625%, (ii) an alternate base rate
which will be the higher of (a) the Bank of America prime rate and (b) the
Federal Funds rate plus .50%, or (iii) with respect to foreign currency loans, a
fronted offshore currency rate, plus an applicable margin ranging from 1.125% to
1.625%, depending on certain conditions. The Credit Facility is guaranteed by
certain of our direct and indirect domestic subsidiaries and is collateralized
by, among other things (i) a pledge of all of the issued and outstanding shares
of stock or other equity interests of certain of our direct and indirect
domestic subsidiaries, (ii) a pledge of 65% of the issued and outstanding voting
shares of stock or other voting equity interests of certain of our direct and
indirect foreign subsidiaries, (iii) a pledge of 100% of the issued and
outstanding nonvoting shares of stock or other nonvoting equity interests of
certain of our direct and indirect foreign subsidiaries, and (iv) a first
priority perfected security interest on certain of our domestic assets and
certain domestic assets of certain of our direct and indirect subsidiaries that
will become guarantors of our obligations under the new credit facility,
including, among other things, accounts receivable, inventory, machinery,
equipment,
71
certain contract rights, intellectual property rights and general intangibles.
As of September 30, 2003 we were in compliance with all of our negative
and affirmative covenants.
On August 12, 2003, we completed a private placement of $150 million
aggregate principal amount of 8 1/4% Senior Subordinated Notes due 2013 (the
"Notes"). The Notes are guaranteed by all of our domestic subsidiaries, except
USDS, Inc., on a senior subordinated basis. The Notes have been sold to
qualified institutional buyers in reliance on Rule 144A of the Securities Act of
1933 and to non-U.S. persons in reliance on Regulation S under the Securities
Act. The Notes were rated B1/B+ by Moody's Investors' Service and Standard &
Poor's Rating Services, respectively. We intend to use the net proceeds of the
offering to fund future acquisitions, including our pending acquisition of
Simula, Inc., repay a portion of our outstanding debt and for general corporate
and working capital purposes, including the funding of capital expenditures.
On September 2, 2003, we entered into interest rate swap agreements,
designated as a fair value hedge as defined under Statement of Financial
Accounting Standard No. 133, "Accounting for Derivative Instruments and Hedge
Activities," (SFAS 133) with a notional amount totaling $150 million. The
agreements were entered to exchange the fixed interest rate on the Notes for a
variable interest rate equal to six-month LIBOR, set in arrears, plus a spread
ranging from 2.735% to 2.75% fixed semi-annually on the fifteenth of February
and August. The agreements are subject to other terms and conditions common to
transactions of this type. In accordance with SFAS 133, changes in the fair
value of the interest rate swap agreements offset changes in the fair value of
the fixed rate debt due to changes in the market interest rate. Accordingly, the
other assets on the Condensed Consolidated Balance Sheet as of September 30,
2003 increased by $8.0 million, which reflected an increase in the fair value of
the interest rate swap agreements. The corresponding increase in the hedge
liability was recorded in long-term debt. The agreements are deemed to be a
perfectly effective fair value hedge and therefore qualify for the short-cut
method of accounting under SFAS 133. As a result, no ineffectiveness is expected
to be recognized in our earnings associated with the interest rate swap
agreements.
In March 2002, our Board of Directors approved a stock repurchase
program authorizing the repurchase of up to a maximum 3.2 million shares of our
common stock. In February 2003, the Board of Directors increased this stock
repurchase program to authorize the repurchase, from time to time depending upon
market conditions and other factors, of up to an additional 4.4 million shares.
During the three-months ended September 30, 2003 no additional shares were
repurchased.
Through September 30, 2003, we repurchased 3.8 million shares of our
common stock under the stock repurchase program at an average price of $12.49
per share, leaving us with the ability to repurchase up to 3.8 million
additional shares of common stock. At September 30, 2003, we had 28,147,466
shares of common stock outstanding.
We expect to continue our policy of repurchasing our common stock from
time to time. In addition, our Credit Facility permits us to repurchase shares
of our common stock with no limitation if our ratio of Consolidated Total
Indebtedness to Consolidated EBITDA (as such terms are defined in the Credit
Facility) for any rolling twelve-month period is less than 1.00 to 1. At ratios
greater than 1.00 to 1 our credit agreement limits our ability to repurchase
shares at $15.0 million. This basket resets to $0 each time the ratio is less
than 1.0 to 1.
Working capital for continuing operations was $230.2 million and $89.0
million as of September 30, 2003 and December 31, 2002, respectively.
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Our fiscal 2003 capital expenditures for continuing operations are
expected to be approximately $8.4 million, of which we have spent approximately
$5.6 million through the nine months ended September 30, 2003. Our fiscal 2003
capital expenditures for discontinued operations are expected to be
approximately $4.0 million, of which we have already spent approximately $2.8
million through the nine months ended September 30, 2003. Such expenditures
include leasehold improvements, information technology and communications
infrastructure equipment and software, and manufacturing machinery and
equipment.
We anticipate that the cash generated from operations, proceeds from
the sale of the Notes and the sale of discontinued operations, cash on hand and
available borrowings under the Credit Facility will enable us to meet liquidity,
working capital and capital expenditure requirements during the next twelve
months. We may, however, require additional financing to pursue our strategy of
growth through acquisitions. If such financing is required, there are no
assurances that it will be available, or if available, that it can be obtained
on terms favorable to us or on a basis that is not dilutive to our stockholders.
INFLATION
We believe that the relatively moderate rates of inflation in recent years have
not had a significant impact on our revenue or profitability. Historically, we
have been able to offset any inflationary effects by either increasing prices or
improving cost efficiencies.
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SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of our Common Stock as of December 30, 2003, by (i) each person or
entity known to us owning beneficially 5% or more of our Common Stock, (ii) each
of our directors and nominees for directors, (iii) each of our executive
officers and (iv) all directors, nominees for directors and executive officers
as a group. Unless otherwise noted shares are owned directly or indirectly with
sole voting and investment power.
SHARES
BENEFICIALLY
NAME AND ADDRESS OWNED (1) PERCENT (1), (16)
- ---------------- ------------- -----------------
T. Rowe Price Associates, Inc. (2) 3,033,700 11.0%
Westfield Capital Management Co. LLC (3) 2,956,000 10.7%
Warren B. Kanders and Kanders Florida Holdings, Inc. (4) 2,515,655 8.8%
Lord Abbett & Co. (5) 1,710,781 6.2%
Wellington Management Company, LLP (6) 1,609,200 5.8%
Burtt R. Ehrlich (7) 146,650 *
Nicholas Sokolow (8) 208,700 *
Thomas W. Strauss (9) 138,500 *
Alair A. Townsend (10) 109,716 *
Deborah Zoullas (11) 16,000 *
Robert R. Schiller (12) 284,116 1.0%
Stephen E. Croskrey (13) 259,116 *
Robert F. Mecredy (14) 18,466 *
All directors, nominees for directors and executive officers
as a group (9 persons)........................................(15) 3,814,086 12.8%
- ------------------
*Less than 1%
(1) As used in this table, a beneficial owner of a security includes any
person who, directly or indirectly, through contract, arrangement,
understanding, relationship or otherwise has or shares (a) the power to
vote, or direct the voting of, such security or (b) investment power
which includes the power to dispose, or to direct the disposition of,
such security. In addition, a person is deemed to be the beneficial
owner of a security if that person has the right to acquire beneficial
ownership of such security within 60 days.
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(2) This information has been obtained from the Schedule 13G filed by T.
Rowe Price Associates, Inc. on February 3, 2003. The address of T. Rowe
Price Associates, Inc. is 100 E. Pratt Street, Baltimore, Maryland
21202.
(3) This information has been obtained from the Schedule 13G filed by
Westfield Capital Management Co. LLC on December 5, 2002. The address
of Westfield Capital Management Co. LLC is One Financial Center,
Boston, MA 02111.
(4) Of such shares, Kanders Florida Holdings, Inc., of which Mr. Kanders is
the sole stockholder and sole director, owns 2,098,395 shares. Includes
options to purchase 412,500 shares of common stock. Excludes unvested
restricted stock awards of 110,447 shares and vested deferred
restricted stock awards of 200,000 shares granted to Mr. Kanders over
which Mr. Kanders does not have voting or dispositive power and
unvested options to purchase 685,000 shares of common stock. Also
includes 4,760 shares held for the benefit of Mr. Kanders' children.
(5) This information has been obtained from the Schedule 13G filed by Lord
Abbett & Co. on January 30, 2003. The address of Lord, Abbett & Co. is
90 Hudson Street, Jersey City, New Jersey 07302.
(6) This information has been obtained from Schedule 13G filed by
Wellington Management Company, LLP on February 14, 2003. The amount
reported consists of shares of common stock owned by clients of
Wellington Management. The address of Wellington Management is 75 State
Street, Boston, MA 02109.
(7) Includes options to purchase 51,750 shares of common stock. Excludes
unvested options to purchase 6,750 shares of common stock. Also
includes 5,000 shares owned by Mr. Ehrlich's children and 6,500 shares
in trust for the benefit of his children, of which Mr. Ehrlich's spouse
is trustee, of which he disclaims beneficial ownership. Also includes
400 shares owned by Mr. Ehrlich's spouse's individual retirement
account of which Mr. Ehrlich disclaims beneficial ownership.
(8) Includes options to purchase 127,500 shares of common stock. Excludes
unvested options to purchase 7,500 shares of common stock. Also
includes 60,000 shares owned by S.T. Investors Fund, LLC, a limited
liability company of which Mr. Sokolow is a member, 10,000 shares owned
by Mr. Sokolow's profit sharing plan and 11,200 shares held for the
benefit of Mr. Sokolow's children and of which Mr. Sokolow disclaims
beneficial ownership.
(9) Includes options to purchase 126,000 shares of common stock. Excludes
unvested options to purchase 6,000 shares of common stock.
(10) Includes options to purchase 100,000 shares of common stock. Excludes
unvested options to purchase 6,000 shares of common stock.
(11) Includes options to purchase 16,000 shares of common stock. Excludes
unvested options to purchase 26,000 shares of common stock.
(12) Includes options to purchase 275,000 shares of common stock and 8,665
shares of restricted common stock. Excludes deferred performance stock
awards of 150,000 shares and unvested restricted stock awards of
100,000 shares granted to Mr. Schiller over which Mr. Schiller does not
have voting or dispositive power. Excludes unvested options to purchase
350,000 shares of common stock.
(13) Includes options to purchase 250,000 shares of common stock. Excludes
unvested options to purchase 100,000 shares of common stock and
unvested restricted stock award of 2,089 shares granted to Mr. Croskrey
over which Mr. Croskrey does not have voting or dispositive power.
(14) Includes of options to purchase 16,666 shares of common stock. Excludes
unvested restricted stock awards of 4,200 shares over which Mr. Mecredy
does not have voting or dispositive power. Excludes unvested options to
acquire 108,334 shares of common stock.
(15) See footnotes (4) and (7-14).
(16) Percent is based on 28,269,145 shares of common stock outstanding as of
December 30, 2003.
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THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
We issued the old notes on August 12, 2003 to Wachovia Capital Markets,
LLC, the initial purchaser, pursuant to a purchase agreement, dated August 6,
2003, among Armor Holdings, the subsidiary guarantors listed on the signature
pages thereto, and the initial purchaser. The initial purchaser subsequently
sold the old notes to "qualified institutional buyers", as defined in Rule 144A
under the Securities Act, in reliance on Rule 144A, and outside the United
States under Regulation S of the Securities Act. As a condition to the sale of
the old notes, we entered into a registration rights agreement with the initial
purchaser on August 12, 2003.
Pursuant to the registration rights agreement, we agreed that we would:
o file a registration statement with the Commission with respect to
the new notes no later than 150 days after the date of initial
issuance of the old notes;
o use our reasonable best efforts to cause the registration
statement to be declared effective by the Commission no later than
195 days after the date of initial issuance of the old notes;
o consummate the exchange offer no later than 225 days after the
date of initial issuance of the old notes;
o file a shelf registration statement for the resale of the new
notes if we cannot effect an exchange offer or in certain other
circumstances;
o use our reasonable best efforts to cause the shelf registration
statement, if necessary, to be declared effective; and
o use our reasonable best efforts to keep the shelf registration
statement continuously effective for a period of at least two
years subject to certain provisions of the registration rights
agreement.
Upon the effectiveness of the registration statement, we will offer the
new notes in exchange for the old notes.
RESALE OF THE NEW NOTES
Based upon an interpretation by the staff of the Commission contained
in no-action letters issued to third parties, we believe that you may exchange
old notes for new notes in the ordinary course of business. For further
information on the Commission's position, see Exxon Capital Holdings
Corporation, available April 13, 1989, Morgan Stanley & Co. Incorporated,
available June 5, 1991 and Shearman & Sterling, available July 2, 1993, and
other interpretive letters to similar effect. You will be allowed to resell new
notes to the public without further registration
76
under the Securities Act and without delivering to purchasers of the new notes a
prospectus that satisfies the requirements of Section 10 of the Securities Act
so long as you do not participate, do not intend to participate, and have no
arrangement with any person to participate, in a distribution of the new notes.
However, the foregoing does not apply to you if you are:
o a broker-dealer who receives the new notes directly from us to
resell pursuant to Rule 144A or any other available exemption
under the Securities Act; or
o an "affiliate" of ours within the meaning of Rule 405 under the
Securities Act.
In addition, if:
o you are a broker-dealer; or
o you acquire new notes in the exchange offer for the purpose of
distributing or participating in the distribution of the new
notes,
you cannot rely on the position of the staff of the Commission contained in the
no-action letters mentioned above and must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
resale transaction, unless an exemption from registration is otherwise
available.
Each broker-dealer that receives new notes for its own account in
exchange for old notes, which the broker-dealer acquired as a result of
market-making activities or other trading activities, must acknowledge that it
will deliver a prospectus in connection with any resale of the new notes. See
"Plan of Distribution." The letter of transmittal states that by so
acknowledging and by delivering a prospectus, a broker-dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act. A
broker-dealer may use this prospectus, as it may be amended or supplemented from
time to time, in connection with resales of new notes received in exchange for
old notes which the broker-dealer acquired as a result of market-making or other
trading activities.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions described in this
prospectus and in the letter of transmittal, we will accept any and all
outstanding old notes validly tendered and not withdrawn before the expiration
date for an equal amount of new notes which are registered under the Securities
Act, subject to the satisfaction of certain conditions. We will issue $1,000
principal amount of new notes in exchange for each $1,000 principal amount of
outstanding old notes surrendered pursuant to the exchange offer. You may tender
old notes only in integral multiples of $1,000.
The form and terms of the new notes are the same as the form and terms
of the old notes except that we have registered the new notes under the
Securities Act and, therefore, the new notes will not bear legends restricting
their transfer.
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The new notes will evidence the same debt as the old notes and will be
issued under the same indenture, so the new notes and the old notes will be
treated as a single class of debt securities under the indenture.
As of the date of this prospectus, $150,000,000 in aggregate principal
amount of the old notes is outstanding. Only registered holders of the old
notes, or their legal representative or attorney-in-fact, as reflected on the
records of the trustee under the indenture, may participate in the exchange
offer. We will not set a fixed record date for determining registered holders of
the old notes entitled to participate in the exchange offer.
You do not have any appraisal or dissenters' rights under the indenture
in connection with the exchange offer. We intend to conduct the exchange offer
in accordance with the provisions of the registration rights agreement and the
applicable requirements of the Securities Act, the Exchange Act and the rules
and regulations of the Commission.
We will be deemed to have accepted validly tendered old notes when, as
and if we had given oral or written notice of acceptance to the exchange agent.
The exchange agent will act as your agent for the purposes of receiving the new
notes from us.
If you tender old notes in the exchange offer, you will not be required
to pay brokerage commissions or fees or, subject to the instructions in the
letter of transmittal, transfer taxes with respect to the exchange of
outstanding notes. We will pay all charges and expenses, other than applicable
taxes, in connection with the exchange offer.
Expiration Date; Extensions; Amendments
The term "expiration date" will mean 5:00 p.m., New York City time, on
________, 2004, unless we, in our sole discretion, extend the exchange offer, in
which case the term "expiration date" will mean the latest date and time to
which we extend the exchange offer. To extend the exchange offer, we will:
o notify the exchange agent of any extension orally or in writing;
and
o notify the registered holders of the old notes by means of a press
release or other public announcement, each before 9:00 a.m., New
York City time, on the next business day after the previously
scheduled expiration date.
We reserve the right, in our reasonable discretion:
o to delay accepting any old notes until such time as the conditions
listed under "-Conditions" are satisfied or waived;
o to extend the exchange offer;
o if any conditions listed below under "-Conditions" are not
satisfied, to terminate the exchange offer by giving oral or
written notice to the exchange agent; or
78
o to waive any conditions in any respect, by giving oral or written
notice to the exchange agent.
If we terminate the exchange offer, we will return the old notes
deposited by the holder of the old notes in accordance with the procedures
described in this prospectus under "-Return of Notes."
Any delay in acceptance, extension, or termination will be followed as
soon as practicable by a press release or other public announcement or
post-effective amendment.
If the exchange offer is amended in a manner determined by us to
constitute a material change, we will promptly disclose that amendment by means
of a prospectus supplement or post-effective amendment that will be distributed
to the holders. We will also extend the exchange offer for a period of five to
ten business days, depending upon the significance of the amendment and the
manner of disclosure to the holders, if the exchange offer would otherwise
expire during the five to ten business day period.
INTEREST ON THE NEW NOTES
The new notes will each accrue interest on the same terms as the old
notes. Interest on the notes will accrue at the rate of 8 1/4% per annum and
will be payable semi-annually in arrears on February 15 and August 15,
commencing on February 15, 2004. We will make each interest payment to the
Holders of record on the immediately preceding February 1 and August 1. Old
notes accepted for exchange will not receive accrued interest thereon at the
time of exchange. However, each new note will bear interest from the most recent
date to which interest has been paid on the old notes, or if no interest has
been paid on the old notes or the new notes, from August 12, 2003.
PROCEDURES FOR TENDERING
You may tender old notes in the exchange offer only if you are a
registered holder of old notes. To tender in the exchange offer, you must:
o complete, sign and date the letter of transmittal or a facsimile
of the letter of transmittal;
o have the signatures guaranteed if required by the letter of
transmittal; and
o mail or otherwise deliver the letter of transmittal or the
facsimile of the letter of transmittal to the exchange agent at
the address listed below under "-Exchange Agent" for receipt
before the expiration date.
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In addition, either:
o the exchange agent must receive certificates for the old notes
along with the letter of transmittal into its account at the
depositary pursuant to the procedure for book-entry transfer
described below before the expiration date;
o the exchange agent must receive a timely confirmation of a
book-entry transfer of the old notes, if the procedure is
available, into its account at the depositary pursuant to the
procedure for book-entry transfer described below before the
expiration date; or
o you must comply with the guaranteed delivery procedures described
below.
Your tender, if not withdrawn before the expiration date, will
constitute an agreement between you and us in accordance with the terms and
subject to the conditions described in this prospectus and in the letter of
transmittal.
The method of delivery of old notes and the letter of transmittal and
all other required documents to the exchange agent is at your election and risk.
We recommend that instead of delivery by mail, you use an overnight or hand
delivery service, properly insured. In all cases, you should allow sufficient
time to assure delivery to the exchange agent before the expiration date. You
should not send letters of transmittal or old notes to us. You may request your
respective brokers, dealers, commercial banks, trust companies or nominees to
effect the transactions described above for you.
If you are a beneficial owner of old notes whose old notes are
registered in the name of a broker, dealer, commercial bank, trust company or
other nominee and you wish to tender your old notes, you should contact the
registered holder promptly and instruct the registered holder to tender on your
behalf. If you wish to tender on your own behalf, before completing and
executing the letter of transmittal and delivering the old notes you must
either:
o make appropriate arrangements to register ownership of the old
notes in your name; or
o obtain a properly completed bond power from the registered holder.
The transfer of registered ownership may take considerable time. Unless
the old notes are tendered:
o by a registered holder who has not completed the box entitled
"Special Issuance Instructions" or the box entitled "Special
Delivery Instructions" on the letter of transmittal; or
o for the account of:
o a member firm of a registered national securities exchange or
of the National Association of Securities Dealers, Inc.;
80
o a commercial bank or trust company located or having an
office or correspondent in the United States; or
o an "eligible guarantor institution" within the meaning of
Rule 17Ad-15 under the Exchange Act that is a member of one
of the recognized signature guarantee programs identified in
the letter of transmittal,
an eligible guarantor institution must guarantee the signatures on a letter of
transmittal or a notice of withdrawal described below under "-Withdrawal of
Tenders".
If the letter of transmittal is signed by a person other than the
registered holder, the old notes must be endorsed or accompanied by a properly
completed bond power, signed by the registered holder as the registered holder's
name appears on the old notes.
If the letter of transmittal or any old notes or bond powers are signed
by trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations or others acting in a fiduciary or representative capacity, they
should so indicate when signing, and unless waived by us, they must submit
evidence satisfactory to us of their authority to so act with the letter of
transmittal.
The exchange agent and the depositary have confirmed that any financial
institution that is a participant in the depositary's system may utilize the
depositary's Automated Tender Offer Program ("ATOP") to tender notes. Holders of
old notes utilizing the ATOP system must transmit to the exchange agent, on or
before the expiration date, a computer-generated message through the ATOP system
that is received by the exchange agent and which forms a part of a confirmation
of book-entry transfer in which you acknowledge and agree to be bound by the
terms of the letter of transmittal.
We will determine in our sole discretion all questions as to the
validity, form, eligibility, including time of receipt, acceptance and
withdrawal of tendered old notes, which determination will be final and binding.
We reserve the absolute right to reject any and all old notes not properly
tendered or any old notes our acceptance of which would, in the opinion of our
counsel, be unlawful. We also reserve the right to waive any defects,
irregularities or conditions of tender as to particular old notes. Our
interpretation of the terms and conditions of the exchange offer, including the
instructions in the letter of transmittal, will be final and binding on all
parties. Unless waived, you must cure any defects or irregularities in
connection with tenders of old notes within the time we determine. Although we
intend to notify you of defects or irregularities with respect to tenders of old
notes, neither we, the exchange agent nor any other person will incur any
liability for failure to give you that notification. Unless waived, we will not
deem tenders of old notes to have been made until you cure the defects or
irregularities.
While we have no present plan to acquire any old notes that are not
tendered in the exchange offer or to file a registration statement to permit
resales of any old notes that are not tendered in the exchange offer, we reserve
the right in our sole discretion to purchase or make offers for any old notes
that remain outstanding after the expiration date. We also reserve the right to
terminate the exchange offer, as described below under "-Conditions", and, to
the extent permitted by applicable
81
law, purchase old notes in the open market, in privately negotiated transactions
or otherwise. The terms of any of those purchases or offers could differ from
the terms of the exchange offer.
If you wish to tender old notes in exchange for new notes in the
exchange offer, we will require you to represent that:
o you are not an affiliate of ours;
o you are not a broker-dealer tendering old notes acquired for your
own account directly from us;
o you will acquire any new notes in the ordinary course of your
business; and
o you are not engaged in, and do not intend to engage in, and have
no arrangement or understanding to participate in, a distribution
of the new notes to be issued in the exchange offer.
In addition, in connection with the resale of new notes, any
participating broker-dealer who acquired the old notes for its own account as a
result of market-making or other trading activities must deliver a prospectus
meeting the requirements of the Securities Act. The Commission has taken the
position that participating broker-dealers may fulfill their prospectus delivery
requirements with respect to the new notes, other than a resale of an unsold
allotment from the original sale of the old notes, with the prospectus contained
in the registration statement.
RETURN OF NOTES
If we do not accept any tendered old notes for any reason described in
the terms and conditions of the exchange offer or if you withdraw any tendered
old notes or submit old notes for a greater principal amount than you desire to
exchange, we will return the unaccepted, withdrawn or non-exchanged old notes
without expense to you as promptly as practicable after the expiration or
termination of the exchange offer. In the case of old notes tendered by
book-entry transfer into the exchange agent's account at the depositary pursuant
to the book-entry transfer procedures described below, we will credit the old
notes to an account maintained with the depositary as promptly as practicable.
BOOK-ENTRY TRANSFER
The exchange agent will make a request to establish an account with
respect to the old notes at the depositary for purposes of the exchange offer
within two business days after the date of this prospectus, and any financial
institution that is a participant in the depositary's systems may make
book-entry delivery of old notes by causing the depositary to transfer the old
notes into the exchange agent's account at the depositary in accordance with the
depositary's procedures for transfer. However, although delivery of old notes
may be effected through book-entry transfer at the depositary, you must transmit
and the exchange agent must receive, the letter of transmittal or a facsimile of
the letter of transmittal, with any required signature guarantees and any other
required
82
documents, at the address below under "-Exchange Agent" on or before the
expiration date or pursuant to the guaranteed delivery procedures described
below.
GUARANTEED DELIVERY PROCEDURES
If you wish to tender your old notes, but time will not permit a letter
of transmittal, certificates representing the old notes to be tendered or other
required documents to reach the exchange agent before the expiration date, or if
the procedure for book-entry transfer cannot be completed on or before the
expiration date, you may effect a tender if:
o the tender is made by or through an eligible guarantor
institution;
o before the expiration date, the exchange agent receives from the
eligible guarantor institution a properly completed and duly
executed notice of guaranteed delivery, substantially in the form
provided by us, that:
o states the name and address of the holder of the old notes,
the name(s) in which the old notes are registered and the
principal amount of old notes tendered,
o states that the tender is being made by that notice of
guaranteed delivery, and
o guarantees that, within three New York Stock Exchange trading
days after the expiration date, the eligible guarantor
institution will deposit with the exchange agent the letter
of transmittal, together with the certificates representing
the old notes in proper form for transfer or a confirmation
of a book-entry transfer, as the case may be, and any other
documents required by the letter of transmittal; and
o within three New York Stock Exchange trading days after the
expiration date, the exchange agent receives a properly executed
letter of transmittal, as well as the certificates representing
all tendered old notes in proper form for transfer or a book-entry
confirmation, as the case may be, and all other documents required
by the letter of transmittal.
Upon request, the exchange agent will send to you a notice of
guaranteed delivery if you wish to tender your old notes according to the
guaranteed delivery procedures described above.
WITHDRAWAL OF TENDERS
Except as otherwise provided in this prospectus, you may withdraw
tenders of old notes at any time before 5:00 p.m., New York City time, on the
expiration date.
To withdraw a tender of old notes in the exchange offer, the exchange
agent must receive a written or facsimile transmission notice of withdrawal at
its address listed in this prospectus before the expiration date. Any notice of
withdrawal must:
o specify the name of the person who deposited the old notes to be
withdrawn;
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o identify the old notes to be withdrawn, including the principal
amount of the old notes; and
o be signed in the same manner as the original signature on the
letter of transmittal by which the old notes were tendered,
including any required signature guarantees.
We will determine in our sole discretion all questions as to the
validity, form and eligibility of the notices, and our determination will be
final and binding on all parties. We will not deem any properly withdrawn old
notes to have been validly tendered for purposes of the exchange offer, and we
will not issue new notes with respect to those old notes, unless you validly
re-tender the withdrawn old notes. You may re-tender properly withdrawn old
notes by following one of the procedures described above under "-Procedures for
Tendering" at any time before the expiration date.
CONDITIONS
Notwithstanding any other term of the exchange offer, we will not be
required to accept for exchange, or exchange the new notes for, any old notes,
and may terminate the exchange offer as provided in this prospectus before the
acceptance of the old notes, if:
o the exchange offer violates applicable law, rules or regulations
or an applicable interpretation of the staff of the Commission;
o an action or proceeding has been instituted or threatened in any
court or by any governmental agency which might materially impair
our ability to proceed with the exchange offer (the term
"threatened" means a written demand or statement has been made, or
a written notice has been given, that would lead a prudent person
to conclude that such an action or proceeding is likely to be
asserted, commenced, taken, or otherwise pursued in the future);
or
o all governmental approvals which we deem necessary for the
completion of the exchange offer have not been obtained.
If we determine in our reasonable discretion that any of these
conditions are not satisfied, we may:
o refuse to accept any old notes and return all tendered old notes
to you;
o extend the exchange offer and retain all old notes tendered before
the exchange offer expires, subject, however, to your rights to
withdraw the old notes; or
o waive the unsatisfied conditions with respect to the exchange
offer and accept all properly tendered old notes that have not
been withdrawn.
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If the waiver constitutes a material change to the exchange offer, we
will promptly disclose the waiver by means of a prospectus supplement that we
will distribute to the registered holders of the old notes.
SHELF REGISTRATION
Pursuant to the registration rights agreement, in the event that:
o we are not permitted to file a registration statement or permitted
to consummate the exchange offer because the exchange offer is not
permitted by applicable law or Commission policy;
o the exchange offer is not consummated within 225 days of the date
the old notes were issued; or
o a holder of old notes so requests under certain circumstances,
we will file with the Commission a shelf registration statement to register for
public resale the old notes held by you if you provide us with the necessary
information for inclusion in the shelf registration statement.
LIQUIDATED DAMAGES
Pursuant to the registration rights agreement, if:
o we do not file the registration statement with the Commission on
or prior to the 150th day following the date of initial issuance
of the old notes;
o we do not cause the registration statement to become effective on
or prior to the 195th day following the date of initial issuance
of the old notes;
o we do not complete the exchange offer on or prior to the 225th day
following the date of initial issuance of the old notes; or
o the Commission shall have issued a stop order suspending the
effectiveness of the registration statement of which this
prospectus is a part or our shelf registration statement, as the
case may be, or proceedings have been initiated with respect to
such registration statement.
with each of the items above constituting a "registration default", we agreed to
pay liquidated damages to the holders, with respect to the first 90-day period
immediately following the occurrence of the first registration default in an
amount equal to 0.5% per annum per $1,000 principal amount of old notes held by
such holder. The amount of the liquidated damages will increase by an additional
0.5% per annum per $1,000 principal amount of old notes with respect to each
subsequent 90-day period until all registration defaults have been cured, up to
a maximum amount of liquidated damages for all registration defaults of 1.0% per
annum per $1,000 principal
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amount of old notes. Following the cure of all registration defaults, the
accrual of liquidated damages will cease.
EXCHANGE AGENT
We have appointed Wachovia Bank, National Association, as exchange agent for the
exchange offer. You should direct questions and requests for assistance,
requests for additional copies of this prospectus or the letter of transmittal
and requests for a notice of guaranteed delivery to the exchange agent addressed
as follows:
By Registered or Certified Mail:
Wachovia Bank, National Association
Corporate Trust Operations
1525 West W. T. Harris Boulevard
Charlotte, North Carolina 28288
Attn.: Marsha Rice
Telephone # (704) 490-7413
Fax # (704) 590-7628
By Hand/Overnight Delivery:
Wachovia Bank, National Association
Corporate Trust Operations
1525 West W.T. Harris Boulevard
Charlotte, North Carolina 28262
Attn.: Marsha Rice
Delivery to an address other than the one stated above or transmission
via a facsimile number other than the one stated above will not constitute a
valid delivery.
FEES AND EXPENSES
We will bear all expenses incident to our or the guarantors'
performance of or compliance with the registration rights agreement, regardless
of whether the registration statement becomes effective, including without
limitation:
o all registration and filing fees and expenses (including filings
made by the initial purchaser or holder of notes with the National
Association of Securities Dealers, Inc. (and, if applicable, the
fees and expenses of any "qualified independent underwriter" and
its counsel that may be required by the rules and regulations of
the NASD));
o all fees and expenses for compliance with Federal and state
securities laws;
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o all expenses of printing (including printing certificates for the
new notes to be issued in the exchange offer and printing of
prospectuses), messenger and delivery services and telephone;
o all fees and disbursements of counsel for us, the guarantors and,
as discussed below, the holders of old notes; and
o all fees and disbursements of our and the guarantors' independent
certified public accountants.
We will bear our and the guarantors' internal expenses (including,
without limitation, all salaries and expenses of officers and employees
performing legal or accounting duties), the expenses of any annual audit and the
fees and expenses of any person, including special experts, retained by us or
the guarantors.
In connection with any registration statement required by the
registration rights agreement, we and the guarantors will reimburse the initial
purchaser and the holders of old notes being tendered in the exchange offer
and/or resold pursuant to the "Plan of Distribution" contained in the prospectus
or registered pursuant to a shelf registration statement, as applicable, for the
reasonable fees and disbursements of not more than one counsel.
CONSEQUENCE OF FAILURE TO EXCHANGE
Participation in the exchange offer is voluntary. We urge you to
consult your financial and tax advisors in making your decisions on what action
to take. Old notes that are not exchanged for new notes pursuant to the exchange
offer will remain restricted securities. Accordingly, those old notes may be
resold only:
o to a person whom the seller reasonably believes is a qualified
institutional buyer in a transaction meeting the requirements of
Rule 144A under the Securities Act;
o in a transaction meeting the requirements of Rule 144 under the
Securities Act;
o outside the United States to a foreign person in a transaction
meeting the requirements of Rule 903 or 904 of Regulation S under
the Securities Act;
o in accordance with another exemption from the registration
requirements of the Securities Act and based upon an opinion of
counsel if we so request;
o to us; or
o pursuant to an effective registration statement.
In each case, the old notes may be resold only in accordance with any
applicable blue sky or securities laws of any state of the United States or any
other applicable jurisdiction.
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The foregoing description of the exchange offer contained a summary of
certain provisions of the registration rights agreement, which is incorporated
herein by reference. It does not restate that agreement in its entirety. We urge
you to read the registration rights agreement in its entirety because it, and
not this description, defines your registration rights as holders of the old
notes.
DESCRIPTION OF THE NEW NOTES
The form and terms of the new notes and the old notes are identical in
all material respects, except that the transfer restrictions applicable to the
old notes do not apply to the new notes.
The old notes were, and the new notes will be, issued under an
indenture, dated as of August 12, 2003, as supplemented by the First
Supplemental Indenture dated as of September 30, 2003 and as further
supplemented by the Second Supplemental Indenture dated as of December 9, 2003
(collectively, the "Indenture"), among Armor Holdings, Inc., the subsidiary
guarantors listed as signatories thereto and the Wachovia Bank, National
Association, as trustee (the "Trustee"). The terms of the new notes include
those stated in the Indenture and those made part of the Indenture by reference
to the Trust Indenture Act of 1939, as amended.
The following description is a summary of the material provisions of
the Indenture. It does not restate the agreement in its entirety. We urge you to
read the Indenture because it, and not this description, defines your rights as
holders of the notes. Copies of the Indenture are available as set forth below
under "Where You Can Find More Information." You can find the definitions of
certain terms used in this description under the subheading "--Certain
Definitions." Certain defined terms used in this description but not defined
below under "--Certain Definitions" have the meanings assigned to them in the
Indenture. In this description, the word "Armor Holdings" refers only to Armor
Holdings and not to any of its subsidiaries.
The registered holder of a note will be treated as the owner of it for
all purposes. Only registered holders will have rights under the Indenture.
GENERAL
THE NEW NOTES
The notes will mature on August 15, 2013 and were issued in an
aggregate principal amount of $150,000,000. We may issue additional notes (the
"Additional Notes") from time to time after this offering, subject to the
"Incurrence of Indebtedness and Issuance of Preferred Stock" covenant. The notes
and any Additional Notes subsequently issued under the Indenture would be
treated as a single class for all purposes under the Indenture, including,
without limitation, waivers, amendments, redemptions and offers to purchase. We
will issue Additional Notes in denominations of $1,000 and integral multiples of
$1,000.
Interest on the notes is accruing at the rate of 8.25% per annum from
August 12, 2003 and will be payable semi-annually in arrears on February 15 and
August 15 of each year, commencing on February 15, 2004. We will make each
interest payment to the Holders of record on the immediately preceding February
1 and August 1.
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Interest on the notes will accrue from the date of original issuance
or, if interest has already been paid, from the most recent interest payment
date to which interest has been paid. Interest will be computed on the basis of
a 360-day year comprised of twelve 30-day months.
The notes are:
o general unsecured obligations of Armor Holdings;
o subordinated in right of payment to all existing and future Senior
Debt of Armor Holdings;
o pari passu in right of payment with any future senior subordinated
Indebtedness of Armor Holdings; and
o guaranteed by the Subsidiary Guarantors.
The Subsidiary Guarantees
The notes are guaranteed, jointly and severally, by all of the existing
and future Domestic Subsidiaries of Armor Holdings that are Restricted
Subsidiaries, other than USDS, Inc. Each Subsidiary Guarantee of the notes are:
o a general unsecured obligation of the Subsidiary Guarantor;
o subordinated in right of payment to all existing and future Senior
Debt of the Subsidiary Guarantor; and
o pari passu in right of payment with any future senior subordinated
Indebtedness of the Subsidiary Guarantor.
As of the date hereof, all of our domestic subsidiaries, except for
USDS, Inc., will be "Restricted Subsidiaries." However, under the circumstances
described below under the "Designation of Restricted and Unrestricted
Subsidiaries" covenant we will be permitted to designate certain of our
subsidiaries as "Unrestricted Subsidiaries." Any Unrestricted Subsidiaries will
not be subject to any of the restrictive covenants in the Indenture and will not
guarantee the notes.
Each Subsidiary Guarantee will be subordinated to the prior payment in
full in cash of all Senior Debt of that Subsidiary Guarantor. The obligations of
each Subsidiary Guarantor under its Subsidiary Guarantee will be limited as
necessary to prevent that Subsidiary Guarantee from constituting a fraudulent
conveyance under applicable law. See "Risk Factors--Federal and state statutes
allow courts, under specific circumstances, to void guarantees and require
noteholders to return payments received from guarantors."
Methods Of Receiving Payments On The Notes
If a Holder has given wire transfer instructions to Armor Holdings, it
will pay all principal,
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interest and premium and additional interest, if any, on that Holder's notes in
accordance with those instructions. All other payments on notes will be made at
the office or agency of the Paying Agent and Registrar within New York, New York
or Charlotte, North Carolina unless Armor Holdings elects to make interest
payments by check mailed to the Holders at their addresses set forth in the
register of Holders.
Paying Agent And Registrar For The Notes
The Trustee will initially act as Paying Agent and Registrar. We may
change the Paying Agent or Registrar without prior notice to the Holders, and we
or any of our Subsidiaries may act as Paying Agent or Registrar.
Transfer And Exchange
A Holder may transfer or exchange notes in accordance with the
Indenture. The Registrar and the Trustee may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents and the we
may require a Holder to pay any taxes and fees required by law or permitted by
the Indenture. We are not required to transfer or exchange any note selected for
redemption. Also, we are not required to transfer or exchange any note for a
period of 15 days before a selection of notes to be redeemed.
The registered Holder of a note will be treated as the owner of it for
all purposes.
SUBORDINATION
The payment of principal, interest and premium and additional interest,
if any, on (or any other obligations relating to) the notes is subordinated to
the prior payment in full in cash of all of our Senior Debt, including our
Senior Debt incurred after the date of the Indenture.
The holders of our Senior Debt are entitled to receive payment in full
in cash of all Obligations due in respect of our Senior Debt (including interest
after the commencement of any bankruptcy proceeding at the rate specified in our
applicable Senior Debt) before the Holders of notes will be entitled to receive
any payment with respect to (or any other Obligations relating to) the notes or
any distribution of assets or proceeds (except that Holders of notes may receive
and retain Permitted Junior Securities and payments made from the trust
described under "--Legal Defeasance and Covenant Defeasance"), in the event of
any distribution to our creditors in connection with:
(1) our liquidation or dissolution, whether voluntary or involuntary;
(2) our bankruptcy, reorganization, insolvency, receivership or similar
proceeding relating to us or our property, whether voluntary or
involuntary;
(3) any assignment for the benefit of creditors; or
(4) any marshaling of our assets and liabilities.
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We also may not make any payment in respect of the notes or any
distribution of assets or proceeds (except in Permitted Junior Securities or
from the trust described under "--Legal Defeasance and Covenant Defeasance") if:
(1) a payment default on our Designated Senior Debt occurs and is
continuing beyond any applicable grace period; or
(2) any other default occurs and is continuing on any series of our
Designated Senior Debt that permits holders of that series of our
Designated Senior Debt to accelerate its maturity and the Trustee receives
a notice of such default (a "Payment Blockage Notice") from us or any agent
or representative with respect to such Designated Senior Debt (a
"nonpayment default").
Payments on the notes may and shall be resumed:
(1) in the case of a payment default on our Designated Senior Debt,
upon the date on which such default is cured or waived; and
(2) in case of a nonpayment default, the earlier of the date on which
such default is cured or waived or 179 days after the date on which the
applicable Payment Blockage Notice is received by the Trustee, unless the
maturity of our Designated Senior Debt has been accelerated.
No new Payment Blockage Notice may be delivered unless and until 360
days have elapsed since the delivery of the immediately prior Payment Blockage
Notice.
No nonpayment default that existed or was continuing on the date of
delivery of any Payment Blockage Notice to the Trustee shall be, or be made, the
basis for a subsequent Payment Blockage Notice unless such default has been
cured or waived for a period of not less than 90 days.
If the Trustee or any Holder of the notes receives a payment in respect
of the notes (except in Permitted Junior Securities or from the trust described
under "--Legal Defeasance and Covenant Defeasance") when:
(1) the payment is prohibited by these subordination provisions; and
(2) the Trustee or the Holder has actual knowledge that the payment is
prohibited;
the Trustee or the Holder, as the case may be, shall hold the payment in trust
for the benefit of the holders of our Senior Debt and shall deliver notice
thereof to the agent or representative of the holders of Senior Debt. Upon the
proper written request of the agent or representative of the holders of our
Designated Senior Debt, or, if no such Designated Senior Debt exists, the
holders of our Senior Debt, the Trustee or the Holder, as the case may be, shall
deliver the amounts in trust to the holders of our Senior Debt or their proper
representative.
We must promptly notify holders of our Senior Debt and any agent or
representative with respect to such Senior Debt if payment of the notes is
accelerated because of an Event of Default.
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As a result of the subordination provisions described above, in the
event of our bankruptcy, liquidation or reorganization, Holders of notes may
recover less ratably than our creditors who are holders of our Senior Debt. In
addition, because the subordination provisions of the Indenture require that
amounts otherwise payable, or assets distributable, to Holders of the notes in a
bankruptcy or similar proceeding be paid to holders of Senior Debt instead,
Holders of the notes may receive less ratably than our other creditors,
including holders of trade payables in any such proceeding.
Payments under the Subsidiary Guarantee by each Subsidiary Guarantor
will be subordinated to the prior payment in full in cash of all Senior Debt of
such Subsidiary Guarantor, including Senior Debt of such Subsidiary Guarantor
incurred after the date of the Indenture, on the same basis as provided above
with respect to the subordination of payments on the notes by Armor Holdings to
the prior payment in full in cash of Senior Debt of Armor Holdings. See "Risk
Factors--Risks Relating to the New Notes--Your right to receive payments on the
notes is junior to our existing senior indebtedness and possibly all of our
future borrowings. Further, the guarantees of the new notes are junior to all of
the guarantors' existing senior indebtedness and possibly to all their future
borrowings."
"Designated Senior Debt" means:
(1) any Indebtedness outstanding under the Credit Facilities;
and
(2) after payment in full of all Obligations under the Credit
Facilities, any other Senior Debt permitted under the Indenture the
principal amount of which is $25.0 million or more and that has been
designated by Armor Holdings as "Designated Senior Debt."
"Permitted Junior Securities" means:
(1) Equity Interests in Armor Holdings or any Subsidiary
Guarantor or any other business entity provided for by a plan of
reorganization; or
(2) debt securities of Armor Holdings or any Subsidiary
Guarantor or any other business entity provided for by a plan of
reorganization, in each case, that are subordinated to all Senior Debt
and any debt securities issued in exchange for Senior Debt to
substantially the same extent as, or to a greater extent than, the
notes and the Subsidiary Guarantees are subordinated to Senior Debt
under the Indenture.
"Senior Debt" means:
(1) all Indebtedness of Armor Holdings or any Subsidiary
Guarantor outstanding under the Credit Facilities and all Hedging
Obligations with respect thereto;
(2) any other Indebtedness (including, without limitation,
Hedging Obligations) of Armor Holdings or any Subsidiary Guarantor
permitted to be incurred under the terms of the Indenture, unless the
instrument under which such Indebtedness is incurred expressly provides
that it is on a parity with or subordinated in right of payment to the
notes or any Subsidiary Guarantee; and
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(3) all other Obligations with respect to the items listed in
the preceding clauses (1) and (2).
Notwithstanding anything to the contrary in the preceding, Senior Debt
will not include:
(1) any liability for federal, state, local or other taxes
owed or owing by Armor Holdings or any Subsidiary Guarantor;
(2) any Indebtedness of Armor Holdings or any Subsidiary
Guarantor to any Subsidiaries or other Affiliates of Armor Holdings or
any Subsidiary Guarantor or, in the case of Indebtedness of any
Subsidiary Guarantor, to Armor Holdings;
(3) any trade payables;
(4) the portion of any Indebtedness that is incurred in
violation of the Indenture;
(5) any Indebtedness of Armor Holdings or any Subsidiary
Guarantor that, when incurred, was without recourse to Armor Holdings
or such Subsidiary Guarantor;
(6) any repurchase, redemption or other Obligation in respect
of Disqualified Stock or any rights with respect thereto; or
(7) any Indebtedness owed to any employee of Armor Holdings or
any of its Subsidiaries.
OPTIONAL REDEMPTION
Except as provided below, the notes are not redeemable at our option
prior to August 15, 2008. After August 15, 2008, we may redeem all or a part of
the notes, subject to any restriction or other provisions relating thereto
contained in any Senior Debt, upon not less than 30 nor more than 60 days'
notice, at the redemption prices (expressed as percentages of principal amount)
set forth below plus accrued and unpaid interest and additional interest, if
any, thereon, to the applicable redemption date, if redeemed during the
twelve-month period beginning on August 15 of the years indicated below:
YEAR PERCENTAGE
- ---- ----------
2008.............................................. 104.125%
2009.............................................. 102.750%
2010.............................................. 101.375%
2011 and thereafter............................... 100.000%
Notwithstanding the foregoing, at any time prior to August 15, 2006, we
may redeem up to
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35% of the aggregate principal amount of notes issued under the Indenture,
subject to any restriction or other provisions relating thereto contained in any
Senior Debt, at a redemption price of 108.25% of the principal amount thereof,
plus accrued and unpaid interest and additional interest, if any, to the
redemption date, with the net cash proceeds of one or more Public Equity
Offerings; provided that:
(1) at least 65% of the aggregate principal amount of notes originally
issued under the Indenture remains outstanding immediately after the
occurrence of each such redemption (excluding notes held by Armor Holdings
and its Subsidiaries); and
(2) such redemption must occur within 60 days of the date of the
closing of each such Public Equity Offering.
If less than all of the notes are to be redeemed at any time, the
Trustee will select notes for redemption on a pro rata basis, by lot or by such
method as the Trustee shall deem fair and appropriate. The notes may only be
redeemed in integral multiples of $1,000. Notices of redemption shall be mailed
by first class mail at least 30 but not more than 60 days before the redemption
date to each Holder of notes to be redeemed at its registered address. Notices
of redemption may not be conditional.
If any note is to be redeemed in part only, the notice of redemption
that relates to that note shall state the portion of the principal amount
thereof (which must be an integral multiple of $1,000) to be redeemed. A new
note in principal amount equal to the unredeemed portion of the original note
will be issued in the name of the Holder thereof upon cancellation of the
original note. Notes called for redemption become due on the date fixed for
redemption. On and after the redemption date, interest ceases to accrue on notes
or portions of them called for redemption.
The Credit Agreement will contain provisions that prohibit or otherwise
limit Armor Holdings from exercising any such option.
MANDATORY REDEMPTION
We are not required to make mandatory redemption or sinking fund
payments with respect to the notes.
REPURCHASE AT THE OPTION OF HOLDERS
Change Of Control
If a Change of Control occurs, each Holder of notes will have the right
to require us to repurchase all or any part (equal to $1,000 or an integral
multiple thereof) of that Holder's notes pursuant to a Change of Control Offer
on the terms set forth in the Indenture. In the Change of Control Offer, we will
offer a Change of Control Payment in cash equal to 101% of the aggregate
principal amount of notes repurchased plus accrued and unpaid interest and
additional interest, if any, thereon, to the date of purchase. Within 30 days
following any Change of Control, we will mail a notice to each Holder describing
the transaction or transactions that constitute the Change of
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Control and offering to repurchase notes on the Change of Control Payment Date
specified in such notice, which date shall be no earlier than 30 days and no
later than 90 days from the date such notice is mailed, pursuant to the
procedures required by the Indenture and described in such notice. We will
comply with the requirements of Rule 14e-1 under the Exchange Act and any other
securities laws and regulations thereunder to the extent such laws and
regulations are applicable in connection with the repurchase of the notes as a
result of a Change of Control. To the extent that the provisions of any
securities laws or regulations conflict with the Change of Control provisions of
the Indenture, we will comply with the applicable securities laws and
regulations and will not be deemed to have breached our obligations under the
Change of Control provisions of the Indenture by virtue of such compliance.
On the Change of Control Payment Date, we will, to the extent lawful:
(1) accept for payment all notes or portions thereof properly tendered
pursuant to the Change of Control Offer;
(2) deposit with the Paying Agent an amount equal to the Change of
Control Payment in respect of all notes or portions thereof so tendered;
and
(3) deliver or cause to be delivered to the Trustee the notes so
accepted together with an Officers' Certificate stating the aggregate
principal amount of notes or portions thereof being purchased by us.
The Paying Agent will promptly mail or wire transfer to each Holder of
notes so tendered the Change of Control Payment for such notes, and the Trustee
will promptly authenticate and mail (or cause to be transferred by book entry)
to each Holder a new note equal in principal amount to any unpurchased portion
of the notes surrendered, if any; provided that each such new note will be in a
principal amount of $1,000 or an integral multiple thereof.
Prior to accepting notes for payment as provided in this "Change of
Control" covenant, but in any event within 60 days following a Change of
Control, we will either repay all outstanding Senior Debt or obtain the
requisite consents, if any, under all agreements governing outstanding Senior
Debt to permit the repurchase of notes required by this covenant. We will
publicly announce the results of the Change of Control Offer on or as soon as
practicable after the Change of Control Payment Date.
The agreements governing our outstanding Designated Senior Debt and
certain of our other outstanding Senior Debt currently prohibit us from
purchasing any notes and also provide that certain change of control events
(including, without limitation, a Change of Control under the Indenture) with
respect to us would constitute a default under these agreements. Any future
credit agreements or other agreements relating to Senior Debt to which we become
a party may contain similar restrictions and provisions. In the event a Change
of Control occurs at a time when we are prohibited from purchasing notes, we
could seek the consent of the holders of such Senior Debt to the purchase of
notes or could attempt to refinance any such Senior Debt that contain such
prohibition. If we do not obtain such a consent or repay such Senior Debt, we
will remain prohibited from purchasing notes. In such case, our failure to
purchase tendered notes would constitute an
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Event of Default under the Indenture which would, in turn, constitute a default
under such Senior Debt. In any of the foregoing circumstances, the subordination
provisions in the Indenture would likely prohibit payments to the Holders of
notes.
