**UNITED STATES SECURITIES ANDEXCHANGECOMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-K**

 

**ý****          ****ANNUAL REPORT PURSUANT TO SECTION 13OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**for the fiscal year ended December 31, 2005**

 

**OR**

 

**o****          ****TRANSITION REPORT PURSUANT TO SECTION 13OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**for the transition period from        to        .**

 

**COMMISSION FILE NUMBER:  333-127781**

 

**SAFETY PRODUCTS HOLDINGS, INC.**

(Exact name of registrant as specified in itscharter)

 
| **Delaware**                                                    | ** ** | **34-2051198**                       |
|-----------------------------------------------------------------|------------|--------------------------------------|
| (State or other jurisdiction of incorporation or  organization) |       | (I.R.S. Employer Identification No.) |
|                                                            |       |                                 |
| **2001 Spring Road, Suite 425  Oak Brook, Illinois**       | ** ** | **60523**                            |
| (Address of Principal Executive Offices)                        |       | (Zip Code)                           |

 

**(630) 572-5715**

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

**None.**

 

Securities registered pursuant to Section 12(g) of the Act:

**None.**

 

Indicate by check mark ifthe Registrant is a well-known seasoned issuer, as defined in Rule 405 ofthe Securities Act.  Yes  ̈  No ý

 

Indicate by check mark ifthe Registrant is not required to file reports pursuant to Section 13 or Section 15(d) ofthe Act.  Yes  ̈  No ý

 

Indicate by check markwhether the Registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the Registrant was required to filesuch reports), and (2) has been subject to such filing requirements forthe past 90 days.  Yes ý  No o

 

Indicate by check mark ifdisclosure of delinquent filers pursuant to Item 405 of Regulation S-K is notcontained herein, and will not be contained, to the best of the Registrant’sknowledge, in definitive proxy or information statements incorporated byreference in Part III of this Form 10-K or any amendment to this Form 10-K.  ý

 

Indicate by check markwhether the Registrant is a large accelerated filer, an accelerated filer, or anon-accelerated.  See definition of “acceleratedfiler and large accelerated filer” in Rule 12b-2 of the Exchange Act.

 

Largeaccelerated filer  o  Accelerated filer  o  Non-accelerated filer  ý

 

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2 of theAct).  Yes o  No ý

 

None of the Registrant’s commonstock is held by non-affiliates of the Registrant.

 

As of March 17,2006, Safety Products Holdings, Inc. had 11,023,258 common sharesoutstanding.

 

**Documents Incorporated by Reference**

 

**None**

 

 

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**TABLE OF CONTENTS**

 
| PART I        |                                                                                                               | 1      |
|--------------------|--------------------------------------------------------------------------------------------------------------------|--------|
|               |                                                                                                               |   |
| ITEM 1.            | BUSINESS                                                                                                           | 1      |
|               |                                                                                                               |   |
| ITEM 1A.           | RISK FACTORS                                                                                                       | 8      |
|               |                                                                                                               |   |
| ITEM 1B.           | UNRESOLVED STAFF COMMENTS                                                                                          | 12     |
|               |                                                                                                               |   |
| ITEM 2.            | PROPERTIES                                                                                                         | 12     |
|               |                                                                                                               |   |
| ITEM 3.            | LEGAL PROCEEDINGS                                                                                                  | 14     |
|               |                                                                                                               |   |
| ITEM 4.            | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                                                | 16     |
|               |                                                                                                               |   |
| PART II       |                                                                                                               | 16     |
|               |                                                                                                               |   |
| ITEM 5.            | MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED  STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES | 16     |
|               |                                                                                                               |   |
| ITEM 6.            | SELECTED FINANCIAL DATA                                                                                            | 17     |
|               |                                                                                                               |   |
| ITEM 7.            | MANAGEMENT’S DISCUSSION AND ANALYSIS OF  FINANCIAL CONDITION AND RESULTS OF OPERATIONS                        | 20     |
|               |                                                                                                               |   |
| ITEM 7A.           | QUANTITATIVE AND QUALITATIVE  DISCLOSURES ABOUT MARKET RISK                                                        | 32     |
|               |                                                                                                               |   |
| ITEM 8.            | CONSOLIDATED FINANCIAL STATEMENTS AND  SUPPLEMENTARY DATA                                                          | 33     |
|               |                                                                                                               |   |
| ITEM 9.            | CHANGES IN AND DISAGREEMENTS WITH  ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE                              | 69     |
|               |                                                                                                               |   |
| ITEM 9A.           | CONTROLS AND PROCEDURES                                                                                            | 69     |
|               |                                                                                                               |   |
| ITEM 9B.           | OTHER INFORMATION                                                                                                  | 70     |
|               |                                                                                                               |   |
| PART III      |                                                                                                               | 71     |
|               |                                                                                                               |   |
| ITEM 10.           | DIRECTORS AND EXECUTIVE OFFICERS OF  THE REGISTRANT                                                                | 71     |
|               |                                                                                                               |   |
| ITEM 11.           | EXECUTIVE COMPENSATION                                                                                             | 72     |
|               |                                                                                                               |   |
| ITEM 12.           | SECURITY OWNERSHIP OF CERTAIN  BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS                    | 78     |
|               |                                                                                                               |   |
| ITEM 13.           | CERTAIN RELATIONSHIPS AND RELATED  TRANSACTIONS                                                                    | 79     |
|               |                                                                                                               |   |
| ITEM 14.           | PRINCIPAL ACCOUNTING FEES AND SERVICES                                                                             | 82     |
|               |                                                                                                               |   |
| PART IV       |                                                                                                               | 83     |
|               |                                                                                                               |   |
| ITEM 15.           | EXHIBITS AND FINANCIAL STATEMENT  SCHEDULES                                                                        | 83     |
|               |                                                                                                               |   |
| EXHIBIT INDEX |                                                                                                               |

 

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**PART I**

 
| **ITEM 1.** | **BUSINESS** |
|-------------|--------------|

 

**CompanyOverview**

** **

Safety Products Holdings, Inc. (the “Company”, “We”or “Safety Products”) is a leading designer, manufacturer and marketer ofbranded products in the fragmented personal protection equipment industry. Wemanufacture and market a full line of personal protection equipment for workersin the general safety and preparedness, fire service and electrical safetyindustries. Our broad product offering includes, among other things,respiratory protection, protective footwear, hand protection, head and faceprotection, bunker gear and linemen equipment for utility workers.

 

We sell our products under trusted, long-standing andwell-recognized brand names, including *North*, *KCL**, Fibre-Metal, *MorningPride**, *Ranger*, *Servus*,*Pro-Warrington**and*Salisbury. We believe thesebrand names have a strong reputation for excellence in protecting workers fromhazardous and life-threatening environments, which is a key purchasingconsideration for personal protection equipment. We believe our brand names,reputation, history of developing innovative products and a comprehensive lineof high-quality, differentiated products and high levels of customer servicehave enhanced our relationships with our distributors and end-users. Thesefactors have enabled us to achieve strong market share positions in key productlines. In addition, the non-discretionary and consumable nature of our productsprovides us with stable and recurring revenues.

 

We are one of the largest participants in the personalprotection equipment industry with approximately 3,000 employees in 31facilities worldwide. We market and sell our products through three distinctsales forces dedicated to our three target markets. Our sales representativeswork closely with third-party distributors, while simultaneously calling onend-users to generate “pull-through” demand for our products. We manufacture orassemble the majority of the products we sell. Approximately 80% of our netsales in 2005 were to customers in North America, with the remainder tocustomers primarily in Europe. We generated net sales of $370.8 million, $438.5million and $481.1 million, and Adjusted EBITDA (as defined in Item 6 below) of$53.4 million, $63.5 million and $70.1 million for the years ended December 31,2003 and 2004 and the combined year ended December 31, 2005, respectively.

 

We classify our diverse product offerings into threeprimary operating segments:

 

*****General Safety and Preparedness*****. We offer a diverse portfolio of leading products for a wide variety ofindustries, including the manufacturing, agriculture, construction, foodprocessing, pharmaceutical and automotive industries and the military, underthe *North*, *Ranger*, *Servus*, *KCL* and *Fibre-Metal* brandnames. Our product offering is one of the broadest in the personal protectionequipment industry and includes respiratory protection, protective footwear,hand protection, eye, head and face protection, first aid, hearing protectionand fall protection. We sell our general safety and preparedness productsprimarily through industrial distributors. Our general safety and preparednesssegment generated net sales of $257.2 million, $308.6 million and $332.5million for the years ended December 31, 2003 and 2004 and the combinedyear ended December 31, 2005, respectively.

 

*Fire Service*. We manufacture and market one of the broadest lines of personalprotection equipment for the fire service market, offering firefightershead-to-toe protection. Our products include bunker gear, fireboots, helmets,gloves and other accessories. We market our products under our Total Fire Groupumbrella, using the brand names of *Morning Pride*, *Ranger*, *Servus*and *Pro-Warrington*.We are widely known for developing innovative equipment; for example, ourbunker gear alone has more than 100 patented features and our urban search andrescue products are certified by third-party testing labs as meeting all of therequirements of the National Fire Protection Agency (“NFPA”) and otherregulatory bodies. We are the vendor of choice for many of the largest firedepartments in North America. We sell our fire service products primarilythrough specialized fire service distributors. Our fire service segmentgenerated net sales of $70.3 million, $78.9 million and $87.9 million for theyears ended December 31, 2003 and 2004 and the combined year ended December 31,2005, respectively.

 

*Electrical Safety*.  We manufacture and market a broad line ofpersonal protection equipment for the electrical safety market under the *Servus* and *Salisbury* brands.Our products, including linemen equipment, gloves, sleeves and footwear, aredesigned to protect workers from up to 36,000 volts of electricity. All ourproducts either meet or exceed the applicable standards of the AmericanNational Standards Institute (“ANSI”) and the American Society for Testing ofMaterials (“ASTM”). We sell our electrical safety products through specializeddistributors, test labs, utilities and electrical contractors.

 

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Our electrical safety segment generated net sales of$43.2 million, $51.0 and $60.6 million for the years ended December 31,2003 and 2004 and the combined year ended December 31, 2005, respectively.

 

In May 2005, Safety Products was formed to effectthe acquisition from NSP Holdings L.L.C. (“NSP Holdings”) of all the issued andoutstanding equity interests of Norcross Safety Products L.L.C. (“Norcross”) andNSP Holdings Capital Corp. (“NSP Capital”) in a transaction valued atapproximately $481.0 million. To execute this transaction, Safety Products, NSPHoldings and Norcross entered into a purchase and sale agreement whereby SafetyProducts acquired all of the equity interests of Norcross and NSP Capital. As aresult of the acquisition, Safety Products became the sole unit holder ofNorcross. The acquisition was completed in July 2005 and was funded withproceeds to Safety Products from the issuance and sale of $25.0 million ofsenior pay in kind notes as well as an equity investment by affiliates ofOdyssey Investment Partners, LLC, or Odyssey, and General Electric PensionTrust, or GEPT, and certain members of management of Norcross. Concurrentlywith the acquisition, Norcross also entered into a new senior credit facilityconsisting of an $88.0 million term loan and a $50.0 million revolving creditfacility.

 

In November 2005, we completed the acquisition ofall of the issued and outstanding capital stock of The Fibre-Metal ProductsCompany (“Fibre-Metal”). The purchase price of $68.0 million (excludingacquisition costs) was financed through additional term borrowings under thesenior credit facility and cash on the balance sheet.

 

We refer herein to the acquisition of Norcross as the “NorcrossTransaction” and to the acquisition of Fibre-Metal as the “Fibre-MetalTransaction.”  We also refer hereincollectively to the Norcross Transaction and the Fibre-Metal Transaction as the“Transactions.”

 

**IndustryOverview**

 

The worldwide personal protection equipment industry,which we estimate to be over $20 billion in size, is highly fragmented with fewmarket participants offering a broad line of products. Demand for personalprotection equipment is relatively stable, as purchases of these products aregenerally non-discretionary due to their use in protecting workers from bodilyharm in hazardous and life-threatening work environments and as a result ofgovernment and industry regulations mandating their use. Furthermore, many ofour products have limited life spans due to normal course wear and tear orbecause they are one-time use products by design, which results in consistentreplacement and recurring revenues for industry participants. Additionally, wesell products, such as our respirator lines, which have both a durablecomponent, in this case the facepiece, and a disposable component, in this casethe cartridge. Ordinary-course usage of the disposable component of ourequipment creates recurring revenues.

 

In recent years, several trends have reshaped themarket for personal protection equipment, including the following:

 

*HeightenedCompliance and Commitment to Worker Safety*. Demand for personalprotection equipment is driven largely by regulatory standards and recognitionby companies of the economic and productivity benefits of a safer workplace.Regulatory bodies and standard-setting entities, such as Occupational Safety &Health Administration (“OSHA”), National Institute for Occupational Safety andHealth (“NIOSH”), the NFPA, ANSI and ASTM, require and enforce businesses’compliance with worker safety regulations and establish strict performance andproduct design requirements for personal protection equipment. Similarly, whilethe required standards for worker protection are generally lower outside ofNorth America and parts of Western Europe, many countries have been increasingsafety regulations in recent years, creating opportunities for manufacturers toincrease sales internationally. In addition, the litigious environment in whichcompanies operate compels many businesses to provide personal protectionequipment for their employees and in some cases causes businesses to providemore personal protection equipment than is mandated.

 

*Focuson Domestic Preparedness*. In the aftermath of the terrorist attacks of September 11,2001 and other incidences of terrorism worldwide, governments havesignificantly increased their focus and their spending on preparedness forconventional and nuclear, biological and chemical attacks. The U.S. government,for example, created a separate cabinet-level Department of Homeland Securityand allocated significant funding to further its mission. The 2006 budgetrequest for the Department of Homeland Security is $41.1 billion. One of theDepartment’s top priorities is to insure that our nation is prepared to respondto incidents throughout our country and therefore it budgeted $5.4 billion forEmergency Preparedness and Response in 2006.

 

*IndustrialDistributor Trends*. The industrial distribution channel has experiencedconsolidation over the past several years as distributors have attempted torealize economies of scale. In addition, product procurement trends have shownthat distributors are increasing their purchases from large, multi productvendors, thereby simplifying the management of their supply chain, reducingtheir procurement costs and improving their selling efficiency. Distributors,therefore, have an explicit 

 

2

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preference for vendors with broad product offerings and comprehensiveservices, including consolidated shipping and invoicing, direct marketing toend-users and salesforce training.

 

**OperatingStructure**

 

Our operations are organized into three primaryoperating segments: general safety and preparedness, fire service andelectrical safety. Each segment has a sales force, a marketing team,manufacturing facilities, distribution facilities and customer servicefunctions.

 

The following table sets forth the percentage of ournet sales generated by each of our operating segments for each of the threeyear periods ended December 31, 2005. The data for the two year periodsended December 31, 2004 and the combined year ended December 31, 2005has been derived from our audited historical consolidated financial statements.

 
| ** **                      | ** ** | **Year Ended December 31,** | ** ** | **Combined Year  Ended December 31,** | ** ** |
|---------------------------------|------------|----------------------------------|------------|--------------------------------------------|------------|
| **Segment**                     | ** ** | **2003**                         | ** ** | **2004**                                   | ** ** | **2005** | ** ** |
| General Safety and Preparedness |       | 69.4                             | %          | 70.4                                       | %          | 69.1 | % |
| Fire Service                    |       | 19.0                             | %          | 18.0                                       | %          | 18.3 | % |
| Electrical Safety               |       | 11.6                             | %          | 11.6                                       | %          | 12.6 | % |

 

**PrincipalProducts**

 

We market one of the broadest offerings of personalprotection equipment in the industry. The following is a brief description ofeach of our principal product categories, organized by each of our threeprimary operating segments:

 

****GeneralSafety and Preparedness****. Our general safety and preparedness products include respiratoryprotection, protective footwear, hand protection, eye, head and faceprotection, first aid, fall protection and hearing protection.

 

*Respiratory Protection*. Our respiratory product offering is one of the broadest and deepest inthe industry and includes disposable and reusable masks and face-pieces,filtration cartridges, powered air breathing apparatuses, self-containedbreathing apparatuses and airline respirators. We produce respirators for usein a variety of applications, including protection against dust, fumes,volatile chemicals, micro-organisms, fibers, odors, mists and gases. Ourtraditional strength is in air purifying systems, which utilize cartridges tofilter ambient air as opposed to self-contained breathing apparatus whichsupply fresh air from a portable cylinder. Our 7700 Series half-maskface-piece is among the world’s best selling face-pieces due to its superiorfit and comfort. Our acquisition of Arbin Veiligheid B.V. (“Arbin”)  in 2002 added both nuclear, biological andchemical protection cartridges and powered air purifying respirators to ourrespiratory product offering.

 

*Protective Footwear*. Protective footwear is required to protect workers’ feet from fallingobjects, objects piercing the sole, electrical hazards, hazardous materials,chemicals and extreme temperatures. We produce rubber, injection molded andother footwear to protect against such threats, using a variety of techniquesfor diverse applications, including meat and food processing, chemicalprocessing, commercial fishing, agricultural work, construction and coldstorage. With our origins as a footwear company, we have long held dominantpositions within the footwear segments of the personal protection equipmentindustry through our *Ranger*and *Servus*brands. We believe we are the largest manufacturer of both neoprene safety andhand-laid rubber protective footwear for the industrial market in NorthAmerica. We believe we are the only U.S. footwear provider currently undercontract with the U.S. government for overshoe protection against chemical andbiological threats.

 

*Hand Protection*. Hand protection is required for workers exposed to hazardous substances,vulnerable to severe cuts, abrasions or chemical burns, and exposed to extremetemperatures. We manufacture and source gloves designed to protect workersagainst each of these threats and for a variety of specific applications,including use in material handling, automotive, construction, meat and foodprocessing and controlled environments. Our products range from basicprotection provided by imported cotton gloves to highly-engineered, patentedgloves designed to withstand dangerous chemicals present in many workplaces. Wemarket a full range of gloves with performance characteristics tailored to eachusers application or hazardous situation.

 

*Eye, Head and FaceProtection*.  We offer a wide variety of protective eyewearand face shields that through innovative design and state of the art materialsprovide what we believe to be a high degree of optical quality, comfort andfit. Many of our products are offered with coatings that provide anti-fog,anti-scratch, anti-UV or anti-static protection. Our hard hats and accessories providecomfortable and dependable head protection, featuring stylish, lightweightshell designs, 

 

3

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suspension height adjustment and comfort padding.  Our recent acquisition of Fibre-Metalsignificantly increased the breadth of products in our head and face protectionproduct line and added a new line of welding helmets and accessories.

 

*First Aid*. We market a wide range of products, including unitized and bulk firstaid supplies, nonprescription medicinals, dermatologicals, eye wash and bodyflush kits. Regulations require that first aid products be available to workersthroughout the workplace, thereby creating stable demand for first aid kits.

 

*Fall Protection*. We manufacture and market harnesses, lanyards, confined space retrievalequipment and engineered fall protection systems. This product category oftenrequires customized solutions to meet end-user needs.

 

*Hearing Protection*. We manufacture and market a broad line of both disposable and reusablehearing protection products used in a variety of industries. All of our hearingprotection products are designed to be as comfortable as possible whileprotecting against hazardous noise in the workplace. Many of these products aretested for us at an independent third-party National Voluntary LaboratoryAccreditation Program certified laboratory.

 

****Fire Service****.  Our fire service products include bunkergear, fireboots, helmets, gloves and other accessories.

 

*Bunker Gear*. Bunker gear is protective clothing worn by firefighters that must meetthe strict design specifications set by the NFPA, including resistance to heatand fire, chemicals, viruses and tears. All of our bunker gear meets or exceedsthe NFPA’s or other regulatory body specifications. Bunker gear ismade-to-order, with custom measurements for each firefighter. We sell bunkergear under the *MorningPride* brand name, which has been in existence since 1921 and hashigh distributor and end-user loyalty. *Morning Pride* products are made with proprietary designs,are protected by more than 100 patents, and use state-of-the-art materials suchas KevlarTM, W.L. Gore’s CrosstechTM, PBITM, Nomex OmegaTM and P-84TM. Our salesforce traditionally has been successful in influencing fire departments tospecify critical safety features for which we have a patent. Our unique, patentedand field-tested features, such as dead air panels, liner inspection ports andheat channel knee technologies, combined with our awareness of end-users’ needsfor function and comfort, differentiate our bunker gear from that of ourcompetitors. These proprietary designs and specialized materials have allowedus to improve the performance of bunker gear products and have significantlyincreased the growth rate of our sales of these products.

 

*Fireboots*. Fireboots typically must meet the strict design specifications set bythe NFPA, including specifications for heat and flame resistance, compression,sole puncture resistance, electrical hazards and water protection. Leatherfireboots are generally lighter in weight and provide firefighters with increasedcomfort and agility. Rubber fireboots are hand-made using state-of-the-artspecialized materials such as KevlarTM, which is more durable than felt, thetraditional fireboot material, while providing enhanced wear and flameresistance. Over the last five years, either *Ranger*, *Servus* or *Pro-Warrington*fireboots havebeen selected by the majority of the major metropolitan fire departments in theU.S.

 

*Helmets, Gloves and Other Accessories*. Helmets, gloves and other firefighting accessories typically must meetthe strict design specifications set by the NFPA or other regulatory bodies,including those noted above for bunker gear as well as impact resistance, forcetransmission dissipation and burst strength. These products are made usingstate-of-the-art specialized materials such as the Fyrglass fiberglass helmetshell, which offers improved strength while being lightweight. Unique features,such as bloodborne pathogen interface capable technologies, differentiate ourproducts from those of our competitors. Over the last decade, we have beenselected as the vendor of choice to supply helmets, gloves and other accessoriesto numerous major metropolitan fire departments in the U.S.

 

****ElectricalSafety****.  Ourelectrical safety products include linemen equipment, gloves, sleeves andfootwear. We also provide electrical safety equipment for industrialapplications.

 

*Linemen Equipment*. Linemen equipment encompasses an array of products that enable utilityworkers to work with “live” energized electrical wires. These products aredesigned to protect workers against up to 36,000 volts of electricity. Productsinclude insulating blankets, grounding equipment, linehose and covers, andguards that protect the worker, valuable equipment and reduce or eliminateoutages. Our products are required to meet ANSI and ASTM standards and OSHAregulations.

 

*Gloves, Sleeves andFootwear*. We manufacture insulating gloves,sleeves and dielectric footwear, which protect electrical workers againstelectrical hazards. These products also must meet ANSI and ASTM standards.

 

*ArcFlash Protection*. We offer a full line of protective gear and clothingto protect electrical workers against the hazards of arc flash. This productline meets ASTM standards and is designed to comply with NFPA Standard 70E, “Standardfor Electrical Safety in the Workplace.”

 

4

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**ManufacturingProcesses**

 

The majority of our net sales are from productsmanufactured or assembled by us, with the remainder sourced from a variety oflow-cost vendors. The majority of our manufacturing occurs in the U.S., thoughmany labor intensive or hand-fabricated products are assembled in China, Mexicoand the Caribbean.

 

We manufacture our general safety and preparednessproducts using a variety of techniques. Respirators and cartridges areinjection molded from silicone or plastics. Our protective footwear productsserving the general safety and preparedness market are manufactured using avariety of methods, including hand-laid rubber, dipped neoprene latex, slushand injection molding. We use automated glove knitters as well as hand-sewnprocesses in our work glove product offering. Head protection products areinjection molded from high density polyethylene. Eye and ear protectionproducts are molded and assembled by us. First aid products are bought andpackaged. Fall protection products are cut and sewn.

 

We manufacture bunker gear through a made-to-orderprocess, as both pants and coats are constructed to meet an end-user’sindividual specifications. Outer-shell and liner fabrics are cut, assembledwith other components, including pockets, hardware, trim and lettering, andextensively inspected to ensure quality control. We have installed Gerbermaterial cutters and a Gerber mover, which automates the handling of bunkergear materials. Every fire service product we sell meets or exceeds the standardof the NFPA or other regulatory bodies. Rubber fireboots are assembled by bothhand-laid and automated dipping techniques.

 

We manufacture our electrical safety and handprotection products using a variety of techniques. We manufacture our chemical-resistantand electrical insulating gloves and sleeves using a multiple layering processof polymer dissolved in organic solvents. These processes are relativelyautomated and operate in closely controlled environments. Otherchemical-resistant and coated fabric gloves are manufactured with water-basedlatex polymers. We manufacture utility linemen products, other than gloves,using injection, transfer or compression molding of natural and syntheticpolymers. The manufacturing processes utilize extensive in-line andpost-manufacturing quality assurance because these products are designed toprotect workers from hazardous and life-threatening environments.

 

**Customers**

 

The majority of our sales are to industrial, fireservice and utility distributors.  Thebalance of our products are sold directly to end-users and the U.S.government.  None of our customersaccounts for more than 10% of our net sales.

 

Our general safety and preparedness products areutilized in a variety of industries, including the manufacturing, agriculture,automotive, construction, food processing, pharmaceutical, construction,petrochemical, nuclear, fishing, and biotechnology industries and the military.The primary end-users of our fire service products are professional firedepartments and the primary end-users of our electrical safety products areutility companies.

 

Set forth below is a summary of our net sales bygeographic region for the years ended December 31, 2003 and 2004 and the combinedyear ended December 31, 2005:

 
| ** **    | ** ** | **Year Ended December 31,** | ** ** | **Combined Year  Ended December 31,** | ** ** |
|---------------|------------|----------------------------------|------------|--------------------------------------------|------------|
| **Region**    | ** ** | **2003**                         | ** ** | **2004**                                   | ** ** | **2005** | ** ** |
| United States |       | 70.6                             | %          | 67.0                                       | %          | 65.1 | % |
| Canada        |       | 14.8                             |       | 13.6                                       |       | 15.1 |   |
| Europe        |       | 11.3                             |       | 15.6                                       |       | 15.9 |   |
| Other         |       | 3.3                              |       | 3.8                                        |       | 3.9 |   |
| Total         |       | 100.0                            | %          | 100.0                                      | %          | 100.0 | % |

 

Ingeneral, we do not experience a significant backlog of customer orders. We do,however, have a backlog of orders from certain customers, such as the U.S.government, who tend to order products less frequently and in greaterquantities, and our fire service customers, who tend to custom order productswhich require greater lead time. The timing of these orders results in somebacklog variability. As of December 31, 2005, there was approximately$35.8 million of such backlog that management believed to be firm, as comparedto $36.4 million of backlog as of December 31, 2004. The majority of thisbacklog will ship by the end of the first quarter of 2006.

 

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**Competition**

 

The personal protection equipment market is highlycompetitive, with participants ranging in size from small companies which focuson a single type of personal protection equipment to a few large multinationalcorporations which manufacture and supply many types of personal protectionequipment. Our main competitors vary by region and product. We believe thatparticipants in this industry compete primarily on the basis of productcharacteristics (such as functional performance, comfort and durability),price, brand name trust and recognition and service. Set forth below is a briefsummary of our most significant competitors by operating segment.

 

*GeneralSafety and Preparedness*.  Bacou-Dalloz SA.; 3M; Mine Safety AppliancesCompany; Ansell Occupational Healthcare; LaCrosse Footwear, Inc.; AearoTechnologies, Inc.; Pac-Kit Safety Equipment Co.; Jackson Products, Inc.;and Scott Technologies.

 

*FireService*. Bacou-Dalloz SA; Mine Safety Appliances Company; Globe ManufacturingCompany; Lion Apparel, Inc.; LaCrosse Footwear, Inc.; and E.D.Bullard Co., Inc.

 

*ElectricalSafety*. A.B. Chance Company; Hastings Fiber Glass Products, Inc.; MacLeanFogg Co.; Comasec; The Oberon Company; and The White Rubber Corporation.

 

We believe we compete favorably within each of ouroperating segments as a result of the breadth of our product offering, highproduct quality and strong brand name trust and recognition.

 

**Sales andMarketing**

 

We maintain a distinct sales force for each of ourthree operating segments. While the majority of our sales are throughdistributors, we have developed and employ a sales and marketing strategydesigned to drive demand at both the distributor and the end-user levels. Aspart of this strategy, our sales forces call on the end-users of our productsin their respective segments to generate demand using a “pull-through” effectwhereby end-users of our products seek out our brands from distributors. Ourdedicated sales forces achieve this pull-through effect by educating bothdistributors and end-users on the specific performance characteristics of ourproducts, which provides significant positive differentiation relative tocompeting products. Customer training and education are particularly importantwith respect to our fire service and electrical safety products, which tend tobe more technical in their design and use. Our product research and developmentteams work closely with our dedicated sales forces. By working closely with theend-users of our products, our sales forces gain valuable insight into ourcustomers’ preferences and needs and the ways in which we can furtherdifferentiate our products from those of our competitors.

 

**DistributionChannels**

 

Our products are sold through three distinctdistribution channels:

 

*GeneralSafety and Preparedness*.  We distribute ourgeneral safety and preparedness products primarily through specialized personalprotection equipment and industrial distributors, as well as maintenance,repair and operations equipment distributors for whom personal protectionequipment products are a core line of business. Vendor relationships withdistributors tend to be non-exclusive. Our customer base includes national,regional and local distributors. Some of our key distributors, many of whomcarry our full general safety and preparedness product line, include W.W.Grainger, Airgas, Fisher Scientific International and Hagemeyer North America, Inc.In addition, selected footwear products are distributed through work-wearretailers. These retailers primarily serve farmers and agricultural workers.Our average relationship with our key general safety and preparedness customersis in excess of ten years.

 

*Fire Service*. The fire service segment’s primary channel of distribution is throughspecialized fire service distributors. As a result of the breadth of ourproduct offering and our reputation for quality, we have long-standingrelationships with the premier fire service distributors in the U.S., many ofwhom carry our products exclusively. Our average relationship with our largestten fire service distributors is in excess of ten years.

 

*Electrical Safety*. The electrical safety segment primarily markets its products throughspecialized distributors, test labs, utilities and electrical contractors.Sales to utilities are typically made pursuant to one-year contracts, whilesales to distributors are typically open-ended purchase contracts. As a resultof the breadth of our product offering and our reputation for quality, theelectrical safety segment has long-standing relationships with many largeutilities and the premier utility 

 

6

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distributors. Our average relationship with our largest ten electricalsafety customers is in excess of ten years.

 

**IntellectualProperty**

 

It is our policy to protect our intellectual propertythrough a range of measures, including trademarks, patents and confidentialityagreements. We own and use trademarks and brand names to identify ourselves asa proprietary source of certain goods. The following brand names of certain ofour products and product lines are registered in the U.S.: *North*, *Fibre-Metal,**Morning Pride*,*Ranger*, *Servus*, *Pro-Warrington* and *Salisbury*. Certainof our fire service products are marketed under the registered trademark TotalFire Group.

 

Whenever possible, our intellectual property rightsare protected through the filing of applications for and registrations oftrademarks and patents. Our *Morning Pride* line of products, for example, is protected bymore than 100 patents, including patents for such unique features as dead airpanels, liner inspection ports and heat channel knee technologies. We also relyupon unpatented trade secrets for the protection of certain intellectualproperty rights, which trade secrets are also material to our business. Weprotect our trade secrets by requiring certain of our employees, consultantsand other suppliers, customers, agents and advisors to execute confidentialityagreements upon the commencement of employment or other relationships with us.These agreements provide that all confidential information developed by, ormade known to, the individual or entity during the course of the relationshipwith us is to be kept confidential and not to be disclosed to third partiesexcept under certain limited circumstances.

 

**RawMaterials and Suppliers**

 

The primary raw materials we use in manufacturing ourproducts include natural rubber, PVC, fabrics, nitrile, latex, moisturebarriers and knitting yarns. We purchase these materials both domestically andinternationally, and we believe our supply sources are both well establishedand reliable. We have close vendor relationship programs with the majority ofour key raw material suppliers. Although we generally do not have long-termsupply contracts, we have not experienced any significant problems in obtainingadequate raw materials.

 

**EnvironmentalMatters**

 

As with all manufacturers, our facilities andoperations are subject to federal, state, local and foreign environmentalrequirements. We do not currently anticipate any material adverse effect on ouroperations or financial condition as a result of our efforts to comply with, orour liabilities under, these requirements. We will, from time to time, incurcosts to attain or maintain compliance with evolving regulatory requirementsunder environmental law, but do not currently expect any such costs to bematerial.

 

We were required by the South Carolina Department ofHealth and Environmental Control (“DHEC”) to conduct a RCRA FacilityInvestigation pursuant to the federal Resource Conservation and Recovery Act of1976 (“RCRA”) at our glove manufacturing plant in Charleston, South Carolina.Based upon soil and groundwater assessment work conducted in connection withsuch investigation, we have proposed to DHEC that conditions of soil andgroundwater contamination at the Charleston site be addressed through a “monitorednatural attenuation” approach. DHEC has required additional soil andgroundwater investigation. Invensys plc, a successor to Siebe plc, the formerowner of North Safety Products, Inc. (“North Safety Products”), has paid forthe investigation and remediation at the site. We do not currently expect theliability associated with this matter to be material.

 

Our Clover, South Carolina facility has been thesubject of the “corrective action” requirements of RCRA, including investigationand cleanup of areas of the Clover site where regulated wastes havehistorically been managed.  Suchinvestigation and cleanup has been conducted by (and at the sole expense of)Invensys plc, a successor to Siebe plc, the former owner of North SafetyProducts, pursuant to an Administrative Order from the United StatesEnvironmental Protective Agency (“EPA”) dated September 29, 1988.  By letter dated September 16, 2005, theEPA confirmed that the investigation of all but one of the Areas of Concern hadbeen satisfactorily completed.  Invensysis conducting additional groundwater sampling in the area of the Burn Pit,which is located on property owned by Invensys, before a remediationalternative for the area is selected. EPA has required that North Safety Products obtain a deed restriction atthe Clover facility, to restrict access to chromium-impacted soil beneath theconcrete floor in the area of the chromic acid vat.  With the obligations of the EPA AdministrativeOrder nearly completed, the EPA letter notes that a State Consent Agreementwill be required for the selection of the remediation alternative for the BurnPit groundwater and for continued environmental monitoring of thefacility.  Completion of theinvestigation and any related cleanup is the contractual responsibility ofInvensys and we do not currently expect to incur material liability inconnection with this matter. In the unlikely event that 

 

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Invensys does not continue to fulfill its contractual obligations, wecould incur costs in connection with this matter. We do not currently expectsuch costs to be material.

 

We have been named as a potentially responsible partyunder the federal Comprehensive Environmental Response, Compensation andLiability Act (“CERCLA”) with regard to waste disposal in the 1980s at theSeaboard Chemical Corporation site in Jamestown, North Carolina. Wastes sent byNorth Safety Products, now part of the Company, to the Seaboard ChemicalCorporation site are believed to comprise less than 1% of the total volume ofall wastes sent to the site. Invensys plc has paid for costs associated withthis matter. Because liability under CERCLA is strict (i.e., without regard tothe lawfulness of the disposal) and retroactive, and under some circumstancesjoint and several, we may incur liability with respect to other historicaldisposal locations in the future. We do not currently expect our share of theliability, if any, for the Seaboard site or for other such sites to bematerial.

 

We may be subject to wastewater categoricalpre-treatment regulations for wastewater discharges at our Clover, SouthCarolina, North Charleston, South Carolina and Rock Island, Illinoisfacilities. Compliance with wastewater categorical pre-treatment regulationsmay require the installation of additional treatment equipment.

 

Compliance with “maximum achievable control technology”air regulations may require our facilities at Clover, South Carolina, NorthCharleston, South Carolina and Rock Island, Illinois to install additional airemissions control equipment.

 

**Employees**

 

As of December 31, 2005, we had 2,972 full-timeemployees throughout the world. The following sets forth the number ofemployees by operating segment:

 

| **Operating Segment**           | ** ** | **Number  of  Employees** | ** ** |
|---------------------------------|------------|---------------------------|------------|
| General Safety and Preparedness |       | 2,307                     |       |
| Fire Service                    |       | 344                       |       |
| Electrical Safety               |       | 318                       |       |
| Corporate                       |       | 3                         |       |
| Total                           |       | 2,972                     |       |

 

Approximately 623 of our 2,463 North Americanemployees are represented by various unions, and the majority of our 509European and African employees are represented by unions. We believe we havemaintained good relationships with our unionized employees and we have notexperienced any material disruptions in operations on account of our employeesin the past five years.

 

**AvailableInformation**

 

Through our Internet website www.nspusa.com, weprovide a link to the SEC Internet website that makes available, free ofcharge, our annual reports on Form 10-K, quarterly reports on Form 10-Q,current reports on Form 8-K, and amendments to those reports filed orfurnished pursuant to Section 13(a) or 15(d) of the SecuritiesExchange Act of 1934, as amended, as soon as reasonably practicable after weelectronically file such material with, or furnish such material to, the SEC.

 
| **ITEM 1A.** | **RISK FACTORS** |
|--------------|------------------|

 

In addition to the factors discussed elsewhere in thisForm 10-K, the following are important factors which could cause actualresults or events to differ materially from those contained in anyforward-looking statements made by or on behalf of the Company.

 

***Ifwe are unable to retain senior executives and other qualified professionals ourgrowth may be hindered.***

*** ***

Our success depends in part on our ability to attract,hire, train and retain qualified managerial, sales and marketing personnel.Competition for these types of personnel is intense. We may be unsuccessful inattracting and retaining the personnel we require to conduct and expand ouroperations successfully. Our results of operations could be materially andadversely affected if we are unable to attract, hire, train and retainqualified personnel. Our success also depends to a 

 

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significant extent on the continued service of our management team. Theloss of any member of the management team could have a material adverse effecton our business, results of operations and financial condition.

 

***Themarkets in which we compete are highly competitive, and some of our competitorshave greater financial and other resources than we do. The competitivepressures faced by us could materially and adversely affect our business,results of operations and financial condition.***

*** ***

The personal protection equipment market is highlycompetitive, with participants ranging in size from small companies which focuson single types of safety products, to large multinational corporations whichmanufacture and supply many types of safety products. Our main competitors varyby region and product. We believe that participants in this industry competeprimarily on the basis of product characteristics (such as functionalperformance, design and style), price, brand name recognition and service. Someof our competitors have greater financial and other resources than we do andour cash flows from operations could be adversely affected by competitors’ newproduct innovations and pricing changes made by us in response to competitionfrom existing or new competitors. Individual competitors have advantages andstrengths in different segments of the industry, in different products and indifferent areas, including manufacturing and distribution systems, geographicmarket presence, customer service and support, breadth of product, deliverytime, costs of labor and price. We may not be able to compete successfullyagainst current and future competitors and the competitive pressures faced byus could materially and adversely affect our business, results of operationsand financial condition. See “Item 1. Business—Competition.”

 

***Manyof our products are subject to existing regulations and standards, changes inwhich could materially and adversely affect our results of operations.***

*** ***

Our net sales may be materially and adversely affectedby changes in safety regulations and standards covering industrial workers,firefighters and utility workers in the U.S. and Canada, including safetyregulations of OSHA and standards of the NFPA, ANSI and ASTM. Our net salescould also be adversely affected by a reduction in the level of enforcement ofsuch regulations. Changes in regulations could reduce the demand for ourproducts or require us to reengineer our products, thereby creatingopportunities for our competitors.

 

***Areduction in the spending patterns of government agencies could materially andadversely affect our net sales.***

*** ***

We sell a significant portion of our products in theU.S. and Canada to various governmental agencies. In addition, a portion of ourproducts are sold to government agencies through fixed price contracts awardedby competitive bids submitted to state and local agencies. Many of thesegovernmental agency contracts are awarded on an annual basis. Accordingly,notwithstanding our long-standing relationship with various governmentalagencies, we may lose our contracts with such agencies to lower bidders in thecompetitive bid process. Moreover, the terms and conditions of such sales andthe government contract process are subject to extensive regulation by variousfederal, state and local authorities in the U.S. and Canada.

 

***Inmost markets in which we compete, there are frequent introductions of newproducts and product line extensions. If we fail to introduce successful newproducts, we may lose market position and our financial performance may benegatively impacted.***

*** ***

If we are unable to identify emerging consumer andtechnological trends, maintain and improve the competitiveness of our productsand introduce these products on a global basis, we may lose market position,which could have a material adverse effect on our business, financial conditionand results of operations. Continued product development and marketing effortshave all the risks inherent in the development of new products and lineextensions, including development delays, the failure of new products and lineextensions to achieve anticipated levels of market acceptance and the cost offailed product introductions.

 

***Ourinternational operations are subject to various uncertainties and a significantreduction in international sales of our products could have a material adverseeffect on our results of operations.***

*** ***

Our international operations are subject to variouspolitical, economic and other uncertainties which could adversely effect ourbusiness. A significant reduction of our international business due to any ofthese risks would adversely affect our revenues. In 2005, approximately 35.0%of our net sales were outside the U.S. These risks include:

 

•      unexpectedchanges in regulatory requirements;

 

•      currencyexchange rate fluctuations;

 

•      changesin trade policy or tariff regulations;

 

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•      customsmatters;

 

•      longerpayment cycles;

 

•      highertax rates and potentially adverse tax consequences, including restrictions onrepatriating earnings and the threat of “double taxation”;

 

•      additionaltax withholding requirements;

 

•      intellectualproperty protection difficulties;

 

•      difficultyin collecting accounts receivable;

 

•      complicationsin complying with a variety of foreign laws and regulations, many of whichconflict with U.S. laws;

 

•      costsand difficulties in integrating, staffing and managing internationaloperations; and

 

•      strainson financial and other systems to properly administer VAT and other taxes.

 

In addition, foreign operations involve uncertaintiesarising from local business practices, cultural considerations andinternational political and trade tensions. For example, in 2002, we recorded anon-cash impairment charge with regard to our former Zimbabwe subsidiary due toadverse economic and political conditions. In addition, a portion of our manufacturingand outsourcing relationships involve China. If we are unable to successfullymanage the risks associated with expanding our global business or to adequatelymanage operational fluctuations internationally, it could have a materialadverse effect on our business, financial condition or results of operations.

 

***Wemay incur restructuring or impairment charges that would reduce our earnings.***

*** ***

We have in the past and may in the future restructuresome of our operations, including our recently acquired subsidiaries. In suchcircumstances, we may take actions that would result in a charge related todiscontinued operations, thereby reducing our earnings. These restructuringshave or may be undertaken to realign our subsidiaries, eliminate duplicative functions,rationalize our operating facilities and products, and reduce our staff. Inconjunction with the Fibre-Metal Transaction, we recorded an accrual of $1.7million, comprised of $1.4 million in severance costs and $0.3 million infacility closure and other exit costs. On January 1, 2002 we adoptedStatement of Financial Accounting Standards (SFAS) No. 142, “Goodwill andOther Intangible Assets,” which requires that goodwill and intangible assetsthat have an indefinite useful life be tested at least annually for impairment.We carry a very significant amount of goodwill and intangible assets and SFAS No. 142requires us to perform an annual assessment for possible impairment. As of December 31,2005, we had goodwill and other intangible assets of approximately $413.3million.

 

***Wemay be unable to successfully execute or effectively integrate acquisitions,which may adversely affect our results of operations.***

*** ***

One of our key operating strategies is to selectivelypursue acquisitions. Acquisitions involve a number of risks including:

 

•      failureof the acquired businesses to achieve the results we expect;

 

•      diversionof our management’s attention from operational matters;

 

•      ourinability to retain key personnel of the acquired businesses;

 

•      risksassociated with unanticipated events or liabilities;

 

•      thepotential disruption of our existing business; and

 

•      customerdissatisfaction or performance problems at the acquired businesses.

