** **

**UNITED STATESSECURITIES AND EXCHANGECOMMISSION**

**Washington,D.C. 20549**

**FORM 10-K**

**x        ANNUAL REPORT PURSUANT TOSECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934**

**forthe fiscal year ended December 31, 2006**

**OR**

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

**forthe transition periodfrom             to             .**

**COMMISSIONFILE NUMBER:  333-127781**

**SAFETY PRODUCTS HOLDINGS, INC.**

(Exactname of registrant as specified in its charter)

| **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.**                                                              |

 

Indicateby check mark if the Registrant is a well-known seasoned issuer, as defined inRule 405 of the Securities Act.

Yes o No x

Indicateby check mark if the Registrant is not required to file reports pursuant toSection 13 or Section 15(d) of the Act.

Yes x No o

Indicate by check mark whether the Registrant(1) has filed all reports required to be filed by Section 13 or15(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 x No o

Indicate by check mark if disclosure of delinquentfilers pursuant to Item 405 of Regulation S-K is not contained herein, and willnot be contained, to the best of the Registrant’s knowledge, in definitiveproxy or information statements incorporated by reference in Part III ofthis Form 10-K or any amendment to this Form 10-K. x

Indicate by check mark whether the Registrant is alarge accelerated filer, an accelerated filer, or a non-accelerated. Seedefinition of “accelerated filer and large accelerated filer” inRule 12b-2 of the Exchange Act.

Large accelerated filer o Accelerated filer o Non-accelerated filer x

Indicate by check mark whether the registrant is ashell company (as defined in Rule 12b-2 of the Act). Yes o No x

None of the Registrant’s units are held bynon-affiliates of the Registrant.

As of March 23, 2007, Safety Products Holdings, Inc.had 11,030,884 common shares outstanding.

**Documents Incorporated byReference**

**None**

 

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**TABLE OF CONTENTS**
| PART I         |   |                                                                                                                |   | 3      |   |
|----------------|--------|---------------------------------------------------------------------------------------------------------------------|--------|--------|--------|
|           |   |                                                                                                                |   |   |   |
| ITEM 1.        |   | BUSINESS                                                                                                            |   | 3      |   |
| ITEM 1A.       |   | RISK  FACTORS                                                                                                       |   | 11     |   |
| ITEM 1B.       |   | UNRESOLVED STAFF COMMENTS                                                                                           |   | 15     |   |
| ITEM 2.        |   | PROPERTIES                                                                                                          |   | 15     |   |
| ITEM  3.       |   | LEGAL  PROCEEDINGS                                                                                                  |   | 17     |   |
| ITEM 4.        |   | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                                                 |   | 20     |   |
|           |   |                                                                                                                |   |   |   |
| PART II        |   |                                                                                                                |   | 21     |   |
|           |   |                                                                                                                |   |   |   |
| ITEM 5.        |   | MARKET FOR  REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES  OF EQUITY SECURITIES |   | 21     |   |
| ITEM  6.       |   | SELECTED  FINANCIAL DATA                                                                                            |   | 22     |   |
| ITEM 7.        |   | MANAGEMENT’S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS                         |   | 24     |   |
| ITEM 7A.       |   | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET  RISK                                                         |   | 40     |   |
| ITEM 8.        |   | CONSOLIDATED  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                                           |   | 41     |   |
| ITEM 9.        |   | CHANGES IN AND  DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE                               |   | 80     |   |
| ITEM 9A.       |   | CONTROLS AND PROCEDURES                                                                                             |   | 80     |   |
| ITEM  9B.      |   | OTHER  INFORMATION                                                                                                  |   | 80     |   |
|           |   |                                                                                                                |   |   |   |
| PART III       |   |                                                                                                                |   | 81     |   |
|           |   |                                                                                                                |   |   |   |
| ITEM 10.       |   | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE                                                              |   | 81     |   |
| ITEM 11.       |   | EXECUTIVE  COMPENSATION                                                                                             |   | 83     |   |
| ITEM 12.       |   | SECURITY OWNERSHIP  OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS                     |   | 97     |   |
| ITEM 13.       |   | CERTAIN  RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE                                          |   | 99     |   |
| ITEM 14.       |   | PRINCIPAL ACCOUNTANT FEES AND SERVICES                                                                              |   | 101    |   |
|           |   |                                                                                                                |   |   |   |
| PART IV        |   |                                                                                                                |   | 102    |   |
|           |   |                                                                                                                |   |   |   |
| ITEM 15.       |   | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES                                                                          |   | 102    |   |
|           |   |                                                                                                                |   |   |   |
| EXHIBIT  INDEX |   | 104                                                                                                                 |   |

 

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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 of brandedproducts 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, eye, head andface protection, 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, NEOS, *Morning Pride**, *Ranger*, *Servus*, *Pro-Warrington, American Firewear, Salisburyand Safety Line.* We believe these brand names have a strongreputation for excellence in protecting workers from hazardous andlife-threatening environments, which is a key purchasing consideration forpersonal protection equipment. We believe our brand names, reputation, historyof developing innovative products and a comprehensive line of high-quality,differentiated products and high levels of customer service have enhanced ourrelationships with our distributors and end-users. These factors have enabledus to achieve strong market share positions in key product lines. In addition,the non-discretionary and consumable nature of our products provides us withstable and recurring revenues.

We are one of the largest participants in the personalprotection equipment industry with approximately 3,000 employees in 32 primaryfacilities 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 81% of our netsales in 2006 were to customers in North America, with the remainder tocustomers primarily in Europe. We generated net sales of $438.5 million, $481.1million and $558.1 million for the year ended December 31, 2004, thecombined year ended December 31, 2005 and year ended December 31, 2006,respectively.

We classify our diverse product offerings into threeprimary operating segments:

*****General Safety and Preparedness*****. We offer a diverse portfolio ofleading products for a wide variety of industries, including the manufacturing,agriculture, construction, food processing, pharmaceutical and automotiveindustries and the military, under the *North*, *Ranger*,*Servus*, *KCL,**Fibre-Metal and NEOS*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. Our general safety andpreparedness segment generated net sales of $308.6 million, $332.5 million and$391.3 million for the year ended December 31, 2004, the combined yearended December 31, 2005 and the year ended December 31, 2006, respectively.

*Fire Service*. We manufacture and market one ofthe broadest lines of personal protection equipment for the fire servicemarket, offering firefighters head-to-toe protection. Our products includebunker gear, fireboots, helmets, gloves and other accessories. We market ourproducts under our Total Fire Group umbrella, using the brand names of *Morning Pride*, *Ranger*, *Servus,*  *Pro-Warrington and American Firewear.* We are widely known for developing innovativeequipment; for example, our bunker gear alone, which has more than 100 patentedfeatures and our urban search and rescue products are certified by third-partytesting labs as meeting all of the requirements of the National Fire ProtectionAgency (“NFPA”) and other regulatory bodies. We are the vendor of choice formany of the largest fire departments in North America. We sell our fire serviceproducts primarily through specialized fire service distributors. Our fireservice segment generated net sales of $78.9 million, $87.9 million and $87.9million for the year ended December 31, 2004, the combined year ended December31, 2005 and the year ended December 31, 2006, respectively.

*Electrical Safety*. We manufacture and market a broadline of personal protection equipment for the electrical safety market underthe *Salisbury, SafetyLine and Servus* brands. Our products include linemen equipment,gloves, sleeves and footwear. All our products either meet or exceed theapplicable standards of the American National Standards Institute (“ANSI”)

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andthe American Society for Testing of Materials (“ASTM”). We sell our electricalsafety products through specialized distributors, test labs, utilities andelectrical contractors.  Our electricalsafety segment generated net sales of $51.0 million, $60.6 and $78.8 million for the years endedDecember 31, 2004, the combined year ended December 31, 2005 and theyear ended December 31, 2006, respectively.

For net income and income from operations for each ofour segments for the year ended December 31, 2004, the period fromJanuary 1, 2005 through July 19, 2005, the period from July 20, 2005through December 31, 2005 and the year ended December 31, 2006 andtotal assets for each of our segments as of December 31, 2005 and 2006,see Note 14 to our audited financial statements.

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.LC. (“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 $68.7 million (includingacquisition costs of $0.7 million) was financed through additional termborrowings under the senior credit facility and cash on the balance sheet.

InFebruary 2006, we completed the acquisition of all of the issued andoutstanding capital stock of American Firewear, Inc. (“American Firewear”).  The purchase price consisted of $4.5 millionin cash (including acquisition costs of $0.2 million and net of cash acquiredof $0.2 million) and a $1.0 million subordinated seller note.  In addition, the purchase price may beincreased by $0.8 million over the next four years based on American Firewearachieving certain financial and operating objectives.  We financed the acquisition through cash onthe balance sheet and the issuance of the $1.0 million subordinated sellernote.

InJune 2006, we completed the acquisition of all of the issued and outstandingcapital stock of The White Rubber Corporation (“White Rubber”). The purchaseprice of $22.2 million (including acquisition costs of $0.6 million and grossof outstanding checks of $0.8 million) was financed through additional termborrowings under the senior credit facility and cash on the balance sheet.

InSeptember 2006, we completed the acquisition of all of the issued andoutstanding capital stock of The New England Overshoe Company, Inc. (“NEOS”).  The purchase price consisted of $3.6 millionin cash (including acquisition costs of $0.1 million and net of cash acquired)and a $0.8 million subordinated seller note. In addition, the purchase price may be increased over the next fiveyears based on NEOS achieving certain net sales targets.  We financed the acquisition through cash onthe balance sheet and the issuance of the $0.8 million subordinated seller note.

We refer herein to the acquisition of Norcross as the “NorcrossTransaction”, the acquisition of Fibre-Metal as the “Fibre-Metal Transaction”,  the acquisition of American Firewear as the “AmericanFirewear Transaction”, the acquisition of White Rubber as the “White RubberTransaction” and the acquisition of NEOS as the “NEOS Transaction.” 

**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.

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

*HeightenedCompliance and Commitment to Worker Safety*. Demand forpersonal protection equipment is driven largely by regulatory standards andrecognition by companies of the economic and productivity benefits of a saferworkplace. Regulatory bodies and standard-setting entities, such asOccupational Safety & Health Administration (“OSHA”), NationalInstitute for Occupational Safety and Health (“NIOSH”), the NFPA, ANSI andASTM, require and enforce businesses’ compliance with worker safety regulationsand establish strict performance and product design requirements for personalprotection equipment. Similarly, while the required standards for workerprotection are generally lower outside of North America and parts of WesternEurope, many countries have been increasing safety regulations in recent years,creating opportunities for manufacturers to increase sales internationally. Inaddition, the litigious environment in which companies operate compels manybusinesses to provide personal protection equipment for their employees and insome cases causes businesses to provide more personal protection equipment thanis mandated.

*Focus on DomesticPreparedness*. In the aftermath of the terroristattacks of September 11, 2001 and other incidences of terrorism worldwide,governments have significantly increased their focus and their spending onpreparedness for conventional and nuclear, biological and chemical attacks. TheU.S. government, for example, created a separate cabinet-level Department ofHomeland Security and allocated significant funding to further its mission. The2007 budget for the Department of Homeland Security is approximately $42.8billion, including approximately $8.6 billion of funds allocated to the FederalEmergency Management Agency and Emergency Preparedness.

*IndustrialDistributor Trends*. The industrial distributionchannel has experienced consolidation over the past several years asdistributors have attempted to realize economies of scale. In addition, productprocurement trends have shown that distributors are increasing their purchasesfrom large, multi product vendors, thereby simplifying the management of theirsupply chain, reducing their procurement costs and improving their sellingefficiency. Distributors, therefore, have an explicit preference for vendorswith broad product offerings and comprehensive services, including consolidatedshipping and invoicing, direct marketing to end-users and salesforce training.

**OperatingStructure**

Our operations are organized into three primaryoperating segments:  general safety andpreparedness, fire service and electrical safety. Each segment has a salesforce, a marketing team, manufacturing facilities, distribution facilities andcustomer service functions.

The following table sets forth the percentage of ournet sales generated by each of our operating segments for the year endedDecember 31, 2004, the combined year ended December 31, 2005 and the yearended December 31, 2006. The data have been derived from our auditedhistorical consolidated financial statements.

|                                  | ** ** | **Year ended  December 31,** | ** ** | **Combined  Year ended  December 31,** | ** ** | **Year ended  December 31,** | ** ** |
|----------------------------------|------------|----------------------------------------|------------|--------------------------------------------------|------------|----------------------------------------|------------|
| **Segment**                      | ** ** | **2004**                               | ** ** | **2005**                                         | ** ** | **2006**                               | ** ** |
| General Safety  and Preparedness |       | 70.4                                   | %          | 69.1                                             | %          | 70.1                                   | %          |
| Fire Service                     |       | 18.0                                   | %          | 18.3                                             | %          | 15.8                                   | %          |
| Electrical Safety                |       | 11.6                                   | %          | 12.6                                             | %          | 14.1                                   | %          |

 

**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:

****General Safety andPreparedness****. Our general safety and preparednessproducts include respiratory protection, protective footwear, hand protection,eye, head and face protection, first aid, fall protection and hearingprotection.

*RespiratoryProtection*. Ourrespiratory product offering is one of the broadest and deepest in the industryand includes disposable and reusable masks and face-pieces, filtrationcartridges, powered air purifying respirators, self-contained breathingapparatuses and airline respirators. We produce respirators for use in avariety of applications, including protection against dust, fumes,micro-organisms, fibers, odors, mists and gases.  In addition,

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weoffer respirators for nuclear, biological and chemical protection. 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.

*Protective Footwear*. Protective footwear is required toprotect workers’ feet from falling objects, objects piercing the sole,electrical hazards, hazardous materials, chemicals and extreme temperatures. Weproduce rubber, injection molded and other footwear to protect against suchthreats, using a variety of techniques for diverse applications, including meatand food processing, chemical processing, commercial fishing, agriculturalwork, construction and cold storage. With our origins as a footwear company, wehave long held dominant positions within the footwear segments of the personalprotection equipment industry through our *Ranger* and *Servus* brands. We believe we are the largest manufacturer ofboth neoprene safety and hand-laid rubber protective footwear for the industrialmarket in North America.

*Hand Protection*. Hand protection is required forworkers exposed to hazardous substances, vulnerable to severe cuts, abrasionsor chemical burns, and exposed to extreme temperatures. We manufacture andsource gloves designed to protect workers against each of these threats and fora variety of specific applications, including use in material handling,automotive, construction, meat and food processing and controlled environments.Our products range from basic protection provided by imported cotton gloves tohighly-engineered, patented gloves designed to withstand dangerous chemicalspresent in many workplaces. We market a full range of gloves with performancecharacteristics tailored to each user’s application or hazardous situation.

*Eye, Head and FaceProtection*. Weoffer a wide variety of protective eyewear and face shields that throughinnovative design and state of the art materials provide what we believe to bea high degree of optical quality, comfort and fit. Many of our products areoffered with coatings that provide anti-fog, anti-scratch, anti-UV oranti-static protection. Our hard hats and accessories provide comfortable anddependable head protection, featuring stylish, lightweight shell designs,suspension height adjustment and comfort padding. Our 2005 acquisition ofFibre-Metal significantly increased the breadth of products in our head andface protection product line and added a new line of welding helmets andaccessories.

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

*Fall Protection*. We manufacture and marketharnesses, lanyards, confined space retrieval equipment, self-retractinglifeliners and engineered fall protection systems. This product category oftenrequires customized solutions to meet end-user needs.

*Hearing Protection*. We provide a broad line of bothdisposable and reusable hearing protection products used in a variety ofindustries. All of our hearing protection products are designed to be ascomfortable as possible while protecting against hazardous noise in theworkplace. Many of these products are tested for us at an independentthird-party National Voluntary Laboratory Accreditation Program certifiedlaboratory.

****Fire Service****. Our fireservice products include bunker gear, fireboots, helmets, gloves and otheraccessories.

*Bunker Gear*. Bunker gear is protective clothingworn by firefighters that must meet the strict design specifications set by theNFPA, including resistance to heat and fire, chemicals, viruses and tears. Allof our bunker gear meets or exceeds the NFPA’s or other regulatory bodyspecifications. Bunker gear is made-to-order, with custom measurements for eachfirefighter. We sell bunker gear under the *Morning Pride* brand name, whichhas been in existence since 1921 and has high distributor and end-user loyalty.*Morning Pride*products are made with proprietary designs, are protected by more than 100patents, and use state-of-the-art materials such as KevlarTM, W.L. Gore’sCrosstechTM, PBITM, Nomex OmegaTM and P-84TM. Our sales force traditionally hasbeen successful in influencing fire departments to specify critical safetyfeatures for which we have a patent. Our unique, patented and field-testedfeatures, such as dead air panels, liner inspection ports and heat channel kneetechnologies, combined with our awareness of end-users’ needs for function andcomfort, differentiate our bunker gear from that of our competitors. Theseproprietary designs and specialized materials have allowed us to improve theperformance of bunker gear products and have increased the growth rate of oursales of these products.

*Fireboots*. Fireboots typically must meet thestrict design specifications set by the NFPA, including specifications for heatand flame resistance, compression, sole puncture resistance, electrical hazardsand water

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protection.Leather fireboots are generally lighter in weight and provide firefighters withincreased comfort and agility. Rubber fireboots are hand-made usingstate-of-the-art specialized materials such as KevlarTM, which is more durablethan felt, the traditional fireboot material, while providing enhanced wear andflame resistance. 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, Glovesand Other Accessories*. Helmets, gloves and other firefighting accessories typicallymust meet the strict design specifications set by the NFPA or other regulatorybodies, including those noted above for bunker gear as well as impactresistance, force transmission dissipation and burst strength. Helmets are madeusing state-of-the-art specialized materials such as the Fyrglass fiberglasshelmet shell, which offers improved strength while being lightweight. Uniquefeatures, such as bloodborne pathogen interface capable technologies,differentiate our products from those of our competitors. Over the last decade,we have been selected as the vendor of choice to supply helmets, gloves andother accessories to numerous major metropolitan fire departments in the U.S.Our 2006 acquisition of American Firewear significantly expanded our glove andhood product line offering.

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

*Linemen Equipment*. Linemen equipment encompasses anarray of products that enable utility workers to work with “live” energized orde-energized electrical equipment and power lines. Products include insulatingblankets, grounding equipment, linehose and covers, and guards that protect theworker, valuable equipment and reduce outages. Our products are required tomeet ANSI and ASTM standards and OSHA regulations.

*Gloves, Sleevesand Footwear*.We manufacture insulating gloves, sleeves and dielectric footwear, whichprotect electrical workers against electrical hazards. These products also mustmeet ANSI and ASTM standards.

*Arc FlashProtection*. We offer a full line of protective gearand clothing to protect electrical workers against the hazards of arc flash.This product line meets ASTM standards and is designed to comply with NFPAStandard 70E, “Standard for Electrical Safety in the Workplace.”

**ManufacturingProcesses**

The majority of our net sales are from products manufacturedor assembled by us, with the remainder sourced from a variety of low-costvendors. The majority of our manufacturing occurs in the U.S., though manylabor intensive or hand-fabricated products are assembled in China, Mexico andthe 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-sewn anddipped processes in our work glove product offering. Head protection productsare injection molded from high density polyethylene. A portion of eye and earprotection products are molded and assembled by us. First aid products arebought and packaged. 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 thestandard of the NFPA or other regulatory bodies. Rubber fireboots are assembledby both hand-laid and automated dipping techniques.

We manufacture our electrical safety and handprotection products using a variety of techniques. We manufacture ourchemical-resistant and electrical insulating gloves and sleeves using amultiple layering process of polymer dissolved in organic solvents. Theseprocesses are relatively automated and operate in closely controlledenvironments. Other chemical-resistant and coated fabric gloves aremanufactured with water-based latex polymers. We manufacture utility linemenproducts, other than gloves, using injection, transfer or compression moldingof natural and synthetic polymers. The manufacturing processes utilizeextensive in-line and post-manufacturing quality assurance because theseproducts are designed to protect workers from hazardous and life-threateningenvironments.

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**Customers**

The majority of our sales are to industrial, fireservice and utility distributors. The balance of our products are sold directlyto end-users and the U.S. government. None of our customers accounts for morethan 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 year ended December 31, 2004, the combinedyear-ended December 31, 2005 and the year ended December 31, 2006:

|               | ** ** | **Year Ended  December 31,** | ** ** | **Combined  Year Ended  December 31,** | ** ** | **Year Ended  December 31,** | ** ** |
|---------------|------------|----------------------------------------|------------|--------------------------------------------------|------------|----------------------------------------|------------|
| **Region**    | ** ** | **2004**                               | ** ** | **2005**                                         | ** ** | **2006**                               | ** ** |
|          |       |                                   |       |                                             |       |                                   |       |
| United States |       | 67.0                                   | %          | 65.1                                             | %          | 64.3                                   | %          |
| Canada        |       | 13.6                                   |       | 15.1                                             |       | 16.2                                   |       |
| Europe        |       | 15.6                                   |       | 15.9                                             |       | 15.8                                   |       |
| Africa        |       | 3.8                                    |       | 3.9                                              |       | 3.7                                    |       |
| Total         |       | 100.0                                  | %          | 100.0                                            | %          | 100.0                                  | %          |

 

For net sales by geographic region for the year endedDecember 31, 2004, the period from January 1, 2005 throughJuly 19, 2005, the period from July 20, 2005 throughDecember 31, 2005 and the year ended December 31, 2006 and totallong-lived assets by geographic region as of December 31, 2005 and 2006,see Note 16 to our audited financial statements.

In general, we do not experience a significant backlogof customer orders. We do, however, have a backlog of orders from certaincustomers, such as the U.S. government, who tend to order products lessfrequently and in greater quantities, and our fire service customers, who tendto custom order products which require greater lead time. The timing of theseorders results in some backlog variability. As of December 31, 2006, therewas approximately $34.6 million of such backlog that management believed to befirm, as compared to $35.8 million of backlog as of December 31, 2005. Themajority of this backlog will ship by the end of the first quarter of 2007.

**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.

*General Safety andPreparedness*. Bacou-Dalloz SA.; 3M; Mine SafetyAppliances Company; Ansell Occupational Healthcare; LaCrosseFootwear, Inc.; Aearo Company; Pac-Kit Safety Equipment Co.; JacksonProducts, Inc.; and Scott Technologies.

*Fire Service*.Bacou-Dalloz SA; Mine Safety Appliances Company; Globe Manufacturing Company;Lion Apparel, Inc.; LaCrosse Footwear, Inc.; and E.D. BullardCo., Inc.

*Electrical Safety*.A.B. Chance Company; Hastings Fiber Glass Products, Inc.; MacLean FoggCo.; Comasec; Cementex; and The Oberon Company.

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 ourproducts in their respective segments to generate demand using a “pull-through”effect whereby end-users of our products seek out our brands from distributors.Our dedicated sales forces achieve this pull-through effect by

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educatingboth distributors and end-users on the specific performance characteristics ofour products, 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:

*General Safety andPreparedness*.We distribute our general safety and preparedness products primarilythrough specialized personal protection equipment and industrial distributors,as well as maintenance, repair and operations equipment distributors for whompersonal protection equipment products are a core line of business. Vendorrelationships with distributors tend to be non-exclusive. Our customer baseincludes national, regional and local distributors. Some of our keydistributors include W.W. Grainger, Airgas, Thermo Fisher ScientificInternational and Hagemeyer North America, Inc. In addition, selectedfootwear products are distributed through work-wear retailers. These retailersprimarily serve farmers and agricultural workers. Our average relationship withour key general safety and preparedness customers is in excess of ten years.

*Fire Service*. The fire service segment’s primarychannel of distribution is through specialized fire service distributors. As aresult of the breadth of our product offering and our reputation for quality,we have long-standing relationships with the premier fire service distributorsin the U.S., many of whom carry our products exclusively. Our averagerelationship with our largest ten fire service distributors is in excess of tenyears.

*Electrical Safety*. The electrical safety segmentprimarily markets its products through specialized distributors, test labs,utilities and electrical contractors. Sales to utilities are typically madepursuant to one-year contracts, while sales to distributors are typicallyopen-ended purchase contracts. As a result of the breadth of our productoffering and our reputation for quality, the electrical safety segment haslong-standing relationships with many large utilities and the premier utilitydistributors. Our average relationship with our largest ten electrical safetycustomers is in excess of ten years.

**Intellectual Property**

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,**NEOS,**MorningPride*, *Ranger*,*Servus*, *Pro-Warrington**, American Firewear, Safety Line* and *Salisbury*. Certain of our fireservice products are marketed under the registered trademark Total Fire Group.

Whenever possible, our intellectual property rightsare protected through the filing of applications for and registrations of trademarksand patents. Our *MorningPride* line of products, for example, is protected by more than 100patents, including patents for such unique features as dead air panels, linerinspection ports and heat channel knee technologies. We also rely uponunpatented trade secrets for the protection of certain intellectual propertyrights, which trade secrets are also material to our business. We protect ourtrade secrets by requiring certain of our employees, consultants and othersuppliers, customers, agents and advisors to execute confidentiality agreementsupon the commencement of employment or other relationships with us. Theseagreements provide that all confidential information developed by, or madeknown to, the individual or entity during the course of the relationship withus is to be kept confidential and not to be disclosed to third parties exceptunder 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.

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**EnvironmentalMatters**

As with all manufacturers, our facilities and operationsare subject to federal, state, local and foreign environmental requirements. Wedo not currently anticipate any material adverse effect on our operations orfinancial condition as a result of our efforts to comply with, or ourliabilities under, these requirements. We will, from time to time, incur coststo attain or maintain compliance with evolving regulatory requirements underenvironmental law, but do not currently expect any such costs to be material.

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 paidfor the investigation and remediation at the site. We do not currently expectthe liability associated with this matter to be material.

Our Clover, South Carolina facility has been thesubject of the “corrective action” requirements of RCRA, includinginvestigation and cleanup of areas of the Clover site where regulated wastes havehistorically been managed. Such investigation and cleanup has been conducted by(and at the sole expense of) Invensys plc, a successor to Siebe plc, the formerowner of North Safety Products, pursuant to an Administrative Order from theUnited States Environmental Protective Agency (“EPA”) dated September 29,1988. By letter dated September 16, 2005, the EPA confirmed that theinvestigation of all but one of the Areas of Concern had been satisfactorilycompleted. Invensys is conducting additional groundwater sampling in the areaof the burn pit, which is located on property owned by Invensys, before aremediation alternative for the area is selected. EPA has required that NorthSafety Products obtain a deed restriction at the Clover facility, to restrict accessto chromium-impacted soil beneath the concrete floor in the area of the chromicacid vat. With the obligations of the EPA Administrative Order nearlycompleted, the EPA letter notes that a State Consent Agreement will be requiredfor the selection of the remediation alternative for the burn pit groundwaterand for continued environmental monitoring of the facility. 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 Invensys does notcontinue to fulfill its contractual obligations, we could incur costs inconnection with this matter. We do not currently expect such costs to bematerial.

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 with thismatter. Because liability under CERCLA is strict (i.e., without regard to thelawfulness of the disposal) and retroactive, and under some circumstances jointand 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, South Carolina,North Charleston, South Carolina and Rock Island, Illinois facilities.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,North Charleston, South Carolina and Rock Island, Illinois to installadditional air emissions control equipment.

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**Employees**

As of December 31, 2006, we had 2,998 full-timeemployees throughout the world. The following sets forth the number ofemployees by operating segment:

| Operating Segment           | ** ** | **Number  of  Employees** | ** ** |
|----------------------------------|------------|---------------------------|------------|
| General Safety  and Preparedness |       | 2,188                     |       |
| Fire Service                     |       | 486                       |       |
| Electrical  Safety               |       | 318                       |       |
| Corporate                        |       | 6                         |       |
| Total                            |       | 2,998                     |       |

 

Approximately 612 of our 2,464 North Americanemployees are represented by various unions, and the majority of our 534non-North American 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 onForm 10-Q, current reports on Form 8-K, and amendments to thosereports filed or furnished pursuant to Section 13(a) or 15(d) ofthe Securities Exchange Act of 1934, as amended, as soon as reasonablypracticable after we electronically file such material with, or furnish suchmaterial to, the SEC.

**ITEM 1A.               RISKFACTORS**

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.

***If weare unable to retain senior executives and other qualified professionals ourgrowth may be hindered.***

Our success depends in part on our ability toattract, hire, train and retain qualified managerial, sales and marketingpersonnel. Competition for these types of personnel is intense. We may beunsuccessful in attracting and retaining the personnel we require to conductand expand our operations successfully. Our results of operations could bematerially and adversely affected if we are unable to attract, hire, train andretain qualified personnel. Our success also depends to a significant extent onthe continued service of our management team. The loss of any member of themanagement team could have a material adverse effect on our business, resultsof operations and financial condition.

***The markets in which we competeare highly competitive, and some of our competitors have greater financial andother resources than we do. The competitive pressures faced by us couldmaterially and adversely affect our business, results of operations andfinancial 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.”

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***Many of our products are subjectto existing regulations and standards, changes in which could materially andadversely affect our results of operations.***

Our net sales may be materially and adverselyaffected by changes in safety regulations and standards covering industrialworkers, firefighters and utility workers in the U.S. and Canada, includingsafety regulations of OSHA and standards of the NFPA, ANSI and ASTM. Our netsales could also be adversely affected by a reduction in the level ofenforcement of such regulations. Changes in regulations could reduce the demandfor our products or require us to reengineer our products, thereby creatingopportunities for our competitors.

***A reduction in the spendingpatterns of government agencies could materially and adversely affect our netsales.***

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 inthe competitive bid process. Moreover, the terms and conditions of such salesand the government contract process are subject to extensive regulation byvarious federal, state and local authorities in the U.S. and Canada.

***In most markets in which wecompete, there are frequent introductions of new products and product lineextensions. If we fail to introduce successful new products, we may losemarket position and our financial performance may be negatively 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 marketposition, which could have a material adverse effect on our business, financialcondition and results of operations. Continued product development andmarketing efforts have all the risks inherent in the development of newproducts and line extensions, including development delays, the failure of newproducts and line extensions to achieve anticipated levels of market acceptanceand the cost of failed product introductions.

***Our international operations aresubject to various uncertainties and a significant reduction in internationalsales of our products could have a material adverse effect on our results ofoperations.***

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 2006, approximately 35.7%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;

·                  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;

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·                  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. In addition, a portion of ourmanufacturing and outsourcing relationships involve China. If we are unable tosuccessfully manage the risks associated with expanding our global business orto adequately manage operational fluctuations internationally, it could have amaterial adverse effect on our business, financial condition or results ofoperations.

***We may incur restructuringor impairment charges that would reduce our earnings*.**

We have in the past and may in the futurerestructure some of our operations, including our recently acquiredsubsidiaries. In such circumstances, we may take actions that would resultin a charge related to discontinued operations, thereby reducing our earnings.These restructurings have or may be undertaken to realign oursubsidiaries, eliminate duplicative functions, rationalize our operatingfacilities and products, and reduce our staff. In conjunction with theFibre-Metal Transaction, we recorded an accrual of $1.7 million, comprised of$1.4 million in severance costs and $0.3 million in facility closure and otherexit costs. In conjunction with the White Transaction, we recorded an accrualof $1.0 million in severance costs. We carry a very significant amount ofgoodwill and intangible assets and Financial Accounting Standards (SFAS)No. 142, “Goodwill and Other Intangible Assets,” requires us toperform an annual assessment for possible impairment. As ofDecember 31, 2006, we had goodwill and other intangible assets ofapproximately $438.7 million.

***We may be unable tosuccessfully execute or effectively integrate acquisitions, whichmay 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.

If we are unable to integrate or successfully manageany business that we may acquire in the future, we may not realizeanticipated cost savings, improved manufacturing efficiencies and revenuegrowth, which may result in reduced profitability or operating losses. Inaddition, we expect to face competition for acquisition candidates, whichmay limit the number of our acquisition opportunities and may lead tohigher acquisition prices. Moreover, acquisitions of businessesmay require additional debt financing, resulting in additional leverage.The covenants in our senior credit facility and the indenture governing thesenior 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.

***Our continued success depends onour ability to protect our intellectual property. If we are unable to protectour intellectual property, our sales could be materially 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 ispossible that third parties may have or acquire licenses for othertechnology or designs that we may use or desire to use, so that wemay need to acquire licenses to, or to contest the validity of, suchpatents or trademarks of third parties. Such licenses may not be madeavailable to us on acceptable terms, if at all, and we may not prevail incontesting the validity of third-party rights.

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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 agreementsmay not provide meaningful protection for our trade secrets, know-how orother proprietary information in the event of any unauthorized use,misappropriation or disclosure of such trade secrets, know-how or otherproprietary information. If we are unable to maintain the proprietary nature ofour technologies, our sales could be materially adversely affected. See “*Item 1. Business—Intellectual Property**.*”

***We do not have long-termcontracts with many of our customers and they may terminate theirrelationship with us at any time, which could have a material adverse effect onour 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.

***We face an inherent business riskof exposure to product liability claims which could have a material adverseeffect 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 tovarious environmental laws and any violation of these laws could adverselyaffect our results 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 morestringent environmental laws in the future. If more stringent environmentallaws are enacted, these future laws could have a material adverse effect on ourresults of operations. See “*Item 1.Business—Environmental Matters**.*”

***We have a significant amount ofindebtedness, which makes us more vulnerable to adverse economic andcompetitive conditions.***

We have a significantamount of indebtedness. As of December 31, 2006, we had outstanding long-termindebtedness of $475.4 million (excluding original issue premium (discount))and shareholders’ equity of $126.9 million. This amount of debt is substantialand could:

·                  requireus to dedicate a substantial portion of our cash flow from operations topayments on our indebtedness, thereby reducing the availability of our cashflow to fund working capital, capital expenditures and other general corporatepurposes;

·                  limitour flexibility in planning for, or reacting to, changes in our business andthe industry in which we operate;

·                  placeus at a competitive disadvantage compared to our less leveraged competitors; or

·                  increaseour vulnerability to both general and industry-specific adverse economicconditions;

·                  andlimit, among other things, our ability to borrow additional funds.

Our ability to make payments on and to refinance ourindebtedness and to fund planned capital expenditures will depend on ourability to generate cash in the future. This, to a certain extent, is subject to general economic, financial,competitive, legislative, regulatory and other factors that are beyond ourcontrol.

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**ITEM 1B.       UNRESOLVEDSTAFF COMMENTS**

N/A

**ITEM 2.          PROPERTIES**

We conduct our operations through 32 primaryfacilities, nine of which are owned as of December 31, 2006. We believe wehave sufficient capacity in the majority of our facilities to support the projectedgrowth in our business for the next five years.

We manufacture respiratory, head and face and hearingproducts in Cranston, 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 distribution centerfor the general safety and preparedness segment in the U.S.

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.

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 plants, facilitating timely delivery of customer orders.

We assemble our first aid and various other productsat our Mexicali, Mexico facility, utilizing lower cost labor. Productsmanufactured in Mexicali are distributed through our Reno, Nevada warehouse andour Cranston, Rhode Island distribution facility.

We operate hand protection facilities for the generalsafety and preparedness market. Our Maiden, North Carolina facilitymanufactures knitted and coated hand protection products, while butyl anddry-box hand protection lines are manufactured at our Clover, South Carolinafacility. In addition, our Clover, South Carolina facility has the ability toproduce nuclear, biological and chemical resistant gloves, utilizing a highlytechnical manufacturing process.

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.

In our Middelburg facility, we manufacture fall, eyeand head and face protection products.

In Eichenzell, Germany, we manufacture and distributea variety of liquid-proof and cut-resistant gloves in a owned facility.

We manufacture bunker gear in a leased facility inDayton, Ohio.  We have installed Gerbermaterial cutters and a sophisticated Gerber mover, which automated the handlingof bunker gear materials and improved the productivity of the division.  In addition, we manufacturer gloves and otheraccessories in our Ohatchee, Alabama facility.

Linemen gloves are manufactured at two plants inCharleston, South Carolina. Linemen sleeves are currently manufactured in ourAddison, Illinois and Ravenna, Ohio facility. We are in the process of closingthe Addison, Illinois and Ravenna, Ohio facilities and moving manufacturing toexisting facilities. Other products serving the electrical safety market,including linemen equipment, are manufactured at our Chicago, Illinois andSpokane, Washington facilities. We are in the process of closing our Spokane,Washington facility and moving operations to 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 primaryfacilities:
| **Facility**                                               | ** ** | **Products**              | ** ** | **Locations**              | ** ** | **Approx.  Sq. Ft.** | ** ** | **Owned/  Leased** | ** ** |
|------------------------------------------------------------|------------|---------------------------|------------|----------------------------|------------|---------------------------|------------|--------------------|------------|
| ***General  Safety and Preparedness:***                    |       |                      |       |                       |       |                      |       |               |       |
| Manufacturing facility                                     |       | Footwear  (1)             |       | Rock  Island, IL           |       | 340,000                   |       | Leased             |       |
| Offices, manufacturing facility and warehouse              |       | Various                   |       | Cranston,  RI              |       | 240,000                   |       | Leased             |       |
| Offices, manufacturing facility and warehouse              |       | Various                   |       | Montreal,  Canada          |       | 128,000                   |       | Leased             |       |
| Offices, manufacturing facility and warehouse              |       | Hand  Protection          |       | Eichenzell,  Germany       |       | 115,000                   |       | Owned              |       |
| Warehouse                                                  |       | Footwear                  |       | Davenport,  IA             |       | 110,000                   |       | Leased             |       |
| Offices, manufacturing facility and warehouse (2)          |       | Head  and Face Protection |       | Concordville,  PA          |       | 100,000                   |       | Leased             |       |
| Offices, manufacturing facility and warehouse              |       | Various                   |       | Middleburg,  Holland       |       | 72,000                    |       | Leased             |       |
| Manufacturing facility                                     |       | Hand  Protection          |       | Clover,  SC                |       | 63,000                    |       | Owned              |       |
| Manufacturing facility                                     |       | Various                   |       | Mexicali,  Mexico          |       | 57,000                    |       | Leased             |       |
| Manufacturing facility                                     |       | Hand  Protection          |       | Maiden,  NC                |       | 51,000                    |       | Leased             |       |
| Manufacturing facility                                     |       | Footwear                  |       | Rock  Island, IL           |       | 45,000                    |       | Leased             |       |
| Offices, manufacturing facility and warehouse              |       | Various                   |       | New  Germany, South Africa |       | 43,000                    |       | Owned              |       |
| Manufacturing facility                                     |       | Footwear                  |       | Nashua,  NH                |       | 38,000                    |       | Leased             |       |
| Offices and warehouse                                      |       | Various                   |       | Edmonton,  Canada          |       | 37,000                    |       | Leased             |       |
| Manufacturing facility                                     |       | Hearing,  Head Protection |       | Rawdon,  Canada            |       | 30,000                    |       | Owned              |       |
| Offices, manufacturing facility and warehouse              |       | Respiratory               |       | Venlo,  Holland            |       | 30,000                    |       | Leased             |       |
| Warehouse                                                  |       | Various                   |       | Houston,  TX               |       | 28,000                    |       | 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             |       |
| Manufacturing facility                                     |       | Hand  Protection          |       | Ostrava,  Czech Republic   |       | 20,000                    |       | Owned              |       |
| ***Fire  Service:***                                       |       |                      |       |                       |       |                      |       |               |       |
| Offices, manufacturing facility, laboratory and  warehouse |       | Various                   |       | Dayton,  OH                |       | 56,000                    |       | Leased             |       |
| Manufacturing facility                                     |       | Various                   |       | Ohatchee,  AL              |       | 36,000                    |       | Leased             |       |
| ***Electrical  Safety:***                                  |       |                      |       |                       |       |                      |       |               |       |
| Offices, manufacturing facility & laboratory           |       | Linemen  Gloves           |       | Charleston,  SC            |       | 106,000                   |       | Owned              |       |
| Manufacturing facility                                     |       | Linemen  Equipment        |       | Chicago,  IL               |       | 92,000                    |       | Owned              |       |
| Manufacturing facility(2)                                  |       | Linemen  Sleeves          |       | Ravenna,  OH               |       | 47,000                    |       | Owned              |       |
| Offices, manufacturing facility and warehouse              |       | Linemen  Equipment        |       | Skokie,  IL                |       | 44,000                    |       | Leased             |       |
| Warehouse                                                  |       | Linemen  Gloves           |       | Charleston,  SC            |       | 44,000                    |       | Leased             |       |
| Manufacturing facility                                     |       | Linemen  Sleeves          |       | Charleston,  SC            |       | 43,000                    |       | Owned              |       |
| Manufacturing facility(2)                                  |       | Linemen  Sleeves          |       | Addison,  IL               |       | 26,000                    |       | Leased             |       |
| Manufacturing facility(2)                                  |       | Linemen  Equipment        |       | Spokane,  WA               |       | 16,000                    |       | Leased             |       |
| ***Other:***                                               |       |                      |       |                       |       |                      |       |               |       |
| Executive Suite                                            |       | Not Applicable            |       | Oak Brook, IL              |       | 6,100                     |       | Leased             |       |

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(1)          Also produces firebootsfor the fire service segment and dielectric footwear for the electrical safetysegment.