The provisions described above that require us to make a Change of
Control Offer following a Change of Control will be applicable regardless of
whether any other provisions of the Indenture are applicable. This "Change of
Control" covenant will not apply to any Qualifying Services Division Sale.
Except as described above with respect to a Change of Control, the Indenture
does not contain provisions that permit the Holders of the notes to require that
we repurchase or redeem the notes in the event of a takeover, recapitalization
or similar transaction.
We will not be required to make a Change of Control Offer upon a Change
of Control if (i) a third party makes the Change of Control Offer in the manner,
at the times and otherwise in compliance with the requirements set forth in the
Indenture applicable to a Change of Control Offer made by us and purchases all
notes validly tendered and not withdrawn under such Change of Control Offer or
(ii) we effect Legal Defeasance or Covenant Defeasance of the notes under the
Indenture prior to the occurrence of such Change of Control.
The definition of Change of Control includes a phrase relating to the
direct or indirect sale, lease, transfer, conveyance or other disposition of
"all or substantially all" of the properties or assets of Armor Holdings and its
Subsidiaries taken as a whole. Although there is a limited body of case law
interpreting the phrase "substantially all," there is no precise established
definition of the phrase under applicable law. Accordingly, the ability of a
Holder of notes to require us to repurchase such notes as a result of a sale,
lease, transfer, conveyance or other disposition of less than all of our and our
Subsidiaries' assets taken as a whole to another Person or group may be
uncertain.
Asset Sales
We will not, and will not permit any of our Restricted Subsidiaries to,
consummate an Asset Sale unless:
(1) we (or our Restricted Subsidiary, as the case may be)
receive consideration at the time of such Asset Sale at least equal to
the fair market value of the assets or Equity Interests issued or sold
or otherwise disposed of;
(2) such fair market value is determined by our Board of
Directors and evidenced by a resolution of our Board of Directors set
forth in an Officers' Certificate delivered to the Trustee; and
(3) at least 75% of the consideration therefor received by us
or our Restricted Subsidiary is in the form of cash, cash equivalents,
promissory notes or Replacement Assets or a combination thereof;
provided that, for purposes of this provision, each of the following
shall be deemed to be cash:
(a) our liabilities (as shown on our or our Restricted
Subsidiary's most recent balance sheet) or the liabilities of any of our
Restricted Subsidiaries (other than contingent
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liabilities and liabilities that are by their terms pari passu or subordinated
to the notes or any Subsidiary Guarantee and liabilities that are owed to us or
any of our Affiliates) that are assumed by the transferee of any such assets
pursuant to a customary written novation agreement that releases us or such
Restricted Subsidiary from further liability; and
(b) any securities or other obligations (other than
promissory notes) received by us or any of our Restricted Subsidiaries from such
transferee that are contemporaneously (subject to ordinary settlement periods)
converted by us or such Restricted Subsidiary into cash (to the extent of the
cash received in that conversion).
Within 365 days after the receipt of any Net Proceeds from an Asset
Sale, we may apply an amount equal to such Net Proceeds at our option:
(1) to prepay, repay or repurchase Senior Debt and, if (i) the
Senior Debt repaid is revolving credit Indebtedness and (ii) at the
time of such Asset Sale and at the time of such repayment, we are not
permitted to incur at least $1.00 of additional Indebtedness pursuant
to the Fixed Charge Coverage Ratio test set forth in the first
paragraph of the "Incurrence of Indebtedness and Issuance of Preferred
Stock" covenant, correspondingly reduce commitments with respect
thereto; or
(2) to purchase Replacement Assets or to make a capital
expenditure in or that is used or useful in a Permitted Business.
Pending the final application of any such Net Proceeds, we may
temporarily reduce revolving credit borrowings or otherwise invest such Net
Proceeds in any manner that is not prohibited by the Indenture.
Any Net Proceeds from Asset Sales that are not applied or invested as
provided in the preceding paragraph will constitute "Excess Proceeds." Within 30
days after the aggregate amount of Excess Proceeds exceeds $5.0 million, we will
make an Asset Sale Offer to all Holders of notes, and all holders of other
Indebtedness that is pari passu with the notes or any Subsidiary Guarantee
containing provisions similar to those set forth in the Indenture with respect
to offers to purchase with the proceeds of sales of assets, to purchase the
maximum principal amount of notes and such other pari passu Indebtedness that
may be purchased out of the Excess Proceeds. The offer price in any Asset Sale
Offer will be equal to 100% of principal amount plus accrued and unpaid interest
and additional interest, if any, to the date of purchase, and will be payable in
cash. If any Excess Proceeds remain after consummation of an Asset Sale Offer,
we may use such Excess Proceeds for any purpose not otherwise prohibited by the
Indenture. If the aggregate principal amount of notes and such other pari passu
Indebtedness tendered into such Asset Sale Offer exceeds the amount of Excess
Proceeds, the Trustee shall select the notes and such other pari passu
Indebtedness to be purchased on a pro rata basis based on the principal amount
of notes and such other pari passu Indebtedness tendered. Upon completion of
each Asset Sale Offer, the amount of Excess Proceeds shall be reset at zero.
We will comply with the requirements of Rule 14e-1 under the Exchange
Act and any other securities laws and regulations thereunder to the extent such
laws and regulations are applicable in
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connection with each repurchase of notes pursuant to an Asset Sale Offer. To the
extent that the provisions of any securities laws or regulations conflict with
the Asset Sales provisions of the Indenture, we will comply with the applicable
securities laws and regulations and will not be deemed to have breached our
obligations under the Asset Sale provisions of the Indenture by virtue of such
compliance.
The agreements governing our outstanding Designated Senior Debt
currently prohibit us from purchasing any notes, and also provides that certain
asset sale events with respect to us would constitute a default under these
agreements. Any future credit agreements or other agreements relating to Senior
Debt to which we become a party may contain similar restrictions and provisions.
In the event an Asset Sale occurs at a time when we are prohibited from
purchasing notes, we could seek the consent of the holders of our Senior Debt to
the purchase of notes or could attempt to refinance any such Senior Debt that
contain such prohibition. If we do not obtain such a consent or repay such
Senior Debt, we will remain prohibited from purchasing notes. In such case, our
failure to purchase tendered notes would constitute an Event of Default under
the Indenture which would, in turn, constitute a default under such Senior Debt.
In any of the foregoing circumstances, the subordination provisions in the
Indenture would likely prohibit payments to the Holders of notes.
CERTAIN COVENANTS
Restricted Payments
(A) Armor Holdings will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly:
(1) declare or pay any dividend or make any other payment
or distribution on account of its or any of its
Restricted Subsidiaries' Equity Interests (including,
without limitation, any payment in connection with
any merger or consolidation involving Armor Holdings
or any of its Restricted Subsidiaries) or to the
direct or indirect holders of its or any of its
Restricted Subsidiaries' Equity Interests in their
capacity as such (other than dividends or
distributions payable in Equity Interests (other than
Disqualified Stock) of Armor Holdings or dividends or
distributions payable to Armor Holdings or a Wholly
Owned Restricted Subsidiary of Armor Holdings);
(2) purchase, redeem or otherwise acquire or retire for
value (including, without limitation, in connection
with any merger or consolidation involving Armor
Holdings) any Equity Interests of Armor Holdings or
any Subsidiary of Armor Holdings (other than a Wholly
Owned Restricted Subsidiary of Armor Holdings) or any
direct or indirect parent of Armor Holdings;
(3) make any payment on or with respect to, or purchase,
redeem, defease or otherwise acquire or retire for
value any Indebtedness that is subordinated to the
notes or any Subsidiary Guarantee, except a payment
of interest or principal at the Stated Maturity
thereof; or
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(4) make any Restricted Investment (all such payments and
other actions set forth in clauses (1) through (4)
above being collectively referred to as "Restricted
Payments"),
unless, at the time of and after giving effect to such Restricted Payment:
(1) no Default or Event of Default shall have occurred
and be continuing or would occur as a consequence
thereof; and
(2) Armor Holdings would, at the time of such Restricted
Payment and after giving pro forma effect thereto as
if such Restricted Payment had been made at the
beginning of the applicable four-quarter period, have
been permitted to incur at least $1.00 of additional
Indebtedness pursuant to the Fixed Charge Coverage
Ratio test set forth in the first paragraph of the
covenant described below under the "Incurrence of
Indebtedness and Issuance of Preferred Stock"
covenant; and
(3) such Restricted Payment, together with the aggregate
amount of all other Restricted Payments made by Armor
Holdings and its Restricted Subsidiaries after the
date of the Indenture (excluding Restricted Payments
permitted by clauses (2), (3) and (5) of the next
succeeding paragraph (B)), is less than the sum,
without duplication, of:
(a) 50% of Armor Holdings' Consolidated Net
Income for the period (taken as one
accounting period) from the beginning of the
first fiscal quarter commencing after the
date of the Indenture to the end of its most
recently ended fiscal quarter for which
internal financial statements are available
at the time of such Restricted Payment (or,
if such Consolidated Net Income for such
period is a deficit, less 100% of such
deficit), plus
(b) 100% of the aggregate net cash proceeds
received by Armor Holdings since the date of
the Indenture as a contribution to its
common equity capital or from the issue or
sale of Equity Interests of Armor Holdings
(other than Disqualified Stock) or from the
issue or sale of convertible or exchangeable
Disqualified Stock or convertible or
exchangeable debt securities of Armor
Holdings that have been converted into or
exchanged for such Equity Interests (other
than Equity Interests (or Disqualified Stock
or debt securities) sold to a Subsidiary of
Armor Holdings); plus
(c) to the extent that any Restricted Investment
that was made after the date of the
Indenture is sold for cash or otherwise
liquidated or repaid for cash, the lesser of
(i) the cash return of capital with respect
to such Restricted Investment (less the cost
of disposition, if any) and (ii) the initial
amount of such Restricted Investment; plus
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(d) $10.0 million.
(B) So long as no Default or Event of Default has occurred and is
continuing at the date of a Restricted Payment or would be caused thereby, the
preceding provisions will not prohibit:
(1) the payment of any dividend within 60 days after the
date of declaration thereof, if at said date of
declaration such payment would have complied with the
provisions of the Indenture;
(2) the redemption, repurchase, retirement, defeasance or
other acquisition of any subordinated Indebtedness of
Armor Holdings or any Subsidiary Guarantor or of any
Equity Interests of Armor Holdings in exchange for,
or out of the net cash proceeds of the substantially
concurrent sale (other than to a Subsidiary of Armor
Holdings) of, Equity Interests of Armor Holdings
(other than Disqualified Stock); provided that the
amount of any such net cash proceeds that are
utilized for any such redemption, repurchase,
retirement, defeasance or other acquisition shall be
excluded from clause (3) (b) of the preceding
paragraph (A);
(3) the defeasance, redemption, repurchase or other
acquisition of subordinated Indebtedness of Armor
Holdings or any Subsidiary Guarantor with the net
cash proceeds from an incurrence of Permitted
Refinancing Indebtedness;
(4) the payment of any dividend by a Restricted
Subsidiary of Armor Holdings to the holders of its
common Equity Interests on a pro rata basis;
(5) Investments acquired as a capital contribution to, or
in exchange for, or out of the net cash proceeds of a
substantially concurrent offering of, Capital Stock
(other than Disqualified Stock) of Armor Holdings;
provided that the amount of any such net cash
proceeds that are utilized for any such acquisition
or exchange shall be excluded from clause (3)(b) of
the preceding paragraph (A);
(6) the repurchase of Capital Stock deemed to occur upon
the exercise of options or warrants if such Capital
Stock represents all or a portion of the exercise
price thereof;
(7) dividends paid on shares of Disqualified Stock of
Armor Holdings issued in accordance with the
"Incurrence of Indebtedness and Issuance of Preferred
Stock" covenant;
(8) the repurchase or redemption of shares of Equity
Interests (other than Disqualified Stock) of Armor
Holdings or any Restricted Subsidiary; provided,
however, that the aggregate amount of such
repurchases shall not exceed $5.0 million in any
calendar year unless the aggregate amount of such
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repurchases in any prior calendar year was less than
$5.0 million in which case (x) the difference, up to
an aggregate amount of $5.0 million, may be carried
forward and (y) the aggregate amount of such
repurchases in any subsequent calendar year may not
exceed $5.0 million plus the then remaining balance
of such carry forward amount (after giving effect to
all prior repurchases utilizing such carry forward
amount); provided further, however, that such
repurchases shall be excluded from the calculation of
the amount of Restricted Payments; or
(9) Restricted Payments in an aggregate amount not to
exceed $25.0 million.
The amount of all Restricted Payments (other than cash) shall be the
fair market value on the date of the Restricted Payment of the asset(s) or
securities proposed to be transferred or issued to or by Armor Holdings or such
Subsidiary, as the case may be, pursuant to the Restricted Payment. The fair
market value of any cash Restricted Payment shall be its face amount and the
fair market value of any assets, securities or other non-cash Restricted Payment
that are required to be valued pursuant to this covenant shall be determined by
the Board of Directors whose resolution with respect thereto shall be delivered
to the Trustee. The Board of Directors' determination must be based upon an
opinion or appraisal issued by an independent accounting, appraisal or
investment banking firm of national standing if the fair market value exceeds
$10.0 million, provided, however that such opinion or appraisal shall not be
required for any repurchase or redemption of shares of Equity Interests of Armor
Holdings at Current Trading Prices. Not later than the date of making any
Restricted Payment, Armor Holdings shall deliver to the Trustee an Officers'
Certificate stating that such Restricted Payment is permitted and setting forth
the basis upon which the calculations required by this "Restricted Payments"
covenant were computed, together with a copy of any fairness opinion or
appraisal required by the Indenture.
Incurrence Of Indebtedness And Issuance Of Preferred Stock
Armor Holdings will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, incur any Indebtedness (including
Acquired Debt), and Armor Holdings will not permit any of its Restricted
Subsidiaries to issue any preferred stock; provided, however, that Armor
Holdings and any Subsidiary Guarantor may incur Indebtedness or issue preferred
stock, if the Fixed Charge Coverage Ratio for its most recently ended four full
fiscal quarters for which internal financial statements are available
immediately preceding the date on which such additional Indebtedness is incurred
would have been at least 2.00 to 1, determined on a pro forma basis (including a
pro forma application of the net proceeds therefrom), as if the additional
Indebtedness had been incurred or such preferred stock had been issued at the
beginning of such four-quarter period.
So long as no Default or Event of Default shall have occurred and be
continuing as of the date such Indebtedness is incurred (or, as applicable, the
date such preferred stock is issued) or would be caused thereby, the first
paragraph of this covenant will not prohibit the incurrence of any of the
following items of Indebtedness (collectively, "Permitted Debt"):
(1) the incurrence by Armor Holdings or any Subsidiary
Guarantor of
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Indebtedness under Credit Facilities in an aggregate
principal amount at any one time outstanding (with
letters of credit being deemed to have a principal
amount equal to the maximum potential liability of
Armor Holdings and its Restricted Subsidiaries
thereunder) not to exceed $70.0 million, less the
aggregate amount of all Net Proceeds of Asset Sales
applied by Armor Holdings or any Restricted
Subsidiary to permanently repay any such Indebtedness
(and, in the case of any revolving credit
Indebtedness, to effect a corresponding commitment
reduction thereunder) pursuant to the "Asset Sales"
covenant;
(2) Existing Indebtedness;
(3) the incurrence by Armor Holdings and its Subsidiary
Guarantors of Indebtedness represented by the notes
and the related Subsidiary Guarantees to be issued on
the date of the Indenture and the Exchange Notes and
the related Subsidiary Guarantees to be issued
pursuant to the Registration Rights Agreement and the
Indenture;
(4) the incurrence by Armor Holdings or any of its
Restricted Subsidiaries of Indebtedness represented
by Capital Lease Obligations, mortgage financings or
purchase money obligations, in each case, incurred
for the purpose of financing all or any part of the
purchase price or cost of construction or improvement
of property, plant or equipment (whether through the
direct purchase of such assets or the Capital Stock
of any Person owning such assets) used in its
business or such Restricted Subsidiary, in an
aggregate principal amount, including all Permitted
Refinancing Indebtedness incurred to refund,
refinance or replace any Indebtedness incurred
pursuant to this clause (4), not to exceed $10.0
million at any time outstanding;
(5) the incurrence by Armor Holdings or any of its
Restricted Subsidiaries of Permitted Refinancing
Indebtedness in exchange for, or the net proceeds of
which are used to refund, refinance or replace
Indebtedness (other than intercompany Indebtedness)
that was permitted by the Indenture to be incurred
under the first paragraph of this covenant or clauses
(2), (3), (4), (5) or (8) of this paragraph;
(6) the incurrence by Armor Holdings or any of its
Restricted Subsidiaries of intercompany Indebtedness
owing to and held by Armor Holdings or any of its
Wholly Owned Restricted Subsidiaries; provided,
however, that:
(a) if Armor Holdings or any Subsidiary
Guarantor is the obligor on such
Indebtedness, such Indebtedness must be
unsecured and expressly subordinated to the
prior payment in full in cash of all
Obligations with respect to the notes, in
the case of Armor Holdings, or the
Subsidiary Guarantee, in the case of a
Subsidiary Guarantor;
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(b) (i) any subsequent issuance or transfer of
Equity Interests that results in any such
Indebtedness being held by a Person other
than Armor Holdings or its Wholly Owned
Restricted Subsidiary and (ii) any sale or
other transfer of any such Indebtedness to a
Person that is not either Armor Holdings or
its Wholly Owned Restricted Subsidiary,
shall be deemed, in each case, to constitute
an incurrence of such Indebtedness by Armor
Holdings or such Restricted Subsidiary, as
the case may be, that was not permitted by
this clause (6); and
(c) Indebtedness owed to Armor Holdings or any
Subsidiary Guarantor must be evidenced by an
unsubordinated promissory note, unless the
obligor under such Indebtedness is Armor
Holdings or a Subsidiary Guarantor;
(7) the incurrence by Armor Holdings or any Restricted
Subsidiary of additional Indebtedness in an aggregate
principal amount (or accreted value, as applicable)
at any time outstanding, including all Permitted
Refinancing Indebtedness incurred to refund,
refinance or replace any Indebtedness incurred
pursuant to this clause (7), not to exceed $20.0
million;
(8) (i) Indebtedness of Armor Holdings or any of its
Restricted Subsidiaries under agreements providing
for indemnification, adjustment of purchase price or
similar obligations, or Guarantees or letters of
credit, surety bonds or performance bonds securing
any obligations of Armor Holdings or any of its
Restricted Subsidiaries pursuant to such agreements,
in any case incurred in connection with the
disposition of any business or assets, so long as the
principal amount does not exceed the gross proceeds
actually received by Armor Holdings or any Restricted
Subsidiary in connection with such disposition, and
(ii) Indebtedness of Armor Holdings or any of its
Restricted Subsidiaries represented by letters of
credit for the account of Armor Holdings or such
Restricted Subsidiary, as the case may be, issued in
the ordinary course of Armor Holdings' business or
such Restricted Subsidiary, including, without
limitation, in order to provide security for workers'
compensation claims or payment obligations in
connection with self-insurance or similar
requirements in the ordinary course of business and
other Indebtedness with respect to worker's
compensation claims, self-insurance obligations,
performance, surety and similar bonds and completion
guarantees provided by Armor Holdings or any of its
Restricted Subsidiaries in the ordinary course of
business;
(9) Indebtedness of Simula, Inc. incurred and outstanding
on the date it is acquired by Armor Holdings (other
than any Indebtedness incurred (i) to provide all or
any portion of the funds utilized to consummate such
acquisition or (ii) otherwise in connection with, or
in contemplation of, such acquisition); provided,
however, that (a) Simula, Inc. is designated a
Restricted Subsidiary and executes and delivers to
the Trustee a supplemental
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indenture providing for its Guarantee of the notes on
the date on which such acquisition is consummated,
and (b) all such Indebtedness is prepaid, repaid,
redeemed or repurchased within 90 days of such date
of consummation;
(10) the incurrence by Armor Holdings or any of its
Restricted Subsidiaries of Hedging Obligations that
are incurred for the purpose of fixing, swapping or
hedging interest rate risk with respect to any
Indebtedness that is permitted by the terms of this
Indenture to be outstanding; and
(11) the accrual of interest, the accretion or
amortization of original issue discount, the payment
of interest on any Indebtedness in the form of
additional Indebtedness with the same terms, and the
payment of dividends on Disqualified Stock in the
form of additional shares of the same class of
Disqualified Stock shall not be deemed to be an
incurrence of Indebtedness or an issuance of
Disqualified Stock for purposes of the first
paragraph of this covenant; provided, in each such
case, that the amount thereof is included in Armor
Holdings' Fixed Charges as accrued.
For purposes of determining compliance with this "Incurrence of
Indebtedness and Issuance of Preferred Stock" covenant, in the event that any
proposed Indebtedness meets the criteria of more than one of the categories of
Permitted Debt described in clauses (1) through (11) of the preceding paragraph,
or is entitled to be incurred pursuant to the first paragraph of this covenant,
subject to the following sentence, Armor Holdings will be permitted to classify
on the date of its incurrence, and from time to time to reclassify all or a
portion of, such item of Indebtedness in any manner that complies with this
covenant. Indebtedness under the Credit Agreement outstanding on the date on
which notes are first issued under the Indenture shall be deemed to have been
incurred on such date in reliance on the exception provided by clause (1) of the
definition of Permitted Debt and Armor Holdings will not be permitted to
reclassify any Indebtedness incurred pursuant to such clause (1).
Notwithstanding any other provision of this "Incurrence of Indebtedness
and Issuance of Preferred Stock" covenant, the maximum amount of Indebtedness
that may be Incurred pursuant to this "Incurrence of Indebtedness and Issuance
of Preferred Stock" covenant will not be deemed to be exceeded with respect to
any outstanding Indebtedness due solely to the result of fluctuations in the
exchange rates of currencies.
Limitation On Senior Subordinated Debt
Armor Holdings will not incur any Indebtedness that is subordinate or
junior in right of payment to any of its Senior Debt unless it is pari passu or
subordinate in right of payment to the notes. No Subsidiary Guarantor will incur
any Indebtedness that is subordinate or junior in right of payment to the Senior
Debt of such Subsidiary Guarantor unless it is pari passu or subordinate in
right of payment to such Subsidiary Guarantor's Subsidiary Guarantee.
Liens
Armor Holdings will not, and will not permit any of its Restricted
Subsidiaries to, directly or
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indirectly, create, incur, assume or otherwise cause or suffer to exist or
become effective any Lien of any kind securing Indebtedness (other than
Permitted Liens) upon any of its or their property or assets, now owned or
hereafter acquired, unless all payments due under the Indenture and the notes
are secured on an equal and ratable basis with the obligations so secured until
such time as such obligations are no longer secured by a Lien.
Dividend And Other Payment Restrictions Affecting Restricted Subsidiaries
Armor Holdings will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or permit to exist or become
effective any consensual encumbrance or restriction on the ability of any
Restricted Subsidiary to:
(1) pay dividends or make any other distributions to
Armor Holdings or any of its Restricted Subsidiaries
with respect to its Capital Stock or any other
interest or participation in, or measured by, its
profits, or pay any indebtedness owed to Armor
Holdings or any of its Restricted Subsidiaries;
(2) make loans or advances to Armor Holdings or any of
its Restricted Subsidiaries; or
(3) transfer any of its properties or assets to Armor
Holdings or any of its Restricted Subsidiaries.
However, the preceding restrictions will not apply to encumbrances or
restrictions existing under, by reason of or with respect to:
(1) the Credit Agreement, Existing Indebtedness or any
other agreements in effect on the date of the
Indenture and any amendments, modifications,
restatements, renewals, extensions, supplements,
refundings, replacements or refinancings thereof,
provided that the encumbrances and restrictions in
any such amendments, modifications, restatements,
renewals, extensions, supplements, refundings,
replacement or refinancings are not materially more
restrictive, taken as a whole, than those in effect
on the date of the Indenture;
(2) the Indenture, the notes and the Subsidiary
Guarantees;
(3) applicable law, rule or regulation;
(4) any Person, or the property or assets of such Person,
acquired by Armor Holdings or any of its Restricted
Subsidiaries, existing at the time of such
acquisition and not incurred in connection with or in
contemplation of such acquisition, which encumbrance
or restriction is not applicable to any Person or the
properties or assets of any Person, other than the
Person, or the property or assets of such Person, so
acquired and any amendments, modifications,
restatements, renewals, extensions, supplements,
refundings, replacements or refinancings thereof,
provided that the encumbrances and
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restrictions in any such amendments, modifications,
restatements, renewals, extensions, supplements,
refundings, replacement or refinancings are no more
restrictive, taken as a whole, than those in effect
on the date of the acquisition;
(5) in the case of clause (3) of the first paragraph of
this covenant:
(a) that restrict in a customary manner the
subletting, assignment or transfer of any
property or asset that is subject to a
lease, license, conveyance or similar
contract,
(b) existing by virtue of any transfer of,
agreement to transfer, option or right with
respect to, or Lien on, any property or
assets of Armor Holdings or any Restricted
Subsidiary not otherwise prohibited by the
Indenture, or
(c) arising or agreed to in the ordinary course
of business, not relating to any
Indebtedness, and that do not, individually
or in the aggregate, detract from the value
of property or assets of Armor Holdings or
any Restricted Subsidiary in any manner
material to Armor Holdings or any Restricted
Subsidiary;
(6) any agreement for the sale or other disposition of
all or substantially all of the Capital Stock of, or
property and assets of, a Restricted Subsidiary
pending closing of such sale or disposition;
(7) Permitted Refinancing Indebtedness, provided that the
restrictions contained in the agreements governing
such Permitted Refinancing Indebtedness are no more
restrictive, taken as a whole, than those contained
in the agreements governing the Indebtedness being
refinanced;
(8) contained in the terms of any Indebtedness permitted
under the Indenture or any agreement pursuant to
which such Indebtedness was issued if:
(a) the encumbrance or restriction applies only
in the event of a payment default or a
default with respect to a financial covenant
contained in such Indebtedness or agreement,
(b) the encumbrance or restriction is not
materially more disadvantageous to the
Holders of the notes than is customary in
comparable financings (as determined by
Armor Holdings in good faith), and
(c) Armor Holdings determines in good faith that
any such encumbrance or restriction will not
materially affect its ability to make
principal or interest payments on the notes.
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Merger, Consolidation Or Sale Of All Or Substantially All Assets
Armor Holdings will not: (1) consolidate or merge with or into another
Person (whether or not we are the surviving corporation) or (2) directly or
indirectly, sell, assign, transfer, convey, lease or otherwise dispose of all or
substantially all of its properties and assets and its Subsidiaries taken as a
whole, in one or more related transactions, to another Person or Persons,
unless:
(1) either: (a) Armor Holdings is the surviving
corporation; or (b) the Person formed by or surviving
any such consolidation or merger (if other than Armor
Holdings) or to which such sale, assignment,
transfer, conveyance or other disposition shall have
been made (i) is a corporation organized and existing
under the laws of the United States, any state
thereof or the District of Columbia and (ii)
expressly assumes, by a supplemental indenture
executed and delivered to the Trustee, in form
satisfactory to the Trustee, all of Armor Holdings'
obligations under the notes, the Indenture and the
Registration Rights Agreement;
(2) immediately after giving effect to such transaction,
no Default or Event of Default exists;
(3) immediately after giving effect to such transaction
on a pro forma basis, Armor Holdings or the Person
formed by or surviving any such consolidation or
merger (if other than Armor Holdings), or to which
such sale, assignment, transfer, conveyance or other
disposition shall have been made:
(a) will have Consolidated Net Worth immediately
after the transaction equal to or greater than Armor Holdings'
Consolidated Net Worth immediately preceding the transaction;
and
(b) will, on the date of such transaction after
giving pro forma effect thereto and any related financing
transactions as if the same had occurred at the beginning of
the applicable four-quarter period, be permitted to incur at
least $1.00 of additional Indebtedness pursuant to the Fixed
Charge Coverage Ratio test set forth in the first paragraph of
the covenant described above under the "Incurrence of
Indebtedness and Issuance of Preferred Stock" covenant;
(4) each Subsidiary Guarantor, unless such Subsidiary
Guarantor is the Person with which Armor Holdings has
entered into a transaction under this "Consolidation,
Merger or Sale of Assets" covenant, shall have by
supplemental indenture to its Subsidiary Guarantee
confirmed that its Subsidiary Guarantee shall apply
to Armor Holdings' obligations or the Surviving
Person in accordance with the notes and the Indenture
and its obligations under the Registration Rights
Agreement shall continue to be in effect; and
(5) Armor Holdings shall have delivered to the Trustee an
Officers' Certificate
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and an Opinion of Counsel, each stating that such
consolidation, merger, sale, assignment, transfer,
conveyance or lease and such supplemental indenture
(if any) comply with the Indenture.
This "Merger, Consolidation or Sale of All or Substantially All Assets"
covenant will not apply to any Qualifying Services Division Sale or any merger,
consolidation or sale, assignment, transfer, conveyance, lease or other
disposition of assets between or among Armor Holdings and any of its Subsidiary
Guarantors.
For purposes of this covenant, the sale, assignment, transfer,
conveyance, lease or other disposition of all or substantially all of the
properties and assets of one or more of Armor Holdings' Subsidiaries, which
properties and assets, if held by Armor Holdings instead of such Subsidiaries,
would constitute all or substantially all of its properties and assets on a
consolidated basis, shall be deemed to be the transfer of all or substantially
all of Armor Holdings' properties and assets.
Although there is a limited body of case law interpreting the phrase
"substantially all," there is no precise established definition of the phrase
under applicable law. Accordingly, in certain circumstances there may be a
degree of uncertainty as to whether a particular transaction would involve "all
or substantially all" of the property or assets of a Person.
Transactions With Affiliates
Armor Holdings will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, make any payment to, or sell, lease,
transfer or otherwise dispose of any of its or their properties or assets to, or
purchase any property or assets from, or enter into, make, amend, renew or
extend any transaction, contract, agreement, understanding, loan, advance or
Guarantee with, or for the benefit of, any Affiliate (each, an "Affiliate
Transaction"), unless:
(1) such Affiliate Transaction is on terms that are no less
favorable to Armor Holdings or the relevant Restricted Subsidiary than
those that would have been obtained in a comparable transaction by
Armor Holdings or such Restricted Subsidiary at the time of such
transaction in arm's-length dealings with a Person that is not an
Affiliate of Armor Holdings; and
(2) Armor Holdings delivers to the Trustee:
(a) with respect to any Affiliate Transaction or
series of related Affiliate Transactions involving aggregate
consideration in excess of $2.5 million, a resolution of the
Board of Directors set forth in an Officers' Certificate
certifying that such Affiliate Transaction or series of
related Affiliate Transactions complies with this covenant and
that such Affiliate Transaction or series of related Affiliate
Transactions has been approved by a majority of the
disinterested members of the Board of Directors; and
(b) with respect to any Affiliate Transaction or
series of related Affiliate Transactions involving aggregate
consideration in excess of $10.0 million, an
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opinion as to the fairness to Armor Holdings or such
Restricted Subsidiary of such Affiliate Transaction or series
of related Affiliate Transactions from a financial point of
view issued by an independent accounting, appraisal or
investment banking firm of national standing.
The following items shall not be deemed to be Affiliate Transactions
and, therefore, will not be subject to the provisions of the prior paragraph:
(1) transactions between or among Armor Holdings and/or its
Restricted Subsidiaries;
(2) any issuance of securities, or other payments, awards or
grants in cash, securities or otherwise pursuant to, or the funding of,
employment arrangements, stock options and stock ownership plans and
other reasonable and customary fees, compensation, benefits and
indemnities paid or entered into by Armor Holdings or its Restricted
Subsidiaries in the ordinary course of business consistent with past
practices to or with its officers, directors, employees or consultants
and its Restricted Subsidiaries;
(3) Restricted Payments that are permitted by the provisions
of the Indenture described above under the "Restricted Payments"
covenant; and
(4) any sale of Armor Holdings' Equity Interests (other than
Disqualified Stock).
Designation Of Restricted And Unrestricted Subsidiaries
Armor Holdings' Board of Directors may designate any Restricted
Subsidiary to be an Unrestricted Subsidiary; provided that:
(1) any Guarantee by Armor Holdings or any Restricted
Subsidiary of any Indebtedness of the Subsidiary being so designated
will be deemed to be an incurrence of Indebtedness by Armor Holdings or
such Restricted Subsidiary (or both, if applicable) at the time of such
designation, and such incurrence of Indebtedness would be permitted
under the covenant described above under the "Incurrence of
Indebtedness and Issuance of Preferred Stock" covenant;
(2) the aggregate fair market value of all outstanding
Investments owned by Armor Holdings and its Restricted Subsidiaries in
the Subsidiary being so designated (including any Guarantee by Armor
Holdings or any Restricted Subsidiary of any Indebtedness of such
Subsidiary) will be deemed to be a Restricted Investment made as of the
time of such designation and that such Investment would be permitted
under the covenant described above under the "Restricted Payments"
covenant;
(3) such Subsidiary does not own any Equity Interests of, or
hold any Liens on any property of, Armor Holdings or any Restricted
Subsidiary;
(4) the Subsidiary being so designated:
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(a) is not party to any agreement, contract,
arrangement or understanding with Armor Holdings or any
Restricted Subsidiary of Armor Holdings unless the terms of
any such agreement, contract, arrangement or understanding are
no less favorable to Armor Holdings or such Restricted
Subsidiary than those that might be obtained at the time from
Persons who are not Affiliates of Armor Holdings; and
(b) is a Person with respect to which neither Armor
Holdings nor any of its Restricted Subsidiaries has any direct
or indirect obligation (i) to subscribe for additional Equity
Interests or (ii) to maintain or preserve such Person's
financial condition or to cause such Person to achieve any
specified levels of operating results; and
(5) no Default or Event of Default would be in existence
following such designation.
Any designation of a Restricted Subsidiary of Armor Holdings as an
Unrestricted Subsidiary shall be evidenced to the Trustee by filing with the
Trustee a certified copy of the Board Resolution giving effect to such
designation and an Officers' Certificate certifying that such designation
complied with the preceding conditions and was permitted by the Indenture.
The Board of Directors of Armor Holdings may at any time designate any
Unrestricted Subsidiary to be a Restricted Subsidiary; provided that:
(1) such designation shall be deemed to be an incurrence of
Indebtedness by a Restricted Subsidiary of Armor Holdings of any
outstanding Indebtedness of such Unrestricted Subsidiary and such
designation shall only be permitted if such Indebtedness is permitted
under the covenant described under the "Incurrence of Indebtedness and
Issuance of Preferred Stock" covenant, calculated on a pro forma basis
as if such designation had occurred at the beginning of the
four-quarter reference period;
(2) all outstanding Investments owned by such Unrestricted
Subsidiary will be deemed to be made as of the time of such designation
and such Investments shall only be permitted if such Investments would
be permitted under the covenant described above under the "Restricted
Payments" covenant;
(3) all Liens of such Unrestricted Subsidiary existing at the
time of such designation would be permitted under the "Liens" covenant;
and
(4) no Default or Event of Default would be in existence
following such designation.
Sale And Leaseback Transactions
Armor Holdings will not, and will not permit any of its Restricted
Subsidiaries to, enter into any sale and leaseback transaction; provided that
Armor Holdings or any Restricted Subsidiary may enter into a sale and leaseback
transaction if:
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(1) Armor Holdings or that Restricted Subsidiary, as
applicable, could have incurred Indebtedness in an amount equal to the
Attributable Debt relating to such sale and leaseback transaction under
the Fixed Charge Coverage Ratio test in the first paragraph of the
covenant described above under the "Incurrence of Indebtedness and
Issuance of Preferred Stock" covenant;
(2) the gross cash proceeds of that sale and leaseback
transaction are at least equal to the fair market value, as determined
in good faith by the Board of Directors of Armor Holdings and set forth
in an Officers' Certificate delivered to the Trustee, of the property
that is the subject of that sale and leaseback transaction; and
(3) the transfer of assets in that sale and leaseback
transaction is permitted by, and Armor Holdings applies the proceeds of
such transaction in compliance with, the covenant described above under
the "Asset Sales" covenant.
Limitation On Issuance And Sale Of Equity Interests Of Restricted
Subsidiaries
Armor Holdings will not transfer, convey, sell, lease or otherwise
dispose of, and will not permit any of its Restricted Subsidiaries to issue,
transfer, convey, sell, lease or otherwise dispose of, any Equity Interests in
any Restricted Subsidiary of Armor Holdings to any Person (other than Armor
Holdings or a Wholly Owned Restricted Subsidiary of Armor Holdings or, if
necessary, shares of its Capital Stock constituting directors' qualifying shares
or issuances of shares of Capital Stock of foreign Restricted Subsidiaries to
foreign nationals, to the extent required by applicable law), except:
(1) if, immediately after giving effect to such issuance,
transfer, conveyance, sale, lease or other disposition, such Restricted
Subsidiary would no longer constitute a Restricted Subsidiary and any
Investment in such Person remaining after giving effect to such
issuance or sale would have been permitted to be made under the
"Restricted Payments" covenant if made on the date of such issuance or
sale; and
(2) Armor Holdings or such Restricted Subsidiary complies with
the "Asset Sale" covenant.
Limitations On Issuances Of Guarantees By Restricted Subsidiaries
Armor Holdings will not permit any of its Restricted Subsidiaries,
directly or indirectly, to Guarantee or pledge any assets to secure the payment
of any other Indebtedness of Armor Holdings, unless such Restricted Subsidiary
is a Subsidiary Guarantor or simultaneously executes and delivers a supplemental
indenture providing for the Guarantee of the payment of the notes by such
Restricted Subsidiary, which Subsidiary Guarantee shall be senior to or pari
passu with such Subsidiary's Guarantee of or pledge to secure such other
Indebtedness unless such other Indebtedness is Senior Debt, in which case the
Subsidiary Guarantee of the notes may be subordinated to the Guarantee of such
Senior Debt to the same extent as the notes are subordinated to such Senior
Debt.
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A Subsidiary Guarantor may not sell or otherwise dispose of all or
substantially all of its assets to, or consolidate with or merge with or into
(whether or not such Subsidiary Guarantor is the surviving Person), another
Person, other than Armor Holdings or another Subsidiary Guarantor, unless:
(1) immediately after giving effect to that transaction, no
Default or Event of Default exists; and
(2) either:
(a) the Person acquiring the property in any such
sale or disposition or the Person formed by or surviving any
such consolidation or merger is a corporation organized or
existing under the laws of the United States, any state
thereof or the District of Columbia and assumes all the
obligations of such Subsidiary Guarantor under the Indenture,
its Subsidiary Guarantee and the Registration Rights Agreement
pursuant to a supplemental indenture satisfactory to the
Trustee; or
(b) such sale or other disposition complies with the
"Asset Sale" covenant, including the application of the Net
Proceeds therefrom.
The Subsidiary Guarantee of a Subsidiary Guarantor will be released:
(1) in connection with any sale or other disposition of all of
the capital stock of a Subsidiary Guarantor to a Person that is not
(either before or after giving effect to such transaction) an Affiliate
of Armor Holdings, if the sale or other disposition complies with the
"Asset Sale" covenant;
(2) in connection with the release or discharge of the
Guarantee which resulted in the creation of such Subsidiary Guarantee
pursuant to this covenant, except a discharge or release by, or as a
result of, a payment under such Guarantee;
(3) if Armor Holdings properly designates any Restricted
Subsidiary that is a Subsidiary Guarantor as an Unrestricted
Subsidiary; or
(4) in connection with the liquidation, dissolution or winding
up of a Subsidiary Guarantor.
In addition, each Discontinued Domestic Subsidiary on the date the
Notes are originally issued which thereafter becomes a Subsidiary Guarantor will
be released from its Subsidiary Guarantee upon the sale, transfer or other
disposition of all or substantially all of its assets, unless and until such
Subsidiary Guarantor thereafter becomes part of the continuing operations of
Armor Holdings on a consolidated basis.
Business Activities
Armor Holdings will not, and will not permit any Restricted Subsidiary
to, engage in any
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business other than Permitted Business, except to such extent as would not be
material to Armor Holdings and its Restricted Subsidiaries taken as a whole.
Payments For Consent
Armor Holdings will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, pay or cause to be paid any
consideration to or for the benefit of any Holder of notes for or as an
inducement to any consent, waiver or amendment of any of the terms or provisions
of the Indenture or the notes unless such consideration is offered to all
Holders of the notes and is paid to all Holders of the notes that consent, waive
or agree to amend in the time frame set forth in the solicitation documents
relating to such consent, waiver or agreement.
Reports
Whether or not required by the Commission, so long as any notes are
outstanding, Armor Holdings will furnish to the Holders of notes, within the
time periods specified in the Commission's rules and regulations:
(1) all quarterly and annual financial information that would
be required to be contained in a filing with the Commission on Forms
10-Q and 10-K if Armor Holdings were required to file such Forms,
including a "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and, with respect to the annual
information only, a report on the annual financial statements by Armor
Holdings' certified independent accountants; and
(2) all current reports that would be required to be filed
with the Commission on Form 8-K if Armor Holdings were required to file
such reports.
In addition, whether or not required by the Commission, Armor Holdings
will file a copy of all of the information and reports referred to in clauses
(1) and (2) above with the Commission for public availability within the time
periods specified in the Commission's rules and regulations (unless the
Commission will not accept such a filing) and make such information available to
prospective investors upon request. In addition, Armor Holdings and the
Subsidiary Guarantors have agreed that, for so long as any notes remain
outstanding, they will furnish to the Holders and to prospective investors, upon
their request, the information required to be delivered pursuant to Rule
144A(d)(4) under the Securities Act.
EVENTS OF DEFAULT AND REMEDIES
Each of the following is an Event of Default:
(1) default for 30 days in the payment when due of interest
(including any additional interest) on the notes whether or not
prohibited by the subordination provisions of the Indenture;
(2) default in payment when due (whether at maturity, upon
acceleration, redemption
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or otherwise, including the failure to repurchase notes tendered
pursuant to a Change of Control Offer or an Asset Sale Offer on the
date specified for such payment in the applicable offer to purchase) of
the principal of, or premium, if any, on the notes, whether or not
prohibited by the subordination provisions of the Indenture;
(3) failure (other than a default described in clause (2)
above) by Armor Holdings or any of its Restricted Subsidiaries to
comply with the provisions described under the captions "--Repurchase
at the Option of Holders--Change of Control," "--Repurchase at the
Option of Holders--Asset Sales" or the "Merger, Consolidation or Sale
of All or Substantially All Assets" covenant for 45 days after written
notice by the Trustee or Holders representing 25% or more of the
aggregate principal amount of notes outstanding to comply with such
provisions;
(4) failure by Armor Holdings or any of its Restricted
Subsidiaries for 60 days after written notice by the Trustee or Holders
representing 25% or more of the aggregate principal amount of notes
outstanding to comply with any of the other agreements in the
Indenture;
(5) default under any mortgage, indenture or instrument under
which there may be issued or by which there may be secured or evidenced
any Indebtedness for money borrowed by Armor Holdings or any of its
Restricted Subsidiaries (or the payment of which is Guaranteed by Armor
Holdings or any of its Restricted Subsidiaries) whether such
Indebtedness or Guarantee now exists, or is created after the date of
the Indenture, if that default:
(a) is caused by a failure to pay principal of, or
interest or premium, if any, on such Indebtedness at final
maturity thereof; or
(b) results in the acceleration of such Indebtedness
prior to its final maturity, and, in each case, the principal
amount of any such Indebtedness, together with the principal
amount of any other such Indebtedness under which there has
been a similar default aggregates $5.0 million or more unless
the obligation of Armor Holdings or such Restricted Subsidiary
to pay such Indebtedness is being disputed in good faith
through proper proceedings and such proceedings have not been
determined against Armor Holdings or such Restricted
Subsidiary;
(6) failure by Armor Holdings or any of its Restricted
Subsidiaries to pay final judgments aggregating in excess of $5.0
million, which judgments are not paid, discharged or stayed for a
period of 60 days;
(7) except as permitted by the Indenture, any Subsidiary
Guarantee shall be held in any judicial proceeding to be unenforceable
or invalid or shall cease for any reason to be in full force and effect
or any Subsidiary Guarantor, or any Person acting on behalf of any
Subsidiary Guarantor, shall deny or disaffirm its obligations under its
Subsidiary Guarantee; and
(8) certain events of bankruptcy or insolvency with respect to
Armor Holdings or any
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Significant Subsidiary of Armor Holdings (or any Subsidiaries that
together would constitute a Significant Subsidiary).
In the case of an Event of Default arising from certain events of
bankruptcy or insolvency, with respect to Armor Holdings or any Significant
Subsidiary of Armor Holdings (or any Subsidiaries that together would constitute
a Significant Subsidiary), all outstanding notes will become due and payable
immediately without further action or notice. If any other Event of Default
occurs and is continuing, the Trustee or the Holders of at least 25% in
principal amount of the then outstanding notes may declare all the notes to be
due and payable by notice in writing to Armor Holdings specifying the respective
Event of Default in accordance with the provisions of the Indenture; provided,
however, that so long as any Obligations under any Credit Facilities shall be
outstanding, the acceleration shall not be effective until the earlier of (1) an
acceleration of Indebtedness under such Credit Facilities or (2) five business
days after receipt by Armor Holdings and the agent under such Credit Facilities
of written notice of such declaration of acceleration of the notes.
Holders of the notes may not enforce the Indenture or the notes except
as provided in the Indenture. Subject to certain limitations, Holders of a
majority in principal amount of the then outstanding notes may direct the
Trustee in its exercise of any trust or power. The Trustee may withhold from
Holders of the notes notice of any Default or Event of Default (except a Default
or Event of Default relating to the payment of principal or interest or
additional interest) if it determines that withholding notice is in their
interest.
The Holders of a majority in aggregate principal amount of the notes
then outstanding by notice to the Trustee may on behalf of the Holders of all of
the notes waive any existing Default or Event of Default and its consequences
under the Indenture, or rescind an acceleration and its consequences if the
rescission would not conflict with any judgment or decree and if all existing
Defaults or Events of Default (except nonpayment of principal, interest or
premium that has become due solely because of the acceleration) have been cured
or waived, in each case, except a continuing Default or Event of Default in the
payment of interest or additional interest, if any, on, or the principal of, the
notes. The Holders of a majority in principal amount of the then outstanding
notes will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee. However, the
Trustee may refuse to follow any direction that conflicts with law or the
Indenture, that may involve the Trustee in personal liability, or that the
Trustee determines in good faith may be unduly prejudicial to the rights of
Holders of notes not joining in the giving of such direction and may take any
other action it deems proper that is not inconsistent with any such direction
received from Holders of notes. A Holder may not pursue any remedy with respect
to the Indenture or the notes unless:
(1) the Holder gives the Trustee written notice of a
continuing Event of Default;
(2) the Holders of at least 25% in aggregate principal amount
of outstanding notes make a written request to the Trustee to pursue
the remedy;
(3) such Holder or Holders offer the Trustee indemnity
satisfactory to the Trustee against any costs, liability or expense;
115
(4) the Trustee does not comply with the request within 60
days after receipt of the request and the offer of indemnity; and
(5) during such 60-day period, the Holders of a majority in
aggregate principal amount of the outstanding notes do not give the
Trustee a direction that is inconsistent with the request.
However, such limitations do not apply to the right of any Holder of a
note to receive payment of the principal of, premium or additional interest, if
any, or interest on, such note or to bring suit for the enforcement of any such
payment, on or after the due date expressed in the notes, which right shall not
be impaired or affected without the consent of the Holder.
In the case of any Event of Default occurring by reason of any willful
action or inaction taken or not taken by or on behalf of Armor Holdings with the
intention of avoiding payment of the premium that Armor Holdings would have had
to pay if Armor Holdings then had elected to redeem the notes pursuant to the
optional redemption provisions of the Indenture, an equivalent premium shall
also become and be immediately due and payable to the extent permitted by law
upon the acceleration of the notes. If an Event of Default occurs during any
time that the notes are outstanding, by reason of any willful action (or
inaction) taken (or not taken) by or on behalf of Armor Holdings with the
intention of avoiding the prohibition on redemption of the notes, then the
premium specified in the Indenture shall also become immediately due and payable
to the extent permitted by law upon the acceleration of the notes.
Armor Holdings is required to deliver to the Trustee annually within 90
days after the end of each fiscal year a statement regarding compliance with the
Indenture. Upon becoming aware of any Default or Event of Default, Armor
Holdings is required to deliver to the Trustee a statement specifying such
Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of Armor
Holdings or any Subsidiary Guarantor, as such, shall have any liability for any
obligations of Armor Holdings or the Subsidiary Guarantors under the notes, the
Indenture, the Subsidiary Guarantees or for any claim based on, in respect of,
or by reason of, such obligations or their creation. Each Holder of notes by
accepting a note waives and releases all such liability. The waiver and release
are part of the consideration for issuance of the notes. The waiver may not be
effective to waive liabilities under the federal securities laws.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
Armor Holdings may, at its option and at any time, elect to have all of
its obligations discharged with respect to the outstanding notes and all
obligations of the Subsidiary Guarantors discharged with respect to their
Subsidiary Guarantees ("Legal Defeasance") except for:
(1) the rights of Holders of outstanding notes to receive
payments in respect of the
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principal of, or interest or premium and additional interest, if any,
on such notes when such payments are due from the trust referred to
below;
(2) Armor Holdings obligations with respect to the notes
concerning issuing temporary notes, registration of notes, mutilated,
destroyed, lost or stolen notes and the maintenance of an office or
agency for payment and money for security payments held in trust;
(3) the rights, powers, trusts, duties and immunities of the
Trustee, and Armor Holdings' and the Subsidiary Guarantor's obligations
in connection therewith; and
(4) the Legal Defeasance provisions of the Indenture.
In addition, Armor Holdings may, at its option and at any time, elect
to have the obligations of Armor Holdings and the Subsidiary Guarantors released
with respect to certain covenants that are described in the Indenture ("Covenant
Defeasance") and thereafter any omission to comply with those covenants shall
not constitute a Default or Event of Default with respect to the notes. In the
event Covenant Defeasance occurs, certain events (not including non-payment,
bankruptcy, receivership and insolvency events) described under "Events of
Default" will no longer constitute an Event of Default with respect to the
notes.