 

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If we are unable to integrate or successfully manageany business that we may acquire in the future, we may not realize anticipatedcost savings, improved manufacturing efficiencies and revenue growth, which mayresult in reduced profitability or operating losses. In addition, we expect toface competition for acquisition candidates, which may limit the number of ouracquisition opportunities and may lead to higher acquisition prices. Moreover,acquisitions of businesses may require additional debt financing, resulting inadditional leverage. The covenants in the senior credit facility, the indenturegoverning our senior pay in kind notes and the indenture governing the Norcrosssenior subordinated notes may further limit our ability to completeacquisitions. The realization of all or any of the risks described above couldmaterially and adversely affect our reputation and our results of operations.

 

***Ourcontinued success depends on our ability to protect our intellectual property.If we are unable to protect our intellectual property, our sales could bematerially and aversely affected.***

*** ***

Our success depends, in part, on our ability to obtainand enforce patents, maintain trade secret protection and operate withoutinfringing on the proprietary rights of third parties. We have been issuedpatents and have registered trademarks with respect to many of our products,but our competitors could independently develop similar or superior products ortechnologies, duplicate any of our designs, trademarks, processes or otherintellectual property or design around any processes or designs on which wehave or may obtain patents or trademark protection. In addition, it is possiblethat third parties may have or acquire licenses for other technology or designsthat we may use or desire to use, so that we may need to acquire licenses to,or to contest the validity of, such patents or trademarks of third parties.Such licenses may not be made available to us on acceptable terms, if at all,and we may not prevail in contesting the validity of third-party rights.

 

In addition to patent and trademark protection, wealso protect trade secrets, know-how and other confidential information againstunauthorized use by others or disclosure by persons who have access to them,such as our employees, through contractual arrangements. These agreements maynot provide meaningful protection for our trade secrets, know-how or otherproprietary information in the event of any unauthorized use, misappropriationor disclosure of such trade secrets, know-how or other proprietary information.If we are unable to maintain the proprietary nature of our technologies, oursales could be materially adversely affected. See “*Item 1. Business—Intellectual Property**.*”

 

***Wedo not have long-term contracts with many of our customers and they mayterminate their relationship with us at any time, which could have a materialadverse effect on our operating results.***

*** ***

A significant portion of our contracts are notlong-term contacts and are terminable at will by either party. If a significantnumber of our customers choose to terminate their contracts or to not renewtheir contracts with us upon expiration, it would have a material adverseeffect on our business, financial condition and results of operations.

 

***Weface an inherent business risk of exposure to product liability claims whichcould have a material adverse effect on our operating results.***

*** ***

We face an inherent business risk of exposure toproduct liability claims arising from the claimed failure of our products toprevent the types of personal injury or death against which they are designedto protect. We have not experienced any material uninsured losses due toproduct liability claims, but it is possible that we could experience materiallosses in the future.  For more information,see “Item 3. Legal Proceedings.”

 

***We are subject to variousenvironmental laws and any violation of these laws could adversely affect ourresults of operations.***

*** ***

We are subject to federal, state and local laws,regulations and ordinances relating to the protection of the environment,including those governing discharges to air and water, handling and disposalpractices for solid and hazardous wastes, hazardous substance contamination andthe maintenance of a safe workplace. These laws impose penalties fornoncompliance and liability for response costs and certain damages resultingfrom past and current spills, disposals or other releases of hazardousmaterials. We could incur substantial costs as a result of noncompliance withor liability pursuant to these environmental laws and to attain and maintaincompliance with evolving regulatory requirements under environmental laws.Environmental laws continue to evolve and we may be subject to more stringentenvironmental laws in the future. If more stringent environmental laws areenacted, these future laws could have a material adverse effect on our resultsof operations. See “*Item 1.  Business—Environmental Matters**.*”

 

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| **ITEM 1B.** | **UNRESOLVED STAFF COMMENTS** |
|--------------|-------------------------------|

 

N/A

 
| **ITEM 2.** | **PROPERTIES** |
|-------------|----------------|

 

We conduct our operations through 31 primaryfacilities, nine of which are owned as of December 31, 2005. We believe wehave sufficient capacity in the majority of our facilities to support theprojected growth in our business for the next five years.

 

We manufacture respiratory and hearing products inCranston, Rhode Island. In this facility, we have implemented leanmanufacturing and Six Sigma process improvements and continue to invest inautomated equipment. The Cranston facility also serves as a centralizeddistribution center for the general safety and preparedness segment in the U.S.

 

We manufacture fireboots and other protective footwearin our Rock Island, Illinois and Nashua, New Hampshire facilities. Our 110,000square foot distribution center for protective footwear products is located inDavenport, Iowa, approximately five miles from the Rock Island, Illinoismanufacturing plant, facilitating timely delivery of customer orders.

 

Wemanufacture bunker gear in a leased facility in Dayton, Ohio. We have installedGerber material cutters and a sophisticated Gerber mover, which automated thehandling of bunker gear materials and improved the productivity of thedivision.

 

We assemble our first aid products at our Mexicali,Mexico facility, utilizing lower cost labor for kit packaging. Productsmanufactured in Mexicali are distributed through our Reno, Nevada warehouse andour Cranston, Rhode Island distribution facility.

 

Linemen gloves are manufactured at our two plants inCharleston, South Carolina. Linemen sleeves are currently manufactured in ourAddison, Illinois facility. We are in the process of closing the Addison,Illinois facility and moving manufacturing to our Charleston, South Carolinaplant. Other products serving the electrical safety market, including linemenequipment, are manufactured at our Chicago, Illinois facility.

 

We operate a plant in Charleston, South Carolinadedicated to nuclear, biological and chemical resistant gloves, utilizing ahighly technical manufacturing process. As we are one of only two manufacturersin the U.S. with the process knowledge to produce such gloves, the U.S.Department of Defense historically paid us to maintain the facility on standbyfor potential production for the military.

 

We operate several other hand protection facilitiesfor the general safety and preparedness market. Our Maiden, North Carolinafacility manufactures knitted and coated hand protection products, while butyland dry-box hand protection lines are manufactured at our Clover, SouthCarolina facility. In Eichenzell, Germany, we manufacture and distribute avariety of liquid-proof and cut-resistant gloves in a 115,000 square foot ownedfacility.

 

In our Etobicoke, Canada facility, we manufacture ourfall protection product line. In our Rawdon, Canada and Montreal, Canadafacilities, we produce numerous general safety and preparedness products,including eye, ear and head protection. Canadian distribution is coordinatedthrough our Montreal, Canada facility and an additional facility in Edmonton,Canada.

 

We manufacture head and face protection in a leasedfacility in Concordville, Pennsylvania. We are in the process of transferringthese operations to our other existing facilities.

 

Due to the nature of product use, quality systems areof paramount importance. The vast majority of our U.S. plants are, or willbecome shortly, certified to the ISO 9000:2000 standard.

 

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The following table sets forth a list of our primary facilities:

 
| **Facility (1)**                                      | ** ** | **Products**                    | ** ** | **Locations**             | ** ** | **Approx.  Sq. Ft.** | ** ** | **Owned/  Leased** | ** ** |
|------------------------------------------------------------|------------|---------------------------------|------------|---------------------------|------------|---------------------------|------------|--------------------|------------|
| ***General Safety and Preparedness:***                     |       |                            |       |                      |       |                      |       |               |       |
| Manufacturing facility                                     |       | Footwear (2)                    |       | Rock Island, IL           |       | 340,000                   |       | Leased             |       |
| Offices, manufacturing  facility and warehouse             |       | Respiratory, Hearing, First Aid |       | Cranston, RI              |       | 240,000                   |       | Leased             |       |
| Offices, manufacturing  facility and warehouse             |       | Various                         |       | Montreal, Canada          |       | 128,000                   |       | Leased             |       |
| Warehouse                                                  |       | Footwear                        |       | Davenport, IA             |       | 110,000                   |       | Leased             |       |
| Offices, manufacturing  facility and warehouse             |       | Hand Protection                 |       | Eichenzell, Germany       |       | 115,000                   |       | Owned              |       |
| Offices, manufacturing  facility and warehouse (3)         |       | Head and Face Protection        |       | Concordville, PA          |       | 100,000                   |       | Leased             |       |
| Offices, manufacturing  facility and warehouse(4)          |       | Fall Protection, Various        |       | Middleberg, Holland       |       | 75,000                    |       | Leased             |       |
| Manufacturing facility                                     |       | Hand Protection                 |       | Clover, SC                |       | 63,000                    |       | Owned              |       |
| Manufacturing facility                                     |       | Respiratory, First Aid Products |       | Mexicali, Mexico          |       | 57,000                    |       | Leased             |       |
| Offices, manufacturing  facility & laboratory     |       | Hand Protection                 |       | Charleston, SC            |       | 52,000                    |       | Owned              |       |
| Manufacturing facility                                     |       | Hand Protection                 |       | Maiden, NC                |       | 51,000                    |       | Leased             |       |
| Offices, manufacturing  facility and warehouse             |       | Various                         |       | New Germany, South Africa |       | 43,000                    |       | Owned              |       |
| Manufacturing facility                                     |       | Hand Protection                 |       | Charleston, SC            |       | 43,000                    |       | Owned              |       |
| Manufacturing facility                                     |       | Footwear                        |       | Nashua, NH                |       | 38,000                    |       | Leased             |       |
| Warehouse(4)                                               |       | Various                         |       | Middleberg, Holland       |       | 35,000                    |       | Leased             |       |
| Manufacturing facility                                     |       | Hearing, Head Protection        |       | Rawdon, Canada            |       | 30,000                    |       | Owned              |       |
| Offices, manufacturing  facility and warehouse(4)          |       | Respiratory                     |       | Venlo, Holland            |       | 30,000                    |       | Leased             |       |
| Offices, manufacturing  facility and warehouse             |       | Fall Production                 |       | Etobicoke, Canada         |       | 28,000                    |       | Leased             |       |
| Warehouse                                                  |       | Various                         |       | Reno, NV                  |       | 24,000                    |       | Leased             |       |
| Offices and warehouse                                      |       | Various                         |       | Islando, South Africa     |       | 23,000                    |       | Leased             |       |
| Offices and warehouse                                      |       | Various                         |       | Edmonton, Canada          |       | 37,000                    |       | Leased             |       |
| Manufacturing facility                                     |       | Hand Protection                 |       | Ostrava, Czech Republic   |       | 20,000                    |       | Owned              |       |
| Offices and warehouse                                      |       | Head and Face Protection        |       | Toronto, Canada           |       | 18,500                    |       | Leased             |       |
| Offices and warehouse                                      |       | Hand Protection                 |       | Eichenzell, Germany       |       | 13,000                    |       | Leased             |       |
| ***Fire Service:***                                        |       |                            |       |                      |       |                      |       |               |       |
| Offices, manufacturing  facility, laboratory and warehouse |       | Various                         |       | Dayton, OH                |       | 56,000                    |       | Leased             |       |
| ***Electrical Safety:***                                   |       |                            |       |                      |       |                      |       |               |       |
| Manufacturing facility                                     |       | Linemen Equipment               |       | Chicago, IL               |       | 92,000                    |       | Owned              |       |
| Offices, manufacturing  facility and warehouse             |       | Linemen Equipment               |       | Skokie, IL                |       | 44,000                    |       | Leased             |       |
| Manufacturing facility(5)                                  |       | Linemen Sleeves                 |       | Addison, IL               |       | 26,000                    |       | Leased             |       |
| Offices &  manufacturing facility                 |       | Linemen Gloves                  |       | Charleston, SC            |       | 54,000                    |       | Owned              |       |
| Warehouse                                                  |       | Linemen Gloves                  |       | Charleston, SC            |       | 44,000                    |       | Leased             |       |
| ***Other:***                                               |       |                            |       |                      |       |                      |       |               |       |
| Executive Suite                                            |       | Not Applicable                  |       | Oak Brook, IL             |       | 3,100                     |       | Leased             |       |

 

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(1)   Excludes a facility in Budapest, Hungary which is partof an equity method investment and a 30,000 square foot leased facility inOhatchee, Alabama acquired in February 2006.

 

(2)   Also produces fireboots for the fire service segmentand dielectric footwear for the electrical safety segment.

 

(3)   In process of transferring operations to other existingfacilities.

 

(4)   Operations in these facilities are expected to beconsolidated into a new facility by December 31, 2006.

 

(5)   Manufacturing operations are currently in the processof being moved to our Charleston, South Carolina facility.

 

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| **ITEM 3.** | **LEGAL PROCEEDINGS** |
|-------------|-----------------------|

 

The Company received a letter dated June 15, 2005from the U.S. Department of Labor’s Employment Standards Administration Officeof Federal Contract Compliance Programs (the “DOL”). The letter stated that theDOL had preliminarily determined that (1) a statistical inference existedthat there was a pattern and practice of discrimination with respect to theCompany’s hiring practices at its Rock Island, Illinois facility during theperiod from September 1, 2002 through August 31, 2003, and (2) theCompany had non-compliant record-keeping practices, including prematuredisposal of applicant information. The DOL asserted that minority jobapplicants were under-represented among applicants hired during the reviewperiod, inferring by statistical review that an additional 34 positions shouldhave been offered in addition to the 112 positions that were offered tominority applicants during the one-year review period. On August 11, 2005,the DOL and the Company entered into a Conciliation Agreement pursuant to whichthe Company agreed (i) to pay $104,932.46 to the applicable minority jobapplicants, (ii) to offer the first 34 available employment opportunitiesarising after the date of the agreement in certain job categories to theapplicable minority job applicants and (iii) to take certain othermeasures to prevent such an alleged violation from occurring in the future. Thesettlement payment appears as a charge to general and administrative expense inthe Company’s consolidated statement of operations for the second quarter of2005.

 

As of December 31, 2005, our North SafetyProducts subsidiary, along with its predecessors and/or the former owners ofsuch business were named as defendants in approximately 1,136 lawsuitsinvolving respirators manufactured and sold by it or its predecessors. We arealso monitoring an additional 12 lawsuits in which we feel that North SafetyProducts, its predecessors and /or the former owners of such businesses may benamed as defendants. Collectively, these 1,148 lawsuits represent approximately18,459 (excluding spousal claims) plaintiffs. Approximately 93% of theselawsuits involve plaintiffs alleging injury resulting from exposure to silicadust, with the remainder alleging injury from exposure to other particles,including asbestos. These lawsuits typically allege that the purported injuriesresulted in part from respirators that were negligently designed and/ormanufactured. The defendants in these lawsuits are often numerous, and include,in addition to respirator manufacturers, employers of the plaintiffs andmanufacturers of sand (used in sand blasting) and asbestos. We acquired ourNorth Safety Products subsidiary on October 2, 1998 from Siebe plc. Inconnection with the acquisition, Siebe, which was subsequently merged with BTRplc (now known as “Invensys plc”), contractually agreed to indemnify us for anylosses, including costs of defending claims, resulting from respiratoryproducts manufactured or sold prior to our acquisition of North Safety Productsin October 1998.

 

In addition, our North Safety Products subsidiary iscontractually entitled to indemnification from Norton Company, an affiliate ofSaint-Gobain, which owned the North Safety Products business prior to Invensys.Pursuant to a December 14, 1982 asset purchase agreement, Siebe Norton, Inc.,a newly formed wholly-owned subsidiary of Norton Company, acquired the assetsof Norton’s Safety Products Division and the stock of this company was in turnacquired by Siebe Gorman Holdings PLC. Under the terms of the Agreement, SiebeNorton, Inc. did not assume any liability for claims relating to productsshipped by Norton Company prior to the closing date. Moreover, Norton Companycovenanted in the Agreement to indemnify Siebe Norton and its successors andassigns against any liability resulting from or arising out of any state offacts, omissions or events existing or occurring on or before the closing date,including, without limitation, any claims arising from products shipped byNorton Company or any of its affiliates prior to the closing date. SiebeNorton, whose name was subsequently changed to Siebe North Inc., wassubsequently acquired by us as part of the 1998 acquisition of the North SafetyProducts business from Invensys.

 

Despite these indemnification arrangements, we couldpotentially be liable for losses or claims relating to products manufacturedprior to the October 1998 acquisition date if Invensys fails to meet itsobligations to indemnify us and we could potentially be liable for losses andclaims relating to products sold prior to January 10, 1983 if bothInvensys and Norton fail to meet their obligations to indemnify us. We couldalso be liable if the alleged exposure involved the use of a productmanufactured by us after our October 1998 acquisition of the North SafetyProducts business. Invensys is currently handling the defense of all of thecases prior to October 1998 in which North Safety Products, itspredecessors and/or the former owners of such businesses have been named asdefendants. We are jointly with Invensys handling the defense of all of thecases which allege exposure including periods pre and post October 1998.We will individually handle the defense of all cases with exclusive post October 1998exposure; however, we have not been involved in a case with exclusive post October 1998exposure to date. As of December 31, 2005, Invensys has sent us requestsfor reimbursement totaling $251,706, relating to settled cases in whichInvensys claims that the period of alleged exposure included periods after October 1998.To date, we have not reimbursed Invensys for these claims, as we are currentlypursuing negotiations regarding the allocation of costs and the determination ofthe alleged exposure periods. Based on information provided to us by Invensys,we believe that Invensys has made payments with respect to settlement of theseclaims of $990,748 prior to 2002, $660,510 in 2003, $938,083 in 2004 and$68,734 in 2005. Separately, we settled on an unusual case along with Invensysfor $65,000 in which our settlement share was $45,000 (our net contributionafter insurance proceeds was $25,000).

 

14

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Based upon information provided to us by Invensys, webelieve activity related to these lawsuits was as follows for the periodsindicated:

 
| ** **           | ** ** | **2003**       | ** ** | **2004**  | ** ** | **2005**       | ** ** |
|----------------------|------------|----------------|------------|-----------|------------|----------------|------------|
| ** **           | ** ** | **Plaintiffs** | ** ** | **Cases** | ** ** | **Plaintiffs** | ** ** | **Cases** | ** ** | **Plaintiffs** | ** ** | **Cases** | ** ** |
| Beginning lawsuits   |       | 9,793          |       | 306       |       | 24,002         |       | 680 |   | 25,944 |   | 858 |   |
| New lawsuits         |       | 17,267         |       | 537       |       | 4,658          |       | 372 |   | 2,226 |   | 587 |   |
| Settlements          |       | (625           | )          | (46       | )          | (546           | )          | (46 | ) | 24 |   | (32 | ) |
| Dismissals and other |       | (2,433         | )          | (117      | )          | (2,170         | )          | (148 | ) | (9,735 | ) | (265 | ) |
| Ending lawsuits      |       | 24,002         |       | 680       |       | 25,944         |       | 858 |   | 18,459 |   | 1,148 |   |

 

Plaintiffs have asserted specific dollar claims inapproximately a quarter of the approximately 1,136 cases pending as of December 31,2005, in which North Safety Products, its predecessors and/or the former ownersof such businesses have been named as defendants. A majority of jurisdictionsprohibit specifying damages in tort cases such as these, and most of theremaining jurisdictions do not require such specification. In those cases inwhich plaintiffs choose to assert specific dollar amounts in their complaints, broughtin states that permit such pleading, the amounts claimed are typically notmeaningful as an indicator of a company’s potential liability. This is because (1) theamounts claimed typically bear no relation to the level of the plaintiff’sinjury, (2) the complaints typically assert claims against numerousdefendants, and (3) many cases are brought on behalf of plaintiffs whohave not suffered any medical injury, and, ultimately, are resolved without anypayment or payment of a small fraction of the damages initially claimed. Of the1,136 complaints maintained in our records, 844 do not specify the amount ofdamages sought, 27 generally allege damages in excess of $50,000, two allegecompensatory damages in excess of $50,000 and an unspecified amount of punitivedamages, 114 allege compensatory damages and punitive damages, each in excessof $25,000, two generally allege damages in excess of $100,000, 16 allegecompensatory damages and punitive damages, each in excess of $50,000, 21generally allege damages of $15.0 million, one generally alleges damages not toexceed $290.0 million, one alleges compensatory damages and punitive damages,each in excess of $10,000, one alleges compensatory and punitive damages, eachin excess of $15,000, seven allege punitive damages in excess of $25,000, onealleges punitive damages in excess of $50,000, 88 generally allege damages inexcess of $15,000, five generally allege damages in excess of $25,000, onealleges compensatory and punitive damages of $18.0 million and punitive damagesof $10.0 million, two allege compensatory damages of $13.0 million and punitivedamages of $10.0 million, one alleges compensatory and punitive damages, eachin excess of $15,000, and two allege compensatory and punitive damages each inexcess of $15.0 million. We currently do not have access to the complaints withrespect to the previously mentioned additional 12 monitored cases, andtherefore do not know whether these cases allege specific damages, and if so,the amount of such damages, but are in the process of seeking to obtain suchinformation. Due to the reasons noted above and to the indemnificationarrangements benefiting us, we do not believe that the damage amounts specifiedin these complaints are a meaningful factor in any assessment of our potentialliability.

 

Bankruptcy filings of companies with asbestos andsilica-related litigation could increase our cost over time. If we were foundliable in these cases and either Invensys or Norton Company failed to meet itsindemnification obligations to us or the suit involved products manufactured byus after our October 1998 acquisition of North Safety Products, it wouldhave a material adverse effect on our business.

 

During the year ended December 31, 2004, werecorded a $1.25 million liability and charge to operating expenses toestablish a reserve for respiratory claims. We increased this reserve to $5.0 million and recorded the increase aspart of our purchase price allocation process associated with the NorcrossTransaction.  The increase represents adecision by new ownership to negotiate our participation in a joint defensegroup with the prior owners of North Safety Products. We believe that thisreserve represents a reasonable estimate of our probable and estimableliabilities for product claims alleging injury resulting from exposure tosilica dust and other particles, including asbestos, as determined by us inconsultation with an independent consultant. We believe that a five-yearprojection of claims and defense costs is the most reasonable approach.However, it is possible that we may incur liabilities in excess of the amountscurrently reserved. This reserve will be re-evaluated periodically andadditional charges or credits will be recorded to operating expenses asadditional information becomes available.

 

We are not otherwise involved in any materiallawsuits. We historically have not been required to pay any material liabilityclaims. We maintain insurance against product liability claims (with theexception of asbestosis and silicosis cases, for which coverage is notcommercially available), but it is possible that insurance coverage will notcontinue to be available on terms acceptable to us or that such coverage willnot be adequate for liabilities actually incurred.

 

15

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It is possible that we may incur liabilities in anamount in excess of amounts currently reserved. However, taking into accountcurrently available information, historical experience, and our indemnificationfrom Invensys, but recognizing the inherent uncertainties in the projection ofany future events, we believe that these suits or claims should not result infinal judgments or settlements in excess of our reserve.

 

In connection with an ongoing dispute, one of ourcompetitors has filed a complaint against us alleging that we have made aseries of misrepresentations concerning this competitor and its products. Thecomplaint seeks a retraction of all statements alleged to have been made by usand unspecified damages, including legal fees. A bench trial on the issue ofliability was held in February 2006 and the matter is now awaiting rulingby the court. We intend to vigorously defend against these claims.

 

We are subject to legal proceedings and claims that arisein the ordinary course of our business. In our opinion, the outcome of theseactions will not have a material adverse effect on our financial position orresults of operations.

 
| **ITEM 4.** | **SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS** |
|-------------|---------------------------------------------------------|

 

None.

 

**PART II**

 
| **ITEM 5.** | **MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED  STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES** |
|-------------|------------------------------------------------------------------------------------------------------------------------|

 

There is no public trading market for our common stock. As of February 28, 2006, there were13 holders of record of our common stock.

 

We have never paid or declared any dividends on ourcommon stock.  We do not anticipatepaying any dividends on our common stock in the foreseeable future. Our seniorcredit facility and the indentures governing our senior pay in kind notes andthe Norcross senior subordinated notes prohibit us from declaring or payingdividends on our common stock.  We intendto retain future earnings to finance the ongoing operations and growth of ourbusiness. Any future determination relating to our dividend policy will be madeat the discretion of the board of directors and will depend on then existingconditions, including our financial condition, results of operations,contractual restrictions, capital requirements, business prospects and otherfactors the board of directors may deem relevant.

 

**Equity Compensation Plan Information**

 

The following table provides information as of December 31,2005 about the common stock that may be issued under all of our existing equitycompensation plans, including the 2005 Option Plan of Safety Products. The 2005Option Plan has been approved by our stockholders.  

 
| ** **                                                  | ** ** | **Number of securities to  be issued upon exercise  of outstanding options,  warrants and rights  (a)** | ** ** | **Weighted-average  exercise price of  outstanding options,  warrants and rights  (b)** | ** ** | **Number of securities  Remaining available for  future issuance under  equity compensation  plans  (excluding securities  reflected in  column (a))  (c)** | ** ** |
|-------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| Equity  compensation plans approved by security holders     |       | —                                                                                                                 |       | $                                                                                       | —     |                                                                                                                                                        | 1,286,631  |   |
|                                                        |       |                                                                                                                   |       |                                                                                    |       |                                                                                                                                                        |       |
| Equity compensation  plans not approved by security holders |       | —                                                                                                                 |       | —                                                                                  |       | —                                                                                                                                                      |       |
| Total                                                       |       | —                                                                                                                 |       | $                                                                                       | —     |                                                                                                                                                        | 1,286,631  |   |

 

16

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| **ITEM** 6. | **SELECTED FINANCIAL DATA** |
|-------------|-----------------------------|

 

The following table presents selected historicalconsolidated statements of operations, balance sheet and other data for theperiods presented and should only be read in conjunction with our auditedconsolidated financial statements and the related notes thereto, and “Management’sDiscussion and Analysis of Financial Condition and Results of Operations,”which are included elsewhere in this Form 10-K. In the following table,Safety Products, following the Norcross Transaction, is referred to as the “Successor”and NSP Holdings, prior to the Norcross Transaction, is referred to as the “Predecessor.”The historical financial data for each of the two years ended December 31,2004, the period from January 1, 2005 through July 19, 2005, and theperiod from July 20, 2005 through December 31, 2005, have beenderived from our historical audited consolidated financial statements includedelsewhere in this Form 10-K. The historical financial data for the twoyears ended December 31, 2002 have been derived from our historicalconsolidated financial statements, which are not included in this Form 10-K.

 
| ** **                                               | ** ** | **Predecessor**                      | ** ** | **Successor**                                     | ** ** |
|----------------------------------------------------------|------------|--------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                               | ** ** | **Year Ended December 31,**     | ** ** | **January 1,  2005  Through  July 19,** | ** ** | **July 20,  2005  Through  December 31,** | ** ** |
| ** **                                               | ** ** | **2001**                             | ** ** | **2002**                                          | ** ** | **2003** | ** ** | **2004** | ** ** | **2005** | ** ** | **2005** | ** ** |
| ** **                                               | ** ** | **(dollars in thousands)** | ** ** |
| **Statement  of Operations Data:**                       |       |                                 |       |                                              |       |   |   |   |   |   |   |   |   |
| Net sales                                                |       | $                                    | 316,741    |                                              | $          | 322,173 |   | $ | 370,802 |   | $ | 438,499 |   | $ | 271,694 |   | $ | 209,396 |   |
| Cost of goods  sold                                      |       | 204,927                              |       | 205,655                                           |       | 240,408 |   | 281,924 |   | 171,645 |   | 139,978 |   |
| Gross profit                                             |       | 111,814                              |       | 116,518                                           |       | 130,394 |   | 156,575 |   | 100,049 |   | 69,418 |   |
| Operating  expenses:                                     |       |                                 |       |                                              |       |   |   |   |   |   |   |   |   |
| Selling                                                  |       | 29,667                               |       | 29,104                                            |       | 35,155 |   | 40,120 |   | 25,512 |   | 19,154 |   |
| Distribution                                             |       | 15,383                               |       | 15,177                                            |       | 18,550 |   | 22,452 |   | 14,634 |   | 11,385 |   |
| General and  administrative                              |       | 28,404                               |       | 31,075                                            |       | 34,011 |   | 41,721 |   | 24,956 |   | 19,946 |   |
| Amortization of  goodwill and other intangibles (1)      |       | 10,902                               |       | 3,239                                             |       | 2,583 |   | 517 |   | 329 |   | 7,216 |   |
| Zimbabwe  subsidiary impairment charge                   |       | —                               |       | 2,785                                             |       | — |   | — |   | — |   | — |   |
| Restructuring  and merger-related charges                |       | 1,683                                |       | 9,269                                             |       | — |   | — |   | — |   | — |   |
| Strategic  alternatives                                  |       | 3,108                                |       | —                                            |       | — |   | 616 |   | — |   | — |   |
| Management  incentive compensation                       |       | —                               |       | —                                            |       | — |   | — |   | 16,388 |   | — |   |
| Total operating  expenses                                |       | 89,147                               |       | 90,649                                            |       | 90,299 |   | 105,426 |   | 81,819 |   | 57,701 |   |
| Income from  operations                                  |       | 22,667                               |       | 25,869                                            |       | 40,095 |   | 51,149 |   | 18,230 |   | 11,717 |   |
| Other expense  (income):                                 |       |                                 |       |                                              |       |   |   |   |   |   |   |   |   |
| Interest expense                                         |       | 27,785                               |       | 23,374                                            |       | 33,454 |   | 35,962 |   | 24,584 |   | 17,645 |   |
| Interest income                                          |       | (3,708                               | )          | (122                                              | )          | (117 | ) | (213 | ) | (914 | ) | (156 | ) |
| Seller  transaction expenses                             |       | —                               |       | —                                            |       | — |   | — |   | 4,646 |   | — |   |
| Other, net                                               |       | 178                                  |       | (305                                              | )          | (1,002 | ) | 1,539 |   | 745 |   | (9 | ) |
| (Loss) income  before income taxes and minority interest |       | (1,588                               | )          | 2,922                                             |       | 7,760 |   | 13,861 |   | (10,831 | ) | (5,763 | ) |
| Income tax  expense (benefit)                            |       | 2,320                                |       | 7,901                                             |       | 1,843 |   | 3,195 |   | 3,619 |   | (995 | ) |
| Minority  interest                                       |       | 435                                  |       | —                                            |       | (3 | ) | 25 |   | 13 |   | (2 | ) |
| Net (loss)  income                                       |       | (4,343                               | )          | (4,979                                            | )          | 5,920 |   | $ | 10,641 |   | $ | (14,463 | ) | $ | (4,766 | ) |
| Preferred unit  dividends                                |       | 11,421                               |       | 11,991                                            |       | 12,973 |   |   |   |   |   |   |   |
| Net loss  attributable to common unitholders             |       | $                                    | (15,764    | )                                                 | $          | (16,970 | ) | $ | (7,053 | ) |   |   |   |   |   |   |
|                                                     |       |                                 |       |                                              |       |   |   |   |   |   |   |   |   |
| **Other  Financial Data and Ratios:**                    |       |                                 |       |                                              |       |   |   |   |   |   |   |   |   |
| EBITDA (2)                                               |       | $                                    | 41,849     |                                              | $          | 44,791 |   | $ | 53,849 |   | $ | 61,956 |   | $ | 19,332 |   | $ | 24,089 |   |
| Adjusted EBITDA  (2)                                     |       | 44,957                               |       | 47,576                                            |       | 53,432 |   | 63,471 |   | 40,366 |   | 29,709 |   |
| Depreciation and  amortization                           |       | 19,795                               |       | 18,617                                            |       | 12,749 |   | 12,371 |   | 6,506 |   | 12,361 |   |
| Capital  expenditures                                    |       | 6,933                                |       | 7,197                                             |       | 7,432 |   | 6,423 |   | 4,250 |   | 5,037 |   |
| Net cash  provided by operating activities               |       | 17,759                               |       | 23,230                                            |       | 21,696 |   | 29,911 |   | 19,564 |   | 26,691 |   |
| Net cash used in  investing activities                   |       | (1,769                               | )          | (17,728                                           | )          | (25,611 | ) | (6,378 | ) | (4,903 | ) | (278,762 | ) |
| Net cash (used  in) provided by financing activities     |       | (14,009                              | )          | (6,819                                            | )          | 13,753 |   | (8,621 | ) | 20,622 |   | 264,475 |   |
|                                                     |       |                                 |       |                                              |       |   |   |   |   |   |   |   |   |
| **Balance  Sheet Data (at period end):**                 |       |                                 |       |                                              |       |   |   |   |   |   |   |   |   |
| Cash and cash equivalents                                |       | $                                    | 1,769      |                                              | $          | 1,762 |   | $ | 16,341 |   | $ | 35,731 |   |   |   | $ | 20,819 |   |
| Working capital                                          |       | 79,251                               |       | 24,155                                            |       | 103,804 |   | 120,526 |   |   |   | 131,791 |   |
| Total assets                                             |       | 314,969                              |       | 307,208                                           |       | 362,718 |   | 389,191 |   |   |   | 693,656 |   |
| Long-term  obligations                                   |       | 228,019                              |       | 219,071                                           |       | 258,248 |   | 253,566 |   |   |   | 443,239 |   |
| Mandatorily  redeemable preferred units                  |       | 100,581                              |       | 114,583                                           |       | 120,817 |   | 134,310 |   |   |   |   |   |
| Total members’  deficit/shareholders’ equity   |       | (70,004                              | )          | (93,738                                           | )          | (89,241 | ) | (75,097 | ) |   |   | 106,891 |   |

 

17

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(1)   Includes amortization of goodwill in 2001, which wasdiscontinued in 2002 due to the adoption of SFAS 142.

 

(2)   “EBITDA” is net income plus interest, taxes,depreciation and amortization. “Adjusted EBITDA” is defined as EBITDA furtheradjusted to exclude (1) charges for strategic alternatives, (2) inventorypurchase accounting adjustment, seller transaction expenses and managementincentive compensation related to the Norcross Transaction, (3) a non-cashimpairment charge taken with regard to our former subsidiary located inZimbabwe and (4) gain or loss on the sale of property, plant andequipment. EBITDA and Adjusted EBITDA do not represent and should not beconsidered as alternatives to net income or cash flow from operations, asdetermined by GAAP, and our calculations thereof may not be comparable to thatreported by other companies. EBITDA and Adjusted EBITDA are included in this Form 10-Kbecause they are a basis upon which we assess our liquidity position andbecause we believe that they present useful information to investors regardinga company’s ability to service and/or incur indebtedness. This belief is basedon our negotiations with our lenders who have indicated that the amount ofindebtedness we will be permitted to incur will be based, in part, on measuressimilar to our EBITDA and our Adjusted EBITDA. EBITDA and Adjusted EBITDA donot take into account our working capital requirements, debt servicerequirements and other commitments and, accordingly, are not necessarilyindicative of amounts that may be available for discretionary use.

 

The following table reconciles Adjusted EBITDA withEBITDA, net (loss) income and net cash provided by operating activities for theperiods indicated:

 
| ** **                                            | ** ** | **Predecessor**                            | ** ** | **Successor**                                     | ** ** |
|-------------------------------------------------------|------------|--------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                            | ** ** | **Year Ended December 31,** | ** ** | **January 1,  2005  Through  July 19,** | ** ** | **July 20,  2005  Through  December 31,** | ** ** |
| ** **                                            | ** ** | **2001**                                   | ** ** | **2002**                                          | ** ** | **2003** | ** ** | **2004** | ** ** | **2005** | ** ** | **2005** | ** ** |
| ** **                                            | ** ** | **(dollars  in thousands)**                | ** ** |
| Adjusted EBITDA  (a)                                  |       | $                                          | 44,957     |                                              | $          | 47,576 |   | $ | 53,432 |   | $ | 63,471 |   | $ | 40,366 |   | $ | 29,709 |   |
| (Subtract) add:                                       |       |                                       |       |                                              |       |   |   |   |   |   |   |   |   |
| Strategic  alternatives (b)                           |       | (3,108                                     | )          | —                                            |       | — |   | (616 | ) | — |   |   |   |
| Zimbabwe  subsidiary impairment charge (c)            |       | —                                     |       | (2,785                                            | )          | — |   | — |   | — |   | — |   |
| Management  incentive compensation                    |       | —                                     |       | —                                            |       | — |   | — |   | (16,388 | ) | — |   |
| Seller  transaction expenses                          |       | —                                     |       | —                                            |       | — |   | — |   | (4,646 | ) | — |   |
| Inventory  purchase accounting adjustment             |       | —                                     |       | —                                            |       | — |   | — |   | — |   | (5,620 | ) |
| Gain (loss) on  sale of property, plant and equipment |       | —                                     |       | —                                            |       | 417 |   | (899 | ) | — |   | — |   |
| EBITDA                                                |       | 41,849                                     |       | 44,791                                            |       | 53,849 |   | 61,956 |   | 19,332 |   | 24,089 |   |
| Subtract:                                             |       |                                       |       |                                              |       |   |   |   |   |   |   |   |   |
| Interest  expense, net (d)                            |       | (24,077                                    | )          | (23,252                                           | )          | (33,337 | ) | (35,749 | ) | (23,670 | ) | (17,489 | ) |
| Income tax  expense                                   |       | (2,320                                     | )          | (7,901                                            | )          | (1,843 | ) | (3,195 | ) | (3,619 | ) | 995 |   |
| Depreciation and  amortization expense (e)            |       | (19,795                                    | )          | (18,617                                           | )          | (12,749 | ) | (12,371 | ) | (6,506 | ) | (12,361 | ) |
| Net (loss)  income                                    |       | (4,343                                     | )          | (4,979                                            | )          | 5,920 |   | 10,641 |   | (14,463 | ) | (4,766 | ) |
| Add (subtract):                                       |       |                                       |       |                                              |       |   |   |   |   |   |   |   |   |
| Depreciation and  amortization expense                |       | 19,795                                     |       | 18,617                                            |       | 12,749 |   | 12,371 |   | 6,506 |   | 12,361 |   |
| Amortization of  deferred financing costs             |       | 1,867                                      |       | 2,024                                             |       | 2,191 |   | 1,777 |   | 1,311 |   | 1,441 |   |
| Amortization of  original issue discount              |       | 1,014                                      |       | 1,016                                             |       | 662 |   | 92 |   | 58 |   | (76 | ) |
| (Gain) loss on  sale of fixed assets                  |       | —                                     |       | —                                            |       | (417 | ) | 899 |   | — |   | — |   |
| Deferred income  taxes                                |       | —                                     |       | 5,716                                             |       | 154 |   | 583 |   | (86 | ) | (2,416 | ) |
| Minority  interest                                    |       | 370                                        |       | —                                            |       | (3 | ) | 25 |   | 13 |   | (2 | ) |
| Non-cash  interest                                    |       | (3,390                                     | )          | —                                            |       | — |   | 13,493 |   | 11,167 |   | 6,877 |   |
| Write-off of  deferred financing costs                |       | —                                     |       | —                                            |       | 7,284 |   | — |   | — |   | — |   |
| Zimbabwe  subsidiary impairment charge                |       | —                                     |       | 2,072                                             |       | — |   | — |   | — |   | — |   |
| Changes in  operating assets and liabilities          |       | 2,446                                      |       | (1,236                                            | )          | (6,844 | ) | (9,970 | ) | 15,058 |   | 13,272 |   |
| Net cash  provided by operating activities            |       | $                                          | 17,759     |                                              | $          | 23,230 |   | $ | 21,696 |   | $ | 29,911 |   | $ | 19,564 |   | $ | 26,691 |   |

 

18

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(a)  In addition to the non-cash charges added back incalculating EBITDA, we incurred restructuring and merger-related charges of $1.7 million and$3.0 million for the years ended December 31, 2001 and 2002, respectively.

 

(b)  We incurredcosts associated with exploring strategic alternatives of $3.1 million and $0.6million for the year ended December 31, 2001 and the year ended December 31,2004, respectively. These costs related to exploring various strategic optionsand were expensed when we decided to terminate the process. The costs for theyear ended December 31, 2001 related to an unsuccessful acquisitionattempt, while the costs for the year ended December 31, 2004 related to apossible sale of the company.

 

(c)  Due to adversepolitical and economic conditions in Zimbabwe, we recorded a non-cashimpairment charge of $2.8 million, equivalent to our net investment, with regard to the impairment of ourformer Zimbabwe subsidiary for the year ended December 31, 2002.

 

(d)  Interest expense, net is calculated as interestexpense minus interest income.

 

(e)  Depreciation expense for the year ended December 31,2002 includes $6.3 million of non-cash charges relating to accelerateddepreciation in connection with the write-off of long-lived assets.

 

19

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| **ITEM 7.** | **MANAGEMENT’S DISCUSSION  AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS** |
|-------------|-------------------------------------------------------------------------------------------------|

 

*Thefollowing discussion and analysis should be read in conjunction with ourfinancial statements and related notes included elsewhere in this Form 10-K.Some of the statements set forth below include forward-looking statements thatinvolve risks and uncertainties.*

 

**Overview**

 

We are a leading designer, manufacturer and marketerof branded products in the fragmented personal protection equipment industry.We manufacture and market a full line of personal protection equipment forworkers in the general safety and preparedness, fire service and electricalsafety industries. We sell our products under trusted, long-standing andwell-recognized brand names, including *North*, *KCL**, Fibre-Metal, *MorningPride**, *Ranger*, *Servus*,*Pro-Warrington,*and*Salisbury*. Ourbroad product offering includes, among other things, respiratory protection,protective footwear, hand protection, bunker gear and linemen equipment.

 

We classify our diverse product offerings into threeoperating segments:

 

*GeneralSafety and Preparedness*. We offer a diverse portfolioof leading products for a wide variety of industries, including manufacturing,agriculture, automotive, construction, food processing and pharmaceuticalindustries and the military, under the *North*, *Ranger, Servus, KCL*and *Fibre-Metal*brand names. Our product offering is one of the broadest in the personalprotection equipment industry and includes respiratory protection, protectivefootwear, hand protection, eye, head and face protection, first aid, hearingprotection and fall protection. We sell our general safety and preparednessproducts primarily through industrial distributors.

 

*FireService*. We manufacture and market one of the broadestlines of personal protection equipment for the fire service market, offeringfirefighters head-to-toe protection. Our products include bunker gear,fireboots, helmets, gloves and other accessories. We market our products underour Total Fire Group umbrella, using the brand names of *Morning Pride*, *Ranger*, *Servus* and *Pro-Warrington*. We are the vendor of choice for many of thelargest fire departments in North America. We sell our fire service productsprimarily through specialized fire service distributors.

 

*ElectricalSafety*. We manufacture and market a broad line ofpersonal protection equipment for the utility market under the *Salisbury* and *Servus* brands.Our products, including linemen equipment, gloves, sleeves and footwear, aredesigned to protect workers from up to 36,000 volts of electricity. All of ourproducts either meet or exceed the applicable standards of ANSI and ASTM. Wedistribute our electrical safety products through specialized distributors,test labs, utilities and electrical contractors.

 

**Predecessor and Successor**

** **

In May 2005, Safety Products entered into apurchase and sale agreement with NSP Holdings and Norcross to purchase from NSPHoldings all of the outstanding equity interests of Norcross and NSP Capitalfor an aggregate purchase price of approximately $481.0 million, which includedthe assumption or repayment of indebtedness but excluded payment of fees andexpenses. The acquisition closed on July 19, 2005 and was funded withproceeds to Safety Products from the issuance and sale of senior pay in kindnotes as well as an equity investment from affiliates of Odyssey and GEPT andcertain members of management of Norcross. Concurrently with the acquisition,Norcross entered into a new senior credit facility, consisting of a revolvingcredit facility that provides for up to $50.0 million of borrowings and a $88.0million term loan. As a result of the acquisition, Safety Products became thesole unit holder of Norcross. Safety Products, following the NorcrossTransaction, is referred to as the “Successor.” NSP Holdings, prior to theNorcross Transaction, is referred to as the “Predecessor.”

 

In accordance with GAAP, our historical financialresults for the Predecessor and the Successor are presented separately. Theseparate presentation is required under GAAP in situations when there is achange in accounting basis, which occurred when purchase accounting was appliedto the Norcross Transaction. Purchase accounting requires that the historicalcarrying value of assets acquired and liabilities assumed be adjusted to fairvalue, which may yield results that are not comparable on a period-to-periodbasis due to the different, and sometimes higher, cost basis associated withthe allocation of the purchase price. There have been no material changes tothe operations or customer relationships of our business as a result of theNorcross Transaction.