(2)          In process oftransferring operations to other existing facilities.

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**ITEM 3.          LEGALPROCEEDINGS**

We are subject to various claims arising in theordinary course of business. Most of these lawsuits and claims are productliability matters that arise out of the use of respiratory product linesmanufactured by our North Safety Products subsidiary. As of December 31, 2006,our North Safety Products subsidiary, along with its predecessors and/or theformer owners of such business were named as defendants in approximately 632lawsuits involving respirators allegedly manufactured and sold by it or itspredecessors. We are also monitoring an additional 12 lawsuits in which we feelthat North Safety Products, its predecessors and /or the former owners of suchbusinesses may be named as defendants. Collectively, these 644 lawsuitsrepresent approximately 8,746 (excluding spousal claims) plaintiffs.Approximately 85% of these lawsuits involve plaintiffs alleging injury resultingfrom exposure to silica dust, with the remainder alleging injury from exposureto other particles, including asbestos. These lawsuits typically allege thatthe purported injuries resulted in part from respirators that werenegligently designed and/or manufactured. The defendants in these lawsuits areoften numerous, and include, in addition to respirator manufacturers, employersof the plaintiffs and manufacturers of sand (used in sand blasting) andasbestos. We acquired our North Safety Products subsidiary on October 2,1998 from Siebe plc. In connection with the acquisition, Siebe, which wassubsequently merged with BTR plc (now known as “Invensys plc”), contractuallyagreed to indemnify us for any losses, including costs of defending claims,resulting from respiratory products manufactured or sold prior to ouracquisition of North Safety Products in 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, SiebeNorton, Inc., a newly formed wholly-owned subsidiary of Norton Company,acquired the assets of Norton’s Safety Products Division and the stock of thiscompany was in turn acquired by Siebe Gorman Holdings PLC. Under the terms ofthe agreement, Siebe Norton, Inc. did not assume any liability for claimsrelating to products shipped by Norton Company prior to the closing date.Moreover, Norton Company covenanted in the agreement to indemnify Siebe Norton,Inc. 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, Inc., whosename was subsequently changed to Siebe North Inc., was subsequently acquired byus as part of the 1998 acquisition of the North Safety Products businessfrom 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.

Effective July 1, 2006, we entered into a jointdefense agreement through December 31, 2008 with the former owners of the NorthSafety Products business (the “Joint Defense Agreement” or “JDA”).  Under the terms of the Joint DefenseAgreement, we agreed to pay a weighted average percentage of defense costs(including legal fees, expert witnesses and out of pocket expenses) associatedwith defending ourselves and the prior owners of the North Safety Productsbusiness subject to a cap of $525,000, $960,000 and $1.0 million for the periodfrom July 1, 2006 through December 31, 2006, the year ended December 31, 2007and the year ended December 31, 2008, respectively.  The cap excludes settlement costs and othercosts incurred exclusively by us (including trial costs and special requests ofcounsel), which we will be required to pay under the JDA.  Separately, we agreed to pay Invensys$200,000 related to settled cases through June 30, 2006 in which Invensysclaims that the period of alleged exposure included periods after October 1998.

Although the JDA expires on December 31, 2008, we expect to incuradditional defense and settlement costs beyond this date. We will consider ouralternatives for defending the claims as the JDA nears expiration and determinethe appropriate course of action, which would include an extension of the JDA.

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Based upon information provided to the Company by Invensys, the Companybelieves activity related to these lawsuits was as follows for the periodsindicated:
| ** **            | ** ** | **2004**       | ** ** | **2005**  | ** ** | **2006**       | ** ** |
|-----------------------|------------|----------------|------------|-----------|------------|----------------|------------|
| ** **            | ** ** | **Plaintiffs** | ** ** | **Cases** | ** ** | **Plaintiffs** | ** ** | **Cases** | ** ** | **Plaintiffs** | ** ** | **Cases** | ** ** |
| Beginning  lawsuits   |       | 24,002         |       | 680       |       | 25,944         |       | 858 |   | 18,459 |   | 1,148 |   |
| New lawsuits          |       | 4,658          |       | 372       |       | 2,226          |       | 587 |   | 653 |   | 498 |   |
| Settlements           |       | (546           | )          | (46       | )          | 24             |       | (32 | ) | (5 | ) | (5 | ) |
| Dismissals and  other |       | (2,170         | )          | (148      | )          | (9,735         | )          | (265 | ) | (10,361 | ) | (997 | ) |
| Ending lawsuits       |       | 25,944         |       | 858       |       | 18,459         |       | 1,148 |   | 8,746 |   | 644 |   |

 

Both the rate of new filings and the number ofexisting claimants have declined dramatically since 2003 as courts andlegislatures have tightened the rules on when and where the silica claims canbe pursued in an effort to reduce the large number of unmeritoriousclaims.  The new rules make bringingsilica cases on a mass level much less attractive to the plaintiffs’ bar.  Plaintiffs’ attorneys in many jurisdictionscan no longer (1) find a worker with some stated exposure to silica, (2) take aX-ray of his chest, (3) have it interpreted as demonstrating lung shadows by aradiologist, (4) then file a single lawsuit in a dangerous venue with hundredsof other plaintiffs against hundreds of defendants with the pleading containinglittle more than the parties’ names and some standard pleading language. Morespecifically, the legislatures of at least seven states — including formerhotbeds of silica litigation such as Texas, Florida and Ohio — passedimpairment-criteria legislation that redefined injury. These acts forceplaintiffs to prove impairment as a result of their exposure to qualify forjudicial treatment.  The same legislationrequires that each silica claimant be tried individually, and not in themultiple plaintiff format in which the potential for large verdicts resultedfrom increased plaintiffs and where a few meritorious claims could increase thevalue of unmeritorious ones. Further tort reform in Texas created a state-widemulti-district litigation (“MDL”) wherein one judge presides over the pretrialof all Texas-silica cases. In Mississippi, the Supreme Court changed the venuerules making it much more difficult to file out-of-state plaintiffs there. TheMississippi court also changed the pleading requirements making the plaintiffs’attorneys include plaintiff-specific allegations against each defendant sued,instead of the vague allegations against hundreds of defendants.

Plaintiffs haveasserted specific dollar claims in approximately 28% of the approximately 632cases pending as of December 31, 2006 in which North Safety Products, itspredecessors and/or the former owners of such businesses have been named asdefendants. A majority of jurisdictions prohibit specifying damages in tortcases such as these, and most of the remaining jurisdictions do not requiresuch specification. In those cases in which plaintiffs choose to assertspecific dollar amounts in their complaints, brought in states that permit suchpleading, the amounts claimed are typically not meaningful as an indicator of acompany’s potential liability. This is because (1) the amounts claimedtypically bear no relation to the level of the plaintiff’s injury, (2) thecomplaints typically assert claims against numerous defendants, and(3) many cases are brought on behalf of plaintiffs who have not sufferedany medical injury, and, ultimately, are resolved without any payment orpayment of a small fraction of the damages initially claimed. Of the 632complaints maintained in our records, 454 do not specify the amount of damagessought, 25 generally allege damages in excess of $50,000, one allegescompensatory damages in excess of $50,000 and an unspecified amount of punitivedamages, 81 allege compensatory damages and punitive damages, each in excess of$25,000, two generally allege damages in excess of $100,000, four allegecompensatory damages and punitive damages, each in excess of $50,000, 20generally allege damages of $15.0 million, one generally alleges damages of$23.0 million, one alleges compensatory damages and punitive damages, each inexcess of $10,000, four allege general damages of $18.0 million and punitivedamages of $10.0 million, two allege general damages of $13.0 million andpunitive damages $10.0 million, one alleges compensatory and punitive damages,each in excess of $15,000, one alleges punitive damages in excess of $25,000,one alleges punitive damages in excess of $50,000, nine generally allegedamages in excess of $15,000, 12 generally allege damages in excess of $25,000,one alleges compensatory damages of $18.0 million and punitive damages of $10.0million, one alleges punitive damages of $13.5 million and compensatory damagesof $10.0 million, one alleges punitive damages of $13.0 million andcompensatory damages of $10.0 million, seven allege compensatory damages of$13.0 million and punitive damages of $10.0 million, one alleges compensatoryand punitive damages, each of $15,000, and two allege compensatory and punitivedamages, each in excess of $15.0 million. We currently do not have access tothe complaints with respect to the previously mentioned additional 12 monitoredcases, and therefore do not know whether these cases allege specific damages,and if so, the amount of such damages, but are in the process of seeking toobtain such information. Due to the reasons noted above and to theindemnification arrangements benefiting us, we do not believe that the damageamounts specified in these complaints are a meaningful factor in any assessmentof our potential liability.

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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.

The Predecessor recorded a $1.25 million reserve forrespiratory claims during the year ended December 31, 2004.  The Predecessor reevaluated this reserve inits first and second quarter 2005 financial statements and concluded the $1.25million recorded reserve continued to be its best estimate of the probable lossfor the respiratory contingency.

In the July 2005 acquisition purchase accounting (asfirst reported in the Form 10-Q for the third quarter of 2005), we carriedforward the $1.25 million liability for this pre-acquisition contingency.  Although management concluded that it waslikely their estimate of this pre-acquisition contingent liability would beincreased during the purchase accounting allocation period as the new ownershipfinalized their strategy for addressing the liability and gathered information(primarily related to case information and the working relationship among theprior owners of North), it was unlikely the amount would be lower than theamount recorded by the Predecessor. Thus, the $1.25 million amount represented the low end of a probableloss range, subject to further adjustment during the allocation period.

In December 2005, we began negotiations with theformer owners of the North business to enter into the JDA. We determined thatthe liability should be increased to $5.0 million as of December 31, 2005 aspart of the purchase price allocation process. The $5.0 million reserve as of December 31, 2005 represented management’sbest estimate of the liability based on the current status of negotiations. Asof December 31, 2005, the estimate was still preliminary as we were awaitingfinalization of the JDA negotiation process.

As discussed above, we entered into the JDA effectiveJuly 1, 2006 and completed our evaluation of the reserve.  After all information was obtained, weadjusted the reserve to $7.0 million as part of the purchase price allocationprocess during the permitted “allocation period”.  As of December 31, 2006, the reserve balanceis $6.8 million.

The final estimated amount recorded in purchaseaccounting related entirely to losses incurred before the July 2005acquisition. Our final estimate of the probable loss for the respiratorycontingency incorporated the new ownerships’ decision to enter into theJDA.  The decision represented asignificantly different plan as new ownership agreed to assume losses relatedto claims with unknown years of exposure. In addition, the decision to enter the JDA was being considered from thedate of the acquisition and the ultimate decision was made during theallocation period.

We believe that this reserve represents a reasonableestimate of our probable and estimable liabilities for product claims alleginginjury resulting from exposure to silica dust and other particles, includingasbestos.  We believe that a five-yearprojection of claims and related defense costs is the most reasonable approach.This reserve will be re-evaluated periodically and additional charges orcredits will be recorded to operating expenses as additional informationbecomes available.

It is possible that we may incur liabilities inan amount 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.The complaint seeks a retraction of all statements alleged to have been made byus and 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.

19

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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.

We are subject to legal proceedings and claims thatarise in the ordinary course of our business. In our opinion, the outcome ofthese actions will not have a material adverse effect on our financial positionor results of operations.

**ITEM 4.          SUBMISSIONOF MATTERS TO A VOTE OF SECURITY HOLDERS**

None.

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**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 units. As ofDecember 31, 2006, there were 14 holders of record of our common stock.

In the fourth quarter of 2006, we sold 7,626 shares ofour common stock for an aggregate purchase price of $150,003 to a member ofmanagement.  The securities described inthis paragraph were issued in reliance upon the exemption from the registrationrequirements of the Securities Act, as set forth in Section 4(2) under theSecurities Act and Rule 701 promulgated thereunder relative to sales by anissuer not involving any public offering. The recipient either received adequate information about us or hadaccess, through employment or other relationships, to such information.

No underwriters were involved in the foregoing salesof securities.  The purchaser representedhis intention to acquire the securities for investment only and not with a viewto the distribution thereof.  Appropriatelegends were affixed to the stock certificates issued in suchtransactions.  All of the foregoingsecurities are deemed restricted securities for the purposes of the SecuritiesAct.

Safety Products hasnot paid any dividends on its common stock since its formation in 2005 inconnection with the Norcross Transaction. We do not anticipate paying any dividends on our common stock in theforeseeable future. Our senior credit facility and the indentures governing oursenior pay in kind notes and the Norcross senior subordinated notes restrictour ability to declare or pay dividends on our common stock.  We intend to retain future earnings tofinance the ongoing operations and growth of our business. Any futuredetermination relating to our dividend policy will be made at the discretion ofthe board of directors and will depend on then existing conditions, includingour financial condition, results of operations, contractual restrictions,capital requirements, business prospects and other factors the board ofdirectors may deem relevant.

There were norepurchases made of the Company’s equity securities during the fourth quarter.

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**ITEM****6.****                             SELECTEDFINANCIAL DATA**

The following table presents selected historical consolidatedstatements of operations, balance sheet and other data for the periodspresented and should only be read in conjunction with our audited consolidatedfinancial 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 the yearended December 31, 2004, the period from January 1, 2005 throughJuly 19, 2005, the period from July 20, 2005 throughDecember 31, 2005 and the year ended December 31, 2006 have been derivedfrom our historical audited consolidated financial statements includedelsewhere in this Form 10-K. The historical financial data for the twoyears ended December 31, 2003 have been derived from our historicalconsolidated financial statements, which are not included in thisForm 10-K.

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| ** **                                               | ** ** | **Predecessor**                            | ** ** | **Successor**                                           | ** ** |
|----------------------------------------------------------|------------|--------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                                               | ** ** | **Year Ended December 31,** | ** ** | **January 1,   2005  through  July 19,** | ** ** | **July 20,  2005   through  December 31,** | ** ** | **Year  Ended  December 31** | ** ** |
| ** **                                               | ** ** | **2002**                                   | ** ** | **2003**                                                | ** ** | **2004** | ** ** | **2005** | ** ** | **2005** | ** ** | **2006** | ** ** |
| ** **                                               | ** ** | **(dollars in thousands)**       | ** ** |
| **Statement  of Operations Data:**                       | ** ** | ** **                                 | ** ** | ** **                                              | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net sales                                                |       | $                                          | 322,173    |                                                    | $          | 370,802 |   | $ | 438,499 |   | $ | 271,694 |   | $ | 209,396 |   | $ | 558,065 |   |
| Cost of goods  sold                                      |       | 205,655                                    |       | 240,408                                                 |       | 281,924 |   | 171,645 |   | 139,978 |   | 352,340 |   |
| Gross profit                                             |       | 116,518                                    |       | 130,394                                                 |       | 156,575 |   | 100,049 |   | 69,418 |   | 205,725 |   |
| Operating  expenses:                                     |       |                                       |       |                                                    |       |   |   |   |   |   |   |   |   |
| Selling                                                  |       | 29,104                                     |       | 35,155                                                  |       | 40,120 |   | 25,512 |   | 19,154 |   | 51,908 |   |
| Distribution                                             |       | 15,177                                     |       | 18,550                                                  |       | 22,452 |   | 14,634 |   | 11,385 |   | 32,688 |   |
| General and  administrative                              |       | 31,075                                     |       | 34,011                                                  |       | 41,721 |   | 41,344 |   | 19,946 |   | 47,758 |   |
| Amortization of  goodwill and other intangibles          |       | 3,239                                      |       | 2,583                                                   |       | 517 |   | 329 |   | 7,216 |   | 11,508 |   |
| Zimbabwe  subsidiary impairment charge                   |       | 2,785                                      |       | —                                                  |       | — |   | — |   | — |   | — |   |
| Strategic  alternatives                                  |       | —                                     |       | —                                                  |       | 616 |   | — |   | — |   | — |   |
| Restructuring  and merger-related charges                |       | 9,269                                      |       | —                                                  |       | — |   | — |   | — |   | 1,539 |   |
| Total operating  expenses                                |       | 90,649                                     |       | 90,299                                                  |       | 105,426 |   | 81,819 |   | 57,701 |   | 145,401 |   |
| Income from  operations                                  |       | 25,869                                     |       | 40,095                                                  |       | 51,149 |   | 18,230 |   | 11,717 |   | 60,324 |   |
| Other expense  (income):                                 |       |                                       |       |                                                    |       |   |   |   |   |   |   |   |   |
| Interest expense                                         |       | 23,374                                     |       | 33,454                                                  |       | 35,962 |   | 24,584 |   | 17,645 |   | 46,875 |   |
| Interest income                                          |       | (122                                       | )          | (117                                                    | )          | (213 | ) | (914 | ) | (156 | ) | (621 | ) |
| Seller  transaction expenses                             |       | —                                     |       | —                                                  |       | — |   | 4,646 |   | — |   | — |   |
| Other, net                                               |       | (305                                       | )          | (1,002                                                  | )          | 1,539 |   | 745 |   | (9 | ) | (1,026 | ) |
| Income (loss)  before income taxes and minority interest |       | 2,922                                      |       | 7,760                                                   |       | 13,861 |   | (10,831 | ) | (5,763 | ) | 15,096 |   |
| Income tax  expense (benefit)                            |       | 7,901                                      |       | 1,843                                                   |       | 3,195 |   | 3,619 |   | (995 | ) | 6,209 |   |
| Minority  interest                                       |       | —                                     |       | (3                                                      | )          | 25 |   | 13 |   | (2 | ) | 23 |   |
| Net (loss)  income                                       |       | (4,979                                     | )          | 5,920                                                   |       | $ | 10,641 |   | $ | (14,463 | ) | $ | (4,766 | ) | $ | 8,864 |   |
| Preferred unit  dividends                                |       | 11,991                                     |       | 12,973                                                  |       |   |   |   |   |   |   |   |   |
| Net loss  attributable to common unitholders             |       | $                                          | (16,970    | )                                                       | $          | (7,053 | ) |   |   |   |   |   |   |   |   |
| ** **                                               | ** ** | ** **                                 | ** ** | ** **                                              | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Other  Financial Data and Ratios:**                    | ** ** | ** **                                 | ** ** | ** **                                              | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Depreciation and  amortization                           |       | $                                          | 18,617     |                                                    | $          | 12,749 |   | $ | 12,371 |   | $ | 6,506 |   | $ | 12,361 |   | $ | 25,835 |   |
| Capital  expenditures                                    |       | 7,197                                      |       | 7,432                                                   |       | 6,423 |   | 4,250 |   | 5,037 |   | 11,573 |   |
| Net cash  provided by operating activities               |       | 23,230                                     |       | 22,696                                                  |       | 29,911 |   | 19,564 |   | 26,691 |   | 35,005 |   |
| Net cash used in  investing activities                   |       | (17,728                                    | )          | (25,611                                                 | )          | (6,378 | ) | (4,903 | ) | (278,762 | ) | (42,818 | ) |
| Net cash (used  in) provided by financing activities     |       | (6,819                                     | )          | 13,753                                                  |       | (8,621 | ) | 20,622 |   | 264,475 |   | 13,686 |   |
|                                                     |       |                                       |       |                                                    |       |   |   |   |   |   |   |   |   |
| **Balance  Sheet Data (at period end):**                 | ** ** | ** **                                 | ** ** | ** **                                              | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Cash and cash  equivalents                               |       | $                                          | 1,762      |                                                    | $          | 16,341 |   | $ | 35,731 |   |   |   | $ | 20,819 |   | $ | 26,796 |   |
| Working capital  (1)                                     |       | 24,155                                     |       | 103,804                                                 |       | 120,526 |   |   |   | 131,791 |   | 146,832 |   |
| Total assets                                             |       | 307,208                                    |       | 362,718                                                 |       | 389,191 |   |   |   | 693,656 |   | 744,082 |   |
| Long-term  obligations                                   |       | 219,071                                    |       | 258,248                                                 |       | 253,566 |   |   |   | 443,239 |   | 474,960 |   |
| Mandatorily  redeemable preferred units                  |       | 114,583                                    |       | 120,817                                                 |       | 134,310 |   |   |   | — |   | — |   |
| Total members’  deficit/shareholders’ equity   |       | (93,738                                    | )          | (89,241                                                 | )          | (75,097 | ) |   |   | 106,891 |   | 126,886 |   |

 

(1) Workingcapital is defined as current assets less current liabilities.

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

 

*The followingdiscussion and analysis should be read in conjunction with our financialstatements and related notes included elsewhere in this Form 10-K. Some ofthe statements set forth below include forward-looking statements that involverisks 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, NEOS, *Morning Pride**, *Ranger*, *Servus*, *Pro-Warrington, American Firewear, Salisburyand Safety Line*. Our broad product offering includes, among otherthings, respiratory protection, protective footwear, hand protection, bunkergear and linemen equipment.

We classify our diverse product offerings into threeoperating segments:

*General Safety andPreparedness*. We offer a diverse portfolio of leadingproducts for a wide variety of industries, including manufacturing,agriculture, automotive, construction, food processing and pharmaceuticalindustries and the military, under the *North*, *KCL, Fibre-Metal, NEOS, Ranger and Servus* brand names. Ourproduct offering is one of the broadest in the personal protection equipmentindustry and includes respiratory protection, protective footwear, hand protection,eye, head and face protection, first aid, hearing protection and fallprotection. We sell our general safety and preparedness products primarilythrough industrial distributors.

*Fire Service*.We manufacture and market one of the broadest lines of personal protectionequipment for the fire service market, offering firefighters head-to-toeprotection. Our products include bunker gear, fireboots, helmets, gloves andother accessories. We market our products under our Total Fire Group umbrella,using the brand names of *MorningPride*, *Ranger*, *Servus*,*Pro-Warrington and American Firewear*. Weare the vendor of choice for many of the largest fire departments in NorthAmerica. We sell our fire service products primarily through specialized fireservice distributors.

*Electrical Safety*.We manufacture and market a broad line of personal protection equipment for theutility market under the *Salisbury, Safety Line*and*Servus* brands. Our products, includinglinemen equipment, gloves, sleeves and footwear, are designed to protectworkers from up to 36,000 volts of electricity. We distribute our electricalsafety products through specialized distributors, test labs, utilities andelectrical contractors.

**Predecessorand Successor**

In May 2005, Safety Products entered into a purchaseand sale agreement with NSP Holdings and Norcross to purchase from NSP Holdingsall of the outstanding equity interests of Norcross and NSP Capital for anaggregate purchase price of approximately $481.0 million, which included theassumption or repayment of indebtedness but excluded payment of fees andexpenses. The acquisition closed on July 19, 2005 and was funded with proceedsto Safety Products from the issuance and sale of senior pay in kind notes aswell as an equity investment from affiliates of Odyssey and General ElectricPension Trust (“GEPT”) and certain members of management of Norcross.Concurrently with the acquisition, Norcross entered into a new senior creditfacility, consisting of a revolving credit facility that provides for up to$50.0 million of borrowings and an $88.0 million term loan. As a result of theacquisition, Safety Products became the sole unit holder of Norcross. SafetyProducts, following the Norcross Transaction, is referred to as the “Successor.”NSP Holdings, prior to the Norcross 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.

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In evaluating our results of operations and financialperformance, our management has used combined results for the year endedDecember 31, 2005 as a single measurement period. Due to the NorcrossTransaction, we believe that comparisons between the year ended December 31,2004 or 2006 and either the Predecessor’s results for the period fromJanuary 1, 2005 to July 19, 2005 or the Successor’s results for theperiod from July 20, 2005 to December 31, 2005 may impede theability of users of our financial information to understand our operating andcash 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 toJuly 19, 2005 and the results of operations of the Successor for theperiod from July 20, 2005 to December 31, 2005. We believe thecombined presentation provides relevant information for investors. Thesecombined results, however, are not intended to represent what our operatingresults would have been had the Norcross Transaction occurred at the beginningof the period. A reconciliation showing the mathematical combination of ouroperating results for such periods is included below under “—Results ofOperations.”

**AcquisitionHistory**

We made four acquisitions during the three year periodended December 31, 2006. As a result, comparability of periods has beenaffected by these acquisitions.

In November 2005, Norcross completed theacquisition of all of the issued and outstanding capital stock of Fibre-Metal.The purchase price of $68.7 million (including $0.7 million of acquisitioncosts) was financed through $65.0 million of additional term borrowings underthe senior credit facility and cash on the balance sheet.

InFebruary 2006, we completed the acquisition of all of the issued andoutstanding capital stock of American Firewear. The purchase price consisted of $4.5 million in cash (includingacquisition costs of $0.2 million and net of cash acquired of $0.2 million) anda $1.0 million subordinated seller note. In addition, the purchase price may be increased by $0.8 million overthe next four years based on American Firewear achieving certain financial andoperating objectives.  We financed theacquisition through cash on the balance sheet and the issuance of the $1.0million subordinated seller note.

InJune 2006, we completed the acquisition of all of the issued and outstandingcapital stock of White Rubber. The purchase price of $22.2 million (including$0.6 million of acquisition costs and gross of outstanding checks of $0.8million) was financed through $15.0 million of additional term borrowings underthe senior credit facility and cash on the balance sheet.

In September2006, we completed the acquisition of all of the issued and outstanding capitalstock of NEOS.  The purchase priceconsisted of $3.6 million in cash (including acquisition costs of $0.1 millionand net of cash acquired) and a $0.8 million subordinated seller note.  In addition, the purchase price may beincreased over the next five years based on NEOS achieving certain net salestargets.  We financed the acquisitionthrough cash on the balance sheet and the issuance of the $0.8 millionsubordinated seller note.

**RestructuringPlans**

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 closed certainFibre-Metal distribution centers and integrated Fibre-Metal distribution intoour existing distribution facilities. We initiated this plan in order toincrease profitability through the utilization of excess capacity at ourexisting plants and the movement of manufacturing to locations with favorablelabor costs. As of the date of the Fibre-Metal Transaction, we recorded anaccrual for costs associated with the plan of $1.7 million, comprised of $1.4million in severance costs and $0.3 million in facility closure and other exitcosts.

In conjunctionwith the White Rubber Transaction, the Company initiated a restructuring planto move certain production and distribution functions located in Ohio andWashington to its Charleston, South Carolina, Skokie, Illinois and Chicago,Illinois facilities.  The Companyinitiated this plan in order to increase profitability by utilizing excesscapacity and consolidating distribution functions.  As of the date of the White RubberTransaction, the Company recorded an accrual for severance costs associatedwith the plan of $1.0 million.

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**CriticalAccounting 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.

*Allowance forDoubtful Accounts*. We evaluate the collectibility ofour trade receivables based on a combination of factors. We regularly analyzeour significant customer accounts and, when we become aware of a specificcustomer’s inability to meet its financial obligations to us, we record aspecific reserve for bad debts to reduce the related receivable to the amountwe reasonably believe is collectible. We also record allowances for all othercustomers 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,among other factors, demand requirements, product life cycle and developmentplans, 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 realizable values. Revisions to our inventory adjustments torecord additional reserves may be required if actual demand, componentcosts or product life cycles differ from our estimates. However, due to ourdiverse product lines and end-user markets, we do not believe our estimateswould be materially impacted by changes in our assumptions.

*Goodwill and OtherIntangibles*.  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 Accounting Standards No. 142,“Goodwill and Other Intangible Assets,” we performed a goodwill impairment testduring our fiscal year fourth quarter. In conducting our impairment analysis,we utilized the discounted cash flow (“DCF”) approach that estimates the projectedfuture cash flows to be generated by the business (including an estimate ofterminal cash flows), discounted to present value at our estimated cost ofcapital. An absolute 1% increase or decrease in cash flow projections wouldproduce an average 0.9% increase or 0.9% decrease, respectively, in the overallvalue of our reporting segments. An absolute 1% increase or decrease in theterminal cash flow growth rate would produce an average 9.8% increase or 7.6%decrease, respectively, in the overall value of our reporting segments. Anabsolute 1% decrease or increase in the discount rate would produce an average12.7% increase or 9.9% decrease, respectively, in the overall value of ourreporting segments.

Based on the results of the first step of the annual goodwillimpairment test, we determined that the fair value of each of the reportingunits exceeded their carrying amounts and, therefore, no goodwill impairmentexisted. As a result, the second step of the annual goodwill impairment testwas not required to be completed. We cannot predict the occurrence of certainfuture events that might adversely affect the reported value of goodwill as ofDecember 31, 2006. Such events include, but are not limited to, strategicdecisions made in response to economic and competitive conditions, the impactof the economic environment on our customer base, or a material negative changein our relationships with significant customers.We will continue to perform a goodwillimpairment test on an annual basis and on an interim basis, if certainconditions exist.

We also performed an impairment test related to our indefinite lifebrand names during the fourth quarter using a relief from royalty method. Thismethod is a specific discounted cash flow approach to analyze cash flowsattributable to the brand names based on projected revenues associated witheach brand name and an estimated

26

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royaltyrate. This method is based on the assumption that, in lieu of ownership, a firmwould be willing to pay a royalty in order to exploit the related benefits ofthe trade name and that the inherent economic value of each trade name isdirectly related to the cash flows (royalties saved) in the future. We did notcombine our brand names into a single “unit of accounting” with the exceptionof our footwear brands in our general safety and preparedness segment. Anabsolute 1% increase or decease, in the revenue base would produce an 1.0%increase or 1.0% decrease, respectively, across the portfolio of brand names.An 1% increase or decease, in the royalty rates would produce an 1.0% increaseor 1.0% decrease, respectively, across the portfolio of brand names. Anabsolute 1% decrease or increase in the discount rate would produce an average12.1% increase or 9.7% decrease, respectively, across the portfolio of brandnames.

Based on theresults of our annual indefinite life brand name impairment test, we determinedthat the fair value of each of the brand names exceeded their carrying amountsand, therefore, no impairment existed. The Company cannot predict theoccurrence of certain future events that might adversely affect the reportedvalue of its indefinite life brand names as of December 31, 2006. Such eventsinclude, but are not limited to, strategic decisions made in response toeconomic and competitive conditions, the impact of the economic environment onour customer base, or a material negative change in our relationships withsignificant customers. We will continue to perform an indefinite life brandname impairment test on an annual basis and on an interim basis, if certainconditions exist.

*Long-Lived Assets*.We evaluate our long-lived assets on an ongoing basis. Long-lived assets arereviewed for impairment whenever events or changes in circumstances indicatethat 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.

*Defined  Benefit Pension Plans.*Thecosts and obligations of our defined benefit pension plans are dependent onactuarial assumptions.  Three critical assumptions used, which impact thenet periodic pension expense and two of which impact the benefit obligation,are the discount rate, expected return on plan assets and rate of compensationincrease.

In regards toselecting a discount rate assumption, we routinely select a discount rate basedon a variety of factors including high quality market indices(such as Moody’s AA corporate bond rate index and the Citigroup corporatepension discount rate index) and fixed-income debt instruments based onthe expected duration of the benefit payments for our pension plans.  For2005, as a result of the Norcross Transaction, we reflected purchase accountingas of July 20, 2005.  The re-measurement of our obligations as of thepurchase date necessitated the selection of a new discount rate.  Becauseof the prevailing change in corporate bond rates from December31, 2004 through mid-July 2005, and following the process described above,we decided on a change in discount rate from 5.75% to5.25%.  Similarly, for the 2005 and 2006 fiscal year-enddisclosures, we decided on a change in discount rate from 5.25% (as of theNorcross Transaction date) to 5.50% and from 5.50% to 5.90%, respectively.

The long-term rateof return on plan assets assumption is reviewed annually.  We use an investment model to determine anexpected rate of return based on current investment allocation.  The investment model considers pastperformance and forward looking assumptions for each asset class based oncurrent market indices, key economic indicators and assumed long-term rate ofinflation.  The long-term rate of returnassumption is adjusted, as needed, such that it falls between the 25th and 75th percentileexpected return generated from the model.

The rate ofcompensation increase represents the long-term assumption for expectedincreases to salaries.  These key assumptions are evaluated annually. Wefroze our U.S. defined benefit plans during the year ended December 31,2006, and therefore assumptions related to rate of compensation increase nolonger impact our obligation.

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Changes in theseassumptions can result in different expense and liability amounts. The effectsof the indicated increase and decrease in selected assumptions for our pensionplans as of December 31, 2006 assuming no changes in benefit levels and noamortization of gains or losses, is shown below (in thousands):

|                                  | ** ** | **Increase  (Decrease)  in PBO** | ** ** | **Increase  (Decrease)  in Pension  Expense** | ** ** |
|----------------------------------|------------|---------------------------------------|------------|----------------------------------------------------|------------|
|                             |       |                                  |       |                                               |       |
| Discount rate  change:           |       |                                  |       |                                               |       |
| Increase 100 basis points        |       | $                                     | (7,236     | )                                                  | $          | (554 | ) |
| Decrease 100 basis points        |       | 8,824                                 |       | (187                                               | )          |
|                             |       |                                  |       |                                               |       |
| Expected rate of  return change: |       |                                  |       |                                               |       |
| Increase 100 basis points        |       | N/A                                   |       | (501                                               | )          |
| Decrease 100 basis points        |       | N/A                                   |       | 501                                                |       |
|                                  |            |                                       |            |                                                    |            |  |  |

 

*Respiratory Liability.** ***Asof December 31, 2006, our North Safety Products subsidiary, along with itspredecessors and/or the former owners of such business were named as defendantsin approximately 632 lawsuits involving respirators allegedly manufactured andsold by it or its predecessors. We are also monitoring an additional 12lawsuits in which we believe that North Safety Products, its predecessors and/or the former owners of such businesses may be named as defendants.

We have recorded a $6.8 million reserve associatedwith the lawsuit as of December 31, 2006. This reserve will be re-evaluated periodically and additional charges orcredits will be recorded to operating expenses as additional informationbecomes available.  The calculation ofthe reserve involved several key assumptions including the following:

·                  Wehave used a five-year projection of claims to calculate the reserve. We believe a five-year projection of claims and related defense andsettlement costs was the most meaningful as we could not estimate futureactivity beyond a five year period due to the uncertainty of future events,including future legislation regarding tort reform.  Changes in the projection period could impactour estimate of the reserve.

·                  Wehave estimated future claim activity based on historical claim activity andexpectations of future activity.  Ourestimate did not assume enactment of proposed legislation regarding tort reformat the federal or state level.  Changesin legislation could impact our estimate of future claim activity.

·                  Wehave estimated our share of defense costs under the JDA based on the historicaldefense costs paid to our legal counsel and the historical portion of claimsthat allege use during the post-October 1998 exposure period.  These estimates could change as moreinformation regarding case specifics becomes available.

·                  Wehave estimated our share of settlement costs based on historical settlementamounts and the historical portion of claims that allege use during thepost-October 1998 exposure period.  Theseestimates could change as more information regarding case specifics becomesavailable.

·                  Wehave estimated our share of future defense costs beyond the expiration of theJDA consistent with the current JDA. These estimates could change if the manner in which we handle thedefense of cases beyond December 31, 2008 is not consistent with the currentJDA*.*

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*OtherContingencies*. In the ordinary course of business, weare involved in legal proceedings involving contractual and employmentrelationships, product liability claims, trademark rights and a variety ofother matters. We record contingent liabilities resulting from claims againstus when it is probable that a liability has been incurred and the amount of theloss is reasonably estimable. We disclose contingent liabilities when there isa reasonable 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 financialposition or results of operations. However, if actual or estimated probablefuture losses exceed our recorded liability for such claims, we would recordadditional charges as operating expense during the period in which the actualloss or change in estimate occurred.