In order to exercise either Legal Defeasance or Covenant Defeasance:
(1) Armor Holdings must irrevocably deposit with the Trustee,
in trust, for the benefit of the Holders of the notes, cash in U.S.
dollars, non-callable Government Securities, or a combination thereof,
in such amounts as will be sufficient, in the opinion of a nationally
recognized firm of independent public accountants, to pay the principal
of, or interest and premium and additional interest, if any, on the
outstanding notes on the stated maturity or on the applicable
redemption date, as the case may be, and Armor Holdings must specify
whether the notes are being defeased to maturity or to a particular
redemption date;
(2) in the case of Legal Defeasance, Armor Holdings shall have
delivered to the Trustee an Opinion of Counsel reasonably acceptable to
the Trustee confirming that (a) Armor Holdings has received from, or
there has been published by, the Internal Revenue Service a ruling or
(b) since the date of the Indenture, there has been a change in the
applicable federal income tax law, in either case to the effect that,
and based thereon such Opinion of Counsel shall confirm that, the
Holders of the outstanding notes will not recognize income, gain or
loss for federal income tax purposes as a result of such Legal
Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been
the case if such Legal Defeasance had not occurred;
(3) in the case of Covenant Defeasance, Armor Holdings shall
have delivered to the Trustee an Opinion of Counsel reasonably
acceptable to the Trustee confirming that the Holders of the
outstanding notes will not recognize income, gain or loss for federal
income tax purposes as a result of such Covenant Defeasance and will be
subject to federal income tax
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on the same amounts, in the same manner and at the same times as would
have been the case if such Covenant Defeasance had not occurred;
(4) no Default or Event of Default shall have occurred and be
continuing either: (a) on the date of such deposit; or (b) insofar as
Events of Default from bankruptcy or insolvency events are concerned,
at any time in the period ending on the 123rd day after the date of
deposit;
(5) such Legal Defeasance or Covenant Defeasance will not
result in a breach or violation of, or constitute a default under any
material agreement or instrument to which Armor Holdings or any of its
Subsidiaries is a party or by which Armor Holdings or any of its
Subsidiaries is bound;
(6) Armor Holdings must have delivered to the Trustee an
Opinion of Counsel to the effect that, (1) assuming no intervening
bankruptcy of Armor Holdings or any Subsidiary Guarantor between the
date of deposit and the 123rd day following the deposit and assuming
that no Holder is an "insider" of Armor Holdings under applicable
bankruptcy law, after the 123rd day following the deposit, the trust
funds will not be subject to the effect of Section 547 of the United
States Bankruptcy Code or any applicable state bankruptcy, insolvency,
reorganization or similar state law affecting creditors and (2) the
creation of the defeasance trust does not violate the Investment
Company Act of 1940;
(7) Armor Holdings must deliver to the Trustee an Officers'
Certificate stating that the deposit was not made by Armor Holdings
with the intent of preferring the Holders of notes over the other
creditors of Armor Holdings with the intent of defeating, hindering,
delaying or defrauding creditors of Armor Holdings or others;
(8) if the notes are to be redeemed prior to their stated
maturity, Armor Holdings must deliver to the Trustee irrevocable
instructions to redeem all of the notes on the specified redemption
date; and
(9) Armor Holdings must deliver to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent relating to the Legal Defeasance or the Covenant Defeasance
have been complied with.
The Credit Agreement will contain provisions that prohibit or otherwise
limit Armor Holdings from exercising any such option.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Indenture
or the notes may be amended or supplemented with the consent of the Holders of
at least a majority in principal amount of the notes then outstanding
(including, without limitation, consents obtained in connection with a purchase
of, or tender offer or exchange offer for, notes), and any existing default or
compliance with any provision of the Indenture or the notes may be waived with
the consent of the Holders of a majority in principal amount of the then
outstanding notes (including, without limitation, consents
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obtained in connection with a purchase of, or tender offer or exchange offer
for, notes).
Without the consent of each Holder affected, an amendment or waiver may
not (with respect to any notes held by a non-consenting Holder):
(1) reduce the principal amount of notes whose Holders must
consent to an amendment, supplement or waiver;
(2) reduce the principal of or change the fixed maturity of
any note or alter the provisions, or waive any payment, with respect to
the redemption of the notes;
(3) reduce the rate of or change the time for payment of
interest on any Note;
(4) waive a Default or Event of Default in the payment of
principal of, or interest or premium or additional interest, if any, on
the notes (except a rescission of acceleration of the notes by the
Holders of at least a majority in aggregate principal amount of the
notes and a waiver of the payment default that resulted from such
acceleration);
(5) make any note payable in money other than U.S. dollars;
(6) make any change in the provisions of the Indenture
relating to waivers of past Defaults or the rights of Holders of notes
to receive payments of principal of, or interest or premium or
additional interest, if any, on the notes;
(7) release any Subsidiary Guarantor from any of its
obligations under its Subsidiary Guarantee or the Indenture, except in
accordance with the terms of the Indenture;
(8) impair the right to institute suit for the enforcement of
any payment on or with respect to the notes or the Subsidiary
Guarantees;
(9) amend, change or modify the obligation of Armor Holdings
to make and consummate an Asset Sale Offer with respect to any Asset
Sale in accordance with the "Repurchase at the Option of Holders--Asset
Sales" covenant or the obligation of Armor Holdings to make and
consummate a Change of Control Offer in the event of a Change of
Control in accordance with the "Repurchase at the Option of
Holders--Change of Control" covenant, including, in each case,
amending, changing or modifying any definition relating thereto;
(10) except as otherwise permitted under the "Merger,
Consolidation and Sale of All or Substantially All Assets" covenant and
the "Limitation on Issuance of Guarantees by Restricted Subsidiaries"
covenant, consent to the assignment or transfer by Armor Holdings or
any Subsidiary Guarantor of any of their rights or obligations under
the Indenture;
(11) amend or modify any of the provisions of the Indenture or
the related definitions affecting the subordination or ranking of the
notes or any Subsidiary Guarantee in any manner adverse to the holders
of the notes or any Subsidiary Guarantee; or
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(12) make any change in the preceding amendment and waiver
provisions.
Notwithstanding the preceding, without the consent of any Holder of
notes, Armor Holdings and the Trustee may amend or supplement the Indenture or
the notes:
(1) to cure any ambiguity, defect or inconsistency;
(2) to provide for uncertificated notes in addition to or in
place of certificated notes;
(3) to provide for the assumption of Armor Holdings' or any
Subsidiary Guarantor's obligations to Holders of notes in the case of a
merger or consolidation or sale of all or substantially all of Armor
Holdings' or such Subsidiary Guarantor's assets;
(4) to make any change that would provide any additional
rights or benefits to the Holders of notes or that does not adversely
affect the legal rights under the Indenture of any such Holder;
(5) to comply with requirements of the Commission in order to
effect or maintain the qualification of the Indenture under the Trust
Indenture Act;
(6) comply with the provision described under the "Limitations
on Issuances of Guarantees by Restricted Subsidiaries" covenant;
(7) evidence and provide for the acceptance of appointment by
a successor Trustee;
(8) to provide for the issuance of Additional Notes in
accordance with the limitations set forth in this Indenture as of the
date hereof; or
(9) to allow any Subsidiary of Armor Holdings or any of its
Subsidiaries to execute a supplemental indenture to become a Subsidiary
Guarantor or to execute a Subsidiary Guarantee with respect to the
notes.
SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect
as to all notes issued thereunder, when:
(1) either:
(a) all notes that have been authenticated (except
lost, stolen or destroyed notes that have been replaced or
paid and notes for whose payment money has theretofore been
deposited in trust and thereafter repaid to Armor Holdings)
have been delivered to the Trustee for cancellation; or
(b) all notes that have not been delivered to the
Trustee for cancellation have
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become due and payable by reason of the making of a notice of
redemption or otherwise or will become due and payable within
one year and Armor Holdings or any Guarantor has irrevocably
deposited or caused to be deposited with the Trustee as trust
funds in trust solely for the benefit of the Holders, cash in
U.S. dollars, non-callable Government Securities, or a
combination thereof, in such amounts as will be sufficient
without consideration of any reinvestment of interest, to pay
and discharge the entire indebtedness on the notes not
delivered to the Trustee for cancellation for principal,
premium and additional interest, if any, and accrued interest
to the date of maturity or redemption;
(2) no Default or Event of Default shall have occurred and be
continuing on the date of 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 Armor
Holdings or any Subsidiary Guarantor is a party or by which Armor
Holdings or any Subsidiary Guarantor is bound;
(3) Armor Holdings or any Subsidiary Guarantor has paid or
caused to be paid all sums payable by it under the Indenture; and
(4) Armor Holdings has delivered irrevocable instructions to
the Trustee under the Indenture to apply the deposited money toward the
payment of the notes at maturity or the redemption date, as the case
may be.
In addition, Armor Holdings must deliver an Officers' Certificate and
an Opinion of Counsel to the Trustee stating that all conditions precedent to
satisfaction and discharge have been satisfied.
CONCERNING THE TRUSTEE
If the Trustee becomes a creditor of Armor Holdings or any Subsidiary
Guarantor, the Indenture limits its right to obtain payment of claims in certain
cases, or to realize on certain property received in respect of any such claim
as security or otherwise. The Trustee will be permitted to engage in other
transactions; however, if it acquires any conflicting interest, it must
eliminate such conflict within 90 days, apply to the Commission for permission
to continue or resign.
The Indenture provides that in case an Event of Default shall occur and
be continuing, the Trustee will be required, in the exercise of its power, to
use the degree of care of a prudent man in the conduct of his own affairs.
Subject to such provisions, the Trustee will be under no obligation to exercise
any of its rights or powers under the Indenture at the request of any Holder of
notes, unless such Holder shall have offered to the Trustee security and
indemnity satisfactory to it against any loss, liability or expense.
BOOK-ENTRY, DELIVERY AND FORM
The notes are being offered and sold to qualified institutional buyers
in reliance on Rule 144A ("Rule 144A Notes"). Notes also may be offered and sold
in offshore transactions in reliance
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on Regulation S ("Regulation S Notes"). Except as set forth below, notes will be
issued in registered, global form in minimum denominations of $1,000 and
integral multiples of $1,000 in excess thereof. Notes will be issued at the
closing of this offering only against payment in immediately available funds.
Rule 144A Notes initially will be represented by one or more notes in
registered, global form without interest coupons (collectively, the "Rule 144A
Global Notes"). Regulation S Notes initially will be represented by one or more
Notes in registered, global form without interest coupons (collectively, the
"Regulation S Global Notes" and, together with the Rule 144A Global Notes, the
"Global Notes"). The Global Notes will be deposited upon issuance with the
Trustee as custodian for The Depository Trust Company ("DTC"), in New York, New
York, and registered in the name of DTC or its nominee, in each case for credit
to an account of a direct or indirect participant in DTC as described below.
Through and including the 40th day after the later of the commencement of this
offering and the closing of this offering (such period through and including
such 40th day, the "Restricted Period"), beneficial interests in the Regulation
S Global Notes must be held solely through the Euroclear Bank S.A./N.A., as
operator of the Euroclear System ("Euroclear") and Clearstream Banking, S.A.
("Clearstream") (as indirect participants in DTC), unless transferred to a
person that takes delivery through a Rule 144A Global Note in accordance with
the certification requirements described below. Beneficial interests in the Rule
144A Global Notes may not be exchanged for beneficial interests in the
Regulation S Global Notes at any time except in the limited circumstances
described below. See "--Exchanges between Regulation S Notes and Rule 144A
Notes."
Except as set forth below, the Global Notes may be transferred, in
whole and not in part, only to another nominee of DTC or to a successor of DTC
or its nominee. Beneficial interests in the Global Notes may not be exchanged
for notes in certificated form except in the limited circumstances described
below. See "--Exchange of Book-Entry Notes for Certificated Notes." Except in
the limited circumstances described below, owners of beneficial interests in the
Global Notes will not be entitled to receive physical delivery of notes in
certificated form.
Rule 144A Notes (including beneficial interests in the Rule 144A Global
Notes) will be subject to certain restrictions on transfer and will bear a
restrictive legend. Regulation S Notes will also bear a restrictive legend. In
addition, transfers of beneficial interests in the Global Notes will be subject
to the applicable rules and procedures of DTC and its direct or indirect
participants (including, if applicable, those of Euroclear and Clearstream),
which may change from time to time.
Depositary Procedures
The following description of the operations and procedures of DTC,
Euroclear and Clearstream are provided solely as a matter of convenience. These
operations and procedures are solely within the control of the respective
settlement systems and are subject to changes by them. Armor Holdings takes no
responsibility for these operations and procedures and urges investors to
contact the system or their participants directly to discuss these matters.
DTC has advised Armor Holdings that DTC is a limited-purpose trust
company created to hold securities for its participating organizations
(collectively, the "Participants") and to facilitate
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the clearance and settlement of transactions in those securities between
Participants through electronic book-entry changes in accounts of its
Participants. The Participants include securities brokers and dealers (including
Wachovia Capital Markets, LLC), banks, trust companies, clearing corporations
and certain other organizations. Access to DTC's system is also available to
other entities such as banks, brokers, dealers and trust companies that clear
through or maintain a custodial relationship with a Participant, either directly
or indirectly (collectively, the "Indirect Participants"). Persons who are not
Participants may beneficially own securities held by or on behalf of DTC only
through the Participants or the Indirect Participants. The ownership interests
in, and transfers of ownership interests in, each security held by or on behalf
of DTC are recorded on the records of the Participants and Indirect
Participants.
DTC has also advised Armor Holdings that, pursuant to procedures
established by it:
(1) upon deposit of the Global Notes, DTC will credit the
accounts of Participants designated by the Wachovia Capital Markets
with portions of the principal amount of the Global Notes; and
(2) ownership of these interests in the Global Notes will be
shown on, and the transfer of ownership thereof will be effected only
through, records maintained by DTC (with respect to the Participants)
or by the Participants and the Indirect Participants (with respect to
other owners of beneficial interest in the Global Notes).
Investors in the Rule 144A Global Notes who are Participants in DTC's
system may hold their interests therein directly through DTC. Investors in the
Rule 144A Global Notes who are not Participants may hold their interests therein
indirectly through organizations (including Euroclear and Clearstream) which are
Participants in such system. Investors in the Regulation S Global Notes must
initially hold their interests therein through Euroclear or Clearstream, if they
are participants in such systems, or indirectly through organizations that are
participants in such systems. After the expiration of the Restricted Period (but
not earlier), investors may also hold interests in the Regulation S Global Notes
through Participants in the DTC system other than Euroclear and Clearstream.
Euroclear and Clearstream will hold interests in the Regulation S Global Notes
on behalf of their participants through customers' securities accounts in their
respective names on the books of their respective depositories, which are Morgan
Guaranty Trust Company of New York, Brussels office, as operator of Euroclear,
and Citibank, N.A., as operator of Clearstream. All interests in a Global Note,
including those held through Euroclear or Clearstream, may be subject to the
procedures and requirements of DTC. Those interests held through Euroclear or
Clearstream may also be subject to the procedures and requirements of such
systems. The laws of some states require that certain Persons take physical
delivery in definitive form of securities that they own. Consequently, the
ability to transfer beneficial interests in a Global Note to such Persons will
be limited to that extent. Because DTC can act only on behalf of Participants,
which in turn act on behalf of Indirect Participants, the ability of a Person
having beneficial interests in a Global Note to pledge such interests to Persons
that do not participate in the DTC system, or otherwise take actions in respect
of such interests, may be affected by the lack of a physical certificate
evidencing such interests.
EXCEPT AS DESCRIBED BELOW, OWNERS OF INTEREST IN THE GLOBAL NOTES WILL
NOT HAVE NOTES
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REGISTERED IN THEIR NAMES, WILL NOT RECEIVE PHYSICAL DELIVERY OF NOTES IN
CERTIFICATED FORM AND WILL NOT BE CONSIDERED THE REGISTERED OWNERS OR "HOLDERS"
THEREOF UNDER THE INDENTURE FOR ANY PURPOSE.
Payments in respect of the principal of, and interest and premium and
additional interest, if any, on a Global Note registered in the name of DTC or
its nominee will be payable to DTC in its capacity as the registered Holder
under the Indenture. Under the terms of the Indenture, Armor Holdings and the
Trustee will treat the Persons in whose names the notes, including the Global
Notes, are registered as the owners thereof for the purpose of receiving
payments and for all other purposes. Consequently, neither Armor Holdings, the
Trustee nor any agent of Armor Holdings or the Trustee has or will have any
responsibility or liability for:
(1) any aspect of DTC's records or any Participant's or
Indirect Participant's records relating to or payments made on account
of beneficial ownership interest in the Global Notes or for
maintaining, supervising or reviewing any of DTC's records or any
Participant's or Indirect Participant's records relating to the
beneficial ownership interests in the Global Notes; or
(2) any other matter relating to the actions and practices of
DTC or any of its Participants or Indirect Participants.
DTC has advised Armor Holdings that its current practice, upon receipt
of any payment in respect of securities such as the notes (including principal
and interest), is to credit the accounts of the relevant Participants with the
payment on the payment date unless DTC has reason to believe it will not receive
payment on such payment date. Each relevant Participant is credited with an
amount proportionate to its beneficial ownership of an interest in the principal
amount of the relevant security as shown on the records of DTC. Payments by the
Participants and the Indirect Participants to the beneficial owners of notes
will be governed by standing instructions and customary practices and will be
the responsibility of the Participants or the Indirect Participants and will not
be the responsibility of DTC, the Trustee or Armor Holdings. Neither Armor
Holdings nor the Trustee will be liable for any delay by DTC or any of its
Participants in identifying the beneficial owners of the notes, and Armor
Holdings and the Trustee may conclusively rely on and will be protected in
relying on instructions from DTC or its nominee for all purposes.
Subject to certain transfer restrictions, transfers between
Participants in DTC will be effected in accordance with DTC's procedures, and
will be settled in same-day funds, and transfers between participants in
Euroclear and Clearstream will be effected in accordance with their respective
rules and operating procedures.
Subject to compliance with the transfer restrictions applicable to the
notes, cross-market transfers between the Participants in DTC, on the one hand,
and Euroclear or Clearstream participants, on the other hand, will be effected
through DTC in accordance with DTC's rules on behalf of Euroclear or
Clearstream, as the case may be, by its respective depositary; however, such
cross-market transactions will require delivery of instructions to Euroclear or
Clearstream, as the case may be, by the counterparty in such system in
accordance with the rules and procedures and within the established deadlines
(Brussels time) of such system. Euroclear or Clearstream, as the
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case may be, will, if the transaction meets its settlement requirements, deliver
instructions to its respective depositary to take action to effect final
settlement on its behalf by delivering or receiving interests in the relevant
Global Note in DTC, and making or receiving payment in accordance with normal
procedures for same-day funds settlement applicable to DTC. Euroclear
participants and Clearstream participants may not deliver instructions directly
to the depositaries for Euroclear or Clearstream.
DTC has advised Armor Holdings that it will take any action permitted
to be taken by a Holder of notes only at the direction of one or more
Participants to whose account DTC has credited the interests in the Global Notes
and only in respect of such portion of the aggregate principal amount of the
notes as to which such Participant or Participants has or have given such
direction. However, if there is an Event of Default under the notes, DTC
reserves the right to exchange the Global Notes for legended notes in
certificated form, and to distribute such notes to its Participants.
Although DTC, Euroclear and Clearstream have agreed to the foregoing
procedures to facilitate transfers of interests in the Rule 144A Global Notes
and the Regulation S Global Notes among participants in DTC, Euroclear and
Clearstream, they are under no obligation to perform or to continue to perform
such procedures, and may discontinue such procedures at any time. Neither Armor
Holdings nor the Trustee nor any of their respective agents will have any
responsibility for the performance by DTC, Euroclear or Clearstream or their
respective participants or indirect participants of their respective obligations
under the rules and procedures governing their operations.
Exchange Of Global Notes For Certificated Notes
A Global Note is exchangeable for definitive notes in registered
certificated form ("Certificated Notes") if:
(1) DTC (a) notifies Armor Holdings that it is unwilling or
unable to continue as depositary for the Global Notes and Armor
Holdings fails to appoint a successor depositary or (b) has ceased to
be a clearing agency registered under the Exchange Act;
(2) Armor Holdings, at its option, notifies the Trustee in
writing that it elects to cause the issuance of the Certificated Notes;
or
(3) there shall have occurred and be continuing a Default or
Event of Default with respect to the notes.
In addition, beneficial interests in a Global Note may be exchanged for
Certificated Notes upon prior written notice given to the Trustee by or on
behalf of DTC in accordance with the Indenture. In all cases, Certificated Notes
delivered in exchange for any Global Note or beneficial interests in Global
Notes will be registered in the names, and issued in any approved denominations,
requested by or on behalf of the depositary (in accordance with its customary
procedures) and will bear the applicable restrictive legend, unless such legend
is not required by applicable law.
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Exchange Of Certificated Notes For Global Notes
Certificated Notes may not be exchanged for beneficial interests in any
Global Note unless the transferor first delivers to the Trustee a written
certificate (in the form provided in the Indenture) to the effect that such
transfer will comply with the appropriate transfer restrictions applicable to
such notes.
Exchanges Between Regulation S Notes And Rule 144A Notes
Prior to the expiration of the Restricted Period, beneficial interests
in the Regulation S Global Note may be exchanged for beneficial interests in the
Rule 144A Global Note only if:
(1) such exchange occurs in connection with a transfer of the
notes pursuant to Rule 144A; and
(2) the transferor first delivers to the Trustee a written
certificate (in the form provided in the Indenture) to the effect that
the notes are being transferred to a Person:
(a) that the transferor reasonably believes to be a
qualified institutional buyer within the meaning of Rule 144A;
(b) purchasing for its own account or the account of
a qualified institutional buyer in a transaction meeting the
requirements of Rule 144A; and
(c) in accordance with all applicable securities laws
of the states of the United States and other jurisdictions.
Beneficial interests in a Rule 144A Global Note may be transferred to a
Person who takes delivery in the form of an interest in the Regulation S Global
Note, whether before or after the expiration of the Restricted Period, only if
the transferor first delivers to the Trustee a written certificate (in the form
provided in the Indenture) to the effect that such transfer is being made in
accordance with Rule 903 or 904 of Regulation S or Rule 144 (if available) and
that, if such transfer occurs prior to the expiration of the Restricted Period,
the interest transferred will be held immediately thereafter through Euroclear
or Clearstream.
Transfers involving exchanges of beneficial interests between the
Regulation S Global Notes and the Rule 144A Global Notes will be effected in DTC
by means of an instruction originated by the Trustee through the DTC
Deposit/Withdraw at Custodian system. Accordingly, in connection with any such
transfer, appropriate adjustments will be made to reject a decrease in the
principal amount of the Regulation S Global Note and a corresponding increase in
the principal amount of the Rule 144A Global Note or vice versa, as applicable.
Any beneficial interest in one of the Global Notes that is transferred to a
Person who takes delivery in the form of an interest in the other Global Note
will, upon transfer, cease to be an interest in such Global Note and will become
an interest in the other Global Note and, accordingly, will thereafter be
subject to all transfer restrictions and other procedures applicable to
beneficial interest in such other Global Note for so long as it remains such an
interest. The policies and practices of DTC may prohibit transfers of beneficial
interests in
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the Regulation S Global Note prior to the expiration of the Restricted Period.
SAME DAY SETTLEMENT AND PAYMENT
Armor Holdings will make payments in respect of the notes represented
by the Global Notes (including principal, premium, if any, interest and
additional interest, if any) by wire transfer of immediately available funds to
the accounts specified by the Global Note Holder. Armor Holdings will make all
payments of principal, interest and premium and additional interest, if any,
with respect to Certificated Notes by wire transfer of immediately available
funds to the accounts specified by the Holders thereof or, if no such account is
specified, by mailing a check to each such Holder's registered address. The
notes represented by the Global Notes are expected to be eligible to trade in
the PORTAL (Trade Mark) Market and to trade in DTC's Same-Day Funds Settlement
System, and any permitted secondary market trading activity in such Notes will,
therefore, be required by DTC to be settled in immediately available funds.
Armor Holdings expects that secondary trading in any Certificated Notes will
also be settled in immediately available funds.
Because of time zone differences, the securities account of a Euroclear
or Clearstream participant purchasing an interest in a Global Note from a
Participant in DTC will be credited, and any such crediting will be reported to
the relevant Euroclear or Clearstream participant, during the securities
settlement processing day (which must be a business day for Euroclear and
Clearstream) immediately following the settlement date of DTC. DTC has advised
Armor Holdings that cash received in Euroclear or Clearstream as a result of
sales of interests in a Global Note by or through a Euroclear or Clearstream
participant to a Participant in DTC will be received with value on the
settlement date of DTC but will be available in the relevant Euroclear or
Clearstream cash account only as of the business day for Euroclear or
Clearstream following DTC's settlement date.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture.
Reference is made to the Indenture for a full disclosure of all such terms, as
well as any other capitalized terms used herein for which no definition is
provided.
"Acquired Debt" means, with respect to any specified Person:
(1) Indebtedness of any other Person existing at the time such
other Person is merged with or into, or becomes a Subsidiary of, such
specified Person, whether or not such Indebtedness is incurred in
connection with, or in contemplation of, such other Person merging with
or into, or becoming a Subsidiary of, such specified Person; and
(2) Indebtedness secured by a Lien encumbering any asset
acquired by such specified Person.
"Affiliate" of any specified Person means (1) any other Person directly
or indirectly controlling or controlled by or under direct or indirect common
control with such specified Person or (2) any executive officer or director of
such specified Person. For purposes of this definition, "control," as used with
respect to any Person, shall mean the possession, directly or indirectly, of the
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power to direct or cause the direction of the management or policies of such
Person, whether through the ownership of voting securities, by agreement or
otherwise; provided that beneficial ownership of 10% or more of the Voting Stock
of a Person shall be deemed to be control. For purposes of this definition, the
terms "controlling," "controlled by" and "under common control with" shall have
correlative meanings.
"Asset Sale" means:
(1) the sale, lease, conveyance or other disposition of any
assets or rights; provided that the sale, lease, conveyance or other
disposition of all or substantially all of the assets of Armor Holdings
and its Restricted Subsidiaries taken as a whole will be governed by
the provisions of the Indenture described above under the caption
"--Repurchase at the Option of Holders --Change of Control" and/or the
provisions described above under the caption "--Certain Covenants--
Merger, Consolidation or Sale of All or Substantially All Assets" and
not by the provisions of the covenant described above under the caption
"--Repurchases at the Option of Holders--Asset Sales;" and
(2) the issuance of Equity Interests by any of Armor Holdings'
Restricted Subsidiaries or the sale by Armor Holdings or any Restricted
Subsidiary of Equity Interests in any of its Subsidiaries.
Notwithstanding the preceding, the following items shall be deemed not
to be Asset Sales:
(1) any Qualifying Services Division Sale, provided that Armor
Holdings or any Restricted Subsidiary receives consideration at the
time of such Qualifying Services Division Sale at least equal to the
fair market value of the assets or Equity Interests issued or sold or
otherwise disposed of and such fair market value is determined by Armor
Holdings' Board of Directors and evidenced by a resolution of the Board
of Directors set forth in an Officers' Certificate delivered to the
Trustee;
(2) any Qualifying USDS Sale, provided that Armor Holdings or
any Restricted Subsidiary receives consideration at the time of such
Qualifying USDS Sale at least equal to the fair market value of the
assets or Equity Interests issued or sold or otherwise disposed of and
such fair market value is determined by Armor Holdings' Board of
Directors and evidenced by a resolution of the Board of Directors set
forth in an Officers' Certificate delivered to the Trustee;
(3) any single transaction or series of related transactions
that involves assets having a fair market value of less than $5.0
million;
(4) a transfer of assets between or among Armor Holdings and
its Restricted Subsidiaries;
(5) an issuance of Equity Interests by a Restricted Subsidiary
to Armor Holdings or to another Restricted Subsidiary;
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(6) the sale or lease of equipment, inventory, accounts
receivable or other assets in the ordinary course of business;
(7) the sale or other disposition of Cash Equivalents;
(8) a Restricted Payment that is permitted by the covenant
described above under the "Restricted Payments" covenant; and
(9) any sale or disposition of any property or equipment that
has become damaged, worn out, obsolete or otherwise not useful or no
longer used by Armor Holdings in connection with the business of Armor
Holdings or its Restricted Subsidiaries.
"Attributable Debt" in respect of a sale and leaseback transaction
means, at the time of determination, the present value of the obligation of the
lessee for net rental payments during the remaining term of the lease included
in such sale and leaseback transaction, including any period for which such
lease has been extended or may, at the option of the lessor, be extended. Such
present value shall be calculated using a discount rate equal to the rate of
interest implicit in such transaction, determined in accordance with GAAP.
"Beneficial Owner" has the meaning assigned to such term in Rule 13d-3
and Rule 13d-5 under the Exchange Act, except that in calculating the beneficial
ownership of any particular "person" (as that term is used in Section 13(d)(3)
of the Exchange Act), such "person" shall be deemed to have beneficial ownership
of all securities that such "person" has the right to acquire by conversion or
exercise of other securities, whether such right is currently exercisable or is
exercisable only upon the occurrence of a subsequent condition. The terms
"Beneficially Owns" and "Beneficially Owned" shall have a corresponding meaning.
"Board of Directors" means:
(1) with respect to a corporation, the board of directors of
the corporation;
(2) with respect to a partnership, the board of directors of
the general partner of the partnership; and
(3) with respect to any other Person, the board or committee
of such Person serving a similar function.
"Capital Lease Obligation" means, at the time any determination thereof
is to be made, the amount of the liability in respect of a capital lease that
would at that time be required to be capitalized on a balance sheet in
accordance with GAAP.
"Capital Stock" means:
(1) in the case of a corporation, corporate stock;
(2) in the case of an association or business entity, any and
all shares, interests,
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participations, rights or other equivalents (however designated) of
corporate stock;
(3) in the case of a partnership or limited liability company,
partnership or membership interests (whether general or limited); and
(4) any other interest or participation that confers on a
Person the right to receive a share of the profits and losses of, or
distributions of assets of, the issuing Person.
"Cash Equivalents" means:
(1) United States dollars;
(2) securities issued or directly and fully guaranteed or
insured by the United States government or any agency or
instrumentality thereof (provided that the full faith and credit of the
United States is pledged in support thereof) having maturities of not
more than six months from the date of acquisition;
(3) certificates of deposit and eurodollar time deposits with
maturities of six months or less from the date of acquisition, bankers'
acceptances with maturities not exceeding six months and overnight bank
deposits, in each case, with any domestic commercial bank having
capital and surplus in excess of $500.0 million and a Thomson Bank
Watch Rating of "B" or better;
(4) repurchase obligations with a term of not more than seven
days for underlying securities of the types described in clauses (2)
and (3) above entered into with any financial institution meeting the
qualifications specified in clause (3) above;
(5) commercial paper having the highest rating obtainable from
Moody's Investors Service, Inc. or Standard & Poor's, a division of the
McGraw-Hill Companies, Inc. and in each case maturing within six months
after the date of acquisition; and
(6) money market funds, at least 95% of the assets of which
constitute Cash Equivalents of the kinds described in clauses (1)
through (5) of this definition.
"Change of Control" means the occurrence of any of the
following:
(1) the direct or indirect sale, transfer, conveyance or other
disposition (other than by way of merger or consolidation), in one or a
series of related transactions, of all or substantially all of the
properties or assets of Armor Holdings and its Restricted Subsidiaries,
taken as a whole, to any "person" (as that term is used in Section
13(d)(3) of the Exchange Act);
(2) the adoption of a plan relating to the liquidation or
dissolution of Armor Holdings;
(3) any "person" or "group" (as such terms are used in
Sections 13(d) and 14(d) of
130
the Exchange Act) becomes the ultimate Beneficial Owner, directly or
indirectly, of 50% or more of the voting power of the Voting Stock of
Armor Holdings;
(4) the first day on which a majority of the members of the
Board of Directors of Armor Holdings are not Continuing Directors; or
(5) Armor Holdings consolidates with, or merges with or into,
any Person, or any Person consolidates with, or merges with or into
Armor Holdings, in any such event pursuant to a transaction in which
any of the outstanding Voting Stock of Armor Holdings or such other
Person is converted into or exchanged for cash, securities or other
property, other than any such transaction where (A) the Voting Stock of
Armor Holdings outstanding immediately prior to such transaction is
converted into or exchanged for Voting Stock (other than Disqualified
Stock) of the surviving or transferee Person constituting a majority of
the outstanding shares of such Voting Stock of such surviving or
transferee Person (immediately after giving effect to such issuance)
and (B) immediately after such transaction, no "person" or "group" (as
such terms are used in Section 13(d) and 14(d) of the Exchange Act)
becomes, directly or indirectly, the beneficial owner (as defined
above) of 50% or more of the voting power of all classes of Voting
Stock of Armor Holdings.
"Consolidated Cash Flow" means, with respect to any specified Person
for any period, the Consolidated Net Income of such Person for such period
plus:
(1) provision for taxes based on income or profits of such
Person and its Restricted Subsidiaries for such period, to the extent
that such provision for taxes was deducted in computing such
Consolidated Net Income; plus
(2) Fixed Charges to the extent deducted in computing such
Consolidated Net Income; plus
(3) depreciation, amortization (including amortization of
goodwill and other intangibles but excluding amortization of prepaid
cash expenses that were paid in a prior period) and other non-cash
expenses (excluding any such non-cash expense to the extent that it
represents an accrual of or reserve for cash expenses in any future
period or amortization of a prepaid cash expense that was paid in a
prior period) of such Person and its Subsidiaries for such period to
the extent that such depreciation, amortization and other non-cash
expenses were deducted in computing such Consolidated Net Income; minus
(4) non-cash items increasing such Consolidated Net Income for
such period, other than the accrual of revenue consistent with past
practice, in each case, on a consolidated basis and determined in
accordance with GAAP.
Notwithstanding the preceding, the provision for taxes based on the
income or profits of, and the depreciation and amortization and other non-cash
expenses of, a Restricted Subsidiary of Armor Holdings shall be added to
Consolidated Net Income to compute Consolidated Cash Flow of Armor Holdings only
to the extent that a corresponding amount would be permitted at the date of
determination to be paid as a dividend to Armor Holdings by such Restricted
Subsidiary without
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prior governmental approval (that has not been obtained), and without direct or
indirect restriction pursuant to the terms of its charter and all agreements,
instruments, judgments, decrees, orders, statutes, rules and governmental
regulations applicable to that Subsidiary or its stockholders.
"Consolidated Net Income" means, with respect to any specified Person
for any period, the aggregate of the Net Income of such Person and its
Subsidiaries for such period, on a consolidated basis, determined in accordance
with GAAP; provided that:
(1) the Consolidated Net Income of Armor Holdings and its
Subsidiaries for any period shall be deemed to exclude any
extraordinary integration costs incurred in connection with
acquisitions or divestitures and other non-recurring charges or costs
to the extent such charges or costs were included in the computation of
the Consolidated EBITDA (as defined in the Credit Agreement) of Armor
Holdings for such period for the purposes of the Credit Agreement;
(2) the Net Income (but not loss) of any Person that is not a
Restricted Subsidiary or that is accounted for by the equity method of
accounting shall be included only to the extent of the amount of
dividends or distributions paid in cash to the specified Person or a
Wholly Owned Restricted Subsidiary thereof;
(3) the Net Income of any Restricted Subsidiary shall be
excluded to the extent that the declaration or payment of dividends or
similar distributions by that Restricted Subsidiary of that Net Income
is not at the date of determination permitted without any prior
governmental approval (that has not been obtained) or, directly or
indirectly, by operation of the terms of its charter or any agreement,
instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to that Restricted Subsidiary or its
equityholders;
(4) the Net Income of any Person acquired during the specified
period for any period prior to the date of such acquisition shall be
excluded;
(5) the cumulative effect of a change in accounting principles
shall be excluded; and
(6) the Net Income (but not loss) of any Unrestricted
Subsidiary shall be excluded, whether or not distributed to the
specified Person or one of its Subsidiaries.
"Consolidated Net Worth" means, with respect to any specified
Person as of any date, the sum of:
(1) the consolidated equity of the common stockholders of such
Person and its consolidated Restricted Subsidiaries as set forth on the
most recently available quarterly or annual consolidated balance sheet
of Armor Holdings and its Restricted Subsidiaries (which shall be as of
a date not more than 90 days prior to the date of computation, and
which shall not take into account Unrestricted Subsidiaries); plus
(2) the respective amounts reported on such Person's balance
sheet as of such date with respect to any series of preferred stock
(other than Disqualified Stock) that by its terms
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is not entitled to the payment of dividends unless such dividends may
be declared and paid only out of net earnings in respect of the year of
such declaration and payment, but only to the extent of any cash
received by such Person upon issuance of such preferred stock.
"Consolidated Net Tangible Assets" means the total amount of assets of
any Person on a consolidated basis, including deferred pension costs, after
deducting therefrom (i) all current liabilities (excluding any indebtedness
classified as a current liability), (ii) all goodwill, tradenames, trademarks,
patents, unamortized debt discount and financing costs and all other like
intangible assets and (iii) appropriate adjustments on account of minority
interests of other Persons holding shares of the Subsidiaries of such Person,
all as set forth in the most recent balance sheet of such Person and its
consolidated Subsidiaries (but, in any event, as of a date within 150 days of
the date of determination) and computed in accordance with generally accepted
accounting principles.
"Continuing Directors" means, as of any date of determination, any
member of the Board of Directors of Armor Holdings who:
(1) was a member of such Board of Directors on the date of the
Indenture; or
(2) was nominated for election or elected to such Board of
Directors with the approval of a majority of the Continuing Directors
who were members of such Board at the time of such nomination or
election.
"Credit Agreement" means that certain Credit Agreement to be entered
into on or within five days after the date of original issuance of the notes by
and among Armor Holdings, Bank of America, N.A., as Administrative Agent and
Arranger and the other lenders named therein in relation to a $60 million senior
secured revolving credit facility, including any related letters of credit,
notes, Guarantees, collateral documents, instruments and agreements executed in
connection therewith, and in each case, as amended, restated, modified, renewed,
refunded, replaced or refinanced from time to time by one or more credit
facilities, in which case, the credit agreement or similar agreement together
with all other documents and instruments related shall constitute the "Credit
Agreement," whether with the same or different agent and lenders.
"Credit Facilities" means, one or more debt facilities (including,
without limitation, the Credit Agreement (and any hedging arrangements with the
lenders thereunder or Affiliates of such lenders, secured by the collateral
securing Armor Holdings' Obligations under the Credit Agreement)) or commercial
paper facilities, in each case with banks or other institutional lenders
providing for revolving credit loans, term loans, receivables financing
(including through the sale of receivables to such lenders or to special purpose
entities formed to borrow from such lenders against such receivables) or letters
of credit, in each case, as amended, restated, modified, renewed, refunded,
replaced or refinanced in whole or in part from time to time by one or more of
such facilities, whether with the same or different banks and lenders.
"Current Trading Price" means, with respect to any shares of Equity
Interests, any sale price (regular way) quoted on the New York Stock Exchange,
or any other national securities exchange or quotation system on which such
Equity Interests are listed or quoted, on the applicable date of purchase,
repurchase or redemption.
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"Default" means any event that is, or with the passage of time or the
giving of notice or both would be, an Event of Default.
"Disqualified Stock" means any Capital Stock that, by its terms (or by
the terms of any security into which it is convertible, or for which it is
exchangeable, in each case at the option of the holder thereof), or upon the
happening of any event, matures or is mandatorily redeemable, pursuant to a
sinking fund obligation or otherwise, or redeemable at the option of the holder
thereof, in whole or in part, on or prior to the date that is one year after the
date on which the notes mature. Notwithstanding the preceding sentence, any
Capital Stock that would constitute Disqualified Stock solely because the
holders thereof have the right to require Armor Holdings to repurchase such
Capital Stock upon the occurrence of a change of control or an asset sale shall
not constitute Disqualified Stock if the terms of such Capital Stock provide
that Armor Holdings may not repurchase or redeem any such Capital Stock pursuant
to such provisions unless such repurchase or redemption complies with the
"Restricted Payments" covenant. The term "Disqualified Stock" shall also include
any options, warrants or other rights that are convertible into Disqualified
Stock or that are redeemable at the option of the holder, or required to be
redeemed, on or prior to the date that is one year after the date on which the
notes mature.
"Discontinued Domestic Subsidiary" means any of the following
Subsidiaries of Armor Holdings (i) ArmorGroup North America, Inc., (ii) Armor
Group Services, LLC, (iii) CDR International, Inc., (iv) U.S. Defense Systems,
LLC, (v) O'Gara Security Associates, Inc., (vi) ITI Limited Partnership, (vii)
International Training, Inc., (viii) Network Audit Systems, Inc., (ix) New
Technologies Armor, Inc., (x) The Parvus Company, (xi) Parvus Crisis Management
Corporation, and (xii) The Parvus International Information Company.
"Domestic Subsidiary" means any Subsidiary of Armor Holdings that was
formed under the laws of the United States or any state thereof or the District
of Columbia.
"Equity Interests" means Capital Stock and all warrants, options or
other rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Existing Indebtedness" means the aggregate principal amount of
Indebtedness of Armor Holdings and its Subsidiaries (other than Indebtedness
under the Credit Agreement and the notes) in existence on the date of the
Indenture, until such amounts are repaid.
"fair market value" means the price that would be paid in an
arm's-length transaction between an informed and willing seller under no
compulsion to sell and an informed and willing buyer under no compulsion to buy,
as determined in good faith by the Board of Directors, whose determination shall
be conclusive if evidenced by a Board Resolution.
"Fixed Charges" means, with respect to any specified Person for any
period, the sum, without duplication, of:
(1) the consolidated interest expense of such
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Person and its Subsidiaries for such period, whether paid or accrued,
including, without limitation, amortization of debt issuance costs and
original issue discount, non-cash interest payments, the interest
component of any deferred payment obligations, the interest component
of all payments associated with Capital Lease Obligations, imputed
interest with respect to Attributable Debt, commissions, discounts and
other fees and charges incurred in respect of letter of credit or
bankers' acceptance financings, and net of the effect of all payments
made or received pursuant to Hedging Obligations; plus
(2) the consolidated interest of such Person and its
Restricted Subsidiaries that was capitalized during such period; plus
(3) any interest expense on Indebtedness of another Person
that is Guaranteed by such Person or one of its Restricted Subsidiaries
or secured by a Lien on assets of such Person or one of its Restricted
Subsidiaries, whether or not such Guarantee or Lien is called upon;
plus
(4) the product of (a) all dividends, whether paid or accrued
and whether or not in cash, on any series of Disqualified Stock or
preferred stock of such Person or any of its Restricted Subsidiaries,
other than dividends on Equity Interests payable solely in Equity
Interests of Armor Holdings (other than Disqualified Stock) or to Armor
Holdings or a Restricted Subsidiary of Armor Holdings, times (b) a
fraction, the numerator of which is one and the denominator of which is
one minus the then current combined federal, state and local statutory
tax rate of such Person, expressed as a decimal, in each case, on a
consolidated basis and in accordance with GAAP.
"Fixed Charge Coverage Ratio" means with respect to any specified
Person for any period, the ratio of the Consolidated Cash Flow of such Person
for such period to the Fixed Charges of such Person for such period. In the
event that the specified Person or any of its Subsidiaries incurs, assumes,
Guarantees, repays, repurchases or redeems any Indebtedness or issues,
repurchases or redeems preferred stock subsequent to the commencement of the
period for which the Fixed Charge Coverage Ratio is being calculated and on or
prior to the date on which the event for which the calculation of the Fixed
Charge Coverage Ratio is made (the "Calculation Date"), then the Fixed Charge
Coverage Ratio shall be calculated giving pro forma effect to such incurrence,
assumption, Guarantee, repayment, repurchase or redemption of Indebtedness, or
such issuance, repurchase or redemption of preferred stock, and the use of the
proceeds therefrom as if the same had occurred at the beginning of the
applicable four-quarter reference period.
In addition, for purposes of calculating the Fixed Charge Coverage
Ratio:
(1) acquisitions and dispositions of business entities or
property and assets constituting a division or line of business of any
Person that have been made by the specified Person or any of its
Restricted Subsidiaries, including through mergers or consolidations
and including any related financing transactions, during the
four-quarter reference period or subsequent to such reference period
and on or prior to the Calculation Date shall be given pro forma effect
as if they had occurred on the first day of the four-quarter reference
period and Consolidated Cash Flow for such reference period shall be
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calculated on a pro forma basis in accordance with Regulation S-X under
the Exchange Act;
(2) the Consolidated Cash Flow attributable to discontinued
operations, as determined in accordance with GAAP shall be excluded;
(3) the Fixed Charges attributable to discontinued operations,
as determined in accordance with GAAP shall be excluded, but only to
the extent that the obligations giving rise to such Fixed Charges will
not be obligations of the specified Person or any of its Subsidiaries
following the Calculation Date; and
(4) consolidated interest expense attributable to interest on
any Indebtedness (whether existing or being incurred) computed on a pro
forma basis and bearing a floating interest rate shall be computed as
if the rate in effect on the Calculation Date (taking into account any
interest rate option, swap, cap or similar agreement applicable to such
Indebtedness if such agreement has a remaining term in excess of 12
months or, if shorter, at least equal to the remaining term of such
Indebtedness) had been the applicable rate for the entire period.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants, the opinions and pronouncements of
the Public Company Accounting Oversight Board and in the statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as have been approved by a significant segment
of the accounting profession, which are in effect from time to time.
"Guarantee" means a guarantee, other than by endorsement of negotiable
instruments for collection in the ordinary course of business, direct or
indirect, in any manner including, without limitation, by way of a pledge of
assets or through letters of credit or reimbursement agreements in respect
thereof, of all or any part of any Indebtedness. The terms "guarantee" and
"guaranteed" used as a verb shall have a correlative meaning.
"Hedging Obligations" means, with respect to any specified Person, the
obligations of such Person under:
(1) interest rate swap agreements, interest rate cap
agreements, interest rate collar agreements and other agreements or
arrangements designed to protect such Person against fluctuations in
interest rates;
(2) commodity swap agreements, commodity option agreements,
forward contracts and other agreements or arrangements designed to
protect such Person against fluctuations in commodity prices; and
(3) foreign exchange contracts, currency swap agreements and
other agreements or arrangements designed to protect such Person
against fluctuations in foreign currency exchange rates.
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"incur" means, with respect to any Indebtedness, to incur, create,
issue, assume, Guarantee or otherwise become directly or indirectly liable for
or with respect to, or become responsible for, the payment of, contingently or
otherwise, such Indebtedness; provided that (1) any Indebtedness of a Person
existing at the time such Person becomes a Restricted Subsidiary will be deemed
to be incurred by such Restricted Subsidiary at the time it becomes a Restricted
Subsidiary and (2) neither the accrual of interest nor the accretion of original
issue discount nor the payment of interest in the form of additional
Indebtedness (to the extent provided for when the Indebtedness on which such
interest is paid was originally issued) shall be considered an incurrence of
Indebtedness.
"Indebtedness" means, with respect to any specified Person, any
indebtedness of such Person, whether or not contingent, in respect of:
(1) borrowed money;
(2) evidenced by bonds, notes, debentures or similar
instruments or letters of credit (or reimbursement agreements in
respect thereof), but excluding obligations with respect to letters of
credit (including trade letters of credit) securing obligations
described in clause (5) below entered into in the ordinary course of
business of such Person to the extent such letters of credit are not
drawn upon or, if drawn upon, to the extent such drawing is reimbursed
no later than the third business day following receipt by such Person
of a demand for reimbursement;
(3) banker's acceptances;
(4) Capital Lease Obligations and Attributable Debt;
(5) the balance deferred and unpaid of the purchase price of
any property which purchase price is due more than six months after the
date of placing such property in service or taking delivery and title
thereto or the completion of such services, except any such balance
that constitutes an accrued expense or trade payable;
(6) Hedging Obligations, other than Hedging Obligations that
are incurred for the purpose of protecting Armor Holdings or its
Restricted Subsidiaries against fluctuations in interest rates,
commodity prices or foreign currency exchange rates, and not for
speculative purposes, and that do not increase the Indebtedness of the
obligor outstanding at any time other than as a result of fluctuations
in interest rates, commodity prices or foreign currency exchange rates
or by reason of fees, indemnities and compensation payable thereunder;
or
(7) Disqualified Stock valued at the greater of its voluntary
or involuntary maximum fixed repurchase price plus accrued dividends.
In addition, the term "Indebtedness" includes (x) all Indebtedness of
others secured by a Lien on any asset of the specified Person (whether or not
such Indebtedness is assumed by the specified Person), provided that the amount
of such Indebtedness shall be the lesser of (A) the fair market value of such
asset at such date of determination and (B) the amount of such Indebtedness, and
(y) to the extent not otherwise included, the Guarantee by the specified Person
of any
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Indebtedness of any other Person. For purposes hereof, the "maximum fixed
repurchase price" of any Disqualified Stock which does not have a fixed
repurchase price shall be calculated in accordance with the terms of such
Disqualified Stock as if such Disqualified Stock were purchased on any date on
which Indebtedness shall be required to be determined pursuant to the Indenture,
and if such price is based upon, or measured by, the fair market value of such
Disqualified Stock, such fair market shall be determined in good faith by the
Board of Directors of the issuer of such Disqualified Stock.
The amount of any Indebtedness outstanding as of any date shall be the
outstanding balance at such date of all unconditional obligations as described
above and, with respect to contingent obligations, the maximum liability upon
the occurrence of the contingency giving rise to the obligation, and shall be:
(1) the accreted value thereof, in the case of any
Indebtedness issued with original issue discount; and
(2) the principal amount thereof, together with any interest
thereon that is more than 30 days past due, in the case of any other
Indebtedness;
provided that the obligation to repay money borrowed and set aside at the time
of the incurrence of any Indebtedness in order to pre-fund the payment of the
interest on such Indebtedness shall be deemed not to be "Indebtedness" so long
as such money is held to secure the payment of such interest.
"Investments" means, with respect to any Person, all direct or indirect
investments by such Person in other Persons (including Affiliates) in the forms
of loans or other extensions of credit (including Guarantees or other
arrangements, but excluding advances to customers or suppliers in the ordinary
course of business that are, in conformity with GAAP, recorded as accounts
receivable, prepaid expenses or deposits on the balance sheet of Armor Holdings
or its Restricted Subsidiaries and endorsements for collection or deposit
arising in the ordinary course of business), advances (excluding commission,
travel and similar advances to officers and employees made consistent with past
practices), capital contributions (by means of any transfer of cash or other
property to others or any payment for property or services for the account or
use of others), purchases or other acquisitions for consideration of
Indebtedness, Equity Interests or other securities, together with all items that
are or would be classified as investments on a balance sheet prepared in
accordance with GAAP.
If Armor Holdings or any Restricted Subsidiary of Armor Holdings sells
or otherwise disposes of any Equity Interests of any direct or indirect
Restricted Subsidiary of Armor Holdings such that, after giving effect to any
such sale or disposition, such Person is no longer a Restricted Subsidiary of
Armor Holdings, Armor Holdings shall be deemed to have made an Investment on the
date of any such sale or disposition equal to the fair market value of the
Investment in such Restricted Subsidiary not sold or disposed of in an amount
determined as provided in the final paragraph of the above "Restricted Payments"
covenant. The acquisition by Armor Holdings or any Restricted Subsidiary of
Armor Holdings of a Person that holds an Investment in a third Person shall be
deemed to be an Investment by Armor Holdings or such Restricted Subsidiary in
such third
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Person in an amount equal to the fair market value of the Investment held by the
acquired Person in such third Person in an amount determined as provided in the
final paragraph of the "Restricted Payments" covenant.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law,
including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction.