 

In evaluating our results of operations and financialperformance, our management has used combined results for the year ended December 31,2005 as a single measurement period. Due to the Norcross Transaction, webelieve that 

 

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comparisons between the year ended December 31, 2004 and eitherthe Predecessor’s results for the period from January 1, 2005 to July 19,2005 or the Successor’s results for the period from July 20, 2005 to December 31,2005 may impede the ability of users of our financial information to understandour operating and cash flow performance.

 

Consequently, in order to enhance an analysis of ouroperating results and cash flows, we have presented our operating results andcash flows on a combined basis for the year ended December 31, 2005. Thiscombined presentation for the year ended December 31, 2005 simplyrepresents the mathematical addition of the pre-acquisition results ofoperations of the Predecessor for the period from January 1, 2005 to July 19,2005 and the results of operations of the Successor for the period from July 20,2005 to December 31, 2005.  Webelieve the combined presentation provides relevant information for investors.These combined results, however, are not intended to represent what ouroperating results would have been had the Norcross Transaction occurred at thebeginning of the period. A reconciliation showing the mathematical combinationof our operating results for such periods is included below under “—Results ofOperations.”

 

**Acquisition History**

 

We made two acquisitions during the three year periodended December 31, 2005. As a result, comparability of periods has beenaffected by these acquisitions.

 

In July 2003, we acquired the stock ofKachele-Cama Latex GmbH (“KCL”) for $20.1 million, including the assumption of$0.2 million of KCL’s net indebtedness and acquisition costs of $1.1 million.

 

In November 2005, we completed the acquisition ofall of the issued and outstanding capital stock of Fibre-Metal.  The purchase price of $68.7 million(including $0.7 million of acquisition costs) was financed through $65.0million of additional term borrowings under the senior credit facility and cashon the balance sheet.

 

**Restructuring Plans**

 

In conjunction with the Fibre-Metal Transaction, weinitiated a restructuring plan to close the Fibre-Metal manufacturing facilitylocated in Concordville, Pennsylvania and move production to our Cranston,Rhode Island and Mexicali, Mexico facilities. In addition, we plan to closecertain Fibre-Metal distribution centers and integrate Fibre-Metal distributioninto our existing distribution facilities. We initiated this plan in order to increase profitability through theutilization of excess capacity at our existing plants and the movement ofmanufacturing to locations with favorable labor costs. As of the date of theFibre-Metal Transaction, we recorded an accrual for costs associated with theplan of $1.7 million, comprised of $1.4 million in severance costs and $0.3million in facility closure and other exit costs.

 

**Critical Accounting Policies**

 

Certain of our accounting policies as discussed belowrequire the application of significant judgment by management in selecting theappropriate estimates and assumptions for calculating amounts to record in ourfinancial statements. Actual results could differ from those estimates andassumptions, impacting our reported results of operations and financialposition. However, we do not believe the differences between the actual amountsand our estimates will be material to our financial statements. Our significantaccounting policies are more fully described in the notes to our auditedfinancial statements included elsewhere in this Form 10-K. Certainaccounting policies, however, are considered to be critical in that they aremost important to the depiction of our financial condition and results ofoperations and their application requires management’s most subjective judgmentin making estimates about the effect of matters that are inherently uncertain.

 

*Allowancefor Doubtful Accounts*. We evaluate the collectibilityof our trade receivables based on a combination of factors. We regularlyanalyze our significant customer accounts and, when we become aware of aspecific customer’s inability to meet its financial obligations to us, werecord a specific reserve for bad debts to reduce the related receivable to theamount we reasonably believe is collectible. We also record allowances for allother customers based on a variety of factors including the length of time thereceivables are past due, the financial health of the customer, macroeconomicconsiderations and historical experience. Historically, our allowance fordoubtful accounts has been adequate to cover our bad debts. If circumstancesrelated to specific customers change, our estimates of the recoverability ofreceivables could be further adjusted. However, due to our diverse customerbase and lack of credit concentration, we do not believe our estimates would bematerially impacted by changes in our assumptions.

 

*Inventory*.We perform a detailed assessment of inventory which includes a review of, amongother factors, demand requirements, product life cycle and development plans,component cost trends, product pricing and quality issues. Based on thisanalysis, we record adjustments to inventory for excess, obsolescence orimpairment when appropriate to reflect inventory at net realizable value.Historically, our inventory reserves have been adequate to reflect ourinventory at net

 

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realizable values. Revisions to our inventory adjustments to recordadditional reserves may be required if actual demand, component costs orproduct life cycles differ from our estimates. However, due to our diverseproduct lines and end-user markets, we do not believe our estimates would bematerially impacted by changes in our assumptions.

 

*Goodwilland Other Intangibles*. Purchase accounting requires extensive use ofaccounting estimates and judgments to allocate the purchase price to the fairmarket value of the assets purchased and liabilities assumed. We have accountedfor our acquisitions using the purchase method of accounting.

 

In accordance with Statement of Financial AccountingStandards No. 142, “Goodwill and Other Intangible Assets,” we performed agoodwill impairment test on the amount of goodwill during the fiscal fourthquarter 2003, 2004 and 2005. To test for impairment, we determined the fairvalue of each of the reporting units by benchmarking trading and acquisitionmultiples of comparable personal protection equipment companies. This analysisis based on comparable companies as determined by management and data fromsources of publicly available information available at the time of preparation.In making these projections, we considered the markets it was addressing, thecompetitive environment and its advantages. In addition, we performed a macroassessment of the overall likelihood that we would achieve the multipleselected for valuation and performed sensitivity analysis under differentmultiple assumptions. Based on the results of the first step of the annualgoodwill impairment test, we determined that the fair value of each of thereporting units exceeded their carrying amounts and, therefore, no goodwillimpairment existed. As a result, the second step of the annual goodwillimpairment test was not required to be completed. We will continue to perform agoodwill impairment test on an annual basis and on an interim basis, if certainconditions exist. Factors we consider important which could result in changesto our estimates include underperformance relative to historical or projectedfuture operating results and declines in acquisition and trading multiples. Dueto our diverse end-user base, brand name recognition and non-discretionaryproduct demand, we do not believe our future operating results will varysignificantly relative to our historical and projected future operatingresults. Additionally, we do not believe a decline in acquisition and tradingmultiples will affect the results of our impairment test as we use the lowerend of the range of multiples when performing our impairment testing.

 

*Long-LivedAssets*. We evaluate our long-lived assets on an ongoing basis. Long-lived assetsare reviewed for impairment whenever events or changes in circumstancesindicate that the carrying amount of the related asset may not be recoverable.Recoverability of assets to be held and used is measured by a comparison of thecarrying amount of the asset to future undiscounted cash flows expected to begenerated by the asset. If the asset is determined to be impaired, theimpairment recognized is measured by the amount by which the carrying value ofthe asset exceeds its fair value. Our estimates of future cash flows could beimpacted if we underperform relative to historical or projected futureoperating results. However, due to our diverse product lines and end-usermarkets, we do not believe our estimates would be materially impacted bychanges in our assumptions.

 

*OtherContingencies*. In the ordinary course of business, we are involvedin legal proceedings involving contractual and employment relationships,product liability claims, trademark rights and a variety of other matters. Werecord contingent liabilities resulting from claims against us when it isprobable that a liability has been incurred and the amount of the loss isreasonably estimable. We disclose contingent liabilities when there is areasonable possibility that the ultimate loss will exceed the recordedliability. Estimating probable losses requires analysis of multiple factors, insome cases including judgments about the potential actions of third-partyclaimants and courts. Therefore, actual losses in any future period areinherently uncertain. Currently, we do not believe that any of our pendinglegal proceedings or claims will have a material impact on our financial positionor results of operations. However, if actual or estimated probable futurelosses exceed our recorded liability for such claims, we would recordadditional charges as other expense during the period in which the actual lossor change in estimate occurred.

 

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**Results of Operations**

 

The following tables set forth our results ofoperations in dollars and as a percentage of net sales for the fiscal yearsended December 31, 2003 and 2004, the period from January 1, 2005through July 19, 2005 and the period from July 20, 2005 through December 31,2005. The data for each of the two years ended December 31, 2004, theperiod from January 1, 2005 through July 19, 2005 and the period fromJuly 20, 2005 through December 31, 2005, have been derived from ouraudited historical consolidated financial statements. Although the Predecessorand Successor results are not comparable by definition in certain respects dueto the Norcross Transaction and the resulting revaluation, the 2005 informationis presented on a combined basis for comparative purposes. For the year ended December 31,2005, the Predecessor (January 1, 2005 through July 19, 2005) andSuccessor (July 20, 2005 through December 31, 2005) results ofoperations are combined.

 
| ** **                                               | ** ** | **Predecessor**                            | ** ** | **Successor**     | ** ** | ** **            | ** ** |
|----------------------------------------------------------|------------|--------------------------------------------|------------|-------------------|------------|-----------------------|------------|
| ** **                                               | ** ** | ** **                                 | ** ** | ** **        | ** ** | **January 1,**   | ** ** | **July 20,** | ** ** | ** ** | ** ** |
| ** **                                               | ** ** | ** **                                 | ** ** | ** **        | ** ** | **2005**              | ** ** | **2005** | ** ** | **Combined** | ** ** |
| ** **                                               | ** ** | ** **                                 | ** ** | ** **        | ** ** | **through**           | ** ** | **through** | ** ** | **Year Ended** | ** ** |
| ** **                                               | ** ** | **Year Ended December 31,** | ** ** | **July 19,** | ** ** | **December 31,** | ** ** | **December 31,** | ** ** |
| ** **                                               | ** ** | **2003**                                   | ** ** | **2004**          | ** ** | **2005**              | ** ** | **2005** | ** ** | **2005** | ** ** |
| ** **                                               | ** ** | **(in thousands)**                    | ** ** |
| Net sales:                                               |       |                                       |       |              |       |                  |       |   |   |   |   |
| General safety  and preparedness                         |       | $                                          | 257,247    |              | $          | 308,576               |       | $ | 186,434 |   | $ | 146,103 |   | $ | 332,537 |   |
| Fire service                                             |       | 70,335                                     |       | 78,881            |       | 51,702                |       | 36,213 |   | 87,915 |   |
| Electrical  safety                                       |       | 43,220                                     |       | 51,042            |       | 33,558                |       | 27,080 |   | 60,638 |   |
| Total net sales                                          |       | 370,802                                    |       | 438,499           |       | 271,694               |       | 209,396 |   | 481,090 |   |
| Cost of goods  sold                                      |       | 240,408                                    |       | 281,924           |       | 171,645               |       | 139,978 |   | 311,623 |   |
| Gross profit                                             |       | 130,394                                    |       | 156,575           |       | 100,049               |       | 69,418 |   | 169,467 |   |
| Operating  expenses                                      |       | 90,299                                     |       | 105,426           |       | 81,819                |       | 57,701 |   | 139,520 |   |
| Income from  operations:                                 |       |                                       |       |              |       |                  |       |   |   |   |   |
| General safety  and preparedness                         |       | 22,306                                     |       | 31,112            |       | 19,937                |       | 7,667 |   | 27,604 |   |
| Fire service                                             |       | 13,248                                     |       | 14,972            |       | 9,332                 |       | 2,574 |   | 11,906 |   |
| Electrical  safety                                       |       | 9,078                                      |       | 11,148            |       | 8,442                 |       | 4,352 |   | 12,794 |   |
| Corporate                                                |       | (4,537                                     | )          | (6,083            | )          | (19,481               | )          | (2,876 | ) | (22,357 | ) |
| Total income  from operations                            |       | 40,095                                     |       | 51,149            |       | 18,230                |       | 11,717 |   | 29,947 |   |
| Other expense  (income):                                 |       |                                       |       |              |       |                  |       |   |   |   |   |
| Interest expense                                         |       | 33,454                                     |       | 35,962            |       | 24,584                |       | 17,645 |   | 42,229 |   |
| Interest income                                          |       | (117                                       | )          | (213              | )          | (914                  | )          | (156 | ) | (1,070 | ) |
| Seller  transaction expenses                             |       | —                                     |       | —            |       | 4,646                 |       | — |   | 4,646 |   |
| Other, net                                               |       | (1,002                                     | )          | 1,539             |       | 745                   |       | (9 | ) | 736 |   |
| Income (loss)  before income taxes and minority interest |       | 7,760                                      |       | 13,861            |       | (10,831               | )          | (5,763 | ) | (16,594 | ) |
| Income tax  expense (benefit)                            |       | 1,843                                      |       | 3,195             |       | 3,619                 |       | (995 | ) | 2,624 |   |
| Minority  interest                                       |       | (3                                         | )          | 25                |       | 13                    |       | (2 | ) | 11 |   |
| Net income  (loss)                                       |       | 5,920                                      |       | $                 | 10,641     |                  | $          | (14,463 | ) | $ | (4,766 | ) | $ | (19,229 | ) |
| Preferred unit  dividends                                |       | 12,973                                     |       |              |       |                  |       |   |   |   |   |
| Net loss  attributable to common unitholders             |       | $                                          | (7,053     | )                 |       |                  |       |   |   |   |   |   |

 

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| ** **                                               | ** ** | **Predecessor**                            | ** ** | **Successor**     | ** ** | ** **            | ** ** |
|----------------------------------------------------------|------------|--------------------------------------------|------------|-------------------|------------|-----------------------|------------|
| ** **                                               | ** ** | ** **                                 | ** ** | ** **        | ** ** | **January 1,**   | ** ** | **July 20,** | ** ** | ** ** | ** ** |
| ** **                                               | ** ** | ** **                                 | ** ** | ** **        | ** ** | **2005**              | ** ** | **2005** | ** ** | **Combined** | ** ** |
| ** **                                               | ** ** | ** **                                 | ** ** | ** **        | ** ** | **through**           | ** ** | **through** | ** ** | **Year Ended** | ** ** |
| ** **                                               | ** ** | **Year Ended December 31,** | ** ** | **July 19,** | ** ** | **December 31,** | ** ** | **December 31,** | ** ** |
| ** **                                               | ** ** | **2003**                                   | ** ** | **2004**          | ** ** | **2005**              | ** ** | **2005** | ** ** | **2005** | ** ** |
| Net sales:                                               |       |                                       |       |              |       |                  |       |   |   |   |   |
| General safety  and preparedness                         |       | 69.4                                       | %          | 70.4              | %          | 68.6                  | %          | 69.8 | % | 69.1 | % |
| Fire service                                             |       | 19.0                                       | %          | 18.0              | %          | 19.0                  | %          | 17.3 | % | 18.3 | % |
| Electrical  safety                                       |       | 11.6                                       | %          | 11.6              | %          | 12.4                  | %          | 12.9 | % | 12.6 | % |
| Total net sales                                          |       | 100.0                                      | %          | 100.0             | %          | 100.0                 | %          | 100.0 | % | 100.0 | % |
| Cost of goods  sold                                      |       | 64.8                                       | %          | 64.3              | %          | 63.2                  | %          | 66.8 | % | 64.8 | % |
| Gross profit                                             |       | 35.2                                       | %          | 35.7              | %          | 36.8                  | %          | 33.2 | % | 35.2 | % |
| Operating  expenses                                      |       | 24.4                                       | %          | 24.0              | %          | 30.1                  | %          | 27.6 | % | 29.0 | % |
| Income from  operations:                                 |       |                                       |       |              |       |                  |       |   |   |   |   |
| General safety  and preparedness                         |       | 6.0                                        | %          | 7.1               | %          | 7.3                   | %          | 3.6 | % | 5.7 | % |
| Fire service                                             |       | 3.6                                        | %          | 3.4               | %          | 3.4                   | %          | 1.2 | % | 2.5 | % |
| Electrical  safety                                       |       | 2.4                                        | %          | 2.5               | %          | 3.1                   | %          | 2.1 | % | 2.7 | % |
| Corporate                                                |       | (1.2                                       | )%         | (1.3              | )%         | (7.1                  | )%         | (1.3 | )% | (4.7 | )% |
| Total income  from operations                            |       | 10.8                                       | %          | 11.7              | %          | 6.7                   | %          | 5.6 | % | 6.2 | % |
| Other expense  (income):                                 |       |                                       |       |              |       |                  |       |   |   |   |   |
| Interest expense                                         |       | 9.0                                        | %          | 8.2               | %          | 9.0                   | %          | 8.5 | % | 8.8 | % |
| Interest income                                          |       | (0.0                                       | )%         | (0.0              | )%         | (0.3                  | )%         | (0.1 | )% | (0.2 | )% |
| Seller  transaction expenses                             |       | 0.0                                        | %          | 0.0               | %          | 1.7                   | %          | 0.0 | % | 1.0 | % |
| Other, net                                               |       | (0.3                                       | )%         | 0.4               | %          | 0.3                   | %          | (0.0 | )% | 0.1 | % |
| Income (loss)  before income taxes and minority interest |       | 2.1                                        | %          | 3.1               | %          | (4.0                  | )%         | (2.8 | )% | (3.5 | )% |
| Income tax  expense (benefit)                            |       | 0.5                                        | %          | 0.7               | %          | 1.3                   | %          | (0.5 | )% | 0.5 | % |
| Minority  interest                                       |       | (0.0                                       | )%         | 0.0               | %          | 0.0                   | %          | (0.0 | )% | 0.0 | % |
| Net income  (loss)                                       |       | 1.6                                        | %          | 2.4               | %          | (5.3                  | )%         | (2.3 | )% | (4.0 | )% |
| Preferred unit  dividends                                |       | 3.5                                        | %          |              |       |                  |       |   |   |   |   |
| Net loss  attributable to common unitholders             |       | (1.9                                       | )%         |              |       |                  |       |   |   |   |   |

 

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***Combined Year Ended December 31, 2005 as Compared toYear Ended December 31, 2004***

 

*Netsales*. Netsales increased by $42.6 million, or 9.7%, from $438.5 million in 2004 to$481.1 million in 2005. In our general safety and preparedness segment, netsales increased by $24.0 million, or 7.8%, from $308.5 million in 2004 to$332.5 million in 2005. This increase reflects a combination of the following:overall organic growth in our Canadian, European and South African operationsof $16.5 million; favorable exchange rates, which had an impact of $5.2million; incremental Fibre-Metal net sales of $4.9 million and lower overallnet sales in the United States of $2.6 million as strong overall market demand,in part due to the hurricane activity in the Gulf Coast region, was offset by adecrease in government contract shipments of $10.3 million. In our fire servicesegment, net sales increased by $9.0 million, or 11.5%, from $78.9 million in2004 to $87.9 million in 2005 reflecting strong market demand. In ourelectrical safety segment, net sales increased by $9.6 million, or 18.8%, from$51.0 million in 2004 to $60.6 million in 2005, driven by the hurricaneactivity in the Gulf Coast region, strong overall market demand and new productpenetration.

 

*Grossprofit*. Grossprofit increased by $12.9 million, or 8.2%, from $156.6 million in 2004 to$169.5 million in 2005.   Excluding theimpact of inventory purchase accounting adjustments in our general safety andpreparedness and fire service segments of $4.3 million and $1.3 million,respectively, gross profit increased by $18.5 million, or 11.8%.  This increase was primarily attributable tothe $42.6 million, or 9.7% increase in net sales. After adjusting for theinventory purchase accounting adjustments, our overall gross profit margin of36.4% in 2005 was favorable to the 35.7% gross profit margin in 2004. In ourgeneral safety and preparedness segment (after adjusting for expenses relatedto purchase accounting of $4.3 million), gross profit increased by $12.0million, or 10.8%, from $110.5 million in 2004 to $122.5 million in 2005. Thisincrease was primarily due to the overall net sales increase of $24.0 million,or 7.8%, favorable exchange rates which has an impact of $1.9 million, andimproved margin realization. Included in the general safety and preparednesssegment gross profit were a $1.2 million and $4.1 million increase to thereserve for excess and obsolete inventory and a $0.2 million increase and $0.2million decrease to the LIFO provisions in 2005 and 2004, respectively. In ourfire service segment (after adjusting for expenses related to purchaseaccounting of $1.3 million), gross profit increased by $2.5 million, or 9.9%,from $26.1 million in 2004 to $28.6 million in 2005, as the $9.0 million, or11.5% increase in net sales was partially offset by lower margin realization.In our electrical safety segment, gross profit increased by $4.0 million, or20.4%, from $19.9 million in 2004 to $23.9 million in 2005, primarily due tothe $9.6 million, or 18.8% increase in net sales and improved manufacturingperformance.

 

*Operatingexpenses*. Operatingexpenses increased by $34.1 million, or 32.3%, from $105.4 million in 2004 to$139.5 million in 2005. In our general safety and preparedness segment,operating expenses increased by $11.0 million, or 13.9%, from $79.6 million in2004 to $90.6 million in 2005, primarily due to incremental amortizationexpense of $3.0 million associated with intangible assets recorded as part ofpurchase accounting; higher exchange rates, which had an impact of $1.3million; incremental Fibre-Metal operating expense of $1.4 million; higherpayroll and other administrative costs; and increased variable distribution andselling expenses associated with the $24.0 million, or 7.8% increase in netsales. In our fire service segment, operating expenses increased $4.4 million,or 39.0%, from $11.1 million in 2004 to $15.5 million in 2005, primarily due tohigher amortization expense of $2.6 million associated with intangible assetsrecorded as part of purchase accounting and additional general and administrativeexpenses, including legal costs related to litigation with a competitor. In ourelectrical safety segment, operating expenses increased by $2.4 million, or27.6%, from $8.7 million in 2004 to $11.1 million in 2005, primarily due tohigher amortization expense of $1.4 million associated with intangible assetsrecorded as part of purchase accounting and higher selling and distributionexpenses associated with the $9.6 million, or 18.8% increase in net sales.Corporate expenses in 2004 consisted of $5.5 million of general andadministrative expenses and $0.6 million of expenses associated with exploringstrategic alternatives.  Corporateexpenses in 2005 consisted of $6.0 million of general and administrativeexpenses and $16.4 million of management incentive compensation expense relatedto the Norcross Transaction.  Theincrease in corporate general and administrative expenses of $0.5 million wasprimarily due to higher payroll and administrative expenses including costsassociated with public reporting and Sarbanes-Oxley Act related compliancerequirements.

 

*Incomefrom operations*.Income from operations decreased by $21.2 million, or 41.5%, from $51.1million in 2004 to $29.9 million in 2005. Included in income from operations in 2005 were: (1) inventory purchaseaccounting charges of $5.6 million; (2) incremental amortization expensesof $7.0 million related to purchase accounting; and (3) $16.4 million ofmanagement incentive compensation expense. Included in income from operations in 2004 were $0.6 million of expensesrelated to exploring strategic alternatives. Excluding these charges, income from operations increased by $7.2million, or 13.9%.  Excluding these samecharges, as a percentage of net sales, income from operations increased from11.8% in 2004 to 12.3% in 2005. In our general safety and preparedness segment(after adjusting for expenses related to purchase accounting of $7.3 million),income from operations increased by $3.9 million, or 12.4%, from $31.1 millionin 2004 to $35.0 million in 2005, primarily due to higher net sales of $24.0million, or 7.8%. In our fire service segment (after adjusting for expensesrelated to purchase accounting of $3.9 million), income from operationsincreased by $0.7 million, or 5.4%, from $15.0 

 

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million in 2004 to $15.7 million in 2005, as the $9.0 million, or11.5%, increase in net sales was partially offset by lower margin realizationand higher administrative expenses. In our electrical safety segment (afteradjusting for expenses related to purchase accounting of $1.4 million), incomefrom operations increased by $3.1 million, or 27.5%, from $11.1 million in 2004to $14.2 million in 2005, primarily due to higher net sales of $9.6 million, or18.8%, and improved manufacturing performance. Corporate expenses in 2004consisted of $5.5 million of general and administrative expenses and $0.6million of expenses associated with exploring strategic alternatives.  Corporate expenses in 2005 consisted of $6.0million of general and administrative expenses and $16.4 million of managementincentive compensation expense related to the Norcross Transaction.  The increase in corporate general andadministrative expenses of $0.5 million was primarily due to higher payroll andadministrative expenses including costs associated with public reporting andSarbanes-Oxley Act related compliance requirements.

 

Included in income from operations in 2005 and 2004were depreciation and amortization expenses of $18.9 million and $12.4 million,respectively. Of these amounts, $12.8 million, $3.0 million, and $3.1 millionwere attributable to the general safety and preparedness, fire service, andelectrical safety segments, respectively, in 2005 and $9.9 million, $0.4million, $1.5 million and $0.6 million were attributable to these segments andcorporate in 2004.

 

*Interestexpense*. Interestexpense increased by $6.2 million, or 17.4%, from $36.0 million in 2004 to$42.2 in 2005 primarily due to the net impact of an increase in interestexpense associated with the senior pay in kind notes and higher outstanding debtbalances related to the Fibre-Metal Transaction and a decrease in preferredunit dividends included in interest expense associated with the redemption of$60.0 million of mandatorily redeemable preferred units of NSP Holdings.Included in interest expense were non-cash interest charges associated with thesenior pay in kind notes and preferred unit dividends of $13.5 million for2004 and $18.0 million for 2005.

 

*Sellertransaction expenses.* NSP Holdings incurred $4.6 million intransaction expenses (primarily related to professional services) in 2005. Theexpenses were funded by the Predecessor from proceeds realized upon theconsummation of the Norcross Transaction.

 

*Other,net*. Other,net decreased by $0.8 from $1.5 million in 2004 to $0.7 million in 2005 dueprimarily to a $0.9 million loss recorded on the sale of property, plant andequipment in 2004.

 

*Incometax expense*. Incometax expense decreased by $0.6 million, from $3.2 million in 2004 to $2.6 millionin 2005, as higher income tax expense levels at foreign operations were offsetby the ability of the Company to recognize benefit on certain net operatinglosses in the U.S.

 

*Netincome*. Netincome (loss) decreased by $29.8 million, from $10.6 million in 2004 to $(19.2)million in 2005. This was the result of the reasons discussed above.

 

**Year ended December 31, 2004 as Compared to YearEnded December 31, 2003**

 

*Netsales*. Netsales increased by $67.7 million, or 18.3%, from $370.8 million in 2003 to$438.5 million in 2004. In our general safety and preparedness segment, netsales increased by $51.3 million, or 20.0%, from $257.3 million in 2003 to$308.6 million in 2004. This increase was primarily due to: higher overall netsales in the U.S. of $15.5 million, reflecting higher footwear shipments of$5.7 million, increased government contract shipments of $5.7 million andstrong overall market demand in addition to an increase in activity of productssold through the domestic preparedness channel; favorable exchange rates, whichhad an impact of $11.4 million; the impact of the acquisition of KCL in July 2003,which contributed incremental net sales of $19.0 million, and organic growth inour European and African operations of $4.9 million. In our fire servicesegment, net sales increased by $8.6 million, or 12.2%, from $70.3 million in2003 to $78.9 million in 2004 reflecting strong domestic market demand andshipments to Iraq under a contract awarded in 2004. In our electrical safetysegment, net sales increased by $7.8 million, or 18.1%, from $43.2 million in2003 to $51.0 million in 2004 primarily driven by strong overall market demand,new product introductions, and shipments related to hurricane activity in thesoutheastern U.S.

 

*Grossprofit*. Grossprofit increased by $26.2 million, or 20.1%, from $130.4 million in 2003 to$156.6 million in 2004, primarily due to the $67.7 million, or 18.3%, increasein net sales. Our gross profit margin of 35.7% in 2004 was favorable to the35.2% gross profit margin in 2003, primarily due to improvements in our generalsafety and preparedness and fire service segments.  In our general safety and preparednesssegment, gross profit increased by $20.1 million, or 22.3%, from $90.5 millionin 2003 to $110.6 million in 2004. This increase was primarily due to: theimpact of the acquisition of KCL, which contributed $7.4 million of incrementalgross profit; favorable exchange rates which had an impact of $3.9 million;higher gross profit in the U.S. of $6.8 million, reflecting the $15.5 millionincrease in net sales and improved manufacturing efficiencies; and increases inEurope and Africa in part due to the organic net sales increases. Included inthe general safety and preparedness segment gross profit were a $4.1 millionand $1.2 million increase to the reserve for excess 

 

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and obsolete inventory and a $0.2 million decrease and a $0.8 millionincrease to the LIFO provisions in 2004 and 2003, respectively. In our fireservice segment, gross profit increased by $3.1 million, or 13.2%, from $23.0million in 2003 to $26.1 million in 2004, primarily due to the $8.6 million, or12.2%, increase in net sales. In our electrical safety segment, gross profitincreased by $3.0 million, or 17.7%, from $16.8 million in 2003 to $19.8million in 2004, primarily due to the $7.8 million, or 18.1%, increase in netsales, which was partially offset by unfavorable product mix and highermanufacturing expenses.

 

*Operatingexpenses*. Operatingexpenses increased by $15.1 million, or 16.8%, from $90.3 million in 2003 to$105.4 million in 2004. In our general safety and preparedness segment,operating expenses increased by $11.4 million, or 16.6%, from $68.1 million in2003 to $79.5 million in 2004, as lower amortization of intangibles of $2.1million was more than offset by higher other operating expenses of $13.4million due to: incremental KCL operating expenses of $4.8 million; higherexchange rates, which had an impact of $3.0 million; higher payroll and otheradministrative costs; and increased variable distribution and selling expensesassociated with the $51.3 million, or 20.0%, increase in net sales. In 2004, werecorded a $1.25 million liability and charge to operating expenses toestablish a reserve for respiratory claims. This reserve represents areasonable estimate of our probable and estimable liabilities for productclaims alleging injury resulting from exposure to silica dust and other dustparticles, including asbestos, as determined by us in consultation with anindependent consultant. In addition, we recorded a $1.3 million credit tooperating expenses reflecting a reduction of our product liability reserverelated to our fall protection products sold in Canada. This adjustmentrepresents our current expectations of the liability based on informationavailable. In our fire service segment, operating expenses increased $1.3million, or 13.5%, from $9.8 million in 2003 to $11.1 million in 2004,primarily due to additional payroll and variable selling and distributionexpenses associated with the $8.6 million, or 12.2%, increase in net sales. Inour electrical safety segment, operating expenses increased by $0.9 million, or11.8%, from $7.8 million in 2003 to $8.7 million in 2004, primarily due tohigher selling and distribution expenses associated with the $7.8 million, or18.1%, increase in net sales. Our corporate expenses increased $1.5 million, or34.1%, primarily due to $0.6 million of expenses associated with exploringstrategic alternatives and higher payroll and administrative expenses includingcosts associated with public reporting and Sarbanes-Oxley Act relatedcompliance requirements.

 

*Incomefrom operations*.Income from operations increased by $11.1 million, or 27.6%, from $40.0million in 2003 to $51.1 million in 2004. As a percentage of net sales, incomefrom operations increased from 10.8% in 2003 to 11.7% in 2004. In our generalsafety and preparedness segment, income from operations increased by $8.8million, or 39.5%, from $22.3 million in 2003 to $31.1 million in 2004,primarily due to higher net sales of $51.3 million, or 20.0%. In our fireservice segment, income from operations increased by $1.8 million, or 13.0%,from $13.2 million in 2003 to $15.0 million in 2004, primarily due to the $8.6million, or 12.2%, increase in net sales. In our electrical safety segment,income from operations increased by $2.0 million, or 22.8%, from $9.1 millionin 2003 to $11.1 million in 2004, primarily due to higher net sales of $7.8million, or 18.1%. Our corporate expenses increased $1.5 million, or 34.1%,primarily due to $0.6 million of expenses associated with exploring strategicalternatives and higher payroll and administrative expenses including costsassociated with public reporting and Sarbanes-Oxley Act related compliancerequirements.

 

Included in income from operations in 2004 and 2003were depreciation and amortization expenses of $12.4 million and $12.7 million,respectively. Of these amounts, $9.9 million, $0.4 million, $1.5 million and$0.6 million were attributable to the general safety and preparedness, fireservice, electrical safety segments and corporate, respectively, in 2004 and$10.6 million, $0.3 million, $1.2 million and $0.6 million were attributable tothese segments and corporate in 2003.

 

*Interestexpense.*Interest expense increased by $2.5million, or 7.5%, from $33.5 million in 2003 to $36.0 million in 2004. Includedin interest expense in 2003 is $10.2 million attributable to the$5.2 million write-off of deferred financing fees, the $2.1 millionwrite-off of original issue discount, and the $2.9 million prepaymentpenalty associated with the existing senior credit facility and seniorsubordinated debt financings. During 2004, we implemented SFAS No. 150,which required us to classify $13.5 million of preferred unit dividends asinterest expense in 2004. Excluding the charges and prepayment penalty in 2003and the preferred unit dividends in 2004, interest expense decreased by $0.7million as lower weighted average interest rates were partially offset byhigher debt levels associated with our senior subordinated notes financing.

 

*Other,net.*Other, net increased by $2.5 millionprimarily due to the $1.3 million net effect of a $0.4 million gain in2003 and $0.9 million loss in 2004 recorded on the sale of property, plant andequipment and an increase in unrealized foreign exchange losses.

 

*Incometax expense.* Income tax expense increased by $1.4million, from $1.8 million in 2003 to $3.2 million in 2004, primarily dueto higher foreign income tax expense, including incremental KCL income taxexpense of $0.6 million.

 

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*Netincome.* Net income increased by $4.7 million, or79.7%, from $5.9 million in 2003 to $10.6 million in 2004. This was theresult of the reasons discussed above.

 

**Liquidity and Capital Resources**

** **

We have historically used internal cash flow fromoperations, commercial borrowings on our lines of credit, seller notes, investmentsfrom our equityholders and capital markets transactions to fund our operations,acquisitions, capital expenditures and working capital requirements.

 

In 2005 and 2004, cash provided by operatingactivities was $46.3 million and $29.9 million, respectively. The $16.4 millionimprovement was primarily attributable to the $7.2 million increase inoperating income (after adjusting for expenses related to purchase accounting,management incentive compensation, and strategic alternatives expense) and favorableworking capital activity.

 

In 2004 and 2003, cash provided by operatingactivities was $29.9 million and $21.7 million, respectively. The $8.2 millionincrease was primarily attributable to the $11.1 million increase in incomefrom operations, which was offset by an increase in working capital in part dueto higher net sales of $67.7 million.

 

Historically, our principal uses of cash have beencapital expenditures, acquisitions and working capital. For the Predecessorperiod from January 1, 2005 through July 19, 2005, we made royaltypayments to the sellers of Muck Boot and Arbin totaling $0.4 million. Successorperiod investing activities for the period from July 20, 2005 through December 31,2005 include: (1) $204.5 million of cash purchase price related to theNorcross Transaction; (2) $68.7 million of cash purchase price related tothe Fibre-Metal Transaction; and (3) $0.5 million for royalty payments tothe sellers of Muck Boot and Arbin.

 

In 2004, we made royalty payments to the sellers ofMuck Boot and Arbin totaling $0.7 million and received proceeds from the saleof property, plant and equipment of $0.7 million.

 

During 2003, we acquired KCL for $18.0 million, maderoyalty payments to the sellers of Muck Boot and Arbin totaling $0.7 million andreceived proceeds from the sale of property, plant and equipment of $0.6million.

 

Our capital expenditures were $9.3 million in 2005,$6.4 million in 2004 and $7.4 million in 2003.

 

As of December 31, 2005, we had working capitalof $131.8 million and cash of $20.8 million. We maintain inventory levelssufficient to satisfy customer orders on demand, with generally a three monthsupply on hand. Bunker gear is an exception and is generally made to order. Ouraccounts receivable terms are generally 30 days, net.

 

For the predecessor period from January 1, 2005through July 19, 2005, net cash provided by financing activities was $20.6million, representing payments for deferred financing fees of $3.2 million;proceeds from the issuance of 113⁄4% senior pay in kind notes of $100.0 million(the “Existing Holdings Notes”); payments on long-term obligations of $13.6million, including an excess cash flow sweep payment under the terms of ourformer senior credit facility of $12.2 million; payment in respect of preferredunits of $60.0 million; and distributions in respect of the common units ofcertain members of management of $2.5 million. For the successor period from July 20,2005 through December 31, 2005, net cash provided by financing activitieswas $264.5 million, including $153.0 million of borrowings under our NewCredit Facility (as defined below) used to fund the Transactions, $23.6 millionof proceeds from the issuance of senior pay in kind notes, and $109.7 millionof capital contributions. Additionally, we paid $21.1 million in deferredfinancing costs consisting of expenses associated with the New Credit Facility(including incremental borrowings for the Fibre-Metal Transaction), theNorcross senior subordinated notes, and the senior pay in kind notes which arefurther discussed below.

 

In 2004, net cash used in financing activities was$8.6 million, representing payments for deferred financing costs of $0.9million, payments on long-term debt obligations of $4.8 million, and taxdistributions to members of $2.9 million.

 

In2003, net cash provided by financing activities was $13.8 million, representingpayments of deferred financing fees of $13.7 million; retirement of theprevious senior credit facility, junior subordinated notes and previous seniorsubordinated notes and other debt payments of $252.0 million; combined cashfunded for the purchase of warrants and preferred units and tax distributionsto members of $7.3 million; offset by borrowings under our former seniorcredit facility, junior subordinated notes, the 97¤8% seniorsubordinated notes and other borrowings of $286.5 million.

 

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On August 13, 2003, Norcross issued $152.5million of 97¤8% seniorsubordinated notes and received gross proceeds of $151.5 million. The proceedswere primarily used to: (1) repay principal and interest and repurchasewarrants related to our previous senior subordinated notes, (2) repay$30.0 million of principal related to the former term loan, (3) repayprincipal on the junior subordinated notes used to finance the KCL acquisition,(4) purchase preferred units of NSP Holdings from certain members ofmanagement and (5) pay fees and expenses.

 

OnJanuary 7, 2005, NSP Holdings and NSP Capital issued the Existing HoldingsNotes. The proceeds were used to: (i) make a payment in respect ofpreferred units of $60.0 million, $58.0 million of which were payments inrespect of accrued preferred yield and $2.0 million of which was the return ofa portion of the original capital contribution made by holders of NSP Holdings’preferred units, (ii) make distributions in respect of the common units ofcertain members of management of $2.5 million, and (iii) pay fees andexpenses. The remainder of the net proceeds were used for general corporatepurposes, including potential acquisitions and/or distributions to NSP Holdings’unit holders.

 

We acquired KCL on July 29, 2003 for $20.1million, including the assumption of $0.2 million of KCL’s net indebtedness andacquisition costs of $1.1 million. We financed this acquisition with cash onhand of $9.8 million, borrowings under the former revolving credit facility of$5.0 million and the issuance of $5.1 million in junior subordinated notes,which notes were repaid with the proceeds of the 97¤8%senior subordinated notes offering.

 

On July 19, 2005, in conjunction with theNorcross Transaction, Norcross entered into a new Senior Credit Facility (the “NewCredit Facility”) which provides for aggregate borrowings of $138.0 million,consisting of (a) a term loan in the amount of $88.0 million, payable intwenty-eight consecutive quarterly installments which commenced on September 30,2005 and (b) a revolving credit facility in an aggregate principal amountof $50.0 million.  The New CreditFacility is comprised of a U.S. revolving facility and a Canadiansubfacility.  The amount of the totalU.S. revolving facility is an amount equal to $50.0 million less the amount atsuch time outstanding under the Canadian subfacility.  The amount of the total Canadian subfacilityis an amount denominated in Canadian dollars having a U.S. dollar equivalent of$25.0 million less the amount at such time outstanding under the U.S. revolvingfacility.  At any time upon the requestof us or the U.S. Subsidiary Borrowers (as defined in the New Credit Facility),one or more new term loan facilities may be added in any aggregate amount of upto $100.0 million (and not less than $10.0 million for any such additional termloan), subject to certain conditions, the proceeds of which shall be used tofinance permitted acquisitions, pay fees and related expenses thereto and torefinance indebtedness of the entity or associated with the assets to be soacquired.  The New Credit Facility is subjectto certain mandatory prepayments upon the occurrence of certain events, subjectto certain exceptions set forth in the credit agreement.  The proceeds of the New Credit Facility wereused primarily to refinance the then existing senior credit facility.

 

On November 1, 2005, Norcross entered into theIncremental Facility Amendment to the New Credit Facility (the “Amendment”) inorder to complete the acquisition of all of the issued and outstanding capitalstock of Fibre-Metal.  Under the terms ofthe Amendment, Norcross, the U.S. borrowers and the lenders agreed to a totalincremental term commitment of $65.0 million. Additionally, the Amendment required, among other things, that theproceeds of the incremental term loans be used for permitted acquisitions andthe consolidated senior leverage ratio, after giving effect to the use of theproceeds, not exceed 3.25 to 1.00. Norcross financed the Fibre-Metalacquisition with these additional term borrowings and cash on the balancesheet.

 

As of December 31, 2005, borrowings under the NewCredit Facility bore interest at a weighted average rate of 6.1%. Prior to June 30,2010, we may borrow, repay and re-borrow under the revolving facilities withoutpayment of penalty or premium. The term loan is payable in quarterlyinstallments totaling $1.6 million per annum, with the remainder due on September 30,2012.  As of December 31, 2005,there was approximately $152.4 million of outstanding indebtedness under theNew Credit Facility and approximately $47.4 million of available borrowingsunder the revolving credit facility.

 

Borrowings under the U.S. revolving facility and termloan portion of the New Credit Facility bear interest at a rate per annum equalto our choice of (a) an alternate base rate (which is equal to the higherof (i) the rate of interest announced by Credit Suisse as its prime ratein effect and (ii) the federal funds rate plus 0.50%) or (b) theEurodollar rate, plus an applicable margin. Borrowings under the Canadian subfacility of the New Credit Facility bearinterest at a rate per annum equal to the Canadian prime rate (which is thehigher of (i) the rate of interest announced by Credit Suisse, TorontoBranch, as its reference rate then in effect for determining interest rates onCanadian dollar denominated commercial loans in Canada and (ii) the CDORrate plus 0.50% per annum), plus an applicable margin, or with respect tobanker’s acceptances or their equivalents, the discount rate (as defined in thecredit agreement) plus an applicable margin.

 

Initially, the applicable margin with respect to therevolving credit facility is (a) 1.25% in the case of alternate base rateloans and Canadian dollar prime loans and (b) 2.25% in the case ofEurodollar rate loans and bankers’ acceptance rate 

 

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loans.  With respect to the termloan, the applicable margin will be (a) 1.00% in the case of alternatebase rate loans and (b) 2.00% in the case of Eurodollar rate loans.  After our fiscal quarter ending December 31,2005, the margins applicable to the revolving credit facility and the U.S.swing line loans will adjust on a sliding scale based on the total leverageratio of Norcross and its subsidiaries. In addition, we will be required to pay to the lenders under therevolving credit facility an initial commitment fee in respect of the unusedcommitments thereunder at a per annum rate of 0.50%.  After our fiscal quarter ending December 31,2005, the commitment fee rate will adjust on a sliding scale based on the totalleverage ratio of Norcross and its subsidiaries.

 

Norcross’ domestic subsidiaries (including any futureor indirect subsidiaries that may be created or acquired by us) and SafetyProducts guarantee the U.S. subsidiary borrowers’ and Norcross’ obligationsunder the New Credit Facility. The guarantees in respect of the New CreditFacility are secured by a perfected first priority security interest in all ofour equity securities, the equity securities of our direct and indirectdomestic subsidiaries, substantially all of the guarantors’ tangible andintangible assets and 65% of the equity securities of, or equity interest in,certain of our foreign first-tier subsidiaries, subject to certainexceptions.  All of the Canadian Borrower’sobligations under the New Credit Facility are be secured by all of the assetsof our present and future Canadian subsidiaries, and are guaranteed by all ofour present and future Canadian subsidiaries.