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**Resultsof Operations**

The following tables set forth our results ofoperations in dollars and as a percentage of net sales for the fiscal yearended December 31, 2004, the period from January 1, 2005 throughJuly 19, 2005, the period from July 20, 2005 throughDecember 31, 2005, and the fiscal year ended December 31, 2006. The datafor the year ended December 31, 2004, the period from January 1, 2005through July 19, 2005 and the period from July 20, 2005 throughDecember 31, 2005, and the year ended December 31, 2006 have been derivedfrom our audited historical consolidated financial statements. Although thePredecessor and Successor results are not comparable by definition in certainrespects due to the Norcross Transaction and the resulting revaluation, the2005 information is presented on a combined basis for comparative purposes. Forthe year ended December 31, 2005, the Predecessor (January 1, 2005through July 19, 2005) and Successor (July 20, 2005 throughDecember 31, 2005) results of operations are combined.
| ** **                                               | ** ** | **Predecessor**                              | ** ** | **Successor**                                                 | ** ** | ** **                                                | ** ** | **Successor**                                          | ** ** |
|----------------------------------------------------------|------------|----------------------------------------------|------------|---------------------------------------------------------------|------------|-----------------------------------------------------------|------------|--------------------------------------------------------|------------|
| ** **                                               | ** ** | **Year ended  December 31,  2004** | ** ** | **January 1,   2005  through  July 19,  2005** | ** ** | **July 20,  2005  through  December 31,  2005** | ** ** | **Combined  Year ended  December 31,  2005** | ** ** | **Year ended  December 31,  2006** | ** ** |
| ** **                                               | ** ** | **(dollars in thousands)**         | ** ** |
| ** **                                               | ** ** | ** **                                   | ** ** | ** **                                                    | ** ** | ** **                                                | ** ** | ** **                                             | ** ** | ** ** | ** ** |
| Net sales:                                               |       |                                         |       |                                                          |       |                                                      |       |                                                   |       |   |   |
| General safety and preparedness                          |       | $                                            | 308,576    |                                                          | $          | 186,434                                                   |       | $                                                      | 146,103    |   | $ | 332,537 |   | $ | 391,321 |   |
| Fire service                                             |       | 78,881                                       |       | 51,702                                                        |       | 36,213                                                    |       | 87,915                                                 |       | 87,902 |   |
| Electrical safety                                        |       | 51,042                                       |       | 33,558                                                        |       | 27,080                                                    |       | 60,638                                                 |       | 78,842 |   |
| Total net sales                                          |       | 438,499                                      |       | 271,694                                                       |       | 209,396                                                   |       | 481,090                                                |       | 558,065 |   |
| Cost of goods  sold                                      |       | 281,924                                      |       | 171,645                                                       |       | 139,978                                                   |       | 311,623                                                |       | 352,340 |   |
| Gross profit                                             |       | 156,575                                      |       | 100,049                                                       |       | 69,418                                                    |       | 169,467                                                |       | 205,725 |   |
| Operating  expenses                                      |       | 105,426                                      |       | 81,819                                                        |       | 57,701                                                    |       | 139,520                                                |       | 145,401 |   |
| Income from  operations:                                 |       |                                         |       |                                                          |       |                                                      |       |                                                   |       |   |   |
| General safety and preparedness                          |       | 31,112                                       |       | 19,937                                                        |       | 7,667                                                     |       | 27,604                                                 |       | 46,099 |   |
| Fire service                                             |       | 14,972                                       |       | 9,332                                                         |       | 2,574                                                     |       | 11,906                                                 |       | 8,364 |   |
| Electrical safety                                        |       | 11,148                                       |       | 8,442                                                         |       | 4,352                                                     |       | 12,794                                                 |       | 14,853 |   |
| Corporate                                                |       | (6,083                                       | )          | (19,481                                                       | )          | (2,876                                                    | )          | (22,357                                                | )          | (8,992 | ) |
| Total income from operations                             |       | 51,149                                       |       | 18,230                                                        |       | 11,717                                                    |       | 29,947                                                 |       | 60,324 |   |
| Other expense  (income):                                 |       |                                         |       |                                                          |       |                                                      |       |                                                   |       |   |   |
| Interest expense                                         |       | 35,962                                       |       | 24,584                                                        |       | 17,645                                                    |       | 42,229                                                 |       | 46,875 |   |
| Interest income                                          |       | (213                                         | )          | (914                                                          | )          | (156                                                      | )          | (1,070                                                 | )          | (621 | ) |
| Seller transaction expenses                              |       | —                                       |       | 4,646                                                         |       | —                                                    |       | 4,646                                                  |       | — |   |
| Other, net                                               |       | 1,539                                        |       | 745                                                           |       | (9                                                        | )          | 736                                                    |       | (1,026 | ) |
| Income (loss)  before income taxes and minority interest |       | 13,861                                       |       | (10,831                                                       | )          | (5,763                                                    | )          | (16,594                                                | )          | 15,096 |   |
| Income tax  expense (benefit)                            |       | 3,195                                        |       | 3,619                                                         |       | (995                                                      | )          | 2,624                                                  |       | 6,209 |   |
| Minority  interest                                       |       | 25                                           |       | 13                                                            |       | (2                                                        | )          | 11                                                     |       | 23 |   |
| Net income (loss)                                        |       | $                                            | 10,641     |                                                          | $          | (14,463                                                   | )          | $                                                      | (4,766     | ) | $ | (19,229 | ) | $ | 8,864 |   |
|                                                          |            |                                              |            |                                                               |            |                                                           |            |                                                        |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

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| ** **                                               | ** ** | **Predecessor**                              | ** ** | **Successor**                                           | ** ** | ** **                                                | ** ** | **Successor**                                      | ** ** |
|----------------------------------------------------------|------------|----------------------------------------------|------------|---------------------------------------------------------|------------|-----------------------------------------------------------|------------|----------------------------------------------------|------------|
| ** **                                               | ** ** | **Year ended  December 31,  2004** | ** ** | **January 1,  2005  through  July 19,  2005** | ** ** | **July 20,  2005  through  December 31,  2005** | ** ** | **Combined  Year ended  December  31,  2005** | ** ** | **Year ended  December 31,  2006** | ** ** |
| ** **                                               | ** ** | ** **                                   | ** ** | ** **                                              | ** ** | ** **                                                | ** ** | ** **                                         | ** ** | ** ** | ** ** |
| Net sales:                                               |       |                                         |       |                                                    |       |                                                      |       |                                               |       |   |   |
| General safety and preparedness                          |       | 70.4                                         | %          | 68.6                                                    | %          | 69.8                                                      | %          | 69.1                                               | %          | 70.1 | % |
| Fire service                                             |       | 18.0                                         | %          | 19.0                                                    | %          | 17.3                                                      | %          | 18.3                                               | %          | 15.8 | % |
| Electrical safety                                        |       | 11.6                                         | %          | 12.4                                                    | %          | 12.9                                                      | %          | 12.6                                               | %          | 14.1 | % |
| Total net sales                                          |       | 100.0                                        | %          | 100.0                                                   | %          | 100.0                                                     | %          | 100.0                                              | %          | 100.0 | % |
| Cost of goods  sold                                      |       | 64.3                                         | %          | 63.2                                                    | %          | 66.8                                                      | %          | 64.8                                               | %          | 63.1 | % |
| Gross profit                                             |       | 35.7                                         | %          | 36.8                                                    | %          | 33.2                                                      | %          | 35.2                                               | %          | 36.9 | % |
| Operating  expenses                                      |       | 24.0                                         | %          | 30.1                                                    | %          | 27.6                                                      | %          | 29.0                                               | %          | 26.1 | % |
| Income from  operations:                                 |       |                                         |       |                                                    |       |                                                      |       |                                               |       |   |   |
| General safety and preparedness                          |       | 7.1                                          | %          | 7.3                                                     | %          | 3.6                                                       | %          | 5.7                                                | %          | 8.3 | % |
| Fire service                                             |       | 3.4                                          | %          | 3.4                                                     | %          | 1.2                                                       | %          | 2.5                                                | %          | 1.5 | % |
| Electrical safety                                        |       | 2.5                                          | %          | 3.1                                                     | %          | 2.1                                                       | %          | 2.7                                                | %          | 2.7 | % |
| Corporate                                                |       | (1.3                                         | )%         | (7.1                                                    | )%         | (1.3                                                      | )%         | (4.7                                               | )%         | (1.7 | )% |
| Total income from operations                             |       | 11.7                                         | %          | 6.7                                                     | %          | 5.6                                                       | %          | 6.2                                                | %          | 10.8 | % |
| Other expense  (income):                                 |       |                                         |       |                                                    |       |                                                      |       |                                               |       |   |   |
| Interest expense                                         |       | 8.2                                          | %          | 9.0                                                     | %          | 8.5                                                       | %          | 8.8                                                | %          | 8.4 | % |
| Interest income                                          |       | (0.0                                         | )%         | (0.3                                                    | )%         | (0.1                                                      | )%         | (0.2                                               | )%         | (0.1 | )% |
| Seller transaction expenses                              |       | 0.0                                          | %          | 1.7                                                     | %          | 0.0                                                       | %          | 1.0                                                | %          | 0.0 | % |
| Other, net                                               |       | 0.4                                          | %          | 0.3                                                     | %          | (0.0                                                      | )%         | 0.1                                                | %          | (0.2 | )% |
| Income (loss)  before income taxes and minority interest |       | 3.1                                          | %          | (4.0                                                    | )%         | (2.8                                                      | )%         | (3.5                                               | )%         | 2.7 | % |
| Income tax  expense (benefit)                            |       | 0.7                                          | %          | 1.3                                                     | %          | (0.5                                                      | )%         | 0.5                                                | %          | 1.1 | % |
| Minority  interest                                       |       | 0.0                                          | %          | 0.0                                                     | %          | (0.0                                                      | )%         | 0.0                                                | %          | 0.0 | % |
| Net income (loss)                                        |       | 2.4                                          | %          | (5.3                                                    | )%         | (2.3                                                      | )%         | (4.0                                               | )%         | 1.6 | % |

 

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***Year Ended December 31, 2006 as Compared to Combined YearEnded December 31, 2005***

*Netsales.*Net sales increased by $77.0 million, or 16.0%, from$481.1 million in 2005 to $558.1 million in 2006. In our general safety andpreparedness segment, net sales increased by $58.8 million, or 17.7%, from$332.5 million in 2005 to $391.3 million in 2006. The increase reflects acombination of the following: incremental combined Fibre-Metal and NEOS netsales of $36.1 million, combined organic growth in our European and SouthAfrican operations of $13.8 million, overall organic growth in our NorthAmerican non-government business of $11.3 million, favorable exchange rates,which had an impact of $4.7 million and a decrease in government contractshipments of $7.1 million.  In our fireservice segment, net sales were consistent at $87.9 million in 2005 and 2006 asincremental American Firewear net sales of $6.4 million were offset bypostponed customer orders due in part to the combined impact of governmentgrant holdups and the delayed issuance of the new NFPA standard.  In our electrical safety segment, net salesincreased by $18.2 million, or 30.0%, from $60.6 million in 2005 to $78.8million in 2006 primarily driven by strong market demand, new productpenetration and incremental White Rubber net sales of $9.0 million.

*Gross profit.*Grossprofit increased by $36.2 million, or 21.4%, from $169.5 million in 2005 to$205.7 million in 2006, primarily due to the $77.0 million, or 16.0%, increasein net sales. Excluding the impact of inventory purchase accounting adjustmentsof $5.6 million in 2005 and $1.1 million in 2006 and LIFO charges of $0.2million in 2005 and $0.9 million in 2006, gross profit increased by $32.4million, or 18.5%. After adjusting for the inventory purchase accountingadjustments and LIFO charges, our gross profit margin of 37.2% in 2006 wasfavorable to the 36.4% gross profit margin in 2005. In our general safety andpreparedness segment (after adjusting for charges related to purchaseaccounting and LIFO of $4.5 million in 2005 and $1.7 million in 2006), grossprofit increased by $28.2 million, or 23.0%, from $122.7 million in 2005 to$150.9 million in 2006. This increase was primarily due to the overall netsales increase of $58.8 million, or 17.7%, and improved margin realization inour North American operations (in part due to the favorable contribution ofFibre-Metal).  In our fire servicesegment (after adjusting for charges related to purchase accounting of $1.3million in 2005), gross profit decreased $2.4 million, or 8.4%, from $28.7million in 2005 to $26.3 million in 2006 due to lower margin realization (inpart due to the inherent lower margin of American Firewear products and productline integration costs). In our electrical safety segment (after adjusting forcharges related to purchase accounting of $0.3 million in 2006), gross profitincreased by $6.6 million, or 27.9%, from $23.9 million in 2005 to$30.5 million in 2006, primarily due to the $18.2 million, or 30.0%, increasein net sales, which was partially offset by lower margin realization in partdue to the White Rubber plant integration.

*Operatingexpenses.*Operating expenses increased by $5.9 million,or 4.2%, from $139.5 million in 2005 to $145.4 million in 2006. Inour general safety and preparedness segment, operating expenses increased by$12.5 million, or 13.8%, from $90.6 million in 2005 to$103.1 million in 2006, primarily due to higher amortization expense of$1.9 million associated with the intangible assets recorded as part of purchaseaccounting, incremental combined Fibre-Metal and NEOS operating expenses of$7.3 million, higher foreign exchange rates, which had an impact of $1.3million, $1.4 million of restructuring charges related to plant relocations andacquisition integration activities, increased variable distribution and sellingexpenses associated with the $58.8 million, or 17.7%, increase in net sales andhigher payroll and administrative expenses. These increases were partiallyoffset by a $6.8 million non-cash curtailment gain recorded as a result offreezing our U.S. defined benefit plans. In our fire service segment, operating expenses increased$2.4 million, or 15.8%, from $15.5 million in 2005 to $17.9 millionin 2006, primarily due to higher amortization expense of $1.6 millionassociated with intangible assets recorded as part of purchase accounting andincremental American Firewear operating expenses of $0.6 million. In ourelectrical safety segment, operating expenses increased by $4.4 million,or 38.7%, from $11.0 million in 2005 to $15.4 million in 2006, primarilydue to higher amortization expense of $0.5 million associated with intangibleassets recorded as part of purchase accounting, incremental White Rubberoperating expenses of $1.8 million, $0.1 million of restructuring chargesrelated to White Rubber acquisition integration activities and increasedvariable selling and distribution expenses related to the $18.2 million, or30.0%, increase in net sales. Corporate expenses in 2005 consisted of $6.0 millionof general and administrative expenses and $16.4 million of managementincentive compensation expense related to the Norcross Transaction.  Corporate expenses in 2006 consisted of $7.4million of general and administrative expenses and $1.6 million of managementincentive compensation expense.  Theincrease in corporate general and administrative expenses of $1.4 millionwas primarily due to higher payroll, administrative expenses and professionalfees.

*Incomefrom operations.*Income from operations increased by$30.4 million, or 101.4%, from $29.9 million in 2005 to$60.3 million in 2006.  Keyvariances in 2006 relative to 2005 include: (1) lower inventory purchaseaccounting charges of $4.5 million, (2) higher LIFO charges of $0.7 million (3)incremental amortization expense of $4.0 million related to purchaseaccounting, (4) lower management incentive compensation charges of $14.8million, (5) a non-cash curtailment gain of $6.8 million recorded as a resultof freezing our U.S. defined benefit plans and (6) restructuring chargesrelated to plant consolidation and acquisition integration activities of $1.5million.  Excluding these charges fromboth periods, income

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from operations increasedby $10.5 million, or 17.7%. Excluding these same charges, as a percentage ofnet sales, income from operations increased from 12.4% in 2005 to 12.6% in2006. In our general safety and preparedness segment (after adjusting for thenet increase of the key variances discussed above of $6.3 million), income fromoperations increased by $12.3 million, or 34.4%, from $35.6 million in 2005 to$47.9 million in 2006, primarily due to higher net sales of $58.8 million, or17.7%, and favorable margin realization. In our fire service segment (afteradjusting for the net decrease of the key variances discussed above of $0.3million), income from operations decreased by $3.3 million, or 20.9%, from$15.8 million in 2005 to $12.5 million in 2006 primarily due to lower marginrealization. In our electrical safety segment (after adjusting for the net decreaseof the key variances discussed above of $0.9 million), income from operationsincreased by $2.9 million, or 21.3%, from $14.3 million in 2005 to $17.2million in 2006, primarily due to higher net sales of $18.2 million, or 30.0%,which was partially offset by lower margin realization. Corporate expenses in2005 consisted of $6.0 million of general and administrative expenses and $16.4million of management incentive compensation expense related to the NorcrossTransaction.  Corporate expenses in 2006consisted of $7.4 million of general and administrative expenses and $1.6million of management incentive compensation expense.  The increase in corporate general andadministrative expenses of $1.4 million was primarily due to higherpayroll, administrative expenses and professional fees.

Included in income fromoperations in 2006 and 2005 were depreciation and amortization expenses of$25.8 million and $18.9 million, respectively. Of these amounts, $16.8 million,$4.6 million, and $4.4 million were attributable to the general safety andpreparedness, fire service, and electrical safety segments, respectively, in2006 and $12.8 million, $3.0 million, and $3.1 million were attributable tothese segments in 2005.

*Interest expense.*Interestexpense increased by $4.6 million, or 11.0%, from $42.2 million in 2005 to$46.8 million in 2006 primarily due to higher outstanding debt balances relatedto the Fibre-Metal and White Rubber Transactions and higher variable interestrates on our senior credit facility. Included in interest expense in 2005 werenon-cash interest charges associated with the senior pay in kind notes andredeemable preferred units of NSP Holdings of $18.0 million.  Included in interest expense in 2006 werenon-cash interest charges associated with the senior pay in kind notes of $16.7million.

*Seller transaction expenses.*NSPHoldings incurred $4.6 million in transaction expenses (primarily related toprofessional services) in 2005.  Theexpenses were funded by the Predecessor from proceeds realized upon theconsummation of the Norcross Transaction.

*Other, net.*Other,net decreased by $1.7 million from $0.7 million in 2005 to $(1.0) million in2006, primarily due to unrealized foreign exchange rate gains.

*Income tax expense.*Incometax expense increased by $3.6 million, from $2.6 million in 2005 to$6.2 million in 2006, primarily as a result of higher domestic income taxexpense.

*Net income.*Netincome (loss) increased by $28.1 million from $(19.2) million in 2005to $8.9 million in 2006. This was the result of the reasons discussedabove.

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

*Net sales*. Net sales increased by $42.6million, or 9.7%, from $438.5 million in 2004 to $481.1 million in 2005. In ourgeneral safety and preparedness segment, net sales increased by $24.0 million,or 7.8%, from $308.5 million in 2004 to $332.5 million in 2005. This increasereflects a combination of the following: overall organic growth in ourCanadian, European and South African operations of $16.5 million; favorableexchange rates, which had an impact of $5.2 million; incremental Fibre-Metalnet sales of $4.9 million and lower overall net sales in the United States of$2.6 million as strong overall market demand, in part due to the hurricaneactivity in the Gulf Coast region, was offset by a decrease in governmentcontract shipments of $10.3 million. In our fire service segment, net salesincreased by $9.0 million, or 11.5%, from $78.9 million in 2004 to $87.9 millionin 2005 reflecting strong market demand. In our electrical safety segment, netsales increased by $9.6 million, or 18.8%, from $51.0 million in 2004 to $60.6million in 2005, driven by the hurricane activity in the Gulf Coast region,strong overall market demand and new product penetration.

*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 and preparednessand fire service segments of $4.3 million and $1.3 million, respectively, grossprofit increased by $18.5 million, or 11.8%. This increase was primarily attributable to the $42.6 million, or 9.7%increase in net sales. After adjusting for the inventory purchase accountingadjustments, our overall gross profit margin of 36.4% in 2005 was favorable tothe 35.7% gross profit

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margin in 2004. In our general safety and preparednesssegment (after adjusting for expenses related to purchase accounting of $4.3million), gross profit increased by $12.0 million, or 10.8%, from $110.5million in 2004 to $122.5 million in 2005. This increase was primarily due tothe overall net sales increase of $24.0 million, or 7.8%, favorable exchangerates which has an impact of $1.9 million, and improved margin realization.Included in the general safety and preparedness segment gross profit were a$1.2 million and $4.1 million increase to the reserve for excess and obsoleteinventory and a $0.2 million increase and $0.2 million decrease to the LIFOprovisions in 2005 and 2004, respectively. The $1.2 million inventory reserve recordedin 2005 related primarily to our hand protection product line. Our handprotection products were deemed to be excess inventory as we determined that wehad either multiple years of inventory on hand or items that had not moved inover a year. The $4.1 million inventory reserve recorded in 2004 relatedprimarily to our respiratory product line. The respiratory products were deemedto be either: 1) excess as we determined that we had either multiple years ofinventory on hand or items that had not moved in over a year or 2) obsolete dueto government safety standard changes. In our fire service segment(after adjusting for expenses related to purchase accounting 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, or 11.5% increase in net sales waspartially offset by lower margin realization. In our electrical safety segment,gross profit increased by $4.0 million, or 20.4%, from $19.9 million in 2004 to$23.9 million in 2005, primarily due to the $9.6 million, or 18.8% increase innet sales and improved manufacturing performance.

*Operating expenses*. Operating expenses 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 in 2004 to $90.6 million in 2005,primarily due to incremental amortization expense of $3.0 million associatedwith intangible assets recorded as part of purchase accounting; higher exchangerates, which had an impact of $1.3 million; incremental Fibre-Metal operatingexpense of $1.4 million; higher payroll and other administrative costs; andincreased variable distribution and selling expenses associated with the $24.0million, or 7.8% increase in net sales. In our fire service segment, operatingexpenses increased $4.4 million, or 39.0%, from $11.1 million in 2004 to $15.5million in 2005, primarily due to higher amortization expense of $2.6 millionassociated with intangible assets recorded as part of purchase accounting andadditional general and administrative expenses, including legal costs relatedto litigation with a competitor. In our electrical safety segment, operatingexpenses increased by $2.4 million, or 27.6%, from $8.7 million in 2004 to$11.1 million in 2005, primarily due to higher amortization expense of $1.4million associated with intangible assets recorded as part of purchaseaccounting and higher selling and distribution expenses associated with the$9.6 million, or 18.8% increase in net sales. 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.

*Income from operations*. Income from operations decreased by$21.2 million, or 41.5%, from $51.1 million in 2004 to $29.9 million in2005.  Included in income from operationsin 2005 were: (1) inventory purchase accounting charges of $5.6 million;(2) incremental amortization expenses of $7.0 million related to purchaseaccounting; and (3) $16.4 million of management incentive compensationexpense.  Included in income from operationsin 2004 were $0.6 million of expenses related to exploring strategicalternatives.  Excluding these charges,income from operations increased by $7.2 million, or 13.9%.  Excluding these same charges, as a percentageof net sales, income from operations increased from 11.8% in 2004 to 12.3% in2005. In our general safety and preparedness segment (after adjusting forexpenses related to purchase accounting of $7.3 million), income fromoperations increased by $3.9 million, or 12.4%, from $31.1 million in 2004 to$35.0 million in 2005, primarily due to higher net sales of $24.0 million, or7.8%. In our fire service segment (after adjusting for expenses related topurchase accounting of $3.9 million), income from operations increased by $0.7million, or 5.4%, from $15.0 million in 2004 to $15.7 million in 2005, as the$9.0 million, or 11.5%, increase in net sales was partially offset by lowermargin realization and higher administrative expenses. In our electrical safetysegment (after adjusting for expenses related to purchase accounting of $1.4million), income from operations increased by $3.1 million, or 27.5%, from$11.1 million in 2004 to $14.2 million in 2005, primarily due to higher netsales of $9.6 million, or 18.8%, and improved manufacturing performance.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 administrative expensesand $16.4 million of management incentive compensation expense related to theNorcross Transaction.  The increase incorporate general and administrative expenses of $0.5 million was primarily dueto higher payroll and administrative expenses including costs associated withpublic reporting and Sarbanes-Oxley Act related compliance requirements.

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Included in incomefrom operations in 2005 and 2004 were 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 million were attributable to the general safety andpreparedness, fire service, and electrical safety segments, respectively, in2005 and $9.9 million, $0.4 million, $1.5 million and $0.6 million wereattributable to these segments and corporate in 2004.

*Interest expense*. Interest expense increased by $6.2million, or 17.4%, from $36.0 million in 2004 to $42.2 in 2005 primarily due tothe net impact of an increase in interest expense associated with the seniorpay in kind notes and higher outstanding debt balances related to theFibre-Metal Transaction and a decrease in preferred unit dividends included ininterest expense associated with the redemption of $60.0 million ofmandatorily redeemable preferred units of NSP Holdings. Included in interestexpense were non-cash interest charges associated with the senior pay in kindnotes and preferred unit dividends of $13.5 million for 2004 and $18.0million for 2005.

*Seller transactionexpenses.* 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 due primarily to a $0.9 millionloss recorded on the sale of property, plant and equipment in 2004.

*Income tax expense*. Income tax expense decreased by$0.6 million, from $3.2 million in 2004 to $2.6 million in 2005, as higherincome tax expense levels at foreign operations were offset by the ability ofthe Company to recognize benefit on certain net operating losses in the U.S.

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

**Liquidityand Capital Resources**

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

In 2006 and 2005,cash provided by operating activities was $35.0 million and $46.3 million,respectively. The $11.3 million decrease was primarily attributable toincreased inventory and accounts receivable due in part to the $77.0 million,or 16.0%, increase in net sales and inventory build-up related to Fibre-Metaland White Rubber plant consolidations, which was partially offset by the $10.5million increase in operating income (after adjusting for purchase accounting,LIFO, management incentive compensation, pension curtailment gain andrestructuring charges).

In 2005 and 2004, cash provided by operating activities was $46.3million and $29.9 million, respectively. The $16.4 million improvement wasprimarily attributable to the $7.2 million increase in operating income (afteradjusting for expenses related to purchase accounting, management incentivecompensation and strategic alternatives expense) and favorable working capitalactivity.

Historically, our principal uses of cash have been capitalexpenditures, acquisitions and working capital. Investing activities for the year ended December 31, 2006 include: (1)$22.2 million for the White Rubber Transaction; (2) $4.5 million for theAmerican Firewear Transaction; (3) $3.6 million for the NEOS Transaction; and(4) $1.1 million for royalty payments to the sellers of Muck Boot and Arbin.

For the Predecessor period from January 1, 2005 through July 19, 2005,we made royalty payments to the sellers of Muck Boot and Arbin totaling $0.7million.  Successor period investingactivities for the period from July 20, 2005 through December 31, 2005 include:(1) $204.5 million of cash purchase price related to the Norcross Transaction;(2) $68.7 million of cash purchase price related to the Fibre-MetalTransaction; and (3) $0.5 million for royalty payments to the sellers of MuckBoot and Arbin.

In 2004, we made royalty payments to the sellers of Muck Boot and Arbintotaling $0.7 million and received proceeds from the sale of property, plantand equipment of $0.7 million.

Our capital expenditures were $11.6 million in 2006, $9.3 million in2005 and  $6.4 million in 2004.

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As of December 31, 2006, we had working capital of $146.8 million andcash of $26.8 million.  We maintaininventory levels sufficient to satisfy customer orders on demand, withgenerally a three month supply on hand. Bunker gear is an exception and is generally made to order.  Our accounts receivable terms are generally30 days, net.

For the year ended December 31, 2006, net cash provided by financingactivities was $13.7 million, consisting of the following: proceeds fromadditional term borrowings of $15.0 million under the New Credit Facility (asdefined below) related to the White Rubber Transaction, $1.8 million ofpayments on long-term obligations, $0.7 million of capital contributions and$0.2 million of payments for deferred financing costs.

For the Predecessor period from January 1, 2005 through July 19, 2005,net cash used in financing activities was $20.6 million, representing paymentsof 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 $13.6 million , including an excess cashflow sweep payment under the terms of the former senior credit facility of$12.2 million; payment in respect of preferred units of $60.0 million; anddistributions in respect of the common units of certain members of managementof $2.5 million. For the successor period from July 20, 2005 through December31, 2005, net cash provided by financing activities was $264.5 million,including $153.0 million of borrowings under our New Credit Facility (asdefined below) used to fund the Norcross and Fibre-Metal Transactions, $23.6million of proceeds from the issuance of senior pay in kind notes and $109.7million of capital contributions. Additionally, we paid $21.1 million in deferred financing costs consistingof expenses associated with the New Credit Facility (including incrementalborrowings for the Fibre-Metal Transaction), the Norcross senior subordinatednotes, and the senior pay in kind notes which are further discussed below.

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

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.

OnJuly 19, 2005, in conjunction with the Norcross Transaction, Norcross enteredinto a new Senior Credit Facility (the “New Credit Facility”) which providesfor aggregate borrowings of $138.0 million, consisting of (a) a term loan inthe amount of $88.0 million, payable in twenty-eight consecutive quarterlyinstallments which commenced on September 30, 2005 and (b) a revolving creditfacility in an aggregate principal amount of $50.0 million.  The New Credit Facility is comprised of aU.S. revolving facility and a Canadian subfacility.  The amount of the total U.S. revolvingfacility is an amount equal to $50.0 million less the amount at such timeoutstanding under the Canadian subfacility. The amount of the total Canadian subfacility is an amount denominated inCanadian dollars having a U.S. dollar equivalent of $25.0 million less theamount at such time outstanding under the U.S. revolving facility.  At any time upon the request of us or theU.S. Subsidiary Borrowers (as defined in the New Credit Facility), one or morenew term loan facilities may be added in any aggregate amount of up to $100.0million (and not less than $10.0 million for any such additional term loan),subject to certain conditions, the proceeds of which shall be used to financepermitted acquisitions, pay fees and related expenses thereto and to refinanceindebtedness of the entity or associated with the assets to be soacquired.  The New Credit Facility issubject to certain mandatory prepayments upon the occurrence of certain events,subject to 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 the Incremental FacilityAmendment to the New Credit Facility (the “Amendment”) in order to complete theacquisition of all of the issued and outstanding capital stock ofFibre-Metal.  Under the terms of theAmendment, 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 the proceedsof the incremental term loans be used for permitted acquisitions and theconsolidated senior leverage ratio, after giving effect to the use of theproceeds, not exceed 3.25 to 1.00. Norcross financed the Fibre-Metal Transaction with these additional termborrowings and cash on the balance sheet.

On June 9, 2006, Norcross entered into the Second Incremental FacilityAmendment to the New Credit Facility (the “Second Amendment”) in order tocomplete the acquisition of all of the issued and outstanding capital stock ofWhite Rubber.  Under the terms of theSecond Amendment, Norcross, the U.S. borrowers and the lenders agreed to atotal incremental term commitment of $15.0 million.  Additionally, the Second Amendment required,among other 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.  Norcross financed the White Transaction withthese additional term borrowings and cash on the balance sheet.

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As of December 31, 2006, borrowings under the New Credit Facility boreinterest at a weighted average rate of 7.5%. Prior to June 30, 2010, we may borrow, repay and re-borrow under therevolving facilities without payment of penalty or premium.  The term loan is payable in quarterlyinstallments totaling $1.7 million per annum, with the remainder due in fourquarterly installments ending June 30, 2012. As of December 31, 2006, there was approximately $165.7 million ofoutstanding indebtedness under the New Credit Facility and approximately $47.5million of available borrowings under the revolving credit facility.

Borrowings under the U.S. revolving facility and term loan portion ofthe New Credit Facility bear interest at a rate per annum equal to our choiceof (a) an alternate base rate (which is equal to the higher of (i) the rate ofinterest announced by Credit Suisse as its prime rate in effect and (ii) thefederal funds rate plus 0.50%) or (b) the Eurodollar rate, plus an applicablemargin.  Borrowings under the Canadiansubfacility of the New Credit Facility bear interest at a rate per annum equalto the Canadian prime rate (which is the higher of (i) the rate of interestannounced by Credit Suisse, Toronto Branch, as its reference rate then ineffect for determining interest rates on Canadian dollar denominated commercialloans in Canada and (ii) the CDOR rate plus 0.50% per annum), plus anapplicable margin, or with respect to banker’s acceptances or theirequivalents, the discount rate (as defined in the credit agreement) plus anapplicable margin.

Initially, the applicable margin with respect to the revolving creditfacility is (a) 1.25% in the case of alternate base rate loans and Canadiandollar prime loans and (b) 2.25% in the case of Eurodollar rate loans andbankers’ acceptance rate loans.  Withrespect to the term loan, the applicable margin will be (a) 1.00% in the caseof alternate base 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 adjust on a sliding scale based on the total leverage ratio ofNorcross and its subsidiaries.  Inaddition, we will be required to pay to the lenders under the revolving creditfacility an initial commitment fee in respect of the unused commitmentsthereunder at a per annum rate of 0.50%. After our fiscal quarter ending December 31, 2005, the commitment feerate adjusts on a sliding scale based on the total leverage ratio of Norcrossand its subsidiaries.

Norcross’ domestic subsidiaries (including any future or indirectsubsidiaries that may be created or acquired by us) and Safety Productsguarantee the U.S. subsidiary borrowers’ and Norcross’ obligations under theNew Credit Facility.  The guarantees inrespect of the New Credit Facility are secured by a perfected first prioritysecurity interest in all of our equity securities, the equity securities of ourdirect and indirect domestic subsidiaries, substantially all of the guarantors’tangible and intangible assets and 65% of the equity securities of, or equityinterest 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 customary covenants, includingamong other things:

·                  affirmativecovenants requiring us to provide certain financial statements to theAdministrative Agent for distribution to its lenders and to pay materialobligations when due, maintain its legal existence, keep its materialproperties in good working order and condition, provide certain notices to theAdministrative Agent for distribution to its lenders, comply in all materialrespects with environmental laws and maintain at all times ratings for the NewCredit Facility;

·                  restrictivecovenants including limitations on other indebtedness, liens, fundamentalchanges, asset sales, restricted payments, capital expenditures, investments,prepayments, transactions with affiliates, sales and leasebacks, negativepledges, lines of business; and

·                  financialcovenants requiring us to maintain a maximum total leverage ratio of total debtover EBITDA (as defined therein) for the period, a minimum fixed chargecoverage ratio of EBITDA (as defined therein) less capital expenditures overfixed charges for the period and a minimum interest coverage ratio of EBITDA(as defined therein) over interest expense for the period.

TheNew Credit Facility contains certain customary representations and warrantiesand events of default, including failure to pay interest, principal or fees,any material inaccuracy of any representation and warranty, failure to complywith covenants, material cross-defaults, bankruptcy and insolvency events,ERISA events, change of control, failure to maintain first priority perfectedsecurity interest, material judgments, invalidity of guarantee and loss ofsubordination.  Certain of the events ofdefaults are subject to exceptions, materiality qualifiers and baskets.

OnJuly 19, 2005, we sold $25.0 million in principal amount of 113⁄4%  senior pay in kind notes due 2012 (the “NewNotes”). The New Notes were sold pursuant to a purchase agreement, datedJune 28, 2005 (the “Purchase Agreement”), by and between us and CreditSuisse First Boston, LLC (the “Initial Purchaser”). The New Notes were issuedpursuant to the Indenture. Pursuant to the term of the Purchase Agreement, theNew Notes were sold to the Initial Purchaser and were resold to qualifiedinstitutional buyers in compliance with the exemption from registration. 

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 ofJanuary 7, 2005 (the “Indenture”) by and among NSP Holdings, NSP Capitaland the Trustee providing for the issuance of the New Notes and the assumptionby us of all of the rights, powers, commitments, obligations and liabilities ofNSP Holdings under the Indenture and the Existing Holdings Notes.

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In connection with the closing of the Norcross Transaction, Norcrossentered into a supplemental indenture dated as of July 19, 2005 (the “SupplementalIndenture”) by and among Norcross, Norcross Capital Corp. (“Capital”), theguarantors listed on the signature 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 by Norcross and Capital of $152.5million aggregate principal amount of 9 7/8 % senior subordinated notes due2011.  Pursuant to the terms of the SupplementalIndenture, the definition of Permitted Holders was amended and the partiesconfirmed that the Requisite Consents (as defined in the SupplementalIndenture) had been delivered in order to waive our obligations under theChange in Control covenant of the Indenture in connection with the NorcrossTransaction.

Safety Products is aholding company with no business operations or assets other than the equityinterests it holds in its subsidiaries. Its subsidiaries do not guaranteeSafety Products’ obligations under the senior pay in kind notes and do not haveany obligation with respect to the notes. Consequently, Safety Products is dependent on dividends and otherpayments from its subsidiaries, none of which have guaranteed the notes, tomake payments of principal and, when they elect to or are required to payinterest in cash interest on the notes. Its subsidiaries are separate and distinct legal entities, and they willhave no obligation, contingent or otherwise, to pay the amounts due under thenotes or to make any funds available to pay those amounts, whether by dividend,distribution, loan or other payments. 

The terms of Norcross’senior credit facility significantly restrict Norcross from paying dividendsand otherwise transferring assets to Safety Products.  Further, the terms of the indenture governingthe Norcross senior subordinated notes significantly restrict Norcross andSafety Products’ other subsidiaries from paying dividends and otherwisetransferring assets to Safety Products, except for taxes and ordinary coursecorporate operating expenses.  SafetyProducts cannot assure you that the agreements governing the current and futureindebtedness of its subsidiaries will permit its subsidiaries to provide SafetyProducts with sufficient dividends, distributions or loans to make themandatory partial redemption of the senior pay in kind notes on July 1, 2010 orto fund the cash interest payments on the notes that are required to beginthereafter. The ability of Safety Products’ subsidiaries to make dividends andother payments to it will depend on their cash flows and earnings which, inturn, will be affected by all of the factors discussed under the heading “Item1A.  Risk Factors.”

Given the restrictions inour debt instruments, we currently anticipate that, in order to pay theprincipal amount of the senior pay in kind notes at maturity or to repurchasethe notes upon a change of control as defined in the indentures governing thenotes, we will be required to adopt one or more alternatives, such asrefinancing our indebtedness at or before maturity, selling our equitysecurities or the equity securities or assets of Norcross, seeking capitalcontributions or loans from our affiliates or reducing or delaying businessactivities and capital expenditures. There can be no assurance that any of the foregoing actions could beeffected on satisfactory terms, or at all, or that any of the foregoing actionswould enable us to refinance our indebtedness or pay the principal amount orinterest of the notes or that any of such actions would be permitted by theterms of the indentures governing the notes or any debt instruments of oursubsidiaries then in effect. 

We believe that our internal cash flows and borrowings under therevolving portions of the New Credit Facility will provide us with sufficientliquidity and capital resources to meet our current and future financialobligations for the foreseeable future, including funding our operations, debtservice and capital expenditures.  Ourfuture operating performance will be subject to future economic conditions andto financial, business and other factors, many of which are beyond ourcontrol.  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.  Wecannot assure you that we would be able to accomplish any of these alternativeson a timely basis or on satisfactory terms, if at all.  In addition, the terms of our existing andfuture indebtedness, including our senior subordinated 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 Financial Condition andResults of Operations contains forward-looking information.  These statements reflect management’sexpectations, estimates, and assumptions based on information available at thetime 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 expressions are intended to identifyforward-looking statements. Forward-looking statements are not guarantees of future performance andinvolve risks, uncertainties, and other factors, including those set forthbelow, which may cause our actual results, performance, or achievements to bematerially different from any future results, performance, or achievementsexpressed 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, maintainkey supplier status with those customers with which we have achieved suchstatus, and obtain new customers; (v) the highly competitive nature of thepersonal protection equipment industry; (vi) any future changes in management;(vii) acceptance by consumers of new products we develop or acquire; (viii) theimportance and costs of product innovation; (ix) unforeseen problems associatedwith international sales, including gains and losses from foreign currencyexchange and restrictions on the efficient repatriation of earnings; (x) theunpredictability of patent protection and other intellectual property issues;(xi) cancellation of current orders; (xii) the outcome of pending productliability claims and the availability of indemnification for those claims;(xiii) general risks associated with the personal protection equipmentindustry; and (xiv) the successful integration of acquired companies oneconomically acceptable terms.  Weundertake no obligation to publicly update or revise any forward-lookingstatements to reflect changed assumptions, the occurrence of anticipated orunanticipated events, or changes to future results over time.

38

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**Contractual Obligations**

The following table summarizes our contractual obligations andcommitments, as of December 31, 2006 (dollars in thousands):
| ** **                       | ** ** | **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      |       | $                                        | 445,143    |   | $ | 4,631 |   | $ | 4,652 |   | $ | 234,146 |   | $ | 201,714 |   |
| Capital lease  obligations       |       | 205                                      |       | 68 |   | 137 |   | — |   | — |   |
| Interest  payments (1)           |       | 260,449                                  |       | 27,448 |   | 54,190 |   | 75,122 |   | 103,689 |   |
| Operating lease  obligations     |       | 35,923                                   |       | 7,065 |   | 11,096 |   | 7,042 |   | 10,720 |   |
| Purchase  obligations (2)        |       | 47,036                                   |       | 47,036 |   | — |   | — |   | — |   |
| Other long-term  liabilities (3) |       | 4,076                                    |       | 4,076 |   | — |   | — |   | — |   |
| Total                            |       | $                                        | 792,832    |   | $ | 90,324 |   | $ | 70,075 |   | $ | 316,310 |   | $ | 316,123 |   |

----

(1)                Interest paymentsfor variable rate obligations are calculated using the interest rate as ofDecember 31, 2006.

(2)                Purchaseobligations exclude our accounts payable of $21.9 million and include openpurchase orders of $46.4 million and all other contractual obligations of $0.6million pursuant to which we are obligated to purchase good or services.

(3)     Represents obligations under pension andother post-retirement plans.

 

39

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**Off-balance Sheet Arrangements**

As of December 31, 2006, we did not have any off-balance sheetarrangements as defined in Item 303(a)(4)(ii) of Regulation S-K.

**Effect of Inflation**

Inflation has generally not been a material factor affecting ourbusiness.  Our general operatingexpenses, such as wages and salaries, employee benefits and materials andfacilities costs, are subject to normal inflationary pressures.

**Recent Accounting Pronouncements**

In June 2006, the FASB issued Interpretation No. 48(“FIN 48”), *Accounting for Uncertainty in Income Taxes*,an interpretation of SFAS No. 109, *Accounting for IncomeTaxes*. The interpretation clarifies the accounting for uncertaintyin income taxes recognized in an enterprise’s financial statements byprescribing a recognition threshold and measurement attribute for the financialstatement recognition and measurement of a tax position taken or expected to betaken in a tax return.  FIN 48 alsoprovides guidance on derecognition, classification, interest and penalties,accounting in interim periods, disclosure, and transition. FIN 48 is effectivefor fiscal years beginning after December 15, 2006, and we will adopt FIN 48 asof January 1, 2007, as required.  We arein the process of determining the effects, if any, that the adoption of FIN 48will have on our financial statements.

In September 2006, the FASB issued SFAS No. 157, *Fair Value Measurements*, which definesfair value, establishes a framework for measuring fair value, and expandsdisclosures about fair value measurements. The provisions of SFAS No. 157 areeffective for us as of the beginning of our fiscal year ended December 31,2008. We are in the process of determining the effects, if any, that theadoption of SFAS No. 157 will have on our financial statements.

In February 2007, the FASB issued SFAS No. 159, *The Fair Value Option for Financial Assets andFinancial Liabilities — Including an amendment of FASB Statement No. 115.*Thisstatement is intended to improve financial reporting by providing entities withthe opportunity to mitigate volatility in reported earnings caused by measuringrelated assets and liabilities differently without having to apply complexhedge accounting provisions. It also establishes presentation and disclosurerequirements designed to facilitate comparisons between entities that choosedifferent measurement attributes for similar types of assets and liabilities.The statement does not affect any existing accounting literature that requirescertain assets and liabilities to be carried at fair value, and it does notestablish requirements for recognizing dividend income, interest income orinterest expense. It also does not eliminate disclosure requirements includedin other accounting standards. We are required to adopt SFAS No. 159 as of thebeginning of our fiscal year ended December 31, 2008.  We are in the process of determining theeffects, if any, that adoption of SFAS No. 159 will have on our financialstatements.