"Net Income" means, with respect to any specified Person, the net
income (loss) of such Person, determined in accordance with GAAP and before any
reduction in respect of preferred stock dividends, excluding, however:
(1) any gain (but not loss), together with any related
provision for taxes on such gain (but not loss), realized in connection
with: (a) any asset sale outside the ordinary course of business; or
(b) the disposition of any securities by such Person or any of its
Restricted Subsidiaries or the extinguishment of any Indebtedness of
such Person or any of its Restricted Subsidiaries; and
(2) any extraordinary gain (but not loss), together with any
related provision for taxes on such extraordinary gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by Armor
Holdings or any of its Restricted Subsidiaries in respect of any Asset Sale
(including, without limitation, any cash received upon the sale or other
disposition of any non-cash consideration received in any Asset Sale), net of
the direct costs relating to such Asset Sale, including, without limitation,
legal, accounting and investment banking fees, and sales commissions, and any
relocation expenses incurred as a result thereof, taxes paid or payable as a
result thereof, in each case, after taking into account any available tax
credits or deductions and any tax sharing arrangements, and amounts required to
be applied to the repayment of Indebtedness, secured by a Lien on the asset or
assets that were the subject of such Asset Sale and any reserve for adjustment
in respect of the sale price of such asset or assets established in accordance
with GAAP.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Permitted Business" means any business conducted or proposed to be
conducted (as described in the offering memorandum) by Armor Holdings and its
Restricted Subsidiaries on the date of the Indenture and other businesses
reasonably related or ancillary thereto.
"Permitted Investments" means:
(1) any Investment in Armor Holdings or in a Wholly Owned
Restricted Subsidiary
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of Armor Holdings (including, without limitation, Guarantees of
Obligations with respect to any Credit Facilities);
(2) any Investment in Cash Equivalents;
(3) any Investment by Armor Holdings or any Restricted
Subsidiary of Armor Holdings in a Person, if as a result of such
Investment:
(a) such Person becomes a Wholly Owned Restricted Subsidiary
of Armor Holdings; or
(b) such Person is merged, consolidated or amalgamated with or
into, or transfers or conveys substantially all of its assets to, or is
liquidated into, Armor Holdings or a Wholly Owned Restricted Subsidiary
of Armor Holdings;
(4) any Investment made as a result of the receipt of non-cash
consideration from an Asset Sale that was made pursuant to and in
compliance with the covenant described above under the caption
"--Repurchase at the Option of Holders--Asset Sales";
(5) Investments acquired solely in exchange for the issuance
of Equity Interests (other than Disqualified Stock) of Armor Holdings;
(6) Hedging Obligations that are incurred for the purpose of
protecting Armor Holdings or its Restricted Subsidiaries against
fluctuations in interest rates, commodity prices or foreign currency
exchange rates, and not for speculative purposes, and that do not
increase the Indebtedness of the obligor outstanding at any time other
than as a result of fluctuations in interest rates, commodity prices or
foreign currency exchange rates or by reason of fees, indemnifies and
compensation payable thereunder;
(7) other Investments in any Person that is not an Affiliate
of Armor Holdings (other than a Wholly Owned Restricted Subsidiary of
Armor Holdings) having an aggregate fair market value (measured on the
date each such Investment was made and without giving effect to
subsequent changes in value), when taken together with all other
Investments made pursuant to this clause (7) since the date of the
Indenture, not to exceed 5% of Armor Holdings' Consolidated Net
Tangible Assets; and
(8) stock, obligations or securities received in satisfaction
of judgments.
"Permitted Liens" means:
(1) Liens on the assets of Armor Holdings and any Subsidiary
Guarantor securing Senior Debt that was permitted by the terms of the
Indenture to be incurred;
(2) Liens in favor of Armor Holdings or any Restricted
Subsidiary;
(3) Liens on property of a Person existing at the time such
Person is merged with or
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into or consolidated with Armor Holdings or any Restricted Subsidiary
of Armor Holdings (or any Lien on the proceeds from any sale,
liquidation or other disposition of such property); provided that such
Liens were in existence prior to the contemplation of such merger or
consolidation and do not extend to any assets other than those of the
Person merged into or consolidated with Armor Holdings or the
Restricted Subsidiary;
(4) Liens on property existing at the time of acquisition
thereof by Armor Holdings or any Restricted Subsidiary of Armor
Holdings (or any Lien on the proceeds from any sale, liquidation or
other disposition of such property), provided that such Liens were in
existence prior to the contemplation of such acquisition and do not
extend to any property other than the property so acquired by Armor
Holdings or the Restricted Subsidiary;
(5) Liens existing on the date of the Indenture;
(6) In addition to all other Permitted Liens, Liens incurred
in the ordinary course of business of Armor Holdings or any Restricted
Subsidiary of Armor Holdings with respect to obligations that do not
exceed $5.0 million at any one time outstanding;
(7) Liens to secure Indebtedness (including Capital Lease
Obligations) permitted by clause (4) of the second paragraph of the
covenant entitled "Certain Covenants Incurrence of Indebtedness and
Issuance of Preferred Stock" covering only the assets acquired with
such Indebtedness (or any Lien on the proceeds from any sale,
liquidation or other disposition of such assets);
(8) statutory and common law Liens of landlords and carriers,
warehousemen, mechanics, suppliers, materialmen, repairmen or other
similar Liens arising in the ordinary course of business and with
respect to amounts not yet delinquent or being contested in good faith
by appropriate legal proceedings promptly instituted and diligently
conducted and for which a reserve or other appropriate provision, if
any, as shall be required in conformity with GAAP shall have been made;
(9) Liens upon specific items of inventory or other goods and
proceeds of any Person securing such Person's obligations in respect of
bankers' acceptances issued or created for the account of such Person
to facilitate the purchase, shipment or storage of such inventory or
other goods;
(10) Liens securing reimbursement obligations with respect to
letters of credit and surety or performance bonds issued in the
ordinary course of business, provided that such letters of credit or
surety or performance bonds do not constitute Indebtedness;
(11) Liens for taxes, assessments or other governmental
charges not yet subject to penalties for non-payment or which are being
contested in good faith by appropriate proceedings provided appropriate
reserves required pursuant to GAAP have been made in respect thereof;
and
(12) encumbrances, easements or reservations of, or rights of
others for, licenses,
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rights of way, sewers, electric lines, telegraph and telephone lines
and other similar purposes, or zoning or other restrictions as to the
use of real properties or liens incidental to the conduct of the
business of such Person or to the ownership of its properties which do
not in the aggregate materially adversely affect the value of the said
properties or materially impair their use in the operation of the
business of such Person.
"Permitted Refinancing Indebtedness" means any Indebtedness of Armor
Holdings or any of its Restricted Subsidiaries issued in exchange for, or the
net proceeds of which are used to extend, refinance, renew, replace, defease or
refund other Indebtedness of Armor Holdings or any of its Restricted
Subsidiaries (other than intercompany Indebtedness); provided that:
(1) the principal amount (or accreted value, if applicable) of
such Permitted Refinancing Indebtedness does not exceed the principal
amount (or accreted value, if applicable) of the Indebtedness so
extended, refinanced, renewed, replaced, defeased or refunded (plus all
accrued interest thereon and the amount of any reasonably determined
premium necessary to accomplish such refinancing and such reasonable
expenses incurred in connection therewith);
(2) such Permitted Refinancing Indebtedness has a final
maturity date later than the final maturity date of, and has a Weighted
Average Life to Maturity equal to or greater than the Weighted Average
Life to Maturity of, the Indebtedness being extended, refinanced,
renewed, replaced, defeased or refunded;
(3) if the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded is subordinated in right of payment to
the notes or the Subsidiary Guarantees, such Permitted Refinancing
Indebtedness has a final maturity date later than the final maturity
date of, and is subordinated in right of payment to, the notes on terms
at least as favorable to the Holders of notes as those contained in the
documentation governing the Indebtedness being extended, refinanced,
renewed, replaced, defeased or refunded;
(4) if the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded is pari passu in right of payment to the
notes or the Subsidiary Guarantees, such Permitted Refinancing
Indebtedness is pari passu or subordinated in right of payment to the
notes; and
(5) such Indebtedness is incurred either by Armor Holdings or
by the Restricted Subsidiary who is the obligor on the Indebtedness
being extended, refinanced, renewed, replaced, defeased or refunded.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, limited
liability company or government or other entity.
"Public Equity Offering" means an offer and sale of Capital Stock
(other than Disqualified Stock) of Armor Holdings pursuant to a registration
statement that has been declared effective by the Commission pursuant to the
Securities Act (other than a registration statement on Form S-8 or
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otherwise relating to equity securities issuable under any employee benefit plan
of Armor Holdings).
"Qualifying Services Division Sale" means any single transaction or
series of related transactions involving the disposition of any of the
Discontinued Domestic Subsidiaries or any other entities classified as held for
sale and presented separately as discontinued operations in Armor Holdings'
audited financial statements for the year ended and as of December 31, 2002 in
accordance with Financial Accounting Standards No. 144, in the case of each such
entity for so long as such entity is so held for sale and presented separately
as discontinued operations.
"Qualifying USDS Sale" means any single transaction or series of
related transactions involving the disposition of USDS, Inc. and its respective
direct and indirect Subsidiaries as long as the Consolidated Net Income of such
entities are excluded from the Consolidated Net Income of Armor Holdings for the
purposes of the Indenture, provided that a determination by Armor Holdings to
include the Consolidated Net Income of such entities in the Consolidated Net
Income of Armor Holdings for the purposes of the Indenture shall be irrevocable.
"Replacement Assets" means (1) non-current tangible assets that will be
used or useful in a Permitted Business or (2) substantially all the assets of a
Permitted Business or a majority of the Voting Stock of any Person engaged in a
Permitted Business that will become on the date of acquisition thereof a
Restricted Subsidiary.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the
referent Person that is not an Unrestricted Subsidiary.
"sale and leaseback transaction" means, with respect to any Person, any
transaction involving any of the assets or properties of such Person whether now
owned or hereafter acquired, whereby such Person sells or transfers such assets
or properties and then or thereafter leases such assets or properties or any
part thereof or any other assets or properties which such Person intends to use
for substantially the same purpose or purposes as the assets or properties sold
or transferred.
"Significant Subsidiary" means any Restricted Subsidiary that would
constitute a "significant subsidiary" within the meaning of Article 1 of
Regulation S-X under the Exchange Act.
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations to
repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
"Subsidiary" means, with respect to any specified Person:
(1) any corporation, association or other business entity of
which more than 50% of the total voting power of shares of Capital
Stock entitled (without regard to the occurrence
143
of any contingency) to vote in the election of directors, managers or
trustees thereof is at the time owned or controlled, directly or
indirectly, by such Person or one or more of the other Subsidiaries of
that Person (or a combination thereof); and
(2) any partnership (a) the sole general partner or the
managing general partner of which is such Person or a Subsidiary of
such Person or (b) the only general partners of which are such Person
or one or more Subsidiaries of such Person (or any combination
thereof).
"Subsidiary Guarantee" means the Guarantee by any Subsidiary Guarantor
of Armor Holdings' payment obligations under the notes on a senior subordinated
basis.
"Subsidiary Guarantors" means:
(1) each direct or indirect Domestic Subsidiary of Armor
Holdings as of the Issue Date that is a Restricted Subsidiary, other
than USDS, Inc. and the Discontinued Domestic Subsidiaries; and
(2) after the Issue Date, each Discontinued Domestic
Subsidiary and any other Subsidiary that executes a Subsidiary
Guarantee in accordance with the provisions of the Indenture;
and their respective successors and assigns until released from their
obligations under their Subsidiary Guarantees and the Indenture in accordance
with the terms of the Indenture.
"Unrestricted Subsidiary" means any Subsidiary of Armor Holdings that
is designated by the Board of Directors as an Unrestricted Subsidiary pursuant
to a Board Resolution in compliance with the "Designation of Restricted and
Unrestricted Subsidiaries" covenant and any Subsidiary of such Subsidiary.
"Voting Stock" of any Person as of any date means the Capital Stock of
such Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing:
(1) the sum of the products obtained by multiplying (a) the
amount of each then remaining installment, sinking fund, serial
maturity or other required payments of principal, including payment at
final maturity, in respect thereof, by (b) the number of years
(calculated to the nearest one-twelfth) that will elapse between such
date and the making of such payment; by
(2) the then outstanding principal amount of such
Indebtedness.
"Wholly Owned Restricted Subsidiary" of any specified Person means a
Restricted Subsidiary of such Person all of the outstanding Capital Stock or
other ownership interests of which
144
(other than directors' qualifying shares or Investments by foreign nationals
mandated by applicable law) shall at the time be owned by such Person or by one
or more Wholly Owned Restricted Subsidiaries of such Person and one or more
Wholly Owned Restricted Subsidiaries of such Person.
DESCRIPTION OF SENIOR INDEBTEDNESS
On August 12, 2003, we terminated our prior credit facility and entered
into a new secured revolving credit facility with Bank of America, N.A.,
Wachovia Bank, National Association and a syndicate of other financial
institutions arranged by Banc of America Securities LLC. The new credit facility
consists of a five-year revolving credit facility and, among other things,
provides for (i) total maximum borrowings of $60 million, (ii) a $25 million
sub-limit for the issuances of standby and commercial letters of credit, (iii) a
$5 million sub-limit for swing-line loans, and (iv) a $5 million sub-limit for
multi-currency borrowings. All borrowings under the new credit facility will
bear interest at either (i) a rate equal to LIBOR, plus an applicable margin
ranging from 1.125% to 1.625%, (ii) an alternate base rate which will be the
higher of (a) the Bank of America prime rate and (b) the Federal Funds rate plus
..50%, or (iii) with respect to foreign currency loans, a fronted offshore
currency rate, plus an applicable margin ranging from 1.125% to 1.625%,
depending on certain conditions. The new credit facility is guaranteed by
certain of our direct and indirect domestic subsidiaries and is secured by,
among other things (i) a pledge of all of the issued and outstanding shares of
stock or other equity interests of certain of our direct and indirect domestic
subsidiaries, (ii) a pledge of 65% of the issued and outstanding voting shares
of stock or other voting equity interests of certain of our direct and indirect
foreign subsidiaries, (iii) a pledge of 100% of the issued and outstanding
nonvoting shares of stock or other nonvoting equity interests of certain of our
direct and indirect foreign subsidiaries, and (iv) a first priority perfected
security interest on certain of our domestic assets and certain domestic assets
of certain of our direct and indirect subsidiaries that will become guarantors
of our obligations under the new credit facility, including, among other things,
accounts receivable, inventory, machinery, equipment, certain contract rights,
intellectual property rights and general intangibles. As of the date of this
prospectus, we are in compliance with all of our negative and affirmative
covenants.
FEDERAL INCOME TAX CONSIDERATIONS
The following general discussion summarizes the material U.S. Federal
income tax consequences of the exchange, ownership and disposition of the notes.
This discussion only deals with persons that hold notes as a capital asset
within the meaning of Section 1221 of the Internal Revenue Code of 1986, as
amended (the "Code"), and that purchase the notes for cash at original issue at
the initial offering price. This discussion does not address the U.S. Federal
income tax consequences that may be relevant to a particular holder subject to
special treatment under certain U.S. Federal income tax laws (for example,
persons subject to the alternative minimum tax provisions of the Code). Also,
this discussion is not intended to be wholly applicable to all categories of
investors, some of which, such as dealers in securities or foreign currency,
banks, trusts, insurance companies, tax-exempt organizations (employment,
charitable or other), persons that hold notes as part of a hedging or conversion
transaction or a straddle, persons deemed to sell notes under the constructive
sale provisions of the Code, persons that have a functional currency other than
the U.S. dollar and investors in pass-through entities, may be subject to
special rules.
145
This discussion is based on the Code, the final, temporary and proposed
Treasury regulations promulgated thereunder, administrative pronouncements and
judicial decisions, all as in effect on the date hereof and all of which are
subject to change, possibly with retroactive effect. We have not requested, and
will not request, a ruling from the U.S. Internal Revenue Service (the "IRS")
with respect to any of the U.S. Federal income tax consequences described below.
There can be no assurance that the IRS will not disagree with or challenge any
of the conclusions set forth herein.
Holders of the old notes should consult their own tax advisors
concerning the application of U.S. Federal income tax laws, as well as the laws
of any state, local or foreign taxing jurisdiction, to their particular
situations.
U.S. HOLDERS
The following discussion is limited to persons that are U.S. Holders.
For these purposes, "U.S. Holder" means the beneficial owner of a note that for
U.S. Federal income tax purposes is (i) an individual who is a citizen or
resident of the United States, (ii) a corporation or other entity taxable as a
corporation that is created or organized under the laws of the United States or
any political subdivision thereof or therein, (iii) an estate the income of
which is subject to U.S. Federal income tax regardless of its source, (iv) a
trust subject to the primary supervision of a United States court and the
control of one or more U.S. persons or (v) a person whose worldwide income or
gain is otherwise subject to U.S. Federal income tax on a net income basis. If a
partnership or other entity taxable as a partnership holds the notes, the tax
treatment of a partner will generally depend on the status of the partner and
the activities of the partnership. Such partner should consult its tax advisor
as to the tax consequences.
Exchange Offer
The exchange of old notes for the new notes pursuant to the exchange
offer should not constitute a taxable event for U.S. Federal income tax
purposes. As a result:
o a U.S. Holder of notes should not recognize taxable gain or loss
as a result of the exchange of old notes for the new notes
pursuant to the exchange offer;
o the holding period of the new notes should include the holding
period of the old notes surrendered in exchange therefor; and
o a U.S. Holder's adjusted tax basis in the new notes should be the
same as such U.S. Holder's adjusted tax basis in the old notes
surrendered in exchange therefor.
Interest
A U.S. Holder must generally include interest on a note in its ordinary
income at the time such interest is received or accrued, in accordance with such
U.S. Holder's method of accounting for U.S. Federal income tax purposes.
146
Sale, Exchange or Redemption of Notes
Upon the sale, exchange or redemption of a note, a U.S. Holder
generally will recognize taxable gain or loss equal to the difference between
(i) the amount realized on such disposition and (ii) such U.S. Holder's adjusted
tax basis in the note. Notwithstanding the foregoing, any amounts realized in
connection with any sale, exchange or redemption with respect to accrued
interest not previously included in income will be treated as ordinary interest
income. A U.S. Holder's adjusted tax basis in a note generally will equal the
cost of such note less any principal payments received by such holder.
Contingent Payments
In certain circumstances, we may be obligated to pay you amounts in
excess of the stated interest and principal payable on the notes. The obligation
to make such payments, including liquidated damages and redemption premiums
payable in certain circumstances, may implicate the provisions of Treasury
regulations relating to "contingent payment debt instruments". If the notes were
deemed to be contingent payment debt instruments, U.S. Holders might, among
other things, be required to treat any gain recognized on the sale or other
disposition of a note as ordinary income, subject to tax at a maximum Federal
rate of 38.6%, rather than as capital gain which may be subject to tax at a
maximum Federal rate of 20%. The regulations applicable to contingent payment
debt instruments have not been the subject of authoritative interpretation and
therefore the scope of the regulations is not certain. Armor Holdings intends to
take the position that the likelihood that such payments will be made is remote
and therefore the notes are not subject to the rules governing contingent
payment debt instruments. This determination will be binding on a holder unless
such holder explicitly discloses on a statement attached to the holder's timely
filed U.S. Federal income tax return for the taxable year that includes the
acquisition date of the note that such holder's determination is different.
Purchasers of notes are urged to consult their tax advisors regarding the
possible application of the contingent payment debt instrument rules to the
notes.
Information Reporting and Backup Withholding
A U.S. Holder of notes may be subject to backup withholding, currently
at a rate of 30%, but subject to gradual reduction to 28% by year 2006 (the
"Applicable Backup Withholding Rate"), with respect to "reportable payments,"
which includes interest and principal paid on or the gross proceeds of a sale,
exchange or redemption of the notes. The payor of any reportable payments will
be required to deduct and withhold the Applicable Backup Withholding Rate from
such payments if (i) the payee fails to establish that it is entitled to an
exemption, (ii) the payee fails to furnish its correct Taxpayer Identification
Number ("TIN") to the payor in the prescribed manner, (iii) the IRS notifies the
payor that the TIN furnished by the payee is incorrect, (iv) the payee has
failed properly to report the receipt of reportable payments and the IRS has
notified the payor that backup withholding is required or (v) the payee fails to
certify under penalties of perjury that such payee is not subject to backup
withholding. If any one of these events occurs with respect to a U.S. Holder of
notes, Armor Holdings or its paying or other withholding agent will be required
to withhold the Applicable Backup Withholding Rate from any payments of
principal and interest on a note.
147
Any amount withheld from a payment to a U.S. Holder under the backup
withholding rules will be allowed as a refund or credit against such holder's
U.S. Federal income tax liability, so long as the required information is
provided timely to the IRS. Armor Holdings, its paying agent or other
withholding agent generally will report to a U.S. Holder of notes and to the IRS
the amount of any reportable payments made in respect of the notes for each
calendar year and the amount of tax withheld, if any, with respect to such
payments.
NON-U.S. HOLDERS
If you are a "Non-U.S. Holder," as defined below, this section applies to you. A
Non-U.S. Holder means any beneficial owner of a new note that is not a U.S.
Holder. The rules governing the United States Federal income and estate taxation
of a Non-U.S. Holder are complex, and no attempt will be made herein to provide
more than a summary of those rules. Special rules may apply to a Non-U.S. Holder
if such holder is a controlled foreign corporation, passive foreign investment
company or foreign personal holding company and therefore subject to special
treatment under the Code. IF YOU ARE A NON-U.S. HOLDER, YOU SHOULD CONSULT WITH
YOUR OWN TAX ADVISORS TO DETERMINE THE EFFECT ON YOU OF FEDERAL, STATE, LOCAL
AND FOREIGN TAX LAWS WITH REGARD TO AN INVESTMENT IN THE NEW NOTES, INCLUDING
ANY REPORTING REQUIREMENTS.
Interest
Subject to the discussion of backup withholding below, payments of
interest on a note to a Non-U.S. Holder generally will not be subject to U.S.
Federal income or withholding tax, provided that (i) the holder does not
actually or constructively own 10% or more of the total combined voting power of
all classes of stock of Armor Holdings that are entitled to vote, (ii) the
holder is not (a) a controlled foreign corporation that is related to Armor
Holdings through stock ownership or (b) a bank receiving interest on a loan
entered into in the ordinary course of business, (iii) such interest is not
effectively connected with the conduct by the Non-U.S. Holder of a trade or
business within the United States and (iv) Armor Holdings or its paying agent
receives appropriate documentation establishing that the Non-U.S. Holder is not
a U.S. person.
A Non-U.S. Holder that does not qualify for exemption from withholding
under the preceding paragraph generally will be subject to withholding of U.S.
Federal income tax at a 30% rate (or lower applicable treaty rate) on payments
of interest on the notes.
If interest on the notes is effectively connected with the conduct by a
Non-U.S. Holder of a trade or business within the United States, such interest
will be subject to U.S. Federal income tax on a net income basis at the rate
applicable to U.S. persons generally (and, with respect to corporate holders,
may also be subject to a 30% branch profits tax). If interest is subject to U.S.
Federal income tax on a net income basis in accordance with these rules, such
payments will not be subject to U.S. withholding tax so long as the relevant
Non-U.S. Holder provides Armor Holdings or its paying agent with the appropriate
documentation.
Sale, Exchange or Redemption of Notes
Subject to the discussion of backup withholding, any gain realized by a
Non-U.S. Holder on
148
the sale, exchange or redemption of a note generally will not be subject to U.S.
Federal income tax, unless (i) such gain is effectively connected with the
conduct by such Non-U.S. Holder of a trade or business within the United States,
(ii) the Non-U.S. Holder is an individual who is present in the United States
for 183 days or more in the taxable year of disposition and certain other
conditions are satisfied or (iii) the Non-U.S. Holder is subject to tax pursuant
to the provisions of U.S. Federal income tax law applicable to certain
expatriates.
Information Reporting and Backup Withholding
Backup withholding and information reporting generally will not apply
to interest payments made to a Non-U.S. Holder in respect of the notes if such
Non-U.S. Holder furnishes Armor Holdings or its paying agent with appropriate
documentation of such holder's non-U.S. status.
The payment of proceeds from a Non-U.S. Holder's disposition of notes
to or through the U.S. office of any broker, domestic or foreign, will be
subject to information reporting and possible backup withholding unless such
holder certifies as to its non-U.S. status under penalties of perjury or
otherwise establishes an exemption, provided that the broker does not have
actual knowledge that such holder is a U.S. person or that the conditions of an
exemption are not, in fact, satisfied. The payment of the proceeds from a
Non-U.S. Holder's disposition of a note to or through a non-U.S. office of
either a U.S. broker or a non-U.S. broker that is a U.S.-related person will be
subject to information reporting, but not backup withholding, unless such broker
has documentary evidence in its files that such Non-U.S. Holder is not a U.S.
person and the broker has no knowledge to the contrary, or the Non-U.S. Holder
establishes an exemption. For this purpose, a "U.S.-related person" is (i) a
controlled foreign corporation for U.S. Federal income tax purposes, (ii) a
foreign person 50% or more of whose gross income from all sources for the
three-year period ending with the close of its taxable year preceding payment
(or for such part of the period that the broker has been in existence) is
derived from activities that are effectively connected with the conduct of a
U.S. trade or business or (iii) a foreign partnership that is either engaged in
the conduct of a trade or business in the U.S. or of which 50% or more of its
income or capital interests are held by U.S. persons. Neither information
reporting nor backup withholding will apply to a payment of the proceeds of a
Non-U.S. Holder's disposition of notes by or through a non-U.S. office of a
non-U.S. broker that is not a U.S.-related person. Copies of any information
returns filed with the IRS may be made available by the IRS, under the
provisions of a specific treaty or agreement, to the taxing authorities of the
country in which the Non-U.S. Holder resides.
Any amounts withheld under the backup withholding rules from a payment
to a Non-U.S. Holder will be allowed as a refund or a credit against such
Non-U.S. Holder's U.S. Federal income tax liability, provided that the requisite
procedures are followed.
Prospective purchasers of notes are urged to consult their own tax
advisors with respect to the application to their particular situations of U.S.
Federal income tax laws, as well as the laws of any state, local or foreign
taxing jurisdiction.
PLAN OF DISTRIBUTION
We are not using any underwriters for this exchange offer.
149
Each broker-dealer that receives new notes for its own account pursuant
to the exchange offer must acknowledge that it will deliver a prospectus in
connection with any resale of these new notes. This prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of new notes received in exchange for old notes where
the old notes were acquired as a result of market-making activities or other
trading activities. We and our subsidiary guarantors have agreed to make this
Prospectus, as amended or supplemented, available to any broker-dealer for use
in connection with any such resale.
We will not receive any proceeds from any sale of new notes by
broker-dealers or any other persons. New notes received by broker-dealers for
their own account pursuant the exchange offer may be sold from time to time in
one or more transactions in the over-the-counter market, in negotiated
transactions, through the writing of options on the new notes, or a combination
of these methods of resale, at market prices prevailing at the time of resale,
at prices related to the prevailing market prices, or negotiated prices. Any
resale of new notes may be made directly to purchasers or to or through brokers
or dealers who may receive compensation in the form of commissions or
concessions from any broker-dealer and/or the purchasers of any new notes. Any
broker-dealer that resells new notes that were received by it for its own
account pursuant to the exchange offer and any broker-dealer that participates
in a distribution of the new notes may be deemed to be an "underwriter" within
the meaning of the Securities Act, and any profit on any of these resales of new
notes or any commissions or concessions received by any of these persons may be
deemed to be underwriting compensation under the Securities Act. The letter of
transmittal states that, by acknowledging that it will deliver and by delivering
a prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
We and our guarantors will use our and their best efforts to keep the
registration statement continuously effective, supplemented and amended to the
extent necessary to ensure that it is available for resales of notes acquired by
broker-dealers for their own accounts as a result of market-making activities or
other trading activities, and to ensure that it conforms with the requirements
of the registration rights agreement, the Securities Act and the policies, rules
and regulations of the Commission, for a period ending on the earlier of
o 180 days from the date on which the exchange offer is consummated;
and
o the date on which all resales of the new notes by the
broker-dealers holding the new notes have been made.
We and our guarantors will provide sufficient copies of the latest
version of this prospectus to broker-dealers promptly upon request at any time
during the 180-day (or shorter as provided in the foregoing sentence) period in
order to facilitate such resales.
We have agreed to pay all expenses incident to the exchange offer,
including the expenses of one counsel for the holders of the old notes, other
than commissions or concessions of any brokers or dealers, and will indemnify
the holders of the old notes, including any broker-dealer, against certain
liabilities, including certain liabilities under the Securities Act.
150
By its acceptance of the exchange offer, any broker-dealer that
receives new notes pursuant to the exchange offer agrees to notify us before
using the prospectus in connection with the sale or transfer of new notes. The
broker-dealer further acknowledges and agrees that, upon receipt of notice from
us of the happening of any event which makes any statement in the prospectus
untrue in any material respect or which requires the making of any changes in
the prospectus to make the statements in the prospectus not misleading or which
may impose upon us disclosure obligations that may have a material adverse
effect on us, which notice we agree to deliver promptly to the broker-dealer,
the broker-dealer will suspend use of the prospectus until we have notified the
broker-dealer that delivery of the prospectus may resume and have furnished
copies of any amendment or supplement to the prospectus to the broker-dealer.
151
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the informational requirements of the Exchange Act,
and in accordance therewith we are required to file periodic reports, proxy
statements and other information with the Commission. Such reports, proxy
statements and other information filed by us can be inspected and copied at the
public reference facilities maintained by the Commission at 450 Fifth Street,
N.W., Room 1024, Washington, D.C. 20549, as well as the Regional Offices of the
Commission at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661, at the prescribed rates. The Commission also maintains a site on
the World Wide Web that contains reports, proxy and information statements and
other information regarding registrants that file electronically. The address of
such site is http://www.sec.gov. The telephone number of the Commission is
800-SEC-0330. In addition, similar information can be inspected at the New York
Stock Exchange, 20 Broad Street, New York, New York 10005.
With respect to the new notes, this prospectus omits certain
information that is contained in the registration statement on file with the
Commission, of which this prospectus is a part. For further information with
respect to us and our new notes, reference is made to the registration
statement, including the exhibits incorporated therein by reference or filed
therewith. Statements herein contained concerning the provisions of any document
are not necessarily complete and, in each instance, reference is made to the
copy of such document filed as an exhibit or incorporated by reference into the
registration statement. The registration statement and the exhibits may be
inspected without charge at the offices of the Commission or copies thereof
obtained at prescribed rates from the public reference section of the Commission
at the addresses set forth above.
You should rely on the information contained in this prospectus and in
the registration statement as well as other information you deem relevant. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. This prospectus is an offer to sell, or a
solicitation of offers to buy, securities only in jurisdictions where offers and
sales are permitted. The information contained in this prospectus is accurate
only as of the date of this prospectus, regardless of the time of delivery of
this prospectus or any sale or exchange of securities, however, we have a duty
to update that information while this prospectus is in use by you where, among
other things, any facts or circumstances arise which, individually or in the
aggregate, represent a fundamental change in the information contained in this
prospectus or any material information with respect to the plan of distribution
was not previously disclosed in the prospectus or there is any material change
to such information in the prospectus. This prospectus does not offer to sell or
solicit any offer to buy any securities other than the new notes to which it
relates, nor does it offer to sell any of these notes in any jurisdiction to any
person to whom it is unlawful to make such offer or solicitation in such
jurisdiction.
EXPERTS
The consolidated financial statements of Armor Holdings and
subsidiaries appearing in its Annual Report (Form 10-K and Form 10-K/A) for the
year ended December 31, 2002, have been audited by PricewaterhouseCoopers LLP,
independent auditors, as set forth in their report thereon included therein and
incorporated herein by reference. Such consolidated financial statements are
152
incorporated herein by reference in reliance upon such report given on the
authority of such firm as experts in accounting and auditing.
The financial statements incorporated in this prospectus by reference
from Simula, Inc.'s Annual Report on Form 10-K for the year ended December 31,
2002, have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their report, which is incorporated herein by reference, and have been
so incorporated in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
LEGAL MATTERS
The validity of the new notes to be issued pursuant to the exchange
offer will be passed upon for us by Kane Kessler, P.C., New York, New York.
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INDEX TO FINANCIAL STATEMENTS
Page
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UNAUDITED INTERIM FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheet as of September 30, 2003..................................................F-2
Condensed Consolidated Statements of Operations for the Three and Nine Month Periods Ended September 30, 2002
and 2003.......................................................................................................F-4
Condensed Consolidated Statement of Cash Flows for the Nine Months Ended September 30, 2002 and 2003..........F-6
Notes to Unaudited Condensed and Consolidated Financial Statements............................................F-7
AUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Certified Public Accountants............................................................F-31
Consolidated Balance Sheets as of December 31, 2002 and 2001..................................................F-32
Consolidated Income Statements for the Years Ended December 31, 2002, 2001 and 2000..........................F-33
Consolidated Statements of Stockholders' Equity and Comprehensive Income for the Years Ended
December 31, 2002, 2001 and 2000 .............................................................................F-34
Consolidated Statement of Cash Flow for the Years Ended December 31, 2002, 2001 and 2000......................F-35
Notes to Consolidated Financial Statements....................................................................F-36
F-1
ARMOR HOLDINGS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTER ENDED SEPTEMBER 30, 2003
ARMOR HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
SEPTEMBER 30, 2003 DECEMBER 31, 2002
(UNAUDITED) *
-------------------- -------------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 154,766 $ 12,913
Accounts receivable (net of allowance for
doubtful accounts of $1,269 and $1,428) 59,215 58,513
Costs and earned gross profit in excess of billings 1,088 234
Inventories 60,068 62,330
Prepaid expenses and other current assets 21,321 12,212
Current assets of discontinued operations (Note 2) 47,958 28,825
------------ ------------
Total current assets 344,416 175,027
PROPERTY AND EQUIPMENT (net of
accumulated depreciation of $17,243 and
$12,919) 49,531 47,136
GOODWILL (net of accumulated amortization
of $4,024 and $4,024) 98,934 98,736
PATENTS, LICENSES AND TRADEMARKS
(net of accumulated amortization of $2,366 and $2,169) 7,419 7,521
OTHER ASSETS 21,048 9,048
LONG-TERM ASSETS OF DISCONTINUED OPERATIONS (Note 2) 20,045 30,285
------------ ------------
TOTAL ASSETS $ 541,393 $ 367,753
============ ============
* Condensed from audited financial statements.
See notes to condensed consolidated financial statements.
F-2
ARMOR HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET (CONTINUED)
(IN THOUSANDS, EXCEPT FOR SHARE DATA)
SEPTEMBER 30, 2003 DECEMBER 31, 2002
(UNAUDITED) *
------------------------ -----------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 765 $ 1,813
Short-term debt 608 599
Accounts payable 22,013 23,770
Accrued expenses and other current liabilities 38,965 25,116
Income taxes payable 3,914 5,913
Current liabilities of discontinued operations (Note 2) 23,942 17,225
------------ -------------
Total current liabilities 90,207 74,436
LONG-TERM LIABILITIES:
Long-term debt, less current portion 159,921 5,072
Discontinued operations (Note 2) 125 168
------------ -------------
Total liabilities 250,253 79,676
COMMITMENTS AND CONTINGENCIES
(NOTE 14)
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value, 5,000,000 shares
authorized; no shares issued and outstanding - -
Common stock, $.01 par value; 50,000,000 shares
authorized; 34,207,688 and 33,593,977 issued and
28,147,466 and 29,456,692 outstanding at
September 30, 2003 and December 31, 2002,
respectively 342 336
Additional paid-in capital 315,148 307,487
Retained earnings 49,871 34,056
Accumulated other comprehensive loss (1,904) (4,169)
Treasury stock (72,317) (49,633)
------------ -------------
Total stockholders' equity 291,140 288,077
------------ -------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 541,393 $ 367,753
============ =============
* Condensed from audited financial statements.
See notes to condensed consolidated financial statements.
F-3
ARMOR HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2003 2002 2003 2002
------------- ------------- ------------- -------------
REVENUES:
Products $ 50,786 $ 49,047 $ 144,140 $ 131,049
Mobile Security 40,096 31,510 108,875 90,717
-------- -------- --------- ---------
Total Revenues 90,882 80,557 253,015 221,766
-------- -------- --------- ---------
COSTS AND EXPENSES:
Cost of sales 61,953 55,947 176,396 152,481
Operating expenses 15,977 12,852 44,505 37,046
Amortization 72 62 201 213
Integration and other non-recurring
charges 368 1,359 4,565 4,476
-------- -------- --------- ---------
OPERATING INCOME 12,512 10,337 27,348 27,550
Interest expense, net 1,475 343 2,291 669
Other expense (income), net 96 (13) 181 (77)
-------- -------- --------- ---------
INCOME FROM CONTINUING OPERATIONS BEFORE
PROVISION FOR INCOME TAXES 10,941 10,007 24,876 26,958
PROVISION FOR INCOME TAXES 4,832 7,043 10,044 13,603
-------- -------- --------- ---------
INCOME FROM CONTINUING OPERATIONS 6,109 2,964 14,832 13,355
-------- -------- --------- ---------
DISCONTINUED OPERATIONS (NOTE 2):
INCOME (LOSS) FROM DISCONTINUED OPERATIONS
BEFORE PROVISION FOR INCOME TAXES 1,679 (17,032) 3,593 (17,606)
PROVISION FOR INCOME TAXES 1,673 639 2,610 421
-------- -------- --------- ---------
INCOME (LOSS) FROM DISCONTINUED OPERATIONS 6 (17,671) 983 (18,027)
-------- -------- --------- ---------
NET INCOME (LOSS) $ 6,115 $(14,707) $ 15,815 $ (4,672)
======== ========= ========= =========
NET INCOME (LOSS) PER COMMON SHARE - BASIC
======== ========= ========= =========
INCOME FROM CONTINUING OPERATIONS $ 0.22 $ 0.10 $ 0.52 $ 0.44
======== ========= ========= =========
INCOME (LOSS) FROM DISCONTINUED OPERATIONS 0.00 (0.60) 0.04 (0.59)
======== ========= ========= =========
======== ========= ========= =========
BASIC EARNINGS (LOSS) PER SHARE $ 0.22 $ (0.50) $ 0.56 $ (0.15)
======== ========= ========= =========
See notes to condensed consolidated financial statements.
F-4
ARMOR HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - CONTINUED (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 2003 SEPTEMBER 30, 2002 SEPTEMBER 30, 2003 SEPTEMBER 30, 2002
------------------ ------------------ ------------------ ------------------
NET INCOME (LOSS) PER COMMON SHARE - DILUTED
INCOME FROM CONTINUING OPERATIONS $ 0.22 $ 0.10 $ 0.52 $ 0.43
INCOME (LOSS) FROM DISCONTINUED OPERATIONS 0.00 (0.59) 0.04 (0.58)
-------------------- ------------------- ------------------- -------------------
DILUTED EARNINGS (LOSS) PER SHARE $ 0.22 $ (0.49) $ 0.56 $ (0.15)
==================== =================== =================== ===================
WEIGHTED AVERAGE SHARES - BASIC 27,811 29,708 28,106 30,639
==================== =================== =================== ===================
WEIGHTED AVERAGE SHARES - DILUTED 28,249 30,037 28,438 31,373
==================== =================== =================== ===================
See notes to condensed consolidated financial statements.
F-5
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
ARMOR HOLDINGS, INC. AND SUBSIDIARIES (UNAUDITED)
(IN THOUSANDS)
NINE MONTHS ENDED
--------------------------------------------
SEPTEMBER 30, 2003 SEPTEMBER 30, 2002
------------------ ------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Income from continuing operations $ 14,832 $ 13,355
Adjustments to reconcile income from continuing operations to cash used in
operating activities:
Depreciation and amortization 5,380 4,049
Loss on disposal of fixed assets 167 136
Deferred income taxes 3,676 (680)
Non-cash termination charge 2,093 --
Changes in operating assets and liabilities, net of acquisitions:
Increase in accounts receivable (1,556) (3,130)
Decrease (increase) in inventories 2,173 (10,203)
Increase in prepaid expenses and other assets (3,682) (3,569)
Increase (decrease) in accounts payable, accrued
expenses and other current liabilities 11,808 (6,775)
(Decrease) increase in income taxes payable (1,999) 6,345
----------- ------------
Net cash provided by (used in) operating activities 32,892 (472)
----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (5,645) (4,548)
Purchase of patents and trademarks (99) (45)
Additional consideration for purchased businesses (740) (2,652)
Purchase of businesses, net of cash acquired (5,828) (7,411)
----------- ------------
Net cash used in investing activities (12,312) (14,656)
----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the exercise of stock options 6,588 4,237
Treasury stock purchases (22,684) (26,054)
Cash paid for financing costs (4,020) (326)
Proceeds from the issuance of long-term debt 147,504 --
Repayments of long-term debt (1,399) (591)
Borrowings under line of credit 31,744 27,763
Repayments under line of credit (32,070) (20,701)
----------- ------------
Net cash provided by (used in) financing activities 125,663 (15,672)
----------- ------------
Effect of exchange rate changes on cash and cash equivalents 478 (872)
Net cash (used in) transferred from discontinued operations (4,868) 767
----------- ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 141,853 (30,905)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 12,913 47,489
----------- ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 154,766 $ 16,584
=========== ============
CASH AND CASH EQUIVALENTS, END OF PERIOD
CONTINUING OPERATIONS $ 154,766 $ 16,584
DISCONTINUED OPERATIONS 5,051 4,819
----------- ------------
$ 159,817 $ 21,403
=========== ============
See notes to condensed consolidated financial statements.
F-6
NOTES TO UNAUDITED CONDENSED AND CONSOLIDATED
FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
of Armor Holdings, Inc. and its wholly-owned subsidiaries (the "Company",
"we", "our", "us") have been prepared in accordance with generally accepted
accounting principles for interim information and the instructions to Form
10-Q and Rule 10-01 of Regulation S-X, and do not include all the information
and footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all adjustments
(consisting only of normal recurring accruals and the elimination of all
material intercompany accounts and transactions) considered necessary by
management to present a fair presentation have been included. The results of
operations for the three and nine-month periods are not necessarily indicative
of the results to be expected for the full year and should be read in
conjunction with the consolidated financial statements and notes thereto
included in our Annual Report on Form 10-K for the year ended December 31,
2002. The amounts disclosed in the footnotes are related to continuing
operations unless otherwise indicated.
As discussed in Note 2 and elsewhere in this prospectus, we announced
our intention to sell our ArmorGroup Services Division (the "Services
Division"). As a result, the assets and liabilities of the Services Division
have been classified as assets and liabilities of discontinued operations on our
balance sheet and the results of their operations classified as income from
discontinued operations in the accompanying unaudited condensed consolidated
financial statements.
NOTE 2 - DISCONTINUED OPERATIONS
On July 15, 2002, we announced plans to sell the Services Division and
the retention of Merrill Lynch & Company to assist in the sale. In accordance
with Statement of Financial Accounting Standards No. 144, "Accounting for
Impairment or Disposal of Long-Lived Assets," (SFAS 144) the assets and
liabilities of the Services Division have been classified as held for sale, with
its operating results in the current and prior periods reported in discontinued
operations for the three and nine-month periods ended September 30, 2003 and
2002.
On April 17, 2003, we announced that we had completed the sale of our
ArmorGroup Integrated Systems business through the sale of 100% of the stock of
ArmorGroup Integrated Systems, Inc. and Low Voltage Systems Technologies, Inc.
to Aerwav Integration Systems, Inc. ("AIS"). AIS is a wholly owned subsidiary of
Aerwav Holdings, LLC. As consideration for the integrated systems business, we
received a $4.1 million collateralized note due in two years and a warrant for
approximately 2.5% of AIS. In accordance with SFAS 144, we have recorded a loss
of $366,000 on the sale.
For the three months ended September 30, 2003, net income from
discontinued operations was $6,000 compared to a net loss of $17.7 million in
the comparable period in the prior year. Excluding the ArmorGroup Integrated
Systems business net loss of $13.9 million, the net loss was $3.7 million for
the three-month period ended September 30, 2002.
F-7
NOTES TO UNAUDITED CONDENSED AND CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)
For the nine months ended September 30, 2003, net income from
discontinued operations was $983,000 compared to a net loss of $18.0 million in
the comparable period in the prior year. Excluding the pre-tax loss of $366,000
(after-tax loss of $238,000) on the sale of ArmorGroup Integrated Systems
business, a net loss of $613,000 in the nine-month period ended September 30,
2003 and a net loss of $14.3 million for the nine-month period ended September
30, 2002, net income was $1.8 million and a net loss of $3.7 million for the
nine months ended September 30, 2003 and 2002, respectively.
Based upon our analysis and discussions with our advisors regarding the
estimated realizable value, net of selling costs, of the Services Division, we
reduced its carrying value, and recorded net impairment charges of $30.3 million
in fiscal 2002 and $1.3 million in the three months ended September 30, 2003.
These impairment charges consisted of approximately $6.3 million in estimated
disposal costs and a $35.1 million non-cash goodwill reduction, net of an
expected $10.0 million income tax benefit. The provision for income taxes for
discontinued operations was $1.7 million and $2.6 million for the three and
nine-month periods ended September 30, 2003, respectively. The reduction in the
carrying value of the Services Division is management's best estimate based upon
currently available information, including discussions with our investment
bankers. The actual proceeds from the disposal of our Services Division may
differ materially from our current estimates and could result in either a gain
or a loss upon final disposal. We are actively pursuing a sale of this business.
A summary of the operating results of the discontinued operations for
the three months and nine months ended September 30, 2003 and 2002 is as
follows.
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 2003 SEPTEMBER 30, 2002 SEPTEMBER 30, 2003 SEPTEMBER 30, 2002
------------------ ------------------ ------------------ ------------------
(IN THOUSANDS) (IN THOUSANDS)
Revenue $ 26,039 $ 23,747 $ 75,738 $ 74,273
Cost of sales 18,078 19,730 53,447 55,840
Operating expenses 4,882 8,018 16,299 22,582
Charge for impairment of long-
lived assets 11,258 11,905 11,258 11,905
Integration and other non-recurring
charges 104 836 598 1,225
--------- -------- --------- --------
Operating loss (8,283) (16,742) (5,864) (17,279)
Interest expense, net 18 34 71 127
Other expense, net 20 256 472 200
--------- -------- --------- --------
Loss from discontinued operations before
(benefit) provision for income taxes (8,321) (17,032) (6,407) (17,606)
(Benefit) provision for income taxes (8,327) 639 (7,390) 421
--------- -------- --------- --------
(Loss) income from discontinued
operations $ 6 $ (17,671) $ 983 $(18,027)
========= ========= ========= ========
F-8
NOTES TO UNAUDITED CONDENSED AND CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)
The following is a summary of the assets and liabilities of our discontinued
operations:
SEPTEMBER 30, DECEMBER 31,
2003 2002
------------- ------------
(IN THOUSANDS)
Assets
Cash and cash equivalents $ 5,051 $ 3,638
Accounts receivable, net 19,810 16,228
Other current assets 23,097 8,959
--------- ---------
Total current assets 47,958 28,825
Property and equipment, net 13,588 12,481
Goodwill, net 1,961 12,995
Other assets 4,496 4,809
--------- ---------
Total assets of discontinued operations $ 68,003 $ 59,110
========= =========
Liabilities
Current portion of long-term debt $ 125 $ 186
Short-term debt 6,604 350
Accounts payable 2,115 2,405
Accrued expenses and other current liabilities 15,098 14,284
--------- ---------
Total current liabilities 23,942 17,225
Long-term debt 125 168
--------- ---------
Total liabilities of discontinued operations $ 24,067 $ 17,393
========= =========
F-9
NOTES TO UNAUDITED CONDENSED AND CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)
NOTE 3 - COMPREHENSIVE INCOME
The components of comprehensive income, net of tax provision (benefit)
of $31,000 and ($26,000) for the three months ended September 30, 2003 and 2002,
respectively, and $255,000 and ($197,000) for the nine months September 30, 2003
and 2002, respectively, are listed below:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 2003 SEPTEMBER 30, 2002 SEPTEMBER 30, 2003 SEPTEMBER 30, 2002
------------------ ------------------ ------------------ ------------------
(IN THOUSANDS) (IN THOUSANDS)
Net income (loss) $ 6,115 $ (14,707) $ 15,815 $ (4,672)
Other comprehensive income (loss):
Foreign currency translations, net
of tax 34 (617) 2,265 (852)
---------- --------- --------- ---------
Comprehensive income (loss): $ 6,149 $ (15,324) $ 18,080 $ (5,524)
========== ========= ========= =========
NOTE 4 - INVENTORIES
Inventories are stated at the lower of cost or market using the
first-in, first-out (FIFO) method and are summarized as follows:
SEPTEMBER 30, 2003 DECEMBER 31, 2002
------------------ -----------------
(IN THOUSANDS)
Raw material $ 34,067 $ 30,211
Work-in-process 12,573 15,733
Finished goods 13,428 16,386
-------- --------
Total inventories $ 60,068 $ 62,330
======== ========
NOTE 5 - ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities are summarized as
follows:
SEPTEMBER 30, 2003 DECEMBER 31, 2002
------------------ -----------------
(IN THOUSANDS)
Accrued expenses and other current liabilities $ 25,328 $ 16,988
Deferred consideration for acquisitions 1,310 1,826
Customer deposits 12,327 6,302
-------- ---------
Total accrued expenses and other current liabilities $ 38,965 $ 25,116
======== =========
F-10
NOTES TO UNAUDITED CONDENSED AND CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)
NOTE 6 - DEBT
SEPTEMBER 30, DECEMBER 31,
2003 2002
--------------- -------------
(IN THOUSANDS)
Credit facility (a) $ -- $ --
Senior Subordinated Notes (b) 147,538 --
Ontario Industrial Development Authority Variable Rate Demand Industrial
Development Revenue Bonds, Series 1989 payable in annual installments of
$200 to $300, through August 1, 2014, with interest paid monthly at
varying rates 2,600 2,800
Note payable in scheduled installments through 2013, with interest rate of
5% 1,482 1,582
Economic Development Revenue Bonds, payable in scheduled installments
through September 2016, with a variable interest rate approximating
85% of the bond equivalent yield of the 13-week U.S. Treasury bills
(not to exceed 12%), which was 2.75% at December 31, 2002. -- 1,075
Note to former officer payable in monthly principal and interest
installments of $7 through December 31, 2009 with an imputed interest
rate of 9.25% 367 399
Minimum guaranteed royalty to former officer payable in monthly principal
and interest installments of $4 through August 2005, with an imputed
interest rate of 9.2% 85 114
Minimum guaranteed royalty to former officer payable in monthly principal
and interest installments of $36 through April 2005, with an imputed
interest rate of 7.35% 638 915
Plus fair value of interest rate swaps (c) 7,976 --
--------- ---------
$ 160,686 $ 6,885
Less current portion (765) (1,813)
--------- ---------
Total $ 159,921 $ 5,072
========= =========
(a) Credit Facility - On August 12, 2003, we terminated our existing
credit facility and entered into a new collateralized revolving credit facility
with Bank of America N.A., Wachovia Bank, N.A. and Key Bank, N.A. The new credit
facility is a five-year revolving credit facility and, among other things,
provides for: 1) total maximum borrowings of $60 million; 2) a $25 million
sub-limit for the issuances of standby and commercial letters of credit; 3) a $5
million sub-limit for swing-line loans; and 4) a $5 million sub-limit for
multi-currency borrowings. All borrowings under the new credit facility will
bear interest at either 1) a rate equal to LIBOR, plus an applicable margin
ranging from 1.125% to 1.625%; 2) an alternate base rate which will be the
higher of (a) the Bank of America prime rate and (b) the Federal Funds rate plus
..50%; or 3) with respect to foreign currency loans, a fronted offshore currency
rate, plus an applicable margin ranging from 1.125% to 1.625%, depending on
certain conditions.