 

The New Credit Facility contains certain customarycovenants, including among other things:

 

•      affirmative covenants requiring us toprovide certain financial statements to the Administrative Agent fordistribution to its lenders and to pay material obligations when due, maintainits legal existence, keep its material properties in good working order andcondition, provide certain notices to the Administrative Agent for distributionto its lenders, comply in all material respects with environmental laws andmaintain at all times ratings for the New Credit Facility;

 

•      restrictive covenants includinglimitations on other indebtedness, liens, fundamental changes, asset sales,restricted payments, capital expenditures, investments, prepayments,transactions with affiliates, sales and leasebacks, negative pledges, lines ofbusiness; and

 

•      financial covenants requiring us tomaintain a maximum total leverage ratio of total debt over EBITDA for theperiod, a minimum fixed charge coverage ratio of EBITDA less capitalexpenditures over fixed charges for the period and a minimum interest coverageratio of EBITDA over interest expense for the period.

 

The New Credit Facility contains certain customaryrepresentations and warranties and events of default, including failure to payinterest, principal or fees, any material inaccuracy of any representation andwarranty, failure to comply with covenants, material cross-defaults, bankruptcyand insolvency events, ERISA events, change of control, failure to maintainfirst priority perfected security interest, material judgments, invalidity ofguarantee and loss of subordination.  Certainof the events of defaults are subject to exceptions, materiality qualifiers andbaskets.

 

Inconnection with the closing of the Norcross Transaction, we entered into asecond supplemental indenture dated as of July 19, 2005 (the “SecondSupplemental Indenture”) among NSP Holdings, NSP Capital, us and WilmingtonTrust Company, as trustee (the “Trustee”) under the indenture dated as of January 7,2005 (the “Indenture”) by and among NSP Holdings, NSP Capital and the Trusteeproviding for the issuance of the notes and the Existing Holdings Notes.Pursuant to the terms of the Second Supplemental Indenture, we assumed all ofthe rights, powers, commitments, obligations and liabilities of NSP Holdingsunder the Indenture and the Existing Holdings Notes.

 

OnJuly 19, 2005, we sold $25.0 million in principal amount of 113¤4% seniorpay in kind notes due 2012 (the “New Notes”). The New Notes were sold pursuantto a purchase agreement, dated June 28, 2005 (the “Purchase Agreement”),by and between us and Credit Suisse First Boston, LLC (the “Initial Purchaser”).The New Notes were issued pursuant to the Indenture. Pursuant to the term ofthe Purchase Agreement, the New Notes were sold to the Initial Purchaser andwere resold to qualified institutional buyers in compliance with the exemptionfrom registration.

 

In connection with the closing of the NorcrossTransaction, Norcross entered into a supplemental indenture dated as of July 19,2005 (the “Supplemental Indenture”) by and among Norcross, Norcross CapitalCorp. (“Capital”), the guarantors listed on the signature pages theretoand Wilmington Trust Company, as trustee (the “Trustee”) under the indenturedated as of August 13, 2003 (the “Indenture”) providing for the issuanceby Norcross and Capital of $152.5 million aggregate principal amount of 9 7/8%senior subordinated notes due 2011. Pursuant to the terms of the Supplemental Indenture, the definition ofPermitted Holders was amended and the parties confirmed that the RequisiteConsents (as defined in the 

 

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Supplemental Indenture) had been delivered in order to waive Norcross’obligations under the Change in Control covenant of the Indenture in connectionwith the Norcross Transaction.

 

We believe that our internal cash flows and borrowingsunder the revolving portions of the New Credit Facility will provide us withsufficient liquidity and capital resources to meet our current and futurefinancial obligations for the foreseeable future, including funding our operations,debt service and capital expenditures. Our future operating performance will besubject to future economic conditions and to financial, business and otherfactors, many of which are beyond our control. If our future cash flow fromoperations and other capital resources are insufficient to pay our obligationsas they mature or to fund our liquidity needs, we may be forced to reduce ordelay our business activities and capital expenditures, sell assets, obtainadditional debt or equity capital or restructure or refinance all or a portionof our debt, on or before maturity. We cannot assure you that we would be ableto accomplish any of these alternatives on a timely basis or on satisfactoryterms, if at all. In addition, the terms of our existing and futureindebtedness, including our senior pay in kind notes and the New CreditFacility, may limit our ability to pursue any of these alternatives.

 

**Forward-Looking Statements**

** **

This Management’s Discussion and Analysis of FinancialCondition and Results of Operations contains forward-looking information. Thesestatements reflect management’s expectations, estimates, and assumptions basedon information available at the time of the statement. Forward-lookingstatements include, but are not limited to, statements regarding future events,plans, goals, objectives, and expectations. The words “anticipate,” “believe,” “estimate,”“expect,” “plan,” “intent,” “likely,” “will,” “should,” and similar expressionsare intended to identify forward-looking statements. Forward-looking statementsare not guarantees of future performance and involve risks, uncertainties, andother factors, including those set forth below, which may cause our actualresults, performance, or achievements to be materially different from any futureresults, performance, or achievements expressed or implied by those statements.Important factors that could cause our actual results, performance, orachievements to be materially different from any future results, performance,or achievements expressed or implied by those statements include, but are notlimited to: (i) our high degree of leverage and significant debt serviceobligations; (ii) the impact of current and future laws and governmentalregulations affecting us or our product offerings; (iii) the impact ofgovernmental spending; (iv) our ability to retain existing customers,maintain key supplier status with those customers with which we have achievedsuch status, and obtain new customers; (v) the highly competitive natureof the personal protection equipment industry; (vi) any future changes inmanagement; (vii) acceptance by consumers of new products we develop oracquire; (viii) the importance and costs of product innovation; (ix) unforeseenproblems associated with international sales, including gains and losses fromforeign currency exchange and restrictions on the efficient repatriation ofearnings; (x) the unpredictability of patent protection and other intellectualproperty issues; (xi) cancellation of current orders; (xii) the outcome ofpending product liability claims and the availability of indemnification forthose claims; (xiii) general risks associated with the personal protectionequipment industry; and (xiv) the successful integration of acquired companieson economically acceptable terms. We undertake no obligation to publicly updateor revise any forward-looking statements to reflect changed assumptions, theoccurrence of anticipated or unanticipated events, or changes to future resultsover time.

 

**Contractual Obligations**

 

The following table summarizes our contractualobligations and commitments, as of December 31, 2005 (dollars inthousands):

 
| ** **                       | ** ** | **Payment Due by Period** | ** ** |
|----------------------------------|------------|------------------------------------------|------------|
| **Contractual Obligations** | ** ** | **Total**                                | ** ** | **Less than  1 year** | ** ** | **1-3 years** | ** ** | **3-5 Years** | ** ** | **More than  5 years** | ** ** |
| Long-term debt  obligations      |       | $                                        | 430,138    |   | $ | 1,622 |   | $ | 3,211 |   | $ | 3,184 |   | $ | 422,121 |   |
| Capital lease  obligations       |       | 75                                       |       | 75 |   | — |   | — |   | — |   |
| Interest  payments               |       | 272,981                                  |       | 24,322 |   | 48,344 |   | 47,956 |   | 152,359 |   |
| Operating lease  obligations     |       | 15,999                                   |       | 5,428 |   | 6,974 |   | 3,306 |   | 291 |   |
| Purchase  obligations (1)        |       | 40,133                                   |       | 39,577 |   | 556 |   | — |   | — |   |
| Other long-term  liabilities (2) |       | 7,685                                    |       | 5,371 |   | 2,314 |   | — |   | — |   |
| Total                            |       | $                                        | 767,011    |   | $ | 76,395 |   | $ | 61,399 |   | $ | 54,446 |   | $ | 574,771 |   |

 

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(1)   Purchaseobligations exclude our accounts payable of $21.2 million and include openpurchase orders of $38.4 million and all other contractual obligations of $1.7million pursuant to which we are obligated to purchase good or services.

 

(2)   Representsobligations under pension and other post-retirement plans.

 

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**Off-balance Sheet Arrangements**

 

As of December 31, 2005, we did not have anyoff-balance sheet arrangements as defined in Item 303(a)(4)(ii) ofRegulation S-K.

 

**Effect of Inflation**

** **

Inflation has generally not been a material factoraffecting our business. Our general operating expenses, such as wages andsalaries, employee benefits and materials and facilities costs, are subject tonormal inflationary pressures.

 

**Recent Accounting Pronouncements**

** **

On December 16, 2004, the Financial AccountingStandards Board (“FASB”) issued FASB Statement No. 123 (revised 2004), “Share-BasedPayment” (“Statement 123(R)”). Statement 123(R) replaces FASB Statement No. 123,“Accounting for Stock-Based Compensation” (“Statement 123”), supersedes APBOpinion No. 25, “Accounting for Stock Issued to Employees” and amends FASBStatement No. 95, “Statement of Cash Flows.” Generally, the approach inStatement 123(R) is similar to the approach described in Statement 123.However, Statement 123(R) requires all share-based payments to employees,including grants of employee stock options, to be recognized in the financialstatements based on their fair values (i.e., pro forma disclosure is no longeran alternative to financial statement recognition). Statement 123(R) iseffective January 1, 2006. As permitted by Statement 123, the Companycurrently accounts for share-based payments to employees using Opinion 25’sintrinsic value method and, as such, generally recognizes no compensation costfor employee stock options. Accordingly, the adoption of Statement 123(R)’sfair value method could have a significant impact on our result of operations,although it will have no impact on our overall financial position. The impactof the adoption of Statement 123(R) cannot be predicted at this time because itwill depend on levels of share-based payments granted in the future. However,had we adopted Statement 123(R) in prior periods, the adoption of that standardwould not have had an impact on our consolidated financial statements.

 
| **ITEM 7A.** | **QUANTITATIVE AND  QUALITATIVE DISCLOSURES ABOUT MARKET RISK** |
|--------------|-----------------------------------------------------------------|

 

**Market Risk**

** **

We are exposed to various market risks, includingchanges in foreign currency exchange rates and interest rates. Market risk isthe potential loss arising from adverse changes in market rates and prices,such as foreign currency exchange and interest rates. Our policy is to notenter into derivatives or other financial instruments for trading orspeculative purposes. We may enter into financial instruments to manage andreduce the impact of changes in interest rates.

 

Interest rate swaps are entered into as a hedge ofunderlying debt instruments to change the characteristics of the interest ratefrom variable to fixed without actually changing the debt instrument.Therefore, these interest rate swap agreements convert outstanding floatingrate debt to fixed rate debt for a period of time. For fixed rate debt,interest rate changes affect the fair market value, but do not impact earningsor cash flows. Conversely for floating rate debt, interest rate changesgenerally do not affect the fair market value but do impact future earnings andcash flows, assuming other factors are held constant.

 

At December 31, 2005, we had total debt(excluding original issue (discount) premium) and obligations under capitalleases of $443.6 million. This debt is comprised of fixed rate debt of $291.2million and floating rate debt of $152.4 million. The pre-tax earnings and cashflow impact in 2005 resulting from a one percentage point increase in interestrates on our variable rate debt would be approximately $1.5 million, holdingother variables constant.

 

A portion of our net sales was derived frommanufacturing operations in Canada, Holland, Germany, Mexico, the Caribbean andSouth Africa. The results of operations and financial position of our foreignoperations are principally measured in their respective currency and translatedinto U.S. dollars. The effects of foreign currency fluctuations in thesecountries are somewhat mitigated by the fact that expenses are generallyincurred in the same currency in which revenues are generated. The reportedincome of these subsidiaries will be higher or lower depending on a weakeningor strengthening of the U.S. dollar against the respective foreign currency.

 

A portion of our assets are based in our foreignoperations and are translated into U.S. dollars at foreign currency exchangerates in effect as of the end of each period, with the effect of suchtranslation reflected as a separate component of members’ deficit/shareholders’equity. Accordingly, our consolidated members’ deficit/shareholders’ equity willfluctuate depending upon the weakening or strengthening of the U.S. dollaragainst the respective foreign currency.

 

32

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Our strategy for management of currency risk reliesprimarily upon conducting our operations in a country’s respective currency andmay, from time to time, also involve hedging programs intended to reduce ourexposure to currency fluctuations. Management believes the effect of a onepercentage point increase in the strength of the Canadian dollar and the Eurorelative to the U.S. dollar from December 31, 2004 to December 31,2005 would have resulted in a $115,000 and $150,000 increase in our income fromoperations, respectively. During 2005, the Canadian dollar strengthenedapproximately 3.3% relative to the U.S. dollar and the Euro weakenedapproximately 13.2% relative to the U.S. dollar.

 
| **ITEM 8.** | **CONSOLIDATED FINANCIAL  STATEMENTS AND SUPPLEMENTARY DATA** |
|-------------|---------------------------------------------------------------|

 

**Index to Consolidated Financial Statements**

** **

**Safety Products Holdings, Inc.**

** **

**Audited Consolidated Financial Statements for theyears ended December 31, 2003, 2004 and 2005**

 
| Report  of Ernst & Young LLP, Independent Registered Public Accounting Firm   |   |
|----------------------------------------------------------------------------------------|--------|
| Consolidated  Balance Sheets                                                           |   |
| Consolidated  Statements of Operations                                                 |   |
| Consolidated  Statements of Changes in Members’ Deficit/Shareholders’ Equity |   |
| Consolidated  Statements of Cash Flows                                                 |   |
| Notes  to Audited Consolidated Financial Statements                                    |   |

 

33

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Report of Independent Registered Public AccountingFirm

 

Shareholders

SafetyProducts Holdings, Inc.

 

Wehave audited the accompanying consolidated balance sheet as of December 31,2005, of Safety Products Holdings, Inc. (a Delaware Corporation), and therelated consolidated statements of operations, changes in shareholders’ equity,and cash flows for the period from July 20, 2005 to December 31, 2005(Successor), and the consolidated balance sheet as of December 31, 2004, ofNSP Holdings L.L.C. (a Delaware Limited Liability Company) and the relatedconsolidated statements of operations, changes in members’ deficit, and cashflows for each of the two years in the period ended December 31, 2004 andfor the period from January 1, 2005 to July 19, 2005 (Predecessor). Our audits also included the financial statement schedules listed in theindex at Item 15(a).  These financial statements and schedules are theresponsibility of the Company’s management. Our responsibility is to express anopinion on these financial statements and schedules based on our audits.

 

We conducted our audits inaccordance with the standards of the Public Company Accounting Oversight Board(United States).  Those standards requirethat we plan and perform the audit to obtain reasonable assurance about whetherthe financial statements are free of material misstatement. We were not engagedto perform an audit of the Company’s internal control over financialreporting.  Our audits includedconsideration of internal control over financial reporting as a basis fordesigning audit procedures that are appropriate in the circumstances, but notfor the purpose of expressing an opinion on the effectiveness of the Company’sinternal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting theamounts and disclosures in the financial statements, assessing the accountingprinciples used and significant estimates made by management, and evaluatingthe overall financial statement presentation. We believe that our auditsprovide a reasonable basis for our opinion.

 

Inour opinion, the financial statements and schedules referred to above presentfairly, in all material respects, the consolidated financial position of SafetyProducts Holdings, Inc. as of December 31, 2005, and the consolidatedresults of its operations and its cash flows for the period from July 20,2005 to December 31, 2005 (Successor), and the consolidated financialposition of NSP Holdings L.L.C. as of December 31, 2004, and theconsolidated results of its operations and its cash flows for each of the twoyears in the period ended December 31, 2004 and for the period from January 1,2005 to July 19, 2005 (Predecessor), in conformity with U.S. generallyaccepted accounting principles.

 

 
| /s/  Ernst & Young LLP |   |
|---------------------------------|--------|
|                            |
| Chicago,  Illinois              |
| February 24,  2006         |

 

34

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**SAFETY PRODUCTS HOLDINGS, INC.**

**(NSP Holdings L.L.C. as predecessor)**

**CONSOLIDATEDBALANCE SHEETS**

**(Amounts in Thousands)**

 
| ** **                                                                                | ** ** | **Predecessor**             | ** ** | **Successor**               | ** ** |
|-------------------------------------------------------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| ** **                                                                                | ** ** | **December 31,  2004** | ** ** | **December 31,  2005** | ** ** |
| **Assets**                                                                                |       |                        |       |                        |       |
| Current assets:                                                                           |       |                        |       |                        |       |
| Cash and cash  equivalents                                                                |       | $                           | 35,731     |                        | $          | 20,819 |   |
| Accounts  receivable, less allowance of $2,063 and $2,317 in 2004 and 2005,  respectively |       | 61,167                      |       | 68,286                      |       |
| Inventories                                                                               |       | 82,532                      |       | 93,462                      |       |
| Deferred income  taxes                                                                    |       | 60                          |       | 3,230                       |       |
| Prepaid expenses  and other current assets                                                |       | 3,183                       |       | 3,206                       |       |
| Total current  assets                                                                     |       | 182,673                     |       | 189,003                     |       |
| Property, plant,  and equipment, net                                                      |       | 51,809                      |       | 67,315                      |       |
| Deferred  financing costs, net                                                            |       | 9,960                       |       | 19,669                      |       |
| Goodwill                                                                                  |       | 132,662                     |       | 135,718                     |       |
| Other intangible  assets, net                                                             |       | 6,256                       |       | 276,842                     |       |
| Other noncurrent  assets                                                                  |       | 5,831                       |       | 5,109                       |       |
| Total assets                                                                              |       | $                           | 389,191    |                        | $          | 693,656 |   |
|                                                                                      |       |                        |       |                        |       |   |   |
| **Liabilities  and members’ deficit / equity**                                       |       |                        |       |                        |       |
| Current  liabilities:                                                                     |       |                        |       |                        |       |
| Accounts payable                                                                          |       | $                           | 17,871     |                        | $          | 21,229 |   |
| Accrued expenses                                                                          |       | 29,024                      |       | 34,137                      |       |
| Current  maturities of long-term obligations                                              |       | 15,252                      |       | 1,846                       |       |
| Total current  liabilities                                                                |       | 62,147                      |       | 57,212                      |       |
| Pension,  post-retirement, and deferred compensation                                      |       | 22,923                      |       | 32,340                      |       |
| Long-term  obligations                                                                    |       | 238,314                     |       | 441,393                     |       |
| Mandatorily  redeemable preferred units                                                   |       | 134,310                     |       | —                      |       |
| Other noncurrent  liabilities                                                             |       | 1,653                       |       | 5,376                       |       |
| Deferred income  taxes                                                                    |       | 4,799                       |       | 50,268                      |       |
| Minority  interest                                                                        |       | 142                         |       | 176                         |       |
|                                                                                      |       | 402,141                     |       | 529,553                     |       |
| Members’ deficit  / shareholders’ equity:                                       |       |                        |       |                        |       |
| Class E  units                                                                       |       | 1                           |       | —                      |       |
| Common units:                                                                             |       |                        |       |                        |       |
| Class A  units                                                                       |       | 38,676                      |       | —                      |       |
| Class C  units                                                                       |       | 188                         |       | —                      |       |
| Class D  units                                                                       |       | 1,248                       |       | —                      |       |
| Common shares                                                                             |       | —                      |       | 110                         |       |
| Contributed  capital                                                                      |       | —                      |       | 109,560                     |       |
| Accumulated  deficit                                                                      |       | (118,739                    | )          | (4,766                      | )          |
| Accumulated  other comprehensive income                                                   |       | 3,529                       |       | 1,987                       |       |
| Total members’  deficit / shareholders’ equity                                  |       | (75,097                     | )          | 106,891                     |       |
| Total  liabilities and members’ deficit / shareholders’ equity                  |       | $                           | 389,191    |                        | $          | 693,656 |   |

 

See notes to consolidated financial statements.

 

35

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**SAFETY PRODUCTS HOLDINGS, INC.**

**(NSP Holdings L.L.C. as predecessor)**

**CONSOLIDATEDSTATEMENTS OF OPERATIONS**

**(Amounts in Thousands)**

 
| ** **                                               | ** ** | ** **                                 | ** ** | **Successor**                                                   | ** ** |
|----------------------------------------------------------|------------|--------------------------------------------|------------|-----------------------------------------------------------------|------------|
| ** **                                               | ** ** | **Predecessor**                            | ** ** | **July 20, 2005**                                     | ** ** |
| ** **                                               | ** ** | **Year Ended December 31,** | ** ** | **January 1,  2005 through  July 19, 2005** | ** ** | **through  December 31,  2005** | ** ** |
| ** **                                               | ** ** | **2003**                                   | ** ** | **2004**                                                        | ** ** | ** ** | ** ** |
| ** **                                               | ** ** | ** **                                 | ** ** | ** **                                                      | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net sales                                                |       | $                                          | 370,802    |                                                            | $          | 438,499 |   | $ | 271,694 |   | $ | 209,396 |   |
| Cost of goods  sold                                      |       | 240,408                                    |       | 281,924                                                         |       | 171,645 |   | 139,978 |   |
| Gross profit                                             |       | 130,394                                    |       | 156,575                                                         |       | 100,049 |   | 69,418 |   |
| Operating  expenses:                                     |       |                                       |       |                                                            |       |   |   |   |   |
| Selling                                                  |       | 35,155                                     |       | 40,120                                                          |       | 25,512 |   | 19,154 |   |
| Distribution                                             |       | 18,550                                     |       | 22,452                                                          |       | 14,634 |   | 11,385 |   |
| General and  administrative                              |       | 34,011                                     |       | 41,721                                                          |       | 24,956 |   | 19,946 |   |
| Amortization of  intangibles                             |       | 2,583                                      |       | 517                                                             |       | 329 |   | 7,216 |   |
| Strategic  alternatives                                  |       | —                                     |       | 616                                                             |       | — |   | — |   |
| Management  incentive compensation                       |       | —                                     |       | —                                                          |       | 16,388 |   | — |   |
| Total operating  expenses                                |       | 90,299                                     |       | 105,426                                                         |       | 81,819 |   | 57,701 |   |
| Income from  operations                                  |       | 40,095                                     |       | 51,149                                                          |       | 18,230 |   | 11,717 |   |
| Other expense  (income):                                 |       |                                       |       |                                                            |       |   |   |   |   |
| Interest expense                                         |       | 33,454                                     |       | 35,962                                                          |       | 24,584 |   | 17,645 |   |
| Interest income                                          |       | (117                                       | )          | (213                                                            | )          | (914 | ) | (156 | ) |
| Seller  transaction expenses                             |       | —                                     |       | —                                                          |       | 4,646 |   | — |   |
| Other, net                                               |       | (1,002                                     | )          | 1,539                                                           |       | 745 |   | (9 | ) |
| Income (loss)  before income taxes and minority interest |       | 7,760                                      |       | 13,861                                                          |       | (10,831 | ) | (5,763 | ) |
| Income tax  expense (benefit)                            |       | 1,843                                      |       | 3,195                                                           |       | 3,619 |   | (995 | ) |
| Minority  interest                                       |       | (3                                         | )          | 25                                                              |       | 13 |   | (2 | ) |
| Net income  (loss)                                       |       | 5,920                                      |       | $                                                               | 10,641     |   | $ | (14,463 | ) | $ | (4,766 | ) |
| Preferred unit  dividends                                |       | 12,973                                     |       |                                                            |       |   |   |   |   |
| Net loss attributable  to common unitholders             |       | $                                          | (7,053     | )                                                               |       |   |   |   |   |   |

 

See notes to consolidated financial statements.

 

36

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**SAFETY PRODUCTS HOLDINGS, INC.**

**(NSP Holdings L.L.C. as predecessor)**

**CONSOLIDATEDSTATEMENTS OF CHANGES IN MEMBERS’ DEFICIT/ SHAREHOLDERS’ EQUITY**

**(Amounts in Thousands, Except Units)**

 
| ** **                                | ** ** | **Class E** | ** ** | **Class A** | ** ** | **Class C** | ** ** | **Class D** | ** ** | **Accumulated** | ** ** | **Accumulated  Other  Comprehensive  (Loss)** | ** ** | ** ** | ** ** |
|-------------------------------------------|------------|------------------|------------|------------------|------------|------------------|------------|------------------|------------|-----------------|------------|-----------------------------------------------|------------|------------|------------|
| ** **                                | ** ** | **Units**        | ** ** | **Amount**       | ** ** | **Units**        | ** ** | **Amount**       | ** ** | **Units**       | ** ** | **Amount**                                    | ** ** | **Units**  | ** ** | **Amount** | ** ** | **Deficit** | ** ** | **Income** | ** ** | **Total** | ** ** |
| **Predecessor  Company**                  | ** ** | ** **       | ** ** | ** **       | ** ** | ** **       | ** ** | ** **       | ** ** | ** **      | ** ** | ** **                                    | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Balance at  January 1, 2003          |       | —           |       | —           |       | 7,265,804        |       | 38,642           |       | 184,523         |       | 94                                            |       | 212,018    |       | 1,248 |   | (118,891 | ) | (14,831 | ) | (93,738 | ) |
| Foreign currency  translation adjustments |       | —           |       | —           |       | —           |       | —           |       | —          |       | —                                        |       | —     |       | — |   | — |   | 12,123 |   | 12,123 |   |
| Minimum pension  liability                |       | —           |       | —           |       | —           |       | —           |       | —          |       | —                                        |       | —     |       | — |   | — |   | (208 | ) | (208 | ) |
| Net income                                |       | —           |       | —           |       | —           |       | —           |       | —          |       | —                                        |       | —     |       | — |   | 5,920 |   | — |   | 5,920 |   |
| Comprehensive  income                     |       | 17,835           |       |             |       |             |       |             |       |            |       |                                          |       |       |       |   |   |   |   |   |   |   |   |
| Management loans                          |       | —           |       | —           |       | —           |       | 34               |       | —          |       | 94                                            |       | —     |       | — |   | — |   | — |   | 128 |   |
| Dividends on  preferred units             |       | —           |       | —           |       | —           |       | —           |       | —          |       | —                                        |       | —     |       | — |   | (12,973 | ) | — |   | (12,973 | ) |
| Distributions to  members                 |       | —           |       | —           |       | —           |       | —           |       | —          |       | —                                        |       | —     |       | — |   | (493 | ) | — |   | (493 | ) |
| Balance at  December 31, 2003        |       | —           |       | —           |       | 7,265,804        |       | 38,676           |       | 184,523         |       | 188                                           |       | 212,018    |       | 1,248 |   | (126,437 | ) | (2,916 | ) | (89,241 | ) |
| Foreign currency  translation adjustments |       | —           |       | —           |       | —           |       | —           |       | —          |       | —                                        |       | —     |       | — |   | — |   | 7,492 |   | 7,492 |   |
| Minimum pension  liability                |       | —           |       | —           |       | —           |       | —           |       | —          |       | —                                        |       | —     |       | — |   | — |   | (1,047 | ) | (1,047 | ) |
| Net income                                |       | —           |       | —           |       | —           |       | —           |       | —          |       | —                                        |       | —     |       | — |   | 10,641 |   | — |   | 10,641 |   |
| Comprehensive  income                     |       | 17,086           |       |             |       |             |       |             |       |            |       |                                          |       |       |       |   |   |   |   |   |   |   |   |
| Capital  contributions                    |       | 986              |       | 1                |       | —           |       | —           |       | —          |       | —                                        |       | —     |       | — |   | — |   | — |   | 1 |   |
| Distributions to  members                 |       | —           |       | —           |       | —           |       | —           |       | —          |       | —                                        |       | —     |       | — |   | (2,943 | ) | — |   | (2,943 | ) |
| Balance at  December 31, 2004        |       | 986              |       | 1                |       | 7,265,804        |       | 38,676           |       | 184,523         |       | 188                                           |       | 212,018    |       | 1,248 |   | (118,739 | ) | 3,529 |   | (75,097 | ) |
| Foreign currency  translation adjustments |       | —           |       | —           |       | —           |       | —           |       | —          |       | —                                        |       | —     |       | — |   | — |   | (5,651 | ) | (5,651 | ) |
| Minimum pension  liability                |       | —           |       | —           |       | —           |       | —           |       | —          |       | —                                        |       | —     |       | — |   | — |   | (3,684 | ) | (3,684 | ) |
| Net loss                                  |       | —           |       | —           |       | —           |       | —           |       | —          |       | —                                        |       | —     |       | — |   | (14,463 | ) | — |   | (14,463 | ) |
| Comprehensive  loss                       |       | (23,798          | )          |             |       |             |       |             |       |            |       |                                          |       |       |       |   |   |   |   |   |   |   |   |
| Capital  contributions                    |       | —           |       | —           |       | —           |       | —           |       | —          |       | —                                        |       | —     |       | — |   | — |   | — |   | — |   |
| Distributions to  members                 |       | —           |       | —           |       | —           |       | —           |       | —          |       | —                                        |       | —     |       | — |   | (2,509 | ) | — |   | (2,509 | ) |
| Balance at  July 19, 2005            |       | 986              |       | $                | 1          |             | 7,265,804  |             | $          | 38,676          |       | 184,523                                       |       | $          | 188        |   | 212,018 |   | $ | 1,248 |   | $ | (135,711 | ) | $ | (5,806 | ) | $ | (101,404 | ) |
|                                           |            |                  |            |                  |            |                  |            |                  |            |                 |            |                                               |            |            |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 
| ** **                                | ** ** | **Shares** | ** ** | **Amount** | ** ** | **Contributed  Capital** | ** ** | **Accumulated  Deficit** | ** ** | **Accumulated  Other  Comprehensive  Income** | ** ** | **Total** | ** ** |
|-------------------------------------------|------------|------------|------------|------------|------------|--------------------------|------------|--------------------------|------------|-----------------------------------------------|------------|-----------|------------|
| **Successor  Company**                    |       |       |       |       |       |                     |       |                     |       |                                          |       |      |       |
| Capital  contribution                     |       | 10,967,000 |       | $          | 110        |                     | $          | 109,560                  |       | $                                             | —     |      | $          | — |   | $ | 109,670 |   |
| Foreign currency  translation adjustments |       | —     |       | —     |       | —                   |       | —                   |       | 1,987                                         |       | 1,987     |       |
| Net loss                                  |       | —     |       | —     |       | —                   |       | (4,766                   | )          | —                                        |       | (4,766    | )          |
| Comprehensive  loss                       |       |       |       |       |       |                     |       |                     |       |                                          |       | (2,779    | )          |
| Balance at  December 31, 2005        |       | 10,967,000 |       | $          | 110        |                     | $          | 109,560                  |       | $                                             | (4,766     | )         | $          | 1,987 |   | $ | 106,891 |   |

 

See notes to consolidated financial statements.

 

37

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**SAFETY PRODUCTS HOLDINGS, INC.**

**(NSP Holdings L.L.C. as predecessor)**

**CONSOLIDATEDSTATEMENTS OF CASH FLOWS**

**(Amounts in Thousands)**

 
| ** **                                                                                | ** ** | ** **                                 | ** ** | **Successor**                                                   | ** ** |
|-------------------------------------------------------------------------------------------|------------|--------------------------------------------|------------|-----------------------------------------------------------------|------------|
| ** **                                                                                | ** ** | **Predecessor**                            | ** ** | **July 20, 2005**                                     | ** ** |
| ** **                                                                                | ** ** | **Year Ended December 31,** | ** ** | **January 1, 2005  through July  19, 2005** | ** ** | **through  December 31,  2005** | ** ** |
| ** **                                                                                | ** ** | **2003**                                   | ** ** | **2004**                                                        | ** ** | ** ** | ** ** |
| **Operating  activities**                                                                 |       |                                       |       |                                                            |       |   |   |   |   |
| Net income  (loss)                                                                        |       | $                                          | 5,920      |                                                            | $          | 10,641 |   | $ | (14,463 | ) | $ | (4,766 | ) |
| Adjustments to  reconcile net income (loss) to net cash provided by operating activities: |       |                                       |       |                                                            |       |   |   |   |   |
| Depreciation and  form amortization                                                       |       | 10,166                                     |       | 11,854                                                          |       | 6,177 |   | 5,145 |   |
| Amortization of  intangibles                                                              |       | 2,583                                      |       | 517                                                             |       | 329 |   | 7,216 |   |
| Amortization of  deferred financing costs                                                 |       | 2,191                                      |       | 1,777                                                           |       | 1,311 |   | 1,441 |   |
| Amortization of  original issue discount (premium)                                        |       | 662                                        |       | 92                                                              |       | 58 |   | (76 | ) |
| Write-off of  deferred financing costs                                                    |       | 7,284                                      |       | —                                                          |       | — |   | — |   |
| (Gain) loss on  sale of property, plant and equipment                                     |       | (417                                       | )          | 899                                                             |       | — |   | — |   |
| Deferred income  taxes                                                                    |       | 154                                        |       | 583                                                             |       | (86 | ) | (2,416 | ) |
| Minority  interest                                                                        |       | (3                                         | )          | 25                                                              |       | 13 |   | (2 | ) |
| Noncash interest                                                                          |       | —                                     |       | 13,493                                                          |       | 11,167 |   | 6,877 |   |
| Changes in  operating assets and liabilities:                                             |       |                                       |       |                                                            |       |   |   |   |   |
| Accounts  receivable                                                                      |       | (698                                       | )          | (7,876                                                          | )          | (2,607 | ) | 1,259 |   |
| Inventories                                                                               |       | (12,118                                    | )          | (1,704                                                          | )          | (1,515 | ) | 7,208 |   |
| Prepaid expenses  and other current assets                                                |       | (443                                       | )          | 650                                                             |       | 467 |   | (233 | ) |
| Other noncurrent  assets                                                                  |       | (395                                       | )          | (627                                                            | )          | (477 | ) | 412 |   |
| Accounts payable                                                                          |       | 2,474                                      |       | (365                                                            | )          | (492 | ) | 2,170 |   |
| Accrued expenses                                                                          |       | 3,208                                      |       | 1,175                                                           |       | 20,902 |   | 3,883 |   |
| Pension,  postretirement, and deferred compensation                                       |       | 1,335                                      |       | (2,442                                                          | )          | (1,210 | ) | (1,431 | ) |
| Other noncurrent  liabilities                                                             |       | (294                                       | )          | 1,223                                                           |       | (30 | ) | 3 |   |
| Other                                                                                     |       | 87                                         |       | (4                                                              | )          | 20 |   | 1 |   |
| Net cash  provided by operating activities                                                |       | 21,696                                     |       | 29,911                                                          |       | 19,564 |   | 26,691 |   |
| **Investing  activities**                                                                 |       |                                       |       |                                                            |       |   |   |   |   |
| Purchase of  businesses, net of cash acquired                                             |       | (18,757                                    | )          | (691                                                            | )          | (653 | ) | (273,725 | ) |
| Purchases of  property plant and equipment                                                |       | (7,432                                     | )          | (6,423                                                          | )          | (4,250 | ) | (5,037 | ) |
| Proceeds from  sale of property, plant and equipment                                      |       | 578                                        |       | 736                                                             |       | — |   | — |   |
| Net cash used in  investing activities                                                    |       | (25,611                                    | )          | (6,378                                                          | )          | (4,903 | ) | (278,762 | ) |
| **Financing  activities**                                                                 | ** ** | ** **                                 | ** ** | ** **                                                      | ** ** | ** ** | ** ** | ** ** | ** ** |
| Payments for  deferred financing costs                                                    |       | (13,711                                    | )          | (904                                                            | )          | (3,246 | ) | (21,110 | ) |
| Proceeds from  borrowings                                                                 |       | 286,539                                    |       | —                                                          |       | 100,000 |   | 176,646 |   |
| Payments of debt                                                                          |       | (221,011                                   | )          | (4,775                                                          | )          | (13,623 | ) | (731 | ) |
| Net repayments  under revolving credit facility                                           |       | (30,960                                    | )          | —                                                          |       | — |   | — |   |
| Capital  contribution                                                                     |       | —                                     |       | 1                                                               |       | — |   | 109,670 |   |
| Repayment of  management loans                                                            |       | 189                                        |       | —                                                          |       | — |   | — |   |
| Purchase of  warrants                                                                     |       | (5,250                                     | )          | —                                                          |       | — |   | — |   |
| Purchase of  preferred units                                                              |       | (1,550                                     | )          | —                                                          |       | — |   | — |   |
| Distributions on  preferred units                                                         |       | —                                     |       | —                                                          |       | (60,000 | ) | — |   |
| Distributions on  common units                                                            |       | (493                                       | )          | (2,943                                                          | )          | (2,509 | ) | — |   |
| Net cash  provided by (used in) financing activities                                      |       | 13,753                                     |       | (8,621                                                          | )          | 20,622 |   | 264,475 |   |
| Effect of  exchange rate changes on cash                                                  |       | 4,741                                      |       | 4,478                                                           |       | (2,725 | ) | 1,271 |   |
| Net increase in  cash and cash equivalents                                                |       | 14,579                                     |       | 19,390                                                          |       | 32,558 |   | 13,675 |   |
| Cash and cash  equivalents at beginning of year                                           |       | 1,762                                      |       | 16,341                                                          |       | 35,731 |   | 7,144 |   |
| Cash and cash  equivalents at end of year                                                 |       | $                                          | 16,341     |                                                            | $          | 35,731 |   | $ | 68,289 |   | $ | 20,819 |   |

 

See notes to consolidated financial statements.

 

38

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**SAFETY PRODUCTS HOLDINGS, INC.**

**(NSP Holdings L.L.C. as predecessor)**

**NOTES TOCONSOLIDATED FINANCIAL STATEMENTS**

**YEARS ENDED DECEMBER 31, 2003,2004 AND 2005**

**(Amounts in Thousands, Except Units/Sharesand Per Unit/Share Data)**

 

**1.  Formation of Safety Products Holdings, Inc.**

 

Safety Products Holdings, Inc. (the “Company” or “SafetyProducts”) operates as a corporation in accordance with the General CorporationLaw of the state of Delaware. The Company is a leading designer, manufacturerand marketer of branded products in the personal protection equipment industry.The Company manufactures and markets a full line of personal protectionequipment for workers in the general safety and preparedness, fire service andelectrical safety industries.

 

**2.  Transactions**

 

On July 19, 2005, Norcross Safety Products L.L.C.(“Norcross”) announced the closing of the transaction under which it wasacquired by Safety Products, a new holding company formed by Odyssey InvestmentPartners, LLC for the purpose of completing the acquisition.  Pursuant to the terms of the purchaseagreement, Safety Products purchased all of the outstanding membership units ofNorcross and all of the outstanding common stock of NSP Holdings Capital Corp.(“NSP Capital”), a wholly-owned subsidiary of NSP Holdings L.L.C. (“NSPHoldings”), and pursuant to which Safety Products assumed all of theoutstanding indebtedness of Norcross and NSP Holdings, in exchange for a basepurchase price to NSP Holdings of $472,000, plus the cash in Norcross as of April 2,2005 in the amount of approximately $16,900, less (1) the indebtedness of Norcrossand its subsidiaries as of April 2, 2005 and (2) certain transactionfees and expenses.  The cash purchaseprice was $204,488 including direct costs of acquisition of $2,346, andexcluding assumed debt of $260,523.

 

On November 1, 2005, the Company completed theacquisition of all of the issued and outstanding capital stock of TheFibre-Metal Products Company (“Fibre-Metal”). The purchase price was $68,723, including acquisition costs of $723. TheCompany financed the acquisition through additional term borrowings under theNew Credit Facility and cash on the balance sheet.

 

The acquisition of Norcross is referred to as the “NorcrossTransaction” and the acquisition of Fibre-Metal is referred to as the “Fibre-MetalTransaction.”  Collectively, the NorcrossTransaction and the Fibre-Metal Transaction are referred to as the “Transactions.”

 

**3.  Basis of Presentation**

 

Predecessor – The consolidated financial statements ofthe Predecessor represent the consolidated results of operations of NSPHoldings L.L.C. prior to the Norcross Transaction.

 

Successor – The consolidated financial statements ofthe Successor represent the consolidated results of operations of SafetyProducts Holdings, Inc. subsequent to the Norcross Transaction.

 

The consolidated financial statements of the Successoras of December 31, 2005 and for the period from July 20, 2005 throughDecember 31, 2005 reflect the Transactions under the purchase method ofaccounting, in accordance with the Financial Accounting Standards Board (FASB)Statement of Accounting Standards (SFAS) No. 141, *BusinessCombinations*.

 

39

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The Company has not finalized the allocation of thepurchase price related to the Norcross Transaction as of December 31,2005.  Such allocation is subject tochange pending receipt of additional information regarding liabilities assumedon the acquisition date, as well as certain deferred tax items, pendingcompletion of certain tax structuring.  TheCompany has preliminarily allocated the purchase price on the basis of itscurrent estimate of fair value of the underlying assets acquired andliabilities assumed as follows:

 
| ** **                                           | ** ** | **As of   July 20, 2005** | ** ** |
|------------------------------------------------------|------------|-----------------------------------------------|------------|
| Cash and cash  equivalents                           |       | $                                             | 7,144      |   |
| Accounts  receivable                                 |       | 63,774                                        |       |
| Inventories                                          |       | 93,503                                        |       |
| Prepaid expenses  and other current assets           |       | 2,806                                         |       |
| Property, plant,  and equipment                      |       | 63,560                                        |       |
| Goodwill                                             |       | 103,322                                       |       |
| Other intangible  assets                             |       | 242,459                                       |       |
| Other noncurrent  assets                             |       | 5,828                                         |       |
| Total assets  acquired                               |       | $                                             | 582,396    |   |
|                                                 |       |                                          |       |
| Accounts payable                                     |       | 17,379                                        |       |
| Accrued expenses                                     |       | 28,136                                        |       |
| Pension, post-retirement,  and deferred compensation |       | 33,739                                        |       |
| Other noncurrent  liabilities                        |       | 4,373                                         |       |
| Deferred income  taxes                               |       | 33,608                                        |       |
| Minority  interest                                   |       | 148                                           |       |
| Total  liabilities assumed                           |       | 117,383                                       |       |
| Net assets  acquired                                 |       | $                                             | 465,013    |   |

 

The Company has not finalized the allocation of thepurchase price related to the Fibre-Metal Transaction as of December 31,2005.  Such allocation is subject tochange pending the completion of the Company’s integration plans.  The Company has preliminarily allocated thepurchase price on the basis of its current estimate of fair value of theunderlying assets acquired and liabilities assumed as follows:

 
| ** **                                           | ** ** | **As of  November 1, 2005** | ** ** |
|------------------------------------------------------|------------|--------------------------------------------|------------|
| Cash and cash  equivalents                           |       | $                                          | —     |   |
| Accounts  receivable                                 |       | 5,770                                      |       |
| Inventories                                          |       | 7,166                                      |       |
| Prepaid expenses  and other current assets           |       | 167                                        |       |
| Property, plant,  and equipment                      |       | 3,533                                      |       |
| Goodwill                                             |       | 32,306                                     |       |
| Other intangible  assets                             |       | 41,130                                     |       |
| Total assets  acquired                               |       | $                                          | 90,072     |   |
|                                                 |       |                                       |       |
| Accounts payable                                     |       | 1,680                                      |       |
| Accrued expenses                                     |       | 3,115                                      |       |
| Pension,  post-retirement, and deferred compensation |       | 32                                         |       |
| Deferred income  taxes                               |       | 16,522                                     |       |
| Total  liabilities assumed                           |       | 21,349                                     |       |
| Net assets  acquired                                 |       | $                                          | 68,723     |   |

 

The results of operations of Fibre-Metal are includedin the Company’s consolidated statement of operations from the date ofacquisition.

 

The Company has engaged independent appraisers toassist in determining the fair values of property, plant, and equipment,inventories, and other intangible assets, including customer relationships,brand names, developed technology, 

 

40

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favorable leaseholds and backlog. The Company has received preliminary values from the appraisers, whichhave been included in the above tables; however the final appraisals are notyet complete.

 

The Company has not yet completed its allocation ofpurchase price and may make further adjustment to the preliminary allocationsin subsequent periods.

 

Based on preliminary estimates, approximately $103,322of goodwill was recorded related to the Norcross Transaction (of whichapproximately $38,000 was tax deductible). The primary reasons for the Norcross Transaction and the primary factorsthat contributed to a purchase price that resulted in recognition of goodwillinclude:

 

•      The Company’s leading market position as adesigner, manufacturer and marketer of branded products in the fragmentedpersonal protection equipment industry offers a competitive advantage incompeting for new customers.