**ITEM 7A.       QUANTITATIVE AND QUALITATIVE DISCLOSURESABOUT MARKET RISK**

**Market Risk**

We are exposed to various market risks, including changes in foreigncurrency exchange rates and interest rates. Market risk is the potential loss arising from adverse changes in marketrates and prices, such as foreign currency exchange and interest rates.  Our policy is to not enter into derivativesor other financial instruments for trading or speculative purposes.  We may enter into financial instruments tomanage and reduce the impact of changes in interest rates.

Interest rate swaps are entered into as a hedge of underlying debtinstruments to change the characteristics of the interest rate from variable tofixed without actually changing the debt instrument.  Therefore, these interest rate swapagreements convert outstanding floating rate debt to fixed rate debt for aperiod of time.  For fixed rate debt,interest rate changes affect the fair market value, but do not impact earningsor cash flows.  Conversely for floatingrate debt, interest rate changes generally do not affect the fair market valuebut do impact future earnings and cash flows, assuming other factors are heldconstant.

At December 31, 2006, we had total debt (excluding original issue(discount) premium) and obligations under capital leases of $475.4million.  This debt is comprised of fixedrate debt of $309.7 million and floating rate debt of $165.7 million.  The pre-tax earnings and cash flow impact in2006 resulting from a one percentage point increase in interest rates on ourvariable rate debt would be approximately $1.7 million, holding other variablesconstant.

A portion of our net sales was derived from manufacturing operations inCanada, Holland, Germany, Mexico, the Caribbean and South Africa.  The results of operations and financialposition of our foreign operations are principally measured in their respectivecurrency and translated into U.S. dollars. The effects of foreign currency fluctuations in these countries aresomewhat mitigated by the fact that expenses are generally incurred in the samecurrency in which revenues are generated. The reported income of these subsidiaries will be higher or lowerdepending on a weakening or strengthening of the U.S. dollar against therespective foreign currency.

A portion of our assets are based in our foreign operations and aretranslated into U.S. dollars at foreign currency exchange rates in effect as ofthe end of each period, with the effect of such translation reflected as aseparate component of member’s equity. Accordingly, our consolidated member’s equity will fluctuate dependingupon the weakening or strengthening of the U.S. dollar against the respectiveforeign currency.

Our strategy for management of currency risk relies primarily uponconducting our operations in a country’s respective currency and may, from timeto time, also involve hedging programs intended to reduce our exposure tocurrency fluctuations.  Managementbelieves the effect of a one percentage point increase in the strength of theCanadian dollar and the Euro relative to the U.S. dollar from December 31, 2005to December 31, 2006 would have resulted in a $140,000 and $113,000 increase inour income from operations, respectively. During 2006, the Canadian dollar was consistent relative to the U.S.dollar and the Euro strengthened approximately 10.2% relative to the U.S.dollar.

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**ITEM 8.          CONSOLIDATED FINANCIAL STATEMENTS ANDSUPPLEMENTARY DATA**

**Indexto Consolidated Financial Statements**

**Safety Products Holdings,Inc.**

**Audited ConsolidatedFinancial Statements for the year ended December 31, 2004, the period fromJanuary 1, 2005 through July 19, 2005, the period from July 20, 2005 throughDecember 31, 2005 and the year ended December 31, 2006**
| Report of Ernst & Young  LLP, Independent Registered Public Accounting Firm        |   | 42 |
|----------------------------------------------------------------------------------------|--------|----|
| Consolidated Balance Sheets                                                            |   | 43 |
| Consolidated Statements of Operations                                                  |   | 44 |
| Consolidated  Statements of Changes in Members’ Deficit/Shareholders’ Equity |   | 45 |
| Consolidated  Statements of Cash Flows                                                 |   | 46 |
| Notes to  Audited Consolidated Financial Statements                                    |   | 47 |

 

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**Report ofIndependent Registered Public Accounting Firm**

Shareholders

Safety ProductsHoldings, Inc.

We have audited theaccompanying consolidated balance sheets as of December 31, 2006 and 2005, of Safety ProductsHoldings, Inc., (Company), a Delaware Corporation, and the relatedconsolidated statements of operations, changes in shareholders’ equity, andcash flows for the year ended December 31, 2006 and the period fromJuly 20, 2005 to December 31, 2005 (Successor), and the relatedconsolidated statements of operations, changes in members’ deficit, and cashflows for the year ended December 31, 2004 and for the period fromJanuary 1, 2005 to July 19, 2005 of NSP Holdings L.L.C.(Predecessor).  Our audits also included the financial statement scheduleslisted in the index at Item 15(a).  These financial statements andschedules are the responsibility of the Company’s management. Ourresponsibility is to express an opinion on these financial statements andschedules based on our audits.

We conducted our auditsin accordance with the standards of the Public Company Accounting OversightBoard (United States).  Those standards require that we plan and performthe audit to obtain reasonable assurance about whether the financial statementsare free of material misstatement. We were not engaged to perform an audit ofthe Company’s internal control over financial reporting.  Our auditsincluded consideration of internal control over financial reporting as a basisfor designing audit procedures that are appropriate in the circumstances, butnot for the purpose of expressing an opinion on the effectiveness of the Company’sinternal control over financial reporting.  Accordingly, we express nosuch opinion.  An audit includes examining, on a test basis, evidencesupporting the amounts and disclosures in the financial statements, assessingthe accounting principles used and significant estimates made by management,and evaluating the overall financial statement presentation. We believe thatour audits provide a reasonable basis for our opinion.

In our opinion, thefinancial statements and schedules referred to above present fairly, in allmaterial respects, the consolidated financial position of Safety ProductsHoldings, Inc. as of December 31, 2006 and 2005, and the consolidatedresults of its operations and its cash flows for the year ended December 31, 2006and for period from July 20, 2005 to December 31, 2005 (Successor),and the consolidated results of NSP Holdings L.L.C. ( Predecessor) operationsand cash flows for the year ended December 31, 2004 and for the period fromJanuary 1, 2005 to July 19, 2005 , in conformity with U.S. generallyaccepted accounting principles.

As discussed in Note 4 tothe consolidated financial statements, the Company adopted the recognition anddisclosure provisions of Statement of Financial Accounting Standards No. 158, *Employers’ Accounting for Defined Benefit Pension and OtherPostretirement Plans — an Amendment of FASB Statements Nos. 87, 88, 106 and132(R)*, as of December 31, 2006. The Company also adopted the recognition and disclosure provisions ofStatement of Financial Accounting Standards No. 123(R), *Share-basedPayment*, as of January 1, 2006.

 
| /s/ Ernst & Young LLP |   |
|--------------------------------|--------|
|                           |
| Chicago, Illinois              |
| March 14, 2007                 |

 

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**SAFETYPRODUCTS HOLDINGS, INC.**

**CONSOLIDATED BALANCE SHEETS**

**(Amounts in Thousands)**
| ** **                                                                                | ** ** | **December 31,** | ** ** |
|-------------------------------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                                                | ** ** | **2005**              | ** ** | **2006** | ** ** |
| **Assets**                                                                                |       |                  |       |   |   |
| Current assets:                                                                           |       |                  |       |   |   |
| Cash and cash  equivalents                                                                |       | $                     | 20,819     |   | $ | 26,796 |   |
| Accounts  receivable, less allowance of $2,317 and $2,323 in 2005 and 2006,  respectively |       | 68,286                |       | 73,306 |   |
| Inventories                                                                               |       | 93,462                |       | 108,270 |   |
| Deferred income  taxes                                                                    |       | 3,230                 |       | 2,143 |   |
| Prepaid expenses  and other current assets                                                |       | 3,206                 |       | 3,624 |   |
| Total current assets                                                                      |       | 189,003               |       | 214,139 |   |
| Property, plant and  equipment, net                                                       |       | 67,315                |       | 69,627 |   |
| Deferred financing  costs, net                                                            |       | 19,669                |       | 16,517 |   |
| Goodwill                                                                                  |       | 135,718               |       | 157,242 |   |
| Other intangible  assets, net                                                             |       | 276,842               |       | 281,438 |   |
| Other noncurrent assets                                                                   |       | 5,109                 |       | 5,119 |   |
| Total assets                                                                              |       | $                     | 693,656    |   | $ | 744,082 |   |
|                                                                                      |       |                  |       |   |   |
| **Liabilities and shareholders’  equity**                                            |       |                  |       |   |   |
| Current liabilities:                                                                      |       |                  |       |   |   |
| Accounts payable                                                                          |       | $                     | 21,229     |   | $ | 21,891 |   |
| Accrued expenses                                                                          |       | 34,137                |       | 40,596 |   |
| Current  maturities of long-term obligations                                              |       | 1,846                 |       | 4,820 |   |
| Total current  liabilities                                                                |       | 57,212                |       | 67,307 |   |
| Pension, postretirement  and deferred compensation                                        |       | 32,340                |       | 17,082 |   |
| Long-term obligations                                                                     |       | 441,393               |       | 470,140 |   |
| Other noncurrent  liabilities                                                             |       | 5,376                 |       | 7,008 |   |
| Deferred income taxes                                                                     |       | 50,268                |       | 55,460 |   |
| Minority interest                                                                         |       | 176                   |       | 199 |   |
|                                                                                      |       | 529,553               |       | 549,889 |   |
|                                                                                      |       |                  |       |   |   |
| Shareholders’ equity:                                                                |       |                  |       |   |   |
| Common shares                                                                             |       | 110                   |       | 110 |   |
| Contributed  capital                                                                      |       | 109,560               |       | 111,883 |   |
| (Accumulated  deficit) retained earnings                                                  |       | (4,766                | )          | 4,098 |   |
| Accumulated  other comprehensive income                                                   |       | 1,987                 |       | 10,795 |   |
| Total shareholders’  equity                                                          |       | 106,891               |       | 126,886 |   |
| Total liabilities and shareholders’ equity                                           |       | $                     | 693,656    |   | $ | 744,082 |   |

 

See notes to consolidated financial statements.

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**SAFETY PRODUCTS HOLDINGS, INC.**

**CONSOLIDATED STATEMENTS OF OPERATIONS**

**(Amounts in Thousands)**
| ** **                                               | ** ** | **Predecessor**                              | ** ** | **Successor**                                           | ** ** |
|----------------------------------------------------------|------------|----------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                                               | ** ** | **Year ended  December 31,  2004** | ** ** | **January 1,  2005  through  July 19,  2005** | ** ** | **July 20,  2005  through  December 31,  2005** | ** ** | **Year ended  December 31,  2006** | ** ** |
| ** **                                               | ** ** | ** **                                   | ** ** | ** **                                              | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net sales                                                |       | $                                            | 438,499    |                                                    | $          | 271,694 |   | $ | 209,396 |   | $ | 558,065 |   |
| Cost of goods  sold                                      |       | 281,924                                      |       | 171,645                                                 |       | 139,978 |   | 352,340 |   |
| Gross profit                                             |       | 156,575                                      |       | 100,049                                                 |       | 69,418 |   | 205,725 |   |
| Operating  expenses:                                     |       |                                         |       |                                                    |       |   |   |   |   |
| Selling                                                  |       | 40,120                                       |       | 25,512                                                  |       | 19,154 |   | 51,908 |   |
| Distribution                                             |       | 22,452                                       |       | 14,634                                                  |       | 11,385 |   | 32,688 |   |
| General and administrative (1)                           |       | 41,721                                       |       | 41,344                                                  |       | 19,946 |   | 47,758 |   |
| Amortization of intangibles                              |       | 517                                          |       | 329                                                     |       | 7,216 |   | 11,508 |   |
| Strategic alternatives                                   |       | 616                                          |       | —                                                  |       | — |   | — |   |
| Restructuring and merger-related charges                 |       | —                                       |       | —                                                  |       | — |   | 1,539 |   |
| Total operating  expenses                                |       | 105,426                                      |       | 81,819                                                  |       | 57,701 |   | 145,401 |   |
| Income from  operations                                  |       | 51,149                                       |       | 18,230                                                  |       | 11,717 |   | 60,324 |   |
| Other expense  (income):                                 |       |                                         |       |                                                    |       |   |   |   |   |
| Interest expense                                         |       | 35,962                                       |       | 24,584                                                  |       | 17,645 |   | 46,875 |   |
| Interest income                                          |       | (213                                         | )          | (914                                                    | )          | (156 | ) | (621 | ) |
| Seller transaction expenses                              |       | —                                       |       | 4,646                                                   |       | — |   | — |   |
| Other, net                                               |       | 1,539                                        |       | 745                                                     |       | (9 | ) | (1,026 | ) |
| Income (loss)  before income taxes and minority interest |       | 13,861                                       |       | (10,831                                                 | )          | (5,763 | ) | 15,096 |   |
| Income tax  expense (benefit)                            |       | 3,195                                        |       | 3,619                                                   |       | (995 | ) | 6,209 |   |
| Minority  interest                                       |       | 25                                           |       | 13                                                      |       | (2 | ) | 23 |   |
| Net income (loss)                                        |       | $                                            | 10,641     |                                                    | $          | (14,463 | ) | $ | (4,766 | ) | $ | 8,864 |   |

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(1)  Generaland administrative expenses exclude amortization of intangibles and include$16,388 and $1,610 of management incentive compensation for the period fromJanuary 1, 2005 through July 19, 2005 and for the year ended December 31, 2006,respectively.

See notes to consolidated financial statements.

 

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**SAFETY PRODUCTS HOLDINGS, INC.**

**CONSOLIDATED STATEMENTS OF CHANGES INMEMBERS’ DEFICIT/ SHAREHOLDERS’ EQUITY**

**(Amounts in Thousands, Except Units)**
| ** **                                | ** ** | ** **       | ** ** | ** **       | ** ** | ** **       | ** ** | ** **       | ** ** | ** **      | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** **  | ** ** | **Accumulated**   | ** ** | ** ** | ** ** |
|-------------------------------------------|------------|------------------|------------|------------------|------------|------------------|------------|------------------|------------|-----------------|------------|------------|------------|------------|------------|------------|------------|-------------|------------|-------------------|------------|------------|------------|
| ** **                                | ** ** | ** **       | ** ** | ** **       | ** ** | ** **       | ** ** | ** **       | ** ** | ** **      | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** **  | ** ** | **Other**         | ** ** | ** ** | ** ** |
| ** **                                | ** ** | ** **       | ** ** | ** **       | ** ** | ** **       | ** ** | ** **       | ** ** | ** **      | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** **  | ** ** | **Comprehensive** | ** ** | ** ** | ** ** |
| ** **                                | ** ** | **Class E** | ** ** | **Class A** | ** ** | **Class C** | ** ** | **Class D** | ** ** | **Accumulated** | ** ** | **(Loss)** | ** ** | ** ** | ** ** |
| ** **                                | ** ** | **Units**        | ** ** | **Amount**       | ** ** | **Units**        | ** ** | **Amount**       | ** ** | **Units**       | ** ** | **Amount** | ** ** | **Units**  | ** ** | **Amount** | ** ** | **Deficit** | ** ** | **Income**        | ** ** | **Total**  | ** ** |
| **Predecessor Company**                   | ** ** | ** **       | ** ** | ** **       | ** ** | ** **       | ** ** | ** **       | ** ** | ** **      | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** **  | ** ** | ** **        | ** ** | ** ** | ** ** |
| Balance at January 1,  2004               |       | —           |       | $                | —     |             | 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 | ) |

 
| ** **                                                        | ** ** | ** ** | ** ** | ** ** | ** ** | ** **      | ** ** | **(Accumulated** | ** ** | **Accumulated**   | ** ** | ** ** | ** ** |
|-------------------------------------------------------------------|------------|------------|------------|------------|------------|-----------------|------------|------------------|------------|-------------------|------------|------------|------------|
| ** **                                                        | ** ** | ** ** | ** ** | ** ** | ** ** | ** **      | ** ** | **Deficit)**     | ** ** | **Other**         | ** ** | ** ** | ** ** |
| ** **                                                        | ** ** | ** ** | ** ** | ** ** | ** ** | **Contributed** | ** ** | **Retained**     | ** ** | **Comprehensive** | ** ** | ** ** | ** ** |
| ** **                                                        | ** ** | **Shares** | ** ** | **Amount** | ** ** | **Capital**     | ** ** | **Earnings**     | ** ** | **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    |       |
| Capital  contribution                                             |       | 63,884     |       | —     |       | 713             |       | —           |       | —            |       | 713        |       |
| Management  incentive compensation                                |       | —     |       | —     |       | 1,610           |       | —           |       | —            |       | 1,610      |       |
| Foreign currency  translation adjustments                         |       | —     |       | —     |       | —          |       | —           |       | 5,344             |       | 5,344      |       |
| Net income                                                        |       | —     |       | —     |       | —          |       | 8,864            |       | —            |       | 8,864      |       |
| Comprehensive  income                                             |       |       |       |       |       |            |       |             |       |              |       | 14,208     |       |
| Adjustment to  initially apply SFAS No. 158, net of tax of $2,208 |       | —     |       | —     |       | —          |       | —           |       | 3,464             |       | 3,464      |       |
| Balance at  December 31, 2006                                |       | 11,030,884 |       | $          | 110        |            | $          | 111,883          |       | $                 | 4,098      |       | $          | 10,795 |   | $ | 126,886 |   |

 

See notes to consolidated financial statements.

45

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**SAFETY PRODUCTS HOLDINGS, INC.**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(Amounts in Thousands)**
| ** **                                                                                | ** ** | **Predecessor**                              | ** ** | **Successor**                                           | ** ** |
|-------------------------------------------------------------------------------------------|------------|----------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                                                                                | ** ** | **Year ended  December 31,  2004** | ** ** | **January 1,  2005  through  July 19,  2005** | ** ** | **July 20,  2005  through  December 31,  2005** | ** ** | **Year ended  December 31,  2006** | ** ** |
| ** **                                                                                | ** ** | ** **                                   | ** ** | ** **                                              | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Operating activities**                                                                  |       |                                         |       |                                                    |       |   |   |   |   |
| Net income (loss)                                                                         |       | $                                            | 10,641     |                                                    | $          | (14,463 | ) | $ | (4,766 | ) | $ | 8,864 |   |
| Adjustments to  reconcile net income (loss) to net cash provided by operating activities: |       |                                         |       |                                                    |       |   |   |   |   |
| Depreciation and  form amortization                                                       |       | 11,854                                       |       | 6,177                                                   |       | 5,145 |   | 14,327 |   |
| Amortization of  intangibles                                                              |       | 517                                          |       | 329                                                     |       | 7,216 |   | 11,508 |   |
| Amortization of  deferred financing costs                                                 |       | 1,777                                        |       | 1,311                                                   |       | 1,441 |   | 3,353 |   |
| Amortization of  original issue discount (premium)                                        |       | 92                                           |       | 58                                                      |       | (76 | ) | (147 | ) |
| Loss on sale of  property, plant and equipment                                            |       | 899                                          |       | —                                                  |       | — |   | 131 |   |
| Deferred income  taxes                                                                    |       | 583                                          |       | (86                                                     | )          | (2,416 | ) | 920 |   |
| Minority  interest                                                                        |       | 25                                           |       | 13                                                      |       | (2 | ) | 23 |   |
| Noncash interest                                                                          |       | 13,493                                       |       | 11,167                                                  |       | 6,877 |   | 16,733 |   |
| Noncash  management incentive compensation                                                |       | —                                       |       | —                                                  |       | — |   | 1,610 |   |
| Noncash pension  curtailment gain                                                         |       | —                                       |       | —                                                  |       | — |   | (6,751 | ) |
| Changes in  operating assets and liabilities:                                             |       |                                         |       |                                                    |       |   |   |   |   |
| Accounts  receivable                                                                      |       | (7,876                                       | )          | (2,607                                                  | )          | 1,259 |   | (2,206 | ) |
| Inventories                                                                               |       | (1,704                                       | )          | (1,515                                                  | )          | 7,208 |   | (10,855 | ) |
| Prepaid expenses  and other current assets                                                |       | 650                                          |       | 467                                                     |       | (233 | ) | (116 | ) |
| Other noncurrent  assets                                                                  |       | (627                                         | )          | (477                                                    | )          | 412 |   | (559 | ) |
| Accounts payable                                                                          |       | (365                                         | )          | (492                                                    | )          | 2,170 |   | (1,317 | ) |
| Accrued expenses                                                                          |       | 1,175                                        |       | 20,902                                                  |       | 3,883 |   | 3,851 |   |
| Pension,  postretirement, and deferred compensation                                       |       | (2,442                                       | )          | (1,210                                                  | )          | (1,431 | ) | (4,002 | ) |
| Other noncurrent  liabilities                                                             |       | 1,223                                        |       | (30                                                     | )          | 3 |   | (367 | ) |
| Other                                                                                     |       | (4                                           | )          | 20                                                      |       | 1 |   | 5 |   |
| Net cash provided by  operating activities                                                |       | 29,911                                       |       | 19,564                                                  |       | 26,691 |   | 35,005 |   |
|                                                                                      |       |                                         |       |                                                    |       |   |   |   |   |
| **Investing activities**                                                                  |       |                                         |       |                                                    |       |   |   |   |   |
| Purchase of businesses,  net of cash acquired                                             |       | (691                                         | )          | (653                                                    | )          | (273,725 | ) | (31,358 | ) |
| Purchases of property  plant and equipment                                                |       | (6,423                                       | )          | (4,250                                                  | )          | (5,037 | ) | (11,573 | ) |
| Proceeds from sale of  property, plant and equipment                                      |       | 736                                          |       | —                                                  |       | — |   | 113 |   |
| Net cash used in  investing activities                                                    |       | (6,378                                       | )          | (4,903                                                  | )          | (278,762 | ) | (42,818 | ) |
|                                                                                      |       |                                         |       |                                                    |       |   |   |   |   |
| **Financing activities**                                                                  | ** ** | ** **                                   | ** ** | ** **                                              | ** ** | ** ** | ** ** | ** ** | ** ** |
| Payments for deferred  financing costs                                                    |       | (904                                         | )          | (3,246                                                  | )          | (21,110 | ) | (201 | ) |
| Proceeds from  borrowings                                                                 |       | —                                       |       | 100,000                                                 |       | 176,646 |   | 15,000 |   |
| Payments of debt                                                                          |       | (4,775                                       | )          | (13,623                                                 | )          | (731 | ) | (1,826 | ) |
| Capital contribution                                                                      |       | 1                                            |       | —                                                  |       | 109,670 |   | 713 |   |
| Distributions on  preferred units                                                         |       | —                                       |       | (60,000                                                 | )          | — |   | — |   |
| Distributions on common  units                                                            |       | (2,943                                       | )          | (2,509                                                  | )          | — |   | — |   |
| Net cash (used in)  provided by financing activities                                      |       | (8,621                                       | )          | 20,622                                                  |       | 264,475 |   | 13,686 |   |
| Effect of exchange rate  changes on cash                                                  |       | 4,478                                        |       | (2,725                                                  | )          | 1,271 |   | 104 |   |
| Net increase in cash  and cash equivalents                                                |       | 19,390                                       |       | 32,558                                                  |       | 13,675 |   | 5,977 |   |
| Cash and cash  equivalents at beginning of period                                         |       | 16,341                                       |       | 35,731                                                  |       | 7,144 |   | 20,819 |   |
| Cash and cash  equivalents at end of period                                               |       | $                                            | 35,731     |                                                    | $          | 68,289 |   | $ | 20,819 |   | $ | 26,796 |   |

 

See notes to consolidated financial statements.

 

46

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**SAFETY PRODUCTS HOLDINGS, INC.****NOTES TO CONSOLIDATED FINANCIAL STATEMENTS****YEAR ENDED DECEMBER 31, 2004, THE PERIOD FROMJANUARY 1, 2005 THROUGH JULY 19,2005, THE PERIOD FROM July 20, 2005 THROUGH DECEMBER 31, 2005 AND THE YEARENDEDDECEMBER 31, 2006**

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

**1.  Formation of SafetyProducts Holdings, Inc.**

SafetyProducts Holdings, Inc. (the “Company” or “Safety Products”) operates as acorporation in accordance with the General Corporation Law of the state of Delaware.The Company is a leading designer, manufacturer and marketer of brandedproducts in the personal protection equipment industry. The Companymanufactures and markets a full line of personal protection equipment forworkers in the general safety and preparedness, fire service and electricalsafety industries.

**2. Transactions**

OnJuly 19, 2005, Norcross Safety Products L.LC. (“Norcross”) announced theclosing of the transaction under which it was acquired by Safety Products, anew holding company formed by Odyssey Investment Partners, LLC for the purposeof completing the acquisition.  Pursuantto the terms of the purchase agreement, Safety Products purchased all of theoutstanding membership units of Norcross and all of the outstanding commonstock of NSP Holdings Capital Corp. (“NSP Capital”), a wholly-owned subsidiaryof NSP Holdings L.L.C. (“NSP Holdings”), and pursuant to which Safety Productsassumed all of the outstanding indebtedness of Norcross and NSP Holdings, inexchange for a base purchase price to NSP Holdings of $472,000, plus the cashin Norcross as of April 2, 2005 in the amount of approximately $16,900, less(1) the indebtedness of Norcross and its subsidiaries as of April 2, 2005 and(2) certain transaction fees and expenses. The cash purchase price was $204,488 including direct costs ofacquisition of $2,346, and excluding assumed debt of $260,523.

OnNovember 1, 2005, the Company completed the acquisition of all of the issuedand outstanding capital stock of The Fibre-Metal Products Company (“Fibre-Metal”).  The purchase price was $68,723, includingacquisition costs of $723.  The Companyfinanced the acquisition through additional term borrowings under the NewCredit Facility and cash on the balance sheet. The results of operations of Fibre-Metal are included in the Company’sconsolidated statement of operations from the date of acquisition.

OnFebruary 2, 2006, the Company completed the acquisition of all of the issuedand outstanding capital stock of American Firewear, Inc. (“American Firewear”).The purchase price consisted of $4,453 in cash (including acquisition costs of$203 and net of cash acquired of $183) and a $1,000 subordinated seller note.In addition, the purchase price may be increased by $750 over the next fouryears based on American Firewear achieving certain financial and operatingobjectives. The Company financed the acquisition through cash on the balancesheet and the issuance of the $1,000 subordinated seller note. The Company believes the acquisition of AmericanFirewear will strengthen its hand protection product line in the fire servicesegment.  The results ofoperations of American Firewear are included in the Company’s consolidatedstatement of operations from the date of acquisition.

OnJune 9, 2006, the Company completed the acquisition of all of the issued andoutstanding capital stock of The White Rubber Corporation (“White Rubber”). Thepurchase price was $22,182 (including acquisition costs of $636 and gross ofoutstanding checks of $773). The Company financed the acquisition throughadditional term borrowings under the senior credit facility and cash on thebalance sheet.  The Company believes the acquisition of White Rubber will strengthen itsproduct line offering in the electrical safety segment.  The results of operations of WhiteRubber are included in the Company’s consolidated statement of operations fromthe date of acquisition.

OnSeptember 19, 2006, the Company completed the acquisition of all of the issuedand outstanding capital stock of The New England Overshoe Company, Inc. (“NEOS”).  The purchase price consisted of $3,639 incash (including acquisition costs of $139 and net of cash acquired of $6) and a$750 subordinated seller note.  Inaddition, the purchase price may be increased over the next five years based onNEOS achieving certain net sales targets. The Company financed the acquisition through cash on the balance sheetand the issuance of a $750 subordinated seller note.  TheCompany believes the acquisition of NEOS will broaden its footwear productportfolio in the general safety and preparedness segment.  The results of NEOS are included inthe Company’s consolidated statement of operations from the date ofacquisition.

47

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Theacquisition of Norcross is referred to as the “Norcross Transaction”, theacquisition of Fibre-Metal is referred to as the “Fibre-Metal Transaction”, theacquisition of American Firewear is referred to as the “American FirewearTransaction”, the acquisition of White Rubber is referred to as the “WhiteRubber Transaction” and the acquisition of NEOS is referred to as the “NEOSTransaction.”  Collectively, the NorcrossTransaction, the Fibre-Metal Transaction, the American Firewear Transaction,the White Rubber Transaction and the NEOS Transaction are referred to as the “Transactions”.

**3.  Basis of Presentation**

Predecessor— The consolidated financial statements of the Predecessor represent theconsolidated results of operations of NSP Holdings L.L.C. prior to the NorcrossTransaction.

Successor— The consolidated financial statements of the Successor represent theconsolidated results of operations of Safety Products Holdings, Inc.subsequent to the Norcross Transaction.

Theconsolidated financial statements of the Successor reflect the Transactionsunder the purchase method of accounting, in accordance with the FinancialAccounting Standards Board (“FASB”) Statement of Accounting Standards (SFAS)No. 141, *Business Combinations*.

The Company has allocated the purchase price relatedto the Norcross Transaction on the basis of its estimate of the fair value ofthe underlying assets acquired and liabilities 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                                            |       | 108,456                                 |       |
| Other intangible  assets                            |       | 242,459                                 |       |
| Other noncurrent  assets                            |       | 5,828                                   |       |
| Total assets  acquired                              |       | $                                       | 587,530    |   |
|                                                |       |                                    |       |
| Accounts payable                                    |       | $                                       | 17,379     |   |
| Accrued expenses                                    |       | 28,991                                  |       |
| Pension, post-retirement  and deferred compensation |       | 33,739                                  |       |
| Other noncurrent  liabilities                       |       | 7,373                                   |       |
| Deferred income  taxes                              |       | 34,887                                  |       |
| Minority  interest                                  |       | 148                                     |       |
| Total  liabilities assumed                          |       | 122,517                                 |       |
| Net assets acquired                                 |       | $                                       | 465,013    |   |

 

48

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The Company has allocated the purchase price relatedto the Fibre-Metal Transaction on the basis of its estimate of the fair valueof the underlying assets acquired and liabilities assumed as follows:
| ** **                                          | ** ** | **As of  November 1,   2005** | ** ** |
|-----------------------------------------------------|------------|----------------------------------------------|------------|
| Cash and cash  equivalents                          |       | $                                            | —     |   |
| Accounts  receivable                                |       | 5,770                                        |       |
| Inventories                                         |       | 6,950                                        |       |
| Prepaid expenses  and other current assets          |       | 166                                          |       |
| Property, plant  and equipment                      |       | 3,533                                        |       |
| Goodwill                                            |       | 32,178                                       |       |
| Other intangible  assets                            |       | 41,130                                       |       |
| Total assets  acquired                              |       | $                                            | 89,727     |   |
|                                                |       |                                         |       |
| Accounts payable                                    |       | $                                            | 1,680      |   |
| Accrued expenses                                    |       | 3,026                                        |       |
| Pension,  post-retirement and deferred compensation |       | 32                                           |       |
| Deferred income  taxes                              |       | 16,266                                       |       |
| Total  liabilities assumed                          |       | 21,004                                       |       |
| Net assets acquired                                 |       | $                                            | 68,723     |   |

 

The Company has allocated the purchase price relatedto the White Rubber Transaction on the basis of its estimate of the fair valueof the underlying assets acquired and liabilities assumed as follows:
| ** **                                          | ** ** | **As of  June 10,   2006** | ** ** |
|-----------------------------------------------------|------------|-------------------------------------------|------------|
| Cash and cash  equivalents                          |       | $                                         | —     |   |
| Accounts  receivable                                |       | 1,866                                     |       |
| Inventories                                         |       | 2,682                                     |       |
| Prepaid expenses  and other current assets          |       | 285                                       |       |
| Property, plant  and equipment                      |       | 2,974                                     |       |
| Goodwill                                            |       | 10,677                                    |       |
| Other intangible  assets                            |       | 9,530                                     |       |
| Other noncurrent  assets                            |       | 127                                       |       |
| Total assets  acquired                              |       | $                                         | 28,141     |   |
|                                                |       |                                      |       |
| Accounts payable                                    |       | $                                         | 1,909      |   |
| Accrued expenses                                    |       | 1,691                                     |       |
| Pension,  post-retirement and deferred compensation |       | 26                                        |       |
| Deferred income  taxes                              |       | 3,106                                     |       |
| Total  liabilities assumed                          |       | 6,732                                     |       |
| Net assets acquired                                 |       | $                                         | 21,409     |   |

 

49

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The Company engaged independent appraisers to assist in determining thefair values of property, plant and equipment, inventories, and other intangibleassets, including customer relationships, brand names, developed technology,favorable leaseholds and backlog.  TheCompany has received values from the appraisers, which have been included inthe above tables.

Approximately $108,456 of goodwill was recorded related to the NorcrossTransaction (of which approximately $38,000 was tax deductible).  The primary reasons for the NorcrossTransaction and the primary factors that contributed to a purchase price thatresulted in recognition of goodwill include:

·                  The Company’sleading market position as a designer, manufacturer and marketer of brandedproducts in the fragmented personal protection equipment industry offers acompetitive advantage in competing for new customers.

·                  The Company,being one of only a small number of companies that can provide completehead-to-toe protection, provides a competitive advantage when selling to newand existing customers.

·                  The diversecustomer base and industries served minimizes the potential impact ofvolatility from any one customer or industry.

Other considerations affecting the value of goodwill include:

·                  The ability ofthe assembled workforce to develop future innovative technologies and products.

·                  The applicationof purchase accounting, particularly for such items as pension and deferred taxliabilities for which significant liability balances were recorded with nocorresponding significant short-term cash outflows.

Approximately $32,178 of goodwill was recorded related to theFibre-Metal Transaction (none of which was tax deductible).  The primary reasons for the Fibre-MetalTransaction and the primary factors that contributed to a purchase price thatresulted in recognition of goodwill include:

·                  Fibre-Metal’sleading market position as a designer, manufacturer and marketer of brandedproducts in the fragmented personal protection equipment industry offers acompetitive advantage in competing for new customers.

·                  Expected costsavings associated with integrating Fibre-Metal manufacturing and distributionfacilities into the Company’s existing facilities.

Other considerations affecting the value of goodwill include:

·                  The ability ofthe assembled workforce to develop future innovative technologies and products.

·                  The applicationof purchase accounting, particularly for deferred tax liabilities for whichsignificant liability balances were recorded with no corresponding significantshort-term cash outflows.

Approximately $10,677 of goodwill was recorded related to the WhiteRubber Transaction (none of which was tax deductible).  The primary factor that contributed to apurchase price that resulted in recognition of goodwill was the expected costsavings associated with integrating White Rubber manufacturing and distributionfacilities into the Company’s existing facilities. The other considerationaffecting the value of goodwill was the application of purchase accounting,particularly for deferred tax liabilities for which significant liabilitybalances were recorded with no corresponding significant short-term cashoutflows.

The following table presents the unaudited pro forma net sales, incomefrom operations, and net income of the Company (based on the preliminaryallocation of purchase price) assuming the Transactions had occurred on January1, 2005:
| ** **              | ** ** | **Year ended  December 31,  2005** | ** ** | **Year ended  December 31,  2006** | ** ** |
|-------------------------|------------|----------------------------------------------|------------|----------------------------------------------|------------|
| Net sales               |       | $                                            | 538,324    |                                         | $          | 567,931 |   |
| Income from  operations |       | 33,659                                       |       | 65,915                                       |       |
| Net (loss) income       |       | (22,434                                      | )          | 12,887                                       |       |
|                         |            |                                              |            |                                              |            |  |  |

** **

50

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**4.  Significant Accounting Policies**

**Principles of Consolidation**

The consolidated financial statements include the accounts of SafetyProducts Holdings, Inc. and its majority-owned subsidiaries.  All significant intercompany accounts andtransactions have been eliminated.

**Cash Equivalents**

The Company considers all highly liquid investments with originalmaturities of three months or less to be cash equivalents.

**Concentration of Credit Risk**

Financial instruments, which potentially subject the Company toconcentration of credit risk, consist principally of trade receivables.  Credit risk with respect to trade receivablesis limited due to the diversity of customers comprising the Company’s customerbase.  The Company performs ongoingcredit evaluations of its customers and maintains sufficient allowances forpotential credit losses.  The Company evaluatesthe collectibility 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’spolicy is to not charge interest on trade receivables after the invoice becomespast due and to not require collateral. A receivable is considered past due if payments have not been receivedwithin agreed-upon invoice terms.

**Revenue Recognition**

Sales and related cost of sales are recognized when risk of loss andproduct title passes to the customer.

**Freight-Out Costs**

The Company records freight-out costs in distribution expenses.  Such amounts were $10,224, $6,848, $5,380 and$15,751 for the year ended December 31, 2004, the period from January 1, 2005through July 19, 2005, the period from July 20, 2005 through December 31, 2005,and the year ended December 31, 2006, respectively.

**Inventories**

Inventories are stated at the lower of cost or market.  The Company’s North Safety Products, Inc. (“North”) legal entity accountsfor its inventory under the last in, first out (“LIFO”) method. This was the method in place when North was acquired bythe Company in October 1998 and was also the method adopted in connection withthe Norcross Transaction. The Company has continued to use the LIFO method forthis legal entity for tax purposes and accordingly, is required to use LIFO forfinancial reporting purposes. All of the other legal entities of the Companyaccount for their inventory under the first in, first out (“FIFO”) method. Inventories valuedat FIFO accounted for approximately 64% and 63% of the Company’s inventories atDecember 31, 2005 and 2006, respectively.

**Property, Plant and Equipment**

Property, plant and equipment are recorded at cost.  Equipment under capital leases is stated atthe present value of minimum lease payments or fair value at the inception ofthe leases, whichever is lower. Depreciation is determined by using the straight-line method over theestimated useful lives of the assets. Equipment held under capital leases and leasehold improvements areamortized using the straight-line method over the shorter of the lease term orestimated useful life of the asset, with the related amortization expenseincluded in depreciation expense.

The useful lives of plant and equipment for the purpose of computingbook 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  |

 

51

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**Intangible Assets**

The amortizable lives of intangible assets for the purpose of computingamortization expense, which is recorded on a straight line basis, are asfollows:
| 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 fees and expensesassociated with obtaining financing.  Thecosts are being amortized and recorded to interest expense using thestraight-line method, which approximates the effective interest method, overthe period of the related financing. Accumulated amortization of deferred financing costs at December 31,2005 and 2006, was $1,441 and $4,794, respectively.

**Goodwill and Other Intangibles**

Goodwill is recorded when the purchase price paid for an acquisitionexceeds the estimated fair value of the net identified tangible and intangibleassets acquired.  The Company performs anannual review in the fourth quarter of each year, or more frequently if indicatorsof potential impairment exist, to determine if the carrying value of therecorded goodwill is impaired.  Theimpairment review process for goodwill compares the fair value of the reportingunit in which goodwill resides to its carrying value. 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**                                               | ** ** | ** **                                 | ** ** | ** **        | ** ** | ** **             | ** ** | ** ** | ** ** |
| Balance as of January  1, 2005                                        |       | $                                          | 123,275    |              | $          | 9,387                  |       | $          | —     |   | $ | 132,662 |   |
| Goodwill acquired and  other adjustments to purchase price allocation |       | 73                                         |       | —            |       | 258                    |       | 331        |       |
| 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 and other  adjustments to purchase price allocation |       | 18,815                                     |       | (24               | )          | —                 |       | 18,791     |       |
| Effect of foreign  currency translation                               |       | 634                                        |       | —            |       | —                 |       | 634        |       |
| Balance as of December  31, 2005                                      |       | 104,300                                    |       | 19,413            |       | 12,005                 |       | 135,718    |       |
| Goodwill acquired and  other adjustments to purchse price allocation  |       | 7,086                                      |       | 2,089             |       | 10,676                 |       | 19,851     |       |
| Effect of foreign  currency translation                               |       | 1,673                                      |       | —            |       | —                 |       | 1,673      |       |
| Balance as of December 31, 2006                                       |       | $                                          | 113,059    |              | $          | 21,502                 |       | $          | 22,681     |   | $ | 157,242 |   |

 

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The Company’s other intangible assets with indefinite lives consist of$98,802 and $100,906 related to brand names as of December 31, 2005 and 2006,respectively.  The Company determinedthat these brand names had indefinite lives due to their strong reputation for excellence inprotecting workers from hazardous and life-threatening environments, theirhistory of developing innovative and differentiated products and their strongmarket share positions in key product lines. In addition, these brand names have been in existence for multiple yearsand the Company has the ability and intent to continue supporting thesebrands.  The impairment review forindefinite lived intangibles compares the fair value of each intangible to itscarrying value.  Based on the impairmenttest, the Company determined that no impairment of indefinite lived intangiblesexisted.