F-11
NOTES TO UNAUDITED CONDENSED AND CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)
(b) Senior Subordinated Notes - On August 12, 2003, we completed a
private placement of $150 million aggregate principal amount of 8.25% senior
subordinated notes due 2013 (the "Notes"). The Notes are guaranteed by all of
our domestic subsidiaries, except USDS, Inc., on a senior subordinated basis
(see Note 13). The Notes have been sold to qualified institutional buyers in
reliance on Rule 144A of the Securities Act of 1933 and to non-U.S. persons in
reliance on Regulation S under the Securities Act of 1933. The Notes were rated
B1/B+ by Moody's Investors' Service and Standard & Poor's Rating Services,
respectively. We intend to use the net proceeds of the offering to fund future
acquisitions, including some or all of the purchase price for our pending
acquisition of Simula, Inc., repay a portion of our outstanding debt and for
general corporate and working capital purposes, including the funding of capital
expenditures. Interest on the Notes is payable semiannually on the fifteenth of
February and August of each year. The Notes were issued at a discount of
approximately $2.5 million to investors.
(c) Fair Value of Interest Rate Swaps - On September 2, 2003, we
entered into interest rate swap agreements, designated as a fair value hedge as
defined under Statement of Financial Accounting Standard No. 133, "Accounting
for Derivative Instruments and Hedge Activities," (SFAS 133) with an aggregate
notional amount totaling $150 million. The agreements were entered to exchange
the fixed interest rate on the Notes for a variable interest rate equal to
six-month LIBOR, set in arrears, plus a spread ranging from 2.735% to 2.75%
fixed semi-annually on the fifteenth of February and August. At September 30,
2003, the six-month LIBOR was 1.18%. The agreements are subject to other terms
and conditions common to transactions of this type. In accordance with SFAS 133,
changes in the fair value of the interest rate swap agreements offset changes in
the fair value of the fixed rate debt due to changes in the market interest
rate. The fair value of the interest rate swap agreements was approximately $8.0
million at September 30, 2003. The agreements are deemed to be a perfectly
effective fair value hedge and therefore qualify for the short-cut method of
accounting under SFAS 133. As a result, no ineffectiveness is expected to be
recognized in our earnings associated with the interest rate swap agreements on
the Notes.
NOTE 7 - DERIVATIVE FINANCIAL INSTRUMENTS
We account for derivative instruments in accordance with SFAS 133,
which requires all freestanding and embedded derivative instruments to be
measured at fair value and recognized on the balance sheet as either assets or
liabilities. In addition, all derivative instruments used in hedging
relationships must be designated, reassessed and accounted for as either fair
value hedges or cash flow hedges pursuant to the provisions of SFAS 133.
We hedge the fair value of our Notes using interest rate swaps. We
enter into these derivative contracts to manage fair value changes which could
be caused by our exposure to interest rate changes. On September 2, 2003, we
entered into interest rate swap agreements, designated as fair value hedges as
defined under SFAS 133 with an aggregate notional amount totaling $150 million.
The agreements were entered to exchange the fixed interest rate on the Notes for
a variable interest rate equal to six-month LIBOR, set in arrears, plus a spread
ranging from 2.735% to 2.75% fixed semi-annually on the fifteenth of February
and August. The agreements are subject to other terms and conditions common to
transactions of this type. These fair value hedges qualify for hedge accounting
using the short-cut method since the swap terms match the critical terms of the
Notes. Accordingly, changes in the fair value of the interest rate swap
agreements offset changes in
F-12
NOTES TO UNAUDITED CONDENSED AND CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)
the fair value of the Notes due to changes in the market interest rate. As a
result, no ineffectiveness is expected to be recognized in our earnings
associated with the interest rate swap agreements on the Notes.
The fair values of our interest rate swap agreements are obtained from
dealer quotes and represent the estimated amount we would receive or pay to
terminate the agreement, taking into consideration the difference between the
contract rate of interest and rates currently quoted for agreements of similar
terms and maturities.
NOTE 8 - INFORMATION CONCERNING BUSINESS SEGMENTS AND
GEOGRAPHICAL SALES
We are a leading manufacturer and provider of security products,
vehicle armor systems, and security training services. Our products and services
are used by military, law enforcement, security and corrections personnel
throughout the world, as well as governmental agencies, multinational
corporations and non-governmental organizations. Our continuing operations are
organized and operated under two business segments: Armor Holdings Products and
Armor Mobile Security. Our Services Division has been classified as discontinued
operations and is no longer included in this presentation (See Note 2).
Armor Holdings Products. Our Armor Holdings Products Division
manufactures and sells a broad range of high quality equipment marketed under
brand names that are well known and respected in the military and law
enforcement communities. Products manufactured by this division include
concealable and tactical body armor, hard armor, duty gear, less-lethal
munitions, anti-riot products, police batons, emergency lighting products,
forensic products, firearms accessories and weapon maintenance products.
Armor Mobile Security. Our Armor Mobile Security Division manufactures
and installs ballistic and blast protection armoring systems for military
vehicles, commercial vehicles, military aircraft and missile components. Under
the brand name O'Gara-Hess & Eisenhardt ("O'Gara"), we are the sole-source
provider to the U.S. military for the supply of armoring and blast protection
systems as well as maintenance services for the High Mobility Multi-purpose
Wheeled Vehicle (HMMWV, commonly known as the Humvee). Additionally, we have
been subcontracted to develop a ballistically armored and sealed truck cab for
the High Mobility Artillery Rocket System (HIMARS) a program currently in
low-rate initial production for the U.S. Army. We armor a variety of commercial
vehicles including limousines, sedans, sport utility vehicles, commercial trucks
and cash-in-transit vehicles, to protect against varying degrees of ballistic
and blast threats. The Armor Mobile Security Division was created in connection
with our acquisition of O'Gara on August 22, 2001 (the "O'Gara acquisition").
We have invested substantial resources outside of the United States and
plan to continue to do so in the future. The Armor Mobile Security Division has
invested substantial resources in Europe and South America. These operations are
subject to the risk of new and different legal and regulatory requirements in
local jurisdictions, tariffs and trade barriers, potential difficulties in
staffing and managing local operations, currency risks, potential imposition of
restrictions on investments, potentially adverse tax consequences, including
imposition or increase of withholding
F-13
NOTES TO UNAUDITED CONDENSED AND CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)
and other taxes on remittances and other payments by subsidiaries, and local
economic, political and social conditions. Governments of many developing
countries have exercised and continue to exercise substantial influence over
many aspects of the private sector. Government actions in the future could have
a significant adverse effect on economic conditions in a developing country or
may otherwise have a material adverse effect on us and our operating companies.
We do not have political risk insurance in the countries in which we currently
conduct business. Moreover, applicable agreements relating to our interests in
our operating companies are frequently governed by foreign law. As a result, in
the event of a dispute, it may be difficult for us to enforce our rights.
Accordingly, we may have little or no recourse upon the occurrence of any of
these developments.
Revenues, operating income and total assets for each of our continuing
operating segments are as follows (net of intercompany eliminations):
NINE MONTHS ENDED
SEPTEMBER 30, 2003 SEPTEMBER 30, 2002
-------------------------- -------------------------
(IN THOUSANDS)
Revenues:
Products $ 144,140 $ 131,049
Mobile Security 108,875 90,717
------------ ------------
Total revenues $ 253,015 $ 221,766
============ ============
Operating income (loss):
Products $ 24,619 $ 24,068
Mobile Security 13,491 9,156
Corporate (10,762) (5,674)
------------ ------------
Total operating income $ 27,348 $ 27,550
============ ============
Total assets:
Products $ 177,754 $ 176,951
Mobile Security 115,801 112,136
Corporate 179,835 18,777
------------ ------------
Total assets $ 473,390 $ 307,864
============ ============
F-14
NOTES TO UNAUDITED CONDENSED AND CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)
The following unaudited information with respect to revenues,
operating income from continuing operations (geographic operating income from
continuing operations before amortization expense and integration and other
non-recurring charges) and total assets to principal geographic areas are as
follows:
NINE MONTHS ENDED
SEPTEMBER 2003 SEPTEMBER 30, 2002
------------------------ -------------------------
(IN THOUSANDS)
Revenues:
North America $ 186,754 $ 157,069
South America 10,547 21,983
Africa 1,578 1,344
Europe/Asia 54,136 41,370
--------- ---------
Total revenue $ 253,015 $ 221,766
========= =========
Geographic operating income:
North America $ 24,973 $ 23,928
South America 618 1,690
Africa 377 430
Europe/Asia 6,146 6,191
--------- ---------
Total geographic operating income $ 32,114 $ 32,239
========= =========
Total assets:
North America $ 419,966 $ 258,123
South America 6,301 9,856
Africa - -
Europe/Asia 47,123 39,885
--------- ---------
Total assets $ 473,390 $ 307,864
========= =========
A reconciliation of consolidated geographic operating income from
continuing operations to consolidated operating income from continuing
operations follows:
NINE MONTHS ENDED
SEPTEMBER 30, 2003 SEPTEMBER 30, 2002
------------------------ ------------------------
(IN THOUSANDS)
Consolidated geographic operating income $ 32,114 $ 32,239
Amortization (201) (213)
Integration and other non-recurring charges (4,565) (4,476)
--------- --------
Operating income $ 27,348 $ 27,550
========= ========
F-15
NOTES TO UNAUDITED CONDENSED AND CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)
NOTE 9 - EARNINGS PER SHARE
The following details the numerators and denominators of the basic and
diluted earnings per share computations for net income from continuing
operations:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 2003 SEPTEMBER 30, 2002 SEPTEMBER 30, 2003 SEPTEMBER 30, 2002
------------------ ------------------ ------------------ ------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Numerator for basic and diluted
earnings per share:
Income from continuing operations $ 6,109 $ 2,964 $ 14,832 $ 13,355
-------- ------- -------- --------
Denominator for basic earnings per share
- - weighted average shares outstanding: 27,811 29,708 28,106 30,639
Effect of shares issuable under stock
option and stock grant plans, based on
the treasury stock method 438 329 332 734
-------- ------- -------- --------
Denominator for diluted earnings per
share- Adjusted weighted average shares
outstanding 28,249 30,037 28,438 31,373
-------- ------- -------- --------
Basic earnings per share from $ 0.22 $ 0.10 $ 0.52 $ 0.44
======== ======= ======== =======
Diluted earnings per share from
continuing operations $ 0.22 $ 0.10 $ 0.52 $ 0.43
======== ======= ======== =======
F-16
NOTES TO UNAUDITED CONDENSED AND CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)
NOTE 10 - NEW ACCOUNTING PRONOUNCEMENTS
In November 2002, the FASB issued FASB Interpretation No. 45
Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others, an Interpretation of FASB
Statements No. 5, 57, and 107 and Rescission of FASB Interpretation No. 34 ("FIN
45"). FIN 45 elaborates on the disclosures to be made by a guarantor in its
interim and annual financial statements about its obligations under certain
guarantees that it has issued. It also clarifies that a guarantor is required to
recognize, at the inception of a guarantee, a liability for the fair value of
the obligation undertaken in issuing the guarantee. The initial recognition and
initial measurement provisions of FIN 45 are applicable on a prospective basis
to guarantees issued or modified after December 31, 2002, irrespective of the
guarantor's fiscal year-end. We adopted the provisions of this Statement on
January 1, 2003, which did not have a significant impact on our consolidated
financial statements.
In January 2003, the FASB issued FASB Interpretation No. 46,
Consolidation of Variable-Interest Entities - an Interpretation of ARB No. 51
("FIN 46"). FIN 46 addresses consolidation by business enterprises of variable
interest entities, which have one or both of the following characteristics: (1)
the equity investment at risk is not sufficient to permit the entity to finance
its activities without additional subordinated financial support from other
parties, which is provided through other interests that will absorb some or all
of the expected losses of the entity and (2) the equity investors lack one or
more of the following essential characteristics of a controlling financial
interest:
o The direct or indirect ability to make decisions about the
entity's activities through voting rights or similar rights
o The obligation to absorb the expected losses of the entity if they
occur, which makes it possible for the entity to finance its
activities
o The right to receive the expected residual returns of the entity
if they occur, which is the compensation for the risk of absorbing
the expected losses.
This Interpretation applies immediately to variable interest entities
created after January 31, 2003, and to variable interest entities in which an
enterprise obtains an interest after that date. It applies in the first fiscal
year or interim period beginning after June 15, 2003, to variable interest
entities in which an enterprise holds a variable interest that it acquired
before February 1, 2003. The adoption of FIN 46 did not have a significant
impact on our consolidated financial statements.
F-17
NOTES TO UNAUDITED CONDENSED AND CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)
In April 2003, the FASB issued Statement of Financial Accounting
Standard No. 149, "Amendment of Statement 133 on Derivative Instruments and
Hedging Activities" (SFAS 149). SFAS 149 amends and clarifies financial
accounting and reporting for derivative instruments, including certain
derivative instruments embedded in other contracts and for hedging activities
under Statement of Financial Accounting Standard No. 133, "Accounting for
Derivative Instruments and Hedging Activities" (SFAS 133). SFAS 149 is effective
for contracts entered into or modified and hedging relationships designated
after June 30, 2003, except for the provisions of SFAS 149 that relate to SFAS
133 Implementation Issues that have been effective for fiscal quarters that
began prior to June 15, 2003, which should continue to be applied in accordance
with their respective effective dates. Adoption of this standard had no effect
on us.
In May 2003, the FASB issued Statement of Financial Accounting Standard
No. 150, "Accounting for Certain Financial Instruments with Characteristics of
both Liabilities and Equity" (SFAS 150). SFAS 150 establishes standards for how
an issuer classifies and measures certain financial instruments with
characteristics of both liabilities and equity. It requires that an issuer
classify a financial instrument that is within its scope as a liability (or an
asset in some circumstances). Many of those instruments were previously
classified as equity. SFAS 150 is effective for financial instruments entered
into or modified after May 31, 2003, and otherwise is effective at the beginning
of the first interim period beginning after June 15, 2003. Adoption of this
standard had no effect on us.
In September 2003, the FASB issued FASB Staff Position No. 146-1,
Determining Whether a One-Time Termination Benefit Offered in Connection with an
Exit or Disposal Activity Is, in Substance, an Enhancement to an Ongoing Benefit
Arrangement. This Staff Position states that in order to be considered an
enhancement to an ongoing benefit arrangement, the additional termination
benefits must represent a revision to the ongoing arrangement that is not
limited to a specified termination event or a specified future period. Otherwise
the additional termination benefits should be considered one-time termination
benefits and accounted for under SFAS 146. The guidance in this Staff Position
is effective for exit or disposal activities initiated in interim or annual
reporting periods beginning after September 15, 2003. The adoption of this Staff
Position is not expected to have a material impact on our consolidated financial
statements.
In October 2003, the FASB issued FASB Staff Position No. FIN 46-6,
Effective Date of FASB Interpretation No. 46, Consolidation of Variable Interest
Entities. This Staff Position defers the effective date for applying the
provisions of FIN 46 for interests held by public entities in variable interest
entities or potential variable interest entities created before February 1, 2003
and non-registered investment companies. This adoption of this Staff Position is
not expected to have a material impact on our consolidated financial statements.
F-18
NOTES TO UNAUDITED CONDENSED AND CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)
NOTE 11 - STOCKHOLDERS' EQUITY
Statement of Financial Accounting Standard No. 123, "Accounting for
Stock-Based Compensation" (SFAS 123), as amended by SFAS 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure," establishes a fair value
based method of accounting for stock-based employee compensation plans; however,
it also allows an entity to continue to measure compensation cost for those
plans using the intrinsic value based method of accounting prescribed by
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" (APB 25). Under the fair value based method, compensation cost is
measured at the grant date based on the value of the award and is recognized
over the service period, which is usually the vesting period. Under the
intrinsic value based method, compensation costs is the excess, if any, of the
quoted market price of the stock at the grant date or other measurement date
over the amount an employee must pay to acquire the stock. We have elected to
continue to account for our employee stock compensation plans under APB 25 with
pro forma disclosures of net earnings and earnings per share, as if the fair
value based method of accounting defined in SFAS 123 had been applied. If
compensation cost for stock option grants had been determined based on the fair
value on the grant dates for September 30, 2003 and 2002 consistent with the
method prescribed by SFAS 123, our net earnings and earnings per share would
have been adjusted to the pro forma amounts indicated below:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 2003 SEPTEMBER 30, 2002 SEPTEMBER 30, 2003 SEPTEMBER 30, 2002
------------------ ------------------ ------------------ ------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Net income (loss) as reported: $ 6,115 $(14,707) $ 15,815 $ (4,672)
Deduct: Total stock-based employee
compensation expense determined under fair
value based method for all awards, net of
related tax effects (671) (1,699) (2,985) (3,434)
------- -------- -------- --------
Pro-forma net income (loss) $ 5,444 $(16,406) $ 12,830 $ (8,106)
======= ======== ======== ========
Earnings (loss) per share:
Basic - as reported $ 0.22 $ (0.50) $ 0.56 $ (0.15)
======= ======== ======== ========
Basic - pro-forma $ 0.20 $ (0.55) $ 0.46 $ (0.26)
======= ======== ======== ========
Diluted - as reported $ 0.22 $ (0.49) $ 0.56 $ (0.15)
======= ======== ======== ========
Diluted - pro-forma $ 0.19 $ (0.55) $ 0.45 $ (0.26)
======= ======== ======== ========
F-19
NOTES TO UNAUDITED CONDENSED AND CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)
NOTE 12 - LEGAL PROCEEDINGS
On or about March 22, 2002, O'Gara-Hess & Eisenhardt Armoring Company
(OHEAC), one of our subsidiaries, received a civil subpoena from the Department
of Defense (DOD) requesting documents and information concerning various quality
control documentation regarding parts delivered by its subcontractors and
vendors in support of the HMMWV armored at its Fairfield, Ohio facility for the
period October 1, 1999 through May 1, 2001. OHEAC has complied fully with the
subpoena. In early 2003, OHEAC was advised that the Department of Justice (DOJ)
was also investigating separate claims against OHEAC filed by individuals that
involve the same time frame and issues covered by the DOD subpoena. OHEAC has
learned that the DOJ investigation relates to a certain unidentified action
filed under the federal False Claims Act pursuant to which the United States
government may intervene and recover damages. OHEAC has fully responded to, and
cooperated with, the government's questions and investigation. The DOJ has since
notified OHEAC that it has declined to intervene in the case. On September 30,
2003, the action filed under the federal False Claims Act was voluntarily
withdrawn without prejudice.
In October 2002, we were sued in the United States District Court for
the District of Wyoming. The plaintiffs in that lawsuit asserted various state
law tort claims and federal environmental law claims under the Resource
Conservation and Recovery Act and the Clean Air Act stemming from one of our
subsidiaries' Casper, Wyoming tear gas plant. The plaintiffs have not yet
quantified their alleged damages. The plaintiffs filed their suit as a potential
class action. On June 19, 2003, the court denied plaintiff's motion for class
certification. The alleged actions took place over time periods during which we
were covered by different insurance policies. We have notified our insurance
carriers of the suit. Our prior insurance carrier has agreed, under a full
reservation of rights, including with respect to any liability which relates to
the time its policy was in effect, to provide a defense and to address the
question of liability indemnification in the future. Our current insurance
carrier has declined defense and indemnification coverage. While we do not carry
specific environment insurance coverage, we have reserved the right to challenge
our insurance carrier's determination. The case is currently pending, and while
we are contesting the allegations vigorously, we are unable to predict the
outcome of this matter. At this time, we do not believe this matter will have a
material impact on our financial position, operations or liquidity.
Reference is made to Note 10, Commitments and Contingencies, in our
Annual Report on Form 10-K for the year ended December 31, 2002, and Note 10,
Legal Proceedings in our Quarterly Report on Form 10-Q for the quarter ended
March 31, 2003 for a description of other legal proceedings.
F-20
NOTES TO UNAUDITED CONDENSED AND CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)
NOTE 13 -GUARANTOR AND NONGUARANTOR FINANCIAL STATEMENTS
On August 12, 2003 we sold $150 million of Senior Subordinated Notes in
private placements pursuant to Rule 144A and Regulation S. The Senior
Subordinated Notes are uncollateralized obligations and rank junior in right of
payment to our existing and future senior debt. The Senior Subordinated Notes
are guaranteed, jointly and severally on a senior uncollateralized basis, by all
of our domestic subsidiaries, except USDS, Inc.
The following consolidated condensed financial information presents
the consolidated condensed balance sheet as of September 30, 2003 and December
31, 2002, the related condensed statements of income for each of the three and
nine month periods ended September 30, 2003 and September 30, 2002 and the
related condensed statements of cash flows for the nine month periods ended
September 30, 2003 and September 30, 2002 for:
a) Armor Holdings, Inc., the parent,
b) the guarantor subsidiaries,
c) the nonguarantor subsidiaries, and
d) Armor Holdings, Inc. on a consolidated basis
The information includes elimination entries necessary to consolidate
Armor Holdings, Inc., the parent, with the guarantor and nonguarantor
subsidiaries.
Investments in subsidiaries are accounted for by the parent using the equity
method of accounting. The guarantor and nonguarantor subsidiaries are presented
on a combined basis. The principal elimination entries eliminate investments in
subsidiaries and intercompany balances and transactions. Separate financial
statements for the guarantor and nonguarantor subsidiaries are not presented
because management believes such financial statements would not be meaningful to
investors.
F-21
NOTES TO UNAUDITED CONDENSED AND CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)
ARMOR HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEETS
SEPTEMBER 30, 2003
--------------------------------------------------------------------------------
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
---------- ------------ --------------- ------------- -------------
(IN THOUSANDS)
ASSETS
Current Assets:
Cash and cash equivalents $144,037 $ 2,620 $ 8,109 $ -- $ 154,766
Accounts receivable, net -- 47,925 11,290 -- 59,215
Costs and earned gross profit in excess
of billings -- 1,088 -- -- 1,088
Intercompany receivables 86,614 50,744 5,661 (143,019) --
Inventories -- 45,296 14,772 -- 60,068
Prepaid expenses and other current assets 19,520 12,931 3,271 (14,401) 21,321
Current assets of discontinued operations -- 7,971 39,987 -- 47,958
-------- -------- -------- ---------- ---------
Total Current Assets 250,171 168,575 83,090 (157,420) 344,416
Property and equipment, net 2,183 27,742 19,606 -- 49,531
Goodwill, net -- 97,002 1,932 -- 98,934
Patents, licenses and trademarks, net -- 7,233 186 -- 7,419
Other assets 20,903 232 (87) -- 21,048
Long-term assets of discontinued operations -- 7,205 12,840 -- 20,045
Investment in subsidiaries 197,975 10,007 21,734 (229,716) --
-------- -------- -------- ---------- ---------
Total Assets $471,232 $317,996 $139,301 $ (387,136) $ 541,393
======== ======== ======== ========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ -- $ 765 $ -- $ -- $ 765
Short-term debt -- -- 608 -- 608
Accounts payable 215 15,988 5,810 -- 22,013
Accrued expenses and other current
liabilities 8,335 13,102 17,528 -- 38,965
Income taxes payable 2,604 -- 1,310 -- 3,914
Intercompany payables 13,424 99,192 11,658 (124,274) --
Current liabilities of discontinued
operations -- 8,047 34,515 (18,745) 23,942
-------- -------- -------- ---------- ---------
Total Current Liabilities 24,578 137,094 71,429 (143,019) 90,207
Long-term debt, less current portion 155,514 4,407 -- -- 159,921
Long-term liabilities of discontinued
operations -- 2,778 11,873 (14,401) 125
-------- -------- -------- ---------- ---------
Total Liabilities 180,092 144,279 83,302 (157,420) 250,253
Stockholders' Equity:
Preferred stock -- 1,450 -- (1,450) --
Common stock 342 5,523 26,314 (31,837) 342
Additional paid in capital 315,148 71,816 31,615 (103,431) 315,148
Retained earnings (accumulated deficit) 49,871 94,928 (1,930) (92,998) 49,871
Accumulated other comprehensive loss (1,904) -- -- -- (1,904)
Treasury stock (72,317) -- -- -- (72,317)
-------- -------- -------- ---------- ---------
Total Stockholders' Equity 291,140 173,717 55,999 (229,716) 291,140
-------- -------- -------- ---------- ---------
Total Liabilities and Stockholders' Equity $471,232 $317,996 $139,301 $ (387,136) $ 541,393
======== ======== ======== ========== =========
F-22
NOTES TO UNAUDITED CONDENSED AND CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)
ARMOR HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEETS
DECEMBER 31, 2002
--------------------------------------------------------------------------------
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
---------- ------------ --------------- ------------- -------------
(IN THOUSANDS)
ASSETS
Current Assets:
Cash and cash equivalents $ 7,152 $ 3,556 $ 2,205 $ -- $ 12,913
Accounts receivable, net -- 44,864 13,649 -- 58,513
Costs and earned gross profit in excess
of billings -- 234 -- -- 234
Intercompany receivables 123,744 33,165 3,800 (160,709) --
Inventories -- 46,591 15,739 -- 62,330
Prepaid expenses and other current assets 12,490 21,999 2,368 (24,645) 12,212
Current assets of discontinued operations -- 10,351 18,474 -- 28,825
-------- -------- --------- ---------- ---------
Total Current Assets 143,386 160,760 56,235 (185,354) 175,027
Property and equipment, net 2,456 27,250 17,430 -- 47,136
Goodwill, net -- 96,903 1,833 -- 98,736
Patents, licenses and trademarks, net -- 7,326 195 -- 7,521
Other assets 916 6,872 1,260 -- 9,048
Long-term assets of discontinued operations -- 6,910 23,375 -- 30,285
Investment in subsidiaries 161,805 10,078 -- (171,883) --
-------- -------- --------- ---------- ---------
Total Assets $308,563 $316,099 $ 100,328 $(357,237) $ 367,753
======== ======== ========= ========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ -- $ 1,813 $ -- $ -- $ 1,813
Short-term debt -- -- 599 -- 599
Accounts payable 828 15,751 7,191 -- 23,770
Accrued expenses and other current
liabilities 1,790 11,324 12,002 -- 25,116
Income taxes payable 4,831 (148) 1,230 -- 5,913
Intercompany payables 13,037 115,658 10,434 (139,129) --
Current liabilities of discontinued
operations -- 14,267 24,538 (21,580) 17,225
-------- -------- --------- ---------- ---------
Total Current Liabilities 20,486 158,665 55,994 (160,709) 74,436
Long-term debt, less current portion -- 5,072 -- -- 5,072
Long-term liabilities of discontinued
operations -- 13,022 11,791 (24,645) 168
-------- -------- --------- ---------- ---------
Total Liabilities 20,486 176,759 67,785 (185,354) 79,676
Stockholders' Equity:
Preferred stock -- 1,450 -- (1,450) --
Common stock 336 5,681 26,318 (31,999) 336
Additional paid in capital 307,487 73,836 10,016 (83,852) 307,487
Retained earnings (accumulated deficit) 34,056 58,373 (3,791) (54,582) 34,056
Accumulated other comprehensive loss (4,169) -- -- -- (4,169)
Treasury stock (49,633) -- -- -- (49,633)
-------- -------- --------- ---------- ---------
Total Stockholders' Equity 288,077 139,340 32,543 (171,883) 288,077
-------- -------- --------- ---------- ---------
Total Liabilities and Stockholders' Equity $308,563 $316,099 $ 100,328 $ (357,237) $ 367,753
======== ======== ========= ========== =========
F-23
NOTES TO UNAUDITED CONDENSED AND CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)
ARMOR HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING INCOME STATEMENTS
THREE MONTHS ENDED SEPTEMBER 30, 2003
-----------------------------------------------------------------------------
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
---------- ----------- -------------- ------------- -------------
(IN THOUSANDS)
REVENUES:
Products $ -- $ 42,110 $ 8,676 $ -- $ 50,786
Mobile Security -- 24,338 15,758 -- 40,096
---------- ----------- -------------- ------------- -------------
Total revenues -- 66,448 24,434 -- 90,882
---------- ----------- -------------- ------------- -------------
COSTS AND EXPENSES:
Cost of sales -- 42,120 19,833 -- 61,953
Operating expenses 2,661 10,945 2,371 -- 15,977
Amortization -- 69 3 -- 72
Integration and other non-recurring
charges 107 261 -- -- 368
Related party management (income) fees (1,859) -- 2,339 (480) --
---------- ----------- -------------- ------------- -------------
OPERATING (LOSS) INCOME (909) 13,053 (112) 480 12,512
Interest expense, net 1,371 59 45 -- 1,475
Other expense (income), net -- 129 (33) -- 96
Equity in (earnings) losses of
subsidiaries (7,603) 256 -- 7,347 --
---------- ----------- -------------- ------------- -------------
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE PROVISION (BENEFIT) FOR INCOME TAXES 5,323 12,609 (124) (6,867) 10,941
PROVISION (BENEFIT) FOR INCOME TAXES (792) 4,748 876 -- 4,832
---------- ----------- -------------- ------------- -------------
INCOME (LOSS) FROM CONTINUING OPERATIONS 6,115 7,861 (1,000) (6,867) 6,109
DISCONTINUED OPERATIONS:
Income from discontinued operations
before provision for income taxes -- 1,697 462 (480) 1,679
Provision for income taxes -- 702 971 -- 1,673
---------- ----------- -------------- ------------- -------------
Net income (loss) from discontinued
operations -- 995 (509) (480) 6
---------- ----------- -------------- ------------- -------------
NET INCOME (LOSS) $ 6,115 $ 8,856 $ (1,509) $ (7,347) $ 6,115
========== =========== ============== ============= =============
F-24
NOTES TO UNAUDITED CONDENSED AND CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)
ARMOR HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING INCOME STATEMENTS
THREE MONTHS ENDED SEPTEMBER 30, 2002
----------------------------------------------------------------------------------
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
----------- ----------- ---------------- -------------- -------------
(IN THOUSANDS)
REVENUES:
Products $ -- $ 41,763 $ 7,284 $ $ 49,047
Mobile Security -- 21,282 10,228 -- 31,510
----------- ----------- ---------------- -------------- -------------
Total revenues -- 63,045 17,512 -- 80,557
----------- ----------- ---------------- -------------- -------------
COSTS AND EXPENSES:
Cost of sales -- 41,269 14,678 -- 55,947
Operating expenses 1,552 9,417 1,883 -- 12,852
Amortization -- 62 -- -- 62
Integration and other non-recurring
charges 335 1,024 -- -- 1,359
----------- ----------- ---------------- -------------- -------------
OPERATING (LOSS) INCOME (1,887) 11,273 951 -- 10,337
Interest expense, net 230 45 68 -- 343
Other (income) expense, net -- (38) 25 -- (13)
Equity in losses of subsidiaries 9,611 92 -- (9,703) --
Related parting interest income, net -- 122 -- (122) --
----------- ----------- ---------------- -------------- -------------
(LOSS) INCOME FROM CONTINUING
OPERATIONS BEFORE PROVISION FOR INCOME
TAXES (11,728) 11,052 858 9,825 10,007
PROVISION FOR INCOME TAXES 2,979 3,781 283 -- 7,043
----------- ----------- ---------------- -------------- -------------
(LOSS) INCOME FROM CONTINUING OPERATIONS (14,707) 7,271 575 9,825 2,964
----------- ----------- ---------------- -------------- -------------
DISCONTINUED OPERATIONS:
Loss from discontinued operations
before provision for income taxes -- (14,361) (2,549) (122) (17,032)
Provision for income taxes -- 29 610 -- 639
----------- ----------- ---------------- -------------- -------------
Net loss from discontinued operations -- (14,390) (3,159) (122) (17,671)
----------- ----------- ---------------- -------------- -------------
NET LOSS $ (14,707) $ (7,119) $ (2,584) $ 9,703 $ (14,707)
=========== =========== ================ ============== =============
F-25
NOTES TO UNAUDITED CONDENSED AND CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)
ARMOR HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING INCOME STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2003
-----------------------------------------------------------------------------------
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
------------ ----------- ----------------- ------------- -------------
(IN THOUSANDS)
REVENUES:
Products $ -- $ 117,863 $ 26,277 $ -- $ 144,140
Mobile Security -- 63,110 45,765 -- 108,875
------------ ----------- ----------------- ------------- -------------
Total revenues -- 180,973 72,042 -- 253,015
------------ ----------- ----------------- ------------- -------------
COSTS AND EXPENSES:
Cost of sales -- 117,278 59,118 -- 176,396
Operating expenses 7,203 29,732 7,570 -- 44,505
Amortization -- 193 8 -- 201
Integration and other non-recurring
charges 3,456 1,109 -- -- 4,565
Related party management (income) fees (1,859) -- 2,339 (480) --
------------ ----------- ----------------- ------------- -------------
OPERATING (LOSS) INCOME (8,800) 32,661 3,007 -- 27,348
Interest expense, net 1,866 250 175 -- 2,291
Other expense, net -- 131 50 -- 181
Equity in (earnings) losses of
subsidiaries (22,688) 419 -- 22,269 --
Related parting interest expense
(income), net 16 (16) -- -- --
------------ ----------- ----------------- ------------- -------------
INCOME FROM CONTINUING OPERATIONS BEFORE
PROVISION (BENEFIT) FOR INCOME TAXES 12,006 31,877 2,782 (21,789) 24,876
PROVISION (BENEFIT) FOR INCOME TAXES (3,809) 12,011 1,842 -- 10,044
------------ ----------- ----------------- ------------- -------------
INCOME FROM CONTINUING OPERATIONS 15,815 19,866 940 (21,789) 14,832
------------ ----------- ----------------- ------------- -------------
DISCONTINUED OPERATIONS:
Income from discontinued operations
before provision for income taxes -- 1,480 2,593 (480) 3,593
Provision for income taxes -- 938 1,672 -- 2,610
------------ ----------- ----------------- ------------- -------------
Net income from discontinued operations -- 542 921 (480) 983
------------ ----------- ----------------- ------------- -------------
NET INCOME $ 15,815 $ 20,408 $ 1,861 $ (22,269) $ 15,815
============ =========== ================= ============= =============
F-26
NOTES TO UNAUDITED CONDENSED AND CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)
ARMOR HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING INCOME STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2002
-----------------------------------------------------------------------------------
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
----------- -------------- -------------- -------------- -------------
(IN THOUSANDS)
REVENUES:
Products $ -- $ 112,437 $ 18,612 $ -- $ 131,049
Mobile Security -- 57,439 33,278 -- 90,717
----------- -------------- -------------- -------------- -------------
Total revenues -- 169,876 51,890 -- 221,766
----------- -------------- -------------- -------------- -------------
COSTS AND EXPENSES:
Cost of sales -- 109,621 42,860 -- 152,481
Operating expenses 4,866 27,073 5,107 -- 37,046
Amortization -- 213 -- -- 213
Integration and other non-recurring
charges 687 3,789 -- -- 4,476
Related party income -- -- -- -- --
----------- -------------- -------------- -------------- -------------
OPERATING (LOSS) INCOME (5,553) 29,180 3,923 -- 27,550
Interest expense, net 361 161 147 -- 669
Other income, net (2) (21) (54) -- (77)
Equity in earnings of subsidiaries (2,898) (1,087) -- 3,985 --
Related party interest income, net -- (102) -- 102 --
----------- -------------- -------------- -------------- -------------
(LOSS) INCOME FROM CONTINUING
OPERATIONS BEFORE PROVISION FOR INCOME
TAXES (3,014) 30,229 3,830 (4,087) 26,958
PROVISION FOR INCOME TAXES 1,658 10,597 1,348 -- 13,603
----------- -------------- -------------- -------------- -------------
(LOSS) INCOME FROM CONTINUING OPERATIONS (4,672) 19,632 2,482 (4,087) 13,355
----------- -------------- -------------- -------------- -------------
DISCONTINUED OPERATIONS:
Loss from discontinued operations
before income tax (benefit)
provision -- (14,015) (3,693) 102 (17,606)
Income tax (benefit) provision -- (722) 1,143 -- 421
----------- -------------- -------------- -------------- -------------
Net loss from discontinued operations -- (13,293) (4,836) 102 (18,027)
----------- -------------- -------------- -------------- -------------
NET (LOSS) INCOME $ (4,672) $ 6,339 $ (2,354) $ (3,985) $ (4,672)
=========== ============== ============== ============== =============
F-27
NOTES TO UNAUDITED CONDENSED AND CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)
ARMOR HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2003
-------------------------------------------------------------------------------
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
------------ ------------ -------------- ------------- -------------
(IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES:
Income from continuing operations $ 15,815 $ 19,866 $ 940 $ (21,789) $ 14,832
Adjustments to reconcile income from
continuing operations to cash
provided by operating activities.
Depreciation and amortization 974 2,972 1,434 -- 5,380
Loss on disposal of fixed assets -- 58 109 -- 167
Deferred income taxes (4,379) 6,428 1,627 -- 3,676
Non-cash termination charge 2,093 -- -- -- 2,093
Changes in operating assets & liabilities, net of
acquisitions:
(Increase) decrease in accounts receivable -- (3,915) 2,359 -- (1,556)
Decrease (increase) in intercompany
receivables & payables 19,723 (19,090) (153) (480) --
Decrease in inventory -- 1,206 967 -- 2,173
(Increase) decrease in prepaid expenses &
other assets (7,347) 4,848 (1,183) -- (3,682)
Increase in accounts payable, accrued
expenses and other current liabilities 5,043 2,620 4,145 -- 11,808
(Decrease) increase in income taxes
payable (2,227) 148 80 -- (1,999)
------------ ------------ -------------- ------------- -------------
Net cash provided by operating activities 29,695 15,141 10,325 (22,269) 32,892
------------ ------------ -------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (126) (3,330) (2,189) -- (5,645)
Purchase of patents and trademarks -- (99) -- -- (99)
Additional consideration for purchased
businesses -- (740) -- -- (740)
Investment in subsidiaries (22,337) 203 (135) 22,269 --
Purchase of businesses, net of cash acquired -- (5,828) -- -- (5,828)
------------ ------------ -------------- ------------- -------------
Net cash used in investing activities (22,463) (9,794) (2,324) 22,269 (12,312)
------------ ------------ -------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options 6,588 -- -- -- 6,588
Treasury stock repurchases (22,684) -- -- -- (22,684)
Cash paid for financing costs (4,020) -- -- -- (4,020)
Proceeds from the issuance of long-term debt 147,504 -- -- -- 147,504
Repayments of long-term debt -- (1,399) -- -- (1,399)
Borrowings under lines of credit 30,406 168 1,170 -- 31,744
Repayments under lines of credit (30,406) (484) (1,180) -- (32,070)
------------ ------------ -------------- ------------- -------------
Net cash provided by (used in) financing
activities 127,388 (1,715) (10) -- 125,663
------------ ------------ -------------- ------------- -------------
Effect of exchange rate on cash and cash
equivalents 2,265 (186) (1,601) -- 478
Net cash used in discontinued operations -- (4,382) (486) -- (4,868)
------------ ------------ -------------- ------------- -------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 136,885 (936) 5,904 -- 141,853
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD 7,152 3,556 2,205 -- 12,913
------------ ------------ -------------- ------------- -------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 144,037 $ 2,620 $ 8,109 $ -- $ 154,766
============ ============ ============== ============= =============
F-28
NOTES TO UNAUDITED CONDENSED AND CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)
ARMOR HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2002
-------------------------------------------------------------------------------
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
------------ ------------ -------------- ------------- -------------
(IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES:
Income from continuing operations $ (4,672) $ 19,632 $ 2,650 $ (4,255) $ 13,355
Adjustments to reconcile income from
continuing operations to cash used in
operating activities.
Depreciation and amortization 625 2,764 660 -- 4,049
Loss on disposal of fixed assets -- 37 99 -- 136
Deferred taxes (3,927) 1,592 1,655 -- (680)
Changes in operating assets & liabilities,
net of acquisitions:
(Increase) decrease in accounts receivable -- (5,890) 2,760 -- (3,130)
(Increase) decrease in intercompany
receivables & payables (5,414) 8,148 (3,004) 270 --
Increase in inventory -- (6,692) (3,511) -- (10,203)
Increase in prepaid expenses & other assets (313) (2,898) (358) -- (3,569)
Decrease in accounts payable, accrued
expenses and other current liabilities (1,539) (1,490) (3,746) -- (6,775)
Increase in income taxes payable 4,724 -- 1,621 -- 6,345
------------ ------------ -------------- ------------- -------------
Net cash (used in) provided by operating
activities (10,516) 15,203 (1,174) (3,985) (472)
------------ ------------ -------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (70) (3,044) (1,434) -- (4,548)
Purchase of patents and trademarks -- (45) -- -- (45)
Additional consideration for purchased
businesses -- (2,652) -- -- (2,652)
Investment in subsidiaries (7,166) (5,540) 8,721 3,985 --
Purchase of businesses, net of cash
acquired -- (5,916) (1,495) -- (7,411)
------------ ------------ -------------- ------------- -------------
Net cash (used in) provided by investing
activities (7,236) (17,197) 5,792 3,985 (14,656)
------------ ------------ -------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options 4,237 -- -- -- 4,237
Treasury stock purchases ((26,054) -- -- -- (26,054)
Cash paid for financing costs (326) -- -- -- (326)
Repayments of long-term debt -- (591) -- -- (591)
Borrowings under lines of credit 27,763 -- -- -- 27,763
Repayments under lines of credit (20,563) -- (138) -- (20,701)
------------ ------------ -------------- ------------- -------------
Net cash provided by (used in) financing
activities (14,943) (591) (138) -- (15,672)
------------ ------------ -------------- ------------- -------------
Effect of exchange rate on cash and cash
equivalents (851) (385) 364 -- (872)
Net cash transferred from (used in)
discontinued operations -- 2,306 (1,539) -- 767
------------ ------------ -------------- ------------- -------------
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS (33,546) (664) 3,305 -- (30,905)
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD 38,627 5,536 3,326 -- 47,489
------------ ------------ -------------- ------------- -------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 5,081 $ 4,872 $6,631 $ -- $ 16,584
============ ============ ============== ============= =============
F-29
NOTES TO UNAUDITED CONDENSED AND CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)
NOTE 14 - COMMITMENTS AND CONTINGENCIES
On September 2, 2003, we entered into a definitive Agreement and Plan
of Merger to acquire Simula, Inc., for $110.5 million, subject to adjustment
based on various factors, payable in cash or, at our option, in a combination of
cash and registered shares of our common stock. Upon consummation of the
acquisition, we will acquire all of the outstanding common stock of Simula,
retire Simula's outstanding indebtedness, and assume all liabilities of Simula.
The Agreement provides for a good faith deposit, payment of a break-up fee if
Simula accepts a competing offer, and other terms customary for similar
transactions. The acquisition is subject to, among other conditions, the
approval of Simula's stockholders. In connection with the acquisition, we
registered approximately 2.3 million shares of common stock on a Form S-4 with
the Securities and Exchange Commission. The registration statement was declared
effective on November 10, 2003. We anticipate completion of the acquisition in
the fourth quarter of 2003.
NOTE 15 - SUBSEQUENT EVENT
On July 26, 2003, we awarded Warren B. Kanders, our Chairman and Chief
Executive Officer, a stock bonus award of 200,000 shares of our common stock in
accordance with his amended employment agreement. On November 4, 2003, we
awarded Robert R. Schiller, our Chief Operating Officer and Chief Financial
Officer, a stock bonus award of 150,000 shares of our common stock in accordance
with his amended employment agreement. On November 11, 2003, our stock price
closed above $20 for the fifth consecutive trading day, which caused the
complete vesting of the stock bonus awards. The complete vesting of the stock
bonus awards results in a charge of $7.3 million, which will be recorded in the
three months ended December 31, 2003. The payment of the stock bonus awards to
Messrs. Kanders and Schiller will be deferred for a period of five years after
November 11, 2003, subject to acceleration under certain circumstances as set
forth in their respective employment agreements, as amended.
F-30
ARMOR HOLDINGS, INC. AND SUBSIDIARIES
AUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of Armor Holdings, Inc.:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, stockholders' equity and comprehensive
income, and cash flows present fairly, in all material respects, the financial
position of Armor Holdings, Inc. and its subsidiaries at December 31, 2002 and
2001, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 2002 in conformity with accounting
principles generally accepted in the United States of America. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
As discussed in Note 1 to the consolidated financial statements, effective
January 1, 2002, the Company changed its method of accounting for goodwill
following adoption of Statement of Financial Accounting Standard No. 142
"Goodwill and Other Intangible Assets."
PricewaterhouseCoopers LLP
Jacksonville, Florida
March 30, 2003, except for Note 20 and Note 21,
as to which the date is January 6, 2004.
F-31
ARMOR HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2002 AND DECEMBER 31, 2001
(IN THOUSANDS, EXCEPT FOR SHARE DATA)
DECEMBER 31, 2002 DECEMBER 31, 2001
------------------ ------------------
ASSETS
Current Assets:
Cash and cash equivalents $ 12,913 $47,489
Accounts receivable (net of allowance for doubtful accounts of $1,428
And $1,620) 58,513 50,119
Costs and earned gross profit in excess of billings 234 5,451
Inventories 62,330 50,553
Prepaid expenses and other current assets 12,212 8,947
Current assets of discontinued operations (Note 2) 28,825 37,562
------------------ ------------------
Total current assets 175,027 200,121
Property and equipment (net of accumulated depreciation of $12,919 and $8,096) 47,136
Goodwill (net of accumulated amortization of $4,024 and $4,024) 98,736 86,808
Patents, licenses and trademarks (net of accumulated amortization of $2,169 and $1,930) 7,521 6,695
Long-term assets of discontinued operations (Note 2) 30,285 51,105
Other assets 9,048 6,624
------------------ ------------------
Total assets $367,753 $ 388,057
================== ==================
LIABILITIES AND STOCKHOLDERS'EQUITY
Current liabilities:
Current portion of long-term debt $ 1,813 $ 1,773
Short term debt 599 709
Accounts payable 23,770 21,444
Accrued expenses and other current liabilities 25,116 25,796
Income taxes payable 5,913 -
Current liabilities of discontinued operations (Note 2) 17,225 7,676
------------------ ------------------
Total current liabilities 74,436 57,398
Long-term debt, less current portion 5,072 4,225
Long-term liabilities of discontinued operations (Note 2) 168 415
------------------ ------------------
Total liabilities 79,676 62,038
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value, 5,000,000 shares authorized; no
shares issued and outstanding -
Common stock, $.01 par value; 50,000,000 shares authorized; -
33,593,977 and 33,065,904 issued; 29,456,692 and 30,857,019
outstanding at December 31, 2002 and December 31, 2001, respectively 336 331
Additional paid-in capital 307,487 301,995
Retained earnings 34,056 51,745
Accumulated other comprehensive loss (4,169) (4,473)
Treasury stock (49,633) (23,579)
------------------ ------------------
Total stockholders' equity 288,077 326,019
------------------ ------------------
Total liabilities and stockholders' equity $367,753 $388,057
================== ==================
The accompanying notes are an integral part of these
consolidated financial statements.
F-32
ARMOR HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
DECEMBER 31, 2002 DECEMBER 31, 2001 DECEMBER 31, 2000
------------------- ------------------- -------------------
REVENUES:
Products $ 179,946 $149,868 $139,904
Mobile Security 125,171 47,232 --
-------------------- -------------------- --------------------
Total Revenues 305,117 197,100 139,904
-------------------- -------------------- --------------------
COST AND EXPENSES
Cost of sales 210,745 126,330 85,457
Operating expenses 49,836 38,659 30,286
Amortization 245 2,142 1,704
Integration and other non-recurring charges 5,926 3,296 2,588
-------------------- -------------------- --------------------
OPERATING INCOME 38,365 26,673 19,869
Interest expense, net 923 3,864 1,849
Other expense (income), net 51 (82) (67)
-------------------- -------------------- --------------------
INCOME FROM CONTINUING OPERATIONS
BEFORE PROVISION FOR INCOME TAXES 37,391 22,891 18,087
PROVISION FOR INCOME TAXES 16,054 8,207 7,240
-------------------- -------------------- --------------------
INCOME FROM CONTINUING OPERATIONS 21,337 14,684 10,847
-------------------- -------------------- --------------------
DISCONTINUED OPERATIONS (NOTE 2):
(LOSS) INCOME FROM DISCONTINUED OPERATIONS BEFORE (BENEFIT)
PROVISION FOR INCOME TAXES (41,468) (7,066) 8,303
(BENEFIT) PROVISION FOR INCOME TAXES (2,442) (2,510) 2,102
-------------------- -------------------- --------------------
(LOSS) INCOME FROM DISCONTINUED OPERATIONS (39,026) (4,556) 6,201
-------------------- -------------------- --------------------
NET (LOSS) INCOME $ (17,689) $ 10,128 $ 17,048
==================== ==================== ====================
NET (LOSS)/INCOME PER COMMON SHARE - BASIC
INCOME FROM CONTINUING OPERATIONS $ 0.70 $ 0.61 $ 0.48
(LOSS) INCOME FROM DISCONTINUED OPERATIONS (1.28) (0.19) 0.27
-------------------- -------------------- --------------------
BASIC (LOSS) INCOME PER SHARE $ (0.58) $ 0.42 $ 0.75
==================== ==================== ====================
NET (LOSS) INCOME PER COMMON SHARE - DILUTED
INCOME FROM CONTINUING OPERATIONS $ 0.69 $ 0.59 $ 0.46
(LOSS) INCOME FROM DISCONTINUED OPERATIONS (1.26) (0.18) 0.27
-------------------- -------------------- --------------------
DILUTED (LOSS) INCOME PER SHARE $ (0.57) $ 0.41 $ 0.73
================================================================
WEIGHTED AVERAGE SHARES - BASIC 30,341 23,932 22,630
==================== ==================== ====================
WEIGHTED AVERAGE SHARES - DILUTED 30,957 24,768 23,356
==================== ==================== ====================
The accompanying notes are an integral part of these
consolidated financial statements.