 

•      The Company, being one of only a smallnumber of companies that can provide complete head-to-toe protection, providesa competitive advantage when selling to new and existing customers.

 

•      The diverse customer base and industriesserved minimizes the potential impact of volatility from any one customer orindustry.

 

Other considerations affecting the value of goodwillinclude:

 

•      The ability of the assembled workforce todevelop future innovative technologies and products.

 

•      The application of purchase accounting,particularly for such items as pension and deferred tax liabilities for whichsignificant liability balances were recorded with no corresponding significantshort-term cash outflows.

 

Based on preliminary estimates, approximately $32,306of goodwill was recorded related to the Fibre-Metal Transaction (none of whichwas tax deductible).  The primary reasonsfor the Fibre-Metal Transaction and the primary factors that contributed to apurchase price that resulted in recognition of goodwill include:

 

•      Fibre-Metal’s leading market position as adesigner, manufacturer and marketer of branded products in the fragmentedpersonal protection equipment industry offers a competitive advantage incompeting for new customers.

 

•      Expected cost savings associated withintegrating Fibre-Metal manufacturing and distribution facilities into theCompany’s existing facilities.

 

Other considerations affecting the value of goodwillinclude:

 

•      The ability of the assembled workforce todevelop future innovative technologies and products.

 

•      The application of purchase accounting,particularly for deferred tax liabilities for which significant liabilitybalances were recorded with no corresponding significant short-term cashoutflows.

 

41

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The following tablepresents the unaudited pro forma net sales, income from operations, and netincome of the Company (based on the preliminary allocation of purchase price)assuming the Transactions had occurred on January 1, 2004:

 
| ** **              | ** ** | **Year Ended  December 31,  2004** | ** ** | **Year Ended  December 31,  2005** | ** ** |
|-------------------------|------------|----------------------------------------------|------------|----------------------------------------------|------------|
| Net sales               |       | $                                            | 469,183    |                                         | $          | 510,854 |   |
| Income from  operations |       | 41,997                                       |       | 38,275                                       |       |
| Net loss                |       | (6,036                                       | )          | (9,956                                       | )          |
|                         |            |                                              |            |                                              |            |  |  |

 

**4.  Significant Accounting Policies**

 

**Principles of Consolidation**

** **

The consolidated financial statements include theaccounts of Safety Products Holdings, Inc. and its majority-ownedsubsidiaries. All significant intercompany accounts and transactions have beeneliminated.

 

**Cash Equivalents**

** **

The Company considers all highly liquid investmentswith original maturities of three months or less to be cash equivalents.

 

**Concentration of Credit Risk**

** **

Financial instruments, which potentially subject theCompany to concentration of credit risk, consist principally of tradereceivables. Credit risk with respect to trade receivables is limited due tothe diversity of customers comprising the Company’s customer base. The Companyperforms ongoing credit evaluations of its customers and maintains sufficientallowances for potential credit losses. The Company evaluates thecollectibility of its accounts receivable based on the length of time thereceivable is past due and the anticipated future write-offs based onhistorical experience. The Company’s policy is to not charge interest on tradereceivables after the invoice becomes past due and to not require collateral. Areceivable is considered past due if payments have not been received withinagreed-upon invoice terms.

 

**Revenue Recognition**

** **

Sales and related cost of sales are recognized whenproducts are shipped, which is when title passes to the customer.

 

**Freight-Out Costs**

** **

The Company records freight-out costs in distributionexpenses. Such amounts were $8,697, $10,224, $6,848 and $5,380 for the yearsended December 31, 2003 and 2004, the period from January 1, 2005through July 19, 2005, and the period from July 20, 2005 through December 31,2005, respectively.

 

**Inventories**

** **

Inventories are stated at the lower of cost or market.Inventories valued at first in, first out (FIFO) cost accounted forapproximately 69% and 64% of the Company’s inventories at December 31,2004 and 2005, respectively. All other inventories are valued using last in,first out (LIFO) cost.

 

**Property, Plant and Equipment**

** **

Property, plant and equipment are recorded at cost.Equipment under capital leases is stated at the present value of minimum leasepayments or fair value at the inception of the leases, whichever is lower.Depreciation is determined by using the straight-line method over the estimatedremaining useful lives of the assets. Equipment held under capital leases andleasehold improvements are amortized using the straight-line method over theshorter of the lease term or estimated useful life of the asset, with therelated amortization expense included in depreciation expense.

 

42

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The useful lives of plant and equipment for thepurpose of computing book depreciation are as follows:

 
| Buildings and  improvements     |   | 4 to 25 years |   |
|---------------------------------|--------|---------------|--------|
| Machinery and  equipment        |   | 4 to 15 years |   |
| Dies and tooling                |   | 1 to 15 years |   |
| Furniture and  fixtures         |   | 1 to 10 years |   |
| Computers and  office equipment |   | 1 to 7 years  |   |

 

**Intangible Assets**

 

The amortizable lives of intangible assets for thepurpose of computing amortization expense are as follows:

 
| Brand names             |   | Indefinite     |   |
|-------------------------|--------|----------------|--------|
| Customer  relationships |   | 15 to 20 years |   |
| Technology              |   | 10 years       |   |
| Favorable  Leaseholds   |   | 1.5 years      |   |

 

**Deferred Financing Costs**

 

Deferred financing costs represent capitalized feesand expenses associated with obtaining financing. The costs are being amortizedusing the straight-line method, which approximates the interest method, overthe period of the related financing. Accumulated amortization of deferredfinancing costs at December 31, 2004 and 2005, was $2,889 and $1,441,respectively.

 

**Goodwill and Other Intangibles**

 

Goodwill is recorded when the purchase price paid foran acquisition exceeds the estimated fair value of the net identified tangibleand intangible assets acquired.  TheCompany performs an annual review in the fourth quarter of each year, or morefrequently if indicators of potential impairment exist, to determine if thecarrying value of the recorded goodwill is impaired.  The impairment review process compares thefair value of the reporting unit in which goodwill resides to its carryingvalue.  The Company performed a goodwillimpairment test on the amount of goodwill during the fourth quarter of 2003,2004 and 2005.  Based on the results ofthe first step of the annual impairment test, the Company determined that thefair value of each of the reporting units exceeded their carrying amounts and,therefore, no goodwill impairment existed.

 

The following table summarizes goodwill by segment:

 
| ** **                                     | ** ** | **General  Safety and  Preparedness** | ** ** | **Fire  Service** | ** ** | **Electrical  Safety** | ** ** | **Total** | ** ** |
|------------------------------------------------|------------|--------------------------------------------|------------|-------------------|------------|------------------------|------------|-----------|------------|
| **Predecessor  Company**                       |       | $                                          | 120,645    |              | $          | 9,387                  |       | $         | —     |   | $ | 130,032 |   |
| Balance as of  January 1, 2004                 |       |                                       |       |              |       |                   |       |      |       |   |   |   |   |
| Goodwill  acquired during the year             |       | 34                                         |       | —            |       | —                 |       | 34        |       |
| Adjustments to  fair value of assets acquired. |       | 2,249                                      |       | —            |       | —                 |       | 2,249     |       |
| Effect of  foreign currency translation        |       | 347                                        |       | —            |       | —                 |       | 347       |       |
| Balance as of  December 31, 2004          |       | 123,275                                    |       | 9,387             |       | —                 |       | 132,662   |       |
| Goodwill  acquired during the year             |       | 73                                         |       | —            |       | 258                    |       | 331       |       |
| Adjustments to  fair value of assets acquired. |       | —                                     |       | —            |       | —                 |       | —    |       |
| Effect of  foreign currency translation        |       | (773                                       | )          | —            |       | —                 |       | (773      | )          |
| Balance as of  July 19, 2005              |       | $                                          | 122,575    |              | $          | 9,387                  |       | $         | 258        |   | $ | 132,220 |   |
|                                           |       |                                       |       |              |       |                   |       |      |       |
| **Successor  Company**                         |       |                                       |       |              |       |                   |       |      |       |
| Balance as of  July 20, 2005              |       | $                                          | 84,851     |              | 19,437     |                   | $          | 12,005    |       | $ | 116,293 |   |
| Goodwill  acquired during the year             |       | 32,359                                     |       | —            |       | —                 |       | 32,359    |       |
| Adjustments to  fair value of assets acquired. |       | (13,544                                    | )          | (24               | )     | —                 |       | (13,568   | )          |
| Effect of  foreign currency translation        |       | 634                                        |       | —            |       | —                 |       | 634       |       |
| Balance as of  December 31, 2005          |       | $                                          | 104,300    |              | $          | 19,413                 |       | $         | 12,005     |   | $ | 135,718 |   |

 

43

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The Company’s other intangible assets with indefinitelives consist of $730 and $98,802 related to brand names as of December 31,2004 and 2005, respectively.

 

The Company’s other intangible assets with finitelives consist of brand names, customer relationships, technology and favorableleaseholds. The following table summarizes other intangible assets with finitelives:

 
| ** **              | ** ** | **Predecessor**                 | ** ** | **Successor**                   | ** ** |
|-------------------------|------------|---------------------------------|------------|---------------------------------|------------|
| ** **              | ** ** | **December 31, 2004** | ** ** | **December 31, 2005** | ** ** |
| ** **              | ** ** | **Gross  Carrying  Amount**     | ** ** | **Accumulated  Amortization**   | ** ** | **Total** | ** ** | **Gross  Carrying  Amount** | ** ** | **Accumulated  Amortization** | ** ** | **Total** | ** ** |
| Brand names             |       | $                               | 4,427      |                            | $          | (698 | ) | $ | 3,729 |   | $ | — |   | $ | — |   | $ | — |   |
| Customer  relationships |       | 2,147                           |       | (350                            | )          | 1,797 |   | 160,478 |   | (3,072 | ) | 157,406 |   |
| Technology              |       | —                          |       | —                          |       | — |   | 510 |   | (57 | ) | 453 |   |
| Favorable  Leaseholds   |       | —                          |       | —                          |       | — |   | 20,910 |   | (729 | ) | 20,181 |   |
| Total                   |       | $                               | 6,574      |                            | $          | (1,048 | ) | $ | 5,526 |   | $ | 181,898 |   | $ | (3,858 | ) | $ | 178,040 |   |

 

Future amortization expense for other intangibleassets held as of December 31, 2005, is as follows:

 
| 2006       |   | $       | 10,873  |   |
|------------|--------|---------|---------|--------|
| 2007       |   | 10,646  |    |
| 2008       |   | 10,533  |    |
| 2009       |   | 10,533  |    |
| 2010       |   | 10,533  |    |
| Thereafter |   | 124,922 |    |
|       |   | $       | 178,040 |   |

 

**Income Taxes**

 

The Company is a corporation.  The Predecessorincome is allocated to, and included in the individual returns of the unitholdersof NSP Holdings which is treated as a partnership under federal tax law. TheSuccessor income is included as part of the U.S. federal consolidated return ofthe Company. Certain of the Company’s subsidiaries are corporations which aresubject to U.S. federal, state and local income taxes.  For thePredecessor period the tax liability for these entities is calculated on astand alone basis. For the Sucessor period, these entities are treated asfiling as part of a consolidated group with the Company. Additionally, theCompany’s foreign subsidiaries are subject to their respective foreign incometax reporting requirements.

 

Deferred income taxes are recognized for thedifference in reporting of certain assets and liabilities for financialreporting and tax purposes. These temporary differences are determined byapplying enacted statutory rates applicable to future years to differencesbetween the financial statement carrying amounts and the tax bases of existingassets and liabilities. Valuation allowances are provided against deferred taxassets which are not likely to be realized. Deferred income taxes are notprovided on the unremitted earnings of foreign subsidiaries because it has beenthe practice, and it is the intention, of the Company to continue to reinvestthese earnings in the businesses outside the United States. The effect of a changein tax rates is recognized in the period that includes the enactment date.

 

**Advertising**

 

The Company expenses advertising costs as incurred.Advertising expense was approximately $2,577, $3,021, $2,422 and $1,547 for theyears ended December 31, 2003 and 2004, the period from January 1,2005 through July 19, 2005, and the period from July 20, 2005 throughDecember 31, 2005, respectively.

 

**Foreign Currency Translation**

** **

The accounts of foreign operations are measured usinglocal currency as the functional currency. For those operations, assets andliabilities are translated into U.S. dollars at the end of period exchangerates and income and expenses are translated at average exchange rates. Netadjustments resulting from such translation are accumulated as a separatecomponent of other comprehensive income included in members’ deficit/shareholders’equity. The accumulated balance of the foreign currency translation adjustmentsincluded as a component of the accumulated other comprehensive income amountedto $14,342 and $1,987 as of December 31, 2004 and 2005, respectively.

 

44

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**Long-Lived Assets**

 

The Company evaluates its long-lived assets on anongoing basis. Long-lived assets are reviewed for impairment whenever events orchanges in circumstances indicate that the carrying amount of the related assetmay not be recoverable. Recoverability of assets to be held and used ismeasured by a comparison of the carrying amount of the asset to futureundiscounted cash flows expected to be generated by the asset. If the asset isdetermined to be impaired, the impairment recognized is measured by the amountby which the carrying value of the asset exceeds its fair value.

 

**Fair Value of Financial Instruments**

 

The Company’s financial instruments include cash andcash equivalents, the New Senior Credit Facility, notes payable, the New SeniorSubordinated Notes and the senior pay in kind notes (see Note 7). The fairvalues of the Company’s financial instruments were not materially differentfrom their carrying values at December 31, 2004 and 2005. The Companyestimates the fair value of its obligations using the discounted cash flowmethod with interest rates currently available for similar obligations.

 

**Insurance**

 

Employee medical costs are insured under commercialexcess policies. The Company covers the cost of such coverages up to certainretention limits. Insurance claim reserves for employee medical costs representthe estimated amounts necessary to settle outstanding claims, including claimsthat are incurred but not reported, based on the facts in each case and theCompany’s experience with similar cases. These estimates are continuallyreviewed and updated, and any resulting adjustments are reflected in currentoperations.

 

The liability related to medical self-insurance was$2,282 and $2,520 as of December 31, 2004 and 2005, respectively. Medicalself-insurance expense was approximately $5,325, $6,270, $4,800 and $3,109****for the years ended December 31, 2003 and 2004, the periodfrom January 1, 2005 through July 19, 2005, and the period from July 20,2005 through December 31, 2005, respectively.

 

**Stock-BasedCompensation Expense**

** **

ThePredecessor had issued unit options and accounted for the unit options inaccordance with Accounting Principles Board Opinion No. 25, Accounting forStock Issued to Employees (APB 25). In accordance with APB 25, compensationexpense is recognized based upon the excess of fair value of the underlyingunit over the option exercise price on the measurement date, the date at whichboth the exercise price and the number of units to be issued are known. TheCompany has elected to continue to measure compensation expense under theprovisions of APB 25; however, in accordance with Statement of Financial AccountingStandards No. 123, Accounting for Stock-Based Compensation (SFAS 123), anestimate of the fair value of the unit options was made by the Company todetermine the pro forma effect on earnings had the provisions of SFAS 123 beenapplied in the financial statements.

 

**Use of Estimates in the Consolidated FinancialStatements**

** **

The preparation of consolidated financial statementsin conformity with accounting principles generally accepted in the UnitedStates requires management to make estimates and assumptions that affect theamounts reported in the consolidated financial statements and accompanyingnotes. Actual results could differ from those estimates.

 

**Recent Accounting Pronouncements**

 

On December 16, 2004, the Financial AccountingStandards Board (“FASB”) issued FASB Statement No. 123 (revised 2004), “Share-BasedPayment” (“Statement 123(R)”). Statement 123(R) replaces FASB Statement No. 123,“Accounting for Stock-Based Compensation” (“Statement 123”), supersedes APBOpinion No. 25, “Accounting for Stock Issued to Employees” and amends FASBStatement No. 95, “Statement of Cash Flows.” Generally, the approach inStatement 123(R) is similar to the approach described in Statement 123.However, Statement 123(R) requires all share-based payments to employees,including grants of employee stock options, to be recognized in the financialstatements based on their fair values (i.e., pro forma disclosure is no longeran alternative to financial statement recognition). Statement 123(R) iseffective January 1, 2006. As permitted by Statement 123, the Companycurrently accounts for share-based payments to employees using Opinion 25’sintrinsic value method and, as such, generally recognizes no compensation costfor employee stock options. Accordingly, the adoption of Statement 123(R)’sfair value method could have a significant impact on our result of operations,although it will have no impact on our overall financial position. The impactof the adoption of Statement 123(R) cannot be predicted at this time because itwill depend on levels of share-based payments granted in the future. However,had we adopted Statement 123(R) in prior periods, the adoption of that standardwould not have had an impact on our consolidated financial statements.

 

45

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**Reclassifications**

 

Certain account balances have been reclassified fromthe prior year to conform with current year presentation.  Specifically, discounts and rebate expensewere reclassified from selling expenses to net sales.  The impact of this reclassification caused areduction of selling expenses and net sales of $1,722, $1,781, and $1,380 forthe years ended December 31, 2003 and 2004 and the period from January 1,2005 through July 19, 2005, respectively.

 

**5.  Property,Plant and Equipment**

 

Property, plant and equipment consist of thefollowing:

 
| ** **                      | ** ** | **Predecessor**       | ** ** | **Successor**         | ** ** |
|---------------------------------|------------|-----------------------|------------|-----------------------|------------|
| ** **                      | ** ** | **December 31,** | ** ** | **December 31,** | ** ** |
| ** **                      | ** ** | **2004**              | ** ** | **2005**              | ** ** |
| Land                            |       | $                     | 4,234      |                  | $          | 8,271 |   |
| Buildings and  improvements     |       | 15,115                |       | 15,989                |       |
| Machinery and  equipment        |       | 55,539                |       | 33,074                |       |
| Dies and tooling                |       | 13,822                |       | 5,852                 |       |
| Furniture and  fixtures         |       | 4,331                 |       | 1,704                 |       |
| Computers and  office equipment |       | 17,118                |       | 4,479                 |       |
| Construction in  progress       |       | 2,017                 |       | 2,730                 |       |
|                            |       | 112,176               |       | 72,099                |       |
| Less:  Accumulated depreciation |       | (60,367               | )          | (4,784                | )          |
|                            |       | $                     | 51,809     |                  | $          | 67,315 |   |

 

Machinery and equipment includes assets under capitalleases with a gross amount of $330 and accumulated amortization of $20.

 

**6.  Inventories**

 

Inventories consist of the following:

 
| ** **               | ** ** | **Predecessor**       | ** ** | **Successor**         | ** ** |
|--------------------------|------------|-----------------------|------------|-----------------------|------------|
| ** **               | ** ** | **December 31,** | ** ** | **December 31,** | ** ** |
| ** **               | ** ** | **2004**              | ** ** | **2005**              | ** ** |
| At FIFO cost:            |       |                  |       |                  |       |
| Raw materials            |       | $                     | 21,726     |                  | $          | 23,755 |   |
| Work in process          |       | 10,419                |       | 12,745                |       |
| Finished goods           |       | 52,045                |       | 57,126                |       |
|                     |       | 84,190                |       | 93,626                |       |
| Adjustment to  LIFO cost |       | (1,658                | )          | (164                  | )          |
|                     |       | $                     | 82,532     |                  | $          | 93,462 |   |

 

**7. Debt**

 

The Company’s debt consists of the following:

 
| ** **                                                   | ** ** | **Predecessor**       | ** ** | **Successor**         | ** ** |
|--------------------------------------------------------------|------------|-----------------------|------------|-----------------------|------------|
| ** **                                                   | ** ** | **December 31,** | ** ** | **December 31,** | ** ** |
| ** **                                                   | ** ** | **2004**              | ** ** | **2005**              | ** ** |
| Revolving credit  facilities                                 |       | $                     | —     |                  | $          | — |   |
| Term loan                                                    |       | 97,725                |       | 152,390               |       |
| Senior pay in  kind notes                                    |       | —                |       | 138,357               |       |
| Senior  subordinated notes                                   |       | 152,500               |       | 152,500               |       |
| European term  loans                                         |       | 469                   |       | 248                   |       |
| Arbin seller  notes                                          |       | 454                   |       | —                |       |
| Subordinated  seller notes                                   |       | 3,121                 |       | —                |       |
| Capital lease  obligations                                   |       | 207                   |       | 75                    |       |
| Unamortized  discount on senior pay in kind notes            |       | —                |       | (7,517                | )          |
| Unamortized  (discount) premium on senior subordinated notes |       | (910                  | )          | 7,186                 |       |
|                                                         |       | 253,566               |       | 443,239               |       |
| Less: Current  maturities of long-term obligations           |       | 15,252                |       | 1,846                 |       |
|                                                         |       | $                     | 238,314    |                  | $          | 441,393 |   |

 

46

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On March 21, 2003, Norcross entered into a SeniorCredit Facility (the “Former Credit Facility”) with a group of banks andfinancial institutions. Under the initial terms of this agreement, the Companycould borrow up to $160,000 in the United States and approximately $8,300 inCanada ($10,000 Canadian). The Former Credit Facility consisted of a $30,000revolving credit facility and a $130,000 term loan in the United States, and aCanadian $10,000 revolving credit facility. These borrowings replaced the previous senior credit facility of Norcross.Norcross recorded a $1,270 million charge to interest expense for the write-offof deferred financing fees associated with the previous senior credit facilityfinancing for the year ended December 31, 2003.

 

On July 19, 2005, in conjunction with theNorcross Transaction, Norcross entered into a new Senior Credit Facility (the “NewCredit Facility”) which provides for aggregate borrowings of $138,000,consisting of (a) a term loan in the amount of $88,000, payable intwenty-eight consecutive quarterly installments which commenced on September 30,2005 and (b) a revolving credit facility in an aggregate principal amountof $50,000.  The New Credit Facility iscomprised of a U.S. revolving facility and a Canadian subfacility.  The amount of the total U.S. revolvingfacility is an amount equal to $50,000 less the amount at such time outstandingunder the Canadian subfacility.  Theamount of the total Canadian subfacility is an amount denominated in Canadiandollars having a U.S. dollar equivalent of $25,000 less the amount at such timeoutstanding under the U.S. revolving facility. At any time upon the request of the Company or the U.S. SubsidiaryBorrowers (as defined in the New Credit Facility), one or more new term loanfacilities may be added in any aggregate amount of up to $100,000 (and not lessthan $10,000 for any such additional term loan), subject to certain conditions,the proceeds of which shall be used to finance permitted acquisitions, pay feesand related expenses thereto and to refinance indebtedness of the entity orassociated with the assets to be so acquired. The New Credit Facility is subject to certain mandatory prepayments uponthe occurrence of certain events, subject to certain exceptions set forth inthe credit agreement.  The proceeds ofthe New Credit Facility were used primarily to refinance the Former CreditFacility.  As of December 31, 2005,the interest rate was 6.1% for the term loan.

 

Borrowings under theU.S. revolving facility and term loan bear interest at a rate per annum equalto our choice of (a) an alternate base rate (which is equal to the higherof (i) the rate of interest announced by Credit Suisse as its prime ratein effect and (ii) the federal funds rate plus 0.50%) or (b) theEurodollar rate, plus an applicable margin. Borrowings under the Canadiansubfacility bear interest at a rate per annum equal to the Canadian prime rate(which is the higher of (i) the rate of interest announced by CreditSuisse, Toronto Branch, as its reference rate then in effect for determininginterest rates on Canadian dollar denominated commercial loans in Canada and (ii) theCDOR rate plus 0.50% per annum), plus an applicable margin, or with respect tobanker’s acceptances or their equivalents, the discount rate (as defined in thecredit agreement) plus an applicable margin.

 

Initially, theapplicable margin with respect to the revolving credit facility was (a) 1.25%in the case of alternate base rate loans and Canadian dollar prime loans and (b) 2.25%in the case of Eurodollar rate loans and bankers’ acceptance rate loans. Withrespect to the term loan, the applicable margin will be (a) 1.00% in thecase of alternate base rate loans and (b) 2.00% in the case of Eurodollarrate loans. After December 31, 2005, the margins applicable to therevolving credit facility and the U.S. swing line loans will adjust on asliding scale based on the total leverage ratio of the Company and itssubsidiaries. In addition, the Company will be required to pay to the lendersunder the revolving credit facility an initial commitment fee in respect of theunused commitments thereunder at a per annum rate of 0.50%. After December 31,2005, the commitment fee rate will adjust on a sliding scale based on the totalleverage ratio of the Company and its subsidiaries.

 

The U.S. revolver also provides for the issuance ofletters of credit of up to $5,000 or in an amount which, when added to theaggregate outstanding amount under the U.S. and Canadian revolvers, will notexceed $50,000.  The Canadian revolverprovides for the issuance of letters of credit of up to Canadian $1,000 or inan amount which, when added to the aggregate outstanding principal amount underthe Canadian revolver, will not exceed the U.S. equivalent of $25,000.  At December 31, 2005, total letters ofcredit outstanding were $2,575 under the U.S. revolver and the Company hadaggregate unused credit available of $47,425 under the U.S. and Canadianrevolver.

 

On November 1, 2005, Norcross entered into theIncremental Facility Amendment to the New Credit Facility.  Under the terms of the Amendment, Norcross,the U.S. Borrowers and the Lenders agreed to a total incremental termcommitment from the Increasing Lenders of $65,000.  Additionally, the Amendment required, amongother things, that the proceeds of the incremental term loans be used forpermitted acquisitions and the consolidated senior leverage ratio, after givingeffect to the use of the proceeds, not exceed 3.25 to 1.00.

 

47

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On August 13, 2003, Norcross and Norcross CapitalCorp. (“Capital”) issued $152,500 of 9.875% Senior Subordinated Notes due 2011(the “New Senior Subordinated Notes”) and received gross proceeds of $151,465.The proceeds were primarily used to: (i) repay principal and interest andrepurchase warrants related to the $95,000 of senior subordinated notespreviously issued, (ii) repay $30,000 of principal related to the termloan, (iii) repay principal on the junior subordinated notes used tofinance the KCL acquisition, (iv) purchase preferred units of NSP Holdingsfrom certain members of management and (v) pay fees and expenses. Norcrossrecorded a $8,914 charge to interest expense for the write-off of deferredfinancing fees and original issue discount and a prepayment penalty associatedwith the $95,000 of senior subordinated notes for the year ended December 31,2003.

 

OnJanuary 7, 2005, NSP Holdings and NSP Capital issued $100,000 of 113¤4% seniorpay in kind notes due 2012 the “Senior Notes”. The proceeds were used to: (i) makea payment in respect of preferred units of $60,000, $58,000 of which werepayments in respect of accrued preferred yield and $2,000 of which was thereturn of a portion of the original capital contribution made by holders of NSPHoldings preferred units, (ii) make distributions in respect of the commonunits of certain members of management of $2,000, and (iii) pay fees andexpenses. The remainder of the net proceeds were used for general corporatepurposes, including potential acquisitions and/or distributions to NSP Holdings’unitholders.

 

Inconnection with the closing of the Norcross Transaction, the Company enteredinto a second supplemental indenture dated as of July 19, 2005 (the “SecondSupplemental Indenture”) among NSP Holdings, NSP Capital, the Company andWilmington Trust Company, as trustee (the “Trustee”) under the indenture datedas of January 7, 2005 (the “Indenture”) by and among NSP Holdings, NSPCapital and the Trustee providing for the issuance of the Senior Notes.Pursuant to the terms of the Second Supplemental Indenture, the Company assumedall of the rights, powers, commitments, obligations and liabilities of NSP Holdingsunder the Indenture and the Senior Notes.

 

OnJuly 19, 2005, the Company sold $25,000 in principal amount of 113¤4% seniorpay in kind notes due 2012 (the “New Notes”). The New Notes were sold pursuantto a purchase agreement, dated June 28, 2005 (the “Purchase Agreement”),by and between the Company and Credit Suisse First Boston, LLC (the “InitialPurchaser”). The New Notes were issued pursuant to the Indenture. Pursuant tothe term of the Purchase Agreement, the New Notes were sold to the InitialPurchaser and were resold to qualified institutional buyers in compliance withthe exemption from registration.

 

In connection with the Norcross Transaction, Norcrossentered into a supplemental indenture dated as of July 19, 2005 (the “SupplementalIndenture”) by and among Norcross, Capital, the guarantors listed on thesignature pages thereto and Wilmington Trust Company, as trustee (the “Trustee”)under the indenture dated as of August 13, 2003 (the “Indenture”)providing for the issuance of the New Senior Subordinated Notes. Pursuant tothe terms of the Supplemental Indenture, the definition of Permitted Holderswas amended and the parties confirmed that the Requisite Consents (as definedin the Supplemental Indenture) had been delivered in order to waive Norcross’obligations under the Change in Control covenant of the Indenture in connectionwith the Norcross Transaction.

 

The New Credit Facility, Senior Notes, New Notes and NewSenior Subordinated Notes contain certain covenants restricting the Company’sability to: (i) incur additional indebtedness, (ii) dispose ofproperty or issue capital stock, (iii) declare or pay dividends or redeemor repurchase capital stock, (iv) make capital expenditures, (v) makeloans or investments, (vi) prepay, amend, or otherwise alter debt andother material agreements, (vii) transact with affiliates, and (viii) engagein sale and leaseback transactions. The Company is also subject to certainfinancial covenants including the maintenance of minimum interest and fixedcharge coverage ratios and a total leverage ratio.

 

The New Credit Facility is secured by a first prioritylien on substantially all of the Company’s property and assets. The New SeniorSubordinated Notes are general unsecured obligations of the Company that aresubordinate to borrowings under the New Credit Facility and European termloans. The New Credit Facility and the New Senior Subordinated Notes areguaranteed by the Company’s domestic subsidiaries and by Safety Products.  In addition, borrowing under the Canadianrevolver are guaranteed by the Canadian subsidiaries.

 

The Company issued an unsecured $2,924 seller note inconnection with one of its acquisitions, of which $439 was outstanding at December 31,2004. All outstanding principal and accrued interest was paid July 1,2005.

 

In connection with the Muck Boot acquisition, theCompany issued a seller note totaling $2,000. The note and accrued interest waspaid in full as part of the Norcross Transaction.

 

In connection with the Arbin acquisition, the Companyissued three seller notes with an aggregate original principal balance of$2,564. These notes and accrued interest were paid in full as part of theNorcross Transaction.

 

48

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Revolving credit facilities in Europe permitborrowings of up to €2,717, of which €2,717 was available at December 31,2005.  In addition, the South Africanlocation entered into a credit agreement which permits borrowings of up toR6,000, of which R3,100 was available as of December 31, 2005.

 

Aggregate maturities of long-term debt at December 31,2005, are as follows:

 
| 2006       |   | $       | 1,846   |   |
|------------|--------|---------|---------|--------|
| 2007       |   | 1,740   |    |
| 2008       |   | 1,676   |    |
| 2009       |   | 1,631   |    |
| 2010       |   | 1,575   |    |
| Thereafter |   | 434,771 |    |
|       |   | $       | 443,239 |   |

 

Interest paid during the years ended December 31,2003 and 2004, the period from January 1, 2005 through July 19, 2005and the period from July 20, 2005 through December 31, 2005 wasapproximately $20,418, $20,599, $12,047, and $9,406, respectively.

 

**8.  Income Taxes**

** **

For the Predecessor, certain of the subsidiaries aresubject to foreign and U.S. federal, state and local income taxes. Thecomponents of “Income (loss) before income taxes and minority interest,” forthe C corporations subject to foreign and U.S. federal, state and local incometaxes consist of U.S. (losses) income of $(840), $11,078 and $12,516 andforeign income of $3,971, $6,107 and $5,244, for the years ended December 31,2003 and 2004 and the period from January 1, 2005 through July 19,2005, respectively.

 

For the Successor, the Company and its U.S.subsidiaries will file a consolidated U.S. corporate income tax return.  The income and losses attributable tosubsidiaries and the U.S. and foreign income taxes attributable to such incomeor losses are reported in full.  Thecomponents of “Income (loss) before income taxes and minority interest,” forthe subsidiaries subject to foreign and U.S. federal, state and local incometaxes consist of U.S. losses of $5,739 and foreign losses of $24, for theperiod from July 20, 2005 through December 31, 2005.

 

The income tax expense (benefit) on income (loss) beforeincome taxes and minority interest consists of the following:

 
| ** **                        | ** ** | ** **                                 | ** ** | **Successor**                                         | ** ** |
|-----------------------------------|------------|--------------------------------------------|------------|-------------------------------------------------------|------------|
| ** **                        | ** ** | **Predecessor**                            | ** ** | **July 20, 2005**                           | ** ** |
| ** **                        | ** ** | **Year Ended December 31,** | ** ** | **January 1,  2005 through  July 19, 2005** | ** ** | **through  December 31,  2005** | ** ** |
| ** **                        | ** ** | **2003**                                   | ** ** | **2004**                                              | ** ** | ** ** | ** ** |
| ** **                        |       | **(dollars  in thousands)**                |       |
| Current:                          |       |                                       |       |                                                  |       |   |   |   |   |
| Federal                           |       | $                                          | —     |                                                  | $          | 207 |   | $ | 185 |   | $ | 33 |   |
| State                             |       | 638                                        |       | 171                                                   |       | 165 |   | 232 |   |
| Foreign                           |       | 1,359                                      |       | 3,230                                                 |       | 2,886 |   | 1,402 |   |
| Total current  provision          |       | 1,997                                      |       | 3,608                                                 |       | 3,236 |   | 1,667 |   |
| Deferred:                         |       |                                       |       |                                                  |       |   |   |   |   |
| Federal                           |       | —                                     |       | —                                                |       | — |   | (1,223 | ) |
| State                             |       | —                                     |       | —                                                |       | — |   | (210 | ) |
| Foreign                           |       | (154                                       | )          | (413                                                  | )          | 383 |   | (1,229 | ) |
| Total deferred  (benefit) expense |       | (154                                       | )          | (413                                                  | )          | 383 |   | (2,662 | ) |
| Income tax  expense (benefit)     |       | $                                          | 1,843      |                                                  | $          | 3,195 |   | $ | 3,619 |   | $ | (995 | ) |

 

The income tax expense differs from the amount ofincome tax benefit computed by applying the U.S. federal income tax rate toincome before income taxes and minority interest. A reconciliation of thedifference is as follows:

 

49

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| ** **                                                                                                   | ** ** | ** **                                 | ** ** | **Successor**                                         | ** ** |
|--------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------|------------|-------------------------------------------------------|------------|
| ** **                                                                                                   | ** ** | **Predecessor**                            | ** ** | **July 20, 2005**                           | ** ** |
| ** **                                                                                                   | ** ** | **Year Ended December 31,** | ** ** | **January 1,  2005 through  July 19, 2005** | ** ** | **through  December 31,  2005** | ** ** |
| ** **                                                                                                   | ** ** | **2003**                                   | ** ** | **2004**                                              | ** ** | ** ** | ** ** |
| ** **                                                                                                   |       | **(dollars  in thousands)**                |       |
| Income tax  expense at statutory federal tax rate                                                            |       | $                                          | 2,716      |                                                  | $          | 4,851 |   | $ | (3,791 | ) | $ | (2,017 | ) |
| Adjustment for  limited liability company income included in the return of the unit holders of  NSP Holdings |       | (1,651                                     | )          | 1,154                                                 |       | 9,852 |   | — |   |
| C corporation  income tax expense at statutory federal tax rate                                              |       | 1,065                                      |       | 6,005                                                 |       | 6,061 |   | (2,017 | ) |
| (Decrease)  increase resulting from:                                                                         |       |                                       |       |                                                  |       |   |   |   |   |
| State and local  taxes, net of federal benefit                                                               |       | (14                                        | )          | 110                                                   |       | 33 |   | (60 | ) |
| Foreign  subsidiaries’ tax rate differences                                                             |       | 218                                        |       | (353                                                  | )          | 1,219 |   | 154 |   |
| Change in  valuation allowance—U.S.                                                                     |       | 386                                        |       | (3,711                                                | )          | (4,407 | ) | — |   |
| Change in  valuation allowance—Foreign                                                                  |       | 76                                         |       | 415                                                   |       | — |   | (6 | ) |
| Nondeductible  depreciation, amortization and other expenses                                                 |       | (104                                       | )          | (149                                                  | )          | 46 |   | 68 |   |
| Other                                                                                                        |       | 216                                        |       | 878                                                   |       | 667 |   | 866 |   |
| Income tax  expense (benefit)                                                                                |       | $                                          | 1,843      |                                                  | $          | 3,195 |   | $ | 3,619 |   | $ | (995 | ) |

 

The tax effect of temporary differences that gave riseto deferred tax assets and liabilities consist of the following:

 
| ** **                                            | ** ** | **Predecessor**       | ** ** | **Successor**         | ** ** |
|-------------------------------------------------------|------------|-----------------------|------------|-----------------------|------------|
| ** **                                            | ** ** | **December 31,** | ** ** | **December 31,** | ** ** |
| ** **                                            | ** ** | **2004**              | ** ** | **2005**              | ** ** |
| Deferred tax  assets:                                 |       |                  |       |                  |       |
| United States  net operating loss carryforwards       |       | $                     | 13,828     |                  | $          | 6,065 |   |
| Foreign net  operating loss                           |       | 1,317                 |       | —                |       |
| Inventories—Principally  obsolescence reserves   |       | 2,566                 |       | 2,607                 |       |
| Intangibles—Principally  covenant not to compete |       | 3,598                 |       | 3,866                 |       |
| Pensions and  deferred compensation                   |       | 7,901                 |       | 12,439                |       |
| Allowance for  doubtful accounts                      |       | 220                   |       | 244                   |       |
| Other—Principally  accruals                      |       | 2,633                 |       | 5,032                 |       |
| Total deferred  tax asset                             |       | 32,063                |       | 30,253                |       |
| Less: Valuation  allowance                            |       | (28,854               | )          | —                |       |
| Net deferred tax  asset                               |       | 3,209                 |       | 30,253                |       |
| Deferred tax  liabilities:                            |       |                  |       |                  |       |
| Property, plant,  and equipment                       |       | 6,042                 |       | 13,682                |       |
| LIFO reserve                                          |       | 1,906                 |       | 2,426                 |       |
| Interest on debt                                      |       | —                |       | —                |       |
| Intangible  assets                                    |       | —                |       | 59,136                |       |
| Other—Principally  inventory step-up             |       | —                |       | 2,047                 |       |
| Total deferred  tax liabilities                       |       | 7,948                 |       | 77,291                |       |
| Net deferred tax  liability                           |       | $                     | (4,739     | )                     | $          | (47,038 | ) |

 

The U.S. net operating losses expire beginning in2018. In assessing the realizability of deferred tax assets, managementconsiders whether it is more likely than not that some portion or all of thedeferred tax assets will not be realized. The ultimate realization of deferredtax assets is dependent upon the generation of future taxable income during theperiods in which those temporary differences become deductible. Managementconsiders the scheduled reversal of deferred tax liabilities, projected futuretaxable income, and tax planning strategies in making this assessment.  For the years ended December 31, 2004,the period from January 1, 2005 through July 19, 2005, thePredecessor began to generate taxable income and utilized a portion of its netoperating loss carryforward; which resulted in a decrease in the valuationallowance.  For the Successor, thedecrease in the valuation reserve is due primarily to two factors:  1) the change in the Company’s taxstructure which allows all U.S. subsidiaries to file a consolidated federalreturn and 2) the creation of significant deferred tax liabilities inpurchase accounting which can be offset by the Company’s deferred tax assets,allowing full recognition of the assets.

 

50

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Undistributed earnings of the Company’s foreignsubsidiaries amounted to approximately $15,329 at December 31, 2005. Theseearnings are considered to be indefinitely reinvested and, accordingly, noprovision for U.S. federal and state income taxes has been provided thereon.Determination of the amount of unrecognized deferred U.S. income tax liabilityis not practicable because of the complexities associated with its hypotheticalcalculation.

 

The income tax expense (benefit) for the Predecessordiffers from the amount of income tax expense (benefit) computed by applyingthe U.S. federal income tax rate to income (loss) before income taxes andminority interest primarily due to: 1) the tax structure of certain U.S.subsidiaries which requires income taxes to be distributed to and paid by theunitholders, 2) net operating loss carryforwards in the United States and 3)the settlement of income tax audits in Canada and the Netherlands.

 

The income tax expense (benefit) for the Successordiffers from the amount of income tax expense (benefit) computed by applyingthe U.S. federal income tax rate to income (loss) before income taxes andminority interest primarily due to net operating loss carryforwards in theUnited States and the impact of purchase accounting adjustments related to theTransactions.

 

Income taxes paid during the years ended December 31,2003 and 2004, the period from January 1, 2005 through July 19, 2005,and the period from July 20, 2005 through December 31, 2005 were $1,201,$1,327, $2,548, and $3,895, respectively.

 

**9.  EmployeeBenefit Plans**

** **

The Company sponsors two tax-qualified,defined-benefit pension plan covering the majority of all U.S.-based employees.The pension plans’ benefits are based on years of service, employment with theCompany, retirement date, and compensation or stated amounts for each year ofservice. The Company’s funding policy is to annually contribute amountssufficient to meet the minimum funding requirements under the EmployeeRetirement Income Security Act of 1974.

 

Additionally, North has two nonqualifieddefined-benefit pension plans covering certain employees who are highlycompensated.

 

The majority of the Company’s U.S.-based employees arecovered by postretirement health and life insurance benefit plans. The expectedcost of these benefits is recognized during the years that employees renderservices. Retiree contributions are required depending on the year ofretirement and the number of years of service at the time of retirement.