The Company’s other intangible assets with finite lives consist ofbrand names, customer relationships, technology and favorable leaseholds.  The following table summarizes otherintangible assets with finite lives:
| ** **              | ** ** | **December 31, 2005** | ** ** | **December 31, 2006** | ** ** |
|-------------------------|------------|---------------------------------|------------|---------------------------------|------------|
| ** **              | ** ** | **Gross  Amount**               | ** ** | **Accumulated  Amortization**   | ** ** | **Net  Carrying  Amount** | ** ** | **Gross  Amount** | ** ** | **Accumulated  Amortization** | ** ** | **Net  Carrying  Amount** | ** ** |
| Brand names             |       | $                               | —     |                            | $          | — |   | $ | — |   | $ | 210 |   | $ | (123 | ) | $ | 87 |   |
| Customer  relationships |       | 160,478                         |       | (3,072                          | )          | 157,406 |   | 174,296 |   | (12,050 | ) | 162,246 |   |
| Technology              |       | 20,910                          |       | (729                            | )          | 20,181 |   | 20,910 |   | (2,823 | ) | 18,087 |   |
| Favorable  Leaseholds   |       | 510                             |       | (57                             | )          | 453 |   | 510 |   | (398 | ) | 112 |   |
| Total                   |       | $                               | 181,898    |                            | $          | (3,858 | ) | $ | 178,040 |   | $ | 195,926 |   | $ | (15,394 | ) | $ | 180,532 |   |

 

Future amortization expense for other finite lived intangible assetsheld as of December 31, 2006, is as follows:
| 2007       |   | $       | 11,522  |   |
|------------|--------|---------|---------|--------|
| 2008       |   | 11,324  |    |
| 2009       |   | 11,324  |    |
| 2010       |   | 11,324  |    |
| 2011       |   | 11,324  |    |
| Thereafter |   | 123,714 |    |
|       |   | $       | 180,532 |   |

 

**Income Taxes**

The Company is a corporation. The Predecessor income is allocated to, and included in the individualreturns of the unitholders of NSP Holdings which is treated as a partnershipunder federal tax law.  The Successorincome is included as part of the U.S. federal consolidated return of SafetyProducts.  Certain of the Company’ssubsidiaries are corporations which are subject to U.S. federal, state andlocal income taxes.  For the Predecessorperiod the tax liability for these entities is calculated on a stand alonebasis.  For the Successor period, theseentities are treated as filing as part of a consolidated group with theCompany.  Additionally, the Company’sforeign subsidiaries are subject to their respective foreign income taxreporting requirements.

Deferred income taxes are recognized for the difference in reporting ofcertain assets and liabilities for financial reporting 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.  Valuationallowances are provided against deferred tax assets which are not more likelythan not to be realized.  Deferred incometaxes are not provided on the unremitted earnings of foreign subsidiariesbecause it has been the practice, and it is the intention, of the Company tocontinue to reinvest these earnings in the businesses outside the UnitedStates.  The effect of a change in taxrates is recognized in the period that includes the enactment date.  Tax contingencies are reserved (includingrelated interest) for tax positions taken for which the likelihood of beingsustained is considered to be less than probable.  Tax contingency reserves are re-evaluatedthroughout the year taking into account new legislation, regulations, case lawand tax audit results.

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**Advertising**

The Company expenses advertising costs as incurred.  Advertising expense was approximately $3,021,$2,422, $1,547 and $4,806 for the year ended December 31, 2004, the period fromJanuary 1, 2005 through July 19, 2005, the period from July 20, 2005 throughDecember 31, 2005, and the year ended December 31, 2006, respectively.

**Foreign Currency Translation**

The accounts of foreign operations are measured using local currency asthe functional currency.  For thoseoperations, assets and liabilities are translated into U.S. dollars at the endof period exchange rates and income and expenses are translated at average exchangerates for the period.  Net adjustmentsresulting from such translation are accumulated as a separate component ofother comprehensive income included in member’s equity.  The accumulated balance of the foreigncurrency translation adjustments included as a component of the accumulated othercomprehensive income amounted to $1,987 and $7,331 as of December 31, 2005 and2006 respectively.

**Long-LivedAssets**

The Company evaluates its long-lived assets on an ongoing basis.  Long-lived assets are reviewed for impairmentwhenever events or changes in circumstances indicate that the carrying amountof the related asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparisonof the carrying amount of the asset to future undiscounted cash flows expectedto be generated by the asset.  If theasset is determined to be impaired, the impairment recognized is measured bythe amount by which the carrying value of the asset exceeds its fair value.

**Fair Value of Financial Instruments**

The Company’s financial instruments include cash and cash equivalents,the New Senior Credit Facility, notes payable, the New Senior SubordinatedNotes and the Senior Pay In Kind Notes (see Note 7).  The fair values of the Company’s financialinstruments were not materially different from their carrying values atDecember 31, 2005 and 2006, with the exception of the Senior Pay In Kind Noteswhich had a carrying value of $148,464 and fair value of $165,946 as ofDecember 31, 2006.  The Company estimatesthe fair value of its obligations using the discounted cash flow method withinterest rates currently available for similar obligations.

**Insurance**

Employee medical costs are insured under commercial excesspolicies.  The Company covers the cost ofsuch coverages up to certain retention limits. Insurance claim reserves for employee medical costs represent theestimated amounts necessary to settle outstanding claims, including claims thatare incurred but not reported, based on the facts in each case and the Company’sexperience with similar cases.  Theseestimates are continually reviewed and updated, and any resulting adjustmentsare reflected in current income from operations.

The liability related to medical self-insurance was $2,520 and $ 2,505as of December 31, 2005 and 2006, respectively. Medical self-insurance expense was approximately $6,270, $4,800, $3,109and $7,621****for the year ended December 31, 2004,the period from January 1, 2005 through July 19, 2005, the period from July 20,2005 through December 31, 2005 and the year ended December 31, 2006,respectively.

**Use of Estimates in the Consolidated FinancialStatements**

The preparation of consolidated financial statements in conformity withaccounting principles generally accepted in the United States requiresmanagement to make estimates and assumptions that affect the amounts reportedin the consolidated financial statements and accompanying notes.  Actual results could differ from thoseestimates.

**Employee Benefit Plans**

In September 2006, the FASB issued SFAS No. 158, *Employers’ Accounting for Defined Benefit Pension andOther Postretirement Plans — an amendment of FASB Statements No. 87, 88, 106and 132(R*). SFAS No. 158 requires an employer to recognize in itsstatement of financial position an asset for a plan’s overfunded status or aliability for a plan’s underfunded status, measure a plan’s assets and itsobligations that determine its funded status as of the end of the employer’sfiscal year, and recognize changes in the funded status of a defined benefitpostretirement plan in the year in which the changes occur. Those changes arereported in comprehensive income

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and as a separate component of shareholders’ equity.SFAS No. 158 does not change the amount of net periodic benefit cost includedin net earnings. The requirement to recognize the funded status of definedbenefit postretirement plans is effective for the Company as of December 31,2007, with early adoption permitted. The Company adopted the recognition andmeasurement provisions of SFAS No. 158 for the year ended December 31, 2006 andrecognized $3,464 of accumulated comprehensive income, net of tax.  This represented the net impact of a $5,672decrease to pension , post-retirement and deferred compensation and a $2,208decrease to deferred tax assets (see Note 9). The Company’s measurement date for its defined benefit andpost-retirement benefit plans was December 31, 2006.

**Management Incentive Compensation**

Prior to December 31,2005, the Company accounted for stock-based compensation programs according tothe provisions of Accounting Principles Board Opinion (“ABP”) No. 25, *Accounting for Stock Issued to**Employees*(“APB No. 25”), as permitted by SFAS No. 123, *Accounting for Stock-Based**Compensation*. Effective January 1, 2006, the Company adoptedthe fair value recognition provisions of SFAS 123 (R), *Share-Based Payments*(“SFAS No. 123(R)”). As a result ofadopting SFAS No. 123(R) on January 1, 2006, income before income taxes and netincome for the year ended December 31, 2006, are $1,610 and $984 lower,respectively, than if the Company had continued to account for share-basedcompensation under APB No. 25. The application of the fair value provisions ofSFAS No. 123(R) would not have had an impact on the Company’s results in 2005(see Note 21).

**Recent Accounting Pronouncements**

In June 2006, the FASB issued Interpretation No. 48 (“FIN48”), *Accounting for Uncertainty in Income Taxes*,an interpretation of SFAS No. 109, *Accounting for IncomeTaxes*. The interpretation clarifies the accounting for uncertaintyin income taxes recognized in an enterprise’s financial statements byprescribing a recognition threshold and measurement attribute for the financialstatement recognition and measurement of a tax position taken or expected to betaken in a tax return. FIN 48 also provides guidance on derecognition,classification, interest and penalties, accounting in interim periods,disclosure, and transition. FIN 48 is effective for fiscal years beginningafter December 15, 2006, and the Company will adopt FIN 48 as of January 1,2007, as required. The Company is in the process of determining the effects, ifany, that the adoption of FIN 48 will have on its financial statements.

In September 2006, the FASB issued SFAS No. 157, *Fair Value Measurements*, which definesfair value, establishes a framework for measuring fair value, and expandsdisclosures about fair value measurements. The provisions of SFAS No. 157 areeffective for the Company as of the beginning of its fiscal year ended December31, 2008. The Company is in the process of determining the effects, if any,that adoption of SFAS No. 157 will have on its financial statements.

In February 2007, the FASB issued SFAS No. 159, *The Fair Value Option for Financial Assets andFinancial Liabilities — Including an amendment of FASB Statement No. 115.*Thisstatement is intended to improve financial reporting by providing entities withthe opportunity to mitigate volatility in reported earnings caused by measuringrelated assets and liabilities differently without having to apply complexhedge accounting provisions. It also establishes presentation and disclosurerequirements designed to facilitate comparisons between entities that choosedifferent measurement attributes for similar types of assets and liabilities.The statement does not affect any existing accounting literature that requirescertain assets and liabilities to be carried at fair value, and it does notestablish requirements for recognizing dividend income, interest income orinterest expense. It also does not eliminate disclosure requirements includedin other accounting standards. The Company is required to adopt SFAS No. 159 asof the beginning of its fiscal year ended December 31, 2008.  The Company is in the process of determiningthe effects, if any, that adoption of SFAS No. 159 will have on its financialstatements.

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**5. Property, Plant and Equipment**

Property, plant and equipment consist of the following:
| ** **                      | ** ** | **December 31,  2005** | ** ** | **December 31,  2006** | ** ** |
|---------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| Land                            |       | $                           | 8,271      |                        | $          | 8,656 |   |
| Buildings and  improvements     |       | 15,989                      |       | 18,264                      |       |
| Machinery and  equipment        |       | 33,074                      |       | 41,695                      |       |
| Dies and tooling                |       | 5,852                       |       | 7,276                       |       |
| Furniture and  fixtures         |       | 1,704                       |       | 3,138                       |       |
| Computers and  office equipment |       | 4,479                       |       | 6,878                       |       |
| Construction in  progress       |       | 2,730                       |       | 1,995                       |       |
|                            |       | 72,099                      |       | 87,902                      |       |
| Less:  Accumulated depreciation |       | (4,784                      | )          | (18,275                     | )          |
|                            |       | $                           | 67,315     |                        | $          | 69,627 |   |

 

**6.  Inventories**

Inventories consist of the following:
| ** **               | ** ** | **December 31,  2005** | ** ** | **December 31,  2006** | ** ** |
|--------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| At FIFO cost:            |       |                        |       |                        |       |
| Raw materials            |       | $                           | 23,755     |                        | $          | 24,823 |   |
| Work in process          |       | 12,745                      |       | 13,756                      |       |
| Finished goods           |       | 57,126                      |       | 70,799                      |       |
|                     |       | 93,626                      |       | 109,378                     |       |
| Adjustment to  LIFO cost |       | (164                        | )          | (1,108                      | )          |
|                     |       | $                           | 93,462     |                        | $          | 108,270 |   |

 

**7. Debt**

The Company’s debt consists of the following:
| ** **                                         | ** ** | **December 31,  2005** | ** ** | **December 31,  2006** | ** ** |
|----------------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| Revolving credit  facilities                       |       | $                           | —     |                        | $          | — |   |
| Term loan                                          |       | 152,390                     |       | 165,720                     |       |
| Senior pay in  kind notes                          |       | 138,357                     |       | 155,090                     |       |
| Senior  subordinated notes                         |       | 152,500                     |       | 152,500                     |       |
| European term  loans                               |       | 248                         |       | 173                         |       |
| Subordinated  seller notes                         |       | —                      |       | 1,750                       |       |
| Capital lease  obligations                         |       | 75                          |       | 205                         |       |
| Unamortized  discount on senior pay in kind notes  |       | (7,517                      | )          | (6,626                      | )          |
| Unamortized  premium on senior subordinated notes  |       | 7,186                       |       | 6,148                       |       |
|                                               |       | 443,239                     |       | 474,960                     |       |
| Less: Current  maturities of long-term obligations |       | 1,846                       |       | 4,820                       |       |
|                                               |       | $                           | 441,393    |                        | $          | 470,140 |   |

 

On July 19, 2005, in conjunction with the Norcross Transaction, Norcrossentered into a new Senior Credit Facility (the “New Credit Facility”) whichprovides for aggregate borrowings of $138,000, consisting of (a) a term loan inthe amount of $88,000, payable in twenty-eight consecutive quarterlyinstallments which commenced on September 30, 2005 and (b) a revolving creditfacility in an aggregate principal amount of $50,000.  The New Credit Facility is comprised of aU.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

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$10,000 for any such additional term loan), subject tocertain conditions, the proceeds of which shall be used to finance permittedacquisitions, pay fees and related expenses thereto and to refinanceindebtedness of the entity or associated with the assets to be soacquired.  The New Credit Facility issubject to certain mandatory prepayments upon the occurrence of certain events,subject to certain exceptions set forth in the credit agreement.  The proceeds of the New Credit Facility wereused primarily to refinance the Former Credit Facility.  As of December 31, 2006, the interest ratewas 7.5% for the term loan.

Borrowings under the U.S. revolving facility and termloan bear interest at a rate per annum equal to our choice of (a) an alternatebase rate (which is equal to the higher of (i) the rate of interest announcedby Credit Suisse as its prime rate in effect and (ii) the federal funds rateplus 0.50%) or (b) the Eurodollar rate, plus an applicable margin.  Borrowings under the Canadian subfacilitybear interest at a rate per annum equal to the Canadian prime rate (which isthe higher 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 CDOR rateplus 0.50% per annum), plus an applicable margin, or with respect to banker’sacceptances or their equivalents, the discount rate (as defined in the creditagreement) plus an applicable margin.

Initially, the applicable margin with respect to therevolving credit facility was (a) 1.25% in the case of alternate base rateloans and Canadian dollar prime loans and (b) 2.25% in the case of Eurodollarrate loans and bankers’ acceptance rate loans. With respect to the term loan, the applicable margin will be (a) 1.00%in the case of alternate base rate loans and (b) 2.00% in the case ofEurodollar rate loans.  After December31, 2005, the margins applicable to the revolving credit facility and the U.S.swing line loans adjust on a sliding scale based on the total leverage ratio ofNorcross and its subsidiaries.  Inaddition, the Company 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 December 31, 2005, the commitment feerate adjusts on a sliding scale based on the total leverage ratio of Norcrossand its subsidiaries.

The U.S. revolver also provides for the issuance of letters of creditof up to $5,000 or in an amount which, when added to the aggregate outstandingamount under the U.S. and Canadian revolvers, will not exceed $50,000.  The Canadian revolver provides for theissuance of letters of credit of up to Canadian $1,000 or in an amount which,when added to the aggregate outstanding principal amount under the Canadianrevolver, will not exceed the U.S. equivalent of $25,000.  At December 31, 2006, total letters of creditoutstanding were $2,521 under the U.S. revolver and the Company had aggregateunused credit available of $47,479 under the U.S. and Canadian revolver.

On November 1, 2005, Norcross entered into the Incremental FacilityAmendment to the New Credit Facility (the “Amendment”).  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.

On June 9, 2006, Norcross entered into the Second Incremental FacilityAmendment to the New Credit Facility (the “Second Amendment”).  Under the terms of the Second Amendment,Norcross, the U.S. Borrowers and the Lenders agreed to a total incremental termcommitment from the Increasing Lenders of $15,000.  Additionally, the Second Amendment required,among other 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.

On August 13, 2003, Norcross and Norcross Capital Corp. (“Capital”)issued $152,500 of 9.875% Senior Subordinated Notes due 2011 (the “New SeniorSubordinated Notes”). 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 forthe issuance of the New Senior Subordinated Notes.  Pursuant to the terms of the SupplementalIndenture, the definition of Permitted Holders was amended and the partiesconfirmed that the Requisite Consents (as defined in the SupplementalIndenture) had been delivered in order to waive Norcross’ obligations under theChange in Control covenant of the Indenture in connection with the NorcrossTransaction.

On January 7, 2005, NSP Holdings and NSP Capital issued $100,000of 113⁄4% senior pay in kind notes due 2012 the “Senior Notes”. The proceeds wereused to: (i) make a payment in respect of preferred units of $60,000,$58,000 of which were payments in respect of accrued preferred yield and $2,000of which was the return of a portion of the original capital contribution madeby holders of NSP Holdings preferred units, (ii) make distributions inrespect of the common units 

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of certain members of management of $2,000, and(iii) pay fees and expenses. The remainder of the net proceeds were usedfor general corporate purposes, including potential acquisitions and/ordistributions 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“Second Supplemental Indenture”) among NSP Holdings, NSP Capital, the Companyand Wilmington Trust Company, as trustee (the “Trustee”) under the indenturedated as of January 7, 2005 (the “Indenture”) by and among NSP Holdings,NSP Capital 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.

The New Credit Facility and New Senior SubordinatedNotes contain certain covenants restricting the Company’s ability to: (i) incuradditional indebtedness, (ii) dispose of property or issue capital stock, (iii)declare or pay dividends or redeem or repurchase capital stock, (iv) makecapital expenditures, (v) make loans or investments, (vi) prepay, amend, orotherwise alter debt and other material agreements, (vii) transact withaffiliates, and (viii) engage in 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 priority lien on substantiallyall of the Company’s property and assets. The New Senior Subordinated Notes are general unsecured obligations ofthe Company that are subordinate to borrowings under the New Credit Facilityand European term loans.  The New CreditFacility and the New Senior Subordinated Notes are guaranteed by the Company’sdomestic subsidiaries and by Safety Products. In addition, borrowing under the Canadian revolver are guaranteed by theCanadian subsidiaries.

Revolving credit facilities in Europe permit borrowings of up to€2,717, of which €2,717 was available at December 31, 2006.

Aggregate maturities of long-term debt at December 31, 2006 are asfollows:
| 2007       |   | $       | 4,820   |   |
|------------|--------|---------|---------|--------|
| 2008       |   | 2,478   |    |
| 2009       |   | 2,434   |    |
| 2010       |   | 31,816  |    |
| 2011       |   | 231,698 |    |
| Thereafter |   | 201,714 |    |
|       |   | $       | 474,960 |   |

 

Interest paid during the year ended December 31, 2004, the period fromJanuary 1, 2005 through July 19, 2005, the period from July 20, 2005 throughDecember 31, 2005 and the year ended December 31, 2006 was approximately$20,599, $12,047, $9,406 and $26,935, respectively.

**8.  Income Taxes**

For the Predecessor, certain of the Company’s subsidiaries are subjectto foreign and U.S. federal, state and local income taxes.  The components of “Income before income taxesand minority interest,” for the C corporations subject to foreign and U.S.federal, state and local income taxes consist of U.S. income of $11,078 and$12,516 and foreign income of $6,107 and $5,244, for the year ended December31, 2004 and the period from January 1, 2005 through July 19, 2005, respectively.

For the Successor, Safety Products and its U.S. subsidiaries file aconsolidated U.S. corporate income tax return. The income and losses attributable to all other subsidiaries and theU.S. and foreign income taxes attributable to such income or losses arereported in full.  The components of “Income(loss) before income taxes and minority interest,” for the subsidiaries subjectto foreign and U.S. federal, state and local income taxes consist of U.S.(losses) income of $(5,739) and $2,889 and foreign (losses) income of $(24) and$12,207, for the period from July 20, 2005 through December 31, 2005 and yearended December 31, 2006, respectively.

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The income tax expense (benefit) on income (loss) before income taxesand minority interest consists of the following:
| ** **                        | ** ** | **Predecessor**                                    | ** ** | **Successor**                                           | ** ** |
|-----------------------------------|------------|----------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                        | ** ** | **Year Ended   December 31,  2004** | ** ** | **January 1,  2005  through  July 19,  2005** | ** ** | **July 20,  2005  through  December 31,  2005** | ** ** | **Year Ended  December 31,  2006** | ** ** |
| ** **                        | ** ** | **(dollars in thousands)**               | ** ** |
| Current:                          | ** ** | ** **                                         | ** ** | ** **                                              | ** ** | ** ** | ** ** | ** ** | ** ** |
| Federal                           |       | $                                                  | 207        |                                                    | $          | 185 |   | $ | 33 |   | $ | (93 | ) |
| State and local                   |       | 171                                                |       | 165                                                     |       | 232 |   | 1,838 |   |
| Foreign                           |       | 3,230                                              |       | 2,886                                                   |       | 1,402 |   | 5,054 |   |
| Total current  provision          |       | 3,608                                              |       | 3,236                                                   |       | 1,667 |   | 6,799 |   |
| Deferred:                         |       |                                               |       |                                                    |       |   |   |   |   |
| Federal                           |       | —                                             |       | —                                                  |       | (1,223 | ) | 723 |   |
| State and local                   |       | —                                             |       | —                                                  |       | (210 | ) | 304 |   |
| Foreign                           |       | (413                                               | )          | 383                                                     |       | (1,229 | ) | (1,617 | ) |
| Total deferred  (benefit) expense |       | (413                                               | )          | 383                                                     |       | (2,662 | ) | (590 | ) |
| Income tax expense  (benefit)     |       | $                                                  | 3,195      |                                                    | $          | 3,619 |   | $ | (995 | ) | $ | 6,209 |   |

 

The income tax expense (benefit) differs from the amount of income taxexpense (benefit) computed by applying the U.S. federal income tax rate toincome (loss) before income taxes and minority interest.  A reconciliation of the difference is asfollows:
| ** **                                                                                                   | ** ** | **Predecessor**                              | ** ** | **Successor**                                           | ** ** |
|--------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                                                                                                   | ** ** | **Year Ended  December 31,  2004** | ** ** | **January 1,  2005  through  July 19,  2005** | ** ** | **July 20,  2005  through  December 31,  2005** | ** ** | **Year Ended  December 31,  2006** | ** ** |
| ** **                                                                                                   | ** ** | **(dollars in thousands)**         | ** ** |
| Income tax  expense (benefit) at statutory federal tax rate                                                  |       | $                                            | 4,851      |                                                    | $          | (3,791 | ) | $ | (2,017 | ) | $ | 5,283 |   |
| Adjustment for  limited liability company income included in the return of the unit holders  of NSP Holdings |       | 1,154                                        |       | 9,852                                                   |       | — |   | — |   |
| C corporation  income tax expense at statutory federal tax rate                                              |       | 6,005                                        |       | 6,061                                                   |       | (2,017 | ) | 5,283 |   |
| Increase  (decrease) resulting from:                                                                         |       |                                         |       |                                                    |       |   |   |   |   |
| State and local taxes, net of federal benefit                                                                |       | 110                                          |       | 33                                                      |       | (60 | ) | 1,179 |   |
| Foreign subsidiaries’ tax rate differences                                                              |       | (353                                         | )          | 1,219                                                   |       | 154 |   | (168 | ) |
| Change in valuation allowance—U.S.                                                                      |       | (3,711                                       | )          | (4,407                                                  | )          | — |   | — |   |
| Change in valuation allowance—Foreign                                                                   |       | 415                                          |       | —                                                  |       | (6 | ) | — |   |
| Change in deferred tax rate                                                                                  |       | —                                       |       | —                                                  |       | — |   | (1,360 | ) |
| Nondeductible depreciation, amortization and other  expenses                                                 |       | (149                                         | )          | 46                                                      |       | 68 |   | — |   |
| Other                                                                                                        |       | 878                                          |       | 667                                                     |       | 866 |   | 1,275 |   |
| Income tax expense  (benefit)                                                                                |       | $                                            | 3,195      |                                                    | $          | 3,619 |   | $ | (995 | ) | $ | 6,209 |   |

 

59

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The tax effect of temporary differences that gave rise to deferred taxassets and liabilities consist of the following:
| ** **                                           | ** ** | **December 31,** | ** ** | **December 31,** | ** ** |
|------------------------------------------------------|------------|-----------------------|------------|-----------------------|------------|
| ** **                                           | ** ** | **2005**              | ** ** | **2006**              | ** ** |
| Deferred tax  assets:                                |       |                  |       |                  |       |
| United States net operating loss carryforwards       |       | $                     | 6,065      |                  | $          | 7,911 |   |
| Inventories—Principally obsolescence reserves   |       | 2,607                 |       | 3,000                 |       |
| Intangibles—Principally covenant not to compete |       | 3,866                 |       | 1,086                 |       |
| Pensions and deferred compensation                   |       | 12,439                |       | 5,232                 |       |
| Allowance for doubtful accounts                      |       | 244                   |       | 279                   |       |
| Other—Principally accruals                      |       | 5,032                 |       | 7,066                 |       |
| Total deferred  tax asset                            |       | 30,253                |       | 24,574                |       |
| Deferred tax  liabilities:                           |       |                  |       |                  |       |
| Property, plant, and equipment                       |       | 13,682                |       | 11,712                |       |
| LIFO reserve                                         |       | 2,426                 |       | 2,824                 |       |
| Intangible assets                                    |       | 59,136                |       | 62,203                |       |
| Other—Principally inventory step-up             |       | 2,047                 |       | 1,152                 |       |
| Total deferred  tax liabilities                      |       | 77,291                |       | 77,891                |       |
| Net deferred tax  liability                          |       | $                     | (47,038    | )                     | $          | (53,317 | ) |

 

The U.S. net operating losses expire beginning in 2018.  In assessing the realizability of deferredtax assets, management considers whether it is more likely than not that someportion or all of the deferred tax assets will not be realized.  The ultimate realization of deferred taxassets is dependent upon the generation of future taxable income during theperiods in which those temporary differences become deductible.  Management considers the scheduled reversalof deferred tax liabilities, projected future taxable income, and tax planningstrategies in making this assessment. For the years ended December 31, 2004, the period from January 1, 2005through July 19, 2005, the Predecessor began to generate taxable income andutilized a portion of its net operating loss carryforward; which resulted in adecrease in the valuation allowance.  Forthe Successor, no valuation reserve is recorded due primarily to twofactors:  1) the change in the Company’stax structure which allows all U.S. subsidiaries to file a consolidated federalreturn and 2) the creation of significant deferred tax liabilities in purchaseaccounting which can be offset by the Company’s deferred tax assets, allowingfull recognition of the assets.

Undistributed earnings of the Company’s foreign subsidiaries amountedto approximately $24,572 at December 31, 2006. These earnings are considered to be indefinitely reinvested and,accordingly, no provision for U.S. federal and state income taxes has beenprovided thereon.  Determination of theamount of unrecognized deferred U.S. income tax liability is not practicablebecause of the complexities associated with its hypothetical calculation.

The income tax expense (benefit) for the Predecessor differs from theamount of income tax expense computed by applying the U.S. federal income taxrate to income (loss) before income taxes and minority interest primarily dueto: 1) the tax structure of certain U.S. subsidiaries which requires incometaxes to be distributed to and paid by the unitholders, 2) net operating losscarryforwards in the United States and 3) the settlement of income tax auditsin Canada and the Netherlands.

The income tax expense (benefit) for the Successor differs from theamount of income tax expense computed by applying the U.S. federal income taxrate to income (loss) before income taxes and minority interest primarily dueto state income taxes and changes in enacted future tax rates in certainforeign jurisdictions which impacted our deferred tax assets and liabilities.

Income taxes paid during the year ended December 31, 2004, the periodfrom January 1, 2005 through July 19, 2005, the period from July 20, 2005through December 31, 2005 and the year ended December 31, 2006 were $1,327,$2,548, $3,895 and $5,677, respectively.

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**9.  EmployeeBenefit Plans**

The Company sponsors a tax-qualified, defined-benefit pension plancovering the majority of all U.S.-based employees.  Effective December 31, 2006, the Companyfroze the plan and therefore, employees will no longer accrue benefits underthe plan.  Through December 31, 2006, thepension plan’s benefits were based on years of service, employment with theCompany, retirement date, and compensation or stated amounts for each year of service.  The Company’s funding policy is to annuallycontribute amounts sufficient to meet the minimum funding requirements underthe Employee Retirement Income Security Act of 1974.

Additionally, the Company has a nonqualified defined-benefit pensionplans covering employees who were highly compensated.   Effective December 31, 2006, the Companyfroze this plan and therefore, employees will no longer accrue benefits underthe plans.

The majority of the Company’s U.S.-based employees are covered bypostretirement health and life insurance benefit plans. Effective December 31,2006, participation in the plan was limited to employees over the age of 55with 10 years of service.  The expectedcost of these benefits is recognized during the years that employees renderservices.  Retiree contributions arerequired depending on the year of retirement and the number of years of serviceat the time of retirement.

As a result of the amendments to the tax-qualified and nonqualifiedpension plans and postretirement health and life insurance benefit plans as discussedabove, the Company recorded a non-cash curtailment gain of $6,751 in 2006,which is reflected in general and administrative expenses.

61

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The following table sets forth the details of the funded status of thepension and post-retirement plans, the amounts recognized in the consolidatedstatements of financial position, the components of net periodic benefit cost,and the weighted-average assumptions used in determining these amounts:
| ** **                                                               | ** ** | **Predecessor**                                                       | ** ** | **Successor**                                                     | ** ** |
|--------------------------------------------------------------------------|------------|-----------------------------------------------------------------------|------------|-------------------------------------------------------------------|------------|
| ** **                                                               | ** ** | **January 1, 2005   through  July 19, 2005** | ** ** | **July 20, 2005  through  December 31, 2005** | ** ** | **Year ended  December 31, 2006** | ** ** |
| ** **                                                               | ** ** | **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                                |       | $                                                                     | 64,694     |                                                              | $          | 1,440 |   | $ | 70,567 |   | $ | 1,483 |   | $ | 73,309 |   | $ | 1,404 |   |
| Fibre-Metal opening obligation                                           |       | —                                                                |       | —                                                            |       | 3,085 |   | — |   | — |   | — |   |
| Service cost                                                             |       | 903                                                                   |       | 14                                                                |       | 855 |   | 12 |   | 2,170 |   | 25 |   |
| Interest cost                                                            |       | 1,960                                                                 |       | 43                                                                |       | 1,692 |   | 34 |   | 4,018 |   | 72 |   |
| Benefits paid                                                            |       | (1,698                                                                | )          | (250                                                              | )          | (897 | ) | (162 | ) | (2,950 | ) | (192 | ) |
| Actuarial loss (gain)                                                    |       | 4,708                                                                 |       | 237                                                               |       | (1,993 | ) | 37 |   | (2,413 | ) | (37 | ) |
| Curtailment gain                                                         |       | —                                                                |       | —                                                            |       | — |   | — |   | (6,626 | ) | (125 | ) |
| Benefit  obligation at end of period                                     |       | $                                                                     | 70,567     |                                                              | $          | 1,484 |   | $ | 73,309 |   | $ | 1,404 |   | $ | 67,508 |   | $ | 1,147 |   |
| Change in plan  assets:                                                  |       |                                                                  |       |                                                              |       |   |   |   |   |   |   |   |   |
| Fair value of plan assets at beginning of period                         |       | $                                                                     | 37,854     |                                                              | $          | — |   | $ | 40,083 |   | $ | — |   | $ | 44,870 |   | $ | — |   |
| Fibre-Metal opening plan assets                                          |       | —                                                                |       | —                                                            |       | 3,053 |   | — |   | — |   | — |   |
| Actual return on plan assets                                             |       | 1,052                                                                 |       | —                                                            |       | 863 |   | — |   | 5,709 |   | — |   |
| Employer contribution                                                    |       | 2,876                                                                 |       | 250                                                               |       | 1,768 |   | 162 |   | 5,234 |   | 192 |   |
| Benefits paid                                                            |       | (1,698                                                                | )          | (250                                                              | )          | (897 | ) | (162 | ) | (2,950 | ) | (192 | ) |
| Fair value of  plan assets at end of period                              |       | $                                                                     | 40,084     |                                                              | $          | — |   | $ | 44,870 |   | $ | — |   | $ | 52,863 |   | $ | — |   |
| Reconciliation  of amount recognized in the consolidated balance sheets: |       |                                                                  |       |                                                              |       |   |   |   |   |   |   |   |   |
| Accumulated benefit obligation                                           |       | $                                                                     | (63,524    | )                                                                 | $          | (1,484 | ) | $ | (66,561 | ) | $ | (1,404 | ) | $ | (67,508 | ) | $ | (1,147 | ) |
| Effect of salary projection                                              |       | (7,043                                                                | )          | —                                                            |       | (6,748 | ) | — |   | — |   | — |   |
| Projected benefit obligation                                             |       | (70,567                                                               | )          | (1,484                                                            | )          | (73,309 | ) | (1,404 | ) | (67,508 | ) | (1,147 | ) |
| Market value of assets                                                   |       | 40,084                                                                |       | —                                                            |       | 44,870 |   | — |   | 52,863 |   | — |   |
| Funded status                                                            |       | (30,483                                                               | )          | (1,484                                                            | )          | (28,439 | ) | (1,404 | ) | (14,645 | ) | (1,147 | ) |
| Unrecognized actuarial loss (gain)                                       |       | 21,538                                                                |       | 1,331                                                             |       | (1,223 | ) | 37 |   | (5,672 | ) | — |   |
| Unrecognized prior service cost                                          |       | 36                                                                    |       | 109                                                               |       | — |   | — |   | — |   | — |   |
| Amount  recognized at end of period                                      |       | $                                                                     | (8,909     | )                                                                 | $          | (44 | ) | $ | (29,662 | ) | $ | (1,367 | ) | $ | (20,317 | ) | $ | (1,147 | ) |
| Net amount  recognized in the consolidated balance sheets:               |       |                                                                  |       |                                                              |       |   |   |   |   |   |   |   |   |
| Accrued benefit liability                                                |       | $                                                                     | (23,440    | )                                                                 | $          | (44 | ) | $ | (29,662 | ) | $ | (1,367 | ) | $ | (20,317 | ) | $ | (1,147 | ) |
| Intangible asset                                                         |       | 36                                                                    |       | —                                                            |       | — |   | — |   | — |   | — |   |
| Accumulated other comprehensive loss (income)                            |       | 14,495                                                                |       | —                                                            |       | — |   | — |   | (5,672 | ) | — |   |
| Net amount recognized  at end of period                                  |       | $                                                                     | (8,909     | )                                                                 | $          | (44 | ) | $ | (29,662 | ) | $ | (1,367 | ) | $ | (14,645 | ) | $ | (1,147 | ) |

 

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| ** **                                                                         | ** ** | **Predecessor**                                                       | ** ** | **Successor**                                                     | ** ** |
|------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------|------------|-------------------------------------------------------------------|------------|
| ** **                                                                         | ** ** | **January 1, 2005   through  July 19, 2005** | ** ** | **July 20, 2005  through  December 31, 2005** | ** ** | **Year ended  December 31, 2006** | ** ** |
| ** **                                                                         | ** ** | **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                                         |       | $                                                                     | 10,171     |                                                              | $          | 180 |   | $ | 30,483 |   | $ | 1,483 |   | $ | 29,662 |   | $ | 1,367 |   |
| Fibre-Metal  opening accrued benefit cost                                          |       | —                                                                |       | —                                                            |       | 32 |   | — |   | — |   | — |   |
| Net periodic  benefit cost                                                         |       | 1,614                                                                 |       | 114                                                               |       | 914 |   | 46 |   | 2,515 |   | 97 |   |
| Contributions                                                                      |       | (2,876                                                                | )          | (250                                                              | )          | (1,767 | ) | (162 | ) | (5,234 | ) | (192 | ) |
| Curtailment gain                                                                   |       | —                                                                |       | —                                                            |       | — |   | — |   | (6,626 | ) | (125 | ) |
| Accrued benefit  cost at December 31                                               |       | $                                                                     | 8,909      |                                                              | $          | 44 |   | $ | 29,662 |   | $ | 1,367 |   | $ | 20,317 |   | $ | 1,147 |   |
|  Weighted average assumptions used to  determine year end benefit obligation: |       |                                                                  |       |                                                              |       |   |   |   |   |   |   |   |   |
| Discount rate                                                                      |       | 5.25                                                                  | %          | 5.25                                                              | %          | 5.50 | % | 5.50 | % | 5.90 | % | 5.90 | % |
| Rate of compensation  increase                                                     |       | 4.00                                                                  | %          | —                                                            |       | 4.00 | % | — |   | 4.00 | % | — |   |

 
| ** **                                                                                      | ** ** | **Predecessor**                                  | ** ** | **Successor**                                                   | ** ** |
|-------------------------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|-----------------------------------------------------------------|------------|
| ** **                                                                                      | ** ** | **Year ended  December 31, 2004** | ** ** | **January 1, 2005  through  July 19, 2005** | ** ** | **July 20, 2005  through  December 31, 2005** | ** ** | **Year ended  December 31, 2006** | ** ** |
| ** **                                                                                      | ** ** | **Pension  Benefits**                            | ** ** | **Post-  Retirement  Benefits**                                 | ** ** | **Pension  Benefits** | ** ** | **Post-  Retirement  Benefits** | ** ** | **Pension  Benefits** | ** ** | **Post-  Retirement  Benefits** | ** ** | **Pension  Benefits** | ** ** | **Post-  Retirement  Benefits** | ** ** |
| Components of net  benefit cost:                                                                |       |                                             |       |                                                            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Service cost                                                                                    |       | $                                                | 1,566      |                                                            | $          | 26 |   | $ | 903 |   | $ | 14 |   | $ | 855 |   | $ | 12 |   | $ | 2,170 |   | $ | 25 |   |
| Interest cost                                                                                   |       | 3,511                                            |       | 82                                                              |       | 1,961 |   | 43 |   | 1,692 |   | 34 |   | 4,018 |   | 72 |   |
| Expected return  on plan assets                                                                 |       | (2,683                                           | )          | —                                                          |       | (1,780 | ) | — |   | (1,633 | ) | — |   | (3,673 | ) | — |   |
| Amortization of  prior service cost                                                             |       | 5                                                |       | 18                                                              |       | 3 |   | 9 |   | — |   | — |   | — |   | — |   |
| Amortization of  actuarial loss                                                                 |       | 886                                              |       | 85                                                              |       | 527 |   | 48 |   | — |   | — |   | — |   | — |   |
| Net periodic  expense                                                                           |       | 3,285                                            |       | 211                                                             |       | 1,614 |   | 114 |   | 914 |   | 46 |   | 2,515 |   | 97 |   |
| Curtailment gain                                                                                |       | —                                           |       | —                                                          |       | — |   | — |   | — |   | — |   | (6,626 | ) | (125 | ) |
| Net expense (income)                                                                            |       | $                                                | 3,285      |                                                            | $          | 211 |   | $ | 1,614 |   | $ | 114 |   | $ | 914 |   | $ | 46 |   | $ | (4,111 | ) | $ | (28 | ) |
|  Weighted-average assumptions used to  determine net periodic benefit cost are as follows: |       |                                             |       |                                                            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Discount rate                                                                                   |       | 6.00                                             | %          | 6.00                                                            | %          | 5.75 | % | 5.75 | % | 5.25 | % | 5.25 | % | 5.50 | % | 5.50 | % |
| Expected return  on plan assets                                                                 |       | 8.50                                             | %          | —                                                          |       | 8.50 | % | — |   | 8.50 | % | — |   | 8.00 | % | — |   |
| Rate of compensation  increase                                                                  |       | 4.00                                             | %          | —                                                          |       | 4.00 | % | — |   | 4.00 | % | — |   | 4.00 | % | — |   |

 

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The long-term rateof return on plan assets assumption is reviewed annually.  An investment model is used to determine anexpected rate of return based on current investment allocation.  The investment model considers pastperformance and forward looking assumptions for each asset class based oncurrent market indices, key economic indicators and assumed long-term rate ofinflation.  The long-term rate of returnassumption 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 diversify the pension assetssubject to a specified asset allocation policy. The Company rebalances the asset classes to stay within an acceptablerange around the targeted allocation. The philosophy recognizes that the primary objective for the managementof the assets is to maximize return commensurate with the level of riskundertaken.  With the understanding thatinvestment returns are largely uncertain from year to year, the basic returnobjective is to be achieved over an averaging period no greater than three tofive years in duration.  The assets areinvested in both indexed funds and actively managed funds, depending on theasset class.