F-33
ARMOR HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31, 2000, 2001 AND 2002
(IN THOUSANDS)
ACCUMULATED
COMMON STOCK ADDITIONAL OTHER
PAR PAID-IN RETAINED COMPREHENSIVE TREASURY
SHARES VALUE CAPITAL EARNINGS LOSS STOCK TOTAL
------ ----- ------- -------- ---- ----- -----
Balance, December 31, 1999 24,514 $245 $145,480 $26,615 $(1,351) $(13,106) $157,883
Exercise of stock options 333 3 1,470 1,473
Tax benefit from exercises
of options 867 867
Issuance of stock for
acquisitions 217 2 2,437 2,439
Repurchase of stock (12,606) (12,606)
-------------
Comprehensive income:
Net income 17,048 17,048
Foreign currency translation
adjustments, net of taxes of $179 (333) (333)
-------------
Total Comprehensive income 16,715
--------- ---------- ---------------- ------------ --------------- ------------- -------------
Balance, December 31, 2000 25,064 $250 $150,254 $43,663 $(1,684) $(25,712) $166,771
Exercise of stock options 1,063 11 10,101 10,112
Tax benefit from exercises of
options 3,116 3,116
Issuance of treasury shares
for exercises of options (119) (1) (123) (2,846) 2,856 686
Issuance of common stock 5,765 58 117,969 118,027
Issuance of stock for
acquisitions and additional
consideration for earnouts 1,293 13 20,678 20,691
Repurchase of stock (723) (723)
Comprehensive income:
-------------
Net income 10,128 10,128
Foreign currency translation
adjustments,
net of taxes of $713 (2,789) (2,789)
-------------
Total Comprehensive income 7,339
--------- ---------- ---------------- ------------ --------------- ------------- -------------
Balance, December 31, 2001 33,066 $ 331 $ 301,995 $ 51,745 $ (4,473) $ (23,579) $ 326,019
Exercise of stock options 528 5 4,135 4,140
Tax benefit from exercises of
options 832 832
Sale of put options 525 525
Repurchase of stock (26,054) (26,054)
Comprehensive income:
-------------
Net income (17,689) (17,689)
Foreign currency translation
adjustments,
net of taxes of $364 304 304
-------------
Total Comprehensive income (17,385)
--------- ---------- ---------------- ------------ --------------- ------------- -------------
Balance, December 31, 2002 33,594 $336 $307,487 $34,056 $(4,169) $(49,633) $288,077
========= ========== ================ ============ =============== ============= =============
The accompanying notes are an integral part of these
consolidated financial statements.
F-34
ARMOR HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
(IN THOUSANDS)
YEAR ENDED
--------------------------------------------------------
DECEMBER 31, 2002 DECEMBER 31, 2001 DECEMBER 31, 2000
--------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Income from continuing operations $ 21,337 $ 14,684 $ 10,847
Adjustments to reconcile income from continuing operations to cash
used in operating activities:
Depreciation and amortization 5,580 5,614 3,462
Loss on disposal of fixed assets 200 191 110
Deferred income taxes 359 (373) 769
Changes in operating assets and liabilities, net of
acquisitions:
Increase in accounts receivable (2,554) (14,880) (3,600)
Increase in inventories (9,381) (3,948) (4,579)
(Increase) decrease in prepaid expenses and other assets (2,246) 1,049 (6,396)
(Decrease) increase in accounts payable, accrued
expenses and other current liabilities (3,754) 7,181 381
Increase in income taxes payable 6,745 6,667 (2,928)
------------------ ------------------ ------------------
Net cash provided by (used in) operating activities 16,286 16,185 (1,934)
------------------ ------------------ ------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of patents and trademarks (69) - (83)
Purchase of property and equipment (5,902) (5,644) (4,063)
Additional consideration for purchased businesses (9,375) (3,270)
Purchases of investments - - (1,682)
Proceeds from sale of equity securities - 843 857
Purchase of businesses, net of cash acquired (8,818) (39,365) (14,220)
------------------ ------------------ ------------------
Net cash used in investing activities (24,164) (47,436) (19,191)
------------------ ------------------ ------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of common stock - 117,979 -
Proceeds from the exercise of stock options 4,227 10,160 1,473
Repurchases of treasury stock (26,054) (723) (12,606)
Proceeds from the sale of put options 525 - -
Proceeds from issuance of treasury shares for the exercise
of stock options - 686 -
Cash paid for deferred loan costs - (545) (256)
Cash paid for offering costs (326) - -
Repayments of long-term debt (730) (676) (1,115)
Repayments of debt assumed in acquisitions - (1,315) (1,132)
Borrowings under line of credit 32,372 98,286 75,647
Repayments under line of credit (32,447) (130,981) (43,434)
------------------ ------------------ ------------------
Net cash (used in) provided by financing activities (22,433) 92,871 18,577
Effect of exchange rate changes on cash and (126) (1,459) (333)
cash equivalents
Net cash used in discontinued operations (4,139) (14,336) (2,754)
------------------ ------------------ ------------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (34,576) 45,825 (5,635)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 47,489 1,664 7,299
------------------ ------------------ ------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 12,913 $47,489 1,664
================== ================== ==================
CASH AND CASH EQUIVALENTS, END OF PERIOD
CONTINUING OPERATIONS $ 12,913 $47,489 $ 1,664
DISCONTINUED OPERATIONS 3,638 6,230 5,593
------------------ ------------------ ------------------
$ 16,551 $53,719 $ 7,257
================== ================== ==================
The accompanying notes are an integral part of these
consolidated financial statements.
F-35
ARMOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BACKGROUND AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company and nature of business. Armor Holdings, Inc. is a leading
manufacturer and provider of security products, vehicle armor systems and
security risk management services. Our products and services are used by
military, law enforcement, security and corrections personnel throughout the
world, as well as governmental agencies, multinational corporations and
non-governmental organizations. We are organized and operated under three
business segments: Armor Holdings Products; Armor Mobile Security; and
ArmorGroup Services. ArmorGroup Services has been classified as discontinued
operations. The amounts disclosed in the footnotes are related to continuing
operations unless otherwise indicated.
Continuing Operations
Armor Holdings Products. Our Armor Holdings Products Division manufactures and
sells a broad range of high quality, branded law enforcement equipment, such as
concealable and tactical body armor, hard armor, duty gear, less-lethal
munitions, anti-riot products, police batons, emergency lighting products,
forensic products, firearms accessories and weapon maintenance products. Our
products are marketed under brand names that are well-known and respected in the
military and law enforcement communities such as American Body Armor(TM),
Safariland(R), B-Square(TM), Break-Free(R), Defense Technology/Federal
Laboratories(TM), MACE(R), PROTECH(TM), NIK(R)Public Safety, Monadnock(TM)
Lifetime Products, Identicator(TM), Lightning Powder(R), SpeedFeed(TM), and
911EP(R). We sell our manufactured products primarily to law enforcement
agencies through a worldwide network of over 350 distributors and sales agents,
including approximately 200 in the United States. Our extensive distribution
capabilities and commitment to customer service and training have enabled us to
become a leading provider of security equipment to law enforcement agencies.
Armor Mobile Security. Our Armor Mobile Security Division manufactures and
installs ballistic and blast protected armoring systems for military vehicles,
commercial vehicles, military aircraft, and missile components. Under the brand
name O'Gara-Hess & Eisenhardt, we are the sole-source provider to the U.S.
military for the supply of armoring and blast protection systems for the High
Mobility Multi-purpose Wheeled Vehicle (the "HMMWV"). We have also entered into
an agreement to provide systems technical support for HMMWVs. There is currently
an installed base of approximately 4,415 up-armored HMMWVs. We provide spare
parts and maintenance services for the installed HMMWVs and we expect that our
maintenance services may increase if the U.S. military substantially increases
its HMMWV purchases or substantially increases its use of the current installed
base. Additionally, the Armor Mobile Security Division has been subcontracted to
develop a ballistically armored and sealed truck cab for the High Mobility
Artillery Rocket System ("HIMARS"), a program currently in development for the
U.S. Army. The Division also markets armor sub-systems for other tactical
wheeled vehicles. We armor a variety of commercial vehicles, including
limousines, sedans, sport utility vehicles, commercial trucks and
cash-in-transit vehicles, to protect against varying degrees of ballistic and
blast threats.
F-36
ARMOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DISCONTINUED OPERATIONS
Services Division. Our Services Division provides a broad range of sophisticated
security risk management solutions to multinational corporations in diverse
industries such as natural resources, financial services and consumer products,
and to governmental and non-governmental agencies such as the U.S. Departments
of State and Defense, the United Nations, United States Agency for International
Development ("USAID") and Britain's Department for International Development.
Our clients typically have personnel and other investments in unstable and often
more risky areas of the world. Through our offices on five continents, we
provide our multinational clients with a diversified portfolio of security
solutions to assist them in mitigating risks to their operations around the
world. Our highly trained, multilingual, and experienced security personnel work
closely with our clients to create and implement solutions to complex security
problems. These services include security planning, advice and management,
security systems integration, intellectual property asset protection, due
diligence investigations and training programs in counterintelligence,
counter-surveillance, advanced driving techniques and ballistics. We believe
that many of our security services, while often representing a small portion of
our clients' overall cost of doing business, are critical to our clients'
success. We believe that this creates a consistent demand for our premium
services at attractive margins.
Principles of consolidation. The consolidated financial statements include the
accounts of Armor Holdings and its wholly-owned subsidiaries. In consolidation,
all material inter-company balances and transactions have been eliminated.
Results of operations of companies acquired in transactions accounted for under
the purchase method of accounting are included in the financial statements from
the date of the acquisition.
Cash and cash equivalents. We consider all highly liquid investments purchased
with maturities of three months or less, at date of purchase, to be cash
equivalents.
Concentration of credit risk. Financial instruments that potentially subject us
to concentrations of credit risk consist primarily of cash and cash equivalents
and trade accounts receivable. We maintain our cash and cash equivalents with
what we believe to be various high quality banks. Amounts held in individual
banks may periodically exceed, for brief time periods, federally insured
amounts. Our accounts receivable consist of amounts due from customers and
distributors located throughout the world. International product sales generally
require cash in advance or confirmed letters of credit on United States ("U.S.")
banks. We maintain reserves for potential credit losses. As of December 31, 2002
and 2001, management believes that we have no significant concentrations of
credit risk.
Inventories. Inventories are stated at the lower of cost or market determined on
the first-in, first-out ("FIFO") method.
Fair value of financial instruments. The carrying value of cash and cash
equivalents, accounts receivable, other receivables, accounts payable, and short
and long-term debt approximates fair value at December 31, 2002 and 2001.
F-37
ARMOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Property and equipment. Property and equipment are carried at cost less
accumulated depreciation. Upon disposal of property and equipment, the
appropriate accounts are reduced by the related cost and accumulated
depreciation. The resulting gains and losses are reflected in consolidated
earnings. Depreciation is computed using the straight-line method over the
estimated lives of the related assets as follows:
Buildings and improvements.................... 5 - 39 years
Machinery and equipment....................... 3 - 7 years
Goodwill. Goodwill represents the excess of the purchase price over the fair
value of the net assets acquired in a purchase business combination. Goodwill
and other intangible assets are stated on the basis of cost. The $46.3 million
in goodwill resulting from acquisitions made by Armor Holdings subsequent to
June 30, 2001 was immediately subjected to the non-amortization provisions of
SFAS 142. See also "Impairment and Recent Accounting Pronouncements " which
follows.
Patents, licenses and trademarks. Patents, licenses and trademarks were
primarily acquired through acquisitions accounted for by the purchase method of
accounting. Such assets are amortized on a straight-line basis over their
remaining useful lives.
Impairment. Long-lived assets including certain identifiable intangibles, and
the goodwill, are reviewed for annual impairment or whenever events or changes
in circumstances indicate that the carrying amount of the asset in question may
not be recoverable including, but not limited to, a deterioration of profits for
a business segment that has long-lived assets, and when other changes occur
which might impair recovery of long-lived assets. Management has reviewed our
long-lived assets and has taken an impairment charge of $31.1 million to reduce
the carrying value of the Services Division to estimated realizable value. The
method used to determine the existence of an impairment would be generally by
discounted operating cash flows estimated over the remaining useful lives of the
related long-lived assets or estimated realizable amounts on assets of
discontinued operations. Impairment is measured as the difference between fair
value and unamortized cost at the date impairment is determined.
Research and development. Research and development costs are included in
operating expenses as incurred and for the years ended December 31, 2002, 2001
and 2000, and approximated $2,968,000, $2,353,000 and $2,590,000, respectively.
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 in the financial statements and
accompanying notes. Significant estimates inherent in the preparation of the
accompanying consolidated financial statements include the carrying value of
long-lived assets, valuation allowances for receivables, inventories and
deferred income tax assets, liabilities for potential litigation claims and
settlements; and contract contingencies and obligations. Actual results could
differ from those estimates.
Income taxes. We account for income taxes pursuant to Statement of Financial
Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes". Under the
asset and liability method specified thereunder, deferred taxes are determined
based on the difference between the financial reporting and tax bases of assets
and liabilities. Deferred tax liabilities are offset by deferred tax
F-38
ARMOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
assets relating to net operating loss carryforwards and deductible temporary
differences. Future benefits obtained either from utilization of net operating
loss carryforwards or from the reduction in the income tax asset valuation
allowance existing on September 20, 1993 have been and will be applied to reduce
reorganization value in excess of amounts allocable to identifiable assets. At
December 31, 2002 and 2001, our consolidated foreign subsidiaries have
unremitted earnings of approximately $3.0 million and $1.3 million, respectively
on which we have not recorded a provision for United States Federal income taxes
since these earnings are considered to be permanently reinvested. Such foreign
earnings have been taxed according to the regulations existing in the countries
in which they were earned.
Revenue recognition. We record products revenue at the time of shipment. Returns
are minimal and do not materially effect the financial statements.
We record revenue from our Mobile Security Division when the vehicle is shipped,
except for larger commercial contracts typically longer than four months in
length and the contract for the delivery of HMMWVs to the U.S. Government which
continues through 2005. Revenue from such contracts is recognized on the
percentage of completion, units-of-work performed method. HMMWV units sold to
the U.S. Government are considered complete when the onsite Department of
Defense officer finishes the inspection of the HMMWV and approves it for
delivery. Should such contracts be in a loss position, the entire estimated loss
would be recognized for the balance of the contract at such time. Current
contracts are profitable.
We record service revenue as services are provided on a contract by contract
basis. Revenues from service contracts are recognized over the term of the
contract.
Advertising. We expense advertising costs as expense in the period in which they
are incurred.
Earnings per share. Basic earnings per share is computed by dividing net income
by the weighted-average number of common shares outstanding. Diluted earnings
per share is computed by dividing net income by the weighted-average number of
common shares outstanding compounding the effects of all potentially dilutive
common stock equivalents, principally options, except in cases where the effect
would be anti-dilutive.
Comprehensive income and foreign currency translation. In accordance with SFAS
No. 130, "Reporting Comprehensive Income", assets and liabilities denominated in
a foreign currency are translated into U.S. dollars at the current rate of
exchange existing at year-end and revenues and expenses are translated at the
average monthly exchange rates. The cumulative translation adjustment, net of
tax, which represents the effect of translating assets and liabilities of our
foreign operations is recorded as a reduction of equity of $4,169,000 and
$4,473,000 for the years ended December 31, 2002 and 2001, respectively, and is
classified as accumulated other comprehensive loss. The current year change in
the accumulated amount, net of tax, is included as a component of comprehensive
income.
Stock options and Grants. SFAS No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123") establishes a fair value based method of accounting
for stock-based employee compensation plans; however, it also allows an entity
to continue to measure compensation cost for those plans
F-39
ARMOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
using the intrinsic value based method of accounting prescribed by Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees." Under the fair value based method, compensation cost is measured at
the grant date based on the value of the award and is recognized over the
service period, which is usually the vesting period. Under the intrinsic value
based method, compensation costs is the excess, if any, of the quoted market
price of the stock at the grant date or other measurement date over the amount
an employee must pay to acquire the stock. We have elected to continue to
account for our employee stock compensation plans under APB Opinion No. 25 with
pro forma disclosures of net earnings and earnings per share, as if the fair
value based method of accounting defined in SFAS No. 123 had been applied.
If compensation cost for stock option grants had been determined based on the
fair value on the grant dates for 2002, 2001 and 2000 consistent with the method
prescribed by SFAS No. 123, our net earnings and earnings per share would have
been adjusted to the pro forma amounts indicated below:
2002 2001 2000
---------------- ------------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Net income as reported $ (17,689) $10,128 $17,048
Deduct: Total stock-based employee
compensation expense determined under
fair value based method for all awards, net
of related tax effects (5,053) (2,435) (803)
---------------- ------------- ------------
$ 22,742) $7,693 $16,245
================ ============= ============
Earnings per share:
Basic - as reported $ (0.58) $ 0.42 $ 0.75
================ ============= ============
Basic - pro forma $ (0.75) $ 0.32 $ 0.72
================ ============= ============
Diluted - as reported $(0.57) $ 0.41 $ 0.73
================ ============= ============
Diluted - pro forma $(0.74) $ 0.31 $ 0.70
================ ============= ============
Reclassifications. Certain reclassifications have been made to the 2001 and 2000
financial statements in order to conform to the presentation adopted for 2002.
These reclassifications had no effect on net income or retained earnings.
Recent accounting pronouncements. In June 2001, the Financial Accounting
Standards Board (FASB) issued SFAS No. 141, "Business Combinations." SFAS No.
141 requires that the purchase method of accounting be used for all business
combinations initiated after June 30, 2001. This statement specifies that
certain acquired intangible assets in a business combination be recognized as
assets separately from goodwill and that existing intangible assets and goodwill
be evaluated for these new separation requirements. The adoption of this
statement did not have a material impact on our consolidated financial
statements.
F-40
ARMOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets." SFAS No. 142 changes the accounting for goodwill from an amortization
method to an impairment-only approach. Amortization of goodwill, including
goodwill recorded in past business combinations, ceased upon adoption of this
statement. In addition, this statement requires that goodwill be tested for
impairment at least annually at the reporting unit level. We implemented SFAS
No. 142 on January 1, 2002. In connection with the adoption of SFAS 142, we
completed in the second quarter the transitional goodwill impairment test that
compared the fair value of each reporting unit to its carrying value and
determined that no impairment existed. The goodwill resulting from acquisitions
made by us subsequent to June 30, 2001 was immediately subject to the
non-amortization provisions of SFAS 142. Had we been accounting for goodwill
under SFAS 142 for all periods presented, our net income and earnings per share
would have been as follows:
DECEMBER 31,2002 DECEMBER 31, 2001 DECEMBER 31, 2000
------------------ -------------------- -------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Reported net (loss)income $ (17,689) $10,128 $17,048
Add back goodwill amortization, net of tax - 3,044 2,943
------------------- -------------------- --------------------
Actual/pro forma adjusted net(loss)income $ (17,689) $13,172 $19,991
================== =================== ===================
Basic earnings per share
Reported basic (loss) income per share $(0.58) $0.42 $0.75
Goodwill amortization, net of tax - 0.13 0.13
------------------- -------------------- --------------------
Actual/pro forma basic (loss) income per share $(0.58) $0.55 $0.88
================== =================== ===================
Diluted earnings per share
Reported diluted (loss) income per share $(0.57) $0.41 $0.73
Goodwill amortization, net of tax - 0.12 0.13
------------------- -------------------- --------------------
Actual/pro forma diluted (loss) income per share $(0.57) $0.53 $0.86
================== =================== ===================
In August 2001, the FASB issued Statement of Financial Accounting Standards No.
143, "Accounting for Asset Retirement Obligations" (SFAS 143). SFAS 143
establishes accounting standards for recognition and measurement of a liability
for an asset retirement obligation and the associated asset retirement cost.
SFAS 143 requires the recognition of the fair value of a liability for an asset
retirement obligation in the period in which it is incurred if a reasonable
estimate of fair value can be made. If a reasonable estimate of fair value
cannot be made in the period the asset retirement obligation is incurred, the
liability shall be recognized when a reasonable estimate of fair value can be
made. The fair value of a liability for an asset retirement obligation is the
amount at which that liability could be settled in a current transaction between
willing parties, that is, other than in a forced or liquidation transaction.
SFAS 143 is effective for financial statements issued for fiscal years beginning
after June 15, 2002. The provisions of SFAS 143 will become effective for
F-41
ARMOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
us on January 1, 2003. The effects of adopting this standard will not have a
material effect on us.
In October 2001, the FASB issued Statement of Financial Accounting Standards No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets" (SFAS
144). SFAS 144 establishes a "primary-asset" approach to determine the cash flow
estimation period for a group of assets and liabilities that represents the unit
of accounting for a long-lived asset to be held and used. SFAS 144 requires that
a long-lived asset to be (1) abandoned, (2) exchanged for a similar productive
asset, or (3) distributed to owners in a spin-off be considered held and used
until it is abandoned, exchanged, or distributed. SFAS 144 requires (1) that
spin-offs and exchanges of similar productive assets to be recorded at the lower
of carrying value or fair value, and that such assets be classified as held and
used until disposed of and (2) that any impairment loss resulting from a
spin-off or exchange of similar productive assets be recognized upon asset
disposition. SFAS 144 also states that the total assets and total liabilities of
discontinued business segments shall be presented in separate captions in assets
and liabilities. SFAS 144 also provides that future losses, if any, of
discontinued business segments shall be reported as incurred. Effective January
1, 2002, we adopted SFAS 144. The reclassification of the Services division to
discontinued operations and subsequent reduction in its carrying value was a
result of our adoption of SFAS 144 (See Note 2).
In April 2002, the FASB issued Statement of Financial Accounting Standards No.
145, "Recission on FASB 4, 44 and 64, Amendment of FASB Statement No. 13 and
Technical Corrections" (SFAS 145). Under SFAS 145, gains and losses related to
the extinguishment of debt should no longer be segregated on the income
statement from continuing operations. The provisions of SFAS 145 are effective
for fiscal years beginning after May 15, 2002 with early adoption encouraged.
The effects of adopting this standard will not have a material effect on us.
In June 2002, the FASB issued Statement of Financial Accounting Standard 146,
"Accounting for Costs Associated with Exit or Disposal Activities" (SFAS 146).
SFAS 146 addresses financial accounting and reporting for costs associated with
exit or disposal activities and nullifies Emerging Issues Task Force Issue No.
94-3, "Liability Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring)." SFAS 146 is effective for exit or disposal activities initiated
on or after December 31, 2002. The effects of adopting this standard will not
have a material effect on the us.
In December 2002, the FASB issued Statement of Financial Accounting Standard
148, "Accounting for Stock-Based Compensation - Transition and Disclosure" (SFAS
148). SFAS 148 provides alternative methods of transition for a voluntary change
to the fair value based method of accounting for stock-based employee
compensation. In addition, SFAS 148 amends the disclosure requirements of
Statement of Financial Accounting Standard 123, "Accounting for Stock-Based
Compensation" (SFAS 123), to require prominent disclosures in both annual and
interim financial statements about the method of accounting for stock-based
employee compensation and the effect of the method used on reported results. The
disclosure requirements of SFAS 148 are included in this document.
F-42
ARMOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. DISCONTINUED OPERATIONS
On July 15, 2002, we announced plans to sell the Services division and the
retention of Merrill Lynch & Company to assist in the sale. In accordance with
Statement of Accounting Standards 144, Accounting for Impairment or Disposal of
Long-Lived Assets, the assets and liabilities of the Services division have been
classified as held for sale, with its operating results in the current and prior
periods reported in discontinued operations for the year ended December 31,
2002, 2001 and 2000. USDS, Inc., a subsidiary providing certain training
services, formerly reported as a part of the Services Division is not included
in the amounts classified as assets held for sale. The assets and liabilities as
well as the operating results of USDS, Inc. have been reclassified to the Armor
Holdings Products Division where management oversight currently resides.
On January 24, 2003, we executed an agreement to negotiate exclusively with an
undisclosed party for the sale the Security consulting business of our
ArmorGroup Services Division, headquartered in London. Separately, on January
16, 2003 we executed an agreement to negotiate exclusively with an undisclosed
party for the sale of the ArmorGroup Integrated Systems business of our
ArmorGroup Services Division. The terms of both transactions and the identities
of both buyers are protected by confidentiality agreements. These two
transactions represent approximately 94% of the net assets of the Services
Division, currently reported as Discontinued Operations. Both transactions are
subject to, among other conditions, ongoing due diligence and the execution of
definitive purchase agreements.
Based upon our analysis and discussions with our advisors regarding the
estimated realizable value of the Services Division, we reduced the carrying
value of the Services Division, and recorded an impairment charge of $30.3
million. This impairment charge consisted of approximately $6.1 million in
estimated disposal costs and a $24.2 million non-cash goodwill reduction. The
reduction in the carrying value of the Services Division is Management's
estimate based upon all of the best information currently available, including
discussions with its investment bankers. The actual proceeds from the disposal
of our Services Division may differ materially from our current estimates and
therefore could result in either a gain or a loss upon final disposal.
In January 2001, our Services Division was classified as discontinued operations
approved a restructuring plan to close its U.S. investigative businesses,
realign the division's organization, eliminate excess facilities and reduce
overhead in its businesses worldwide. In connection with this restructuring
plan, the division performed a review of its long-lived assets to identify
potential impairments. Pursuant to this restructuring plan, ArmorGroup i)
eliminated 26 employees, primarily from its investigative businesses, ii)
eliminated an additional 24 employees from its security business, iii) incurred
lease and other exit costs as a result of the closure of its investigative
businesses, and iv) wrote-down the value of both tangible and intangible assets
as a result of the impairment review. All of the significant actions
contemplated by the restructuring plan have been completed.
As a result of the restructuring plan, we recorded a pre-tax charge of $10.3
million. As of December 31, 2002, we had a remaining liability of $270,000 after
fiscal year 2002 utilization of $84,000 relating to lease termination costs. The
remaining liability has been classified in accrued expenses in and other current
liabilities discontinued operations on the consolidated balance sheet.
F-43
ARMOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following is a summary of the operating results of the discontinued
operations for the year ended December 31, 2002, 2001 and 2000.
DECEMBER 31, 2002 DECEMBER 31, 2001 DECEMBER 31, 2000
------------------- ------------------- -------------------
(IN THOUSANDS)
Revenue $ 98,263 $ 94,928 $ 81,051
Cost of sales 75,779 65,021 52,042
-------------------- -------------------- --------------------
Gross Profit 22,484 29,907 29,009
Operating expenses 30,588 24,496 20,055
Amortization expenses - 1,519 1,725
Charge for impairment of long-lived assets 30,296 - -
Restructuring and related charges - 10,257 -
Equity in earnings of investees - - (87)
Integration and other non-recurring charges 2,623 776 702
-------------------- -------------------- --------------------
Operating (loss) income (41,023) (7,141) 6,614
Interest expense, net 346 143 47
Other expense (income), net 99 (218) (1,736)
-------------------- -------------------- --------------------
(Loss) income from discontinued operations before
provision (benefit) for income taxes (41,468) (7,066) 8,303
(Benefit) provision for income taxes (a) (2,442) (2,510) 2,102
-------------------- -------------------- --------------------
(Loss) income from discontinued operations $ (39,026) $ (4,556) $ 6,201
==================== ==================== ====================
a) Fiscal 2002 income taxes exclude additional expense of $1,475,000 as per
paragraphs 26 and 27 of SFAS No. 109 included in income from continuing
operations on a consolidated basis. See Note 13.
F-44
ARMOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following is a summary of the assets and liabilities of our discontinued
operations:
DECEMBER 31, DECEMBER 31,
2002 2001
(IN THOUSANDS)
Assets
Cash and cash equivalents $ 3,638 $ 6,230
Accounts receivable, net 16,228 24,040
Other current assets 8,959 7,292
----------------- ---------------
Total current assets 28,825 37,562
Property, plant and equipment, net 12,481 9,358
Goodwill, net 12,995 36,865
Other assets 4,809 4,882
----------------- ---------------
Total assets of discontinued operations $ 59,110 $ 88,667
================= ===============
Liabilities
Current portion of long-term debt $ 186 $ 282
Short-term debt 350 681
Accounts payable 2,405 2,692
Accrued expenses and other current liabilities 14,284 4,021
----------------- ---------------
Total current liabilities 17,225 7,676
Long-term debt 168 415
----------------- ---------------
Total liabilities of discontinued operations
$ 17,393 $ 8,091
================= ===============
3. COMPREHENSIVE INCOME
The components of comprehensive income, net of tax benefits of $364,000,
$713,000 and $179,000 for the years ended December 31, 2002, 2001 and 2000, are
listed below:
DECEMBER 31, 2002 DECEMBER 31, 2001 DECEMBER 31, 2000
----------------- ----------------- -----------------
(IN THOUSANDS)
Net (loss) income $(17,689) $10,128 $17,048
Other comprehensive loss:
Foreign currency translations, net
of tax 304 (2,789) (333)
-------------------- ------------------- ------------------
Comprehensive (loss) income: $(17,385) $ 7,339 $16,715
==================== =================== ==================
F-45
ARMOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. BUSINESS COMBINATIONS
We have completed numerous purchase business combinations for cash and/or shares
of our common stock and assumption of liabilities in certain cases. In the three
years in the period ended December 31, 2002, the following acquisitions were
completed:
TOTAL SHARES VALUE OF
CONSIDERATION ISSUED SHARES
--------------------------------------------------------------
(IN THOUSANDS, EXCEPT SHARES ISSUED)
2002
Aggregate 2002 acquisitions (1) $ 8,818 - -
Additional purchase price paid/issued for acquisition earnouts 9,375 - -
--------------------------------------------------------------
$18,193 - -
2001
Aggregate 2001 acquisitions (2) $ 59,887 1,224,302 $ 19,604
Additional purchase price paid/issued for acquisition earnouts 3,904 68,888 1,087
--------------------------------------------------------------
$63,791 1,293,190 $ 20,691
==============================================================
2000
Aggregate 2000 acquisitions (3) $14,220 - $ -
Additional purchase price paid/issued for acquisition earnouts 200 14,996 200
--------------------------------------------------------------
$ 14,420 14,996 $ 200
==============================================================
(1) Includes Speedfeed, Inc., Foldable Products Group, B-Square, Inc., Evi-Paq,
Inc., Trasco Bremen and 911 Emergency Products.
(2) Includes O'Gara-Hess & Eisenhardt Companies, Guardian and Identicator.
(3) Includes Breakfree, Inc., Monadnock Lifetime Products and Lightning Powder.
F-46
ARMOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Businesses acquired are included in consolidated results including discontinued
operations from the date of acquisition. Pro forma results of the 2002 and 2000
acquisitions are not presented as they would not differ by a material amount
from actual results. The following unaudited pro forma consolidated results are
presented to show the results on a pro forma basis as if the 2001 acquisitions
had been made as of January 1, 2001 and January 1, 2000:
2001 2000
------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenues $ 370,842 $ 333,375
Net income $ 6,453 $ 14,325
Basic earnings per share $ 0.26 $ 0.61
Diluted earnings per share $ 0.25 $ 0.59
Weighted average shares - basic 24,579 23,639
Weighted average shares - diluted 25,415 24,365
The changes in the carrying amount of goodwill for the year ended December 31,
2002, are as follows:
PRODUCTS MOBILE SECURITY TOTAL
-------------- --------------------- ---------------
(IN THOUSANDS)
Balance at January 1, 2001 $ 52,845 $ 33,963 $ 86,808
Goodwill acquired during year 7,298 4,630 11,928
-------------- --------------------- ---------------
Balance at December 31, 2002 $ 60,143 $ 38,593 $ 98,736
============== ===================== ===============
5. INVENTORIES
The components of inventory as of December 31, 2002 and 2001 are as follows:
2002 2001
--------------- --------------------
(IN THOUSANDS)
Raw materials $ 30,211 $ 28,796
Work-in-process 15,733 12,941
Finished goods 16,386 8,816
--------------- --------------------
$ 62,330 $ 50,553
=============== ====================
F-47
ARMOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. PROPERTY AND EQUIPMENT
Property and equipment as of December 31, 2002 and 2001 are summarized as
follows:
2002 2001
------------------- ----------------
(IN THOUSANDS)
Land $ 5,557 $ 3,571
Buildings and improvements 23,964 16,083
Machinery and equipment 30,534 25,146
------------------- ----------------
Total 60,055 44,800
Accumulated Depreciation (12,919) (8,096)
------------------- ----------------
$ 47,136 $ 36,704
=================== ================
Depreciation expense for the years ended December 31, 2002, 2001 and 2000 was
approximately $4,953,000, $3,031,000, and $2,074,000 respectively. In the
statement of operations on continuing operations for the years ended December
31, 2002, 2001 and 2000, depreciation expense has been reduced by $130,000 in
each year for the amortization of the proceeds received under an economic
development grant received from the Department of Housing and Urban Development.
F-48
ARMOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. ACCRUED EXPENSES AND OTHER CURRENT LIABILTIES
Accrued expenses and other current liabilities as of December 31, 2002 and 2001
are summarized as follows:
2002 2001
------------ --------------
(IN THOUSANDS)
Accrued expenses $16,988 $18,269
Customer Deposits 6,302 7,002
Deferred consideration for acquisitions 1,826 525
------------ --------------
$25,116 $25,796
============ ==============
8. DEBT
2002 2001
------------- ------------
(IN THOUSANDS)
Credit facility (a) $ - $ -
Ontario Industrial Development Authority Variable Rate Demand Industrial Development Revenue
Bonds, Series 1989 payable in annual installments of $200 to $300, through August 1, 2014,
with interest paid monthly at varying rates 2,800 3,000
Note payable in scheduled installments through 2013, with an interest rate of
5%. 1,582 -
Economic Development Revenue Bonds, payable in scheduled installments through September 2016,
with a variable interest rate approximating 85% of the bond equivalent yield of the 13 week
U.S. Treasury bills (not to exceed 12%) which approximated 1.5% and 2.75% at December 31,
2002 and 2001, respectively. 1,075 1,150
Note to former officer payable in monthly principal and interest installments of $7 through
December 31, 2009 with an imputed interest rate of 9.25% 399 438
Minimum guaranteed royalty to former officer payable in monthly principal and
interest installments of $4 through August 2005, with an imputed interest rate
of 9.2% 114 152
Minimum guaranteed royalty to former officer payable in monthly principal and
interest installments of $36 through April 2005, with an imputed interest
rate of 7.35% 915 1,258
------------- ------------
$6,885 $5,998
Less current portion (1,813) (1,773)
------------- ------------
$5,072 $4,225
============= ============
F-49
ARMOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Credit Facility (a) - On August 22, 2001, we entered into an Amended and
Restated Credit Agreement (the "Credit Agreement") with Bank of America,
Canadian Imperial Bank of Commerce, First Union National Bank, SunTrust Bank,
Republic Bank, Keybank National Association, and ING (U.S.) Capital LLC.
Pursuant to the Credit Agreement, the lenders established a $120,000,000 line of
credit for our benefit expiring on February 12, 2004. The Credit Agreement,
among other things, provides for (i) total maximum borrowings of $120,000,000
and (ii) the capability for borrowings in foreign currencies. All borrowings
under the Credit Agreement bear interest at either (i) a base rate, plus an
applicable margin ranging from .000% to .375%, depending on certain conditions,
(ii) a eurodollar rate, plus an applicable margin ranging from 1.125% to 1.875%,
depending on certain conditions, or (iii) with respect to foreign currency
loans, a fronted offshore currency rate, plus an applicable margin ranging from
1.125% to 1.875%, depending on certain conditions. In addition, the Credit
Agreement includes both negative and affirmative covenants customary for a
credit facility of this nature, such as a limitation on capital expenditures,
foreign indebtedness, minimum fixed charge coverage and a restriction against
paying dividends.
The Credit Agreement also provides that Bank of America will make swing-line
loans to us of up to $5,000,000 for working capital purposes and will issue
letters of credit on our behalf of up to $20,000,000. As of December 31, 2002,
we had no outstanding borrowings under our Credit Facility, and Bank of America
had issued $11.4 million in letters of credit on our behalf under the Credit
Agreement. All indebtedness under the Credit Agreement will mature on February
12, 2004. We had approximately $6.9 million in other long-term debt, net of
current portion, consisting primarily of $3.9 million in industrial development
revenue bonds.
As part of the Credit Agreement, all of our direct and indirect domestic
subsidiaries agreed to guarantee our obligations under the Credit Agreement. The
Credit Agreement is collateralized by (1) a pledge of all of the issued and
outstanding shares of stock of certain domestic subsidiaries of Armor Holdings
pursuant to a pledge agreement and (2) a pledge of 65% of the issued and
outstanding shares of our first tier foreign subsidiaries. The Credit Agreement
includes both negative and affirmative covenants customary for a credit facility
of this nature, such as a limitation on capital expenditures, foreign
indebtedness, minimum fixed charge coverage and a restriction against paying
dividends.
Maturities of long-term debt are as follows:
YEAR ENDED
(IN THOUSANDS)
-------------------------------
2003 $ 1,813
2004 917
2005 550
2006 393
2007 443
Thereafter 2,769
----------------------
$ 6,885
======================
F-50
ARMOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. INTEGRATION AND OTHER NON-RECURRING CHARGES
As a result of its acquisition program, we incurred integration and other
non-recurring charges of approximately $5.9 million, $3.3 million and $2.6
million for the years ending December 31, 2002, 2001 and 2000, respectively.
These costs related to the relocation of assets and personnel, severance costs,
systems integration, domestic and international tax restructuring as well as
integrating the sales and marketing functions for the acquired companies.
10. COMMITMENTS AND CONTINGENCIES
Employment contracts. We are party to several employment contracts at year
ending December 31, 2002 with certain members of management. Such contracts are
for varying periods and include restrictions on competition after termination.
These agreements provide for salaries, bonuses and other benefits and also
specify and delineate the granting of various stock options.
Legal/litigation matters. In 1997 we terminated several agreements with a Dutch
company, Airmunition International, B.V. (AMI), and with a British company,
Crown Limited (Crown). AMI and Crown started an action against us before the
Netherlands Arbitration Institute in Rotterdam, Holland claiming breach of
contract and unauthorized use of confidential information and seeking damages of
$20.5 Million. The case is currently pending, and while we are contesting the
allegations vigorously, we are unable to predict the outcome of this matter.
Although we do not have insurance coverage for this matter, at this time, we do
not believe this matter will have a material impact on our financial position,
operations or liquidity.
On January 16, 1998, our Services Division ceased operations in Angola. The
cessation of operations in Angola was dictated by that government's decision to
deport all of our expatriate management and supervisors. As a result of the
cessation of operations in Angola, our Services Division became involved in
various disputes with SHRM S.A.("SHRM"), its minority joint venture partner
relating to the Angolan joint venture known as Defense System International
Africa ("DSIA"). On March 6, 1998, SIA (a subsidiary of SHRM) filed a complaint
against Defense Systems France, SA ("DSF") before the Commercial Court of
Nanterre (Tribunal de Commerce de Nanterre) seeking to be paid an amount of
$577,286 corresponding to an alleged debt of DSIA to SIA. On June 27, 2000, the
judge of the Paris Commercial Court ruled SHRM did not provide evidence required
to establish its standing and the proceedings brought by SHRM were cancelled. On
October 3, 2000, a winding up petition was served by DSF against DSIA. On
October 31, 2000, SHRM filed a counterclaim seeking to have this winding up
petition dismissed. On November 28, 2000, SHRM appealed the June 27, 2000
judgment rendered by the Paris Commercial Court, claiming that the Paris
Commercial Court no longer had jurisdiction over the case. On September 18,
2001, the Paris Commercial Court stayed the proceeding pending the outcome of
the appeal. A hearing with the Court of Appeal on the standing of SHRM and on
the merits was held on October 24, 2002. The Commercial Court of Nanterre has
stayed the proceedings before it, pending the decisions of the Court of Appeal
and the Paris Commercial Court. In February 2003, the Court of Appeal ruled
against SHRM and its parent entity, Compass Group, effectively ending all
further proceedings on the merits of Compass'claims. The decision is appealable
by Compass.
F-51
ARMOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In 1999 and prior to our acquisition of OHEAC in 2001, O'Gara-Hess & Eisenhardt
Armoring do Brasil Ltda. (OHE Brazil) was audited by the Brazilian federal tax
authorities and assessed over Ten Million Reals (US$2.8 Million based on the
exchange rate as of December 31, 2002). OHE Brazil has appealed the tax
assessment and the case is pending. To the extent that there may be any
liability, we believe that we are entitled to indemnification from Kroll, Inc.
under the terms of our purchase agreement dated April 20, 2001, despite the
denial by Kroll, Inc. of any such liability, because the events occurred prior
to our purchase of the O'Gara Companies from Kroll, Inc. Additionally, Kroll,
Inc. has provided us with a US$1.5 Million letter of credit until August 21,
2008 in order to collateralize Kroll's indemnification obligation, which is
capped at US$5 Million with respect to this matter. At this time, we do not
believe this matter will have a material impact on our financial position,
operations or liquidity.
In 1999 and prior to our acquisition of OHEAC in 2001, several of the former
employees of Kroll O'Gara Company de Mexico, S.A. de C.V. (O'Gara Mexico), a
subsidiary of OHEAC, commenced labor claims against O'Gara Mexico seeking
damages for unjustified termination. These cases are still pending before the
labor board in Mexico City. The terminated employees are seeking back pay and
benefits since the date of termination amounting to approximately US $2,890,998,
and accruing at approximately US $50,400 per month. To the extent that there may
be any liability, we believe that we are entitled to indemnification from Kroll,
Inc. under the terms of our purchase agreement dated April 20, 2001, despite the
denial by Kroll, Inc. of any such liability, because the events occurred prior
to our purchase of the O'Gara Companies from Kroll, Inc. Although we do not have
any insurance coverage for this matter, at this time, we do not believe this
matter will have a material impact on our financial position, operations or
liquidity.
In August 2001, Defense Technology Corporation of America ("DTC"), one of our
subsidiaries, received a civil subpoena from the United States Environmental
Protection Agency requesting information pursuant to Section 104(e) of the
Comprehensive Environmental Response, Compensation and Liability Act regarding
the possible impact of the Casper, Wyoming tear gas facility on the environment.
DTC responded to the request, and to date the EPA has not taken any further
action with respect to the matter. At this time, we do not believe this matter
will have a material impact on our financial position, operations or liquidity.
In December 2001, OHE France sold its industrial bodywork business operated
under the name Labbe/Division de O'Gara Hess & Eisenhardt France/ Carrosserie
Industriells to SNC Labbe. Subsequent to the sale the Labbe Family Trust (LFT),
owner of the leasehold interest upon which the Carrosserie business is operated,
sued OHE France and SNC Labbe claiming that transfer of the leasehold was not
valid because the LFT had not given its consent to the transfer as required
under the terms of the lease. Further, LFT seeks to have OHE France, as the sole
tenant, maintain and repair the leased building. The approximate cost of
renovating the building is estimated to be between US $3.2 and US $6.4 million
based on the exchange rate as of December 31, 2002. The case is currently
pending, and while we are contesting the allegations vigorously, we are unable
to predict the outcome of this matter. Although we do not have any insurance
coverage for this matter, at this time, we do not believe this matter will have
a material impact on our financial position, operations or liquidity.
F-52
ARMOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In December 2001, an action was filed against us in the Regional Court of
Nuremberg, Germany alleging unauthorized use of the trademarks "First Defense"
and "First Defense Aerosol Pepper Projector." The case is currently pending, and
while we are contesting the allegations vigorously, we are unable to predict the
outcome of this matter. Although we do not have any insurance coverage for this
matter, at this time, we do not believe this matter will have a material impact
on our financial position, operations or liquidity.
On or about March 22, 2002, O'Gara-Hess & Eisenhardt Armoring Company (OHEAC),
one of our subsidiaries, received a civil subpoena from the Department of
Defense (DOD) requesting documents and information concerning various quality
control documentation regarding parts delivered by its subcontractors and
vendors in support of the High Mobility Multipurpose Wheeled Vehicles (HMMWV)
armored at its Fairfield, Ohio facility for the period October 1, 1999 through
May 1, 2001. OHEAC has complied fully with the subpoena. In early 2003, OHEAC
was advised that the Department of Justice (DOJ) was also investigating separate
claims against OHEAC filed by individuals that involve the same time frame and
issues covered by the DOD subpoena. OHEAC is responding to the government's
questions and expects to meet with the DOJ to discuss the current status of the
investigation and explore closure. Given the stage of these investigations, it
is not possible to predict the outcome of this matter. To the extent that there
may be any liability, we believe that we are entitled to indemnification from
Kroll, Inc. under the terms of our purchase agreement dated April 20, 2001,
despite the denial by Kroll, Inc. of any such liability, because the events
occurred prior to our purchase of the O'Gara Companies from Kroll, Inc. At this
time, we do not believe this matter will have a material impact on our financial
position, operations or liquidity.
In June 2002, O'Gara Hess & Eisenhardt France S.A. (OHE France) received a tax
reassessment from the French tax authorities for the tax years ended on March
31, 1999, 2000 and 2001 totaling approximately (pounds)720,940 (Euro)
(US$755,761 based on the exchange rate as of December 31, 2002). OHE France has
appealed the tax assessment and the case is pending. To the extent that there
may be any liability, we believe that we are entitled to indemnification from
Kroll, Inc. under the terms of our purchase agreement dated April 20, 2001,
despite the denial by Kroll, Inc. of any such liability, because the events
occurred prior to our purchase of the O'Gara Companies from Kroll, Inc. At this
time, we do not believe this matter will have a material impact on our financial
position, operations or liquidity.
On October 18, 2002 we were notified by the Internal Revenue Service that our
tax return for the tax year ended December 31, 2000 had been selected for
examination. Further, on January 30, 2003 we were notified that our tax return
for the tax year ended December 31, 2001 had been selected for examination. The
examinations are currently pending, and at this time we are unable to predict
the outcome of these matters.
In October 2002, we were sued in the United States District Court for the
District of Wyoming. The plaintiffs in that lawsuit asserted various state law
tort claims and federal environmental law claims under the Resource Conservation
and Recovery Act and the Clean Air Act stemming from DTC's Casper, Wyoming tear
gas plant. The plaintiffs have not yet quantified their alleged damages. The
plaintiffs have filed their suit as a potential class action, but have not yet
sought judicial certification of the class. The alleged actions took place over
time periods during which we were covered by different insurance policies. We
have notified our insurance carriers of the suit. Our prior insurance
F-53
ARMOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
carrier has agreed, under a full reservation of rights, including with respect
to any liability which relates to the time its policy was in effect, to provide
a defense and to address the question of liability indemnification in the
future. Our current insurance carrier has declined defense and indemnification
coverage. While we do not carry specific environment insurance coverage, we have
reserved the right to challenge our insurance carrier's determination. The case
is currently pending, and while we are contesting the allegations vigorously, we
are unable to predict the outcome of this matter. At this time, we do not
believe this matter will have a material impact on our financial position,
operations or liquidity.
In addition to the above, in the normal course of business, we are subjected to
various types of claims and currently have on-going litigations in the areas of
products liability and general liability. Our products are used in a wide
variety of law enforcement situations and environments. Some of our products can
cause serious personal or property injury or death if not carefully and properly
used by adequately trained personnel. We believe that we have adequate insurance
coverage for most claims that are incurred in the normal course of business. In
such cases, the effect on our financial statements is generally limited to the
amount of our insurance deductible or self-insured retention. Our annual
insurance premiums and self insurance retention amounts have risen significantly
over the past several years and may continue to do so to the extent we are
unable to purchase insurance coverage. At this time, we do not believe any such
claims or litigations will have a material impact on our financial position,
operations and liquidity.
11. OTHER INCOME
On May 31, 2000, we sold our investment in JSGS which is Jardine Securicor
Gurkha Services Limited for a pre-tax gain of approximately $1.7 million
included in other income.
12. INFORMATION CONCERNING BUSINESS SEGMENTS AND GEOGRAPHICAL SALES
We are a leading manufacturer and provider of security products, vehicle armor
systems, and security training services. Our products and services are used by
military, law enforcement, security and corrections personnel throughout the
world, as well as governmental agencies, multinational corporations and
non-governmental organizations. Our continuing operations are organized and
operated under two business segments: Armor Holdings Products and Armor Mobile
Security. Our Services division has been classified as discontinued operations
and is no longer included in this presentation (See Note 2).
Armor Holdings Products. Our Armor Holdings Products division manufactures and
sells a broad range of high quality equipment marketed under brand names that
are well known and respected in the military and law enforcement communities.
Products manufactured by this division include concealable and tactical body
armor, hard armor, duty gear, less-lethal munitions, anti-riot products, police
batons, emergency lighting products, forensic products firearms accessories and
weapon maintenance products. USDS, Inc., a small subsidiary providing certain
training services formerly reported as a part of the Services division, is not
included in the amounts classified as assets held for sale or discontinued
operations and has been reclassified to our Armor Holdings Products division
where management oversight currently resides.
F-54
ARMOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Armor Mobile Security. Our Armor Mobile Security division manufactures and
installs ballistic and blast protection armoring systems for military vehicles,
commercial vehicles, military aircraft and missile components. Under the brand
name O'Gara-Hess & Eisenhardt ("O'Gara"), we are the sole-source provider to the
U.S. military for the supply of armoring and blast protection systems as well as
maintenance services for the High Mobility Multi-purpose Wheeled Vehicle (HMMWV,
commonly known as the Humvee). Additionally, we have been subcontracted to
develop a ballistically armored and sealed truck cab for the High Mobility
Artillery Rocket System (HIMARS) currently in development for the U.S. Army. We
armor a variety of commercial vehicles including limousines, sedans, sport
utility vehicles, commercial trucks and cash-in-transit vehicles, to protect
against varying degrees of ballistic and blast threats. The Armor Mobile
Security division was created in connection with our acquisition of O'Gara on
August 22, 2001 (the "O'Gara acquisition").
We have invested substantial resources outside of the United States and plan to
continue to do so in the future. The Armor Mobile Security division has invested
substantial resources in Europe and South America. These operations are subject
to the risk of new and different legal and regulatory requirements in local
jurisdictions, tariffs and trade barriers, potential difficulties in staffing
and managing local operations, currency risks, potential imposition of
restrictions on investments, potentially adverse tax consequences, including
imposition or increase of withholding and other taxes on remittances and other
payments by subsidiaries, and local economic, political and social conditions.
Governments of many developing countries have exercised and continue to exercise
substantial influence over many aspects of the private sector. Government
actions in the future could have a significant adverse effect on economic
conditions in a developing country or may otherwise have a material adverse
effect on us and our operating companies. We do not have political risk
insurance in the countries in which we currently conduct business. Moreover,
applicable agreements relating to our interests in our operating companies are
frequently governed by foreign law. As a result, in the event of a dispute, it
may be difficult for us to enforce our rights. Accordingly, we may have little
or no recourse upon the occurrence of any of these developments.