 

51

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The following table sets forth the details of thefunded status of the pension and post-retirement plans, the amounts recognizedin the consolidated statements of financial position, the components of netperiodic benefit cost, and the weighted-average assumptions used in determiningthese amounts:

 
| ** **                                                               | ** ** | **Predecessor**                                  | ** ** | **Successor**                                                   | ** ** |
|--------------------------------------------------------------------------|------------|--------------------------------------------------|------------|-----------------------------------------------------------------|------------|
| ** **                                                               | ** ** | **Year Ended  December 31, 2004** | ** ** | **January 1, 2005  through  July 19, 2005** | ** ** | **July 20, 2005  through  December 31, 2005** | ** ** |
| ** **                                                               | ** ** | **Pension  Benefits**                            | ** ** | **Post-  Retirement  Benefits**                                 | ** ** | **Pension  Benefits** | ** ** | **Post-  Retirement  Benefits** | ** ** | **Pension  Benefits** | ** ** | **Post-  Retirement  Benefits** | ** ** |
| Change in  benefit obligation:                                           |       |                                             |       |                                                            |       |   |   |   |   |   |   |   |   |
| Benefit  obligation at beginning of period                               |       | $                                                | 59,527     |                                                            | $          | 1,400 |   | $ | 64,694 |   | $ | 1,440 |   | $ | 70,567 |   | $ | 1,483 |   |
| Fibre-Metal  opening obligation                                          |       | —                                           |       | —                                                          |       | — |   | — |   | 3,085 |   | — |   |
| Service cost                                                             |       | 1,566                                            |       | 26                                                              |       | 903 |   | 14 |   | 855 |   | 12 |   |
| Interest cost                                                            |       | 3,511                                            |       | 82                                                              |       | 1,960 |   | 43 |   | 1,692 |   | 34 |   |
| Benefits paid                                                            |       | (2,416                                           | )          | (239                                                            | )          | (1,698 | ) | (250 | ) | (897 | ) | (162 | ) |
| Actuarial loss  (gain)                                                   |       | 2,506                                            |       | 171                                                             |       | 4,708 |   | 237 |   | (1,993 | ) | 37 |   |
| Benefit  obligation at end of period                                     |       | $                                                | 64,694     |                                                            | $          | 1,440 |   | $ | 70,567 |   | $ | 1,484 |   | $ | 73,309 |   | $ | 1,404 |   |
| Change in plan  assets:                                                  |       |                                             |       |                                                            |       |   |   |   |   |   |   |   |   |
| Fair value of  plan assets at beginning of period                        |       | $                                                | 31,520     |                                                            | $          | — |   | $ | 37,854 |   | $ | — |   | $ | 40,083 |   | $ | — |   |
| Fibre-Metal  opening plan assets                                         |       | —                                           |       | —                                                          |       | — |   | — |   | 3,053 |   | — |   |
| Actual return on  plan assets                                            |       | 2,702                                            |       | —                                                          |       | 1,052 |   | — |   | 863 |   | — |   |
| Employer  contribution                                                   |       | 6,048                                            |       | 239                                                             |       | 2,876 |   | 251 |   | 1,768 |   | 162 |   |
| Benefits paid                                                            |       | (2,416                                           | )          | (239                                                            | )          | (1,698 | ) | (251 | ) | (897 | ) | (162 | ) |
| Fair value of  plan assets at end of period                              |       | $                                                | 37,854     |                                                            | $          | — |   | $ | 40,084 |   | $ | — |   | $ | 44,870 |   | $ | — |   |
| Reconciliation  of amount recognized in the consolidated balance sheets: |       |                                             |       |                                                            |       |   |   |   |   |   |   |   |   |
| Accumulated  benefit obligation                                          |       | $                                                | (58,877    | )                                                               | $          | (1,440 | ) | $ | (63,524 | ) | $ | (1,484 | ) | $ | (66,561 | ) | $ | (1,404 | ) |
| Effect of salary  projection                                             |       | (5,817                                           | )          | —                                                          |       | (7,043 | ) | — |   | (6,747 | ) | — |   |
| Projected  benefit obligation                                            |       | (64,694                                          | )          | (1,440                                                          | )          | (70,567 | ) | (1,484 | ) | (73,309 | ) | (1,404 | ) |
| Market value of  assets                                                  |       | 37,854                                           |       | —                                                          |       | 40,084 |   | — |   | 44,870 |   | — |   |
| Funded status                                                            |       | (26,840                                          | )          | (1,440                                                          | )          | (30,483 | ) | (1,484 | ) | (28,439 | ) | (1,404 | ) |
| Unrecognized  actuarial loss (gain)                                      |       | 16,630                                           |       | 1,142                                                           |       | 21,538 |   | 1,331 |   | (1,223 | ) | 37 |   |
| Unrecognized  prior service cost                                         |       | 38                                               |       | 118                                                             |       | 36 |   | 109 |   | — |   | — |   |
| Net amount  recognized at end of period                                  |       | $                                                | (10,172    | )                                                               | $          | (180 | ) | $ | (8,909 | ) | $ | (44 | ) | $ | (29,662 | ) | $ | (1,367 | ) |
| Amounts  recognized in the consolidated balance sheets:                  |       |                                             |       |                                                            |       |   |   |   |   |   |   |   |   |
| Accrued benefit  liability                                               |       | $                                                | (21,023    | )                                                               | $          | (180 | ) | $ | (23,440 | ) | $ | (44 | ) | $ | (29,662 | ) | $ | (1,367 | ) |
| Intangible asset                                                         |       | 38                                               |       | —                                                          |       | 36 |   | — |   | — |   | — |   |
| Accumulated  other comprehensive loss                                    |       | 10,813                                           |       | —                                                          |       | 14,495 |   | — |   | — |   | — |   |
| Net amount  recognized at end of period                                  |       | $                                                | (10,172    | )                                                               | $          | (180 | ) | $ | (8,909 | ) | $ | (44 | ) | $ | (29,662 | ) | $ | (1,367 | ) |

 

52

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| ** **                                                                   | ** ** | **Predecessor**                                  | ** ** | **Successor**                                                   | ** ** |
|------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|-----------------------------------------------------------------|------------|
| ** **                                                                   | ** ** | **Year Ended  December 31, 2004** | ** ** | **January 1, 2005  through  July 19, 2005** | ** ** | **July 20, 2005  through  December 31, 2005** | ** ** |
| ** **                                                                   | ** ** | **Pension  Benefits**                            | ** ** | **Post-  Retirement  Benefits**                                 | ** ** | **Pension  Benefits** | ** ** | **Post-  Retirement  Benefits** | ** ** | **Pension  Benefits** | ** ** | **Post-  Retirement  Benefits** | ** ** |
| Change in  accrued benefit cost:                                             |       |                                             |       |                                                            |       |   |   |   |   |   |   |   |   |
| Accrued benefit  cost at beginning of year                                   |       | $                                                | 12,935     |                                                            | $          | 208 |   | $ | 10,171 |   | $ | 180 |   | $ | 30,483 |   | $ | 1,483 |   |
| Fibre-Metal  opening accrued benefit cost                                    |       | —                                           |       | —                                                          |       | — |   | — |   | 32 |   | — |   |
| Net periodic  benefit cost                                                   |       | 3,285                                            |       | 211                                                             |       | 1,614 |   | 114 |   | 914 |   | 46 |   |
| Contributions                                                                |       | (6,048                                           | )          | (239                                                            | )          | (2,876 | ) | (250 | ) | (1,767 | ) | (162 | ) |
| Accrued benefit  cost at December 31                                    |       | $                                                | 10,172     |                                                            | $          | 180 |   | $ | 8,909 |   | $ | 44 |   | $ | 29,662 |   | $ | 1,367 |   |
| Weighted average  assumptions used to determine year end benefit obligation: |       |                                             |       |                                                            |       |   |   |   |   |   |   |   |   |
| Discount rate                                                                |       | 5.75                                             | %          | 5.75                                                            | %          | 5.25 | % | 5.25 | % | 5.50 | % | 5.50 | % |
| Rate of  compensation increase                                               |       | 4.00                                             | %          | —                                                          |       | 4.00 | % | — |   | 4.00 | % | — |   |

 
| ** **                                                                                | ** ** | **Predecessor**                            | ** ** | **Successor**                          | ** ** |
|-------------------------------------------------------------------------------------------|------------|--------------------------------------------|------------|----------------------------------------|------------|
| ** **                                                                                | ** ** | **Year Ended December 31,** | ** ** | **January 1, 2005  through** | ** ** | **July 20, 2005  through** | ** ** |
| ** **                                                                                | ** ** | **2003**                                   | ** ** | **2004**                               | ** ** | **July 19, 2005** | ** ** | **December 31, 2005** | ** ** |
| ** **                                                                                | ** ** | **Pension  Benefits**                      | ** ** | **Post-  Retirement  Benefits**        | ** ** | **Pension  Benefits** | ** ** | **Post-  Retirement  Benefits** | ** ** | **Pension  Benefits** | ** ** | **Post-  Retirement  Benefits** | ** ** | **Pension  Benefits** | ** ** | **Post-  Retirement  Benefits** | ** ** |
| Components of  net period benefit cost:                                                   |       |                                       |       |                                   |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Service cost                                                                              |       | $                                          | 1,365      |                                   | $          | 27 |   | $ | 1,566 |   | $ | 26 |   | $ | 903 |   | $ | 14 |   | $ | 855 |   | $ | 12 |   |
| Interest cost                                                                             |       | 3,395                                      |       | 84                                     |       | 3,511 |   | 82 |   | 1,961 |   | 43 |   | 1,692 |   | 34 |   |
| Expected return  on plan assets                                                           |       | (2,303                                     | )          | —                                 |       | (2,683 | ) | — |   | (1,780 | ) | — |   | (1,633 | ) | — |   |
| Amortization of  prior service cost                                                       |       | 5                                          |       | 18                                     |       | 5 |   | 18 |   | 3 |   | 9 |   | — |   | — |   |
| Amortization of  actuarial (gain) loss                                                    |       | 859                                        |       | 60                                     |       | 886 |   | 85 |   | 527 |   | 48 |   | — |   | — |   |
| Net periodic  expense                                                                     |       | $                                          | 3,321      |                                   | $          | 189 |   | $ | 3,285 |   | $ | 211 |   | $ | 1,614 |   | $ | 114 |   | $ | 914 |   | $ | 46 |   |
| Weighted-average  assumptions used to determine net periodic benefit cost are as follows: |       |                                       |       |                                   |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Discount rate                                                                             |       | 6.50                                       | %          | 6.50                                   | %          | 6.00 | % | 6.00 | % | 5.75 | % | 5.75 | % | 5.25 | % | 5.25 | % |
| Expected return  on plan assets                                                           |       | 8.50                                       |       | —                                 |       | 8.50 |   | — |   | 8.50 | % | — |   | 8.5 | % | — |   |
| Rate of compensation  increase                                                            |       | 4.00                                       |       | —                                 |       | 4.00 |   | — |   | 4.00 | % | — |   | 4.00 | % | — |   |

 

The long-term rate of return on plan assets assumptionis reviewed annually. An investment model is used to determine an expected rateof return based on current investment allocation. The investment modelconsiders past performance and forward looking assumptions for each asset classbased on current market indices, key economic indicators and assumed long-termrate of inflation. The long-term rate of return assumption is adjusted, as needed,such that it falls between the 25th and 75th percentileexpected return generated from the model.

 

The Company’s investment philosophy is to diversifythe pension assets subject to a specified asset allocation policy. The Companyrebalances the asset classes to stay within an acceptable range around thetargeted allocation. The 

 

53

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philosophy recognizes that the primary objective for the management ofthe assets is to maximize return commensurate with the level of riskundertaken. With the understanding that investment returns are largelyuncertain from year to year, the basic return objective is to be achieved overan averaging period no greater than three to five years in duration. The assetsare invested in both indexed funds and actively managed funds, depending on theasset class.

 

The Company’s plan asset allocation at December 31,2004 and 2005, and target allocation for 2006, by asset category are asfollows:

 
| ** **         | ** ** | **Predecessor**       | ** ** | **Successor**                   | ** ** |
|--------------------|------------|-----------------------|------------|---------------------------------|------------|
| ** **         | ** ** | ** **            | ** ** | ** **                      | ** ** | ** ** | ** ** | ** ** | ** ** | **Target** | ** ** |
| ** **         | ** ** | **December 31,** | ** ** | **Allocation**                  | ** ** |
| ** **         | ** ** | **2004**              | ** ** | **2005**                        | ** ** | **2006** | ** ** |
| ** **         | ** ** | **Pension  Benefits** | ** ** | **Post-  Retirement  Benefits** | ** ** | **Pension  Benefits** | ** ** | **Post-  Retirement  Benefits** | ** ** | **Pension  Benefits** | ** ** | **Post-  Retirement  Benefits** | ** ** |
| Equity  securities |       | 60                    | %          | —                          | %          | 60 | % | — | % | 60 | % | — | % |
| Debt securities    |       | 40                    | %          | —                          | %          | 40 | % | — | % | 40 | % | — | % |
|               |       | 100                   | %          | —                          | %          | 100 | % | — | % | 100 | % | — | % |

 

Futureexpected benefit payments as of December 31, 2005, is as follows:

 
| 2006       |   | $      |  3,343 |   |
|------------|--------|--------|-------------|--------|
| 2007       |   | 3,416  |        |
| 2008       |   | 3,605  |        |
| 2009       |   | 3,745  |        |
| 2010       |   | 3,998  |        |
| Thereafter |   | 24,356 |        |
|       |   | $      | 42,463      |   |

 

The Company expects 2006 contributions for pension andpost-retirement benefits to be approximately $5,371.

 

The Company also sponsors defined-contribution planscovering substantially all of its U.S.-based employees. The Company’scontribution to these plans ranges from 0% to 6% of a participant’s salary. Inaddition, the Company may elect to make discretionary contributions to some ofthe plans. The amount expensed for various match provisions of the plans was$829, $907, $558, and $406 for the years ended December 31, 2003 and 2004,the period from January 1, 2005 through July 19, 2005 and the periodfrom July 20, 2005 through December 31, 2005, respectively.

 

**10.****   Members’ Deficit/Shareholders’ Equity**

 

**UnitOptions**

** **

Asof January 1, 2002, the Predecessor had granted an aggregate of 21,124options to purchase Class A units at $2.10 per unit, 31,239 options topurchase Class A units at $5.89 per unit, 313,640 options to purchase Class Cunits at $5.89 per unit, and 21,124 options to purchase preferred units at$3.90 per unit. Each issuance approximated fair market value at date of grant.The options were fully vested at the date of grant and expire ten years fromthe date of grant. No options were issued, exercised, forfeited, or expired in2002, 2003, and 2004. As part of the Norcross Transaction, all outstandingoptions were exercised with a realized value of $1,580.

 

**UnitAppreciation Rights Plan**

** **

ThePredecessor had a unit appreciation rights plan (Rights Plan), whereby theBoard of Managers or their designee may issue to key employees up to 476,700 ofunit appreciation rights. As of the date of the Norcross Transaction, 441,264appreciation rights were outstanding. Individuals vest in appreciated rightsover four years (first year: 10%; second year: 20%; third year: 30%; and fourthyear: 40%). Vesting accelerated upon certain events, including a participant’sdeath and the sale of the Predecessor or an initial public offering. Allappreciation rights are issued at fair market value at the date of grant. TheCompany recorded no compensation expense related to the grant appreciationrights during the years ended December 31, 2003 and 2004.  As part of the Norcross Transaction, alloutstanding units appreciation rights were exercised with a realized value of$2,720.

 

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**RedeemablePreferred Units**

** **

Inconnection with the North acquisition on October 2, 1998, the Predecessorreceived $57,329 in exchange for the issuance of redeemable preferred units.The preferred units accrued dividends at a semiannual compound rate of 10%. Thepreferred units were nonvoting and were mandatorily redeemable by thePredecessor on September 30, 2013. In the event of any liquidation, sale,dissolution, or winding up of the affairs of the Predecessor, holders of thepreferred units were to be paid the redemption price, plus all accrueddividends before any payment to other unit holders.

 

Inconnection with the Arbin acquisition, the Predecessor issued additionalmandatorily redeemable preferred units for $1,950, respectively. Thesepreferred units also accrued dividends at a semiannual compound rate of 10%,and were mandatorily redeemable by the Predecessor on September 30, 2013.

 

BeginningJanuary 1, 2004, in accordance with Statement of Financial AccountingStandard (“SFAS”) No. 150, the yield on the Predecessor’s preferred unitsis recorded as interest expense and the preferred units are classified on thePredecessor’s balance sheet as long-term liabilities. For all periods prior to January 1,2004, the yield is recorded below net income as preferred unit dividend and thepreferred units were recorded on the Predecessor’s balance sheet between debtand equity. For the year ended December 31, 2004 and period from January 1,2005 through July 19, 2005, the Predecessor classified $13,493 and $4,833 ofpreferred unit dividends as interest expense, respectively.

 

Asof December 31, 2004, $57,726 of dividends were accrued and unpaid. On January 7,2005, the Predecessor made a payment in respect of the preferred units of$60,000, $58,000 of which were payments in respect of accrued preferred yieldand $2,000 of which was the return of a portion of the original capitalcontribution made by holders of NSP Holdings preferred units (See Note 7).  As part of the Norcross Transaction, alloutstanding accrued preferred yield and capital was funded to the preferredunit holders.

 

**Class EUnits**

** **

Duringthe year ended December 31, 2004, the Predecessor authorized the issuanceof 1,000 Class E Units, which vest 6.25% quarterly. As of December 31,2004, 986 Class E Units were issued to senior management of the Companyfor $1. The holders of Class E Units were entitled to distributions on theCompany’s units as defined in the Company’s Second Amended and Restated LimitedLiability Company Agreement. The units were vested 31.25% as of December 31,2004.  As part of the NorcrossTransaction, the Predecessor funded $7,698 to the holders of Class E Units.

 

**Common Units**

** **

Inaddition to the preferred units and Class E Units, the Predecessor’sequity structure consisted of Class A common units, Class B commonunits, Class C common units, and Class D common units. Class Bcommon units and Class D common units were nonvoting. Common units weregenerally convertible into other classes of common units at the member’srequest, with certain restrictions based on Class B and Class C unitholders, as defined. In connection with the Arbin acquisition, the Companyissued Class A units for proceeds of $1,050.

 

**Common Shares**

** **

Asof December 31, 2005, the Company had 15,000,000 authorized common shares and10,967,000 outstanding common shares with a par price of $0.01 per share.

 

**ManagementLoans**

** **

Inconnection with the acquisition of North, certain members of management enteredinto nonrecourse promissory notes amounting to $1,086 in exchange for Class Ccommon units of the Predecessor. The notes were non-interest-bearing and maturedon the earlier of December 31, 2016, the sale of the Predecessor, or theoccurrence of certain events, all as defined in the notes. The promissory noteswere collateralized by the Class A and Class C common and allpreferred units of the borrowers, and were classified as reductions to members’deficit. In 2002 and 2003, $94 of this note amount was repaid.

 

Inconnection with an acquisition, certain members of management entered intononrecourse promissory notes amounting to $1,108 in exchange for Class Acommon units and preferred units of the Predecessor. The notes werenon-interest-bearing and matured on the earlier of December 31, 2016, thesale of the Predecessor, or the occurrence of certain events, all as defined inthe notes. The promissory notes are collateralized by Class A common andpreferred units of the borrowers and have been classified as reductions tomembers’ deficit. In 2002 and 2003, $34 and $61 of this note amount was repaid,related to the Class A common units and preferred units, respectively. No amountswere repaid in 2004.

 

Themanagement loans were repaid as part of the Norcross Transaction.

 

55

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**11.  LeaseCommitments**

 

The Company leases various assets whose terms andconditions qualify the obligations for treatment as capital leases.

 

The Company also leases certain facilities undervarious noncancelable operating lease agreements. Future minimum lease paymentsunder capital and noncancelable operating leases as of December 31, 2005,are as follows:

 
| ** **                                                        | ** ** | **Capital Leases** | ** ** | **Operating Leases** | ** ** |
|-------------------------------------------------------------------|------------|-------------------------|------------|---------------------------|------------|
| 2006                                                              |       | $                       | 77         |                      | $          | 5,428 |   |
| 2007                                                              |       | —                  |       | 3,898                     |       |
| 2008                                                              |       | —                  |       | 3,076                     |       |
| 2009                                                              |       | —                  |       | 2,068                     |       |
| 2010                                                              |       | —                  |       | 1,238                     |       |
| Thereafter                                                        |       | —                  |       | 291                       |       |
| Total minimum  lease payments                                     |       | 77                      |       | $                         | 15,999     |   |
| Less: Amount  representing interest                               |       | 2                       | ** ** | ** **                | ** ** |
| Present value of  net minimum capital lease payments              |       | 75                      | ** ** | ** **                | ** ** |
| Less: Current  portion of obligations under capital leases        |       | 75                      | ** ** | ** **                | ** ** |
| Obligations  under capital leases, excluding current installments |       | $                       | —     | ** **                | ** ** | ** ** |

 

Rent expense was $5,102, $5,513, $3,488, and $2,676for the years ended December 31, 2003, and 2004, the period from January 1,2005 through July 19, 2005, and the period from July 20, 2005 throughDecember 31, 2005, respectively.

 

**12.  LegalProceedings**

** **

The Company is subject to various claims arising inthe ordinary course of business. Most of these lawsuits and claims are productliability matters that arise out of the use of respiratory product linesmanufactured by the Company’s North Safety Products subsidiary. As of December 31,2005, the Company’s North Safety Products subsidiary, along with itspredecessors and/or the former owners of such business were named as defendantsin approximately 1,136 lawsuits involving respirators manufactured and sold byit or its predecessors. The Company is also monitoring an additional 12lawsuits in which it feels that North Safety Products, its predecessors and/orthe former owners of such businesses may be named as defendants. Collectively,these 1,148 lawsuits represent a total of approximately 18,459 plaintiffs.Approximately 93% of these lawsuits involve plaintiffs alleging injuryresulting from exposure to silica dust, with the remainder alleging injuryresulting from exposure to other dust particles, including asbestos. Theselawsuits typically allege that the purposed injuries resulted in part fromrespirators that were negligently designed or manufactured. Invensys plc (“Invensys”),formerly Siebe plc, is contractually obligated to indemnify the Company for anylosses, including costs of defending claims, resulting from respiratoryproducts manufactured or sold prior to the acquisition of North Safety Productsin October 1998.

 

In addition, the Company’s North Safety Productssubsidiary is contractually entitled to indemnification from Norton Company, anaffiliate of Saint-Gobain, which owned the North Safety Products business priorto Invensys. Pursuant to a December 14, 1982 asset purchase agreement,Siebe Norton, Inc., a newly formed wholly-owned subsidiary of NortonCompany, acquired the assets of Norton’s Safety Products Division and the stockof this company was in turn acquired by Siebe Gorman Holdings PLC. Under theterms of the Agreement, Siebe Norton, Inc. did not assume any liabilityfor claims relating to products shipped by Norton Company prior to the closingdate. Moreover, Norton Company covenanted in the Agreement to indemnify SiebeNorton and its successors and assigns against any liability resulting from orarising out of any state of facts, omissions or events existing or occurring onor before the closing date, including, without limitation, any claims arisingfrom products shipped by Norton Company or any of its affiliates prior to theclosing date. Siebe Norton, whose name was subsequently changed to Siebe NorthInc., was subsequently acquired by the Company as part of the 1998 acquisitionof the North Safety Products business from Invensys.

 

Despite these indemnification arrangements, theCompany could potentially be liable for losses or claims relating to productsmanufactured prior to the October 1998 acquisition date if Invensys failsto meet its obligations to indemnify the Company and the Company couldpotentially be liable for losses and claims relating to products sold prior to January 10,1983 if both Invensys and Norton fail to meet their obligations to indemnifythe Company. The Company could also be liable if the alleged exposure involvedthe use of a product manufactured by the Company after the October 1998acquisition of the North Safety Products business. Invensys is currently handlingthe defense of all of the cases prior to October 1998 in which NorthSafety Products, its predecessors and/or former owners of such business havebeen named as defendants. The Company is jointly with Invensys handling thedefense of all of the cases which allege exposure, including periods pre and 

 

56

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post October 1998.  TheCompany will individually handle the defense of all cases with exclusive post October 1998exposure, however, it has not been involved in a case with exclusive post October 1998exposure to date.  As of December 31,2005, Invensys has sent the Company requests for reimbursement totaling $252,relating to settled cases in which Invensys claims that the period of allegedexposure included periods after October 1998. To date, the Company has notreimbursed Invensys for these claims, as its currently pursuing negotiationsregarding the allocation of costs and the determination of the alleged exposureperiods.  Based on information providedto the Company by Invensys, the Company believes that Invensys has madepayments with respect to settlement of these claims of $661 in 2003, $938 in2004, and $69 in 2005. The Company believes that Invensys has the ability topay these claims based on its current financial position, as publicly disclosedby Invensys.  Separately, the Company andInvensys settled one unusual case for $65 in which the Company’s settlementshare was $45 (the Company’s net contribution after insurance proceeds was$25).

 

Based upon information provided to the Company byInvensys, the Company believes activity related to these lawsuits was asfollows for the periods indicated:

 
| ** **            | ** ** | **2003**       | ** ** | **2004**  | ** ** | **2005**       | ** ** |
|-----------------------|------------|----------------|------------|-----------|------------|----------------|------------|
| ** **            | ** ** | **Plaintiffs** | ** ** | **Cases** | ** ** | **Plaintiffs** | ** ** | **Cases** | ** ** | **Plaintiffs** | ** ** | **Cases** | ** ** |
| Beginning  lawsuits   |       | 9,793          |       | 306       |       | 24,002         |       | 680 |   | 25,944 |   | 858 |   |
| New lawsuits          |       | 17,267         |       | 537       |       | 4,658          |       | 372 |   | 2,226 |   | 587 |   |
| Settlements           |       | (625           | )          | (46       | )          | (546           | )          | (46 | ) | 24 |   | (32 | ) |
| Dismissals and  other |       | (2,433         | )          | (117      | )          | (2,170         | )          | (148 | ) | (9,735 | ) | (265 | ) |
| Ending lawsuits       |       | 24,002         |       | 680       |       | 25,944         |       | 858 |   | 18,459 |   | 1,148 |   |

 

Plaintiffs have asserted specific dollar claims inapproximately a quarter of the approximately 1,136 cases pending as of December 31,2005, in which North Safety Products, its predecessors and/or the former ownersof such businesses have been named as defendants. A majority of jurisdictionsprohibit specifying damages in tort cases such as these, and most of theremaining jurisdictions do not require such specification. In those cases inwhich plaintiffs choose to assert specific dollar amounts in their complaints,brought in states that permit such pleading, the amounts claimed are typicallynot meaningful as an indicator of a company’s potential liability. This isbecause (1) the amounts claimed typically bear no relation to the level ofthe plaintiff’s injury, (2) the complaints typically assert claims againstnumerous defendants, and (3) many cases are brought on behalf ofplaintiffs who have not suffered any medical injury, and, ultimately, areresolved without any payment or payment of a small fraction of the damagesinitially claimed. Of the 1,136 complaints maintained in the Company’s records,844 do not specify the amount of damages sought, 27 generally allege damages inexcess of $50, two allege compensatory damages in excess of $50 and anunspecified amount of punitive damages, 114 allege compensatory damages andpunitive damages, each in excess of $25, two generally allege damages in excessof $100, 16 allege compensatory damages and punitive damages, each in excess of$50, 21 generally allege damages of $15,000, one generally alleges damages notto exceed $290,000, one alleges compensatory damages and punitive damages, eachin excess of $10, one alleges compensatory and punitive damages, each in excessof $15, seven allege punitive damages in excess of $25, one alleges punitivedamages in excess of $50, 88 generally allege damages in excess of $15, fivegenerally allege damages in excess of $25, one alleges compensatory andpunitive damages of $18,000 and punitive damages of $10,000, two allegecompensatory damages of $13,000 and punitive damages of $10,000, one allegescompensatory and punitive damages, each in excess of $15, and two allegecompensatory and punitive damages each in excess of $15,000. The Companycurrently does not have access to the complaints with respect to the previouslymentioned additional 12 monitored cases, and therefore it does not know whetherthese cases allege specific damages, and if so, the amount of such damages, butis in the process of seeking to obtain such information. Due to the reasonsnoted above and to the indemnification arrangements benefiting the Company, itdoes not believe that the damage amounts specified in these complaints are ameaningful factor in any assessment of the Company’s potential liability.

 

During the year ended December 31, 2004, theCompany recorded a $1,250 liability and charge to operating expenses toestablish a reserve for respiratory claims, which remains outstanding as of December 31,2004.  The Company increased this reserveto $5.0 million and recorded the increase as part of the purchase priceallocation process associated with the Norcross Transaction.  The increase represents a decision by newownership to negotiate the Company’s participation in a joint defense groupwith the prior owners of North Safety Products. This reserve represents areasonable estimate of the Company’s probable and estimable liabilities forclaims alleging injury resulting from exposure to silica dust and other dustparticles, including asbestos as determined by the Company in consultation withan independent consultant.  The Companyhas determined that a five-year projection of claims and defense costs is themost reasonable approach.  However, it ispossible that the Company may incur liabilities in excess of the amountscurrently reserved.  This reserve will bere-evaluated periodically and additional charges or credits will be recorded tooperating expenses as additional information becomes available.

 

57

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The Company is not otherwise involved in any materiallawsuits. The Company historically has not been required to pay any materialliability claims. The Company maintains insurance against product liabilityclaims (with the exception of asbestosis and silicosis cases, for whichcoverage is not commercially available), but it is possible that its insurancecoverage will not continue to be available on terms acceptable to the Companyor that such coverage will not be adequate for liabilities actually incurred.

 

It is possible that the Company may incur liabilitiesin an amount in excess of amounts currently reserved. However, taking intoaccount currently available information, historical experience, and the Company’sindemnification from Invensys, but recognizing the inherent uncertainties inthe projection of any future events, the Company believes that these suits orclaims should not result in final judgments or settlements in excess of itsreserve.

 

In connection with an ongoing dispute, one of theCompany’s competitors has filed a complaint against it alleging that theCompany has made a series of misrepresentations concerning this competitor andits products. The complaint seeks a retraction of all statements alleged to havebeen made by the Company and unspecified damages, including legal fees. A benchtrial on the issue of liability was held in February 2006 and the matteris now awaiting ruling by the court. The Company intends to vigorously defendagainst these claims.

 

**13. Restructuring and Merger-Related Charges**

** **

In conjunction with the Fibre-Metal Transaction, theCompany initiated a restructuring plan to close the Fibre-Metal manufacturingfacility located in Concordville, Pennsylvania and move production to its Cranston,Rhode Island and Mexicali, Mexico facilities. In addition, the Company plans toclose certain Fibre-Metal distribution centers and integrate Fibre-Metaldistribution into its existing distribution facilities.  The Company initiated this plan in order toincrease profitability through utilizing excess capacity at its existing plantsand moving manufacturing to locations with favorable labor costs. As of thedate of the Fibre-Metal Transaction, the Company recorded an accrual for costsassociated with the plan of $1,716, comprised of $1,383 in severance costs and$333 in facility closure and other exit costs. Since the Fibre-MetalTransaction there have been no payments or adjustments to the liability.

 

58

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**14.  RelatedParty Transactions**

 

The Company leases a facility in Dayton, Ohio fromAmerican Firefighters Cooperative, Inc., a corporation controlled byWilliam L. Grilliot, President—Fire Service. The initial term of the leaseended on February 28, 2005, and was extended through April 30, 2009.The base rent is $348 per year, payable in monthly installments. In addition,the Company must also pay American Firefighters Cooperative, Inc. allgeneral and special assessments of every kind, as additional rent during theterm of the lease. The rent paid was $354, $366, $218 and $155 for the yearsended December 31, 2003 and 2004, the period from January 1, 2005 through July19, 2005 and the period from July 20, 2005 through December 31, 2005,respectively.

 

**15.  SegmentData**

** **

The Company has three reporting segments: generalsafety and preparedness, fire service, and electrical safety. General safetyand preparedness offers products to a wide variety of industries, includingmanufacturing, agriculture, automotive, construction, food processing andpharmaceutical industries and the military, under the *North*, *Range, Servus, KCL**and* Fibre-Metal *brand names*. The product offeringincludes respiratory protection, protective footwear, hand protection, eye,head and face protection, first aid, hearing protection and fall protection.The Company sells its general safety and preparedness products primarilythrough industrial distributors. Fire Service offers personal protectionequipment for the fire service market, providing firefighters head-to-toeprotection. The product offering includes bunker gear, fireboots, helmets,gloves and other accessories. The Company markets its products under the *Total Fire Group* umbrella, using the brandnames of *Morning Pride*, *Ranger*, *Servus*and *Pro-Warrington*. The Companysells its fire service products primarily through specialized fire servicedistributors. Electrical safety offers personal protection equipment for the utilitymarket under the *Salisbury* and *Servus* brands. The product offeringincludes linemen equipment, gloves, sleeves, and footwear. The Companydistributes its electrical safety products through specialized distributors,test labs, utilities, and electrical contractors.

 

The following table presents information about theCompany by segment:

 
| ** **                                                         | ** ** | **General  Safety and  Preparedness** | ** ** | **Fire  Service** | ** ** | **Electrical  Safety** | ** ** | **Corporate** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
|--------------------------------------------------------------------|------------|--------------------------------------------|------------|-------------------|------------|------------------------|------------|---------------|------------|------------------|------------|-----------|------------|
| **Predecessor  Company**                                           |       |                                       |       |              |       |                   |       |          |       |             |       |      |       |
| **Year  ended December 31, 2003**                             |       |                                       |       |              |       |                   |       |          |       |             |       |      |       |
| Net sales—third  parties                                      |       | $                                          | 257,247    |              | $          | 70,335                 |       | $             | 43,220     |             | $          | —    |       | $ | — |   | $ | 370,802 |   |
| Net sales—intersegment                                        |       | 9,349                                      |       | —            |       | 30                     |       | —        |       | (9,379           | )          | —    |       |
| Income (loss)  from operations                                     |       | 22,306                                     |       | 13,248            |       | 9,078                  |       | (4,537        | )          | —           |       | 40,095    |       |
| Interest expense                                                   |       | 33,238                                     |       | 134               |       | —                 |       | 82            |       | —           |       | 33,454    |       |
| Income tax  expense                                                |       | 1,600                                      |       | 85                |       | —                 |       | 158           |       | —           |       | 1,843     |       |
| Depreciation and  amortization                                     |       | 10,611                                     |       | 367               |       | 1,161                  |       | 610           |       | —           |       | 12,749    |       |
| Purchase of  plant, property and equipment                         |       | 6,040                                      |       | 592               |       | 800                    |       | —        |       | —           |       | 7,432     |       |
| **Year  ended December 31, 2004**                             |       |                                       |       |              |       |                   |       |          |       |             |       |      |       |
| Net sales—third  parties                                      |       | 308,576                                    |       | 78,881            |       | 51,042                 |       | —        |       | —           |       | 438,499   |       |
| Net sales—intersegment                                        |       | 9,684                                      |       | —            |       | —                 |       | —        |       | (9,684           | )          | —    |       |
| Income (loss)  from operations                                     |       | 31,112                                     |       | 14,972            |       | 11,148                 |       | (6,083        | )          | —           |       | 51,149    |       |
| Strategic  alternatives                                            |       | —                                     |       | —            |       | —                 |       | 616           |       | —           |       | 616       |       |
| Interest expense                                                   |       | 22,385                                     |       | 52                |       | —                 |       | 13,525        |       | —           |       | 35,962    |       |
| Income tax  expense                                                |       | 2,734                                      |       | 238               |       | —                 |       | 223           |       | —           |       | 3,195     |       |
| Depreciation and  amortization                                     |       | 9,868                                      |       | 413               |       | 1,482                  |       | 608           |       | —           |       | 12,371    |       |
| Purchase of  plant, property and equipment                         |       | 5,028                                      |       | 480               |       | 915                    |       | —        |       | —           |       | 6,423     |       |
| Total assets                                                       |       | 355,332                                    |       | 29,185            |       | 18,465                 |       | 116,768       |       | (130,559         | )          | 389,191   |       |
| **Period  from January 1, 2005 through July 19, 2005**   |       |                                       |       |              |       |                   |       |          |       |             |       |      |       |
| Net sales—third  parties                                      |       | 186,434                                    |       | 51,702            |       | 33,558                 |       | —        |       | —           |       | 271,694   |       |
| Net sales—intersegment                                        |       | 5,548                                      |       | —            |       | —                 |       | —        |       | (5,548           | )          | —    |       |
| Income (loss)  from operations                                     |       | 19,937                                     |       | 9,332             |       | 8,442                  |       | (19,481       | )          | —           |       | 18,230    |       |
| Management  transaction compensation                               |       | —                                     |       | —            |       | —                 |       | 16,388        |       | —           |       | 16,388    |       |
| Seller  transaction expenses                                       |       | —                                     |       | —            |       | —                 |       | 4,646         |       | —           |       | 4,646     |       |
| Interest expense                                                   |       | 13,112                                     |       | 14                |       | —                 |       | 11,458        |       | —           |       | 24,584    |       |
| Income tax  expense                                                |       | 3,373                                      |       | 146               |       | —                 |       | 100           |       | —           |       | 3,619     |       |
| Depreciation and  amortization                                     |       | 5,319                                      |       | 238               |       | 944                    |       | 5             |       | —           |       | 6,506     |       |
| Purchase of  plant, property and equipment                         |       | 3,349                                      |       | 91                |       | 810                    |       | —        |       | —           |       | 4,250     |       |
| **Successor  Company**                                             |       |                                       |       |              |       |                   |       |          |       |             |       |      |       |
| **Period  from July 20, 2005 through December 31, 2005** |       |                                       |       |              |       |                   |       |          |       |             |       |      |       |
| Net sales—third  parties                                      |       | 146,103                                    |       | 36,213            |       | 27,080                 |       | —        |       | —           |       | 209,396   |       |
| Net sales—intersegment                                        |       | 3,750                                      |       | —            |       | —                 |       | —        |       | (3,750           | )          | —    |       |
| Income (loss)  from operations                                     |       | 7,667                                      |       | 2,574             |       | 4,352                  |       | (2,876        | )          | —           |       | 11,717    |       |
| Interest expense                                                   |       | 9,496                                      |       | 3                 |       | —                 |       | 8,146         |       | —           |       | 17,645    |       |
| Income tax  expense (benefit)                                      |       | 810                                        |       | 1,086             |       | —                 |       | (2,891        | )          | —           |       | (995      | )          |
| Depreciation and  amortization                                     |       | 7,448                                      |       | 2,731             |       | 2,180                  |       | 2             |       | —           |       | 12,361    |       |
| Purchase of  plant, property and equipment                         |       | 4,215                                      |       | 175               |       | 647                    |       | —        |       | —           |       | 5,037     |       |
| Total assets                                                       |       | 683,091                                    |       | 138,385           |       | 97,122                 |       | 233,431       |       | (458,373         | )          | 693,656   |       |
|                                                                    |            |                                            |            |                   |            |                        |            |               |            |                  |            |           |            |  |  |  |  |  |  |

 

59

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**16.  ProductLine Data**

 

The following table presents net sales of the Companyby product line:

 
| ** **           | ** ** | ** **                                 | ** ** | **Successor**                                         | ** ** |
|----------------------|------------|--------------------------------------------|------------|-------------------------------------------------------|------------|
| ** **           | ** ** | **Predecessor**                            | ** ** | **July 20, 2005**                           | ** ** |
| ** **           | ** ** | **Year Ended December 31,** | ** ** | **January 1,  2005 through  July 19, 2005** | ** ** | **through  December 31,  2005** | ** ** |
| ** **           | ** ** | **2003**                                   | ** ** | **2004**                                              | ** ** | ** ** | ** ** |
| ** **           |       | **(dollars  in thousands)**                |       |
| Protective  footwear |       | $                                          | 88,489     |                                                  | $          | 97,254 |   | $ | 52,343 |   | $ | 44,980 |   |
| Hand protection      |       | 78,410                                     |       | 111,266                                               |       | 68,316 |   | 47,651 |   |
| Eye, head and  face  |       | 32,278                                     |       | 36,428                                                |       | 23,472 |   | 20,962 |   |
| Respiratory          |       | 48,833                                     |       | 50,906                                                |       | 34,983 |   | 26,683 |   |
| Protective  garments |       | 53,134                                     |       | 60,220                                                |       | 39,121 |   | 29,267 |   |
| First aid            |       | 11,579                                     |       | 13,303                                                |       | 8,655 |   | 5,893 |   |
| Hearing  protection  |       | 7,324                                      |       | 7,800                                                 |       | 4,704 |   | 3,214 |   |
| Fall protection      |       | 11,128                                     |       | 12,860                                                |       | 9,531 |   | 7,134 |   |
| Linemen  equipment   |       | 24,200                                     |       | 28,248                                                |       | 17,613 |   | 14,418 |   |
| Other                |       | 15,427                                     |       | 20,214                                                |       | 12,956 |   | 9,194 |   |
|                 |       | $                                          | 370,802    |                                                  | $          | 438,499 |   | $ | 271,694 |   | $ | 209,396 |   |

 

**17.  GeographicData**

 

The following table presents information about theCompany by geographic area:

 
| ** **                                                                           | ** ** | **United  States** | ** ** | **Europe** | ** ** | **Canada** | ** ** | **Africa** | ** ** | **Total  Foreign** | ** ** | **Consolidated** | ** ** |
|--------------------------------------------------------------------------------------|------------|--------------------|------------|------------|------------|------------|------------|------------|------------|--------------------|------------|------------------|------------|
| **Predecessor  Company Year ended December 31, 2003**                           |       |               |       |       |       |       |       |       |       |               |       |             |       |
| Net sales                                                                            |       | $                  | 261,780    |       | $          | 41,823     |       | $          | 54,696     |               | $          | 12,503           |       | $ | 109,022 |   | $ | 370,802 |   |
| **Year  ended December 31, 2004**                                               |       |               |       |       |       |       |       |       |       |               |       |             |       |
| Net sales                                                                            |       | 293,622            |       | 68,357     |       | 59,498     |       | 17,022     |       | 144,877            |       | 438,499          |       |
| Long-lived  assets                                                                   |       | 38,480             |       | 18,236     |       | 6,376      |       | 662        |       | 25,274             |       | 63,754           |       |
| **Period  from January 1, 2005 through July 19, 2005**                     |       |               |       |       |       |       |       |       |       |               |       |             |       |
| Net sales                                                                            |       | 173,711            |       | 46,204     |       | 40,917     |       | 10,862     |       | 97,893             |       | 271,694          |       |
| **Successor  Company Period from July 20, 2005 through December 31, 2005** |       |               |       |       |       |       |       |       |       |               |       |             |       |
| Net sales                                                                            |       | 139,405            |       | 30,380     |       | 31,654     |       | 7,957      |       | 69,991             |       | 209,396          |       |
| Long-lived  assets                                                                   |       | 289,931            |       | 32,183     |       | 26,141     |       | 1,011      |       | 59,335             |       | 349,266          |       |
|                                                                                      |            |                    |            |            |            |            |            |            |            |                    |            |                  |            |  |  |  |  |  |  |

 

60

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**18.  SubsidiaryGuarantors**

 

NSPHoldings Capital Corp. is a 100% owned finance subsidiary of the Company withno assets or operations. None of the Company’s other subsidiaries guarantee the113¤4% senior pay in kind notes due 2012. Theterms of the New Credit Facility significantly restrict Norcross from payingdividends and otherwise transferring assets to the Company. Further, the termsof the indenture governing its 97¤8% seniorsubordinated notes due 2011 significantly restrict Norcross and the Company’sother subsidiaries from paying dividends and otherwise transferring assets tothe Company, except for ordinary course operating expenses.

 

61

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**19.  QuarterlyResults (Unaudited)**

 

The following tables contain selected unauditedconsolidated statements of operations information for each quarter of 2004 and2005. The Company believes that the following information reflects all normalrecurring adjustments necessary for a fair presentation of the information forthe periods presented. The operating results for any quarter are notnecessarily indicative of results for any future period.

 
| ** **         | ** ** | **Successor**                   | ** ** | **Predecessor**               | ** ** |
|--------------------|------------|---------------------------------|------------|-------------------------------|------------|
| ** **         | ** ** | **Quarter**                     | ** ** | **July 20, 2005**   | ** ** | **July 3, 2005** | ** ** | **Quarter** | ** ** | **Quarter** | ** ** |
| ** **         | ** ** | **ended**                       | ** ** | **through**                   | ** ** | **through** | ** ** | **ended** | ** ** | **ended** | ** ** |
| ** **         | ** ** | **December 31, 2005** | ** ** | **October 1, 2005** | ** ** | **July 19, 2005** | ** ** | **July 2, 2005** | ** ** | **April 2, 2005** | ** ** |
| Net sales          |       | $                               | 124,407    |                          | $          | 84,989 |   | $ | 33,624 |   | $ | 118,126 |   | $ | 119,944 |   |
| Gross profit       |       | 42,700                          |       | 26,718                        |       | 11,038 |   | 44,669 |   | 44,342 |   |
| Net income  (loss) |       | 257                             |       | (5,023                        | )          | (20,369 | ) | 2,712 |   | 3,194 |   |
|                    |            |                                 |            |                               |            |  |  |  |  |  |  |  |  |  |  |  |

 
| ** **   | ** ** | **Predecessor**                                      | ** ** |
|--------------|------------|------------------------------------------------------|------------|
| ** **   | ** ** | **Year ended December 31, 2004** | ** ** |
| ** **   | ** ** | **Quarter  ended  December 31**                 | ** ** | **Quarter  ended  October 2** | ** ** | **Quarter  ended  July 3** | ** ** | **Quarter  ended  April 3** | ** ** |
| Net sales    |       | $                                                    | 109,078    |   | $ | 114,088 |   | $ | 106,706 |   | $ | 108,627 |   |
| Gross profit |       | 39,283                                               |       | 39,291 |   | 38,081 |   | 39,920 |   |
| Net income   |       | 2,246                                                |       | 2,859 |   | 1,670 |   | 3,866 |   |
|              |            |                                                      |            |  |  |  |  |  |  |  |  |  |  |

 

62

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**20. Strategic Alternatives**

 

The Predecessor had previously announced that it wasin the process of exploring strategic alternatives, including a possible saleof the Company.  A decision was made bythe Predecessor in 2004 to terminate this process and therefore it has expensed$616 in associated costs (primarily consisting of professional service fees)for the year ended December 31, 2004. These costs are reflected in operating expenses as strategicalternatives.