The Company’s plan asset allocation at December 31, 2005 and 2006, andtarget allocation for 2007, by asset category are as follows:
| ** **         | ** ** | ** **            | ** ** | ** **                      | ** ** | ** **            | ** ** | **Target**                      | ** ** |
|--------------------|------------|-----------------------|------------|---------------------------------|------------|-----------------------|------------|---------------------------------|------------|
| ** **         | ** ** | **December 31,** | ** ** | **Allocation**                  | ** ** |
| ** **         | ** ** | **2005**              | ** ** | **2006**                        | ** ** | **2007**              | ** ** |
| ** **         | ** ** | **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 | % | — | % |

 

Future expected benefit payments as of December 31,2006, is as follows:
| 2007       |   | $      | 3,265  |   |
|------------|--------|--------|--------|--------|
| 2008       |   | 3,455  |   |
| 2009       |   | 3,646  |   |
| 2010       |   | 3,867  |   |
| 2011       |   | 4,172  |   |
| Thereafter |   | 24,624 |   |
|       |   | $      | 43,029 |   |

 

The Company expects 2007 contributions for pension and post-retirementbenefits to be approximately $4,076.  TheCompany does not expect any amounts included in accumulated comprehensiveincome as of December 31, 2006 to be recognized as expense for the year endedDecember 31, 2007 due to the pension freeze discussed above.

The Company also sponsors defined-contribution plans coveringsubstantially all of its U.S.-based employees. The Company’s contribution to these plans ranges from 0% to 4% of aparticipant’s salary.  In addition, theCompany may elect to make discretionary contributions to some of theplans.  The amount expensed for variousmatch provisions of the plans was $907, $558, $406, and $1,104 for the yearended December 31, 2004, the period from January 1, 2005 through July 19, 2005,the period from July 20, 2005 through December 31, 2005, and the year endedDecember 31, 2006, respectively.

**10.  LeaseCommitments**

The Company leases certain assets whose terms and conditions qualifythe obligations for treatment as capital leases.

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The Company also leases certain facilities under various noncancelableoperating lease agreements.  Futureminimum lease payments under capital and noncancelable operating leases as ofDecember 31, 2006, are as follows:
| ** **                                                        | ** ** | **Capital Leases** | ** ** | **Operating  Leases** | ** ** |
|-------------------------------------------------------------------|------------|-------------------------|------------|-----------------------|------------|
| 2007                                                              |       | $                       | 83         |                  | $          | 7,065 |   |
| 2008                                                              |       | 83                      |       | 5,977                 |       |
| 2009                                                              |       | 69                      |       | 5,119                 |       |
| 2010                                                              |       | —                  |       | 4,288                 |       |
| 2011                                                              |       | —                  |       | 2,754                 |       |
| Thereafter                                                        |       | —                  |       | 10,720                |       |
| Total minimum  lease payments                                     |       | 235                     |       | $                     | 35,923     |   |
| Less: Amount  representing interest                               |       | 30                      | ** ** | ** **            | ** ** |
| Present value of  net minimum capital lease payments              |       | 205                     | ** ** | ** **            | ** ** |
| Less: Current  portion of obligations under capital leases        |       | 68                      | ** ** | ** **            | ** ** |
| Obligations under  capital leases, excluding current installments |       | $                       | 137        | ** **            | ** ** | ** ** |

 

Rent expense was $5,513, $3,488, $2,676 and $7,314 for the year ended December31, 2004, the period from January 1, 2005 through July 19, 2005, the periodfrom July 20, 2005 through December 31, 2005, and the year ended December 31,2006, respectively.

**11.  LegalProceedings**

The Company is subject to various claims arising in the ordinary courseof business.  Most of these lawsuits andclaims are product liability matters that arise out of the use of respiratoryproduct lines manufactured by the Company’s North Safety Productssubsidiary.  As of December 31, 2006, theCompany’s North Safety Products subsidiary, along with its predecessors and/orthe former owners of such business were named as defendants in approximately632 lawsuits involving respirators allegedly manufactured and sold by it or itspredecessors. The Company is also monitoring an additional 12 lawsuits in whichit feels that North Safety Products, its predecessors and/or the former ownersof such businesses may be named as defendants. Collectively, these 644 lawsuitsrepresent a total of approximately 8,746 plaintiffs. Approximately 85% of theselawsuits involve plaintiffs alleging injury resulting from exposure to silicadust, with the remainder alleging injury resulting from exposure to other dustparticles, including asbestos. These lawsuits typically allege that thepurposed injuries resulted in part from respirators that were negligentlydesigned or manufactured. Invensys plc (“Invensys”), formerly Siebe plc, iscontractually obligated to indemnify the Company for any losses, includingcosts of defending claims, resulting from respiratory products manufactured orsold prior to the acquisition of North Safety Products in October 1998.

In addition, the Company’s 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., anewly formed wholly-owned subsidiary of Norton Company, acquired the assets of Norton’sSafety Products Division and the stock of this company was in turn acquired bySiebe Gorman Holdings PLC. Under the terms of the agreement, Siebe Norton, Inc.did not assume any liability for claims relating to products shipped by NortonCompany prior to the closing date. Moreover, Norton Company covenanted in theagreement to indemnify Siebe Norton, Inc. and its successors and assignsagainst any liability resulting from or arising out of any state of facts,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, Inc., whose name was subsequently changed to Siebe North Inc., was subsequentlyacquired by the Company as part of the 1998 acquisition of the North SafetyProducts business from Invensys.

Despite these indemnification arrangements, the Company 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 the Company and the Company could potentially beliable 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.  The Company believes that Invensys has theability to pay these claims based on its current financial position, aspublicly disclosed by Invensys.

Effective July 1, 2006, the Company entered into a joint defenseagreement through December 31, 2008 with the former owners of the North SafetyProducts business (the “Joint Defense Agreement” or “JDA”).  Under the terms of the Joint DefenseAgreement, the Company agreed to pay a weighted average percentage of defensecosts (including legal fees, expert witnesses and out of pocket expenses)associated with defending the Company

65

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and the prior owners of the North Safety Productsbusiness subject to a cap of $525, $960 and $1,000 for the period from July 1,2006 through December 31, 2006, the year ended December 31, 2007 and the yearended December 31, 2008, respectively. The cap excludes settlement costs and other costs incurred exclusivelyby the Company (including trial costs and special requests of counsel), whichit be required to pay under the JDA. Separately, the Company agreed to pay Invensys $200 related to settledcases through June 30, 2006 in which Invensys claimed that the period ofalleged exposure included periods after October 1998.

Although the JDAexpires on December 31, 2008, the Company expects to incur additional defenseand settlement costs beyond this date. The Company will consider itsalternatives for defending the claims as the JDA nears expiration and determinethe appropriate course of action, which would include an extension of the JDA.

Based upon information provided to the Company by Invensys, the Companybelieves activity related to these lawsuits was as follows for the periodsindicated:
| ** **            | ** ** | **2004**       | ** ** | **2005**  | ** ** | **2006**       | ** ** |
|-----------------------|------------|----------------|------------|-----------|------------|----------------|------------|
| ** **            | ** ** | **Plaintiffs** | ** ** | **Cases** | ** ** | **Plaintiffs** | ** ** | **Cases** | ** ** | **Plaintiffs** | ** ** | **Cases** | ** ** |
| Beginning  lawsuits   |       | 24,002         |       | 680       |       | 25,944         |       | 858 |   | 18,459 |   | 1,148 |   |
| New lawsuits          |       | 4,658          |       | 372       |       | 2,226          |       | 587 |   | 653 |   | 498 |   |
| Settlements           |       | (546           | )          | (46       | )          | 24             |       | (32 | ) | (5 | ) | (5 | ) |
| Dismissals and  other |       | (2,170         | )          | (148      | )          | (9,735         | )          | (265 | ) | (10,361 | ) | (997 | ) |
| Ending lawsuits       |       | 25,944         |       | 858       |       | 18,459         |       | 1,148 |   | 8,746 |   | 644 |   |

 

Both the rate of new filings and the number ofexisting claimants have declined dramatically since 2003 as courts andlegislatures have tightened the rules on when and where the silica claims canbe pursued in an effort to reduce the large number of unmeritoriousclaims.  The new rules make bringingsilica cases on a mass level much less attractive to the plaintiffs’ bar.  Plaintiffs’ attorneys in many jurisdictionscan no longer (1) find a worker with some stated exposure to silica, (2) take aX-ray of his chest, (3) have it interpreted as demonstrating lung shadows by aradiologist, (4) then file a single lawsuit in a dangerous venue with hundredsof other plaintiffs against hundreds of defendants with the pleading containinglittle more than the parties’ names and some standard pleading language. Morespecifically, the legislatures of at least seven states — including formerhotbeds of silica litigation such as Texas, Florida and Ohio — passedimpairment-criteria legislation that redefined injury. These acts forceplaintiffs to prove impairment as a result of their exposure to qualify forjudicial treatment.  The same legislationrequires that each silica claimant be tried individually, and not in the multipleplaintiff format in which the potential for large verdicts resulted fromincreased plaintiffs and where a few meritorious claims could increase thevalue of unmeritorious ones. Further tort reform in Texas created a state-widemulti-district litigation (“MDL”) wherein one judge presides over the pretrialof all Texas-silica cases. In Mississippi, the Supreme Court changed the venuerules making it much more difficult to file out-of-state plaintiffs there. TheMississippi court also changed the pleading requirements making the plaintiffs’attorneys include plaintiff-specific allegations against each defendant sued,instead of the vague allegations against hundreds of defendants.

Plaintiffs haveasserted specific dollar claims in approximately 28% of the approximately 632cases pending as of December 31, 2006 in which North Safety Products, itspredecessors and/or the former owners of such businesses have been named asdefendants. A majority of jurisdictions prohibit specifying damages in tortcases such as these, and most of the remaining jurisdictions do not requiresuch specification. In those cases in which plaintiffs choose to assertspecific dollar amounts in their complaints, brought in states that permit suchpleading, the amounts claimed are typically not meaningful as an indicator of acompany’s potential liability. This is because (1) the amounts claimedtypically bear no relation to the level of the plaintiff’s injury, (2) thecomplaints typically assert claims against numerous defendants, and (3) manycases are brought on behalf of plaintiffs who have not suffered any medicalinjury, and ultimately are resolved without any payment or payment of a smallfraction of the damages initially claimed. Of the 632 complaints maintained inthe Company’s records, 454 do not specify the amount of damages sought, 25generally allege damages in excess of $50, one alleges compensatory damages inexcess of $50 and an unspecified amount of punitive damages, 81 allegecompensatory damages and punitive damages, each in excess of $25, two generallyallege damages in excess of $100, four allege compensatory damages and punitivedamages, each in excess of $50, 20 generally allege damages in excess of$15,000, one generally alleges damages of $23,000, one alleges compensatorydamages and punitive damages, each in excess of $10, four allege generaldamages of $18,000 and punitive damages of $10,000, two allege general damagesof $13,000 and punitive damages of $10,000, one alleges compensatory andpunitive damages, each in excess of $15, one alleges punitive damages in

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excess of $25, onealleges punitive damages in excess of $50, nine generally allege damages inexcess of $15, 12 generally allege damages in excess of $25, one allegescompensatory damages of $18,000 and punitive damages of $10,000, one allegespunitive damages of $13,500 and compensatory damages of $10,000, one allegespunitive damages of $13,000 and compensatory damages of $10,000, seven allegecompensatory damages of $13,000 and punitive damages of $10,000, one allegescompensatory and punitive damages, each of $15 and two allege compensatory andpunitive damages, each in excess of $15,000. The Company currently does nothave access to the complaints with respect to the previously mentionedadditional 12 monitored cases, and therefore it does not know whether thesecases allege specific damages, or if so, the amount of such damages, but is inthe process of seeking to obtain such information. Due to the reasons notedabove and to the indemnification arrangements benefiting the Company, it doesnot believe that the damage amounts specified in these complaints are ameaningful factor in any assessment of the Company’s potential liability.

The Predecessor recorded a $1,250 reserve forrespiratory claims during the year ended December 31, 2004.  The Predecessor reevaluated this reserve inits first and second quarter 2005 financial statements and concluded the $1,250recorded reserve continued to be its best estimate of the probable loss for therespiratory contingency.

In the July 2005 acquisition purchase accounting (asfirst reported in the Form 10-Q for the third quarter of 2005), the Companycarried forward the $1,250 liability for this pre-acquisition contingency.  Although management concluded that it waslikely their estimate of this pre-acquisition contingent liability would beincreased during the purchase accounting allocation period as the new ownershipfinalized their strategy for addressing the liability and gathered information(primarily related to case information and the working relationship among theprior owners of North), it was unlikely the amount would be lower than theamount recorded by the Predecessor. Thus, the $1,250 amount represented the low end of a probable lossrange, subject to further adjustment during the allocation period.

In December 2005, the Company began negotiations withthe former owners of the North business to enter into the JDA. The Companydetermined that the liability should be increased to $5,000 as of December 31,2005 as part of the purchase price allocation process.  The $5,000 reserve as of December 31, 2005represented management’s best estimate of the liability based on the currentstatus of negotiations.  As of December31, 2005, the estimate was still preliminary as the Company was awaitingfinalization of the JDA negotiation process.

As discussed above, the Company entered into the JDAeffective July 1, 2006 and completed its evaluation of the reserve.  After all information was obtained, theCompany adjusted the reserve to $7,000 as part of the purchase price allocationprocess during the permitted allocation period. As of December 31, 2006, the reserve balance is $6.8 million.

The final estimated amount recorded in purchaseaccounting related entirely to losses incurred before the July 2005 acquisition.The Company’s final estimate of the probable loss for the respiratorycontingency incorporated the new ownerships’ decision to enter into theJDA.  The decision represented asignificantly different plan as new ownership agreed to assume losses related toclaims with unknown years of exposure. In addition, the decision to enter the JDA was being considered from thedate of the acquisition and the ultimate decision was made during theallocation period.

The Company believes that this reserve represents areasonable estimate of its probable and estimable liabilities for productclaims alleging injury resulting from exposure to silica dust and otherparticles, including asbestos. The Company believes that a five-year projectionof claims and related defense costs is the most reasonable approach. Thisreserve will be re-evaluated periodically and additional charges or creditswill be recorded to operating expenses as additional information becomesavailable.

It is possible that the Company may incur liabilities in an amount inexcess of amounts currently reserved. However, taking into account currentlyavailable information, historical experience, and the Company’s indemnificationfrom Invensys, but recognizing the inherent uncertainties in the projection ofany future events, the Company believes that these suits or claims should notresult in final judgments or settlements in excess of its reserve.

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In connection with an ongoing dispute, one of the Company’s competitorshas filed a complaint against it alleging that the Company has made a series ofmisrepresentations concerning this competitor and its products. The complaintseeks a retraction of all statements alleged to have been made by the Companyand unspecified damages, including legal fees. A bench trial on the issue ofliability was held in February 2006 and the matter is now awaiting ruling bythe court. The Company intends to vigorously defend against these claims.

The Company is not otherwise involved in any material lawsuits. TheCompany historically has not been required to pay any material liabilityclaims. The Company maintains insurance against product liability claims (withthe exception of asbestosis and silicosis cases, for which coverage is notcommercially available), but it is possible that its insurance coverage willnot continue to be available on terms acceptable to the Company or that suchcoverage will not be adequate for liabilities actually incurred.

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

In conjunction with the Fibre-Metal Transaction, the Company initiateda restructuring plan to close the Fibre-Metal manufacturing facility located inConcordville, Pennsylvania and move production to its Cranston, Rhode Islandand Mexicali, Mexico facilities.  Inaddition, the Company plans to close certain Fibre-Metal distribution centersand integrate Fibre-Metal distribution into its existing distributionfacilities.  The Company initiated thisplan in order to increase profitability through utilizing excess capacity atits existing plants and moving manufacturing to locations with favorable laborcosts.  The Company expects to completethe plan in the second quarter of 2007. As of the date of the Fibre-Metal Transaction, the Company recorded anaccrual for costs associated with the plan of $1,716, comprised of $1,383 inseverance costs and $333 in facility closure and other exit costs.  The restructuring liability is classifiedwithin the accrued expenses caption on the consolidated balance sheet.

A rollforward of the restructuring liability is asfollows:
| ** **                              | ** ** | **Severance  and  severance  related  costs** | ** ** | **Facility  closure and  other exit  costs** | ** ** | **Total** | ** ** |
|-----------------------------------------|------------|-----------------------------------------------|------------|--------------------------------------------------------|------------|-----------|------------|
| Balance at  November 2, 2005            |       | $                                             | 1,383      |                                                   | $          | 333       |       | $ | 1,716 |   |
| Payments                                |       | —                                        |       | —                                                 |       | —    |       |
| Balance as of  December 31, 2005        |       | 1,383                                         |       | 333                                                    |       | 1,716     |       |
| Payments                                |       | (345                                          | )          | (163                                                   | )          | (508      | )          |
| Effect of  foreign currency translation |       | 1                                             |       | 3                                                      |       | 4         |       |
| Balance as of December  31, 2006        |       | $                                             | 1,039      |                                                   | $          | 173       |       | $ | 1,212 |   |

 

In conjunctionwith the White Rubber Transaction, the Company initiated a restructuring planto move certain production and distribution functions located in Ohio andWashington to its Charleston, South Carolina, Skokie, Illinois and Chicago,Illinois facilities.  The Companyinitiated this plan in order to increase profitability by utilizing excess capacityand consolidating distribution functions. The Company expects to complete the plan in the second quarter of2007.  As of the date of the White RubberTransaction, the Company recorded an accrual for costs associated with the planof $1,018, comprised of severance and severance related costs.   Since the White Rubber Transaction therehave been $177 of payments recorded against the liability.  The restructuring liability is classifiedwithin the accrued expenses caption on the consolidated balance sheet.

The Company alsorecorded $1,539 of restructuring and merger-related charges related to plantrelocations and acquisition integration activities during the year endedDecember 31, 2006.

**13.  Related Party Transactions**

The Company leases a facility in Dayton, Ohio fromAmerican Firefighters Cooperative, Inc., a corporation controlled by William L.Grilliot, President—Fire Service.  Theinitial term of the lease ended on February 28, 2005, and was extended throughApril 30, 2009.  The base rent is $348per year, payable in monthly installments. In addition, the Company must also pay American FirefightersCooperative, Inc. all general and special assessments of every kind, asadditional rent during the term of the lease. The rent paid was $366, $218, $155 and $382 for the year ended December31, 2004, the period from January 1, 2005 through July 19, 2005, the periodfrom July 20, 2005 through December 31, 2005 and the year ended December 31,2006, respectively.

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The Company leases afacility in Ohatchee,Alabama from WKDG, Properties, LLC, a limited liability companycontrolled by Ernest Paffumi, our Vice President and General Manager-AmericanFirewear and Robert Morgan, our Vice President of Production andPurchasing-American Firewear.  The leasebegan February 2, 2006 and has a six year term with the option to renew thelease for two periods of three years. The base rent is $146 per year, payable in monthly installments.  In addition, the Company must also pay WKDG, Properties,LLC the actual amount of all real estate taxes and operating expenses of everykind, as additional rent during the term of the lease.  The rent paid for the year ended December 31,2006 was $134.

**14.  Segment Data**

The Company has three reporting segments (each of which are operatingsegments):  general safety and preparedness,fire service, and electrical safety. General safety and preparedness offers products to a wide variety ofindustries, including manufacturing, agriculture, automotive, construction,food processing and pharmaceutical industries and the military, under the *North*, *Ranger, Servus, KCL, Fibre-Metal andNEOS **brand names*.  The product offering includes respiratoryprotection, protective footwear, hand protection, eye, head and faceprotection, first aid, hearing protection and fall protection.  The Company sells its general safety andpreparedness products primarily through industrial distributors.  Fire service offers personal protectionequipment for the fire service market, providing firefighters head-to-toe protection.  The product offering includes bunker gear,fireboots, helmets, gloves and other accessories.  The Company markets its products under the Total Fire Group umbrella, using thebrand names of *Morning Pride*, *Ranger*, *Servus,American Firewear* and *Pro-Warrington*.  The Company sells its fire service productsprimarily through specialized fire service distributors.  Electrical safety offers personal protectionequipment for the utility market under the *Salisbury*,*Servus and Safety Line*brands.  The product offering includeslinemen equipment, gloves, sleeves and footwear.  The Company distributes its electrical safetyproducts through specialized distributors, test labs, utilities, and electricalcontractors.

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The following table presents information about the Company by segment:
| ** **                                               | ** ** | **General  Safety and  Preparedness** | ** ** | **Fire  Service** | ** ** | **Electrical  Safety** | ** ** | **Corporate** | ** ** | **Eliminations** | ** ** | **Total**  | ** ** |
|----------------------------------------------------------|------------|--------------------------------------------|------------|-------------------|------------|------------------------|------------|---------------|------------|------------------|------------|------------|------------|
| **Predecessor  Company**                                 | ** ** | ** **                                 | ** ** | ** **        | ** ** | ** **             | ** ** | ** **    | ** ** | ** **       | ** ** | ** ** | ** ** |
| **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      |       |
| **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     |       |
| 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                                      |       | 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    |       |
| **Year  ended December 31, 2006**                        |       |                                       |       |              |       |                   |       |          |       |             |       |       |       |
| Net sales—third  parties                            |       | 391,321                                    |       | 87,902            |       | 78,842                 |       | —        |       | —           |       | 558,065    |       |
| Net  sales—intersegment                             |       | 9,307                                      |       | —            |       | —                 |       | —        |       | (9,307           | )          | —     |       |
| Income (loss)  from operations                           |       | 46,099                                     |       | 8,364             |       | 14,853                 |       | (8,992        | )          | —           |       | 60,324     |       |
| Interest expense                                         |       | 27,154                                     |       | 71                |       | —                 |       | 19,650        |       | —           |       | 46,875     |       |
| Income tax  expense                                      |       | 10,320                                     |       | 3,190             |       | (357                   | )          | (6,944        | )          | —           |       | 6,209      |       |
| Depreciation and  amortization                           |       | 16,796                                     |       | 4,571             |       | 4,455                  |       | 13            |       | —           |       | 25,835     |       |
| Purchase of  plant, property and equipment               |       | 9,294                                      |       | 285               |       | 1,994                  |       | —        |       | —           |       | 11,573     |       |
| Total assets                                             |       | 730,576                                    |       | 143,415           |       | 122,543                |       | 232,117       |       | (484,569         | )          | 744,082    |       |
|                                                          |            |                                            |            |                   |            |                        |            |               |            |                  |            |            |            |  |  |  |  |  |  |

 

 

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**15.  Product Line Data**

The following table presents net sales of the Companyby product line:
| ** **          | ** ** | **Predecessor**                        | ** ** | **Successor**                                     | ** ** |
|---------------------|------------|----------------------------------------|------------|---------------------------------------------------|------------|
| ** **          | ** ** | **Year Ended  December 31,** | ** ** | **January 1,  2005  through  July 19,** | ** ** | **July 20,  2005  through  December 31,** | ** ** | **Year Ended  December 31,** | ** ** |
| ** **          | ** ** | **2004**                               | ** ** | **2005**                                          | ** ** | **2005** | ** ** | **2006** | ** ** |
| ** **          | ** ** | **(dollars in thousands)**   | ** ** |
| Protective footwear |       | $                                      | 97,254     |                                              | $          | 52,343 |   | $ | 44,980 |   | $ | 95,384 |   |
| Hand protection     |       | 111,266                                |       | 68,316                                            |       | 47,651 |   | 131,142 |   |
| Eye, head and face  |       | 36,428                                 |       | 23,472                                            |       | 20,962 |   | 84,394 |   |
| Respiratory         |       | 50,906                                 |       | 34,983                                            |       | 26,683 |   | 69,643 |   |
| Protective garments |       | 60,220                                 |       | 39,121                                            |       | 29,267 |   | 64,862 |   |
| First aid           |       | 13,303                                 |       | 8,655                                             |       | 5,893 |   | 15,553 |   |
| Hearing protection  |       | 7,800                                  |       | 4,704                                             |       | 3,214 |   | 8,172 |   |
| Fall protection     |       | 12,860                                 |       | 9,531                                             |       | 7,134 |   | 19,677 |   |
| Linemen equipment   |       | 28,248                                 |       | 17,613                                            |       | 14,418 |   | 42,999 |   |
| Other               |       | 20,214                                 |       | 12,956                                            |       | 9,194 |   | 26,239 |   |
|                |       | $                                      | 438,499    |                                              | $          | 271,694 |   | $ | 209,396 |   | $ | 558,065 |   |

 

**16.  Geographic Data**

The following table presents information about theCompany by geographic area:
| ** **                                               | ** ** | **United  States** | ** ** | **Europe** | ** ** | **Canada** | ** ** | **Africa** | ** ** | **Total  Foreign** | ** ** | **Consolidated** | ** ** |
|----------------------------------------------------------|------------|--------------------|------------|------------|------------|------------|------------|------------|------------|--------------------|------------|------------------|------------|
| **Predecessor Company**                                  | ** ** | ** **         | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** **         | ** ** | ** **       | ** ** |
| **Year ended December 31, 2004**                         | ** ** | ** **         | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** **         | ** ** | ** **       | ** ** |
| Net sales                                                |       | $                  | 293,622    |       | $          | 68,357     |       | $          | 59,498     |               | $          | 17,022           |       | $ | 144,877 |   | $ | 438,499 |   |
| **Period from January 1, 2005  through July 19, 2005**   | ** ** | ** **         | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** **         | ** ** | ** **       | ** ** |
| Net sales                                                |       | 173,711            |       | 46,204     |       | 40,917     |       | 10,862     |       | 97,983             |       | 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          |       |
| **Year ended December 31, 2006**                         |       |               |       |       |       |       |       |       |       |               |       |             |       |
| Net sales                                                |       | 358,736            |       | 88,332     |       | 90,607     |       | 20,390     |       | 199,329            |       | 558,065          |       |
| Long-lived assets                                        |       | 296,141            |       | 34,365     |       | 24,643     |       | 1,035      |       | 60,043             |       | 356,184          |       |
|                                                          |            |                    |            |            |            |            |            |            |            |                    |            |                  |            |  |  |  |  |  |  |

 

**17.  Subsidiary Guarantors**

NSP Holdings Capital Corp. is a 100% owned financesubsidiary of the Company with no assets or operations. None of the Company’sother subsidiaries guarantee the 113⁄4% 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%senior subordinated notes due 2011 significantly restrict Norcross and theCompany’s other subsidiaries from paying dividends and otherwise transferringassets to the Company, except for ordinary course operating expenses.

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**18.  Quarterly Results (Unaudited)**

The following tables contain selected unauditedconsolidated statements of operations information for each quarter of 2005 and2006.  The Company believes that thefollowing information reflects all normal recurring adjustments necessary for afair presentation of the information for the periods presented.  The operating results for any quarter are notnecessarily indicative of results for any future period.
| ** **   | ** ** | **Successor**                                        | ** ** |
|--------------|------------|------------------------------------------------------|------------|
| ** **   | ** ** | **Year ended December 31, 2006** | ** ** |
| ** **   | ** ** | **Quarter  ended  December 31**                 | ** ** | **Quarter  ended  September 30** | ** ** | **Quarter  ended  July 1** | ** ** | **Quarter  ended  April 1** | ** ** |
| Net sales    |       | $                                                    | 138,065    |   | $ | 141,878 |   | $ | 136,246 |   | $ | 141,876 |   |
| Gross profit |       | 48,288                                               |       | 50,794 |   | 52,912 |   | 53,731 |   |
| Net income   |       | 819                                                  |       | 889 |   | 3,469 |   | 3,687 |   |
|              |            |                                                      |            |  |  |  |  |  |  |  |  |  |  |

 
| ** **        | ** ** | **Successor**                                   | ** ** | **Predecessor**                                                 | ** ** |
|-------------------|------------|-------------------------------------------------|------------|-----------------------------------------------------------------|------------|
| ** **        | ** ** | **Quarter  ended  December 31, 2005** | ** ** | **July 20, 2005  through  October 1, 2005** | ** ** | **July 3, 2005  through  July 19, 2005** | ** ** | **Quarter  ended  July 2, 2005** | ** ** | **Quarter  ended  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 |   |
|                   |            |                                                 |            |                                                                 |            |  |  |  |  |  |  |  |  |  |  |  |

 

**19. 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.

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

**Unit Options**

As of January 1, 2002, the Predecessor hadgranted an aggregate of 21,124 options to purchase Class A units at $2.10per unit, 31,239 options to purchase Class A units at $5.89 per unit,313,640 options to purchase Class C units at $5.89 per unit, and 21,124options to purchase preferred units at $3.90 per unit. Each issuanceapproximated fair market value at date of grant. The options were fully vestedat the date of grant and expire ten years from the date of grant. No optionswere issued, exercised, forfeited, or expired in 2002, 2003, and 2004. As partof the Norcross Transaction, all outstanding options were exercised with arealized value of $1,580.

**Unit Appreciation Rights Plan**

The Predecessor had a unit appreciation rights plan(Rights Plan), whereby the Board of Managers or their designee may issue to keyemployees up to 476,700 of unit appreciation rights. As of the date of theNorcross Transaction, 441,264 appreciation rights were outstanding. Individualsvest in appreciated rights over four years (first year: 10%; second year: 20%;third year: 30%; and fourth year: 40%). Vesting accelerated upon certain events,including a participant’s death and the sale of the Predecessor or an initialpublic offering. All appreciation rights are issued at fair market value at thedate of grant. The Company recorded no compensation expense related to thegrant appreciation rights during the years ended December 31, 2003 and2004.  As part of the NorcrossTransaction, all outstanding units appreciation rights were exercised with arealized value of $2,720.

**Redeemable Preferred Units**

In connection with the North acquisition on October 2,1998, the Predecessor received $57,329 in exchange for the issuance ofredeemable preferred units. The preferred units accrued dividends at asemiannual compound rate of 10%. The preferred units were nonvoting and weremandatorily redeemable by the Predecessor on September 30, 2013. In theevent of any liquidation, sale, dissolution, or winding up of the affairs ofthe Predecessor, holders of the preferred units were to be paid the redemptionprice, plus all accrued dividends before any payment to other unit holders.

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In connection with the Arbin acquisition, thePredecessor issued additional mandatorily redeemable preferred units for$1,950, respectively. These preferred units also accrued dividends at asemiannual compound rate of 10%, and were mandatorily redeemable by thePredecessor on September 30, 2013.

Beginning January 1, 2004, in accordance withStatement of Financial Accounting Standard (“SFAS”) No. 150, the yield onthe Predecessor’s preferred units is recorded as interest expense and thepreferred units are classified on the Predecessor’s balance sheet as long-termliabilities. For all periods prior to January 1, 2004, the yield isrecorded below net income as preferred unit dividend and the preferred unitswere recorded on the Predecessor’s balance sheet between debt and equity. Forthe year ended December 31, 2004 and period from January 1, 2005through July 19, 2005, the Predecessor classified $13,493 and $4,833 ofpreferred unit dividends as interest expense, respectively.

As of December 31, 2004, $57,726 of dividendswere accrued and unpaid. On January 7, 2005, the Predecessor made apayment 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 the returnof a portion of the original capital contribution made by holders of NSPHoldings preferred units (See Note 7). As part of the Norcross Transaction, all outstanding accrued preferredyield and capital was funded to the preferred unit holders.

**Class E Units**

During the year ended December 31, 2004, thePredecessor authorized the issuance of 1,000 Class E Units, which vest6.25% quarterly. As of December 31, 2004, 986 Class E Units wereissued to senior management of the Company for $1. The holders of Class EUnits were entitled to distributions on the Company’s units as defined in theCompany’s Second Amended and Restated Limited Liability Company Agreement. Theunits were vested 31.25% as of December 31, 2004.  As part of the Norcross Transaction, the Predecessorfunded $7,698 to the holders of Class E Units.

**Common Units**

In addition to the preferred units and Class EUnits, the Predecessor’s equity structure consisted of Class A commonunits, Class B common units, Class C common units, and Class Dcommon units. Class B common units and Class D common units werenonvoting. Common units were generally convertible into other classes of commonunits at the member’s request, with certain restrictions based on Class Band Class C unit holders, as defined. In connection with the Arbinacquisition, the Company issued Class A units for proceeds of $1,050.

**Common Shares**

As of December 31, 2006, the Company had15,000,000 authorized common shares and 11,030,884 outstanding common shareswith a par price of $0.01 per share.

**Management Loans**

In connection with the acquisition of North, certainmembers of management entered into nonrecourse promissory notes amounting to$1,086 in exchange for Class C common units of the Predecessor. The noteswere non-interest-bearing and matured on the earlier of December 31, 2016,the sale of the Predecessor, or the occurrence of certain events, all asdefined in the notes. The promissory notes were collateralized by theClass A and Class C common and all preferred units of the borrowers,and were classified as reductions to members’ deficit. In 2002 and 2003, $94 ofthis note amount was repaid.

In connection with an acquisition, certain members ofmanagement entered into nonrecourse promissory notes amounting to $1,108 inexchange for Class A common units and preferred units of the Predecessor.The notes were non-interest-bearing and matured on the earlier ofDecember 31, 2016, the sale of the Predecessor, or the occurrence ofcertain events, all as defined in the notes. The promissory notes arecollateralized by Class A common and preferred units of the borrowers andhave been classified as reductions to members’ deficit. In 2002 and 2003, $34and $61 of this note amount was repaid, related to the Class A commonunits and preferred units, respectively. No amounts were repaid in 2004.

The management loans were repaid as part of theNorcross Transaction.

**21. Management IncentiveCompensation**

Safety Products’ Option Plan (as amended, the “Plan”)was adopted and approved by the Board of Directors in December 2005, andprovides for the issuance of up to 1,436,631 shares of common stock of SafetyProducts in connection with the granting of non-qualified or incentive stockoptions. The principal purposes of the Plan are: 1) to further the growth,development and financial success of Safety Products and its subsidiaries, byproviding additional incentives to employees,

73

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consultantsand independent directors (as defined) of Safety Products and its subsidiariesand 2) to enable Safety Products and its subsidiaries to obtain and retain theservices of the type of professional, technical and managerial employees,consultants and independent directors considered essential to the long-rangesuccess of Safety Products.

In the first quarter of 2006, Safety Products granteda total of 1,213,559 non-qualified options in connection with the Plan (the “InitialGrant”). Outstanding non-qualified stock options under the Initial Grant havean expiration date ten years from the date of grant and have an exercise priceof $10 per share. In the fourth quarter of 2006, Safety Products granted atotal of 132,000 non-qualified options in connection with the Plan (the “SecondGrant”).  Outstanding non-qualified stockoptions under the Second Grant have an expiration date ten years from the dateof grant and have an exercise price of $19.67 per share. All non-qualifiedstock options were granted with an exercise price equal to the fair marketvalue on the date of grant. The fair market value for the Initial Grant was consistentwith the price paid by Odyssey as part of the Norcross Transaction.  The fair market value for the Second Grantwas determined using a discounting cash flow analysis.  During the year ended December 31, 2006, nooptions expired or were forfeited or exercised.

The non-qualified stock options under the InitialGrant and Second Grant are scheduled to vest over an approximate eight yearperiod. In addition, a portion of the non-qualified stock options are subjectto accelerated vesting provisions when certain performance targets are met.Under the Initial Grant, the first and second performance targets were met, andtherefore the first and second installment were vested as of December 31, 2006.If certain additional performance targets are met, the remaining threeinstallments will vest on, or within 120 days following, December 31 of eachcalendar year 2007 through 2009. Under the Second Grant, the performancetargets are over a three year period beginning in 2007, and if met, will veston, or within 120 days following, December 31 of each calendar year 2007through 2009.  The non-qualified stockoptions are subject to further acceleration clauses based on change in controlprovisions. As of December 31, 2006, 407,332 shares of non-qualified stockoptions were vested under Initial Grant and no shares of non-qualified stockoptions were vested under the Second Grant. As of  December 31, 2006, there was approximately$3,189 and $976 of unrecognized management incentive compensation related tononvested non-qualified stock options under the Initial Grant and Second Grant,respectively.  The Company expects torecognize this management incentive compensation over a weighted average periodof 4.0 years under the Initial Grant and 3.0 years under the Second Grant.

The Company used the Black-Scholes option-pricingmodel to estimate the fair value of each option grant as of the date of grant.Expected volatilities are based on historical volatility of the common stock ofcomparable public companies. The Company estimated the expected life of theoptions based on the likelihood of the achievement of performance targets,change in control provisions, and historic employee termination data. Therisk-free interest rate is based on U.S. Treasury yields in effect at the timeof grant. The estimated weighted-average fair values of and related assumptionsfor options granted were as follows:
| ** **                                       | ** ** | **Initial  Grant** | ** ** | **Second  Grant** | ** ** |
|--------------------------------------------------|------------|--------------------|------------|-------------------|------------|
| Weighted-average fair  value of options granted: |       |               |       |              |       |
| At fair value                                    |       | $                  | 3.95       |              | $          | 7.39 |   |
|                                             |       |               |       |              |       |
| Assumptions:                                     |       |               |       |              |       |
| Dividend yield                                   |       | 0.0                | %          | 0.0               | %          |
| Expected  volatility                             |       | 40.0               | %          | 40.0              | %          |
| Risk-free  interest rate                         |       | 5.0                | %          | 4.6               | %          |
| Expected life of option  (years)                 |       | 5.0                |       | 4.0               |       |
|                                                  |            |                    |            |                   |            |  |  |

 

As a result of the Norcross Transaction, thePredecessor recognized $16,388 in management incentive compensation expenseduring the January 1, 2005 through July 19, 2005 predecessor period.  The expenses were funded by the Predecessorfrom proceeds realized upon the consummation of the Norcross Transaction.

**22. Seller Transaction Expenses**

NSP Holdings incurred $4,646 in transaction expensesrelated to professional services during the January 1, 2005 throughJuly 19, 2005 predecessor period. The expenses were funded by the Predecessor from proceeds realized uponthe consummation of the Norcross Transaction. These costs are reflected below operating expenses as seller transactionexpenses.

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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)**
| ** **                                      | ** ** | **December 31,  2005** | ** ** | **December 31,  2006** | ** ** |
|-------------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| **Assets**                                      | ** ** | ** **                  | ** ** | ** **                  | ** ** |
| Cash                                            |       | $                           | 136        |                        | $          | 700 |   |
| Prepaid expenses and  other current assets      |       | 1,086                       |       | 69                          |       |
| Total current assets                            |       | 1,222                       |       | 769                         |       |
| Deferred financing  costs, net                  |       | 12,156                      |       | 10,130                      |       |
| Investment in  subsidiary                       |       | 223,363                     |       | 260,502                     |       |
| Goodwill                                        |       | (769                        | )          | —                      |       |
| Deferred income taxes                           |       | 2,228                       |       | 4,002                       |       |
| Total assets                                    |       | $                           | 238,200    |                        | $          | 275,403 |   |
|                                            |       |                        |       |                        |       |
| **Liabilities and shareholders’  equity**  | ** ** | ** **                  | ** ** | ** **                  | ** ** |
| Current liabilities:                            |       |                        |       |                        |       |
| Accounts payable                                |       | $                           | —     |                        | $          | — |   |
| Accrued expenses                                |       | 469                         |       | 53                          |       |
| Current maturities of long-term  obligations    |       | (889                        | )          | (1,010                      | )          |
| Total current  liabilities                      |       | (420                        | )          | (957                        | )          |
| Long-term obligations                           |       | 131,729                     |       | 149,474                     |       |
| Shareholders’ equity:                      |       |                        |       |                        |       |
| Common shares                                   |       | 110                         |       | 110                         |       |
| Contributed capital                             |       | 109,560                     |       | 111,883                     |       |
| (Accumulated deficit)  retained earnings        |       | (4,766                      | )          | 4,098                       |       |
| Accumulated other  comprehensive income         |       | 1,987                       |       | 10,795                      |       |
| Total shareholders’ equity                 |       | 106,891                     |       | 126,886                     |       |
| Total liabilities and shareholders’ equity |       | $                           | 238,200    |                        | $          | 275,403 |   |

 

See notes to condensed financial statements.