F-55
ARMOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Revenues, operating income and total assets for each of our continuing segments
are as follows:
2002 2001 2000
------------ --------------- ---------------
(IN THOUSANDS)
Revenues:
Products $ 179,946 $ 149,868 $ 139,904
Mobile Security 125,171 47,232 -
----------- ------------- -------------
Total revenues $ 305,117 $ 197,100 $ 139,904
=========== ============= =============
Income (loss) from operations:
Products $30,978 $26,845 $27,803
Mobile Security 14,375 6,673 -
Corporate (6,988) (6,845) (7,934)
----------- ------------- -------------
Total income from operations $38,365 $26,673 $19,869
=========== ============= =============
Total assets:
Products $179,367 $ 147,313 $ 129,432
Mobile Security 105,446 102,127 -
Corporate 23,830 49,950 9,596
---------- ------------- -------------
Total assets $308,643 $ 299,390 $ 139,028
========== ============= =============
F-56
ARMOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following financial information with respect to revenues, operating income
from continuing operations (geographic operating income from continuing
operations before amortization expense and integration and other non-recurring
charges) and total assets to principal geographic areas are as follows:
2002 2001 2000
--------------- --------------- ---------------
(IN THOUSANDS)
Revenues:
North America $ 225,365 $ 144,981 $ 117,199
South America 19,879 6,449 3,434
Africa 1,219 582 167
Europe/Asia 58,654 45,088 16,078
Other - - 3,026
--------------- --------------- ---------------
$ 305,117 $ 197,100 $ 139,904
=============== =============== ===============
Geographic operating income:
North America $34,032 $23,290 $19,376
South America 1,702 473 982
Africa 428 192 57
Europe/Asia 8,374 8,156 3,019
Other - - 727
--------------- --------------- ---------------
$44,536 $32,111 $24,161
=============== =============== ===============
Total assets:
North America $ 264,767 $268,019 $ 132,744
South America 5,456 5,811 -
Africa - - -
Europe/Asia 38,420 25,560 6,284
--------------- --------------- ---------------
$ 308,643 $ 299,390 $ 139,028
=============== =============== ===============
A reconciliation of consolidated geographic operating income from continuing
operations to consolidated operating income from continuing operations follows:
2002 2001 2000
--------------- --------------- ---------------
(IN THOUSANDS)
Consolidated geographic operating income: $44,536 $32,111 $24,161
Amortization (245) (2,142) (1,704)
Integration and other non-recurring charges (5,926) (3,296) (2,588)
--------------- --------------- ---------------
Operating income $38,365 $26,673 $19,869
=============== =============== ===============
F-57
ARMOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. INCOME TAXES
Income tax expense (benefit) from continuing operations for the years ended
December 31, 2002, 2001, and 2000 consisted of the following:
2002 2001 2000
-------------- --------------- --------------
(IN THOUSANDS)
Current
Domestic $13,306 $ 7,017 $ 6,239
Foreign 2,389 1,563 232
-------------- --------------- --------------
Total current $15,695 $ 8,580 $ 6,471
-------------- --------------- --------------
Deferred
Domestic $(25) $ (319) $ 769
Foreign 384 (54) 0
-------------- --------------- --------------
Total deferred $ 359 $ (373) $ 769
-------------- --------------- --------------
Total provision for Income Taxes $16,054 $ 8,207 $ 7,240
-------------- --------------- --------------
Significant components of our net deferred tax asset related to continuing
operations as of December 31, 2002 and 2001 are as follows:
2002 2001
------------- ------------
(IN THOUSANDS)
Deferred tax assets:
Reserves not currently deductible $2,697 $1,910
Operating loss carryforwards 1,769 666
Accrued expenses 220 0
Foreign tax credits 2,939 0
Research and development and other credits 206 222
Tax on unremitted foreign earnings 1,255 1,619
------------- ------------
9,086 4,417
Deferred tax asset valuation allowance (75) (75)
------------- ------------
Deferred tax asset, net of valuation allowance $9,011 $4,342
Deferred tax liability:
Goodwill not amortized for financial
statement purposes under SFAS 142 (954) (239)
Property and equipment (475) (318)
------------- ------------
Net deferred tax asset $7,582 $3,785
============= ============
Effective with the change in control of Armor Holdings by Kanders Florida
Holdings, Inc. on January 18, 1996, the utilization of the United States portion
of the NOL became restricted to approximately $300,000 per year. As of December
31, 2002, we had U.S. and foreign NOLs of approximately $4.6 million. The U.S.
portion of the net NOLs expire in varying amounts in fiscal years 2006 to 2019.
At December 31, 2002, we also have tax credits of $206,000 subject to certain
limitations due to the
F-58
ARMOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
acquisition of Safariland, LTD. We also have approximately $2.9 million in
foreign tax credits expiring in 2006. Certain deferred tax assets including net
operating losses and tax credits could become limited if there is a change of
control as defined in IRC Section 382.
The realization of deferred tax assets may be based on the utilization of
carrybacks to prior taxable periods, the anticipation of future taxable income
and the utilization of tax planning strategies. Management has determined that
it is more likely than not that certain deferred tax assets can be supported by
carrybacks to federal taxable income in the federal carryback period and by
expected future taxable income.
US taxes have not been provided for on unremitted foreign earnings of
approximately $3 million from continuing operations. These earnings are
considered to be permanently reinvested in non-US operations. We are not
permanently reinvested in some jurisdictions and have established a deferred tax
asset of $1,255,000.
Net deferred tax assets described above have been included in the accompanying
consolidated balance sheets as follows:
2002 2001
------------ -----------
Other current assets $ 2,697 $ 1,910
Other assets 4,885 1,875
------------ -----------
Total deferred tax assets $ 7,582 $ 3,785
============ ===========
The following reconciles the income tax expense computed at the Federal
statutory income tax rate to the provision for income taxes recorded in the
income statement for the years ended December 31, 2002, 2001 and 2000:
2002 2001 2000
--------- ---------- -----------
Provision for income taxes at statutory federal rate 35.0% 35.0% 35.0%
State and local income taxes, net of Federal benefit 3.8% 3.2% 1.4%
Foreign income taxes .7% (.1%) -
Valuation allowances from discontinued operations 3.8% - -
Other permanent items (.4%) (2.2%) 3.6%
--------- ---------- -----------
42.9% 35.9% 40.0%
========= ========== ===========
14. STOCKHOLDERS' EQUITY
Preferred stock. On July 16, 1996, our shareholders authorized a series of
preferred stock with such rights, privileges and preferences as the Board of
Directors shall from time to time determine. We have not issued any of this
preferred stock.
Stock options and grants. In 1994, we implemented an incentive stock plan and an
outside directors' stock plan. These plans collectively provide for the granting
of options to certain key employees as well as providing for the grant of common
stock to outside directors and to all full
F-59
ARMOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
time employees. Pursuant to such plans, 1,050,000 shares of common stock were
reserved and made available for distribution. The option prices of stock which
may be purchased under the incentive stock plan are not less than the fair
market value of common stock on the dates of the grants.
Effective January 19, 1996, all stock grants awarded under the 1994 incentive
stock plan were accelerated and considered fully vested.
In 1996, we implemented an incentive stock plan and an outside directors' stock
plan. These plans collectively provide for the granting of options to certain
key employees and directors. Pursuant to such plans, as amended, 2,200,000
shares of common stock were reserved and made available for distribution. The
option prices of stock which may be purchased under the incentive stock plan are
not less than the fair market value of common stock on the dates of the grants.
During 1998, we implemented a new non-qualified stock option plan. Pursuant to
the new plan, 725,000 shares of common stock were reserved and made available
for distribution. On January 1, 1999, we distributed all 725,000 shares
allocated under the plan. In 1999, we implemented the 1999 Stock Incentive Plan
(the "1999 Plan"). We reserved 2,000,000 shares of its Common Stock for the 1999
Plan. The 1999 Plan provides for the granting of options to employees, officers,
directors, consultants, independent contractors and advisors of Armor Holdings.
The option prices of stock which may be purchased under the 1999 Plan are not
less than the fair market value of common stock on the dates of the grants.
During 2002, we implemented two new stock option plans. The 2002 Stock Incentive
Plan, authorizes the issuance of up to 2,700,000 shares of our common stock upon
the exercise of stock options or in connection with the issuance of restricted
stock and stock bonuses. The 2002 Stock Incentive Plan authorizes the granting
of stock options, restricted stock and stock bonuses to employees, officers,
directors and consultants, independent contractors and advisors of Armor
Holdings and its subsidiaries. The 2002 Executive Stock Plan provides for the
grant of a total of 470,000 stock options and stock awards to our key employees.
The terms and provisions of the 2002 Executive Stock Plan are substantially the
same as the 2002 Stock Incentive Plan, except that we may only grant
non-qualified stock options under the 2002 Executive Stock Plan. The 2002
Executive Stock Plan was adopted on March 13, 2002 and all shares available for
grant under the 2002 Executive Stock Plan were granted to our executive officers
on March 13, 2002.
On December 18, 2002, we sold a put option on 500,000 shares to an institutional
counterparty with an exercise price of $13.99 per share and an expiration date
of March 31, 2002 for $525,000. We have a maximum potential obligation under the
put options to purchase 500,000 shares of our common stock at an exercise price
of $13.99 for an aggregate of $7.0 million. Although certain other events can
trigger exercise these put options are generally exercisable only at maturity on
March 31, 2002. We have the right to settle the put options by cash settlement,
physical settlement of the options or by net share settlement using shares our
common stock. In accordance with EITF Issue No. 00-19, we have recorded the sale
of the put options in equity and as such, changes in fair value of the options
have not been recognized in the financial statements. We may, from time to time,
enter into additional put and call option arrangements.
F-60
ARMOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Under SFAS 123, the fair value of each option grant is estimated on the date of
grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions for the years ended December 31, 2002, 2001 and
2000:
2002 2001 2000
--------- --------- ----------
Expected life of option 4 yrs 4 yrs 4 yrs
Dividend yield 0% 0% 0%
Volatility 52.2% 44.7% 30.9%
Risk free interest rate 3.94% 4.52% 5.76%
The increase in volatility from fiscal 2000 to fiscal 2002 is primarily due to
the increase demand for the stock, which drove up the price and increased the
volatility.
The weighted average fair value of options granted during 2002, 2001 and 2000
are as follows:
2002 2001 2000
----------------- ----------- -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Fair value of each option granted $ 10.08 $ 6.17 $ 4.79
Total number of options granted 1,895 892 185
Total fair value of all options granted $19,098 $5,501 $886
Outstanding options, consisting of ten-year incentive and non-qualified stock
options, vest and become exercisable over a three-year period from the date of
grant. The outstanding options expire ten years from the date of grant or upon
retirement from Armor Holdings, and are contingent upon continued employment
during the applicable ten-year period.
F-61
ARMOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A summary of the status of stock option grants as of December 31, 2002 and
changes during the years ending on those dates is presented below:
WEIGHTED AVERAGE
OPTIONS EXERCISE PRICE
-------------------- --------------------
Outstanding at December 31, 1999 3,545,258 $ 9.21
Granted 185,000 $14.37
Exercised (333,075) $ 4.57
Forfeited (102,344) $10.98
--------------------
Outstanding at December 31, 2000 3,294,839 $ 9.91
Granted 892,159 $15.24
Exercised (1,173,227) $ 9.37
Forfeited (29,737) $15.51
--------------------
Outstanding at December 31, 2001 2,984,034 $11.60
Granted 1,894,660 $22.96
Exercised (507,868) $ 8.41
Forfeited (86,168) $16.75
--------------------
Outstanding at December 31, 2002 4,284,658 $ 7.81
====================
Options exercisable at December 31, 2002 2,099,307 $ 6.42
====================
The following table summarizes information about stock options outstanding at
December 31, 2002:
12/31/2002 REMAINING
OPTIONS OPTIONS LIFE IN
EXERCISE PRICE RANGE OUTSTANDING EXERCISABLE YEARS
------------------ ----------------- ---------
0.97 - 3.75 93,357 93,357 3.0
7.50 - 9.94 255,292 255,292 5.0
10.00 - 10.63 141,671 138,337 5.2
11.00 - 11.63 762,844 759,510 5.8
12.00 - 12.03 65,002 58,334 5.2
13.19 - 14.00 309,668 223,668 7.3
14.17 - 14.70 444,492 187,322 8.7
15.05 - 15.90 347,994 94,331 8.8
16.31 - 16.50 62,667 9,000 8.0
17.00 - 17.54 105,170 30,156 8.3
21.75 - 21.75 125,000 - 9.1
23.09 - 23.93 689,501 225,000 9.2
24.07 - 25.80 882,000 25,000 9.5
------------------ -----------------
Total 4,284,658 2,099,307
================== =================
F-62
ARMOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Remaining non-exercisable options as of December 31, 2002 become exercisable as
follows:
2003 775,961
2004 991,358
2005 168,032
2006 250,000
Earnings per share. The following details the earnings per share computations on
a basic and diluted basis for the years ended December 31, 2002, 2001 and 2000:
2002 2001 2000
---------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Numerator for basic and diluted earnings per share:
Net (loss) income available to common shareholders $(17,689) $10,128 $17,048
-------------- -------------- ---------------
Denominator:
Basic earnings per share weighted average shares outstanding 30,341 23,932 22,630
Effect of dilutive securities:
Effect of shares issuable under stock option and stock grant
plans, based on the treasury stock method 616 836 726
-------------- -------------- ---------------
Diluted earnings per share
Adjusted weighted-average shares outstanding 30,957 24,768 23,356
-------------- -------------- ---------------
Basic earnings per share $(0.58) $ 0.42 $ 0.75
============== ============== ===============
Diluted earnings per share $(0.57) $ 0.41 $ 0.73
============== ============== ===============
15. SUPPLEMENTAL CASH FLOW INFORMATION:
2002 2001 2000
------------- ----------------- ---------------
Cash paid during the year for: (IN THOUSANDS)
Interest $ 527 $ 3,878 $ 1,762
============= ================= ===============
Income taxes $5,753 $ 4,656 $ 7,240
============= ================= ===============
2002 2001 2000
------------- ----------------- ---------------
Acquisitions of businesses, net of cash acquired: (IN THOUSANDS)
Fair value of assets acquired $ 16,134 $57,932 $ 4,807
Goodwill 8,478 37,578 12,336
Liabilities assumed (15,794) (36,541) (2,923)
Stock issued - (19,604) -
------------- ----------------- ---------------
Total cash paid $ 8,818 $39,365 $14,220
============= ================= ===============
Debt assumed in acquisition of property - - $ 3,500
Note payable issued for equipment - - -
F-63
ARMOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
16. QUARTERLY RESULTS (UNAUDITED)
The following table presents summarized unaudited quarterly results of
operations for Armor Holdings for fiscal 2002 and 2001. We believe all
necessary adjustments have been included in the amounts stated below to present
fairly the following selected information when read in conjunction with the
Consolidated Financial Statements and Notes thereto included elsewhere herein.
Future quarterly operating results may fluctuate depending on a number of
factors. Results of operations for any particular quarter are not necessarily
indicative of results of operations for a full year or any other quarter.
FISCAL 2002
----------------------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------------- -------------- ------------ ---------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenue $ 69,604 $ 71,605 $80,557 $83,351
Gross profit $ 21,974 $ 22,701 $24,610 $25,087
Net income $ 5,960 $ 4,075 $(14,707) $(13,017)
Basic earnings per share $ 0.19 $ 0.13 $ (0.50) $ (0.44)
Diluted earnings per share $ 0.19 $ 0.13 $ (0.49) $ (0.44)
FISCAL 2001
-------------------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------------- -------------- ------------ -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenue $ 30,168 $ 38,100 $ 48,664 $ 80,168
Gross profit $ 12,190 $ 15,865 $ 17,227 $ 25,488
Net income $ (3,396) $ 4,298 $ 3,823 $ 5,403
Basic earnings per share $ (0.15) $ 0.19 $ 0.16 $ 0.21
Diluted earnings per share $ (0.14) $ 0.18 $ 0.16 $ 0.20
17. EMPLOYEE BENEFITS PLAN
In October 1997, we formed a 401(k) plan, (the "Plan") which provides for
voluntary contributions by employees and allows for a discretionary contribution
by us in the form of cash. We made contributions of approximately $395,500,
$272,700 and $243,000 to the Plan in 2002, 2001 and 2000 respectively.
18. RELATED PARTY TRANSACTIONS
In fiscal 2000 we subcontracted for certain security guard services with Alpha,
Inc., wholly owned by a shareholder of Armor Holdings, who is also a director
of Gorandel Trading Limited. In fiscal 2000, security guard service fees of
approximately $2,444,000 were paid to Alpha. In August of 2000, we acquired
Alpha. The purchase price was approximately $1.0 million in cash consisting of
both a current and deferred portion. In fiscal 2002 and 2001 we paid $100,000
and $400,000 of the deferred portion of the purchase price respectively.
F-64
ARMOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Effective as of January 1, 2002, Kanders & Company, Inc. ("Kanders & Co."), a
corporation controlled by Warren B. Kanders, the Chairman of our Board, entered
into an agreement with us to provide certain investment banking, financial
advisory and related services for a five year term that will expire December 31,
2006. Kanders & Co. will receive a mutually agreed upon fee on a transaction by
transaction basis during the term of this agreement. The aggregate fees under
this agreement will not exceed $1,575,000 during any calendar year. We also
agreed to reimburse Kanders & Co. for reasonable out-of-pocket expenses
including Kanders & Co.'s expenses for office space, an executive assistant,
furniture and equipment, travel and entertainment, reasonable fees and
disbursements of counsel, and consultants retained by Kanders & Co. During the
fiscal year ended December 31, 2002, we paid Kanders & Co. $525,000 for
investment banking services. We also reimbursed Kanders & Co. for out-of-pocket
expenses in the aggregate amount of $302,000 during the fiscal year ended
December 31, 2002. We also granted Kanders & Co. (i) options to purchase 35,000
shares of our common stock at an exercise price per share equal to $23.93, (ii)
a restricted stock grant of 10,447 shares of common stock valued at $15.04 per
share and (iii) a restricted stock grant of 100,000 shares of common stock
valued at $15.04 per share. These grants were made during fiscal 2002 in
consideration for consulting services provided by Kanders & Co. in connection
with certain transactions during fiscal 2001.
During the fiscal year ended December 31, 2002 we paid our Director Nicholas
Sokolow's law firm Sokolow, Dunaud, Mercadier & Carreras $28,000 for legal
services in connection with various acquisitions.
19. OPERATING LEASES
We are party to certain real estate, equipment and vehicle leases. Several
leases include options for renewal and escalation clauses. In most cases,
management expects that in the normal course of business leases will be renewed
or replaced by other leases. Approximate total future minimum annual lease
payments under all non-cancelable leases of continuing operations are as
follows:
YEAR (IN THOUSANDS)
----------------------- ---------------------
2003 $1,141
2004 840
2005 365
2006 66
2007 51
Thereafter -
---------------------
$2,463
=====================
We incurred rent expense of approximately $1,200,000, $765,000 and $394,000
during the years ended December 31, 2002, December 31, 2001 and December 31,
2000.
F-65
ARMOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
20. GUARANTOR AND NONGUARANTOR FINANCIAL STATEMENTS
We have entered into an agreement to sell an aggregate of $150 million
of Senior Subordinated Notes in private placements pursuant to Rule 144A. The
Senior Subordinated Notes will be unsecured obligations and will rank junior in
right of payment to our existing and future senior debt. The Senior Subordinated
Notes will be fully guaranteed, jointly and severally on a senior unsecured
basis, by certain domestic subsidiaries.
The following consolidating financial information presents the
consolidating balance sheets as of December 31, 2002 and 2001 and the related
statements of income and cash flows for each of the three years in the period
ended December 31, 2002 for:
a) Armor Holdings, Inc., the parent,
b) the guarantor subsidiaries,
c) the nonguarantor subsidiaries, and
d) Armor Holdings on a consolidated basis
The information includes elimination entries necessary to consolidate Armor
Holdings, Inc., the parent, with the guarantor and nonguarantor subsidiaries.
Investments in subsidiaries are accounted for by the parent using the equity
method of accounting. The guarantor and nonguarantor subsidiaries are presented
on a combined basis. The principal elimination entries eliminate investments in
subsidiaries and intercompany balances and transactions. Separate financial
statements for the guarantor and nonguarantor subsidiaries are not presented
because management believes such financial statements would not be meaningful to
investors.
F-66
ARMOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ARMOR HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATING BALANCE SHEETS
YEAR ENDED DECEMBER 31, 2002
--------------------------------------------------------------------------------
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
---------- ------------ --------------- ------------- -------------
(IN THOUSANDS)
ASSETS
Current Assets:
Cash and cash equivalents $ 7,152 $ 3,556 $ 2,205 $ -- $ 12,913
Accounts receivable, net -- 44,864 13,649 -- 58,513
Costs and earned gross profit in excess -- 234 -- -- 234
Intercompany receivables 123,744 33,165 3,800 (160,709) --
Inventories -- 46,591 15,739 -- 62,330
Prepaid expenses and other current assets 12,490 21,999 2,368 (24,645) 12,212
Current assets of discontinued operations -- 10,351 18,474 -- 28,825
---------- ------------ --------------- ------------- -------------
Total Current Assets 143,386 160,760 56,235 (185,354) 175,027
Property and equipment, net 2,456 27,250 17,430 -- 47,136
Goodwill, net -- 96,903 1,833 -- 98,736
Patents, licenses and trademarks, net -- 7,326 195 -- 7,521
Other assets 916 6,872 1,260 -- 9,048
Long-term assets of discontinued operations -- 6,910 23,375 -- 30,285
Investment in subsidiaries 161,805 10,078 -- (171,883) --
---------- ------------ --------------- ------------- -------------
Total Assets $308,563 $ 316,099 $ 100,328 $ (357,237) $ 367,753
========== ============ =============== ============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ $ 1,813 $ -- $ -- $ 1,813
Short-term debt -- -- 599 -- 599
Accounts payable 828 15,751 7,191 -- 23,770
Accrued expenses and other current
liabilities 1,790 11,324 12,002 -- 25,116
Income taxes payable 4,831 (148) 1,230 -- 5,913
Intercompany payables 13,037 115,658 10,434 (139,129) --
Current liabilities of discontinued
operations -- 14,267 24,538 (21,580) 17,225
---------- ------------ --------------- ------------- -------------
Total Current Liabilities 20,486 158,665 55,994 (160,709) 74,436
Long-term debt, less current portion -- 5,072 -- -- 5,072
Long-term liabilities of discontinued
operations -- 13,022 11,791 (24,645) 168
---------- ------------ --------------- ------------- -------------
Total Liabilities 20,486 176,759 67,785 (185,354) 79,676
Stockholders' Equity:
Preferred stock -- 1,450 -- (1,450) --
Common stock 336 5,681 26,318 (31,999) 336
Additional paid in capital 307,487 73,836 10,016 (83,852) 307,487
Retained earnings (accumulated deficit) 34,056 58,373 (3,791) (54,582) 34,056
Accumulated other comprehensive loss (4,169) -- -- -- (4,169)
Treasury stock (49,633) -- -- -- (49,633)
---------- ------------ --------------- ------------- -------------
Total Stockholders' Equity 288,077 139,340 32,543 (171,883) 288,077
---------- ------------ --------------- ------------- -------------
Total Liabilities and Stockholders' Equity $308,563 $ 316,099 $ 100,328 $ (357,237) $ 367,753
========== ============ =============== ============= =============
F-67
ARMOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ARMOR HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATING BALANCE SHEETS
YEAR ENDED DECEMBER 31, 2001
--------------------------------------------------------------------------------
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
---------- ------------ --------------- ------------- -------------
(IN THOUSANDS)
ASSETS
Current Assets:
Cash and cash equivalents $ 38,627 $ 5,536 $ 3,326 $ -- $ 47,489
Accounts receivable, net 5 35,190 14,924 -- 50,119
Costs and earned gross profit in excess
of billings -- 5,451 -- -- 5,451
Intercompany receivables 117,184 8,736 832 (126,752) --
Inventories -- 40,891 9,662 -- 50,553
Prepaid expenses and other current assets 12,891 22,440 1,983 (28,367) 8,947
Current assets of discontinued operations -- 12,022 25,540 -- 37,562
---------- ------------ --------------- ------------- -------------
Total Current Assets 168,707 130,266 56,267 (155,119) 200,121
Property and equipment, net 2,395 28,313 5,996 -- 36,704
Goodwill, net -- 85,594 1,214 -- 86,808
Patents, licenses and trademarks, net -- 6,695 -- -- 6,695
Other assets 1,047 3,802 1,775 -- 6,624
Long-term assets of discontinued operations -- 20,387 33,733 (3,015) 51,105
Investment in subsidiaries 158,459 7,685 -- (166,144) --
---------- ------------ --------------- ------------- -------------
Total Assets $330,608 $ 282,742 $ 98,985 $ (324,278) $ 388,057
========== ============ =============== ============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ -- $ 1,773 $ -- $ -- $ 1,773
Short-term debt -- -- 709 -- 709
Accounts payable 613 11,538 9,293 -- 21,444
Accrued expenses and other current
liabilities 3,649 14,167 7,980 -- 25,796
Income taxes payable -- -- -- -- --
Intercompany payables 327 97,169 6,908 (104,404) --
Current liabilities of discontinued
operations -- 9,228 21,604 (23,156) 7,676
---------- ------------ --------------- ------------- -------------
Total Current Liabilities 4,589 133,875 46,494 (127,560) 57,398
Long-term debt, less current portion -- 4,225 -- -- 4,225
Long-term liabilities of discontinued
operations -- 16,128 11,846 (27,559) 415
---------- ------------ --------------- ------------- -------------
Total Liabilities 4,589 154,228 58,340 (155,119) 62,038
Stockholders' Equity:
Preferred stock -- 1,450 -- (1,450) --
Common stock 331 6,119 18,738 (24,857) 331
Additional paid in capital 301,995 72,576 8,507 (81,083) 301,995
Retained earnings 51,745 48,369 13,400 (61,769) 51,745
Accumulated other comprehensive loss (4,473) -- -- -- (4,473)
Treasury stock (23,579) -- -- -- (23,579)
---------- ------------ --------------- ------------- -------------
Total Stockholders' Equity 326,019 128,514 40,645 (169,159) 326,019
---------- ------------ --------------- ------------- -------------
Total Liabilities and Stockholders' Equity $330,608 $ 282,742 $ 98,985 $ (324,278) $ 388,057
========== ============ =============== ============= =============
F-68
ARMOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ARMOR HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATING INCOME STATEMENTS
YEAR ENDED DECEMBER 31, 2002
-----------------------------------------------------------------------------
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
---------- ----------- -------------- ------------- -------------
(IN THOUSANDS)
REVENUES:
Products $ -- $ 154,466 $ 25,480 $ -- $ 179,946
Mobile Security -- 75,276 49,895 -- 125,171
---------- ----------- -------------- ------------- -------------
Total revenues -- 229,742 75,375 -- 305,117
---------- ----------- -------------- ------------- -------------
COSTS AND EXPENSES:
Cost of sales -- 148,208 62,537 -- 210,745
Operating expenses 6,034 36,161 7,641 -- 49,836
Amortization -- 243 2 -- 245
Integration and other non-recurring
charges 800 5,126 -- -- 5,926
Related party management fees (income),
net 2,487 (171) (616) (1,700) --
---------- ----------- -------------- ------------- -------------
OPERATING (LOSS) INCOME (9,321) 40,175 5,811 1,700 38,365
Interest expense, net 450 275 198 -- 923
Other (income) expense, net (2) (22) 75 -- 51
Equity in losses (earnings) of
subsidiaries 8,237 (1,220) -- (7,017) --
Related party interest income, net -- (239) -- 239 --
---------- ----------- -------------- ------------- -------------
(LOSS) INCOME FROM CONTINUING OPERATIONS
BEFORE PROVISION FOR INCOME TAXES (18,006) 41,381 5,538 8,478 37,391
(BENEFIT) PROVISION FOR INCOME TAXES (317) 14,313 2,058 -- 16,054
---------- ----------- -------------- ------------- -------------
(LOSS) INCOME FROM CONTINUING OPERATIONS (17,689) 27,068 3,480 8,478 21,337
DISCONTINUED OPERATIONS:
LOSS FROM DISCONTINUED OPERATIONS
BEFORE BENEFIT FOR INCOME TAXES -- (17,678) (22,329) (1,461) (41,468)
BENEFIT FOR INCOME TAXES -- (784) (1,658) -- (2,442)
---------- ----------- -------------- ------------- -------------
NET LOSS FROM DISCONTINUED OPERATIONS -- (16,894) (20,671) (1,461) (39,026)
---------- ----------- -------------- ------------- -------------
NET (LOSS) INCOME $(17,689) $ 10,174 $ (17,191) $ 7,017 $ (17,689)
========== =========== ============== ============= =============
F-69
ARMOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ARMOR HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATING INCOME STATEMENTS
YEAR ENDED DECEMBER 31, 2001
-----------------------------------------------------------------------------
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
---------- ------------ ------------ ------------ ------------
(IN THOUSANDS)
REVENUES:
Products $ -- $ 134,006 $ 15,862 $ -- $ 149,868
Mobile Security -- 25,221 22,011 -- 47,232
---------- ----------- -------------- ------------- -------------
Total revenues -- 159,227 37,873 -- 197,100
---------- ----------- -------------- ------------- -------------
COSTS AND EXPENSES:
Cost of sales -- 95,831 30,499 -- 126,330
Operating expenses 5,451 30,418 2,790 -- 38,659
Amortization -- 2,059 83 -- 2,142
Integration and other non-recurring charges 1,205 2,079 12 -- 3,296
Related party management income, net (47) -- (1,112) 1,159 --
---------- ----------- -------------- ------------- -------------
OPERATING (LOSS) INCOME (6,609) 28,840 5,601 (1,159) 26,673
Interest expense, net 3,452 360 52 -- 3,864
Other income, net -- (28) (54) -- (82)
Equity in earnings of subsidiaries (14,269) (1,513) -- 15,782 --
Related party interest income, net -- (1,310) -- 1,310 --
---------- ----------- -------------- ------------- -------------
INCOME FROM CONTINUING OPERATIONS BEFORE
PROVISION FOR INCOME TAXES 4,208 31,331 5,603 (18,251) 22,891
(BENEFIT) PROVISION FOR INCOME TAXES (5,920) 12,215 1,912 -- 8,207
---------- ----------- -------------- ------------- -------------
INCOME FROM CONTINUING OPERATIONS 10,128 19,116 3,691 (18,251) 14,684
DISCONTINUED OPERATIONS:
LOSS FROM DISCONTINUED OPERATIONS
BEFORE (BENEFIT) PROVISION FOR INCOME TAXES -- (4,558) (4,977) 2,469 (7,066)
(BENEFIT) PROVISION FOR INCOME TAXES -- (2,668) 158 -- (2,510)
---------- ----------- -------------- ------------- -------------
NET LOSS FROM DISCONTINUED OPERATIONS -- (1,890) (5,135) 2,469 (4,556)
---------- ----------- -------------- ------------- -------------
NET INCOME (LOSS) $ 10,128 $ 17,226 $ (1,444) $ (15,782) $ 10,128
========== =========== ============== ============= =============
F-70
ARMOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ARMOR HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATING INCOME STATEMENTS
YEAR ENDED DECEMBER 31, 2000
-----------------------------------------------------------------------------
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
---------- ------------ ------------ ------------ ------------
(IN THOUSANDS)
REVENUES:
Products $ -- $ 127,697 $ 12,207 $ -- $ 139,904
Mobile Security -- -- -- -- --
---------- ----------- -------------- ------------- -------------
Total revenues -- 127,697 12,207 -- 139,904
---------- ----------- -------------- ------------- -------------
COSTS AND EXPENSES:
Cost of sales -- 75,601 9,856 -- 85,457
Operating expenses 6,496 23,108 682 -- 30,286
Amortization -- 1,616 88 -- 1,704
Integration and other non-recurring charges 1,351 1,237 -- -- 2,588
Related party management (income) fees, net (1,134) 280 (236) 1,090 --
---------- ----------- -------------- ------------- -------------
OPERATING (LOSS) INCOME (6,713) 25,855 1,817 (1,090) 19,869
Interest expense, net 1,753 87 9 -- 1,849
Other (income) expense, net (1,709) 1,642 -- -- (67)
Equity in earnings of subsidiaries (21,226) -- -- 21,226 --
Related party interest income, net -- (1,251) -- 1,251 --
---------- ----------- -------------- ------------- -------------
INCOME FROM CONTINUING OPERATIONS BEFORE
(BENEFIT) PROVISION FOR INCOME TAXES 14,469 25,377 1,808 (23,567) 18,087
(BENEFIT) PROVISION FOR INCOME TAXES (2,579) 9,406 413 -- 7,240
---------- ----------- -------------- ------------- -------------
INCOME (LOSS) FROM CONTINUING OPERATIONS 17,048 15,971 1,395 (23,567) 10,847
DISCONTINUED OPERATIONS:
INCOME FROM DISCONTINUED OPERATIONS
BEFORE PROVISION FOR INCOME TAXES -- 1,763 4,199 2,341 8,303
PROVISION FOR INCOME TAXES -- 1,938 164 -- 2,102
---------- ----------- -------------- ------------- -------------
NET (LOSS) INCOME FROM DISCONTINUED OPERATIONS -- (175) 4,035 2,341 6,201
---------- ----------- -------------- ------------- -------------
NET INCOME $ 17,048 $ 15,796 $ 5,430 $ (21,226) $ 17,048
========== =========== ============== ============= =============
F-71
ARMOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ARMOR HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATING STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 2002
---------------------------------------------------------------------------
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
------------- ------------ ------------ ------------ ------------
(IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES:
(Loss) income from continuing operations:
$(17,689) $ 27,068 $ 3,480 $ 8,478 $ 21,337
Adjustments to reconcile (loss) income from
continuing operations to cash used
in operating activities:
Depreciation and amortization 854 3,583 1,143 -- 5,580
Deferred income taxes (364) 321 402 359
Loss on disposal of fixed assets -- 66 134 -- 200
Changes in operating assets and liabilities,
net of acquisitions:
(Increase) decrease in accounts receivable -- (3,829) 1,275 -- (2,554)
Decrease (increase) in intercompany
receivables & payables 6,151 (5,266) 576 (1,461) --
Increase in inventory -- (5,125) (4,256) -- (9,381)
Decrease (increase) in prepaid expenses and
other assets 492 (2,459) (279) -- (2,246)
(Decrease) increase in accounts payable,
accrued expenses and other current
liabilities (1,405) 7,215 (9,564) -- (3,754)
Increase (decrease) in income taxes payable 5,663 (148) 1,230 -- 6,745
----------- ----------- ------------ ----------- ------------
Net cash (used in) provided by operating activities (6,298) 21,426 (5,859) 7,017 16,286
----------- ----------- ------------ ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (506) (3,671) (1,725) -- (5,902)
Purchase of patents and trademarks -- (69) -- -- (69)
Additional consideration for purchased
businesses -- (9,375) -- -- (9,375)
Investment in subsidiaries (3,347) 1,643 8,721 (7,017) --
Purchase of businesses, net of cash acquired -- (8,818) -- -- (8,818)
----------- ----------- ------------ ----------- ------------
Net cash (used in) provided by investing activities: (3,853) (20,290) 6,996 (7,017) (24,164)
----------- ----------- ------------ ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options 4,227 -- -- -- 4,227
Proceeds from of sale of put options 525 -- -- -- 525
Cash paid for offering costs (326) -- -- -- (326)
Repurchase of treasury stock (26,054) -- -- -- (26,054)
Repayments of long-term debt -- (620) (110) -- (730)
Borrowings under lines of credit 32,372 -- -- -- 32,372
Repayments under lines of credit (32,372) (75) -- -- (32,447)
----------- ----------- ------------ ----------- ------------
Net cash used in financing activities (21,628) (695) (110) -- (22,433)
----------- ----------- ------------ ----------- ------------
Effect of exchange rate on cash and cash
equivalents 304 342 (772) -- (126)
Net cash used in discontinued operations -- (2,763) (1,376) -- (4,139)
----------- ----------- ------------ ----------- ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS (31,475) (1,980) (1,121) -- (34,576)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 38,627 5,536 3,326 -- 47,489
----------- ----------- ------------ ----------- ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 7,152 $ 3,556 $ 2,205 $ -- $ 12,913
=========== =========== ============ =========== ============
F-72
ARMOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ARMOR HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATING STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 2001
---------------------------------------------------------------------------
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
----------- ------------ ------------ ------------ ------------
(IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES:
Income from continuing operations: $ 10,128 $ 19,116 $ 3,691 $(18,251) $ 14,684
Adjustments to reconcile income from continuing
operations to cash used in
operating activities:
Depreciation and amortization 694 4,578 342 -- 5,614
Deferred income taxes 76 (407) (42) (373)
Loss on disposal of fixed assets -- 21 170 -- 191
Changes in operating assets and liabilities,
net of acquisitions:
Increase in accounts receivable -- (11,880) (3,000) -- (14,880)
(Increase) decrease in intercompany
receivables & payables (67,323) 62,878 1,976 2,469 --
(Increase) decrease in inventory -- (12,044) 8,096 -- (3,948)
Decrease (increase) in prepaid expenses and
other assets 162 (92) 979 -- 1,049
Increase (decrease) in accounts payable,
accrued expenses and other current
liabilities 4,632 6,317 (3,768) -- 7,181
Increase (decrease) in income taxes payable 6,667 272 (272) -- 6,667
------------ ----------- ----------- ---------- -------------
Net cash (used in) provided by operating activities (44,964) 68,759 8,172 (15,782) 16,185
------------ ----------- ----------- ---------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (1,140) (3,984) (520) -- (5,644)
Proceeds from sale of equity investment 843 -- -- -- 843
Additional consideration for purchased businesses (1,913) (1,357) -- -- (3,270)
Investment in subsidiaries (6,739) (15,360) 6,317 15,782 --
Purchase of businesses, net of cash acquired -- (39,365) -- -- (39,365)
------------ ----------- ----------- ---------- -------------
Net cash (used in) provided by investing activities: (8,949) (60,066) 5,797 15,782 (47,436)
------------ ----------- ----------- ---------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options 10,160 -- -- -- 10,160
Proceeds from of issuance of common stock 117,979 -- -- -- 117,979
Cash paid for offering costs (545) -- -- -- (545)
Repurchase of treasury stock (723) -- -- -- (723)
Proceeds from issuance of treasury shares for
stock options 686 -- -- -- 686
Repayments of long-term debt -- (676) -- -- (676)
Repayments of debt assumed in acquisitions -- (1,315) -- -- (1,315)
Borrowings under lines of credit 98,000 -- 286 -- 98,286
Repayments under lines of credit (130,981) -- -- -- (130,981)
------------ ----------- ----------- ---------- -------------
Net cash provided by (used in) financing
activities 94,576 (1,991) 286 -- 92,871
------------ ----------- ----------- ---------- -------------
Effect of exchange rate on cash and cash
equivalents (2,789) 2,703 (1,373) -- (1,459)
Net cash used in discontinued operations -- (3,453) (10,883) -- (14,336)
------------ ----------- ----------- ---------- -------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 37,874 5,952 1,999 -- 45,825
ASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 753 (416) 1,327 -- 1,664
------------ ----------- ----------- ---------- -------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 38,627 $ 5,536 $ 3,326 $ -- $ 47,489
============ =========== =========== ========== =============
F-73
ARMOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ARMOR HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATING STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 2000
-----------------------------------------------------------------------------
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
------------ ------------ ------------ ------------ ------------
(IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES:
Income from continuing operations: $ 17,048 $ 15,971 $ 1,395 $ (23,567) $ 10,847
Adjustments to reconcile income from continuing
operations to cash used in operating activities:
Depreciation and amortization 211 3,055 196 -- 3,462
Deferred income taxes 64 699 6 769
Loss on disposal of fixed assets -- 110 -- -- 110
Changes in operating assets and liabilities,
net of acquisitions:
Increase in accounts receivable -- (2,361) (1,239) -- (3,600)
Decrease (increase) in intercompany
receivables & payables 7,696 (5,227) (4,810) 2,341 --
Increase in inventory -- (4,208) (371) -- (4,579)
(Increase) decrease in prepaid expenses and
other assets (12,607) 6,271 (60) -- (6,396)
Increase (decrease) in accounts payable,
accrued expenses and other current
liabilities 1,570 (3,032) 1,843 -- 381
Increase (decrease) in income taxes payable 335 (3,107) (156) -- (2,928)
----------- ------------ -------------- ------------ ------------
Net cash provided by (used in) operating
activities 14,317 8,171 (3,196) (21,226) (1,934)
----------- ------------ -------------- ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (570) (3,349) (144) -- (4,063)
Purchase of patents and trademarks -- (83) -- -- (83)
Purchase of investments (1,682) -- -- -- (1,682)
Proceeds from sale of equity investment 857 -- -- -- 857
Investment in subsidiaries (40,628) 19,350 52 21,226 --
Purchase of businesses, net of cash acquired -- (14,220) -- -- (14,220)
----------- ------------ -------------- ------------ ------------
Net cash (used in) provided by investing
activities: (42,023) 1,698 (92) 21,226 (19,191)
----------- ------------ -------------- ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options 1,473 -- -- -- 1,473
Repayment of debt assumed in acquisitions -- (1,132) -- -- (1,132)
Cash paid for offering costs -- (256) -- -- (256)
Repurchase of treasury stock (12,606) -- -- -- (12,606)
Repayments of long-term debt -- (1,115) -- -- (1,115)
Borrowings under lines of credit 68,872 6,775 -- -- 75,647
Repayments under lines of credit (35,891) (7,543) -- -- (43,434)
----------- ------------ -------------- ------------ ------------
Net cash provided by (used in) financing activities 21,848 (3,271) -- -- 18,577
----------- ------------ -------------- ------------ ------------
Effect of exchange rate on cash and cash
equivalents (1,483) 1,283 (133) -- (333)
Net cash (used in) provided by discontinued
operations -- (6,965) 4,211 -- (2,754)
----------- ------------ -------------- ------------ ------------
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS (7,341) 916 790 -- (5,635)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 8,094 (1,332) 537 -- 7,299
----------- ------------ -------------- ------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 753 $ (416) $ 1,327 $ -- $ 1,664
=========== ============ ============== ============ ============
F-74
21. SUBSEQUENT EVENTS
On July 26, 2003, we awarded Warren B. Kanders, our Chairman and Chief
Executive Officer, a stock bonus award of 200,000 shares of our common stock in
accordance with his amended employment agreement. On November 4, 2003, we
awarded Robert R. Schiller, our Chief Operating Officer and Chief Financial
Officer, a stock bonus award of 150,000 shares of our common stock in accordance
with his amended employment agreement. On November 11, 2003, our stock price
closed above $20 for the fifth consecutive trading day, which resulted in the
complete vesting of the stock bonus awards and a pre-tax charge to earnings of
$7.3 million, which will be included in fourth quarter results. The payment of
the stock bonus awards to Messrs. Kanders and Schiller will be deferred for a
period of five years after November 11, 2003, subject to acceleration under
certain circumstances as set forth in their respective employment agreements, as
amended.
On November 26, 2003, we sold our Services Division, which had been
classified as a discontinued operation, to management and a group of private
investors led by Granville Baird Capital Partners. We realized approximately
$31.4 million in cash at the closing of the sale, and expect to receive an
additional $2.3 million in cash during the 12-month period following the
closing. The sales amount approximates our carrying value after related tax
benefits of $10.0 million.
On December 9, 2003, we completed our $110.5 million acquisition of
Simula, Inc., an Arizona corporation, and acquired all of the outstanding common
stock of Simula and retired a majority of Simula's outstanding indebtedness. Of
this amount, approximately $31 million principal amount of 8% debentures will
remain outstanding for approximately 30 days at which time our plans are to
repay these debentures, plus accrued interest, in their entirety. As of the date
of this prospectus, Simula's outstanding 8% debentures have been paid in full.
After payment of 100% of the outstanding indebtedness and transaction expenses,
the merger consideration payable to Simula shareholders at closing pursuant to
the merger agreement was approximately $43.5 million or approximately $3.21 per
share. The funds used in the acquisition were derived from proceeds of our
recent private placement of $150 million aggregate principal amount of 8 1/4%
Senior Subordinated Notes due 2013.
F-75
ARMOR HOLDINGS, INC.
OFFER TO EXCHANGE $150,000,000 PRINCIPAL AMOUNT OF OUR
8 1/4% SENIOR SUBORDINATED NOTES DUE 2013,
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
FOR ANY AND ALL OF OUR OUTSTANDING
8 1/4% SENIOR SUBORDINATED NOTES DUE 2013
UNCONDITIONALLY GUARANTEED BY THE SUBSIDIARY
GUARANTORS LISTED ON PAGE 5 OF THIS PROSPECTUS
------------------------
PROSPECTUS
------------------------
___________ __, 2004
================================================================================
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the General Corporation Law of the State of Delaware
(the "DGCL") makes provision for the indemnification of officers and directors
of corporations in terms sufficiently broad to indemnify its officers and
directors under certain circumstances from liabilities (including reimbursement
of expenses incurred) arising under the Securities Act.
As permitted by the DGCL, Armor Holdings' Charter provides that, to the
fullest extent permitted by the DGCL, no director shall be liable to Armor
Holdings or to its stockholders for monetary damages for breach of his fiduciary
duty as a director. Delaware law does not permit the elimination of liability
(i) for any breach of the director's duty of loyalty to Armor Holdings or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) in respect of
certain unlawful dividend payments or stock redemptions or repurchases or (iv)
for any transaction from which the director derives an improper personal
benefit. The effect of this provision in the Charter is to eliminate the rights
of Armor Holdings and its stockholders (through stockholders' derivative suits
on behalf of Armor Holdings) to recover monetary damages against a director for
breach of fiduciary duty as a director thereof (including breaches resulting
from negligent or grossly negligent behavior) except in the situations described
in clauses (i)-(iv), inclusive, above. These provisions will not alter the
liability of directors under federal securities laws.
Armor Holdings' Charter provides that it may indemnify any person who
was or is a party or is threatened to be made a party to any threatened, pending
or completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (other than an action by or in the right of Armor Holdings) by
reason of the fact that he is or was a director, officer, employee or agent of
Armor Holdings or is or was serving at the request of Armor Holdings as a
director, officer, employee or agent of another corporation or enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by such person in connection with
such action, suit or proceeding if such person acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
Armor Holdings, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe such person's conduct was unlawful.
Armor Holdings' Charter also provides that it may indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action or suit by or in the right of Armor Holdings to
procure a judgment in its favor by reason of the fact that such person acted in
any of the capacities set forth above, against expenses (including attorneys'
fees) actually and reasonably incurred by such person in connection with the
defense or settlement of such action or suit if such person acted under similar
standards, except that no indemnification may be made in respect of any claim,
issue or matter as to which such person shall have been adjudged to be liable to
Armor Holdings unless and only to the extent that the Court of Chancery of the
State of
II-1
Delaware or the court in which such action or suit was brought shall determine
upon application that despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
Armor Holdings' Charter also provides that to the extent a director or officer
of Armor Holdings has been successful in the defense of any action, suit or
proceeding referred to in the previous paragraphs or in the defense of any
claim, issue, or matter therein, he shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection therewith; that indemnification provided for in the Charter shall not
be deemed exclusive of any other rights to which the indemnified party may be
entitled; and that Armor Holdings may purchase and maintain insurance on behalf
of a director or officer of Armor Holdings against any liability asserted
against him or incurred by him in any such capacity or arising out of his status
as such whether or not Armor Holdings would have the power to indemnify him
against such liabilities under the provisions of Section 145 of the DGCL.
ITEM 21. EXHIBITS
Exhibit Description
- ------- -----------
1.1 Purchase Agreement, dated August 6, 2003, among Armor Holdings, the
subsidiary guarantors listed as signatories thereto and Wachovia
Capital Markets, LLC (filed as Exhibit 10.1 to Armor Holdings'
Quarterly Report on Form 10-Q, filed with the Commission on August
18, 2003 and incorporated herein by reference).
3.1 Certificate of Incorporation of Armor Holdings (filed as Exhibit 3.1
to Armor Holdings' Current Report on Form 8-K, filed with the
Commission on September 3, 1996 and incorporated herein by
reference).
3.2 Certificate of Merger of American Body Armor & Equipment, Inc., a
Florida corporation, and Armor Holdings (filed as Exhibit 3.2 to
Armor Holdings' Current Report on Form 8-K, filed with the Commission
on September 3, 1996 and incorporated herein by reference).
3.3 Bylaws of Armor Holdings (filed as Exhibit 3.3 to Armor Holdings'
Current Report on Form 8-K, filed with the Commission on September 3,
1996 and incorporated herein by reference).
II-2
Exhibit Description
- ------- -----------
3.4 Amendment to Bylaws of Armor Holdings (filed as Exhibit 3.3.2 to
Armor Holdings' Annual Report on Form 10-K for the fiscal year ended
December 31, 1998, filed with the Commission on March 25, 1999 and
incorporated herein by reference).