 

**21. Management Incentive Compensation**

** **

As a result of the Norcross Transaction, thePredecessor recognized $16,388 in management incentive compensation expenseduring the January 1, 2005 through July 19, 2005 predecessorperiod.  The expenses were funded by thePredecessor from proceeds realized upon the consummation of the NorcrossTransaction.  These costs are reflectedin operating expenses as management incentive compensation.

 

**22. Seller Transaction Expenses**

** **

NSP Holdings incurred $4,646 in transaction expensesrelated to professional services during the January 1, 2005 through July 19,2005 predecessor period.  The expenseswere funded by the Predecessor from proceeds realized upon the consummation ofthe Norcross Transaction.  These costsare reflected below operating expenses as seller transaction expenses.

 

**23. Subsequent Event**

** **

On February 2,2006, the Company completed the acquisition of all of the issued andoutstanding capital stock of American Firewear, Inc. (“American Firewear”).  The purchase price consisted of $4,250 incash and a $1,000 subordinated seller note. In addition, the purchase price may be increased by $750 over the nextfour years based on American Firewear achieving certain financial and operatingobjectives.  The Company financed theacquisition through cash on the balance sheet and the issuance of the $1,000subordinated seller note.  In addition,the Company entered into a lease for a facility owned by the former owners, whoare currently employees of the Company.

 

63

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**SAFETY PRODUCTS HOLDINGS, INC.(PARENT COMPANY ONLY)**

**(NSP Holdings L.L.C. as predecessor)**

**SCHEDULE I—CONDENSED FINANCIALINFORMATION**

**BALANCE SHEETS**

**(Amounts in Thousands)**

 
| ** **                                           | ** ** | **Predecessor**             | ** ** | **Successor**               | ** ** |
|------------------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| ** **                                           | ** ** | **December 31,  2004** | ** ** | **December 31,  2005** | ** ** |
| **Assets**                                           |       |                        |       |                        |       |
| Cash                                                 |       | $                           | —     |                        | $          | 136 |   |
| Prepaid expenses  and other current assets           |       | —                      |       | 1,086                       |       |
| Total current  assets                                |       | —                      |       | 1,222                       |       |
| Deferred  financing costs, net                       |       | 566                         |       | 12,156                      |       |
| Investment in  subsidiary                            |       | 59,402                      |       | 223,363                     |       |
| Goodwill                                             |       | —                      |       | (769                        | )          |
| Deferred income  taxes                               |       | —                      |       | 2,228                       |       |
| Other noncurrent  assets                             |       | 142                         |       | —                      |       |
| Total assets                                         |       | $                           | 60,110     |                        | $          | 238,200 |   |
|                                                 |       |                        |       |                        |       |
| **Liabilities  and members’ deficit**           |       |                        |       |                        |       |
| Current  liabilities:                                |       |                        |       |                        |       |
| Accounts payable                                     |       | $                           | —     |                        | $          | — |   |
| Accrued expenses                                     |       | 897                         |       | 469                         |       |
| Current  maturities of long-term obligations         |       | —                      |       | (889                        | )          |
| Total current  liabilities                           |       | 897                         |       | (420                        | )          |
| Long-term  obligations                               |       | —                      |       | 131,729                     |       |
| Mandatorily  redeemable preferred units              |       | 134,310                     |       | —                      |       |
|                                                 |       | 134,310                     |       | 131,729                     |       |
| Members’  deficit/ equity:                      |       |                        |       |                        |       |
| Class E  units                                  |       | 1                           |       | —                      |       |
| Common units:                                        |       |                        |       |                        |       |
| Class A  units                                  |       | 38,676                      |       | —                      |       |
| Class C  units                                  |       | 188                         |       | —                      |       |
| Class D  units                                  |       | 1,248                       |       | —                      |       |
| Common shares  contributed capital                   |       | —                      |       | 110                         |       |
| Contributed  capital                                 |       | —                      |       | 109,560                     |       |
| Accumulated deficit                                  |       | (118,739                    | )          | (4,766                      | )          |
| Accumulated  other comprehensive income              |       | 3,529                       |       | 1,987                       |       |
| Total members’  deficit/ equity                 |       | (75,097                     | )          | 106,891                     |       |
| Total  liabilities and members’ deficit/ equity |       | $                           | 60,110     |                        | $          | 238,200 |   |

 

See notes to condensed financial statements.

 

64

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**SAFETY PRODUCTS HOLDINGS, INC. (PARENT COMPANY ONLY)**

**(NSP Holdings L.L.C. as predecessor)**

**SCHEDULE I—CONDENSED FINANCIALINFORMATION**

**STATEMENTS OF OPERATIONS**

**(Amounts in Thousands)**

 
| ** **                                   | ** ** | **Predecessor**                        | ** ** | **Successor**                                      | ** ** |
|----------------------------------------------|------------|----------------------------------------|------------|----------------------------------------------------|------------|
| ** **                                   | ** ** | **Year Ended  December 31,** | ** ** | **January 1,  2005  through  July 19,  2005** | ** ** | **July 20,  2005  through  December 31,  2005** | ** ** |
| ** **                                   | ** ** | **2003**                               | ** ** | **2004**                                           | ** ** | ** ** | ** ** |
| General and  administrative                  |       | $                                      | (757       | )                                                  | $          | (518 | ) | $ | (260 | ) | $ | (113 | ) |
| Management  transaction compensation         |       | —                                 |       | —                                             |       | (2,834 | ) | — |   |
| Interest expense                             |       | (82                                    | )          | (13,525                                            | )          | (11,458 | ) | (8,156 | ) |
| Interest income                              |       | —                                 |       | —                                             |       | 450 |   | — |   |
| Seller  transaction expense                  |       | —                                 |       | —                                             |       | (4,646 | ) | — |   |
| Other, net                                   |       | —                                 |       | (380                                               | )          | — |   | — |   |
| Income tax  (expense) benefit                |       | (158                                   | )          | (223                                               | )          | (100 | ) | 2,457 |   |
| Equity in  earnings of subsidiary            |       | 6,917                                  |       | 25,287                                             |       | 4,385 |   | 1,036 |   |
| Net income  (loss)                           |       | 5,920                                  |       | $                                                  | 10,641     |   | $ | (14,463 | ) | $ | (4,766 | ) |
| Preferred unit  dividends                    |       | (12,973                                | )          |                                               |       |   |   |   |   |
| Net loss  attributable to common unitholders |       | $                                      | (7,053     | )                                                  |       |   |   |   |   |   |

 

See notes to consolidated financial statements.

 

65

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**SAFETY PRODUCTS HOLDINGS, INC.(PARENT COMPANY ONLY)**

**SCHEDULE I—CONDENSED FINANCIALINFORMATION**

**CONDENSED STATEMENTS OF CASH FLOWS**

**(Amounts in Thousands)**

 
| ** **                                           | ** ** | **Predecessor**                        | ** ** | **Successor**                                      | ** ** |
|------------------------------------------------------|------------|----------------------------------------|------------|----------------------------------------------------|------------|
| ** **                                           | ** ** | **Year Ended  December 31,** | ** ** | **January 1,  2005  through  July 19,  2005** | ** ** | **July 20,  2005  through  December 31,  2005** | ** ** |
| ** **                                           | ** ** | **2003**                               | ** ** | **2004**                                           | ** ** | ** ** | ** ** |
| **Operating  activities**                            |       |                                   |       |                                               |       |   |   |   |   |
| Net cash used in  operating activities               |       | $                                      | (985       | )                                                  | $          | (347 | ) | $ | (667 | ) | $ | 268 |   |
| **Investing  activities**                            |       |                                   |       |                                               |       |   |   |   |   |
| Investment in  subsidiary                            |       | —                                 |       | —                                             |       | — |   | (121,114 | ) |
| Advances (to)  from subsidiary                       |       | 9,108                                  |       | 4,704                                              |       | 567 |   | 728 |   |
| Net cash  provided by investing activities           |       | 9,108                                  |       | 4,704                                              |       | 567 |   | (120,386 | ) |
| **Financing  activities**                            |       |                                   |       |                                               |       |   |   |   |   |
| Payments for  deferred financing costs               |       | —                                 |       | (700                                               | )          | (3,246 | ) | (13,062 | ) |
| Payments from  borrowings                            |       | —                                 |       | —                                             |       | 100,000 |   | 23,646 |   |
| Payments of debt                                     |       | (678                                   | )          | (1,056                                             | )          | — |   | — |   |
| Proceeds from  capital contribution                  |       | —                                 |       | 1                                                  |       | — |   | 109,670 |   |
| Repayment of  management loans                       |       | 189                                    |       | —                                             |       | — |   | — |   |
| Purchase of  warrants                                |       | (5,250                                 | )          | —                                             |       | — |   | — |   |
| Purchase of  preferred units                         |       | (1,550                                 | )          | —                                             |       | — |   | — |   |
| Distribution of  preferred units                     |       | —                                 |       | —                                             |       | (60,000 | ) | — |   |
| Distribution of  common units                        |       | —                                 |       | (2,943                                             | )          | (2,509 | ) | — |   |
| Net cash  provided by (used in) financing activities |       | (7,782                                 | )          | (4,698                                             | )          | 34,245 |   | 120,254 |   |
| Effect of  exchange rate changes on cash             |       | (341                                   | )          | 341                                                |       | — |   | — |   |
| Net increase in  cash and cash equivalents           |       | —                                 |       | —                                             |       | — |   | 136 |   |
| Cash and cash  equivalents at beginning of year      |       | —                                 |       | —                                             |       | — |   | — |   |
| Cash and cash  equivalents at end of year            |       | $                                      | —     |                                               | $          | — |   | 34,145 |   | $ | 136 |   |
| Noncash  financing:                                  |       |                                   |       |                                               |       |   |   |   |   |
| Preferred unit  dividends                            |       | 12,973                                 |       | —                                             |       | — |   | — |   |
|                                                      |            |                                        |            |                                                    |            |  |  |  |  |  |  |  |  |

 

See notes to consolidated financial statements.

 

66

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**SAFETY PRODUCTS HOLDINGS, INC.(PARENT COMPANY ONLY)**

**(NSP Holdings L.L.C. as predecessor)**

**SCHEDULE I—CONDENSED FINANCIALINFORMATION**

**NOTES TO FINANCIAL STATEMENTS**

**YEARS ENDED DECEMBER 31, 2003,2004, AND 2005**

**(Amounts in Thousands, Except Unitsand Per Unit Data)**

 

**1.****             TheTransaction**

 

On July 19, 2005, Norcross Safety Products L.L.C.(“Norcross”) announced the closing of the transaction under which it wasacquired by Safety Products Holdings, Inc. (the “Company” or “SafetyProducts”) a new holding company formed by Odyssey Investment Partners, LLC forthe purpose of completing the acquisition. Pursuant to the terms of the purchase agreement, Safety Productspurchased all of the outstanding membership units of Norcross and all of theoutstanding common stock of NSP Holdings Capital Corp. (“NSP Capital”), awholly-owned subsidiary of NSP Holdings L.L.C. (“NSP Holdings”), and pursuantto which Safety Products assumed all of the outstanding indebtedness ofNorcross and NSP Holdings, in exchange for a base purchase price to NSPHoldings of $472,000, plus the cash in Norcross as of April 2, 2005 in theamount of approximately $16,900, less (1) the indebtedness of Norcross andits subsidiaries as of April 2, 2005 and (2) certain transaction feesand expenses.  The cash purchase pricewas $204,488 including direct costs of acquisition of $2,346, and excludingassumed debt of $260,523.  Theacquisition of Norcross is referred to as the “Norcross Transaction”.

 

**2.****             Basisof Presentation**

 

Predecessor – The financial statements of thePredecessor represent the results of operations of NSP Holdings L.L.C. prior tothe Norcross Transaction.

 

Successor – The financial statements of the Successorrepresent the results of operations of Safety Products Holdings, Inc.subsequent to the Norcross Transaction.

 

**3.****             Investment in Subsidiary**

 

NSPHoldings and Safety Products account for their investment in Norcross under theequity method of accounting. Advances to or from Norcross are included withinthe investment in subsidiary.

 

**4.****             Debt**

 

Inconnection with an acquisition, NSP Holdings issued an unsecured Canadian$5,470 seller note. The outstanding principal on the Arkon Note was paid duringthe year ended December 31, 2004.

 

OnJanuary 7, 2005, NSP Holdings and NSP Capital issued $100,000 of 113¤4% seniorpay in kind notes due 2012 the “Senior Notes”. The proceeds were used to: (i) makea payment in respect of preferred units of $60,000, $58,000 of which werepayments in respect of accrued preferred yield and $2,000 of which was the returnof a portion of the original capital contribution made by holders of NSPHoldings preferred units, (ii) make distributions in respect of the commonunits of certain members of management of $2,000, and (iii) pay fees andexpenses. The remainder of the net proceeds were used for general corporatepurposes, including potential acquisitions and/or distributions to NSP Holdings’unitholders.

 

Inconnection with the closing of the Norcross Transaction, the Company enteredinto a second supplemental indenture dated as of July 19, 2005 (the “SecondSupplemental Indenture”) among NSP Holdings, NSP Capital, the Company andWilmington Trust Company, as trustee (the “Trustee”) under the indenture datedas of January 7, 2005 (the “Indenture”) by and among NSP Holdings, NSPCapital and the Trustee providing for the issuance of the Senior Notes.Pursuant to the terms of the Second Supplemental Indenture, the Company assumedall of the rights, powers, commitments, obligations and liabilities of NSPHoldings under the Indenture and the Senior Notes.

 

OnJuly 19, 2005, the Company sold $25,000 in principal amount of 113¤4% seniorpay in kind notes due 2012 (the “New Notes”). The New Notes were sold pursuantto a purchase agreement, dated June 28, 2005 (the “Purchase Agreement”),by and between the Company and Credit Suisse First Boston, LLC (the “InitialPurchaser”). The New Notes were issued pursuant to the Indenture. Pursuant tothe term of the Purchase Agreement, the New Notes were sold to the InitialPurchaser and were resold to qualified institutional buyers in compliance withthe exemption from registration.

 

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**5.****             Redeemable Preferred Units**

 

Thepreferred units accrued dividends at a semiannual compound rate of 10%. Thepreferred units were nonvoting and were mandatorily redeemable by thePredecessor on September 30, 2013. In the event of any liquidation, sale,dissolution, or winding up of the affairs of the Predecessor, holders of thepreferred units were to be paid the redemption price, plus all accrueddividends before any payment to other unit holders. As of December 31,2004, $57,726 of dividends were accrued and unpaid.  On January 7, 2005, the Predecessor madea payment in respect of the preferred units of $60,000, $58,000 of which werepayments in respect of accrued preferred yield and $2,000 of which was thereturn of a portion of the original capital contribution made by holders of NSPHoldings preferred units (See Note 4). As part of the Norcross Transaction, all outstanding accrued preferredyield and capital was funded to the preferred unit holders.

 

BeginningJanuary 1, 2004, in accordance with Statement of Financial AccountingStandard (“SFAS”) No. 150, the yield on the Predecessor’s preferred unitsis recorded as interest expense and the preferred units are classified on thePredecessor’s balance sheet as long-term liabilities. For all periods prior to January 1,2004, the yield is recorded below net income as preferred unit dividend and thepreferred units were recorded on the Predecessor’s balance sheet between debtand equity. For the year ended December 31, 2004 and period from January 1,2005 through July 19, 2005, the Predecessor classified $13,493 and $4,833of preferred unit dividends as interest expense, respectively.

 

**6.****             Commitments and Contingencies**

 

**Safety Products along with Norcross has guaranteed Norcross’obligations under Norcross’ senior credit facility, which consists of a termloan and revolving credit facilities, and secures its guarantee withsubstantially all of the company’s assets, including the stock ofNorcross.  As of December 31, 2005,there was $152,390 outstanding under the term loan at an interest rate of6.1%.  Norcross also had $2,575 ofletters of credit outstanding, in addition to $47,425 available for borrowingsunder the revolving credit facilities as of December 31, 2005.**

 

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**SCHEDULE II— VALUATION AND QUALIFYINGACCOUNTS AND RESERVES (IN THOUSANDS)**

 
| ** **                                                                                                    | ** ** | ** **                                     | ** ** | **Additions**                                 | ** ** | ** **                           | ** ** | ** **                       | ** ** |
|---------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------|------------|-----------------------------------------------|------------|--------------------------------------|------------|----------------------------------|------------|
| **Description**                                                                                               | ** ** | **Balance at  beginning  of period** | ** ** | **Charged to  costs and  expenses** | ** ** | **Charged to  other  accounts** | ** ** | **Deductions—  write-offs** | ** ** | **Balance at  end of  period** | ** ** |
| **Predecessor  Company**                                                                                      |       |                                           |       |                                          |       |                                 |       |                             |       |   |   |
| Reserve for  inventory obsolescence for the year ended December 31, 2003                                 |       | 3,936                                          |       | 1,403                                         |       | 587                                  |       | (639                             | )          | 5,287 |   |
| Reserve for  inventory obsolescence for the year ended December 31, 2004                                 |       | 5,287                                          |       | 4,263                                         |       | 249                                  |       | (499                             | )          | 9,300 |   |
|                                                                                                          |       |                                           |       |                                          |       |                                 |       |                             |       |   |   |
| Reserve for  inventory obsolescence for the period from January 1, 2005 through July 19,  2005      |       | 9,300                                          |       | 229                                           |       | (82                                  | )          | (368                             | )          | 9,079 |   |
|                                                                                                          |       |                                           |       |                                          |       |                                 |       |                             |       |   |   |
| **Successor  Company**                                                                                        |       |                                           |       |                                          |       |                                 |       |                             |       |   |   |
| Reserve for  inventory obsolescence for the period from July 20, 2005 through  December 31, 2005    |       | 9,079                                          |       | 1,182                                         |       | 317                                  |       | (1,318                           | )          | 9,260 |   |
|                                                                                                          |       |                                           |       |                                          |       |                                 |       |                             |       |   |   |
| ** **                                                                                                    | ** ** | ** **                                     | ** ** | **Additions**                                 | ** ** | ** **                           | ** ** | ** **                       | ** ** |
| **Description**                                                                                               | ** ** | **Balance  at  beginning  of period**          | ** ** | **Charged  to  costs and  expenses**          | ** ** | **Charged  to  other  accounts**     | ** ** | **Deductions—  write-offs** | ** ** | **Balance  at  end of  period** | ** ** |
| **Predecessor  Company**                                                                                      |       |                                           |       |                                          |       |                                 |       |                             |       |   |   |
| Allowances for  uncollectible accounts for the year ended December 31, 2003                              |       | 2,066                                          |       | 193                                           |       | 624                                  |       | (390                             | )          | 2,493 |   |
|                                                                                                          |       |                                           |       |                                          |       |                                 |       |                             |       |   |   |
| Allowances for  uncollectible accounts for the year ended December 31, 2004                              |       | 2,493                                          |       | 140                                           |       | 52                                   |       | (622                             | )          | 2,063 |   |
| Allowances for  uncollectible accounts for the period from January 1, 2005 through  July 19, 2005   |       | 2,063                                          |       | 242                                           |       | (115                                 | )          | (29                              | )          | 2,161 |   |
|                                                                                                          |       |                                           |       |                                          |       |                                 |       |                             |       |   |   |
| **Successor  Company**                                                                                        |       |                                           |       |                                          |       |                                 |       |                             |       |   |   |
| Allowances for  uncollectible accounts for the period from July 20, 2005 through  December 31, 2005 |       | 2,161                                          |       | 183                                           |       | 82                                   |       | (109                             | )          | 2,317 |   |

 
| **ITEM 9.** | **CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON  ACCOUNTING AND FINANCIAL DISCLOSURE** |
|-------------|-------------------------------------------------------------------------------------------|

 

None.

 
| **ITEM 9A.** | **CONTROLS AND PROCEDURES** |
|--------------|-----------------------------|

 

As of the end of the period covered by this report, weperformed an evaluation under the supervision and with the participation of ourmanagement including the chief executive officer and the chief financialofficer, of the effectiveness of our disclosure controls and procedures.  Based on that evaluation, our management,including the chief executive officer and chief financial officer, concludedthat our disclosure controls and procedures were effective. There have been nochanges in 

 

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internal control over financial reporting during our fourth fiscalquarter that have materially affected, or are reasonably likely to materiallyaffect, our internal control over financial reporting.

 
| **ITEM 9B.** | **OTHER INFORMATION** |
|--------------|-----------------------|

 

None.

 

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**PART III**

 
| **ITEM 10.** | **DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT** |
|--------------|--------------------------------------------------------|

 

Our executive officers and the members of our board ofdirectors as of December 31, 2005 are as follows:

 
| **Name**                  | ** ** | **Age** | ** ** | **Position(s) held**                                                  |
|---------------------------|------------|---------|------------|----------------------------------------------------------------------------|
| Robert A.  Peterson       |       | 49      |       | President and  Chief Executive Officer, Director                           |
| David F.  Myers, Jr. |       | 43      |       | Executive Vice  President, Chief Financial Officer and Secretary, Director |
| Charles S. Ellis          |       | 57      |       | General Manager—General  Safety and Preparedness                      |
| William L.  Grilliot      |       | 56      |       | President—Fire  Service                                               |
| Volker H.  Laitsch        |       | 65      |       | President—KCL                                                         |
| Kenneth R.  Martell       |       | 57      |       | Vice President  and General Manager—Electrical Safety                 |
| Brian Kwait               |       | 44      |       | Director                                                                   |
| Muzzafar Mirza            |       | 48      |       | Director                                                                   |
| Benjamin A.  Hochberg     |       | 34      |       | Director                                                                   |

 

Set forth below is a brief description of the businessexperience of each of our executive officers and the members of the board ofdirectors.

 

*RobertA. Peterson*. Mr. Peterson has served as our President and Chief ExecutiveOfficer since our formation in June 1995, and he also has served as amember of the board of directors since July 2005. Previously, from 1984 to1991, Mr. Peterson held various senior positions at Farley Industries, adiversified group of manufacturing companies with sales in excess of $2.5billion and, from 1992 to 1993, was President of Wright Line, a technicalfurniture company. From 1994 to 1995, Mr. Peterson was involved instrategic planning consulting for Farley Industries and Merchant Partners. Heis also a CPA and a former manager of Ernst & Young. Mr. Petersonalso is a director of Actuant Corporation.

 

*DavidF. Myers, Jr.* Mr. Myers has served as our Executive VicePresident, Chief Financial Officer and Secretary since our formation in June 1995,and he also has served as a member of the board of directors since July 2005.Previously he was with Morris Anderson & Associates, a leadingturnaround consulting firm, providing advisory services and serving as interimchief financial officer to companies with sales ranging from $50.0 million to$2.0 billion. Mr. Myers started his career at Ernst & Young inthe corporate finance/restructuring consulting practice. Mr. Myers is aCPA.

 

*CharlesS. Ellis*. Mr. Ellis has served as our General Manager—General Safety andPreparedness since December 2004 with responsibility for the U.S. andCanadian and European divisions of our General Safety and Preparedness segment(except for KCL, which reports directly to Mr. Peterson). From June 2001until December 2004, Mr. Ellis served as our President—U.S. GeneralSafety and Preparedness. Mr. Ellis was previously at Thomas and BettsCorporation, where he served as president for the Lighting and UtilityDivision, a $320 million global business. Prior to joining Thomas and Betts in1996, Mr. Ellis was President and COO of Elastimold, a division of EagleCorp. He also worked for Westinghouse Electrical Corporation in a variety ofpositions over 17 years.

 

*WilliamL. Grilliot*. Mr. Grilliot has served as our President—Fire Service since ouracquisition of *MorningPride* in August of 1998. Mr. Grilliot was the co-owner of *Morning Pride*during the 20 years prior to its acquisition. Mr. Grilliot serves as aCaptain and is Treasurer of the West Milton, Ohio Fire Department and has beenactive in the department for 16 years. He is also the industry representativeon the NFPA Supervising Technical Correlating Committee.

 

*VolkerH. Laitsch*. Mr. Laitsch has served as our President—KCL since our acquisitionof KCL in July 2003. Mr. Laitsch has served as managing director ofKCL since 1994. From 1989 to 1993 he served as Deputy Chairman of the Board ofHertel AG, Nurnberg. Mr. Laitsch has held executive positions with PaguagGmbH & Company, Rigips GmbH, Bodenwerder and ASV Stubbe GmbH, Vlotho.

 

*KennethR. Martell*. Mr. Martell has served as our Vice President and GeneralManager—Electrical Safety since August 1999. Mr. Martell has morethan 30 years of manufacturing expertise. Prior to joining us, he was anexecutive vice president and general manager of the Plews/Eddelman division ofStant Corporation. He has held executive positions at Epicor Industries, ParkerHannifin and American Can Corporation.

 

*BrianKwait*. Mr. Kwait has served as a member of the board of directors since July 2005.He is a Managing Principal at Odyssey Investment Partners, LLC and was aprincipal in the private equity investing group of Odyssey Partners, 

 

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L.P. from 1989 to 1997. He also currently serves on the Board ofDirectors of United Site Services, Inc. and Pro Mach, Inc.  Prior to joining Odyssey Partners, Mr. Kwaitwas a corporate finance associate at Bear, Stearns & Co., Inc.Prior to joining Bear Stearns, he was a senior accountant at Ernst &Whinney. Mr. Kwait is a CPA.

 

*MuzzafarMirza*. Mr. Mirza has served as a member of the board of directors since July 2005.He is a Managing Principal at Odyssey Investment Partners, LLC and was aprincipal in the private equity investing group at Odyssey Partners, L.P. from1993 to 1997. He also currently serves on the Board of Directors of Neff Corp,United Site Services, Inc., Aviation Technologies, Inc., Dresser, Inc.and Tri-Star Electronics, Inc. Prior to joining Odyssey Partners, Mr. Mirzawas head of merchant banking at GE Capital Corporation, where he wasresponsible for the company’s cash flow lending and investing activities.Previously, Mr. Mirza spent five years at Marine Midland Bank and was amember of the bank’s first LBO finance group.

 

*BenjaminA. Hochberg*. Mr. Hochberg has served as a member of the board of directors sinceJuly 2005. He is a Principal at Odyssey Investment Partners, LLC. Prior tojoining Odyssey in 2005, Mr. Hochberg was a principal with Bain Capital,where he spent seven years and was responsible for originating, executing andmonitoring private equity investments. Prior to joining Bain Capital, he was anassociate consultant with Bain & Company.

 

There are no family relationships between any of ourexecutive officers or directors.

 

**Board Composition**

 

Odyssey Investment Partners Fund III, LP (“OdysseyFund”) owns approximately 75% of the capital stock of Safety Products. See “Item12. Security Ownership of Certain Beneficial Owners and Management and RelatedStockholder Matters.” Thestockholders agreement among Safety Products, Odyssey Fund and Safety Products,LLC (“SPL”), which was entered into in July 2005, provides that the boardof directors of Safety Products will consist of five members or such other numberas may be agreed upon by Odyssey Fund and SPL. Pursuant to the stockholders agreement, SPL is required to vote in favorof any designee or designees to the board of directors selected by Odyssey Fund.Three of our five directors, Messrs. Kwait, Mirza and Hochberg, aremembers of Odyssey, the general partner of Odyssey Fund. For more information, see “Item 13. CertainRelationships and Related Transactions—Stockholders Agreement.”

 

**Committees of Our Board of Directors**

 

Ourboard of directors has an audit committee. The audit committee consists of Messrs. Kwaitand Hochberg, neither of whom qualifies as an audit committee financial expert.However, the board believes that each member of the audit committee hasdemonstrated that he is capable of analyzing and evaluating our financialstatements and understanding internal controls and procedures for financialreporting. As the board believes that the current members of the auditcommittee are qualified to carry out all of the duties and responsibilities ofthe audit committee, the board does not believe that it is necessary at thistime to actively search for an outside person to serve on the board of directorswho would qualify as an audit committee financial expert.  In the future, our board may establish othercommittees, as it deems appropriate, to assist it with its responsibilities.

 

**Code of Ethics**

** **

We have adopted a code of ethics applicable to ourprincipal executive officer, principal financial officer, principal accountingofficer and persons performing similar functions.  The text of this code may be found on ourInternet website, www.nspusa.com. We intend to post notice of any waiver from,or amendment to, any provision of our code of ethics on our web site.

 
| **ITEM 11.** | **EXECUTIVE COMPENSATION** |
|--------------|----------------------------|

 

**Compensation of Executive Officers**

** **

The following table shows the compensation for 2003,2004 and 2005 of our Chief Executive Officer and our next four most highlycompensated executive officers performing our policy making functions (the “NamedExecutive Officers”):

 

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| ** **                                     | ** ** | **Annual Compensation** | ** ** | ** ** | ** ** |
|------------------------------------------------|------------|------------------------------|------------|------------|------------|
| **Name and Principal Position** | ** ** | **Year**                     | ** ** | **Salary** | ** ** | **Bonus** | ** ** | **Other Annual   Compensation (1)** | ** ** | **All Other  Compensation** | ** ** |
| *Robert  A. Peterson*                          |       | 2005                         |       | $          | 515,000    |   | $ | 599,480 |   | $ | 858,308 |   | $ | 1,045,368 | (2) |
| *President  and Chief Executive Officer*       |       | 2004                         |       | 468,000    |       | 382,118 |   | 34,076 |   | 74,395 | (2) |
|                                           |       | 2003                         |       | 425,000    |       | 639,065 |   | 33,873 |   | 73,787 | (2) |
| *David  F. Myers, Jr.*                    |       | 2005                         |       | 357,000    |       | 396,327 |   | 532,552 |   | 1,011,438 | (3) |
| *Executive  Vice President, Chief Financial*   |       | 2004                         |       | 324,500    |       | 265,235 |   | 24,084 |   | 49,145 | (3) |
| *Officer  and Secretary*                       |       | 2003                         |       | 295,000    |       | 425,962 |   | 23,924 |   | 48,514 | (3) |
| *Volker  H. Laitsch (4)*                       |       | 2005                         |       | 207,200    |       | 216,282 |   | — |   | 119,321 | (5) |
| *President**3⁄4KCL*                         |       | 2004                         |       | 190,026    |       | 160,715 |   | — |   | 62,100 | (5) |
|                                           |       | 2003                         |       | 72,230     |       | 28,863 |   | — |   | — |   |
| *Charles  S. Ellis*                            |       | 2005                         |       | 287,700    |       | 199,885 |   | — |   | 9,540 | (6) |
| *General  Manager-General Safety and*          |       | 2004                         |       | 265,020    |       | 25,000 |   | — |   | 8,540 | (6) |
| *Preparedness*                                 |       | 2003                         |       | 258,750    |       | 120,000 |   | — |   | 7,540 | (6) |
| *Kenneth  R. Martell*                          |       | 2005                         |       | 205,484    |       | 115,000 |   | — |   | 8,262 | (7) |
| *Vice  President and General Manager—*    |       | 2004                         |       | 182,621    |       | 53,500 |   | — |   | 7,412 | (7) |
| *Electrical  Safety*                           |       | 2003                         |       | 178,300    |       | 45,000 |   | — |   | 7,239 | (7) |
|                                                |            |                              |            |            |            |  |  |  |  |  |  |  |  |  |  |

 

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(1)   Includes amounts reimbursed during the fiscal year forthe payment of taxes primarily related to loans made to such officers.

 

(2)   Includes matching payments of $6,000, $6,500 and$7,000 to our 401(k) plan, payment of life insurance premiums of $540, $540 and$540, payment of premiums for excess medical benefits of $960, $1,068 and$1,186 and imputed interest on loans of $66,287, $66,287 and $36,642 for 2003,2004 and 2005, respectively.  Alsoincludes a transaction bonus of $1.0 million for 2005 related to the NorcrossTransaction.

 

(3)   Includes matching payments of $6,000, $6,500 and$7,000 to our 401(k) plan, payment of life insurance premiums of $540, $540 and$540, payment of premiums for excess medical benefits of $1,087, $1,218 and$1,297 and imputed interest on loans of $40,887, $40,887 and $22,601 for 2003,2004 and 2005, respectively.  Alsoincludes a transaction bonus of $980,000 for 2005 related to the NorcrossTransaction.

 

(4)   Amounts paid to Mr. Laitsch have been translatedinto United States dollars at a rate of $1.129= €1.00, $1.242= €1.00 and$1.243= €1.00, the average exchange rate during the years ended December 31,2003, 2004 and 2005.  Compensationamounts for the year ended December 31, 2003 reflect payments from the July 2003acquisition date of KCL.

 

(5)   Includes life and disability insurance premiums of$62,100 for 2004 and $119,321 for 2005.

 

(6)   Includes a matching payment of $7,000, $8,000 and$9,000 to our 401(k) plan and payment of life insurance premiums of $540, $540and $540 for 2003, 2004 and 2005, respectively.

 

(7)   Includes a matching payment of $6,699, $6,872 and$7,722 to our 401(k) plan and payment of life insurance premiums of $540, $540and $540 for 2003, 2004 and 2005, respectively.

 

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**AggregatedOption/UAR Exercises in Last Fiscal Yearand FY-End Option/UAR Values(1)**
| ** **                | ** ** | **Shares Acquired  on Exercise (A)  Options (B)** | ** ** | **Value ($)** | ** ** | **Number of Unexercised  (A) Options  (B UARs at 12/31/05)** | ** ** | **Value ($ ) of Unexercised  In-The-Money (A) Options  (B UARs at 12/31/05)** | ** ** |
|---------------------------|------------|-----------------------------------------------------------------------|------------|---------------|------------|----------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------|------------|
| **Name**                  | ** ** | **UARs(2)**                                                           | ** ** | **Realized**  | ** ** | **Exercisable**                                                                  | ** ** | **Unexercisable**                                                                                                | ** ** | **Exercisable** | ** ** | **Unexercisable** | ** ** |
| Robert A.  Peterson       |       | (A)156,820                                                            |       | $             | 608,775    |                                                                             | —     |                                                                                                             | —     |   | $ |   |   | $ |   |   |
|                      |       | (B)70,248                                                             |       | 602,166       |       | —                                                                           |       | —                                                                                                           |       | — |   | — |   |
| David F.  Myers, Jr. |       | (A)98,797                                                             |       | 383,529       |       | —                                                                           |       | —                                                                                                           |       |   |   |   |   |
|                      |       | (B)42,151                                                             |       | 361,318       |       | —                                                                           |       | —                                                                                                           |       | — |   | — |   |
| Volker H.  Laitsch        |       | (A)—                                                             |       | —        |       | —                                                                           |       | —                                                                                                           |       |   |   |   |   |
|                      |       | (B)7,500                                                              |       | 29,115        |       | —                                                                           |       | —                                                                                                           |       | — |   | — |   |
| Charles S. Ellis          |       | (A)—                                                             |       | —        |       | —                                                                           |       | —                                                                                                           |       |   |   |   |   |
|                      |       | (B)140,000                                                            |       | 543,480       |       | —                                                                           |       | —                                                                                                           |       | — |   | — |   |
| Kenneth R.  Martell       |       | (A)—                                                             |       | —        |       | —                                                                           |       | —                                                                                                           |       |   |   |   |   |
|                      |       | (B)—                                                             |       | —        |       | —                                                                           |       | —                                                                                                           |       | — |   | — |   |
|                           |            |                                                                       |            |               |            |                                                                                  |            |                                                                                                                  |            |  |  |  |  |  |  |  |

 

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(1)   All options to purchase units of NSP Holdings and NSPHoldings’ UARs were cancelled in connection with the consummation of theNorcross Transaction in exchange for a portion of the proceeds of theacquisition. See “Item 13. Certain Relationships and RelatedTransactions—Payments to Management in Connection with the NorcrossTransaction.”

 

(2)   Represents the number of units with respect to whichthe UARs related as no units were received upon cancellation.

 

**Pension Plans**

** **

*NorcrossSafety Products L.L.C. Employees’ Pension Plan*. Mr. Ellis participates in the Norcross Safety Products L.L.C.Employees’ Pension Plan (the “NSP Pension Plan”), a non-contributory,tax-qualified defined benefit plan which provides covered employees with aminimum retirement benefit. Benefits under the NSP Pension Plan are calculatedbased on (1) the employee’s average monthly compensation for the fiveconsecutive calendar years for which the participant’s aggregate compensationwas greatest and (2) the employee’s years of credited service.Compensation covered by the NSP Pension Plan includes total cash compensationrequired to be reported on Form W-2, plus any compensation deferred under Section 401(k)of the Internal Revenue Code, plus any compensation reductions under a planpursuant to Section 125 of the Internal Revenue Code.

 

*North Safety Products BenefitRestoration Plan*.  Mr. Ellis also participates in anon-contributory, non-qualified, unfunded defined benefit plan (the “RestorationPlan”). The Restoration Plan is open to all participants in the NSP PensionPlan whose benefits are limited by the Internal Revenue Code or those employeesselected by resolution of our board of directors. The objective of theRestoration Plan is to pay a supplemental benefit equal to the maximum benefitamount that the participant would have received under the NSP Retirement Planif (1) there were no limitations on the maximum benefits payable undereither of the plans and (2) if certain Internal Revenue Code limitations didnot apply.

 

Benefits are payable under the Restoration Plan onlyto the extent that the benefits calculated under the plan exceed the totalmonthly benefits that are otherwise payable to the participant under the NSPPension Plan. The benefits calculated under the Restoration Plan equal thegreater of:

 

•      1.0%of the participant’s average final monthly compensation, plus 0.5% of theparticipant’s average final monthly compensation in excess of “coveredcompensation,” multiplied by years and partial years of credited service.Covered compensation equals the average of the contribution and benefit basesin effect under Section 230 of the Social Security Act for each year inthe 35 year period ending with the year in which the participant attains SocialSecurity retirement age, not to exceed 35 years; or

 

•      1.67%of the participant’s average final monthly compensation multiplied by years andpartial years of credited service, less 1.67% of the participants primarysocial security benefit multiplied by his years of service and full months ofcredited service, not to exceed 35 years.

 

The following table shows the estimated annualpensions that persons in specified categories would have received under the NSPPension Plan and North Safety Products Benefit Restoration Plan if they hadretired on January 1, 2005 the 

 

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age of 65. These amountsare not subject to deduction for Social Security benefits. The table assumesthe retiree has selected a straight-life annuity commencing at age 65.

 
| **Average Annual Compensation** | ** ** | **Annual Pension After Specified Years of Credited Service** | ** ** |
|-------------------------------------------|------------|-------------------------------------------------------------------------------------------------|------------|
| **For the 5 Years**        | ** ** | **10 Years**                                                                               | ** ** | **15 Years** | ** ** | **20 Years** | ** ** | **25 Years** | ** ** | **30 Years** | ** ** | **35 Years** | ** ** |
| $                                         | 100,000    |                                                                                            |       | $ | 12,791 |   | $ | 19,187 |   | $ | 25,582 |   | $ | 31,978 |   | $ | 38,374 |   | $ | 46,709 |   |
| 125,000                                   |       |                                                                                            | 16,959     |   | 25,438 |   | 33,917 |   | 42,397 |   | 50,876 |   | 61,295 |   |
| 150,000                                   |       |                                                                                            | 21,126     |   | 31,689 |   | 42,252 |   | 52,816 |   | 63,379 |   | 75,881 |   |
| 175,000                                   |       |                                                                                            | 25,294     |   | 37,941 |   | 50,587 |   | 63,234 |   | 75,881 |   | 90,467 |   |
| 200,000                                   |       |                                                                                            | 29,461     |   | 44,192 |   | 58,922 |   | 73,653 |   | 88,384 |   | 105,054 |   |
| 225,000                                   |       |                                                                                            | 33,629     |   | 50,443 |   | 67,257 |   | 84,072 |   | 100,886 |   | 119,640 |   |
| 250,000                                   |       |                                                                                            | 37,796     |   | 56,694 |   | 75,592 |   | 94,491 |   | 113,389 |   | 134,226 |   |
| 300,000                                   |       |                                                                                            | 46,131     |   | 69,197 |   | 92,262 |   | 115,328 |   | 138,394 |   | 163,399 |   |
| 400,000                                   |       |                                                                                            | 62,801     |   | 94,202 |   | 125,602 |   | 157,003 |   | 188,404 |   | 221,744 |   |
| 450,000                                   |       |                                                                                            | 71,136     |   | 106,704 |   | 142,272 |   | 177,841 |   | 213,409 |   | 250,916 |   |
| 500,000                                   |       |                                                                                            | 79,471     |   | 119,207 |   | 158,942 |   | 198,678 |   | 238,414 |   | 280,089 |   |
|                                           |            |                                                                                                 |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

Mr. Ellis’ average annual compensation forpurposes of the NSP Pension Plan and North Safety Products Benefit RestorationPlan would be the combined amount listed under salary and bonus shown in theCompensation of Executive Officers table above.

 

*W.H.Salisbury & Co. Employees’ Pension Plan.*  Prior to April 1, 2001, North Safety Products Inc.,acting through its W.H. Salisbury & Co. division, maintained the W.H.Salisbury & Co. Employees’ Pension Plan. Effective April 1, 2001,that plan was merged into the NSP Pension Plan. However, certain provisions ofthe W.H. Salisbury & Co. Pension Plan were preserved with respect toemployees of the W.H. Salisbury & Co. division of NSP. As an employeeof Salisbury, Mr. Martell participates in the NSP Pension Plan as itapplies to employees of Salisbury (the “Salisbury Plan”). Benefits under the SalisburyPlan are calculated based on (1) the employee’s average monthlycompensation for the three consecutive years out of the last 10 yearswhich yields the highest average and (2) the employee’s years of creditedservice. Compensation covered by the Salisbury Plan includes all amounts paidfor services rendered in the course of employment excluding contributions madeby us to a plan of deferred compensation to the extent such amounts areexcluded from gross income. Benefits under the plan are partially offset by thebenefits which could be received from a straight life annuity provided to theparticipant under W.H. Salisbury & Co.’s defined contribution plan.

 

Thefollowing table shows the estimated annual pensions that persons in specifiedcategories would have received under the Salisbury Plan if they had retired on January 1,2005 at the age of 65. These amounts are not subject to deduction for SocialSecurity benefits. The table assumes the retiree has selected a straight-lifeannuity commencing at age 65.

 
| **Average Annual  Compensation** | ** ** | **Annual Pension After Specified Years of Credited Service** | ** ** |
|---------------------------------------|------------|-------------------------------------------------------------------------------------------------|------------|
| **For the 3 Years**    | ** ** | **10 Years**                                                                               | ** ** | **15 Years** | ** ** | **20 Years** | ** ** | **25 Years** | ** ** | **30 Years** | ** ** | **35 Years** | ** ** |
| $                                     | 100,000    |                                                                                            |       | $ | 19,635 |   | $ | 29,452 |   | $ | 39,270 |   | $ | 39,270 |   | $ | 39,270 |   | $ | 39,270 |   |
| 125,000                               |       |                                                                                            | 25,335     |   | 38,002 |   | 50,670 |   | 50,670 |   | 50,670 |   | 50,670 |   |
| 150,000                               |       |                                                                                            | 31,035     |   | 46,552 |   | 62,070 |   | 62,070 |   | 62,070 |   | 62,070 |   |
| 175,000                               |       |                                                                                            | 36,735     |   | 55,102 |   | 73,470 |   | 73,470 |   | 73,470 |   | 73,470 |   |
| 200,000                               |       |                                                                                            | 42,435     |   | 63,652 |   | 84,870 |   | 84,870 |   | 84,870 |   | 84,870 |   |
| 225,000                               |       |                                                                                            | 43,575     |   | 65,362 |   | 87,150 |   | 87,150 |   | 87,150 |   | 87,150 |   |
| 250,000                               |       |                                                                                            | 43,575     |   | 65,362 |   | 87,150 |   | 87,150 |   | 87,150 |   | 87,150 |   |
| 300,000                               |       |                                                                                            | 43,575     |   | 65,362 |   | 87,150 |   | 87,150 |   | 87,150 |   | 87,150 |   |
| 400,000                               |       |                                                                                            | 43,575     |   | 65,362 |   | 87,150 |   | 87,150 |   | 87,150 |   | 87,150 |   |
| 450,000                               |       |                                                                                            | 43,575     |   | 65,362 |   | 87,150 |   | 87,150 |   | 87,150 |   | 87,150 |   |
| 500,000                               |       |                                                                                            | 43,575     |   | 65,362 |   | 87,150 |   | 87,150 |   | 87,150 |   | 87,150 |   |
|                                       |            |                                                                                                 |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

Mr. Martell’saverage annual compensation for purposes of the Salisbury Plan would be thecombined amount listed under salary and bonus shown in the Compensation ofExecutive Officers table above.