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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,  2004** | ** ** | **January 1,  2005  through  July 19,  2005** | ** ** | **July 20,  2005  through  December 31,  2005** | ** ** | **Year ended  December 31,  2006** | ** ** |
| General and  administrative       |       | $                                            | (518       | )                                                       | $          | (3,094 | ) | $ | (113 | ) | $ | (326 | ) |
| Interest expense                  |       | (13,525                                      | )          | (11,458                                                 | )          | (8,156 | ) | (19,650 | ) |
| Interest income                   |       | —                                       |       | 450                                                     |       | — |   | — |   |
| Seller transaction  expense       |       | —                                       |       | (4,646                                                  | )          | — |   | — |   |
| Other, net                        |       | (380                                         | )          | —                                                  |       | — |   | — |   |
| Income tax (expense)  benefit     |       | (223                                         | )          | (100                                                    | )          | 2,457 |   | 6,944 |   |
| Equity in earnings of  subsidiary |       | 25,287                                       |       | 4,385                                                   |       | 1,046 |   | 21,896 |   |
| Net income (loss)                 |       | $                                            | 10,641     |                                                    | $          | (14,463 | ) | $ | (4,766 | ) | $ | 8,864 |   |

 

See notes to consolidated financial statements.

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

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

**SCHEDULE I—CONDENSED FINANCIALINFORMATION**

**CONDENSED STATEMENTS OF CASH FLOWS**

**(Amounts in Thousands)**
| ** **                                           | ** ** | **Predecessor**                              | ** ** | **Successor**                                           | ** ** |
|------------------------------------------------------|------------|----------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                                           | ** ** | **Year ended  December 31,  2004** | ** ** | **January 1,  2005  through  July 19,  2005** | ** ** | **July 20,  2005  through  December 31,  2005** | ** ** | **Year ended  December 31,  2006** | ** ** |
| **Operating activities**                             | ** ** | ** **                                   | ** ** | ** **                                              | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net cash (used in)  provided by operating activities |       | $                                            | (347       | )                                                       | $          | (667 | ) | $ | 268 |   | $ | 2,315 |   |
| **Investing activities**                             | ** ** | ** **                                   | ** ** | ** **                                              | ** ** | ** ** | ** ** | ** ** | ** ** |
| Investment in  subsidiary                            |       | —                                       |       | —                                                  |       | (121,114 | ) | — |   |
| Advances from (to)  subsidiary                       |       | 4,704                                        |       | 567                                                     |       | 728 |   | (2,464 | ) |
| Net cash provided by  (used in) investing activities |       | 4,704                                        |       | 567                                                     |       | (120,386 | ) | (2,464 | ) |
| **Financing activities**                             | ** ** | ** **                                   | ** ** | ** **                                              | ** ** | ** ** | ** ** | ** ** | ** ** |
| Payments for deferred  financing costs               |       | (700                                         | )          | (3,246                                                  | )          | (13,062 | ) | — |   |
| Payments from  borrowings                            |       | —                                       |       | 100,000                                                 |       | 23,646 |   | — |   |
| Payments of debt                                     |       | (1,056                                       | )          | —                                                  |       | — |   | — |   |
| Proceeds from capital  contribution                  |       | 1                                            |       | —                                                  |       | 109,670 |   | 713 |   |
| Distribution of  preferred units                     |       | —                                       |       | (60,000                                                 | )          | — |   | — |   |
| Distribution of common  units                        |       | (2,943                                       | )          | (2,509                                                  | )          | — |   | — |   |
| Net cash (used in) provided  by financing activities |       | (4,698                                       | )          | 34,245                                                  |       | 120,254 |   | 713 |   |
| Effect of exchange rate  changes on cash             |       | 341                                          |       | —                                                  |       | — |   | — |   |
| Net increase in cash  and cash equivalents           |       | —                                       |       | 34,145                                                  |       | 136 |   | 564 |   |
| Cash and cash  equivalents at beginning of year      |       | —                                       |       | —                                                  |       | — |   | 136 |   |
| Cash and cash equivalents at end of year             |       | $                                            | —     |                                                    | $          | 34,145 |   | 136 |   | $ | 700 |   |
|                                                      |            |                                              |            |                                                         |            |  |  |  |  |  |  |  |  |

 

See notes to consolidated financial statements.

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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**

**YEARENDED DECEMBER 31, 2004, THE PERIOD FROM JANUARY 1, 2005 THROUGH JULY 19,2005, THE PERIOD FROM July 20, 2005 THROUGH DECEMBER 31, 2005 AND THE YEARENDEDDECEMBER 31, 2006**

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

**1.****            The Transaction**

 

On July 19,2005, Norcross Safety Products L.L.C. (“Norcross”) announced the closing of thetransaction under which it was acquired by Safety Products Holdings, Inc.(the “Company” or “Safety Products”) a new holding company formed by OdysseyInvestment Partners, 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 ofApril 2, 2005 in the amount of approximately $16,900, less (1) theindebtedness of Norcross and its subsidiaries as of April 2, 2005 and(2) certain transaction fees and expenses. The cash purchase price was $204,488 including direct costs ofacquisition of $2,346, and excluding assumed debt of $260,523.  The acquisition of Norcross is referred to asthe “Norcross Transaction”.

**2.****            Basis of Presentation**

 

Predecessor — Thefinancial statements of the Predecessor represent the results of operations ofNSP Holdings L.L.C. prior to the Norcross Transaction.

Successor — Thefinancial statements of the Successor represent the results of operations ofSafety Products Holdings, Inc. subsequent to the Norcross Transaction.

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

 

NSP Holdings and Safety Products account for theirinvestment in Norcross under the equity method of accounting. Advances to orfrom Norcross are included within the investment in subsidiary.

**4.****            Debt**

OnJanuary 7, 2005, NSP Holdings and NSP Capital issued $100,000 of 113¤4%senior pay in kind notes due 2012 the “Senior Notes”. The proceeds were usedto: (i) make a payment in respect of preferred units of $60,000, $58,000of which were payments in respect of accrued preferred yield and $2,000 ofwhich was the return of a portion of the original capital contribution made byholders of NSP Holdings preferred units, (ii) make distributions inrespect of the common units of certain members of management of $2,000, and(iii) pay fees and expenses. The remainder of the net proceeds were usedfor general corporate purposes, including potential acquisitions and/ordistributions 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**

 

The preferred units accrued dividends at a semiannualcompound rate of 10%. The preferred units were nonvoting and were mandatorilyredeemable by the Predecessor on September 30, 2013. In the event of anyliquidation, sale, dissolution, or winding up of the affairs of the Predecessor,holders of the preferred units were to be paid the redemption price, plus allaccrued dividends before any payment to other unit holders. As ofDecember 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.

Beginning January 1, 2004, in accordance withStatement of Financial Accounting Standard (“SFAS”) No. 150, the yield onthe Predecessor’s preferred units is recorded as interest expense and thepreferred units are classified on the Predecessor’s balance sheet as long-termliabilities. For all periods prior to January 1, 2004, the yield isrecorded below net income as preferred unit dividend and the preferred unitswere recorded on the Predecessor’s balance sheet between debt and equity. Forthe year ended December 31, 2004 and period from January 1, 2005through July 19, 2005, the Predecessor classified $13,493 and $4,833 ofpreferred unit dividends as interest expense, respectively.

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

 

**Safety Productsalong with Norcross has guaranteed Norcross’ obligations under Norcross’ seniorcredit facility, which consists of a term loan and revolving credit facilities,and secures its guarantee with substantially all of the Company’s assets,including the stock of Norcross.  As ofDecember 31, 2006, there was $165,720 outstanding under the term loan atan interest rate of 7.5%.  Norcross alsohad $2,521 of letters of credit outstanding, in addition to $47,479 availablefor borrowings under the revolving credit facilities as of December 31,2006.**

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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, 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 |   |
|                                                                                             |       |                                           |       |                                                |       |                                       |       |                             |       |   |   |
| Reserve for inventory  obsolescence for the year ended December 31, 2006                         |       | 9,260                                          |       | 2,319                                               |       | 1,395                                      |       | (2,394                           | )          | 10,580 |   |
|                                                                                                  |            |                                                |            |                                                     |            |                                            |            |                                  |            |  |  |  |  |  |  |  |

 
| ** **                                                                                          | ** ** | ** **                                                 | ** ** | **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, 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 |   |
|                                                                                                |       |                                                       |       |                                                      |       |                                             |       |                                   |       |   |   |
| Allowances for  uncollectible accounts for the year ended December 31, 2006                         |       | 2,317                                                      |       | 482                                                       |       | 31                                               |       | (507                                   | )          | 2,323 |   |
|                                                                                                     |            |                                                            |            |                                                           |            |                                                  |            |                                        |            |  |  |  |  |  |  |  |

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

 

 

None.

**ITEM 9A.**                    CONTROLS ANDPROCEDURES

As of the end of theperiod covered by this report, we performed an evaluation under the supervisionand with the participation of our management including the chief executiveofficer and the chief financial officer, of the effectiveness of our disclosurecontrols and procedures.  Based on thatevaluation, our management, including the chief executive officer and chieffinancial officer, concluded that our disclosure controls and procedures wereeffective.  There have been no changes ininternal control over financial reporting during our fourth fiscal quarter thathave materially affected, or are reasonably likely to materially affect, ourinternal control over financial reporting.

**ITEM 9B.**                    OTHERINFORMATION

None.

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**PART III**

**ITEM 10.**                      DIRECTORS,EXECUTIVE OFFICERS AND CORPORATE GOVERANCE

Our executive officersand the members of our board of directors are as follows:
| **Name**             | ** ** | **Age** | ** ** | **Position(s) held**                                                  |
|----------------------|------------|---------|------------|----------------------------------------------------------------------------|
| Robert A.  Peterson  |       | 50      |       | President and Chief Executive Officer, Director                            |
| David F. Myers,  Jr. |       | 44      |       | Executive Vice President, Chief Financial Officer  and Secretary, Director |
| William J. Hayes     |       | 47      |       | President—General Safety and Preparedness                             |
| Charles S. Ellis     |       | 58      |       | President—North Worldwide                                             |
| Kenneth R.  Martell  |       | 58      |       | Vice President and General Manager—Electrical Safety                  |
| Brian Kwait          |       | 45      |       | Director                                                                   |
| Craig P. Staub       |       | 35      |       | Director                                                                   |
| Matthew A.  Satnick  |       | 27      |       | Director                                                                   |

 

Set forth below is abrief description of the business experience of each of our executive officersand the members of the board of directors.

*Robert A. Peterson*.  Mr. Peterson has served as ourPresident and Chief Executive Officer since our formation in June 1995, and healso has served as a member of the board of directors since July 2005.  Previously, from 1984 to 1991, Mr. Petersonheld various senior positions at Farley Industries, a diversified group ofmanufacturing companies with sales in excess of $2.5 billion and, from 1992 to1993, was President of Wright Line, a technical furniture company.  From 1994 to 1995, Mr. Peterson was involvedin strategic planning consulting for Farley Industries and Merchant Partners.  He is also a CPA and a former manager ofErnst & Young.  Mr. Peterson also isa director of Actuant Corporation.

*David F. Myers, Jr*.  Mr. Myers has served as our ExecutiveVice President, Chief Financial Officer and Secretary since our formation inJune 1995, and he also has served as a member of the board of directors sinceJuly 2005.  Previously he was with MorrisAnderson & Associates, a leading turnaround consulting firm, providingadvisory services and serving as interim chief financial officer to companieswith sales ranging from $50.0 million to $2.0 billion.  Mr. Myers started his career at Ernst &Young in the corporate finance/restructuring consulting practice.  Mr. Myers is a CPA.

*William J. Hayes **Mr*.*Hayes has served as our President—GeneralSafety and Preparedness since October 2006. Mr. Hayes was previously with Nitto Denko Corporation, where he servedas President and Chief Executive Officer of Nitto Americas (Nitto Denko’s $350million portfolio of U.S.—based manufacturing companies) and also served asCorporate Vice President of Nitto Denko, a multi-billion dollar globalbusiness.  Prior to joining Nitto Denkoin 1994, Mr. Hayes served as General Manager of Brady Coated Products Co., aunit of Brady Corp.  Prior to joiningBrady in 1987, Mr.  Hayes worked forJohnson & Johnson and Avery Dennison in a variety of positions.*

*Charles S. Ellis*.  Mr. Ellis has served as ourPresident-North Worldwide since December 2004 with responsibility for the U.S.,Canadian and European divisions of North Safety Products (except for KCL, whichreports directly to our President-General Safety and Preparedness).  From June 2001 until December 2004, Mr. Ellisserved as our President—U.S. General Safety 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 in 1996, Mr. Ellis was President andCOO of Elastimold, a division of Eagle Corp. He also worked for Westinghouse Electrical Corporation in a variety ofpositions over 17 years.

*Kenneth R. Martell*.  Mr. Martell has served as our VicePresident and General Manager—Electrical Safety since August 1999.  Mr. Martell has more than 30 years ofmanufacturing expertise.  Prior to joiningus, he was an executive vice president and general manager of thePlews/Eddelman division of Stant Corporation. He has held executive positions at Epicor Industries, Parker Hannifinand American Can Corporation.

*Brian Kwait*.  Mr. Kwait has served as a member ofthe 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, L.P. from1989 to 1997.  He also currently serveson the Board of Directors of Pro Mach, Inc. and Wastequip, Inc. Prior tojoining Odyssey Partners, Mr. Kwait was a corporate finance associate at Bear,Stearns & Co., Inc.  Prior to joiningBear Stearns, he was a senior accountant at Ernst & Whinney.  Mr. Kwait is a CPA.

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*Craig P.Staub.*  Mr. Staub hasserved as a member of the board of directors since April 2006.  Mr. Staub joined Odyssey Investment Partners,LLC in 2003 and also currently serves on the Board of Directors of Pro Mach,Inc. Prior to joining Odyssey, Mr. Staub was a vice president at WestburyEquity Partners where he was responsible for executing and monitoring privateequity investments. Previously, he was a vice president for The Shattan Group,a boutique investment bank and Marakon Associates, a strategic consulting firm.

*MatthewA. Satnick.*  Mr.Satnick has served as a member of the board of directors since March 2007.  Mr. Satnick has been an Associate at OdysseyInvestment Partners, LLC since 2004. Prior to joining Odyssey, Mr. Satnick was an Associate at Saunders Karp& Megrue, where he actively managed middle-market private equityinvestments. Prior to SKM, he was an Analyst at Lazard Fréres in theRestructuring Group, where he focused on advising financially distressedcompanies.

There are no familyrelationships between any of our executive officers or managers.

**Board Composition**

Odyssey InvestmentPartners Fund III, LP (“Odyssey Fund”) owns approximately 75% of the capitalstock of Safety Products.  See “Item 12.Security Ownership of Certain Beneficial Owners and Management and RelatedStockholder Matters.”  The stockholders agreement among SafetyProducts, Odyssey Fund and Safety Products, LLC (“SPL”), which was entered intoin July 2005, provides that the board of directors of Safety Products willconsist of five members or such other number as may be agreed upon by OdysseyFund and SPL.  Pursuant to thestockholders agreement, SPL is required to vote in favor of any designee ordesignees to the board of directors selected by Odyssey Fund. Three ofour five directors, Messrs. Kwait, Satnick and Staub, are members of Odyssey,the general partner of Odyssey Fund.  For more information, see “Item 13. CertainRelationships and Related Transactions, and Director Independence—StockholdersAgreement.”

**Committees of Our Boardof Directors**

Ourboard of directors has an audit committee. The audit committee consists of Messrs. Kwait and Staub, neither of whomqualifies as an audit committee financial expert.  However, the board believes that each memberof the audit committee has demonstrated that he is capable of analyzing andevaluating our financial statements and understanding internal controls andprocedures for financial reporting.  Asthe board believes that the current members of the audit committee arequalified to carry out all of the duties and responsibilities of the auditcommittee, the board does not believe that it is necessary at this time toactively search for an outside person to serve on the board of directors whowould 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 ofethics applicable to our principal executive officer, principal financialofficer, principal accounting officer and persons performing similarfunctions.  The text of this code may befound on our Internet website, www.nspusa.com. We intend to post notice of any waiver from, or amendment to, anyprovision of our code of ethics on our web site.

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**ITEM 11.       EXECUTIVECOMPENSATION**

**Compensation Discussion and Analysis**

**Overview**

Following the Norcross Transaction, our board ofdirectors consists of three non-employee directors who are employed byaffiliates of Odyssey, Robert A. Peterson, our President and Chief ExecutiveOfficer, and David F. Myers, Jr., our Executive Vice President and ChiefFinancial Officer.  At present, SafetyProducts’ board of directors does not have a compensation committee but maydetermine to form one in the future, which would likely be comprised of certainof its non-employee directors and Mr. Peterson.

In connection with the Norcross Transaction, affiliates of Odysseynegotiated compensation arrangements with certain of our named executiveofficers, and the compensation paid to these executive officers, including thebase salaries and performance targets on which incentive compensation is based,reflects the results of such negotiations. Additionally, certain of our named executive officers negotiated theterms of the 2005Option Plan of Safety Products Holdings, Inc. (the “Option Plan”).  The option grants and vesting schedule, asmore specifically set forth in the discussion entitled “Option Grants” underthe Grants of Plan-Based Awards Table, are a result of such negotiations.  Following the Norcross Transaction, decisionswith respect to Mr. Peterson’s and Mr. Myers’ compensation are made by SafetyProducts’ non-employee directors, and decisions regarding the compensation ofour remaining executive officers are made by Safety Products’ non-employeedirectors, in consultation with our Chief Executive Officer.

Throughout this analysis, the individuals who servedas our Chief Executive Officer and Chief Financial Officer during fiscal 2006,as well as other individuals included in the Summary Compensation Table, arereferred to as the “named executive officers.”

**Compensation Objectives and ProgramStructure**.  Ourcompensation determinations are made by Safety Products’ board of directors.The board is responsible for determining the compensation elements and amountspaid to each of the named executive officers. The primary objectives of our executive compensation program are to:

·                  Attractand retain the best possible executive talent;

·                  Achieveaccountability for performance by linking annual cash and long-term incentiveawards to achievement of measurable performance objectives; and

·                  Furtherthe growth, development and financial success of the Company and itssubsidiaries by aligning executives’ incentives with stockholder valuecreation.

**Elements of Compensation**.  We have sought to create value for ourstockholders by using all elements of compensation to reinforce aresults-oriented management culture, focusing on financial targets such asEBITDA (as further defined herein) and net working capital, performance ascompared to our annual budget, the achievement of longer-term strategic goalsand objectives, and individual performance. Accordingly, our executive compensation combines foundational elementssuch as base salary and benefits, an annual bonus and equity incentives such asparticipation in our Option Plan.  Ourexecutive compensation consists of the following components:

·                  Base salary

·                  Annual cash bonus; and

·                  Stock options.

**Base Salary**.  Base salary is established based on theexperience, skills, knowledge and responsibilities required of the executiveofficers in their roles.  We seek tomaintain base salaries that are competitive with the marketplace, to allow usto attract and retain executive talent. Salaries for executive officers are reviewed on an annual basis, at thetime of a promotion or other change in level of responsibilities, as well aswhen competitive circumstances may require review.  Increases in salary are based on evaluationof factors such as merit, the individual’s level of responsibility, performancelevel of compensation compared to comparable companies, and cost of living.

**Annual Cash Bonus**.  The objective of the annual cash bonusincentive is to reward executive officers for the performance of the Companyand its subsidiaries as well as for individual performance.  The annual cash bonus is based on performancemetrics, which vary among the named executive officers and are set based on theannual budget.  The bonus for 

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Messrs.Peterson and Myers is based solely on a budget consolidated EBITDA.  The bonus for Mr. Ellis is based on thefollowing budget performance targets with respect to certain divisions of NorthSafety Products, Inc. (“North Safety”): EBITDA and net working capital.  The bonus for Mr. Martell is based on thefollowing budget performance targets with respect to our electrical safetysegment: EBITDA, net sales, inventory turns and fill rate.  In 2006, the bonus for Messrs. Ellis andMartell also included a discretionary payment based on their contributions toacquisition integration and other activities. The bonus for Mr. Laitsch is 5% of KCL’s net profit as defined in hisemployment agreement.  For a moredetailed description of the annual cash bonus payments, please see thediscussion entitled “Summary of Grants of Plan-Based Awards.”

**Option Plan**.  With the exception of Mr. Laitsch, all of ournamed executive officers have received equity compensation awards in the formof non-qualified stock options.  We grantlong term incentive awards in the form of stock options because it is a commonmethod for privately-held companies to provide equity incentives to executiveofficers.  The options are designed toalign the interests of our executive officers with our stockholders’ long-terminterests by providing them with equity-based awards that vest over a period oftime, with a portion subject to acceleration upon the satisfaction ofperformance conditions, and to reward executive officers for performance.  In connection with the Norcross Transaction,the board adopted the Option Plan.  Stockoptions granted by us have an exercise price equal to the fair market value ofour common stock on the date of grant. Future grants of stock options will be at the discretion of our board ofdirectors.  Because all of the optionsare non-qualified stock options, we will be entitled to a tax deduction in theyear in which the non-qualified stock option is exercised in an amount equal tothe amount by which the fair market value of the shares underlying the optionon the date of exercise exceeds the option exercise price.

The Option Plan iscurrently administered by the board of directors of Safety Products unless thatboard delegates administration to its compensation committee.  The board has the authority to determine towhom options will be granted, and to establish the terms and conditions ofthose grants.  However, in no event maythe exercise price of any option granted under the plan be less than the fairmarket value of the shares underlying that option on the date the option isgranted and no option may have a term that exceeds 10 years.  Additionally, neither the board nor thecompensation committee may exercise its discretion in a way that would preventan incentive stock option from qualifying as such under Section 422 of theInternal Revenue Code.  The Option Planand the underlying agreements provide, and will provide, that unless determinedotherwise at the time the option is granted, following termination ofemployment, options that have not previously become exercisable will not becomeexercisable and that the exercise period of a vested (exercisable) option willgenerally be limited, provided that vested options will be cancelledimmediately upon a termination for cause.

With the exception ofoptions granted to Messrs. Peterson and Myers, options granted under the OptionPlan may not be transferred other than by will or applicable inheritancelaws.  Messrs. Peterson and Myers arepermitted to transfer non-qualified options to children, grandchildren, spouse,siblings or parents (collectively, “Immediate Family Members”), or to bona fidetrusts, partnerships or other entities controlled by and of which the onlybeneficiaries are Immediate Family Members. Shares of common stock of Safety Products acquired upon exercise ofoptions are subject to the terms of the Management Stockholders Agreement and,as a consequence, are generally not transferable other than in accordance withthat agreement.

Upon a change in controlall options that have previously become exercisable may be exercised inconnection with that change in control. In addition, upon a change in control, previously unexercisable optionswill, or in the board’s discretion may, become exercisable if a certaininternal rate of return and a multiple of investment dollars is achieved byOdyssey.

**RetirementBenefits.**  Messrs.Ellis and Martell participate in the Norcross Safety Products L.L.C. Employees’Pension Plan (the “NSP Pension Plan”), which is a tax-qualified defined benefitplan.  Messrs. Peterson, Myers and Ellisare participants in the North Safety Products, Inc. Benefit Restoration Plan (“RestorationPlan”), which is a non-qualified unfunded defined benefit plan.  Eligibility for this plan includes NorthSafety Products employees whose benefits are limited by the Internal RevenueCode or those employees selected by Safety Products’ board of directors. TheNSP Pension Plan and the Restoration Plan were frozen for future benefitaccruals as of December 31, 2006. Prior to 2006, Messrs. Myers and Petersonwere not participants in the Restoration Plan. In connection with entering intonew employment agreements with Mr. Peterson and Mr. Myers as part of theNorcross Transaction, Safety Products agreed that it would extend to them theopportunity to participate in the Restoration Plan.  Benefits under these plans are described inthe Pension Benefits Table.

**Other Programs**.  Wealso provide our named executive officers with life and medical insurance,401(k) matching, a car allowance program and, in the case of Mr. Martell,contribution to W.H. Salisbury’s profit sharing plan.

**CompensationCommittee Report**

                As we do not presently have aseparately designated Compensation Committee, our full board of directors hasreviewed and discussed the Compensation Discussion and Analysis as required byItem 402(b) of Regulation S-K with management, and based on such review anddiscussions, has recommended that the Compensation Discussion and Analysis beincluded in this annual report.
|  | THE BOARD OF DIRECTORS |  |
|--|------------------------|--|

 
|        | Robert A.  Peterson  |   |
|--------|----------------------|--------|
|   | David F. Myers,  Jr. |   |
|   | Brian Kwait          |   |
|   | Craig P. Staub       |   |
|   | Matthew A.  Satnick  |   |

 

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**SummaryCompensation Table**

The following table summarizes the total compensation earned in 2006 byour named executive officers: 
| **Name and  Principal  Position  (a)**                                | ** ** | **Year  (b)** | ** ** | **Salary  ($)  (c)** | ** ** | **Bonus  ($)  (d)** | ** ** | **Stock  Awards  ($)  (e)** | ** ** | **Option  Awards  ($)  (f)  (3)** | ** ** | **Non-Equity  Incentive  Plan Compensation  ($)  (g)** | ** ** | **Change in Pension  Value and  Nonqualified Deferred  Compensation  Earnings  ($)  (h)  (8)** | ** ** | **All  Other  Compensation  ($)  (i)  (9)** | ** ** | **Total  ($)  (j)  (10)** | ** ** |
|----------------------------------------------------------------------------|------------|---------------|------------|----------------------|------------|---------------------|------------|-----------------------------|------------|-----------------------------------|------------|-------------------------------------------------------------|------------|--------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------|------------|---------------------------|------------|
| Robert A. Peterson, President and Chief Executive  Officer                 |       | 2006          |       | 570,000              |       | —              |       | —                      |       | 748,769                           |       | 499,662                                                     | (4)        | 621,216                                                                                                            |       | 16,548                                      |       | 2,456,195                 |       |
| David F. Myers, Jr., Executive Vice President and  Chief Financial Officer |       | 2006          |       | 395,000              |       | —              |       | —                      |       | 485,113                           |       | 346,257                                                     | (4)        | 307,620                                                                                                            |       | 16,548                                      |       | 1,550,538                 |       |
| Charles S. Ellis, President - North Worldwide                              |       | 2006          |       | 299,457              | (1)        | 40,800              |       | —                      |       | 93,596                            |       | 190,402                                                     | (5)        | 74,052                                                                                                             |       | 14,448                                      |       | 712,755                   |       |
| Volker H. Laitsch, President-KCL (11)                                      |       | 2006          |       | 225,846              |       | —              |       | —                      |       | 3⁄4                            |       | 339,961                                                     | (6)        | 3⁄4                                                                                                             |       | 15,404                                      |       | 581,211                   |       |
| Kenneth R.  Martell, Vice President and General Manager-Electrical Safety  |       | 2006          |       | 197,753              | (2)        | 33,500              |       | —                      |       | 35,999                            |       | 91,500                                                      | (7)        | 22,428                                                                                                             |       | 22,848                                      |       | 404,028                   |       |

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(1)  Mr. Ellis’ base salary was increased on March1, 2006 from $287,834 to $302,225.  Thesalary set forth above represents the amount earned by Mr. Ellis in 2006.

(2)  Mr. Martell’s base salary was increased onMarch 1, 2006 from $190,077 to $199,577. The salary set forth above represents the amount earned by Mr. Martellin 2006.

(3)  This column represents the dollar amountrecognized for financial statement reporting purposes with respect to the 2006fiscal year for the fair value of stock options granted to each of the namedexecutives in 2006 as well as prior fiscal years, in accordance with SFAS 123R,except that, in accordance with the SEC’s rules the amounts shown exclude theimpact of estimated forfeitures related to service-based vestingconditions.  For additional information,refer to Note 21 of the consolidated financial statements for the year endedDecember 31, 2006.  See the Grants ofPlan-Based Awards Table for information on awards made in fiscal 2006.  These amounts reflect our accounting expensefor these awards, and do not correspond to the actual value that will berecognized by the named executive officers.

(4)  Represents bonus payments paid based on theachievement of budget consolidated EBITDA in fiscal 2006.  See “Summary of Grants of Plan-Based Awards”for further information.

(5)  Represents bonus payments paid based on theachievement of budget targets with respect to EBITDA and net working capital ofcertain divisions of North Safety.  See “Summaryof Grants of Plan-Based Awards” for further information.

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(6)  Represents bonus payments paid equal to 5% ofKCL’s net profit.

(7)  Represents bonus payments paid based on theachievement of budget targets with respect to: EBITDA, net sales, inventoryturns, and fill rate of our electrical safety segment.  See “Summary of Grants of Plan-Based Awards”for further information.

(8)  Represents the change in actuarial presentvalue of the named executive’s accumulated benefit under the Norcross SafetyProducts L.L.C. Employees’ Pension Plan and the North Safety Products, Inc.Retirement Benefit Restoration Plan.  TheCompany does not have any non-qualified defined contribution plans. Asdiscussed above under “Compensation Discussion and Analysis — RetirementBenefits,” Messrs. Peterson and Myers were not participants in the RestorationPlan prior to 2006.  Amounts for Messrs.Peterson and Myers therefore reflect the full amount of the pension benefits towhich they became entitled in connection with the negotiation of theiremployment agreements in connection with the Norcross Transaction.

(9)  The dollar value of the amounts shown in thiscolumn for 2006 includes the following:  
| **Named Executive Officer** | ** ** | **Car Allowance  ($)** | ** ** | **Matching Contributions  Under 401(k) Plan  ($)** | ** ** | **Life Insurance and  AD&D Premiums  ($)** | ** ** | **Contribution to  Profit Sharing Plan  ($)** | ** ** |
|---------------------------------------|------------|-----------------------------|------------|-------------------------------------------------------------------|------------|---------------------------------------------------------------|------------|--------------------------------------------------------------|------------|
| Robert A.  Peterson                   |       | 8,400                       |       | 7,500                                                             |       | 648                                                           |       | 3⁄4                                                       |       |
| David F. Myers,  Jr.                  |       | 8,400                       |       | 7,500                                                             |       | 648                                                           |       | 3⁄4                                                       |       |
| Charles S. Ellis                      |       | 7,200                       |       | 6,600                                                             |       | 648                                                           |       | 3⁄4                                                       |       |
| Volker H.  Laitsch                    |       | 15,404                      | *          | 3⁄4                                                            |       | 3⁄4                                                        |       | 3⁄4                                                       |       |
| Kenneth R. Martell                    |       | 7,200                       |       | 6,600                                                             |       | 648                                                           |       | 8,400                                                        |       |

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*Mr.Laitsch is provided use of an automobile that is owned by KCL.  The car allowance set forth in the tableabove represents the aggregate incremental cost to KCL for such automobile,based on the depreciation expense for fiscal 2006.

(10) The salary and bonus received and reported in theSummary Compensation Table for 2006 represents the following percentages of thetotal compensation received and reported for each named executive officer: Mr.Peterson - 44%, Mr. Myers - 48%, Mr. Ellis - 74%, Mr. Laitsch - 97% and Mr.Martell - 80%.

(11)  Wemutually agreed with Mr. Laitsch not to continue his employment with useffective March 13, 2007. Amounts paid to Mr. Laitsch have been translated intoU.S. Dollars at a rate of $1.255=€1.00, the average exchange rate during fiscal2006.

**Summaryof Employment Agreements**

***Robert A. Peterson***.  Norcrossentered into an employment agreement, dated as of May 20, 2005, with Mr.Peterson, pursuant to which he serves as our President and Chief ExecutiveOfficer for a period of five years. Under the terms of this agreement Mr. Peterson is entitled to receive abase salary, as adjusted for 2006, of $570,000, a $700 per month automobileallowance, reimbursement for reasonable expenses, participation in whateverbenefit programs (including participation in the Restoration Plan) Norcross hasin place for its employees who are not members of a collective bargaining unit(on a basis commensurate with his position), and four calendar weeks ofvacation per year.  Pursuant to the termsof his agreement, for a period of eighteen months following the termination ofMr. Peterson’s employment, he shall be subject to a non-competition provisionwhich states that Mr. Peterson cannot, without the prior written consent ofNorcross, directly or indirectly participate in any line of business that iscompetitive with Norcross.  For purposesof the non-competition provision, “participate” means direct or indirectownership or assistance to any enterprise, excluding ownership of less than 2%of a class of securities on a national securities exchange or NASDAQ.  The non-competition provision is limited ingeographic scope to the United States and any other county in which Norcrossdoes business.  Upon termination, Mr.Peterson is also subject to an eighteen-month non-solicitation provision, whichis applicable to customers, suppliers, business relations and employees ofNorcross.  Notwithstanding the foregoing,in the event Mr. Peterson’s employment with Norcross is terminated, he ispermitted to solicit the employment of his personal assistant and Mr.Myers.  In connection with the NorcrossTransaction, in addition to the capital stock purchased by Mr. Peterson, SafetyProducts agreed to issue to Mr. Peterson options to purchase shares of capitalstock of Safety Products equal to 4.25% of its fully diluted equity, whichgrants were made on January 2, 2006.

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***David F. Myers, Jr******.***  Norcross entered an employmentagreement, dated as of May 20, 2005, with Mr. Myers, pursuant to which heserves as our Executive Vice President and Chief Financial Officer onsubstantially the same terms as those contained in Mr. Peterson’s employmentagreement, except that (1) his base salary, as adjusted for 2006, is $395,000,(2) the non-solicitation provision contained in Mr. Myers’ agreement providesan exception allowing Mr. Myers to solicit the employment of his personalassistant and Mr. Peterson, and (3) in connection with the NorcrossTransaction, in addition to the capital stock purchased by Mr. Myers, SafetyProducts agreed to issue to Mr. Myers options to purchase shares of capitalstock of Safety Products equal to 2.75% of its fully diluted equity, whichgrants were made on January 2, 2006.

***Charles S. Ellis***.  Oursubsidiary, North Safety, entered into an employment agreement, dated as of May20, 2005, with Mr. Ellis, pursuant to which he serves as President-NorthWorldwide for an initial term of three years. Under the terms of this agreement, Mr. Ellis is entitled to receive a basesalary, as adjusted on April 1, 2006, of $302,225, a $600 per month automobileallowance, participate in all employee benefits plans for which seniorexecutives of North Safety are eligible, and three calendar weeks of vacationper year.  Pursuant to the terms of hisagreement, for a period of eighteen months following the termination of Mr.Ellis’ employment, he shall be subject to (1) a non-competition provision,which has no limit in geographic scope and (2) a non-solicitation provision,which is applicable to customers, suppliers and employees of North Safety.

**Volker H. Laitsch**.  Pursuant to a management service contract,effective as of July 1, 2005, 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 monthly salaryof $18,825 (translated into U.S. Dollars at a rate of $1.255=€1.00, the averageexchange rate during fiscal 2006) and is eligible to receive a yearly bonus inan amount equal to 5% of KCL’s net profit, before the deduction of thecorporate income tax and possible supplementary taxes, and is provided use ofan automobile owned by KCL.

**Kenneth R. Martell**.  Our electrical safety segment entered into anemployment agreement in August 1999 with Mr. Martell pursuant to which heserves as Vice President and General Manager. Under the terms of this agreement, Mr. Martell is entitled to receive abase salary, as adjusted on April 1, 2006, of $199,577.  Mr. Martell is also entitled to participatein all employee benefits plans for which senior executives are eligible, a $600per month automobile allowance and three calendar weeks of vacation per year.

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**Grants of Plan-Based Awards**

The following tablesummarizes information regarding awards granted under the Company’s equity andnon-equity incentive plans during 2006:
| ** **             | ** ** | ** **     | ** ** | **Estimated Possible Payouts  Under Non-Equity Incentive  Plan(1)** | ** ** | **All Other  Option Awards:  Number of  Securities  Underlying  Options** | ** ** | **Exercise or  Base Price of  Option Awards** | ** ** | **Grant Date Fair  Value of Stock  and Option** | ** ** |
|------------------------|------------|----------------|------------|-----------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------|------------|--------------------------------------------------------------------------|------------|
| ** **             | ** ** | **Grant**      | ** ** | **Threshold**                                                                           | ** ** | **Target**                                                                               | ** ** | **Maximum**                                                       | ** ** | **(#)**                                                                  | ** ** | **($/Sh)** | ** ** | **Awards** | ** ** |
| **Name  (a)**          | ** ** | **Date  (b)**  | ** ** | **($)  (c)**                                                                            | ** ** | **($)  (d)**                                                                             | ** ** | **($)  (e)**                                                      | ** ** | **(j)  (2)**                                                             | ** ** | **(k)  (3)** | ** ** | **(l)  (4)** | ** ** |
| Robert A.  Peterson    |       | 1/1/06

1/2/06 |       | —

                                                                           |       | 513,000                                                                                  |       | 641,250                                                           |       |  

520,000                                                          |       |  

10.00 |   |  

2,054,000 |   |
| David F. Myers,  Jr    |       | 1/1/06

1/2/06 |       | —

                                                                           |       | 355,500                                                                                  |       | 444,375                                                           |       |  

336,898                                                          |       |  

10.00 |   |  

1,330,747 |   |
| Charles S. Ellis       |       | 1/1/06

1/2/06 |       | —

                                                                           |       | 179,674                                                                                  |       | 224,593                                                           |       |  

65,000                                                           |       |  

10.00 |   |  

256,750 |   |
| Volker H.  Laitsch (5) |       | 5/29/06        |       | 31,375                                                                                  |       | 240,960                                                                                  |       | N/A                                                               |       |                                                                     |       |   |   |   |   |
| Kenneth R.  Martell    |       | 1/1/06

1/2/06 |       | —

                                                                           |       | 79,101                                                                                   |       | 98,877                                                            |       |  

25,000                                                           |       |  

10.00 |   |  

98,750 |   |

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(1)  Such amounts represent the target and maximumamounts possible under the annual cash bonuses for 2006.  For a more detailed description of the bonustargets and maximums, please see the discussion entitled “Summary of Grants ofPlan-Based Awards” below.

(2)All option grants are subject to time-based vesting as described below under “OptionsGrants.”  Vesting with respect to 66 2/3%of such options is subject to acceleration based upon satisfaction of annualand cumulative EBITDA-based performance conditions.

(3)  There iscurrently no public market for Safety Products’ equity securities.  The price of $10 per share was the share purchase price paid as part ofthe Norcross Transaction. The board of directors believed this was the mostreasonable value to use as it reflected the price paid as part of anindependent third party transaction for the business and, after consideringvarious factors occurring between the July 19, 2005 transaction and the January2006 issuance of the options, the board determined that $10 per share remainedthe appropriate fair value.

(4)  This column shows the full grant date fairvalue of stock options under SFAS 123R granted to the named executives in 2006.Generally, the full grant date fair value is the amount that the company wouldexpense in its financial statements over the award’s vesting schedule.  For additional information on the valuationassumptions, refer to Note 21 of the audited financial statements for the yearended December 31, 2006. These amounts reflect our accounting expense, and donot correspond to the actual value that will be recognized by the namedexecutive officers.

(5)  Amounts paid to Mr. Laitsch have beentranslated into U.S. Dollars at a rate of $1.255=€1.00, the average exchangerate during fiscal 2006.

 

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**Summaryof Grants of Plan-Based Awards**

**Bonus Payments for Messrs Petersonand Myers**.  The targetbonus for each of Mr. Peterson and Mr. Myers was based on the achievement of abudget consolidated EBITDA of $85,824,000. The target bonus payable to each of Messrs. Peterson and Myers was equalto 90% of such executive’s base salary. The maximum amount of bonus available to Messrs. Peterson and Myers wasequal to 125% of such executive’s target bonus in the event 110%-120% of thetarget EBITDA was achieved, declining ratably to 100% of the target bonus if100% of the target EBITDA was achieved, and declining to 0% of the target bonusif less than 90% of the target EBITDA was achieved.  For fiscal 2006, these targets were 98.7%achieved and Mr. Peterson and Mr. Myers received the bonuses set forth in theSummary Compensation Table.