3.5 Certificate of Incorporation of 911EP, Inc. and amendments thereto
(f/k/a EP Acquisition Corp.). (1)
3.6 Bylaws of 911EP, Inc. (f/k/a EP Acquisition Corp.). (1)
3.7 Certificate of Incorporation of AHI Bulletproof Acquisition Corp. (1)
3.8 Bylaws of AHI Bulletproof Acquisition Corp. (1)
3.9 Certificate of Incorporation of AHI Properties I, Inc. (1)
3.10 Bylaws of AHI Properties I, Inc. (1)
3.11 Certificate of Incorporation and amendments thereto of AI Capital
Corp. (f/k/a Airline Interiors, Inc.). (1)
3.12 Bylaws of AI Capital Corp. (f/k/a Airline Interiors, Inc.). (1)
3.13 Certificate of Incorporation of Armor Brands, Inc. (1)
3.14 Bylaws of Armor Brands, Inc. (1)
3.15 Certificate of Formation and amendments thereto of ArmorGroup
Services, LLC. (f/k/a Armor Group Security Services, LLC). (1)
3.16 Operating Agreement of ArmorGroup Services, LLC. (f/k/a Armor Group
Security Services, LLC). (1)
3.17 Certificate of Incorporation and amendments thereto of Armor Holdings
Forensics, Inc. (f/k/a LPC Acquisition Corp.). (1)
3.18 Bylaws of Armor Holdings Forensics, Inc. (f/k/a LPC Acquisition
Corp.). (1)
3.19 Certificate of Formation of Armor Holdings GP, LLC. (1)
3.20 Amended and Restated Operating Agreement of Armor Holdings GP, LLC.
(1)
3.21 Certificate of Formation of Armor Holdings LP, LLC. (1)
II-3
Exhibit Description
- ------- -----------
3.22 Amended and Restated Operating Agreement of Armor Holdings LP, LLC.
(1)
3.23 Certificate of Formation of Armor Holdings Mobile Security, L.L.C.
(1)
3.24 Operating Agreement of Armor Holdings Mobile Security, L.L.C. (1)
3.25 Certificate of Formation of Armor Holdings Payroll Services, LLC. (1)
3.26 Operating Agreement of Armor Holdings Payroll Services, LLC. (1)
3.27 Certificate of Incorporation and amendments thereto of Armor Holdings
Products, Inc. (f/k/a American Body Armor and Equipment, Inc.). (1)
3.28 Bylaws of Armor Holdings Products, Inc. (f/k/a American Body Armor
and Equipment, Inc.). (1)
3.29 Certificate of Incorporation of Armor Holdings Properties, Inc. (1)
3.30 Bylaws of Armor Holdings Properties, Inc. (1)
3.31 Certificate of Incorporation and amendments thereto of Armor Holdings
Safety Products Company (f/k/a/ FPG Acquisition Corp.). (1)
3.32 Bylaws of Armor Holdings Safety Products Company (f/k/a/ FPG
Acquisition Corp.). (1)
3.33 Certificate of Incorporation and amendments thereto of ASD Capital
Corp. (f/k/a Simula Automotive Safety Devices, Inc.). (1)
3.34 Bylaws of ASD Capital Corp. (f/k/a Simula Automotive Safety Devices,
Inc.). (1)
3.35 Certificate of Incorporation and amendments thereto of B-Square, Inc.
(1)
3.36 Bylaws of B-Square, Inc. (1)
3.37 Certificate of Incorporation and amendments thereto of Break Free
Armor Corp. (f/k/a BF Acquisition Corp.). (1)
3.38 Bylaws of Break Free Armor Corp. (1)
3.39 Certificate of Incorporation and amendments thereto of Break Free,
Inc. (f/k/a BF Acquisition Co.). (1)
II-4
Exhibit Description
- ------- -----------
3.40 Bylaws of Break Free, Inc. (f/k/a BF Acquisition Co.). (1)
3.41 Articles of Agreement of Casco International, Inc. (1)
3.42 Bylaws of Casco International, Inc. (1)
3.43 Articles of Incorporation and amendments thereto of CCEC Capital
Corp. (f/k/a CCEC Acquisitions Corp.). (1)
3.44 Bylaws of CCEC Capital Corp. (f/k/a CCEC Acquisitions Corp.). (1)
3.45 Certificate of Incorporation of CDR International, Inc. (1)
3.46 Bylaws of CDR International, Inc. (1)
3.47 Certificate of Incorporation of Defense Technology Corporation of
America. (1)
3.48 Bylaws of Defense Technology Corporation of America. (1)
3.49 Articles of Incorporation and amendments thereto of Hatch Imports,
Inc. (1)
3.50 Bylaws of Hatch Imports, Inc. (1)
3.51 Certificate of Incorporation and amendments thereto of Identicator,
Inc. (f/k/a Identicator Acquisition Corp.). (1)
3.52 Bylaws of Identicator, Inc. (f/k/a Identicator Acquisition Corp.).
(1)
3.53 Certificate of Incorporation of International Center for Safety
Education, Inc. (1)
3.54 Bylaws of International Center for Safety Education, Inc. (1)
3.55 Certificate of Incorporation of Monadnock Lifetime Products, Inc.
(Delaware). (1)
3.56 Bylaws of Monadnock Lifetime Products, Inc. (Delaware). (1)
II-5
Exhibit Description
- ------- -----------
3.57 Articles of Incorporation and amendments thereto of Monadnock Police
Training Council, Inc. (f/k/a Monadnock PR-24 Training Council,
Inc.). (1)
3.58 Bylaws of Monadnock Police Training Council, Inc. (f/k/a Monadnock
PR-24 Training Council, Inc.). (1)
3.59 Certificate of Limited Partnership and amendments thereto of NAP
Properties, Ltd. (1)
3.60 Limited Partnership Agreement and amendments thereto of NAP
Properties, Ltd. (1)
3.61 Articles of Organization of NAP Property Managers, LLC. (1)
3.62 Operating Agreement and amendments thereto of NAP Property Managers,
LLC. (1)
3.63 Certificate of Incorporation of Monadnock Lifetime Products, Inc.
(f/k/a MLP Industries, Inc.) (New Hampshire). (1)
3.64 Bylaws of Monadnock Lifetime Products, Inc. (f/k/a MLP Industries,
Inc.) (New Hampshire). (1)
3.65 Certificate of Incorporation and Certificate of Merger of Network
Audit Systems, Inc. (f/k/a NAS Merger Subsidiary, Inc.). (1)
3.66 Bylaws of Network Audit Systems, Inc. (1)
3.67 Certificate of Incorporation and amendments thereto of New
Technologies Armor, Inc. (f/k/a NTI Merger Subsidiary, Inc.). (1)
3.68 Bylaws of New Technologies Armor, Inc. (f/k/a NTI Merger Subsidiary,
Inc.). (1)
3.69 Certificate of Formation, Certificate of Incorporation and amendments
thereto and Certificate of Conversion of O'Gara-Hess and Eisenhardt
Armor Company, L.L.C. (f/k/a O'Gara Companies, a Delaware
Corporation). (1)
3.70 Operating Agreement of O'Gara-Hess & Eisenhardt Armor Company, L.L.C.
(f/k/a O'Gara Companies, a Delaware Corporation). (1)
3.71 Certificate of Incorporation of Pro-Tech Armored Products of
Massachusetts, Inc. (1)
3.72 Bylaws of Pro-Tech Armored Products of Massachusetts, Inc. (1)
3.73 Certificate of Incorporation and amendments thereto of Ramtech
Development Corp. (f/k/a Invencom Acquisition Corp.). (1)
II-6
Exhibit Description
- ------- -----------
3.74 Bylaws of Ramtech Development Corp. (f/k/a Invencom Acquisition
Corp.). (1)
3.75 Amended and Restated Articles of Incorporation of Safari Land Ltd.,
Inc. (1)
3.76 Bylaws of Safari Land Ltd., Inc. and amendments thereto. (1)
3.77 Articles of Incorporation of Safariland Government Sales, Inc. (1)
3.78 Bylaws of Safariland Government Sales, Inc. (1)
3.79 Articles of Incorporation and amendments thereto of SAI Capital
Corp. (f/k/a Artcraft Industries Acquisition Corp.). (1)
3.80 Bylaws of SAI Capital Corp. (f/k/a Artcraft Industries Acquisition
Corp.). (1)
3.81 Articles of Incorporation and Amendments thereto of Simula
Aerospace & Defense Group, Inc. (f/k/a Simula Government Products,
Inc.).(1)
3.82 Bylaws of Simula Aerospace & Defense Group, Inc. (f/k/a Simula
Government Products, Inc.).(1)
3.83 Amended and Restated Articles of Incorporation of Simula, Inc. (1)
3.84 Bylaws of Simula, Inc. (1)
3.85 Certificate of Incorporation of Simula Polymer Systems, Inc. (1)
3.86 Bylaws of Simula Polymer Systems, Inc. (1)
3.87 Articles of Incorporation of Simula Technologies, Inc. (1)
3.88 Bylaws of Simula Technologies, Inc. (1)
3.89 Articles of Incorporation and amendments thereto of Simula
Transportation Equipment Corporation (f/k/a Intaero, Inc.). (1)
3.90 Bylaws of Simula Transportation Equipment Corporation (f/k/a Intaero,
Inc.). (1)
3.91 Certificate of Incorporation of Speedfeed Acquisition Corp. (1)
II-7
Exhibit Description
- ------- -----------
3.92 Bylaws of Speedfeed Acquisition Corp. (1)
3.93 Amended and Restated Articles of Incorporation of The O'Gara
Company. (1)
3.94 Bylaws of The O'Gara Company. (1)
4.1 Indenture, dated as of August 12, 2003, among Armor Holdings, the
subsidiary guarantors listed as signatories thereto and Wachovia
Bank, National Association, as trustee, and form of Old Note attached
as Exhibit A thereto (filed as Exhibit 10.2 to Armor Holdings'
Quarterly Report on Form 10-Q, filed with the Commission on August
18, 2003 and incorporated herein by reference).
4.2 First Supplemental Indenture, dated as of September 30, 2003, among
Armor Holdings, the subsidiary guarantors listed as signatories to
the Indenture, the subsidiaries listed in Schedule I to the First
Supplemental Indenture and Wachovia Bank, National Association, as
trustee. (1)
4.3 Second Supplemental Indenture, dated as of December 9, 2003, among
Armor Holdings, Inc., the subsidiary guarantors listed as signatories
thereto and Wachovia Bank, National Association, as trustee. (1)
4.4 Third Supplemental Indenture, dated as of December 24, 2003, among
Armor Holdings, the subsidiary guarantors listed as signatories
thereto and Wachovia Bank, National Association, as trustee. (1)
4.5 Registration Rights Agreement, dated August 12, 2003, among Armor
Holdings, the subsidiary guarantors listed as signatories thereto and
Wachovia Capital Markets, LLC (filed as Exhibit 10.3 to Armor
Holdings' Quarterly Report on Form 10-Q, filed with the Commission on
August 18, 2003 and incorporated herein by reference).
4.6 Form of the new 8 1/4% Senior Subordinated Notes Due 2013. (1)
5.1 Opinion of Kane Kessler, P.C. (2)
10.1 Credit Agreement, dated as of August 12, 2003, among Armor Holdings,
each lender from time to time party thereto, Bank of America, N.A.,
as Administrative Agent, Swing Line Lender and L/C Issuer, Wachovia
Bank, National Association, as Syndication Agent, and Key Bank
National Association, as Documentation Agent (filed as Exhibit 10.4
to Armor Holdings' Quarterly Report on form 10-Q, filed with the
Commission on August 18, 2003 and incorporated herein by reference).
10.2 Subsidiary Guaranty Agreement, dated as of August 12, 2003, by
certain Subsidiaries of Armor Holdings as identified on the signature
pages thereto and any Additional
II-8
Exhibit Description
- ------- -----------
Guarantor who may become party to this Guaranty, in favor of Bank of
America, N.A., as Administrative Agent (filed as Exhibit 10.5 to
Armor Holdings' Quarterly Report on Form 10-Q, filed with the
Commission on August 18, 2003 and incorporated herein by reference).
10.3 Collateral Agreement, dated as of August 12, 2003, by and among Armor
Holdings and certain of its Subsidiaries as identified on the
signature pages thereto and any Additional Grantor who may become
party to this Agreement, in favor of Bank of America, N.A., as
Administrative Agent (filed as Exhibit 10.6 to Armor Holdings'
Quarterly Report on Form 10-Q, filed with the Commission on August
18, 2003 and incorporated herein by reference).
10.4 Trademark Security Agreement, dated as of August 12, 2003, by the
entities listed on the signature pages thereto, in favor of Bank of
America, N.A., as Administrative Agent (filed as Exhibit 10.7 to
Armor Holdings' Quarterly Report on Form 10-Q, filed with the
Commission on August 18, 2003 and incorporated herein by reference).
10.5 Patent Security Agreement, dated as of August 12, 2003, by the
entities listed on the signature pages attached thereto, in favor of
Bank of America, N.A., as Administrative Agent (filed as Exhibit 10.8
to Armor Holdings' Quarterly Report on Form 10-Q, filed with the
Commission on August 18, 2003 and incorporated herein by reference).
12.1 Statement of Computation of Ratio of Earnings to Fixed Charges. (1)
21.1 Subsidiaries of Armor Holdings. (1)
23.1 Consent of PricewaterhouseCoopers LLP. (2)
23.2 Consent of Deloitte & Touche LLP. (2)
23.3 Consent of Kane Kessler, P.C. (See Exhibit 5.1 to Amendment No. 1 to
the Registration Statement). (2)
24.1 Powers of Attorney. (1)
25.1 Statement of Eligibility under the Trust Indenture Act of 1939 of a
Corporation Designated to Act as Trustee on Form T-1, as amended,
relating to Wachovia Bank, National Association. (2)
99.1 Form of Letter to The Depository Trust Company Participants. (1)
99.2 Form of Letter of Transmittal. (1)
99.3 Form of Notice of Guaranteed Delivery. (1)
99.4 Form of Instruction to Book-Entry Transfer Participant. (1)
II-9
Exhibit Description
- ------- -----------
99.5 Form of Letter to Clients. (1)
99.6 Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9. (1)
99.7 Form of Exchange Agent Agreement. (1)
- ---------------------------
(1) Previously filed.
(2) Filed herewith.
II-10
ITEM 22. UNDERTAKINGS
A. The undersigned registrant hereby undertakes:
(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;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not
apply if the registration statement is on Form S-3, Form S-8 or Form
F-3, and the information required to be included in a post-effective
amendment by those paragraphs is contained in periodic reports filed
with or furnished to the Commission by the registrant pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of 1934
that are incorporated by reference in the registration statement.
(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.
(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.
B. The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each
filing of the registrant's annual report
II-11
pursuant to Section 13(a) or Section 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of
the Securities Exchange Act of 1934) that is incorporated by
reference in the registration statement 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.
C. 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 Commission such indemnification is against public
policy as expressed in the Securities Act of 1933 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 the 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
Securities Act of 1933 and will be governed by the final
adjudication of such issue.
D. The undersigned registrant hereby undertakes that to respond to
requests for information that is incorporated by reference into the
prospectus pursuant to items 4, 10(b), 11, or 13 of this Form,
within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt
means. This includes information contained in documents filed
subsequent to the effective date of the registration statement
through the date of responding to the request.
E. The undersigned registrant hereby undertakes that to supply by means
of a post-effective amendment all information concerning a
transaction, and the company being acquired therein, that was not
the subject of and included in the registration statement when it
became effective.
II-12
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Amendment No. 1 to the Registration Statement on
Form S-4 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Jacksonville, State of Florida on February 20, 2004.
ARMOR HOLDINGS, INC.
By: *
------------------------------------
Warren B. Kanders,
Chief Executive Officer and Chairman
of the Board of Directors
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 1 to the Registration Statement has been duly signed below by the
following persons in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
* Chairman of the Board of February 20, 2004
- ---------------------------- Directors, Chief Executive
Warren B. Kanders Officer and Director
(principal executive officer)
/s/ Robert R. Schiller Chief Financial Officer and February 20, 2004
- ---------------------------- Chief Operating Officer
Robert R. Schiller (principal financial officer)
* Director February 20, 2004
- ---------------------------
Nicholas Sokolow
* Director February 20, 2004
- ---------------------------
Burtt R. Ehrlich
* Director February 20, 2004
- ---------------------------
Thomas W. Strauss
* Director February 20, 2004
- ---------------------------
Alair A. Townsend
* Director February 20, 2004
- ---------------------------
Deborah A. Zoullas
*By: /s/ Robert R. Schiller
-----------------------
Robert R. Schiller
as Attorney-in-Fact
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Amendment No. 1 to the Registration Statement on
Form S-4 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Jacksonville, State of Florida on February 20, 2004.
911EP, INC.
ARMOR BRANDS, INC.
ARMOR HOLDINGS FORENSICS, INC.
ARMOR HOLDINGS PRODUCTS, INC.
ARMOR SAFETY PRODUCTS COMPANY
BREAK-FREE ARMOR CORP.
BREAK-FREE INC.
CASCO INTERNATIONAL, INC.
DEFENSE TECHNOLOGY CORPORATION
OF AMERICA
IDENTICATOR, INC.
MONADNOCK LIFETIME PRODUCTS, INC.
MONADNOCK LIFETIME PRODUCTS, INC.
MONADNOCK POLICE TRAINING
COUNCIL, INC.
PRO-TECH ARMORED PRODUCTS OF
MASSACHUSETTS, INC.
RAMTECH DEVELOPMENT CORP.
SAFARILAND GOVERNMENT SALES, INC.
SAFARI LAND LTD, INC.
SPEEDFEED ACQUISITION CORP.
By: *
-----------------------------
Stephen E. Croskrey
President
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 1 to the Registration Statement has been duly signed below by the
following persons in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Robert R. Schiller Director February 20, 2004
- ---------------------------
Robert R. Schiller
* Director and President February 20, 2004
- --------------------------- (principal executive officer)
Stephen E. Croskrey
* Treasurer February 20, 2004
- --------------------------- (principal financial officer)
Mark Williams
*By: /s/ Robert R. Schiller
-----------------------
Robert R. Schiller
as Attorney-in-Fact
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Amendment No. 1 to the Registration Statement on
Form S-4 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Jacksonville, State of Florida on February 20, 2004.
AHI PROPERTIES I, INC.
By: /s/ Robert R. Schiller
------------------------
Robert R. Schiller
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 1 to the Registration Statement has been duly signed below by the
following persons in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
* Director and Treasurer February 20, 2004
- ---------------------------- (principal financial officer)
Glenn J. Heiar
* Director February 20, 2004
- ----------------------------
Todd S. Smith
/s/ Robert R. Schiller Chief Executive Officer February 20, 2004
- ---------------------------- (principal executive officer)
Robert R. Schiller
*By: /s/ Robert R. Schiller
-----------------------
Robert R. Schiller
as Attorney-in-Fact
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Amendment No. 1 to the Registration Statement on
Form S-4 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Jacksonville, State of Florida on February 20, 2004.
ARMORGROUP SERVICES, LLC
By: /s/ Robert R. Schiller
-------------------------------------
Robert R. Schiller
Chief Executive Officer and President
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 1 to the Registration Statement has been duly signed below by the
following persons in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Robert R. Schiller Manager, Chief Executive February 20, 2004
- --------------------------- Officer and President
Robert R. Schiller (principal executive officer)
* Manager and Treasurer February 20, 2004
- --------------------------- (principal financial officer)
Todd S. Smith
*By: /s/ Robert R. Schiller
-----------------------
Robert R. Schiller
as Attorney-in-Fact
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Amendment No. 1 to this Registration Statement
on Form S-4 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Jacksonville, State of Florida on February 20, 2004.
ARMOR HOLDINGS GP, LLC
By: /s/ Robert R. Schiller
-----------------------------------
Robert R. Schiller
Vice President and Treasurer
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 1 to this Registration Statement has been duly signed below by the
following persons in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
* Manager February 20, 2004
- ---------------------------
Todd S. Smith
* Manager February 20, 2004
- ---------------------------
Glenn J. Heiar
/s/ Robert R. Schiller Vice President and Treasurer February 20, 2004
- --------------------------- (principal executive and
Robert R. Schiller financial officer)
*By: /s/ Robert R. Schiller
-----------------------
Robert R. Schiller
as Attorney-in-Fact
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Amendment No. 1 to this Registration Statement
on Form S-4 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Jacksonville, State of Florida on February 20, 2004.
ARMOR HOLDINGS LP, LLC
By: *
-------------------------------------
Todd S. Smith
Chief Executive Officer and President
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 1 to this Registration Statement has been duly signed below by the
following persons in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
* Manager, Chief Executive February 20, 2004
- --------------------------- Officer and President
Todd S. Smith (principal executive officer)
/s/ Robert R. Schiller Manager and Treasurer February 20, 2004
- --------------------------- (principal financial officer)
Robert R. Schiller
* Manager February 20, 2004
- ---------------------------
Glenn J. Heiar
*By: /s/ Robert R. Schiller
-----------------------
Robert R. Schiller
as Attorney-in-Fact
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Amendment No. 1 to this Registration Statement
on Form S-4 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Jacksonville, State of Florida on February 20, 2004.
ARMOR HOLDINGS MOBILE SECURITY, L.L.C.
By: /s/ Robert R. Schiller
--------------------------------
Robert R. Schiller
President
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 1 to this Registration Statement has been duly signed below by the
following persons in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Robert R. Schiller Manager and President February 20, 2004
- ---------------------------- (principal executive officer)
Robert R. Schiller
* Manager and Treasurer February 20, 2004
- ---------------------------- (principal financial officer)
Glenn J. Heiar
*By: /s/ Robert R. Schiller
-----------------------
Robert R. Schiller
as Attorney-in-Fact
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Amendment No. 1 to the Registration Statement on
Form S-4 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Jacksonville, State of Florida on February 20, 2004.
ARMOR HOLDINGS PAYROLL SERVICES, LLC
By: *
--------------------------------
Glenn J. Heiar
Manager
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 1 to the Registration Statement has been duly signed below by the
following persons in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
* Manager February 20, 2004
- ---------------------------
Edward Bayhi
* Manager February 20, 2004
- ---------------------------
Glenn J. Heiar
*By: /s/ Robert R. Schiller
-----------------------
Robert R. Schiller
as Attorney-in-Fact
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Amendment No. 1 to the Registration Statement on
Form S-4 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Jacksonville, State of Florida on February 20, 2004.
ARMOR HOLDINGS PROPERTIES, INC.
By: /s/ Robert R. Schiller
-------------------------------------
Robert R. Schiller
Chief Executive Officer and President
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 1 to the Registration Statement has been duly signed below by the
following persons in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Robert R. Schiller Director, Chief Executive February 20, 2004
- --------------------------- Officer and President
Robert R. Schiller (principal executive officer)
* Director and Treasurer February 20, 2004
- --------------------------- (principal financial officer)
Glenn J. Heiar
*By: /s/ Robert R. Schiller
-----------------------
Robert R. Schiller
as Attorney-in-Fact
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Amendment No. 1 to this Registration Statement
on Form S-4 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Jacksonville, State of Florida on February 20, 2004.
B-SQUARE, INC.
By: *
-------------------------------------
Stephen E. Croskrey
President
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 1 to this Registration Statement has been duly signed below by the
following persons in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Robert R. Schiller Director February 20, 2004
- ---------------------------
Robert R. Schiller
* Director and President February 20, 2004
- --------------------------- (principal executive officer)
Stephen E. Croskrey
* Treasurer February 20, 2004
- --------------------------- (principal financial officer)
Charles Ricci
*By: /s/ Robert R. Schiller
-----------------------
Robert R. Schiller
as Attorney-in-Fact
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Amendment No. 1 to the Registration Statement on
Form S-4 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Jacksonville, State of Florida on February 20, 2004.
CDR INTERNATIONAL, INC.
By: *
-------------------------------------
Glenn J. Heiar
President
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 1 to the Registration Statement has been duly signed below by the
following persons in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Robert R. Schiller Director February 20, 2004
- --------------------------
Robert R. Schiller
* President February 20, 2004
- --------------------------- (principal executive officer)
Glenn J. Heiar
* Treasurer February 20, 2004
- --------------------------- (principal financial officer)
Glenn J. Heiar
*By: /s/ Robert R. Schiller
-----------------------
Robert R. Schiller
as Attorney-in-Fact
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Amendment No. 1 to the Registration Statement on
Form S-4 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Jacksonville, State of Florida on February 20, 2004.
NAP PROPERTIES, LTD.
By: NAP Property Managers, LLC, as General Partner
By: Armor Holdings Properties, Inc., as Managing Member
By: /s/ Robert R. Schiller
-------------------------------------
Robert R. Schiller
Chief Executive Officer and President
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 1 to the Registration Statement has been duly signed below by the
following person in the capacities and on the date indicated.
Signature Title Date
--------- ----- ----
/s/ Robert R. Schiller Chief Executive Officer and February 20, 2004
- ---------------------- President of Armor Holdings
Robert R. Schiller Properties, Inc., Managing Member
of General Partner of NAP Properties,
Ltd.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Amendment No. 1 to the Registration Statement on
Form S-4 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Jacksonville, State of Florida on February 20, 2004.
NAP PROPERTY MANAGERS, LLC
By: Armor Holdings Properties, Inc., as
Managing Member
By: /s/ Robert R. Schiller
-------------------------------------
Robert R. Schiller
Chief Executive Officer and President
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 1 to the Registration Statement has been duly signed below by the
following person in the capacities and on the date indicated.
Signature Title Date
--------- ----- ----
/s/ Robert R. Schiller Chief Executive Officer and February 20, 2004
- ----------------------- President of Armor Holdings
Robert R. Schiller Properties, Inc., Managing
Member of NAP Property
Managers, LLC
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Amendment No. 1 to the Registration Statement on
Form S-4 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Jacksonville, State of Florida on February 20, 2004.
NETWORK AUDIT SYSTEMS, INC.
By: *
-------------------------------------
Todd S. Smith
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 1 to the Registration Statement has been duly signed below by the
following persons in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Robert R. Schiller Director and Treasurer February 20, 2004
- ---------------------------- (principal financial officer)
Robert R. Schiller
* Director and Chief Executive February 20, 2004
- ---------------------------- Officer
Todd S. Smith (principal executive officer)
*By: /s/ Robert R. Schiller
-----------------------
Robert R. Schiller
as Attorney-in-Fact
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Amendment No. 1 to the Registration Statement on
Form S-4 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Jacksonville, State of Florida on February 20, 2004.
NEW TECHNOLOGIES ARMOR, INC.
By: *
--------------------------
Michael Anderson
President
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 1 to the Registration Statement has been duly signed below by the
following persons in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Robert R. Schiller Director February 20, 2004
- ---------------------------
Robert R. Schiller
* Director February 20, 2004
- ---------------------------
Glenn J. Heiar
* Director and President February 20, 2004
- --------------------------- (principal executive officer)
Michael Anderson
* Director and Vice President -
- --------------------------- Finance February 20, 2004
John Dethman (principal financial officer)
*By: /s/ Robert R. Schiller
-----------------------
Robert R. Schiller
as Attorney-in-Fact
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Amendment No. 1 to the Registration Statement on
Form S-4 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Jacksonville, State of Florida on February 20, 2004.
O'GARA-HESS & EISENHARDT
ARMORING COMPANY, L.L.C.
By: /s/ Robert R. Schiller
-------------------------------------
Robert R. Schiller
Sole Manager
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 1 to the Registration Statement has been duly signed below by the
following person in the capacity and on the date indicated.
Signature Title Date
--------- ----- ----
/s/ Robert R. Schiller Sole Manager February 20, 2004
- -----------------------
Robert R. Schiller
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Amendment No. 1 to the Registration Statement on
Form S-4 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Jacksonville, State of Florida on February 20, 2004.
THE O'GARA COMPANY
By: *
-------------------------------------
Gary Allen
Chief Executive Officer and President
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 1 to the Registration Statement has been duly signed below by the
following persons in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
* Director, Chief Executive February 20, 2004
- --------------------------- Officer and President
Gary Allen (principal executive officer)
/s/ Robert R. Schiller Director February 20, 2004
- ---------------------------
Robert R. Schiller
* Treasurer February 20, 2004
- --------------------------- (principal financial officer)
Glenn J. Heiar
*By: /s/ Robert R. Schiller
-----------------------
Robert R. Schiller
as Attorney-in-Fact
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Amendment No. 1 to the Registration Statement on
Form S-4 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Jacksonville, State of Florida on February 20, 2004.
AI CAPITAL CORP.
By: *
-------------------------------------
Robert Mecredy
Chief Executive Officer and President
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 1 to the Registration Statement has been duly signed below by the
following persons in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
* Director, Chief Executive February 20, 2004
- -------------------------- Officer and President
Robert Mecredy (principal executive officer)
/s/ Robert R. Schiller Director February 20, 2004
- --------------------------
Robert R. Schiller
* Director, Chief Financial Officer, February 20, 2004
- --------------------------- Treasurer and Secretary
Glenn J. Heiar (principal financial officer)
*By: /s/ Robert R. Schiller
-----------------------
Robert R. Schiller
as Attorney-in-Fact
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Amendment No. 1 to the Registration Statement on
Form S-4 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Jacksonville, State of Florida on February 20, 2004.
ASD CAPITAL CORP.
By: *
-------------------------------------
Robert Mecredy
Chief Executive Officer and President
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 1 to the Registration Statement has been duly signed below by the
following persons in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
* Director, Chief Executive February 20, 2004
- --------------------------- Officer and President
Robert Mecredy (principal executive officer)
/s/ Robert R. Schiller Director February 20, 2004
- --------------------------
Robert R. Schiller
* Director, Chief Financial Officer, February 20, 2004
- -------------------------- Treasurer and Secretary
Glenn J. Heiar (principal financial officer)
*By: /s/ Robert R. Schiller
-----------------------
Robert R. Schiller
as Attorney-in-Fact
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Amendment No. 1 to the Registration Statement on
Form S-4 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Jacksonville, State of Florida on February 20, 2004.
CCEC CAPITAL CORP.
By: *
-------------------------------------
Robert Mecredy
Chief Executive Officer and President
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 1 to the Registration Statement has been duly signed below by the
following persons in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
* Director, Chief Executive February 20, 2004
- -------------------------- Officer and President
Robert Mecredy (principal executive officer)
/s/ Robert R. Schiller Director February 20, 2004
- --------------------------
Robert R. Schiller
* Director, Chief Financial Officer, February 20, 2004
- -------------------------- Treasurer and Secretary
Glenn J. Heiar (principal financial officer)
*By: /s/ Robert R. Schiller
-----------------------
Robert R. Schiller
as Attorney-in-Fact
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Amendment No. 1 to the Registration Statement on
Form S-4 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Jacksonville, State of Florida on February 20, 2004.
INTERNATIONAL CENTER FOR SAFETY
EDUCATION, INC.
By: *
-------------------------------------
Robert Mecredy
Chief Executive Officer and President
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 1 to the Registration Statement has been duly signed below by the
following persons in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
* Director, Chief Executive February 20, 2004
- ------------------------- Officer and President
Robert Mecredy (principal executive officer)
/s/ Robert R. Schiller Director February 20, 2004
- -------------------------
Robert R. Schiller
* Director, Chief Financial Officer, February 20, 2004
- ------------------------- Treasurer and Secretary
Glenn J. Heiar (principal financial officer)
*By: /s/ Robert R. Schiller
-----------------------
Robert R. Schiller
as Attorney-in-Fact
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Amendment No. 1 to the Registration Statement on
Form S-4 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Jacksonville, State of Florida on February 20, 2004.
SAI CAPITAL CORP.
By: *
-------------------------------------
Robert Mecredy
Chief Executive Officer and President
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 1 to the Registration Statement has been duly signed below by the
following persons in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
* Director, Chief Executive February 20, 2004
- --------------------------- Officer and President
Robert Mecredy (principal executive officer)
/s/ Robert R. Schiller Director February 20, 2004
- ---------------------------
Robert R. Schiller
* Director, Chief Financial Officer, February 20, 2004
- --------------------------- Treasurer and Secretary
Glenn J. Heiar (principal financial officer)
*By: /s/ Robert R. Schiller
-----------------------
Robert R. Schiller
as Attorney-in-Fact
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Amendment No. 1 to the Registration Statement on
Form S-4 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Jacksonville, State of Florida on February 20, 2004.
SIMULA AEROSPACE & DEFENSE GROUP, INC.
By: *
-------------------------------------
Robert Mecredy
Chief Executive Officer and President
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 1 to the Registration Statement has been duly signed below by the
following persons in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
* Director, Chief Executive February 20, 2004
- --------------------------- Officer and President
Robert Mecredy (principal executive officer)
/s/ Robert R. Schiller Director February 20, 2004
- ---------------------------
Robert R. Schiller
* Director, Chief Financial Officer, February 20, 2004
- --------------------------- Treasurer and Secretary
Glenn J. Heiar (principal financial officer)
*By: /s/ Robert R. Schiller
-----------------------
Robert R. Schiller
as Attorney-in-Fact
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Amendment No. 1 to the Registration Statement on
Form S-4 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Jacksonville, State of Florida on February 20, 2004.
SIMULA, INC.
By: *
-------------------------------------
Robert Mecredy
Chief Executive Officer and President
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 1 to the Registration Statement has been duly signed below by the
following persons in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
* Director, Chief Executive February 20, 2004
- --------------------------- Officer and President
Robert Mecredy (principal executive officer)
/s/ Robert R. Schiller Director February 20, 2004
- ---------------------------
Robert R. Schiller
* Director, Chief Financial Officer, February 20, 2004
- --------------------------- Treasurer and Secretary
Glenn J. Heiar (principal financial officer)
*By: /s/ Robert R. Schiller
-----------------------
Robert R. Schiller
as Attorney-in-Fact
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Amendment No. 1 to the Registration Statement on
Form S-4 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Jacksonville, State of Florida on February 20, 2004.
SIMULA POLYMERS SYSTEMS, INC.
By: *
-------------------------------------
Robert Mecredy
Chief Executive Officer and President
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 1 to the Registration Statement has been duly signed below by the
following persons in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
* Director, Chief Executive February 20, 2004
- --------------------------- Officer and President
Robert Mecredy (principal executive officer)
/s/ Robert R. Schiller Director February 20, 2004
- ---------------------------
Robert R. Schiller
* Director, Chief Financial Officer, February 20, 2004
- --------------------------- Treasurer and Secretary
Glenn J. Heiar (principal financial officer)
*By: /s/ Robert R. Schiller
-----------------------
Robert R. Schiller
as Attorney-in-Fact
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Amendment No. 1 to the Registration Statement on
Form S-4 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Jacksonville, State of Florida on February 20, 2004.
SIMULA TECHNOLOGIES, INC.
By: *
-------------------------------------
Robert Mecredy
Chief Executive Officer and President
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 1 to the Registration Statement has been duly signed below by the
following persons in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
* Director, Chief Executive February 20, 2004
- --------------------------- Officer and President
Robert Mecredy (principal executive officer)
/s/ Robert R. Schiller Director February 20, 2004
- ---------------------------
Robert R. Schiller
* Director, Chief Financial Officer, February 20, 2004
- --------------------------- Treasurer and Secretary
Glenn J. Heiar (principal financial officer)
*By: /s/ Robert R. Schiller
-----------------------
Robert R. Schiller
as Attorney-in-Fact
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Amendment No. 1 to the Registration Statement on
Form S-4 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Jacksonville, State of Florida on February 20, 2004.
SIMULA TRANSPORTATION EQUIPMENT CORPORATION
By: *
-------------------------------------
Robert Mecredy
Chief Executive Officer and President
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 1 to the Registration Statement has been duly signed below by the
following persons in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
* Director, Chief Executive February 20, 2004
- --------------------------- Officer and President
Robert Mecredy (principal executive officer)
/s/ Robert R. Schiller Director February 20, 2004
- ---------------------------
Robert R. Schiller
* Director, Chief Financial Officer, February 20, 2004
- --------------------------- Treasurer and Secretary
Glenn J. Heiar (principal financial officer)
*By: /s/ Robert R. Schiller
-----------------------
Robert R. Schiller
as Attorney-in-Fact
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Amendment No. 1 to the Registration Statement on
Form S-4 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Jacksonville, State of Florida on February 20, 2004.
HATCH IMPORTS, INC.
By: *
-------------------------------------
Stephen E. Croskrey
President
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 1 to the Registration Statement has been duly signed below by the
following persons in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
* Director and President February 20, 2004
- --------------------------- (principal executive officer)
Stephen E. Croskrey
* Director and Vice President February 20, 2004
- ---------------------------
Glenn J. Heiar
* Vice President and Treasurer February 20, 2004
- --------------------------- (principal financial officer)
Mark Williams
*By: /s/ Robert R. Schiller
-----------------------
Robert R. Schiller
as Attorney-in-Fact
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Amendment No. 1 to the Registration Statement on
Form S-4 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Jacksonville, State of Florida on February 20, 2004.
AHI BULLETPROOF ACQUISITION CORP.
By: *
-------------------------------------
Robert Mecredy
Chief Executive Officer and President
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 1 to the Registration Statement has been duly signed below by the
following persons in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
* Director, Chief Executive February 20, 2004
- --------------------------- Officer and President
Robert Mecredy (principal executive officer)
/s/ Robert R. Schiller Director February 20, 2004
- ---------------------------
Robert R. Schiller
* Director, Chief Financial Officer, February 20, 2004
- --------------------------- Treasurer and Secretary
Glenn J. Heiar (principal financial officer)
*By: /s/ Robert R. Schiller
-----------------------
Robert R. Schiller
as Attorney-in-Fact
EXHIBIT INDEX
-------------
Exhibit Description
- ------- -----------
1.1 Purchase Agreement, dated August 6, 2003, among Armor Holdings, the
subsidiary guarantors listed as signatories thereto and Wachovia
Capital Markets, LLC (filed as Exhibit 10.1 to Armor Holdings'
Quarterly Report on Form 10-Q, filed with the Commission on August
18, 2003 and incorporated herein by reference).
3.1 Certificate of Incorporation of Armor Holdings (filed as Exhibit 3.1
to Armor Holdings' Current Report on Form 8-K, filed with the
Commission on September 3, 1996 and incorporated herein by
reference).
3.2 Certificate of Merger of American Body Armor & Equipment, Inc., a
Florida corporation, and Armor Holdings (filed as Exhibit 3.2 to
Armor Holdings' Current Report on Form 8-K, filed with the Commission
on September 3, 1996 and incorporated herein by reference).
3.3 Bylaws of Armor Holdings (filed as Exhibit 3.3 to Armor Holdings'
Current Report on Form 8-K, filed with the Commission on September 3,
1996 and incorporated herein by reference).
3.4 Amendment to Bylaws of Armor Holdings (filed as Exhibit 3.3.2 to
Armor Holdings' Annual Report on Form 10-K for the fiscal year ended
December 31, 1998, filed with the Commission on March 25, 1999 and
incorporated herein by reference).
3.5 Certificate of Incorporation of 911EP, Inc. and amendments thereto
(f/k/a EP Acquisition Corp.). (1)
3.6 Bylaws of 911EP, Inc. (f/k/a EP Acquisition Corp.). (1)
3.7 Certificate of Incorporation of AHI Bulletproof Acquisition Corp. (1)
3.8 Bylaws of AHI Bulletproof Acquisition Corp. (1)
3.9 Certificate of Incorporation of AHI Properties I, Inc. (1)
3.10 Bylaws of AHI Properties I, Inc. (1)
3.11 Certificate of Incorporation and amendments thereto of AI Capital
Corp. (f/k/a Airline Interiors, Inc.). (1)
3.12 Bylaws of AI Capital Corp. (f/k/a Airline Interiors, Inc.). (1)
3.13 Certificate of Incorporation of Armor Brands, Inc. (1)
3.14 Bylaws of Armor Brands, Inc. (1)
3.15 Certificate of Formation and amendments thereto of ArmorGroup
Services, LLC. (f/k/a Armor Group Security Services, LLC). (1)
3.16 Operating Agreement of ArmorGroup Services, LLC. (f/k/a Armor Group
Security Services, LLC). (1)
3.17 Certificate of Incorporation and amendments thereto of Armor Holdings
Forensics, Inc. (f/k/a LPC Acquisition Corp.). (1)
3.18 Bylaws of Armor Holdings Forensics, Inc. (f/k/a LPC Acquisition
Corp.). (1)
3.19 Certificate of Formation of Armor Holdings GP, LLC. (1)
3.20 Amended and Restated Operating Agreement of Armor Holdings GP, LLC.
(1)
3.21 Certificate of Formation of Armor Holdings LP, LLC. (1)
3.22 Amended and Restated Operating Agreement of Armor Holdings LP, LLC.
(1)
3.23 Certificate of Formation of Armor Holdings Mobile Security, L.L.C.
(1)
3.24 Operating Agreement of Armor Holdings Mobile Security, L.L.C. (1)
3.25 Certificate of Formation of Armor Holdings Payroll Services, LLC. (1)
3.26 Operating Agreement of Armor Holdings Payroll Services, LLC. (1)
3.27 Certificate of Incorporation and amendments thereto of Armor Holdings
Products, Inc. (f/k/a American Body Armor and Equipment, Inc.). (1)
3.28 Bylaws of Armor Holdings Products, Inc. (f/k/a American Body Armor
and Equipment, Inc.). (1)
3.29 Certificate of Incorporation of Armor Holdings Properties, Inc. (1)
3.30 Bylaws of Armor Holdings Properties, Inc. (1)
3.31 Certificate of Incorporation and amendments thereto of Armor Holdings
Safety Products Company (f/k/a/ FPG Acquisition Corp.). (1)
3.32 Bylaws of Armor Holdings Safety Products Company (f/k/a/ FPG
Acquisition Corp.). (1)
Exhibit Description
- ------- -----------
3.33 Certificate of Incorporation and amendments thereto of ASD Capital
Corp. (f/k/a Simula Automotive Safety Devices, Inc.). (1)
3.34 Bylaws of ASD Capital Corp. (f/k/a Simula Automotive Safety Devices,
Inc.). (1)
3.35 Certificate of Incorporation and amendments thereto of B-Square, Inc.
(1)
3.36 Bylaws of B-Square, Inc. (1)
3.37 Certificate of Incorporation and amendments thereto of Break Free
Armor Corp. (f/k/a BF Acquisition Corp.). (1)
3.38 Bylaws of Break Free Armor Corp. (1)
3.39 Certificate of Incorporation and amendments thereto of Break Free,
Inc. (f/k/a BF Acquisition Co.). (1)
3.40 Bylaws of Break Free, Inc. (f/k/a BF Acquisition Co.). (1)
3.41 Articles of Agreement of Casco International, Inc. (1)
3.42 Bylaws of Casco International, Inc. (1)
3.43 Articles of Incorporation and amendments thereto of CCEC Capital
Corp. (f/k/a CCEC Acquisitions Corp.). (1)
3.44 Bylaws of CCEC Capital Corp. (f/k/a CCEC Acquisitions Corp.). (1)
3.45 Certificate of Incorporation of CDR International, Inc. (1)
3.46 Bylaws of CDR International, Inc. (1)
3.47 Certificate of Incorporation of Defense Technology Corporation of
America. (1)
3.48 Bylaws of Defense Technology Corporation of America. (1)
3.49 Articles of Incorporation and amendments thereto of Hatch Imports,
Inc. (1)
3.50 Bylaws of Hatch Imports, Inc. (1)
3.51 Certificate of Incorporation and amendments thereto of Identicator,
Inc. (f/k/a Identicator Acquisition Corp.). (1)
3.52 Bylaws of Identicator, Inc. (f/k/a Identicator Acquisition Corp.).
(1)
3.53 Certificate of Incorporation of International Center for Safety
Education, Inc. (1)
3.54 Bylaws of International Center for Safety Education, Inc. (1)
3.55 Certificate of Incorporation of Monadnock Lifetime Products, Inc.
(Delaware). (1)
3.56 Bylaws of Monadnock Lifetime Products, Inc. (Delaware). (1)
3.57 Articles of Incorporation and amendments thereto of Monadnock Police
Training Council, Inc. (f/k/a Monadnock PR-24 Training Council,
Inc.). (1)
3.58 Bylaws of Monadnock Police Training Council, Inc. (f/k/a Monadnock
PR-24 Training Council, Inc.). (1)
3.59 Certificate of Limited Partnership and amendments thereto of NAP
Properties, Ltd. (1)
3.60 Limited Partnership Agreement and amendments thereto of NAP
Properties, Ltd. (1)
3.61 Articles of Organization of NAP Property Managers, LLC. (1)
3.62 Operating Agreement and amendments thereto of NAP Property Managers,
LLC. (1)
3.63 Certificate of Incorporation of Monadnock Lifetime Products, Inc.
(f/k/a MLP Industries, Inc.) (New Hampshire). (1)
3.64 Bylaws of Monadnock Lifetime Products, Inc. (f/k/a MLP Industries,
Inc.) (New Hampshire). (1)
3.65 Certificate of Incorporation and Certificate of Merger of Network
Audit Systems, Inc. (f/k/a NAS Merger Subsidiary, Inc.). (1)
3.66 Bylaws of Network Audit Systems, Inc. (1)
3.67 Certificate of Incorporation and amendments thereto of New
Technologies Armor, Inc. (f/k/a NTI Merger Subsidiary, Inc.). (1)
3.68 Bylaws of New Technologies Armor, Inc. (f/k/a NTI Merger Subsidiary,
Inc.). (1)
Exhibit Description
- ------- -----------
3.69 Certificate of Formation, Certificate of Incorporation and amendments
thereto and Certificate of Conversion of O'Gara-Hess and Eisenhardt
Armor Company, L.L.C. (f/k/a O'Gara Companies, a Delaware
Corporation). (1)
3.70 Operating Agreement of O'Gara-Hess & Eisenhardt Armor Company, L.L.C.
(f/k/a O'Gara Companies, a Delaware Corporation). (1)
3.71 Certificate of Incorporation of Pro-Tech Armored Products of
Massachusetts, Inc. (1)
3.72 Bylaws of Pro-Tech Armored Products of Massachusetts, Inc. (1)
3.73 Certificate of Incorporation and amendments thereto of Ramtech
Development Corp. (f/k/a Invencom Acquisition Corp.). (1)
3.74 Bylaws of Ramtech Development Corp. (f/k/a Invencom Acquisition
Corp.). (1)
3.75 Amended and Restated Articles of Incorporation of Safari Land Ltd.,
Inc. (1)
3.76 Bylaws of Safari Land Ltd., Inc. and amendments thereto. (1)
3.77 Articles of Incorporation of Safariland Government Sales, Inc. (1)
3.78 Bylaws of Safariland Government Sales, Inc. (1)
3.79 Articles of Incorporation and amendments thereto of SAI Capital
Corp. (f/k/a Artcraft Industries Acquisition Corp.). (1)
3.80 Bylaws of SAI Capital Corp. (f/k/a Artcraft Industries Acquisition
Corp.). (1)
3.81 Articles of Incorporation and Amendments thereto of Simula
Aerospace & Defense Group, Inc. (f/k/a Simula Government Products,
Inc.).(1)
3.82 Bylaws of Simula Aerospace & Defense Group, Inc. (f/k/a Simula
Government Products, Inc.).(1)
3.83 Amended and Restated Articles of Incorporation of Simula, Inc. (1)
3.84 Bylaws of Simula, Inc. (1)
3.85 Certificate of Incorporation of Simula Polymer Systems, Inc. (1)
3.86 Bylaws of Simula Polymer Systems, Inc. (1)
3.87 Articles of Incorporation of Simula Technologies, Inc. (1)
3.88 Bylaws of Simula Technologies, Inc. (1)
3.89 Articles of Incorporation and amendments thereto of Simula
Transportation Equipment Corporation (f/k/a Intaero, Inc.). (1)
3.90 Bylaws of Simula Transportation Equipment Corporation (f/k/a Intaero,
Inc.). (1)
3.91 Certificate of Incorporation of Speedfeed Acquisition Corp. (1)
3.92 Bylaws of Speedfeed Acquisition Corp. (1)
3.93 Amended and Restated Articles of Incorporation of The O'Gara
Company. (1)
3.94 Bylaws of The O'Gara Company. (1)
4.1 Indenture, dated as of August 12, 2003, among Armor Holdings, the
subsidiary guarantors listed as signatories thereto and Wachovia
Bank, National Association, as trustee, and form of Old Note attached
as Exhibit A thereto (filed as Exhibit 10.2 to Armor Holdings'
Quarterly Report on Form 10-Q, filed with the Commission on August
18, 2003 and incorporated herein by reference).
4.2 First Supplemental Indenture, dated as of September 30, 2003, among
Armor Holdings, the subsidiary guarantors listed as signatories to
the Indenture, the subsidiaries listed in Schedule I to the First
Supplemental Indenture and Wachovia Bank, National Association, as
trustee. (1)
4.3 Second Supplemental Indenture, dated as of December 9, 2003, among
Armor Holdings, Inc., the subsidiary guarantors listed as signatories
thereto and Wachovia Bank, National Association, as trustee. (1)
4.4 Third Supplemental Indenture, dated as of December 24, 2003, among
Armor Holdings, the subsidiary guarantors listed as signatories
thereto and Wachovia Bank, National Association, as trustee. (1)
4.5 Registration Rights Agreement, dated August 12, 2003, among Armor
Holdings, the subsidiary guarantors listed as signatories thereto and
Wachovia Capital Markets, LLC (filed as Exhibit 10.3 to Armor
Holdings' Quarterly Report on Form 10-Q, filed with the Commission on
August 18, 2003 and incorporated herein by reference).
4.6 Form of the new 8 1/4% Senior Subordinated Notes Due 2013. (1)
Exhibit Description
- ------- -----------
5.1 Opinion of Kane Kessler, P.C. (2)
10.1 Credit Agreement, dated as of August 12, 2003, among Armor Holdings,
each lender from time to time party thereto, Bank of America, N.A.,
as Administrative Agent, Swing Line Lender and L/C Issuer, Wachovia
Bank, National Association, as Syndication Agent, and Key Bank
National Association, as Documentation Agent (filed as Exhibit 10.4
to Armor Holdings' Quarterly Report on form 10-Q, filed with the
Commission on August 18, 2003 and incorporated herein by reference).
10.2 Subsidiary Guaranty Agreement, dated as of August 12, 2003, by
certain Subsidiaries of Armor Holdings as identified on the signature
pages thereto and any Additional Guarantor who may become party to
this Guaranty, in favor of Bank of America, N.A., as Administrative
Agent (filed as Exhibit 10.5 to Armor Holdings' Quarterly Report on
Form 10-Q, filed with the Commission on August 18, 2003 and
incorporated herein by reference).
10.3 Collateral Agreement, dated as of August 12, 2003, by and among Armor
Holdings and certain of its Subsidiaries as identified on the
signature pages thereto and any Additional Grantor who may become
party to this Agreement, in favor of Bank of America, N.A., as
Administrative Agent (filed as Exhibit 10.6 to Armor Holdings'
Quarterly Report on Form 10-Q, filed with the Commission on August
18, 2003 and incorporated herein by reference).
10.4 Trademark Security Agreement, dated as of August 12, 2003, by the
entities listed on the signature pages thereto, in favor of Bank of
America, N.A., as Administrative Agent (filed as Exhibit 10.7 to
Armor Holdings' Quarterly Report on Form 10-Q, filed with the
Commission on August 18, 2003 and incorporated herein by reference).
10.5 Patent Security Agreement, dated as of August 12, 2003, by the
entities listed on the signature pages attached thereto, in favor of
Bank of America, N.A., as Administrative Agent (filed as Exhibit 10.8
to Armor Holdings' Quarterly Report on Form 10-Q, filed with the
Commission on August 18, 2003 and incorporated herein by reference).
12.1 Statement of Computation of Ratio of Earnings to Fixed Charges. (1)
21.1 Subsidiaries of Armor Holdings. (1)
23.1 Consent of PricewaterhouseCoopers LLP. (2)
23.2 Consent of Deloitte & Touche LLP. (2)
23.3 Consent of Kane Kessler, P.C. (See Exhibit 5.1 to Amendment No. 1 to
the Registration Statement). (2)
24.1 Powers of Attorney. (1)
25.1 Statement of Eligibility under the Trust Indenture Act of 1939 of a
Corporation Designated to Act as Trustee on Form T-1, as amended,
relating to Wachovia Bank, National Association. (2)
99.1 Form of Letter to The Depository Trust Company Participants. (1)
99.2 Form of Letter of Transmittal. (1)
99.3 Form of Notice of Guaranteed Delivery. (1)
99.4 Form of Instruction to Book-Entry Transfer Participant. (1)
99.5 Form of Letter to Clients. (1)
99.6 Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9. (1)
99.7 Form of Exchange Agent Agreement. (1)
- ---------------------------
(1) Previously filed.
(2) Filed herewith.