 

The estimated credited years of service under each ofthe pension plans described above for Mr. Ellis was five years as of December 31,2005.  The estimated credited years ofservice under NSP Pension Plan described above for Mr. Martell was sevenyears as of December 31, 2005.

 

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**Board of Directors Directors’ Compensation**

 

Directors are not entitled to any compensation forserving on our board of directors.

 

**Employment Agreements**

** **

*RobertA. Peterson*. Norcross entered an employment agreement, dated as of May 20, 2005,with Mr. Peterson, pursuant to which Mr. Peterson is to serve as ourChief Executive Officer and President for a period of five years. Under theterms of this agreement, Mr. Peterson is entitled to receive a base salaryof $515,000, subject to increases as merited and to reflect changes in the costof living. Mr. Peterson is also entitled to a $700 per month automobile allowance,reimbursement for reasonable expenses, participation in whatever benefitprograms Norcross has in place for its employees who are not members of acollective bargaining unit (on a basis commensurate with his position), andfour calendar weeks of vacation per year. In addition, Mr. Peterson isalso eligible to receive a bonus, targeted at 90% of his base salary, basedupon the achievement by Norcross of performance criteria determined by ourboard of directors and agreed to by Mr. Peterson.

 

Mr. Peterson’s employment is subject to earlytermination in the event of his death or disability or in the event that eitherhe or Norcross elect to terminate his employment. In the event his employmentis terminated by Norcross for cause or by Mr. Peterson without good reason(each as defined in the employment agreement), Mr. Peterson will beentitled to his base salary and benefits for the period ending on the date ofsuch termination and any unpaid bonus for any calendar year ending prior to theyear in which such termination occurs. In the event that his employment isterminated (1) by Norcross without cause, (2) by him for good reason,(3) due to his death or disability, or (4) due to Norcross notoffering, at least 90 days prior to the end of the term of his employment, tocontinue his employment for a period of at least two years, Mr. Petersonwill be entitled to his base salary and benefits for the period ending on thedate of termination, any unpaid bonus for any calendar year ending prior to theyear in which such termination occurs, a *pro rata* bonus for the calendar year in which terminationoccurs and (except in the event of termination due to his death) his basesalary and benefits for a period of two years if, within 30 days oftermination, Mr. Peterson signs and delivers to Norcross a general releasefrom claims arising from facts and circumstances existing before the date ofsuch release. Salary and benefits payable to Mr. Peterson due to Norcrosshaving elected not to continue his employment after the expiration of theinitial five year term, will be offset by any payments or benefits received by Mr. Petersonin the second year following such termination as a result of his havingobtained new employment. Any amounts due to Mr. Peterson shall be paid asif he had not been terminated, except that in the event that Mr. Petersonterminated his employment due to a change in control, such amounts shall bepaid in a lump sum within 10 days of his resignation, in an amount discountedto present value at a rate of 7% per year.

 

This employment agreement is also subject tonon-solicitation, non-competition and confidentiality provisions that arecustomary, other than a provision allowing Mr. Peterson to solicit theemployment of his personal assistant and Mr. Myers in the event that Mr. Peterson’semployment with Norcross is terminated. In connection with the acquisition ofNorcross, in addition to the capital stock purchased by Mr. Peterson,Safety Products issued to Mr. Peterson options to purchase shares of capitalstock of Safety Products equal to 4.25% of its fully diluted equity, effective January 2,2006.

 

*DavidF. Myers, Jr.* Norcross entered an employment agreement, dated asof May 20, 2005, with Mr. Myers, pursuant to which he is to serve asour Chief Financial Officer and Executive Vice President on substantially thesame terms as those contained in Mr. Peterson’s employment agreement,except that (1) his base salary is initially set at $357,000, (2) thenon-solicitation provision contained in the agreement provides an exceptionallowing Mr. Myers to solicit the employment of his personal assistant andMr. Peterson, and (3) in connection with the acquisition of Norcross,in addition to the capital stock purchased by Mr. Myers, Safety Productsissued to Mr. Myers options to purchase shares of capital stock of SafetyProducts equal to 2.75% of its fully diluted equity, effective January 2,2006.

 

*CharlesS. Ellis*. Our subsidiary, North Safety Products, Inc. (“North Safety”),entered into an employment agreement, dated as of May 20, 2005, with Mr. Ellis,pursuant to which he is to serve as General Manager – General Safety andPreparedness for an initial term of three years. Under the terms of thisagreement, Mr. Ellis is entitled to receive a base salary of $287,834, a$600 per month automobile allowance, participate in all employee benefits plansfor which senior executives of North Safety are eligible, and three calendarweeks of vacation per year. In addition, Mr. Ellis is eligible to receivea bonus targeted at 75% of his base salary. In the event that his employment isterminated by North Safety without cause or by him for good reason (as definedin the employment agreement), Mr. Ellis will be entitled to his basesalary for a period of eighteen months following such termination. Thisemployment agreement is also subject to customary non-solicitation,non-competition and confidentiality provisions.

 

*WilliamL. Grilliot*. Our subsidiary, Morning Pride Manufacturing L.L.C. (“Morning Pride”),entered into an employment agreement, dated as of May 20, 2005, with Mr. Grilliot,pursuant to which he is to serve as President of Morning Pride on substantiallythe same terms as those contained in Mr. Ellis’ employment agreement,except (1) his base salary is 

 

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initially set at $177,500, (2) he is eligible to receive a bonustargeted at 40% of his base salary, (3) he is entitled to 15 daysvacation, (4) he is entitled to a $700 per month automobile allowance, and(5) the non-solicitation provision contained in the agreement provides anexception for Mary Grilliot or any of his children.

 

*Volker H. Laitsch*.  Pursuant to a management service contract,dated August 12, 1994, between KCL and Volker H. Laitsch, Mr. Laitschwas appointed as sole managing director of KCL. Under the terms of the agreement, Mr. Laitsch receives a monthlysalary and is eligible to receive a yearly bonus in an amount equal to 5% ofKCL’s net income before corporate tax and possible surtaxes, plus all bonuspayments based on income, municipal trade tax and extraordinary expenses thathave been incurred by KCL voluntarily or by resolution of KCL’s shareholdersminus remunerations for supervisory and consultation board members. The minimumannual bonus amount is DM 50,000, which is payable in December of eachyear. The remaining portion of the annual bonus, if any, is determined by ashareholders resolution and is payable no later than the end of May of thesucceeding calendar year. We are currently in discussions with Mr. Laitschto extend his contract.

 

*Kenneth R. Martell*.  Our electrical safety division, W.H.Salisbury & Co., entered into an employment agreement in August 1999with Mr. Martell pursuant to which he is to serve as vice president andgeneral manager. Under the terms of this agreement, Mr. Martell isentitled to receive a base salary of $155,000. Mr. Martell is alsoentitled to participate in all employee benefits plans for which seniorexecutives are eligible, a $600 per month automobile allowance and threecalendar weeks of vacation per year. In addition, Mr. Martell is eligibleto receive a bonus targeted at 40% of his base salary.

 

**Payments Upon Sale of Norcross**

** **

On January 1, 2002, the Predecessor entered intoletter agreements with Mr. Peterson and Mr. Myers pursuant to whichthey were eligible to receive additional bonuses in the amount of $1,752,789and $1,081,475, respectively, on the earlier of December 31, 2016 or theoccurrence of certain events including (1) a sale of Norcross, (2) apublic offering generating $50.0 million or more, (3) a change of control,which is defined as any transaction after which the John Hancock Group or theCIBC/Argosy Group do not have the power to elect a majority of the board ofmanagers of NSP Holdings, (4) our election to repurchase Mr. Peterson’sequity securities pursuant to the terms of NSP Holdings’ limited liabilitycompany agreement, and (5) one day prior to the maturity date of themanagement loans made by NSP Holdings to Mr. Peterson and Mr. Myers.These additional bonuses became payable in connection with the NorcrossTransaction and were used by Mr. Peterson and Mr. Myers to repay themanagement loans described under “Item 13. Certain Relationships and RelatedTransactions—Management Loans.”

 

**Compensation Committee Interlocks and InsiderParticipation**

** **

The Predecessor’s compensation committee was comprisedof Messrs. Peterson, Jay R. Bloom and Stephen J. Blewitt. Mr. Petersonis our President and Chief Executive Officer. The Predecessor made certainloans to Mr. Peterson to allow Mr. Peterson to purchase equity in NSPHoldings. Mr. Peterson received payments of approximately $2.0 million inconnection with the issuance of NSP Holdings’ senior pay in kind notes as aresult of distributions with respect to his preferred units of NSP Holdings andthe distribution made by NSP Holdings to senior management. See “Item 13.Certain Relationships and Related Transactions—Payments to Management inConnection with Issuance of Senior Pay in Kind Notes.” Our compensationdeterminations are made by our board of directors.

 

**2005 Option Plan**

** **

Safety Products has adopted a stock option plan,titled the 2005 Option Plan of Safety Products Holdings, Inc. Under thatplan either incentive stock options or non-qualified stock options may beoffered to purchase common stock to its employees or those of its subsidiaries,to consultants and to its independent directors. The purpose of the option planis to promote long term financial success, growth and development of SafetyProducts by attracting, retaining and rewarding its employees, consultants anddirectors, and the employees of its subsidiaries.

 

The number of shares of stock reserved for issuanceunder the option plan shall not exceed 1,493,631 shares (equal to 10.5% ofSafety Products’ fully diluted outstanding shares of common stock as of thedate of the Norcross Transaction).

 

Prior to an initial public offering the option planwill be administered by the board of directors of Safety Products unless thatboard delegates administration to its compensation committee. Following aninitial public offering, the option plan will be administered by the full boarduntil the appointment of a compensation committee consisting of two or moredirectors who are “non-employee directors” as defined by SEC Rule 16b-3and “outside directors” as defined by section 162(m) of the InternalRevenue Code. The board, or the compensation committee, as applicable, willhave the authority to determine to whom options will be granted, and willestablish the terms and conditions of those grants. However, in no event maythe 

 

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exercise price of any option granted under the plan be less than thefair market value of the shares underlying that option on the date the optionis granted.

 

The board or the compensation committee, asapplicable, will as described above, determine to whom options are granted andon what terms and conditions. In that connection, the board or the compensationcommittee, as applicable, will determine the number and type of options grantedto each person participating in the option plan, the exercise price of eachoption (which may not be less than the fair market value on the date the optionis granted of the shares of common stock underlying the option), the vestingprovisions applicable to each option, the term of each option (provided that nooption may have a term that exceeds 10 years) and all other terms andconditions of any option granted under the plan. However, neither the board northe compensation committee may exercise its discretion in a way that wouldprevent an incentive stock option from qualifying as such under section 422of the Internal Revenue Code. The option plan and the underlying agreementsprovide, and will provide, that unless determined otherwise at the time theoption is granted, following termination of employment, options that have notpreviously become exercisable will not become exercisable and that the exerciseperiod of a vested (exercisable) option will generally be limited, providedthat vested options will be cancelled immediately upon a termination for cause.

 

Options granted under the option plan may not betransferred other than by will or applicable inheritance laws. Shares of commonstock of Safety Products acquired upon exercise of options are subject to theterms of the Management Stockholders Agreement and, as a consequence, aregenerally not transferable other than in accordance with that agreement.

 

Upon a change in control all options that havepreviously become exercisable may be exercised in connection with that changein control. In addition, depending upon the financial results obtained upon achange in control, previously unexercisable options will, or in the board’sdiscretion may, become exercisable.

 

The option plan may be amended, suspended orterminated at any time by the board of directors of Safety Products, providedthat without stockholder approval no amendment may increase the number ofshares available under the option plan nor reduce the minimum exercise pricefor options granted under the plan.

 
| **ITEM 12.** | **SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND  MANAGEMENT AND RELATED STOCKHOLDER MATTERS** |
|--------------|-----------------------------------------------------------------------------------------------------|

 

**Principal Equityholders**

** **

The following table sets forth certain informationwith respect to the beneficial ownership of the common stock of Safety Productsas of February 28, 2006, by:

 

•      Eachperson, or group of affiliated persons, who is known by us to own beneficiallymore than 5.0% of its common stock;

 

•      Eachof our directors and named executive officers; and

 

•      Allof our directors and executive officers as a group.

 

Beneficial ownership is determined in accordance withthe rule of the SEC. Shares of common stock subject to options currentlyexercisable or exercisable within 60 days of February 28, 2006, are deemedoutstanding for calculating the percentage of outstanding share of the personholding these options, but are not deemed outstanding for the percentage of anyother person. Percentage of beneficial ownership is based upon 11,023,258shares of common stock outstanding as of February 28, 2006. To ourknowledge, except as set forth in the footnotes to this table and subject toapplicable community property laws, each person named in the table has solevoting and investment power with respect to the shares set forth opposite suchperson’s name. Except as otherwise indicated, the address of each of thepersons in this table is as follows:  c/oSafety Products Holdings, Inc., 2001 Spring Road, Suite 425, OakBrook, Illinois 60523.

 

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| ** **                                                                                                                     | ** ** | **Common Stock** | ** **   |
|--------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|--------------|
| **Name**                                                                                                                       | ** ** | **Number**            | ** **   | **Number  Underlying  Options** | ** ** | **Percent** | ** ** |
| Odyssey  Investment Partners Fund III, LP  c/o Odyssey Investment Partners, LLC 280 Park Avenue West Tower New York, NY  10017 |       | 8,260,000             | (1)          | 0 |   | 74.9 | % |
| Safety Products,  LLC  c/o GE Asset Management Incorporated 3001 Summer Street Stamford, CT 06905                              |       | 2,500,000             |         | 0 |   | 22.7 | % |
| Robert A.  Peterson                                                                                                            |       | 178,978               |         | 68,978 |   | 1.6 | % |
| David F.  Myers, Jr.                                                                                                      |       | 94,633                |         | 44,633 |   |   | * |
| Charles S. Ellis                                                                                                               |       | 21,611                |         | 8,611 |   |   | * |
| Volker H.  Laitsch                                                                                                             |       | 0                     |         | 0 |   |   | * |
| Kenneth R.  Martell                                                                                                            |       | 6,812                 |         | 3,312 |   |   | * |
| Brian Kwait                                                                                                                    |       | 8,301,258             | (2)(3)(4)(5) | 0 |   | 75.3 | % |
| Muzzafar Mirza                                                                                                                 |       | 8,301,258             | (2)(3)(4)(5) | 0 |   | 75.3 | % |
| Benjamin A.  Hochberg                                                                                                          |       | 0                     |         | 0 |   |   | * |
| All directors  and executive officers as a group (9 persons)                                                                   |       | 8,620,098             |         | 129,840 |   | 77.3 | % |

 

----

*       Representsbeneficial ownership of less than one percent.

 

(1)   Odyssey Investment Partners, LLC, or Odyssey, is thegeneral partner of Odyssey Investment Partners Fund III, LP, or Odyssey Fund,and by virtue of such status may be deemed to be the beneficial owner of theshares held by Odyssey Fund. Messrs. Kwait and Mirza are ManagingPrincipals of Odyssey, and neither of them individually has the power to director veto the voting or disposition of shares held by Odyssey Fund. Odysseyexpressly disclaims beneficial ownership of the shares held by Odyssey Fund.

 

(2)   Includes 8,260,000 shares of common stock owned byOdyssey Fund.

 

(3)   Messrs. Kwait and Mirza may be deemed to sharebeneficial ownership of the shares held by Odyssey Fund by virtue of theirstatus as Managing Principals of Odyssey. Each of Messrs. Kwait and Mirzaexpressly disclaims beneficial ownership of any shares held by Odyssey Fundthat exceed his pecuniary interest therein. The members and managers of Odysseyshare investment and voting power with respect to securities owned by OdysseyFund, but no individual controls such investment or voting power.

 

(4)   Includes 41,258 shares of common stock owned by SafetyProducts Coinvestment LLC, or Coinvestment LLC. Odyssey is the managing member of Coinvestment LLC and by virtue of suchstatus may be deemed to be the beneficial owner of the shares held byCoinvestment LLC. Messrs. Kwait and Mirza are Managing Principals ofOdyssey, and neither of them individually has the power to direct or veto thevoting or disposition of shares held by Coinvestment LLC. Odyssey expresslydisclaims beneficial ownership of the shares held by Coinvestment LLC.

 

(5)   Messrs. Kwait and Mirza may be deemed to sharebeneficial ownership of the shares held by Coinvestment LLC by virtue of theirstatus as Managing Principals of Odyssey. Each of Messrs. Kwait and Mirzaexpressly disclaims beneficial ownership of any shares held by Coinvestment LLCthat exceed his pecuniary interest therein.

 

Information with respect to equity compensation plansis set forth under the heading “Equity Compensation Plan Information” in this Form 10-Kunder Item 5 of Part II.  Theinformation contained under this heading in incorporated herein by reference.

 
| **ITEM 13.** | **CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS** |
|--------------|----------------------------------------------------|

 

**Stockholders Agreement**

 

On July 19, 2005, Safety Products entered into astockholders agreement with Odyssey Investment Partners Fund III, LP (“OdysseyFund”) and Safety Products, LLC (“SPL”). The stockholders agreement includescertain restrictions on the transfer of shares of common stock including thegranting to Odyssey Fund of a right of first refusal with respect to sales ofshares held by SPL at any time prior to the fifth anniversary of the executiondate of the agreement. Under certain circumstances, SPL has “tag-along” rightsto sell its shares on a *prorata* basis with Odyssey Fund in certain sales to third parties. IfOdyssey Fund approves a sale of shares of common stock, Odyssey Fund has theright to require SPL to sell their shares on the same terms. In addition,subject to certain exceptions, including issuance pursuant to an initial publicoffering, the stockholders agreement grants holders of common stock partythereto preemptive rights with respect to issuances of common stock by SafetyProducts.

 

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The stockholders agreement also includes certainregistration rights which provide that, upon the written request of eitherOdyssey Fund or SPL, Safety Products has agreed to, on one or more occasionsfollowing an initial public offering, prepare and file a registration statementwith the SEC concerning the distribution of all or part of the shares of commonstock held by Odyssey Fund and SPL, and use its commercially reasonable effortsto cause the registration statement to become effective. Following an initialpublic offering by Safety Products, Odyssey Fund and SPL will also have theright, subject to certain exceptions and rights of priority, to have theirshares included in certain registration statements filed by Safety Products.Registration expenses of the selling stockholders (other than underwritingdiscounts and commissions and transfer taxes applicable to the shares sold bysuch stockholders or the fees and expenses of any accountants or otherrepresentatives retained by a selling stockholder) will be paid by SafetyProducts. Safety Products has also agreed to indemnify the stockholders againstcertain customary liabilities in connection with any registration.

 

**Management Stockholders Agreement**

** **

On July 19, 2005, Safety Products also enteredinto a management stockholders agreement with Odyssey Fund and the managementinvestors. The management stockholders agreement generally restricts thetransfer of shares of common stock without the consent of Odyssey Fund.Exceptions to this restriction include transfers for estate planning purposes,in each case so long as any transferee agrees to be bound by the terms of themanagement stockholders agreement.

 

Safety Products and Odyssey Fund have a right of firstrefusal under the management stockholders agreement with respect to sales ofshares of common stock held by management investors. Under certain circumstances,the stockholders have “tag-along” rights to sell their shares on a *pro rata* basis withthe selling stockholder in certain sales to third parties. If Odyssey Fundapproves a sale of shares of common stock, Odyssey Fund has the right torequire the management stockholders to sell their shares on the same terms. Theagreement also contains a provision that gives Safety Products the right torepurchase a management investor’s shares upon termination of that managementinvestor’s employment and gives the management stockholder the right to requireSafety Products to repurchase such stockholder’s shares upon termination ofthat management investor’s employment. In addition, subject to certainexceptions, including issuance pursuant to an initial public offering, themanagement stockholders agreement grants holders of common stock party theretopreemptive rights with respect to issuances of common stock by Safety Productsto Odyssey Fund.

 

**Management Loans**

** **

In October 1998, in connection with theacquisition of North Safety Products, Ltd.; James North (Africa) Pty. Ltd.;Industrie Schutz Produkte GmbH; and Siebe North Holdings Corp., certain membersof our management entered into nonrecourse promissory notes with NSP Holdingsin order to raise the capital necessary to purchase equity securities of NSPHoldings. As of the closing of the Norcross Transaction, Mr. Peterson and Mr. Myersowed $494,158 and $303,557, respectively, on these notes.

 

In February 2000, in connection with theacquisition of Arkon, certain members of our management entered intononrecourse promissory notes with NSP Holdings in order to raise the capitalnecessary to purchase equity securities of NSP Holdings. As of the closing ofthe Norcross Transaction, Mr. Peterson and Mr. Myers owed $445,337and $276,113, respectively, on these notes.

 

All of these notes were non-interest bearing and werescheduled to mature on the earlier of (1) December 31, 2016, (2) thesale of NSP Holdings, (3) the sale by the borrower of any of thesecurities collateralizing the note, (4) the liquidation, dissolution orwinding-up of NSP Holdings, (5) a public offering by NSP Holdings of itsunits or warrants or (6) a default under the terms of the note. Prepaymentof these loans was required to be made by the borrowers in the amount of 40% ofany supplemental bonuses they received and 100% of any distributions paid on,or proceeds from the sale of, the borrower’s Class A Common Units. The October 1998notes were collateralized by certain of the Class A Common Units of theborrowers and the February 2000 notes were collateralized by certain ofthe Class A Common Units and preferred units of the borrowers. Each ofthese notes matured upon consummation of the Norcross Transaction. Mr. Petersonand Mr. Myers used the amounts received by them as special bonuses uponconsummation of the Norcross Transaction to repay these loans. See “—Paymentsto Management in Connection with the Norcross Transaction” and “Item 11.Executive Compensation—Payments Upon Sale of Norcross.”

 

**Family Relationships**

** **

William L. Grilliot, our President—Fire Service, isthe husband of Mary I. Grilliot, the Vice President of our subsidiary, MorningPride Manufacturing L.L.C. Mrs. Grilliot was paid an aggregate salary andbonus of $296,052 for her services during the year ended December 31,2005. In connection with the Norcross Transaction, Mrs. Grilliot receivedapproximately $555,500 in respect of her equity interest in NSP 

 

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Holdings and, in connection with the issuance by NSP Holdings of thesenior pay in kind notes, Mrs. Grilliot received approximately $104,009 inrespect of her preferred units in NSP Holdings.

 

**Real Property Leases**

** **

Morning Pride Manufacturing L.L.C. leases a facilityin Dayton, Ohio from American Firefighters Cooperative, Inc., acorporation controlled by William L. Grilliot, our President—Fire Service. Theinitial term of the lease ended on February 28, 2005 and was extendedthrough April 30, 2009. The base rent is $347,816 per year, payable inmonthly installments. In addition, we must also pay American FirefightersCooperative, Inc. the actual amount of all real estate taxes, and allgeneral and special assessments of every kind, as additional rent during theterm of the lease. The annual rent paid in each of 2005, 2004, and 2003 was$373,181, $366,320, and $354,834, respectively. If the lease expires or isterminated at any time prior to July 1, 2010, we must reimburse AmericanFirefighters Cooperative, Inc. an amount equal to the number of monthsremaining in the rental term multiplied by $1,206.

 

**Payments to Management in Connection with Issuance ofSenior Pay in Kind Notes**

** **

NSP Holdings used approximately $60.0 million of theproceeds from the offering of its senior pay in kind notes to make payments inrespect of its preferred units. As equityholders, Messrs. Peterson, Myersand Grilliot received $478,995, $292,903 and $104,009, respectively.

 

**Arrangements with Management**

** **

We offer key members of our management team theopportunity to participate in an equity incentive program. In connection withthe Norcross Transaction, certain members of our senior management teamacquired shares of capital stock of Safety Products. In connection with theNorcross Transaction, Messrs. Peterson and Myers purchased common equityin Safety Products for approximately $1.1 million and $0.5 million,respectively, representing approximately 1.0% and 0.5%, respectively, of SafetyProducts’ equity. In addition, pursuant to the terms of their employment agreements,Messrs. Peterson and Myers will receive options to purchase shares ofcapital stock of Safety Products equal to 4.25% and 2.75%, respectively, of itsfully diluted equity.

 

We have entered into agreements with certain membersof our senior management relating to their employment. For more information,see “Item 11. Executive Compensation—Employment Agreements.”

 

**Payments to Management in Connection with the NorcrossTransaction**

** **

Following the Norcross Transaction, NSP Holdings wasdissolved and distributed to its equityholders the proceeds received from theNorcross Transaction. In addition, prior to dissolution, NSP Holdingsdistributed to its equityholders approximately $34.0 million of cash that wasnot be assumed by Safety Products in connection with the Norcross Transaction.As part of the Norcross Transaction, Messrs. Peterson, Myers, Ellis,Grilliot, Martell and Laitsch received approximately $7.4 million, $5.1million, $0.9 million, $0.8 million, $0.2 million and $29,939, respectively.

 

As disclosed under “Item 11. ExecutiveCompensation—Payments Upon Sale of Norcross,” Mr. Peterson and Mr. Myerseach received a special bonus upon consummation of the Norcross Transactionthat was used to repay the management loans described above under “—ManagementLoans” and an amount to compensate them for taxes on such amounts.

 

81

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| **ITEM 14.** | **PRINCIPAL ACCOUNTING FEES AND SERVICES** |
|--------------|--------------------------------------------|

 

The following table presents fees for servicesprovided by Ernst & Young LLP (“E&Y”) for fiscal year 2004 and2005.  All Audit Fees, Audit-RelatedFees, Tax Fees and Other Fees were pre-approved by the Audit Committee inaccordance with its established procedures.

 

| **(In thousands)** | ** ** | **2004** | ** ** | **2005** | ** ** |
|-------------------------|------------|----------|------------|----------|------------|
| Audit Fees (a)          |       | $        | 762,964    |     | $          | 1,249,942 |   |
| Audit-Related  Fees (b) |       | 76,208   |       | 73,742   |       |
| Tax Fees (c)            |       | 827,825  |       | 939,210  |       |
| All Other Fees          |       | —   |       | —   |       |
| Total                   |       | $        | 1,666,997  |     | $          | 2,262,894 |   |

 

----

(a)   Fees for professional services provided for the auditof the Company’s annual financial statements as well as reviews of the Company’squarterly reports on Form 10-Q, accounting consultations on mattersaddressed during the audit or interim reviews, and SEC filings and offeringmemorandums including comfort letters and consents.

 

(b)   Fees for professional services which principallyinclude services in connection with internal control matters and due diligenceprocedures related to acquisition targets.

 

(c)   Fees for professional services for tax related adviceand compliance.

 

**Pre-Approval Policy**

** **

The Audit Committee’s policy is to pre-approve allaudit and permissible non-audit services provided by the independent auditor.These services may include audit services, audit-related services, tax servicesand other services. Pre-approval is generally provided for up to one year andany pre-approval is detailed as to the particular service or category ofservices and is generally subject to a specific budget. The independent auditorand management are required to periodically report to the Audit Committeeregarding the extent of services provided by the independent auditor inaccordance with this pre-approval policy, and the fees for the servicesperformed to date. The Audit Committee may also pre-approve particular serviceson a case-by-case basis. The aggregate amount of all such pre-approved servicesconstitutes 100% of the total amount of fees paid by us to E&Y.

 

82

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**PART IV**

 
| **ITEM 15.** | **EXHIBITS AND FINANCIAL STATEMENT SCHEDULES** |
|--------------|------------------------------------------------|

 

(a)(1) Financial Statements

 

The financial statements filed as part of this Form 10-Kare described in the Index to Consolidated Financial Statements on page 33in Item 8 above.

 

(a)(2) FinancialStatement Schedules (included in Item 8 above)

 

Schedule I—CondensedFinancial Information

 

Schedule II—Valuationand Qualifying Accounts and Reserves

 

(a)(3) Exhibits

 

See attached Exhibit Index.

 

83

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**SIGNATURES**

 

Pursuant to the requirements of Section 13 or 15(d) ofthe Securities Exchange Act of 1934, the Registrant has duly caused this reportto be signed on its behalf by the undersigned, thereunto duly authorized.

 
|                                        | Safety Products  Holdings, Inc.                  |
|---------------------------------------------|-------------------------------------------------------|
|                                        |                                                  |
|                                        | /s/ Robert A.  Peterson                               |   |
|                                        | By: Robert A.  Peterson                               |
| Date:   March 27,  2006 | Its: President,  Chief Executive Officer and Director |

 

Pursuant to the requirements of the SecuritiesExchange Act of 1934, this report has been signed below by the followingpersons on behalf of the Registrant in the capacities indicated on March 27,2006.

 
| **Signatures**                | ** ** | **Capacity**                                       |
|-------------------------------|------------|----------------------------------------------------|
|                          |       |                                               |
|                          |       |                                               |
| /s/ Robert A.  Peterson       |       | President, Chief  Executive Officer and Director   |
| Robert A.  Peterson           |       | (Principal  Executive Officer)                     |
|                          |       |                                               |
|                          |       |                                               |
| /s/ David F.  Myers, Jr. |       | Executive Vice  President, Chief Financial Officer |
| David F.  Myers, Jr.     |       | (Principal  Financial and Accounting Officer),     |
|                          |       | Secretary and  Director                            |
|                          |       |                                               |
|                          |       |                                               |
| /s/ Brian Kwait               |       | Director                                           |
| Brian Kwait                   |       |                                               |
|                          |       |                                               |
|                          |       |                                               |
| /s/ Muzzafar  Mirza           |       | Director                                           |
| Muzzafar Mirza                |       |                                               |
|                          |       |                                               |
|                          |       |                                               |
| /s/ Benjamin A.  Hochberg     |       | Director                                           |
| Benjamin A.  Hochberg         |       |                                               |

 

84

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**EXHIBIT INDEX**

 
| 3.1    |   | Amended and  Restated Certificate of Incorporation of Safety Products Holdings, Inc.  (incorporated herein by reference to Exhibit 3.1 of the Quarterly Report  on Form 10-Q of Safety Products Holdings, Inc. for the fiscal  quarter ended July 2, 2005).                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 3.2    |   | Bylaws of Safety  Products Holdings, Inc. (incorporated herein by reference to  Exhibit 3.2 of the Quarterly Report on Form 10-Q of Safety Products  Holdings, Inc. for the fiscal quarter ended July 2, 2005).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 4.1    |   | Indenture, dated  as of January 7, 2005, by and between NSP Holdings L.L.C., NSP Holdings  Capital Corp. and Wilmington Trust Company, as trustee (incorporated herein  by reference to Exhibit 4.1 of the Registration Statement on  Form S-4 of NSP Holdings, L.L.C. (File No. 333-123631)).                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 4.2    |   | Form of  113⁄4% Senior Pay in Kind Notes due 2012, Series B (incorporated herein by  reference to Exhibit 4.2 of the Registration Statement on Form S-4  of Safety Products Holdings, Inc., filed on December 15, 2005).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 4.3    |   | First  Supplemental Indenture dated as of July 19, 2005 among NSP Holdings  L.L.C., NSP Holdings Capital Corp. and Wilmington Trust Company, as  trustee (incorporated herein by reference to Exhibit 4.3 of the  Registration Statement on Form S-4 of Safety Products  Holdings, Inc., filed on December 15, 2005).                                                                                                                                                                                                                                                                                                                                                                                                                |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 4.4    |   | Second  Supplemental Indenture dated as of July 19, 2005 among NSP Holdings  L.L.C., NSP Holdings Capital Corp., Safety Products Holdings, Inc.  and Wilmington Trust Company, as trustee (incorporated herein by reference to  Exhibit 4.1 of the Current Report on Form 8-K of Safety Products  Holdings, Inc. filed on July 25, 2005).                                                                                                                                                                                                                                                                                                                                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 4.5    |   | Registration  Rights Agreement dated as of July 19, 2005 by and between Safety  Products Holdings, Inc. and Credit Suisse First Boston LLC (incorporated  herein by reference to Exhibit 4.2 of the Current Report on  Form 8-K of Safety Products Holdings, Inc. filed on July 25,  2005).                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.1   |   | Purchase  Agreement dated June 28, 2005 by and between Safety Products  Holdings, Inc. and Credit Suisse First Boston LLC (incorporated herein  by reference to Exhibit 10.1 of the Current Report on Form 8-K of  Safety Products Holdings, Inc. filed on July 25, 2005).                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.2   |   | Purchase and  Sale Agreement dated May 20, 2005 by and among NSP Holdings L.L.C.,  Norcross Safety Products L.L.C. and Safety Products Holdings, Inc.  (incorporated herein by reference to Exhibit 10.1 of the Quarterly  Report on Form 10-Q of Safety Products Holdings, Inc. for the  fiscal quarter ended July 2, 2005).                                                                                                                                                                                                                                                                                                                                                                                                        |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.3   |   | Credit Agreement  dated as of July 19, 2005 among Safety Products Holdings, Inc., as  a Guarantor, Norcross Safety Products L.L.C., North Safety Products Inc.,  Morning Pride Manufacturing L.L.C., North Safety Products LTD., the Several  Lenders from Time to Time Parties thereto, Credit Suisse, as Administrative  Agent, Bank of America, N.A., as Syndication Agent, GMAC Commercial Finance  LLC, LaSalle Bank National Association and US Bank National Association, as  Documentation Agents, and Credit Suisse, Toronto Branch, as Canadian Agent  (incorporated herein by reference to Exhibit 10.1 of the Quarterly  Report on Form 10-Q of Norcross Safety Products, L.L.C. for the fiscal  quarter ended July 2, 2005). |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.4   |   | Incremental  Facility Amendment dated as of November 1, 2005 among Norcross Safety  Products L.L.C., North Safety Products Inc., Morning Pride Manufacturing  L.L.C., the Several Lenders from Time to Time Parties thereto, and Credit  Suisse, as Administrative Agent (incorporated herein by reference to Exhibit 10.1  of the Quarterly Report on Form 10-Q of Safety Products  Holdings, Inc. for the fiscal quarter ended October 1, 2005).                                                                                                                                                                                                                                                                                        |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.5   |   | Lease Agreement  by and between Morning Pride Manufacturing L.L.C. and American Firefighter  Cooperative, Inc. regarding property located in Dayton, Ohio  (incorporated herein by reference to Exhibit 10.5 of the Registration  Statement on Form S-4 of Norcross Safety Products L.L.C., filed on  November 14, 2003 (File No. 333-110531)).                                                                                                                                                                                                                                                                                                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.6   |   | Management  Services Agreement, dated as of August 12, 1994 by and between  Kächele-Cama Latex GmbH and Volker H. Laitsch (incorporated herein by  reference to Exhibit 10.11 of the Annual Report on Form 10-K of  Norcross Safety Products L.L.C. for the fiscal year ended December 31,  2004).                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.7   |   | Amended and  Restated Employment Agreement dated as of May 20, 2005 by and between  Norcross Safety                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |

 

----

 
|   |   | Products L.L.C.  and Robert A. Peterson (incorporated herein by reference to Exhibit 10.2  of the Quarterly Report on Form 10-Q of Norcross Safety Products, L.L.C.  for the fiscal quarter ended July 2, 2005).                                                                                                                                                                       |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.8   |   | Amended and  Restated Employment Agreement dated as of May 20, 2005 by and between  Norcross Safety Products L.L.C. and David F. Myers, Jr. (incorporated  herein by reference to Exhibit 10.3 of the Quarterly Report on  Form 10-Q of Norcross Safety Products, L.L.C. for the fiscal quarter  ended July 2, 2005).                                                        |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.9   |   | Employment  Agreement dated as of May 20, 2005 by and between Morning Pride  Manufacturing L.L.C. and William Grilliot (incorporated herein by reference  to Exhibit 10.4 of the Quarterly Report on Form 10-Q of Norcross  Safety Products, L.L.C. for the fiscal quarter ended July 2, 2005).                                                                                   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.10  |   | Employment  Agreement dated as of May 20, 2005 by and between North Safety Products, Inc.  and Charles S. Ellis (incorporated herein by reference to Exhibit 10.5  of the Quarterly Report on Form 10-Q of Norcross Safety Products, L.L.C.  for the fiscal quarter ended July 2, 2005).                                                                                     |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.11  |   | Employment  Agreement, dated as of August 1999, by and between Kenneth R. Martell  and W.H. Salisbury and Company (incorporated herein by reference to  Exhibit 10.12 of the Registration Statement on Form S-4 of Norcross  Safety Products L.L.C., filed on November 14, 2003 (File No. 333-110531)).                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.12  |   | Amended and  Restated Employment Agreement, dated as of February 17, 2000, by and  between Claude L. Roberge and Arkon Safety Equipment Inc. (incorporated  herein by reference to Exhibit 10.13 of the Registration Statement on  Form S-4 of Norcross Safety Products L.L.C., filed on November 14,  2003 (File No. 333-110531)).                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.13  |   | Consulting  Agreement, dated as of September 30, 2004, by and among North Safety  Products Ltd. and Claude L. Roberge (incorporated herein by reference to  Exhibit 10.1 of the Current Report on Form 8-K of Norcross Safety  Products L.L.C., filed on October 1, 2004).                                                                                                        |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.14  |   | Lease Agreement  by and between Norcross Safety Products L.L.C. and MRCI, Inc. regarding  property located in Rock Island, Illinois (incorporated herein by reference to  Exhibit 10.14 of the Registration Statement on Form S-4 of Norcross  Safety Products L.L.C., filed on November 14, 2003 (File  No. 333-110531)).                                                   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.15  |   | Share Sale and  Purchase Agreement, dated as of June 10, 2003, between North Safety  Products Holding GmbH and the shareholders of Kächele-Cama Latex GmbH  (incorporated herein by reference to Exhibit 10.15 of the Registration  Statement on Form S-4 of Norcross Safety Products L.L.C., filed on  November 14, 2003 (File No. 333-110531)).                       |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.16  |   | Share Purchase  Agreement, dated September 1, 1998, by and among Norcross Safety  Products L.L.C., Siebe Plc, Siebe International Limited, Deutsche Siebe Gmbh,  and Siebe Inc (incorporated herein by reference to Exhibit 10.16 of the  Registration Statement on Form S-4 of Norcross Safety Products L.L.C.,  filed on November 14, 2003 (File No. 333-110531)).         |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.17  |   | Amendment and  Assignment of the Siebe Share Purchase Agreement (incorporated herein by  reference to Exhibit 10.17 of the Registration Statement on  Form S-4 of Norcross Safety Products L.L.C., filed on November 14,  2003 (File No. 333-110531)).                                                                                                                            |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.18  |   | 2005 Option Plan  of Safety Products Holdings, Inc. (incorporated herein by reference to  Exhibit 10.18 of the Registration Statement on Form S-4 of Safety  Products Holdings, Inc., filed on December 15, 2005).                                                                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.19  |   | Agreement, dated  December 14, 1982, by and among Siebe Norton, Inc., Norton Company  and Siebe Gorman Holdings PLC (incorporated herein by reference to  Exhibit 10.29 of the Registration Statement on Form S-4 of Norcross  Safety Products L.L.C., filed on November 14, 2003 (File  No. 333-110531)).                                                         |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.20  |   | Cooperation  Agreement, made as of January 10, 1983, by and between Siebe  Norton, Inc. and Norton Company (incorporated herein by reference to Exhibit 10.30  of the Registration Statement on Form S-4 of Norcross Safety Products  L.L.C., filed on November 14, 2003 (File No. 333-110531)).                                                                        |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.21  |   | Indenture, dated  as of August 13, 2003, by and between Norcross Safety Products L.L.C.,  Norcross Capital Corp., the Guarantors named therein and Wilmington Trust  Company, as trustee (incorporated herein by reference to Exhibit 4.1 of  the Registration Statement on Form S-4 of Norcross Safety Products  L.L.C., filed on November 14, 2003 (File No. 333-110531)). |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.22  |   | First  Supplemental Indenture dated as of July 19, 2005 among Norcross Safety  Products L.L.C., Norcross Capital Corp., the Guarantors listed on the  signature pages thereto and Wilmington Trust Company, as trustee  (incorporated herein by reference to Exhibit 4.1 of the Quarterly Report  on Form 10-Q of Norcross                                                        |

 

----

 
|   |   | Safety Products,  L.L.C. for the fiscal quarter ended July 2, 2005).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.23  |   | Second  Supplemental Indenture dated as of December 14, 2005 among The  Fibre-Metal Products Company, Norcross Safety Products L.L.C., Norcross  Capital Corp., the Guarantors listed on the signature pages thereto and  Wilmington Trust Company, as trustee (incorporated herein by reference to  Exhibit 10.23 of the Registration Statement on Form S-4 of Safety  Products Holdings, Inc., filed on December 15, 2005).                                                                                                                                                                 |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.24  |   | Form of 97/8%  Senior Subordinated Notes due 2011, Series B, of Norcross Safety  Products L.L.C. (incorporated herein by reference to Exhibit 4.2 of the  Registration Statement on Form S-4 of Norcross Safety Products L.L.C.,  filed on November 14, 2003 (File No. 333-110531)).                                                                                                                                                                                                                                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.25  |   | Form of  Guarantee issued by the Guarantors of the 97/8% Senior  Subordinated Notes due 2011 of Norcross Safety Products L.L.C. (incorporated  herein by reference to Exhibit 4.3 of the Registration Statement on  Form S-4 of Norcross Safety Products L.L.C., filed on November 14,  2003 (File No. 333-110531)).                                                                                                                                                                                                                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.26  |   | CIVC  Registration Rights Agreement, dated as of January 7, 2005, by and among  NSP Holdings L.L.C., NSP Holdings Capital Corp. and CIVC Partners Fund,  L.P. (incorporated herein by reference to Exhibit 10.44 of the Annual  Report on Form 10-K of Norcross Safety Products L.L.C. for the fiscal  year ended December 31, 2004).                                                                                                                                                                                                                                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.27  |   | Letter dated  July 19, 2005 from Safety Products Holdings, Inc. to GS Mezzanine  Partners III Onshore Fund, L.P. and GS Mezzanine Partners III Offshore Fund,  L.P. (incorporated herein by reference to Exhibit 10.27 of the  Registration Statement on Form S-4 of Safety Products Holdings, Inc.,  filed on December 15, 2005).                                                                                                                                                                                                                                                            |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.28  |   | Stock Purchase  Agreement dated as of October 3, 2005 by and among Norcross Safety  Products, L.L.C., The Fibre-Metal Products Company, Residuary Trust under the  Will of Charles E. Bowers, Jr., Trust under the Will of Charles E.  Bowers, Jr. for the benefit of Judith L. Bowers, Charles E.  Bowers, Jr. Irrevocable Trust dated December 17, 1990 and  Charles J. Grandi (incorporated herein by reference to  Exhibit 10.2 of the Quarterly Report on Form 10-Q of Safety Products  Holdings, Inc. for the fiscal quarter ended October 1, 2005). |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 21.1   |   | Subsidiaries of  Registrant.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 31.1   |   | Certification of  the Chief Executive Officer pursuant to Section 302 of the  Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 31.2   |   | Certification of  the Chief Financial Officer pursuant to Section 302 of the  Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 32.1   |   | Certification  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |

 

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