**Bonus Payments for Mr. Ellis**.  The target bonus for Mr. Ellis was equal to60% of his base salary and was based on the achievement of the following budgetperformance targets with respect to certain divisions of North Safety: targetEBITDA of $31,368,000 and net working capital of 23.1% of net sales, with theEBITDA component comprising 60% of the target bonus and the net working capitalcomponent comprising 40% of the target bonus. Mr. Ellis was eligible to receive up to an additional 15% of his basesalary as a discretionary bonus.  Themaximum amount of bonus available to Mr. Ellis was equal to 125% of his targetbonus in the event 110%-120% of the performance targets were achieved,declining ratably to 100% of the target bonus if 100% of the performancetargets were achieved, and declining to 0% of the target bonus if less than 90%of the performance targets were achieved. For fiscal 2006, 104.9% of the target was achieved and Mr. Ellisreceived the bonus set forth in the Summary Compensation Table.

**BonusPayments for Mr. Laitsch. **For2006, the cash bonus payable to Mr. Laitsch was established at 5% of the annualnet profit of KCL, as calculated before the deduction of corporate income taxand possible supplementary taxes.  Mr.Laitsch is entitled to a minimum bonus of $31,375 (translated into U.S. Dollarsat a rate of $1.255=€1.00, the average exchange rate in fiscal 2006), and thereis no cap on the maximum amount of bonus that he may receive.

**BonusPayments for Mr. Martell**. The target bonus for Mr. Martell was equal to 40% of his base salary andwas based on the achievement of the budget following performance targets withrespect to our electrical safety segment: EBITDA of $18,398,000, net sales of$74,227,000 and the achievement of inventory turns and fill rate, with theEBITDA component comprising 70% of the target bonus, the sales componentcomprising 10% of the target bonus, the inventory turns component comprising15% of the target bonus and the fill rate component comprising 5% of the targetbonus.  The maximum amount of bonusavailable to Mr. Martell was equal to 125% of his target bonus in the event110%-120% of the performance targets were achieved, declining ratably to 100%of the target bonus if 100% of the performance targets were achieved, anddeclining to 0% of the target bonus if less than 90% of the performance targetswere achieved.  For fiscal 2006, 114.4 %of these targets were achieved and Mr. Martell received the bonus set forth inthe Summary Compensation Table.

**OptionGrants**.  Options aresubject to time vesting and are conditioned upon continual employment in activeservice.  One-third of the optionscovered by the grant vest in five installments, with 4.1333% of the grantamount vesting on the grant date and an additional 7.29925% vesting in each ofthe four fiscal years from 2006 through 2009 (with each such annual installmentvesting quarterly on the last day of each calendar quarter).  The remaining two-thirds of the optionscovered by the grant become exercisable on the day immediately preceding theeighth anniversary of the grant date; however the vesting on this portion ofthe option award is subject to acceleration if the EBITDA-based targets setforth in the grant agreement are met. With respect to the two-thirds for which vesting is subject toacceleration, the grant agreements provide that an installment consisting of7.2900% of the shares shall become exercisable on March 31, 2006 and aninstallment consisting of 14.8425% would become exercisable on or within 120days following December 31 of each calendar year 2006 through 2009, if theEBITDA-based target for the year was met. If the targets are not met for any calendar year 2006 through 2009, theportion of the option that was subject to acceleration will become exercisableon, or within 120 days following, the first December 31 on which theEBITDA-based target for such year is met and the cumulative EBITDA-based targetis met.

For purposes of our optionvesting schedule and the bonus payment calculations, EBITDA means the sum of(a) the sum of (i) Adjusted EBITDA (which represents EBITDA adjusted formanagement incentive compensation; (gain) loss on sale of property, plant andequipment; inventory purchase accounting adjustments; non-cash pensioncurtailment gain and seller transaction expenses), plus (ii) any LIFO reserveadjustment (whether positive or negative), plus (iii) unrealized foreignexchange gains or losses, plus (iv) other non-recurring or extraordinary gainsor losses, plus (b) any management or similar fees charged to the Company byany principal stockholder (but only to the extent that such fees are deductedfrom the earnings described in clause (a) above but excluding reimbursement ofany reasonable out of pocket fees and expenses).  EBITDA may be adjusted to reflect the impactof acquisitions.

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The specific EBITDA andCumulative EBITDA targets are as follows:

** **
| **EBITDA Targets**    | ** ** | **2006**    | ** ** | **2007**    | ** ** | **2008**    | ** ** | **2009**    | ** ** |
|----------------------------|------------|-------------|------------|-------------|------------|-------------|------------|-------------|------------|
| Total Annual EBITDA        |       | $           | 83,624,000 |        | $          | 92,623,000  |       | $           | 97,912,000 |   | $ | 101,951,000 |   |
| Cumulative EBITDA  Targets |       | 150,724,000 |       | 243,346,000 |       | 341,258,000 |       | 443,209,000 |       |
|                            |            |             |            |             |            |             |            |             |            |  |  |  |  |

 

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**Outstanding Equity Awardsat Fiscal Year-End**

The following tablesummarizes the outstanding equity awards held by our named executive officers:
| ** **                   | ** ** | **Option Awards**                                                              | ** ** |
|------------------------------|------------|-------------------------------------------------------------------------------------|------------|
| **Name**                     | ** ** | **Number  of  Securities  Underlying  Unexercised  Options  (#)  Exercisable  (1)** | ** ** | **Number  of  Securities  Underlying  Unexercised  Options  (#)  Unexercisable  (2)** | ** ** | **Equity  Incentive  Plan  Awards:  Number  of  Securities Underlying  Unexercised  Unearned  Options  (#)** | ** ** | **Option  Exercise  Price  ($)** | ** ** | **Option  Expiration  Date** | ** ** |
| **(a)**                      | ** ** | **(b)**                                                                             | ** ** | **(c)** | ** ** | **(d)** | ** ** | **(e)** | ** ** | **(f)** | ** ** |
| Robert A. Peterson |       | 174,538                                                                             |       | 345,462 |   | — |   | 10.00 | ** ** | 1/2/16 | ** ** |
| David F. Myers,  Jr.         |       | 113,080                                                                             |       | 223,818 |   | — |   | 10.00 |   | 1/2/16 |   |
| Charles S. Ellis             |       | 21,817                                                                              |       | 43,183 |   | — |   | 10.00 |   | 1/2/16 |   |
| Volker H.  Laitsch           |       | 3⁄4                                                                              |       | 3⁄4 |   | — |   | 3⁄4 |   | 3⁄4 |   |
| Kenneth R. Martell           |       | 8,391                                                                               |       | 16,609 |   | — |   | 10.00 |   | 1/2/16 |   |

 

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(1)  Exercisableoptions are comprised of (i) 4.13333% of the shares covered by the optiongrant, which vested as of January 2, 2006, plus (ii) 7.29925% of the sharescovered by the option grant, which vested as of December 31, 2006, plus (iii)7.29000% of the shares covered by the option grant, which were subject toaccelerated vesting as of March 31, 2006 based on the achievement of theapplicable EBITDA target as set by the board, plus (iv) 14.8425% of the sharescovered by the option grant, which were subject to accelerated vesting as ofDecember 31, 2006 based on the achievement the applicable EBITDA target as setby the board.

(2)  Unexercisableoptions will vest as follows: (i) an installment consisting of 7.29925% of theshares covered by the option grant shall become exercisable at the rate of 25%of the installment on the last day of each calendar quarter for each yearending December 31, 2007, 2008 and 2009; (ii) 44.5275% of the shares subject tothe option grant shall become fully exercisable on January 1, 2014, providedthat the optionee remains continuously employed through such date, providedfurther that an installment consisting of 14.8425% of the shares covered by theoption grant shall be subject to accelerated vesting on or within 120 daysfollowing December 31 of each calendar year 2007, 2008 and 2009, if the EBITDAas of such December 31 equals or exceeds the applicable EBITDA target for suchyear as set by the board.

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**OptionExercises and Stock Vested**

There were no options exercised in fiscal 2006.

**PENSIONBENEFITS TABLE**
| **Name**                     | ** ** | **Plan  Name**                                                      | ** ** | **Number  of Years of   Credited Service** | ** ** | **Present   Value of   Accumulated Benefit** | ** ** | **Payments  During Last  Fiscal Year** | ** ** |
|------------------------------|------------|---------------------------------------------------------------------|------------|----------------------------------------------------------------|------------|------------------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                   | ** ** | **(1)**                                                             | ** ** | **(#)**                                                        | ** ** | **($)**                                                          | ** ** | **($)**                                          | ** ** |
| **(a)**                      | ** ** | **(b)**                                                             | ** ** | **(c)**                                                        | ** ** | **(d)**                                                          | ** ** | **(e)**                                          | ** ** |
| Robert A. Peterson |       | North  Safety Products Benefit Restoration Plan |       | 11.7                                                           |       | 621,216                                                          |       | —                                           |       |
| David F. Myers,  Jr.         |       | North  Safety Products Benefit Restoration Plan                     |       | 11.5                                                           |       | 307,620                                                          |       | —                                           |       |
| Charles S. Ellis             |       | Norcross  Safety Products L.L.C. Employees  Pension Plan            |       | 5.5                                                            |       | 108,024                                                          |       | —                                           |       |
|                         |       | North  Safety Products Benefit Restoration Plan                     |       | 5.5                                                            |       | 145,320                                                          |       | —                                           |       |
| Volker H.  Laitsch           |       | 3⁄4                                                              |       | 3⁄4                                                         |       | 3⁄4                                                           |       | 3⁄4                                           |       |
| Kenneth R. Martell           |       | W.H. Salisbury &  Co. Employees Pension Plan                    |       | 7.4                                                            |       | 156,096                                                          |       | —                                           |       |

 

***Norcross Safety Products L.L.C. Employees’ Pension Plan.*** Messrs. Ellis and Martell participate in theNorcross Safety Products L.L.C. Employees’ Pension Plan (the “NSP Pension Plan”),which is a tax-qualified defined benefit plan. Mr. Ellis’ benefits aredetermined by the North Safety Benefit formula and Mr. Martell’s benefits aredetermined by the W.H. Salisbury Benefit formula as described below. Under theterms of the NSP Pension Plan, eligibility for Normal Retirement is age65.  Eligibility for Early Retirement foremployees of North Safety Products is age 55 with ten years of service.  Eligibility for Early Retirement foremployees of W. H. Salisbury is age 62 with twenty years of service.  As of December 31, 2006 neither Messrs. Ellisnor Martell are eligible for Normal Retirement or Early Retirement benefitsunder the terms of the NSP Pension Plan.  No additional benefits will be earned after December 31, 2006.

North Safety Benefitsunder the NSP Pension Plan are calculated based on (1) the employee’s averagemonthly compensation for the five consecutive calendar years for which theparticipant’s aggregate compensation was greatest and (2) the employee’s yearsof credited service. Compensation includes total cash compensation required tobe reported on Form W-2, plus any compensation deferred under Section 401(k) ofthe Internal Revenue Code, plus any compensation reductions under a planpursuant to Section 125 of the Internal Revenue Code, but excludingreimbursements, other expense allowances, fringe benefits, deferredcompensation and welfare benefits. Compensation is subject to Internal Revenue Code limitations.  The monthly benefits calculated for Mr. Ellisunder the North Safety formula equals:

·                  1.0% of theparticipant’s average final monthly compensation, plus 0.5% of the participant’saverage final monthly compensation in excess of covered compensation,multiplied by years and partial years of credited service limited to 35 yearson the excess portion.

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W.H. Salisbury Benefitsunder the NSP Pension Plan are calculated based on (1) the employee’s averagemonthly compensation for the three consecutive years out of the last 10 yearswhich yields the highest average and (2) the employee’s years of creditedservice. Compensation includes all amounts paid for services rendered in thecourse of employment excluding certain amounts which receive special taxbenefits defined under the plan. Compensation is subject to Internal Revenue Code limitations.  The monthly benefits calculated for Mr.Martell under the W.H. Salisbury formula equals:

·                  1.63%of the participant’s average final monthly compensation, plus 0.65% of theparticipant’s average final monthly compensation in excess of coveredcompensation, multiplied by years and partial years of credited service limitedto 20 years; less

·                  profitsharing account balance which could be received as a straight life annuityprovided to the participant under W.H. Salisbury & Co.’s definedcontribution plan.

***North Safety Products Benefit Restoration Plan.*** Messrs. Ellis, Myers and Peterson participatein a non-qualified, unfunded defined benefit plan (the “Restoration Plan”).Eligibility for this plan includes North Safety Products employees whosebenefits are limited by the Internal Revenue Code or those employees selectedby Safety Products board of directors. The Restoration Plan provides asupplemental benefit equal to the maximum benefit amount that the participantwould have received under the NSP Pension Plan if (1) there were no limitationson the maximum benefits payable under the NSP Pension Plan, and (2) if certainInternal Revenue Code limitations did not apply, and (3) if the prior planformula under the NSP Pension Plan continued to be effective for all years ofcredited service.  Eligibility forpayment of benefits under the Restoration Plan is the same as provided in theNSP Pension Plan.  No additional benefitswill be earned after December 31, 2006. The monthly benefits calculated under the Restoration Plan equal the greaterof the formula below offset by the monthly benefits provided under the NSPPension Plan.

·                  1.0% of theparticipant’s average final monthly compensation, plus 0.5% of the participant’saverage final monthly compensation in excess of “covered compensation,”multiplied by years and partial years of credited service limited to 35 yearson the excess portion; or

·                  1.67% of theparticipant’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 30 years.

The monthly benefitspayable to Messrs. Peterson and Myers under the Restoration Plan will be equalto the above formula multiplied by 37%.

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**Terminationand Change in Control Arrangements**

Assuming each executive officer’s employment was terminated under eachof the circumstances set forth below on December 31, 2006, the estimated valuesof payments and benefits to each named executive officer are set forth in thefollowing table:
| Name        | ** ** | **Benefit**                 | ** ** | **Termination with   Cause or without   Good Reason** | ** ** | **Termination without   Cause or for Good   Reason** | ** ** | **Change in Control  (1)** | ** ** | **Termination in the   Event of Disability or   Death** | ** ** |
|-------------|------------|-----------------------------|------------|-------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------|------------|--------------------------------------|------------|--------------------------------------------------------------------------------------------|------------|
|             |       | Salary                      |       | $                                                                                   | 3⁄4     |                                                                               | $          | 1,140,000                            |       | $                                                                                          | 1,062,465  |   | $ | 1,140,000 |   |
| Robert A.   |       | Bonus(2)                    |       | 3⁄4                                                                              |       | 499,662                                                                            |       | 499,662                              |       | 499,662                                                                                    |       |
| Peterson    |       | Medical  Benefits           |       | 3⁄4                                                                              |       | 22,616                                                                             |       | 22,616                               |       | 22,616                                                                                     |       |
|             |       | All  Other Compensation (3) |       | 3⁄4                                                                              |       | 18,096                                                                             |       | 18,096                               |       | —                                                                                     |       |
|        |       | Salary                      |       | 3⁄4                                                                              |       | 790,000                                                                            |       | 736,270                              |       | 790,000                                                                                    |       |
| David F.    |       | Bonus(2)                    |       | 3⁄4                                                                              |       | 346,257                                                                            |       | 346,257                              |       | 346,257                                                                                    |       |
| Myers, Jr   |       | Medical  Benefits           |       | 3⁄4                                                                              |       | 22,616                                                                             |       | 22,616                               |       | 22,616                                                                                     |       |
|        |       | All  Other Compensation (3) |       | 3⁄4                                                                              |       | 18,096                                                                             |       | 18,096                               |       | —                                                                                     |       |
|             |       | Salary                      |       | 3⁄4                                                                              |       | 453,338                                                                            |       | 3⁄4                               |       | 3⁄4                                                                                     |       |
| Charles S.  |       | Bonus(2)                    |       | 3⁄4                                                                              |       | 231,202                                                                            |       | 3⁄4                               |       | 3⁄4                                                                                     |       |
| Ellis       |       | Medical  Benefits           |       | 3⁄4                                                                              |       | 3⁄4                                                                             |       | 3⁄4                               |       | 3⁄4                                                                                     |       |
|             |       | All  Other Compensation     |       | 3⁄4                                                                              |       | 3⁄4                                                                             |       | 3⁄4                               |       | 3⁄4                                                                                     |       |
|        |       | Salary                      |       | 3⁄4                                                                              |       | 112,923                                                                            |       | —                               |       | 56,462                                                                                     |       |
| Volker H.   |       | Bonus(2)                    |       | __                                                                                  |       | 509,941                                                                            |       | 3⁄4                               |       | 3⁄4                                                                                     |       |
| Laitsch (4) |       | Medical  Benefits           |       | 3⁄4                                                                              |       | 3⁄4                                                                             |       | 3⁄4                               |       | 3⁄4                                                                                     |       |
|        |       | All  Other Compensation     |       | 3⁄4                                                                              |       | 3⁄4                                                                             |       | 3⁄4                               |       | 3⁄4                                                                                     |       |
|             |       | Salary                      |       | 3⁄4                                                                              |       | 3⁄4                                                                             |       | 3⁄4                               |       | 3⁄4                                                                                     |       |
| Kenneth R.  |       | Bonus                       |       | 3⁄4                                                                              |       | 3⁄4                                                                             |       | 3⁄4                               |       | 3⁄4                                                                                     |       |
| Martell     |       | Medical  Benefits           |       | 3⁄4                                                                              |       | 3⁄4                                                                             |       | 3⁄4                               |       | 3⁄4                                                                                     |       |
|             |       | All Other Compensation      |       | 3⁄4                                                                              |       | 3⁄4                                                                             |       | 3⁄4                               |       | 3⁄4                                                                                     |       |
|             |            |                             |            |                                                                                     |            |                                                                                    |            |                                      |            |                                                                                            |            |  |  |  |  |

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(1)  At the discretion of the board of directors,unexercisable options may become exercised in connection with a change ofcontrol if a certain internal rate of return is achieved by Odyssey.  Odyssey’s target internal rate of returnwould not have been achieved if a change in control had occurred on December31, 2006.

(2)  Includes bonus payments with respect tofiscal 2006 that are reflected in column (d) and column (g) of the SummaryCompensation Table.

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(3)  The dollarvalue of the amounts shown in this column includes the following, which amountsrepresent the two-year total of such benefits based on the value for fiscal2006:     

| Named Executive Officer | ** ** | **Car Allowance  ($)** | ** ** | **Life Insurance and   AD&D Premiums  ($)** | ** ** |
|-----------------------------------|------------|-----------------------------|------------|---------------------------------------------------------------------|------------|
| Robert A. Peterson                |       | 16,800                      |       | 1,296                                                               |       |
| David F. Myers, Jr.               |       | 16,800                      |       | 1,296                                                               |       |

 

(4)  Amounts paid to Mr. Laitsch have been translatedinto U.S. Dollars at a rate of $1.255=€1.00, the average exchange rate duringfiscal 2006.

**Summary of Termination and Change in Control Arrangements**

**Messrs. Peterson and Myers**.** **Inthe event employment of Messrs. Peterson and Myers is terminated by Norcrossfor cause or by the executive without good reason, the executive 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.

Inthe event that employment is terminated (1) by Norcross without cause, (2) bythe executive for good reason, (3) due to the executive’s death or disability,or (4) due to Norcross not offering, at least 90 days prior to the end of theterm of employment, to continue the executive’s employment for a period of atleast two years, the executive (or his estate) will be entitled to his basesalary and benefits for the period ending on the date of termination, anyunpaid bonus for any calendar year ending prior to the year in which suchtermination occurs, a *prorata* bonus for the calendar year in which termination occurs and(except in the event of termination due to his death) his base salary andbenefits for a period of 2 years if, within 30 days of termination, theexecutive signs and delivers to Norcross a general release from claims arisingfrom facts and circumstances existing before the date of such release.  In the event such executive’s employmentterminated because Norcross elected not to continue his employment after theexpiration of the initial term, the severance payment as described above willbe offset by any payments or benefits received by the executive in the secondyear following such termination as a result of his having obtained newemployment.  Any amounts due to theexecutive shall be paid as if he had not been terminated, except that in theevent the executive terminated his employment due to a change in control, suchamounts shall be paid in a lump sum within 10 days of his resignation, in anamount discounted to present value at a rate of 7% per year.  In the event that employment is terminated(1) by Norcross with cause or (2) by the executive without good reason, the executiveshall be entitled to (i) receive base salary and benefits for the period endingon the termination date; and (ii) receive any unpaid bonus for any calendaryear ending prior to the year in which the termination date incurred.

Forpurposes of the executives’ employment agreements, the terms “cause” and “goodreason” are defined as follows:

·                     “cause”means the executive’s: (1) embezzlement or misappropriation of funds; (2)conviction of a felony involving moral turpitude; (3) commission of a materialact of dishonesty; (4) fraud or deceit; (5) breach of any material provision ofthe employment agreement or other agreement with Norcross, Safety Products orany subsidiary thereof; (6) habitual or willful neglect of duties; breach offiduciary duty; or (7) material violation of any other duty to Norcross, SafetyProducts or any subsidiary thereof.

·                     “good reason”means: (1) material breach by Norcross of its obligations to the executive ifnot cured within twenty days after written notice by executive to Norcross; (2)Norcross requiring executive to move his principal place of employment by morethan 25 miles if such move increases executive’s commute; (3) the failure ofany successor to Norcross to assume executive’s employment agreement; (4) achange of control.

***Mr. Ellis****. *In the event employment is terminated byNorth Safety without cause or by Mr. Ellis with good reason, North Safetyshall, for a period of eighteen months following such termination orresignation, pay Mr. Ellis his base salary as of such termination date.  As a condition of such severance payment, Mr.Ellis shall continue to be bound by the covenants not to compete or solicit asspecifically set forth in his employment agreement.  In the event employment of Mr. Ellis is 

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**terminated (1) by North Safety for cause, (2) by Mr.Ellis without good reason or (3) due to his death or disability, Mr. Ellis willbe entitled to the sum of any unpaid base salary through the date oftermination, plus accrued and unpaid vacation pay and any unreimbursed expensesincurred by Mr. Ellis on behalf of North Safety.**

**For purposes of Mr. Ellis’ employment agreement, theterms “cause” and “good reason” are defined as follows:**

**·**                  “cause” has the samemeaning as defined in the employment agreements for Messrs. Peterson and Myers,except that the definition for Mr. Ellis also includes: (1) failure to correctinsubordination; (2) failure to comply with instructions; or (3) other acts oromissions that adversely affect operations.

**·**                  “good reason” means Mr.Ellis’ resignation as a result of: (1) a substantial diminution ofresponsibilities, duties or authorities; (2) a reduction of his perquisites,including office facilities and support staff; (iii) a relocation to an areamore than fifty miles from the current location; or (4) a material breach ofhis employment agreement by North Safety, which is not cured within 30 daysafter written notice by Mr. Ellis to North Safety.

**Mr.Laitsch**.  In the eventMr. Laitsch should become permanently unable to work, his employment shallterminate at the end of the calendar half year in which the permanent inabilityto work has been established and he shall be entitled to a *pro rata* bonus based on the profit of theKCL in the prior fiscal year.  In theevent employment of Mr. Laitsch is terminated due to his death, his wife andmarital children that are less than 25 years old shall be entitled to receivehis base salary for a period of four months and his *pro rata* bonus based on the profit of the KCL in the priorfiscal year.  In the event employment ofMr. Laitsch was terminated without cause as of December 31st of any year, hewould be entitled to his base salary through the following June 30 (i.e. up to6 months in the event the Company did not elect to renew his contact onDecember 31st) and 150% of his bonus for fiscal 2006.  In the event employment of Mr. Laitsch isterminated for cause or due to his resignation, his employment agreement willautomatically terminate.

**OptionPlan. **As described inthe Compensation Discussion and Analysis, upon a change in control, previouslyunvested options would become exercisable if specified internal rate of returnand a multiple of investment dollars had been achieved by Odyssey.  As of December 31, 2006, such target internalrates of return and multiple of investment dollars had not been achieved andoptions would not accelerate upon a change in control unless the board ofdirectors elected to do so in its discretion.

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**Director Compensation**

None of ouremployees are entitled to any compensation for serving on our board ofdirectors.
| **ITEM 12.** | ** ** | **SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS  AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS** |
|--------------|------------|-----------------------------------------------------------------------------------------------------|

** **

**Principal Equityholders**

The following table setsforth certain information with respect to the beneficial ownership of the commonstock of Safety Products as of February 28, 2007, by:

·                  Each person, orgroup of affiliated persons, who is known by us to own beneficially more than5.0% of its common stock;

·                  Each of ourdirectors and named executive officers; and

·                  All of ourdirectors and executive officers as a group.

Beneficial ownership isdetermined in accordance with the rule of the SEC.  Shares of common stock subject to optionscurrently exercisable or exercisable within 60 days of February 28, 2007, aredeemed outstanding for calculating the percentage of outstanding share of theperson holding these options, but are not deemed outstanding for the percentageof any other person.  Percentage ofbeneficial ownership is based upon 11,030,884 shares of common stockoutstanding as of February 28, 2007.  Toour knowledge, except as set forth in the footnotes to this table and subjectto applicable 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 otherwiseindicated, the address of each of the persons in this table is as follows:  c/o Safety Products Holdings, Inc., 2001Spring Road, Suite 425, Oak Brook, Illinois 60523.

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| ** **                                                                                                                       | ** ** | **Common Stock**                          | ** **   |
|----------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------|--------------|
| **Name**                                                                                                                         | ** ** | **Number**

**Including  Underlying  Options** | ** **   | **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                                                                                                               |       | 294,261                                        |         | 184,261 |   | 2.6 | % |
| David F. Myers, Jr.                                                                                                              |       | 169,228                                        |         | 119,228 |   | 1.5 | % |
| Charles S. Ellis                                                                                                                 |       | 36,003                                         |         | 23,003 |   | * |   |
| Volker H. Laitsch                                                                                                                |       | 0                                              |         | 0 |   | * |   |
| Kenneth R. Martell                                                                                                               |       | 12,347                                         |         | 8,847 |   | * |   |
| Brian Kwait                                                                                                                      |       | 8,301,258                                      | (2)(3)(4)(5) | 0 |   | 75.3 | % |
| Craig P. Staub                                                                                                                   |       | 0                                              |         | 0 |   | * |   |
| Matthew A. Satnick                                                                                                               |       | 0                                              |         | 0 |   | * |   |
| All directors and executive officers as a group (10 persons)                                                                     |       | 8,844,726                                      |         | 346,842 |   | 77.7 | % |

----

*                 Represents beneficial ownership of less than onepercent.

(1)          Odyssey Capital Partners III, LLC, or Odyssey Capital,is the general partner of Odyssey Investment Partners Fund III, LP, or OdysseyFund, and by virtue of such status may be deemed to be the beneficial owner ofthe shares held by Odyssey Fund.  Mr.Kwait is a Managing Member of Odyssey Capital and does not have the powerindividually to direct or veto the voting or disposition of shares held byOdyssey Fund.  Odyssey Capital expresslydisclaims beneficial ownership of the shares held by Odyssey Fund.

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

(3)          Mr. Kwait may be deemed to share beneficial ownershipof the shares held by Odyssey Fund by virtue of his status as a Managing Memberof Odyssey Capital.  Mr. Kwait expresslydisclaims beneficial ownership of any shares held by Odyssey Fund that exceedhis pecuniary interest therein.  Themembers and managers of Odyssey Capital share investment and voting power withrespect to securities owned by Odyssey Fund, but no individual controls suchinvestment or voting power.

(4)          Includes 41,258 shares of common stock owned by SafetyProducts Coinvestment LLC, or Coinvestment LLC. Odyssey Investment Partners, LLC, or Odyssey, is the managing member ofCoinvestment LLC and by virtue of such status may be deemed to be thebeneficial owner of the shares held by Coinvestment LLC.  Mr. Kwait is a Managing Member of Odyssey anddoes not have the power individually to direct or veto the voting ordisposition of shares held by Coinvestment LLC. Odyssey expressly disclaims beneficial ownership of the shares held byCoinvestment LLC.

(5)          Mr. Kwait may be deemed to share beneficial ownershipof the shares held by Coinvestment LLC by virtue of his status as a Managing Memberof Odyssey.  Mr. Kwait expresslydisclaims beneficial ownership of any shares held by Coinvestment LLC thatexceed his pecuniary interest therein.

**EquityCompensation Plan Information**

The following table provides information as ofDecember 31, 2006 about the common stock that may be issued under allof the existing equity compensation plans, including the 2005 Option Plan ofSafety Products. The 2005 Option Plan has been approved by our stockholders.
| ** **                                                  | ** ** | **Number of securities to  be issued upon exercise  of outstanding options,  warrants and rights** | ** ** | **Weighted-average  exercise price of  outstanding options,  warrants and rights** | ** ** | **Number of securities  Remaining available for  future issuance under  equity compensation  plans  (excluding securities  reflected in  column (a))** | ** ** |
|-------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| ** **                                                  | ** ** | **(a)**                                                                                                                                              | ** ** | **(b)**                                                                                                     | ** ** | **(c)**                                                                                                                                                                                                  | ** ** |
| Equity compensation  plans approved by security holders     |       | 1,345,559                                                                                                                                            |       | $                                                                                                           | 10.95      |                                                                                                                                                                                                     | 91,072     |   |
|                                                        |       |                                                                                                                                                 |       |                                                                                                        |       |                                                                                                                                                                                                     |       |
| Equity compensation  plans not approved by security holders |       | —                                                                                                                                               |       | —                                                                                                      |       | —                                                                                                                                                                                                   |       |
| Total                                                       |       | 1,345,559                                                                                                                                            |       | $                                                                                                           | 10.95      |                                                                                                                                                                                                     | 91,072     |   |

 

98

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**ITEM 13.       CERTAINRELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE**

**Stockholders Agreement**

On July 19, 2005, SafetyProducts entered into a stockholders agreement with Odyssey Investment PartnersFund III, LP (“Odyssey Fund”) and Safety Products, LLC (“SPL”).  The stockholders agreement includes certainrestrictions on the transfer of shares of common stock including the grantingto Odyssey Fund of a right of first refusal with respect to sales of sharesheld by SPL at any time prior to the fifth anniversary of the execution date ofthe agreement.  Under certaincircumstances, SPL has “tag-along” rights to sell its shares on a *pro rata* basis withOdyssey Fund in certain sales to third parties. If Odyssey Fund approves a sale of shares of common stock, Odyssey Fundhas the right to require SPL to sell their shares on the same terms.  In addition, subject to certain exceptions,including issuance pursuant to an initial public offering, the stockholders agreementgrants holders of common stock party thereto preemptive rights with respect toissuances of common stock by Safety Products.

The stockholdersagreement also includes certain registration rights which provide that, uponthe written request of either Odyssey Fund or SPL, Safety Products has agreedto, on one or more occasions following an initial public offering, prepare andfile a registration statement with the SEC concerning the distribution of allor part of the shares of common stock held by Odyssey Fund and SPL, and use itscommercially reasonable efforts to cause the registration statement to becomeeffective.  Following an initial publicoffering by Safety Products, Odyssey Fund and SPL will also have the right,subject to certain exceptions and rights of priority, to have their sharesincluded in certain registration statements filed by Safety Products.  Registration expenses of the sellingstockholders (other than underwriting discounts and commissions and transfertaxes applicable to the shares sold by such stockholders or the fees andexpenses of any accountants or other representatives retained by a sellingstockholder) will be paid by Safety Products. Safety Products has also agreed to indemnify the stockholders againstcertain customary liabilities in connection with any registration.

**Management StockholdersAgreement**

On July 19, 2005, SafetyProducts also entered into a management stockholders agreement with OdysseyFund and the management investors.  Themanagement stockholders agreement generally restricts the transfer of shares ofcommon stock without the consent of Odyssey Fund.  Exceptions to this restriction includetransfers for estate planning purposes, in each case so long as any transfereeagrees to be bound by the terms of the management stockholders agreement.

Safety Products andOdyssey Fund have a right of first refusal under the management stockholdersagreement with respect to sales of shares of common stock held by managementinvestors.  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 Fund approves a sale of shares ofcommon stock, Odyssey Fund has the right to require the management stockholdersto sell their shares on the same terms. The agreement also contains a provision that gives Safety Products theright to repurchase a management investor’s shares upon termination of thatmanagement investor’s employment and gives the management stockholder the rightto require Safety Products to repurchase such stockholder’s shares upontermination of that management investor’s employment.  In addition, subject to certain exceptions,including issuance pursuant to an initial public offering, the managementstockholders agreement grants holders of common stock party thereto preemptiverights with respect to issuances of common stock by Safety Products to OdysseyFund.

**Family Relationships**

William L. Grilliot, ourPresident—Fire Service, is the husband of Mary I. Grilliot, the Vice Presidentof our subsidiary, Morning Pride Manufacturing L.L.C.  Mr. and Mrs. Grilliot were each paid anaggregate salary and bonus of $233,086 for their services during the year endedDecember 31, 2006.

**Real Property Leases**

Morning PrideManufacturing L.L.C. leases a facility in Dayton, Ohio from AmericanFirefighters Cooperative, Inc., a corporation controlled by William L.Grilliot, our President—Fire Service. The initial term of the lease ended on February 28, 2005 and wasextended through April 30, 2009.  Thebase rent is $347,816 per year, payable in monthly installments.  In addition, we must also pay AmericanFirefighters Cooperative, Inc. the actual amount of all real estate taxes, andall general and special assessments of every kind, as additional rent duringthe term of the lease.  The annual rentpaid in each of 2006, 2005 and 2004 was $382,111, $373,181 and $366,320,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.

99

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**Related Party Policy**

We do not have a formalrelated party approval policy for review and approval of transactions requiredto be disclosed pursuant to item 404 (a) of Regulation S-K. However, it is ourpolicy to comply with the covenant related to transactions with affiliates thatis contained in the indeture governing our notes.

**Director Independence**

None of the Company’s directorsis “independent” within the meaning of the rules of the national securityexchanges. The Company is privately owned and all of its directors areaffiliates of Odyssey Fund, the Company’s principal stockholder or are membersof the Company’s management.

100

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**ITEM 14.**                      PRINCIPALACCOUNTANT FEES AND SERVICES

The following tablepresents fees for services provided by Ernst & Young LLP (“E&Y”) forfiscal year 2005 and 2006.  All AuditFees, Audit-Related Fees, Tax Fees and Other Fees were pre-approved by theAudit Committee in accordance with its established procedures.

| (In thousands)     | ** ** | **2005** | ** ** | **2006**  | ** ** |
|-------------------------|------------|----------|------------|-----------|------------|
| Audit Fees (a)          |       | $        | 1,249,942  |      | $          | 1,103,342 |   |
| Audit-Related  Fees (b) |       | 73,742   |       | 125,000   |       |
| Tax Fees (c)            |       | 939,210  |       | 1,133,350 |       |
| All Other Fees          |       | —   |       | 12,823    |       |
| Total                   |       | $        | 2,262,894  |      | $          | 2,374,515 |   |

 

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(a)             Feesfor professional services provided for the audit of the Company’s annualfinancial statements as well as reviews of the Company’s quarterly reports onForm 10-Q, accounting consultations on matters addressed during the audit orinterim reviews, SEC filings and offering memorandums including comfort lettersand consents and assistance with SEC comment letters.

(b)            Feesfor professional services which principally include services in connection withinternal control matters and due diligence procedures related to acquisitiontargets.

(c)             Feesfor professional services for tax related advice and compliance.

**Pre-Approval Policy**

The Audit Committee’spolicy is to pre-approve all audit and permissible non-audit services providedby the independent auditor.  Theseservices may include audit services, audit-related services, tax services andother services.  Pre-approval isgenerally provided for up to one year and any pre-approval is detailed as tothe particular service or category of services and is generally subject to aspecific 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 Committeemay also pre-approve particular services on a case-by-case basis.  The aggregate amount of all such pre-approvedservices constitutes 100% of the total amount of fees paid by us to E&Y.

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**PART IV**

**ITEM 15.**                      EXHIBITS ANDFINANCIAL STATEMENT SCHEDULES

(a)(1) Financial Statements

The financial statementsfiled as part of this Form 10-K are described in the Index to ConsolidatedFinancial Statements in Item 8 above.

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

Schedule I—Condensed Financial Information

Schedule II—Valuation and Qualifying Accounts and Reserves

(a)(3) Exhibits

See attachedExhibit Index.

102

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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 23, 2007 |   |   | Its:                           | President, Chief Executive Officer and Director |

 

Pursuant to therequirements of the Securities Exchange Act of 1934, this report has beensigned below by the following persons on behalf of the Registrant in thecapacities indicated on March 23, 2007.
| 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.     |       | Secretary and Director                             |
|                     |       | (Principal Financial and Accounting Officer)       |
|                     |       |                                               |
|                     |       |                                               |
| /s/ Brian Kwait          |       | Director                                           |
| Brian Kwait              |       |                                               |
|                     |       |                                               |
|                     |       |                                               |
| /s/ Craig P.  Staub      |       | Director                                           |
| Craig P. Staub           |       |                                               |
|                     |       |                                               |
|                     |       |                                               |
| /s/ Matthew A.  Satnick  |       | Director                                           |
| Matthew A.  Satnick      |       |                                               |

 

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**EXHIBIT INDEX**
|   | Exhibit No. | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         | **Description** |
|--------|-------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------|
|   |        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |            |
| 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    |        | Amended and  Restated Bylaws of Safety Products Holdings, Inc.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   |        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 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).

                                                                                                                                                                                                                                                                                |
|        |             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                 |  |  |

 

104

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| 10.5   |   | Incremental  Facility Amendment dated as of June 9, 2006 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.

                                                                                                                  |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.6   |   | 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)).                      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.7   |   | Managing  Director Employment Agreement, dated May 29, 2006 and effective July 1, 2005,  by and between Kächele-Cama Latex GmbH and Volker H. Laitsch (incorporated  herein by reference to Exhibit 10.1 to our Quarterly Report on Form 10-Q  for the fiscal quarter ended July 1, 2006).                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.8   |   | 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).                                                      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.9   |   | 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).                                                |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.10  |   | 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).                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.11  |   | 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).                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.12  |   | 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)).                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.13  |   | 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)). |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.14  |   | 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)).                                                                                                                    |

 

105

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|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.15  |   | 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).                                                                                                                                                                                                                                                                                                                                                                                 |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.16  |   | 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)).                                                                                                                                                                                                                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.17  |   | 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)).                                                                                                                                                                                                                                                                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.18  |   | 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)).                                                                                                                                                                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.19  |   | 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).                                                                                                                                                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.20  |   | 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).                                                                                                                                                                 |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.21  |   | 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)).                                                                                                                                                                                                                                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.22  |   | 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)).                                                                                                                                                                                                                                                                                |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.23  |   | 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).                                                                                                                                                                                                                                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.24  |   | 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).                                                                                                                                                                                                                                                            |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.25  |   | 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). |

 

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|   |   |                                                                                                                                                                                                                                                               |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.26  |   | Amendment No. 1  to the 2005 Option Plan of Safety Products Holdings, Inc. (incorporated  herein by reference to Exhibit 10.2 to our Quarterly Report on Form 10-Q for  the fiscal quarter ended September 30, 2006).                                              |
|   |   |                                                                                                                                                                                                                                                               |
| 10.27  |   | Form of Non-Qualified  Option Agreement of Safety Products Holdings, Inc.                                                                                                                                                                                          |
|   |   |                                                                                                                                                                                                                                                               |
| 10.28  |   | Employment  Letter Agreement by and between William Hayes and Norcross Safety Products  L.L.C., dated September 8, 2006 (incorporated herein by reference to Exhibit  10.1 to our Quarterly Report on Form 10-Q for the fiscal quarter ended  September 30, 2006). |
|   |   |                                                                                                                                                                                                                                                               |
| 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 of  the Chief Executive Officer pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002.                                                                                                                                                     |
|   |   |                                                                                                                                                                                                                                                               |
| 32.2   |   | Certification of  the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act  of 2002.                                                                                                                                                          |

 

 

 

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